As filed with the Securities and Exchange Commission on January 9, 1998
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------
FORM S-2
REGISTRATION STATEMENT
Under
The Securities Act of 1933
-----------------------------
BOSTON RESTAURANT ASSOCIATES, INC.
----------------------------------
(Exact Name Of Registrant As Specified In Its Charter)
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<S> <C> <C>
Delaware 5812 61-1162263
- ------------------------------- ---------------------------- ------------------
(State or Other Jurisdiction Of (Primary Standard Industrial (I.R.S. Employer
Incorporation Or Organization) Classification Code Number) Identification Number)
</TABLE>
999 Broadway, Suite 400
Saugus, MA 01906
(781) 231-7575
----------------------------------------
(Address, Including Zip Code, And Telephone Number, Including
Area Code, Of Registrant's Principal Executive Offices)
George R. Chapdelaine
President and Chief Executive Officer
999 Broadway, Suite 400
Saugus, MA 01906
(781) 231-7575
----------------------------------------
(Name, Address, Including Zip Code, And Telephone Number,
Including Area Code, Of Agent For Service)
With Copies to:
David H. Murphree, Esq.
Brown, Rudnick, Freed & Gesmer
One Financial Center
Boston, Massachusetts 02111
Tel: (617) 856-8200
----------------------------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
==========================================================================================================================
Proposed Proposed
Amount Maximum Maximum Amount of
Title of Each Class of to be Offering Price Aggregate Registration
Securities to be Registered Registered Per Share(1) Offering Price Fee(1)
==========================================================================================================================
<S> <C> <C> <C> <C>
Rights 2,006,277 -- -- None
- --------------------------------------------------------------------------------------------------------------------------
Common Stock, $.01 par value 2,006,277 $1.00 $2,006,277 $591.85
- --------------------------------------------------------------------------------------------------------------------------
TOTAL 2,006,277 $1.00 $2,006,277 $591.85
==========================================================================================================================
</TABLE>
(1) Calculated pursuant to Rule 457(e) under the Securities Act of 1933.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any jurisdiction in which such offer, solicitation or sale would be unlawful
prior to registration or qualification under the securities laws of any such
jurisdiction.
PROSPECTUS (Subject to Completion)
Dated January 9, 1998
2,006,277 Shares
BOSTON RESTAURANT ASSOCIATES, INC.
Common Stock
Boston Restaurant Associates, Inc., a Delaware corporation ("BRAI" or
the "Company"), is distributing to the holders of record of the Company's
outstanding Common Stock, par value $.01 per share ("Common Stock"), at the
close of business on January __, 1998 (the "Record Date") non-transferable
subscription rights (the "Rights") to subscribe for and purchase an aggregate of
up to 2,006,277 additional shares of its Common Stock (the "Shares") at a
subscription price of $1.00 per share (the "Subscription Price").
Each holder of record of Common Stock on the Record Date will receive
.4 Rights for each share of Common Stock held (or one Right for every 2.5 shares
of Common Stock). The Rights will be evidenced by non-transferable certificates
and will expire at 5:00 p.m., Eastern Standard Time, on February __, 1998. No
fractional Rights will be distributed, or cash in lieu paid, by BRAI. The number
of Rights distributed by BRAI to each record holder will be rounded down to the
nearest whole number.
Each of the Shares purchasable upon exercise of the Rights is identical
to the shares of the Common Stock of BRAI currently trading on the Nasdaq
SmallCap Market under the symbol "BRAI". On January 8, 1998, the closing price
per share of the Common Stock as reported on the NASDAQ SmallCap Market was
$1.625.
To the extent that Rights are not exercised, the Company will offer any
remaining Shares first to certain employees and second to stockholders who have
indicated a desire to exercise the Oversubscription Privilege. See "The Offering
- - Employee Subscription Privilege" and "- Oversubscripton Privilege." On the
effective date, each of the directors of the Company will execute a commitment
to exercise his or her basic subscription right and certain directors will
obligate themselves to purchase up to 470,000 Shares remaining unpurchased after
the employees and oversubscribing stockholders have purchased. See "The Offering
- - Directors' Commitment." The offering of the Shares both to existing
stockholders through the issuance of the Rights and to employees is referred to
herein as the "Offering."
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
Price to Public Underwriting Discounts Proceeds to BRAI(1)
and Commissions
Per Share $1.00 $0 $1.00
Total $2,006,277 $0 $2,006,277
- --------------------------------------------------------------------------------
(1) Before deducting estimated expenses of $200,000 payable by the Company.
The date of this Prospectus is January __, 1998
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Exchange Act and in accordance therewith files reports, proxy statements and
other information with the Commission. Such reports, proxy statements and other
information filed by the Company may be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Room 1024, Judiciary Plaza, Washington, D.C. 20549, and at the Commission's
regional offices at CitiCorp Center, 500 West Madison, Suite 1400, Chicago,
Illinois 60661 and Seven World Trade Center, Suite 1300, New York, New York
10048. Copies of such material can be obtained from the Public Reference Section
of the Commission, 450 Fifth Street, N.W., Room 1024, Judiciary Plaza,
Washington, D.C. 20549, at prescribed rates. Such reports, proxy statements and
other information filed by the Company can be inspected at the offices of the
Boston Stock Exchange, Inc., One Boston Place, Boston, Massachusetts 02100 and
at the offices of the Nasdaq Stock Market, 1735 K Street, N.W., Washington, D.C.
20006. The Commission also maintains a Web site that contains reports, proxy and
information statements and other information regarding issuers such as the
Company that file electronically with the Commission. The address of the
Commission's Web site is http://www.sec.gov.
The Company has filed with the Commission a Registration Statement on
Form S-2 (together with all amendments, exhibits, schedules and supplements
thereto, the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the securities offered hereby.
This Prospectus, which forms a part of the Registration Statement, does not
contain all the information set forth in the Registration Statement, certain
parts of which have been omitted in accordance with the rules and regulations of
the Commission. For further information with respect to the Company and the
securities offered hereby, reference is made to the Registration Statement and
to the schedules and exhibits filed therewith. Statements contained in this
Prospectus as to the contents of certain documents are not necessarily complete,
and, in each instance, reference is made to the copy of the document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference. Copies of the Registration Statement, including
the exhibits thereto, may be inspected without charge at the Commission's
offices described above, and copies of all or any part thereof may be obtained
from the Commission upon payment of certain fees prescribed by the Commission.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents previously filed with the Securities and
Exchange Commission (the "Commission") are hereby incorporated by reference into
this Prospectus:
(i) the Company's Annual Report on Form 10-KSB for the year ended
April 27, 1997;
(ii) the Company's Quarterly Report on Form 10-QSB for the quarter
ended October 26, 1997; and
(iii) the Company's Proxy Statement dated August 8, 1997;
as filed under the Securities Exchange Act of 1934, as amended (the "Exchange
Act").
Any statement contained in a document incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Prospectus and
the Registration Statement of which it is a part to the extent that a statement
contained herein modifies or replaces such statement. Any statement so modified
or superseded shall not be deemed, in its unmodified form, to constitute a part
of this Prospectus.
2
<PAGE>
================================================================================
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial data (including the financial statements and the notes
thereto) appearing elsewhere in or incorporated by reference into this
Prospectus.
The Company
The Company owns and operates a chain of eight pizzerias under the name
Pizzeria Regina(R), six in Massachusetts, one in New Jersey and one in Virginia.
Founded in 1926, the original Pizzeria Regina has served its signature
Neapolitan style, thin crust pizza, prepared in gas-fired brick ovens, for more
than 70 years. The Company believes that the Pizzeria Regina pizza and brand
name are local symbols of superior and distinctive pizza.
During the next 36 months, the Company plans to open at least 10
additional Pizzeria Regina food court kiosks in high volume suburban retail
malls, including both Company owned and franchised pizzerias. The Company
believes that mall owners are changing their strategies and retrofitting malls
to emphasize food courts that feature premium quality, fast service menu items.
As a result, the Company believes that food court kiosks in these malls
represent an attractive vehicle for increasing distribution of its premium brick
oven pizza. The Company recently entered into two leases for new food court
sites. In addition, the Company is actively seeking franchisees and has filed a
Uniform Franchise Offering Circular in certain states.
The Company's executive offices are located at 999 Broadway, Saugus, MA
01906, telephone: (781) 231-7575.
The Offering
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<S> <C>
The Rights Offering BRAI is distributing to holders of record of Common Stock at the close of business on
January __, 1998 (the "Record Date") non-transferable subscription rights (the "Rights") to
subscribe for and purchase additional shares of BRAI. Each holder of BRAI Common Stock will
receive .4 non-transferable Rights for each share of BRAI Common Stock held of record on the
Record Date, rounded down to the nearest whole Right (the "Rights Offering"). Up to an
aggregate maximum of 2,006,277 Rights will be distributed pursuant to the Rights Offering.
Each Right will be exercisable for one share of BRAI Common Stock. An aggregate of
2,006,277 shares of BRAI Common Stock has been reserved for issuance upon exercise of the
Rights.
Record Date January __, 1998.
Expiration Date The Rights will expire at 5:00 p.m. EST on February __, 1998, or on such later date as the
Company may determine, up to March __, 1998.
Basic Subscription
Privilege Rights holders are entitled to purchase one share of BRAI Common Stock for each Right held
(the "Basic Subscription Privilege"). See "The Offering - Basic Subscription Privilege."
3
<PAGE>
Oversubscription
Privilege Each holder of Rights who elects to exercise his Basic Subscription Privilege may also
subscribe for any number of additional Shares not subscribed for through the Basic
Subscription Privilege and the Employee Subscription Privilege described below ("Excess
Shares"). If the Excess Shares are not sufficient to satisfy all subscriptions pursuant to
the Oversubscription Privilege, the Excess Shares will be prorated among those exercising
the Oversubscription Privilege in proportion to the number of shares each has purchased
pursuant to the Basic Subscription Privilege and the Employee Subscription Privilege. See
"The Offering - Oversubscription Privilege."
Employee Subscription
Privilege Persons who were non-director employees of the Company both on January 1, 1997 and on the Record Date
shall be offered the first opportunity to purchase Shares not purchased through the exercise of the Basic
Subscription Privilege, up to an aggregate of 100,000 shares (the "Employee Subscription Privilege"). See
"The Offering - Employee Subscription Privilege."
Directors' Commitment On the effective date, each of the members of the Board of Directors of the Company will execute a
commitment to exercise the Rights issued to him or her; in addition, certain of the Directors will
execute a commitment to purchase an aggregate of 470,000 shares by exercise of the Oversubscription
Privilege (the "Directors' Commitment"). See "The Offering - Directors' Commitment."
Subscription Price The purchase price for all Shares purchased, whether pursuant to the Basic Subscription Privilege, the
Oversubscription Privilege, the Employee Subscription Privilege or the Directors' Commitment, will be
$1.00 in cash per share (the "Subscription Price").
Common Stock Outstand-
ing After Offering 7,021,970 shares, exclusive of shares issuable upon exercise of stock warrants, stock options or
conversion of convertible securities outstanding as of the Record Date.
Transferability
of Rights The Rights are not transferable, except by operation of law in the event of death or
dissolution of the Record Date holder.
Procedure for Exercise Basic Subscription Privileges and Oversubscription Privileges may be exercised by properly
completing a Subscription Certificate evidencing the Rights (a "Subscription Certificate")
and forwarding the Subscription Certificate, together with payment of the Subscription Price
for each Share subscribed for pursuant to the Basic Subscription Privilege and
Oversubscription Privilege, to the Subscription Agent on or prior to the Expiration Date.
If the mail is used to forward Subscription Certificates, it is recommended that insured,
registered mail be used. Alternatively, the Guaranteed Delivery Procedures as described in
"The Offering - Exercise of Rights" may be used. Once a holder of Rights has exercised the
Basic Subscription Privilege or the Oversubscription Privilege, that exercise may not be
revoked. See "The Offering - No Revocation."
Procedure for Foreign
Stockholders Subscription Certificates will not be mailed to holders of BRAI Common Stock whose addresses
are outside the United States or who have an APO or FPO address, but will be held by the
Subscription Agent for their account. To
4
<PAGE>
exercise the Rights represented thereby, such holders must notify the Subscription Agent by completing an
International Holder Subscription Form, which will be delivered to such holders in lieu of a Subscription
Certificate, and sending it by mail or telecopy to the Subscription Agent. See "The Offering - Foreign
and Certain Other Stockholders."
Persons Holding
Through Others Persons holding BRAI Common Stock and receiving the Rights distributable with respect
thereto through a broker, dealer, commercial bank, trust company or other nominee, as well
as persons holding stock certificates personally who would prefer to have such institutions
effect transactions relating to the Rights on their behalf, should contact the appropriate
institution or nominee and request it to effect the transactions for them. See "The
Offering - Exercise of Rights."
Issuance of Certificates Certificates representing BRAI Common Stock purchased pursuant to the Offering will be delivered to
subscribers as soon as practicable after the eighth business day following the Expiration Date.
Use of Proceeds Repayment of indebtedness, general corporate purposes and opening of additional locations.
See "Use of Proceeds."
Subscription Agent American Stock Transfer and Trust Company.
========================================================================================================================
</TABLE>
5
<PAGE>
RISK FACTORS
An investment in the shares being offered hereby involves a high degree
of risk. Accordingly, prospective investors should consider carefully the
following risk factors, in addition to the other information in this Prospectus,
in evaluating an investment in the shares offered hereby.
Risk of Expansion
The Company intends to open additional Pizzeria Regina food court or
in-line restaurants. During the next 36 months the Company plans to open at
least 10 additional food court kiosks in high volume retail malls, including
both Company owned and franchised pizzerias. The Company's ability to open
additional Company restaurants and acquire franchises will depend upon a number
of factors such as identifying satisfactory sites, negotiating satisfactory
leases, securing requisite governmental permits and approvals, adequate
supervision of construction, and recruiting and training management personnel,
some of which are beyond the control of the Company. There can be no assurance
that the Company will be able to open any of its planned new restaurants within
budget or on a timely basis, if at all, or that any of the new restaurants will
operate profitably. The Company has recently opened two restaurants outside New
England. The Company has no prior experience in managing geographically
dispersed locations and there is no assurance that it will be able to do so. See
"Use of Proceeds" and "Management's Discussion and Analysis of Financial
Condition and Results of Operation" in the Company's Form 10-KSB.
Possible Need of Additional Funding
The Company believes that its anticipated cash flow from operations,
together with the proceeds of this Offering, if it is fully subscribed, will be
sufficient to fund its working capital needs and expansion plans for at least
the 12 months following the date of this Prospectus. However, there can be no
assurance that this will be the case, and changes in the Company's business or
its business plan could affect its capital requirements. If the Offering is not
fully subscribed, it could adversely affect the Company's expansion plans.
Moreover, there can be no assurance that the Company will have sufficient
revenues after the end of that 12 month period to continue to fund its expansion
plans and other operating requirements. In the event the Company requires
additional financing, there can be no assurance that the Company would be able
to obtain financing on favorable terms, if at all, and in the event that the
Company requires additional financing, failure to do so could have a material
adverse effect on the Company's business. See "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources" in the Company's Form 10-KSB.
Risks of Restaurant Industry
The Company's future performance will be subject to a number of factors
that affect the restaurant industry generally, including (i) the highly
competitive nature of the restaurant industry, (ii) general and local economic
conditions, (iii) changes in tastes and eating and drinking habits, (iv) changes
in tax laws that affect the deductibility of business related meals, (v) changes
in food costs due to shortages, inflation or other causes, (vi) population and
traffic patterns, (vii) demographic trends, (viii) general employment and wage
and benefit levels in the restaurant industry, which may be affected by changes
in federal and local minimum wage requirements or by federally or locally
mandated health insurance, and (ix) the number of people willing to work at or
near the minimum wage. See "Business - Competition" in the Company's Form
10-KSB.
Franchising
Franchising operations present numerous risks, and the Company faces
vigorous competition from other similar type restaurant chains in attracting and
retaining suitable franchisees. The Company is subject to regulation by the
Federal Trade Commission and must comply with certain state laws that govern
6
<PAGE>
the offering, sale, and termination of franchises and the refusal to renew
franchises. The Company has limited experience in franchising restaurants.
Franchisees' failure to maintain the Company's high standards could adversely
affect customer attitudes towards the Company's restaurants. Granting exclusive
territory agreements may also limit future expansion opportunities for
Company-owned restaurants. Franchise developers or franchisees may leave the
franchise system at the end of the term of their development or franchise
agreements or may attempt to terminate their agreements before the end of their
terms. While the Company's agreements contain noncompetition and confidentiality
covenants, such covenants may not prevent the loss of royalty revenues. Further,
while franchising permits the Company to increase the geographic coverage of its
restaurant system without substantial investments of capital, it also presents
certain other risks that result from the Company not having direct operational
control over the Company's franchised restaurants. See "Business - Franchising."
Competition
The restaurant business in highly competitive. Price, restaurant
location, food quality, service and attractiveness of facilities are important
aspects of competition, and the competitive environment is often affected by
factors beyond the Company's or a particular restaurant's control, including
changes in the public's tastes and eating and drinking habits, population and
traffic patterns and local economic conditions. The Company's restaurants
compete with a wide variety of restaurants ranging from national and regional
restaurant chains (some of which have substantially greater financial resources
than the Company) to locally-owned restaurants. There is also active competition
for liquor licenses in certain markets and for advantageous commercial real
estate sites suitable for restaurants. The Pizzeria Regina restaurants compete
with other fast-service, high volume food providers on the basis of price,
value, relationship, location, and speed of service. The Polcari's North End
restaurant competes with other casual, full service restaurants primarily on the
basis of menu selection, quality, price, service, ambiance and location. See
"Business - Competition" in the Company's Form 10-KSB.
Dependence on Key Executive Officers
The future success of the Company will depend in large part on the
continued services of its President, George R. Chapdelaine, as well as on the
Company's ability to attract and retain other qualified senior management
personnel. The Company has retained the services of Mr. Chapdelaine through
April 1999 pursuant to an employment agreement. The Company also has and intends
to maintain key man life insurance in the amount of $2,000,000 on the life of
Mr. Chapdelaine. See "Management" in the Company's Form 10-KSB.
Possibility of Nasdaq Delisting
The Company's Common Stock currently is quoted on the Nasdaq SmallCap
Market. The continued quotation of the Company's Common Stock will be
conditioned upon the Company continuing to meet certain asset, capitalization or
income tests and stock price tests established by The Nasdaq Stock Market, Inc.
("Nasdaq"). To maintain eligibility for continued quotation on the Nasdaq
SmallCap Market, the Company would be required to maintain a bid price of at
least $1.00 per share plus (i) net tangible assets in excess of $2.0 million, or
(ii) a market capitalization of at least $35.0 million or (iii) annual net
income of $500,000. Although prior to this Offering the Company does not meet
the net tangible assets test, which will become effective on February 23, 1998,
upon completion of the Offering, the Company believes that it will meet that and
the other tests set forth by Nasdaq. If the Company fails any of the applicable
tests, the Common Stock may be delisted from quotation on such system. The
effects of delisting include the limited release of the market prices of the
Company's securities and limited news coverage of the Company. Delisting may
restrict investors' interest in the Common Stock and materially and adversely
affect the trading market and prices for the Common Stock and the Company's
ability to issue additional securities or to secure additional financing.
7
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Geographic Concentration
A total of seven of the Company's nine existing restaurants are located
in Eastern Massachusetts, and one of the next two of the Company's restaurants
is scheduled to open in Eastern Massachusetts. As a result, the Company's
results of operations may be materially affected by changes in the Massachusetts
economy. See "Business - General" and "- Expansion and Development Strategy."
Government Regulation
Each of the Company's restaurants is subject to state and local laws
and regulations governing health, sanitation and safety and the sale of
alcoholic beverages. The selection of new restaurant sites is affected by
federal, state and local laws and regulations regarding environmental matters,
zoning and land use and the sale of alcoholic beverages. Varied requirements
(particularly at the local level) may result in increases in the cost and time
required for opening new restaurants, as well as increases in the cost of
operating restaurants. Difficulties in obtaining necessary licenses or permits
could cause delays in or cancellations of new restaurant openings. The failure
to receive or retain, or a delay in obtaining, a food or liquor license in a
particular location could adversely affect or cause the Company to terminate its
operations at that location and could adversely affect the Company's business.
See "Business - Government Regulation" in the Company's Form 10-KSB.
Dram Shop Liability
The Company is subject to "dram shop" statutes, which generally provide
that an individual injured by an intoxicated person has the right to recover
damages from an establishment that wrongfully served alcoholic beverages to the
intoxicated person. The Company currently maintains dram shop insurance. There
can be no assurance that dram shop insurance will continue to be available to
the Company at commercially reasonable prices, if at all, or that such
insurance, if maintained, will be sufficient to cover any claims against the
Company for dram shop liability for which it may be held liable. See "Business -
Government Regulation" in the Company's Form 10-KSB.
Control by Management
Prior to this offering, the Company's executive officers, directors and
their affiliates and members of their immediate families control the vote of
approximately 38.5% of the outstanding shares of the Common Stock, of which
25.2% are held jointly by George R. Chapdelaine and John P. Polcari, Jr. as the
Voting Trustees under an Amended and Restated Voting Trust Agreement dated April
28, 1994 (the "Voting Trust Agreement"). Those stockholders are able to control
or exert substantial influence over actions requiring stockholder approval,
including elections of the Company's directors, amendments to the Certificate of
Incorporation, mergers, sales of assets or other business acquisitions or
dispositions. The Voting Trust will remain in existence until April 29, 2004
unless earlier terminated by all of the beneficiaries of the Voting Trust. See
"Security Ownership of Certain Beneficial Owners and Management" in the
Company's August 7, 1997 Proxy Statement.
Volatility of Stock Price
The Company's Common Stock is traded on the Nasdaq SmallCap Market and,
compared to many other publicly traded companies, the Company is relatively
small and has a relatively small average trading volume. Quarterly operating
results of the Company or other restaurant companies, changes in general
conditions in the economy, the restaurant industry, or the financial markets, or
other developments affecting the Company, its competitors or the financial
markets, could cause the market price of the Common Stock to fluctuate
significantly. In addition, the stock market has recently experienced extreme
price and volume fluctuations. These broad market fluctuations may adversely
affect the market price of the Common Stock. See "Price Range of Common Stock."
8
<PAGE>
Immediate Substantial Dilution
Based upon the net tangible book value of the Company as of October 26,
1997, purchasers of the shares offered hereby will experience immediate
substantial dilution of approximately 70% per share of Common Stock. See
"Dilution."
"Safe Harbor" Statement Under the Private Securities Litigation Reform Act of
1995
Forward-looking statements in this Prospectus, including without
limitation statements relating to the adequacy of the Company's resources,
expansion plans and franchising opportunities, are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995.
Investors are cautioned that such forward-looking statements involve risks and
uncertainties, including without limitation: potential quarterly fluctuations in
the Company's operating results; seasonality of sales; competition; risks
associated with expansion; the Company's reliance on key risks associated with
expansion; the Company's reliance on key employees; risks generally associated
with geographic concentration of the industry; risks associated with geographic
concentration of the Company's restaurants; risks associated with serving
alcoholic beverages; and other risks and uncertainties indicated from
time-to-time in the Company's filings with the Securities and Exchange
Commission.
9
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USE OF PROCEEDS
Assuming all Shares are sold, the net proceeds to be received by the
Company from the Offering are estimated to be approximately $1,800,000, after
deducting estimated offering expenses payable by the Company. The Company
intends to use the net proceeds of the Offering as follows, in descending order
of priority:
Working capital and other general corporate purposes...... $100,000
Repayment of certain indebtedness (1)..................... 500,000
Opening of additional Pizzeria Regina locations........... 1,200,000
----------
Total..................................................... $1,800,000
==========
- --------
(1) Convertible debentures bearing interest at variable rates of 10% through
December 31, 1998, 12% through December 31, 1999, and 14% through December
31, 2011, payable semi-annually and convertible into the Company's Common
Stock at a conversion rate of $1.25 per share. The debentures are due
December 31, 2011. Proceeds of the debt have been used for the expansion of
the Pizzeria Regina concept.
DILUTION
The net tangible book value of the Company as of October 26, 1997 is
approximately $334,000, or $.07 per share. The net tangible book value per share
is equal to the Company's total tangible assets less total liabilities, divided
by the total number of shares of Common Stock outstanding. After giving effect
to the Offering, and assuming the application of the estimated net proceeds of
$1,800,000 if all shares are sold, the net tangible book value of the Company as
of October 26, 1997 would be approximately $2,134,000, or $.30 per share. This
represents an immediate increase in net tangible book value of $.23 per share
and an immediate dilution of $.70 to persons purchasing Shares in this Offering.
The following tables illustrates this transaction:
<TABLE>
<S> <C> <C>
Subscription Price per share $1.00
Net tangible book value per share as of October 26, 1997, before Offering $.07
Increase per share attributable to payments by persons purchasing in Offering $.23
Net tangible book value per share as of October 26, 1997, after Offering $.30
----
Dilution per share, after Offering $.70
====
</TABLE>
The following table summarizes the number of shares of Common Stock
purchased from the Company, the total consideration paid by existing
shareholders and their predecessors and the total consideration to be paid by
purchasers in this Offering:
<TABLE>
<CAPTION>
Shares Purchased
Number Percent Dollar Percentage
---------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Existing shares of BRAI Common Stock 5,015,693 71.4% $9,112,215 83.5%
New stock issue from Offering 2,006,277 28.6% $1,800,000 16.5%
--------- ----- ---------- -----
Total 7,021,970 100.0% $10,912,215 100.0%
========= ====== =========== ======
</TABLE>
10
<PAGE>
THE OFFERING
The Rights Offering
The Company is distributing non-transferable Rights to each holder of
record of outstanding Common Stock on the Record Date. Stockholders will receive
.40 Rights for each share of Common Stock held by them of record on the Record
Date, rounded down to the nearest whole number. Each Right will entitle the
holder to purchase one share of Boston Restaurant Associates, Inc. Common Stock
at the Subscription Price of $1.00 per share. No fractional Rights or cash in
lieu thereof will be issued or paid by the Company.
Expiration Date
The Rights will expire at 5:00 P.M. Eastern Standard Time or February
__, 1998 unless the rights exercise period is extended by the Company for up to
10 additional days (as extended, the "Expiration Date"). After the Expiration
Date, unexercised Rights will be null and void. The Company will not be obliged
to honor any purported exercise of Rights received by the Subscription Agent
after the Expiration Date, regardless of when the documents relating to such
exercise were sent, except pursuant to the Guaranteed Delivery Procedures
described below. Stockholders will be sent notice of any extension of the
Expiration Date not later than four business days before the Expiration Date,
and announcement of any extension will be made through a press release, a copy
of which will be filed with the Securities and Exchange Commission under cover
of Form 8-K.
Basic Subscription Privilege
Each Right will entitle the holder thereof to receive, upon payment of
the Subscription Price, one share of Boston Restaurant Associates, Inc. Common
Stock (the "Basic Subscription Privilege"). Certificates representing shares of
Common Stock purchased pursuant to the Basic Subscription Privilege will be
delivered to subscribers as soon as practicable after the eighth business day
following the Expiration Date.
Oversubscription Privilege
Subject to the allocation described below, each Right also carries the
right to subscribe for any number of the Excess Shares not subscribed for
through the Basic Subscription Privilege and the Employee Subscription Privilege
(the "Oversubscription Privilege"). If the Excess Shares are not sufficient to
satisfy all subscription requests pursuant to the Oversubscription Privilege,
the Excess Shares will be allocated pro rata (subject to the elimination of
fractional shares) among those holders of Rights exercising the Oversubscription
Privilege in proportion to the number of shares each beneficial holder
exercising the Oversubscription Privilege has purchased pursuant to the Basic
Subscription Privilege and the Employee Subscription Privilege; provided,
however, that if that allocation results in any Rights holder being allocated a
greater number of Excess Shares than such holder subscribed for pursuant to the
exercise of the Oversubscription Privilege, then that holder will be allocated
only such number of Excess Shares as he or she subscribed for, and the remaining
Excess Shares will be allocated among all other holders exercising the
Oversubscription Privilege. Only holders who exercise the Basic Subscription
Privilege will be entitled to exercise the Oversubscripton Privilege.
Certificates representing shares of Common Stock purchased pursuant to
the Oversubscription Privilege will be delivered to subscribers as soon as
practicable after the eighth business day following the Expiration Date and
after all prorations have been effected.
11
<PAGE>
Exercise of Rights
Rights may be exercised by delivering to American Stock Transfer and
Trust Company (the "Subscription Agent"), on or prior to 5:00 p.m., Eastern
Standard Time, on the Expiration Date, a properly completed and executed
Subscription Certificate evidencing such Rights, with any required signatures
guaranteed, together with payment in full of the Subscription Price for each
Share subscribed for pursuant to the Basic Subscription Privilege and the
Oversubscription Privilege.
Any bank, broker and other nominee holder of Rights who exercises the
Basic Subscription Privilege and the Oversubscription Privilege on behalf of a
beneficial owner of Rights will be required to certify to the Subscription Agent
and the Company, in connection with the exercise of the Oversubscription
Privilege, as to the aggregate number of Rights that have been exercised and the
number of Shares that are being subscribed for pursuant to the Oversubscription
Privilege by each beneficial owner of Rights on whose behalf that nominee holder
is acting.
The address to which the Subscription Certificates and payment of the
Subscription Price should be delivered is:
American Stock Transfer and Trust Company
40 Wall Street
New York, New York 10005
Normal Procedure. Payment must be made in full by either (a) a check or
bank draft drawn upon a U.S. bank or postal, telegraphic or express money order
payable to American Stock Transfer and Trust Company, as Subscription Agent, or
(b) a wire transfer of funds to the account maintained by the Subscription Agent
for such purpose at Chase Manhattan Bank, NA, 55 Water Street, New York, New
York 10005, Account No. 610-093045. Any wire transfer of funds should clearly
indicate the identity of the subscriber who is paying the Subscription Price by
the wire transfer. The Subscription Price will be deemed to have been received
by the Subscription Agent only upon (i) clearance of any uncertified check, (ii)
receipt by the Subscription Agent of any certified check or bank draft drawn
upon a U. S. bank or of any postal, telegraphic or express money order, or (iii)
receipt of good funds in the Subscription Agent's account designated above. If
paying by certified personal check, please note that the funds paid in that way
may take up to five business days to clear. Accordingly, holders of Rights who
wish to pay the Subscription Price by means of uncertified personal check are
urged to make payment sufficiently in advance to ensure that such payment is
received and clears by the Expiration Date and are urged to consider payment by
means of certified or cashier's check, money order or wire transfer of funds.
Guaranteed Delivery Procedures. If a Rights holder wishes to exercise
his or her Rights, but time will not permit the Subscription Certificate to
reach the Subscription Agent on or prior to the Expiration Date, such Rights may
nevertheless be exercised if all of the following conditions (the "Guaranteed
Delivery Procedures") are met: (1) the holder has caused payment in full of the
Subscription Price for each Share being subscribed for pursuant to the Basic
Subscription Privilege and the Oversubscription Privilege to be received (in the
manner set forth above) by the Subscription Agent on or prior to the Expiration
Date; (2) the Subscription Agent receives, on or prior to the Expiration Date, a
guarantee notice (a "Notice of Guaranteed Delivery"), substantially in the form
of Exhibit D to this Prospectus, from a member firm of a registered national
securities exchange or a member of the National Association of Securities
Dealers, Inc. (the "NASD"), or from a commercial bank or trust company having an
office or correspondent in the United States (each, an "Eligible Institution"),
stating the name of the exercising Rights holder, the number of Rights
represented by the Subscription Certificate or Certificates held by such
exercising Rights holder, the number of Shares being subscribed for pursuant to
the Basic Subscription Privilege and the number of Shares, if any, being
subscribed for pursuant to the Employee Subscription Privilege or the
Oversubscription Privilege, and guaranteeing the delivery to the Subscription
Agent of any Subscription Certificate evidencing such Rights within three New
York Stock Exchange ("NYSE") trading days following the date of the Notice of
Guaranteed Delivery; and (3) the properly completed Subscription
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<PAGE>
Certificate evidencing the Rights being exercised, with any required signatures
guaranteed, is in fact received by the Subscription Agent within three NYSE
trading days following the date of the Notice of Guaranteed Delivery relating
thereto. The Notice of Guaranteed Delivery may be delivered to the Subscription
Agent in the same manner as Subscription Certificates at the address set forth
above, or may be transmitted to the Subscription Agent by telegram or facsimile
transmission (telecopy no. 718-234-500). Additional copies of the form of Notice
of Guaranteed Delivery are available upon request from the Subscription Agent at
the address set forth above.
Company Determinations Final. All questions concerning the timeliness,
validity, form and eligibility of any exercise of Rights will be determined by
the Company, whose determinations will be final and binding. The Company in its
sole discretion may waive any defect or irregularity, or permit a defect or
irregularity to be corrected within such time as it may determine, or reject the
purported exercise of any right. Subscriptions will not be deemed to have been
received or accepted until all irregularities have been waived or cured within
such time as the Company determines in its sole discretion. Neither the Company
nor the Subscription Agent will be under any duty to give notification of any
defect or irregularity in connection with the submission of Subscription
Certificates or incur any liability for failure to give such notification.
Any questions or requests for assistance concerning the method of
exercising Rights or requests for additional copies of this Prospectus or the
Notice of Guaranteed Delivery should be directed to the Subscription Agent.
Miscellaneous. Funds received in payment of the Subscription Price for
Shares subscribed for will be held in a segregated account pending completion of
the offering. If a Rights holder exercising the Oversubscription Privilege is
allocated less than the number of shares of Common Stock for which the holder
wished to subscribe pursuant to the Oversubscription Privilege, the excess funds
paid by the holder will be returned without interest or deduction as soon as
practicable after the Expiration Date.
Unless a Subscription Certificate (i) provides that the shares of
Common Stock to be issued pursuant to the exercise of Rights represented thereby
are to be delivered to the record holder of such Rights, or (ii) is submitted
for the account of an Eligible Institution, the signature on a Subscription
Certificate must be guaranteed by an Eligible Institution.
The instructions on the Subscription Certificates should be read
carefully and followed in detail. DO NOT SEND SUBSCRIPTION CERTIFICATES TO THE
COMPANY.
THE METHOD OF DELIVERY OF SUBSCRIPTION CERTIFICATES AND PAYMENT OF THE
SUBSCRIPTION PRICE TO THE SUBSCRIPTION AGENT WILL BE AT THE RISK OF THE RIGHTS
HOLDERS, BUT IF SENT BY MAIL, IT IS RECOMMENDED THAT SUCH CERTIFICATES AND
PAYMENTS BE SENT BY REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT
REQUESTED, AND THAT A SUFFICIENT NUMBER OF DAYS BE ALLOWED TO ENSURE DELIVERY TO
THE SUBSCRIPTION AGENT AND CLEARANCE OF PAYMENT PRIOR TO 5:00 P.M., EASTERN
STANDARD TIME, ON THE EXPIRATION DATE. BECAUSE UNCERTIFIED PERSONAL CHECKS MAY
TAKE UP TO FIVE BUSINESS DAYS TO CLEAR, YOU ARE STRONGLY URGED TO PAY, OR
ARRANGE FOR PAYMENT, BY MEANS OF CERTIFIED OR CASHIER'S CHECK, MONEY ORDER OR
WIRE TRANSFER OF FUNDS.
Beneficial Owners; Street Name Holdings
Holders who hold shares of Common Stock for the account of others, such
as brokers, trustees, or depositories for securities, should notify the
beneficial owners of shares as soon as possible to ascertain the beneficial
owners' intentions and to obtain instructions with respect to the Rights. If the
beneficial owner so instructs, the record holder of such Rights should complete
the Subscription Certificates and submit them to the Subscription Agent with the
proper payment. In addition, beneficial owners of Common Stock
13
<PAGE>
or Rights held through such a holder should contact the holder and request the
holder to effect transactions in accordance with the beneficial owner's
instructions.
Foreign and Certain Other Stockholders
Subscription Certificates will not be mailed to Holders whose addresses
are outside the United States or who have an APO or FPO address, but will be
held by the Subscription Agent for their account. To exercise Rights, such
Holders must notify the Subscription Agent by completing an International Holder
Subscription Form which will be delivered to such Holders in lieu of a
Subscription Certificate, and sending it by mail or telecopy to the Subscription
Agent at the address and telecopy number specified above.
No Revocation
ONCE A HOLDER OF RIGHTS HAS EXERCISED THE BASIC SUBSCRIPTION PRIVILEGE,
THE OVERSUBSCRIPTION PRIVILEGE AND/OR THE EMPLOYEE SUBSCRIPTION PRIVILEGE, THAT
EXERCISE MAY NOT BE REVOKED.
Employee Subscription Privilege
To the extent that less than all Shares are purchased under the Basic
Subscription Privilege, up to 100,000 Shares will be offered to current
employees of the Company, subject to the following conditions:
[bullet] The employee must have been employed by the Company on or before
January 1, 1997 and be employed on the Record Date.
[bullet] The employee must be 18 years of age or older.
[bullet] The shares may be issued only to the employee.
In addition, the two director employees of the Company (Messrs. George
R. Chapdelaine and John J. Polcari, Jr.) will not be eligible to participate in
the Employee Subscription Privilege.
If the Shares not subscribed for through the Basic Subscription
Privilege are not sufficient to satisfy all subscription requests by employees
pursuant to the Employee Subscription Privilege, the Shares will be allocated
pro-rata (subject to the elimination of fractional shares) among subscribing
employees in proportion to the number of Shares requested by each. Certificates
representing Shares purchased pursuant to the Employee Subscription Privilege
will be delivered to subscribers as soon as practicable after the eighth
business day following the Expiration Date and after all prorations have been
effected.
Directors' Commitment
On the effective date, each of the members of the Board of Directors of
the Company will execute a commitment to exercise such member's entire Basic
Subscription Privilege. In addition, the directors named below will execute a
commitment to purchase the number of Shares indicated by exercise of the
Oversubscription Privilege:
Name Number of Shares
---- ----------------
Richard J. Reeves 250,000 Shares
Lucille Salhany 120,000 Shares
Terrance J. Smith 100,000 Shares
Current Prospectus and State Securities Law Restrictions
The holder of a Right may exercise the Right and an employee may
purchase Shares under the Employee Subscription Privilege only if a current
prospectus relating to the Shares is then in effect, and
14
<PAGE>
only if the Shares are qualified for sale under the securities laws of the state
in which the holder resides, or are exempt from such qualifications.
The Company intends to qualify the sale of the Rights and Shares
offered hereby in a limited number of states. The Company will be prevented from
issuing the Shares in such states upon the exercise of the Right or upon
purchase by an employee unless an exemption from qualification is available or
unless the issuance of the Shares upon exercise of the Right or upon purchase by
an employee is qualified. The Company may decide not to seek or may not be able
to obtain qualification of the issuance of the underlying Common Stock in all of
the states in which the ultimate executor of Right reside. The Rights may be
deprived of any value if a current prospectus covering the Common Stock issuable
upon exercise of the Rights is not effective or if such shares are not qualified
in the states in which holders of the Rights reside.
In general, under Rule 144 as currently in effect, beginning 90 days
after the date of this Prospectus, a person (or persons whose shares are
aggregated) who has beneficially owned restricted shares for at least one year
(including the holding period of any prior owner except an affiliate of the
Company), would be entitled to sell within any three-month period a number of
shares that does not exceed the greater of: (i) one percent of the number of
shares of Common Stock then outstanding or (ii) the average weekly trading
volume of the Common Stock during the four calendar weeks preceding the filing
of a Form 144 with respect to such sale. Sales under Rule 144 are also subject
to certain manner of sale provisions and notice requirements and to the
availability of current public information about the Company. Under Rule 144(k),
a person who is not deemed to have been an affiliate of the Company at any time
during the 90 days preceding a sale, and who has beneficially owned the shares
proposed to be sold for at least two years (including the holding period of any
prior owner except an affiliate of the Company), is entitled to sell such shares
without complying with the manner of sale, public information, volume limitation
or notice provisions of Rule 144.
Federal Income Tax Consequences
The following summary describes certain United States federal income
tax considerations affecting holders of BRAI Common Stock receiving Rights in
the Rights Offering. This summary is based upon the Internal Revenue Code of
1986, as amended (the "Code"), Treasury regulations, rulings, and decisions
currently in effect. This summary does not discuss all aspects of federal
taxation that may be relevant to a particular investor or to certain types of
investors subject to special treatment under the federal tax laws (for example,
banks, dealers in securities, life insurance companies, tax-exempt
organizations, and foreign persons), nor does it discuss any aspect of state,
local, or foreign tax laws. HOLDERS OF COMMON STOCK SHOULD CONSULT THEIR OWN TAX
ADVISORS CONCERNING THEIR INDIVIDUAL TAX SITUATIONS AND THE TAX CONSEQUENCES OF
THE RIGHTS OFFERING UNDER THE CODE AND UNDER ANY APPLICABLE STATE, LOCAL, OR
FOREIGN TAX LAWS.
Distribution of the Rights to Holders of BRAI Common Stock. A holder of
BRAI Common Stock will not recognize taxable income for federal income tax
purposes as a result of the issuance to such holder of the Rights in respect of
those shares. Except as provided in the following sentence, the basis of such
Rights will be zero. If either (i) the fair market value of the Rights on the
date of distribution is 15% or more of the fair market value of the BRAI Common
Stock in respect of which they are received on such date, or (ii) the
stockholder elects, in the stockholder's federal income tax return for the
taxable year in which the Rights are received, to allocate part of the basis of
such Common Stock to the Rights, then the stockholder's basis in such BRAI
Common Stock will be allocated between the Common Stock and the Rights in
proportion to their respective fair market values on the date of distribution.
The holding period of a stockholder with respect to Rights received as a
distribution on the stockholder's Common Stock will include the stockholder's
holding period for the Common Stock in respect of which the Rights were issued.
15
<PAGE>
The Company is required annually to notify the holders of Common Stock
on Internal Revenue Service Form 1099 of the amount of all dividends paid to
such holders during the prior year, including, for 1998, the fair market value
of the Rights (if any) on the date of distribution. The Company will determine
the fair market value of the Rights on that date.
Exercise of Rights. A holder of Rights will not recognize gain or loss
upon the exercise of the Rights. A holder of Rights who receives shares of
Common Stock upon such exercise will acquire a tax basis in those shares equal
to the sum of the price paid on exercise and the holder's tax basis in the
Rights, if any. The holding period of Common Stock received on exercise of the
Rights will begin with and include the date the Rights are exercised.
Expiration of Rights. A holder of Rights who fails to exercise the
Rights prior to the Expiration Date will be deemed to have sold such Rights on
that date for no consideration. Accordingly, if such unexercised Rights were
held as capital assets, the holder would recognize a capital loss equal to the
amount of such holder's adjusted tax basis in the Rights. Such a capital loss
will be a long-term capital loss or short-term capital loss, depending on the
holding period of the Common Stock upon which the Rights were issued and the
period during which the holder held the Rights before they expired.
Employee Subscribers. Any employee of BRAI who purchases Common Stock
pursuant to the Rights Offering (other than in his or her capacity as a
shareholder) must include in gross income the excess of the fair market value of
the Common Stock on the date of purchase over the amount paid for the Common
Stock (the "compensation amount"). BRAI will be obligated to treat such
compensation amount as wages paid to the employee and withhold federal income
and employment taxes from the employee's wages on such compensation amount.
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PRICE RANGE OF COMMON STOCK
The Common Stock (NASDAQ "BRAI") is traded publicly and is quoted on
the NASDAQ Small-Cap Market. On January __, 1997, the last bid and asked prices
of the Common Stock as reported on the NASDAQ SmallCap Market were $____ and
$____ per share, respectively.
The table below represents the quarterly high and low bid and asked
prices for the Common Stock for the period commencing April 28, 1996 and ending
January 6, 1998. The prices listed in this table reflect quotations without
adjustment for retail mark-up, markdown or commission, and may not represent
actual transactions.
Market For Common Equity
<TABLE>
<CAPTION>
High Low High Low
Bid Bid Asked Asked
--- --- ----- -----
<S> <C> <C> <C> <C>
Fiscal Year Ended April 27, 1997
First Quarter...................................................... $1.06 $0.56 $1.08 $1.00
Second Quarter..................................................... 1.00 0.60 1.04 0.62
Third Quarter...................................................... 1.13 1.00 1.31 1.02
Fourth Quarter..................................................... 1.08 1.04 1.22 1.08
Fiscal Year Ended April 26, 1998
First Quarter...................................................... $1.31 $1.06 $1.44 $1.19
Second Quarter..................................................... 2.19 1.19 2.31 1.28
Third Quarter through January 6, 1998.............................. 1.75 1.38 1.94 1.38
</TABLE>
As of January 5, 1998 there were approximately 312 holders of record of
the Common Stock.
DIVIDEND POLICY
The Company has never paid cash dividends on its capital stock and does
not anticipate paying any cash dividends in the foreseeable future. Rather, the
Company intends to retain all of its future earnings to finance future growth.
17
<PAGE>
BUSINESS
General
The Company owns and operates a chain of eight pizzerias under the name
Pizzeria Regina in Massachusetts, New Jersey and Virginia. Founded in 1926, the
original Pizzeria Regina has served its signature Neapolitan style, thin crust
pizza, prepared in gas-fired brick ovens, for more than 70 years. The Company
believes that the Pizzeria Regina pizza and brand name are local symbols of
superior and distinctive pizza. The Company's operating plan is to expand
distribution of its premium brick oven pizza through food court kiosks serving
primarily the lunch market.
During the next 36 months, the Company plans to open at least ten
additional Pizzeria Regina food court kiosks in high volume suburban retail
malls, including both Company owned and franchised pizzerias. The Company
believes that mall owners are changing their marketing strategies and
retrofitting malls to emphasize food courts that feature premium quality, fast
service menu items. As a result, the Company believes that food court kiosks in
these malls represent an attractive vehicle for increasing distribution of its
premium brick oven pizza into the lunch market. The Company recently entered
into leases for two additional food court sites. The Company currently is
seeking qualified franchisees.
The Pizzeria Regina Brick Oven Pizza
The Company's signature product, its premium Neapolitan style, thin
crust, brick oven pizza, features a proprietary dough and pizza sauce and
whole-milk mozzarella cheese which the Company believes combine to produce a
distinct flavor and superior pizza. These pizzas are offered with a wide variety
of fresh vegetable and cured meat toppings. By baking its pizza in gas-fired
brick ovens, at very high temperatures for short periods of time, the Company is
able to produce a light, evenly cooked crust while preserving the flavor and
moisture of the toppings. In addition, the speed of the baking process enables
the Company to provide fast service and cater to high volume. The Company
believes that the quality of its pizza resulting from its proprietary
ingredients and baking process should enable it to appeal to both the lunch and
dinner markets.
Existing Pizzeria Regina Operations
The eight Pizzeria Regina restaurants currently owned and operated by
the Company are fast service, high volume pizzerias that feature premium brick
oven pizza and cater primarily to the lunchtime diner, with the exception of the
original North End location which services both the lunch and diner markets. Of
these eight restaurants, six are food court kiosks (self-service, take-out style
emphasizing pizza slices with common area seating), and two are wait-service
restaurants (full-service style emphasizing whole pizzas with in-restaurant
seating). The Company operates one full service restaurant, Polcari's North End.
18
<PAGE>
Expansion and Development Strategy
The Company's operating plan is to expand the distribution of its
Pizzeria Regina brick oven pizza. The Company intends to open additional
Pizzeria Regina food court kiosks to appeal to quick dining lunch customers at
suburban retail malls.
The Company intends to open additional Pizzeria Regina food court
kiosks primarily in retail malls. The food court kiosks, serving primarily pizza
slices with multiple topping choices, operate side by side with other fast food
vendors and cater primarily to lunchtime diners. Menu items are presented in a
self-service, take-out style designed to allow customers to order, pay for and
consume their food in a very short period of time. Customers who desire to sit
down after purchasing their food may join customers of other food court vendors
in one or more designated common areas within the mall. The focused menu,
self-service, take-out style and common seating provide food court customers
with a fast dining, low cost alternative relative to more traditional full
service restaurants. The average per person food check at these locations
including beverages (alcohol beverages are not served at food court locations),
is currently approximately $4.25.
Based on the Company's experience and articles from trade journals, the
Company believes there is a growing trend at retail malls to retrofit and
upgrade food courts to emphasize fast food as one of the emerging focal points
of malls. The Company further believes that lunchtime diners who visit retail
shopping malls seek high quality, quick service meals in a food court setting
and that the premium quality of its brick oven pizza should position it to
compete effectively and efficiently in food court locations.
Although the Company believes that its expansion strategy is feasible,
there can be no assurance that the Company will expand at the rate currently
planned, that expansion will not be more costly than anticipated, or that
current and future sites will operate profitably. The specific rate at which the
Company is able to open new restaurants will be determined by many factors, some
of which are beyond the control of the Company, including its success in
identifying satisfactory sites, negotiating satisfactory leases, securing
requisite governmental permits and approvals, obtaining adequate financing and
recruiting and training management personnel. See "Risk Factors Risk of
Expansion."
Restaurant Operations
The Company invests substantial time and effort in its training
programs which focus on all aspects of restaurant operations, including kitchen,
bar and dining room operations, food quality and preparation, alcoholic beverage
service, liquor liability avoidance, customer service and employee relations.
The Company holds regular meeting of its managers which cover new products,
continuing training and other aspects of business management. Managers also
attend seminars which are periodically conducted by Company personnel and
outside experts on a broad range of topics.
New employees are trained by experienced employees who have
demonstrated their ability to implement the Company's commitment to provide high
quality food and attentive service. The Company has developed manuals regarding
its policies and procedures for restaurant operations. Senior management
regularly visits Company restaurants and meets with the respective management
teams to ensure compliance with the Company's strategies and standards of
quality in all aspects of restaurant operation and personnel development.
The Company seeks to attract and retain high caliber restaurant
managers by providing them with an appropriate balance of autonomy and
direction. Annual performance objectives and budgets for each restaurant are
jointly determined by restaurant managers and senior management. To provide
incentives, the Company has a cash bonus program tied to achievement of
specified objectives.
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The staff for a typical Pizzeria Regina restaurant consists of one
general manager, two managers and approximately 12 to 25 hourly employees. The
staff for a typical Polcari's North End restaurant consists of one general
manager, two managers, one working chef and approximately 40 to 60 hourly
employees. Most of the Company's hourly employees are part-time personnel. The
general manager of each restaurant is primarily responsible for the day-to-day
operations of the entire restaurant and maintaining standards of quality and
performance established by the Company.
The Company believes centralized financial and management controls are
fundamental to improving operating margins. These controls are maintained
through the use of an automated data processing system and prescribed reporting
procedures. Each restaurant has a point-of-sale system that captures restaurant
operating information. The restaurants forward daily sales reports, vendor
invoices, payroll information and other data to the Company's corporate
headquarters. Company management utilizes this data to monitor central costs and
sales mix and to prepare periodic financial management reports. This system is
also used for budget analysis, planning and determining menu composition.
Restaurant managers perform daily inventories of key supplies. All other
supplies are inventoried weekly at the Pizzeria Regina restaurants and
inventoried monthly at the Polcari's North End restaurant. Cash is controlled
through deposits of sales proceeds in local operating accounts following each
restaurant shift with respect to the Pizzeria Regina locations and following
each business day with respect to Polcari's North End location. The balances in
these accounts are wire transferred daily to the Company's principal operating
account.
Purchasing and Commissary Operations
The Company maintains a commissary from which food products such as
pizza dough, bread dough and full line of desserts are produced for the
Company's restaurants. These products require a high degree of consistency that
would be more difficult to maintain at the individual restaurant locations. The
Company believes that close, centralized monitoring of the dough preparation
ensures a consistent premium product. All other food preparation is prepared on
site at the restaurant level.
The Company negotiates on a centralized basis directly with wholesale
suppliers of high volume food ingredients such as cheese, tomato sauce and flour
to ensure consistent quality and freshness of products across its restaurants
and to obtain competitive pricing. The ingredients are then purchased by the
Company's distributor at the negotiated price and redistributed to the Company's
restaurants. All other food ingredients and beverage products are purchased
according to Company specifications by the general manager of each restaurant.
Site Selection
The Company considers the specific location of a restaurant to be
critical to the restaurant's long term success and devotes significant time and
resources to the investigation and evaluation of each prospective site. Local
market demographics, population density, average household income levels and
site characteristics such as visibility, accessibility and traffic volume are
considered.
Potential sites for the Pizzeria Regina restaurants are generally
sought within high-traffic food courts or retail shopping malls located in
metropolitan areas. The Company also considers existing local competition and,
to the extent such information is available, the sales of other comparably
priced restaurants opening in the area. The Company has a real estate consulting
contract with Joseph Hopkins to identify and secure future sites.
Franchising
BRAI has formed a wholly owned subsidiary ("BRAII") for the purpose of
offering Pizzeria Regina franchise opportunities both domestically and
internationally. BRAII has filed a Uniform Franchise Offering Circular in
certain states, and is actively seeking franchisees with operational experience.
In
20
<PAGE>
addition, the Company is currently negotiating with an established international
developer to pursue and develop franchise territories in Europe and the Far
East. See "Risk Factors - Franchising."
Seasonality
The Company's restaurants are subject to seasonal fluctuations in sales
volume. Sales at the Pizzeria Regina restaurants are typically higher in June
through August and in November and December due to increased volume in shopping
malls during the holiday and tourist seasons and school vacations.
Employees
As of October 27, 1997, the Company had approximately 250 employees, of
whom 14 were corporate and administrative personnel, 29 were field supervision
or restaurant managers or management trainees, and the remainder were hourly
restaurant personnel. Many of the Company's hourly employees work part-time. The
Company believes that its relationships with its employees are good. None of the
Company's employees are covered by a collective bargaining agreement.
Advertising and Marketing
The Company's target market for the Pizzeria Regina restaurants is very
broad, consisting of individuals and families who seek fast service and
high-value-to-price meals during the lunch period. The target markets for the
Polcari's North End restaurants are adults and families who seek high quality
brick oven pizza and other moderately priced Italian dinner entrees in a
comfortable environment. The Company believes that its focus on premium quality,
service and value is the most effective approach to attracting customers.
The Company anticipates that it will obtain greater name recognition
due to the increase in distribution channels for its premium Pizzeria Regina
brick oven pizza through the development of additional Pizzeria Regina food
court kiosks.
Competition
The restaurant industry is highly competitive with respect to location,
menu selection and quality, prices, service and decor. The business is affected
by changes in tastes and eating habits of the public and by changes in local,
regional or national economic conditions, demographic trends and traffic
patterns, factors affecting consumers' disposable income and spending habits and
the types, number and location of competing restaurants. See "Risk Factors -
Risks of Restaurant Industry."
The Pizzeria Regina restaurants compete with other fast-service, high
volume food providers on the basis of price, value, location, and speed of
service. The Polcari's North End restaurant will compete with other casual, full
service restaurants primarily on the basis of menu selection, quality, price,
service, ambiance and location. Many competitors of the Company's restaurants
are either locally owned or part of national or regional restaurant chains, many
of which are well established and have substantially greater financial and other
resources than the Company. The Company believes that it will be able to compete
effectively in each of its markets. See "Risk Factors - Competition."
Trademarks
The Company regards it service marks as having significant value and as
being an important factor in the marketing of its products. Its most significant
marks include "Pizzeria Regina", "Regina", its crown design logo, and
"Polcari's". These marks, which appear in its advertisements, menus and
elsewhere, are widely recognized in the Boston restaurant market.
21
<PAGE>
"Pizzeria Regina" and the crown design are a registered trademark of
the Company. The Company has applied with the United States Patent and Trademark
Office to register the crown design logo, the "Polcari's" logo, "Polcari's North
End" and the "Regina" service marks.
Government Regulation
The Company is subject to a variety of federal, state and local laws
and regulations. Each of the Company's restaurants is subject to licensing and
regulation by a number of government authorities, including alcoholic beverage
control, health, safety, sanitation, building and fire agencies in the state or
municipality in which the restaurant is located. Difficulties in obtaining or
failure to obtain required licenses or approvals could delay or prevent the
development of a new restaurant in a particular area. See "Risk Factors -
Government Regulation."
The Company is subject to "dram shop" statues, which generally provide
a person injured by an intoxicated person the right to recover damages from an
establishment that wrongfully served alcoholic beverages to the intoxicated
person. See "Risk Factors - Dram Shop Liability."
The Company's restaurant operations are also subject to federal and
state laws governing such matters as the proposed government mandated health
insurance, over which the Company has no control. Significant numbers of the
Company's service, food preparation and other personnel are paid at rates
related to the federal minimum wage, and increases in the minimum wage could
increase the Company's labor costs. The development and construction of
additional restaurants will be subject to compliance with applicable zoning,
land use and environmental laws and regulations. See "Risk Factors - Government
Regulation."
Properties
All the Company's existing restaurants are located in leased space,
except for the North End Pizzeria Regina location, which is owned by the
Company. All of the Company's leases provide for a minimum annual rent, and most
call for additional rent based on sales volume at the particular location over a
specified minimum level. Generally, these leases are net leases, which require
the Company to pay the cost of insurance, taxes and a portion of the lessor's
operating costs. Certain mall locations also require the Company to participate
in upkeep of common areas and promotional activities.
On December 31, 1997 the Company terminated a lease in Lexington,
Massachusetts and transferred its liquor license with respect to a Bel Canto's
Restaurant previously operated by the Company.
The Company occupies approximately 3,200 square feet of executive
office space at 999 Broadway, Saugus, Massachusetts, under a lease expiring on
October 31, 2002. The Company also leases approximately 5,000 square feet of
warehouse space located in Somerville, Massachusetts under a lease expiring on
July 31, 2001 (including all extension options that may be exercised by the
Company in its discretion) and approximately 2,741 square feet for its
commissary located in Charlestown, Massachusetts under a lease expiring on
August 14, 1998.
22
<PAGE>
The following table sets forth certain information with respect to the
Company's restaurant properties:
<TABLE>
<CAPTION>
Lease Approx. Sq. ft. Seating Capacity Expiration Date Name/Type
----- --------------- ---------------- --------------- ---------
<S> <C> <C> <C> <C>
North End, Boston 4,300 67 N/A Pizzeria Regina
(Company-owned) (wait-service)
Faneuil Hall Marketplace 750 N/A 12/31/00 Pizzeria Regina
Boston (upstairs) (food court)
Faneuil Hall Marketplace 2,000 75 12/31/98 Pizzeria Regina
Boston (Downstairs) (wait-service)
Burlington Mall 1,018 N/A 11/30/05 Pizzeria Regina
Burlington (food court)
South Shore Plaza 700 N/A 2/28/06 Pizzeria Regina
Braintree (food court)
Polcari's North End 12,000 326 11/30/12 Full-service
(Saugus) Restaurant
Solomon Pond Mall 1,085 N/A 1/30/07 Pizzeria Regina
Marlborough (food court)
Paramus Park 696 N/A 11/30/09 Pizzeria Regina
Paramus, NJ (food court)
Regency Square Mall 605 N/A 11/30/04 Pizzeria Regina
Richmond, VA (food court)
</TABLE>
Litigation
The Company is not a party to any material pending legal proceeding.
LEGAL MATTERS
The validity of the Rights and the underlying shares of Common Stock
offered hereby and certain other legal matters will be passed upon for the
Company by Brown, Rudnick, Freed & Gesmer, Boston, Massachusetts.
EXPERTS
The financial statements incorporated by reference in this Prospectus
have been audited by BDO Seidman, LLP, independent certified public accountants,
to the extent and for the periods set forth in their report incorporated herein
by reference and are incorporated herein in reliance upon such report given upon
the authority of said firm as experts in accounting and auditing.
23
<PAGE>
BOSTON RESTAURANT ASSOCIATES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Twenty-six Weeks Ended
Oct 26 Oct 27
1997 1996
Cash flows provided by operating activities $309,014 $260,265
--------- ---------
Cash flows from investing activities:
Capital expenditures ($505,282) ($675,738)
--------- ---------
Cash flows used for investing activities ($505,282) ($675,738)
--------- ---------
Cash flows from financing activities:
Repayments of long-term debt ($100,002) ($87,601)
Repayments of capital lease obligations ($14,851) $0
Repayments of stockholder loans ($2,102) ($1,991)
Repayments of subordinated debentures $0 ($68,666)
Proceeds from subordinated debentures $218,750 $0
Proceeds from long-term debt $0 $571,945
--------- ---------
Cash flows provided by financing activities $101,795 $413,687
--------- ---------
Increase (decrease) in cash and cash equivalents ($94,473) ($1,786)
Cash and cash equivalents at beginning of period $726,054 $159,564
--------- ---------
Cash and cash equivalents at end of period $631,581 $157,778
========= =========
F-1
<PAGE>
BOSTON RESTAURANT ASSOCIATES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-six Weeks Ended
Oct 26 Oct 27 Oct 26 Oct 27
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Sales $2,989,820 $3,013,279 $5,835,705 $5,812,130
Cost of food and beverage $602,586 $691,653 $1,177,093 $1,350,978
Payroll $887,985 $929,774 $1,723,533 $1,787,576
Other operating expenses $1,029,288 $1,048,854 $1,939,639 $1,910,248
General and administrative $347,277 $263,624 $745,426 $588,038
---------- ---------- ---------- ----------
Income from operations $122,684 $79,374 $250,014 $175,290
Other (income) ($1,594) ($912) ($2,521) ($2,304)
Interest (income) ($5,902) $0 ($15,001) $0
Interest expense $77,503 $33,752 $149,027 $54,798
---------- ---------- ---------- ----------
Net Income $52,677 $46,534 $118,509 $122,796
========== ========== ========== ==========
Income per share $0.01 $0.01 $0.02 $0.02
========== ========== ========== ==========
Weighted average number of
common shares outstanding 5,015,693 5,015,293 5,015,693 5,015,293
========== ========== ========== ==========
</TABLE>
F-2
<PAGE>
BOSTON RESTAURANT ASSOCIATES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
Oct 26 April 27
1997 1997
---------- ----------
<S> <C> <C>
ASSETS
Current:
Cash and cash equivalents $631,581 $726,054
Accounts receivable $132,707 $69,729
Inventories $214,996 $209,295
Prepaid expenses and other $39,559 $27,532
---------- ----------
Total current assets $1,018,843 $1,032,610
Net property and equipment $2,595,290 $2,656,328
Other assets $1,286,833 $944,180
---------- ----------
Total assets $4,900,966 $4,633,118
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $401,934 $382,294
Accrued liabilities $634,264 $628,277
Current maturities:
Notes payable-stockholder $4,394 $4,261
Long-term debt $200,000 $200,000
Obligations under capital leases $33,237 $30,850
---------- ----------
Total current liabilities $1,273,829 $1,245,682
Long-term obligations:
Notes payable-stockholder, less current maturities $123,576 $125,810
Long-term debt, less current maturities $524,998 $625,000
Obligations under capital leases, less current maturities $121,612 $138,850
Subordinated debentures $1,337,500 $1,118,750
Deferred rent $70,081 $67,024
---------- ----------
Total liabilities $3,451,596 $3,321,116
Stockholders' equity
Common stock, $.01 par value, 25,000,000
shares authorized, 5,015,693 shares issued $50,157 $50,157
Additional paid in capital $9,062,058 $9,043,199
Accumulated deficit ($7,662,845) ($7,781,354)
---------- ----------
Total stockholders' equity $1,449,370 $1,312,002
Total liabilities and stockholders' equity $4,900,966 $4,633,118
========== ==========
</TABLE>
F-3
<PAGE>
No person is authorized in connection with Any offering made hereby to give any
information Or to make any representation not contained in this Prospectus, and,
if given or made, such information Or representation must not be relied upon as
having Been authorized by the Company or any Underwrit- ers. This Prospectus
does not constitute an offer To sell or solicitation of an offer to buy any
Security other than shares offered hereby, nor does It constitute an offer to
buy any of the securities offered hereby to any person in any jurisdiction in
which it is unlawful to make such an offer or solicitation. Neither the delivery
of this Prospectus not any sale made hereunder shall under any circumstances
create any implication that the Information contained herein is correct as of
any date hereof.
TABLE OF CONTENTS
AVAILABLE INFORMATION 2
DOCUMENTS INCORPORATED BY REFERENCE 2
PROSPECTUS SUMMARY 3
RISK FACTORS 6
USE OF PROCEEDS 10
DILUTION 10
THE OFFERING 11
PRICE RANGE OF COMMON STOCK 17
DIVIDEND POLICY 17
BUSINESS 18
LEGAL MATTERS 23
EXPERTS 23
CONDENSED CONSOLIDATED FINANCIAL INFORMATION F-1
2,006,277 Shares
BOSTON RESTAURANT
ASSOCIATES, INC.
PROSPECTUS
January __, 1998
<PAGE>
EXHIBIT A
BOSTON RESTAURANT ASSOCIATES, INC.
10-KSB FOR PERIOD ENDING APRIL 27, 1997,
PROXY DATED AUGUST 7, 1997
<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
(Mark One)
[x] Annual report under Section 13 or 15(d) of the Securities Exchange Act
of 1934.
For the fiscal year ended April 27, 1997. (No Fee required)
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934(No fee required)
For the transition period from ________ to ________.
Commission File Number
0-18369
BOSTON RESTAURANT ASSOCIATES, INC.
----------------------------------
(Name of Small Business Issuer as Specified in its Charter)
Delaware 61-1162263
-------- ----------
(State or Other (I.R.S. Employer
Jurisdiction of Identification No.)
Incorporation or
Organization)
999 Broadway, Suite 400
Saugus, Massachusetts (617)231-7575 01906
- -------------------- ------------- -----
(Address of Principal (Issuer's Telephone Number (Zip Code)
Executive Offices) Including Area Code)
Securities registered pursuant to Section 12(b) of the Securities Exchange Act
of 1934:
Name of Each Exchange
Title of Each Class on Which Registered
- ------------------- -----------------------
Common stock, $.01 par value per share
Redeemable Common Stock Purchase Warrants Boston Stock Exchange
Securities registered under Section 12(g) of the Securities Exchange
Act of 1934:
Common Stock, $.01 par value per share
--------------------------------------
(Title of Class)
Redeemable Common Stock
Purchase Warrants
-----------------
(Title of Class)
Check whether the issuer: (1)filed all reports required to be filed by
Section 13 or 15(d) of the Exchange act during the past 12 months (or such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes x No _
1
<PAGE>
Check if disclosures of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendments to this Form 10-KSB. [ ]
The issuer's revenues for its most recent fiscal year were $11,410,886.
The aggregate market value of registrant's Common Stock, $.01 par value per
share, held by non-affiliates of the registrant as of July 25, 1997 was
$4,687,928 based upon the average closing bid and asked prices of such stock on
that date as reported on the NASDAQ Small-Cap Market on that date. As of July
25, 1997 there were 5,015,693 shares of the registrant's Common Stock, $.01 par
value per share outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement involving the election of
directors, which is expected to be filed within 120 days after the end of the
registrant's fiscal year, are incorporated by reference in Part III of this
Report.
2
<PAGE>
PART I
- ------
ITEM 1. BUSINESS
- -----------------
General
Boston Restaurant Associates, Inc. (the "Company") owns and operates a
chain of eight pizzerias under the name Pizzeria Regina(R) and two full service
restaurants in the Boston, Massachusetts metropolitan area. The Company's
primary full service restaurant is based upon the Polcari's North End(TM)
Italian/American, family style restaurant concept and is operated under the name
Polcari's North EndTM. The Company's other full service restaurant is operated
under the name Bel Canto(R).
Founded in 1926, the original Pizzeria Regina restaurant has served its
signature Neapolitan style, thin crust pizza, prepared in gas-fired brick ovens,
for more than 65 years. The Company believes that the Pizzeria Regina pizza and
brand name are local symbols of superior and distinctive pizza. These
restaurants are fast service, high volume pizzerias that feature premium brick
oven pizza. Of the eight Pizzeria Regina restaurants, five are food court kiosks
(self-service, take-out style emphasizing pizza slices with common area
seating), one is a self-service restaurant (food court style with broader menu
selections including pasta and submarine sandwiches and in-restaurant seating),
and two are wait-service restaurants (full-service style emphasizing whole
pizzas with in-restaurant seating). See "Pizzeria Regina Restaurants."
The Polcari's North End restaurant concept seeks to create an
Italian/American, family-style, casual dining ambiance that captures the
community spirit of the 1940's and 1950's in Boston's Italian North End
neighborhood. The Company's Polcari's North End restaurant highlights exposed
gas-fired brick ovens in open view of diners. In addition, memorabilia and
photographs depicting 1940 and 1950 scenes in Boston's North End are used to
create a neighborhood atmosphere rich with history. The restaurant also features
large tables of six or more seats to encourage family style dining and a
value-oriented menu that includes branded Pizzeria Regina pizza, large
Italian/American pasta dishes, and fresh baked breads. See "Polcari's North End
Restaurant."
The Company's Bel Canto full service restaurant is a moderately priced
casual dining Italian style restaurant.
3
<PAGE>
In April 1994, the stockholders of Pizzeria Regina, Inc. ("PRI") acquired a
60% interest in Capucino's, Inc. (the "Capucino's Acquisition"), which was then
operating four Capucino's restaurants (one of which has been converted into a
Polcari's North End restaurant, and three of which have been closed). The
Company's Bel Canto restaurant was acquired by the Company in 1991. See "Bel
Canto and Capucino's Restaurants" and "Capucino's Acquisition."
The Company plans to expand its operations by opening additional Pizzeria
Regina food court kiosks in high volume retail malls as the opportunities
present themselves. The expansion of the Polcari's North End concept will be
dependent upon market opportunities and the Company's overall financial and
management resources. The specific rate at which the Company is able to open new
restaurants will be determined by many factors, including the Company's success
in obtaining adequate financing, identifying satisfactory sites, negotiating
satisfactory leases, securing requisite governmental permits and approvals, and
training management personnel. There can be no assurance that the Company will
have the resources to expand that expansion will not be more costly than
anticipated or that current and future sites will operate profitably.
The Company's principal offices are located at 999 Broadway, Saugus,
Massachusetts 01906 and its telephone number is (617)231-7575. As used in this
Report, unless otherwise indicated, the term Company refers to Boston Restaurant
Associates, Inc. and its subsidiaries (including PRI). All references to
Capucino's Inc. in this Report refer to the Company prior to the Capucino's
Acquisition. All references to PRI in this Report refer to Pizzeria Regina, Inc.
which became a wholly-owned subsidiary of the Company in connection with the
Capucino's Acquisition but which was prior to that time, an independently
privately owned entity.
Pizzeria Regina Restaurants
The Company's signature product, its premium Neapolitan style, thin crust,
brick oven pizza, features a proprietary dough and pizza sauce and whole-milk
mozzarella cheese, which the Company believes combine to produce a distinct
flavor and superior pizza. These pizzas are offered with a wide variety of fresh
vegetable and cured meat toppings. By baking its pizza in gas-fired brick ovens,
at very high temperatures for short periods of time, the Company is able to
produce a light, evenly cooked crust while preserving the flavor and moisture of
the
4
<PAGE>
toppings. In addition, the speed of the baking process enables the Company
to provide fast service and cater to high volume. The Company believes that the
quality of its pizza resulting from its proprietary ingredients and baking
process should enable it to appeal to both the lunch and dinner markets.
The original Pizzeria Regina located in Boston's historic North End has
served the Company's premium brick oven pizza since 1926. Since the purchase of
this restaurant in 1946 by John B. Polcari, Sr., three generations of the
Polcari family have developed and refined the Pizzeria Regina product to produce
what the Company believes is a widely recognized local symbol of premium quality
pizza.
The eight Pizzeria Regina restaurants currently operated by the Company are
located in the Boston metropolitan area. These restaurants are fast service,
high volume pizzerias that feature premium pizza and cater primarily to the
lunchtime diner with the exception of the original North End location, which
services both the lunch and dinner markets. Of these eight restaurants, five are
food court kiosks (self-service, take-out style emphasizing pizza slices with
common area seating), one is a self-service restaurant (food court style with
broader menu selections including pasta and submarine sandwiches and
in-restaurant seating), and two are wait-service restaurants (full-service style
emphasizing whole pizzas with in-restaurant seating).
The Company intends to open additional Pizzeria Regina food court kiosks
primarily in retail malls within metropolitan areas in Massachusetts and other
states. The Company currently operates five food court kiosks located in the
Quincy Market/Fanueil Hall Marketplace on the Boston, Massachusetts waterfront,
and Longwood Medical Center, also in Boston; South Shore Plaza, Braintree,
Massachusetts; Solomon Pond Mall, Berlin/Marlborough Massachusetts; and the
Burlington Mall in Burlington, Massachusetts. The food court kiosks primarily
serve pizza slices with multiple topping choices and operate side-by-side with
other fast food vendors. Menu items are presented in a self-service, take-out
style designed to allow customers to order, pay for and consume their food in a
very short period of time. Customers who desire to sit down after purchasing
their food may join customers of other food court vendors in one or more
designated common areas within the mall. The focused menu, self-service,
take-out style and common seating provide food court customers with a fast
dining, low cost alternative relative to more traditional full service
restaurants.
Based on the Company's experience and articles from trade
5
<PAGE>
journals, the Company believes there is a trend at retail malls to retrofit
and upgrade food courts to emphasize fast food as one of the emerging focal
points of malls. The Company further believes that lunchtime diners who visit
retail shopping malls seek high quality, quick service meals in a food court
setting, and that the premium quality of its brick oven pizza should position it
to compete effectively in food court locations.
The Burlington Mall food court kiosk represented the first
of the Company's planned kiosk expansion, having been opened by the Company in
November 1994 upon the completion of the renovation of the food court in that
mall. The Company further expanded its food court kiosk operations with the
addition of kiosks in the Solomon Pond Mall in Marlborough, Massachusetts, and
the South Shore Plaza Mall in Braintree, Massachusetts. The food courts in the
Solomon Pond Mall and the South Shore Plaza Mall both opened in the beginning of
August, 1996. Management currently estimates that the cost of opening a typical
food court kiosk is approximately $350,000 to $400,000. There can be no
assurance that the Company will be able to obtain financing necessary to
construct additional food courts kiosks, that the Company will be able to
complete the construction of new kiosks on a timely basis and within budget, if
at all, or that the Company will be able to operate these kiosks successfully.
The Company has preliminarily identified other potential site locations that it
believes will become available during the next 24 months.
Two of the Company's Pizzeria Regina restaurants (a food court kiosk
and a wait-service restaurant), both of which are located in the Quincy
Market/Faneuil Hall Marketplace in Boston, Massachusetts, had leases that
expired on December 31, 1995. The Company entered into a new food court kiosk
lease on 1 January, 1996, which is the more successful of the two restaurants,
that runs through December 2000. The Company anticipates closing the
wait-service restaurant at the termination of the lease on or before December
31, 1997 at which time it will seek to enter into a lease for additional space
for a full service restaurant in the Quincy Market/Faneuil Hall Marketplace.
While there can be no assurance in this regard, the Company believes, based upon
communications with the landlord of this location, that it will be able to
successfully negotiate a new lease for a wait service location.
6
<PAGE>
Polcari's North End Restaurant
The Company's Polcari's North End restaurant concept is designed to create
an Italian/American, family-style, casual dining ambiance that captures the
community spirit of the 1940's and 1950's in Boston's Italian North End
neighborhood. The Company's first Polcari's North End restaurant highlights
exposed gas-fired brick ovens in open view of diners. In addition, memorabilia
and photographs depicting 1940 and 1950 scenes in Boston's North End are used to
create a neighborhood atmosphere rich with history. The restaurant also features
large tables of six or more seats to encourage family style dining and a
value-oriented menu that includes branded Pizzeria Regina pizza, large
Italian/American pasta dishes and fresh baked breads.
In 1909, John B. Polcari, Sr., the patriarch of the Polcari family, opened
a neighborhood Italian groceria opposite the original North End Pizzeria Regina.
In 1946, he purchased this Pizzeria Regina. Mr. Polcari's son, John P. Polcari,
Jr., later operated Polcari's Restaurant, a well-known North End restaurant for
more than 30 years prior to its closure in 1989. Management believes that the
Polcari name evokes the Bostonian's image of immigrant, Italian/American food.
In March 1995, the Company opened its first Polcari's North End restaurant
in Saugus, Massachusetts by converting its existing Capucino's restaurant at the
same location. In 1997 the lounge area was expanded. The Company may in the
future review opportunities to open additional Polcari's North End restaurants.
Such expansion will be dependent upon market opportunities and the Company's
overall financial and management resources.
Bel Canto and Capucino's Restaurants
The Company operates one full service casual dining moderately priced
Italian style restaurant under the name Bel Canto. The Bel Canto Restaurant is
located in Lexington, Massachusetts. The Company introduced Pizzeria Regina
pizza in its Lexington Bel Canto restaurant in January 1995.
In furtherance of shifting the Company's full service restaurant efforts
away from the Capucino's and Bel Canto(R) concepts the Company has, as detailed
below, converted, closed, or sold all of these restaurants other than its
remaining Lexington Bel Canto.
The Company completed the conversion of its Brookline, Massachusetts
Capucino's restaurant into a full service Pizzeria Regina in February 1996 and
subsequently closed the restaurant in May 1997 at the termination of the
existing lease due to the
7
<PAGE>
inability to negotiate a new lease at a favorable rent. The Saugus,
Massachusetts Capucino's restaurant was converted into a Polcari's North End
restaurant in March 1995. See "Pizzeria Regina Restaurants" and "Polcari's North
End Restaurants." The Company closed its Capucino's restaurant in Framingham,
Massachusetts in June 1995 with the intention of converting it into a Polcari's
North End restaurant. The conversion of this location was delayed while the
Company refined the Polcari's North End concept in the Saugus location. The
Company subsequently determined that it would be in its best interest to sell
the restaurant and completed the sale in April of 1997.
Restaurant Operations
The Company invests substantial time and effort in its training programs
which focus on all aspects of restaurant operations, including kitchen, bar and
dining room operations, food quality and preparation, alcoholic beverage
service, liquor liability avoidance, customer service and employee relations.
The Company holds regular meetings of its managers, which cover new products,
continuing training and other aspects of business management. Managers also
attend seminars, which are periodically conducted by Company personnel and
outside experts, on a broad range of topics.
New employees are trained by experienced employees who have demonstrated
their ability to implement the Company's commitment to provide high quality food
and attentive service. The Company has developed manuals regarding its policies
and procedures for restaurant operations. Senior management regularly visits
Company restaurants and meets with the respective management teams to ensure
compliance with the Company's strategies and standards of quality in all
respects of restaurant operations and personnel development.
The Company seeks to attract and retain high caliber restaurant managers by
providing them with an appropriate balance of autonomy and direction. Annual
performance objectives and budgets for each restaurant are jointly determined by
restaurant managers and senior management. To provide incentives, the Company
has a cash bonus program tied to achievement of specified objectives.
The staff for a typical Pizzeria Regina restaurant consists of one general
manager, two managers and approximately 12 to 25 hourly employees. The staff for
a Polcari's North End restaurant consists of one general manager, two managers,
one kitchen manager and approximately 40 to 60 hourly employees. Most of the
8
<PAGE>
Company's hourly employees are part-time personnel. The general manager of each
restaurant is primarily responsible for the day-to-day operations of the entire
restaurant and maintaining standards of quality and performance established by
the Company.
The Company believes centralized financial and management controls are
fundamental to improving operating margins. These controls are maintained
through the use of an automated data processing system and prescribed reporting
procedures. Each restaurant has a point-of-sale system that captures restaurant
operating information. The restaurants forward daily sales reports, vendor
invoices, payroll information and other data to the Company's corporate
headquarters. Company management utilizes this data to centrally monitor costs,
sales mix and to prepare periodic financial management reports. This system is
also used for budget analysis, planning and determining menu composition.
Restaurant managers perform daily inventories of key supplies. All other
supplies are inventoried weekly at the Pizzeria Regina restaurants and are
inventoried biweekly at the Polcari's North End and Bel Canto restaurants. Cash
is controlled through deposits of sale proceeds in local operating accounts
following each restaurant shift with respect to the Pizzeria Regina and Bel
Canto locations and following each business day with respect to Polcari's North
End location, the balances of which are wire transferred daily to the Company's
principal operating account.
Purchasing and Commissary Operations
The Company maintains a commissary from which food products such as pizza
dough, bread dough and a full line of desserts are produced for the Company's
restaurants. These products require a high degree of consistency that would be
more difficult to maintain at the individual restaurant locations. The Company
believes that close and centralized monitoring of the dough preparation ensures
a consistent and premium product. All other food preparation is performed on
site at the restaurant level.
The Company negotiates on a centralized basis directly with wholesale
suppliers of high volume food ingredients such as cheese, tomato sauce, and
flour to ensure consistent quality and freshness of products across its
restaurants and to obtain competitive pricing. These ingredients are then
purchased by the Company's distributor at the negotiated price and redistributed
to the Company's restaurants. All other food ingredients and beverage products
are purchased directly by the general manager of each restaurant in accordance
with corporate guidelines. The
9
<PAGE>
Company believes that all essential food and beverage products are available
from many qualified wholesale suppliers.
Site Selection
The Company considers the specific location of a restaurant to be critical
to the restaurant's long term success and devotes significant time and resources
to the investigation and evaluation of each prospective site. Local market
demographics, population density, average household income levels and site
characteristics such as visibility, accessibility and traffic volume are
considered.
Potential sites for the Pizzeria Regina restaurants are generally sought
within high-traffic food courts or retail shopping malls located in metropolitan
areas. Factors which will favor a Polcari's North End restaurant site are its
proximity to high-volume, middle market traffic centers, such as retail and
residential areas with populations of at least 100,000 persons within a five
mile radius. For both types of restaurants, the Company also considers existing
local competition and, to the extent such information is available, the sales of
other comparably priced restaurants opening in the area.
Seasonality
The Company's restaurants are subject to seasonal fluctuations in sales
volume. Sales at the Pizzeria Regina restaurants are typically higher in June
through August and in November and December due to increased volume in shopping
malls during the holiday and tourist seasons and school vacations.
Sales volumes at the Company's full service restaurants are typically
higher in the fall and spring months. The Company attributes this to an influx
of the student population near the restaurants, which are located close to
colleges and moderate weather conditions during these seasons.
Employees
As of July 25, 1997, the Company had approximately 250 employees of whom 10
were corporate and administrative personnel, 33 were field supervision or
restaurant managers or management trainees, and the remainder was hourly
restaurant personnel. Many of the Company's hourly employees work part-time. The
Company believes that its relationship with its employees is good. None of the
Company's employees are covered by a collective bargaining agreement.
10
<PAGE>
Advertising and Marketing
The Company's target market for the Pizzeria Regina restaurants is very
broad, consisting of individuals and families who seek fast service and high
value-to-price meals during the lunch period. The target markets for the
Polcari's North End restaurant are adults and families who seek high quality
brick oven pizza and other moderately priced Italian dinner entrees, in a
comfortable environment. The Company believes that its focus on premium quality,
service and value is the most effective approach to attracting customers.
The Company anticipates that it will obtain greater name recognition due to
the increase in distribution channels for its premium Pizzeria Regina brick oven
pizza through the development of additional Pizzeria Regina food court kiosks.
In addition, management believes that the centralization of its restaurants
within the greater Boston and neighboring areas will enable the Polcari's North
End restaurant to benefit from the recognition of the Pizzeria Regina and
Polcari names. The Company plans to rely upon local advertising, high-volume
traffic flow at retail malls, and word of mouth exposure.
Capucino's Acquisition
Pursuant to the Capucino's Acquisition, the Company, then known as
Capucino's, Inc., purchased all of the capital stock of PRI, then known as
Boston Restaurant Associates, Inc., from George R. Chapdelaine, John P. Polcari,
Jr., Anthony Polcari, Mary Polcari, BayBank as trustee of the Anthony A. Polcari
Irrevocable Trust, and Lucille Salhany Polcari, the former stockholders of PRI,
in exchange for 1,382,588 shares of Capucino's, Inc. Common Stock. Prior to the
Capucino's Acquisition, Capucino's, Inc. and PRI had no affiliation and PRI was
a privately held entity.
Capucino's Inc. was incorporated in May 1989. In March 1990 Capucino's,
Inc. conducted a public offering of its securities and at all times since March
1990, the Company's Common Stock has traded on the NASDAQ Small-Cap Market.
The Polcari family purchased the original Pizzeria Regina restaurant in
1946 and incorporated under the name Boston Restaurant Associates, Inc. in 1986.
In 1991, PRI acquired the assets of the Bel Canto restaurants through its wholly
owned subsidiary Bel Canto Restaurants, Inc.
11
<PAGE>
At the time of the Capucino's Acquisition, Capucino's, Inc. owned and
operated four full service, casual dining restaurants and PRI owned and operated
a chain of six pizzerias under the name Pizzeria Regina and two Bel Canto casual
dining restaurants, all in the Boston, Massachusetts metropolitan area.
In connection with the Capucino's Acquisition, the management of PRI
assumed similar positions with the Company. As a result of the Capucino's
Acquisition, George R. Chapdelaine and John P. Polcari, Jr., as the Voting
Trustees of a Voting Trust that holds substantially all of the Common Stock
acquired by the former PRI stockholders, became the largest stockholders of the
Company. No stockholder of Capucino's, Inc. prior to the Capucino's Acquisition
continued to own 5% or more of the outstanding Common Stock after the
acquisition.
Following the Capucino's Acquisition, Capucino's, Inc. assumed the name
Boston Restaurant Associates, Inc., effected a one-for-ten reverse stock split
and changed the NASDAQ Small-Cap market symbol for its Common Stock from CINO to
BRAI. In addition, PRI changed its name from Boston Restaurant Associates, Inc.
to Pizzeria Regina, Inc.
Competition
The restaurant industry is highly competitive with respect to location,
menu selection and quality, prices, service and decor. The business is affected
by changes in tastes and eating habits of the public and by changes in local,
regional or national economic conditions, demographic trends and traffic
patterns, factors affecting consumers' disposable income and spending habits and
the types, number and location of competing restaurants.
The Pizzeria Regina restaurants compete with other fast-service, high
volume food providers on the basis of the price, value, relationship, location,
and speed of service. The Polcari's North End restaurant competes with other
casual, full service restaurants primarily on the basis of menu selection,
quality, price, service, ambiance and location. Many competitors of the
Company's restaurants are either locally owned or part of national or regional
restaurant chains, many of which are well established and have substantially
greater financial and other resources than the Company.
Trademarks
The Company regards its service marks as having significant
12
<PAGE>
value and as being an important factor in the marketing of its products.
Its most significant marks include "Pizzeria Regina", "Regina", its crown design
logo, and "Polcari's". These marks, which appear in its advertisements, menus
and elsewhere, are widely recognized in the Boston restaurant market.
"Pizzeria Regina" and the crown design logo are registered trademarks of
the Company. The Company has applied with the United States Patent and Trademark
Office to register the "Polcari's" logo, "Polcari's North End" and the Regina
service marks. Regina on Tap is a trademark of the Company.
Government Regulation
The Company is subject to a variety of federal, state and local laws and
regulations. Each of the Company's restaurants is subject to licensing and
regulation by a number of government authorities, including alcoholic beverage
control, health, safety, sanitation, building and fire agencies in the state or
municipality in which the restaurant is located. Difficulties in obtaining or
failure to obtain required licenses or approvals could delay or prevent the
development of a new restaurant in a particular area.
A significant portion of the Company's revenues at the Polcari's North End,
Bel Canto, and the original Pizzeria Regina is attributable to the sale of
alcoholic beverages. Alcoholic beverage control regulations require each of the
Company's restaurants which serve alcohol to apply to a state authority and
municipal authorities for a license or permit to sell alcoholic beverages on the
premises. Typically, licenses must be renewed annually and may be revoked or
suspended for cause at any time. Alcoholic beverage control regulations relate
to numerous aspects of restaurant operations, including minimum age of patrons
and employees, hours of operation, advertising, wholesale purchasing, inventory
control and handling, storage and dispensing of alcoholic beverages. The failure
of the Company to obtain or retain liquor or food service licenses could have a
material adverse affect on the particular restaurant's operations and the
business of the Company generally.
The Company is subject to "dram shop" statutes, which generally provide a
person injured by an intoxicated person the right to recover damages from an
establishment that wrongfully served alcoholic beverages to the intoxicated
person. The Company presently carries liquor liability coverage for its
restaurants of $1,000,000, as well as excess liability coverage,
13
<PAGE>
of $10,000,000 per occurrence, with a $10,000 deductible. The Company has never
been named as a defendant in a lawsuit involving "dram shop" liability.
The Company's restaurant operations are all subject to federal and state
laws governing such matters as the proposed government mandated health
insurance, over which the Company has no control. Significant numbers of the
Company's service, food preparation and other personnel are paid at rates
related to the federal minimum wage, and increases in the minimum wage could
increase the Company's labor costs.
The development and construction of additional restaurants will be subject
to compliance with applicable zoning, land use and environmental laws and
regulations.
ITEM 2. DESCRIPTION OF PROPERTY
- ------- -----------------------
All of the Company's existing restaurants are located in leased space in
the Boston, Massachusetts metropolitan area except for the North End Pizzeria
Regina location which is owned by the Company. All of the Company's leases
provide for a minimum annual rent, and most call for additional rent based on
sales volume at the particular location over a specified minimum level.
Generally, these leases are net leases which require the Company to pay the cost
of insurance, taxes and a portion of the lessor's operating costs. Certain mall
locations also require the Company to participate in upkeep of common areas and
promotional activities.
The following table sets forth certain information with respect to the
Company's restaurant properties:
<TABLE>
<CAPTION>
Lease Approx. Seating Expiration
Location Sq. Ft. Capacity Date Name/Type
- -------- ------- -------- ---------- ---------
<S> <C> <C> <C> <C>
North End, Boston (1) 4,300 67 NA Pizzeria Regina
(wait-service)
Faneuil Hall Marketplace(2) 750 NA 12/31/00 Pizzeria Regina
Boston (Upstairs) (food court)
Faneuil Hall Marketplace(3) 2,000 75 12/31/97 Pizzeria Regina
Boston (Downstairs) (wait-service)
Longwood Medical Center (2) 650 NA 1/31/98 Pizzeria Regina
Boston (food court)
Burlington Mall 3,000 100 4/30/99 Pizzeria Regina
Burlington (self-service)
Burlington Mall(2) 1,018 NA 11/30/05 Pizzeria Regina
Burlington (food court)
14
<PAGE>
South Shore Plaza (2)(5) 700 NA 2/28/06 Pizzeria Regina
Braintree (food court)
Lexington 3,850 160 11/14/98 Bel Canto
Solomon Pond Mall(2)(5) 1,085 NA 1/30/07 Pizzeria Regina
Marlborough (food court)
Saugus(6) 11,000 400 11/30/12 Polcari's
North End
</TABLE>
- --------------
(1) Company-owned. This property is subject to a mortgage in favor of Haymarket
Co-Operative Bank. See "Management's Discussion And Analysis Or Plan Of
Operation -- Liquidity and Capital Resources" Includes approximately 1,000
square feet located in two adjacent condominiums owned by the Company which have
not been built-out as of the date of this Report.
(2) Food court locations have no independent seating capacity. Seating is
centralized in the common areas of the food courts.
(3) The Company is currently in negotiations for a new wait service location
within the marketplace.
(5) The Solomon Pond Mall and South Shore Plaza Mall food courts opened in
August 1996.
(6) Includes 30 seats located outdoors which are used weather permitting.
(7) The expiration date anticipates the Company exercise all of its extension
options that may be exercised by the Company in its discretion.
The Company occupies approximately 3,200 square feet of executive office
space at 999 Broadway, Saugus, Massachusetts 01906. The Company also leases
approximately 5,000 square feet of warehouse space located in Somerville,
Massachusetts under a lease expiring on July 31,2001 (including all extension
options that may be exercised by the Company in its discretion) and
approximately 2,741 square feet for its commissary located in Charlestown,
Massachusetts under a lease expiring on 14 August, 1998.
ITEM 3. LEGAL PROCEEDINGS
- ------- -----------------
The Company is involved in various legal matters in the ordinary course of
its business. Each of these matters is subject to various uncertainties and some
of these matters may be resolved unfavorably to the Company. Management believes
that any liability that may ultimately result from these matters will not have a
material adverse effect on the Company's financial position.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
- ------- --------------------------------------------------
During the fourth quarter of the fiscal year covered by this report, no
matters were submitted to a vote of security holders of the Company.
15
<PAGE>
PART II
- -------
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- ------- ---------------------------------------------------------
The Company's Common Stock (NASDAQ symbol: "BRAI") is traded publicly and
is quoted on the NASDAQ Small-Cap Market. As of July 25, 1997, there were
approximately 170 holders of record of the Company's Common Stock. On July 25,
1997, the last bid and asked price of the Company's Common Stock as reported on
the NASDAQ Small-Cap Market were $1.25 and $1.25 per share, respectively.
The table below represents the quarterly high and low bid and asked prices
for the Company's Common Stock for the Company's last two fiscal years. The
prices listed in this table reflect quotations without adjustment for retail
mark-up, markdown or commission, and may not represent actual transactions.
<TABLE>
<CAPTION>
High Low High Low
Bid Bid Asked Asked
--- --- ----- -----
<S> <C> <C> <C> <C>
Fiscal Year Ended April 28, 1996
First Quarter . . . . . 1.63 1.25 1.75 1.38
Second Quarter. . . . . 1.32 .50 1.38 .69
Third Quarter . . . . . 1.13 .50 1.19 .69
Fourth Quarter. . . . . 1.13 .70 1.19 .88
Fiscal Year Ended April 27, 1997
First Quarter. . . . . 1.06 .56 1.08 1.00
Second Quarter . . . . 1.00 .60 1.04 .62
Third Quarter. . . . . 1.125 1.00 1.31 1.02
Fourth Quarter . . . . 1.0825 1.04 1.22 1.08
</TABLE>
The Company has never paid cash dividends on its capital stock and does not
anticipate paying any cash dividends in the foreseeable future. Rather, the
Company intends to retain all of its future earnings to finance future growth.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
- ------- ---------------------------------------------------------
The following table sets forth for the fiscal periods indicated the
percentage of total revenues, unless otherwise indicated, represented by certain
items reflected in the Company's consolidated statements of operations:
16
<PAGE>
Fiscal Year Ended
------------------
April 27, 1997 April 28, 1996
-------------- --------------
Income Statement Data:
Net Sales 100.0% 100.0%
Costs and expenses:
Cost of food and beverages 22.2 24.1
Other operating expenses 62.4 67.1
General and administrative 8.9 18.4
Depreciation and amortization 5.1 5.8
Loss from valuation of assets
impaired, assets to be
disposed of and restaurant
closures - 12.5
Total costs and expenses 98.6 127.9
Operating Income/(Loss) 1.4 (27.9)
Interest expense, Net 1.3 .3
Other (income) expense, net - .5
Net Income/(Loss) .1 (28.7)
Results of Operations
Overview
The Company's results of operations for fiscal 1997 was significantly
affected by the Company's continuation of its strategy to focus its efforts on
the development of its Pizzeria Regina restaurant operations and the
corresponding effort to reduce its Capucino's and Bel Canto restaurant format.
The Company closed its Brookline, Massachusetts Capucino's restaurant in
November 1995 and reopened that location in February 1996 as a full service
Pizzeria Regina and subsequently closed this location in May of 1997 due to the
inability to negotiate a favorable lease extension. In June 1995 the Company
closed its Capucino's restaurant in Framingham, Massachusetts with the intention
of converting it into a Polcari's North End restaurant. The Company subsequently
determined that it would be in its best interest to sell the restaurant. This
sale was completed in April of 1997. In August 1996, the Company opened its new
food court kiosks in the Solomon Pond Mall and the South Shore Plaza Mall (which
replaced an existing in-line restaurant in this mall).
17
<PAGE>
Results of Operations for the Years Ended April 27, 1997 and April 28, 1996
Revenues
Net sales in fiscal 1997 were $11,411,000 compared to net sales of
$10,864,000 in fiscal 1996. The increase in net sales in fiscal 1997 as compared
to fiscal 1996 reflected, among other things, an increase in net sales at the
new Solomon Pond Mall and South Shore Plaza Pizzeria Regina (which replaced an
in-line restaurant at this mall) food court restaurants which were open in
August of 1996, increased aggregate sales from the other Pizzeria Regina
restaurants and increased sales at the new Polcari's North End Restaurant. The
increases were partially offset by a reduction in net sales at the remaining Bel
Canto restaurant and the closure of the self-service Pizzeria Regina at the
South Shore Plaza in August of 1996.
Net sales at the Company's Pizzeria Regina restaurants increased to
$7,890,000 in fiscal 1997 from $6,543,000 in fiscal 1996, principally due to the
addition of sales from the new Pizzeria Regina food court kiosks and the
Brookline location opened in February 1996 which was subsequently closed in May
1997 at the completion of its lease (due to the inability to renegotiate a
market value lease). In addition there was aggregate increase in sales from the
previously existing ongoing Pizzeria Regina restaurants.
Net sales at the Company's full service casual dining restaurants decreased
to $3,479,000 in fiscal 1997 from $4,287,000 in fiscal 1996. While sales at the
new Polcari's North End restaurant in fiscal 1997 increased by over $326,000
from the sales in fiscal 1996 period, this increase was offset by decreased
sales at the remaining Bel Canto restaurant, the closure of the Framingham
Capucino's in June 1995, the closure of the Wellesley restaurant in November
1995, and the conversion of the Brookline Capucino's to a Pizzeria Regina in
February 1996. The decrease at the Bel Canto restaurant was primarily
attributable to the increased competition in the Lexington area.
Costs and Expenses
Cost of Food and Beverages
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<PAGE>
Cost of food and beverages as a percentage of net sales was 22.2% in fiscal
1997, compared to cost of food and beverages as a percentage of net sales in
fiscal 1996 of 24.1%.
The cost of food and beverages as a percentage of net sales at the Pizzeria
Regina restaurants was 18.4% in fiscal 1997, compared to 19.3% in fiscal 1996.
The decrease in this cost as a percentage of net sales was primarily a result of
lower product costs and the addition of Pizzeria Regina food courts which
generally have lower food and beverage costs then wait service restaurants.
The cost of food and beverages as a percentage of net sales at the
Company's full service casual dining restaurants decreased to 31.1% in fiscal
1997 from 32.1% in fiscal 1996. The decrease in the cost of food and beverages
as a percentage of net sales was principally due to a change in the menu
composition at the Company's full service restaurants.
Other Operating Expenses
Payroll Expenses. Payroll expenses were $3,381,000 (29.6% of net sales) in
fiscal 1997, compared to payroll expenses of $3,667,000 (33.8% of net sales) in
fiscal 1996. The decrease in payroll expenses as a percentage of net sales
compared to fiscal year 1996 was primarily attributable to the closure of the
Wellesley Bel Canto and the Framingham Capucino in fiscal year 1996.
Payroll expenses at the Pizzeria Regina restaurants increased to $2,242,000
(28.4% of net sales) in fiscal 1997 from $1,948,000 (29.8% of net sales) in
fiscal 1996 primarily due to the opening of the new Pizzeria Regina food court
restaurants in the Solomon Pond Mall and South Shore Plaza Mall in August 1996
and the opening of the new Brookline location.
Payroll expenses at the Company's full service casual dining restaurants
decreased to $1,139,000 (32.7% of net sales) in fiscal 1997 from $1,719,000
(40.1% of net sales) in fiscal 1996. The decrease in payroll expenses in amount
and as a percentage of net sales was primarily attributable to closure of the
Wellesley Bel Canto and Framingham Capucino's.
Other Operating Expenses, Exclusive of Payroll. Other operating expenses,
exclusive of payroll, were $3,738,000 (32.8% of net sales) in fiscal 1997 as
compared to other operating expenses in fiscal 1996 of $3,620,000 (33.3% of net
sales). Other operating expenses from the Pizzeria Regina restaurants exclusive
of payroll increased to $2,415,000 in fiscal 1997 from
19
<PAGE>
$1,938,000 in fiscal 1996. This increase in other operating expenses was
attributable to the addition of expenses associated with the nine months of
operations at the food court in Solomon Pond Mall and South Shore Plaza Mall and
the opening of the new Brookline location (which was subsequently closed in May
1997 at the end of the lease term). Other operating expenses from the Company's
full service casual dining restaurants exclusive of payroll decreased to
$1,130,000 in fiscal 1997 from $1,497,000 in fiscal 1996 primarily as a result
of restaurant closures. The decrease was partially offset by an increase of
operating expenses at the Polcari's North End restaurant and the addition of two
new Pizzera Regina food court locations. Other operating expenses also include
commissary expenses which were $191,000 in fiscal 1997 and $185,000 in fiscal
1996, respectively.
General and Administrative Expenses
General and administrative expenses were $1,021,000 (8.9% of net sales) in
fiscal 1997, as compared to general and administrative expenses of $1,997,000
(18.4% of net sales) in fiscal 1996. The decrease in general and administrative
expenses in fiscal 1997 compared to fiscal 1996 was due, principally, to
personnel downsizing and relocation of the corporate office.
Loss for Store closures and the Write Down of Certain Assets
In fiscal 1996, the Company decided to close its Framingham, Massachusetts
Capucino's restaurant and had lease expense associated with this property
through April 1997.
Interest Expense and Interest Income
Interest expense increased to $157,000 in fiscal 1997 as compared to
interest expense in fiscal 1996 of $34,000. The increase in interest expense was
associated with borrowings under the Company's new credit facility and the
issuance of convertible subordinated debentures.
Interest income was $5,000 in both fiscal 1997 and 1996 periods.
Litigation
The Company is involved in various legal matters in the ordinary course of
its business. Each of these matters is subject to various uncertainties and some
of these matters may be resolved unfavorably to the Company. Management believes
that any liability that may ultimately result from these matters will not have a
material adverse effect on the Company's financial position.
20
<PAGE>
Liquidity and Capital Resources
The Company has financed its operations primarily through cash generated
from operations and debt instruments. At April 27, 1997 the Company had a
negative net working capital of approximately $213,000 and cash and cash
equivalents of approximately $726,000. In December 1995, the Company obtained a
long-term credit facility with Haymarket Co-Operative Bank. The terms of the
credit facility provide that the Company may initially draw upon a $500,000
credit line ("Phase One"), and that, at the Bank's discretion, an additional
$500,000 would be made available to the Company based upon the Company's results
of operations in fiscal 1996("Phase Two"). During fiscal 1997 the company
amended the 12% note and borrowed an additional $380,750. The interest rate on
Phase One of this credit facility is 2% above the bank's prime rate. The
interest rate on Phase Two of the credit facility is a fixed rate of 12% per
annum. The Company is obligated to make monthly principal payments of $8,333 on
Phase One of the loan, commencing May 1996, with all outstanding amounts due and
payable on or before April 1, 2001. The Company is obligated to make monthly
principal payments of $8,333 on Phase Two of the loan, commencing August 1996.
The credit facility is secured by all of the assets of the Company and its
subsidiaries, including the Company's Pizzeria Regina restaurant located in the
North End of Boston, Massachusetts. The credit facility also contains certain
covenants. The President and the Treasurer of the Company and each of the
Company's subsidiaries have guaranteed the Company's obligations to the bank. A
member of the Board of Directors of the Company also serves as a member of the
bank's board of directors. As of April 27, 1997, the Company had an outstanding
balance of $825,000 under this credit facility.
During fiscal 1997 the Company had a net increase in cash of $566,000
reflecting net cash used for operating activities of $364,000, net cash used for
investing activities of $232,000 and net cash provided from financing activities
of $1,162,000. The Company's cash used in operating activities was adversely
affected by the closure of its full service casual dining Italian restaurant in
Framingham. The Company incurred approximately $344,000 in connection with the
build-out of its two new food court kiosks and the Saugus lounge area. The
Company funded these expenditures primarily through borrowings under its credit
facility and its issuance of subordinated debentures. The company has identified
other locations for food court kiosks which cost approximately $400,000 to
construct and open. During fiscal 1997, the Company issued $1,118,750 of
convertible subordinated debentures. Subordinated debentures outstanding at
21
<PAGE>
April 27, 1997 consist of convertible debentures bearing interest at 8% through
31 December, 1997; 10% through 31 December, 1998; 12% through 31 December 1999;
14% through 2011 (this is straight-lined at 13.2% annually) payable
semi-annually and convertible into the Company's common stock at a conversion
rate of $1.25 per share. The Company can redeem the convertible debentures under
certain conditions, as defined. The debentures are due December 2011. The
Company is authorized to issue an additional $381,250 of subordinated
debentures.
At April 27, 1997 the Company had long-term debt obligations, less current
maturities, in the amount of $2,075,000, including the $625,000 of borrowings
under the Company's credit facility. At that date the Company's short-term debt
consisted of current maturities of long-term debt in the aggregate amount of
$235,000.
The Company believes that its existing resources, borrowings under its
credit facility, proceeds from the issuance of convertible subordinated
debentures and cash flow from operations will be sufficient to allow it to meet
its obligations over the next twelve months. The Company is also seeking
additional financing in order to fund its expansion plans and other cash flow
requirements. There can be no assurance that cash flows will improve in an
amount sufficient to allow the Company to fund its current obligations and
operating expenses, or that the Company will be able to obtain such additional
financing upon favorable terms, if at all. Failure of the Company to do so could
result in the Company's failure to be able to meet its cash flow requirements.
"Safe Harbor" Statement Under the Private Securities Litigation Reform Act of
1995
Forward-looking statements in this report, including without, limitation,
statements relating to the adequacy of the Company's resources and expansion
plans, are made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Investors are cautioned that such forward-looking
statements involve risks and uncertainties, including without limitation:
potential quarterly fluctuations in the Company's operating results; seasonality
of sales; competition; risks associated with expansion; the Company's reliance
on key employees; risks generally associated with the restaurant industry; risks
associated with geographic concentration of the Company's restaurants; risks
associated with serving alcoholic beverages; and other risks and uncertainties
indicated from time-to-time in the Company's filings with the Securities and
Exchange Commission.
22
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
- ------- --------------------
BOSTON RESTAURANT ASSOCIATES, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
Page
----
Boston Restaurant Associates, Inc. and Subsidiaries
Index to Financial Statements...................... F-1
Report of Independent Certified Public Accountants. F-2
Consolidated Financial Statements
Balance Sheets................................ F-3
Statements of operations...................... F-5
Statements of stockholders' equity............ F-6
Statements of cash flows...................... F-7
Summary of accounting policies................ F-8
Notes to consolidated financial statements.... F-11
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
- ------- ----------------------------------------------------------------
There were no disagreements on accounting principles or practices or
financial statement disclosure between the Company and its accountants during
the fiscal year ended April 27, 1997.
PART III
- --------
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
- ------- -------------------------------------------------------------
The information required by this Item 9 is hereby incorporated by reference
to the Company's definitive proxy statement to be filed by the Company within
120 days after the close of its 1997 fiscal year.
ITEM 10. EXECUTIVE COMPENSATION
- -------- ----------------------
The information required by this Item 10 is hereby incorporated by
reference to the Company's definitive proxy statement to be filed by the Company
within 120 days after the close of its 1997 fiscal year.
23
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -------- --------------------------------------------------------------
The information required by this Item 11 is hereby incorporated by
reference to the Company's definitive proxy statement to be filed by the Company
within 120 days after the close if its 1997 fiscal year.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------- ----------------------------------------------
The information required by this Item 12 is hereby incorporated by
reference to the Company's definitive proxy statement to be filed by the Company
within 120 days after the close of its 1997 fiscal year.
ITEM 13. EXHIBITS, LISTS AND REPORTS ON FORM 8-K
- -------- ---------------------------------------
(a) Exhibits
Exhibit Reference
Number
2 Stock for Stock Purchase Agreement, as A-2*
amended, among Capucino's, Inc., a Delaware
corporation, and John P. Polcari, Jr. and
George R. Chapdelaine, in their capacity as
Voting Trustees under that certain Amended
And Restated Voting Trust Agreement dated
April 28, 1994
3(a) Amended Certificate of Incorporation of the A-3(a)*
Registrant
(b) Amended Bylaws of the Registrant A-3(b)*
4(a) Description of Common Stock (contained in A-4(a)*
the Amended Certificate of Incorporation
of the Registrant, filed as Exhibit 3(a))
(b) Form of Certificate evidencing shares of F-4(b)*
Common Stock
(c) Amended and Restated Voting Trust Agreement A-9*
dated April 28, 1994, as amended
10(a) Lease dated July 15, 1987 between PRI and A-10(a)*
the Longwood Galleria Associates Limited
Partnership regarding a Pizzeria Regina
Location in the Longwood Galleria Mall,
Boston, Massachusetts
24
<PAGE>
(b) Lease dated June 15, 1987 (together with an A-10(b)*
amendment dated January 23, 1991) between
Ocean, Inc. and the BRA Nominee Trust
Regarding a Pizzeria Regina location in the
North End of Boston, Massachusetts
(c) Lease dated September 9, 1987 between Ocean, A-10(c)*
Inc. and Bellwether Properties of
Massachusetts Limited Partnership regarding
A Pizzeria Regina location in the Burlington
Mall, Burlington, Massachusetts
(d) Lease dated January 19, 1976 (together with A-10(d)*
amendments thereto dated April 1, 1980 and
November 6, 1987 as well as an amendment
And renewal notice dated December 7, 1990)
Between Fantail Restaurant, Inc. and Faneuil
Hall Market Place, Inc. regarding a Pizzeria
Regina location in the Faneuil Hall
Marketplace, Boston, Massachusetts (upstairs)
(e) Lease dated December 30, 1986 (together with A-10(e)*
an amendment thereto dated November 6, 1987
and a renewal notice dated December 7, 1990)
between Fantail Restaurant, Inc. and Faneuil
Hall Market Place, Inc. regarding a Pizzeria
Regina location in the Faneuil Hall
Marketplace, Boston, Massachusetts (downstairs)
(f) Lease dated June 9, 1980 (together with A-10(f)*
an assignment thereof dated March 11, 1991)
between Ocean, Inc. and Braintree Property
Associates Limited Partnership regarding
A Pizzeria Regina location in the South
Shore Plaza, Braintree, Massachusetts
(g) Lease dated March 6, 1984 (together with A-10(g)*
an amendment thereto dated September 13,
1991) between Bel Canto Restaurants, Inc.
and the Wellesley Realty Trust regarding a
Bel Canto location in Wellesley, Massachusetts
(h) Lease dated January 12, 1988 (together with A-10(h)*
amendments thereto dated August 31, 1988 and
September 13, 1991 and an assignment thereof
Dated September 13, 1991) between Bel Canto
Restaurants, Inc. and the 1709 Mass Avenue
Nominee Trust regarding a Bel Canto location
In Lexington, Massachusetts
25
<PAGE>
(i) Lease dated October 23, 1990 (together with A-10(I)*
an amendment thereto dated June 19, 1992)
between Capucino's Boston IV, Inc. and
Circuit City Stores, Inc. regarding a
Capucino's location in Framingham,
Massachusetts
(j) Lease dated February 8, 1972 (together with A-10(j)*
an amendment thereto dated July 10, 1973 and
an assignment thereof dated May 31, 1977)
and March 11, 1982 (together with an
amendment thereto dated March 11, 1982)
between Capucino's, Inc. and Ben-Har
Properties Realty Trust regarding a
Capucino's location in Brookline,
Massachusetts
(k) Lease dated August 19, 1992 between A-10(k)*
Capucino's of Saugus, Inc. and the Yen H.
Tow Realty Trust regarding a Capucino's
Location in Saugus, Massachusetts
(l) Lease dated August 2, 1990 between A-10(l)*
Capucino's Cambridge, Inc. and LEST
Corporation regarding a Capucino's
Location in Cambridge, Massachusetts
(m) Lease dated October 20, 1986 (together A-10(m)*
with an amendment thereto dated
September 10, 1991) between PRI and
Portland Causeway Realty Trust regarding
the Registrant's principal executive Offices
in Boston, Massachusetts
(n) Lease dated August 1, 1993 between Polcari A-10(n)*
Enterprises, Inc. and the E.J.H. Realty
Trust regarding Registrant's warehouse
Located in Somerville, Massachusetts
(o) Lease dated October 14, 1986 between A-10(o)*
Polcari Enterprises, Inc. and Costa Fruit
& Produce Co., Inc. regarding the
Registrant's commissary located in
Charlestown, Massachusetts
(p) Lease dated June 30, 1995 between Berlin G-10(p)*
Properties Limited Partnership and Ocean,
Inc. regarding a Pizzeria Regina location
In the Solomon Pond Mall, Berlin and
Marlborough, Massachusetts
26
<PAGE>
(q) Lease dated May 10, 1994 between Bellwether G-10(q)*
Properties of Massachusetts, L.P. and Ocean,
Inc. regarding a Pizzeria Regina in the
Burlington Mall, Burlington, Massachusetts
(r) Employment Agreement between the Registrant A-10(p)***
and George R. Chapdelaine
(s) Form of 1994 Nonemployee Director Stock A-10(q)***
Option Plan
(t) Form of 1994 Combination Stock Option Plan A-10(r)***
(u) Agent Borrowing Agreement by and among PRI A-10(s)*
and other subsidiaries of the Registrant
and BayBank dated February 8, 1991, as
amended on April 29, 1994
(v) $1,038,666 Commercial Note between PRI and A-10(t)*
BayBank dated February 8, 1991 as amended
On April 29, 1994
(w) $275,000 Commercial Note between PRI and A-10(u)*
Baybank dated February 9, 1991, as amended
On April 29, 1994
(x) Master Note in favor of BayBank issued by A-10(v)*
PRI on April 29, 1994
(y) Form of Guaranty of the Registrant in favor A-10(w)*
of BayBank
(z) Form of Guaranty of George R. Chapdelaine A-10(x)*
in favor of BayBank
(aa) Form of Guaranty of John P. Polcari in favor A-10(y)*
of BayBank
(bb) Stock Purchase Warrant issued to Corning A-10(z)*
Partners IV L.P. on April 29, 1994
(cc) $500,000 Subordinated debenture of the A-10(aa)*
Registrant issued to Corning Partners
IV, L.P. on April 29, 1994
(dd) Form of Indemnification Agreement with A-10(bb)***
each of the directors and certain
officers of the Registrant
(ee) Incentive Stock Option Plan B-10(h)***
(ff) Non-Employee Director's Stock Option C-10(h)***
Plan
27
<PAGE>
(gg) Form of Stock Option Agreement between D-10(h)
the Registrant and each of James I. Maruna,
W. Rex Seley and Richard J. Reeves
(hh) Severance Agreement between the Registrant E-10(p)***
and James I. Maruna
(ii) Amendment to Employment Agreement between A-(hh)***
the Registrant and George R. Chapdelaine
(jj) $500,000 Note, dated December 28, 1995, H-10.01*
issued by Boston Restaurant Associates, Inc.
in favor of Haymarket Co-Operative Bank
(kk) Condominium Mortgage-Security Agreement, H-10.02*
dated December 28, 1995, issued by George
R. Chapdelaine, Trustee of BRA Nominee
Trust, in favor of Haymarket Co-Operative
Bank
(ll) Loan and Security Agreement, dated H-10.03*
December 28, 1995, between Boston
Restaurant Associates, Inc. and Haymarket
Co-Operative Bank
(mm) Guaranty of Ocean, Inc., Polcari Enterprises, H-10.04*
Inc., Pizzeria Regina, Inc., Capucino Boston
IV, Inc., Fantail Restaurant, Inc.,
Capucino's, Inc., Bel Canto Restaurant, Inc.,
And Capucino's of Saugus, Inc., dated
December 28, 1995, in favor of Haymarket
Co-Operative Bank
(nn) Guaranty of George R. Chapdelaine, H-l0.05*
individually and as trustee of the BRA
Nominee Trust, dated December 28, 1995,
In favor of Haymarket Co-Operative Bank
(oo) Guaranty of John P. Polcari, Jr., dated H-10.06*
December 28, 1995, in favor of Haymarket
Co-Operative Bank
(pp) Form of Option granted to Mr. Chapdelaine H-10.07*
and Mr. Polcari in consideration of
their guaranties of BRA's obligations
of Boston Restaurant Associates, Inc.
under its credit facility
(qq) Lease dated July 24, 1996 between Faneuil I-10.08*
Hall Marketplace, Inc. and Fantail
Restaurant, Inc. regarding a Pizzeria
Regina location in the Faneuil Hall
Marketplace Area, Boston, Massachusetts
28
<PAGE>
(rr) $350,000 Note, dated April 19, 1996, I-10.09*
issued by Boston Restaurant Associates,
Inc. in favor of Haymarket Co-Operative
Bank
(ss) $500,000 Note, dated July 26, 1996, I-10.10*
issued by Boston Restaurant Associates,
Inc. in favor of Haymarket Co-Operative
Bank
(tt) Equipment Lease dated July 26, 1996 I-10.11*
between HCB Corporation and Ocean, Inc.
regarding certain equipment at a
Pizzeria Regina location in the Solomon
Pond Mall, Berlin and Marlborough,
Massachusetts
(uu) Lease dated 16 November, 1995 between Filed
Braintree Property Associates, LLP and Herewith
Ocean, Inc. regarding a Pizzeria Regina
Location in South Shore Plaza,
Braintree, Massachusetts
11 Calculation of net income (loss)
per share of common stock Filed
Herewith
21 Subsidiaries of the Registrant A-21*
23 Consent of BDO Seidman, LLP Filed
Herewith
27 Financial Schedule Filed
Herewith
29
<PAGE>
A Incorporated by reference to the Company's registration
Statement on Form SB-2 (Registration No. 33-81068). The number
set forth herein is the number of the Exhibit in said
registration statement
B Incorporated by reference to the Company's registration
statement on Form S-1 (File No. 33-31748). The number set
forth herein is the number of the Exhibit in said registration
statement
C Incorporated by reference to the Company's annual report on
Form 10-K for the year ended April 30, 1991. The number set
forth herein is the number of the Exhibit in said annual
report
D Incorporated by reference to the Company's transition report
on Form 10K for the seven months ended April 30, 1990. The
number set forth herein is the number of the Exhibit in said
transition report
E Incorporated by reference to the Company's annual report on
Form 10-K for the year ended April 30, 1993. The number set
forth herein is the number of the Exhibit in said annual
report.
F Incorporated by reference to the Company's annual report on
Form 10-K for the year ended April 30, 1994. The number set
forth herein is the number of the Exhibit in said annual
report.
G Incorporated by reference to the Company's annual report on
Form 10-K for the year ended April 30, 1995. The number set
forth herein is the number of the Exhibit in said annual
report.
H Incorporated by reference to the Company's quarterly report
on Form 10-QSB for the period ended January 28, 1996. The
number set forth herein is the number of the Exhibit in said
quarterly report
I Incorporated by reference to the Company's annual report on
Form 10-KSB for the year ended 28 April, 1996. The number at
forth herein is the number of the Exhibit in said annual
report.
* In accordance with Rule 12b-32 under the Securities Exchange
Act of 1934, as amended, reference is made to the documents
previously filed with the Securities and Exchange Commission,
which documents are hereby incorporated by reference
** Management Contract or Compensatory Plan or Arrangement
30
<PAGE>
- -------
(b) REPORTS ON FORM 8-K *by reference
-------------------
Boston Restaurant Associates, Inc. filed a report on Form 8-K date 31
December, 1996 reporting the issuance of 15-year subordinate convertible
debentures.
31
<PAGE>
SIGNATURES
In accordance with section 13 or 15(d) of the Securities Exchange Act
of 1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BOSTON RESTAURANT ASSOCIATES, INC.
Date: 25, July, 1997 By:/s/George R. Chapdelaine
------------------------
George R. Chapdelaine, President
In accordance with 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 and on the dates indicated.
SIGNATURE DATE
--------- ----
/s/ George R. Chapdelaine 25 July, 1997
-------------------------
George R. Chapdelaine, Chief
Executive Officer, President
and Director
/s/John P. Polcari 25 July, 1997
------------------
John P. Polcari, Jr.,
Treasurer and Director
/s/Joseph J. Caruso 25 July, 1997
-------------------
Joseph J. Caruso, Director
/s/Richard J. Reeves 25 July, 1997
--------------------
Richard J. Reeves, Director
/s/Terrance A. Smith 25 July, 1997
--------------------
Terrance A. Smith, Director
/s/Lucille Salhany 25 July, 1997
------------------
Lucille Salhany, Director
/s/Roger Lipton 25 July, 1997
---------------
Roger Lipton, Director
<PAGE>
Boston Restaurant
Associates, Inc.
and Subsidiaries
- --------------------------------------------------------------------------------
Consolidated Financial Statements
Years Ended April 27, 1997 and
April 28, 1996
<PAGE>
Boston Restaurant Associates, Inc.
and Subsidiaries
Index to Financial Statements
- --------------------------------------------------------------------------------
Report of Independent Certified Public Accountants F-2
Consolidated Financial Statements:
Balance sheets F-3 to F-4
Statements of operations F-5
Statements of stockholders' equity F-6
Statements of cash flows F-7
Summary of accounting policies F-8 to F-10
Notes to consolidated financial statements F-11 to F-27
F-1
<PAGE>
Report of Independent Certified Public Accountants
To the Board of Directors and Stockholders of
Boston Restaurant Associates, Inc.
We have audited the accompanying consolidated balance sheets of Boston
Restaurant Associates, Inc. and subsidiaries as of April 27, 1997 and April 28,
1996, and the related consolidated statements of operations, stockholders'
equity and cash flows for the years then ended. 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Boston Restaurant
Associates, Inc. and subsidiaries at April 27, 1997 and April 28, 1996, and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.
BDO Seidman, LLP
Boston, Massachusetts
July 2, 1997
F-2
<PAGE>
Boston Restaurant Associates, Inc.
and Subsidiaries
Consolidated Balance Sheets
- --------------------------------------------------------------------------------
April 27, April 28,
1997 1996
- --------------------------------------------------------------------------------
Assets (Note 4)
Current:
Cash and cash equivalents $726 054 $159 564
Accounts receivable 69 729 65 079
Inventories (Note 1) 209 295 232 427
Prepaid expenses and other 27 532 66 609
- --------------------------------------------------------------------------------
Total current assets 1 032 610 523 679
- --------------------------------------------------------------------------------
Property and equipment (Notes 9 and 12):
Building 512 500 512 500
Leasehold improvements 2 591 941 2 759 369
Equipment, furniture and fixtures 1 799 061 1 995 784
- --------------------------------------------------------------------------------
4 903 502 5 267 653
Less accumulated depreciation and amortization 2 247 174 2 527 972
- --------------------------------------------------------------------------------
Net property and equipment 2 656 328 2 739 681
- --------------------------------------------------------------------------------
Other assets (Notes 2 and 12) 944 180 752 624
- --------------------------------------------------------------------------------
$4 633 118 $4 015 984
================================================================================
See accompanying summary of accounting policies and notes to
consolidated financial statements.
F-3
<PAGE>
Boston Restaurant Associates, Inc.
and Subsidiaries
Consolidated Balance Sheets
(Continued)
- --------------------------------------------------------------------------------
April 27, April 28,
1997 1996
- --------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable (Note 12) $ 382 294 $ 885 791
Accrued expenses (Notes 3 and 12) 628 277 1 021 641
Current maturities (Notes 4, 5, 6 and 9):
Long-term debt 200 000 144 836
Notes payable - stockholder 4 261 4 038
Obligations under capital leases 30 850 -
Subordinated debentures - 84 000
- --------------------------------------------------------------------------------
Total current liabilities 1 245 682 2 140 306
Long-term obligations:
Long-term debt, less current maturities (Note 4) 625 000 474 414
Notes payable - stockholder, less current
maturities (Note 5) 125 810 130 072
Obligations under capital leases, less
current maturities (Note 9) 138 850 -
Deferred rent (Note 9) 67 024 60 871
Subordinated debentures (Note 6) 1 118 750 -
- --------------------------------------------------------------------------------
Total liabilities 3 321 116 2 805 663
- --------------------------------------------------------------------------------
Commitments and contingencies (Notes 4, 6, 9, 10 and 13)
Stockholders' equity (Notes 5, 6, 10 and 11):
Common stock, $.01 par value, 25,000,000
shares authorized; shares issued 5,015,693
and 5,015,293 50 157 50 153
Additional paid-in capital 9 043 199 8 953 785
Accumulated deficit (7 781 354) (7 793 617)
- --------------------------------------------------------------------------------
Total stockholders' equity 1 312 002 1 210 321
- --------------------------------------------------------------------------------
$ 4 633 118 $4 015 984
================================================================================
See accompanying summary of accounting policies and notes to
consolidated financial statements.
F-4
<PAGE>
Boston Restaurant Associates, Inc.
and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
April 27, April 28,
Years ended 1997 1996
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $11 410 886 $10 864 418
Costs and expenses:
Cost of food, beverages and liquor 2 532 050 2 618 187
Other operating expenses 7 119 142 7 287 378
General and administrative 1 020 796 1 996 752
Depreciation and amortization 579 071 635 378
Loss from valuation of assets impaired, assets to
to be disposed of and restaurant closures (Note 12) - 1 355 034
- ----------------------------------------------------------------------------------------------
Total costs and expenses 11 251 059 13 892 729
- ----------------------------------------------------------------------------------------------
Operating income (loss) 159 827 (3 028 311)
Interest expense, net of interest income of $4,983 and
$5,305 in 1997 and 1996, respectively 151 941 29 185
Other (income) expense, net (Note 7) (4 377) 50 404
- ----------------------------------------------------------------------------------------------
Net income (loss) $ 12 263 $(3 107 900)
==============================================================================================
Net income (loss) per share $ - $ (.62)
==============================================================================================
Weighted average number of common and
dilutive common equivalent shares outstanding 5 015 306 5 015 293
==============================================================================================
</TABLE>
See accompanying summary of accounting policies and notes to
consolidated financial statements.
F-5
<PAGE>
Boston Restaurant Associates, Inc.
and Subsidiaries
Consolidated Statements of Stockholders' Equity
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
Common Stock
$.01 Par Value Additional Total
Years ended April 27, 1997 and ----------------- Paid-In Accumulated Stockholders'
April 28, 1996 Shares Amount Capital Deficit Equity
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, April 30, 1995 5 015 293 $50 153 $8 953 785 $(4 685 717) $4 318 221
Net loss for the year - - - (3 107 900) (3 107 900)
- ---------------------------------------------------------------------------------------------------------------------
Balance, April 28, 1996 5 015 293 50 153 8 953 785 (7 793 617) 1 210 321
Exercise of stock options (Note 13) 400 4 384 - 388
Issuance of options and warrants in
exchange for services (Note 11) - - 89 030 - 89 030
Net income for the year - - - 12 263 12 263
- ---------------------------------------------------------------------------------------------------------------------
Balance, April 27, 1997 5 015 693 $50 157 $9 043 199 $(7 781 354) $1 312 002
=====================================================================================================================
</TABLE>
See accompanying summary of accounting policies
and notes to consolidated financial statements.
F-6
<PAGE>
Boston Restaurant Associates, Inc.
and Subsidiaries
Consolidated Statements of Cash Flows
(Note 11)
<TABLE>
- -----------------------------------------------------------------------------------------------------------
<CAPTION>
April 27, April 28,
Years ended 1997 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 12 263 $(3 107 900)
Adjustments to reconcile net income (loss) to net cash
used for operating activities:
Loss on disposal of fixed assets - 46 477
Depreciation and amortization 579 071 635 378
Loss from valuation of assets impaired, assets to be
disposed of and restaurant closures - 1 355 034
Options granted in exchange for services 20 300 -
Changes in operating assets and liabilities:
Accounts receivable (4 650) 33 233
Inventories 23 132 108 394
Prepaid expenses and other 39 077 749
Other assets (142 570) (13 025)
Accounts payable (503 497) 134 654
Accrued expenses (393 364) 174 302
Deferred rent 6 153 138
- -----------------------------------------------------------------------------------------------------------
Net cash used for operating activities (364 085) (632 566)
- -----------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (331 430) (661 054)
Proceeds from sales of fixed assets 99 811 265 747
- -----------------------------------------------------------------------------------------------------------
Net cash used for investing activities (231 619) (395 307)
- -----------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 380 750 619 250
Repayments of long-term debt (175 000) (971)
Repayments of capital lease obligations (20 300) -
Repayments of stockholder loans (4 039) (3 820)
Repayments of subordinated debentures (84 000) (116 000)
Proceeds from issuance of subordinate debentures 1 118 750 -
Proceeds from exercise of stock options 388 -
Debt issuance costs (54 355) -
- -----------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 1 162 194 498 459
- -----------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 566 490 (529 414)
Cash and cash equivalents, beginning of year 159 564 688 978
- -----------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 726 054 $ 159 564
===========================================================================================================
</TABLE>
See accompanying summary of accounting policies
and notes to consolidated financial statements.
F-7
<PAGE>
Boston Restaurant Associates, Inc.
and Subsidiaries
Summary of Accounting Policies
- --------------------------------------------------------------------------------
Nature of Business The Company is engaged in the restaurant
and Basis of business. As of April 27, 1997, the Company
Presentation operated nine pizza and two casual Italian
dining restaurants, including one held for
sale. As of April 28, 1996, the Company
operated eight pizza and two casual Italian
dining restaurants, including one held for
sale. Another of the Company's restaurant
locations has been closed since June 1995
and was sold in April 1997. In May 1997, the
lease for a pizza restaurant location
expired and was not renewed.
The consolidated financial statements
include the accounts of the Company and its
wholly-owned subsidiaries. All significant
intercompany balances and transactions have
been eliminated.
Fiscal Year The Company's fiscal year ends on the last
Sunday in April. Fiscal years 1997 and 1996
both included 52 weeks.
Use of 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 reported amounts of
revenues and expenses during the reporting
period. Actual results could differ from
those estimates.
Inventories Inventories are valued at the lower of cost
(first-in, first-out) or market.
Property and Property and equipment are stated at cost.
Equipment Depreciation is computed using accelerated
and straight-line methods over the estimated
useful lives of the assets. Leasehold
improvements are amortized over the
estimated useful lives of the improvements
or the length of the lease, including
anticipated renewal periods, whichever is
shorter.
F-8
<PAGE>
Boston Restaurant Associates, Inc.
and Subsidiaries
Summary of Accounting Policies
- --------------------------------------------------------------------------------
Other Assets
Goodwill Goodwill resulting from the excess of cost
over fair value of net assets acquired is
being amortized on a straight-line basis
over 20 years. The Company evaluates the
recoverability and remaining life of its
goodwill and determines whether the goodwill
should be completely or partially
written-off or the amortization period
accelerated. The Company will recognize an
impairment of goodwill if undiscounted
estimated future operating cash flows of the
acquired business are determined to be less
than the carrying amount of the goodwill. If
the Company determines that the goodwill has
been impaired, the measurement of the
impairment will be equal to the excess of
the carrying amount of the goodwill over the
amount of the undiscounted estimated future
operating cash flows. If an impairment of
goodwill were to occur, the Company would
reflect the impairment through a reduction
in the carrying value of goodwill. During
fiscal 1996, goodwill was reduced due to the
Company's determination that impairments had
occurred (see Note 12).
Deferred Costs incurred in connection with obtaining
Financing Costs financing are amortized over the terms of
the related debt.
Pre-Opening Costs All nonrecurring costs, such as recruiting,
training and other initial direct
administrative expenses associated with the
opening of new restaurant locations are
expensed as incurred.
Taxes on Income The Company accounts for income taxes under
the asset and liability method pursuant to
Statement of Financial Accounting Standards
No. 109 ("SFAS 109"), "Accounting for Income
Taxes." Under SFAS 109, deferred income
taxes are recognized for the future tax
consequences attributable to differences
between the financial statement carrying
amounts of existing assets and liabilities
and their respective tax basis. Deferred tax
assets and liabilities are measured using
enacted tax rates expected to apply to
taxable income in the years in which those
temporary differences are expected to be
recovered or settled. Under SFAS 109, the
effect on deferred taxes of a change in tax
rates is recognized in income in the period
that includes the enactment date.
F-9
<PAGE>
Boston Restaurant Associates, Inc.
and Subsidiaries
Summary of Accounting Policies
- --------------------------------------------------------------------------------
Cash Equivalents For purposes of the statements of cash
flows, the Company considers all highly
liquid debt instruments purchased with a
maturity of three months or less to be cash
equivalents.
Net Income (Loss) Net income (loss) per share is based on the
Per Share weighted average number of common and
dilutive common equivalent shares
outstanding. Common stock equivalents in the
form of stock options and warrants when
dilutive are also considered in the
computation.
New Accounting Effective April 29, 1996, the Company
Standards adopted the provisions of Statement of
Financial Accounting Standards No. 123,
"Accounting for Stock Based Compensation".
The Company has elected to continue to
account for stock options at their intrinsic
value with disclosure of the effects of fair
value accounting on net earnings (loss) and
earnings (loss) per share on a pro forma
basis.
Statement of Financial Accounting Standards
No. 128, "Earnings per Share," (FAS No.
128") issued by the Financial Accounting
Standards Board is effective for financial
statements for fiscal years ending after
December 15, 1997. The new standard
establishes standards for computing and
presenting earnings per shares.
The effect of adopting Statement of
Financial Accounting Standards No. 128,
"Earnings per Share," is not expected to be
material. The Company is required to adopt
the disclosure requirements of FAS No. 128
during the year ended April 26, 1998.
Reclassifications Certain reclassifications have been made to
the 1996 financial statements to conform to
the 1997 presentation.
F-10
<PAGE>
Boston Restaurant Associates, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
1. Inventories Inventories consist of the following:
April 27, April 28,
1997 1996
----------------------------------------------------------------------------------
<S> <C> <C>
Food, beverages and liquor $110 732 $131 098
Paper goods and supplies 98 563 101 329
Total $209 295 $232 427
==================================================================================
</TABLE>
2. Other Assets Other assets consist of the following:
<TABLE>
<CAPTION>
April 27, April 28,
1997 1996
----------------------------------------------------------------------------------
<S> <C> <C>
Goodwill $ 765 133 $765 133
Deferred financing costs 212 100 13 015
Deposits and other 99 859 31 762
Favorable lease 41 590 41 590
----------------------------------------------------------------------------------
1 118 682 851 500
Less accumulated amortization 174 502 98 876
----------------------------------------------------------------------------------
Total $ 944 180 $752 624
==================================================================================
</TABLE>
3. Accrued Expenses Accrued expenses consist of the following:
<TABLE>
<CAPTION>
April 27, April 28,
1997 1996
---------------------------------------------------------------------------------
<S> <C> <C>
Compensation $230 117 $ 226 015
Accrued rent 89 455 9 953
Taxes other than income taxes 88 786 117 534
Professional fees 50 000 84 484
Reserves for store closures (Note 12) 46 325 263 599
Gift certificates 37 365 31 694
Interest 35 315 5 576
Insurance 10 873 41 708
Reserve for legal contingencies (Note 9) - 200 000
Other 40 041 41 078
---------------------------------------------------------------------------------
Total $628 277 $1 021 641
=================================================================================
</TABLE>
F-11
<PAGE>
Boston Restaurant Associates, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
4. Long-Term Debt Long-term debt consists of the following:
<TABLE>
<CAPTION>
April 27, April 28,
1997 1996
<S> <C> <C>
----------------------------------------------------------------------------------
Note payable to a bank, interest at prime
plus 2% (10.5% at April 27, 1997), payable
in monthly installments of $8,333 plus
interest, due April, 2001.
$400 000 $500 000
Note payable to a bank, interest at 12.0%,
payable in monthly installments of $8,333
plus interest, due July, 2001.
425 000 119 250
----------------------------------------------------------------------------------
Total 825 000 619 250
Less current maturities 200 000 144 836
----------------------------------------------------------------------------------
Long-term debt $625 000 $474 414
==================================================================================
</TABLE>
During fiscal 1997, the Company amended the
12% note and borrowed an additional
$380,750. The terms of the amended note
include interest at 12%, payable in monthly
installments of $8,333 plus interest, due
July 2001.
The notes payable to a bank are
collateralized by substantially all of the
Company's assets, excluding real estate, and
are personally guaranteed by both the
Company's President and Treasurer.
In connection with their guarantees of the
notes payable, the Company issued options to
purchase an aggregate of 115,500 shares of
the Company's common stock in fiscal 1997
and 357,000 shares of the Company's common
stock in fiscal 1996 to the Company's
President and Treasurer. The Company also
issued warrants to purchase a total of
42,500 shares of the Company's common stock
to the bank in connection with the issuance
of the notes payable (see Note 10). The
value of these options and warrants was not
material as of their issuance dates. A
member of the Company's Board of Directors
also serves as a member of the bank's Board
of Directors.
F-12
<PAGE>
Boston Restaurant Associates, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
4. Long-Term Debt Maturities of the long-term debt are as
(Continued) follows:
Fiscal year ending Amount
--------------------------------------------
1998 $200 000
1999 200 000
2000 200 000
2001 200 000
2002 25 000
--------------------------------------------
Total $825 000
============================================
5. Notes Payable - Notes payable - stockholder consists of two
Stockholder notes, with interest at 7.18% and 8%,
payable in aggregate monthly installments of
principal and interest of $810, maturing
January, 2017.
Maturities of the stockholder notes are as
follows:
Fiscal year ending Amount
--------------------------------------------
1998 $ 4 261
1999 4 494
2000 4 759
2001 4 993
2002 5 274
Thereafter 106 290
--------------------------------------------
Total $130 071
============================================
F-13
<PAGE>
Boston Restaurant Associates, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
6. Subordinated Subordinated debentures outstanding at April
Debentures 27, 1997 consist of convertible debentures
bearing interest at variable rates of 8%
through December 31, 1997, 10% through
December 31, 1998, 12% through December 31,
1998 and 14% through December 31, 2011,
payable semi-annually and convertible into
the Company's common stock at a conversion
rate of $1.25 per share. The Company has
recorded interest costs related to these
debentures at a straight-lined rate of
13.2%. The convertible debentures
automatically convert into shares of common
stock at the conversion rate if the average
bid price of the Company's common stock for
any sixty consecutive trading days has been
equal to or greater than $3.00. The
debentures are due December 31, 2011. The
Company is authorized to issue an additional
$381,250 of subordinated debentures.
The subordinated debentures outstanding at
April 28, 1996 consist of convertible
subordinated debentures bearing interest at
10% payable quarterly which were convertible
into the Company's common stock at a
conversion rate of $5.00 per share.
These debentures were paid in full during
fiscal 1997.
7. Other (Income) Other (income) expense, net consists of the
Expense, Net following:
<TABLE>
<CAPTION>
April 27, April 28,
Years ended 1997 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Other (income) expense $(4 377) $ 3 927
Loss on disposal
of fixed assets - 46 477
-------------------------------------------------------
Total $(4 377) $50 404
=======================================================
</TABLE>
F-14
<PAGE>
Boston Restaurant Associates, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
8. Taxes on Income At April 27, 1997, the Company has the
following net operating loss carryforwards,
subject to review by the Internal Revenue
Service, available to offset future taxable
income for Federal income tax purposes
as indicated:
<TABLE>
<CAPTION>
Expiration
Amount Dates
<S> <C> <C>
-----------------------------------------------------------------------------------
Net operating losses purchased in a 1994
acquisition, whose use is limited $2 918 000 2004-2009
Net operating losses incurred before and
after acquisition and available for
immediate offset against taxable income 4 481 000 1998-2012
Deferred tax assets are comprised of the
following:
April 27, April 28,
1997 1996
------------------------------------------------------------------------------------
Deferred tax assets:
Net operating loss carryforwards $ 2 960 000 $ 2 198 000
Losses on store closures and
write-downs not yet deductible
for tax purposes 496 000 459 000
Reserves and accruals not yet
deductible for tax purposes - 80 000
Valuation allowance (3 456 000) (2 737 000)
------------------------------------------------------------------------------------
Net deferred tax assets $ - $ -
====================================================================================
</TABLE>
F-15
<PAGE>
Boston Restaurant Associates, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
8. Taxes on Income A reconciliation of the statutory federal
(Continued) income tax rate (benefit) and the effective
tax rate as a percentage of income (loss)
before taxes on income is as follows:
<TABLE>
<CAPTION>
April 27, April 28,
Years ended 1997 1996
-------------------------------------------------------------
<S> <C> <C>
Statutory rate (benefit) 34.0% (34.0)%
Operating income offset by
current tax loss generating
no current or deferred tax
effect (34.0) -
Operating losses generating
no current tax benefit - 34.0
-------------------------------------------------------------
Effective tax rate -% -%
=============================================================
</TABLE>
F-16
<PAGE>
Boston Restaurant Associates, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
9. Commitments and
Contingencies
Leases The Company is obligated under
noncancellable operating leases for its
leased restaurant locations, office,
commissary and warehouse space. Lease terms
range from five to twenty years and in
certain instances provide options to extend
the original term. Generally, the Company is
required to pay its proportionate share of
real estate taxes, insurance, common area
and other operating costs in addition to
annual base rent. Substantially all
restaurant leases provide for contingent
rentals based on sales in excess of
specified amounts. The Company also leases
equipment under capital leases.
The following is an analysis of leased
property under capital leases, included in
property and equipment:
<TABLE>
<CAPTION>
April 27, April 28,
1997 1996
-------------------------------------------------------------------------------
<S> <C> <C>
Equipment $190 000 $ -
-------------------------------------------------------------------------------
Less: accumulated amortization 19 724 -
-------------------------------------------------------------------------------
Net leased property under capital leases $170 276 $ -
===============================================================================
</TABLE>
F-17
<PAGE>
Boston Restaurant Associates, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
9. Commitments and
Contingencies
(Continued)
Leases Aggregate minimum rental requirements under
(Continued) capital leases and operating leases as of
April 27, 1997, are approximately
as follows:
<TABLE>
<CAPTION>
Capital Operating
Fiscal year ending Leases Leases
----------------------------------------------------------------------------
<S> <C> <C>
1998 $ 54 241 $1 524 000
1999 54 241 1 156 000
2000 54 241 896 000
2001 54 241 789 000
2002 13 560 764 000
Thereafter - 2 363 000
----------------------------------------------------------------------------
Total minimum lease payments 230 524 $7 492 000
------------------------------------------------------ ==========
Amount representing interest 60 824
------------------------------------------------------
Present value of net minimum
lease payments 169 700
Less current maturities 30 850
------------------------------------------------------
Total long term portion $138 850
======================================================
</TABLE>
Deferred rent liabilities of $67,024 and
$60,871 as of April 27, 1997 and April 28,
1996, respectively, were recorded in order
to recognize lease escalation provisions on
a straight-line basis for certain operating
leases.
Rent expense under all operating leases was
approximately $1,481,000 and $1,497,000
which included contingent rentals of
approximately $13,500 and $10,000 in 1997
and 1996, respectively.
F-18
<PAGE>
Boston Restaurant Associates, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
9. Commitments and
Contingencies
(Continued)
Lease Guarantees In connection with the sale of a restaurant
to a non-affiliated third-party, the Company
is a guarantor of the lease payments under
the leases assumed by the buyer expiring in
fiscal 2001. At April 27, 1997, the Company
is contingently liable for approximately
$684,000 under the guarantees. The Company
is of the opinion that the buyer of the
location will be able to perform under the
terms of the lease agreement and that no
payments will be required or losses will be
incurred by the Company under the
guarantees.
Employment The Company has an employment agreement with
Agreement and its President, which expires April 29, 1999.
Guaranty In addition to a base salary, adjusted
annually for cost-of-living changes and an
annual bonus, the agreement provides for a
performance bonus, as defined. The
commitment for future compensation,
excluding the performance bonus amounts to
$200,000 per year. The employment agreement
further provides that upon the termination
of the President for reasons, as defined,
the President will agree not to compete with
the Company for a three year period and the
Company will continue to pay the President's
then current base salary and annual bonus
for three years effective at the date of
such termination.
Litigation The Company is involved in various legal
matters in the ordinary course of its
business. Each of these matters is subject
to various uncertainties, and some of these
matters may be resolved unfavorably to the
Company. Management believes that any
liability that may ultimately result from
the resolution of these matters will not
have a material adverse effect on the
financial position of the Company.
F-19
<PAGE>
Boston Restaurant Associates, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
10. Stock Options At April 27, 1997, outstanding options
and Warrants consist of the following:
The Company has an Employee Stock Option
Plan (the "Employee Plan") and a Directors'
Stock Option Plan (the "Directors' Plan")
which was assumed by the Company in
connection with a fiscal 1994 acquisition.
Under both the Employee and Directors'
Plans, options are granted at the fair
market value on the date of the grant and
are exercisable in part beginning one year
after the grant date and ending six years
from the grant date under the Employee Plan
and five years after the grant date under
the Directors' Plan.
In July, 1994, the Company's stockholders
approved the 1994 Combination Stock Option
Plan (the "1994 Combination Plan") and the
1994 Non-Employee Director Stock Option Plan
(the "1994 Director Plan"), which replace
the previously existing Employee and
Directors' Plans.
The 1994 Combination Plan provides for the
grant of incentive stock options intended to
qualify under the requirements of the
Internal Revenue Code and options not
qualified as incentive stock options.
Incentive stock options may only be granted
to employees of the Company. Non-employees
contributing to the success of the Company
are eligible to receive non-qualified stock
options. The 1994 Combination Plan is to be
administered by a Committee designated by
the Board of Directors. Options under the
1994 Combination Plan may not be granted
after July 2004 and the exercise price shall
be at least equal to the fair market value
of the common stock at the grant date.
Incentive stock options may be granted to
holders of more than 10% of the Company's
common stock at an exercise price of at
least 110% of the fair market value of the
Company's common stock at the grant date.
The terms of the options granted are to be
determined by the Committee, but in no event
shall the term of any incentive stock option
extend beyond three months after the time a
participant ceases to be an employee of the
Company. No options may be exercised more
than five years after the date of the grant
for 10% stockholders, or ten years after the
date of grant for all other participants. A
total of 500,000 shares of common stock have
been reserved for issuance under the 1994
Combination Plan subject to shareholder
approval for the increase of 365,000 shares
in 1997.
F-20
<PAGE>
Boston Restaurant Associates, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
10. Stock Options The 1994 Director Plan provides for the
and Warrants granting to each eligible non-employee
(Continued) director of the Company an option to
purchase 5,000 shares of the Company's
common stock. Options granted under the 1994
Director Plan become exercisable over a five
year period at an exercise price equal to
the fair market value of the Company's
common stock at the grant date and expire
ten years from the grant date. A total of
500,000 shares have been reserved for
issuance under the 1994 Director Plan.
During fiscal 1997, the Company issued
options to the Company's President and
Treasurer to purchase an aggregate of
115,500 shares of the Company's common stock
in connection with guarantees of certain
notes payable (see Note 4) and a new lease
facility. Options for an aggregate of 75,600
shares are exercisable at $0.94 per share
and expire July 26, 2001. The remaining
options for an aggregate of 39,900 shares
are exercisable at $1.00 per share and
expire October 18, 2001.
During fiscal 1996, the Company issued
options to the Company's President and
Treasurer to purchase an aggregate of
357,000 shares of the Company's common
stock, in connection with their guarantees
of certain notes payable (see Note 4).
Options for an aggregate of 210,000 shares
are exercisable at $0.94 per share and
expire December 16, 2000. The remaining
options for an aggregate of 147,000 shares
are exercisable at $0.88 per share and
expire April 19, 2001.
F-21
<PAGE>
Boston Restaurant Associates, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
10. Stock Options
and Warrants
(Continued) Changes in options outstanding under the
Employee and Directors' Plans, the 1994
Plans and options issued in connection with
the guarantee of certain debt by the
Company's President and Treasurer are
summarized as follows:
<TABLE>
<CAPTION>
Weighted-Average
Shares Exercise Price
----------------------------------------------------------------------------------------
<S> <C> <C>
Balance, April 30, 1995 38 480 $4.58
Granted 432 000 0.92
Exercised - -
Cancelled or expired (43 500) 3.37
----------------------------------------------------------------------------------------
Balance, April 28, 1996 426 980 1.00
Granted 328 500 1.04
Exercised (400) 0.96
Cancelled or expired (1 480) 7.00
----------------------------------------------------------------------------------------
Balance, April 27, 1997 753 600 $1.01
========================================================================================
</TABLE>
As of April 27, 1997, options for 544,200
shares are exercisable at prices ranging
from $0.88 to $4.38. At April 28, 1996,
options for 375,230 shares were exercisable
at prices ranging from $0.88 to $7.00.
F-22
<PAGE>
Boston Restaurant Associates, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
10. Stock Options The following table summarizes information
and Warrants about stock options outstanding at
(Continued) April 27, 1997:
<TABLE>
<CAPTION>
Options Outstanding
--------------------------------------------------------------------------------
Weighted-
Average Weighted-
Range of Number Remaining Average
Exercise Outstanding at Contractual Exercise
Prices April 27, 1997 Life (years) Price
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 4.38 3 500 1.0 $4.38
2.38 5 000 3.5 2.38
1.56 10 000 3.8 1.56
0.88 - 1.25 735 100 4.8 0.97
--------------------------------------------------------------------------------
$ 0.88 - 4.38 753 600 4.77 $1.01
================================================================================
Options Exercisable
--------------------------------------------------------------------------------
Weighted-
Range of Number Average
Exercise Exercisable at Exercise
Prices April 27, 1997 Price
--------------------------------------------------------------------------------
$ 4.38 3 500 $4.38
2.38 2 000 2.38
1.56 4 000 1.56
0.88 - 1.25 534 700 .94
--------------------------------------------------------------------------------
$ 0.88 - 4.38 544 200 $ .97
================================================================================
</TABLE>
At April 27, 1997, warrants and units
outstanding, all of which are exercisable,
consist of the following:
(a) Warrant for the purchase of 210,000
shares of common stock, at an exercise
price of $2.00 per share expiring
April 29, 1999.
(b) Warrants to purchase 1,708,000 shares
of common stock at a purchase price of
$3.20 per share from March 8, 1997
through September 7, 1999, issued in
connection with the Company's
September 7, 1994 public offering.
F-23
<PAGE>
Boston Restaurant Associates, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
10. Stock Options (c) Warrants to purchase 75,000 units
and Warrants (375,000 shares) at a purchase price
(Continued) of $3.20 per share, expiring September
7, 1999, issued in connection with the
Company's September 7, 1994 public
offering.
(d) Warrants to purchase 25,000 and 17,500
shares of common stock at a purchase
price of $2.00 per share through June
28, 1998 and October 19, 1998,
respectively, or at a purchase price
of $2.80 per share from June 29, 1998
through December 28, 2000 and October
20, 1998 through April 19, 2001,
respectively, issued to the bank in
connection with the issuance of the
notes payable (see Note 4).
(e) Warrants to purchase 350,000 shares of
common stock at an exercise price of
$3 per share, expiring December 31,
2006, issued in consideration for
brokerage services connected with the
issuance of the convertible
subordinated debentures (see Notes 6
and 11).
The convertible subordinated debentures with
an outstanding balance of $1,118,750 as of
April 27, 1997 are convertible into common
shares at a conversion price of $1.25 per
share. Accordingly, 895,000 shares have been
reserved for conversion. Additionally, the
Company is authorized to issue warrants for
305,000 shares of common stock upon the
issuance of the remaining $381,250 of
convertible debentures and warrants for
150,000 shares for the related brokerage
services (see Note 6).
There were 5,516,250 shares reserved with
respect to the above options, warrants,
convertible debentures and the anti-dilution
provisions related to a fiscal 1994
acquisition at April 27, 1997.
During fiscal 1997 and 1996, the following
units, warrants and options expired:
(a) Options to purchase 1,480 shares of
common stock at $7.00 per share.
(b) Options to purchase 18,500 shares of
common stock at prices ranging from
$3.44 to $13.30 per share granted
under the Employee and Directors'
Plans.
F-24
<PAGE>
Boston Restaurant Associates, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
10. Stock Options (c) Options to purchase 25,000 shares of
and Warrants common stock at $0.94 per share
(Continued) granted under the 1994 Combination
Plan.
(d) Warrants for the purchase of 6,000
shares of common stock at $5.00 per
share.
At April 27, 1997, the Company has four
stock-based compensation plans, which are
described above. The Company accounts for
its stock-based compensation plans using the
intrinsic value method. Accordingly, no
compensation cost has been recognized for
its stock option plans. Had compensation
cost for the Company's four stock option
plans and options issued in connection with
the guarantee of certain debt been
determined based on the fair value at the
grant dates for awards under those plans
consistent with the method of FASB Statement
123, Accounting for Stock-Based
Compensation, the Company's net income
(loss) and earnings (loss) per share would
have been adjusted to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
April 27, April 28,
1997 1996
---------------------------------------------------------------------------------
<S> <C> <C>
Net income (loss) As reported $ 12 263 $(3 107 900)
Pro forma (55 769) (3 262 573)
Earnings (loss) As reported $ 0.00 $ (.62)
per share Pro forma (0.01) (.65)
</TABLE>
In determining the pro forma amounts above,
the Company estimated the fair value of each
option granted using the Black-Scholes
option pricing model with the following
weighted-average assumptions used for grants
in 1997 and 1996, respectively: dividend
yield of 0% for both years and expected
volatility of 35% for both years, risk free
rates ranging from 6.3% to 6.6% for 1997,
and 5.5% to 6.5% for 1996, and expected
lives ranging from 5 to 10 years for both
1997 and 1996. The weighted average fair
value of options granted in fiscal 1997 and
1996 were $90,000 and $172,000,
respectively.
F-25
<PAGE>
Boston Restaurant Associates, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
11. Supplemental Cash Cash paid for interest and income taxes are
Flow Information as follows:
<TABLE>
<CAPTION>
April 27, April 28,
Years ended 1997 1996
----------------------------------------------------------------------------------
<S> <C> <C>
Interest $127 185 $29 166
Income taxes - -
Supplemental schedule of noncash operating
and financing activities are as follows:
April 27, April 28,
Years ended 1997 1996
----------------------------------------------------------------------------------
Stock options and warrants issued
in exchange for services $ 89 030 -
Capital leases entered into during
the year 190 000 -
</TABLE>
12. Assets Impaired, Charges included in the results of
Assets to be operations of $1,355,034 in fiscal 1996 are
Disposed of and summarized as follows:
Restaurant
Closures
(a) During fiscal 1997, the Company sold a
restaurant closed since June 1995. A
charge of $1,049,835 for the closed
restaurant is included in the results
of operations for the year ended April
28, 1996 for the write-down to net
realizable value of leasehold
improvements ($216,000), goodwill
($635,000) and other assets ($96,000)
and an accrual for buy-out of the lease
($102,000). The consolidated balance
sheet at April 28, 1996 includes assets
of $265,000, and liabilities of
$240,000, related to this location.
(b) A charge of $159,228 is included in the
results of operations for the year
ended April 28, 1996 for the write-down
resulting from the impairment of
leasehold improvements ($53,000) and
other assets and expenses ($106,000) at
an operating restaurant held for sale.
F-26
<PAGE>
Boston Restaurant Associates, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
12. Assets Impaired, (c) A charge of $145,971 is included in
Assets to be the results of operations for the year
Disposed of and ended April 28, 1996 for the write-down
Restaurant resulting from the impairment of
Closures leasehold improvements at one of the
(Continued) Company's pizza restaurants.
(d) In May 1995, the Company notified the
landlord of its Cambridge,
Massachusetts restaurant that it was
exercising its option to cancel the
lease and fulfill its guarantee with
the payment of six months rent. On May
26, 1995, the restaurant was closed.
The historic and projected cash flows for
these restaurants were not sufficient for
the Company to recover the historical
carrying amount of those assets. The assets
were revalued at their estimated fair market
value based upon sales of comparable assets
in the case of leasehold improvements, and
at zero for the goodwill, covenant and
favorable lease, based upon an estimate of
the amount recoverable.
13. Subsequent Events In July 1997, the Company entered into a
lease agreement for a new pizza restaurant
location. The lease agreement is for a term
of ten years and requires an aggregate of
approximately $1,000,000 of minimum lease
payments over the lease term.
F-27
<PAGE>
EXHIBIT B
BOSTON RESTAURANT ASSOCIATES, INC.
10-QSB FOR PERIOD ENDING OCTOBER 26, 1997
<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of
1934.
For the quarterly period ended October 26, 1997.
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934. For the transition period from _________ to __________.
Commission File Number
0-18369
-------
BOSTON RESTAURANT ASSOCIATES, INC.
(Name of Small Business Issuer as Specified in its Charter)
Delaware 61-1162263
(State or Other I.R.S. Employer
Jurisdiction of Identification
Incorporation or No.)
Organization)
999 Broadway
Saugus - Massachusetts
----------------------
(Address of Principal
Executive Offices)
(617)231-7575 01906
(Issuer's Telephone Number (Zip Code)
including area code)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes X No__
As of December 8, 1997, 5,015,693 shares of the issuer's Common Stock, par value
$.01 per share, were outstanding.
<PAGE>
BOSTON RESTAURANT ASSOCIATES, INC.
INDEX
PART I - FINANCIAL INFORMATION Page
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of October 26, 1997 and
April 27, 1997 ................................................... 3
Condensed Consolidated Statements of Operations for the
thirteen weeks and twenty-six weeks ended October 26, 1997 and
October 27, 1996....................................................4
Condensed Consolidated Statements of Cash Flows for the twenty-six
weeks ended October 26, 1997 and October 27, 1996 ................ 5
Notes to Condensed Consolidated Financial Statements ...............6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations .............................................7
PART II - OTHER INFORMATION ..............................................15
SIGNATURES ...........................................................17
2
<PAGE>
BOSTON RESTAURANT ASSOCIATES, INC. AND SUBSIDIARIES
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
Oct 26 April 27
1997 1997
---------- ----------
<S> <C> <C>
ASSETS
Current:
Cash and cash equivalents $631,581 $726,054
Accounts receivable $132,707 $69,729
Inventories $214,996 $209,295
Prepaid expenses and other $39,559 $ 27,532
----------- ----------
Total current assets $1,018,843 $1,032,610
Net property and equipment $2,595,290 $2,656,328
Other assets $1,286,833 $944,180
----------- ----------
Total assets $4,900,966 $4,633,118
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $401,934 $382,294
Accrued liabilities $634,264 $628,277
Current maturities:
Notes payable-stockholder $4,394 $4,261
Long-term debt $200,000 $200,000
Obligations under capital leases $33,237 $30,850
----------- ----------
Total current liabilities $1,273,829 $1,245,682
Long-term obligations:
Notes payable-stockholder, less
current maturities $123,576 $125,810
Long-term debt, less current maturities $524,998 $625,000
Obligations under capital leases,
less current maturities $121,612 $138,850
Subordinated debentures $1,337,500 $1,118,750
Deferred rent $70,081 $67,024
----------- ----------
Total liabilities $3,451,596 $3,321,116
Stockholders' equity
Common stock, $.01 par value, 25,000,000
shares authorized, 5,015,693 shares issued $50,157 $50,157
Additional paid in capital $9,062,058 $9,043,199
Accumulated deficit ($7,662,845) ($7,781,354)
----------- ----------
Total stockholders' equity $1,449,370 $1,312,002
Total liabilities and stockholders' equity $4,900,966 $4,633,118
=========== ==========
</TABLE>
3
<PAGE>
BOSTON RESTAURANTS ASSOCIATES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-six Weeks Ended
Oct 26 Oct 27 Oct 26 Oct 27
1997 1996 1997 1996
------------------ ------------------ ------------------ -----------------
<S> <C> <C> <C> <C>
Sales $2,989,820 $3,013,279 $5,835,705 $5,812,130
Cost of food and beverage $602,586 $691,653 $1,177,093 $1,350,978
Payroll $887,985 $929,774 $1,723,533 $1,787,576
Other operating expenses $1,029,288 $1,048,854 $1,939,639 $1,910,248
General and administrative $347,277 $263,624 $745,426 $588,038
------------------ ------------------ ------------------ -----------------
Income from operations $122,684 $79,374 $250,014 $175,290
Other (income) ($1,594) ($912) ($2,521) ($2,304)
Interest (income) ($5,902) $0 ($15,001) $0
Interest expense $77,503 $33,752 $149,027 $54,798
------------------ ------------------ ------------------ -----------------
Net Income $52,677 $46,534 $118,509 $122,796
================== ================== ================== =================
Income per share $0.01 $0.01 $0.02 $0.02
================== ================== ================== =================
Weighted average number of
common shares outstanding 5,015,693 5,015,293 5,015,693 5,015,293
================== ================== ================== =================
</TABLE>
4
<PAGE>
BOSTON RESTAURANT ASSOCIATES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Twenty-six Weeks Ended
Oct 26 Oct 27
1997 1996
---- ----
<S> <C> <C>
Cash flows provided by operating activities $309,014 $260,265
--------------- ---------------
Cash flows from investing activities:
Capital expenditures ($505,282) ($675,738)
--------------- ---------------
Cash flows used for investing activities ($505,282) ($675,738)
--------------- ---------------
Cash flows from financing activities:
Repayments of long-term debt ($100,002) ($87,601)
Repayments of capital lease obligations ($14,851) $0
Repayments of stockholder loans ($2,102) ($1,991)
Repayment of subordinated debentures $0 (68,666)
Proceeds from subordinated debentures $218,750 $0
Proceeds from long-term debt $0 $571,945
--------------- ---------------
Cash flows provided by financing activities $101,795 $413,687
--------------- ---------------
Increase (decrease) in cash and cash equivalents ($94,473) ($1,786)
Cash and cash equivalents at beginning of period $726,054 $159,564
--------------- ---------------
Cash and cash equivalents at end of period $631,581 $157,778
=============== ===============
</TABLE>
5
<PAGE>
BOSTON RESTAURANT ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF ACCOUNTING POLICIES
October 26, 1997
(unaudited)
NATURE OF BUSINESS AND BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the thirteen-week period and twenty-six week period ended October
26, 1997 are not necessarily indicative of the results that may be expected for
the year ending April 26, 1998. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-KSB, for the year ended April 27, 1997. The
balance sheet at April 27, 1997 has been derived from the audited financial
statements at that date.
The accompanying statements of operations and cash flows for the fiscal 1998
period reflect the consolidated operations and cash flows of two casual dining
Italian restaurants and six Pizzeria Regina restaurants for the entire period,
and four Pizzeria Regina restaurants for a portion of the period. The
accompanying statements of operations and cash flows for the fiscal 1997 period
reflect the consolidated operations and cash flows of two casual dining Italian
restaurants and seven Pizzeria Regina restaurants for the entire period, and
three Pizzeria Regina restaurants for a portion of the period.
NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS
130") and Statement of Financial Accounting Standards No. 131, Disclosures about
Segments of an Enterprise and Related Information ("SFAS 131").
SFAS 130 establishes standards for reporting and display of comprehensive
income, its components and accumulated balances. Comprehensive income is defined
to include all changes in equity except those resulting from investments by
owners and distributions to owners. Among other disclosures, SFAS 130 requires
that all items that are required to
6
<PAGE>
be recognized under current accounting standards as components of comprehensive
income be reported in a financial statement that is displayed with the same
prominence as other financial statements.
SFAS 131, which supersedes SFAS No. 14, Financial Reporting for Segments of a
Business Enterprise, establishes standards for the way that public companies
report information about operating segments in annual financial statements and
requires reporting of selected information about operating segments in interim
financial statements issued to the public. It also establishes standards for
disclosures regarding products and services, geographic areas and major
customers. SFAS 131 defines operating segments as components of a company about
which separate financial information is available that is evaluated regularly by
the chief operating decision maker in deciding how to allocate resources and in
assessing performance.
SFAS 130 and 131 are effective for financial statements for periods beginning
after December 15, 1997 and require comparative information for earlier years to
be restated. Because of the recent issuance of these standards, management has
been unable to fully evaluate the impact, if any, these standards may have on
future financial statement disclosures. Results of operations and financial
position, however, will be unaffected by implementation of these standards.
Convertible Subordinated Debentures
- -----------------------------------
For the quarter ending October 26, 1997, the Company issued $25,000 of
convertible subordinated debentures. In 1997, the Company completed the
subscriptions of the remaining $162,500 of convertible subordinated debentures,
completing a placement of $1,500,000. These debentures bear interest at 8%
through December 31, 1997; 10% through December 31, 1998; 12% through December
31, 1999; 14% through 2011 (straight-lined at 13.2% annually) payable
semi-annually and convertible into the Company's common stock at a conversion
rate of $1.25 per share. The Company can redeem the convertible debentures under
certain conditions, as defined. The debentures are due December 2011. The
remaining proceeds from the debentures will be used to fund future expansion.
ITEM 2. Management's Discussion and Analysis or Plan of Operation
---------------------------------------------------------
Results of Operations
- ---------------------
Overview
- --------
In the thirteen weeks ending October 26, 1997, the Company recorded a profit of
$52,677 compared to $46,534 for the quarter ending October 27, 1996. The
Company's profit in the current fiscal quarter is substantially attributable to
the income generated by the Company's Pizzeria Regina restaurant business.
7
<PAGE>
During its second quarter, the Company closed its Brookline, (Pizzeria Regina at
Longwood), location in October 1997 at the completion of its lease. In addition
the Company had operated a self service sit down Regina Pizzeria in the
Burlington Mall, Burlington, MA which was closed in October 1997 at the
conclusion of the lease. A Pizzeria Regina food court kiosk continues in
operation at this mall.
During August 1997, the Company opened a new Pizzeria Regina food court kiosk at
the Paramus Park Mall, Paramus, New Jersey. In October the Company signed a
lease for a Pizzeria Regina food court kiosk at the Regency Square Mall in
Richmond, VA. The Company continues to evaluate potential future sites for
possible expansion of its Pizzeria Regina operations.
Thirteen Weeks Ended October 26, 1997 as Compared to Thirteen Weeks ended
October 27, 1996
- -------------------------------------------------------------------------
Revenues. Net sales in the current period were $2,990,000 compared to net sales
in the prior year's period of $3,013,000. The decrease in net sales in the
fiscal 1998 period as compared to the fiscal 1997 period were due to the closure
of the self-service in-line Pizzeria Regina the Burlington Mall in October of
1997, and the closure of the two Brookline Pizzeria Regina restaurants in May
and October of 1997 at the completion of their leases (due to the inability to
renegotiate a market value lease). The decreases were partially offset by the
opening of the new Paramus N.J. Pizzeria Regina food court in August of 1997.
Net sales at the Company's Pizzeria Regina restaurants decreased to $2,067,000
in the current period from $2,104,000 in the prior year's period.
Net sales at the Company's full service casual dining restaurants, Polcari's
North End and Bel Canto's, increased to $918,000 in the current period from
$898,000 in the prior year's period. This increase in net sales is primarily
attributable to the Polcari's North End restaurant.
Cost of Food and Beverages. Cost of food and beverages as a percentage of net
sales was 20% in the fiscal 1998 period as compared to 23% in the fiscal 1997
period.
The cost of food and beverages as a percentage of net sales at the Pizzeria
Regina restaurants was 16% and 20% in the fiscal 1998 and 1997 periods,
respectively. The cost of food and beverages as a percentage of net sales
decreased at the Pizzeria Regina restaurants, principally due to lower food
costs and the addition of Pizzeria Regina food court restaurants which generally
have lower food and beverage costs.
The cost of food and beverages as a percentage of net sales at the Company's
full service casual dining restaurants was 29% and 31% in the fiscal 1998 and
1997 periods respectively. The cost of food and beverages as a percentage of net
sales decreased at the Company's Polcari's North End restaurant due to a change
in menu mix and menu price increases.
8
<PAGE>
Payroll Expenses. Payroll expenses were $888,000 (30 % of net sales) in the
current period compared to payroll expenses in the prior year's period of
$930,000 (31% of net sales).
Payroll expenses at the Pizzeria Regina restaurants decreased to $557,000 (27%
of sales) in the current period from $607,000 (29% of net sales) in the prior
year's period. The decrease in payroll expenses at the Pizzeria Regina
restaurants was primarily attributable to the closure of the Company's two
Brookline Pizzeria Regina restaurants and the self-service in-line Pizzeria
Regina at the Burlington Mall, which was partially offset by increase in payroll
expenses associated with the new Paramus Park Mall food court location.
Payroll expenses at the Company's full service casual dining restaurant remained
the same at $291,000 (32% of net sales) in the current period and $291,000 (32%
of net sales) in the prior year's period. Payroll expenses at the Company's
Commissary was $40,000 for the fiscal 1998 period as compared to $32,000 in the
fiscal 1997 period. The increase is primarily due to the purchasing director's
salary associated with the Commissary.
Other Operating Expenses. Other operating expenses in the current period were
$1,029,000 (34% of net sales), compared to $1,049,000 (35% of net sales) in the
prior year's period. The decrease in other operating expenses in the current
period was primarily attributable to the closure of the two Brookline Pizzeria
Regina restaurants and the self-service in-line Pizzeria Regina at the
Burlington Mall. The decrease in other operating expenses was partially offset
by the new Paramus Park Mall location and the Company's policy to expense
pre-opening costs as incurred. Therefore, the Company realized pre-opening
expenses associated with the Pizzeria Regina in Richmond, VA which opened on
November 30, 1997, and costs associated in the anticipation of future expansion.
These costs include legal and real-estate site location fees.
Other operating expenses from the Pizzeria Regina restaurants decreased to
$705,000 (34% of net sales) in the current period from $715,000 (34% of net
sales) in the prior year's period.
Other operating expenses at the Company's full service casual dining restaurants
decreased to $294,000 (32% of net sales) in the current period from $315,000
(35% of net sales) in the prior year's period. Other operating expenses also
include commissary expenses, which decreased to $17,000 in the current period,
as compared to $18,000 in the prior year's period. In addition, other operating
expenses included pre-opening expenses of $13,000 associated with the opening of
new locations.
General and Administrative Expenses. General and administrative expenses were
$347,000 (12% of net sales) in the current period, as compared to $264,000 (9 %
of net sales) in the prior year's period. The increase in general and
administrative expenses was due, principally, to an increase in legal costs,
real estate site selection consulting expense, and support staff.
9
<PAGE>
Interest Expense. Interest expense increased to $78,000 in the current period as
compared to interest expense in the prior year's period of $34,000. This
increase in interest expense was associated with borrowings under the Company's
new credit facility and the issuance of convertible subordinated debentures.
Twenty-six Weeks Ended October 26, 1997 as Compared to Twenty-six Weeks ended
October 27, 1996
- -----------------------------------------------------------------------------
Revenues. Net sales in the current period were $5,836,000 compared to net sales
in the prior year's period of $5,812,000. The increase in net sales in the
fiscal 1998 period as compared to fiscal 1997 period reflected, among other
things, net sales at the Solomon Pond Mall and the South Shore Plaza Pizzeria
Regina (which replaced an in-line restaurant at this mall), both of these
locations were opened in August of 1996. The increases were also attributable to
opening of the new Paramus, NJ Pizzeria Regina Food Court in August of 1997. The
increase in net sales were partially offset by the closure of the self-service
in-line Pizzeria Regina at the Burlington Mall in October of 1997 and the
closure of the two Brookline Pizzeria Regina restaurants in May and October of
1997 at the completion of their leases (due to the inability to renegotiate a
market value lease at the Brookline locations). Net sales at the Company's
Pizzeria Regina restaurants increased to $4,000,000 in the current period from
$3,965,000 in the prior's year's period.
Net sales at the Company's full service casual dining restaurants, Polcari's
North End and Bel Canto's decreased to $1,825,000 in the current period from
$1,826,000 in the prior year's period. This decrease in net sales in primarily
attributable to the Bel Canto restaurant.
Cost of Food and Beverages. Cost of food and beverages as a percentage of net
sales was 20% in the fiscal 1998 period as compared to 23% in the fiscal 1997
period.
The cost of food and beverages as a percentage of net sales at the Pizzeria
Regina restaurants was 16% and 20% in the fiscal 1998 and 1997 periods,
respectively. The cost of food and beverages as a percentage of net sales
decreased at the Pizzeria Regina restaurants, principally due to lower food
costs and the addition of Pizzeria Regina food court restaurants which generally
have lower food beverage costs.
The cost of food and beverages as a percentage of net sales at the Company's
full service casual dining restaurants was 29% and 31% in the fiscal 1998 and
1997 periods respectively. The cost of food and beverages as a percentage of net
sales decreased at the Company's Polcari's North End restaurant due to a change
in menu mix and menu price increases.
Payroll Expenses. Payroll expenses were $1,724,000 (30% of net sales) in the
current period compared to payroll expenses in the prior year's period of
$1,788,000 (31% of net sales).
10
<PAGE>
Payroll expenses at the Pizzeria Regina restaurants decreased to $1,071,000 (27%
of sales) in the current period from $1,132,000 (29% of net sales) in the prior
year's period. The decrease in payroll expenses at the Pizzeria Regina
restaurants was primarily attributable to the closure of the Company's two
Brookline Pizzeria Regina restaurants and the self-service in-line Pizzeria
Regina at the Burlington Mall, which was partially offset by an increase in
payroll expenses associated with the new Paramus Park Mall food court location
in August of 1997 and the Solomon Pond Mall location in August of 1996.
Payroll expenses at the Company's full service casual dining restaurant
decreased to $586,000 (32% of net sales) in the current period from $594,000
(33% of net sales) in the prior year's period. Payroll expenses at the Company's
Commissary was $66,000 for the fiscal 1998 period as compared to $61,000 in the
fiscal 1997 period. The increase is primarily due to the purchasing director's
salary associated with the Commissary.
Other Operating Expenses. Other operating expenses in the current period were
$1,940,000 (33% of net sales), compared to $1,910,000 (33% of net sales) in the
prior year's period. The increase in other operating expenses in the current
period was primarily attributable to the New Paramus Park Mall location . The
Company's policy is to expense pre-opening costs as incurred. Therefore, the
Company realized pre-opening expenses associated with the Pizzeria Regina in
Paramus NJ, which opened on August 7, 1997, the Pizzeria Regina in Richmond,VA
which opened on November 30, 1997, and costs associated in the anticipation of
future expansion. These costs include legal and real-estate site locations. The
increase in other operating expenses was partially offset by the closure of the
two Brookline Pizzeria Regina restaurants and the self-service in-line Pizzeria
Regina at the Burlington Mall.
Other operating expenses from the Pizzeria restaurants increased to $1,307,000
(33% of net sales) in the current period from $1,277,000 (32% of net sales) in
the prior year's period.
Other operating expenses at the Company's full service casual dining restaurants
decreased to $583,000 (32% of net sales) in the current period from $592,000
(32% of net sales) in the prior year's period. Other operating expenses also
include commissary expenses, which decreased to $32,000 in the current period,
as compared to $41,000 in the prior year's period. In addition the Company
realized pre-opening expenses of $18,000.
General and Administrative Expenses. General and administrative expenses were
$745,000 (13% of net sales) in the current period, as compared to $588,000 (10%
of net sales) in the prior year's period. The increase in general and
administrative expenses was due, principally, to an increase in legal costs,
support staff, real estate site selection consulting expenses, and depreciation
expenses.
Interest Expense. Interest Expense increased to $149,000 in the current period
as compared to interest expense in the prior year's period of $55,000. This
increase in interest expense was associated with borrowings under the Company's
new credit facility and the issuance of convertible subordinated debentures.
11
<PAGE>
Liquidity and Capital Resources.
- --------------------------------
At October 26, 1997, the Company had a negative net working capital of
approximately $255,000 and cash and cash equivalents of approximately $632,000.
During the twenty-six weeks ended October 26, 1997, the Company had a net
decrease in cash and cash equivalents of $94,000, reflecting net cash provided
by operating activities of $309,000, net cash used for investing activities of
$505,000 and net cash provided by financing activities of $102,000. Net cash
provided by operating activities included the increase in accounts payable of
$20,000, partially offset by an increase of prepaid expenses of $12,000 and an
increase in accounts receivable of $63,000. Net cash used in investing
activities reflects the costs associated with the opening of the new Paramus, NJ
Pizzeria location and partial cost associated with the opening of the new
Pizzeria Regina Food Court kiosk at the Regency Square mall in Richmond, VA .
Net cash used in investing activities also reflects costs associated with the
production of ovens for future Pizzeria Regina expansion. Net cash provided by
financing activities include proceeds for the convertible subordinated
debentures placement.
The Company opened Pizzeria Regina food court kiosks at the Paramus Park Mall,
Paramus, NJ on August 7, 1997 and at the Regency Square Mall, Richmond, VA on
November 30, 1997. The Company has entered into a lease for a food court kiosk
in the Oviedo Mall, Oviedo, FL which is planning to open in the Spring of 1998.
For the quarter ending October 26, 1997, the Company issued $25,000 of
convertible subordinated debentures. In 1997, the Company completed the
subscriptions of the remaining $162,500 of convertible subordinated debentures,
completing a placement of $1,500,000. These debentures bear interest at 8%
through December 31, 1997; 10% through December 31, 1998; 12% through December
31, 1999; 14% through 2011 (straight-lined at 13.2% annually) payable
semi-annually and convertible into the Company's common stock at a conversion
rate of $1.25 per share. The Company can redeem the convertible debentures under
certain conditions, as defined. The debentures are due December 2011. The
remaining proceeds from the debentures will be used to fund future expansion.
At October 26, 1997, the Company had current liabilities of $1,274,000,
including $402,000 of accounts payable, $634,000 of accrued liabilities and
current maturities of long term obligations in the amount of $238,000. At
October 26, 1997, the Company had long-term obligations, less current
maturities, in the amount of $2,178,000, including $525,000 due under its credit
facility with Haymarket Co-Operative Bank, $124,000 of loans payable to
stockholder, $122,000 due under the capital lease obligations,
12
<PAGE>
$1,337,500 of convertible subordinated debentures, and $70,000 of deferred rent.
The President and the Treasurer of the Company and each of the Company's
subsidiaries have guaranteed the Company's obligations to the bank. As of
December 8, 1997, the Company had borrowed the full amount available under its
bank credit facility.
The Company believes that its existing resources, cash flow from operations and
borrowings under its credit facility will be sufficient to allow it to meet its
obligations over the next twelve months. The Company intends to fund its current
obligations and operating expenses through cash generated from operations. The
Company is also seeking additional financing in order to finance its expansion
plans and other cash flow requirements. There can be no assurance that cash
flows will improve in an amount sufficient to allow the Company to fund its
current obligations and operating expenses, or that the Company will be able to
obtain such additional financing upon favorable terms, if at all. Failure of the
Company to do so could result in the Company's failure to be able to meet its
cash flow requirements.
NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS
130") and Statement of Financial Accounting Standards No. 131, Disclosures about
Segments of an Enterprise and Related Information ("SFAS 131").
SFAS 130 establishes standards for reporting and display of comprehensive
income, its components and accumulated balances. Comprehensive income is defined
to include all changes in equity except those resulting from investments by
owners and distributions to owners. Among other disclosures, SFAS 130 requires
that all items that are required to be recognized under current accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements.
SFAS 131, which supersedes SFAS No. 14, Financial Reporting for Segments of a
Business Enterprise, establishes standards for the way that public companies
report information about operating segments in annual financial statements and
requires reporting of selected information about operating segments in interim
financial statements issued to the public. It also establishes standards for
disclosures regarding products and services, geographic areas and major
customers. SFAS 131 defines operating segments as components of a company about
which separate financial information is available that is evaluated regularly by
the chief operating decision maker in deciding how to allocate resources and in
assessing performance.
SFAS 130 and 131 are effective for financial statements for periods beginning
after December 15, 1997 and require comparative information for earlier years to
be restated. Because of the recent issuance of these standards, management has
been unable to fully evaluate the impact, if any, these standards may have on
future financial statement disclosures. Results of operations and financial
position, however, will be unaffected by implementation of these standards.
13
<PAGE>
"Safe Harbor" Statement Under the Private Securities Litigation Reform Act of
1995
Forward-looking statements in this report, including without, limitation,
statements relating to the adequacy of the Company's resources, and the timing
of the Company's expansion are made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. Investors are cautioned
that such forward-looking statements involve risks and uncertainties, including
without limitation: potential quarterly fluctuations in the Company's operating
results; seasonality of sales; competition; risks associated with expansion; the
Company's reliance on key employees; risks generally associated with the
restaurant industry; risks associated with geographic concentration of the
Company's restaurants; risks associated with serving alcoholic beverages; and
other risks and uncertainties indicated from time to time in the Company's
filings with the Securities and Exchange Commission.
14
<PAGE>
PART II
ITEM 1. Legal Proceedings.
------------------
No pending legal proceedings that are not routine litigation, or incidental to
the business.
ITEM 2. Changes in Securities and Use of Proceeds.
------------------------------------------
For use of proceeds, see liquidity, part I.
ITEM 3. Defaults Upon Senior Securities.
--------------------------------
None.
ITEM 4. Submission of Matters to a Vote of Security Holders.
----------------------------------------------------
The Security holder of Boston Restaurant Associates, Inc. convened for their
annual meeting on September 12, 1997. At this meeting 7 directors were elected,
the Company's auditors were reappointed and the stockholders voted to amend the
1994 Employee Stock Option Plan; thereby, increasing the number of reserved
share by 365,000 shares.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
DIRECTOR VOTES FOR VOTES AGAINST VOTES ABSTAINED UNVOTED
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
George R. Chapdelaine 4,613,092.000 26,325.000
- --------------------------------------------------------------------------------------------------------------------------
Joseph J. Caruso 4,619,247.000 20,170.000
- --------------------------------------------------------------------------------------------------------------------------
Roger Lipton 4,618,247.000 21,170.000
- --------------------------------------------------------------------------------------------------------------------------
John J. Polcari, Jr. 4,619,247.000 20,170.000
- --------------------------------------------------------------------------------------------------------------------------
Richard J. Reeves 4,614,247.000 25,170.000
- --------------------------------------------------------------------------------------------------------------------------
Lucille Shalhany 4,619,247.000 20,170.000
- --------------------------------------------------------------------------------------------------------------------------
Terrance A. Smith 4,614,247.000 25,170.000
- --------------------------------------------------------------------------------------------------------------------------
Proposition 2 2,927,257.000 89,455.000 24,076.000 1,598,629.000
To adopt and approve
the amendment to the
1994 Employee Stock
Option Plan
- --------------------------------------------------------------------------------------------------------------------------
15
<PAGE>
- --------------------------------------------------------------------------------------------------------------------------
DIRECTOR VOTES FOR VOTES AGAINST VOTES ABSTAINED UNVOTED
- --------------------------------------------------------------------------------------------------------------------------
Proposition 3 4,628,542.000 7,715.000
To ratify the
appointment of
BDO Seidman
LLP auditors
for fiscal year
1998.
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
ITEM 5. Other Information.
------------------
It is the intention of Boston Restaurant Associates International, Inc. to offer
for sale, Franchise opportunities within the State of Georgia under the name
Pizzeria Regina (TM). Therefore Boston Restaurant Associates International, Inc.
availed itself of the self effectuating exceptions from registration under the
Georgia Business Opportunities Sales Law Title 10, Chapter 1, Article 15 on 12
November 1997.
ITEM 6. Exhibits and Reports On Form 8-K.
---------------------------------
(a) Exhibits.
---------
10.14 The lease between Pizzeria Regina of Virginia and Regency Square Mall in
Richmond, Virginia
10.15 The lease between Pizzeria Regina of Florida and the Oviedo Mall,
Oviedo, FL.
Reports On Form 8-K.
--------------------
(b) None.
16
<PAGE>
SIGNATURES
----------
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
BOSTON RESTAURANT ASSOCIATES, INC.
By: /s/ George R. Chapdelaine
Date: December 8, 1997
------------------------------------
George R. Chapdelaine, President and
Chief Executive Officer
17
<PAGE>
Exhibit C
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to [Sec.] 240.14a-11(c) or [Sec.] 204.14a-12
BOSTON RESTAURANT ASSOCIATES, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) AND 0-11
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
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<PAGE>
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS OF
BOSTON RESTAURANT ASSOCIATES, INC.
TO BE HELD ON 12 SEPTEMBER, 1997
---------------
The Annual Meeting of Stockholders of Boston Restaurant Associates,
Inc. will be held on 12 September, 1997 at 10:00 a.m., local time, at the
offices of Brown, Rudnick, Freed & Gesmer, 18th Floor, One Financial Center,
Boston, Massachusetts 02111, for the following purposes:
1. To elect seven (7) directors to serve for the ensuing year and until
their successors are duly elected.
2. To consider and act upon a proposal to amend the Company's 1994
Employee Stock Option Plan.
3. To ratify the appointment of BDO Siedman LLP auditors for fiscal
year 1998.
4. To consider and act upon any matter incidental to the foregoing
purposes and any other matters, which may properly come before the Meeting, or
any adjourned session thereof.
The Board of Directors has fixed 4 August, 1997 as the record date for
determining the stockholders entitled to notice of, and to vote at, the Meeting.
By Order of the Board of Directors
GORDON R. PENMAN, Secretary
Boston, Massachusetts
7 August, 1997
YOUR VOTE IS IMPORTANT
YOU ARE URGED TO SIGN, DATE AND PROMPTLY RETURN THE ACCOMPANYING FORM OF PROXY,
SO THAT IF YOU ARE UNABLE TO ATTEND THE MEETING YOUR SHARES MAY NEVERTHELESS BE
VOTED. EVEN IF YOU HAVE GIVEN YOUR PROXY, THE PROXY MAY BE REVOKED AT ANY TIME
PRIOR TO EXERCISE BY FILING WITH THE SECRETARY OF THE COMPANY A WRITTEN
REVOCATION, BY EXECUTING A PROXY WITH A LATER DATE, OR BY ATTENDING AND VOTING
AT THE MEETING.
<PAGE>
BOSTON RESTAURANT ASSOCIATES, INC
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
To Be Held On 12 September, 1997
This proxy statement is furnished in connection with the solicitation
of proxies by the Board of Directors of Boston Restaurant Associates, Inc., a
Delaware corporation (the "Company") with its principal executive offices a 999
Broadway, Saugus, Massachusetts 01906, for use at the Annual Meeting of
Stockholders to be held on 12 September, 1997 and at any adjournment or
adjournments, thereof (the "Meeting"). The enclosed proxy relating to the
Meeting is solicited on behalf of the Board of Directors of the Company and the
cost of such solicitation will be borne by the Company. It is expected that this
proxy statement and the accompanying proxy will be mailed to stockholders on or
about August 7, 1997
Certain of the officers and employees of the Company may solicit
proxies by correspondence, telephone or in person, without extra compensation.
The Company may also pay to banks, brokers, nominees and certain other
fiduciaries their reasonable expenses incurred in forwarding proxy material to
the beneficial owners of the securities held by them.
Only stockholders of record at the close of business on 4 August, will
be entitled to receive notice of, and to vote at, the Meeting. As of that date,
there were outstanding and entitled to vote 5,015,693 shares of Common Stock,
$.01 par value (the "Common Stock") of the Company. Each such stockholder is
entitled to one vote for each share of Common Stock so held and may vote such
shares either in person or by proxy.
The enclosed proxy, if executed and returned, will be voted as directed
on the proxy or, in the absence of such direction, for the election of the
nominees as directors and proposal No. 2 and No. 3. If any other matters shall
properly come before the Meeting, the enclosed proxy will be voted by the
proxies in accordance with their best judgment. The proxy may be revoked at any
time prior to exercise by filing with the Secretary of the Company a written
revocation, by executing a proxy with a later date, or by attending and voting
at the Meeting.
2
<PAGE>
PROPOSAL NO. 1
ELECTION OF DIRECTORS
At the Meeting, seven directors are to be elected to serve until the
1998 Annual Meeting of Stockholders and until their respective successors have
been duly elected and qualified. The persons listed below in the following table
have been nominated by the Board of Directors for election as directors.
All nominees are currently directors of the Company. It is the
intention of the persons named as proxies to vote for the election of the
nominees. In the unanticipated event that any such nominee should be unable to
serve, the persons named as proxies will vote the proxy for such substitutes, if
any, as the present Board of Directors may designate. The nominees have not been
nominated pursuant to any arrangement or understanding with any person.
The following table sets forth certain information with respect to the
nominees.
Director
Name Age Position Since
- ---- --- -------- -----
George R. Chapdelaine 52 Chief Executive Officer, 1994
President, and Director
John P. Polcari, Jr. 66 Treasurer and Director 1994
Terrance Smith (2) 51 Director 1990
Richard J. Reeves(1)(2) 50 Director 1989
Joseph J. Caruso(1) 54 Director 1994
Roger Lipton (1) 56 Director 1996
Lucille S. Salhany 51 Director 1996
- -------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
George R. Chapdelaine was elected President, Chief Executive Officer
and a director of the Company in April 1994 upon the consummation of the April
29, 1994 acquisition of 60% of the then
3
<PAGE>
outstanding Common Stock of the Company by the stockholders of Pizzeria Regina,
Inc. ("PRI") (the "Capucino's Acquisition"). Following the Capucino's
Acquisition, the Company changed its name from Capucino's, Inc. to Boston
Restaurant Associates, Inc. and PRI changed its name from Boston Restaurant
Associates, Inc. to Pizzeria Regina, Inc. PRI is currently operating as a wholly
owned subsidiary of the Company. Mr. Chapdelaine joined the predecessor of PRI
in 1982 and from that time until April 1994 served as its and the PRI's
President, Chief Executive Officer and a director. Prior to that time, Mr.
Chapdelaine worked in the food service industry in various capacities, including
as an independent marketing consultant, a general manager of the Food Service
division for H.P. Hood, Inc. and a sales manager for Chiquita Brands, a
subsidiary of United Brands. Mr. Chapdelaine holds an MBA from Clark University
and graduated with a BS in Hotel and Restaurant Management from Oklahoma State
University.
John P. Polcari, Jr. was elected Treasurer and a director of the
Company in April 1994 upon the consummation of the Capucino's Acquisition. A
founder of PRI, Mr. Polcari served as its Chairman of the Board until April
1994, at which time he commenced serving as the Treasurer and a director of the
Company.
Lucille Salhany has been the President and Chief Executive Officer of
the United Paramount Network since September 1994. Previously, Ms. Salhany
served in various capacities at Fox Broadcasting Company commencing in July
1991, including as its chairman from January 1993 until her resignation in the
summer of 1994. Prior to joining Fox, Ms. Salhany served in various capacities
at Paramount Pictures. Ms. Salhany is married to Mr. Polcari, a director, and
the Treasurer of the Company.
Richard J. Reeves cofounded the Company in May 1989 and served as a
director from that time until May 1993. In July 1993, Mr. Reeves rejoined the
Company's Board of Directors. From May 1989 to July 1991, Mr. Reeves served as
the Company's President and Chief Operating Officer. Since July 1991, Mr. Reeves
has been engaged in restaurant development as a franchisee of various
restaurants. These restaurants are not competitive with those owned and operated
by the Company. From September 1988 to March 1989, Mr. Reeves served as an
executive officer and principal stockholder of RSMG, Inc. ("RSMG") and from
March 1985 until April 1989 occupied similar positions with Reeves Associates,
Inc., both of which were privately held restaurant development companies.
Terrance A. Smith was elected a director of the Company in August 1990.
From 1988 to the present, Mr. Smith has been President of Chi-Chi's
International Operations, Inc.
4
<PAGE>
Joseph J. Caruso was elected a director of the Company in connection
with the Company's 1994 public offering. Mr. Caruso is the President of Bantam
Group, Inc., a business advisory firm founded by Mr. Caruso in 1986. Mr. Caruso
is presently a member of the board of directors of Audiofile, Inc., Corion
Corporation, Haymarket Bank (BRAI has a credit facility with Haymarket Bank),
Holometrix, Inc. and Tytronics, Inc. and formerly served on the board of
directors of Coffee Connection, Inc. from 1991 to 1994. Mr. Caruso is a graduate
of Northeastern University and the Harvard Business School.
Roger Lipton was elected a director of the Company in July 1996. Since
February 1995, Mr. Lipton has been President of Lipton Financial Services, Inc.,
an investment banking firm specializing in the restaurant, franchising and
retailing industries, and also has been employed by Axiom Capital Management,
Inc. an NASD broker/dealer, where he is a Managing Director. From 1981 until
February 1995 he was Managing Director of the Lipton Financial Services Division
of Ladenburg, Thalmann & Co., Inc., also an investment banking firm.
The term of office of each director of the Company ends at the next
annual meeting of the Company's stockholders or when his successor is elected
and qualified.
Meetings of the Board of Directors
The Board of Directors held five meetings during the fiscal year ended
April 27, 1997. The Board of Directors also acted on occasions by unanimous
written consent in lieu of special meetings. Each current director, other than
Mr. Polcari and Ms. Salhany, attended at least 75% of the aggregate number of
all meetings of the Board of Directors and committees of which he was a member
during such fiscal year.
The Board of Directors has an Audit Committee, currently composed of
Messrs. Reeves, and Smith. The functions performed by this Committee include
recommending to the Board of Directors the engagement of the independent
auditors, reviewing the scope of internal controls and reviewing the
implementation by management of recommendations made by the independent
auditors.
The Board of Directors has a Compensation Committee, currently composed
of Messrs. Caruso, Lipton and Reeves. The functions of the Compensation
Committee include determining salaries, incentive plans, benefits and overall
compensation.
5
<PAGE>
The Audit and Compensation Committees were established in June 1994.
The Compensation Committee held one meeting during the fiscal year ended April
27, 1997 and the Audit Committee met on one occasion with the Company's
independent auditors during the fiscal year ended April 27, 1997.
The Board of Directors does not have a nominating committee.
Nominations of directors are considered by the whole Board of Directors.
Compensation of Directors
Directors of the Company do not receive cash compensation for their
services as directors. The Company provides health insurance benefits to its
directors and reimburses its directors for their out-of-pocket expenses in
attending Board meetings. In addition, nonemployee directors are eligible for
the grant of stock options under the 1994 Nonemployee Directors Stock Option
Plan. Messrs. Caruso, Reeves, and Smith each received options to purchase 20,000
shares of common stock in fiscal l997 under Non-employee Director Stock Option
Plan. In addition, Mr. Smith, having served five years as a director, received
options to purchase 10,000 shares of common stock. The Company also enters into
indemnification agreements with each of its directors. See "Executive
Compensation-Limitation of Officers' and Directors' Liability; Indemnification
Agreements".
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of 25 July, 1997 and (i)
each person who is known by the Company to own beneficially more than five
percent of the outstanding shares of Common Stock, (ii) each director and
nominee director of the company, (iii) each person named in the Summary
Compensation Table, and (iv) all current executive officers and directors of the
Company as a group. Unless otherwise indicated below, to the knowledge of the
Company all persons listed below have sole voting and investment power with
respect to their shares of Common Stock except to the extent shared by spouses
under applicable law.
6
<PAGE>
Percentage
Number of Shares of Outstanding
Name and Address Beneficially Owned Shares
- ---------------- ------------------ --------------
George R. Chapdelaine (1)(2) 1,577,650 29.89%
c/o Boston Restaurant
Associates, Inc.
999 Broadway
Saugus, MA 01906
John P. Polcari, Jr. (1)(3) 1,498,312 28.67%
c/o Boston Restaurant
Associates, Inc.
999 Broadway
Saugus, MA 01906
Richard J. Reeves(4) 90,300 1.80%
c/o Boston Restaurant
Associates, Inc.
999 Broadway
Saugus, MA 01906
Terrance A. Smith (5) 9,000 *
c/o Boston Restaurant
Associates, Inc.
999 Broadway
Saugus, MA 01906
Joseph J. Caruso(6) 27,000 *
c/o Boston Restaurant
Associates, Inc.
999 Broadway
Saugus, MA 01906
Lucille Salhany(7) 78,150 1.56%
c/o Boston Restaurant
Associates, Inc.
999 Broadway
Saugus, MA 01906
Anthony Buccieri (11) 10,000 *
c/o Boston Restaurant
Associates, Inc.
999 Broadway
Saugus, MA 01906
7
<PAGE>
Fran V. Ross (11) 10,000 *
c/o Boston Restaurant
Associates, Inc.
999 Broadway
Saugus, MA 01906
Roger Lipton(8) 713,155 13.76%
983 Park Avenue
New York, NY 10028
Dolphin Management, Inc.(9) 453,000 8.98%
129 East 17th Street
New York, NY 10003
Jordan American Holdings, Inc.(10) 1,259,545 23.48%
1875 Ski Time Square Dr., Ste. 1
Steamboat Springs, CO 80487
All current executive officers and
directors as a group
(9 persons)(1)(2)(3)(4)(5)(6)(7) (2,337,730 total) 38.47%
(8)(11)
- ----------------------
*Less than one percent
(1) Mr. Chapdelaine and Mr. Polcari are the Voting Trustees of a Voting Trust
that holds 1,265,150 shares pursuant to a certain Amended and Restated
Voting Trust Agreement dated April 28, 1994 (the "Voting Trust Agreement").
As the Voting Trustees, Mr. Chapdelaine and Mr. Polcari share exclusive
voting power with respect to all shares held in the Voting Trust. Mr.
Chapdelaine and Mr. Polcari are also beneficiaries of the Voting Trust,
each having beneficial ownership of 41.2% of the Voting Trust assets. Such
beneficial ownership in the Voting Trust would entitle each of Mr.
Chapdelaine and Mr. Polcari to 522,390 shares of the Company's Common Stock
in the event the Voting Trust assets were distributed to the beneficiaries
thereof. In addition, relatives of Mr. Polcari have beneficial ownership of
the remaining 17.4% of the Voting Trust assets (approximately 220,370
shares)(54,988 Lucille Salhany) and (165,382 Anthony and Mary Polcari). Mr.
Chapdelaine disclaims beneficial ownership of the approximately 742,760
shares of Common Stock allocated to beneficiaries of the Voting Trust other
than Mr. Chapdelaine, and Mr. Polcari disclaims beneficial ownership of the
approximately 742,760 shares of Common Stock allocated to the beneficiaries
of the Voting Trust other than Mr. Polcari. The Voting Trust will dissolve
on
8
<PAGE>
April 28, 2004 unless earlier dissolved pursuant to the Voting Trust
Agreement.
(2) Includes options to purchase 262,500 shares issuable pursuant to stock
options exercisable within 60 days of 25 July, 1997. Also includes 50,000
option to purchase common stock subject to shareholder approval of the
proposed amendment to the Employee Plan.
(3) Includes approximately 68,670 shares issued to Lucille Salhany, Mr.
Polcari's wife, and Mr. Polcari, as joint tenants with rights of
survivorship in connection with the forgiveness of $282,500 of the
Company's indebtedness to Ms. Salhany. Also includes 210,000 shares
issuable pursuant to currently exercisable stock options, and 9,880 shares
held by Ms. Salhany, Mr. Polcari's wife, for the benefit of certain family
members.
(4) Includes options to purchase 7,000 shares issuable pursuant to current
exercisable stock options.
(5) Includes options to purchase 9,000 shares issuable to pursuant to current
exercisable stock options.
(6) Includes 10,000 shares held by Bantam Group, Inc., a business advisory firm
controlled by Mr. Caruso and options to purchase 7,000 shares issuable
pursuant to currently exercisable stock options.
(7) Excludes 1,265,150 shares held by Mr. Polcari as a Voting Trustee under the
Voting Trust. See note (1) above. Includes 9,880 shares held by Ms.
Salhany, Mr. Polcari's wife, for the benefit of certain family members.
(8) Based on Schedule 13D provided to the Company and discussions with Mr.
Lipton. Includes 166,000 shares issuable pursuant to currently exercisable
warrants.
(9) Based upon a Schedule 13D provided to the Company. Includes 30,000 shares
issuable pursuant to currently exercisable warrants.
(10) Based on a Schedule 13G provided to the Company. F/K/A Equity Asset
Management. Also includes 350,000 warrants issued by Boston Restaurant
Associates, Inc. 31 December, 1996.
(11) Includes 9,900 shares issuable to executive officers pursuant to currently
exercisable stock options.
9
<PAGE>
Management
The names of the Company's executive officers who are not directors of
the Company, and certain biographical information furnished by them, are set
forth below:
Name Age Title
- ---- --- -----
Anthony A. Buccieri 42 Vice President Operations
Fran Ross 50 Vice President of Corporate
Administration, Chief
Financial Officer
Anthony A. Buccieri was appointed Vice President of Operations in April
1994. Mr. Buccieri joined the predecessor of PRI in 1974 and has served PRI in
various capacities since that date, including as operations supervisor,
assisting in the opening of all Pizzeria Regina outlets since he joined PRI in
1983. Mr. Buccieri attended the University of Massachusetts.
Fran Ross was appointed the Company's Vice President of Corporate
Marketing in February 1995 and Vice President of Corporate Administration and
Chief Financial Officer in October 1996. Ms. Ross was Vice President of
Marketing for Back Bay Restaurant Group from December 1993 until December 1994
and for Legal Seafoods from November 1992 until December 1993. Ms. Ross holds an
A.S. from the Culinary Institute of America, AB in Biochemistry from Emmanuel
College and attended graduate school at Cornell University.
Executive Compensation
The following Summary Compensation Table sets forth the compensation
during the last three fiscal years of each person who has served as the Chief
Executive Officer during the last fiscal year and the four most highly
compensated executive officers of the Company, if any, whose annual salary and
bonus exceeded $100,000 for services in all capacities to the Company during the
last fiscal year.
10
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation(2)
Awards Payouts
Other Securities All
Annual Restrict Under- Other
Name and Fiscal Compen- Stock Lying LTIP Compen-
Principal Year Salary Bonus sation Award(s) Options Payouts sation
Position Ended ($) ($) ($) ($) ($) ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
George R. 4/27/97 116,900 0
Chapdelaine 4/28/96 183,600 35,000
President and 4/30/95 177,000 35,000
CEO(1)
</TABLE>
(1) Mr. Chapdelaine was entitled to a salary of $190,464 plus a bonus of
$35,000 in FY 1997. However, he elected not to receive $73,564 of his
salary and his $35,000 bonus in FY 1997 only.
(2) Does not include stock options granted to Mr. Chapdelaine for this personal
guarantee of financial obligations of the Company. See "Certain
Relationships and Related Transactions - Guarantee of Indebtedness of the
Company; Stock Options."
Employment Contract
The Company and Mr. Chapdelaine, the Chief Executive Officer and
President of the Company, have entered into a five year employment agreement
which provides for an initial annual salary of $165,000, subject to increase
after the first year of employment in the discretion of the Compensation
Committee of the Company's Board of Directors. The employment agreement also
provides that Mr. Chapdelaine will be entitled to an annual cash bonus of
$35,000 as well as a performance bonus based upon yearly projections for the
Company's performance. Mr. Chapdelaine will also be provided with an automobile
allowance of $12,000 plus the cost of annual insurance and parking and such
other employee benefits as may be generally available to employees or officers
of the Company. (See note (1) above regarding FY 1997, as a singular, one-time
event).
Under the terms of the employment agreement, if Mr. Chapdelaine's
employment with the Company is terminated by the Company without cause, or if
Mr. Chapdelaine terminates his employment with the Company for good reason
(either a material reduction in his overall level of responsibility or the
relocation of the Company's executive offices to a location that is more than 35
miles from Boston, Massachusetts, in each case without his consent) or due to a
change in control of the Company, Mr. Chapdelaine has agreed not to compete with
the Company for a period of three years from the date of such termination,
provided that the Company shall continue to pay Mr.
11
<PAGE>
Chapdelaine his then current base salary and annual cash bonus of $35,000
payable monthly, during the three year noncompetition period.
Mr. Chapdelaine's employment agreement also contains noncompetition and
confidentiality provisions. The noncompetition provision prohibits Mr.
Chapdelaine from directly or indirectly competing with the Company as long as he
is an employee of the Company and for a period of three years thereafter. The
confidentiality provision provides that Mr. Chapdelaine may never, other than in
furtherance of the business of the Company or in response to a court order,
disclose proprietary information of the Company.
Bonus Program
The Company has adopted an incentive program under which key
contributors, such as store managers, selected by the Compensation Committee
will be paid cash bonuses. The aggregate amount of these bonuses will be based
upon a formula pertaining to the financial performance of the Company. Bonuses,
if any, will be allocated by the Compensation Committee among the individual
employees based upon their performance during the year. The Company is also
considering a similar bonus program for executive officers and senior
management.
Limitation of Officers' and Directors' Liability; indemnification agreements
As permitted by Delaware law, the Company's Certificate of
Incorporation contains an article limiting the personal liability of directors.
The Certificate of Incorporation provides that a director of the Company shall
not be personally liable for monetary damages for a breach of fiduciary duty as
a director, except for liability (i) for any breach of the director's duty of
loyalty, (ii) for acts or omissions not in good faith or which involve
intentional misconduct of a knowing violation of law, (iii) under Section 174 of
the General Corporation Law of the State of Delaware, which prohibits the
unlawful payment of dividends or the repurchase or redemption of stock or (iv)
for any transaction from which the director derived an improper personal
benefit. This article is intended to afford directors additional protection, and
limit their potential liability, from suits alleging a breach of the duty of
care by a director. The Company believes this article will assist it in securing
the services of directors who are not employees of the Company. As a result of
the inclusion of such a provision, holders of the Company's Common Stock may be
unable to recover monetary damages against directors for actions taken by them
which constitute negligence or gross negligence or which are in violation of
their fiduciary duties, although it may be possible to obtain
12
<PAGE>
injunctive or other equitable relief with respect to such actions. If equitable
remedies are found not to be available for any particular case, holders of the
Company's Common Stock may not have any effective remedy against the challenged
conduct.
The Company is also party to an Indemnification Agreement with each of
its present directors and certain executive officers and may enter into such
agreements with any executive officer, director, employee, agent or fiduciary
designated by the Board of Directors. Each Indemnification Agreement provides
that the Company will indemnify the indemnitee against expenses, including
reasonable attorneys' fees, judgments, penalties, fines and amounts paid in
settlement actually and reasonable incurred by him in connection with any civil
or criminal action or administrative proceeding arising out of the performance
of his duties. Such indemnification is available if the indemnitee acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the Company and with respect to any criminal action, had no
reasonably cause to believe that his conduct was unlawful. The Indemnification
Agreement will also require that the Company indemnify the party thereto in all
cases to the fullest extent permitted by applicable law.
Each Indemnification Agreement requires the Company to advance
litigation expenses at the request of the party seeking indemnification, whether
prior to or after final resolution of a proceeding, provided that he undertakes
to repay such advances if it is ultimately determined that he is not entitled to
indemnification for his expenses. The advance of litigation expenses will
thereby be mandatory upon satisfaction of certain conditions by the indemnitee.
Each Indemnification Agreement permits the executive officer, director
or the person that is party thereto to bring suit to seek recovery of amounts
due under the Indemnification Agreement and to recover the expenses of such a
suit if he is successful.
Stock Options
The following table sets forth certain information with respect to the
grants, exercises and fiscal year-end values of stock options to purchase shares
of the Company's Common Stock for the named executive officers during the last
fiscal year.
13
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Number of Percent of
Securities Options
Underlying Granted to
Options Employees Exercise of
Granted (1) in Fiscal Base Price
Name (#) Year ($/Sh) Expiration Date
- ---- ----------- ---------- ------------ ---------------
<S> <C> <C> <C> <C>
George R. Chapdelaine 84,000 40.1% 1.125 10/18/01
</TABLE>
(1) These stock options granted to Mr. Chapdelaine for this personal guarantee
of financial obligations of the Company. See "Certain Relationships and
Related Transactions - Guarantee of Indebtedness of the Company; Stock
Options."
AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
Number of
Shares of
Common
Stock Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Options at
April 27, April 27,
Shares Value 1997(#) 1997($)
Acquired on Realized Exercisable/ Exercisable/Un-
Name Exercise(#) ($)(1) Unexercisable exercisable(1)
- ---- ----------- ----------- ------------- --------------
<S> <C> <C> <C> <C>
George R. Chapdelaine 0 0 262,500/0 328,125/0
</TABLE>
- --------------
(1) Based upon the closing price of the Company's Common Stock on April 27,
1997 as reported on the NASDAQ Small-Cap Market of $1.25 the respective
option exercise price.
PROPOSAL NO. 2
PROPOSAL TO AMEND THE 1994 EMPLOYEE
EMPLOYEE STOCK OPTION PLAN
In March 1997, the Board of Directors adopted, pending approval by the
stockholder on 12 September, 1997, an amendment to the 1994 Employee Stock
Option Plan (the "Employee Plan"). The employees Plan was initially adopted in
May 1994. As set
14
<PAGE>
forth in further detail below, the proposed amendment to the Employee Plan
increases the number of shares reserved for issuance under the Employees Plan
from 135,000 to 500,000 shares and provides for the issuance of additional
options to the Company's employees.
1994 EMPLOYEE COMBINATION STOCK OPTION PLAN
In 1994, the Company adopted the Employee Plan. The purposes of the
Employee Plan is to provide long-term incentives and rewards to the Company's
employees, officers, directors, advisors and consultants by granting them a
permanent stake in the growth and prosperity of the Company. The Employee Plan,
as amended in 1996, permits the issuance of options to purchase up to 135,000
shares of common stock (net of cancellations).
Under the Employee Plan, the Company may grant both incentive stock
options intended to qualify under Section 422 of the Internal Revenue Code of
1986, as amended ("incentive stock options"), and other options which are not
qualified as incentive stock options ("nonqualified stock options"). Incentive
stock options may only be granted to persons who are key employees of the
Company at the time of grant, which may include officers and directors who are
also employees. Nonqualified stock options may be granted to persons who are
officers, directors or key employees of or consultants or advisors to, the
Company at the time of grant, provided that directors who are not employees of
the Company are not eligible to participate in the Employee Plan. Currently,
there are approximately 150 employees of the Company who may determined to be
key employees entitled to grants of options under the Employee Plan.
The Employee Plan will be administered by the Compensation Committee of
the Board of Directors. Subject to the terms of the Employee Plan, the
Compensation Committee determines the persons to whom options are granted, the
number of shares covered by the option, the term of any option, and the time
during which any option is exercisable.
If approved, a total of 500,000 shares of Common Stock will be reserved
for issuance under the Employee Plan. Currently 135,000 shares are reserved for
issuance. The shares issued may include treasury shares, authorized but unissued
shares and shares previously reserved for issuance upon exercise of options
which have expired or terminated. Shares subject to an option that ceases to be
exercisable for any reason will be available for subsequent option grants.
Nonqualified stock options may be granted at an exercise price greater
than or lesser than the fair market value of the Common Stock on the date of
grant, at the discretion of the
15
<PAGE>
Compensation Committee. Incentive stock options, however, may not be granted at
less than the fair market value of the Common Stock and may be granted to
holders of more than 10% of the Common Stock only at an exercise price of at
least 110% of the fair market value of the Common Stock on the date of grant.
The exercise price may be paid in cash or, in the discretion of the Compensation
Committee, (i) in shares of Common Stock (valued at the fair market value at the
date of exercise), (ii) by delivery of any other property valued at its fair
market value at the time of exercise or (iii) by any combination of cash, Common
Stock and other property.
With respect to incentive stock options, to the extent that the
aggregate fair market value of the Common Stock (measured at the time of grant)
with respect to which incentive stock options are first exercisable by an
employee during any calendar year under the 1994 Plan and any other plan of the
Company providing incentive stock options exceeds $100,000, such incentive stock
options shall be treated as nonqualified options.
These options generally become exercisable at 20% per year over five
years. Options under the Employee Plan may not be granted after ten years from
the date of stockholder approval of the 1994 Plan. No option under the Employee
Plan may be exercised subsequent to ten years from the date of grant (five years
after the date of grant for incentive stock options granted to holders of more
than 10% of the Common Stock). No incentive stock option granted pursuant to the
Employee Plan may be exercised more than three months after the option holder
ceases to be an employee of the Company, except that in the event of death or
permanent and total disability (as defined in the Internal Revenue Code of 1986
(the "Code") of the option holder, the option may be exercised by the holder of
his estate for a period of up to one year after the date of such death or
permanent total disability. Options granted under the 1994 Plan may not be
assigned or transferred except as permitted in the discretion of the
Compensation Committee.
The Employee Plan may be amended by the Board of Directors or the
Compensation Committee, subject to certain limitations (i) with respect to
certain matters for which stockholder approval may be required, and (ii)
provided by any applicable law, rule or regulation. No amendment, suspension or
termination of the Employee Plan, except as described in the Employee Plan, may
adversely affect the rights of an option holder under the Employee Plan without
the holder's consent.
In fiscal 1997 Mr. Buccieri and Ms. Ross each received options to
purchase 30,000 shares under the Employee Plan with an exercise price of $1.094,
subject to stockholder approval of the amendment to the Employee Plan. On 30
April, 1997 Mr.
16
<PAGE>
Chapdelaine received options to purchase 50,000 shares under the Employee Plan
with an exercise price of 1.168 (110% of market value on 30 April, 1997) in lieu
of cash compensation of $58,400 for fiscal 1998.
If the stockholders do not approve the amendment to the Employee Plan,
the options granted to Messrs. Chapdelaine, Buccieri, and Ms. Ross on 30 April
and 7 March respectively, will be rescinded. An aggregate of 243,000 options to
purchase shares of common stock have been granted,110,000 of which are subject
to shareholder approval of the proposed amendment to the Employee Plan.
The following table sets forth the amounts allocated to each of the
following under the Employee Plan.
NEW PLAN BENEFITS
1994 Employee Combination Stock Option Plan
-------------------------------------------
<TABLE>
<CAPTION>
Number of Shares
Name Dollar Value ($)(1) Subject to Options
---- ------------------- ------------------
<S> <C> <C>
George R. Chapdelaine - 50,000
President and Chief
Executive Officer (2)
Executive Officers as a group (2)(3) - 110,000
Current Nonemployee Not Eligible 0
Directors as a group
All Employees who are - 0
Not Executive Officers
as a group
</TABLE>
- ------
(1) Based upon the difference between the market value of the underlying shares
on the date of grant and the exercise price of the options. This valuation
does not take into account any appreciation in market value of the
underlying shares which may occur over the term of the options.
(2) Subject to stockholder approval of the proposed amendment to the Employee
Plan, on 30 April, 1997, the Company granted an option to purchase 50,000
shares to George R. Chapdelaine at an exercise price of $1.25 per share. If
the proposal to amend the Employee Plan is not approved by the
shareholders, all of these options will be rescinded.
(3) Subject to stockholder approval of the proposed amendment to the Employee
Plan on 7 March, 1997, the Company granted an
17
<PAGE>
option to purchase 30,000 shares to each of Mr. Buccieri and Ms. Ross at an
exercise price of $1.25 per share. If the proposal to amend the Employee
Plan is not approved by the stockholders, all these options will be
rescinded.
Options to purchase an aggregate of 243,000 shares of common Stock have
been granted to all current employees as a group. At July 25, 1997, the market
value of the Common Stock underlying the outstanding options under the Employees
Plan was $303,750, based upon the closing price per share of the Common Stock
$1.25 on the NASDAQ Small-Cap Market on that date.
Federal Tax Consequences of the Employee Plan
The following discussion of the federal income tax consequences of the
issuance and exercise of options granted under the Employee Plan and the 1994
Plan is based upon the provisions of the Code as in effect on the date of this
proxy statement, current regulations thereunder, and existing administrative
rulings of the Internal Revenue Service. It is not intended to be a complete
discussion of all of the federal income tax consequences of either plan or of
all of the requirements that must be met in order to qualify for the described
tax treatment.
Nonqualified Options
This section discusses the treatment of nonqualified options offered
under the 1994 Combination Stock Option Plan.
A recipient of a nonqualified option will not recognize any income for
federal tax purposes with respect to the option until the option is exercised.
At that time, subject to certain limited exceptions, the recipient will
recognize ordinary income in an amount equal to the excess of the fair market
value of the shares on the date acquired over the option exercise price.
When an option recipient recognizes income, the Company may be required
to withhold income taxes with respect to that income. If the Company satisfies
its withholding obligation, the Company will generally be entitled to a
compensation deduction for federal income tax purposes in an amount equal to the
taxable income recognized by the recipient.
Upon a subsequent sale of shares acquired by the exercise of a
nonqualified stock option, a recipient will recognize gain or loss equal to the
difference between the selling price of the shares and their fair market value
on the date of exercise. The gain or loss will be short-term or long-term
depending upon how long the shares were held.
18
<PAGE>
Incentive Stock Options
Incentive stock options granted under the 1994 Combination Stock Option
Plan are intended to qualify as incentive stock options under Section 422 of the
Code.
A participant will not recognize taxable income upon the grant or
exercise of an incentive stock option. If an option holder does not make a
"disqualifying disposition" (as defined below), then the option holder will not
recognize any taxable income until shares are sold or exchanged, and any gain
recognized upon distribution of shares will be taxable as long term capital
gain. A "disqualifying disposition" means any disposition of shares acquired on
the exercise of an incentive stock option within two years of the date the
option was granted or within one year of the date the shares were transferred to
the option holder.
If the option holder makes a disqualifying disposition, then the
difference between (a) the option exercise price and (b) the lesser of (i) the
fair market value of the shares on the date of exercise or (ii) the price
received upon disposition of the shares, will be taxable to the option holder as
ordinary income. In the case of a gift or certain other transfers, the amount of
taxable ordinary income is not limited to the gain that would have resulted from
a sale. Instead , it is equal to the excess of the fair market value of the
shares on the date of exercise over the option exercise price.
In the case of a disqualifying disposition, if the amount realized on
disposition of the shares exceeds the fair market value of the shares on the
date of exercise, the excess will be taxed as either long-term or short-term
capital gain depending on the option holder's holding period for the shares.
In general, the fair market value of the shares on the date of
exercise, less the exercise price, will be included in the option holder's
alternative minimum taxable income in the year the option is exercised. However,
if in the same year, the shares are disposed of at a lower price, then
alternative minimum taxable income is calculated using this lower price instead
of the shares' fair market value on the date of exercise.
The Company will not be entitled to any deduction with respect to the
grant or exercise of incentive stock options. In addition, no deduction will be
allowed to the Company upon the disposition of stock acquired upon the exercise
of an incentive stock option, unless the disposition is a disqualifying
disposition. In the case of a disqualifying disposition, the Company generally
will be entitled to a deduction equal to the amount of compensation income that
is recognized by the employee as a result of the disqualifying disposition.
19
<PAGE>
PROPOSAL 3
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors recommends that the stockholders ratify the
selection of BDO Seidman, LLP as independent public accountants to examine the
consolidated financial statements of the Company and its subsidiaries for the
fiscal year ending April 26, 1998. BDO Seidman, LLP has audited the Company's
financial statements annually since 1994. BDO Seidman, LLP and its predecessor
have served PRI and, giving effect to the 1994 acquisition of PRI by the Company
(which for accounting purposes was treated as a reverse acquisition), the
Company continued in that capacity for more than 12 years. The Board of
Directors believes it is desirable and in the best interests of the Company to
continue employment of that firm. The affirmative vote of a majority of the
Company's Common Stock present in person or represented by proxy is required to
ratify the appointment of BDO Seidman, LLP as the Company's independent public
accountants. Action by stockholders is not required by law in the appointment of
independent public accountants, but their appointment is submitted by the Board
of Directors in order to give the stockholders a voice in the designation of
accountants. If the appointment is not ratified by the stockholders, the Board
of Directors will reconsider its choice of BDO Seidman, LLP as the Company's
independent public accounts.
A representative of BDO Seidman, LLP will be at the Meeting and will be
given an opportunity to make a statement, if so desired. The representative will
be available to respond to appropriate questions.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Stockholder Loans
In 1986, Anthony A. Polcari, the brother of John P. Polcari, Jr. and a
stockholder and employee of Pizzeria Regina, Inc. ("PRI") prior to the 1994
acquisition of PRI by the Company, sold real estate to PRI and provided
financing for a portion of the purchase price. In 1988, Anthony Polcari and his
wife, Mary Polcari, subscribed for preferred stock of PRI for an aggregate
subscription price of $695,500 to be paid on an installment basis. During the
year ended April 30, 1993, Mr. And Mrs. Polcari consented to the offset of the
outstanding balance of the
20
<PAGE>
purchase price for the real estate against the $610,863 remaining balance of the
subscription receivable, resulting in a net amount owing by the Company to Mr.
and Mrs. Polcari of approximately $147,000. The outstanding balance of this
obligation as of April 27, 1997 was $134,110. This amount is represented by two
notes bearing interest at 7.18% and 8% per annum payable in aggregate monthly
installments of principal and interest of $810 maturing January 2017.
Guarantee of Indebtedness of the Company; Stock Options
In addition to other security for the Company's loan arrangements with
Haymarket Co-Operative Bank, George R. Chapdelaine and John P. Polcari, Jr.
jointly and severally unconditionally guaranteed the payment of all principal,
interest and premium, if any, payable on such loans. In connection with these
guarantees, the Company has issued each of Messrs. Chapdelaine and Polcari
options to purchase 210,000 shares of Common Stock.
The Haymarket Credit Facility
In December 1995, the Company obtained a long-term credit facility with
Haymarket Co-Operative Bank. The terms of the credit facility provide that the
Company may initially draw upon a $500,000 credit line ("Phase One"), and that,
at the Bank's discretion, an additional $500,000 would be made available to the
Company based upon the Company's results of operations in fiscal 1996("Phase
Two"). During fiscal 1997 the company amended the 12% note and borrowed an
additional $380,750. The interest rate on Phase One of this credit facility is
2% above the bank's prime rate. The interest rate on Phase Two of the credit
facility is a fixed rate of 12% per annum. The Company is obligated to make
monthly principal payments of $8,333 on Phase One of the loan, commencing May
1996, with all outstanding amounts due and payable on or before April 1, 2001.
The Company is obligated to make monthly principal payments of $8,333 on Phase
Two of the loan, commencing August 1996. The credit facility is secured by all
of the assets of the Company and its subsidiaries, including the Company's
Pizzeria Regina restaurant located in the North End of Boston, Massachusetts.
The credit facility also contains certain covenants. The President and the
Treasurer of the Company and each of the Company's subsidiaries have guaranteed
the Company's obligations to the bank. A member of the Board of Directors of the
Company also serves as a member of the bank's board of directors. As of April
27, 1997, the Company had an outstanding balance of $825,000 under this credit
facility.
21
<PAGE>
Convertible Subordinated Debentures
During fiscal 1997, the Company issued $1,118,750 of convertible
subordinated debentures. Subordinated debentures outstanding at April 27, 1997
consist of convertible debentures bearing interest at 8% through 31 December,
1997; 10% through 31 December, 1998; 12% through 31 December 1999; 14% through
2011 (this is straight-lined at 13.2% annually) payable semi-annually and
convertible into the Company's common stock at a conversion rate of $1.25 per
share. The Company can redeem the convertible debentures under certain
conditions, as defined. The debentures are due December 2011. The Company is
authorized to issue an additional $381,250 of subordinated debentures. A member
of the board of directors of Boston Restaurant Associates, Inc. received $55,623
for services in connection with this transaction.
Guarantee of Stockholder Debt
George R. Chapdelaine is personally indebted to BayBank in the original
principal amount of $171,000, pursuant to a promissory note dated May 8, 1992,
as amended on April 29, 1994. As of year-end this loan was payed in full by Mr.
Chapdelaine. This note was guaranteed by the Company.
OTHER MATTERS
Voting Procedures
The votes of stockholders present in person or represented by proxy at
the Meeting will be tabulated by an inspector of elections appointed by the
Company. The seven (7) nominees for employees of the Company who receive the
greatest number of votes cast by stockholders present in person or represented
by proxy at the Meeting and entitled to vote thereon will be elected employees
of the Company. Abstentions, including broker non-votes, will have no effect on
the outcome of the vote for the election of employees. The affirmative vote of a
majority of the shares of common stock present or represented by proxy at the
Meeting is required for approval of each of Proposal No. 1 and 2. Abstentions
will have the effect of a vote against Proposal 2, but a broker non-vote will
have no effect.
Reporting Under Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers and employees, and persons who own more than 10% of
the Company's Common Stock, to
22
<PAGE>
file reports of ownership and changes in ownership on Forms 3, 4 and 5 with the
Securities and Exchange Commission and National Association of Securities
Dealers. Executive officers, directors and greater than 10% stockholders are
required to furnish the Company with copies of all Forms 3, 4, and 5 they file.
Based solely on the Company's review of the copies of such Forms, it
has received and written representations from certain reporting persons that
they were not required to file Forms 5 for specified fiscal years, the Company
believes that all of its executive officers, employees and greater than 10%
stockholders complied with all Section 16(a) filing requirements applicable to
them during the Company's fiscal year ended April 28, 1996.
Other Proposed Action
The Board of Directors know of no matters which may come before the
Meeting other than the election of Directors. However, if any other matters
should properly be presented to the Meeting, the persons named as proxies shall
have discretionary authority to vote the shares represented by the accompanying
proxy in accordance with their own judgment.
Stockholder Proposals
Proposals which stockholders intend to present at the Company's 1998
Annual Meeting of Stockholders and wish to have included in the Company's proxy
materials must be received by the Company no later than 9 April, 1998.
Annual Report on Form 10-KSB
Copies of the Company's Annual Report on Form 10-KSB for the fiscal
year ended April 27, 1997 as filed with the Securities and Exchange Commission
are available to stockholders without charge upon written request addressed to:
Investor Relations, Boston Restaurant Associates, Inc., at 999 Broadway, Suite
400, Saugus, Massachusetts 01906.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, STOCKHOLDERS
ARE URGED TO FILL IN, SIGN AND RETURN THE ACCOMPANYING FORM OF PROXY IN THE
ENCLOSED ENVELOPE.
23
<PAGE>
PROXY BOSTON RESTAURANT ASSOCIATES, INC. PROXY
ANNUAL MEETING OF STOCKHOLDERS
The undersigned hereby appoints George R. Chapdelaine and John P. Polcari,
Jr. and each of them, acting singly, with full power of substitution, attorneys
and proxies to represent the undersigned at the Annual Meeting of Stockholders
(the "Meeting") of Boston Restaurant Associates, Inc. (the "Company") to be held
on Friday, September 12, 1997, and at any adjournment or adjournments thereof,
with all power which the undersigned would possess if personally present, and to
vote all shares of stock which the undersigned may be entitled to vote at said
meeting upon the matters set forth in the Notice of and Proxy Statement for the
Meeting in accordance with the instructions on the reverse side and with
discretionary authority upon such other matters as may come before the Meeting.
All previous proxies are hereby revoked.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. IT WILL BE VOTED AS
DIRECTED BY THE UNDERSIGNED AND IF NO DIRECTION IS INDICATED, IT WILL BE VOTED
FOR THE PROPOSALS DESCRIBED IN THE NOTICE OF AND PROXY STATEMENT FOR THE
MEETINGS.
Continued, and to be signed, on reverse side
(Please fill in the reverse side and mail in enclosed envelope)
<PAGE>
Please date, sign and mail your
proxy card back as soon as possible!
Annual Meeting of Stockholders
BOSTON RESTAURANT ASSOCIATES, INC.
September 12, 1997
Please Detach and Mail in the Envelope Provided
A [X] Please mark your
votes as in this
example.
FOR (all nominees WITHHOLD
except as marked AUTHORITY
to contrary) to vote for all nominees
1. Election of [ ] [ ]
Directors:
(INSTRUCTION: To withhold authority to vote
for any individual nominee, write that nominee's
name in the space provided below.)
- -----------------------------------------------
Nominees: George R. Chapdelaine
Joseph J. Caruso
Roger Lipton
John P. Polcari, Jr.
Richard J. Reeves
Lucille S. Salhany
Terrance A. Smith
FOR AGAINST ABSTAIN
2. To adopt and approve the amendment to the 1994 [ ] [ ] [ ]
Employee Stock Option Plan as described in the
accompanying Proxy Statement.
3. To ratify the appointment of BDO Seidman LLP [ ] [ ] [ ]
auditors for fiscal year 1996.
Signature ____________ Date: ________ Signature ____________ Date: ________
NOTE: (Signatures should be the same as the name printed hereon. Executors,
administrators, trustees, guardians, attorneys, and officers of corporations
should add their titles when signing.)
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following table sets forth the estimated expenses in connection with
the offering (all amounts are estimates except SEC registration fee and NASD
filing fee):
Total Expenses
--------------
SEC Registration Fee.......................................... $591.85
NASD Filing Fee............................................... $2,006.28
Blue Sky Fees and Expenses.................................... $25,000.00
Transfer Agent and Registrar Fees ............................ $25,000.00
Accounting Fees and Expenses.................................. $30,000.00
Legal Fees and Expenses....................................... $70,000.00
Printing and Engraving ....................................... $15,000.00
Miscellaneous................................................. $32,401.87
TOTAL................................................... $200,000.00
===========
Item 15. Indemnification of Directors and Officers
Reference is made to Section 145 of the General Corporation Law of the
State of Delaware, Article VII of the Registrant's Certificate of Incorporation
and Article IV of Registrant's Bylaws.
The Registrant is also party to an Indemnification Agreement with
certain of its present directors and officers, and may enter into such
agreements with any officer, employee, agent or fiduciary designated by the
Board of Directors. Each Indemnification Agreement provides that the Registrant
will indemnify the indemnitee against expenses, including reasonable attorneys'
fees, judgments, penalties, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with any civil or criminal action or
administrative proceeding arising out of the performance of his duties. Such
indemnification is available if the indemnitee acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the Registrant and with respect to any criminal action, had no reasonable cause
to believe that his conduct was unlawful. The Indemnification Agreement also
requires that the Registrant indemnify the party thereto in all cases to the
fullest extent permitted by applicable law.
Each Indemnification Agreement requires the Registrant to advance
litigation expenses at the request of the party seeking indemnification, whether
prior to or after final resolution of a proceeding, provided that he undertakes
to repay such advances if it is ultimately determined that he is not entitled to
indemnification for his expenses. The advance of litigation expenses will
thereby be mandatory upon satisfaction of certain conditions by the indemnitee.
Each Indemnification Agreement permits the officer, director or the
person that is party thereto to bring suit to seek recovery of amounts due under
the Indemnification Agreement and to recover the expenses of such action if he
is successful.
Insofar as indemnification for liabilities arising under the 1933 Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions or otherwise, the
II-1
<PAGE>
Registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the 1933 Act and, is
therefore, unenforceable.
Item 16(a). Exhibits
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description Reference
------ ----------- ---------
<S> <C> <C>
2 Stock for Stock Purchase Agreement, as amended, among Capucino's, Inc., A-2*
a Delaware corporation, and John P. Polcari, Jr. and George R.
Chapdelaine, in their capacity as Voting Trustees under that certain
Amended and Restated Voting Trust Agreement dated April 28, 1994
4(a) Description of Common Stock (contained in the Amended Certificate of A-4(a)*
Incorporation of the Registrant)
(b) Form of Certificate evidencing shares of Common Stock F-4(b)*
(c) Form of Subscription Certificate for Rights Filed herewith
(d) Form of Rights Agent Agreement between the Company and American Stock Filed herewith
Transfer & Trust Company
(e) Notice of Guaranteed Delivery and subscription instructions Filed herewith
5 Legal Opinion of Brown, Rudnick, Freed & Gesmer To be filed by
amendment
9 Amended and Restated Voting Trust Agreement dated April 28, 1994, as A-9*
amended.
10(a) Employment Agreement between the Registrant and George R. Chapdelaine A-10(p)* **
(b) Form of 1994 Nonemployee Director Stock Option Plan A-10(q)* **
(c) Form of 1994 Combination Stock Option Plan A-10(r) * **
(d) Stock Purchase Warrant issued to Corning Partners IV, L.P. on April 29, A-10(z)*
1994
(e) $500,000 Subordinated Debenture of the Registrant issued to Corning A-10(aa)*
Partners IV, L.P. on April 29, 1994
(f) Form of Indemnification Agreement with each of the directors and A-10(bb)* **
certain officers of the Registrant
(g) Incentive Stock Option Plan B-10(h)* **
(h) Non-Employee Director's Stock Option Plan C-10(h)* **
(i) Form of Stock Option Agreement between the Registrant and each of James D-10(h)
I. Maruna, W. Rex Seley and Richard J. Reeves
II-2
<PAGE>
(j) Severance Agreement between the Registrant and James I. Maruna E-10(p)* **
(k) Amendment to Employment Agreement between the Registrant and George R. A-(hh)* **
Chapdelaine
(l) $500,000 Note, dated December 28, 1995, issued by Boston F-10.01*
Restaurant Associates, Inc. in favor of Haymarket
Co-Operative Bank
(m) Condominium Mortgage-Security Agreement, dated December 28, 1995, F-10.02*
issued by George R. Chapdelaine, Trustee of BRA Nominee Trust, in favor
of Haymarket Co-Operative Bank
(n) Loan and Security Agreement, dated December 28, 1995, between Boston F-10.03*
Restaurant Associates, Inc. and Haymarket Co-Operative Bank
(o) Guaranty of Ocean, Inc., Polcari Enterprises, Inc., F-10.04*
Pizzeria Regina, Inc., Capucino Boston IV, Inc.,
Fantail Restaurant, Inc., Capucino's, Inc., Bel Canto
Restaurant, Inc., and Capucino's of Saugus, Inc., dated
December 28, 1995, in favor of Haymarket Co-Operative Bank
(p) Guaranty of George R. Chapdelaine, individually and as F-10.05*
trustee of the BRA Nominee Trust, dated December
28, 1995, in favor of Haymarket Co-Operative Bank
(q) Guaranty of John P. Polcari, Jr., dated December 28, 1995, F-10.06*
in favor of Haymarket Co-Operative Bank
(r) Form of Option granted to Mr. Chapdelaine and Mr. Polcari F-10.07*
in consideration of their guaranties of BRA's the
obligations of Boston Restaurant Associates, Inc. under its
credit facility
(s) $350,000 Note, dated April 19, 1996, issued by Boston G-10(rr)*
Restaurant Associates, Inc. in favor of Haymarket
Co-Operative Bank
(t) $500,000 Note, dated July 26, 1996, issued by Boston G-10(ss)*
Restaurant Associates, Inc. in favor of Haymarket
Co-Operative Bank
(u) Lease dated August 1, 1993 between Polcari Enterprises, A-(10)n*
Inc. and the E.J.H. Realty Trust regarding the
Registrant's warehouse located in Somerville, Massachusetts
(v) Lease dated October 14, 1986 between Polcari Enterprises, Inc. and A-10(o)*
Costa Fruit & Produce Co., Inc. regarding the Registrant's commissary
located in Charlestown, Massachusetts
(w) Equipment Lease dated July 26, 1996 between HCB Corporation and Ocean, G-10(tt)*
Inc. regarding certain equipment
11 Calculation of net loss per share of common stock
13 Annual report on Form 10-KSB, Quarterly Report on Form 10-QSB and Proxy Included as exhibits
Statement dated August 7, 1997 to Prospectus
II-3
<PAGE>
23(a) Consent of BDO Seidman, LLP Filed herewith
23(b) Consent of Brown, Rudnick, Freed & Gesmer (included in Exhibit 5) To be filed by
amendment
24
Power of Attorney To be filed by
amendment
</TABLE>
- ----------------
* Pursuant to Rule 411 under the Securities Act of 1933, as amended, this
document is hereby incorporated by reference to a document previously filed with
the Securities and Exchange Commission. The letter refers to the prior filing
identified below and the number refers to the exhibit number in that prior
filing:
A -- Registration Statement on Form S-1 (File No. 33-31748).
B -- Registration Statement on Form S-1 (File No. 33-31748).
C -- Annual report on Form 10-K for the year ended April 30, 1991.
D -- Transition report on Form 10-K for the seven months ended April 30, 1990.
E -- Annual report on Form 10-K for the year ended April 30, 1993.
F -- Quarterly report on Form 10-QSB for the period ended January 28, 1996.
G -- Annual report on Form 10-KSB for the year ended April 30, 1997.
** Management Contract or Compensatory Plan or Arrangement.
Item 16(b). The financial statement schedules have been omitted because they are
not required or because the information contained therein is included in the
Notes to the Consolidated Financial Statements.
Item 17. Undertakings
(a) Intentionally omitted.
(b) Intentionally omitted.
(c) Intentionally omitted.
(d) Intentionally omitted.
(e) Intentionally omitted.
(f) Intentionally omitted.
(g) Intentionally omitted.
(h) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the Registrant's By-Laws, the Underwriting
Agreement relating to this offering, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court
II-4
<PAGE>
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(i) The undersigned Registrant hereby further undertakes that:
(1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from
the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the
Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it
was declared effective.
(2) For the purpose of determining any liability under
the Securities Act of 1933, each post-effective
amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to
the securities offered therein, and the offering of
such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(j) Intentionally omitted.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement on Form S-2 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Saugus,
Commonwealth of Massachusetts, on this 9th day of January, 1998.
BOSTON RESTAURANT ASSOCIATES, INC.
Date: January 9, 1998 By: /s/ George R. Chapdelaine
--------------------------
George R. Chapdelaine, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ George R. Chapdelaine George Chief Executive Officer, President and January 9, 1998
- -------------------------- Director
R. Chapdelaine
/s/ Fran V. Ross Chief Financial Officer January 9, 1998
- ----------------
Fran V. Ross
/s/ Robert Fabrizio Principal Accounting Officer January 9, 1998
- -------------------
Robert Fabrizio
/s/ Joseph J. Caruso Director January 9, 1998
- --------------------
Joseph J. Caruso
/s/ Roger Lipton Director January 9, 1998
- -------------------
Roger Lipton
/s/ John P. Polcari, Jr. Director January 9, 1998
- ------------------------
John P. Polcari, Jr.
/s/ Richard J. Reeves Director January 9, 1998
- ---------------------
Richard J. Reeves
/s/ Terrance A. Smith Director January 9, 1998
- ---------------------
Terrance A. Smith
/s/ Lucille Salhany Director January 9, 1998
- -------------------
Lucille Salhany
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Reference Page
----------- ----------- --------- ----
<S> <C> <C> <C>
2 Stock for Stock Purchase Agreement, as amended, among A-2*
Capucino's, Inc., a Delaware corporation, and John P.
Polcari, Jr. and George R. Chapdelaine, in their
capacity as Voting Trustees under that certain Amended
and Restated Voting Trust Agreement dated April 28, 1994
4(a) Description of Common Stock (contained in the Amended A-4(a)*
Certificate of Incorporation of the Registrant)
(b) Form of Certificate evidencing shares of Common Stock F-4(b)*
(c) Form of Subscription Certificate for Rights Filed herewith
(d) Form of Rights Agent Agreement between the Company and Filed herewith
American Stock Transfer & Trust Company
(e) Notice of Guaranteed Delivery and subscription Filed herewith
instructions
5 Legal Opinion of Brown, Rudnick, Freed & Gesmer To be filed by
amendment
9 Amended and Restated Voting Trust Agreement dated April A-9*
28, 1994, as amended.
10(a) Employment Agreement between the Registrant and George A-10(p)* **
R. Chapdelaine
(b) Form of 1994 Nonemployee Director Stock Option Plan A-10(q)* **
(c) Form of 1994 Combination Stock Option Plan A-10(r) * **
(d) Stock Purchase Warrant issued to Corning Partners IV, A-10(z)*
L.P. on April 29, 1994
(e) $500,000 Subordinated Debenture of the Registrant A-10(aa)*
issued to Corning Partners IV, L.P. on April 29, 1994
(f) Form of Indemnification Agreement with each of the A-10(bb)* **
directors and certain officers of the Registrant
II-7
<PAGE>
(g) Incentive Stock Option Plan B-10(h)* **
(h) Non-Employee Director's Stock Option Plan C-10(h)* **
(i) Form of Stock Option Agreement between the Registrant D-10(h)
and each of James I. Maruna, W. Rex Seley and Richard
J. Reeves
(j) Severance Agreement between the Registrant and James I. E-10(p)* **
Maruna
(k) Amendment to Employment Agreement between the A-(hh)* **
Registrant and George R. Chapdelaine
(l) $500,000 Note, dated December 28, 1995, issued by F-10.01*
Boston Restaurant Associates, Inc. in favor of Haymarket
Co-Operative Bank
(m) Condominium Mortgage-Security Agreement, dated December F-10.02*
28, 1995, issued by George R. Chapdelaine, Trustee of
BRA Nominee Trust, in favor of Haymarket Co-Operative
Bank
(n) Loan and Security Agreement, dated December 28, 1995, F-10.03*
between Boston Restaurant Associates, Inc. and
Haymarket Co-Operative Bank
(o) Guaranty of Ocean, Inc., Polcari Enterprises, Inc., F-10.04*
Pizzeria Regina, Inc., Capucino Boston IV, Inc.,
Fantail Restaurant, Inc., Capucino's, Inc., Bel Canto
Restaurant, Inc., and Capucino's of Saugus, Inc., dated
December 28, 1995, in favor of Haymarket Co-Operative
Bank
(p) Guaranty of George R. Chapdelaine, individually and as F-10.05*
trustee of the BRA Nominee Trust, dated December
28, 1995, in favor of Haymarket Co-Operative Bank
(q) Guaranty of John P. Polcari, Jr., dated December 28, F-10.06*
1995, in favor of Haymarket Co-Operative Bank
(r) Form of Option granted to Mr. Chapdelaine and Mr. F-10.07*
Polcari in consideration of their guaranties of BRA's the
obligations of Boston Restaurant Associates, Inc. under its
credit facility
(s) $350,000 Note, dated April 19, 1996, issued by Boston G-10(rr)*
Restaurant Associates, Inc. in favor of Haymarket
Co-Operative Bank
(t) $500,000 Note, dated July 26, 1996, issued by Boston G-10(ss)*
Restaurant Associates, Inc. in favor of Haymarket
Co-Operative Bank
II-8
<PAGE>
(u) Lease dated August 1, 1993 between Polcari Enterprises, A-(10)n*
Inc. and the E.J.H. Realty Trust regarding the
Registrant's warehouse located in Somerville, Massachusetts
(v) Lease dated October 14, 1986 between Polcari A-10(o)*
Enterprises, Inc. and Costa Fruit & Produce Co., Inc.
regarding the Registrant's commissary located in
Charlestown, Massachusetts
(w) Equipment Lease dated July 26, 1996 between HCB G-10(tt)*
Corporation and Ocean, Inc. regarding certain equipment
11 Calculation of net loss per share of common stock
13 Annual report on Form 10-KSB, Quarterly Report on Form Included as
10-QSB and Proxy Statement dated August 7, 1997 exhibits to
Prospectus
23(a) Consent of BDO Seidman, LLP Filed herewith
23(b) Consent of Brown, Rudnick, Freed & Gesmer (included in To be filed by
Exhibit 5) amendment
24
Power of Attorney To be filed by
amendment
</TABLE>
- ----------------
* Pursuant to Rule 411 under the Securities Act of 1933, as amended, this
document is hereby incorporated by reference to a document previously filed with
the Securities and Exchange Commission. The letter refers to the prior filing
identified below and the number refers to the exhibit number in that prior
filing:
A -- Registration Statement on Form S-1 (File No. 33-31748).
B -- Registration Statement on Form S-1 (File No. 33-31748).
C -- Annual report on Form 10-K for the year ended April 30, 1991.
D -- Transition report on Form 10-K for the seven months ended April 30, 1990.
E -- Annual report on Form 10-K for the year ended April 30, 1993.
F -- Quarterly report on Form 10-QSB for the period ended January 28, 1996.
G -- Annual report on Form 10-KSB for the year ended April 30, 1997.
** Management Contract or Compensatory Plan or Arrangement.
II-9
THE RIGHTS EVIDENCED HEREBY WILL EXPIRE AT 5:00 P.M., EASTERN TIME, ON
FEBRUARY 22, 1998 (UNLESS EXTENDED PRIOR TO THAT DATE) AND
WILL BE VALUELESS THEREAFTER
(See Reverse hereof)
Certificate SUBSCRIPTION CERTIFICATE Certificate for
No. ________ Evidencing Right to Purchase Shares _____ Rights
of Common Stock
of
BOSTON RESTAURANT ASSOCIATES, INC.
Incorporated under the laws of Delaware
THIS CERTIFIES THAT
is the registered owner of the number of Rights set forth above, each of which
entitles the owner to subscribe to purchase one Share of Common Stock of Boston
Restaurant Associates, Inc., a Delaware corporation (the "Company"), for each
Right held. The price to be paid to exercise each Right is $1.00.
The Rights are exercisable until 5:00 p.m., Eastern Time, on February
__, 1998 unless prior to that date the Company extends the Rights Exercise
Period for up to 10 additional calendar days. The Rights are only exercisable
upon the terms specified herein and in the Rights Agent Agreement between the
Company and the Rights Agent dated January __, 1998. The exercise of all of the
Rights represented by this certificate shall also entitle the holder to exercise
Oversubscription Privileges to purchase Shares not purchased by the other
holders of Rights or by employees who purchase under the Employee Privilege, as
more fully described in the Rights Agent Agreement.
The holder of this Rights Certificate, as such, shall not be entitled
to vote or receive dividends or be deemed for any purpose the holder of the
Common Stock which may at any time be issuable upon the exercise hereof, nor
shall anything contained herein be construed to confer upon the holder hereof,
as such, any of the rights of a stockholder of the Company or any right to vote
for the election of directors or upon any matter submitted to stockholders at
any meeting of the Company, or to give or withhold consent to any corporate
action, or, to receive notice of meetings or other actions affecting
stockholders, or otherwise, until all or a portion of the Rights evidenced by
this Rights Certificate have been exercised and the shares of Common Stock have
been issued.
This Certificate shall not be valid for any purpose unless
countersigned by the Rights Agent.
WITNESS the facsimile seal of the Company and facsimile signature of
the proper officers thereof.
DATED: ___________, __, 1998 BOSTON RESTAURANT ASSOCIATES, INC.
COUNTERSIGNED: By:
President
American Stock Transfer & Trust Co.
as Rights Agent
By Attest:
Authorized Signature Treasurer
<PAGE>
================================================================================
SECTION 1 - BASIC SUBSCRIPTION EXERCISE
TO EXERCISE THE BASIC SUBSCRIPTION PRIVILEGE, complete this Section 1 and
Section 3 below and return this Subscription Certificate, with your payment, to
American Stock Transfer & Trust Company at the address set forth in Section 3.
Number of Rights Exercised:________________________________________________
(Note: No fractional Rights may be exercised)
Payment due on exercise of Basic Subscription Privilege is number of Rights
exercised x $1.00 per Right = $___________.
================================================================================
SECTION 2 - OVERSUBSCRIPTION EXERCISE
TO EXERCISE THE OVERSUBSCRIPTION PRIVILEGE, complete this Section 2 as well as
Section 1 and Section 3. You may not exercise the Oversubscription Privilege
unless you have exercised your Basic Subscription Privilege in full or, in the
case of securities held in street name, the particular beneficial owner has
exercised its Basic Subscription Privilege in full. (The actual number of shares
available for purchase will depend upon the number of basic Rights exercised by
all holders, the number of shares purchased under the Employee Privilege, and
the other shareholders exercising the Oversubscription Privilege, and is subject
to proration as set forth in the Rights Agent Agreement and described in the
Prospectus.)
Number of Shares Subscribed For: __________________________________________
Payment due on exercise of Oversubscription Privilege is number of Shares
subscribed for x $1.00 per Share = $___________.
================================================================================
SECTION 3 - PAYMENT INSTRUCTIONS
Payment in Full For All Shares Subscribed For
Under Section 1 and Section 2 Must Accompany this Certificate
Total payment* due under Section 1 plus Section 2 = $______________. (*Make your
check payable to American Stock Transfer & Trust Company)
I hereby certify that I have been provided with a copy of the Prospectus and
tender payment of the purchase price for the shares sought to be purchased.
Authorized Signature of Subscriber: ____________________________________________
Print Name: ____________________________________________________________________
Telephone Number(s): (_____) _________________ (_____) ________________________
Social Security No.: ___________________________________________________________
Please mail, deliver or wire transfer cash, check or money order payable to
American Stock Transfer & Trust Company for the total amount due to the Rights
Agent at the appropriate address below:
By Overnight or Express Delivery,
By Hand Delivery, or First Class Mail: By Facsimile Transmissions:
American Stock Transfer & Trust Co. American Stock Transfer & Trust Co.
Reorganization Dept. Reorganization Dept.
40 Wall Street (718) 234-5001
New York, NY 10005
If you have any questions, call: American Stock Transfer at (718) 921-8200
================================================================================
SECTION 4 - DELIVERY INSTRUCTIONS
(Fill out ONLY if delivery is to be made to an address not shown on the other
side of this Certificate.)
Name: __________________________________________________________________________
Address: _______________________________________________________________________
================================================================================
RIGHTS AGENT AGREEMENT
Between
BOSTON RESTAURANT ASSOCIATES, INC.
a Delaware corporation
and
AMERICAN STOCK TRANSFER & TRUST COMPANY
Dated January __, 1998
<PAGE>
TABLE OF CONTENTS
ARTICLE I - RIGHTS AGENT..................................................1
1.1. Appointment as Rights Agent.......................................2
1.2. Form of Subscription Certificates.................................2
1.3. Issuance of Subscription Certificates.............................2
1.4. Exercise of Rights................................................2
1.5. Oversubscription Procedures.......................................4
1.6. Rules Applicable to Exercise......................................4
1.7 Employee Privilege.................................................5
1.8. Limited Transfer of Rights........................................6
1.9. Mutilated or Missing Subscription Certificates....................6
1.10. Information Provided to the Company..............................7
ARTICLE II - ESCROW.......................................................7
2.1. Appointment as Escrow Agent.......................................7
2.2. Establishment of Escrow Account...................................7
2.3. Escrow Period.....................................................7
2.4. Collection Procedure..............................................8
2.5. Cancellation of Rights Offering; Return of Funds..................8
ARTICLE III- MISCELLANEOUS................................................8
3.1. Definitions.......................................................8
3.2. Duties of AST.....................................................9
3.3. Merger or Consolidation or Change of Name of AST.................10
3.4. Identity of Transfer Agent.......................................11
3.5. Compensation for Services........................................11
3.6. Notices..........................................................11
3.7. Supplements and Amendments.......................................12
3.8. Governing Law....................................................12
3.9. Benefits of this Agreement.......................................12
3.10. Successors......................................................12
Signature.............................................................12
-i-
<PAGE>
RIGHTS AGENT AGREEMENT
RIGHTS AGENT AGREEMENT ("Agreement") dated as of January __, 1998, by
and between BOSTON RESTAURANT ASSOCIATES, INC., a Delaware corporation (the
"Company"), and AMERICAN STOCK TRANSFER & TRUST COMPANY, a New York corporation
(referred to herein, variously, as "AST," or the "Rights Agent," as the
circumstances require). (Certain capitalized terms used herein are defined in
Section 3.1.)
W I T N E S S E T H:
WHEREAS, the Company intends to issue 2,006,277 rights (the "Rights")
to its shareholders of record on the record date fixed by the Board of
Directors, notice of which shall be given to the Rights Agent (the "Record
Date"), entitling them to purchase .4 of one share of its Common Stock, par
value $.01 per share (the "Common Stock"), for each share of Common Stock held
of record on the Record Date (the "Rights Offering"); and
WHEREAS, certain employees of the Company will be given the opportunity
to purchase up to 100,000 shares of Common Stock not purchased through the
exercise of the Rights (the "Employee Subscription Privilege"); and
WHEREAS, the Company has filed a Registration Statement on Form S-2
(No. 333-_____) with the Securities and Exchange Commission (the "Rights
Offering Registration Statement") registering the Rights and the 2,006,277
shares of Common Stock (the "Shares") being offered in the Rights Offerings and
under the Employee Subscription Privilege (collectively the "Offerings"); and
WHEREAS, the Company will on the effective date of the Registration
Statement enter into a Directors' Commitment Agreement (the "Directors'
Commitment Agreement") with its directors in which the directors will agree to
exercise their Basic Subscription Privilege for an aggregate of approximately
720,000 shares of Common Stock and certain of those directors will agree to
subscribe for an aggregate of 450,000 shares of Common Stock pursuant to their
Oversubscription Privilege (the "Directors' Commitment"); and
WHEREAS, the processing associated with the Offerings will involve
substantial administrative matters; and
WHEREAS, the Company desires that AST act on behalf of the Company, and
AST is willing to so act, in various capacities herein described in connection
with the Offerings;
NOW THEREFORE, for good and valuable consideration, receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I - RIGHTS AGENT
1.1 Appointment as Rights Agent. The Company hereby appoints AST to act
as its agent in connection with the Offerings, and AST hereby accepts such
appointment.
1
<PAGE>
1.2. Form of Subscription Certificates. The Subscription Certificates
shall be substantially in the form annexed hereto as Exhibit A (the provisions
of which are hereby incorporated herein). The Subscription Certificates shall be
dated the date of issuance thereof (whether upon initial issuance, permitted
transfer, or in lieu of mutilated, lost, stolen or destroyed Subscription
Certificates).
1.3. Issuance of Subscription Certificates.
(a) Upon written order of or on behalf of the Company, the Rights
Agent shall mail or deliver Subscription Certificates, Prospectuses, and return
envelopes to holders of Common Stock on the Record Date and additional
forwarding information to street name nominees. During the Rights Exercise
Period, the Rights Agent shall (i) issue Subscription Certificates in whole
number denominations to the person entitled thereto in connection with any
partial exercise or transfer permitted under this Agreement to the extent there
is sufficient time to do so prior to the Expiration Date, and (ii) deliver a
Prospectus to each person who is a permitted transferee of Rights in accordance
with Section 1.8 (which Prospectus shall accompany the transferee's Subscription
Certificate). The Company shall at all times supply the Rights Agent with a
sufficient number of Subscription Certificates and Prospectuses for the purposes
contemplated by this Agreement.
(b) The Rights Agent shall keep records, including a register of
the registered holders, reflecting the ownership of all Subscription
Certificates and any permitted transfer thereof. Except as provided in this
Agreement, no Subscription Certificates shall be issued during the Rights
Exercise Period except (i) Subscription Certificates initially issued hereunder,
(ii) Subscription Certificates issued upon the exercise of any Rights to
evidence unexercised Rights held by the exercising registered holder, and (iii)
Subscription Certificates issued upon any permitted transfer of Rights, or in
lieu of mutilated, lost, stolen or destroyed Subscription Certificates. No
Subscription Certificates shall be issued prior to or after the Rights Exercise
Period.
(c) All Subscription Certificates surrendered to the Rights Agent
shall be promptly cancelled by the Rights Agent and thereafter retained by it
for six months, and then shall be delivered to the Company.
1.4. Exercise of Rights.
(a) Rights represented by Subscription Certificates may be
exercised at any time during the Rights Exercise Period upon the terms and
conditions set forth herein, in the Prospectus, and in the Subscription
Certificates. Payment must be made in cash, by wire transfer, or by check, bank
draft or money order payable to the order of "American Stock Transfer & Trust
Company," in an amount of lawful money of the United States of America equal to
the Subscription Price times the number of Shares subscribed, including
subscriptions under both the Basic Subscription Privilege and the
Oversubscription Privilege. The Company shall pay all federal and state transfer
taxes required to be paid on the issuance or exercise of Rights.
2
<PAGE>
(b) A Subscription Certificate shall be deemed to have been
properly exercised if before the Expiration Date a properly completed and signed
Subscription Certificate has been deposited with a bank, trust company, or
member firm of the New York Stock Exchange, American Stock Exchange or National
Association of Securities Dealers, Inc., and the Rights Agent has received a
notice, by mail, telegraph or telefax from such bank, trust company or member
firm that: (i) sets forth the name of the holder of the Subscription
Certificate(s), the serial number(s) of the Subscription Certificate(s) being
exercised, and the number of Shares to be purchased, (ii) guarantees payment of
the full Subscription Price, and (iii) states that the Subscription Certificate
has been properly completed and signed and has been or will be promptly
forwarded to the Rights Agent by such bank, trust company, or member firm.
Rights exercised in this manner will be included in the Rights Offering only if
the properly completed Subscription Certificate(s) and full payment are received
within three Business Days after the Expiration Date.
(c) The Rights Agent will date and time stamp, upon receipt, all
documents received by it as Rights Agent. The Rights Agent shall examine the
Subscription Certificates and other documents delivered or mailed to the Rights
Agent by or for shareholders of the Company to ascertain whether (i) the
Subscription Certificates are properly completed and duly executed in accordance
with the instructions set forth herein, (ii) the proper payment accompanies the
Subscription Certificates, (iii) any other necessary documents are properly
completed and duly executed. The Rights Agent need not pass on the legal
sufficiency of any signature or verify any signature guarantee. The Rights Agent
is authorized, upon consultation with the Company or one or more of its
representatives, to request from any person exercising Rights such additional
undertakings as the Rights Agent may deem appropriate. The Rights Agent is not
authorized to accept any alternative, conditional or contingent purchase, or any
purchase of fractional shares of Common Stock.
(d) Once a registered holder of Rights has delivered or mailed a
completed Subscription Certificate, the exercise of the Rights represented
thereby is not revocable by the holder for any reason.
(e) The Rights Agent shall direct the Company's transfer agent to
issue certificates for the Shares purchased in the Offerings not later than the
later of (i) six Business Days after the Expiration Date, or (ii) five Business
Days after the Closing, provided that the Rights Agent shall have previously
received good funds in the amount of the Subscription Price therefor. No Rights
holder, as such, shall be a shareholder with respect to such Shares and no such
Shares shall be deemed to be outstanding until such Shares are issued in
accordance herewith.
1.5. Oversubscription Procedures
(a) If less than all Shares are subscribed for through (i) exercise
of the Basic Subscription Privilege, and (ii) the Employee Subscription
Privilege, those unsubscribed Shares (the "Excess Shares") may be purchased by
holders of record of Common Stock on the Record
3
<PAGE>
Date who exercise the Oversubscription Privilege. Only a holder who has
exercised his or her Basic Subscription Privilege in full shall be eligible to
exercise Oversubscription Privileges.
(b) Oversubscription Privileges may be exercised during the Rights
Exercise Period and full payment made as provided in Section 1.4.
(c) If the aggregate number of Shares subscribed for through the
exercise of Oversubscription Privileges is more than the number of Excess Shares
available for purchase, the Excess Shares will be apportioned among the holders
who exercised the Oversubscription Privileges through repeated application of
the proration procedure described in the next paragraph.
(d) The Number of Available Shares shall be apportioned among all
those holders who have not yet been apportioned (through previous applications
of this procedure) the full number of Shares subscribed for by them in their
respective exercises of Oversubscription Privileges. Each time the procedure is
applied, the "Number of Available Shares" shall mean the number of Shares not
apportioned by prior applications of the procedures described therein.
Apportionment to each such holder them shall be based on the ratio of (i) the
sum of the number of Shares purchased through the Basic Subscription Privilege
and through the Employee Subscription Privilege by that holder, divided by (ii)
the sum of the number of Shares purchased through the Basic Subscription
Privilege and through the Employee Subscription Privilege by all such holders;
provided however, that if the number of Shares so apportioned to any holder
exceeds the number of Shares subscribed for by that holder's exercise of
Oversubscription Privileges, then the excess shall not be apportioned, and that
holder shall thereafter not be apportioned any additional Shares should there be
further applications of this procedure. This procedure shall be repeated until
either (i) the Number of Available Shares is zero, or (ii) a sufficient number
of Shares has been apportioned to all holders to satisfy all of their exercised
Oversubscription Privileges, whichever occurs first.
1.6. Rules Applicable to Exercise
(a) The Rights Agent shall direct the transfer agent for the
Company to issue certificates for the Shares purchased in the Offerings in
accordance with Section 1.4(e), provided that the Rights Agent shall have
previously received good funds in the amount of the Subscription Price therefor.
No Rights holder, as such, shall be a shareholder with respect to such Shares
and no such Shares shall be deemed to be outstanding until such Shares are
issued in accordance herewith.
(b) The Company shall not issue any fractional Rights nor any
fractional Shares upon exercise of a Subscription Certificate. In the event that
payment is submitted in an amount less than the Subscription Price for the
Rights intended to be exercised, only the number of whole Shares for which
payment was received will be issued. If a holder of Rights exercises for fewer
than all of the Shares to which his Subscription Certificate applies, the Rights
Agent shall issue a new Subscription Certificate representing the balance of the
unsubscribed Rights, to the extent that there is sufficient time to do so prior
to the expiration of the Rights Exercise Period.
4
<PAGE>
(c) The Company shall pay all federal and state transfer taxes
required to be paid on the issuance or exercise of Rights.
(d) The Rights Agent shall promptly notify the Company of any
irregularities in any documents related to exercise of Rights received by the
Rights Agent. All questions as to the validity, form, eligibility (including
times of receipt and matters pertaining to the beneficial ownership) and the
acceptance of subscriptions and payment of the Subscription Price will be
determined by the Company, which determinations will be final and binding. No
alternative, conditional or contingent exercises of Rights will be accepted. The
Company reserves the absolute right to reject any or all exercises of Rights not
properly submitted or the acceptance of which would, in the opinion of the
Company's counsel, be unlawful. The Company also reserves the right to waive any
irregularities or conditions, and the Company's interpretations of the terms and
conditions of the Offerings shall be final and binding. Any irregularities in
connection with exercises of Rights must be cured within such time as the
Company shall determine, unless waived. Rights will not be deemed to have been
exercised until such irregularities have been cured or waived. Subscription
Certificates received by the Rights Agent that are not properly submitted and as
to which the irregularities have not been cured or waived shall be returned by
the Rights Agent to the appropriate holder of the Rights, to the extent there is
sufficient time to do so prior to the expiration of the Rights Exercise Period,
and funds submitted with such Subscription Certificates shall be returned
without interest by the Rights Agent to such holder.
(e) The Rights Agent will follow and act upon any amendments,
modifications or supplements to these instructions, and upon any further
information in connection with the terms of the Offerings, any of which may be
given to the Rights Agent by the Company or by its legal counsel, including
instructions with respect to (i) any extension or other modifications of the
Offerings, (ii) the amount or manner of payment for any Shares purchased, and
(iii) the cancellation of the Offerings.
1.7. Employee Privilege
(a) Simultaneous with the distribution of Rights Certificates, the
Company will mail or deliver subscription documents, Prospectuses and return
envelopes to eligible employees of the Company permitting them to subscribe for
shares of Common Stock through exercise of the Employee Subscription Privilege,
with instructions to return completed subscriptions and payment to the Rights
Agent.
(b) The Company shall deliver to the Rights Agent not later than 48
hours before the beginning of the Rights Exercise Period a list of the names and
addresses of employees eligible to exercise the Employee Subscription Privilege.
(c) The Employee Subscription Privilege may be exercised at any
time within the Rights Exercise Period upon the terms and subject to the
conditions set forth herein, in the Prospectus and in the employee subscription
agreements. All documents must be received and payments made within the same
time periods and in the same manner as specified in Section 1.4.
5
<PAGE>
(d) The maximum number of shares which can be purchased through the
exercise of the Employee Subscription Privilege equals the lesser of (i) the
Shares remaining for purchase after all purchases under the Basic Subscription
Privilege, or (ii) 100,000 Shares. If the aggregate number of Shares subscribed
for under the Employee Subscription Privilege exceeds that number, the available
Shares will be apportioned among subscribers in proportion to the number of
Shares subscribed for by each.
1.8. Limited Transfer of Rights.
(a) Rights may be transferred only by operation of law in the event
of the death or dissolution of the person who is the holder on the Record Date.
In that event, rights may be transferred by delivering to the Rights Agent a
Subscription Certificate with proper evidence of transfer by operation of law
executed by the appropriate legal representative, with instructions to reissue
the Rights in the name of the transferee. The Subscription Certificate must be
received by the Rights Agent by the close of business on the second Business Day
prior to the expiration of the applicable Rights Exercise Period for a
Subscription Certificate to be reissued upon such transfer.
(b) The Company and the Rights Agent may deem and treat the
registered holder of any Subscription Certificate as the absolute owner thereof
and of each Right represented thereby (notwithstanding any notation of ownership
or writing thereon made by anyone other than the Company or the Rights Agent)
for all purposes and shall not be affected by any notice to the contrary.
1.9. Mutilated or Missing Subscription Certificates. In case any of the
Subscription Certificates shall be mutilated, lost, stolen or destroyed, the
Company may, in its discretion, issue and the Rights Agent shall countersign and
deliver in exchange and substitution for and upon cancellation of the mutilated
Subscription Certificate, or in lieu of and in substitution for the Subscription
Certificate lost, stolen or destroyed, a new Subscription Certificate of like
tenor and representing an equivalent right or interest, but only upon receipt of
evidence satisfactory to the Company and the Rights Agent of such loss, theft or
destruction and, in case of a lost, stolen or destroyed Subscription
Certificate, indemnity, if requested, also satisfactory to them. Applicants for
such substitute Subscription Certificates shall also comply with such other
reasonable regulations and pay such reasonable charges as the Company or the
Rights Agent may prescribe.
1.10. Information Provided to the Company.
(a) The Rights Agent will record and hold all Subscription
Certificates received by it and promptly notify the Company by facsimile after
the close of business on each Business Day as to the total number of Shares for
which subscriptions and funds have been covered by Rights exercised on such day
and the cumulative number of Shares for which subscriptions and funds have been
received through the time of such call. The Company's contact person is Fran V.
Ross, and its facsimile number for such reports is 617-231-5225.
6
<PAGE>
(b) In addition, the Rights Agent will also provide, and will
cooperate in making available to the Company, upon oral request made from time
to time, such other information as the Company may reasonably request.
ARTICLE II - ESCROW
2.1. Appointment as Escrow Agent. The Company hereby appoints AST to
act as Escrow Agent for the Company in accordance with the provisions hereof,
and AST accepts such appointment.
2.2. Establishment of Escrow Account. On or prior to the Initial
Issuance Date, the Company shall establish a non-interest-bearing escrow account
with AST, as Escrow Agent, which escrow account shall be entitled "Boston
Restaurant Associates, Inc. Rights Offering Escrow Account" (the "Escrow
Account"). Subscribers in the Offerings shall be directed to make checks for
subscriptions payable to the order of the Rights Agent.
2.3. Escrow Period. The period during which funds shall remain in
escrow (the "Escrow Period") with respect to the Rights Exercise Period shall
begin on the Initial Issuance Date and shall terminate upon the earlier to occur
of the following dates:
(a) the date (which shall not be later than 5 Business Days after
the last day of the Rights Exercise Period) on which the Rights Agent directs
the transfer agent for the Company to issue the certificates for Shares
purchased under Article I hereof and release the purchase price for such
certificates to the Company ("Closing Date"); or
(b) the date upon which the Offerings are cancelled.
During the Escrow Period, the Company shall not be entitled to any
funds received into escrow, and no amounts deposited in the Escrow Account shall
become the property of the Company or any other entity, or be subject to the
debts of the Company or any other entity.
2.4. Collection Procedure. If the Rights Agent rejects any Rights
exercise (including any Oversubscription) or employee subscription for which the
Escrow Agent has already collected funds, the Escrow Agent shall promptly issue
a refund check to the rejected subscriber. If the Rights Agent rejects any
Rights exercise or employee subscription for which the Escrow Agent has not yet
collected funds but has submitted the subscriber's check for collection, the
Escrow Agent shall promptly issue a check in the amount of the subscriber's
check to the rejected subscriber after the Escrow Agent has cleared such funds.
If the Escrow Agent has not yet submitted a rejected subscriber's check for
collection, the Escrow Agent shall promptly remit the subscriber's check
directly to the subscriber.
2.5. Cancellation of Rights Offering; Return of Funds. The Company
shall have the right to modify, withdraw or terminate the Offerings at any time
prior to Closing. In the event the Offerings are withdrawn or terminated for any
reason, upon the Company's direction, the Rights Agent shall direct the Escrow
Agent to refund to each subscriber the amount received from the subscriber
without interest.
7
<PAGE>
ARTICLE III - MISCELLANEOUS
3.1. Definitions.
(a) As used herein, the following terms shall have the following
meanings, unless the context shall otherwise require:
"Business Day" means a day upon which commercial banks in New York
City are open for business.
"Common Stock" means the Company's Common Stock, $.01 par value per
share.
"Closing Date" has the meaning specified on Section 2.3.
"Expiration Date" means February ___, 1998.
"Excess Shares" has the meaning specified in Section 1.5(a).
"Initial Issuance Date" means the date of initial issuance of the
Rights Certificates following the effective date of the Registration Statement.
"Oversubscription Privileges" means the right to elect to purchase
additional Shares beyond the number represented by the Subscription Certificate
from among all of the Excess Shares, as provided in Section 1.5.
"Prospectus" means the prospectus contained in the Registration
Statement at the time it is declared effective by the Securities and Exchange
Commission, as it may thereafter be amended or supplemented from time to time.
"Rights" means the rights to purchase Shares.
"Rights Exercise Period" means the period commencing on the Initial
Issuance Date and ending at 5:00 p.m. Eastern Standard Time on the Expiration
Date.
"Shares" means the 2,006,277 Shares of Common Stock purchasable in
the Rights Offering or pursuant to the Employee Subscription Privilege.
"Subscription Certificate" means a certificate evidencing Rights.
"Subscription Price" means $1.00 per share.
(b) Any capitalized term used in this Agreement and not defined
herein shall have the meaning specified in the Prospectus.
3.2. Duties of AST. AST, as Rights Agent, undertakes the duties and
obligations imposed by this Agreement upon the following terms and conditions,
by all of which the Company and the holders of Rights, by their acceptance
thereof, shall be bound:
8
<PAGE>
(a) The statements of fact and recitals contained herein and in the
Rights shall be taken as statements of the Company, and AST assumes no
responsibility for the correctness of any of the same except such as describe
AST or action taken or to be taken by it. AST assumes no responsibility with
respect to the distribution of the Rights except as herein expressly provided.
(b) AST shall not be responsible for any failure of the Company to
comply with any of the covenants in this Agreement or in the Rights to be
complied with by the Company.
(c) AST may consult at any time with counsel satisfactory to it
(who may be counsel for the Company) and shall incur no liability or
responsibility to the Company or to any holder of any Right in respect of any
action taken, suffered or omitted by it hereunder in good faith and in
accordance with the reasonable opinion or advice of such counsel.
(d) AST shall incur no liability or responsibility to the Company
or to any holder of any Right for any action taken in reliance on any notice,
resolution, waiver, consent, order, certificate or other instrument believed by
it to be genuine and to have been signed, sent or presented by the proper party
or parties.
(e) The Company agrees to reimburse AST in the execution of this
Agreement, to reimburse AST for all expenses, taxes and governmental charges and
other charges incurred by AST in the execution of this Agreement and to
indemnify AST and save it harmless against any and all liabilities, including
judgments, costs and reasonable counsel fees, for anything done or omitted by
AST in the execution of this Agreement except as a result of AST's negligence,
willful misconduct or bad faith.
(f) AST, in its capacity as Rights Agent, shall be under no
obligation to institute any action, suit or legal proceeding or to take any
other action likely to involve expenses unless the Company or one or more
registered holders of Rights shall furnish it with reasonable security and
indemnity for any costs and expenses which may be incurred, but this provision
shall not affect the power of AST to take such action as it may consider proper,
whether with or without any such security or indemnity. All rights of action
under this Agreement or under any of the Rights may be enforced by AST without
the possession of any of the Rights or the production thereof at any trial or
other proceeding. Any such action, suit or proceeding instituted by AST in its
capacity as Rights Agent, and any recovery of judgment thereon, shall be for the
ratable benefit of the registered holders of the Rights, as their respective
rights and interests may appear.
(g) AST and any stockholder, director, officer, partner or employee
of AST may buy, sell or deal in any securities of the Company or become
pecuniarily interested in any transaction in which the Company may be
interested, or contract with or lend money to or otherwise act as fully and
freely as though it were not the Rights Agent under this Agreement. Nothing
herein shall preclude AST from acting in any other capacity for the Company or
for any other legal entity.
9
<PAGE>
(h) AST shall act hereunder solely as agent and its duties shall be
determined solely by the provisions hereof.
(i) AST may execute and exercise any of the rights or powers hereby
vested in it or perform any duty hereunder either itself or by or through its
attorneys or agents, and it shall not be answerable or accountable for any such
attorneys or agents or for any loss to the Company resulting from such neglect
or misconduct, provided reasonable care had been exercised in the selection and
continued retention thereof.
(j) Any request, direction, election, order or demand of the
Company shall be sufficiently evidenced by an instrument signed in the name of
the Company by its President or a Vice President or its Secretary or an
Assistant Secretary or its Treasurer or an Assistant Treasurer (unless other
evidence in respect thereof be herein specifically prescribed); and any
resolution of the Board of Directors may be evidenced to AST by a copy thereof
certified by the Secretary or a Assistant Secretary of the Company.
3.3. Merger or Consolidation or Change of Name of AST.
(a) Any corporation or company which may succeed to the corporate
trust business of AST by any merger or consolidation or otherwise shall be the
successor to it as Rights Agent hereunder without the execution or filing of any
paper or any further act on the part of any of the parties hereto, provided that
such corporation would be eligible for appointment as a successor Rights Agent
under the provisions of this Agreement. In case at the time such successor shall
succeed to the agency created by this Agreement, any of the Rights shall have
been countersigned but not delivered, any such successor to AST may adopt the
countersignature of the original Rights Agent and deliver such Rights so
countersigned.
(b) In case at any time the name of the Rights Agent shall be
changed and at such time any of the Rights shall have been countersigned but not
delivered, the Rights Agent may adopt the countersignature under its prior name
and deliver Rights so countersigned. In all such cases such Rights shall have
the full force provided in the Rights.
3.4. Identity of Transfer Agent. Forthwith upon the appointment of any
transfer agent for the Common Stock, the Company will file with the Rights Agent
a statement setting forth the name and address of such transfer agent.
3.5. Compensation for Services. The Company agrees to pay AST for its
services hereunder and reimburse it for its reasonable expenses hereunder, all
in accordance with the fee agreements attached as Exhibit B hereto and made a
part hereof by this reference.
10
<PAGE>
3.6. Notices. Any notice pursuant to this Agreement to be given by AST,
or by the registered holder of any Right to the Company, shall be sufficiently
given if sent by first-class mail, postage prepaid, as follows:
Boston Restaurant Associates, Inc.
999 Broadway, Suite 400
Saugus, MA 01906
Attn: Ms. Fran V. Ross, Vice President
and a copy thereof to:
Brown, Rudnick, Freed & Gesmer
One Financial Center
Boston, MA 02111
Attn: David H. Murphree, Esq.
Any notice pursuant to this Agreement to be given by the Company or by
the registered holder of any Right or Warrant to the Rights Agent or Warrant
Agent shall be sufficiently given if sent by first-class mail, postage prepaid,
as follows:
American Stock Transfer & Trust Company
40 Wall Street
New York, NY 10005
Attn: Ms. Geraldine Zarbo
or, in each case, to such other address as is specified in writing by one party
to the other.
3.7. Supplements and Amendments. The Company and AST may from time to
time supplement or amend this Agreement in order to cure any ambiguity or to
correct or supplement any provision contained herein which may be defective or
inconsistent with any other provision herein, or to make any other provisions in
regard to matters or questions arising hereunder which the Company and AST may
deem necessary or desirable and which shall not be inconsistent with the
provisions of the Rights and which shall not adversely affect the interest of
the holders of Rights.
3.8. Governing Law. This Agreement shall be deemed to be a contract
made under the laws of the State of Delaware and shall be construed in
accordance with the laws of Delaware applicable to agreements to be performed
wholly within Delaware.
3.9. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company, the
Rights Agent and the registered holders of the Rights any legal or equitable
right, remedy or claim under this Agreement; but this Agreement shall be for the
sole and exclusive benefit of the Company, the Rights Agent, and the registered
holders of the Rights.
11
<PAGE>
3.10. Successors. All the covenants and provisions of this Agreement by
or for the benefit of the Company or AST shall bind and inure to the benefit of
their respective successors and assigns hereunder.
IN WITNESS WHEREOF, the parties have entered into this Agreement on the
date first above written.
BOSTON RESTAURANT ASSOCIATES, INC.
By: _____________________________________________________
Name:
Title:
AMERICAN STOCK TRANSFER & TRUST COMPANY,
as Rights Agent
By: _____________________________________________________
Name:
Title:
Boston Restaurant Associates, Inc
Dear Fellow Shareholder:
Enclosed is a Prospectus dated January __, 1998, describing the offer
of 2,006,277 shares of Common Stock of Boston Restaurant Associates, Inc.
("BRAI") at a price of $1.00 per share in cash, pursuant to non-transferable
rights (the "Rights") being distributed to holders of record of BRAI Common
Stock as of the close of business on January __, 1998 (the "Record Date"). As a
stockholder on that date, you are entitled to .4 of a Right for each of Common
Stock (or full Right for each 2.5 shares of Common Stock) owned as of the Record
Date. Each Right entitles you to purchase one share of BRAI Common Stock at the
price of $1.00 under the Basic Subscription Priviege, plus the opportunity to
purchase additional shares at that price under the Oversubscription Privilege
under certain circumstances. No fractional Rights are being issued. You are
encouraged to read the Prospectus carefully.
If you are an old Capacino stockholder who has not yet exchanged your
stock certificate for a new BRAI certificate, you should be aware that the
number of Rights to which you are entitled was calculated after taking into
account the one for ten reverse stock split effected in 1994. (If you have not
yet exchanged your old certificate, you are strongly urged to do so. For that
purpose only, you should contact_______________.)
These Rights are not transferable and may only be exercised by the
record owner. Once you have exercised the Rights, your exercise may not be
revoked.
If you wish to exercise the Rights you must do so by not later than
5:00 p.m., Eastern Standard Time, on February __, 1998, (unless the Rights
Offering is extended for up to ten (10) business days at the discretion of
BRAI). To do so, you must complete, execute and return the Subscription
Certificate, together with payment of the Subscription Price, to the Rights
Agent by that date.
Any questions or requests for assistance concerning the offering should
be directed to the Rights Agent, American Stock Transfer and Trust Co.,
Reorganizations Dept., at the following telephone number: (800) 937-5449.
Sincerely yours,
George R. Chapdelaine,
President
<PAGE>
[LETTERHEAD OF BRAI]
To Securities Dealers, Commercial Banks
and Other Nominees
Re: Rights Offering
Enclosed is your supply of a prospectus dated January __, 1998 (the
"Prospectus") and other materials relating to the offering of 2,006,277 shares
of Common Stock (the "Common Stock") of Boston Restaurant Associates, Inc.
("BRAI"). The shares are offered at a subscription price of $1.00 per share, in
cash, pursuant to nontransferable rights ("Rights") initially distributed to
holders of record of shares of Common Stock as of the close of business on
January __, 1998 (the "Record Date"). The Rights are described in the Prospectus
and evidenced by a Subscription Certificate registered in your name or the name
of your nominee.
Each beneficial owner of Common Stock registered in your name or the
name of your nominee is entitled to four-tenths of one Right for each share of
Common Stock owned by such beneficial owner (or one full Right for each 2 1/2
shares owned).
We are asking you to contact the client for whom you hold shares of
Common Stock registered in your name or in the name of your nominee to obtain
instructions with respect to the Rights. Please forward, upon receipt, the
enclosed materials by First Class Mail to your clients who are beneficial owners
of Common Stock as of the Record Date. You will be reimbursed for customary
mailing and handling expenses incurred by you in forwarding any of the enclosed
materials to your clients.
Enclosed are the following documents:
1. The Prospectus;
2. A form of letter which may be sent to your client for whose account
you hold shares of Common Stock registered in your name or in the name of your
nominee, with space provided for obtaining such client's instructions with
regard to the Rights;
3. A letter from the President of BRAI; and
4. A Nominee Holder Certification.
Your prompt action is requested. The Rights will expire at 5:00 p.m.,
Eastern Standard Time, on February __, 1998, unless extended for up to ten (10)
business days by BRAI, at its discretion (the "Expiration Date").
<PAGE>
To exercise Rights, a properly completed and executed Subscription
Certificate and payment in full for all Rights exercised must be delivered to
the Rights Agent as indicated in the Prospectus prior to the Expiration Date.
Additional copies of the enclosed materials may be obtained from
American Stock Transfer & Trust Company Rights Agent, its telephone number is
(718) 921-8200 or (800) 937-5449.
Very truly yours,
Boston Restaurant Associates, Inc.
By: ________________________________
George Chapdelaine, President
<PAGE>
Boston Restaurant Associates
Rights Offering
To Our Clients:
Enclosed is a Prospectus dated January __, 1998, describing the offer
of 2,006,277 shares of Common Stock of Boston Restaurant Associates, Inc.
("BRAI") at a price of $1.00 per share in cash, pursuant to non-transferable
rights (the "Rights") initially distributed to holders of record of BRAI Common
Stock as of the close of business on January __, 1998 (the "Record Date"). You
are entitled to one non-transferable Right for each 2.5 shares of Common Stock
carried by us in your account as of the Record Date. Each Right will entitle you
to subscribe to one share of Common Stock at a subscription price of $1.00 (the
"Subscription Price").
The materials enclosed are being sent to you as the beneficial owner of
shares of Common Stock carried by us in your account but not registered in your
name. Exercises and sales of Rights may only be made by us as the registered
holder of Rights and pursuant to your instructions. Accordingly, we request
instructions as to whether you wish us to elect to subscribe for any shares
pursuant to the terms and subject to the conditions set forth in the enclosed
Prospectus. We urge you, however, to read these documents carefully before
instructing us to exercise Rights.
Your instructions to us should be forwarded as promptly as possible to
permit us to exercise Rights on your behalf in accordance with the provisions of
the Rights Offering. The Rights Offering will expire at 5:00 p.m., Eastern
Standard Time, on February __, 1998, unless the Rights Offering is extended for
up to ten (10) business days at the discretion of BRAI. Once you have exercised
the Rights, such exercise may not be revoked.
If you wish to have us, on your behalf, exercise the Rights to purchase
any Common Stock to which you are entitled, please so instruct us by completing,
executing and returning to us the instruction form on the reverse side of this
letter. If we do not receive complete written instructions in accordance with
the procedures outlined in the Prospectus, we will not exercise your Rights and
your Rights will expire and become worthless.
Any questions or requests for assistance concerning the offering should
be directed to American Stock Transfer and Trust Co., the Rights Agent, at the
following telephone number: (718) 921-8200, or (800) 937-5449.
(over)
<PAGE>
INSTRUCTIONS
The undersigned acknowledge(s) receipt of your letter and the materials
described therein relating to the offering of Rights.
This will instruct you whether or not to exercise Rights distributed
with respect to the Common Stock held by you for the account of the undersigned,
subject to the terms and conditions set forth in the Prospectus.
Box 1 [ ] Please DO NOT EXERCISE RIGHTS
Box 2 [ ] Please EXERCISE BASIC RIGHTS for Shares as set forth below.
_______ Shares x $1.00 Subscription Price = $________.
Box 3 [ ] Please EXERCISE OVERSUBSCRIPTION RIGHTS for Shares as set
forth below.
_______ Shares x $1.00 Subscription Price = $________.
Box 4 [ ] Payment in the following amount is enclosed $________.
Box 5 [ ] Please deduct payment from the following account maintained
by you as follows:
___________________________________________________________
Type of Account No.
Amount to be deducted: $_____________
- --------------------------------------------------------------------------------
DATE AND SIGN HERE: ___________________________________________________________
___________________________________________________________
Signature(s)
Please type or print name(s) below
___________________________________________________________
___________________________________________________________
Date: ________, 1998
- --------------------------------------------------------------------------------
<PAGE>
BOSTON RESTAURANT ASSOCIATES
RIGHTS OFFERING
NOMINEE HOLDER CERTIFICATION
The undersigned, a bank, broker or other nominee holder of Rights
("Rights") to purchase shares of Common Stock $.01 par value ("Common Stock") of
Boston Restaurant Associates, Inc. ("BRAI") pursuant to the Rights Offering
described and provided for in BRAI's prospectus dated January __, 1998, (the
"Prospectus"), hereby certifies to BRAI and to American Stock Transfer & Trust
Co., as Rights Agent for such Rights Offering, that the undersigned has
subscribed for, on behalf of beneficial owners of Rights (which may include the
undersigned), the number of shares specified below (without identifying any such
beneficial owners):
Subscription
1. ______________________________________________________________________
2. ______________________________________________________________________
3. ______________________________________________________________________
4. ______________________________________________________________________
5. ______________________________________________________________________
6. ______________________________________________________________________
7. ______________________________________________________________________
8. ______________________________________________________________________
9. ______________________________________________________________________
10. ______________________________________________________________________
- --------------------------------------------------------------------------------
Provide the following information if applicable.
_____________________________________________________________________________
Depository Trust Company ("DTC")
Participant Number
_____________________________________________________________________________
DTC Subscription Confirmation Number(s)
Dated: ___________, 1998
- -------------------------------------------------------------------------------
____________________________________________
____________________________________________
____________________________________________
Name and Address of
Nominee Holder
By: _______________________________________
Name:
Title:
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Boston Restaurant Associates, Inc.
Saugus, Massachusetts
We hereby consent to the incorporation by reference in the Prospectus
constituting a part of this Registration Statement of our report dated July 2,
1997, relating to the consolidated financial statements of Boston Restaurant
Associates, Inc. appearing in the Company's Annual Report on Form 10-KSB for the
year ended April 27, 1997.
We also consent to the reference to us under the caption "Experts" in
the Prospectus.
BDO Seidman, LLP
Boston, Massachusetts
January 9, 1998
