SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------------
FORM 10-K/A
--------------------
AMENDMENT TO
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 26, 1998
COMMISSION FILE NUMBER 0-19253
--------------------
AU BON PAIN CO., INC.
--------------------
(Exact name of registrant as specified in its charter)
DELAWARE 04-2723701
----------------- ------------
(State or other jurisdiction (I.R.S. employer
of incorporation or identification No.)
organization)
19 FID KENNEDY AVENUE, BOSTON, MASSACHUSETTS 02210
- ------------------------------------------- -------
(Address of principal executive offices) (Zip Code)
(617) 423-2100
----------------
(Registrant's telephone number, including area code)
AMENDMENT NO. 1
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its Annual Report for the fiscal year
ended December 26, 1998 on Form 10-K as set forth in the pages attached hereto:
1. Part III: Item 10 - Directors and Executive Officers of the Registrant.
2. Part III: Item 11 - Executive Compensation.
3. Part III: Item 12 - Security Ownership of Certain Beneficial Owners and
Management.
4. Part III: Item 13 - Certain Relationships and Related Transactions.
5. Part IV: Item 14 - Exhibits, Financial Statement Schedules and Reports
on Form 8 K; Section 3.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
BACKGROUND INFORMATION REGARDING DIRECTORS AND EXECUTIVE OFFICERS
The following table and biographical descriptions set forth information
regarding the principal occupation, other affiliations, committee memberships
and age, for each Director in office and the executive officers of the Company
who are not Directors, based on information furnished to the Company by each
director and officer. The following information is as of April 1, 1999 unless
otherwise noted.
Term as a
Name Age Position With Company Director Ends
---- --- --------------------- -------------
Henry J. Nasella(1)(2)........ 52 Director 2001
George E. Kane(3)............. 94 Director 2001
Louis I. Kane.................. 68 Co-Chairman, Director 2000
James R. McManus(1)(2)........ 65 Director 2000
Ronald M. Shaich............... 45 Co-Chairman, Director, 1999
Chief Executive Officer
Francis W. Hatch(1)(2)(3)..... 73 Director 1999
- ----------
(1) Member of the Compensation and Stock Option Committee.
(2) Member of the Committee on Nominations.
(3) Member of the Audit Committee.
GEORGE E. KANE, Director since November 1988. Mr. Kane was a Director
of the Company from March 1981 to December 1985 and a Director Emeritus from
December 1985 to November 1988. Mr. Kane retired in 1970 as President of Garden
City Trust Company (now University Trust Company). Mr. Kane is an Honorary
Director of USTrust. Mr. Kane is the father of Louis I. Kane.
HENRY J. NASELLA, Director since June 1995. Mr. Nasella has been the
President, Chief Executive Officer and Chairman of Star Markets Company, Inc.
from September 1994. From January 1994 to September 1994, he was a principal of
Phillips-Smith Specialty Venture Capital. From 1988 to July 1993, Mr. Nasella
served as the President and Chief Operating Officer of Staples, Inc. Mr. Nasella
served as President and Chief Executive Officer of Staples USA (Domestic) from
1992 to July 1993. Mr. Nasella currently is a member of the Board of Visitors of
Northeastern University School of Business and a member of the Board of Trustees
of Northeastern University Corporation.
FRANCIS W. HATCH, Director since February 1983. Mr. Hatch is a trustee
of certain private trusts, and also serves as a director of various
corporations.
-2-
LOUIS I. KANE, Director since 1981, co-founder of the Company and
Co-Chairman of the Board since January 1988. From January 1988 to May 1994, Mr.
Kane served as Co-Chief Executive Officer of the Company. From March 1981 to
January 1988, Mr. Kane served as Chairman and Chief Executive Officer of the
Company. Beginning in August 1978, Mr. Kane was Chief Executive Officer of Au
Bon Pain Corporation, an operator of French bakeries and a predecessor of the
Company.
JAMES R. MCMANUS, Director since October 1987. Since 1971, Mr. McManus
has been Chairman, Chief Executive Officer and founder of Marketing Corporation
of America, Westport, Connecticut, a marketing consulting and marketing services
firm. On February 1, 1994, Mr. McManus resigned as President and Chief Executive
Officer of Business Express, Inc., a regional airline operating in the
northeastern United States. On January 22, 1996, a petition for Chapter XI
Bankruptcy Protection was filed against Business Express, Inc. in federal
Bankruptcy Court in Manchester, New Hampshire by Saab Aircraft of America and
two of its operating subsidiaries.
RONALD M. SHAICH, Director since 1981, co-founder of the Company,
Co-Chairman of the Board since January 1988 and Chief Executive Officer since
May 1994. From January 1988 to May 25, 1994, Mr. Shaich served as Co-Chief
Executive Officer of the Company. Mr. Shaich is Chairman of the Board of
Trustees of Clark University.
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
MAXWELL T. ABBOTT, 52, Senior Vice President Technical Services since
June 1995. Prior to that time since 1991, Mr. Abbott was Senior Vice President -
Research and Development of Long John Silver's, Inc.
MARK A. BORLAND, 46, Executive Vice President since January 1993 and
Chief Operating Officer of the Au Bon Pain Business Unit since June 1998.
President, Manufacturing Services Division from January 1995 until June 1998.
Prior to January 1995 and from May 1992, Mr. Borland served as Executive Vice
President of Au Bon Pain Retail Operations and Manufacturing Operations. Prior
to May 1992, Mr. Borland served as Vice President Manufacturing Operations of
the Company.
ANTHONY J. CARROLL, 47, Senior Vice President and Chief Financial
Officer since November 1988. Mr. Carroll has also served as Treasurer of the
Company since 1992.
MARIEL CLARK, 42, Senior Vice President Corporate Human Resources since
July 1994. Prior to that and since January 1993, Ms. Clark served as Vice
President Human Resources.
THOMAS R. HOWLEY, 48, Vice President, General Counsel and Assistant
Secretary since January 1993. Prior to that time and for the five years
preceding December 28, 1996, Mr. Howley was an attorney with the law firm of
Rackemann, Sawyer & Brewster.
WILLIAM N. MORETON, 39, Executive Vice President, and Chief
Financial Officer of the Saint Louis Bread Business Unit since November 1998.
Prior to that time since April 1997, Mr. Moreton served as Executive Vice
President and Chief Financial Officer of Quality Dining, Inc. Prior to that
time and since October 1992, Mr. Moreton served as Executive Vice President
and Chief Financial Officer of Houlihan's Restaurants Inc.
-3-
RICHARD C. POSTLE, 50, Executive Vice President and President, Saint
Louis Bread Company, Inc. since August 1995. From August 1994 through August
1995, Mr. Postle was President and Chief Operating Officer of Checkers Drive-In
Restaurants, Inc. From January 1992 through August 1994, Mr. Postle was Senior
Vice President, Operations of KFC-USA. From 1988 through December 1991, Mr.
Postle was Chief Operating Executive of Brice Foods Inc.
SAMUEL H. YONG, 49, Executive Vice President and President Au Bon Pain
Business Unit since June 1998. Mr. Yong was Executive Vice President and
President, International and Trade Channels Business Unit between January 1994
and June 1998. From April 1989 to December 1993, Mr. Yong served as Managing
Director for Burger King Asia Pacific Private, Ltd.
COMPLIANCE WITH SECTION 16(A) OF
THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and Directors, and persons who own more than 10% of the
Company's outstanding shares of Common Stock to file reports of ownership and
changes in ownership with the Securities and Exchange Commission (the "SEC") and
Nasdaq. Officers, Directors and greater than 10% stockholders are required by
SEC regulations to furnish the Company with copies of all Section 16(a) forms
they file.
In accordance with the provisions of Item 405 of Regulation S-K, to the
Company's knowledge, based solely on review of the copies of such reports
furnished to the Company and written representations that no other reports were
required during the fiscal year ended December 26, 1998, all Section 16(a)
filing requirements applicable to its executive officers, Directors and greater
than 10% beneficial owners were satisfied, except that Anthony J. Carroll
filed a late Form 4 in respect of his exercise of options to purchase 12,500
shares of Class B Common Stock and will file a late Form 5 in respect of the
grant to him of options to purchase 22,500 shares of Class A Common Stock.
ITEM 11. EXECUTIVE COMPENSATION.
COMPENSATION TABLES
The following tables set forth information concerning the compensation
paid or accrued by the Company during the fiscal years ended December 28, 1996,
December 27, 1997 and December 26, 1998, to or for the Company's Chief Executive
Officer and its four other most highly compensated executive officers whose
salary and bonus combined exceeded $100,000 for fiscal year 1998 (hereinafter
referred to as the "named executive officers").
-4-
SUMMARY COMPENSATION TABLE
Long-term
Annual Compensation
Compensation Options/sars All Other
Name and ------------ Salary Bonus Other Annual ------------ Compensation
Principal Position Year ($) ($) Comp.($) (#) ($)
------------------ ---- --- --- --------- --- ---
Ronald M. Shaich 1998 254,807 -- 1,428 -- --
Co-Chairman and Chief 1997 250,000 -- 1,428 400,000 (a) --
Executive Officer 1996 249,519 -- 1,428 -- --
Louis I. Kane 1998 254,807 -- 17,640 -- --
Co-Chairman 1997 250,000 -- 17,640 400,000 (a) --
1996 249,519 -- 17,640 -- --
Richard C. Postle 1998 316,067 -- 5,096 100,000 --
President, Saint 1997 295,192 75,000 8,846 10,000 --
Louis/Panera 1996 250,000 75,000 7,436 35,000 (b) --
Bread Business Unit
Mark A. Borland 1998 214,275 150,000 6,759 25,000 --
Chief Operating Officer, 1997 194,205 -- 5,516 15,000 --
Au Bon Pain Business 1996 188,370 -- 5,939 -- --
Unit
Anthony J. Carroll 1998 167,450 125,000 6,487 42,500 --
Senior Vice President, 1997 144,816 -- 5,528 10,000 --
Treasurer and Chief 1996 139,819 18,200 6,392 2,212 --
Financial Officer
(a) Consists of a ten-year option, vesting equally over a five year period
beginning June 12, 1997 subject to continued employment.
(b) Includes an option for 5,000 shares granted in fiscal 1997 in order to
reflect compensation earned for performance in fiscal 1996.
-5-
AGGREGATED OPTION/SAR GRANTS IN LAST FISCAL YEAR
Individual Grants
---------------------------
Percent of Potential Realizable
Number of Total Annual Rates of Stock
Securities Options/ Valued At Assumed Price
Underlying Sars Appreciation
Options/ Granted to Prices for Option Term
Sars Employees Exercise or ($)*
Granted in Fiscal Base Price Expiration -------------------------
Name (#) Year (%) ($/Sh) Date 5% 10%
---- --- -------- ------ ---- -- ---
Ronald M. Shaich -0- N/A N/A N/A N/A N/A
Louis I. Kane -0- N/A N/A N/A N/A N/A
Richard C. Postle 100,000 11.9 6.38 6/25/08 401,235 1,016,808
Mark A. Borland 25,000 3.0 10.94 6/25/08 172,003 435,889
Anthony J. Carroll 22,500 2.7 6.38 11/19/08 90,278 228,782
20,000 2.4 10.94 6/25/08 137,602 348,711
* The dollar amounts in this table are the result of calculations at stock
appreciation rates specified by the Securities and Exchange Commission and are
not intended to forecast actual future appreciation rates of the Company's stock
price.
AGGREGATED OPTIONS/SAR EXERCISES IN
LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES
Shares Number of Securities Value of Unexercised
Acquired Underlying Unexercised In-the-Money Options/SARs
on Value Options / Sars At Fy-end (#) At Fiscal Year End ($)
Exercise Realized ---------------------------- ---------------------------
Name (#) ($) Exercisable / Unexercisable Exercisable / Unexercisable
---- -------- -------- ---------------------------- ---------------------------
Ronald M. Shaich....... -- -- 357,330/320,000 0/0
Louis I. Kane.......... -- -- 357,330/320,000 0/0
Richard C. Postle...... -- -- 30,912/160,910 1,875/5,625
Mark A. Borland........ -- -- 36,757/40,661 6,560/0
Anthony J. Carroll..... 12,500 2,562 20,431/59,270 1,235/0
-6-
TEN YEAR OPTION/SAR REPRICINGS
As discussed in the Report of the Compensation and Stock Option
Committee on Executive Compensation, in November 1998 the Company cancelled and
reissued options issued in June 1998 to certain individuals including Richard C.
Postle a named executive officer. The repricing was based on the market price of
the Class A Common Stock on November 19, 1998. The new options were for the same
number of shares and retained the original vesting and expiration dates of the
old stock options; the new options did not accelerate or extend the time for
exercise of any old options. The table below sets forth information with respect
to Mr. Postle's options and with respect to all former or current executive
officers of the Company concerning their participation in other option repricing
programs implemented by the Company during the last ten fiscal years.
-7-
TEN-YEAR OPTION/SAR REPRICINGS
Number of
Securities Length of Original
Underlying Option Term
Options/sars Market Price of Exercise Price New Remaining At
Repriced or Stock At Time At Time of Exercise Date
Amended of Repricing or Repricing or Price of Repricing or
Name Date (1) (1)(#) Amendment($) Amendments($) ($) Amendment
---- -------- ------ ------------ ------------- --- ---------
Ronald M. Shaich..........October 9, 1995 2,448 $7.25 $20.00 $7.25 6.5
October 9, 1995 45,536 $7.25 $23.75 $7.25 7.3
October 9, 1995 1,961 $7.25 $23.75 $7.25 7.5
October 9, 1995 55,092 $7.25 $24.00 $7.25 8.3
October 9, 1995 72,293 $7.25 $15.50 $7.25 9.3
Louis I. Kane.............October 9, 1995 2,448 $7.25 $20.00 $7.25 6.5
October 9, 1995 45,536 $7.25 $23.75 $7.25 7.3
October 9, 1995 1,961 $7.25 $23.75 $7.25 7.5
October 9, 1995 55,092 $7.25 $24.00 $7.25 8.3
October 9, 1995 72,293 $7.25 $15.50 $7.25 9.3
Samuel H. Yong............October 9, 1995 5,808 $7.25 $25.00 $7.25 8.3
October 9, 1995 717 $7.25 $20.25 $7.25 8.5
October 9, 1995 744 $7.25 $20.00 $7.25 8.7
October 9, 1995 1,024 $7.25 $16.69 $7.25 9.0
October 9, 1995 1,105 $7.25 $16.00 $7.25 9.2
October 9, 1995 1,433 $7.25 $13.63 $7.25 9.5
October 9, 1995 12,698 $7.25 $11.88 $7.25 9.6
October 9, 1995 1,717 $7.25 $12.13 $7.25 9.7
October 9, 1995 3,156 $7.25 $7.75 $7.25 10.0
Mark A. Borland...........October 9, 1995 12,837 $7.25 $12.50 $7.25 6.0
October 9, 1995 4,937 $7.25 $19.78 $7.25 7.4
October 9, 1995 2,644 $7.25 $20.00 $7.25 8.6
John P. Billingsley.......October 9, 1995 3,154 $7.25 $19.78 $7.25 7.4
October 9, 1995 5,067 $7.25 $20.00 $7.25 8.6
October 9, 1995 2,638 $7.25 $16.63 $7.25 8.8
October 9, 1995 4,056 $7.25 $11.88 $7.25 9.6
Mariel Clark..............October 9, 1995 6,732 $7.25 $17.00 $7.25 6.6
October 9, 1995 3,154 $7.25 $19.78 $7.25 7.4
October 9, 1995 4,223 $7.25 $20.00 $7.25 8.6
October 9, 1995 5,297 $7.25 $15.38 $7.25 8.9
October 9, 1995 8,112 $7.25 $11.88 $7.25 9.6
David J. Peterman.........October 9, 1995 16,510 $7.25 $15.50 $7.25 9.0
Maxwell T. Abbott.........October 9, 1995 15,741 $7.25 $12.13 $7.25 9.6
Richard C. Postle.........Nov. 19, 1998 100,000 $6.38 $10.94 $6.38 9.6
October 9, 1995 46,822 $7.25 $9.25 $7.25 9.9
Peter E. McNally..........October 9, 1995 16,504 $7.25 $15.50 $7.25 8.9
Anthony J. Carroll........October 9, 1995 3,154 $7.25 $19.78 $7.25 7.4
October 9, 1995 4,223 $7.25 $20.00 $7.25 8.6
October 9, 1995 8,112 $7.25 $11.88 $7.25 9.6
Thomas R. Howley..........October 9, 1995 5,284 $7.25 $19.75 $7.25 7.0
October 9, 1995 3,154 $7.25 $19.78 $7.25 7.4
October 9, 1995 3,378 $7.25 $20.00 $7.25 8.6
October 9, 1995 4,056 $7.25 $11.88 $7.25 9.6
-8-
In connection with the 1995 repricing program, the number of options
held was also reduced. The following chart shows the number of options
outstanding prior to the 1995 repricing, and the number outstanding after such
repricing:
Number of Number of
Securities Securities
Underlying Underlying
Options/sars Options/sars
Outstanding Prior to Outstanding
Name Repricing After Repricing
---- --------- ---------------
Ronald M. Shaich.............................................. 5,000 2,448
100,000 45,536
4,211 1,961
110,000 55,092
100,000 72,293
Louis I. Kane................................................. 5,000 2,448
100,000 45,536
4,211 1,961
110,000 55,092
100,000 72,293
Samuel H. Yong................................................ 12,000 5,808
1,234 717
1,250 744
1,498 1,024
1,563 1,105
1,835 1,433
15,152 12,698
2,062 1,717
3,226 3,156
Mark A. Borland............................................... 18,000 12,837
9,100 4,937
4,500 2,644
John P. Billingsley........................................... 5,814 3,154
8,625 5,067
3,909 2,638
4,840 4,056
Mariel Clark.................................................. 11,765 6,732
5,814 3,154
7,188 4,223
7,421 5,297
9,680 8,112
David J. Peterman............................................. 23,226 16,510
Maxwell T. Abbott............................................. 18,961 15,741
Richard C. Postle............................................. 50,000 46,822
Peter E. McNally.............................................. 23,226 16,504
Anthony J. Carroll............................................ 5,814 3,154
7,188 4,223
9,680 8,112
Thomas R. Howley.............................................. 10,127 5,284
5,814 3,154
5,750 3,378
4,840 4,056
-9-
THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Company's Board of Directors held 13 meetings, including 7 actions
by written consent, during fiscal year 1998. The Board of Directors has
established an Audit Committee, a Compensation and Stock Option Committee and a
Committee on Nominations.
The Audit Committee, which held one meeting in fiscal year 1998, meets
with the Company's auditors and principal financial personnel to review the
results of the annual audit. The Audit Committee also reviews the scope of, and
establishes fees for, audit and non-audit services performed by the independent
accountants, reviews the independence of the independent accountants and the
adequacy and effectiveness of the Company's internal accounting controls. The
Audit Committee consists of two members, currently Messrs. George E. Kane and
Francis W. Hatch, and is reconstituted annually.
The Compensation and Stock Option Committee ("Compensation Committee"),
which held 3 meetings in fiscal year 1998, establishes the compensation,
including stock options and other incentive arrangements, of the Company's
Co-Chairmen and Chief Executive Officer. It also administers the Company's 1992
Equity Incentive Plan and 1992 Employee Stock Purchase Plan. The Compensation
Committee consists of three members, currently Messrs. Francis W. Hatch, James
R. McManus and Henry J. Nasella, and is reconstituted annually.
The Committee on Nominations was established in November 1995 and held
one meeting in 1998. The Committee on Nominations consists of three members,
currently Messrs. Francis W. Hatch, James R. McManus and Henry J. Nasella, and
is reconstituted annually. The Committee on Nominations selects nominees for
election as Directors and will consider written recommendations from any
stockholder of record with respect to nominees for Directors of the Company.
All Directors attended at least 75% of the meetings of the Board and of
the committees of which they are members in fiscal 1998.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the Compensation Committee has interlocking or
other relationships with other boards or with the Company that would call into
question his independence as a Committee member.
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company receive a quarterly fee
ranging from $3,000 to $3,500 for serving on the Board, plus reimbursement of
out-of-pocket expenses for attendance at each Board or committee meeting.
Under a formula-based stock option plan for independent directors (the
"Directors' Plan"), as amended by the stockholders at the 1995 Annual Meeting of
Stockholders, each current Director who is not an employee or principal
stockholder of the Company ("Independent Director") first elected after the
effective date of the Directors' Plan will receive, upon his or her election to
the board, a one-time grant of an option to purchase 5,000 shares of Class A
Common stock. All Independent Directors who serve as such at the end of each of
the Company's fiscal years will receive an option to purchase 5,000 shares of
Class A Common Stock. All such options will have an exercise price per share
equal to the fair
-10-
market value of a share of Class A Common Stock as of the close of the market
the trading day immediately preceding the grant date, will be fully vested when
granted, and will be exercisable for a period of 10 years.
REPORT OF THE COMPENSATION COMMITTEE
This report is made by the Compensation and Stock Option Committee (the
"Compensation Committee") of the Board of Directors, the committee which is
responsible for establishing the compensation, including base salary and
incentive compensation, for the Company's Co-Chairman of the Board, Louis I.
Kane and its Co-Chairman and Chief Executive Officer, Ronald M. Shaich.
PHILOSOPHY
The Compensation Committee seeks to set the compensation of the
Company's Chief Executive Officer and Co-Chairmen at levels which are
competitive with companies of similar size in the Company's industry. Messrs.
Kane and Shaich share the overall responsibilities of Chairman of the Board of
Directors. Mr. Shaich also has the overall responsibilities of Chief Executive
and Chief Operating Officer. In addition to his responsibilities as Co-Chairman,
Mr. Kane is actively involved in a number of areas of the Company, including
real estate development, finance and international franchise development. The
Compensation Committee examined compensation structures for the chief executive
and chief operating officers of companies in the restaurant industry using
generally available source material from business periodicals and other sources,
and sought to structure the Chief Executive Officer's and Co-Chairmen's
compensation at a competitive level appropriate to the comparable companies'
group. The companies examined for purposes of evaluating and setting
compensation of the Chief Executive Officer and Co-Chairmen are not necessarily
included in the "Standard & Poor's 400 - MidCap Restaurant Index" used in the
Stock Performance Graph set forth under "Stock Performance" below.
COMPENSATION STRUCTURE
The compensation of the Chief Executive Officer and Co-Chairmen is
structured to be competitive within the Company's industry and is based upon the
general performance of the Company, and is reviewed annually by the Committee.
COMPONENTS OF COMPENSATION
SALARY. The salary shown in the Summary Compensation Table represents
the fixed portion of compensation for the Chief Executive Officer and
Co-Chairmen for the year. Changes in salary depend upon overall Company
performance as well as levels of base salary paid by companies of similar size
in the Company's industry.
BONUS. The cash bonus is the principal incentive-based compensation
paid annually to the Chief Executive Officer and Co-Chairmen. The Chief
Executive Officer and Co-Chairmen will receive a bonus in a predetermined amount
if the Company achieves its net income objective for the fiscal year. A higher
bonus is paid if the Company exceeds the net income objective by a predetermined
percentage. In determining the bonus amount, the Compensation Committee seeks to
create an overall compensation package for the Chief Executive Officer and
Co-Chairmen which is at the mid-point for comparable companies in the restaurant
industry. For 1998, the Company did not achieve the net income objective and,
therefore, no cash bonuses were paid to the Chief Executive Officer and
Co-Chairmen.
-11-
The Chief Executive Officer and Co-Chairmen may elect to take their
respective bonuses in the form of 10-year, fully vested stock options for that
number of shares of the Company's Class A Common Stock that could be purchased
with an amount equal to two times the cash value of his bonus. The exercise
price of the option equals the fair market value of the Company's Class A Common
Stock on the date of grant.
STOCK OPTIONS. Neither Mr. Kane nor Mr. Shaich participates in either
the Performance-Based Option Program under the Company's 1992 Equity Incentive
Plan or the 1992 Employee Stock Purchase Plan. In order to provide what the
Compensation Committee believes to be appropriate and continuing long-term
incentives to its Chief Executive Officer and Co-Chairmen, and in order to align
more fully the interests of the stockholders and the Chief Executive Officer and
Co-Chairmen, the Compensation Committee on June 12, 1997 granted, to each of
Messrs. Kane and Shaich a 10-year option, vesting equally over a five-year
period (subject to continued employment), to purchase 400,000 shares of the
Company's Class A Common Stock at an exercise price equal to the fair market
value of a share of the Class A Common Stock calculated immediately preceding
the date of grant. These grants were made in order to retain the services of
Messrs. Kane and Shaich over the next five years, at a minimum. As these options
have exercise prices equal to the market value of the Company's Class A Common
Stock on the grant date, they provide incentive for the creation of stockholder
value over the long term since their full benefit cannot be realized unless
there occurs over time an appreciation in the price of the Company's Class A
Common Stock. The Compensation Committee considers the number of shares to be an
appropriate incentive for the Chief Executive officer and Co-Chairmen to
continue to focus on building stockholder value. The Compensation Committee has
not determined whether any ongoing program of long-term incentive compensation
should or will be adopted with respect to its Chief Executive Officer and
Co-Chairmen.
In November 1998 the Compensation Committee determined that it was
desirable to provide an additional incentive to certain employees who had been
granted options in June 1998. The options granted in June 1998 had an exercise
price of $10.94, the market price for the shares of Class A Common Stock on the
grant date. Following the option issuances, the stock price declined, such that
by November 1998 the price was in the $6.25 to $7.00 range (per reported closing
prices). The Compensation Committee determined that the services of Richard
Postle were of great importance to the success of the Saint Louis/Panera Bread
Business Unit. Therefore, taking into account the significant change in stock
price closely following the June grant, the Committee determined that it was
appropriate, and in the Company's best interests, to cancel the June option
grant to Mr. Postle for 100,000 shares and to reissue the option at the market
price of $6.38 as of the date of grant (November 19, 1998).
-12-
DEDUCTIBILITY OF EXECUTIVE COMPENSATION
The Compensation Committee has reviewed the potential consequences for
the Company of Section 162(m) of the Code which imposes a limit on tax
deductions for annual compensation in excess of one million dollars paid to any
of the five most highly compensated executive officers. Based on such review,
the Compensation Committee believes that the limitation will have no effect on
the Company in 1999.
Respectfully submitted,
JAMES R. MCMANUS
Chairman, FRANCIS W. HATCH, HENRY J. NASELLA
REPORT OF THE CHIEF EXECUTIVE OFFICER
This report is made by the Company's Chief Executive Officer, who is
responsible for establishing the compensation, including salary, bonus and
incentive compensation, for all of the Company's executive officers other than
the Chief Executive Officer and Co-Chairmen of the Board.
PHILOSOPHY
In compensating its executive officers, the Chief Executive Officer
seeks to structure a salary, bonus and incentive compensation package that will
help attract and retain talented individuals and align the interests of the
executive officers with the interests of the Company's stockholders.
COMPONENTS OF COMPENSATION
There are two components to the compensation of the Company's executive
officers: annual cash compensation (consisting of salary and bonus incentives)
and long-term incentives.
CASH COMPENSATION. The Company participates annually in an
industry-specific survey of executive officers, which serves as the basis for
determining total target cash compensation packages, which are crafted
individually for each executive officer. The individual's compensation consists
of a base salary and contingent compensation based on actual performance against
agreed-to expectations of performance. The individual compensation packages are
structured so that, if the executive officer attains the expected level of
achievement of each performance goal, the cash compensation of the executive
officer will be approximately at the 75th percentile of the compensation of
individuals occupying similar positions in the industry, using generally
available surveys of executive compensation within the retail industry for
companies with comparable revenues.
At the beginning of each fiscal year, the Chief Executive Officer and
each executive officer establish a series of individual performance goals which
are specific to the executive's responsibilities. These goals seek to measure
performance of each executive officer's job responsibilities: for executive
officers whose responsibilities are operational in nature, attainment of
operating group goals and objectives is stressed, and for corporate staff
officers, overall Company performance measured by earnings-per share growth is
utilized. Currently, the maximum potential cash bonus for the Company's
executive officers, as a percentage of base salary, ranges from 20% to 60%.
-13-
Thus, the Company's cash compensation practices seek to motivate
executives by requiring excellent performance measured against both internal
goals and competitive performance.
LONG-TERM INCENTIVE COMPENSATION. The second element of executive
compensation, long-term incentive compensation, currently takes the form of
stock options granted under the Company's 1992 Equity Incentive Plan. Currently,
stock options are granted under the Performance-Based Option program, which
consists of a series of guidelines which provide for the periodic granting of
specific amounts of stock options, denominated in dollars rather than in numbers
of shares, depending upon the executive's position within the Company. Existing
holdings of stock or stock options are not a factor in determining the dollar
value of an individual executive officer's award.
As is the case with short-term incentive compensation, at the beginning
of each fiscal year, the Chief Executive Officer and each executive officer
establish a series of individual performance goals specifically related to the
executive's responsibilities and designed to measure execution of these
responsibilities. In addition, a Company-wide performance goal measured in
earnings-per-share growth is established. Further consideration is given to each
executive officer's accountability and/or level of responsibility for managing
one or more aspects of the Company's overall business. These factors are
weighted for each executive officer, with greater emphasis and value being
placed on those factors which could have a greater impact on the Company's
long-term profitability. An individual executive officer's performance against
each of these criteria is then graded at one of five levels: significantly less
than expected, less than expected, as expected, exceeds expectation, and
significantly exceeds expectation. Awards of options are then made based upon a
dollar value, which increases as the executive officer achieves higher grades
for overall performance.
As often as seems appropriate, but at least annually, the Chief
Executive Officer reviews the Company's executive compensation program to judge
its consistency with the Company's compensation philosophy, whether it supports
the Company's strategic and financial objectives, and whether it is competitive
within the Company's industry.
DEDUCTIBILITY OF EXECUTIVE COMPENSATION
The Chief Executive Officer has reviewed the potential consequences for
the Company of Section 162(m) of the Code which imposes a limit on tax
deductions for annual compensation in excess of one million dollars paid to any
of the five most highly compensated executive officers. Based on such review,
the Chief Executive Officer believes that the limitation will have no effect on
the Company in 1998.
Respectfully submitted,
RONALD M. SHAICH
Chief Executive Officer
EMPLOYMENT RELATED AGREEMENTS
The Company and Anthony J. Carroll are party to an Executive Employment
Agreement dated July 9, 1998 pursuant to which Mr. Carroll currently earns a
base salary of $200,000. The Agreement is for a two year term and automatically
renews unless either party gives notice of his or its intent not to renew the
Agreement 30 days prior to its expiration. In the event the Company gives notice
of its intent not to renew the Agreement or terminates Mr. Carroll without
cause during the term of the Agreement, Mr. Carroll
-14-
will be entitled to his base salary, car allowance (if any) and other benefits
for one year, such payments to be reduced dollar for dollar by any compensation
and benefits received by Mr. Carroll from other sources.
The Company and Mark A. Borland are party to an Executive Employment
Agreement dated August 27, 1997 pursuant to which Mr. Borland currently earns
a base salary of $238,370, $18,370 of which is deferred per the terms of a
Deferred Compensation Agreement. The Agreement is for a two year term and
automatically renews unless either party gives notice of his or its intent
not to renew the Agreement 30 days prior to its expiration. In the event that
the Company gives notice of its intent not to renew the Agreement or
terminates Mr. Borland without cause during the term of the Agreement, Mr.
Borland will be entitled to his base salary, car allowance (if any) and other
benefits for one year and a lump sum payment of $18,370, such payments to be
reduced dollar for dollar by any compensation and benefits received by Mr.
Borland from other sources.
The Company and Richard C. Postle are party to an Executive Employment
Agreement dated September 1, 1995, which provides Mr. Postle with a base
salary of $300,000 for a two year period. The Agreement automatically renews
unless either party gives notice of his or its intent not to renew the Agreement
at least twenty-six weeks prior to its expiration. In the event that the Company
gives notice of its intent not to renew the Agreement or terminates Mr.
Postle without cause during the term of the Agreement, Mr. Postle will be
entitled to his base salary, car allowance (if any) and other benefits for
twenty-six weeks, such payments to be reduced dollar for dollar by any
compensation and benefits received by Mr. Borland from other sources.
-15-
TOTAL RETURN TO STOCKHOLDERS
(ASSUMES $100 INVESTMENT ON DECEMBER 31, 1992)
The following graph and chart compare the cumulative annual stockholder
return on the Company's Class A Common Stock over the period commencing December
31, 1993 through December 31, 1998 to that of the total return index for the
NASDAQ Stock Market (U.S. Companies) and the Standard & Poor's 400 - MidCap
Restaurant Index, assuming the investment of $100 on December 31, 1993. In
calculating total annual stockholder return, reinvestment of dividends is
assumed. The stock performance graph and chart below are not necessarily
indicative of future price performance.
[PERFORMANCE GRAPH]
- ----------------------------------------------------------------------------------------------------------------------
TOTAL RETURN ANALYSIS
12/31/93 12/31/94 12/29/95 12/30/96 12/31/97 12/31/98
- ----------------------------------------------------------------------------------------------------------------------
Au Bon Pain $100.00 $70.33 $ 36.26 $ 28.57 $ 33.24 $ 26.67
- ----------------------------------------------------------------------------------------------------------------------
S&P MidCap $100.00 $68.74 $ 67.92 $ 65.15 $ 71.42 $ 87.40
Restaurants
- ----------------------------------------------------------------------------------------------------------------------
Nasdaq Composite $100.00 $96.79 $136.45 $167.88 $205.06 $297.02
- ----------------------------------------------------------------------------------------------------------------------
-16-
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
OWNERSHIP OF AU BON PAIN COMMON STOCK
The following table sets forth certain information as of March 31,
1999, with respect to the Company's Class A and Class B Common Stock owned by
(1) each director of the Company, (2) the executive officers named in the
Summary Compensation Table, (3) all directors and executive officers of the
Company as a group, and (4) each person who is known by the Company to
beneficially own more than five percent of the Company's capital stock. Unless
otherwise indicated in the footnotes to the table, all stock is owned of record
and beneficially by the persons listed in the table. +
Class A Common Class B Common
Name and, with respect to owner ------------------------ ------------------------- Combined Voting
of More Than 5%, Address Number Percent (1) Number Percent (2) Percentage (3)
- ------------------------------ ------ ----------- ------ ----------- --------------
Ronald M. Shaich............................ 420,865(4) 3.9% 1,272,540 80.7% 27.2%
Co-Chairman, Director and
Chief Executive Officer
c/o Au Bon Pain Co., Inc.
19 Fid Kennedy Avenue
Boston, MA 02210
Louis I. Kane............................... 373,580(5) 3.4 53,406 3.4 3.4
Co-Chairman and Director
c/o Au Bon Pain Co., Inc.
19 Fid Kennedy Avenue
Boston, MA 02210
Francis W. Hatch............................ 28,542(6) * 64,351(7) 4.1% 1.5%
Director
George E. Kane.............................. 28,942(6) * 20,000 1.3% *
Director
James R. McManus............................ 28,542(6) * -- -- *
Director
Henry J. Nasella............................ 20,080(8) * -- -- *
Director
Richard C. Postle........................... 69,576(9) * -- -- *
President, Saint Louis/Panera
Bread Business Unit
Mark A. Borland............................. 37,727(10) * -- -- *
Chief Operating Officer,
Au Bon Pain Business Unit
Anthony J. Carroll.......................... 23,170(11) * 19,911 1.3% *
Senior Vice President,
Treasurer and Chief
Financial Officer
-17-
Class A Common Class B Common
Name and, with respect to owner ------------------------ ------------------------- Combined Voting
of More Than 5%, Address Number Percent (1) Number Percent (2) Percentage (3)
- ------------------------------ ------ ----------- ------ ----------- --------------
All Directors and officers as
a group (14 persons)...................... 1,160,025(12) 10.1% 1,310,070 83.0% 33.4%
Morgan Stanley Group Inc. .................. 1,332,385(13) 12.6% -- -- 8.7%
PG Investors, Inc.
Princes Gate Investors, L.P.
1251 Avenue of the Americas
New York, NY 10020
Brown Capital Management.................... 1,319,450(14) 12.5% -- -- 8.7%
809 Cathedral Street
Baltimore, MD 21201
Princeton Services, Inc.
Fund Asset Management, L.P.................. 1,166,800(15) 11.1% -- -- 7.7%
Merrill Lynch Special
Value Fund, Inc.
800 Scudders Mill Road
Plainsboro, NJ 08536
Dimensional Fund Advisors Inc.
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401 ................... 755,900(16) 7.2% - - 5.0%
- ----------
* Less than one percent.
(1) Percentage ownership of Class A Common Stock is based on 10,560,051 shares
issued and outstanding plus shares subject to options exercisable within
sixty days of March 31, 1999 held by the stockholder or group.
(2) Percentage ownership of Class B Common Stock is based on 1,557,658 shares
issued and outstanding plus shares subject to options exercisable within
sixty days of March 31, 1999 held by the stockholder or group.
(3) This column represents voting power rather than percentage of equity
interest as each share of Class A Common Stock is entitled to one vote
while each share of Class B Common Stock is entitled to three votes.
(4) Includes options exercisable within 60 days for 357,330 shares.
(5) Consists of (a) 1,200 shares owned by Mr. Kane's spouse and as to which Mr.
Kane disclaims beneficial ownership; (b) 15,050 shares owned by Mr. Kane
and (c) options exercisable within 60 days for 357,330 shares.
(6) Includes options for 28,542 shares exercisable within sixty days of
March 31, 1999 pursuant to the Directors' Plan for independent directors.
-18-
(7) Includes 22,338 shares owned by Mr. Hatch's spouse and as to which Mr.
Hatch disclaims beneficial ownership.
(8) Consists of 1,000 shares jointly owned by Mr. Nasella and his spouse and
options for 24,080 shares exercisable within sixty days of March 31, 1999
pursuant to the Directors' Plan for independent directors.
(9) Includes options for 30,912 shares exercisable within 60 days of March 31,
1999.
(10) Includes options for 36,757 shares exercisable within 60 days of March 31,
1999.
(11) Includes options for 20,984 shares exercisable within sixty days of March
31, 1999.
(12) Includes options for 860,867 shares exercisable within sixty days of
March 31, 1999.
(13) Information included is based solely upon a Schedule 13D filed with the
Commission, jointly on behalf of Morgan Stanley Group Inc. ("MS Group"), PG
Investors, Inc. ("PGI") and Princes Gate Investors, L.P. ("Princes Gate
L.P."). PGI Investors, Inc. is a wholly-owned subsidiary of Morgan Stanley
Group Inc., and is the general partner of Princes Gate L.P. On December 22,
1993, the Company issued to several purchasers, including Princes Gate
L.P., $30,000,000 in aggregate principal amount of 4.75% Convertible
Subordinated Notes due 2001 (the "Notes"). The Notes are convertible into
fully paid and non-assessable shares of Class A Common Stock at a
conversion price (subject to adjustment) equal to $25.50 principal amount
for each share of Class A Common Stock, or currently 1,176,468 shares of
Class A Common Stock in the aggregate. The amount of shares disclosed
includes (a) 317 shares of Class A Common Stock owned by MS Group's
wholly-owned subsidiary, Morgan Stanley & Co. Incorporated ("MS & Co.") in
its capacity as a market-maker in the Company's Class A Common Stock, (b)
5,600 shares of Class A Common Stock over which MS & Co. exercises
discretionary authority on behalf of customers, and (c) since PGI exercises
investment management, voting and/or disposition control over all of the
Notes and the underlying shares of Class A Common Stock obtainable upon
conversion of the Notes, 1,176,468 shares of Class A Common Stock
obtainable upon conversion of the Notes. In connection with a financing
transaction consummated in July 1996, the number of shares also includes a
Class A Common Stock purchase warrant issued for 150,000 shares,
exercisable at $5.62 per share through July 24, 2001. (With respect to
Princes Gate, L.P., the total of 1,332,385 shares includes 881,504 shares
of Class A Common Stock obtainable upon conversion of the Notes, and, in
connection with the financing transaction consummated in July 1996,
includes a Class A Common Stock purchase warrant issued for 112,392 shares,
exercisable at $5.62 per share through July 24, 2001).
(14) Information included is based solely upon a Schedule 13G dated January 8,
1999.
(15) Princeton Services, Inc. ("PSI") is a parent holding company in accordance
with the Securities and Exchange Act of 1934 and is the corporate managing
general partner of Fund Asset Management, L.P. Fund Asset Management, L.P.
d/b/a Fund Asset Management ("FAM") is an investment adviser registered
under section 203 of the Investment Advisers Act of 1940 (the "Advisers
Act"). Merrill Lynch Special Value Fund, Inc. (the "Fund") is an investment
company registered under Section 8 of the Investment Company Act of 1940
(the "Investment Company Act"). FAM acts as an investment adviser to
investment companies registered under Section 8 of the Investment Company
Act and private accounts. With respect to securities held by those
investment companies and private accounts, several persons have the right
to receive, or the power to direct the receipt of dividends from or the
proceeds from the sale of such securities. The Fund, a reporting person for
which FAM serves as investment adviser, has an interest that relates to
more than 5% of the class of the class of securities reported herein. No
other person has an interest that relates to more than 5% of the class of
securities reported herein. PSI is deemed to be the beneficial owner of,
and has shared voting and dispositive power with respect to 1,166,800
shares, and FAM and the Fund are deemed to be the beneficial owners of, and
have shared voting and dispositive power with respect to 1,140,200 shares.
Information regarding beneficial
-19-
ownership of the shares has been obtained solely from the joint Schedule
13G of PSI, FAM and the Fund filed with the Commission on February 3, 1998.
(16) Dimensional Fund Advisors Inc. ("Dimensional"), a registered investment
advisor, is deemed to have beneficial ownership of 755,900 shares, all of
which shares are held in portfolios of DFA Investment Dimensions Group
Inc., a registered open-end investment company, or in series of the DFA
Investment Trust Company, a Delaware business trust, or the DFA Group Trust
and DFA Participation Group Trust, investment vehicles for qualified
employee benefit plans, all of which Dimensional serves as investment
manager. Dimensional disclaims beneficial ownership of all such shares.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There are no Certain Relationships or Related Transactions during the
fiscal year ended December 26, 1998 to report.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
3. EXHIBITS. The following exhibits are added to the list:
Exhibit
Number Description
- ------ -----------
10.6.5 Executive Employment Agreement between the Registrant and Mark A.
Borland dated August 27, 1997 and Deferred Compensation Agreement
between Mr. Borland and the Registrant.+
10.6.6 Executive Employment Agreement between the Registrant and
Anthony J. Carroll dated July 9, 1998.+
10.6.7 Executive Employment Agreement between the Registrant and Richard C.
Postle dated September 1, 1995.+
- ----------
+ Management contract or compensatory plan required to be filed as an exhibit to
this Form 10-K pursuant to Item 14(c).
-20-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this amendment 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 of the Board
Date: April 26, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this amendment has been duly signed by the following persons on behalf
of the registrant and in the capacities and on the date indicated:
/s/ Louis I. Kane /s/ Ronald M. Shaich
- ----------------------------- -------------------------------------
Louis I. Kane, Co-Chairman of Ronald M. Shaich, Co-Chairman of
the Board and Director the Board and Chief Executive Officer
/s/ Anthony J. Carroll /s/ Francis W. Hatch
- ----------------------------- -------------------------------------
Anthony J. Carroll, Chief Francis W. Hatch, Director
Financial Officer
/s/ George E. Kane /s/ Henry J. Nasella
- ----------------------------- -------------------------------------
George E. Kane, Director Henry J. Nasella, Director
/s/ James R. McManus
- -----------------------------
James R. McManus, Director
All dated: April 26, 1999
-21-