-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Cvzq/98yGf3YOKt1xdiRqX0Xi9P6LxL1akpcFS8FLebJcIyhARQKzXyuiGXWzjoq 8L6L4hvxPaAgEdAPe77fIw== 0000912057-01-008613.txt : 20010329 0000912057-01-008613.hdr.sgml : 20010329 ACCESSION NUMBER: 0000912057-01-008613 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20001230 FILED AS OF DATE: 20010328 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PANERA BREAD CO CENTRAL INDEX KEY: 0000724606 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 042723701 STATE OF INCORPORATION: DE FISCAL YEAR END: 1226 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-19253 FILM NUMBER: 1582781 BUSINESS ADDRESS: STREET 1: 19 FID KENNEDY AVE CITY: BOSTON STATE: MA ZIP: 02210 BUSINESS PHONE: 6174232100 MAIL ADDRESS: STREET 1: 19 FID KENNEDY AVE CITY: BOSTON STATE: MA ZIP: 02210 FORMER COMPANY: FORMER CONFORMED NAME: AU BON PAIN CO INC DATE OF NAME CHANGE: 19940201 10-K405 1 a2042851z10-k405.txt 10-K405 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C. 20549 ------------------------ FORM 10-K (MARK ONE) /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 30, 2000, OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO ______________ COMMISSION FILE NUMBER 0-19253 ------------------------ PANERA BREAD COMPANY (Exact name of registrant as specified in its charter) DELAWARE 04-2723701 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 6710 CLAYTON RD., 63117 RICHMOND HEIGHTS, MO (Zip code) (Address of principal executive offices)
(314) 633-7100 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: None. Securities registered pursuant to Section 12(g) of the Act: CLASS A COMMON STOCK, $.0001 PAR VALUE (Title of class) ------------------------ Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 and 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /X/ The aggregate market value of the registrant's voting Class A and Class B Common Stock held by non-affiliates as of March 13, 2001 was approximately $341,438,390. There is no public trading market for the registrant's Class B Common Stock. Number of shares outstanding of each of the registrant's classes of common stock, as of March 13, 2001: Class A Common Stock, $.0001 par value: 12,210,783 shares, Class B Common Stock, $.0001 par value: 1,480,982 shares. The Company intends to file a definitive proxy statement pursuant to Regulation 14A within 120 days of the end of the fiscal year ended December 30, 2000. Portions of such proxy statement are incorporated by reference in response to Part III, Items 10, 11, 12, and 13. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART I ITEM 1. BUSINESS GENERAL Panera Bread Company (the "Company") previously filed reports under the name Au Bon Pain Co., Inc. The name change occurred as a result of the sale of the Au Bon Pain Division to private investors effective May 16, 1999. The Company now consists of the Panera Bread/Saint Louis Bread Co. concept, with the Company doing business as Saint Louis Bread Co. in the Saint Louis area, and as Panera Bread outside of that area. As of December 30, 2000, the Company had 90 Company-operated bakery-cafes (including 2 specialty bakery-cafes), and 172 franchise-operated bakery-cafes (including 2 specialty bakery-cafes). As of December 25, 1999, the Company had 81 Company-operated bakery-cafes (including 2 specialty bakery-cafes) and 102 franchise-operated bakery-cafes (including 2 specialty bakery-cafes). The Company specializes in high quality food for breakfast and lunch, including fresh baked goods, made-to-order sandwiches on freshly baked breads, soups, salads, custom roasted coffees, and other cafe beverages, and targets suburban dwellers and workers by offering a premium specialty bakery and cafe experience with a neighborhood emphasis. The Company's bakery-cafes are principally located in suburban, strip mall and regional mall locations. Its business is currently operating in Arkansas, Colorado, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Nebraska, New Hampshire, New Jersey, North Carolina, Ohio, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Virginia, and Wisconsin (see "Properties"). The Company's revenues were approximately $151.4 million and system-wide sales for Panera Bread, which include sales by franchisees, were approximately $350.8 million for the fiscal year ended December 30, 2000 compared to system-wide sales, for Panera Bread on a stand-alone basis, of $202.1 for fiscal year ended December 25, 1999. The Company sold the Au Bon Pain Division to ABP Corporation for $73 million in cash before contractual purchase price adjustments of $1 million. The sale was effective May 16, 1999. Results of operations for the fifty-two week period ending December 25, 1999, includes the results of the divested Au Bon Pain Division for the period December 27, 1998 through May 16, 1999. The Au Bon Pain Division had $51.5 million of revenue and $3.2 million of operating earnings through May 16, 1999. For the fifty-two week period ended December 25, 1999, the Company recorded a pre-tax loss of $5.5 million related to the transaction, and a $0.6 million pre-tax ($0.4 million after tax) extraordinary loss related to the early extinguishment of debt from the proceeds of the sale. For the quarter ended July 8, 2000, the Company recorded a one time gain of $.9 million before taxes ($.5 million after tax) related to the sale of the Au Bon Pain Division. The original sales agreement dated August 12, 1998, and amended October 28, 1998, included a provision prohibiting the sale of the Au Bon Pain Division by ABP Corporation to another party within 18 months of the date of the agreement. This payment was received in connection with amending the original sales agreement to allow for a sale. Additionally, during the fourth quarter ended December 30, 2000, the Company recorded a $.9 million pre-tax, non-recurring charge associated with the sale of the Au Bon Pain Business Unit which occurred in May 1999. Of that amount $.4 million, before taxes, represents a loss on the sale of the Au Bon Pain Business Unit and $.5 million represents a receivable from Au Bon Pain which has been fully reserved. CONCEPT AND STRATEGY The Company's concept focuses on the emerging "Specialty Bread/Bakery-Cafe" category. Its artisan sourdough breads, which are breads made with a craftsman's attention to quality and detail, and overall award-winning bakery expertise are at the heart of the concept's menu. The concept is designed to deliver against the key consumer trends of today, specifically the need for an efficient but more esthetically pleasing experience than that offered by traditional fast food. The concept's goal is to make 2 Panera Bread a nationally recognized brand name, and in doing so, the Company hopes to reap the economic benefits that a strong brand name offers. Its menu, prototype, operating systems, design and real estate strategy allow it to compete successfully in four sub-businesses: breakfast, lunch, day-time "chill out" (the time between breakfast and lunch and between lunch and dinner when customers visit our bakery-cafes to take a break from their daily activities), and take home bread. Average annualized unit volume per Company-Operated bakery-cafe for the full fiscal year ended December 30, 2000, was approximately $1,471,000 (excluding the two specialty cafes) for the Panera Bread/Saint Louis Bread Co. concept compared to average annualized unit volume per cafe of approximately $1,330,000 the fiscal year ended December 25, 1999. The distinctive nature of the Company's menu offerings (centered around the fresh sourdough products), the quality of its restaurant operations, the Company's signature cafe design and the prime locations of its cafes are integral to the Company's success. The Company believes that its concept has significant growth potential in the suburban markets which it hopes to realize through both Company and franchise efforts. Franchising is a key component of the Company's success. At year end, there were 172 franchised bakery-cafes opened and signed commitments to open an additional 561 bakery-cafes. As of December 25, 1999 there were 102 franchised bakery-cafes opened and signed commitments to open an additional 543 bakery-cafes. The average annualized unit volume per franchised bakery-cafe for the fiscal year ended December 30, 2000, was approximately $1,710,000 compared to approximately $1,568,000 for those cafes for the fiscal year ended December 25, 1999 excluding the two specialty franchised bakery-cafes. On a system-wide basis, average annualized unit volumes increased 12% for the year to approximately $1,617,000 compared to $1,444,000 for the year ended December 25, 1999 (excluding the four specialty bakery-cafes). MENU The menu is designed to provide the Company's target customers with products which build on the strength of the Company's bakery expertise and to meet customers' new and ever-changing taste profiles. The key menu groups are fresh baked goods, made-to-order sandwiches, soups, and cafe beverages. Included within these menu groups are: a variety of freshly baked bagels, breads, muffins, scones, rolls, and sweet goods; made-to-order sandwiches; hearty, unique soups; custom roasted coffees and cafe beverages such as espresso and cappuccino. The Company's concept emphasizes the sophisticated specialty and sourdough breads which supports a significant take-home business. The Company regularly reviews and revises its menu offerings to satisfy changing customer preferences and to maintain customer interest amongst its target customer groups, the "bread loving trend-setters" and the "bread loving traditionalists". Both of these target customer groups seek a quality experience that reflects their discriminating tastes. The major characteristic that sets these two groups apart is the more enthusiastic embrace of new and nutritional menu items by the "Trend-Setters". New menu items are developed in corporate test kitchens and then introduced in a limited number of the Company's bakery-cafes to determine customer response and verify that preparation and operating procedures maintain consistency, high quality standards and profitability. If successful, they are then introduced in the Company's bakery-cafes, and finally to the franchise bakery-cafes. MARKETING The Company believes it competes on the basis of providing an entire experience rather than price. Pricing is structured so customers perceive good value, with high quality food at reasonable prices to encourage frequent visits. The Company measures its average check per transaction. The total average check per transaction at the Company-owned bakery-cafes for 2000 was $5.80. Breakfast average check per transaction was $4.03, and lunch average check per transaction was $6.89. The 3 Company attempts to increase its per location sales through menu development, promotions, and by sponsorship of local community charitable events. The Company may utilize external media when deemed appropriate and cost effective in specific markets. SITE SELECTION During 2000, the Company increased the number of Company-operated bakery-cafes by 9, opening 11 and closing 2 bakery-cafes for a total at December 30, 2000 of 90 locations. The two closed bakery-cafes were part of a real estate repositioning strategy. They were smaller, original Saint Louis Bread cafes and were replaced by a new prototype bakery-cafe located centrally between them. The franchise-operated locations increased by 70 to 172 locations at December 30, 2000. The bakery-cafe concept relies on a substantial volume of repeat business. In evaluating a potential location, the Company studies the surrounding trade area, obtaining demographic information within that area and information on quick service breakfast and lunch competitors. Management evaluates the Company's ability to establish a dominant presence within that area in order to create entry barriers to other competitors. Based on this information the Company determines projected sales and return on investment. The Company uses sophisticated fixtures and materials in the bakery-cafe design for its concept. The design visually reinforces the distinctive difference between the Company's bakery-cafes and other quick service restaurants serving breakfast and lunch. Many of the Company's cafes also feature outdoor cafe seating. The average construction, equipment, furniture/fixture, and signage cost for the 11 bakery-cafes opened in 2000 was approximately $.7 million after landlord allowances. The average bakery-cafe size ranges between 3,500 and 4,500 square feet. Currently all Company-owned bakery-cafes are in leased premises. Lease terms are typically 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. FRESH DOUGH PRODUCTION The Company's bakery-cafes use fresh dough for their sourdough breads and bagels. Fresh dough is supplied daily by the Company's commissary system for both Company-owned and franchise-operated bakery-cafes. The Company operated 11 regional commissaries as of December 30, 2000, and 10 as of December 25, 1999. The remaining baked goods are prepared with frozen dough. During 1996, the Company completed construction of a state of the art frozen dough production facility in Mexico, Missouri to supply frozen dough. On March 23, 1998, the Company sold the Mexico production facility and its wholesale frozen dough business to Bunge Food Corporation ("Bunge") for approximately $13 million in cash. Concurrent with the sale, the Company entered into a five-year supply agreement with Bunge for the supply of substantially all of its frozen dough needs. The agreement automatically renews on an annual basis unless either party provides written cancellation notice to the other. Pricing is based on Bunge's cost plus a specified mark-up calculated on each individual product that is purchased. The agreement contains minimum volume commitments, and provides for financial penalties if either party cancels the agreement before the initial term is complete. The sale of the frozen dough production facility provides economies of scale in plant production which are reflected in the economics of the five-year agreement and allows the Company to take advantage of Bunge's significant purchasing power. The five-year supply agreement allows the bakery-cafes to continue to offer the same high quality fresh baked goods, because the frozen dough products 4 purchased from Bunge are made on the same equipment, by the same management team, using the same proprietary processes and specifications as prior to the sale. COMPETITION The Company experiences competition from numerous sources in its trade areas. The Company's bakery-cafes compete based on customers needs for breakfast, lunch, daytime "chill-out" (the time between breakfast and lunch as well as the time between lunch and dinner) and take home bread sales. The competitive factors are price, service, and quality of products. The Company competes for leased space in desirable locations. Certain of the Company's competitors may have capital resources exceeding those available to the Company. MANAGEMENT INFORMATION SYSTEMS Each Company-operated bakery-cafe has computerized cash registers to collect point-of-sale transaction data, which is used to generate pertinent marketing information, including product mix and average check. All product prices are programmed into the system from the Company's corporate office. The Company's in-store personal computer-based management support system is designed to assist in labor scheduling and food cost management, to provide corporate and retail operations management quick access to retail data, and to reduce managers' administrative time. The system supplies sales, bank deposit, and variance data to the Company's accounting department in St. Louis on a daily basis. The Company uses this data to generate weekly consolidated reports regarding sales and other key measures, as well as detailed profit and loss statements for each bakery-cafe every four weeks. Additionally, the Company monitors the average check, customer count, product mix, and other sales trends. The commissaries have computerized systems which allow the commissaries to accept electronic orders from the bakery-cafes and deliver the ordered product back to the bakery-cafe. The Company has network/integration systems which are corporate office electronic systems and tools which link various information subsystems and databases, encompassing e-mail and all major financial systems, such as general ledger database systems and all major operational systems, such as store operating performance database systems. DISTRIBUTION The Company currently utilizes independent distributors to distribute frozen dough products and other materials to Company-operated bakery-cafes. By contracting with independent distributors, the Company has been able to eliminate investment in distribution systems and to focus its managerial and financial resources on its retail operations. The distributor picks up frozen dough products throughout the week from the plants and delivers them to the cafes. Virtually all other supplies for retail operations, including paper goods, coffee, and smallwares, are contracted for by the Company and delivered by the vendors to the distributor for delivery to the bakery-cafes. The individual bakery-cafes order directly from a distributor two to three times per week. Franchised bakery-cafes operate under individual contracts with either the Company's distributor or other regional distributors. 5 FRANCHISE OPERATIONS The Company began a broad-based franchising program in 1996. The Company is actively seeking to extend its franchise relationships beyond its current franchisees. The franchise agreement typically requires the payment of an up-front franchise fee of $35,000 and continuing royalties of 5% on sales from each bakery-cafe. The franchisees are required to purchase all of their dough products from sources approved by the Company. The Company's commissary system supplies fresh dough products to substantially all franchise-operated bakery-cafes. The Company has entered into 39 separate franchise area development agreements for a total of 733 bakery-cafes of which 172 have been opened as of December 30, 2000. The Company's strategy is to execute growth in a controlled and disciplined manner. Under the terms of the franchise development agreements, a schedule is determined with respect to a specified number of franchise openings as to which the developer pays a non-refundable fee. In the event that the schedule is not adhered to, the developer will lose development exclusivity in the territory. At the present time, the Company does not have any international franchise development agreements in place having decided to focus on domestic opportunities for expansion. EMPLOYEES As of December 30, 2000, the Company has 2,202 full-time employees (defined as associates who average 25 hours or more per week), of whom 175 are employed in general or administrative functions principally at or from the Company's executive offices in St. Louis, Missouri; 273 are employed in the Company's commissary operations; and 1,754 are employed in the Company's bakery-cafe operations and as bakers and associates at the bakery-cafes. The Company also has 1,689 part-time hourly employees at the bakery-cafes. There are no collective bargaining agreements. The Company considers its employee relations to be excellent. TRADEMARKS The "Panera Bread" and "Saint Louis Bread Company" names are of material importance to the Company and are trademarks registered with the United States Patent and Trademark Office. In addition, other marks of lesser importance have been filed with the United States Patent and Trademark Office. GOVERNMENT REGULATION Each Company-operated and franchised bakery-cafe is subject to regulation by federal agencies and to licensing and regulation by federal agencies as well as to licensing and regulation by state and local health, sanitation, safety, fire, alcoholic beverage control and other departments. Difficulties or failures in obtaining and retaining the required licensing or approval could result in delays or cancellations in the opening of restaurants as well as fines and possible closure relating to existing restaurants. The Company is also subject to federal and a substantial number of state laws regulating the offer and sale of franchises. Such laws impose registration and disclosure requirements on franchisors in the offer and sale of the franchises and may also apply substantive standards to the relationship between franchisor and franchisee. The Company does not believe that current or potential future regulations of franchises have or will have any material impact on the Company's operations. The Company is subject to the Fair Labor Standards Act and various state laws governing such matters as minimum wages, overtime, and other working conditions. The Company and its commissaries are subject to various federal, state, and local environmental regulations. Compliance with applicable environmental regulations is not believed to have any material 6 effect on capital expenditures, earnings or the competitive position of the Company. Estimated capital expenditures for environmental compliance matters are not material. The Americans with Disabilities Act prohibits discrimination in employment and public accommodations on the basis of disability. Under the Americans with Disabilities Act, the Company could be required to expend funds to modify its bakery-cafes to provide service to, or make reasonable accommodations for the employment of, disabled persons. The Company believes that compliance with the requirements of the Americans with Disabilities Act will not have a material adverse effect on its financial condition, business or operations. ITEM 2. PROPERTIES All Company-operated bakery-cafes are located in leased premises with lease terms typically for ten years with one or two five-year renewal option periods thereafter. Leases typically have a minimum base occupancy charge, charges for a proportionate share of building operating expenses, and real estate taxes and a contingent percentage rent based on sales above a stipulated sales level. The average bakery-cafe ranges from 3,500 to 4,500 square feet in size. Information with respect to the Company-operated leased commissaries as of December 30, 2000 is set forth below:
FACILITY SQUARE FOOTAGE - -------- -------------- St. Louis, MO Commissary.................................... 12,100 Dallas, TX Commissary....................................... 1,000 Denver, CO Commissary....................................... 5,000 Washington, DC Commissary................................... 8,900 Atlanta, GA Commissary...................................... 10,000 Detroit, MI Commissary...................................... 5,200 Minneapolis, MN Commissary.................................. 4,800 Cincinnati, OH Commissary................................... 8,500 Warren, OH Commissary....................................... 11,000 Chicago, IL Commissary...................................... 20,600 Orlando, FL Commissary...................................... 5,900
In 2000, the Company leased short-term office space in Norwood, MA, to house portions of its Development and Commissary functions. The annual rent is approximately $27,200 and the lease has a one-year renewal option. The Company is in the process of consolidating its office space in St. Louis, MO. Office space of approximately 10,300 square feet in Webster Groves, MO leased for approximately $150,000 annually through August 31, 2002, and additional office space leased in St. Louis, MO for approximately $46,000 annually through November, 2001, are being relinquished in favor of a new office space that will house all corporate functions. New corporate office space was leased on October 31, 2000 in Richmond Heights, MO. The office space consists of approximately 34,000 square feet, and the annual rent is approximately $600,000. The lease expires October 31, 2010. 7 PANERA BREAD/SAINT LOUIS BREAD CO. BAKERY-CAFES
COMPANY-OPERATED FRANCHISE-OPERATED TOTAL STATE BAKERY-CAFES BAKERY-CAFES BAKERY-CAFES - ----- ---------------- ------------------ ------------ Arkansas......................................... 0 1 1 Colorado......................................... 0 3 3 Florida.......................................... 0 11 11 Georgia.......................................... 8 1 9 Iowa............................................. 0 6 6 Illinois......................................... 25 15 40 Indiana.......................................... 0 5 5 Kansas........................................... 0 9 9 Kentucky......................................... 0 4 4 Massachusetts.................................... 2 1 3 Maryland......................................... 0 5 5 Maine............................................ 0 1 1 Michigan......................................... 15 2 17 Minnesota........................................ 0 10 10 Missouri......................................... 35 13 48 North Carolina................................... 0 4 4 Nebraska......................................... 0 4 4 New Hampshire.................................... 0 3 3 New Jersey....................................... 0 5 5 Ohio............................................. 0 36 36 Oklahoma......................................... 0 8 8 Pennsylvania..................................... 0 8 8 Rhode Island..................................... 0 1 1 South Carolina................................... 1 0 1 Tennessee........................................ 0 6 6 Texas............................................ 0 4 4 Virginia......................................... 4 0 4 Wisconsin........................................ 0 6 6 TOTALS......................................... 90 172 262
The following table sets forth the number of Company-operated and franchise-operated Panera Bread and Saint Louis Bread Co. bakery-cafes (including specialty cafes) which were open as of the dates indicated:
DEC. 30, DEC. 25, DEC. 26, DEC. 27, DEC. 28, 2000 1999 1998 1997 1996 -------- -------- -------- -------- -------- Company-operated.................................... 90 81 70 60 53 Franchise-operated.................................. 172 102 45 19 11 Total............................................... 262 183 115 79 64
ITEM 3. LEGAL PROCEEDINGS The Company is not subject to any material litigation, but is subject to claims and legal action in the ordinary course of its business. The Company believes that all such claims and actions currently pending against it are either adequately covered by insurance or would not have a material adverse effect on the Company if decided in a manner unfavorable to the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company submitted no matters to a vote of security holders during the fourth quarter of the fiscal year ended December 30, 2000. 8 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED MATTERS. (a) Market Information. The Company's Class A Common Stock is traded on The Nasdaq National Market tier of the Nasdaq Stock Market under the symbol "PNRA". There is no established public trading market for the Company's Class B Common Stock. The following table sets forth the high and low sale prices as reported by Nasdaq for the fiscal periods indicated.
1999 HIGH LOW - ---- -------- -------- First Quarter............................................... 7 1/8 5 Second Quarter.............................................. 9 5 Third Quarter............................................... 7 5/8 6 3/16 Fourth Quarter.............................................. 8 1/2 6 1/2
2000 HIGH LOW - ---- -------- -------- First Quarter............................................... 9 1/8 6 1/8 Second Quarter.............................................. 10 5/8 7 Third Quarter............................................... 21 3/8 9 7/8 Fourth Quarter.............................................. 25 7/16 15 1/4
On March 13, 2001, the last sale price for the Class A Common Stock, as reported on the Nasdaq National Market System, was $24 15/16. (b) Holders. On March 13, 2001, the Company had 1,330 holders of record of its Class A Common Stock and 70 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. 9 ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
FOR THE FISCAL YEARS ENDED ---------------------------------------------------- DEC. 30, DEC. 25, DEC. 26, DEC. 27, DEC. 28, 2000(1) 1999(3) 1998 1997 1996 -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Revenues: Restaurant sales........................ $125,486 $156,738 $237,102 $233,212 $225,625 Franchise sales and other revenues...... 12,059 7,384 6,161 5,974 3,556 Commissary sales to franchisees......... 13,844 7,237 6,397 11,704 7,753 -------- -------- -------- -------- -------- 151,389 171,359 249,660 250,890 236,934 -------- -------- -------- -------- -------- Costs and expenses: Cost of food and paper products......... 41,084 52,445 81,140 82,578 77,330 Restaurant operating expenses........... 61,972 79,677 123,060 119,537 115,364 Commissary cost of sales................ 12,261 6,490 6,100 7,807 8,301 Depreciation and amortization........... 8,412 6,379 12,667 16,862 16,195 General and administrative.............. 16,381 17,104 18,769 16,417 14,979 Non-recurring charges................... 494 5,545 26,236 -- 4,435 -------- -------- -------- -------- -------- 140,604 167,640 267,972 243,201 236,604 -------- -------- -------- -------- -------- Operating profit (loss)................... 10,785 3,719 (18,312) 7,689 330 Interest expenses, net.................... 164 2,745 6,396 7,204 5,140 Other (income) expense, net............... (409) 735 1,445 212 2,513 Minority interest/(income)................ -- (25) (127) (42) (40) -------- -------- -------- -------- -------- Income (loss) before provision (benefit) for income taxes and extraordinary items................................... 11,030 264 (26,026) 315 (7,283) Provision (benefit) for income taxes...... 4,177 511 (5,532) (1,492) (2,918) -------- -------- -------- -------- -------- Income (loss) before extraordinary items................................... 6,853 (247) (20,494) 1,807 (4,365) Extraordinary loss on the early extinguishment of debt, net of tax of $197.................................... -- 382 -- -- -- -------- -------- -------- -------- -------- Net income (loss)......................... $ 6,853 $ (629) $(20,494) $ 1,807 $ (4,365) ======== ======== ======== ======== ======== Per common share: Basic: Income (loss) before extraordinary item.................................. $ .55 $ (.02) $ (1.72) $ .15 $ (.37) Extraordinary loss on the early extinguishment of debt................ $ -- $ (.03) $ -- $ -- $ -- Net income (loss)....................... $ .55 $ (.05) $ (1.72) $ .15 $ (.37) Diluted: Income (loss) before extraordinary item.................................. $ .52 $ (.02) $ (1.72) $ .15 $ (.37) Extraordinary loss on the early extinguishment of debt................ $ -- $ (.03) $ -- $ -- $ -- Net income (loss)....................... $ .52 $ (.05) $ (1.72) $ .15 $ (.37) Weighted average shares of common stock outstanding: Basic................................... 12,557 12,137 11,943 11,766 11,705 Diluted................................. 13,134 12,137 11,943 11,913 11,705 Comparable restaurant sales percentage increase for Company-operated bakery-cafes............................ 8.1% 3.3%(2) 2.1% 3.6% 0.7%
- ------------------------ (1) Fiscal year 2000 consists of 53 weeks. Fiscal years 1999, 1998, 1997 and 1996 were comprised of 52 weeks. (2) 1999 comparable restaurant sales consist of Panera Bread Company bakery-cafes only. (3) Includes the results of the Au Bon Pain Division until it was sold on May 16, 1999. 10
AS OF --------------------------------------------------------- DEC. 30, DEC. 25, DEC. 26, DEC. 27, DEC. 28, 2000 1999 1998 1997 1996 --------- --------- --------- --------- --------- (IN THOUSANDS, EXCEPT COMPANY-OPERATED BAKERY-CAFES OPEN) Consolidated Balance Sheet Data: Working capital (deficit)................. $ 3,396 $ (3,215) $ (8,239) $ (58) $ (1,748) Total assets.............................. 111,689 91,029 153,618 186,516 196,428 Long-term debt, less current maturities... -- -- 34,089 42,527 49,736 Convertible subordinated notes............ -- -- 30,000 30,000 30,000 Stockholders' equity...................... 91,588 73,246 73,327 92,274 90,056 Company-operated bakery-cafes open........ 90 81(4) 219 217 229
- ------------------------ (4) Consists of Panera Bread Company-owned stores only at the end of 1999. 11 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following table sets forth the percentage relationship to total revenue, except where otherwise indicated, of certain items included in the Company's consolidated statements of operations for the periods indicated. Percentages may not add due to rounding:
FOR THE FISCAL YEARS ENDED ------------------------------------------ DECEMBER 30, DECEMBER 25, DECEMBER 26, 2000(3) 1999 1998 ------------ ------------ ------------ Revenues: Restaurant sales.......................................... 82.9% 91.5% 95.0% Franchise and other revenues.............................. 8.0 4.3 2.5 Commissary sales to franchisees........................... 9.1 4.2 2.5 ----- ----- ----- Total Revenues........................................ 100.0% 100.0% 100.0% ----- ----- ----- Cost and Expenses: Restaurant cost of sales(1) Cost of food and paper products......................... 32.7% 33.4% 34.2% Labor................................................... 29.2 29.0 28.4 Occupancy............................................... 7.4 9.9 11.8 Other................................................... 12.8 12.0 11.7 ----- ----- ----- Total Restaurant Cost of Sales........................ 82.1% 84.3% 86.1% ----- ----- ----- Commissary cost of sales(2)................................. 88.6% 89.7% 95.4% Depreciation and amortization............................... 5.6 3.7 5.1 General and administrative.................................. 10.8 10.0 7.5 Non-recurring charges....................................... .3 3.2 10.5 ----- ----- ----- Operating profit (loss)..................................... 7.1 2.2 (7.3) Interest expenses, net...................................... .1 1.6 2.6 Other (income) expense, net................................. (.3) 0.4 0.3 Loss on sale of assets...................................... -- -- 0.3 Minority interest........................................... -- -- (0.1) Income (loss) before income taxes and extraordinary item.... 7.3 0.2 (10.4) Income tax provision (benefit).............................. 2.8 0.3 (2.2) Income (loss) before extraordinary item..................... 4.5 (0.1) (8.2) Extraordinary loss from early extinguishment of debt, net of tax....................................................... -- 0.2 -- ----- ----- ----- Net income (loss)........................................... 4.5% (0.4)% (8.2)% ===== ===== =====
- ------------------------ (1) As a percentage of Company restaurant sales. (2) As a percentage of commissary sales to franchisees. (3) Fiscal year 2000 is comprised of 53 weeks. Fiscal years 1999 and 1998 are comprised of 52 weeks. 12 INTRODUCTION Panera Bread Company may be referred to as the "Company", "Panera Bread" or in the first person notation of "we", "us", and "ours" in the following discussion. On December 22, 1993, the Saint Louis Bread Company was acquired by Au Bon Pain, Co., Inc. At the time of the acquisition, the Saint Louis Bread Company had 19 company-operated bakery-cafes and one franchised unit. The Saint Louis Bread Company continued to grow while owned by Au Bon Pain, expanding the concept into other markets through the opening of 51 Company owned bakery-cafes and 44 franchise-operated bakery-cafes. In August, 1998, the Company entered into a Stock Purchase Agreement to sell the Au Bon Pain Division to ABP Corporation (the "Buyer"). The transaction was consummated on May 16, 1999 and is detailed more completely later in this document. The Company now consists of the Panera Bread/Saint Louis Bread Company bakery-cafes and its related franchise operations. At the end of fiscal year 2000, there were 90 company-owned (including two specialty bakery-cafes) and 172 franchised bakery-cafes (including two specialty bakery-cafes) operating in 28 states. The Company intends to continue to expand the number of company-owned and franchised bakery-cafes. Our expansion strategy is to develop markets that complement our existing commissary operations enabling us to take advantage of operational and distribution efficiencies. In addition, we plan to continue expansion into new markets where an adequate return on capital can be obtained. The Company's commissary system is a significant competitive advantage for the Company. While requiring a major commitment of capital, the commissaries assure both consistent quality and supply of fresh dough products to both company-owned and franchised bakery-cafes. In order to develop a specific market with our concept, a commissary must be available to service the market. A commissary may begin operations by serving one bakery-cafe, however, as our target markets are developed and built out over time, the commissary becomes more efficient. In addition, the commissary system allows the Company to control product quality for both company-owned and franchised bakery-cafes thereby increasing product consistency and enhancing brand identity. It is the intention of the Company to focus its immediate growth in areas that allow it to continue to gain efficiencies within its current commissary structure by focusing in areas that geographically complement markets already served by an existing commissary unit. The Company's revenues are derived from restaurant sales, commissary sales to franchisees and franchise and other revenues. Commissary sales to franchisees are the sales of fresh dough products to our franchisees. Franchise and other revenues include royalty income and franchise fees. The cost of food and paper products, labor, occupancy, and other operating expenses relate primarily to restaurant sales. The cost of commissary sales relates to the sale of dough products to our franchisees. General and administrative and depreciation expenses relate to all areas of revenue generation. The Company's fiscal year ends on the last Saturday in December. The Company's fiscal year normally consists of 13 four-week periods, with the first, second, and third quarters ending 16 weeks, 28 weeks, and 40 weeks, respectively, into the fiscal year. In the year 2000, the Company's fiscal year is comprised of 53 weeks. FISCAL YEAR 2000 COMPARED TO FISCAL YEAR 1999 RESULTS OF OPERATIONS Effective May 16, 1999, the Company completed its transaction to sell the Au Bon Pain Division. For the fifty-three weeks ended December 30, 2000, results of operations include only the results of the Panera Bread/Saint Louis bread Co. business unit. Results of operations for the fifty-two weeks ended December 25, 1999 also include the results of the divested Au Bon Pain Division through the date of the divestiture. For the fifty-two weeks ended December 25, 1999, the Company recorded a $5.5 million 13 pre-tax loss related to the sale and a $.4 million extraordinary loss net of tax related to the early extinguishments of debt. In the second quarter of 2000, the Company recorded a one time gain of $.9 million before taxes related to the sale of the Au Bon Pain Division. The original sales agreement dated August 12, 1998, and amended October 28, 1998, included a provision prohibiting the sale of the Au Bon Pain division by ABP Corporation to another party within 18 months of the date of this agreement. This payment was received in connection with amending the original sales agreement to allow for a sale. The one time gain of $.9 million before taxes related to the sale of the Au Bon Pain Division was substantially offset in the fourth quarter of 2000 by the recording of a $.9 million pre-tax, non-recurring charge associated with the sale of the Au Bon Pain Business Unit which occurred in May 1999. Of that amount $.4 million, before taxes, represents an additional loss on the sale of the Au Bon Pain Business Unit and $.5 million represents a receivable from Au Bon Pain which management has fully reserved. In the fourth quarter of 2000, the Company recorded a pre-tax, non-recurring charge to earnings of $.5 million related to the closing of four bakery-cafes. This charge included approximately $.3 million for the write-down of impaired assets for two bakery-cafes that were closed in the first quarter of 2001 and $.2 million related to the closing of two bakery-cafes in the fourth quarter of 2000. REVENUES Total revenues for the fifty-three weeks ended December 30, 2000 declined 11.7% to $151.4 million compared to $171.4 million for the fifty-two weeks ended December 25, 1999. The decrease was primarily due to the inclusion of the Au Bon Pain Division's results through May 16, 1999. For Panera Bread on a stand-alone basis, total revenues increased 37.5% from $110.1 million in 1999. Several factors (as set forth below) contributed to the growth in total revenues including the opening of new bakery-cafes and increases in comparable restaurant sales and annualized sales volume as well as the extra week in the fifty-three week fiscal year. Restaurant revenue for fiscal year 2000 for the Company declined 19.9% to $125.5 million from $156.7 million for fiscal year 1999. Restaurant revenue for Panera Bread on a stand-alone basis for fiscal year 2000 increased 28.9% to $125.5 million from $97.4 million for fiscal year 1999. The increase in restaurant revenue on a stand-alone basis is primarily due to the opening of 11 new company-owned bakery-cafes since the end of 1999 and a 8.1% increase in comparable store sales for the fiscal year ended December 30, 2000. System-wide average annualized unit volumes increased by 12.0% to $1.6 million for the fiscal year ended December 30, 2000. These average annualized unit volumes exclude the revenues of two company-owned and two franchise-operated specialty bakery-cafes. For Panera Bread on a stand-alone basis, increases in comparable net bakery-cafe sales for fiscal year 2000 were as follows:
53 WEEKS ENDED 52 WEEKS ENDED DECEMBER 30, 2000 DECEMBER 25, 1999 ----------------- ----------------- Company owned............................... 8.1% 3.3% Franchise operated.......................... 10.3% 2.0% System-wide................................. 9.1% 2.9%
The above comparable bakery-cafe sales exclude the revenues of the four specialty bakery-cafes as previously mentioned and are based on sales for bakery-cafes opened eighteen months or longer. Franchise sales and other revenues consist of franchise fees and royalties. The Company's franchise sales and other revenues rose 63.5% in fiscal 2000 to $12.1 million from $7.4 million in fiscal 1999. For fiscal year 2000, franchise sales and other revenues increased 89.1% to $12.1 million from $6.4 million for Panera Bread on a stand-alone basis in the same period in 1999. The growth was primarily driven by an increase in franchise royalties. The increase in royalty revenue can be attributed to the addition 14 of 70 franchised bakery-cafes opened since 1999 and higher average sales volumes being achieved by franchisees in 2000. The average annualized franchise bakery-cafe sales volume for fiscal year 2000 was $1.7 million, which is a 9.0% increase over fiscal year 1999. Commissary sales to franchisees increased 91.7% to $13.8 million for fiscal year 2000 versus $7.2 million for fiscal year 1999. On a stand-alone basis, commissary sales to franchisees increased 119.0% from 1999 sales of $6.3 million. The increase was driven by the increased number of franchised units open and the higher average annualized unit sales volumes as discussed previously. A total of 81 Panera Bread bakery-cafes were opened during fiscal year 2000. Eleven of the locations were company-owned bakery-cafes and 70 were franchise-operated bakery-cafes. These openings brought the total number of bakery-cafes open as of December 30, 2000 to 262 comprised of 90 company-owned and 172 franchised bakery-cafes. As of December 30, 2000, there were commitments to develop an additional 561 franchised bakery-cafes. COSTS AND EXPENSES The cost of food and paper products does include the costs associated with the commissary operations that sell fresh dough product to company-owned bakery-cafes. The costs associated with the commissary operations that sell fresh dough products to the franchised bakery-cafes are excluded. These costs are shown separately as Commissary Cost of Sales on the Consolidated Statements of Operations. The cost of food and paper products declined to 32.7% of restaurant sales for the fifty-three weeks ended December 30, 2000. This compares to 33.4% of restaurant sales for the fifty-two weeks ended December 25, 1999. On a stand-alone basis, 32.7% of restaurant sales for the cost of food and paper products for fiscal year 2000 compares to 33.8% for fiscal year 1999. The improvement in 2000 is primarily due to higher sales volumes, which helps gain efficiencies in the commissaries and bakery-cafes and improves purchasing power with certain vendors. Additionally, the commodity markets were fairly stable in 2000. For fiscal year 2000, commissary cost of sales was $12.3 million or 88.6% of commissary sales to franchisees, compared to $6.5 million or 89.7% of commissary sales to franchisees for fiscal year 1999. For Panera Bread on a stand-alone basis, $12.3 million or 88.6% of commissary sales to franchisees in fiscal year 2000 compared to $6.6 million or 103.3% for the comparable period in 1999. The higher commissary cost of sales for the fifty-three weeks ended December 30, 2000 compared to the fifty-two weeks ended December 25, 1999, is primarily due to the 70 franchised bakery-cafes added since the end of fiscal 1999 and the higher average unit volumes. The lower percentage cost of sales in 2000 compared to 1999 is primarily due to the increased purchasing leverage at the commissaries. Labor expense was $36.6 million or 29.2% of restaurant sales for fiscal year 2000 compared to $45.4 million or 29.0% in fiscal year 1999. For Panera Bread on a stand-alone basis, $36.6 million or 29.2% of restaurant sales in fiscal year 2000 compared to $27.5 million or 28.3% for the comparable period in 1999. The increase in labor cost as a percentage of restaurant sales was primarily due to an increase in the average hourly wage paid by the Company as a result of the highly competitive labor market, an increase in management staffing, and increased management bonuses due to better operating performance. Occupancy costs were $9.3 million or 7.4% of restaurant sales for fiscal year 2000 compared to $15.6 million or 9.9% of restaurant sales for fiscal year 1999. The decrease in occupancy cost as a percentage of restaurant sales was due to the sale of the Au Bon Pain Division, which had historically incurred higher occupancy costs due to their locations in downtown areas of larger cities. For Panera Bread on a stand-alone basis, the Company incurred $9.3 million or 7.4% of restaurant sales in occupancy costs for fiscal year 2000 compared to $7.2 million or 7.4% of restaurant sales for fiscal year 1999. 15 Other restaurant operating expenses were $16.1 million or 12.8% of restaurant sales for fiscal year 2000 compared to $18.7 million or 12.0% of restaurant sales for fiscal year 1999. For Panera Bread on a stand-alone basis, $16.1 million or 12.8% of restaurant sales for fiscal 2000 compares to $11.8 million or 12.1% of restaurant sales for fiscal 1999. The increased percentage for the fiscal year ending December 30, 2000 was primarily due to $1.0 million of incremental advertising expenses recorded in connection with the television advertising campaign initiated in the Chicago and St. Louis markets. Depreciation and amortization was $8.4 million, or 5.6% of total revenue in fiscal year 2000, compared to $6.4 million or 3.7% of total revenue in fiscal year 1999. The increase was due to the fact that fiscal year 1999 included revenues from the Au Bon Pain Division while depreciation expenses for the Au Bon Pain Division was suspended as the division was classified as an asset held for sale. General and administrative expenses were $16.4 million, or 10.8% of total revenue, and $17.1 million, or 10.0% of total revenue, for the fiscal years ended December 30, 2000 and December 25, 1999, respectively. For Panera Bread on a stand-alone basis, $16.4 million or 10.8% of total revenue for fiscal 2000 compares to $12.6 million or 11.4% of total revenue for fiscal 1999. The decrease on a stand-alone basis as a percentage of total revenue between years is primarily due to the fact that in fiscal year 1999, the Company was paying Au Bon Pain for transitional services at the same time that it was building its accounting and information technology infrastructure. Therefore, there were a number of duplicative costs incurred by the Company in fiscal year 1999. NON-RECURRING CHARGE A non-recurring charge of $.5 million was recorded in the fiscal year ended December 30, 2000. This charge included three components. In the second quarter of 2000, the Company recorded a one-time gain of $.9 million before taxes related to the sale of the Au Bon Pain Division. The original sales agreement dated August 12, 1998, and amended October 28, 1998, included a provision prohibiting the sale of the Au Bon Pain Division by ABP Corporation to another party within 18 months of the date of this agreement. This payment was received in connection with amending the original sales agreement to allow for a sale. The one time gain of $.9 million before taxes related to the sale of the Au Bon Pain Division was substantially offset in the fourth quarter of 2000 by the recording of a $.9 million pre-tax, non-recurring charge associated with the sale of the Au Bon Pain Business Unit, which occurred in May 1999. Of that amount $.4 million, before taxes, represents an additional loss on the sale of the Au Bon Pain Business Unit and $.5 million represents a receivable from Au Bon Pain which management has fully reserved. In the fourth quarter of 2000, the Company recorded a pre-tax, non-recurring charge to earnings of approximately $.5 million which includes approximately $.3 million for the write-down of impaired assets, related to the closing of two bakery-cafes to be closed in the first quarter of 2001. Additionally, this charge included approximately $.2 million for the write-off of fixed assets related to two bakery-cafes that were closed in the fourth quarter of 2000. In fiscal year 1999, in conjunction with the sale of the Au Bon Pain Division, the Company recorded a non-cash, non-recurring, pre-tax charge of $5.5 million. This in conjunction with a charge of $24.2 million taken in the fourth quarter of 1998 reflected a write-down under Statement of Financial Standards No. 14, "Accounting for the Impairment of Long-Lived Assets and for the Long-Lived Assets to be Disposed of". OPERATING PROFIT Operating profit for fiscal year 2000 increased to $10.8 million or 7.1% of total revenue from $3.7 million or 2.2% of total revenue, in fiscal year 1999. For Panera Bread on a stand-alone basis, operating profit was $10.8 million or 7.1% of total revenue for fiscal 2000 compared to $5.1 million or 4.7% of total revenue for fiscal 1999. Operating income in fiscal year 2000 rose primarily due to increased revenues from company-owned bakery-cafes, franchise royalties, and commissary sales to 16 franchisees. Operating income for the Company for fiscal year 1999 was favorably impacted by $4.7 million in reduced depreciation and amortization expenses associated with the Au Bon Pain Division assets held for sale after August 12, 1998. Operating profit for fiscal year 1999 was negatively affected by the $5.5 million non-recurring charge related to the sale of the Au Bon Pain Division. INTEREST EXPENSE Interest expense was $.2 million or .1% of total revenue for fiscal year 2000 versus $2.7 million or 1.6% of total revenue for fiscal year 1999. The decrease in interest expense is primarily due to repayment of the Company's outstanding debt with the proceeds from the sale of the Au Bon Pain Division. For Panera Bread on a stand-alone basis, $.2 million or .1% of total revenues in fiscal 2000 compares to $.4 million or .4% of total revenue for fiscal year 1999. OTHER (INCOME) EXPENSE Other income was $.4 million for the fiscal year 2000 compared with $.7 million of other expense for the comparable period in 1999. For Panera Bread on a stand-alone basis, the $.4 million of other income for fiscal 2000 compares to $.2 million of other expense for fiscal 1999. The difference between years was primarily due to increased interest income in fiscal year 2000. INCOME TAXES The provision for income taxes increased to $4.2 million for fiscal year 2000 versus $.5 million in fiscal year 1999. The tax provision for the fiscal year ended December 30, 2000, reflects a combined federal, state, and local effective tax rate of 38%. The tax provision in 1999 of 194% was due to the impact of state income taxes, non-deductible meals and entertainment allowances as well as non-deductible goodwill on a significantly reduced pre-tax income. As of December 30, 2000 and December 25 1999, the Company has net operating losses of approximately $20.9 million and $24.8 million, respectively, which can be carried forward twenty years to offset Federal taxable income. At December 30, 2000 and December 25, 1999, the Company had Federal jobs tax credit carryforwards of approximately $1.2 million, which expire in the years 2014-2015 and charitable contribution carryforwards of approximately $4.8 million and $3.8 million, respectively, which expire in the years 2000-2003. In addition, the Company has Federal alternative minimum tax credit carryforwards of approximately $3.8 million and $3.7 million at December 30, 2000 and December 25, 1999 respectively, which are available to reduce future regular Federal income taxes over an indefinite period. The Company reevaluates the positive and negative evidence impacting the realizability of its deferred income tax assets on an annual basis. NET INCOME Net income for fiscal year 2000 was $6.9 million or $.52 per diluted share compared to a net loss of $.6 million or $.05 per diluted share for fiscal year 1999. The increase in net income in 2000 was due to an increase in restaurant sales and franchise revenues for Panera Bread bakery-cafes and the absence of significant net charges related to the sale of the Au Bon Pain Division in 1999. Net income for 1999 was negatively impacted by a $.4 million extraordinary loss, net of tax, that was taken due to the early extinguishments of debt and a $5.5 million pre-tax non-recurring charge related to the sale of the Au Bon Pain Division. During 2000, the Company recorded a $.9 million pre-tax gain related to post-transaction negotiations arising out of the sale of the Au Bon Pain Division. This gain was offset by a $.9 million pre-tax, non-recurring charge associated with the sale of the Au Bon Pain Business Unit recorded in the fourth quarter of 2000. For Panera Bread on a stand-alone basis, net income was $4.3 million for fiscal year 1999, which included a tax benefit of $1.4 million recorded in the fourth quarter of 1999. 17 FISCAL YEAR 1999 COMPARED TO FISCAL YEAR 1998 RESULTS OF OPERATIONS As noted earlier, in August 1998, the Board of Directors of Au Bon Pain entered into a Stock Purchase agreement whereby the Au Bon Pain Division was sold to ABP Corporation (the "Buyer"). On May 16, 1999, the Company completed its transaction to sell the Au Bon Pain Division. For the fiscal year ended December 25, 1999, the Company recorded a pre-tax loss of $5.5 million related to the transaction and a $0.6 million pre-tax ($0.4 million net of tax) extraordinary loss related to the early extinguishments of debt from the proceeds of the sale. Results of operations in the third and fourth quarters of 1999 reflect the results of the Panera Bread Company as a stand-alone entity while results of operations for the fiscal year ended December 25, 1999, also include the results of the divested Au Bon Pain Division for the period December 27, 1998 through May 16, 1999. REVENUES Total restaurant sales from company-operated bakery-cafes declined 33.9% to $156.7 million in 1999 from $237.1 million in 1998. The reason for this decline was the sale of the Au Bon Pain Division as of May 16, 1999. As a stand-alone entity, Panera Bread's 1999 restaurant sales increased 25.7% to $97.4 million from $77.5 million in 1998. Several factors contributed to the growth in Panera Bread's restaurant sales including the opening of 12 new bakery-cafes in 1999, and a 3.3% increase in comparable restaurant sales. Franchise and other revenues rose to $7.4 million in 1999 from $6.2 million in 1998, a 19.4% increase. For Panera Bread on a stand-alone basis, franchise and other revenues rose to $6.4 million in 1999, from $3.5 million in 1998, an increase of 82.9%. This increase was primarily driven by a 170.6% rise in franchise royalties to $4.6 million in 1999 from $1.7 million in 1998. The increase in royalty activity can be attributed to the addition of 56 franchised bakery-cafes in 1999 and the higher sales volumes achieved in 1999. The average annualized sales volume for all franchised bakery-cafes in 1999 was $1.6 million compared to $1.3 million in 1998. During 1999, 4 franchise area development agreements were signed representing commitments for the development of 60 bakery-cafes. As of December 25, 1999, there were franchise commitments in place for the development of an additional 543 bakery-cafes. In 1999, the Company opened 68 new bakery-cafes including 12 company-owned and 56 franchised bakery-cafes representing a 59% increase in the number of bakery-cafes opened as of the end of fiscal year 1999 compared to prior year-end. Commissary sales to franchisees increased 12.5% in 1999 to $7.2 million from $6.4 million in 1998. On a stand-alone basis, Panera Bread's commissary sales to franchisees increased to $6.3 million in 1999, a 215.0% increase from 1998 sales of $2.0 million. The increase in sales to franchisees can be attributed to the addition of 56 franchised bakery-cafes in 1999 and higher bakery-cafe unit volumes achieved in 1999. COSTS AND EXPENSES The cost of food and paper products was $52.4 million, or 33.4% of Company restaurant sales, in 1999 compared to $81.1 million, or 34.2% of Company restaurant sales, in 1998. For Panera Bread on a stand-alone basis, the cost of food and paper products was $32.9 million, or 33.8% of Company restaurant sales in 1999 compared to $27.7 million, or 35.8% of company restaurant sales in 1998. The cost of food and paper products does not include food costs that are associated with the commissary operations that sell fresh dough products to franchised bakery-cafes. The primary reason for the overall decline was that the Au Bon Pain units historically ran at a higher food cost percentage than the Panera Bread units. With the sale of the Au Bon Pain Division in May, 1999, the full year results were more heavily weighted to the Panera Bread units. 18 The costs associated with the sale of fresh dough products to franchises are included in commissary cost of sales, and include the cost of sales, salaries, benefits, and other operating expenses, excluding depreciation associated with the sale of fresh dough products to our franchisees. In 1999, commissary cost of sales as a percentage of commissary sales to franchisees declined to 89.7% from 95.4% in 1998. For Panera Bread on a stand-alone basis, commissary cost of sales as a percentage of commissary sales to franchisees increased to 103.3% in 1999 from 91.8% in 1998. The overall decline is due to the commissaries becoming more efficient as they service more bakery-cafes. Only one new commissary was opened in 1999 while Panera Bread added 68 new bakery-cafes on a system-wide basis. The cost of labor as a percentage of restaurant revenues increased to 29.0% in 1999 from 28.4% in 1998. For Panera Bread on a stand-alone basis, the cost of labor as a percentage of restaurant revenues increased to 28.3% in 1999 from 27.7% in 1998. The overall increase in labor for the year is primarily due to an increase in the average hourly wage rate driven by low unemployment and a highly competitive labor market. The cost of occupancy as a percentage of restaurant revenue decreased to 9.9% in 1999 from 11.8% in 1998. For Panera Bread on a stand-alone basis, the cost of occupancy as a percentage of restaurant revenue remained consistent at 7.4% in 1999 and 7.4% in 1998. The overall decrease is due primarily to increased sales volumes at company-operated bakery-cafes and the sale of the Au Bon Pain Division, which had historically incurred higher occupancy costs due to their locations in the downtown areas of larger cities. Other restaurant operating expenses increased as a percentage of restaurant revenues to 12.0% in 1999 from 11.7% in 1998. For Panera Bread on a stand-alone basis, other restaurant operating expenses increased as a percentage of restaurant revenue to 12.1% in 1999 from 11.7% in 1998. The overall increase is primarily due to increases in the fixed costs associated with the opening of 12 new bakery-cafes in 1999 and a small increase in advertising at the Panera Bread bakery-cafes during the year. Depreciation and amortization decreased as a percentage of total revenue to 3.7% in 1999 from 5.1% in 1998. For Panera Bread on a stand-alone basis, depreciation and amortization decreased as a percentage of total revenue to 5.8% in 1999 from 6.0% in 1998. The overall decrease was primarily due to the sale of the Au Bon Pain Division assets and to the suspension of depreciation and amortization associated with those assets held for sale after August 12, 1998. General and administrative expenses increased as a percentage of total revenues to 10.0% in 1999 from 7.5% in 1998. For Panera Bread on a stand-alone basis, general and administrative expenses increased as a percentage of total revenues to 11.4% in 1999 from 11.3%, which includes an allocation of $2.4 million for overhead services provided by Au Bon Pain Co., Inc., in 1998. The overall increase in 1999 included a charge for transitional overhead services provided to Panera Bread by the buyer of the Au Bon Pain business unit through the end of the year at the same time that Panera Bread was experiencing increased costs associated with building its accounting and information systems infrastructure. Operating income (loss) increased to $3.7 million in 1999 from $(18.3) million in 1998. Operating income in 1999 was reduced by a $5.5 million non-recurring charge related to the sale of the Au Bon Pain Division. Operating income in 1999 was increased by $4.7 million due to the elimination of depreciation and amortization expense associated with the Au Bon Pain Division assets sold in 1999. The operating loss in 1998 included non-recurring charges recorded by the Company of $26.0 million, including a charge of $24.2 million, related principally to the write down of certain assets under Statement of Financial Accounting Standards, 121 "Accounting for the Impairment of Long-Lived Assets and for the Long-Lived Assets to be Disposed of" ("SFAS 121") related to the planned sale of assets and the closing of eight underperforming Au Bon Pain cafes and one Panera Bread bakery-cafe. Operating income in 1998 was favorably impacted by approximately $4.5 million as a result of the 19 suspension of depreciation and amortization of the Au Bon Pain Division assets held for sale as of August 12, 1998, the date of the agreement to sell that business. Before the non-recurring charges and suspension of depreciation and amortization, operating income increased by 32.4% in 1999 to $4.5 million in 1999 from $3.4 million in 1998. Interest expense as a percentage of total revenue decreased to 1.6% in 1999 from 2.6% in 1998. This reduction is due primarily to the repayment of the Company's outstanding debt with the proceeds of the sale of the Au Bon Pain Division. In connection with the early extinguishment of debt, the Company recorded a $.4 million extraordinary loss net of $.2 million of taxes. The debt was repaid with the proceeds from the sale of the Au Bon Pain Division. INCOME TAXES The income tax provision was $.5 million in 1999 compared to an income tax benefit of $5.5 million in 1998. The 1999 effective tax rate was 194% primarily due to state income taxes, non-deductible meals and entertainment allowance as well as non-deductible goodwill. The $5.5 million benefit in 1998 was primarily due to a $24.2 million charge taken to write-down the value of the Au Bon Pain Division assets in connection with the sale, offset principally by a valuation allowance related to state net operating loss carryforwards and capital losses related to the sale. As of December 25, 1999, the Company had federal net operating loss carryforwards of approximately $24.8 million, as well as approximately $4.9 million of federal tax credit carryforwards available to reduce future income taxes. The federal net operating loss carryforwards expire principally in the year 2018. The tax credit carryforwards include approximately $3.7 million of federal Alternative Minimum Tax Credits which have an indefinite life and $1.2 million of federal jobs tax credits which expire in the years beginning with 2014-2015. The Company provided a valuation allowance of $4.7 million to reduce its deferred tax assets to a level which, more likely than not, will be realized. The valuation allowance is primarily attributable to the potential for the non-deductibility of capital losses related to the taxable loss on the sale of the Au Bon Pain Division and the expectation that certain deferred state tax assets will be unrealizable following the sale. The Company reevaluates the positive and negative evidence impacting the realization of its deferred tax assets on an annual basis. NET LOSS The net loss in 1999 was $.6 million compared to a net loss of $20.5 million in 1998. The net loss in 1999 included a $5.5 million non-recurring charge related to the sale of the Au Bon Pain Division and a $.4 million after tax extraordinary loss from the early extinguishment of debt from the proceeds from the sale. 1998's results included a $24.2 million charge taken as a result of the write-down of the value of the Au Bon Pain Division assets in connection with the sale as well as closure of eight underperforming Au Bon Pain Cafes and one Panera Bread Bakery-Cafe. Other than the non-recurring charges, net income in 1999 was higher than 1998 primarily due to higher operating earnings and lower interest expense. LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents were $9.0 million at December 30, 2000 compared with $1.9 million at December 25, 1999. The Company's principal requirements for cash are capital expenditures for constructing and equipping new bakery-cafes and maintaining or remodeling existing bakery-cafes and commissaries and working capital. For the fifty-three weeks ended December 30, 2000, the Company met its requirements for capital with cash from operations and proceeds from the exercise of stock options of $8.2 million. 20 Funds provided by operating activities for the fifty-three weeks ended December 30, 2000, were $20.1 million compared to $6.7 million for the fifty-two weeks ended December 25, 1999. Funds provided by operating activities increased primarily as a result of an increase in net income and depreciation expense. Total capital expenditures for the fifty-three weeks ended December 30, 2000, were $20.1 and were primarily related to the opening of eleven new company-owned bakery-cafes, the opening of one additional commissary, and for maintaining or remodeling existing bakery-cafes. The expenditures were funded by cash from operating activities and the proceeds from the exercise of stock options. Total capital expenditures were $15.3 million for the fifty-two weeks ended December 25, 1999, which included $2.1 million in capital expenditures for the divested Au Bon Pain Division. For Panera Bread on a stand-alone basis, the $13.2 million in 1999 capital expenditures were primarily related to the opening of 12 new company-owned bakery-cafes and 1 additional commissary. On December 26, 2000, the Company entered into a revolving credit agreement for $10.0 million at LIBOR plus 1.0%, approximately 7.5% at December 30, 2000, which extends until December 31, 2003. As of December 30, 2000, the Company had $9.4 million available under the line of credit with $0.6 million utilized by outstanding standby letters of credit. The Company was in compliance with all covenants associated with its borrowings as of December 30, 2000. As of December 25, 1999, the Company had a $10.0 million unsecured revolving line of credit bearing interest at the Company's option of either the LIBOR rate plus 2.25% or the commercial bank's prime rate plus .75%. As of December 25, 1999, the Company had $9.4 million available to it under the line of credit with $0.6 million being utilized by outstanding standby letters of credit. The Company was in compliance with all covenants associated with its borrowing as of December 30, 1999. Financing activities provided $7.8 million in 2000. In 1999, $63.9 million was utilized from financing activities. The financing activities in 2000 included proceeds from the exercise of stock options of $8.2 million. The financing activities in 1999 included the net repayment of all outstanding debt of $64.2 million with the proceeds from the sale of Au Bon Pain. The Company had a working capital surplus of $3.4 million and a working capital deficit of $3.2 million at December 30, 2000, and December 25, 1999, respectively. The working capital surplus in 2000 was primarily due to an increase in cash and cash equivalents. The Company has experienced no short term or long-term liquidity difficulties having been able to finance its operations through internally generated cash flow and its revolving line of credit. During 2001, the Company currently anticipates spending a total of approximately $22 to $24 million, principally for the opening of approximately 14 new company-owned bakery-cafes, the opening of one additional commissary, and for maintaining and remodeling approximately 10 existing cafes. The Company expects to fund these expenditures principally through internally generated cash flow supplemented, where necessary, by borrowings on its line of credit. IMPACT OF INFLATION In the past, the Company has been able to recover inflationary cost and commodity price increases through increased menu prices. There have been and there may be in the future, delays in implementing such menu price increases, and competitive pressures may limit the Company's ability to recover such cost increases in their entirety. Historically, the effects of inflation on the Company's net income have not been materially adverse. A majority of the Company's employees are paid hourly rates related to federal and state minimum wage laws. Although the Company has and will continue to attempt to pass along any increased labor costs through food price increases, there can be no assurance that all such increased labor costs can be reflected in its prices or that increased prices will be absorbed by consumers without diminishing to some degree consumer spending at the bakery-cafes. However, the Company has not 21 experienced to date a significant reduction in gross profit margins as a result of changes in such laws, and management does not anticipate any related future significant reductions in gross profit margins. FORWARD LOOKING STATEMENTS Matters discussed in this report which relate to events or developments that are expected to occur in the future, including any discussion of growth or anticipated operating results are forward-looking statements within the meaning of Section 27A of the Securities Exchange Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (identified by the words "estimate", "project", "anticipates", "expects", "intends", "believes", "future", and similar expressions). These are statements which express management's belief, expectations or intentions regarding the Company's future performance. Moreover, a number of factors could cause the Company's actual results to differ materially from those set forth in the forward-looking statements due to known and unknown risks and uncertainties. The Company's operating results may be negatively affected by many factors, including but not limited to the lack of availability of sufficient capital to it and the developers party to franchise development agreements with the Company, variations in the number and timing of bakery-cafe openings, public acceptance of new bakery-cafes, consumer preferences, competition, commodity costs, and other factors that may affect retailers in general. The foregoing list of important factors is not exclusive. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133 "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 defines derivative instruments and requires that these items be recognized as assets or liabilities in the statement of financial position. This statement is effective for financial statements issued for periods beginning January 1, 2000. However, SFAS No. 137 defers the effective date for one year to January 1, 2001. As of December 30, 2000, the Company does not have any derivative instruments. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company had no holdings of derivative financial or commodity instruments at December 30, 2000. The Company's unsecured revolving line of credit bears an interest rate using the commercial bank's prime rate or LIBOR as the basis, and therefore is subject to additional expense should there be an increase in prime or LIBOR interest rates. Panera Bread has no foreign operations and accordingly, no foreign exchange rate fluctuation risk. 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, 2000, and December 25, 1999. Consolidated Statements of Operations for the fiscal years ended December 30, 2000, December 25, 1999, and December 26, 1998. Consolidated Statements of Cash Flows for the fiscal years ended December 30, 2000, December 25, 1999, and December 26, 1998. Consolidated Statements of Stockholders' Equity for the fiscal years ended December 30, 2000, December 25, 1999, and December 26, 1998. Notes to Consolidated Financial Statements. Valuations and Qualifying Accounts. All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. 22 REPORT OF INDEPENDENT ACCOUNTANTS TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF PANERA BREAD COMPANY: In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Panera Bread Company and its subsidiaries at December 30, 2000 and December 25, 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 30, 2000, in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe our audits provide a reasonable basis for our opinion. /s/ PricewaterhouseCoopers LLP St. Louis, Missouri March 2, 2001 24 PANERA BREAD COMPANY CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE INFORMATION)
DEC. 30, DEC. 25, 2000 1999 ----------- -------- ASSETS Current Assets: Cash and cash equivalents................................. $ 9,011 $ 1,936 Accounts receivable, less allowance of $86 and $197 in 2000 and 1999, respectively............................. 3,105 2,686 Inventories (Note 3)...................................... 2,442 1,880 Prepaid expenses.......................................... 1,027 484 Refundable income taxes................................... 474 98 Deferred income taxes (Note 10)........................... 5,193 5,473 ----------- -------- Total current assets.................................. 21,252 12,557 ----------- -------- Property and equipment, net (Note 4)........................ 59,857 47,191 Other assets: Notes receivable.......................................... -- 35 Intangible assets, net of accumulated amortization of $6,921 and $5,932 in 2000 and 1999 respectively......... 17,790 18,779 Deferred financing costs.................................. 24 88 Deposits and other (Note 11).............................. 4,731 3,960 Deferred income taxes (Note 10)........................... 8,035 8,419 ----------- -------- Total other assets.................................... 30,580 31,281 ----------- -------- Total assets.......................................... $ 111,689 $ 91,029 =========== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts Payable.......................................... $ 5,396 $ 3,535 Accrued Expenses (Note 6)................................. 12,086 12,237 Current portion of computer equipment financing........... 374 -- ----------- -------- Total current liabilities............................. 17,856 15,772 Deferred revenue (Note 18).................................. 2,245 2,011 ----------- -------- Total liabilities..................................... 20,101 17,783 Commitments and contingencies (Notes 9 and 15) Stockholders' equity (Note 12): Common stock, $.0001 par value: Class A, shares authorized 50,000,000; issued and outstanding 11,870,918 and 10,630,717 in 2000 and 1999, respectively............................................ 1 1 Class B, shares authorized 2,000,000; issued and outstanding 1,481,922 and 1,535,821 in 2000 and 1999, respectively............................................ -- -- Treasury stock, carried at cost........................... (900) -- Additional paid-in capital................................ 82,971 70,581 Retained earnings......................................... 9,516 2,664 ----------- -------- Total stockholders' equity............................ 91,588 73,246 ----------- -------- Total liabilities and stockholders' equity............ $ 111,689 $ 91,029 =========== ========
The accompanying notes are an integral part of the consolidated financial statements. 25 PANERA BREAD COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FOR THE FISCAL YEARS ENDED ------------------------------------------ DECEMBER 30, DECEMBER 25, DECEMBER 26, 2000 1999 1998 ------------ ------------ ------------ Revenues: Restaurant sales...................................... $125,486 $156,738 $237,102 Franchise and other revenues.......................... 12,059 7,384 6,161 Commissary sales to franchisees....................... 13,844 7,237 6,397 -------- -------- -------- Total revenue..................................... 151,389 171,359 249,660 -------- -------- -------- Costs and expenses: Restaurant Expenses: Cost of food and paper products..................... 41,084 52,445 81,140 Labor............................................... 36,609 45,385 67,218 Occupancy........................................... 9,313 15,552 28,016 Other operating expenses............................ 16,050 18,740 27,826 -------- -------- -------- 103,056 132,122 204,200 Commissary cost of sales.............................. 12,261 6,490 6,100 Depreciation and amortization......................... 8,412 6,379 12,667 General and administrative expenses................... 16,381 17,104 18,769 Non-recurring charge (Note 5)......................... 494 5,545 26,236 -------- -------- -------- Total costs and expenses.......................... 140,604 167,640 267,972 -------- -------- -------- Operating profit (loss)................................. 10,785 3,719 (18,312) Interest expense........................................ 164 2,745 6,396 Other (income) expense, net............................. (409) 735 710 Loss on sale of assets.................................. -- -- 735 Minority interest....................................... -- (25) (127) -------- -------- -------- Income (loss) before income taxes and extraordinary item.................................................. 11,030 264 (26,026) Income tax provision (benefit) (Note 10)................ 4,177 511 (5,532) -------- -------- -------- Income (loss) before extraordinary item................. 6,853 (247) (20,494) Extraordinary loss from early extinguishments of debt, net of tax of $197.................................... -- 382 -- -------- -------- -------- Net Income (loss)....................................... $ 6,853 $ (629) $(20,494) ======== ======== ======== Per common share: Basic: Income (loss) before extraordinary item............... $ .55 $ (.02) $ (1.72) Extraordinary loss on the early extinguishment of debt................................................ $ -- $ (.03) $ -- Net income (loss)..................................... $ .55 $ (.05) $ (1.72) Diluted: Income (loss) before extraordinary item............... $ .52 $ (.02) $ (1.72) Extraordinary loss on the early extinguishment of debt................................................ $ -- $ (.03) $ -- Net income (loss)..................................... $ .52 $ (.05) $ (1.72) Weighted average shares of common stock outstanding: Basic................................................. 12,557 12,137 11,943 Diluted............................................... 13,134 12,137 11,943
The accompanying notes are an integral part of the consolidated financial statements. 26 PANERA BREAD COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
FOR THE FISCAL YEARS ENDED ------------------------------ DEC. 30, DEC. 25, DEC. 26, 2000 1999 1998 -------- -------- -------- Cash flows from operations: Net income (loss)......................................... $ 6,853 $ (629) $(20,494) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization............................. 8,412 6,379 12,667 Amortization of deferred financing costs.................. 88 406 683 Provision for losses on accounts receivable............... (111) 93 56 Minority interest......................................... -- (25) (127) Tax benefit from exercise of stock options................ 4001 -- 75 Deferred income taxes..................................... 664 42 (6,664) Loss on early extinguishment of debt...................... -- 382 -- Non-recurring charge...................................... 494 5,545 26,236 Loss on disposal of assets................................ -- -- 735 Changes in operating assets and liabilities: Accounts receivable....................................... (308) (1,596) 15 Inventories............................................... (562) (65) 212 Prepaid expenses.......................................... (543) (3,560) (535) Refundable income taxes................................... (376) -- 480 Accounts payable.......................................... 1,861 (3,037) 4,069 Accrued expenses.......................................... (645) 769 3,104 Deferred revenue.......................................... 234 2,011 -- ------- -------- -------- Net cash provided by operating activities............. 20,062 6,715 20,512 ------- -------- -------- Cash flows from investing activities: Additions to property and equipment....................... (20,089) (15,306) (21,706) Proceeds from sale of assets.............................. -- 72,163 12,694 Change in cash included in net current liabilities held for sale................................................ -- (466) (1,305) Payments received on notes receivable..................... 35 114 240 Increase in intangible assets............................. -- (50) (139) Increase (decrease) in deposits and other................. (771) 855 (956) Increase in notes receivable.............................. -- (30) (45) ------- -------- -------- Net cash (used in) provided by investing activities... (20,825) 57,280 (11,217) ------- -------- -------- Cash flows from financing activities: Exercise of employee stock options........................ 8,206 96 1,203 Proceeds from long-term debt issuance..................... 765 41,837 75,418 Principal payments on long-term debt...................... (391) (106,073) (84,253) Purchase of treasury stock................................ (900) -- -- Proceeds from issuance of common stock.................... 182 148 268 Common stock issued for employee stock bonus.............. -- 304 -- Increase in deferred financing costs...................... (24) (110) (506) Decrease in minority interest............................. -- (121) (418) ------- -------- -------- Net cash provided by (used in) financing activities... 7,838 (63,919) (8,288) ------- -------- -------- Net increase in cash and cash equivalents................... 7,075 76 1,007 Cash and cash equivalents at beginning of year.............. 1,936 1,860 853 ------- -------- -------- Cash and cash equivalents at end of year.................... $ 9,011 $ 1,936 $ 1,860 ======= ======== ======== Supplemental cash flow information: Cash paid during the year for: Interest................................................ $ 85 $ 4,250 $ 5,544 Income taxes............................................ $ 512 $ 241 $ 268
The accompanying notes are an integral part of the consolidated financial statements. 27 PANERA BREAD COMPANY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE FISCAL YEARS ENDED DECEMBER 30, 2000, DECEMBER 25, 1999, AND DECEMBER 26, 1998 (IN THOUSANDS)
COMMON STOCK $.0001 PAR VALUE ----------------------------------------- CLASS A CLASS B TREASURY STOCK ADDITIONAL TOTAL ------------------- ------------------- ------------------- PAID-IN RETAINED STOCKHOLDERS' SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS EQUITY -------- -------- -------- -------- -------- -------- ---------- -------- ------------- Balance, Dec. 27, 1997... 10,187 $ 1 1,610 $ -- -- $ -- $68,486 $23,787 $92,274 Exercise of employee stock options.......... 178 1,204 1,204 Income tax benefit related to stock option plan................... 75 75 Exercise of Warrants..... (323) (323) Issuance of common stock.................. 101 591 591 Conversions of Class B to Class A................ 52 (52) Net loss................. (20,494) (20,494) ------- ------- ----- ---- -------- ----- ------- ------- ------- Balance, Dec. 26, 1998... 10,518 $ 1 1,558 $ -- -- $ -- $70,033 $ 3,293 $73,327 Exercise of employee stock options.......... 14 96 96 Issuance of common stock.................. 29 148 148 Issuance of common stock for employee bonus..... 48 304 304 Conversions of Class B to Class A................ 22 (22) Net loss................. (629) (629) ------- ------- ----- ---- -------- ----- ------- ------- ------- Balance, Dec. 25, 1999... 10,631 $ 1 1,536 $ -- -- $ -- $70,581 $ 2,664 $73,246 Exercise of employee stock options.......... 1,089 8,206 8,206 Issuance of common stock.................. 20 182 182 Issuance of common stock for employee bonus..... -- 1 (1) -- Exercise of Warrants..... 132 Conversions of Class B to Class A................ 54 (54) Repurchase of Class A common stock........... (55) 55 (900) (900) Income tax benefit related to stock option plan................... 4,001 4,001 Net income............... 6,853 6,853 ------- ------- ----- ---- -------- ----- ------- ------- ------- Balance, Dec. 30, 2000... 11,871 $ 1 1,482 $ -- 55 $(900) $82,971 $ 9,516 $91,588 ======= ======= ===== ==== ======== ===== ======= ======= =======
The accompanying notes are an integral part of the consolidated financial statements. 28 PANERA BREAD COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. NATURE OF BUSINESS Panera Bread Company operates a retail bakery-cafe business and franchising business under the concept names "Panera Bread Company" and "Saint Louis Bread Company". Up until the year ended December 26, 1998, the Company operated under the name Au Bon Pain Co., Inc. and consisted of two retail bakery-cafe businesses and two franchising businesses operating under the concept names "Au Bon Pain" and "Saint Louis Bread Company". As described in Note 5, on May 16, 1999, the Company sold the Au Bon Pain Division. 2. SUMMARY OF ACCOUNTING POLICIES BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION For the year ended December 30, 2000, the consolidated financial statements consist of the accounts of Panera Bread Company, Panera Bread Company, Inc., a wholly owned subsidiary and ABP Midwest Manufacturing Co., Inc., a wholly owned subsidiary. For the years ended December 25, 1999 and December 26, 1998, the consolidated statements include the accounts of Au Bon Pain Co., Inc., ABP Holdings, Inc., a wholly owned subsidiary, Saint Louis Bread Company, Inc. ("Saint Louis Bread"), a wholly owned subsidiary, ABP Midwest Manufacturing Co., Inc, a wholly owned subsidiary, and investments in joint ventures in which a majority interest is held (the "Company"). All intercompany balances and transactions have been eliminated. PREPARATION OF FINANCIAL STATEMENTS The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments with a maturity at the time of purchase of three months or less to be cash equivalents. ACCOUNTS RECEIVABLE Substantially all accounts receivable are due from franchisees for purchases of fresh dough products and for royalties from December sales. The Company generally does not require collateral and maintains reserves for potential uncollectable accounts, which in the aggregate have not exceeded management's expectation. INVENTORIES Inventories, which consist of food products, paper goods and supplies, smallwares and promotional items are valued at the lower of cost, or market, determined under the first-in, first-out method. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation is provided using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized using the 29 PANERA BREAD COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. SUMMARY OF ACCOUNTING POLICIES (CONTINUED) straight-line method over the shorter of their estimated useful lives or the remaining terms of the leases. The estimated useful lives used for financial statement purposes are: Leasehold improvements...................................... 10-23 years Machinery and equipment..................................... 3-10 years Furniture and fixtures...................................... 3-10 years Signage..................................................... 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 $0, $96,279, and $114,928 in 2000, 1999 and 1998, respectively. Upon retirement or sale, the cost of assets disposed of and their related accumulated depreciation are removed from the accounts. Any resulting gain or loss is credited or charged to operations. Maintenance and repairs are charged to expense when incurred, while betterments are capitalized. INTANGIBLE ASSETS Intangible assets consist of goodwill arising from the excess of cost over the fair value of net assets acquired at the original acquisition of the Company. Goodwill is amortized on a straight-line basis over twenty-five years. The Company examines the carrying value of its excess of cost over net assets acquired and other intangible assets to determine whether there are any impairment losses. If indications of impairment were present in intangible assets used in operations, and future cash flows were not expected to be sufficient to recover the assets' carrying amount, an impairment loss would be charged to expense in the period identified. No event has been identified that would indicate an impairment of the value of material intangible assets recorded in the accompanying consolidated financial statements. IMPAIRMENT OF LONG-LIVED ASSETS Periodically management assesses, based on undiscounted cash flows, if there has been a permanent impairment in the carrying value of its long-lived assets and, if so, the amount of any such impairment, by comparing anticipated discounted future operating income from acquired businesses with the carrying value of the related long-lived assets. In performing this analysis, management considers such factors as current results, trends, future prospects and other economic factors. INCOME TAXES The provision for income taxes is determined in accordance with the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes". Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Any effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. 30 PANERA BREAD COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. SUMMARY OF ACCOUNTING POLICIES (CONTINUED) DEFERRED FINANCING COSTS Costs incurred in connection with obtaining debt financing are amortized over the terms of the related debt. FRANCHISE AND DEVELOPMENT FEES Franchise fees are the result of sales of area development rights and the sale of individual franchise locations to third parties, both domestically and internationally. Upon completion of the sale of the Au Bon Pain Division on May 16, 1999, the Company no longer had any international franchisees. Fees from the sale of area development rights are fully recognized as revenue upon completion of all commitments related to the agreements. Fees from the sale of individual franchise locations are fully recognized as revenue upon the commencement of franchise operations. CAPITALIZATION OF CERTAIN DEVELOPMENT COSTS The Company capitalizes certain expenses associated with the development and construction of new store locations. Capitalized costs of $.8 million and $.8 million as of December 30, 2000 and December 25, 1999, respectively, are recorded as part of the asset to which they relate and are amortized over the asset's useful life. REVENUE RECOGNITION The Company records revenues from normal recurring sales upon the performance of services. Revenue from the sales of franchises is recognized as income when the Company has substantially performed all of its material obligations under the franchise agreement. Continuing royalties, which are a percentage of net sales of franchised restaurants, are accrued as income when earned. ADVERTISING COSTS The Company's policy is to report advertising costs as expenses in the periods in which the costs are incurred. The total amounts charged to advertising expense were approximately $2.8 million, $1.8 million and $1.9 million for the years ended December 30, 2000, December 25, 1999 and December 26, 1998, respectively. PRE-OPENING COSTS All pre-opening costs associated with the opening of new retail locations are expensed when incurred. FISCAL YEAR The Company's fiscal year ends on the last Saturday in December. Fiscal years for the consolidated financial statements included herein include 53 weeks for the fiscal year ended December 30, 2000, and 52 weeks for the fiscal years ended December 25, 1999, and December 26, 1998. 31 PANERA BREAD COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. SUMMARY OF ACCOUNTING POLICIES (CONTINUED) EARNINGS PER SHARE DATA Earnings per share is based on the weighted average number of shares outstanding during the period after consideration of the dilutive effect, if any, for common stock equivalents, including stock options, warrants and preferred stock. Earnings per common share are computed in accordance with Statement of Financial Accounting Standards ("SFAS") No. 128 "Earnings Per Share," which requires companies to present basic earnings per share and diluted earnings per share. Basic earnings per share are computed by dividing net income by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per common share are computed by dividing net income by the weighted average number of shares of common stock outstanding and dilutive securities outstanding during the year. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount of the Company's long-term debt, including current maturities, approximates fair value because the interest rates on these instruments change with market interest rates. The carrying amounts for accounts receivable and accounts payable approximate their fair values due to the short maturity of these instruments. RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARD In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133 "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 defines derivative instruments and requires that these items be recognized as assets or liabilities in the statement of financial position. This statement is effective for financial statements issued for periods beginning January 1, 2000. However, SFAS No. 137 deferred the effective date for one year to January 1, 2001. As of December 30, 2000, the Company did not have any derivative instruments. 3. INVENTORIES Inventories consist of the following (in thousands):
DECEMBER 30, DECEMBER 25, 2000 1999 ------------ ------------ Food: Commissaries...................................... $ 310 $ 178 Bakery-cafes...................................... 908 729 Paper goods......................................... 170 134 Smallwares.......................................... 1,036 768 Other............................................... 18 71 ------ ------ $2,442 $1,880 ====== ======
32 PANERA BREAD COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 4. PROPERTY AND EQUIPMENT Major classes of property and equipment consist of the following (in thousands):
DECEMBER 30, DECEMBER 25, 2000 1999 ------------ ------------ Leasehold improvements.............................. $39,852 $33,080 Machinery and equipment............................. 30,358 21,995 Furniture and fixtures.............................. 8,497 6,350 Signage............................................. 2,167 1,320 Construction in progress............................ 3,537 2,701 ------- ------- 84,411 65,446 Less accumulated depreciation and amortization...... 24,554 18,255 ------- ------- Property and equipment, net......................... $59,857 $47,191 ======= =======
The Company recorded depreciation expense related to these assets of $7.4 million, $5.4 million in 2000 and 1999 respectively. 5. SALE OF AU BON PAIN DIVISION AND NON-RECURRING CHARGES The Company, together with its wholly-owned subsidiary ABP Holdings, Inc. ("ABPH") entered into a Stock Purchase Agreement dated August 12, 1998 and amended October 28, 1998 with ABP Corporation (the "Buyer"), an affiliate of Bruckmann, Rosser, Sherrill & Co., L.P., relative to the transfer of substantially all of the assets and liabilities of the Company's Au Bon Pain Division business (the "Au Bon Pain Division") and sale of all of the outstanding capital stock of ABPH to the Buyer, whereby the Buyer would become the owner of the Au Bon Pain Division (the "Sale"). The Sale was effective May 16, 1999 for $73 million in cash before contractual purchase price adjustments of approximately $1 million. The Company, which now consists of the Panera Bread/Saint Louis Bread Co. Business Unit only, has been renamed Panera Bread Company. The proceeds from the sale were used to repay all outstanding debt and provide cash for growth. In addition, the Company recorded an extraordinary loss net of taxes of $0.4 million associated with the early extinguishment of debt outstanding in the second quarter of 1999. In conjunction with the sale, the Company recorded a non-cash, non-recurring, pre-tax charge of $5.5 million in the first quarter of 1999 and $24.2 million in 1998. This charge was to reflect a write-down under Statement of Financial Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for the Long-Lived Assets to be Disposed of" ("SFAS 121"). The charge is included as a separate component of operating expenses. The non-cash charge was taken to record an impairment for long lived assets to be disposed of as a result of the agreement entered into for the subsequent sale of the Au Bon Pain Division. Operating income for the years ended December 25, 1999, and December 26, 1998, were favorably impacted by $4.7 million and $4.5 million due to the suspension of depreciation and amortization associated with the Au Bon Division assets held for sale after August 12, 1998. Restaurant sales and net operating loss (before non-recurring charges and the suspension of depreciation and amortization) in the Au Bon Pain Division held for sale as of December 26, 1998 were $159.6 million and $3.0 million, respectively. In fiscal year 1999, revenues and net operating income (before non-recurring charges and the suspension of depreciation and amortization) in the Au 33 PANERA BREAD COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 5. SALE OF AU BON PAIN DIVISION AND NON-RECURRING CHARGES (CONTINUED) Bon Pain Division through the time of its sale on May 16, 1999, were $51.5 million and $3.2 million respectively. During 1998, the Company recorded $2.0 million in non-recurring, non-cash charges in accordance with SFAS 121, to write-down the book value of eight underperforming Au Bon Pain stores whose leases expired in 1998 and were not renewed, and to record the closing of one Panera Bread location. The charge is included as a separate component of operating expenses and includes a $1.6 million fixed asset write-down and a $0.4 million other asset write-down. In the first quarter of 1998 the Company sold the Mexico, Missouri production facility and its wholesale frozen dough business to Bunge Foods Corporation ("Bunge") for approximately $13 million in cash. The Company recognized a pre-tax loss on the sale of the facility of approximately $.7 million in the Company's results of operations. In the second quarter of 2000, the Company recorded a one time gain of $.9 million before taxes related to the sale of the Au Bon Pain Division. The original sales agreement dated August 12, 1998, and amended October 28, 1998, included a provision prohibiting the sale of the Au Bon Pain division by ABP Corporation to another party within 18 months of the date of this agreement. This payment was received in connection with amending the original sales agreement to allow for a sale. The one time gain of $.9 million before taxes related to the sale of the Au Bon Pain Division was substantially offset in the fourth quarter of 2000 by the recording of a $.9 million pre-tax, non-recurring charge associated with the sale of the Au Bon Pain Business Unit which occurred in May 1999. Of that amount $.4 million, before taxes, represents an additional loss on the sale of the Au Bon Pain Business Unit and $.5 million represents a receivable from Au Bon Pain which management has fully reserved. Also in the fourth quarter of 2000, the Company recorded a pre-tax, non-recurring charge to earnings of approximately $.5 million which includes approximately $.3 million for the write-down of impaired assets, related to the closing of two bakery-cafes in the first quarter of 2001. Additionally, this charge included approximately $.2 million for the write-off of fixed assets related to two bakery-cafes that were closed in the fourth quarter of 2000. 6. ACCRUED EXPENSES Accrued expenses consist of the following (in thousands):
DECEMBER 30, DECEMBER 25, 2000 1999 ------------ ------------ Accrued insurance................................... $ 796 $ 881 Rent................................................ 1,168 780 Compensation and employment related taxes........... 3,119 2,594 Taxes, other than income taxes...................... 1,780 4,383 Other............................................... 5,223 3,599 ------- ------- $12,086 $12,237 ======= =======
34 PANERA BREAD COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 7. LONG-TERM DEBT The Company had a $10.0 million unsecured revolving line of credit at December 30, 2000 and December 25, 1999, respectively. The revolving line of credit bears an interest rate of LIBOR plus 1%, approximately 7.5% and 6.8% at December 30, 2000 and December 25, 1999, respectively. The revolving credit agreement contains restrictions relating to future indebtedness, liens, investments, distributions, mergers, acquisition or sale of assets and certain leasing transactions. The agreement also requires the maintenance of certain financial ratios and covenants. The revolving credit agreement also contains a commitment fee of .225% and .50% of the unused portion of the revolving line of credit at December 30, 2000 and December 25, 1999, respectively. At December 30, 2000 and December 25, 1999, the Company had outstanding letters of credit against the revolving line of credit aggregating $.6 million. There were no outstanding borrowings under the revolving credit agreement at December 30, 2000 and December 25, 1999. On July 24, 1996, the Company issued $15 million senior subordinated debentures maturing in July, 2000. The debentures accrued interest at varying fixed rates over the four year term, ranging from 11.25% to 14.0%. In connection with the private placement, warrants with an exercise price of $5.62 per share were issued to purchase between 400,000 and 580,000 shares of the Company's Class A Common Stock, depending on the term which the debentures remained outstanding and certain future events. In connection with the sale of the Au Bon Pain Division on May 16, 1999, all amounts outstanding related to the senior subordinated debentures were repaid. At December 30, 2000 and December 25, 1999, 0 and 392,500 warrants were issued and outstanding, respectively, all of which were vested. 8. CONVERTIBLE SUBORDINATED NOTES In December 1993, the Company issued $30.0 million of its unsecured 4.75% Convertible Subordinated Notes due 2001 ("1993 Notes"). The 1993 Notes were convertible at the holders' option into shares of the Company's Class A Common Stock at $25.50 per share. The note agreement required the Company to maintain minimum permanent capital, as therein defined. The Company used the proceeds from the Sale to redeem all the outstanding notes during the year ended December 25, 1999. 9. COMMITMENTS The Company is obligated under noncancelable operating leases for commissaries and retail stores. Lease terms are generally for ten years with renewal options at certain locations and generally require the Company to pay a proportionate share of real estate taxes, insurance, common area and other operating costs. Substantially all store leases provide for contingent rental payments based on sales in excess of specified amounts. In addition, the Company is contingently liable for certain of the operating leases of the Au Bon Pain Division. 35 PANERA BREAD COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 9. COMMITMENTS (CONTINUED) Aggregate minimum requirements under these leases are, as of December 30, 2000, approximately as follows (in thousands): 2001........................................................ $ 8,259 2002........................................................ 8,288 2003........................................................ 7,846 2004........................................................ 7,401 2005........................................................ 6,057 Thereafter.................................................. 20,081 ------- $57,932 =======
Rental expense under operating leases was approximately $8.5 million, $14.0 million and $19.7 million in 2000, 1999 and 1998, respectively, which included contingent rentals of approximately $0.4 million, $1.1 million and $3.1 million, respectively. 10. INCOME TAXES The provision (benefit) for income taxes in the consolidated statements of operations is comprised of the following (in thousands):
DECEMBER 30, DECEMBER 25, DECEMBER 26, 2000 1999 1998 ------------ ------------ ------------ Current: Federal............................................... $ -- $ -- $ -- State................................................. (488) 469 1,057 ------- ------- ------- (488) 469 1,057 ------- ------- ------- Deferred: Federal............................................... 3,455 (13) (8,220) State................................................. 1,210 55 1,631 ------- ------- ------- 4,665 42 (6,589) ------- ------- ------- Tax provision (benefit) before extraordinary item....... $ 4,177 $ 511 $(5,532) ======= ======= =======
36 PANERA BREAD COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 10. INCOME TAXES (CONTINUED) A reconciliation of the statutory federal income tax rate and the effective tax rate as a percentage of income (loss) before income taxes and extraordinary item follows:
2000 1999 1998 -------- -------- -------- Statutory rate provision (benefit).......................... 34.0% 34.0% (34.0)% State income taxes, net of federal tax benefit.............. 4.5 68.3 1.7 Charitable contributions.................................... (1.2) -- (0.7) Company-owned life insurance (See Note 11).................. -- 32.8 (4.4) Non-deductible goodwill and meals and entertainment......... 0.6 58.7 0.8 Other, net.................................................. 1.1 (0.2) 2.1 Change in valuation allowance............................... (1.1) -- 13.2 ----- ----- ----- 37.9% 193.6% (21.3)% ===== ===== =====
The tax effects of the significant temporary differences which comprise the deferred tax assets (liabilities) are as follows (in thousands):
2000 1999 -------- -------- Current assets: Receivables reserve..................................... $ 35 $ -- Accrued expenses........................................ 1,558 2,353 Net operating loss carryforward........................... 3,600 3,120 Total current......................................... 5,193 5,473 Non-current assets/liabilities: Property, plant and equipment........................... (685) (333) Accrued expenses........................................ 743 1,182 Goodwill................................................ (1,879) (1,611) Tax credit carryforward................................. 5,079 5,079 Net operating loss carryforward......................... 4,881 6,951 Charitable contribution carryforward.................... 1,963 1,571 Other reserves.......................................... 2,552 322 Total non-current..................................... 12,654 13,161 Total deferred tax asset.............................. 17,847 18,634 Valuation allowance................................... (4,619) (4,742) ------- ------- Total net deferred tax asset.............................. $13,228 $13,892 ======= =======
A valuation allowance is provided to reduce the deferred tax assets to a level which, more likely than not, will be realized. The valuation allowance is primarily attributable to the potential for the non-deductibility of capital losses related to the taxable loss on sale of the Au Bon Pain Division, the expectation that deferred state tax assets will be unrealizable in states where the Company no longer operates and that the Company will be unable to utilize certain charitable contribution carryforwards prior to their expiration. As of December 30, 2000 and December 25 1999, the Company has net operating losses of approximately $20.9 million and $24.8 million, respectively, which can be carried forward twenty years to offset Federal taxable income. At December 30, 2000 and December 25, 1999, the Company had Federal jobs tax credit carryforwards of approximately $1.2 million, which expire in 37 PANERA BREAD COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 10. INCOME TAXES (CONTINUED) the years 2014-2015 and charitable contribution carryforwards of approximately $4.8 million and $3.8 million, respectively, which expire in the years 2000-2003. In addition, the Company has Federal alternative minimum tax credit carryforwards of approximately $3.8 million and $3.7 million at December 30, 2000 and December 25, 1999 respectively, which are available to reduce future regular Federal income taxes over an indefinite period. The Company reevaluates the positive and negative evidence impacting the realizability of its deferred income tax assets on an annual basis. As discussed in Note 11, the Company is a party to a Company-owned life insurance program ("COLI"). Due to the leveraged nature of the program, the Company received substantial tax benefits for the period 1994 - 1998. Recent tax court litigation, not involving the Company, has challenged the deductibility of such tax benefits. Management has provided reserves related to the COLI tax benefit which it believes are sufficient should such benefits be eventually disallowed. 11. DEPOSITS AND OTHER The Company has established a deposit program with its distributor, which allows the Company to receive lower distribution costs. The savings exceed the carrying value of the deposit. The deposit is flexible and the Company may at times decrease the amount on deposit, at its discretion. The deposit outstanding was $1.6 million and $1.3 million at December 30, 2000 and December 25, 1999, respectively. During fiscal year 1994, the Company established a company-owned life insurance program covering a substantial portion of its employees. At December 30, 2000 and December 25, 1999, the cash surrender value of $13.1 million and $77.7 million, respectively, and the insurance policy loans of $13.0 million and $75.7 million, respectively, were netted and included in other assets on the consolidated balance sheet. The loans are collateralized by the cash values of the underlying life insurance policies and require interest payments at a rate of 9.07%. In 1996, tax law changes adopted as part of the Health Insurance Portability and Accountability Act significantly reduced the level of tax benefits recognized under the Company's COLI program. The Company included $0 and $0.4 million of expenses in other (income) expense, net, relating to COLI in 2000 and 1999, respectively. 12. STOCKHOLDERS' EQUITY COMMON STOCK Each share of Class B Common Stock has the same dividend and liquidation rights as each share of Class A Common Stock. The holders of Class B Common Stock are entitled to three votes for each share owned. The holders of Class A Common Stock are entitled to one vote for each share owned. Each share of Class B Common Stock is convertible, at the shareholder's option, into Class A Common Stock on a one-for-one basis. The Company had reserved at December 30, 2000 7,044,105 shares, of its Class A Common Stock for issuance upon conversion of Class B Common Stock and exercise of awards granted under the Company's 1992 Equity Incentive Plan, Formula Stock Option Plan for Independent Directors and conversion of the 1993 Notes (see Note 8). 38 PANERA BREAD COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 12. STOCKHOLDERS' EQUITY (CONTINUED) REGISTRATION RIGHTS Certain holders of Class A and Class B Common Stock, pursuant to stock subscription agreements, can require the Company, under certain circumstances, to register their shares under the Securities Act of 1933 or have included in certain registrations all or part of such shares, at the Company's expense. TREASURY STOCK The Company spent $.9 million in the third quarter of 2000 to repurchase 54,500 shares of Class A Common Stock at an average cost of $16.51 per share. 13. STOCK OPTIONS STOCK-BASED COMPENSATION In accordance with SFAS 123, "Accounting for Stock-Based Compensation", the Company has elected to follow the provisions of Accounting Principles Board Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to Employees", and provide the required pro-forma disclosure in the footnotes to the financial statements as if the measurement provisions of SFAS 123 had been adopted. Accordingly, no compensation costs have been recognized for the stock option plans as the exercise price of stock options equals the market price of the underlying stock on the date of grant. Had compensation costs for the Company's stock option plans been determined based on the fair value at the grant date for awards since 1995 consistent with the provisions of SFAS 123, the Company's net income (loss) and diluted income (loss) per share for the years ended December 30, 2000, December 25, 1999 and December 26, 1998 would have been as follows:
2000 1999 1998 --------------------------- -------------------------- -------------------------- DILUTED DILUTED DILUTED NET INCOME NET INCOME NET LOSS NET LOSS NET LOSS NET LOSS (IN THOUSANDS) PER SHARE (IN THOUSANDS) PER SHARE (IN THOUSANDS) PER SHARE -------------- ---------- -------------- --------- -------------- --------- As reported..................... $6,853 $.52 $ (629) $(.05) $(20,494) $(1.72) Pro forma....................... $5,569 $.42 $(1,941) $(.16) $(21,642) $(1.81)
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 2000, 1999, and 1998 was $6.50 per share, $3.22 per share and $4.12 per share, respectively, on the date of grant using the Black-Scholes option-pricing model with the following assumptions: dividend yield 0%, volatility of 40%, risk-free interest rate of 6.20% in 2000, 5.68% in 1999, and 5.14% in 1998, and an expected life of 7 years in 2000 and 6 years in 1999 and 1998. 1992 EQUITY INCENTIVE PLAN In May 1992, the Company adopted its Equity Incentive Plan ("Equity Plan") to replace its Non-Qualified Incentive Stock Option Plan. Under the Equity Plan, a total of 950,000 shares of Class A Common Stock were initially reserved for awards under the Equity Plan. The Equity Plan was subsequently amended by the Board of Directors and the stockholders to increase the number of shares 39 PANERA BREAD COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 13. STOCK OPTIONS (CONTINUED) available thereunder from 950,000 to 4,300,000. Awards under the Equity Plan can be in the form of stock options (both qualified and non-qualified), stock appreciation rights, performance shares, restricted stock or stock units. FORMULA STOCK OPTION PLAN FOR INDEPENDENT DIRECTORS On January 27, 1994, the Company's Board of Directors authorized the Formula Stock Option Plan for Independent Directors, as defined in the agreement. This plan authorized a one-time grant of an option to purchase 10,000 shares of the Company's Class A Common Stock at its closing price on January 26, 1994. Each independent director who is first elected as such after the effective date of the Directors' Plan shall receive, as of the date he or she is so elected, a one-time grant of an option to purchase up to 5,000 shares of Class A Common Stock at a price per share equal to the closing price of the Class A Common Stock as reported by the NASDAQ/National Market System for the trading day immediately preceding the date of the person's election to the board. In addition, all independent directors serving in such capacity as of the last day of each fiscal year commencing with the fiscal year ending December 31, 1994 receive an option to purchase up to 5,000 shares of Class A Common Stock at the closing price for the prior day. Each option granted is fully vested at the grant date, and is exercisable, either in whole or in part, for 10 years following the grant date. The Company had granted 136,099 and 123,606 options under this plan as of December 30, 2000 and December 25, 1999. Activity under the Equity Plan and its predecessor is summarized below:
WEIGHTED AVERAGE SHARES EXERCISE PRICE ---------- ---------------- Outstanding at December 27, 1997............................ 2,991,518 $ 7.44 Granted................................................... 841,583 $ 8.84 Exercised................................................. (151,060) $ 6.69 Cancelled................................................. (376,710) $ 9.17 ---------- ------ Outstanding at December 26, 1998............................ 3,305,331 $ 8.18 ---------- ------ Granted................................................... 200,678 $ 6.65 Exercised................................................. (14,057) $ 6.85 Cancelled................................................. (201,003) $ 7.52 ---------- ------ Outstanding at December 25, 1999............................ 3,290,949 $ 7.56 ---------- ------ Granted................................................... 291,037 $12.73 Exercised................................................. (1,088,546) $ 7.55 Cancelled................................................. (200,041) $ 8.54 ---------- ------ Outstanding at December 30, 2000............................ 2,293,399 $ 8.13 ---------- ------
40 PANERA BREAD COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 13. STOCK OPTIONS (CONTINUED) The following table summarizes information concerning currently outstanding and exercisable options:
OPTIONS EXERCISABLE OPTIONS OUTSTANDING --------------------------- WEIGHTED AVERAGE RANGE OF NUMBER REMAINING WEIGHTED NUMBER WEIGHTED EXERCISE PRICE OUTSTANDING CONTRACTUAL LIFE AVERAGE PRICE EXERCISABLE AVERAGE PRICE -------------- ----------- ------------------- ------------- ----------- ------------- $6.00-6.87 547,178 7.80 $6.46 120,875 $6.35 $6.88-10.93 1,513,687 5.54 7.70 1,304,506 7.48 $10.94-13.44 132,965 7.17 11.16 83,840 11.30 $13.45-22.81 99,569 6.86 19.78 12,569 20.33 --------- ---- ----- --------- ----- 2,293,399 6.23 $8.13 1,521,790 $7.71
Options vest over a five year period and must be exercised within seven to ten years from the date of the grant. Of the options at December 30, 2000, December 25, 1999, and December 26, 1998, 1,521,790, 2,325,445, and 1,418,994, respectively, were vested and exercisable with a weighted average exercise price at December 30, 2000, December 25, 1999, and December 26, 1998, of $7.71, $7.68, and $7.34, respectively. 1992 EMPLOYEE STOCK PURCHASE PLAN In May 1992, the Company adopted its 1992 Employee Stock Purchase Plan ("1992 Purchase Plan") to replace its Employee Stock Purchase Plan. The 1992 Purchase Plan was subsequently amended by the Board of Directors and Stockholders to increase the number of shares of Class A Common Stock reserved for issuance from 150,000 to 350,000. The 1992 Purchase Plan gives eligible employees the option to purchase Class A Common Stock (total purchases in a year may not exceed 10% of an employee's prior year compensation) at 85% of the fair market value of the Class A Common Stock at the date of purchase. There were 20,255 and 28,492 shares purchased with a weighted average fair value of purchase rights of $1.59 and $.92 as of December 30, 2000 and December 25, 1999. 14. DEFINED CONTRIBUTION BENEFIT PLAN The Au Bon Pain Employee 401(k) Plan ("Savings Plan") was adopted by the Company in 1991 under Section 401(k) of the Internal Revenue Code of 1986, as amended (Code). All employees of the Company, including executive officers, are eligible to participate in the Savings Plan. A participating employee may elect to defer on a pre-tax basis up to 15% of his or her salary, subject to the limitations imposed by the Code. This amount is contributed to the Savings Plan. All amounts vest immediately and are invested in various funds as directed by the participant. The full amount in a participant's account will be distributed to a participant upon termination of employment, retirement, disability or death. The Company did not contribute to the Savings Plan. The Saint Louis Bread Company Employee 401(k) Plan ("Saint Louis Bread Savings Plan") was adopted by the former Saint Louis Bread Company in 1993 under Section 401(k) of the Internal Revenue Code of 1986, as amended. In 1997 the "Saint Louis Bread Savings Plan" was merged into the Au Bon Pain "Savings Plan". Plan participants of the "Saint Louis Bread Savings Plan" retained the matching contributions made through 1996 with a vesting schedule of seven years. There was no further matching in 1999 and 1998. In 2000, the Company contributed approximately $.1 million toward matching participant contributions. 41 PANERA BREAD COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 15. LEGAL PROCEEDINGS The Company is subject to legal proceedings and claims which arise in the normal course of business. In the opinion of management, the ultimate liabilities with respect to these actions will not have a material adverse effect on the Company's financial condition, results of operations or cash flows. 16. BUSINESS SEGMENT INFORMATION In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." The Company has three reportable business segments. The Company Store Operations segment is comprised of the operating activities of the 90 bakery-cafes owned by the Company. These bakery-cafes sell fresh baked goods, made-to-order sandwiches on freshly baked breads, soups, salads, custom roasted coffees, and other complementary products through on-premise sales. All of the fresh dough products used by Company bakery-cafe operations are purchased from the Commissary Operations segment. The Franchise Operations segment is comprised of the operating activities of the franchise business unit which licenses qualified operators to conduct business under the Panera Bread Company name and also monitors the operations of these stores. Under the terms of the agreements, the licensed operators pay royalties and fees to the Company in return for the use of the Panera Bread Company name. The Commissary Operations segment supplies fresh dough items to both Company-owned and franchise operated bakery-cafes. The fresh dough is sold to both Company-owned and franchised bakery-cafes at a cost equal to 27% of the retail value of the product. The sales and related costs to the franchise bakery-cafes are separately stated on the face of the Consolidated Statements of Operations. The operating profit related to the sales to Company-owned bakery-cafes is classified as a reduction to the cost of food and paper products on the Consolidated Statements of Operations. 42 PANERA BREAD COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 16. BUSINESS SEGMENT INFORMATION (CONTINUED) Segment information for total assets and capital expenditures is not presented as such information is not used in measuring segment performance or allocating resources among segments.
DEC. 30, DEC. 25, DEC. 26, 2000 1999 1998 -------- -------- -------- REVENUES Company Store Operations.................................. $125,486 $156,738 $237,102 Franchise Operations...................................... 12,059 7,384 6,161 Commissary Operations..................................... 24,696 18,315 23,408 Intercompany Sales Eliminations........................... (10,852) (11,078) (17,011) -------- -------- -------- Total Revenues.......................................... $151,389 $171,359 $249,660 -------- -------- -------- OPERATING PROFIT Company Store Operations.................................. $ 22,430 $ 24,616 $ 32,902 Franchise Operations...................................... 9,818 5,646 4,967 Commissary Operations..................................... 1,583 747 297 Unallocated General and Administrative Expenses........... (14,140) (15,366) (17,575) Non-Recurring Charges (Footnote 5)........................ (494) (5,545) (26,236) -------- -------- -------- Operating Profit (Loss) Before Depreciation and Amortization Expense.................................. $ 19,197 $ 10,098 $ (5,645) -------- -------- -------- DEPRECIATION AND AMORTIZATION EXPENSES Company Store Operations.................................. $ 5,318 $ 4,425 $ 9,638 Franchise Operations...................................... -- -- -- Commissary Operations..................................... 979 677 932 Corporate Administration.................................. 2,115 1,277 2,097 -------- -------- -------- Total Depreciation and Amortization Expenses............ $ 8,412 $ 6,379 $ 12,667 -------- -------- --------
43 PANERA BREAD COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 17. NET INCOME (LOSS) PER SHARE The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share data):
FOR THE FISCAL YEARS ENDED ------------------------------------------ DECEMBER 30, DECEMBER 25, DECEMBER 26, 2000 1999 1998 ------------ ------------ ------------ Net income (loss) used in net income (loss) per common share -- basic........................................ $ 6,853 $ (629) $(20,494) Net income (loss) used in net income (loss) per common share -- diluted...................................... $ 6,853 $ (629) $(20,494) Weighted average number of shares outstanding -- basic................................................. 12,557 12,137 11,943 Effect of dilutive securities: Employee stock options................................ 532 -- -- Stock warrants........................................ 45 -- -- Weighted average number of shares outstanding -- diluted............................................... 13,134 12,137 11,943 Per common share: Basic: Income (loss) before extraordinary item............... $ .55 $ (.02) $ (1.72) Extraordinary loss on the early extinguishment of debt................................................ $ -- $ (.03) $ -- Net income (loss)..................................... $ .55 $ (.05) $ (1.72) Diluted: Income (loss) before extraordinary item............... $ .52 $ (.02) $ (1.72) Extraordinary loss on the early extinguishment of debt................................................ $ -- $ (.03) $ -- Net income (loss)..................................... $ .52 $ (.05) $ (1.72)
During 1998, options to purchase 1,176,000 shares of common stock at $25.50 per share were outstanding in conjunction with the issuance of $30 million of convertible subordinated notes (see Note 8). These shares were not included in the computation of diluted earnings per share for the fiscal year ended December 26, 1998 because the addition of interest expense, after the effect of income taxes, of $855,000 to net income (loss) would have been antidilutive. These options were no longer outstanding as of December 25, 1999, as the convertible subordinated notes have been repaid. Options to purchase 18,333 and 248,450 shares of common stock, respectively, at an average price of $6.35 and $5.77 per share and warrants to purchase 45,608 and 96,000 shares of common stock at $5.62 per share were outstanding but were not included in the computation of diluted earnings per share for the fiscal years ended December 25, 1999 or December 26, 1998 because the effect would have been antidilutive. 18. DEFERRED REVENUE During 1999, the Company changed soft drink providers. As a result of this change, the Company received an upfront payment of $2,530,000. These funds are available for both company-owned and franchised bakery-cafes to cover costs of conversion and transition. The upfront payments are being allocated at a rate of $3,000 per applicable company-owned and franchised bakery-cafe. The Company is then recognizing the $3,000 per company owned bakery-cafe over the five year life of the soft drink contract. During fiscal year 2000 and 1999, the Company paid $225,000 and $303,000, respectively, to franchisees and is recognizing approximately $276,000 and $216,000, respectively, of income related to company-owned stores. 44 PANERA BREAD COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 19. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) The following table presents selected quarterly financial data for the periods indicated (in thousands, except per share data)
APRIL 15, JULY 8, SEPTEMBER 30, DECEMBER 30, 2000 2000 2000 2000 --------- -------- ------------- ------------ Revenues.......................................... $40,426 $32,294 $36,093 $42,576 Operating profit.................................. 2,540 3,246 2,475 2,524 Income before extraordinary item.................. 1,515 1,933 1,644 1,761 Net income........................................ 1,515 1,933 1,644 1,761 Basic earnings per share Income before extraordinary loss................ $ .12 $ .16 $ .13 $ .14 Extraordinary loss.............................. -- -- -- -- ------- ------- ------- ------- Net income.................................... $ .12 $ .16 $ .13 $ .14 ======= ======= ======= ======= Diluted earnings per share Income before extraordinary loss................ $ .12 $ .15 $ .12 $ .13 Extraordinary loss.............................. -- -- -- -- ------- ------- ------- ------- Net income.................................... $ .12 $ .15 $ .12 $ .13 ======= ======= ======= =======
APRIL 17, JULY 10, OCTOBER 2, DECEMBER 25, 1999 1999 1999 1999 --------- -------- ---------- ------------ Revenues............................................ $77,925 $36,877 $26,395 $30,162 Operating profit (loss)............................. (1,875) 1,796 1,222 2,576 Income (loss) before extraordinary item............. (4,625) 748 669 2,961 Net income (loss)................................... (4,625) 366 669 2,961 Basic earnings per share Income (loss) before extraordinary loss........... $ (.38) $ .06 $ .06 $ .24 Extraordinary loss................................ -- $ (.03) -- -- ------- ------- ------- ------- Net income (loss)............................... $ (.38) $ .03 $ .06 $ .24 ======= ======= ======= ======= Diluted earnings per share Income (loss) before extraordinary loss........... $ (.38) $ .06 $ .05 $ .24 Extraordinary loss................................ -- $ (.03) -- -- ------- ------- ------- ------- Net income (loss)............................... $ (.38) $ .03 $ .05 $ .24 ======= ======= ======= =======
In the second quarter of 2000, the Company recorded a one-time gain of $.9 million before taxes related to the sale of the Au Bon Pain Division. This one time gain of $.9 million has been reclassified as a non-recurring charge in order to conform with the fourth quarter presentation of other offsetting ABP sale related charges (see Note 5). In the fourth quarter of 2000, the Company recorded a $.9 million pre-tax, non-recurring charge associated with the sale of the Au Bon Pain Business Unit. Additionally, the Company recorded a $.5 million non-recurring charge related to the write down of assets related to closed bakery-cafes. 45 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III Information required by Part III (Items 10 through 13) is incorporated by reference to the Company's definitive proxy statement for its 2000 annual meeting of stockholders which is expected to be filed with the Securities and Exchange Commission on or before April 30, 2001. If for any reason such a proxy statement is not filed within such period, this Form 10-K will be appropriately amended. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. FINANCIAL STATEMENTS The following described consolidated financial statements of the Company are included in this report: Report of Independent Accountants Consolidated Balance Sheets as of December 30, 2000 and December 25, 1999. Consolidated Statements of Operations for the fiscal years ended December 30, 2000, December 25, 1999, and December 26, 1998. Consolidated Statements of Cash Flows for the fiscal years ended December 30, 2000, December 25, 1999, and December 26, 1998. Consolidated Statements of Stockholders' Equity for the fiscal years ended December 30, 2000, December 25, 1999, and December 26, 1998. Notes to Consolidated Financial Statements. (a) 2. FINANCIAL STATEMENT SCHEDULE The following financial statement schedule for the Company is filed herewith: SCHEDULE II--Valuations and Qualifying Accounts PANERA BREAD COMPANY VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
BALANCE AT BALANCE BEGINNING AT END OF DESCRIPTION OF PERIOD ADDITIONS DEDUCTIONS PERIOD - ----------- ---------- --------- ---------- --------- Allowance for Doubtful accounts Fiscal year ended December 26, 1998................... $ 134 $ 96 $ 22 $ 208 Fiscal Year ended December 25, 1999................... $ 208 $ 93 $104 $ 197 Fiscal Year ended December 30, 2000................... $ 197 $ 86 $197 $ 86 Deferred Tax Valuation Allowance Fiscal Year ended December 26, 1998................... $1,308 $3,434 $ -- $4,742 Fiscal Year ended December 25, 1999................... $4,742 $ -- $ -- $4,742 Fiscal Year ended December 30, 2000................... $4,742 $ -- $123 $4,619
46 (a) 3. EXHIBITS (b) REPORTS ON FORM 8-K The Company filed one report on Form 8-K during the fourth quarter of 2000. On November 20, 2000, the Company reported under Item 5 on its Form 8-K that Henry J. Nasella had resigned from the Company's Board of Directors, effective as of November 11, 2000, in order to pursue other business opportunities. 47 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PANERA BREAD COMPANY By: /s/ RONALD M. SHAICH ----------------------------------------- Ronald M. Shaich Chairman and Chief Executive Officer
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the date indicated:
SIGNATURE TITLE DATE --------- ----- ---- /s/ RONALD M. SHAICH ------------------------------------------- Chairman and Chief March 28, 2001 Ronald M. Shaich Executive Officer /s/ GEORGE E. KANE ------------------------------------------- Director March 28, 2001 George E. Kane /s/ ROBERT GIAIMO ------------------------------------------- Director March 28, 2001 Robert Giaimo /s/ DOMENIC COLASACCO ------------------------------------------- Director March 28, 2001 Domenic Colasacco /s/ WILLIAM W. MORETON Senior Vice President, ------------------------------------------- Treasurer, and Chief March 28, 2001 William W. Moreton Financial Officer
48 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - --------------------- ----------- 2.1 Asset Purchase Agreement by and among Au Bon Pain Co., Inc., ABP Midwest Manufacturing Co., Inc. and Bunge Foods Corporation dated as of February 11, 1998; Amendment to Asset Purchase Agreement, dated as of March 23, 1998. Incorporated by reference to Exhibit 2.1 to the Company's Annual Report on Form 10-K for the year ended December 27, 1997. 2.2.1 Stock Purchase Agreement dated August 12, 1998 by and between the Company, ABP Holdings, Inc. ('ABPH') and ABP Corporation. Incorporated by reference to the Company's Report on Form 8-K filed August 21, 1998. 2.2.2 Amendment to Stock Purchase Agreement dated October 28, 1998 by and among the Company, ABPH and ABP Corporation. Incorporated by reference to the Company's Report on Form 8-K filed November 6, 1998. 3.1 Certificate of Incorporation of Registrant, as amended to June 2, 1991. Incorporated by reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1994. 3.1.1 Certificate of Amendment to Certificate of Incorporation, dated and filed June 3, 1991. Incorporated by reference to Exhibit 3.1.1 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994. 3.1.2 Certificate of Amendment to the Certificate of Incorporation filed on June 2, 1994. Incorporated by reference to Exhibit 3.1.2 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994. 3.1.3 Certificate of Designations, Preferences and Rights of the Class B Preferred Stock (Series 1), filed November 30, 1994. Incorporated by reference to Exhibit 3.1.3 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994. 3.2 Bylaws of Registrant, as amended to date. Incorporated by reference to Registrant's registration statement on Form S-1 (File No. 33-40153), Exhibit 3.2. 4.1.1 Revolving Credit Agreement dated as of December 26, 2000 among the Issuer, Panera Bread Company, and SunTrust Bank, as Lender.* 4.2 Form of 4.75% Convertible Subordinated Note due 2001. Incorporated by reference to Registrant's Form 8-K filed December 22, 1993, Exhibit 4. 10.3.3 Registrant's 1992 Employee Stock Purchase Plan. Incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 30, 1995. 10.3.4 Registrant's Formula Stock Option Plan for Independent Directors and form of option agreement thereunder, as amended. Incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 30, 1995. 10.6.1 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.+ 10.6.5 Employment Letter between the Registrant and William Moreton. Incorporated by reference to Exhibit 10.6.5 of the Registrant's Annual Report on Form 10-K for the year ended December 25, 1999.+ 10.6.6 Employment Letter between the Registrant and Michael Kupstas. Incorporated by reference to Exhibit 10.6.6 of the Registrant's Annual Report on Form 10-K for the year ended December 25, 1999.+
49
EXHIBIT NUMBER DESCRIPTION - --------------------- ----------- 10.6.7 Employment Letter between the Registrant and Thomas Howley. Incorporated by reference to Exhibit 10.6.7 of the Registrant's Annual Report on Form 10-K for the year ended December 25, 1999.+ 10.6.8 Employment Letter between the Registrant and Kenneth Puzder.*+ 10.6.9 Employment Letter between the Registrant and Diane Davidson.*+ 10.6.10 Employment Letter between the Registrant and Kathy Kuhlenbeck.*+ 10.7.1 Form of Stock Purchase Warrant from Au Bon Pain Co., Inc. to Allied Capital Corporation, Allied Capital Corporation II, and Capital Trust Investments, Ltd. Incorporated by reference to Exhibit 10.7.1 of the Registrant's Annual Report on Form 10-K for the year ended December 28, 1996. 10.7.2 Form of Contingent Stock Purchase Warrant from Au Bon Pain Co., Inc. to Allied Capital Corporation, Allied Capital Corporation II and Capital Trust Investments, Ltd. Incorporated by reference to Exhibit 10.7.2 of the Registrant's Annual Report on Form 10-K for the year ended December 28, 1996. 10.7.3 Form of Stock Purchase Warrant from Au Bon Pain Co, Inc. to Princes Gate Investors, L.P., Acorn Partnership I L.P., PG Investments Limited, PGI Sweden AB and Gregor Von Open. Incorporated by reference to Exhibit 10.7.3 of the Registrant's Annual Report on Form 10-K for the year ended December 28, 1996. 10.7.4 Registration Rights Agreement dated as of July 24, 1996 among Allied Capital Corporation, Allied Capital Corporation II, Capital Trust Investments, Ltd., Princes Gate Investors, L.P., Acorn Partnership I, L.P., PGI Investments Limited, PGI Sweden AB, Gregor Von Open and Au Bon Pain Co., Inc., Incorporated by reference to Exhibit 10.7.4 of the Registrant's Annual Report on Form 10-K for the year ended December 28, 1996. 10.8.4 Form of Rights Agreement, dated as of October 21, 1996 between the Registrant and State Street Bank and Trust Company. Incorporated by reference to the Registrant's Registration Statement on Form 8-A (File No. 000-19253). 10.9 Bakery Product Supply Agreement by and between Bunge Foods Corporation and Saint Louis Bread Company, Inc. dated as of March 23, 1998. Incorporated by reference to Exhibit 10.9 to the Company's Annual Report on Form 10-K for the year ended December 27, 1997. 10.10 Bakery Product Supply Agreement by and between Bunge Foods Corporation and Au Bon Pain Co., Inc. dated as of March 23, 1998. Incorporated by reference to Exhibit 10.10 to the Company's Annual Report on Form 10-K for the year ended December 27, 1997. 10.11 Executive Employment Agreement between the Company and Sam Yong dated June 16, 1998. Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the period ended July 11, 1998.+ 10.12 Lease and Construction Exhibit between Bachelor Foods, Inc., the Lessor, and Panera, Inc., the Lessee, dated September 7, 2000.* 21 Registrant's Subsidiaries. Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 25, 1999. 23.1 Consent of PricewaterhouseCoopers L.L.P.*
- ------------------------ * Filed herewith. + Management contract or compensatory plan required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c). 50 EX-4.1-1 2 a2042851zex-4_11.txt EXHIBIT 4.1.1 EXHIBIT 4.1.1 REVOLVING CREDIT AGREEMENT dated as of December 26, 2000 between PANERA BREAD COMPANY as Borrower AND SUNTRUST BANK as Lender
TABLE OF CONTENTS PAGE ARTICLE I DEFINITIONS; CONSTRUCTION......................................................1 Section 1.1 Definitions........................................................1 Section 1.2 Accounting Terms and Determination................................12 Section 1.3 Terms Generally...................................................13 ARTICLE II AMOUNT AND TERMS OF THE COMMITMENTS..........................................13 Section 2.1 Loans and Note....................................................13 Section 2.2 Procedure for Loans...............................................14 Section 2.3 Interest Elections................................................14 Section 2.4 Optional Reduction and Termination of Commitments.................15 Section 2.5 Repayment of Loans................................................15 Section 2.6 Optional Prepayments..............................................15 Section 2.7 Interest on Loans.................................................15 Section 2.8 Fees..............................................................16 Section 2.9 Computation of Interest and Fees..................................17 Section 2.10 Increased Costs..................................................17 Section 2.11 Funding Indemnity................................................18 Section 2.12 Payments Generally...............................................18 Section 2.13 Letters of Credit................................................18 ARTICLE III CONDITIONS PRECEDENT TO LOANS AND LETTERS OF CREDIT.........................21 Section 3.1 Conditions To Effectiveness.......................................21 Section 3.2 Each Credit Event.................................................22 ARTICLE IV REPRESENTATIONS AND WARRANTIES...............................................22 Section 4.1 Existence; Power..................................................22 Section 4.2 Organizational Power; Authorization...............................23 Section 4.3 Governmental Approvals; No Conflicts..............................23 Section 4.4 Financial Statements..............................................23 Section 4.5 Litigation........................................................23 Section 4.6 Compliance with Laws and Agreements...............................24 Section 4.7 Investment Company Act, Etc.......................................24 Section 4.8 Taxes.............................................................24 Section 4.9 Margin Regulations................................................24 Section 4.10 ERISA............................................................24 Section 4.11 Ownership of Property............................................24 Section 4.12 Disclosure.......................................................25 Section 4.13 Labor Relations..................................................25 Section 4.14 Subsidiaries.....................................................25 ARTICLE V AFFIRMATIVE COVENANTS.........................................................25 Section 5.1 Financial Statements and Other Information........................25 i Section 5.2 Notices of Material Events........................................27 Section 5.3 Existence; Conduct of Business....................................27 Section 5.4 Compliance with Laws, Etc.........................................27 Section 5.5 Payment of Obligations............................................27 Section 5.6 Books and Records.................................................28 Section 5.7 Visitation, Inspection, Etc.......................................28 Section 5.8 Maintenance of Properties; Insurance..............................28 Section 5.9 Use of Proceeds and Letters of Credit.............................28 Section 5.10 Additional Subsidiaries..........................................28 ARTICLE VI FINANCIAL COVENANTS..........................................................28 Section 6.1 Leverage Ratio....................................................29 Section 6.2 Consolidated Fixed Charge Coverage Ratio..........................29 Section 6.3 Consolidated Net Worth............................................29 ARTICLE VII NEGATIVE COVENANTS..........................................................29 Section 7.1 Indebtedness......................................................29 Section 7.2 Negative Pledge...................................................30 Section 7.3 Fundamental Changes...............................................30 Section 7.4 Investments, Loans, Etc...........................................31 Section 7.5 Restricted Payments...............................................32 Section 7.6 Sale of Assets....................................................32 Section 7.7 Transactions with Affiliates......................................32 Section 7.8 Restrictive Agreements............................................32 Section 7.9 [RESERVED]........................................................33 Section 7.10 Hedging Agreements...............................................33 Section 7.11 Amendment to Material Documents..................................33 Section 7.12 Accounting Changes...............................................33 Section 7.13 Acquisitions.....................................................33 ARTICLE VIII EVENTS OF DEFAULT..........................................................34 Section 8.1 Events of Default.................................................34 ARTICLE IX MISCELLANEOUS................................................................36 Section 9.1 Notices...........................................................36 Section 9.2 Waiver; Amendments................................................37 Section 9.3 Expenses; Indemnification.........................................38 Section 9.4 Successors and Assigns............................................39 Section 9.5 Governing Law; Jurisdiction; Consent to Service of Process........40 Section 9.6 WAIVER OF JURY TRIAL..............................................41 Section 9.7 Right of Setoff...................................................41 Section 9.8 Counterparts; Integration.........................................41 Section 9.9 Survival..........................................................41 Section 9.10 Severability.....................................................42 Section 9.11 Confidentiality..................................................42 Section 9.12 Interest Rate Limitation.........................................42
ii SCHEDULES Schedule 4.14 - Subsidiaries Schedule 7.1 - Outstanding Indebtedness Schedule 7.2 - Existing Liens Schedule 7.4 - Existing Investments EXHIBITS Exhibit A - Revolving Credit Note Exhibit B - Form of Subsidiary Guarantee Agreement and Annex Exhibit 2.2 - Notice of Borrowing Exhibit 2.4 - Form of Continuation Exhibit 3.1(b)(vii) - Form of Officer's Certificate iii REVOLVING CREDIT AGREEMENT THIS REVOLVING CREDIT AGREEMENT (this "AGREEMENT") is made and entered into as of December 26, 2000 by and between PANERA BREAD COMPANY, a Delaware corporation (the "BORROWER"), and SUNTRUST BANK, a Georgia banking corporation (the "Lender"). W I T N E S S E T H: WHEREAS, the Borrower has requested that the Lender establish a $10,000,000 revolving credit facility for Borrower; and WHEREAS, subject to the terms and conditions of this Agreement, the Lender is willing to establish the requested revolving credit facility. NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the Borrower and the Lender agree as follows: ARTICLE I DEFINITIONS; CONSTRUCTION SECTION 1.1 DEFINITIONS. In addition to the other terms defined herein, the following terms used herein shall have the meanings herein specified (to be equally applicable to both the singular and plural forms of the terms defined): "ADJUSTED LIBO RATE" shall mean, with respect to each Interest Period for a Eurodollar Loan, the rate per annum obtained by (a) dividing (i) LIBOR for such Interest Period by (ii) a percentage equal to 1.00 MINUS the Eurodollar Reserve Percentage and (b) then adding 1.00%. "AFFILIATE" shall mean, as to any Person, any other Person that directly, or indirectly through one or more intermediaries, Controls, is Controlled by, or is under common Control with, such Person. "AVAILABILITY PERIOD" shall mean the period from the Closing Date to the Commitment Termination Date. "BASE RATE" shall mean the higher of (i) the per annum rate which the Lender publicly announces from time to time to be its prime lending rate, as in effect from time to time, and (ii) the Federal Funds Rate, as in effect from time to time, PLUS one-half of one percent (0.50%). The Lender's prime lending rate is a reference rate and does not necessarily represent the lowest or best rate charged to customers. The Lender may make commercial loans or other loans at rates of interest at, above or below the Lender's prime lending rate. Each change in the Lender's prime lending rate shall be effective from and including the date such change is publicly announced as being effective. "BORROWER" shall have the meaning in the introductory paragraph hereof. "BUSINESS DAY" shall mean (i) any day other than a Saturday, Sunday or other day on which commercial banks in Nashville, Tennessee are authorized or required by law to close and (ii) if such day relates to a borrowing of, a payment or prepayment of principal or interest on, a conversion of or into, or an Interest Period for, a Eurodollar Loan or a notice with respect to any of the foregoing, any day on which dealings in Dollars are carried on in the London interbank market. "CAPITAL EXPENDITURES" shall mean for any period, without duplication, (a) the additions to property, plant and equipment and other capital expenditures of the Borrower and its Subsidiaries that are (or would be) set forth on a consolidated statement of cash flows of the Borrower for such period prepared in accordance with GAAP and (b) Capital Lease Obligations incurred by the Borrower and its Subsidiaries during such period. "CAPITAL LEASE OBLIGATIONS" of any Person shall mean all obligations of such Person to pay rent or other amounts under any lease (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP. "CHANGE IN CONTROL" shall mean the occurrence of one or more of the following events: (a) any sale, lease, exchange or other transfer (in a single transaction or a series of related transactions) of all or substantially all of the assets of the Borrower to any Person or "group" (within the meaning of the Securities Exchange Act of 1934 and the rules of the Securities and Exchange Commission thereunder in effect on the date hereof), (b) the acquisition of ownership, directly or indirectly, beneficially or of record, by any Person or "group" (within the meaning of the Securities Exchange Act of 1934 and the rules of the Securities and Exchange Commission thereunder as in effect on the date hereof) of 30% or more of the outstanding shares of the voting stock of the Borrower; or (c) occupation of a majority of the seats (other than vacant seats) on the board of directors of the Borrower by Persons who were neither (i) nominated by the current board of directors or (ii) appointed by directors so nominated. "CHANGE IN LAW" shall mean (i) the adoption of any applicable law, rule or regulation after the date of this Agreement, (ii) any change in any applicable law, rule or regulation, or any change in the interpretation or application thereof, by any Governmental Authority after the date of this Agreement, or (iii) compliance by the Lender with any request, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the date of this Agreement. "CLOSING DATE" shall mean the date on which the conditions precedent set forth in SECTION 3.1 and SECTION 3.2 have been satisfied or waived in accordance with SECTION 9.2. "CODE" shall mean the Internal Revenue Code of 1986, as amended and in effect from time to time. 2 "COMMITMENT" shall mean the obligation of the Lender to make Loans to the Borrower in an aggregate principal amount not exceeding $10,000,000.00. "COMMITMENT TERMINATION DATE" shall mean the earliest of (i) December 31, 2003, (ii) the date on which the Commitment is terminated pursuant to SECTION 2.4 and (iii) the date on which all amounts outstanding under this Agreement have been declared or have automatically become due and payable (whether by acceleration or otherwise). "CONSOLIDATED CASH FLOW" shall mean consolidated EBITDAR LESS Maintenance Capital Expenditures. "CONSOLIDATED EBITDA" shall mean, for the Borrower and its Subsidiaries for any period, an amount equal to the sum of (a) Consolidated Net Income for such period PLUS (b) to the extent deducted in determining Consolidated Net Income for such period, (i) Consolidated Interest Expense, (ii) income tax expense, (iii) depreciation and amortization and (iv) all other non-cash charges, determined on a consolidated basis in accordance with GAAP in each case for such period. "CONSOLIDATED EBITDAR" shall mean, for the Borrower and its Subsidiaries for any period, an amount equal to the sum of (a) Consolidated EBITDA and (b) Consolidated Lease Expense. "CONSOLIDATED FIXED CHARGE COVERAGE RATIO" shall mean, for any period of four consecutive fiscal quarters of the Borrower and its Subsidiaries, the ratio of (a) Consolidated Cash Flow to (b) Consolidated Fixed Charges for such period. "CONSOLIDATED FIXED CHARGES" shall mean, for the Borrower and its Subsidiaries for any period, the sum (without duplication) of (a) Consolidated Interest Expense for such period, (b) scheduled principal payments made on Consolidated Long Term Debt during such period, (c) scheduled payments with respect to Capital Lease Obligations; (d) income tax expense during such period, (e) Restricted Payments paid during such period and (f) Consolidated Lease Expense for such period. "CONSOLIDATED INTEREST EXPENSE" shall mean, for the Borrower and its Subsidiaries for any period determined on a consolidated basis in accordance with GAAP, the sum of (i) total cash interest expense, including without limitation the interest component of any payments in respect of Capital Leases Obligations capitalized or expensed during such period (whether or not actually paid during such period) PLUS (ii) the net amount payable (or MINUS the net amount receivable) under Hedging Agreements during such period (whether or not actually paid or received during such period). "CONSOLIDATED LEASE ADJUSTED DEBT" shall mean, as of any date of determination, the sum of (i) all Indebtedness of the Borrower and its Subsidiaries for borrowed money; (ii) all Capital Lease Obligations of the Borrower and its Subsidiaries; (iii) all Guarantees of Borrower and its Subsidiaries (excluding all guaranteed operating leases associated with Au Bon Pain as lessee); and (iv) the net present value (calculated using a discount rate of 10%) of future minimum commitments under all operating leases of Borrower and its Subsidiaries. 3 "CONSOLIDATED LEASE EXPENSE" shall mean, for any period, the aggregate amount of fixed and contingent rentals payable by the Borrower and its Subsidiaries with respect to leases of real and personal property (excluding Capital Lease Obligations) determined on a consolidated basis in accordance with GAAP for such period. "CONSOLIDATED LEVERAGE RATIO" shall mean, as of any date of determination with respect to the Borrower and its Subsidiaries, the ratio of (i) Consolidated Lease Adjusted Debt as of such date to (ii) Consolidated EBITDAR as of such date. "CONSOLIDATED LONG TERM DEBT" shall mean Indebtedness for borrowed money which has a maturity date of one year or longer from its initial date. "CONSOLIDATED NET INCOME" shall mean, for any period, the net income (or loss) of the Borrower and its Subsidiaries for such period determined on a consolidated basis in accordance with GAAP, but excluding therefrom (to the extent otherwise included therein) (i) any extraordinary gains or losses, (ii) any gains attributable to write-ups of assets and (iii) any equity interest of the Borrower or any Subsidiary of the Borrower in the unremitted earnings of any Person that is not a Subsidiary and (iv) any income (or loss) of any Person accrued prior to the date it becomes a Subsidiary or is merged into or consolidated with the Borrower or any Subsidiary on the date that such Person's assets are acquired by the Borrower or any Subsidiary. "CONSOLIDATED NET WORTH" shall mean, as of any date, (i) the total assets of the Borrower and its Subsidiaries that would be reflected on the Borrower's consolidated balance sheet as of such date prepared in accordance with GAAP, after eliminating all amounts properly attributable to minority interests, if any, in the stock and surplus of Subsidiaries, MINUS the sum of (i) the total liabilities of the Borrower and its Subsidiaries that would be reflected on the Borrower's consolidated balance sheet as of such date prepared in accordance with GAAP and (ii) the amount of any write-up in the book value of any assets resulting from a revaluation thereof or any write-up in excess of the cost of such assets acquired reflected on the consolidated balance sheet of the Borrower as of such date prepared in accordance with GAAP. "CONTROL" shall mean the power, directly or indirectly, either to (i) vote 50% or more of securities having ordinary voting power for the election of directors (or persons performing similar functions) of a Person or (ii) direct or cause the direction of the management and policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. The terms "CONTROLLING", "CONTROLLED BY", and "UNDER COMMON CONTROL WITH" have meanings correlative thereto. "DEFAULT" shall mean any condition or event that, with the giving of notice or the lapse of time or both, would constitute an Event of Default. "DEFAULT INTEREST" shall have the meaning set forth in SECTION 2.7(B). "DOLLAR(S)" and the sign "$" shall mean lawful money of the United States of America. 4 "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, and any successor statute. "ERISA AFFILIATE" shall mean any trade or business (whether or not incorporated), which, together with the Borrower, is treated as a single employer under Section 414(b) or (c) of the Code or, solely for the purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code. "ERISA EVENT" shall mean (a) any "reportable event", as defined in Section 4043 of ERISA or the regulations issued thereunder with respect to a Plan (other than an event for which the 30-day notice period is waived); (b) the existence with respect to any Plan of an "accumulated funding deficiency" (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (d) the incurrence by the Borrower or any of its ERISA Affiliates of any liability under Title IV of ERISA with respect to the termination of any Plan; (e) the receipt by the Borrower or any ERISA Affiliate from the PBGC or a plan administrator appointed by the PBGC of any notice relating to an intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan; (f) the incurrence by the Borrower or any of its ERISA Affiliates of any liability with respect to the withdrawal or partial withdrawal from any Plan or Multiemployer Plan; or (g) the receipt by the Borrower or any ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan from the Borrower or any ERISA Affiliate of any notice, concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA. "EURODOLLAR" when used in reference to any Loan, refers to whether such Loan bears interest at a rate determined by reference to the Adjusted LIBO Rate. "EURODOLLAR RESERVE PERCENTAGE" shall mean the aggregate of the maximum reserve percentages (including, without limitation, any emergency, supplemental, special or other marginal reserves) expressed as a decimal (rounded upwards to the next 1/100th of 1%) in effect on any day to which the Lender is subject with respect to the Adjusted LIBO Rate pursuant to regulations issued by the Board of Governors of the Federal Reserve System (or any Governmental Authority succeeding to any of its principal functions) with respect to eurocurrency funding (currently referred to as "eurocurrency liabilities" under Regulation D). Eurodollar Loans shall be deemed to constitute eurocurrency funding and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to the Lender under Regulation D. The Eurodollar Reserve Percentage shall be adjusted automatically on and as of the effective date of any change in any reserve percentage. "EVENT OF DEFAULT" shall have the meaning provided in Article VIII. 5 "FEDERAL FUNDS RATE" shall mean, for any day, the rate per annum (rounded upwards, if necessary, to the next 1/100th of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with member banks of the Federal Reserve System arranged by Federal funds brokers, as published by the Federal Reserve Bank of New York on the next succeeding Business Day or if such rate is not so published for any Business Day, the Federal Funds Rate for such day shall be the average rounded upwards, if necessary, to the next 1/100th of 1% of the quotations for such day on such transactions received by the Lender from three Federal funds brokers of recognized standing selected by the Lender. "GAAP" shall mean generally accepted accounting principles in the United States applied on a consistent basis and subject to the terms of SECTION 1.2. "GOVERNMENTAL AUTHORITY" shall mean the government of the United States of America, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government. "GUARANTEE" of or by any Person (the "GUARANTOR") shall mean any obligation, contingent or otherwise, of the guarantor guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation of any other Person (the "PRIMARY OBLIGOR") in any manner, whether directly or indirectly and including any obligation, direct or indirect, of the guarantor (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation or to purchase (or to advance or supply funds for the purchase of) any security for the payment thereof, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness or other obligation of the payment thereof, (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation or (d) as an account party in respect of any letter of credit or letter of guaranty issued in support of such Indebtedness or obligation; PROVIDED, that the term "Guarantee" shall not include endorsements for collection or deposits in the ordinary course of business. The amount of any Guarantee shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which Guarantee is made or, if not so stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such Person is required to perform thereunder) as determined by such Person in good faith. The term "Guarantee" used as a verb has a corresponding meaning. "HEDGING AGREEMENTS" shall mean interest rate swap, cap or collar agreements, interest rate future or option contracts, currency swap agreements, currency future or option contracts, commodity agreements and other similar agreements or arrangements designed to protect against fluctuations in interest rates, currency values or commodity values. "INDEBTEDNESS" of any Person shall mean, without duplication (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person in respect of the deferred purchase price of property or services (other than trade payables incurred in the ordinary course of business; PROVIDED, that for purposes of SECTION 8.1(F), trade 6 payables overdue by more than 120 days shall be included in this definition except to the extent that any of such trade payables are being disputed in good faith and by appropriate measures), (iv) all obligations of such Person under any conditional sale or other title retention agreement(s) relating to property acquired by such Person, (v) all Capital Lease Obligations of such Person, (vi) all obligations, contingent or otherwise, of such Person in respect of letters of credit, acceptances or similar extensions of credit, (vii) all Guarantees of such Person of the type of Indebtedness described in clauses (i) through (vi) above, (viii) all Indebtedness of a third party secured by any Lien on property owned by such Person, whether or not such Indebtedness has been assumed by such Person, (ix) all obligations of such Person, contingent or otherwise, to purchase, redeem, retire or otherwise acquire for value any common stock of such Person, and (x) Off-Balance Sheet Liabilities. The Indebtedness of any Person shall include the Indebtedness of any partnership or joint venture in which such Person is a general partner or a joint venturer, except to the extent that the terms of such Indebtedness provide that such Person is not liable therefor. "INTEREST PERIOD" shall mean, with respect to any Eurodollar Loan, a period of one, two, three or six months, as the Borrower may request; PROVIDED, that: (i) the initial Interest Period for any such Loan shall commence on the date of such Loan and each Interest Period occurring thereafter in respect of such Loan shall commence on the day on which the next preceding Interest Period expires; (ii) if any Interest Period would otherwise end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day, unless such Business Day falls in another calendar month, in which case such Interest Period would end on the next preceding Business Day; (iii) any Interest Period which begins on the last Business Day of a calendar month or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period shall end on the last Business Day of such calendar month; and (iv) no Interest Period may extend beyond the Commitment Termination Date. "LC COMMITMENT" shall mean that portion of the Commitment that may be used by the Borrower for the issuance of Letters of Credit in an aggregate face amount not to exceed $5,000,000. "LC DISBURSEMENT" shall mean a payment made by the Lender pursuant to a Letter of Credit. "LC DOCUMENTS" shall mean the Letters of Credit and all applications, agreements and instruments relating to the Letters of Credit. "LC EXPOSURE" shall mean, at any time, the sum of (i) the aggregate undrawn amount of all outstanding Letters of Credit at such time, PLUS (ii) the aggregate amount of all LC Disbursements that have not been reimbursed by or on behalf of the Borrower at such time. 7 "LETTER OF CREDIT" shall mean any letter of credit issued pursuant to SECTION 2.13 by the Lender for the account of the Borrower pursuant to the LC Commitment. "LIBOR" shall mean, for any applicable Interest Period with respect to any Eurodollar Loan, the rate per annum for deposits in Dollars for a period equal to such Interest Period appearing on the display designated as Page 3750 on the Dow Jones Markets Service (or such other page on that service or such other service designated by the British Banker's Association for the display of such Association's Interest Settlement Rates for Dollar deposits) as of 11:00 a.m. (London, England time) on the day that is two Business Days prior to the first day of the Interest Period or if such Page 3750 is unavailable for any reason at such time, the rate which appears on the Reuters Screen ISDA Page as of such date and such time; PROVIDED, that if the Lender determines that the relevant foregoing sources are unavailable for the relevant Interest Period, LIBOR shall mean the rate of interest determined by the Lender to be the average (rounded upward, if necessary, to the nearest 1/100th of 1%) of the rates per annum at which deposits in Dollars are offered to the Lender two (2) Business Days preceding the first day of such Interest Period by leading banks in the London interbank market as of 10:00 a. m. for delivery on the first day of such Interest Period, for the number of days comprised therein and in an amount comparable to the amount of the Eurodollar Loan of the Lender. "LIEN" shall mean any mortgage, pledge, security interest, lien (statutory or otherwise), charge, encumbrance, hypothecation, assignment, deposit arrangement, or other arrangement having the practical effect of the foregoing or any preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including any conditional sale or other title retention agreement and any capital lease having the same economic effect as any of the foregoing). "LOAN DOCUMENTS" shall mean, collectively, this Agreement, the Note, the LC Documents, the Notice of Borrowing, the Subsidiary Guarantee Agreement, and any and all other instruments, agreements, documents and writings executed in connection with any of the foregoing. "LOAN PARTIES" shall mean the Borrower and the Subsidiary Loan Parties. "LOAN" shall mean a loan made by the Lender to the Borrower under its Commitment. "MAINTENANCE CAPITAL EXPENDITURES" shall mean Capital Expenditures for maintaining existing assets of Borrower and it Subsidiaries. "MATERIAL ADVERSE EFFECT" shall mean, with respect to any event, act, condition or occurrence of whatever nature (including any adverse determination in any litigation, arbitration, or governmental investigation or proceeding), whether singly or in conjunction with any other event or events, act or acts, condition or conditions, occurrence or occurrences whether or not related, a material adverse change in, or a material adverse 8 effect on, (i) the business, results of operations, financial condition, assets, liabilities or prospects of the Borrower and of the Borrower and its Subsidiaries taken as a whole, (ii) the ability of the Loan Parties to perform any of their respective obligations under the Loan Documents, (iii) the rights and remedies of the Lender under any of the Loan Documents or (iv) the legality, validity or enforceability of any of the Loan Documents. "MATERIAL INDEBTEDNESS" shall mean Indebtedness (other than the Loans and Letters of Credit) or obligations in respect of one or more Hedging Agreements, of any one or more of the Borrower and the Subsidiaries in an aggregate principal amount exceeding $2,000,000. For purposes of determining Material Indebtedness, the "principal amount" of the obligations of the Borrower or any Subsidiary in respect to any Hedging Agreement at any time shall be the maximum aggregate amount (giving effect to any netting agreements) that the Borrower or such Subsidiary would be required to pay if such Hedging Agreement were terminated at such time. "MOODY'S" shall mean Moody's Investors Service, Inc. "MULTIEMPLOYER PLAN" shall have the meaning set forth in Section 4001(a)(3) of ERISA. "NOTE" shall mean a revolving credit note of the Borrower payable to the order of the Lender in the principal amount of the Commitment, in substantially the form of EXHIBIT A. "NOTICE OF CONTINUATION" shall mean the notice given by the Borrower to the Lender in respect of the continuation of an outstanding Loan as provided in SECTION 2.3(B) hereof. "NOTICE OF BORROWING" shall have the meaning as set forth in SECTION 2.2. "OBLIGATIONS" shall mean all amounts owing by the Borrower to the Lender pursuant to or in connection with this Agreement or any other Loan Document, including without limitation, all principal, interest (including any interest accruing after the filing of any petition in bankruptcy or the commencement of any insolvency, reorganization or like proceeding relating to the Borrower, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding), all reimbursement obligations, fees, expenses, indemnification and reimbursement payments, costs and expenses (including all fees and expenses of counsel to the Lender incurred pursuant to this Agreement or any other Loan Document), whether direct or indirect, absolute or contingent, liquidated or unliquidated, now existing or hereafter arising hereunder or thereunder, together with all renewals, extensions, modifications or refinancings thereof. "OFF-BALANCE SHEET LIABILITIES" of any Person shall mean (i) any repurchase obligation or liability of such Person with respect to accounts or notes receivable sold by such Person, (ii) any liability of such Person under any sale and leaseback transactions which do not create a liability on the balance sheet of such Person, (iii) any liability of such Person under any so-called "synthetic" lease transaction or (iv) any obligation arising with respect to any other transaction which is the functional equivalent of or takes the place of borrowing but which does not constitute a liability on the balance sheet of such Person. 9 "PARTICIPANT" shall have the meaning set forth in SECTION 9.4(C). "PAYMENT OFFICE" shall mean the office of the Lender located at 201 Fourth Avenue North, Nashville, Tennessee 37219, or such other location as to which the Lender shall have given written notice to the Borrower. "PBGC" shall mean the Pension Benefit Guaranty Corporation referred to and defined in ERISA, and any successor entity performing similar functions. "PERMITTED ENCUMBRANCES" shall mean (i) Liens imposed by law for taxes not yet due or which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves are being maintained in accordance with GAAP; (ii) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, materialmen and other Liens imposed by law created in the ordinary course of business for amounts not yet due or which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves are being maintained in accordance with GAAP; (iii) pledges and deposits made in the ordinary course of business in compliance with workers' compensation, unemployment insurance and other social security laws or regulations; (iv) deposits to secure the performance of bids, trade contracts, leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature, in each case in the ordinary course of business; (v) judgment and attachment liens not giving rise to an Event of Default or Liens created by or existing from any litigation or legal proceeding that are currently being contested in good faith by appropriate proceedings and with respect to which adequate reserves are being maintained in accordance with GAAP; and (vi) easements, zoning restrictions, rights-of-way and similar encumbrances on real property imposed by law or arising in the ordinary course of business that do not secure any monetary obligations and do not materially detract from the value of the affected property or materially interfere with the ordinary conduct of business of the Borrower and its Subsidiaries taken as a whole; PROVIDED, that the term "Permitted Encumbrances" shall not include any Lien securing Indebtedness. "PERMITTED INVESTMENTS" shall mean: (i) direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States (or by any agency thereof to the extent such obligations are backed by the full faith and credit of the United States), in each case maturing within one year from the date of acquisition thereof; 10 (ii) commercial paper having the highest rating, at the time of acquisition thereof, of S&P or Moody's and in either case maturing within six months from the date of acquisition thereof; (iii) certificates of deposit, bankers' acceptances and time deposits maturing within 180 days of the date of acquisition thereof issued or guaranteed by or placed with, and money market deposit accounts issued or offered by, any domestic office of any commercial bank organized under the laws of the United States or any state thereof which has a combined capital and surplus and undivided profits of not less than $500,000,000; (iv) fully collateralized repurchase agreements with a term of not more than 30 days for securities described in clause (i) above and entered into with a financial institution satisfying the criteria described in clause (iii) above; and (v) mutual funds investing solely in any one or more of the Permitted Investments described in clauses (i) through (iv) above. "PERSON" shall mean any individual, partnership, firm, corporation, association, joint venture, limited liability company, trust or other entity, or any Governmental Authority. "PLAN" means any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA, and in respect of which the Borrower or any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA. "REGULATION D" shall mean Regulation D of the Board of Governors of the Federal Reserve System, as the same may be in effect from time to time, and any successor regulations. "RELATED PARTIES" shall mean, with respect to any specified Person, such Person's Affiliates and the respective directors, officers, employees, agents and advisors of such Person and such Person's Affiliates. "RESPONSIBLE OFFICER" shall mean any of the president, the chief executive officer, the chief operating officer, the chief financial officer, the treasurer or a vice president of the Borrower or such other representative of the Borrower as may be designated in writing by any one of the foregoing with the consent of the Lender; and, with respect to the financial covenants only, the chief financial officer or the treasurer of the Borrower. "RESTRICTED PAYMENT" shall have the meaning set forth in SECTION 7.5. "S&P" shall mean Standard & Poor's. 11 "SUBSIDIARY" shall mean, with respect to any Person (the "PARENT"), any corporation, partnership, joint venture, limited liability company, association or other entity the accounts of which would be consolidated with those of the parent in the parent's consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, as well as any other corporation, partnership, joint venture, limited liability company, association or other entity (i) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power, or in the case of a partnership, more than 50% of the general partnership interests are, as of such date, owned, Controlled or held, or (ii) that is, as of such date, otherwise Controlled, by the parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent. Unless otherwise indicated, all references to "Subsidiary" hereunder shall mean a Subsidiary of the Borrower. "SUBSIDIARY GUARANTEE AGREEMENT" shall mean the Subsidiary Guarantee Agreement, substantially in the form of EXHIBIT B, made by the Subsidiary Loan Parties in favor of the Lender. "SUBSIDIARY LOAN PARTY" shall mean each and every Subsidiary that is required to execute the Subsidiary Guarantee Agreement under SECTION 5.10 hereof. "TAXES" shall mean any and all present or future taxes, levies, imposts, duties, deductions, charges or withholdings imposed by any Governmental Authority. "WITHDRAWAL LIABILITY" shall mean liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA. SECTION 1.2 ACCOUNTING TERMS AND DETERMINATION. Unless otherwise defined or specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared, in accordance with GAAP as in effect from time to time, applied on a basis consistent (except for such changes approved by the Borrower's independent public accountants) with the most recent audited consolidated financial statement of the Borrower delivered pursuant to SECTION 5.1(A); PROVIDED, that if the Borrower notifies the Lender that the Borrower wishes to amend any covenant in Article VI to eliminate the effect of any change in GAAP on the operation of such covenant (or if the Lender notifies the Borrower that it wishes to amend Article VI for such purpose), then the Borrower's compliance with such covenant shall be determined on the basis of GAAP in effect immediately before the relevant change in GAAP became effective, until either such notice is withdrawn or such covenant is amended in a manner satisfactory to the Borrower and the Lender. SECTION 1.3 TERMS GENERALLY. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include", "includes" and "including" shall be deemed to be followed by the phase "without limitation". The word "will" shall be construed to have the same meaning and 12 effect as the word "shall". In the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including" and the word "to" means "to but excluding". Unless the context requires otherwise (i) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as it was originally executed or as it may from time to time be amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (ii) any reference herein to any Person shall be construed to include such Person's successors and permitted assigns, (iii) the words "hereof", "herein" and "hereunder" and words of similar import shall be construed to refer to this Agreement as a whole and not to any particular provision hereof, (iv) all references to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles, Sections, Exhibits and Schedules to this Agreement and (v) all references to a specific time shall be construed to refer to the time in the city and state of the Lender's principal office, unless otherwise indicated. ARTICLE II AMOUNT AND TERMS OF THE COMMITMENTS SECTION 2.1 LOANS AND NOTE. (a) Subject to the terms and conditions set forth herein, the Lender agrees to make Loans to the Borrower, from time to time during the Availability Period, in an aggregate principal amount outstanding at any time that will not result in the sum of the principal amount of Loans then outstanding plus the outstanding LC Exposure to exceed the Commitment. During the Availability Period, the Borrower shall be entitled to borrow, prepay and reborrow Loans in accordance with the terms and conditions of this Agreement; PROVIDED, that the Borrower may not borrow or reborrow should there exist a Default or Event of Default. (b) The Borrower's obligation to pay the principal of, and interest on, the Loans shall be evidenced by the records of the Bank and by the Note. The entries made in such records and/or on the schedule annexed to the Note shall be PRIMA FACIE evidence of the existence and amounts of the obligations of the Borrower therein recorded; PROVIDED, that the failure or delay of the Lender in maintaining or making entries into any such record or on such schedule or any error therein shall not in any manner affect the obligation of the Borrower to repay the Loans (both principal and unpaid accrued interest) in accordance with the terms of this Agreement. SECTION 2.2 PROCEDURE FOR LOANS. The Borrower shall give the Lender written notice (or telephonic notice promptly confirmed in writing) of each Loan substantially in the form of Exhibit 2.2 (a "NOTICE OF BORROWING") prior to 11:00 a.m. two (2) Business Days prior to the requested date of each Loan. Each Notice of Borrowing shall be irrevocable and shall specify: (i) the principal amount of the Loan, (ii) the proposed date of such Loan (which shall be a Business Day), and (iii) the duration of the initial Interest Period applicable thereto (subject to the provisions of the definition of Interest Period). The aggregate 13 principal amount of each Loan shall be not less than $100,000 or a larger multiple of $100,000, or in such lesser amounts equal to the amount of the unused Commitment. Upon the satisfaction of the applicable conditions set forth in Article III hereof, the Lender will make the proceeds of each Loan available to the Borrower at the Payment Office on the date specified in the applicable Notice of Borrowing by crediting an account maintained by the Borrower with the Lender or at the Borrower's option, by effecting a wire transfer of such amount to an account designated by the Borrower to the Lender. SECTION 2.3 INTEREST ELECTIONS. (a) Each Loan shall be a Eurodollar Loan and shall have an initial Interest Period as specified in the applicable Notice of Borrowing. Thereafter, the Borrower may elect to continue the Interest Period for any Eurodollar Loan, all as provided in this Section. (b) To make an election pursuant to this Section, the Borrower shall give the Lender prior written notice (or telephonic notice promptly confirmed in writing) of each Eurodollar Loan (a "NOTICE OF CONTINUATION") that is to be continued prior to 11:00 a.m. two (2) Business Days prior to a continuation of the Loan. Each such Notice of Continuation shall be irrevocable and shall specify (i) the Loan to which such Notice of Continuation applies; (ii) the effective date of the election made pursuant to such Notice of Continuation, which shall be a Business Day; and (iii) the Interest Period applicable thereto after giving effect to such election, which shall be a period contemplated by the definition of "Interest Period." (c) If, on the expiration of any Interest Period in respect of any Eurodollar Loan, the Borrower shall have failed to deliver a Notice of Continuation, then, unless such Loan is repaid as provided herein, the Borrower shall be deemed to have elected to convert such Loan to a Eurodollar Loan with an Interest Period of one month. No Loan may be continued as a Eurodollar Loan if a Default or an Event of Default exists, unless the Lender shall have otherwise consented in writing. SECTION 2.4 OPTIONAL REDUCTION AND TERMINATION OF COMMITMENTS. (a) Unless previously terminated, the Commitment shall terminate on the Commitment Termination Date. (b) Upon at least two (2) Business Days' prior written notice (or telephonic notice promptly confirmed in writing) to the Lender (which notice shall be irrevocable), the Borrower may reduce the Commitment in part or terminate the Commitment in whole; PROVIDED, that (i) any partial reduction pursuant to this SECTION 2.4 shall be in an amount of at least $100,000 and any larger multiple of $100,000, and (ii) no such reduction shall be permitted which would reduce the Commitment (after giving effect thereto and any concurrent prepayments made under SECTION 2.6) to an amount less than the outstanding Loans PLUS the outstanding LC Exposure. 14 SECTION 2.5 REPAYMENT OF LOANS. The outstanding principal amount of all Loans shall be due and payable (together with accrued and unpaid interest thereon) on the Commitment Termination Date. SECTION 2.6 OPTIONAL PREPAYMENTS. The Borrower shall have the right at any time and from time to time to prepay any Loan, in whole or in part, without premium or penalty, by giving irrevocable written notice (or telephonic notice promptly confirmed in writing) to the Lender no later than 11:00 a.m. not less than two (2) Business Days prior to any such prepayment. Each such notice shall be irrevocable and shall specify the proposed date of such prepayment and the principal amount of each Loan or portion thereof to be prepaid. Such amount shall be due and payable on the date designated in such notice, together with accrued interest to such date on the amount so prepaid in accordance with SECTION 2.7(A); PROVIDED, that if a Eurodollar Loan is prepaid on a date other than the last day of an Interest Period applicable thereto, the Borrower shall also pay all amounts required pursuant to SECTION 2.11. Each partial prepayment of any Loan shall be in an amount that would be permitted in the case of an advance of a Loan pursuant to SECTION 2.2. SECTION 2.7 INTEREST ON LOANS. (a) The Borrower shall pay interest on each Eurodollar Loan at the Adjusted LIBO Rate for the applicable Interest Period in effect for such Loan. (b) While an Event of Default exists or after acceleration, at the option of the Lender, the Borrower shall pay interest ("DEFAULT INTEREST") with respect to all Eurodollar Loans at the rate otherwise applicable for the then-current Interest Period PLUS an additional 2% per annum until the last day of such Interest Period, and thereafter, and with respect to all Loans and all other Obligations hereunder (other than Loans), at the Base Rate, PLUS an additional 2% per annum. (c) Interest on the principal amount of all Loans shall accrue from and including the date such Loans are made to but excluding the date of any repayment thereof. Interest on all outstanding Eurodollar Loans shall be payable on the last day of each Interest Period applicable thereto, and, in the case of any Eurodollar Loans having an Interest Period in excess of three months, on each day which occurs every three months after the initial date of such Interest Period, and on the Commitment Termination Date. All Default Interest shall be payable on demand. (d) The Lender shall determine each interest rate applicable to the Loans hereunder and shall promptly notify the Borrower of such rate in writing (or by telephone, promptly confirmed in writing). Any such determination shall be conclusive and binding for all purposes, absent manifest error. SECTION 2.8 FEES. (a) COMMITMENT FEE. The Borrower agrees to pay to the Lender a commitment fee, which shall accrue at a rate equal to 0.225% per annum on the daily amount of the unused Commitment during the Availability Period; PROVIDED, HOWEVER, that if the Lender continues to have any Loans or LC Exposure 15 outstanding after the Commitment Termination Date, then the commitment fee shall continue to accrue on the amount of the Lender's unused Commitment from and after the Commitment Termination Date to the date that all of the Lender's outstanding Loans and/or LC Exposure have been paid in full. (b) UTILIZATION FEE. If, during any calendar month, the average daily outstanding Loans shall exceed 50% of the Commitment, the Borrower shall pay to Lender a utilization fee, which shall accrue at a rate equal to 0.25% on the amount of such average daily outstanding Loan amount for such month. (c) LETTER OF CREDIT FEES. The Borrower agrees to pay to the Lender a letter of credit fee which shall accrue at one percent (1%) per annum on the average daily amount of the Lender's LC Exposure (excluding any portion thereof attributable to unreimbursed LC Disbursements) attributable to such Letter of Credit during the period from and including the date of issuance of such Letter of Credit to but excluding the date on which such Letter expires or is drawn in full (including without limitation any LC Exposure that remains outstanding after the Commitment Termination Date), as well as the Lender's standard fees with respect to issuance, amendment, renewal or extension of any Letter of Credit or processing of drawings thereunder. (d) CLOSING FEE. The Borrower shall pay to Lender a closing fee equal to 0.20% of the Commitment. The Closing Fee shall be due and payable on the Closing Date. (e) PAYMENTS. Accrued fees (other than the closing fee referenced in paragraph (d)) shall be payable quarterly in arrears on the last day of each March, June, September and December, commencing on March 31, 2001 and on the Commitment Termination Date (and if later, the date the Loans and LC Exposure shall be repaid in their entirety). SECTION 2.9 COMPUTATION OF INTEREST AND FEES. All computations of interest and fees hereunder shall be made on the basis of a year of 360 days for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest or fees are payable (to the extent computed on the basis of days elapsed). Each determination by the Lender of an interest amount or fee hereunder shall be made in good faith and, except for manifest error, shall be final, conclusive and binding for all purposes. SECTION 2.10 INCREASED COSTS. (a) If any Change in Law shall: (i) impose, modify or deem applicable any reserve, special deposit or similar requirement that is not otherwise included in the determination of the Adjusted LIBO Rate hereunder against assets of, deposits with or for the account of, or credit extended by, the Lender (except any such reserve requirement reflected in the Adjusted LIBO Rate); or 16 (ii) impose on the Lender or the eurodollar interbank market any other condition affecting this Agreement or any Eurodollar Loans made by the Lender; and the result of the foregoing is to increase the cost to the Lender of making, converting into, continuing or maintaining a Eurodollar Loan or to increase the cost to the Lender of issuing any Letter of Credit or to reduce the amount received or receivable by the Lender hereunder (whether of principal, interest or any other amount), then the Borrower shall promptly pay, upon written notice from and demand by the Lender, within five Business Days after the date of such notice and demand, additional amount or amounts sufficient to compensate the Lender for such additional costs incurred or reduction suffered. (b) If the Lender shall have determined that on or after the date of this Agreement any Change in Law regarding capital requirements has or would have the effect of reducing the rate of return on the Lender's capital (or on the capital of the Lender's parent corporation) as a consequence of its obligations hereunder or under or in respect of any Letter of Credit to a level below that which the Lender or the Lender's parent corporation could have achieved but for such Change in Law (taking into consideration the Lender's policies or the policies of the Lender's parent corporation with respect to capital adequacy) then, from time to time, within five (5) Business Days after receipt by the Borrower of written demand by the Lender, the Borrower shall pay to the Lender such additional amounts as will compensate the Lender or the Lender's parent corporation for any such reduction suffered. (c) A certificate of the Lender setting forth the amount or amounts necessary to compensate the Lender or its parent corporation, as the case may be, specified in paragraph (a) or (b) of this Section shall be delivered to the Borrower and shall be conclusive, absent manifest error. The Borrower shall pay the Lender such amount or amounts within 10 days after receipt thereof. (d) Failure or delay on the part of the Lender to demand compensation pursuant to this Section shall not constitute a waiver of the Lender's right to demand such compensation. SECTION 2.11 FUNDING INDEMNITY. In the event of (a) the payment of any principal of a Eurodollar Loan other than on the last day of the Interest Period applicable thereto (including as a result of an Event of Default), (b) the conversion or continuation of a Eurodollar Loan other than on the last day of the Interest Period applicable thereto, or (c) the failure by the Borrower to borrow, prepay, or continue any Eurodollar Loan on the date specified in any applicable notice (regardless of whether such notice is withdrawn or revoked), then, in any such event, the Borrower shall compensate the Lender, within five (5) Business Days after written demand from the Lender, for any loss, cost or expense attributable to such event. Such loss, cost or expense shall be deemed to include an amount determined by the Lender to be the excess, if any, of (A) the amount of interest that would have accrued on the principal amount of such Eurodollar Loan if such event had not occurred at the Adjusted LIBO Rate applicable to such Eurodollar Loan for the period from the date of such event to the last day of the then current Interest Period therefor (or in the 17 case of a failure to borrow or continue, for the period that would have been the Interest Period for such Eurodollar Loan) over (B) the amount of interest that would accrue on the principal amount of such Eurodollar Loan for the same period if the Adjusted LIBO Rate were set on the date such Eurodollar Loan was prepaid or converted or the date on which the Borrower failed to borrow or continue such Eurodollar Loan. A certificate as to any additional amount payable under this SECTION 2.11 submitted to the Borrower by the Lender shall be conclusive, absent manifest error. SECTION 2.12 PAYMENTS GENERALLY. The Borrower shall make each payment required to be made by it hereunder prior to 11:00 a.m., on the date when due, in immediately available funds, without set-off or counterclaim. Any amounts received after such time on any date may, in the discretion of the Lender, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon. All such payments shall be made to the Lender at its Payment Office. If any payment hereunder shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day, and, in the case of any payment accruing interest, interest thereon shall be made payable for the period of such extension. All payments hereunder shall be made in Dollars. SECTION 2.13 LETTERS OF CREDIT. (a) During the Availability Period, the Lender agrees to issue, at the request of the Borrower, Letters of Credit for the account of the Loan Parties on the terms and conditions hereinafter set forth; PROVIDED, that (i) each Letter of Credit shall expire on the earlier of (A) the date one year after the date of issuance of such Letter of Credit (or in the case of any renewal or extension thereof, one year after such renewal or extension) and (B) the date that is five (5) Business Days prior to the Commitment Termination Date; (ii) each Letter of Credit shall be in a stated amount of at least $50,000; and (iii) the Borrower may not request any Letter of Credit, if, after giving effect to such issuance (A) the LC Exposure would exceed the LC Commitment or (B) the LC Exposure, PLUS the outstanding Loans would exceed the Commitment. (b) To request the issuance of a Letter of Credit (or any amendment, renewal or extension of an outstanding Letter of Credit), the Borrower shall give the Lender irrevocable written notice at least three (3) Business Days prior to the requested date of such issuance specifying the date (which shall be a Business Day) such Letter of Credit is to be issued (or amended, extended or renewed, as the case may be), the expiration date of such Letter of Credit, the amount of such Letter of Credit , the name and address of the beneficiary thereof and such other information as shall be necessary to prepare, amend, renew or extend such Letter of Credit. In addition to the satisfaction of the conditions in Article III, the issuance of such Letter of Credit (or any amendment which increases the amount of such Letter of Credit) will be subject to the further conditions that such Letter of Credit shall be in such form and contain such terms as the Lender shall approve and that the Borrower shall have executed and delivered any additional applications, agreements and instruments relating to such Letter of Credit as the Lender shall reasonably require; PROVIDED, that in the event of any conflict between such applications, agreements or instruments and this Agreement, the terms of this Agreement shall control. 18 (c) The Lender shall examine all documents purporting to represent a demand for payment under a Letter of Credit promptly following its receipt thereof. The Lender shall notify the Borrower of such demand for payment and whether the Lender has made or will make a LC Disbursement thereunder; PROVIDED, that any failure to give or delay in giving such notice shall not relieve the Borrower of its obligation to reimburse the Lender with respect to such LC Disbursement. The Borrower shall be irrevocably and unconditionally obligated to reimburse the Lender for any LC Disbursements paid by the Lender in respect of such drawing, without presentment, demand or other formalities of any kind. (d) If any Event of Default shall occur and be continuing, on the Business Day that the Borrower receives notice from the Lender demanding the deposit of cash collateral pursuant to this paragraph, the Borrower shall deposit in an account with the Lender, in the name of the Lender and for the benefit of the Lender, an amount in cash equal to the LC Exposure as of such date plus any accrued and unpaid interest thereon; PROVIDED, that the obligation to deposit such cash collateral shall become effective immediately, and such deposit shall become immediately due and payable, with demand or notice of any kind, upon the occurrence of any Event of Default with respect to the Borrower described in clause (g) or (h) of SECTION 8.1. Such deposit shall be held by the Lender as collateral for the payment and performance of the obligations of the Borrower under this Agreement. The Lender shall have exclusive dominion and control, including the exclusive right of withdrawal, over such account. Such deposits shall earn interest Federal Funds rate of interest on the investment of such deposits, which investments shall be made at the option and sole discretion of the Lender and at the Borrower's risk and expense, such deposits shall not bear interest. Interest and profits, if any, on such investments shall accumulate in such account. Moneys in such account shall applied by the Lender to reimburse itself for LC Disbursements for which it had not been reimbursed and to the extent so applied, shall be held for the satisfaction of the reimbursement obligations of the Borrower for the LC Exposure at such time or, if the maturity of the Loans has been accelerated, be applied to satisfy other obligations of the Borrower under this Agreement. If the Borrower is required to provide an amount of cash collateral hereunder as a result of the occurrence of an Event of Default, such amount plus any interest earned thereon (to the extent not so applied as aforesaid) shall be returned to the Borrower with three Business Days after all Events of Default have been cured or waived. (e) The Borrower's obligation to reimburse LC Disbursements hereunder shall be absolute, unconditional and irrevocable and shall be performed strictly in accordance with the terms of this Agreement under all circumstances whatsoever and irrespective of any of the following circumstances: 19 (i) Any lack of validity or enforceability of any Letter of Credit or this Agreement; (ii) The existence of any claim, set-off, defense or other right which the Borrower or any Subsidiary or Affiliate of the Borrower may have at any time against a beneficiary or any transferee of any Letter of Credit (or any Persons or entities for whom any such beneficiary or transferee may be acting), the Lender or any other Person, whether in connection with this Agreement or the Letter of Credit or any document related hereto or thereto or any unrelated transaction; (iii) Any draft or other document presented under a Letter of Credit proving to be forged, fraudulent or invalid in any respect or any statement therein being untrue or inaccurate in any respect; (iv) Payment by the Lender under a Letter of Credit against presentation of a draft or other document to the Lender that does not comply with the terms of such Letter of Credit, if such non-compliance is immaterial; (v) Any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Section, constitute a legal or equitable discharge of, or provide a right of setoff against, the Borrower's obligations hereunder; or (vi) The existence of a Default or an Event of Default. Neither the Lender nor any Related Party of the Lender shall have any liability or responsibility by reason of or in connection with the issuance or transfer of any Letter of Credit or any payment or failure to make any payment thereunder (irrespective of any of the circumstances referred to above), or any error, omission, interruption, loss or delay in transmission or delivery of any draft, notice or other communication under or relating to any Letter of Credit (including any document required to make a drawing thereunder), any error in interpretation of technical terms or any consequence arising from causes beyond the control of the Lender; PROVIDED, that the foregoing shall not be construed to excuse the Lender from liability to the Borrower to the extent of any direct damages (as opposed to consequential damages, claims in respect of which are hereby waived by the Borrower to the extent permitted by applicable law) suffered by the Borrower that are caused by the Lender's failure to exercise care when determining whether drafts or other documents presented under a Letter of Credit comply with the terms thereof. The parties hereto expressly agree, that in the absence of gross negligence or willful misconduct on the part of the Lender (as finally determined by a court of competent jurisdiction), the Lender shall be deemed to have exercised care in each such determination. In furtherance of the foregoing and without limiting the generality thereof, the parties agree that, with respect to documents presented that appear on their face to be in substantial compliance with the terms of a Letter of Credit, the Lender may, in its sole discretion, either accept and make payment upon 20 such documents without responsibility for further investigation, regardless of any notice or information to the contrary, or refuse to accept and make payment upon such documents if such documents are not in strict compliance with the terms of such Letter of Credit. (f) Each Letter of Credit shall be subject to the Uniform Customs and Practices for Documentary Credits (1993 Revision), International Chamber of Commerce Publication No. 500, as the same may be amended from time to time, and, to the extent not inconsistent therewith, the governing law of this Agreement set forth in SECTION 9.5. ARTICLE III CONDITIONS PRECEDENT TO LOANS AND LETTERS OF CREDIT SECTION 3.1 CONDITIONS TO EFFECTIVENESS. The obligations of the Lender to make the initial Loan and to issue the initial Letter of Credit hereunder is subject to the receipt by the Lender of the following documents in form and substance reasonably satisfactory to the Lender: (a) this Agreement duly executed and delivered by the Borrower; (b) a duly executed Note; (c) a duly executed Subsidiary Guarantee Agreement; (d) a certificate of the Secretary or Assistant Secretary of each Loan Party, attaching and certifying copies of its bylaws and of the resolutions of its boards of directors, authorizing the execution, delivery and performance of the Loan Documents to which it is a party and certifying the name, title and true signature of each officer of such Loan Party executing the Loan Documents to which it is a party; (e) certified copies of the articles of incorporation or other charter documents of each Loan Party, together with certificates of good standing or existence, as may be available from the Secretary of State of the jurisdiction of incorporation of such Loan Party and each other jurisdiction where such Loan Party is required to be qualified to do business as a foreign corporation; (f) a certificate, dated the Closing Date and signed by a Responsible Officer, confirming compliance with the conditions set forth in paragraphs (a), (b) and (c) of SECTION 3.2. SECTION 3.2 EACH CREDIT EVENT. The obligation of the Lender to make any Loan or to issue, amend, renew or extend any Letter of Credit is subject to the satisfaction of the following conditions: 21 (a) at the time of and immediately after giving effect to such Loan or the issuance, amendment, renewal or extension of such Letter of Credit, as applicable, no Default or Event of Default shall exist; and (b) all representations and warranties of each Loan Party set forth in the Loan Documents shall be true and correct in all material respects on and as of the date of such Loan or the date of issuance, amendment, extension or renewal of such Letter of Credit, in each case before and after giving effect thereto; and (c) since the date of the most recent financial statements of the Borrower described in SECTION 5.1(A), there shall have been no change which has had or could reasonably be expected to have a Material Adverse Effect. The making of each Loan and each issuance, amendment, extension or renewal of any Letter of Credit shall be deemed to constitute a representation and warranty by the Borrower on the date thereof as to the matters specified in paragraphs (a), (b) and (c) of this SECTION 3.2. ARTICLE IV REPRESENTATIONS AND WARRANTIES The Borrower represents and warrants to the Lender as follows: SECTION 4.1 EXISTENCE; POWER. The Borrower and each of its Subsidiaries (i) is duly organized, validly existing and in good standing as a corporation under the laws of the jurisdiction of its organization, (ii) has all requisite power and authority to carry on its business as now conducted, and (iii) is duly qualified to do business, and is in good standing, in each jurisdiction where such qualification is required, except where a failure to be so qualified could not reasonably be expected to result in a Material Adverse Effect. SECTION 4.2 ORGANIZATIONAL POWER; AUTHORIZATION. The execution, delivery and performance by each Loan Party of the Loan Documents to which it is a party are within such Loan Party's organizational powers and have been duly authorized by all necessary organizational action. This Agreement has been duly executed and delivered by the Borrower, and constitutes, and each other Loan Document to which any Loan Party is a party, when executed and delivered by such Loan Party, will constitute, valid and binding obligations of the Borrower or such Loan Party (as the case may be), enforceable against it in accordance with their respective terms, except as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting the enforcement of creditors' rights generally and by general principles of equity. SECTION 4.3 GOVERNMENTAL APPROVALS; NO CONFLICTS. The execution, delivery and performance by the Borrower of this Agreement, and by each Loan Party of the other Loan Documents to which it is a party (a) do not require any consent or approval of, registration or filing with, or any action by, any Governmental Authority, except those as have been obtained or made and are in full force and effect or where the failure to do so, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect, 22 (b) will not violate any applicable law or regulation or the charter, by-laws or other organizational documents of the Borrower or any of its Subsidiaries or any order of any Governmental Authority, (c) will not violate or result in a default under any indenture, material agreement or other material instrument binding on the Borrower or any of its Subsidiaries or any of its assets or give rise to a right thereunder to require any payment to be made by the Borrower or any of its Subsidiaries and (d) will not result in the creation or imposition of any Lien on any asset of the Borrower or any of its Subsidiaries, except Liens (if any) created under the Loan Documents. SECTION 4.4 FINANCIAL STATEMENTS. The Borrower has furnished to the Lender (i) the audited consolidated balance sheet of the Borrower and its Subsidiaries as of December 25, 1999 and the related consolidated statements of income, shareholders' equity and cash flows for the fiscal year then ended audited by PriceWaterhouseCooper LLP and (ii) the unaudited consolidated balance sheet of the Borrower and its Subsidiaries as at the end of September 30, 2000, and the related unaudited consolidated statements of income and cash flows for the fiscal quarter and year-to-date period then ending, certified by a Responsible Officer. Such financial statements fairly present the consolidated financial condition of the Borrower and its Subsidiaries as of such dates and the consolidated results of operations for such periods in conformity with GAAP consistently applied, subject to year end audit adjustments and the absence of footnotes in the case of the statements referred to in clause (ii). Since September 30, 2000, there have been no changes with respect to the Borrower and its Subsidiaries which have had or could reasonably be expected to have, singly or in the aggregate, a Material Adverse Effect. SECTION 4.5 LITIGATION. No litigation, investigation or proceeding of or before any arbitrators or Governmental Authorities is pending against or, to the knowledge of the Borrower, threatened against or affecting the Borrower or any of its Subsidiaries (i) as to which there is a reasonable possibility of an adverse determination that could reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect or (ii) which in any manner draws into question the validity or enforceability of this Agreement or any other Loan Document. SECTION 4.6 COMPLIANCE WITH LAWS AND AGREEMENTS. The Borrower and each Subsidiary is in compliance with (a) all applicable laws, rules, regulations and orders of any Governmental Authority, and (b) all indentures, agreements or other instruments binding upon it or its properties, except where non-compliance, either singly or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. SECTION 4.7 INVESTMENT COMPANY ACT, ETC. Neither the Borrower nor any of its Subsidiaries is (a) an "investment company", as defined in, or subject to regulation under, the Investment Company Act of 1940, as amended, (b) a "holding company" as defined in, or subject to regulation under, the Public Utility Holding Company Act of 1935, as amended or (c) otherwise subject to any other regulatory scheme limiting its ability to incur debt. SECTION 4.8 TAXES. The Borrower and its Subsidiaries have timely filed or caused to be filed all Federal income tax returns and all other material tax returns that are required to be filed by them, and have paid all taxes shown to be due and payable on such 23 returns or on any assessments made against it or its property and all other taxes, fees or other charges imposed on it or any of its property by any Governmental Authority, except (i) to the extent the failure to do so would not have a Material Adverse Effect or (ii) where the same are currently being contested in good faith by appropriate proceedings and for which the Borrower or such Subsidiary, as the case may be, has set aside on its books adequate reserves. SECTION 4.9 MARGIN REGULATIONS. None of the proceeds of any of the Loans or Letters of Credit will be used for "purchasing" or "carrying" any "margin stock" with the respective meanings of each of such terms under Regulation U as now and from time to time hereafter in effect or for any purpose that violates the provisions of the applicable Margin Regulations. SECTION 4.10 ERISA. No ERISA Event has occurred or is reasonably expected to occur that, when taken together with all other such ERISA Events for which liability is reasonably expected to occur, could reasonably be expected to result in a Material Adverse Effect. SECTION 4.11 OWNERSHIP OF PROPERTY. (a) Each of the Borrower and its Subsidiaries has good title to, or valid leasehold interests in, all of its real and personal property material to the operation of its business. (b) Each of the Borrower and its Subsidiaries owns, or is licensed, or otherwise has the right, to use, all patents, trademarks, service marks, trade names, copyrights and other intellectual property material to its business, and the use thereof by the Borrower and its Subsidiaries does not infringe on the rights of any other Person, except for any such infringements that, individually or in the aggregate, would not have a Material Adverse Effect. SECTION 4.12 DISCLOSURE. The Borrower has disclosed to the Lender all agreements, instruments, and corporate or other restrictions to which the Borrower or any of its Subsidiaries is subject, and all other matters known to any of them, that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. None of the reports (including without limitation all reports that the Borrower is required to file with the Securities and Exchange Commission), financial statements, certificates or other information furnished by or on behalf of the Borrower to the Lender in connection with the negotiation of this Agreement or any other Loan Document or delivered hereunder or thereunder (as modified or supplemented by any other information so furnished) contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, taken as a whole, in light of the circumstances under which they were made, not misleading. SECTION 4.13 LABOR RELATIONS. There are no strikes, lockouts or other material labor disputes or grievances against the Borrower or any of its Subsidiaries, or, to the Borrower's knowledge, threatened against or affecting the Borrower or any of its Subsidiaries, and no 24 significant unfair labor practice, charges or grievances are pending against the Borrower or any of its Subsidiaries, or to the Borrower's knowledge, threatened against any of them before any Governmental Authority. All payments due from the Borrower or any of its Subsidiaries pursuant to the provisions of any collective bargaining agreement have been paid or accrued as a liability on the books of the Borrower or any such Subsidiary, except where the failure to do so could not reasonably be expected to have a Material Adverse Effect. SECTION 4.14 SUBSIDIARIES. Schedule 4.14 sets forth the name of, the ownership interest of the Borrower in, the jurisdiction of incorporation of, and the type of, each Subsidiary and identifies each Subsidiary that is a Subsidiary Loan Party, in each case as of the Closing Date. ARTICLE V AFFIRMATIVE COVENANTS The Borrower covenants and agrees that so long as the Lender has a Commitment hereunder or the principal of and interest on any Loan or any fee or any LC Disbursement remains unpaid or any Letter of Credit remains outstanding: SECTION 5.1 FINANCIAL STATEMENTS AND OTHER INFORMATION. The Borrower will deliver to the Lender: (a) as soon as available and in any event within 90 days after the end of each fiscal year of Borrower, a copy of the annual audited report for such fiscal year for the Borrower and its Subsidiaries, containing a consolidated balance sheet of the Borrower and its Subsidiaries as of the end of such fiscal year and the related consolidated statements of income, stockholders' equity and cash flows (together with all footnotes thereto) of the Borrower and its Subsidiaries for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail and reported on by PriceWaterhouseCooper LLP or other independent public accountants of nationally recognized standing (without a "going concern" or like qualification, exception or explanation and without any qualification or exception as to scope of such audit) to the effect that such financial statements present fairly in all material respects the financial condition and the results of operations of the Borrower and its Subsidiaries for such fiscal year on a consolidated basis in accordance with GAAP and that the examination by such accountants in connection with such consolidated financial statements has been made in accordance with generally accepted auditing standards; (b) as soon as available and in any event within 45 days after the end of each of the first three fiscal quarters of each fiscal year of the Borrower, an unaudited consolidated balance sheet of the Borrower and its Subsidiaries as of the end of such fiscal quarter and the related unaudited consolidated statements of income and cash flows of the Borrower and its Subsidiaries for such fiscal quarter and the then elapsed portion of such fiscal year, setting forth in each case in 25 comparative form the figures for the corresponding quarter and the corresponding portion of Borrower's previous fiscal year, all certified by the chief financial officer or treasurer of the Borrower as presenting fairly in all material respects the financial condition and results of operations of the Borrower and its Subsidiaries on a consolidated basis in accordance with GAAP, subject to normal year-end audit adjustments and the absence of footnotes; (c) concurrently with the delivery of the financial statements referred to in clauses (a) and (b) above, a certificate of a Responsible Officer, (i) certifying as to whether there exists a Default or Event of Default on the date of such certificate, and if a Default or an Event of Default then exists, specifying the details thereof and the action which the Borrower has taken or proposes to take with respect thereto, (ii) setting forth in reasonable detail calculations demonstrating compliance with Article VI and (iii) stating whether any change in GAAP or the application thereof has occurred since the date of the Borrower's audited financial statements referred to in SECTION 4.4 and, if any change has occurred, specifying the effect of such change on the financial statements accompanying such certificate; (d) promptly after the same become publicly available, copies of all periodic and other reports, proxy statements and other materials filed with the Securities and Exchange Commission, or any Governmental Authority succeeding to any or all functions of said Commission, or with any national securities exchange, or distributed by the Borrower to its shareholders generally, as the case may be; and (e) promptly following any request therefor, such other information regarding the results of operations, business affairs and financial condition of the Borrower or any Subsidiary as the Lender may reasonably request. SECTION 5.2 NOTICES OF MATERIAL EVENTS. The Borrower will furnish to the Lender prompt written notice of the following: (a) the occurrence of any Default or Event of Default; (b) the filing or commencement of any action, suit or proceeding by or before any arbitrator or Governmental Authority against or, to the knowledge of the Borrower, affecting the Borrower or any Subsidiary which, if adversely determined, could reasonably be expected to result in a Material Adverse Effect; (c) the occurrence of any ERISA Event that alone, or together with any other ERISA Events that have occurred, could reasonably be expected to result in liability of the Borrower and its Subsidiaries in an aggregate amount exceeding $2,000,000; and (d) any other development that results in, or could reasonably be expected to result in, a Material Adverse Effect. 26 Each notice delivered under this Section shall be accompanied by a written statement of a Responsible Officer setting forth the details of the event or development requiring such notice and any action taken or proposed to be taken with respect thereto. SECTION 5.3 EXISTENCE; CONDUCT OF BUSINESS. The Borrower will, and will cause each of its Subsidiaries to, do or cause to be done all things necessary to preserve, renew and maintain in full force and effect its legal existence and its respective rights, licenses, permits, privileges, franchises, patents, copyrights, trademarks and trade names material to the conduct of its business and will continue to engage in the same business as presently conducted or such other businesses that are reasonably related thereto; PROVIDED, that nothing in this Section shall prohibit any merger, consolidation, liquidation or dissolution permitted under SECTION 7.3. SECTION 5.4 COMPLIANCE WITH LAWS, ETC. The Borrower will, and will cause each of its Subsidiaries to, comply with all laws, rules, regulations and requirements of any Governmental Authority applicable to its properties, except where the failure to do so, either individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. SECTION 5.5 PAYMENT OF OBLIGATIONS. The Borrower will, and will cause each of its Subsidiaries to, pay and discharge at or before maturity, all of its obligations and liabilities (including without limitation all tax liabilities and claims that could result in a statutory Lien) before the same shall become delinquent or in default, except where (a) the validity or amount thereof is being contested in good faith by appropriate proceedings, (b) the Borrower or such Subsidiary has set aside on its books adequate reserves with respect thereto in accordance with GAAP and (c) the failure to make payment pending such contest could not reasonably be expected to result in a Material Adverse Effect. SECTION 5.6 BOOKS AND RECORDS. The Borrower will, and will cause each of its Subsidiaries to, keep proper books of record and account in which full, true and correct entries shall be made of all dealings and transactions in relation to its business and activities to the extent necessary to prepare the consolidated financial statements of Borrower in conformity with GAAP. SECTION 5.7 VISITATION, INSPECTION, ETC. The Borrower will, and will cause each of its Subsidiaries to, permit any representative of the Lender to visit and inspect its properties, to examine its books and records and to make copies and take extracts therefrom, and to discuss its affairs, finances and accounts with any of its officers and with its independent certified public accountants, all at such reasonable times and as often as the Lender may reasonably request after reasonable prior notice to the Borrower. SECTION 5.8 MAINTENANCE OF PROPERTIES; INSURANCE. The Borrower will, and will cause each of its Subsidiaries to, (a) keep and maintain all property material to the conduct of its business in good working order and condition, ordinary wear and tear except where the failure to do so, either individually or it the aggregate, could not reasonably be expected to result in a Material Adverse Effect and (b) maintain with financially sound and reputable insurance companies, insurance with respect to its properties and business, and 27 the properties and business of its Subsidiaries, against loss or damage of the kinds customarily insured against by companies in the same or similar businesses operating in the same or similar locations. SECTION 5.9 USE OF PROCEEDS AND LETTERS OF CREDIT. The Borrower will use the proceeds of all Loans to finance working capital needs and for other general corporate purposes of the Borrower and its Subsidiaries. No part of the proceeds of any Loan will be used, whether directly or indirectly, for any purpose that would violate any rule or regulation of the Board of Governors of the Federal Reserve System, including Regulations T, U or X. All Letters of Credit will be used for general corporate purposes. SECTION 5.10 ADDITIONAL SUBSIDIARIES. If any additional Subsidiary is acquired or formed after the Closing Date, the Borrower will, within ten (10) business days after such Subsidiary is acquired or formed, notify the Lender thereof and will cause such Subsidiary to become a Subsidiary Loan Party by executing agreements in the form of Annex I to Exhibit B in form and substance satisfactory to the Lender and will cause such Subsidiary to deliver simultaneously therewith similar documents applicable to such Subsidiary required under SECTION 3.1 as reasonably requested by the Lender. ARTICLE VI FINANCIAL COVENANTS The Borrower covenants and agrees that so long as the Lender has its Commitment hereunder or the principal of or interest on or any Loan remains unpaid or any fee or any LC Disbursement remains unpaid or any Letter of Credit remains outstanding: SECTION 6.1 LEVERAGE RATIO. As of the end of each fiscal quarter of the Borrower, commencing with the fiscal quarter ending December 29, 2000, Borrower's Consolidated Leverage Ratio (calculated on a trailing four-quarters basis) will not exceed 2.50 to 1.00. SECTION 6.2 CONSOLIDATED FIXED CHARGE COVERAGE RATIO. As of the end of each fiscal quarter of the Borrower, commencing with the fiscal quarter ending December 29, 2000, Borrower's a Fixed Charge Coverage Ratio (calculated on a trailing four-quarters basis) shall be not less than 1.25 to 1.00. SECTION 6.3 CONSOLIDATED NET WORTH. The Borrower will not permit its Consolidated Net Worth at any time to be less than the sum of $80,000,000, PLUS 50% of Consolidated Net Income earned subsequent to Borrower's fiscal year ending in December of 2000 on a cumulative basis; PROVIDED, that if Consolidated Net Income is negative in any fiscal quarter the amount added for such fiscal quarter shall be zero and such negative Consolidated Net Income shall not reduce the amount of Consolidated Net Income added from any previous fiscal quarter. The amount of Consolidated Net Worth set forth above shall also be increased by 75% of the net proceeds of any public or private offering of common stock of the Borrower after the Closing Date. Promptly upon the consummation of such offering, the Borrower shall notify the Lender in writing of the amount of such equity offering. 28 ARTICLE VII NEGATIVE COVENANTS The Borrower covenants and agrees that so long as the Lender has its Commitment hereunder or the principal of or interest on any Loan remains unpaid or any fee or any LC Disbursement remains unpaid or any Letter of Credit remains outstanding: SECTION 7.1 INDEBTEDNESS. The Borrower will not, and will not permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Indebtedness, except: (a) Indebtedness created pursuant to the Loan Documents; (b) Indebtedness existing on the date hereof and set forth on SCHEDULE 7.1 and extensions, renewals and replacements of any such Indebtedness that do not increase the outstanding principal amount thereof (immediately prior to giving effect to such extension, renewal or replacement) or shorten the maturity or the weighted average life thereof; (c) Indebtedness of the Borrower owing to any Subsidiary and of any Subsidiary owing to the Borrower or any other Subsidiary; PROVIDED, that any such Indebtedness that is owed to a Subsidiary shall be a Subsidiary Loan Party; (d) Guarantees by the Borrower of Indebtedness of any Subsidiary and by any Subsidiary of Indebtedness of the Borrower or any other Subsidiary; PROVIDED, that Guarantees by a Subsidiary shall be a Subsidiary Loan Party; (e) Indebtedness in respect of obligations under Hedging Agreements permitted by SECTION 7.10; and (f) other Indebtedness in an aggregate principal amount not to exceed $10,000,000 at any time outstanding. SECTION 7.2 NEGATIVE PLEDGE. The Borrower will not, and will not permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Lien on any of its assets or property now owned or hereafter acquired or, except: (a) Permitted Encumbrances; (b) any Liens on any property or asset of the Borrower or any Subsidiary existing on the Closing Date set forth on SCHEDULE 7.2; PROVIDED, that such Lien shall not apply to any other property or asset of the Borrower or any Subsidiary; (c) purchase money Liens upon or in any fixed or capital assets to secure the purchase price or the cost of construction or improvement of such fixed or capital assets or to secure Indebtedness incurred solely for the purpose of financing the acquisition, construction or improvement of such fixed or capital assets (including Liens securing any Capital Lease Obligations); PROVIDED, that (i) such Lien secures 29 Indebtedness permitted by SECTION 7.1(C), (ii) such Lien attaches to such asset concurrently or within 90 days after the acquisition, improvement or completion of the construction thereof; (iii) such Lien does not extend to any other asset; and (iv) the Indebtedness secured thereby does not exceed the cost of acquiring, constructing or improving such fixed or capital assets; (d) any Lien (i) existing on any asset of any Person at the time such Person becomes a Subsidiary of the Borrower, (ii) existing on any asset of any Person at the time such Person is merged with or into the Borrower or any Subsidiary of the Borrower or (iii) existing on any asset prior to the acquisition thereof by the Borrower or any Subsidiary of the Borrower; PROVIDED, that any such Lien was not created in the contemplation of any of the foregoing and any such Lien secures only those obligations which it secures on the date that such Person becomes a Subsidiary or the date of such merger or the date of such acquisition; and (e) extensions, renewals, or replacements of any Lien referred to in paragraphs (a) through (d) of this Section; PROVIDED, that the principal amount of the Indebtedness secured thereby is not increased and that any such extension, renewal or replacement is limited to the assets originally encumbered thereby. SECTION 7.3 FUNDAMENTAL CHANGES. (a) The Borrower will not, and will not permit any Subsidiary to, merge into or consolidate into any other Person, or permit any other Person to merge into or consolidate with it, or sell, lease, transfer or otherwise dispose of (in a single transaction or a series of transactions) all or substantially all of its assets (in each case, whether now owned or hereafter acquired) or all or substantially all of the stock of any of its Subsidiaries (in each case, whether now owned or hereafter acquired) or liquidate or dissolve; PROVIDED, that if at the time thereof and immediately after giving effect thereto, no Default or Event of Default shall have occurred and be continuing (i) the Borrower or any Subsidiary may merge with a Person if the Borrower (or such Subsidiary if the Borrower is not a party to such merger) is the surviving Person, (ii) any Subsidiary may merge into another Subsidiary; PROVIDED, that if any party to such merger is a Subsidiary Loan Party, the Subsidiary Loan Party shall be the surviving Person, (iii) any Subsidiary may sell, transfer, lease or otherwise dispose of all or substantially all of its assets to the Borrower or to a Subsidiary Loan Party and (iv) any Subsidiary (other than a Subsidiary Loan Party) may liquidate or dissolve if the Borrower determines in good faith that such liquidation or dissolution is in the best interests of the Borrower and is not materially disadvantageous to the Lender; PROVIDED, that any such merger involving a Person that is not a wholly-owned Subsidiary immediately prior to such merger shall not be permitted unless also permitted by SECTION 7.4. (b) The Borrower will not, and will not permit any of its Subsidiaries to, engage to any material extent in any business other than businesses of the type conducted by the Borrower and its Subsidiaries on the date hereof and businesses reasonably related thereto. 30 SECTION 7.4 INVESTMENTS, LOANS, ETC. The Borrower will not, and will not permit any of its Subsidiaries to, purchase, hold or acquire (including pursuant to any merger with any Person that was not a wholly-owned Subsidiary prior to such merger), any common stock, evidence of indebtedness or other securities (including any option, warrant, or other right to acquire any of the foregoing) of, make or permit to exist any loans or advances to, Guarantee any obligations of, or make or permit to exist any investment or any other interest in, any other Person (all of the foregoing being collectively called "INVESTMENTS"), or purchase or otherwise acquire (in one transaction or a series of transactions) any assets of any other Person that constitute a business unit, except: (a) Investments (other than Permitted Investments) existing on the date hereof and set forth on SCHEDULE 7.4 (including Investments in Subsidiaries); (b) Permitted Investments; (c) Guarantees constituting Indebtedness permitted by SECTION 7.1; (d) Investments made by the Borrower in or to any Subsidiary and by any Subsidiary to the Borrower or in or to another Subsidiary; (e) loans or advances to employees, officers or directors of the Borrower or any Subsidiary in the ordinary course of business for travel, relocation and related expenses; (f) Hedging Agreements permitted by SECTION 7.10; and (g) Other Investments which in the aggregate do not exceed $5,000,000 in any fiscal year of the Borrower. SECTION 7.5 RESTRICTED PAYMENTS. The Borrower will not, and will not permit its Subsidiaries to, declare or make, or agree to pay or make, directly or indirectly, any dividend on any class of its stock, or make any payment on account of, or set apart assets for a sinking or other analogous fund for, the purchase, redemption, retirement, defeasance or other acquisition of, any shares of common stock or Indebtedness subordinated to the Obligations of the Borrower or any options, warrants, or other rights to purchase such common stock or such Indebtedness, whether now or hereafter outstanding (each, a "RESTRICTED PAYMENT"), except for (i) dividends payable by the Borrower solely in shares of any class of its common stock; (ii) Restricted Payments made by any Subsidiary to the Borrower or to another Subsidiary; (iii) repurchases of Borrower's capital shares which do not exceed $5,000,000 in the aggregate; and (iv) cash dividends paid on, and cash redemptions of, the common stock of the Borrower; PROVIDED, that no Default or Event of Default has occurred and is continuing at the time such dividend is paid or redemption is made. SECTION 7.6 SALE OF ASSETS. The Borrower will not, and will not permit any of its Subsidiaries to, convey, sell, lease, assign, transfer or otherwise dispose of, any of its assets, business or property, whether now owned or hereafter acquired, or, in the case of any 31 Subsidiary, issue or sell any shares of such Subsidiary's common stock to any Person other than the Borrower (or to qualify directors if required by applicable law), except: (a) the sale or other disposition for fair market value of obsolete or worn out property or other property not necessary for operations disposed of in the ordinary course of business; (b) the sale of inventory and Permitted Investments in the ordinary course of business; and (c) the sale or other disposition of such assets in an aggregate amount not to exceed $10,000,000 from the Closing Date to the Commitment Termination Date. SECTION 7.7 TRANSACTIONS WITH AFFILIATES. The Borrower will not, and will not permit any of its Subsidiaries to, sell, lease or otherwise transfer any property or assets to, or purchase, lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except (a) in the ordinary course of business at prices and on terms and conditions not less favorable to the Borrower or such Subsidiary than could be obtained on an arm's-length basis from unrelated third parties, (b) transactions between or among the Borrower and its Subsidiaries not involving any other Affiliates and (c) any Restricted Payment permitted by SECTION 7.5. SECTION 7.8 RESTRICTIVE AGREEMENTS. The Borrower will not, and will not permit any Subsidiary to, directly or indirectly, enter into, incur or permit to exist any agreement that prohibits, restricts or imposes any condition upon (a) the ability of the Borrower or any Subsidiary to create, incur or permit any Lien upon any of its assets or properties, whether now owned or hereafter acquired, or (b) the ability of any Subsidiary to pay dividends or other distributions with respect to its common stock, to make or repay loans or advances to the Borrower or any other Subsidiary, to Guarantee Indebtedness of the Borrower or any other Subsidiary or to transfer any of its property or assets to the Borrower or any Subsidiary of the Borrower; PROVIDED, that (i) the foregoing shall not apply to restrictions or conditions imposed by law or by this Agreement or any other Loan Document, (ii) the foregoing shall not apply to customary restrictions and conditions contained in agreements relating to the sale of a Subsidiary pending such sale, provided such restrictions and conditions apply only to the Subsidiary that is sold and such sale is permitted hereunder, (iii) clause (a) shall not apply to restrictions or conditions imposed by any agreement relating to secured Indebtedness permitted by this Agreement if such restrictions and conditions apply only to the property or assets securing such Indebtedness and (iv) clause (a) shall not apply to customary provisions in leases and other contracts restricting the assignment thereof. SECTION 7.9 [RESERVED] SECTION 7.10 HEDGING AGREEMENTS. The Borrower will not, and will not permit any of the Subsidiaries to, enter into any Hedging Agreement, other than Hedging Agreements entered into in the ordinary course of business to hedge or mitigate risks to which the Borrower or any Subsidiary is exposed in the conduct of its business or the management 32 of its liabilities. Solely for the avoidance of doubt, the Borrower acknowledges that a Hedging Agreement entered into for speculative purposes or of a speculative nature (which shall be deemed to include any Hedging Agreement under which the Borrower or any of the Subsidiaries is or may become obliged to make any payment (i) in connection with the purchase by any third party of any common stock or any Indebtedness or (ii) as a result of changes in the market value of any common stock or any Indebtedness) is not a Hedging Agreement entered into in the ordinary course of business to hedge or mitigate risks. SECTION 7.11 AMENDMENT TO MATERIAL DOCUMENTS. The Borrower will not, and will not permit any Subsidiary to, amend, modify or waive any of its rights in a manner materially adverse to the Lender under its certificate of incorporation, bylaws or other organizational documents. SECTION 7.12 ACCOUNTING CHANGES. The Borrower will not, and will not permit any Subsidiary to, make any significant change in accounting treatment or reporting practices, except as required by GAAP, or change the fiscal year of the Borrower or of any Subsidiary by more than 30 days, except to change the fiscal year of a Subsidiary to conform its fiscal year to that of the Borrower. SECTION 7.13 ACQUISITIONS. Enter into any agreement providing for any acquisition unless (i) lines of business of the Person to be acquired are substantially the same as one or more line or lines of business conducted by the Borrower or its Subsidiaries, (ii) no Default or Event of Default shall have occurred and be continuing either immediately prior to or immediately after giving effect to such acquisition, (iii) the Person acquired shall be a wholly-owned Subsidiary, or be merged into the Borrower upon consummation of the acquisition (or if assets are being acquired, the acquiror shall be the Borrower or a Subsidiary), and (iv) after giving effect to such acquisition, the aggregate costs of all acquisition incurred during the term of this Agreement (on a cumulative basis) shall not exceed $20,000,000. ARTICLE VIII EVENTS OF DEFAULT SECTION 8.1 EVENTS OF DEFAULT. If any of the following events (each an "EVENT OF DEFAULT") shall occur: (a) the Borrower shall fail to pay any principal of any Loan or of any reimbursement obligation in respect of any LC Disbursement when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment or otherwise; or (b) the Borrower shall fail to pay any interest on any Loan or any fee or any other amount (other than an amount payable under clause (a) of this Article) payable under this Agreement or any other Loan Document, when and as the same shall become due and payable, and such failure shall continue unremedied for a period of five (5) Business Days; or 33 (c) any representation or warranty made or deemed made by or on behalf of the Borrower or any Subsidiary in or in connection with this Agreement or any other Loan Document (including the Schedules attached thereto) and any amendments or modifications hereof or waivers hereunder, or in any certificate, report, financial statement or other document submitted to the Lender by any Loan Party or any representative of any Loan Party pursuant to or in connection with this Agreement or any other Loan Document shall prove to be incorrect in any material respect when made or deemed made or submitted; or (d) the Borrower shall fail to observe or perform any covenant or agreement contained in SECTION 5.3 (with respect to the Borrower's existence) or Article VI; or (e) the Borrower shall fail to observe any covenant under Article VII and such failure is not cured within ten (10) Business Days thereof; or (f) any Loan Party shall fail to observe or perform any covenant or agreement contained in this Agreement (other than those referred to in clauses (a), (b) and (d) above), and such failure shall remain unremedied for 30 days after the earlier of (i) any officer of the Borrower becomes aware of such failure, or (ii) notice thereof shall have been given to the Borrower by the Lender; or (g) the Borrower or any Subsidiary (whether as primary obligor or as guarantor or other surety) shall fail to pay any principal of or premium or interest on any Material Indebtedness that is outstanding, when and as the same shall become due and payable (whether at scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument evidencing such Indebtedness; or any other event shall occur or condition shall exist under any agreement or instrument relating to such Indebtedness and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such event or condition is to accelerate, or permit the acceleration of, the maturity of such Indebtedness; or any such Indebtedness shall be declared to be due and payable; or required to be prepaid or redeemed (other than by a regularly scheduled required prepayment or redemption), purchased or defeased, or any offer to prepay, redeem, purchase or defease such Indebtedness shall be required to be made, in each case prior to the stated maturity thereof; or (h) the Borrower or any Subsidiary shall (i) commence a voluntary case or other proceeding or file any petition seeking liquidation, reorganization or other relief under any federal, state or foreign bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a custodian, trustee, receiver, liquidator or other similar official of it or any substantial part of its property, (ii) consent to the institution of , or fail to contest in a timely and appropriate manner, any proceeding or petition described in clause (i) of this Section, (iii) apply for or consent to the appointment of a custodian, trustee, receiver, liquidator or other similar official for the Borrower or any such Subsidiary or for a 34 substantial part of its assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors, or (vi) take any action for the purpose of effecting any of the foregoing; or (i) an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of the Borrower or any Subsidiary or its debts, or any substantial part of its assets, under any federal, state or foreign bankruptcy, insolvency or other similar law now or hereafter in effect or (ii) the appointment of a custodian, trustee, receiver, liquidator or other similar official for the Borrower or any Subsidiary or for a substantial part of its assets, and in any such case, such proceeding or petition shall remain undismissed for a period of 60 days or an order or decree approving or ordering any of the foregoing shall be entered; or (j) the Borrower or any Subsidiary shall become unable to pay, shall admit in writing its inability to pay, or shall fail to pay, its debts as they become due; or (k) an ERISA Event shall have occurred that, in the opinion of the Lender, when taken together with other ERISA Events that have occurred, could reasonably be expected to result in liability to the Borrower and the Subsidiaries in an aggregate amount exceeding $2,000,000; or (l) any judgment or order for the payment of money in excess of $250,000 in the aggregate shall be rendered against the Borrower or any Subsidiary, and either (i) enforcement proceedings shall have been commenced by any creditor upon such judgment or order or (ii) there shall be a period of 30 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or (m) any non-monetary judgment or order shall be rendered against the Borrower or any Subsidiary that could reasonably be expected to have a Material Adverse Effect, and there shall be a period of 30 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or (n) a Change in Control shall occur or exist; or (o) any provision of any Subsidiary Guarantee Agreement shall for any reason cease to be valid and binding on, or enforceable against, any Subsidiary Loan Party, or any Subsidiary Loan Party shall so state in writing, or any Subsidiary Loan Party shall seek to terminate its Subsidiary Guarantee Agreement; then, and in every such event (other than an event with respect to the Borrower described in clause (h) or (i) of this Section) and at any time thereafter during the continuance of such event, the Lender may, by notice to the Borrower, take any or all of the following actions, at the same or different times: (i) terminate its Commitment; (ii) declare the principal of 35 and any accrued interest on the Loans, and all other Obligations owing hereunder, to be, whereupon the same shall become due and payable immediately, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower and (iii) exercise all remedies contained in any other Loan Document; and that, if an Event of Default specified in either clause (h) or (i) shall occur, the Commitment shall automatically terminate and the principal of the Loans then outstanding, together with accrued interest thereon, and all fees, and all other Obligations shall automatically become due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower. ARTICLE IX MISCELLANEOUS SECTION 9.1 NOTICES. (a) Except in the case of notices and other communications expressly permitted to be given by telephone, all notices and other communications to any party herein to be effective shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopy, as follows: To the Borrower: Panera Bread Company 7930 Big Bend Boulevard Webster Grove, MO 63119 Attention: William W. Moreton, CFO Facsimile No.: (314) 918-7773 To the Lender: SunTrust Bank 201 Fourth Avenue North Nashville, TN 37219 Attention: Bill Priester, Vice President Facsimile No.: (615) 748-5269 Any party hereto may change its address or telecopy number for notices and other communications hereunder by notice to the other parties hereto. All such notices and other communications shall, when transmitted by overnight delivery, or faxed, be effective when delivered for overnight (next-day) delivery, or transmitted in legible form by facsimile machine, respectively, or if mailed, upon the third Business Day after the date deposited into the mails or if delivered, upon delivery. (b) Any agreement of the Lender herein to receive certain notices by telephone or facsimile is solely for the convenience and at the request of the Borrower. The Lender shall be entitled to rely on the authority of any Person purporting to be a Person authorized by the Borrower to give such notice and the Lender shall not have any liability to the Borrower or other Person on account of any action taken or not taken by the Lender in reliance upon such telephonic or facsimile notice. The obligation of the Borrower to repay the Loans and all other Obligations hereunder shall not be affected in any way or to any extent by any failure of the Lender to receive written confirmation of any telephonic or facsimile 36 notice or the receipt by the Lender of a confirmation which is at variance with the terms understood by the Lender to be contained in any such telephonic or facsimile notice. SECTION 9.2 WAIVER; AMENDMENTS. (a) No failure or delay by the Lender in exercising any right or power thereunder or any other Loan Document, and no course of dealing between the Borrower and the Lender, shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power or any abandonment or discontinuance of steps to enforce such right or power, preclude any other or further exercise thereof or the exercise of any other right or power hereunder or thereunder. The rights and remedies of the Lender hereunder and under the other Loan Documents are cumulative and are not exclusive of any rights or remedies provided by law. No waiver of any provision of this Agreement or any other Loan Document or consent to any departure by the Borrower therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) of this Section, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. Without limiting the generality of the foregoing, the making of a Loan or the issuance of a Letter of Credit shall not be construed as a waiver of any Default or Event of Default, regardless of whether the Lender may have had notice or knowledge of such Default or Event of Default at the time. (b) No amendment or waiver of any provision of this Agreement or the other Loan Documents, nor consent to any departure by the Borrower therefrom, shall in any event be effective unless the same shall be in writing and signed by the Borrower and the Lender and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. SECTION 9.3 EXPENSES; INDEMNIFICATION. (a) The Borrower shall pay (i) all reasonable, out-of-pocket costs and expenses of the Lender (including, without limitation, the reasonable fees, charges and disbursements of outside counsel and the allocated cost of inside counsel) in connection with the enforcement or protection of its rights in connection with this Agreement, including its rights under this Section, or in connection with the Loans made or any Letters of Credit issued hereunder, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans or Letters of Credit. (b) The Borrower shall indemnify the Lender and each Related Party of the Lender (each, an "INDEMNITEE") against, and hold each of them harmless from, any and all costs, losses, liabilities, claims, damages and related expenses, including the fees, charges and disbursements of any counsel for any Indemnitee, which may be incurred by or asserted against any Indemnitee arising out of, in connection with 37 or as a result of (i) the execution or delivery of any this Agreement or any other agreement or instrument contemplated hereby, the performance by the parties hereto of their respective obligations hereunder or the consummation of any of the transactions contemplated hereby, (ii) any Loan or Letter of Credit or any actual or proposed use of the proceeds therefrom (including any refusal by the Lender to honor a demand for payment under a Letter of Credit if the documents presented in connection with such demand do not strictly comply with the terms of such Letter of Credit), or (iii) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort, or any other theory and regardless of whether any Indemnitee is a party thereto; PROVIDED, that the Borrower shall not be obligated to indemnify any Indemnitee for any of the foregoing arising out of such Indemnitee's gross negligence or willful misconduct as determined by a court of competent jurisdiction in a final and nonappealable judgment. (c) The Borrower shall pay, and hold the Lender harmless from and against, any and all present and future stamp, documentary, and other similar taxes with respect to this Agreement and any other Loan Documents or any payments due thereunder, and save the Lender harmless from and against any and all liabilities with respect to or resulting from any delay or omission to pay such taxes. (d) To the extent permitted by applicable law, the Borrower shall not assert, and hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to actual or direct damages) arising out of, in connection with or as a result of, this Agreement or any agreement or instrument contemplated hereby, the transactions contemplated therein, any Loan or the Letter of Credit or the use of proceeds thereof. (e) All amounts due under this Section shall be payable promptly after written demand therefor. SECTION 9.4 SUCCESSORS AND ASSIGNS. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the Borrower may not assign or transfer any of its rights hereunder without the prior written consent of the Lender (and any attempted assignment or transfer by the Borrower without such consent shall be null and void). (b) The Lender may at any time assign to one or more assignees all or a portion of its rights and obligations under this Agreement and the other Loan Documents (including all or a portion of its Commitment and the Loans and LC Exposure at the time owing to it); PROVIDED, that the Borrower must give its prior written consent (which consent shall not be unreasonably withheld or delayed) to any assignment, except an assignment to an Affiliate of the Lender or during the 38 occurrence and continuation of a Default or an Event of Default. Upon the execution and delivery of an assignment agreement by the Lender and such assignee and payment by such assignee of an amount equal to the purchase price agreed between the Lender and such assignee, such assignee shall become a party to this Agreement and the other Loan Documents and shall have the rights and obligations of a Lender under this Agreement, and the Lender shall be released from its obligations hereunder to a corresponding extent. Upon the consummation of any such assignment hereunder, the Lender, the assignee and the Borrower shall make appropriate arrangements to have a new Note issued to reflect such assignment. (c) The Lender may at any time, without the consent of the Borrower, sell participations to one or more banks or other entities (a "PARTICIPANT") in all or a portion of the Lender's rights and obligations under this Agreement; PROVIDED, that (i) the Lender's obligations under this Agreement shall remain unchanged, (ii) the Lender shall remain solely responsible to the other parties hereto for the performance of its obligations hereunder, and (iii) the Borrower shall continue to deal solely and directly with the Lender in connection with the Lender's rights and obligations under this Agreement and the other Loan Documents. Any agreement between the Lender and the Participant with respect to such participation shall provide that the Lender shall retain the sole right and responsibility to enforce this Agreement and the other Loan Documents and the right to approve any amendment, modification or waiver of this Agreement and the other Loan Documents; PROVIDED, that such participation agreement may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver of this Agreement described in the first proviso of SECTION 9.2(B) that affects the Participant. (d) The Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement and the Note to secure its obligations to a Federal Reserve Bank without complying with this Section; PROVIDED, that no such pledge or assignment shall release the Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto. SECTION 9.5 GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF PROCESS. (a) This Agreement and the other Loan Documents shall be construed in accordance with and be governed by the law (without giving effect to the conflict of law principles thereof) of the State of Tennessee. (b) The Borrower hereby irrevocably and unconditionally submits, for itself and its property, to the non-exclusive jurisdiction of the United States District Court of the Middle District of Tennessee and of the Chancery Court of Davidson County, Tennessee, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or any other Loan Document or the transactions contemplated hereby or thereby, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and 39 unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such Tennessee state court or, to the extent permitted by applicable law, such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement or any other Loan Document shall affect any right that the Lender may otherwise have to bring any action or proceeding relating to this Agreement or any other Loan Document against the Borrower or its properties in the courts of any jurisdiction. (c) The Borrower irrevocably and unconditionally waives any objection which it may now or hereafter have to the laying of venue of any such suit, action or proceeding described in paragraph (b) of this Section and brought in any court referred to in paragraph (b) of this Section. Each of the parties hereto irrevocably waives, to the fullest extent permitted by applicable law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (d) Each party to this Agreement irrevocably consents to the service of process in the manner provided for notices in SECTION 9.1. Nothing in this Agreement or in any other Loan Document will affect the right of any party hereto to serve process in any other manner permitted by law. SECTION 9.6 WAIVER OF JURY TRIAL. EACH PARTY HERETO IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION. SECTION 9.7 RIGHT OF SETOFF. In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, the Lender shall have the right, at any time or from time to time upon the occurrence and during the continuance of an Event of Default, without prior notice to the Borrower, any such notice being expressly waived by the Borrower to the extent permitted by applicable law, to set off and apply against all deposits (general or special, time or demand, provisional or final) of the Borrower at any time held or other obligations at any time owing by the Lender to or for the credit or the account of the Borrower against any and all Obligations held by the Lender, irrespective of whether the Lender shall have made demand hereunder and although such Obligations may be unmatured. The Lender agrees promptly to notify the Borrower after 40 any such set-off and any application made by the Lender; PROVIDED, that the failure to give such notice shall not affect the validity of such set-off and application. SECTION 9.8 COUNTERPARTS; INTEGRATION. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts (including by telecopy), and all of said counterparts taken together shall be deemed to constitute one and the same instrument. This Agreement, the other Loan Documents, and any separate letter agreement(s) relating to any fees payable to the Lender constitute the entire agreement among the parties hereto and thereto regarding the subject matters hereof and thereof and supersede all prior agreements and understandings, oral or written, regarding such subject matters. SECTION 9.9 SURVIVAL. All covenants, agreements, representations and warranties made by the Borrower herein and in the certificates or other instruments delivered in connection with or pursuant to this Agreement shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of this Agreement and the making of any Loans and issuance of any Letters of Credit, regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any fee or any other amount payable under this Agreement is outstanding and unpaid or any Letter of Credit is outstanding and so long as the Commitment has not expired or terminated. The provisions of SECTIONS 2.11 and 9.3 shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loans, the expiration or termination of the Letters of Credit and the Commitments or the termination of this Agreement or any provision hereof. All representations and warranties made herein, in the certificates, reports, notices, and other documents delivered pursuant to this Agreement shall survive the execution and delivery of this Agreement and the other Loan Documents, and the making of the Loans. SECTION 9.10 SEVERABILITY. Any provision of this Agreement or any other Loan Document held to be illegal, invalid or unenforceable in any jurisdiction, shall, as to such jurisdiction, be ineffective to the extent of such illegality, invalidity or unenforceability without affecting the legality, validity or enforceability of the remaining provisions hereof or thereof; and the illegality, invalidity or unenforceability of a particular provision in a particular jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. SECTION 9.11 CONFIDENTIALITY. The Lender agrees to take normal and reasonable precautions to maintain the confidentiality of any information designated in writing as confidential and provided to it by the Borrower or any Subsidiary, except that such information may be disclosed (i) to any Related Party of the Lender, including without limitation accountants, legal counsel and other advisors, (ii) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (iii) to the extent requested by any regulatory agency or authority, (iv) to the extent that such information becomes publicly available other than as a result of a breach of this Section, or which 41 becomes available to the Lender or any Related Party of the Lender on a nonconfidential basis from a source other than the Borrower, (v) in connection with the exercise of any remedy hereunder or any suit, action or proceeding relating to this Agreement or the enforcement of rights hereunder, and (ix) subject to provisions substantially similar to this SECTION 9.11, to any actual or prospective assignee or Participant, or (vi) with the consent of the Borrower. Any Person required to maintain the confidentiality of any information as provided for in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the degree of care to maintain the confidentiality of such information as an ordinary Person would accord its own confidential information. SECTION 9.12 INTEREST RATE LIMITATION. Notwithstanding anything herein to the contrary, if at any time the interest rate applicable to any Loan, together with all fees, charges and other amounts which may be treated as interest on such Loan under applicable law (collectively, the "CHARGES"), shall exceed the maximum lawful rate of interest (the "MAXIMUM RATE") which may be contracted for, charged, taken, received or reserved by the Lender in accordance with applicable law, the rate of interest payable in respect of such Loan hereunder, together with all Charges payable in respect thereof, shall be limited to the Maximum Rate and, to the extent lawful, the interest and Charges that would have been payable in respect of such Loan but were not payable as a result of the operation of this Section shall be cumulated and the interest and Charges payable to such Lender in respect of other Loans or periods shall be increased (but not above the Maximum Rate therefor) until such cumulated amount, together with interest thereon at the Federal Funds Rate to the date of repayment, shall have been received by the Lender. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. BORROWER: PANERA BREAD COMPANY By: ----------------------------------------- Title: -------------------------------------- LENDER: SUNTRUST BANK By: ----------------------------------------- Title: -------------------------------------- 42 SCHEDULE 4.14 SUBSIDIARIES Panera, Inc. 100% Borrower ABP Midwest Manufacturing Company, Inc. 100% Borrower Pain Francais, Inc. 100% Borrower Panera Bread Foundation, Inc. 100% Borrower SCHEDULE 7.1 OUTSTANDING INDEBTEDNESS SCHEDULE 7.2 EXISTING LIENS SCHEDULE 7.4 EXISTING INVESTMENTS EXHIBIT A REVOLVING CREDIT NOTE $10,000,000 Nashville, Tennessee December 26, 2000 FOR VALUE RECEIVED, the undersigned, PANERA BREAD COMPANY, a Delaware corporation (the "BORROWER"), hereby promises to pay to SunTrust Bank (the "LENDER") or its registered assigns at its principal office or any other office that the Lender designates, on the Commitment Termination Date (as defined in the Revolving Credit Agreement dated as of December ____, 2000 (as the same may be amended, supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT"), between the Borrower and the Lender, the lesser of the principal sum of TEN MILLION and no/100 Dollars ($10,000,000.00) and the aggregate unpaid principal amount of all Loans made by the Lender to the Borrower pursuant to the Credit Agreement, in lawful money of the United States of America in immediately available funds, and to pay interest from the date hereof on the principal amount thereof from time to time outstanding, in like funds, at said office, at the rate or rates per annum and payable on such dates as provided in the Credit Agreement. In addition, should legal action or an attorney-at-law be utilized to collect any amount due hereunder, the Borrower further promises to pay all costs of collection, including the reasonable attorneys' fees of the Lender. The Borrower promises to pay interest, on demand, on any overdue principal and, to the extent permitted by law, overdue interest from their due dates at a rate or rates provided in the Credit Agreement. All borrowings evidenced by this Revolving Credit Note and all payments and prepayments of the principal hereof and the date thereof shall be endorsed by the holder hereof on the schedule attached hereto and made a part hereof or on a continuation thereof which shall be attached hereto and made a part hereof, or otherwise recorded by such holder in its internal records; PROVIDED, that the failure of the holder hereof to make such a notation or any error in such notation shall not affect the obligations of the Borrower to make the payments of principal and interest in accordance with the terms of this Revolving Credit Note and the Credit Agreement. This Revolving Credit Note is issued in connection with, and is entitled to the benefits of, the Credit Agreement which, among other things, contains provisions for the acceleration of the maturity hereof upon the happening of certain events, for prepayment of the principal hereof prior to the maturity hereof and for the amendment or waiver of certain provisions of the Credit Agreement, all upon the terms and conditions therein specified. THIS REVOLVING CREDIT NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF TENNESSEE AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. PANERA BREAD COMPANY By: ----------------------------------------- Title: -------------------------------------- 2 LOANS AND PAYMENTS
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EXHIBIT B SUBSIDIARY GUARANTY AGREEMENT SUBSIDIARY GUARANTEE AGREEMENT dated as of December 26, 2000, among [list each of the Subsidiaries] (each such subsidiary individually, a "GUARANTOR" and collectively, the "GUARANTORS") of PANERA BREAD COMPANY, a Delaware corporation (the "BORROWER"), and SUNTRUST BANK, a Georgia banking corporation (the "LENDER") Reference is made to the Revolving Credit Agreement dated as of December 26, 2000 (as amended, supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT"), between the Borrower and the Lender. Capitalized terms used herein and not defined herein shall have the meanings assigned to such terms in the Credit Agreement. The Lender has agreed to make Loans to and issue Letters of Credit for the account of the Borrower, pursuant to, and upon the terms and subject to the conditions specified in, the Credit Agreement. Each of the Guarantors is a direct or indirect wholly-owned Subsidiary of the Borrower and acknowledges that it will derive substantial benefit from the making of the Loans and the issuance of the Letters of Credit by the Lender. The obligations of the Lender to make Loans and to issue Letters of Credit are conditioned on, among other things, the execution and delivery by the Guarantors of a Subsidiary Guarantee Agreement in the form hereof. As consideration therefor and in order to induce the Lender to make Loans and to issue Letters of Credit, the Guarantors are willing to execute this Subsidiary Guarantee Agreement. Accordingly, the parties hereto agree as follows: SECTION 1. GUARANTEE. Each Guarantor unconditionally guarantees, jointly with the other Guarantors and severally, as a primary obligor and not merely as a surety, (a) the due and punctual payment of (i) the principal of and premium, if any, and interest (including interest accruing during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding) on the Loans, when and as due, whether at maturity, by acceleration, upon one or more dates set for prepayment or otherwise, (ii) each payment required to be made by the Borrower under the Credit Agreement in respect of any Letter of Credit, when and as due, including payments in respect of reimbursement or disbursements, interest thereon and obligations to provide cash collateral, and (iii) all other monetary obligations, including fees, costs, expenses and indemnities, whether primary, secondary, direct, contingent, fixed or otherwise (including monetary obligations incurred during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding), of the Loan Parties to the Lender under the Credit Agreement and the other Loan Documents, (b) the due and punctual performance of all covenants, agreements, obligations and liabilities of the Loan Parties under or pursuant to the Credit Agreement and the other Loan Documents; and (c) the due and punctual payment and performance of all obligations of the Borrower, monetary or otherwise, under each Hedging Agreement entered into with Lender or an Affiliate of a Lender (all the monetary and other obligations referred to in the preceding clauses (a) through (c) being collectively called the "OBLIGATIONS"). Each Guarantor further agrees that the Obligations may be extended or renewed, in whole or in part, without notice to or further assent from it, and that it will remain bound upon its guarantee notwithstanding any extension or renewal of any Obligation. SECTION 2. OBLIGATIONS NOT WAIVED. To the fullest extent permitted by applicable law, each Guarantor waives presentment to, demand of payment from and protest to the Borrower of any of the Obligations, and also waives notice of acceptance of its guarantee and notice of protest for nonpayment. To the fullest extent permitted by applicable law, the obligations of each Guarantor hereunder shall not be affected by (a) the failure of the Lender to assert any claim or demand or to enforce or exercise any right or remedy against the Borrower or any other Guarantor under the provisions of the Credit Agreement, any other Loan Document or otherwise or (b) any rescission, waiver, amendment or modification of, or any release from any of the terms or provisions of, this Agreement, any other Loan Document, any Guarantee or any other agreement, including with respect to any other Guarantor under this Agreement. SECTION 3. GUARANTEE OF PAYMENT. Each Guarantor further agrees that its guarantee constitutes a guarantee of payment when due and not of collection, and waives any right to require that any resort be had by the Lender to any balance of any deposit account or credit on the books of the Lender in favor of the Borrower or any other person. SECTION 4. NO DISCHARGE OR DIMINISHMENT OF GUARANTEE. The obligations of each Guarantor hereunder shall not be subject to any reduction, limitation, impairment or termination for any reason (other than the indefeasible payment in full in cash of the Obligations), including any claim of waiver, release, surrender, alteration or compromise of any of the Obligations, and shall not be subject to any defense or setoff, counterclaim, recoupment or termination whatsoever by reason of the invalidity, illegality or unenforceability of the Obligations or otherwise. Without limiting the generality of the foregoing, the obligations of each Guarantor hereunder shall not be discharged or impaired or otherwise affected by the failure of the Lender to assert any claim or demand or to enforce any remedy under the Credit Agreement, any other Loan Document or any other agreement, by any waiver or modification of any provision of any thereof, by any default, failure or delay, willful or otherwise, in the performance of the Obligations, or by any other act or omission that may or might in any manner or to the extent vary the risk of any Guarantor or that would otherwise operate as a discharge of each Guarantor as a matter of law or equity (other than the indefeasible payment in full in cash of all the Obligations). SECTION 5. DEFENSES OF BORROWER WAIVED. To the fullest extent permitted by applicable law, each Guarantor waives any defense based on or arising out of any defense of the Borrower or the unenforceability of the Obligations or any part thereof from any cause, or the cessation from any cause of the liability of the Borrower, other than the final and indefeasible payment in full in cash of the Obligations. The Lender may, at its election, compromise or adjust any part of the Obligations or make any other accommodation with the Borrower or any other guarantor, without affecting or impairing in any way the liability 2 of any Guarantor hereunder except to the extent the Obligations have been fully, finally and indefeasibly paid in cash. Pursuant to applicable law, each Guarantor waives any defense arising out of any such election even though such election operates, pursuant to applicable law, to impair or to extinguish any right of reimbursement or subrogation or other right or remedy of such Guarantor against the Borrower or any other Guarantor. SECTION 6. AGREEMENT TO PAY; SUBORDINATION. In furtherance of the foregoing and not in limitation of any other right that the Lender has at law or in equity against any Guarantor by virtue hereof, upon the failure of the Borrower or any other Loan Party to pay any Obligation when and as the same shall become due, whether at maturity, by acceleration, after notice of prepayment or otherwise, each Guarantor hereby promises to and will forthwith pay, or cause to be paid, to the Lender in cash the amount of such unpaid Obligations. Upon payment by any Guarantor of any sums to the Lender, all rights of such Guarantor against the Borrower arising as a result thereof by way of right of subrogation, contribution, reimbursement, indemnity or otherwise shall in all respects be subordinate and junior in right of payment to the prior indefeasible payment in full in cash of all the Obligations. In addition, any indebtedness of the Borrower now or hereafter held by any Guarantor is hereby subordinated in right of payment to the prior payment in full in cash of the Obligations. If any amount shall erroneously be paid to any Guarantor on account of (i) such subrogation, contribution, reimbursement, indemnity or similar right or (ii) any such indebtedness of the Borrower, such amount shall be held in trust for the benefit of the Lender and shall forthwith be paid to the Lender to be credited against the payment of the Obligations, whether matured or unmatured, in accordance with the terms of the Loan Documents. SECTION 7. INFORMATION. Each Guarantor assumes all responsibility for being and keeping itself informed of the Borrower's financial condition and assets, and of all other circumstances bearing upon the risk of nonpayment of the Obligations and the nature, scope and extent of the risks that such Guarantor assumes and incurs hereunder, and agrees that the Lender will not have any duty to advise any of the Guarantors of information known to it or any of them regarding such circumstances or risks. SECTION 8. REPRESENTATIONS AND WARRANTIES. Each Guarantor represents and warrants as to itself that all representations and warranties relating to it (as a Subsidiary of the Borrower) contained in the Credit Agreement are true and correct. SECTION 9. TERMINATION. The guarantees made hereunder (a) shall terminate when all the Obligations have been paid in full in cash and the Lender has no further commitment to lend under the Credit Agreement, the LC Exposure has been reduced to zero and the Lender has no further obligation to issue Letters of Credit under the Credit Agreement and (b) shall continue to be effective or be reinstated, as the case may be, if at any time payment, or any part thereof, of any Obligation is rescinded or must otherwise be restored by Lender or any Guarantor upon the bankruptcy or reorganization of the Borrower, any Guarantor or otherwise. In connection with the foregoing, the Lender shall execute and deliver to such Guarantor or Guarantor's designee, at such Guarantor's expense, any documents or instruments which such Guarantor shall reasonably request from time to time to evidence such termination and release. 3 SECTION 10. BINDING EFFECT; SEVERAL AGREEMENT; ASSIGNMENTS. Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the successors and assigns of such party; and all covenants, promises and agreements by or on behalf of the Guarantors that are contained in this Agreement shall bind and inure to the benefit of each party hereto and their respective successors and assigns. This Agreement shall become effective as to any Guarantor when a counterpart hereof executed on behalf of such Guarantor shall have been delivered to the Lender, and a counterpart hereof shall have been executed on behalf of the Lender, and thereafter shall be binding upon such Guarantor and the Lender and their respective successors and assigns, and shall inure to the benefit of such Guarantor, the Lender, and its respective successors and assigns, except that no Guarantor shall have the right to assign its rights or obligations hereunder or any interest herein (and any such attempted assignment shall be void). If all of the capital stock of a Guarantor is sold, transferred or otherwise disposed of pursuant to a transaction permitted by the Credit Agreement, such Guarantor shall be released from its obligations under this Agreement without further action. This Agreement shall be construed as a separate agreement with respect to each Guarantor and may be amended, modified, supplemented, waived or released with respect to any Guarantor without the approval of any other Guarantor and without affecting the obligations of any other Guarantor hereunder. SECTION 11. WAIVERS; AMENDMENT. (a) No failure or delay of the Lender of any in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights of the Lender are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of this Agreement or consent to any departure by any Guarantor therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) below, and then such waiver and consent shall be effective only in the specific instance and for the purpose for which given. No notice or demand on any Guarantor in any case shall entitle such Guarantor to any other or further notice in similar or other circumstances. (b) Neither this Agreement nor any provision hereof may be waived, amended or modified except pursuant to a written agreement entered into between the Guarantors and the Lender. SECTION 12. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TENNESSEE. SECTION 13. NOTICES. All communications and notices hereunder shall be in writing and given as provided in Section 9.1 of the Credit Agreement. All communications and notices hereunder to each Guarantor shall be given to it at its address set forth on Schedule I attached hereto. SECTION 14. SURVIVAL OF AGREEMENT; SEVERABILITY. (a) All covenants, agreements representations and warranties made by the Guarantors herein and in the certificates or 4 other instruments prepared or delivered in connection with or pursuant to this Agreement or the other Loan Document shall be considered to have been relied upon by the Lender and shall survive the making by the Lender of the Loans and the issuance of the Letters of Credit regardless of any investigation made by any of it or on its behalf, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any other fee or amount payable under this Agreement or any other Loan Document is outstanding and unpaid or the LC Exposure does not equal zero and as long as the Commitments have not been terminated. (b) In the event one or more of the provisions contained in this Agreement or in any other Loan Document should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby (it being understood that the invalidity of a particular provision in a particular jurisdiction shall not in and of itself affect the validity of such provision in any other jurisdiction). The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. SECTION 15. COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall constitute an original, but all of which when taken together shall constitute a single contract (subject to Section 10), and shall become effective as provided in Section 10. Delivery of an executed signature page to this Agreement by facsimile transmission shall be as effective as delivery of a manually executed counterpart of this Agreement. SECTION 16. RULES OF INTERPRETATION. The rules of interpretation specified in Section 1.3 of the Credit Agreement shall be applicable to this Agreement. SECTION 17. JURISDICTION; CONSENT TO SERVICE OF PROCESS. (a) Each Guarantor hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of the Chancery Court of Davidson County, Tennessee or Federal court of the United States of America sitting in Nashville, Tennessee, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or the other Loan Documents, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such Tennessee State court or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that the Lender may otherwise have to bring any action or proceeding relating to this Agreement or the other Loan Documents against any Guarantor or its properties in the courts of any jurisdiction. (b) Each Guarantor hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have 5 to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or the other Loan Documents in any Tennessee State or Federal court. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (c) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 13. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law. SECTION 18. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS. EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 18. SECTION 19. ADDITIONAL GUARANTORS. Pursuant to Section 5.10 of the Credit Agreement, each Subsidiary Loan Party that was not in existence on the date of the Credit Agreement is required to enter into this Agreement as a Guarantor upon becoming Subsidiary Loan Party. Upon execution and delivery after the date hereof by the Lender and such Subsidiary of an instrument in the form of Annex 1, such Subsidiary shall become a Guarantor hereunder with the same force and effect as if originally named as a Guarantor herein. The execution and delivery of any instrument adding an additional Guarantor as a party to this Agreement shall not require the consent of any other Guarantor hereunder. The rights and obligations of each Guarantor hereunder shall remain in full force and effect notwithstanding the addition of any new Guarantor as a party to this Agreement. SECTION 20. RIGHT OF SETOFF. If an Event of Default shall have occurred and be continuing, Lender is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other Indebtedness at any time owing by such Lender to or for the credit or the account of any Guarantor against any or all the obligations of such Guarantor now or hereafter existing under this Agreement and the other Loan Documents held by such Lender, irrespective of whether or not such Lender shall have made any demand under this Agreement or any other Loan Document and although such obligations may be unmatured. The rights of Lender under this Section 20 are in addition to other rights and remedies (including other rights of setoff) which such Lender may have. 6 IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written. [LIST EACH OF THE SUBSIDIARIES] By: ----------------------------------------- Title: -------------------------------------- SUNTRUST BANK By: ----------------------------------------- Title: -------------------------------------- 7 ANNEX 1 TO THE SUBSIDIARY GUARANTEE AGREEMENT SUPPLEMENT NO. ____ dated as of ____________________, 20____, to the Subsidiary Guarantee Agreement (the "GUARANTEE AGREEMENT") dated as of December ____, 2000 among each of the subsidiaries listed on Schedule I thereto (each such Subsidiary individually, a "GUARANTOR" and collectively, the "GUARANTORS") of PANERA BREAD COMPANY, a Delaware corporation (the "BORROWER"), and SUNTRUST BANK, a Georgia banking corporation, as Lender (the "LENDER"). A. Reference is made to the Revolving Credit Agreement dated as of December ____, 2000 (as amended, supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT"), among the Borrower and the Lender. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Credit Agreement. B. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Guarantee Agreement and the Credit Agreement. C. The Guarantors have entered into the Guarantee Agreement in order to induce the Lender to make Loans and to issue Letters of Credit. Pursuant to Section 5.11 of the Credit Agreement, each Subsidiary Loan Party that was not in existence or not a Subsidiary Loan Party on the date of the Credit Agreement is required to enter into the Guarantee Agreement as a Guarantor upon becoming a Subsidiary Loan Party. Section 19 of the Guarantee Agreement provides that additional Subsidiaries of the Borrower may become Guarantors under the Guarantee Agreement by execution and delivery of an instrument in the form of this Supplement. The undersigned Subsidiary of the Borrower (the "NEW GUARANTOR") is executing this Supplement in accordance with the requirements of the Credit Agreement to become a Guarantor under the Guarantee Agreement in order to induce the Lender to make additional Loans and to issue additional Letters of Credit and as consideration for Loans previously made and Letters of Credit previously issued. Accordingly, the Lender and the New Guarantor agree as follows: SECTION 1. In accordance with Section 19 of the Guarantee Agreement, the New Guarantor by its signature below becomes a Guarantor under the Guarantee Agreement with the same force and effect as if originally named therein as a Guarantor and the New Guarantor hereby (a) agrees to all the terms and provisions of the Guarantee Agreement applicable to it as Guarantor thereunder and (b) represents and warrants that the representations and warranties made by it as a Guarantor thereunder are true and correct on and as of the date hereof. Each reference to a Guarantor in the Guarantee Agreement shall be deemed to include the New Guarantor. The Guarantee Agreement is hereby incorporated herein by reference. SECTION 2. The New Guarantor represents and warrants to the Lender that this Supplement has been duly authorized, executed and delivered by it and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms. SECTION 3. This Supplement may be executed in counterparts each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Supplement shall become effective when the Lender shall have received counterparts of this Supplement that, when taken together, bear the signatures of the New Guarantor and the Lender. Delivery of an executed signature page to this Supplement by facsimile transmission shall be as effective as delivery of a manually signed counterpart of this Supplement. SECTION 4. Except as expressly supplemented hereby, the Guarantee Agreement shall remain in full force and effect. SECTION 5. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TENNESSEE. SECTION 6. In case any one or more of the provisions contained in this Supplement should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and in the Guarantee Agreement shall not in any way be affected or impaired thereby (it being understood that the invalidity of a particular provision hereof in a particular jurisdiction shall not in and of itself affect the validity of such provision in any other jurisdiction). The parties hereto shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. SECTION 7. All communications and notices hereunder shall be in writing and given as provided in Section 13 of the Guarantee Agreement. All communications and notices hereunder to the New Guarantor shall be given to it at the address set forth under its signature below, with a copy to the Borrower. SECTION 8. The New Guarantor agrees to reimburse the Lender for its out-of-pocket expenses in connection with this Supplement, including the fees, disbursements and other charges of counsel for the Lender. 2 IN WITNESS WHEREOF, the New Guarantor and the Lender have duly executed this Supplement to the Guarantee Agreement as of the day and year first above written. -------------------------------------------- By: ----------------------------------------- Title: -------------------------------------- SUNTRUST BANK By: ----------------------------------------- Title: -------------------------------------- 3 EX-10.6-8 3 a2042851zex-10_68.txt EXHIBIT 10.6.8 EXHIBIT 10.6.8 September 8, 2000 Kenneth Puzder 2871 Fox Meadow Lane Saint Louis, Missouri 63010 Dear Ken: Based on your prior experience, background presented and the excellent impression that you have given us, Panera Bread / Saint Louis Bread Co., is pleased to offer you the position of Vice President Controller, reporting directly to the Chief Financial Officer and Senior Vice President, Bill Moreton. We would like this position to be effective on or before Monday, October 2, 1999. This offer is contingent on background checks. Your salary for this position will be payable at the annual rate of $115,000. In addition, it is our understanding that your compensation will include the following: o Consideration for 20,000 stock options, which vest to you over five years. The price per share depends on the value per share on the date of the next Board of Director's meeting following your hire date. o You will be included in our 2001 Incentive Program. This program rewards you for the completion and quality of individually agreed upon objectives as well as the achievement of your business unit's financial goals and overall Company profitability. Your incentive target is 20% of your base rate (we refer to it as a "double" when you meet agreed upon expectations) with an upside potential of 40% ("homerun"-significantly exceeding expectations). The incentive can be paid out in full or portion thereof, including 0% ("strike"), according to financial performance and your individual performance. If the Company strikes-out for the plan year, no incentive will be paid out. The plan design can be changed without notice. As a full-time Panera Bread employee, you will be eligible to participate in all Panera Bread benefit plans. The waiting periods and premiums related to these benefits and specific information about plan content will be explained during the orientation process. Our benefit package is subject to ongoing review and modifications from time to time. You will receive an Employee Handbook at your benefits orientation, which will explain our vacation and holiday schedule. Panera Bread is a non-smoking work facility. If you have specific questions about our benefits, please contact Courtney Higgins at extension 6318. This offer is also contingent on your ability to provide employment eligibility documentation as required by law. Please indicate your acceptance of this offer by signing and returning one original of this letter no later than Monday, September 25, 2000, after which time this offer will expire. We believe that your background and experience will provide a solid foundation for success with Panera Bread. We are extremely enthusiastic about our future growth. If you have any questions about the enclosed information, please let me know. Once again, Ken, we welcome you to Panera Bread and we look forward to your participation, energy, and contributions. Sincerely, Karol McNutt Bill Moreton Director Compensation and Benefits CFO and Senior Vice President Ron Shaich Chairman and CEO I have read and accepted the provisions as outlined above. - ----------------- ------------------------------- Date Ken Puzder EX-10.6-9 4 a2042851zex-10_69.txt EXHIBIT 10.6.9 EXHIBIT 10.6.9 August 29, 2000 Diane Davidson 11615 Serama St. Louis, MO 63131 Dear Diane: Based on your experience, background presented and the excellent impression that you have given us, Panera Bread / Saint Louis Bread Co., is pleased to offer you a temporary assignment of Interim General Counsel, reporting to the Chief Financial Officer, Bill Moreton and Chief Executive Officer, Ron Shaich. We would like this position to be effective on Tuesday, September 5, 2000. Your earnings for this position will be payable weekly at the annual rate of $110,000 for which you will receive a 1099 at year-end. This offer is also contingent upon background verification and on your ability to provide employment eligibility documentation as required by law. Nothing in this letter is intended or should be construed to execute a contract for a definite term. Both you and 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 by Tuesday, September 5, 2000, after which time this offer will expire. We believe that your background and experience will be very beneficial to Panera Bread / Saint Louis Bread Co. We are extremely enthusiastic about our future growth. If you have any questions about the enclosed information, please let me know. Once again, Diane, we welcome you to Panera Bread / Saint Louis Bread Co. and we look forward to your participation, energy, and contributions. Sincerely, Karol McNutt Bill Moreton Director of Compensation, Benefits Chief Financial Officer I have read and accepted the provisions as outlined above. - ----------------- ------------------------------- Date Diane Davidson EX-10.6-10 5 a2042851zex-10_610.txt EXHIBIT 10.6.10 EXHIBIT 10.6.10 September 7, 2000 Kathy Kuhlenbeck 16023 Forest Valley Drive Ballwin, Missouri 63021 Dear Kathy: Based on your prior experience, background presented and the excellent impression that you have given us, Panera Bread / Saint Louis Bread Co., is pleased to offer you the position of Vice President Financial Planning and Analysis, reporting directly to the Chief Financial Officer and Senior Vice President, Bill Moreton. We would like this position to be effective Monday, October 9, 1999. This offer is contingent on background checks. Your salary for this position will be payable at the annual rate of $120,000. In addition, it is our understanding that your compensation will include the following: o Consideration for 20,000 stock options, which vest to you over five years. The price per share depends on the value per share on the date of the next Board of Director's meeting following your hire date. o You will be included in our 2001 Incentive Program. This program rewards you for the completion and quality of individually agreed upon objectives as well as the achievement of your business unit's financial goals and overall Company profitability. Your incentive target is 20% of your base rate (we refer to it as a "double" when you meet agreed upon expectations) with an upside potential of 40% ("homerun"-significantly exceeding expectations). The incentive can be paid out in full or portion thereof, including 0% ("strike"), according to financial performance and your individual performance. If the Company strikes-out for the plan year, no incentive will be paid out. The plan design can be changed without notice. o You will receive a $6000 one-time bonus payable within your first 30-days of employment. As a full-time Panera Bread employee, you will be eligible to participate in all Panera Bread benefit plans. The waiting periods and premiums related to these benefits and specific information about plan content will be explained during the orientation process. Our benefit package is subject to ongoing review and modifications from time to time. You will receive an Employee Handbook at your benefits orientation, which will explain our vacation and holiday schedule. Panera Bread is a non-smoking work facility. If you have specific questions about our benefits, please contact Courtney Higgins at extension 6318. This offer is also contingent on your ability to provide employment eligibility documentation as required by law. Please indicate your acceptance of this offer by signing and returning one original of this letter no later than Monday, September 18, 2000, after which time this offer will expire. We believe that your background and experience will provide a solid foundation for success with Panera Bread. We are extremely enthusiastic about our future growth. If you have any questions about the enclosed information, please let me know. Once again, Kathy, we welcome you to Panera Bread and we look forward to your participation, energy, and contributions. Sincerely, Karol McNutt Bill Moreton Director Compensation and Benefits CFO and Senior Vice President I have read and accepted the provisions as outlined above. - ----------------- ------------------------------- Date Kathy Kuhlenbeck EX-10.12 6 a2042851zex-10_12.txt EXHIBIT 10.12 EXHIBIT 10.12 LEASE AND CONSTRUCTION EXHIBIT THE ESQUIRE OFFICE BUILDING I. BASIC LEASE PROVISIONS A. BUILDING: The Esquire Office Building 6710 Clayton Road St. Louis, Missouri 63117 B. LANDLORD and ADDRESS: Bachelor Foods, Inc., a Kentucky corporation 1956 NW 167th Avenue Pembroke Pines, FL 33028 C. TENANT: Panera, Inc., a Delaware corporation D. DATE OF LEASE: September 7, 2000. E. PREMISES: A portion of an office building consisting of the entire first and second floors and a portion of the basement floor including storage space, all as shown on Exhibit E, located at 6710 Clayton Road, St. Louis, Missouri. The Premises does not include the space presently occupied by Outback Steakhouse or Landlord's office and storage adjacent to the Outback Steakhouse on the ground floor. F. ANNUAL BASE RENT: First year (based upon 365 days): $560,000 per year. Years 2 - the end of the fourth year: $616,000 per year. The fifth year through the end of the term: $621,000 per year. G. LEASE TERM: Ten (10) years commencing on the Commencement Date. H. COMMENCEMENT DATE: The earlier of i) November 1, 2000; or ii) substantial completion of Tenant's improvements and Tenant's occupancy of the Premises. I. EXPIRATION DATE: Ten (10) full years after the Commencement Date. J. EXHIBITS: 1. EXHIBIT A: Construction Exhibit. 2. EXHIBIT B: Construction Allowance. 3. EXHIBIT D: Parking Agreement Exhibit 4. EXHIBIT E: Floor Plans of the Premises II. LEASE OF PREMISES: For and in consideration of the rental and of the covenants and agreements hereinafter set forth to be kept and performed by Tenant, Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the Premises which are contained in THE ESQUIRE OFFICE BUILDING (hereinafter referred to as "the Building") located at 1 6710 Clayton Road, St. Louis, Missouri, for the term and upon the conditions provided in this Lease, all as shown on Exhibit C. Upon delivery of the Premises to Tenant (the Premises Delivery Date), Tenant shall immediately commence the construction of Tenant's Work as described in Exhibit A and shall diligently pursue such construction to completion. "Premises Delivery Date" is the date on which Landlord delivers possession of the Premises to Tenant and the Premises are available to Tenant to commence Tenant's Work. Tenant shall take the Premises in AS IS condition without any representation or warranty. No agreement of Landlord to alter, remodel, decorate, clean or improve the Premises or the Building and no representation regarding the condition of the Premises or the Building have been made by or on behalf of Landlord to Tenant, except as stated in this Lease. All provisions of this Lease, except for the payment of Rent and all other charges, shall be applicable commencing with the delivery of the Premises to Tenant. Notwithstanding anything in the Lease to the contrary, Landlord, Outback Steakhouse, or any subsequent tenant of the Outback Steakhouse space ("third party") shall have access to portions of the unfinished basement space for maintenance, repair and installation of its utilities and drainage systems. Where access must be gained through Tenant's space, such third party shall give reasonable prior notice to Tenant. III. RELOCATION (INTENTIONALLY DELETED) IV. TERM The term of this Lease shall commence on the Commencement Date and shall expire on the Expiration Date or at the expiration of the number of years provided in Section 1.G. after the Commencement Date if no Expiration Date is provided. Tenant agrees that in the event of the inability of Landlord for any reason to deliver possession of the Premises to Tenant as intended by the parties, Landlord shall not be liable for any damages caused by the delay, nor shall the delay affect the validity of this Lease or the obligations of Tenant hereunder. V. RENT: Commencing on the earlier of November 1, 2000 or such date that Tenant has relocated its offices into the Premises the Tenant agrees to pay as rental for the use and occupancy of the Premises, at the times and in the manner hereinafter provided the following sums of money. A. ANNUAL BASE RENT: The Annual Base Rent shall be payable in twelve (12) equal monthly installments during each year, in advance, on the first day of each calendar month without demand and without setoff or deduction. Should the rental period commence on a day of the month other than the first day of such month, then the rental for the first fractional month shall be pro-rated based upon a thirty (30) day month. B. RENT TAX: In addition to Annual Base Rent and other charges to be paid by Tenant hereunder, Tenant shall reimburse to Landlord, within thirty (30) days of receipt of a demand therefore, any and all taxes, charges, and/or surcharges payable by Landlord (other than a tax on net income) whether or not now customary or within the contemplation of the parties hereto; (a) upon, allocable to, or measured by the area of the Premises or on the rent payable hereunder, including without limitation any gross 2 income tax or excise tax levied by the State, any political subdivision thereof, City or Federal Government with respect to the receipt of such rent; or (b) upon or with respect to the possession, leasing, operation, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises or any portion thereof; or (c) upon this transaction or any document to which Tenant is a party creating or transferring an interest or an estate in the Premises. Tenant also agrees to pay, before delinquency, any and all taxes levied or assessed and which become payable during the term hereof upon or measured by the value of Tenant's equipment, furniture, fixtures and personal property located in the Premises. For the purpose of determining said amount, figures supplied by the Assessor as to the amount so assessed shall be conclusive. Tenant shall comply with the provisions of any law, ordinance or rule of the taxing authorities which require Tenant to file a report of Tenant's property located in the Premises. C. INTENTIONALLY DELETED D. REAL ESTATE TAXES AND OPERATING EXPENSES ADJUSTMENT 1. DEFINITIONS: For the purposes of this Section V.D., the following words and phrases shall have the following meanings: a. Intentionally deleted. b. Intentionally deleted. c. "Operating Expenses" shall mean all costs, expenses and disbursements of every kind and nature which Landlord shall pay or become obligated to pay in connection with the management, operation, maintenance, cleaning, trash removal, insuring, heating, cooling, replacement and repair of the Building and the land, and of the personal property, fixtures, machinery, equipment, systems and apparatus located in or used in connection with the Building or the land, including, but not limited to, the following: (i) Wages, salaries and related expenses and benefits of all on-site and off-site employees engaged directly in the operation, management, maintenance, engineering and security of the Building. (ii) Supplies, materials and rental of equipment used in the operation, management and maintenance of the Building. (iii) Maintenance and repair of all heating, air conditioning and ventilation equipment. (iv) All maintenance, janitorial and service agreements for the Building and the equipment therein, including, without limitation, trash removal, and elevator maintenance. (v) Reasonable management fees and expenses. (vi) Legal expenses and consultant's fees; provided, however, that legal expenses shall not include the cost of negotiating leases, collecting rents, evicting 3 tenants nor shall it include costs incurred in legal proceedings with or against any tenant or to enforce the provisions of any lease. (vii) All insurance premiums and costs, including reasonable insurance deductibles and including but not limited to, the premiums and cost of fire, casualty and liability coverage and rental abatement and earthquake insurance (if Landlord elects to provide such coverage) applicable to the Building, Landlord's personal property used in connection therewith, and Landlord's employees. (viii) Repairs, replacements and general maintenance (excluding repairs and replacements paid by proceeds of insurance). (ix) All maintenance costs relating to public and service areas of the Building, including (but without limitation) sidewalks, landscaping, service areas, mechanical rooms and Building exteriors. (x) Amortization (together with reasonable financing charges) of capital improvement made to the Building subsequent to the initial construction of the building which will improve the operating efficiency of the Building or which may be required to comply with laws, ordinances, rules or regulations promulgated, adopted or enforced after completion of the initial construction of the Building and improvements of the Premises pursuant to Exhibit A. (xi) Costs paid for parking area maintenance, repairs or restoration or costs for these items paid pursuant to any reciprocal easement or similar agreement. (xii) All maintenance and repair costs pursuant to Article XII. MAINTENANCE. Operating Expenses shall not include the following: costs of improvements to the Premises and the premises of other tenants of the Building; charges for depreciation of the original cost of the Building; interest and principal payments on mortgages; ground rental payments; and salaries and other compensation of executive officers of the Manager senior to the individual building manager. Operating Expenses also exclude the following: (a) The cost (or the depreciation of the cost) of the original construction of the Building or any additions or expansions to the Common Areas or the Building (permitted capital expenses shall be capitalized and depreciated pursuant to generally accepted accounting principles with an imputed interest rate of 2% over the prime rate); (b) the cost of correcting any defects in the original construction of the Building; (c) any reserves for future expenditures not yet incurred; (d) ground lease rental; (e) costs incurred by Landlord for repair or restoration to the extent that Landlord is reimbursed by insurance or condemnation proceeds or that the same is covered by warranty; (f) costs, including permit, license and inspection costs incurred with respect to the installation of improvements made for tenants or other occupants or incurred in renovating or otherwise improving, decorating, painting or redecorating vacant space for tenants or other occupants; (g) attorneys' fees, leasing commissions and other costs and expenses incurred in connection with negotiations or disputes with present or prospective tenants or other occupants of the Building; (h) expenses in connection with services or benefits which are not offered to Tenant; (i) costs incurred by Landlord due to the negligence or misconduct of Landlord or its agents, contractors, licensees and employees or the violation by Landlord or any tenants or other occupants of the terms and conditions of another lease of space or other agreements including this Lease; (j) overhead and profit increment paid to landlord or to subsidiaries or affiliates of Landlord 4 for services to the extent the same exceeds the costs of such services rendered by other first-class unaffiliated third parties on a competitive basis; (k) interest, principal points and fees on debts or amortization on any mortgage or mortgages or any other debt instrument encumbering all or any portion of the Building or the real property upon which the Building is located; (1) any compensation paid to clerks, attendants or other persons in commercial concessions operated by Landlord; (m) items and services for which Tenant or any other tenant reimburses Landlord or which Landlord provides exclusively to one or more tenants (other than Tenant) but not all tenants without reimbursement; (n) advertising and promotional expenditures in connection with leasing the Building, and costs of the installation of signs identifying the owner and/or manager of the Building; (o) electric power costs for which any tenant or occupant directly contracts with the local public service company; (p) any costs relating to hazardous materials, asbestos and the like not resulting from actions of Tenant and which are not incidental to the operation of a typical suburban office building; (q) charitable contributions; (r) off-site traffic lights; (t) any charge for Landlord's income taxes, excess profit taxes, or franchise taxes; (v) the cost of any electric current or other utility furnished to any leaseable area of the Building; and (w) there shall be no duplication in charges to Tenant by reason of the provision in this Lease setting forth Tenant's obligation to reimburse Landlord for common area expenses and any other provision herein. d. Intentionally deleted e. "Taxes" shall mean all federal, state and local governmental taxes, assessments and charges (including transit, transit district, or business district taxes, charges, surcharges, or assessments) of every kind or nature, whether general, special, ordinary or extraordinary, which Landlord shall pay or become obligated to pay because of or in connection with the ownership, leasing, management, control or operation of the Building and the Land. For purposes hereof, Taxes for any year shall be Taxes which are due for payment or paid in that year, and shall include any interest on assessments payable in installments. Taxes shall not include any capital stock, inheritance, general income, gift or estate taxes, except that if a change occurs in the method of taxation resulting in whole or in part in the substitution of any such taxes, or any other assessment, for any Taxes as above defined, such substituted taxes or assessments shall be included in the Taxes. f. Intentionally deleted g. Intentionally Deleted. h. Intentionally Deleted. i. Intentionally deleted 2. ADJUSTMENTS TO ANNUAL BASE RENT Commencing November 1, 2001 and each year thereafter(including any and all option periods), Annual Base Rent shall be increased (but not decreased)by an amount equal to Tenant's pro rata share of the difference between the sum of the Operating and Tax Expenses for the year in question and the sum of the Operating and Tax Expenses for the "Base Year." The "Base Year" shall be the fiscal year November 1, 2000 through October 31, 2001. Base Year Taxes shall be based upon the tax assessment for the calendar year 2000. For services and other Operating Expense items which are provide to Tenant exclusively (including, but not limited to, janitorial service and HVAC maintenance repair), Tenant's pro rata share shall be 100%. For 5 services and Operating Expense items which are provided for the benefit of other tenants in the Building, Tenant's pro rata share shall be fairly and equitably determined which determination may be based upon square footage of space occupied by tenants in the Building; provided, however, it will be 75% so long as Outback Steakhouse is occupying the remainder of the Building other than a small space next to the Outback space occupied by the Landlord. 3. PROJECTIONS For purposes of calculating Taxes and Operating Expenses for any year, Landlord may make reasonable estimates, forecasts or projections (collectively, the "Projections") of Taxes and Operating Expenses for such year. Landlord shall deliver to Tenant a written statement (i) setting forth the Projections of Operating Expenses and Taxes for the year in question and (ii) providing a calculation of the increase in installments of Annual Base Rent to become effective for said year; provided, however, that the failure of Landlord to provide any such statement shall not relieve Tenant from its obligation to continue to pay Adjusted Annual Base Rent at the rate then in effect under this Lease, and if and when Tenant receives such statement from Landlord, Tenant shall pay any increases in Annual Base Rent reflected thereby effective retroactively to the beginning of the year. 4. READJUSTMENTS Within 120 days following the end of each year, or at such earlier time as Landlord shall be able to determine the actual amounts of Operating Expenses and Taxes for the year last ended, Landlord shall notify Tenant in writing of such actual amounts and copies of appropriate back up such as the paid tax bill and a reasonably detailed breakdown of operating expenses. If such actual amounts exceed the Projections for such year, then Tenant shall, within 30 days after the date of such written notice from Landlord, pay to Landlord an amount equal to the excess of the Adjusted Annual Base Rent payable for the year last ended based upon actual Operating Expenses and Taxes for such year over the total Adjusted Annual Base Rent paid by Tenant during such year. The obligation to make such payments shall survive the expiration or earlier termination of the Term. If the total Adjusted Annual Base Rent paid by Tenant during such year exceeds the amount payable for such year based upon actual Operating Expenses and Taxes for such year, then Landlord shall credit such excess to installments of Adjusted Annual Base Rent or payable after the date of Landlord's notice until such excess has been exhausted, or if this Lease shall expire prior to full application of such excess, Landlord shall pay to Tenant the balance thereof not previously applied against Rent. No interest or penalties shall accrue on any amounts which Landlord is obligated to credit or pay to Tenant by reason of this Section. 5. BOOKS AND RECORDS Landlord shall maintain books and records showing Operating Expenses and Taxes in accordance with sound accounting and management practices, which records shall be available to Tenant for inspection at the offices of Landlord upon reasonable prior notice. E. Tenant shall pay all sums of money required to be paid pursuant to the terms of this Article V and all other sums of money or charges required to be paid by Tenant under this Lease without set off or deduction. The term "Rent" in this Lease shall be defined to include the Base Annual Rent and all other charges payable by Tenant to Landlord under this Lease. If such amounts or charges are not paid at the time 6 provided in this Lease, they shall nevertheless be collectible with the next installment of Base Annual Rent and Landlord shall have all of the rights available to it at law and equity for the collection of rent to collect such overdue amounts. Landlord's obligations under this Lease are deemed to be independent covenants and not condition precedent to Tenant's obligations under this Lease, including Tenant's obligation to pay Annual Base Rent and all other charges. VI. SECURITY DEPOSIT: INTENTIONALLY DELETED VII. UTILITIES AND SERVICES During the term of this Lease, the following utilities shall be furnished to or for the benefit of the Premises. A. ELECTRIC AND GAS: Tenant shall, at its own cost and expense, contract directly with the public utility for the electrical and gas service and shall pay for all electricity and gas consumed in the Premises. B. HEATING AND AIR CONDITIONING: Landlord shall maintain and repair the heating and air conditioning equipment in the Premises as may be required in Landlord's reasonable judgement. The costs in connection therewith shall be an Operating Expense pursuant to Section V.D. The costs of utilities consumed in the operation of the HVAC system will be paid by Tenant directly to the public utility. Whenever heat generating machines, lighting, equipment, etc. are used in the Premises which affect the temperature otherwise maintained by the air conditioning system, Landlord reserves the right to install supplementary air conditioning units in the Premises or provide additional conditioned air to the Premises, and the cost (including the cost of installation, operation and maintenance) shall be paid by Tenant to Landlord upon demand. C. WATER AND TOILET SERVICE: Landlord shall provide drinking water and toilet facilities in such locations in the Building as Landlord shall determine for use by Tenant, its employees and customers. Tenant shall contract directly with the water and sewer utility companies and pay all water and sewer bills. If the water and/or sewer account cannot be transferred into Tenant's name, Landlord will pay the water and/or sewer charges for the Premises and Tenant will reimburse Landlord for these charges. D. JANITORIAL: Landlord shall provide janitorial services to the Premises substantially similar to those provided in other office buildings charging comparable aggregate rent in St. Louis. Tenant shall provide its own interior and exterior window washing. E. ELEVATOR SERVICE: Landlord shall provide passenger elevator service in such manner as Landlord shall reasonably determine. Tenant shall comply with all reasonable rules and regulations for elevator service. F. PHONE SERVICE: Telephone service and its costs shall be the responsibility of Tenant. G. SECURITY: Tenant shall be responsible for providing at its expense any and all security services and devices which it requires or desires. H. PARKING: Landlord acknowledges that the Tenant's right to the use of adequate parking for Tenant's use under the Richmond Heights Zoning Code is a 7 material inducement to Tenant to enter into this Lease and Landlord grants to Tenant the non-exclusive right to the use of 136 parking spaces during the term of its Lease or any extension thereof. Tenant's parking shall be limited to the non-exclusive use of the 136 parking spaces identified on Exhibit C-3 to the Interim Parking and Easement Agreement (the "IPEA") recorded in Book 9066 at page 1126 of the St. Louis county Records (a copy of which Exhibit is attached hereto as Exhibit D). Landlord represents that, other than Outback Steakhouse or another tenant utilizing the portion of the Building presently used by Outback Steakhouse, no other Disproportionate User (as defined in the IPEA) shall be permitted in the Building. In addition, Landlord shall not lease any space in the Building to a movie theater, bowling alley, pool hall, skating rink, adult entertainment facility, health club, fitness center, video or other game room. In the event Landlord breaches the representations or covenants herein contained or if the parking described above is not available to Tenant, Tenant may terminate this Lease; provided, however, in the event Landlord is able to secure substitute parking in the immediate vicinity of the Premises or in a location reasonably acceptable to Tenant of not less than the spaces required by the Richmond Heights Missouri Zoning Code within fourteen (14) days of notice from Tenant, Tenant shall not have the termination right contained herein. I. NON-LIABILITY: Landlord shall not be liable for, and Tenant shall not be entitled to, any damages or abatement or reduction of rent by reason of Landlord's failure to furnish any utilities or services when such failure is caused by accidents, breakage, repairs, strikes, lockouts or other labor disturbances or labor disputes of any character, or by any other cause similar or dissimilar, beyond the reasonable control of Landlord, nor shall such interruption be construed as a constructive or other eviction of Tenant. Landlord shall not be liable under any circumstances for lost profits or other consequential damages. through or in connection with or incidental to failure to furnish any utilities and/or services, or due to other acts or omissions of Landlord, its employees, agents or contractors. Tenant's sole remedy shall be an abatement of rent and other rental charges and for direct damages. Tenant has the right to obtain business interruption insurance or such other policies as may be necessary to protect Tenant against such risks. All policies shall contain a waiver of subrogation endorsement whereby the insurance companies agree to waive their claims against Landlord, its affiliates, subsidiaries, employees, officers and directors. J. ADDITIONAL SERVICE: Landlord shall in no event be obligated to furnish any services or utilities, other than those specified above. If Landlord elects to furnish services or utilities requested by Tenant in addition to those specified above, Tenant shall pay Landlord's then prevailing rates for such services and utilities, within 10 days after receipt of Landlord's invoices thereof. If Tenant shall fail to make any such payment, Landlord may, without notice to Tenant and in addition to Landlord's other remedies under this Lease, discontinue any or all of the additional services. No discontinuance of any service pursuant to this section shall result in any liability of Landlord to Tenant or be deemed to be an eviction or a disturbance of Tenant's use of the Premises. 8 IX. POSSESSION, USE, AND ENJOYMENT A. POSITIVE OBLIGATIONS: 1. The Premises shall be used and occupied by Tenant for general office purposes only and for no other purpose without the prior written consent of Landlord. The Premises shall not be used for intense purposes which require high numbers of personnel for available space such as a call center. The Outback Steakhouse lease requires Tenant to agree to the following use restrictions: Tenant agrees not to use, or permit the use, of the Premises or any portion thereof, for a full service restaurant, or any facility owning an on-premises wine, beer or liquor license. Tenant agrees not to use, or permit the use, of the Premises or any portion thereof, for the operation of a movie theater, bowling alley, pool hall, skating rink, adult entertainment facility, health club, fitness center, video or other game room, video store or theater. 2. Tenant shall at its sole cost and expense promptly comply with all laws, statutes, ordinances and governmental rules, regulations or requirements now in force or which may hereafter be in force and with the requirements of any board of fire underwriters or other similar body now or hereafter constituted relating to or affecting the condition, use or occupancy of the Premises, excluding structural changes not relating to or required by the condition, use or occupancy of the Premises, or otherwise not related to or otherwise required by Tenant's improvements or acts. B. NEGATIVE OBLIGATIONS: 1. Tenant shall not do or permit anything to be done in or about the Premises nor bring or keep anything therein which will in any way increase the existing rate or affect any fire or other insurance upon the Building or any of its contents (unless Landlord approves such acts or use and Tenant agrees to pay any increased premium as a result of such acts or use), or cause a cancellation of any insurance policy covering said Building or any part thereof or any of its contents, nor shall Tenant sell or permit to be kept, used or sold in or about said Premises any articles which may be prohibited by a standard form policy of fire insurance. 2. Tenant shall not do or permit anything to be done in or about the Premises which will in any way obstruct or interfere with the rights of other tenants or occupants of the Building or injure or annoy them or use or allow the Premises to be used for any unlawful or objectionable purpose, nor shall Tenant cause, maintain or permit any nuisance in or about the Premises. Tenant shall not commit or suffer to be committed any waste in or upon the Premises. 3. Tenant shall not use the Premises or permit anything to be done in or about the Premises which will in any way conflict with any applicable statute, ordinance or governmental rule or regulation or requirement of duly constituted public authorities now in force or which may hereafter be enacted or promulgated. 4. Tenant shall not do anything in the Premises or Building which would tend to injure the reputation of the Building. 9 5. Tenant shall not install anything in the Premises which the floor cannot properly support. 6. Tenant shall permit no pickets or other labor disturbance in the Building or which block access to the Building. 7. Tenant shall not store, use, handle, transport or dispose of any hazardous substances (including any petroleum product) of any type or nature, as may be defined by any governmental or agencies' law, order, regulation or standard except those which are reasonably required and are customarily used in offices. Tenant covenants all such substances shall be handled, used, transported, processed and disposed of in accordance with all applicable federal, state and local environmental laws, regulations, standards and ordinances. Tenant shall be solely responsible for obtaining and complying with all permits required for handling, use, transportation, processing and disposal of such substances and shall hold all such permits in Tenant's own name. Tenant shall indemnify, defend and hold Landlord harmless from any and all claims, costs, expenses and causes of action, liabilities, judgments and orders, including attorneys' fees, arising out of Tenant's actual or alleged violation of any such law, standard or permit and shall remove all hazardous substances from the Premises at the end of the term and leave the Premises in clean condition, without any contamination from hazardous substances whatsoever. Tenant's obligations under this indemnity shall survive the termination of the Lease. This provision shall be strictly construed against Tenant. 8. Tenant shall not, without Landlord's prior consent, install in the Premises any machinery which is attached to or becomes part of the Premises including, but not limited to, HVAC equipment, industrial coolers. or vaults. Landlord's consent shall not be unreasonably withheld. X. COVENANT OR QUIET ENJOYMENT So long as Tenant shall not be in default under this Lease, Tenant shall be entitled to peaceful and quiet enjoyment of the Premises, subject to the terms of this Lease. XI. ASSIGNMENT AND SUBLETTING A. Without the prior written consent of Landlord, not to be unreasonably withheld, Tenant shall not assign, mortgage, pledge, hypothecate or otherwise transfer or permit the transfer of this Lease or the interest of Tenant in this Lease, in whole or in part, by operation of law or otherwise. Tenant shall not sublet the Premises or any portion thereof without Landlord's prior written consent which may be withheld in Landlord's sole discretion. If Tenant desires to enter into any assignment of the Lease or sublease of the Premises, Tenant shall deliver written notice thereof to Landlord, together with a copy of the proposed assignment or sublease agreement at least 60 days prior to the commencement date of the term of the proposed assignment or sublease. In making its determination of whether to consent to any proposed assignment Landlord may take into consideration the business reputation and credit worthiness of the proposed assignee, the intended use of the Premises by the proposed assignee, the estimated pedestrian and vehicular traffic in the Premises and to the Building which would be generated by the proposed assignee, the hours of operation of the proposed assignee, the density of the employees (e.g. call centers) of the proposed assignee, and any other factors which Landlord shall deem relevant. Any approved assignment or sublease shall be expressly subject to the terms and conditions of this Lease, and Tenant shall pay Landlord any consideration received by the Tenant from the assignee or subtenant for the entering into of the assignment or sublease and in addition thereto on the first day of each month during the term of the assignment or sublease, the excess of all rent and other consideration due from the assignee 10 or subtenant for such month over the Annual Base Rent due under this Lease for said month (proportionately adjusted in the event of a sublease of a portion of the Premises). B. In the event of any sublease or assignment, Tenant shall not be released or discharged from any liability, whether past, present or future, under this Lease, including any renewal term of this Lease. C. In the event Landlord shall consent to a sublease or assignment, Tenant shall pay Landlord's reasonable attorney's fees and other reasonable expenses incurred in connection with giving such consent, not to exceed $1,500.00. D. If Tenant or the Guarantor of this Lease, if any, is a corporation the stock of which is not traded on any national securities exchange or nationally in the National Association of Securities Dealers over the counter market, then the following shall constitute an assignment of this Lease for all purposes of this Section: (i) the merger, consolidation or reorganization of such corporation; and/or (ii) the sale, issuance, or transfer, cumulatively or in one transaction, of any voting stock, by Tenant or the Guarantor of this Leases or the stockholders of record of either as of the date of this Lease, which results in a change in the voting control of Tenant or the Guarantor of this Lease, except any such transfer by inheritance or testamentary disposition. If Tenant or the Guarantor of this Lease, if any, is a joint venture, partnership, limited liability company, or other association, then for all purposes of this Section, the sale, issuance or transfer, cumulatively or in one transaction, of either voting control or of a twenty-five percent (25%) interest, or the termination of any joint venture, partnership, limited liability company or other association, shall constitute an assignment, except any such transfer by inheritance or testamentary disposition. E. Notwithstanding anything to the contrary contained elsewhere in this Article XI, the Tenant may, without Landlord's prior consent: (i) Assign or sublease this Lease, or sublet all or any part of the Premises to its parent corporation or to any affiliate of Tenant. As used in this subsection: the term "parent" means any entity that controls Tenant; and the term "affiliate" means any entity which is directly or indirectly controlled by or controlling any parent or subsidiary of Tenant. The terms "control" and "controlled by" and "controlling" shall have the meanings given those terms under the federal securities laws. Such assignee or sublessee shall remain the parent or affiliate of Tenant, as the case may be, throughout the remainder of the Lease term. (ii) Assign or sublease this Lease to any corporation into which or with which Tenant or its parent may merge or to any corporation or other business entity or to any company which may result from a reorganization or consolidation by or with Tenant, or to which Tenant shall sell all or substantially all of its assets r all or substantially all of its corporate shares, provided that such resulting corporation or assignee or sublease corporation in the case of a sale to a third party is a reputable retailer with experience in operating restaurants and has a net worth equal to or greater than Tenant's net worth as of the date of this Lease and the date of the assignment or subletting. It shall be a condition of any assignment, other transfer, or subletting permitted under this Article XI that the assignee, transferee, or tenant agree directly with the Landlord, in form reasonably satisfactory to the Landlord, to be bound by all Tenant obligations hereunder, including, without limitation, the obligation to pay Rental and other amounts provided for 11 under this Lease and the covenant against further assignment or other transfer or subletting. As an additional condition, the transferring Tenant shall remain jointly and severally liable for all Tenant obligations hereunder, including, without limitation, the obligation to pay the Rental and other amounts provided for under this Lease and the covenant against further assignment or other transfer or subletting. Tenant shall give Landlord thirty (30) days prior written notice of any such assignment or sublease, which notice contains all information and documentation Landlord requires to satisfy itself as to the above three (3) conditions; and shall give Landlord a copy of the executed sublease or assignment agreement within fifteen (15) days after the execution thereof. (F) Any rents received from any permitted assignee or sublessee in excess of the rents reserved hereunder shall be paid by Tenant to Landlord as consideration for the right to assign or sublet. Such rents shall not include consideration reasonably attributable to goodwill, inventory, furniture or equipment or the Unamortized Cost of Tenant's Work (after deducting the amount of the Construction Allowance). (G) Anything herein to the contrary notwithstanding, Landlord's consent shall not be required for any public offering of stock in Tenant or its Guarantor through a nationally recognized exchange. XII. MAINTENANCE A. Landlord's Obligations: Landlord shall maintain the entrance, exterior, roof, structural elements, parking lot, common areas outside the building structure, landscaped areas, the interior of the Premises which Landlord constructed including ceilings, light fixtures, walls, floor slab, all doors, exterior windows, all plumbing pipes, electrical wiring, heating, ventilating and air conditioning equipment, and switches, in a first class condition in such manner as Landlord in its sole discretion shall determine. All of Landlord's maintenance and repair expenses shall be treated as Operating Expenses under Section V.D. of this Lease. Tenant shall reimburse Landlord for the cost of performing any of said maintenance or repairs caused by the negligence or improper acts or omissions of Tenant, its employees, agents, subtenants, contractors or invitees. B. Tenant's Obligations: Notwithstanding anything in subsection A. above, Tenant at Tenant's sole cost and expense shall maintain, repair and replace as may be necessary all portions of the Premises constructed by Tenant as described in Exhibit A of this Lease, including without limitation the floor and wall coverings, interior glass, painting, replacement of bulbs and ballasts, and keeping plumbing lines clear to the point of connection with the common sewer main. Tenant expressly waives the benefits of any statute now or hereafter in effect which would otherwise afford Tenant the right to make repairs at Landlord's expense or to terminate this Lease because of Landlord's failure to keep the Premises in good order, condition and repair. C. Compliance with Law. Landlord and Tenant shall each do all acts required to comply with all applicable laws, ordinances, regulations and rules of any public authority relating to their respective maintenance obligations as set forth herein. D. Operating Expense Limitations. (1) The building, of which the Premises are a part, will be managed by a management company selected by Landlord and Operating Expense services will be performed by third parties selected by Landlord. Landlord estimates that for the Base Year (November 2000 - October 31, 2001), Operating Expenses will be in a range of $3.50 to $5.50 per square foot (exclusive of real estate taxes, utilities or insurance). 12 (2) If, in Tenant's reasonable business judgment, Operating Expenses increase excessively during a Lease Year, Tenant will notify Landlord, describing in detail the increase or increases, and Landlord will work with the Tenant to resolve Tenant's concern which will include, but not be limited to, securing two competitive bids for the service or services which are in question. (3) During any Lease Year if, in Tenant's reasonable judgment, Landlord fails to provide the services which it is required to provide under the terms of the Lease, Tenant shall notify Landlord in writing, describing in detail the problem with the service or services and Landlord shall have thirty (30) days thereafter in which to remedy the problem. XIII. INITIAL CONSTRUCTION AND ALTERATIONS Tenant shall not, without the prior written consent of Landlord, make or cause to be made any alterations, improvements, additions or installations ("ALTERATIONS") in or to the Premises. If any proposed ALTERATION is of such a nature that the cost of its removal and/or restoring the Premises for future use or releasing would be material, Landlord may withhold its consent to such ALTERATION unless Tenant agrees to remove such ALTERATION and restore the physical integrity of the Premises at the end of the term. If Landlord so consents, before commencement of any such work or delivery of any materials into the Premises or the Building, Tenant shall furnish to Landlord for approval architectural plans and specifications, names and addresses of all contractors, copies of all contracts, necessary permits and licenses, certificates of insurance against any and all claims, costs, expenses, damages and liabilities which may arise in connection with Tenant's work in the Premises, all in such form and amount as may be satisfactory to Landlord. Tenant agrees to indemnify, defend and hold Landlord, its mortgagees, the managing agent and their respective agents and employees forever harmless against all injuries, damages, claims and liabilities of every kind, nature and description which may arise out of or in any way be connected with such work. All such work shall be done only by contractors or mechanics approved by Landlord (which approval shall not be unreasonably withheld). Tenant shall pay the cost of all such work and the cost of decorating the Premises and the Building occasioned thereby. Upon completion of such work, Tenant shall furnish Landlord with contractors', subcontractors', and material suppliers' affidavits and full and final waivers of lien covering all labor and materials expended and used in connection therewith. All such work shall be in accordance with all applicable legal, governmental and quasi-governmental requirements, ordinances and rules (including the Board of Fire Underwriters), and all requirements of applicable insurance companies. All such work shall be done in a good and workmanlike manner and with the use of good grades of materials. Tenant shall permit Landlord, if Landlord so desires, to inspect construction in connection with such work; provided, however, that such inspection or right to inspect by Landlord or approval of plans by Landlord shall not constitute any warranty by Landlord to Tenant or third parties of the adequacy of the design, workmanship or quality of such work or materials for Tenant's intended use or impose any liability upon Landlord in connection with the performance of such work. All alterations, improvements, additions and permanent installations to or on the Premises (other than safes and vaults which shall remain the property of the Tenant and shall be removed from the Premises at the end of the term) shall become part of the Premises at the time of their installation and shall remain in the Premises at the expiration or termination of this Lease, or termination of Tenant's right of possession of the Premises, without compensation or credit to Tenant. 13 XIV. LIENS Tenant shall not permit any lien or claim for lien of any mechanic, laborer or supplier or any other lien to be filed against the Building, the land upon which the Building is situated, the Premises, or any part thereof arising out of work performed, or alleged to have been performed by, or at the direction of, or on behalf of Tenant. If any such lien or claim for lien is filed, Tenant immediately either shall have such lien or claim for lien released of record or shall deliver to Landlord a bond in form, content, amount, and issued by surety satisfactory to Landlord indemnifying Landlord, its mortgagees and others designated by Landlord against all costs and liabilities resulting from such lien or claim for lien and the foreclosure or attempted foreclosure thereof. If Tenant fails to have such lien or claim for lien so released or to deliver such bond to Landlord, Landlord, without investigating the validity of such lien, may pay or discharge the same and Tenant shall reimburse Landlord upon demand for the amount so paid by Landlord, including Landlord's reasonable expenses and reasonable attorney's fees. XV. INDEMNITY AND WAIVER After delivery of the Premises and continuing during the term of this Lease, Tenant agrees to defend, indemnify and hold harmless Landlord, any mortgagee, ground lessor, Landlord's managing agent, Landlord's broker and their respective agents and employees, against any and all injuries, damages, claims, demands, costs and expenses of every kind and nature (including attorneys' fees), including those arising from any injury or damage to any person, property or business: (a) sustained in or about the Premises, (b) resulting from the negligence of Tenant, its employees, agents, servants, invitees, licensees or subtenants, or (c) resulting from the failure of Tenant to perform its obligations under this Lease; provided, however, Tenant's obligations under this section shall not apply to injury or damage resulting from the sole negligence of Landlord, any mortgagee or ground lessor, Landlord's managing agent, Landlord's broker or their respective agents and employees, or the failure of Landlord to perform its obligations hereunder. If any such proceeding is brought against Landlord or the parties listed above or their respective agents or employees, Tenant covenants to defend such proceeding at its sole cost by legal counsel reasonably satisfactory to Landlord. Subject to the above paragraph, Landlord agrees to defend, indemnify and hold harmless Tenant and its respective agents and employees, against any and all injuries, damages, claims, demands, costs and expenses of every kind and nature (including attorneys' fees), arising from any injury or damage to any person, property or business resulting from the negligence of Landlord, its employees, agents, or contractors, or resulting from the failure of Landlord to perform its obligations under this Lease. If any such proceeding is brought against Tenant or its respective agents or employees, Landlord covenants to defend such proceeding at its sole cost by legal counsel reasonably satisfactory to Tenant. Unless caused by the sole negligence of Landlord, any mortgagee or ground lessor, Landlord's managing agent, Landlord's broker or their respective agents and employees, or the failure of Landlord to perform its obligations hereunder, Landlord shall not be liable or responsible for any personal property of Tenant, or of employees, agents, customers or other invitees of Tenant, wherever located in or about the Premises of the Building, and shall not be liable for any damage to or loss of such personal property arising from any act or neglect of any other tenants of the Building or their employees, customers, agents, or other invitees, or any other persons, or from the bursting, running, over-flowing, or leaking of any tank, sewer, water pipe, stream pipe or boiler, or from heating or plumbing fixtures or from electric wires or from gas or odors in 14 or about the Premises or in or about the building. Tenant acknowledges that portions of the Premises are under the Outback Steakhouse restaurant and that leakage may, from time to time, occur. Tenant shall not store high value items in this area and shall take necessary precautions against occasional leakage. All of Tenant's property stored in the unfinished portion of the basement will be at the sole risk of Tenant and Tenant shall make no claim against Landlord or its employees or officers on account of damage to such property. To the full extent permitted by law, Tenant hereby releases and waives all claims against Landlord, any mortgagee or ground lessor, Landlord's managing agent and their respective agents and employees for injury or damage to persons, property or business sustained in or about the Building or Premises by Tenant, its agents, employees or invitees due to lack or failure of security. XVI. DEFAULT A. EVENTS OF DEFAULT Each of the following shall constitute a breach of this Lease by Tenant: Tenant's failure to pay any installment of Rent within ten (10) days after written notice that such payment is overdue (Tenant acknowledges that Base Rent is due on the first of the month and that this provision shall not be construed to allow Tenant an additional 10 days each month to pay Base Rent); Tenant's failure to observe or perform any of the other covenants, conditions or provisions of this Lease to be observed or performed by Tenant and such default is not cured within thirty (30) days after written notice thereof to Tenant (or if more than thirty (30) days shall be required because of the nature of the default, if Landlord shall fail to proceed diligently to cure such default after written notice thereof); the interest of Tenant in this Lease being levied upon under execution or other legal process; the filing of a petition by or against Tenant to declare Tenant bankrupt, or seeking a plan of reorganization or arrangement under any Chapter of the Bankruptcy Act and the same is not dismissed within sixty days thereafter, or any amendment, replacement or substitution therefor, or to delay payment of, reduce or modify Tenant's debts, or any other action taken to reorganize or modify Tenant's capital structure, or for the dissolution of Tenant; the declaration or finding that Tenant is insolvent by law; any assignment of Tenant's property for the benefit of creditors; the appointment of a receiver for Tenant or Tenant's property; or the abandonment of the Premises. B. LANDLORD'S REMEDIES In the event of any breach of this Lease by Tenant, Landlord, at its option, without further notice or demand to Tenant, may in addition to all other rights and remedies provided in this Lease, at law or in equity: (a) terminate this Lease and Tenant's right of possession of the Premises, and recover immediately the amount by which all current and future rent and all other charges and monetary obligations due hereunder during the remainder of the original lease term exceeds the amount of such rental loss that Tenant proves could be reasonably avoided, and all other damages to which Landlord is entitled under law, specifically including, without limitation, all Landlord's expenses of reletting (including repairs, alterations, improvements, additions, decorations, legal fees and brokerage commissions), or (b) terminate Tenant's right of possession of the Premises without terminating this Lease, in which event Landlord may, but shall not be obligated to, relet the Premises, or any part thereof for the account of Tenant, for such rent and term and upon such terms and conditions as are acceptable to Landlord. For purposes of such reletting, Landlord is authorized to decorate, repair, alter and improve the Premises to the extent reasonably necessary. If a sufficient sum not be realized therefrom after payment of all Landlord's expenses of reletting (including repairs, 15 alterations, improvements, additions, decorations, legal fees and brokerage commissions) to satisfy the payment when due of Rent and other charges reserved under this Lease for any monthly period, then Tenant shall pay Landlord, a sum equal to the amount of Rent and other charges due under this Lease for each such monthly period, or if the Premises have been relet, Tenant shall pay any such deficiency monthly. Tenant agrees that Landlord may file suit to recover any sums due to Landlord hereunder from time to time and that such suit or recovery of any amount due Landlord hereunder shall not be any defense to any subsequent action brought for any amount not theretofore reduced to judgment in favor of Landlord. In the event Landlord elects, pursuant to this subsection (b), to terminate Tenant's right of possession only without terminating this Lease, Landlord may, at Landlord's option, enter into the Premises, remove Tenant's signs and other evidences of tenancy, and take and hold possession thereof, provided, however, that such entry and possession shall not terminate this Lease or release Tenant, in whole or in part, from Tenant's obligation to pay the Rent reserved hereunder for the full Term or from any other obligation if Tenant under this Lease. At any time thereafter Landlord may elect to terminate this Lease and be entitled to damages as provided above. C. LANDLORD'S DEFAULT In the event Landlord shall neglect or fail to perform or observe any of the covenants, provisions or conditions contained in this Lease on its part to be performed or observed within thirty (30) days after written notice of default (or if more than thirty (30) days shall be required because of the nature of the default, if Landlord shall fail to proceed diligently to cure such default after written notice thereof), then in that event Landlord shall be responsible to Tenant for any and all direct damages (but not consequential or speculative damages) sustained by Tenant as a result of Landlord's breach. If the Building or any part thereof are at any time subject to a ground lease, mortgage or a deed of trust and Tenant is give written notice thereof, including the address of such party, then Tenant shall give written notice to such party of any default by Landlord, specifying the default in reasonable detail and affording such party a reasonable opportunity to make performance for and on behalf of Landlord. If and when the said party has made performance on behalf of Landlord such default shall be deemed cured. XVII. BANKRUPTCY OR INSOLVENCY A. In the event the Tenant shall become a Debtor under Chapter 7 of the Bankruptcy code, and the Trustee or Tenant shall elect to assume this Lease for the purpose of assigning the same or otherwise, such election and assignment may only be made if all of the terms and conditions of "B" and "D" hereof are satisfied. If such Trustee shall fail to elect or assume this Lease within sixty (60) days after filing of the Petition, this Lease shall be deemed to have been rejected. Landlord shall be thereupon immediately entitled to possession of the Premises without further obligation to Tenant or Trustee, and this Lease shall be canceled, but Landlord's right to be compensated for damages in such liquidation proceeding shall survive. B. In the event that a Petition for reorganization or adjustment of debts is filed concerning Tenant under Chapter 11 or 13 of the Bankruptcy Code, or a proceeding is filed under Chapter 7 of the Bankruptcy Code and is transferred to Chapters 11 or 13, the Trustee or Tenant, as Debtor-In-Possession, must elect to assume this Lease within seventy-five (75) days from the date of filing of the Petition under Chapters 11 or 13, or the Trustee or Debtor-In-Possession shall be deemed to have rejected this Lease. No 16 election by the Trustee or Debtor-In- Possession to assume this Lease, whether under Chapters 7, 11, or 13, shall be effective unless each of the following conditions, which Landlord and Tenant acknowledge are commercially reasonable in the context of a bankruptcy proceeding of Tenant, have been satisfied, and Landlord has so acknowledged in writing: 1. The Trustee or the Debtor-In-Possession has cured, or has provided Landlord adequate assurance (as defined below) that: a. Within ten (10) days from the date of such assumption, the Trustee will cure all monetary defaults under this Lease; and, b. Within thirty (30) days from the date of such assumption, the Trustee will cure all non-monetary defaults under this Lease. 2. The Trustee or the Debtor-In-Possession has compensated, or has provided to Landlord adequate assurance (as defined below) that within ten (10) days from the date of assumption, Landlord will be compensated for any pecuniary loss incurred by Landlord arising from the default of Tenant, the Trustee, or the Debtor-In-Possession as recited in Landlord's written statement of pecuniary loss sent to the Trustee or Debtor-In-Possession. 3. The Trustee or the Debtor-In-Possession has provided Landlord with adequate assurance of the future performance of each of Tenant's, Trustee's or Debtor-In-Possession's obligations under this Lease, provided, however, that: a. The Trustee or Debtor-In-Possession shall also deposit with Landlord as security for the timely payment of rent, an amount equal to three (3) months rent and other monetary charges accruing under this Lease; and, b. If not otherwise required by the terms of this Lease, the Trustee or Debtor-In-Possession shall also pay in advance on the date Base Annual Rent is payable and in monthly installments thereafter amounts equal to in one-twelfth (1/12th) of Tenant's annual obligations under this Lease for operations and maintenance charges, electric charges, taxes and other similar charges. c. The obligations imposed upon the Trustee or Debtor-In-Possession shall continue with respect to Tenant or any assignee of the Lease after the completion of bankruptcy proceedings. 4. The assumption of the Lease will not: a. Breach any provision in any other lease, mortgage, financing agreement or other agreement by which Landlord is bound relating to the Building; or, b. For purposes of this Article, Landlord and Tenant acknowledge that, in the context of a bankruptcy proceeding of Tenant, at a minimum "adequate assurance" shall mean: (i) The Trustee or the Debtor-In-Possession has and will continue to have sufficient unencumbered assets after the payment of all secured obligations and administrative expenses to assure Landlord that the Trustee or Debtor-In-Possession will have sufficient funds to fulfill the obligations of Tenant under this Lease, and to keep the Premises properly staffed with sufficient employees to conduct a fully-operational business on the Premises; and, 17 (ii) The Bankruptcy Court shall have entered an Order segregating sufficient cash payable to Landlord and/or the Trustee or Debtor-In-Possession shall have granted a valid and perfected first lien and security interest and/or mortgage in property of Tenant, Trustee or Debtor-In-Possession, acceptable as to value and kind to Landlord, to secure to Landlord the obligation of the Trustee or Debtor-In-Possession to cure the monetary and/or non-monetary defaults under this Lease within the time periods set forth above. C. In the event that this Lease is assumed by a Trustee appointed for Tenant or by Tenant as Debtor-In-Possession under the provisions of Section "B" hereof and thereafter Tenant is liquidated or files a subsequent Petition for reorganization or adjustment of debts under Chapters 11 or 13 of the Bankruptcy Code, then, and in either of such events, Landlord may, at its option, terminate this Lease and all rights of Tenant hereunder, by giving Tenant written notice of its election to do so terminate by no later than thirty (30) days after the occurrence of either of such events. D. If the Trustee or Debtor-In-Possession has assumed the Lease pursuant to the terms and provisions of Sections A or B herein, for the purpose of assigning (or elects to assign) Tenant's interest under this Lease or the estate created thereby, to any other person, such interest or estate may be so assigned only if Landlord shall acknowledge in writing that the intended assignee has provided adequate assurance as defined in this Section D of future performance of all of the terms, covenants and conditions of this Lease to be performed by Tenant. For purposes of this Section D, Landlord and Tenant acknowledge that, in the context of a bankruptcy proceeding of Tenant, at minimum "adequate assurance of future performance" shall mean that each of the following conditions have been satisfied, and Landlord has so acknowledged in writing: 1. The assignee has submitted a current financial statement audited by a Certified Public Accountant which shows a net worth and working capital in amounts determined to be sufficient by Landlord to assure the future performance by such assignee of Tenant's obligations under this Lease; 2. The assignee, if requested by Landlord, shall have obtained guarantees in form and substance satisfactory to Landlord from one or more persons who satisfy Landlord's standards of creditworthiness; 3. Landlord has obtained all consents or waivers from any third party required under any lease, mortgage, financing arrangement or other agreement by which Landlord is bound to permit Landlord to consent to such assignment. E. When, pursuant to the Bankruptcy Code, the Trustee or Debtor-In- Possession shall be obligated to pay reasonable use and occupancy charges for the use of the Premises of any portion thereof, such charges shall not be less than the Annual Base Rent as defined in this Lease and other monetary obligations of Tenant for the payment of operation and maintenance charges, electric charges, taxes and similar charges. F. Neither Tenant's interest in the lease, nor any estate of Tenant hereby created, shall pass to any Trustee, receiver, assignee for the benefit of creditors, or any other person or entity, or otherwise by operation of law under the laws of any state having jurisdiction of the person or property of Tenant (herein- after referred to as the "state law") unless Landlord shall consent to such transfer in writing. No acceptance by Landlord of rent or any other payments from any such trustee, receiver, assignee, 18 person or other entity shall be deemed to have waived, nor shall it waive the need to obtain Landlord's consent of Landlord's right to terminate this Lease for any transfer of Tenant's interest under this Lease without such consent. G. In the event the estate of Tenant created hereby shall be taken in execution or by other process of law, or if Tenant or any guarantor of Tenant's obligations hereunder (hereinafter referred to as the "guarantor") shall be adjudicated insolvent pursuant to the provisions of any present or future insolvency law under state law, or if any proceedings are filed by or against the guarantor under the Bankruptcy Code, or any similar provisions of any future federal bankruptcy law, or if a Receiver or Trustee of the property of Tenant or the guarantor shall be appointed under state law by reason of Tenant's or the guarantor's insolvency or inability to pay its debts as they become due or otherwise, or if any assignment shall be made of Tenant's or the guarantor's property for the benefit of creditors under state law; then and in such event Landlord may, at its option, terminate this Lease and all rights of Tenant hereunder by giving Tenant written notice of the election to so terminate within thirty (30) days after the occurrence of such event. XVIII. SURRENDER AND HOLDING OVER Upon expiration or termination of this Lease or termination of Tenant's right of possession of the Premises, or any part thereof, Tenant shall surrender and vacate the Premises immediately and deliver possession thereof to Landlord in a clean, good and tenantable condition, ordinary wear and tear excepted. Notwithstanding anything in the Lease to the contrary, Tenant shall remove at its expense all safes and vaults and repair any damage caused by such removal. Upon any termination which occurs other than by reason of Tenant's default, Tenant shall be entitled to remove from the Premises all moveable personal property of Tenant, provided Tenant immediately shall repair all damage resulting from such removal. In the event possession of the Premises is not immediately delivered to Landlord or if Tenant shall fail to remove all of Tenant's moveable personal property, as aforesaid, Landlord may remove any of such property therefrom without any liability to Tenant. All movable personal property which may be removed from the Premises by Landlord shall be conclusively presumed to have been abandoned by Tenant and title thereto shall pass to Landlord without any cost or credit therefor and Landlord may, at its option and at Tenant's expense, store and/or dispose of such property. Tenant shall pay Landlord one and one-half times the adjusted Annual Base Rent then applicable for each month or portion thereof Tenant retains possession of the Premises, or any portion thereof, after the expiration or termination of this Lease, and also shall pay all damages sustained by Landlord by reason of such retention of possession. The provisions of this Article shall not constitute a waiver by Landlord of any re-entry rights of Landlord hereinbefore or by law provided. XIX. DAMAGE BY FIRE OR OTHER CASUALTY A. SUBSTANTIAL UNTENANTABILITY If the Building or the Premises are made substantially untenantable by fire or other casualty, Landlord may elect either to: (a) terminate this Lease as of the date of the fire or other casualty by giving Tenant written notice thereof within 90 days after said date; or (b) proceed to repair or restore the Building or the Premises, other than floor and wall treatment, and personal property paid for or installed by Tenant. Landlord shall not exercise its right to terminate this Lease pursuant to (a) above unless (i) the Premises are substantially destroyed, or (ii) the Premises are damaged to the extent of 19 20% of its replacement cost by a casualty not insured against or required to be insured against, or (iii) if the Premises are damaged to the extent of 20% of its replacement costs during the last 2 years of the Lease term. If Landlord elects to proceed pursuant to subsection (b) above, Landlord shall notify Tenant thereof within 90 days after the date of such fire or other casualty, which notice shall contain Landlord's reasonable estimate of the time required to substantially complete such repair or restoration. In the event such estimate indicates that the time so required will exceed 270 days from the date of the casualty, then Tenant shall have the right to terminate this Lease as of the date of such casualty by giving written notice thereof to Landlord not later than 20 days after the date of Landlord's notice. If Landlord's estimate indicates that the repair or restoration can be substantially completed within 270 days, or if Tenant fails to exercise its right to terminate this Lease, as aforesaid, this Lease shall remain in force and effect. If this Lease is not terminated Tenant shall restore all of the floor and wall covering, fixtures, carpeting, and personal property which it originally installed or paid for. Landlord, at its sole option, may elect to cause Tenant to make such repairs and restoration, in which event Tenant shall promptly complete the same and Landlord will make available to Tenant for the sole purpose of reconstruction of the Premises the insurance proceeds received by Landlord from its insurance carrier. In the event of any such reconstruction by Tenant, an architect duly registered in Missouri shall be selected by Landlord and shall direct the payment of such insurance proceeds. Such insurance proceeds shall be payable to Tenant only upon receipt by Landlord of certificates of said architect stating that the payments specified therein are properly payable for the purpose of reimbursing Tenant for expenditures actually made by Tenant in connection with such work. At the election of Landlord, direct payments may be made to material suppliers and laborers upon written certification by said architect that such payments are due and payable. Any such insurance proceeds in excess of Tenant's actual expenditures in restoring the damage or destruction shall belong to Landlord. B. INSUBSTANTIAL UNTENANTABILITY If the Premises or the Building are damaged by fire or other casualty but neither is rendered substantially untenantable, then Landlord shall proceed to repair and restore the Building or the Premises, other than the wall and floor covering and personal property paid for or installed by Tenant (which Tenant shall repair and restore), unless such damage occurs during the last 12 months of the Term, in which event Landlord shall have the right to terminate this Lease as of the date of such fire or other casualty by giving written notice thereof to Tenant within 30 days after the date of such fire or other casualty. C. RENT ABATEMENT If all or any part of the Premises are rendered untenantable by fire or other casualty and this Lease is not terminated, the Annual Base Rent and other charges shall abate for that part of the Premises which is untenantable calculated on a square foot and per diem basis from the date of the fire or other casualty until Landlord has substantially completed the repair and restoration work in the Premises which it is required to perform. 20 XXI. EMINENT DOMAIN A. TAKING OF WHOLE In the event the whole or any substantial part of the Building or the Premises is taken or condemned by any competent authority for any public use or purpose (including a deed given in lieu of condemnation), this Lease shall terminate as of the date title vests in such authority, and Annual Base Rent shall be apportioned as of said date. B. TAKING OF PART In the event a part of the Building or the Premises is taken or condemned by any competent authority for any public use or purpose (including a deed given in lieu of condemnation) and the Premises are no longer suitable for its business purpose, either Tenant or Landlord shall have the right to terminate this Lease effective the date of taking by giving the other party written notice within 30 days of the date of taking. In the event this Lease is not terminated; Landlord, upon receipt and to the extent of the award in condemnation or proceeds of sale allocated to the Premises in a fair and equitable manner, shall make necessary repairs and restorations to restore the Premises remaining to as near its former condition as circumstances will permit, and to the Building to the extent necessary to constitute the portion of the Building not so taken or condemned as a complete architectural unit. In the event of a partial taking or condemnation of the Premises and/or Building as herein provided, the rentable area of the Premises and/or Building as specified in this Lease shall be reduced for all purposes under this Lease by the number of square feet of rentable area of the Premises and/or Building so taken or condemned and Rent shall be proportionately reduced. C. COMPENSATION Landlord shall be entitled to receive the entire price or award from any such sale, taking or condemnation without any payment to Tenant, provided, however, Tenant shall have the right separately to pursue against the condemning authority an award in respect of the loss, if any, to fixtures and other personal property, unamortized cost of Tenant's leasehold improvements in excess of the Construction Allowance (amortization to be on a straight line basis over the initial term of the Lease) and for relocation expenses, provided such does not in any way reduce Landlord's award. XXII. INSURANCE A. Tenant, at Tenant's expense, agrees to maintain in force from the date the Premises are delivered to Tenant and continuing throughout the Term: (1) Comprehensive General Liability Insurance on an occurrence basis with minimum limits of liability in an amount equal to $3,000,000 combined single limit for bodily injury, personal injury or death to one or more person or persons and for damage to property, including water and sprinkler damage; and (2) Fire Insurance, with extended coverage and vandalism and malicious mischief endorsements, in an amount adequate to cover the full replacement value of all equipment, fixtures, contents, wall and floor coverings and all of Tenant's personal property in the Premises. B. The liability policy shall name Landlord, Landlord's related entities, Landlord's mortgagee and ground lessor, the managing agent and their respective agents and employees as additional insureds. Each policy shall be issued by one or more responsible insurance companies reasonably satisfactory to Landlord and shall contain 21 the following provisions and endorsements: (i) that such insurance may not be canceled or amended without 30 days prior written notice to Landlord and Landlord's mortgagee and ground lessor; (ii) an express waiver of any right of subrogation by the insurance company against Landlord, Landlord's mortgagee and/or ground lessor, the managing agent and their respective agents and employees; and (iii) that the policy shall not be invalidated should the insured waive in writing prior to a loss, any or all rights of recovery against any other party for losses covered by such policies. All liability policies shall contain a provision that the Landlord, although named as an additional insured, shall nevertheless be entitled to recovery under said policies for any loss occasioned to it, its servants, agents and employees by reason of Tenant's negligence. Tenant's policies shall be primary policies not contributing with and not in excess of coverage which Landlord may carry. C. Tenant shall deliver to Landlord, certificates of insurance of all policies and renewals thereof to be maintained by Tenant hereunder, not less than 10 days prior to the Commencement Date and not less than 10 days prior to the expiration date of each policy. D. The Landlord and Tenant hereby waive any rights each may have against the other on account of any loss or damage to the Premises or the building of which it is a part or the contents suffered by the Landlord or the Tenant, as the case may be, arising from any risk covered by the insurance they carry or are required to carry. This waiver shall not apply to loss or damage of property unless the loss or damage occurs during the time the insurance policies of a party contain, at no additional cost, a waiver of subrogation endorsement or if extra costs shall be charged, so long as the other party pays the extra cost. All of Landlord's and Tenant's casualty policies shall contain such an endorsement if it is available, subject to the above sentence regarding extra costs. XXIII. RULES AND REGULATIONS A. Tenant agrees for itself and for its subtenants, employees, agents, and invitees to comply with the following rules and regulations and with all reasonable modifications and additions thereto which Landlord may from time to time make: (1) No sign, lettering, picture, notice, advertisement or other item shall be placed on any outside window or in a position to be visible from outside the Building; (2) Tenant shall not use the name "The ESQUIRE OFFICE Building" for any purpose other than Tenant's business address; (3) Tenant shall not use the name "The ESQUIRE OFFICE Building" for Tenant's business address after Tenant vacates the Premises; (4) Tenant shall not use any picture or likeness of the Building in any circular, notices, advertisements or correspondence without Landlord's consent not to be unreasonably withheld; (6) Sidewalks, entrances, passages, courts, corridors, halls, elevators and stairways in and about the Premises shall not be obstructed nor shall objects be placed against or upon glass partitions, doors or windows which would be unsightly from the Building's corridors or from the exterior of the Building; (7) No animals, pets, bicycles or other vehicles shall be brought or permitted to be in the Building or the Premises; (8) Room to room canvasses to solicit business from other tenants of the Building are not permitted; (9) Tenant shall not waste electricity, water or air conditioning and shall cooperate fully with Landlord to assure the most effective and efficient operation of the Building's heating and air conditioning systems; (11) No locks or similar devices shall be attached to any door except by Landlord and Landlord shall have the right to retain a key to all such locks; (12) Tenant assumes full responsibility of protecting the Premises from theft, robbery and pilferage. Except during Tenant's normal business hours, Tenant shall keep all doors to the Premises locked and other means of entry to the Premises closed and secured; (13) Only machinery or mechanical devices of a nature directly related to Tenant's ordinary use of the Premises shall be installed, placed or 22 used in the Premises and the installation and use of all such machinery and mechanical devices is subject to the other rules contained in this section and the other portions of this Lease; (14) Except with the prior approval of Landlord, all cleaning, repairing, janitorial, decorating, painting or other services and work in and about the Premises shall be done only by authorized Building personnel; (15) Safes, furniture, equipment, machines and other large or bulky articles shall be brought to the Building and into and out of the Premises at such times and in such manner as the Landlord shall direct (including the designation of elevator) and at Tenant's sole risk and cost; (16) Tenant shall not in any manner deface or damage the Building; (17) Inflammable material such as gasoline, kerosene, naphtha and benzene, or explosives or any other articles of an intrinsically dangerous nature or any materials which are considered hazardous under any law, ordinance, order or directive are not permitted in the Building or the Premises; (18) Tenant shall ascertain from Landlord the maximum amount of electrical current which can safely be used in the Premises, taking into account the capacity of the electric wiring of the Building and the Premises and the needs of other tenants, and shall not use more than such safe capacity. Landlord's consent to the installation of electrical equipment shall not relieve Tenant from the obligation not to use more electricity than such safe capacity; (19) To the extent permitted by law, Tenant shall not permit picketing or other union activity involving its employees in the Building, except in those locations and subject to time and other limitations as to which Landlord may give prior written consent; (20) Tenant shall not enter into or upon the roof or basement of the Building or any heating, ventilation, air conditioning, mechanical or elevator machinery housing areas; (21) Tenant shall not distribute literature, flyers, handouts or pamphlets of any type in any of the common areas of the Building, without the prior written consent of Landlord; (22) Tenant shall not cook, otherwise prepare or sell any food or beverages in or from the Premises except for employee use as may be found in typical offices; (23) Tenant shall not permit the use of any apparatus for sound production or transmission in such manner that the sound so transmitted or produced shall be audible or vibrations therefrom shall be detectable beyond the Premises; (24) Tenant shall keep all electrical and mechanical apparatus free of vibration, noise and air waves which may be transmitted beyond the Premises; (25) Tenant shall not permit objectionable odors or vapors to emanate from the Premises; (26) Tenant shall not place a load upon any floor of the Premises exceeding the floor load capacity for which such floor was designed or allowed by law to carry; and (27) No floor covering shall be affixed to any floor in the Premises by means of glue or other adhesive without Landlord's prior written consent. B. Landlord shall not be responsible for any violation of the foregoing rules and regulations by other tenants of the Building and shall have no obligation to enforce the same against other tenants. XXIV. LANDLORD'S RIGHTS IN REGARDS TO BUILDING Landlord shall have the following rights exercisable without notice (except as expressly provided to the contrary in this Lease), without liability to Tenant for damage or injury to persons, property or business and without being deemed an eviction or disturbance of Tenant's use or possession of the Premises or giving rise to any claim for set-off or abatement of Rent: (a) To change the Building's name or street address upon 30 days prior written notice to Tenant; (2) To install, affix and maintain all signs on the exterior and/or interior of the Building; (3) To designate and/or approve prior to installation, all types of signs, window shades, blinds, drapes, awnings or other similar items, and all internal lighting that may be visible from the exterior of the Premises; (4) To display the premises to prospective tenants at reasonable hours during the last 12 months of the Term; (5) To limit the use of portions of the common areas of the Building (including elevators and/or toilet rooms) to only designated tenants or occupants of the 23 Building and to change the arrangement of entrances, doors, corridors, elevators and stairs in the Building, (6) To grant to any party the exclusive right to conduct any business or render any service in or to the Building, provided such exclusive right shall not operate to prohibit Tenant from using the Premises for the purposes permitted hereunder; (8) To have access for Landlord and other tenants of the Building to any mail chutes and boxes located in or on the Premises according to the rules of the United States Post Office; (9) To close the Building after normal business hours, except that Tenant and its employees and invitees shall be entitled to admission under such regulations as Landlord prescribes for non- normal hours and for security purposes; (10) To take any and all reasonable measures, including inspections and repairs to the Premises or to the Building, as may be necessary or desirable in the operation or protection thereof; (11) To retain at all times master keys or pass keys to the Premises; (13) To install and maintain pipes, ducts, conduits, wires and structural elements located in the Premises which service other parts of the Building; and (14) To change the shape, size, number of floors, and eliminate or add any improvements to any portion of the Building in a manner that does not materially and adversely affect the Premises. XXV. ESTOPPEL CERTIFICATE Tenant shall from time to time, upon not less than 20 business days prior written request by Landlord or any mortgagee deliver to Landlord or such mortgagee a statement in writing certifying: (a) That this Lease is unmodified and in full force and effect or, if there have been modifications, that this Lease as modified, is in full force and effect; (b) The amount of Annual Base Rent then payable hereunder and the date to which Rent has been paid; (c) That Landlord is not in default under this Lease, or, if in default, a detailed description of such default(s); (d) That Tenant is or is not in possession of the Premises, as the case may be; and (e) Such other information as Landlord may reasonably request. XXVI. SUBORDINATION, ATTORNMENT AND NON-DISTURBANCE This Lease and the rights of Tenant hereunder shall be and are hereby made expressly subject and subordinate at all times to any ground or underlying lease of the land and/or the Building now or hereafter existing and all amendments, renewals and modifications thereto and extensions thereof, and to the lien of any mortgage or deed of trust now or hereafter existing against the land and/or the Building, which may include other land and/or buildings and to all advances made or hereafter to be made upon the security thereof. Tenant agrees to execute and deliver such further instruments subordinating this Lease to any such ground or underlying lease or to the lien of any such mortgage or deed of trust as may be requested in writing by Landlord from time to time. Tenant acknowledges that its title is and always shall be subordinate to the title of the owner of the land and the Building, and nothing herein contained shall empower Tenant to do any act which can, shall or may encumber the title of the owner of the land or the Building. Tenant's obligation to subordinate this Lease to any future ground lessor or lender shall be conditioned upon the ground lessor or lender agreeing to recognize this Lease in the event of a default or foreclosure provided Tenant is not in default past the period to cure, and such recognition does not decrease Tenant's rights or increase Tenant's obligations. If any ground or underlying lessor or mortgagee or trustee of deed requires that this Lease be prior rather than subordinate, Tenant shall promptly and without charge execute a document effecting and/or acknowledging such priority and the Tenant's attornment obligation. 24 In the event of the cancellation or termination of any such ground or underlying lease in accordance with its terms or by the surrender thereof, whether voluntary, involuntary or by operation of law, or by summary proceedings, or the foreclosure of any such mortgage or deed of trust by voluntary agreement or otherwise, or the commencement of any judicial action seeking such foreclosure, Tenant, at the request of the then Landlord, shall attorn to and recognize such ground or underlying lessor, mortgagee, holder of the deed of trust, or purchaser in foreclosure as Tenant's Landlord under this Lease so long as Tenant's rights under its lease are recognized and its obligations thereunder are not increased and provided such ground or underlying lessor, mortgagee, holder of the deed of trust, or purchaser in foreclosure agrees that Tenant shall have the right to remain in possession of the Premises under this Lease and the terms and conditions thereof. Tenant agrees to execute and deliver at any time upon request of such ground or underlying lessor, mortgagee, holder of the deed of trust, purchaser, or their successors, any instrument to further evidenced such attornment. Tenant hereby waives its right, if any, to elect to terminate this Lease or to surrender possession of the Premises in the event of any such ground or underlying lease termination, or mortgage or deed of trust foreclosure. If, in connection with the procurement, continuation or renewal of any financing for which the Building or of which the interest of the lessee therein under a ground or underlying lease, represents collateral in whole or in part, the lender or ground or underlying lessor shall request reasonable modifications of this Lease. Tenant will not unreasonably withhold its consent provided such modifications do not increase Tenant's obligations or reduce Tenant's rights under this Lease. XXVII. NOTICES Whenever in this Lease it shall be required or permitted that notice or demand be given or served by either party to this Lease to or on the other, such notice or demand shall be given or served, and shall not be deemed to have been duly given or served unless in writing and forwarded by certified or registered mail, return receipt requested, addressed if to Tenant at the Premises with a copy to Thomas R. Howley, Vice President & General Counsel, Panera Bread Company, 159 Overland Road, Waltham, Massachusetts 02451 and if to Landlord to the address set forth for Landlord in Section I of the Lease. Either party may change such address by written notice to the other. Prior to the occupation of the Premises by Tenant for its business operation, notices to Tenant shall be sent to 7930 Big Bend Blvd., St. Louis, Mo. 63119 with a copy to Thomas R. Howley, Vice President & General Counsel, Panera Bread Company, 159 Overland Road, Waltham, Massachusetts 02451. XXVIII. OPTION TO EXTEND Provided Tenant is not in default beyond any applicable cure period, or such default has been waived by Landlord, at the time Tenant exercises its option or at the time the then current term expires and further provided Tenant has not assigned the Lease or sublet the Premises in a transaction requiring Landlord's consent as set forth in Article XI, Tenant shall have the right and option to extend the term of this Lease for two renewal periods of five years each. Tenant shall give Landlord written notice exercising Tenant's option to extend the term of this Lease not less than nine months prior to the expiration of the then current term. If not given in a timely manner, the option(s) to extend will be of no force or effect. During each option period the Annual Base Rent shall be at the then prevailing fair market rental rate (hereinafter referred to as "Market Rental Rate"), based upon the price 25 for comparable space in Class B buildings in the St. Louis suburban area, as of the commencement date of the intended renewal term, taking into consideration, without limitation, such relevant factors as the base year for calculating Tenant's obligation with respect to increases in Taxes and Operating Expenses and the amounts of these charges, the use of the Premises as general office, the condition, quality, size and utility of the Premises, and the caliber and financial strength of Tenant. In no event shall the Market Rental Rate be less than the Annual Base Rent for the last year of the Lease term prior to the Option period in question. Landlord shall notify Tenant of Landlord's determination of Market Rental Rate within fifteen days after receipt of Tenant's notice exercising its option. In the event Tenant disagrees with Landlord's determination of Market Rental Rate, Tenant shall notify Landlord in writing of same, along with Tenant's written proposal of Market Rental Rate, within fifteen days after receipt of Landlord `s determination. If the parties cannot agree upon a Market Rental Rate within fifteen business days after Landlord's receipt of Tenant's notice, the parties agree to have the Market Rental Rate determined by the process set forth below. (1) Each of Landlord and Tenant shall engage an appraiser who is a member of the American Institute of Real Estate Appraisers (an "MAI APPRAISER") within twenty (20) days after Landlord's receipt of Tenant's notice . (2) Each MAI Appraiser shall determine the Market Rental Rate within thirty (30) days after the appointment of the last of the two. If the appraisals are within 10% of each other the MAI Appraisers appointed by Landlord and Tenant shall choose a third MAI Appraiser within fifteen (15) days and shall notify Landlord and Tenant of such choice. Each party shall bear the cost of its appointed MAI Appraiser and shall share equally the cost of the third MAI Appraiser. If the two appraisals are not within 10% of each other then each of the parties shall pick a new MAI Appraiser and start the process over until the two appraisals are within 10% of each other. (3) The third MAI Appraiser shall appraise the property and determine the Market Rental Rate within thirty (30) days after its appointment and shall notify Landlord and Tenant thereof. (4) The average of the two highest appraisals shall become the Market Rental Rate for the option period. (5) The Market Rental Rate, as determined by the foregoing procedure, shall be binding upon Landlord and Tenant. XXIX. MISCELLANEOUS A. Waivers. Failure of either party to complain of any act or omission on the part of the other party, no matter how long the same may continue, shall not be deemed to be a waiver by said party of any of its rights hereunder. No waiver by either party at any time, express or implied, of any breach of any provision of this lease shall be a consent to any subsequent breach of the same or any other provision. If any action by either party shall require the consent or approval of the other party, the other party's consent to or approval of such action on any one occasion shall not be deemed a consent to or approval of said action on any subsequent occasion or a consent to or approval of any other action on the same or any subsequent occasion. Any and all rights and remedies which either party may have under this lease or by operation of law, either at law or in equity, upon any breach, shall be distinct, separate and cumulative and shall not be deemed inconsistent with each other; and no one of them, whether exercised by said party or not, shall be deemed to be in exclusion of any other; and any two or more or all of such rights and remedies may be exercised at the same time. Without limiting the 26 generality of the foregoing, if any restriction contained in this lease for the benefit of either party shall be violated, said party, without waiving any claim for breach of agreement against the other party, may bring such proceedings as it may deem necessary, either at law or in equity, in its own name or in the name of the other party, against the person violating said restriction. B. Headings. The headings for the various provisions of this lease are used only as a matter of convenience for reference, and are not to be considered a part of this lease or to be used in determining the intent of the parties to this lease. C. Attorney's Fees. In the event that the Landlord should institute any suit against Tenant for violation of any of the covenants or conditions of this lease or for recovery of possession of the Demised Premises, or should the Tenant institute suit against Landlord for violation of any of the covenants or conditions of this lease, or should either party intervene in any action or proceeding in which the other is a party, to enforce or protect its interest or rights hereunder, the prevailing party shall be entitled to reasonable fees of its attorneys, related expenses, and court costs. D. Construction of Language. The language in all parts of this lease shall in all cases be construed as a whole and simply according to its fair meaning and not strictly for or against either the Landlord or the Tenant, and the construction of this lease and any of its various provisions shall be unaffected by any claim, whether or not justified, that it has been prepared, wholly or in substantial part, by or on behalf of either party. E. Governing Law. This lease shall be governed by and construed in accordance with the laws of the State of Missouri. F. Time. Time is of the essence of this lease and each and all of its provisions. G. This Instrument. This lease shall not be modified in any way except by a writing subscribed by both parties. H. Access to Premises. Tenant shall permit Landlord and the holder of any mortgage or deed of trust or its or their agents to enter the Premises at all reasonable hours for the purpose of inspection of both the Premises and the equipment therein; or making repairs that Tenant may neglect or refuse to make in accordance with the agreements, terms, covenants and conditions hereof; for the purpose of showing the Premises to persons wishing to purchase or make a mortgage loan upon the same; for posting notices of non-responsibility in connection with alterations and construction (which notices shall not be removed by Tenant until after the expiration of the statutory lien period); and at any time within one (1) year prior to the expiration of the term to persons wishing to rent the Premises. I. Sale or Conveyance by Landlord. In the event of a sale or conveyance by Landlord of the Premises, the same shall operate to release Landlord from any future liability on any of the covenants or conditions, express or implied, herein contained in favor of Tenant, provided said transferee agrees to abide by and to perform all of the obligations of Landlord under this lease subsequent to such transfer, and in such event, Tenant agrees to look solely to the responsibility of the successor in interest of the Landlord in and to this lease. Notwithstanding anything to the contrary provided in this Lease, it is specifically understood and agreed by Landlord and Tenant that there shall be absolutely no personal liability on the part of Landlord, or its successor, or any partners, shareholders, beneficiaries, employees, or officers of Landlord, or its successor, with respect to any of 27 the terms, conditions and covenants of this Lease, and that Tenant shall look solely to the interest of Landlord in the Building for the satisfaction of each and every remedy of Tenant in the event of any breach by Landlord of any terms, conditions and covenants of this Lease to be observed or performed by Landlord. J. Interpretation. It is agreed that if any provision of this lease or the application of any provision to any person or any circumstance shall be determined to be invalid or unenforceable, then such determination shall not affect any other provision of this lease or the application of said provision to any other person or circumstance, all of which other provisions shall remain in full force and effect; and it is the intention of the parties hereto that if any provision of this lease is capable of two constructions, one of which would render the provision void and the other of which would render the provision valid, then the provision shall have the meaning which renders it valid. K. Successors and Assigns. The words "Landlord" and "Tenant" and the pronouns referring thereto, as used in this lease, shall mean, where the context required or admits, the persons named herein as Landlord and as Tenant, respectively, and their respective heirs, legal representatives, successors and assigns, irrespective of whether singular or plural, masculine, feminine or neuter. The agreements and conditions in this lease contained on the part of Landlord to be performed and observed shall be binding upon Landlord and its heirs, legal representatives, successors and assigns and shall inure to the benefit of Tenant and its heirs, legal representatives, successors and assigns, and the agreements and conditions on the part of Tenant to be performed and observed shall be binding upon Tenant and its heirs, legal representatives, successors and assigns. If Tenant shall be more than one person, the obligations of Tenant shall be joint and several. L. Delays. In any case where either party hereto is required to do any act, delays caused by or resulting from Act of God, war, civil commotion, fire or other casualty, labor difficulties, difficulties in obtaining proper zoning, environmental or other permits, general shortages of labor, materials or equipment, government regulations or other causes beyond such party's reasonable control shall not be counted in determining the time when the performance of such act must be completed, whether such time be designated by a fixed time, a fixed period of time or "a reasonable time" (financial inability excepted). In any case where work is to be paid for out of insurance proceeds or condemnation awards, due allowance shall be made, both to the party required to perform such work and to the party required to make such payment, for delays in the collection of such proceeds and awards. M. Self Help. If Tenant shall default in the performance or observance of any agreement or condition in this lease contained on its part to be performed or observed other than an obligation to pay money, and shall not cure such default within thirty (30) days after notice from Landlord specifying the default (or shall not within said period commence to cure such default and thereafter prosecute the curing of such default to completion with due diligence), Landlord may, at its option, without waiving any claim for damages for breach of agreement, at any time thereafter cure such default for the account of Tenant, and any amount paid or any contractual liability incurred by Landlord in so doing shall be deemed paid or incurred for the account of Tenant, and Tenant agrees to reimburse Landlord therefor or hold Landlord harmless therefrom; provided that Landlord may cure any such default as aforesaid prior to the expiration of said waiting period but after notice to Tenant, if the curing of such default prior to the expiration of said waiting period is reasonably necessary to protect the real estate or Landlord's interest therein, or to prevent injury or damage to persons or property. If Tenant shall fail to reimburse Landlord upon demand for any amount paid for the 28 account of Tenant hereunder, said amount shall be added to and become due as a part of the next payment of rent due hereunder. N. If Tenant shall fail to pay, when due, any installment of Annual Base Rent or any other charge, such unpaid amounts shall bear interest at the maximum lawful rate from the date due to the date of payment. If any installment of Annual Base Rent or any other charge is not received within five (5) business days of the due date, there shall be a late payment fee equal to 2 1/2 percent of the overdue amount. O. Landlord represents that: (a) If Landlord is a corporation, Landlord represents and warrants that Landlord is duly organized, validly existing, in good standing in the state of its incorporation, and has all requisite power and authority to own and lease property and conduct business in the state where the Premises are located, and each individual executing this Lease on behalf of Landlord represents and warrants that he or she is duly authorized to execute and delivery this Lease on behalf of Landlord; (b) Landlord represents and warrants that this Lease is binding on Landlord in accordance with its terms; (c) Landlord represents and warrants that Landlord is the fee owner of the Premises subject only to items of record; (d) Landlord represents and warrants that Landlord has no knowledge of (i) enacted, pending or proposed condemnation proceedings or other governmental action, (ii) pending or threatened litigation relating to or affecting the Premises, (iii) current or proposed plans to alter access to the Premises, or (iv) the presence on the Premises of anything dangerous to humans such as Hazardous Materials, which would adversely affect the construction of Tenant Improvements or the conduct of Tenant's permitted uses on the Premises. P. Broker (a) Landlord and Tenant agree that the only broker employed in this transaction was Johnson Group and Schlafly Corporation, and Landlord agrees to pay said brokers for any and all commissions and fees as agreed upon between them. (b) Landlord and Tenant represent and warrant, each to the other, that they have had no dealings with any other broker or agent in connection with this lease, and Landlord and Tenant covenant to hold harmless and indemnify Tenant or Landlord, as the case may be, from and against any and all costs, expense or liability for any damaged (including attorney's fees and expenses), compensation, commissions and charges claimed by any broker or agent with respect to this lease or the negotiation thereof, arising out of Landlord's and/or Tenant's conduct or conversation, as the case may be. Q. The Tenant represents that it has full right and authority to enter into this lease and by doing so violates no existing agreement or indenture to which it is a party or which it is bound or affected, or, if Tenant is a corporation, any provisions of its Articles of Incorporation, By-Laws or other governing or enabling documents or regulations and that the execution and delivery of this lease has been duly authorized by the Tenant's Board of Directors; and upon request of Landlord, Tenant will deliver to Landlord a true, correct and certified copy of the enabling resolutions adopted by Tenant's Board of Directors. 29 R. THIS CONTRACT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE ENFORCED BY THE PARTIES. Any alleged default, claim or controversy arising out of or related to this Lease or the breach thereof shall be submitted to and settled by arbitration in accordance with the Arbitration Rules of the American Arbitration Association. The cost of such arbitration shall be allocated between the parties by the arbitrator or arbitrators. The award rendered by the arbitrator or arbitrators shall be final, and judgment may be entered upon it in accordance with the laws of Missouri. This arbitration provision shall not apply to any disputes regarding Article VII.H. of the Lease. S. Attached hereto and forming a part of this Lease by and between Bachelor Foods, Inc., Landlord, and Panera, Inc. Tenant, is a Guaranty executed by Panera Bread Company. T. THIS WRITING CONTAINS THE ENTIRE AGREEMENT BETWEEN THE PARTIES AND SUPERSEDES ANY PRIOR STATEMENT, AGREEMENT OR REPRESENTATION AND NO AGENT, REPRESENTATIVE, SALESMAN OR OFFICER OF LANDLORD HAS AUTHORITY TO MAKE, OR HAS MADE, ANY STATEMENT, AGREEMENT OR REPRESENTATION, EITHER ORAL OR WRITTEN, IN CONNECTION HEREWITH, MODIFYING, ADDING, OR CHANGING THE TERMS AND CONDITIONS HEREIN SET FORTH. NO MODIFICATION OF THIS LEASE SHALL BE BINDING UNLESS SUCH MODIFICATION IS IN WRITING AND SIGNED BY BOTH PARTIES. IN WITNESS WHEREOF, Landlord and Tenant have duly executed this lease the day and year first above written. LANDLORD TENANT BACHELOR FOODS, INC. PANERA, INC. By: By: --------------------------- --------------------------- Eric P. Bachelor William W. Moreton President Senior Vice President and By: --------------------------- Michael J. Kupstas Assistant Secretary 30 STATE OF MISSOURI ) ) SS COUNTY OF ST. LOUIS ) Be it remembered that on this ____day of September, 2000, before me, a notary public in and for the county and state aforesaid, came Eric P. Bachelor, the President of Bachelor Foods, Inc. a Kentucky corporation, who is personally known to me to be such officer, and who is personally known to be the person who executed as such officer the within instrument of writing on behalf of such corporation, and person duly acknowledged the execution of the same to be the act and deed of said corporation. ----------------------------- Notary Public My Commission Expires: STATE OF MISSOURI ) ) SS COUNTY OF ST. LOUIS ) Be it remembered that on this ______day of September, 2000, before me, a notary public in and for the county and state aforesaid, came William W. Moreton, Senior Vice President of Panera, Inc., a Delaware corporation, who is personally known to me to be such officer, and who is personally known to be the person who executed as such officer the within instrument of writing on behalf of such corporation, and person duly acknowledged the execution of the same to be the act and deed of said corporation. ------------------------------ Notary Public My Commission Expires: STATE OF MISSOURI ) ) SS COUNTY OF ST. LOUIS ) Be it remembered that on this ______day of September, 2000, before me, a notary public in and for the county and state aforesaid, came Michael J. Kupstas, Assistant Secretary of Panera, Inc., a Delaware corporation, who is personally known to me to be such officer, and who is personally known to be the person who executed as such officer the within instrument of writing on behalf of such corporation, and person duly acknowledged the execution of the same to be the act and deed of said corporation. ------------------------------ Notary Public My Commission Expires: 31 EXHIBIT A WORK LETTER THIS WORK LETTER is entered into by and between Landlord and Tenant and shall be deemed a part of and a supplement to the Lease. Landlord and Tenant agree as follows: 1. LANDLORD'S WORK: Landlord has no construction obligations in regards to the Premises. Tenant has inspected the Premises and the building and accepts them in an "AS IS" condition with no representations or warranties of any kind by Landlord except as expressly provided in this Lease. 2. TENANT'S WORK: Tenant shall perform a complete build-out of the Premises so that the Premises are comparable to other new suburban first class office space in the St. Louis metropolitan area. The quality of the finishes and buildout shall be subject to the review and approval of Landlord, which may be withheld in its reasonable discretion. Tenant's general contractor must use Kent Plumbing as its plumbing subcontractor. 3. PREPARATION AND APPROVAL OF TENANT IMPROVEMENT PLANS: Tenant shall proceed with due diligence to have a architect licensed in Missouri prepare drawings, plans and specifications for its leasehold improvements to the Premises (including its storefront signs). The drawings, plans and specifications shall be subject to Landlord's approval, which Landlord may deny in its reasonable discretion. The plans shall reflect office space of a quality consistent with other new suburban first class office space in the St. Louis metropolitan area. The quality of the finishes and buildout shall be subject to the review and approval of Landlord, which may be withheld in its reasonable discretion. If Landlord disapproves all or any portion of the plans, Landlord shall give Tenant a written explanation of the reasons for the disapproval, and Tenant shall, within ten (10) days, submit revised plans and specifications for Landlord's review and approval. After approval by Landlord of same, Tenant shall proceed with due diligence to obtain all necessary permits and licenses and to install and construct, at its sole cost, and with contractors and subcontractors approved by Landlord, the leasehold improvements in accordance with the approved drawings, plans and specifications and to install such fixtures and equipment and perform such other work as necessary or appropriate to prepare the Premises for the use and business set forth in this Lease. 4. TENANT'S WORK; COMPLETION; ACCEPTANCE: All of Tenant's Work shall be performed in accordance with all applicable code, governmental, legal and insurance requirements and in a good workmanlike manner using first quality materials. Landlord or its representative shall have the right at all reasonable times to enter upon the Premises for the purpose of inspecting Tenant's Work to verify that it conforms with the approved Plans. Tenant shall give Landlord written notice (the "Completion Notice") of the date on which Tenant's Work has reached Substantial Completion. Within twenty (20) days after receipt of the Completion Notice, Landlord shall cause the Premises to be inspected and give Tenant written notice either accepting the Premises or specifying any good faith reasons why Landlord believes Tenant's Work has not reached Substantial Completion. Landlord shall not unreasonably withhold its acceptance of the Premises. Tenant shall promptly correct or complete any uncompleted portions of Tenant's Work specified in Landlord's notice. 32 5. WARRANTIES: Each contract and subcontract shall contain the guaranty of the contractor or subcontractor that the portion of Tenant's Work covered thereby will be free from any and all defects in workmanship and materials for one year after the completion of Tenant's Work and such further period as manufacturers' warranties shall provide with respect to materials and equipment which are subject to manufacturers' warranties. The aforesaid guaranty shall include the obligations to repair or replace in a first class and workmanlike manner, and without any additional charge, any and all of Tenant's Work done or furnished by said contractor or subcontractor, or by any of his subcontractors, employees or agents, which shall be or become defective because of faulty materials or workmanship within the period covered by such guaranty. All warranties or guarantees as to materials or workmanship on or with respect to Tenant's Work shall be written so that they shall inure to the benefit of Landlord and Tenant and can be directly enforced by either, and Tenant shall give to Landlord any assignments or other assurance necessary to effectuate the same. Copies of all manufacturer's warranties shall be given to Landlord. 6. TENANT'S INSURANCE: Prior to commencing any work Tenant shall furnish Landlord with certificates of insurance setting forth the following coverages (1) workmen's compensation and employer's liability insurance with limits of the statutory amount, or One Million Dollars ($1,000,000), whichever is greater; (2) commercial general liability insurance affording protection for bodily and personal injury including death, with limits of Two Million Dollars ($2,000,000) per person and Two Million Dollars ($2,000,000) per occurrence; (3) property damage, with limits of One Million Dollars ($1,000,000); (4) motor vehicle liability and property damage in the amounts set forth in (2) and (3), and (5) Builder's Risk Insurance in the full amount of the construction contracts. Such insurance shall fully protect Landlord and any other parties in interest designated by Landlord, as well as Tenant. 7 TENANT'S INDEMNITY: Tenant agrees to indemnify, defend and hold Landlord harmless against any and all claims for injury to persons or damage to property arising out of or by reason of the performance of Tenant's Work, and claims, fines, and penalties arising out of any failure of Tenant or its agents, contractors and employees to comply with any law, ordinance, code requirement, regulations or other requirement applicable to Tenant's Work. LANDLORD TENANT BACHELOR FOODS, INC. PANERA, INC. By: By: ---------------------------- ------------------------------ Eric P. Bachelor William W. Moreton President Senior Vice President and By: ------------------------------ Michael J. Kupstas Assistant Secretary 33 CONSTRUCTION ALLOWANCE Landlord agrees that in consideration of Tenant's completing Tenant's construction work in accordance with the requirements of this Lease, Landlord will make a contribution to Tenant in the amount of the lesser of i) $450,000.00; or ii) the cost of Tenant's leasehold improvements but exclusive of the cost of plans, signage, equipment, furniture, moveable trade fixtures and other personal property. Payment of the Construction Allowance shall be through a disbursing agent as approved by Landlord's bank. Tenant shall be required to comply with the requirements of the disbursing agent pursuant to a contract entered into by Tenant and the disbursing agent. A copy of the Disbursing Agreement (titled Construction Escrow Agreement) approved by all parties is attached to this Lease and will be executed by all parties prior to the commencement of construction. In the event the amount of the construction contract is in excess of $450,000, Tenant shall deposit with the disbursing agent the amount of the difference before Landlord is required to deposit any funds with the disbursing agent. Tenant's deposit need not be made in one lump sum in advance. Partial deposits may be made in a timely manner so that money is available for payment to the contractors when due. Tenant shall also promptly deposit with the disbursing agent the amount of any change orders to the extent the construction contract is in excess of $450,000. LANDLORD TENANT BACHELOR FOODS, INC. PANERA, INC. By: By: ---------------------------- ------------------------------ Eric P. Bachelor William W. Moreton President Senior Vice President and By:____________________________ Michael J. Kupstas Assistant Secretary 34 EXHIBIT 2.2 NOTICE OF BORROWING ____________________, 20____ SunTrust Bank - --------------------------------- Nashville, TN _____________ Attention: Dear Sirs: Reference is made to the Revolving Credit Agreement dated as of December ____, 2000 (as amended and in effect on the date hereof, the "Credit Agreement"), between the undersigned, as Borrower and SunTrust Bank, as Lender. Terms defined in the Credit Agreement are used herein with the same meanings. This notice constitutes a Notice of Borrowing, and the Borrower hereby requests a Loan under the Credit Agreement, and in that connection the Borrower specifies the following information with respect to the Revolving Borrowing requested hereby: (A) Principal amount of Loan: ___________________________ (B) Date of Loan (which is a Business Day): _______________________ (C) Interest Period: ______________________________ (D) Location and number of Borrower's account to which proceeds of Loan are to be disbursed: ____________________________________ The Borrower hereby represents and warrants that the conditions specified in paragraphs (a), (b) and (c) of Section 3.2 of the Credit Agreement are satisfied. Very truly yours, PANERA BREAD COMPANY By: ----------------------------------------- Title: -------------------------------------- 35 EXHIBIT 2.4 FORM OF CONTINUATION ___________________, 20____ SunTrust Bank - ---------------------- Nashville, TN __________ Attention: Dear Sirs: Reference is made to the Revolving Credit Agreement dated as of December ____, 2000 (as amended and in effect on the date hereof, the "Credit Agreement"), among the undersigned, as Borrower, and SunTrust Bank, as Lender. Terms defined in the Credit Agreement are used herein with the same meanings. This notice constitutes a Continuation and the Borrower hereby requests the continuation of a Loan under the Credit Agreement, and in that connection the Borrower specifies the following information with respect to the Loan to be continued as requested hereby: (A) Loan to which this request applies: _________________________________ (B) Principal amount of Loan to be converted/continued: _________________ (C) Effective date of election (which is a Business Day): _______________ (D) Interest Period of resulting Loan: __________________________________ Very truly yours, PANERA BREAD COMPANY By: ----------------------------------------- Name: --------------------------------------- Title: -------------------------------------- 36 EXHIBIT 3.1(B)(VII) FORM OF OFFICER'S CERTIFICATE Reference is made to the Revolving Credit Agreement dated as of December ____, 2000 (the "Credit Agreement"), between Panera Bread Company, as Borrower, and SunTrust Bank, as Lender. Terms defined in the Credit Agreement are used herein with the same meanings. This certificate is being delivered pursuant to Section 3.1(g) of the Credit Agreement. I, _________________________, _________________________ of the Borrower, DO HEREBY CERTIFY that: (a) the representations and warranties of the Borrower set forth in the Credit Agreement are true and correct on and as of the date hereof; and (b) no Default or Event of Default has occurred and is continuing at the date hereof; and (c) since ____________________, 20____, which is the date of the most recent financial statements described in Section 5.1(a) of the Credit Agreement, there has been no change which has had or could reasonably be expected to have a Material Adverse Effect. IN WITNESS WHEREOF, I have hereunto signed my name this ___ day of _______________, 20____. PANERA BREAD COMPANY By: ----------------------------------------- Title: -------------------------------------- 37 EX-23.1 7 a2042851zex-23_1.txt EXHIBIT 23.1 23.1 CONSENT OF PRICEWATERHOUSECOOPERS LLP* We consent to the incorporation by reference in the registration statements of Panera Bread Company and Au Bon Pain Co., Inc. on form S-8 (File Nos. 33-41989, 33-41990, 33-46682, 33-46683, 33-96510, 33-96506, 333-01668, 333-31855, 333-31857) and Form S-3 (File Nos. 33-82292 and 333-80927) of our report dated March 2, 2001 on our audit of the consolidated financial statements and financial statement schedule of Panera Bread Company as of December 30, 2000, and for each of the three years in the period ended December 30, 2000, which report is included in the Annual Report on Form 10-K. /s/ PRICEWATERHOUSECOOPERS LLP ------------------------------------------------------------------------------ St. Louis, Missouri March 28, 2001 -----END PRIVACY-ENHANCED MESSAGE-----