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This document is a copy of the Form 10-K filed on March 31, 1997 pursuant to a
Rule 201 temporary hardship exemption.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
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FORM 10-K
(Mark one)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (Fee required)
For the fiscal year ended December 28, 1996, or
[ ] Transition report pursuant to Section 13 or l5(d) of the Securities
Exchange Act of 1934 (No fee required)
For the transition period from ______ to ______
Commission file number 0-19253
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AU BON PAIN CO., INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 04-2723701
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
19 FID KENNEDY AVENUE, BOSTON, MA 02210
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(Address of principal executive offices) (Zip code)
(617) 423-2100
----------------------------------------------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None.
Securities registered pursuant to Section 12(g) of the Act:
CLASS A COMMON STOCK, $.0001 PAR VALUE
--------------------------------------
(Title of class)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 and 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K
Aggregate market value of the registrant's voting stock held by
non-affiliates as of March 17, 1997: Class A Common Stock, $.0001 par value:
$64,339,241.
Number of shares outstanding of each of the registrant's classes of
common stock, as of March 17, 1997: Class A Common Stock, $.0001 par value:
10,092,430 shares, Class B Common Stock, $.0001 par value: 1,632,947 shares.
DOCUMENTS INCORPORATED BY REFERENCE:
The registrant's definitive proxy statement for its Annual Meeting of
Stockholders, to be held on June 12, 1997, which will be filed with the
Commission on or before April 27, 1997, is incorporated by reference in response
to Part III, Items 10, 11, 12 and 13; and certain exhibits to the registrant's
Form S-1 Registration Statement (File No. 33-453219), Form S-l Registration
Statement (File No. 33-40153), annual reports on Form 10-K for the fiscal years
ended December 30, 1995 and December 28, 1996 and Form 8-K filed December 22,
1993, are incorporated by reference in response to Part IV, Item 14.
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PART I
ITEM 1. BUSINESS
GENERAL
Au Bon Pain Co., Inc. ("Au Bon Pain" or the "Company") was formed in
March 1981 with three Boston area bakeries and one cookie store serving
croissants, breads and cookies. As of December 28, 1996, the Company had grown
to 231 Company-operated and 58 franchised bakery cafes operating under two
concepts: Au Bon Pain, with 177 Company-operated and 48 franchise-operated
bakery cafes, and Saint Louis Bread Company ("SLB"), with 54 Company-operated
and 10 franchise-operated bakery cafes. Both concepts specialize in high quality
food for breakfast and lunch, including fresh baked goods, made-to-order
sandwiches on freshly baked breads, soups, salads, custom roasted coffees, and
other cafe beverages. The Company's bakery cafes are principally located in
Boston, other New England cities, New York City, Philadelphia, Pittsburgh,
Washington, D.C., Columbus, Cleveland, Cincinnati, St. Louis, Atlanta, Chicago,
Minneapolis, Los Angeles and Santiago, Chile. Systemwide sales, which include
Company-operated and franchised restaurant sales, were approximately $259
million for the fiscal year ended December 28, 1996.
CONCEPT AND STRATEGY
Target customers of Au Bon Pain and SLB include urban office employees,
suburban dwellers, shoppers, travelers, students and other adults who are time
sensitive, yet desire a higher quality breakfast and lunch experience than is
typically found at quick service restaurants. The Company's menu is focused on
foods in the following categories: fresh baked goods, made-to-order sandwiches
on freshly baked breads, soups, salads, custom roasted coffees and cafe
beverages. The Company's strategy is to create distinctive food offerings at
reasonable prices within these categories which are fresher, of higher quality
and of greater variety than those offered by its competitors. In addition, the
Company believes its operational excellence, speed of service and convenient
locations further differentiate the Company from its competitors. Average
revenue per Company-operated bakery cafe open for the full fiscal year ended
December 28, 1996 was approximately $940,000 for the Au Bon Pain concept and
approximately $1,096,000 for the SLB concept.
The Company believes that excellence in execution is a key to success
in the restaurant industry. The distinctive nature of the Company's menu
offerings, the quality of its restaurant operations, the Company's high quality
cafe design and the prime locations of its cafes are integral to the Company's
success. The Company's
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operating strategy is to increase overall sales by offering new products that
will expand the current business and increase afternoon sales, and by continuing
to expand in opening new bakery cafes of both concepts in existing and new
markets on both Company-operated and franchise bases and to increase sales in
existing bakery cafes through the continued introduction and promotion of
distinctive, high quality menu items.
MENU
The menus of both concepts provide customers with popular food items
which the Company believes are fresher, of higher quality and in greater variety
than those offered by its competitors. The key menu groups are fresh baked
goods, made-to-order sandwiches, soups and cafe beverages. Included within these
menu groups are: a variety of freshly baked bagels, croissants, muffins, scones,
breads, rolls and sweet goods; sandwiches made-to-order with specialty cheeses,
smoked meats, roast beef, hot grilled chicken, albacore tuna and white meat
chicken salads; hearty soups; custom roasted coffees and cafe beverages such as
espresso and cappuccino. A primary difference in menu between the two concepts
is the significant emphasis within the SLB concept on sophisticated European and
sourdough breads.
The Company regularly reviews and revises its menu offerings to satisfy
changing customer preferences. New menu items are developed in corporate test
kitchens and then introduced in a limited number of the Company's bakery cafes
to determine customer response and verify that preparation and operating
procedures maintain consistency, high quality standards and profitability. If
successful, they are introduced in all Au Bon Pain and/or SLB bakery cafes.
Under the terms of an agreement with Peet's Coffees and Teas, Inc. of
Emeryville, CA, a gourmet coffee roaster, the Company offers fresh coffee beans
and prepared brews in substantially all of the Company's Au Bon Pain and Saint
Louis Bread locations.
MARKETING
The Company believes it competes on the basis of quality food and
service rather than price. Pricing is structured so that customers perceive good
value at both Au Bon Pain and Saint Louis Bread (high quality food at reasonable
prices). The average customer purchase is approximately $3.06 at Au Bon Pain and
$4.98 at SLB. Breakfast and lunch checks typically average $2.05 and $4.23,
respectively, at Au Bon Pain and $3.41 and $5.80, respectively, at SLB. The
Company attempts to increase its sales through menu
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development, promotions and by sponsorship of local community charitable events.
To date, the Company has not advertised extensively; rather, it relies
on word of mouth, customer satisfaction and promotional programs to encourage
trial by new customers and to make existing customers aware of new menu
offerings.
CATERING
Au Bon Pain operates a catering program which offers a select group of
delivered breakfast and luncheon food items appropriate for on-site consumption
at corporate functions. Customers place orders by toll-free telephone with
trained customer service representatives at the Company's Boston headquarters.
Orders are immediately routed utilizing a computerized delivery support system
to the most appropriate bakery cafe for preparation and delivery. In 1996,
catering sales represented approximately 5.7% of the Au Bon Pain
Company-operated restaurant sales. At present, SLB does not offer catering
services. With the predominance of SLB cafes in suburban locations, the Company
believes that the potential to develop significant catering business at SLB is
lower than at Au Bon Pain.
SITE SELECTION
For both concepts, the Company seeks convenient locations in
high-visibility, high-traffic, densely populated areas which are easily
accessible to their respective target customers. The Company also operates in
regional shopping malls, transportation centers, universities and hospitals.
Examples of bakery cafe locations include Copley Place, Brigham and Women's
Hospital, South Station and Harvard Business School in Boston; the Empire State
Building and World Financial Center in New York City; Commerce Square in
Philadelphia; the Pittsburgh Airport in Pittsburgh; 2000 Pennsylvania Avenue in
Washington, D.C.; the Merchandise Mart and 200 West Adams in Chicago; the
Galleria Mall in St. Louis; Lenox Mall in Atlanta and the Santiago Airport in
Santiago, Chile. The Company believes that its menu, history of quality retail
operations and bakery cafe designs enable the Company to access locations which
may not be available to traditional quick service restaurants.
The Company is able to cluster its Au Bon Pain bakery cafes within well
defined urban markets, with minimal cannibalization of existing restaurant sales
because each location typically draws the majority of its customers from within
a two block radius. Clustering bakery cafes increases name recognition and
provides significant operational and marketing efficiencies. In 1996, the
Company opened a total of 3 Au Bon Pain bakery cafes, all in its
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existing markets. The Company's Au Bon Pain franchisees also opened 12 new
bakery cafes domestically and in Chile, the Philippines and Indonesia.
During 1996, the Company expanded the number of Company-operated SLB
bakery cafes by two to 54 locations. The two SLB franchisees expanded from four
to five locations in the Springfield market and four to five locations in the
Kansas City, Missouri market. In addition, the Company began a broad-based
domestic franchising program in 1996 for the SLB concept. The first new
franchise operated cafe under the new program will open in 1997.
Both bakery cafe concepts rely on a substantial volume of repeat
business. In evaluating a potential location, the Company studies the
surrounding market, obtaining information and/or demographics within that area
on quick service breakfast or lunch competitors. Management evaluates the
Company's ability to establish a dominant presence within that area, in order to
create entry barriers to other bakery cafe competitors. Based on this
information, sales and return on investment are projected.
In the bakery cafe design for both concepts, the Company uses
sophisticated fixtures and materials. The design visually reinforces the
distinctive difference between the Company's bakery cafes and other quick
service restaurants serving breakfast and lunch. Many of the Company's
restaurants also feature outdoor cafe seating. The current estimated
construction and equipment costs for a typical Au Bon Pain bakery cafe outside
of New York City are approximately $425,000 before any landlord construction
allowance. The estimated construction and equipment cost for a typical Au Bon
Pain bakery cafe in New York City is approximately $830,000 before any landlord
construction allowance. The current estimated construction and equipment cost
for a typical SLB bakery cafe is approximately $550,000 before any landlord
allowance.
The average bakery cafe size ranges between 2,500 and 3,500 square
feet. Currently, all bakery cafes, including franchises, are in leased premises.
Lease terms are typically ten years with one or two five-year renewal options
periods thereafter. Leases typically have a minimum base occupancy charge,
charges for a proportionate share of building operating expenses and real estate
taxes, and contingent percentage rent based on sales above a stipulated sales
level.
PRODUCTION
During 1996, the Company completed construction of its $9 million state
of the art production facility in Mexico, MO. The new facility is 80,000 square
feet and increases capacity three-fold from the
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level at the production facility in South Boston. Frozen dough products are now
produced at both facilities and are then distributed to Company-operated bakery
cafes and franchised operations for baking. Baked goods prepared from the
plant's frozen dough products represent approximately 30% of the Au Bon Pain
business unit's total bakery cafe sales and approximately 20% of the SLB
business unit's total bakery cafe sales. There are currently 152 employees at
the plant in Mexico, MO.
The centralized frozen dough production process provides economies of
scale in both production and ingredients purchasing. This process enables the
bakery cafes to offer consistently high quality, fresh baked goods throughout
the day. Finally, centralized production allows the Company to expand its bakery
cafe operations without dependence on highly skilled bakers at each location. At
start-up, costs to bring the production facility on line decreased manufacturing
margins, but margins began to increase toward their historic levels at the end
of the year.
In order to maintain the high quality of its bakery products, the
Company maintains tight specifications for its ingredients. The Company is not
dependent on any one supplier for its ingredients. Product consistency is
ensured by inspection at critical flow points by quality assurance employees.
Product sampling occurs both on the factory floor and in a test laboratory to
ensure that products are consistent with the Company's high standards.
Of the Company's 50 Boston-area Au Bon Pain bakery cafes, 32 are
supported by a central commissary used for baking and for preparing meat and
other menu items which are then delivered to these bakery cafes. These bakery
cafes offer the same menu and customer experience as the Company's other Au Bon
Pain bakery cafes, but have limited on-site baking capabilities. Each of the
Company's SLB bakery cafes is supported by a regional commissary which daily
provides principally various unbaked sourdough products for baking and sale
within the SLB bakery cafes.
MANAGEMENT INFORMATION SYSTEMS
Each Company-operated bakery cafe has computerized cash registers to
collect point-of-sale transaction data which are used to generate pertinent
marketing information, including product mix and average check. All product
prices are programmed into the system from the Company's corporate office.
The Company's in-store personal computer-based management support
system is designed to assist in labor scheduling and food cost management, to
provide corporate and retail operations management quick access to retail data
and to reduce managers'
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administrative time. The system supplies sales, bank deposit and variance data
to the Company's accounting department in Boston on a daily basis, with which
the Company generates weekly consolidated reports regarding sales and other key
elements, as well as detailed profit and loss statements for each bakery cafe
every four weeks. Additionally, the Company monitors the average check, customer
count, product mix and other sales trends.
DISTRIBUTION
The Company currently utilizes an independent distributor to distribute
frozen dough products and other materials to Company-operated Au Bon Pain and
SLB bakery cafes. By contracting with an independent distributor, the Company
has been able to eliminate investment in distribution systems and to focus its
managerial and financial resources on its retail operations. The distributor
picks up frozen dough products throughout the week from the Company plants.
Virtually all other supplies for retail operations, including paper goods,
coffee and small-wares, are contracted for by the Company and delivered by the
vendors to the distributor for delivery to the bakery cafes. The individual
bakery cafes order directly from the distributor two to three times a week.
Franchised bakery cafes operate under individual contracts with either
the Company's distributors or other regional distributors.
The Company's main commodities are coffee, flour and butter. The
Company monitors current and future prices and availability of primary
commodities in order to minimize the impact of price increases and shortages of
supply. On a limited basis, when market conditions are advantageous, the Company
may contract to purchase its main commodities for future delivery. All essential
food and beverage products are available, or on short notice can be made
available, from alternative qualified suppliers.
JOINT VENTURES
The Company currently operates 15 Au Bon Pain bakery cafes in New York
City which are owned under a joint venture agreement between the Company and an
independent investor group. Under the terms of this agreement, the Company has
an obligation to offer the group up to 49% of the equity in each bakery cafe
opened in the metropolitan tri-state area of New York City (New York City, Long
Island, Westchester County (NY), Bergen County (NJ), and Fairfield County (CT)).
The equity participation percentage is based on the cost of the initial
construction upon opening of the bakery cafe. This equity percentage is fixed
prior to the date of the respective bakery cafe openings. The group has no
obligation to participate in
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any bakery cafe, and the percentage participation must be elected by the group
prior to the opening of the bakery cafe. Each joint venture bakery cafe must
purchase all of its frozen dough products from the Company and is operated by
the Company under a management agreement under which the Company receives a
management fee of 6% of sales of each joint venture bakery cafe. The Company has
agreed to provide a guaranty to one or more institutional lenders acceptable to
the Company to assist the group in financing its acquisition of up to 5% of the
equity in new bakery cafes opened after January 1, 1993. As of December 28,
1996, approximately $115,732 is outstanding under this arrangement.
The Company also has a 75% interest in Pain Francais, Inc., which owns
the bakery cafe located in the GE Building at Rockefeller Center, New York. The
other 25% is held by the same joint venture partner. This bakery cafe operates
under a management agreement similar to the agreement under which the joint
venture bakery cafes are operated.
ACQUISITIONS
ABP MIDWEST, INC.
On April 8, 1994, the Company acquired substantially all of the assets
of its Midwestern franchisee, ABP Midwest, Inc. ("ABP Midwest"), which operated
19 franchised Au Bon Pain bakery cafes in Chicago and Minneapolis/St. Paul. The
Company acquired approximately $4.8 million of ABP Midwest's assets and assumed
approximately $2.8 million of ABP Midwest's liabilities in consideration for the
issuance to ABP Midwest of 370,000 shares of the Company's Class A Common Stock,
20,000 shares of the Company's Class B Preferred Stock (Series 1) and $250,000
in cash, valued in total at $12.5 million. The shares of Class B Preferred Stock
(Series 1) have the same rights and preferences as the Company's Class A Common
Stock except that they are non-voting shares, and automatically converted to
Class A Common Stock on January 1, 1996. Immediately following the acquisition,
one of the acquired Chicago locations was closed by the Company.
SAINT LOUIS BREAD COMPANY
On December 22, 1993, the Company acquired substantially all of the
assets of SLB for $24 million and expenses of $751,000, plus assumption of
certain liabilities totaling $3.5 million. SLB owned and operated 19 suburban
bakery cafes in the greater St. Louis area. The Company has expanded the number
of SLB bakery cafes from the 19 locations existing at the date of acquisition to
54 Company-operated locations in principally the suburban St. Louis, Atlanta and
Chicago markets. The Company's growth strategy for SLB is to continue to
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expand SLB in suburban locations in existing markets and to explore
opportunities to enter new markets elsewhere in the United States through
Company owned units and a broad based domestic franchise program.
SLB bakery cafes open for the full 12 month period ended December 28,
1996, averaged approximately $1,096,000 in revenues per unit. The current
estimated average cost of construction and equipment for a new SLB bakery cafe
is approximately $550,000 for the typical store of approximately 3,200 square
feet.
The Company believes that the acquisition of SLB has created a number
of opportunities. The SLB suburban bakery cafe concept has proved to be
well-suited for suburban locations and offers the Company greater access to
these markets, thereby enhancing the Company's long-term growth prospects. In
addition, significant opportunities to achieve operating efficiencies have been
identified, particularly by providing SLB with frozen dough products produced at
the Company's production facility, as well as certain general and administrative
services.
In connection with the SLB acquisition, the Company assumed two area
development agreements pursuant to which SLB granted exclusive development
rights to two franchisees, Original Bread, Inc. and The Traditional Bakery, Inc.
The area development agreement for Original Bread, Inc. covers the cities of
Kansas City, St. Joseph and Topeka, Kansas and Kansas City, Missouri. In order
to maintain exclusivity, Original Bread, Inc. was required to open a minimum of
four bakery cafes within specified time periods beginning July 1994 and
continuing through July 1995. Original Bread, Inc. met the minimum opening
schedule and has five franchised bakery cafes open to-date.
The area development agreement for The Traditional Bakery, Inc. covers
various counties in Missouri and includes the City of Springfield. In order to
maintain exclusivity, The Traditional Bakery, Inc. must open a minimum of five
bakery cafes from July 1994 through July 1996. To date, the Traditional Bakery,
Inc. has opened five franchised bakery cafes.
The SLB unit franchise agreements require the payment of an up-front
franchise fee of $25,000 to $30,000 and continuing royalties of 4% on sales of
products from each bakery cafe. The franchisees are required to purchase all of
their frozen dough products from sources approved by the franchisor.
As a part of the Company's strategy for SLB, the Company is testing a
broad-scale domestic franchise program. To date, the Company has entered into
franchise development agreements under this program for a total of forty-eight
bakery cafes to be located in
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specific sections of the Tulsa, Oklahoma, Columbus, Ohio, Iowa and the
Louisville, Kentucky markets.
FRANCHISES
AU BON PAIN
DOMESTIC
The Company currently has domestic franchising agreements with eight
organizations: Northern Bakers, Inc., CA One, ABP Southern California, Wayne
ABP, Inc., R.C. Menzer, Romallso, Inc., The Lauren Group, Inc. and DoubleTree
Hotels. At present, the Northern Bakers, Inc. and CA One franchises are the most
substantial domestic franchising relationships, each with eight operating cafes.
Northern Bakers, Inc. has limited development rights in Maine, New Hampshire,
Vermont, Andover, MA, Amherst, MA and portions of northern New York and
currently operates bakery cafes in six regional shopping malls in the Northeast,
in the Dartmouth-Hitchcock Medical Center in Lebanon, NH and in a suburban
shopping center in Shrewsbury, MA. The Company has retained the right to develop
or franchise bakery cafes in these territories, subject to Northern Bakers,
Inc.'s right of first refusal. CA ONE became a franchisee of Au Bon Pain in
October 1986, for the purpose of operating Au Bon Pain bakery cafes in airport
terminals. CA One operates bakery cafes in eight airports. The Company may
itself or through other franchisees operate in any airport for which CA One does
not hold a franchise. CA One will be considered for new airport franchises on a
case by case basis. The Company must approve all franchise locations and bakery
cafe designs.
In general, the Company has three potential sources of revenue from its
domestic Au Bon Pain franchisees: fees for new locations, royalties on sales by
franchisees and revenue from the purchase of frozen dough products by
franchisees. New domestic locations, other than airport locations, to be
developed by franchisees typically require a $25,000 initial fee per location
and a 5% royalty. Airport franchise fees range between $10,000 and $50,000,
depending upon passenger traffic and the Company's assistance in obtaining the
concession. All domestic franchisees are obligated to use Company-approved
ingredients, including Au Bon Pain-produced frozen dough products.
The Company is not seeking to extend its domestic Au Bon Pain franchise
relationships beyond its current franchisees.
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INTERNATIONAL
The Company currently has international franchise development
agreements with developers in Chile, Argentina, Brazil and certain other South
American countries, Thailand, Indonesia, the Philippines and the Canary Islands.
Bakery cafes have been opened to-date in Chile, Indonesia and the Philippines.
Under these agreements, the Company has granted exclusive development rights to
franchise and operate Au Bon Pain bakery cafes in the respective country or
countries. The agreements generally require the payment of up front development
fees, which have ranged from $250,000 to $750,000, a franchise fee, typically
from $20,000 to $60,000 for each Au Bon Pain bakery cafe opened and royalties
from the sale of products from each bakery cafe of 5% of sales. The developer
is, in most instances, required to open bakery cafes according to a specific
minimum schedule. The Company may also agree to provide advice, consultation and
training for the development of a frozen dough plant. Currently, the Company
considers international franchising and licensing arrangements as a means of
business expansion for its Au Bon Pain concept and is actively pursuing
additional international franchising relationships.
SAINT LOUIS BREAD COMPANY
In 1996, the Company began a broad-based franchising program. Through
its acquisition of SLB, the Company assumed certain area development and unit
franchise agreements of SLB. The Company is actively seeking to extend its SLB
franchise relationships beyond its current franchisees; see "Acquisitions-Saint
Louis Bread Company".
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EMPLOYEES
The Company has approximately 1,656 full-time employees, of whom
approximately 199 are employed in general or administrative functions
principally at or from the Company's executive offices in Boston, Massachusetts;
approximately 119 are employed at the Boston frozen dough plant and the
commissary; approximately 152 are employed in the Missouri frozen dough plant;
approximately 51 are employed in the SLB corporate office in St. Louis,
Missouri; approximately 88 are employed in the SLB production facilities in St.
Louis, Missouri and Atlanta, Georgia; and approximately 796 and 251 are employed
in the Au Bon Pain and SLB retail operations, respectively. The Company also has
approximately 5,086 part-time employees, of whom 3,545 and 1,541 are employed in
the Au Bon Pain and SLB bakery cafes, respectively. These totals include
employees of Pain Francais, Inc. and at the joint venture locations in New York
City. There are no collective bargaining agreements. The Company considers its
employee relations to be excellent.
TRADEMARKS
The "Au Bon Pain" and "Au Bon Pain The Bakery Cafe" names are of
material importance to the Company and are trademarks registered with the United
States Patent and Trademark Office and in certain foreign countries. In
addition, the name "Saint Louis Bread Company" is of material importance to the
Company and applications to register as trademarks the name "Saint Louis Bread
Company" and "Saint Louis Bread Company and design" have been filed with the
United States Patent and Trademark Office.
GOVERNMENT REGULATION
Each Company-operated and franchised bakery cafe is subject to
regulation by federal agencies and to licensing and regulation by state and
local health, sanitation, safety, fire, alcoholic beverage control and other
departments. Difficulties or failures in obtaining the required licensing or
approval could result in delays or cancellations in the opening of restaurants.
The Company is also subject to federal and a substantial number of
state laws regulating the offer and sale of franchises. Such laws impose
registration and disclosure requirements on franchisors in the offer and sale of
franchises and may also apply substantive standards to the relationship between
franchisor and franchisee. The Company does not believe that current or
potential future regulations of franchises have or will have any material impact
on the Company's operations. The Company is subject to the Fair Labor
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Standards Act and various state laws governing such matters as minimum wages,
overtime and other working conditions.
The Company's Boston frozen dough plant, commissary and SLB dough
plants are subject to various federal, state and local environmental
regulations. Compliance with applicable environmental regulations is not
believed to have any material effect on capital expenditures, earnings or
competitive position of the Company. Estimated capital expenditures for
environmental compliance matters are not material.
The Americans With Disabilities Act prohibits discrimination in
employment and public accommodations on the basis of disability. Under the
Americans With Disabilities Act, the Company could be required to expend funds
to modify its bakery cafes to provide service to, or make reasonable
accommodations for the employment of, disabled persons. The Company believes
that compliance with the requirements of the Americans With Disabilities Act
will not have a material adverse effect on its financial condition, business or
operations.
ITEM 2. PROPERTIES
All Company-operated bakery cafes are located in leased premises with
lease terms typically for ten years with one or two five-year renewal option
periods thereafter. Leases typically have a minimum base occupancy charge,
charges for a proportionate share of building operating expenses and real estate
taxes and contingent percentage rent based on sales above a stipulated sales
level. The joint venture bakery cafes operate in leased premises under similar
lease arrangements.
In 1983, Au Bon Pain built its plant and headquarters in South Boston,
Massachusetts. Manufacturing is now done at both production facilities. The
executive offices occupy approximately 24,000 square feet. The Company owns the
original building plus additions and leases land from the City of Boston. The
annual rent is approximately $150,000. The lease expires, assuming exercise of
renewal options, in 2017.
In 1994, the Company purchased an office building in Woburn, MA,
originally intended to become the Company's principal executive offices. The
building occupies approximately 55,000 square feet, of which approximately
20,000 square feet are leased to third parties for differing periods of up to 10
years, including renewal options periods. The Company has decided to put this
building up for sale and no longer intends to relocate the Company's
headquarters to this location.
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In 1996, the Company leased short term office space in Waltham, MA to
house its Accounting and Development functions.
In 1996, the Company completed construction of its central production
facility on a 20 acre tract of land in Mexico, MO to increase the Company's
production capacity. The new facility cost approximately $9 million and began
operation in mid-1996. The cost of the facility has been financed primarily by
an $8.6 million industrial development bond issued by the City of Mexico,
Missouri in July 1995, secured by an $8.7 million letter of credit with a
commercial bank through July, 2000, and by equipment lease financing.
Au Bon Pain operates its commissary in leased premises in Chelsea,
Massachusetts under a ten year lease expiring in 1998, with an option to extend
for an additional five years.
SLB leases office space in St. Louis, Missouri for its corporate
offices. The offices occupy approximately 5,000 square feet. The annual rent is
approximately $31,000. The lease expires, assuming exercise of renewal options,
in 2001.
The Company considers its physical properties to be in good operating
condition and suitable for the purposes for which they are used.
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BAKERY CAFE LOCATIONS
AU BON PAIN BAKERY CAFES:
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COMPANY-OPERATED: 177 total as of December 28, 1996
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BOSTON MARKET AREA: 50
Arlington Center Hynes Auditorium
Beacon Hill International Place
Bowdoin Square Kendall Square
431 Boylston Street Kenmore Square
745 Boylston Street Longwood Galleria
Brattle Street Longwood Medical Center Area
Brigham and Women's Hospital 684 Massachusetts Avenue
Burlington Mall 1100 Massachusetts Ave
Cambridgeside Galleria 101 Merrimac Street
Children's Hospital Milk Street
Church Park Natick Mall
Coolidge Corner New England Medical Center
Copley Place 360 Newbury Street
Davis Square One Newton Place
Davis Square Train Stop Northeastern University
Design Center North Shore Shopping Center
Faneuil Hall Marketplace Park Plaza, Statler Building
One Federal Street South Shore Plaza #1
75-101 Federal Street South Shore Plaza #2
176 Federal Street South Station
Filene's, Hawley Street Square One Mall
15 Harvard Street 53 State Street
Harvard Business School Winter Street
Harvard Coop at MIT Woburn Business Center
Harvard Square Wellesley Center
CALIFORNIA MARKET AREA: 1
353 Sacramento Street, San Francisco
PHILADELPHIA MARKET AREA: 11
841 Chestnut Street Mellon Independence Center
Commerce Square Montgomery Mall
The Court at King of Prussia 2 Penn Center
Graham Building 10 Penn Center
Liberty Place 30th Street Station
2 Logan Square
16
<PAGE> 17
WASHINGTON D.C.-BALTIMORE MARKET AREA: 24
700 13th Street, N.W. L'Enfant Plaza
10 North Calvert 1850 M Street, N.W.
800 North Capital National Place
Commerce Place 1001 Pennsylvania Avenue, N.W.
Crystal City 1701 Pennsylvania Avenue, N.W.
1401 Eye Street, N.W. 2000 Pennsylvania Avenue, N.W.
Gallery at Harbor Place Pentagon City
601 Indiana Avenue, N.W. Springfield Mall
International Square Towson Town Center
1615 L Street, N.W. Union Station
1724 L Street, N.W. 1101 Vermont Avenue, N.W.
1801 L Street, N.W. Warner Building
GREATER NEW YORK AREA: 41
1251 Avenue of the Americas Manhattan Mall
60 Broad Street 600 Lexington Avenue
222 Broadway The Mall at Short Hills
684 Broadway Metrotech Plaza
Celanese Building Nanuet Mall
Chanin Building 80 Pine Street
Daily News Building Port Authority Bus Terminal
54 East 8th Street Riverside Square
16 East 44th Street Rutgers University
Empire State Building One State Street Plaza
73 Fifth Avenue 600 Third Avenue
420 Fifth Avenue 875 Third Avenue Up
GE Building at Rockefeller Center 875 Third Avenue Down
101 Hudson Street Time-Warner Communications
J.F. Kennedy Airport 10 East Union Square
J.F. Kennedy Airport/American Airlines 95 Wall Street
LaGuardia Airport Westchester Mall
425 Lexington Avenue World Financial Center
Long Island Jewish Medical Center World Financial Center/
Liberty St.
300 Madison Avenue World Trade Center
444 Madison Avenue
17
<PAGE> 18
OTHER NEW ENGLAND: 14
1 Broadway, Pheasant Lane Mall,
New Haven, CT Nashua, NH
Avon Marketplace, Avon, CT Rockingham Mall, Salem, NH
Buckland Hills Mall, Manchester, CT Rhode Island Hospital,
Providence, RI
City Place, Hartford, CT Thayer Street, Providence, RI
Fleet Center, Providence, RI Warwick Mall, Warwick, RI
Hartford Civic Center, Hartford, CT Westfarms Malls,
West. Hartford, CT
Mall of New Hampshire, Worcester Commons,
Manchester, NH Worcester, MA
MIDWEST: 27
3rd & Broad, Columbus, OH 30 North LaSalle, Chicago, IL
Amoco Building, Chicago, IL 222 North LaSalle, Chicago, IL
BP Building, Cleveland, OH 123 North Wacker, Chicago, IL
Carew Tower, Cincinnati, OH 122 South Michigan, Chicago, IL
Columbus City Center, Columbus, OH 125 South Wacker, Chicago, IL
First Bank Tower, Minneapolis, MN 600 Superior Ave., Cleveland, OH
Grand Avenue, Milwaukee, WI Tower City, Cleveland, OH
IDS Center, Minneapolis, MN 200 West Adams, Chicago, IL
Illinois Center, Chicago, IL 180 West Jackson, Chicago, IL
Merchandise Mart, Chicago, IL 181 West Madison, Chicago, IL
Minnesota Center, Minneapolis, MN 500 West Monroe, Chicago, IL
161 North Clark, Chicago, IL Woodfield Mall, Schaumberg, IL
33 North Dearborn, Chicago, IL World Trade Center, St. Paul, MN
180 North Michigan, Chicago, IL
PITTSBURGH MARKET AREA: 9
Exton Square Mall Pittsburgh Airport-Airside
Fifth Avenue Place Pittsburgh Airport-Landside
Oliver Building Ross Park Mall
Oxford Centre USX Tower
2 PPG Place
18
<PAGE> 19
FRANCHISE-OPERATED/DOMESTIC: 31 total as of December 28, 1996
- ---------------------------
NORTHERN BAKERS, INC.: 8
Big D Supermarket, Shrewsbury, MA Dartmouth-Hitchcock Medical
Center, Lebanon, NH
Cape Cod Mall, Hyannis, MA Fox Run Mall, Newington, NH
Carousel Mall, Syracuse, NY Maine Mall, South Portland, ME
Crossgates Mall, Albany, NY Silver City Galleria,
Taunton, MA
HOST MARRIOTT: 2
Hartsfield Airport, Concourse B, Atlanta, GA
Hartsfield Airport, Concourse D, Atlanta, GA
FORTUNOFF (WAYNE ABP, INC.): 1
Wayne Town Center, Wayne, NJ
R.C. MENZER: 2
South Hills Village, Pittsburgh, PA
Westmoreland Mall, Greensburg, PA
ROMALLSO, INC.: 1
Roosevelt Field Mall, Garden City, NY
THE LAUREN GROUP, INC.: 1
Crossing Factory Store, Tannersville, PA
DOUBLETREE HOTELS: 3
Jacksonville, FL
San Antonio, TX
Tyson's Corner, VA
19
<PAGE> 20
ABP SOUTHERN CALIFORNIA, LLC: 5
Brea Mall, Brea, CA North County Fair, Escondido, CA
Laguna Hills Mall, Laguna Hills, CA South Lake Avenue, Pasadena, CA
Montclair Plaza, Montclair, CA
CA ONE SERVICES, INC. 8
Ft. Lauderdale Airport, Nashville Airport,
Ft Lauderdale, FL Nashville, TN
Greater Cincinnati Airport, Newark International Airport,
Hebron, KY Newark, NJ
Hancock International Airport, San Jose International Airport,
Syracuse, NY San Jose, CA
Logan International Airport, West Palm Beach International
Boston, MA Airport, West Palm Beach, FL
FRANCHISE-OPERATED/INTERNATIONAL: 17 total as of December 28, 1996
- --------------------------------
ABP CHILE: 12
Apoquindo/Hendaya New Providencia
Bandera Museum of Pre-Columbian Art
El Bosque Norte Santiago Airport, Counter
El Bosque Sur Santiago Airport, Cart
La Dehasa Santiago Airport, Duty Free
Providencia World Trade Center
ABP PHILIPPINES: 2
EDSA/Shangri-La Mall, Ortegas
Taipan Building, Ortegas
INDONESIA: 3
Landmark Building, Jakarta
Plaza Senayan, Jakarta
Setiabudi Atrium, Jakarta
20
<PAGE> 21
SAINT LOUIS BREAD COMPANY BAKERY CAFES:
- --------------------------------------
Company-Operated: 54 total as of December 28, 1996
GREATER ST. LOUIS MARKET AREA: 31
Ballas, Creve Coeur, MO Grand, St. Louis, MO
Baxter, Ballwin, MO Kirkwood, MO
Bogey Hills, St. Charles, MO Main, St. Charles, MO
Brentwood, St. Louis, MO Market, St. Louis, MO
Capriccio, Richmond Heights, MO Pine, St. Louis, MO
Cape Girardeau, MO Rendezvous Cafe,
Richmond Heights, MO
Carondelot, Clayton, MO Soulard, St. Louis, MO
Central West End, St. Louis, MO South 9th Street, Columbia, MO
Chesterfield Mall, Chesterfield, MO South Central, Clayton, MO
Columbia Mall, Columbia, MO Surrey Plaza, Florissant, MO
Crestwood Plaza, St. Louis, MO Telegraph Road, St. Louis, MO
Delmar, University City, MO Tesson, St. Louis, MO
Esquire, Clayton, MO West County, Des Peres, MO
Four Seasons, Chesterfield, MO Westport Plaza,
Maryland Heights., MO
Galleria, Richmond Heights, MO Winchester, MO
Gateway One, St. Louis, MO
ATLANTA MARKET AREA: 9
Briarcliff, Atlanta, GA Lenox Square, Atlanta, GA
Dunwoody, GA Peachtree, Atlanta, GA
Emory Village, Atlanta, GA Sandy Springs, Atlanta, GA
Gwinnett Place, Deluth, GA Town Center, Kennesaw, GA
Haywood Mall, Greenville, SC
CHICAGO MARKET AREA: 14
Belleville, IL Orland Square Mall,
Orland Park, IL
Champaigne, IL St. Clair Square,
Fairview Heights, IL
Diversey, Chicago, IL Stratford Square Mall, IL
Evanston, IL Vernon Hills, IL
Fox Valley, Aurora, IL Wheaton, IL
Halsted, Chicago, IL Wilmette, IL
LaGrange Park, IL Winnetka, IL
21
<PAGE> 22
FRANCHISE-OPERATED: 10
11319 West 95th St., 3265 Falls Parkway,
Overland Park, KS Branson, MO
Lawrence, KS East Sunshine, Springfield, MO
11022 Metcalf, Overland Park, KS 2401 East 32nd Street,
Joplin, MO
8300 Mission Road, 1570 East Battlefield,
Prairie Village, KS Springfield, MO
1605 North Rock Road, Wichita, KS 500 South National,
Springfield, MO
<TABLE>
The following table sets forth Company-operated and franchise operated bakery
cafes open at the dates indicated:
<CAPTION>
Dec. 26, Dec. 25 Dec. 31, Dec. 30, Dec. 28,
1992 1993 1994 1995 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Company-operated 121 156(1) 213(1) 244(1) 231(1)
Franchise-operated 34 40(2) 31(2) 37(2) 58(2)
</TABLE>
(1)Includes 19, 31, 52 and 54 Company-operated SLB bakery cafes at December 25,
1993, December 31, 1994, December 30, 1995 and December 28, 1996, respectively.
(2)Includes 1, 6, 8 and 10 franchise-operated SLB bakery cafes at December 25,
1993, December 31, 1994, December 30, 1995 and December 28, 1996, respectively.
22
<PAGE> 23
ITEM 3. LEGAL PROCEEDINGS
The Company is involved from time to time in litigation incidental to
its business. Management believes that the outcome of current litigation will
not have a material adverse effect upon the consolidated operations or financial
condition of the Company, and will not disrupt the normal operations of the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
23
<PAGE> 24
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED MATTERS.
(a) MARKET INFORMATION.
------------------
<TABLE>
The Company's Class A Common Stock is traded on the Nasdaq National
Market tier of the Nasdaq Stock Market under the symbol ABPCA. The following
table sets forth the high and low sale prices as reported by NASDAQ for the
fiscal periods indicated.
<CAPTION>
1995 HIGH LOW
- ---- ---- ---
<S> <C> <C>
First quarter............................... 17 1/4 12 3/4
Second quarter.............................. 14 10 1/4
Third quarter............................... 11 7 1/4
Fourth quarter.............................. 10 3/8 5 7/8
1996
- ----
First quarter............................... 9 5/16 6 3/4
Second quarter.............................. 9 6 7/8
Third quarter............................... 7 1/4 6 1/8
Fourth quarter.............................. 8 1/4 5 1/2
</TABLE>
On March 17, 1997, the last sale price for the Class A Common Stock, as
reported on the Nasdaq National Market System, was $6 3/8.
(b) HOLDERS.
-------
On March 17, 1997, the Company had approximately 1,527 holders of
record of its Class A Common Stock and approximately 97 holders of its Class B
Common Stock.
(c) DIVIDENDS.
---------
The Company has never paid cash dividends on its capital stock and has
no intention of paying cash dividends in the foreseeable future.
24
<PAGE> 25
<TABLE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
<CAPTION>
FOR THE FISCAL YEARS ENDED
-------------------------------------------------
Dec. 26, Dec. 25, Dec. 31, Dec. 30, Dec. 28,
1992 1993 1994 1995 1996
------- ------- ------- ------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Revenues:
Restaurant sales $89,686 $113,980 $173,436 $216,411 $225,625
Franchise sales and
other revenues 7,230 8,935 9,450 10,055 11,309
------- -------- -------- -------- --------
96,916 122,915 182,886 226,466 236,934
Costs and expenses:
Cost of food and
paper products 31,684 39,695 60,535 77,250 85,631
Restaurant
operating expenses 44,584 56,697 85,139 112,161 115,364
Depreciation and
amortization 6,608 7,967 11,891 14,879 16,195
General and
administrative 5,244 6,757 10,098 12,818 14,979
Non-recurring
charge - - - 8,500 4,435
------- -------- -------- -------- --------
88,120 111,116 167,663 225,608 236,604
------- -------- -------- -------- --------
Operating income 8,796 11,799 15,223 858 330
Interest expense, net 34 57 1,727 3,363 5,140
Other (income)
expense, net (311) (28) 80 2,016 2,513
Minority interest 189 105 78 (94) (40)
Income(loss) before
provision for
income taxes 8,884 11,665 13,338 (4,427) (7,283)
Provision(benefit)
for income taxes 3,604 4,844 5,497 (2,813) (2,918)
------- -------- -------- -------- --------
Net income(loss) $ 5,280 $ 6,821 $ 7,841 $ (1,614) $ (4,365)
======= ======== ======== ======== ========
Net income(loss)
per common share $ .48 $ .60 $ .67 $ (.14) $ (.37)
======= ======== ======== ======== ========
Weighted average
number of common
and common
equivalent shares
outstanding 10,986 11,353 11,624 11,621 11,705
Comparable restaurant
sales percentage
increase for
Company-operated
bakery cafes 7.8% 6.7% 5.8%(1) 0.5%(1) 0.7%
- ------------
(1) Fiscal 1994 included 53 weeks. The 1994 restaurant sales used in this
computation have been adjusted downward to be comparable to fiscal 1993 and
fiscal 1995.
</TABLE>
25
<PAGE> 26
FOR THE FISCAL YEARS ENDED
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED
-------------------------------------------------
Dec. 26, Dec. 25, Dec. 31, Dec. 30, Dec. 28,
1992 1993 1994 1995 1996
------- ------- ------- ------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Consolidated Balance
Sheet Data:
Working capital $ 6,619 $ 5,817 $ (3,439) $ 846 $ 2,696
Total assets 77,036 120,474 165,586 193,018 195,594
Long-term debt, less
current maturities 299 274 19,095 42,502 49,736
Convertible
Subordinated Notes 30,000 30,000 30,000 30,000
Stockholders' equity 68,296 76,098 94,164 93,238 90,056
Company-operated
bakery cafes open 121 156 213 244 231
</TABLE>
26
<PAGE> 27
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
<TABLE>
The following table sets forth the percentage relationship to total
revenues of certain items included in the Company's consolidated statements of
operations for the periods indicated:
<CAPTION>
FOR THE FISCAL YEARS ENDED
Dec. 31, Dec. 30, Dec. 28,
1994 1995 1996
-------- -------- -------
<S> <C> <C> <C>
Revenues:
Restaurant sales 94.8% 95.6% 95.2%
Franchise sales and other revenues 5.2 4.4 4.8
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====
Costs and expenses:
Cost of food and paper products 33.1% 34.1% 36.1%
Restaurant operating expenses 46.6 49.5 48.7
Depreciation and amortization 6.5 6.6 6.8
General and administrative 5.5 5.7 6.3
Non-recurring charge -- 3.7 1.9
----- ----- -----
91.7 99.6 99.8
----- ----- -----
Operating margin 8.3 0.4 0.2
Interest expense, net 1.0 1.5 2.2
Other expense, net -- 0.9 1.0
Minority interest -- -- --
----- ----- -----
Income(loss) before provision
(benefit) for income taxes 7.3 (2.0) (3.0)
Provision(benefit) for income taxes 3.0 (1.3) (1.2)
----- ----- -----
Net income(loss) 4.3% (0.7)% (1.8)%
===== ===== =====
</TABLE>
GENERAL
The Company's revenues are derived from restaurant sales and franchise
sales and other revenues. Franchise sales and other revenues include sales of
frozen dough products to franchisees and others, royalty income and franchise
fees. Certain expenses (cost of food and paper products, restaurant operating
expenses and depreciation and amortization) relate primarily to restaurant
27
<PAGE> 28
sales, while general and administrative expenses relate to all areas of revenue
generation.
The Company's fiscal year ends on the last Saturday in December. The
fiscal years from 1994 through 1996 ended on December 31, 1994, December 30,
1995 and December 28, 1996 and included 53, 52 and 52 weeks, respectively. The
Company's fiscal year normally consists of 13 four-week periods, with the first,
second and third quarters ending 16 weeks, 28 weeks and 40 weeks, respectively,
into the fiscal year.
RESULTS OF OPERATIONS
1996 COMPARED TO 1995
---------------------
Restaurant sales from Company-operated bakery cafes increased 4.2% to
$226 million in 1996 from $216 million in 1995, due principally to several
factors: incremental sales in 1996 over 1995 from the 15 Au Bon Pain and 20
Saint Louis Bread Company-operated bakery cafes opened throughout 1995, strong
comparable restaurant sales in the Saint Louis Bread business unit and sales
from the 3 Au Bon Pain and 2 Saint Louis Bread Company-operated bakery cafes
opened throughout 1996. Company-operated restaurant sales decreased 2.9% in the
Au Bon Pain business unit, as additional sales stemming from the new
Company-operated bakery cafes opened in 1995 and 1996 were more than offset by
the effect on sales of the disposition throughout 1996 of a series of
underperforming bakery cafes under an initiative begun in late 1995.
Company-operated restaurant sales increased 33.6% in the Saint Louis Bread
business unit in 1996 over 1995, due to sales stemming from the new
Company-operated bakery cafes opened in 1995 and 1996 and from strong comparable
restaurant sales. Comparable restaurant sales in 1996 decreased 1.3%, or $1.96
million, in the Au Bon Pain business unit. In the Saint Louis Bread business
unit comparable restaurant sales increased 10.2%, or $3.32 million, in 1996 over
the previous year driven by a highly successful bagel product line introduction.
Operating income declined to $330,000 in 1996 from $858,000 in 1995.
Operating income was significantly affected by separate non-recurring charges
recorded by the Company of $4.4 million ($3.7 million after-tax) in 1996 and of
$8.5 million ($5.3 million after-tax) in 1995. The non-recurring charge recorded
in 1996 related principally to the write-down of certain assets in accordance
with FAS #121. The non-recurring charge recorded in 1995 related principally to
the closure of certain under-performing bakery cafes. Before the non-recurring
charges, operating margin decreased in 1996 to 2.0% from 4.1% in 1995, as
operating margin improvements at the Saint Louis Bread business
28
<PAGE> 29
unit were more than offset by lower operating margins in the Au Bon Pain
business unit, driven primarily by costs associated with the start-up of a new
frozen dough manufacturing facility opened during 1996 in Mexico, Missouri.
Operating margin in the Au Bon Pain business unit declined by 4.3
points in 1996 versus 1995, due principally to start-up costs and inefficiencies
related to the opening of the new manufacturing facility and significantly
higher commodity costs for butter and flour in 1996 versus the previous year. In
total, these manufacturing related costs constituted the majority of the 2.6
point increase to cost of food and paper costs as a percentage of revenues in
the Au Bon Pain business unit compared to the prior year. Restaurant operating
expenses increased by .4 points in 1996 versus 1995, as percentage increases in
occupancy costs due to negative leverage stemming from the slight comparable
restaurant sales decline more than offset percentage improvements in both labor
costs and controllable expenses at the retail store level. Depreciation and
amortization expense as a percentage of revenues increased by .4 points in 1996
due to incremental depreciation related to the new Missouri manufacturing
facility and the negative leverage associated with the comparable restaurant
sales decline. General and administrative expenses as a percentage of revenues
increased by .9 points in 1996 versus 1995 due primarily to greater investment
in infrastructure in the international franchise area, information systems and
other overhead areas.
At Saint Louis Bread, operating margin improved by 4.8 points in 1996
versus 1995, as the new management team established at the end of 1995 improved
operational focus and control throughout 1996 and the significantly positive
comparable restaurant sales increase in 1996 leveraged many of the largely fixed
costs within the operations. Percentage food and paper costs decreased by .4
points in 1996 compared to 1995, despite higher allocated costs associated with
frozen dough provided by the new manufacturing facility opened during the year.
Percentage restaurant operating expenses decreased by 4.2 points driven by
improved management controls surrounding labor costs and store-level
controllable expenses. Depreciation and amortization expense and general and
administrative expenses each decreased by .2 points versus the previous year due
to leverage from the significantly higher sales in 1996.
The lower operating income in 1996 versus 1995, combined with higher
interest expense and other expense, net, resulted in a net loss of $4.4 million
in 1996, as compared with a net loss of $1.6 million in 1995. The higher
interest expense was due primarily to higher average long-term debt outstanding,
as higher average interest rate due to the issuance of $15 million senior
29
<PAGE> 30
subordinated debentures in July, 1996 which carry a significantly higher coupon
rate than the other outstanding long-term debt.
1995 COMPARED TO 1994
Restaurant sales from Company-operated bakery cafes increased 24.8% to
$216 million in 1995 from $173 million in 1994, due principally to sales from
the 15 Company-operated Au Bon Pain bakery cafes and 20 Company-operated Saint
Louis Bread bakery cafes opened throughout 1995, as well as incremental sales in
1995 over 1994 from the 31 Company-operated Au Bon Pain bakery cafes and 12
Saint Louis Bread bakery cafes opened throughout 1994. Company-operated
restaurant sales increased 15.9% in the Au Bon Pain business unit and 81.7% in
the Saint Louis Bread business unit, respectively, in 1995 over 1994. Comparable
restaurant sales increased 1.2%, or $1.6 million, in the Au Bon Pain business
unit in 1995. At Saint Louis Bread, comparable restaurant sales decreased 4.3%,
or $1.3 million, in 1995 due to cannibalization stemming from the 37% growth in
locations in the St. Louis market effected by the Company during 1994 and 1995.
Operating income decreased to $858,000 in 1995 from $15.2 million in
1994. Operating income was significantly reduced by a non-recurring charge of
$8.5 million ($5.3 million after-tax) recorded by the Company in 1995
principally related to the closure of certain under-performing bakery cafes.
Before the non-recurring charge, operating margin decreased in 1995 to 4.1% from
8.3% in 1994, due to lower operating margins in both the Au Bon Pain business
unit and at Saint Louis Bread.
Operating margin in the Au Bon Pain business unit decreased by 4 points
in 1995 versus 1994, due principally to higher corporate and field human
resource costs and to poor operating performance at those stores in the process
of being closed. Cost of food and paper products increased by .8 points,
reflecting higher percentage food cost in 1995 for coffee, lettuce and flour,
and also caused by slightly lower sales of baked goods as a percentage of retail
sales. Baked goods have a relatively lower percentage food cost due to the
internal production of the products by the Company. Restaurant operating
expenses increased by 2.6 points in 1995 over 1994, due to several factors.
First, restaurant operating expenses, particularly labor costs, in the
underperforming stores in the process of being closed were significantly higher
on a percentage basis than in the other Au Bon Pain units. Second, the Company
initiated a substantial management transition within the Au Bon Pain field
management, increasing human resource costs significantly. In addition, as part
of the transition to and introduction of Peet's coffee during 1995, a
substantial investment was made in the communication of
30
<PAGE> 31
the product change. Depreciation and amortization increased .2 points in 1995
over 1994, reflecting the fixed nature of those costs in the underperforming
units with unusually low sales volumes. General and administrative expenses
increased .5 points in 1995, or 26.9 %, due to unusually high corporate human
resource costs, as the Company broadened the corporate management group
substantially during 1995, initiated new retail training programs during 1995
and increased expenditures in information systems.
At Saint Louis Bread, operating margin also decreased by 4.0 points in
1995 versus 1994, primarily due to preopening and new market entry costs
directly associated with the growth in Company-operated bakery cafes from 31
stores at the end of 1994 to 51 stores at the end of 1995, a 65% growth rate.
The high growth rate had significant indirect effects on operating margin
throughout 1995, as the earn-out management team in place at Saint Louis Bread
throughout 1994 and 1995 was unable to maintain store-level margins at historic
levels in the midst of the growth. With the earn-out period concluded at the end
of fiscal 1995, the Company has broadened the depth of the management team at
Saint Louis Bread. The increase in percentage costs in 1995, as affected by the
level of growth in new stores, was in percentage cost of food and paper products
and restaurant operating expenses, as both depreciation and amortization and
general and administrative expenses decreased in 1995 on a percentage basis
versus 1994. The decreases in these percentage costs reflect the fixed
components within these cost areas, spread across significantly greater sales.
The significantly lower operating income in 1995 versus 1994, combined
with higher interest expense and other expense, net, resulted in a net loss of
$1.6 million in 1995, as compared with net income of $7.8 million in 1994. The
higher interest expense was due primarily to greater long-term debt outstanding,
as the amount outstanding under the Company's revolving line of credit increased
to $34.0 million at the end of 1995 from $18.0 million at the end of 1994. Other
expense, net increased to $2.0 million in 1995 from $80,000 in 1994, primarily
due to costs associated with a company-owned life insurance program initiated at
the end of 1994. The provision for income taxes decreased in 1995 to a benefit
of $2.8 million, versus a charge of $5.5 million in 1994. In addition to
substantially lower pre-tax income in 1995, the provision for income taxes was
reduced by fixed deductions associated with the company-owned life insurance
program.
31
<PAGE> 32
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal requirements for cash are capital expenditures
for constructing and equipping new bakery cafes and maintaining or remodeling
existing bakery cafes, working capital and acquisitions. To date, the Company
has met its requirements for capital with cash from operations, proceeds from
the sale of equity and debt securities and bank borrowings.
Total capital expenditures in 1996 of $17.0 million were related
primarily to the opening of three ABP and two SLB new Company-operated bakery
cafes and to the construction of a second frozen dough production facility in
Mexico, Missouri. The expenditures were funded by net cash from operating
activities of $14.8 million, net proceeds of an $8.6 million industrial revenue
bond issued by the City of Mexico, Missouri in connection with the construction
of the new production facility and borrowings under the Company's existing lines
of credit, described below.
In April 1995, the Company obtained an $8.6 million industrial
development bond to fund the construction of a second production facility in
Mexico, Missouri. The bond was issued by the City of Mexico, Missouri, and
secured by an $8.7 million letter of credit issued by a commercial bank.
Interest accrues at a weekly floating rate, which was 4.3% on December 28, 1996.
In December 1993, the Company acquired substantially all of the assets
of the Saint Louis Bread Company of St. Louis, MO for cash of $24.0 million and
expenses of $751,000 plus assumed liabilities of $3.5 million. The acquisition
was financed through the sale and issuance by the Company of the 1993 Notes.
In December 1993, the Company issued the 1993 Notes. The 1993 Notes are
convertible into shares of the Company's Class A Common Stock, at a conversion
price per share of $25.50, subject to adjustment. Beginning in December 1997,
the Company may, at its option, redeem all or any part of the 1993 Notes upon
the payment of the principal amount together with a premium based upon a
declining percentage of the principal amount.
In April 1994, the Company acquired substantially all of the assets of
ABP Midwest which operated 19 franchised bakery cafes in Chicago and
Minneapolis/St. Paul. See Item 1, "Business - Acquisitions".
At December 28, 1996, the Company had a $28.0 million unsecured
revolving line of credit which bore interest at either the commercial bank's
prime rate or LIBOR plus an amount ranging between .75% and 2.0%, depending
upon certain financial tests. At December 28, 1996, $22.0 million was
outstanding under the line of credit and an additional $879,000 of the
remaining availability was utilized by outstanding letters of credit issued by
the bank on behalf of the Company. In addition, the Company had a $3.6 million
term loan outstanding, collateralized by certain real estate written down in
the third quarter of 1996. See Footnote 6. The term loan matures on March 15,
2000.
On July 24, 1996, the Company issued $15 million senior sbordinated
debentures maturing in July, 2000. The debentures accrue interest at varying
fixed rates over the four year term, ranging between 11.25% and 14.0%. In
connection with the private placement, warrants with an exercise price of $5.62
per share were issued to purchase between 400,000 and 580,000 shares of the
Company's Class A common stock, depending on the term which the debentures
remain outstanding and certain future events. The net proceeds of the
financing were used to reduce the amount outstanding under the Company's bank
revolving line of credit. With the senior subordinated financing and the
Company's existing revolving line of credit, the Company's management believes
it has the capital resources necessary to meet its growth goals through 1998.
In 1997, the Company expects to spend approximately $19 million for
capital expenditures, principally for the opening of new bakery cafes. The
Company expects to fund these expenditures principally through internally
generated cash flow and remaining net proceeds of the industrial revenue bond.
32
<PAGE> 33
CERTAIN FACTORS AFFECTING FUTURE OPERATING RESULTS
Statements made or incorporated in this Form 10-K include a number of
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
Forward-looking statements include, without limitation, statements containing
the words "anticipates,", "believes,", "expects," "intends,", "future," and
words of similar import which express management's belief, expectations or
intentionss regarding the Company's future performance. The Company's actual
results could differ materially from those set forth in the forward-looking
statements.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
128"), which is effective for fiscal years that end after December 15, 1997,
including interim periods. Earlier application is not permitted. However, an
entity is permitted to disclose pro forma earnings per share amounts computed
using SFAS 128 in the notes to financial statements in periods prior to
adoption. The Statement requires restatement of all prior-period earnings per
share data presented after the effective date. SFAS 128 specifies the
computation, presentation, and disclosure requirements for earnings per share
and is
33
<PAGE> 34
substantially similar to the standard recently issued by the International
Accounting Standards Committee entitled International Accounting Standards,
EARNINGS PER SHARE (IAS 33). The Company plans to adopt SFAS 128 in 1997 and has
not yet determined the impact.
34
<PAGE> 35
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following described consolidated financial statements of the
Company are included in response to this item:
Report of Independent Accountants.
Consolidated Balance Sheets as of December 30, 1995 and December 28,
1996.
Consolidated Statements of Operations for the fiscal years ended
December 31, 1994, December 30, 1995 and December 28, 1996.
Consolidated Statements of Cash Flows for the fiscal years ended
December 31, 1994, December 30, 1995 and December 28, 1996.
Consolidated Statements of Stockholders' Equity for the fiscal years
ended December 31, 1994, December 30, 1995 and December 28, 1996.
Notes to Consolidated Financial Statements.
35
<PAGE> 36
QUARTERLY RESULTS OF OPERATIONS
- -------------------------------
<TABLE>
The following is a summary of the unaudited quarterly results of
operations for the fiscal years ended December 30, 1995 and December 28, 1996:
<CAPTION>
Net income
Operating Net (loss) per
income income common
For the years ended Revenues (loss) (loss) share
- ------------------- -------- --------- ------ ----------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
December 30, 1995:
First quarter $ 62,985 $ 3,528 $ 1,600 $ .14
Second quarter 51,489 1,409 330 .03
Third quarter 54,920 (6,780) (4,562) (.39)*
Fourth quarter 57,072 2,701 1,018 .09
-------- ------- ------- -----
$226,466 $ 858 $(1,614) $(.14)**
======== ======= ======= =====
December 28, 1996:
First quarter $ 69,441 $ 2,840 $ 797 $ .07
Second quarter 54,429 1,331 614 .05
Third quarter 54,969 (5,859) (6,015) (.51)***
Fourth quarter 58,095 2,018 239 .02
-------- ------- ------- -----
$236,934 $ 330 $(4,365) $(.37)
======== ======= ======= =====
- ---------------
* Includes a $5.3 million after-tax charge related principally to the closing of
certain underperforming restaurants.
** Due to rounding of quarterly earnings per share and the calculation of full
year EPS independently from the quarterly calculation, the sum of the four
quarters does not equal the full year.
*** Includes a $3.8 million after-tax charge related principally to the
write-down of certain assets.
</TABLE>
The Company reports its quarterly results of operations on the basis of
13 four-week periods, with the first, second and third quarters ending 16 weeks,
28 weeks and 40 weeks, respectively, into the fiscal year.
36
<PAGE> 37
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Au Bon Pain Co., Inc.:
We have audited the accompanying consolidated balance sheets of Au Bon Pain Co.,
Inc. as of December 30, 1995 and December 28, 1996, and the related consolidated
statements of operations, cash flows and stockholders' equity for each of the
three fiscal years in the period ended December 28, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance as to whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Au Bon
Pain Co., Inc. as of December 30, 1995 and December 28, 1996, and the
consolidated results of its operations and cash flows for each of the three
fiscal years in the period ended December 28, 1996 in conformity with generally
accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
February 14, 1997
37
<PAGE> 38
AU BON PAIN CO., INC.
<TABLE>
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
<CAPTION>
Dec. 30, Dec. 28,
1995 1996
-------- --------
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash and cash equivalents........................... $ 6,420 $ 2,579
Accounts receivable, less allowance of $60 and $104
in 1995 and 1996, respectively..................... 6,596 7,730
Inventories (Note 3)................................ 7,776 8,997
Prepaid expenses.................................... 2,696 2,353
Refundable income taxes............................. 694 4,540
Deferred income taxes (Note 12)..................... 2,936 1,675
-------- --------
Total current assets........................... 27,118 27,874
-------- --------
Property and equipment, net (Note 4)................. 121,155 121,733
-------- --------
Other assets:
Notes receivable (Note 5)........................... 2,254 2,291
Intangible assets, net of accumulated amortization
of $3,765 and $5,223 in 1995 and 1996, respectively 35,110 32,657
Deferred financing costs............................ 479 1,382
Deposits and other (Note 13)........................ 4,789 9,110
Deferred income taxes (Note 12)..................... 2,113 547
-------- --------
Total other assets............................. 44,745 45,987
-------- --------
Total assets................................... $193,018 $195,594
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable.................................... $ 10,321 $ 11,141
Accrued expenses (Note 8)........................... 11,618 13,335
Current maturities of long-term debt (Note 9)....... 4,333 702
-------- --------
Total current liabilities...................... 26,272 25,178
Long-term debt, less current maturities (Note 9)..... 42,502 49,736
Convertible subordinated notes (Note 10)............. 30,000 30,000
-------- --------
Total liabilities.............................. 98,774 104,914
Commitments and contingencies (Notes 9 and 11)
Minority interest.................................... 1,006 624
Stockholders' equity (Note 14):
Preferred stock, $.0001 par value:
Class B, shares authorized 2,000,000; issued and
outstanding - 20,000 in 1995 and 1996............. - -
Common stock, $.0001 par value:
Class A, shares authorized 50,000,000; issued
and outstanding 9,929,278 and 10,066,671 in 1995
and 1996, respectively............................ 1 1
Class B, shares authorized 2,000,000; issued and
outstanding 1,706,878 and 1,647,354 convertible
to Class A, in 1995 and 1996, respectively........ - -
Additional paid-in capital.......................... 66,892 68,075
Retained earnings................................... 26,345 21,980
-------- --------
Total stockholders' equity..................... 93,238 90,056
-------- --------
Total liabilities and stockholders' equity..... $193,018 $195,594
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
38
<PAGE> 39
AU BON PAIN CO., INC.
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share amounts)
<CAPTION>
FOR THE FISCAL YEARS ENDED
---------------------------------
Dec. 31, Dec. 30, Dec. 28,
1994 1995 1996
------- -------- -------
<S> <C> <C> <C>
Revenues:
Restaurant sales.................$173,436 $216,411 $225,625
Franchise sales and other
revenues....................... 9,450 10,055 11,309
-------- -------- --------
182,886 226,466 236,934
Costs and expenses:
Cost of food and paper products.. 60,535 77,250 85,631
Restaurant operating expenses:
Labor.......................... 44,818 57,860 60,266
Occupancy...................... 21,045 26,709 28,529
Other.......................... 19,276 27,592 26,569
-------- -------- --------
85,139 112,161 115,364
Depreciation and amortization.... 11,891 14,879 16,195
General and administrative....... 10,098 12,818 14,979
Non-recurring charge (Note 6).... - 8,500 4,435
-------- -------- --------
167,663 225,608 236,604
-------- -------- --------
Operating income................... 15,223 858 330
Interest expense, net.............. 1,727 3,363 5,140
Other expense, net
(Note 13)........................ 80 2,016 2,513
Minority interest (income) expense. 78 (94) (40)
-------- -------- --------
Income (loss) before
provision(benefit) for income
taxes............................ 13,338 (4,427) (7,283)
Provision(benefit) for income
taxes (Note 12).................. 5,497 (2,813) (2,918)
-------- -------- --------
Net income (loss) .................$ 7,841 $ (1,614) $ (4,365)
======== ======== ========
Net income (loss) per common share.$ .67 $ (.14) $ (.37)
======== ======== ========
Weighted number of common and
common equivalent shares
outstanding...................... 11,624 11,621 11,705
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
39
<PAGE> 40
AU BON PAIN CO., INC.
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<CAPTION>
FOR THE FISCAL YEARS ENDED
---------------------------------
Dec. 31, Dec. 30, Dec. 28,
1994 1995 1996
-------- -------- -------
<S> <C> <C> <C>
Cash flows from operations:
Net income (loss)................$ 7,841 $ (1,614) $ (4,365)
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization.. 11,891 14,879 16,195
Amortization of deferred
financing costs.............. 67 77 308
Provision for losses on
accounts receivable.......... 90 73 44
Gain on sale of asset.......... - 31 -
Minority interest.............. 78 (94) (40)
Deferred income taxes.......... 22 (4,234) 2,827
Non-recurring charge........... - 7,770 4,435
Changes in operating assets and
liabilities:
Accounts receivable............ (1,225) 119 (1,178)
Inventories.................... (1,166) (1,779) (1,221)
Prepaid expenses............... (45) (355) 343
Refundable income taxes........ (248) 289 (3,846)
Accounts payable............... 4,952 (154) 820
Accrued expenses............... 683 771 453
-------- -------- --------
Net cash provided by
operating activities....... 22,940 15,779 14,775
-------- -------- --------
Cash flows from investing activities:
Additions to property and
equipment.................... (39,396) (38,650) (17,062)
Acquisition, net of cash
acquired..................... (57) - -
Payments received on notes
receivable................... 56 59 82
Increase in intangible assets.. (1,302) (50) (73)
Decrease (increase) in
deposits and other........... (4,380) 1,450 (4,321)
Funding of notes receivable.... - (951) (475)
-------- -------- --------
Net cash used in investing
activities................. (45,079) (38,142) (21,849)
-------- -------- --------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
40
<PAGE> 41
<TABLE>
<CAPTION>
for the fiscal years ended
---------------------------------
Dec. 31, Dec. 30, Dec. 28,
1994 1995 1996
-------- -------- -------
<S> <C> <C> <C>
Cash flows from financing activities:
Exercise of employee stock
options..................... 522 241 504
Issuance of warrants.......... - - 679
Proceeds from long-term debt
issuance.................... 46,937 115,418 87,561
Principal payments on
long-term debt.............. (28,763) (87,713) (83,958)
Proceeds from issuance of
common stock................ 294 346 -
Increase in deferred
financing costs............. (442) (152) (1,211)
Decrease in minority interest. (322) (349) (342)
-------- -------- --------
Net cash provided by
financing activities...... 18,226 27,791 3,233
Net increase (decrease) in cash
and cash equivalents............ (3,913) 5,428 (3,841)
Cash and cash equivalents, at
beginning of period............. 4,905 992 6,420
-------- -------- --------
Cash and cash equivalents, at
end of period................... $ 992 $ 6,420 $ 2,579
======== ======== ========
Supplemental cash flow information:
Cash paid during the period for:
Interest...................... $ 1,059 $ 4,097 $ 4,637
Income taxes.................. $ 6,056 $ 1,543 $ 370
Satisfaction of Note Receivable
in exchange for PP&E......... - - $ 356
Reconciliation of assets acquired
and liabilities assumed:
Fair Value of assets acquired. $ 12,505 - -
Stock Issued.................. $ 8,775 - -
Cash paid for acquisition..... $ 250 - -
Liabilities assumed........... $ 3,480 - -
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
41
<PAGE> 42
AU BON PAIN CO., INC.
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the fiscal years ended
December 31, 1994, December 30, 1995 and December 28, 1996
(in thousands)
<CAPTION>
Common Stock Preferred Stock
$.0001 Par Value $.0001 Par Value
CLASS A CLASS B CLASS B Additional Total
------- ------- ------- Paid-In Retained Stockholders'
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------ ------ ------ ------ ------ ------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, Dec.
26, 1993 9,155 $1 1,916 $- - $- $55,979 $20,118 $76,098
Exercise of
employee
stock options 95 522 522
Income tax
benefit related
to stock
option plan 634 634
Issuance of
common stock 24 294 294
Stock issued for
acquisition of
ABP Midwest 370 20 8,775 8,775
Conversions of
Class B to
Class A 184 (184)
Net income 7,841 7,841
Balance, Dec.
31, 1994 9,828 $1 1,732 $- 20 $- $66,204 $27,959 $94,164
===== == ===== == == == ======= ======= =======
Exercise of
employee
stock options 45 241 241
Income tax
benefit related
to stock option
plan 101 101
Issuance of
common stock 31 346 346
Conversions of
Class B to
Class A 25 (25)
Net loss (1,614) (1,614)
Balance, Dec.
30, 1995 9,929 $1 1,707 $- 20 $- $66,892 $26,345 $93,238
===== == ===== == == == ======= ======= =======
Exercise of
employee
stock options 30 147 147
Income tax
benefit related
to stock option
plan 37 37
Issuance of
common stock 48 320 320
Warrants issued
for debt
financing 679 679
Conversions of
Class B to
Class A 60 (60)
Net loss (4,365) (4,365)
Balance, Dec.
28, 1996 10,067 $1 1,647 $- 20 $- $68,075 $21,980 $90,056
====== == ===== == == == ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
42
<PAGE> 43
AU BON PAIN CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Business
Au Bon Pain Co., Inc. and its subsidiaries operate two retail bakery
cafe businesses and two franchising businesses under the concept names "Au Bon
Pain" and "Saint Louis Bread Company". Included in franchise sales and other
revenues are sales of product to franchisees and others of $7.3 million, $7.4
million and $8.3 million for the fiscal years ended December 31, 1994, December
30, 1995 and December 28, 1996, respectively. Included in costs and expenses are
charges related to franchise sales of approximately $1.8 million, $1.3 million
and $1.9 million for the fiscal years ended December 31, 1994, December 30, 1995
and December 28, 1996, respectively.
2. Summary of Accounting Policies
Principles of Consolidation
The consolidated statements include the accounts of Au Bon Pain Co.,
Inc., ABP Holdings, Inc., a wholly owned subsidiary, Saint Louis Bread Company,
Inc. ("SLB"), a wholly owned subsidiary, and investments in joint ventures in
which a majority interest is held (the "Company"). All intercompany balances and
transactions have been eliminated.
Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with maturity at
the time of purchase of three months or less to be cash equivalents.
Inventories
Inventories are valued at the lower of cost (first-in, first-out) or
market.
43
<PAGE> 44
AU BON PAIN CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Property, Equipment and Depreciation
Property and equipment are stated at cost. Upon retirement or sale, the
cost of assets disposed of and their related accumulated depreciation are
removed from the accounts. Any resulting gain or loss is credited or charged to
operations. Maintenance and repairs are charged to expense when incurred, while
betterments are capitalized. Depreciation is computed over the estimated useful
lives of the assets using the straight-line method. Leasehold improvements are
amortized over the terms of the leases (including available option periods) or
over their useful lives, whichever is shorter. The estimated useful lives used
for financial statement purposes are:
Machinery and equipment................. 3-10 years
Furniture and fixtures.................. 3-10 years
Leasehold improvements.................. 10-23 years
Signs................................... 10 years
Interest is capitalized in connection with the construction of new
locations or facilities. The capitalized interest is recorded as part of the
asset to which it relates and is amortized over the asset's estimated useful
life. Capitalized interest amounted to $272,000, $792,000 and $581,000 in 1994,
1995 and 1996 respectively.
Intangible Assets
Intangible assets consist of goodwill arising from the excess cost over
the value of net assets of joint ventures, businesses and stores acquired, as
well as the original acquisition of the Company. Goodwill is amortized on a
straight-line basis over periods ranging from twenty-five to forty years.
Periodically management assesses, based on undiscounted cash flows, if there has
been a permanent impairment in the carrying value of its intangible assets and,
if so, the amount of any such impairment, by comparing anticipated discounted
future operating cash flows from acquired businesses with the carrying value of
the related intangibles. In performing this analysis, management considers such
factors as current results, trends and future prospects, in addition to other
economic factors.
Income Taxes
The provision for income taxes is determined in accordance with the
provisions of Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes". Under this method, deferred taxes are determined based on the
difference between the financial statements and the tax bases of assets and
liabilities using enacted income tax rates in effect in the years in which the
44
<PAGE> 45
AU BON PAIN CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
differences are expected to reverse. Tax credits are recorded as a reduction in
income taxes when utilized. The Company's temporary differences consist
primarily of depreciation and amortization and valuation reserves.
Deferred Financing Costs
Costs incurred in connection with obtaining debt financing are
amortized over the terms of the related debt.
Franchise and Development Fees
Franchise fees are the result of sales of area development rights and
the sale of individual franchise locations to third parties, both domestically
and internationally. Fees from the sale of area development rights are 100%
recognized as revenue upon completion of all commitments related to the
agreements. Fees from the sale of individual franchise locations are 100%
recognized as revenue upon the commencement of franchise operations.
Capitalization of Certain Development Costs
The Company capitalizes certain expenses associated with the
development and construction of new store locations. Capitalized costs of $4.3
million and $2.4 million as of December 30, 1995 and December 28, 1996,
respectively, are recorded as part of the asset to which they relate and are
amortized over the asset's useful life.
Advertising Costs
Advertising costs are expensed when incurred.
Pre-Opening Costs
All pre-opening costs associated with the opening of new retail
locations are expensed when incurred.
Fiscal Year
The Company's fiscal year ends on the last Saturday in December. Fiscal
years for the consolidated financial statements included herein include 53 weeks
for the fiscal year ended December 31, 1994, 52 weeks for the fiscal years ended
December 30, 1995 and December 28, 1996.
45
<PAGE> 46
AU BON PAIN CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Income Per Share Data
Income per share is based on the weighted average number of shares
outstanding during the period after consideration of the dilutive effect, if
any, for stock options and convertible debt. Fully diluted net income per share
has not been presented as the amount would not differ significantly from those
presented.
Fair Value of Financial Instruments
The carrying amounts of financial instruments, including cash and cash
equivalents, accounts receivable, and accounts payable approximated fair value
as of December 30, 1995 and December 28, 1996, because of the relatively short
maturity of these instruments. The carrying value of long-term debt, including
the current portion, approximated fair value as of December 30, 1995 and
December 28, 1996, based upon quoted market prices for the same or similar
issues.
3. Inventories
<TABLE>
Inventories consist of the following (in thousands):
<CAPTION>
December 30, December 28,
1995 1996
----------- -----------
<S> <C> <C>
Production....................... $ 1,878 $ 3,071
Retail stores.................... 1,983 1,762
Paper goods...................... 475 456
Other............................ 3,440 3,708
-------- --------
$ 7,776 $ 8,997
======== ========
</TABLE>
4. Property and Equipment
<TABLE>
Major classes of property and equipment consist of the following (in
thousands):
<CAPTION>
December 30, December 28,
1995 1996
----------- -----------
<S> <C> <C>
Leasehold improvements........... $ 81,897 $ 91,161
Machinery and equipment.......... 56,745 59,414
Furniture and fixtures........... 18,972 19,063
Construction in progress......... 16,351 19,585
Signage.......................... 3,577 3,634
-------- --------
177,542 192,857
Less accumulated depreciation
and amortization............... 56,387 71,124
-------- --------
Property and equipment, net...... $121,155 $121,733
======== ========
</TABLE>
The Company recorded depreciation expense related to these assets of
$10.6 million, $13.4 million and $14.7 million in 1994, 1995 and 1996,
respectively.
46
<PAGE> 47
AU BON PAIN CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
5. Notes Receivable
Notes receivable relate to the sale of certain retail locations and to
the funding for the opening of new locations of a franchisee. These notes bear
interest of 8% payable in monthly installments of $16,800 including interest,
with a final principal payment due on March 31, 2004.
6. Non-recurring Charges
During the third quarter of fiscal 1996, the Company recorded a
non-recurring charge of $4.4 million principally to reflect a write-down under
Statement of Financial Standards, 121, "Accounting for the Impairment of
Long-Lived Assets and for the Long-Lived Assets to be Disposed of" ("SFAS 121").
SFAS 121, adopted at the beginning of fiscal year 1996, establishes accounting
standards for recognizing and measuring the impairment of long-lived assets and
requires reducing the carrying amount of any impaired asset to fair value. The
charge was taken as a result of continued less than expected performance results
at certain Au Bon Pain restaurants. The $4.4 million non-cash charge included a
$1.4 million goodwill write-down, a $0.6 million fixed asset write-down and a
$1.4 million write-down of an office building held for resale. At December 28,
1996, the residual value of the office building held for resale was $4.2
million.. The charge represented a reduction of the carrying amounts of the
assets to their estimated fair values as determined by using discounted
estimated future cash flows. In addition, the $4.4 million charge included a
$1.0 million charge to write-down the book value of six restaurants whose leases
expire in 1997 and which will not be renewed. For the fifty-two weeks ended
December 30, 1995 and December 28, 1996 the restaurants included in the reserve
had sales of $3,662,000 and $3,096,000, respectively and a pre-tax loss of
$322,000 and $578,000, respectively.
During the third quarter of fiscal 1995, the Company recorded a
non-recurring pre-tax charge of $8.5 million principally to cover the expected
costs of closing certain under-performing restaurants. The components of the
non-recurring charge included cash costs of approximately $2.1 million for lease
obligations, professional and consulting services, employee relocation and
termination costs and non-cash charges of approximately $6.4 million related to
fixed asset disposals. The store closures were completed in fiscal 1996 for a
total cost of approximately $221,000. As of December 28, 1996, $257,000 was in
accrued expenses. The Company anticipates that this amount is adequate to cover
any remaining expenses to be incurred in connection with
47
<PAGE> 48
AU BON PAIN CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
this charge in fiscal 1997. For the fifty-two weeks ended December 30, 1995 and
December 28, 1996 the stores included in the reserve had sales of $5,673,000 and
$4,247,000, respectively and a pre-tax loss of $946,000 and $1,077,000,
respectively.
7. Acquisitions
In April, 1994, the Company purchased the assets of ABP Midwest, Inc.
for 20,000 shares of the Company's Class B Preferred Stock (Series 1), 370,000
shares of the Company's Class A Common Stock, cash of $250,000, incurred
expenses of $650,000 and assumed liabilities of $2.8 million; the total purchase
price was $12.5 million. Goodwill arising from the transaction totaled $7.7
million and is being amortized over a twenty-five year period, which
approximates the average remaining lives of the leases acquired, including
option or renewal periods. The acquisition was accounted for as a purchase and
the results of operations of the acquired entity are included in the
consolidated statements of operations from the acquisition date.
<TABLE>
The following unaudited pro forma summary presents the consolidated
results of operations as if the acquisition of ABP Midwest, Inc. had occurred at
the beginning of the fiscal year presented, after including the impact of
certain adjustments, such as amortization of intangibles, increased interest
expense on the acquisition debt and related income tax effects. These results do
not purport to be indicative of what would have occurred had the acquisition
been made as of those dates or of results which may occur in the future.
<CAPTION>
1994
---------------------
(in thousands, except
per share amounts)
<S> <C>
Revenues.................................. $179,274
Operating income.......................... 15,051
Income before provision for income taxes.. 13,089
Net income................................ 7,581
Net income per common share............... .65
</TABLE>
48
<PAGE> 49
AU BON PAIN CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
8. Accrued Expenses
<TABLE>
Accrued expenses consist of the following (in thousands):
<CAPTION>
December 30, December 28,
1995 1996
----------- -----------
<S> <C> <C>
Accrued insurance.................... $ 1,148 $ 1,310
Rent................................. 2,687 3,503
Payroll and related taxes............ 2,507 2,554
Other taxes.......................... 524 433
Other................................ 4,752 5,535
------- -------
$11,618 $13,335
</TABLE>
9. Long-term Debt
<TABLE>
Long-term debt consists of the following (in thousands):
<CAPTION>
December 30, December 28,
1995 1996
----------- -----------
<S> <C> <C>
Revolving credit line at prime
(8.25% at December 28, 1996)......... $34,197 $22,000
Term loan - variable rate (8.0% at
December 28, 1996)..................... 3,800 3,533
Industrial development bond for
Mexico, Missouri plant at weekly
floating rate (4.3% at
December 28, 1996)................... 8,600 8,300
Loan with Cigna Insurance at prime less
.75% (7.5% at December 28, 1996)..... - 2,000
Term loan at 7.0% payable in
annual installments of $50,000
including interest, due January
2001................................. 238 205
Senior Subordinated Debenture (11.25%
at December 28, 1996)................ - 14,400
------- -------
Total debt............................. 46,835 50,438
Less current maturities................ 4,333 702
------- -------
Total long-term debt................... $42,502 $49,736
======= =======
</TABLE>
As of December 30, 1995 and December 28, 1996, the Company had a $38
million and a $28 million unsecured revolving line of credit, respectively. The
revolving credit agreement contains restrictions relating to future
indebtedness, liens, investments, distributions, the merger, acquisition or sale
of assets and certain leasing transactions. The agreement also requires the
maintenance of certain financial ratios and covenants, the most restrictive
being a debt to net worth ratio. There is a fee of 3/8% of the unused portion of
the revolving line of credit. Available unused borrowings totaled approximately
$4.0 million at
49
<PAGE> 50
AU BON PAIN CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
December 30, 1995 and $5.1 million at December 28, 1996. At December 30, 1995
and December 28, 1996 the Company had outstanding letters of credit against the
revolving line of credit aggregating $1.7 million and $0.9 million,
respectively. Interest is calculated on the $3.5 million term loan at the lower
of prime plus .5% or LIBOR plus an amount ranging from 1.25% to 3.0% depending
on certain financial test. Interest-only payments are due under the revolving
credit line and $3.5 million term loan monthly, in arrears, with principal
balance payable at maturity, May 31, 1998 under the revolving credit agreement
and March 15, 2000 under the $3.5 million term loan.
In July, 1995 the Company obtained an industrial development bond
issued by the City of Mexico, Missouri, secured by a $8.7 million letter of
credit with a commercial bank. The bond matures in July, 2000 and interest is
payable monthly at a weekly floating rate, which was 4.3% on December 28, 1996.
On July 24, 1996, the Company issued $15 million senior subordinated
debentures maturing in July, 2000. The debentures accrue interest at varying
fixed rates over the four year term, ranging from 11.25% to 14.0%. In connection
with the private placement, warrants with an exercise price of $5.62 per share
were issued to purchase between 400,000 and 580,000 shares of the Company's
Class A Common Stock, depending on the term which the debentures remain
outstanding and certain future events. At December 28, 1996, 400,000 warrants
were issued and outstanding, all of which were vested.
The Company has recognized interest expense of $1.7 million, $3.4
million and $5.1 million as of December 31, 1994, December 30, 1995 and December
28, 1996, respectively.
<TABLE>
Maturities of debt outstanding at December 28, 1996 are as follows (in
thousands):
<C> <C>
1997........................... $ 702
1998........................... 22,704
1999........................... 2,806
2000........................... 15,110
2001........................... 713
Thereafter..................... 8,403
-------
$50,438
=======
</TABLE>
10. Convertible Subordinated Notes
In December 1993, the Company issued $30.0 million of its unsecured
4.75% Convertible Subordinated Notes due 2001 ("1993 Notes"). The 1993 Notes are
convertible at the holders' option into shares of the Company's Class A Common
Stock at $25.50 per
50
<PAGE> 51
AU BON PAIN CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
share. In December 1997, the Company may, at its option, redeem all or a part of
the outstanding 1993 Notes upon payment of a premium. The note agreement
requires the Company to maintain minimum permanent capital, as therein defined.
11. Commitments
The Company is obligated under noncancelable operating leases for two
production facilities, a commissary and retail stores. Lease terms are generally
for ten years with renewal options at certain locations and generally require
the Company to pay a proportionate share of real estate taxes, insurance, common
area and other operating costs. Substantially all store leases provide for
contingent rental payments based on sales in excess of specified amounts.
<TABLE>
Aggregate minimum requirements under these leases are, as of December
28, 1996, approximately as follows (in thousands):
<C> <C>
1997........................... $ 20,076
1998........................... 19,095
1999........................... 18,031
2000........................... 16,494
2001........................... 14,822
Thereafter..................... 52,204
--------
$140,722
========
</TABLE>
Rental expense under long-term leases was approximately $17.7 million,
$22.3 million and $29.3 million in 1994, 1995 and 1996, respectively, which
included contingent rentals of approximately $2.2 million, $2.9 million and $3.0
million, respectively.
The Company currently has international franchise development
agreements with developers in Japan, Chile, Brazil, Argentina and certain other
South American countries, Thailand, Indonesia and The Philippines. Under these
agreements, the Company has granted exclusive development rights to franchise
and operate Au Bon Pain bakery cafes in the respective country or countries.
These agreements generally require the payment of up front development fees, a
franchise fee for each Au Bon Pain bakery cafe opened and royalties from the
sale of products from each bakery cafe. The developer is, in most instances,
required to open bakery cafes according to a specific minimum schedule. The
Company may also agree to provide advice, consultation and training for the
development of a frozen dough plant. The franchisee is required to purchase all
of its frozen dough products from the Company until the opening of its own
frozen dough plant, subject to importation regulations and restrictions.
51
<PAGE> 52
AU BON PAIN CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
12. Income Taxes Payable
<TABLE>
Provisions(benefit) for income taxes in the consolidated statements of
operations is comprised of the following (in thousands):
<CAPTION>
December 31, December 30, December 28,
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Current:
Federal............... $3,645 $1,202 $(4,281)
State................. 1,830 219 (281)
------ ------ --------
5,475 1,421 (4,562)
------ ------ --------
Deferred:
Federal............... 15 (3,597) 1,397
State................. 7 (637) 247
------ ------- -------
22 (4,234) 1,644
------ ------- -------
Total provision(benefit)
for income taxes...... $5,497 $(2,813) $(2,918)
====== ======= =======
</TABLE>
<TABLE>
A reconciliation of the statutory federal income tax rate and the
effective tax rate as a percentage of pretax income is as follows:
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Statutory rate (benefit)........... 34.0% (34.0)% (34.0)%
State income taxes, net of
federal tax benefit.............. 9.1 (4.0) 2.2
Utilization of tax credits......... (1.2) (2.8) -
Charitable contributions........... (1.3) (4.0) (3.7)
Company-owned Life Insurance
(See Note 13)...................... - (28.8) (15.4)
Non-deductible goodwill and meals
and entertainment................ - 5.7 9.1
Other, net......................... .6 4.3 1.8
---- ----- -----
41.2% (63.6)% (40.0)%
==== ===== =====
</TABLE>
52
<PAGE> 53
AU BON PAIN CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
<TABLE>
The tax effects of the significant temporary differences which comprise
the deferred tax assets are as follows (in thousands):
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Current assets:
Pre-opening expenses............ $ 19 $ - $ -
Receivables reserve............. 41 24 42
Accrued expenses................ 379 402 368
Tax credit carried forward...... - 1,095 822
Net operating loss carried
forward........................ - 1,070 161
Charitable contribution
carried forward................ - 219 219
Other reserves................... - 126 63
----- ------ ------
439 2,936 1,675
----- ------ ------
Non-current assets/liabilities:
Property, plant and equipment... 285 1,964 799
Accrued expenses................ 634 1,080 1,073
Goodwill........................ (543) (931) (1,325)
----- ------ ------
376 2,113 547
----- ------ ------
Total deferred tax asset $ 815 $5,049 $2,222
===== ====== ======
</TABLE>
At December 28, 1996, the Company has net operating losses of
$12,590,952 which can be carried back three years or carried forward for fifteen
years to offset Federal taxable income. In addition, the Company has alternative
minimum tax credit carryforwards of approximately $656,000 which are available
to reduce future regular Federal income taxes over an indefinite period.
13. Deposits and Other
During fiscal 1996, the Company established a $4.5 million deposit with
its distributor. This financial arrangement allows the Company to receive lower
distribution costs. The savings exceed the carrying value of the deposit. The
deposit is flexible and the Company may at times decrease the amount on deposit,
at its discretion.
During fiscal year 1994, the Company established a company-owned life
insurance program ("COLI") covering a substantial portion of its employees. At
December 28, 1996, the cash surrender value and prepaid premiums of $69.3
million and the insurance policy loans of $69.0 million were netted and included
in other assets on the consolidated balance sheet. The loans are collateralized
by the cash values of the underlying life insurance policies and require
interest payments at a rate of 10.02%. Tax law changes adopted as part of the
Health Insurance Portability and Accountability Act significantly reduced the
level of tax
53
<PAGE> 54
AU BON PAIN CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
benefits recognized under the Company's COLI program in the third quarter of
1996. The Company included $2.1 million of expenses in other (income) expense,
net, relating to COLI in 1996.
14. Stockholders' Equity
Class B Preferred Stock
In April 1994, the Company issued 20,000 shares of Class B Preferred
Stock (Series 1) as part of the ABP Midwest acquisition. Holders of these shares
of Class B Preferred Stock (Series 1) are entitled to the same rights and
preferences as the holders of Class A Common Stock, except that the preferred
shares are non-voting.
Common Stock
Each share of Class B Common Stock has the same dividend and
liquidation rights as each share of Class A Common Stock. The holders of Class B
Common Stock are entitled to three votes for each share owned. The holders of
Class A Common Stock are entitled to one vote for each share owned. Each share
of Class B Common Stock is convertible, at the shareholder's option, into Class
A Common Stock on a one-for-one basis. The Company had reserved at December 28,
1996, 5,434,277 shares of its Class A Common Stock for issuance upon conversion
of Class B Common Stock and Class B Preferred Stock (Series 1) and exercise of
awards granted under the Company's 1992 Equity Incentive Plan, Formula Stock
Option Plan for Independent Directors and conversion of the 1993 Notes (see Note
10).
Registration Rights
Certain holders of Class A and Class B Common Stock, pursuant to stock
subscription agreements, can require the Company, under certain circumstances,
to register their shares under the Securities Act of 1933 or have included in
certain registrations all or part of such shares, at the Company's expense.
1992 Equity Incentive Plan
In May 1992, the Company adopted its Equity Incentive Plan ("Equity
Plan") to replace its Non-Qualified Incentive Stock Option Plan. Under the
Equity Plan, a total of 950,000 shares of Class A Common Stock was initially
reserved for awards under the Equity Plan. The Equity Plan was amended by the
Board of Directors and the stockholders in May 1994 to increase the number of
shares available thereunder from 950,000 to 2,500,000. Awards under the Equity
Plan can be in the form of stock options (both
54
<PAGE> 55
AU BON PAIN CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
qualified and non-qualified), stock appreciation rights, performance shares,
restricted stock or stock units.
<TABLE>
Activity under the Equity Plan and its predecessor is summarized below:
<CAPTION>
Wtd. Avg.
Option Exercise
SHARES* PRICE* PRICE*
--------- ------------ ------
<S> <C> <C> <C> <C>
Outstanding at December 25, 1993. 862,091 $ 3.33-25.88 $14.78
Granted........................ 699,037 $15.38-26.00 $20.79
Exercised...................... (94,307) $ 3.33-18.25 $ 5.56
Canceled....................... (59,508) $ 4.50-25.25 $14.70
--------- ------------ ------
Outstanding at December 31, 1994. 1,407,313 $ 4.17-26.00 $18.50
Granted........................ 1,543,052 $ 6.00-16.00 $ 7.47
Exercised...................... (45,425) $ 4.17- 6.25 $ 5.30
Canceled....................... (1,473,503) $ 4.50-26.00 $17.88
--------- ------------ ------
Outstanding at December 30, 1995. 1,431,437 $ 4.50-21.25 $ 7.32
Granted........................ 742,345 $ 6.00- 8.88 $ 7.67
Exercised...................... (30,200) $ 4.50- 6.25 $ 4.87
Canceled....................... (211,548) $ 5.67-20.00 $ 7.92
--------- ------------ ------
Outstanding at December 28, 1996. 1,932,034 $ 4.50-21.25 $ 7.42
========= ============ ======
* Adjusted to reflect repricing.
</TABLE>
Options vest over a five year period and must be exercised within ten
years from the date of the grant. Of the options at December 28, 1996, 927,325
were vested and exercisable.
Formula Stock Option Plan for Independent Directors
On January 27, 1994, the Company's Board of Directors authorized the
Formula Stock Option Plan for Independent Directors, as defined in the
agreement. This plan authorized a one-time grant of an option to purchase 10,000
shares of the Company's Class A Common Stock at its closing price on January 26,
1994. The plan also allows for independent directors elected after that time to
receive a similar option at the closing price for the day immediately preceding
the individual's election to the board.
Each independent director who is first elected as such after the
effective date of the Directors' Plan shall receive, as of the date he or she is
so elected, a one-time grant of an option to purchase 5,000 shares of Class A
Common Stock at a price per share equal to the closing price of the Class A
Common Stock as reported by the Nasdaq/National Market System for the trading
day immediately preceding the date of the person's election to the board.
55
<PAGE> 56
AU BON PAIN CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
In addition, all independent directors serving in such capacity as of
the last day of each fiscal year commencing with the fiscal year ending December
31, 1994 receive an option to purchase 5,000 shares of Class A Common Stock at
the closing price for the prior day.
Each option granted is fully vested at the grant date, and is
exercisable, either in whole or in part, for 10 years following the grant date.
The Company has granted 88,248 options under this plan as of December 28, 1996.
Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123 ("SFAS 123"), Accounting for
Stock-Based Compensation, which is effective for the Company's financial
statements for fiscal years beginning after December 15, 1995. SFAS 123 allows
companies to either account for stock-based compensation under the new
provisions of SFAS 123 or under the provisions of Accounting Principles Board
Opinion No. 25 ("APB25"), Accounting for Stock Issued to Employees, but requires
pro-forma disclosure in the footnotes to the financial statements as if the
measurement provisions of SFAS 123 had been adopted. The Company has elected the
disclosure-only alternative and, accordingly, no compensation costs have been
recognized for the stock option plans. Had compensation costs for the Company's
stock option plans been determined based on the fair value at the grant date for
awards in 1995 and 1996 consistent with the provisions of SFAS 123, the
Company's net loss for the years ended December 30, 1995 and December 28, 1996
would have been increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1995 1996
------------------------ ------------------------
Net Loss Net Loss Net Loss Net Loss
(in thousands) Per Share (in thousands) Per Share
<S> <C> <C> <C> <C>
As
Reported $(1,614) $(.14) $(4,365) $(.37)
Pro
Forma $(1,819) $(.16) $(4,965) $(.42)
</TABLE>
The effects of applying SFAS 123 in this pro-forma disclosure are not likely to
be representative of the effects on reported net income for future years. SFAS
123 does not apply to awards prior to 1995 and additional awards in future years
are anticipated.
The fair value of the options granted during 1995 and 1996 is estimated
at $341,000 and $1.0 million, respectively, on the date
56
<PAGE> 57
AU BON PAIN CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
of grant using the Black-Scholes option-pricing model with the following
assumptions: dividend yield 0%, volatility of 35%, risk-free interest rate of
6.0%, assumed forfeiture of 10% and an expected life of 6 years.
<TABLE>
The following table summarizes information concerning currently
outstanding and exercisable options:
<CAPTION>
Options Options
OUTSTANDING EXERCISABLE
-------------------- --------------------
Weighted
Average
Range of Remaining Weighted Weighted
Exercise Number Contractual Average Number Average
PRICE OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- ------------ ----------- ----------- -------- ----------- --------
<C> <C> <C> <C> <C> <C>
$ 4.50- 6.75 269,328 6.13 $ 6.16 168,482 $ 6.06
$ 6.75-10.13 1,631,653 8.20 $ 7.51 758,255 $ 7.25
$10.13-15.19 29,877 8.36 $12.97 - -
$15.19-21.25 1,176 6.92 $21.25 588 $21.25
--------- ---- ------ ------- ------
1,932,034 7.93 $ 7.42 927,325 $ 7.04
</TABLE>
1992 Employee Stock Purchase Plan
In May 1992, the Company adopted its 1992 Employee Stock Purchase Plan
("1992 Purchase Plan") to replace its Employee Stock Purchase Plan. Under the
1992 Purchase Plan, a total of 150,000 shares of Class A Common Stock is
reserved for issuance. The 1992 Purchase Plan gives eligible employees the
option to purchase Class A Common Stock (total purchases in a year may not
exceed 10% of an employee's prior year compensation) at 85% of the fair market
value of the Class A Common Stock at the time the option is exercised.
57
<PAGE> 58
AU BON PAIN CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Activity under the 1992 Purchase Plan and its predecessor is summarized below:
<TABLE>
<CAPTION>
Option
Shares Price
------- ------------
<S> <C> <C> <C>
Outstanding at December 25, 1993.. 3,747 $ 19.34
Granted......................... 20,325 $13.60-17.21
Exercised....................... (18,137) $14.19-19.34
Canceled........................ (366) $14.19-19.34
------- ------------
Outstanding at December 31, 1994.. 5,569 $ 13.60
Granted......................... 41,154 $ 6.59-11.58
Exercised....................... (35,715) $ 6.59-13.60
Canceled........................ - $ -
------- ------------
Outstanding at December 30, 1995.. 11,008 $ 7.01
Granted......................... 42,478 $ 5.53- 7.22
Exercised....................... (47,671) $ 6.07- 7.22
Canceled........................ - $ -
------- ------------
Outstanding at December 28, 1996.. 5,815 $ 5.53
======= ============
</TABLE>
15. Employee Benefit Plans
Employee Savings Plan
The Au Bon Pain Employee 401(k) Plan ("Savings Plan") was adopted by
the Company in 1991 under Section 401(k) of the Internal Revenue Code of 1986,
as amended. All employees of the Company, including executive officers, are
eligible to participate in the Savings Plan. A participating employee may elect
to defer on a pre-tax basis up to 15% of his or her salary. This amount is
contributed to the Savings Plan. All amounts vest immediately and are invested
in various funds as directed by the participant. The full amount in a
participant's account will be distributed to a participant upon termination of
employment, retirement, disability or death. The Company does not currently
contribute to the Savings Plan.
The Saint Louis Bread Company Employee 401(k) Plan ("SLB Savings Plan")
was adopted by the former Saint Louis Bread Company in 1993 under Section 401(k)
of the Internal Revenue Code of 1986, as amended. All employees of SLB,
including executive officers, are eligible to participate in the SLB Savings
Plan. A participating employee may elect to defer on a pre-tax basis up to 15%
of his or her salary. This amount is contributed to the SLB Savings Plan. All
participant contributions vest immediately and are invested in various funds as
directed by the participant. SLB currently matches 25% of the first 5% of
savings contribution. SLB has reserved the right to change the match percent
from year to year at its discretion. Matching contributions vest over seven
years. The full vested amount in a participant's account will be distributed to
a participant upon termination of employment, retirement, disability or death.
58
<PAGE> 59
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf on March 20, 1997 by the undersigned, thereunto duly authorized.
AU BON PAIN CO., INC.
By: /s/ Louis I. Kane
-------------------------------
Louis I. Kane
Co-Chairman
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this report has been signed by the following persons in
the capacities and on the date indicated:
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Louis I. Kane Co-Chairman March 20, 1997
- ---------------------------
Louis I. Kane
/s/ Ronald M. Shaich Co-Chairman and Principal March 20, 1997
- --------------------------- Executive Officer
Ronald M. Shaich
/s/ Francis W. Hatch Director March 20, 1997
- ---------------------------
Francis W. Hatch
/s/ George E. Kane Director March 20, 1997
- ---------------------------
George E. Kane
/s/ James R. McManus Director March 20, 1997
- ---------------------------
James R. McManus
/s/ Henry J. Nasella Director March 20, 1997
- ---------------------------
Henry J. Nasella
/s/ Joseph P. Shaich Director March 20, 1997
- ---------------------------
Joseph P. Shaich
/s/ Anthony J. Carroll Vice President, Treasurer March 20, 1997
- --------------------------- and Principal Financial
Anthony J. Carroll and Accounting Officer
60
<PAGE> 60
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K.
(a) 1. FINANCIAL STATEMENTS.
--------------------
The following described consolidated financial statements of the Company
are included in this report:
Report of Independent Accountants.
Consolidated Balance Sheets at December 30, 1995 and December 28,
1996.
Consolidated Statements of Operations for the years ended December
31, 1994, December 30, 1995 and December 28, 1996.
Consolidated Statements of Cash Flows for the years ended December
31, 1994, December 30, 1995 and December 28, 1996.
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1994, December 30, 1995 and December 28, 1996.
Notes to Consolidated Financial Statements.
2. FINANCIAL STATEMENT SCHEDULE.
----------------------------
The following financial statement schedule for the Company is filed
herewith:
Schedule II - Valuations and Qualifying Accounts.
All other schedules are omitted because not applicable or not required by
Regulation S-X.
<PAGE> 61
3. EXHIBITS.
--------
Exhibit
NUMBER DESCRIPTION
- ------- -----------
3.1 Certificate of Incorporation of Registrant, as amended to June 2,
1991. Incorporated by reference to Exhibit 3.1 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1994.
3.1.1 Certificate of Amendment to Certificate of Incorporation, dated and
filed June 3, 1991. Incorporated by reference to Exhibit 3.1.1 to
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994.
3.1.2 Certificate of Amendment to the Certificate of Incorporation filed
on June 2, 1994. Incorporated by reference to Exhibit 3.1.2 to the
Registrant's Annual Report on Form 10-K for the year ended December
31, 1994.
3.1.3 Certificate of Designations, Preferences and Rights of the Class B
Preferred Stock (Series 1), filed November 30, 1994. Incorporated by
reference to Exhibit 3.1.3 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1994.
3.2 Bylaws of Registrant, as amended to date. Incorporated by
reference to Registrant's registration statement on Form S-1
(File No. 33-40153), Exhibit 3.2.
4.1 Amended and Restated Revolving Credit and Term Loan Agreement, dated
as of March 17, 1995, among the Registrant, USTrust, the First
National Bank of Boston, Citizens Bank of Massachusetts and USTrust,
as agent. Incorporated by reference to Exhibit 4.1 to the
Registrant's Annual Report on Form 10-K for the year ended December
31, 1994.
4.1.2 First Amendment to Amended and Restated Revolving Credit and Term
Loan Agreement, dated as of September 6, 1995, among the Registrant,
Saint Louis Bread Company, Inc., ABP Midwest Manufacturing Co.,
Inc., USTrust, the First National Bank of Boston, Citizens Bank of
Massachusetts and USTrust, as agent. Incorporated by reference to
the Registrant's Annual Report on Form 10-K for the year ended
December 30, 1995.
4.1.3 Second Amendment to Amended and Restated Revolving Credit, and Term
Loan Agreement, dated as of July 24, 1996, among the Registrant,
Saint Louis Bread Company, Inc., ABP Midwest Manufacturing Co.,
Inc.,
<PAGE> 62
USTrust, The First National Bank of Boston, Citizens Bank of
Massachusetts and USTrust, as agent.*
4.1.4 Third Amendment to Amended and Restated Revolving Credit and Term
Loan Agreement, dated as of September 6, 1996, among the Registrant,
Saint Louis Bread Company, Inc., ABP Midwest Manufacturing Co.,
Inc., USTrust, The First National Bank of Boston, Citizens Bank of
Massachusetts and USTrust, as agent*
4.1.5 Fourth Amendment and Waiver to Amended and Restated Revolving Credit
and Term Loan Agreement, dated as of November 22, 1996, among the
Registrant, Saint Louis Bread Company, Inc., ABP Midwest
Manufacturing Co., Inc., USTrust, The First National Bank of Boston,
Citizens Bank of Massachusetts and USTrust, as agent*
4.2 Form of 4.75% Convertible Subordinated Note due 2001.
Incorporated by reference to Registrant's Form 8-K filed
December 22, 1993, Exhibit 4.
4.3.1 Investment Agreement dated as of July 24, 1996 by and between Au Bon
Pain Co., Inc., Saint Louis Bread Company, Inc., ABP Midwest
Manufacturing Co., Inc., Allied Capital Corporation, Allied Capital
Corporation II, Capital Trust Investments, Ltd.*
4.3.2 Senior Subordinated Debenture dated as of July 24, 1996 in
the amount of $3,600,000 from Au Bon Pain Co., Inc., Saint
Louis Bread Company, Inc., and ABP Midwest Manufacturing Co.,
Inc. payable to Allied Capital Corporation.*
4.3.3 Senior Subordinated Debenture dated as of July 24, 1996 in
the amount of $7,500,000 from Au Bon Pain Co., Inc., Saint
Louis Bread Company, Inc., and ABP Midwest Manufacturing Co.,
Inc. payable to Capital Trust Investments, Ltd.*
4.3.4 Senior Subordinated Debenture dated as of July 24, 1996 in
the amount of $3,900,000 from Au Bon Pain Co., Inc., Saint
Louis Bread Company, Inc., and ABP Midwest Manufacturing Co.,
Inc. payable to Allied Capital Corporation II.*
10.1 Distribution Service Agreement between the Registrant and the SYGMA
Network, Inc., dated December 2, 1994. Incorporated by reference to
Exhibit 10.1.1 to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1994.
<PAGE> 63
10.2 Lease from Economic Development and Industrial Corporation to the
Registrant, dated December 14, 1982, as amended August 1, 1984 and
July 1, 1985. Incorporated by reference to Registrant's registration
statement on Form S-1 (File No. 33-40153), Exhibit 10.8.
10.3.1 Registrant's Non-Qualified Stock Option Plan For Employees
and forms of option agreements thereunder. Incorporated by
reference to Registrant's registration statement on Form S-1
(File No. 33-40153), Exhibit 10.10.
10.3.2 Registrant's 1992 Equity Incentive Plan and form of
non-qualified option agreement thereunder. Incorporated by
reference to Registrant's registration statement on Form S-1
(File No. 33-40153), Exhibit 10.13.
10.3.3 Registrant's 1992 Employee Stock Purchase Plan. Incorporated
by reference to Registrant's registration statement on Form
S-1 (File No. 33-453219), Exhibit 10.14.
10.3.4 Registrant's Formula Stock Option Plan for Independent Directors and
form of option agreement thereunder, as amended. Incorporated by
reference to the Registrant's Annual Report on Form 10-K for the
year ended December 30, 1995.
10.4 Amended and Restated Coffee Supply Agreement by and among Registrant
and Peet's Companies, Inc., Peet's Coffee and Tea, Inc., and Peet's
Trademark Company, dated as of the 26th day of October, 1994.
Incorporated by reference to Exhibit 10.8 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1994.
10.5 Indenture of Trust dated as of July 1, 1995 by and between the
Industrial Development Authority of the City of Mexico, Missouri and
Mark Twain Bank, as Trustee. Incorporated by reference to the
Registrant's Annual Report on Form 10-K for the year ended December
30, 1995.
10.5.1 Loan Agreement dated as of July 1, 1995 by and between the
Industrial Development Authority of the City of Mexico, Missouri and
ABP Midwest Manufactuing Co., Inc. Incorporated by reference to the
Registrant's Annual Report on Form 10-K for the year ended December
30, 1995.
10.5.2 Promissory Note issued by ABP Midwest Manufacturing Co., Inc.
in the face amount of $8,741,370.
<PAGE> 64
Incorporated by reference to the Registrant's Annual Report on
Form 10-K for the year ended December 30, 1995.
10.6.1 Employment Agreement between the Registrant and Richard
Postle. Incorporated by reference to the Registrant's Annual
Report on Form 10-K for the year ended December 30, 1995.+
10.6.2 Employment Agreement between the Registrant and Robert Taft.*+
10.6.3 Employment Letter between the Registrant and Maxwell Abbott.*+
10.6.4 Employment Memorandum between the Registrant and Samuel Yong.*+
10.7.1 Form of Stock Purchase Warrant from Au Bon Pain Co., Inc. to
Allied Capital Corporation, Allied Capital Corporation II,
and Capital Trust Investments, Ltd.*
10.7.2 Form of Contingent Stock Purchase Warrant from Au Bon Pain
Co., Inc. to Allied Capital Corporation, Allied Capital
Corporation II and Capital Trust Investments, Ltd.*
10.7.3 Form of Stock Purchase Warrant from Au Bon Pain Co., Inc. to
Princes Gate Investors, L.P., Acorn Partnership I L.P., PG
Investments Limited, PGI Sweden AB and Gregor Von Opel.*
10.7.4 Registration Rights Agreement dated as of July 24, 1996 among Allied
Capital Corporation, Allied Capital Corporation II, Capital Trust
Investments, Ltd., Princes Gate Investors, L.P., Acorn Partnership
I, L.P., PGI Investments Limited, PGI Sweden AB, Gregor Von Opel and
Au Bon Pain Co., Inc.*
10.8.4 Form of Rights Agreement, dated as of October 21, 1996 between the
Registrant and State Street Bank and Trust Company. Incorporated by
reference to the Registrant's registration statement on Form 8-A
(File No. 000-19253).
11.1 Computation of Earnings per Share.*
21 Registrant's Subsidiaries.*
27 Financial Data Schedule.*
- ------------------
* Filed herewith.
+ Management contract or compensatory plan required to be filed as an
exhibit to this Form 10-K pursuant to Item 14(c).
(b) Reports on Form 8-K.
During the last quarter of the fiscal year covered by this report, the
Company filed no report on Form 8-K.
<PAGE> 1
- --------------------------------------------------------------------------------
SECOND AMENDMENT
TO AMENDED AND RESTATED REVOLVING CREDIT
AND TERM LOAN AGREEMENT
- --------------------------------------------------------------------------------
Second Amendment to Amended and Restated Revolving Credit and Term Loan
Agreement dated as of July 24, 1996 (the "Second Amendment"), by and among AU
BON PAIN CO., INC., a Delaware corporation ("ABP"), SAINT LOUIS BREAD COMPANY,
INC., a Delaware corporation ("Saint Louis Bread"), ABP MIDWEST MANUFACTURING
CO., INC., a Delaware corporation ("ABP Midwest", and, collectively with ABP and
Saint Louis Bread, the "Borrowers"), and USTRUST, a Massachusetts trust company,
THE FIRST NATIONAL BANK OF BOSTON, a national banking association, CITIZENS BANK
OF MASSACHUSETTS, a Massachusetts savings bank (collectively, the "Banks"), and
USTRUST as agent for the Banks (in such capacity, the "Agent"), amending certain
provisions of the Amended and Restated Revolving Credit and Term Loan Agreement
dated as of March 17, 1995 (as amended by the First Amendment to Amended and
Restated Revolving Credit and Term Loan Agreement dated as of March 17, 1995,
and as further amended and in effect from time to time, the "Credit Agreement")
by and among the Borrowers, the Banks and the Agent. Terms not otherwise defined
herein which are defined in the Credit Agreement shall have the same respective
meanings herein as therein.
WHEREAS, the Borrowers, the Banks and the Agent have agreed to modify
certain terms and conditions of the Credit Agreement as specifically set forth
in this Second Amendment;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
SS.1. AMENDMENT TO SS.1 OF THE CREDIT AGREEMENT. Section 1 of the Credit
Agreement is hereby amended as follows:
(a) by inserting in the appropriate alphabetical order the following
definitions:
4.75% CONVERTIBLE SUBORDINATED NOTES. Those certain 4.75%
Convertible Subordinated Notes due January 2, 2001 issued by Au
Bon Pain Co., Inc. in the aggregate principal amount of
$30,000,000 pursuant to the terms of that certain Securities
Purchase Agreement dated as of December 17, 1993 among Au Bon
Pain Co., Inc. and certain purchasers named therein (as such
notes are amended, modified and restated and in effect from time
to time).
INVESTMENT AGREEMENT. The Investment Agreement dated as of July
24, 1996 by and among the Borrowers, Allied Capital
<PAGE> 2
-2-
Corporation, Allied Capital Corporation II, and Capital Trust
Investments, Ltd.
SUBORDINATION AGREEMENT. The Subordination Agreement dated as of
July 24, 1996 among the Banks, the Agent, the Borrowers, Allied
Capital Corporation, Allied Capital Corporation II, and Capital
Trust Investments, Ltd..
(b) by deleting the definition of "Commitment" in its entirety and
replacing it with the following definition:
COMMITMENT. With respect to each Bank, the amount set forth in the
column labeled Commitment opposite such Bank's name on Schedule 1.1(a)
hereto.
(c) by amending the definition of "Consolidated Total Debt Service" as
follows:
(i) by inserting immediately after the words "one fifth of
the" in clause (c) thereof the phrase "(i) "; and
(ii) by deleting the period at the end of the aforementioned
definition and substituting therefor the phrase " minus (ii)
those Revolving Credit Loans equal to that portion of the deposit
posted by Au Bon Pain Co., Inc. with The SYGMA Network, Inc.
and/or The SYGMA Network of Ohio, Inc. at the relevant time of
reference thereto pursuant to the SYGMA Distribution Service
Agreement made as of December 13, 1994 among Au Bon Pain Co.,
Inc., The SYGMA Network, Inc. and The SYGMA Network of Ohio, Inc.
which Au Bon Pain Co., Inc. can withdraw from The SYGMA Network,
Inc. and/or The SYGMA Network of Ohio, Inc., as applicable, at
any time at the sole option of Au Bon Pain Co., Inc. pursuant to
such agreement."
(d) by amending the definition of "Consolidated Total Liabilities" by
inserting immediately prior to the period at the end thereof the phrase
"less those Revolving Credit Loans equal to that portion of the deposit
posted by Au Bon Pain Co., Inc. with the SYGMA Network, Inc. and/or The
SYGMA Network of Ohio, Inc. at the relevant time of reference thereto
pursuant to the SYGMA Distribution Service Agreement made as of December
13, 1994 among Au Bon Pain Co., Inc., The SYGMA Network, Inc. and The SYGMA
Network of Ohio, Inc. which Au Bon Pain Co., Inc. can withdraw from The
SYGMA Network, Inc. and/or The SYGMA Network of Ohio, Inc., as applicable,
at any time at the sole option of Au Bon Pain Co., Inc. pursuant to such
agreement."
(e) by deleting the definition of "Subordinated Funding Event" in its
entirety.
SS.2. AMENDMENT TO SS.2 OF THE CREDIT AGREEMENT. Section 2 of the Credit
Agreement is hereby amended by deleting ss.2.9 in its entirety.
<PAGE> 3
-3-
SS.3. AMENDMENT TO SS.6 OF THE CREDIT AGREEMENT. Section 6 of the Credit
Agreement is hereby amended as follows:
(a) Section 6.1(j) of the Credit Agreement is hereby amended by
deleting the word "and" at the end thereof.
(b) Section 6.1(k) of the Credit Agreement is hereby amended by
deleting the text thereof in its entirety and inserting the following text
therefor:
(k) unsecured subordinated Indebtedness in an aggregate
principal amount not to exceed $15,000,000 evidenced by Senior
Subordinated Debentures dated July 24, 1996 issued pursuant to
the Investment Agreement and subordinated to the Obligations
pursuant to the terms of the Subordination Agreement; and
(c) Section 6.1 of the Credit Agreement is hereby further amended by
adding a new subsection (l) at the end thereof as follows:
(l) unsecured Indebtedness owing to INAC Corp. in an
aggregate amount not to exceed $2,000,000 at any one time
outstanding under that certain Revolving Credit Agreement dated
as of January 12, 1996 by and between Au Bon Pain Co., Inc. and
INAC Corp..
(d) Section 6.6 of the Credit Agreement is hereby amended by deleting
the text thereof in its entirety and inserting the following text therefor:
ss.6.6. CONSOLIDATION, MERGER AND SALE OF ALL ASSETS. The
Borrowers will not, nor will it permit any of their material
Subsidiaries to, (a) merge or consolidate into or with any other
Person or convey, sell, lease or otherwise dispose of all or
substantially all of its assets to another Person, or permit any
Person to merge or consolidate into or with the Borrowers or any
such Subsidiary or convey, sell, lease or otherwise dispose of
all or substantially all of its assets to the Borrowers or any
such Subsidiary; PROVIDED that (i) any such Subsidiary may merge
into, or convey, sell, lease or dispose of its assets to, the
Borrower or a wholly-owned Subsidiary of the Borrower, (ii) a
Person other than such a Subsidiary may merge into, or convey,
sell, lease or dispose of its assets to, the Borrower if the
Borrower is the surviving or acquiring corporation, and (iii) a
Person other than the Borrower or another Subsidiary may merge
into, or convey, sell, lease or dispose of its assets to, such
Subsidiary if (A) such Subsidiary is the surviving or acquiring
corporation or (B) the surviving or acquiring entity, if not such
Subsidiary, becomes a Subsidiary of the Borrower; PROVIDED
FURTHER that in any such transaction the rights and powers of the
Banks will not, in their sole reasonable discretion, be
materially adversely affected thereby and
<PAGE> 4
-4-
immediately after such transaction no Default or Event of Default
shall exist hereunder; and PROVIDED, FURTHER that, in no event
shall the Borrower become a Subsidiary of any other Person
without the prior consent of the Banks, (b) take any action which
results in a "Repurchase Event" (as defined in ss.3.5 of the
4.75% Subordinated Convertible Notes), or (c) take any action
which results in a "Transfer of Borrowers' Business" (as defined
in the Investment Agreement).
(e) Section 6.7(a) of the Credit Agreement is hereby amended by
inserting before the phrase " and except for sales" the phrase ", except
for sales or other dispositions of property in connection with the closings
of stores listed on SCHEDULE 6.7 (provided that, in connection with the
disposition of such stores, the Borrowers shall not incur more than
$1,250,000 in cash charges or $7,000,000 in total cash and non-cash
charges) ".
(f) Section 6 of the Credit Agreement is hereby amended by inserting
at the end thereof the following new Section 6.11:
ss.6.11. PREPAYMENT OF SUBORDINATED DEBT. The Borrowers will
not, and will not permit any of their Subsidiaries to, (a) amend,
supplement or otherwise modify the terms of any of the
Subordinated Debt (including, without limitation, the
Subordinated Debt evidenced by the 4.75% Convertible Subordinated
Notes and the Subordinated Debentures issued pursuant to the
terms of the Investment Agreement) to increase the principal
amount of the Indebtedness evidenced thereby or the rate of
interest applicable to such Indebtedness, or to alter the
schedule of payments of principal or interest with respect to
such Indebtedness, or to alter the maturity date thereof, or (b)
prepay, redeem, or repurchase any of the principal of, or
interest on, such Subordinated Debt; PROVIDED that so long as no
Default or Event of Default exists or would result therefrom, the
Borrowers may prepay such Subordinated Debt from the proceeds of
the issuance of additional shares of capital stock or other
equity securities.
SS.4. AMENDMENT TO SS.7 OF THE CREDIT AGREEMENT. Section 7 of the Credit
Agreement is hereby amended as follows:
(a) Section 7.2 of the Credit Agreement is hereby amended by deleting
the text thereof in its entirety and inserting the following therefor:
ss.7.2. FIXED CHARGE COVERAGE RATIO. For any period
consisting of four consecutive fiscal quarters, the Fixed Charge
Coverage Ratio of the Borrowers and their Subsidiaries for such
period shall not be less than 1.25 to 1.00; PROVIDED that (a) for
the period consisting of four consecutive fiscal quarters ending
on the last day of the second fiscal quarter of fiscal year 1996
and for the
<PAGE> 5
-5-
period consisting of four consecutive fiscal quarters ending on
the last day of the third fiscal quarter of fiscal year 1996, the
Fixed Charge Coverage Ratio of the Borrowers and its Subsidiaries
for each such period shall not be less than 1.20 to 1.00 and (b)
for the period consisting of four consecutive fiscal quarters
ending on the last day of the fourth fiscal quarter of 1996, the
Fixed Charge Coverage Ratio of the Borrower and its Subsidiaries
for such period shall not be less than 1.23 to 1.00.
(b) Section 7.3 of the Credit Agreement is hereby amended by deleting
the text thereof in its entirety and inserting the following therefor:
ss.7.3. CONSOLIDATED CAPITAL EXPENDITURES. The Borrowers
will not permit Consolidated Capital Expenditures (other than
Capital Expenditures incurred with regard to the acquisition and
equipping of, and improvements to, the Borrower's facilities in
Mexico, Missouri) to exceed $17,500,000 in the fiscal year of the
Borrowers ending in 1996.
SS.5. AMENDMENT TO SS.10 OF THE CREDIT AGREEMENT. Section 10 of the Credit
Agreement is hereby amended as follows:
(a) Section 10(b) of the Credit Agreement is hereby amended by
deleting the phrase "fifth (5th)" therein and substituting therefor the
phrase "third (3rd)".
(b) Section 10(d) of the Credit Agreement is hereby amended by
deleting the phrase "thirty (30)" therein and substituting therefor the
phrase "ten (10)".
(c) Section 10 of the Credit Agreement is hereby amended by adding
immediately after subsection (j) a new subsection (k) as follows:
(k) the occurrence of a (i) "Repurchase Event" (as defined
in ss.3.5 of the 4.75% Subordinated Convertible Notes), or (ii)
"Transfer of Borrowers' Business" (as defined in the Investment
Agreement);
SS.6. AMENDMENT TO SCHEDULES. The Schedules to the Credit Agreement are
hereby amended by (a) deleting SCHEDULE 1.1(a) in its entirety and replacing it
with SCHEDULE 1.1(a) attached hereto; (b) deleting SCHEDULE 1.1(d) in its
entirety and replacing it with SCHEDULE 1.1(d) attached hereto; (c) deleting
SCHEDULE 1.1(e) in its entirety and replacing it with SCHEDULE 1.1(e) attached
hereto; and (d) inserting a new SCHEDULE 6.7 attached hereto.
SS.7. CONSENT AND WAIVER.
(a) Pursuant to ss.6.1(e) of the Credit Agreement, each of the Banks
hereby consents to the amendment of the Letter of Credit Reimbursement
Agreement by the First Amendment to Letter of Credit Reimbursement
Agreement dated September 6, 1995, the Second Amendment to Letter of Credit
Reimbursement Agreement dated November 31,
<PAGE> 6
-6-
1995, and the Third Amendment to Letter of Credit Reimbursement Agreement
dated July 24, 1996.
(b) Each of the Banks and the Agent hereby consent to the (i)
Modification Agreement (the "Modification Agreement"), dated as of the date
hereof, among ABP, Princes Gate Investors, L.P. ("PGI"), Acorn Partnership
I, L.P. ("Acorn"), PGI Investments Limited ("PGI Investments"), PGI Sweden
AB ("PGI Sweden") and Gregor Von Opel ("Von Opel" and, together with PGI,
Acorn, PGI investments and PGI Sweden, the "4.75% Convertible Noteholders")
and (ii) the Amendment and Waiver dated as of the date hereof, among ABP,
Saint Louis Bread and the 4.75% Convertible Noteholders (the "Amendment and
Waiver", and together with the Modification Agreement, the "Amending
Documents"), dated as of the date hereof, among ABP, Saint Louis Bread and
the 4.75% Convertible Noteholders.
(c) Each of the Banks and the Agent hereby waive the provisions of the
Credit Agreement, including, without limitation, the provisions of Sections
6.7(c) and 6.11 thereof, to the extent, but only to the extent, necessary
to permit the execution, delivery and performance of the Amending Documents
by ABP and Saint Louis Bread and the modifications and amendments of the
terms of the Subordinated Debt evidenced by the 4.75% Convertible
Subordinated Notes effected by the Amending Documents.
SS.8. REPRESENTATIONS AND WARRANTIES. Each of the Borrowers hereby repeats,
on and as of the date hereof, each of the representations and warranties made in
ss.4 of the Credit Agreement as though such representations and warranties refer
specifically to such Borrower, except to the extent of changes resulting from
transactions contemplated or permitted by this Second Amendment or the Credit
Agreement and changes occurring in the ordinary course of business that singly
or in the aggregate are not materially adverse and except to the extent that
such representations and warranties relate expressly to an earlier date;
provided, that all references therein to the Credit Agreement shall refer to
such Credit Agreement as amended hereby. No Default or Event of Default has
occurred and is continuing under the Credit Agreement.
SS.9. EFFECTIVENESS. The effectiveness of this Second Amendment shall be
subject to the satisfaction of the following conditions precedent:
ss.9.1. CORPORATE ACTION. All corporate action necessary for the valid
execution, delivery and performance by each of the Borrowers of this Second
Amendment and the other Loan Documents to which they are or are to become a
party shall have been duly and effectively taken, and evidence thereof
satisfactory to the Banks shall have been provided to each of the Banks.
ss.9.2. LOAN DOCUMENTS. This Second Amendment shall have been duly executed
and delivered to the Agent by each of the parties hereto.
ss.9.3. SUBORDINATION AGREEMENT. The Subordination Agreement shall have
been duly executed and delivered to the Agent by each party thereto and the
agreement amending certain terms of the subordination provisions of those
certain 4.75% Convertible Subordinated Notes due 2001 shall have been duly
executed and a copy delivered to the Agent certified by the Borrowers.
<PAGE> 7
-7-
ss.9.4. INVESTMENT AGREEMENT. The transactions contemplated by the
Investment Agreement shall have been completed substantially in accordance with
its terms and the Agent shall have received a copy of the Investment Agreement,
each Debenture issued thereunder, and all other documents executed in connection
therewith including any intercreditor agreement entered into among the holders
of such Debentures and the holders of those certain 4.75% Convertible
Subordinated Notes due 2001, certified to be true and complete by an officer of
the Borrowers.
SS.10. RATIFICATION, ETC. Except as expressly amended hereby, the Credit
Agreement and all documents, instruments and agreements related thereto,
including, but not limited to the Loan Documents, are hereby ratified and
confirmed in all respects and shall continue in full force and effect. The
Credit Agreement and this Second Amendment shall be read and construed as a
single agreement. All references in the Credit Agreement or any related
agreement or instrument to the Credit Agreement shall hereafter refer to the
Credit Agreement as amended hereby.
SS.11. NO WAIVER. Except as set forth in ss.7(c), nothing contained herein
shall constitute a waiver of, impair or otherwise affect any Obligations, any
other obligation of the Borrowers or any rights of the Agent or the Banks
consequent thereon.
SS.12. COUNTERPARTS. This Second Amendment may be executed in one or more
counterparts, each of which shall be deemed an original but which together shall
constitute one and the same instrument.
SS.13. GOVERNING LAW. THIS SECOND AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS
(WITHOUT REFERENCE TO CONFLICT OF LAWS).
<PAGE> 8
-8-
IN WITNESS WHEREOF, the parties hereto have executed this Second
Amendment as a document under seal as of the date first above written.
AU BON PAIN CO., INC.
By: /s/ LOUIS I. KANE
-----------------------------------
Name: Louis I. Kane
Title: Co-Chairman
SAINT LOUIS BREAD COMPANY, INC.
By: /s/ LOUIS I. KANE
-----------------------------------
Name: Louis I. Kane
Title: Executive Vice President
ABP MIDWEST MANUFACTURING CO., INC.
By: /s/ LOUIS I. KANE
-----------------------------------
Name: Louis I. Kane
Title: Vice President
USTRUST
INDIVIDUALLY AND
AS AGENT
By: /s/ ANTHONY WILSON
-----------------------------------
Name: Anthony Wilson
Vice President
THE FIRST NATIONAL BANK
OF BOSTON
By: /s/ MARGARET RONAN STACK
-----------------------------------
Name: Margaret Ronan Stack
Title: Vice President
<PAGE> 9
-9-
CITIZENS BANK OF MASSACHUSETTS
By: /s/ KATHRYN J. BACASTOW
-----------------------------------
Name: Kathryn J. Bacastow
Title: SVP
<PAGE> 10
Schedule 1.1(a)
---------------
<TABLE>
REVOLVING CREDIT COMMITMENTS
--------- ------ -----------
<CAPTION>
Commitment
Lender Commitment Percentage
- ------ ---------- ----------
<S> <C> <C>
USTrust $11,666,666.67 33-1/3%
30 Court Street
Boston, Massachusetts 02108
Telefax Number: (617) 726-7380
Telex: 681752
Answerback: UST BSN
Attention: Anthony G. Wilson, V.P.
The First National Bank of Boston $11,666,666.67 33-1/3%
100 Federal Street
Boston, Massachusetts 02110
Telefax Number: (617) 434-4426
Telex: 940581
Answerback: BOSTONBK BSN
Attention: Margaret R. Stack, V.P.
Citizens Bank of Massachusetts $11,666,666.67 33-1/3%
55 Summer Street
Boston, MA 02110
Telefax Number: (617) 482-9730
Attention: Anne Forbes Van Nest
</TABLE>
<PAGE> 11
Schedule 1.1(d)
-------- ------
<TABLE>
Revolving Credit Applicable Margin
--------- ------ ---------- ------
<CAPTION>
====================================================================================================================================
Consolidated Net Income for Most Recently Ended Consolidated Total Liabilities To Consolidated Total Liabilities To
Period of Four Consecutive Fiscal Quarters Consolidated Tangible Net Worth Consolidated Tangible Net Worth
If Such Ratio is Less Than 1.6 to 1.0 If Such Ratio Equals or Exceeds 1.6 to 1.0
------------------------------------- ------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Greater Than $9,000,000 0.75% 1.25%
- ------------------------------------------------------------------------------------------------------------------------------------
from $7,000,000 to $9,000,000 (inclusive) 1.00% 1.50%
- ------------------------------------------------------------------------------------------------------------------------------------
from $5,000,000 to $6,999,999.99 (inclusive) 1.50% 2.00%
- ------------------------------------------------------------------------------------------------------------------------------------
from $2,000,000 to $4,999,999.99 (inclusive) 2.00% 2.50%
- ------------------------------------------------------------------------------------------------------------------------------------
Less Than $2,000,000 2.50% 3.00%
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
</TABLE>
<PAGE> 12
Schedule 1.1(e)
-------- ------
<TABLE>
Term Applicable Margin
---- ---------- ------
<CAPTION>
====================================================================================================================================
Consolidated Net Income for Most Recently Ended Consolidated Total Liabilities To Consolidated Total Liabilities To
Period of Four Consecutive Fiscal Quarters Consolidated Tangible Net Worth Consolidated Tangible Net Worth
If Such Ratio is Less Than 1.6 to 1.0 If Such Ratio Equals or Exceeds 1.6 to 1.0
------------------------------------- ------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Greater Than $9,000,000 1.25% 1.75%
- ------------------------------------------------------------------------------------------------------------------------------------
from $7,000,000 to $9,000,000 (inclusive) 1.50% 2.00%
- ------------------------------------------------------------------------------------------------------------------------------------
from $5,000,000 to $6,999,999.99 (inclusive) 2.00% 2.50%
- ------------------------------------------------------------------------------------------------------------------------------------
from $2,000,000 to $4,999,999.99 (inclusive) 2.50% 3.00%
- ------------------------------------------------------------------------------------------------------------------------------------
Less Than $2,000,000 3.00% 3.50%
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
</TABLE>
<PAGE> 13
SCHEDULE 6.7
<TABLE>
1995 Reserve Activity
5/18/96
Period 5, 1996
<CAPTION>
Revised Reserve
--------- -------------------------------------------
Expiration/ Total Non Cash Other Other Assets
Close Original Write Off Cash to Closing to be
Date Reserve Expenses Landlord Expenses Wrtn Off
(Leaseholds)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Closing Stores
Dewey #27 Closed 153,299 153,299 0 20,000 137,369
Kenwood Mall #84 Closed 263,274 163,274 94,600 20,000 114,103
Westmoreland #114 Franchised 475,103 285,103 150,000 0 156,770
Annapolis Mall #122 Closed 53,891 8,891 45,000 3,492 28,178
Annapolis Mall #123 28-Dec-96 418,465 363,465 84,000 20,000 227,695
Great Mall #158 Closed 743,507 480,001 263,506 6,108 0
Los Ceritos #157 Closed 287,688 122,688 82,576 2,391 150,467
SUBTOTAL: 2,395,227 1,576,721 719,682 71,991 814,582
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
California:
Laguna #151 31-Jan-05 349,561 349,561 0 0 0
Lake Street #154 1-May-04 439,865 439,865 0 0 0
Brea Mall #156 31-May-04 444,702 444,702 0 0 0
N. County Fair #179 30-Apr-05 327,265 327,265 0 0 0
Montclair Plaza #181 31-May-05 259,969 259,969 0 0 0
Franchise Provision 0 0 (500,000) 0 0
SUBTOTAL: 1,821,362 1,821,362 (500,000) 0 0
353 Sacramento St. #159 30-Sep-09 592,175 592,175 0 0 0
Franchise Provision 0 (400,000) 0 0
SUBTOTAL: 592,175 592,175 (400,000) 0 0
Westside #150 28-Dec-96 402,951 402,951 84,000 20,000 0
Topanga #155 28-Dec-96 392,563 392,563 84,000 20,000 0
350 N. San Fernando #190 30-Apr-05 404,402 404,402 0 20,000 0
Franchise Provision (922,405) 0
SUBTOTAL: 277,511 1,199,916 168,000 60,000 0
CALIFORNIA SUBTOTAL: 2,691,048 3,613,453 (732,000) 60,000 0
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
New Additions:
Watertown #12 Closed 0 103,863 0 10,000 0
Riverside #18 TAW 0 243,790 0 5,000
Crystal Mall #22 Closed 0 53,483 0 10,000 0
500 Wood Street #115 Closed 0 439,108 (400,000) 0
Stuart Street #129 30-Jun-10 0 964,124 400,000 20,000 0
SUBTOTAL 0 1,804,368 0 45,000 0
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
Non Store Write Offs
SLB Transition Costs: 700,000 0 700,000
Balance Sheet Clean Up 684,191 684,191
Organizational Adj. 150,000 0 150,000
Other 0 0
SUBTOTAL: 1,534,191 684,191 850,000 0 0
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
TOTAL RESERVE: 6,620,466 7,678,733 837,682 176,991 814,582
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
Units in Original Reserve
to Remain Open
Kenmore Square #03 31-Dec-97 293,704
Rock Center #24 30-Dec-96 301,283
Pain Francais Goodwill 281,550
Graham #38 30-Jun-97 240,405
Hartford Civic #63 31-Jul-01 118,077
Springfield #68 31-Dec-03 331,077
Woodfield Mall #81 10-Jan-02 313,804
SUBTOTAL: 1,879,900
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
TOTAL ORIGINAL RESERVE: 8,500,366
- -----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 14
<TABLE>
1995 Reserve Activity
5/18/96
Period 5, 1996
<CAPTION>
Rolling 13 Periods
----------------------
Est. Value
Recovered Total Company Cash
Assets Reserve P&L Flow
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(54,931) 255,737 (183,079)* (106,744) Dewey #27
(50,039) 341,938 (104,023) (28,966) Kenwood Mall #84
(75,453) 516,420 (152,662) (38,826) Westmoreland #114
(29,476) 56,085 (3,302) 6,735 Annapolis Mall #122
(115,914) 579,246 (244,044) (130,680) Annapolis Mall #123
(36,556) 713,059 (180,511) (137,420) Great Mall #158
(56,787) 301,335 (149,984) (95,501) Los Ceritos #157
(419,156) 2,763,820 (1,017,605) (531,402) SUBTOTAL
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
0 349,561 (16,519) 37,251 Laguna #151
0 439,865 (79,591) 8,078 Lake Street #154
0 444,702 (30,221) 3,460 Brea Mall #156
0 327,265 (4,937) 40,894 N. County Fair #179
0 259,969 (90,662) (50,536) Montclair Plaza #181
0 (500,000) Franchise Provision
0 1,321,362 (221,930) 39,147 SUBTOTAL:
0 592,175 (94,875) (22,861) 353 Sacramento St. #159
(400,000) Franchise Provision
0 192,175 (94,875) (22,861) SUBTOTAL:
(77,337) 429,614 (184,443) (141,284) Westside #150
(84,523) 412,040 (150,536) (75,253) Topanga #155
(50,000) 374,402 (118,662) (57,782) 350 N. San Fernando #190
0 Franchise Provision
(211,860) 1,216,056 (453,641) (274,319) SUBTOTAL:
(211,860) 2,729,593 (770,446) (258,033) CALIFORNIA SUBTOTAL
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
(32,023) 81,840 14,267 38,471 Watertown #12
(40,328) 208,462 195,762 222,079 Riverside #18
(26,517) 36,966 104,031 115,851 Crystal Mall #22
(114,126) (75,018) (27,349) 42,263 500 Wood Street #115
(213,312) 1,170,812 (233,720) (158,733) Stuart Street #129
(426,306 1,423,062 52,991 259,931 SUBTOTAL
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
700,000 SLB Transition Costs:
684,191 Balance Sheet Clean Up
150,000 Organizational Adj.
0 Other
0 1,534,191 0 0
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
(1,057,322) 8,450,665 (1,735,060) (529,504) TOTAL RESERVE:
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Kenmore Square #03
Rock Center #24
Pain Francais Goodwill
Graham #38
Hartford Civic #63
Springfield #68
Woodfield Mall #81
SUBTOTAL:
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
TOTAL ORIGINAL RESERVE: TOTAL ORIGINAL RESERVE:
- -------------------------------------------------------------------------------------------------------------------
<FN>
* The rolling 13 period company P&L and Cash Flow for Dewey Square are based on the differential
resulting from sales transfers to near by units.
</TABLE>
<PAGE> 1
THIRD AMENDMENT
TO AMENDED AND RESTATED REVOLVING CREDIT
AND TERM LOAN AGREEMENT
Third Amendment to Amended and Restated Revolving Credit and Term Loan
Agreement dated as of September 6, 1996 (the "Third Amendment"), by and among AU
BON PAIN CO., INC., a Delaware corporation ("ABP"), SAINT LOUIS BREAD COMPANY,
INC., a Delaware corporation ("Saint Louis Bread"), ABP MIDWEST MANUFACTURING
CO., INC., a Delaware corporation ("ABP Midwest", and, collectively with ABP and
Saint Louis Bread, the "Borrowers"), and USTRUST, a Massachusetts trust company,
THE FIRST NATIONAL BANK OF BOSTON, a national banking association, CITIZENS BANK
OF MASSACHUSETTS, a Massachusetts savings bank (collectively, the "Banks"), and
USTRUST as agent for the Banks (in such capacity, the "Agent"), amending certain
provisions of the Amended and Restated Revolving Credit and Term Loan Agreement
dated as of March 17, 1995 (as amended by the First Amendment to Amended and
Restated Revolving Credit and Term Loan Agreement dated as of September 6, 1995,
the Second Amendment to Amended and Restated Revolving Credit and Term Loan
Agreement dated as of July 24, 1996, and as further amended and in effect from
time to time, the "Credit Agreement") by and among the Borrowers, the Banks and
the Agent. Terms not otherwise defined herein which are defined in the Credit
Agreement shall have the same respective meanings herein as therein.
WHEREAS, the Borrowers, the Banks and the Agent have agreed to modify
certain terms and conditions of the Credit Agreement as specifically set forth
in this Third Amendment;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements contained herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
SECTION 1. AMENDMENT TO SECTION 1 OF THE CREDIT AGREEMENT. Section 1 of
the Credit Agreement is hereby amended as follows:
(a) by deleting the date "April 30, 1997" occurring in the
definition of "Maturity Date" contained in Section 1.1 and replacing it
with "June 30, 1998".
(b) by amending the definition of Consolidated Total Debt
Service by deleting therefrom the clause "plus (c) one fifth of the
Revolving Credit Loans outstanding as of the last day of the period for
which Consolidated Total Debt Service is then being determined".
<PAGE> 2
-2-
(c) by inserting in the appropriate alphabetical order the
following definitions:
Consolidated Adjusted Cash Flow. For any specified period, the
sum of (a) Consolidated Net Income for such period, plus (b) the
aggregate amount of depreciation, amortization and other non-cash
charges for such period, in each case determined on a consolidated
basis for the Borrowers and their Subsidiaries in accordance with
generally accepted accounting principles.
Consolidated Free Cash Flow. With respect to the Borrowers and
their Subsidiaries and for any period, the sum of (a) Consolidated
Net Income for such period plus (b) the aggregate amount of
depreciation, amortization and other non-cash charges for such
period, plus (c) to the extent deducted in the calculation of
Consolidated Net Income for such period, Consolidated Total
Interest Expense for such period, less (d) the aggregate amount of
Non-Discretionary Capital Expenditures for such period, in each
case determined on a consolidated basis for the Borrowers and
their Subsidiaries in accordance with generally accepted
accounting principles.
Consolidated New Cafe Capital Expenditures. With respect to
new bakery cafes or stores which open in any relevant fiscal
period, the aggregate amount of Consolidated Capital Expenditures
of the Borrowers and their Subsidiaries which, in accordance with
generally accepted accounting principles, are properly
attributable to the acquisition, construction, or equipping of
such new cafes or stores regardless of the fiscal quarter in which
such Consolidated Capital Expenditures were incurred.
Projected New Cafe Capital Expenditures. Those Consolidated
New Cafe Capital Expenditures of the Borrowers and their
Subsidiaries anticipated by the Borrowers and their Subsidiaries
to be incurred in connection with the opening of new bakery cafes
or stores. For purposes of determining Projected New Cafe Capital
Expenditures, Consolidated New Cafe Capital Expenditures incurred
with respect to each new bakery cafe or store will be deemed to be
incurred in the earlier of (a) the fiscal quarter in which such
new bakery cafe or store actually opens for business with the
public regardless of the fiscal period in which such Consolidated
Capital Expenditures were actually incurred and (b) six (6)
calendar months after the date on which the lease of the property
where such bakery cafe or store will be located is entered into by
any Borrower or any Subsidiary of the Borrower, or in the case of
the purchase of such property, the date of such purchase by such
Borrower or such Subsidiary.
<PAGE> 3
-3-
SECTION 2. AMENDMENT TO SECTION 3.1(a)(i) OF THE CREDIT AGREEMENT.
Section 3.1(a)(i) of the Credit Agreement is hereby amended by inserting the
following language immediately before the semi-colon occurring at the end of
Section 3.1(a)(i):
"provided that if the Revolving Credit Applicable Margin which would be
applicable to such Revolving Credit Loan if such Revolving Credit Loan
were a Eurodollar Rate Loan is greater than or equal to three percent
(3.0%), then such Revolving Credit Loan shall bear interest at a rate
per annum equal to the Base Rate plus one-half of one percent (0.50%)".
SECTION 3. AMENDMENT TO SECTION 5.4 OF THE CREDIT AGREEMENT. Section
5.4 of the Credit Agreement is hereby amended by adding the following new
subsection (h) at the end thereof:
(h) simultaneously with the delivery of the financial
statements referred to in subsections (a) and (b) above, a report
containing a summary of (i) all leases entered into by any Borrower or
any Subsidiary of a Borrower and all property otherwise acquired by any
Borrower or any Subsidiary of a Borrower for new bakery cafes and
stores during the fiscal quarter ending immediately prior to the date
of delivery of such report, (ii) the Projected New Cafe Capital
Expenditures associated with each such bakery cafe and store, (iii) the
total Projected New Cafe Capital Expenditures for all bakery cafes and
stores to be opened in the current fiscal year, and (iv) together with
the delivery of financial statements for the third and fourth fiscal
quarters of each fiscal year of the Borrowers, the total Projected New
Cafe Capital Expenditures for all bakery cafes and stores to be opened
in the succeeding fiscal year.
SECTION 4. AMENDMENTS TO SECTION 7 OF THE CREDIT AGREEMENT. Section 7
of the Credit Agreement is hereby amended as follows:
(a) Section 7.1 of the Credit Agreement is hereby amended by
deleting such section in its entirety and replacing it with the
following new Section 7.1:
Section 7.1 Maximum Allowable Leverage Ratio. The
Borrowers will not, at any time, permit the Leverage Ratio to
exceed 0.65:1.00.
(b) Section 7.2 of the Credit Agreement is hereby amended by
deleting such section in its entirety and replacing it with the
following new Section 7.2:
Section 7.2 [Intentionally Omitted].
(c) Section 7.3 of the Credit Agreement is hereby amended by
deleting such Section in its entirety and replacing it with the
following new Section 7.3:
Section 7.3. Consolidated Capital Expenditures. With
respect to each fiscal year of the Borrowers set forth in the
table below, the Borrowers
<PAGE> 4
-4-
will not permit (a) Consolidated Capital Expenditures (other
than Capital Expenditures incurred in such fiscal year in
connection with the acquisition and equipping of, and
improvements to, the Borrowers' facilities in Mexico,
Missouri) to exceed the amount set forth in the table below
opposite such fiscal year in the column headed "Maximum
Consolidated Capital Expenditures" or (b) Consolidated New
Cafe Capital Expenditures to exceed the amount set forth in
the table below opposite such fiscal year in the column headed
"Maximum Consolidated New Cafe Capital Expenditures"; provided
that:
(i) with regard to any such fiscal year (other than
the fiscal year ending on December 26, 1998), if Consolidated
Adjusted Cash Flow for such fiscal year exceeds that amount
set forth in the table below opposite such fiscal year in the
column headed "100% Consolidated Adjusted Cash Flow," Maximum
Consolidated Capital Expenditures and Maximum Consolidated New
Cafe Capital Expenditures permitted hereunder for such fiscal
year shall be increased by the amount of such excess; and
(ii) with regard to any such fiscal year (other than
the fiscal year ending on December 26, 1998), if Consolidated
Adjusted Cash Flow is less than that amount set forth in the
table below opposite such fiscal year in the column headed
"95% Consolidated Adjusted Cash Flow," Maximum Consolidated
Capital Expenditures and Maximum Consolidated New Cafe Capital
Expenditures permitted hereunder for such fiscal year shall be
reduced by the difference between the amount set forth for
such fiscal year in such column headed "95% Consolidated Net
Income" and the actual Consolidated Adjusted Cash Flow for
such fiscal year.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
MAXIMUM CONSOLIDATED MAXIMUM CONSOLIDATED 100% CONSOLIDATED 95% CONSOLIDATED
CAPITAL NEW CAFE CAPITAL ADJUSTED CASH ADJUSTED CASH
FISCAL YEAR ENDING EXPENDITURES EXPENDITURES FLOW FLOW
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
12/28/96 $17,500,000 $ 6,800,000 $18,600,000 $17,700,000
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
12/27/97 $24,000,000 $15,000,000 $21,700,000 $20,600,000
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
12/26/98 $26,000,000 $16,000,000 n/a n/a
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(d) Section 7 of the Credit Agreement is hereby amended by
inserting at the end thereof the following new Section 7.5:
<PAGE> 5
-5-
Section 7.5 Projected New Cafe Capital Expenditures.
With respect to each fiscal quarter of the Borrowers set forth
in the table below, the Borrowers will not permit Projected
New Cafe Capital Expenditures for the fiscal year specified
opposite such fiscal quarter in the table below to exceed the
amount set forth in the table below opposite such fiscal
quarter in the column headed "Maximum Projected New Cafe
Capital Expenditures"; provided that:
(a) if, with respect to each fiscal quarter (other
than the fiscal quarter ending on April 18, 1998) set forth in
the table below, Consolidated Adjusted Cash Flow determined
for the period of four consecutive fiscal quarters then ending
exceeds that amount set forth in the table below opposite such
fiscal quarter in the column headed "100% Consolidated
Adjusted Cash Flow," Maximum Projected New Cafe Capital
Expenditures permitted hereunder for such fiscal quarter shall
be increased by the amount of such excess; and
(b) if, with respect to each fiscal quarter (other
than the fiscal quarter ending on April 18, 1998) set forth in
the table below, Consolidated Adjusted Cash Flow determined
for the period of four consecutive fiscal quarters then ending
is less than that amount set forth in the table below opposite
such fiscal quarter in the column headed "95% Consolidated
Adjusted Cash Flow," Maximum Projected New Cafe Capital
Expenditures permitted hereunder for such fiscal quarter shall
be reduced by the difference between the amount set forth for
such period of four consecutive fiscal quarters in such column
headed "95% Consolidated Adjusted Cash Flow" and the actual
Consolidated Adjusted Cash Flow for such period.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
MAXIMUM 100% 95%
PROJECTED NEW CONSOLIDATED CONSOLIDATED
FISCAL QUARTER FISCAL CAFE CAPITAL ADJUSTED CASH ADJUSTED CASH
ENDING YEAR EXPENDITURES FLOW FLOW
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
10/5/96 1997 $ 6,000,000 $18,200,000 $17,300,000
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
12/28/96 1997 $ 9,000,000 $18,600,000 $17,700,000
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
4/19/97 1997 $12,000,000 $19,100,000 $18,200,000
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
7/12/97 1997 $15,000,000 $19,300,000 $18,300,000
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
10/4/97 1998 $ 7,000,000 $20,600,000 $19,600,000
- --------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 6
-6-
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
12/27/97 1998 $10,000,000 $21,700,000 $20,600,000
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
4/18/98 1998 $13,000,000 n/a n/a
- -------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(e) Section 7 of the Credit Agreement is hereby amended by
inserting at the end thereof the following new Section 7.6:
Section 7.6. Consolidated Free Cash Flow. The
Borrowers will not permit the ratio of Consolidated Free Cash
Flow to Consolidated Total Debt Service, determined at the end
of each fiscal quarter of the Borrowers for the period
consisting of the four (4) consecutive fiscal quarters then
ending (after excluding from Total Debt Service to the extent
otherwise included, all principal payments due at maturity,
Revolving Credit Loans, maturities in respect of the Term
Loan, and maturities in respect of that certain Letter of
Credit Reimbursement Agreement dated as of July 1, 1995 among
ABP, ABP Midwest and Citizens Trust Company) to be less than
2.7:1.0.
(f) Section 7 of the Credit Agreement is hereby amended by
inserting at the end thereof the following new Section 7.7:
Section 7.7. No Net Losses. The Borrowers and their
Subsidiaries will not permit Consolidated Net Income for each
period consisting of two (2) consecutive fiscal quarters to be
less than $1.00.
(g) Section 7 of the Credit Agreement is hereby amended by
inserting at the end thereof the following new Section 7.8:
Section 7.8. Consolidated Adjusted Cash Flow. With
respect to each period consisting of two consecutive fiscal
quarters and ending on a date set forth in the table below,
the Borrowers and their Subsidiaries will not permit
Consolidated Adjusted Cash Flow for such period to be less
than the amount set forth in the table below opposite the date
on which such period ends:
<TABLE>
<CAPTION>
--------------------------------------------------------
TWO CONSECUTIVE FISCAL CONSOLIDATED ADJUSTED
QUARTERS ENDING CASH FLOW
--------------------------------------------------------
<S> <C>
--------------------------------------------------------
10/5/96 $ 7,200,000
--------------------------------------------------------
12/28/96 $ 7,800,000
--------------------------------------------------------
</TABLE>
<PAGE> 7
-7-
<TABLE>
<S> <C>
--------------------------------------------------------
4/19/97 $10,300,000
--------------------------------------------------------
7/12/97 $ 9,900,000
--------------------------------------------------------
10/4/97 $ 8,900,000
--------------------------------------------------------
12/27/97 $10,000,000
--------------------------------------------------------
4/18/98 $11,000,000.
--------------------------------------------------------
</TABLE>
SECTION 5. AMENDMENT TO SCHEDULES. The Schedules to the Credit
Agreement are hereby amended by (a) deleting Schedule 1.1(d) in its entirety and
replacing it with Schedule 1.1(d) attached hereto; and (b) deleting Schedule
1.1(e) in its entirety and replacing it with Schedule 1.1(e) attached hereto.
SECTION 6. REPRESENTATIONS AND WARRANTIES. Each of the Borrowers hereby
repeats, on and as of the date hereof, each of the representations and
warranties made in Section 4 of the Credit Agreement as though such
representations and warranties refer specifically to such Borrower, except to
the extent of changes resulting from transactions contemplated or permitted by
this Third Amendment or the Credit Agreement and except to the extent that such
representations and warranties relate expressly to an earlier date; provided,
that all references therein to the Credit Agreement shall refer to such Credit
Agreement as amended hereby. No Default or Event of Default has occurred and is
continuing under the Credit Agreement.
SECTION 7. EFFECTIVENESS. The effectiveness of this Third Amendment
shall be subject to the satisfaction of the following conditions precedent:
Section 7.1. Corporate Action. All corporate action necessary
for the valid execution, delivery and performance by each of the
Borrowers of this Third Amendment and the other Loan Documents to which
they are or are to become a party shall have been duly and effectively
taken, and evidence thereof satisfactory to the Banks shall have been
provided to each of the Banks.
Section 7.2. Loan Documents. This Third Amendment shall have
been duly executed and delivered to the Agent by each of the parties
hereto.
Section 7.3. Amendment Fee. The Borrowers shall have paid the
Agent, for the pro rata accounts of the Banks, an amendment fee in the
amount of $45,000.
SECTION 8. RATIFICATION, ETC. Except as expressly amended hereby, the
Credit Agreement and all documents, instruments and agreements related thereto,
including, but not limited to the Loan Documents, are hereby ratified and
confirmed in all respects and shall continue in full force and effect. The
Credit Agreement and this Third Amendment shall be read and construed as a
single agreement. All references in the Credit Agreement or any related
agreement or instrument to the Credit Agreement shall hereafter refer to the
Credit Agreement as amended hereby.
<PAGE> 8
-8-
SECTION 9. NO WAIVER. Nothing contained herein shall constitute a
waiver of, impair or otherwise affect any Obligations, any other obligation of
the Borrowers or any rights of the Agent or the Banks consequent thereon.
SECTION 10. COUNTERPARTS. This Third Amendment may be executed in one
or more counterparts, each of which shall be deemed an original but which
together shall constitute one and the same instrument.
SECTION 11. GOVERNING LAW. THIS THIRD AMENDMENT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS
(WITHOUT REFERENCE TO CONFLICT OF LAWS).
<PAGE> 9
-9-
IN WITNESS WHEREOF, the parties hereto have executed this Third
Amendment as a document under seal as of the date first above written.
AU BON PAIN CO., INC.
By: /s/ Louis I. Kane
Name: Louis I. Kane
Title:
SAINT LOUIS BREAD COMPANY, INC.
By: /s/ Louis I. Kane
Name: Louis I. Kane
Title:
ABP MIDWEST MANUFACTURING CO., INC.
By: /s/ Louis I. Kane
Name: Louis I. Kane
Title:
USTRUST
INDIVIDUALLY AND
AS AGENT
By: /s/ Anthony Wilson
Name: Anthony Wilson
Vice President
THE FIRST NATIONAL BANK
OF BOSTON
By: /s/ Margaret Ronan Stack
Name: Margaret Ronan Stack
Title: Vice-President
<PAGE> 10
-10-
CITIZENS BANK OF MASSACHUSETTS
By: /s/ Anne Forbes Van Nest
Name: Anne Forbes Van Nest
Title: Vice-President
<PAGE> 11
Schedule 1.1(d)
REVOLVING CREDIT APPLICABLE MARGIN
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Consolidated Net Income for Most Recently Ended Consolidated Total Liabilities To Consolidated Total Liabilities To
Period of Four Consecutive Fiscal Quarters Consolidated Tangible Net Worth Consolidated Tangible Net Worth
If Such Ratio is Less Than 1.7 to 1.0 If Such Ratio Equals or Exceeds 1.7 to 1.0
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Greater Than $9,000,000 0.75% 1.25%
- ------------------------------------------------------------------------------------------------------------------------------------
from $7,000,000 to $9,000,000 (inclusive) 1.00% 1.50%
- ------------------------------------------------------------------------------------------------------------------------------------
from $5,000,000 to $6,999,999.99 (inclusive) 1.50% 2.00%
- ------------------------------------------------------------------------------------------------------------------------------------
from $2,000,000 to $4,999,999.99 (inclusive) 2.00% 2.50%
- ------------------------------------------------------------------------------------------------------------------------------------
Less Than $2,000,000 3.00% 3.00%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 12
Schedule 1.1(e)
TERM APPLICABLE MARGIN
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Consolidated Net Income for Most Recently Ended Consolidated Total Liabilities To Consolidated Total Liabilities To
Period of Four Consecutive Fiscal Quarters Consolidated Tangible Net Worth Consolidated Tangible Net Worth
If Such Ratio is Less Than 1.7 to 1.0 If Such Ratio Equals or Exceeds 1.7 to 1.0
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Greater Than $9,000,000 1.25% 1.75%
- ------------------------------------------------------------------------------------------------------------------------------------
from $7,000,000 to $9,000,000 (inclusive) 1.50% 2.00%
- ------------------------------------------------------------------------------------------------------------------------------------
from $5,000,000 to $6,999,999.99 (inclusive) 2.00% 2.50%
- ------------------------------------------------------------------------------------------------------------------------------------
from $2,000,000 to $4,999,999.99 (inclusive) 2.50% 3.00%
- ------------------------------------------------------------------------------------------------------------------------------------
Less Than $2,000,000 3.00% 3.00%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
FOURTH AMENDMENT AND WAIVER
TO AMENDED AND RESTATED REVOLVING CREDIT
AND TERM LOAN AGREEMENT
Fourth Amendment and Waiver to Amended and Restated Revolving Credit and
Term Loan Agreement dated as of November 22, 1996 (the "Fourth Amendment"), by
and among AU BON PAIN CO., INC., a Delaware corporation ("ABP"), SAINT LOUIS
BREAD COMPANY, INC., a Delaware corporation ("Saint Louis Bread"), ABP MIDWEST
MANUFACTURING CO., INC., a Delaware corporation ("ABP Midwest", and,
collectively with ABP and Saint Louis Bread, the "Borrowers"), and USTRUST, a
Massachusetts trust company, THE FIRST NATIONAL BANK OF BOSTON, a national
banking association, CITIZENS BANK OF MASSACHUSETTS, a Massachusetts savings
bank (collectively, the "Banks"), and USTRUST as agent for the Banks (in such
capacity, the "Agent"), amending certain provisions of the Amended and Restated
Revolving Credit and Term Loan Agreement dated as of March 17, 1995 (as amended
by the First Amendment to Amended and Restated Revolving Credit and Term Loan
Agreement dated as of September 6, 1995, the Second Amendment to Amended and
Restated Revolving Credit and Term Loan Agreement dated as of July 24, 1996, the
Third Amendment to Amended and Restated Revolving Credit and Term Loan Agreement
dated as of September 6, 1996, and as further amended and in effect from time to
time, the "Credit Agreement") by and among the Borrowers, the Banks and the
Agent. Terms not otherwise defined herein which are defined in the Credit
Agreement shall have the same respective meanings herein as therein.
WHEREAS, the Borrowers, the Banks and the Agent have agreed to modify
certain terms and conditions of the Credit Agreement as specifically set forth
in this Fourth Amendment;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
SECTION 1. AMENDMENT TO SECTION 1 OF THE CREDIT AGREEMENT. Section 1 of
the Credit Agreement is hereby amended by amending the definition of
"Consolidated Net Income" as follows:
(a) by inserting after the words "Consolidated Net Income" in the
heading thereof the parenthetical phrase "(or Deficit)"; and
(b) by inserting after the words "the net income" in the first line
thereof the parenthetical phrase "(or deficit)".
SECTION 2. AMENDMENTS TO SECTION 7 OF THE CREDIT AGREEMENT. Section 7 of
the Credit Agreement is hereby amended as follows:
<PAGE> 2
-2-
(a) Section 7.3 of the Credit Agreement is hereby amended by
deleting such section in its entirety and replacing it with the following
new Section 7.3:
Section 7.3. Consolidated Capital Expenditures. With respect
to each fiscal year of the Borrowers set forth in the table below,
the Borrowers will not permit (a) Consolidated Capital Expenditures
(other than Capital Expenditures incurred in such fiscal year in
connection with the acquisition and equipping of, and improvements
to, the Borrowers' facilities in Mexico, Missouri) to exceed the
amount set forth in the table below opposite such fiscal year in the
column headed "Maximum Consolidated Capital Expenditures" or (b)
Consolidated New Cafe Capital Expenditures to exceed the amount set
forth in the table below opposite such fiscal year in the column
headed "Maximum Consolidated New Cafe Capital Expenditures";
provided that with regard to any such fiscal year (other than the
fiscal year ending on December 26, 1998), if Consolidated Adjusted
Cash Flow for such fiscal year is less than that amount set forth in
the table below opposite such fiscal year in the column headed
"Consolidated Adjusted Cash Flow," Maximum Consolidated Capital
Expenditures and Maximum Consolidated New Cafe Capital Expenditures
permitted hereunder for such fiscal year shall be reduced by the
difference between the amount set forth for such fiscal year in such
column headed " Consolidated Adjusted Cash Flow" and the actual
Consolidated Adjusted Cash Flow for such fiscal year.
<TABLE>
<CAPTION>
----------------------------------------------------------------
MAXIMUM MAXIMUM
CONSOLIDATED CONSOLIDATED NEW CONSOLIDATED
FISCAL YEAR CAPITAL CAFE CAPITAL ADJUSTED CASH
ENDING EXPENDITURES EXPENDITURES FLOW
----------------------------------------------------------------
<S> <C> <C> <C>
12/28/96 $14,000,000 $4,000,000 $15,300,000
----------------------------------------------------------------
12/27/97 $20,000,000 $9,000,000 $22,000,000
----------------------------------------------------------------
12/26/98 $26,000,000 $16,000,000 n/a
----------------------------------------------------------------
</TABLE>
(b) Section 7.5 of the Credit Agreement is hereby amended by
deleting such section in its entirety and replacing it with the following
new Section 7.5:
Section 7.5 Projected New Cafe Capital Expenditures. With
respect to each fiscal quarter of the Borrowers set forth in the
table below, the Borrowers will not permit Projected New Cafe
Capital Expenditures for the fiscal year specified opposite such
fiscal quarter in the table below to exceed the amount set forth in
the table below opposite such fiscal quarter in the column headed
"Maximum Projected New Cafe Capital Expenditures"; provided that if,
with respect to each fiscal quarter (other than the fiscal quarters
ending on October 5, 1996 and April 18, 1998)
<PAGE> 3
-3-
set forth in the table below, Consolidated Adjusted Cash Flow
determined for the period of four consecutive fiscal quarters then
ending is less than that amount set forth in the table below
opposite such fiscal quarter in the column headed "Consolidated
Adjusted Cash Flow," Maximum Projected New Cafe Capital Expenditures
permitted hereunder for such fiscal quarter shall be reduced by the
difference between the amount set forth for such period of four
consecutive fiscal quarters in such column headed "Consolidated
Adjusted Cash Flow" and the actual Consolidated Adjusted Cash Flow
for such period.
<TABLE>
<CAPTION>
------------------------------------------------------------
MAXIMUM
FOR PROJECTED NEW CONSOLIDATED
FISCAL QUARTER FISCAL CAFE CAPITAL ADJUSTED CASH
ENDING YEAR EXPENDITURES FLOW
------------------------------------------------------------
<S> <C> <C> <C>
10/5/96 1997 $1,000,000 n/a
------------------------------------------------------------
12/28/96 1997 $4,000,000 $15,300,000
------------------------------------------------------------
4/19/97 1997 $6,000,000 $16,200,000
------------------------------------------------------------
7/12/97 1997 $9,000,000 $16,800,000
------------------------------------------------------------
10/4/97 1998 $6,000,000 $20,000,000
------------------------------------------------------------
12/27/97 1998 $9,000,000 $22,000,000
------------------------------------------------------------
4/18/98 1998 $12,000,000 n/a
------------------------------------------------------------
</TABLE>
(c) Section 7.7 of the Credit Agreement is hereby amended by
deleting such section in its entirety and replacing it with the following
new section:
Section 7.7. Net Losses. The Borrowers and their Subsidiaries
will not permit (a) Consolidated Net Deficit for the period of two
consecutive fiscal quarters ending December 28, 1996 to exceed
$2,700,000, and (b) Consolidated Net Income for each period
consisting of two consecutive fiscal quarters commencing with the
period of two consecutive fiscal quarters ending April 19, 1997 to
be less than $1.00.
(d) Section 7.8 of the Credit Agreement is hereby amended by
deleting the table set forth therein in its entirety and replacing it with
the following new table:
<TABLE>
<CAPTION>
------------------------------------------
TWO CONSECUTIVE CONSOLIDATED
FISCAL QUARTERS ADJUSTED CASH
ENDING FLOW
------------------------------------------
<S> <C>
12/28/96 $ 5,100,000
------------------------------------------
4/19/97 $ 9,500,000
------------------------------------------
7/12/97 $10,500,000
------------------------------------------
10/4/97 $ 8,700,000
------------------------------------------
</TABLE>
<PAGE> 4
-4-
<TABLE>
<S> <C>
12/27/97 $ 9,700,000
------------------------------------------
4/18/98 $11,000,000
------------------------------------------
</TABLE>
SECTION 3. AMENDMENT TO SCHEDULE 1.1(a). Schedule 1.1(a) to the Credit
Agreement is hereby amended by deleting such schedule in its entirety and
replacing it with Schedule 1.1(a) attached hereto.
SECTION 4. WAIVER. The Borrowers have informed the Banks that they are not
in compliance with the financial covenants under Section 7.7 and Section 7.8 of
the Credit Agreement (prior to the effectiveness of this Fourth Amendment) as of
the end of the fiscal quarter ending October 5, 1996, resulting in two Events of
Default under Section 10(c) of the Credit Agreement (the "Existing Defaults").
The Borrowers hereby request that the Banks waive the Existing Default. In
response to the Borrowers' request, the Banks hereby waive the Existing Default,
provided that the waiver contained herein shall operate solely with respect to
the Existing Defaults as in effect as of the end of the fiscal quarter ending
October 5, 1996 and shall not impair any right or power accruing to the Banks
with respect to any other Default or Event of Default which may now exist or any
Default or Event of Default which may occur after the date hereof including
without limitation any Event of Default with respect to Section 7.7 and
Section 7.8 of the Credit Agreement.
SECTION 5. REPRESENTATIONS AND WARRANTIES. Each of the Borrowers hereby
repeats, on and as of the date hereof, each of the representations and
warranties made in Section 5 of the Credit Agreement as though such
representations and warranties refer specifically to such Borrower, except to
the extent of changes resulting from transactions contemplated or permitted by
this Fourth Amendment or the Credit Agreement and except to the extent that such
representations and warranties relate expressly to an earlier date; provided,
that all references therein to the Credit Agreement shall refer to such Credit
Agreement as amended hereby. No Default or Event of Default has occurred and is
continuing under the Credit Agreement after giving effect to this Fourth
Amendment.
SECTION 6. EFFECTIVENESS. The effectiveness of this Fourth Amendment shall
be subject to the satisfaction of the following conditions precedent:
Section 6.1. Corporate Action. All corporate action necessary for
the valid execution, delivery and performance by each of the Borrowers of
this Fourth Amendment and the other Loan Documents to which they are or
are to become a party shall have been duly and effectively taken, and
evidence thereof satisfactory to the Banks shall have been provided to
each of the Banks.
Section 6.2. Loan Documents. This Fourth Amendment shall have been
duly executed and delivered to the Agent by each of the parties to the
Credit Agreement.
<PAGE> 5
-5-
Section 6.3. Amendment Fee. The Borrowers shall have paid the Agent,
for the pro rata accounts of the Banks, an amendment fee in the amount of
$15,000.
Section 6.4. Amendment of Letter of Credit Reimbursement Agreement.
The Banks shall have received a duly executed amendment and waiver to that
certain Letter of Credit Reimbursement Agreement dated as of July 1, 1995
among ABP, ABP Midwest and Citizens Trust Company, as amended, in form and
substance satisfactory to the Banks and the Agent.
Section 6.5. Side Letter. A side letter concerning Consolidated
Capital Expenditures shall have been duly executed and delivered to the
Agent by each of the parties to the Credit Agreement.
SECTION 7. RATIFICATION, ETC. Except as expressly amended hereby, the
Credit Agreement and all documents, instruments and agreements related thereto,
including, but not limited to the Loan Documents, are hereby ratified and
confirmed in all respects and shall continue in full force and effect. The
Credit Agreement and this Fourth Amendment shall be read and construed as a
single agreement. All references in the Credit Agreement or any related
agreement or instrument to the Credit Agreement shall hereafter refer to the
Credit Agreement as amended hereby.
SECTION 8. NO WAIVER. Except as otherwise expressly provided in Section 4,
nothing contained herein shall constitute a waiver of, impair or otherwise
affect any Obligations, any other obligation of the Borrowers or any rights of
the Agent or the Banks consequent thereon.
SECTION 9. COUNTERPARTS. This Fourth Amendment may be executed in one or
more counterparts, each of which shall be deemed an original but which together
shall constitute one and the same instrument.
SECTION 10. GOVERNING LAW. THIS FOURTH AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS
(WITHOUT REFERENCE TO CONFLICT OF LAWS).
<PAGE> 6
-6-
IN WITNESS WHEREOF, the parties hereto have executed this Fourth Amendment
as a document under seal as of the date first above written.
AU BON PAIN CO., INC.
By: /s/ Louis I. Kane
Name: Louis I. Kane
Title: Co-Chairman
SAINT LOUIS BREAD COMPANY, INC.
By: /s/ Louis I. Kane
Name: Louis I. Kane
Title: Executive Vice President
ABP MIDWEST MANUFACTURING CO., INC.
By: /s/ Louis I. Kane
Name: Louis I. Kane
Title: Executive Vice President
USTRUST
INDIVIDUALLY AND
AS AGENT
By: /s/ Anthony Wilson
Anthony Wilson
Vice President
THE FIRST NATIONAL BANK
OF BOSTON
By: /s/ Margaret Ronan Stack
Margaret Ronan Stack
Vice President
<PAGE> 7
-7-
CITIZENS BANK OF MASSACHUSETTS
By: /s/ Anne Forbes Van Nest
Name: Anne Forbes Van Nest
Title: Vice President
<PAGE> 8
Schedule 1.1(a)
REVOLVING CREDIT COMMITMENTS
Commitment
Lender Commitment Percentage
- ------ ---------- ----------
USTrust $9,333,333.34 33-1/3%
30 Court Street
Boston, Massachusetts 02108
Telefax Number: (617) 726-7380
Telex: 681752
Answerback: UST BSN
Attention: Anthony G. Wilson, V.P.
The First National Bank of Boston $9,333,333.33 33-1/3%
100 Federal Street
Boston, Massachusetts 02110
Telefax Number: (617) 434-4426
Telex: 940581
Answerback: BOSTONBK BSN
Attention: Margaret R. Stack, V.P.
Citizens Bank of Massachusetts $9,333,333.33 33-1/3%
55 Summer Street
Boston, MA 02110
Telefax Number: (617) 482-9730
Attention: Anne Forbes Van Nest
<PAGE> 9
November 22, 1996
Au Bon Pain Co., Inc.
19 Fid Kennedy Avenue
Marine Industrial Park
Boston, Massachusetts 02210
Attention: Mr. Anthony J. Carroll, Chief Financial Officer
Re: Consolidated Capital Expenditures
Ladies and Gentlemen:
Please refer to that certain Amended and Restated Revolving Credit and
Term Loan Agreement dated as of March 17, 1995 (as amended by the First
Amendment to Amended and Restated Revolving Credit and Term Loan Agreement dated
as of September 6, 1995, the Second Amendment to Amended and Restated Revolving
Credit and Term Loan Agreement dated as of July 24, 1996, the Third Amendment to
Amended and Restated Revolving Credit and Term Loan Agreement dated as of
September 6, 1996, and the Fourth Amendment and Waiver to Amended and Restated
Revolving Credit and Term Loan Agreement dated as of November 22, 1996, and as
further amended and in effect from time to time, the "Credit Agreement") by and
among the Borrowers, the Banks and the Agent. Terms not otherwise defined herein
which are defined in the Credit Agreement shall have the same respective
meanings herein as therein.
This letter is being executed in connection with the Fourth Amendment and
Waiver to Amended and Restated Revolving Credit and Term Loan Agreement dated as
of November 22, 1996 among all the parties to the Credit Agreement pursuant to
which the Credit Agreement is being amended.
The undersigned hereby agree that at any time between April 30, 1997 and
May 30, 1997, if Citizens Bank of Massachusetts ("Citizens") remains a party to
the Credit Agreement as a Bank thereunder at such time, any Bank may
unilaterally demand that the "Maximum Consolidated Capital Expenditures"
permitted to be made by the Borrowers under Section 7.3 of the Credit Agreement
for fiscal year 1997 be reduced to an amount of not less than $15,000,000 as
specified by such Bank. Such demand may be made regardless of whether the
Borrowers are in compliance with the covenants set forth in the Credit
Agreement.
The undersigned hereby further agree that upon any Bank making such
demand, the Credit Agreement shall be promptly amended to evidence such
reduction in the "Maximum Consolidated Capital Expenditures" permitted to be
made by the Borrowers under Section 7.3 of the Credit Agreement.
If the foregoing correctly sets forth our agreement, kindly execute this
letter in the appropriate space below, whereupon this letter shall become
enforceable as a sealed instrument under the laws of the Commonwealth of
Massachusetts.
<PAGE> 10
-2-
Very truly yours,
USTRUST
INDIVIDUALLY AND AS AGENT
By:/s/ Anthony Wilson
Anthony Wilson
Vice President
THE FIRST NATIONAL BANK OF BOSTON
By:/s/ Margaret Ronan Stack
Margaret Ronan Stack
Vice President
CITIZENS BANK OF MASSACHUSETTS
By: /s/ Anne Forbes Van Nest
Name: Anne Forbes Van Nest
Title: Vice President
ACCEPTED:
AU BON PAIN CO., INC.
By: /s/ Louis I. Kane
Name: Louis I. Kane
Title: Co-Chairman
SAINT LOUIS BREAD COMPANY, INC.
By: /s/ Louis I. Kane
Name: Louis I. Kane
Title: Executive Vice President
ABP MIDWEST MANUFACTURING CO., INC.
By: /s/ Louis I. Kane
Name: Louis I. Kane
Title: Executive Vice President
<PAGE> 1
----------------------------------------
----------------------------------------
AU BON PAIN CO., INC.
SAINT LOUIS BREAD COMPANY, INC.
ABP MIDWEST MANUFACTURING CO., INC.
$15,000,000
INVESTMENT AGREEMENT
July 24, 1996
Funds Provided by
ALLIED CAPITAL CORPORATION
ALLIED CAPITAL CORPORATION II
CAPITAL TRUST INVESTMENTS, LTD.
----------------------------------------
----------------------------------------
<PAGE> 2
INVESTMENT AGREEMENT
THIS INVESTMENT AGREEMENT (this "Agreement") is made as of the 24th day of
July, 1996 by and among: (i) AU BON PAIN CO., INC., a Delaware corporation (the
"Parent") (ii) Saint Louis Bread Company, Inc., a Delaware corporation ("SLBC")
and ABP Midwest Manufacturing Co., Inc., a Delaware corporation ("Midwest") (the
Parent, SLBC and Midwest are hereafter collectively referred to herein as
"Borrowers"); and (ii) ALLIED CAPITAL CORPORATION and ALLIED CAPITAL CORPORATION
II, each a Maryland corporation (collectively, "Allied") and CAPITAL TRUST
INVESTMENTS, LTD., a Guernsey corporation ("Capital Trust") (collectively,
Allied and Capital Trust shall be referred to herein as the "Lenders" and
individually as a "Lender").
RECITALS:
A. Lenders wish to invest the aggregate sum of Fifteen Million Dollars in
Borrowers, in exchange for certain senior subordinated debentures and warrants
to purchase shares of the Common Stock of Parent.
B. The parties desire to set forth herein their understandings and
agreements pertaining to this transaction.
NOW, THEREFORE, in consideration of the foregoing Recitals and the mutual
covenants contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Lenders and the
Borrowers hereby agree as follows (Each Lender and its respective successors and
assigns with respect to any of the Debentures or any of the Equity Interest (as
these terms are hereinafter defined) shall be referred to herein individually as
a "Holder" and collectively as the "Holders"):
ARTICLE I: DEFINITIONS
1.01 DEFINITIONS. In addition to the terms defined elsewhere herein, when
used herein, the following capitalized terms shall have the meanings indicated:
"Act of Bankruptcy," when used in reference to any Person, shall mean the
occurrence of any of the following with respect to such Person: (i) such Person
shall have made an assignment for the benefit of his or its creditors; (ii) such
Person shall have admitted in writing his or its inability to pay his or its
debts as they become due; (iii) such Person shall have filed a voluntary
petition in bankruptcy; (iv) such Person shall have been adjudicated a bankrupt
or insolvent; (v) such Person shall have filed any petition or answer seeking
for himself or itself any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any present or
future Applicable Law pertinent to such circumstances; (vi) such
<PAGE> 3
Person shall have filed or shall file any answer admitting or not contesting the
material allegations of a bankruptcy, insolvency or similar petition filed
against such Person; (vii) such Person shall have sought or consented to, or
acquiesced in, the appointment of any trustee, receiver, or liquidator of such
Person or of all or any substantial part (20% or more) of the properties of such
Person; (viii) an action shall have been commenced against such Person seeking
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar relief under any present or future Applicable Law without such action
having been dismissed or without all orders or proceedings thereunder affecting
the operations or the business of such Person having been stayed within 60 days
or if the relevant court shall enter a decree or order granting the relief
sought in such action, or if a stay of any such order or proceedings shall
thereafter be set aside; or (ix) 60 days shall have expired after the
appointment, without the consent or acquiescence of such Person of any trustee,
receiver or liquidator of such Person or of all or any substantial part of the
assets and properties of such Person without such appointment having been
vacated.
"Act of Dissolution," when used in reference to any Person (other than an
individual) shall mean the occurrence of any action initiating, or any event
that results in, the dissolution, liquidation, winding-up or termination of such
Person.
"Affiliate," when used in reference to any Person, shall mean any Person,
other than a holder of the Junior Debt, that, directly or indirectly through one
or more intermediaries, controls, is controlled by, or is under common control
with, the Person in question including, without limitation, by reason of holding
10% or more of the equity interest of the Person in question or possessing the
direct or indirect ability to manage the business and affairs of the Person in
question.
"Applicable Law(s)," when used in the singular, shall mean any applicable
foreign, federal, state or local law, ordinance, order, regulation, rule or
requirement of any governmental or quasi-governmental agency, instrumentality,
board, commission, bureau or other authority having jurisdiction, and, when used
in the plural, shall mean all such applicable foreign, federal, state and local
laws, ordinances, orders, regulations, rules and requirements.
"Applicable UCC" shall mean the Uniform Commercial Code, as enacted in the
State of New York, as amended through the date hereof.
"Borrowers' Business" shall mean the retail sale of high-quality,
quick-service cafe food, bakery and related items, the production and sale of
frozen dough bakery products, and the franchising of retail quick-service cafes
operating under the names of "Au Bon Pain" and "Saint Louis Bread"; which
currently are the only businesses operated by Borrowers.
"Common Stock" shall mean any or all (as the context may require) of the
shares of the authorized common stock of the Parent.
-2-
<PAGE> 4
"Equity Interest" shall mean, collectively, all of the Warrants and all of
the Warrant Shares.
"GAAP" shall mean generally-accepted accounting principles, consistently
applied, for the period or periods in question.
"Governmental Authority(ies)," when used in the singular, shall mean any
federal, state or local governmental or quasi-governmental instrumentality,
agency, board, commission or department or any regulatory agency, bureau,
commission or authority and, when used in the plural, shall mean all such
entities.
"Indebtedness" of any person means without duplication (i) all indebtedness
of such person for borrowed money or for the deferred purchase price of property
or services (including, without limitation, reimbursement and all other
obligations with respect to surety bonds, letters of credit and bankers'
acceptances, whether or not matured, but not including obligations to trade
creditors incurred in the ordinary course of business), (ii) all obligations
evidenced by notes, bonds, debentures or similar instruments, (iii) all
indebtedness created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such person (even
though the rights and remedies of the seller or lender under such agreement in
the event of default are limited to repossession or sale of such property), (iv)
all capital lease obligations, (v) all guarantees by such person of any
Indebtedness and (vi) all Indebtedness secured by (or for which the holder of
such Indebtedness has an existing right, contingent or otherwise, to be secured
by) any lien upon or in property (including, without limitation, accounts and
contract rights) owned by such person, even though such person has not assumed
or become liable for the payment of such Indebtedness.
"Investment Documents" shall mean, collectively, this Agreement, the
Debentures, the Warrants, and all other instruments and documents executed and
delivered in connection with the investment.
"Licenses" shall mean, collectively, all rights, licenses, permits and
authorizations now or hereafter issued by any Governmental Authority in
connection with the operation or conduct of Borrowers' Business.
"Obligations" shall mean, collectively, all of the Borrowers' indebtedness,
liabilities and obligations arising under this Agreement and each of the other
Investment Documents and any renewals, modifications, and extensions thereof,
including, but not limited to, the principal, interest, late charges and other
sums due and owing under the Debentures and any other obligations of the
Borrowers to any of the Holders, including such other or additional financing
that any of the Holders may extend to the Borrowers at any time in the Holders'
sole discretion.
-3-
<PAGE> 5
"Permitted Encumbrances" shall mean any lien, mortgage, security interest
or other encumbrance that results from or secures any of the following: (i)
taxes and assessments not delinquent or actively being contested in good faith
by a Borrower and for which such Borrower has adequate reserves; (ii) deposits
or pledges for goods or services made to secure the performance of such goods or
services in the ordinary course of the Borrowers' Business; (iii) title of a
bona fide lessor of tangible personal property to a Borrower (where the security
interest is limited to the item as leased and the lease is not made in
contravention of the terms of this Agreement); (iv) purchase money obligations
(where the purchase money obligation is not undertaken in contravention of the
terms of this Agreement) and where the security interest is limited to the items
so acquired and the principal amount of the indebtedness secured by such
security interest shall at no time exceed an amount equal to 80% of the lesser
of the cost to the Borrower of the property so acquired and the fair market
value of such property; and (v) the Permitted Secured Debt.
"Permitted Secured Debt" shall mean, collectively, indebtedness of the
Borrowers secured by mortgages or deeds of trust on real estate owned by the
Borrowers in an aggregate principal amount not to exceed $12,400,000, including
(i) the Secured Woburn Loan, and (ii) the Secured Letter of Credit Reimbursement
Agreement.
"Person" shall mean any individual, corporation, partnership, joint
venture, limited liability company, unincorporated association, trust, or other
legal entity.
"Real Property" shall mean, collectively, all real property owned by any
Borrower or in which any Borrower has a leasehold interest and all real property
hereafter acquired by any Borrower in fee or by means of a leasehold interest,
including all real property on which any of the Borrowers' Business is now or
hereafter conducted, together with all goods located on any such real property
that are or may become "fixtures" under the law of the jurisdiction in which
such real property is located.
"Secured Letter of Credit Reimbursement Agreement" shall mean that certain
Letter of Credit Reimbursement Agreement dated as of July 1, 1995 among Midwest,
the Parent and Citizens Trust Company, a Rhode Island commercial bank, and any
modifications, renewals, extensions, and refinancings thereof (whether
contemporaneous with payment in full, or subsequent thereto) permitted under
this Agreement, relating to those certain industrial revenue bonds in an
outstanding principal amount not to exceed Eight Million Six Hundred Thousand
Dollars ($8,600,000), and secured by a mortgage on certain real property located
in Mexico, Missouri.
"Secured Woburn Loan" shall mean that certain loan from the Senior Revolver
Lender in an outstanding principal amount not to exceed Three Million Eight
Hundred Thousand Dollars ($3,800,000), pursuant to the terms of the Senior
Revolving Credit Agreement and secured by a mortgage on certain real property
located at 130 New Boston Street, Woburn,
-4-
<PAGE> 6
Massachusetts, and any modifications, renewals, extensions, and refinancings
thereof (whether contemporaneous with payment in full, or subsequent thereto)
permitted under this Agreement.
"Senior Debt" shall mean, collectively, the Senior Revolver, the Senior
INAC Loan and the Permitted Secured Debt.
"Senior INAC Loan" shall mean the senior term loan from INAC Corp. in an
outstanding principal amount not to exceed Two Million Dollars ($2,000,000),
including any modifications, renewals, extensions, and refinancings of any such
indebtedness (whether contemporaneous with payment in full, or subsequent
thereto) permitted under this Agreement.
"Senior Revolver" shall mean the senior (i) Revolving Credit Loans, (ii)
Letters of Credit, (iii) Unlimited ABP Wisconsin Guaranty, and (iv) Unlimited
Imperio Guaranty, each as defined in the Senior Revolving Credit Agreement, in
an aggregate outstanding principal amount not to exceed Thirty-Five Million
Dollars ($35,000,000), which may be increased on the terms set forth in Section
2.02(b), including any modifications, renewals, extensions, and refinancings
(whether contemporaneous with payment in whole or part, or subsequent thereto)
of any such indebtedness permitted under this Agreement.
"Senior Revolver Lender" shall mean, collectively, the lending group led by
USTrust, together with their respective successors and assigns and other parties
who, in connection with a refinancing of the Senior Revolver shall become
parties to the Senior Revolving Credit Agreement.
"Senior Revolving Credit Agreement" shall mean that certain Amended and
Restated Revolving Credit and Term Loan Agreement dated as of March 17, 1995,
by and among the parties named therein, as amended through the date hereof,
which sets forth the terms of the Senior Revolver and the Secured Woburn Loan,
as such agreement may be amended, modified, renewed, extended or refinanced
from time to time hereafter.
"Transfer" shall mean the sale, assignment, lease, transfer, mortgaging,
encumbering or other disposition, whether voluntary or involuntary, and whether
or not consideration is received therefor.
"Transfer of Borrowers' Business" shall mean one or a series of
transactions undertaken by the Borrowers resulting in either: (i) the Transfer
of all or a Substantial Portion (as defined below) of the assets of all of the
Borrowers to any other Person, other than (A) transfers between or among the
Borrowers, and (B) as permitted under Section 5.04 hereof; (ii) a merger or
consolidation of the Parent with another Person where the Parent is not the
surviving or successor entity (other than a merger or consolidation of the
Parent into or with another Borrower); (iii) the acquisition in one or a series
of transactions which results in one or more Persons either owning in excess of
50% of the outstanding capital stock of the Parent or any successor or being
able to elect a majority of the board of directors of the Parent or any
-5-
<PAGE> 7
successor; or (iv) a Change in Control that constitutes a Repurchase Event, as
such terms are defined in those certain 4.75% Convertible Subordinated Notes
dated December 22, 1993 in the aggregate principal amount of $30 million, due
January 2, 2001, made by the Parent. A "Substantial Portion" of assets as used
herein shall mean assets of any of the Borrowers Transferred either having a
fair market value or for aggregate consideration (in cash or fair market value
of property received) equal to the greater of (i) 20% or more of the equity
market capitalization of the Parent based upon the average price per share of
Common Stock of the Parent for the five trading days preceding the asset
disposition, or (ii) 20% or more of the net worth of the Parent, on a
consolidated basis, determined in accordance with GAAP. The parties acknowledge
and agree that, in calculating a Transfer of a Substantial Portion of the
Borrowers' assets, any sale by the Parent of the facility located in Mexico,
Missouri shall be excluded.
"Warrants" shall mean, collectively, all those stock purchase warrants
being issued to Lenders pursuant to the terms hereof.
"Warrant Share(s)," when used in the singular, shall mean any share of
Common Stock or any other securities acquired by a Holder pursuant to such
Holder's exercise of its rights under any of the Warrants, and, when used in the
plural, shall mean, collectively, all such shares and other securities.
"Wholly-Owned Affiliate," when used in reference to a particular Person,
shall mean an Affiliate of that Person, where the Person in question holds 100%
of the legal and beneficial interests in the Affiliate.
ARTICLE II: TERMS OF INVESTMENT
2.01 FUNDING. At the closing under this Agreement (the "Closing"), the
Borrowers will borrow, and the Lenders will invest in the Borrowers, the
aggregate sum of FIFTEEN MILLION AND 00/100 DOLLARS ($15,000,000), such
indebtedness to be evidenced by, and to be repaid according to the terms of,
three Senior Subordinated Debentures (collectively, the "Debentures") in form
and substance acceptable to each Lender. The entire principal sum will be
advanced at Closing. The principal indebtedness under the Debentures will be
advanced by, and allocated among, the Lenders as follows:
-6-
<PAGE> 8
Allied Capital Corporation $ 3,600,000
Allied Capital Corporation II 3,900,000
Capital Trust Investments, Ltd. 7,500,000
TOTAL INVESTMENTS: $15,000,000
===========
Each Lender's obligations under this Section 2.01 shall be several and not
joint.
2.02 SENIOR DEBT. (a) The Obligations shall be subordinate only to the
Senior Debt, pursuant to the terms of the Senior Debt Subordination Agreement,
as defined in Section 2.09(c)(iii).
(b) The Borrowers may increase the maximum available principal amount
of the Senior Revolver to an amount not to exceed Forty-Five Million Dollars
($45,000,000), provided that, regardless of the principal amount actually
outstanding thereunder, the Borrowers comply, on a pro forma basis, with the
financial ratios set forth in Section 4.08(c). Notwithstanding the foregoing,
the failure of the Borrowers to comply with such ratios shall not effect the
validity or enforceability of the Senior Debt Subordination Agreement with
respect to such increased amount advanced by the Senior Revolver Lender, and
such increased amount shall be treated as "Senior Debt" (under and as defined in
the Senior Debt Subordination Agreement).
2.03 SUBORDINATED JUNIOR DEBT. All Indebtedness included without
duplication within clauses (i), (ii) and (v) (to the extent related to any
indebtedness described in (i) or (ii)) of the definition thereof outstanding as
of the date hereof and owed to any party or parties other than the Lenders which
is not Senior Debt (collectively, "Junior Debt") is completely and accurately
described on EXHIBIT 2.03 attached hereto and made a part hereof. The
Obligations shall be senior to the Junior Debt. At or prior to the Closing, the
holder of the Junior Debt and the Lenders shall enter into a subordination
agreement or appropriate modification of the existing arrangements in form and
substance acceptable to each Lender (the "Junior Debt Subordination Agreement").
2.04 PREPAYMENT. The Debentures may be prepaid at any time, in whole or in
part, without premium or penalty upon 30 days prior written notice to each
Holder. For each partial prepayment paid or to be prepaid, the principal amount
of the Debentures to be prepaid shall be allocated (in integral multiples of
$100,000) among all of the Debentures at the time outstanding in proportion, as
nearly as practicable, to the respective unpaid principal amounts thereof not
called for prepayment, with adjustments, to the extent practicable, to
compensate for any prior prepayments not made exactly in such proportion.
2.05 DUE ON SALE. The Borrowers' obligations under the Debentures and this
Agreement are not assumable, and the Debentures and all of the other Obligations
are payable in full immediately upon a Transfer of Borrower's Business.
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2.06 LATE PAYMENTS. Pursuant to the terms of the Debentures, any
installment payment not received when due (after expiration of the three day
grace period referred to in Section 7.01) shall be subject to an additional late
payment charge equal to five percent (5%) of the amount overdue. From and after
the 20th day following the date of such default, interest shall accrue on the
Debentures at a rate equal to the default rate stated in the Debentures.
2.07 WARRANTS. At Closing, the Parent will issue and sell to the Holders
the Warrants, such Warrants to be in form and substance acceptable to each
Lender. The Warrants will entitle the Holders to purchase, in the aggregate, up
to 430,000 shares of Common Stock, subject to adjustment as provided in the
Warrant. The aggregate purchase price for the Warrants shall be One Hundred
Dollars ($100.00), and the exercise price for the Warrants shall be Five and
62/100 Dollars ($5.62) per share, subject to anti-dilution and other adjustments
as set forth in the Warrants (the "Exercise Price"). The Warrants will expire on
that date which is three years from the date on which all Obligations with
respect to the Debentures are satisfied in full.
2.08 CLOSING. Closing must occur on or before the close of business on the
date hereof, unless extended in writing by each Lender, in each Lender's sole
discretion.
2.09 CONDITIONS PRECEDENT TO LENDERS' OBLIGATIONS. The obligation of
Lenders to make the investment is subject to the satisfaction of the following
conditions precedent at or prior to the Closing (unless waived in writing by
each Lender prior to Closing):
(a) Each of the representations and warranties contained in this
Agreement must be true and accurate in all material respects as of the date of
Closing, and each Borrower must have performed all of its respective obligations
hereunder, including execution and delivery of all of the documents,
instruments, opinions and certificates required by this Agreement in such forms
as are satisfactory to each Lender and its counsel;
(b) Each Lender has completed a due diligence report that reflects
favorably on the Borrowers, including the management and the market for the
Borrowers' Business generally and that otherwise is satisfactory in form and
substance to each Lender in its sole and absolute discretion. In this regard,
each Borrower covenants and agrees to furnish to each Lender such information as
each Lender may request in order to enable each Lender to complete the required
due diligence;
(c) Each Lender shall have received each of the following items:
(i) the Debentures, duly executed by each Borrower;
(ii) an opinion of counsel, duly executed by counsel to the
Borrowers, in form and substance acceptable to each Lender;
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(iii) a subordination agreement, in form and substance acceptable
to each Lender, by and between the Lenders, the Senior Revolver Lender and the
other parties named therein (the "Senior Debt Subordination Agreement"), duly
executed by the Senior Revolver Lender;
(iv) the Junior Debt Subordination Agreement, duly executed by
the holder of the Junior Debt;
(v) the Warrants duly executed by the Parent; and
(vi) an Officer's Certificate, certifying as to (a) the
Borrowers' Constituent Documents, as defined in Section 3.01, (b) the
resolutions of each Borrower authorizing the transactions contemplated in this
Agreement and the other Investment Documents, and (c) the incumbency and
specimen signatures of certain officers of the Borrowers.
(d) Each other Lender shall have made the investment contemplated
hereby.
ARTICLE III: REPRESENTATIONS AND WARRANTIES
A. To induce Lenders to enter into this transaction, the Borrowers, jointly
and severally, represent and warrant to Lenders as follows (which
representations and warranties shall survive the execution and delivery of this
Agreement and the funding of the investment):
3.01 ORGANIZATION; GOOD-STANDING. Each Borrower is a corporation duly
formed, validly organized and in good standing in the jurisdiction of its
formation. True, correct and complete copies of the articles of incorporation,
by-laws, all other constituent documents of each Borrower, and all amendments
and supplements to any of the foregoing (collectively, the "Borrowers'
Constituent Documents") have been previously delivered to Lenders by Borrowers,
and all of the Borrowers' Constituent Documents are in full force and effect as
of the date hereof.
3.02 QUALIFICATION. Each Borrower is duly qualified to conduct business as
it is currently being conducted and is in good standing as a foreign corporation
in all jurisdictions in which the nature of its business or location of its
owned and leased property and assets requires such qualification, evidence of
which has been previously delivered.
3.03 POWER AND AUTHORITY. Each Borrower has full power and authority to
enter into this Agreement and each of the other Investment Documents, to incur
the Obligations as contemplated hereby, and to carry out the provisions of this
Agreement and each of the other Investment Documents. The Parent has full power
and authority to issue the Warrants and Warrant Shares. Each Borrower has taken
all corporate action necessary for the execution and
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delivery of this Agreement and each of the other Investment Documents and for
the performance by such Borrower of each of its obligations hereunder and
thereunder, as evidenced by corporate resolution or other authorization
previously delivered.
3.04 ENFORCEABILITY. Upon execution and delivery by each of the other
parties thereto, this Agreement and each of the other Investment Documents shall
be the legal, valid and binding obligations of each Borrower, to the extent such
Borrower is a party thereto and shall be enforceable against such Borrower in
accordance with their respective terms.
3.05 LITIGATION. No Borrower has been made a party to or threatened by any
suits, actions, claims, investigations by Governmental Authorities or any third
party or legal, administrative, arbitration or mediation proceedings, except as
set forth in the schedule of litigation attached hereto as EXHIBIT 3.05, other
than litigation (i) for which the Borrowers have adequate insurance coverage,
(ii) wherein the amount claimed is less than $50,000, or (iii) relating to
workman's compensation claims (the "Litigation Schedule"). No Borrower knows of
any basis or grounds for any such suit, action, claim, investigation or
proceeding.
3.06 ORDERS; DECREES; JUDGMENTS. There are no outstanding orders,
judgments, writs, injunctions or decrees of any court, Governmental Authority or
arbitration or mediation panel or tribunal against or affecting any Borrower or
any of the properties, assets or business of any Borrower.
3.07 NON-CONTRAVENTION. Except for matters set out in the Litigation
Schedule, no Borrower is in breach of, default under, or in violation of: (a)
any Applicable Law, decree, or order which either individually or in the
aggregate may materially and adversely affect any of them; or (b) any deed,
Lease, loan agreement, commitment, bond, note, deed of trust, restrictive
covenant, license, indenture, Contract, or other agreement, instrument or
obligation to which any of them is a party or by which any of them is bound or
to which any of their respective assets are subject. Neither the execution and
delivery of this Agreement and the Investment Documents nor the performance by
any Borrower of its respective obligations hereunder and thereunder will cause
any such breach, default or violation or will require the consent or approval of
any court or Governmental Authority or any other person, except as expressly
contemplated by the terms of this Agreement.
3.08 TITLE. Each Borrower has good, complete, indefeasible and marketable
title to, and ownership of, all of the Real Property or personal property it
purports to own (if any), free and clear of all liens, defects, claims, security
interests and encumbrances other than the Permitted Encumbrances.
3.09 TAXES. Each Borrower has filed all federal, state and local tax
returns which are required to be filed, and each Borrower has duly paid or fully
reserved for all taxes or installments thereof (including any interest or
penalties) as and when due pursuant to the filed returns or pursuant to any levy
or assessment received by such Borrower.
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3.10 Financial Condition.
-------------------
(a) Attached hereto as EXHIBIT 3.10(a) is a true and complete copy of
the audited consolidated financial statements summarizing the financial
condition and results of operations of the Parent, as consolidated, for the
fiscal year ending December 30, 1995 provided to Lenders by the Parent at least
10 days prior to the Closing Date (the "Audited Financials"). The Audited
Financials were prepared in accordance with GAAP, are true and correct in all
material respects, and fairly present the Parent's financial condition and
results of operations at such dates and for the periods then ended. The auditors
have issued an unqualified opinion to the Parent concerning the Audited
Financials, a copy of which is included with the Audited Financials in EXHIBIT
3.10(a) attached hereto; and
(b) Attached hereto as EXHIBIT 3.10(b) is a true and complete copy of
preliminary, unaudited consolidated financial statements summarizing the
financial condition and results of operations of the Parent, as consolidated,
for the year-to-date period ended April 20, 1996, and results of operations for
the year-to-date periods ended June 15, 1996 (the "Interim Financials"). The
Interim Financials were prepared in accordance with GAAP, are true and correct
in all material respects, and (except for the results of operations for the
year-to-date periods ended June 15, 1996) fairly present the Parent's financial
condition and results of operations at such dates and for the periods then
ended, subject to normal immaterial year-end adjustments.
3.11 SOLVENCY. As of the date hereof, giving effect to the transactions
contemplated by this Agreement, the present fair salable value of the Borrowers'
assets is greater than the amount required to pay the Borrowers' total
indebtedness (contingent or otherwise), and is greater than the amount that will
be required to pay such indebtedness as it matures and as it becomes absolute
and matured. The transactions contemplated hereby were effectuated without
actual intent to hinder, delay or defraud present or future creditors of the
Borrowers; it is the Borrowers' express intention that they will maintain a
solvent financial condition on a consolidated basis, giving effect to the
Obligations incurred hereunder, as long as any of the Obligations remain
outstanding. The Borrowers have sufficient capital to carry on their business
and transactions as now conducted and as planned to be conducted in the future.
3.12 LEASES. Attached hereto as EXHIBIT 3.12 is an accurate and complete
list of all leases of Real Property and all other material leases to which any
Borrower is a party or by which any Borrower or any of the Borrowers' assets is
bound, together with all amendments or supplements thereto provided to Lenders
by the Borrowers at least five days prior to the Closing Date (collectively, the
"Leases"). Each of the Leases is valid, binding and enforceable in accordance
with its terms and remains in full force and effect. No Borrower is in default
or alleged to be in default with respect to any of its obligations under any of
the Leases (nor would be in default or alleged to be in default with the giving
of notice, passage of time, or both), and,
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no party other than the Borrowers is in default with respect to such party's
obligations under any of the Leases (or would be in default or alleged to be in
default with the giving of notice, passage of time, or both). The Borrowers'
possession of any property leased by them has not been disturbed, nor has any
claim been asserted against any Borrower that is or could be adverse to such
Borrower's interests under any of the Leases. None of the Leases is subject to
any rights of set-off, recoupment or similar deduction or offset. No Borrower
has assigned or encumbered any of its rights, title or interest in or under any
of the Leases nor agreed to any oral modifications of any of the provisions of
any of the Leases.
3.13 MATERIAL CONTRACTS. Attached hereto as EXHIBIT 3.13 is an accurate and
complete list of all material contracts (including all those representing 20% or
more of the Borrowers' total revenue, profit volume or expenses or with material
suppliers) to which any Borrower is a party or by which any Borrower or any
Borrower's assets is bound provided to Lenders by the Borrowers at least five
days prior to the Closing Date (collectively, the "Contracts"). Each of the
Contracts is valid, binding and enforceable in accordance with its terms and
remains in full force and effect. No Borrower is in default or alleged to be in
default with respect to any of its obligations under any of the Contracts (nor
would be in default or alleged to be in default with the giving of notice,
passage of time, or both), and, no party other than the Borrowers is in default
with respect to such party's obligations under any of the Contracts (or would be
in default or alleged to be in default with the giving of notice, passage of
time, or both). No claim has been asserted against any Borrower that is or could
be adverse to such Borrower's interests under any of the Contracts. None of the
Contracts is subject to any rights of set-off, recoupment or similar deduction
or offset. No Borrower has assigned or encumbered any of its rights, title or
interest in or under any of the Contracts nor agreed to any oral modifications
of any of the provisions of any of the Contracts.
3.14 DISCLOSURE. Neither (i) the Borrowers' Private Placement Memorandum,
which Borrowers previously delivered to Lenders, as updated and supplemented
through the Closing Date with the information set forth on EXHIBIT 3.14, taken
as a collective; (ii) this Agreement and all Exhibits hereto; nor (iii) any
reports or information filed by the Borrowers pursuant to the Securities
Exchange Act of 1934 during the 18 months preceding the Closing Date (upon which
each Lender is entitled to rely in making the investment pursuant to this
Investment Agreement), contains any untrue statement of material fact or omits
to state a material fact necessary to make the statements therein not
misleading.
3.15 FINANCIAL MODEL. The Financial Model dated as of June 24, 1996, as set
forth in EXHIBIT 3.15, is based upon assumptions which the Borrowers believe are
reasonable and based upon the Borrowers' current business and prospects and
reflect the best estimate of the Borrowers of the results of operations and
other information projected therein. The Financial Model discloses all material
assumptions made with respect to the operation of the Borrowers' Business in
formulating the Financial Model.
3.16 OTHER DEBTS. Except for the liabilities listed in the Audited
Financials and Interim Financials attached hereto as EXHIBIT 3.10(a) and EXHIBIT
3.10(b), respectively, and
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except for indebtedness, liabilities or obligations incurred in the ordinary
course after the date of the Interim Financials, no Borrower has indebtedness,
liabilities or obligations of any nature (whether liquidated or unliquidated,
mature or not yet mature, absolute or contingent, secured or unsecured)
including, without limitation, liabilities or obligations on account of taxes or
government charges, penalties, interest or fines thereon or in respect thereof,
and no Borrower knows, or has reasonable grounds to know, of any basis for any
claim against any Borrower as of the date of this Agreement or of any debt,
liability or obligation other than those described in this Section 3.16.
3.17 NO MATERIAL CHANGE. Since the ending date of the Audited Financials,
except as specifically reflected in the Interim Financials, the Borrowers have
not: (i) suffered any material change in their condition (financial or
otherwise) or their overall business prospects; (ii) entered into any material
transactions or incurred any debt, obligation or liability (whether liquidated
or unliquidated, mature or not yet mature, absolute or contingent, secured or
unsecured) other than the Obligations; (iii) sustained any material loss or
damage to their Real Property or personal property, whether or not insured; (iv)
suffered any material interference with their business or operations, present or
proposed; and (v) made any Transfer, abandonment or other disposition of any of
their Real Property or personal property or any interest therein or relating
thereto, that is material either individually or in the aggregate to their
financial position or prospects.
3.18 NO SIDE AGREEMENTS. There exists no agreement or understanding calling
for any payment or consideration from a customer or supplier of any Borrower to
an officer or director of such Borrower with respect to any transaction between
such Borrower and such supplier or customer. Except as set forth on EXHIBIT
3.18, no Affiliate of any Borrower, directly or indirectly, transacts any
business with any Borrower.
3.19 GENERAL LEGAL COMPLIANCE. No Borrower is in violation of any
Applicable Law that would apply to it or to its business, the violation of which
would have a material adverse effect either individually or in the aggregate on
any Borrower, its business, or its prospects.
3.20 ENVIRONMENTAL LEGAL COMPLIANCE. No Borrower is in violation of any
applicable Environmental Law, which violation would have a material adverse
effect either individually or in the aggregate on any Borrower or its business
or prospects, and no Borrower has been notified of any action, suit, proceeding
or investigation which calls into question compliance by any Borrower with any
Environmental Laws or which seeks to suspend, revoke or terminate any license,
permit or approval necessary for the generation, handling, storage, treatment or
disposal of any Hazardous Material. As used in this Agreement, the term
"Environmental Law" shall mean, collectively, the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C. ss.9601
et seq. ("CERCLA"); the Solid Waste Disposal Act, as amended, 42 U.S.C. ss.6901
et seq.("SWDA") including the Resource Conservation and Recovery Act of 1976, as
amended, 42 U.S.C. ss.6901 et seq.
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("RCRA"); the Clean Water Act, as amended, 42 U.S.C. ss.1251 et seq.("CWA"); the
Clean Air Act, as amended, 42 U.S.C. ss.7401 et seq.; any "superfund" or
"superlien" law; and any other Applicable Law regulating, relating to, or
imposing liability or standards of conduct concerning, any hazardous, toxic or
dangerous waste, substance or material, and the term "Hazardous Material" shall
mean and include any hazardous, toxic or dangerous waste, substance or material,
the generation, handling, storage, disposal, treatment or emission of which is
subject to any Environmental Law.
3.21 EMPLOYEE BENEFIT MATTERS. There is no existing single-employer plan
defined in Section 4021(a) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA") as to which any Borrower is an "employer" or a
"substantial employer" as defined in Sections 3(5) and 4001(a)(2) of ERISA,
respectively. Attached hereto as EXHIBIT 3.21 is an accurate and complete list
of each plan described in Section 4021(a) of ERISA, as to which any Borrower is
liable to make contributions or for the payment of benefits. The Borrowers have
delivered to Lenders true and complete copies of each of the plans listed on
EXHIBIT 3.21 attached hereto. To the best knowledge of the Borrowers, there have
been no "reportable events" as set forth in Section 4043(b) of ERISA with
respect to any such plan, and no termination of any such plan since the
effective date of ERISA which could result in any tax, penalty or liability
being imposed upon any Borrower. No Borrower has participated in, and the
execution and delivery of this Agreement by the Borrowers will not involve, any
"prohibited transaction" (as defined in Section 4975 of the Internal Revenue
Code of 1986, as amended) that could subject any Borrower to any tax or penalty
imposed by Section 4975 of the Internal Revenue Code of 1986, as amended. To the
best knowledge of the Borrowers, no predecessor-in-interest to the Borrowers has
participated in any "prohibited transaction" (as defined in Section 4975 of the
Internal Revenue Code of 1986, as amended) that could subject any Borrower to
any tax or penalty imposed by Section 4975 of the Internal Revenue Code of 1986,
as amended. Since the effective date of ERISA, neither any Borrower, nor, to the
best knowledge of the Borrowers, any predecessor-in-interest to the Borrowers,
has incurred any "accumulated funding deficiency", as such term is defined in
Section 302 of ERISA, to which any Borrower could be subject or for which it
might be liable. No Borrower is a party to, and none of the operations of the
Borrowers is covered by, a "multi-employer plan", as defined in Section 3(37) of
ERISA.
3.22 COLLECTIVE BARGAINING. No Borrower is a party to or subject to any
collective bargaining agreements or union contracts. There are no labor disputes
pending or threatened against any Borrower or between any Borrower and its
employees which have affected, or so far as the Borrowers can reasonably foresee
may affect, materially and adversely the business or condition of the Borrowers
or the Borrowers' business or prospects.
3.23 EMPLOYEES. Attached hereto as EXHIBIT 3.23 is an accurate and complete
list of all employment and compensation contracts, including all retirement
benefit agreements not disclosed on EXHIBIT 3.21 between the Borrowers and
officers and executives of the Borrowers. The Borrowers have delivered to the
Lenders accurate and complete copies of all such contracts.
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No officer, executive or other key employee of any Borrower has advised such
Borrower (orally or in writing) that he or she intends to terminate employment
with such Borrower.
3.24 INSURANCE. Attached hereto as EXHIBIT 3.24 is an accurate and complete
list of all insurance policies and binders presently providing coverage to any
Borrower or any of its assets. The Borrowers have furnished to Lenders
appropriate insurance certificates and accurate and complete copies of the
insurance binders or policies for all of the insurance listed in EXHIBIT 3.24.
The coverage provided by such insurance is adequate for the conduct of the
Borrowers' Business.
3.25 LICENSES. The Licenses held by the Borrowers constitute all licenses,
permits, approval and authorizations needed to properly operate the Borrowers'
Business. No Borrower is in default or in noncompliance with respect to any
License.
3.26 BROKERS. None of the Borrowers has any knowledge of any investment
banking, brokerage, or finders fees due for the transactions contemplated
hereby, except for the fees due CIBC Wood Gundy Securities (all of which shall
be paid by the Parent), and will indemnify the Lenders and their respective
affiliates for any claims with respect thereto.
3.27 SUBSIDIARIES. Attached hereto as EXHIBIT 3.27 is an accurate and
complete list of all direct or indirect subsidiaries of any Borrower. All shares
of subsidiaries are owned by a Borrower and are validly issued, fully paid and
non-assessable.
3.28 EQUITY. No Borrower has granted any pre-emptive rights relating to any
of its securities. The shares issuable upon exercise of the Warrants have been
duly authorized and reserved and, upon exercise, will be fully paid and
non-assessable.
3.29 SECURITIES LAWS. The issuance and sale of the Warrants and the
Debentures hereunder, and the issuance of shares issuable under the Warrants,
complies and will comply, as the case maybe, with all federal and state
securities laws and regulations.
3.30 NO FOREIGN ASSETS CONTROL REGULATION VIOLATION. The transactions
contemplated by this Agreement will not result in a violation of any of the
foreign assets control regulations of the United States Treasury Department, 31
C.F.R., Subtitle B, Chapter V, as amended (including, without limitation, the
Foreign Assets Control Regulations, the Transaction Control Regulations, the
Cuban Assets Control Regulations, the Foreign Funds Control Regulation, the
Iranian Assets Control Regulations, the Nicaraguan Trade Regulations, the Libyan
Sanctions Regulations, the Soviet Regulations, the Kuwaiti Assets Control
Regulations and the Iraqi Sanctions Regulations contained in said Chapter V), or
any ruling issued thereunder or any enabling legislation or other Presidential
Executive Order granting authority therefor, and the proceeds of the Debentures
and the Warrants to be issued and sold hereunder and the Warrant Shares will not
be used by the Borrowers in a manner which would violate any such regulation.
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B. To induce the Borrowers to enter into this transaction, the Lenders
represent and warrant to the Borrowers as set forth below (which representations
and warranties shall survive the execution and delivery of this Agreement and
the funding of this transaction).
B-3.01 INVESTMENT INTENT. Each Lender: (i) is acquiring the Warrants and
Debentures being purchased by it hereunder and will, upon conversion of the
Warrants, acquire the Warrant Shares, for its own account for the purpose of
investment and not with a view to or for sale in connection with any
distribution thereof; (ii) understands that the Warrants, the Debentures and the
Warrant Shares have not been registered under the Securities Act by reason of
their issuance in a transaction exempt from the registration requirements of the
Securities Act pursuant to Section 4(2) thereof and may not be offered or sold
except pursuant to an effective registration statement or an available exemption
from the registration requirements under the Securities Act; and (iii) is an
"accredited investor" as defined in Regulation D as promulgated under the
Securities Act. Each Lender agrees that the certificates representing the
Debentures, the Warrants and the Warrant Shares will bear restrictive legends to
the effect of clause (ii) of the preceding sentence and that the Parent may
require an opinion of counsel, in form and substance reasonably satisfactory to
the Parent, to the effect that any proposed transfer will not result in any
violation of the Securities Act and the rules and regulations thereunder.
ARTICLE IV: AFFIRMATIVE COVENANTS
Until the Debentures are repaid in full, each Borrower covenants and agrees
with the Holders to do all of the following:
4.01 QUARTERLY FINANCIALS. The Borrowers shall forward, or cause to be
forwarded to Holders, the Parent's consolidated (i) quarterly financial
statements, prepared in corporate summary format (substantially in the form of
EXHIBIT 4.01 attached hereto), and (ii) year-to-date financial statements,
comparing actual to budgeted performance, prepared in accordance with GAAP,
(including a year-to-date balance sheet, profit and loss statement and cash flow
statement), in each case within 45 days from the end of each quarter, together
with a quarterly one-page management summary description of operations.
4.02 CERTIFICATION OF NON-DEFAULT. The Borrowers shall provide to the
Holders in writing each fiscal quarter an officer's certificate, signed by the
chief financial officer of the Parent certifying that no Event of Default has
occurred under this Agreement, or if any such Event of Default exists, stating
the nature of such Event of Default. Such certificate shall explicitly reference
and certify that it is made for the benefit of the Holders.
4.03 ANNUAL AUDIT. The Parent shall forward, or cause to be forwarded, to
Holders the Parent's audited consolidated year-end balance sheet, profit and
loss statement and cash flow statement, without qualification thereof, within 90
days of such accounting year-end, which shall be prepared at the Borrowers' sole
expense by an independent accounting firm acceptable to the Holders according to
GAAP, and explicitly referenced and certified as being
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made for the benefit of the Holders, together with calculations by the Borrowers
showing conformance with financial covenants. For purpose of this Agreement,
unless notice is expressly given to the contrary by any Holder, all national and
major regional firms shall be considered acceptable to the Holders.
4.04 BUDGETS. Prior to that date which is 45 days following the start of
each fiscal year, the Borrowers shall provide the Holders with an annual budget,
by period, for the Borrowers for such current fiscal year, in the corporate
summary format.
4.05 NOTICE OF FILINGS. Within 30 days of filing, the Borrowers shall
provide the Holders with copies of all material documents filed by any Borrower
with any Governmental Authority (other than the Internal Revenue Service),
including, without limitation, the Environmental Protection Agency, the
Occupational Safety & Health Administration, and the Securities & Exchange
Commission.
4.06 NOTICE OF LITIGATION. The Borrowers shall notify the Holders of any
litigation to which any Borrower is a party by mailing to the Holders, by U.S.
registered mail, within 30 days of receipt thereof, a copy of the Complaint,
Motion for Judgment or other such pleadings served on or by such Borrower;
provided, however, that the Borrowers shall not be obliged by this Section 4.06
to give notice of suits (i) where any Borrower is a creditor seeking collection
of one or more accounts receivable unless the amount such Borrower seeks
pursuant to such litigation exceeds $50,000, or (ii) where the amount of damages
claimed is less than $100,000.
4.07 NOTICE OF DEFAULTS OR JUDGMENTS. The Borrowers shall give the Holders
notice of any default(s) declared (i) with respect to any Contract, (ii) with
respect to any obligation constituting Senior Debt, Junior Debt, or other
Indebtedness of any Borrower, (iii) with respect to any judgment entered against
any Borrower, or (iv) in any 90-day window, with respect to any lease or group
of leases relating to stores which, in the aggregate, constitute an amount equal
to one percent (1%) or more of the total revenues generated during the preceding
fiscal year (any such lease or leases shall be referred to herein individually
as a "Threshold Lease" and collectively as "Threshold Leases"), in each case by
mailing an accurate and complete copy thereof to Holders within ten days of
receipt thereof by such Borrower. The term "Threshold Leases" shall not include
any lease or leases identified on EXHIBIT 4.18.
4.08 FINANCIAL RATIOS AND COVENANTS. The Borrowers shall comply with and
maintain the following financial ratios or financial covenants, measured on a
consolidated basis in accordance with GAAP and using the information set forth
in the financial statements provided by the Borrowers in accordance with Section
4.01 above:
(a) Each financial ratio or covenant required by any holder of any
portion of the Senior Debt pursuant to the terms and conditions of any
instruments or documents entered into in connection with any portion of the
Senior Debt;
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(b) The ratio of Free Cash Flow to Total Debt Service, determined for
the four-quarter period ending on October 5, 1996 and at the end of each
fiscal quarter thereafter, for the immediately preceding four-quarter
period, shall be equal to or greater than 2:1, based upon results for such
period; and
(c) In connection with any increase in the maximum available principal
amount under the Senior Revolver, and at all times from and after the date
on which the maximum available principal amount available under the Senior
Revolver exceeds $35,000,000, the following ratios:
(1) The sum of the principal amount available under the Senior
Debt (treating any contemplated increase under the Senior Revolver, up
to a maximum of $45 million, as if such increase was available at such
time) and the Debentures on the last day of each fiscal quarter,
determined quarterly, shall be less than the product of (x) 2.75 and
(y) the sum of net income plus interest expense, taxes, depreciation,
and amortization for such quarter and the preceding three quarters
(For purposes of calculating this ratio with respect to any quarter
during which the Parent incurs a charge as a result of the issuance or
exercise, without duplication, of Warrants by a Lender or warrants
held by the holders of the Junior Debt, such charge shall be added to
the sum in this subparagraph (y)); and
(2) The ratio of (x) Borrowers' Free Cash Flow for the
immediately preceding four-quarter period to (y) Borrowers' Total Debt
Service on a pro forma basis for such four-quarter period, assuming
the principal amount then available, together with such contemplated
increase, under the Senior Revolver for such period had been the
amount outstanding thereunder, shall be equal to or greater than 2:1.
As used in this Section 4.08, the following terms shall have the meanings
indicated: (1) "Free Cash Flow" shall mean (a) the sum of net income, interest,
depreciation, amortization and other non-cash charges, less (b) amounts
attributable to maintenance expenditures on capital assets; and (2) "Total Debt
Service" shall mean the aggregate amount of interest and scheduled principal
payments paid or payable in respect of the Debentures, the Senior Debt, the
Junior Debt, all other Indebtedness permitted under Section 2.03 and capitalized
leases, but excluding principal payments due at maturity of (i) any revolving
credit facility included in Senior Debt, (ii) the Secured Letter of Credit
Reimbursement Agreement, and (iii) the Secured Woburn Loan. (For purposes of the
definition of Free Cash Flow set forth above, the non-cash charges added back to
net income shall include, but are not limited to, (i) the one-time special
charge of $8,500,000, incurred in fiscal year 1995 in respect of store closings
and recruiting of new management for SLBC, and (ii) a charge as a result of the
issuance or exercise, without duplication, of Warrants by a Lender or warrants
held by the holders of the Junior Debt, in each case only if such event occurred
within the immediately preceding four-quarter period.)
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4.09 INSURANCE. At all times until all of the Obligations have been
satisfied in full, the Borrowers shall maintain all insurance identified in
EXHIBIT 3.24 or equivalent replacement insurance in full force and effect.
4.10 USE OF PROCEEDS. The Borrowers shall apply the proceeds of the
investment as follows, and for no other purpose or purposes: (i) toward expenses
relating to the closing of the investment, and (ii) toward paying down the
Senior Revolver.
4.11 PAYMENTS AND OBLIGATIONS. The Borrowers shall make all payments of
principal, interest and other charges as and when due under the Debentures,
shall timely make all payments of any other monetary Obligations, shall perform
or comply with, as the case may be, all of the other Obligations, and shall
perform and comply in all respects with all applicable terms, conditions and
covenants of this Agreement and the other Investment Documents.
4.12 INFORMATION REQUESTS. The Borrowers shall furnish from time to time to
any Holder all information such Holder may reasonably request.
4.13 CREDIT CHECKS; ACCESS TO RECORDS. The Borrowers shall permit any
authorized representative(s) of any Holder and their attorney(s) and
accountant(s) to obtain credit and other background information on each Borrower
and its management, and to inspect, examine and make copies and abstracts of the
books of account and records of such Borrower at reasonable times during normal
business hours. The Borrowers shall allow Holders or their agent(s) to interview
the Borrowers' outside accountants, who, by this covenant, are hereby
irrevocably instructed to respond to such inquiries as fully as if made by the
Borrowers themselves.
4.14 MAINTAIN EXISTENCE, PROPERTIES, INTELLECTUAL PROPERTY, LICENSES. Each
Borrower shall take or cause to be taken all reasonable steps and perform or
cause to be performed all reasonable actions necessary or appropriate to
preserve and keep in full force and effect (i) its existence as a corporation
and its right to conduct its business in a prudent and lawful manner in all
jurisdictions in which it currently conducts business, (ii) its properties owned
from time to time, (iii) its intellectual property rights, and (iv) its
Licenses.
4.15 COMMON STOCK RESERVES. The Parent shall maintain such shares of Common
Stock as authorized but unissued, as may be necessary to permit the Holders of
the Warrants to acquire all of the Warrant Shares at any time.
4.16 REPLACEMENT OF WARRANTS. The Parent shall perform all acts required
under the Warrants, including the re-issuance or replacement of Warrants to any
of the Holders upon transfer, exchange, loss or destruction thereof.
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4.17 Board Meetings; Board Observation Rights; Investor Meetings.
-----------------------------------------------------------
(a) The Parent will hold meetings of its board of directors at the
Parent's offices not less frequently than once per fiscal quarter. Additional
meetings may be held telephonically. Each of Allied and Capital Trust shall be
notified of the date and time (i) for each quarterly board meeting, in writing
at least two weeks prior thereto, and (ii) for each telephonic board meeting, by
facsimile at least 24 hours prior thereto.
(b) Each of Allied and Capital Trust shall have the right to designate
a representative to attend and observe each board meeting, or to be joined
telephonically, as the case may be, at its own expense.
(c) At the option of the Lenders (acting jointly), their
representative may request, and the Parent shall arrange, a meeting with
Parent's senior management (an "Investor Meeting") in lieu of attending a board
meeting. Investor Meetings may not be requested by Lenders more frequently than
quarterly.
4.18 STORE CLOSING RESERVE. Prior to December 31, 1996, the Borrowers shall
close, sell or franchise such number of the stores identified on EXHIBIT 4.18
(which shall be provided to Lenders by Borrowers at least five days prior to the
Closing Date), or any substitutions therein, sufficient to achieve 75% of the
anticipated cash flow savings set forth on EXHIBIT 4.18. In connection with the
disposition of such stores, the Borrowers shall not incur more than (i)
$1,250,000 in cash charges or (ii) $7,000,000 in total cash and non-cash
charges.
4.19 DOCUMENTS PROVIDED TO HOLDERS OF SENIOR DEBT. Within 10 days of
delivery, the Borrowers shall provide the Holders with copies of all material
documents delivered to holders of the Senior Debt.
ARTICLE V: NEGATIVE COVENANTS
Until the Debentures are repaid in full, each Borrower covenants and agrees
with the Holders not to do any of the following:
5.01 CONSOLIDATION, MERGER AND SALE OF ALL ASSETS. The Parent will not, nor
will it permit any of its subsidiaries to, merge or consolidate into or with any
other Person or convey, sell, lease or otherwise dispose of all or substantially
all of its assets to another Person, or permit any Person to merge or
consolidate into or with the Parent or any subsidiary or convey, sell, lease or
otherwise dispose of all or substantially all of its assets to the Parent or any
subsidiary; provided that (i) any subsidiary may merge into, or convey, sell,
lease or dispose of its assets to the Parent or a wholly-owned subsidiary of
Parent, (ii) a Person other than a subsidiary may merge into, or convey, sell,
lease or dispose of its assets to, the Parent, if the Parent is the surviving or
acquiring corporation, and (iii) a Person other than the Parent or another
subsidiary may merge into, or convey, sell, lease or dispose of its assets to, a
subsidiary if (A) such
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subsidiary is the surviving or acquiring corporation or (B) the surviving or
acquiring entity, if not such subsidiary, becomes a subsidiary of the Parent;
provided further that in any such transaction the rights and powers of the
Lenders will not, in their sole reasonable discretion, be materially adversely
affected thereby and immediately after such transaction no Event of Default
shall exist hereunder, and provided further that, in no event shall the Parent
become a subsidiary of any other Person without the prior consent of the
Lenders.
5.02 SALE OF ASSETS; LIQUIDATION.
(a) The Parent will not, nor will it permit any of its subsidiaries to,
convey, sell, lease or otherwise dispose of any assets, directly or indirectly,
in a single transaction or in a series of transactions occurring during any one
fiscal year of the Parent, except (i) as permitted under Section 5.01 hereof,
(ii) for sales or other dispositions of property in the ordinary course of
business, or (iii) for sales or other dispositions of property in connection the
closings of stores described in Section 4.18.
(b) The Parent will not, nor will it permit any of its subsidiaries to,
liquidate, dissolve or wind up its affairs nor institute, consent to or fail
promptly to contest proceedings for any such purpose, provided however, that any
such subsidiary may be liquidated into the Parent or into a wholly-owned
subsidiary of the Parent in a transaction permitted by Section 5.01 or by this
Section 5.02 and any inactive or immaterial subsidiary of the Parent may be
dissolved by the Parent.
5.03 DISTRIBUTIONS. No Borrower shall make or cause to be made any
redemption or repurchase of any capital stock or rights with respect thereto or
securities exchangeable for any capital stock or any distribution of cash,
capital stock or other property of such Borrower to any of its shareholders
(whether such distribution would be characterized as a dividend or otherwise),
other than (i) to Parent in its capacity as a shareholder of SLBC and Midwest,
and (ii) to the holder of the Junior Debt in order to redeem the Parent's 4.75%
Convertible Subordinated Notes due January 2, 2001, in accordance with the terms
thereof.
5.04 NO ENCUMBRANCES. No Borrower shall permit to exist against any of its
material assets any lien, mortgage, pledge, security interest, title retention
device, or other encumbrance, except for (i) the Permitted Encumbrances and (ii)
any lien, mortgage security interest or other encumbrance in favor of the Senior
Revolver Lender relating to the Senior Revolver, provided, however, that in the
event any such encumbrance is granted, each Borrower shall also grant to the
Holders a junior lien, mortgage or security interest, as applicable, in the same
collateral securing the Senior Revolver Lender and pursuant to security
documents substantially identical to those granting such encumbrance to the
Senior Revolver Lender and subject to the terms of the Senior Debt Subordination
Agreement.
5.05 INSIDE TRANSACTIONS. Other than (i) meals granted to employees at a
50% discount, and (ii) loans to employees and directors that, in the aggregate
do not exceed $250,000, no Borrower shall purchase or sell any property or
services, or borrow or lend money or property
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from or to, or co-invest in, any transaction with any officer, director,
shareholder, employee or Affiliate of such Borrower, except on terms no more
favorable than a Borrower would offer to a third party.
5.06 JUDGMENTS. The Borrowers shall not permit any judgment in excess of
$50,000, or any series of judgments aggregating in excess of $50,000, obtained
against the Borrowers, and for which the Borrowers do not have adequate
insurance coverage, to remain unpaid for over 20 days without obtaining a stay
of execution or appropriate surety bond.
5.07 ADDITIONAL DEBTS AND LIABILITIES. No Borrower shall incur any
additional Indebtedness or liabilities, or create or incur any contingent
liability (including guaranties or endorsements) other than: (i) the
Obligations; (ii) the Senior Debt; (iii) the Junior Debt noted on EXHIBIT 2.03;
(iv) trade debt or short-term working capital debt incurred in the normal and
ordinary course of the Borrower's Business; (v) contingent liabilities in an
aggregate amount not to exceed $500,000; (vi) depositing checks and other
instruments for the payment of money acquired in the ordinary course of
business; and (vii) the Leases and other leases and purchase money obligations
entered into in the ordinary course of the Borrowers' Business.
5.08 NO ADVERSE ACTIONS. No Borrower shall avoid or seek to avoid the
observance or performance of any of the terms, covenants and conditions of this
Agreement or any of the other Investment Documents, but shall at all times carry
out in good faith all such terms and take all such actions as may be necessary
or appropriate to protect the rights of the Holders hereunder and under each of
the Investment Documents.
5.09 NO INVESTMENT. No Borrower shall make any investment in any other
Persons (whether or not affiliated with such Borrower), except for an investment
in an entity named as a Borrower herein.
ARTICLE VI: FEES, EXPENSES AND INDEMNIFICATION
6.01 FEES AND EXPENSES OF LENDERS. The Borrowers shall pay:
(a) A processing fee to Lenders, shared ratably among Allied and CT Capital
Trust N.V., of Four Hundred Fifty Thousand Dollars ($450,000);
(b) All reasonable fees and disbursements of legal counsel for each of the
Lenders related to this transaction; and
(c) An additional fee equal to all out-of-pocket costs and expenses
incurred by any Lender or Allied Capital Advisers, Inc. or CT Capital
International Inc. in connection with performing a due diligence examination of
the Borrowers and the Borrowers' Business (including but not limited to amounts
payable to Ernst & Young for due diligence services).
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All amounts described in this Section 6.01 shall be due and payable in full
by the Borrowers at the Closing. Lenders acknowledge receipt of a deposit of One
Hundred Thousand Dollars ($100,000) from the Borrowers, which will be applied at
Closing to the fees and expenses described in this Section 6.01.
6.02 MONITORING FEES. The Borrowers shall pay to Holders or their
designees, at the Closing and on each anniversary thereafter for so long as the
Debentures remain outstanding, an annual monitoring fee in the aggregate amount
of Fifty Thousand Dollars ($50,000), shared ratably among the Holders.
6.03 OTHER FEES AND EXPENSES. The Borrowers shall pay, as and when due, all
of the following fees and expenses: (a) the fees and expenses of its own
counsel; (b) any income, excise, franchise or other taxes incident to the
transactions described herein; (c) all fees and expenses of any investment
banker, broker or finder engaged by or through Borrowers, including all fees due
to CIBC Wood Gundy Securities; and (d) all reasonable fees and disbursements of
legal counsel for each of the Lenders related to this investment following the
Closing Date.
6.04 INDEMNIFICATION. In addition to its indemnification provisions
contained elsewhere herein and in the other Investment Documents, each Borrower
agrees to indemnify, defend and hold harmless each of the Holders and each of
their respective officers, directors, partners, shareholders, employees, agents
and controlling persons (collectively, the "Indemnified Parties") from and
against any and all losses, claims, damages, liabilities and related expenses,
including attorneys' fees and expenses, incurred by or asserted against any of
the Indemnified Parties arising out of, in any way in connection with, or as a
result of: (i) this Agreement and the other Investment Documents, (ii) the
performance by the Holders and each Borrower of its respective obligations
hereunder and thereunder and consummation of the transactions contemplated
hereby and thereby; (iii) the occurrence of any Event of Default hereunder or
any event that would constitute an Event of Default but for the giving of notice
and/or passage of time; (iv) any federal, state or local transfer or recording
taxes or filing fees which may become payable in connection with this
transaction; (v) the spilling, leaking, pumping, pouring, unsettling,
discharging, leaching or releasing of any Hazardous Materials on any of the Real
Property or any other property owned by any Borrower or to which any Borrower
has sent or otherwise shipped any Hazardous Material; (vi) any violations by any
Borrower of any other Environmental Law, regulation or ordinance; (vii) any fee
or expense claimed by any investment banker, broker or finder engaged by or
through Borrowers; or (viii) any claim, litigation, investigation or proceeding
relating to or to which any Borrower has not or otherwise shipped any Hazardous
Materials any of the foregoing, whether or not any of the Indemnified Parties is
a party thereto; provided, however, any such indemnity shall not apply to any
such losses, claims, damages, liabilities or related expenses arising from the
gross negligence or willful misconduct of any of the Holders.
6.05 SURVIVAL; TIMING OF PAYMENTS. The provisions of this Article VI and
any other indemnification provisions contained in this Agreement and the other
Investment
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Documents shall survive and remain operative and in full force and effect
regardless of the termination of this Agreement or expiration of the term of
this Agreement, the consummation of the transactions contemplated hereby, the
repayment of the Debentures and satisfaction and discharge of the other
Obligations or the Debentures, or any investigation made by or on behalf of any
of the Holders. Except as provided to the contrary, all amounts due under this
Article VI shall be payable on written demand therefor.
ARTICLE VII: DEFAULT PROVISIONS
The occurrence of any of the events specified below in this Article VII
(any such, an "Event of Default") shall constitute an immediate breach of, and
default under, this Agreement entitling the Holders to exercise all of the
rights and remedies specified in this Agreement, in any other Investment
Document, and under all Applicable Laws, without the obligation to furnish any
further notice or opportunity to cure (beyond that specified in the applicable
sections of this Article VII), all of which are hereby expressly waived by each
Borrower:
7.01 MONETARY DEFAULTS. Any installment payment of principal, interest or
other charge under any of the Debentures is not received by the Holders within
three business days of the due date thereof, or any other monetary Obligation is
not fully paid and discharged within three business days of the due date
thereof.
7.02 OTHER BREACHES. Any Borrower shall fail to comply with any of its
respective affirmative or negative covenants, agreements and undertakings in
this Agreement or the Debentures, and such failure shall continue for a period
of 10 calendar days from the date of the delivery of written notice thereof from
any Holder.
7.03 MISREPRESENTATION. Any representation or warranty made by the
Borrowers in this Agreement, any of the other Investment Documents, or in any
other writing supplied to Holders by such Borrower or on such Borrower's behalf
shall be untrue in any material respect when made.
7.04 ACT OF BANKRUPTCY OR DISSOLUTION. Any Act of Bankruptcy or Act of
Dissolution shall have occurred with respect to any Borrower.
7.05 OTHER INVESTMENT DOCUMENT DEFAULTS. Any Borrower shall be in default
under any of the other Investment Documents (after taking into account the
giving of any notice and the expiration of the applicable cure period (if any)
required pursuant to the applicable terms of such other Investment Document or
Investment Documents).
7.06 OTHER DEFAULTS GENERALLY. Any default shall have occurred and is
continuing (after giving effect to any applicable notice and/or grace periods)
under any Threshold Lease or
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Threshold Leases, Contract, obligation constituting Senior Debt or Junior Debt,
or other material loan, lease, debt or material obligation of any Borrower.
ARTICLE VIII: CERTAIN REMEDIES
Upon the occurrence of an Event of Default under this Agreement, each of
the Holders shall be entitled to exercise any or all of the following rights and
remedies, in addition to such other rights and remedies as may be provided for
in the other Investment Documents or as may be available at law or in equity:
8.01 ACCELERATION. Following the occurrence of an Event of Default, each of
(i) Allied, or its successors or assigns as a group, and (ii) Capital Trust, or
its successors or assigns as a group, shall have the right to accelerate the
maturity of the Debentures held by such Holder and all other Obligations due and
owing to such party and demand immediate payment in full of all amounts payable
under such Debentures and such Obligations, without presentment, demand,
protest, or further notice by such Holder to any Borrower, all of which are
hereby expressly waived by each Borrower, provided that such Holder first has
given two days telephonic notice (with confirmation by telecopy or overnight
courier) to the other Holders and the opportunity for each other Holder to
participate in such acceleration.
8.02 COSTS. The Borrowers shall pay all expenses of any nature, whether
incurred in or out of court, and whether incurred before or after the Debentures
shall become due at their maturity date or otherwise (including, but not limited
to, reasonable attorneys' fees and costs) which Holders may deem necessary or
proper in connection with the collection of any of the Obligations. The Holders
are authorized to pay at any time and from time to time any or all of such
expenses, to add the amount of such payment to the amount of principal
outstanding under the Debentures, and to charge interest thereon at the rate
specified in the Debentures.
8.03 REMEDIES NON-EXCLUSIVE. None of the rights, remedies, privileges or
powers of the Holders expressly provided for herein shall be exclusive, but each
of them shall be cumulative with, and in addition to, every other right, remedy,
privilege and power now or hereafter existing in favor of the Holders, whether
pursuant to the other Investment Documents, at law or in equity, by statute or
otherwise.
ARTICLE IX: REGISTRATION PROVISIONS
[INTENTIONALLY OMITTED]
ARTICLE X: MISCELLANEOUS
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10.01 NON-WAIVER. No course of dealing between a Holder and any other party
hereto or any failure or delay on the part of a Holder in exercising any rights
or remedies hereunder shall operate as a waiver of any rights or remedies of any
Holder under this or any other applicable instrument. No single or partial
exercise of any rights or remedies hereunder shall operate as a waiver or
preclude the exercise of any other rights or remedies hereunder.
10.02 NOTICES. All notices or communications under this Agreement or the
Debentures shall be mailed, postage prepaid, delivered by facsimile, or
delivered by courier to the following addresses (or to such other address as
shall at any time be designated by any party in writing to the other parties):
To Allied: Allied Capital Corporation
- and -
Allied Capital Corporation II
c/o Allied Capital Corporation
1666 K Street, N.W., Ninth Floor
Washington, D.C. 20006
Attention: Gay S. Truscott, Vice President
Facsimile: (202) 659-2053
With a copy to: Piper & Marbury L.L.P.
1200 Nineteenth Street, N.W.
Washington, D.C. 20036
Attention: Anthony H. Rickert, Esquire
Facsimile: (202) 223-2085
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To Capital Trust
Investments, Ltd.: c/o Capital Trust Limited
49 Mount Street
London, England W1Y5RE
Attention: Bassam Aburdene
Facsimile: 011 441 71 499 0524
With a copy to: CT Capital International, Inc.
575 Fifth Avenue, 40th Floor
New York, New York 10017
Attention: John P. Oswald, Managing Director
Facsimile: (212) 490-6950
And a copy to: Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, New York 10178
Attention: Charles E. Engros, Esquire
Facsimile: (212) 309-6273
To the Parent: Au Bon Pain Co., Inc.
19 Fid Kennedy Avenue
Marine Industrial Park
Boston, MA 02210-2497
Attention: Louis I. Kane
Facsimile: (617) 423-7879
With a copy to: Gadsby & Hannah
125 Summer Street
Boston, Massachusetts 02110
Attention: Walter Wekstein, Esquire
Facsimile: (617) 345-7050
Rejection or other refusal to accept, or the inability to deliver because
of a changed address of which no notice was given, shall not affect the
effectiveness or the date of delivery for any notice sent in accordance with the
foregoing provisions. Each such notice, request or other communication shall be
deemed sufficiently given, served, sent and received for all purposes at such
time as it is delivered to the addressee (with the return receipt, the delivery
receipt, the affidavit of the messenger or the answer back being deemed
conclusive (but not exclusive) evidence of such delivery) or at such time as
delivery is refused by addressee upon presentation.
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10.03 BINDING AGREEMENT. This Agreement shall bind and inure to the benefit
of each of the Holders, the Borrowers, and except as otherwise expressly
provided to the contrary herein, each of their respective heirs, successors and
assigns. Without limiting the generality of the foregoing sentence, the rights
of the Holders to cause the Parent to register Registrable Securities granted
pursuant to this Agreement may be transferred or assigned by any holder to a
transferee or assignee; provided, however, that the transferee or assignee of
such rights assumes the obligations of such transferor or assignor, as the case
may be, under this Agreement and that such transferee or assignee executes and
delivers a copy of this Agreement to Parent.
10.04 ENTIRE AGREEMENT; INTEGRATION CLAUSE. This Agreement, the Exhibits
hereto, and the other Investment Documents set forth the entire agreements and
understandings of the parties hereto with respect to this transaction, and any
prior agreements are hereby merged herein and terminated.
10.05 NO ORAL MODIFICATION OR WAIVERS. The terms herein may not be modified
or waived orally, but only by an instrument in writing signed by the party
against which enforcement of the modification or waiver (as the case may be) is
sought.
10.06 RELATIONSHIP OF THE PARTIES; ADVICE OF COUNSEL. This Agreement
provides for the making of an investment by Holders, in their capacity as
investors, to the Borrowers, for the payment of interest and repayment of
principal by the Borrowers to Holders. The provisions herein for compliance with
financial covenants and delivery of financial statements are intended solely for
the benefit of the Holders to protect their interests as lenders in assuring
payments of interest and repayment of principal, and nothing contained in this
Agreement shall be construed as permitting or obligating the Holders to act as
financial or business advisors or consultants to the Borrowers, as permitting or
obligating Holders to control the Borrowers or to conduct the Borrowers'
operations, as creating any fiduciary obligation on the part of the Holders to
the Borrowers, or as creating any joint venture, agency or other relationship
between the parties other than as explicitly and specifically stated in this
Agreement. A Holder is not (and shall not be construed as) a partner, joint
venturer, alter-ego, manager, controlling person, operator or other business
participant of any kind of the Borrowers; neither Holders nor any Borrower
intend that the Holders assume such status, and, accordingly, the Holders shall
not be deemed responsible for (or a participant in) any acts or omissions of any
of the Borrowers. The Borrowers each represent and warrant to the Holders that
they have had the advice of experienced counsel of their own choosing in
connection with the negotiation and execution of this Agreement and with respect
to all matters contained herein.
10.07 CONTROLLING LAW. This Agreement and each of the other Investment
Documents shall be governed by, and interpreted and construed in accordance
with, the internal laws of the State of New York (without regard to its
conflicts of law principles).
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10.08 VENUE; PERSONAL JURISDICTION; FULL FAITH AND CREDIT; PERSONAL
SERVICE.
(a) Venue for the adjudication of any claim or dispute arising out of
this Agreement or any of the other Investment Documents shall be proper only in
the state or federal courts of the City and State of New York, and all parties
to this Agreement and the other Investment Documents hereby consent to such
venue and agree that it shall not be not inconvenient and not subject to review
by any court other than such courts in New York;
(b) The Borrowers intend and agree that the courts of the
jurisdictions in which each Borrower is formed and in which each Borrower
conducts its business should afford full faith and credit to any judgment
rendered by a court of the State of New York against any Borrower under this
Agreement and the other Investment Documents, and the Borrowers under this
Agreement and the other Investment Documents each intend and agree that such
courts should hold that the New York courts have jurisdiction to enter a valid,
in personam judgment against such Borrower;
(c) The Borrowers agree that service of any summons and complaint, and
other process which may be served in any suit, action or other proceeding, may
be made by mailing via U.S. certified or registered mail or by hand-delivering a
copy of such process to the Parent at its address specified above, with a copy
to its counsel at its address specified above; and
(d) The Borrowers all expressly acknowledge and agree that the
provisions of this Section 10.08 are reasonable and made for the express benefit
of each of the Holders.
10.09 WAIVER OF TRIAL BY JURY. Each party to this Agreement agrees that any
suit, action or proceeding, whether claim, defense or counterclaim, brought or
instituted by any party hereto or any successor or assign of any party on or
with respect to this Agreement or any other Investment Document or which in any
way relates, directly or indirectly, to the Debentures or any event, transaction
or occurrence arising out of or in any way connected with this Agreement, the
other Investment Documents or the dealings of the parties with respect thereto,
shall be tried only by a court and not by a jury. EACH PARTY HEREBY EXPRESSLY
WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY SUCH SUIT, ACTION OR PROCEEDING, AND
ACKNOWLEDGES THAT THIS IS A WAIVER OF A LEGAL RIGHT AND THAT IT MAKES THIS
WAIVER VOLUNTARILY AND KNOWINGLY AFTER CONSULTATION WITH, OR THE OPPORTUNITY TO
CONSULT WITH, COUNSEL OF ITS CHOICE.
10.10 COSTS AND FEES RELATED TO ENFORCEMENT OR A SUCCESSFUL DEFENSE.
Without limiting the Holders' entitlements under Section 8.2 above or under the
terms of any of the other Investment Documents, each Borrower, jointly and
severally (each, a "Reimbursing Party"), hereby agrees to reimburse the Holders
for any and all costs and fees, including reasonable attorneys' fees and
expenses, incurred by any of the Holders or their Affiliates in connection with:
(i) any suit, action, claim or other activity of the Holders to collect the
Obligations or any
-29-
<PAGE> 31
portion thereof or to enforce any of the provisions of this Agreement or any
other Investment Document against such Reimbursing Party; and (ii) any suit,
action, claim or other liability asserted against any of the Holders or their
Affiliates by such Reimbursing Party in any case in which such Reimbursing Party
does not prevail with respect to substantially all of its or his claim.
10.11 INDEPENDENT COVENANT TO MAKE PAYMENTS. The payment and performance by
any Borrower of all of the Obligations shall be absolute and unconditional,
irrespective of any defense or any rights of set-off, recoupment or counterclaim
any Borrower might otherwise have against any of the Holders, and each Borrower
Party shall pay and perform all of the Obligations (to the extent applicable to
him or it), free of any deductions and without abatement, diminution,
recoupment, counterclaim or set-off. Until payment in full of all of the
Obligations, the Borrowers shall: (a) not suspend or discontinue any payments
required pursuant to the Debentures, this Agreement or any other Investment
Documents; and (b) perform and observe all of the other terms and provisions of
all of the Investment Documents.
10.12 NOTICE OF CLAIM. To allow the Holders to mitigate any alleged breach
of this Agreement, the other Investment Documents, or Holders' other duties to
any Borrower, the Borrowers each hereby agree to give the Holders written notice
of any claim or defense any of them has against any Holder, whether in tort,
contract or otherwise, relating to any act or omission by such Holder under this
Agreement, the other Investment Documents or the transactions related thereto,
or of any defense to the payment or performance of any of the Obligations for
any reason. Each Borrower hereby agrees to provide such notice to Holders within
60 days after such Borrower first has knowledge of such defense. The Borrowers
acknowledge and agree that any claim any of them may have with respect to one
Holder shall not affect their respective Obligations to the other Holders.
10.13 HEADINGS. The headings of the paragraphs and sub-paragraphs of this
Agreement and the other Investment Documents are inserted for convenience only
and shall not be deemed to constitute a part of this Agreement or the other
Investment Documents.
10.14 SEVERABILITY. To the extent any provision herein violates any
applicable law, that provision shall be considered void and the balance of this
Agreement shall remain unchanged and in full force and effect.
10.15 COUNTERPARTS. This Agreement may be executed in as many counterpart
copies as may be required. It shall not be necessary that the signature of, or
on behalf of, each party appear on each counterpart, but it shall be sufficient
that the signature of, or on behalf of, each party appear on one or more of the
counterparts. All counterparts shall collectively constitute a single agreement.
It shall not be necessary in any proof of this Agreement to produce or account
for more than a number of counterparts containing the respective signatures of,
or on behalf of, all of the parties.
-30-
<PAGE> 32
10.16 DELIVERIES TO HOLDERS. To the extent the terms of this Agreement or
any of the other Investment Documents requires the Borrowers to deliver any
documents or other materials to any or all of the Holders, then the Borrowers
may satisfy such requirement by delivering a single copy of the document(s) or
other material(s) in question to each of Allied's notice party and Capital
Trust's notice party, in each case identified in Section 10.02 above. Following
a complete or partial Transfer by Allied or Capital Trust of any right, title or
interest in and to any of the Debentures to one or more Persons that is not an
Affiliate of such Lender, then the Borrowers shall be required to deliver copies
of the document(s) or other material(s) in question to each of the additional
Holders separately.
10.17 CONSENT OR APPROVAL OF HOLDERS. To the extent the terms of this
Agreement or any of the other Investment Documents require the Borrowers to
obtain the consent, waiver or approval of Holders, or if Borrowers wish to amend
this Agreement, such consent, waiver, approval, or amendment shall be effective
upon receipt by the Borrowers of written consent or approval from Holders of not
less than two-thirds of the outstanding principal balance of the Debentures,
provided that no such consent, waiver, approval, or amendment may be granted
with respect to changes in the (i) principal amount, (ii) interest rate, (iii)
schedule of payments, or (iv) maturity date of any Debenture without the consent
or approval of the Holder of such Debenture, or if the Debentures have been
repaid, the consent, waiver or approval of Holders of not less than two-thirds
of the Warrants or Warrant Shares (as the case may be).
{Signatures next page}
-31-
<PAGE> 33
IN WITNESS WHEREOF, the undersigned have executed and delivered this
Agreement as of the date first above written.
ATTEST: AU BON PAIN CO., INC.
a Delaware corporation
By: /s/ THOMAS R. HOWLEY By: /s/ LOUIS I. KANE (SEAL)
-------------------------- -------------------
Assistant Secretary Co-Chairman
ATTEST: SAINT LOUIS BREAD COMPANY, INC.
a Delaware corporation
By: /s/ THOMAS R. HOWLEY By: /s/ LOUIS I. KANE (SEAL)
-------------------------- -------------------
Assistant Secretary Executive Vice President
ATTEST: ABP MIDWEST MANUFACTURING CO., INC.
a Delaware corporation
By: /s/ THOMAS R. HOWLEY By: /s/ LOUIS I. KANE (SEAL)
-------------------------- -------------------
Secretary Vice President
ALLIED CAPITAL CORPORATION,
a Maryland corporation
By: /s/ KELLY A. ANDERSON By: /s/ GAY S. TRUSCOTT (SEAL)
-------------------------- --------------------
Kelly A. Anderson Gay S. Truscott, Vice President
-32-
<PAGE> 34
ALLIED CAPITAL CORPORATION II,
a Maryland corporation
By: /s/ KELLY A. ANDERSON By: /s/ GAY S. TRUSCOTT (SEAL)
-------------------------- --------------------
Kelly A. Anderson Gay S. Truscott, Vice President
CAPITAL TRUST INVESTMENTS, LTD.,
a Guernsey corporation
By: /s/ KATHERINE L. SUAVEY By: /s/ JOHN P. OSWALD (SEAL)
-------------------------- -------------------
Katherine L. Suavey John P. Oswald, Attorney in Fact
-33-
<PAGE> 1
THIS DEBENTURE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED OR APPLICABLE SECURITIES LAWS. THIS DEBENTURE MAY NOT BE OFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT OF THE DEBENTURE UNDER SUCH ACT
AND UNDER ANY APPLICABLE STATE SECURITIES LAWS, OR UPON SATISFACTION BY THE
ISSUER HEREOF THAT SUCH REGISTRATION IS NOT REQUIRED AS TO SUCH SALE OR OFFER.
THIS DEBENTURE IS SUBJECT TO A SUBORDINATION AGREEMENT, DATED OF EVEN DATE
HEREWITH, IN FAVOR OF USTRUST, THE FIRST NATIONAL BANK OF BOSTON, CITIZENS BANK
OF MASSACHUSETTS AND INAC CORP. (THE "SENIOR DEBT SUBORDINATION AGREEMENT").
AU BON PAIN CO., INC.
SAINT LOUIS BREAD COMPANY, INC.
ABP MIDWEST MANUFACTURING CO., INC.
SENIOR SUBORDINATED DEBENTURE
$3,600,000 Dated as of July 24, 1996
FOR VALUE RECEIVED, the undersigned entities (collectively, the
"Borrowers"), jointly and severally promise to pay to the order of ALLIED
CAPITAL CORPORATION, a Maryland corporation (the "Holder"), at its offices
located at 1666 K Street, N.W., Suite 901, Washington, D.C. 20006, the principal
amount of THREE MILLION SIX HUNDRED THOUSAND DOLLARS ($3,600,000), together with
interest thereon as set forth below, at its offices or such other place as the
Holder may designate in writing.
1. INVESTMENT AGREEMENT. This Senior Subordinated Debenture (the
"Debenture") is one of three senior subordinated debentures to be executed and
delivered by the Borrowers in connection with an investment being made by the
Holder and two other parties in the Borrowers in the aggregate original
principal amount of FIFTEEN MILLION DOLLARS ($15,000,000) pursuant to the terms
and conditions of an Investment Agreement among the Borrowers, the Holder and
certain other parties named therein, dated of even date herewith (the
"Investment Agreement"). This Debenture and the other two senior subordinated
debentures evidencing the investment (collectively, the "Other Debentures") are
each subject to the terms and conditions of the Investment Agreement. A copy of
the Investment Agreement may be examined during normal business hours at the
Borrowers' offices. Terms not defined herein shall have the meanings assigned to
them in the Investment Agreement.
<PAGE> 2
2. Interest Rate Provisions.
------------------------
2.1 BASIC INTEREST RATE. Interest shall accrue on the principal
balance of this Debenture outstanding as follows: (i) from the date hereof and
thereafter until July 24, 1997, at the rate of 11.25% per annum; (ii) from July
25, 1997 and thereafter until July 24, 1998, at the rate of 13% per annum; and
(iii) from July 25, 1998 until repayment of this Debenture, at the rate of 14%
per annum. The interest rate applicable at any one time as set forth in this
section shall be referred to as the "Basic Interest Rate".
2.2 DEFAULT INTEREST RATE. An Event of Default shall be deemed to have
occurred if any installment payment of principal, interest or other charge under
this Debenture or any of the Other Debentures is not received by the Holder
thereof within three business days of the due date thereof, or if any other sums
payable to Holder hereunder, under the terms of the Other Debentures, or under
the terms of the Investment Agreement are not paid on or before that date which
is three business days from the due date thereof. From and after the 20th day
following any such default, interest shall accrue and be payable hereunder at
the rate of two percent (2 %) per annum above the then applicable Basic Interest
Rate from the date of the occurrence of the Event of Default until the earliest
date upon which the Event of Default has been cured (the "Default Interest
Rate").
2.3 ADDITIONAL PROVISIONS. Interest shall be calculated on the basis
of an actual 360-day year and shall be computed for each payment period on the
basis of the actual number of days elapsed.
3. Payments.
--------
3.1 INTEREST ONLY PAYMENTS; LATE PAYMENTS. Commencing on October 1,
1996, and continuing on the first day of each calendar quarter thereafter up to
and including July 1, 2000, the Borrowers shall pay to Holder quarterly
installments of interest only on the principal amount outstanding hereunder. Any
such installment not received by Holder within three business days of its due
date shall be subject to an additional late payment charge equal to five percent
(5%) of the amount overdue.
3.2 PRINCIPAL PAYMENT. The entire unpaid principal balance of this
Debenture, together with all accrued, but unpaid, interest, and other sums owed
hereunder shall be due and payable in full without further notice or demand on
July 24, 2000 (the "Maturity Date").
3.3 PREPAYMENTS; APPLICATION OF PAYMENTS. The Borrowers may prepay
this Debenture in whole or in part at any time upon 30 days prior written notice
to Holder without penalty or premium. All prepayments shall be applied as
follows: (a) first, to accrued, but unpaid, interest at the Default Interest
Rate; (b) second, to accrued, but unpaid, interest at the Basic Interest Rate;
and finally, to principal, provided that the principal amount to be prepaid
shall be allocated (in integral multiples of $1,000) among this Debenture and
the Other
-2-
<PAGE> 3
Debentures at the time outstanding in proportion, as nearly as practicable, to
the respective unpaid principal amounts thereof not called for prepayment, with
adjustments, to the extent practicable, to compensate for any prior prepayments
not made exactly in such proportion.
3.4 DUE ON SALE. Notwithstanding anything herein or in the Investment
Agreement to the contrary, the entire indebtedness hereunder shall become due
and payable upon the earlier of the Maturity Date or the Transfer of Borrowers'
Business.
4. ASSIGNMENT. This Debenture and the obligations hereunder may not be
assigned by the Borrowers without the prior written consent of Holder. Holder
may freely assign all or any portion of its right, title and interest in and to
this Debenture.
5. JOINT AND SEVERAL LIABILITY. If more than one party signs this
instrument, then all signatories shall be jointly and severally liable
hereunder.
6. DEFAULT AND REMEDIES. The occurrence of an Event of Default under the
Investment Agreement shall constitute a default hereunder and shall entitle the
Holder to exercise the rights and remedies specified in the Investment
Agreement, as well as those available at law or in equity. These rights and
remedies include, but are not limited to, the right of the Holder to accelerate
the maturity of this Debenture and all other Obligations.
7. WAIVERS. The Borrowers hereby waive presentment, demand, protest, or
further notice of any kind (except such notices as may be specifically required
by the express terms of the Investment Agreement).
8. WAIVER OF JURY TRIAL; SUBMISSION TO JURISDICTION.
(a) EACH OF THE HOLDER AND THE BORROWERS HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION BASED HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS
DEBENTURE. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE HOLDER TO ENTER INTO
THE TRANSACTIONS PROVIDED FOR IN THE INVESTMENT AGREEMENT AND TO MAKE THE
INVESTMENT.
(b) FOR THE PURPOSE OF ANY ACTION OR PROCEEDING INVOLVING THIS DEBENTURE,
EACH OF THE HOLDER AND THE BORROWERS HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO
THE NON-EXCLUSIVE JURISDICTION OF ALL FEDERAL AND STATE COURTS LOCATED IN THE
CITY OF NEW YORK AND CONSENTS THAT IT MAY BE SERVED WITH ANY PROCESS OR PAPER BY
REGISTERED MAIL OR BE PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK
IN ACCORDANCE WITH APPLICABLE LAW, PROVIDED A REASONABLE TIME FOR APPEARANCE IS
ALLOWED. EACH OF THE HOLDER
-3-
<PAGE> 4
AND THE BORROWERS EXPRESSLY WAIVES, TO THE EXTENT IT MAY LAWFULLY DO SO, ANY
OBJECTION, CLAIM OR DEFENSE WHICH IT MAY HAVE AT ANY TIME TO THE LAYING OF VENUE
OF ANY ACTION, SUIT OR PROCEEDING ARISING OUT OF THIS DEBENTURE IN ANY SUCH
COURT, IRREVOCABLY WAIVES ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING
BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM AND FURTHER
IRREVOCABLY WAIVES THE RIGHT TO OBJECT, WITH RESPECT TO ANY SUCH CLAIM, SUIT,
ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT, THAT SUCH COURT DOES NOT HAVE
JURISDICTION OVER THE PERSON OF THE BORROWERS OR THE HOLDER, AS APPLICABLE.
NOTHING CONTAINED HEREIN WILL BE DEEMED TO PRECLUDE THE HOLDER FROM BRINGING AN
ACTION AGAINST THE BORROWERS IN ANY OTHER JURISDICTION.
9. CONTROLLING LAW. This Debenture and all matters related hereto shall be
governed, construed and interpreted strictly in accordance with the laws of the
State of New York, without regard to its principles of conflicts of law.
10. NO USURY. This Debenture is subject to the express condition that at no
time shall the Borrowers be obligated or required to pay interest hereunder at a
rate which could subject the Holder to either civil or criminal liability as a
result of being in excess of the maximum rate which the Borrowers are permitted
by law to contract or agree to pay. If, by the terms of this Debenture, the
Borrowers are at any time required or obligated to pay interest at a rate in
excess of such maximum rate, the rate of interest under this Debenture shall be
deemed to be immediately reduced to such maximum rate and interest payable
hereunder shall be computed at such maximum rate and the portion of all prior
interest payments in excess of such maximum rate shall be applied and shall be
deemed to have been pre payments of interest on this Debenture.
{Signatures on pages following}
-4-
<PAGE> 5
IN WITNESS WHEREOF, the undersigned entities have caused this Debenture to
be executed and their corporate seals to be affixed on the day and year first
above written.
WITNESS/ATTEST: "BORROWERS":
[Seal] AU BON PAIN CO., INC.
Attest: /s/ THOMAS R. HOWLEY By: /s/ LOUIS I. KANE
--------------------- ------------------
Thomas R. Howley Louis I. Kane, Co-Chairman
[Seal] Assistant Secretary SAINT LOUIS BREAD COMPANY, INC.
Attest: /s/ THOMAS R. HOWLEY By: /s/ LOUIS I. KANE
--------------------- ------------------
Thomas R. Howley Louis I. Kane, Co-Chairman
[Seal] Assistant Secretary ABP MIDWEST MANUFACTURING
CO., INC.
Attest: /s/ THOMAS R. HOWLEY By: /s/ LOUIS I. KANE
--------------------- ------------------
Thomas R. Howley Louis I. Kane, Co-Chairman
Secretary
-5-
<PAGE> 1
THIS DEBENTURE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED OR APPLICABLE SECURITIES LAWS. THIS DEBENTURE MAY NOT BE OFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT OF THE DEBENTURE UNDER SUCH ACT
AND UNDER ANY APPLICABLE STATE SECURITIES LAWS, OR UPON SATISFACTION BY THE
ISSUER HEREOF THAT SUCH REGISTRATION IS NOT REQUIRED AS TO SUCH SALE OR OFFER.
THIS DEBENTURE IS SUBJECT TO A SUBORDINATION AGREEMENT, DATED OF EVEN DATE
HEREWITH, IN FAVOR OF US TRUST, THE FIRST NATIONAL BANK OF BOSTON, CITIZENS BANK
OF MASSACHUSETTS AND INAC CORP. (THE "SENIOR DEBT SUBORDINATION AGREEMENT").
AU BON PAIN CO., INC.
SAINT LOUIS BREAD COMPANY, INC.
ABP MIDWEST MANUFACTURING CO., INC.
SENIOR SUBORDINATED DEBENTURE
$7,500,000 Dated as of July 24, 1996
FOR VALUE RECEIVED, the undersigned entities (collectively, the
"Borrowers"), jointly and severally promise to pay to the order of CAPITAL TRUST
INVESTMENTS, LTD., a Guernsey corporation (the "Holder"), at its offices located
at 49 Mount Street, London, England W1Y5RE, the principal amount of SEVEN
MILLION FIVE HUNDRED THOUSAND DOLLARS ($7,500,000), together with interest
thereon as set forth below, at its offices or such other place as the Holder may
designate in writing.
1. INVESTMENT AGREEMENT. This Senior Subordinated Debenture (the
"Debenture") is one of three senior subordinated debentures to be executed and
delivered by the Borrowers in connection with an investment being made by the
Holder and two other parties in the Borrowers in the aggregate original
principal amount of FIFTEEN MILLION DOLLARS ($15,000,000) pursuant to the terms
and conditions of an Investment Agreement among the Borrowers, the Holder and
certain other parties named therein, dated of even date herewith (the
"Investment Agreement"). This Debenture and the other two senior subordinated
debentures evidencing the investment (collectively, the "Other Debentures") are
each subject to the terms and conditions of the Investment Agreement. A copy of
the Investment Agreement may be examined during normal business hours at the
Borrowers' offices. Terms not defined herein shall have the meanings assigned to
them in the Investment Agreement.
<PAGE> 2
2. INTEREST RATE PROVISIONS.
2.1 BASIC INTEREST RATE. Interest shall accrue on the principal
balance of this Debenture outstanding as follows: (i) from the date hereof and
thereafter until July 24, 1997, at the rate of 11.25% per annum; (ii) from July
25, 1997 and thereafter until July 24, 1998, at the rate of 13% per annum; and
(iii) from July 25, 1998 until repayment of this Debenture, at the rate of 14%
per annum. The interest rate applicable at any one time as set forth in this
section shall be referred to as the "Basic Interest Rate".
2.2 DEFAULT INTEREST RATE. An Event of Default shall be deemed to have
occurred if any installment payment of principal, interest or other charge under
this Debenture or any of the Other Debentures is not received by the Holder
thereof within three business days of the due date thereof, or if any other sums
payable to Holder hereunder, under the terms of the Other Debentures, or under
the terms of the Investment Agreement are not paid on or before that date which
is three business days from the due date thereof. From and after the 20th day
following any such default, interest shall accrue and be payable hereunder at
the rate of two percent (2 %) per annum above the then applicable Basic Interest
Rate from the date of the occurrence of the Event of Default until the earliest
date upon which the Event of Default has been cured (the "Default Interest
Rate").
2.3 ADDITIONAL PROVISIONS. Interest shall be calculated on the basis
of an actual 360-day year and shall be computed for each payment period on the
basis of the actual number of days elapsed.
3. Payments.
--------
3.1 INTEREST ONLY PAYMENTS; LATE PAYMENTS. Commencing on October 1,
1996, and continuing on the first day of each calendar quarter thereafter up to
and including July 1, 2000, the Borrowers shall pay to Holder quarterly
installments of interest only on the principal amount outstanding hereunder. Any
such installment not received by Holder within three business days of its due
date shall be subject to an additional late payment charge equal to five percent
(5%) of the amount overdue.
3.2 PRINCIPAL PAYMENT. The entire unpaid principal balance of this
Debenture, together with all accrued, but unpaid, interest, and other sums owed
hereunder shall be due and payable in full without further notice or demand on
July 24, 2000 (the "Maturity Date").
3.3 PREPAYMENTS; APPLICATION OF PAYMENTS. The Borrowers may prepay
this Debenture in whole or in part at any time upon 30 days prior written notice
to Holder without penalty or premium. All prepayments shall be applied as
follows: (a) first, to accrued, but unpaid, interest at the Default Interest
Rate; (b) second, to accrued, but unpaid, interest at the Basic Interest Rate;
and finally, to principal, provided that the principal amount to be prepaid
shall be allocated (in integral multiples of $1,000) among this Debenture and
the Other
-2-
<PAGE> 3
Debentures at the time outstanding in proportion, as nearly as
practicable, to the respective unpaid principal amounts thereof not called for
prepayment, with adjustments, to the extent practicable, to compensate for any
prior prepayments not made exactly in such proportion.
3.4 DUE ON SALE. Notwithstanding anything herein or in the Investment
Agreement to the contrary, the entire indebtedness hereunder shall become due
and payable upon the earlier of the Maturity Date or the Transfer of Borrowers'
Business.
4. ASSIGNMENT. This Debenture and the obligations hereunder may not be
assigned by the Borrowers without the prior written consent of Holder. Holder
may freely assign all or any portion of its right, title and interest in and to
this Debenture.
5. JOINT AND SEVERAL LIABILITY. If more than one party signs this
instrument, then all signatories shall be jointly and severally liable
hereunder.
6. DEFAULT AND REMEDIES. The occurrence of an Event of Default under the
Investment Agreement shall constitute a default hereunder and shall entitle the
Holder to exercise the rights and remedies specified in the Investment
Agreement, as well as those available at law or in equity. These rights and
remedies include, but are not limited to, the right of the Holder to accelerate
the maturity of this Debenture and all other Obligations.
7. WAIVERS. The Borrowers hereby waive presentment, demand, protest, or
further notice of any kind (except such notices as may be specifically required
by the express terms of the Investment Agreement).
8. WAIVER OF JURY TRIAL; SUBMISSION TO JURISDICTION.
(a) EACH OF THE HOLDER AND THE BORROWERS HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION BASED HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS
DEBENTURE. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE HOLDER TO ENTER INTO
THE TRANSACTIONS PROVIDED FOR IN THE INVESTMENT AGREEMENT AND TO MAKE THE
INVESTMENT.
(b) FOR THE PURPOSE OF ANY ACTION OR PROCEEDING INVOLVING THIS DEBENTURE,
EACH OF THE HOLDER AND THE BORROWERS HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO
THE NON-EXCLUSIVE JURISDICTION OF ALL FEDERAL AND STATE COURTS LOCATED IN THE
CITY OF NEW YORK AND CONSENTS THAT IT MAY BE SERVED WITH ANY PROCESS OR PAPER BY
REGISTERED MAIL OR BE PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK
IN ACCORDANCE WITH APPLICABLE LAW, PROVIDED A REASONABLE TIME FOR APPEARANCE IS
ALLOWED. EACH OF THE HOLDER
-3-
<PAGE> 4
AND THE BORROWERS EXPRESSLY WAIVES, TO THE EXTENT IT MAY LAWFULLY DO SO, ANY
OBJECTION, CLAIM OR DEFENSE WHICH IT MAY HAVE AT ANY TIME TO THE LAYING OF VENUE
OF ANY ACTION, SUIT OR PROCEEDING ARISING OUT OF THIS DEBENTURE IN ANY SUCH
COURT, IRREVOCABLY WAIVES ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING
BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM AND FURTHER
IRREVOCABLY WAIVES THE RIGHT TO OBJECT, WITH RESPECT TO ANY SUCH CLAIM, SUIT,
ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT, THAT SUCH COURT DOES NOT HAVE
JURISDICTION OVER THE PERSON OF THE BORROWERS OR THE HOLDER, AS APPLICABLE.
NOTHING CONTAINED HEREIN WILL BE DEEMED TO PRECLUDE THE HOLDER FROM BRINGING AN
ACTION AGAINST THE BORROWERS IN ANY OTHER JURISDICTION.
9. CONTROLLING LAW. This Debenture and all matters related hereto shall be
governed, construed and interpreted strictly in accordance with the laws of the
State of New York, without regard to its principles of conflicts of law.
10. NO USURY. This Debenture is subject to the express condition that at no
time shall the Borrowers be obligated or required to pay interest hereunder at a
rate which could subject the Holder to either civil or criminal liability as a
result of being in excess of the maximum rate which the Borrowers are permitted
by law to contract or agree to pay. If, by the terms of this Debenture, the
Borrowers are at any time required or obligated to pay interest at a rate in
excess of such maximum rate, the rate of interest under this Debenture shall be
deemed to be immediately reduced to such maximum rate and interest payable
hereunder shall be computed at such maximum rate and the portion of all prior
interest payments in excess of such maximum rate shall be applied and shall be
deemed to have been pre payments of interest on this Debenture.
{Signatures on pages following}
-4-
<PAGE> 5
IN WITNESS WHEREOF, the undersigned entities have caused this Debenture to
be executed and their corporate seals to be affixed on the day and year first
above written.
WITNESS/ATTEST: "BORROWERS":
[Seal] AU BON PAIN CO., INC.
Attest: /s/ THOMAS R. HOWLEY By: /s/ LOUIS I. KANE
---------------------- ------------------
Thomas R. Howley Louis I. Kane, Co-Chairman
[Seal] Assistant Secretary SAINT LOUIS BREAD COMPANY, INC.
Attest: /s/ THOMAS R. HOWLEY By: /s/ LOUIS I. KANE
---------------------- ------------------
Thomas R. Howley Louis I. Kane, Co-Chairman
[Seal] Assistant Secretary ABP MIDWEST MANUFACTURING
CO., INC.
Attest: /s/ THOMAS R. HOWLEY By: /s/ LOUIS I. KANE
---------------------- -------------------
Thomas R. Howley Louis I. Kane, Co-Chairman
Secretary
-5-
<PAGE> 1
THIS DEBENTURE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED OR APPLICABLE SECURITIES LAWS. THIS DEBENTURE MAY NOT BE OFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT OF THE DEBENTURE UNDER SUCH ACT
AND UNDER ANY APPLICABLE STATE SECURITIES LAWS, OR UPON SATISFACTION BY THE
ISSUER HEREOF THAT SUCH REGISTRATION IS NOT REQUIRED AS TO SUCH SALE OR OFFER.
THIS DEBENTURE IS SUBJECT TO A SUBORDINATION AGREEMENT, DATED OF EVEN DATE
HEREWITH, IN FAVOR OF US TRUST, THE FIRST NATIONAL BANK OF BOSTON, CITIZENS BANK
OF MASSACHUSETTS AND INAC CORP. (THE "SENIOR DEBT SUBORDINATION AGREEMENT").
AU BON PAIN CO., INC.
SAINT LOUIS BREAD COMPANY, INC.
ABP MIDWEST MANUFACTURING CO., INC.
SENIOR SUBORDINATED DEBENTURE
$3,900,000 Dated as of July 24, 1996
FOR VALUE RECEIVED, the undersigned entities (collectively, the
"Borrowers"), jointly and severally promise to pay to the order of ALLIED
CAPITAL CORPORATION II, a Maryland corporation (the "Holder"), at its offices
located at 1666 K Street, N.W., Suite 901, Washington, D.C. 20006, the principal
amount of THREE MILLION NINE HUNDRED THOUSAND DOLLARS ($3,900,000), together
with interest thereon as set forth below, at its offices or such other place as
the Holder may designate in writing.
1. INVESTMENT AGREEMENT. This Senior Subordinated Debenture (the
"Debenture") is one of three senior subordinated debentures to be executed and
delivered by the Borrowers in connection with an investment being made by the
Holder and two other parties in the Borrowers in the aggregate original
principal amount of FIFTEEN MILLION DOLLARS ($15,000,000) pursuant to the terms
and conditions of an Investment Agreement among the Borrowers, the Holder and
certain other parties named therein, dated of even date herewith (the
"Investment Agreement"). This Debenture and the other two senior subordinated
debentures evidencing the investment (collectively, the "Other Debentures") are
each subject to the terms and conditions of the Investment Agreement. A copy of
the Investment Agreement may be examined during normal business hours at the
Borrowers' offices. Terms not defined herein shall have the meanings assigned to
them in the Investment Agreement.
<PAGE> 2
2. Interest Rate Provisions.
------------------------
2.1 BASIC INTEREST RATE. Interest shall accrue on the principal
balance of this Debenture outstanding as follows: (i) from the date hereof and
thereafter until July 24, 1997, at the rate of 11.25% per annum; (ii) from July
25, 1997 and thereafter until July 24, 1998, at the rate of 13% per annum; and
(iii) from July 25, 1998 until repayment of this Debenture, at the rate of 14%
per annum. The interest rate applicable at any one time as set forth in this
section shall be referred to as the "Basic Interest Rate".
2.2 DEFAULT INTEREST RATE. An Event of Default shall be deemed to have
occurred if any installment payment of principal, interest or other charge under
this Debenture or any of the Other Debentures is not received by the Holder
thereof within three business days of the due date thereof, or if any other sums
payable to Holder hereunder, under the terms of the Other Debentures, or under
the terms of the Investment Agreement are not paid on or before that date which
is three business days from the due date thereof. From and after the 20th day
following any such default, interest shall accrue and be payable hereunder at
the rate of two percent (2 %) per annum above the then applicable Basic Interest
Rate from the date of the occurrence of the Event of Default until the earliest
date upon which the Event of Default has been cured (the "Default Interest
Rate").
2.3 ADDITIONAL PROVISIONS. Interest shall be calculated on the basis
of an actual 360-day year and shall be computed for each payment period on the
basis of the actual number of days elapsed.
3. Payments.
--------
3.1 INTEREST ONLY PAYMENTS; LATE PAYMENTS. Commencing on October 1,
1996, and continuing on the first day of each calendar quarter thereafter up to
and including July 1, 2000, the Borrowers shall pay to Holder quarterly
installments of interest only on the principal amount outstanding hereunder. Any
such installment not received by Holder within three business days of its due
date shall be subject to an additional late payment charge equal to five percent
(5%) of the amount overdue.
3.2 PRINCIPAL PAYMENT. The entire unpaid principal balance of this
Debenture, together with all accrued, but unpaid, interest, and other sums owed
hereunder shall be due and payable in full without further notice or demand on
July 24, 2000 (the "Maturity Date").
3.3 PREPAYMENTS; APPLICATION OF PAYMENTS. The Borrowers may prepay
this Debenture in whole or in part at any time upon 30 days prior written notice
to Holder without penalty or premium. All prepayments shall be applied as
follows: (a) first, to accrued, but unpaid, interest at the Default Interest
Rate; (b) second, to accrued, but unpaid, interest at the Basic Interest Rate;
and finally, to principal, provided that the principal amount to be prepaid
shall be allocated (in integral multiples of $1,000) among this Debenture and
the Other
-2-
<PAGE> 3
Debentures at the time outstanding in proportion, as nearly as practicable, to
the respective unpaid principal amounts thereof not called for prepayment, with
adjustments, to the extent practicable, to compensate for any prior prepayments
not made exactly in such proportion.
3.4 DUE ON SALE. Notwithstanding anything herein or in the Investment
Agreement to the contrary, the entire indebtedness hereunder shall become due
and payable upon the earlier of the Maturity Date or the Transfer of Borrowers'
Business.
4. ASSIGNMENT. This Debenture and the obligations hereunder may not be
assigned by the Borrowers without the prior written consent of Holder. Holder
may freely assign all or any portion of its right, title and interest in and to
this Debenture.
5. JOINT AND SEVERAL LIABILITY. If more than one party signs this
instrument, then all signatories shall be jointly and severally liable
hereunder.
6. DEFAULT AND REMEDIES. The occurrence of an Event of Default under the
Investment Agreement shall constitute a default hereunder and shall entitle the
Holder to exercise the rights and remedies specified in the Investment
Agreement, as well as those available at law or in equity. These rights and
remedies include, but are not limited to, the right of the Holder to accelerate
the maturity of this Debenture and all other Obligations.
7. WAIVERS. The Borrowers hereby waive presentment, demand, protest, or
further notice of any kind (except such notices as may be specifically required
by the express terms of the Investment Agreement).
8. WAIVER OF JURY TRIAL; SUBMISSION TO JURISDICTION.
(a) EACH OF THE HOLDER AND THE BORROWERS HEREBY KNOWINGLY, VOLUNTARILY
AND INTENTIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF
ANY LITIGATION BASED HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS
DEBENTURE. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE HOLDER TO ENTER INTO
THE TRANSACTIONS PROVIDED FOR IN THE INVESTMENT AGREEMENT AND TO MAKE THE
INVESTMENT.
(b) FOR THE PURPOSE OF ANY ACTION OR PROCEEDING INVOLVING THIS
DEBENTURE, EACH OF THE HOLDER AND THE BORROWERS HEREBY EXPRESSLY AND IRREVOCABLY
SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ALL FEDERAL AND STATE COURTS
LOCATED IN THE CITY OF NEW YORK AND CONSENTS THAT IT MAY BE SERVED WITH ANY
PROCESS OR PAPER BY REGISTERED MAIL OR BE PERSONAL SERVICE WITHIN OR WITHOUT THE
STATE OF NEW YORK IN ACCORDANCE WITH APPLICABLE LAW, PROVIDED A REASONABLE TIME
FOR APPEARANCE IS ALLOWED. EACH OF THE HOLDER
-3-
<PAGE> 4
AND THE BORROWERS EXPRESSLY WAIVES, TO THE EXTENT IT MAY LAWFULLY DO SO, ANY
OBJECTION, CLAIM OR DEFENSE WHICH IT MAY HAVE AT ANY TIME TO THE LAYING OF VENUE
OF ANY ACTION, SUIT OR PROCEEDING ARISING OUT OF THIS DEBENTURE IN ANY SUCH
COURT, IRREVOCABLY WAIVES ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING
BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM AND FURTHER
IRREVOCABLY WAIVES THE RIGHT TO OBJECT, WITH RESPECT TO ANY SUCH CLAIM, SUIT,
ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT, THAT SUCH COURT DOES NOT HAVE
JURISDICTION OVER THE PERSON OF THE BORROWERS OR THE HOLDER, AS APPLICABLE.
NOTHING CONTAINED HEREIN WILL BE DEEMED TO PRECLUDE THE HOLDER FROM BRINGING AN
ACTION AGAINST THE BORROWERS IN ANY OTHER JURISDICTION.
9. CONTROLLING LAW. This Debenture and all matters related hereto shall be
governed, construed and interpreted strictly in accordance with the laws of the
State of New York, without regard to its principles of conflicts of law.
10. NO USURY. This Debenture is subject to the express condition that at no
time shall the Borrowers be obligated or required to pay interest hereunder at a
rate which could subject the Holder to either civil or criminal liability as a
result of being in excess of the maximum rate which the Borrowers are permitted
by law to contract or agree to pay. If, by the terms of this Debenture, the
Borrowers are at any time required or obligated to pay interest at a rate in
excess of such maximum rate, the rate of interest under this Debenture shall be
deemed to be immediately reduced to such maximum rate and interest payable
hereunder shall be computed at such maximum rate and the portion of all prior
interest payments in excess of such maximum rate shall be applied and shall be
deemed to have been pre payments of interest on this Debenture.
{Signatures on pages following}
-4-
<PAGE> 5
IN WITNESS WHEREOF, the undersigned entities have caused this Debenture to
be executed and their corporate seals to be affixed on the day and year first
above written.
WITNESS/ATTEST: "BORROWERS":
[Seal] AU BON PAIN CO., INC.
Attest: /s/ THOMAS R. HOWLEY By: /s/ LOUIS I. KANE
--------------------- ------------------
Thomas R. Howley Louis I. Kane, Co-Chairman
[Seal] Assistant Secretary SAINT LOUIS BREAD COMPANY, INC.
Attest: /s/ THOMAS R. HOWLEY By: /s/ LOUIS I. KANE
--------------------- ------------------
Thomas R. Howley Louis I. Kane, Co-Chairman
[Seal] Assistant Secretary ABP MIDWEST MANUFACTURING
CO., INC.
Attest: /s/ THOMAS R. HOWLEY By: /s/ LOUIS I. KANE
--------------------- ------------------
Thomas R. Howley Louis I. Kane, Co-Chairman
Assistant Secretary
-5-
<PAGE> 1
EXECUTIVE EMPLOYMENT AGREEMENT
This EXECUTIVE EMPLOYMENT AGREEMENT ("Agreement") is made this 5th day of
October, 1996, by and between Robert Taft ("Employee") and Au Bon Pain, Co.,
Inc., a Delaware corporation with a principal place of business in Boston,
Massachusetts (the "Company").
WHEREAS, the Company wishes to employ and engage the services of the
Employee in an executive capacity for the Company, upon the terms, conditions
and provisions of this Agreement; and
WHEREAS, the Employee desires to provide services to the Company in
accordance with the terms, conditions and provisions of this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants set forth herein,
and other good and valuable consideration, the receipt of which is hereby
acknowledged, the Company and Employee hereby agree as follows:
1. Definitions
-----------
For all purposes of this Agreement, the following terms shall have the
meanings specified in this Section 1 unless the context clearly requires
otherwise:
(a) "BASE SALARY" means the Employee's annualized base salary (including
car allowance) set forth in Section 3(a) of this Agreement, and such increases
thereto as may be established by the Company from time to time. In no event,
however, shall Employee's Base Salary be less than the amount set forth in
Section 3(a) of this Agreement. "Base Salary" shall not include any bonus,
incentive compensation or employee benefits;
(b) "BENEFITS" means all employee benefits provided to the Employee by the
Company, including medical, dental, long-term disability, life insurance, and
such other benefits as may be provided from time to time by the Company
generally to its employees;
(c) "INCENTIVE COMPENSATION" means any compensation provided to the
Employee by the Company during the term of this Agreement, other than Base
Salary and Benefits, pursuant to Section 3(b) of this Agreement;
(d) "SEVERANCE" means payments made by the Company to the Employee after
termination of employment, pursuant to this Agreement, at the rate of the
Employee's annualized Base Salary (including car allowance) as of the date of
Employee's termination. Severance is payable on a weekly basis in substantially
equal installments following Employee's termination, in such increments and for
such period(s) of time
<PAGE> 2
-2-
designated in this Agreement ("Severance Period"). Severance shall not include
any bonuses or other Incentive Compensation. Except as set forth in the
immediately preceding sentence, Severance shall also include the continuation of
Employee's Benefits existing at the time of Employee's termination for the
Severance Period. Employee shall be responsible for making all required
contributions to continue Benefits during the Severance Period on the same basis
as existed at the time of the Employee's termination. Severance shall be reduced
(dollar for dollar) by any compensation and benefits Employee receives or earns
during the Severance Period from any source other than the Company including,
without limitation, salary, employee benefits, consulting fees, income from
self-employment or otherwise.
2. Employment
----------
The Company agrees to employ the Employee to render services to the Company
in an executive capacity. Effective as of the date hereof, Employee hereby
accepts such employment subject to the terms and conditions set forth herein.
Employee agrees to devote his full attention, best talents and abilities to the
job and to perform faithfully his duties and responsibilities hereunder.
3. Compensation
------------
(a) Base Salary and Benefits
The Company shall pay Employee a Base Salary at the rate of $250,000.00
annualized, a car allowance of $96.16 per week, Incentive Compensation, and
Benefits, subject to federal and state withholdings and customary payroll
deductions. The Company shall conduct a review of Employee's performance no
later than March 15, 1998, and increases, if any, in Employee's compensation at
that time shall be retroactive to January 1, 1998.
(b) Incentive Compensation
The Company shall pay Employee Incentive Compensation as follows:
(i) 1996
The Employee will be included in the Company's Pay for Performance Program
from the beginning of Employee's employment until December 31, 1996. Employee's
1996 Incentive Compensation will be contingent on Employee's continued
employment by the Company through the payment date of March 15, 1997. The 1996
Incentive Compensation payment will be calculated by dividing $110,000.00 by 52
weeks ($2,115.00) and multiplying this number by the total number of full weeks
Employee is employed in calendar year 1996.
<PAGE> 3
-3-
(ii) 1997
Employee's 1997 Incentive Compensation will be 5.0% of the calculated
incremental ABP NBT. ABP NBT will be calculated as follows:
1. Net ABP Division store operating contribution, plus ABP production
contribution on products manufactured by ABP Manufacturing, less:
a) ABP Retail overhead expense;
b) allocated corporate overhead expense calculated as ABP stores
gross sales divided by total gross sales multiplied by corporate
overhead expense;
c) allocated ABP manufacturing overhead expense based on the
proportion of the ABP manufacturing transfer sales to the total
manufacturing transfer sales; and
d) a 12% cost of capital charge or credit based on the fiscal year's
net capital generation or usage versus the 1996 Base Year.
Incremental ABP NBT shall be ABP NBT for the given fiscal year less ABP NBT for
the 1996 Base Year.
For the 1997 plan year (FY January through December), Employee is
guaranteed a minimum Incentive Compensation payment, contingent upon continued
employment with the Company until March 15, 1998. This minimum payment shall be
equivalent to the difference between the 1996 Incentive Compensation payment, as
set forth above, and $110,000.00.
(iii) 1998
The Employee's Incentive Compensation will be reviewed for the 1998 plan
year, and adjusted in the sole discretion of the Company in the context of the
business. The Company reserves the right to change, modify or revoke the
Employee's 1998 Incentive Compensation.
4. Term
----
Unless terminated as provided in Section 5, or as otherwise provided in
this Agreement, this Agreement shall continue for a two-year period from the
commencement of Employee's employment with the Company or the effective date of
this Agreement, whichever is later; thereafter, this Agreement shall
automatically renew for additional one-year periods, unless either party
notifies the other in writing of its intent not to renew this Agreement at least
twenty-six (26) weeks prior to its expiration. In the event the
<PAGE> 4
-4-
Employee gives notice of intent not to renew this Agreement, the Employee shall
not be entitled to Severance. In the event the Company gives notice of intent
not to renew this Agreement, at the expiration of the Agreement the Employee
shall be entitled to twenty-six (26) weeks' Severance.
5. Termination
-----------
(a) Termination for Cause
---------------------
The Company may terminate Employee's employment at any time for cause, upon
written notice specifying the reasons. As used herein, the term "cause" shall
mean:
(i) The commission by Employee of any act of embezzlement, fraud, larceny,
theft, or other willful misconduct or gross negligence in connection
with the performance of Employee's duties which adversely affects the
affairs of the Company;
(ii) Employee's conviction of a felony, or conviction of a misdemeanor
involving moral turpitude;
(iii) A material breach of the terms of this Agreement which continues for
fifteen (15) days after the Company has given written notice to the
Employee specifying in reasonable detail the material breach.
(b) Termination Without Cause
-------------------------
Notwithstanding any other provision of this Agreement, the Company may
terminate Employee's employment, without cause, at any time, for any reason,
effective upon thirty (30) days' written notice to the Employee. In the event of
a termination without cause, the Employee shall be entitled to fifty-two (52)
weeks' Severance.
(c) Resignation
-----------
The Employee may at any time during the term of this Agreement resign
employment, effective upon ninety (90) days' written notice to the Company. Upon
such resignation, the Employee shall not be entitled to any Severance, and,
except as otherwise specifically set forth herein, the obligations of the
Company to the Employee under this Agreement shall terminate upon the effective
date of such resignation. Employee agrees to continue to perform his duties
hereunder, and otherwise assist the Company in an orderly transition, during
such ninety-day period.
<PAGE> 5
-5-
(d) Disability
----------
The Company may terminate Employee's employment if, at any time during the
term of this Agreement, the Employee shall become disabled so that he is unable
to perform the Employee's regular duties of employment, with reasonable
accommodation, for a period of ninety (90) days in the aggregate during any
180-day period. The determination of the Employee's disability for purposes of
this Section 5(d) shall be made by a qualified physician acceptable to both
parties. In the event that the Company and the Employee are unable to agree upon
a qualified physician, each party shall select a qualified physician, and in the
event those two physicians are unable to agree upon a determination as to the
Employee's disability, a third neutral physician ("Neutral Physician")
acceptable to the parties shall be selected. The determination of disability by
the Neutral Physician shall be final and binding for purposes of this Agreement.
In the event this Agreement is terminated pursuant to this Section 5(d), the
Employee shall be entitled to fifty-two (52) weeks' Severance. Such Severance
shall be offset dollar for dollar by any payments made in the aggregate to the
Employee under the Company's existing Salary Continuation and Long-Term
Disability Plan(s).
(e) Relocation of Employee
----------------------
Should the Company require the Employee's place of work to be relocated
outside of the Greater Boston area, the Employee may elect to terminate his
employment with the Company, upon thirty (30) days' written notice to the
Company, and the Employee shall be entitled upon such termination to fifty-two
(52) weeks' Severance.
(f) Stock Options
-------------
Should the Board of Directors of the Company fail to approve the
recommended schedule of stock options to be awarded to the Employee set forth in
Section 10 of this Agreement at the next Board of Directors' meeting following
the Employee's date of hire, or each subsequent anniversary date, the Employee
may within thirty (30) days of the next Board of Directors' meeting following
Employee's date of hire or subsequent anniversary date, as the case may be,
terminate his employment with the Company, effective upon thirty (30) days'
written notice to the Company, and the Employee shall be entitled upon such
termination to fifty-two (52) weeks' Severance.
(g) Death
-----
This Agreement and all obligations of the Company hereunder shall terminate
upon the death of the Employee. In the event of a termination upon the death of
the Employee, monies or compensation owed by the Company to the Employee up to
the date of termination shall be paid to the Employee's estate or designee.
<PAGE> 6
-6-
6. Confidential Nature of this Agreement
-------------------------------------
Employee agrees to keep confidential the terms of this Agreement. A
violation of this provision shall entitle the Company to terminate this
Agreement immediately, for cause, as set forth in Section 5(a)(iii).
Notwithstanding the above, the Employee may disclose the terms of this Agreement
to his/her immediate family, bankers, accountants, attorneys, and other
financial advisers, the Internal Revenue Service, the Massachusetts Department
of Revenue, in the event that disclosure is necessary in litigation or
arbitration involving this Agreement, or in the event that such disclosures
shall be compelled by law.
7. Confidential and Proprietary Information
----------------------------------------
(a) The Employee understands and acknowledges that in the course of
employment with the Company, Employee will have access to confidential and
proprietary information of the Company and its Affiliates (which shall mean
entities controlling, controlled by or under common control with the Company,
including without limitation, Saint Louis Bread Company, Inc. and its
Affiliates) which constitute valuable, special and unique assets of the Company
and its Affiliates. For purposes of this Agreement, such confidential and
proprietary information shall include, without limitation, the following: trade
secrets; operating techniques; procedures and methods; product specifications;
customer lists; account information; price lists; discount schedules;
correspondence with customers, vendors, employees, partners or others; drawings;
software; leads from suppliers; marketing techniques; procedures and methods;
employee lists; internal financial reports of the Company and its Affiliates;
sourcing lists; and recruiting lists (collectively, "Confidential Information").
(b) The Employee agrees that during the term of this Agreement and at any
time thereafter, Employee will not, without the authorization of the Company:
(i) disclose any Confidential Information to any person or entity for any
purpose whatsoever; or (ii) make use of any Confidential Information for
Employee's own purposes or for the benefit of any other person or entity, other
than the Company and its Affiliates.
(c) The Employee agrees that upon the request of the Company or upon
termination of employment, Employee shall return to the Company all documents or
other materials, including electronic or computerized data, containing or
relating to Confidential Information, along with all other Company property.
8. Restrictive Covenant
--------------------
During the term of this Agreement, and for one year after its termination,
for whatever reason, the Employee shall not, directly or indirectly, either as
an individual, employee, partner, officer, owner, director, shareholder, advisor
or consultant, or in any
<PAGE> 7
-7-
other capacity whatsoever, on behalf of any person, firm, corporation,
partnership or entity:
(a) be employed by or retained as a consultant or advisor to a competitive
entity in the bakery/coffee/deli business. For purposes of this Agreement,
"competitive entity" includes, without limitation, the following companies doing
business as: Wall Street Deli; Paradise Bakery, Inc.; Starbucks; Vie De France;
Java City; Bruegger's Bagel Bakery; Finagle-A-Bagel; Le Boulangerie; Great
Harvest; Einstein's/Noah's; Peet's; Corner Bakery; Big Sky, and their respective
parents, subsidiaries, franchisees, affiliates, successors or assigns.
Notwithstanding the above, "competitive entity" shall not include Paradise
Bakeries of Tulsa, Inc. and any of its franchises or stores (collectively, the
"PBT Franchises"). Additionally, "competitive entity" shall include, without
limitation, any company which generates in the aggregate more than 25% of its
revenues from the sale of baked goods and coffee, and their respective parents,
subsidiaries, franchisees, affiliates, successors or assigns. Notwithstanding
the above, the direct or indirect ownership of one percent (1%) or less of the
stock of a competitive entity whose shares are listed on a national securities
exchange or are quoted on the National Association of Securities Dealers
Automated Quotation System or so-called Bulletin Board shall not, in and of
itself, be deemed to be a violation of this Section 8(a);
(b) recruit, solicit, hire, or assist any other person or party in
recruiting, soliciting, or hiring any employee of the Company or any of its
Affiliates or any of their respective franchises.
In addition, Employee agrees that during the term of this Agreement, he
shall not make any investment in or contribution to any of the PBT Franchises,
except that he may invest money in the development of one additional franchise
of the PBT Franchises. However, to the extent that the Employee maintains an
ownership interest in any of the PBT Franchises during the term of this
Agreement, he shall not exert any control or influence over the management of
any of the PBT Franchises, and Employee's interest in the PBT Franchises shall
be put into a trust for the term of this Agreement with a non-family member
designated to represent his shares on any corporate matters. The Company may, in
its sole discretion, waive enforcement of the provisions of this Section 8,
which waiver shall be evidenced solely by the execution and delivery to the
Employee of a written document setting forth the terms of such waiver, executed
by an authorized representative of the Company.
9. Enforcement
-----------
Employee agrees and acknowledges that a violation of Sections 7 or 8 of
this Agreement shall entitle the Company to terminate this Agreement
immediately, which termination shall be conclusively deemed to be a termination
for cause, as set forth in Section 5(a) hereunder. In the event of a violation
of Sections 7 or 8 of this Agreement,
<PAGE> 8
-8-
any further Severance, salary continuation, Benefits or other future
compensation otherwise owed pursuant hereto shall be forfeited, and any
Severance already paid or provided to the Employee shall likewise be forfeited
and shall be immediately returned to the Company.
The Employee acknowledges and agrees that the Company's remedies at law for
a breach of Sections 7 or 8 of this Agreement are inadequate and that the harm
caused thereby is irreparable. The Employee expressly agrees that in the event
of a violation of Sections 7 or 8 of this Agreement, the Company shall be
entitled to equitable relief enforcing the terms of this Agreement, including
without limitation, specific performance, a temporary restraining order,
preliminary injunction or permanent injunction to prevent any breach or
attempted breach thereof. The provisions of Sections 7, 8 and 9 shall survive
the termination of this Agreement, in addition to any others which may survive
pursuant to the terms of this Agreement.
10. Stock Options
-------------
The Co-Chairman and CEO of the Company agrees to recommend to the Board of
Directors that the Employee be granted stock options in the Company at the next
Board of Directors' meeting following Employee's date of hire, with vesting over
a five-year period of time (25% vesting on each of the second, third, fourth and
fifth anniversaries of employment start date). The price per share depends on
the value per share from Employee's exact start date and the value per share on
each subsequent anniversary of employment, provided Employee is still employed
with the Company. Upon the first installment Employee will be awarded 50,000
shares of stock options subject to a five-year vesting period. In addition, and
contingent upon continued employment on each of Employee's anniversary dates,
consideration will be given by the Board of Directors based on the Company's
performance, Employee's performance, and availability of stock in the option
plan to award Employee additional stock options as follows. On Employee's 1997
anniversary date with the Company, Employee will be awarded options to purchase
20,000 shares of stock. For 1997 only, Employee will be granted an additional
amount of stock options calculated as 20,000 times the difference in stock price
as of that date and $8.00 divided by the stock option price as of that date. No
additional stock options beyond the first 20,000 will be granted if the value of
this calculation is less than or equal to zero.
Example:
Hire Date = 10/1/96
Anniversary Date = 10/1/97
Stock Price on 10/1/97 = $10.00
Additional Stock Granted beyond the 1st 20,000 = 20,000 times ($10.00-$8.00)
--------------
$10.00
= 4,000 stock options
<PAGE> 9
-9-
On Employee's 1998 anniversary date with the Company, Employee will be
awarded options to purchase 10,000 shares of stock; on Employee's 1999
anniversary date with the Company, Employee will be awarded 10,000 shares of
stock options; on Employee's 2000 anniversary date with the Company, Employee
will be awarded options to purchase 10,000 shares of stock. The price per share
depends on the value per share on those exact dates, and all options described
in this Section 10 are subject to a five-year vesting schedule (25% on each
second, third, fourth and fifth anniversaries of the respective dates of grant).
11. Severability
------------
If any provision of this Agreement including, without limitation, Sections
7, 8 or 9 hereof, is declared or found to be illegal, unenforceable, void,
overbroad, or unreasonable in scope, territory, or duration, in whole or in
part, then both parties will be relieved of all obligations arising under such
provision, but only to the extent it is illegal, unenforceable, void, overbroad,
or unreasonable in scope, territory or duration. The intent and agreement of the
parties to this Agreement is that this Agreement will be deemed amended by
modifying any such illegal, unenforceable, void, overbroad or unreasonable
provision to the extent necessary to make it legal and enforceable while
preserving its intent, or if such is not possible, by substituting therefor
another provision that is legal and enforceable and achieves the same
objectives. The foregoing notwithstanding, if the remainder of this Agreement
will not be affected by such declaration or finding and is capable of
substantial performance, then each provision not so affected will be enforced to
the extent permitted by law.
12. Arbitration
-----------
Any controversy or claim arising out of or relating to this Agreement or
Employee's employment with the Company, except for claims of violation by the
Employee of Sections 7 and 8 hereof which may be enforced by the Company in a
court of competent jurisdiction pursuant to Section 9 hereof, shall be settled
exclusively by binding arbitration before a single arbitrator in the City of
Boston, in accordance with the Commercial Arbitration Rules of the American
Arbitration Association. The provisions hereof shall be a complete bar and
defense to any suit, action or proceeding instituted by the Employee in any
federal, state or local court or before any administrative tribunal with respect
to any matter which is arbitrable as herein set forth. This Section shall
survive the termination or expiration of this Agreement. Nothing herein
contained shall be deemed to give any arbitrator any authority, power, or right
to alter, change, amend, modify, add to, or subtract from any provisions of this
Agreement. The arbitrator shall have no authority to award punitive damages or
attorney's fees to any party. The decision of the arbitrator shall be final and
conclusive. Judgment on an award rendered by the arbitrator may be entered in
any court of competent jurisdiction.
<PAGE> 10
-10-
13. No Conflicting Agreements
-------------------------
Employee hereby represents and warrants that neither the entry into this
Agreement nor its performance by Employee will conflict with or result in a
breach of the terms, conditions or provisions of any other agreement or other
obligation of any nature to which Employee is a party, or by which he is
otherwise bound, including, without limitation, any other employment agreement,
non-competition agreement, or confidentiality agreement. Employee further
represents and warrants that he will: (i) execute a letter agreement dated
September 27, 1996 with Paradise Bakery, Inc. ("the Paradise Bakery Agreement");
(ii) deliver it forthwith to Paradise Bakery, Inc.; and (iii) take all steps
necessary to discharge Employee's obligations under the Paradise Bakery
Agreement capable of being fulfilled within two weeks of the date hereof. A copy
of the Paradise Bakery Agreement executed by the Employee is attached hereto as
Exhibit 1. In the event that the Employee fails to accomplish all obligations
under the Paradise Bakery Agreement that are capable of being fulfilled within
two weeks, this Agreement shall become null, void, unenforceable and without
force or effect, and all copies of the Agreement held by the Employee shall be
returned to the Company forthwith.
Additionally, Employee agrees to use his best efforts to obtain a plain,
clear and unequivocal waiver ("Waiver") of all competitive restrictions from
Paradise Bakery, Inc., Paradise Bakeries of Tulsa, Inc. and all related or
affiliated companies, including parents, subsidiaries, franchisees, successors
or assigns (collectively, "Paradise Bakery"), in a form acceptable to the
Company. Such Waiver shall be accompanied by the Certificates of the Secretaries
of Paradise Bakery, Inc. and Paradise Bakeries of Tulsa, Inc., indicating the
authority of the person(s) executing such Waiver. A form Waiver and accompanying
Secretary's Certificate(s) acceptable to the Company are attached hereto as
Exhibits 2, 3 and 4, respectively.
14. Indemnification
---------------
In the event that the Employee is unable within two weeks of the date
hereof to obtain a Waiver of competitive restrictions acceptable to the Company,
pursuant to Section 13 above, the Employee covenants and agrees to indemnify,
defend, save and hold the Company and each of its employees, officers,
directors, stockholders, consultants, attorneys and agents (collectively, the
"Company's Parties") harmless from and against one half (the other one half to
be borne by the Company) of all claims, demands, causes of action, suits,
judgments, debts, liabilities, loss, costs, expense, liability, or damages
(collectively, the "Damages") including, without limitation, reasonable fees and
disbursements of counsel and accountants and other professionals, and other
costs and expenses incident thereto (collectively, "Defense Costs") arising out
of or resulting from: (i) Employee's affiliation with Paradise Bakery including,
without limitation, his status as a present or former employee, officer,
director, shareholder or otherwise; (ii) any non-
<PAGE> 11
-11-
competition, conflict of interest or other agreements with Paradise Bakery;
(iii) the failure of the Employee to perform or observe fully any covenant,
agreement or provision to be performed or observed by him pursuant to the
Paradise Bakery Agreement dated September 27, 1996 and attached hereto as
Exhibit 1; or (iv) any actual or threatened claim, suit, action or proceeding
arising out of or resulting from the employment of the Employee by the Company,
prior to receipt by the Company of the written Waiver and accompanying
Secretary's Certificate(s) pursuant to Section 13 of this Agreement. It is the
intent of this Section 14 that the Employee and the Company shall bear an equal
50% share of all Damages and Defense Costs incurred by the Company as set forth
above, and with respect to Defense Costs, such 50% share shall be paid by the
Employee to the Company within thirty (30) days of receipt of monthly statements
from the Company evidencing such Defense Costs incurred pursuant to this Section
14. The Employee shall remain solely liable for any Damages or Defense Costs
incurred by him individually in connection with the matters identified in this
Section 14.
15. Governing Law
-------------
The terms hereof shall be governed by, and construed and interpreted in
accordance with, the laws of the Commonwealth of Massachusetts, without giving
effect to its conflict of laws rules which may otherwise require the application
of the law of another jurisdiction.
16. Successors and Assigns
----------------------
This Agreement shall be binding upon and inure to the benefit of the
Company and the Employee and their respective successors, assigns, heirs, legal
representatives, executors and administrators.
17. Notices
-------
(i) All notices to the Employee shall be addressed to Employee at:
24 Grand Hill Drive Dover, MA 02030
or to such other place(s) as may be designated by written notice to the Company.
(ii) All notices to the Company shall be addressed to the Company at:
19 Fid Kennedy Avenue
Boston, MA 02210
Attention: C.E.O.
<PAGE> 12
-12-
With copies to:
Walter D. Wekstein, Esq.
Gadsby & Hannah LLP
125 Summer Street
Boston, MA 02110
Andrew L. Eisenberg, Esq.
Palmer & Dodge LLP
One Beacon Street
Boston, MA 02108
or to such other place(s) as may be designated by written notice to Employee.
(iii) Notice shall be sufficient if given by hand or by certified mail,
postage prepaid, return receipt requested, addressed to the party at its address
described above. Unless otherwise notified in writing, each party shall direct
all sums payable to the other party at its address for notice purposes.
18. Headings
--------
The captions and headings in this Agreement are for convenience and
reference only, and they shall in no way be held or deemed to define, modify or
add to the meaning, scope or intent of any provision of this Agreement.
19. Entire Agreement
----------------
This Agreement constitutes the entire agreement between the parties and
supersedes all prior agreements and understandings, written or oral on the
subject matter hereof including, but not limited to, offer letters, employment
letters, and agreements concerning severance pay or stock options.
20. Amendments
----------
This Agreement may be modified only by written agreement signed by both the
Employee and the Company.
21. Waiver
------
The failure of any party at any time to require the performance of any
provision(s) hereof shall in no manner affect the right(s) of such party at a
later time to require the performance of said provision(s), and shall not be
deemed a waiver of any obligations hereunder.
<PAGE> 13
-13-
IN WITNESS WHEREOF, the parties to this Agreement have executed this
Agreement under seal, as of the date first above written.
AU BON PAIN CO., INC.
By: /s/ RONALD SHAICH Date: October 16, 1996
------------------ -----------------
Witness: /s/ MARIEL CLARK Date: October 16, 1996
----------------- -----------------
[EMPLOYEE]
/s/ ROBERT TAFT Date: October 5, 1996
- --------------- ----------------
Witness: /s/ ANDREW L. EISENBERG Date: October 5, 1996
------------------------ ----------------
<PAGE> 1
April 7, 1995
Mr. Maxwell T. Abbott
1875 South Hillgate Drive Au Bon Pain Co., Inc.
Lexington, KY 40515 19 Fid Kennedy Avenue
Marine Industrial Park
Boston, MA 02210-2497
(617) 423-2100
FAX (617) 423-7879
Dear Max:
Based on your experience, background presented and the excellent impression that
you have given us, Au Bon Pain Co., Inc. is pleased to offer you the position of
Vice President of Technical Services. We would like you to start on or before
June 5, 1995, you will report directly to Sam Yong, President, International.
As part of your orientation process, we would like you to train extensively in
our retail environment. A training schedule will be developed for you within the
next couple of weeks and forwarded to you at your home. Your base salary for
this position will be payable upon continued employment at the weekly rate of
$3,076.93. Your next scheduled review, based on your performance and/or the
profitability of the Company will be no later than, January 15, 1996. In
addition, your compensation will include:
A sign-on bonus of $25,000.00 paid out 3 weeks from your start date.
You will receive a car allowance of $96.16 per week.
We will provide you with a maximum of $100,000.00 to cover
relocation expenses and any gross up applicable for taxes. This is
intended to be used for relocation expenses such as the normal and
customary move of household goods, closing costs, home purchase of
your current residence through a 3rd party, househunting trips,
temporary living and interest on any equity loans. Should your
relocation related expenses and the applicable tax gross up be less
than $100,000.00, we will issue you the balance between your
expenses and $100,000.00 in a taxable payroll check. This
<PAGE> 2
-2-
relocation package will contain a provision that you reimburse Au
Bon Pain a pro-rated portion of your relocation expenses should you
voluntarily resign your employment with Au Bon Pain within one year
of your start date.
You will also be included in our incentive contingent Pay for
Performance Program for 1995. This program incorporates both a
dollar payout and stock option grant that rewards you for the
completion and quality of agreed upon objectives. Your eligibility
for the monetary portion is at a plan of 20% ($32,000) of your base
rate and can be paid out in full or any portion thereof, including
0% according to the attached plan description highlights. This
amount will be payable no earlier than 2/15/96, and no later than
3/15/96. For the plan year of 1995, you will be guaranteed a minimum
of a double achievement level.
In addition, per our agreement, Au Bon Pain will continue to pay you
your prevailing base rate, car allowance, and medical benefits on a
weekly basis should your employment be terminated by the Company,
for reasons other than gross misconduct, for a period not to exceed
26 weeks from your termination date. If your employment is
terminated with Au Bon Pain due to a significant change in control
in which more than 50% of the company changes hands, Au Bon Pain
will continue to pay you your prevailing base rate, car allowance,
and medical benefits on a weekly basis for a period not to exceed
one year from your termination date.
Consideration for Stock Options valued at, $230,000, at the next
Board of Director's meeting following your date of hire. The price
per share and corresponding number of shares granted depends on the
value per share on your exact start date.
As a full-time Au Bon Pain employee, you will be eligible to participate in the
following benefits: medical, dental, life insurance, short term disability, long
term disability, Employee Stock Purchase Plan and a 401(k) Plan. The waiting
periods and premiums related to these benefits and specific information about
plan content will be explained during the orientation process. Our benefit and
insurance package is subject to ongoing review and modification from time to
time. You will receive an Employee Handbook at your benefits orientation which
will explain our vacation and holiday schedules. Au Bon Pain is a nonsmoking
work facility. If you have specific questions about our benefits, please
<PAGE> 3
-3-
contact Joanne Dobson of our Human Resource group at extension 1331.
This offer is contingent on your ability to provide employment eligibility
documentation as required by law and outlined on the enclosed information.
Nothing in this letter is intended, or should be construed to execute a contract
for a definite term. In addition, Au Bon Pain has a ninety (90) day probationary
period. Either you or the Company are free to terminate the employment
relationship at any time. Please indicate your acceptance of this offer by
signing and returning one original of this letter no later than April 21, 1995,
after which time this offer will expire.
We believe that your background and experience will provide a solid foundation
for success with Au Bon Pain. We are extremely enthusiastic about our future
growth and expansion and anticipate that you will be an important factor in that
growth. If you have any questions about the enclosed information, please let me
know. Once again, Max, we welcome you to Au Bon Pain and we look forward to your
participation, energy, and contributions.
Sincerely,
/s/ Mariel Clark
- ------------------------------------
Mariel Clark
Sr. Vice President, Human Resources
I have read and accept the provisions as outlined above.
APRIL 12, 1995 /S/ MAXWELL T. ABBOTT
- -------------- ---------------------
Maxwell T. Abbott
<PAGE> 1
M E M O R A N D U M
To: Sam Yong
From: Mariel Clark
Date: October 29, 1993
Re: Offer of Employment with Au Bon Pain Co., Inc.
================================================================================
In order to summarize our several conversations regarding your potential
employment with Au Bon Pain Co., Inc. (the "Company"), what follows is the
Company's understanding of its agreement with you on the principal terms on
which you are to be offered employment with the Company:
Position.
You will be hired as an Executive Vice President, with responsibility for
international business development, new business development and such other
responsibilities as may be assigned to you from time to time by the Co-Chairmen.
You will report to Mr. Ronald M. Shaich, the Co-Chairman. Your anticipated
employment commencement date is February 1, 1994. As is the case with all of the
Company's senior management personnel, you will be treated as an at-will
employee, with contractual rights upon your employment being terminated at
certain times and under certain circumstances, as more particularly described
below. All other terms of your employment not specifically addressed herein will
be the same as similarly-situated senior management personnel of the Company.
Separation Agreement.
You will enter into a separation agreement with the Company. This agreement
will cover separation terms in the event that your employment is terminated
within the two (2) years following your employment commencement date (for
purposes hereof, such two (2)-year period is referred to as the "Covered
Period").
1. No separation payments will be owed or made to you if your employment is
terminated during the Covered Period by the Company for gross misconduct,
including gross dereliction of duties.
<PAGE> 2
2. No separation payments (other than those, if any, then customarily paid
by the Company to its senior managers under similar circumstances) will be owed
or made to you if your employment is terminated following the Covered Period by
the Company for any reason or for no reason.
3. If during the Covered Period, your employment with the Company is
terminated by the Company for any reason other than gross misconduct, then the
Company will pay to you your "Base Pay" (as defined below) for the remaining
portion of the Covered Period, as and when the same would have been paid to you
had your employment not been so terminated. For purposes hereof, "Base Pay"
shall mean your base salary and car allowance, determined as of the effective
date of your employment termination.
4. If during the Covered Period, you voluntarily terminate your employment
with the Company for any reason or for no reason, and in so doing you provide to
the Company no less than 120 days' prior written notice, then the Company will
pay to you your Base Pay for the 120-day period following the effective date of
an employment termination covered by this paragraph, as and when the same would
have been paid to you had your employment not been so terminated.
5. If during the Covered Period, you voluntarily terminate your employment
with the Company for any reason or for no reason, and in so doing you DO NOT
provide to the Company the at least 120 days' prior written notice, then no
separation payments will be owed or made to you.
6. In addition to the foregoing separation payment arrangements, if at any
time during the Covered Period and for one (1) year thereafter (the "3-Year
Period"), both Louis I. Kane and Ronald M. Shaich shall cease to serve as the
Co-Chairmen of the Company and thereafter, but before the expiration of the
3-Year Period, your employment with the Company is terminated by the Company for
any reason other than gross misconduct, then the Company will pay to you your
Base Pay for the remaining portion of the 3-Year Period, as and when the same
would have been paid to you had your employment not been so terminated.
A separation agreement has been attached to this memorandum, for your
review and consideration. When signed by you and the Company, the separation
agreement shall constitute our agreement regarding separation payment
arrangements for you and shall supersede this memorandum in all respects.
Stock Options.
<PAGE> 3
1. Upon hire, you will be granted a fully-vested option to purchase that
number of shares which equals $300,000 divided by the closing price of a share
of Class A common stock on the trading day immediately preceding the grant date.
This option will terminate to the extent not then exercised (i) ninety (90) days
following termination of your employment by the Company for any reason other
than cause, (ii) twelve (12) months following your death or termination of your
employment by reason of your disability, (iii) thirty (30) days following
voluntary termination by you of your employment by the Company, and (iv) in all
other cases, immediately following termination of your employment by the
Company.
2. Subject to your continuing employment with the Company, you will
participate in the Company's "Performance Based Option Program" along with
similarly-situated senior management personnel, whereby you will receive
additional incentive-based options to purchase shares of Class A common stock,
in amounts to be determined in conjunction with the Company's annual budget,
plan and incentive processes. These options will be subject to then-existing
plan provisions, including vesting schedules; currently, similar options contain
a 5-year vesting schedule, with options vesting 25% two years after grant and an
additional 25% three, four and five years after grant. In addition, these
options will be fully vested in the event that the Company is sold or if both of
the Co-Chairmen cease to hold their respective positions as such with the
Company. These options will contain termination provisions similar to those
described above.
3. Subject to your continuing employment with the Company, you will receive
additional options to purchase an aggregate of $300,000 worth of Class A common
stock. These options will be granted in twelve (12) quarterly traunches, in
arrears on the last day of each calendar quarter, commencing with the calendar
quarter which includes your employment commencement date and continuing for
twelve (12) consecutive calendar quarters, as follows:
Option
Date Value
---- ------
03/31/94 $25,000
06/30/94 $25,000
09/30/94 $25,000
12/31/94 $25,000
03/31/95 $25,000
06/30/95 $25,000
09/30/95 $25,000
<PAGE> 4
12/31/95 $25,000
03/31/96 $25,000
06/30/96 $25,000
09/30/96 $25,000
12/31/96 $25,000
Termination of your employment, for any reason or for no reason, will cause
these options to cease being granted, but will not affect your rights with
respect to previously granted options. Each option will represent the right to
purchase that number of shares which equals $25,000 divided by the closing price
of a share of Class A common stock on the trading day immediately preceding the
grant date. These options will be subject to then-existing terms, including
vesting schedules, applicable to options granted under the Company's
"Performance Based Option Program." These options will contain termination
provisions similar to those described above.
4. If the Company achieves $300,000,000 in annual sales (defined as sales
from Company-operated bakery/cafes plus development fees and franchise fees paid
to and received by the Company, excluding franchise royalty fees, and sales from
franchised cafes determined by the year-end audited financial statements of the
Company)and you are then employed by the Company, then you will be granted a
fully-vested option to purchase that number of shares which equals $600,000
divided by the closing price of a share of Class A common stock on the
immediately preceding trading day. In the event that prior to the Company
achieving $300,000,000 in annual sales (as defined above), the Company is sold
or if both of the Co-Chairmen cease to hold their respective positions as such
with the Company, then you will receive a portion of these options, as follows:
(a) If the event occurs within one (1) year following your employment
commencement date, then you will receive a fully-vested option to purchase
that number of shares which equals $200,000 divided by the closing price of
a share of Class A common stock on the immediately preceding trading day;
and
(b) If the event occurs between one (1) year and two (2) years
following your employment commencement date, then you will receive a
fully-vested option to purchase that number of shares which equals $400,000
divided by the closing price of a share of Class A common stock on the
immediately preceding trading day; and
<PAGE> 5
(c) If the event occurs between two (2) years and three (3) years
following your employment commencement date, then you will receive a
fully-vested option to purchase that number of shares which equals $600,000
divided by the closing price of a share of Class A common stock on the
immediately preceding trading day.
These options will contain termination provisions similar to those
described above.
Forms of the option agreements to be used for the foregoing stock options
have been attached to this memorandum, for your review and consideration.
Miscellaneous.
1. Your initial annual base salary will be $160,000. This will be subject
to review annually together with review of all management salaries, in
accordance with Company policy, based on (among other things) your performance
and the Company's profitability.
2. Your initial incentive compensation will be based upon thirty percent
(30%) of your annual base salary; the actual incentive compensation will depend
upon achieving an agreed set of plan objectives. Continuing incentive
compensation will be subject to review annually together with review of all
management incentive programs, in accordance with Company policy.
3. You will receive an annual car allowance, initially set at $5,000.
4. The Company will pay you $40,000 toward your expenses for relocation to
Boston.
5. As a member of the Company's senior management, you will be subject to
Company policy regarding the purchase and sale of Company stock. Currently,
these policies include:
(a) No more than 25% of your aggregate stock holdings and options may
be sold in one year in any single transaction or related series of
transactions.
(b) No transaction in the Company's stock may be effected other than
during the ten (10)-day "window" following the release of the Company's
quarterly earnings statement.
(c) You will be subject to the reporting obligations and short-swing
profit restrictions of section 16
<PAGE> 6
of the Securities Exchange Act of 1934. Essentially, you will be required
to report all transactions in Company stock, either monthly or at the end
of each year; and if you buy and sell, or sell and buy, Company stock for a
profit within any six (6)-month period, then the profit must be paid over
to the Company.
6. Nothing herein will be construed to obligate the Company to employ you
or, if the Company so chooses to employ you and you agree to such employment, to
continue your employment for any period of time.
/s/ Sam Yong 11/2/93
/s/ Mariel Clark 11/2/93
<PAGE> 1
THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED IN A TRANSACTION NOT
INVOLVING ANY PUBLIC OFFERING AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"). SUCH SECURITIES MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER
THE ACT.
AU BON PAIN CO., INC.
------------------------------
STOCK PURCHASE WARRANT
------------------------------
Right to Purchase up to Certificate No.
_________ shares of Common Stock Dated as of July 24, 1996
(subject to adjustment as provided herein)
1. GRANT. For consideration of $______ and other value received, AU BON
PAIN CO., INC., a Delaware corporation (the "Company"), hereby grants to ALLIED
CAPITAL CORPORATION, a Maryland corporation, or its registered assigns (the
"Holder"), at the exercise price set forth in Section 3 below, the right to
purchase up to __________ shares of the Company's Class A Common Stock (the
"Warrant Shares"). This Warrant is one of six issued pursuant to the terms of an
investment agreement dated as of the date hereof (the "Investment Agreement") by
and among the Company, the Holder and certain other parties named therein. (The
other five Warrants issued pursuant to the Investment Agreement are hereinafter
collectively referred to as the "Other Warrants".)
2. EXERCISE PERIOD. Subject to adjustment as provided in Section 5, the
right to exercise this Warrant, in whole or in part, shall commence as of the
date hereof, and shall expire on that date (the "Expiration Date") which is
three years from the date of the payment in full of all obligations related to
those certain senior subordinated debentures issued under the Investment
Agreement (collectively, the "Debentures").
3. EXERCISE PRICE. The exercise price of this Warrant shall be $____ per
share (the "Exercise Price").
4. ANTI-DILUTION ADJUSTMENT OF EXERCISE PRICE. The Exercise Price shall be
subject to adjustment from time to time as follows:
(a) If the Company shall issue, or be deemed to have issued (pursuant to
subsection (3) of Section 4(b)), any Common Stock, (other than "Excluded Stock"
(as defined
<PAGE> 2
below), or stock dividends, subdivisions, split-ups or combinations,
which are covered by Sections 4(d) and 4(e) hereof), for a consideration
(determined in the manner provided in subsections (1), (2) and (3) of Section
4(b)) per share less than the Exercise Price, the Exercise Price shall forthwith
be adjusted to a price equal to the consideration paid or payable to the Company
with respect to such issuance or deemed issuance.
(b) For the purposes of Section 4(a), the following provisions shall be
applicable:
(1) In the case of the issuance of Common Stock for cash, the
consideration shall be deemed to be the amount of cash paid therefor without
deducting any discounts, commissions or expenses paid or incurred by the Company
in connection with the issuance and sale thereof.
(2) In the case of the issuance of Common Stock for a consideration in
whole or in part other than cash, the consideration other than cash shall be
deemed to be the fair value thereof as determined in good faith by the Board of
Directors, in accordance with GAAP; provided, however, that if, at the time of
such determination, the Company's Common Stock is traded in the over-the-counter
market or on a national or regional securities exchange, such fair market value
as determined by the Board of Directors shall not exceed the aggregate "fair
market value" (as defined in Section 11(b) below) of the shares of Common Stock
being issued.
(3) In the case of the issuance of (i) options to purchase or rights
to subscribe for Common Stock (other than Excluded Stock), (ii) securities by
their terms convertible into or exchangeable for Common Stock (other than
Excluded Stock), or (iii) options to purchase or rights to subscribe for
securities by their terms convertible into or exchangeable for Common Stock
(other than Excluded Stock):
(A) the aggregate maximum number of shares of Common Stock
deliverable upon exercise of such options to purchase or rights to subscribe for
Common Stock shall be deemed to have been issued at the time such options or
rights were issued and for a consideration equal to the consideration
(determined in the manner provided in subsections (1) and (2) of this Section
4(b)), if any, received by the Company upon the issuance of such options or
rights plus the minimum purchase price provided in such options or rights for
the Common Stock covered thereby;
(B) the aggregate maximum number of shares of Common Stock
deliverable upon conversion of or in exchange for any such convertible or
exchangeable securities, or upon the exercise of options to purchase or rights
to subscribe for such convertible or exchangeable securities and subsequent
conversion or exchange thereof, shall be deemed to have been issued at the time
such securities were issued or such options or rights were issued and for a
consideration equal to the consideration received by the Company for any such
securities and related options or rights (excluding any cash received on account
of accrued interest or accrued dividends), plus the minimum additional
consideration, if any, to be received by the Company upon the conversion or
exchange of such securities or the exercise of any related
-2-
<PAGE> 3
options or rights (the consideration in each case to be determined in the manner
provided in subsections (1) and (2) of this Section 4(b)); and
(C) on any change in the number of shares of Common Stock
deliverable upon exercise of any such options or rights or conversion of or
exchange for such convertible or exchangeable securities, or on any change in
the minimum purchase price of such options, rights or securities (other than a
change resulting from the anti-dilution provisions, if any, of such options,
rights or securities, unless there is not simultaneously an adjustment in the
Exercise Price pursuant to the terms of this Section 4), then the Exercise Price
shall forthwith be readjusted to such Exercise Price as would have been obtained
had the adjustment made upon (x) the issuance of such options, rights or
securities not exercised, converted or exchanged prior to such change, as the
case may be, been made upon the basis of such change or (y) the options or
rights related to such securities not converted or exchanged prior to such
change, as the case may be, been made upon the basis of such change.
(c) "Excluded Stock" shall mean:
(1) all shares of capital stock issued and outstanding on the
effective date hereof;
(2) all shares of Common Stock into which securities issued and
outstanding on the date hereof are convertible; and
(3) subject to adjustment pursuant to stock splits, stock dividends
and the like, up to an aggregate of 3,450,000 shares of Common Stock or other
securities issued or issuable to employees, officers, consultants or directors
of the Company; provided, however, that (A) no such shares of Common Stock or
other securities shall be issued, or shall be deemed to have been issued, for
consideration (determined in the manner provided in subsections (1), (2) and (3)
of Section 4(b)) less than the fair market value thereof on the date of
issuance, or the deemed date of issuance, thereof; and (B) such aggregate number
shall consist of (i) up to 2,500,000 shares currently authorized under the
Parent's 1992 Equity Incentive Plan; (ii) up to 500,000 additional shares to be
authorized under the Parent's 1992 Equity Incentive Plan (except that, in the
event any such shares are issued to either Louis Kane or Ron Shaich, such shares
shall not be included in this definition of Excluded Stock); (iii) up to 150,000
shares authorized under the Parent's Employee Stock Option Plan; (iv) up to
150,000 shares authorized under the Parent's Director Stock Option Plan; and (v)
up to 150,000 shares authorized under the Department Manager Stock Option Plan.
(d) If the number of shares of Common Stock outstanding at any time after
the date hereof is increased by a stock dividend payable in shares of Common
Stock or by a subdivision or split-up of shares of Common Stock, then, on the
date such payment is made or such change is effective, the Exercise Price in
effect immediately prior to such event shall be proportionately decreased, and
the number of Warrant Shares shall be proportionately increased.
-3-
<PAGE> 4
(e) If the number of shares of Common Stock outstanding at any time after
the date hereof is decreased by a combination of the outstanding shares of
Common Stock, then, on the effective date of such combination, the Exercise
Price in effect immediately prior to such event shall be proportionately
increased, and the number of Warrant Shares shall be proportionately decreased.
(f) In case, at any time after the date hereof, of any capital
reorganization, or any reclassification of the stock of the Company (other than
a change in par value or as a result of a stock dividend or subdivision,
split-up or combination of shares), or of the consolidation or merger of the
Company with or into another person, or of the sale or other disposition of all
or substantially all the properties and assets of the Company as an entirety to
any other person, the Warrant Shares shall, after such reorganization,
reclassification, consolidation, merger, sale or other disposition, receive upon
conversion of the Warrant Shares, the number of shares of stock or other
securities or property or cash of the Company or of the entity resulting from
such consolidation or surviving such merger or to which such properties and
assets shall have been sold or otherwise disposed to which a holder of Common
Stock deliverable upon conversion would have been entitled on such
reorganization, reclassification, consolidation, merger, sale or other
disposition. The provisions of this Section 4(f) shall similarly apply to
successive reorganizations, reclassifications, consolidations, mergers, sales or
other dispositions.
(g) All calculations under this Section 4 shall be made to the nearest
cent.
(h) Upon any adjustment of the Exercise Price, then and in each such case
the Company shall give written notice thereof, by first class mail, postage
prepaid, addressed to the holder of this Warrant at the last registered address
of such holder as shown on the books of the Company, which notice shall state
the facts leading to, and the Exercise Price resulting from, such adjustment.
5. ADJUSTMENT IN NUMBER OF SHARES ISSUABLE HEREUNDER.
(a) In the event the obligations under the Debentures are fully paid prior
to a date 30 full months from the date hereof, the number of Warrant Shares
issuable hereunder shall be reduced in accordance with the following chart:
Date of Full Payment Number of Warrant Shares
of Debentures Issuable Hereunder*
------------- -------------------
Prior to August __, 1997
From August __, 1997 and before
January __, 1998
From January __, 1998 and before
July __, 1998
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<PAGE> 5
From July __, 1998 and before
January __, 1999
From January __, 1999
and thereafter
*The numbers of Warrant Shares issuable hereunder shall be subject to
increase or decrease to account for all anti-dilution adjustments occurring from
the date hereof until the Expiration Date.
(b) In the event the obligations under the Debentures are not fully paid
prior to a date 30 full months from the date hereof, and if Holder elects to
partially exercise this Warrant prior to such date, the number of Warrant Shares
issuable under this Warrant in connection with such partial exercise shall be
limited to the number of Warrant Shares that would have been issuable had the
obligations under the Debentures been fully paid at the time of such exercise.
The remaining Warrant Shares shall become issuable under this Warrant as the
time periods run and in the increments set forth in the chart in Section 5(a).
6. EFFECT OF REORGANIZATION OR RECLASSIFICATION. If, at any time while
this Warrant is outstanding, there is any reorganization or reclassification of
the capital stock of the Company other than a subdivision or combination of
shares, the Holder shall thereafter, upon exercise of this Warrant, be entitled
to receive the number of shares of stock or other securities or property of the
Company to which a holder of the Common Stock (and any other securities and
property) of the Company, deliverable upon the exercise of this Warrant, would
have been entitled upon such reorganization or reclassification of capital stock
if this Warrant had been exercised immediately prior to such reorganization or
reclassification of capital stock. In any such case, appropriate adjustment (as
determined by the Board of Directors of the Company and approved by the Holder)
shall be made in the application of the provisions set forth in this Warrant
with respect to the rights and interests thereafter of the Holder to the end
that the provisions set forth in this Warrant shall thereafter be applicable, as
near as reasonably may be, in relation to any shares or other property
thereafter deliverable upon the exercise hereof as if this Warrant had been
exercised immediately prior to such reorganization or reclassification of
capital stock and the Holder had carried out the terms of the exchange as
provided for by such reorganization or reclassification of capital stock.
7. PRIOR NOTICE AS TO CERTAIN EVENTS. Subject to the limitations set
forth in the Investment Agreement, if, at any time:
(a) the Company shall pay any dividend payable in stock upon its
Common Stock or make any distribution (other than cash dividends) to the holders
of its Common Stock;
(b) the Company shall offer for subscription pro rata to the holders
of its Common Stock any additional shares of stock of any class or any other
rights;
-5-
<PAGE> 6
(c) there shall be any reorganization or reclassification of the
capital stock of the Company, or a consolidation or merger of the Company with,
or a sale of all or substantially all its assets to, another entity; or
(d) there shall be a voluntary or involuntary dissolution, liquidation
or winding up of the Company;
then, in each such case, the Company shall give prior written notice, by
first class mail, postage prepaid, addressed to the Holder at its address shown
on the books of the Company, of the date on which (i) the books of the Company
shall close or a record shall be taken for such stock dividend, distribution or
subscription rights or (ii) such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up shall take
place, as the case may be. Such notice shall also specify the date as of which
the holders of the Common Stock of record shall participate in said dividend,
distribution or subscription rights or shall be entitled to exchange their
Common Stock for securities or other property deliverable upon such
reorganization, reclassification, dissolution, liquidation or winding up, as the
case may be. Such written notice shall be given at least 30 days prior to the
action in question and not less than 30 days prior to the record date or the
date on which the Company's transfer books are closed in respect thereto.
8. RESERVATION OF COMMON STOCK. The Company shall, at all times,
reserve and keep available for issuance upon the exercise of this Warrant and
the Other Warrants such number of its authorized but unissued shares of Common
Stock as will be sufficient to permit the exercise in full of all of the
outstanding Warrants and, upon such issuance, all such shares of Common Stock
will be validly issued, fully paid and nonassessable.
9. NO VOTING RIGHTS; LIMITATIONS OF LIABILITY. Prior to exercise, this
Warrant will not entitle the Holder to any voting rights or other rights as a
stockholder of the Company. No provision of this Warrant, in the absence of
affirmative action by the Holder to exercise this Warrant, and no enumeration in
this Warrant of the rights or privileges of the Holder, will give rise to any
liability of such Holder for the Exercise Price.
10. EXERCISE PROCEDURE. This Warrant may be exercised by presenting it
and tendering the Exercise Price, at the option of the Holder (i) in legal
tender, (ii) by bank cashier's or certified check, or (iii) by cancellation of
indebtedness owing under the Debenture held by Holder, at the principal office
of the Company along with written subscription substantially in the form of
Exhibit "A" attached hereto. The date on which this Warrant is thus surrendered,
accompanied by tender or payment as hereinbefore or hereinafter provided, is
referred to herein as the "Exercise Date." The Company shall forthwith at its
sole expense (including the payment of issue taxes), issue and deliver to Holder
certificates for the proper number of Warrant Shares upon exercise of this
Warrant within 10 days after the Exercise Date, and such Warrant Shares shall be
deemed issued for all purposes as of the opening of business on the Exercise
Date, notwithstanding any delay in the actual issuance.
11. Net Issue Election.
------------------
-6-
<PAGE> 7
(a) RIGHT TO CONVERT. The Holder shall have the right at any time
prior to its expiration to convert this Warrant into shares of Common Stock (the
"Conversion Right"). Upon exercise of the Conversion Right, the Company shall
deliver to the Holder (without payment by the Holder of any Exercise Price or of
any other cash or other consideration) that number of fully paid and
nonassessable shares of Common Stock as is computed using the following formula:
X = Y(A-B)
-----
A
where: X = the number of shares to be issued to the Holder pursuant to this
Section 11;
Y = the number of shares covered by this Warrant in respect of
which the net issue election is made pursuant to this Section
11;
A = the fair market value of one share of Common Stock, as
determined in accordance with Section 11(b) below;
B = the Exercise Price in effect under this Warrant at the
time the net issue election is made pursuant to this Section
11.
(b) Fair Market Value. For purposes hereof, the fair market value of a
share of Common Stock is determined as follows:
(i) If the Common Stock of the Company is listed on a national
securities exchange or admitted to unlisted trading privileges on such exchange
or listed for trading on the Nasdaq Stock Market (National Market), the fair
market value shall be the last reported sale price of the Common Stock on such
exchange or system on the last business day prior to the date of exercise of
this Warrant or if no such sale is made on such day, the average closing bid and
asked prices for such day on such exchange or system.
(ii) If the Common Stock of the Company is not so listed or
admitted to unlisted trading privileges, the fair market value shall be the mean
of the last reported bid and asked prices reported by the National Quotation
Bureau, Inc., on the last business day prior to the date of the exercise of this
Warrant.
(iii) If the Common Stock of the Company is not so listed or
admitted to unlisted trading privileges and bid and asked prices are not so
reported, the fair market value shall be an amount reasonably determined in such
reasonable manner as may be prescribed by the Board of Directors of the Company.
(c) METHOD OF EXERCISE. The Conversion Right may be exercised by the
Holder by the surrender of this Warrant at the principal office of the Company
together with a written statement specifying that the Holder thereby intends to
exercise the Conversion Right. Certificates for the shares of Common Stock
issuable upon exercise of the Conversion Right shall be delivered to the Holder
within 10 days following the Company's receipt of this Warrant together with the
aforesaid written statement.
-7-
<PAGE> 8
12. TRANSFER OF BORROWERS' BUSINESS. If, prior to the issuance of the
Warrant Shares hereunder, a "Transfer of Borrowers' Business" (as defined in
Article I of the Investment Agreement) shall occur, the Holder, at its option,
may receive, in lieu of the Warrant Shares otherwise issuable hereunder, such
money or property as it would have been entitled to receive if this Warrant had
been exercised immediately prior to the Transfer of Borrowers' Business.
13. SALE OF WARRANT OR SHARES. Neither this Warrant nor any of the
Warrant Shares have been registered under the Act or under the securities laws
of any state. Neither this Warrant nor any of the Warrant Shares (when issued)
may be sold, assigned, transferred, pledged or hypothecated or otherwise
disposed of in the absence of: (a) an effective registration statement for this
Warrant or the Warrant Shares, as the case may be, under the Act and such
registration or qualification as may be necessary under the securities laws of
any state, or (b) an opinion of counsel reasonably satisfactory to the Company
that such registration or qualification is not required. The Company shall cause
a certificate or certificates evidencing all or any of the Warrant Shares issued
upon exercise of the purchase rights herein prior to said registration and
qualification of such shares to bear the following legend:
THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE
SECURITIES LAWS OF ANY STATE. THE SHARES MAY NOT BE SOLD, ASSIGNED,
TRANSFERRED, PLEDGED OR HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, AND SUCH REGISTRATION OR QUALIFICATION AS MAY BE
NECESSARY UNDER THE SECURITIES LAWS OF ANY STATE, OR AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION OR
QUALIFICATION IS NOT REQUIRED.
14. TRANSFER. This Warrant shall be registered on the books of the
Company which shall be kept at the offices of the Company for that purpose, and
shall be transferable in whole or in part, but only on such books by the Holder
in person or by duly authorized attorney with written notice substantially in
the form of Exhibit "B" attached hereto, and only in compliance with the
preceding paragraph. The Company may issue appropriate stop orders to its
transfer agent to prevent a transfer in violation of the preceding paragraph.
15. REPLACEMENT OF WARRANT. At the request of the Holder and on
production of evidence reasonably satisfactory to the Company of the loss,
theft, destruction or mutilation of this Warrant and (in the case of loss, theft
or destruction) if required by the Company, upon delivery of an indemnity
agreement, the Company, at Holder's expense, will issue in lieu thereof a new
Warrant of like tenor.
-8-
<PAGE> 9
16. INVESTMENT COVENANT. By its acceptance hereof, the Holder
represents and warrants that this Warrant is, and any Warrant Shares issued
hereunder will be, acquired for its own account for investment purposes, and the
Holder covenants that it will not distribute the same in violation of any state
or federal law or regulation.
17. REGISTRATION RIGHTS. The Holder has certain "piggyback" and
"demand" registration rights in regard to this Warrant and Warrant Shares issued
or issuable hereunder as set forth in the Registration Rights Agreement, dated
of even date herewith between the Company, the Holder, and certain other parties
thereto.
18. GOVERNING LAW. This Warrant shall be construed according to the
laws of Delaware (other than its conflict of law rules).
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
on its behalf, in its corporate name, by its President, and its corporate seal
to be hereunto affixed and the said seal to be attested by its Secretary, as of
the 24th day of July, 1996.
AU BON PAIN CO., INC.
a Delaware corporation
Attest: By: [Seal]
---------------------- --------------------------
President
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<PAGE> 10
EXHIBIT A
---------
IRREVOCABLE SUBSCRIPTION
------------------------
To: AU BON PAIN CO., INC.
The undersigned hereby elects to exercise its right under the attached
Warrant by purchasing ________________ shares of the Common Stock of AU BON PAIN
CO., INC., and hereby irrevocably subscribes to such issue. The certificates for
such shares shall be issued in the name of:
------------------------------
(Name)
------------------------------
(Address)
------------------------------
(Taxpayer Number)
and delivered to:
------------------------------
(Name)
------------------------------
(Address)
The Exercise Price of $______ is enclosed.
or
In lieu of payment of the Exercise Price, the undersigned hereby
invokes the provisions of Section 11 of the Warrant.
Date:_______________
Signed: ________________________________________
(Name of Holder, Please Print)
----------------------------------------
(Address)
----------------------------------------
(Signature)
-10-
<PAGE> 11
EXHIBIT B
---------
ASSIGNMENT
----------
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto:
-------------------------------
(Name)
-------------------------------
(Address)
the attached Warrant, together with all right, title and interest
therein to purchase _____________ shares of the Common Stock of AU BON PAIN CO.,
INC., and does hereby irrevocably appoint _______________________ as
attorney-in-fact to transfer said Warrant on the books of AU BON PAIN CO., INC.,
with full power of substitution in the premises.
Done this ______ day of ____________ 19____.
------------------------------
(Signature)
------------------------------
(Name and title)
------------------------------
------------------------------
(Address)
-11-
<PAGE> 1
THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED IN A TRANSACTION NOT
INVOLVING ANY PUBLIC OFFERING AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"). SUCH SECURITIES MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER
THE ACT.
AU BON PAIN CO., INC.
------------------------------
STOCK PURCHASE WARRANT
------------------------------
Right to Purchase up to Certificate No.
_______ shares of Common Stock Dated as of July __, 1996
(subject to adjustment as provided herein)
1. GRANT. For consideration of $_______ and other value received, AU BON
PAIN CO., INC., a Delaware corporation (the "Company"), hereby grants to Allied
Capital Corporation, a Maryland corporation, or its registered assigns (the
"Holder"), at the exercise price set forth in Section 3 below, the right to
purchase up to _____________ shares of the Company's Class A Common Stock (the
"Warrant Shares"). This Warrant is one of six issued pursuant to the terms of an
investment agreement dated as of the date hereof (the "Investment Agreement") by
and among the Company, the Holder and certain other parties named therein. (The
other five Warrants issued pursuant to the Investment Agreement are hereinafter
collectively referred to as the "Other Warrants".)
2. EXERCISE PERIOD. Subject to Section 5, the right to exercise this
Warrant, in whole or in part, shall commence as follows: (i) with respect to
____________ of the Warrant Shares, as of March 31, 1998; and (ii) with respect
to the remaining ________________ of the Warrant Shares, as of March 31, 1999.
The right to exercise this Warrant shall expire on that date (the "Expiration
Date") which is three years from the date of the payment in full of all
obligations related to those certain senior subordinated debentures issued under
the Investment Agreement (collectively, the "Debentures").
3. EXERCISE PRICE. The exercise price of this Warrant shall be $____ per
share (the "Exercise Price").
4. ANTI-DILUTION ADJUSTMENT OF EXERCISE PRICE. The Exercise Price shall be
subject to adjustment from time to time as follows:
<PAGE> 2
(a) If the Company shall issue, or be deemed to have issued (pursuant to
subsection (3) of Section 4(b)), any Common Stock, (other than "Excluded Stock"
(as defined below), or stock dividends, subdivisions, split-ups or combinations,
which are covered by Sections 4(d) and 4(e) hereof), for a consideration
(determined in the manner provided in subsections (1), (2) and (3) of Section
4(b)) per share less than the Exercise Price, the Exercise Price shall forthwith
be adjusted to a price equal to the consideration paid or payable to the Company
with respect to such issuance or deemed issuance.
(b) For the purposes of Section 4(a), the following provisions shall be
applicable:
(1) In the case of the issuance of Common Stock for cash, the
consideration shall be deemed to be the amount of cash paid therefor without
deducting any discounts, commissions or expenses paid or incurred by the Company
in connection with the issuance and sale thereof.
(2) In the case of the issuance of Common Stock for a consideration in
whole or in part other than cash, the consideration other than cash shall be
deemed to be the fair value thereof as determined in good faith by the Board of
Directors, in accordance with GAAP; provided, however, that if, at the time of
such determination, the Company's Common Stock is traded in the over-the-counter
market or on a national or regional securities exchange, such fair market value
as determined by the Board of Directors shall not exceed the aggregate "fair
market value" (as defined in Section 11(b) below) of the shares of Common Stock
being issued.
(3) In the case of the issuance of (i) options to purchase or rights
to subscribe for Common Stock (other than Excluded Stock), (ii) securities by
their terms convertible into or exchangeable for Common Stock (other than
Excluded Stock), or (iii) options to purchase or rights to subscribe for
securities by their terms convertible into or exchangeable for Common Stock
(other than Excluded Stock):
(A) the aggregate maximum number of shares of Common Stock
deliverable upon exercise of such options to purchase or rights to subscribe for
Common Stock shall be deemed to have been issued at the time such options or
rights were issued and for a consideration equal to the consideration
(determined in the manner provided in subsections (1) and (2) of this Section
4(b)), if any, received by the Company upon the issuance of such options or
rights plus the minimum purchase price provided in such options or rights for
the Common Stock covered thereby;
(B) the aggregate maximum number of shares of Common Stock
deliverable upon conversion of or in exchange for any such convertible or
exchangeable securities, or upon the exercise of options to purchase or rights
to subscribe for such convertible or exchangeable securities and subsequent
conversion or exchange thereof, shall be deemed to have been issued at the time
such securities were issued or such options or rights were issued and for a
consideration equal to the consideration received by the Company for any such
securities and related options or rights (excluding any cash received on account
of accrued interest or
-2-
<PAGE> 3
accrued dividends), plus the minimum additional consideration, if any, to be
received by the Company upon the conversion or exchange of such securities or
the exercise of any related options or rights (the consideration in each case to
be determined in the manner provided in subsections (1) and (2) of this Section
4(b)); and
(C) on any change in the number of shares of Common Stock
deliverable upon exercise of any such options or rights or conversion of or
exchange for such convertible or exchangeable securities, or on any change in
the minimum purchase price of such options, rights or securities (other than a
change resulting from the anti-dilution provisions, if any, of such options,
rights or securities, unless there is not simultaneously an adjustment in the
Exercise Price pursuant to the terms of this Section 4), then the Exercise Price
shall forthwith be readjusted to such Exercise Price as would have been obtained
had the adjustment made upon (x) the issuance of such options, rights or
securities not exercised, converted or exchanged prior to such change, as the
case may be, been made upon the basis of such change or (y) the options or
rights related to such securities not converted or exchanged prior to such
change, as the case may be, been made upon the basis of such change.
(c) "Excluded Stock" shall mean:
(1) all shares of capital stock issued and outstanding on the
effective date hereof;
(2) all shares of Common Stock into which securities issued and
outstanding on the date hereof are convertible; and
(3) subject to adjustment pursuant to stock splits, stock dividends
and the like, up to an aggregate of 3,450,000 shares of Common Stock or other
securities issued or issuable to employees, officers, consultants or directors
of the Company; provided, however, that (A) no such shares of Common Stock or
other securities shall be issued, or shall be deemed to have been issued, for
consideration (determined in the manner provided in subsections (1), (2) and (3)
of Section 4(b)) less than the fair market value thereof on the date of
issuance, or the deemed date of issuance, thereof; and (B) such aggregate number
shall consist of (i) up to 2,500,000 shares currently authorized under the
Parent's 1992 Equity Incentive Plan; (ii) up to 500,000 additional shares to be
authorized under the Parent's 1992 Equity Incentive Plan (except that, in the
event any such shares are issued to either Louis Kane or Ron Shaich, such shares
shall not be included in this definition of Excluded Stock); (iii) up to 150,000
shares authorized under the Parent's Employee Stock Option Plan; (iv) up to
150,000 shares authorized under the Parent's Director Stock Option Plan; and (v)
up to 150,000 shares authorized under the Department Manager Stock Option Plan.
(d) If the number of shares of Common Stock outstanding at any time after
the date hereof is increased by a stock dividend payable in shares of Common
Stock or by a subdivision or split-up of shares of Common Stock, then, on the
date such payment is made or such change is effective, the Exercise Price in
effect immediately prior to such event shall be proportionately decreased, and
the number of Warrant Shares shall be proportionately increased.
-3-
<PAGE> 4
(e) If the number of shares of Common Stock outstanding at any time after
the date hereof is decreased by a combination of the outstanding shares of
Common Stock, then, on the effective date of such combination, the Exercise
Price in effect immediately prior to such event shall be proportionately
increased, and the number of Warrant Shares shall be proportionately decreased.
(f) In case, at any time after the date hereof, of any capital
reorganization, or any reclassification of the stock of the Company (other than
a change in par value or as a result of a stock dividend or subdivision,
split-up or combination of shares), or of the consolidation or merger of the
Company with or into another person, or of the sale or other disposition of all
or substantially all the properties and assets of the Company as an entirety to
any other person, the Warrant Shares shall, after such reorganization,
reclassification, consolidation, merger, sale or other disposition, receive upon
conversion of the Warrant Shares, the number of shares of stock or other
securities or property or cash of the Company or of the entity resulting from
such consolidation or surviving such merger or to which such properties and
assets shall have been sold or otherwise disposed to which a holder of Common
Stock deliverable upon conversion would have been entitled on such
reorganization, reclassification, consolidation, merger, sale or other
disposition. The provisions of this Section 4(f) shall similarly apply to
successive reorganizations, reclassifications, consolidations, mergers, sales or
other dispositions.
(g) All calculations under this Section 4 shall be made to the nearest
cent.
(h) Upon any adjustment of the Exercise Price, then and in each such case
the Company shall give written notice thereof, by first class mail, postage
prepaid, addressed to the holder of this Warrant at the last registered address
of such holder as shown on the books of the Company, which notice shall state
the facts leading to, and the Exercise Price resulting from, such adjustment.
5. Adjustment in Number of Shares Issuable Hereunder.
-------------------------------------------------
(a) PAYMENT OF DEBENTURES. In the event the obligations under the
Debentures are fully paid on or before that date which is 90 days following
December 26, 1998, the number of Warrant Shares issuable hereunder shall be
reduced in accordance with the following chart:
Date of Full Payment Number of Warrant Shares
of Debentures Issuable Hereunder
------------- ------------------
On or before that date which is 90
days following December 27, 1997
(the "1997 Audit Due Date")
-4-
<PAGE> 5
After the 1997 Audit Due Date and
on or before that date which is 90 days
following December 26, 1998
(the "1998 Audit Due Date")
After the 1998 Audit Due Date and
thereafter
(b) Financial Model Targets.
-----------------------
(i) For the fiscal year ending December 27, 1997, in the event the sum
of net income plus interest expense, taxes, depreciation, amortization, and
other non-cash charges, all determined in accordance with GAAP ("EBITDA"), as
derived from the audited financial statements for the Company ("Actual EBITDA"),
meets or exceeds targeted EBITDA as set forth in the Financial Model ("Targeted
EBITDA"), the number of Warrants issuable hereunder shall be reduced by
________.
(ii) For the fiscal year ending December 26, 1998, in the event Actual
EBITDA meets or exceeds Targeted EBITDA, the number of Warrants issuable
hereunder shall be reduced by ____________.
(iii) In addition to any other reductions in the number of shares
issuable hereunder for which the Company may qualify, for the combined fiscal
years ending December 27, 1997, and December 26, 1998, in the event Actual
EBITDA meets or exceeds Targeted EBITDA for such combined fiscal years, the
number of shares issuable hereunder shall be reduced by ___________.
(c) ANTI-DILUTION ADJUSTMENTS. The numbers of Warrant Shares issuable
hereunder shall be subject to increase or decrease to account for all
anti-dilution adjustments occurring from the date hereof until the Expiration
Date.
6. EFFECT OF REORGANIZATION OR RECLASSIFICATION. If, at any time while
this Warrant is outstanding, there is any reorganization or reclassification of
the capital stock of the Company other than a subdivision or combination of
shares, the Holder shall thereafter, upon exercise of this Warrant, be entitled
to receive the number of shares of stock or other securities or property of the
Company to which a holder of the Common Stock (and any other securities and
property) of the Company, deliverable upon the exercise of this Warrant, would
have been entitled upon such reorganization or reclassification of capital stock
if this Warrant had been exercised immediately prior to such reorganization or
reclassification of capital stock. In any such case, appropriate adjustment (as
determined by the Board of Directors of the Company and approved by the Holder)
shall be made in the application of the provisions set forth in this Warrant
with respect to the rights and interests thereafter of the Holder to the end
that the provisions set forth in this Warrant shall thereafter be applicable, as
near as reasonably may be, in relation to any shares or other property
thereafter deliverable upon the exercise hereof as if this
-5-
<PAGE> 6
Warrant had been exercised immediately prior to such reorganization or
reclassification of capital stock and the Holder had carried out the terms of
the exchange as provided for by such reorganization or reclassification of
capital stock.
7. PRIOR NOTICE AS TO CERTAIN EVENTS. Subject to the limitations set
forth in the Investment Agreement, if, at any time:
(a) the Company shall pay any dividend payable in stock upon its
Common Stock or make any distribution (other than cash dividends) to the holders
of its Common Stock;
(b) the Company shall offer for subscription PRO RATA to the holders
of its Common Stock any additional shares of stock of any class or any other
rights;
(c) there shall be any reorganization or reclassification of the
capital stock of the Company, or a consolidation or merger of the Company with,
or a sale of all or substantially all its assets to, another entity; or
(d) there shall be a voluntary or involuntary dissolution, liquidation
or winding up of the Company;
then, in each such case, the Company shall give prior written notice, by
first class mail, postage prepaid, addressed to the Holder at its address shown
on the books of the Company, of the date on which (i) the books of the Company
shall close or a record shall be taken for such stock dividend, distribution or
subscription rights or (ii) such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up shall take
place, as the case may be. Such notice shall also specify the date as of which
the holders of the Common Stock of record shall participate in said dividend,
distribution or subscription rights or shall be entitled to exchange their
Common Stock for securities or other property deliverable upon such
reorganization, reclassification, dissolution, liquidation or winding up, as the
case may be. Such written notice shall be given at least 30 days prior to the
action in question and not less than 30 days prior to the record date or the
date on which the Company's transfer books are closed in respect thereto.
8. RESERVATION OF COMMON STOCK. The Company shall, at all times,
reserve and keep available for issuance upon the exercise of this Warrant and
the Other Warrants such number of its authorized but unissued shares of Common
Stock as will be sufficient to permit the exercise in full of all of the
outstanding Warrants and, upon such issuance, all such shares of Common Stock
will be validly issued, fully paid and nonassessable.
9. NO VOTING RIGHTS; LIMITATIONS OF LIABILITY. Prior to exercise, this
Warrant will not entitle the Holder to any voting rights or other rights as a
stockholder of the Company. No provision of this Warrant, in the absence of
affirmative action by the Holder to exercise this Warrant, and no enumeration in
this Warrant of the rights or privileges of the Holder, will give rise to any
liability of such Holder for the Exercise Price.
-6-
<PAGE> 7
10. EXERCISE PROCEDURE. This Warrant may be exercised by presenting it
and tendering the Exercise Price, at the option of the Holder (i) in legal
tender, (ii) by bank cashier's or certified check, or (iii) by cancellation of
indebtedness owing under the Debenture held by Holder, at the principal office
of the Company along with written subscription substantially in the form of
Exhibit "A" attached hereto. The date on which this Warrant is thus surrendered,
accompanied by tender or payment as hereinbefore or hereinafter provided, is
referred to herein as the "Exercise Date." The Company shall forthwith at its
sole expense (including the payment of issue taxes), issue and deliver to Holder
certificates for the proper number of Warrant Shares upon exercise of this
Warrant within 10 days after the Exercise Date, and such Warrant Shares shall be
deemed issued for all purposes as of the opening of business on the Exercise
Date, notwithstanding any delay in the actual issuance.
11. NET ISSUE ELECTION.
(a) RIGHT TO CONVERT. The Holder shall have the right at any time
prior to its expiration to convert this Warrant into shares of Common Stock (the
"Conversion Right"). Upon exercise of the Conversion Right, the Company shall
deliver to the Holder (without payment by the Holder of any Exercise Price or of
any other cash or other consideration) that number of fully paid and
nonassessable shares of Common Stock as is computed using the following formula:
X = Y(A-B)
-----
A
where: X = the number of shares to be issued to the Holder pursuant to this
Section 11;
Y = the number of shares covered by this Warrant in respect of
which the net issue election is made pursuant to this Section
11;
A = the fair market value of one share of Common Stock, as
determined in accordance with Section 11(b) below;
B = the Exercise Price in effect under this Warrant at the
time the net issue election is made pursuant to this Section
11.
(b) FAIR MARKET VALUE. For purposes hereof, the fair market value of a
share of Common Stock is determined as follows:
(i) If the Common Stock of the Company is listed on a national
securities exchange or admitted to unlisted trading privileges on such exchange
or listed for trading on the Nasdaq Stock Market (National Market), the fair
market value shall be the last reported sale price of the Common Stock on such
exchange or system on the last business day prior to the date of exercise of
this Warrant or if no such sale is made on such day, the average closing bid and
asked prices for such day on such exchange or system.
(ii) If the Common Stock of the Company is not so listed or
admitted to unlisted trading privileges, the fair market value shall be the mean
of the last reported bid and
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<PAGE> 8
asked prices reported by the National Quotation Bureau, Inc.,
on the last business day prior to the date of the exercise of this Warrant.
(iii) If the Common Stock of the Company is not so listed or
admitted to unlisted trading privileges and bid and asked prices are not so
reported, the fair market value shall be an amount reasonably determined in such
reasonable manner as may be prescribed by the Board of Directors of the Company.
(c) METHOD OF EXERCISE. The Conversion Right may be exercised by the
Holder by the surrender of this Warrant at the principal office of the Company
together with a written statement specifying that the Holder thereby intends to
exercise the Conversion Right. Certificates for the shares of Common Stock
issuable upon exercise of the Conversion Right shall be delivered to the Holder
within 10 days following the Company's receipt of this Warrant together with the
aforesaid written statement.
12. TRANSFER OF BORROWERS' BUSINESS. If, prior to the issuance of the
Warrant Shares hereunder, a "Transfer of Borrowers' Business" (as defined in
Article I of the Investment Agreement) shall occur, the Holder, at its option,
may receive, in lieu of the Warrant Shares otherwise issuable hereunder, such
money or property as it would have been entitled to receive if this Warrant had
been exercised immediately prior to the Transfer of Borrowers' Business.
13. SALE OF WARRANT OR SHARES. Neither this Warrant nor any of the
Warrant Shares have been registered under the Act or under the securities laws
of any state. Neither this Warrant nor any of the Warrant Shares (when issued)
may be sold, assigned, transferred, pledged or hypothecated or otherwise
disposed of in the absence of: (a) an effective registration statement for this
Warrant or the Warrant Shares, as the case may be, under the Act and such
registration or qualification as may be necessary under the securities laws of
any state, or (b) an opinion of counsel reasonably satisfactory to the Company
that such registration or qualification is not required. The Company shall cause
a certificate or certificates evidencing all or any of the Warrant Shares issued
upon exercise of the purchase rights herein prior to said registration and
qualification of such shares to bear the following legend:
THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE
SECURITIES LAWS OF ANY STATE. THE SHARES MAY NOT BE SOLD, ASSIGNED,
TRANSFERRED, PLEDGED OR HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, AND SUCH REGISTRATION OR QUALIFICATION AS MAY
BE NECESSARY UNDER THE SECURITIES LAWS OF ANY STATE, OR AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION OR
QUALIFICATION IS NOT REQUIRED
-8-
<PAGE> 9
14. TRANSFER. This Warrant shall be registered on the books of the
Company which shall be kept at the offices of the Company for that purpose, and
shall be transferable in whole or in part, but only on such books by the Holder
in person or by duly authorized attorney with written notice substantially in
the form of Exhibit "B" attached hereto, and only in compliance with the
preceding paragraph. The Company may issue appropriate stop orders to its
transfer agent to prevent a transfer in violation of the preceding paragraph.
15. REPLACEMENT OF WARRANT. At the request of the Holder and on
production of evidence reasonably satisfactory to the Company of the loss,
theft, destruction or mutilation of this Warrant and (in the case of loss, theft
or destruction) if required by the Company, upon delivery of an indemnity
agreement, the Company, at Holder's expense, will issue in lieu thereof a new
Warrant of like tenor.
16. INVESTMENT COVENANT. By its acceptance hereof, the Holder
represents and warrants that this Warrant is, and any Warrant Shares issued
hereunder will be, acquired for its own account for investment purposes, and the
Holder covenants that it will not distribute the same in violation of any state
or federal law or regulation.
17. REGISTRATION RIGHTS. The Holder has certain "piggyback"
and "demand" registration rights in regard to this Warrant and Warrant Shares
issued or issuable hereunder as set forth in the Registration Rights Agreement,
dated of even date herewith between the Company, the Holder, and certain other
parties thereto.
18. GOVERNING LAW. This Warrant shall be construed according to the
laws of Delaware (other than its conflict of law rules).
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
on its behalf, in its corporate name, by its President, and its corporate seal
to be hereunto affixed and the said seal to be attested by its Secretary, as of
the ____ day of July, 1996.
AU BON PAIN CO., INC.
a Delaware corporation
Attest: By: [Seal]
----------------------- ------------------------------
President
-9-
<PAGE> 10
EXHIBIT A
---------
IRREVOCABLE SUBSCRIPTION
------------------------
To: AU BON PAIN CO., INC.
The undersigned hereby elects to exercise its right under the attached
Warrant by purchasing ________________ shares of the Common Stock of AU BON PAIN
CO., INC., and hereby irrevocably subscribes to such issue. The certificates for
such shares shall be issued in the name of:
------------------------------
(Name)
------------------------------
(Address)
------------------------------
(Taxpayer Number)
and delivered to:
------------------------------
(Name)
------------------------------
(Address)
The Exercise Price of $______ is enclosed.
or
In lieu of payment of the Exercise Price, the undersigned hereby
invokes the provisions of Section 11 of the Warrant.
Date:_______________
Signed: ________________________________________
(Name of Holder, Please Print)
----------------------------------------
(Address)
----------------------------------------
(Signature)
-10-
<PAGE> 11
EXHIBIT B
---------
ASSIGNMENT
----------
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto:
-------------------------------
(Name)
-------------------------------
(Address)
the attached Warrant, together with all right, title and interest
therein to purchase _____________ shares of the Common Stock of AU BON PAIN CO.,
INC., and does hereby irrevocably appoint _______________________ as
attorney-in-fact to transfer said Warrant on the books of AU BON PAIN CO., INC.,
with full power of substitution in the premises.
Done this ______ day of ____________ 19____.
------------------------------
(Signature)
------------------------------
(Name and title)
------------------------------
------------------------------
(Address)
-11-
<PAGE> 1
THIS SECURITY HAS BEEN ACQUIRED IN A TRANSACTION NOT INVOLVING ANY PUBLIC
OFFERING AND HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR TRANSFERRED EXCEPT IN
COMPLIANCE WITH THE ACT.
AU BON PAIN CO., INC.
------------------------------
STOCK PURCHASE WARRANT
------------------------------
Right to Purchase up to Certificate No. PG
______ shares of Common Stock Dated as of July 24, 1996
(subject to adjustment as provided herein)
1. GRANT. For consideration of $______ and other value received, AU BON
PAIN CO., INC., a Delaware corporation (the "Company"), hereby grants to Princes
Gate Investors, L.P., or its registered assigns (the "Holder"), at the exercise
price set forth in Section 3 below, the right to purchase up to __________
shares ("Warrant Shares") of the Company's Class A Common Stock, par value
$.0001 per share (the "Common Stock"). The number of Warrant Shares to be
received upon the exercise of this Warrant and the price to be paid per Warrant
Share are subject to adjustment from time to time as hereinafter set forth.
Capitalized terms used but not separately defined herein shall have the meanings
assigned to them in the Investment Agreement dated as of July 24, 1996 among the
Company, certain of its subsidiaries, Allied Capital Corporation, Allied Capital
Corporation II, and Capital Trust Investments, Ltd.
2. EXERCISE PERIOD. The right to exercise this Warrant, in whole or in
part, shall commence as of the date hereof, and shall expire on that date (the
"Expiration Date") which is the fifth anniversary of the date hereof.
3. EXERCISE PRICE. The exercise price of this Warrant shall be $______ per
Warrant Share (the "Exercise Price"), subject to adjustment from time to time as
provided herein.
4. CERTAIN ADJUSTMENTS. The Exercise Price and the number of Warrant Shares
to be received by the Holder upon exercise of the Warrant shall be subject to
adjustment from time to time as follows:
(a) If the Company shall issue, or be deemed to have issued (pursuant to
subsection (3) of Section 4(b)), any shares of Common Stock, (other than
Excluded Stock (as defined below), for a consideration (determined in the manner
provided in subsections (1), (2) and (3) of Section 4(b)) per share less than
the Exercise Price, the Exercise Price to be in effect
<PAGE> 2
following such issuance shall be adjusted to a price equal to the consideration
paid or payable to the Company with respect to such issuance or deemed issuance.
(b) For the purposes of Section 4(a), the following provisions shall be
applicable:
(1) In the case of the issuance of Common Stock for cash, the
consideration shall be deemed to be the amount of cash paid therefor without
deducting any discounts, commissions or expenses paid or incurred by the Company
in connection with the issuance and sale thereof.
(2) In the case of the issuance of Common Stock for a consideration in
whole or in part other than cash, the consideration other than cash shall be
deemed to be the fair value thereof as determined in good faith by the Board of
Directors, in accordance with GAAP; provided, however, that if, at the time of
such determination, the Company's Common Stock is traded in the over-the-counter
market or on a national or regional securities exchange, such fair market value
as determined by the Board of Directors shall be the "fair market value" (as
defined in Section 9(b) below) of the shares of Common Stock being issued.
(3) In the case of the issuance of (i) options to purchase or rights
to subscribe for Common Stock (other than Excluded Stock), (ii) securities by
their terms convertible into or exchangeable for Common Stock (other than
Excluded Stock), or (iii) options to purchase or rights to subscribe for
securities by their terms convertible into or exchangeable for Common Stock
(other than Excluded Stock):
(A) the aggregate maximum number of shares of Common Stock
deliverable upon exercise of such options to purchase or rights to subscribe for
Common Stock shall be deemed to have been issued at the time such options or
rights were issued and for a consideration equal to the aggregate consideration
(determined in the manner provided in subsections (1) and (2) of this Section
4(b)), if any, received, (or to be received) by the Company upon the issuance of
such options or rights and upon exercise thereof for the Common Stock covered
thereby;
(B) the aggregate maximum number of shares of Common Stock
deliverable upon conversion of or in exchange for any such convertible or
exchangeable securities, or upon the exercise of options to purchase or rights
to subscribe for such convertible or exchangeable securities and subsequent
conversion or exchange thereof, shall be deemed to have been issued at the time
such securities were issued or such options or rights were issued and for a
consideration equal to the aggregate consideration received (or to be received)
by the Company for any such securities and related options or rights (excluding
any cash received on account of accrued interest or accrued dividends), upon the
conversion or exchange of such securities or the exercise of any related options
or rights (the consideration in each case to be determined in the manner
provided in subsections (1) and (2) of this Section 4(b)); and
(C) on any change in the number of shares of Common Stock
deliverable upon exercise of any such options or rights or conversion of or
exchange for such
-2-
<PAGE> 3
convertible or exchangeable securities, or on any change in the minimum purchase
price of such options, rights or securities (other than a change resulting from
the anti-dilution provisions, if any, of such options, rights or securities,
unless the event giving rise to such adjustment does not also give rise to an
adjustment in the Exercise Price pursuant to the terms of this Section 4), then
the Exercise Price shall forthwith be readjusted to such Exercise Price as would
have been obtained had the adjustment made upon (x) the issuance of such
options, rights or securities not exercised, converted or exchanged prior to
such change, as the case may be, been made upon the basis of such change or (y)
the options or rights related to such securities not converted or exchanged
prior to such change, as the case may be, been made upon the basis of such
change.
(c) "Excluded Stock" shall mean:
(1) all shares of Common Stock issued and outstanding on the effective
date hereof;
(2) all shares of Common Stock into which securities issued and
outstanding on the date hereof are convertible;
(3) subject to adjustment pursuant to stock splits, stock dividends
and the like, up to 3,450,000 shares of Common Stock or other securities issued
or issuable to employees, officers, consultants or directors of the Company
under any agreement, arrangement or plan, including any incentive stock plan,
approved by the Board of Directors and the stockholders of the Company; and
(4) all warrants for purchase of Common Stock issued concurrently with
this Warrant.
(d) If the number of shares of Common Stock outstanding at any time after
the date hereof is increased by a stock dividend payable in shares of Common
Stock or by a subdivision or split-up of shares of Common Stock, then, on the
date such payment is made or such change is effective, the Exercise Price in
effect immediately prior to such event shall be proportionately decreased, and
the number of Warrant Shares shall be proportionately increased.
(e) If the number of shares of Common Stock outstanding at any time after
the date hereof is decreased by a combination of the outstanding shares of
Common Stock, then, on the effective date of such combination, the Exercise
Price in effect immediately prior to such event shall be proportionately
increased, and the number of Warrant Shares shall be proportionately decreased.
(f) In case, at any time after the date hereof, of any capital
reorganization, or any reclassification of the Common Stock of the Company
(other than a change in par value or as a result of a stock dividend or
subdivision, split-up or combination of shares), or of the consolidation or
merger of the Company with or into another person (other than a merger which
does not result in any reclassification, conversion, exchange or cancellation of
outstanding Common Stock) or of the sale of other disposition of all or
substantially all the properties and
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<PAGE> 4
assets of the Company as an entirety to any other person, the Warrant Shares
shall, after such reorganization, reclassification, consolidation, merger, sale
or other disposition, receive upon exercise of this Warrant, the kind and number
of shares of stock or other securities or property or cash of the Company or of
the entity resulting from such consolidation or surviving such merger or to
which such properties and assets shall have been sold or otherwise disposed to
which a holder of the number of Shares of Common Stock deliverable upon exercise
would have been entitled on such reorganization, reclassification,
consolidation, merger, sale or other disposition had this Warrant been exercised
immediately prior to such event assuming (i) such holder of Common Stock is not
a Person with which the Company consolidated or into which the Company merged or
which merged into the Company or to which such sale or transfer was made, as the
case may be ("constituent person"), or an Affiliate of a constituent Person and
(ii) in the case of a consolidation merger, sale or transfer which includes an
election as to the consideration to be received by the holders, such holder of
Common Stock failed to exercise its rights of election, as to the kind or amount
of securities, cash and other property receivable upon such consolidation,
merger, sale or transfer (provided that if the kind or amount of securities,
cash and other property receivable upon such consolidation, merger, sale or
transfer is not the same for each share of Common Stock held immediately prior
to such consolidation, merger, sale or transfer by other than a constituent
Person or an Affiliate thereof and in respect of which such rights of election
shall not have been exercised ("non-electing share"), then for the purpose of
this paragraph (i) the kind and amount of securities, cash and other property
receivable upon such consolidation, merger, sale or transfer by each
non-electing share shall be deemed to be the kind and amount so receivable per
share by a plurality of the non-electing shares). Adjustments for events
subsequent to the effective date of such a consolidation, merger and sale of
assets shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Warrant. In any such event, effective provisions shall be
made in the certificate or articles of incorporation of the resulting or
surviving corporation, in any contract of sale, conveyance, lease or transfer,
or otherwise so that the provisions set forth herein for the protection of the
rights of the Holder shall thereafter continue to be applicable; and any such
resulting or surviving corporation shall expressly assume the obligation to
deliver, upon exercise, such shares of stock, other securities, cash and
property. The provisions of this Section 4(f) shall similarly apply to
successive reorganizations, reclassifications, consolidations, mergers, sales or
other dispositions.
(g) All calculations under this Section 4 shall be made to the nearest
cent.
(h) In the event that, at any time as a result of the provisions of this
Section 4, the holder of this Warrant upon subsequent exercise shall become
entitled to receive any shares of capital stock of the Company other than Common
Stock, the number of such other shares so receivable upon exercise of this
Warrant shall thereafter be subject to adjustment from time to time in a manner
and on terms as nearly equivalent as practicable to the provisions contained
herein.
(i) Upon any adjustment of the Exercise Price, then and in each such case
the Company shall give written notice thereof, by first class mail, postage
prepaid, addressed to the holder of this Warrant at the last registered address
of such holder as shown on the books of the
-4-
<PAGE> 5
Company, which notice shall state the facts leading to, and the Exercise Price
resulting from, such adjustment.
5. PRIOR NOTICE AS TO CERTAIN EVENTS. If, at any time:
(a) the Company shall pay any dividend payable in stock upon its
Common Stock or make any distribution (other than cash dividends) to the holders
of its Common Stock;
(b) the Company shall offer for subscription pro rata to the
holders of its Common Stock any additional shares of stock of any class or any
other rights;
(c) there shall be any reorganization or reclassification of the
capital stock of the Company, or a consolidation or merger of the Company with,
or a sale of all or substantially all its assets to, another entity; or
(d) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in each such case, the Company shall give prior written notice,
by first class mail, postage prepaid, addressed to the Holder at its address
shown on the books of the Company, of the date on which (i) the books of the
Company shall close or a record shall be taken for such stock dividend,
distribution or subscription rights or (ii) such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up shall take place, as the case may be. Such notice shall also specify
the date as of which the holders of the Common Stock of record shall participate
in said dividend, distribution or subscription rights or shall be entitled to
exchange their Common Stock for securities or other property deliverable upon
such reorganization, reclassification, dissolution, liquidation or winding up,
as the case may be. Such written notice shall be given at least 30 days prior to
the action in question and not less than 30 days prior to the record date or the
date on which the Company's transfer books are closed in respect thereto.
6. RESERVATION OF COMMON STOCK. The Company shall, at all times,
reserve and keep available for issuance and delivery upon the exercise of this
Warrant such number of its authorized but unissued shares of Common Stock or
other securities of the Company as will be sufficient to permit the exercise in
full of this Warrant. Upon such issuance, all such shares will be validly
issued, fully paid and nonassessable free and clear of all liens, security
interests, charges and other encumbrances or restrictions on sale and free and
clear of all preemptive rights.
7. NO VOTING RIGHTS; LIMITATIONS OF LIABILITY. Prior to exercise, this
Warrant will not entitle the Holder to any voting rights or other rights as a
stockholder of the Company. No provision of this Warrant, in the absence of
affirmative action by the Holder to exercise this Warrant, and no enumeration in
this Warrant of the rights or privileges of the Holder, will give rise to any
liability of such Holder for the Exercise Price.
-5-
<PAGE> 6
8. EXERCISE PROCEDURE. (a) This Warrant may be exercised, in whole or
in part, or from time to time, prior to the Expiration Date, by presenting it
and tendering the Exercise Price, at the option of the Holder (i) in legal
tender, (ii) by bank cashier's or certified check, or (iii) by cancellation of
indebtedness owing under the Debenture held by Holder, at the principal office
of the Company along with written subscription substantially in the form of
Exhibit "A" attached hereto. The date on which this Warrant is thus surrendered,
accompanied by tender or payment as hereinbefore or hereinafter provided, is
referred to herein as the "Exercise Date." The Company shall forthwith at its
sole expense (including the payment of issue taxes), issue and deliver to Holder
certificates for the proper number of Warrant Shares upon exercise of this
Warrant within 10 days after the Exercise Date, and such Warrant Shares shall be
deemed issued and the Holder deemed the holder of record of such Warrant Shares,
for all purposes as of the opening of business on the Exercise Date,
notwithstanding any delay in the actual issuance.
(b) The Company shall pay any and all documentary, stamp or similar
issue or transfer taxes payable in respect of the issue or delivery of the
Warrant Shares.
(c) If the Holder exercises this Warrant in part, this Warrant shall
be surrendered by the Holder to the Company and a new Warrant of the same tenor
and for the unexercised number of Warrant Shares shall be executed by the
Company. The Company shall register the new Warrant in the name of the Holder or
in such name or names of its transferee pursuant to paragraph (12) hereof as may
be directed in writing by the Holder and deliver the new Warrant to the Person
or Persons entitled to receive the same.
9. Cashless Exercise.
-----------------
(a) RIGHT TO CONVERT. Notwithstanding anything herein to the contrary,
in lieu of payment of the applicable Exercise Price, the Holder may elect to
receive upon exercise of this Warrant, the number of Warrants Shares reduced by
a number of shares of Common Stock having the aggregate Fair Market Value equal
to the aggregate Exercise Price for the Warrant Shares.
(b) FAIR MARKET VALUE. For purposes hereof, the Fair Market Value of a
share of Common Stock is determined as follows:
(i) If the Common Stock of the Company is listed on a national
securities exchange or admitted to unlisted trading privileges on such exchange
or listed for trading on the Nasdaq Stock Market (National Market), the Fair
Market Value shall be the last reported sale price of the Common Stock on such
exchange or system on the last trading day prior to the date of exercise of this
Warrant or if no such sale is made on such day, the average closing bid and
asked prices for such day on such exchange or system.
(ii) If the Common Stock of the Company is not so listed or
admitted to unlisted trading privileges, the Fair Market Value shall be the mean
of the last reported bid and asked prices reported by the National Quotation
Bureau, Inc., on the last trading day prior to the date of the exercise of this
Warrant.
-6-
<PAGE> 7
(iii) If the Common Stock of the Company is not so listed or
admitted to unlisted trading privileges and bid and asked prices are not so
reported, the Fair Market Value shall be an amount reasonably determined in such
reasonable manner as may be prescribed by the Board of Directors of the Company
(c) METHOD OF EXERCISE. This Warrant may be exercised in accordance
with the provisions of this Section 9 by the surrender of this Warrant at the
principal office of the Company together with a written statement specifying
that the Holder thereby intends to so exercise the Warrant. With the exception
of the payment of the Exercise Price, the provisions of Section 8 hereof shall
apply to any such exercise.
10. TRANSFER OF BORROWERS' BUSINESS. If, prior to the issuance of the
Warrant Shares hereunder, a "Transfer of Borrowers' Business" (as defined in
Article I of the Investment Agreement) shall occur, the Holder, at its option,
may receive, in lieu of the Warrant Shares otherwise issuable hereunder, such
money or property as it would have been entitled to receive if this Warrant had
been exercised immediately prior to the Transfer of Borrowers' Business.
11. SALE OF WARRANT OR SHARES. Neither this Warrant nor any of the
Warrant Shares have been registered under the Act or under the securities laws
of any state. Neither this Warrant nor any of the Warrant Shares (when issued)
may be sold, assigned, transferred, pledged or hypothecated or otherwise
disposed of in the absence of: (a) an effective registration statement for this
Warrant or the Warrant Shares, as the case may be, under the Act and such
registration or qualification as may be necessary under the securities laws of
any state, or (b) an opinion of counsel reasonably satisfactory to the Company
that such registration or qualification is not required. The Company shall cause
a certificate or certificates evidencing all or any of the Warrant Shares issued
upon exercise of the purchase rights herein prior to said registration and
qualification of such shares to bear the following legend:
THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES LAWS
OF ANY STATE. THE SHARES MAY NOT BE OFFERED, SOLD, ASSIGNED, TRANSFERRED,
PLEDGED OR HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND SUCH REGISTRATION OR QUALIFICATION AS MAY BE NECESSARY UNDER
THE SECURITIES LAWS OF ANY STATE, OR AN OPINION OF COUNSEL SATISFACTORY TO
THE COMPANY THAT SUCH REGISTRATION OR QUALIFICATION IS NOT REQUIRED.
12. TRANSFER. This Warrant shall be registered on the books of the
Company which shall be kept at the offices of the Company for that purpose, and
shall be transferable in whole or in part, but only on such books by the Holder
in person or by duly authorized attorney with written notice substantially in
the form of Exhibit "B" attached hereto, and only in
-7-
<PAGE> 8
compliance with the preceding paragraph. The Company may issue appropriate stop
orders to its transfer agent to prevent a transfer in violation of the preceding
paragraph.
13. REPLACEMENT OF WARRANT. At the request of the Holder and on
production of evidence reasonably satisfactory to the Company of the loss,
theft, destruction or mutilation of this Warrant and (in the case of loss, theft
or destruction) if required by the Company, upon reasonably satisfactory
indemnification, the Company, at Holder's expense, will issue in lieu thereof a
new Warrant of like tenor.
14. INVESTMENT COVENANT. By its acceptance hereof, the Holder
represents and warrants that this Warrant is, and any Warrant Shares issued
hereunder will be, acquired for its own account for investment purposes, and the
Holder covenants that it will not distribute the same in violation of any state
or federal law or regulation.
15. REGISTRATION RIGHTS. The Holder has certain "piggyback" and
"demand" registration rights in regard to the Warrant Shares issued or issuable
hereunder as set forth in the Registration Rights Agreement, dated of even date
herewith between the Company, the Holder, and certain other parties thereto.
16. GOVERNING LAW. This Warrant shall be construed according to the
laws of Delaware (other than its conflict of law rules).
17. AMENDMENTS; WAIVERS. Any provision of this Warrant may be amended
or waived if, and only if, such amendment or waiver is in writing and signed, in
the case of an amendment, by the Holder and the Company, or in the case of a
waiver, by the party against whom the waiver is to be effective. No failure or
delay by either party in exercising any right, power or privilege hereunder
shall operate as a waiver thereof nor shall any single or partial exercise
thereof preclude any other or further exercise thereof or the exercise of any
other right, power or privilege. The rights and remedies herein provided shall
be cumulative and not exclusive of any rights or remedies provided by law.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
on its behalf, in its corporate name, by its President, and its corporate seal
to be hereunto affixed and the said seal to be attested by its Secretary, as of
the 24th day of July, 1996.
AU BON PAIN CO., INC.
a Delaware corporation
Attest: By: [Seal]
---------------------- --------------------------
President
-8-
<PAGE> 9
EXHIBIT A
---------
IRREVOCABLE SUBSCRIPTION
------------------------
To: AU BON PAIN CO., INC.
The undersigned hereby elects to exercise its right under the attached
Warrant by purchasing ________________ shares of the Common Stock of AU BON PAIN
CO., INC., and hereby irrevocably subscribes to such issue. The certificates for
such shares shall be issued in the name of:
------------------------------
(Name)
------------------------------
(Address)
------------------------------
(Taxpayer Number)
and delivered to:
------------------------------
(Name)
------------------------------
(Address)
The Exercise Price of $______ is enclosed.
or
In lieu of payment of the Exercise Price, the undersigned hereby
invokes the provisions of Section 9 of the Warrant.
Date:
---------------
Signed:
---------------------------------------------------
(Name of Holder, Please Print)
----------------------------------------
(Address)
----------------------------------------
(Signature)
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<PAGE> 10
EXHIBIT B
---------
ASSIGNMENT
----------
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto:
-------------------------------
(Name)
-------------------------------
(Address)
the attached Warrant, together with all right, title and interest
therein to purchase _____________ shares of the Common Stock of AU BON PAIN CO.,
INC., and does hereby irrevocably appoint _______________________ as
attorney-in-fact to transfer said Warrant on the books of AU BON PAIN CO., INC.,
with full power of substitution in the premises.
Done this ______ day of ____________ 19____.
------------------------------
(Signature)
------------------------------
(Name and title)
------------------------------
------------------------------
(Address)
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<PAGE> 1
REGISTRATION RIGHTS AGREEMENT
-----------------------------
REGISTRATION RIGHTS AGREEMENT dated as of July 24, 1996 among (a) ALLIED
CAPITAL CORPORATION, a Maryland corporation, ("ACC") ALLIED CAPITAL CORPORATION
II ("ACC II"), a Maryland corporation, CAPITAL TRUST INVESTMENTS, LTD., a
Guernsey corporation ("CTI" and collectively with ACC and ACC II, the "Allied
Holders"), (b) PRINCES GATE INVESTORS, L.P., ("Princes Gate"), ACORN PARTNERSHIP
I, L.P., ("Acorn"), PGI INVESTMENTS LIMITED, ("PGI"), PGI SWEDEN AB, ("PGI
Sweden"), and GREGOR VON OPEL, ("GVO" and collectively with Princes Gate, Acorn,
PGI, and PGI Sweden, the "PG Holders"), and (c) AU BON PAIN CO., INC., a
Delaware corporation ("ABP" or the "Issuer").
WHEREAS, ACC, ACC II AND CTI have agreed to extend credit to ABP, Saint
Louis Bread Company, Inc. and ABP Midwest Manufacturing, Inc. pursuant to an
Investment Agreement dated as of July 24, 1996 (the "Investment Agreement"), by
and among ACC, ACC II and CTI and ABP, Saint Louis Bread Company, Inc. and ABP
Midwest Manufacturing, Inc.; and
WHEREAS, pursuant to the terms of a certain Securities Purchase Agreement
(the "Securities Purchase Agreement") dated as of December 1993, Princes Gate,
Acorn, PGI, PGI Sweden, GVO and PG Holdings have purchased from ABP, and are
currently the holders of, ABP's 4.75% Convertible Subordinated Notes due January
2, 2001 in the aggregate principal amount of $30,000,000 (as amended, modified
or restated and in effect from time to time, the "4.75% Subordinated Convertible
Notes") and in connection therewith were granted certain registration rights by
ABP, which rights were granted to the PG Holders in said Securities Purchase
Agreement and Exhibit D thereto (collectively the "Original Registration Rights
Agreements"). The PG Holders and ABP desire to terminate their respective rights
and obligations under the Original Registration Rights Agreements in
consideration of the execution by ABP and each of the PG Holders of this
Agreement; and
WHEREAS, in order to induce Allied Holders to enter into the Investment
Agreement and the other agreements and transactions contemplated thereby, ABP
has agreed to enter into this Agreement with the Allied Holders and the PG
Holders.
ARTICLE I
DEFINITIONS
SECTION 1.1. DEFINITIONS. The following terms, as used herein, have the
following meanings:
"Affiliate" has the meaning provided in Rule 405 promulgated under the
Securities Act.
"Allied Holders" has the meaning provided in the first recital above.
"Allied Majority Holders" means the Holder or Holders of 75% of Registrable
Securities then held by Allied Holders.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Class A Common Stock, par value of $.0001 per
share, of the Issuer.
<PAGE> 2
"Demand Registration" means, unless the context requires another meaning, a
registration request pursuant to Section 2.1 (a)(1) or Section 2.1(b)(1) of this
Agreement.
"Holder" means the initial purchaser of any Registrable Security or any
permitted assignee or transferee of such Registrable Security.
"Issuer" has the meaning set forth in the introductory paragraph above.
"Majority Holders" means the Holder or Holders of a majority of Registrable
Securities then outstanding.
"PG Holders" has the meaning set forth in the second recital above.
"PG Majority Holders" means the Holder or Holders of a majority of
Registrable Securities then held by PG Holders.
"Piggy-Back Registration" means a Piggy-Back Registration as defined in
Section 2.2.
"Registrable Securities" means the shares of Common Stock issued or
issuable upon conversion of the 4.75% Subordinated Convertible Notes and the
shares of Common Stock issued or issuable upon exercise of the Warrants, and any
securities into which such Common Stock shall have been changed or any
securities resulting from any reclassification of such Common Stock, until (i) a
registration statement covering such shares of Common Stock has been declared
effective by the Commission and such shares have been disposed of pursuant to
such effective registration statement, (ii) such shares are sold under
circumstances in which all of the applicable conditions of Rule 144 (or any
similar provisions then in force) under the Securities Act are met or (iii) such
shares have been otherwise transferred and the Issuer has delivered a new
certificate or other evidence of ownership for such shares not bearing a legend
referring to restrictions on transfer under the Securities Act and such shares
may be resold without subsequent registration under the Securities Act.
"Securities Act" means the Securities Act of 1933, as amended.
"Selling Holder" means a Holder who is selling Registrable Securities
pursuant to a registration statement under the Securities Act.
"Underwriter" means a securities dealer who purchases any Registrable
Securities as principal and not as part of such dealer's market-making
activities.
"Warrants" means the stock purchase warrants issued and sold by the Issuer
to (i) the Allied Holders pursuant to the Subordinated Investment Agreement and
(ii) to the PG Holders pursuant to the Agreement and Waiver among the Issuer,
certain of its subsidiaries and the PG Holders dated as of the date hereof.
ARTICLE II
REGISTRATION RIGHTS
SECTION 2.1. Demand Registration.
-------------------
(a) By Allied Holders.
-----------------
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<PAGE> 3
(1) REQUEST FOR REGISTRATION. Allied Majority Holders may make a
written request for registration under the Securities Act of all or part of
their Registrable Securities (an "Allied Demand Registration"); provided, that
(x) the Issuer shall not be obligated to effect more than one Allied Demand
Registration in any 12-month period, and no more than two Allied Demand
Registrations in total and (y) the number of shares requested to be sold in each
such registration shall have an aggregate fair market value (determined at the
time such request is made) of at least Three Million Dollars ($3,000,000) or, if
less, shall constitute all Registrable Securities then held by Allied Holders.
Such request will specify the number of shares of Registrable Securities
proposed to be sold and will also specify the intended method of disposition
thereof. Within 5 Business Days after receipt of such request, the Issuer will
give written notice of such registration request to all other Holders of the
Registrable Securities and include in such registration all such Registrable
Securities with respect to which the Issuer has received written requests for
inclusion therein within 10 Business Days after the receipt by the applicable
Holder of the Issuer's notice. Each such request will also specify the number of
shares of Registrable Securities to be registered and the intended method of
disposition thereof.
(2) ADDITIONAL DEMAND REGISTRATIONS. If the Allied Majority
Holders in an Allied Demand Registration so elect, the offering of such
Registrable Securities pursuant to such Allied Demand Registration shall be in
the form of an underwritten offering. The Allied Majority Holders shall select
the book-running managing Underwriter in connection with such offering and any
additional investment bankers and managers to be used in connection with the
offering; provided that such managing Underwriter and additional investment
bankers and managers must be reasonably satisfactory to the Issuer. To the
extent 10% or more of the Registrable Securities so requested to be registered
by the Allied Majority Holders are excluded from the offering in accordance with
Section 2.3, then such demand shall not count for purposes of the limitations
set forth in Section 2.1(a)(1) above.
(b) By PG Holders.
-------------
(1) REQUEST FOR REGISTRATION. PG Holders may make a written
request for registration under the Securities Act of all or part of their
Registrable Securities (a "PG Demand Registration"); provided, that (x) the
Issuer shall not be obligated to effect more than one PG Demand Registration in
any 12-month period, and no more than two PG Demand Registrations in total and
(y) the number of shares requested to be sold in each such registration shall
have an aggregate fair market value (determined at the time such request is
made) of at least $3 million or, if less, shall constitute all Registrable
Securities then held by PG Holders. Such request will specify the number of
shares of Registrable Securities proposed to be sold and will also specify the
intended method of disposition thereof. Within 5 Business Days after receipt of
such request, the Issuer will give written notice of such registration request
to all other Holders of the Registrable Securities and include in such
registration all such Registrable Securities with respect to which the Issuer
has received written requests for inclusion therein within 10 Business Days
after the receipt by the applicable Holder of the Issuer's notice. Each such
request will also specify the number of shares of Registrable Securities to be
registered and the intended method of disposition thereof.
(2) ADDITIONAL DEMAND REGISTRATIONS. If the PG Majority Holders
in a PG Demand Registration so elect, the offering of such Registrable
Securities pursuant to such PG Demand Registration shall be in the form of an
underwritten offering. The PG Holders shall select the book-running managing
Underwriter in connection with such offering and any additional investment
bankers and managers to be used in connection with the offering; provided that
such managing Underwriter and additional investment bankers and managers shall
be reasonably satisfactory to the Issuer. To the extent 10% or more of the
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<PAGE> 4
Registrable Securities so requested to be registered by the PG Holders are
excluded from the offering in accordance with Section 2.3, then such demand
shall not count for purposes of the limitations set forth in Section 2.1 (b)(i)
above.
SECTION 2.2. PIGGY-BACK REGISTRATION. If the Issuer proposes to file a
registration statement under the Securities Act with respect to an offering by
the Issuer for its own account or for the account of any of its respective
security holders of any class of security (other than a registration statement
on Form S-4 or S-8 (or any substitute form that may be adopted by the
Commission), or filed in connection with an exchange offer or offering of
securities solely to the Issuer's existing security holders), including a
registration statement filed in connection with a Demand Registration, then the
Issuer shall give written notice of such proposed filing to the Holders of
Registrable Securities as soon as practicable (but in no event less than 10
business days before the anticipated filing date), and such notice shall offer
such Holders the opportunity to register such number of shares of Registrable
Securities as each such Holder may request (a "Piggy-Back Registration"). The
Issuer shall use its best efforts to cause the managing Underwriter or
Underwriters of a proposed underwritten offering to permit the Registrable
Securities requested to be included in a Piggy-Back Registration to be included
on the same terms and conditions as any similar securities of the Issuer
included therein.
SECTION 2.3. REDUCTION OF OFFERING. Notwithstanding anything contained
herein, if the managing Underwriter or Underwriters of an offering described in
Section 2.1(a)(1), Section 2.1 (b)(1 ) or Section 2.2 deliver a written opinion
to the Holders of the Registrable Securities included in such offering that (i)
the size of the offering that the Holders, the Issuer and such other persons
intend to make or (ii) the kind of securities that the Holders, the Issuer and
any other persons or entities intend to include in such offering are such that
the success of the offering would be materially and adversely affected by
inclusion of the Registrable Securities requested to be included, then if the
size of the offering is the basis of such Underwriter's opinion, the amount of
securities to be offered shall be cut back only to the extent necessary and the
accounts of Holders shall be reduced pro rata (according to the Registrable
Securities proposed for registration) to such extent to reduce the total amount
of securities to be included in such offering to the amount recommended by such
managing Underwriter or Underwriters, which securities shall be included in the
following order of priority:
(1) with respect to an Allied Demand Registration, the Issuer will include
in such registration in the following priority: (x) first, up to the
full amount of Registrable Securities proposed to be offered and sold
by the Allied Holders, reduced pro rata to the extent necessary, (y)
second, up to the full amount of Registrable Securities proposed to be
offered and sold by the PG Holders, reduced pro rata to the extent
necessary, and then (z) any shares of Common Stock held by other
persons that the Issuer may be obligated to include in such
registration;
(2) with respect to a PG Demand Registration, the Issuer will include in
such registration in the following priority: (x) first, up to the full
amount of Registrable Securities proposed to be offered and sold by
the PG Holders, reduced pro rata to the extent necessary, (y) second,
up to the full amount of Registrable Securities proposed to be offered
and sold by the Allied Holders, reduced pro rata to the extent
necessary, and then (z) any shares of Common Stock held by other
persons that the Issuer may be obligated to include in such
registration; and
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<PAGE> 5
(3) with respect to a registration initiated by the Issuer for its own
account, (x) first, all shares of Common Stock the Issuer proposes to
offer and sell, (y) second, up to the full amount of Registrable
Securities proposed to be offered and sold by Holders of Registrable
Securities, reduced pro rata to the extent necessary, and then (z) any
shares of Common Stock held by other persons that the Issuer may be
obligated to include in such registration; and
ARTICLE III
REGISTRATION PROCEDURES
SECTION 3.1. FILINGS; INFORMATION. Whenever Holders request that any
Registrable Securities be registered pursuant to Section 2.1 hereof, the Issuer
will use its best efforts to effect the registration and the sale of such
Registrable Securities in accordance with the intended method of disposition
thereof as quickly as practicable, and in connection with any such request:
(a) The Issuer will as expeditiously as possible and in any event within 30
days from the receipt of such request prepare and file with the Commission a
registration statement on any form for which the Issuer then qualifies or which
counsel for the Issuer shall deem appropriate and which form shall be available
for the sale of the Registrable Securities to be registered thereunder in
accordance with the intended method of distribution thereof, and use its best
efforts to cause such filed registration statement to become and remain
effective for a period of not less than 180 days; provided that if the Issuer
shall furnish to the Holders making a request pursuant to Section 2.1 a
certificate signed by its Chairman of the Board (or either Co-Chairman of the
Board) stating that in his good faith judgment it would be significantly
disadvantageous to the Issuer or its shareholders for such a registration
statement to be filed as expeditiously as possible and stating the reasons for
such judgment, the Issuer shall have a period of not more than 90 days within
which to file such registration statement measured from the date of receipt of
the request in accordance with Section 2.1.
(b) The Issuer will, if requested, prior to filing a registration statement
or prospectus or any amendment or supplement thereto, furnish to each Selling
Holder and each Underwriter, if any, of the Registrable Securities covered by
such registration statement copies of such registration statement as proposed to
be filed, and thereafter furnish to such Selling Holder and Underwriter, if any,
such number of copies of such registration statement, each amendment and
supplement thereto (in each case including all exhibits thereto and documents
incorporated by reference therein), the prospectus included in such registration
statement (including each preliminary prospectus) and such other documents as
such Selling Holder or Underwriter may reasonably request in order to facilitate
the disposition of the Registrable Securities owned by such Selling Holder. Each
Selling Holder shall provide the Issuer with its or his comments to such
registration statement, prospectus and amendments thereto or supplements
thereof, as the case may be, within five (5) business days of its or his receipt
of such document(s).
(c) After the filing of the registration statement, the Issuer will
promptly notify each Selling Holder of Registrable Securities covered by such
registration statement of any stop order issued or threatened by the Commission
and take all reasonable actions required to prevent the entry of such stop order
or to remove it if entered.
(d) The Issuer will use its best efforts to (i) register or qualify the
Registrable Securities under such other securities or blue sky laws of such
jurisdictions in the United States as any Selling Holder reasonably (in light of
such Selling Holder's intended plan of distribution) requests and (ii) cause
such Registrable Securities to be registered with or
-5-
<PAGE> 6
approved by such other governmental agencies or authorities as may be necessary
by virtue of the business and operations of the Issuer and do any and all other
acts and things that may be reasonably necessary or advisable to enable such
Selling Holder to consummate the disposition of the Registrable Securities owned
by such Selling Holder: provided that the Issuer will not be required to (A)
qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this paragraph (d), (B) subject itself
to taxation in any such jurisdiction or (C) consent to general service of
process in any such jurisdiction.
(e) The Issuer will immediately notify each Selling Holder of such
Registrable Securities, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, of the occurrence of an event
requiring the preparation of a supplement or amendment to such prospectus so
that, as thereafter delivered to the purchasers of such Registrable Securities,
such prospectus will not contain an untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading and promptly make available to each
Selling Holder any such supplement or amendment.
(f) The Issuer and the Selling Holders will enter into customary agreements
(including an underwriting agreement in customary form) and take such other
actions as are reasonably required in order to expedite or facilitate the
disposition of such Registrable Securities.
(g) The Issuer will make available for inspection by any Selling Holder of
such Registrable Securities, any Underwriter participating in any disposition
pursuant to such registration statement and any attorney, accountant or other
professional retained by any such Selling Holder or Underwriter (collectively,
the "Inspectors"), all financial and other records, pertinent corporate
documents and properties of the Issuer (collectively, the "Records") as shall be
reasonably necessary to enable them to exercise their due diligence
responsibility, and cause the Issuer's officers, directors and employees to
supply all information reasonably requested by any Inspectors in connection with
such registration statement. Records which the Issuer reasonably determines, in
good faith, to be confidential and which it notifies the Inspectors are
confidential shall not be disclosed by the Inspectors unless (i) the disclosure
of such Records is necessary to avoid or correct a misstatement or omission in
such registration statement or (ii) the release of such Records is ordered
pursuant to a subpoena or other order from a court of competent jurisdiction.
Each Selling Holder of such Registrable Securities agrees that information
obtained by it as a result of such inspections shall be deemed confidential and
shall not be used by it as the basis for any market transactions in the
securities of the Issuer or its Affiliates unless and until such is made
generally available to the public. Each Selling Holder of such Registrable
Securities further agrees that it will, upon learning that disclosure of such
Records is sought by subpoena or in a court of competent jurisdiction, give
notice to the Issuer and allow the Issuer, at its expense, to undertake
appropriate action to prevent disclosure of the Records deemed confidential.
(h) The Issuer will furnish, at the effectiveness of the registration
statement and again at closing, to each Selling Holder and to each Underwriter,
if any, a signed counterpart, addressed to such Selling Holder and such
Underwriter, of (i) an opinion or opinions of counsel to the Issuer and (ii) a
comfort letter or comfort letters from the Issuer's independent public
accountants, each in customary form and covering such matters of the type
customarily covered by opinions or comfort letters, as the case may be.
(i) The Issuer will otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available to its
security holders, as soon as reasonably practicable, an earnings statement
covering a period of 12 months, beginning
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<PAGE> 7
within three months after the effective date of the registration statement,
which earnings statement shall satisfy the provisions of Section 11 (a) of the
Securities Act.
(j) The Issuer will use its best efforts to cause all such Registrable
Securities to be listed on each securities exchange or quotation system on which
similar securities issued by the Issuer are then listed. The Issuer's registrar
and transfer agent is Boston Equiserve, L.P., 150 Royal Street, Canton, MA
02021.
As a condition to its rights to sell Registrable Securities in such
registration, each Selling Holder of Registrable Securities shall, upon the
Issuer's request, promptly furnish in writing to the Issuer such information
regarding the distribution of the Registrable Securities as the Issuer may from
time to time reasonably request and such other information as may be legally
required in connection with such registration.
Each Selling Holder agrees that, upon receipt of any notice from the Issuer
of the happening of any event of the kind described in Section 3 .1 (e) hereof,
such Selling Holder will forthwith discontinue disposition of Registrable
Securities pursuant to the registration statement covering such Registrable
Securities until such Selling Holder's receipt of the copies of the supplemented
or amended prospectus contemplated by Section 3.1 (e) hereof, and, if so
directed by the Issuer, such Selling Holder will deliver to the Issuer all
copies, other than permanent file copies then in such Selling Holder's
possession, of the most recent prospectus covering such Registrable Securities
at the time of receipt of such notice. In the event the Issuer shall give such
notice, the Issuer shall extend the period during which such registration
statement shall be maintained effective (including the period referred to in
Section 3.1 (a) hereof) by the number of days during the period from and
including the date of the giving of notice pursuant to Section 3.1 (e) hereof
to the date when the Issuer shall make available to the Selling Holders of
Registrable Securities covered by such registration statement a prospectus
supplemented or amended to conform with the requirements of Section 3.1(e)
hereof.
SECTION 3.2. REGISTRATION EXPENSES. In connection with any registration
statement required to be filed hereunder, the Issuer shall pay all expenses
incurred in connection with the registration hereunder (the "Registration
Expenses") including, without limitation, the following: (i) all registration
and filing fees, (ii) fees and expenses of compliance with securities or blue
sky laws (including reasonable fees and disbursements of counsel in connection
with blue sky qualifications of the Registrable Securities), (iii) printing
expenses, (iv) internal expenses (including, without limitation, all salaries
and expenses of its officers and employees performing legal or accounting
duties), (v) the fees and expenses incurred in connection with the listing of
the Registrable Securities, (vi) reasonable fees and disbursements of counsel
for the Issuer and customary fees and expenses for independent certified public
accountants retained by the Issuer (including the expenses of any comfort
letters or costs associated with the delivery by independent certified public
accountants of a comfort letter or comfort letters requested pursuant to Section
3 .1 (h) hereof), (vii) the reasonable fees and expenses of any special experts
retained by the Issuer in connection with such registration, and (viii)
reasonable fees and expenses of not more than one counsel (who shall be
reasonably acceptable to the Issuer) for all Holders whose Registrable
Securities are included in such registration provided however, that if
representation for all such Holders by the same counsel would be inappropriate
due to actual or potential differing interests between them, then in any such
case the Issuer shall pay the reasonable fees and expenses of one additional
counsel. The Issuer shall have no obligation to pay any underwriting fees,
discounts or commissions attributable to the sale of Registrable Securities.
ARTICLE IV
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<PAGE> 8
INDEMNIFICATION AND CONTRIBUTION
SECTION 4.1. INDEMNIFICATION BY THE ISSUER. The Issuer agrees to indemnify
and hold harmless each Selling Holder of Registrable Securities, its officers,
directors and agents, and each Person, if any, who controls the Issuer (an
"Issuer Control Person") or such Selling Holder within the meaning, in each
case, of Section 15 of the Securities Act or Section 20 of the Exchange Act from
and against any and all losses, claims, damages and liabilities caused by any
untrue statement or alleged untrue statement of a material fact contained in any
registration statement or prospectus relating to the Registrable Securities (as
amended or supplemented if the Issuer shall have furnished any amendments or
supplements thereto) or any preliminary prospectus, or caused by any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading except insofar as
such losses, claims, damages or liabilities are caused by any such untrue
statement or omission or alleged untrue statement or omission based upon
information furnished in writing to the Issuer by such Selling Holder or on such
Selling Holder's behalf expressly for use therein provided, however, that the
foregoing indemnity agreement with respect to any preliminary prospectus shall
not inure to the benefit of any Selling Holder from whom the person asserting
any such loss, claim, damage or liability purchased the Registrable Securities
if it is determined that (i)it was the responsibility of such Selling Holder to
provide such person with a current copy of the prospectus, (ii) such Selling
Holder had been furnished with copies of such current prospectus within a
reasonable time prior to such purchase, and (iii) such current copy of the
prospectus would have cured the defect giving rise to such loss, claim, damage
or liability. The Issuer also agrees to indemnify any Underwriters of the
Registrable Securities, their officers and directors and each person who
controls such underwriters on substantially the same basis as that of the
indemnification of the Selling Holders provided in this Section 4.1.
SECTION 4.2. INDEMNIFICATION BY HOLDERS OF REGISTRABLE SECURITIES. Each
Selling Holder agrees, severally but not jointly, to indemnify and hold harmless
the Issuer, its officers, directors and agents and each Person, if any, who
controls the Issuer within the meaning of either Section 15 of the Securities
Act or Section 20 of the Exchange Act to the same extent as the foregoing
indemnity from the Issuer to such Selling Holder, but only with reference to
information related to such Selling Holder furnished in writing by such Selling
Holder or on such Selling Holder's behalf expressly for use in any registration
statement or prospectus relating to the Registrable Securities, or any amendment
or supplement thereto, or any preliminary prospectus subject to the proviso that
the liability of each Selling Holder to the Issuer and its officers, directors,
agents and control persons set forth in this Section 4.2 shall be limited to the
net proceeds received by such Selling Holder as a result of his or its sale of
Registrable Securities pursuant to such registration statement or prospectus
(including amendments and supplements thereto) Notwithstanding the foregoing,
each Selling Holder also agrees to indemnify and hold harmless Underwriters of
the Registrable Securities, their officers and directors and each person who
controls such Underwriters on substantially the same basis as that of the
indemnification of the Issuer provided in this Section 4.2.
SECTION 4.3. CONDUCT OF INDEMNIFICATION PROCEEDINGS. In case any proceeding
(including any governmental investigation) shall be instituted involving any
person in respect of which indemnity may be sought pursuant to Section 4.1 or
4.2, such person (an "Indemnified Party") shall promptly notify the person
against whom such indemnity may be sought (an "Indemnifying Party") in writing
and the Indemnifying Party shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to such Indemnified Party, and
shall assume the payment of all fees and expenses. In any such proceeding, any
Indemnified Party shall have the right to retain its own counsel, but the fees
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<PAGE> 9
and expenses of such counsel shall be at the expense of such Indemnified Party
unless (i) the Indemnifying Party and the Indemnified Party shall have mutually
agreed to the retention of such counsel, (ii) the named parties to any such
proceeding (including any impleaded parties) include both the Indemnified Party
and the Indemnifying Party and representation of both parties by the same
counsel would be inappropriate due to actual or potential differing interests
between them as reasonably determined by the Indemnified Party or (iii)
Indemnifying Party fails to retain counsel or diligently pursue the defense. It
is understood that the Indemnifying Party shall not, in connection with any
proceeding or related proceedings in the same jurisdiction, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys (in
addition to any local counsel) at any time for all such Indemnified Parties, and
that all such fees and expenses shall be reimbursed as they are incurred. In the
case of any such separate firm for the Indemnified Parties, such firm shall be
designated in writing by the Indemnified Parties. The Indemnifying Party shall
not be liable for any settlement of any proceeding effected without its consent,
but if settled with such consent, or if there be a final judgment for the
plaintiff, the Indemnifying Party shall indemnify and hold harmless such
Indemnified Parties from and against any loss or liability (to the extent stated
above) by reason of such settlement or judgment. Notwithstanding the foregoing
sentence, if at any time an Indemnified Party shall have requested an
Indemnifying Party to reimburse the Indemnified Party for fees and expenses of
counsel as contemplated by the third sentence of this paragraph, the
Indemnifying Party agrees that it shall be liable for any settlement of any
proceeding effected without its written consent if (i) such settlement is
entered into more than 30 business days after receipt by such Indemnifying Party
of the aforesaid request and (ii) such Indemnifying Party shall not have
reimbursed the Indemnified Party in accordance with such request prior to the
date of such settlement. No Indemnifying Party shall, without the prior written
consent of the Indemnified Party, effect any settlement of any pending or
threatened proceeding in respect of with any Indemnified Party is or could have
been a party and indemnity could have been sought hereunder by such Indemnified
Party, unless such settlement includes an unconditional release of such
Indemnified Party from all liability arising out of such proceeding.
SECTION 4.4. CONTRIBUTION. If the indemnification provided for in this
Article 4 is unavailable to the Indemnified Parties in respect of any losses,
claims, damages or liabilities referred to herein, then each such Indemnifying
Party, in lieu of indemnifying such Indemnified Party, shall contribute to the
amount paid or payable by such Indemnified Party as a result of such losses,
claims, damages or liabilities (i) as between the Issuer and the Selling Holders
(subject to the limitations on liabilities of each Selling Holder to the Issuer
set forth in the proviso contained in Section 4.2 hereof) on the one hand and
the Underwriters on the other, in such proportion as is appropriate to reflect
the relative benefits received by the Issuer and the Selling Holders on the one
hand and the Underwriters on the other from the offering of the Registrable
Securities, or if such allocation is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits but also
the relative fault of the Issuer and the Selling Holders on the one hand and of
the Underwriters on the other in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities, as well as any
other relevant equitable considerations and (ii) as between the Issuer on the
one hand and each Selling Holder on the other, in such proportion as is
appropriate to reflect the relative fault of the Issuer and of each Selling
Holder in connection with such statements or omissions, as well as any other
relevant equitable considerations. The relative benefits received by the Issuer
and the Selling Holders on the one hand and the Underwriters on the other shall
be deemed to be in the same proportion as the total proceeds from the offering
(net of underwriting discounts and commissions but before deducting expenses)
received by the Issuer and the Selling Holders bear to the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover page of the prospectus. The relative fault of
the Issuer and the Selling Holders on the one hand and of the Underwriters on
the other shall be determined by
-9-
<PAGE> 10
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Issuer and the Selling Holders or by the
Underwriters. The relative fault of the Issuer on the one hand and of each
Selling Holder on the other shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by such party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Issuer and the Selling Holders agree that it would not be just and
equitable if contribution pursuant to this Section 4.4 were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph. The
amount paid or payable by an Indemnified Party as a result of the losses,
claims, damages or liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such Indemnified Party
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 4.4, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Registrable Securities underwritten by it and distributed to
the public were offered to the public exceeds the amount of any damages which
such Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission, and no Selling Holder
shall be required to contribute any amount in excess of the amount by which the
total price at which the Registrable Securities of such Selling Holder were
offered to the public exceeds the amount of any damages which such Selling
Holder has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section ll(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Selling Holder's obligations to contribute
pursuant to this Section 4.4 are several in proportion to the proceeds of the
offering received by such Selling Holder bears to the total proceeds of the
offering received by all the Selling Holders and not Joint.
ARTICLE V
MISCELLANEOUS
SECTION 5.1. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No Person may
participate in any underwritten registration hereunder unless such Person (a)
agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Persons entitled hereunder to approve
such arrangements and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements and these
Registration Rights.
SECTION 5.2. RULE 144. The Issuer covenants that it will use its best
efforts to file any reports required to be filed by it under the Securities Act
and the Exchange Act and that it will take such further action as any Holder may
reasonably request, all to the extent required from time to time to enable
Holders to sell Registrable Securities without registration under the Securities
Act within the limitation of the exemptions provided by (a) Rule 144 under the
Securities Act, as such Rule may be amended from time to time, or (b) any
similar rule or regulation hereafter adopted by the Commission. Upon the request
of any Holder, the Issuer will deliver to such Holder a written statement as to
whether it has complied with such requirements.
-10-
<PAGE> 11
SECTION 5.3. HOLDBACK AGREEMENTS. (a) RESTRICTIONS ON PUBLIC SALE BY HOLDER
OF REGISTRABLE SECURITIES. To the extent not inconsistent with applicable law,
each Holder whose securities are included in a registration statement agrees not
to effect any public sale or distribution of the issue being registered or a
similar security of the Issuer, or any securities convertible into or
exchangeable or exercisable for such securities, including a sale pursuant to
Rule 144 under the Securities Act, during the 14 days prior to, and during the
90-day period beginning on, the effective date of such registration statement
(except as part of such registration), if and to the extent requested by the
managing Underwriter or Underwriters in the case of an underwritten public
offering.
(b) RESTRICTIONS ON PUBLIC SALE BY THE ISSUER AND OTHERS. The Issuer and
its Affiliates agree (i) not to effect any public sale or distribution of any
securities similar to those being registered in accordance with Section 2.1 or
Section 2.2 hereof, or any securities convertible into or exchangeable or
exercisable for such securities, during the 14 days prior to, and during the
90-day period beginning on, the effective date of any registration statement
(except as part of such registration statement where the Majority Holders of the
Registrable Securities to be included in such registration statement consent) or
the commencement of a public distribution of Registrable Securities; and (ii)
that any agreement entered into after the date of the Agreement pursuant to
which the Issuer issues or agrees to issue any privately placed securities shall
contain a provision under which holders of such securities agree not to effect
any public sale or distribution of any such securities during the periods
described in (i) above, in each case including a public sale or distribution
pursuant to Rule 144 under the Securities Act (except as part of any such
registration, if permitted); provided, however, that the provisions of this
paragraph (b) shall not prevent the conversion or exchange of any securities
pursuant to their terms into or for other securities.
SECTION 5.4. EXISTING REGISTRATION AGREEMENTS. Issuer represents that it is
not obligated under any agreement other than this Agreement to register any of
its securities on behalf of third parties. Issuer covenants and agrees it will
not, in the absence of a written agreement with each of the PG Majority Holders
and the Allied Majority Holders, on and after the date hereof grant any
registration rights to any third party except on terms which subordinates those
registration rights to the rights granted under this Agreement.
SECTION 5.5. NOTICES. All notices or communications under this agreement or
the Debentures shall be mailed, postage prepaid, delivered by facsimile, or
delivered by courier to the following addresses (or to such other address as
shall at any time be designated by any party in writing to the other parties):
To ACC and ACC II: Allied Capital Corporation
and
Allied Capital Corporation II
c/o Allied Capital Corporation
1666 K Street, N.W., Ninth Floor
Washington, DC 20006
Attention: Gay S. Truscott, Vice President
Facsimile: (202) 659-2053
With a copy to: Piper & Marbury L.L.P.
1200 Nineteenth Street, N.W.
Washington, DC 20036
Attention: Anthony H. Rickert, Esquire
Facsimile: (202) 223-2085
-11-
<PAGE> 12
To CTI: Capital Trust Investments, Ltd.
c/o Capital Trust Limited
49 Mount Street
London, England W1Y5RE
Attention: Bassam Aburdene
Fax: 01144171499 0524
With a copy to: Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, New York 10178
Attention: Charles E. Engros, Esquire
Facsimile: (212) 309-6273
To Princes Gate: Princes Gate Investors, L.P.
Acorn Partnership I, L.P.
PGI Investments Limited
PGI Sweden AB
Gregor Von Opel
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Attention: Hartley R. Rogers
Telecopier: (212) 761-0517
With a copy to: Davis, Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Attention: Paul R. Kingsley
Facsimile: (212) 450-4800
To the Issuer: Au Bon Pain Co., Inc.
19 Fid Kennedy Avenue
Marine Industrial Park
Boston, MA 02210-2497
Attention: Louis I. Kane
Facsimile: (617) 423-7879
With a copy to: Gadsby & Hannah LLP
225 Franklin Street
Boston, MA 02110
Attention: Walter D. Wekstein, Esquire
Marianne Gilleran, Esquire
Facsimile: (617) 345-7050
Rejection or other refusal to accept, or the inability to deliver because of a
changed address of which not notice was given, shall not affect the
effectiveness or the date of delivery for any notice sent in accordance with the
foregoing provisions. Each such notice request or other communication shall be
deemed sufficiently given, served, sent and received for all purposes at such
time as it is delivered to the addressee (with the return receipt, the delivery
receipt, the affidavit of the messenger or the answer back being deemed
conclusive (but not exclusive) evidence of such delivery) or at such time as
delivery is refused by addressee upon presentation.
-12-
<PAGE> 13
SECTION 5.6. BINDING AGREEMENT. This Agreement shall bind and inure to the
benefit of each of the Holders, the Borrowers, and except as otherwise expressly
provided to the contrary herein, each of their respective heirs and permitted
successors and assigns. Without limiting the generality of the foregoing
sentence, the rights of the Holders to cause the Issuer to register Registrable
Securities granted pursuant to this Agreement may be transferred or assigned by
any holder to a transferee or assignee; provided, however, that the transferee
or assignee of such rights assumes the obligations of such transferor or
assignor, as the case may be, under this Agreement and that such transferee or
assignee executes and delivers a copy of this Agreement to the Issuer.
SECTION 5.7. ENTIRE AGREEMENT; INTEGRATION CLAUSE. This Agreement sets
forth the entire agreement and understanding of the parties hereto with respect
to the subject matter hereof, and any prior agreements, including, without
limitation, the Original Registration Rights Agreement, are hereby terminated.
SECTION 5.8. NO ORAL MODIFICATION OR WAIVERS. The terms hereof may not be
modified or waived orally, but only by an instrument in writing signed by the
party against which enforcement of the modification or waiver (as the case may
be) is sought.
SECTION 5.9. VENUE; PERSONAL JURISDICTION; FULL FAITH AND CREDIT; PERSONAL
SERVICE.
(a) Venue for the adjudication of any claim or dispute arising out of
this Agreement or any of the other Investment Documents shall be proper only in
the state or federal courts of the City and State of New York, and all parties
to this Agreement and the other Investment Documents hereby consent to such
venue and agree that it shall not be not inconvenient and not subject to review
by any court other than such courts in New York;
(b) The Issuer intends and agrees that the courts of the jurisdictions
in which the Issuer is formed and in which the Issuer conducts its business
should afford full faith and credit to any judgment rendered by a court of the
State of New York against the Issuer under this Agreement, and the Issuer
intends and agrees that such courts should hold that the New York courts have
jurisdiction to enter a valid, in personam judgment against the Issuer;
(c) The Issuer agrees that service of any summons and complaint, and
other process which may be served in any suit, action or other proceeding, may
be made by mailing via U.S. certified or registered mail or by hand-delivering a
copy of such process to the Issuer at its address specified above, with a copy
to its counsel at its address specified above; and
(d) The Issuer expressly acknowledges and agrees that the provisions
of this Section 5.9 are reasonable and made for the express benefit of each of
the Holders.
SECTION 5.10. WAIVER OF TRIAL BY JURY. Each party to this Agreement agrees
that any suit, action or proceeding, whether claim, defense or counterclaim,
brought or instituted by any party hereto or any successor or assign of any
party on or with respect to this Agreement or which in any way relates, directly
or indirectly, to any event, transaction or occurrence arising out of or in any
way connected with this Agreement or dealings of the parties hereto with respect
to the subject matter hereof, shall be tried only by a court and not by a jury.
EACH PARTY HEREBY EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY SUCH
SUIT, ACTION OR PROCEEDING, AND ACKNOWLEDGES THAT THIS IS A WAIVER OF A LEGAL
RIGHT AND THAT IT MAKES THIS
-13-
<PAGE> 14
WAIVER VOLUNTARILY AND KNOWINGLY AFTER CONSULTATION WITH, OR THE OPPORTUNITY TO
CONSULT WITH, COUNSEL OF ITS CHOICE.
SECTION 5.11. HEADINGS. The headings of the paragraphs and sub-paragraphs
of this Agreement are inserted for convenience only and shall not be deemed to
constitute a part of this Agreement.
SECTION 5.12. SEVERABILITY. To the extent any provision herein violates any
applicable law, that provision shall be considered void and the balance of this
Agreement shall remain unchanged and in full force and effect.
SECTION 5.13. COUNTERPARTS. This Agreement may be executed in as many
counterpart copies as may be required. It shall not be necessary that the
signature of, or on behalf of, each party appear on each counterpart, but it
shall be sufficient that the signature of, or on behalf of, each party appear on
one or more of the counterparts. All counterparts shall collectively constitute
a single agreement. It shall not be necessary in any proof of this Agreement to
produce or account for more than a number of counterparts containing the
respective signatures of, or on behalf of, all of the parties.
SECTION 5.14. CONSENT OR APPROVAL OF HOLDERS. To the extent the terms of
this Agreement or any of the other Investment Documents require the Issuer to
obtain the consent, waiver or approval of Holders, or if the Issuer wishes to
amend this Agreement, such consent, waiver, approval, or amendment shall be
effective upon receipt by the Issuer of written consent or approval from the
individuals or entities holding not less than two-thirds (2/3rds) of the
Registrable Securities then held by, in each case, the Allied Holders and the PG
Holders.
SECTION 5.15. GOVERNING LAW. This Agreement shall be governed by, and
interpreted and construed in accordance with, the internal laws of the State of
New York (without regard to its conflicts of law principles).
(Signatures next page)
-14-
<PAGE> 15
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered as of the date first above written by their authorized
representatives thereunto duly authorized.
Very truly yours,
AU BON PAIN CO., INC.
By: /s/ LOUIS I. KANE
--------------------------
Name: Louis I. Kane
Title: Co-Chairman
ALLIED CAPITAL CORPORATION
By: /s/ GAY S. TRUSCOTT
--------------------------
Name: Gay S. Truscott
Title: Vice President
ALLIED CAPITAL CORPORATION II
By: /s/ GAY S. TRUSCOTT
--------------------------
Name: Gay S. Truscott
Title: Vice President
CAPITAL TRUST INVESTMENTS, LTD.
By: /s/
--------------------------
Name:
Title: Attorney-in-fact
-15-
<PAGE> 16
PRINCESS GATE INVESTORS, L.P.
By PG Investors, Inc.
its General Partner
By: /s/ DAVID POWERS
--------------------------
Name: David Powers
Title: Vice President
ACORN PARTNERSHIP I, L.P.
By PG Investors, Inc.,
its General Partner
By: /s/ DAVID POWERS
--------------------------
Name: David Powers
Title: Vice President
PGI INVESTMENTS LIMITED
By PG Investors, Inc.,
as Attorney-In-Fact
By: /s/ DAVID POWERS
--------------------------
Name: David Powers
Title: Vice President
PGI SWEDEN AB
By PG Investors, Inc.
as Attorney-In-Fact
By: /s/ DAVID POWERS
--------------------------
Name: David Powers
Title: Vice President
-16-
<PAGE> 17
GREGOR VON OPEL
By PG Investors, inc.
as Attorney-In-Fact
By: /s/ DAVID POWERS
--------------------------
Name: David Powers
Title: Vice President
-17-
<PAGE> 1
Exhibit 11.1
AU BON PAIN CO., INC.
<TABLE>
EARNINGS PER SHARE COMPUTATION
(in thousands, except per share amounts)
<CAPTION>
FOR THE FISCAL YEARS ENDED
----------------------------------
Dec. 31, Dec. 30, Dec. 28,
1994 1995 1996
-------- ------- -------
<S> <C> <C> <C>
Net income (loss)................. $ 7,841 $(1,614) $(4,365)
Weighted number of average shares
outstanding:
Common stock outstanding,
beginning of period
Class B Common............. 1,916 1,732 1,707
Class A Common............. 9,155 9,828 9,929
Class B Preferred stock
outstanding.................. - 20 20
Weighted average common stock
issued during the period:
Class A Common................. 341 41 49
Weighted average preferred stock
issued during the period:
Class B Preferred.............. 15 - -
Weighted shares issued from
assumed exercise of options...... 197 - -
------- ------- -------
Weighted average shares and
equivalent shares outstanding.... 11,624 11,621 11,705
======= ======= =======
Income (loss) per common and
common equivalent share.......... $ .67 $ (.14) $ (.37)
======= ======= =======
</TABLE>
The above schedule represents the calculation of both primary and fully diluted
earnings per share.
The effect of shares to be issued upon the conversion of the 1993 Notes would be
antidilutive fiscal years ended December 30, 1995 and December 28, 1996.
Accordingly, the Company excluded the effect of these shares in computing income
per common share for these years.
<PAGE> 1
<TABLE>
SUBSIDIARIES
------------
<CAPTION>
NAME Percentage (voting power)
- ---- OWNED
-------------------------
<S> <C>
ABP Midwest Manufacturing Co., Inc. 100%
Au Bon Pain Corporation* 100%
Au Bon Pain Fairlane
Corporation* 100%
Au Bon Pain Foundation, Inc. 100%
Au Bon Pain Properties, Inc.* 100%
Pain Francais, Inc. 75%
Saint Louis Bread Company, Inc. 100%
The joint ventures organized and
operated pursuant to the ABP/LI
Associates Joint Venture Agreement 51-90% varied
ownership
</TABLE>
*inactive
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> DEC-28-1996
<CASH> 2,579
<SECURITIES> 0
<RECEIVABLES> 7,834
<ALLOWANCES> 104
<INVENTORY> 8,997
<CURRENT-ASSETS> 27,874
<PP&E> 192,857
<DEPRECIATION> 71,124
<TOTAL-ASSETS> 195,594
<CURRENT-LIABILITIES> 25,178
<BONDS> 79,736
0
0
<COMMON> 1
<OTHER-SE> 90,055
<TOTAL-LIABILITY-AND-EQUITY> 195,594
<SALES> 236,934
<TOTAL-REVENUES> 236,934
<CGS> 85,631
<TOTAL-COSTS> 200,995
<OTHER-EXPENSES> 38,122
<LOSS-PROVISION> 93
<INTEREST-EXPENSE> 5,140
<INCOME-PRETAX> (2,848)
<INCOME-TAX> (2,253)
<INCOME-CONTINUING> (595)
<DISCONTINUED> 0
<EXTRAORDINARY> (3,770)
<CHANGES> 0
<NET-INCOME> (4,365)
<EPS-PRIMARY> (.37)
<EPS-DILUTED> (.37)
</TABLE>
