1
THIS DEBENTURE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED OR APPLICABLE SECURITIES LAWS. THIS DEBENTURE MAY NOT BE OFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT OF THE DEBENTURE UNDER SUCH ACT
AND UNDER ANY APPLICABLE STATE SECURITIES LAWS, OR UPON SATISFACTION BY THE
ISSUER HEREOF THAT SUCH REGISTRATION IS NOT REQUIRED AS TO SUCH SALE OR OFFER.
THIS DEBENTURE IS SUBJECT TO A SUBORDINATION AGREEMENT, DATED OF EVEN DATE
HEREWITH, IN FAVOR OF US TRUST, THE FIRST NATIONAL BANK OF BOSTON, CITIZENS BANK
OF MASSACHUSETTS AND INAC CORP. (THE "SENIOR DEBT SUBORDINATION AGREEMENT").
AU BON PAIN CO., INC.
SAINT LOUIS BREAD COMPANY, INC.
ABP MIDWEST MANUFACTURING CO., INC.
SENIOR SUBORDINATED DEBENTURE
$3,900,000 Dated as of July 24, 1996
FOR VALUE RECEIVED, the undersigned entities (collectively, the
"Borrowers"), jointly and severally promise to pay to the order of ALLIED
CAPITAL CORPORATION II, a Maryland corporation (the "Holder"), at its offices
located at 1666 K Street, N.W., Suite 901, Washington, D.C. 20006, the principal
amount of THREE MILLION NINE HUNDRED THOUSAND DOLLARS ($3,900,000), together
with interest thereon as set forth below, at its offices or such other place as
the Holder may designate in writing.
1. INVESTMENT AGREEMENT. This Senior Subordinated Debenture (the
"Debenture") is one of three senior subordinated debentures to be executed and
delivered by the Borrowers in connection with an investment being made by the
Holder and two other parties in the Borrowers in the aggregate original
principal amount of FIFTEEN MILLION DOLLARS ($15,000,000) pursuant to the terms
and conditions of an Investment Agreement among the Borrowers, the Holder and
certain other parties named therein, dated of even date herewith (the
"Investment Agreement"). This Debenture and the other two senior subordinated
debentures evidencing the investment (collectively, the "Other Debentures") are
each subject to the terms and conditions of the Investment Agreement. A copy of
the Investment Agreement may be examined during normal business hours at the
Borrowers' offices. Terms not defined herein shall have the meanings assigned to
them in the Investment Agreement.
2
2. Interest Rate Provisions.
------------------------
2.1 BASIC INTEREST RATE. Interest shall accrue on the principal
balance of this Debenture outstanding as follows: (i) from the date hereof and
thereafter until July 24, 1997, at the rate of 11.25% per annum; (ii) from July
25, 1997 and thereafter until July 24, 1998, at the rate of 13% per annum; and
(iii) from July 25, 1998 until repayment of this Debenture, at the rate of 14%
per annum. The interest rate applicable at any one time as set forth in this
section shall be referred to as the "Basic Interest Rate".
2.2 DEFAULT INTEREST RATE. An Event of Default shall be deemed to have
occurred if any installment payment of principal, interest or other charge under
this Debenture or any of the Other Debentures is not received by the Holder
thereof within three business days of the due date thereof, or if any other sums
payable to Holder hereunder, under the terms of the Other Debentures, or under
the terms of the Investment Agreement are not paid on or before that date which
is three business days from the due date thereof. From and after the 20th day
following any such default, interest shall accrue and be payable hereunder at
the rate of two percent (2 %) per annum above the then applicable Basic Interest
Rate from the date of the occurrence of the Event of Default until the earliest
date upon which the Event of Default has been cured (the "Default Interest
Rate").
2.3 ADDITIONAL PROVISIONS. Interest shall be calculated on the basis
of an actual 360-day year and shall be computed for each payment period on the
basis of the actual number of days elapsed.
3. Payments.
--------
3.1 INTEREST ONLY PAYMENTS; LATE PAYMENTS. Commencing on October 1,
1996, and continuing on the first day of each calendar quarter thereafter up to
and including July 1, 2000, the Borrowers shall pay to Holder quarterly
installments of interest only on the principal amount outstanding hereunder. Any
such installment not received by Holder within three business days of its due
date shall be subject to an additional late payment charge equal to five percent
(5%) of the amount overdue.
3.2 PRINCIPAL PAYMENT. The entire unpaid principal balance of this
Debenture, together with all accrued, but unpaid, interest, and other sums owed
hereunder shall be due and payable in full without further notice or demand on
July 24, 2000 (the "Maturity Date").
3.3 PREPAYMENTS; APPLICATION OF PAYMENTS. The Borrowers may prepay
this Debenture in whole or in part at any time upon 30 days prior written notice
to Holder without penalty or premium. All prepayments shall be applied as
follows: (a) first, to accrued, but unpaid, interest at the Default Interest
Rate; (b) second, to accrued, but unpaid, interest at the Basic Interest Rate;
and finally, to principal, provided that the principal amount to be prepaid
shall be allocated (in integral multiples of $1,000) among this Debenture and
the Other
-2-
3
Debentures at the time outstanding in proportion, as nearly as practicable, to
the respective unpaid principal amounts thereof not called for prepayment, with
adjustments, to the extent practicable, to compensate for any prior prepayments
not made exactly in such proportion.
3.4 DUE ON SALE. Notwithstanding anything herein or in the Investment
Agreement to the contrary, the entire indebtedness hereunder shall become due
and payable upon the earlier of the Maturity Date or the Transfer of Borrowers'
Business.
4. ASSIGNMENT. This Debenture and the obligations hereunder may not be
assigned by the Borrowers without the prior written consent of Holder. Holder
may freely assign all or any portion of its right, title and interest in and to
this Debenture.
5. JOINT AND SEVERAL LIABILITY. If more than one party signs this
instrument, then all signatories shall be jointly and severally liable
hereunder.
6. DEFAULT AND REMEDIES. The occurrence of an Event of Default under the
Investment Agreement shall constitute a default hereunder and shall entitle the
Holder to exercise the rights and remedies specified in the Investment
Agreement, as well as those available at law or in equity. These rights and
remedies include, but are not limited to, the right of the Holder to accelerate
the maturity of this Debenture and all other Obligations.
7. WAIVERS. The Borrowers hereby waive presentment, demand, protest, or
further notice of any kind (except such notices as may be specifically required
by the express terms of the Investment Agreement).
8. WAIVER OF JURY TRIAL; SUBMISSION TO JURISDICTION.
(a) EACH OF THE HOLDER AND THE BORROWERS HEREBY KNOWINGLY, VOLUNTARILY
AND INTENTIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF
ANY LITIGATION BASED HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS
DEBENTURE. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE HOLDER TO ENTER INTO
THE TRANSACTIONS PROVIDED FOR IN THE INVESTMENT AGREEMENT AND TO MAKE THE
INVESTMENT.
(b) FOR THE PURPOSE OF ANY ACTION OR PROCEEDING INVOLVING THIS
DEBENTURE, EACH OF THE HOLDER AND THE BORROWERS HEREBY EXPRESSLY AND IRREVOCABLY
SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ALL FEDERAL AND STATE COURTS
LOCATED IN THE CITY OF NEW YORK AND CONSENTS THAT IT MAY BE SERVED WITH ANY
PROCESS OR PAPER BY REGISTERED MAIL OR BE PERSONAL SERVICE WITHIN OR WITHOUT THE
STATE OF NEW YORK IN ACCORDANCE WITH APPLICABLE LAW, PROVIDED A REASONABLE TIME
FOR APPEARANCE IS ALLOWED. EACH OF THE HOLDER
-3-
4
AND THE BORROWERS EXPRESSLY WAIVES, TO THE EXTENT IT MAY LAWFULLY DO SO, ANY
OBJECTION, CLAIM OR DEFENSE WHICH IT MAY HAVE AT ANY TIME TO THE LAYING OF VENUE
OF ANY ACTION, SUIT OR PROCEEDING ARISING OUT OF THIS DEBENTURE IN ANY SUCH
COURT, IRREVOCABLY WAIVES ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING
BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM AND FURTHER
IRREVOCABLY WAIVES THE RIGHT TO OBJECT, WITH RESPECT TO ANY SUCH CLAIM, SUIT,
ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT, THAT SUCH COURT DOES NOT HAVE
JURISDICTION OVER THE PERSON OF THE BORROWERS OR THE HOLDER, AS APPLICABLE.
NOTHING CONTAINED HEREIN WILL BE DEEMED TO PRECLUDE THE HOLDER FROM BRINGING AN
ACTION AGAINST THE BORROWERS IN ANY OTHER JURISDICTION.
9. CONTROLLING LAW. This Debenture and all matters related hereto shall be
governed, construed and interpreted strictly in accordance with the laws of the
State of New York, without regard to its principles of conflicts of law.
10. NO USURY. This Debenture is subject to the express condition that at no
time shall the Borrowers be obligated or required to pay interest hereunder at a
rate which could subject the Holder to either civil or criminal liability as a
result of being in excess of the maximum rate which the Borrowers are permitted
by law to contract or agree to pay. If, by the terms of this Debenture, the
Borrowers are at any time required or obligated to pay interest at a rate in
excess of such maximum rate, the rate of interest under this Debenture shall be
deemed to be immediately reduced to such maximum rate and interest payable
hereunder shall be computed at such maximum rate and the portion of all prior
interest payments in excess of such maximum rate shall be applied and shall be
deemed to have been pre payments of interest on this Debenture.
{Signatures on pages following}
-4-
5
IN WITNESS WHEREOF, the undersigned entities have caused this Debenture to
be executed and their corporate seals to be affixed on the day and year first
above written.
WITNESS/ATTEST: "BORROWERS":
[Seal] AU BON PAIN CO., INC.
Attest: /s/ THOMAS R. HOWLEY By: /s/ LOUIS I. KANE
--------------------- ------------------
Thomas R. Howley Louis I. Kane, Co-Chairman
[Seal] Assistant Secretary SAINT LOUIS BREAD COMPANY, INC.
Attest: /s/ THOMAS R. HOWLEY By: /s/ LOUIS I. KANE
--------------------- ------------------
Thomas R. Howley Louis I. Kane, Co-Chairman
[Seal] Assistant Secretary ABP MIDWEST MANUFACTURING
CO., INC.
Attest: /s/ THOMAS R. HOWLEY By: /s/ LOUIS I. KANE
--------------------- ------------------
Thomas R. Howley Louis I. Kane, Co-Chairman
Assistant Secretary
-5-