LNK Investor Brief, May 27, 2015 UNITE HERE Analyst: Brooks Bitterman, Ph.D. [email protected] (212) 332-9335

Private Equity Firm LNK Partners & Bakery-Café chain Given Au Bon Pain’s underperformance, has LNK Partners valued it properly for limited partners?

I. Au Bon Pain’s performance under LNK’s ownership and its implications

LNK Partners is a private equity firm with $763 million in assets under management in two funds.1 In 2008, LNK acquired a majority stake in the -based Au Bon Pain bakery-café chain.

This report investigates Au Bon Pain’s performance during LNK’s ownership and raises questions about LNK’s valuation of Au Bon Pain. Based largely on data on the “bakery-café”2 segment from Nations Restaurant News, the leading trade publication for the restaurant industry, we found that Au Bon Pain’s growth lagged behind its competitors in several key growth indicators. As we show in this report, between fiscal years 2008 and 2013, as compared with the five largest Bakery-Café chains:3

• Au Bon Pain lost the most market share in the U.S.; • Au Bon Pain ranked last in U.S. unit growth and expansion; • Au Bon Pain ranked last in growth of U.S. systemwide sales.6 Corner Bakery’s U.S. system- wide sales grew at more than 4 times the Compound Annual Growth Rate (CAGR) of Au Bon Pain, and Panera’s at over 9 times the rate of Au Bon Pain. • Au Bon Pain’s sales per café (U.S.) remained relatively flat at approximately $1.7 million, while Panera’s grew from around $1.6 million to over $2.5 million.

Moreover, while Au Bon Pain’s performance has lagged, competition in the bakery-café segment has continued to heat up. Panera has now captured over 65% of the bakery-café segment’s U.S. systemwide sales. Au Bon Pain, which is present in certain geographic markets and venues (e.g., hospitals and train stations), is seeing new competitors expanding or potentially expanding into those areas. In addition to Panera, these include more established operators like Corner Bakery, Einstein Bros., La Madeleine, Le Pain Quotidien, , Cosi, Potbelly , Hale and Hearty, Tossed, Chopt, and others. Newer competitors include companies like Sweet Green, Freshii, Lyfe Kitchen, and others. Finally, other fast-casual companies, and even fast-food restaurants, are changing in ways that compete with Au Bon Pain and the bakery-café segment, while segment operators, including and Dunkin Donuts, are also transitioning to offer more bakery-café food.

LNK Partners In March 2015, LNK committed capital to a minority investment in Life Time Fitness,5 a third investment of LNK Partners II, its most recently raised fund.6 The capital committed comes out of LNK Partners II’s $236 million of dry powder (capital committed to the fund that has not yet been invested) available before the investment.7 LNK typically invests up to $150 million of equity per transaction.8 LNK will need to raise a new fund by the time its current fund’s capital is committed in order to continue its investing activity. Given its recent investment in Life Time Fitness, LNK may go to market to raise a new middle market buyout fund in the coming months.

LNK’s Performance Record a) LNK Partners II LNK’s performance record has been mixed. Preqin is an established source for evaluating private equity performance. According to Preqin data, the manager’s most recent fund, LNK Partners II, had underperformed the majority of its peers as of June 2014.9 According to Preqin, LNK Partners II had generated a 3.4% Internal Rate of Return (IRR), far lower than the 12.3% benchmark IRR. b) LNK Partners I LNK’s 2006 vintage buyout fund, LNK Partners I, looks stronger, with an 11.3% IRR and 1.57x multiple as of mid-year 2014. Yet around a third of that multiple had not been returned to investors. Bakery-café operator Au Bon Pain Corp., a majority stake of which was acquired by LNK in 2008,10 represents a majority of the remaining assets under management in LNK Partners I, raised in 200611.

LNK Partners I has performed in line with peers so far, but continues to hold Au Bon Pain. According to Preqin, LNK Partners I had achieved an IRR of 11.3% compared to the 9.6% benchmark IRR.

However, its success has been reliant not on buyouts but on an insider minority stake of stock in Phillips Van Heusen (PVH), which LNK quickly exited after 2 years and 8 months for a net multiple of 2.01. Bruce Klatsky, a founding partner of LNK, was the CEO and Chairman of the Board of Philips Van Heusen from 1993 to 2007. Unlike PVH, LNK has held Au Bon Pain for over seven

2 years, with lagging growth in U.S. locations and U.S. revenue as compared to peers, while collecting an annual management fee that is generally 2% per year of invested capital.12

LNK and Au Bon Pain Private equity typically seeks to either expand restaurant chains or to increase sales at each location through innovations in offerings, branding, culture, etc. After LNK made its investment in Au Bon Pain in 2008, Susan Morelli13 remained President/CEO, a position she continues to hold today.14 Despite optimistic projections made at the time by LNK and Au Bon Pain management, Au Bon Pain’s record from the 2008 through the 2013 fiscal years, as demonstrated below, is lower growth than comparable Bakery-Cafes.

This report analyzes Au Bon Pain’s unit and sales growth compared to peers in fiscal years 2008 through 2013, and asks whether the 1.57x multiple of LNK Partners I is accurate. It further asks whether LNK has sufficiently used its acquisition of Au Bon Pain to capitalize on significant growth in the bakery-café segment. Finally, it highlights headwinds for Au Bon Pain, as competition grows.

As reported in Preqin’s May 2015 newsletter: Median holding periods for private equity companies have typically been between 3 and 5 years.15 Since 2008, median holding times increased to 5.9 years in 2014.16 For companies sold in 2015, however, the median holding period dropped to 5.5 years, and “the exit environment appears to be fervent with the number and total value of private equity- backed exits in 2014 reaching their highest levels on record.”17 LNK has now held Au Bon Pain for over seven years.

QUESTIONS FOR LNK PARTNERS:

1. Has LNK valued Au Bon Pain and LNK Partners I correctly, given Au Bon Pain’s lagging growth under LNK Partners? 2. Was Au Bon Pain a smart investment decision for LNK Partners? 3. Why hasn’t Au Bon Pain been able to expand as rapidly as other Bakery-Cafes? 4. Why did LNK Partners not bring in new management for Au Bon Pain? 5. How will Au Bon Pain’s lagging growth, and increasing competition in its segment, affect its valuation at the time of sale, and will it impact future returns to LNK limited partners?

3 II. Au Bon Pain’s performance: market share, systemwide sales, and sales per unit

Private equity limited partners investing in restaurant chains expect fund managers to make necessary changes to expand, increase revenue, and improve performance. Data from Nations Restaurant News, along with other sources, allow us to assess Au Bon Pain’s performance in fiscal years 2008, when LNK became the majority owner, through 2013. i. The Promise in 2008: “Poised for significant growth” In January 2008, as LNK and Au Bon Pain announced LNK’s purchase of a majority stake in Au Bon Pain, LNK founding partner Henry Nasella justified its expenditure: “Au Bon Pain is poised for significant growth, building on the brand’s 30 years of success in the U.S. and internationally.”18 In fact, LNK’s press release was sub-titled “Company to Accelerate Expansion of Distinctive Brand.” According to Nasella, “For us, this is about management continuing to do what they’ve already proven they know how to do and the opportunity to expand the footprint domestically and internationally. It isn’t often you get to invest in a 30-year-old, well-established brand with a very strong management team that at the same time has a tremendous amount of opportunity to expand an d g row.” 19

In a March 4, 2008 article reporting the new ownership of Au Bon Pain, The New England Franchise Association reported that “[Au Bon Pain CEO Sue] Morelli said that Au Bon Pain will continue to open locations in its core markets in the Northeast, and will fill in some gaps between Chicago and the East Coast… We think there’s enough opportunity in the markets that we’re in now . . . .Ultimately, we can and will open in new markets contiguous to where we are.’’20

In January 2008, LNK stated that “the investment will support Au Bon Pain’s expansion strategy in the and in selected global markets.” Jeff Perlman, who was a Managing Director of LNK Partners on January 16, 2008 and is a current board member of ABP,21 said, “We are very excited to be backing the Au Bon Pain management team. The Au Bon Pain brand is highly recognized and uniquely positioned with a strong and differentiated consumer value proposition. Further, the company is conservatively capitalized to enable significant future growth.”22

Some ten months later, Fast Casual magazine reported that: Six months after being purchased by private-equity firm LNK Partners for $250 million, the senior-management team at Boston-based Au Bon Pain is reveling in the excitement and freedom that has come with their acquisition.

“This is like a 30-year-old company reborn,” said Au Bon Pain CEO Sue Morelli. “The opportunities and resources we now have to draw on are unlimited. The impact has just been tremendous.”

4 Not only does White Plains, N.Y.-based LNK offer deeper pockets, but the firm brings with it a wealth of expertise and a Rolodex stuffed with influential contacts.

Morelli points to LNK founding partner Henry Nasella as the motivating factor behind the deal.

“Henry grew Staples from a $40 million company to $1 billion, and as a CEO, it doesn’t get any better than that,” she said. “We believe he is going to help us reach that next level.”23 ii. The Reality: Au Bon Pain’s lagging growth since 2008 Every year, Nations Restaurant News (NRN) publishes “Top 100”24 and “Second 100”25 rankings of “the largest restaurant chains and parent companies based on U.S. Sales, unit counts, growth, market share and other metrics. Theannual industry-leading report has been used as a benchmarking tool for restaurants, suppliers, distributors and analysts to track restaurant brands, private-equity ownership and segment growth or decline.”26 The latest rankings published by NRN are for the 2013 fiscal year.27 Unless otherwise noted, data throughout this report comes from the NRN annual rankings of the Top 100 and Second 100 chains for the 2008-2013 fiscal years.28

NRN classifies restaurant brands and companies into segments. Au Bon Pain is included in the “Bakery-Café” segment, along with 6 other companies.29

These bakery-cafés operate within the “fast-casual” restaurant segment. Technomic, the primary market research and consulting firm in the restaurant industry, found in its latest report of Fast- Casual Chain Restaurants that “the fast-casual segment continues to steal share from full-service chains and drive limited service growth.” Within the fast-casual segment, Technomic found that “bakery cafes continued to lead all menu categories among the Top 150 fast-casual chains…”30

Although fiercely competitive, “The [bakery-cafes] industry has U.S. market share of five outperformed the broader food service segment over the past decade largest café-bakery chains, and has surged over the past five years, despite the recession.”31 Latest Year Share35 (NRN) In releasing its Top 100 rankings in June 2014, NRN noted that “Bakery-Cafe continues to grow, posting the fastest sales- and unit- Panera 65.79% growth rates for two years running.”32 Tim Horton 9.62% iii. Au Bon Pain has lost market share Einstein Bros 7.83% Despite the fast-paced growth of the bakery-café segment as a Au Bon Pain 5.61% whole, Au Bon Pain’s share of the bakery-café segment has shrunk 33 34 Corner Bakery since 2008. This chart shows the market share for the five largest 5.27% NRN “Bakery-Café” chains: Café

5 In the fiscal year ending August 2008, ABP had 7.84% U.S. market share36 of the companies that NRN included in the Bakery-Café segment. Since then, Au Bon Pain has lost market share every year, now accounting for just 5.61% of the total U.S. systemwide sales of the companies included in the “Bakery-Café” segment.

Au Bon Pain has lost more market share since fiscal year 2008 than any of the 5 largest “Bakery- Cafes” included in the NRN top 200 rankings.

Gain or loss in U.S. marketshare, 2008-2013:

Panera Bread +3.35% +0.18% -0.62% Einstein Bros. Bagels -1.46% Au Bon Pain -2.23% iv. Au Bon Pain’s unit growth and expansion have lagged behind competitors Since 2008, the year that LNK bought a majority stake in Au Bon Pain, Au Bon Pain’s expansion has lagged, compared to key competitors, in the manner shown in this section.

At the time of its sale, according to LNK’s March 4, 2008 press release, Au Bon Pain “operate[d] 226 bakery cafes in the U.S. and internationally,” including “121 company-owned locations” and 105 “franchise cafes in the U.S. and internationally.”37 Nation’s Restaurant News put the number of U.S. units at 184 in its ranking for fiscal year 2008.

In February 2000, Au Bon Pain claimed to operate 217 US units (“Company cafes” and franchise locations combined) and 65 franchise units in other countries,38 so the company had already declined in size by 2008. In December 1999, according to an SEC 10-K filing, Panera operated 191 bakeries,39 fewer than Au Bon Pain claimed to be operating a few months later. But by 2008, according to NRN, Panera had already grown to 1,197 U.S. units.

As of the end of fiscal-year 2013,40 according to the latest data available from NRN, Au Bon Pain had 212 U.S. units, still fewer than it had in 2000, while Panera had increased the number of its U.S. units over the same period by over 500%, to 1,658.

From 2008-2013, Au Bon Pain had the worst percent change in number of units among the five largest NRN “Bakery-Café” chains. Au Bon Pain added 28 U.S. Bakery-Cafes from 2008-2013 for an average annual growth rate of 3% compared to 224 new Einstein Bros, 46 new Corner Bakeries, 339

6 new Tim Hortons, and 461 additional Panera locations. As shown in the chart below, Au Bon Pain’s average annual growth rate of 3% was below that of its competitors in the “Bakery-Café” segment.

Five largest Café Bakery chains ranked by % increase in U.S. locations

The Boston Globe quoted CEO Sue Morelli in 2011 about Au Bon Pain’s “decision to accelerate our growth, including by going to new markets nationally.”41 But Au Bon Pain has failed to grow at the rate of its NRN “Bakery-Café” competitors between 2008 and 2013, as shown here.

Number of U.S. units of Cafe-Bakeries 2008 and 2013 (NRN)

7 v. Sales growth has lagged behind competitors According to NRN data, Au Bon Pain has also had lower growth of systemwide sales in the United States than the other four Top 5 companies in the NRN Bakery-Café segment. Of the five largest Bakery-Café chains included in that segment by Nations Restaurant News, Au Bon Pain had the lowest dollar growth in U.S. systemwide sales, growing from $307.4 million to only $344.2 million from fiscal-year 2008 to fiscal-year 2013.

U.S. Systemwide sales of 5 largest NRN “Cafe-Bakery” chains, 2008 to 2013, $ in millions

2008 2013

Au Bon Pain also had the lowest percent growth in U.S. systemwide sales among this group of five between 2008 and 2013.42 The NRN Bakery-Café with the second-lowest percent growth in U.S. systemwide sales, Corner Bakery, had a compound annual growth rate (CAGR) of U.S. systemwide sales four times that of Au Bon Pain. Panera’s CAGR of U.S. systemwide sales was 9 times greater than Au Bon Pain’s:

Five largest U.S. Café Bakery chains ranked by percent increase in U.S. systemwide sales and CAGR of systemwide sales

8 In the fiscal year ending 2013, the most recent year for which NRN Bakery-Café data is available, Au Bon Pain also ranked last in U.S.-systemwide-sales growth:

% Increase in U.S. Systemwide Sales, 2013 vs. 2012 fiscal years

vi. LNK Revenue growth from Au Bon Pain also lags NRN also calculates revenue flowing to restaurant parent companies separately from the U.S. systemwide sales of the restaurant brands. This U.S. revenue includes food-service sales from company-owned restaurants, as well as booked franchise fees and royalties.43 The following chart shows that LNK’s revenue from Au Bon Pain has increased only 10.6% between 2009, the first full year of LNK’s ownership of Au Bon Pain, and 2013, compared to an increase of 79% percent for Panera’s U.S. revenue.

U.S. Revenue, LNK vs. Panera, $ in millions

9 vii. Au Bon Pain’s sales per location (U.S.) have been flat during LNK’s management The NRN Top 100 and Second 100 rankings include data on estimated sales per unit.44 Not only has Au Bon Pain’s growth in U.S. systemwide sales lagged, but its sales per location have been relatively flat.

Since 2008, ABP’s sales per U.S. location have increased less than one percent (0.74%). Panera has increased its sales per location by over 19% in this same period.

In 2014, Nation’s Restaurant News added Le Madeleine Country French Café to the Second 100 rankings in the Bakery-Café segment and published data on this chain for the fiscal years 2011, 2012, and 2013.45 During that period, Le Madeleine has increased its sales per U.S. store from $2.057 million to $2.219 million.

Over the same time period, Au Bon Pain’s sales per U.S. store has fallen from $1.705 million to $1.683 million.

Panera, during the same period, increased its sales per U.S. location from $2.333 million to $2.527 million, and Corner Bakery held stable at approximately $2.1 million.

Top Four NRN “Bakery-Cafes” ranked by Sales per unit (U.S.) fiscal years 2008-2013, $ in thousands

10 In particular, while Au Bon Pain’s average unit volume (U.S.) has remained at about $1.68 million, Panera’s average unit volumes (U.S.) have grown steadily from $1.6 million annually in 2000 to $2.5 million as of the end of FY 2013.46 The fiscal-year 2013 NRN data shows that Au Bon Pain saw the steepest percentage decrease in sales per unit (U.S.) of any of the NRN “Bakery-Café” chains included in the Top 200 rankings, as shown below:

% Change in Sales Per Unit (U.S.) Between Fiscal Year 2012 and Fiscal Year 2013

III. Increasing Headwinds for Au Bon Pain: The Bakery-Café Segment is Becoming More Competitive

Growth in the bakery-café segment is helping to drive the rapid expansion of the fast-casual restaurant segment.47 But competition in an already competitive Bakery-Café segment continues to increase, and some Bakery-Cafes have benefited from their private equity ownership or public ownership.

Panera Originally a small division of Au Bon Pain until it was spun off in 1999,48 Panera has added more than 550 locations in the five years from 2008-2013 and nearly doubled its revenue.

According to NRN data, Panera now has 10 times more money in U.S. systemwide sales than Au Bon Pain. Panera is publicly traded and still growing, with over 1900 locations and over $2 billion in revenue, giving it “purchasing power and leverage rare in the fast-casual category.”49 Already in the suburbs, Panera has now expanded into hospitals50 and onto University campuses,51 two of Au Bon Pain’s typical settings, as well as into more urban settings.52

11 As Au Bon Pain founder (and current Panera CEO) Ron Shaich remembered:

By 1998, we have like 200 Panera stores . . . . I realized that Panera had so much potential, that it was touching a consumer chord, yet it was one of the smallest of our divisions in the Au Bon Pain company. I was down because I knew it was never going to get the capital it needed, and more importantly, it wasn’t going to get the human capital it needed.

[O]ne of our executives called and asked me, “what would you do if Panera owned Au Bon Pain and all the other lines, not the other way around?” I had never thought of it that way. But I knew if that was the case, I would sell everything, take all that capital, take myself and all our best people, and go down to St. Louis and make this new business go. Panera was the gem.

So that’s what we did. . . . In retrospect, it was brilliant.53

Panera, one of the first retailers to accept Applepay,54 is now rolling out Panera 2.0, upgrading its technology and operations, and expanding its catering operations.55 As recently as 2012, Panera said it was planning to add millions of dollars to its advertising budget, increasing its media investment by 26% that year, and bolstering its digital messaging.56 In early May, Panera received national press coverage when it announced its “No-No List” of more than 150 “unacceptable” ingredients.57

Corner Bakery Corner Bakery was purchased by private equity firm Roark Capital in 2011. According to NRN, Corner Bakery posted U.S. systemwide sales of $322 million in fiscal year 2013, an 8.9% gain from the preceding fiscal year, after a 13.6% increase in the prior fiscal year. NRN reports that Corner Bakery signed 12 new area development agreements in 2013 for up to 210 new units.58

Already in Au Bon Pain markets like Florida, Chicago, Philadelphia, Washington D.C., and elsewhere, Corner bakery also announced a development deal that would allow it to continue its expansion in Boston, Florida, Baltimore, Greater NY, and elsewhere59 with a move into Brooklyn, New York.60 Although NRN listed Corner Bakery as having 159 units as of December 2013, the Corner Bakery website now lists 188 locations.61 In 2014, Corner Bakery opened three locations at the Atlanta airport, saying that the chain is beginning “to target non-traditional venues as part of its overall national expansion strategy.”62

Roark brought in a new President for Corner Bakery in 2012 to join the existing CEO.63 In May 2012, it brought in the former director of franchise sales from Global Hyatt’s U.S. Franchise Systems as the new Director of Franchise Sales for the Western U.S. (since promoted to VP of Franchise Sales).64 In May 2014, Corner Bakery hired a new Chief Development Officer who had been the

12 Chief Development Officer-Worldwide at Bloomin’ Brands and before that part of the team at Panera that grew the concept from 250 units to 1500 locations.65

Einstein Noah Restaurant Group (Einstein Brothers Bagels) Bought by JAB in Sept 2014, which already owns Peets and . JAB brought in a new President and CEO at the purchase. Einstein has been expanding its operations through more licensed units, chiefly in universities, hospitals, and airports, areas in which Au Bon Pain is concentrated.66

Starbucks Nations Restaurant News classifies Starbucks as a “Beverage-Snack” concept, but the notion of so-called “turf wars” between “coffee cafés” like Starbucks and “bakery cafés” is increasingly recognized.67 With over 11,000 U.S. locations at the end of 2013 (and over $11 billion U.S. sales), Starbucks’ footprint has developed strategies for expanding in airports and68 hospitals. 69 Starbucks purchased La Boulange bakery in 2013 in order to introduce a more extensive bakery menu.70 Earlier this year, Starbucks hired Au Bon Pain’s Executive Chef and Senior Vice President of Food and Beverage Innovation to the new position of Vice President of Food Development, announcing that it plans to double its food sales in the next five years.71

Dunkin Donuts: Dunkin Donuts is also considered a “Beverage-Snack” concept (like Starbucks) in the NRN rankings.72 In December 2005, Dunkin Donuts was bought by a consortium of private equity firms for $2.425 billion.73 While Susan Morelli remained in charge of Au Bon Pain after LNK bought a majority stake, the private equity firms that purchased Dunkin changed its “management team and imposed a service-oriented culture.”74 The consortium also grew Dunkin’s number of locations nearly twice as fast as Au Bon Pain did under LNK (5.9% per year compared to 3%), adding 4,582 stores between fiscal years 2006 and 2012. Dunkin’s earnings before interest, taxes and amortization (EBITDA) grew 70.6% between February 2006 and June 2012 under the consortium’s ownership.75

Le Madeleine French Country Cafe NRN Top 200 newcomer Le Madeleine French Country Cafe, a division of ’s Le Duff S.A. (which owns Timothy’s Coffee and which bought Bruegger’s in 2010), has planned new kiosks and airport locations and launched a franchising program, according to NRN.76

Au Bon Pain has a growing number of other competitors not in the 2014 NRN Top 200 Le Pain Quotidien already operates in many of Au Bon Pain’s markets, including New York (with over 30 locations), Washington D.C., Chicago, Connecticut, and Philadelphia.77 In 2012, the Technomic blog reported that “Le Pain Quotidien is hardly a newcomer to the fast-casual market—the concept,

13 founded in in 1990, opened its first U.S. unit in New York in 1995. But in growing units more than 14 percent for each of the past two years and seeing sales climb an estimated 17.6 percent (to $121 million) in 2012, the chain has outperformed the bakery-café segment.”78 This even though “Bakery cafés remained the sales leader and undisputed champion of the fast-casual restaurant segment in 2012.”79

Another operator, Pret a Manger, is present in some of the urban areas in which Au Bon Pain is also present—specifically, Boston, , Chicago, Washington D.C..80 Pret a Manger, majority- owned by private equity firm Bridgepoint Capital, has expanded its breakfast options, and is testing a dinner menu and planning to expand further geographically.81

Other operators, including Cosi, Tossed, Chopt, Potbelly Sandwich, Hale and Hearty, and others, are also present in areas where Au Bon Pain is located. Moreover, healthier fast‑casual options, such as Sweetgreen, Freshii, Cava Grill, Lyfe Kitchen, and others, are spreading rapidly.82 Some are even teaming up with celebrity chefs.83 Meanwhile, fast food restaurants and diners like McDonalds, , and Denny’s are redesigning themselves and adapting their menus84 in ways that blur the ways that fast‑casual restaurants like Au Bon Pain had tried to differentiate themselves from fast food, in turn blurring the lines between the segments.85 KFC, for example, opened its fast casual offshoot KFC Eleven, featuring a menu of rice bowls, flatbreads, and salads.86

IV. CONCLUSION

In March 2008, as LNK concluded its acquisition, Au Bon Pain’s President/CEO Sue Morelli said “[w]e are excited to work together to create value for all of Au Bon Pain’s stakeholders.”87

According to Ernst & Young’s report on a survey of private equity investors,88 “lack of transparency and limited investor rights long have been the norm in private equity,” but “this is changing rapidly” (p 14). E&Y reports that, based on the responses given by survey respondents, “[t]ransparency starts with valuation” (p. 25), that “I[i]nvestors are not just focused on investment activity at the fund level; they want to know more about portfolio company investments on a more frequent and granular basis (p. 27). E&Y’s report concluded the following:

“Investors want to know how private equity firms monitor and value their portfolio companies, how they manage and mitigate risks, how they optimize resources, and how they report to investors. They are looking to invest in firms that demonstrate this operational excellence.” (p. 11) Investors want to know that the private equity firm has the experience and ability to handle risk. They want to know that the private equity firm is living up to its fiduciary responsibilities. They want to understand how the private equity firm operates the business. In short, they want to be comfortable with their investment decision.... Investors know that the potential conflicts of interest are real and significant and not easily mitigated.”

14 Going forward, the private equity firms that provide best-in-class, transparent and timely reporting will differentiate themselves from other private equity firms with similar performance metrics.” (p. 32)

As you review our information, we encourage investors and other interested parties to ask questions of LNK Partners and Au Bon Pain management concerning their investment.

This report was produced by UNITE HERE. For more information about UNITE HERE, please visit http://unitehere.org.

Endnotes

1 SEC FORM ADV, LNK PARTNERS LLC, 3/27/2015 http://www.adviserinfo.sec.gov/IAPD/Content/ViewForm/crd_iapd_stream_pdf.aspx?ORG_PK=157725&RGLTR_ PK=50000&STATE_CD=&FLNG_PK=0172CD640008017B05B66700055DD051056C8CC0&Print=Y 2 In this report, references to “bakery-cafés” refer to businesses in the NRN category labeled “bakery-café.” 3 Please see footnotes 28 and 29 for an full explanation of these data sources. In 2008-2013 data from Nations Restaurant News Top 100 and Second 100 reports, NRN classifies these five chains as the largest in the “Bakery- Café” segment, as measured by U.S. systemwide sales. 2013 is the last year for which this data is currently available. 4 “U.S. systemwide sales” is an NRN term. See footnote 36. 5 http://www.lnkpartners.com/downloads/LTF_LNK_Investment_Release.pdf 6 LNK announced the closing of this $400 million fund in 2012 (http://www.lnkpartners.com/downloads/LNK_ II_Release.pdf) and subsequently announced two investments (http://www.lnkpartners.com/downloads/LNK_ Fitness_Connection_Release.pdf and http://www.lnkpartners.com/downloads/LNK_Beachbody_Release.pdf). 7 According to Pitchbook’s Investor Profile of LNK Partners, dated,9/23/14. 8 http://news.lifetimefitness.com/press-release/company-news/life-time-fitness-enters-definitive-agreement-be- acquired-affiliates-leon 9 Data from Prequin, LTD. Data as of 6/30/2014, accessed 3/18/2015. 10 http://www.boston.com/business/articles/2008/01/17/growth_is_on_the_menu_at_au_bon_pain/ 11 At cost. http://www.reuters.com/article/2008/01/16/aubonpain-idUSN1638706320080116; http://www.lnkpartners.com/downloads/LNK_NFH_Release.pdf 12 Part 2A of FORM ADV-The Brochure, LNK Partners LLC, March 27, 2015 (http://www.adviserinfo.sec.gov/Iapd/ Content/Common/crd_iapd_Brochure.aspx?BRCHR_VRSN_ID=298845) 13 On January 26, 2015, the General Counsel of the National Labor Relations Board issued a complaint against Au Bon Pain and its management, including CEO Susan Morelli, alleging that Au Bon Pain “has been interfering with, restraining, and coercing employees in the exercise of the rights guaranteed in . . . the [National Labor Relations] Act.” Au Bon Pain has answered the complaint, denying that allegation. The complaint, concerning Au Bon Pain employees at the Philadelphia Airport, is scheduled to go to a hearing on July 15, 2015. 14 Bloomberg Business Executive Profile of Susan Morelli (http://www.bloomberg.com/research/stocks/private/ person.asp?personId=38841830&privcapId=25232). Susan Morelli also serves as a member of the corporation of Northeastern University, where LNK’s Henry Nasella is the Chairman of the Board. 15 “Buyout Holding Periods,” May 2015, Private Equity Spotlight, p. 7 (https://www.preqin.com/docs/newsletters/pe/ Preqin-PESL-May-15-Buyout-Holding-Periods.pdf) 16 Ibid. 17 Ibid. 18 “Au Bon Pain To Be Acquired by LNK Partners and Management,” LNK-ABP Press Release, Jan 16, 2008 (http:// www.lnkpartners.com/downloads/LNK_ABP_January16_FINAL.pdf ) 19 Boston Globe, “Growth is on the menu at Au Bon Pain,” January 17, 2008 (http://www.boston.com/ae/food/ restaurants/articles/2008/01/17/growth_is_on_the_menu_at_au_bon_pain/)

15 20 New England Franchise Association, “Au Bon Pain under new ownership!,” March 4, 2008 (http://nefranchise. org/2008/03/au-bon-pain-under-new-ownership/) 21 http://www.lnkpartners.com/team/jperlman.html 22 “Au Bon Pain to be Acquired by LNK Partners and Management,” LNK-ABP Press Release, Jan 16, 2008 (http:// www.lnkpartners.com/downloads/LNK_ABP_January16_FINAL.pdf) 23 “Acquiring Opportunites,” Fast Casual Magazine, October/November 2008 (http://www.fastcasual.com/news/ cover-acquiring-opportunities/) 24 “U.S. Top 100, NRN Top 100 Report,” Nations Restaurant News, July 3, 2014 (http://nrn.com/industry-data/us- top-100) 25 “U.S. Second 100” Nations Restaurant News, July 29, 2014 (http://nrn.com/industry-data/us-second-100) 26 “U.S. Top 100, NRN Top 100 Report,” Nations Restaurant News, July 3, 2014 (http://nrn.com/industry-data/us- top-100) 27 “Latest-Year rank,” http://nrn.com/us-top-100/2014-top-100-appendix?page=2 28 Data and rankings for most recent fiscal year (2013), the preceding year (2012), and the prior year (2011) were published by NRN for the Top 100 on June 30, 2014, and for the Second 100 on July 28, 2014. The top 100 rankings and data are accessible online at http://nrn.com/industry-data/us-top-100. The second 100 rankings and data are available at http://nrn.com/industry-data/us-second-100. The “NRN Top 200 Datafiles 2014 (Excel File)” are available for purchase at http://nrn.com/nrn-top-200-datafiles-2014-excel-file. The June 27, 2011 issue of NRN contains data for the Top 100 chains for the 2010, 2009, and 2008 fiscal years. The July 25, 2011 issue of NRN contains this data for the Second 100 chains. All NRN data is based on U.S. sales, U.S. unit counts, and the U.S. market. Unless otherwise stated, data in this report comes from these issues. 29 NRN classifies the following companies into the Bakery-Café segment in the Top 100 rankings: , Tim Hortons, and Einstein Bros. Bagels; In the Second 100, NRN classifies the following companies into the Bakery-Café segment: Corner Bakery Café, Au Bon Pain, Brueggers Bagel Bakery, and in the most recent report, Le Madeleine Country French Café. 30 “Fast-Casual Segment Continues to Outpace the Restaurant Industry, Finds Technomic,” PR Newswire, May 8, 2014 (http://www.prnewswire.com/news-releases/fast-casual-segment-continues-to-outpace-the-restaurant-industry- finds-technomic-258458651.html) 31 IBISWORLD Industry Report, Bakery Cafes in the U.S., November 2014; see also “Study: Bakery-café segment expanding: A new Technomic report finds that the segment’s chains are stealing market share from quick-service and casual-dining brands,” Nations Restaurant News, Oct 11, 2011 (http://nrn.com/archive/study-bakery-caf- segment-expanding); and “2013 Top 100: Bakery Café” Nations Restaurant News, June 24, 2013 (http://nrn.com/ us-top-100/2013-top-100-bakery-café); and “Segment Performance: Fast-Casual Bakery-Café Chains, June 20, 2013 (https://blogs.technomic.com/segment-performance-2013-bakery-cafe-restaurants/). 32 “Bakery-café snapshot,” Nations Restaurant News, June 30, 2014 33 Market share is defined by U.S. systemwide sales as a percentage of aggregate affiliated concept (Bakery-Café) sales in each company’s latest fiscal year. 34 Throughout this report, references to “largest” refer to the chains with the highest U.S. systemwide sales, unless otherwise specified. 35 Au Bon Pain’s relevant fiscal year ended in August 2013, whereas each of the other company’s relevant fiscal years ended in December 2013. 36 NRN defines “systemwide sales” as “Foodservice sales at all domestic restaurants, stores or other outlets in a chain, including company-owned, company-managed, franchised and licensed units. Sales from manufacturing, distribution, facilities rentals and other nonfood sources are excluded.” (http://nrn.com/us-top-100/2014-top-100- appendix?page=2) 37 “Au Bon Pain Acquisition by LNK Partners and Management Closes,” PR Newswire, 4, 2008 (http://www. prnewswire.com/news-releases/au-bon-pain-acquisition-by-lnk-partners-and-management-closes-56788782.html) 38 “Au Bon Pain Appoints Kathy Schoeffler to Head Up Human Resources,” PR Newswire, February 15, 2000 (http://www.prnewswire.com/news-releases/au-bon-pain-appoints-kathy-schoeffler-to-head-up-human- resources-72600022.html) 39 http://sec.edgar-online.com/panera-bread-co/10-ka-amended-annual-report/2000/06/20/section4.aspx 40 According to NRN, fiscal year 2013 for Au Bon Pain ended in Aug 2013, whereas the other top-5 NRN Bakery- Cafes’ fiscal years ended in December 2013. (http://nrn.com/us-second-100/2014-second-100-us-chain- systemwide-sales)

16 41 “Au Bon Pain trying out a new recipe for its stores: Seeing loss in market share to Panera Bread and other rivals, bakery chain spending big to revamp outlets nationwide,” Boston Globe, February 5, 2011. (http://www.boston.com/yourtown/boston/backbay/ articles/2011/02/25/au_bon_pain_trying_out_a_new_recipe_for_its_stores/ ) 43 “Explanation of terms, Second 100 Report” Nations Restaurant News, July 24, 2014 (http://nrn.com/us-second- 100/2014-second-100-appendix?page=2) 44 An explanation of how NRN calculates sales per unit is included in the “2014 Second 100 Appendix: Frequently Asked Questions,” Nations Restaurant News, July 29, 2014 (http://nrn.com/us-second-100/2014-second-100- appendix?page=3) 45 “U.S. Second 100” Nations Restaurant News, July 29, 2014 (http://nrn.com/industry-data/us-second-100) 46 Panera Bread Company, 2013 Annual Report to Stockholders, April 22, 2014, (https://www.panerabread.com/ content/dam/panerabread/documents/financial/2013/ar-2013.pdf) 47 “Fast-Casual Segment Continues to Outpace the Restaurant Industry, Finds Technomic.” PR Newswire, May 8, 2014 (http://www.prnewswire.com/news-releases/fast-casual-segment-continues-to-outpace-the-restaurant-industry- finds-technomic-258458651.html) 48 “When we were small: Panera Bread: Ron Shaich on how he built a pair of fast-casual café empires” Washington Post, December 27, 2014 (http://www.washingtonpost.com/business/on-small-business/when-we-were-small- panera-bread/2014/12/23/891baa5c-8ac5-11e4-9e8d-0c687bc18da4_story.html); see also “Panera’s CEO Ron Shaich recalls spinoff of bread company,” St. Louis Business Journal, Jan 14, 2013. (http://www.bizjournals.com/ stlouis/blog/2013/01/paneras-ceo-ron-shaich-recalls.html) 49 “Moreton’s view from the top,” QSR Magazine, May 2011 (http://www.qsrmagazine.com/executive-insights/ moreton-s-view-top) 50 “Panera to add location at Charlotte hospital,” Charlotte Business Journal, April 24, 2015 (http://www.bizjournals. com/charlotte/news/2015/04/24/panera-to-add-location-at-charlotte-hospital.html) 51 “Panera Bread Opens in the JC [George Mason University]” January 13, 2015, (http://studentcenters.gmu.edu/ panera-opening/) 52 “Sunset Hills Based Panera is Going from the Suburbs to the Cities,” St. Louis Post-Dispatch, Feb 10, 2012 (http:// www.stltoday.com/business/local/sunset-hills-based-panera-is-going-from-the-suburbs-to/article_8d1c08fe-535a- 11e1-a9ff-001a4bcf6878.html) 53 “When we were small: Panera Bread: Ron Shaich on how he built a pair of fast-casual café empires” Washington Post, December 27, 2014 (http://www.washingtonpost.com/business/on-small-business/when-we-were-small- panera-bread/2014/12/23/891baa5c-8ac5-11e4-9e8d-0c687bc18da4_story.html) 54 “Panera Announces Integration with Apple Pay Making Ordering and Mobile Payment Easier than Ever and Continuing to Extend the Panera 2.0 Guest Experience,”Panera Press Release, Sept 9, 2014 (https://www. panerabread.com/panerabread/documents/press/2014/apple-pay-panera-9-9-14.pdf) 55 “Panera Bread Is Making 4 Changes To Restaurants To Get You To Eat There,” Business Insider, Oct. 29, 2014 (http://www.businessinsider.com/panera-bread-is-making-4-important-changes-to-restaurants-2014-10) 56 “Panera Boosts Ad Budget as ‘Fast Casual’ Heats Up,” Wall Street Journal, March 7, 2012. (http://www.wsj.com/ articles/SB10001424052970204781804577267640399603770); see also “Panera Finds a New Lead Creative Agency,” Adweek, Sept 9, 2014 (http://www.adweek.com/news/advertising-branding/panera-finds-new-lead-creative- agency-159999) 57 “Panera Bread Plans to Drop a Long List of Ingredients,” New York Times, May 4, 2015 (http://www.nytimes. com/2015/05/05/business/panera-bread-plans-to-drop-a-long-list-of-ingredients.html?_r=0); “Panera lists unacceptable ingredients in its food,” USA Today, May 5, 2015 (http://www.usatoday.com/story/money/2015/05/04/ panera-panera-bread-fast-food-restaurants-dining-artificial-additives/26696823/) 58 “2014 Second 100: Bakery-Café segment analysis,” Nations Restaurant News, July 29, 2014 (http://nrn.com/us- second-100/2014-second-100-bakery-cafe-segment-analysis) 59 “Corner Bakery planning 2014 growth,” Fast Casual, Jan 21, 2014 (http://www.fastcasual.com/news/corner-bakery- planning-2014-growth/) 60 “Corner Bakery Café Increases New York Footprint With Entry Into Brooklyn,” PR Newswire, July 30, 2014 (http://www.marketwatch.com/story/corner-bakery-cafe-increases-new-york-footprint-with-entry-into- brooklyn-2014-07-30) 61 Cornerbakerycafe.com, accessed on May 18, 2015. 62 Corner Bakery planning 2014 growth,” Fast Casual, Jan 21, 2014 (http://www.fastcasual.com/news/corner-bakery- planning-2014-growth/) 63 http://www.cornerbakerycafe.com/about-us/leadership

17 64 “Roark Capital’s Corner Bakery Announces New Promotion,” Press Release, August 1, 2013 (https://www.pehub. com/2013/08/roark-capitals-corner-bakery-cafe-announces-new-promotion/) 65 Profile of Michael J. Dolan, Chief Development Officer (http://www.cornerbakerycafe.com/CornerBakeryCafe/ files/0f/0f16ee91-1b30-4e07-9088-1bb230864761.pdf) 66 “2013 Top 100: Bakery-Café,” Nations Restaurant News, June 24, 2013 (http://nrn.com/us-top-100/2013-top-100- bakery-café) 67 “Turf Wars: For Bakery and Coffee Cakes, Growth Means Capitalizing on Others’ Strengths, says Technomic,” Technomic Blog, Nov 19, 2014 (https://blogs.technomic.com/turf-wars-for-bakery-and-coffee-cafes-growth-means- capitalizing-on-the-others-strengths-says-technomic/) 68 “Virtual Road Trip: Starbucks Locations in Airports Offer Respite for Travelers,” June 6, 2014 (https://news. starbucks.com/news/summer-road-trip-starbucks-airport-locations) 69 See, for example, “Key Strategies for Bringing Big Brands to Healthcare Food and Beverage Services; Educational Report Sponsored by Starbucks Coffee Company,” March 2013 (http://www.starbucksfs.com/downloads/1285_edu- rep-food-bev%28starbucks%29_w1.pdf) 70 “Bay Area’s La Boulange bakery sold to Starbucks,” San Francisco Chronicle, April 10, 2013, (http://www.sfgate. com/business/article/Bay-Area-s-La-Boulange-bakery-sold-to-Starbucks-3608539.php) 71 “Starbucks Hires Former Au Bon Pain Executive Chef as New Vice President of Food,” The Daily Meal, Jan 9, 2015 http://www.thedailymeal.com/news/eat/starbucks-hires-former-au-bon-pain-executive-chef-new-vice-president- food/010915 72 See, for example, “Bakery Café Chains Aim to Broaden Appeal,” Nations Restaurant News, March 17, 2014 (http:// nrn.com/food-trends/bakery-caf-chains-aim-broaden-appeal) 73 “Value Added: Dunkin’ brings private equity firms a sweet profit,” Washington Post, August 18, 2012 (http://www. washingtonpost.com/value-added-dunkin-brings-private-equity-firms-a-sweet-profit/2012/08/16/2d82857c-e5d0- 11e1-8741-940e3f6dbf48_story.html) 74 ibid. 75 ibid. 76 “2014 Second 100: Bakery-Café segment analysis,” Nations Restaurant News, July 29, 2014 (http://nrn.com/us- second-100/2014-second-100-bakery-cafe-segment-analysis) 77 Lepainquotidien.com 78 “Segment Performance: Fast-Casual Bakery-Café Chains,” Technomic Blog, June 20, 2013 (https://blogs.technomic. com/segment-performance-2013-bakery-cafe-restaurants/) 79 Ibid. 80 http://pretamanger.com/en-us/ 81 “Pret A Manger to Tap the Accelerator on Growth,” Wall Street Journal, April 24, 2015 (http://www.wsj.com/ articles/pret-a-manger-to-tap-the-accelerator-on-growth-1429869932) 82 “Healthy, fast-casual food chains expand with help of celebrity chefs, demand more veggies, , April 13, 2015, (http://www.foxbusiness.com/markets/2015/04/13/healthy-fast-casual-food-chains-expand-with-help- celebrity-chefs-demand-for/) Also see, for example, “On The Rise: The Next Big Fast-Food Chains,” First We Feast, March 25, 2015 (http://firstwefeast.com/eat/the-next-big-food-chains/) 83 see, for example, “Celebrity Chef Launches Healthy Fast-Casual Restaurant,” NACS, April 13, 2015 (http://www. nacsonline.com/News/Daily/Pages/ND0413155.aspx#.VVAKdM4-5wQ) 84 “Making Over McDonalds: Inside the $2.4 Billion Plan to Change the Way You Think About the Most Iconic Restaurant On The Planet,”Fast Company, Oct 1, 2010 ( http://www.fastcompany.com/1686594/making-over- mcdonalds) Also see “Using Restaurant Design to Catch Millenials,” Nations Restaurant News, April 15, 2015, (http://nrn.com/consumer-trends/using-restaurant-design-catch-millennials?page=1) 85 “Blurring of the lines between QSR and Fast Casual,” Fast Casual, May 15, 2012 (http://www.fastcasual.com/ articles/blurring-of-the-lines-between-qsr-and-fast-casual/) 86 San Diego Union-Tribune, June 15, 2014 “Hungry for Quality: Hybrid fast-casual sector gobbling bigger portion of restaurant market, as consumers show they’ll pay more for quick food with better flavor.” 87 “Au Bon Pain Acquisition by LNK Partners and Management Closes,” PR Newswire, 4, 2008 (http://www. prnewswire.com/news-releases/au-bon-pain-acquisition-by-lnk-partners-and-management-closes-56788782.html) 88 “Positioning to Win: 2015 Global Private Equity Survey, in Collaboration with Private Equity International,” Ernst & Young, (http://www.ey.com/Publication/vwLUAssets/EY-2015-global-private-equity-survey/$File/EY-2015- global-private-equity-survey.pdf)

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