-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Her1UGv6keZakNNpC0kprHjw3Y6hmNYFFv7rd/XuKqYNFxc9LJS9YpCRVxm7riIq WYhj2F8FhakpFBsi9Elpkw== 0000912057-00-016976.txt : 20000411 0000912057-00-016976.hdr.sgml : 20000411 ACCESSION NUMBER: 0000912057-00-016976 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19991225 FILED AS OF DATE: 20000410 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PANERA BREAD CO CENTRAL INDEX KEY: 0000724606 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 042723701 STATE OF INCORPORATION: DE FISCAL YEAR END: 1226 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-19253 FILM NUMBER: 596639 BUSINESS ADDRESS: STREET 1: 19 FID KENNEDY AVE CITY: BOSTON STATE: MA ZIP: 02210 BUSINESS PHONE: 6174232100 MAIL ADDRESS: STREET 1: 19 FID KENNEDY AVE CITY: BOSTON STATE: MA ZIP: 02210 FORMER COMPANY: FORMER CONFORMED NAME: AU BON PAIN CO INC DATE OF NAME CHANGE: 19940201 10-K 1 10-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C. 20549 ------------------------ FORM 10-K (MARK ONE) /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 25, 1999, OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 0-19253 ------------------------ PANERA BREAD COMPANY (Exact name of registrant as specified in its charter) DELAWARE 04-2723701 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 7930 BIG BEND BOULEVARD, ST. LOUIS, MO 63119 (Address of principal executive offices) (Zip code)
(314) 918-7779 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: None. Securities registered pursuant to Section 12(g) of the Act: CLASS A COMMON STOCK, $.0001 PAR VALUE (Title of class) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 and 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-k or any amendment to this Form. /X/ Aggregate market value of the registrant's voting stock held by non-affiliates as of March 17, 2000: Class A Common Stock, $.0001 par value: $82,150,888 Number of shares outstanding of each of the registrant's classes of common stock, as of March 17, 2000: Class A Common Stock, $.0001 par value: 10,639,978 shares, Class B Common Stock, $.0001 par value: 1,530,524 shares. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- DOCUMENTS INCORPORATED BY REFERENCE The registrant's definitive proxy statement for its Annual Meeting of Stockholders, to be filed in connection with the Annual Meeting of Stockholders is incorporated by reference in response to Part III, Items 10, 11, 12, and 13. 2 PART I ITEM 1. BUSINESS GENERAL Panera Bread Company ("the Company") is the new name for what previously was Au Bon Pain Co., Inc. Such name change occurred as a result of the sale of the Au Bon Pain Division to private investors effective May 16, 1999. The Company now consists of the Panera Bread/Saint Louis Bread Co. concept, with the Company doing business as Saint Louis Bread Co. in the Saint Louis and Atlanta areas, and as Panera Bread outside those areas. As of December 25, 1999, the Company had 81 Company-operated bakery-cafes (including 2 specialty bakery-cafes), and 100 franchise-operated bakery-cafes. The concept specializes in high quality food for breakfast and lunch, including fresh baked goods, made-to-order sandwiches on freshly baked breads, soups, salads, custom roasted coffees, and other cafe beverages, and targets suburban dwellers and workers by offering a premium specialty bakery and cafe experience with a neighborhood emphasis. The Company's bakery-cafes are principally located in suburban, strip mall and regional mall locations. The concept is currently operating in Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Nebraska, New Hampshire, New Jersey, North Carolina, Ohio, Oklahoma, Pennsylvania, South Carolina, Tennessee, Texas, Virginia, and Wisconsin (see "Properties"). System wide sales for Panera Bread were approximately $202.1 million for the fiscal year ended December 25, 1999. The Company sold the Au Bon Pain Division to ABP Corporation for $73 million in cash before contractual purchase price adjustments of $1 million. The sale was effective May 16, 1999. Results of operations for the fifty-two week period ending December 25, 1999, includes the results of the divested Au Bon Pain Division for the period December 27, 1998 through May 16, 1999. The Au Bon Pain Division had $51.5 million of revenue and $3.2 million of operating earnings through May 16, 1999. For the fifty-two week period ended December 25, 1999, the Company recorded a pre-tax loss of $5.5 million related to the transaction, and a $0.6 million pre-tax ($0.4 million after tax) extraordinary loss related to the early extinguishment of debt from the proceeds of the sale. CONCEPT AND STRATEGY The Company's concept focuses on the emerging "Specialty Bread/Bakery-Cafe" category. Its artisan sourdough breads, which are breads made with a craftsman's attention to quality and detail, and overall award-winning bakery expertise are at the heart of the concept's menu. The concept is designed to deliver against the key consumer trends of today, specifically the need for an efficient but more esthetically pleasing experience than that offered by traditional fast food. The concept aims to become a nationally recognized brand name, and in doing so, hopes to reap the economic benefits that a strong brand name offers. Its menu, prototype, operating systems, design and real estate strategy allow it to compete successfully in four sub-businesses: breakfast, lunch, day-time "chill out" (the time between breakfast and lunch and between lunch and dinner when customers visit our bakery-cafes to take a break from their daily activities), and take home specialty retailing. Average revenue per Company-operated bakery-cafe open for the full fiscal year ended December 25, 1999, was approximately $1,296,000 (excluding the two specialty cafes) for the Panera Bread/Saint Louis Bread Co. concept compared to average revenue per cafe of approximately $1,249,000 for those cafes open for the full year ended December 26, 1998. The Company believes that excellence in execution is a key to success in the restaurant industry. The distinctive nature of the Company's menu offerings, the quality of its restaurant operations, the company's unique cafe design and the prime locations of its cafes are integral to the Company's success. The Company's concept has tremendous growth potential in the suburban markets which will be realized through both Company and franchise efforts. Franchising is a key component of the Company's success. At 3 year end, there were 100 franchised bakery-cafes opened and signed commitments to open an additional 543 bakery-cafes. The average unit volume per franchised bakery-cafe open for the full fiscal year ended December 25, 1999, was approximately $1,426,000 compared to approximately $1,281,000 for those cafes open for the full year ended December 26, 1998. MENU The menu seeks to provide the Company's target customers with products which build on the strength of the Company's bakery expertise and meet customers' new and ever-changing taste profiles. The key menu groups are fresh baked goods, made-to-order sandwiches, soups, and cafe beverages. Included within these menu groups are: a variety of freshly baked bagels, breads, croissants, muffins, scones, rolls, and sweet goods; made-to-order sandwiches; hearty, unique soups; custom roasted coffees and cafe beverages such as espresso and cappuccino. The Company's concept emphasizes the sophisticated specialty and sourdough breads which supports a significant take-home business. The Company regularly reviews and revises its menu offerings to satisfy changing customer preferences and to maintain customer interest amongst its target customer groups--the "Trend-Setters" and the "Good Food Traditionalists". Both of these target customers seek a quality experience that reflects their discriminating tastes. The major characteristic that sets these two groups apart is the more enthusiastic embrace of new and nutritional menu items by the "Trend-Setters". New menu items are developed in corporate test kitchens and then introduced in a limited number of the Company's bakery-cafes to determine customer response and verify that preparation and operating procedures maintain consistency, high quality standards and profitability. If successful, they are then introduced in the Company's bakery-cafes. MARKETING The Company believes it competes on the basis of providing an entire experience rather than price. Pricing is structured so customers perceive good value, with high quality food at reasonable prices to encourage frequent visits. The average customer purchase is approximately $5.44 at the Company's bakery- cafes. Breakfast and lunch checks average $3.76 and $6.41, respectively. Historically, the Company has not relied on external media to promote its bakery-cafes. The Company attempts to increase its per location sales through menu development, promotions, and by sponsorship of local community charitable events. SITE SELECTION During 1999, the Company increased the number of Company-operated bakery-cafes by 12 to 81 locations by expanding in both new and existing markets. The franchise-operated locations increased by 56 to 100 locations. The bakery-cafe concept relies on a substantial volume of repeat business. In evaluating a potential location, the Company studies the surrounding trade area, obtaining demographic information within that area and information on quick service breakfast and lunch competitors. Management evaluates the Company's ability to establish a dominant presence within that area in order to create entry barriers to other competitors. Based on this information, sales and return on investment are projected. The Company uses sophisticated fixtures and materials in the bakery-cafe design for its concept. The design visually reinforces the distinctive difference between the Company's bakery-cafes and other quick services restaurants serving breakfast and lunch. Many of the Company's cafes also feature outdoor cafe seating. The average construction and equipment cost for the 12 bakery-cafes opened in 1999 was approximately $656,000 after landlord allowance. The average bakery-cafe size ranges between 3,000 and 4,000 square feet. Currently all company-owned bakery-cafes are in leased premises. Lease terms are typically ten years with one or two five-year 4 renewal option periods thereafter. Leases typically have a minimum base occupancy charge, charges for a proportionate share of building operating expenses and real estate taxes, and contingent percentage rent based on sales above a stipulated sales level. FRESH DOUGH PRODUCTION The Company's bakery-cafes use fresh dough for their sourdough breads and bagels. Fresh dough is supplied daily by the Company's commissary system for both Company-owned and franchise-operated bakery-cafes. The Company operated 10 regional commissaries as of December 25, 1999. The remaining baked goods are prepared with frozen dough. During 1996, the Company completed construction of a state of the art frozen dough production facility in Mexico, Missouri to supply frozen dough. On March 23, 1998, the Company sold the Mexico production facility and its wholesale frozen dough business to Bunge Food Corporation ("Bunge") for approximately $13 million in cash. Concurrent with the sale, the Company entered into a five-year supply agreement with Bunge for the supply of substantially all of its frozen dough needs, excluding bagels. The agreement automatically renews on an annual basis unless either party provides written cancellation notice to the other. Pricing is based on Bunge's cost plus a specified mark-up calculated on each individual product that is purchased. The agreement contains minimum volume commitments, and provides for financial penalties if either party cancels the agreement before the initial term is complete. The sale of the frozen dough production facility provides economies of scale in plant production which are reflected in the economics of the five-year agreement and allow the Company to take advantage of Bunge's significant purchasing power. The five-year supply agreement allows the bakery-cafes to continue to offer the same high quality fresh baked goods, as the frozen dough products purchased from Bunge are made on the same equipment, by the same management team, using the same proprietary processes and specifications as prior to the sale. The net proceeds from the sale were used to reduce the Company's debt. The Company recognized a pre-tax loss on the sale of the facility of approximately $735,000 in the Company's 1998 results of operations. COMPETITION The Company experiences competition from numerous sources in its trade areas. The Company's bakery-cafes compete with bread only stores, supermarkets, and other bakeries that supply high quality breads and with other restaurants that seek to use quality breads to define a breakfast, lunch, and light dinner menu. The competitive factors are price, service, and quality of products. The Company competes for leased space in desirable locations. Certain of the Company's competitors may have capital resources exceeding those available to the Company. MANAGEMENT INFORMATION SYSTEMS Each Company-operated bakery-cafe has computerized cash registers to collect point-of-sale transaction data, which is used to generate pertinent marketing information, including product mix and average check. All product prices are programmed into the system from the Company's corporate office. The Company's in-store personal computer-based management support system is designed to assist in labor scheduling and food cost management, to provide corporate and retail operations management quick access to retail data, and to reduce managers' administrative time. The system supplies sales, bank deposit, and variance data to the Company's accounting department in St. Louis on a daily basis. The Company uses this data to generate weekly consolidated reports regarding sales and other key elements, as well as detailed profit and loss statements for each bakery-cafe every four weeks. Additionally, the Company monitors the average check, customer count, product mix, and other sales trends. The commissaries have 5 computerized systems which allow the commissaries to accept electronic orders from the bakery-cafes and deliver the ordered product back to the bakery-cafe. The Company has network/integration systems which are corporate office electronic systems and tools which link various information subsystems and databases, encompassing e-mail and all major financial systems, such as general ledger database systems and all major operational systems, such as store operating performance database systems. See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" for information pertaining to the "Year 2000" issue. DISTRIBUTION The Company currently utilizes independent distributors to distribute frozen dough products and other materials to Company-operated bakery-cafes. By contracting with independent distributors, the Company has been able to eliminate investment in distribution systems and to focus its managerial and financial resources on its retail operations. The distributor picks up frozen dough products throughout the week from the plants and delivers to the cafes. Virtually all other supplies for retail operations, including paper goods, coffee, and small-wares, are contracted for by the Company and delivered by the vendors to the distributor for delivery to the bakery-cafes. The individual bakery-cafes order directly from a distributor two to three times per week. Franchised bakery-cafes operate under individual contracts with either the Company's distributor or other regional distributors. JOINT VENTURES The Company is not currently operating under any joint venture agreements. The divested Au Bon Pain Division operated 14 bakery-cafes in New York City under a joint venture agreement with a private investor group. This joint venture was part of the sale of the Au Bon Pain Division which was effective May 16, 1999. For the period December 27, 1998, through May 16, 1999, the joint venture had sales of $7.8 million and a pre-tax loss of approximately $(81,000). FRANCHISE OPERATIONS The Company began a broad-based franchising program in 1996. The Company is actively seeking to extend its franchise relationships beyond its current franchisees. The franchise agreement typically requires the payment of an up-front franchise fee of $35,000 and continuing royalties of 4% to 5% on sales from each bakery-cafe. The franchisees are required to purchase all of their dough products from sources approved by the Company. The Company's commissary system supplies fresh dough products to substantially all franchise-operated bakery-cafes. The Company has entered into 34 separate franchise area development agreements for a total of 643 bakery-cafes of which 100 have been opened as of December 25, 1999. The Company's strategy is to execute growth in a controlled and disciplined manner. Under the terms of the franchise development agreements, a schedule is determined with respect to a set number of franchise openings as to which the developer pays a non-refundable fee. In the event that the schedule is not adhered to, the developer will lose development exclusivity in the territory. At the present time, the Company does not have any international franchise development agreements in force having decided to focus on domestic opportunities for expansion. All former international franchise operations were part of the Au Bon Pain Division, which has been divested. EMPLOYEES The Company has 599 full-time employees, of whom 134 are employed in general or administrative functions principally at or from the Company's executive offices in St. Louis, Missouri, or Waltham, 6 Massachusetts; 242 are employed in the Company's commissary operations; and 223 are employed in the Company's bakery-cafe operations. The Company also has 2,337 hourly employees at the bakery-cafes, including bakers and associates. There are no collective bargaining agreements. The Company considers its employee relations to be excellent. TRADEMARKS The "Panera Bread" and "Saint Louis Bread Company" names are of material importance to the Company and are trademarks registered with the United States Patent and Trademark Office. In addition, other marks of lesser importance have been filed with the United States Patent and Trademark Office. GOVERNMENT REGULATION Each Company-operated and franchised bakery-cafe is subject to regulation by federal agencies and to licensing and regulation by federal agencies as well as to licensing and regulation by state and local health, sanitation, safety, fire, alcoholic beverage control and other departments. Difficulties or failures in obtaining and retaining the required licensing or approval could result in delays or cancellations in the opening of restaurants. The Company is also subject to federal and a substantial number of state laws regulating the offer and sale of franchises. Such laws impose registration and disclosure requirements on franchisors in the offer and sale of the franchises and may also apply substantive standards to the relationship between franchisor and franchisee. The Company does not believe that current or potential future regulations of franchises have or will have any material impact on the Company's operations. The Company is subject to the Fair Labor Standards Act and various state laws governing such matters as minimum wages, overtime, and other working conditions. The Company's commissaries are subject to various federal, state, and local environmental regulations. Compliance with applicable environmental regulations is not believed to have any material effect on capital expenditures, earnings or the competitive position of the Company. Estimated capital expenditures for environmental compliance matters are not material. The Americans with Disabilities Act prohibits discrimination in employment and public accommodations on the basis of disability. Under the Americans with Disabilities Act, the Company could be required to expend funds to modify its bakery-cafes to provide service to, or make reasonable accommodations for the employment of, disabled persons. The Company believes that compliance with the requirements of the Americans with Disabilities Act will not have a material adverse effect on its financial condition, business or operations. ITEM 2. PROPERTIES All Company-operated bakery-cafes are located in leased premises with lease terms typically for ten years with one or two five-year renewal option periods thereafter. Leases typically have a minimum base occupancy charge, charges for a proportionate share of building operating expenses, and real estate taxes and a contingent percentage rent based on sales above a stipulated sales level. 7 Information with respect to our leased commissaries as of December 25, 1999 is set forth below:
FACILITY SQUARE FOOTAGE - -------- -------------- St. Louis, MO Commissary.................................... 12,100 Dallas, TX Commissary....................................... 1,000 Washington, DC Commissary................................... 8,900 Atlanta, GA Commissary...................................... 4,100 Detroit, MI Commissary...................................... 5,200 Minneapolis, MN Commissary.................................. 4,800 Cincinnati, OH Commissary................................... 8,500 Warren, OH Commissary....................................... 11,300 Chicago, IL Commissary...................................... 12,100 Orlando, FL Commissary...................................... 5,900
In 1998, the Company leased short-term office space in Waltham, MA, to house its Legal and Development functions. The annual rent is approximately $42,000 and the lease expires in October, 2000. In 1997, the Company leased new office space in Webster Groves, MO, for its corporate offices. The space occupies approximately 10,300 square feet. The annual rent is approximately $150,000. The lease expires, assuming exercise of renewal options, in 2007. The Company leases additional space in St. Louis, MO, to house its information systems staff and training functions. The annual rent is approximately $46,000. The lease expires in November, 2001. The Company considers its physical properties to be in good operating condition and suitable for the purpose for which they are used. 8 PANERA BREAD/SAINT LOUIS BREAD CO. BAKERY-CAFES COMPANY-OPERATED: 81 TOTAL (INCLUDING SPECIALTY CAFES) AS OF DECEMBER 25, 1999 GREATER ST. LOUIS MARKET AREA: 35 Ballas, Creve Coeur, MO Kirkwood, MO Belleville, IL Main, St. Charles, MO Baxter, Ballwin, MO Market, St. Louis, MO Bogey Hills, St. Charles, MO Northwest Plaza, St. Ann, MO Brentwood, St. Louis, MO Pine, St. Louis, MO Cape Girardeau, MO Soulard, St. Louis, MO Carondelet, Clayton, MO South 9(th) Street, Columbia, MO Central West End, St. Louis, MO South Central, Clayton, MO Chesterfield Mall, Chesterfield, MO St. Clair Square, Fairview Heights, IL Columbia Mall, Columbia, MO Sunset Hills, Sunset Hills, MO Crestwood Plaza, St. Louis, MO Surrey Plaza, Florissant, MO Delmar, University City, MO Telegraph Road, St. Louis, MO Esquire, Clayton, MO Tesson Ferry, St. Louis, MO Four Seasons, Chesterfield, MO West County, Des Peres, MO Galleria, Richmond Heights, MO Westport Plaza, Maryland Heights, MO Gateway One, St. Louis, MO Wildwood Crossing, Wildwood, MO Grand, St. Louis, MO Winchester, MO Highway K, O'Fallon, MO ATLANTA MARKET AREA: 9 Briarcliff, Atlanta, GA Lenox Square, Atlanta, GA Dunwoody, GA Peachtree, Atlanta, GA Emory Village, Atlanta, GA Sandy Springs, Atlanta, GA Gwinnett Place, Duluth, GA Town Center, Kennesaw, GA Haywood Mall, Greenville, SC CHICAGO MARKET AREA: 20 Diversey, Chicago, IL Orland Square Mall, Orland Park, IL Downer's Grove, IL Park Ridge, IL Elmwood Park, Elmwood, IL Plaza del Grato, Arlington Heights, IL Evanston, IL Scharrington Square, Schaumburg, IL Four Flaggs, Niles, IL Stratford Square Mall, IL Fox Valley, Aurora, IL Two Rivers Plaza, Bolingbrook, IL Glen Ellyn Marketplace, Glen Ellyn, IL Vernon Hills, IL Golf & Meacham, Schaumburg, IL Wheaton, IL LaGrange Park, IL Wilmette, IL Niles Amlings, Niles, IL Winnetka, IL MASSACHUSETTS MARKET AREA: 2 Arlington Heights, Arlington, MA Vinnin Square, Swampscott, MA MICHIGAN MARKET AREA: 12 Campus Corners, Rochester Hills, MI Newburgh Plaza, Livonia, MI City Center, Novi, MI Orchard Mall, West Bloomfield, MI Clocktower Place, Southfield, MI Oakland Plaza, Troy, MI KT Plaza, Farmington, MI Troy Commons, Troy, MI Lakeside Mall, Sterlington Heights, MI Twelve Mile & Halsted, Farmington Hills, MI Lathrup Village, Bloomfield, MI Twelve Oaks Mall, Novi, MI
9 WASHINGTON DC MARKET AREA: 1 Hechinger Commons, Alexandria, VA SPECIALTY STORES: 2 (INCLUDED IN TOTAL STORE COUNT) City Museum, St. Louis, MO Rendezvous Cafe, Richmond Heights, MO FRANCHISE-OPERATED: 100 TOTAL AS OF DECEMBER 25, 1999 THE BREADBOX, L.L.C.: 1 Baymeadows, Jacksonville, FL BREADS OF THE WORLD, L.L.C.: 8 Blacklick Crossing, Columbus, OH Five Points, Columbus, OH Crosswoods Commons, Columbus, OH Founder's Plaza, Gahanna, OH Easton Town Center, Columbus, OH Olengtangy Plaza, Columbus, OH Festival at Sawmill, Dublin, OH Tuttle Crossing Mall, Columbus, OH BREADS OF THE WORLD, L.L.C.: 2 Festival Market, Cincinnati, OH Kenwood Pavilion, Cincinnati, OH BREADWINNERS OF THE TRIANGLE, L.L.C.: 1 Crabtree Mall, Raleigh, NC CADLE, L.L.C.: 4 East State Street, Hermitage, PA Keystone Drive, Erie, PA Freeport Road, Pittsburgh, PA Murray Avenue, Pittsburgh, PA CANDALL, INC.: 11 Beldon Village Road, Canton, OH Golden Gate Plaza, Mayfield Heights, OH Boardman Poland Rd., Boardman, OH Hudson Plaza, Hudson, OH Center Ridge Road, Rocky River, OH Medina Road, Akron, OH Detroit Road, Westlake, OH 44145 Tower City, Cleveland, OH Edgerton Road, Broadview Heights, OH Van Aken Blvd., Shaker Heights, OH Elm Road, Warren, OH CARLON CORPORATION, L.L.C.: 3 N. Calhoun Road, Brookfield, WI West Layton Avenue, Greenfield, WI Westfield Way, Pewaukee, WI CHICAGO BREAD, L.L.C.: 5 Northwest Highway, Crystal Lake, IL Waukegan Road, Glenview, IL Randall Square, Geneva, IL West Dundee, Buffalo Grove, IL Waukegan Road, Deerfield, IL COVELLI FAMILY LIMITED PARTNERSHIP: 6 Altamonte Springs, FL North Eola Drive, Orlando, FL International Parkway, Lake Mary, FL University Blvd, Orlando, FL Michigan & Orange, Orlando, FL West Fairbanks, Winter Park, FL COVELLI FAMILY LIMITED PARTNERSHIP: 1 Brandon Town Center, Brandon, FL CSC INVESTMENTS, L.L.C.: 2 Market Street, Chattanooga, TN Mercedes Place, Knoxville, TN
10 FENWICK GROUP, L.L.C.: 3 East Broad Street, Westfield, NJ Paramus Park Mall, Paramus, NJ Essex Green Mall, West Orange, NJ KNEAD BREAD, L.L.C.: 3 East 69(th) Street, Fishers, IN Rivertown Pkwy, Grandville, MI Merchants Square, Carmel, IN LEMEK, L.L.C.: 2 Mall of Columbia, Columbia, MD Towson Place Center, Towson, MD OKLAHOMA CITY BAKERY, INC.: 2 Northwest Expressway, Oklahoma City, OK South Bryant Avenue, Edmond, OK ORIGINAL BREAD, INC.: 9 Metcalf, Overland Park, KS Oak Park Mall, Overland Park, KS Mill Street, Kansas City, MO West 23(rd) Street, Lawrence, KS Mission Road, Prairie Village, KS West 75(th), Overland Park, KS Nall Ave., Leawood, KS West 119(th) Street, Olathe, KS North Rock Road, Wichita, KS OZARK BREADS, INC.: 2 Missouri, Jefferson City, MO North Bishop, Rolla, MO PANEBRASKA, L.L.C.: 2 Beverly Plaza, Omaha, NE Oakview Plaza, Omaha, NE PR RESTAURANTS, L.L.C.: 3 Colby Court, Bedford, NH Woodbury Avenue, Portsmouth, NH Framingham Mall, Framingham, MA SHOW ME BREAD, L.L.C.: 1 Penny Road, High Point, NC SLB OF CENTRAL ILLINOIS, L.L.C.: 4 East John Street, Champaign, IL Old Farm Shops, Champaign, IL North Green Briar Dr., Normal, IL West White Oaks Blvd., Springfield, IL SLB OF IOWA, L.L.C.: 6 Coral Ridge Mall, Coralville, IA Elmore Crossing, Davenport, IA Council Street, NE, Cedar Rapids, IA 38(th) Avenue, Moline, IL 85(th) Street, Urbandale, IA Westown Parkway, Des Moines, IA SLB OF MINNESOTA, L.L.C.: 4 City Center East, Woodbury, MN Poppy Street, Coon Rapids, MN Country Road 24, Plymouth, MN Promenade Ave., Eagan, MN ST. LB, INC.: 2 Hurstbourne, KY Mall of St. Matthews, Louisville, KY
11 TEXAS BREAD, L.L.C.: 2 Preston Road, Dallas, TX Vista Ridge Mall, Lewisville, TX TRADITIONAL BAKERY, INC.: 5 East Battlefield, Springfield, MO South Campbell, Springfield, MO East Sunshine, Springfield, MO South National, Springfield, MO East 32(nd) Street, Joplin, MO TRADITIONAL BAKERY, INC.: 5 East 15(th) Street, Tulsa, OK South Lewis Ave., Tulsa, OK East 51(st) Street, Tulsa, OK Woodland Hills Mall, Tulsa, OK East 41(st) Street, Tulsa, OK WHOLESOME GROUP, L.L.C.: 1 West Dussel, Maumee, OH
The following table sets forth the number of Company-operated and franchise-operated Panera Bread and Saint Louis Bread bakery-cafes which were open as of the dates indicated:
DEC. 30, 1995 DEC. 28, 1996 DEC. 27, 1997 DEC. 26, 1998 DEC. 25, 1999 ------------- ------------- ------------- ------------- ------------- Company-operated................. 50 52 57 70 81 Franchise-operated............... 8 10 19 45 100 -- -- -- --- --- Total............................ 58 62 76 115 181 == == == === ===
The following table sets forth the number of Company-operated and franchise-operated bakery-cafes for the Au Bon Pain Division which were open as of the dates indicated.
DEC. 30, 1995 DEC. 28, 1996 DEC. 27, 1997 DEC. 26, 1998 MAY 16, 1999 ------------- ------------- ------------- ------------- ------------ Company-operated................. 192 177 160 151 147 Franchise-operated............... 29 48 96 114 120 --- --- --- --- --- Total............................ 221 225 256 265 267 === === === === ===
ITEM 3. LEGAL PROCEEDINGS The Company is subject to claims and legal action in the ordinary course of its business. The Company believes that all such claims and actions currently pending against it are either adequately covered by insurance or would not have a material adverse effect on the Company if decided in a manner unfavorable to the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. The Company submitted no matters to a vote of security holders during the fourth quarter of the fiscal year ended December 25, 1999. 12 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED MATTERS. (a) Market Information. The Company's Class A Common Stock is traded on The Nasdaq National Market tier of the Nasdaq Stock Market under the symbol PNRA. The following table sets forth the high and low sale prices as reported by Nasdaq for the fiscal periods indicated.
1998 HIGH LOW - ---- ----------- --------- First Quarter............................................... 8 5/8 7 1/2 Second Quarter.............................................. 11 5/8 8 Third Quarter............................................... 11 5/8 5 1/4 Fourth Quarter.............................................. 7 5/16 4 1/8
1999 HIGH LOW - ---- --------- ---------- First Quarter............................................... 7 1/8 5 Second Quarter.............................................. 9 5 Third Quarter............................................... 7 5/8 6 3/16 Fourth Quarter.............................................. 8 1/2 6 1/2
On March 17, 2000, the last sale price for the Class A Common Stock, as reported on the Nasdaq National Market System, was $6.750. (b) Holders. On March 17, 2000, the Company had 1,383 holders of record of its Class A Common Stock and 80 holders of its Class B Common Stock. (c) Dividends. The Company has never paid cash dividends on its capital stock and has no intention of paying cash dividends in the foreseeable future. 13 ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
FOR THE FISCAL YEARS ENDED ---------------------------------------------------- DEC. 25, DEC. 26, DEC. 27, DEC. 28, DEC. 30, 1999(1) 1998 1997 1996 1995 -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Revenues: Restaurant sales................................. $156,738 $237,102 $233,212 $225,625 $216,411 Franchise sales and other revenues............... 7,384 6,161 5,974 3,556 3,306 Commissary sales to franchisees.................. 7,237 6,397 11,704 7,753 6,749 -------- -------- -------- -------- -------- 171,359 249,660 250,890 236,934 226,466 Costs and expenses: Cost of food and paper products.................. 52,445 81,140 82,578 77,330 74,610 Restaurant operating expenses.................... 79,677 123,060 119,537 115,364 112,161 Commissary cost of sales......................... 6,490 6,100 7,807 8,301 2,640 Depreciation and amortization.................... 6,379 12,667 16,862 16,195 14,879 General and administrative....................... 17,104 18,769 16,417 14,979 12,818 Non-recurring charges............................ 5,545 26,236 -- 4,435 8,500 -------- -------- -------- -------- -------- 167,640 267,972 243,201 236,604 225,608 -------- -------- -------- -------- -------- Operating profit (loss)............................ 3,719 (18,312) 7,689 330 858 Interest expenses, net............................. 2,745 6,396 7,204 5,140 3,363 Other (income) expense, net........................ 735 1,445 212 2,513 2,016 Minority interest/(income)......................... (25) (127) (42) (40) (94) Income (loss) before provision (benefit) for income taxes and extraordinary items.................... 264 (26,026) 315 (7,283) (4,427) Provision (benefit) for income taxes............... 511 (5,532) (1,492) (2,918) (2,813) -------- -------- -------- -------- -------- Income (loss) before extraordinary items........... (247) $(20,494) $ 1,807 $ (4,365) $ (1,614) -------- -------- -------- -------- -------- Extraordinary loss on the early extinguishment of debt, net of tax of $197......................... 382 -- -- -- -- -------- -------- -------- -------- -------- Net income (loss).................................. $ (629) $(20,494) $ 1,807 $ (4,365) $ (1,614) ======== ======== ======== ======== ======== Per common share: Basic: Income (loss) before extraordinary item.......... $ (.02) $ (1.72) $ .15 $ (.37) $ (.14) Net income (loss)................................ $ (.05) $ (1.72) $ .15 $ (.37) $ (.14) Diluted: Income (loss) before extraordinary item.......... $ (.02) $ (1.72) $ .15 $ (.37) $ (.14) Net income (loss)................................ $ (.05) $ (1.72) $ .15 $ (.37) $ (.14) Weighted average shares of common stock outstanding: Basic............................................ 12,137 11,943 11,766 11,705 11,621 Diluted.......................................... 12,137 11,943 11,913 11,705 11,621 Comparable restaurant sales percentage increase for Company-operated bakery-cafes.................... 3.3%(2) 2.1% 3.6% 0.7% 0.5%
- -------------------------- (1) Includes the results of the Au Bon Pain Division until it was sold on May 16, 1999. (2) 1999 comparable restaurant sales consist of Panera Bread Company bakery-cafes only.
AS OF ---------------------------------------------------- DEC. 25, DEC. 26, DEC. 27, DEC. 28, DEC. 30 1999 1998 1997 1996 1995 -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT COMPANY-OPERATED BAKERY-CAFES OPEN) Consolidated Balance Sheet Data: Working capital.................................... $ (3,215) $ (8,239) $ (58) $ (1,748) $ 846 Total assets....................................... 91,029 153,618 186,516 196,428 193,018 Long-term debt, less current maturities............ -- 34,089 42,527 49,736 42,502 Convertible subordinated notes..................... -- 30,000 30,000 30,000 30,000 Stockholders' equity............................... 73,246 73,327 92,274 90,056 93,238 Company-operated bakery-cafes open................. 81(3) 219 217 229 242
- -------------------------- (3) Consists of Panera Bread Company-owned stores only at the end of 1999. 14 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following table sets forth the percentage relationship to total revenue, except where otherwise indicated, of certain items included in the Company's consolidated statements of operations for the periods indicated. Percentages may not add due to rounding:
FOR THE FISCAL YEARS ENDED --------------------------------------- DECEMBER 25 DECEMBER 26 DECEMBER 27 1999 1998 1997 ----------- ----------- ----------- Revenues: Restaurant sales....................................... 91.5% 95.0% 93.0% Franchise and other revenues........................... 4.3 2.5 2.4 Commissary sales to franchisees........................ 4.2 2.5 4.6 ----- ----- ----- Total Revenues....................................... 100.0% 100.0% 100.0% ===== ===== ===== Cost and Expenses: Restaurant cost of sales (1) Cost of food and paper products...................... 33.4% 34.2% 35.4% Labor................................................ 29.0 28.4 27.3 Occupancy............................................ 9.9 11.8 12.2 Other................................................ 12.0 11.7 11.8 ----- ----- ----- Total Restaurant Cost of Sales..................... 84.3% 86.1% 86.7% ----- ----- ----- Commissary cost of sales (2)............................. 89.7% 95.4% 66.7% Depreciation and amortization............................ 3.7 5.1 6.7 General and administrative............................... 10.0 7.5 6.5 Non-recurring charges.................................... 3.2 10.5 -- ----- ----- ----- Operating profit (loss).................................. 2.2 (7.3) 3.1 Interest expenses, net................................... 1.6 2.6 2.9 Other expense, net....................................... 0.4 0.3 0.1 Loss on sale of assets................................... -- 0.3 -- Minority interest........................................ -- (0.1) -- ----- ----- ----- Income (loss) before income taxes and extraordinary item................................................... 0.2 (10.4) 0.1 Income tax provision (benefit)........................... 0.3 (2.2) (0.6) Income (loss) before extraordinary item.................. (0.1) (8.2) 0.7 Extraordinary loss ffrom early extinguishment of debt, net of tax............................................. 0.2 -- -- ----- ----- ----- Net (loss)/income........................................ (0.4)% (8.2)% 0.7% ===== ===== =====
- ------------------------ (1) As a percentage of Company restaurant sales. (2) As a percentage of commissary sales to franchisees. INTRODUCTION Panera Bread Company (referred to as "the Company", "Panera Bread", or in the first person notation of "we", "us", and "our") began operations in October 1987 as the Saint Louis Bread Company with the opening of its first bakery-cafe in Saint Louis, Missouri. On December 22, 1993, the Saint Louis Bread Company was acquired by Au Bon Pain, Co., Inc. At the time of the acquisition the Saint Louis Bread Company had 19 company-operated bakery-cafes and one franchised unit. Through 1998, Saint Louis Bread Company continued to grow while owned by Au Bon Pain, expanding the concept into other markets through the opening of 51 Company owned bakery-cafes and 44 franchise-operated bakery-cafes. In August, 1998, the Company entered into a Stock Purchase Agreement to sell the Au Bon Pain Division 15 to ABP Corporation (the "Buyer"). The transaction was consummated on May 16, 1999 and is detailed more completely later in this document. The Company now consists of the Panera Bread/Saint Louis Bread Company bakery-cafes and its related franchise operations. At the end of fiscal year 1999, there were 81 company-owned (including two specialty bakery-cafes) and 100 franchised bakery-cafes operating in 24 states. The Company intends to continue to expand the number of company-owned and franchised restaurants. Our expansion strategy is to develop markets that complement our existing commissary operations enabling us to take advantage of operational and distribution efficiencies. In addition, we will continue to expand into new markets where an adequate return on capital can be obtained. The Company's commissary system is a significant competitive advantage for the Company. While requiring a major commitment of capital, the commissaries assure both consistent quality and supply of fresh dough products to both company-owned and franchised bakery-cafes. In order to develop a specific market with our concept, a commissary must be available to service the market. A commissary may begin operations by serving one bakery-cafe, however, as our target markets are developed and built out over time, the commissary becomes more efficient. In addition, the commissary system allows the company to control product quality for both company-owned and franchised bakery-cafes thereby increasing product consistency and enhancing brand identity. It is the intention of the Company to focus its immediate growth in areas that allow it to continue to gain efficiencies within its current commissary structure by focusing in areas that geographically complement markets already served by an existing commissary unit. The Company's revenues are derived from restaurant sales, commissary sales to franchisees and franchise and other revenues. Commissary sales to franchisees are the sales of commissary fresh dough products to our franchisees. Franchise and other revenues include royalty income and franchise fees. The cost of food and paper products, labor, occupancy, and other operating expenses relate primarily to restaurant sales. The cost of commissary sales relates to the sale of dough products to our franchisees. General and administrative and depreciation expenses relate to all areas of revenue generation. The Company's fiscal year ends on the last Saturday in December. The Company's fiscal year normally consists of 13 four-week periods, with the first, second, and third quarters ending 16 weeks, 28 weeks, and 40 weeks, respectively, into the fiscal year. RESULTS OF OPERATIONS As noted earlier, in August 1998, the Board of Directors of Au Bon Pain entered into a Stock Purchase agreement whereby the Au Bon Pain Division was sold to ABP Corporation (the "Buyer"). On May 16, 1999, the Company completed its transaction to sell the Au Bon Pain Division. For the fiscal year ended December 25, 1999, the Company has recorded a pre-tax loss of $5.5 million related to the transaction and a $0.6 million pre-tax ($0.4 million after-tax) extraordinary loss related to the early extinguishment of debt from the proceeds of the sale. Results of operations in the third and fourth quarters of 1999 reflect the results of the Panera Bread Company as a stand alone entity while results of operations for the fiscal year ended December 25, 1999, also include the results of the divested Au Bon Pain Division for the period December 27, 1998, through May 16, 1999. FISCAL YEAR 1999 COMPARED TO FISCAL YEAR 1998 REVENUES Total restaurant sales from company-operated bakery-cafes declined 33.9% to $156.7 million in 1999 from $237.1 million in 1998. The reason for this decline was the sale of the Au Bon Pain Division as of May 16, 1999. As a stand-alone entity, Panera Bread's 1999 restaurant sales increased 25.7% to $97.4 million from $77.5 million in 1998. Several factors contributed to the growth in Panera Bread's restaurant 16 sales including the opening of 12 new bakery-cafes in 1999, and a 3.3% increase in comparable restaurant sales. Franchise and other revenues rose to $7.4 million in 1999 from $6.2 million in 1998, a 19.4% increase. For Panera Bread on a stand-alone basis, franchise and other revenues rose to $6.4 million in 1999, from $3.5 million in 1998, an increase of 82.9%. This increase was primarily driven by a 170.6% rise in franchise royalties to $4.6 million in 1999 from $1.7 million in 1998. The increase in royalty activity can be attributed to the addition of 56 franchised bakery-cafes in 1999 and the higher sales volumes achieved in 1999. The average annualized sales volume for all franchised bakery-cafes in 1999 was $1.5 million compared to $1.3 million in 1998. During 1999, 4 franchise area development agreements were signed representing commitments for the development of 60 bakery-cafes. As of December 25, 1999, there were franchise commitments in place for the development of an additional 543 bakery-cafes. In 1999, the Company opened 68 new bakery-cafes including 12 company-owned and 56 franchised bakery-cafes representing a 57% increase in the number of bakery-cafes opened as of the end of fiscal year 1999 compared to prior year-end. Commissary sales to franchisees increased 12.5% in 1999 to $7.2 million from $6.4 million in 1998. On a stand-alone basis, Panera Bread's commissary sales to franchisees increased to $6.3 million in 1999, a 215.0% increase from 1998 sales of $2.0 million. The increase in sales to franchisees can be attributed to the addition of 56 franchised bakery-cafes in 1999 and higher bakery-cafe unit volumes achieved in 1999. COSTS AND EXPENSES The cost of food and paper products was $52.4 million, or 33.4% of Company restaurant sales, in 1999 compared to $81.1 million, or 34.2% of Company restaurant sales, in 1998. The cost of food and paper products does not include food costs that are associated with the commissary operations that sell fresh dough products to franchised bakery-cafes. The primary reason for the decline was that the Au Bon Pain units historically ran at a higher food cost percentage than the Panera Bread units. With the sale of the Au Bon Pain Division in May, 1999, the full year results were more heavily weighted to the Panera Bread units. The costs associated with the sale of fresh dough products to franchises are included in commissary cost of sales, and include the cost of sales, salaries, benefits, and other operating expenses, excluding depreciation associated with the sale of fresh dough products to our franchisees. In 1999, commissary cost of sales as a percentage of commissary sales to franchisees declined to 89.7% from 95.4% in 1998. The decline is due to the commissaries becoming more efficient as they service more bakery-cafes. Only one new commissary was opened in 1999 while Panera Bread added 68 new bakery-cafes on a system-wide basis. The cost of labor as a percentage of restaurant revenues increased to 29.0% in 1999 from 28.4% in 1998. The overall increase in labor for the year is primarily due to an increase in the average hourly wage rate driven by low unemployment and a highly competitive labor market. The cost of occupancy as a percentage of restaurant revenue decreased to 9.9% in 1999 from 11.8% in 1998. The decrease is due primarily to increased sales volumes at company-operated bakery-cafes and the sale of the Au Bon Pain Division, which had historically run higher occupancy costs due to their locations in the downtown areas of larger cities. Other restaurant operating expenses increased as a percentage of restaurant revenues to 12.0% in 1999 from 11.7% in 1998. The increase is primarily due to increases in the fixed costs associated with the opening of 12 new bakery-cafes in 1999 and a small increase in advertising at the Panera Bread bakery-cafes during the year. Depreciation and amortization decreased as a percentage of total revenue to 3.7% in 1999 from 5.1% in 1998. The decrease was primarily due to the sale of the Au Bon Pain Division assets and to the 17 suspension of depreciation and amortization associated with those assets held for sale after August 12, 1998. General and administrative expenses increased as a percentage of total revenues to 10.0% in 1999 from 7.5% in 1998. The increase included a charge for transitional overhead services provided to Panera Bread by the buyer of the Au Bon Pain business unit through the end of the year at the same time that Panera Bread was experiencing increased costs associated with building its accounting and information systems infrastructure. Operating income (loss) increased to $3.7 million in 1999 from $(18.3) million in 1998. Operating income in 1999 was reduced by a $5.5 million non-recurring charge related to the sale of the Au Bon Pain Division. Operating income in 1999 was increased by $4.7 million due to the elimination of depreciation and amortization expense associated with the Au Bon Pain Division assets sold in 1999. The operating loss in 1998 included non-recurring charges recorded by the Company of $26.2 million, including a charge of $24.2 million, related principally to the write down of certain assets under Statement of Financial Accounting Standards, 121 "Accounting for the Impairment of Long-Lived Assets and for the Long-Lived Assets to be Disposed of" ("SFAS 121") related to the planned sale of assets and the closing of eight underperforming Au Bon Pain cafes and one Panera Bread bakery-cafe. Operating income in 1998 was favorably impacted by approximately $4.5 million as a result of the suspension of depreciation and amortization of the Au Bon Pain Division assets held for sale as of August 12, 1998, the date of the agreement to sell that business. Before the non-recurring charges and suspension of depreciation and amortization, operating income increased by 32.4% in 1999 to $4.5 million in 1999 from $3.4 million in 1998. Interest expense as a percentage of total revenue decreased to 1.6% in 1999 from 2.6% in 1998. This reduction is due primarily to the repayment of the Company's outstanding debt with the proceeds of the sale of the Au Bon Pain Division. In connection with the early extinguishment of debt, the Company recorded a $.4 million extraordinary loss net of $.2 million of taxes. The debt was repaid with the proceeds from the sale of the Au Bon Pain Division. INCOME TAXES The income tax provision was $.5 million in 1999 compared to an income tax benefit of $5.5 million in 1998. The 1999 effective tax rate was 194% primarily due to State income taxes, the non-deductible meals and entertainment allowance as well as non-deductible goodwill. The $5.5 million benefit in 1998 was primarily due to a $24.2 million charge taken to write-down the value of the Au Bon Pain Division assets in connection with the sale offset principally by a valuation allowance related to state net operating loss carryforwards and capital losses related to the sale. As of December 25, 1999, the Company had federal net operating loss carryforwards of approximately $24.8 million, as well as approximately $4.9 million of federal tax credit carryforwards available to reduce future income taxes. The federal net operating loss carryforwards expire principally in the year 2018. The tax credit carryforwards include approximately $3.7 million of federal Alternative Minimum Tax Credits which have an indefinite life and $1.2 million of federal jobs tax credits which expire in the years beginning with 2009-2010. The Company provided a valuation allowance of $4.7 million to reduce its deferred tax assets to a level which, more likely than not, will be realized. The valuation allowance is primarily attributable to the potential for the non-deductibility of capital losses related to the taxable loss on the Sale of the Au Bon Pain Division and the expectation that certain deferred state tax assets will be unrealizable following the Sale. The Company reevaluates the positive and negative evidence impacting the realization of its deferred tax assets on an annual basis. 18 NET LOSS The net loss in 1999 was $.6 million compared to a net loss of $20.5 million in 1998. The net loss in 1999 included a $5.5 million non-recurring charge related to the sale of the Au Bon Pain Division and a $.4 million after tax extraordinary loss from the early extinguishment of debt from the proceeds from the sale. 1998's results included a $26.2 million charge taken as a result of the write-down of the value of the Au Bon Pain Division assets in connection with the sale as well as closure of eight underperforming Au Bon Pain Cafes and one Panera Bread Bakery Cafe. Other than the non-recurring charges, net income in 1999 was higher than 1998 primarily due to higher operating earnings and lower interest expense. FISCAL YEAR 1998 COMPARED TO FISCAL YEAR 1997 REVENUES Total restaurant sales from Company-operated bakery-cafes increased 1.7% to $237 million in 1998 from $233 million in 1997 and other revenue decreased 29% to $12.6 million in 1998 from $17.7 million in 1997. Total restaurant sales for Panera Bread as a stand-alone entity increased to $77.5 million in 1998 from $67.2 million in 1997, an increase of 15.3%, and other revenue associated with the Company increased to $5.5 million in 1998 from $3.1 million in 1997, an increase of 77%. The growth in restaurant sales was due to several factors, including incremental sales of $4.5 million generated from the opening of 11 new Panera Bread-operated bakery-cafes opened during 1998 and 6 Panera Bread-operated bakery-cafes opened during 1997 and strong comparable restaurant sales growth of 3.63%, on top of the 9.3% increase in 1997. Other revenue growth was impacted by an increase in franchise fees and royalties to $3.5 million in 1998 compared to $2.2 million in 1997, driven by the execution of new franchise area development agreements, fees from opening new franchise locations and higher royalty income. Commissary sales to franchises decreased to $6.4 million in 1998 from $11.7 million in 1997. The decrease was primarily due to the sale of the Mexico, Missouri plant to Bunge Foods in March, 1998. As a result, a third party was selling product to franchisees instead of the Company. Sales from Company-owned restaurants in the Au Bon Pain Division decreased 3.8% to $159.6 million compared to $166.0 million in 1997, and other revenue associated with the Au Bon Pain Division decreased 51% to $7.1 million compared to $14.6 million in 1997. An increase in comparable restaurant sales of 1.5% was more than offset by the effect of the disposition throughout 1997 and 1998 of a number of underperforming bakery-cafes and the franchising of 11 Company-owned restaurants in the third quarter of 1997. The decrease in other revenue was principally due to a decrease in wholesale sales to $3.1 million in 1998, down from $8.5 million in 1997, due to the sale of the wholesale frozen dough business included in the sale of the Mexico, Missouri manufacturing facility. COSTS AND EXPENSES The cost of food and paper products was $81.1 million, or 34.2% of Company restaurant sales in 1998 compared to $82.6 million, or 35.4% of Company restaurant sales in 1997. The cost of food and paper products does not include costs that are associated with the commissary operations that sell fresh dough products to franchisees. The costs associated with those sales are included in commissary costs of sales. Commissary cost of sales increased from 66.7% in 1997 to 95.4% in 1998. The increase was due to sale of the Mexico, Missouri production facility in the first quarter of 1998. Labor costs as a percentage of restaurant sales increased to 28.4% in 1998 from 27.3% in 1997. The overall increase is due primarily to an increase in the average hourly wage driven by a highly competitive labor market. 19 Occupancy costs as a percentage of restaurant sales decreased to 11.8% in 1998 from 12.2% in 1997. This decrease was primarily due to an increase in restaurant sales and the closing of nine Au Bon Pain Division cafes in 1998. Other operating expenses remained relatively stable at 11.8% of restaurant sales in 1997 versus 11.7% in 1998. During 1998, the Company recorded $2.0 million in non-recurring, non-cash charges to write-down the book value of eight underperforming Au Bon Pain Division cafes whose leases expired in 1998 and were not renewed, and to record the closing of one Saint Louis Bread/Panera Bread location. The charge is included as a separate component of operating expenses and includes a $1.6 million fixed asset write-down and a $0.4 million other asset write-down. In the first quarter of 1998 the Company sold the Mexico, Missouri production facility and its wholesale frozen dough business to Bunge Foods Corporation ("Bunge") for approximately $13 million in cash. In conjunction with the sale, the Au Bon Pain Division and the Saint Louis Bread Co. Division entered into five-year supply agreements with Bunge for the supply of substantially all their frozen dough needs, excluding bagels, for their domestic bakery-cafes. The Company recognized a pre-tax loss on the sale of the facility of approximately $735,000 in the Company's results of operations. Operating income/(loss) decreased to $(18.3) million in 1998 from $7.7 million in 1997. Operating loss in 1998 included non-recurring charges recorded by the Company of $26.2 million, including a charge of $24.2 million, related principally to the write-down of certain assets under Statement of Financial Accounting Standards, 121 "Accounting for the Impairment of Long-Lived Assets and for the Long-Lived Assets to be Disposed of" ("SFAS 121"), related to the planned sale of assets, and the closing of eight under-performing Au Bon Pain Division cafes and one Saint Louis Bread/Panera Bread bakery-cafe. Operating income in 1998 was favorably impacted by approximately $4.5 million due to the suspension of depreciation and amortization of the Au Bon Pain Division assets held for sale as of August 12, 1998, the date of the agreement to sell that business. Before the non-recurring charges and suspension of depreciation and amortization, operating income decreased 55% in 1998 to $4.3 million below 1997. The decline in operating income (before non-recurring charges and suspension of depreciation) was a result of lower contribution in the Au Bon Pain Division of $4.3 million, as the Saint Louis Bread Co. Division contribution was essentially the same in 1998 versus 1997. The lower contribution in the Au Bon Pain Division was due to several factors. First, the comparable restaurant sales of 1.5% produced a negative leverage against the normal inflationary cost elements, reducing contribution. Second, results were impacted by inefficiencies in the manufacturing facility prior to the sale at the end of the first quarter of 1998. In addition, the level of franchise contribution from the Au Bon Pain International & Trade Channels area was reduced by 55% due both to the Asian economic crisis and to the pending sale of the Au Bon Pain Division overall. Before the non-recurring charge, operating profit in the Saint Louis Bread Co. Division in 1998 was essentially the same at $6.5 million compared to 1997, as increases in store profit from Company-owned cafes and greater franchise income in 1998 were largely offset by higher overhead costs, particularly related to the field organization which increased approximately $1.4 million over 1997, and an increase in commissary infrastructure expenses, in anticipation of the projected growth in both the Company-owned and franchise operated cafes. During 1998, 12 Saint Louis Bread Co. Division franchise area development agreements were signed and 4 existing agreements were amended, representing commitments for the development of 259 bakery-cafes and increasing the number of franchise commitments to a total of 562 remaining bakery-cafes to be developed. In addition, 37 Saint Louis Bread Co. Division bakery-cafes were opened in 1998, including 11 company-owned cafes and 26 franchise-operated cafes. Within the Au Bon Pain Division, 27 franchise-operated units were opened in 1998. 20 INCOME TAXES The income tax benefit was $5.5 million in 1998 compared to $1.5 million in 1997. The 1998 effective income tax benefit of 21.3% was primarily due to the $24.2 million charge taken to write down the value of the Au Bon Pain Division assets in connection with the sale, offset principally by a valuation allowance related to state net operating loss carryforwards and capital losses related to the sale. NET INCOME (LOSS) Lower operating income in 1998 versus 1997, as well as a $26.2 million charge taken as a result of the writedown of the value of the Au Bon Pain assets in connection with the sale as well as closure of eight underperforming Au Bon Pain Cafes and one Panera Bread Bakery-Cafe partially offset by deferred tax benefits and lower interest costs incurred in 1998, produced a significant decrease in net income for the year ended December 26, 1998. The net loss for the year ended December 26, 1998 was $(20.5) million versus net income of $1.8 million for the year ended December 27, 1997. LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents were unchanged at $1.9 million at December 25, 1999, versus $1.9 million at December 26, 1998. The Company's principal requirements for cash are capital expenditures for constructing and equipping new bakery-cafes and maintaining or remodeling existing bakery-cafes and working capital. To date, the Company has met its requirements for capital with cash from operations, proceeds from the sale of equity and debt securities, and bank borrowings. Effective May 16, 1999, the Company completed its transaction to sell the Au Bon Pain Division. In the second quarter of 1999 the Company repaid all of its outstanding debt with the proceeds from the Sale. In connection with the early retirement of debt, in the second quarter of 1999, the Company recorded an after tax extraordinary non-cash charge of approximately $.4 million. Concurrently with the sale of the Au Bon Pain business unit effective May 16, 1999, the Company amended its existing credit facility to reduce the unsecured revolving line of credit to $10.0 million, reflecting reduced needs for debt financing. Amounts outstanding under the amended facility bear interest at either LIBOR plus 2.25% or the commercial bank's prime rate plus .75%, at the Company's option. As of December 25, 1999, the Company had $9.4 million available to it under the $10.0 million revolving line of credit, reduced by a $0.6 million outstanding standby letter of credit. Excluding the non-recurring charges, operating income plus depreciation and amortization was $16.0 million in 1999 versus $21.2 million in 1998. A total of $6.7 million was provided by operating activities in 1999 compared to $20.5 million in 1998. In 1999, funds provided by operating activities decreased primarily as a result of a decrease in depreciation, and an increase in accounts receivable. This decrease was partially offset in an increase in deferred revenue of $2.0 million related to an upfront payment received from a soft drink provider. The Company received $57.3 million and utilized $11.2 million for investing activities in 1999 and 1998, respectively. The investing activities in 1999 consisted primarily of additions to property and equipment, and the sale of the assets of the Au Bon Pain business unit. The Company used the proceeds of the sale to repay its outstanding debt. Total capital expenditures in 1999 of $15.3 million were related primarily to the opening of 12 new company-operated bakery-cafes, the construction of 1 commissary, and to maintaining or remodeling the existing bakery-cafes. The expenditures were mainly funded by net cash from operating activities of $6.7 million, and cash remaining from the sale of the Au Bon Pain business unit after repayment of all outstanding debt. 21 The Company utilized $63.9 million and $8.3 million from financing activities in 1999 and 1998, respectively. The financing activities in 1999 included repayment of all outstanding debt with the proceeds from the sale of Au Bon Pain, proceeds from and payments on the revolving line of credit, and the issuance of common stock under the Company's employee stock option and employee stock purchase plan. The financing activities in 1998 included proceeds from and principal payment on long term debt, and the issuance of common stock under the Company's employee stock option and employee stock purchase plans. The Company had a working capital deficit of $3.2 million and $8.2 million for the years ended December 25, 1999, and December 26, 1998, respectively. The decrease in the deficit in 1999 was primarily due to an increase in deferred income taxes, a decrease in assets held for sale in connection with the sale of the Au Bon Pain Division partially offset by an increase in accrued expenses. The Company has experienced no short term or long term liquidity difficulties having been able to finance its operations through internally generated cash flow and its revolving line of credit. In 2000, the Company currently anticipates spending approximately $16-17 million principally for the opening of new bakery-cafes, the opening of one to two additional commissaries, and for maintaining and remodeling existing cafes. The Company expects to fund these expenditures principally through internally generated cash flow. YEAR 2000 ISSUE The Year 2000 Issue relates to how dates are stored and used in computer systems, applications, and embedded systems. As the century date change occurred, certain date-sensitive systems had to recognize the year as 2000, not as 1900. This inability to recognize and properly treat the year as 2000 could have caused these systems to process critical financial and operational information incorrectly. In prior years, we discussed our plans and progress to be Year 2000 ready. We completed the installation, implementation, and testing of our systems in late 1999, and made modifications as deemed necessary. As a result of our planning and implementation efforts, we experienced no significant disruptions in business critical information technology and non-information technology systems, and the Company believes these systems responded successfully to the Year 2000 date change. In addressing the Year 2000 issue, the Company incurred internal labor costs as well as consulting and other expenses. As of December 25, 1999, the Company expended approximately $725,000 in external costs (consulting fees and related costs). We are not aware of any material problems resulting from Year 2000 issues regarding our internal systems, the products and services of third parties, or the businesses operated by our franchisees. The Company will continue to monitor date-sensitive systems as certain key dates occur throughout the year to ensure that any Year 2000 matters that may arise are addressed promptly. IMPACT OF INFLATION In the past, the Company has been able to recover inflationary cost and commodity price increases through increased menu prices. There have been and there may be in the future, delays in implementing such menu price increases, and competitive pressures may limit the Company's ability to recover such cost increases in their entirety. Historically, the effects of inflation on the Company's net income have not been materially adverse. A majority of the Company's employees are paid hourly rates related to federal and state minimum wage laws. Although the Company has and will continue to attempt to pass along any increased labor costs through food price increases, there can be no assurance that all such increased labor costs can be reflected in its prices or that increased prices will be absorbed by consumers without diminishing to some degree consumer spending at the bakery-cafes. However, the Company has not experienced to date a significant reduction in gross profit margins as a result of changes in such laws, and management does not anticipate any related future significant reductions in gross profit margins. 22 FORWARD LOOKING STATEMENTS Matters discussed in this report which relate to events or developments that are expected to occur in the future, including any discussion of growth or anticipated operating results are forward-looking statements within the meaning of Section 27A of the Securities Exchange Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (identified by the words "estimate", "project", "anticipates", "expects", "intends", "believes", "future", and similar expressions). These are statements which express management's belief, expectations or intentions regarding the Company's future performance. Moreover, a number of factors could cause the Company's actual results to differ materially from those set forth in the forward-looking statements due to known and unknown risks and uncertainties. The Company's operating results may be negatively affected by many factors, included but not limited to the lack of availability of sufficient capital to it and the developers party to franchise development agreements with the Company, variations in the number and timing of bakery-cafe openings, public acceptance of new bakery-cafes, consumer preferences, competition, commodity costs, and other factors that may affect retailers in general. The foregoing list of important factors is not exclusive. RECENT ACCOUNTING PRONOUNCEMENTS None which will have a material impact on the Company's financial statements. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company had no holdings of derivative financial or commodity instruments at December 25, 1999. The Company's unsecured revolving line of credit bears an interest rate using the commercial bank's prime rate or LIBOR as the basis, and therefore is subject to additional expense should there be an increase in prime or LIBOR interest rates. Panera Bread has no foreign operations and accordingly, no foreign exchange rate fluctuation risk. The Au Bon Pain Division did have foreign operations; however, these were sold with the Au Bon Pain Division on May 16, 1999. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following described consolidated financial statements of the Company are included in response to this item: Report of Independent Accountants. Consolidated Balance Sheets as of December 25, 1999, and December 26, 1998. Consolidated Statements of Operations for the fiscal years ended December 25, 1999, December 26, 1998, and December 27, 1997. Consolidated Statements of Cash Flows for the fiscal years ended December 25, 1999, December 26, 1998, and December 27, 1997. Consolidated Statements of Stockholders' Equity for the fiscal years ended December 25, 1999, December 26, 1998, and December 27, 1997. Notes to Consolidated Financial Statements. Valuations and Qualifying Accounts. 23 REPORT OF INDEPENDENT ACCOUNTANTS TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF PANERA BREAD COMPANY In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Panera Bread Company and its subsidiaries at December 25, 1999, and December 26, 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 25, 1999, in conformity with accounting principles generally accepted in the United States. In addition, in our opinion, the financial statement schedules listed in the accompanying index present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedules are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe our audits provide a reasonable basis for the opinion expressed above. /s/ PricewaterhouseCoopers LLP St. Louis, Missouri March 19, 2000 24 PANERA BREAD COMPANY CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE INFORMATION)
DECEMBER 25, DECEMBER 26, 1999 1998 ------------ ------------ ASSETS Current Assets: Cash and cash equivalents................................. $ 1,936 $ 1,860 Accounts receivable, less allowance of $197 and $208 in 1999 and 1998, respectively............................. 2,686 1,302 Inventories (Note 3)...................................... 1,880 1,662 Prepaid expenses.......................................... 484 1,781 Refundable income taxes................................... 98 115 Deferred income taxes (Note 10)........................... 5,473 1,500 ------- -------- Total current assets.................................... 12,557 8,220 ------- -------- Property and equipment, net (Note 4)........................ 47,191 38,856 Other assets: Assets held for sale, net, non-current (Note 5)........... -- 69,395 Notes receivable.......................................... 35 20 Intangible assets, net of accumulated amortization of $5,932 and $4,944 in 1999 and 1998 respectively......... 18,779 19,787 Deferred financing costs.................................. 88 768 Deposits and other (Note 11).............................. 3,960 4,138 Deferred income taxes (Note 10)........................... 8,419 12,434 ------- -------- Total other assets...................................... 31,281 106,542 ------- -------- Total assets............................................ $91,029 $153,618 ======= ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts Payable.......................................... $ 3,535 $ 4,020 Liabilities held for sale, net (Note 5)................... -- 6,469 Accrued Expenses (Note 6)................................. 12,237 5,929 Current maturities of long term debt...................... -- 41 ------- -------- Total current liabilities............................... 15,772 16,459 Deferred revenue (Note 17).................................. 2,011 -- Long term debt, less current maturities (Note 7)............ -- 34,089 Convertible subordinated notes (Note 8)..................... -- 30,000 ------- -------- Total liabilities....................................... 17,783 80,548 Minority interest........................................... -- (257) Commitments and contingencies (Note 9)...................... -- -- Stockholders' equity (Note 12): Common stock, $.0001 par value: Class A, shares authorized 50,000,000; issued and outstanding 10,630,717 and 10,518,213 in 1999 and 1998, respectively.............................................. 1 1 Class B, shares authorized 2,000,000; issued and outstanding 1,535,821 and 1,557,658 in 1999 and 1998, respectively.... -- -- Additional paid-in capital.................................. 70,581 70,033 Retained earnings........................................... 2,664 3,293 ------- -------- Total stockholders' equity.............................. 73,246 73,327 ------- -------- Total liabilities and stockholders' equity.............. $91,029 $153,618 ======= ========
The accompanying notes are an integral part of the consolidated financial statements. 25 PANERA BREAD COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FOR THE FISCAL YEAR ENDED ------------------------------------------ DECEMBER 25, DECEMBER 26, DECEMBER 27, 1999 1998 1997 ------------ ------------ ------------ Revenues: Restaurant sales...................................... $156,738 $ 237,102 $233,212 Franchise and other revenues.......................... 7,384 6,161 5,974 Commissary sales to franchisees....................... 7,237 6,397 11,704 -------- --------- -------- Total revenue..................................... 171,359 249,660 250,890 -------- --------- -------- Costs and expenses: Restaurant Expenses: Cost of food and paper products..................... 52,445 81,140 82,578 Labor............................................... 45,385 67,218 63,593 Occupancy........................................... 15,552 28,016 28,514 Other operating expenses............................ 18,740 27,826 27,430 -------- --------- -------- 132,122 204,200 202,115 Commissary cost of sales.............................. 6,490 6,100 7,807 Depreciation and amortization......................... 6,379 12,667 16,861 General and administrative expenses................... 17,104 18,769 16,418 Non-recurring charge (Note 5)......................... 5,545 26,236 -- -------- --------- -------- Total costs and expenses.......................... 167,640 267,972 243,201 -------- --------- -------- Operating profit (loss)................................. 3,719 (18,312) 7,689 Interest expense, net................................... 2,745 6,396 7,204 Other expense, net...................................... 735 710 212 Loss on sale of assets.................................. -- 735 -- Minority interest....................................... (25) (127) (42) -------- --------- -------- Income (loss) before income taxes and extraordinary item.................................................. 264 (26,026) 315 Income tax provision (benefit) (Note 10)................ 511 (5,532) (1,492) -------- --------- -------- Income (loss) before extraordinary item................. (247) (20,494) 1,807 Extraordinary loss from early extinguishments of debt, net of tax of $197.................................... 382 -- -- -------- --------- -------- Net Income (loss)....................................... $ (629) $ (20,494) $ 1,807 ======== ========= ======== Per common share: Basic: Income (loss) before extraordinary item............... $ (.02) $ (1.72) $ .15 Net income (loss)..................................... $ (.05) $ (1.72) $ .15 Diluted: Income (loss) before extraordinary item............... $ (.02) $ (1.72) $ .15 Net income (loss)..................................... $ (.05) $ (1.72) $ .15 Weighted average shares of common stock outstanding Basic................................................. 12,137 11,943 11,766 Diluted............................................... 12,137 11,943 11,913
The accompanying notes are an integral part of the consolidated financial statements. 26 PANERA BREAD COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
FOR THE FISCAL YEARS ENDED ------------------------------ DEC. 25, DEC. 26, DEC. 27, 1999 1998 1997 -------- -------- -------- Cash flows from operations: Net income (loss)......................................... $ (629) $(20,494) $ 1,807 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization............................. 6,379 12,667 16,861 Amortization of deferred financing costs.................. 406 683 619 Provision for losses on accounts receivable............... 93 56 49 Minority interest......................................... (25) (127) (42) Deferred income taxes..................................... 42 (6,589) (1,883) Loss on early extinguishment of debt...................... 382 -- -- Gain on sale of assets.................................... -- -- (986) Gain on sale of investment................................ -- -- (930) Non-recurring charge...................................... 5,545 26,236 -- Loss on disposal of assets................................ -- 735 308 Changes in operating assets and liabilities: Accounts receivable....................................... (1,596) 15 (1,185) Inventories............................................... (65) 212 (294) Prepaid expense........................................... (3,560) (535) 952 Refundable income taxes................................... -- 480 1,521 Accounts payable.......................................... (3,037) 4,069 (4,070) Accrued expenses.......................................... 769 3,104 769 Deferred revenue.......................................... 2,011 -- -- -------- -------- ------- Net cash provided by operating activities............... 6,715 20,512 13,496 -------- -------- ------- Cash flows from investing activities: Additions to property and equipment....................... (15,306) (21,706) (14,681) Proceeds from sale of assets.............................. 72,163 12,694 6,044 Proceeds from sale of investment.......................... -- -- 2,000 Change in cash included in net current liabilities held for sale................................................ (466) (1,305) -- Payments received on notes receivable..................... 114 240 139 Increase in intangible assets............................. (50) (139) (122) Increase in deposits and other............................ 855 (956) (1,058) Increase in notes receivable.............................. (30) (45) -- -------- -------- ------- Net cash provided by (used in) investing activities..... 57,280 (11,217) (7,678) -------- -------- ------- Cash flow from financing activities: Exercise of employee stock options........................ 96 1,203 168 Proceeds from long-term debt issuance..................... 41,837 75,418 57,530 Principal payments on long-term debt...................... (106,073) (84,253) (65,003) Proceeds from issuance of common stock.................... 148 268 243 Common stock issued for employee stock bonus.............. 304 -- -- Increase in deferred financing costs...................... (110) (506) (189) Increase (decrease) in minority interest.................. (121) (418) (293) -------- -------- ------- Net cash used in financing activities................... (63,919) (8,288) (7,544) Net increase (decrease) in cash and cash equivalents........ 76 1,007 (1,726) Cash and cash equivalents at beginning of year.............. 1,860 853 2,579 -------- -------- ------- Cash and cash equivalents at end of year.................... $ 1,936 $ 1,860 $ 853 ======== ======== ======= Supplemental cash flow information: Cash paid during the year for: Interest................................................ $ 4,250 $ 5,544 $ 6,602 Income taxes............................................ $ 241 $ 268 $ 700 Note received from sale of property and equipment......... $ -- $ -- $ 2,591
The accompanying notes are an integral part of the consolidated financial statements. 27 PANERA BREAD COMPANY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE FISCAL YEARS ENDED DECEMBER 25, 1999, DECEMBER 26, 1998, AND DECEMBER 27, 1997 (IN THOUSANDS)
PREFERRED STOCK COMMON STOCK $.0001 PAR $.0001 PAR VALUE VALUE ----------------------------------------- ------------------- CLASS A CLASS B CLASS B ADDITIONAL ------------------- ------------------- ------------------- PAID-IN RETAINED SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS -------- -------- -------- -------- -------- -------- ---------- -------- Balance, Dec. 28, 1996............ 10,067 $ 1 1,647 $ -- 20 $ -- $68,075 $ 21,980 Exercise of employee stock options......................... 23 152 Income tax benefit related to stock option plan............... 16 Issuance of common stock.......... 40 243 Conversions of Class B to Class A............................... 37 (37) Conversions of preferred stock to Class A common stock............ 20 (20) Net income........................ 1,807 ------- ---- ----- ---- --- ---- ------- -------- Balance, Dec. 27, 1997............ 10,187 $ 1 1,610 $ -- 0 $ -- $68,486 $ 23,787 Exercise of employee stock options......................... 178 1,204 Income tax benefit related to stock option plan............... 75 Exercise of Warrants.............. (323) Issuance of common stock.......... 101 591 Conversions of Class B to Class A............................... 52 (52) Net loss.......................... (20,494) ------- ---- ----- ---- --- ---- ------- -------- Balance, Dec. 26, 1998............ 10,518 $ 1 1,558 $ -- -- $ -- $70,033 $ 3,293 Exercise of employee stock options......................... 14 96 Issuance of common stock.......... 29 148 Issuance of common stock for employee bonus.................. 48 304 Conversions of Class B to Class A............................... 22 (22) Net loss.......................... (629) ------- ---- ----- ---- --- ---- ------- -------- Balance, Dec. 25, 1999............ 10,631 $ 1 1,536 $ -- -- $ -- $70,581 $ 2,664 ======= ==== ===== ==== === ==== ======= ======== TOTAL STOCKHOLDERS' EQUITY ------------- Balance, Dec. 28, 1996............ $ 90,056 Exercise of employee stock options......................... 152 Income tax benefit related to stock option plan............... 16 Issuance of common stock.......... 243 Conversions of Class B to Class A............................... Conversions of preferred stock to Class A common stock............ Net income........................ 1,807 -------- Balance, Dec. 27, 1997............ $ 92,274 Exercise of employee stock options......................... 1,204 Income tax benefit related to stock option plan............... 75 Exercise of Warrants.............. (323) Issuance of common stock.......... 591 Conversions of Class B to Class A............................... Net loss.......................... (20,494) -------- Balance, Dec. 26, 1998............ $ 73,327 Exercise of employee stock options......................... 96 Issuance of common stock.......... 148 Issuance of common stock for employee bonus.................. 304 Conversions of Class B to Class A............................... Net loss.......................... (629) -------- Balance, Dec. 25, 1999............ $ 73,246 ========
The accompanying notes are an integral part of the consolidated financial statements. 28 PANERA BREAD COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. NATURE OF BUSINESS Panera Bread Company operates a retail bakery-cafe business and franchising business under the concept names "Panera Bread Company" and "Saint Louis Bread Company". Up until the year ended December 26, 1998, the Company operated under the name Au Bon Pain Co., Inc. and consisted of two retail bakery-cafe businesses and two franchising businesses operating under the concept names "Au Bon Pain" and "Saint Louis Bread Company". Included in franchise sales and other revenues are sales of product to franchisees and others of $7.2 million, $6.4 million and $11.7 million for the fiscal years ended December 25, 1999, December 26, 1998 and December 27, 1997, respectively. 2. SUMMARY OF ACCOUNTING POLICIES BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION For the year ended December 25, 1999, the consolidated financial statements consist of the accounts of Panera Bread Company, Panera Bread Company, Inc., a wholly owned subsidiary, and ABP Midwest Manufacturing Co, Inc., a wholly owned subsidiary and Au Bon Pain Co., Inc. and ABP Holdings, Inc., which were both wholly owned subsidiaries through the date of their sale on May 16, 1999 (See Note 5). For the years ended December 26, 1998 and December 27, 1997, the consolidated statements include the accounts of Au Bon Pain Co., Inc., ABP Holdings, Inc., a wholly owned subsidiary, Saint Louis Bread Company, Inc. ("Saint Louis Bread"), a wholly owned subsidiary, ABP Midwest Manufacturing Co., Inc, a wholly owned subsidiary, and investments in joint ventures in which a majority interest is held (the "Company"). All intercompany balances and transactions have been eliminated. Due to the pending sale of the Au Bon Pain Division (see Note 5), the assets and liabilities of that business were presented on a net current and non-current basis in the December 26, 1998 balance sheet. The Company operates in one material business segment, the retail bakery-cafe business. PREPARATION OF FINANCIAL STATEMENTS The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. RECLASSIFICATIONS Certain items in the prior year financial statements have been reclassified to conform to current year presentation. CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments with a maturity at the time of purchase of three months or less to be cash equivalents. ACCOUNTS RECEIVABLE Substantially all accounts receivable are due from franchisees for purchases of food and paper products and for royalties from December sales. The Company generally does not require collateral and 29 PANERA BREAD COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. SUMMARY OF ACCOUNTING POLICIES (CONTINUED) maintains reserves for potential uncollectable accounts, which in the aggregate have not exceeded management's expectation. INVENTORIES Inventories, which consist of food products, paper goods and supplies, smallwares and promotional items are valued at the lower of cost, or market, determined under the first-in, first-out method. PROPERTY, EQUIPMENT AND LEASEHOLDS Property, equipment and leaseholds are stated at cost. Depreciation is provided using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized using the straight-line method over the shorter of their estimated useful lives or the remaining terms of the leases (including available option periods).The estimated useful lives used for financial statement purposes are: Machinery and equipment..................................... 3-10 years Furniture and fixtures...................................... 3-10 years Leasehold improvements...................................... 10-23 years Signs....................................................... 10 years
Interest is capitalized in connection with the construction of new locations or facilities. The capitalized interest is recorded as part of the asset to which it relates and is amortized over the asset's estimated useful life. Capitalized interest amounted to $96,279, $114,928 and $70,780 in 1999, 1998 and 1997, respectively. Upon retirement or sale, the cost of assets disposed of and their related accumulated depreciation are removed from the accounts. Any resulting gain or loss is credited or charged to operations. Maintenance and repairs are charged to expense when incurred, while betterments are capitalized. INTANGIBLE ASSETS Intangible assets consist of goodwill arising from the excess of cost over the fair value of net assets acquired at the original acquisition of the Company. Goodwill is amortized on a straight-line basis over twenty-five years. Periodically management assesses, based on undiscounted cash flows, if there has been a permanent impairment in the carrying value of its intangible assets and, if so, the amount of any such impairment, by comparing anticipated discounted future operating income from acquired businesses with the carrying value of the related intangibles. In performing this analysis, management considers such factors as current results, trends, future prospects and other economic factors. INCOME TAXES The provision for income taxes is determined in accordance with the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes". Under this method, deferred tax assets and liabilities 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 bases. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Any effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. 30 PANERA BREAD COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. SUMMARY OF ACCOUNTING POLICIES (CONTINUED) DEFERRED FINANCING COSTS Costs incurred in connection with obtaining debt financing are amortized over the terms of the related debt. FRANCHISE AND DEVELOPMENT FEES Franchise fees are the result of sales of area development rights and the sale of individual franchise locations to third parties, both domestically and internationally. Fees from the sale of area development rights are fully recognized as revenue upon completion of all commitments related to the agreements. Fees from the sale of individual franchise locations are fully recognized as revenue upon the commencement of franchise operations. CAPITALIZATION OF CERTAIN DEVELOPMENT COSTS The Company capitalizes certain expenses associated with the development and construction of new store locations. Capitalized costs of $.8 million and $2.2 million as of December 25, 1999 and December 26, 1998, respectively, are recorded as part of the asset to which they relate and are amortized over the asset's useful life. ADVERTISING COSTS Advertising costs are expensed when incurred. The Company incurred advertising costs in the amount of $1.8 million, $1.9 million and $2.0 million for the years ended December 25, 1999, December 26, 1998 and December 27, 1997, respectively. PRE-OPENING COSTS All pre-opening costs associated with the opening of new retail locations are expensed when incurred. FISCAL YEAR The Company's fiscal year ends on the last Saturday in December. Fiscal years for the consolidated financial statements included herein include 52 weeks for the fiscal years ended December 25, 1999, December 26, 1998 and December 27, 1997. EARNINGS PER SHARE DATA Earnings per share is based on the weighted average number of shares outstanding during the period after consideration of the dilutive effect, if any, for common stock equivalents, including stock options, warrants and preferred stock. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount of the Company's long term debt, including current maturities, approximates fair value because the interest rates on these instruments change with market interest rates. The carrying amounts for accounts receivable and accounts payable approximate their fair values due to the short maturity of these instruments. 31 PANERA BREAD COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. INVENTORIES Inventories consist of the following (in thousands):
DECEMBER 25, 1999 DECEMBER 26, 1998 ----------------- ----------------- Commissaries................................ $ 178 $ 131 Bakery-cafes................................ 729 590 Paper goods................................. 134 113 Smallwares.................................. 768 767 Other....................................... 71 61 ------ ------ $1,880 $1,662 ====== ======
4. PROPERTY AND EQUIPMENT Major classes of property and equipment consist of the following (in thousands):
DECEMBER 25, 1999 DECEMBER 26, 1998 ----------------- ----------------- Leasehold improvements...................... $33,080 $25,621 Machinery and equipment..................... 21,995 15,366 Furniture and fixtures...................... 6,350 5,345 Construction in progress.................... 2,701 3,603 Signage..................................... 1,320 968 ------- ------- 65,446 50,903 Less accumulated depreciation and amortization.............................. 18,255 12,047 ------- ------- Property and equipment, net................. $47,191 $38,856 ======= =======
The Company recorded depreciation expense related to these assets of $5.4 million and $5.0 million and $15.4 million in 1999, 1998 and 1997, respectively. 5. SALE OF AU BON PAIN DIVISION AND NON-RECURRING CHARGES The Company, together with its wholly-owned subsidiary ABP Holdings, Inc. ("ABPH") entered into a Stock Purchase Agreement dated August 12, 1998 and amended October 28, 1998 with ABP Corporation (the "Buyer"), an affiliate of Bruckmann, Rosser, Sherrill & Co., L.P., relative to the transfer of substantially all of the assets and liabilities of the Company's Au Bon Pain Division business (the "Au Bon Pain Division") and sale of all of the outstanding capital stock of ABPH to the Buyer, whereby the Buyer would become the owner of the Au Bon Pain Division (the "Sale"). The Sale was effective May 16, 1999 for $73 million in cash before contractual purchase price adjustments of approximately $1 million. The Company, which now consists of the Panera Bread/Saint Louis Bread Co. Business Unit only, has been renamed Panera Bread Company. The proceeds from the sale were used to repay all outstanding debt and provide cash for growth. In addition, the Company recorded an extraordinary loss net of taxes of $0.4 million associated with the early extinguishment of debt outstanding in the second quarter of 1999. In conjunction with the sale, the Company recorded a non-cash, non-recurring, pre-tax charge of $5.5 million in the first quarter of 1999 and $24.2 million in 1998. This charge was to reflect a write-down under Statement of Financial Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for the Long-Lived Assets to be Disposed of" ("SFAS 121"). The charge is included as a separate 32 PANERA BREAD COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 5. SALE OF AU BON PAIN DIVISION AND NON-RECURRING CHARGES (CONTINUED) component of operating expenses. The non-cash charge was taken to record an impairment for long lived assets to be disposed of as a result of the agreement entered into for the subsequent sale of the Au Bon Pain Division. Operating income for the years ended December 25, 1999, and December 26, 1998, were favorably impacted by $4.7 million and $4.5 million due to the suspension of depreciation and amortization associated with the Au Bon Division assets held for sale after August 12, 1998. The assets and liabilities of the Au Bon Pain Division were presented in the consolidated balance sheet as of December 26, 1998 as assets held for sale, non-current, net, and as current liabilities, net, and included the following:
DECEMBER 26, 1998 ----------------- (000'S) Current assets: Cash and cash equivalents................................. $ 1,305 Accounts receivable....................................... 5,584 Inventories............................................... 5,011 Other current assets...................................... (98) ------- Total current assets.................................... 11,802 Current liabilities: Accounts payable.......................................... 7,120 Accrued expenses.......................................... 11,151 ------- Total liabilities....................................... 18,271 Net current liabilities..................................... $ 6,469 ======= Non-current assets: Property and equipment Leasehold improvements.................................. $71,679 Machinery and equipment................................. 53,920 Furniture and fixtures.................................. 13,717 Other................................................... 3,506 Accumulated depreciation and amortization................. (83,281) ------- Property and equipment, net............................. 59,541 Other assets: Notes receivable.......................................... 4,097 Deposits and other........................................ 5,757 ------- Total other assets...................................... 9,854 Total non-current assets.................................... $69,395 =======
Restaurant sales and net operating loss (before non-recurring charges and the suspension of depreciation and amortization) in the Au Bon Pain Division held for sale as of December 26, 1998 were $159.6 million and $3.0 million, respectively. In fiscal year 1999, revenues and net operating income (before non-recurring charges and the suspension of depreciation and amortization) in the Au Bon Pain Division through the time of its sale on May 16, 1999, were $51.5 million and $3.2 million respectively. During 1998, the Company recorded $2.0 million in non-recurring, non-cash charges in accordance with SFAS 121, to write-down the book value of eight underperforming Au Bon Pain stores whose leases 33 PANERA BREAD COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 5. SALE OF AU BON PAIN DIVISION AND NON-RECURRING CHARGES (CONTINUED) expired in 1998 and were not renewed, and to record the closing of one Panera Bread location. The charge is included as a separate component of operating expenses and includes a $1.6 million fixed asset write-down and a $0.4 million other asset write-down. In the first quarter of 1998 the Company sold the Mexico, Missouri production facility and its wholesale frozen dough business to Bunge Foods Corporation ("Bunge") for approximately $13 million in cash. The Company recognized a pre-tax loss on the sale of the facility of approximately $735,000 in the Company's results of operations. 6. ACCRUED EXPENSES Accrued expenses consist of the following (in thousands):
DECEMBER 25, 1999 DECEMBER 26, 1998 ----------------- ----------------- Accrued insurance........................... $ 881 $ 501 Rent........................................ 780 751 Payroll and related taxes................... 2,594 851 Interest.................................... -- 1,505 Taxes, other than income taxes.............. 4,383 189 Other....................................... 3,599 2,132 ------- ------ $12,237 $5,929 ======= ======
7. LONG-TERM DEBT Long-term debt consists of the following (in thousands):
DECEMBER 26, 1998 ----------------- Revolving credit line at prime plus .25% (8.00% at December 26, 1998)........................................ $17,260 Loan with Cigna Insurance at prime less .75% (7.00% at December 26, 1998)........................................ 2,000 Term loan at 7.0% payable in annual installments of $50,000 including interest, due January 2001...................... 131 Senior subordinated debenture (14.00% at December 26, 1998)..................................................... 14,739 ------- Total debt.................................................. 34,130 Less current maturities..................................... 41 ------- Total long-term debt........................................ $34,089 =======
In 1999, the Company repaid all of its outstanding debt with the proceeds from the Sale. The Company had a $10.0 million and $22.0 million unsecured revolving line of credit at December 25, 1999 and December 26, 1998, respectively. The revolving credit agreement contains restrictions relating to future indebtedness, liens, investments, distributions, the merger, acquisition or sale of assets and certain leasing transactions. The agreement also requires the maintenance of certain financial ratios and covenants, the most restrictive being a minimum consolidated EBITDA amount and debt to net worth 34 PANERA BREAD COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 7. LONG-TERM DEBT (CONTINUED) ratio at December 25, 1999 and December 26, 1998, respectively. The revolving credit agreement also contains a commitment fee of 1/2% and 3/8% of the unused portion of the revolving line of credit at December 25, 1999 and December 26, 1998, respectively. Available unused borrowings totaled approximately $9.4 million at December 25, 1999 and $3.6 million at December 26, 1998. At December 25, 1999 and December 26, 1998, the Company had outstanding letters of credit against the revolving line of credit aggregating $.6 million and $1.1 million, respectively. Interest-only payments are due under the revolving credit line monthly, in arrears, with the principal balance payable at maturity on December 31, 2000. There were no outstanding borrowings under the revolving credit agreement at December 25, 1999. On July 24, 1996, the Company issued $15 million senior subordinated debentures maturing in July, 2000. The debentures accrued interest at varying fixed rates over the four year term, ranging from 11.25% to 14.0%. In connection with the private placement, warrants with an exercise price of $5.62 per share were issued to purchase between 400,000 and 580,000 shares of the Company's Class A Common Stock, depending on the term which the debentures remained outstanding and certain future events. At December 25, 1999 and December 26, 1998, 392,500 and 210,000 warrants were issued and outstanding, respectively, all of which were vested. 8. CONVERTIBLE SUBORDINATED NOTES In December 1993, the Company issued $30.0 million of its unsecured 4.75% Convertible Subordinated Notes due 2001 ("1993 Notes"). The 1993 Notes were convertible at the holders' option into shares of the Company's Class A Common Stock at $25.50 per share. The note agreement required the Company to maintain minimum permanent capital, as therein defined. The Company used the proceeds from the Sale to redeem all the outstanding notes during the year ended December 25, 1999. 9. COMMITMENTS AND CONTINGENT LIABILITIES The Company is obligated under noncancelable operating leases for commissaries and retail stores. Lease terms are generally for ten years with renewal options at certain locations and generally require the Company to pay a proportionate share of real estate taxes, insurance, common area and other operating costs. Substantially all store leases provide for contingent rental payments based on sales in excess of specified amounts. In addition, the Company is contingently liable for certain of the operating leases of the Au Bon Pain Division. Aggregate minimum requirements under these leases are, as of December 25, 1999, approximately as follows (in thousands): 2000........................................................ $ 6,301 2001........................................................ 6,004 2002........................................................ 5,755 2003........................................................ 5,412 2004........................................................ 5,126 Thereafter.................................................. 14,977 ------- $43,575 =======
35 PANERA BREAD COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 9. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED) Rental expense under operating leases was approximately $14.0 million, $19.7 million and $24.5 million in 1999, 1998 and 1997, respectively, which included contingent rentals of approximately $1.1 million, $3.1 million and $3.0 million, respectively. 10. INCOME TAXES The provision (benefit) for income taxes in the consolidated statements of operations is comprised of the following (in thousands):
DECEMBER 25, 1999 DECEMBER 26, 1998 DECEMBER 27, 1997 ----------------- ----------------- ----------------- Current: Federal.................... $ -- $ -- $ 259 State...................... 469 1,057 132 ---- ------- ------- 469 1,057 391 ---- ------- ------- Deferred: Federal.................... (13) (8,220) (1,433) State...................... 55 1,631 (450) ---- ------- ------- 42 (6,589) (1,883) ---- ------- ------- Tax provision (benefit) before extraordinary item....................... $511 $(5,532) $(1,492) ==== ======= =======
A reconciliation of the statutory federal income tax rate and the effective tax rate as a percentage of income (loss) before income taxes provision and extraordinary item follows:
1999 1998 1997 -------- -------- -------- Statutory rate provision (benefit).................. 34.0% (34.0)% 34.0% State income taxes, net of federal tax benefit...... 68.3 1.7 (432.8) Charitable contributions............................ -- (0.7) (89.9) Company-owned life insurance (See Note 12).......... 32.8 (4.4) (451.0) Non-deductible goodwill and meals and entertainment..................................... 58.7 0.8 51.0 Other, net.......................................... (0.2) 2.1 (0.4) Change in valuation allowance....................... -- 13.2 415.4 ----- ----- ------ 193.6% (21.3)% (473.7)% ===== ===== ======
36 PANERA BREAD COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 10. INCOME TAXES (CONTINUED) The tax effects of the significant temporary differences which comprise the deferred tax assets (liabilities) are as follows (in thousands):
1999 1998 -------- -------- Current assets: Receivables reserve..................................... $ -- $ -- Accrued expenses........................................ 2,353 Net operating loss carryforward......................... 3,120 1,500 ------- ------- Total current......................................... 5,473 1,500 Non-current assets/liabilities: Property, plant and equipment........................... (333) (190) Accrued expenses........................................ 1,182 9,215 Goodwill................................................ (1,611) (1,868) Tax credit carryforward................................. 5,079 4,941 Net operating loss carryforward......................... 6,951 4,485 Charitable contribution carryforward.................... 1,571 141 Other reserves.......................................... 322 452 ------- ------- Total non-current..................................... 13,161 17,176 Total deferred tax asset.............................. 18,634 18,676 Valuation allowance................................... (4,742) (4,742) ------- ------- Total net deferred tax asset.............................. $13,892 $13,934 ======= =======
A valuation allowance is provided to reduce the deferred tax assets to a level which, more likely than not, will be realized. The valuation allowance is primarily attributable to the potential for the non-deductibility of capital losses related to the taxable loss on sale of the Au Bon Pain Division, the expectation that deferred state tax assets will be unrealizable in states where the Company no longer operates and that the Company will be unable to utilize certain charitable contribution carryforwards prior to their expiration. In the current year, all of the charitable contribution carryforward has been appropriately categorized as such; in 1998, certain charitable contribution carryforwards were included within the net operating loss carryforward. As of December 25, 1999 and December 26, 1998, the Company has net operating losses of approximately $24.8 million and $13.6 million, respectively, which can be carried forward twenty years to offset Federal taxable income. At December 25, 1999 and December 26, 1998, the Company had Federal jobs tax credit carryforwards of approximately $1.2 million which expire in the years 2014-2015 and charitable contribution carryforwards of approximately $3.8 million which expire in the years 2000-2003. In addition, the Company has Federal alternative minimum tax credit carryforwards of approximately $3.7 million and $3.5 million at December 25, 1999 and December 26, 1998, respectively, which are available to reduce future regular Federal income taxes over an indefinite period. The Company reevaluates the positive and negative evidence impacting the realizability of its deferred income tax assets on an annual basis. 37 PANERA BREAD COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 11. DEPOSITS AND OTHER During fiscal 1997, the Company established a $4.3 million deposit with its distributor. This financial arrangement allows the Company to receive lower distribution costs. The savings exceed the carrying value of the deposit. The deposit is flexible and the Company may at times decrease the amount on deposit, at its discretion. The deposit outstanding was $1.3 million at December 25, 1999 and December 26, 1998. During fiscal year 1994, the Company established a company-owned life insurance program ("COLI") covering a substantial portion of its employees. At December 25, 1999 and December 26, 1998, the cash surrender value of $77.7 million and $75.4 million, respectively, and the insurance policy loans of $75.7 million and $73.2 million, respectively, were netted and included in other assets on the consolidated balance sheet. The loans are collateralized by the cash values of the underlying life insurance policies and require interest payments at a rate of 9.07%. In 1996, tax law changes adopted as part of the Health Insurance Portability and Accountability Act significantly reduced the level of tax benefits recognized under the Company's COLI program. The Company included $0.4 million and $0.3 million of expenses in other (income) expense, net, relating to COLI in 1999 and 1998, respectively. In the third quarter of 1997, the Company sold its interest in Peet's Coffee and Teas, Incorporated back to Peet's for $2 million in cash, resulting in a pre-tax gain of $930,000. The gain was recognized as a component of other expense, net. 12. STOCKHOLDERS' EQUITY COMMON STOCK Each share of Class B Common Stock has the same dividend and liquidation rights as each share of Class A Common Stock. The holders of Class B Common Stock are entitled to three votes for each share owned. The holders of Class A Common Stock are entitled to one vote for each share owned. Each share of Class B Common Stock is convertible, at the shareholder's option, into Class A Common Stock on a one-for-one basis. The Company had reserved at December 25, 1999 and December 26, 1998, 7,389,041 and 7,589,719 shares, respectively, of its Class A Common Stock for issuance upon conversion of Class B Common Stock and exercise of awards granted under the Company's 1992 Equity Incentive Plan, Formula Stock Option Plan for Independent Directors and conversion of the 1993 Notes (see Note 8). REGISTRATION RIGHTS Certain holders of Class A and Class B Common Stock, pursuant to stock subscription agreements, can require the Company, under certain circumstances, to register their shares under the Securities Act of 1933 or have included in certain registrations all or part of such shares, at the Company's expense. 13. STOCK OPTIONS 1992 EQUITY INCENTIVE PLAN In May 1992, the Company adopted its Equity Incentive Plan ("Equity Plan") to replace its Non-Qualified Incentive Stock Option Plan. Under the Equity Plan, a total of 950,000 shares of Class A Common Stock were initially reserved for awards under the Equity Plan. The Equity Plan was subsequently amended by the Board of Directors and the stockholders to increase the number of shares available thereunder from 950,000 to 4,300,000. Awards under the Equity Plan can be in the form of stock 38 PANERA BREAD COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 13. STOCK OPTIONS (CONTINUED) options (both qualified and non-qualified), stock appreciation rights, performance shares, restricted stock or stock units. Activity under the Equity Plan and its predecessor is summarized below:
WEIGHTED AVERAGE SHARES EXERCISE PRICE --------- ---------------- Outstanding at December 28, 1996................... 1,932,034 $7.42 Granted.......................................... 1,226,169 $7.49 Exercised........................................ (23,148) $6.56 Cancelled........................................ (143,537) $8.05 --------- ----- Outstanding at December 27, 1997................... 2,991,518 $7.44 --------- ----- Granted.......................................... 841,583 $8.84 Exercised........................................ (151,060) $6.69 Cancelled........................................ (376,710) $9.17 --------- ----- Outstanding at December 26, 1998................... 3,305,331 $8.18 --------- ----- Granted.......................................... 200,678 $6.65 Exercised........................................ (14,057) $6.85 Cancelled........................................ (201,003) $7.52 --------- ----- Outstanding at December 25, 1999................... 3,290,949 $7.56 --------- -----
FORMULA STOCK OPTION PLAN FOR INDEPENDENT DIRECTORS On January 27, 1994, the Company's Board of Directors authorized the Formula Stock Option Plan for Independent Directors, as defined in the agreement. This plan authorized a one-time grant of an option to purchase 10,000 shares of the Company's Class A Common Stock at its closing price on January 26, 1994. Each independent director who is first elected as such after the effective date of the Directors' Plan shall receive, as of the date he or she is so elected, a one-time grant of an option to purchase 5,000 shares of Class A Common Stock at a price per share equal to the closing price of the Class A Common Stock as reported by the NASDAQ/National Market System for the trading day immediately preceding the date of the person's election to the board. In addition, all independent directors serving in such capacity as of the last day of each fiscal year commencing with the fiscal year ending December 31, 1994 receive an option to purchase 5,000 shares of Class A Common Stock at the closing price for the prior day. Each option granted is fully vested at the grant date, and is exercisable, either in whole or in part, for 10 years following the grant date. The Company had granted 123,606 and 113,248 options under this plan as of December 25, 1999 and December 26, 1998. STOCK-BASED COMPENSATION In accordance with SFAS 123, "Accounting for Stock-Based Compensation", the Company has elected to follow the provisions of Accounting Principles Board Opinion No. 25 ("APB25"), "Accounting for Stock 39 PANERA BREAD COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 13. STOCK OPTIONS (CONTINUED) Issued to Employees", and provide the required pro-forma disclosure in the footnotes to the financial statements as if the measurement provisions of SFAS 123 had been adopted. Accordingly, no compensation costs have been recognized for the stock option plans as the exercise price of stock options equals the market price of the underlying stock on the date of grant. Had compensation costs for the Company's stock option plans been determined based on the fair value at the grant date for awards since 1995 consistent with the provisions of SFAS 123, the Company's net income (loss) for the years ended December 25, 1999, December 26, 1998 and December 27, 1997 would have been as follows:
1999 1997 1998 -------------------------- -------------------------- --------------------------- NET LOSS NET LOSS NET LOSS NET LOSS NET INCOME NET INCOME (IN THOUSANDS) PER SHARE (IN THOUSANDS) PER SHARE (IN THOUSANDS) PER SHARE -------------- --------- -------------- --------- -------------- ---------- As reported..................... $ (629) $(.05) $(20,494) $(1.72) $1,807 $.15 Pro forma....................... $(1,941) $(.16) $(21,642) $(1.81) $ 953 $.08
The effects of applying SFAS 123 in this pro-forma disclosure are not likely to be representative of the effects on reported net income for future years. SFAS 123 does not apply to awards prior to 1995 and additional awards in future years are anticipated. The fair value of the options granted during 1999, 1998 and 1997 was $3.22 per share, $4.12 per share and $3.69 per share, respectively, on the date of grant using the Black-Scholes option-pricing model with the following assumptions: dividend yield 0%, volatility of 40%, risk-free interest rate of 5.68% in 1999, 5.14% in 1998 and 6.38% in 1997, and an expected life of 6 years. The following table summarizes information concerning currently outstanding and exercisable options:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ---------------------------------------------- --------------------------- WEIGHTED AVERAGE RANGE OF NUMBER REMAINING WEIGHTED NUMBER WEIGHTED EXERCISE PRICE OUTSTANDING CONTRACTUAL LIFE AVERAGE PRICE EXERCISABLE AVERAGE PRICE - --------------------- ----------- ---------------- ------------- ----------- ------------- $ 6.00-6.87 672,646 8.39 $ 6.44 156,343 $6.35 $ 6.88-10.93 2,365,058 6.20 7.49 1,988,647 7.47 $ 10.94-13.44 252,069 8.31 11.07 179,279 11.08 $ 13.45-21.25 1,176 3.93 21.25 1,176 21.25 --------- ---- ------ --------- ----- 3,290,949 6.81 $ 7.56 2,325,445 $7.68
Options vest over a five year period and must be exercised within ten years from the date of the grant. Of the options at December 25, 1999, December 26, 1998 and December 27, 1997, 2,325,445, 1,418,994 and 1,168,134, respectively, were vested and exercisable with a weighted average exercise price at December 25, 1999, December 26, 1998 and December 27, 1997 of $7.68, $7.34 and $7.20, respectively. 1992 EMPLOYEE STOCK PURCHASE PLAN In May 1992, the Company adopted its 1992 Employee Stock Purchase Plan ("1992 Purchase Plan") to replace its Employee Stock Purchase Plan. The 1992 Purchase Plan was subsequently amended by the Board of Directors and Stockholders to increase the number of shares of Class A Common Stock reserved for issuance from 150,000 to 350,000. The 1992 Purchase Plan gives eligible employees the option to purchase Class A Common Stock (total purchases in a year may not exceed 10% of an employee's prior 40 PANERA BREAD COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 13. STOCK OPTIONS (CONTINUED) year compensation) at 85% of the fair market value of the Class A Common Stock at the date of purchase. There were 28,492 and 36,474 shares purchased with a weighted average fair value of purchase rights of $.92 and $1.25 as of December 25, 1999 and December 26, 1998, respectively. 14. DEFINED CONTRIBUTION BENEFIT PLAN The Au Bon Pain Employee 401(k) Plan ("Savings Plan") was adopted by the Company in 1991 under Section 401(k) of the Internal Revenue Code of 1986, as amended (Code). All employees of the Company, including executive officers, are eligible to participate in the Savings Plan. A participating employee may elect to defer on a pre-tax basis up to 15% of his or her salary, subject to the limitations imposed by the Code. This amount is contributed to the Savings Plan. All amounts vest immediately and are invested in various funds as directed by the participant. The full amount in a participant's account will be distributed to a participant upon termination of employment, retirement, disability or death. The Company does not currently contribute to the Savings Plan. The Saint Louis Bread Company Employee 401(k) Plan ("Saint Louis Bread Savings Plan") was adopted by the former Saint Louis Bread Company in 1993 under Section 401(k) of the Internal Revenue Code of 1986, as amended. In 1997 the "Saint Louis Bread Savings Plan" was merged into the Au Bon Pain "Savings Plan". Plan participants of the "Saint Louis Bread Savings Plan" retained the matching contributions made through 1996 with a vesting schedule of seven years. There has been no further matching in 1999 and 1998. 15. LEGAL PROCEEDINGS The Company is subject to legal proceedings and claims which arise in the normal course of business. In the opinion of management, the ultimate liabilities with respect to these actions will not have a material adverse effect on the Company's financial condition, results of operations or cash flows. During the third quarter of 1997, the Company entered into a definitive agreement to settle a lawsuit filed by a former vendor of the Company. The Company recognized a charge of $675,000 in the third quarter of 1997 as a component of other expense (income), net, to cover the settlement and other expenses incurred in connection therewith. 16. NET INCOME (LOSS) PER SHARE The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share data):
FOR THE FISCAL YEARS ENDED --------------------------------------------------------- DECEMBER 25, 1999 DECEMBER 26, 1998 DECEMBER 27, 1997 ----------------- ----------------- ----------------- Net income (loss) used in net income (loss) per common share--basic.................... $ (629) $(20,494) $1,807 Net income (loss) used in net income (loss) per common share--diluted.................. $ (629) $(20,494) $1,807
41 PANERA BREAD COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 16. NET INCOME (LOSS) PER SHARE (CONTINUED)
FOR THE FISCAL YEARS ENDED --------------------------------------------------------- DECEMBER 25, 1999 DECEMBER 26, 1998 DECEMBER 27, 1997 ----------------- ----------------- ----------------- Weighted average number of shares outstanding--basic......................... 12,137 11,943 11,766 Effect of dilutive securities: Employee stock options................... -- -- 42 Stock warrants........................... -- -- 105 Weighted average number of shares outstanding--diluted....................... 12,137 11,943 11,913 Per common share: Basic: Income (loss) before extraordinary item.... $ (.02) $ (1.72) $ .15 Net income (loss).......................... $ (.05) $ (1.72) $ .15 Diluted: Income (loss) before extraordinary item.... $ (.02) $ (1.72) $ .15 Net income (loss).......................... $ (.05) $ (1.72) $ .15
During 1998 and 1997, options to purchase 1,176,000 shares of common stock at $25.50 per share were outstanding in conjunction with the issuance of $30 million of convertible subordinated notes (see Note 8). These shares were not included in the computation of diluted earnings per share for the fiscal years ended December 26, 1998 or December 27, 1997 because the addition of interest expense, after the effect of income taxes, of $855,000 to net income (loss) would have been antidilutive. These options were no longer outstanding as of December 25, 1999, as the convertible subordinated notes have been repaid. Options to purchase 18,333 and 248,450 shares of common stock, respectively, at an average price of $6.35 and $5.77 per share and warrants to purchase 45,608 and 96,000 shares of common stock at $5.62 per share were outstanding but were not included in the computation of diluted earnings per share for the fiscal years ended December 25, 1999 or December 26, 1998 because the effect would have been antidilutive. 17. DEFERRED REVENUE During 1999, the Company changed soft drink providers. As a result of this change, the Company received an upfront payment of $2,530,000. These funds are available for both company-owned and franchised bakery-cafes to cover costs of conversion and transition. The upfront payments are being allocated at a rate of $3,000 per applicable company-owned and franchised bakery-cafe. The Company is then recognizing the $3,000 per company owned bakery-cafe over the five year life of the soft drink contract. As of December 25, 1999, the Company had paid $303,000 to franchisees and is recognizing $216,000 of income over the life of the contract. ITEM 9. CHANGE IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 42 PART III Information required by Part III (items 10 through 13) is incorporated by reference to the Company's definitive proxy statement for its 2000 annual meeting of stockholders which is expected to be filed with the Securities and Exchange Commission on or before May 1, 2000. If for any reason such a statement is not filed within such period, this report will be appropriately amended. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORT ON FORM 8-K (a) 1. FINANCIAL STATEMENTS The following described consolidated financial statements of the Company are included in this report: Report of Independent Accountants Consolidated Balance Sheets as of December 25, 1999, and December 26, 1998. Consolidated Statements of Operations for the fiscal years ended December 25, 1999, December 26, 1998, and December 27, 1997. Consolidated Statements of Cash Flows for the fiscal years ended December 25, 1999, December 26, 1998, and December 27, 1997. Consolidated Statements of Stockholders' Equity for the fiscal years ended December 25, 1999, December 26, 1998, and December 27, 1997. Notes to Consolidated Financial Statements. (a) 2. FINANCIAL STATEMENT SCHEDULE The following financial statement schedule for the Company is filed herewith: SCHEDULE II--Valuations and Qualifying Accounts PANERA BREAD COMPANY VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
BALANCE AT BALANCE BEGINNING AT END OF DESCRIPTION OF PERIOD ADDITIONS DEDUCTIONS PERIOD - ----------- ---------- --------- ---------- --------- Allowance for Doubtful accounts Fiscal Year ended December 27, 1997................... $ 104 $ 49 $ 19 $ 134 Fiscal year ended December 26, 1998................... $ 134 $ 96 $ 22 $ 208 Fiscal Year ended December 25, 1999................... $ 208 $ 93 $104 $ 197 Deferred Tax Valuation Allowance Fiscal Year ended December 27, 1997................... $ -- $1,308 $ -- $1,308 Fiscal Year ended December 26, 1998................... $1,308 $3,434 $ -- $4,742 Fiscal Year ended December 25, 1999................... $4,742 $ -- $ -- $4,742
(a) 3. EXHIBITS
EXHIBIT NUMBER DESCRIPTION ------- -----------
43 2.1 Asset Purchase Agreement by and among Au Bon Pain Co., Inc., ABP Midwest Manufacturing Co., Inc. and Bunge Foods Corporation dated as of February 11, 1998; Amendment to Asset Purchase Agreement, dated as of March 23, 1998. Incorporated by reference to Exhibit 2.1 to the Company's Annual Report on Form 10-K for the year ended December 27, 1997. 2.2.1 Stock Purchase Agreement dated August 12, 1998 by and between the Company, ABP Holdings, Inc. ("ABPH") and ABP Corporation. Incorporated by reference to the Company's Report on Form 8-K filed August 21, 1998. 2.2.2 Amendment to Stock Purchase Agreement dated October 28, 1998 by and among the Company, ABPH and ABP Corporation. Incorporated by reference to the Company's Report on Form 8-K filed November 6, 1998. 3.1 Certificate of Incorporation of Registrant, as amended to June 2, 1991. Incorporated by reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1994. 3.1.1 Certificate of Amendment to Certificate of Incorporation, dated and filed June 3, 1991. Incorporated by reference to Exhibit 3.1.1 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994. 3.1.2 Certificate of Amendment to the Certificate of Incorporation filed on June 2, 1994. Incorporated by reference to Exhibit 3.1.2 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994. 3.1.3 Certificate of Designations, Preferences and Rights of the Class B Preferred Stock (Series 1), filed November 30, 1994. Incorporated by reference to Exhibit 3.1.3 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994. 3.2 Bylaws of Registrant, as amended to date. Incorporated by reference to Registrant's registration statement on Form S-1 (File No. 33-40153), Exhibit 3.2. 4.1.1 Amended and Restated Revolving Credit Agreement dated as of February 13, 1998 among the Issuer, Saint Louis Bread Company, Inc., ABP Midwest Manufacturing Co., Inc., BankBoston, N.A., USTrust and BankBoston N.A. as Agent. Incorporated by reference to Exhibit 4.1.1 to the Company's Annual Report on Form 10-K for the year ended December 27, 1997. 4.1.2 Amended and Restated Revolving Credit Note dated as of February 13, 1998 of the Issuer, Saint Louis Bread Company, Inc. and ABP Midwest Manufacturing Co., Inc. in favor of BankBoston, N.A. Incorporated by reference to Exhibit 4.1.2 to the Company's Annual Report on Form 10-K for the year ended December 27, 1997. 4.1.3 Amended and Restated Revolving Credit Note dated as of February 13, 1998 of the Issuer, Saint Louis Bread Company, Inc. and ABP Midwest Manufacturing Co., Inc. in favor of USTrust. Incorporated by reference to Exhibit 4.1.3 to the Company's Annual Report on Form 10-K for the year ended December 27, 1997. 4.1.4 First Amendment to Amended and Restated Revolving Credit Agreement dated as of June 30, 1998. 4.1.5 Second Amendment and Waiver to Amended and Restated Revolving Credit Agreement dated as of October 14, 1998. 4.1.6 Third Amendment and Waiver to Amended and Restated Revolving Credit Agreement dated as of January 20, 1999.
44
EXHIBIT NUMBER DESCRIPTION ------- ----------- 4.1.7 Fourth Amendment to Amended and Restated Revolving Credit Agreement dated as of March 25, 1999. 4.1.8 Fifth Amendment to Amended and Restated Revolving Credit Agreement dated as of May 14, 1999. * 4.2 Form of 4.75% Convertible Subordinated Note due 2001. Incorporated by reference to Registrant's Form 8-K filed December 22, 1993, Exhibit 4. 10.3.3 Registrant's 1992 Employee Stock Purchase Plan. Incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 30, 1995. 10.3.4 Registrant's Formula Stock Option Plan for Independent Directors and form of option agreement thereunder, as amended. Incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 30, 1995. 10.4 Amended and Restated Coffee Supply Agreement by and among Registrant and Peet's Companies, Inc., Peet's Coffee and Tea, Inc., and Peet's Trademark Company, dated as of the 26th day of October, 1994. Incorporated by reference to Exhibit 10.8 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994. 10.5 Indenture of Trust dated as of July 1, 1995 by and between the Industrial Development Authority of the City of Mexico, Missouri and Mark Twain Bank, as Trustee. Incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 30, 1995. 10.5.1 Loan Agreement dated as of July 1, 1995 by and between the Industrial Development Authority of the City of Mexico, Missouri and ABP Midwest Manufacturing Co., Inc. Incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 30, 1995. 10.5.2 Promissory Note issued by ABP Midwest Manufacturing Co., Inc. in the face amount of $8,741,370. Incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 30, 1995. 10.6.1 Employment Agreement between the Registrant and Richard Postle. Incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 30, 1995.+ 10.6.2 Employment Agreement between the Registrant and Robert Taft. Incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 28, 1996.+ 10.6.3 Employment Agreement between the Registrant and Maxwell Abbott. Incorporated by reference to Exhibit 10.6.3 of the Registrant's Annual Report on Form 10-K for the year ended December 28, 1996.+ 10.6.4 Employment Letter between the Registrant and Samuel Yong. Incorporated by reference to Exhibit 10.6.4 of the Registrant's Annual Report on Form 10-K for the year ended December 28, 1996.+ 10.6.5 Employment Letter between the Registrant and William Moreton.*+ 10.6.6 Employment Letter between the Registrant and Michael Kupstas.*+ 10.6.7 Employment Letter between the Registrant and Thomas Howley.*+
45
EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.7.1 Form of Stock Purchase Warrant from Au Bon Pain Co., Inc. to Allied Capital Corporation, Allied Capital Corporation II, and Capital Trust Investments, Ltd. Incorporated by reference to Exhibit 10.7.1 of the Registrant's Annual Report on Form 10-K for the year ended December 28, 1996. 10.7.2 Form of Contingent Stock Purchase Warrant from Au Bon Pain Co., Inc. to Allied Capital Corporation, Allied Capital Corporation II and Capital Trust Investments, Ltd. Incorporated by reference to Exhibit 10.7.2 of the Registrant's Annual Report on Form 10-K for the year ended December 28, 1996. 10.7.3 Form of Stock Purchase Warrant from Au Bon Pain Co, Inc. to Princes Gate Investors, L.P., Acorn Partnership I L.P., PG Investments Limited, PGI Sweden AB and Gregor Von Open. Incorporated by reference to Exhibit 10.7.3 of the Registrant's Annual Report on Form 10-K for the year ended December 28, 1996. 10.7.4 Registration Rights Agreement dated as of July 24, 1996 among Allied Capital Corporation, Allied Capital Corporation II, Capital Trust Investments, Ltd., Princes Gate Investors, L.P., Acorn Partnership I, L.P., PGI Investments Limited, PGI Sweden AB, Gregor Von Open and Au Bon Pain Co., Inc., Incorporated by reference to Exhibit 10.7.4 of the Registrant's Annual Report on Form 10-K for the year ended December 28, 1996. 10.8.4 Form of Rights Agreement, dated as of October 21, 1996 between the Registrant and State Street Bank and Trust Company. Incorporated by reference to the Registrant's Registration Statement on Form 8-A (File No. 000-19253). 10.9 Bakery Product Supply Agreement by and between Bunge Foods Corporation and Saint Louis Bread Company, Inc. dated as of March 23, 1998. Incorporated by reference to Exhibit 10.9 to the Company's Annual Report on Form 10-K for the year ended December 27, 1997. 10.10 Bakery Product Supply Agreement by and between Bunge Foods Corporation and Au Bon Pain Co., Inc. dated as of March 23, 1998. Incorporated by reference to Exhibit 10.10 to the Company's Annual Report on Form 10-K for the year ended December 27, 1997. 10.11 Executive Employment Agreement between the Company and Sam Yong dated June 16, 1998. Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the period ended July 11, 1998.+ 21 Registrant's Subsidiaries.* 23.1 Consent of PricewaterhouseCoopers L.L.P.* 27 Financial Data Schedule.*
- ------------------------ * Filed herewith. + Management contract or compensatory plan required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c). (b) Form 8-K No reports on Form 8-K have been filed during the fourth quarter of the fiscal year ended December 25, 1999. 46 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PANERA BREAD COMPANY BY: /S/ RONALD M. SHAICH ----------------------------------------- Ronald M. Shaich CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the date indicated:
SIGNATURE TITLE DATE --------- ----- ---- /s/ RONALD M. SHAICH Chairman and Chief Executive ------------------------------------------- Officer April 10, 2000 Ronald M. Shaich /s/ GEORGE E. KANE Director ------------------------------------------- April 10, 2000 George E. Kane /s/ HENRY J. NASELLA Director ------------------------------------------- April 10, 2000 Henry J. Nasella /s/ DOMENIC COLASACCO Director ------------------------------------------- April 10, 2000 Domenic Colasacco /s/ WILLIAM W. MORETON Senior Vice President, ------------------------------------------- Treasurer, and Chief April 10, 2000 William W. Moreton Financial Officer
47 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION ------- ----------- 2.1 Asset Purchase Agreement by and among Au Bon Pain Co., Inc., ABP Midwest Manufacturing Co., Inc. and Bunge Foods Corporation dated as of February 11, 1998; Amendment to Asset Purchase Agreement, dated as of March 23, 1998. Incorporated by reference to Exhibit 2.1 to the Company's Annual Report on Form 10-K for the year ended December 27, 1997. 2.2.1 Stock Purchase Agreement dated August 12, 1998 by and between the Company, ABP Holdings, Inc. ("ABPH") and ABP Corporation. Incorporated by reference to the Company's Report on Form 8-K filed August 21, 1998. 2.2.2 Amendment to Stock Purchase Agreement dated October 28, 1998 by and among the Company, ABPH and ABP Corporation. Incorporated by reference to the Company's Report on Form 8-K filed November 6, 1998. 3.1 Certificate of Incorporation of Registrant, as amended to June 2, 1991. Incorporated by reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1994. 3.1.1 Certificate of Amendment to Certificate of Incorporation, dated and filed June 3, 1991. Incorporated by reference to Exhibit 3.1.1 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994. 3.1.2 Certificate of Amendment to the Certificate of Incorporation filed on June 2, 1994. Incorporated by reference to Exhibit 3.1.2 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994. 3.1.3 Certificate of Designations, Preferences and Rights of the Class B Preferred Stock (Series 1), filed November 30, 1994. Incorporated by reference to Exhibit 3.1.3 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994. 3.2 Bylaws of Registrant, as amended to date. Incorporated by reference to Registrant's registration statement on Form S-1 (File No. 33-40153), Exhibit 3.2. 4.1.1 Amended and Restated Revolving Credit Agreement dated as of February 13, 1998 among the Issuer, Saint Louis Bread Company, Inc., ABP Midwest Manufacturing Co., Inc., BankBoston, N.A., USTrust and BankBoston N.A. as Agent. Incorporated by reference to Exhibit 4.1.1 to the Company's Annual Report on Form 10-K for the year ended December 27, 1997. 4.1.2 Amended and Restated Revolving Credit Note dated as of February 13, 1998 of the Issuer, Saint Louis Bread Company, Inc. and ABP Midwest Manufacturing Co., Inc. in favor of BankBoston, N.A. Incorporated by reference to Exhibit 4.1.2 to the Company's Annual Report on Form 10-K for the year ended December 27, 1997. 4.1.3 Amended and Restated Revolving Credit Note dated as of February 13, 1998 of the Issuer, Saint Louis Bread Company, Inc. and ABP Midwest Manufacturing Co., Inc. in favor of USTrust. Incorporated by reference to Exhibit 4.1.3 to the Company's Annual Report on Form 10-K for the year ended December 27, 1997. 4.1.4 First Amendment to Amended and Restated Revolving Credit Agreement dated as of June 30, 1998. 4.1.5 Second Amendment and Waiver to Amended and Restated Revolving Credit Agreement dated as of October 14, 1998.
EXHIBIT NUMBER DESCRIPTION ------- ----------- 4.1.6 Third Amendment and Waiver to Amended and Restated Revolving Credit Agreement dated as of January 20, 1999. 4.1.7 Fourth Amendment to Amended and Restated Revolving Credit Agreement dated as of March 25, 1999. 4.1.8 Fifth Amendment to Amended and Restated Revolving Credit Agreement dated as of May 14, 1999. * 4.2 Form of 4.75% Convertible Subordinated Note due 2001. Incorporated by reference to Registrant's Form 8-K filed December 22, 1993, Exhibit 4. 10.3.3 Registrant's 1992 Employee Stock Purchase Plan. Incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 30, 1995. 10.3.4 Registrant's Formula Stock Option Plan for Independent Directors and form of option agreement thereunder, as amended. Incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 30, 1995. 10.4 Amended and Restated Coffee Supply Agreement by and among Registrant and Peet's Companies, Inc., Peet's Coffee and Tea, Inc., and Peet's Trademark Company, dated as of the 26th day of October, 1994. Incorporated by reference to Exhibit 10.8 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994. 10.5 Indenture of Trust dated as of July 1, 1995 by and between the Industrial Development Authority of the City of Mexico, Missouri and Mark Twain Bank, as Trustee. Incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 30, 1995. 10.5.1 Loan Agreement dated as of July 1, 1995 by and between the Industrial Development Authority of the City of Mexico, Missouri and ABP Midwest Manufacturing Co., Inc. Incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 30, 1995. 10.5.2 Promissory Note issued by ABP Midwest Manufacturing Co., Inc. in the face amount of $8,741,370. Incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 30, 1995. 10.6.1 Employment Agreement between the Registrant and Richard Postle. Incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 30, 1995.+ 10.6.2 Employment Agreement between the Registrant and Robert Taft. Incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 28, 1996.+ 10.6.3 Employment Agreement between the Registrant and Maxwell Abbott. Incorporated by reference to Exhibit 10.6.3 of the Registrant's Annual Report on Form 10-K for the year ended December 28, 1996.+ 10.6.4 Employment Letter between the Registrant and Samuel Yong. Incorporated by reference to Exhibit 10.6.4 of the Registrant's Annual Report on Form 10-K for the year ended December 28, 1996.+ 10.6.5 Employment Letter between the Registrant and William Moreton.*+ 10.6.6 Employment Letter between the Registrant and Michael Kupstas.*+ 10.6.7 Employment Letter between the Registrant and Thomas Howley.*+
EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.7.1 Form of Stock Purchase Warrant from Au Bon Pain Co., Inc. to Allied Capital Corporation, Allied Capital Corporation II, and Capital Trust Investments, Ltd. Incorporated by reference to Exhibit 10.7.1 of the Registrant's Annual Report on Form 10-K for the year ended December 28, 1996. 10.7.2 Form of Contingent Stock Purchase Warrant from Au Bon Pain Co., Inc. to Allied Capital Corporation, Allied Capital Corporation II and Capital Trust Investments, Ltd. Incorporated by reference to Exhibit 10.7.2 of the Registrant's Annual Report on Form 10-K for the year ended December 28, 1996. 10.7.3 Form of Stock Purchase Warrant from Au Bon Pain Co, Inc. to Princes Gate Investors, L.P., Acorn Partnership I L.P., PG Investments Limited, PGI Sweden AB and Gregor Von Open. Incorporated by reference to Exhibit 10.7.3 of the Registrant's Annual Report on Form 10-K for the year ended December 28, 1996. 10.7.4 Registration Rights Agreement dated as of July 24, 1996 among Allied Capital Corporation, Allied Capital Corporation II, Capital Trust Investments, Ltd., Princes Gate Investors, L.P., Acorn Partnership I, L.P., PGI Investments Limited, PGI Sweden AB, Gregor Von Open and Au Bon Pain Co., Inc., Incorporated by reference to Exhibit 10.7.4 of the Registrant's Annual Report on Form 10-K for the year ended December 28, 1996. 10.8.4 Form of Rights Agreement, dated as of October 21, 1996 between the Registrant and State Street Bank and Trust Company. Incorporated by reference to the Registrant's Registration Statement on Form 8-A (File No. 000-19253). 10.9 Bakery Product Supply Agreement by and between Bunge Foods Corporation and Saint Louis Bread Company, Inc. dated as of March 23, 1998. Incorporated by reference to Exhibit 10.9 to the Company's Annual Report on Form 10-K for the year ended December 27, 1997. 10.10 Bakery Product Supply Agreement by and between Bunge Foods Corporation and Au Bon Pain Co., Inc. dated as of March 23, 1998. Incorporated by reference to Exhibit 10.10 to the Company's Annual Report on Form 10-K for the year ended December 27, 1997. 10.11 Executive Employment Agreement between the Company and Sam Yong dated June 16, 1998. Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the period ended July 11, 1998.+ 21 Registrant's Subsidiaries.* 23.1 Consent of PricewaterhouseCoopers L.L.P.* 27 Financial Data Schedule.*
- ------------------------ * Filed herewith. + Management contract or compensatory plan required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c). EX-4.1-8 2 EX-4.1.8 Exhibit 4.1.8 - -------------------------------------------------------------------------------- FIFTH AMENDMENT AND CONSENT TO AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT - -------------------------------------------------------------------------------- This Fifth Amendment and Consent to Amended and Restated Revolving Credit Agreement (this "FIFTH AMENDMENT") is made and entered into as of May 14, 1999, by and among AU BON PAIN CO., INC., a Delaware corporation ("ABP"), SAINT LOUIS BREAD COMPANY, INC., a Delaware corporation ("SAINT LOUIS BREAD"), ABP MIDWEST MANUFACTURING CO., INC., a Delaware corporation ("ABP MIDWEST", and, collectively with ABP and Saint Louis Bread, the "BORROWERS"), and BANKBOSTON, N.A., a national banking association ("BKB") and the other lending institutions listed on SCHEDULE 1 hereto (collectively with BKB, the "BANKS"), and BANKBOSTON, N.A. as agent for the Banks (in such capacity, the "AGENT"), amending certain provisions of the Amended and Restated Revolving Credit Agreement dated as of February 13, 1998 (as amended by the First Amendment to Amended and Restated Revolving Credit Agreement dated as of June 30, 1998, the Second Amendment and Waiver to Amended and Restated Revolving Credit Agreement dated as of October 14, 1998, the Third Amendment and Waiver to Amended and Restated Revolving Credit Agreement dated as of January 20, 1999, the Fourth Amendment and Waiver to Amended and Restated Revolving Credit Agreement dated as of March 25, 1999 and as further amended and in effect from time to time, the "CREDIT AGREEMENT") by and among the Borrowers, the Banks and the Agent. Terms not otherwise defined herein which are defined in the Credit Agreement shall have the same respective meanings herein as therein. WHEREAS, immediately prior to the effectiveness of this Fifth Amendment, the BKB has accepted an assignment of the entire interest of USTrust under the Credit Agreement pursuant to that certain Assignment and Acceptance (the "Assignment") of even date herewith, by and among BKB, USTrust, the Borrowers, and the Agent; WHEREAS, simultaneously with the effectiveness of this Fifth Amendment the Borrowers are closing a transaction (the "Sale") to sell the part of their business generally known as Au Bon Pain (the "Sale"); and WHEREAS, the Borrowers, the Banks and the Agent have agreed to modify certain terms and conditions of the Credit Agreement as specifically set forth in this Fifth Amendment; NOW, THEREFORE, in consideration of the premises and the mutual agreements contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: -2- SECTION 1. AMENDMENT TO SECTION 1 OF THE CREDIT AGREEMENT. Section 1.1 of the Credit Agreement is hereby amended as follows: (a) by deleting the definition of "ABP" in its entirety and hereby replacing it with the following definition: ABP. Au Bon Pain Co., Inc., a Delaware corporation, PROVIDED that the name of such corporation may change to Panera Bread Company. (b) by deleting the definition of "Applicable Margin" in its entirety and hereby replacing it with the following definition: APPLICABLE MARGIN. The Applicable Margin for Base Rate Loans shall be the percentage 0.75%. The Applicable Margin for Eurodollar Loans shall be the percentage 2.25%. (c) by deleting the definition of "Banks" in its entirety and hereby replacing it with the following definition: BANKS. BankBoston and the other lending institutions listed on SCHEDULE 1 hereto, any other Person who becomes an assignee of any rights and obligations of a Bank pursuant to Section 17 and any other permitted successors or assigns. (d) by deleting the definition of "Borrowers" in its entirety and hereby replacing it with the following definition: BORROWERS. Au Bon Pain Co., Inc., a Delaware corporation, provided that the name of such corporation may change to Panera Bread Company, Saint Louis Bread Company, Inc., a Delaware corporation, and ABP Midwest Manufacturing Co., Inc., a Delaware corporation, collectively, and if the context requires, individually. (e) by deleting the definition of "Consolidated EBITDA" in its entirety and hereby replacing it with the following definition: CONSOLIDATED EBITDA. For any specified period, the sum of (a) Consolidated Net Income for such period, PLUS (b) to the extent deducted from the calculation of Consolidated Net Income, income tax expenditures for such period, PLUS (c) to the extent deducted in the calculation of Consolidated Net Income for such period, Consolidated Total Interest Expense for such period, PLUS (d) to the extent deducted in the calculation of Consolidated Net Income for such period, the aggregate amount of depreciation and amortization for such period, PLUS (e) to the extent deducted in the calculation of Consolidated Net Income for such period, other extraordinary nonrecurring non-cash charges, in each case determined on a consolidated basis for the Borrowers -3- and their Subsidiaries in accordance with generally accepted accounting principles. (f) by deleting the definition of "Consolidated Net Income (or Deficit)" in its entirety and hereby replacing it with the following definition: CONSOLIDATED NET INCOME (OR DEFICIT). For any specified period, the net income (or deficit) (after taxes) of the Borrowers and their Subsidiaries determined on a consolidated basis in accordance with generally accepted accounting principles after eliminating all extraordinary nonrecurring non-cash items of income, all extraordinary nonrecurring non-cash items of expense, and all inter-company items. (g) by deleting from the definition of "Maturity Date" the date "December 31, 1999" and replacing it with "December 31, 2000". SECTION 2. AMENDMENT TO SECTION 2 OF THE CREDIT AGREEMENT. Section 3 of the Credit Agreement is hereby amended as follows: (a) Section 2.2 of the Credit Agreement is hereby amended by deleting the text "at the per annum rate of 0.375%" in the first sentence thereof and replacing it with the text "at the per annum rate of 0.5%" (b) Section 2.5 of the Credit Agreement is hereby amended by deleting the text of clause (a) in the first sentence thereof in its entirety and replacing it with the following: (a) on the same day of the proposed Drawdown Date of any Base Rate Loan and (c) Section 2.8 of the Credit Agreement is hereby amended by deleting the second sentence thereof in its entirety and replacing it with the following: The Borrowers shall give the Agent notice of any proposed repayment of Revolving Credit Loans, no later than 11:00 a.m. (Boston time) (a) on the date of any proposed repayment of Base Rate Loans and (b) at least three (3) Eurodollar Business Days' notice of any proposed repayment of Eurodollar Rate Loans, in each case specifying the proposed date of repayment and the principal amount to be paid, which notice, if not in writing, shall be promptly confirmed in writing. SECTION 3. AMENDMENT TO SECTION 3 OF THE CREDIT AGREEMENT. Section 3 of the Credit Agreement is hereby amended as follows: (a) Section 3.1(a) of the Credit Agreement is hereby amended by deleting the text of clause (x) in its entirety and replacing it with the following: -4- (x) the sum of the aggregate Maximum Drawing Amount and all Unpaid Reimbursement Obligations shall not exceed $3,000,000 at any one time and (b) Section 3.6 of the Credit Agreement is hereby amended by deleting the text "in advance" after "The Borrowers shall pay" in the first sentence thereof and replacing it with "quarterly in arrears" (c) Section 3.6 of the Credit Agreement is hereby amended by deleting in its entirety the text of clause (i) in the first sentence thereof and replacing it with the following: (i) 2.25% per annum of the Maximum Drawing Amount of each Letter of Credit, or SECTION 4. AMENDMENT TO SECTION 4 OF THE CREDIT AGREEMENT. Section 4.11 of the Credit Agreement is hereby amended by deleting the text of Section 4.11 in its entirety and replacing it with the following: SECTION 4.11. INTEREST ON OVERDUE AMOUNTS. Overdue principal and (to the extent permitted by applicable law) interest on the Revolving Credit Loans and all other overdue amounts payable hereunder or under any of the other Loan Documents shall bear interest compounded daily and payable on demand at a rate per annum equal to two percent (2.0%) above the Base Rate until such amount shall be paid in full (after as well as before judgment). SECTION 5. AMENDMENT TO SECTION 6 OF THE CREDIT AGREEMENT. Section 6.18 of the Credit Agreement is hereby amended by deleting the date "December 13, 1994" and replacing it with "December 22, 1998". SECTION 6. AMENDMENT TO SECTION 7 OF THE CREDIT AGREEMENT. Section 7 of the Credit Agreement is hereby amended as follows: (a) Section 7.1(g) of the Credit Agreement is hereby amended by replacing ";" at the end of such clause with "; and"; (b) Section 7.1(h) of the Credit Agreement is hereby amended by replacing ";" at the end of such clause with "."; (c) Sections 7.1(i), 7.1(j) and 7.1(k) of the Credit Agreement are hereby amended by deleting the text of such clauses in their entirety; (d) Section 7.3(iv) is hereby amended by deleting the text of such clause in its entirety and replacing it with the following: (iv) liens in respect of judgments or awards, the Indebtedness with respect to which is permitted by Section 7.1(f); -5- (e) Section 7.3(viii) is hereby amended by deleting the text of such clause in its entirety and replacing it with the following: (viii) [Intentionally omitted]; (f) Section 7.3(ix) is hereby amended by deleting the text of such clause in its entirety and replacing it with the following: (ix) liens in respect of purchase money indebtedness permitted under Section 7.1(h); and (g) Section 7.4(b) of the Credit Agreement is hereby amended by replacing ";" at the end of such clause with "; and"; (h) Section 7.4(c) of the Credit Agreement is hereby amended by replacing ";" at the end of such clause with "."; (i) Sections 7.4(d) and 7.4(e) of the Credit Agreement are hereby amended by deleting the text of such clauses in their entirety; and (j) Section 7.11 of the Credit Agreement is hereby amended by deleting the text of Section 7.11 in its entirety. SECTION 7. AMENDMENT TO SECTION 8 OF THE CREDIT AGREEMENT. Section 8 of the Credit Agreement is hereby amended as follows: --------- -- -- -- --- ------ --------- (a) Section 8.1 of the Credit Agreement is hereby amended by deleting the text of Section 8.1 in its entirety and replacing it with the following: Section 8.1. MINIMUM ALLOWABLE CONSOLIDATED EBITDA. The Borrower will not permit Consolidated EBITDA calculated for each fiscal quarter ending on a date set forth below to be less than the amount set forth opposite such date in the table below:
---------------------------------------------------------------- FISCAL QUARTER CONSOLIDATED ENDING EBITDA ---------------------------------------------------------------- 10/02/1999 $1,500,000 ---------------------------------------------------------------- 12/27/1999 $2,500,000 ---------------------------------------------------------------- 4/05/2000 $2,500,000 ---------------------------------------------------------------- 7/01/2000 $2,000,000 ---------------------------------------------------------------- 9/30/2000 $2,000,000 ---------------------------------------------------------------- 12/23/2000 $3,000,000 ----------------------------------------------------------------
(b) Section 8.2 of the Credit Agreement is hereby amended by deleting the text of Section 8.2 in its entirety and replacing it with the following: -6- Section 8.2. MAXIMUM CAPITAL EXPENDITURES. The Borrowers will not permit Consolidated Capital Expenditures to exceed $25,000,000 for any period consisting of four (4) consecutive fiscal quarters of the Borrowers ending on or after October 2, 1999. (c) Sections 8.3 and 8.4 of the Credit Agreement are hereby amended by deleting the text of Sections 8.3 and 8.4 in their entirety. SECTION 8. AMENDMENT TO SECTION 11 OF THE CREDIT AGREEMENT. Section 11 of the Credit Agreement is hereby amended by deleting clause (k) in its entirety and replacing it with the following: (k) [Intentionally omitted]; SECTION 9. AMENDMENT TO SECTION 17 OF THE CREDIT AGREEMENT. Section 17 of the Credit Agreement is hereby amended by deleting the last sentence of Section 17 in its entirety and replacing it with the following: Each Bank shall have the right to assign or transfer at any time its rights and benefits and obligations or any portion thereof under this Credit Agreement or any other Loan Document with the prior written consent of the Borrowers (unless a Default or Event of Default shall occur and be then continuing or unless such Bank is required to do so under applicable laws in which case the prior written consent of the Borrowers will not be required) and the Agent. Assignments or transfers of commitment obligations of a Bank which require the consent of the Borrowers shall be in integral multiples of $5,000,000. SECTION 10. AMENDMENT TO SCHEDULE 1.1(a) OF THE CREDIT AGREEMENT. SCHEDULE 1.1(a) of the Credit Agreement is hereby amended by deleting SCHEDULE 1.1(a) in its entirety and replacing it with SCHEDULE 1.1(a) attached hereto. SECTION 11. CONSENT. Notwithstanding anything to the contrary set forth in Section 7.6, Section 7.7 or Section 7.9 of the Credit Agreement, ABP may transfer substantially all of the operating assets, store leases, contracts and liabilities associated with ABP's bakery cafe food service business concept generally known as Au Bon Pain (but in any event excluding the capital stock of Saint Louis Bread) to its wholly-owned subsidiaries, ABP Holdings, Inc. and ABP Equipment, Inc. and ABP Equipment, Inc. may merge into ABP Holdings, Inc. immediately prior to the sale of the common stock of ABP Holdings, Inc. to ABP Corporation, a Delaware corporation controlled by Bruckman, Rosser, Sherill & Co., Inc., a private equity investment firm based in New York, pursuant to the terms of a Stock Purchase Agreement dated August 12, 1998 and amended on October 28, 1998, by and among ABP, ABP Holdings, Inc. and ABP Corporation and may sell the common stock of ABP Holdings, Inc. to ABP Corporation as provided in such Stock Purchase Agreement for a purchase price equal to $73,000,000 as adjusted as provided therein; PROVIDED -7- that the proceeds of the sale of such common stock (net of any costs and expenses payable by the Borrowers in connection with such sale and the principal amounts of any indebtedness secured by such assets and required to be repaid in connection with such sale) shall be applied by the Borrowers to repay the outstanding principal amount of the Revolving Credit Loans and any and all amounts due under the terms of this Fifth Amendment before such proceeds are used to pay any Subordinated Debt. SECTION 12. REPRESENTATIONS AND WARRANTIES. Each of the Borrowers hereby repeats, on and as of the date hereof, each of the representations and warranties made in ss.5 of the Credit Agreement as though such representations and warranties refer specifically to such Borrower, except to the extent of changes resulting from transactions contemplated or permitted by this Fifth Amendment or the Credit Agreement and except to the extent that such representations and warranties relate expressly to an earlier date; provided, that all references therein to the Credit Agreement shall refer to such Credit Agreement as amended hereby. No Default or Event of Default has occurred and is continuing under the Credit Agreement after giving effect to this Fifth Amendment. SECTION 13. PAYMENT OF 4.75% SUBORDINATED CONVERTIBLE NOTES. No Bank shall have any obligation to make any Revolving Credit Loan and the sum of the aggregate Maximum Drawing Amount and all Unpaid Reimbursement Obligations for all Letters of Credit issued after the date hereof shall not exceed $500,000 unless and until the prior payment in full or other satisfaction of all amounts owing under the 4.75% Subordinated Convertible Notes and the Agent has received evidence in form and substance satisfactory to the Agent that the obligations of the Borrowers under such 4.75% Subordinated Convertible Notes have been terminated. SECTION 14. TRANSITIONAL ARRANGEMENTS. All commitment and other fees which accrued prior to the date hereof under the Credit Agreement but which remain unpaid on the date hereof shall be calculated as of the date hereof (PRO RATED in the case of any fractional periods) and paid by the Borrowers hereunder in accordance with the method and on the dates specified in the Credit Agreement and shall be allocated PRO RATA between USTrust and BKB in accordance with their respective "Commitment Percentages", as defined in the Credit Agreement as in effect immediately prior to the effectiveness of the Assignment. All interest on Revolving Credit Loans which accrued prior to the date hereof under the Credit Agreement will be calculated and paid on the date hereof and shall be allocated PRO RATA between USTrust and BKB in accordance with their respective "Commitment Percentages", as defined in the Credit Agreement as in effect immediately prior to the effectiveness of the Assignment. -8- SECTION 15. CHANGE OF NAME. The Borrowers shall deliver to the Agent certified copies of any documents filed with or received from the State of Delaware related to a change of any Borrower's name. SECTION 16. EFFECTIVENESS. The effectiveness of this Fifth Amendment shall be subject to the satisfaction of the following conditions precedent: Section 16.1 LOAN DOCUMENTS. This Fifth Amendment shall have been duly executed and delivered to the Agent by each of the parties to the Credit Agreement. Section 16.2. NO DEFAULT. No Default or Event of Default has occurred and is continuing under the Credit Agreement immediately after giving effect to this Fifth Amendment. Section 16.3. PAYMENT OF FEES. The Borrowers shall have paid to the Agent any and all fees payable in connection with the transactions contemplated by this Fifth Amendment. Section 16.4. IMPERIO TERM LOAN AGREEMENT. All amounts owing to USTrust in connection with the Assignment and Release dated as of May 13, 1999 by USTrust to ABP Holdings, Inc and ABP shall have been paid in full and all obligations of USTrust under the Imperio Term Loan Agreement shall have been extinguished. Section 16.5. USTRUST ISSUED LETTERS OF CREDIT. The Agent shall have received evidence satisfactory to USTrust and the Agent that all letters of credit issued by USTrust have either been returned or the beneficiaries to such letters of credit will not submit drafts thereon. Section 16.6. APPLICATION OF PROCEEDS FROM SALE. The Agent shall have received (a) payoff letters from all other lenders being paid on the date hereof, indicating the amount of the debt obligations of the Borrowers to be discharged on the date hereof and an acknowledgement by such exiting lenders that upon receipt of such funds the Borrowers will be released from any and all obligations due to such exiting lenders; and (b) a memorandum from the Borrowers outlining the flow of funds received as proceeds from the Sale. SECTION 17. RATIFICATION, ETC. Except as expressly amended hereby, the Credit Agreement and all documents, instruments and agreements related thereto, including, but not limited to the Loan Documents, are hereby ratified and confirmed in all respects and shall continue in full force and effect. The Credit Agreement and this Fifth Amendment shall be read and construed as a single agreement. All references in the Credit Agreement or any related agreement or instrument to the Credit Agreement shall hereafter refer to the Credit Agreement as amended hereby. -9- SECTION 18. NO WAIVER. Nothing contained herein shall constitute a waiver of, impair or otherwise affect any Obligations, any other obligation of the Borrowers or any rights of the Agent or the Banks consequent thereon. SECTION 19. COUNTERPARTS. This Fifth Amendment may be executed in one or more counterparts, each of which shall be deemed an original but which together shall constitute one and the same instrument. SECTION 20. GOVERNING LAW. THIS FIFTH AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS (WITHOUT REFERENCE TO CONFLICT OF LAWS). [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, the parties hereto have executed this Fifth Amendment as a document under seal as of the date first above written. AU BON PAIN CO., INC. By: /s/ Ronald M. Shaich ----------------------------------------- Name: Ronald M. Shaich Title: Chairman/Chief Executive Officer SAINT LOUIS BREAD COMPANY, INC. By: /s/ Ronald M. Shaich ----------------------------------------- Name: Ronald M. Shaich Title: Chairman/Chief Executive Officer ABP MIDWEST MANUFACTURING CO., INC. By: /s/ Ronald M. Shaich ----------------------------------------- Name: Ronald M. Shaich Title: Chairman/Chief Executive Officer BANKBOSTON, N.A. INDIVIDUALLY AND AS AGENT By: /s/ Thomas P. Tansi ----------------------------------------- Name: Thomas P. Tansi Title: Vice President SCHEDULE 1.1(a) REVOLVING CREDIT COMMITMENTS
- -------------------------------------------------------------------------------- COMMITMENT LENDER COMMITMENT PERCENTAGE - -------------------------------------------------------------------------------- BANKBOSTON, N.A. $10,000,000.00 100% 100 Federal Street Boston, Massachusetts 02110 Telefax Number: (617) 434-4426 Telex: 940581 Answerback: BOSTONBK BSN Attention: Thomas P. Tansi, 01-09-05 - --------------------------------------------------------------------------------
EX-10.6-5 3 EX-10.6.5 Exhibit 10.6.5 September 29, 1998 Mr. William Moreton 15921 Presswick Lane Granger, IN 46530 Dear Bill, Based on your experience, background presented and the excellent impression that you have given us, Au Bon Pain Co., Inc., is pleased to offer you the position of Chief Financial Officer, St. Louis Bread, reporting directly to Ron Shaich, Chairman and Chief Executive Officer. We would like this position to be effective on or before Monday, October 19, 1998. Your salary for this position will be payable upon continued employment at the weekly rate of $5,288.46 ($275,000 per annum). Your next scheduled review, based on your performance and/or the profitability of the Company will be no later than January 15, 2000; any applicable adjustments will be contingent on business conditions and/or your performance. In addition, your compensation will include for fiscal year 1999, a $25,000 guaranteed bonus payable upon continued employment on March 17, 2000. - Consideration for 150,000 stock options which vest to you over a period of 5 years. The price per share depends on the value per share on the date of the Board of Director's meeting. - You will receive a car allowance of $96.16 per week. - A severance agreement to cover the involuntary termination of your employment by the Company other than "for cause" will provide 12 months of salary continuance at the annual base compensation rate plus car allowance and medical and/or dental benefits in effect at the time of termination. Incentive payments are not included as part of your severance agreement, new options cease being awarded on your last day worked, and existing options cease to vest. Further, severance is paid out weekly, mitigated by future employment and provided after a signed release from you. A document for your signature will follow to confirm this portion of your offer, which will include a non-compete clause. - We will provide you with a relocation assistance package which includes three househunting trips, including transportation, lodging, meals and auto rental for a period not to exceed four days/three nights; movement of household goods, final move trip and a $15,000.00 allowance to cover such expenses as additional househunting trips, temporary living, temporary storage, and costs associated with home purchase or rental in your new location. This allowance includes any gross up applicable for taxes. Enclosed is Au Bon Pain's relocation policy and guidelines. Please review them and Leanne Strong will contact you to assist you with your move and answer any questions. This relocation package will contain a provision that you reimburse Au Bon Pain a prorated portion of your relocation expenses should you voluntarily resign your employment with ST. Louis Bread within one year of your start date. As a full-time St. Louis Bread employee, you will be eligible to participate in the following benefits: medical, dental, life insurance, and short term disability, Employee Stock Purchase Plan and a 401(k) Plan (eligible after one year of service). The waiting periods and premiums related to these benefits and specific information about plan content will be explained during the orientation process. Our benefit and insurance package is subject to ongoing review and modification from time to time. You will receive an Employee Handbook at your benefits orientation which will explain our vacation and holiday schedules. St. Louis Bread is a nonsmoking work facility. If you have specific questions about our benefits, please contact Maria Mastrangelo of our Human Resource group at extension 1331. This offer is contingent on your ability to provide employment eligibility documentation as required by law and outlined on the enclosed information. Nothing in this letter is intended, or should be construed to execute a contract for a definite term. Either you or the Company are free to terminate the employment relationship at any time. Please indicate your acceptance of this offer by signing and returning one original of this letter no later than Friday, October 2, 1998, after which time this offer will expire. We believe that your background and experience will provide a solid foundation for success with St. Louis Bread. We are extremely enthusiastic about our future growth and expansion and anticipate that you will be an important factor in that growth. If you have any questions about the enclosed information, please let me know. Once again, Bill, we welcome you to St. Louis Bread and we look forward to your participation, energy, and contributions. Sincerely, /s/ Ronald M. Shaich /s/ Mariel Clark Ron Shaich Mariel Clark Chairman and Senior Vice President Chief Executive Officer Human Resources I have read and accept the provisions as outlined above. 10/1/98 /s/ William W. Moreton - ------- ---------------------- Date William W. Moreton EX-10.6-6 4 EX-10.6.6 Exhibit 10.6.6 December 22, 1995 Mr. Michael J. Kupstas 5049 West 128 Terrace Leawood, KS 66209 Dear Mike, Based on your experience, background presented and excellent impression that you have given us, Au Bon Pain Co., Inc. is pleased to offer you the position of Vice President of Operations - St. Louis Bread Co. We would like you to start on or before February 5, 1996, you will report directly to Richard Postle, President, St. Louis Bread Co. Your base salary for this position will be payable upon continued employment at the weekly rate of $2,884.62. Your next scheduled review, based on your performance and/or the profitability of the Company will be prorated by date of hire and no later than, January 15, 1997. In addition, your compensation will include the following. - You will be included in our incented contingent Pay for Performance Program for 1997. This program incorporates both a dollar payout and stock option grant that rewards you for the completion and quality of agreed upon objectives. Your eligibility for the monetary portion is at a plan of 20% ($30,000.00) with a maximum potential of 40% ($60,000.00) of your base rate and can be paid out in full or any portion thereof, including 0% according to the attached plan description highlights. This amount will be payable on or before March 15, 1998 and you must be employed as a full time employee on this date to be eligible for the payout. For fiscal year 1996, you will receive a guaranteed bonus of a plan at 20% ($30,000.00) with a maximum potential of 40% ($60,000.00) of your base rate to be paid on or before March 15, 1997 and you must be employed as a full time employee on this date to be eligible for the payout. - Consideration for Stock Options of 11,500 shares, at the next Board of Director's meeting following your date of hire. The price per share depends on the value per share on your exact start date. - You will receive a car allowance of $96.16 per week. - A one year term of employment with a severance package of one year to cover the involuntary termination of your employment by the Company other than "for cause" will provide one year of salary continuance at the annual base compensation rate plus car allowance and medical and/or dental benefits in effect at the time of termination. Incentive payments are not included as part of your severance agreement and new options cease being awarded on your last day worked. Further, severance is paid out weekly, mitigated by future employment and provided after a signed release from you. A document for your signature will follow to confirm this portion of your offer. - Au Bon Pain will reimburse you for twelve (12) months of your COBRA expenses. Please let us know what your expenses will be for an individual plan or if you require selecting a "family" plan. - We will provide you with a relocation assistance package which includes one househunting trip, including transportation for you and your family; lodging, meals and auto rental for a period not to exceed four days/three nights; movement of household goods, closing costs associated with the closing of your existing home and a $35,000.00 allowance to cover such expenses as additional househunting trips, temporary living, temporary storage, costs associated with home purchase or rental in your new location. This allowance includes any gross up applicable for taxes. Enclosed is Au Bon Pain's relocation policy and guidelines. Please review them and Leanne Strong in Human Resources will contact you to assist you with your move and answer any questions. This relocation package will contain a provision that you reimburse Au Bon Pain a pro-rated portion of your relocation expenses should you voluntarily resign your employment with Au Bon Pain within one year of your start date. As part of your orientation process, we would like you to train extensively in our retail environment. A training schedule will be developed for you within the next couple of weeks and forwarded to you at your home. As a full-time Au Bon Pain employee, you will be eligible to participate in the following benefits: medical, dental, life insurance, short term disability, Employee Stock Purchase Plan and 401(k) Plan. The waiting periods and premiums related to these benefits and specific information about plan content will be explained during the orientation process. Our benefit and insurance package is subject to ongoing review and modification from time to time. You will receive an Employee Handbook at your benefits orientation which will explain our vacation and holiday schedules. Au Bon Pain is a nonsmoking work facility. If you have specific questions about our benefits, please contact Joanne Dobson of our Human Resource group at extension 1331. This offer is contingent on your ability to provide employment eligibility documentation as required by law and outlined on the enclosed information. Nothing in this letter is intended, or should be construed to execute a contract for a definite term. In addition, Au Bon Pain has a ninety (90) day probationary period. Either you or the Company are free to terminate the employment relationship at any time. Please indicate your acceptance of this offer by signing and returning one original of this letter and the enclosed forms no later than Friday, January 12, 1996, after which time this offer will expire. We believe that your background and experience will provide a solid foundation for success with Au Bon Pain. We are extremely enthusiastic about our future growth and expansion and anticipate that you will be an important factor in that growth. If you have any questions about the enclosed information, please let me know. Once again, Mike, we welcome you to Au Bon Pain and we look forward to your participation, energy, and contributions. Sincerely, Mariel Clark Senior Vice President Human Resources I have read and accept the provisions as outlined above. - -------------- --------------------------------- Date Michael J. Kupstas EX-10.6-7 5 EX-10.6.7 Exhibit 10.6.7 September 22, 1992 Mr. Thomas Howley 19 Grove Street Winchester, MA 01890 Dear Tom, Based on your experience, background presented and the excellent impression that you have given us, Au Bon Pain Co., Inc., is pleased to offer you the position of Vice President and General Counsel. Your salary will be payable upon continued employment at the weekly rate of $1,538.46 and a car allowance of $500.00 will be paid to you monthly. We would like you to start on or before November 2, 1992 and you will report directly to Louis Kane and Ronald Shaich, Co-Chairmen. This offer is contingent on your ability to provide employment eligibility documentation as required by law and outlined on the enclosed information. In addition, Au Bon Pain has a ninety (90) day probationary period. As a full-time Au Bon Pain employee you will be eligible to participate in the following benefits: medical, dental, life insurance, short term disability, long term disability, an Employee Stock Purchase Plan and a 401(k) Plan. The waiting periods and premiums related to these benefits and specific information about plan content will be explained during the orientation process. Our benefit and insurance package is subject to ongoing review and modification from time to time. Vacation time is earned semiannually, based on date of hire and length of service. As a Vice President of Au Bon Pain, you will be considered for stock options valued at $200,000, at the next Board of Director's meeting. The price per share and corresponding number of shares granted depends on the value per share on your exact start date. As discussed, you will be eligible to participate in a bonus program starting in January 1993, the details of which will be discussed at that time. The bonus calculation will be based on your performance and the profitability of the Company for fiscal year 1993. On October 2 and 3, 1992, we will be holding an off-site Operations Committee meeting in Maine. Your attendance at this meeting would be very beneficial to you and your peers. We will plan on your attendance, accordingly a map has been enclosed. If you have questions about this or are unable to attend, please call me. Tom, we believe that your background and experience will provide a solid foundation for success with Au Bon Pain. We are extremely enthusiastic about our future growth and expansion and anticipate that you will be an important factor in that growth. Nothing in this offer letter is intended, or should be construed to execute a contract for a definite term. Either you or the Company are free to terminate the employment relationship at any time. Please indicate your acceptance of this offer by signing and returning one original of this letter no later than Wednesday, October 7, 1992, after which time this offer will expire. If you have any questions about Au Bon Pain or the enclosed offer, please do not hesitate to call. Once again, Tom, we would like to welcome you to Au Bon Pain and we look forward to your participation, energy, and contributions. Sincerely, /s/ Mariel Clark - ---------------------- Mariel Clark V.P. Human Resources Enclosure (2) I have read and accept your offer of employment as outlined above. 10/1/92 /s/ Thomas R. Howley - ------- ----------------------- Date Thomas R. Howley EX-21 6 EX-21 Exhibit 21 SUBSIDIARIES NAME PERCENTAGE (VOTING POWER) OWNED - ---- ------------------------------- Panera, Inc. 100% ABP Midwest Manufacturing Co., Inc. 100% Panera Bread Foundation, Inc. 100% Pain Francais, Inc. 75% EX-23.1 7 EX-23.1 23.1 CONSENT OF PRICEWATERHOUSECOOPERS LLP* We consent to the incorporation by reference in the registration statements of Panera Bread Company and Au Bon Pain Co., Inc. on form S-8 (File Nos. 33-41989, 33-41990, 33-46682, 33-46683, 33-96510, 33-96506, 333-01668, 333-31855, 333-31857) and Form S-3 (File Nos. 33-82292 and 333-80927) of our report dated March 19, 2000 on our audit of the consolidated financial statements and financial statement schedules of Panera Bread Company as of December 25, 1999, and for each of the three years in the period ended December 25, 1999, which report is included in the Annual Report on Form 10-K. /s/ PRICEWATERHOUSECOOPERS LLP PricewaterhouseCoopers LLP Saint Louis, Missouri April 6, 2000 EX-27 8 EX-27
5 12-MOS DEC-25-1999 DEC-25-1999 1,936,053 0 2,882,629 196,623 1,879,887 12,557,647 65,445,286 18,254,717 91,028,405 15,771,264 0 0 0 1,215 0 91,028,405 156,738,394 171,359,116 52,445,319 167,640,553 709,939 0 2,744,996 263,628 510,417 (246,789) 0 382,428 0 (629,217) (0.05) (0.05)
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