-----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, RTPJwGTqdp12gO8ZY/ETmWWkssUS6Gp2cZFn5OIamUL11jUVfYYOsZbBhK482iRL YEn/N+fjQdT0nG/XdddW0A== 0001029869-98-000414.txt : 19980330 0001029869-98-000414.hdr.sgml : 19980330 ACCESSION NUMBER: 0001029869-98-000414 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19971227 FILED AS OF DATE: 19980327 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: AU BON PAIN CO INC CENTRAL INDEX KEY: 0000724606 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 042723701 STATE OF INCORPORATION: DE FISCAL YEAR END: 1229 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-19253 FILM NUMBER: 98576908 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 10-K 1 FORM 10-K 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 (Fee required) For the fiscal year ended December 27, 1997, or Transition report pursuant to Section 13 or l5(d) of the Securities ----- Exchange Act of 1934 (No fee required) For the transition period from ______ to ______ Commission file number 0-19253 -------- Au Bon Pain Co., Inc. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 04-2723701 - --------------------------------- ------------------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 19 Fid Kennedy Avenue, Boston, MA 02210 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip code) (617) 423-2100 ---------------------------------------------------- (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: None. Securities registered pursuant to Section 12(g) of the Act: Class A Common Stock, $.0001 par value -------------------------------------- (Title of class) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 and 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --------- --------- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form. / / Aggregate market value of the registrant's voting stock held by non-affiliates as of March 17, 1998: Class A Common Stock, $.0001 par value: $85,224,214. Number of shares outstanding of each of the registrant's classes of common stock, as of March 17, 1998: Class A Common Stock, $.0001 par value: 10,252,537 shares, Class B Common Stock, $.0001 par value: 1,605,741 shares. DOCUMENTS INCORPORATED BY REFERENCE: The registrant's definitive proxy statement for its Annual Meeting of Stockholders, which will be filed with the Commission on or before April 27, 1998, is incorporated by reference in response to Part III, Items 10, 11, 12 and 13; and certain exhibits to the registrant's Form S-1 Registration Statement (File No. 33-453219), Form S-l Registration Statement (File No. 33-40153), annual reports on Form 10-K for the fiscal years ended December 30, 1995 and December 28, 1996 and Form 8-K filed December 22, 1993, are incorporated by reference in response to Part IV, Item 14. TABLE OF CONTENTS Securities and Exchange Commission Item Numbers and Description Page - ---------------------------- ---- Part I Item 1 Business Item 2 Properties Item 3 Legal Proceedings Item 4 Submission of Matters to a Vote of Security Holders Part II Item 5 Market For Registrant's Common Equity and Related Stockholder Matters Item 6 Selected Financial Data Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations Item 7A Quantitative and Qualitative Disclosures About Market Risk Item 8 Financial Statements and Supplementary Data Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Part III Item 10 Directors and Executive Officers of the Registrant Item 11 Executive Compensation Item 12 Security Ownership of Certain Beneficial Owners and Management Item 13 Certain Relationships and Related Transactions Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K Signatures 2 PART I ITEM 1. BUSINESS GENERAL Au Bon Pain Co., Inc. ("the Company") was formed in March 1981 with three Boston area bakeries and one cookie store serving croissants, breads and cookies. As of December 27, 1997, the Company had grown to 220 Company-operated and 115 franchised bakery cafes operating under two concepts: Au Bon Pain, with 160 Company-operated and 96 franchise-operated bakery cafes, and Saint Louis Bread Company ("Saint Louis Bread"), which also does business as "Panera Bread" outside of the Saint Louis area, with 60 Company-operated and 19 franchise-operated bakery cafes. Both concepts specialize in high quality food for breakfast and lunch, including fresh baked goods, made-to-order sandwiches on freshly baked breads, soups, salads, custom roasted coffees, and other cafe beverages. The Au Bon Pain bakery cafes are principally located in Boston, other New England cities, New York City, Connecticut, Washington, D.C., Chicago, Maryland, New Hampshire, New Jersey, California, Philadelphia, Pittsburgh, Rhode Island, Texas, Santiago, Chile, The Philippines, Indonesia, Sao Paulo, Brazil, Bangkok, Thailand and London, England (see "Properties"). System wide sales for Au Bon Pain, which include Company-operated and franchised restaurant sales, were approximately $199 million for the fiscal year ended December 27, 1997. The Saint Louis Bread bakery cafes are principally located in St. Louis, Atlanta, Kansas, Detroit and Chicago (see "Properties"). System wide sales for Saint Louis Bread, were approximately $82 million for the fiscal year ended December 27, 1997. The Company believes that the acquisition of Saint Louis Bread has created a number of opportunities. The Saint Louis Bread suburban bakery cafe concept has proved to be well suited for suburban locations and offers the Company greater access to these markets, thereby enhancing the Company's long-term growth prospects. CONCEPT AND STRATEGY Target customers of Au Bon Pain and Saint Louis Bread include urban office employees, suburban dwellers, shoppers, travelers, students and other adults who are time sensitive, yet desire a higher quality breakfast and lunch experience than is typically found at quick service restaurants. The Company's strategy is to create distinctive food offerings at reasonable prices which are fresher, of higher quality and of greater variety than those offered by its competitors. In addition, the Company believes its operational excellence, speed of service and convenient locations further differentiate the Company from its competitors. Average 3 revenue per Company-operated bakery cafe open for the full fiscal year ended December 27, 1997 was approximately $1,014,211 for the Au Bon Pain concept and approximately $1,200,257 for the Saint Louis Bread concept. The Company believes that excellence in execution is a key to success in the restaurant industry. The distinctive nature of the Company's menu offerings, the quality of its restaurant operations, the Company's high quality cafe design and the prime locations of its cafes are integral to the Company's success. The Company's operating strategy is to increase overall sales by offering new products that will expand the current business and increase afternoon sales, and by continuing to open new bakery cafes in existing and new markets on both Company-operated and franchise bases and to increase sales in existing bakery cafes through the continued introduction and promotion of distinctive, high quality menu items. MENU The menus of both concepts provide customers with popular food items which the Company believes are fresher, of higher quality and in greater variety than those offered by its competitors. The key menu groups are fresh baked goods, made-to-order sandwiches, soups and cafe beverages. Included within these menu groups are: a variety of freshly baked bagels, breads, croissants, muffins, scones, rolls and sweet goods; sandwiches made-to-order with specialty cheeses, smoked meats, roast beef, hot grilled chicken, albacore tuna and white meat chicken salads; hearty, unique soups; custom roasted coffees and cafe beverages such as espresso and cappuccino. A primary difference in menu between the two concepts is the significant emphasis within the Saint Louis Bread concept on sophisticated European and sourdough breads. The Company regularly reviews and revises its menu offerings to satisfy changing customer preferences and to maintain customer interest. New menu items are developed in corporate test kitchens and then introduced in a limited number of the Company's bakery cafes to determine customer response and verify that preparation and operating procedures maintain consistency, high quality standards and profitability. If successful, they are introduced in all Au Bon Pain and/or Saint Louis Bread bakery cafes. MARKETING The Company believes it competes on the basis of quality food and service rather than price. Pricing is structured so that customers perceive good value at both Au Bon Pain and Saint Louis Bread (high quality food at reasonable prices). The average customer purchase is approximately $3.09 at Au Bon Pain and $4.92 at 4 Saint Louis Bread. Breakfast and lunch checks typically average $2.12 and $4.23, respectively, at Au Bon Pain and $3.51 and $5.84, respectively, at Saint Louis Bread. The Company attempts to increase its per location sales through menu development, promotions and by sponsorship of local community charitable events. To date, the Company has not advertised extensively; rather, it relies on word of mouth, customer satisfaction and promotional programs to encourage trial by new customers and to make existing customers aware of new menu offerings. CATERING Au Bon Pain operates a catering program which offers a select group of delivered breakfast and luncheon food items appropriate for on-site consumption at corporate functions. Customers place orders by toll-free telephone with trained customer service representatives at the Company's Boston headquarters. Orders are immediately routed utilizing a computerized delivery support system to the most appropriate bakery cafe for preparation and delivery. In 1997, catering sales represented approximately 5.5% of the Au Bon Pain Company-operated restaurant sales. At present, Saint Louis Bread does not offer catering services. With the predominance of Saint Louis Bread cafes in suburban locations, the Company believes that the potential to develop significant catering business at Saint Louis Bread is lower than at Au Bon Pain. SITE SELECTION For both concepts, the Company seeks convenient locations in high-visibility, high-traffic, densely populated areas which are easily accessible to their respective target customers. The Company also operates in regional shopping malls, transportation centers, universities and hospitals. The Company believes that its concepts, menus, history of quality retail operations and bakery cafe designs enable the Company to access locations which may not be available to traditional quick service restaurants. Examples of Au Bon Pain bakery cafe locations include Copley Place, Brigham and Women's Hospital, South Station and Harvard Business School in Boston; the Empire State Building and World Financial Center in New York City; the Pittsburgh Airport in Pittsburgh; 2000 Pennsylvania Avenue in Washington, D.C.; and the Santiago Airport in Santiago, Chile. Examples of Saint Louis Bread bakery cafe locations include the Galleria Mall in St. Louis and the Lenox Square Mall in Atlanta. However, the Saint Louis Bread locations are predominantly sited in strip center suburban retail locations in the markets in which they operate. In 1997 the Company opened one Au Bon Pain bakery cafe in an existing market, and franchised 11 of its existing Au Bon Pain bakery 5 cafes in the Philadelphia market. The Company's Au Bon Pain franchisees also opened 38 new bakery cafes domestically and in Chile, the Philippines, Indonesia, Thailand, Brazil and England. During 1997, the Company expanded the number of Company-operated Saint Louis Bread bakery cafes by six to 60 locations in existing markets and in the new Saint Louis Bread markets of Boston and Detroit. The Saint Louis Bread franchise-operated locations expanded from 10 locations to 19 locations including new market openings in Tulsa, Oklahoma, Columbus, OH, Louisville, KY and Davenport, IA. Both bakery cafe concepts rely on a substantial volume of repeat business. In evaluating a potential location, the Company studies the surrounding trade area, obtaining information and/or demographics within that area on quick service breakfast or lunch competitors. Management evaluates the Company's ability to establish a dominant presence within that area, in order to create entry barriers to other bakery cafe competitors. Based on this information, sales and return on investment are projected. The Company uses sophisticated fixtures and materials in the bakery cafe design for both concepts. The design visually reinforces the distinctive difference between the Company's bakery cafes and other quick service restaurants serving breakfast and lunch. Many of the Company's cafes also feature outdoor cafe seating. The current estimated construction and equipment costs for a typical Au Bon Pain bakery cafe outside of New York City are approximately $475,000 before any landlord construction allowance. The estimated construction and equipment cost for a typical Au Bon Pain bakery cafe in New York City is approximately $830,000 before any landlord construction allowance. The current estimated construction and equipment cost for a typical Saint Louis Bread bakery cafe is approximately $590,000 before any landlord allowance. The average bakery cafe size ranges between 2,500 and 4,000 square feet. Currently, all bakery cafes, including franchises, are in leased premises. Lease terms are typically ten years with one or two five-year renewal options periods thereafter. Leases typically have a minimum base occupancy charge, charges for a proportionate share of building operating expenses and real estate taxes, and contingent percentage rent based on sales above a stipulated sales level. PRODUCTION Frozen dough products are produced at two frozen dough facilities and are then distributed to Company operated bakery cafes and franchise for baking. Baked goods prepared from frozen dough products represent approximately 30% of the Au Bon Pain business unit's total bakery cafe sales and approximately 20% of the Saint 6 Louis Bread business unit's total bakery cafe sales. During 1996, the Company completed construction of the state of the art frozen dough production facility in Mexico, MO. The facility is 80,000 square feet and increased capacity three-fold over the level at the production facility in South Boston. Start-up costs incurred at the Mexico, MO plant significantly reduced 1996 results of operations. In addition, during 1997 the operating efficiencies of the new facility were not sufficient to fully offset the additional overhead costs associated with the facility. On March 23, 1998 the Company sold the Mexico, MO production facility and its wholesale frozen dough business to Bunge Foods Corporation ("Bunge") for approximately $13 million in cash. In conjunction with the sale, Au Bon Pain and Saint Louis Bread entered into five year supply agreements with Bunge for the supply of substantially all their frozen dough needs, excluding bagels, in their domestic bakery cafes. The Company expects the supply agreements will result in an improved operating margin of approximately .5% of total revenues, along with reduced interest expense. The net proceeds of the sale were used to reduce debt. In addition, approximately $2 million of related receivables at December 27, 1997 will be used to further reduce debt. The Company expects to recognize a pre-tax loss on the sale of the facility of approximately $700,000 in the Company's results of operations for the first quarter of 1998. The sale of the frozen dough production facility provides economies of scale in plant production which are reflected in the economics of the five-year supply agreements and allows the Company to take advantage of Bunge's significant purchasing power. The five year supply agreements allow the bakery cafes to continue to offer consistently high quality fresh baked goods as the frozen dough products purchased from Bunge will be made on the same equipment, by the same management team, using the same proprietary processes and specifications as prior to the sale to Bunge. The Company also operates a central commissary used for baking and for preparing certain other menu items, which are then delivered to a portion of the Company's Boston-area bakery cafes. During 1998, the Company expects to close the commissary located in Chelsea, Massachusetts and to consolidate certain of the functions currently performed there into the South Boston production facility, while also integrating certain other functions into the Boston-area bakery cafes. The Company does not expect to incur significant costs to close the commissary. Each of the Saint Louis Bread bakery cafes is supported by a regional commissary which daily provides principally unbaked sourdough products for baking and sale within the Saint Louis Bread bakery cafes. 7 MANAGEMENT INFORMATION SYSTEMS Each Company-operated bakery cafe has computerized cash registers to collect point-of-sale transaction data, which are used to generate pertinent marketing information, including product mix and average check. All product prices are programmed into the system from the Company's corporate office. The Company's in-store personal computer-based management support system is designed to assist in labor scheduling and food cost management, to provide corporate and retail operations management quick access to retail data and to reduce managers' administrative time. The system supplies sales, bank deposit and variance data to the Company's accounting department in Boston on a daily basis. The Company uses this data to generate weekly consolidated reports regarding sales and other key elements, as well as detailed profit and loss statements for each bakery cafe every four weeks. Additionally, the Company monitors the average check, customer count, product mix and other sales trends. The Company has not completed its assessment of the impact of the Year 2000 issue. It is management's belief that the primary financial systems are Year 2000 compatible. Testing of those systems for compliance is expected to occur during 1998. Many secondary systems associated with the Company's retail operations will require modifications. It is the Company's belief that existing internal Company resources will be adequate to reprogram these Year 2000 modifications. It is expected that the most significant Year 2000 system issue for the Company is with POS systems used by the Au Bon Pain concept. The Company is in negotiations with several vendors to replace the existing POS systems with new state-of-the-art systems. The new systems are expected to be leased at a net incremental cost of approximately $400,000 annually. The incremental cost of the new system is expected to be substantially offset by labor efficiency savings associated with the new POS system. DISTRIBUTION The Company currently utilizes an independent distributor to distribute frozen dough products and other materials to Company-operated Au Bon Pain and Saint Louis Bread bakery cafes. By contracting with an independent distributor, the Company has been able to eliminate investment in distribution systems and to focus its managerial and financial resources on its retail operations. The distributor picks up frozen dough products throughout the week from the plants and delivers to the cafes. Virtually all other supplies for retail operations, including paper goods, coffee and small-wares, are contracted for by the Company and delivered by the vendors to the distributor for delivery to the bakery cafes. The 8 individual bakery cafes order directly from the distributor two to three times per week. Franchised bakery cafes operate under individual contracts with either the Company's distributor or other regional distributors. JOINT VENTURES The Company currently operates 15 Au Bon Pain bakery cafes in New York City, which are owned under a joint venture agreement between the Company and an independent investor group. Under the terms of this agreement, the Company has an obligation to offer the group up to 49% of the equity in each bakery cafe opened in the metropolitan tri-state area of New York City (New York City, Long Island, Westchester County (NY), Bergen County (NJ), and Fairfield County (CT)). The equity participation percentage is based on the cost of the initial construction upon opening of the bakery cafe. This equity percentage is fixed prior to the date of the respective bakery cafe openings. The group has no obligation to participate in any bakery cafe, and the percentage participation must be elected by the group prior to the opening of the bakery cafe. Each joint venture bakery cafe must purchase all of its frozen dough products from the Company and is operated by the Company under a management agreement under which the Company receives a management fee of 6% of sales of each joint venture bakery cafe. The Company has agreed to provide a guaranty to one or more institutional lenders acceptable to the Company to assist the group in financing its acquisition of up to 5% of the equity in new bakery cafes opened after January 1, 1993. As of December 27, 1997, approximately $83,062 is outstanding under this arrangement. The Company also has a 75% interest in Pain Francais, Inc., which owns the bakery cafe located in the GE Building at Rockefeller Center, New York. The other 25% is held by the same joint venture partner. This bakery cafe operates under a management agreement similar to the agreement under which the joint venture bakery cafes are operated. FRANCHISES Au Bon Pain Domestic The Company currently has domestic franchising agreements with thirteen organizations: Northern Bakers, Inc., CA One, ABP Southern California, Wayne ABP, Inc., R.C. Menzer, Romallso, Inc., The Lauren Group, Inc., FGR Food Group, Host Marriott Corp., Boston Concessions Group, Inc., Crowne Plaza Ravinia, ABP Delaware Valley, LLC and DoubleTree Hotels. In general, the Company has two sources of revenue from its domestic Au Bon Pain franchisees: fees for new 9 locations and royalties on sales by franchisees. New domestic locations, other than airport locations, to be developed by franchisees typically require a $25,000 initial franchise fee per location and a 5% royalty. Airport franchise fees range between $10,000 and $50,000, depending upon passenger traffic and the Company's assistance in obtaining the concession. All domestic franchisees are obligated to use Company-approved ingredients, including Au Bon Pain-approved frozen dough products. In 1997, the Company sold 11 bakery cafes to ABP Delaware Valley for $2.6 million, in connection with the execution of a franchise area development agreement covering certain portions of Pennsylvania, New Jersey and Delaware. The purchase price was funded via a ten-year note with the Company which accrues interest at 8.25% per annum. Under terms of the area development agreement, the franchisee must open 17 new bakery cafes according to a minimum opening schedule in order to maintain development exclusivity in the territory and has the right to open either Au Bon Pain or Saint Louis Bread bakery cafes within the specified territory. International The Company currently has international franchise development agreements with developers in Chile, Argentina, Brazil and certain other South American countries, Thailand, Indonesia, the Philippines, Malaysia, Singapore, England, the Caribbean and the Canary Islands. Bakery cafes have been opened to date in Chile, Indonesia, the Philippines, Thailand, Brazil and England. Under these agreements, the Company has granted exclusive development rights to franchise and operate Au Bon Pain bakery cafes in the respective country or countries. The agreements generally require the payment of up front development fees, which have ranged from $250,000 to $750,000, a franchise fee, typically from $10,000 to $30,000 for each Au Bon Pain bakery cafe opened, depending upon the size of the location, and royalties from the sale of products from each bakery cafe of 5% of sales. The developer is, in most instances, required to open bakery cafes according to a specific minimum schedule. The Company may also agree to provide advice, consultation and training for the development of a frozen dough plant. Currently, the Company considers international franchising and licensing arrangements as a means of business expansion for its Au Bon Pain concept and is actively pursuing additional international franchising relationships. Saint Louis Bread Company In connection with the Saint Louis Bread acquisition in 1993, the Company assumed two area development agreements pursuant to which Saint Louis Bread granted exclusive development rights to two franchisees. One area development agreement covers the cities of Kansas City, St. Joseph and Topeka, Kansas and Kansas City, 10 Missouri. The second area development agreement covers various counties in Missouri and includes the City of Springfield. In 1996, the Company began a broad-based franchising program. The Company is actively seeking to extend its Saint Louis Bread franchise relationships beyond its current franchisees. The Saint Louis Bread unit franchise agreements typically require the payment of an up-front franchise fee of $35,000 and continuing royalties of 4% to 5% on sales from each bakery cafe. The franchisees are required to purchase all of their dough products from sources approved by Saint Louis Bread. As of December 27, 1997 the Company has entered into franchise development agreements for a total of 356 bakery cafes to be located in specific sections of the Tulsa, Oklahoma, Columbus, Ohio, Cincinnati, Ohio, Cleveland, Ohio, Iowa, Louisville, Kentucky, Orlando, Florida, Jacksonville, Florida, Massachusetts, Dallas, Texas, Pittsburgh, PA, Tampa, Florida, Illinois, Minnesota, Colorado, Wisconsin and Tennessee markets. EMPLOYEES The Company has approximately 1,378 full-time employees, of whom approximately 170 are employed in general or administrative functions principally at or from the Company's executive offices in Boston, Massachusetts; approximately 84 are employed at the Boston frozen dough plant and the commissary; approximately 61 are employed in the Saint Louis Bread corporate office in St. Louis, MO; approximately 91 are employed in the Saint Louis Bread production facilities in St. Louis, MO, Chicago, IL, Detroit, MI, and Atlanta, GA; and approximately 684 and 288 are employed in the Au Bon Pain and Saint Louis Bread retail operations, respectively. The Company also has approximately 4,141 part-time employees, of whom 2,665 and 1,476 are employed in the Au Bon Pain and Saint Louis Bread bakery cafes, respectively. These totals include employees of Pain Francais, Inc. and at the joint venture locations in New York City. There are no collective bargaining agreements. The Company considers its employee relations to be excellent. TRADEMARKS The "Au Bon Pain" and "Au Bon Pain The Bakery Cafe" names are of material importance to the Company and are trademarks registered with the United States Patent and Trademark Office and in certain foreign countries. In addition, the name "Saint Louis Bread Company" and "Panera Bread" are of material importance to the Company. "Saint Louis Bread Company" is registered with the United States Patent and Trademark Office. In addition, "Saint Louis Bread Company and design" and "Panera Bread" and "Panera Bread and design" 11 and various other marks of lesser importance have been filed with the United States Patent and Trademark Office. GOVERNMENT REGULATION Each Company-operated and franchised bakery cafe is subject to regulation by federal agencies and to licensing and regulation by state and local health, sanitation, safety, fire, alcoholic beverage control and other departments. Difficulties or failures in obtaining the required licensing or approval could result in delays or cancellations in the opening of restaurants. The Company is also subject to federal and a substantial number of state laws regulating the offer and sale of franchises. Such laws impose registration and disclosure requirements on franchisors in the offer and sale of franchises and may also apply substantive standards to the relationship between franchisor and franchisee. The Company does not believe that current or potential future regulations of franchises have or will have any material impact on the Company's operations. The Company is subject to the Fair Labor Standards Act and various state laws governing such matters as minimum wages, overtime and other working conditions. The Company's Boston frozen dough plant, commissary and Saint Louis Bread dough plants are subject to various federal, state and local environmental regulations. Compliance with applicable environmental regulations is not believed to have any material effect on capital expenditures, earnings or competitive position of the Company. Estimated capital expenditures for environmental compliance matters are not material. The Americans With Disabilities Act prohibits discrimination in employment and public accommodations on the basis of disability. Under the Americans With Disabilities Act, the Company could be required to expend funds to modify its bakery cafes to provide service to, or make reasonable accommodations for the employment of, disabled persons. The Company believes that compliance with the requirements of the Americans With Disabilities Act will not have a material adverse effect on its financial condition, business or operations. ITEM 2. PROPERTIES All Company-operated bakery cafes are located in leased premises with lease terms typically for ten years with one or two five-year renewal option periods thereafter. Leases typically have a minimum base occupancy charge, charges for a proportionate share of building operating expenses and real estate taxes and contingent percentage rent based on sales above a stipulated sales level. The 12 joint venture bakery cafes operate in leased premises under similar lease arrangements. In 1983, Au Bon Pain built its plant and headquarters in South Boston, Massachusetts. The executive offices occupy approximately 24,000 square feet. The Company owns the original building plus additions and leases the land on which these improvements are located from the City of Boston under a long term ground lease. The annual rent is approximately $150,000. The lease expires, assuming exercise of renewal options, in 2017. In 1997, the Company leased short-term office space in Waltham, MA to house its Accounting and Development functions. In 1996, the Company completed construction of a central production facility on a 20 acre tract of land in Mexico, MO to increase the Company's production capacity. The new facility cost approximately $9 million and began operation in mid-1996. The cost of the facility was financed primarily by an $8.6 million industrial development bond issued by the City of Mexico, Missouri in July 1995, secured by an $8.7 million letter of credit with a commercial bank through July, 2000, and by equipment lease financing. On March 23, 1998 the Company sold the Mexico, MO production facility to Bunge Foods Corp. See "Production". Au Bon Pain operates its commissary in leased premises in Chelsea, Massachusetts under a ten year lease expiring in 1998, with an option to extend for an additional five years. Management intends to close this facility in 1998 upon lease expiration. See "Production". In 1997, Saint Louis Bread leased new office space in Webster Grove, Mo for its corporate offices. The space occupies approximately 10,300 square feet. The annual rent is approximately $69,500. The lease expires, assuming exercise of renewal options, in 2007. The Company considers its physical properties to be in good operating condition and suitable for the purposes for which they are used. 13 BAKERY CAFE LOCATIONS Au Bon Pain Bakery Cafes: - ------------------------- Company-Operated: 160 total as of December 27, 1997 - ---------------- Boston Market Area: 46 - ----------------------- 101 Merrimac Street Filene's 1100 Massachusetts Avenue Fleet Bank 15 Harvard Street Harvard Business School 176 Federal Street Harvard Square 431 Boylston Street Hynes Auditorium 53 State Street International Place 684 Massachusetts Avenue Kendall Square 745 Boylston Street Longwood Galleria 75-101 Federal Street Milk Street Arlington Center MIT Beacon Hill Natick Mall Bowdoin Square New England Medical Center Brattle Street North Shore Shopping Center Brigham & Women's Hospital Northeastern University Burlington Mall One Newton Place Cambridgeside Galleria Park Plaza Children's Hospital South Shore Plaza Church Park South Station Coolidge Corner Square One Mall Copley Place Tower Records Davis Square Wellesley Center Design Center South Boston Winter Street Fanueil Hall Market Place Woburn Business Center Other New England: 14 - ---------------------- Avon Marketplace, Avon, CT Rockingham Mall, Salem, NH City Place, Hartford, CT Rhode Island Hospital, Providence, RI Fleet Center, Providence, RI St. Francis Hospital, Hartford, CT Hartford Civic Center, Hartford, CT Thayer Street, Providence, RI Mall of New Hampshire, Warwick Mall, Warwick, RI Manchester, NH One Broadway, New Haven, CT West Farms Malls, West Hartford, CT Pheasant Lane Mall, Nashua, NH Worcester Commons, Worcester, MA California Market Area: 1 - -------------------------- 353 Sacramento Street, San Francisco 14 Pittsburgh Market Area: 8 - -------------------------- Fifth Avenue Place Pittsburgh Airport-Landside Oliver Building Ross Park Mall Oxford Center Two PPG Place Pittsburgh Airport-Airside USX Tower Washington, D.C. - Baltimore Market Area: 24 - -------------------------------------------- 10 North Calvert 800 North Capitol Street 1001 Pennsylvania Avenue, NW Commerce Place 1101 Vermont Avenue, NW Crystal City 1401 Eye Street Gallery at Harbor Place 1615 L Street, NW International Square 1701 Pennsylvania Avenue, NW L'Enfant Plaza 1724 L Street, NW National Place 1801 L Street Pentagon City 1850 M Street Springfield Mall 2000 Pennsylvania Avenue, NW Towson Town Center 601 Indiana Avenue Union Station 700 13th Street, NW Warner Building Greater New York Area: 41 - -------------------------- 101 Hudson Street Empire State Building 16 East 44th Street Exxon Building 222 Broadway JFK Airport-Cart 300 Madison Avenue JFK Airport-American Airlines 420 Fifth Avenue Laguardia Airport 425 Lexington Avenue Long Island Jewish Medical Center 444 Madison Avenue Manhattan Mall 54 East 8th Street Nanuet Mall 6 Union Square East One Metrotech Center 60 Broad Street Port Authority 600 Lexington Avenue Riverside Square 600 Third Avenue Rockefeller Center/GE Building 684 Broadway Rockefeller Center/Time Warner 73 Fifth Avenue Rutgers University 80 Pine Street Short Hills Mall 875 Third Avenue-Down State Street Plaza 875 Third Avenue-Up Westchester Mall 95 Wall Street World Financial-Down Celanese Building World Financial-Up Chanin Building World Trade Center Daily News Building 15 Midwest Market Area: 26 - ------------------------ 122 South Michigan Avenue, Chicago Amoco Building, Chicago 123 North Wacker Drive, Chicago BP Building, Cleveland 125 South Wacker Drive, Chicago Carew Tower, Cincinnati 161 North Clark Street, Chicago Columbus City Center, Columbus 180 North Michigan Avenue, Chicago Federal Reserve, Chicago 181 West Madison, Chicago Grand Avenue, Milwaukee 200 West Adams, Chicago IBM Building, Minneapolis 222 North LaSalle Street, Chicago IDS Center, Minneapolis 30 North LaSalle Street, Chicago Illinois Center, Chicago 33 North Dearborn, Chicago Merchandise Mart, Chicago 3rd & Broad, Columbus St. Paul Center, Minneapolis 500 West Monroe, Chicago Tower City, Cleveland 600 Superior Avenue, Cleveland Woodfield Mall, Schaumburg, IL Franchise-Operated/Domestic: 59 total as of December 27, 1997 Northern Bakers, Inc.: 8 - ------------------------- Big D Supermarket, Shrewsbury, MA Dartmouth-Hitchcock Medical Center, Lebanon, NH Cape Cod Mall, Hyannis, MA Fox Run Mall, Newington, NH Carousel Mall, Syracuse, NY Maine Mall, South Portland, ME Crossgates Mall, Albany, NY Silver City Galleria, Taunton, MA Host Marriott: 2 - ----------------- Hartsfield Airport, Concourse B, Hartsfield Airport, Concourse D, Atlanta, GA Atlanta, GA Fortunoff (Wayne ABP, Inc.): 1 Wayne Town Center, Wayne, NJ R.C. Menzer: 2 - --------------- South Hills Village, Westmoreland Mall, Pittsburgh, PA Greensburg, PA Romallso, Inc.: 1 - ------------------ Roosevelt Field Mall, Garden City, NY The Lauren Group, Inc.: 2 - -------------------------- Choices, Tannersville, PA Crossing Factory Store, Tannersville, PA 16 DoubleTree Hotels: 14 - --------------------- Austin, TX Louisville, KY III Boise, ID Miami Lakes, FL Hartsfield International Airport, Norwalk, CT Atlanta, GA Jacksonville, FL O'Hare, Chicago, IL Largo, MD Philadelphia, PA Louisville, KY I San Antonio, TX Louisville, KY II Tyson's Corner, VA ABP Southern California, LLC: 5 - -------------------------------- Brea Mall, Brea, North County Fair, Escondido Laguna Hills Mall, Laguna Hills South Lake Avenue, Pasadena Montclair Plaza, Montclair Boston Concessions Group: 1 - --------------------------- Logan International Airport, Terminal C, Boston CA One Services, Inc.: 7 - ------------------------- Ft. Lauderdale Airport, Newark International Airport, Ft Lauderdale, FL Newark, NJ Greater Cincinnati Airport, San Jose International Airport, Hebron, KY San Jose, CA Hancock International Airport, West Palm Beach International Syracuse, NY Airport, West Palm Beach, FL Logan International Airport, Boston, MA Crowne Plaza Ravinia: 1 - ----------------------- Crowne Plaza, Atlanta ABP Delaware Valley: 11 - ------------------------ 30th Street Station, Philadelphia Mellon Building, Philadelphia Commerce Square Montgomery Mall, Philadelphia Exton Square Mall, Exton, PA Ten Penn Center, Philadelphia Graham Building, Philadelphia Two Logan Square, Philadelphia King of Prussia, PA Two Penn Center, Philadelphia Liberty Place, Philadelphia FGR Food Corp.: 4 - ------------------ Dallas-Fort Worth Airport I Dallas-Fort Worth Airport III Dallas-Fort Worth Airport II Dallas-Fort Worth Airport IV 17 Franchise-Operated/International: 37 total as of December 27, 1997 ABP Alimentos y Servicios, Chile: 17 - ------------------------------------- Apoquindo/Hendaya Museum of Pre-Columbian Art Bandera New Providencia El Bosque Norte Providencia El Bosque Sud Ripley Food Garden Santiago Airport-Cart Gimnasio Santiago Airport-Counter Homecenter Las Condes Santiago Airport-Duty Free La Dehasa World Trade Center Miraflores GS&P Foods, Inc., The Philippines: 6 - ------------------------------------- EDSA/Shangri-La Mall, Ortegas Taipan Building, Ortegas Megamall, Ortegas Tektite Building, Manila PCI Tower, Makati Zeta Building, Manila PT Ayodhia Pina Pangan, Indonesia: 7 - ------------------------------------- BNI Building, Jakarta Plaza Senayan, Jakarta BRI Building, Jakarta Setia-Budi Atrium, Jakarta Kunigan Plaza, Jakarta Stock Exchange (BEJ), Jakarta Landmark Building, Jakarta Royal ABP Co., Ltd, Thailand: 3 - -------------------------------- Lake Rajarda Sindhorn SCB Plaza BV Hospitality UK Ltd, United Kingdom: 2 - ----------------------------------------- 225 The Strand, London Cheapside, London ABP Brasil Ltda, Brazil: 2 - --------------------------- Alameda Santos/Citibank, Sao Paulo Birmman Building, Sao Paulo 18 Saint Louis Bread Company Bakery Cafes: - --------------------------------------- Company-Operated Bakery Cafes: 60 total as of December 27, 1997 Greater St. Louis Market Area: 32 - ---------------------------------- Ballas, Creve Coeur, MO Gateway One, St. Louis, MO Baxter, Ballwin, MO Grand, St. Louis, MO Bogey Hills, St. Charles, MO Kirkwood, MO Brentwood, St. Louis, MO Main, St. Charles, MO Capriccio, Richmond Heights, MO Market, St. Louis, MO Cape Girardeau, MO Pine, St. Louis, MO Carondelot, Clayton, MO Rendezvous Cafe, Richmond Heights, MO Central West End, St. Louis, MO Soulard, St. Louis, MO Chesterfield Mall, Chesterfield, MO South 9th Street, Columbia, MO City Museum, St. Louis South Central, Clayton, MO Columbia Mall, Columbia, MO Surrey Plaza, Florissant, MO Crestwood Plaza, St. Louis, MO Telegraph Road, St. Louis, MO Delmar, University City, MO Tesson, St. Louis, MO Esquire, Clayton, MO West County, Des Peres, MO Four Seasons, Chesterfield, MO Westport Plaza, Maryland Heights., MO Galleria, Richmond Heights, MO Winchester, MO Atlanta Market Area: 9 - ----------------------- Briarcliff, Atlanta, GA Lenox Square, Atlanta, GA Dunwoody, GA Peachtree, Atlanta, GA Emory Village, Atlanta, GA Sandy Springs, Atlanta, GA Gwinnett Place, Deluth, GA Town Center, Kennesaw, GA Haywood Mall, Greenville, SC Chicago Market Area: 15 - ------------------------ Belleville, IL Park Ridge, IL Diversey, Chicago, IL St. Clair Square, Fairview Heights, IL Evanston, IL Stratford Square Mall, IL Fox Valley, Aurora, IL Vernon Hills, IL Golf & Meachum, Schaumberg, IL Wheaton, IL Halsted, Chicago, IL Wilmette, IL LaGrange Park, IL Winnetka, IL Orland Square Mall, Orland Park, IL Massachusetts Market Area: 1 - ----------------------------- Vinnin Square, Swampscott, MA Michigan Market Area: 3 - ------------------------ City Center, Novi, MI Orchard Mall, West Bloomfield, MI Lathrope Village, Bloomfield, MI 19 Franchise-Operated Bakery Cafes: 19 total as of December 27, 1997 Traditional Bakery, Inc.: 6 - ---------------------------- 1570 East Battlefield, 2401 East 32nd Street, Springfield, MO Joplin, MO 500 South National, East Sunshine, Springfield, MO Springfield, MO 3265 Falls Parkway, 3800 East 51st Street, Tulsa, OK Branson, MO Original Bread, Inc.: 6 - ------------------------ 11022 Metcalf, Overland Park, KS 520 West 23rd Street, Lawrence, KS 11319 West 95th St., 1605 North Rock Road, Wichita, KS Overland Park, KS 8300 Mission Road, Westport, Kansas City, KS Prairie Village, KS SLB of Iowa: 1 - --------------- Elmore Crossing, Davenport, IA Breads of the World: 2 - ----------------------- Festival at Sawmill, Dublin, OH Olentangy Plaza, Columbus, OH Breads Unlimited: 1 - -------------------- Tuttle Crossing Mall, Columbus, OH SLB of Central Illinois: 1 - --------------------------- 510 East John Street, Champaign, IL St.LB Inc.: 1 - -------------- Mall of St. Matthews, Louisville, KY Ozark Breads, Inc.: 1 - ---------------------- 2510 Missouri, Jefferson City, MO 20 The following table sets forth Company-operated and franchise operated bakery cafes open at the dates indicated: Dec. 25 Dec. 31, Dec. 30, Dec. 28, Dec. 27, 1993 1994 1995 1996 1997 ------- -------- -------- -------- -------- Company-operated Au Bon Pain 137 182 192 177 160 Saint Louis Bread 19 31 52 54 60 --- --- --- --- --- 156 213 244 231 220 Franchise-operated Au Bon Pain 39 25 29 48 96 Saint Louis Bread 1 6 8 10 19 --- --- --- --- --- 40 31 37 58 115 Total Au Bon Pain 176 207 221 225 256 Saint Louis Bread 20 37 60 64 79 --- --- --- --- --- 196 244 281 289 335 21 ITEM 3. LEGAL PROCEEDINGS None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. The Company submitted no matters to a vote of security holders during the fourth quarter of the fiscal year ended December 27, 1997. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED MATTERS. (a) Market Information. ------------------- The Company's Class A Common Stock is traded on the NASDAQ National Market tier of the NASDAQ Stock Market under the symbol ABPCA. The following table sets forth the high and low sale prices as reported by NASDAQ for the fiscal periods indicated. 1996 High Low - ---- ------ ----- First quarter .............................. 9-5/16 6-3/4 Second quarter ............................. 9 6-7/8 Third quarter .............................. 7-1/4 6-1/8 Fourth quarter ............................. 8-1/4 5-1/2 1997 - ---- First quarter .............................. 8-7/16 5-7/8 Second quarter ............................. 7-3/8 6 Third quarter .............................. 10-1/4 7 Fourth quarter ............................. 9-13/16 7-1/4 On March 17, 1998, the last sale price for the Class A Common Stock, as reported on the NASDAQ National Market System, was $8 5/16. (b) Holders. -------- On March 17, 1998, the Company had approximately 1,455 holders of record of its Class A Common Stock and approximately 91 holders of its Class B Common Stock. (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. 22 ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
For the fiscal years ended ------------------------------------------------------------- Dec. 25, Dec. 31, Dec. 30, Dec. 28, Dec. 27, 1993 1994 1995 1996 1997 ------- -------- -------- -------- -------- (in thousands, except per share data) Revenues: Restaurant sales $113,980 $173,436 $216,411 $225,625 $233,212 Franchise sales and other revenues 8,935 9,450 10,055 11,309 17,678 -------- -------- -------- -------- -------- 122,915 182,886 226,466 236,934 250,890 Costs and expenses: Cost of food and paper products 39,695 60,535 77,250 85,631 90,385 Restaurant operating expenses 56,697 85,139 112,161 115,364 119,537 Depreciation and amortization 7,967 11,891 14,879 16,195 16,862 General and administrative 6,757 10,098 12,818 14,979 16,417 Non-recurring charge - - 8,500 4,435 - -------- -------- -------- -------- -------- 111,116 167,663 225,608 236,604 243,201 -------- -------- -------- -------- -------- Operating income 11,799 15,223 858 330 7,689 Interest expense, net 57 1,727 3,363 5,140 7,204 Other (income) expense, net (28) 80 2,016 2,513 212 Minority interest 105 78 (94) (40) (42) Income(loss) before provision (benefit) for income taxes 11,665 13,338 (4,427) (7,283) 315 Provision(benefit) for income taxes 4,844 5,497 (2,813) (2,918) (1,492) -------- -------- -------- -------- -------- Net income(loss) $ 6,821 $ 7,841 $ (1,614) $ (4,365) $ 1,807 ======== ======== ======== ======== ======== Net income(loss) per common share - basic $ .71 $ .60 $ (.14) $ (.37) $ .15 ======== ======== ======== ======== ======== Net income(loss) per common share - diluted $ .69 $ .59 $ (.14) $ (.37) $ .15 ======== ======== ======== ======== ======== Weighted average number of shares outstanding - basic 11,042 11,429 11,621 11,705 11,766 Weighted average number of shares outstanding - diluted 11,353 11,624 11,621 11,705 11,913 Comparable restaurant sales percentage increase for Company-operated bakery cafes 6.7% 5.8%(1) 0.5% 0.7% 3.6%
1 Fiscal 1994 included 53 weeks. The 1994 restaurant sales used in this computation have been adjusted downward to be comparable to fiscal 1993 and fiscal 1995. 23
For the fiscal years ended ------------------------------------------------------------- Dec. 25, Dec. 31, Dec. 30, Dec. 28, Dec. 27, 1993 1994 1995 1996 1997 ------- -------- -------- -------- -------- (in thousands, except Company-operated bakery cafes open) Consolidated Balance Sheet Data: Working capital $ 5,817 $ (3,439) $ 846 $ (1,748) $ (58) Total assets 120,474 165,586 193,018 196,428 186,516 Long-term debt, less current maturities 274 19,095 42,502 49,736 42,527 Convertible subordinated notes 30,000 30,000 30,000 30,000 30,000 Stockholders' equity 76,098 94,164 93,238 90,056 92,274 Company-operated bakery cafes open 156 213 244 231 220
24 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following table sets forth the percentage relationship to total revenues of certain items included in the Company's consolidated statements of operations for the periods indicated: For the fiscal years ended --------------------------------------- Dec. 30, Dec. 28, Dec. 27, 1995 1996 1997 -------- -------- -------- Revenues: Restaurant sales 95.6% 95.2% 93.0% Franchise sales and other revenues 4.4 4.8 7.0 ----- ----- ----- 100.0% 100.0% 100.0% ===== ===== ===== Costs and expenses: Cost of food and paper products 34.1% 36.1% 36.0% Restaurant operating expenses 49.5 48.7 47.7 Depreciation and amortization 6.6 6.8 6.7 General and administrative 5.7 6.3 6.5 Non-recurring charge 3.7 1.9 - ----- ----- ----- 99.6 99.8 96.9 ----- ----- ----- Operating margin 0.4 0.2 3.1 Interest expense, net 1.5 2.2 2.9 Other expense, net 0.9 1.0 0.1 Minority interest -- -- -- ----- ----- ----- Income(loss) before (benefit) from income taxes (2.0) (3.0) 0.1 Benefit from income taxes (1.3) (1.2) (0.6) ----- ----- ----- Net income(loss) (0.7)% (1.8)% 0.7% ===== ===== ===== General The Company's revenues are derived from restaurant sales and franchise sales and other revenues. Franchise sales and other revenues include sales of frozen dough products to franchisees and others, royalty income and franchise fees. Certain expenses (cost of food and paper products, restaurant operating expenses and depreciation and amortization) relate primarily to restaurant sales, while general and administrative expenses relate to all areas of revenue generation. 25 The Company's fiscal year ends on the last Saturday in December. The fiscal years from 1995 through 1997 ended on December 30, 1995, December 28, 1996 and December 27, 1997 and included 52, 52 and 52 weeks, respectively. The Company's fiscal year normally consists of 13 four-week periods, with the first, second and third quarters ending 16 weeks, 28 weeks and 40 weeks, respectively, into the fiscal year. Results of Operations 1997 Compared to 1996 --------------------- Total restaurant sales from Company-operated bakery cafes increased 3.1% to $233 million in 1997 from $226 million in 1996 due to several factors. Incremental sales were generated from the opening of 6 new Saint Louis Bread Company-operated bakery cafes opened throughout 1997 and 3 Au Bon Pain and 2 Saint Louis Bread Company-operated bakery cafes opened throughout 1996. In addition, comparable restaurant sales increases in Saint Louis Bread and Au Bon Pain contributed to the sales growth. Restaurant sales increased 18.3% in the Saint Louis Bread business due to the store openings and strong comparable restaurant sales of 9.3%, which were slightly offset by the sale of one Saint Louis Bread Company-operated restaurant in connection with the execution of a franchise area development agreement. Sales from Company-owned restaurants in the Au Bon Pain business unit declined 1.7% as the sales from new Company-operated restaurants and an increase in comparable restaurant of 1.6% sales were more than offset by the effect of the disposition throughout 1997 of a number of underperforming bakery cafes. Other revenues increased to $17.7 million in 1997 from $11.3 million in 1996, principally from growth in wholesale sales to $8.0 million in 1997, from $5.7 million in 1996 and an increase in franchise revenue to $9.4 million in 1997, from $5.5 million in 1996. The wholesale sales increase was due to additional customers and distribution. The franchise revenue increase was driven by the execution of new franchise area development agreements, fees from opening new franchise locations and higher royalty income. Operating income increased to $7.7 million in 1997 from $330,000 in 1996. Operating income in 1996 included a non-recurring charge recorded by the Company of $4.4 million ($3.8 million after-tax), related principally to the write-down of certain assets under FAS #121. Before the non-recurring charge, operating income increased 61% in 1997 to $2.9 million above 1996, driven by increased sales and contribution, especially in the Saint Louis Bread division, where a significant increase in franchise contribution combined with sales growth and operational efficiencies drove Saint Louis Bread's operating income to nearly double versus 1996. In addition, manufacturing contribution 26 improved versus 1996, as the new production facility opened in 1996 in Mexico, MO stabilized its operating performance. Operating margin in the Au Bon Pain business unit declined by .5 points in 1997 versus 1996, due to higher food and paper costs of 1.2 points caused by higher commodity costs for butter and less than full capacity in the manufacturing facility in Mexico, Missouri. Restaurant operating expenses decreased by .7 points as sales growth and the closing of unprofitable restaurants provided leverage against occupancy and store overhead costs. Depreciation and amortization and general and administrative expenses as a percentage of revenue remained flat with the prior year. Operating margin in the Saint Louis Bread business unit increased by 4.3 points versus the prior year, as higher sales leveraged the fixed costs within the operational expenses and significantly higher franchise contribution increased operating margin. Food and paper costs were .4 points lower in 1997 versus 1996, as operational efficiencies offset commodity cost increases. Restaurant operating expenses as a percentage of revenue declined by 1.3 points with the sales improvement providing leverage against occupancy costs, which declined by .5 points, overhead costs, which declined by .1 points and labor, which declined by .6 points. Franchise contribution grew by over 700%, increasing margin by 1.5 points in 1997 versus 1996, as the broad-based franchise program initiated in 1996 for Saint Louis Bread successfully expanded the number of committed stores to 356 total stores. 1996 Compared to 1995 --------------------- Restaurant sales from Company-operated bakery cafes increased 4.2% to $226 million in 1996 from $216 million in 1995, due principally to several factors: incremental sales in 1996 over 1995 from the 15 Au Bon Pain and 20 Saint Louis Bread Company-operated bakery cafes opened throughout 1995, strong comparable restaurant sales in the Saint Louis Bread business unit and sales from the 3 Au Bon Pain and 2 Saint Louis Bread Company-operated bakery cafes opened throughout 1996. Company-operated restaurant sales decreased 2.9% in the Au Bon Pain business unit, as additional sales stemming from the new Company-operated bakery cafes opened in 1995 and 1996 were more than offset by the effect on sales of the disposition throughout 1996 of a series of underperforming bakery cafes under an initiative begun in late 1995. Company-operated restaurant sales increased 33.6% in the Saint Louis Bread business unit in 1996 over 1995, due to sales stemming from the new Company-operated bakery cafes opened in 1995 and 1996 and from strong comparable restaurant sales. Comparable restaurant sales in 1996 decreased 1.3%, or $1.96 million, in the Au Bon Pain business unit. In the Saint Louis Bread business unit comparable restaurant sales increased 10.2%, or $3.32 million, in 1996 over the previous year driven by a highly successful bagel product line introduction. 27 Operating income declined to $330,000 in 1996 from $858,000 in 1995. Operating income was significantly affected by separate non-recurring charges recorded by the Company of $4.4 million ($3.7 million after-tax) in 1996 and of $8.5 million ($5.3 million after-tax) in 1995. The non-recurring charge recorded in 1996 related principally to the write-down of certain assets in accordance with FAS #121. The non-recurring charge recorded in 1995 related principally to the closure of certain under-performing bakery cafes. Before the non-recurring charges, operating margin decreased in 1996 to 2.0% from 4.1% in 1995, as operating margin improvements at the Saint Louis Bread business unit were more than offset by lower operating margins in the Au Bon Pain business unit, driven primarily by costs associated with the start-up of a new frozen dough manufacturing facility opened during 1996 in Mexico, Missouri. Operating margin in the Au Bon Pain business unit declined by 4.3 points in 1996 versus 1995, due principally to start-up costs and inefficiencies related to the opening of the new manufacturing facility and significantly higher commodity costs for butter and flour in 1996 versus the previous year. In total, these manufacturing related costs constituted the majority of the 2.6 point increase to cost of food and paper costs as a percentage of revenues in the Au Bon Pain business unit compared to the prior year. Restaurant operating expenses increased by .4 points in 1996 versus 1995, as percentage increases in occupancy costs due to negative leverage stemming from the slight comparable restaurant sales decline more than offset percentage improvements in both labor costs and controllable expenses at the retail store level. Depreciation and amortization expense as a percentage of revenues increased by .4 points in 1996 due to incremental depreciation related to the new Missouri manufacturing facility and the negative leverage associated with the comparable restaurant sales decline. General and administrative expenses as a percentage of revenues increased by .9 points in 1996 versus 1995 due primarily to greater investment in infrastructure in the international franchise area, information systems and other overhead areas. At Saint Louis Bread, operating margin improved by 4.8 points in 1996 versus 1995, as the new management team established at the end of 1995 improved operational focus and control throughout 1996 and the significantly positive comparable restaurant sales increase in 1996 leveraged many of the largely fixed costs within the operations. Percentage food and paper costs decreased by .4 points in 1996 compared to 1995, despite higher allocated costs associated with frozen dough provided by the new manufacturing facility opened during the year. Percentage restaurant operating expenses decreased by 4.2 points driven by improved management controls surrounding labor costs and store-level controllable expenses. Depreciation and amortization expense and general and administrative expenses each decreased by .2 points versus the previous year due to leverage from the significantly higher sales in 1996. 28 Benefit from Income Taxes The Company had a benefit from income taxes of $2.8 million, $2.9 million and $1.5 million for the years ended December 30, 1995, December 28, 1996 and December 27, 1997, respectively, due to federal and state net operating loss carryforwards, tax credit carryforwards and the fact that the Company has incurred net losses. As of December 27, 1997, the Company had federal and state net operating loss carryforwards of approximately $40.0 million, as well as approximately $3.1 million of tax credit carryforwards available for income tax purposes. Approximately $13.1 million of these carryforwards expire in the years 2000-2002, while the remaining $26.9 million expires in the years 2010-2012. For the year ended December 31, 1997, the Company provided a valuation allowance of $1.3 million to reduce its deferred tax asset to a level which, more likely than not, will be realized. The valuation allowance is primarily attributable to the potential expiration of charitable contribution deduction carryforwards and certain state net operating loss carryforwards. The Company reevaluates the positive and negative evidence impacting the realizability of its deferred tax assets on an annual basis. Net income (loss) Higher operating income in 1997 versus 1996 and deferred tax assets generated during 1997 from federal net operating loss carryforwards and tax credit carryforwards (see "Benefit from Income Taxes"), partially offset by higher interest costs incurred in 1997, produced a significant increase in net income for the year ended December 27, 1997 versus a net loss of $4.3 million for the year ended December 28, 1996, which included a non-recurring charge of $3.8 million. The lower operating income in 1996 versus 1995, combined with higher interest expense and other expense, net resulted in a net loss of $4.4 million in 1996, as compared with a net loss of $1.6 million in 1995. The higher interest expense was due primarily to higher average long-term debt outstanding, as higher average interest rate due to the issuance of $15 million senior subordinated debentures in July, 1996 which carry a significantly higher coupon rate than the other outstanding long-term debt. Liquidity and Capital Resources Cash and cash equivalents decreased to $853,000 at December 27, 1997 from $2.6 million at December 28, 1996. The Company's principal requirements for cash are capital expenditures for constructing and equipping new bakery cafes and maintaining or remodeling existing bakery cafes and working capital. To date, the 29 Company has met its requirements for capital with cash from operations, proceeds from the sale of equity and debt securities and bank borrowings. Net cash provided by net income plus depreciation was $17.3 million in 1997 versus $10.3 million in 1996. A total of $13.5 million was provided by operating activities in 1997 compared to $14.8 million in 1996. In 1997, funds provided by operating activities were primarily the result of an increase in accrued expenses, offset by growth in accounts receivable and a decrease in accounts payable. In 1996, funds provided by operating activities were primarily the result of an increase in accounts payable and accrued expenses, offset by growth in accounts receivable and inventories. The Company utilized $7.7 million and $21.8 million for investing activities in 1997 and 1996, respectively. The investing activities in 1997 resulted primarily from three transactions. In the third quarter of 1997, the Company sold its interest in Peet's Coffee and Teas, Incorporated back to Peet's for $2 million in cash, resulting in a pre-tax gain of $930,000. Also in the third quarter of 1997, the Company sold a Saint Louis Bread cafe for $1.1 million in cash in conjunction with the execution of a franchise area development agreement, resulting in a pre-tax gain of $325,000. In the fourth quarter of 1997 the Company sold its Woburn, MA office building for $4.9 million in cash, resulting in a gain of $660,000. The pre-tax gains on these transactions were recognized as a component of other expense, net in the Company's consolidated financial statements for the year ended December 27, 1997. The Company used the proceeds of $3.3 million from these transactions to reduce debt during 1997. Total capital expenditures in 1997 of $14.7 million were related primarily to the opening of one Au Bon Pain and six Saint Louis Bread new Company-operated bakery cafes and to the construction of four new local Saint Louis Bread commissaries. The expenditures were mainly funded by net cash from operating activities of $13.5 million and cash proceeds from the non-operating transaction described above. The Company utilized $7.5 million and generated $3.2 million from financing activities in 1997 and 1996, respectively. The financing activities in 1997 and 1996 resulted primarily from proceeds from and principal payments on long-term debt, and the issuance of common stock under the Company's employee stock option and employee stock purchase plans. In 1998, the Company expects to spend approximately $22.0 million for capital expenditures, principally for the opening of new 30 bakery cafes. The Company expects to fund these expenditures substantially through internally generated cash flow. On July 24, 1996, the Company issued $15 million senior subordinated debentures maturing in July, 2000. The debentures accrue interest at increasing fixed rates over the four year term, ranging between 11.25% and 14.0%. In connection with the private placement, warrants with an exercise price of $5.62 per share were issued to purchase between 400,000 and 580,000 shares of the Company's Class A common stock, depending on the term which the debentures remain outstanding and certain future events. The net proceeds of the financing were used to reduce the amount outstanding under the Company's bank revolving line of credit. With the Company's existing revolving line of credit, management believes it has the capital resources necessary to meet its growth goals through 1999. The Company has a $28.0 million unsecured revolving line of credit which bears interest at either the commercial bank's prime rate or LIBOR plus 3.0%, at the Company's option. At December 27, 1997, $18.3 million was outstanding under the line of credit and an additional $1,200,000 of the remaining availability was utilized by outstanding letters of credit issued by the bank on behalf of the Company. The revolving line of credit matures on September 30, 1999. On March 23, 1998 the Company sold the Mexico, MO production facility and its wholesale frozen dough business to Bunge Foods Corporation ("Bunge") for approximately $13 million in cash. In conjunction with the sale, Au Bon Pain and Saint Louis Bread entered into five year supply agreements with Bunge for the supply of substantially all their frozen dough needs, excluding bagels, in their domestic bakery cafes. The Company expects the supply agreements will result in an improved operating margin of approximately .5% of total revenues, along with reduced interest expense. The net proceeds of the sale were used to reduce the $7.9 million outstanding for the Industrial Revenue Bond and $4.9 million for a permanent reduction to the revolving credit line. This reduction of the revolving credit line reduced the total commitment of the Banks in the Credit Agreement so that the amount available under the revolving credit line decreased to $23.1 million from $28 million (see Note 8). In addition, approximately $2 million of related receivables at December 27, 1997 will be used to further reduce debt. The Company expects to recognize a pre-tax loss on the sale of the facility of approximately $700,000 in the Company's results of operations for the first quarter of 1998. There were no gains or losses associated with the early retirement of the Industrial Revenue Bond or the partial repayment of the revolving credit line. 31 Assuming there is no significant change in the Company's business, the Company believes that the existing cash and cash equivalents as well as cash flows from operations will be sufficient to meet its working capital requirements for at least the next twelve months. Certain Factors Affecting Future Operating Results Statements made or incorporated in this Form 10-K include a number of forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements include, without limitation, statements containing the words "estimates," "projects," "anticipates," "believes," "expects," "intends," "future," and words of similar import which express management's belief, expectations or intentions regarding the Company's future performance. The forward-looking statements involve known and unknown risks and uncertainties. The Company's actual results could differ materially from those set forth in the forward-looking statements. The amount of cost to the Company under the new Supply Agreements is dependent upon market fluctuations in commodities prices, particularly flour and butter. Additionally, the Company's operating results may be affected by many factors, including but not limited to, variations in the number and timing of bakery cafe openings and public acceptance of new bakery cafes, competition and other factors that may affect retailers in general. The Company has not completed its assessment of the impact of the Year 2000 issue. It is management's belief that the primary financial systems are Year 2000 compatible. Testing of those systems for compliance is expected to occur during 1998. Many secondary systems associated with the Company's retail operations will require modifications. It is the Company's belief that existing internal Company resources will be adequate to reprogram these Year 2000 modifications. It is expected that the most significant Year 2000 system issue for the Company is with POS systems used by the Au Bon Pain concept. The Company is in negotiations with several vendors to replace the existing POS systems with new state-of-the-art systems. The new systems are expected to be leased at a net incremental cost of approximately $400,000 annually. The incremental cost of the new system is expected to be substantially offset by labor efficiency savings associated with the new POS system. Recent Accounting Pronouncements In June 1997, the Financial Accounting Standards Board ("FASB"), issued Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income". This statement requires that changes in comprehensive income be shown in a financial statement that is displayed with the same prominence as other financial statements. The statement is effective for annual periods beginning after December 15, 1997 and the Company will adopt its provisions in fiscal 1998. Reclassifications for earlier periods is required for comprehensive purposes. Management does not expect the statement to have an impact on its financial position or results of operations. 32 In June 1997, the Financial Accounting Standards Board issued Statement of Accounting standards ("SFAS") No. 131, "Disclosure about Segments of an Enterprise and Related Information," which changes the manner in which public companies report information about their operating segments. SFAS No 131 which is based on the management approach to segment reporting, establishes requirements to report selected segment information quarterly and to report entity-wide disclosures about products and services, major customers, and the geographic locations in which the entity holds assets and reports revenues. Management is currently evaluating the effects of this change on its reporting of segment information. The company will adopt SFAS No. 131 for its fiscal year ending December 26, 1998. 33 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following described consolidated financial statements of the Company are included in response to this item: Report of Independent Accountants. Consolidated Balance Sheets as of December 28, 1996 and December 27, 1997. Consolidated Statements of Operations for the fiscal years ended December 30, 1995, December 28, 1996 and December 27, 1997. Consolidated Statements of Cash Flows for the fiscal years ended December 30, 1995, December 28, 1996 and December 27, 1997. Consolidated Statements of Stockholders' Equity for the fiscal years ended December 30, 1995, December 28, 1996 and December 27, 1997. Notes to Consolidated Financial Statements. 34 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Au Bon Pain Co., Inc.: We have audited the accompanying consolidated financial statements and the financial statement schedules of Au Bon Pain Co., Inc. as of December 27, 1997 and December 28, 1996, and for each of the three fiscal years in the period ended December 27, 1997. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance as to whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Au Bon Pain Co., Inc. as of December 27, 1997 and December 28, 1996, and the consolidated results of its operations and cash flows for each of the three fiscal years in the period ended December 27, 1997 in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included herein. /s/ Coopers & Lybrand L.L.P. ----------------------------- Coopers & Lybrand L.L.P. Boston, Massachusetts February 13, 1998, except for Note 17, as to which the date is March 23, 1998. 35 AU BON PAIN CO., INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share amounts)
Dec. 28, Dec. 27, 1996 1997 --------- -------- ASSETS Current assets: Cash and cash equivalents........................... $ 2,579 $ 853 Accounts receivable, less allowance of $104 and $134 in 1996 and 1997, respectively................ 7,730 9,427 Inventories (Note 3)................................ 8,997 9,117 Prepaid expenses.................................... 2,353 775 Refundable income taxes............................. 2,117 596 Deferred income taxes (Note 11)..................... 488 600 -------- -------- Total current assets........................... 24,264 21,368 -------- -------- Property and equipment, net (Note 4)................. 121,733 112,232 -------- -------- Other assets: Notes receivable (Note 5)........................... 2,291 4,743 Intangible assets, net of accumulated amortization of $4,702 and $6,121 in 1996 and 1997, respectively 32,657 31,361 Deferred financing costs............................ 1,382 953 Deposits and other (Note 12)........................ 9,110 9,097 Deferred income taxes (Note 11)..................... 4,991 6,762 -------- -------- Total other assets............................. 50,431 52,916 -------- -------- Total assets................................... $196,428 $186,516 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable.................................... $ 11,141 $ 7,071 Accrued expenses (Note 7)........................... 14,169 13,917 Current maturities of long-term debt (Note 8)....... 702 438 -------- -------- Total current liabilities...................... 26,012 21,426 Long-term debt (Note 8) ............................. 49,736 42,527 Convertible subordinated notes (Note 9).............. 30,000 30,000 -------- -------- Total liabilities.............................. 105,748 93,953 Commitments and contingencies (Notes 8 and 10)....... - - Minority interest.................................... 624 289 Stockholders' equity (Note 13): Preferred stock, $.0001 par value: Class B, shares authorized 2,000,000; issued and outstanding 20,000 and 0 in 1996 and 1997, respectively...................................... - - Common stock, $.0001 par value: Class A, shares authorized 50,000,000; issued and outstanding 10,066,671 and 10,187,042 in 1996 and 1997, respectively............................ 1 1 Class B, shares authorized 2,000,000; issued and outstanding 1,647,354 and 1,610,038 convertible to Class A, in 1996 and 1997, respectively........ - - Additional paid-in capital.......................... 68,075 68,486 Retained earnings................................... 21,980 23,787 -------- -------- Total stockholders' equity..................... 90,056 92,274 -------- -------- Total liabilities and stockholders' equity..... $196,428 $186,516 ======== ========
The accompanying notes are an integral part of the consolidated financial statements. 36 AU BON PAIN CO., INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share amounts) for the fiscal years ended ---------------------------------- Dec. 30, Dec. 28, Dec. 27, 1995 1996 1997 -------- -------- -------- Revenues: Restaurant sales................ $216,411 $225,625 $233,212 Franchise sales and other revenues...................... 10,055 11,309 17,678 -------- -------- -------- 226,466 236,934 250,890 Costs and expenses: Cost of food and paper products. 77,250 85,631 90,385 Restaurant operating expenses: Labor......................... 57,860 60,266 63,593 Occupancy..................... 26,709 28,529 28,514 Other......................... 27,592 26,569 27,430 -------- -------- -------- 112,161 115,364 119,537 Depreciation and amortization... 14,879 16,195 16,861 General and administrative...... 12,818 14,979 16,418 Non-recurring charge (Note 6)... 8,500 4,435 - -------- -------- -------- 225,608 236,604 243,201 -------- -------- -------- Operating income.................. 858 330 7,689 Interest expense, net............. 3,363 5,140 7,204 Other expense, net (Notes 4, 12 and 15)......................... 2,016 2,513 212 Minority interest (income)........ (94) (40) (42) -------- -------- -------- Income (loss) before benefit from income taxes............... (4,427) (7,283) 315 Benefit from income taxes (Note 11)................. (2,813) (2,918) (1,492) -------- -------- -------- Net income (loss) ................ $ (1,614) $ (4,365) $ 1,807 ======== ======== ======== Net income (loss) per common share - basic $ (.14) $ (.37) $ .15 ======== ======== ======== Net income (loss) per common share - diluted $ (.14) $ (.37) $ .15 ======== ======== ======== Weighted average number of shares outstanding - basic.............. 11,621 11,705 11,766 ======== ======== ======== Weighted average number of shares outstanding - diluted............ 11,621 11,705 11,913 ======== ======== ======== The accompanying notes are an integral part of the consolidated financial statements. 37 AU BON PAIN CO., INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) for the fiscal years ended ---------------------------------- Dec. 30, Dec. 28, Dec. 27, 1995 1996 1997 -------- -------- -------- Cash flows from operations: Net income (loss)................... $ (1,614) $ (4,365) $ 1,807 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization..... 14,879 16,195 16,861 Amortization of deferred financing costs................. 77 308 619 Provision for losses on accounts receivable............. 73 44 49 Minority interest................. (94) (40) (42) Deferred income taxes............. (4,234) (430) (1,883) Non-recurring charge.............. 7,770 4,435 - Gain on sale of investment........ - - (930) Gain on sale of property and equipment....................... - - (986) Loss on disposal of property and equipment....................... 31 - 308 Changes in operating assets and liabilities: Accounts receivable............... 119 (1,178) (1,747) Inventories....................... (1,779) (1,221) (294) Prepaid expenses.................. (355) 343 1,514 Refundable income taxes........... 289 (1,423) 1,521 Accounts payable.................. (154) 820 (4,070) Accrued expenses.................. 771 1,287 769 -------- -------- -------- Net cash provided by operating activities.................... 15,779 14,775 13,496 -------- -------- -------- Cash flows from investing activities: Additions to property and equipment....................... (38,650) (17,062) (14,681) Proceeds from sale of property and equipment................... - - 6,044 Proceeds from sale of investment.. - - 2,000 Payments received on notes receivable...................... 59 82 139 Increase in intangible assets..... (50) (73) (122) Decrease (increase) in deposits and other....................... 1,450 (4,321) (1,058) Increase in notes receivable...... (951) (475) - -------- -------- -------- Net cash used in investing activities.................... (38,142) (21,849) (7,678) -------- -------- -------- The accompanying notes are an integral part of the consolidated financial statements. 38 for the fiscal years ended --------------------------------- Dec. 30, Dec. 28, Dec. 27, 1995 1996 1997 -------- -------- -------- Cash flows from financing activities: Exercise of employee stock options......................... 241 184 168 Issuance of warrants.............. - 679 - Proceeds from long-term debt issuance........................ 115,418 87,561 57,530 Principal payments on long-term debt.................. (87,713) (83,958) (65,003) Proceeds from issuance of common stock.................... 346 320 243 Increase in deferred financing costs................. (152) (1,211) (189) Decrease in minority interest..... (349) (342) (293) -------- -------- -------- Net cash provided by (used in) financing activities...... 27,791 3,233 (7,544) Net increase (decrease) in cash and cash equivalents................ 5,428 (3,841) (1,726) Cash and cash equivalents, at beginning of period................. 992 6,420 2,579 -------- -------- -------- Cash and cash equivalents, at end of period....................... $ 6,420 $ 2,579 $ 853 ======== ======== ======== Supplemental cash flow information: Cash paid during the period for: Interest..................... $ 4,097 $ 4,637 $ 6,602 Income taxes................. $ 1,543 $ 370 $ 700 Satisfaction of Notes Receivable in exchange for PP&E......... $ - $ 356 $ - Note received from sale of property and equipment.......... $ - $ - $ 2,591 The accompanying notes are an integral part of the consolidated financial statements. 39 AU BON PAIN CO., INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY for the fiscal years ended December 30, 1995, December 28, 1996 and December 27, 1997 (in thousands)
Common Stock Preferred Stock $.0001 Par Value $.0001 Par Value Class A Class B Class B Additional Total ------- ------- ------- Paid-In Retained Stockholders' Shares Amount Shares Amount Shares Amount Capital Earnings Equity ------ ------ ------ ------ ------ ------ ---------- -------- ------------ Balance, Dec. 26, 1994 9,828 $1 1,732 $- 20 $- $66,204 $27,959 $94,164 Exercise of employee stock options 45 241 241 Income tax benefit related to stock option plan 101 101 Issuance of common stock 31 346 346 Conversions of Class B to Class A 25 (25) Net loss (1,614) (1,614) ----- -- ----- -- -- -- ------- ------- ------- Balance, Dec. 30, 1995 9,929 $1 1,707 $- 20 $- $66,892 $26,345 $93,293 ----- -- ----- -- -- -- ------- ------- ------- Exercise of employee stock options 30 147 147 Income tax benefit related to stock option plan 37 37 Issuance of common stock 48 320 320 Warrants issued for debt financing 679 679 Conversions of Class B to Class A 60 (60) Net loss (4,365) (4,365) ------ -- ----- -- -- -- ------- ------- ------- Balance, Dec. 28, 1996 10,067 $1 1,647 $- 20 $- $68,075 $21,980 $90,056 ------ -- ----- -- -- -- ------- ------- ------- Exercise of employee stock options 23 152 152 Income tax benefit related to stock option plan 16 16 Issuance of common stock 40 243 243 Conversions of Class B to Class A 37 (37) Conversions of preferred stock to Class A common stock 20 (20) Net income 1,807 1,807 ------ -- ----- -- -- -- ------- ------- ------- Balance, Dec. 27, 1997 10,187 $1 1,610 $- 0 $- $68,486 $23,787 $92,274 ====== == ===== == == == ======= ======= =======
The accompanying notes are an integral part of the consolidated financial statements. 40 AU BON PAIN CO. INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Nature of Business Au Bon Pain Co., Inc. and its subsidiaries operate two retail bakery cafe businesses and two franchising businesses under the concept names "Au Bon Pain" and "Saint Louis Bread Company". Certain Saint Louis Bread Company stores began operating under the name "Panera Bread" during 1997. Included in franchise sales and other revenues are sales of product to franchisees and others of $7.4 million, $8.3 million and $11.7 million for the fiscal years ended December 30, 1995, December 28, 1996 and December 27,1997, respectively. Included in costs and expenses are charges related to franchise sales of approximately $1.3 million, $1.9 million and $2.6 million for the fiscal years ended December 30, 1995, December 28, 1996 and December 27, 1997, respectively. 2. Summary of Accounting Policies Principles of Consolidation The consolidated statements include the accounts of Au Bon Pain Co., Inc., ABP Holdings, Inc., a wholly owned subsidiary, Saint Louis Bread Company, Inc. ("Saint Louis Bread"), a wholly owned subsidiary, ABP Midwest Manufacturing, a wholly owned subsidiary, and investments in joint ventures in which a majority interest is held (the "Company"). All intercompany balances and transactions have been eliminated. Preparation of Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Reclassifications Certain items in the prior year financial statements have been reclassified to conform to current year presentation. Cash and Cash Equivalents The Company considers all highly liquid investments with a maturity at the time of purchase of three months or less to be cash equivalents. 41 AU BON PAIN CO., INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Inventories Inventories are valued at the lower of cost (first-in, first-out) or market. Property, Equipment and Depreciation Property and equipment are stated at cost. Upon retirement or sale, the cost of assets disposed of and their related accumulated depreciation are removed from the accounts. Any resulting gain or loss is credited or charged to operations. Maintenance and repairs are charged to expense when incurred, while betterments are capitalized. Depreciation is computed over the estimated useful lives of the assets using the straight-line method. Leasehold improvements are amortized over the terms of the leases (including available option periods) or over their useful lives, whichever is shorter. The estimated useful lives used for financial statement purposes are: Machinery and equipment................. 3-10 years Furniture and fixtures.................. 3-10 years Leasehold improvements.................. 10-23 years Signs................................... 10 years Interest is capitalized in connection with the construction of new locations or facilities. The capitalized interest is recorded as part of the asset to which it relates and is amortized over the asset's estimated useful life. Capitalized interest amounted to $792,000, $581,000 and $70,780 in 1995, 1996 and 1997 respectively. Intangible Assets Intangible assets consist of goodwill arising from the excess cost over the value of net assets of joint ventures, businesses and stores acquired, as well as the original acquisition of the Company. Goodwill is amortized on a straight-line basis over periods ranging from twenty-five to forty years. Periodically management assesses, based on undiscounted cash flows, if there has been a permanent impairment in the carrying value of its intangible assets and, if so, the amount of any such impairment, by comparing anticipated discounted future operating income from acquired businesses with the carrying value of the related intangibles. In performing this analysis, management considers such factors as current results, trends, future prospects and other economic factors. Income Taxes The provision for income taxes is determined in accordance with the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes". Under this method, deferred taxes are determined based on the difference between the financial statements and the tax bases of assets and liabilities using enacted income tax rates in effect in the years in which the differences are expected to reverse. 42 AU BON PAIN CO., INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The Company's temporary differences consist primarily of depreciation and amortization and reserves. Deferred Financing Costs Costs incurred in connection with obtaining debt financing are amortized over the terms of the related debt. Franchise and Development Fees Franchise fees are the result of sales of area development rights and the sale of individual franchise locations to third parties, both domestically and internationally. Fees from the sale of area development rights are 100% recognized as revenue upon completion of all commitments related to the agreements. Fees from the sale of individual franchise locations are 100% recognized as revenue upon the commencement of franchise operations. Capitalization of Certain Development Costs The Company capitalizes certain expenses associated with the development and construction of new store locations. Capitalized costs of $2.4 million and $2.7 million as of December 28, 1996 and December 27, 1997, respectively, are recorded as part of the asset to which they relate and are amortized over the asset's useful life. Advertising Costs Advertising costs are expensed when incurred. Pre-Opening Costs All pre-opening costs associated with the opening of new retail locations are expensed when incurred. Fiscal Year The Company's fiscal year ends on the last Saturday in December. Fiscal years for the consolidated financial statements included herein include 52 weeks for the fiscal years ended December 30, 1995, December 28, 1996 and December 27, 1997. Income Per Share Data Earnings per share is based on the weighted average number of shares outstanding during the period after consideration of the dilutive effect, if any, for common stock equivalents, including stock options, warrants and preferred stock. Statement of Financial Accounting Standards No. 128, "Earnings Per Share," requires dual presentation of basic and diluted EPS. SFAS 128 has been adopted in the Company's 1997 financial statements with comparable disclosures for the prior year. 43 AU BON PAIN CO., INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Fair Value of Financial Instruments The carrying amount of the Company's long term debt, including current maturities, approximates fair value because the interest rates on these instruments change with market interest rates. The carrying amounts for accounts receivable and accounts payable approximate their fair values due to the short maturity of these instruments. Recent Accounting Pronouncements In June 1997, the Financial Accounting Standards Board ("FASB"), issued Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income". This statement requires that changes in comprehensive income be shown in a financial statement that is displayed with the same prominence as other financial statements. The statement is effective for annual periods beginning after December 15, 1997 and the Company will adopt its provisions in fiscal 1998. Reclassifications for earlier periods is required for comprehensive purposes. Management does not expect the statement to have a material impact on its financial position or results of operations. In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information," which changes the manner in which public companies report information about their operating segments. SFAS No. 131 which is based on the management approach to segment reporting, establishes requirements to report selected segment information quarterly and to report entity-wide disclosures about products and services, major customers, and the geographic locations in which the entity holds assets and reports revenues. Management is currently evaluating the effects of this change on its reporting of segment information. The company will adopt SFAS No. 131 for its fiscal year ending December 26, 1998. 3. Inventories Inventories consist of the following (in thousands): December 28, December 27, 1996 1997 ------------ ------------ Production....................... $ 3,071 $ 3,389 Retail stores.................... 1,762 1,680 Paper goods...................... 456 392 Smallwares....................... 3,161 3,008 Other............................ 547 648 -------- -------- $ 8,997 $ 9,117 ======== ======== 44 AU BON PAIN CO., INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 4. Property and Equipment Major classes of property and equipment consist of the following (in thousands): December 28, December 27, 1996 1997 ------------ ------------ Leasehold improvements........... $ 91,161 $101,619 Machinery and equipment.......... 59,414 63,319 Furniture and fixtures........... 19,063 18,603 Construction in progress......... 19,585 1,083 Signage.......................... 3,634 3,515 -------- -------- 192,857 188,139 Less accumulated depreciation and amortization............... 71,124 75,907 -------- -------- Property and equipment, net...... $121,733 $112,232 ======== ======== In the fourth quarter of 1997 the Company sold its Woburn, MA office building for $4.9 million in cash, resulting in a gain of $660,000. The gain was recognized as a component of other expense, net. In the third quarter of 1997, the Company sold a Saint Louis Bread cafe for $1.1 million in cash in conjunction with the execution of a franchise area development agreement, resulting in a pre-tax gain of $325,000. The gain was recognized as a component of other expense, net. The Company recorded depreciation expense related to these assets of $13.4 million, $14.7 million and $15.4 million in 1995, 1996 and 1997, respectively. 5. Notes Receivable Notes receivable relate to the sale of certain retail locations and to the funding for the opening of new locations of a franchisee. In the third quarter of fiscal 1997 the Company franchised 11 of its existing ABP stores in the Philadelphia market to ABP Delaware Valley LLC. As part of the sale the Company received a note receivable in the amount of $2.6 million which bears interest at the rate of 8.25% per annum. There was no gain or loss recognized on the transaction. The note requires monthly principal and interest payments of $28,765 commencing in November 1997 which reflect an interest rate of 6.00%. The difference of 2.25% interest shall accrue with respect to the outstanding principal amount of this note. Commencing November 4, 1999, ABP Delaware Valley LLC will make the scheduled payment plus any accrued interest until it is paid in full. The note matures August 11, 2007. In addition, the Company holds five additional notes receivable with two other franchisees with an outstanding principal balance of $2.2 million at December 27, 1997. These notes bear interest at between 8.00% and 9.25%. Two of these notes require monthly payments while the remaining three notes require payments of interest with a balloon payment of $1.4 million due in 2004. The notes mature between 2003 and 2004. 45 AU BON PAIN CO., INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. Non-recurring Charges During the third quarter of fiscal 1996, the Company recorded a non-recurring charge of $4.4 million principally to reflect a write-down under Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for the Long-Lived Assets to be Disposed of". SFAS 121, adopted at the beginning of fiscal year 1996, establishes accounting standards for recognizing and measuring the impairment of long-lived assets and requires reducing the carrying amount of any impaired asset to fair value. The charge was taken as a result of continued less than expected performance results at certain Au Bon Pain restaurants. The $4.4 million non-cash charge included a $1.4 million goodwill write-down, a $0.6 million fixed asset write-down and a $1.4 million write-down of an office building held for resale. The charge represented a reduction of the carrying amounts of the assets to their estimated fair values as determined by using discounted estimated future cash flows. In addition, the $4.4 million charge included a $1.0 million charge to write-down the book value of six restaurants whose leases expired in 1997 and which were not renewed. For the fifty-two weeks ended December 28, 1996 and December 27, 1997 the restaurants included in the reserve had sales of $3,096,000 and $1,559,000, respectively and a pre-tax loss of $578,000 and $313,000, respectively. During the third quarter of fiscal 1995, the Company recorded a non-recurring pre-tax charge of $8.5 million principally to cover the expected costs of closing certain under-performing restaurants. The components of the non-recurring charge included cash costs of approximately $2.1 million for lease obligations, professional and consulting services, employee relocation and termination costs and non-cash charges of approximately $6.4 million related to fixed asset disposals. The store closures were completed in fiscal 1996 for a total cost of approximately $221,000. For the fifty-two weeks ended December 28, 1996 and December 27, 1997 the stores included in the reserve had sales of $4,247,000 and $0, respectively and a pre-tax loss of $946,000 and $209,000, respectively. 7. Accrued Expenses Accrued expenses consist of the following (in thousands): December 28, December 27, 1996 1997 ------------ ------------ Accrued insurance.................... $ 1,310 $ 1,384 Rent................................. 3,503 3,799 Payroll and related taxes............ 2,554 2,182 Interest............................. 1,319 1,390 Other................................ 4,649 $ 5,162 ------- ------- $13,335 $13,917 ======= ======= 46 AU BON PAIN CO., INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 8. Long-term Debt Long-term debt consists of the following (in thousands): December 28, December 27, 1996 1997 ------------ ------------ Revolving credit line at prime + .5% (9.00% at December 27, 1997)......... $22,000 $18,326 Term loan - variable rate................ 3,533 - Industrial development bond for Mexico, Missouri plant at weekly floating rate (4.25% at December 27, 1997)................... 8,300 7,900 Loan with Cigna Insurance at prime less .75% (7.75% at December 27, 1997)..... 2,000 2,000 Term loan at 7.0% payable in annual installments of $50,000 including interest, due January 2001................................. 205 169 Senior Subordinated Debenture (13.00% at December 27, 1997)................ 14,400 14,570 ------- ------- Total debt............................. 50,438 42,965 Less current maturities................ 702 438 ------- ------- Total long-term debt................... $49,736 $42,527 ======= ======= As of both December 28, 1996 and December 27, 1997, the Company had a $28 million unsecured revolving line of credit. The revolving credit agreement contains restrictions relating to future indebtedness, liens, investments, distributions, the merger, acquisition or sale of assets and certain leasing transactions. The agreement also requires the maintenance of certain financial ratios and covenants, the most restrictive being a debt to net worth ratio. There is a fee of 3/8% of the unused portion of the revolving line of credit. Available unused borrowings totaled approximately $5.1 million at December 28, 1996 and $8.5 million at December 27, 1997. At December 28, 1996 and December 27, 1997 the Company had outstanding letters of credit against the revolving line of credit aggregating $0.9 million and $1.2 million, respectively. Interest is calculated on the $3.5 million term loan at the lower of prime plus .5% or LIBOR plus an amount ranging from 1.25% to 3.0% depending on certain financial tests. Interest-only payments are due under the revolving credit line monthly, in arrears, with principal balance payable at maturity September 30, 1999. In March 1995, the Company signed a note for the purpose of purchasing a building in Woburn, MA. The Company had originally planned to move their corporate offices to this location. Principal and interest on the note were paid quarterly, with interest being calculated based on the applicable Eurodollar rate plus .75%. Under the term loan, the Company had the right, at its election, to repay the outstanding amount as a whole or in part, at any time without penalty or premium. The Company sold the building in December of 1997 and retired the note which had a balance of $3.2 million. 47 AU BON PAIN CO., INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) In July, 1995 the Company obtained an industrial development bond issued by the City of Mexico, Missouri, secured by a $8.7 million letter of credit with a commercial bank. The bond matures in July, 2000 and interest is payable monthly at a weekly floating rate, which was 4.25% on December 27, 1997. On July 24, 1996, the Company issued $15 million senior subordinated debentures maturing in July, 2000. The debentures accrue interest at varying fixed rates over the four year term, ranging from 11.25% to 14.0%. In connection with the private placement, warrants with an exercise price of $5.62 per share were issued to purchase between 400,000 and 580,000 shares of the Company's Class A Common Stock, depending on the term which the debentures remain outstanding and certain future events. At December 27, 1997, 400,000 warrants were issued and outstanding, all of which were vested. The Company has recognized interest expense of $3.4 million, $5.1 million and $7.2 million as of December 30, 1995, December 28, 1996, and December 27, 1997, respectively. Maturities of debt outstanding at December 27, 1997 are as follows (in thousands): 1998........................... $ 438 1999........................... 20,867 2000........................... 15,013 2001........................... 447 2002........................... 500 Thereafter..................... 5,700 ------- $42,965 ======= 9. Convertible Subordinated Notes In December 1993, the Company issued $30.0 million of its unsecured 4.75% Convertible Subordinated Notes due 2001 ("1993 Notes"). The 1993 Notes are convertible at the holders' option into shares of the Company's Class A Common Stock at $25.50 per share. In December 1997, the Company could have, at its option, redeemed all or a part of the outstanding 1993 Notes upon payment of a premium. The Company did not redeem all or part of the outstanding notes. The note agreement requires the Company to maintain minimum permanent capital, as therein defined. 10. Commitments The Company is obligated under noncancelable operating leases for a production facility, a commissary and retail stores. Lease terms are generally for ten years with renewal options at certain locations and generally require the Company to pay a proportionate share of real estate taxes, insurance, common area and other operating costs. Substantially all store leases provide for contingent rental payments based on sales in excess of specified amounts. 48 AU BON PAIN CO., INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Aggregate minimum requirements under these leases are, as of December 27, 1997, approximately as follows (in thousands): 1998........................... $ 20,047 1999........................... 18,473 2000........................... 17,217 2001........................... 15,010 2002........................... 12,914 Thereafter..................... 40,907 -------- $124,568 ======== Rental expense under long-term leases was approximately $22.3 million, $29.3 million and $24.5 million in 1995, 1996 and 1997, respectively, which included contingent rentals of approximately $2.9 million, $3.0 million and $3.0 million, respectively. 11. Income Taxes Payable The benefit from income taxes in the consolidated statements of operations is comprised of the following (in thousands): December 30, December 28, December 27, 1995 1996 1997 ------------ ------------ ------------ Current: Federal............... $ 1,202 $(1,650) $ 259 State................. 219 (838) 132 ------- ------- ------- 1,421 (2,488) 391 ------- ------- ------- Deferred: Federal............... (3,597) (365) (1,433) State................. (637) (65) (450) ------- ------- ------- (4,234) (430) (1,883) ------- ------- ------- Total benefit from income taxes.......... $(2,813) $(2,918) $(1,492) ======= ======= ======= A reconciliation of the statutory federal income tax rate and the effective tax rate as a percentage of pretax income is as follows: 1995 1996 1997 ------ ------ ------ Statutory rate (benefit)........... (34.0)% (34.0)% 34.0% State income taxes, net of federal tax benefit.............. (4.0) 2.2 (432.8) Utilization of tax credits......... (2.8) - - Charitable contributions........... (4.0) (3.7) (89.9) Company-owned Life Insurance (See Note 12)...................... (28.8) (15.4) (451.0) Non-deductible goodwill and meals and entertainment................ 5.7 9.1 51.0 Other, net......................... 4.3 1.8 (.4) Change in valuation allowance...... - - 415.4 ----- ----- ------ (63.6)% (40.0)% (473.7)% ===== ===== ====== 49 AU BON PAIN CO., INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The tax effects of the significant temporary differences which comprise the deferred tax assets are as follows (in thousands): 1996 1997 -------- ------ Current assets: Receivables Reserve............. $ 42 $ 56 Accrued Expenses................ 368 544 Other reserves................... 78 - ----- ------ 488 600 Non-current assets/liabilities: Property, plant and equipment.... 799 443 Accrued expenses................. 1,073 1,135 Goodwill......................... (1,325) (1,648) Tax credit carried forward....... 2,862 3,368 Net operating loss carried forward........................ 1,363 4,484 Charitable contribution carried forward ....................... 219 296 Other reserves................... - (8) ------ ------ 4,991 8,070 Total Deferred Tax Asset....... 5,479 8,670 Valuation Allowance............ - (1,308) ------ ------ Total net deferred tax asset....... $5,479 $7,362 ====== ====== A valuation allowance is provided to reduce the deferred tax assets to a level which, more likely than not, will be realized. The valuation allowance is primarily attributable to the potential expiration of charitable contribution deduction carryforwards and certain state net operating loss carryforwards. The Company estimates that after filing its federal income tax returns for the year ended December 27, 1997, it will have net operating losses of $5,844,000 which can be carried forward from thirteen to fifteen years to offset Federal taxable income. The Company also estimates that after filing its state income tax returns for the year ended December 27, 1997 it will have state net operating losses of $13,142,000 which can be carried forward from three to five years and $20,693,000 which can be carried forward from thirteen to fifteen years to offset state taxable income. The Company has Federal jobs tax credit carryforwards of approximately $594,000 which expire in twelve to thirteen years. In addition, the Company has Federal alternative minimum tax credit carryforwards of approximately $2,499,000 which are available to reduce future regular Federal income taxes over an indefinite period. The Company reevaluates the positive and negative evidence impacting the realizability of its deferred income tax assets on an annual basis. 50 AU BON PAIN CO., INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 12. Deposits and Other During fiscal 1997, the Company established a $4.3 million deposit with its distributor. This financial arrangement allows the Company to receive lower distribution costs. The savings exceed the carrying value of the deposit. The deposit is flexible and the Company may at times decrease the amount on deposit, at its discretion. In the third quarter of 1997, the Company sold its interest in Peet's Coffee and Teas, Incorporated back to Peet's for $2 million in cash, resulting in a pre-tax gain of $930,000. The gain was recognized as a component of other expense, net. During fiscal year 1994, the Company established a company-owned life insurance program ("COLI") covering a substantial portion of its employees. At December 27, 1997, the cash surrender value and prepaid premiums of $75.9 million and the insurance policy loans of $74.8 million were netted and included in other assets on the consolidated balance sheet. The loans are collateralized by the cash values of the underlying life insurance policies and require interest payments at a rate of 10.3%. Tax law changes adopted as part of the Health Insurance Portability and Accountability Act significantly reduced the level of tax benefits recognized under the Company's COLI program in the third quarter of 1996. The Company included $.5 million of expenses in other (income) expense, net, relating to COLI in 1997. 13. Stockholders' Equity Class B Preferred Stock In April 1994, the Company issued 20,000 shares of Class B Preferred Stock (Series 1) as part of the ABP Midwest acquisition. In 1997 these shares were converted to Class A Common Stock. Common Stock Each share of Class B Common Stock has the same dividend and liquidation rights as each share of Class A Common Stock. The holders of Class B Common Stock are entitled to three votes for each share owned. The holders of Class A Common Stock are entitled to one vote for each share owned. Each share of Class B Common Stock is convertible, at the shareholder's option, into Class A Common Stock on a one-for-one basis. The Company had reserved at December 27, 1997, 7,589,719 shares of its Class A Common Stock for issuance upon conversion of Class B Common Stock and exercise of awards granted under the Company's 1992 Equity Incentive Plan, Formula Stock Option Plan for Independent Directors and conversion of the 1993 Notes (see Note 9). 51 AU BON PAIN CO., INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Registration Rights Certain holders of Class A and Class B Common Stock, pursuant to stock subscription agreements, can require the Company, under certain circumstances, to register their shares under the Securities Act of 1933 or have included in certain registrations all or part of such shares, at the Company's expense. 1992 Equity Incentive Plan In May 1992, the Company adopted its Equity Incentive Plan ("Equity Plan") to replace its Non-Qualified Incentive Stock Option Plan. Under the Equity Plan, a total of 950,000 shares of Class A Common Stock was initially reserved for awards under the Equity Plan. The Equity Plan was amended by the Board of Directors and the stockholders in May 1994 and June 1997 to increase the number of shares available thereunder from 950,000 to 2,500,000, and from 2,500,000 to 4,300,000 respectively. Awards under the Equity Plan can be in the form of stock options (both qualified and non-qualified), stock appreciation rights, performance shares, restricted stock or stock units. Activity under the Equity Plan and its predecessor is summarized below: Weighted Average Shares Exercise Price ---------- ---------------- Outstanding at December 31, 1994 1,407,313 $18.50 Granted....................... 1,543,052 $ 7.47 Exercised..................... (45,425) $ 5.30 Canceled...................... (1,473,503) $17.88 ---------- ------ Outstanding at December 30, 1995 1,431,437 $ 7.32 Granted....................... 742,345 $ 7.67 Exercised..................... (30,200) $ 4.87 Canceled...................... (211,548) $ 7.92 ---------- ------ Outstanding at December 28, 1996 1,932,034 $ 7.42 Granted....................... 1,226,169 $ 7.49 Exercised..................... (23,148) $ 6.56 Canceled...................... (143,537) $ 8.05 ---------- ------ Outstanding at December 27, 1997 2,991,518 $ 7.44 ========== ====== Options vest over a five year period and must be exercised within ten years from the date of the grant. Of the options at December 27, 1997, 1,168,134 were vested and exercisable. Formula Stock Option Plan for Independent Directors On January 27, 1994, the Company's Board of Directors authorized the Formula Stock Option Plan for Independent Directors, as defined in the agreement. This plan authorized a one-time grant of an option to purchase 10,000 shares of the Company's Class A Common Stock at its closing price on January 26, 1994. The plan also allows for independent 52 AU BON PAIN CO., INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) directors elected after that time to receive a similar option at the closing price for the day immediately preceding the individual's election to the board. Each independent director who is first elected as such after the effective date of the Directors' Plan shall receive, as of the date he or she is so elected, a one-time grant of an option to purchase 5,000 shares of Class A Common Stock at a price per share equal to the closing price of the Class A Common Stock as reported by the NASDAQ/National Market System for the trading day immediately preceding the date of the person's election to the board. In addition, all independent directors serving in such capacity as of the last day of each fiscal year commencing with the fiscal year ending December 31, 1994 receive an option to purchase 5,000 shares of Class A Common Stock at the closing price for the prior day. Each option granted is fully vested at the grant date, and is exercisable, either in whole or in part, for 10 years following the grant date. The Company has granted 113,248 options under this plan as of December 27, 1997. Stock-Based Compensation In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation", which is effective for the Company's financial statements for fiscal years beginning after December 15, 1995. SFAS 123 allows companies to either account for stock-based compensation under the new provisions of SFAS 123 or under the provisions of Accounting Principles Board Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to Employees", but requires pro-forma disclosure in the footnotes to the financial statements as if the measurement provisions of SFAS 123 had been adopted. The Company has elected the disclosure-only alternative and, accordingly, no compensation costs have been recognized for the stock option plans. Had compensation costs for the Company's stock option plans been determined based on the fair value at the grant date for awards in 1995 and 1996 consistent with the provisions of SFAS 123, the Company's net income (loss) for the years ended December 28, 1996 and December 27, 1997 would have been increased to the pro forma amounts indicated below:
1995 1996 1997 ------------------------- ------------------------- ------------------------- Net Loss Net Loss Net Loss Net Loss Net Income Net Income (in thousands) Per Share (in thousands) Per Share (in thousands) Per Share As Reported $(1,614) $(.14) $(4,365) $(.37) $1,807 $.15 Pro Forma $(1,819) $(.16) $(4,965) $(.42) $ 953 $.08
53 AU BON PAIN CO., INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The effects of applying SFAS 123 in this pro-forma disclosure are not likely to be representative of the effects on reported net income for future years. SFAS 123 does not apply to awards prior to 1995 and additional awards in future years are anticipated. The fair value of the options granted during 1995, 1996 and 1997 is $3.20 per share, $3.46 per share and $3.69 per share, respectively, on the date of grant using the Black-Scholes option-pricing model with the following assumptions: dividend yield 0%, volatility of 35% in 1995 and 1996 and 40% in 1997, risk-free interest rate of 6.14% in 1995, 5.99% in 1996 and 6.38% in 1997, and an expected life of 6 years. The following table summarizes information concerning currently outstanding and exercisable options: Options Options Outstanding Exercisable -------------------------------- ---------------------- Weighted Average Range of Remaining Weighted Weighted Exercise Number Contractual Average Number Average Price Outstanding Life Price Exercisable Price - ------------ ----------- ----------- -------- ----------- -------- $ 4.50- 6.75 259,013 6.13 $ 6.16 141,780 $ 6.04 $ 6.75-10.13 2,711,240 8.20 $ 7.51 1,020,003 $ 7.32 $10.13-15.19 20,089 8.36 $13.07 5,812 $12.91 $15.19-21.25 1,176 6.92 $21.25 539 $23.16 --------- ---- ------ --------- ------ 2,991,518 7.93 $ 7.44 1,168,134 $ 7.20 1992 Employee Stock Purchase Plan In May 1992, the Company adopted its 1992 Employee Stock Purchase Plan ("1992 Purchase Plan") to replace its Employee Stock Purchase Plan. The 1992 Purchase Plan was amended in June 1997 by the Board of Directors and Stockholders to increase the number of shares of Class A Common Stock reserved for issuance from 150,000 to 350,000. The 1992 Purchase Plan gives eligible employees the option to purchase Class A Common Stock (total purchases in a year may not exceed 10% of an employee's prior year compensation) at 85% of the fair market value of the Class A Common Stock at the date of purchase. 14. Employee Benefit Plans Employee Savings Plan The Au Bon Pain Employee 401(k) Plan ("Savings Plan") was adopted by the Company in 1991 under Section 401(k) of the Internal Revenue Code of 1986, as amended. All employees of the Company, including executive officers, are eligible to participate in the Savings Plan. A participating employee may elect to defer on a pre-tax basis up to 15% of his or her salary. This amount is contributed to the Savings Plan. All amounts vest immediately and are invested in various funds as directed by the participant. The full amount in a participant's account will be distributed to a participant upon termination of employment, retirement, 54 AU BON PAIN CO., INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) disability or death. The Company does not currently contribute to the Savings Plan. The Saint Louis Bread Company Employee 401(k) Plan ("Saint Louis Bread Savings Plan") adopted by the former Saint Louis Bread Company in 1993 under Section 401(k) of the Internal Revenue Code of 1986, as amended. In 1997 the "Saint Louis Bread Savings Plan" was merged into the Au Bon Pain "Savings Plan". Plan participants of the "Saint Louis Bread Savings Plan" retained the matching contributions made through 1996 with a vesting schedule of seven years. There has been no further matching as of December 27, 1997. 15. Litigation Settlement During the third quarter of 1997, the Company entered into a definitive agreement to settle a lawsuit filed by a former vendor of the Company. The Company recognized a charge of $675,000 in the third quarter of 1997 as a component of other expense(income), net, to cover the settlement and other expenses incurred in connection therewith. 16. Net Income (Loss) Per Share The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share data): For the fiscal years ended --------------------------------------- Dec. 30, Dec. 28, Dec. 27, 1995 1996 1997 -------- -------- -------- Net income (loss) used in net income (loss) per common share - basic $ (1,614) $ (4,365) $ 1,807 Net income (loss) used in net income (loss) per common share - diluted $ (1,614) $ (4,365) $ 1,807 Weighted average number of shares outstanding - basic 11,621 11,705 11,766 Effect of dilutive securities: Employee stock options -- -- 42 Stock warrants -- -- 105 -------- -------- -------- Weighted average number of shares outstanding - diluted 11,621 11,705 11,913 Net income (loss) per common share - basic $ (0.14) $ (0.37) $ 0.15 Net income (loss) per common share - diluted $ (0.14) $ (0.37) $ 0.15 During 1995, 1996 and 1997, options to purchase 1,176,000 shares of common stock at $25.50 per share were outstanding in conjunction with the 55 AU BON PAIN CO., INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) issuance of $30 million of convertible subordinated notes (see Note 9). These shares were not included in the computation of diluted earnings per share for the fiscal years ended December 30, 1995, December 28, 1996 or December 27, 1997 because the addition of interest expense, after the effect of income taxes, of $855,000 to net income (loss) would have been antidilutive. During 1995 and 1996, options to purchase 422,080 and 248,450 shares of common stock at an average price of $6.69 and $5.77 per share, respectively, and warrants to purchase 0 and 96,000 shares of common stock at $5.62 per share were outstanding but were not included in the computation of diluted earnings per share for the fiscal years ended December 30, 1995 or December 28, 1996 because the effect would have been antidilutive. 17. Subsequent Event On March 23, 1998 the Company sold the Mexico, MO production facility and its wholesale frozen dough business to Bunge Foods Corporation ("Bunge") for approximately $13 million in cash. In conjunction with the sale, Au Bon Pain and Saint Louis Bread entered into five year supply agreements with Bunge for the supply of substantially all their frozen dough needs, excluding bagels, in their domestic bakery cafes. The Company expects the supply agreements will result in an improved operating margin of approximately .5% of total revenues, along with reduced interest expense. The net proceeds of the sale were used to reduce the $7.9 million outstanding for the Industrial Revenue Bond and $4.9 million for a permanent reduction to the revolving credit line. This reduction of the revolving credit line reduced the total commitment of the Banks in the Credit Agreement so that the amount available under the revolving credit line decreased to $23.1 million from $28 million (see Note 8). In addition, approximately $2 million of related receivables at December 27, 1997 will be used to further reduce debt. The Company expects to recognize a pre-tax loss on the sale of the facility of approximately $700,000 in the Company's results of operations for the first quarter of 1998. There were no gains or losses associated with the early retirement of the Industrial Revenue Bond or the partial repayment of the revolving credit line. 56 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III Information required by Part III (Items 10 through 13) is incorporated by reference to the Company's definitive proxy statement for its 1998 annual meeting of stockholders which will be filed with the Securities and Exchange Commission on or before April 27, 1998. If for any reason such a statement is not filed within such period, this Report will be appropriately amended. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) 1. FINANCIAL STATEMENTS. The following described consolidated financial statements of the Company are included in this report: Report of Independent Accountants. Consolidated Balance Sheets at December 28, 1996 and December 27, 1997. Consolidated Statements of Operations for the years ended December 30, 1995, December 28, 1996 and December 27, 1997. Consolidated Statements of Cash Flows for the years ended December 30, 1995, December 28, 1996 and December 27, 1997. Consolidated Statements of Stockholders' Equity for the years ended December 30, 1995, December 28, 1996 and December 27, 1997. Notes to Consolidated Financial Statements. 2. FINANCIAL STATEMENTS SCHEDULE. ----------------------------- The following financial statement schedule for the Company is filed herewith: Schedule II - Valuations and Qualifying Accounts. Schedule II AU BON PAIN CO., INC. VALUATION AND QUALIFYING ACCOUNTS (in thousands) ================================================================================ Balance at Balance beginning at end Description: of period Additions Deductions of period - -------------------------------------------------------------------------------- Allowance for Doubtful Accounts Fiscal Year ended Dec. 30, 1995 $ 76 $ 73 $89 $ 60 Fiscal Year ended Dec. 28, 1996 $ 60 $ 69 $25 $ 104 Fiscal Year ended Dec. 27, 1997 $104 $ 49 $19 $ 134 Valuation Allowance Fiscal Year ended Dec. 27, 1997 $ 0 $1,308 $ 0 $1,308 57 All other schedules are omitted because not applicable or not required by Regulation S-X. 3. EXHIBITS. -------- Exhibit NUMBER DESCRIPTION - ------- ----------- 2.1 Asset Purchase Agreement by and among Au Bon Pain Co., Inc., ABP Midwest Manufacturing Co., Inc. and Bunge Foods Corporation dated as of February 11, 1998; Amendment to Asset Purchase Agreement, dated as of March 23, 1998.* 3.1 Certificate of Incorporation of Registrant, as amended to June 2, 1991. Incorporated by reference to Exhibit 3.1 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994. 3.1.1 Certificate of Amendment to Certificate of Incorporation, dated and filed June 3, 1991. Incorporated by reference to Exhibit 3.1.1 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994. 3.1.2 Certificate of Amendment to the Certificate of Incorporation filed on June 2, 1994. Incorporated by reference to Exhibit 3.1.2 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994. 3.1.3 Certificate of Designations, Preferences and Rights of the Class B Preferred Stock (Series 1), filed November 30, 1994. Incorporated by reference to Exhibit 3.1.3 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994. 3.2 Bylaws of Registrant, as amended to date. Incorporated by reference to Registrant's registration statement on Form S-1 (File No. 33-40153), Exhibit 3.2. 4.1.1 Amended and Restated Revolving Credit Agreement dated as of February 13, 1998 among the Issuer, Saint Louis Bread Company, Inc., ABP Midwest Manufacturing Co., Inc., BankBoston, N.A., USTrust and BankBoston N.A. as Agent.* 4.1.2 Amended and Restated Revolving Credit Note dated as of February 13, 1998 of the Issuer, Saint Louis Bread Company, Inc. and ABP Midwest Manufacturing Co., Inc. in favor of BankBoston, N.A.* 4.1.3 Amended and Restated Revolving Credit Note dated as of February 13, 1998 of the Issuer, Saint Louis Bread Company, Inc. and ABP Midwest Manufacturing Co., Inc. in favor of USTrust.* 4.2 Form of 4.75% Convertible Subordinated Note due 2001. Incorporated by reference to Registrant's Form 8-K filed December 22, 1993, Exhibit 4. 58 4.3.1 Investment Agreement dated as of July 24, 1996 by and between Au Bon Pain Co., Inc., Saint Louis Bread Company, Inc., ABP Midwest Manufacturing Co., Inc., Allied Capital Corporation, Allied Capital Corporation II, Capital Trust Investments, Ltd. Incorporated by reference to Exhibit 4.3.1 of Registrant's Annual Report on Form 10-K for the year ended December 28, 1996. 4.3.2 Senior Subordinated Debenture dated as of July 24, 1996 in the amount of $3,600,000 from Au Bon Pain Co., Inc., Saint Louis Bread Company, Inc., and ABP Midwest Manufacturing Co., Inc. payable to Allied Capital Corporation. Incorporated by reference to Exhibit 4.3.2 of Registrant's Annual Report on Form 10-K for the year ended December 28, 1996. 4.3.3 Senior Subordinated Debenture dated as of July 24, 1996 in the amount of $7,500,000 to Au Bon Pain Co., Inc., Saint Louis Bread Company, Inc., and ABP Midwest Manufacturing Co., Inc. payable to Capital Trust Investments, Ltd. Incorporated by reference to Exhibit 4.3.3 of Registrant's Annual Report on Form 10-K for the year ended December 28, 1996. 4.3.4 Senior Subordinated Debenture dated as of July 24, 1996 in the amount of $3,900,000 from Au Bon Pain Co., Inc., Saint Louis Bread Company, Inc., and ABP Midwest Manufacturing Co., Inc. payable to Allied Capital Corporation II. Incorporated by reference to Exhibit 4.3.4 of Registrant's Annual Report on Form 10-K for the year ended December 28, 1996. 10.1 Distribution Service Agreement between the Registrant and the SYGMA Network, Inc., dated December 2, 1994. Incorporated by reference to Exhibit 10.1.1 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994. 10.2 Lease from Economic Development and Industrial Corporation to the Registrant, dated December 14, 1982, as amended August 1, 1984 and July 1, 1985. Incorporated by reference to Registrant's registration statement on Form S-1 (File No. 33-40153), Exhibit 10.8. 10.3.1 Registrant's Non-Qualified Stock Option Plan For Employees and forms of option agreements thereunder. Incorporated by reference to Registrant's registration statement on Form S-1 (File No. 33-40153), Exhibit 10.10. 10.3.2 Registrant's 1992 Equity Incentive Plan and form of non-qualified option agreement thereunder. Incorporated by reference to Registrant's registration statement on Form S-1 (File No. 33-40153), Exhibit 10.13. 59 10.3.3 Registrant's 1992 Employee Stock Purchase Plan. Incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 30, 1995. 10.3.4 Registrant's Formula Stock Option Plan for Independent Directors and form of option agreement thereunder, as amended. Incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 30, 1995. 10.4 Amended and Restated Coffee Supply Agreement by and among Registrant and Peet's Companies, Inc., Peet's Coffee and Tea, Inc., and Peet's Trademark Company, dated as of the 26th day of October, 1994. Incorporated by reference to Exhibit 10.8 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994. 10.5 Indenture of Trust dated as of July 1, 1995 by and between the Industrial Development Authority of the City of Mexico, Missouri and Mark Twain Bank, as Trustee. Incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 30, 1995. 10.5.1 Loan Agreement dated as of July 1, 1995 by and between the Industrial Development Authority of the City of Mexico, Missouri and ABP Midwest Manufacturing Co., Inc. Incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 30, 1995. 10.5.2 Promissory Note issued by ABP Midwest Manufacturing Co., Inc. in the face amount of $8,741,370. Incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 30, 1995. 10.6.1 Employment Agreement between the Registrant and Richard Postle. Incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 30, 1995.+ 10.6.2 Employment Agreement between the Registrant and Robert Taft. Incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 28, 1996.+ 10.6.3 Employment Agreement between the Registrant and Maxwell Abbott. Incorporated by reference to Exhibit 10.6.3 of the Registrant's Annual Report on Form 10-K for the year ended December 28, 1996.+ 10.6.4 Employment Letter between the Registrant and Samuel Yong. Incorporated by reference to Exhibit 10.6.4 of the Registrant's Annual Report on Form 10-K for the year ended December 28, 1996.+ 60 10.7.1 Form of Stock Purchase Warrant from Au Bon Pain Co., Inc. to Allied Capital Corporation, Allied Capital Corporation II, and Capital Trust Investments, Ltd. Incorporated by reference to Exhibit 10.7.1 of the Registrant's Annual Report on Form 10-K for the year ended December 28, 1996. 10.7.2 Form of Contingent Stock Purchase Warrant from Au Bon Pain Co., Inc. to Allied Capital Corporation, Allied Capital Corporation II and Capital Trust Investments, Ltd. Incorporated by reference to Exhibit 10.7.2 of the Registrant's Annual Report on Form 10-K for the year ended December 28, 1996. 10.7.3 Form of Stock Purchase Warrant from Au Bon Pain Co, Inc. to Princes Gate Investors, L.P., Acorn Partnership I L.P., PG Investments Limited, PGI Sweden AB and Gregor Von Open. Incorporated by reference to Exhibit 10.7.3 of the Registrant's Annual Report on Form 10-K for the year ended December 28, 1996. 10.7.4 Registration Rights Agreement dated as of July 24, 1996 among Allied Capital Corporation, Allied Capital Corporation II, Capital Trust Investments, Ltd., Princes Gate Investors, L.P., Acorn Partnership I, L.P., PGI Investments Limited, PGI Sweden AB, Gregor Von Open and Au Bon Pain Co., Inc., Incorporated by reference to Exhibit 10.7.4 of the Registrant's Annual Report on Form 10-K for the year ended December 28, 1996. 10.8.4 Form of Rights Agreement, dated as of October 21, 1996 between the Registrant and State Street Bank and Trust Company. Incorporated by reference to the Registrant's Registration Statement on Form 8-A (File No. 000-19253). 10.9 Bakery Product Supply Agreement by and between Bunge Foods Corporation and Saint Louis Bread Company, Inc. dated as of March 23, 1998.* 10.10 Bakery Product Supply Agreement by and between Bunge Foods Corporation and Au Bon Pain Co., Inc. dated as of March 23, 1998.* 21 Registrant's Subsidiaries. Incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 28, 1996. 61 23.1 Consent of Coopers & Lybrand L.L.P.* 27 Financial Data Schedule.* - -------------------------- * Filed herewith. + Management contract or compensatory plan required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c). (b) Reports on Form 8-K. During the last quarter of the fiscal year covered by this report, the Company filed no report on Form 8-K. 62 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AU BON PAIN CO., INC. By: /S/ LOUIS I. KANE --------------------------------------------- Louis I. Kane Co-Chairman Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the date indicated: Signature Title Date - --------- ----- ---- /S/ LOUIS I. KANE Co-Chairman March 25, 1998 - -------------------------- Louis I. Kane /S/ RONALD M. SHAICH Co-Chairman and March 25, 1998 - -------------------------- Principal Executive Ronald M. Shaich Officer /S/ FRANCIS W. HATCH Director March 25, 1998 - -------------------------- Francis W. Hatch /s/ GEORGE E. KANE Director March 27, 1998 - -------------------------- George E. Kane Director _________________ - -------------------------- James R. McManus /S/ HENRY J. NASELLA Director March 25, 1998 - -------------------------- Henry J. Nasella /S/ JOSEPH P. SHAICH Director March 25, 1998 - -------------------------- Joseph P. Shaich /S/ ANTHONY J. CARROLL Senior Vice President, March 25, 1998 - --------------------------- Treasurer and Principal Anthony J. Carroll Accounting Officer 63 Exhibit Index
Exhibit Item Page - ------- ---- ---- 2.1 Asset Purchase Agreement by and among Au Bon Pain Co., Inc., ABP Midwest Manufacturing Co., Inc. and Bunge Foods Corporation dated as of February 11, 1998; Amendment to Asset Purchase Agreement, dated as of March 23, 1998.* 4.1.1 Amended and Restated Revolving Credit Agreement dated as of February 13, 1998 among the Issuer, Saint Louis Bread Company, Inc., ABP Midwest Manufacturing Co., Inc., BankBoston, N.A., USTrust and BankBoston N.A. as Agent.* 4.1.2 Amended and Restated Revolving Credit Note dated as of February 13, 1998 of the Issuer, Saint Louis Bread Company, Inc. and ABP Midwest Manufacturing Co., Inc. in favor of BankBoston, N.A.* 4.1.3 Amended and Restated Revolving Credit Note dated as of February 13, 1998 of the Issuer, Saint Louis Bread Company, Inc. and ABP Midwest Manufacturing Co., Inc. in favor of USTrust.* 10.9 Bakery Product Supply Agreement by and between Bunge Foods Corporation and Saint Louis Bread Company, Inc. dated as of March 23, 1998.* 10.10 Bakery Product Supply Agreement by and between Bunge Foods Corporation and Au Bon Pain Co., Inc. dated as of March 23, 1998.* 23.1 Consent of Coopers & Lybrand L.L.P.* 27 Financial Data Schedule.*
EX-2.1 2 ASSET PURCHASE AGREEMENT Execution Copy ASSET PURCHASE AGREEMENT This ASSET PURCHASE AGREEMENT ("Agreement") is made and entered into as of the 11th day of February, 1998, by and between BUNGE FOODS CORPORATION, a Delaware corporation with its executive offices at 3701 Algonquin Road, Suite 360, Rolling Meadows, Illinois 60008 ("Buyer"), AU BON PAIN CO., INC., a Delaware Corporation with its executive offices at 19 Fid Kennedy Avenue, Boston, Massachusetts 02210 ("Au Bon Pain"); and ABP MIDWEST MANUFACTURING CO., INC., a Delaware corporation with its executive offices at 19 Fid Kennedy Avenue, Boston, Massachusetts 02210 ("Seller"). W I T N E S S E T H: WHEREAS, Seller and its affiliate, Saint Louis Bread Company, Inc., a Delaware corporation ("Saint Louis Bread"), are wholly-owned subsidiaries of Au Bon Pain; and WHEREAS, Seller is the owner and operator of a bakery products manufacturing facility (as more specifically defined herein, the "Plant") located in Mexico, Missouri, where it manufactures bakery products for distribution to the bakery/cafe retail outlets owned and franchised by Au Bon Pain and Saint Louis Bread, and for wholesale distribution into certain markets; and WHEREAS, Seller desires to sell, transfer, assign and convey to Buyer, and Buyer desires to purchase from Seller, the Plant and certain of Seller's assets associated with the Plant and the operation of Seller's wholesale business at the Plant, for a cash payment, all upon and subject to the terms, conditions, and covenants herein set forth; and WHEREAS, as a material inducement to Seller and Au Bon Pain, and as a condition (among others) for Seller's and Au Bon Pain's agreement to enter into this Agreement and to sell the Plant and other assets related to the Plant and the operation of Seller's wholesale business at the Plant upon such terms, conditions and covenants, Buyer has agreed to enter into separate supply agreements with each of Au Bon Pain and Saint Louis Bread providing for the manufacture and sale of bakery products to Au Bon Pain, Saint Louis Bread, and their respective franchise systems through their distributors (each a "Supply Agreement"); and WHEREAS, as a material inducement to Buyer, and as a condition (among others) for Buyer's agreement to enter into this Agreement and to purchase the Plant and other assets related to the Plant and the operation of Seller's wholesale business at the Plant upon such terms, conditions and covenants, Au Bon Pain and Saint Louis Bread have each agreed to enter into their respective Supply Agreements. NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, and for other good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged, the parties hereto, each of them intending to be legally bound, hereby agree as follows: ARTICLE 1 TERMS OF SALE 1.1 Purchase and Sale of Assets. Subject to the terms and conditions hereof, at the Closing (as defined in Section 8.1), Seller or Au Bon Pain, as applicable, shall sell to Buyer, and Buyer shall purchase and accept delivery and conveyance from Seller or Au Bon Pain, as applicable of, all of the following assets of Seller or Au Bon Pain, as applicable (collectively, the "Assets"): (a) The real property and improvements located in the City of Mexico, County of Audrain, Missouri, as more particularly described in Schedule 1.1(a), together with all rights, privileges, rights of way and easements appurtenant to such premises, whether recorded or unrecorded, whether currently open or used, including, without limitation, rights to all minerals, oil or gas on or under such premises, development rights, air rights, water rights and any easements, rights of way or other interests in, on, or under any land, highway, alley, street, passage or right of way abutting or adjoining such premises and all fixtures, machinery, equipment and conduits providing fire protection, security, heat, exhaust, ventilation, air conditioning, electricity, lighting, plumbing, gas, sewer and water at the location of such premises and all use permits and zoning variances (collectively, the "Real Property"); (b) All items of tangible personal property owned by Seller and located at the Plant and used or usable in connection with the ownership or operation of the Plant and the operation of Seller's wholesale business at the Plant, including, without limitation, all improvements, furniture, furnishings, fixtures, computer hardware and software, equipment, machinery, apparatus, appliances, storage containers, tools, dies, jigs and related spare parts and all supplies, together with all manuals, written warranties, licenses and other similar documents relating thereto (collectively, the "Personal Property") (the Personal Property and the Real Property are referred to herein collectively as the "Plant"); (c) All inventory of raw materials, work-in-process, packaging, shipping materials, finished goods and supplies related to the operation of the Plant and the operation of Seller's business at the Plant (collectively, "Inventories"); (d) All notes receivable and trade accounts receivable arising out of the operation of Seller's wholesale business at the Plant, except as provided in Section 1.2(a) (collectively, the "Receivables"); (e) The prepaid expenses, deposits and rights to credits or refunds described on Schedule 1.1(e) (collectively, the "Prepaid Expenses"); (f) All right, title and interest in and to the leases related to the operation of the Plant and the operation of Seller's wholesale business at the Plant which are described on Schedule 1.1(f) (collectively, the "Leases"); (g) All right, title and interest in and to the contracts related to the operation of the Plant and the operation of Seller's wholesale business at the Plant which are described on Schedule 1.1(g) (collectively, the "Contracts", together with the Leases, the "Assumed Contracts"); -2- (h) The recipes, formulas, product specifications, operating standards, and preparation procedures for those products marketed and sold by Seller in connection with its wholesale business which are described on Schedule 1.1(h) (collectively, the "Wholesale Products"); (i) All designs, models, prototypes, plans, specifications, engineering and other drawings and everything related thereto; all sales materials, catalogs, advertising, marketing and promotional materials; all customer and supplier lists, mailing lists; and copies of sales records, account histories, correspondence with customers, and records of purchases from correspondence with suppliers (collectively, the "Intangibles"); (j) The Missouri Enterprise Zone Tax Incentives listed on Schedule 1.1(j) attached hereto, to the extent transferable by Buyer; and (k) The wholesale business as a going concern, including all transferable government permits, including the goodwill thereof. 1.2 Excluded Assets. Any provision of this Agreement to the contrary notwithstanding, Buyer shall not purchase, and Seller shall not sell, any right, title or interest of Seller in and to the following (collectively, the "Excluded Assets"): (a) Any accounts receivable due from any affiliate of Seller or from any Distributor (as such term is defined in the Supply Agreement), or any receivable that is in dispute or is more than 90 days past its due date at the time of the closing; (b) Any item of tangible personal property which consists of copyrighted material, or bears any trademark or service mark, of Au Bon Pain or Saint Louis Bread, including without limitation, any sales and marketing material or packaging, unless such material is used as permitted in the Supply Agreements or the Manufacturing Licenses entered into pursuant to (and as defined in) Section 7.1; (c) The assets which are specifically identified on Schedule 1.2(c); and (d) Any prepaid expense associated with any Assumed Contract which Assumed Contract is not assigned to Buyer. 1.3 Purchase Price; Payment. (a) The aggregate consideration for the sale of the Assets, and the performance and fulfillment of the other terms, conditions and covenants of this Agreement shall be the sum of the net book value of the Assets as reflected on Seller's books and records on the Closing Date (as defined in Section 8.1) plus One Million Dollars ($1,000,000) (the "Purchase Price"), and the assumption by Buyer of the Assumed Liabilities (as defined in Section 1.5). The net book value of the Assets shall be determined in accordance with generally accepted accounting principles consistently applied ("GAAP"); provided, however, that (1) notwithstanding Seller's practice of recording Inventories on its books, the net book value of the Inventories shall be determined in -3- accordance with GAAP with all costs fully absorbed; and (2) no reserve for doubtful accounts shall be included in determining the net book value of the Assets. (b) Three (3) business days prior to the Closing Date, Seller shall deliver to Buyer a statement of the estimated net book value of the Assets as of the Closing Date (the "Estimated Net Book Value"). The Purchase Price shall be paid in full by Buyer at the Closing based on the Estimated Net Book Value in lawful currency of the United States of America by wire transfer of immediately available funds to an account designated by a written notice from Seller to Buyer which notice shall be delivered to Buyer not less than three (3) days prior to the Closing. (c) Within thirty (30) days after the Closing Date, Seller shall prepare and deliver to Buyer a proposed final statement of the net book value of the Assets as of the Closing Date (the "Final Net Book Value"). Buyer shall have thirty (30) calendar days to review Seller's proposed statement of the Final Net Book Value. If Buyer disputes any item included in such statement, it shall, within such thirty (30) day period, provide Seller with a written notice specifying in reasonable detail such item(s) of dispute. Buyer and Seller shall attempt in good faith to resolve by mutual agreement the item(s) in dispute within thirty (30) calendar days (the "Resolution Period") immediately following the delivery of such written notice. If any of the item(s) in dispute are not resolved within the Resolution Period, the parties shall submit the dispute(s) for resolution to Arthur Andersen, LLP, or such other so-called "Big Six" accounting firm mutually agreed upon by Buyer and Seller (the "Arbitrator"), whose decision shall be final and binding on the parties, and when made, shall be deemed to be an agreement between the parties on the issues so determined. The expense of the Arbitrator shall be borne equally by the parties. (d) If the Final Net Book Value, as finally determined pursuant to Section 1.3(c), exceeds the Estimated Net Book Value, then Buyer shall pay Seller the amount of such excess within five (5) business days after the date of final determination. If the Final Net Book Value, as finally determined pursuant to Section 1.3(c), is less than the Estimated Net Book Value, then Seller shall pay, and Au Bon Pain shall cause Seller to pay, Buyer the amount of such difference within five (5) business days after the date of final determination. 1.4 Apportionment of Taxes and Other Charges. All normal and customarily apportioned items including without limitation, real estate and personal property taxes and assessments, and utility bills, shall be prorated between the parties as of the Closing Date. 1.5 Assumption of Certain Liabilities. At the Closing and subject to the terms and conditions of this Agreement, Buyer shall assume, pay or discharge the liabilities and obligations of Seller under the Assumed Contracts and those specified on Schedule 1.5 (such liabilities and obligations are referred to herein, collectively, as the "Assumed Liabilities"). Except for the Assumed Liabilities, Buyer shall not assume or be deemed to assume or become liable for, and Seller shall remain liable for and hold Buyer harmless against, any other liabilities, debts, contracts, commitments or obligations of Seller, whether the same are known or unknown, liquidated or unliquidated, insured or uninsured, existing, contingent upon future events or circumstances, accrued, funded, unfunded or otherwise. -4- 1.6 Form of Conveyance. (a) The Real Property shall be conveyed at the Closing in fee simple absolute, by a good and sufficient general warranty deed (the "Deed"), to Buyer and shall convey a good and clear record and marketable title to the Real Property, free from all Liens, tenants and occupants from or on the Real Property except for those matters listed on Schedule 1.6(a). The Deed shall be in proper form for recording and shall be duly executed, acknowledged and delivered by Seller, together with all necessary or applicable conveyance and transfer tax forms and checks in payment of all conveyance and transfer taxes. Acceptance and recording of the Deed at the Closing by Buyer shall constitute satisfaction of the terms and conditions of this Section 1.6(a). (b) All Assets not described in Section 1.6(a) shall be conveyed at the Closing free of all Liens by a bill of sale and assignment (the "Bill of Sale") in substantially the form attached hereto as Exhibit 1.6(b) to be delivered by Seller to Buyer at Closing. 1.7 Tax Allocation. For all federal, state and local tax purposes, the Purchase Price shall be allocated among the various items in the manner indicated in Schedule 1.7. Neither Seller nor Buyer shall file any Return (as defined in Section 2.11) or report or take any position with any taxing agency or authority that is inconsistent with the such allocation, except to the extent required by a court of law or an appropriate taxing agency or authority in a determination binding upon either such party; provided, however, that such party provides reasonable written notice and opportunity to the other party, at such other party's sole cost and expense, to contest and appeal such determination on behalf of both parties, and such determination nevertheless becomes final. 1.8 Collection of Receivables. (a) At the Closing, Seller shall deliver to Buyer a listing of all Receivables (including debtor and aging information) reflected on the books and records of Seller as of the Closing Date certified as true and accurate by an authorized officer of Seller. From and after the Closing, Buyer shall have the right and authority to collect for its own account all Receivables and to endorse, until such Receivables may be reassigned to Seller pursuant to Section 1.8(b), the name of Seller on any checks or drafts received with respect to any such Receivables, and Seller and Au Bon Pain each agrees to deliver promptly to Buyer any payments received by Seller and Au Bon Pain, as the case may be, with respect to the Receivables, and to instruct account debtors to forward payments to Buyer. Buyer shall deliver promptly to Seller any payments received by Buyer with respect to the receivables not purchased by Buyer. If any Receivable is to be collected through a draw on a letter of credit or similar instrument issued for the account of any customer, Seller shall cooperate with Buyer to assign all of Seller's rights under such letter of credit or other instrument, where permitted, or otherwise to ensure that Buyer obtains the benefit of the proceeds of such letter of credit or other instrument. (b) If Buyer has not received payment of any such Receivable within ninety (90) calendar days of its due date, Seller will pay, and Au Bon Pain will cause Seller to pay, to Buyer such uncollected amount on demand, but in no case shall such demand be made later than one hundred ten (110) business days after the Closing Date. Upon receipt of payment of any such Receivable from Seller, Buyer shall assign to Seller any such Receivable for collection without recourse. -5- Payments received by Buyer which are not designated as applicable to a specific invoice shall be applied to unpaid invoices chronologically beginning with payment of the oldest invoice first. Buyer shall use reasonable collection efforts with respect to the Receivables after the Closing Date, consistent with its collection practice for its accounts receivable generally, until the uncollected Receivables are reassigned to Seller. Buyer shall deliver promptly to Seller any payments received by Buyer with respect to any reassigned Receivables. ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF SELLER Seller and Au Bon Pain represent and warrant jointly and severally to Buyer that: 2.1 Organization and Good Standing. (a) Seller is duly organized and is validly existing as a corporation in good standing under the laws of the State of Delaware with full corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. Seller is duly qualified to do business as a foreign corporation and is in good standing under the laws of each state or jurisdiction in which either the ownership or use of the properties owned or used by it, or the nature of the activities conducted by it, require such qualification. Seller has all requisite power and authority to own, lease and operate the Assets and to carry on the business at the Plant as currently conducted. (b) Au Bon Pain is duly organized and is validly existing as a corporation in good standing under the laws of the State of Delaware with full corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. ABP Midwest is a wholly-owned subsidiary of Au Bon Pain. Au Bon Pain is duly qualified to do business as a foreign corporation and is in good standing under the laws of each state or jurisdiction in which either the ownership or use of the properties owned or used by it, or the nature of the activities conducted by it, require such qualification. 2.2 Execution and Delivery; No Conflicts. (a) All consents, approvals, authorizations and orders necessary for the execution, delivery and performance by Seller and Au Bon Pain of their respective obligations hereunder, other than as described in Schedule 2.2(a), have been obtained. This Agreement and each other agreement, instrument or other document to which either or both of them are a party and which is required to be executed by either or both of them hereunder (collectively, the "Other Agreements") has been duly authorized by all necessary corporate action on the part of Seller and Au Bon Pain and has been duly executed and delivered by Seller and Au Bon Pain and constitutes the legal, valid and binding obligation of Seller and Au Bon Pain enforceable against each of them in accordance with its terms, except to the extent that (i) such enforcement is subject to or limited by bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally; and (ii) the remedy of specific performance and injunctive and other forms of equitable remedies is subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. -6- (b) Upon receipt of the consents, approvals, authorizations and orders referred to in Schedule 2.2(a), the execution, delivery and performance of this Agreement and the Other Agreements by Seller and Au Bon Pain and the consummation of the transactions contemplated hereby by Seller and Au Bon Pain will not: (i) conflict with or result in a breach or violation of any term or provision of, or (with or without notice or passage of time, or both) constitute a default under, or otherwise give any person a basis for nonperformance under, any indenture, mortgage, deed of trust, loan or credit agreement, lease, license or other agreement or instrument to which Seller or Au Bon Pain is a party or by which Seller or Au Bon Pain is bound or to which any of the Assets or Assumed Contracts is subject; (ii) result in the violation of the provisions of the Certificate of Incorporation or Bylaws of Seller or Au Bon Pain, in each case as amended, or any judgment, order, writ, injunction or decree of any court or any arbitrator having jurisdiction over Seller or Au Bon Pain or any of the Assets or any applicable law or regulation; or (iii) result in the creation or imposition of any Lien upon any of the Assets. 2.3 Title to Assets; Encumbrances. (a) Seller or Au Bon Pain, as applicable, has good title to the Personal Property, Inventories, Receivables, Prepaid Expenses, Wholesale Products and Intangibles, and has valid leasehold interests and contract rights as to any leased personal property covered by the Assumed Contracts, in each case free and clear of all Liens (as hereinafter defined) except (i) as set forth on Schedule 2.3(a); and (ii) for Permitted Liens (as hereinafter defined). None of the Assets, whether owned or leased, is subject to any pending, or to the knowledge of Seller or Au Bon Pain, threatened condemnation proceedings, special assessments, charges, developer rights or tax deferred financing districts. The term "Liens," as used in this Agreement, shall mean any and all liens, mortgages, claims, options, conditional sales agreements, rights of first refusal, security interests, pledges, deeds of trust, or other charges and encumbrances. The term "Permitted Liens" as used in this Agreement, shall mean: (i) liens for ad valorem real or personal property taxes, or assessments, the payment for which are not yet due or are being contested in good faith by appropriate proceedings which are disclosed on Schedule 2.3(a); (ii) liens in respect of pledges or deposits under workers' compensation laws or similar legislation, carriers', laborers' and materialmen's and similar liens if the obligations secured by such liens are not then delinquent or are being contested in good faith by appropriate proceedings which are disclosed on Schedule 2.3(a). (b) Schedule 2.3(b) sets forth a Property and Equipment Report of Seller dated as of December 27, 1997. Except as disclosed on Schedule 2.3(b), the items of Personal Property listed on Schedule 2.3(b) and the equipment covered by the Leases are in normal operating condition, subject only to reasonable wear and tear, and, to the best of Seller's and Au Bon Pain's knowledge, are not in need of maintenance and repairs, except for ordinary and routine maintenance and repairs. (c) With respect to each of the Assumed Contracts: (i) each such Assumed Contract is valid, existing and effective in accordance with its terms; (ii) no act or event has occurred which, with notice or lapse of time, or both, would constitute a default under such Assumed Contract by Seller or Au Bon Pain, or, to the knowledge of Seller or Au Bon Pain, any other party; (iii) neither Seller nor Au Bon Pain has given or received any notice of cancellation or termination in connection with such Assumed Contract; (iv) except as set forth on Schedule 2.3(c), each such Assumed Contract will not require consents of the other parties thereto in order to be assigned to -7- Buyer hereunder. True and complete copies of all Assumed Contracts shall be provided to Buyer prior to the closing. (d) Neither Seller nor Au Bon Pain has received notice of violation of, and to the knowledge of Seller and Au Bon Pain, Seller or Au Bon Pain, as applicable, is in compliance with all applicable material building, zoning, land use or other similar statutes, laws, ordinances, regulations, permits, health and safety codes or other requirements in respect of the Plant. There are no outstanding requirements or recommendations by fire underwriters or rating boards, any insurance companies or holders of mortgages or other security interests that have been communicated to Seller or Au Bon Pain within the current year or the last three (3) full calendar years requiring or recommending any repairs or work to be performed with reference to the Plant. (e) The Receivables are valid, existing and represent monies due Seller as a result of transactions in the ordinary course of business and are for goods sold or services rendered by Seller. (f) The Inventories were acquired or produced and have been maintained in the ordinary course of the business. (g) Except as disclosed in Schedule 2.3(g): (i) Seller owns, or has the sole and exclusive right to manufacture and sell, the Wholesale Products; (ii) the consummation of the sale of the Assets and the other transactions contemplated by this Agreement will not alter or impair any such rights; and (iii) none of the Wholesale Products is the subject of a lawsuit or any other proceeding, nor, within the current year or last three (3) full calendar years of Seller, has any party challenged or, to the knowledge of Seller and Au Bon Pain, threatened to challenge Seller's right to manufacture and sell the Wholesale Products; and, to the knowledge of Seller and Au Bon Pain, there is no basis for any such challenge. (h) The Assets constitute all of the assets which Seller requires to conduct the operation of the business at the Plant as currently conducted. 2.4 Litigation. Except as set forth on Schedule 2.4: (i) there is no legal action, suit, arbitration, claim, proceeding or governmental investigation (whether federal, state, local or foreign) pending for which Seller has received service of process or, to the best knowledge of Seller and Au Bon Pain, threatened against Seller relating to the Assets, the operation of the wholesale business or the products manufactured and sold by Seller; and (ii) there are no decrees, injunctions or orders of any court, administrative or regulatory body, arbitration panel or governmental agency outstanding or, to best of Seller's and Au Bon Pain's knowledge threatened, against Seller relating to any aspect of its business or any part of the Assets. With respect to any matter required to be disclosed pursuant to this Section 2.4, there has been no reservation of rights by any insurance carrier, and no such reservation is, to the knowledge of Seller or Au Bon Pain, threatened, concerning the coverage of Seller. -8- 2.5 Permits, Licenses and Certificates. Seller possesses, and is operating in material compliance with, the licenses, permits and certificates described on Schedule 2.5 which are necessary to conduct its business as currently conducted at the Plant (the "Permits"). Each Permit has been lawfully and validly issued, and no proceeding is pending or threatened, nor, to the best of Seller's and Au Bon Pain's knowledge, does any basis therefor exist, looking toward the revocation, suspension or limitation of any Permit. Neither Seller nor Au Bon Pain has knowledge of any other material licenses, permits and certificates that are necessary to conduct its business at the Plant and which Seller does not possess and with which Seller is not operating in compliance. Except as set forth in Schedule 2.5, the consummation of the transactions contemplated by this Agreement will not result in the revocation, suspension or limitation of any Permit and no Permit will require the consent of its issuing authority to or as a result of the consummation of the transactions contemplated hereby. 2.6 Employees and Labor Matters. Except as described in Schedule 2.6: (a) Seller is in compliance with all federal, state, local and other applicable law respecting employment and employment practices, terms and conditions of employment and wages and hours; (b) there is no unfair labor practice, complaint, charge or other matter against or involving Seller pending or, to the knowledge of Seller and Au Bon Pain, threatened before any governmental authority; (c) there is no labor strike, dispute, organizing effort, slow down, stoppage or other labor difficulty pending, or, to the knowledge of Seller and Au Bon Pain, threatened, against or affecting Seller; (d) no representation question exists respecting employees at the Plant; (e) no grievance nor any arbitration proceeding arising out of or under any collective bargaining agreement is pending, and no claim therefor exists; and (f) there is no collective bargaining agreement with respect to any employee at the Plant which is binding on Seller. 2.7 Environmental Matters. Except as disclosed in Schedule 2.7: (a) No Hazardous Materials (as defined below) are present on, in or under any of the Assets other than in compliance with Environmental and Safety Requirements (as defined below), and no threatened or actual release, spill or discharge of any Hazardous Materials has occurred on, in or under any of the Assets which would require reporting or remediation under any Environmental and Safety Requirements; (b) To Seller's and Au Bon Pain's knowledge, Seller is in compliance with all applicable Environmental and Safety Requirements, and Seller possesses all required permits, licenses, certifications and approvals relating to the Assets under Environmental and Safety Requirements; (c) Seller has not received notice of, any private, administrative or judicial action, proceeding or inquiry, investigation or order relating to compliance with, or obligations under, Environmental and Safety Requirements; -9- (d) To Seller's and Au Bon Pain's knowledge, there are no conditions that would preclude the transfer from Seller to Buyer, or reissuance to Buyer, of each permit required by Environmental and Safety Requirements to own and operate the Assets or conduct business at the Plant after the Closing Date; (e) To Seller's and Au Bon Pain's knowledge, there are no underground or aboveground storage tanks which contain Hazardous Materials located on or at any of the Assets. All tanks, storage vessels, storm systems or pipes which are included in the Assets are in compliance with all applicable Environmental and Safety Requirements; (f) None of the Assets are listed in the National Priorities List of the Comprehensive Environmental Response Compensation and Liability Information System promulgated pursuant to CERCLA (as defined below), or similar state lists and laws; (g) To Seller's and Au Bon Pain's knowledge, none of the Assets have been used to treat, store for more than ninety (90) days, or dispose of materials which are or were regulated under RCRA (as defined below), nor been subject to RCRA interim status, a RCRA permit, or a RCRA Part A or Part B permit application, whether or not such application was subsequently withdrawn; (h) To Seller's and Au Bon Pain's knowledge, there is no friable asbestos or friable asbestos containing material at, on, in or under any of the Assets; (i) To Seller's and Au Bon Pain's knowledge, there are no polychlorinated biphenyls ("PCBs") at, on, in, used, stored or disposed of on, at, in or under any of the Assets; (j) To Seller's and Au Bon Pain's knowledge, there are no nuclear radiation devices at, used, stored or disposed of, at, on, in or under any of the Assets; and (k) Seller has notified Buyer of the location of, and has made available to Buyer, all known material documents, records and information relating to the environmental representations and warranties contained herein, Environmental and Safety Requirements affecting any of the Assets and permits required for any of the Assets by Environmental and Safety Requirements. The term "Hazardous Materials" shall include: (A) hazardous substances or hazardous wastes, as defined by the Environmental and Safety Requirements; (B) petroleum, including without limitation, crude oil, or any fraction thereof, which is liquid at standard conditions of temperature and pressure; (C) any radioactive material, including, without limitation, any source, special nuclear, or by-product material as defined in the Atomic Energy Act; (D) asbestos in any form or condition; (E) PCBs; and (F) any other material, substance or waste to which liability or standards of conduct may be imposed under any Environmental and Safety Requirements. The term "Environmental and Safety Requirements" shall mean, individually and collectively, the requirements imposed by the Resource Conservation and Recovery Act, as amended by the Hazardous and Solid Waste Amendments of 1984 ("RCRA"), the Comprehensive Environmental Response Compensation and Liability Act, as amended by the Superfund Amendments and Reauthorization Act ("CERCLA"), the Toxic Substances Control Act, the Safe -10- Drinking Water Act, the Federal Water Pollution Control Act (the "Clean Water Act"), the Clean Air Act, the Emergency Planning and Community Right-to-Know Act, the Federal Insecticide, Fungicide and Rodenticide Act, the Noise Control Act, the Radon Indoor Air Quality Research Act, and the National Environmental Policy Act (Environmental Impact Statement), and any similar comparable Missouri statutes and regulations, in each case, as amended; any state lien and superlien and environmental clean-up statutes, with implementing rules and regulations, and the Occupational Safety and Health Act of 1970, as amended. 2.8 Intentionally Omitted. 2.9 Fees, Expenses and Commissions. Neither Seller nor Au Bon Pain has taken any action or has entered into any agreement, understanding or other arrangement that would obligate Seller or Buyer to pay any broker's or finder's fee or any other similar fee or commission to any agent, broker, investment banker or other firm or person in connection with any of the transactions contemplated by this Agreement, except for Brent Baxter Enterprises, LLC and Peter J. Solomon Company Limited, whose fees shall be the exclusive responsibility of Seller. Seller and Au Bon Pain shall, jointly and severally, indemnify and hold Buyer harmless with respect to any claim of any third party for such fee or commission claiming by, through or under Seller. 2.10 Absence of Certain Changes or Events. Since December 1, 1997 and except as disclosed on Schedule 2.10, there has not been: (a) Any material adverse change in or damage or loss to the Assets, or the operations of Seller's wholesale business; (b) Any increase in the compensation payable by Seller to any employee of Seller other than routine increases made in the ordinary course of business consistent with past practice, or any bonus, incentive compensation, or service award, or other like benefit, granted, made or accrued, contingently or otherwise, to or to the credit of any of such employee, or any adoption or modification by Seller of any employee welfare, pension, retirement or similar payment or arrangement; (c) Any sale, assignment or transfer (including, without limitation, the granting or permitting of any Lien) of any of the Assets other than in the ordinary course of business or consistent with past practices; (d) Any capital expenditure or commitment to make a capital expenditure, in either case, in excess of Ten Thousand Dollars ($10,000) (exclusive of expenditures for repair or maintenance of equipment in the ordinary course of the business); (e) Any cancellation, termination or amendment by Seller of any right under the Assumed Contracts except for terminations in the ordinary course of business; (f) Any merger or consolidation of Seller into or with any corporation or enterprise, or any action by Seller toward or effecting such a merger or consolidation or a complete or partial -11- liquidation or dissolution of Seller or any material portion of the Assets (other than as contemplated by this Agreement); (g) Any failure on the part of Seller to operate its wholesale business in the ordinary course so as to preserve such business in all material respects, including the services of its key employees and the goodwill of its suppliers, customers and others having business relations with Seller; or (h) Any agreement by or commitment of Seller to do or permit any of the foregoing. 2.11 Taxes. Notwithstanding anything in this Agreement to the contrary, this Section 2.11 shall not apply with regard to any Tax or Taxes (as such terms are defined below) to the extent that from and after the Closing, the Assets are not subject to a lien for such Tax or Taxes, and Buyer or its affiliates are not liable for such Tax or Taxes. (a) Definitions. For purposes of this Agreement: (i) The term "Code" shall mean the Internal Revenue Code of 1986, as amended. All citations to the Code or to the regulations promulgated thereunder shall include any amendments or any substitute or successor provisions thereto. (ii) The term "Returns" shall mean, collectively, all reports, declarations, estimates, returns, information statements and similar documents relating to, or required to be filed in respect of, any Taxes; and any statements, returns, reports or similar documents required to be filed pursuant to any similar income, excise or other tax provision of federal, state, local or foreign law; and the term "Return" means any one of the foregoing Returns. (iii) The term "Taxes" shall mean: (A) all net income, gross income, gross receipts, sales, use, ad valorem, franchise, profits, license, lease, service, service use, withholding, employment, payroll, excise, severance, transfer, documentary, mortgage, registration, stamp, occupation, environmental, premium, property, windfall, profits, customs, duties and other taxes, fees, assessments or charges of any kind whatever, together with any interest, penalties and other additions with respect thereto, imposed by any federal, state, local or foreign government; and (B) any penalties, interest or other additions to a Tax for the failure to collect, withhold or pay over any of the foregoing, or to accurately file any Return; and the term "Tax" shall mean any one of the foregoing Taxes. Notwithstanding the foregoing, however, when used with reference to a specified person (for example and without limitation, "Taxes of Seller"), the terms "Taxes" and "Tax" shall include only those amounts for which such person is, or could become, liable in whole or part (including, without limitation, any obligation in connection with a duty to collect, withhold or pay over any Tax, any obligation to contribute to the payment of any Taxes determined on a consolidated, combined or unitary basis, any liability as a transferee, or any liability as a result of any express or implied obligation to indemnify or pay the Tax obligations of another person). (b) Returns Filed and Taxes Paid. (i) Seller has duly filed or caused to be filed, on or before the due date thereof (including any valid extensions), with the appropriate -12- taxing authorities, all Returns that it is required to file; (ii) each such Return (including any amendment thereto) is true, correct, and complete in all material respects; (iii) all Taxes of Seller due with respect to, or shown to be due on, each such Return (or amendment thereto) or subsequent assessment with regard thereto, have been timely paid; (iv) there is no valid basis for the assessment of any deficiency with regard to any such Return; and (v) there are no extensions of time to file which are pending. No other Taxes of Seller are due with respect to any taxable periods or portions of periods ending on or before the Closing Date. There are no liens, attachments, or similar encumbrances on any of the Assets with respect to any Taxes, other than liens for Taxes of Seller that are not yet due and payable. (c) Miscellaneous. Seller has collected or withheld all Taxes that it is required to collect or withhold. None of the Assets (i) is property which is required to be treated as being owned by any other person pursuant to the so-called "safe harbor lease" provisions of former Section 168(f)(8) of the Code; or (ii) directly or indirectly secures any debt, the interest on which is tax exempt under Section 103(a) of the Code. The transactions contemplated by this Agreement are not subject to the tax withholding provisions of Section 3406 of the Code, or of subchapter A of Chapter 3 of the Code, or of any other comparable provision of law. 2.12. Insurance. Seller's business and the Assets are insured under various policies of general liability and other forms of insurance which, to the best of Seller's and Au Bon Pain's knowledge, are in adequate amounts in relation to Seller's business and the Assets. Each of such insurance policies is current and in full force and effect and Seller has not received notice of default under or intended cancellation or nonrenewal of any such policies. Seller and Au Bon Pain will keep all such insurance policies in effect through the Possession Time. Seller has not been refused any insurance by an insurance carrier to which it has applied for insurance. 2.13 Employment Relationships. At any time after the date of this Agreement, Seller will make available to Buyer upon demand a true and correct roster of Seller's employees at the Plant as of the date of this Agreement, setting forth each such employee's compensation, date of hire and whether or not contributions are made for such employee and/or whether such employee is otherwise entitled to benefits under health or medical benefit, welfare or other employee benefit or fringe benefit plans. 2.14 Status of Assets; Assumed Contracts. Except as disclosed on Schedule 2.14, with respect to any of the following constituting an Asset or an Assumed Liability, within the current year or the last full calendar year: (i) Seller or Au Bon Pain, as the case may be, has not assigned any material rights or obligations under (and is not otherwise restricted for any reason from enjoying the full benefits under) any Assumed Contract; (ii) neither Seller nor Au Bon Pain, as the case may be, nor, to the knowledge of Seller or Au Bon Pain, any other party is in material default in connection with any Assumed Contract; (iii) no act or event has occurred which, with notice or lapse of time or both, would constitute a material default by Seller or Au Bon Pain, as the case may be, or, to the knowledge of Seller or Au Bon Pain, by another party under any Assumed Contract; (iv) there is no basis for any claim of material default by Seller or by Au Bon Pain (as the case may be), or, to -13- the knowledge of Seller or Au Bon Pain, by another party under any Assumed Contract; (v) neither Seller nor Au Bon Pain has received or given any notice of cancellation or termination in connection with any Assumed Contract; (vi) each Assumed Contract is the valid and binding agreement of Seller or Au Bon Pain, as the case may be, which is in full force and effect and is enforceable in accordance with its terms except, with regard to the other party or parties to such instrument, as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws and general principles of equity; (vii) no Assumed Contract will be affected by, or require the consent of or payment to any other party to avoid an event of default, an event of termination or other adverse effect with respect to such Assumed Contract (assuming that any required notice of default or termination has been given and any periods for cure have expired) by reason of the transactions contemplated by this Agreement, except that the consent of the other parties thereto to the assignment to Buyer will be required for Assumed Contracts identified in Schedule 2.14; and (viii) there is no existing, pending, or, to the knowledge of Seller or Au Bon Pain, threatened termination, cancellation, limitation, amendment or change to any Assumed Contract or in the business relations underlying the same. 2.15 Transactions with Affiliates. Except as disclosed in Schedule 2.15, no officer or director of Seller, or, to the knowledge of Seller or Au Bon Pain, any "affiliate" or "associate" (as such terms are defined in the rules and regulations of the Securities and Exchange Commission under the Securities Act of 1933, as amended) of any of the foregoing is a party to any of the Assumed Contracts. 2.16 Accuracy of Statements. No representation or warranty by Seller or Au Bon Pain in this Agreement or in any Exhibit or Schedule to this Agreement or the Other Agreements contains or will contain any untrue statement of a material fact, or omits or will omit to state a material fact, necessary to make the statements herein or therein not misleading. ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF BUYER Buyer hereby represents and warrants to Seller that: 3.1 Organization and Good Standing. Buyer is duly organized and is existing as a corporation in good standing under the laws of the State of Delaware with full corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. Buyer is duly qualified to do business as a foreign corporation and is in good standing under the laws of each state or jurisdiction in which either the ownership or use of the properties owned or used by it, or the nature of the activities conducted by it, require such qualification. -14- 3.2 Execution and Delivery. This Agreement, and each other agreement, instrument or other document required to be executed by Buyer hereunder, has been duly authorized by all necessary corporate action on the part of Buyer, has been duly executed and delivered by Buyer and constitutes the legal, valid and binding obligation of Buyer enforceable against Buyer in accordance with its terms, except to the extent that: (i) such enforcement is subject to or limited by bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally; and (ii) the remedy of specific performance and injunctive and other forms of equitable remedies is subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. 3.3 Consents, Violations and Authorizations. (a) Buyer is not a party to or bound by any mortgage, indenture, lien, deed of trust, lease, agreement, permit, concession, franchise, license, instrument, order, judgment or decree which would require the consent of another to the execution of this Agreement or the transactions contemplated hereby. (b) The execution, delivery and performance of this Agreement, and the consummation of the transactions contemplated hereby, by Buyer will not: (i) conflict with or result in a breach or violation of any term or provision of, or (with or without notice or passage of time, or both) constitute a default under, or otherwise give any person a basis for nonperformance under, any material indenture, mortgage, deed of trust, loan or credit agreement, lease, license or other agreement or instrument to which Buyer is a party or by which Buyer is bound or to which any of its properties or assets is subject; or (ii) result in the violation of the provisions of the Certificate of Incorporation or Bylaws of Buyer, or any order, writ, injunction or decree of any court or any arbitrator having jurisdiction over the Buyer, or any applicable law or regulation. 3.4 Fees and Commissions. Buyer has taken no action and has entered into no agreement, understanding or other arrangement that would obligate Buyer or Seller to pay any broker or finder's fee or other similar fee or commission to any agent, broker, investment banker or other firm or person in connection with any of the transactions contemplated by this Agreement, except for Chapman Partners, whose fees shall be the exclusive responsibility of Buyer. Buyer shall indemnify and hold Seller harmless with respect to any claim of any third party for such fee or commission claiming by, through or under Buyer. 3.5 Sufficient Funds. On the Closing Date, Buyer will have sufficient funds to consummate the transactions contemplated hereby. -15- 3.6 Accuracy of Statements. No representation or warranty by Buyer in this Agreement or in any Exhibit or Schedule to this Agreement, or in each other agreement, instrument or other document required to be executed by it hereunder, contains or will contain any untrue statement of a material fact, or omits or will omit to state a material fact, necessary to make the statements herein or therein not misleading. ARTICLE 4 CONDUCT OF THE BUSINESS AND OTHER MATTERS PENDING CLOSING 4.1 Conduct of Business. During the period commencing on the date hereof and continuing through the Closing Date, Seller shall (except as expressly contemplated by this Agreement or to the extent that Buyer shall otherwise consent in writing): (a) Use all reasonable efforts to keep available the services of the Plant Employees (as defined in Section 7.2); (b) Not sell, lease or otherwise dispose of any of the Assets, except in the ordinary course of business or sell, sublease, assign, surrender its interests in or otherwise dispose of any of the Assumed Contracts; (c) Not create, assume or incur the creation of any Lien which cannot be discharged at or prior to Closing, other than Permitted Liens, in respect of any of the Assets or the wholesale business; (d) Not modify, amend, alter or terminate (whether by written or oral agreement) any right of Seller which would have a material adverse effect on the Assets or the Assumed Contracts; (e) Maintain property and liability insurance covering the Assets and its wholesale business in the amounts and with coverage at least as great as the amounts and coverage in effect as of December 1, 1997; (f) Maintain the Assets in the same condition as the condition that they existed as of December 1, 1997, ordinary wear and tear excepted, and use reasonable efforts to preserve Seller's possession and control of all of the Assets; (g) Maintain the books, accounts and records related to its wholesale business in a manner consistent with past practice and sound business practices; (h) Comply with all applicable law relating to Seller or to the conduct of its business, and conduct its business so that on the Closing Date the representations and warranties contained in this Agreement shall be true as though such representations and warranties were made on and as of such date, except for changes permitted or contemplated by the terms of this Agreement and except for any representations or warranties that by their terms are limited to a specific date; -16- (i) Provide Buyer with prompt written notice of any material adverse change in the Assets or Seller's wholesale business operations; (j) Consistent with its prior practices, (Seller shall) maintain in inventory at the plant quantities of goods, supplies and materials that are sufficient to allow Buyer to continue to operate the Plant immediately after the Closing Date free of any unusual shortage of such items, and (Seller shall) maintain in inventory at The SYGMA Network, Inc. ("SYGMA") quantities of Product (as such term is defined in the Supply Agreements) in compliance with the relevant agreements between Seller and SYGMA and in compliance with Sygma inventory levels required under the Supply Agreements; (k) Operate its wholesale business only in the ordinary course so as to preserve the goodwill of its suppliers, customers and others having business relations with Seller; (l) Not enter into any transaction which is outside the ordinary course of business or enter into any supply contract either as a buyer or seller which contracts individually or in the aggregate require payments in excess of Fifty Thousand Dollars ($50,000) and which are for a term in excess of six (6) months or which cannot be terminated by Seller or its successors or assigns upon thirty (30) days prior written notice; and (m) Not take or permit any action that, if taken or permitted immediately prior to the execution of this Agreement would constitute a breach of the representations and warranties in this Article 4. 4.2 Access. (a) Seller shall provide Buyer and its accountants, counsel and other representatives reasonable access during operating hours during the period prior to and on the Closing Date to the Plant, Plant Employees and, during such period, and to the extent material, shall furnish promptly to Buyer, without request, a copy of each report, notice and other document (other than tax returns) filed or received by, or on behalf of, Seller to the extent that it relates to the Assets during such period pursuant to the requirements of applicable regulatory law and, upon reasonable request, all other material information (other than financial data or information), pertaining to the Assets or the Plant Employees. (b) Except as may be required by law, Buyer will hold any information acquired pursuant to this Section 4.2 in strict confidence until after the Closing or until such time as such information otherwise becomes publicly available through no action of Buyer, and shall not disclose any of it except to Buyer's directors, officers, employees, agents, accountants, counsel and other representatives in connection with the negotiation and consummation of the transactions contemplated by this Agreement. If this Agreement is terminated in accordance with Article 9 hereof, Buyer will return to Seller all documents, work papers and other materials obtained from Seller and all copies thereof, whether so obtained before or after the execution hereof, and will otherwise keep confidential such information. -17- 4.3 Obtaining Approvals. Seller and Buyer shall use their respective best efforts (but without being obligated to pay any financial or other consideration) to obtain prior to the Closing Date, any necessary consent, authorization, amendment or approval of, or exemption by: (a) any governmental body or agency or instrumentality thereof; and (b) any other person whose consent or approval is required as a condition precedent to the consummation of the transactions contemplated by this Agreement. 4.4 Obligations Concerning Employees. From the date of this Agreement through the Closing Date, Buyer shall have the right upon reasonable notice to Seller during normal business hours and without unreasonable disruption of the operation of the Business, to interview the Plant Employees and otherwise conduct hiring procedures with regard to its possible hiring of Plant Employees, but, except as contemplated in Section 7.2, shall have no obligation to offer employment to any Plant Employee. 4.5 Payment of Certain Transactional Costs and Taxes. (a) Seller shall pay, and Au Bon Pain shall cause Seller to pay, all sales taxes, other property transfer taxes, all documentary or other stamp taxes and all similar taxes, including without limitation income taxes, if any, arising out of or related to the transactions contemplated by this Agreement. Buyer shall pay all filing, recording, notarial and similar fees with respect to the transfer of any of the Assets. (b) If Seller or Buyer intends to treat the transfer of any Asset to Buyer as exempt from any Tax imposed on transfers of similar property, such party shall furnish the other with a certificate or other evidence reasonably satisfactory to the other party that such exemption is applicable. (c) Any periodic real or personal property tax imposed by any state or local governmental unit on a Asset with respect to a taxable period that includes the Closing Date shall be apportioned on a per diem basis with Seller being responsible for payment of such Tax apportioned to the part of such taxable period that occurs prior to the Closing Date. 4.6 The Real Property. (a) Condition of the Real Property. Subject to Article 10, Seller shall use reasonable efforts to maintain the Real Property in the same condition in which it existed as of December 1, 1997, ordinary wear and tear excepted, to the Closing Date and, on such date, Seller shall tender possession of the Real Property to Buyer. Immediately prior to Closing, Buyer shall conduct a "walk-through" inspection of the Real Property to verify that it is in the condition required herein. (b) Seller's Deliveries. As soon as practicable, but no later than the Closing Date, Seller shall make available to Buyer correct and complete copies of the following (to the extent in Seller's or Au Bon Pain's possession or otherwise available to Seller or Au Bon Pain without undue -18- effort or expense): (i) all documentation relative to the zoning classification, special use permits and zoning or other land use restrictions imposed upon or in respect to the Real Property; (ii) certificates of occupancy and other governmental licenses and permits issued in respect to or required for the present use and occupancy of the Real Property; (iii) all as-built plans and specifications for the improvements to the Real Property, soil tests, engineering studies, environmental audits or reports, reports of insurance carriers, agreements, plats, plans, drawings, surveys, specifications, title insurance policies, and other like documents, instruments and items relating to the Real Property; (iv) all notifications received by Seller or Au Bon Pain asserting that the Real Property, or any portion thereof, do not comply with any law, rule, regulation, order, code, permit or other legal requirement; and (v) all real estate tax bills and all utility and, to the extent available, other operating expense bills relating to the operation of the Real Property for the current year or the last two (2) calendar years immediately preceding the date hereof. 4.7 Bulk Transfer Compliance. Buyer and Seller hereby waive compliance by Buyer and Seller with the bulk sales law and any other similar laws in any applicable jurisdiction with respect to the transactions contemplated by this Agreement. Seller and Au Bon Pain shall, jointly and severally, indemnify Buyer from, and hold it harmless against, any liabilities, damages, costs and expenses directly resulting from or arising out of the parties' decision to waive compliance with any of such laws with respect to the transactions contemplated by this Agreement. 4.8 Release of Affiliate Encumbrances. All encumbrances of any kind or nature whatsoever in favor of any affiliate of Seller on the Assets will be removed by Seller on or prior to the Closing Date. 4.9 Supplements to Schedules and Exhibits. Seller and Au Bon Pain shall deliver to Buyer prior to the Closing a written statement disclosing any untrue statement of a material fact in this Agreement or any Exhibit or Schedule hereto (or supplement thereto) or document furnished pursuant hereto promptly upon the discovery of such untrue statement, accompanied by a written supplement to any Exhibit or Schedule to this Agreement that may be affected thereby. No such disclosure by Seller or Au Bon Pain shall be deemed to modify, amend or supplement the representations or warranties of Seller or Au Bon Pain, as the case may be, or the Schedules and Exhibits hereto for the purposes of Article 5, unless Buyer shall have consented thereto in writing. 4.10 Non-Competition. (a) For and in consideration of Buyer's payment of the Purchase Price, Seller covenants and agrees that it will not for a period of five (5) calendar years from the Closing Date for itself, or as an agent of or on behalf of, or in conjunction with, any person, firm, corporation, partnership or other entity or otherwise in any manner or capacity, engage in or have any interest in, or in any way assist in the manufacture and sale of bakery goods in the United States, Mexico or Canada (the "Territory"). -19- (b) Although the parties consider the restrictions contained in Section 4.10(a) to be reasonable, if a final nonappealable determination is made by a court of competent jurisdiction that the time or Territory or any other restriction contained in Section 4.10(a) is an unreasonable or otherwise unenforceable restriction against Seller, neither this Agreement nor the provisions of Section 4.10(a) shall be rendered void, but shall be deemed amended to apply as to such maximum time, territory and scope and to such other extent as permitted by law and as determined by such court under the circumstances involved. 4.11 Non-Solicitation. Seller shall not, directly or indirectly, for five (5) years after the Closing Date, solicit or hire any employee of Buyer, unless the employment of such employee has been terminated by Buyer, or Buyer consents thereto. ARTICLE 5 CONDITIONS TO CLOSING 5.1 Conditions of Buyer. The obligation of Buyer to purchase the Assets, to assume the Assumed Liabilities, and to consummate the transactions contemplated by this Agreement shall be subject to the satisfaction, at or prior to the Closing Date, of each of the following conditions: (a) No preliminary or permanent injunction or other order by any United States or state court or by any governmental body or agency or instrumentality thereof that prevents the consummation of the transactions contemplated by this Agreement shall have been issued and remain in effect; (b) There shall not be pending or threatened any action or proceeding before or by any governmental body or agency or instrumentality thereof or court, domestic or foreign: (i) challenging the acquisition by Buyer of the Assets or otherwise seeking to restrain or prohibit the consummation of the transactions contemplated by this Agreement or seeking material damages in connection therewith; or (ii) seeking to restrain or prohibit Buyer's direct or indirect ownership of the Assets or rights under the Assumed Contracts or operation of the Plant as contemplated by this Agreement and the Supply Agreements; (c) There shall not be any action taken, or any statute, rule, regulation or order enacted, promulgated or issued or deemed applicable by Buyer to the consummation of the transactions contemplated by this Agreement by any United States or state governmental body or agency or instrumentality thereof or court that (i) would prohibit Buyer's direct or indirect ownership of any material portion of the Assets, (ii) would render Buyer or Seller unable to consummate the transactions contemplated by this Agreement or (iii) would make such consummation illegal; (d) The parties hereto shall have secured all appropriate orders, consents, approvals and clearances, in form and substance reasonably satisfactory to Buyer, by and from all third parties, including but not limited to governmental or regulatory authorities, whose order, -20- consent, approval or clearance is required by contract or applicable law for the consummation of the sale of the Assets and the other transactions herein contemplated; (e) All waiting periods, if any, under the HSR Act (as defined in Section 7.3) shall have expired or been terminated; (f) The representations and warranties of Seller and Au Bon Pain in this Agreement shall be true and correct on and as of the Closing Date with the same effect as if made on the Closing Date and Seller and Au Bon Pain shall have complied with all covenants and agreements and satisfied all conditions on its part to be performed or satisfied on or prior to the Closing Date; (g) Seller shall have delivered to Buyer the Deed, Bill of Sale and such other documentation as contemplated by this Agreement in each case in form and substance reasonably satisfactory to Buyer; (h) Buyer and Seller shall each have executed and delivered to the other a closing statement setting forth the Purchase Price, the closing adjustments and apportionments and the application thereof at the Closing as contemplated by Section 1.3 (the "Closing Statement"); (i) Each of Au Bon Pain and Saint Louis Bread shall have entered into a Supply Agreement for the purchase of bakery products from Buyer's operation of the Plant pursuant to Section 7.1; (j) Each of Au Bon Pain and Saint Louis Bread shall have executed and delivered to Buyer a non-exclusive Manufacturing License to manufacture the Wholesale Products pursuant to Section 7.1; (k) Seller shall have executed and delivered a certification of non-foreign status in the form attached as Exhibit 5.1(k); (l) [Intentionally omitted]; (m) Buyer shall have received all appropriate assurances regarding the delivery by holders of Liens of all termination statements and instruments of release, which are sufficient in form and substance satisfactory to Buyer and its counsel, to release and discharge all Liens on the Assets, except for Permitted Liens, and all necessary consents to assignment of the Assumed Contracts to Buyer shall have been received by Buyer; (n) Buyer shall have received a certificate of the Secretary or Assistant Secretary of Seller to the effect set forth on Exhibit 5.1(n); (o) Buyer shall have received a certificate of the Seller signed by a Vice President or more senior officer of the Seller to the effect set forth on Exhibit 5.1(o); (p) Seller shall have delivered to Buyer one or more certificates as to the legal existence and corporate good standing of Seller, dated not more than ten (10) days prior to the Closing Date, from the Secretary of State of Delaware and the Secretary of State of Missouri; -21- (q) Buyer shall have received the legal opinion of Gadsby & Hannah LLP substantially in the form attached as Exhibit 5.1(q); (r) There shall have been no material adverse change to the Assets or wholesale business of Seller, since December 1, 1997; (s) Buyer shall have received a title insurance policy from Chicago Title Insurance Company consistent with the commitment for title insurance attached hereto as Exhibit 5.1(s)(1) (except that Items No. 10, 11 and 12 shall be discharged at the Closing and deleted from such title policy and such policy may take exception for Item No. 8 on Schedule 1.6(a)), which policy shall also confirm by an updated survey of the Real Property that: (i) the location of the easements shown on the survey prepared by Engineering Survey & Services dated July 13 and 19, 1995, a copy of which is attached hereto as Exhibit 5.1(s)(2); (ii) the location of a certain easement to Missouri-American Water Company as shown on the plan recorded with said easement at Book 285, Page 803, and (iii) the lagoons owned and/or operated by the City of Mexico, Missouri located to the south of the Real Property do not encroach onto the Real Property, or if an encroachment does exist, that affirmative coverage can be secured that the location of the lagoons do not prohibit the use of the improvements on the Real Property as currently constructed; (t) Seller shall have taken, or caused to be taken, such further actions, and executed and delivered such other agreements, instruments and documents as are provided for in this Agreement or as may reasonably be requested by Buyer consistent with the terms of this Agreement or as may be necessary or convenient to consummate the transactions contemplated hereby or in connection herewith; (u) Buyer shall have received assignment and assumption agreements with respect to the Assumed Contracts, in a form reasonably satisfactory to Buyer, Seller and any third party whose consent is required to effectively assign the Assumed Contracts to Buyer; (v) Buyer shall have received assignment and assumption agreements with respect to the Assumed Liabilities; (w) Buyer shall have received all keys to the Assets; and (x) Buyer shall have received a clearance certificate or other similar document(s) which may be required by any state or foreign taxing authority in order to relieve Buyer of any obligations with respect to Seller's Taxes. 5.2 Conditions of Seller. The obligation of Seller to sell, assign and transfer the Assets, transfer the Assumed Liabilities to Buyer, and to consummate the transactions contemplated by this Agreement shall be subject to the satisfaction, at or prior to the Closing Date, of each of the following conditions: (a) no preliminary or permanent injunction or other order by any United States or state court or by any governmental body or agency or instrumentality thereof that prevents the -22- consummation of the transactions contemplated by this Agreement shall have been issued and remain in effect; (b) there shall not be pending or threatened any action or proceeding before or by any governmental body or agency or instrumentality thereof or court, domestic or foreign (i) challenging the sale by Seller of the Assets or otherwise seeking to restrain or prohibit the consummation of the transactions contemplated by this Agreement or seeking material damages in connection therewith; or (ii) seeking to restrain or prohibit Buyer's direct or indirect ownership of the Assets or operation of the Plant as contemplated by this Agreement and the Supply Agreement; (c) there shall not be any action taken, or any statute, rule, regulation or order enacted, promulgated or issued or deemed applicable by Seller to the consummation of the transactions contemplated by this Agreement by any United States or state governmental body or agency or instrumentality thereof or court that (i) would prohibit Buyer's direct or indirect ownership of the Assets, (ii) would render Buyer or Seller unable to consummate the transactions contemplated by this Agreement, or (iii) would make such consummation illegal; (d) the parties hereto shall have secured all appropriate orders, consents, approvals and clearances, in form and substance reasonably satisfactory to Seller, by and from all third parties, including but not limited to governmental or regulatory authorities, whose order, consent, approval or clearance is required by contract or applicable law for the consummation of the sale of the Assets and the other transactions herein contemplated; (e) all applicable waiting periods, if any, under the HSR Act shall have expired or been terminated; (f) the representations and warranties of Buyer in this Agreement shall be true and correct in all respects on and as of the Closing Date with the same effect as if made on the Closing Date and Buyer shall have complied in all material respects with all covenants and agreements and satisfied all conditions on its part to be performed or satisfied on or prior to the Closing Date; (g) Buyer and Seller shall each have executed and delivered the Closing Statement contemplated by Section 1.3; (h) Buyer shall have entered into with each of Au Bon Pain and Saint Louis Bread a Supply Agreement for the purchase of bakery products from Buyer's operation of the Plant pursuant to Section 7.1; (i) Buyer shall have executed and delivered to each of Au Bon Pain and Saint Louis Bread a counterpart copy of the non-exclusive Manufacturing License for the manufacture of the Wholesale Products pursuant to Section 7.1; (j) Seller shall have been paid the Purchase Price in lawful currency of the United States of America by wire transfer of immediately available funds pursuant to Section 1.2; (k) All necessary consents to assignment of the Assumed Contracts to Buyer shall have been received by Seller; -23- (l) Seller shall have received a certificate of the Secretary or an Assistant Secretary of the Buyer to the effect set forth in Exhibit 5.2(l); (m) Seller shall have received a certificate of the Buyer signed by a Vice President or more senior officer of the Buyer to the effect set forth in Exhibit 5.2(m); (n) Buyer shall have delivered to Seller one or more certificates as to the legal existence and corporate good standing of Buyer from the Secretary of State of Delaware and the Secretary of State of Missouri; (o) Seller shall have received the legal opinion of Murray H. Warschauer substantially in the form attached as Exhibit 5.2(o); and (p) Buyer shall have taken, or caused to be taken, such further actions, and executed and delivered such other agreements, instruments and documents as are provided for in this Agreement or as may reasonably be requested by Seller consistent with the terms of this Agreement or as may be necessary or convenient to consummate the transactions contemplated hereby or in connection herewith. ARTICLE 6 SURVIVAL; INDEMNIFICATION 6.1 Survival of Representations, Warranties and Covenants. Except as may expressly be provided in this Agreement, the covenants contained in this Agreement shall survive the Closing Date indefinitely. The representations and warranties shall survive for a period of twenty-four (24) months following the Closing Date, except that any representation and warranty contained in Sections 2.1, 2.2 and 2.3 shall survive indefinitely, and except that any representation or warranty contained in Section 2.7 shall survive until the expiration of the applicable statute of limitations and any representation or warranty contained in Section 2.11 shall survive for six (6) months after the expiration of the applicable statute of limitations. Any claim for indemnification hereunder for a breach of any representation or warranty shall be made on or prior to the date, if any, on which the survival period for such representation or warranty expires, it being understood that claims made on or prior to such expiration date shall survive such expiration date. 6.2 Indemnification. (a) Seller shall indemnify, defend and hold Buyer, and each of its officers, directors, employees, and agents, harmless from and against any and all loss, cost, damage, expense, or liability (including, without limitation, judgments, settlements and reasonable attorneys' fees) (collectively, "Damages") arising out of or resulting from (i) any inaccuracy in or breach of any representation, warranty, covenant or agreement made by Seller in this Agreement or in any writing delivered pursuant to this Agreement or at the Closing; and (ii) any failure of Seller to perform or fully observe any covenant, agreement, condition or provision to be performed or observed by it pursuant to this Agreement. -24- (b) Buyer shall indemnify, defend and hold Seller, and each of its officers, directors, employees, and agents, harmless from and against any and all Damages arising out of or resulting from: (i) any inaccuracy in or breach of any representation, warranty, covenant or agreement made by Buyer in this Agreement or in any writing delivered pursuant to this Agreement or at the Closing; and (ii) any failure by Buyer to perform or fully observe any covenant, agreement, condition or provision to be performed or observed by it pursuant to this Agreement. (c) Any provision hereof to the contrary notwithstanding (except with respect to the Supply Agreements): (i) the indemnification provided for hereunder shall constitute the exclusive remedy for any Damages arising out of, resulting from, or related to this Agreement, regardless of whether the legal theory for such claim for Damages is based in tort, contract or otherwise; and (ii) such Damages shall in no event exceed the Purchase Price plus the aggregate amount due under the Assumed Liabilities, including without limitation, the Assumed Contracts. No party shall be entitled to seek indemnification pursuant to Sections 6.2(a) or 6.2(b) until the aggregate amount of the Damages actually incurred exceeds Two Hundred Fifty Thousand Dollars ($250,000) (the "Deductible Amount"). In the event that the Deductible Amount is exceeded, the indemnified parties shall be entitled to seek indemnification only to the extent of Damages incurred in excess of the Deductible Amount. (d) Any claim for indemnity under this Section 6.2 shall be delivered in writing in accordance with Section 11.2 hereof within thirty (30) days of a discovery by the indemnified party of such claim to the indemnifying party and such claim shall set forth with reasonable specificity the amount claimed and the underlying facts supporting such claim; provided, however, that the failure of an indemnified party to so notify an indemnifying party within such thirty (30) day period shall not relieve the indemnifying party of its obligation to indemnify under this Agreement unless the rights of the indemnifying party are thereby materially prejudiced. The indemnifying party shall have thirty (30) days to accept or dispute such claim. Any undisputed claims shall be satisfied as set forth above. With respect to any disputes that the parties are not mutually able to resolve, each of the parties hereby consents to the nonexclusive jurisdiction of the courts of the State of Missouri, and of the United States District Courts located in the State of Missouri, and to any court to which an appeal from any of the foregoing courts may be taken. (e) If a third party asserts a claim against any indemnified party for which indemnification would be available under this Section 6.2 (a "Third Party Claim"), the indemnified party shall promptly give notice of the Third Party Claim, describing the Third Party Claim with reasonable specificity, to the indemnifying party; provided, however, that the failure to give such notice shall not affect the right of the indemnified party to indemnification hereunder unless such failure materially prejudices the ability of the indemnifying party to defend any Third Party Claim or take any other remedial action. The indemnifying party shall be entitled to assume the defense of the Third Party Claim, including the employment of counsel reasonably satisfactory to the indemnified party. The indemnified party may participate in any such proceeding at its own expense. In addition, in the event that such indemnifying party, within a reasonable time after notice of any Third Party Claim, fails to defend any indemnified party, such indemnified party shall (upon further notice to such indemnifying party) have the right to undertake its defense of the Third Party Claim for the account of such indemnifying party and to have its expenses reimbursed promptly by the indemnifying party with respect to the Third Party Claim. Regardless of which party is controlling the defense of any Third Party -25- Claim, (i) both the indemnifying party and the indemnified party shall act in good faith and (ii) no settlement of such Third Party Claim may be agreed to without the written consent of the indemnifying party. The controlling party shall promptly deliver, or cause to be delivered, to the other party copies of all correspondence, pleadings, motions, briefs, appeals, orders or other written statements relating to the matter, whether received or submitted in connection with the defense of the Third Party Claim, and timely notices of any hearing or other court proceeding relating to the Third Party Claim. ARTICLE 7 ADDITIONAL COVENANTS OF THE PARTIES 7.1 Manufacturing. (a) At the Closing, Buyer shall enter into Supply Agreements with each of Au Bon Pain and Saint Louis Bread in the forms attached as Exhibit 7.1(a)(1)-(2). (b) At the Closing, each of Au Bon Pain and Saint Louis Bread Seller shall grant to Buyer a license to manufacture certain wholesale products pursuant to Manufacturing Licenses in the forms attached as Exhibit 7.1(b)(1)-(2) (the "Manufacturing Licenses"). Except to the extent expressly provided for in each Manufacturing License, Buyer shall not use in any manner any of the trade names, brands, trademarks or trade dress of Seller, Au Bon Pain or Saint Louis Bread except in the manufacture and sale of products to Au Bon Pain, Saint Louis Bread and their respective franchise systems pursuant to the Supply Agreements. Subject to the rights granted in the Manufacturing Licenses, all product recipes, formulas, specifications, manufacturing processes or preparation procedures and any other trade secrets and information used to manufacture product for Au Bon Pain or Saint Louis Bread (including, without limitation, information related to the cost of products) shall remain solely the property of Seller, regardless of whether developed or modified by Buyer or Seller. All such information shall be kept strictly confidential by Buyer. (c) As used in this Agreement, the term "Proprietary Information" shall mean any knowledge or information, written or oral, which relates in any manner to the respective businesses of Buyer and Seller which is confidential and proprietary information of the Disclosing Party (as defined below), including, without limitation, with respect to the Wholesale Products, whether disclosed prior to, on or after the date of this Agreement, including, without limitation, the recipes, formulas, specifications, manufacturing processes, preparation procedures, financial information, equipment, marketing methods, demographic and trade information, customer profiles and preferences, costs, development plans, products and production techniques and all related trade secrets and proprietary information treated as such by the Disclosing Party, whether by course of conduct, by letter or report, or by the use of an appropriate stamp or legend designating such information to be confidential or proprietary. As used herein, the term "Disclosing Party" shall mean the party to this Agreement which discloses or makes available Proprietary Information to the Receiving Party, and the term "Receiving Party" shall mean the party to this Agreement to whom Proprietary Information is disclosed or made available by the Disclosing Party, provided however that with respect to the Wholesale Products, Buyer shall be deemed the Disclosing Party and Seller shall be deemed the Receiving Party. -26- (d) The Receiving Party shall hold all Proprietary Information in confidence, shall use such Proprietary Information only for the benefit of the Disclosing Party and disclose such Proprietary Information only to the Receiving Party's officers, directors, employees and agents in order to assist the Receiving Party in performing its obligations under this Agreement. The Receiving Party shall not disclose Proprietary Information to any other Person, provided, however, the Receiving Party may disclose Proprietary Information to a corporate Affiliate of the Receiving Party if such Affiliate first agrees in writing to be bound by the covenants contained in this Agreement with respect to the use and nondisclosure of Proprietary Information. (e) The obligations and prohibitions set forth in this Section 7.1 shall not apply to any Proprietary Information that is required to be disclosed by applicable law or that is shown, by preexisting documentary evidence or other reliable evidence, to be information: (i) that was known by the Receiving Party prior to the exchange of information in contemplation of this Agreement; (ii) entered into the public domain other than through the act of the Receiving Party; (iii) is independently developed by the Receiving Party; or (iv) is rightfully received by the Receiving Party from a third party who is not obligated to the Disclosing Party to keep such information confidential. 7.2 Employment of Seller's Employees. Effective as of the Closing Date, Seller shall terminate the employment of all employees, supervisors, agents and other persons hired or retained by Seller in connection with its ownership and operation of the Plant ("Plant Employees"). Buyer shall have no obligation to hire any Plant Employees, although Buyer may interview and make offers to hire any such Plant Employees if Buyer so elects in its sole and absolute discretion. Buyer shall disclose to Seller the identity of any Plant Employees it chooses not to hire not less than two (2) weeks prior to the Closing Date. Regardless of whether Buyer offers to employ any Plant Employees, with respect solely to events occurring prior to (or on) the Closing Date, Seller shall be liable for all termination and severance costs, if any, to which any Plant Employees are entitled; provided, however, that Buyer shall offer employment to a sufficient number of Plant Employees so that Seller shall have no duties or obligations under the federal WARN Act. 7.3 Hart-Scott-Rodino. Buyer and Seller shall each use their best efforts to prepare and submit within ten (10) business days after the date of this Agreement to the U.S. Department of Justice and the Federal Trade Commission such pre-merger notifications, if any, as are required by the Hart-Scott-Rodino Act (the "HSR Act") and, in connection with such notifications, to request early termination of all applicable waiting periods. -27- 7.4 Payment of Taxes. Seller shall timely pay, and Au Bon Pain shall cause Seller to pay, before the same shall become delinquent and before penalties accrue thereon, all Taxes (including any Taxes incurred in connection with the transactions contemplated by this Agreement), (a) shown (or required to be shown) on any Return (or amendment thereto) filed (or required to be filed) by Seller before, on or after the Closing Date, or (b) that become due from or payable by Seller before, on or after the Closing Date. This Section 7.4 shall not apply with regard to any Tax to the extent that the Assets cannot be made subject to a lien for such Tax and Buyer cannot be made liable for such Tax. Each party shall be responsible for filing Forms W-2 with respect to the 1998 taxable year in accordance with the "Standard Procedure" described in Rev. Proc. 84-77, 1984-2 C.B. 753. The responsibility for all other information returns shall be allocated similarly. 7.5 Cooperation and Records Retention. From time to time, Seller and Buyer shall provide, and shall cause their respective accountants and other representatives to provide, to each other on a timely basis, the information (including but not limited to work papers) that they or their accountants or other representatives have within their control and that may be reasonably necessary in connection with the preparation of any Return or the examination by any taxing authority or other administrative or judicial proceeding relating to any Return. Seller and Buyer shall retain or cause to be retained, until the applicable statutes of limitations (including any extensions and carryovers) have expired, copies of all Returns for all tax periods beginning before the Closing Date, together with supporting work schedules and other records or information that may be relevant to such Returns. 7.6 Tax Elections. No new elections with respect to Taxes, or any changes in current elections with respect to Taxes, affecting the Assets shall be made by Seller after the date of this Agreement without the prior written consent of Buyer. ARTICLE 8 CLOSING 8.1 Closing Date. Unless this Agreement shall have been terminated and the transactions contemplated hereby shall have been abandoned pursuant to Article 9, the sale of the Assets to Buyer by Seller and the consummation of the other transactions contemplated by this Agreement (the "Closing") shall occur at 11:00 a.m. onMarch 20, 1998, at the offices of Gadsby & Hannah LLP, 225 Franklin Street, Boston, Massachusetts 02110, or at such other hour or place or on such other date as may be agreed upon by Seller and Buyer upon the fulfillment of all conditions precedent to the Closing (such date being referred to herein as the "Closing Date"). Actual possession of the Assets shall be delivered to Buyer at 12:01 a.m. on the day following the Closing Date (the "Possession Time"). -28- 8.2 Deliveries at Closing by Seller. At Closing, Seller shall: (a) execute and deliver to Buyer any and all instruments of sale, assignment and other documents reasonably requested by Buyer to effect the transfer of the Assets to Buyer, to effect the assumption of the Assumed Liabilities by Buyer, or otherwise to consummate the transactions contemplated hereby, including without limitation: (i) the Deed; (ii) other documents and certificates relating to the transfer of Plant which are customary in transactions similar to the transactions contemplated by this Agreement, such as certificates of value, affidavits of non-foreign status, affidavits as to mechanics liens, and the like, including items reasonably requested by Buyer's title insurer; (iii) one or more assignment and assumption agreements with respect to the Assumed Contracts to be acquired by Buyer hereunder, in a form reasonably satisfactory to Buyer, Seller and any third party whose consent is required to effectively assign the Assumed Contracts to Buyer; (iv) an assignment and assumption agreement with respect to the Assumed Liabilities in the form attached as Exhibit 8.2(a)(iv); (v) a blanket bill of sale and assignment covering all Assets in the form attached as Exhibit 1.6(b); (vi) such other documents, including instruments of sale, transfer and assignment, transferring, assigning and conveying the Assets as shall be reasonably requested by Buyer to evidence the transfer of any of the Assets in accordance with this Agreement; and (vii) possession of the Assets and all keys thereto. (b) Execute and deliver the closing certificates in the forms attached hereto as Exhibit 5.1(n) and Exhibit 5.1(o), each duly executed as provided herein; (c) Deliver certificates of good standing or the equivalent, dated not more than ten (10) calendar days prior to the Closing Date, attesting to the good standing of Seller and Au Bon Pain as corporations under the laws of the State of Delaware; (d) Deliver all consents, amendments, assignments, estoppel letters, authorizations and approvals required pursuant to Article 5 as a condition to Closing; (e) Deliver all clearance certificates or other similar documents that may be required by any state or foreign taxing authority in order to relieve Buyer of any obligation to withhold any portion of the Purchase Price; -29- (f) Deliver to Buyer an opinion of Gadsby & Hannah LLP, counsel for Seller, in the form attached as Exhibit 5.1(q); (g) Execute and deliver a receipt for the Purchase Price and all other consideration to be paid pursuant to Section 1.2; (h) Deliver to Buyer duly executed Supply Agreements; and (i) Deliver all other previously undelivered documents and material required to be delivered by Seller to Buyer at or prior to the Closing. 8.3 Deliveries at Closing by Buyer. At Closing, Buyer shall deliver to Seller: (a) The Purchase Price and other consideration as provided in Section 1.2 hereof; (b) An assumption and assignment agreement with respect to the Assumed Liabilities in the form attached as Exhibit 8.2(a)(iv); (c) The closing certificates in the form attached as Exhibit 5.2(l) and Exhibit 5.2(m), each duly executed as provided herein; (d) A resale tax exemption certificate, if applicable; (e) An executed opinion of Murray H. Warschauer, counsel for Buyer, in the form attached as Exhibit 5.2(o); and (f) Execute and deliver to Seller the Supply Agreements. (g) All other previously undelivered documents and material required to be delivered by Buyer to Seller at or prior to the Closing. 8.4 Simultaneous Closing. All actions taken at the Closing shall be deemed to be performed simultaneously and the Closing shall not be deemed to have occurred until all required actions of the parties pursuant to this Agreement have been performed or waived. The parties shall deliver such additional documents and take such additional actions as may reasonably be deemed necessary to complete the transactions contemplated by this Agreement. -30- ARTICLE 9 TERMINATION 9.1 Termination. This Agreement may be terminated and the transactions contemplated herein may be abandoned prior to the Closing Date: (a) by the mutual consent of Seller and Buyer; (b) by Seller or Buyer, if the Closing has not occurred on or before June 30, 1998; (c) by Buyer if there has been a misrepresentation, breach of warranty or breach of covenant by Seller hereunder, provided Buyer is not then in material default of its obligations hereunder; (d) by Seller if there has been a misrepresentation, breach of warranty or breach of covenant by Buyer hereunder, provided Seller is not then in material default of its obligations hereunder; (e) by Seller if any of the conditions precedent to Seller's obligations hereunder shall have become incapable of fulfillment through no fault of Seller; and (f) by Buyer if any of the conditions precedent to Buyer's obligations hereunder shall have become incapable of fulfillment through no fault of Buyer. 9.2 Procedure Upon Termination. In the event of the termination of this Agreement by either party pursuant to Section 9.1(b)-(f), written notice thereof shall be given forthwith to the other party to this Agreement, and this Agreement shall terminate and be abandoned without further action by Seller or Buyer. Upon termination of this Agreement pursuant to Section 9.1(a),(b), (e) or (f), there shall be no liability or obligation on the part of either Seller or Buyer to the other under this Agreement or in connection with the transactions contemplated hereby; provided that, no such termination of this Agreement will relieve any party of liability for any breach of this Agreement prior to such termination; provided, further that the obligations of Buyer set forth in Section 7.1(d) shall survive the termination of this Agreement. In the event of a termination pursuant to Section 9.1(c)-(d) hereof, such termination shall be without prejudice to any rights that the terminating party may have against the other party or any other party under the terms of this Agreement or otherwise. -31- ARTICLE 10 CASUALTY AND CONDEMNATION 10.1 Casualty. (a) Until the Possession Time, the risk of loss of or damage to the Assets shall be and remain with Seller. If prior to the Possession Time, there shall occur destruction, loss or damage to any of the Assets due to fire, flood, accident, explosion, seismic vibration, riot, mud slide, act of God, public enemy or other casualty (an "Event of Casualty"), Seller shall give Buyer prompt written notice of such destruction, loss or damage and shall apply all insurance proceeds to restore the Assets to substantially the same condition as they were in prior to the destruction, loss or damage. (b) If the insurance proceeds payable by reason of an Event of Casualty (plus the amount of any deductible) are not sufficient to pay all costs of repair of such destruction, loss or damage, and if Seller does not undertake to repair such destruction, loss or damage to substantially the same condition as they were in prior to the destruction, loss or damage, Buyer may, at Buyer's option, terminate this Agreement and the transactions contemplated thereby. 10.2 Condemnation If prior to the Possession Time, all or any part of the Assets shall be taken, or threatened to be taken in the exercise of the power of eminent domain by any sovereign, municipality or other public or private authority or otherwise impaired by any governmental agency or authority, Seller shall give Buyer prompt written notice of such taking or threatened taking or impairment within five (5) business days after it becomes aware thereof. In the event such taking or impairment would materially interfere with the use and operation of the Business as conducted prior to the Closing Date, Buyer may, at its option, terminate this Agreement and the transactions contemplated thereby. ARTICLE 11 GENERAL PROVISIONS 11.1 Complete Agreement; No Third Party Rights; Choice of Law; Counterparts. This Agreement: (a) constitutes the entire agreement and supersedes all other prior agreements and undertakings (both written and oral), among the parties hereto with respect to the subject matter hereof; (b) is not intended to confer upon any person any rights or remedies hereunder or with respect to the subject matter hereof except as specifically provided in this Agreement; (c) shall be governed by, and construed in accordance with, the internal laws (and not the law of conflicts) of the State of Missouri; and (d) may be executed in two or more counterparts, each of which shall be deemed to be an original, but all such counterparts together shall constitute a single agreement. -32- 11.2 Notices. Except as may otherwise expressly be provided herein, any notice required or desired to be served, given or delivered hereunder shall be in writing, and shall be deemed to have been validly served, given or delivered upon the earlier of (a) personal delivery to the addresses set forth below, (b) in the case of facsimile transmission, immediately upon confirmation of completion of transmission, (c); in the case of mailed notice, five (5) business days after deposit in the mail, with proper postage for registered or certified mail, return receipt requested, prepaid, or (d) in the case of notice by Federal Express or other reputable overnight courier service, two (2) business days after delivery to such courier service, addressed to the party to be notified as follows: If to Seller: c/o Au Bon Pain Co., Inc. 19 Fid Kennedy Avenue Boston, Massachusetts 02210-2497 Attention: Mr. Ronald M. Shaich Co-Chairman and Chief Executive Officer and Mr. Louis I. Kane Co-Chairman telecopier (617) 423-7879 with a copy to: Gadsby & Hannah LLP 225 Franklin Street Boston, Massachusetts 02110 Attention: Walter D. Wekstein, Esq. Lawrence R. Katz, Esq. telecopier (617) 345-7050 If to Seller: Bunge Foods Corporation 3701 Algonquin Road, Suite 360 Rolling Meadows, Illinois 60008 Attention: General Manager telecopier (847) 342-0029 with a copy to: Bunge Corporation 11720 Borman Drive St. Louis, Missouri 63146 Attention: Legal Department telecopier (314) 994-6521 -33- 11.3 Further Assurances. Subject to the terms and conditions provided in this Agreement, each of the parties hereto agrees to use all reasonable efforts to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement. If at any time after the Closing Date any further action is necessary to carry out the purposes of this Agreement, Seller or Buyer, as the case may be, shall take, or cause to be taken all such necessary actions. 11.4 Expenses. All costs and expenses incurred in connection with consummation of the transactions provided for in this Agreement shall be paid by the party or parties incurring the same. 11.5 Amendment/Waiver. This Agreement may be amended or modified only by a written instrument executed by both Buyer and Seller. Compliance with or performance under any term or provision of this Agreement may be waived only in writing signed by the party to be charged with such waiver. 11.6 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. This Agreement may not be assigned by either party without the prior written consent of the other party. 11.7 Captions. Captions and headings to Articles and Sections herein are inserted for convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. 11.8 Sales Taxes. Buyer shall solely be responsible for(a) any sales, transfer and similar taxes and all recording and similar fees applicable to the transactions contemplated by this Agreement; and (b) the costs and expenses incurred in connection with obtaining all permits and licenses required by Buyer to operate the Plant after the Closing. 11.9 Public Announcements. Neither Buyer nor Seller, without the prior consent of the other shall, disclose to any person or entity prior to the Closing the existence of this Agreement or the transactions contemplated hereby, except to the extent required by applicable law (including without -34- limitation any securities law or regulation of the Securities and Exchange Commission or the National Association of Securities Dealers). 11.10 Severability. If any term or provision of this Agreement is determined by a court of competent jurisdiction to be invalid, illegal or incapable of being enforced by any law or public policy, all other terms or provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. 11.11 Exhibits and Schedules. Each of the Exhibits and Schedules to this Agreement is hereby incorporated herein by this reference and expressly made a part hereof. 11.12 Equitable Remedies. Since damages, in the event of breach of any term or condition of this Agreement, would be difficult, if not impossible, to ascertain, the parties hereto may obtain in addition to any other remedy available to it, an injunction restraining such breach and specific performance of any such breached term or condition. No bonds or other securities shall be required in connection therewith. 11.13 Joint Preparation. This Agreement has been prepared jointly by the parties with assistance from their respective legal counsel. 11.14 Investigations. Buyer may rely upon the representations and warranties made by Seller and Au Bon Pain in this Agreement regardless of any investigation made, or which may be made, by or on behalf of Buyer except and to the extent of Buyer's actual knowledge at or prior to the Closing of the inaccuracy of any such representations and warranties. -35- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be entered into as an instrument under seal as of the day and year first above written. BUNGE FOODS CORPORATION By: /s/ Dexter M. Frye --------------------- Dexter M. Frye Senior Vice President ABP MIDWEST MANUFACTURING CO., INC. By: /s/ Ronald M. Shaich ----------------------- Ronald M. Shaich, Executive Vice President AU BON PAIN CO., INC. By: /s/ Ronald M. Shaich ------------------------ Ronald M. Shaich Co-Chairman and Chief Executive Officer -36- AMENDMENT TO ASSET PURCHASE AGREEMENT This amendment ("Amendment"), dated as of March 23, 1998, is to that certain Asset Purchase Agreement dated February 11, 1998 (the "Agreement") by and among ABP Midwest Manufacturing Co., Inc., a Delaware corporation ("Seller"), Au Bon Pain Co., Inc., a Delaware corporation ("Au Bon Pain"), and Bunge Foods Corporation, a Delaware corporation ("Buyer"), for, among other things, the sale of Seller's manufacturing plant in Mexico, Missouri (the "Plant") to Buyer. Capitalized terms used herein and not otherwise defined shall have the meanings ascribed to them in the Agreement. WHEREAS, the parties desire that the Agreement be amended to reflect changes that have occurred, and to correct inaccuracies discovered, since the parties entered into the Agreement. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereby agree that, anything to the contrary in the Agreement notwithstanding: 1. Schedule 1.1(f) to the Agreement, item 1, Delivery Order Number 6, incorrectly indicates that the following piece of equipment leased from Mercantile Leasing Corporation will be transferred to Buyer: Adamatic Double Bank Knife Divider/Former Model RK4200. This piece of equipment is not located at the Plant, is not used in the operation of the Assets being sold to Buyer, and, therefore, the lease obligations for this piece of equipment, as well as this piece of equipment, is to remain with Seller. 2. Section 1.1(i) to the Agreement is hereby deleted and restated in its entirety as follows: (i) All Seller's designs, models, prototypes, plans, specifications, engineering and other drawings and everything related thereto; all Seller's sales materials, catalogs, advertising, marketing and promotional materials; all Seller's customer and supplier lists, mailing lists; and copies of Seller's sales records, account histories, correspondence with customers, and records of purchases from correspondence with suppliers (collectively, the "Intangibles"); 3. Schedule 1.7 to Exhibit 7.1(a)1 to the Agreement (which is Schedule 1.7 to the Au Bon Pain Supply Agreement) shall be deleted and replaced with the attached revised Schedule 1.7. 4. Schedule 1.7 to Exhibit 7.1(a)2 to the Agreement (which is Schedule 1.7 to the Saint Louis Bread Supply Agreement) shall be deleted and replaced with the attached revised Schedule 1.7. 5. Due to a change in product codes, Exhibit A to Exhibit 7.1(b)1 to the Agreement (which is Exhibit A to the Au Bon Pain Wholesale Manufacturing License) shall be deleted and replaced with the attached revised Exhibit A. 6. Due to a change in product codes, Exhibit A to Exhibit 7.1(b)2 to the Agreement (which is Exhibit A to the Saint Louis Bread Wholesale Manufacturing License) shall be deleted and replaced with the attached revised Exhibit A. 7. The following additional lease, which was inadvertently omitted from the Agreement at the time of its execution, is hereby included with the Leases listed on Schedule 1.1(f) to the Agreement and is to be assumed by Buyer: First United Leasing lease for Skyjack Scissorlift 8. The following additional contracts, which were inadvertently omitted from the Agreement at the time of its execution, are hereby included with the Contracts listed on Schedule 1.1(g) to the Agreement and are to be assumed by Buyer: Rabbinical Counsel of New England Agreement Mitel Financial Services Agreement Diamond Walnut Growers, Inc. Agreement 9. The following additional contracts, which have been entered into since the execution of the Agreement, are hereby included with the Contracts listed on Schedule 1.1(g) to the Agreement and are to be assumed by Buyer: South Georgia Pecan Co. Agreement Con Agra Flour Milling Company Agreement Slane International, Inc. Agreement (the "Slane Agreement") Container Systems Agreement (the "Container Systems Agreement") In addition, Seller has paid a deposit of $6,975 to Container Systems in connection with the Container Systems Agreement and a deposit of $10,000 to Slane International, Inc. in connection with the Slane Agreement. The Final Net Book Value and Purchase Price shall reflect that these payments are to be refunded to Seller. 10. Pursuant to Section 1.1(g) of the Agreement, Buyer agreed to assume the obligation to pay the balance due to Trademark Equipment, Inc. for two ovens shipped to the Plant in January 1998. Seller has since paid for said ovens. The Final Net Book Value and Purchase Price shall reflect that this payment is to be refunded to Seller. 11. Seller shall pay to Buyer the amounts due from Seller to Seller's employees for vacation pay (the "Vacation Pay"). Upon receipt, Buyer shall be responsible for and assume liability to such employees for the vacation pay in the amounts paid and for the account of the employees designated by Seller. The Vacation Pay shall be paid by Seller to Buyer at the time that the Final Net Book Value is determined. 12. The insurance coverage required to be obtained and maintained by Au Bon Pain pursuant to the Au Bon Pain Supply Agreement and by Saint Louis Bread pursuant to the Saint Louis Bread Supply Agreement shall be satisfied if, in the aggregate, such policy or policies equal the required amounts set forth on Schedule 12 to either Supply -2- Agreement, so long as Au Bon Pain and Saint Louis Bread are under common ownership. In the event that Au Bon Pain and Saint Louis Bread cease to be under common ownership, each shall obtain and maintain its own policy with the minimum coverage required pursuant to each Supply Agreement. 13. Any provision contained in the Agreement to the contrary notwithstanding, the Closing shall occur on Monday, March 23, 1998; provided, however, that all items of expense and income associated with operating the Plant from and after 12:01 a.m. on Sunday, March 22, 1998 shall be for the account and benefit of Buyer. The foregoing shall not be deemed to modify the Possession Time. 14. Section 1.7 of the Agreement to the contrary notwithstanding, Seller and Buyer shall mutually determine the allocation of the Purchase Price for tax purposes within sixty (60) days after the Closing Date. 15. This Amendment may be executed in two or more counterparts. Each counterpart, including a signature page executed by each of the parties hereto shall be an original counterpart of this Amendment, but all of such counterparts together shall constitute one instrument. 16. With the exception of the Amendment hereby incorporated into the Agreement, unless specifically modified by the foregoing, the remaining terms and conditions of the Agreement are hereby ratified and confirmed. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be entered into as an instrument under seal as of the day and year first above written. BUNGE FOODS CORPORATION By /s/ Michael M. Scharf -------------------------------- Michael M. Scharf Senior Vice President ABP MIDWEST MANUFACTURING CO., INC. By /s/ Anthony J. Carroll -------------------------------- Anthony J. Carroll Vice President and Treasurer AU BON PAIN CO., INC. By /s/ Anthony J. Carroll -------------------------------- Anthony J. Carroll Vice President and Treasurer -3- INDEX OF EXHIBITS TO ASSET PURCHASE AGREEMENT Exhibit No.* Item - ----------- ---- Exhibit 1.6(b) Bill of Sale Exhibit 5.1(k) Non-foreign Status Certification to Seller Exhibit 5.1(n) (Assistant) Secretary Certificate to Seller Exhibit 5.1(o) Vice President (or Senior Officer) Certificate of Seller and Au Bon Pain Exhibit 5.1(q) Gadsby & Hannah LLP Opinion to Buyer Exhibit 5.1(s) Title Insurance Exhibit 5.1(s)(2) Survey Exhibit 5.2(m) Vice President (or Senior Officer) Certificate of Buyer Exhibit 5.2(o) Murray H. Warschauer Opinion to Seller Exhibit 7.1(a)(1) Au Bon Pain Supply Agreement Exhibit 7.1(a)(2) Saint Louis Bread Supply Agreement Exhibit 7.1(b)(1) Au Bon Pain Manufacturing License Exhibit 7.1(b)(2) Saint Louis Bread Manufacturing License Exhibit 8.2(a)(iv) Assumed Liabilities Assignment and Assumption Agreement * All Exhibits have been omitted. Copies will be provided supplementally to the Commission upon request, provided that the Company reserves the right to request confidential treatment for same. EX-4.1.1 3 AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT Exhibit 4.1.1 AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT ----------------------------------------------- This AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT is made as of the 13th day of February, 1998, by and among (i) AU BON PAIN CO., INC., a Delaware corporation having its principal place of business at 19 Fid Kennedy Avenue, Boston, Massachusetts 02210 ("ABP"), (ii) SAINT LOUIS BREAD COMPANY, INC., a Delaware corporation having its principal place of business at 19 Fid Kennedy Avenue, Boston, Massachusetts 02210 ("Saint Louis Bread"), (iii) ABP MIDWEST MANUFACTURING CO., INC., a Delaware corporation having its principal place of business at 19 Fid Kennedy Avenue, Boston, Massachusetts 02210 ("ABP Midwest", and, together with ABP and Saint Louis Bread, the "Borrowers"), (iv) BANKBOSTON, N.A., a national banking association, having its principal place of business at 100 Federal Street, Boston, Massachusetts 02110 ("BankBoston"), and (v) USTRUST, a Massachusetts trust company, having its principal place of business at 30 Court Street, Boston, Massachusetts 02108, ("USTrust" and collectively with BankBoston, the "Banks"), and BANKBOSTON, N.A. as agent for the Banks (in such capacity, the "Agent"). W I T N E S S E T H - - - - - - - - - - WHEREAS, pursuant to the Amended and Restated Revolving Credit and Term Loan Agreement dated as of March 17, 1995 (as amended from time to time, the "Existing Credit Agreement") by and among the Borrowers, the Banks and USTrust as agent for the Banks, the Banks have made available certain financing to the Borrower upon the terms and conditions contained therein; WHEREAS, immediately prior to the effectiveness of this Amended and Restated Revolving Credit Agreement, BankBoston has accepted an assignment of the entire interest of Citizens Bank of Massachusetts under the Existing Credit Agreement pursuant to that certain Assignment and Acceptance of even date herewith, by and among the Borrowers, the Banks and USTrust, as agent for the Banks; WHEREAS, the Banks and the Borrowers desire that BankBoston act as agent for the Banks and replace USTrust, the agent for the Banks under the Existing Credit Agreement; WHEREAS, the Borrowers desire to amend and restate the Existing Credit Agreement, and the Banks have agreed to make such amendments on the terms and conditions set forth herein; NOW THEREFORE, in consideration of the foregoing premises, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree to amend and restate the Existing Credit Agreement in its entirety as set forth herein: -2- [section] 1. DEFINITIONS AND RULES OF INTERPRETATION. [section] 1.1. Definitions. The following terms shall have the meanings set forth in this [section]1 or elsewhere in the provisions of this Credit Agreement referred to below: 4.75% Convertible Subordinated Notes. Those certain 4.75% Convertible Subordinated Notes due January 2, 2001 issued by Au Bon Pain Co., Inc. in the aggregate principal amount of $30,000,000 pursuant to the terms of that certain Securities Purchase Agreement dated as of December 17, 1993 among Au Bon Pain Co., Inc. and certain purchasers named therein (as such notes are amended, modified and restated and in effect from time to time). ABP. Au Bon Pain Co., Inc., a Delaware corporation. ABP Midwest. ABP Midwest Manufacturing Co., Inc., a Delaware corporation. Affiliate. Any Person that would be considered to be an affiliate of any one of the Borrowers under Rule 144(a) of the Rules and Regulations of the Securities and Exchange Commission, as in effect on the date hereof, if such Borrower were issuing securities. Agent. BankBoston acting as agent for the Banks. Agent's Special Counsel. Bingham Dana LLP of Boston, Massachusetts, or such other counsel as may be approved by the Agent. Balance Sheet Date. December 28, 1996. BankBoston. BankBoston, N.A., a national banking association. Banks. BankBoston, USTrust, and any of their permitted successors and assigns. Base Rate. The higher of (i) the annual rate of interest announced from time to time by the Agent at its head office in Boston, Massachusetts as its "base rate" and (ii) one-half of one percent (1/2%) above the Federal Funds Effective Rate. For purposes of this definition, "Federal Funds Effective Rate" shall mean for any day, the rate per annum equal to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or if such rate is not so published for any day that is a Business Day, the average of the quotations for such day on such transactions received by the Agent from three funds brokers of recognized standing selected by the Agent. Base Rate Loans. Revolving Credit Loans which bear interest calculated by reference to the Base Rate. -3- Borrowers. Au Bon Pain Co., Inc., a Delaware corporation, Saint Louis Bread Company, Inc., a Delaware corporation, and ABP Midwest Manufacturing Co., Inc., a Delaware corporation, collectively, and if the context requires, individually. Business Day. Any day on which banking institutions in Boston, Massachusetts are open for the transaction of banking busine[section] Capitalized Leases. Leases under which any of the Borrowers or any of their Subsidiaries is the lessee or obligor, the discounted future rental payment obligations under which are required to be capitalized on the balance sheet of the lessee or obligor in accordance with generally accepted accounting principles. CERCLA. The Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended. Closing Date. February 13, 1998. Code. The Internal Revenue Code of 1986, as amended and in effect from time to time. Commitment. With respect to each Bank, the amount set forth in the column labeled Commitment opposite such Bank's name on Schedule 1.1(a) hereto, as the same may be reduced, by the Borrowers or in accordance with [section]11, from time to time. Commitment Fee. See [section]2.2. Commitment Percentage. With respect to each Bank, the percentage set forth opposite such Bank's name on Schedule 1.1(a) thereto. Compliance Certificate. See [section]6.4. Consolidated or consolidated. With reference to any term defined herein, shall mean that term as applied to the accounts of the Borrowers, and their Subsidiaries, consolidated in accordance with generally accepted accounting principles. Consolidated Capital Expenditures. For any specified period, amounts added or required to be added to the fixed asset account on the Borrowers' consolidated balance sheet in accordance with generally accepted accounting principles, in respect of (i) the acquisition, construction, improvement or replacement of land, buildings, machinery, equipment, leaseholds and any other real or personal property, and (ii) to the extent not included in clause (i) above, expenditures on account of materials, contract labor and direct labor relating thereto (excluding expenditures properly expensed as repairs and maintenance in accordance with generally accepted accounting principles). -4- Consolidated Growth Capital Expenditures. With respect to any relevant period, the aggregate amount of Consolidated Capital Expenditures of the Borrowers and their Subsidiaries which are incurred by the Borrowers and their Subsidiaries during such relevant period and which, in accordance with generally accepted accounting principles, are properly attributable to (i) the acquisition, construction, or equipping of bakery cafes and stores acquired or constructed during or after the Borrowers' fiscal year ending in 1997 or (ii) the remodeling and improvement of any of ABP's bakery cafes and stores, which were owned by ABP at the beginning of the Borrowers' fiscal year ending in 1997, as part of ABP's "ABP 2000" project; which Consolidated Growth Capital Expenditures shall in any event include, without limitation, those of the type set forth on Schedule 1.1(b) under the heading "Growth/Discretionary Capital Expenditures." Consolidated Maintenance Capital Expenditures. The aggregate amount of Consolidated Capital Expenditures of the Borrowers and their Subsidiaries which are not Consolidated Growth Capital Expenditures Consolidated Net Income (or Deficit). For any specified period, the net income (or deficit) (after taxes) of the Borrowers and their Subsidiaries determined on a consolidated basis in accordance with generally accepted accounting principles after eliminating all extraordinary nonrecurring non-cash items of income, all extraordinary nonrecurring non-cash items of expense up to an annual maximum of $2,500,000 and all inter-company items. Consolidated Operating Cash Flow. With respect to the Borrowers and their Subsidiaries and for any period, the sum of (a) Consolidated Net Income for such period plus (b) to the extent deducted in the calculation of Consolidated Net Income for such period, the aggregate amount of depreciation, amortization and other non-cash charges for such period, plus (c) to the extent deducted in the calculation of Consolidated Net Income for such period, Consolidated Total Interest Expense for such period, less (d) twenty-five percent (25%) of all Consolidated Growth Capital Expenditures and one hundred percent (100%) of all Consolidated Maintenance Capital Expenditures made during such period to the extent such Consolidated Capital Expenditures are permitted by [section]8.2, in each case determined on a consolidated basis for the Borrowers and their Subsidiaries in accordance with generally accepted accounting principles. Consolidated Senior Liabilities. Consolidated Total Liabilities less Subordinated Debt. Consolidated Tangible Net Worth. The excess of the Consolidated Total Assets of the Borrowers and their Subsidiaries over the Consolidated Total Liabilities, both determined on a consolidated basis after eliminating all inter-company items, as the same properly appear on a consolidated balance sheet of the Borrowers and their Subsidiaries prepared in accordance with generally accepted accounting principles, less the sum of: (a) the total book value of all assets of the Borrowers and their Subsidiaries which would be treated as intangibles under generally accepted accounting principles, including -5- without limitation, such items as deferred financing costs, good will, trademarks, trade names, service marks, brand names, copyrights, patents and licenses, and rights with respect to the foregoing; and (b) all amounts representing any write-up in the book value of any assets of the Borrowers and their Subsidiaries resulting from a revaluation thereof subsequent to the Balance Sheet Date. Consolidated Total Assets. All assets of the Borrowers and their Subsidiaries determined on a consolidated basis in accordance with generally accepted accounting principles. Consolidated Total Debt Service. For any specific period, the sum of (a) Consolidated Total Interest Expense for such period, plus (b) all scheduled maturities or installments of long-term Indebtedness (including, without limitation, scheduled Capitalized Lease installments payable during such period other than the interest component of such payments, and also including without limitation, final maturities of Indebtedness previously classified as long-term Indebtedness) of the Borrowers and their Subsidiaries due and payable during such period, calculated on a consolidated basis in accordance with generally accepted accounting principles. Consolidated Total Interest Expense. For any specific period, the aggregate amount of interest required to be paid or accrued during such period by the Borrowers and their Subsidiaries on all Indebtedness, whether such interest was or is required to be reflected as an item of expense or capitalized and including, without limitation, the interest component of all payments under Capitalized Leases, calculated on a consolidated basis in accordance with generally accepted accounting principles. Consolidated Total Liabilities. All liabilities of the Borrowers and their Subsidiaries determined on a consolidated basis in accordance with generally accepted accounting principles (including all Indebtedness of the Borrowers and their Subsidiaries) less those Revolving Credit Loans equal to that portion of the deposit posted by ABP with The SYGMA Network, Inc. and/or The SYGMA Network of Ohio, Inc. at the relevant time of reference thereto pursuant to the SYGMA Distribution Service Agreement made as of December 13, 1994 among ABP, The SYGMA Network, Inc. and The SYGMA Network of Ohio, Inc. which ABP can withdraw from The SYGMA Network, Inc. and/or The SYGMA Network of Ohio, Inc., as applicable, at any time at the sole option of ABP pursuant to such agreement. Conversion Request. A notice given by the Borrowers to the Agent in accordance with [section]4.2 pursuant to which the Borrowers notify the Agent of their election to convert one Type of Revolving Credit Loan to another Type of Revolving Credit Loan or to continue a Type of a Revolving Credit Loan. Credit Agreement. This Amended and Restated Revolving Credit Agreement, including the Schedules and Exhibits hereto. -6- Default. See [section]11. Distribution. Any of the following: (a) the declaration or payment of any dividend on or in respect of any shares of any class of capital stock of the Borrowers, other than dividends payable solely in shares of common stock of any Borrower; (b) the purchase, redemption, or other retirement of any shares of any class of capital stock of any Borrower, directly or indirectly through a Subsidiary of the Borrowers, an employee stock ownership or other employee benefit plan or otherwise; (c) any other return of capital by any Borrower to its shareholders as such and any other distribution on or in respect of any shares of any class of capital stock of any Borrower; and (d) any other distribution on or in respect of any shares of any class of capital stock of any Borrower. Dollars. Dollars in lawful currency of the United States of America. Domestic Lending Office. Initially, the office of each Bank set forth on Schedule 1.1(a) hereto, and, thereafter, such other office of such Bank, if any, located within the United States that will be making or maintaining Base Rate Loans. Drawdown Date. The date on which any Revolving Credit Loan is made or is to be made in accordance with [section]2.1. Employee Benefit Plan. Any employee benefit plan within the meaning of [section]3(2) of ERISA maintained or contributed to by the Borrowers or any ERISA Affiliate, other than a Multiemployer Plan. Environmental Laws. See [section]5.17. ERISA. The Employee Retirement Income Security Act of 1974, as amended. ERISA Affiliate. Any Person which is treated as a single employer with any one of the Borrowers under [section]414 of the Code. ERISA Reportable Event. A reportable event with respect to a Guaranteed Pension Plan within the meaning of [section]4043 of ERISA and the regulations promulgated thereunder as to which the requirement of notice has not been waived. Eurocurrency Reserve Requirement. For any day with respect to a Eurodollar Rate Loan, the maximum rate (expressed as a decimal) at which any lender subject thereto would be required to maintain reserves under Regulation D of the Board of Governors of the Federal Reserve System (or any successor or similar regulations relating to such reserve requirements) against "Eurocurrency Liabilities" (as that term is used in Regulation D), if such liabilities were outstanding. The Eurocurrency Reserve Requirement shall be adjusted automatically on and as of the effective date of any change in the Eurocurrency Reserve Requirement. -7- Eurodollar Business Day. Any Business Day on which commercial banks are open for international business (including dealings in Dollar deposits) in London or such other eurodollar interbank market as may be selected by the Agent in its sole discretion acting in good faith. Eurodollar Lending Office. Initially, the office of each Bank designated as such on Schedule 1.1(c) hereto and, thereafter, such other office of such Bank, if any, that shall be making or maintaining Eurodollar Rate Loans. Eurodollar Rate. For any Interest Period with respect to a Eurodollar Rate Loan, a rate per annum determined by dividing (a) the rate at which the Agent's Eurodollar Lending Office is offered Dollar deposits two Eurodollar Business Days prior to the beginning of such Interest Period in the eurodollar interbank market where the eurodollar and foreign currency and exchange operations of such Eurodollar Lending Office are customarily conducted at or about 10:00 A.M., Boston time, for delivery on the first day of such Interest Period for the number of days comprised therein and in an amount substantially comparable to the amount of the Agent's Eurodollar Rate Loan to which such Interest Period applies by (b) a number equal to one (1) minus the Eurodollar Reserve Requirement, if any. Eurodollar Rate Loans. Revolving Credit Loans which bear interest calculated by reference to the Eurodollar Rate. Event of Default. See [section]11. Existing Credit Agreement. The Amended and Restated Revolving Credit and Term Loan Agreement, dated as of March 17, 1995, as amended, by and among the Borrowers, USTrust, BankBoston, Citizens Bank of Massachusetts and USTrust as Agent. generally accepted accounting principles. (a) When used in [section]8, whether directly or indirectly through reference to a capitalized term used therein, means (i) principles that are consistent with the principles promulgated or adopted by the Financial Accounting Standards Board and its predecessors, in effect for the fiscal year ended on the Balance Sheet Date, and (ii) to the extent consistent with such principles, the accounting practice of the Borrowers reflected in their financial statements for the year ended on the Balance Sheet Date, and (b) when used in general, other than as provided above, means principles that are (i) consistent with the principles promulgated or adopted by the Financial Accounting Standards Board and its predecessors, as in effect from time to time and (ii) consistently applied with past financial statements of the Borrowers adopting the same principles; provided that, in each case referred to in this definition of "generally accepted accounting principles", a certified public accountant would, insofar as the use of such accounting principles is pertinent, be in a position to deliver an unqualified opinion (other than a qualification regarding changes in generally accepted accounting principles) as to financial statements in which such principles have been properly applied. -8- Guaranteed Pension Plan. Any pension plan maintained by the Borrowers or any of their Subsidiaries, or to which the Borrowers or any of their Subsidiaries contributes, that is required to pay plan termination insurance premiums to the Pension Benefit Guaranty Corporation. Guaranties. (a) All guaranties, sales with recourse, endorsements (other than for collection or deposit in the ordinary course of business) and other obligations (contingent or otherwise) to pay, purchase, repurchase or otherwise acquire or become liable upon or in respect of any Indebtedness of others, and (b) without limiting the generality of the foregoing, all obligations (contingent or otherwise) to purchase products, supplies or other property or services from others under agreements requiring payment therefor regardless of the non-delivery or non-furnishing thereof, or to make Investments in others, or to maintain the capital, working capital, solvency or general financial conditions of others, or to indemnify others against and hold them harmless from damages, losses and liabilities, all under circumstances intended to enable such others or any others to discharge any of their Indebtedness or to comply with agreements relating to their Indebtedness or otherwise to assure or protect their creditors against loss in respect of such Indebtedne[section] Hazardous Substances. See [section]5.17. Head Office. The head office of BankBoston located at 100 Federal Street, Boston, Massachusetts 02110 or such other address as BankBoston shall have last furnished in writing to the Borrowers and the Banks. Imperio Term Loan Agreement. A Term Loan Agreement dated as of December 30, 1994, entered into by and between USTrust and Old Westbury Expressions, as the same may be amended, extended or renewed from time to time; provided that the principal amount outstanding thereunder shall not exceed $77,000 at any one time outstanding. Imperio Term Loans. The loans made or to be made by USTrust to Old Westbury Expressions under the Imperio Term Loan Agreement. Indebtedness. With respect to any Person to which such term is applied, all obligations and reserves, contingent and otherwise, that in accordance with generally accepted accounting principles should be reflected on such Person's balance sheet as liabilities or to which reference should be made by footnotes thereto and shall in any event include (a) all debt and other similar monetary obligations, whether direct or indirect, (b) all Capitalized Leases, (c) all obligations secured by any mortgage, pledge, security interest or lien existing on property owned or acquired by such Person subject to such mortgage, pledge, security interest or lien, whether or not the obligations secured thereby shall have been assumed, and (d) all Guaranties by such Person. Interest Payment Date. (a) As to any Base Rate Loan, monthly in arrears on the last day of each calendar month, and (b) as to any Eurodollar Rate Loan in respect of which the Interest Period is (i) 3 months or less, the last day of such Interest Period and (ii) more than 3 -9- months, the date that is 3 months from the Drawdown Date thereof and the last day of such Interest Period. Interest Period. With respect to each Revolving Credit Loan which is a Eurodollar Rate Loan, (i) initially, the period commencing on the date such Revolving Credit Loan is made and ending on the last day of a period of either 1, 2, 3, or 6 months as selected by the Borrowers in a Loan Request for any such Eurodollar Rate Loan, and (ii) thereafter, each period commencing on the last day of the next preceding Interest Period applicable to such Revolving Credit Loan and ending on the last day of one of the periods set forth above, as selected by the Borrowers in a Conversion Request; provided that all of the foregoing provisions relating to Interest Periods are subject to the following: (i) if any Interest Period with respect to a Eurodollar Rate Loan would otherwise end on a day that is not a Eurodollar Business Day, that Interest Period shall be extended to the next succeeding Eurodollar Business Day unless the result of such extension would be to carry such Interest Period into another calendar month, in which event such Interest Period shall end on the immediately preceding Eurodollar Business Day; (ii) if with respect to any Revolving Credit Loan which is a Eurodollar Rate Loan, the Borrowers shall fail to give a Conversion Request as provided in [section]4.2, the Borrowers shall be deemed to have requested a conversion of the affected Eurodollar Rate Loan to a Base Rate Loan on the last day of the then current Interest Period with respect thereto; (iii) any Interest Period that begins on the last Eurodollar 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 Eurodollar Business Day of a calendar month; and (iv) the Borrowers may not select an Interest Period for any Revolving Credit Loan that is a Eurodollar Rate Loan that would extend beyond the scheduled Maturity Date. Investment Agreement. The Investment Agreement dated as of July 24, 1996 by and among the Borrowers, Allied Capital Corporation, Allied Capital Corporation II, and Capital Trust Investments, Ltd. Investments. All expenditures made and all liabilities incurred (contingently or otherwise) for the acquisition of stock (other than stock issued by a wholly-owned Subsidiary of the relevant Person) or Indebtedness of, or for loans, advances, capital contributions or transfers of property to, or in respect of any guaranties (or other commitments as described under Indebtedness), or obligations of, any Person. In determining the aggregate amount of Investments outstanding at any particular time, (a) the amount of any Investment represented by a guaranty shall be taken at not less than the principal amount of the obligations guaranteed and still outstanding; (b) there shall be included as an Investment all interest accrued with respect to Indebtedness constituting an Investment unless and until such interest is paid; (c) -10- there shall be deducted in respect of each such Investment any amount received as a return of capital (but only by repurchase, redemption, retirement, repayment, liquidating dividend or liquidating distribution); and (d) there shall not be deducted in respect of any Investment any amounts received as earnings on such Investment, whether as dividends, interest or otherwise, except that accrued interest included as provided in the foregoing clause (b) may be deducted when paid. Letter of Credit. See [section]3.1(a). Letter of Credit Application. See [section]3.1(a). Letter of Credit Participation. See [section]3.1(d). Letter of Credit Reimbursement Agreement. See [section]9.9. Leverage Ratio. With respect to the applicable time of reference, the ratio of (a) the sum of Consolidated Senior Liabilities plus the net present value (calculated using a discount rate of 12%) of future minimum commitments under all operating leases (as such term is applied in accordance with generally accepted accounting principles) of the Borrowers and their Subsidiaries at such time to (b) the sum of the Consolidated Tangible Net Worth of the Borrowers and their Subsidiaries plus all Subordinated Debt of the Borrowers and their Subsidiaries outstanding at such time. Loan Documents. This Credit Agreement, the Notes, the Letter of Credit Applications, the Letters of Credit, and any other instruments or agreements executed and delivered by the Borrowers to the Banks in connection with the transactions contemplated by this Credit Agreement. Loan Request. See [section]2.5. Majority Banks. As of any date, the Banks holding at least two-thirds of the outstanding principal amount of the Notes on such date, and if no such principal is outstanding, the Banks whose aggregate Commitment constitutes at least two-thirds of the Total Commitment; provided that if the number of Banks is two or less, the term "Majority Banks" shall mean both Banks. Maturity Date. September 30, 1999, or such earlier date on which the outstanding Revolving Credit Loans hereunder are declared due and payable pursuant to the terms of this Credit Agreement or on which the Total Commitment is terminated. Maximum Drawing Amount. The maximum aggregate amount that the beneficiaries may at any time draw under outstanding Letters of Credit, as such aggregate amount may be reduced from time to time pursuant to the terms of the Letters of Credit. -11- Multiemployer Plan. Any multiemployer plan within the meaning of [section]3(37) of ERISA maintained or contributed to by any of the Borrowers or any ERISA Affiliate. Note Record. The grid attached to a Note, or the continuation of such grid, or any other similar record maintained by the Bank holding such Note with respect to any Revolving Credit Loan. Notes. See [section]2.4. Obligations. All indebtedness, obligations and liabilities of the Borrowers and their Subsidiaries to the Banks, individually or collectively, existing on the date of this Credit Agreement or arising thereafter, direct or indirect, joint or several, absolute or contingent, matured or unmatured, liquidated or unliquidated, secured or unsecured, arising by contract, operation of law or otherwise, arising or incurred under this Credit Agreement, the Notes or the other Loan Documents or in respect of the Revolving Credit Loans or Letters of Credit or under other instruments at any time evidencing or securing any thereof. Old Westbury Expressions. Old Westbury Expressions, Inc., a New York corporation. Outstanding or outstanding. With respect to the Revolving Credit Loans, the aggregate unpaid principal thereof as of any date of determination. PBGC. The Pension Benefit Guaranty Corporation created by [section]4002 of ERISA and any successor entity or entities having similar responsibilities. Permitted Liens. Liens, security interests and other encumbrances of the type permitted by [section]7.3. Person. Any individual, corporation, partnership, trust, unincorporated association, business, or other legal entity, and any government or any governmental agency or political subdivision thereof. Proprietary Rights. See [section]5.6. Real Estate. All real property at any time owned or leased by the Borrowers or any of their Subsidiaries. Reimbursement Obligation. The Borrowers' obligation to reimburse the Agent and the Banks on account of any drawing under any Letter of Credit as provided in [section]3.2. Revolving Credit Loans. Collectively, the revolving credit loans made or to be made by the Banks to the Borrowers pursuant to [section]2 of this Credit Agreement. Saint Louis Bread. Saint Louis Bread Company, Inc., a Delaware corporation. -12- Scheduled Letters of Credit. See [section]3.1. Senior Indebtedne[section] See [section]4.12(f). Settlement. The making of, or receiving of, payments in immediately available funds, by the Banks to or from the Agent in accordance with [section]2.6 to the extent necessary to cause each Bank's actual share of the outstanding amount of the Revolving Credit Loans to be equal to each Bank's Commitment Percentage of the outstanding amount of such Revolving Credit Loans, in any case where, prior to such event or action, the actual share is not so equal. Settlement Amount. That amount which each Bank is required to pay in order to effect a Settlement. Settlement Date. See [section]2.6(b). Subordinated Debt. All Indebtedness permitted hereunder that is subordinated in right of payment to the Obligations on terms satisfactory to the Banks. Subordination Agreement. The Subordination Agreement dated as of July 24, 1996 among the Banks, the Agent, the Borrowers, Allied Capital Corporation, Allied Capital Corporation II, and Capital Trust Investments, Ltd., as amended previously, and in effect on the date hereof. Subsidiary. Any corporation, partnership, association, trust, or other business entity of which the designated parent shall at any time own directly or indirectly through a Subsidiary or Subsidiaries at least a majority (by number of votes) of the outstanding Voting Stock. Total Commitment. The sum of the Commitments of the Banks, as in effect from time to time. Type. As to any Revolving Credit Loan, its nature as a Base Rate Loan or a Eurodollar Rate Loan. Uniform Customs. With respect to any Letter of Credit, the Uniform Customs and Practice for Documentary Credits (1993 Revision), International Chamber of Commerce Publication No. 500 or any successor version thereto adopted by the Agent in the ordinary course of its business as a letter of credit issuer and in effect at the time of issuance of such Letter of Credit. Unlimited Imperio Guaranty. The unlimited guaranty dated as of December 30, 1994, executed by the Borrowers in favor of USTrust in connection with the Imperio Term Loan Agreement, guaranteeing all obligations of Old Westbury Expressions, Leonard Imperio and Rosemarie Imperio owing to USTrust under or in connection with the Imperio Term Loan Agreement. -13- Unpaid Reimbursement Obligation. Any Reimbursement Obligation for which the Borrowers do not reimburse the Agent and the Banks on the date specified in, and in accordance with, [section]3.2. USTrust. USTrust, a Massachusetts trust company, in its individual capacity. Voting Stock. Stock or similar interests, of any class or classes (however designated), the holders of which are at the time entitled, as such holders, to vote for the election of the directors (or persons performing similar functions) of the corporation, association, trust or other business entity involved, whether or not the right so to vote exists by reason of the happening of a contingency. [section]1.2. Rules of Interpretation. (a) A reference to any document or agreement shall include such document or agreement as amended, modified or supplemented from time to time in accordance with its terms and the terms of this Credit Agreement. (b) The singular includes the plural and the plural includes the singular. (c) A reference to any law includes any amendment or modification to such law. (d) A reference to any Person includes its permitted successors and permitted assigns. (e) Accounting terms not otherwise defined herein have the meanings assigned to them by generally accepted accounting principles applied on a consistent basis by the accounting entity to which they refer. (f) The words "include", "includes" and "including" are not limiting. (g) All terms not specifically defined herein or by generally accepted accounting principles, which terms are defined in the Uniform Commercial Code as in effect in Massachusetts, have the meanings assigned to them therein. (h) Reference to a particular "[section]" refers to that section of the agreement in which such reference appears unless otherwise indicated. (i) The words "herein", "hereof", "hereunder" and words of like import shall refer to the agreement in which they appear as a whole and not to any particular section or subdivision of that agreement unless otherwise specifically indicated. [section]2. THE REVOLVING CREDIT FACILITY. -14- [section]2.1. Commitment to Lend. Subject to the terms and conditions set forth in this Credit Agreement, each of the Banks severally agrees to lend to the Borrowers and the Borrowers may borrow, repay, and reborrow from time to time between the date of this Credit Agreement and the Maturity Date upon notice by the Borrowers to the Agent given in accordance with [section]2.5, such sums as requested by the Borrowers up to a maximum aggregate principal amount outstanding (after giving effect to all amounts then being requested) at any one time equal to such Bank's Commitment provided that the aggregate outstanding principal balance of the Revolving Credit Loans shall at no time exceed (a) the Total Commitment as then in effect less (b) an amount equal to the sum of (i) the aggregate outstanding principal amount of the Imperio Term Loans and the commitments to make new loans under the Imperio Term Loan Agreement, plus (ii) the Maximum Drawing Amount with respect to outstanding Letters of Credit, plus (iii) the aggregate amount of Unpaid Reimbursement Obligations owing with respect to Letters of Credit issued hereunder. The Revolving Credit Loans shall be made pro rata in accordance with each Bank's Commitment Percentage. Each request for a Revolving Credit Loan shall constitute a representation by the Borrowers that the conditions set forth in [section]9 and [section]10, in the case of the initial Revolving Credit Loans to be made on the Closing Date, and [section]10, in the case of all other Revolving Credit Loans, have been satisfied on the date of such request. [section]2.2. Commitment Fee. The Borrowers agree to pay to the Agent for the accounts of the Banks in accordance with their respective Commitment Percentages a commitment fee calculated daily at the per annum rate of 0.375% on the difference on each such day between (a) the Total Commitment in effect on such date and (b) an amount equal to the sum on such day of (i) the aggregate outstanding principal amount of the Revolving Credit Loans, plus (ii) the Maximum Drawing Amount with respect to outstanding Letters of Credit, plus (iii) the aggregate amount of Unpaid Reimbursement Obligations owing with respect to Letters of Credit issued hereunder (the "Commitment Fee"); provided that for purposes of calculating the Commitment Fee, the Total Commitment shall be reduced by the aggregate then outstanding principal amount of the Imperio Term Loans. The amount of such Commitment Fee shall be payable quarterly in arrears on the last day of each March, June, September and December for the calendar quarter, or portion thereof, then ended. [section]2.3. Reduction of Commitment. (a) The Borrowers shall have the right at any time and from time to time upon three (3) Business Days' written notice to the Agent to reduce by $100,000 or an integral multiple thereof or terminate entirely the unborrowed portion of the Total Commitment, whereupon the Commitments of the Banks shall be reduced pro rata in accordance with their respective Commitment Percentages of the amount specified in such notice or, as the case may be, terminated. Promptly after receiving any notice of the Borrowers delivered pursuant to this [section]2.3, the Agent will notify the Banks of the substance thereof. No reduction of the Commitments of the Banks may be reinstated. -15- (b) Upon the effective date of any such termination, the Borrowers shall pay to the Agent for the respective accounts of the Banks the full amount of any Commitment Fee then accrued. [section]2.4. The Notes. The Revolving Credit Loans shall be evidenced by separate promissory notes of the Borrowers in substantially the form of Exhibit A hereto (each a "Note"), dated the Closing Date and completed with appropriate insertions. One Note shall be payable to the order of each Bank in a principal amount equal to such Bank's Commitment or, if less, the outstanding amount of all Revolving Credit Loans made by such Bank, plus interest accrued thereon, as set forth below. The Borrowers irrevocably authorize each Bank to make or cause to be made, at or about the time of receipt of any payment of principal on such Bank's Note, an appropriate notation reflecting such payment on the Note Record attached to such Bank's Note. The outstanding amount of the Revolving Credit Loans set forth on such Note Record shall be prima facie evidence of the principal amount thereof owing and unpaid to such Bank, but the failure to record, or any error in so recording, any such amount on such Note Record shall not limit or otherwise affect the obligations of the Borrowers hereunder or under any Note to make payments of principal of or interest on any Note when due. [section]2.5. Requests for Revolving Credit Loans. The Borrowers shall give to the Agent written notice in the form of Exhibit B hereto (or telephonic notice confirmed in a writing in the form of Exhibit B hereto) of each Revolving Credit Loan requested hereunder (a "Loan Request") no later than 11:00 a.m. (Boston time) at least (a) one (1) Business Day prior to the proposed Drawdown Date of any Base Rate Loan and (b) three (3) Eurodollar Business Days prior to the proposed Drawdown Date of any Eurodollar Rate Loan; provided that in the event that an overdraft occurs with respect to any account any Borrower maintains with either of the Banks, the Borrowers may request a Base Rate Loan in an amount necessary to cover such overdraft by notice to the Agent not later than 10:00 a.m. (Boston time) on the proposed Drawdown Date. Each such notice shall specify (i) the principal amount of the Revolving Credit Loan requested, (ii) the proposed Drawdown Date of such Revolving Credit Loan, (iii) if a Eurodollar Rate Loan, the Interest Period for such Revolving Credit Loan and (iv) the Type of such Revolving Credit Loan. By delivery of such Loan Request, the Borrowers shall be deemed to have represented and warranted to the Banks that the conditions precedent set forth in [section]10.1 are satisfied as of the date of such Loan Request and the then requested Drawdown Date. Any Loan Request delivered by any Borrower shall be deemed to have been delivered by, and shall bind, all the Borrowers. Each Loan Request shall be irrevocable and binding on the Borrowers and shall obligate the Borrowers to accept the Revolving Credit Loan requested from the Banks on the proposed Drawdown Date; provided that (x) if the Revolving Credit Loan requested is a Base Rate Loan and (y) the Borrowers specify in such Loan Request that the Borrowers will not accept the Revolving Credit Loan then requested on the proposed Drawdown Date unless the Agent receives the amount of each Bank's Commitment Percentage of the requested Revolving Credit Loan from each such Bank, severally, prior to the time on which such Revolving Credit Loan is to be advanced, then the Borrowers shall have no obligation to accept such Revolving Credit Loan on the proposed Drawdown Date, and the Agent shall have no obligation to make such Revolving Credit Loan -16- available to the Borrowers on the proposed Drawdown Date, unless prior to the time on which such Revolving Credit Loan is to be advanced the Agent shall have received from each such Bank, severally, the amount of such Bank's Commitment Percentage of the then requested Revolving Credit Loan. Each Loan Request in respect of (A) any Base Rate Loan shall be in a minimum borrowing amount of $50,000 and (B) any Eurodollar Rate Loan shall be in a minimum amount of $500,000 or an integral multiple of $100,000 in excess thereof; provided, however, the number of Eurodollar Rate Loans outstanding at any one time shall not exceed five (5). [section]2.6. Funds for Revolving Credit Loans; Settlements. (a) Promptly upon receipt of any Loan Request, the Agent shall notify each of the Banks of the substance thereof. Upon receipt of the documents required by [section][section]9 and 10 and the satisfaction of the other conditions set forth herein to the extent applicable, the Agent will make the aggregate amount of the Revolving Credit Loans requested by the Borrowers pursuant to [section]2.5 available to the Borrowers. (b) Each Bank severally agrees that it shall be absolutely liable, to the extent of such Bank's Commitment Percentage, to effect Settlements on the last Business Day of each week, on the Maturity Date and within one Business Day after each other date on which the aggregate Settlement Amount payable exceeds $1,000,000 (or more frequently at the Agent's discretion) (the "Settlement Date"), without regard to the occurrence on such Settlement Date of any Default or Event of Default or any other condition precedent whatsoever. On the Business Day prior to each such Settlement Date, the Agent shall give telephonic notice to the Banks of (i) the respective outstanding amount of Revolving Credit Loans made by each Bank as at the close of business on the prior day, (ii) the Settlement Amount that any Bank, as applicable (the "Settling Bank"), shall pay to effect a Settlement and (iii) the portion (if any) of the aggregate Settlement Amount to be paid to each Bank. A statement of the Agent submitted to the Banks with respect to any amounts owing under this [section]2.6(b) shall be prima facie evidence of the amount due and owing. Each Settling Bank shall, as promptly as practical during normal business hours on each Settlement Date, effect a wire transfer of immediately available funds to the Agent in the amount of its Settlement Amount. The Agent shall, as promptly as practical during normal business hours on each Settlement Date, effect a wire transfer of immediately available funds to each Bank of the Settlement Amount to be paid to such Bank. All funds advanced by any Bank as a Settling Bank pursuant to this [section]2.6(b) shall for all purposes be treated as a Revolving Credit Loan made by such Settling Bank to the Borrowers and all funds received by any Bank pursuant to this [section]2.6(b) shall for all purposes be treated as repayment of amounts owed by the Borrowers with respect to Revolving Credit Loans made by such Bank. (c) If the Settlement Amount is made available to the Agent (or, conversely, if the Agent makes the Settlement Amount available to a Bank entitled thereto) on a date after the relevant Settlement Date, such Settling Bank shall pay to the Agent (or, conversely, the Agent shall pay to such Bank entitled to such Settlement Amount) on demand an amount equal to the product of (i) the average computed for the period referred to in clause (iii) below, of the -17- weighted average interest rate paid by the Agent (or such Bank) for federal funds acquired by the Agent (or such Bank) during each day included in such period, times (ii) the Settlement Amount, times (iii) a fraction, the numerator of which is the number of days that elapse from and including such Settlement Date to the date on which the Settlement Amount shall become immediately available to the Agent (or such Bank), and the denominator of which is 365. Upon payment of such amount the Settling Bank shall be deemed to have delivered the Settlement Amount of such Settling Bank on the Settlement Date and shall become entitled to interest payable by the Borrowers with respect to such Bank's Settlement Amount as if such share were delivered on the Settlement Date. If the Settlement Amount is not in fact made available to the Agent by the Settling Bank within three (3) Business Days of such Settlement Date, the Agent shall be entitled to debit the Borrowers' accounts to recover such amount from the Borrowers, with interest thereon at the rate per annum applicable to any Revolving Credit Loans made on such Settlement Date. A statement of the Agent submitted to any Bank with respect to any amounts owing under this paragraph shall be prima facie evidence of the amount due and owing to the Agent by such Bank. (d) The failure or refusal of any of the Banks to make available to the Agent at the aforesaid time on any date the amount of the Revolving Credit Loans to be made by such Bank shall not relieve any other Bank from its obligations hereunder to make Settlements and Revolving Credit Loans, but in no event shall any Bank or the Agent be responsible for funding or otherwise be liable for the failure of any other Bank to make the Revolving Credit Loans to be made by such other Bank. [section]2.7. Mandatory Repayments of Revolving Credit Loans. The Borrowers promise to pay the outstanding amount of all Revolving Credit Loans on the Maturity Date. In addition, if at any time the sum of the outstanding amount of the Revolving Credit Loans exceeds the Total Commitment of the Banks, the Borrowers shall immediately pay the amount of such excess to the Agent for application to the Revolving Credit Loans, and the Agent shall distribute such amount to the Banks in accordance with [section]2.6(b). [section]2.8. Optional Repayments of Revolving Credit Loans. The Borrowers shall have the right, at their election, to repay the outstanding amount of any Revolving Credit Loans, as a whole or in part, at any time without penalty or premium; provided that in the case of any full or partial prepayment of the outstanding amount of any Eurodollar Rate Loans, the Borrowers shall be obligated to reimburse the Banks in respect thereof pursuant to [section]4.3. The Borrowers shall give the Agent, no later than 10:00 a.m. (Boston time) (a) at least one (1) Business Day's notice of any proposed repayment of Base Rate Loans and (b) at least three (3) Eurodollar Business Days' notice of any proposed repayment of Revolving Credit Loans, in each case specifying the proposed date of repayment and the principal amount to be paid, which notice, if not in writing, shall be promptly confirmed in writing. Each such partial payment of (i) Base Rate Loans shall be in a minimum amount of $50,000 and (ii) Eurodollar Rate Loans shall be in a minimum amount of $500,000 or an integral multiple of $100,000 in excess thereof. Each repayment pursuant to this [section]2.8 shall be accompanied by the payment of accrued interest on the principal repaid to the date of payment. Each such partial repayment shall be allocated among the Banks, in proportion, as nearly as practicable, to the respective -18- unpaid principal amount of each Bank's Note, with adjustments to the extent practicable to equalize any prior repayments not exactly in proportion, and shall be distributed to each Bank in accordance with [section]2.6(b). [section]2.9. Fees. The Borrowers shall pay to the Agent for the pro rata account of each Bank, in accordance with each Bank's Commitment Percentage, the following fees: (i) on the Closing Date, a closing fee in the amount of $70,002.00; (ii) on March 31, 1998, a fee in the amount of $70,000.00; (iii) on June 30, 1998, a fee in an amount equal to three-fourths percent (3/4%) of the Total Commitment as then in effect; and (iv) on September 30, 1998, and on the last Business Day of each calendar quarter thereafter, a fee in an amount equal to one percent (1%) of the Total Commitment as then in effect. [section]3 LETTER OF CREDIT FACILITY [section]3.1. Letter of Credit Commitments. (a) Subject to the terms and conditions hereof and the execution and delivery by any Borrower of a letter of credit application on the Agent's customary form (a "Letter of Credit Application"), the Agent on behalf of the Banks and in reliance upon the agreement of the Banks set forth in [section]3.1(d) and upon the representations and warranties of the Borrowers contained herein, agrees, in its individual capacity, to issue, extend and renew for the account of the Borrowers one or more standby or documentary letters of credit (individually, a "Letter of Credit"), in such form as may be requested from time to time by the Borrowers and agreed to by the Agent; provided, however, that, after giving effect to such request, (x) the sum of the aggregate Maximum Drawing Amount and all Unpaid Reimbursement Obligations shall not exceed $2,000,000 at any one time and (y) the sum of (i) the Maximum Drawing Amount on all Letters of Credit, (ii) all Unpaid Reimbursement Obligations, and (iii) the amount of all Revolving Credit Loans outstanding shall at no time exceed (A) the Total Commitment as then in effect less (B) the aggregate outstanding principal amount of the Imperio Term Loans and the commitments to make new loans under the Imperio Term Loan Agreement. (b) Each Letter of Credit Application shall be completed to the satisfaction of the Agent. Promptly upon receipt of any Letter of Credit Application, the Agent shall notify each of the Banks of the substance thereof. In the event that any provision of any Letter of Credit Application shall be inconsistent with any provision of this Credit Agreement, then the provisions of this Credit Agreement shall, to the extent of any such inconsistency, govern. (c) Each Letter of Credit issued, extended or renewed hereunder shall, among other things, (i) provide for the payment of sight drafts for honor thereunder when presented in accordance with the terms thereof and when accompanied by the documents described therein, and (ii) have an expiry date no later than the date which is fourteen (14) days prior to the Maturity Date. Each Letter of Credit so issued, extended or renewed shall be subject to the Uniform Customs. -19- (d) Each Bank severally agrees that it shall be absolutely liable, without regard to the occurrence of any Default or Event of Default or any other condition precedent whatsoever, to the extent of such Bank's Commitment Percentage, to reimburse the Agent on demand for the amount of each draft paid by the Agent under each Letter of Credit to the extent that such amount is not reimbursed by the Borrowers pursuant to [section]3.2 (such agreement for a Bank being called herein the "Letter of Credit Participation" of such Bank). (e) Each such payment made by a Bank shall be treated as the purchase by such Bank of a participating interest in the Borrowers' Reimbursement Obligation under [section]3.2 in an amount equal to such payment. Each Bank shall share in accordance with its participating interest in any interest which accrues pursuant to [section]3.2. (f) The parties hereto acknowledge and agree that the letters of credit described on Schedule 3.1 hereto (the "Scheduled Letters of Credit") shall be deemed to be Letters of Credit issued under this [section]3 subject to the terms and provisions set forth in this Credit Agreement and the rights and obligations of the Borrowers, the Banks and the Agent with respect to such Scheduled Letters of Credit shall be as set forth in this Credit Agreement as though such Letters of Credit had been issued hereunder. With respect to those Scheduled Letters of Credit issued by USTrust, and in each such case, to the extent applicable to such Letters of Credit, USTrust shall be deemed to be the "Agent" under this [section]3 with all of the rights of the Agent under this [section]3 and references to the Agent in its capacity as an issuing Bank of Letters of Credit shall be deemed to be references to USTrust as such issuing Bank with respect to those Letters of Credit and the obligations of the Borrowers and the other Banks in connection with such Letters of Credit as set forth in this [section]3 shall apply to such Letters of Credit and USTrust as the issuing Bank thereof. [section]3.2. Reimbursement Obligation of the Borrowers. In order to induce the Agent to issue, extend and renew each Letter of Credit and the Banks to participate therein, the Borrowers hereby agrees to reimburse or pay to the Agent, for the account of the Agent or (as the case may be) the Banks, with respect to each Letter of Credit issued, extended or renewed by the Agent hereunder, (a) except as otherwise expressly provided in [section]3.2(b) and (c), on each date that any draft presented under such Letter of Credit is honored by the Agent, or the Agent otherwise makes a payment with respect thereto, (i) the amount paid by the Agent under or with respect to such Letter of Credit, and (ii) the amount of any taxes, fees, charges or other costs and expenses whatsoever incurred by the Agent or any Bank in connection with any payment made by the Agent or any Bank under, or with respect to, such Letter of Credit, (b) upon the reduction (but not termination) of the Total Commitment to an amount less than the Maximum Drawing Amount, an amount equal to such difference, which amount shall be held by the Agent for the benefit of the Banks and the Agent as cash collateral for all Reimbursement Obligations, and -20- (c) upon the termination of the Total Commitment, or the acceleration of the Reimbursement Obligations with respect to all Letters of Credit in accordance with [section]11, an amount equal to the then Maximum Drawing Amount on all Letters of Credit, which amount shall be held by the Agent for the benefit of the Banks and the Agent as cash collateral for all Reimbursement Obligations. Each such payment shall be made to the Agent at the Agent's Head Office in immediately available funds. Interest on any and all amounts remaining unpaid by the Borrowers under this [section]3.2 at any time from the date such amounts become due and payable (whether as stated in this [section]3.2, by acceleration or otherwise) until payment in full (whether before or after judgment) shall be payable to the Agent on demand at the rate specified in [section]4.11 for overdue principal on the Revolving Credit Loans. [section]3.3. Letter of Credit Payments. If any draft shall be presented or other demand for payment shall be made under any Letter of Credit, the Agent shall notify the Borrowers of the date and amount of the draft presented or demand for payment and of the date and time when it expects to pay such draft or honor such demand for payment. If the Borrowers fail to reimburse the Agent as provided in [section]3.2 on or before the date that such draft is paid or other payment is made by the Agent, the Agent may at any time thereafter notify the Banks of the amount of any such Unpaid Reimbursement Obligation. No later than 3:00 p.m. (Boston time) on the Business Day next following the receipt of such notice, each Bank shall make available to the Agent, at its Head Office, in immediately available funds, such Bank's Commitment Percentage of such Unpaid Reimbursement Obligation, together with an amount equal to the product of (i) the average, computed for the period referred to in clause (iii) below, of the weighted average interest rate paid by the Agent for federal funds acquired by the Agent during each day included in such period, times (ii) the amount equal to such Bank's Commitment Percentage of such Unpaid Reimbursement Obligation, times (iii) a fraction, the numerator of which is the number of days that elapse from and including the date the Agent paid the draft presented for honor or otherwise made payment to the date on which such Bank's Commitment Percentage of such Unpaid Reimbursement Obligation shall become immediately available to the Agent, and the denominator of which is 360. The responsibility of the Agent to the Borrowers and the Banks shall be only to determine that the documents (including each draft) delivered under each Letter of Credit in connection with such presentment shall be in conformity in all material respects with such Letter of Credit. [section]3.4. Obligations Absolute. The Borrowers' obligations under this [section]3 shall be absolute and unconditional under any and all circumstances and irrespective of the occurrence of any Default or Event of Default or any condition precedent whatsoever or any setoff, counterclaim or defense to payment which the Borrowers may have or have had against the Agent, any Bank or any beneficiary of a Letter of Credit. The Borrowers further agree with the Agent and the Banks that the Agent and the Banks shall not be responsible for, and the Borrowers' Reimbursement Obligations under [section]3.2 shall not be affected by, among other things, the validity or genuineness of documents or of any endorsements thereon, even if such documents should in fact prove to be in any or all respects invalid, fraudulent or forged, or any dispute between or among the Borrowers, the beneficiary of any Letter of Credit or any -21- financing institution or other party to which any Letter of Credit may be transferred or any claims or defenses whatsoever of the Borrowers against the beneficiary of any Letter of Credit or any such transferee. The Agent and the Banks shall not be liable for any error, omission, interruption or delay in transmission, dispatch or delivery of any message or advice, however transmitted, in connection with any Letter of Credit. The Borrowers agree that any action taken or omitted by the Agent or any Bank under or in connection with each Letter of Credit and the related drafts and documents, if done in good faith, shall be binding upon the Borrowers and shall not result in any liability on the part of the Agent or any Bank to the Borrowers. [section]3.5. Reliance by Issuer. To the extent not inconsistent with [section]3.4, the Agent shall be entitled to rely, and shall be fully protected in relying upon, any Letter of Credit, draft, writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype message, statement, order or other document believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel, independent accountants and other experts selected by the Agent. The Agent shall be fully justified in failing or refusing to take any action under this Agreement unless it shall first have received such advice or concurrence of the Majority Banks as it reasonably deems appropriate or it shall first be indemnified to its reasonable satisfaction by the Banks against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement in accordance with a request of the Majority Banks, and such request and any action taken or failure to act pursuant thereto shall be binding upon the Banks and all future holders of the Notes or of a Letter of Credit Participation. [section]3.6. Letter of Credit Fee. The Borrowers shall pay in advance, on the date of the issuance or any extension or renewal of any Letter of Credit or, if earlier, on each annual anniversary date of the issuance of such Letter of Credit, a standby letter of credit fee equal to the greater of (i) 2% per annum of the Maximum Drawing Amount of each Letter of Credit, or (ii) the Agent's minimum standard flat fee charged for each standby Letter of Credit (in each case, a "Letter of Credit Fee"), to be for the accounts of the Banks in accordance with their respective Commitment Percentages. In respect of each Letter of Credit, the Borrowers shall also pay to the Agent for the Agent's own account, at such other time or times as such charges are customarily made by the Agent, the Agent's customary issuance, amendment, negotiation or document examination and other administrative fees as in effect from time to time. [section]4. INTEREST; INTEREST RATE CONVERSION OPTIONS; CERTAIN GENERAL PROVISIONS. [section]4.1. Interest on Revolving Credit Loans. (a) Except as otherwise increased pursuant to [section]4.11 hereof, the outstanding amount of each Type of Revolving Credit Loan shall bear interest calculated as follows: -22- (i) the outstanding amount of each Revolving Credit Loan which is a Base Rate Loan shall bear interest at a rate per annum equal to the Base Rate plus one-half of one percent (0.50%); and (ii) the outstanding amount of each Revolving Credit Loan which is a Eurodollar Rate Loan shall bear interest during each Interest Period relating thereto at a rate per annum equal to the Eurodollar Rate determined for each such Interest Period plus three percent (3.0%). (b) The Borrowers absolutely and unconditionally promise to pay interest on each Type of Revolving Credit Loan in arrears on each Interest Payment Date with respect thereto. [section]4.2. Interest Rate Conversion Options. (a) The Borrowers may elect from time to time to convert any outstanding Type of Revolving Credit Loan to another Type of Revolving Credit Loan; provided that (i) with respect to any such conversion of a Base Rate Loan to a Eurodollar Rate Loan, the Borrowers shall give the Agent at least three (3) Eurodollar Business Days' prior irrevocable notice of such election; and (ii) with respect to any such conversion of a Eurodollar Rate Loan to a Base Rate Loan, such conversion shall only be made on the last day of the Interest Period with respect thereto or upon the date of payment in full of any amounts owing pursuant to [section]4.3 as a result of such conversion. On the date on which such conversion is being made, each Bank shall take such action as is necessary to transfer its Commitment Percentage of such Revolving Credit Loans to its Domestic Lending Office or its Eurodollar Lending Office, as the case may be. All or any part of the outstanding Revolving Credit Loans of any Type may be converted as provided herein; provided, that partial conversions of Eurodollar Rate Loans shall be in an aggregate principal amount of $500,000 or an integral multiple of $100,000 in excess thereof and, provided further, the number of Eurodollar Rate Loans outstanding at any one time shall not exceed five (5). (b) Any Revolving Credit Loan which is a Eurodollar Rate Loan may be continued as such upon the expiration of an Interest Period with respect thereto by compliance by the Borrowers with the notice provisions for conversions contained in subsection (a) above; provided that no Eurodollar Rate Loan may be continued as such when any Default or Event of Default has occurred and is continuing, but shall be automatically converted to a Base Rate Loan on the last day of the last Interest Period for which a Eurodollar Rate was determined by the Agent on or prior to the Agent's obtaining knowledge of such Default or Event of Default. The Agent shall notify the Banks promptly that such automatic conversion contemplated by this [section]4.2(b) will occur. (c) Any conversion of Revolving Credit Loans to or from Eurodollar Rate Loans shall be in such amounts and be made pursuant to such elections so that, after giving effect thereto, the outstanding amount of all Eurodollar Rate Loans, if any remain outstanding after giving effect to such conversion, having the same Interest Period shall not be less than, in each such case, $500,000 or an integral multiple of $100,000 in excess thereof. -23- (d) Any conversion of Revolving Credit Loans to or from Base Rate Loans shall be in such amounts and be made pursuant to such elections so that, after giving effect thereto, the outstanding amount of all Base Rate Loans, if any remain outstanding after giving effect to such conversion, shall not be less than $100,000 or an integral multiple of $100,000 in excess thereof. (e) Each conversion of a Type of Revolving Credit Loan or continuation of any Base Rate Loan or Eurodollar Rate Loan hereunder shall be allocated between the Banks in proportion, as nearly as practicable, to such Bank's Commitment Percentage, with adjustments to the extent practicable to equalize any prior conversions or continuations not exactly in proportion. [section]4.3. Indemnity. The Borrowers agree to indemnify each Bank and to hold each Bank harmless from any loss or expense that such Bank may sustain or incur as a consequence of (a) default by the Borrowers in payment of the principal amount of or interest on any Eurodollar Rate Loans, including any such loss or expense arising from interest or fees payable by such Bank to lenders of funds obtained by it in order to maintain its Eurodollar Rate Loans, (b) default by the Borrowers in making a borrowing after the Borrowers have given (or are deemed to have given) a Loan Request or a Conversion Request in accordance with [section][section]2.5 or 4.2 other than as a result of a default by any Bank, (c) the making of any payment of a Eurodollar Rate Loan or the making of any conversion of any such Eurodollar Rate Loan on a day that is not the last day of the applicable Interest Period with respect thereto, including interest or fees payable by any Bank to lenders of funds obtained by it in order to maintain any such Eurodollar Rate Loan, or (d) default by the Borrowers in making any repayment of a Eurodollar Rate Loan after the Borrowers have given a notice of repayment in accordance with [section]2.8. This covenant shall survive the termination of this Credit Agreement and payment of the Notes. [section]4.4. Funds for Payments. All payments of principal, interest, and the Commitment Fee and any other amounts due hereunder or under any of the other Loan Documents shall be made by the Borrowers to the Agent at the Agent's head office at 100 Federal Street, Boston, Massachusetts 02110 or at such other location in the Boston, Massachusetts area that the Agent may from time to time designate, in each case in immediately available funds. [section]4.5. Computations. All computations of interest on the Revolving Credit Loans and the Commitment Fee shall be based on a 360 day year and paid for the actual number of days elapsed. Except as otherwise specifically provided herein, whenever a payment hereunder or under any of the other Loan Documents becomes due on a day that is not a Business Day, the due date for such payment shall be extended to the next succeeding Business Day, and interest shall accrue during such extension. The outstanding amount of the Revolving Credit Loans as reflected on the Note Records from time to time shall be considered conclusive and binding absent manifest mathematical error on the Borrowers unless within five (5) Business Days after receipt of any notice by the Agent or any of the Banks of such outstanding amount, the Borrowers shall notify the Agent or such Bank to the contrary. Each change in the rate of -24- interest applicable to the Base Rate Loans resulting from a change in the Base Rate shall be effective on the date of each change in the Base Rate. [section]4.6. Inability to Determine Eurodollar Rate. In the event the Agent shall determine in good faith that adequate and reasonable methods do not exist for ascertaining the Eurodollar Rate that would otherwise determine the rate of interest to be applicable during any Interest Period, the Agent shall forthwith give notice of such determination (which shall be conclusive and binding on the Borrowers) to the Borrowers at least one (1) Business Day before the first day of such Interest Period. In such event, (a) any Loan Request or Conversion Request with respect to Eurodollar Rate Loans shall be automatically withdrawn or, at the Borrowers' option, shall be deemed a request for Base Rate Loans, (b) each Eurodollar Rate Loan will automatically, on the last day of the then current Interest Period thereof, become a Base Rate Loan, and (c) the obligations of the Banks to make additional Eurodollar Rate Loans shall be suspended until the Agent determines that the circumstances giving rise to such suspension no longer exist, whereupon the Agent shall so notify the Borrowers and the Banks. [section]4.7. Illegality. Notwithstanding any other provisions herein, if any introduction of or change in any law, regulation, treaty or directive or in the interpretation or application thereof shall make it unlawful, or any central bank or other governmental authority having jurisdiction over any Bank or its Eurodollar Lending Office shall assert that it is unlawful, for such Bank or its Eurodollar Lending Office to make or maintain Eurodollar Rate Loans, (a) such Bank shall forthwith give notice of such circumstances, confirmed in a writing delivered to the Borrowers by courier or postal service (which notice shall be withdrawn by such Bank when such Bank shall reasonably determine that it shall no longer be illegal for such Bank or its Eurodollar Lending Office to make or maintain Eurodollar Rate Loans or to convert Base Rate Loans to Eurodollar Rate Loans), (b) the commitment of such Bank to make or maintain Eurodollar Loans or to convert Base Rate Loans to Eurodollar Rate Loans shall forthwith be canceled and (c) such Bank's Eurodollar Rate Loans then outstanding, if any, shall be converted automatically to Base Rate Loans on the next succeeding last day of each Interest Period applicable to such Eurodollar Rate Loans or within such earlier period as may be required by law. The Borrowers agree promptly to pay the Agent for the account of each Bank, upon demand by the Agent, any additional amounts necessary to compensate the Banks for any costs incurred by the Banks in making any conversion in accordance with this [section]4.7, including any interest or fees payable by the Banks to lenders of funds obtained by them in order to make or maintain their Eurodollar Rate Loans (the Agent's written notice of such costs, as certified to the Borrowers, to be conclusive absent manifest error). [section]4.8. Additional Costs, Etc. If any present or future, or any change in any present or future, applicable law, which expression, as used herein, includes statutes, rules and regulations thereunder and interpretations thereof by any competent court or by any governmental or other regulatory body or official charged with the administration or the interpretation thereof and requests, directives, instructions and notices at any time or from time to time hereafter made upon or otherwise issued to any Bank by any central bank or other fiscal, monetary or other authority (whether or not having the force of law), shall: -25- (a) subject any Bank to any tax, levy, impost, duty, charge, fee, deduction or withholding of any nature with respect to this Credit Agreement, the other Loan Documents, such Bank's Commitment or the Revolving Credit Loans advanced by such Bank (other than taxes based upon or measured by the income or profits of such Bank), or (b) materially change the basis of taxation (except for changes in taxes on income or profits) of payments to any Bank of the principal of or the interest on any Revolving Credit Loans or any other amounts payable to such Bank under this Credit Agreement or the other Loan Documents, or (c) impose or increase or render applicable (other than to the extent specifically provided for elsewhere in this Credit Agreement) any special deposit, reserve, assessment, liquidity, or other similar requirements against assets held by, or deposits in or for the account of, or loans by, or commitments of, or letters of credit issued by, an office of any Bank, or (d) impose on any Bank any other conditions or requirements with respect to this Credit Agreement, the other Loan Documents, the Revolving Credit Loans, such Bank's Commitment, or any class of loans or commitments of which any of the Revolving Credit Loans or such Bank's Commitment forms a part; and the result of any of the foregoing is (i) to increase the cost to any Bank of making, funding, issuing, renewing, extending or maintaining the Revolving Credit Loans or Letters of Credit or such Bank's Commitment, or (ii) to reduce the amount of principal, interest or other amounts payable to such Bank hereunder on account of such Bank's Commitment, the Revolving Credit Loans or any Letters of Credit, or (iii) to require such Bank to make any payment or to forego any interest or other sum payable hereunder, the amount of which payment or foregone interest or other sum is calculated by reference to the gross amount of any sum receivable or deemed received by such Bank from the Borrowers hereunder, then, and in each such case, the Borrowers will, upon written demand made by such Bank at any time and from time to time and as often as the occasion therefor may arise, pay to such Bank such additional amounts as will be sufficient to compensate such Bank for such additional cost, reduction, payment or foregone interest or other sum (after such Bank shall have allocated the same fairly and equitably among all customers of any class generally affected thereby); provided that in the event that such additional cost, reduction, payment, or foregone interest or other sum which was incurred by such Bank is subsequently returned or reimbursed to such Bank, such Bank shall return or reimburse to the Borrowers any additional amount paid pursuant to this [section]4.8 by the Borrowers to such Bank with respect thereto. Such -26- Bank shall give the Borrowers prompt written notice of any event causing such additional cost, reduction, payment or foregone interest or other sum. [section]4.9. Certificate. A certificate setting forth any additional amounts payable pursuant to [section]4.8 and the changes as a result of which such amounts are due and the computations in reasonable detail pursuant to which such amounts were calculated, submitted by any Bank to the Borrowers, shall be conclusive absent manifest error. [section]4.10. Capital Adequacy. If any present or future, or any change in any present or future, law, governmental rule, regulation, policy, guideline or directive (whether or not having the force of law) or the interpretation thereof by a court or governmental authority with appropriate jurisdiction affects the amount of capital required or expected to be maintained by any Bank or any corporation controlling such Bank and such Bank determines that the amount of capital required to be maintained by it or such corporation is increased by or based upon the existence of its Commitment or the Revolving Credit Loans made pursuant hereto, then such Bank may notify the Borrowers of such fact. To the extent that the costs of such increased capital requirements are not reflected in the rates of interest payable hereunder, the Borrowers and such Bank shall thereafter attempt to negotiate in good faith, within thirty (30) days of the day on which the Borrowers receive such notice, an adjustment payable hereunder that will adequately compensate such Bank in light of these circumstances. If the Borrowers and such Bank are unable to agree to such adjustment within thirty (30) days of the date on which the Borrowers receive such notice, then commencing on the date of such notice (but not earlier than the effective date of any such increased capital requirement), the fees payable hereunder shall increase by an amount that will, in such Bank's reasonable determination, provide adequate compensation to such Bank, such amount to be conclusive and binding on the Borrowers, absent manifest error. Each Bank shall allocate such cost increases among its customers in good faith and on an equitable basis. [section]4.11. Interest on Overdue Amounts. Overdue principal and (to the extent permitted by applicable law) interest on the Revolving Credit Loans and all other overdue amounts payable hereunder or under any of the other Loan Documents shall bear interest compounded daily and payable on demand at a rate per annum equal to three and one-fourth percent (3-1/4%) above the Base Rate until such amount shall be paid in full (after as well as before judgment). [section]4.12. Joint and Several Liability of the Borrowers. This section shall be controlling with respect to all of the provisions of this Credit Agreement and the other Loan Documents, including those provisions which do not specifically reference this [section]4.12. In the event of a conflict between this [section]4.12 and any other provision of this Credit Agreement or any other provision of the Loan Documents, this [section]4.12 shall be controlling. (a) Joint and Several Liability. Each of the Borrowers is accepting joint and several liability with each of the other Borrowers hereunder and under the other Loan Documents in consideration of the financial accommodations to be provided to the Borrowers by the Banks under this Credit Agreement, for the mutual benefit, directly and indirectly, of -27- each of the Borrowers and in consideration of the undertakings of each other Borrower to accept joint and several liability for the Obligations. Each of the Borrowers, jointly and severally with each of the other Borrowers, hereby irrevocably and unconditionally accepts, not merely as a surety but also as a co-debtor, joint and several liability with each of the other Borrowers, with respect to the payment and performance of all of the Obligations (including, without limitation, any Obligation arising under this [section]4.12), it being the intention of the parties hereto that all the Obligations shall be the joint and several obligations of each of the Borrowers without preferences or distinction among them. (b) Failure to Make Payment. If and to the extent that any of the Borrowers shall fail to make any payment with respect to any of the Obligations as and when due or to perform any of the Obligations in accordance with the terms thereof, then in each such event the other Borrowers will make such payment with respect to, or perform, such Obligation. (c) Full Recourse. The Obligations specific to each of the Borrowers under the provisions of this [section]4.12 constitute the full recourse Obligations of each of the Borrowers enforceable against each such corporation to the full extent of its properties and assets, irrespective of the validity, regularity or enforceability of this Credit Agreement or any other circumstance whatsoever. (d) Waivers; Consents; etc. Except as otherwise expressly provided in this Credit Agreement, each of the Borrowers hereby waives notice of acceptance of its applicable joint and several liability, notice of any Revolving Credit Loans made or Letters of Credit issued under this Credit Agreement, notice of the occurrence of any default, or of any demand for any payment under this Credit Agreement or other Loan Documents, notice of any action at any time taken or omitted by the Agent or any Bank under or in respect of any of the Obligations, any requirement of diligence or to mitigate damages and, generally, to the extent permitted by applicable law, all demands, notices and other formalities of every kind in connection with this Credit Agreement. Each of the Borrowers hereby assents to, and waives notice of, any extension or postponement of the time for the payment of any of the Obligations, the acceptance of any payment of any of the Obligations, the acceptance of any partial payment thereon, any waiver, consent or other action or acquiescence by the Agent or any Bank at any time or times in respect of any default by any of the Borrowers in the performance or satisfaction of any term, covenant, condition or provision of this Credit Agreement, any and all other indulgences whatsoever by the Agent or any Bank in respect of any of the Obligations, and the taking, addition, substitution or release, in whole or in part, at any time or times, of any security for any of the Obligations or the addition, substitution or release, in whole or in part, of any of the Borrowers. Without limiting the generality of the foregoing, each of the Borrowers assents to any other action or delay in acting or failure to act on the part of the Agent or any Bank with respect to the failure by any of the Borrowers to comply with any of its respective Obligations, including, without limitation, any failure strictly or diligently to assert any right or to pursue any remedy or to comply fully with applicable laws or regulations thereunder, which might, but for the provisions of this [section]4.12, afford grounds for terminating, discharging or relieving any of the Borrowers, in whole or in part, from any of its Obligations under this [section]4.12, it being the intention of each of the -28- Borrowers that, so long as any of the Obligations hereunder remain unsatisfied, the Obligations of such Borrowers under this [section]4.12 shall not be discharged except by performance and then only to the extent of such performance. The Obligations of each of the Borrowers under this [section]4.12 shall not be diminished or rendered unenforceable by any winding up, reorganization, arrangement, liquidation, reconstruction or similar proceeding with respect to any of the Borrowers or the Banks. The applicable joint and several liability of the Borrowers hereunder shall continue in full force and effect notwithstanding any absorption, merger, amalgamation or any other change whatsoever in the name, membership, constitution or place of formation of any of the Borrowers or the Agent or any Bank. (e) Obligations Absolute; No Marshalling. The provisions of this [section]4.12 are made for the benefit of the Agent and the Banks and their respective successors and assigns, and may be enforced by it or them from time to time against any or all of the Borrowers as often as occasion therefor may arise and without requirement on the part of the Agent or the Banks first to marshall any of its or their claims or to exercise any of its or their rights against any of the other Borrowers or to exhaust any remedies available to it or them against any of the other Borrowers or to resort to any other source or means of obtaining payment of any of the Obligations hereunder or to elect any other remedy. The provisions of this [section]4.12 shall remain in effect until all of the Obligations shall have been paid in full or otherwise fully satisfied and the Commitment of each Bank hereunder has been terminated. If at any time, any payment, or any part thereof, made in respect of any of the Obligations, is rescinded or must otherwise be restored or returned by the Banks upon the insolvency, bankruptcy or reorganization of any of the Borrowers, or otherwise, the provisions of this [section]4.12 will forthwith be reinstated in effect, as though such payment had not been made. (f) Subordination of Subrogation Rights, etc. Each of the Borrowers hereby agrees that it will not enforce any of its rights of contribution or subrogation against the other Borrowers or any Affiliate of the Borrowers with respect to any liability incurred by it hereunder or under any of the other Loan Documents, any payments made by it to the Agent or the Banks with respect to any of the Obligations or any collateral security therefor until such time as all Indebtedness of the Borrowers owing to the Banks or the Agent under the Loan Documents (the "Senior Indebtedness") has been paid in full in immediately available funds denominated in Dollars. Any claim which any Borrower may have against any other Borrower with respect to any payments to the Banks hereunder or under any other Loan Documents are hereby expressly made subordinate and junior in right of payment, without limitation as to any increases in the Obligations arising hereunder or thereunder, to the prior payment in full of the Senior Indebtedness and, in the event of any insolvency, bankruptcy, receivership, liquidation, reorganization or other similar proceeding under the laws of any jurisdiction relating to any Borrower, its debts or its assets, whether voluntary or involuntary, all such Senior Indebtedness shall be paid in full in immediately available funds denominated in Dollars before any payment or distribution of any character, whether in cash, securities or other property, shall be made to any other Borrower therefor. (g) Subordination. Each of the Borrowers hereby agrees that the payment of any amounts due with respect to the indebtedness owing by any Borrower -29- to any other Borrower or any Affiliate of any Borrower is hereby subordinated to the prior payment in full in immediately available funds denominated in Dollars of the Senior Indebtedne[section] Each Borrower hereby agrees that after the occurrence and during the continuance of any Event of Default, such Borrower will not demand, sue for or otherwise attempt to collect any indebtedness of any other Borrower owing to such Borrower until the Senior Indebtedness shall have been paid in full in immediately available funds denominated in Dollars. If, notwithstanding the foregoing sentence, such Borrower shall collect, enforce or receive any amounts in respect of such indebtedness, such amounts shall be collected, enforced and received by such Borrower as trustee for the Agent and be paid over to the Agent for the pro rata account of the Banks to be applied to repay the Senior Indebtedne[section] (h) Revolving Credit Loans. Any of the Borrowers may be a Borrower under this facility and any Borrower may request a Revolving Credit Loan or a Letter of Credit thereunder and any such request by a Borrower shall be deemed to have been made by and shall bind all of the Borrowers. [section]5. REPRESENTATIONS AND WARRANTIES. The Borrowers jointly and severally represent and warrant to the Banks and the Agent as follows: [section]5.1. Corporate Authority. (a) Incorporation; Good Standing. Each of the Borrowers and their Subsidiaries (i) is a corporation duly organized, validly existing and in good standing under the laws of its state of incorporation, (ii) has all requisite corporate power and authority and legal right to own and operate its property, to lease the property it operates as lessee and to conduct its business as now conducted and as presently contemplated, and (iii) is in good standing as a foreign corporation and is duly authorized to do business in each jurisdiction where such qualification is necessary except where a failure to be so qualified would not have a materially adverse effect on the business, assets or financial condition of such Borrower or such Subsidiaries or such Borrower's ability to perform the Obligations. (b) Authorization. The execution, delivery and performance of this Credit Agreement and the other Loan Documents to which any Borrower or any of its Subsidiaries is or is to become a party and the transactions contemplated hereby and thereby (i) are within the corporate authority and legal right of such Person, (ii) have been duly authorized by all necessary corporate proceedings, (iii) do not conflict with or result in any breach or contravention of any provision of law, statute, rule or regulation to which such Borrower or any of its Subsidiaries is subject or any judgment, order, writ, injunction, license or permit applicable to such Borrower or any of its Subsidiaries which would have a materially adverse effect on the business, assets or financial condition of such Borrower or any of its Subsidiaries, (iv) do not conflict with, or result in any breach or contravention of, any provision of the corporate charter or bylaws of, or any agreement or other instrument binding upon, such Borrower or any of its Subsidiaries and (v) do not result in the creation of any lien under any agreement, indenture, instrument, lease or undertaking to which such Borrower or any of its Subsidiaries is a party or by which it or any of its properties are bound. -30- (c) Enforceability. The execution and delivery of this Credit Agreement and the other Loan Documents to which any Borrower or any of its Subsidiaries is or is to become a party will result in valid and legally binding obligations of such Borrower or any of its Subsidiaries enforceable against it in accordance with the respective terms and provisions hereof and thereof, except as enforceability is limited by bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting generally the enforcement of creditors' rights and except to the extent that availability of the remedy of specific performance or injunctive relief is subject to the discretion of the court before which any proceeding therefor may be brought. [section]5.2. Governmental Approvals. Except as indicated on Schedule 5.2 hereto, the execution, delivery and performance by each Borrower or any of its Subsidiaries of this Credit Agreement and the other Loan Documents to which any Borrower or any of its Subsidiaries is or is to become a party and the transactions contemplated hereby and thereby do not require such Borrower or any of its Subsidiaries to obtain the approval or consent of, to make a filing with, or to perform or obtain the performance of any other act by or in respect of any governmental agency or authority other than those already obtained or performed. [section]5.3. Title to Properties; Leases. Except as indicated on Schedule 5.3 hereto, the Borrowers and their Subsidiaries own all of the assets reflected in the consolidated balance sheet of the Borrowers and their Subsidiaries as at the Balance Sheet Date or acquired since that date (except property and assets sold or otherwise disposed of in the ordinary course of business since that date and except for defects of title to certain real property which do not materially impair the value or usefulness thereof), subject to no rights of others, including any mortgages, leases, conditional sales agreements, title retention agreements, liens or other encumbrances, except for Permitted Liens. The Borrowers and their Subsidiaries enjoy peaceful and undisturbed possession under all material leases under which they are operating, and all said leases are valid and subsisting and in full force and effect and there exists with respect thereto no default or circumstance which, with notice or lapse of time or both, would constitute a default thereunder. [section]5.4. Financial Statements. There has been furnished to each of the Banks the consolidated balance sheet of the Borrowers and their Subsidiaries as at the Balance Sheet Date, and related consolidated statements of income, retained earnings and cash flow for the fiscal year then ended, certified by Coopers & Lybrand L.L.P., the Borrowers' independent certified public accountants. The Borrowers have also furnished to the Banks an interim, unaudited consolidated balance sheet of the Borrowers and their Subsidiaries as at October 4, 1997, and a consolidated statement of operations for the portion then ended of the current fiscal year, in each case certified by the Borrowers' chief financial or accounting officer. Such financial statements have been prepared in accordance with generally accepted accounting principles and fairly present the financial condition and the results of operations of the Borrowers as at the close of business on the dates thereof. There are no liabilities, contingent or otherwise, of any of the Borrowers involving material amounts known to any officer of a Borrower and not disclosed or reflected in said financial statements and the related -31- notes thereto. Such balance sheets and statements of income, retained earnings and cash flow have been prepared in accordance with generally accepted accounting principles consistently applied and are correct and complete and fairly present the financial condition of the Borrowers and their Subsidiaries as at the close of business on the date thereof and the consolidated results of operations for the fiscal period then ended. There are no contingent liabilities of the Borrowers or any of their Subsidiaries as of such date involving material amounts, known to the officers of the Borrowers and not disclosed in said balance sheet and the related notes thereto. [section]5.5. No Material Changes, Etc. Except as indicated on Schedule 5.5 hereto, since the Balance Sheet Date there has occurred no materially adverse change in the financial condition or business of any of the Borrowers or their Subsidiaries as shown on or reflected in the consolidated balance sheet of the Borrowers and their Subsidiaries as at the Balance Sheet Date, or the related consolidated statements of income, retained earnings or cash flow for the fiscal year then ended, other than changes in the ordinary course of business that have not had any materially adverse effect either individually or in the aggregate on the business or financial condition of the Borrowers and their Subsidiaries. Since the Balance Sheet Date, no Borrower has made any Distribution. [section]5.6. Franchises, Patents, Copyrights, Etc. Each of the Borrowers and their Subsidiaries, respectively, possesses or has a valid right to use all material franchises, patents, copyrights, inventions, technology, trademark registrations, trademarks, trade names, trade secrets, service marks, licenses and permits, and rights in respect of the foregoing and, to the best of its knowledge, patent and trademark applications and rights in respect thereto (collectively, the "Proprietary Rights"), adequate for the conduct of its business substantially as now conducted without known conflict with any rights of others which could affect or impair in a material manner the business or assets of any of the Borrowers and their Subsidiaries. The Borrowers are not aware of any existing or threatened infringement or misappropriation of (a) any Proprietary Rights of others by any of the Borrowers or any of their Subsidiaries or (b) any Proprietary Rights of any of the Borrowers or any of their Subsidiaries by others, in any way which might materially adversely affect the business, assets or condition, financial or otherwise, of any of the Borrowers and their Subsidiaries. [section]5.7. No Litigation. Except as set forth on Schedule 5.7 hereto, there are no actions, suits, proceedings or investigations of any kind pending or, to the Borrowers' knowledge, threatened against any of the Borrowers or any of their Subsidiaries before any court, tribunal or administrative agency or board that, if adversely determined, might, either in any case or in the aggregate, materially adversely affect the properties, assets, financial condition or business of the Borrowers and their Subsidiaries or materially impair the right of the Borrowers and their Subsidiaries, considered as a whole, to carry on business substantially as now conducted by them, or result in any substantial liability not adequately covered by insurance, or for which adequate reserves are not maintained on the consolidated balance sheet of the Borrowers, or which question the validity of this Credit Agreement or any of the other Loan Documents, or any action taken or to be taken pursuant hereto or thereto. There are no final judgments against any of the Borrowers or any of their Subsidiaries that, with other -32- outstanding final judgments against any Borrower or any Subsidiary, undischarged and not covered by insurance, exceed in the aggregate $50,000. [section]5.8. No Materially Adverse Contracts, Etc. None of the Borrowers nor any of their Subsidiaries is subject to any charter, corporate or other legal restriction, or any judgment, decree, order, rule or regulation that has or, to the Borrowers' knowledge, is expected in the future to have a materially adverse effect on the business, assets or financial condition of any of the Borrowers or their Subsidiaries. None of the Borrowers nor any of its Subsidiaries is a party to any contract or agreement that has or, to the best of the Borrowers' knowledge, is expected, in the judgment of the Borrowers' officers, to have any materially adverse effect on the business of (i) any of the Borrowers or (ii) the Borrowers and their Subsidiaries taken as a whole. [section]5.9. Compliance With Other Instruments, Laws, Etc. None of the Borrowers nor any of their Subsidiaries is in violation of any provision of its charter documents, bylaws, or any agreement or instrument to which it is subject or by which it or any of its properties are bound or any decree, order, judgment, statute, license, rule or regulation, in any of the foregoing cases in a manner that could result in the imposition of substantial penalties or materially and adversely affect the financial condition, properties or business of (i) any of the Borrowers, or (ii) the Borrowers and their Subsidiaries taken as a whole or (iii) any of the Borrowers' ability to perform the Obligations. [section]5.10. Tax Status. The Borrowers and, to the best of the Borrowers' knowledge, their Subsidiaries have (a) made or filed all federal and state income and all other material tax returns, reports and declarations required by any jurisdiction to which any of them is subject or properly filed for and received extensions with respect thereto which are still in full force and effect and which have been fully complied with in all material respects, (b) paid all taxes and other governmental assessments and charges shown or determined to be due on such returns, reports and declarations, except those being contested in good faith by appropriate proceedings and for which adequate reserves, to the extent required by generally accepted accounting principles, have been established and (c) set aside on their books provisions reasonably adequate for the payment of all estimated taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Borrowers know of no basis for any such claim. [section]5.11. No Event of Default. No Default or Event of Default has occurred and is continuing. [section]5.12. Holding Company and Investment Company Acts. None of the Borrowers nor any of its Subsidiaries is a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company", as such terms are defined in the Public Utility Holding Company Act of 1935; nor is it a "registered investment company", or an "affiliated company" or a "principal underwriter" of a "registered investment company", as such terms are defined in the Investment Company Act of 1940. -33- [section]5.13. Absence of Financing Statements, Etc. Except with respect to Permitted Liens, there is no financing statement, security agreement, chattel mortgage, real estate mortgage or, to the best of the Borrowers' knowledge with respect to documents which do not require the signature of a representative of any of the Borrowers or their Subsidiaries, any other document filed or recorded with any filing records, registry, or other public office, that purports to cover, affect or give notice of any present or possible future lien on, or security interest in, any material assets or property of any of the Borrowers or any of their Subsidiaries or rights thereunder. [section]5.14. Certain Transactions. Except as would be permitted under [section]7.9, none of the officers, directors or other key employees of any of the Borrowers or any of their Subsidiaries is presently a party to any transaction with any of the Borrowers or any of their Subsidiaries (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services or supplies to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such key employee or, to the knowledge of the Borrowers, any corporation, partnership, trust or other entity in which any officer, director, or any such key employee has a substantial interest or is an officer, director, trustee or partner. [section]5.15. Employee Benefit Plans. (a) In General. Each Employee Benefit Plan has been maintained and operated in compliance in all material respects with the provisions of ERISA and, to the extent applicable, the Code, including but not limited to the provisions thereunder respecting prohibited transactions. The Borrowers have heretofore delivered to the Agent the most recently completed annual report, Form 5500, with all required attachments, and actuarial statement required to be submitted under [section]103(d) of ERISA, with respect to each Guaranteed Pension Plan. (b) Terminability of Welfare Plans. Under each Employee Benefit Plan which is an employee welfare benefit plan within the meaning of [section]3(1) or [section]3(2)(B) of ERISA, no benefits are due unless the event giving rise to the benefit entitlement occurs prior to plan termination (except as required by Title I, Part 6 of ERISA). The Borrowers or an ERISA Affiliate, as appropriate, may terminate each such Plan at any time (or at any time subsequent to the expiration of any applicable bargaining agreement) in the discretion of the Borrowers or such ERISA Affiliate without liability to any Person. (c) Guaranteed Pension Plans. Each contribution required to be made to a Guaranteed Pension Plan, whether required to be made to avoid the incurrence of an accumulated funding deficiency, the notice or lien provisions of [section]302(f) of ERISA, or otherwise, has been timely made. No waiver of an accumulated funding deficiency or extension of amortization periods has been received with respect to any Guaranteed Pension Plan. No liability to the PBGC (other than required insurance premiums, all of which have been paid) has been incurred by any of the Borrowers or any ERISA Affiliate with respect to -34- any Guaranteed Pension Plan and there has not been any ERISA Reportable Event, or any other event or condition which presents a material risk of termination of any Guaranteed Pension Plan by the PBGC. Based on the latest valuation of each Guaranteed Pension Plan (which in each case occurred within twelve months of the date of this representation), and on the actuarial methods and assumptions employed for that valuation, the aggregate benefit liabilities of all such Guaranteed Pension Plans within the meaning of [section]4001 of ERISA did not exceed the aggregate value of the assets of all such Guaranteed Pension Plans, disregarding for this purpose the benefit liabilities and assets of any Guaranteed Pension Plan with assets in excess of benefit liabilities. (d) Multiemployer Plans. None of the Borrowers nor any ERISA Affiliate has incurred any material liability (including secondary liability) to any Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan under [section]4201 of ERISA or as a result of a sale of assets described in [section]4204 of ERISA. None of the Borrowers nor any ERISA Affiliate has been notified that any Multiemployer Plan is in reorganization or insolvent under and within the meaning of [section]4241 or [section]4245 of ERISA or that any Multiemployer Plan intends to terminate or has been terminated under [section]4041A of ERISA. [section]5.16. Purpose Credit. (a) The Borrowers have not engaged principally or as one of their important activities in the business of extending credit for the purpose of "purchasing" or "carrying" any "margin stock" within the respective meanings of each of the quoted terms under Regulation U of the Board of Governors of the Federal Reserve System. (b) The Borrowers shall not, directly or indirectly, apply any part of the proceeds of the Notes for the purpose of or in connection with the Borrowers' broker-dealer activities, if any, within the meaning of Regulation T of the Federal Reserve Board (Title 12, Part 220, Code of Federal Regulations, as amended) or any published regulations, interpretations or rulings thereunder. (c) The issuance of the Notes and the application of the proceeds thereof by the Borrowers will not contravene Regulation X of the Federal Reserve Board (Title 12, Part 224, Code of Federal Regulations, as amended) or any published regulations, interpretations or rulings thereunder. [section]5.17. Environmental Compliance. (a) None of the Borrowers nor their Subsidiaries, and the Borrowers have no actual knowledge that any operator of the Real Estate, has violated, or is alleged to have violated, any judgment, decree, order, law, license, rule or regulation pertaining to environmental matters (hereinafter "Environmental Laws"), which violation would have a material adverse effect on the environment or the business, assets or financial condition of (i) any of the Borrowers or (ii) the Borrowers and their Subsidiaries taken as a whole. -35- (b) None of the Borrowers nor any of their Subsidiaries has received notice from any third party including, without limitation: any federal, state or local governmental authority, (i) that any one of them has been identified by the United States Environmental Protection Agency ("EPA") as a potentially responsible party under CERCLA with respect to a site listed on the National Priorities List, 40 C.F.R. Part 300 Appendix B; (ii) that any hazardous waste, as defined by 42 U.S.C. [section]6903(5), any hazardous substances as defined by 42 U.S.C. [section]9601(14), any pollutant or contaminant as defined by 42 U.S.C. [section]9601(33) and any toxic substances, oil or hazardous materials or other chemicals or substances regulated by any Environmental Laws (hereinafter "Hazardous Substances") which any one of them has generated, transported or disposed of has been found at any site at which a federal, state or local agency or other third party has conducted or has ordered that any of the Borrowers or any of their Subsidiaries conduct a remedial investigation, removal or other response action pursuant to any Environmental Law; or (iii) that any one of them is or shall be a named party to any claim, action, cause of action, complaint, or legal or administrative proceeding (in each case, contingent or otherwise) arising out of any third party's incurrence of costs, expenses, losses or damages of any kind whatsoever in connection with the release of Hazardous Substances. (c) None of the Borrowers nor any of their Subsidiaries is subject to any applicable environmental law requiring the performance of Hazardous Substances site assessments, or the removal or remediation of Hazardous Substances, or the giving of notice to any governmental agency or the recording or delivery to other Persons of an environmental disclosure document or statement by virtue of the transactions set forth herein and contemplated hereby or to the effectiveness of any other transactions contemplated hereby. [section]5.18. Compliance With Fair Labor Standards Act. The Borrowers have at all times operated their businesses in compliance with all applicable provisions of the Fair Labor Standards Act of 1938 (29 U.S.C. [section]106 and 207) except to the extent that the Borrowers' failure to comply therewith would not have a material adverse affect on the business, assets or condition, financial or otherwise, of any of the Borrowers. None of the Borrowers' inventory has been produced by employees who are or were employed in violation of the minimum wage or maximum hour provisions of such Act or any regulations thereunder. [section]5.19. Subsidiaries. Attached hereto as Schedule 5.19 is a schedule listing all Subsidiaries of the Borrowers as of the date hereof and showing with respect to each Subsidiary the jurisdiction in which it is organized and the approximate percentage of the outstanding Voting Stock of that Subsidiary held either by the Borrowers or another Subsidiary. All of the outstanding capital stock of each Subsidiary has been duly authorized and issued and is fully-paid and non-assessable and is free and clear of any pledge, charge, lien, security interest or other encumbrance or restriction on transfer. [section]5.20. Disclosure. No representation or warranty made by any of the Borrowers in any of the Loan Documents or in any other document furnished from time to time in connection herewith or therewith, contains any misrepresentation of a material fact or omits to state any material fact necessary to make the statements herein or therein not misleading. -36- There is no fact known to the Borrowers that materially adversely affects, or that might reasonably be expected to materially adversely affect, the business, property or financial condition of any of the Borrowers or the Borrowers and their Subsidiaries on a consolidated basis. [section]6. AFFIRMATIVE COVENANTS OF THE BORROWERS. The Borrowers covenant and agree that, so long as any Revolving Credit Loan or Note is outstanding or any Bank has any obligation to make any Revolving Credit Loans or the Agent or any Bank has any obligation to issue any Letter of Credit hereunder: [section]6.1. Punctual Payment. The Borrowers will duly and punctually pay or cause to be paid the principal and interest on the Revolving Credit Loans, all Reimbursement Obligations, the Letter of Credit Fees, and the Commitment Fee, all in accordance with the terms of this Credit Agreement and the Notes. [section]6.2. Maintenance of Office. The Borrowers will maintain their chief executive office at 19 Fid Kennedy Avenue, Boston, Massachusetts 02210, or at such other place in the United States of America as the Borrowers shall designate upon written notice to the Banks, where notices, presentations and demands to or upon the Borrowers in respect of the Loan Documents may be given or made. [section]6.3. Records and Accounts. The Borrowers will (a) keep, and cause each of their Subsidiaries to keep, true and accurate records and books of account in which full, true and correct entries will be made in accordance with generally accepted accounting principles and (b) maintain adequate accounts and reserves for all taxes (including income taxes), depreciation, depletion, obsolescence and amortization of its properties and the properties of their Subsidiaries, contingencies, and other reserves. [section]6.4. Financial Statements, Certificates and Information. The Borrowers will deliver to each of the Banks: (a) as soon as practicable, but in any event not later than ninety (90) days after the end of each fiscal year of the Borrowers, the consolidated balance sheet of the Borrowers and their Subsidiaries as at the end of such year, and the related consolidated statements of income, retained earnings and cash flows for such year, each setting forth in comparative form the figures for the previous fiscal year and all such consolidated statements to be in reasonable detail, prepared in accordance with generally accepted accounting principles, and certified, in the case of such consolidated statements, without qualification by Coopers & Lybrand L.L.P. or such other independent public accountants of nationally recognized standing selected by the Borrowers, together with a written statement from such accountants to the effect that they have read a copy of this Credit Agreement, and that, in making the examination necessary to said certification, they have obtained no knowledge of any Default or Event of Default, or, if such accountants shall have obtained knowledge of any then existing Default or Event of Default they shall disclose in such statement any such Default or Event of Default; provided -37- that such accountants shall not be liable to the Banks for failure to obtain knowledge of any Default or Event of Default; (b) as soon as practicable, but in any event not later than forty-five (45) days after the end of each of the first three fiscal quarters in each of the Borrowers' fiscal years, copies of the unaudited consolidated balance sheet of the Borrowers' and their Subsidiaries as at the end of such quarter, and the related consolidated statements of income and cash flows for such quarter and the portion of the Borrowers' fiscal year then elapsed, together with comparative consolidated figures for the same periods of the preceding year, all in reasonable detail and prepared in accordance with generally accepted accounting principles and accompanied by a certificate of the principal financial officer of the Borrowers stating that the information contained in such financial statements is correct and complete and fairly presents the financial position of the Borrowers and their Subsidiaries on the date thereof and the results of their operations for the periods covered thereby (subject to year-end adjustments); (c) simultaneously with the delivery of the financial statements referred to in subsections (a) and (b) above, a statement certified by the principal financial officer of the Borrowers in substantially the form of Exhibit C hereto and setting forth in reasonable detail computations evidencing compliance with the covenants contained in [section]8 hereof and certifying no default has occurred under any of the Indebtedness of the Borrowers and their Subsidiaries as at the end of the period covered by such statements or during such period as may be required, and (if applicable) reconciliations to reflect changes in generally accepted accounting principles since the Balance Sheet Date (each a "Compliance Certificate"); (d) contemporaneously with the filing or mailing thereof, copies of all material of a financial nature filed with the Securities and Exchange Commission, or any other similar or corresponding governmental commission, department or agency or sent to the stockholders of the Borrowers or any holder of the Borrowers' Indebtedness for borrowed monies; (e) promptly upon receipt thereof, copies of all detailed audits or reports submitted to any of the Borrowers by independent public accountants in connection with any annual or interim audits of the books of any of the Borrowers or their Subsidiaries; (f) from time to time upon request by the Agent or any Bank, such other financial data and information (including, without limitation, information regarding the business and affairs and condition, financial and other, of, and periodic financial projections with respect to, any of the Borrowers, their Subsidiaries and their respective properties) as the Agent or any Bank may reasonably request; and (g) simultaneously with the delivery of the financial statements referred to in subsection (a) above, a report containing the statement of income and cash flows for each bakery cafe and store of the Borrowers and their Subsidiaries for the fiscal year most recently ended, together with comparative figures for the same cafe or store during the preceding fiscal year, all in reasonable detail and prepared in accordance with generally accepted accounting principles and accompanied by a certificate of the -38- principal financial officer of the Borrowers stating that the information contained in such financial statements is correct and complete and fairly presents the financial position of each bakery cafe and store, individually, of the Borrowers and their Subsidiaries on the date thereof and the results of their operations for the periods covered thereby. [section]6.5. Corporate Existence; Maintenance of Properties. Except as otherwise permitted by [section]7.6 hereof, the Borrowers will do or cause to be done all things necessary to preserve and keep in full force and effect their corporate existence, material rights and franchises and those of their Subsidiaries. The Borrowers (a) will cause all of their material properties and those of their Subsidiaries used or useful in the conduct of their business or the business of their Subsidiaries to be maintained and kept in good condition, repair and working order and supplied with all reasonably necessary equipment, (b) will cause to be made all reasonably necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Borrowers may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times, and (c) will, and will cause each of their Subsidiaries to, continue to engage primarily in the businesses now conducted by them and in related businesses; provided that nothing in this [section]6.5 shall prevent the Borrowers from discontinuing the operation and maintenance of any of its properties or those of their Subsidiaries if such discontinuance is, in the sole judgment of the Borrowers, desirable in the conduct of their own or their Subsidiaries' business and that does not in the aggregate materially adversely affect the business of the Borrowers and their Subsidiaries on a consolidated basis. [section]6.6. Insurance. The Borrowers will, and will cause each of their Subsidiaries to, maintain with financially sound and reputable insurers insurance with respect to its insurable properties and business against such casualties and contingencies as shall be in accordance with the general practices of businesses engaged in similar activities in similar geographic areas and in amounts, containing such terms, in such forms and for such periods as may be reasonably satisfactory to the Agent. The Banks shall be named an additional insured as their interests may appear under all such policies. [section]6.7. Taxes; Etc. The Borrowers will, and will cause each of their Subsidiaries to duly pay and discharge, or cause to be paid and discharged, before the same shall become overdue all taxes, assessments and other governmental charges imposed upon it and its real properties, sales and activities, or any part thereof, or upon the income or profits therefrom, as well as all claims for labor, materials, or supplies that if unpaid might by law become a lien or charge upon any of their property; provided that any such tax, assessment, charge, levy or claim need not be paid if the validity or amount thereof shall currently be contested in good faith by appropriate proceedings and if the Borrowers or such Subsidiary shall have set aside on their books adequate reserves with respect thereto; and provided further that the Borrowers and each Subsidiary of the Borrowers will pay all such taxes, assessments, charges, levies or claims forthwith upon the commencement of proceedings to foreclose any lien that may have attached as security therefor. -39- [section]6.8. Inspection of Properties and Books. The Borrowers shall permit the Banks, through the Agent or any of the Banks' other designated representatives, during normal business hours and in a manner which will not unreasonably interfere with the conduct of the Borrowers' business, to visit and inspect any of the properties of the Borrowers or any of their Subsidiaries, to examine the books of account of the Borrowers and their Subsidiaries (and to make copies thereof and extracts therefrom), and to discuss the affairs, finances and accounts of the Borrowers and their Subsidiaries with, and to be advised as to the same by, the Borrowers' chief financial officer, all at the Borrowers' expense and at such reasonable intervals as the Agent or any Bank may reasonably request. [section]6.9. Compliance with Laws, Contracts, Licenses, and Permits. The Borrowers will, and will cause each of their Subsidiaries to, comply with (a) the applicable laws and regulations wherever its business is conducted, including all Environmental Laws which may be in effect from time to time, (b) the provisions of its charter documents and by-laws, (c) all agreements and instruments by which it or any of its properties may be bound and (d) all applicable decrees, orders, and judgments; if in each such case failure to comply would have a materially adverse effect on the Borrowers. If at any time any authorization, consent, approval, permit or license from any officer, agency or instrumentality of any government shall become necessary or required in order that the Borrowers may fulfill any of the Obligations, the Borrowers will promptly take or cause to be taken all reasonable steps within the power of the Borrowers to obtain such authorization, consent, approval, permit or license and furnish the Banks with evidence thereof. [section]6.10. Employee Benefit Plans. (a) The Borrowers will (i) promptly upon filing the same with the Department of Labor or Internal Revenue Service furnish to the Agent a copy of the most recent actuarial statement required to be submitted under [section]103(d) of ERISA and Annual Report, Form 5500, with all required attachments, in respect of each Guaranteed Pension Plan and (ii) promptly upon receipt or dispatch, furnish to the Banks any notice, report or demand sent or received in respect of a Guaranteed Pension Plan under [section][section]302, 4041, 4042, 4043, 4063, 4065, 4066 and 4068 of ERISA, or in respect of a Multiemployer Plan, under [section][section]4041A, 4202, 4219, 4242, or 4245 of ERISA; and (b) The Borrowers and each Subsidiary will fund any Guaranteed Pension Plan as required by the provisions of [section]302 of ERISA and [section]412 of the Code. The Borrowers and each Subsidiary will deliver to the Banks copies of any request for waiver from the funding standards or extension of the amortization periods required by [section][section]303 and 304 of ERISA or [section]412 of the Code, promptly following the date on which the request is submitted to the Department of Labor or the Internal Revenue Service, as the case may be. [section]6.11. Further Assurances. The Borrowers will cooperate with the Banks and the Agent and execute such further instruments and documents as the Banks or the Agent shall reasonably request to carry out to their satisfaction the transactions contemplated by this Credit Agreement and the other Loan Documents. -40- [section]6.12. Notices. The Borrowers will promptly notify the Agent and each of the Banks in writing of the occurrence of any Default or Event of Default. If any Person shall give any notice or take any other action in respect of a claimed default (whether or not constituting an Event of Default) under this Credit Agreement or any other note, evidence of indebtedness, indenture or other obligation to which or with respect to which any of the Borrowers or any of their Subsidiaries is a party or obligor, whether as principal or surety, the Borrowers shall forthwith give written notice thereof to each of the Banks, describing the notice or action and the nature of the claimed default. [section]6.13. Fair Labor Standards Act. The Borrowers will, and will cause each of their Subsidiaries to, at all times operate their business in compliance with all applicable provisions of the Fair Labor Standards Act of 1938 (29 U.S.C. [section][section] 206 and 207) if the failure to comply with such provisions might reasonably be expected to have a materially adverse affect on the Borrowers and their Subsidiaries. [section]6.14. Environmental Events. The Borrowers will promptly give notice to the Banks (a) of any violation of any Environmental Law that any of the Borrowers or any of their Subsidiaries report in writing or are reportable by such Persons in writing (or for which any written report supplemental to any oral report is made) to any federal, state or local environmental agency and (b) upon becoming aware thereof, of any inquiry, proceeding, investigation, or other action, including a notice from any agency of potential environmental liability, or any federal, state or local environmental agency or board, that has the potential to materially adversely affect the assets, liabilities, financial conditions or operations of any of the Borrowers individually or the Borrowers and their Subsidiaries on a consolidated basis. [section]6.15. Notification of Claims. The Borrowers will, immediately upon becoming aware thereof, notify the Banks in writing of any uninsured set-off, claims (including, with respect to the Real Estate, environmental claims), withholdings or other defenses which may have a materially adverse affect on the assets, liabilities, financial conditions or operations of any of the Borrowers individually or the Borrowers and their Subsidiaries on a consolidated basis. [section]6.16. Use of Proceeds. The Borrowers will use the proceeds of the Revolving Credit Loans for general corporate and working capital purposes, including without limitation the financing of capital expenditures subject to the limitations set forth in [section]8.2. [section]6.17. Notice of Litigation, Judgment and Material Events. The Borrowers will give notice to the Banks in writing within fifteen (15) days of becoming aware of any litigation or proceedings threatened in writing or any pending litigation and proceedings affecting any of the Borrowers or any of their Subsidiaries or to which any of the Borrowers or any of their Subsidiaries are or become a party involving an uninsured claim against the Borrowers individually or the Borrowers and their Subsidiaries on a consolidated basis that could reasonably be expected to have a materially adverse effect on any of the Borrowers or on the Borrowers and their Subsidiaries on a consolidated basis and stating the nature and status of -41- such litigation or proceedings. The Borrowers will, and will cause each of their Subsidiaries to, give notice to the Banks, in writing, in form and detail satisfactory to the Banks, (a) within ten (10) days of any judgment not covered by insurance or reserves, final or otherwise, against any of the Borrowers or any of their Subsidiaries in an amount which in aggregate with other such judgments against any of the Borrowers or any of their Subsidiaries exceeds $50,000 and (b) promptly after becoming aware thereof, of the occurrence of any event that it is reasonable to expect will be required to be reported to the Securities and Exchange Commission. [section]6.18. SYGMA Request. On the occurrence of any Default or Event of Default, the Borrowers will make prompt written request to The SYGMA Network, Inc. and/or The SYGMA Network of Ohio, Inc. (collectively, "SYGMA") for the return, no later than three (3) Business Days following such request, of any and all deposits posted by the Borrowers and held by SYGMA pursuant to the SYGMA Distribution Service Agreement made as of December 13, 1994 by and among ABP and SYGMA. The failure by the Borrowers to make such request as required under this [section]6.18 or to receive the return of such deposits by SYGMA within the three (3) Business Days of such request shall result in an Event of Default under [section]11 of the Credit Agreement. Such deposits shall immediately upon receipt be applied to repay any outstanding Revolving Credit Loans. [section]7. CERTAIN NEGATIVE COVENANTS OF THE BORROWERS. The Borrowers covenant and agree that, so long as any Revolving Credit Loan or Note is outstanding or any Bank has any obligation to make any Revolving Credit Loans or the Agent or any Bank has any obligation to issue any Letter of Credit hereunder: [section]7.1. Restrictions on Indebtedne[section] The Borrowers will not, and will not permit any of their Subsidiaries to, create, incur, assume, guarantee or be or remain liable, contingently or otherwise, with respect to any Indebtedness other than: (a) Indebtedness to the Banks and the Agent arising under any of the Loan Documents; (b) liabilities which should, in accordance with generally accepted accounting principles, be classified as current liabilities and which are incurred in the ordinary course of business other than through (i) the borrowing of money or (ii) the obtaining of credit except for credit on an open account basis customarily extended and in fact extended in connection with normal purchases of goods and services; (c) Indebtedness (including without limitation, Guaranties) which exists on the date hereof and is listed on Schedule 7.1 attached hereto; (d) the Unlimited Imperio Guaranty; (e) Indebtedness in respect of taxes, assessments, governmental charges or levies and claims for labor, materials and supplies to the extent that payment therefor shall not at the time be required to be made in accordance with the provisions of [section]6.7; -42- (f) Indebtedness in respect of judgments or awards that have been in force for less than the applicable period for taking an appeal so long as execution is not levied thereunder or in respect of which the Borrowers or any of their Subsidiaries shall at the time in good faith be prosecuting an appeal or proceedings for review and in respect of which a stay of execution shall have been obtained pending such appeal or review; (g) endorsements for collection, deposit or negotiation and warranties of products or services, in each case incurred in the ordinary course of business; (h) purchase money Indebtedness not exceeding $2,000,000 in aggregate principal amount at any one time outstanding incurred in the ordinary course of business in connection with the acquisition, by lease or purchase, of any real or personal property constituting fixed assets of any of the Borrowers or any of their Subsidiaries, provided that any purchase money Indebtedness incurred in connection with any such acquisition shall not exceed the cost of the real or personal property so acquired; (i) Indebtedness of the Borrowers to each other, or of a Subsidiary of any Borrower owing to such Borrower; (j) unsecured subordinated Indebtedness in an aggregate principal amount not to exceed $15,000,000 evidenced by Senior Subordinated Debentures dated July 24, 1996 issued pursuant to the Investment Agreement and subordinated to the Obligations pursuant to the terms of the Subordination Agreement; and (k) unsecured Indebtedness owing to INAC Corp. in an aggregate amount not to exceed $2,000,000 at any one time outstanding under that certain Revolving Credit Agreement dated as of January 12, 1996 by and between ABP and INAC Corp. [section]7.2. Restrictions on Sale and Leaseback. The Borrowers will not, and will not permit any of their Subsidiaries to, enter into any arrangement, directly or indirectly, whereby any of the Borrowers or any of their Subsidiaries shall sell or transfer any property owned by any of them in order then or thereafter to lease such property or lease other property that any of the Borrowers or any of their Subsidiaries intend to use for substantially the same purpose as the property being sold or transferred nor will the Borrowers or any of their Subsidiaries rent or lease any assets which either were owned by any of them as of the Balance Sheet Date and were thereafter sold or transferred by any of the Borrowers or any such Subsidiaries or are to be used for substantially the same purposes as any assets so owned and sold or transferred. [section]7.3. Restrictions on Liens. None of the Borrowers will, nor will any Borrower permit any of its Subsidiaries to, (a) create or incur or suffer to be created or incurred or to exist any lien, encumbrance, mortgage, pledge, charge, restriction or other security interest of any kind upon any of its property or assets of any character whether now owned or hereafter acquired, or upon the income or profits therefrom; (b) transfer any of such property or assets or the income or profits therefrom for the purpose of subjecting the same to the payment of -43- Indebtedness or performance of any other obligation in priority to payment of its general creditors; (c) acquire, or agree or have an option to acquire, any property or assets upon conditional sale or other title retention or purchase money security agreement, device or arrangement; (d) suffer to exist for a period of more than thirty (30) days (or, in the event that the Borrowers promptly undertake and diligently pursue a clean-up action in the case of any lien imposed by or pursuant to any Environmental Laws, such longer period as is reasonable for such clean-up action) after the same shall have been incurred any Indebtedness or claim or demand against it (except for Indebtedness, claims or demands which arise as a result of or are imposed by any Environmental Laws, and which do not exceed $100,000 individually or $250,000 in the aggregate) that if unpaid might by law or upon bankruptcy or insolvency, or otherwise, be given any priority whatsoever over its general creditors; or (e) sell, assign, pledge or otherwise transfer any accounts, contract rights, general intangibles, chattel paper or instruments, with or without recourse; provided that the Borrowers and any of their Subsidiaries may create or incur or suffer to be created or incurred or to exist: (i) liens in favor of the Borrowers on all or part of the assets of Subsidiaries of the Borrowers securing Indebtedness owing by Subsidiaries of the Borrowers to the Borrowers; (ii) liens to secure taxes, assessments and other government charges or claims for labor, material or supplies in respect of obligations not overdue or if payment shall not at the time be required to be made in accordance with [section]6.7; (iii) liens in respect of deposits or pledges made in the ordinary course of business in connection with, or to secure payment of, worker's compensation, unemployment insurance, old age pensions or other social security obligations or to secure performance in connection with bids or contracts (other than for the payment of borrowed money) or to secure surety, stay, appeal or customs bonds or other similar liens, pledges or deposits; (iv) liens in respect of judgments or awards, the Indebtedness with respect to which is permitted by [section]7.1(g); (v) liens of carriers, warehousemen, mechanics and materialmen, and other like liens, in existence less than 60 days (or in the case of any lien with respect to which the underlying claim shall currently be contested by the Borrowers or such Subsidiaries in good faith by appropriate proceedings, the period of time during which such lien is being contested) from the date of creation thereof in respect of obligations not overdue or deposits to obtain the release of such liens; (vi) encumbrances consisting of easements, rights of way, zoning restrictions, restrictions on the use of real property and defects and irregularities in the title thereto, landlord's or lessor's liens under leases to which any of the Borrowers or any of their Subsidiaries are a party, and other minor liens or encumbrances none of which in the opinion of the Borrowers interferes materially with the use of the property affected in -44- the ordinary conduct of the business of the Borrowers and their Subsidiaries, which defects do not individually or in the aggregate have a materially adverse effect on the business of any of the Borrowers or the on the business of the Borrowers and their Subsidiaries on a consolidated basis; (vii) presently outstanding liens listed on Schedule 7.3 hereto so long as, with respect to those liens securing Indebtedness, such liens secure Indebtedness outstanding on the date hereof and not any renewals, refundings or extensions thereof; (viii) liens on ABP's facility in Mexico, Missouri securing Indebtedness permitted under [section]7.1(e) incurred in connection with the construction and equipping of the ABP's facility in Mexico, Missouri; (ix) liens in respect of purchase money indebtedness permitted under [section]7.1(i); and (x) liens, if any, in favor of the Agent for the benefit of the Banks and the Agent under the Loan Documents. [section]7.4. Restrictions on Investments. The Borrowers will not, and will not permit any of their Subsidiaries to, make or permit to exist or to remain outstanding any Investment except Investments in: (a) marketable direct or guaranteed obligations of the United States of America that mature within one (1) year from the date of purchase by the Borrowers; (b) demand deposits, certificates of deposit having a maturity of not more than 366 days from the date of acquisition, bankers acceptances and time deposits of (i) either of the Banks or (ii) any United States bank with which the Borrowers, now or in the future, maintain operating accounts; (c) Securities commonly known as "commercial paper" issued by any entity organized and existing under the laws of the United States of America or any state thereof which at the time of purchase have been rated and the ratings for which are not less than "P-1" if rated by Moody's Investors Service, and not less than "A-1" if rated by Standard and Poor's Corporation; (d) Investments with respect to Indebtedness permitted by [section]7.1(j) so long as such entities remain Subsidiaries of the Borrowers; and (e) existing Investments listed and described on Schedule 7.4 hereto and the Unlimited Imperio Guaranty. [section]7.5. Distributions. The Borrowers will not make any Distributions. -45- [section]7.6. Consolidation, Merger and Sale of All Assets. None of the Borrowers will, nor will they permit any of their material Subsidiaries to, (a) merge or consolidate into or with any other Person or convey, sell, lease or otherwise dispose of all or substantially all of their assets to another Person, or permit any Person to merge or consolidate into or with any of the Borrowers or any such Subsidiaries or convey, sell, lease or otherwise dispose of all or substantially all of their assets to any of the Borrowers or any such Subsidiaries; provided that (i) any such Subsidiaries may merge into, or convey, sell, lease or dispose of their assets to, any of the Borrowers or any wholly-owned Subsidiaries of the Borrowers, (ii) a Person other than any of such Subsidiaries may merge into, or convey, sell, lease or dispose of its assets to, any of the Borrowers if such Borrower is the surviving or acquiring corporation, and (iii) a Person other than the Borrowers or another one of their Subsidiaries may merge into, or convey, sell, lease or dispose of its assets to, such Subsidiary if (A) such Subsidiary is the surviving or acquiring corporation or (B) the surviving or acquiring entity, if not such Subsidiary, becomes a Subsidiary of the Borrowers; provided further that in any such transaction the rights and powers of the Banks will not, in their sole reasonable discretion, be materially adversely affected thereby and immediately after such transaction no Default or Event of Default shall exist hereunder; and provided, further that, in no event shall any of the Borrowers become a Subsidiary of any other Person without the prior consent of the Banks, (b) take any action which results in a "Repurchase Event" (as defined in [section]3.5 of the 4.75% Subordinated Convertible Notes), or (c) take any action which results in a "Transfer of Borrowers' Business" (as defined in the Investment Agreement). [section]7.7. Sale of Assets; Liquidation; Change in Term of Indebtedness, etc. (a) The Borrowers will not, nor will they permit any of their Subsidiaries to, convey, sell, lease, transfer any assets to another Person subject to a franchise agreement or otherwise dispose of any assets, directly or indirectly, in a single transaction or in a series of transactions occurring during any one fiscal year of the Borrowers, except as permitted under [section]7.6 hereof, except for sales of inventory, obsolete equipment and similar sales or other dispositions of property in the ordinary course of busine[section] To the extent that any sale of assets prohibited under [section]7.6 or [section]7.7 of this Credit Agreement is thereafter permitted to occur by written approval of the Banks, the proceeds of such a sale of assets (net of any costs and expenses payable by the Borrowers in connection with such sale and the principal amounts of any indebtedness secured by such assets and required to be repaid in connection with such sale) shall be applied by the Borrowers to repay any outstanding Revolving Credit Loans and the Total Commitment of the Banks under the Credit Agreement shall be reduced by the amount of the proceeds from such sale. (b) None of the Borrowers will, nor will they permit any of their Subsidiaries to, liquidate, dissolve or wind up their affairs nor institute, consent to or fail promptly to contest proceedings for any such purpose, provided, however, that any such Subsidiaries may be liquidated into any of the Borrowers or into any wholly-owned Subsidiaries of any of the Borrowers in transactions permitted by [section]7.6 hereof or by this [section]7.7 and any inactive or immaterial Subsidiaries of the Borrowers may be dissolved by the Borrowers. -46- (c) The Borrowers will not amend or modify in any respect the terms and provisions of the Subordinated Debt. [section]7.8. Federal Regulations. The Borrowers will not, and will not permit any of their Subsidiaries to, engage, principally or as one of their important activities, in the business of extending credit for the purpose of "purchasing" or "carrying" any "margin stock" within the respective meanings of each of the quoted terms under Regulation U of the Board of Governors of the Federal Reserve System. The Borrowers will not, directly or indirectly, use any part of the proceeds of any Revolving Credit Loans or Letters of Credit for "purchasing" or "carrying" any "margin stock" within the respective meanings of each of the quoted terms under Regulation U of the Board of Governors of the Federal Reserve System or for any purpose that violates, or that would be inconsistent with, the provisions of the Regulations of such Board of Governors. [section]7.9. Arms Length Transactions. Except as disclosed on Schedule 7.9 hereto, none of the Borrowers or their Subsidiaries will enter into with any Affiliate any transaction or series of similar transactions occurring between the Closing Date and the Maturity Date in which the aggregate amount involved with respect to all such transactions exceeds $50,000 if such transaction or transactions would be less favorable to the Borrowers and their Subsidiaries than would be the case if such transaction or transactions had been entered into with a non-Affiliate. [section]7.10. Restriction on Subsidiaries. The Borrowers will not permit any of their Subsidiaries to enter into any agreement which would directly limit such Subsidiaries' rights to declare or pay dividends to the Borrowers. [section]7.11. Prepayment of Subordinated Debt. The Borrowers will not, and will not permit any of their Subsidiaries to, (a) amend, supplement or otherwise modify the terms of any of the Subordinated Debt (including, without limitation, the Subordinated Debt evidenced by the 4.75% Convertible Subordinated Notes and the Subordinated Debentures issued pursuant to the terms of the Investment Agreement) to increase the principal amount of the Indebtedness evidenced thereby or the rate of interest applicable to such Indebtedness, or to alter the schedule of payments of principal or interest with respect to such Indebtedness, or to alter the maturity date thereof, or (b) prepay, redeem, or repurchase any of the principal of, or interest on, such Subordinated Debt; provided that so long as no Default or Event of Default exists or would result therefrom, the Borrowers may prepay such Subordinated Debt from the proceeds of the issuance of additional shares of capital stock or other equity securities. [section]8. FINANCIAL COVENANTS OF THE BORROWERS. [section]8.1 Maximum Allowable Leverage Ratio. The Borrowers will not, at any time, permit the Leverage Ratio to exceed 1.65:1.00. -47- [section]8.2 Consolidated Capital Expenditures. The Borrowers will not permit Consolidated Capital Expenditures incurred during each period consisting of four (4) consecutive fiscal quarters and ending on a date set forth below, to exceed the amount set forth opposite such date in the table below: @@ ----------------------- --------- ------------------------ Fiscal Quarter Ending Maximum Consolidated Capital Expenditures ------------------------ -------- ------------------------ ------------------------ -------- ------------------------ 12/27/97 $16,000,000 ------------------------ -------- ------------------------ 4/18/98 $18,000,000 ------------------------ -------- ------------------------ 7/11/98 $18,000,000 ------------------------ -------- ------------------------ 10/3/98 $20,000,000 ------------------------ -------- ------------------------ 12/26/98 $20,000,000 ------------------------ -------- ------------------------ 4/17/99 $18,000,000 ------------------------ -------- ------------------------ 7/10/99 $18,000,000 ------------------------ -------- ------------------------ @@ [section]8.3. Consolidated Operating Cash Flow. The Borrowers will not permit the ratio of Consolidated Operating Cash Flow, determined at the end of each fiscal quarter of the Borrowers for the period consisting of the four (4) consecutive fiscal quarters then ending, to Consolidated Total Debt Service incurred during such four (4) quarter period, to be less than (a) 1.50 to 1.00 for the four quarter period ending December 27, 1997 and April 18, 1998 and (b) 1.60 to 1.00 for any such four quarter period ending after April 18, 1998. [section]8.4. Profitable Operations. The Borrowers will not permit Consolidated Net Income for any period consisting of two consecutive fiscal quarters of the Borrowers to be less than $1.00. [section]9. CLOSING CONDITIONS. The effectiveness of this Agreement and the obligation of any Bank to make the initial Revolving Credit Loan or the Agent or any Bank to issue any Letter of Credit on the Closing Date shall be subject to the satisfaction of the following conditions precedent: [section]9.1. Corporate Action. All corporate action necessary for the valid execution, delivery and performance by the Borrowers of this Credit Agreement and the other Loan Documents to which any Borrower is or is to become a party shall have been duly and effectively taken, and evidence thereof satisfactory to the Banks shall have been provided to each of the Banks. [section]9.2. Loan Documents. Each of the Loan Documents shall have been duly executed and delivered by the respective parties thereto, shall be in full force and effect and shall be in -48- form and substance satisfactory to each of the Banks. Each Bank shall have received a fully executed copy of each such document. [section]9.3 Opinion of Borrowers' Legal Counsel. Each of the Banks and the Agent shall have received from legal counsel to the Borrowers, a favorable opinion addressed to the Banks and the Agent dated the Closing Date, in substantially the form of Exhibit D hereto. [section]9.4. Certified Copies of Charter Documents. Each of the Banks shall have received from each of the Borrowers and each of their Subsidiaries, copies of each of (a) such entities charter or other incorporation documents certified by the Secretary of State of such entities' state of incorporation to be true and complete as of the date of certification, which date shall be no more than five (5) days prior to the Closing Date, and (b) its by-laws as in effect on such date, certified by a duly authorized officer of such Borrower, or such Subsidiary, to be true and complete on the Closing Date. [section]9.5. Incumbency Certificates. Each of the Banks shall have received from each of the Borrowers and each of their Subsidiaries an incumbency certificate, dated the Closing Date, signed by a duly authorized officer of such Borrower or such Subsidiary, and giving the name and bearing a specimen signature of each individual who shall be authorized: (a) to sign, in the name and on behalf of such Borrower or such Subsidiary, each of the Loan Documents to which it is or is to become a party; (b) to make application for the Revolving Credit Loans and Letters of Credit; and (c) to give notices and to take other action on its behalf under the Loan Documents. [section]9.6. Good Standing Certificates. The Agent shall have received, with a copy for each Bank, a certificate from the Secretary of State, or other appropriate authority of such jurisdiction, evidencing the good standing of each of the Borrowers and their Subsidiaries in the jurisdiction of their incorporation and each jurisdiction in which a failure to so qualify could have a materially adverse effect on the business, operations, property or financial or other condition of the Borrowers and their Subsidiaries. [section]9.7. Payment of Fees. The Borrowers shall have paid to the Banks or the Agent, as appropriate, any and all fees payable in connection with the transactions contemplated by the Loan Documents. [section]9.8. Letter of Credit Reimbursement Agreement. The Agent shall have received evidence satisfactory to the Agent that (i) Citizens Bank of Massachusetts and Citizens Bank of Rhode Island (as successor by merger to Citizens Trust Company) have amended that certain Letter of Credit Reimbursement Agreement dated as of July 1, 1995, by and among ABP Midwest, ABP and Citizens Trust Company (as such agreement was initially executed and delivered and thereafter amended with the approval of each of the Banks, the "Letter of Credit Reimbursement Agreement"), in connection with the construction and equipping of ABP's facility in Mexico, Missouri to require, on or before July 15, 1998, (y) deposit with the "Trustee" of funds sufficient to effect an immediate defeasance of the outstanding "Bonds" (as such terms are defined in that certain Indenture of Trust dated as of July 1, 1995, as amended -49- and in effect, (the "Trust Indenture")) in accordance with the provisions of Section 6.01(a)(ii)(A) or (B) of the Trust Indenture, or (z) the arrangement by the Borrowers of a substitute credit facility for the "Letter of Credit" (as such term is defined in the Letter of Credit Reimbursement Agreement) pursuant to such terms and documentation acceptable to the "Confirming Bank" (as such term is defined in the Trust Indenture), and (ii) the Royal Bank of Scotland, plc, New York Branch, defined as the "Confirming Bank" in the Trust Indenture, has committed in writing to remain the "Confirming Bank" under any "Alternate Credit Facility" (as such terms are defined in the Trust Indenture) issued by BankBoston, N.A., Mercantile Bank National Association (f/k/a Mercantile Bank of St. Louis, N.A.) or another financial institution acceptable to the "Confirming Bank" (as such term is defined in the Trust Indenture). [section]10. CONDITIONS TO ALL BORROWINGS. The obligation of any Bank to make any Revolving Credit Loan or the Agent or any Bank to issue any Letter of Credit, including any initial Revolving Credit Loan to be made on the Closing Date, shall be subject to the satisfaction of the following conditions precedent: [section]10.1. Representations True; No Event of Default. Each of the representations and warranties of the Borrowers contained in this Credit Agreement or in any document or instrument delivered pursuant to or in connection with this Credit Agreement shall be true as of the date as of which they were made and shall also be true at and as of the time of the making of the Revolving Credit Loan or at the time of the issuance of a Letter of Credit, with the same effect as if made at and as of that time (except to the extent of changes resulting from transactions contemplated or permitted by this Credit Agreement and changes occurring in the ordinary course of business that singly or in the aggregate are not materially adverse, and to the extent that such representations and warranties relate expressly to an earlier date) and no Default or Event of Default shall have occurred and be continuing. The Agent shall have received a certificate of the Borrowers signed by an authorized officer of each of the Borrowers to such effect. [section]10.2. No Legal Impediment. No change shall have occurred in any law or regulations thereunder or interpretations thereof that in the reasonable opinion of any Bank would make it illegal for such Bank to make the Revolving Credit Loans or issue Letters of Credit. [section]10.3. Governmental Regulation. Each Bank shall have received such statements in substance and form reasonably satisfactory to such Bank as such Bank shall require for the purpose of compliance with any applicable regulations of the Comptroller of the Currency or the Board of Governors of the Federal Reserve System. [section]10.4. Proceedings and Documents. All proceedings in connection with the transactions contemplated by this Credit Agreement and all documents incident thereto shall be satisfactory in substance and in form to the Banks and to the Agent's Special Counsel, and the Banks and such counsel shall have received all information and such counterpart originals or certified or other copies of such documents as the Banks may reasonably request. -50- [section]11. EVENTS OF DEFAULT; ACCELERATION. If any of the following events ("Events of Default" or, if the giving of notice or the lapse of time or both is required, then, prior to such notice or lapse of time, "Defaults") shall occur: (a) the Borrowers shall fail to pay any principal of the Revolving Credit Loans when the same shall become due and payable, whether at the stated date of maturity or any accelerated date of maturity or at any other date fixed for payment; (b) the Borrowers shall fail to pay any interest on the Revolving Credit Loans, the Commitment Fee, any Letter of Credit Fee, or other sums due hereunder or under any of the other Loan Documents when the same shall become due and payable, whether at the stated date for payment or any accelerated date for payment or at any other date fixed for payment or, if prior to such date the Agent delivers to the Borrowers an invoice relating to such interest and fees, on or prior to the due date set forth on such invoice relating thereto; (c) any of the Borrowers or any of their Subsidiaries shall fail to comply with any of their covenants contained in [section][section]6.4, 6.8, 6.16, [section]7 or [section]8; (d) any of the Borrowers or any of their Subsidiaries shall fail to perform any term, covenant or agreement contained herein or in any of the other Loan Documents (other than those specified elsewhere in this [section]11) and such failure shall not have been remedied within ten (10) days thereof; (e) any representation or warranty of the Borrowers or any of their Subsidiaries in this Credit Agreement or any of the other Loan Documents or in any other document or instrument delivered pursuant to or in connection with this Credit Agreement shall prove to have been false in any material respect upon the date when made; (f) the Borrowers or any of their Subsidiaries shall fail to pay at maturity, or within any applicable period of grace, any obligation for borrowed money, or fail to observe or perform any material term, covenant or agreement contained in any agreement by which any of them are bound, evidencing or securing borrowed money for such period of time as would permit (assuming the giving of appropriate notice if required) the holder or holders thereof or of any obligations issued thereunder to accelerate the maturity thereof or take any action with respect to collateral security therefor; (g) any of the Borrowers or any of their Subsidiaries shall make an assignment for the benefit of creditors, or admit in writing its inability to pay or generally fail to pay its debts as they mature or become due, or shall petition or apply for the appointment of a trustee or other custodian, liquidator or receiver of any of the Borrowers or any of their Subsidiaries or of any substantial part of the assets of any of the Borrowers or any of their Subsidiaries or shall commence any case or other proceeding relating to any of the Borrowers or any of their Subsidiaries under any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt, dissolution or liquidation or similar law of any jurisdiction, now or hereafter in effect, or -51- shall take any action to authorize or in furtherance of any of the foregoing, or if any such petition or application shall be filed or any such case or other proceeding shall be commenced against any of the Borrowers or any of their Subsidiaries and any of the Borrowers or any of their Subsidiaries shall indicate its approval thereof, consent thereto or acquiescence therein; (h) a decree or order is entered appointing any such trustee, custodian, liquidator or receiver or adjudicating any of the Borrowers or any of their Subsidiaries bankrupt or insolvent, or approving a petition in any such case or other proceeding, or a decree or order for relief is entered in respect of any of the Borrowers or any of their Subsidiaries in an involuntary case under federal bankruptcy laws as now or hereafter constituted; (i) there shall remain in force, undischarged, unsatisfied and unstayed, for more than thirty (30) days, whether or not consecutive, any final judgment against any of the Borrowers or any of their Subsidiaries that, with other outstanding final judgments, undischarged and not covered by insurance, against such Person(s) exceeds in the aggregate $250,000; (j) if ABP shall default in the payment or performance of any of its obligations under the Unlimited Imperio Guaranty; (k) the occurrence of a (i) "Repurchase Event" (as defined in [section]3.5 of the 4.75% Subordinated Convertible Notes), or (ii) "Transfer of Borrowers' Business" (as defined in the Investment Agreement); (l) the Borrowers or any of their Subsidiaries shall fail to observe or perform any material term, covenant or agreement contained in the Letter of Credit Reimbursement Agreement causing the occurrence of an "Event of Default" (as such term is defined in the Letter of Credit Reimbursement Agreement); then, and in any such event, so long as the same may be continuing, the Agent may, and upon the request of the Majority Banks shall, by notice in writing to the Borrowers declare all amounts owing with respect to this Credit Agreement and the Notes to be, and they shall thereupon forthwith become, immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Borrowers; provided that in the event of any Event of Default specified in [section]11(g) or [section]11(h), all such amounts shall become immediately due and payable automatically and without any requirement of notice from the Agent or any Bank; provided, further, that in the event that within ninety (90) days following an Event of Default the Majority Banks do not request the Agent to declare all amounts owing with respect to this Credit Agreement and the Notes immediately due and payable and such Event of Default is then continuing, any Bank may declare all amounts owing with respect to such Bank's Note to be immediately due and payable and proceed to protect and enforce its rights by suit in equity, action at law or other appropriate proceeding. No remedy herein conferred upon any Bank or the holder or any Note is intended to be exclusive of any other remedy and each and every remedy shall be -52- cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute or any other provision of law. If any one or more of the Events of Default specified in [section]11(g) or [section]11(h) shall occur, any unused portion of the credit hereunder shall forthwith terminate and each of the Banks shall be relieved of all obligations to make Revolving Credit Loans or issue Letters of Credit hereunder. If any other Event of Default shall have occurred and be continuing, the Agent, upon the request of the Majority Banks, shall, by notice to the Borrowers, terminate the unused portion of the credit hereunder, and upon such notice being given such unused portion of the credit hereunder shall terminate immediately and each of the Banks shall be relieved of all further obligations to make Revolving Credit Loans or issue Letters of Credit. If any such notice is given to the Borrowers, the Agent will forthwith furnish a copy thereof to each of the Banks. No termination of the credit hereunder shall relieve the Borrowers of any of the Obligations or any of their existing obligations to the Banks arising under other agreements or instruments. [section]12. SET-OFF. Regardless of the adequacy of any collateral, during the continuance of an Event of Default, any deposits or other sums credited by or due from any of the Banks to any of the Borrowers and any securities or other property of any of the Borrowers in the possession of such Bank may be applied to or set-off against the payment of Obligations and any and all other liabilities, direct, or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, of the Borrowers to such Bank. Each of the Banks agrees with each other Bank that (a) if an amount to be set-off is to be applied to Indebtedness of any of the Borrowers to such Bank, other than Indebtedness evidenced by the then outstanding Notes, such amount shall be applied ratably to such other Indebtedness and to the Indebtedness evidenced by all such Notes, and (b) if a Bank shall receive from the Borrowers, whether by voluntary payment, exercise of the right of set-off, counterclaim, cross action, enforcement of the claim evidenced by the Notes held by a Bank, by proceedings against the Borrowers at law or in equity or by proof thereof in bankruptcy, reorganization, liquidation, receivership or similar proceedings, or otherwise, and shall retain and apply to the payment of the Note or Notes held by a Bank any amount in excess of its ratable portion of the payments received by each of the Banks, such Bank will make such disposition and arrangements with the other Banks with respect to such excess, either by way of distribution, pro tanto assignment of claims, subrogation or otherwise as shall result in each Bank receiving in respect of the Notes held by it, its proportionate payment as contemplated by this Credit Agreement; provided that if all or any part of such excess payment is thereafter recovered from such Bank, such disposition and arrangements shall be rescinded and the amount restored to the extent of such recovery, but without interest. [section]13. THE AGENT. [section]13.1. Authorization. The Agent is authorized to take such action on behalf of each of the Banks and to exercise all such powers as are hereunder and in related documents delegated to the Agent, together with such powers as are reasonably incident thereto. -53- [section]13.2. Employees and Agents. The Agent may exercise its powers and execute its duties by or through employees or agents and shall be entitled to take, and to rely on, advice of counsel concerning all matters pertaining to its rights and duties under this Credit Agreement and the other Loan Documents. The Agent may utilize the services of such Persons as the Agent in its sole discretion may reasonably determine, and all reasonable fees and expenses of any such Persons shall be paid by the Borrowers. [section]13.3. No Liability. Neither the Agent nor any of its shareholders, directors, officers or employees nor any other Person assisting them in their duties nor any agent or employee thereof, shall be liable for any waiver, consent or approval given or any action taken, or omitted to be taken, in good faith by it or them hereunder or under any of the other Loan Documents, or in connection herewith or therewith, or be responsible for the consequences of any oversight or error of judgment whatsoever, except that the Agent or such other Person, as the case may be, may be liable for losses due to its willful misconduct or gross negligence. [section]13.4. No Representations. The Agent shall not be responsible for the execution or validity or enforceability of this Credit Agreement or the Notes or any instrument at any time constituting, or intended to constitute, collateral security for the Notes, or for the value of any such collateral security or for the validity, enforceability or collectability of any such amounts owing with respect to the Notes, or for any recitals or statements, warranties or representations made herein or in any of the other Loan Documents or in any certificate or instrument hereafter furnished to it by or on behalf of the Borrowers, or be bound to ascertain or inquire as to the performance or observance of any of the terms, conditions, covenants or agreements herein or in any instrument at any time constituting, or intended to constitute, collateral security for the Notes. The Agent shall not be bound to ascertain whether any notice, consent, waiver or request delivered to it by the Borrowers or any holder of any of the Notes shall have been duly authorized or is true, accurate and complete. The Agent has not made nor does it now make any representations or warranties, express or implied, nor does it assume any liability to the Banks, with respect to the credit worthiness or financial conditions of the Borrowers or any of their Subsidiaries. Each Bank acknowledges that it has, independently and without reliance upon the Agent or the other Banks, and based upon such information and documents as it has deemed appropriate, made its own credit analysis and decision to enter into this Credit Agreement. [section]13.5. Payments. If in the opinion of the Agent the distribution of any amount received by it in such capacity hereunder or under the Notes might involve it in liability, it may refrain from making distribution until its right to make distribution shall have been adjudicated by a court of competent jurisdiction. If a court of competent jurisdiction shall adjudge that any amount received and distributed by the Agent is to be repaid, each Person to whom any such distribution shall have been made shall either repay to the Agent its proportionate share of the amount so adjudged to be repaid or shall pay over the same in such manner and to such Persons as shall be determined by such court. With respect to Obligations, a payment to the Agent shall be deemed to be a payment to each Bank of its pro rata share of such payment. -54- [section]13.6. Holders of Notes. The Agent may deem and treat the payee of any Note, or the purchaser of any Letter of Credit Participation, as the absolute owner or purchaser thereof for all purposes hereof until it shall have been furnished in writing with a different name by such payee or purchaser or by a subsequent holder, assignee or transferee. [section]13.7. Indemnity. The Banks, pro rata in accordance with their relative Commitments, jointly and severally agree hereby to indemnify, and hold harmless the Agent from and against any and all claims, actions and suits (whether groundless or otherwise), losses, damages, costs, expenses (including any expenses for which the Agent has not been reimbursed by the Borrowers as required by [section]14 or [section]15), and liabilities of every nature and character arising out of or related to this Credit Agreement or the Notes or the transactions contemplated or evidenced hereby or thereby, or the Agent's actions taken hereunder or thereunder, except to the extent that any of the same shall be directly caused by the Agent's willful misconduct or gross negligence. [section]13.8. Agent as Bank. In its individual capacity, BankBoston shall have the same obligations and the same rights, powers and privileges in respect to its Commitment, the Revolving Credit Loans made by it, the issuance of Letters of Credit, and as the holder of any of the Notes, as it would have were it not also the Agent. [section]13.9. Resignation. The Agent may resign at any time by giving ninety (90) days prior written notice thereof to the Banks and the Borrowers. Upon any such resignation, the Majority Banks shall have the right to appoint another Bank or any other financial institution as the successor Agent. Unless a Default or Event of Default shall have occurred and be continuing, such successor, if other than a Bank, shall be reasonably acceptable to the Borrowers. If no successor Agent shall have been so appointed by the Majority Banks and shall have accepted such appointment within thirty (30) days after the retiring Agent's giving of notice of resignation, then the retiring Agent may, on behalf of the Banks, appoint a successor Agent, which shall be a financial institution having a rating of not less than "A" or its equivalent by Standard & Poor's Corporation. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder. After any retiring Agent's resignation, the provisions of this Credit Agreement shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as Agent. [section]13.10. Notification of Defaults and Events of Default. Each Bank hereby agrees that, upon learning of the existence of a Default or an Event of Default, it shall promptly notify the Agent thereof. The Agent hereby agrees that upon receipt of any notice under this [section]13.10 it shall promptly notify the other Banks of the existence of such Default or Event of Default. [section]14. EXPENSES. The Borrowers agree to pay (a) the reasonable cost of producing and reproducing this Credit Agreement, the other Loan Documents and the other agreements -55- and instruments mentioned herein, (b) any taxes (including any interest and penalties in respect thereto) payable by the Agent or the Banks (other than taxes based upon the Agent's or any Bank's net income) on or with respect to the transactions contemplated by this Credit Agreement (the Borrowers hereby agreeing to indemnify the Banks with respect thereto), (c) the reasonable fees, expenses and disbursements of the Agent's Special Counsel or any local counsel to the Agent incurred in connection with the preparation, administration or interpretation of the Loan Documents and other instruments mentioned herein, each closing hereunder, and amendments, modifications, approvals, consents or waivers hereto or hereunder regardless of whether any such transaction is consummated, (d) the fees, expenses and disbursements of the Agent incurred by the Agent in connection with the preparation, administration or interpretation of the Loan Documents and other instruments mentioned herein, each closing hereunder and amendments, modifications, approvals, consents or waivers hereto or hereunder regardless of whether any such transaction is consummated, and (e) all reasonable out-of-pocket expenses (including reasonable attorneys' (which attorneys may be employees of any Bank or the Agent) fees and costs) incurred by any Bank or the Agent in connection with (i) the enforcement of any of the Loan Documents against the Borrowers or any of their Subsidiaries or the administration thereof after the occurrence of a Default or Event of Default, (ii) any so-called "work-out" of the Obligations and (iii) any litigation, proceeding or dispute whether arising hereunder or otherwise, in any way related to any Bank's or the Agent's relationship with the Borrowers or any of their Subsidiaries. The covenants of this [section]14 shall survive payment or satisfaction of payment of amounts owing under or with respect to the Loan Documents. [section]15. INDEMNIFICATION. The Borrowers agree to indemnify and hold harmless the Agent and the Banks from and against any and all claims, actions and suits whether groundless or otherwise, and from and against any and all liabilities, losses, damages and expenses of every nature and character arising out of this Credit Agreement or any of the other Loan Documents or the transactions evidenced hereby unless any such claims, actions or suits arise out of the Agent's or the Banks' intentional misconduct or gross negligence. In litigation, or the preparation therefor, the Banks and the Agent shall be entitled to select their own counsel and, in addition to the foregoing indemnity, the Borrowers agree to pay promptly the reasonable fees and expenses of such counsel. If, and to the extent that the obligations of the Borrowers under this [section]15 are unenforceable for any reason, the Borrowers hereby agree to make the maximum contribution to the payment in satisfaction of such obligations which is permissible under applicable law. [section]16. SURVIVAL OF COVENANTS, ETC. All covenants, agreements, representations and warranties made herein, in any of the other Loan Documents or in any documents or other papers delivered by or on behalf of any of the Borrowers pursuant hereto shall be deemed to have been relied upon by the Banks and the Agent, notwithstanding any investigation heretofore or hereafter made by any of them, and shall survive the making by the Banks of the Revolving Credit Loans or the issuance of Letters of Credit, as herein contemplated, and shall continue in full force and effect so long as any Obligation remains outstanding or any Bank has any obligation to make any Revolving Credit Loans or issue Letters of Credit. All statements contained in any certificate or other paper delivered to any -56- Bank or the Agent at any time by or on behalf of any of the Borrowers pursuant hereto or in connection with the transactions contemplated hereby shall constitute representations and warranties by the Borrowers hereunder. [section]17. PARTIES IN INTEREST; ASSIGNMENT. All the terms of this Credit Agreement and the other Loan Documents shall be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto and thereto. None of the Borrowers may assign or transfer its rights or obligations hereunder or thereunder without the prior written consent of each of the Banks. Each Bank shall have the right to assign or transfer at any time its rights and benefits and obligations or any portion thereof under this Credit Agreement or any other Loan Document with the prior written consent of the Borrowers (unless a Default or Event of Default shall occur and be then continuing in which case the prior written consent of the Borrowers will not be required) and the Agent. [section]18. NOTICES, ETC. Except as otherwise expressly provided in this Credit Agreement, all notices and other communications made or required to be given pursuant to this Credit Agreement or the Notes shall be in writing and shall be delivered in hand, mailed by United States certified first class mail, postage prepaid, or sent by telegraph, telecopy, telefax or telex and confirmed by delivery via courier or postal service, addressed as follows: (a) if to the Borrowers, at 19 Fid Kennedy Avenue, Boston, Massachusetts 02210, Attention: Mr. Anthony J. Carroll, Chief Financial Officer, (with a copy to Walter D. Wekstein, Esq., Gadsby & Hannah LLP, 225 Franklin Street, Boston, MA 02110), or at such other address for notice as the Borrowers shall last have furnished in writing to the Person giving the notice; (b) if to the Agent or BankBoston, at 100 Federal Street, Boston, Massachusetts 02110, Attention: Sharon A. Stone, Director, Mail Stop 01-07-07, (with a copy to Sula R. Fiszman, Esq., Bingham Dana LLP, 150 Federal Street, Boston, MA 02110) or such other address for notice as BankBoston shall last have furnished in writing to the Person giving the notice; (c) if to USTrust, at 30 Court Street, Boston, Massachusetts 02108, Attention: Jeffrey Huth, Vice President, or such other address for notice as such Bank shall have last furnished in writing to the Person giving the notice; and (d) if to any other entity which may hereafter become a party hereto as a Bank, at their address as in Schedule 1.1(a) hereof. Any such notice or demand shall be deemed to have been duly given or made and to have become effective (i) if telecopied, or delivered by hand to a responsible officer of the party to which it is directed, at the time of the receipt thereof by such officer and (ii) if sent by certified first-class mail, postage prepaid, when mailed. Any such notice or demand deemed to have been duly given or made hereunder by any of the Borrowers shall constitute notice from all of the Borrowers. -57- [section]19. GOVERNING LAW. THIS CREDIT AGREEMENT AND EACH OF THE OTHER LOAN DOCUMENTS ARE CONTRACTS UNDER THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS AND SHALL FOR ALL PURPOSES BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF SAID COMMONWEALTH (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OF LAW). THE BORROWERS CONSENT TO THE JURISDICTION IN ANY OF THE FEDERAL OR STATE COURTS LOCATED IN THE COMMONWEALTH OF MASSACHUSETTS IN CONNECTION WITH ANY SUIT TO ENFORCE THE RIGHTS OF THE BANKS AND THE AGENT UNDER THIS CREDIT AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS. [section]20. HEADINGS. The captions in this Credit Agreement are for convenience of reference only and shall not define or limit the provisions hereof. [section]21. COUNTERPARTS. This Credit Agreement and any amendment hereof may be executed in several counterparts and by each party on a separate counterpart, each of which when so executed and delivered shall be an original, and all of which together shall constitute one instrument. In proving this Credit Agreement it shall not be necessary to produce or account for more than one such counterpart signed by the party against whom enforcement is sought. [section]22. ENTIRE AGREEMENT, ETC. The Loan Documents and any other documents executed in connection herewith or therewith express the entire understanding of the parties with respect to the transactions contemplated hereby. Neither this Credit Agreement nor any term hereof may be changed, waived, discharged or terminated, except as provided in [section]24. [section]23. WAIVER OF JURY TRIAL. The Borrowers hereby waive their right to a jury trial with respect to any action or claim arising out of any dispute in connection with this Credit Agreement or any of the other Loan Documents, any rights or obligations hereunder or thereunder or the performance of such rights and obligations. The Borrowers (a) certify that no representative, agent or attorney of any Bank or the Agent has represented, expressly or otherwise, that such Bank or the Agent would not, in the event of litigation, seek to enforce the foregoing waivers and (b) acknowledge that it has been induced to enter into this Credit Agreement and the other Loan Documents by, among other things, the mutual waivers and certifications contained herein. [section]24. CONSENTS, AMENDMENTS, WAIVERS, ETC. Except as otherwise expressly provided in this Credit Agreement, any consent or approval required or permitted by this Credit Agreement to be given by the Banks may be given, and any term of this Credit Agreement or of any other instrument related hereto or mentioned herein may be amended, and the performance or observance by the Borrowers of any terms of this Credit Agreement or such other instrument or the continuance of any Default or Event of Default may be waived (either generally or in a particular instance and either retroactively or prospectively) with, but -58- only with, the written consent of the Borrowers and the written consent of the Majority Banks. Notwithstanding the foregoing, the rate of interest, and the required dates for payment of interest, on the Notes, the maturity and amortization of the Notes, the amount of the Commitments of the Banks, the amount of the Commitment Fee hereunder and the terms of this [section]24 may not be changed without the written consent of the Borrowers and the written consent of each of the Banks; the definition of Majority Banks may not be amended without the written consent of each of the Banks; and [section]13 may not be amended without the written consent of the Agent. No waiver shall extend to or affect any obligation not expressly waived or impair any right consequent thereon. No course of dealing or delay or omission on the part of any Bank or the Agent in exercising any right shall operate as a waiver thereof or otherwise be prejudicial thereto. No notice to or demand upon the Borrowers shall entitle the Borrowers to other or further notice or demand in similar or other circumstances. [section]25. SEVERABILITY. The provisions of this Credit Agreement are severable and if any one clause or provision hereof shall be held invalid or unenforceable in whole or in part in any jurisdiction, then such invalidity or unenforceability shall affect only such clause or provision, or part thereof, in such jurisdiction, and shall not in any manner affect such clause or provision in any other jurisdiction, or any other clause or provision of this Credit Agreement in any jurisdiction. [section]26. TRANSITIONAL ARRANGEMENTS. [section]26.1. Existing Credit Agreement Superseded. On the Closing Date, this Credit Agreement shall amend, restate and supersede in its entirety the Existing Credit Agreement; provided that (i) all revolving credit loans outstanding under the Existing Credit Agreement shall be deemed to be Revolving Credit Loans outstanding hereunder and (ii) all Letters of Credit outstanding under the Existing Credit Agreement shall be deemed to be outstanding hereunder. All commitment and other fees which accrued prior to the Closing Date under the Existing Credit Agreement but which remain unpaid on the Closing Date shall be calculated as of the Closing Date (pro rated in the case of any fractional periods) and paid by the Borrowers hereunder in accordance with the method and on the dates specified in the Existing Credit Agreement and shall be allocated pro rata between USTrust, BankBoston, and Citizens Bank of Massachusetts in accordance with their respective "Commitment Percentages", as defined in the Existing Credit Agreement. All interest on Revolving Credit Loans which accrued prior to the Closing Date under the Existing Credit Agreement will be calculated and paid on the Closing Date and shall be allocated pro rata between USTrust, BankBoston, and Citizens Bank of Massachusetts in accordance with their respective "Commitment Percentages", as defined in the Existing Credit Agreement. [section]26.2. Return and Cancellation of Notes. As soon as reasonably practicable after the receipt by the Banks of their Notes hereunder on the Closing Date, the Banks will return to the Borrowers, marked "canceled", the "Notes" held by the Banks pursuant to the Existing Credit Agreement. -59- [section]26.3. Adjustments Among Banks. On the Closing Date, the Banks shall make such adjustments among themselves as are necessary to ensure that each Bank has funded its Commitment Percentage of all Revolving Credit Loans outstanding on the Closing Date. [remainder of page intentionally left blank] -60- IN WITNESS WHEREOF, the undersigned have duly executed this Credit Agreement under seal as of the date first set forth above. AU BON PAIN CO., INC. By: /s/ LOUIS I. KANE ___________________________________ Name: Louis I. Kane Title: Co-Chairman SAINT LOUIS BREAD COMPANY, INC. By: /s/ ANTHONY J. CARROLL ____________________________________ Name: Anthony J. Carroll Title: Treasurer ABP MIDWEST MANUFACTURING CO., INC. By: /s/ ANTHONY J. CARROLL ____________________________________ Name: Anthony J. Carroll Title: Treasurer BANKBOSTON, N.A., individually and as Agent By: /s/ SHARON A. STONE ____________________________________ Name: Sharon A. Stone Title: Director USTRUST By: /s/ P. JEFFREY HUTH ____________________________________ Name: P. Jeffrey Huth Title: Vice President INDEX OF EXHIBITS AND SCHEDULES TO AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT Exhibit* Item - ------- ---- Exhibit A Amended and Restated Revolving Credit Note Exhibit B Loan Request Exhibit C Compliance Certificate Exhibit D Opinion of Borrowers' Counsel Schedule* Item - -------- ---- Schedule 1.1(a) Revolving Credit Commitments Schedule 1.1(b) Consolidated Growth Capital Expenditures Schedule 1.1(c) Eurodollar Lending Offices Schedule 3.1 Letters of Credit Schedule 5.2 Governmental Approvals Schedule 5.3 Non-owned Assets Schedule 5.5 Material Changes Schedule 5.7 Outstanding Litigation Schedule 5.19 Subsidiaries Schedule 7.1 Existing Indebtedness Schedule 7.3 Existing Liens Schedule 7.4 Investments Schedule 7.9 Affiliate Transactions * All Exhibits and Schedules (other than Schedule 1.1(a)) have been omitted. Copies will be provided supplementally to the Commission upon request, provided that the Company reserves the right to request confidential treatment for same. Schedule 1.1(a) REVOLVING CREDIT COMMITMENTS Commitment Lender Commitment Percentage BankBoston, N.A. $18,666,666.67 66-2/3% 100 Federal Street Boston, Massachusetts 02110 Telefax Number: (617) 434-4426 Telex: 940581 Answerback: BOSTONBK BSN Attention: Jeffrey D. Gilbreath, 01-07-07 Sharon A. Stone, 01-07-07 Barbara D. Searle, 01-07-07 USTrust $9,333,333.33 33-1/3% 30 Court Street Boston, Massachusetts 02108 Telefax Number: (617) 695-4185 Telex: 681752 Answerback: UST BSN Attention: Anthony G. Wilson, V.P. Jeffrey Huth, V.P. EX-4.1.2 4 AMENDED AND RESTATED REVOLVING CREDIT NOTE Exhibit 4.1.2 AMENDED AND RESTATED REVOLVING CREDIT NOTE $18,666,666.67 as of February 13, 1998 FOR VALUE RECEIVED, the undersigned, AU BON PAIN CO., INC., a Delaware corporation, SAINT LOUIS BREAD COMPANY, INC., a Delaware corporation, and ABP MIDWEST MANUFACTURING CO., INC., a Delaware corporation (collectively, the "Borrowers"), hereby jointly and severally promise to pay to the order of BANKBOSTON, N.A. (the "Bank"), at the head office of the Agent, as such term is defined in the Amended and Restated Revolving Credit Agreement among the Borrowers, USTrust and BankBoston, N.A., individually and as Agent, dated the date hereof (as amended and in effect from time to time, the "Credit Agreement"), at 100 Federal Street, Boston, Massachusetts, on or before the Maturity Date, Eighteen Million Six Hundred Sixty-Six Thousand Six Hundred Sixty-Six Dollars and Sixty-Seven Cents ($18,666,666.67), or, if less, the aggregate unpaid principal amount of the Revolving Credit Loans made by the Bank to the Borrowers pursuant to the Credit Agreement. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to them in the Credit Agreement. Unless otherwise provided herein, the rules of interpretation set forth in [section].1.2 of the Credit Agreement shall be applicable to this Amended and Restated Revolving Credit Note (this "Note"). The Borrowers further jointly and severally promise to pay (a) principal from time to time at the times provided in the Credit Agreement and (b) interest from the date hereof on the principal amount from time to time unpaid to and including the maturity hereof at the rates and times and in all cases in accordance with the terms of the Credit Agreement. The Bank may, but shall not be required to, endorse the Note Record relating to this Note with appropriate notations evidencing advances and payments of principal hereunder as contemplated by the Credit Agreement. This Note evidences borrowings under and has been issued pursuant to, is entitled to the benefits of, and is subject to, the provisions of the Credit Agreement. This Note is executed and delivered in substitution for, and as an amendment and replacement of, that certain Amended and Restated Revolving Credit Note dated as of September 6, 1995 (the "Original Note") issued by the Borrowers to the Bank under the Credit Agreement as previously in effect. Nothing herein or in any other document shall be construed to constitute payment of such Original Note or to release or terminate any security interest granted to secure the obligations evidenced thereby. The principal of this Note is subject to prepayment in whole or in part in the manner and to the extent specified in the Credit Agreement. In case an Event of Default shall occur, the entire unpaid principal amount of this Note and all of the unpaid interest accrued thereon may become or be declared due and payable in the manner and with the effect provided in the Credit Agreement. The parties hereto, including the undersigned maker, hereby waive presentment, demand, notice, protest and all other demands and notices in connection with the delivery, acceptance, performance and enforcement of this Note and assent to the extensions of the time of payment or forbearance or other indulgence without notice. Each of the Borrowers hereby waives its right to a jury trial with respect to any action or claim arising out of any dispute in connection with this Note, any rights or obligations hereunder or the performance of such rights and obligations. Each of the Borrowers (a) certifies that no representative, agent or attorney of any Bank or the Agent has represented, expressly or otherwise, that such Bank or the Agent would not, in the event of litigation, seek to enforce the foregoing waivers and (b) acknowledges that it has been induced to enter into this Note by, among other things, the mutual waivers and certifications contained herein. THIS NOTE AND THE OBLIGATIONS OF EACH OF THE BORROWERS HEREUNDER SHALL BE GOVERNED BY AND INTERPRETED AND DETERMINED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OF LAW). IN WITNESS WHEREOF, each of the Borrowers has caused this Note to be signed in its corporate name as an instrument under seal by its duly authorized officer on the date and in the year first above written. AU BON PAIN CO., INC. By: /s/ LOUIS I. KANE ____________________________________ Name: Louis I. Kane Title: Co-Chairman SAINT LOUIS BREAD COMPANY, INC. By: /s/ ANTHONY J. CARROLL ____________________________________ Name: Anthony J. Carroll Title: Treasurer ABP MIDWEST MANUFACTURING CO., INC. By: /s/ ANTHONY J. CARROLL ____________________________________ Name: Anthony J. Carroll Title: Treasurer ADVANCES AND REPAYMENTS OF PRINCIPAL Advances and payments of principal of this Note were made on the dates and in the amounts specified below: _______________________________________________________________________________ Amount Amount of Balance of of Revolving Principal Principal Notation Date Credit Loan Prepaid or Repaid Unpaid Made By _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ EX-4.1.3 5 AMENDED AND RESTATED REVOLVING CREDIT NOTE Exhibit 4.1.3 AMENDED AND RESTATED REVOLVING CREDIT NOTE $9,333,333.33 as of February 13, 1998 FOR VALUE RECEIVED, the undersigned, AU BON PAIN CO., INC., a Delaware corporation, SAINT LOUIS BREAD COMPANY, INC., a Delaware corporation, and ABP MIDWEST MANUFACTURING CO., INC., a Delaware corporation (collectively, the "Borrowers"), hereby jointly and severally promise to pay to the order of USTRUST (the "Bank"), at the head office of the Agent, as such term is defined in the Amended and Restated Revolving Credit Agreement among the Borrowers, USTrust and BankBoston, N.A., individually and as Agent, dated the date hereof (as amended and in effect from time to time, the "Credit Agreement"), at 100 Federal Street, Boston, Massachusetts, on or before the Maturity Date, Nine Million Three Hundred Thirty-Three Thousand Three Hundred Thirty-Three Dollars and Thirty-Three Cents ($9,333,333.33), or, if less, the aggregate unpaid principal amount of the Revolving Credit Loans made by the Bank to the Borrowers pursuant to the Credit Agreement. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to them in the Credit Agreement. Unless otherwise provided herein, the rules of interpretation set forth in [section] 1.2 of the Credit Agreement shall be applicable to this Amended and Restated Revolving Credit Note (this "Note"). The Borrowers further jointly and severally promise to pay (a) principal from time to time at the times provided in the Credit Agreement and (b) interest from the date hereof on the principal amount from time to time unpaid to and including the maturity hereof at the rates and times and in all cases in accordance with the terms of the Credit Agreement. The Bank may, but shall not be required to, endorse the Note Record relating to this Note with appropriate notations evidencing advances and payments of principal hereunder as contemplated by the Credit Agreement. This Note evidences borrowings under and has been issued pursuant to, is entitled to the benefits of, and is subject to, the provisions of the Credit Agreement. This Note is executed and delivered in substitution for, and as an amendment and replacement of, that certain Amended and Restated Revolving Credit Note dated as of September 6, 1995 (the "Original Note") issued by the Borrowers to the Bank under the Credit Agreement as previously in effect. Nothing herein or in any other document shall be construed to constitute payment of such Original Note or to release or terminate any security interest granted to secure the obligations evidenced thereby. The principal of this Note is subject to prepayment in whole or in part in the manner and to the extent specified in the Credit Agreement. In case an Event of Default shall occur, the entire unpaid principal amount of this Note and all of the unpaid interest accrued thereon may become or be declared due and payable in the manner and with the effect provided in the Credit Agreement. The parties hereto, including the undersigned maker, hereby waive presentment, demand, notice, protest and all other demands and notices in connection with the delivery, acceptance, performance and enforcement of this Note and assent to the extensions of the time of payment or forbearance or other indulgence without notice. Each of the Borrowers hereby waives its right to a jury trial with respect to any action or claim arising out of any dispute in connection with this Note, any rights or obligations hereunder or the performance of such rights and obligations. Each of the Borrowers (a) certifies that no representative, agent or attorney of any Bank or the Agent has represented, expressly or otherwise, that such Bank or the Agent would not, in the event of litigation, seek to enforce the foregoing waivers and (b) acknowledges that it has been induced to enter into this Note by, among other things, the mutual waivers and certifications contained herein. THIS NOTE AND THE OBLIGATIONS OF EACH OF THE BORROWERS HEREUNDER SHALL BE GOVERNED BY AND INTERPRETED AND DETERMINED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OF LAW). IN WITNESS WHEREOF, each of the Borrowers has caused this Note to be signed in its corporate name as an instrument under seal by its duly authorized officer on the date and in the year first above written. AU BON PAIN CO., INC. By: /s/ LOUIS I. KANE _____________________________________ Name: Louis I. Kane Title: Co-Chairman SAINT LOUIS BREAD COMPANY, INC. By: /s/ ANTHONY J. CARROLL _____________________________________ Name: Anthony J. Carroll Title: Treasurer ABP MIDWEST MANUFACTURING CO., INC. By: /s/ ANTHONY J. CARROLL _____________________________________ Name: Anthony J. Carroll Title: Treasurer ADVANCES AND REPAYMENTS OF PRINCIPAL Advances and payments of principal of this Note were made on the dates and in the amounts specified below: _______________________________________________________________________________ Amount Amount of Balance of of Revolving Principal Principal Notation Date Credit Loan Prepaid or Repaid Unpaid Made By _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ EX-10.9 6 BAKERY PRODUCT SUPPLY AGREEMENT Execution Copy BAKERY PRODUCT SUPPLY AGREEMENT This Bakery Product Supply Agreement ("Agreement"), dated as of March 23, 1998, is by and between BUNGE FOODS CORPORATION, a Delaware corporation ("Supplier") and SAINT LOUIS BREAD COMPANY, INC., a Delaware corporation ("Buyer"). WHEREAS, contemporaneously herewith, Supplier has acquired from ABP Midwest Manufacturing Co., Inc., a Delaware corporation and an Affiliate (as defined below) of Buyer ("ABP Midwest"), ABP Midwest's bakery products manufacturing plant in Mexico, Missouri (the "Plant") pursuant to the terms of an Asset Purchase Agreement by and among Supplier, ABP Midwest and Au Bon Pain Co., Inc., a Delaware corporation ("Au Bon Pain") (the "Purchase Agreement"); and WHEREAS, in partial consideration of Buyer's entry into the Purchase Agreement, Supplier agreed to enter into this Agreement; and WHEREAS, to induce Buyer to enter into this Agreement, Bunge Corporation, a New York corporation ("Bunge Corporation"), has agreed to guaranty the obligations of Supplier under this Agreement as provided immediately following this Agreement; NOW, THEREFORE, in consideration of the mutual covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound hereby, agree as follows: 1. Definitions: In addition to other terms defined herein, capitalized terms used in this Agreement shall have the following meanings: "Affiliate" shall mean, with respect to any Person, any Person directly or indirectly controlling, controlled by, or under common control with such other Person. For purposes of determining whether a Person is an Affiliate, the term "control" shall mean possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of securities, by virtue of the office held by such Person, by contract or otherwise. "Base Standard Costs" shall mean, for each Product Code during any period of time, the sum of: (a) the per unit standard costs, including delivered raw materials and delivered packaging (in each case at the stipulated delivered price per unit of material multiplied by the standard usage in the Bill of Materials) and Direct Labor Costs, as set forth in the Bill of Materials, excluding the cost of flour and butter; plus (b) the Billing Price for Flour and Butter; plus (c) an allowance for Employee Benefits on a cost per unit basis determined according to the methodology set forth on Schedule 1.1. Such sum shall be calculated using the operating standards and process specifications included in the Bill of Materials. "Bill of Materials" shall mean Buyer's bill of materials for each Product Code, including any process specifications, yield and usage information, and the standard usage of electricity (as described in Schedule 3.1). A copy of the Bill of Materials in effect as of the date hereof for each Product Code is attached as Exhibit 1.1. Such bills of materials, which set forth the cost structure for each Product Code, are subject to modification by Buyer as provided in Section 4.1. "Billing Freight Allowance" shall mean the estimated per Case freight allowance used for the purpose of establishing the Invoice Price for a Product Code to a Distributor, determined by agreement of the parties as of the date hereof (or at the time of introduction in the case of a New Product or additional or modified Product) and at the times and in the manner specified in Section 3.3. "Billing Price for Electricity" shall mean, for each Product Code during any month, the weighted average price of electricity per kilowatt hour estimated for the purpose of establishing the Invoice Price determined by agreement of the parties as of the date hereof (or at the time of introduction in the case of a New Product or additional or modified Product) and at the times and in the manner specified in Section 3.3 and consistent with the methodology described on Schedule 3.1 multiplied by the per unit standard kilowatt hour usage set forth in the Bill of Materials as described on Schedule 3.1. "Billing Price for Flour shall mean, for each Product Code, the and Butter estimated cost per unit of Product of flour and butter used for the purpose of establishing the Invoice Price, determined by agreement of the parties as of the date hereof (or at the time of introduction in the case of a New Product or additional or modified Product) and at the times and in the manner specified in Section 3.3. "Buyer's System" shall mean the bakery/cafe retail outlets in the continental United States owned, franchised or licensed by Buyer and the bakery/cafe retail outlets in the continental United States operated by other Persons pursuant to a joint venture or other arrangement with Buyer in which Buyer holds not less than a fifty-one percent (51%) interest. "Case" shall mean, for each Product Code, the number of units that are packaged in each standard case as set forth in the Bill of Materials. "CPI Allowance" shall mean, at any time for each job classification, the actual regular, non-overtime wage rates and Employee Benefits (determined in accordance with Schedule 1.2) as of the date of this Agreement, plus a percentage increase equal to the percentage increase in the Consumer Price Index from the date of this Agreement plus [ ].* As used herein, the term "Consumer Price Index" shall mean the "Consumer Price Index for Urban Wage Earners and Clerical Workers, U.S. City Average, All Items (1982-84=100)" published by the Bureau of Labor Statistics of the United States Department of Labor (or, if such index is not available, any comparable successor or substitute index, appropriately adjusted, which is designated by Buyer and approved by Supplier). As of the last day of the month ending *The information contained within these brackets has been omitted and filed separately with the Commission pursuant to a request for Confidential Treatment under Rule 24b-2. -2- immediately prior to the date hereof, the Consumer Price Index was 161.9. "Direct Labor Costs" shall mean, the direct hourly labor costs per unit of Product Code, as calculated in accordance with the structure and methodology in the Bill of Materials based upon the non-overtime wage rates per position as set forth in Schedule 1.2 (such non-overtime wage rates plus Employee Benefits not to exceed the CPI Allowance). "Distributors" shall mean the distributors designated by Buyer or members of Buyer's System (whether independently owned and operated, or part of Buyer's System), who are authorized pursuant to Section 7.1 to order and/or receive Product from Supplier, to perform preliminary quality checks on Product, to make payments to Supplier for Product as invoiced by Supplier pursuant to the terms of this Agreement, and to distribute Product to Buyer's System. A current list of approved Distributors is set forth on Schedule 1.3. "Employee Benefits" shall mean, for each Product Code during any period of time, the total employee benefit expense incurred by Supplier to or for the benefit of the direct labor used to manufacture such Product, which benefits shall consist of the benefits described on Schedule 1.4 for hourly employees. "New Product" shall mean all items of bakery products that are not capable of being manufactured on one or more of the following existing production lines at the Plant, as such production lines may exist from time-to-time during the Term or as they may be modified pursuant to Section 3.5: (1) the Laminated Line (including extruded Products); (2) the Bread/Roll Line; (3) the Muffin Line; (4) the Cookie Line; and (5) the Icing/Mix Line. "Period" shall mean a period of time agreed-to between Supplier and Buyer from time to time during the Term, but in no event shall any such period be longer than one (1) month. "Person" shall mean an individual, a corporation, a general partnership, a limited partnership, a limited liability company, an association, a trust or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. "Product" shall mean all bakery goods that are currently or hereafter manufactured at the Plant (or manufactured at a facility other than the Plant with the approval of Buyer in accordance with the terms of this Agreement), and then supplied directly or indirectly for resale to Buyer's System, provided that such bakery goods are capable of being manufactured on one or more of the following existing production lines at the Plant, as such production lines may exist from time-to-time during the Term or as they may be modified pursuant to Section 3.5: (1) the Laminated Line (including extruded Products); (2) the Bread/Roll Line; (3) the Muffin Line; (4) the Cookie Line; and (5) the Icing/Mix Line (including, without limitation, bakery goods in the categories listed on Schedule 1.5). The -3- foregoing notwithstanding, the term "Product" shall not include bagels or PM Sweets (brownies and bars). "Product Code" shall mean an item of Product which is a specific combination of formulation, unit size, package size (including number of units), package type and label, all in accordance with the Bill of Materials, and to which a specific product code has been assigned for identification purposes. "Purchase Target" shall mean the minimum amount of total Upcharge to be earned by Supplier as a result of the purchase of Product from Supplier in each of the first four (4) years of the Term, as set forth on Schedule 1.6. "Quarter" shall mean the three (3) consecutive months ending on the last day of the calendar month occurring every May, August, November and February during the Term. "Stipulated Flour and Butter Costs" shall mean, for each Product Code, the delivered per unit cost of flour and butter for a period of time, based on either: (1) the purchase price for flour and/or butter as selected by Buyer from time to time after consultation with and advice from Supplier from available contracts for flour and butter for such period of time; or (2) the methodology selected by Buyer for purchasing flour and/or butter for a period of time determined by Buyer (for example, but without limitation, through purchases on the spot markets), in each case multiplied by the standard usage per unit of Product Code in the Bill of Materials. "Stock-out Shortage" shall mean the inability of a Distributor to fill an order for Product placed by a member of Buyer's System due solely to a failure by Supplier to supply Product to such Distributor. The amount of a Stock-Out Shortage, for a Product Code, shall equal the aggregate number of Cases of such Product Code ordered from the affected Distributor by Buyer's System less the number of Cases of such Product Code in the affected Distributor's inventory. "Term" shall mean, unless earlier terminated due to a Supplier Default or a Buyer Default or pursuant to Section 3.7.3, the period during which Supplier shall be required to manufacture and supply Product and Buyer shall be required to purchase, or cause to be purchased, Product in accordance with the terms of this Agreement, which shall be for a period of five (5) years commencing on the date of this Agreement, and shall be automatically renewed on a year-to-year basis thereafter unless notice of termination by either party is given to the other party not less than twelve (12) months prior to termination. "Upcharge" shall mean, for each Product Code existing as of the date hereof, the dollar amount per unit of Product as set forth on Schedule 1.7, and for each Product Code for a New Product the dollar amount per unit of Product as shall be agreed upon in writing by Buyer and Supplier. With respect to each additional Product Code introduced by Buyer pursuant to Section 3.5.1, the Upcharge shall equal [ ]* (during each of the *The information contained within these brackets has been omitted and filed separately with the Commission pursuant to a request for Confidential Treatment under Rule 24b-2. -4- first four (4) years of the Term) and [ ]* (during the fifth (5th) year of the Term) of the sum of the Base Standard Costs initially established for each such additional Product Code plus a variance equal to [ ]* of such Base Standard Costs. Upcharge on any unit of Product or New Product shall be deemed earned at the time when title and risk of loss pass pursuant to Section 6 of this Agreement. "Updated Electricity Costs" shall mean, for each Product Code during any month, the weighted average price of electricity per kilowatt hour determined in the manner described on Schedule 3.1 multiplied by the per unit standard kilowatt hour usage set forth in the Bill of Materials as described on Schedule 3.1. "Updated Freight Allowance" shall mean, for each Product Code during any period, the per Case stipulated cost of freight, equal to: (a) the freight cost per truck from the Plant to each Distributor's warehouse (or such other designated destination) from available quotes for such freight services as selected by Buyer (or by Supplier in the absence of such a selection by Buyer); divided by (b) the agreed-to number of Cases shipped per truck. "Updated Standard Costs" shall mean, for each Product Code during any period of time, the sum of: (a) the per unit standard costs, including delivered raw materials and delivered packaging (in each case at the actual delivered price per unit of material multiplied by the standard usage in the Bill of Materials) and Direct Labor Costs, excluding the cost of flour and butter; plus (b) the Stipulated Flour and Butter Costs; plus (c) an allowance for Employee Benefits allocated on a cost per unit basis determined according to the methodology set forth on Schedule 1.1. Such sum shall be calculated using the operating standards and process specifications included in the Bill of Materials. The foregoing notwithstanding, the Direct Labor Costs and Employee Benefits (determined in accordance with the methodology set forth in Schedule 1.1) shall not exceed the CPI Allowance. 2. Manufacture and Supply of Product: 2.1 Supply Requirements. Subject to the terms and conditions of this Agreement, during the Term, Supplier shall: (a) manufacture and supply Product in such quantities as may be required by each Distributor and/or member of Buyer's System to enable them to meet the Product requirements and inventory needs of Buyer's System; and (b) manufacture and supply Product in such quantities as may be required by each Distributor to maintain an adequate level of Product inventory as provided in this Agreement. 2.2 Exclusivity. So long as Supplier timely supplies Product in accordance with the required recipes, formulas, processes and Product specifications, and in the quantities required by each Distributor and Buyer, Buyer shall purchase from Supplier (through its Distributors) one hundred percent (100%) of its Product requirements for Buyer's bakery/cafe outlets in the continental United States, and Buyer shall use its reasonable best efforts, subject to applicable law, to direct the bakery/cafe outlets that are a part of Buyer's System to purchase from Supplier (through its Distributors) one hundred percent (100%) of their Product requirements. In the case of The SYGMA Network, Inc. and its Affiliates (collectively, "SYGMA"), a Distributor, Supplier shall supply each SYGMA distribution *The information contained within these brackets has been omitted and filed separately with the Commission pursuant to a request for Confidential Treatment under Rule 24b-2. -5- facility so that at any time each has no more than eight (8) days of inventory of Product on hand, measured according to the following formula: The dollar balance (at SYGMA's sales price) of SYGMA's Product inventory at such time divided by SYGMA's average daily dollar sales of Product during the twelve-weeks immediately preceding such time. Buyer shall not sell, directly or indirectly, bakery products at wholesale to third-parties, except to Buyer's System pursuant to this Agreement; provided, however, that nothing contained herein shall prevent Buyer from manufacturing and selling fresh baked or refrigerated dough products or frozen bagels from any of its commissaries to any third party. 2.3 Specifications and Packaging. Supplier shall manufacture Product in accordance with Buyer's recipes, formulas, and Product specifications as set forth in the current Bills of Materials, operating standards and other documents listed on Schedule 2.3, as such requirements may be modified by Buyer upon reasonable prior notice from time to time during the Term in accordance with Section 4.1. Product shall be packaged in the manner prescribed by the Distributors and Buyer. Notwithstanding anything to the contrary contained herein, Supplier shall be entitled to alter any process or operating standard if such an alteration is required to comply with good manufacturing practices as set forth in the regulations promulgated by the U.S. Food and Drug Administration (Current Good Manufacturing Practices in Manufacturing, Packing, or Holding Human Food, 21 C.F.R 110 (1997)), as such regulations may be amended from time to time, including, without limitation, alterations to prevent microbial contamination. Supplier shall provide Buyer prompt notice of any alteration, which shall be prior notice to the extent practicable. 2.4 Payment. Supplier shall invoice each Distributor for Product on payment terms that Supplier and such Distributor may agree upon which do not affect the determination and adjustment of the Invoice Price (as defined below). Supplier shall provide Buyer with a copy of each invoice at the time it provides such invoice to a Distributor. 3. Pricing and Adjustments: 3.1 General Pricing Structure. (a) Supplier will charge each Distributor an Invoice Price per Case of Product as set forth in Section 3.2. Supplier shall invoice freight separately from Product. During the thirty (30) days prior to the adjustment of each Invoice Price, the Invoice Price for the next succeeding year shall be established as set forth in Section 3.3. (b) Within ten (10) business days after the end of each Period, during each Quarter as provided in Section 3.4, Supplier shall update and report to Buyer the difference between the sum of the four (4) components of the Invoice Price as set forth in Section 3.2(a) and the sum of the actual costs for such components, in each case, as applied to the volume of Product shipped during the Period. At the end of each Quarter, the net difference between the sum of the four (4) components of the Invoice Price as set forth in Section 3.2(a) and the sum of the actual costs for such components during the Quarter shall be determined and adjusted by a payment to or from Buyer, after taking into account any Project Expenses and Structural Savings due to Supplier pursuant to Section 3.5. (c) The Invoice Price and updates each Period and adjustments each Quarter shall be determined in the manner as set forth in this Article 3 consistent with the pricing diagram set forth in Schedule 3.1; provided, however, that in the event of any inconsistency between the Schedule 3.1 and any Section of this Agreement, the text in such Section shall at all times control. All requests for credit from Buyer's System for failure to meet Product specifications shall be processed directly through -6- Supplier. Buyer and Supplier shall mutually agree upon reasonable administrative procedures for processing of any credit requests. 3.2 Invoice Price Per Case. The Invoice Price for Product shipped pursuant to this Agreement shall be invoiced by Product Code, and shall be expressed in dollars per Case. The "Invoice Price" for each Case of Product shipped to each Distributor shall equal, for each Product Code, the sum of the FOB Mexico Billing Price Per Case plus the Billing Freight Allowance. As used herein, the "FOB Mexico Billing Price Per Case" for each Product Code, shall equal the product obtained by multiplying (a) the sum obtained by adding: (1) the Base Standard Costs established pursuant to Section 3.3; plus (2) a variance equal to [ ]* of such Base Standard Costs; plus (3) the Billing Price for Electricity established pursuant to Section 3.3; plus (4) the Upcharge; by (b) the number of standard units of Product in a Case. The Invoice Price shall be adjusted on May 1, 1999 and each May 1st thereafter, and at other times, in the manner described in Section 3.3. 3.3 Changes to Invoice Price. During the thirty (30) days prior to May 1, 1999 and each May 1st thereafter, Supplier and Buyer shall mutually make a reasonable estimate of the Base Standard Costs, and shall mutually agree on the Billing Price for Electricity and the Billing Freight Allowance that will be in effect for the upcoming year commencing as of each such May 1st. If the parties are unable agree upon an estimate for the Base Standard Costs, the Billing Price for Electricity and/or the Billing Freight Allowance, the Invoice Price shall remain unchanged. The foregoing notwithstanding, if the accumulated net adjustments from each Period due to or from Buyer computed pursuant to Section 3.4 exceed [ ]* during the course of any year, Buyer and Seller shall discuss, within thirty (30) days after notice from either party, the implementation of a reasonable adjustment to the Invoice Price based upon changes in Base Standard Costs, Billing Price for Electricity and/or Billing Freight Allowance since the immediately preceding adjustment to the Invoice Price. 3.4 Periodic Updates and Adjustments. Within ten (10) business days after the end of each Period during each Quarter, as required to ensure accuracy, Supplier shall deliver to Buyer a summary report (the "Quarterly Adjustment/True-Up Summary Report") in the form attached hereto as Exhibit 3.4. Supplier shall post to the Quarterly Adjustment/True-Up Summary Report each such Period the Total Dollar Adjustment (Direct Cost) determined in accordance with Section 3.4.1 and the Total Dollar Adjustment (Freight) determined in accordance with Section 3.4.2. 3.4.1 Direct Cost Update. Within ten (10) business days after the end of each Period during each Quarter, Supplier shall deliver to Buyer a summary report (the "Interim Update (Direct Costs") in the form attached hereto as Exhibit 3.4.1. Supplier shall also provide to Buyer each Period, for each Product Code, the Bill of Materials and such other supporting documentation as may reasonably be requested by Buyer to verify the computation of the net adjustment due to or from Supplier. Each *The information contained within these brackets has been omitted and filed separately with the Commission pursuant to a request for Confidential Treatment under Rule 24b-2. -7- Interim Update (Direct Costs)), for each such Period, shall set forth the Total Dollar Adjustment (Direct Cost). As used herein the term "Total Dollar Adjustment (Direct Cost)" shall equal the total, for all Product Codes, of the positive or negative difference between the FOB Mexico Billing Price Per Case minus the Updated FOB Mexico Price Per Case multiplied by the number of Cases of Product shipped during such Period. The "Updated FOB Mexico Price Per Case" shall equal the product obtained by multiplying: (a) the sum obtained by adding: (1) the Updated Standard Costs; plus (2) a variance equal to [ ]* of such Updated Standard Costs; plus (3) the Updated Electricity Costs; plus (4) the Upcharge; by (b) the number of standard units of Product in a Case. 3.4.2 Freight Allowance Update. Together with the Interim Update (Direct Costs), Supplier shall deliver to Buyer a summary report (the "Interim Update (Freight)") in the form attached hereto as Exhibit 3.4.2. Each Interim Update (Freight) shall set forth the Total Dollar Adjustment (Freight). As used herein the "Total Dollar Adjustment (Freight)" shall equal the total, for all Product Codes, of the net positive or negative difference for all Distributors (expressed in dollars per Case) between the Billing Freight Allowance for each such Distributor minus the Updated Freight Allowance, multiplied by the total number of Cases shipped to each such Distributor during such Period. 3.4.3 Within fifteen (15) business days after the end of each Quarter, Supplier shall provide to Buyer a final proposed Quarterly Adjustment/True-Up Summary Report for the Quarter. The final proposed Quarterly Adjustment/True-Up Summary Report shall also set forth all Non-Capital Project Expenses, Capital Project Expenses and Structural Savings due to Supplier for the Quarter pursuant to Section 3.5. The aggregate, for all Product Codes, of the amounts determined pursuant to Section 3.4.1 and Section 3.4.2 during each Period of the Quarter, after taking into account any amounts due to Supplier for Non-Capital Project Expenses, Capital Project Expenses and Structural Savings, shall constitute Supplier's proposed net adjustment due to or from Supplier for the Quarter. 3.4.4 Buyer shall have ten (10) business days to review the final proposed Quarterly Adjustment/True-Up Summary Report for each Quarter after its receipt. If Buyer is unable to reconcile or disputes any item included in the final Adjustment Summary, or the computation of the net adjustment due to or from Supplier, it shall notify Supplier within such ten (10) business days of any such items it is unable to reconcile or which it disputes. The foregoing notwithstanding, the failure by Buyer to dispute or question any item within such ten (10) business days shall not constitute a waiver by Buyer or Supplier of the right to subsequently dispute or question such item; provided, however, that any such dispute or question by Buyer or Supplier shall be asserted not later than ten (10) business days after the end of the immediately next succeeding Quarter or shall be thereafter be deemed irrevocably waived. Supplier and Buyer shall attempt diligently in good faith to reconcile any differences and to resolve by mutual agreement any items in dispute within ten (10) business days (the "Resolution Period") following such notification by Buyer. If any of the items in dispute are not resolved within the Resolution Period, the parties shall submit the disputed items for resolution to an arbitrator mutually agreed upon by the *The information contained within these brackets has been omitted and filed separately with the Commission pursuant to a request for Confidential Treatment under Rule 24b-2. -8- parties (the "Arbitrator"), whose decision shall be final and binding on the parties, and when made, shall be deemed to be an agreement between Supplier and Buyer on the issues so determined. The expense of the Arbitrator shall be borne equally by Buyer and Supplier. 3.4.5 Any net adjustment due to or from Supplier for any Quarter shall be paid by or to Buyer within the later of: ten (10) business days after the ten (10) business day review provided for in Section 3.4.4, or its final determination if a dispute or question is raised within such ten (10) business day review, provided, however, that any amounts not in dispute shall be paid by the earlier of such dates. 3.5 Modifications to Products and Introduction of Additional Products; Structural Savings. 3.5.1 Modifications and Additional Products. From time to time during the Term, Buyer shall have the right, on a project-by-project basis, to introduce additional Product items or make modifications to existing Product recipes, formulas, specifications and preparation procedures which, in either case, require expenditures by Supplier in order to manufacture such additional Product or to implement such modifications. Such additional or modified Product either may be in addition to or may replace one or more then-existing Product Codes. Prior to implementing any such project, Buyer and Supplier shall develop a mutually agreeable budget for the project. The actual direct, incremental expenses associated with any one project to introduce additional or modified Product, consisting of material, packaging, direct hourly labor (collectively, "Non-Capital Project Expenses") and expenses with any one project which are capital expenditures under generally accepted accounting principles (collectively, "Capital Project Expenses"), shall be allocated as follows: (a) If the total Non-Capital Project Expenses do not exceed [ ]*, Supplier shall pay the total amount of such expenses; provided, however, that Supplier shall not be obligated to incur more than [ ]* of such expenses, in the aggregate, during any one year of the Term. (b) If the total Non-Capital Project Expenses (exclusive of any expenses constituting capital expenses under generally accepted accounting principles) exceed [ ]* per project or if the annual [ ]* limit in Section 3.5.1(a) has been exceeded, Buyer shall pay the total amount of such excess. (c) If the total Capital Project Expenses do not exceed [ ]*, Supplier shall pay the total amount of such expenses. (d) If the total Capital Project Expenses exceed [ ]*, Buyer shall pay to Supplier an annual amount equal to Buyer's "Pro Rata Share" (as hereinafter defined) of the total Capital Project Expenses multiplied by a percentage amount, on a per annum basis, equal to [ ]* over and above the yield on Ten-year Treasury Bills issued by the United States Government as reported, from time to time, by the Wall Street Journal. As used herein, the term "Pro Rata Share" shall mean, for any Quarter, the amount of Product manufactured by Supplier for Buyer's System utilizing capital equipment purchased by Supplier in connection with any project, divided by the total amount of product (including Product) manufactured on such equipment, multiplied by the Capital Project Expenses. For purposes of this Section 3.5.1 and Section 3.5.3, the standard for measuring the amount of Product manufactured shall be determined by agreement of the parties before implementation of the project and shall be based upon one of the following criteria: (i) units of Product manufactured; (ii) weight of Product manufactured; or (iii) equipment utilization time. *The information contained within these brackets has been omitted and filed separately with the Commission pursuant to a request for Confidential Treatment under Rule 24b-2. -9- 3.5.2 Limitations on Capital Project Expenses. The provisions of Section 3.5.1(c) notwithstanding, Supplier shall not be obligated to incur Capital Project Expenses under Section 3.5.1(c) during any year which exceed Fifty Thousand Dollars ($50,000). Upon the termination of this Agreement for any reason other than a Supplier Default, Supplier shall have the option of selling the equipment acquired pursuant to Section 3.5.1(d) to Buyer for its net book value, and Buyer shall be obligated to purchase such equipment from Supplier within thirty (30) days of receiving notice thereof. This option shall expire, if not sooner exercised, thirty (30) days prior to the termination date of this Agreement, except in the case of a Buyer Default, in which case, this option shall expire thirty (30) days after the termination date. For purposes of this Section 3.5.2, all capital expenditures shall be deemed to have a seven (7) year depreciable life and to be depreciated on a straight-line basis unless otherwise agreed. 3.5.3 Structural Savings. (a) From time to time during the Term, Supplier shall provide Buyer with recommendations for improving the efficiency of the manufacturing and supply processes and for reducing costs. Buyer and Supplier shall mutually determine which, if any, of such recommendations are to be implemented on a project-by-project basis, and shall work together to implement such agreed-upon projects. Buyer and Supplier shall mutually determine the amount of cost savings to be included in Updated Standard Costs and the time during which such cost savings shall be realized. All agreed-upon savings shall be applied to reduce the Updated Standard Costs by amending the applicable Bills of Materials upon the agreed-upon implementation date of the project. Any provision hereof to the contrary notwithstanding, any program implemented for the purpose of managing flour and butter costs shall not be governed by this Section 3.5.3. (b) If the implementation of any such project involves a capital expenditure by Supplier under generally accepted accounting principles, Buyer shall pay to Supplier an annual amount equal to Buyer's Pro Rata Share multiplied by the amount of the project's capital expenditure multiplied by a percentage amount, on a per annum basis, equal to [ ]* over and above the yield on Ten-year Treasury Bills issued by the United States Government as reported, from time to time, in the Wall Street Journal. (c) If the implementation of any such project involves a change in delivered raw materials, delivered packaging or Direct Labor Costs which do not involve capital expenditures pursuant to Section 3.5.3(b) and which are reflected in agreed-upon changes in the Bill of Materials, Buyer shall pay to Supplier an amount equal to [ ]* of the agreed-upon savings resulting from such changes during the agreed-upon time. (d) The foregoing notwithstanding, if Supplier undertakes any project which is not otherwise a part of any structural savings program agreed-to by Buyer pursuant to this Section 3.5.3 (including, by way of illustration and without limitation, the installation of a spiral blast freezer), the cost structure for the appropriate Bills of Materials for the Updated Standard Costs shall be modified to reflect any changes in the operating standards resulting from the implementation of such project, without any allocation of expense to Buyer. 3.5.4 Accounting for Project Expenses and Structural Savings. All amounts to be paid by Buyer to Supplier pursuant to this Section 3.5 shall be accounted for by Supplier separately from the Pricing and Adjustment provisions of Sections 3.1 through 3.4, and shall be included on the Quarterly Adjustment/True-Up Summary Report delivered by Supplier to Buyer (itemized according to project) at the end of each Quarter pursuant to Section 3.4.3. *The information contained within these brackets has been omitted and filed separately with the Commission pursuant to a request for Confidential Treatment under Rule 24b-2. -10- 3.6 Supplier's Purchasing Duties; Vendors. Supplier shall use its best efforts to assist Buyer in obtaining the most favorable available prices for raw materials and packaging, including without limitation, flour and butter. To the extent that raw materials and packaging are purchased by Supplier from vendors designated by Buyer, the cost of such raw materials and packaging shall not constitute a failure to satisfy Supplier's obligations under this Section 3.6. Anything to the contrary herein notwithstanding, Supplier shall not change any vendors without the prior consent of Buyer, which consent shall not be unreasonably withheld. Grounds for Supplier to propose terminating a vendor shall include, but not be limited to, the failure of such vendor to supply sufficient quantities of any item purchased by Supplier from the vendor on a timely basis and/or according to required specifications. Neither Supplier nor Buyer shall enter into any formal or informal arrangement or understanding with any vendor (regardless of whether such vendor is an Affiliate of either Supplier or Buyer) by which either Supplier or Buyer receives, directly or indirectly, any rebate, discount or other consideration, unless such arrangement or understanding is fully disclosed to the other and the value of such rebate, discount or other consideration is applied to reduce Base Standard Costs and Updated Standard Costs pursuant to this Agreement. 3.7. Purchase Target Minimums; Purchase Target Deficiency Payments. 3.7.1 Purchase Target Minimums. In each of the first four (4) years of the Term (each a "Year"), Buyer shall purchase, or cause to be purchased, from Supplier an amount of Product that results in Supplier earning a total Upcharge for that Year that is greater than or equal to the applicable Purchase Target. In addition, pursuant to the Purchase Agreement, Supplier has also entered into a bakery product supply agreement with Au Bon Pain, an Affiliate of Buyer, upon terms and conditions similar to those contained in this Agreement, pursuant to which Au Bon Pain is required to purchase a certain amount of bakery products from Supplier during each year of the term of the agreement. To the extent Au Bon Pain exceeds its purchase target during any Year in which Buyer has failed to achieve its Purchase Target, such excess amount of Upcharge earned by Supplier shall be deemed, solely for the purpose of determining whether Buyer has achieved its Purchase Target, to have been earned by Supplier hereunder during such Year. 3.7.2 Purchase Target Deficiency Payments. If, during any Year, Supplier has not earned total Upcharges as part of the Invoice Price for Product in an amount equal to or greater than the Purchase Target for such Year, then Buyer shall pay Supplier, within thirty (30) calendar days of the end of such Year, an amount equal to the Purchase Target less the amount of Upcharge earned by Supplier on Product purchased during such Year as part of the Invoice Price for Product (a "Purchase Target Deficiency Payment"). If the Upcharge earned by Supplier in any Year is less than the Purchase Target for such Year and such deficiency is a result of a Supplier Default or a Force Majeure Event (as defined in Section 19), then the Purchase Target Deficiency Payment shall be reduced to the extent such deficiency was attributable to such Supplier Default or Force Majeure Event. 3.7.3 Maximum Upcharge. Any provision of this Agreement to the contrary notwithstanding, after Supplier has earned a total Upcharge (excluding any Upcharge attributable to New Product) of [ ]*, the Upcharge for each Product Code shall equal [ ]* of the sum of the Base Standard Costs plus a variance equal to [ ]* of such Base Standard Costs, and Buyer and Supplier shall each have the right to terminate this Agreement on not less than twelve (12) months prior notice; provided, however, that Buyer shall have the right to terminate this Agreement on not less than four (4) months prior notice during the first twelve (12) months after such total Upcharge has been earned. *The information contained within these brackets has been omitted and filed separately with the Commission pursuant to a request for Confidential Treatment under Rule 24b-2. -11- 4. Modifications to Product or Bill of Materials; New Product. 4.1 Modifications to Product. (a) Buyer may, from time to time and with reasonable prior notice, direct Supplier to manufacture additional Product, which is not New Product, or to modify existing Product specifications, recipes, formulas and processes. Supplier shall be responsible for implementing manufacturing and supply changes required to accommodate such Product proposals. (b) Subject to Section 2.3, Supplier shall not change any specifications, recipes, formulas, or processes related to Product without Buyer's prior approval. (c) Buyer shall have the right to audit and approve all changes to standard costs reflected in the Bills of Materials, including but not limited to, changes in formulae, processes, ingredients, manning per line, line speeds and yields, structural waste, and units per Case (including any change to a Bill of Materials whereby an operating variance is reclassified into ongoing direct cost). In addition, Buyer shall have the right to audit the transition to any new information system implemented by Supplier to assure the consistent treatment of Base Standard Costs and Updated Standard Costs and other concepts set forth herein. Subject to Section 3.5, Supplier shall be responsible for scaling up and implementing any manufacturing and supply changes required to accommodate any changes to Product. (d) Any provision of this Section 4.1 to the contrary notwithstanding, if Buyer modifies existing Product specifications, recipes, formulas or process, Buyer shall purchase, or cause to be purchased, Supplier's entire inventory of a discontinued Product Code and any ingredients and packaging made obsolete by the discontinuation of such a Product Code; provided, however, that Buyer shall not be obligated to purchase such obsolete inventories or ingredients or packaging in excess of twenty-five percent (25%) of the volume of such ingredients or packaging which has been consumed or used by Supplier in manufacturing such discontinued Product Code during the twelve (12) months immediately preceding its discontinuance. 4.2 New Product. In the event that Buyer develops a New Product, Buyer may solicit bids for the manufacture and supply of New Product from third parties, provided, however, prior to entering into a commitment with a third party to manufacture or supply such New Product, Buyer shall negotiate in good faith with Supplier for Supplier to act as the manufacturer and supplier of such New Product on terms consistent with this Agreement, but with an Upcharge to be mutually agreed upon by Buyer and Supplier. Supplier may, but shall not be obligated to, submit a bid to Buyer to manufacture or supply any New Product. Although Buyer shall offer Supplier an opportunity to bid to be the supplier of such New Product, such opportunity is not, and shall not be deemed to be, a right of first negotiation, a right of first refusal, nor a right of last refusal. If a New Product is manufactured and supplied by Supplier, such New Product shall become Product and, then to the extent purchased, an agreed-to upcharge shall be credited toward Buyer's Purchase Target obligation. Notwithstanding anything contained herein to the contrary, Supplier shall not be required to develop or fund the development of any New Product. 5. Duty to Supply: 5.1 Reliability. Supplier recognizes the importance of a reliable source of supply of Product to Buyer's System. Subject to the terms of this Agreement, Supplier shall use its best efforts to manufacture and supply one hundred percent (100%) of the Product requirements of Buyer's System by maintaining adequate inventory levels of Product with each Distributor. Buyer shall provide Supplier -12- with reasonable advance notice of any special promotions or other events that would reasonably be expected to materially affect the demand for and the need for additional Product. 5.2 Failure to Supply. In the event that: (a) Supplier fails to supply the members of Buyer's System with their respective Product requirements and such failure is not attributable to an act or failure to act by Buyer, a Distributor or a member of Buyer's System, then Buyer shall have the right to purchase Product from sources other than Supplier to the extent Supplier is unable to supply such Product, provided that Buyer gives Supplier prior or contemporaneous notice thereof; and (b) Supplier fails to supply Product (other than New Product or additional or modified Product as contemplated by Section 4.1 and Section 4.2 in its first ninety (90) days of supply by Supplier) and such failure results in a Stock-out Shortage, then Supplier shall pay to Buyer an amount equal to the then-current full retail price of each Case of such undelivered Product less the Invoice Price of each Case of such undelivered Product (the "Shortage Fee"); provided, however, that no Shortage Fee shall be payable to Buyer if: (i) the Stock-out Shortage is due to a failure by a Distributor to order timely such Product in sufficient quantities or to take timely delivery of such Product or provide Supplier with accurate information regarding inventory management; (ii) the Stock-out Shortage is due to a failure to provide notice to Supplier required by Section 2.3, Section 4.1 or Section 5.1; (iii) the cumulative amount of Stock-out Shortages in any calendar quarter is less than one-half of one percent (0.5%) of the total number of Cases of all Product Codes shipped by such Distributor to Buyer's System in such quarter; (iv) the Stock-out Shortage is due to an increase in the number of Cases of any Product Code ordered by members of Buyer's System during any fourteen (14) consecutive days which is more than ten percent (10%) above the rolling two (2) week average number of Cases ordered during the twelve (12) weeks immediately preceding such fourteen (14) days; (v) the Stock-out Shortage is due to a failure to receive one or more ingredients from a vendor through no fault of Supplier and Supplier promptly notifies Buyer of any such failure to receive an ingredient from the vendor; or (vi) the Stock-out Shortage is due to a Force Majeure Event. The Shortage Fee payable hereunder shall constitute liquidated damages and Supplier shall not be liable to Buyer, the Distributors or members of Buyer's System for any other damages, so long as the events described in this Section 5.2 do not otherwise constitute a Supplier Default pursuant to Section 15.1. 6. Place of Manufacture: Supplier shall manufacture all Product at the Plant and supply all Product from the Plant, provided, however, that Supplier may manufacture Product at facilities other than the Plant and supply Product from facilities other than the Plant if: (i) Supplier obtains Buyer's prior written approval; and (ii) Buyer is provided the same access to such other facilities and such other facilities' employees and books and records as Buyer has with respect to the Plant. Buyer's approval or disapproval shall be based upon the impact the new facility is expected to have upon Product, including, among other things, its quality and consistency, and the Invoice Price and adjustments thereto. Title to Product and risk of loss shall pass to a Distributor or Independent Operator (as defined in Section 7.5), as the case may be, when Product is physically received by such Distributor or Independent Operator. 7. Distributors: 7.1 Supplier's Rights. Each Distributor and Independent Operator (as defined in Section 7.5) shall be, at all times, creditworthy and reasonably satisfactory to Supplier. Supplier shall be entitled to suspend supply of Product to any Distributor or Independent Operator upon as much prior -13- notice as is reasonably practical to Buyer if Supplier, in its sole discretion, determines such Distributor or Independent Operator is not creditworthy or has failed to perform in a commercially reasonable manner. If the sole reason for such suspension is the creditworthiness of a Distributor or Independent Operator, Buyer may avoid the suspension by providing to Supplier a guarantee of the performance of such Distributor or Independent Operator in substantially the form provided in Exhibit 7.1. 7.2 Appointment. If Buyer desires to appoint a new or alternate Distributor, Buyer shall submit the name and business address of such proposed Distributor to Supplier along with such other information as Supplier may reasonably request. Supplier shall thereafter have thirty (30) calendar days in which to approve or disapprove the appointment of such Person as a Distributor. If Supplier disapproves the appointment, Supplier shall provide Buyer with notice of the reason or reasons for such disapproval within such thirty-days, and if the sole reason for disapproval is the creditworthiness of such Distributor then Buyer may, at Buyer's sole discretion, obtain immediate approval of such Distributor by providing to Supplier a guarantee of the performance of such Distributor in substantially the form provided in Exhibit 7.1. If Supplier fails to provide Buyer with notice of disapproval within such thirty-days, then Supplier shall be deemed to have approved the appointment of such Person as a Distributor. 7.3 Default. If a Distributor or an Independent Operator materially defaults in its obligations to Supplier, including without limitation, by failing to pay Supplier for Product in accordance with the terms agreed upon by Supplier and such Distributor or Independent Operator, Supplier shall have the right to suspend supply of Product to such Distributor or Independent Operator upon as much prior notice to Buyer as is reasonably practical, provided, however, such Distributor, Independent Operator or Buyer or a member of Buyer's System shall have the right to cure such default. Subject to Section 7.2, Buyer shall have the right to replace a defaulting Distributor with an alternate Distributor. In case of suspension or pending suspension of supply of Product to a Distributor or an Independent Operator under Section 7.1 or Section 7.3, Supplier shall cooperate with Buyer and Buyer's System to avoid any disruption of supply to Buyer's System. 7.4 Alternative Pricing for Certain Distributors. Any provision of this Agreement to the contrary notwithstanding, from time to time during the Term, Buyer may direct Supplier to invoice certain Distributors at a price higher than the Invoice Price (an "Additional Amount"). In such case, Supplier shall remit to Buyer within ten (10) business days after the end of each Period the Additional Amounts invoiced and received by Supplier. Except for the remittance by Supplier of the Additional Amounts, all other terms and conditions of this Agreement with respect to the manufacture and supply of Product to such Distributors shall remain in effect, including, without limitation, the adjustments contemplated in Section 3.4. 7.5 Direct Distribution. Certain members of Buyer's System ("Independent Operators") may, with Buyer's approval, purchase Product through Buyer without using a Distributor. Supplier shall supply Product to such Independent Operators designated by Buyer on terms and conditions to be negotiated and agreed upon between such Independent Operators and Buyer, and on payment terms to be determined in accordance with Supplier's credit policy. -14- 8. Quality Assurance: 8.1 Inspection. Upon demand, Buyer shall have the right, without prior notice and during operating hours, to inspect the Plant (and all other facilities where Product is manufactured) and to observe the Product manufacturing process. Buyer shall also have the right, upon reasonable notice, to escort its franchisees (and such other Persons as are approved by Supplier) through the Plant during operating hours to observe the Product manufacturing process. 8.2 Quality Assurance Program. Buyer shall establish with Supplier a mutually acceptable quality assurance program, which program shall, among other things, provide Buyer's management with reasonable and meaningful access to Supplier and its employees in charge of Product. Buyer shall have the right, at its sole option and expense, to station a full-time quality assurance representative at the Plant who shall have the authority to accept or reject Product prior to its shipment. Product may only be rejected if it fails to comply with the Product specifications provided to Supplier. Any quality assurance representative shall, at all times, be reasonably acceptable to Supplier. Neither the presence of a quality assurance representative at the Plant on behalf of Buyer, nor the failure of such representative to reject Product prior to shipment, shall in any way modify Supplier's obligations to manufacture and ship Product according to Product specifications pursuant to Section 2.3. 9. Representations and Warranties of Supplier: Supplier represents and warrants to Buyer that: 9.1 Organization and Good Standing. Supplier has been duly organized and is existing as a corporation in good standing under the laws of the State of Delaware, and is qualified and in good standing as a foreign corporation in the State of Missouri, with full corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. 9.2 Supplier Organization. Supplier is a wholly owned subsidiary of Bunge Corporation. Supplier has provided to Buyer a copy of the Dun & Bradstreet report on Bunge Corporation, certified by the Treasurer of Bunge Corporation to be materially true and correct with respect to financial information contained therein, a copy of which is attached hereto as Exhibit 9.2. 9.3 Execution and Delivery. All consents, approvals, authorizations and orders necessary for the execution, delivery and performance by Supplier of its obligations hereunder have been obtained. This Agreement has been duly authorized by all necessary corporate action on the part of Supplier, has been duly executed and delivered by Supplier, and constitutes the legal, valid and binding obligation of Supplier enforceable against Supplier in accordance with its terms, except as such enforcement is limited by bankruptcy, insolvency and other similar laws affecting the enforcement of creditors' rights generally and by general equitable principles. 9.4 No Conflicts. Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will (i) violate any provision of the corporate charter or bylaws of Supplier or (ii) conflict with, or result (immediately or upon the giving of notice or the passage of time or both) in a breach or any violation of or any default under, or give rise to a right of modification, termination, cancellation or acceleration of any obligation or to a loss of a benefit under, any agreement, mortgage, indenture, lease, instrument, permit, concession, franchise, license or other agreement, or any statute, or any order, writ, injunction or decree of any court, governmental body or agency or instrumentality thereof, or any arbitrator having jurisdiction over Supplier or any of its assets, to which Supplier is a party or to which its properties or assets may be bound, other than such conflicts, violations or defaults or possible modifications, terminations, cancellations or accelerations which -15- individually or in the aggregate do not and will not have a material adverse effect on Supplier or its ability to consummate the transactions contemplated hereby. 9.5 Litigation. There is no legal action, suit, arbitration or other legal, administrative or governmental investigation, inquiry or proceeding (whether local or foreign) pending or, to the knowledge of Supplier, threatened against or affecting Supplier or its respective properties, assets or businesses, nor, to the knowledge of Supplier, does any basis therefor exist and Supplier is not in default with respect to any order, writ, judgment, injunction, decree, determination or award of any court or of any governmental agency or instrumentality (whether domestic or foreign) which, in each case, would materially impact upon Supplier's obligations hereunder or Supplier's ability to perform its obligations hereunder. 9.6 Disclosure. No representation or warranty of the Supplier in this Agreement and no information contained in any Schedule or other writing delivered by Supplier pursuant to this Agreement contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact required to make the statements herein or therein not misleading. To the knowledge of Supplier after due inquiry, there is no fact that Supplier has not disclosed to Buyer in writing that materially adversely affects, nor insofar as Supplier can now foresee, will materially adversely affect Supplier's ability to perform fully this Agreement. 9.7 Fees, Expenses and Commissions. Except for a fee payable solely by Supplier to Chapman Partners, Inc., in connection with the Purchase Agreement, Supplier has taken no action and has entered into no agreement, understanding or other arrangement that would obligate Supplier or Buyer to pay any broker's or finder's fee or any other similar fee or commission to any agent, broker, investment banker or other firm or person in connection with any of the transactions contemplated by this Agreement. 10. Representations and Warranties of Buyer: Buyer hereby represents and warrants to Supplier that: 10.1 Organization and Good Standing. Buyer has been duly organized and is existing as a corporation in good standing under the laws of the State of Delaware, with full corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. 10.2 Execution and Delivery. All consents, approvals, authorizations and orders necessary for the execution, delivery and performance by Buyer of its obligations hereunder have been obtained. This Agreement has been duly authorized by all necessary corporate action on the part of Buyer, has been duly executed and delivered by Buyer and constitutes the legal, valid and binding obligation of Buyer enforceable against Buyer in accordance with its terms, except as such enforcement is limited by bankruptcy, insolvency and other similar laws affecting the enforcement of creditors' rights generally, and by general equitable principles. 10.3 No Conflicts. Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will (i) violate any provision of the Certificate of Incorporation or bylaws of Buyer, in each case as amended, or (ii) conflict with, or result (immediately or upon the giving of notice or the passage of time or both) in a breach or any violation of or any default under, or give rise to a right of modification, termination, cancellation or acceleration of any obligation or to a loss of a benefit under, any agreement, mortgage, indenture, lease, instrument, permit, concession, franchise, license or other agreement, or any statute, or any order, writ, injunction or decree of any court, governmental body or agency or instrumentality thereof, or any arbitrator having -16- jurisdiction over Buyer or any of its assets, to which Buyer is a party or by which its properties or assets may be bound, other than such conflicts, violations or defaults or possible modifications, terminations, cancellations or accelerations which individually or in the aggregate do not and will not have a material adverse effect on Buyer or its ability to consummate the transactions contemplated hereby. 10.4 Litigation. There is no legal action, suit, arbitration or other legal, administrative or governmental investigation, inquiry or proceeding (whether local or foreign) pending or, to the knowledge of Buyer, threatened against or affecting Buyer or its properties, assets or businesses, nor, to the knowledge of Buyer, does any basis therefor exist and Buyer is not in default with respect to any order, writ, judgment, injunction, decree, determination or award of any court or of any governmental agency or instrumentality (whether domestic or foreign) which, in each case, would materially impact upon Buyer's obligations hereunder or Buyer's ability to perform its obligations hereunder. 10.5 Disclosure. No representation or warranty of the Buyer in this Agreement and no information contained in any Schedule or other writing delivered by Buyer pursuant to this Agreement contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact required to make the statements herein or therein not misleading. To the knowledge of Buyer after due inquiry, there is no fact that Buyer has not disclosed to Supplier in writing that materially adversely affects, nor insofar as Buyer can now foresee, will materially adversely affect Buyer's ability to perform fully this Agreement. 10.6 Fees, Expenses and Commissions. Except for fees payable solely by Buyer to Brent Baxter Enterprises, LLC and Peter J. Solomon Company Limited in connection with the Purchase Agreement, Buyer has taken no action and has entered into no agreement, understanding or other arrangement that would obligate Buyer or Supplier to pay any broker's or finder's fee or other similar fee or commission to any agent, broker, investment banker or other firm or person in connection with any of the transactions contemplated by this Agreement. 11. Additional Covenants of Supplier: In addition to the other obligations of Supplier under this Agreement, Supplier covenants that during the Term (including any extensions or renewals thereof, unless expressly provided otherwise): 11.1 Product. Except as provided herein, during the Term and for one (1) year thereafter, Supplier shall not, either directly or indirectly, supply any Product or any substitute for Product to any bakery/cafe included in Buyer's System. 11.2 Operations; Compliance with Standards and Law. Subject to the provisions of this Agreement, Supplier shall operate the Plant (and all other facilities that manufacture Product which are approved by Buyer) and manufacture Product in accordance with good manufacturing practices and manufacture and supply Product in accordance with the recipes, formulas, processes, and Product specifications (including as to vendors) established by Buyer and in accordance with all applicable laws, rules and regulations, statutes, ordinances, regulations, orders and bylaws. 11.3 Distributor Obligations. Subject to Section 7, Supplier shall not terminate its obligation to supply Buyer's System nor shall Supplier withhold delivery of Product from any non-defaulting member of Buyer's System or any non-defaulting Distributor due to nonpayment or other default by a Distributor or a member of Buyer's System. 11.4 Ownership of the Plant. Without limiting Buyer's rights pursuant to Section 15, during the Term (but excluding any extensions or renewals thereof), if Supplier shall sell, transfer or license any -17- part of the Plant or enter into any agreement or arrangement that would have the effect of transferring operational control of the Plant to a third party, Supplier shall cause such third party to assume, for the benefit of Buyer, all obligations of Supplier hereunder. 11.5 Efficiency of Operation. Subject to Buyer's right to designate vendors and processes, Supplier shall use its best efforts to operate the Plant at optimal efficiency and to perform its other responsibilities hereunder, including, without limitation, purchasing raw materials, contracting for labor and arranging for freight in an efficient, cost effective and professional manner. 11.6 Cooperation with Inspections. Supplier shall cooperate with Buyer in any investigation or inspection by any governmental agency or by Buyer relating to the Plant or Product which involves health, safety or product liability issues. 11.7. Non-Solicitation. Supplier shall not, directly or indirectly, during the Term and, so long as this Agreement is not terminated by Supplier as a result of a Buyer Default, for one year thereafter, solicit or hire any employee of Buyer, unless the employment of such employee has been terminated by Buyer, or Buyer consents thereto. 11A. Additional Covenants of Buyer: In addition to the other obligations of Buyer under this Agreement, Buyer covenants that during the Term (including any extensions or renewals thereof, unless expressly provided otherwise): 11A.1 Compliance with Standards and Law. Buyer shall comply with all applicable laws, rules and regulations, statutes, ordinances, regulations, orders and bylaws, including, without limitation, antitrust and franchise laws. 11A.2 Distributor Obligations. Buyer shall not terminate its obligation to purchase, or cause to be purchased, Product from Supplier due to nonpayment or other default by a Distributor. 11A.3 Transfer of Interest. If Buyer shall enter into any agreement or arrangement that would have the effect of transferring operational control of Buyer or Buyer's System to a third party, Buyer shall cause such third party to assume, for the benefit of Supplier, all obligations of Buyer or Buyer's System, as the case may be, hereunder. 11A.4 Product Usage: Buyer shall use its best efforts to provide Supplier with timely information with respect to Product usage. 11A.5 Cooperation with Inspections. Buyer shall cooperate with Supplier in any investigation or inspection by any governmental agency or by Supplier relating to the Plant or Product which involves health, safety or product liability issues. 11A.6 Non-Solicitation. Buyer shall not, directly or indirectly, during the Term, so long as this Agreement is not terminated by Buyer as a result of a Supplier Default, and for one year thereafter, solicit or hire any employee of Supplier or Bunge Corporation, unless the employment of such employee has been terminated by Supplier or Bunge Corporation, as the case may be, or Supplier or Bunge Corporation, as the case may be, consents thereto. 12. Insurance: During the Term (and any extension thereof), Supplier shall be required to obtain and maintain insurance policies, in the amounts set forth on Schedule 12. With respect to the Commercial General Liability and Umbrella policies, Buyer shall be named as an additional insured. -18- During the Term and (any extension thereof), Buyer shall obtain and maintain insurance policies, in the amounts set forth on Schedule 12. With respect to the Commercial General Liability and Umbrella policies, Supplier and Bunge Corporation shall be named as additional insureds. All insurance policies required by this Section 12 shall be obtained from recognized insurance carriers with an A.M. Best rating of "A-" or better. 13. Confidentiality/Ownership: 13.1 Proprietary Information. As used in this Agreement, the term "Proprietary Information" shall mean any knowledge or information, written or oral, which relates in any manner to the respective businesses of Buyer and Supplier which is confidential and proprietary information of the Disclosing Party (as defined below), whether disclosed prior to, on or after the date of this Agreement, including, without limitation, the recipes, formulas, specifications, manufacturing processes, preparation procedures, financial information, equipment, marketing methods, demographic and trade information, customer profiles and preferences, costs, development plans, products and production techniques and all related trade secrets and proprietary information treated as such by the Disclosing Party, whether by course of conduct, by letter or report, or by the use of an appropriate stamp or legend designating such information to be confidential or proprietary. As used herein, the term "Disclosing Party" shall mean the party to this Agreement which discloses or makes available Proprietary Information to the Receiving Party, and the term "Receiving Party" shall mean the party to this Agreement to whom Proprietary Information is disclosed or made available by the Disclosing Party. 13.2 Restrictions on Use. The Receiving Party shall hold all Proprietary Information in confidence, shall use such Proprietary Information only for the benefit of the Disclosing Party and disclose such Proprietary Information only to the Receiving Party's officers, directors, employees and agents in order to assist the Receiving Party in performing its obligations under this Agreement. The Receiving Party shall not disclose Proprietary Information to any other Person, provided, however, the Receiving Party may disclose Proprietary Information to a corporate Affiliate of the Receiving Party if such Affiliate first agrees in writing to be bound by the covenants contained in this Agreement with respect to the use and nondisclosure of Proprietary Information. 13.3 Ownership. Subject to the terms and conditions of the Purchase Agreement, ownership of all Proprietary Information relating to all recipes, formulas, specifications, manufacturing processes or preparation procedures, demographic and trade information, customer profiles and preferences, costs, development plans, products and production techniques and any other trade secrets and information used to make Product (including, without limitation, information related to the cost of Product) shall remain solely the property of Buyer, regardless of whether developed or modified by Buyer or Supplier. In manufacturing bakery products other than pursuant to this Agreement, Supplier shall use product codes and product names for product which are separate and distinct from those used for Product manufactured for Buyer. 13.4 Exceptions. The obligations and prohibitions set forth in this Section 13 shall not apply to any Proprietary Information that is required to be disclosed by applicable law or that is shown, by preexisting documentary evidence or other reliable evidence, to be information: (i) that was known by the Receiving Party prior to the exchange of information in contemplation of this Agreement; (ii) entered into the public domain other than through the act of the Receiving Party; (iii) is independently developed by the Receiving Party; or (iv) is rightfully received by the Receiving Party from a third party who is not obligated to the Disclosing Party to keep such information confidential. -19- 13.5 Protected Signature Product; Competitors. If Buyer licenses to Supplier the right to manufacture and sell any Product to any Person other than to a Distributor or to Buyer's System, then Supplier shall, in any event, be prohibited from: (i) using Buyer's trademarks, trade names, trade secrets and trade dress; and (ii) selling to any third-party any "Protected Signature Product," which is set forth on Schedule 13.5(a). In addition, Supplier shall not manufacture or sell any dough product manufactured on any of the production lines identified in the definition of Product in Section 1 to any Competitor. For the purpose of this Section 13.5, the term "Competitor" shall mean any of the retail operations listed on Schedule 13.5(b) and any retail operation with at least one hundred (100) stores that sell baked goods and coffee, where such sales of baked goods and coffee represent thirty percent (30%) or more of such retail operation's total annual sales revenue. Nothing contained herein shall prevent Supplier from selling any baked, par-baked or pre-proofed bakery products to any Competitor or other customer of Supplier, so long as: (1) such bakery products are materially different in formulation from any Product manufactured by Supplier for Buyer hereunder, and (2) Supplier agrees to manufacture Buyer's own baked, par-baked or pre-proofed bakery products which are within the product categories listed on Schedule 1.5 and introduced by Buyer as additional Product with an Upcharge as provided in the definition of "Upcharge" in Section 1. 14. Opportunities/Conflicts of Interest: Except as otherwise set forth in this Agreement: (i) neither party shall have any rights in or to the business activities of the other party, nor to the income or profits derived therefrom; (ii) neither party shall be obligated to offer any investment or other business opportunity to the other party; and (iii) neither party shall have any duty, fiduciary or otherwise, to afford the other party any opportunity to participate in such activities. 15. Termination: 15.1 Supplier Default. The obligations to purchase Product under this Agreement may be terminated by Buyer if any one or more of the following events occur (each a "Supplier Default"): (a) If Supplier files a petition for adjudication as a bankrupt, for reorganization or for an arrangement under any bankruptcy or insolvency law, or if any involuntary petition under such law is filed against Supplier and is not dismissed within thirty (30) days thereafter; then, so long as any such event is continuing, Buyer may by notice in writing to Supplier terminate its obligations to purchase all or a portion of Product forthwith; (b) If Supplier makes an assignment of all or substantially all of its assets for the benefit of creditors, or if Supplier's interest under this Agreement shall be taken upon execution; (c) If Supplier fails to perform any material covenant or material obligation including, but not limited to, the payment of any amounts due to Buyer; provided, however, that no termination shall be made hereunder unless and until Buyer gives Supplier notice of such failure to perform and Supplier has not cured such failure within thirty (30) days after its receipt of such notice, or ten (10) days in the case of failure to make payment of any amounts due to Buyer; or (d) There is a change of ownership or control of Supplier or Supplier transfers its interest in the Plant to a third party (in either case, other than to an Affiliate of Supplier), or if Bunge Corporation terminates its guaranty provided below; provided, however, that Buyer's exclusive remedy upon the occurrence of such an event in the absence of Buyer's prior written consent to any such event (and without limiting Buyer's remedies in the event of any other Supplier Default) shall be limited to the right to terminate this Agreement. -20- 15.2 Cancellation Fee. In the event of a Supplier Default, which, if subject to cure, is not timely cured, then no rights or remedies otherwise available to the parties upon such termination shall be deemed surrendered, except in the case of a Supplier Default under Section 15.1(d) in the case of which Buyer's sole remedy shall be to terminate this Agreement. In addition to all other rights and remedies granted herein to either party, and in addition to all other rights and remedies each party may have at law, in equity or otherwise, in the event that if this Agreement is terminated due to Supplier Default (excluding a Supplier Default under Section 15.1(d)), Supplier shall pay to Buyer a cancellation fee (the "Supplier's Cancellation Fee") in an amount equal to [ ]* per year for each year remaining in the first four (4) years of the Term, pro rated for any partial such year remaining in the Term upon the effective date of termination. If Buyer elects to terminate due to a Supplier Default, then Supplier's Cancellation Fee shall be payable to Buyer in full within thirty (30) days following the effective date of termination. 15.3 Buyer Default. The obligations to manufacture and supply Product under this Agreement may be terminated by Supplier if any one or more of the following events occur (each a "Buyer Default"): (a) Buyer files a petition for adjudication as a bankrupt, for reorganization or for an arrangement under any bankruptcy or insolvency law, or if any involuntary petition under such law is filed against Buyer and is not dismissed within thirty (30) days thereafter; then, so long as any such event is continuing, Supplier may by notice in writing to Buyer terminate its obligations to manufacture or supply all or a portion of Product forthwith; (b) Buyer makes an assignment of all or substantially all of its assets for the benefit of creditors, or if Buyer's interest under this Agreement shall be taken upon execution; (c) Buyer fails to perform any material covenant or material obligation including, but not limited to, the payment of any amounts due to Supplier from Buyer; provided, however, that no termination may be made hereunder unless and until Supplier gives Buyer written notice of such failure to perform and Buyer has not cured such failure within thirty (30) days after its receipt of such notice, or ten (10) days in the case of failure to make payment of any amounts due to Supplier; or (d) There is a change of ownership or control of Buyer and the entity assuming ownership or control fails to assume Buyer's obligations under this Agreement as contemplated by Section 11A.3. 15.4 Cancellation Fee. In the event of a Buyer Default (excluding a Buyer Default under Section 15.3(d)), which, if subject to cure, is not timely cured, then no rights or remedies otherwise available to the parties upon such termination shall be deemed surrendered. In addition to all other rights and remedies granted herein to either party, and in addition to all other rights and remedies each party may have at law, in equity or otherwise, in the event that this Agreement is terminated due to a Buyer Default, Buyer shall pay to Supplier a cancellation fee (the "Buyer's Cancellation Fee") in an amount equal to [ ]* per year for each year remaining in the first four (4) years of the Term, pro rated for any partial such year remaining in the Term upon the effective date of termination. If Buyer elects to terminate due to a Buyer Default, then Buyer's Cancellation Fee shall be payable to Supplier in full within thirty (30) days following the effective date of termination. *The information contained within these brackets has been omitted and filed separately with the Commission pursuant to a request for Confidential Treatment under Rule 24b-2. -21- 15.5 Effect of Termination (a) Termination of this Agreement, whether by lapse of time, mutual consent, operation of law, exercise of right of termination or otherwise shall not affect the ownership interests in the respective proprietary rights and other rights of the parties, but shall only affect any obligations of the parties to continue to cooperate in the manufacturing, supply and purchase of Product. (b) Upon termination of this Agreement by lapse of time or mutual consent, Supplier shall complete the manufacture and supply of Product to fill any outstanding orders that are deliverable within thirty (30) days of such termination and Buyer shall purchase, or cause to be purchased, such Product. (c) Notwithstanding any termination of this Agreement, all provisions regarding: (i) the sharing of costs between the parties; (ii) the ownership, non-use, or protection of Proprietary Information; (iii) indemnification, (iv) representations of the parties being true as of the time made; and (v) any obligations of either party to the other contained herein which, by their nature, should reasonably extend beyond the termination of any regular ongoing business relationship between the parties as contemplated by this Agreement, shall survive such termination. 16. Information and Audit Rights of Buyer: 16.1 Books and Records. Supplier shall maintain, in accordance with generally accepted accounting principles consistently applied, accurate and complete books and records with respect to all Base Standard Costs and Updated Standard Costs and freight costs relating to Product. 16.2 Rights to Audit; Rights to Inspect. Upon reasonable prior notice, Buyer shall have the right, during normal business hours, to inspect and audit the books and records of Supplier relating solely to the calculation of Invoice Price and adjustments thereto. 16.3 Certain Information. Upon Buyer's written request, Supplier shall provide information in its control concerning the manufacturing and supply of Product, including, without limitation, sources of raw materials used in Product and information on Supplier's maintenance of confidential information relating to Buyer. 17. Remedies: The relationship between Supplier and Buyer, which is reflected in this Agreement, is special and unique and has a value which cannot be readily measured in monetary terms. Therefore, in the event of any breach or threatened breach by either party, the other party shall be entitled to seek both legal and equitable relief, including, without limitation, temporary, preliminary and permanent injunctive relief, to restrain such breach or threatened breach and to mandate compliance with the terms set forth herein. 18. Indemnification: Supplier will at all times indemnify, defend and hold harmless Buyer from and against any and all claims, damages, liabilities, costs and expenses, including reasonable counsel fees, arising out of (i) any failure by Supplier to perform its obligations hereunder; and (ii) the supply of Product by Supplier that is not in compliance with the Product specifications. Buyer will at all times indemnify, defend and hold harmless Supplier from and against any and all claims, damages, liabilities, costs and expenses, including reasonable counsel fees, arising out of (i) any failure by Buyer to perform its obligations hereunder; (ii) any claim for infringement or violation with any patent or trade secret of -22- any third party, to the extent such claim is attributable to use by Supplier of the recipes, formulae, processes and specifications provided to Supplier by Buyer; and (iii) any claim or action by any third-party alleging infringement or violation of, or conflict with, any trademarks, tradenames or trade dress, to the extent such claim or action is attributable to the use of such trademarks, tradenames or trade dress used in accordance with Buyer's specifications. Prompt written notice of any claim or litigation hereunder shall be given to either party, as the case may be, by the other party. The indemnifying party shall have the right to control the defense of the claim at its expense. The indemnified party shall have the right, but not the obligation, to participate in the defense of any claim. There shall be no settlement of any claim to which an indemnity relates without the prior written consent of the indemnitor, which consent shall not be unreasonably withheld or delayed. If a third party brings an action against either party and there is a dispute between Buyer and Supplier as to who is responsible for defending such action, then, until such dispute is resolved, Buyer and Supplier shall cooperate so as not to jeopardize the defense of such action. 19. Force Majeure: Neither party shall be responsible for any resulting loss to the other party if the fulfillment of any of the terms or provisions of this Agreement is delayed or prevented by strikes, work stoppages and labor unrest (other than with respect to strikes, work stoppages and labor unrest that occurs at the Plant at any time after six (6) months after the date hereof), transportation stoppages, ingredient shortages not the fault of Supplier, riots, wars, acts of enemies, national emergency, floods, fires, acts of God, or by any other cause not within the control of the party whose performance is interfered with or which, by the exercise of reasonable diligence, such party is unable to prevent (individually and collectively, a "Force Majeure Event"). Upon the occurrence of a Force Majeure Event, the party claiming force majeure shall notify the other party forthwith and both parties shall use their reasonable best efforts to mitigate or eliminate any adverse effects of such event. 20. Relationship of Parties: Supplier and Buyer are each independent contractors. Nothing herein contained shall be construed to place Supplier and Buyer in the relationship of principal and agent, master and servant, partners, joint venturers, and, except as otherwise set forth in this Agreement, neither party shall have, expressly or by implication, the power to represent itself as having any authority to make contracts in the name of or binding upon the other, or to obligate or bind the other in any manner whatsoever. 21. Consents; Notices: Unless otherwise specifically set forth herein, any notice, consent or approval of a party shall be in writing and given by telecopier and original posted first class mail, postage prepaid, within two (2) business days thereafter; or by certified or registered mail with an acknowledgment of receipt, postage prepaid, return receipt requested; or by a reputable private courier, such as Federal Express, which provides evidence of receipt as a part of its delivery service, and addressed as follows: If to Buyer: Saint Louis Bread Company, Inc. 19 Fid Kennedy Avenue Marine Industrial Park Boston, MA 02210-2497 Attn: Chief Executive Officer telecopier (617) 423-7879 -23- with copy to: Walter D. Wekstein, Esq. Lawrence R. Katz, Esq. Gadsby & Hannah LLP 225 Franklin Street Boston, MA 02110 telecopier (617) 345-7050 If to Supplier: Bunge Foods Corporation 3701 Algonquin Road, Suite 360 Rolling Meadows, IL 60008 Attn: General Manager telecopier (847) 342-0029 with a copy to: Bunge Corporation 11720 Borman Drive St. Louis, MO 63146 Attn: Legal Department telecopier (314) 994-6521 or to such other address as may be designated in writing by either party from time to time in accordance herewith, and shall be deemed delivered two (2) business days following delivery by hand, by private courier or when so telecopied and five (5) business days following proper dispatch by certified or registered mail. A business day is any Monday through Friday on which first class mail is delivered. 22. Arbitration: If a dispute arises under this Agreement, the parties shall submit their dispute to arbitration under the jurisdiction and in accordance with the rules of the American Arbitration Association (the "Association") located in Boston, Massachusetts or at any other mutually agreeable location. The parties shall be bound by the decision of the arbitrator(s). Notwithstanding the foregoing, the arbitrator(s) shall not have the authority to modify any express provision of this Agreement. Moreover, and notwithstanding the provisions of this Section 22 or anything else to the contrary contained in this Agreement, each party shall have the right to seek injunctive or equitable relief in a court of competent jurisdiction in addition to or in lieu of its rights pursuant to this section. 23. Assignees and Third Parties: Subject to Buyer's rights in Article 15, this Agreement may be assigned by Supplier to a third party which acquires all or substantially all of the assets of Supplier or the Plant which agrees to be assume and be bound by this Agreement. This Agreement may be assigned by Buyer to an entity which acquires all or substantially all of Buyer's retail bakery/cafe outlets and which agrees to assume and be bound by this Agreement as provided in Section 11A.3. 24. Choice of Law: This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Missouri, as applicable to agreements executed and entirely performed in said State. 25. Attorneys' Fees: If any action or proceeding is brought to enforce or interpret any provision of this Agreement then, in addition to any other relief to which the prevailing party may be entitled, the prevailing party shall be entitled to recover its reasonable costs and attorneys' fees. -24- 26. Severability: If any term or provision of this Agreement is determined by a court of competent jurisdiction to be invalid illegal or incapable of being enforced by any law or public policy, all other terms or provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to the other parties. 27. Modification; Waivers: This Agreement (including the Schedules and Exhibits hereto) may be modified or amended only with the written consent of each party hereto. No party hereto shall be released from its obligations hereunder without the written consent of all of the other parties. The observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively) by the party entitled to enforce such term, but any such waiver shall be effective only if in a writing signed by the party against whom such waiver is to be asserted. Except as otherwise specifically provided herein, no delay on the part of any party hereto in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any waiver on the part of any party hereto of any right, power or privilege hereunder operate as a waiver of any other right, power or privilege hereunder nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder. 28. Headings: The headings of the articles, sections and other subdivisions of this Agreement are for convenient reference only. They shall not be used in any way to govern, limit, modify, construe this Agreement or any part or provision thereof nor otherwise be given any legal effect. 29. Succession: This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and other legal representatives and, to the extent that any assignment hereof is permitted hereunder, their assignees. 30. Counterparts: This Agreement may be executed in counterparts. Each counterpart, including a signature page executed by each of the parties hereto, shall be an original counterpart of this Agreement, but all of such counterparts together shall constitute one (1) instrument. 31. Additional Documents: Each party agrees to provide any additional documents reasonably requested by the other party in order to carry out the purpose and intent of this Agreement. 32. Approvals; Consents: Unless otherwise specifically set forth herein, the approvals and consents that are required or permitted herein shall not be unreasonably withheld or delayed. 33. Entire Agreement: This Agreement (including the Schedules and Exhibits hereto) contains the full and complete undertaking and agreement between Buyer and Supplier with respect to the within subject matter, and supersedes all other agreements between Buyer and Supplier, whether written or oral, -25- except any confidentiality agreements between the parties, which shall, to the extent such agreements do not contradict the terms of this Agreement, continue in effect. IN WITNESS WHEREOF, the parties hereto have set their hands to this Agreement as a sealed instrument and have delivered this Agreement as of the day and year first above written. BUNGE FOODS CORPORATION, a Delaware corporation By: /s/ Michael M. Scharf --------------------- Its: Senior Vice President SAINT LOUIS BREAD COMPANY, INC., a Delaware corporation By: /s/ Anthony J. Carroll ---------------------- Its: Vice President and Treasurer Bunge Corporation Guaranty: In order to induce Buyer to execute and deliver the foregoing Agreement, Bunge Corporation, a New York corporation, hereby unconditionally guarantees to Buyer that it shall cause Supplier, a wholly-owned subsidiary of Bunge Corporation, to fulfill each and every obligation of Supplier under this Agreement, and in connection therewith and not in limitation of the foregoing, Bunge Corporation hereby unconditionally guarantees to Buyer, the prompt payment by Supplier of all amounts at any time due by Supplier to Buyer pursuant to this Agreement, whether in the ordinary course of operations, arising as a result of a Supplier Default or otherwise. This guaranty shall terminate if Supplier shall cease to be an Affiliate of Bunge Corporation or if the Plant is sold or the ownership of the Plant is otherwise transferred to a third-party who is not an Affiliate of Bunge Corporation. BUNGE CORPORATION, a New York corporation By: /s/ Michael M. Scharf --------------------- Its: Senior Vice President -26- Index of Schedules and Exhibits to Bakery Product Supply Agreement by and between Bunge Foods Corporation and Saint Louis Bread Company, Inc. dated as of March 23, 1998 Schedule* Title - --------- ----- 1.1 Methodology for Calculating Employee Benefits Allowance 1.2 Schedule of Wage Rates and Employee Benefits 1.4 Description of Employee Benefits 1.5 Product Categories 1.6 Purchase Targets 2.3 Product Specifications 3.1 Pricing Diagram 7.1 Form of Distributor Guaranty 12 Insurance 13.5(a) Au Bon Pain Protected Signature Product 13.5(b) Competitors Exhibit* Title - -------- ----- 1.1 Bill of Materials for each Product Code as of Closing 3.4.1 Form of Adjustment Summary 9.2 Dun and Bradstreet Report * All Schedules and Exhibits to this Bakery Product Supply Agreement have been omitted. Copies will be provided supplementally to the Commission at no expense upon request, provided that the Company reserves the right to request confidential treatment for same. EX-10.10 7 BAKERY PRODUCT SUPPLY AGREEMENT Execution Copy BAKERY PRODUCT SUPPLY AGREEMENT This Bakery Product Supply Agreement ("Agreement"), dated as of March 23, 1998, is by and between BUNGE FOODS CORPORATION, a Delaware corporation ("Supplier") and AU BON PAIN CO., INC., a Delaware corporation ("Buyer"). WHEREAS, contemporaneously herewith, Supplier has acquired from ABP Midwest Manufacturing Co., Inc., a Delaware corporation and an Affiliate (as defined below) of Buyer ("ABP Midwest"), ABP Midwest's bakery products manufacturing plant in Mexico, Missouri (the "Plant") pursuant to the terms of an Asset Purchase Agreement by and among Supplier, ABP Midwest and Buyer (the "Purchase Agreement"); and WHEREAS, in partial consideration of Buyer's entry into the Purchase Agreement, Supplier agreed to enter into this Agreement; and WHEREAS, to induce Buyer to enter into this Agreement, Bunge Corporation, a New York corporation ("Bunge Corporation"), has agreed to guaranty the obligations of Supplier under this Agreement as provided immediately following this Agreement; NOW, THEREFORE, in consideration of the mutual covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound hereby, agree as follows: 1. Definitions: In addition to other terms defined herein, capitalized terms used in this Agreement shall have the following meanings: "Affiliate" shall mean, with respect to any Person, any Person directly or indirectly controlling, controlled by, or under common control with such other Person. For purposes of determining whether a Person is an Affiliate, the term "control" shall mean possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of securities, by virtue of the office held by such Person, by contract or otherwise. "Base Standard Costs" shall mean, for each Product Code during any period of time, the sum of: (a) the per unit standard costs, including delivered raw materials and delivered packaging (in each case at the stipulated delivered price per unit of material multiplied by the standard usage in the Bill of Materials) and Direct Labor Costs, as set forth in the Bill of Materials, excluding the cost of flour and butter; plus (b) the Billing Price for Flour and Butter; plus (c) an allowance for Employee Benefits on a cost per unit basis determined according to the methodology set forth on Schedule 1.1. Such sum shall be calculated using the operating standards and process specifications included in the Bill of Materials. "Bill of Materials" shall mean Buyer's bill of materials for each Product Code, including any process specifications, yield and usage information, and the standard usage of electricity (as described in Schedule 3.1). A copy of the Bill of Materials in effect as of the date hereof for each Product Code is attached as Exhibit 1.1. Such bills of materials, which set forth the cost structure for each Product Code, are subject to modification by Buyer as provided in Section 4.1. "Billing Freight Allowance" shall mean the estimated per Case freight allowance used for the purpose of establishing the Invoice Price for a Product Code to a Distributor, determined by agreement of the parties as of the date hereof (or at the time of introduction in the case of a New Product or additional or modified Product) and at the times and in the manner specified in Section 3.3. "Billing Price for Electricity" shall mean, for each Product Code during any month, the weighted average price of electricity per kilowatt hour estimated for the purpose of establishing the Invoice Price determined by agreement of the parties as of the date hereof (or at the time of introduction in the case of a New Product or additional or modified Product) and at the times and in the manner specified in Section 3.3 and consistent with the methodology described on Schedule 3.1 multiplied by the per unit standard kilowatt hour usage set forth in the Bill of Materials as described on Schedule 3.1. "Billing Price for Flour shall mean, for each Product Code, the and Butter" estimated cost per unit of Product of flour and butter used for the purpose of establishing the Invoice Price, determined by agreement of the parties as of the date hereof (or at the time of introduction in the case of a New Product or additional or modified Product) and at the times and in the manner specified in Section 3.3. "Buyer's System" shall mean the bakery/cafe retail outlets in the continental United States owned, franchised or licensed by Buyer and the bakery/cafe retail outlets in the continental United States operated by other Persons pursuant to a joint venture or other arrangement with Buyer in which Buyer holds not less than a fifty-one percent (51%) interest. "Case" shall mean, for each Product Code, the number of units that are packaged in each standard case as set forth in the Bill of Materials. "CPI Allowance" shall mean, at any time for each job classification, the actual regular, non-overtime wage rates and Employee Benefits (determined in accordance with Schedule 1.2) as of the date of this Agreement, plus a percentage increase equal to the percentage increase in the Consumer Price Index from the date of this Agreement plus [ ].* As used herein, the term "Consumer Price Index" shall mean the "Consumer Price Index for Urban Wage Earners and Clerical Workers, U.S. City Average, All Items (1982-84=100)" published by the Bureau of Labor Statistics of the United States Department of Labor (or, if such index is not available, any comparable successor or substitute index, appropriately adjusted, which is designated by Buyer and approved by Supplier). As of the last day of the month ending *The information contained within these brackets has been omitted and filed separately with the Commission pursuant to a request for Confidential Treatment under Rule 24b-2. -2- immediately prior to the date hereof, the Consumer Price Index was 161.9. "Direct Labor Costs" shall mean, the direct hourly labor costs per unit of Product Code, as calculated in accordance with the structure and methodology in the Bill of Materials based upon the non-overtime wage rates per position as set forth in Schedule 1.2 (such non-overtime wage rates plus Employee Benefits not to exceed the CPI Allowance). "Distributors" shall mean the distributors designated by Buyer or members of Buyer's System (whether independently owned and operated, or part of Buyer's System), who are authorized pursuant to Section 7.1 to order and/or receive Product from Supplier, to perform preliminary quality checks on Product, to make payments to Supplier for Product as invoiced by Supplier pursuant to the terms of this Agreement, and to distribute Product to Buyer's System. A current list of approved Distributors is set forth on Schedule 1.3. "Employee Benefits" shall mean, for each Product Code during any period of time, the total employee benefit expense incurred by Supplier to or for the benefit of the direct labor used to manufacture such Product, which benefits shall consist of the benefits described on Schedule 1.4 for hourly employees. "New Product" shall mean all items of bakery products that are not capable of being manufactured on one or more of the following existing production lines at the Plant, as such production lines may exist from time-to-time during the Term or as they may be modified pursuant to Section 3.5: (1) the Laminated Line (including extruded Products); (2) the Bread/Roll Line; (3) the Muffin Line; (4) the Cookie Line; and (5) the Icing/Mix Line. "Period" shall mean a period of time agreed-to between Supplier and Buyer from time to time during the Term, but in no event shall any such period be longer than one (1) month. "Person" shall mean an individual, a corporation, a general partnership, a limited partnership, a limited liability company, an association, a trust or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. "Product" shall mean all bakery goods that are currently or hereafter manufactured at the Plant (or manufactured at a facility other than the Plant with the approval of Buyer in accordance with the terms of this Agreement), and then supplied directly or indirectly for resale to Buyer's System, provided that such bakery goods are capable of being manufactured on one or more of the following existing production lines at the Plant, as such production lines may exist from time-to-time during the Term or as they may be modified pursuant to Section 3.5: (1) the Laminated Line (including extruded Products); (2) the Bread/Roll Line; (3) the Muffin Line; (4) the Cookie Line; and (5) the Icing/Mix Line (including, without limitation, bakery goods in the categories listed on Schedule 1.5). The -3- foregoing notwithstanding, the term "Product" shall not include bagels or PM Sweets (brownies and bars). "Product Code" shall mean an item of Product which is a specific combination of formulation, unit size, package size (including number of units), package type and label, all in accordance with the Bill of Materials, and to which a specific product code has been assigned for identification purposes. "Purchase Target" shall mean the minimum amount of total Upcharge to be earned by Supplier as a result of the purchase of Product from Supplier in each of the first four (4) years of the Term, as set forth on Schedule 1.6. "Quarter" shall mean the three (3) consecutive months ending on the last day of the calendar month occurring every May, August, November and February during the Term. "Stipulated Flour and Butter Costs" shall mean, for each Product Code, the delivered per unit cost of flour and butter for a period of time, based on either: (1) the purchase price for flour and/or butter as selected by Buyer from time to time after consultation with and advice from Supplier from available contracts for flour and butter for such period of time; or (2) the methodology selected by Buyer for purchasing flour and/or butter for a period of time determined by Buyer (for example, but without limitation, through purchases on the spot markets), in each case multiplied by the standard usage per unit of Product Code in the Bill of Materials. "Stock-out Shortage" shall mean the inability of a Distributor to fill an order for Product placed by a member of Buyer's System due solely to a failure by Supplier to supply Product to such Distributor. The amount of a Stock-Out Shortage, for a Product Code, shall equal the aggregate number of Cases of such Product Code ordered from the affected Distributor by Buyer's System less the number of Cases of such Product Code in the affected Distributor's inventory. "Term" shall mean, unless earlier terminated due to a Supplier Default or a Buyer Default or pursuant to Section 3.7.3, the period during which Supplier shall be required to manufacture and supply Product and Buyer shall be required to purchase, or cause to be purchased, Product in accordance with the terms of this Agreement, which shall be for a period of five (5) years commencing on the date of this Agreement, and shall be automatically renewed on a year-to-year basis thereafter unless notice of termination by either party is given to the other party not less than twelve (12) months prior to termination. "Upcharge" shall mean, for each Product Code existing as of the date hereof, the dollar amount per unit of Product as set forth on Schedule 1.7, and for each Product Code for a New Product the dollar amount per unit of Product as shall be agreed upon in writing by Buyer and Supplier. With respect to each additional Product Code introduced by Buyer pursuant to Section 3.5.1, the Upcharge shall equal [ ]* (during each of the *The information contained within these brackets has been omitted and filed separately with the Commission pursuant to a request for Confidential Treatment under Rule 24b-2. -4- first four (4) years of the Term) and [ ]* (during the fifth (5th) year of the Term) of the sum of the Base Standard Costs initially established for each such additional Product Code plus a variance equal to [ ]* of such Base Standard Costs. Upcharge on any unit of Product or New Product shall be deemed earned at the time when title and risk of loss pass pursuant to Section 6 of this Agreement. "Updated Electricity Costs" shall mean, for each Product Code during any month, the weighted average price of electricity per kilowatt hour determined in the manner described on Schedule 3.1 multiplied by the per unit standard kilowatt hour usage set forth in the Bill of Materials as described on Schedule 3.1. "Updated Freight Allowance" shall mean, for each Product Code during any period, the per Case stipulated cost of freight, equal to: (a) the freight cost per truck from the Plant to each Distributor's warehouse (or such other designated destination) from available quotes for such freight services as selected by Buyer (or by Supplier in the absence of such a selection by Buyer); divided by (b) the agreed-to number of Cases shipped per truck. "Updated Standard Costs" shall mean, for each Product Code during any period of time, the sum of: (a) the per unit standard costs, including delivered raw materials and delivered packaging (in each case at the actual delivered price per unit of material multiplied by the standard usage in the Bill of Materials) and Direct Labor Costs, excluding the cost of flour and butter; plus (b) the Stipulated Flour and Butter Costs; plus (c) an allowance for Employee Benefits allocated on a cost per unit basis determined according to the methodology set forth on Schedule 1.1. Such sum shall be calculated using the operating standards and process specifications included in the Bill of Materials. The foregoing notwithstanding, the Direct Labor Costs and Employee Benefits (determined in accordance with the methodology set forth in Schedule 1.1) shall not exceed the CPI Allowance. 2. Manufacture and Supply of Product: 2.1 Supply Requirements. Subject to the terms and conditions of this Agreement, during the Term, Supplier shall: (a) manufacture and supply Product in such quantities as may be required by each Distributor and/or member of Buyer's System to enable them to meet the Product requirements and inventory needs of Buyer's System; and (b) manufacture and supply Product in such quantities as may be required by each Distributor to maintain an adequate level of Product inventory as provided in this Agreement. 2.2 Exclusivity. So long as Supplier timely supplies Product in accordance with the required recipes, formulas, processes and Product specifications, and in the quantities required by each Distributor and Buyer, Buyer shall purchase from Supplier (through its Distributors) one hundred percent (100%) of its Product requirements for Buyer's bakery/cafe outlets in the continental United States, and Buyer shall use its reasonable best efforts, subject to applicable law, to direct the bakery/cafe outlets that are a part of Buyer's System to purchase from Supplier (through its Distributors) one hundred percent (100%) of their Product requirements. In the case of The SYGMA Network, Inc. and its Affiliates (collectively, "SYGMA"), a Distributor, Supplier shall supply each SYGMA distribution *The information contained within these brackets has been omitted and filed separately with the Commission pursuant to a request for Confidential Treatment under Rule 24b-2. -5- facility so that at any time each has no more than eight (8) days of inventory of Product on hand, measured according to the following formula: The dollar balance (at SYGMA's sales price) of SYGMA's Product inventory at such time divided by SYGMA's average daily dollar sales of Product during the twelve-weeks immediately preceding such time. Buyer shall not sell, directly or indirectly, bakery products at wholesale to third-parties, except to Buyer's System pursuant to this Agreement; provided, however, that nothing contained herein shall prevent Buyer from manufacturing and selling fresh baked or refrigerated dough products or frozen bagels from any of its commissaries to any third party. 2.3 Specifications and Packaging. Supplier shall manufacture Product in accordance with Buyer's recipes, formulas, and Product specifications as set forth in the current Bills of Materials, operating standards and other documents listed on Schedule 2.3, as such requirements may be modified by Buyer upon reasonable prior notice from time to time during the Term in accordance with Section 4.1. Product shall be packaged in the manner prescribed by the Distributors and Buyer. Notwithstanding anything to the contrary contained herein, Supplier shall be entitled to alter any process or operating standard if such an alteration is required to comply with good manufacturing practices as set forth in the regulations promulgated by the U.S. Food and Drug Administration (Current Good Manufacturing Practices in Manufacturing, Packing, or Holding Human Food, 21 C.F.R 110 (1997)), as such regulations may be amended from time to time, including, without limitation, alterations to prevent microbial contamination. Supplier shall provide Buyer prompt notice of any alteration, which shall be prior notice to the extent practicable. 2.4 Payment. Supplier shall invoice each Distributor for Product on payment terms that Supplier and such Distributor may agree upon which do not affect the determination and adjustment of the Invoice Price (as defined below). Supplier shall provide Buyer with a copy of each invoice at the time it provides such invoice to a Distributor. 3. Pricing and Adjustments: 3.1 General Pricing Structure. (a) Supplier will charge each Distributor an Invoice Price per Case of Product as set forth in Section 3.2. Supplier shall invoice freight separately from Product. During the thirty (30) days prior to the adjustment of each Invoice Price, the Invoice Price for the next succeeding year shall be established as set forth in Section 3.3. (b) Within ten (10) business days after the end of each Period, during each Quarter as provided in Section 3.4, Supplier shall update and report to Buyer the difference between the sum of the four (4) components of the Invoice Price as set forth in Section 3.2(a) and the sum of the actual costs for such components, in each case, as applied to the volume of Product shipped during the Period. At the end of each Quarter, the net difference between the sum of the four (4) components of the Invoice Price as set forth in Section 3.2(a) and the sum of the actual costs for such components during the Quarter shall be determined and adjusted by a payment to or from Buyer, after taking into account any Project Expenses and Structural Savings due to Supplier pursuant to Section 3.5. (c) The Invoice Price and updates each Period and adjustments each Quarter shall be determined in the manner as set forth in this Article 3 consistent with the pricing diagram set forth in Schedule 3.1; provided, however, that in the event of any inconsistency between the Schedule 3.1 and any Section of this Agreement, the text in such Section shall at all times control. All requests for credit from Buyer's System for failure to meet Product specifications shall be processed directly through -6- Supplier. Buyer and Supplier shall mutually agree upon reasonable administrative procedures for processing of any credit requests. 3.2 Invoice Price Per Case. The Invoice Price for Product shipped pursuant to this Agreement shall be invoiced by Product Code, and shall be expressed in dollars per Case. The "Invoice Price" for each Case of Product shipped to each Distributor shall equal, for each Product Code, the sum of the FOB Mexico Billing Price Per Case plus the Billing Freight Allowance. As used herein, the "FOB Mexico Billing Price Per Case" for each Product Code, shall equal the product obtained by multiplying (a) the sum obtained by adding: (1) the Base Standard Costs established pursuant to Section 3.3; plus (2) a variance equal to [ ]* of such Base Standard Costs; plus (3) the Billing Price for Electricity established pursuant to Section 3.3; plus (4) the Upcharge; by (b) the number of standard units of Product in a Case. The Invoice Price shall be adjusted on May 1, 1999 and each May 1st thereafter, and at other times, in the manner described in Section 3.3. 3.3 Changes to Invoice Price. During the thirty (30) days prior to May 1, 1999 and each May 1st thereafter, Supplier and Buyer shall mutually make a reasonable estimate of the Base Standard Costs, and shall mutually agree on the Billing Price for Electricity and the Billing Freight Allowance that will be in effect for the upcoming year commencing as of each such May 1st. If the parties are unable agree upon an estimate for the Base Standard Costs, the Billing Price for Electricity and/or the Billing Freight Allowance, the Invoice Price shall remain unchanged. The foregoing notwithstanding, if the accumulated net adjustments from each Period due to or from Buyer computed pursuant to Section 3.4 exceed [ ]* during the course of any year, Buyer and Seller shall discuss, within thirty (30) days after notice from either party, the implementation of a reasonable adjustment to the Invoice Price based upon changes in Base Standard Costs, Billing Price for Electricity and/or Billing Freight Allowance since the immediately preceding adjustment to the Invoice Price. 3.4 Periodic Updates and Adjustments. Within ten (10) business days after the end of each Period during each Quarter, as required to ensure accuracy, Supplier shall deliver to Buyer a summary report (the "Quarterly Adjustment/True-Up Summary Report") in the form attached hereto as Exhibit 3.4. Supplier shall post to the Quarterly Adjustment/True-Up Summary Report each such Period the Total Dollar Adjustment (Direct Cost) determined in accordance with Section 3.4.1 and the Total Dollar Adjustment (Freight) determined in accordance with Section 3.4.2. 3.4.1 Direct Cost Update. Within ten (10) business days after the end of each Period during each Quarter, Supplier shall deliver to Buyer a summary report (the "Interim Update (Direct Costs") in the form attached hereto as Exhibit 3.4.1. Supplier shall also provide to Buyer each Period, for each Product Code, the Bill of Materials and such other supporting documentation as may reasonably be requested by Buyer to verify the computation of the net adjustment due to or from Supplier. Each *The information contained within these brackets has been omitted and filed separately with the Commission pursuant to a request for Confidential Treatment under Rule 24b-2. -7- Interim Update (Direct Costs)), for each such Period, shall set forth the Total Dollar Adjustment (Direct Cost). As used herein the term "Total Dollar Adjustment (Direct Cost)" shall equal the total, for all Product Codes, of the positive or negative difference between the FOB Mexico Billing Price Per Case minus the Updated FOB Mexico Price Per Case multiplied by the number of Cases of Product shipped during such Period. The "Updated FOB Mexico Price Per Case" shall equal the product obtained by multiplying: (a) the sum obtained by adding: (1) the Updated Standard Costs; plus (2) a variance equal to [ ]* of such Updated Standard Costs; plus (3) the Updated Electricity Costs; plus (4) the Upcharge; by (b) the number of standard units of Product in a Case. 3.4.2 Freight Allowance Update. Together with the Interim Update (Direct Costs), Supplier shall deliver to Buyer a summary report (the "Interim Update (Freight)") in the form attached hereto as Exhibit 3.4.2. Each Interim Update (Freight) shall set forth the Total Dollar Adjustment (Freight). As used herein the "Total Dollar Adjustment (Freight)" shall equal the total, for all Product Codes, of the net positive or negative difference for all Distributors (expressed in dollars per Case) between the Billing Freight Allowance for each such Distributor minus the Updated Freight Allowance, multiplied by the total number of Cases shipped to each such Distributor during such Period. 3.4.3 Within fifteen (15) business days after the end of each Quarter, Supplier shall provide to Buyer a final proposed Quarterly Adjustment/True-Up Summary Report for the Quarter. The final proposed Quarterly Adjustment/True-Up Summary Report shall also set forth all Non-Capital Project Expenses, Capital Project Expenses and Structural Savings due to Supplier for the Quarter pursuant to Section 3.5. The aggregate, for all Product Codes, of the amounts determined pursuant to Section 3.4.1 and Section 3.4.2 during each Period of the Quarter, after taking into account any amounts due to Supplier for Non-Capital Project Expenses, Capital Project Expenses and Structural Savings, shall constitute Supplier's proposed net adjustment due to or from Supplier for the Quarter. 3.4.4 Buyer shall have ten (10) business days to review the final proposed Quarterly Adjustment/True-Up Summary Report for each Quarter after its receipt. If Buyer is unable to reconcile or disputes any item included in the final Adjustment Summary, or the computation of the net adjustment due to or from Supplier, it shall notify Supplier within such ten (10) business days of any such items it is unable to reconcile or which it disputes. The foregoing notwithstanding, the failure by Buyer to dispute or question any item within such ten (10) business days shall not constitute a waiver by Buyer or Supplier of the right to subsequently dispute or question such item; provided, however, that any such dispute or question by Buyer or Supplier shall be asserted not later than ten (10) business days after the end of the immediately next succeeding Quarter or shall be thereafter be deemed irrevocably waived. Supplier and Buyer shall attempt diligently in good faith to reconcile any differences and to resolve by mutual agreement any items in dispute within ten (10) business days (the "Resolution Period") following such notification by Buyer. If any of the items in dispute are not resolved within the Resolution Period, the parties shall submit the disputed items for resolution to an arbitrator mutually agreed upon by the *The information contained within these brackets has been omitted and filed separately with the Commission pursuant to a request for Confidential Treatment under Rule 24b-2. -8- parties (the "Arbitrator"), whose decision shall be final and binding on the parties, and when made, shall be deemed to be an agreement between Supplier and Buyer on the issues so determined. The expense of the Arbitrator shall be borne equally by Buyer and Supplier. 3.4.5 Any net adjustment due to or from Supplier for any Quarter shall be paid by or to Buyer within the later of: ten (10) business days after the ten (10) business day review provided for in Section 3.4.4, or its final determination if a dispute or question is raised within such ten (10) business day review, provided, however, that any amounts not in dispute shall be paid by the earlier of such dates. 3.5 Modifications to Products and Introduction of Additional Products; Structural Savings. 3.5.1 Modifications and Additional Products. From time to time during the Term, Buyer shall have the right, on a project-by-project basis, to introduce additional Product items or make modifications to existing Product recipes, formulas, specifications and preparation procedures which, in either case, require expenditures by Supplier in order to manufacture such additional Product or to implement such modifications. Such additional or modified Product either may be in addition to or may replace one or more then-existing Product Codes. Prior to implementing any such project, Buyer and Supplier shall develop a mutually agreeable budget for the project. The actual direct, incremental expenses associated with any one project to introduce additional or modified Product, consisting of material, packaging, direct hourly labor (collectively, "Non-Capital Project Expenses") and expenses with any one project which are capital expenditures under generally accepted accounting principles (collectively, "Capital Project Expenses"), shall be allocated as follows: (a) If the total Non-Capital Project Expenses do not exceed [ ]*, Supplier shall pay the total amount of such expenses; provided, however, that Supplier shall not be obligated to incur more than [ ]* of such expenses, in the aggregate, during any one year of the Term. (b) If the total Non-Capital Project Expenses (exclusive of any expenses constituting capital expenses under generally accepted accounting principles) exceed [ ]* per project or if the annual [ ]* limit in Section 3.5.1(a) has been exceeded, Buyer shall pay the total amount of such excess. (c) If the total Capital Project Expenses do not exceed [ ]*, Supplier shall pay the total amount of such expenses. (d) If the total Capital Project Expenses exceed [ ]*, Buyer shall pay to Supplier an annual amount equal to Buyer's "Pro Rata Share" (as hereinafter defined) of the total Capital Project Expenses multiplied by a percentage amount, on a per annum basis, equal to [ ]* over and above the yield on Ten-year Treasury Bills issued by the United States Government as reported, from time to time, by the Wall Street Journal. As used herein, the term "Pro Rata Share" shall mean, for any Quarter, the amount of Product manufactured by Supplier for Buyer's System utilizing capital equipment purchased by Supplier in connection with any project, divided by the total amount of product (including Product) manufactured on such equipment, multiplied by the Capital Project Expenses. For purposes of this Section 3.5.1 and Section 3.5.3, the standard for measuring the amount of Product manufactured shall be determined by agreement of the parties before implementation of the project and shall be based upon one of the following criteria: (i) units of Product manufactured; (ii) weight of Product manufactured; or (iii) equipment utilization time. *The information contained within these brackets has been omitted and filed separately with the Commission pursuant to a request for Confidential Treatment under Rule 24b-2. -9- 3.5.2 Limitations on Capital Project Expenses. The provisions of Section 3.5.1(c) notwithstanding, Supplier shall not be obligated to incur Capital Project Expenses under Section 3.5.1(c) during any year which exceed [ ]*. Upon the termination of this Agreement for any reason other than a Supplier Default, Supplier shall have the option of selling the equipment acquired pursuant to Section 3.5.1(d) to Buyer for its net book value, and Buyer shall be obligated to purchase such equipment from Supplier within thirty (30) days of receiving notice thereof. This option shall expire, if not sooner exercised, thirty (30) days prior to the termination date of this Agreement, except in the case of a Buyer Default, in which case, this option shall expire thirty (30) days after the termination date. For purposes of this Section 3.5.2, all capital expenditures shall be deemed to have a seven (7) year depreciable life and to be depreciated on a straight-line basis unless otherwise agreed. 3.5.3 Structural Savings. (a) From time to time during the Term, Supplier shall provide Buyer with recommendations for improving the efficiency of the manufacturing and supply processes and for reducing costs. Buyer and Supplier shall mutually determine which, if any, of such recommendations are to be implemented on a project-by-project basis, and shall work together to implement such agreed-upon projects. Buyer and Supplier shall mutually determine the amount of cost savings to be included in Updated Standard Costs and the time during which such cost savings shall be realized. All agreed-upon savings shall be applied to reduce the Updated Standard Costs by amending the applicable Bills of Materials upon the agreed-upon implementation date of the project. Any provision hereof to the contrary notwithstanding, any program implemented for the purpose of managing flour and butter costs shall not be governed by this Section 3.5.3. (b) If the implementation of any such project involves a capital expenditure by Supplier under generally accepted accounting principles, Buyer shall pay to Supplier an annual amount equal to Buyer's Pro Rata Share multiplied by the amount of the project's capital expenditure multiplied by a percentage amount, on a per annum basis, equal to [ ]* over and above the yield on Ten-year Treasury Bills issued by the United States Government as reported, from time to time, in the Wall Street Journal. (c) If the implementation of any such project involves a change in delivered raw materials, delivered packaging or Direct Labor Costs which do not involve capital expenditures pursuant to Section 3.5.3(b) and which are reflected in agreed-upon changes in the Bill of Materials, Buyer shall pay to Supplier an amount equal to [ ]* of the agreed-upon savings resulting from such changes during the agreed-upon time. (d) The foregoing notwithstanding, if Supplier undertakes any project which is not otherwise a part of any structural savings program agreed-to by Buyer pursuant to this Section 3.5.3 (including, by way of illustration and without limitation, the installation of a spiral blast freezer), the cost structure for the appropriate Bills of Materials for the Updated Standard Costs shall be modified to reflect any changes in the operating standards resulting from the implementation of such project, without any allocation of expense to Buyer. 3.5.4 Accounting for Project Expenses and Structural Savings. All amounts to be paid by Buyer to Supplier pursuant to this Section 3.5 shall be accounted for by Supplier separately from the Pricing and Adjustment provisions of Sections 3.1 through 3.4, and shall be included on the Quarterly Adjustment/True-Up Summary Report delivered by Supplier to Buyer (itemized according to project) at the end of each Quarter pursuant to Section 3.4.3. *The information contained within these brackets has been omitted and filed separately with the Commission pursuant to a request for Confidential Treatment under Rule 24b-2. -10- 3.6 Supplier's Purchasing Duties; Vendors. Supplier shall use its best efforts to assist Buyer in obtaining the most favorable available prices for raw materials and packaging, including without limitation, flour and butter. To the extent that raw materials and packaging are purchased by Supplier from vendors designated by Buyer, the cost of such raw materials and packaging shall not constitute a failure to satisfy Supplier's obligations under this Section 3.6. Anything to the contrary herein notwithstanding, Supplier shall not change any vendors without the prior consent of Buyer, which consent shall not be unreasonably withheld. Grounds for Supplier to propose terminating a vendor shall include, but not be limited to, the failure of such vendor to supply sufficient quantities of any item purchased by Supplier from the vendor on a timely basis and/or according to required specifications. Neither Supplier nor Buyer shall enter into any formal or informal arrangement or understanding with any vendor (regardless of whether such vendor is an Affiliate of either Supplier or Buyer) by which either Supplier or Buyer receives, directly or indirectly, any rebate, discount or other consideration, unless such arrangement or understanding is fully disclosed to the other and the value of such rebate, discount or other consideration is applied to reduce Base Standard Costs and Updated Standard Costs pursuant to this Agreement. 3.7. Purchase Target Minimums; Purchase Target Deficiency Payments. 3.7.1 Purchase Target Minimums. In each of the first four (4) years of the Term (each a "Year"), Buyer shall purchase, or cause to be purchased, from Supplier an amount of Product that results in Supplier earning a total Upcharge for that Year that is greater than or equal to the applicable Purchase Target. In addition, pursuant to the Purchase Agreement, Supplier has also entered into a bakery product supply agreement with Saint Louis Bread Company, Inc. ("Saint Louis Bread"), a Delaware corporation and an Affiliate of Buyer, upon terms and conditions similar to those contained in this Agreement, pursuant to which Saint Louis Bread is required to purchase a certain amount of bakery products from Supplier during each year of the term of the agreement. To the extent Saint Louis Bread exceeds its purchase target during any Year in which Buyer has failed to achieve its Purchase Target, such excess amount of Upcharge earned by Supplier shall be deemed, solely for the purpose of determining whether Buyer has achieved its Purchase Target, to have been earned by Supplier hereunder during such Year. 3.7.2 Purchase Target Deficiency Payments. If, during any Year, Supplier has not earned total Upcharges as part of the Invoice Price for Product in an amount equal to or greater than the Purchase Target for such Year, then Buyer shall pay Supplier, within thirty (30) calendar days of the end of such Year, an amount equal to the Purchase Target less the amount of Upcharge earned by Supplier on Product purchased during such Year as part of the Invoice Price for Product (a "Purchase Target Deficiency Payment"). If the Upcharge earned by Supplier in any Year is less than the Purchase Target for such Year and such deficiency is a result of a Supplier Default or a Force Majeure Event (as defined in Section 19), then the Purchase Target Deficiency Payment shall be reduced to the extent such deficiency was attributable to such Supplier Default or Force Majeure Event. 3.7.3 Maximum Upcharge. Any provision of this Agreement to the contrary notwithstanding, after Supplier has earned a total Upcharge (excluding any Upcharge attributable to New Product) of [ ]*, the Upcharge for each Product Code shall equal 36.14% of the sum of the Base Standard Costs plus a variance equal to [ ]* of such Base Standard Costs, and Buyer and Supplier shall each have the right to terminate this Agreement on not less than twelve (12) months prior notice; provided, however, that Buyer shall have the right to terminate this Agreement on not less than four (4) months prior notice during the first twelve (12) months after such total Upcharge has been earned. *The information contained within these brackets has been omitted and filed separately with the Commission pursuant to a request for Confidential Treatment under Rule 24b-2. -11- 4. Modifications to Product or Bill of Materials; New Product. 4.1 Modifications to Product. (a) Buyer may, from time to time and with reasonable prior notice, direct Supplier to manufacture additional Product, which is not New Product, or to modify existing Product specifications, recipes, formulas and processes. Supplier shall be responsible for implementing manufacturing and supply changes required to accommodate such Product proposals. (b) Subject to Section 2.3, Supplier shall not change any specifications, recipes, formulas, or processes related to Product without Buyer's prior approval. (c) Buyer shall have the right to audit and approve all changes to standard costs reflected in the Bills of Materials, including but not limited to, changes in formulae, processes, ingredients, manning per line, line speeds and yields, structural waste, and units per Case (including any change to a Bill of Materials whereby an operating variance is reclassified into ongoing direct cost). In addition, Buyer shall have the right to audit the transition to any new information system implemented by Supplier to assure the consistent treatment of Base Standard Costs and Updated Standard Costs and other concepts set forth herein. Subject to Section 3.5, Supplier shall be responsible for scaling up and implementing any manufacturing and supply changes required to accommodate any changes to Product. (d) Any provision of this Section 4.1 to the contrary notwithstanding, if Buyer modifies existing Product specifications, recipes, formulas or process, Buyer shall purchase, or cause to be purchased, Supplier's entire inventory of a discontinued Product Code and any ingredients and packaging made obsolete by the discontinuation of such a Product Code; provided, however, that Buyer shall not be obligated to purchase such obsolete inventories or ingredients or packaging in excess of twenty-five percent (25%) of the volume of such ingredients or packaging which has been consumed or used by Supplier in manufacturing such discontinued Product Code during the twelve (12) months immediately preceding its discontinuance. 4.2 New Product. In the event that Buyer develops a New Product, Buyer may solicit bids for the manufacture and supply of New Product from third parties, provided, however, prior to entering into a commitment with a third party to manufacture or supply such New Product, Buyer shall negotiate in good faith with Supplier for Supplier to act as the manufacturer and supplier of such New Product on terms consistent with this Agreement, but with an Upcharge to be mutually agreed upon by Buyer and Supplier. Supplier may, but shall not be obligated to, submit a bid to Buyer to manufacture or supply any New Product. Although Buyer shall offer Supplier an opportunity to bid to be the supplier of such New Product, such opportunity is not, and shall not be deemed to be, a right of first negotiation, a right of first refusal, nor a right of last refusal. If a New Product is manufactured and supplied by Supplier, such New Product shall become Product and, then to the extent purchased, an agreed-to upcharge shall be credited toward Buyer's Purchase Target obligation. Notwithstanding anything contained herein to the contrary, Supplier shall not be required to develop or fund the development of any New Product. 5. Duty to Supply: 5.1 Reliability. Supplier recognizes the importance of a reliable source of supply of Product to Buyer's System. Subject to the terms of this Agreement, Supplier shall use its best efforts to manufacture and supply one hundred percent (100%) of the Product requirements of Buyer's System by maintaining adequate inventory levels of Product with each Distributor. Buyer shall provide Supplier *The information contained within these brackets has been omitted and filed separately with the Commission pursuant to a request for Confidential Treatment under Rule 24b-2. -12- with reasonable advance notice of any special promotions or other events that would reasonably be expected to materially affect the demand for and the need for additional Product. 5.2 Failure to Supply. In the event that: (a) Supplier fails to supply the members of Buyer's System with their respective Product requirements and such failure is not attributable to an act or failure to act by Buyer, a Distributor or a member of Buyer's System, then Buyer shall have the right to purchase Product from sources other than Supplier to the extent Supplier is unable to supply such Product, provided that Buyer gives Supplier prior or contemporaneous notice thereof; and (b) Supplier fails to supply Product (other than New Product or additional or modified Product as contemplated by Section 4.1 and Section 4.2 in its first ninety (90) days of supply by Supplier) and such failure results in a Stock-out Shortage, then Supplier shall pay to Buyer an amount equal to the then-current full retail price of each Case of such undelivered Product less the Invoice Price of each Case of such undelivered Product (the "Shortage Fee"); provided, however, that no Shortage Fee shall be payable to Buyer if: (i) the Stock-out Shortage is due to a failure by a Distributor to order timely such Product in sufficient quantities or to take timely delivery of such Product or provide Supplier with accurate information regarding inventory management; (ii) the Stock-out Shortage is due to a failure to provide notice to Supplier required by Section 2.3, Section 4.1 or Section 5.1; (iii) the cumulative amount of Stock-out Shortages in any calendar quarter is less than one-half of one percent (0.5%) of the total number of Cases of all Product Codes shipped by such Distributor to Buyer's System in such quarter; (iv) the Stock-out Shortage is due to an increase in the number of Cases of any Product Code ordered by members of Buyer's System during any fourteen (14) consecutive days which is more than ten percent (10%) above the rolling two (2) week average number of Cases ordered during the twelve (12) weeks immediately preceding such fourteen (14) days; (v) the Stock-out Shortage is due to a failure to receive one or more ingredients from a vendor through no fault of Supplier and Supplier promptly notifies Buyer of any such failure to receive an ingredient from the vendor; or (vi) the Stock-out Shortage is due to a Force Majeure Event. The Shortage Fee payable hereunder shall constitute liquidated damages and Supplier shall not be liable to Buyer, the Distributors or members of Buyer's System for any other damages, so long as the events described in this Section 5.2 do not otherwise constitute a Supplier Default pursuant to Section 15.1. 6. Place of Manufacture: Supplier shall manufacture all Product at the Plant and supply all Product from the Plant, provided, however, that Supplier may manufacture Product at facilities other than the Plant and supply Product from facilities other than the Plant if: (i) Supplier obtains Buyer's prior written approval; and (ii) Buyer is provided the same access to such other facilities and such other facilities' employees and books and records as Buyer has with respect to the Plant. Buyer's approval or disapproval shall be based upon the impact the new facility is expected to have upon Product, including, among other things, its quality and consistency, and the Invoice Price and adjustments thereto. Title to Product and risk of loss shall pass to a Distributor or Independent Operator (as defined in Section 7.5), as the case may be, when Product is physically received by such Distributor or Independent Operator. 7. Distributors: 7.1 Supplier's Rights. Each Distributor and Independent Operator (as defined in Section 7.5) shall be, at all times, creditworthy and reasonably satisfactory to Supplier. Supplier shall be entitled to suspend supply of Product to any Distributor or Independent Operator upon as much prior -13- notice as is reasonably practical to Buyer if Supplier, in its sole discretion, determines such Distributor or Independent Operator is not creditworthy or has failed to perform in a commercially reasonable manner. If the sole reason for such suspension is the creditworthiness of a Distributor or Independent Operator, Buyer may avoid the suspension by providing to Supplier a guarantee of the performance of such Distributor or Independent Operator in substantially the form provided in Exhibit 7.1. 7.2 Appointment. If Buyer desires to appoint a new or alternate Distributor, Buyer shall submit the name and business address of such proposed Distributor to Supplier along with such other information as Supplier may reasonably request. Supplier shall thereafter have thirty (30) calendar days in which to approve or disapprove the appointment of such Person as a Distributor. If Supplier disapproves the appointment, Supplier shall provide Buyer with notice of the reason or reasons for such disapproval within such thirty-days, and if the sole reason for disapproval is the creditworthiness of such Distributor then Buyer may, at Buyer's sole discretion, obtain immediate approval of such Distributor by providing to Supplier a guarantee of the performance of such Distributor in substantially the form provided in Exhibit 7.1. If Supplier fails to provide Buyer with notice of disapproval within such thirty-days, then Supplier shall be deemed to have approved the appointment of such Person as a Distributor. 7.3 Default. If a Distributor or an Independent Operator materially defaults in its obligations to Supplier, including without limitation, by failing to pay Supplier for Product in accordance with the terms agreed upon by Supplier and such Distributor or Independent Operator, Supplier shall have the right to suspend supply of Product to such Distributor or Independent Operator upon as much prior notice to Buyer as is reasonably practical, provided, however, such Distributor, Independent Operator or Buyer or a member of Buyer's System shall have the right to cure such default. Subject to Section 7.2, Buyer shall have the right to replace a defaulting Distributor with an alternate Distributor. In case of suspension or pending suspension of supply of Product to a Distributor or an Independent Operator under Section 7.1 or Section 7.3, Supplier shall cooperate with Buyer and Buyer's System to avoid any disruption of supply to Buyer's System. 7.4 Alternative Pricing for Certain Distributors. Any provision of this Agreement to the contrary notwithstanding, from time to time during the Term, Buyer may direct Supplier to invoice certain Distributors at a price higher than the Invoice Price (an "Additional Amount"). In such case, Supplier shall remit to Buyer within ten (10) business days after the end of each Period the Additional Amounts invoiced and received by Supplier. Except for the remittance by Supplier of the Additional Amounts, all other terms and conditions of this Agreement with respect to the manufacture and supply of Product to such Distributors shall remain in effect, including, without limitation, the adjustments contemplated in Section 3.4. 7.5 Direct Distribution. Certain members of Buyer's System ("Independent Operators") may, with Buyer's approval, purchase Product through Buyer without using a Distributor. Supplier shall supply Product to such Independent Operators designated by Buyer on terms and conditions to be negotiated and agreed upon between such Independent Operators and Buyer, and on payment terms to be determined in accordance with Supplier's credit policy. -14- 8. Quality Assurance: 8.1 Inspection. Upon demand, Buyer shall have the right, without prior notice and during operating hours, to inspect the Plant (and all other facilities where Product is manufactured) and to observe the Product manufacturing process. Buyer shall also have the right, upon reasonable notice, to escort its franchisees (and such other Persons as are approved by Supplier) through the Plant during operating hours to observe the Product manufacturing process. 8.2 Quality Assurance Program. Buyer shall establish with Supplier a mutually acceptable quality assurance program, which program shall, among other things, provide Buyer's management with reasonable and meaningful access to Supplier and its employees in charge of Product. Buyer shall have the right, at its sole option and expense, to station a full-time quality assurance representative at the Plant who shall have the authority to accept or reject Product prior to its shipment. Product may only be rejected if it fails to comply with the Product specifications provided to Supplier. Any quality assurance representative shall, at all times, be reasonably acceptable to Supplier. Neither the presence of a quality assurance representative at the Plant on behalf of Buyer, nor the failure of such representative to reject Product prior to shipment, shall in any way modify Supplier's obligations to manufacture and ship Product according to Product specifications pursuant to Section 2.3. 9. Representations and Warranties of Supplier: Supplier represents and warrants to Buyer that: 9.1 Organization and Good Standing. Supplier has been duly organized and is existing as a corporation in good standing under the laws of the State of Delaware, and is qualified and in good standing as a foreign corporation in the State of Missouri, with full corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. 9.2 Supplier Organization. Supplier is a wholly owned subsidiary of Bunge Corporation. Supplier has provided to Buyer a copy of the Dun & Bradstreet report on Bunge Corporation, certified by the Treasurer of Bunge Corporation to be materially true and correct with respect to financial information contained therein, a copy of which is attached hereto as Exhibit 9.2. 9.3 Execution and Delivery. All consents, approvals, authorizations and orders necessary for the execution, delivery and performance by Supplier of its obligations hereunder have been obtained. This Agreement has been duly authorized by all necessary corporate action on the part of Supplier, has been duly executed and delivered by Supplier, and constitutes the legal, valid and binding obligation of Supplier enforceable against Supplier in accordance with its terms, except as such enforcement is limited by bankruptcy, insolvency and other similar laws affecting the enforcement of creditors' rights generally and by general equitable principles. 9.4 No Conflicts. Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will (i) violate any provision of the corporate charter or bylaws of Supplier or (ii) conflict with, or result (immediately or upon the giving of notice or the passage of time or both) in a breach or any violation of or any default under, or give rise to a right of modification, termination, cancellation or acceleration of any obligation or to a loss of a benefit under, any agreement, mortgage, indenture, lease, instrument, permit, concession, franchise, license or other agreement, or any statute, or any order, writ, injunction or decree of any court, governmental body or agency or instrumentality thereof, or any arbitrator having jurisdiction over Supplier or any of its assets, to which Supplier is a party or to which its properties or assets may be bound, other than such conflicts, violations or defaults or possible modifications, terminations, cancellations or accelerations which -15- individually or in the aggregate do not and will not have a material adverse effect on Supplier or its ability to consummate the transactions contemplated hereby. 9.5 Litigation. There is no legal action, suit, arbitration or other legal, administrative or governmental investigation, inquiry or proceeding (whether local or foreign) pending or, to the knowledge of Supplier, threatened against or affecting Supplier or its respective properties, assets or businesses, nor, to the knowledge of Supplier, does any basis therefor exist and Supplier is not in default with respect to any order, writ, judgment, injunction, decree, determination or award of any court or of any governmental agency or instrumentality (whether domestic or foreign) which, in each case, would materially impact upon Supplier's obligations hereunder or Supplier's ability to perform its obligations hereunder. 9.6 Disclosure. No representation or warranty of the Supplier in this Agreement and no information contained in any Schedule or other writing delivered by Supplier pursuant to this Agreement contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact required to make the statements herein or therein not misleading. To the knowledge of Supplier after due inquiry, there is no fact that Supplier has not disclosed to Buyer in writing that materially adversely affects, nor insofar as Supplier can now foresee, will materially adversely affect Supplier's ability to perform fully this Agreement. 9.7 Fees, Expenses and Commissions. Except for a fee payable solely by Supplier to Chapman Partners, Inc., in connection with the Purchase Agreement, Supplier has taken no action and has entered into no agreement, understanding or other arrangement that would obligate Supplier or Buyer to pay any broker's or finder's fee or any other similar fee or commission to any agent, broker, investment banker or other firm or person in connection with any of the transactions contemplated by this Agreement. 10. Representations and Warranties of Buyer: Buyer hereby represents and warrants to Supplier that: 10.1 Organization and Good Standing. Buyer has been duly organized and is existing as a corporation in good standing under the laws of the State of Delaware, with full corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. 10.2 Execution and Delivery. All consents, approvals, authorizations and orders necessary for the execution, delivery and performance by Buyer of its obligations hereunder have been obtained. This Agreement has been duly authorized by all necessary corporate action on the part of Buyer, has been duly executed and delivered by Buyer and constitutes the legal, valid and binding obligation of Buyer enforceable against Buyer in accordance with its terms, except as such enforcement is limited by bankruptcy, insolvency and other similar laws affecting the enforcement of creditors' rights generally, and by general equitable principles. 10.3 No Conflicts. Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will (i) violate any provision of the Certificate of Incorporation or bylaws of Buyer, in each case as amended, or (ii) conflict with, or result (immediately or upon the giving of notice or the passage of time or both) in a breach or any violation of or any default under, or give rise to a right of modification, termination, cancellation or acceleration of any obligation or to a loss of a benefit under, any agreement, mortgage, indenture, lease, instrument, permit, concession, franchise, license or other agreement, or any statute, or any order, writ, injunction or decree of any court, governmental body or agency or instrumentality thereof, or any arbitrator having -16- jurisdiction over Buyer or any of its assets, to which Buyer is a party or by which its properties or assets may be bound, other than such conflicts, violations or defaults or possible modifications, terminations, cancellations or accelerations which individually or in the aggregate do not and will not have a material adverse effect on Buyer or its ability to consummate the transactions contemplated hereby. 10.4 Litigation. There is no legal action, suit, arbitration or other legal, administrative or governmental investigation, inquiry or proceeding (whether local or foreign) pending or, to the knowledge of Buyer, threatened against or affecting Buyer or its properties, assets or businesses, nor, to the knowledge of Buyer, does any basis therefor exist and Buyer is not in default with respect to any order, writ, judgment, injunction, decree, determination or award of any court or of any governmental agency or instrumentality (whether domestic or foreign) which, in each case, would materially impact upon Buyer's obligations hereunder or Buyer's ability to perform its obligations hereunder. 10.5 Disclosure. No representation or warranty of the Buyer in this Agreement and no information contained in any Schedule or other writing delivered by Buyer pursuant to this Agreement contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact required to make the statements herein or therein not misleading. To the knowledge of Buyer after due inquiry, there is no fact that Buyer has not disclosed to Supplier in writing that materially adversely affects, nor insofar as Buyer can now foresee, will materially adversely affect Buyer's ability to perform fully this Agreement. 10.6 Fees, Expenses and Commissions. Except for fees payable solely by Buyer to Brent Baxter Enterprises, LLC and Peter J. Solomon Company Limited in connection with the Purchase Agreement, Buyer has taken no action and has entered into no agreement, understanding or other arrangement that would obligate Buyer or Supplier to pay any broker's or finder's fee or other similar fee or commission to any agent, broker, investment banker or other firm or person in connection with any of the transactions contemplated by this Agreement. 11. Additional Covenants of Supplier: In addition to the other obligations of Supplier under this Agreement, Supplier covenants that during the Term (including any extensions or renewals thereof, unless expressly provided otherwise): 11.1 Product. Except as provided herein, during the Term and for one (1) year thereafter, Supplier shall not, either directly or indirectly, supply any Product or any substitute for Product to any bakery/cafe included in Buyer's System. 11.2 Operations; Compliance with Standards and Law. Subject to the provisions of this Agreement, Supplier shall operate the Plant (and all other facilities that manufacture Product which are approved by Buyer) and manufacture Product in accordance with good manufacturing practices and manufacture and supply Product in accordance with the recipes, formulas, processes, and Product specifications (including as to vendors) established by Buyer and in accordance with all applicable laws, rules and regulations, statutes, ordinances, regulations, orders and bylaws. 11.3 Distributor Obligations. Subject to Section 7, Supplier shall not terminate its obligation to supply Buyer's System nor shall Supplier withhold delivery of Product from any non-defaulting member of Buyer's System or any non-defaulting Distributor due to nonpayment or other default by a Distributor or a member of Buyer's System. 11.4 Ownership of the Plant. Without limiting Buyer's rights pursuant to Section 15, during the Term (but excluding any extensions or renewals thereof), if Supplier shall sell, transfer or license any -17- part of the Plant or enter into any agreement or arrangement that would have the effect of transferring operational control of the Plant to a third party, Supplier shall cause such third party to assume, for the benefit of Buyer, all obligations of Supplier hereunder. 11.5 Efficiency of Operation. Subject to Buyer's right to designate vendors and processes, Supplier shall use its best efforts to operate the Plant at optimal efficiency and to perform its other responsibilities hereunder, including, without limitation, purchasing raw materials, contracting for labor and arranging for freight in an efficient, cost effective and professional manner. 11.6 Cooperation with Inspections. Supplier shall cooperate with Buyer in any investigation or inspection by any governmental agency or by Buyer relating to the Plant or Product which involves health, safety or product liability issues. 11.7. Non-Solicitation. Supplier shall not, directly or indirectly, during the Term and, so long as this Agreement is not terminated by Supplier as a result of a Buyer Default, for one year thereafter, solicit or hire any employee of Buyer, unless the employment of such employee has been terminated by Buyer, or Buyer consents thereto. 11A. Additional Covenants of Buyer: In addition to the other obligations of Buyer under this Agreement, Buyer covenants that during the Term (including any extensions or renewals thereof, unless expressly provided otherwise): 11A.1 Compliance with Standards and Law. Buyer shall comply with all applicable laws, rules and regulations, statutes, ordinances, regulations, orders and bylaws, including, without limitation, antitrust and franchise laws. 11A.2 Distributor Obligations. Buyer shall not terminate its obligation to purchase, or cause to be purchased, Product from Supplier due to nonpayment or other default by a Distributor. 11A.3 Transfer of Interest. If Buyer shall enter into any agreement or arrangement that would have the effect of transferring operational control of Buyer or Buyer's System to a third party, Buyer shall cause such third party to assume, for the benefit of Supplier, all obligations of Buyer or Buyer's System, as the case may be, hereunder. 11A.4 Product Usage: Buyer shall use its best efforts to provide Supplier with timely information with respect to Product usage. 11A.5 Cooperation with Inspections. Buyer shall cooperate with Supplier in any investigation or inspection by any governmental agency or by Supplier relating to the Plant or Product which involves health, safety or product liability issues. 11A.6 Non-Solicitation. Buyer shall not, directly or indirectly, during the Term, so long as this Agreement is not terminated by Buyer as a result of a Supplier Default, and for one year thereafter, solicit or hire any employee of Supplier or Bunge Corporation, unless the employment of such employee has been terminated by Supplier or Bunge Corporation, as the case may be, or Supplier or Bunge Corporation, as the case may be, consents thereto. 12. Insurance: During the Term (and any extension thereof), Supplier shall be required to obtain and maintain insurance policies, in the amounts set forth on Schedule 12. With respect to the Commercial General Liability and Umbrella policies, Buyer shall be named as an additional insured. -18- During the Term and (any extension thereof), Buyer shall obtain and maintain insurance policies, in the amounts set forth on Schedule 12. With respect to the Commercial General Liability and Umbrella policies, Supplier and Bunge Corporation shall be named as additional insureds. All insurance policies required by this Section 12 shall be obtained from recognized insurance carriers with an A.M. Best rating of "A-" or better. 13. Confidentiality/Ownership: 13.1 Proprietary Information. As used in this Agreement, the term "Proprietary Information" shall mean any knowledge or information, written or oral, which relates in any manner to the respective businesses of Buyer and Supplier which is confidential and proprietary information of the Disclosing Party (as defined below), whether disclosed prior to, on or after the date of this Agreement, including, without limitation, the recipes, formulas, specifications, manufacturing processes, preparation procedures, financial information, equipment, marketing methods, demographic and trade information, customer profiles and preferences, costs, development plans, products and production techniques and all related trade secrets and proprietary information treated as such by the Disclosing Party, whether by course of conduct, by letter or report, or by the use of an appropriate stamp or legend designating such information to be confidential or proprietary. As used herein, the term "Disclosing Party" shall mean the party to this Agreement which discloses or makes available Proprietary Information to the Receiving Party, and the term "Receiving Party" shall mean the party to this Agreement to whom Proprietary Information is disclosed or made available by the Disclosing Party. 13.2 Restrictions on Use. The Receiving Party shall hold all Proprietary Information in confidence, shall use such Proprietary Information only for the benefit of the Disclosing Party and disclose such Proprietary Information only to the Receiving Party's officers, directors, employees and agents in order to assist the Receiving Party in performing its obligations under this Agreement. The Receiving Party shall not disclose Proprietary Information to any other Person, provided, however, the Receiving Party may disclose Proprietary Information to a corporate Affiliate of the Receiving Party if such Affiliate first agrees in writing to be bound by the covenants contained in this Agreement with respect to the use and nondisclosure of Proprietary Information. 13.3 Ownership. Subject to the terms and conditions of the Purchase Agreement, ownership of all Proprietary Information relating to all recipes, formulas, specifications, manufacturing processes or preparation procedures, demographic and trade information, customer profiles and preferences, costs, development plans, products and production techniques and any other trade secrets and information used to make Product (including, without limitation, information related to the cost of Product) shall remain solely the property of Buyer, regardless of whether developed or modified by Buyer or Supplier. In manufacturing bakery products other than pursuant to this Agreement, Supplier shall use product codes and product names for product which are separate and distinct from those used for Product manufactured for Buyer. 13.4 Exceptions. The obligations and prohibitions set forth in this Section 13 shall not apply to any Proprietary Information that is required to be disclosed by applicable law or that is shown, by preexisting documentary evidence or other reliable evidence, to be information: (i) that was known by the Receiving Party prior to the exchange of information in contemplation of this Agreement; (ii) entered into the public domain other than through the act of the Receiving Party; (iii) is independently developed by the Receiving Party; or (iv) is rightfully received by the Receiving Party from a third party who is not obligated to the Disclosing Party to keep such information confidential. -19- 13.5 Protected Signature Product; Competitors. If Buyer licenses to Supplier the right to manufacture and sell any Product to any Person other than to a Distributor or to Buyer's System, then Supplier shall, in any event, be prohibited from: (i) using Buyer's trademarks, trade names, trade secrets and trade dress; and (ii) selling to any third-party any "Protected Signature Product," which is set forth on Schedule 13.5(a). In addition, Supplier shall not manufacture or sell any dough product manufactured on any of the production lines identified in the definition of Product in Section 1 to any Competitor. For the purpose of this Section 13.5, the term "Competitor" shall mean any of the retail operations listed on Schedule 13.5(b) and any retail operation with at least one hundred (100) stores that sell baked goods and coffee, where such sales of baked goods and coffee represent thirty percent (30%) or more of such retail operation's total annual sales revenue. Nothing contained herein shall prevent Supplier from selling any baked, par-baked or pre-proofed bakery products to any Competitor or other customer of Supplier, so long as: (1) such bakery products are materially different in formulation from any Product manufactured by Supplier for Buyer hereunder, and (2) Supplier agrees to manufacture Buyer's own baked, par-baked or pre-proofed bakery products which are within the product categories listed on Schedule 1.5 and introduced by Buyer as additional Product with an Upcharge as provided in the definition of "Upcharge" in Section 1. 14. Opportunities/Conflicts of Interest: Except as otherwise set forth in this Agreement: (i) neither party shall have any rights in or to the business activities of the other party, nor to the income or profits derived therefrom; (ii) neither party shall be obligated to offer any investment or other business opportunity to the other party; and (iii) neither party shall have any duty, fiduciary or otherwise, to afford the other party any opportunity to participate in such activities. 15. Termination: 15.1 Supplier Default. The obligations to purchase Product under this Agreement may be terminated by Buyer if any one or more of the following events occur (each a "Supplier Default"): (a) If Supplier files a petition for adjudication as a bankrupt, for reorganization or for an arrangement under any bankruptcy or insolvency law, or if any involuntary petition under such law is filed against Supplier and is not dismissed within thirty (30) days thereafter; then, so long as any such event is continuing, Buyer may by notice in writing to Supplier terminate its obligations to purchase all or a portion of Product forthwith; (b) If Supplier makes an assignment of all or substantially all of its assets for the benefit of creditors, or if Supplier's interest under this Agreement shall be taken upon execution; (c) If Supplier fails to perform any material covenant or material obligation including, but not limited to, the payment of any amounts due to Buyer; provided, however, that no termination shall be made hereunder unless and until Buyer gives Supplier notice of such failure to perform and Supplier has not cured such failure within thirty (30) days after its receipt of such notice, or ten (10) days in the case of failure to make payment of any amounts due to Buyer; or (d) There is a change of ownership or control of Supplier or Supplier transfers its interest in the Plant to a third party (in either case, other than to an Affiliate of Supplier), or if Bunge Corporation terminates its guaranty provided below; provided, however, that Buyer's exclusive remedy upon the occurrence of such an event in the absence of Buyer's prior written consent to any such event (and without limiting Buyer's remedies in the event of any other Supplier Default) shall be limited to the right to terminate this Agreement. -20- 15.2 Cancellation Fee. In the event of a Supplier Default, which, if subject to cure, is not timely cured, then no rights or remedies otherwise available to the parties upon such termination shall be deemed surrendered, except in the case of a Supplier Default under Section 15.1(d) in the case of which Buyer's sole remedy shall be to terminate this Agreement. In addition to all other rights and remedies granted herein to either party, and in addition to all other rights and remedies each party may have at law, in equity or otherwise, in the event that if this Agreement is terminated due to Supplier Default (excluding a Supplier Default under Section 15.1(d)), Supplier shall pay to Buyer a cancellation fee (the "Supplier's Cancellation Fee") in an amount equal to [ ]* per year for each year remaining in the first four (4) years of the Term, pro rated for any partial such year remaining in the Term upon the effective date of termination. If Buyer elects to terminate due to a Supplier Default, then Supplier's Cancellation Fee shall be payable to Buyer in full within thirty (30) days following the effective date of termination. 15.3 Buyer Default. The obligations to manufacture and supply Product under this Agreement may be terminated by Supplier if any one or more of the following events occur (each a "Buyer Default"): (a) Buyer files a petition for adjudication as a bankrupt, for reorganization or for an arrangement under any bankruptcy or insolvency law, or if any involuntary petition under such law is filed against Buyer and is not dismissed within thirty (30) days thereafter; then, so long as any such event is continuing, Supplier may by notice in writing to Buyer terminate its obligations to manufacture or supply all or a portion of Product forthwith; (b) Buyer makes an assignment of all or substantially all of its assets for the benefit of creditors, or if Buyer's interest under this Agreement shall be taken upon execution; (c) Buyer fails to perform any material covenant or material obligation including, but not limited to, the payment of any amounts due to Supplier from Buyer; provided, however, that no termination may be made hereunder unless and until Supplier gives Buyer written notice of such failure to perform and Buyer has not cured such failure within thirty (30) days after its receipt of such notice, or ten (10) days in the case of failure to make payment of any amounts due to Supplier; or (d) There is a change of ownership or control of Buyer and the entity assuming ownership or control fails to assume Buyer's obligations under this Agreement as contemplated by Section 11A.3. 15.4 Cancellation Fee. In the event of a Buyer Default (excluding a Buyer Default under Section 15.3(d)), which, if subject to cure, is not timely cured, then no rights or remedies otherwise available to the parties upon such termination shall be deemed surrendered. In addition to all other rights and remedies granted herein to either party, and in addition to all other rights and remedies each party may have at law, in equity or otherwise, in the event that this Agreement is terminated due to a Buyer Default, Buyer shall pay to Supplier a cancellation fee (the "Buyer's Cancellation Fee") in an amount equal to [ ]* per year for each year remaining in the first four (4) years of the Term, pro rated for any partial such year remaining in the Term upon the effective date of termination. If Buyer elects to terminate due to a Buyer Default, then Buyer's Cancellation Fee shall be payable to Supplier in full within thirty (30) days following the effective date of termination. *The information contained within these brackets has been omitted and filed separately with the Commission pursuant to a request for Confidential Treatment under Rule 24b-2. -21- 15.5 Effect of Termination (a) Termination of this Agreement, whether by lapse of time, mutual consent, operation of law, exercise of right of termination or otherwise shall not affect the ownership interests in the respective proprietary rights and other rights of the parties, but shall only affect any obligations of the parties to continue to cooperate in the manufacturing, supply and purchase of Product. (b) Upon termination of this Agreement by lapse of time or mutual consent, Supplier shall complete the manufacture and supply of Product to fill any outstanding orders that are deliverable within thirty (30) days of such termination and Buyer shall purchase, or cause to be purchased, such Product. (c) Notwithstanding any termination of this Agreement, all provisions regarding: (i) the sharing of costs between the parties; (ii) the ownership, non-use, or protection of Proprietary Information; (iii) indemnification, (iv) representations of the parties being true as of the time made; and (v) any obligations of either party to the other contained herein which, by their nature, should reasonably extend beyond the termination of any regular ongoing business relationship between the parties as contemplated by this Agreement, shall survive such termination. 16. Information and Audit Rights of Buyer: 16.1 Books and Records. Supplier shall maintain, in accordance with generally accepted accounting principles consistently applied, accurate and complete books and records with respect to all Base Standard Costs and Updated Standard Costs and freight costs relating to Product. 16.2 Rights to Audit; Rights to Inspect. Upon reasonable prior notice, Buyer shall have the right, during normal business hours, to inspect and audit the books and records of Supplier relating solely to the calculation of Invoice Price and adjustments thereto. 16.3 Certain Information. Upon Buyer's written request, Supplier shall provide information in its control concerning the manufacturing and supply of Product, including, without limitation, sources of raw materials used in Product and information on Supplier's maintenance of confidential information relating to Buyer. 17. Remedies: The relationship between Supplier and Buyer, which is reflected in this Agreement, is special and unique and has a value which cannot be readily measured in monetary terms. Therefore, in the event of any breach or threatened breach by either party, the other party shall be entitled to seek both legal and equitable relief, including, without limitation, temporary, preliminary and permanent injunctive relief, to restrain such breach or threatened breach and to mandate compliance with the terms set forth herein. 18. Indemnification: Supplier will at all times indemnify, defend and hold harmless Buyer from and against any and all claims, damages, liabilities, costs and expenses, including reasonable counsel fees, arising out of (i) any failure by Supplier to perform its obligations hereunder; and (ii) the supply of Product by Supplier that is not in compliance with the Product specifications. Buyer will at all times indemnify, defend and hold harmless Supplier from and against any and all claims, damages, liabilities, costs and expenses, including reasonable counsel fees, arising out of (i) any failure by Buyer to perform its obligations hereunder; (ii) any claim for infringement or violation with any patent or trade secret of -22- any third party, to the extent such claim is attributable to use by Supplier of the recipes, formulae, processes and specifications provided to Supplier by Buyer; and (iii) any claim or action by any third-party alleging infringement or violation of, or conflict with, any trademarks, tradenames or trade dress, to the extent such claim or action is attributable to the use of such trademarks, tradenames or trade dress used in accordance with Buyer's specifications. Prompt written notice of any claim or litigation hereunder shall be given to either party, as the case may be, by the other party. The indemnifying party shall have the right to control the defense of the claim at its expense. The indemnified party shall have the right, but not the obligation, to participate in the defense of any claim. There shall be no settlement of any claim to which an indemnity relates without the prior written consent of the indemnitor, which consent shall not be unreasonably withheld or delayed. If a third party brings an action against either party and there is a dispute between Buyer and Supplier as to who is responsible for defending such action, then, until such dispute is resolved, Buyer and Supplier shall cooperate so as not to jeopardize the defense of such action. 19. Force Majeure: Neither party shall be responsible for any resulting loss to the other party if the fulfillment of any of the terms or provisions of this Agreement is delayed or prevented by strikes, work stoppages and labor unrest (other than with respect to strikes, work stoppages and labor unrest that occurs at the Plant at any time after six (6) months after the date hereof), transportation stoppages, ingredient shortages not the fault of Supplier, riots, wars, acts of enemies, national emergency, floods, fires, acts of God, or by any other cause not within the control of the party whose performance is interfered with or which, by the exercise of reasonable diligence, such party is unable to prevent (individually and collectively, a "Force Majeure Event"). Upon the occurrence of a Force Majeure Event, the party claiming force majeure shall notify the other party forthwith and both parties shall use their reasonable best efforts to mitigate or eliminate any adverse effects of such event. 20. Relationship of Parties: Supplier and Buyer are each independent contractors. Nothing herein contained shall be construed to place Supplier and Buyer in the relationship of principal and agent, master and servant, partners, joint venturers, and, except as otherwise set forth in this Agreement, neither party shall have, expressly or by implication, the power to represent itself as having any authority to make contracts in the name of or binding upon the other, or to obligate or bind the other in any manner whatsoever. 21. Consents; Notices: Unless otherwise specifically set forth herein, any notice, consent or approval of a party shall be in writing and given by telecopier and original posted first class mail, postage prepaid, within two (2) business days thereafter; or by certified or registered mail with an acknowledgment of receipt, postage prepaid, return receipt requested; or by a reputable private courier, such as Federal Express, which provides evidence of receipt as a part of its delivery service, and addressed as follows: If to Buyer: Au Bon Pain Co., Inc., Inc. 19 Fid Kennedy Avenue Marine Industrial Park Boston, MA 02210-2497 Attn: Chief Executive Officer telecopier (617) 423-7879 -23- with copy to: Walter D. Wekstein, Esq. Lawrence R. Katz, Esq. Gadsby & Hannah LLP 225 Franklin Street Boston, MA 02110 telecopier (617) 345-7050 If to Supplier: Bunge Foods Corporation 3701 Algonquin Road, Suite 360 Rolling Meadows, IL 60008 Attn: General Manager telecopier (847) 342-0029 with a copy to: Bunge Corporation 11720 Borman Drive St. Louis, MO 63146 Attn: Legal Department telecopier (314) 994-6521 or to such other address as may be designated in writing by either party from time to time in accordance herewith, and shall be deemed delivered two (2) business days following delivery by hand, by private courier or when so telecopied and five (5) business days following proper dispatch by certified or registered mail. A business day is any Monday through Friday on which first class mail is delivered. 22. Arbitration: If a dispute arises under this Agreement, the parties shall submit their dispute to arbitration under the jurisdiction and in accordance with the rules of the American Arbitration Association (the "Association") located in Boston, Massachusetts or at any other mutually agreeable location. The parties shall be bound by the decision of the arbitrator(s). Notwithstanding the foregoing, the arbitrator(s) shall not have the authority to modify any express provision of this Agreement. Moreover, and notwithstanding the provisions of this Section 22 or anything else to the contrary contained in this Agreement, each party shall have the right to seek injunctive or equitable relief in a court of competent jurisdiction in addition to or in lieu of its rights pursuant to this section. 23. Assignees and Third Parties: Subject to Buyer's rights in Article 15, this Agreement may be assigned by Supplier to a third party which acquires all or substantially all of the assets of Supplier or the Plant which agrees to be assume and be bound by this Agreement. This Agreement may be assigned by Buyer to an entity which acquires all or substantially all of Buyer's retail bakery/cafe outlets and which agrees to assume and be bound by this Agreement as provided in Section 11A.3. 24. Choice of Law: This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Missouri, as applicable to agreements executed and entirely performed in said State. 25. Attorneys' Fees: If any action or proceeding is brought to enforce or interpret any provision of this Agreement then, in addition to any other relief to which the prevailing party may be entitled, the prevailing party shall be entitled to recover its reasonable costs and attorneys' fees. -24- 26. Severability: If any term or provision of this Agreement is determined by a court of competent jurisdiction to be invalid illegal or incapable of being enforced by any law or public policy, all other terms or provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to the other parties. 27. Modification; Waivers: This Agreement (including the Schedules and Exhibits hereto) may be modified or amended only with the written consent of each party hereto. No party hereto shall be released from its obligations hereunder without the written consent of all of the other parties. The observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively) by the party entitled to enforce such term, but any such waiver shall be effective only if in a writing signed by the party against whom such waiver is to be asserted. Except as otherwise specifically provided herein, no delay on the part of any party hereto in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any waiver on the part of any party hereto of any right, power or privilege hereunder operate as a waiver of any other right, power or privilege hereunder nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder. 28. Headings: The headings of the articles, sections and other subdivisions of this Agreement are for convenient reference only. They shall not be used in any way to govern, limit, modify, construe this Agreement or any part or provision thereof nor otherwise be given any legal effect. 29. Succession: This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and other legal representatives and, to the extent that any assignment hereof is permitted hereunder, their assignees. 30. Counterparts: This Agreement may be executed in counterparts. Each counterpart, including a signature page executed by each of the parties hereto, shall be an original counterpart of this Agreement, but all of such counterparts together shall constitute one (1) instrument. 31. Additional Documents: Each party agrees to provide any additional documents reasonably requested by the other party in order to carry out the purpose and intent of this Agreement. 32. Approvals; Consents: Unless otherwise specifically set forth herein, the approvals and consents that are required or permitted herein shall not be unreasonably withheld or delayed. 33. Entire Agreement: This Agreement (including the Schedules and Exhibits hereto) contains the full and complete undertaking and agreement between Buyer and Supplier with respect to the within subject matter, and supersedes all other agreements between Buyer and Supplier, whether written or oral, -25- except any confidentiality agreements between the parties, which shall, to the extent such agreements do not contradict the terms of this Agreement, continue in effect. IN WITNESS WHEREOF, the parties hereto have set their hands to this Agreement as a sealed instrument and have delivered this Agreement as of the day and year first above written. BUNGE FOODS CORPORATION, a Delaware corporation By: /s/ Michael M. Scharf --------------------- Its: Senior Vice President AU BON PAIN CO., INC., a Delaware corporation By: /s/ Anthony J. Carroll ---------------------- Its: Vice President and Treasurer Bunge Corporation Guaranty: In order to induce Buyer to execute and deliver the foregoing Agreement, Bunge Corporation, a New York corporation, hereby unconditionally guarantees to Buyer that it shall cause Supplier, a wholly-owned subsidiary of Bunge Corporation, to fulfill each and every obligation of Supplier under this Agreement, and in connection therewith and not in limitation of the foregoing, Bunge Corporation hereby unconditionally guarantees to Buyer, the prompt payment by Supplier of all amounts at any time due by Supplier to Buyer pursuant to this Agreement, whether in the ordinary course of operations, arising as a result of a Supplier Default or otherwise. This guaranty shall terminate if Supplier shall cease to be an Affiliate of Bunge Corporation or if the Plant is sold or the ownership of the Plant is otherwise transferred to a third-party who is not an Affiliate of Bunge Corporation. BUNGE CORPORATION, a New York corporation By: /s/ Michael M. Scharf --------------------- Its: Senior Vice President -26- Index of Schedules and Exhibits to Bakery Product Supply Agreement by and between Bunge Foods Corporation and Au Bon Pain Co., Inc. dated as of March 23, 1998 Schedule* Title - --------- ----- 1.1 Methodology for Calculating Employee Benefits Allowance 1.2 Schedule of Wage Rates and Employee Benefits 1.4 Description of Employee Benefits 1.5 Product Categories 1.6 Purchase Targets 2.3 Product Specifications 3.1 Pricing Diagram 7.1 Form of Distributor Guaranty 12 Insurance 13.5(a) Au Bon Pain Protected Signature Product 13.5(b) Competitors Exhibit* Title - -------- ----- 1.1 Bill of Materials for each Product Code as of Closing 3.4.1 Form of Adjustment Summary 9.2 Dun and Bradstreet Report * All Schedules and Exhibits to this Bakery Product Supply Agreement have been omitted. Copies will be provided supplementally to the Commission upon request, provided that the Company reserves the right to request confidential treatment for same. EX-23.1 8 CONSENT OF INDEPENDENT ACCOUNTANTS CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of Au Bon Pain Co., Inc. on Form S-8 (File Nos. 33-46682, 33-46683, and 33-96510) and Form S-3 (File No. 33-82292) of our report dated February 13, 1998, except for Note 17 as to which the date is March 23, 1998, on our audits of the consolidated financial statements and financial statement schedules of Au Bon Pain Co., Inc. as of December 27, 1997 and December 28, 1996, and for each of the three years in the period ended December 27, 1997, which report is included in this Annual report on Form 10-K. /s/ COOPERS & LYBRAND, L.L.P. Coopers & Lybrand L.L.P. Boston, Massachusetts March 27, 1998 EX-27 9 FINANCIAL DATA SCHEDULE
5 RECALCULATION OF PRIOR QUARTERS EARNINGS PER SHARE FROM PRIMARY TO BASIC EARNINGS PER SHARE RESULTS IN NO CHANGE TO EARNINGS PER SHARE. DILUTED EARNINGS PER SHARE IS ANTIDILUTIVE IN EACH QUARTER OF FISCAL YEARS 1995, 1996 AND 1997. 0000724606 AU BON PAIN CO., INC. U.S. DOLLARS YEAR DEC-27-1997 DEC-29-1996 DEC-27-1997 1 853 0 9,427 134 9,117 21,368 112,232 75,907 186,516 21,426 0 0 0 1 92,273 186,516 233,212 250,890 90,385 119,537 33,279 0 7,204 315 (1,492) 1,807 0 0 0 1,807 .15 .15
-----END PRIVACY-ENHANCED MESSAGE-----