SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
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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 27, 1997, or

Transition report pursuant to Section 13 or l5(d) of the Securities
----- Exchange Act of 1934 (No fee required)

For the transition period from ______ to ______

Commission file number 0-19253
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Au Bon Pain Co., Inc.
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(Exact name of registrant as specified in its charter)

Delaware 04-2723701
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)

19 Fid Kennedy Avenue, Boston, MA 02210
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(Address of principal executive offices) (Zip code)

(617) 423-2100
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(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
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(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. / /

Aggregate market value of the registrant's voting stock held by
non-affiliates as of March 17, 1998: Class A Common Stock, $.0001 par value:
$85,224,214.

Number of shares outstanding of each of the registrant's classes of
common stock, as of March 17, 1998: Class A Common Stock, $.0001 par value:
10,252,537 shares, Class B Common Stock, $.0001 par value: 1,605,741 shares.

DOCUMENTS INCORPORATED BY REFERENCE:

The registrant's definitive proxy statement for its Annual Meeting of
Stockholders, which will be filed with the Commission on or before April 27,
1998, is incorporated by reference in response to Part III, Items 10, 11, 12 and
13; and certain exhibits to the registrant's Form S-1 Registration Statement
(File No. 33-453219), Form S-l Registration Statement (File No. 33-40153),
annual reports on Form 10-K for the fiscal years ended December 30, 1995 and
December 28, 1996 and Form 8-K filed December 22, 1993, are incorporated by
reference in response to Part IV, Item 14.

TABLE OF CONTENTS

Securities and Exchange Commission

Item Numbers and Description Page
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Part I

Item 1 Business

Item 2 Properties

Item 3 Legal Proceedings

Item 4 Submission of Matters to a Vote of
Security Holders

Part II

Item 5 Market For Registrant's Common Equity and Related
Stockholder Matters

Item 6 Selected Financial Data

Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations

Item 7A Quantitative and Qualitative Disclosures
About Market Risk

Item 8 Financial Statements and Supplementary Data

Item 9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure

Part III

Item 10 Directors and Executive Officers of the Registrant

Item 11 Executive Compensation

Item 12 Security Ownership of Certain Beneficial
Owners and Management

Item 13 Certain Relationships and Related Transactions

Item 14 Exhibits, Financial Statement Schedules and
Reports on Form 8-K

Signatures

PART I

ITEM 1. BUSINESS

GENERAL

Au Bon Pain Co., Inc. ("the Company") was formed in March 1981 with
three Boston area bakeries and one cookie store serving croissants, breads and
cookies. As of December 27, 1997, the Company had grown to 220 Company-operated
and 115 franchised bakery cafes operating under two concepts: Au Bon Pain, with
160 Company-operated and 96 franchise-operated bakery cafes, and Saint Louis
Bread Company ("Saint Louis Bread"), which also does business as "Panera Bread"
outside of the Saint Louis area, with 60 Company-operated and 19
franchise-operated bakery cafes. Both concepts specialize 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.

The Au Bon Pain bakery cafes are principally located in Boston, other
New England cities, New York City, Connecticut, Washington, D.C., Chicago,
Maryland, New Hampshire, New Jersey, California, Philadelphia, Pittsburgh, Rhode
Island, Texas, Santiago, Chile, The Philippines, Indonesia, Sao Paulo, Brazil,
Bangkok, Thailand and London, England (see "Properties"). System wide sales for
Au Bon Pain, which include Company-operated and franchised restaurant sales,
were approximately $199 million for the fiscal year ended December 27, 1997.

The Saint Louis Bread bakery cafes are principally located in St.
Louis, Atlanta, Kansas, Detroit and Chicago (see "Properties"). System wide
sales for Saint Louis Bread, were approximately $82 million for the fiscal year
ended December 27, 1997. The Company believes that the acquisition of Saint
Louis Bread has created a number of opportunities. The Saint Louis Bread
suburban bakery cafe concept has proved to be well suited for suburban locations
and offers the Company greater access to these markets, thereby enhancing the
Company's long-term growth prospects.

CONCEPT AND STRATEGY

Target customers of Au Bon Pain and Saint Louis Bread include urban
office employees, suburban dwellers, shoppers, travelers, students and other
adults who are time sensitive, yet desire a higher quality breakfast and lunch
experience than is typically found at quick service restaurants. The Company's
strategy is to create distinctive food offerings at reasonable prices which are
fresher, of higher quality and of greater variety than those offered by its
competitors. In addition, the Company believes its operational excellence, speed
of service and convenient locations further differentiate the Company from its
competitors. Average

revenue per Company-operated bakery cafe open for the full fiscal year ended
December 27, 1997 was approximately $1,014,211 for the Au Bon Pain concept and
approximately $1,200,257 for the Saint Louis Bread concept.

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 high quality
cafe design and the prime locations of its cafes are integral to the Company's
success. The Company's operating strategy is to increase overall sales by
offering new products that will expand the current business and increase
afternoon sales, and by continuing to open new bakery cafes in existing and new
markets on both Company-operated and franchise bases and to increase sales in
existing bakery cafes through the continued introduction and promotion of
distinctive, high quality menu items.

The menus of both concepts provide customers with popular food items
which the Company believes are fresher, of higher quality and in greater variety
than those offered by its competitors. 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; sandwiches made-to-order with specialty cheeses,
smoked meats, roast beef, hot grilled chicken, albacore tuna and white meat
chicken salads; hearty, unique soups; custom roasted coffees and cafe beverages
such as espresso and cappuccino. A primary difference in menu between the two
concepts is the significant emphasis within the Saint Louis Bread concept on
sophisticated European and sourdough breads.

The Company regularly reviews and revises its menu offerings to satisfy
changing customer preferences and to maintain customer interest. 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 introduced in all Au Bon
Pain and/or Saint Louis Bread bakery cafes.

MARKETING

The Company believes it competes on the basis of quality food and
service rather than price. Pricing is structured so that customers perceive good
value at both Au Bon Pain and Saint Louis Bread (high quality food at reasonable
prices). The average customer purchase is approximately $3.09 at Au Bon Pain and
$4.92 at

Saint Louis Bread. Breakfast and lunch checks typically average $2.12 and $4.23,
respectively, at Au Bon Pain and $3.51 and $5.84, respectively, at Saint Louis
Bread. The Company attempts to increase its per location sales through menu
development, promotions and by sponsorship of local community charitable events.

To date, the Company has not advertised extensively; rather, it relies
on word of mouth, customer satisfaction and promotional programs to encourage
trial by new customers and to make existing customers aware of new menu
offerings.

CATERING

Au Bon Pain operates a catering program which offers a select group of
delivered breakfast and luncheon food items appropriate for on-site consumption
at corporate functions. Customers place orders by toll-free telephone with
trained customer service representatives at the Company's Boston headquarters.
Orders are immediately routed utilizing a computerized delivery support system
to the most appropriate bakery cafe for preparation and delivery. In 1997,
catering sales represented approximately 5.5% of the Au Bon Pain
Company-operated restaurant sales. At present, Saint Louis Bread does not offer
catering services. With the predominance of Saint Louis Bread cafes in suburban
locations, the Company believes that the potential to develop significant
catering business at Saint Louis Bread is lower than at Au Bon Pain.

SITE SELECTION

For both concepts, the Company seeks convenient locations in
high-visibility, high-traffic, densely populated areas which are easily
accessible to their respective target customers. The Company also operates in
regional shopping malls, transportation centers, universities and hospitals. The
Company believes that its concepts, menus, history of quality retail operations
and bakery cafe designs enable the Company to access locations which may not be
available to traditional quick service restaurants. Examples of Au Bon Pain
bakery cafe locations include Copley Place, Brigham and Women's Hospital, South
Station and Harvard Business School in Boston; the Empire State Building and
World Financial Center in New York City; the Pittsburgh Airport in Pittsburgh;
2000 Pennsylvania Avenue in Washington, D.C.; and the Santiago Airport in
Santiago, Chile. Examples of Saint Louis Bread bakery cafe locations include the
Galleria Mall in St. Louis and the Lenox Square Mall in Atlanta. However, the
Saint Louis Bread locations are predominantly sited in strip center suburban
retail locations in the markets in which they operate.

In 1997 the Company opened one Au Bon Pain bakery cafe in an existing
market, and franchised 11 of its existing Au Bon Pain bakery

cafes in the Philadelphia market. The Company's Au Bon Pain franchisees also
opened 38 new bakery cafes domestically and in Chile, the Philippines,
Indonesia, Thailand, Brazil and England.

During 1997, the Company expanded the number of Company-operated Saint
Louis Bread bakery cafes by six to 60 locations in existing markets and in the
new Saint Louis Bread markets of Boston and Detroit. The Saint Louis Bread
franchise-operated locations expanded from 10 locations to 19 locations
including new market openings in Tulsa, Oklahoma, Columbus, OH, Louisville, KY
and Davenport, IA.

Both bakery cafe concepts rely on a substantial volume of repeat
business. In evaluating a potential location, the Company studies the
surrounding trade area, obtaining information and/or demographics within that
area on quick service breakfast or lunch competitors. Management evaluates the
Company's ability to establish a dominant presence within that area, in order to
create entry barriers to other bakery cafe 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 both concepts. The design visually reinforces the distinctive
difference between the Company's bakery cafes and other quick service
restaurants serving breakfast and lunch. Many of the Company's cafes also
feature outdoor cafe seating. The current estimated construction and equipment
costs for a typical Au Bon Pain bakery cafe outside of New York City are
approximately $475,000 before any landlord construction allowance. The estimated
construction and equipment cost for a typical Au Bon Pain bakery cafe in New
York City is approximately $830,000 before any landlord construction allowance.
The current estimated construction and equipment cost for a typical Saint Louis
Bread bakery cafe is approximately $590,000 before any landlord allowance.

The average bakery cafe size ranges between 2,500 and 4,000 square
feet. Currently, all bakery cafes, including franchises, are in leased premises.
Lease terms are typically ten years with one or two five-year renewal options
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.

PRODUCTION

Frozen dough products are produced at two frozen dough facilities and
are then distributed to Company operated bakery cafes and franchise for baking.
Baked goods prepared from frozen dough products represent approximately 30% of
the Au Bon Pain business unit's total bakery cafe sales and approximately 20% of
the Saint

Louis Bread business unit's total bakery cafe sales. During 1996, the Company
completed construction of the state of the art frozen dough production facility
in Mexico, MO. The facility is 80,000 square feet and increased capacity
three-fold over the level at the production facility in South Boston. Start-up
costs incurred at the Mexico, MO plant significantly reduced 1996 results of
operations. In addition, during 1997 the operating efficiencies of the new
facility were not sufficient to fully offset the additional overhead costs
associated with the facility.

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
supply agreements and allows the Company to take advantage of Bunge's
significant purchasing power. The five year supply agreements allow the bakery
cafes to continue to offer consistently high quality fresh baked goods as the
frozen dough products purchased from Bunge will be made on the same equipment,
by the same management team, using the same proprietary processes and
specifications as prior to the sale to Bunge.

The Company also operates a central commissary used for baking and for
preparing certain other menu items, which are then delivered to a portion of the
Company's Boston-area bakery cafes. During 1998, the Company expects to close
the commissary located in Chelsea, Massachusetts and to consolidate certain of
the functions currently performed there into the South Boston production
facility, while also integrating certain other functions into the Boston-area
bakery cafes. The Company does not expect to incur significant costs to close
the commissary. Each of the Saint Louis Bread bakery cafes is supported by a
regional commissary which daily provides principally unbaked sourdough products
for baking and sale within the Saint Louis Bread bakery cafes.

MANAGEMENT INFORMATION SYSTEMS

Each Company-operated bakery cafe has computerized cash registers to
collect point-of-sale transaction data, which are 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 Boston 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 Company has not completed its assessment of the impact of the Year
2000 issue. It is management's belief that the primary financial systems are
Year 2000 compatible. Testing of those systems for compliance is expected to
occur during 1998. Many secondary systems associated with the Company's retail
operations will require modifications. It is the Company's belief that existing
internal Company resources will be adequate to reprogram these Year 2000
modifications. It is expected that the most significant Year 2000 system issue
for the Company is with POS systems used by the Au Bon Pain concept. The Company
is in negotiations with several vendors to replace the existing POS systems with
new state-of-the-art systems. The new systems are expected to be leased at a net
incremental cost of approximately $400,000 annually. The incremental cost of the
new system is expected to be substantially offset by labor efficiency savings
associated with the new POS system.

DISTRIBUTION

The Company currently utilizes an independent distributor to distribute
frozen dough products and other materials to Company-operated Au Bon Pain and
Saint Louis Bread bakery cafes. By contracting with an independent distributor,
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 the 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 currently operates 15 Au Bon Pain bakery cafes in New York
City, which are owned under a joint venture agreement between the Company and an
independent investor group. Under the terms of this agreement, the Company has
an obligation to offer the group up to 49% of the equity in each bakery cafe
opened in the metropolitan tri-state area of New York City (New York City, Long
Island, Westchester County (NY), Bergen County (NJ), and Fairfield County (CT)).
The equity participation percentage is based on the cost of the initial
construction upon opening of the bakery cafe. This equity percentage is fixed
prior to the date of the respective bakery cafe openings. The group has no
obligation to participate in any bakery cafe, and the percentage participation
must be elected by the group prior to the opening of the bakery cafe. Each joint
venture bakery cafe must purchase all of its frozen dough products from the
Company and is operated by the Company under a management agreement under which
the Company receives a management fee of 6% of sales of each joint venture
bakery cafe. The Company has agreed to provide a guaranty to one or more
institutional lenders acceptable to the Company to assist the group in financing
its acquisition of up to 5% of the equity in new bakery cafes opened after
January 1, 1993. As of December 27, 1997, approximately $83,062 is outstanding
under this arrangement.

The Company also has a 75% interest in Pain Francais, Inc., which owns
the bakery cafe located in the GE Building at Rockefeller Center, New York. The
other 25% is held by the same joint venture partner. This bakery cafe operates
under a management agreement similar to the agreement under which the joint
venture bakery cafes are operated.

FRANCHISES

Au Bon Pain
Domestic

The Company currently has domestic franchising agreements with thirteen
organizations: Northern Bakers, Inc., CA One, ABP Southern California, Wayne
ABP, Inc., R.C. Menzer, Romallso, Inc., The Lauren Group, Inc., FGR Food Group,
Host Marriott Corp., Boston Concessions Group, Inc., Crowne Plaza Ravinia, ABP
Delaware Valley, LLC and DoubleTree Hotels. In general, the Company has two
sources of revenue from its domestic Au Bon Pain franchisees: fees for new

locations and royalties on sales by franchisees. New domestic locations, other
than airport locations, to be developed by franchisees typically require a
$25,000 initial franchise fee per location and a 5% royalty. Airport franchise
fees range between $10,000 and $50,000, depending upon passenger traffic and the
Company's assistance in obtaining the concession. All domestic franchisees are
obligated to use Company-approved ingredients, including Au Bon Pain-approved
frozen dough products.

In 1997, the Company sold 11 bakery cafes to ABP Delaware Valley for
$2.6 million, in connection with the execution of a franchise area development
agreement covering certain portions of Pennsylvania, New Jersey and Delaware.
The purchase price was funded via a ten-year note with the Company which accrues
interest at 8.25% per annum. Under terms of the area development agreement, the
franchisee must open 17 new bakery cafes according to a minimum opening schedule
in order to maintain development exclusivity in the territory and has the right
to open either Au Bon Pain or Saint Louis Bread bakery cafes within the
specified territory.

International

The Company currently has international franchise development
agreements with developers in Chile, Argentina, Brazil and certain other South
American countries, Thailand, Indonesia, the Philippines, Malaysia, Singapore,
England, the Caribbean and the Canary Islands. Bakery cafes have been opened to
date in Chile, Indonesia, the Philippines, Thailand, Brazil and England. Under
these agreements, the Company has granted exclusive development rights to
franchise and operate Au Bon Pain bakery cafes in the respective country or
countries. The agreements generally require the payment of up front development
fees, which have ranged from $250,000 to $750,000, a franchise fee, typically
from $10,000 to $30,000 for each Au Bon Pain bakery cafe opened, depending upon
the size of the location, and royalties from the sale of products from each
bakery cafe of 5% of sales. The developer is, in most instances, required to
open bakery cafes according to a specific minimum schedule. The Company may also
agree to provide advice, consultation and training for the development of a
frozen dough plant. Currently, the Company considers international franchising
and licensing arrangements as a means of business expansion for its Au Bon Pain
concept and is actively pursuing additional international franchising
relationships.

Saint Louis Bread Company

In connection with the Saint Louis Bread acquisition in 1993, the
Company assumed two area development agreements pursuant to which Saint Louis
Bread granted exclusive development rights to two franchisees. One area
development agreement covers the cities of Kansas City, St. Joseph and Topeka,
Kansas and Kansas City,

Missouri. The second area development agreement covers various counties in
Missouri and includes the City of Springfield.

In 1996, the Company began a broad-based franchising program. The
Company is actively seeking to extend its Saint Louis Bread franchise
relationships beyond its current franchisees. The Saint Louis Bread unit
franchise agreements typically require 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 Saint Louis Bread.

As of December 27, 1997 the Company has entered into franchise
development agreements for a total of 356 bakery cafes to be located in specific
sections of the Tulsa, Oklahoma, Columbus, Ohio, Cincinnati, Ohio, Cleveland,
Ohio, Iowa, Louisville, Kentucky, Orlando, Florida, Jacksonville, Florida,
Massachusetts, Dallas, Texas, Pittsburgh, PA, Tampa, Florida, Illinois,
Minnesota, Colorado, Wisconsin and Tennessee markets.

EMPLOYEES

The Company has approximately 1,378 full-time employees, of whom
approximately 170 are employed in general or administrative functions
principally at or from the Company's executive offices in Boston, Massachusetts;
approximately 84 are employed at the Boston frozen dough plant and the
commissary; approximately 61 are employed in the Saint Louis Bread corporate
office in St. Louis, MO; approximately 91 are employed in the Saint Louis Bread
production facilities in St. Louis, MO, Chicago, IL, Detroit, MI, and Atlanta,
GA; and approximately 684 and 288 are employed in the Au Bon Pain and Saint
Louis Bread retail operations, respectively. The Company also has approximately
4,141 part-time employees, of whom 2,665 and 1,476 are employed in the Au Bon
Pain and Saint Louis Bread bakery cafes, respectively. These totals include
employees of Pain Francais, Inc. and at the joint venture locations in New York
City. There are no collective bargaining agreements. The Company considers its
employee relations to be excellent.

TRADEMARKS

The "Au Bon Pain" and "Au Bon Pain The Bakery Cafe" names are of
material importance to the Company and are trademarks registered with the United
States Patent and Trademark Office and in certain foreign countries. In
addition, the name "Saint Louis Bread Company" and "Panera Bread" are of
material importance to the Company. "Saint Louis Bread Company" is registered
with the United States Patent and Trademark Office. In addition, "Saint Louis
Bread Company and design" and "Panera Bread" and "Panera Bread and design"

and various 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 state and
local health, sanitation, safety, fire, alcoholic beverage control and other
departments. Difficulties or failures in obtaining 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
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 Boston frozen dough plant, commissary and Saint Louis
Bread dough plants 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
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 contingent percentage rent based on sales above a stipulated sales
level. The

joint venture bakery cafes operate in leased premises under similar lease
arrangements.

In 1983, Au Bon Pain built its plant and headquarters in South Boston,
Massachusetts. The executive offices occupy approximately 24,000 square feet.
The Company owns the original building plus additions and leases the land on
which these improvements are located from the City of Boston under a long term
ground lease. The annual rent is approximately $150,000. The lease expires,
assuming exercise of renewal options, in 2017.

In 1997, the Company leased short-term office space in Waltham, MA to
house its Accounting and Development functions.

In 1996, the Company completed construction of a central production
facility on a 20 acre tract of land in Mexico, MO to increase the Company's
production capacity. The new facility cost approximately $9 million and began
operation in mid-1996. The cost of the facility was financed primarily by an
$8.6 million industrial development bond issued by the City of Mexico, Missouri
in July 1995, secured by an $8.7 million letter of credit with a commercial bank
through July, 2000, and by equipment lease financing. On March 23, 1998 the
Company sold the Mexico, MO production facility to Bunge Foods Corp. See
"Production".

Au Bon Pain operates its commissary in leased premises in Chelsea,
Massachusetts under a ten year lease expiring in 1998, with an option to extend
for an additional five years. Management intends to close this facility in 1998
upon lease expiration. See "Production".

In 1997, Saint Louis Bread leased new office space in Webster Grove, Mo
for its corporate offices. The space occupies approximately 10,300 square feet.
The annual rent is approximately $69,500. The lease expires, assuming exercise
of renewal options, in 2007.

The Company considers its physical properties to be in good operating
condition and suitable for the purposes for which they are used.

BAKERY CAFE LOCATIONS

Au Bon Pain Bakery Cafes:
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Company-Operated: 160 total as of December 27, 1997
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Boston Market Area: 46
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101 Merrimac Street Filene's
1100 Massachusetts Avenue Fleet Bank
15 Harvard Street Harvard Business School
176 Federal Street Harvard Square
431 Boylston Street Hynes Auditorium
53 State Street International Place
684 Massachusetts Avenue Kendall Square
745 Boylston Street Longwood Galleria
75-101 Federal Street Milk Street
Arlington Center MIT
Beacon Hill Natick Mall
Bowdoin Square New England Medical Center
Brattle Street North Shore Shopping Center
Brigham & Women's Hospital Northeastern University
Burlington Mall One Newton Place
Cambridgeside Galleria Park Plaza
Children's Hospital South Shore Plaza
Church Park South Station
Coolidge Corner Square One Mall
Copley Place Tower Records
Davis Square Wellesley Center
Design Center South Boston Winter Street
Fanueil Hall Market Place Woburn Business Center

Other New England: 14
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Avon Marketplace, Avon, CT Rockingham Mall, Salem, NH
City Place, Hartford, CT Rhode Island Hospital,
Providence, RI
Fleet Center, Providence, RI St. Francis Hospital,
Hartford, CT
Hartford Civic Center, Hartford, CT Thayer Street, Providence, RI
Mall of New Hampshire, Warwick Mall, Warwick, RI
Manchester, NH
One Broadway, New Haven, CT West Farms Malls,
West Hartford, CT
Pheasant Lane Mall, Nashua, NH Worcester Commons,
Worcester, MA

California Market Area: 1
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353 Sacramento Street, San Francisco

Pittsburgh Market Area: 8
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Fifth Avenue Place Pittsburgh Airport-Landside
Oliver Building Ross Park Mall
Oxford Center Two PPG Place
Pittsburgh Airport-Airside USX Tower

Washington, D.C. - Baltimore Market Area: 24
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10 North Calvert 800 North Capitol Street
1001 Pennsylvania Avenue, NW Commerce Place
1101 Vermont Avenue, NW Crystal City
1401 Eye Street Gallery at Harbor Place
1615 L Street, NW International Square
1701 Pennsylvania Avenue, NW L'Enfant Plaza
1724 L Street, NW National Place
1801 L Street Pentagon City
1850 M Street Springfield Mall
2000 Pennsylvania Avenue, NW Towson Town Center
601 Indiana Avenue Union Station
700 13th Street, NW Warner Building

Greater New York Area: 41
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101 Hudson Street Empire State Building
16 East 44th Street Exxon Building
222 Broadway JFK Airport-Cart
300 Madison Avenue JFK Airport-American Airlines
420 Fifth Avenue Laguardia Airport
425 Lexington Avenue Long Island Jewish Medical Center
444 Madison Avenue Manhattan Mall
54 East 8th Street Nanuet Mall
6 Union Square East One Metrotech Center
60 Broad Street Port Authority
600 Lexington Avenue Riverside Square
600 Third Avenue Rockefeller Center/GE Building
684 Broadway Rockefeller Center/Time Warner
73 Fifth Avenue Rutgers University
80 Pine Street Short Hills Mall
875 Third Avenue-Down State Street Plaza
875 Third Avenue-Up Westchester Mall
95 Wall Street World Financial-Down
Celanese Building World Financial-Up
Chanin Building World Trade Center
Daily News Building

Midwest Market Area: 26
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122 South Michigan Avenue, Chicago Amoco Building, Chicago
123 North Wacker Drive, Chicago BP Building, Cleveland
125 South Wacker Drive, Chicago Carew Tower, Cincinnati
161 North Clark Street, Chicago Columbus City Center, Columbus
180 North Michigan Avenue, Chicago Federal Reserve, Chicago
181 West Madison, Chicago Grand Avenue, Milwaukee
200 West Adams, Chicago IBM Building, Minneapolis
222 North LaSalle Street, Chicago IDS Center, Minneapolis
30 North LaSalle Street, Chicago Illinois Center, Chicago
33 North Dearborn, Chicago Merchandise Mart, Chicago
3rd & Broad, Columbus St. Paul Center, Minneapolis
500 West Monroe, Chicago Tower City, Cleveland
600 Superior Avenue, Cleveland Woodfield Mall, Schaumburg, IL

Franchise-Operated/Domestic: 59 total as of December 27, 1997

Northern Bakers, Inc.: 8
- -------------------------
Big D Supermarket, Shrewsbury, MA Dartmouth-Hitchcock Medical
Center, Lebanon, NH
Cape Cod Mall, Hyannis, MA Fox Run Mall, Newington, NH
Carousel Mall, Syracuse, NY Maine Mall, South Portland, ME
Crossgates Mall, Albany, NY Silver City Galleria,
Taunton, MA

Host Marriott: 2
- -----------------
Hartsfield Airport, Concourse B, Hartsfield Airport, Concourse D,
Atlanta, GA Atlanta, GA

Fortunoff (Wayne ABP, Inc.): 1
Wayne Town Center, Wayne, NJ

R.C. Menzer: 2
- ---------------
South Hills Village, Westmoreland Mall,
Pittsburgh, PA Greensburg, PA

Romallso, Inc.: 1
- ------------------
Roosevelt Field Mall, Garden City, NY

The Lauren Group, Inc.: 2
- --------------------------
Choices, Tannersville, PA Crossing Factory Store,
Tannersville, PA

DoubleTree Hotels: 14
- ---------------------
Austin, TX Louisville, KY III
Boise, ID Miami Lakes, FL
Hartsfield International Airport, Norwalk, CT
Atlanta, GA
Jacksonville, FL O'Hare, Chicago, IL
Largo, MD Philadelphia, PA
Louisville, KY I San Antonio, TX
Louisville, KY II Tyson's Corner, VA

ABP Southern California, LLC: 5
- --------------------------------
Brea Mall, Brea, North County Fair, Escondido
Laguna Hills Mall, Laguna Hills South Lake Avenue, Pasadena
Montclair Plaza, Montclair

Boston Concessions Group: 1
- ---------------------------
Logan International Airport, Terminal C, Boston

CA One Services, Inc.: 7
- -------------------------
Ft. Lauderdale Airport, Newark International Airport,
Ft Lauderdale, FL Newark, NJ
Greater Cincinnati Airport, San Jose International Airport,
Hebron, KY San Jose, CA
Hancock International Airport, West Palm Beach International
Syracuse, NY Airport, West Palm Beach, FL
Logan International Airport,
Boston, MA

Crowne Plaza Ravinia: 1
- -----------------------
Crowne Plaza, Atlanta

ABP Delaware Valley: 11
- ------------------------
30th Street Station, Philadelphia Mellon Building, Philadelphia
Commerce Square Montgomery Mall, Philadelphia
Exton Square Mall, Exton, PA Ten Penn Center, Philadelphia
Graham Building, Philadelphia Two Logan Square, Philadelphia
King of Prussia, PA Two Penn Center, Philadelphia
Liberty Place, Philadelphia

FGR Food Corp.: 4
- ------------------
Dallas-Fort Worth Airport I Dallas-Fort Worth Airport III
Dallas-Fort Worth Airport II Dallas-Fort Worth Airport IV

Franchise-Operated/International: 37 total as of December 27, 1997

ABP Alimentos y Servicios, Chile: 17
- -------------------------------------
Apoquindo/Hendaya Museum of Pre-Columbian Art
Bandera New Providencia
El Bosque Norte Providencia
El Bosque Sud Ripley
Food Garden Santiago Airport-Cart
Gimnasio Santiago Airport-Counter
Homecenter Las Condes Santiago Airport-Duty Free
La Dehasa World Trade Center
Miraflores

GS&P Foods, Inc., The Philippines: 6
- -------------------------------------
EDSA/Shangri-La Mall, Ortegas Taipan Building, Ortegas
Megamall, Ortegas Tektite Building, Manila
PCI Tower, Makati Zeta Building, Manila

PT Ayodhia Pina Pangan, Indonesia: 7
- -------------------------------------
BNI Building, Jakarta Plaza Senayan, Jakarta
BRI Building, Jakarta Setia-Budi Atrium, Jakarta
Kunigan Plaza, Jakarta Stock Exchange (BEJ), Jakarta
Landmark Building, Jakarta

Royal ABP Co., Ltd, Thailand: 3
- --------------------------------
Lake Rajarda Sindhorn
SCB Plaza

BV Hospitality UK Ltd, United Kingdom: 2
- -----------------------------------------
225 The Strand, London Cheapside, London

ABP Brasil Ltda, Brazil: 2
- ---------------------------
Alameda Santos/Citibank, Sao Paulo Birmman Building, Sao Paulo

Saint Louis Bread Company Bakery Cafes:
- ---------------------------------------

Company-Operated Bakery Cafes: 60 total as of December 27, 1997

Greater St. Louis Market Area: 32
- ----------------------------------
Ballas, Creve Coeur, MO Gateway One, St. Louis, MO
Baxter, Ballwin, MO Grand, St. Louis, MO
Bogey Hills, St. Charles, MO Kirkwood, MO
Brentwood, St. Louis, MO Main, St. Charles, MO
Capriccio, Richmond Heights, MO Market, St. Louis, MO
Cape Girardeau, MO Pine, St. Louis, MO
Carondelot, Clayton, MO Rendezvous Cafe,
Richmond Heights, MO
Central West End, St. Louis, MO Soulard, St. Louis, MO
Chesterfield Mall, Chesterfield, MO South 9th Street, Columbia, MO
City Museum, St. Louis South Central, Clayton, MO
Columbia Mall, Columbia, MO Surrey Plaza, Florissant, MO
Crestwood Plaza, St. Louis, MO Telegraph Road, St. Louis, MO
Delmar, University City, MO Tesson, St. Louis, MO
Esquire, Clayton, MO West County, Des Peres, MO
Four Seasons, Chesterfield, MO Westport Plaza,
Maryland Heights., MO
Galleria, Richmond Heights, MO Winchester, 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, Deluth, GA Town Center, Kennesaw, GA
Haywood Mall, Greenville, SC

Chicago Market Area: 15
- ------------------------
Belleville, IL Park Ridge, IL
Diversey, Chicago, IL St. Clair Square,
Fairview Heights, IL
Evanston, IL Stratford Square Mall, IL
Fox Valley, Aurora, IL Vernon Hills, IL
Golf & Meachum, Schaumberg, IL Wheaton, IL
Halsted, Chicago, IL Wilmette, IL
LaGrange Park, IL Winnetka, IL
Orland Square Mall,
Orland Park, IL

Massachusetts Market Area: 1
- -----------------------------
Vinnin Square, Swampscott, MA

Michigan Market Area: 3
- ------------------------
City Center, Novi, MI Orchard Mall, West Bloomfield, MI
Lathrope Village, Bloomfield, MI

Franchise-Operated Bakery Cafes: 19 total as of December 27, 1997

Traditional Bakery, Inc.: 6
- ----------------------------
1570 East Battlefield, 2401 East 32nd Street,
Springfield, MO Joplin, MO
500 South National, East Sunshine, Springfield, MO
Springfield, MO
3265 Falls Parkway, 3800 East 51st Street, Tulsa, OK
Branson, MO

Original Bread, Inc.: 6
- ------------------------
11022 Metcalf, Overland Park, KS 520 West 23rd Street,
Lawrence, KS
11319 West 95th St., 1605 North Rock Road, Wichita, KS
Overland Park, KS
8300 Mission Road, Westport, Kansas City, KS
Prairie Village, KS

SLB of Iowa: 1
- ---------------
Elmore Crossing, Davenport, IA

Breads of the World: 2
- -----------------------
Festival at Sawmill, Dublin, OH Olentangy Plaza, Columbus, OH

Breads Unlimited: 1
- --------------------
Tuttle Crossing Mall, Columbus, OH

SLB of Central Illinois: 1
- ---------------------------
510 East John Street, Champaign, IL

St.LB Inc.: 1
- --------------
Mall of St. Matthews, Louisville, KY

Ozark Breads, Inc.: 1
- ----------------------
2510 Missouri, Jefferson City, MO

The following table sets forth Company-operated and franchise operated bakery
cafes open at the dates indicated:

Dec. 25 Dec. 31, Dec. 30, Dec. 28, Dec. 27,
1993 1994 1995 1996 1997
------- -------- -------- -------- --------

Company-operated
Au Bon Pain 137 182 192 177 160
Saint Louis Bread 19 31 52 54 60
--- --- --- --- ---
156 213 244 231 220

Franchise-operated
Au Bon Pain 39 25 29 48 96
Saint Louis Bread 1 6 8 10 19
--- --- --- --- ---
40 31 37 58 115

Total
Au Bon Pain 176 207 221 225 256
Saint Louis Bread 20 37 60 64 79
--- --- --- --- ---
196 244 281 289 335

ITEM 3. LEGAL PROCEEDINGS

None.

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 27, 1997.

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 ABPCA. The following
table sets forth the high and low sale prices as reported by NASDAQ for the
fiscal periods indicated.

1996 High Low
- ---- ------ -----
First quarter .............................. 9-5/16 6-3/4
Second quarter ............................. 9 6-7/8
Third quarter .............................. 7-1/4 6-1/8
Fourth quarter ............................. 8-1/4 5-1/2

1997
- ----
First quarter .............................. 8-7/16 5-7/8
Second quarter ............................. 7-3/8 6
Third quarter .............................. 10-1/4 7
Fourth quarter ............................. 9-13/16 7-1/4

On March 17, 1998, the last sale price for the Class A Common Stock, as
reported on the NASDAQ National Market System, was $8 5/16.

(b) Holders.
--------

On March 17, 1998, the Company had approximately 1,455 holders of
record of its Class A Common Stock and approximately 91 holders of its Class B
Common Stock.

The Company has never paid cash dividends on its capital stock and has
no intention of paying cash dividends in the foreseeable future.

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.

For the fiscal years ended
-------------------------------------------------------------
Dec. 25, Dec. 31, Dec. 30, Dec. 28, Dec. 27,
1993 1994 1995 1996 1997
------- -------- -------- -------- --------
(in thousands, except per share data)

Revenues:
Restaurant sales $113,980 $173,436 $216,411 $225,625 $233,212
Franchise sales and
other revenues 8,935 9,450 10,055 11,309 17,678
-------- -------- -------- -------- --------
122,915 182,886 226,466 236,934 250,890

Costs and expenses:
Cost of food and
paper products 39,695 60,535 77,250 85,631 90,385
Restaurant
operating expenses 56,697 85,139 112,161 115,364 119,537
Depreciation and
amortization 7,967 11,891 14,879 16,195 16,862
General and
administrative 6,757 10,098 12,818 14,979 16,417
Non-recurring
charge - - 8,500 4,435 -
-------- -------- -------- -------- --------
111,116 167,663 225,608 236,604 243,201
-------- -------- -------- -------- --------

Operating income 11,799 15,223 858 330 7,689
Interest expense, net 57 1,727 3,363 5,140 7,204
Other (income)
expense, net (28) 80 2,016 2,513 212
Minority interest 105 78 (94) (40) (42)

Income(loss) before
provision (benefit)
for income taxes 11,665 13,338 (4,427) (7,283) 315
Provision(benefit)
for income taxes 4,844 5,497 (2,813) (2,918) (1,492)
-------- -------- -------- -------- --------
Net income(loss) $ 6,821 $ 7,841 $ (1,614) $ (4,365) $ 1,807
======== ======== ======== ======== ========

Net income(loss)
per common share - basic $ .71 $ .60 $ (.14) $ (.37) $ .15
======== ======== ======== ======== ========
Net income(loss)
per common share
- diluted $ .69 $ .59 $ (.14) $ (.37) $ .15
======== ======== ======== ======== ========
Weighted average
number of shares
outstanding - basic 11,042 11,429 11,621 11,705 11,766
Weighted average
number of shares
outstanding - diluted 11,353 11,624 11,621 11,705 11,913
Comparable restaurant
sales percentage
increase for
Company-operated
bakery cafes 6.7% 5.8%(1) 0.5% 0.7% 3.6%

1 Fiscal 1994 included 53 weeks. The 1994 restaurant sales used in this
computation have been adjusted downward to be comparable to fiscal 1993 and
fiscal 1995.

Consolidated Balance
Sheet Data:

Working capital $ 5,817 $ (3,439) $ 846 $ (1,748) $ (58)
Total assets 120,474 165,586 193,018 196,428 186,516
Long-term debt, less
current maturities 274 19,095 42,502 49,736 42,527
Convertible
subordinated notes 30,000 30,000 30,000 30,000 30,000
Stockholders' equity 76,098 94,164 93,238 90,056 92,274

Company-operated
bakery cafes open 156 213 244 231 220

Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

The following table sets forth the percentage relationship to total
revenues of certain items included in the Company's consolidated statements of
operations for the periods indicated:

For the fiscal years ended
---------------------------------------
Dec. 30, Dec. 28, Dec. 27,
1995 1996 1997
-------- -------- --------
Revenues:
Restaurant sales 95.6% 95.2% 93.0%
Franchise sales and
other revenues 4.4 4.8 7.0
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====

Costs and expenses:
Cost of food and paper
products 34.1% 36.1% 36.0%
Restaurant operating
expenses 49.5 48.7 47.7
Depreciation and
amortization 6.6 6.8 6.7
General and
administrative 5.7 6.3 6.5
Non-recurring charge 3.7 1.9 -
----- ----- -----
99.6 99.8 96.9
----- ----- -----
Operating margin 0.4 0.2 3.1
Interest expense, net 1.5 2.2 2.9
Other expense, net 0.9 1.0 0.1

Minority interest -- -- --
----- ----- -----
Income(loss) before
(benefit) from
income taxes (2.0) (3.0) 0.1
Benefit from
income taxes (1.3) (1.2) (0.6)
----- ----- -----
Net income(loss) (0.7)% (1.8)% 0.7%
===== ===== =====

General

The Company's revenues are derived from restaurant sales and franchise
sales and other revenues. Franchise sales and other revenues include sales of
frozen dough products to franchisees and others, royalty income and franchise
fees. Certain expenses (cost of food and paper products, restaurant operating
expenses and depreciation and amortization) relate primarily to restaurant
sales, while general and administrative expenses relate to all areas of revenue
generation.

The Company's fiscal year ends on the last Saturday in December. The
fiscal years from 1995 through 1997 ended on December 30, 1995, December 28,
1996 and December 27, 1997 and included 52, 52 and 52 weeks, respectively. 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

1997 Compared to 1996
---------------------

Total restaurant sales from Company-operated bakery cafes increased
3.1% to $233 million in 1997 from $226 million in 1996 due to several factors.
Incremental sales were generated from the opening of 6 new Saint Louis Bread
Company-operated bakery cafes opened throughout 1997 and 3 Au Bon Pain and 2
Saint Louis Bread Company-operated bakery cafes opened throughout 1996. In
addition, comparable restaurant sales increases in Saint Louis Bread and Au Bon
Pain contributed to the sales growth. Restaurant sales increased 18.3% in the
Saint Louis Bread business due to the store openings and strong comparable
restaurant sales of 9.3%, which were slightly offset by the sale of one Saint
Louis Bread Company-operated restaurant in connection with the execution of a
franchise area development agreement. Sales from Company-owned restaurants in
the Au Bon Pain business unit declined 1.7% as the sales from new
Company-operated restaurants and an increase in comparable restaurant of 1.6%
sales were more than offset by the effect of the disposition throughout 1997 of
a number of underperforming bakery cafes.

Other revenues increased to $17.7 million in 1997 from $11.3 million in
1996, principally from growth in wholesale sales to $8.0 million in 1997, from
$5.7 million in 1996 and an increase in franchise revenue to $9.4 million in
1997, from $5.5 million in 1996. The wholesale sales increase was due to
additional customers and distribution. The franchise revenue increase was driven
by the execution of new franchise area development agreements, fees from opening
new franchise locations and higher royalty income.

Operating income increased to $7.7 million in 1997 from $330,000 in
1996. Operating income in 1996 included a non-recurring charge recorded by the
Company of $4.4 million ($3.8 million after-tax), related principally to the
write-down of certain assets under FAS #121. Before the non-recurring charge,
operating income increased 61% in 1997 to $2.9 million above 1996, driven by
increased sales and contribution, especially in the Saint Louis Bread division,
where a significant increase in franchise contribution combined with sales
growth and operational efficiencies drove Saint Louis Bread's operating income
to nearly double versus 1996. In addition, manufacturing contribution

improved versus 1996, as the new production facility opened in 1996 in Mexico,
MO stabilized its operating performance.

Operating margin in the Au Bon Pain business unit declined by .5 points
in 1997 versus 1996, due to higher food and paper costs of 1.2 points caused by
higher commodity costs for butter and less than full capacity in the
manufacturing facility in Mexico, Missouri. Restaurant operating expenses
decreased by .7 points as sales growth and the closing of unprofitable
restaurants provided leverage against occupancy and store overhead costs.
Depreciation and amortization and general and administrative expenses as a
percentage of revenue remained flat with the prior year.

Operating margin in the Saint Louis Bread business unit increased by
4.3 points versus the prior year, as higher sales leveraged the fixed costs
within the operational expenses and significantly higher franchise contribution
increased operating margin. Food and paper costs were .4 points lower in 1997
versus 1996, as operational efficiencies offset commodity cost increases.
Restaurant operating expenses as a percentage of revenue declined by 1.3 points
with the sales improvement providing leverage against occupancy costs, which
declined by .5 points, overhead costs, which declined by .1 points and labor,
which declined by .6 points. Franchise contribution grew by over 700%,
increasing margin by 1.5 points in 1997 versus 1996, as the broad-based
franchise program initiated in 1996 for Saint Louis Bread successfully expanded
the number of committed stores to 356 total stores.

1996 Compared to 1995
---------------------

Restaurant sales from Company-operated bakery cafes increased 4.2% to
$226 million in 1996 from $216 million in 1995, due principally to several
factors: incremental sales in 1996 over 1995 from the 15 Au Bon Pain and 20
Saint Louis Bread Company-operated bakery cafes opened throughout 1995, strong
comparable restaurant sales in the Saint Louis Bread business unit and sales
from the 3 Au Bon Pain and 2 Saint Louis Bread Company-operated bakery cafes
opened throughout 1996. Company-operated restaurant sales decreased 2.9% in the
Au Bon Pain business unit, as additional sales stemming from the new
Company-operated bakery cafes opened in 1995 and 1996 were more than offset by
the effect on sales of the disposition throughout 1996 of a series of
underperforming bakery cafes under an initiative begun in late 1995.
Company-operated restaurant sales increased 33.6% in the Saint Louis Bread
business unit in 1996 over 1995, due to sales stemming from the new
Company-operated bakery cafes opened in 1995 and 1996 and from strong comparable
restaurant sales. Comparable restaurant sales in 1996 decreased 1.3%, or $1.96
million, in the Au Bon Pain business unit. In the Saint Louis Bread business
unit comparable restaurant sales increased 10.2%, or $3.32 million, in 1996 over
the previous year driven by a highly successful bagel product line introduction.

Operating income declined to $330,000 in 1996 from $858,000 in 1995.
Operating income was significantly affected by separate non-recurring charges
recorded by the Company of $4.4 million ($3.7 million after-tax) in 1996 and of
$8.5 million ($5.3 million after-tax) in 1995. The non-recurring charge recorded
in 1996 related principally to the write-down of certain assets in accordance
with FAS #121. The non-recurring charge recorded in 1995 related principally to
the closure of certain under-performing bakery cafes. Before the non-recurring
charges, operating margin decreased in 1996 to 2.0% from 4.1% in 1995, as
operating margin improvements at the Saint Louis Bread business unit were more
than offset by lower operating margins in the Au Bon Pain business unit, driven
primarily by costs associated with the start-up of a new frozen dough
manufacturing facility opened during 1996 in Mexico, Missouri.

Operating margin in the Au Bon Pain business unit declined by 4.3
points in 1996 versus 1995, due principally to start-up costs and inefficiencies
related to the opening of the new manufacturing facility and significantly
higher commodity costs for butter and flour in 1996 versus the previous year. In
total, these manufacturing related costs constituted the majority of the 2.6
point increase to cost of food and paper costs as a percentage of revenues in
the Au Bon Pain business unit compared to the prior year. Restaurant operating
expenses increased by .4 points in 1996 versus 1995, as percentage increases in
occupancy costs due to negative leverage stemming from the slight comparable
restaurant sales decline more than offset percentage improvements in both labor
costs and controllable expenses at the retail store level. Depreciation and
amortization expense as a percentage of revenues increased by .4 points in 1996
due to incremental depreciation related to the new Missouri manufacturing
facility and the negative leverage associated with the comparable restaurant
sales decline. General and administrative expenses as a percentage of revenues
increased by .9 points in 1996 versus 1995 due primarily to greater investment
in infrastructure in the international franchise area, information systems and
other overhead areas.

At Saint Louis Bread, operating margin improved by 4.8 points in 1996
versus 1995, as the new management team established at the end of 1995 improved
operational focus and control throughout 1996 and the significantly positive
comparable restaurant sales increase in 1996 leveraged many of the largely fixed
costs within the operations. Percentage food and paper costs decreased by .4
points in 1996 compared to 1995, despite higher allocated costs associated with
frozen dough provided by the new manufacturing facility opened during the year.
Percentage restaurant operating expenses decreased by 4.2 points driven by
improved management controls surrounding labor costs and store-level
controllable expenses. Depreciation and amortization expense and general and
administrative expenses each decreased by .2 points versus the previous year due
to leverage from the significantly higher sales in 1996.

Benefit from Income Taxes

The Company had a benefit from income taxes of $2.8 million, $2.9
million and $1.5 million for the years ended December 30, 1995, December 28,
1996 and December 27, 1997, respectively, due to federal and state net operating
loss carryforwards, tax credit carryforwards and the fact that the Company has
incurred net losses. As of December 27, 1997, the Company had federal and state
net operating loss carryforwards of approximately $40.0 million, as well as
approximately $3.1 million of tax credit carryforwards available for income tax
purposes. Approximately $13.1 million of these carryforwards expire in the years
2000-2002, while the remaining $26.9 million expires in the years 2010-2012. For
the year ended December 31, 1997, the Company provided a valuation allowance of
$1.3 million to reduce its deferred tax asset to a level which, more likely than
not, will be realized. The valuation allowance is primarily attributable to the
potential expiration of charitable contribution deduction carryforwards and
certain state net operating loss carryforwards. The Company reevaluates the
positive and negative evidence impacting the realizability of its deferred tax
assets on an annual basis.

Net income (loss)

Higher operating income in 1997 versus 1996 and deferred tax assets
generated during 1997 from federal net operating loss carryforwards and tax
credit carryforwards (see "Benefit from Income Taxes"), partially offset by
higher interest costs incurred in 1997, produced a significant increase in net
income for the year ended December 27, 1997 versus a net loss of $4.3 million
for the year ended December 28, 1996, which included a non-recurring charge of
$3.8 million.

The lower operating income in 1996 versus 1995, combined with higher
interest expense and other expense, net resulted in a net loss of $4.4 million
in 1996, as compared with a net loss of $1.6 million in 1995. The higher
interest expense was due primarily to higher average long-term debt outstanding,
as higher average interest rate due to the issuance of $15 million senior
subordinated debentures in July, 1996 which carry a significantly higher coupon
rate than the other outstanding long-term debt.

Liquidity and Capital Resources

Cash and cash equivalents decreased to $853,000 at December 27, 1997
from $2.6 million at December 28, 1996. 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.

Net cash provided by net income plus depreciation was $17.3 million in
1997 versus $10.3 million in 1996. A total of $13.5 million was provided by
operating activities in 1997 compared to $14.8 million in 1996. In 1997, funds
provided by operating activities were primarily the result of an increase in
accrued expenses, offset by growth in accounts receivable and a decrease in
accounts payable. In 1996, funds provided by operating activities were primarily
the result of an increase in accounts payable and accrued expenses, offset by
growth in accounts receivable and inventories.

The Company utilized $7.7 million and $21.8 million for investing
activities in 1997 and 1996, respectively. The investing activities in 1997
resulted primarily from three transactions. 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. Also in the
third quarter of 1997, the Company sold a Saint Louis Bread cafe for $1.1
million in cash in conjunction with the execution of a franchise area
development agreement, resulting in a pre-tax gain of $325,000. In the fourth
quarter of 1997 the Company sold its Woburn, MA office building for $4.9 million
in cash, resulting in a gain of $660,000. The pre-tax gains on these
transactions were recognized as a component of other expense, net in the
Company's consolidated financial statements for the year ended December 27,
1997. The Company used the proceeds of $3.3 million from these transactions to
reduce debt during 1997.

Total capital expenditures in 1997 of $14.7 million were related
primarily to the opening of one Au Bon Pain and six Saint Louis Bread new
Company-operated bakery cafes and to the construction of four new local Saint
Louis Bread commissaries. The expenditures were mainly funded by net cash from
operating activities of $13.5 million and cash proceeds from the non-operating
transaction described above.

The Company utilized $7.5 million and generated $3.2 million from
financing activities in 1997 and 1996, respectively. The financing activities in
1997 and 1996 resulted primarily from proceeds from and principal payments on
long-term debt, and the issuance of common stock under the Company's employee
stock option and employee stock purchase plans.

In 1998, the Company expects to spend approximately $22.0 million for
capital expenditures, principally for the opening of new

bakery cafes. The Company expects to fund these expenditures substantially
through internally generated cash flow.

On July 24, 1996, the Company issued $15 million senior subordinated
debentures maturing in July, 2000. The debentures accrue interest at increasing
fixed rates over the four year term, ranging between 11.25% and 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
remain outstanding and certain future events. The net proceeds of the financing
were used to reduce the amount outstanding under the Company's bank revolving
line of credit. With the Company's existing revolving line of credit, management
believes it has the capital resources necessary to meet its growth goals through
1999.

The Company has a $28.0 million unsecured revolving line of credit
which bears interest at either the commercial bank's prime rate or LIBOR plus
3.0%, at the Company's option. At December 27, 1997, $18.3 million was
outstanding under the line of credit and an additional $1,200,000 of the
remaining availability was utilized by outstanding letters of credit issued by
the bank on behalf of the Company. The revolving line of credit matures on
September 30, 1999.

On March 23, 1998 the Company sold the Mexico, MO production facility
and its wholesale frozen dough business to Bunge Foods Corporation ("Bunge") for
approximately $13 million in cash. In conjunction with the sale, Au Bon Pain and
Saint Louis Bread entered into five year supply agreements with Bunge for the
supply of substantially all their frozen dough needs, excluding bagels, in their
domestic bakery cafes. The Company expects the supply agreements will result in
an improved operating margin of approximately .5% of total revenues, along with
reduced interest expense. The net proceeds of the sale were used to reduce the
$7.9 million outstanding for the Industrial Revenue Bond and $4.9 million for a
permanent reduction to the revolving credit line. This reduction of the
revolving credit line reduced the total commitment of the Banks in the Credit
Agreement so that the amount available under the revolving credit line decreased
to $23.1 million from $28 million (see Note 8). In addition, approximately $2
million of related receivables at December 27, 1997 will be used to further
reduce debt. The Company expects to recognize a pre-tax loss on the sale of the
facility of approximately $700,000 in the Company's results of operations for
the first quarter of 1998. There were no gains or losses associated with the
early retirement of the Industrial Revenue Bond or the partial repayment of the
revolving credit line.

Assuming there is no significant change in the Company's business, the
Company believes that the existing cash and cash equivalents as well as cash
flows from operations will be sufficient to meet its working capital
requirements for at least the next twelve months.

Certain Factors Affecting Future Operating Results

Statements made or incorporated in this Form 10-K include a number of
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
Forward-looking statements include, without limitation, statements containing
the words "estimates," "projects," "anticipates," "believes," "expects,"
"intends," "future," and words of similar import which express management's
belief, expectations or intentions regarding the Company's future performance.
The forward-looking statements involve known and unknown risks and
uncertainties. The Company's actual results could differ materially from those
set forth in the forward-looking statements. The amount of cost to the Company
under the new Supply Agreements is dependent upon market fluctuations in
commodities prices, particularly flour and butter. Additionally, the Company's
operating results may be affected by many factors, including but not limited to,
variations in the number and timing of bakery cafe openings and public
acceptance of new bakery cafes, competition and other factors that may affect
retailers in general.

Recent Accounting Pronouncements

In June 1997, the Financial Accounting Standards Board ("FASB"), issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income". This statement requires that changes in comprehensive
income be shown in a financial statement that is displayed with the same
prominence as other financial statements. The statement is effective for annual
periods beginning after December 15, 1997 and the Company will adopt its
provisions in fiscal 1998. Reclassifications for earlier periods is required for
comprehensive purposes. Management does not expect the statement to have an
impact on its financial position or results of operations.

In June 1997, the Financial Accounting Standards Board issued Statement
of Accounting standards ("SFAS") No. 131, "Disclosure about Segments of an
Enterprise and Related Information," which changes the manner in which public
companies report information about their operating segments. SFAS No 131 which
is based on the management approach to segment reporting, establishes
requirements to report selected segment information quarterly and to report
entity-wide disclosures about products and services, major customers, and the
geographic locations in which the entity holds assets and reports revenues.
Management is currently evaluating the effects of this change on its reporting
of segment information. The company will adopt SFAS No. 131 for its fiscal year
ending December 26, 1998.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

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 28, 1996 and December 27,
1997.

Consolidated Statements of Operations for the fiscal years ended
December 30, 1995, December 28, 1996 and December 27, 1997.

Consolidated Statements of Cash Flows for the fiscal years ended
December 30, 1995, December 28, 1996 and December 27, 1997.

Consolidated Statements of Stockholders' Equity for the fiscal years
ended December 30, 1995, December 28, 1996 and December 27, 1997.

Notes to Consolidated Financial Statements.

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders
of Au Bon Pain Co., Inc.:

We have audited the accompanying consolidated financial statements and
the financial statement schedules of Au Bon Pain Co., Inc. as of December 27,
1997 and December 28, 1996, and for each of the three fiscal years in the period
ended December 27, 1997. These financial statements and financial statement
schedules are the responsibility of the Company's management. Our responsibility
is to express an opinion on these consolidated financial statements and
financial statement schedules based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance as to whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Au Bon Pain Co., Inc. as of December 27, 1997 and December 28, 1996, and the
consolidated results of its operations and cash flows for each of the three
fiscal years in the period ended December 27, 1997 in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedules referred to above, when considered in relation to the basic
financial statements taken as a whole, present fairly, in all material respects,
the information required to be included herein.

/s/ Coopers & Lybrand L.L.P.
-----------------------------
Coopers & Lybrand L.L.P.

Boston, Massachusetts
February 13, 1998, except for Note 17,
as to which the date is March 23, 1998.

AU BON PAIN CO., INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)

Dec. 28, Dec. 27,
1996 1997
--------- --------

ASSETS
Current assets:
Cash and cash equivalents........................... $ 2,579 $ 853
Accounts receivable, less allowance of $104 and
$134 in 1996 and 1997, respectively................ 7,730 9,427
Inventories (Note 3)................................ 8,997 9,117
Prepaid expenses.................................... 2,353 775
Refundable income taxes............................. 2,117 596
Deferred income taxes (Note 11)..................... 488 600
-------- --------
Total current assets........................... 24,264 21,368
-------- --------

Property and equipment, net (Note 4)................. 121,733 112,232
-------- --------
Other assets:
Notes receivable (Note 5)........................... 2,291 4,743
Intangible assets, net of accumulated amortization
of $4,702 and $6,121 in 1996 and 1997, respectively 32,657 31,361
Deferred financing costs............................ 1,382 953
Deposits and other (Note 12)........................ 9,110 9,097
Deferred income taxes (Note 11)..................... 4,991 6,762
-------- --------
Total other assets............................. 50,431 52,916
-------- --------
Total assets................................... $196,428 $186,516
======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................... $ 11,141 $ 7,071
Accrued expenses (Note 7)........................... 14,169 13,917
Current maturities of long-term debt (Note 8)....... 702 438
-------- --------
Total current liabilities...................... 26,012 21,426
Long-term debt (Note 8) ............................. 49,736 42,527
Convertible subordinated notes (Note 9).............. 30,000 30,000
-------- --------
Total liabilities.............................. 105,748 93,953

Commitments and contingencies (Notes 8 and 10)....... - -
Minority interest.................................... 624 289
Stockholders' equity (Note 13):
Preferred stock, $.0001 par value:
Class B, shares authorized 2,000,000; issued and
outstanding 20,000 and 0 in 1996 and 1997,
respectively...................................... - -
Common stock, $.0001 par value:
Class A, shares authorized 50,000,000; issued
and outstanding 10,066,671 and 10,187,042 in 1996
and 1997, respectively............................ 1 1
Class B, shares authorized 2,000,000; issued and
outstanding 1,647,354 and 1,610,038 convertible
to Class A, in 1996 and 1997, respectively........ - -
Additional paid-in capital.......................... 68,075 68,486
Retained earnings................................... 21,980 23,787
-------- --------
Total stockholders' equity..................... 90,056 92,274
-------- --------
Total liabilities and stockholders' equity..... $196,428 $186,516
======== ========

The accompanying notes are an integral part of the consolidated financial
statements.

AU BON PAIN CO., INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share amounts)

for the fiscal years ended
----------------------------------
Dec. 30, Dec. 28, Dec. 27,
1995 1996 1997
-------- -------- --------

Revenues:
Restaurant sales................ $216,411 $225,625 $233,212
Franchise sales and other
revenues...................... 10,055 11,309 17,678
-------- -------- --------
226,466 236,934 250,890

Costs and expenses:
Cost of food and paper products. 77,250 85,631 90,385
Restaurant operating expenses:
Labor......................... 57,860 60,266 63,593
Occupancy..................... 26,709 28,529 28,514
Other......................... 27,592 26,569 27,430
-------- -------- --------
112,161 115,364 119,537
Depreciation and amortization... 14,879 16,195 16,861
General and administrative...... 12,818 14,979 16,418
Non-recurring charge (Note 6)... 8,500 4,435 -
-------- -------- --------
225,608 236,604 243,201
-------- -------- --------
Operating income.................. 858 330 7,689
Interest expense, net............. 3,363 5,140 7,204
Other expense, net (Notes 4, 12
and 15)......................... 2,016 2,513 212
Minority interest (income)........ (94) (40) (42)
-------- -------- --------
Income (loss) before benefit
from income taxes............... (4,427) (7,283) 315
Benefit from income
taxes (Note 11)................. (2,813) (2,918) (1,492)
-------- -------- --------
Net income (loss) ................ $ (1,614) $ (4,365) $ 1,807
======== ======== ========

Net income (loss) per common share
- basic $ (.14) $ (.37) $ .15
======== ======== ========
Net income (loss) per common share
- diluted $ (.14) $ (.37) $ .15
======== ======== ========
Weighted average number of shares
outstanding - basic.............. 11,621 11,705 11,766
======== ======== ========
Weighted average number of shares
outstanding - diluted............ 11,621 11,705 11,913
======== ======== ========

The accompanying notes are an integral part of the consolidated financial
statements.

AU BON PAIN CO., INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

for the fiscal years ended
----------------------------------
Dec. 30, Dec. 28, Dec. 27,
1995 1996 1997
-------- -------- --------
Cash flows from operations:
Net income (loss)................... $ (1,614) $ (4,365) $ 1,807
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization..... 14,879 16,195 16,861
Amortization of deferred
financing costs................. 77 308 619
Provision for losses on
accounts receivable............. 73 44 49
Minority interest................. (94) (40) (42)
Deferred income taxes............. (4,234) (430) (1,883)
Non-recurring charge.............. 7,770 4,435 -
Gain on sale of investment........ - - (930)
Gain on sale of property and
equipment....................... - - (986)
Loss on disposal of property and
equipment....................... 31 - 308
Changes in operating assets and
liabilities:
Accounts receivable............... 119 (1,178) (1,747)
Inventories....................... (1,779) (1,221) (294)
Prepaid expenses.................. (355) 343 1,514
Refundable income taxes........... 289 (1,423) 1,521
Accounts payable.................. (154) 820 (4,070)
Accrued expenses.................. 771 1,287 769
-------- -------- --------
Net cash provided by operating
activities.................... 15,779 14,775 13,496
-------- -------- --------

Cash flows from investing activities:
Additions to property and
equipment....................... (38,650) (17,062) (14,681)
Proceeds from sale of property
and equipment................... - - 6,044
Proceeds from sale of investment.. - - 2,000
Payments received on notes
receivable...................... 59 82 139
Increase in intangible assets..... (50) (73) (122)
Decrease (increase) in deposits
and other....................... 1,450 (4,321) (1,058)
Increase in notes receivable...... (951) (475) -
-------- -------- --------
Net cash used in investing
activities.................... (38,142) (21,849) (7,678)
-------- -------- --------

The accompanying notes are an integral part of the consolidated financial
statements.

for the fiscal years ended
---------------------------------
Dec. 30, Dec. 28, Dec. 27,
1995 1996 1997
-------- -------- --------

Cash flows from financing activities:
Exercise of employee stock
options......................... 241 184 168
Issuance of warrants.............. - 679 -
Proceeds from long-term debt
issuance........................ 115,418 87,561 57,530
Principal payments on
long-term debt.................. (87,713) (83,958) (65,003)
Proceeds from issuance of
common stock.................... 346 320 243
Increase in deferred
financing costs................. (152) (1,211) (189)
Decrease in minority interest..... (349) (342) (293)
-------- -------- --------
Net cash provided by (used
in) financing activities...... 27,791 3,233 (7,544)

Net increase (decrease) in cash
and cash equivalents................ 5,428 (3,841) (1,726)
Cash and cash equivalents, at
beginning of period................. 992 6,420 2,579
-------- -------- --------
Cash and cash equivalents, at
end of period....................... $ 6,420 $ 2,579 $ 853
======== ======== ========

Supplemental cash flow information:
Cash paid during the period for:
Interest..................... $ 4,097 $ 4,637 $ 6,602
Income taxes................. $ 1,543 $ 370 $ 700
Satisfaction of Notes Receivable
in exchange for PP&E......... $ - $ 356 $ -
Note received from sale of
property and equipment.......... $ - $ - $ 2,591

The accompanying notes are an integral part of the consolidated financial
statements.

AU BON PAIN CO., INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the fiscal years ended
December 30, 1995, December 28, 1996 and December 27, 1997
(in thousands)

Common Stock Preferred Stock
$.0001 Par Value $.0001 Par Value
Class A Class B Class B Additional Total
------- ------- ------- Paid-In Retained Stockholders'
Shares Amount Shares Amount Shares Amount Capital Earnings Equity
------ ------ ------ ------ ------ ------ ---------- -------- ------------

Balance, Dec.
26, 1994 9,828 $1 1,732 $- 20 $- $66,204 $27,959 $94,164
Exercise of
employee
stock options 45 241 241
Income tax
benefit related
to stock option
plan 101 101
Issuance of
common stock 31 346 346
Conversions of
Class B to
Class A 25 (25)
Net loss (1,614) (1,614)
----- -- ----- -- -- -- ------- ------- -------
Balance, Dec.
30, 1995 9,929 $1 1,707 $- 20 $- $66,892 $26,345 $93,293
----- -- ----- -- -- -- ------- ------- -------

Exercise of
employee
stock options 30 147 147
Income tax
benefit related
to stock option
plan 37 37
Issuance of
common stock 48 320 320
Warrants issued
for debt
financing 679 679
Conversions of
Class B to
Class A 60 (60)
Net loss (4,365) (4,365)
------ -- ----- -- -- -- ------- ------- -------
Balance, Dec.
28, 1996 10,067 $1 1,647 $- 20 $- $68,075 $21,980 $90,056
------ -- ----- -- -- -- ------- ------- -------

Exercise of
employee
stock options 23 152 152
Income tax
benefit related
to stock option
plan 16 16
Issuance of
common stock 40 243 243
Conversions of
Class B to
Class A 37 (37)
Conversions of
preferred stock
to Class A
common stock 20 (20)
Net income 1,807 1,807
------ -- ----- -- -- -- ------- ------- -------
Balance, Dec.
27, 1997 10,187 $1 1,610 $- 0 $- $68,486 $23,787 $92,274
====== == ===== == == == ======= ======= =======

The accompanying notes are an integral part of the consolidated financial
statements.

AU BON PAIN CO. INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Nature of Business

Au Bon Pain Co., Inc. and its subsidiaries operate two retail bakery
cafe businesses and two franchising businesses under the concept names "Au Bon
Pain" and "Saint Louis Bread Company". Certain Saint Louis Bread Company stores
began operating under the name "Panera Bread" during 1997. Included in franchise
sales and other revenues are sales of product to franchisees and others of $7.4
million, $8.3 million and $11.7 million for the fiscal years ended December 30,
1995, December 28, 1996 and December 27,1997, respectively. Included in costs
and expenses are charges related to franchise sales of approximately $1.3
million, $1.9 million and $2.6 million for the fiscal years ended December 30,
1995, December 28, 1996 and December 27, 1997, respectively.

2. Summary of Accounting Policies

Principles of Consolidation

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, 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.

Preparation of Financial Statements

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent 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.

AU BON PAIN CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Inventories

Inventories are valued at the lower of cost (first-in, first-out) or
market.

Property, Equipment and Depreciation

Property and equipment are stated at cost. 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. Depreciation is computed over the estimated useful
lives of the assets using the straight-line method. Leasehold improvements are
amortized over the terms of the leases (including available option periods) or
over their useful lives, whichever is shorter. 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 $792,000, $581,000 and $70,780 in 1995,
1996 and 1997 respectively.

Intangible Assets

Intangible assets consist of goodwill arising from the excess cost over
the value of net assets of joint ventures, businesses and stores acquired, as
well as the original acquisition of the Company. Goodwill is amortized on a
straight-line basis over periods ranging from twenty-five to forty 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 taxes are determined based on the
difference between the financial statements and the tax bases of assets and
liabilities using enacted income tax rates in effect in the years in which the
differences are expected to reverse.

AU BON PAIN CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The Company's temporary differences consist primarily of depreciation and
amortization and reserves.

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 100%
recognized as revenue upon completion of all commitments related to the
agreements. Fees from the sale of individual franchise locations are 100%
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 $2.4
million and $2.7 million as of December 28, 1996 and December 27, 1997,
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.

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 30, 1995, December 28, 1996 and December 27,
1997.

Income 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. Statement of Financial Accounting Standards No. 128, "Earnings
Per Share," requires dual presentation of basic and diluted EPS. SFAS 128 has
been adopted in the Company's 1997 financial statements with comparable
disclosures for the prior year.

AU BON PAIN CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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.

Recent Accounting Pronouncements

In June 1997, the Financial Accounting Standards Board ("FASB"), issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income". This statement requires that changes in comprehensive
income be shown in a financial statement that is displayed with the same
prominence as other financial statements. The statement is effective for annual
periods beginning after December 15, 1997 and the Company will adopt its
provisions in fiscal 1998. Reclassifications for earlier periods is required for
comprehensive purposes. Management does not expect the statement to have a
material impact on its financial position or results of operations.

In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments
of an Enterprise and Related Information," which changes the manner in which
public companies report information about their operating segments. SFAS No. 131
which is based on the management approach to segment reporting, establishes
requirements to report selected segment information quarterly and to report
entity-wide disclosures about products and services, major customers, and the
geographic locations in which the entity holds assets and reports revenues.
Management is currently evaluating the effects of this change on its reporting
of segment information. The company will adopt SFAS No. 131 for its fiscal year
ending December 26, 1998.

3. Inventories

Inventories consist of the following (in thousands):

December 28, December 27,
1996 1997
------------ ------------
Production....................... $ 3,071 $ 3,389
Retail stores.................... 1,762 1,680
Paper goods...................... 456 392
Smallwares....................... 3,161 3,008
Other............................ 547 648
-------- --------
$ 8,997 $ 9,117
======== ========

AU BON PAIN CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4. Property and Equipment

Major classes of property and equipment consist of the following (in
thousands):

December 28, December 27,
1996 1997
------------ ------------
Leasehold improvements........... $ 91,161 $101,619
Machinery and equipment.......... 59,414 63,319
Furniture and fixtures........... 19,063 18,603
Construction in progress......... 19,585 1,083
Signage.......................... 3,634 3,515
-------- --------
192,857 188,139
Less accumulated depreciation
and amortization............... 71,124 75,907
-------- --------
Property and equipment, net...... $121,733 $112,232
======== ========

In the fourth quarter of 1997 the Company sold its Woburn, MA office
building for $4.9 million in cash, resulting in a gain of $660,000. The gain was
recognized as a component of other expense, net.

In the third quarter of 1997, the Company sold a Saint Louis Bread cafe
for $1.1 million in cash in conjunction with the execution of a franchise area
development agreement, resulting in a pre-tax gain of $325,000. The gain was
recognized as a component of other expense, net.

The Company recorded depreciation expense related to these assets of
$13.4 million, $14.7 million and $15.4 million in 1995, 1996 and 1997,
respectively.

5. Notes Receivable

Notes receivable relate to the sale of certain retail locations and to
the funding for the opening of new locations of a franchisee. In the third
quarter of fiscal 1997 the Company franchised 11 of its existing ABP stores in
the Philadelphia market to ABP Delaware Valley LLC. As part of the sale the
Company received a note receivable in the amount of $2.6 million which bears
interest at the rate of 8.25% per annum. There was no gain or loss recognized on
the transaction. The note requires monthly principal and interest payments of
$28,765 commencing in November 1997 which reflect an interest rate of 6.00%. The
difference of 2.25% interest shall accrue with respect to the outstanding
principal amount of this note. Commencing November 4, 1999, ABP Delaware Valley
LLC will make the scheduled payment plus any accrued interest until it is paid
in full. The note matures August 11, 2007.

In addition, the Company holds five additional notes receivable with
two other franchisees with an outstanding principal balance of $2.2 million at
December 27, 1997. These notes bear interest at between 8.00% and 9.25%. Two of
these notes require monthly payments while the remaining three notes require
payments of interest with a balloon payment of $1.4 million due in 2004. The
notes mature between 2003 and 2004.

AU BON PAIN CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. Non-recurring Charges

During the third quarter of fiscal 1996, the Company recorded a
non-recurring charge of $4.4 million principally to reflect a write-down under
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for the Long-Lived Assets to be Disposed
of". SFAS 121, adopted at the beginning of fiscal year 1996, establishes
accounting standards for recognizing and measuring the impairment of long-lived
assets and requires reducing the carrying amount of any impaired asset to fair
value. The charge was taken as a result of continued less than expected
performance results at certain Au Bon Pain restaurants. The $4.4 million
non-cash charge included a $1.4 million goodwill write-down, a $0.6 million
fixed asset write-down and a $1.4 million write-down of an office building held
for resale. The charge represented a reduction of the carrying amounts of the
assets to their estimated fair values as determined by using discounted
estimated future cash flows. In addition, the $4.4 million charge included a
$1.0 million charge to write-down the book value of six restaurants whose leases
expired in 1997 and which were not renewed. For the fifty-two weeks ended
December 28, 1996 and December 27, 1997 the restaurants included in the reserve
had sales of $3,096,000 and $1,559,000, respectively and a pre-tax loss of
$578,000 and $313,000, respectively.

During the third quarter of fiscal 1995, the Company recorded a
non-recurring pre-tax charge of $8.5 million principally to cover the expected
costs of closing certain under-performing restaurants. The components of the
non-recurring charge included cash costs of approximately $2.1 million for lease
obligations, professional and consulting services, employee relocation and
termination costs and non-cash charges of approximately $6.4 million related to
fixed asset disposals. The store closures were completed in fiscal 1996 for a
total cost of approximately $221,000. For the fifty-two weeks ended December 28,
1996 and December 27, 1997 the stores included in the reserve had sales of
$4,247,000 and $0, respectively and a pre-tax loss of $946,000 and $209,000,
respectively.

7. Accrued Expenses

Accrued expenses consist of the following (in thousands):

December 28, December 27,
1996 1997
------------ ------------
Accrued insurance.................... $ 1,310 $ 1,384
Rent................................. 3,503 3,799
Payroll and related taxes............ 2,554 2,182
Interest............................. 1,319 1,390
Other................................ 4,649 $ 5,162
------- -------
$13,335 $13,917
======= =======

AU BON PAIN CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. Long-term Debt

Long-term debt consists of the following (in thousands):

December 28, December 27,
1996 1997
------------ ------------
Revolving credit line at prime + .5%
(9.00% at December 27, 1997)......... $22,000 $18,326
Term loan - variable rate................ 3,533 -
Industrial development bond for
Mexico, Missouri plant at weekly
floating rate (4.25% at
December 27, 1997)................... 8,300 7,900
Loan with Cigna Insurance at prime less
.75% (7.75% at December 27, 1997)..... 2,000 2,000
Term loan at 7.0% payable in
annual installments of $50,000
including interest, due January
2001................................. 205 169
Senior Subordinated Debenture (13.00%
at December 27, 1997)................ 14,400 14,570
------- -------
Total debt............................. 50,438 42,965
Less current maturities................ 702 438
------- -------
Total long-term debt................... $49,736 $42,527
======= =======

As of both December 28, 1996 and December 27, 1997, the Company had a
$28 million unsecured revolving line of credit. 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 debt to net worth ratio.
There is a fee of 3/8% of the unused portion of the revolving line of credit.
Available unused borrowings totaled approximately $5.1 million at December 28,
1996 and $8.5 million at December 27, 1997. At December 28, 1996 and December
27, 1997 the Company had outstanding letters of credit against the revolving
line of credit aggregating $0.9 million and $1.2 million, respectively. Interest
is calculated on the $3.5 million term loan at the lower of prime plus .5% or
LIBOR plus an amount ranging from 1.25% to 3.0% depending on certain financial
tests. Interest-only payments are due under the revolving credit line monthly,
in arrears, with principal balance payable at maturity September 30, 1999.

In March 1995, the Company signed a note for the purpose of purchasing
a building in Woburn, MA. The Company had originally planned to move their
corporate offices to this location. Principal and interest on the note were paid
quarterly, with interest being calculated based on the applicable Eurodollar
rate plus .75%. Under the term loan, the Company had the right, at its election,
to repay the outstanding amount as a whole or in part, at any time without
penalty or premium. The Company sold the building in December of 1997 and
retired the note which had a balance of $3.2 million.

AU BON PAIN CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

In July, 1995 the Company obtained an industrial development bond
issued by the City of Mexico, Missouri, secured by a $8.7 million letter of
credit with a commercial bank. The bond matures in July, 2000 and interest is
payable monthly at a weekly floating rate, which was 4.25% on December 27, 1997.

On July 24, 1996, the Company issued $15 million senior subordinated
debentures maturing in July, 2000. The debentures accrue 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 remain
outstanding and certain future events. At December 27, 1997, 400,000 warrants
were issued and outstanding, all of which were vested.

The Company has recognized interest expense of $3.4 million, $5.1
million and $7.2 million as of December 30, 1995, December 28, 1996, and
December 27, 1997, respectively.

Maturities of debt outstanding at December 27, 1997 are as follows (in
thousands):

1998........................... $ 438
1999........................... 20,867
2000........................... 15,013
2001........................... 447
2002........................... 500
Thereafter..................... 5,700
-------
$42,965
=======

9. 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 are
convertible at the holders' option into shares of the Company's Class A Common
Stock at $25.50 per share. In December 1997, the Company could have, at its
option, redeemed all or a part of the outstanding 1993 Notes upon payment of a
premium. The Company did not redeem all or part of the outstanding notes. The
note agreement requires the Company to maintain minimum permanent capital, as
therein defined.

10. Commitments

The Company is obligated under noncancelable operating leases for a
production facility, a commissary 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.

AU BON PAIN CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Aggregate minimum requirements under these leases are, as of December
27, 1997, approximately as follows (in thousands):

1998........................... $ 20,047
1999........................... 18,473
2000........................... 17,217
2001........................... 15,010
2002........................... 12,914
Thereafter..................... 40,907
--------
$124,568
========

Rental expense under long-term leases was approximately $22.3 million,
$29.3 million and $24.5 million in 1995, 1996 and 1997, respectively, which
included contingent rentals of approximately $2.9 million, $3.0 million and $3.0
million, respectively.

11. Income Taxes Payable

The benefit from income taxes in the consolidated statements of
operations is comprised of the following (in thousands):

December 30, December 28, December 27,
1995 1996 1997
------------ ------------ ------------
Current:
Federal............... $ 1,202 $(1,650) $ 259
State................. 219 (838) 132
------- ------- -------
1,421 (2,488) 391
------- ------- -------

Deferred:
Federal............... (3,597) (365) (1,433)
State................. (637) (65) (450)
------- ------- -------
(4,234) (430) (1,883)
------- ------- -------
Total benefit from
income taxes.......... $(2,813) $(2,918) $(1,492)
======= ======= =======

A reconciliation of the statutory federal income tax rate and the
effective tax rate as a percentage of pretax income is as follows:

1995 1996 1997
------ ------ ------
Statutory rate (benefit)........... (34.0)% (34.0)% 34.0%
State income taxes, net of
federal tax benefit.............. (4.0) 2.2 (432.8)
Utilization of tax credits......... (2.8) - -
Charitable contributions........... (4.0) (3.7) (89.9)
Company-owned Life Insurance
(See Note 12)...................... (28.8) (15.4) (451.0)
Non-deductible goodwill and meals
and entertainment................ 5.7 9.1 51.0
Other, net......................... 4.3 1.8 (.4)
Change in valuation allowance...... - - 415.4
----- ----- ------
(63.6)% (40.0)% (473.7)%
===== ===== ======

AU BON PAIN CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The tax effects of the significant temporary differences which comprise
the deferred tax assets are as follows (in thousands):

1996 1997
-------- ------
Current assets:
Receivables Reserve............. $ 42 $ 56
Accrued Expenses................ 368 544
Other reserves................... 78 -
----- ------
488 600
Non-current assets/liabilities:
Property, plant and equipment.... 799 443
Accrued expenses................. 1,073 1,135
Goodwill......................... (1,325) (1,648)
Tax credit carried forward....... 2,862 3,368
Net operating loss carried
forward........................ 1,363 4,484
Charitable contribution carried
forward ....................... 219 296
Other reserves................... - (8)
------ ------
4,991 8,070

Total Deferred Tax Asset....... 5,479 8,670
Valuation Allowance............ - (1,308)
------ ------
Total net deferred tax asset....... $5,479 $7,362
====== ======

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 expiration of charitable contribution
deduction carryforwards and certain state net operating loss carryforwards. The
Company estimates that after filing its federal income tax returns for the year
ended December 27, 1997, it will have net operating losses of $5,844,000 which
can be carried forward from thirteen to fifteen years to offset Federal taxable
income. The Company also estimates that after filing its state income tax
returns for the year ended December 27, 1997 it will have state net operating
losses of $13,142,000 which can be carried forward from three to five years and
$20,693,000 which can be carried forward from thirteen to fifteen years to
offset state taxable income. The Company has Federal jobs tax credit
carryforwards of approximately $594,000 which expire in twelve to thirteen
years. In addition, the Company has Federal alternative minimum tax credit
carryforwards of approximately $2,499,000 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.

AU BON PAIN CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

12. 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.

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.

During fiscal year 1994, the Company established a company-owned life
insurance program ("COLI") covering a substantial portion of its employees. At
December 27, 1997, the cash surrender value and prepaid premiums of $75.9
million and the insurance policy loans of $74.8 million 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 10.3%. 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 in the third
quarter of 1996. The Company included $.5 million of expenses in other (income)
expense, net, relating to COLI in 1997.

13. Stockholders' Equity

Class B Preferred Stock

In April 1994, the Company issued 20,000 shares of Class B Preferred
Stock (Series 1) as part of the ABP Midwest acquisition. In 1997 these shares
were converted to Class A Common Stock.

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 27,
1997, 7,589,719 shares 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 9).

AU BON PAIN CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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.

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 was initially
reserved for awards under the Equity Plan. The Equity Plan was amended by the
Board of Directors and the stockholders in May 1994 and June 1997 to increase
the number of shares available thereunder from 950,000 to 2,500,000, and from
2,500,000 to 4,300,000 respectively. Awards under the Equity Plan can be in the
form of stock 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 31, 1994 1,407,313 $18.50
Granted....................... 1,543,052 $ 7.47
Exercised..................... (45,425) $ 5.30
Canceled...................... (1,473,503) $17.88
---------- ------
Outstanding at December 30, 1995 1,431,437 $ 7.32
Granted....................... 742,345 $ 7.67
Exercised..................... (30,200) $ 4.87
Canceled...................... (211,548) $ 7.92
---------- ------
Outstanding at December 28, 1996 1,932,034 $ 7.42
Granted....................... 1,226,169 $ 7.49
Exercised..................... (23,148) $ 6.56
Canceled...................... (143,537) $ 8.05
---------- ------
Outstanding at December 27, 1997 2,991,518 $ 7.44
========== ======

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 27, 1997, 1,168,134
were vested and exercisable.

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. The plan also allows for independent

AU BON PAIN CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

directors elected after that time to receive a similar option at the closing
price for the day immediately preceding the individual's election to the board.

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 has granted 113,248 options under this plan as of December 27, 1997.

Stock-Based Compensation

In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting
for Stock-Based Compensation", which is effective for the Company's financial
statements for fiscal years beginning after December 15, 1995. SFAS 123 allows
companies to either account for stock-based compensation under the new
provisions of SFAS 123 or under the provisions of Accounting Principles Board
Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to Employees", but
requires pro-forma disclosure in the footnotes to the financial statements as if
the measurement provisions of SFAS 123 had been adopted. The Company has elected
the disclosure-only alternative and, accordingly, no compensation costs have
been recognized for the stock option plans. Had compensation costs for the
Company's stock option plans been determined based on the fair value at the
grant date for awards in 1995 and 1996 consistent with the provisions of SFAS
123, the Company's net income (loss) for the years ended December 28, 1996 and
December 27, 1997 would have been increased to the pro forma amounts indicated
below:

1995 1996 1997
------------------------- ------------------------- -------------------------
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 $(1,614) $(.14) $(4,365) $(.37) $1,807 $.15

Pro
Forma $(1,819) $(.16) $(4,965) $(.42) $ 953 $.08

AU BON PAIN CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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 1995, 1996 and 1997 is
$3.20 per share, $3.46 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 35% in 1995 and 1996 and 40% in
1997, risk-free interest rate of 6.14% in 1995, 5.99% in 1996 and 6.38% in 1997,
and an expected life of 6 years.

The following table summarizes information concerning currently
outstanding and exercisable options:

Options Options
Outstanding Exercisable
-------------------------------- ----------------------
Weighted
Average
Range of Remaining Weighted Weighted
Exercise Number Contractual Average Number Average
Price Outstanding Life Price Exercisable Price
- ------------ ----------- ----------- -------- ----------- --------
$ 4.50- 6.75 259,013 6.13 $ 6.16 141,780 $ 6.04
$ 6.75-10.13 2,711,240 8.20 $ 7.51 1,020,003 $ 7.32
$10.13-15.19 20,089 8.36 $13.07 5,812 $12.91
$15.19-21.25 1,176 6.92 $21.25 539 $23.16
--------- ---- ------ --------- ------
2,991,518 7.93 $ 7.44 1,168,134 $ 7.20

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 amended in June 1997 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 year compensation) at 85% of the fair
market value of the Class A Common Stock at the date of purchase.

14. Employee Benefit Plans

Employee Savings 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. 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. 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,

AU BON PAIN CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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") 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 as of December 27, 1997.

15. Litigation Settlement

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
---------------------------------------
Dec. 30, Dec. 28, Dec. 27,
1995 1996 1997
-------- -------- --------

Net income (loss) used in net
income (loss) per common share
- basic $ (1,614) $ (4,365) $ 1,807
Net income (loss) used in net
income (loss) per common share
- diluted $ (1,614) $ (4,365) $ 1,807

Weighted average number of
shares outstanding - basic 11,621 11,705 11,766
Effect of dilutive securities:
Employee stock options -- -- 42
Stock warrants -- -- 105
-------- -------- --------
Weighted average number of shares
outstanding - diluted 11,621 11,705 11,913
Net income (loss) per common
share - basic $ (0.14) $ (0.37) $ 0.15
Net income (loss) per common
share - diluted $ (0.14) $ (0.37) $ 0.15

During 1995, 1996 and 1997, options to purchase 1,176,000 shares of
common stock at $25.50 per share were outstanding in conjunction with the

AU BON PAIN CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

issuance of $30 million of convertible subordinated notes (see Note 9). These
shares were not included in the computation of diluted earnings per share for
the fiscal years ended December 30, 1995, December 28, 1996 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.

During 1995 and 1996, options to purchase 422,080 and 248,450 shares of
common stock at an average price of $6.69 and $5.77 per share, respectively, and
warrants to purchase 0 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 30, 1995 or December 28, 1996 because
the effect would have been antidilutive.

17. Subsequent Event

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE

None.

PART III

Information required by Part III (Items 10 through 13) is incorporated by
reference to the Company's definitive proxy statement for its 1998 annual
meeting of stockholders which will be filed with the Securities and Exchange
Commission on or before April 27, 1998. 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 REPORTS 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 at December 28, 1996 and December 27,
1997.

Consolidated Statements of Operations for the years ended December
30, 1995, December 28, 1996 and December 27, 1997.

Consolidated Statements of Cash Flows for the years ended December
30, 1995, December 28, 1996 and December 27, 1997.

Consolidated Statements of Stockholders' Equity for the years ended
December 30, 1995, December 28, 1996 and December 27, 1997.

Notes to Consolidated Financial Statements.

2. FINANCIAL STATEMENTS SCHEDULE.
-----------------------------

The following financial statement schedule for the Company is filed
herewith:

Schedule II - Valuations and Qualifying Accounts.

Schedule II

AU BON PAIN CO., INC.
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)

================================================================================
Balance at Balance
beginning at end
Description: of period Additions Deductions of period
- --------------------------------------------------------------------------------
Allowance for Doubtful Accounts

Fiscal Year ended Dec. 30, 1995 $ 76 $ 73 $89 $ 60
Fiscal Year ended Dec. 28, 1996 $ 60 $ 69 $25 $ 104
Fiscal Year ended Dec. 27, 1997 $104 $ 49 $19 $ 134

Valuation Allowance

Fiscal Year ended Dec. 27, 1997 $ 0 $1,308 $ 0 $1,308

All other schedules are omitted because not applicable or not required
by Regulation S-X.

3. EXHIBITS.
--------

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.*

3.1 Certificate of Incorporation of Registrant, as amended to June 2,
1991. Incorporated by reference to Exhibit 3.1 to the Registrant'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.*

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.*

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.*

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.

4.3.1 Investment Agreement dated as of July 24, 1996 by and between Au
Bon Pain Co., Inc., Saint Louis Bread Company, Inc., ABP Midwest
Manufacturing Co., Inc., Allied Capital Corporation, Allied Capital
Corporation II, Capital Trust Investments, Ltd. Incorporated by
reference to Exhibit 4.3.1 of Registrant's Annual Report on Form
10-K for the year ended December 28, 1996.

4.3.2 Senior Subordinated Debenture dated as of July 24, 1996 in the
amount of $3,600,000 from Au Bon Pain Co., Inc., Saint Louis Bread
Company, Inc., and ABP Midwest Manufacturing Co., Inc. payable to
Allied Capital Corporation. Incorporated by reference to Exhibit
4.3.2 of Registrant's Annual Report on Form 10-K for the year ended
December 28, 1996.

4.3.3 Senior Subordinated Debenture dated as of July 24, 1996 in the
amount of $7,500,000 to Au Bon Pain Co., Inc., Saint Louis Bread
Company, Inc., and ABP Midwest Manufacturing Co., Inc. payable to
Capital Trust Investments, Ltd. Incorporated by reference to
Exhibit 4.3.3 of Registrant's Annual Report on Form 10-K for the
year ended December 28, 1996.

4.3.4 Senior Subordinated Debenture dated as of July 24, 1996 in the
amount of $3,900,000 from Au Bon Pain Co., Inc., Saint Louis Bread
Company, Inc., and ABP Midwest Manufacturing Co., Inc. payable to
Allied Capital Corporation II. Incorporated by reference to Exhibit
4.3.4 of Registrant's Annual Report on Form 10-K for the year ended
December 28, 1996.

10.1 Distribution Service Agreement between the Registrant and the SYGMA
Network, Inc., dated December 2, 1994. Incorporated by reference to
Exhibit 10.1.1 to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1994.

10.2 Lease from Economic Development and Industrial Corporation to the
Registrant, dated December 14, 1982, as amended August 1, 1984 and
July 1, 1985. Incorporated by reference to Registrant's
registration statement on Form S-1 (File No. 33-40153), Exhibit
10.8.

10.3.1 Registrant's Non-Qualified Stock Option Plan For Employees and
forms of option agreements thereunder. Incorporated by reference to
Registrant's registration statement on Form S-1 (File No.
33-40153), Exhibit 10.10.

10.3.2 Registrant's 1992 Equity Incentive Plan and form of non-qualified
option agreement thereunder. Incorporated by reference to
Registrant's registration statement on Form S-1 (File No.
33-40153), Exhibit 10.13.

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.+

10.7.1 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.*

10.10 Bakery Product Supply Agreement by and between Bunge Foods
Corporation and Au Bon Pain Co., Inc. dated as of March 23, 1998.*

21 Registrant's Subsidiaries. Incorporated by reference to the
Registrant's Annual Report on Form 10-K for the year ended December
28, 1996.

23.1 Consent of Coopers & Lybrand 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) Reports on Form 8-K.

During the last quarter of the fiscal year covered by this report, the
Company filed no report on Form 8-K.

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.

AU BON PAIN CO., INC.

By: /S/ LOUIS I. KANE
---------------------------------------------
Louis I. Kane
Co-Chairman

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 in
the capacities and on the date indicated:

Signature Title Date
- --------- ----- ----

/S/ LOUIS I. KANE Co-Chairman March 25, 1998
- --------------------------
Louis I. Kane

/S/ RONALD M. SHAICH Co-Chairman and March 25, 1998
- -------------------------- Principal Executive
Ronald M. Shaich Officer

/S/ FRANCIS W. HATCH Director March 25, 1998
- --------------------------
Francis W. Hatch

/s/ GEORGE E. KANE Director March 27, 1998
- --------------------------
George E. Kane

Director _________________
- --------------------------
James R. McManus

/S/ HENRY J. NASELLA Director March 25, 1998
- --------------------------
Henry J. Nasella

/S/ JOSEPH P. SHAICH Director March 25, 1998
- --------------------------
Joseph P. Shaich

/S/ ANTHONY J. CARROLL Senior Vice President, March 25, 1998
- --------------------------- Treasurer and Principal
Anthony J. Carroll Accounting Officer

Exhibit Index

Exhibit Item Page
- ------- ---- ----

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.*

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.*

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.*

10.9 Bakery Product Supply Agreement by and between Bunge Foods
Corporation and Saint Louis Bread Company, Inc. dated as of March
23, 1998.*

10.10 Bakery Product Supply Agreement by and between Bunge Foods
Corporation and Au Bon Pain Co., Inc. dated as of March 23, 1998.*

23.1 Consent of Coopers & Lybrand L.L.P.*

27 Financial Data Schedule.*