Junior Subordinated Guarantee - BF Holding Inc., Brueggers Franchise Corp., Lethe LLC, Odyssey Bagels Inc., Champlain Management Services Inc., Champlain Leasing LLC, Flour City Bagels Inc., Baystate Bagels Inc., Uptown Bagels Inc., Iron City Bagels Inc., Norstar Bagel Bakeries Inc., Hawkeye Bagel Bakeries Inc. and Tarheel Bagels Inc.
BF HOLDING, INC.
BRUEGGERS FRANCHISE CORPORATION
LETHE LLC
ODYSSEY BAGELS, INC.
CHAMPLAIN MANAGEMENT SERVICES, INC.
CHAMPLAIN LEASING, L.L.C.
FLOUR CITY BAGELS, INC.
BAYSTATE BAGELS, INC.
UPTOWN BAGELS, INC.
IRON CITY BAGELS, INC.
NORSTAR BAGEL BAKERIES, INC.
HAWKEYE BAGEL BAKERIES, INC.
TARHEEL BAGELS, INC.
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AMENDED AND RESTATED JUNIOR SUBORDINATED GUARANTEE
Dated February 28, 2001
---------------------------
GUARANTEE
AMENDED AND RESTATED JUNIOR SUBORDINATED GUARANTEE (the "Guarantee") dated as of
February 28, 2001 by BF HOLDING, INC., a corporation organized under the laws of
Delaware, BRUEGGERS FRANCHISE CORPORATION, a corporation organized under the
laws of Delaware, LETHE LLC, a limited liability company organized under the
laws of Delaware, ODYSSEY BAGEL, INC., a corporation organized under the laws of
Vermont, CHAMPLAIN MANAGEMENT SERVICES, INC., a corporation organized under the
laws of
<PAGE> 2
Delaware, CHAMPLAIN LEASING, L.L.C., a limited liability company organized under
the laws of Delaware, FLOUR CITY BAGELS, INC., a corporation organized under the
laws of New York, BAYSTATE BAGELS, INC., a corporation organized under the laws
of Massachusetts, UPTOWN BAGELS, INC., a corporation organized under the laws of
Massachusetts, IRON CITY BAGELS, INC., a corporation organized under the laws of
Pennsylvania, NORSTAR BAGEL BAKERIES, INC., a corporation organized under the
laws of Minnesota, HAWKEYE BAGEL BAKERIES, INC., a corporation organized under
the laws of Iowa, and TARHEEL BAGELS, INC., a corporation organized under the
laws of North Carolina (collectively, the "Guarantors"), in favor of each person
who is from time to time a holder (collectively, the "Holder") of the Amended
and Restated Junior Subordinated Note Due October 20, 2004 issued in an original
aggregate principal amount of $10,706,667.00, (together with all notes delivered
in substitution or exchange for said note, the "Note") by Bruegger's
Corporation, a corporation formed under the laws of Delaware (the "Company"),
payable to Quality Dining, Inc., a company incorporated under the laws of
Indiana ("QDI"). This Amended and Restated Junior Subordinated Guarantee amends,
and as amended restates, that certain Junior Subordinated Guarantee dated
October 20, 1997 executed by Guarantors in favor of Holder (the "Original
Guarantee"). All capitalized terms used herein and not otherwise defined herein
shall have the meaning ascribed thereto in the Share Exchange Agreement dated as
of September 3, 1997, by and among QDI, the Company, Nordahl L. Brue and Michael
J. Dressell, or the Note.
Section 1. GUARANTEE, ETC.
Section 1.1. Guarantee. The Company has issued the Note to amend and restate
obligations evidenced by that certain Junior Subordinated Note Due October 20,
2004, dated October 20, 1997 (the "Original Note"). For valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the Guarantors
hereby unconditionally, absolutely and irrevocably guarantee the full and
punctual payment to the Holder, as and when due, whether at stated maturity, by
required prepayment, declaration, acceleration, demand or otherwise, of all of
the principal of and interest on the Note (including, without limitation,
interest on any overdue principal, and, to the extent permitted by applicable
law, on any overdue interest) as reduced from time to time pursuant to the terms
thereof (collectively, the "Guaranteed Obligations"), in the same currency as
the currency of the Guaranteed Obligations and strictly in accordance with the
terms of the Note.
Section 1.2. Nature of Guarantee. Subject to the expressed terms hereof, the
guarantee provided for under this Section 1 shall in all respects be a
continuing, absolute, unconditional and irrevocable guarantee of payment when
due and not of collection, and shall remain in full force and effect until all
applicable Guaranteed Obligations have expired and been fully and indefeasibly
paid and all obligations of the Guarantors hereunder have been fully and
indefeasibly paid. The Guarantors guarantee that the Guaranteed Obligations will
be paid strictly in accordance with the terms thereof, regardless of any law,
regulation or order now or hereafter in effect in any jurisdiction affecting any
of such terms or the rights of any Holder with respect thereto. The liability of
the Guarantors hereunder shall be absolute, unconditional and irrevocable
irrespective of, and without being lessened or limited by:
(a) the occurrence of any Event of Default under, or any lack of validity,
legality or enforceability of any provision of, the Note or any other agreement;
<PAGE> 3
(b) the failure of the Holder,
(i) to assert any claim or demand or to enforce any right or remedy against the
Company or any other Person (including any other guarantor of the Guaranteed
Obligations) under the provisions of this Guarantee, or otherwise, or
(ii) to exercise any right or remedy against any other guarantor of, or
collateral securing, any of the Guaranteed Obligations;
(c) any change in the time, manner or place of payment of, or in any term of,
all or any of the Guaranteed Obligations, or any other extension, compromise,
indulgence or renewal of any of the Guaranteed Obligations;
(d) any reduction, limitation, variation, impairment, discontinuance or
termination of any of the Guaranteed Obligations for any reason (other than by
reason of any (x) payment which is not required to be rescinded or (y) offset
pursuant to the terms of the Note), including any claim of waiver, release,
discharge, surrender, alteration or compromise, and shall not be subject to (and
the Guarantors hereby waive any right to or claim of) any defense or setoff,
counterclaim, recoupment or termination whatsoever by reason of the invalidity,
illegality, nongenuineness, irregularity, compromise, unenforceability of, or
any other event or occurrence affecting, any of the Guaranteed Obligations or
otherwise (other than by reason of any payment which is not required to be
rescinded);
(e) any amendment to, rescission, waiver or other modification of, or any
consent to any departure from, any of the terms of the Guaranteed Obligations or
any guarantees or security;
(f) any amendment to, rescission, waiver or other modification of, or release or
addition of, or consent to any departure from, any other guarantee held by the
Holder as security for any of the Guaranteed Obligations;
(g) the loss or the unenforceability of any other guarantee or other security
which the Holder may now or hereafter hold in respect of the Guaranteed
Obligations, whether occasioned by the fault of the Holder or otherwise;
(h) any change in the name of the Company or in the incorporating documents,
capital structure, capacity or constitution of the Company, the bankruptcy or
insolvency of the Company, the sale of any or all of the Company's business or
assets or the Company being consolidated, merged or amalgamated with any other
Person;
(i) any failure on the part of the Company or any other Person to perform or
comply with any term of the Note, any of the Guaranteed Obligations or any other
agreement;
(j) any suit or other action brought by any beneficiaries or creditors of, or
by, the Company or any other Person for any reason whatsoever, including without
limitation any suit or action in any way attacking or involving any issue,
matter or thing in respect of the Note, any of the Guaranteed Obligations or any
other agreement;
<PAGE> 4
(k) any lack or limitation of status or of power, incapacity or disability of
the Company or any trustee or agent thereof; or
(l) any other circumstance (other than final and indefeasible payment in full)
which might otherwise constitute a defense available to, or a legal or equitable
discharge of, the Company, any surety or any other guarantor.
Any Guaranteed Obligation which may not be recoverable from the Guarantors as
guarantor shall be recoverable from the Guarantors as principal debtor in
respect thereof.
Notwithstanding anything herein or in the Note to the contrary, with respect to
each Guarantor, the maximum aggregate amount of the Guaranteed Obligations for
which such Guarantor shall be liable shall not exceed the maximum amount for
which such Guarantor can be liable without rendering its guarantee of the
Guaranteed Obligations voidable under applicable law relating to fraudulent
conveyance or fraudulent transfer.
Section 1.3. Holder Not Bound to Exhaust Recourse. The Holder shall not be bound
to exhaust its recourse against the Company or others or any security or other
guarantees it may at any time hold before being entitled to payment hereunder
from the Guarantors.
Section 1.4. No Demand. The liability of the Guarantors to make payment under
this Guarantee to the Holder shall arise forthwith if the Company shall fail to
pay any of the Guaranteed Obligations and the Guarantors shall promptly pay the
same, and the Guarantors hereby waive diligence, promptness, presentment,
demand, protest, notices and any requirement that the Holder proceed against the
Company.
Section 1.5. Guarantee in Addition to Other Security. The guarantee provided for
in this Guarantee shall be in addition to and not in substitution for any other
guarantee or other security that the Holder may now or hereafter hold in respect
of the Guaranteed Obligations, and the Holder or any of them shall be under no
obligation to marshal in favor of the Guarantors any other guarantee or other
security or any moneys or other assets that it may be entitled to receive or may
have a claim upon.
Section 1.6. Reinstatement. The guarantees provided for in this Guarantee and
all other terms of this Guarantee shall continue to be effective or shall be
reinstated, as the case may be, if at any time any payment by the Company or any
of the Guarantors of any of the Guaranteed Obligations is rescinded, avoided, or
must otherwise be returned by the recipients thereof by reason of the
insolvency, bankruptcy or reorganization of the Company or any of the Guarantors
or for any other reason, all as though such payment had not been made, and the
Guarantors agree that they will indemnify the Holder on demand for all
reasonable costs and expenses (including, without limitation, reasonable
attorneys' fees) incurred by the Holder in connection with such rescission.
Section 1.7. Remedies. The Guarantors agree that, subject to Section 3 hereof,
as between the Guarantors and the Holder, the obligations of the Company under
the Note may be declared to be forthwith due and payable as provided in Article
IV of the Note (and shall be deemed to have become automatically due and payable
in the circumstances provided in said Article IV) for purposes of Section 1.1
hereof notwithstanding any stay, injunction or other prohibition preventing such
declaration (or
<PAGE> 5
such obligations from becoming automatically due and payable) as against the
Company and that, in the event of such declaration (or such obligations being
deemed to have become automatically due and payable), such obligations (whether
or not due and payable by the Company) shall forthwith become due and payable by
the Guarantors for purposes of said Section 1.1.
Section 1.8. Subrogation Rights. The Guarantors shall not exercise any rights
which they may acquire by way of subrogation under this Guarantee, by any
payment made hereunder or otherwise, until the prior satisfaction in full of all
of the Guaranteed Obligations. Any amount paid to the Guarantors on account of
any such subrogation rights prior to the satisfaction in full of all Guaranteed
Obligations shall be held in trust for the benefit of the Holder and shall
immediately be paid to the Holder, and credited and applied against the
applicable Guaranteed Obligations, whether matured or unmatured, in accordance
with the terms hereof; provided, however, that upon the full and indefeasible
payment of all of the Guaranteed Obligations, the Guarantors shall be subrogated
to the rights of the Holder against the Company with respect to all Guaranteed
Obligations and, at the Guarantors, request, the Holder will execute and deliver
to the Guarantors appropriate documents (without recourse and without
representation or warranty, except that the Holder has not released, assigned or
encumbered any Guaranteed Obligations) necessary to evidence the transfer by
subrogation to the Guarantors of all Guaranteed Obligations. In furtherance of
the foregoing, upon notice to the Guarantors from the Holder of the occurrence
of an Event of Default and until such time as the earliest of,
(a) such Event of Default being remedied or cured as provided in the Note;
(b) such Event of Default being waived in accordance with the terms of the Note;
and
(c) all Guaranteed Obligations being indefeasibly paid in full;
the Guarantors shall postpone any and all claims they may have against the
Company to the claims of the Holder against the Company and shall refrain from
taking any action or commencing any proceeding against the Company (or its
successors or assigns, whether in connection with a bankruptcy proceeding or
otherwise) to recover any amounts in respect of payments made hereunder to the
Holder or any of them. In the event any payments are made by the Company to the
Guarantors in contravention of the preceding sentence, the Guarantors shall hold
such payments in trust for the Holder and shall forthwith pay such payments to
the Holder.
Section 1.9. Credit Information. The Holder has no duty or responsibility to
provide the Guarantors with any credit or other information concerning the
Company's affairs, financial condition or business which may come into the
possession of the Holder.
Section 1.10. Limitation on Guaranteed Obligations. In any action or proceeding
involving any state corporate law, or any state or Federal bankruptcy,
insolvency, reorganization or other law affecting the rights of creditors
generally, if the obligations of the Guarantors under Section 1.1 hereof would
otherwise be held or determined to be void, invalid or unenforceable, or
subordinated to the claims of any other creditors, on account of the amount of
its liability under said Section 1.1, then, notwithstanding any other provision
hereof to the contrary, the amount of such liability shall, without any further
action
<PAGE> 6
by the Guarantors, or any other Person, be automatically limited and reduced to
the highest amount which is valid and enforceable and not subordinated to the
claims of other creditors as determined in such action or proceeding.
Section 1.11. Only Evidence of Guarantee. Except for this Guarantee, the
obligations of each of the Guarantors under this Guarantee is not evidenced by
any instrument, security or other writing; no part of this Guarantee has been or
shall be assigned to or subordinated or subjected to any other security interest
in favor of anyone other than the holders of the Senior Indebtedness by the
Guarantors. Until all Senior Indebtedness has been paid in full, the Guarantors
shall not issue any instrument (except for this Guarantee), security or other
writing evidencing any part of the obligations hereunder except at the request
of and in the manner consented to by the required number of holders of the
Senior Indebtedness.
Section 2. REPRESENTATIONS. Each of the Guarantors represents and warrants as
follows:
Section 2.1. Organization; Power and Authority. Each Guarantor is a corporation
or limited liability company, as the case may be, duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization. Each Guarantor has the corporate or limited liability company
power, as the case may be, and authority to execute and deliver this Guarantee
and to perform the provisions hereof.
Section 2.2. Authorization, Etc. This Guarantee has been duly authorized by all
necessary corporate or limited liability company action, as the case may be, on
the part of the Guarantors, and this Guarantee constitutes a legal, valid and
binding obligation of the Guarantors enforceable against the Guarantors in
accordance with its terms, except as the enforceability thereof may be limited
by (i) applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium or other similar laws affecting the enforcement of creditors' rights
generally and (ii) general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
Section 2.3. Compliance with Laws, Other Instruments of the Guarantor, Etc. The
execution, delivery and performance by the Guarantors of this Guarantee will not
(i) contravene, result in any breach of, constitute a default under, or result
in the creation of any lien in respect of any property of the Guarantors under,
any indenture, mortgage, deed of trust, loan, purchase or credit agreement,
lease, corporate charter, organizational document or by-laws, or any other
agreement or instrument to which the Guarantors are bound or by which the
Guarantors or any of their respective properties may be bound or affected, (ii)
conflict with or result in a breach of any of the terms, conditions or
provisions of any order, judgment, decree, or ruling of any court, arbitrator or
governmental or regulatory authority applicable to the Guarantors or (iii)
violate any provision of any statute or other rule or regulation of any
governmental or regulatory authority applicable to the Guarantors.
Section 2.4. Governmental Authorizations, Etc. No consent, approval or
authorization of, or registration, filing, or declaration with, any governmental
or regulatory authority is required in connection with the execution, delivery
or performance by the Guarantors of this Guarantee.
<PAGE> 7
Section 3. SUBORDINATION
Section 3.1. Subordination. Anything in this Guarantee to the contrary
notwithstanding, the Guaranteed Obligations evidenced by this Guarantee shall be
subordinate and junior to the extent set forth in subsections (a) to (d),
inclusive, below, to all Senior Indebtedness (as hereinafter defined) of the
Guarantors. "Senior Indebtedness" shall mean the principal of and premium, if
any, and interest due on, and all other amounts owing in respect of, any
Indebtedness (as defined in Section 3.1(o) of the Note) that is either (i) an
obligation of one or more of the Guarantors or of the Company under the Credit
Facilities (as defined below) incurred at any time or any obligation of the
Company or one or more of the Guarantors whenever incurred to any New Lender (as
defined below) with respect to any Refinancing (as defined below), or (ii) any
obligation of one or more of the Guarantors or the Company for Indebtedness, now
existing or hereafter incurred, that is expressly authorized by either of the
Credit Facilities or any New Loan Agreement (as defined below) or consented to
or as may be consented to by the required Banks or any New Lender of such
Guarantor(s) or the Company, as the case may be, including without limitation
that certain Indebtedness of the Company to Champlain Management Services, Inc.
in the original principal amount of Twelve Million Dollars ($12,000,000). Senior
Indebtedness includes all interest accrued or hereafter accruing thereon
including interest accruing (whether or not an allowable claim) after the filing
by or against the Company or any Guarantor of a petition for relief under the
Federal Bankruptcy Code, and all costs, expenses (including attorneys' fees),
fees, and charges otherwise recoverable from the Company or any guarantor by the
holders of such Senior Indebtedness with respect thereto. Notwithstanding
anything else contained herein, Senior Indebtedness shall not include any
particular Indebtedness if (i) in the instrument creating or evidencing the same
or pursuant to which the same is outstanding it is expressly provided that such
Indebtedness (A) ranks pari passu in right of payment to this Guarantee or (B)
is subordinated in right of payment to this Guarantee and/or to all other
Indebtedness of the Guarantors; provided, however, that nothing contained in
this clause (i)(B) shall affect the provisions of the last sentence of section 1
of the Affiliate Subordination Agreement, as hereinafter defined or (ii) such
Indebtedness is owing to trade creditors and was incurred in connection with
obtaining goods, materials and services.
For purposes of the above: "Credit Agreement" refers to the First Amended and
Restated Credit Agreement between Champlain Management Services, Inc. and other
borrowers party thereto ("Borrowers") and certain of the Banks dated as of
September 18, 1998 as amended by the First Amendment thereto dated as of
September 30, 1999, the Second Amendment thereto dated as of June 28, 2000, the
Third Amendment thereto dated as of July 14, 2000 and the Fourth Amendment
thereto dated as of July 26, 2000, including any restatements and all amendments
and modifications thereof. "Securities Purchase Agreement" refers to the
Securities Purchase Agreement, dated October 20, 1997, between the Company and
BancBoston Investments, Inc. ("BBI"), including any restatements and all
amendments and modifications thereof. "Banks" refers to Fleet National Bank
(f/k/a Bank Boston N.A.) ("Fleet") as Agent and a lender under the Credit
Agreement, the other lenders under the Credit Agreement and BBI under the
Securities Purchase Agreement. "Credit Facilities" refers to the notes issued
pursuant to the Securities Purchase Agreement and the Credit Agreement. "Credit
Facility" refers to either one of the Credit Facilities. "Refinancing" refers to
any one or more refinancings by any one or more reputable
<PAGE> 8
financial institutions ("New Lender") evidenced by a loan or credit agreement
between the Company and/or one or more Guarantors and the New Lender ("New Loan
Agreement") where the proceeds will satisfy all of the obligations of (i)
Borrowers under the Credit Agreement and/or the Company under the Securities
Purchase Agreement or (ii) of the Company and/or the Guarantors to any New
Lender under any subsequent refinancings of all or a portion of the obligations
referenced in the immediately preceding clause (i). Notwithstanding the
foregoing or any other provision of this Guarantee, as part of a Refinancing,
the principal obligations under the New Loan Agreement pertaining to such
Refinancing, when combined with the principal obligations of any other New Loan
Agreement or Credit Facility that is then outstanding and not being replaced by
such Refinancing, if any, shall not exceed the following sum: (i) the amount of
all accrued interest (including, without limitation, any accrued interest which
has been capitalized and included as principal, and interest thereon), fees,
expenses and advances made for the purpose of protecting collateral that secures
the obligations under any Credit Facility or New Loan Agreement then due and
owing under any Credit Facility and/or New Loan Agreement then outstanding
(whether or not such interest, fees, expenses and advances are treated as part
of the principal balances owing under such Credit Facility or New Loan
Agreement); plus (ii) the lesser of (x) the sum, as of the closing of such
Refinancing, of the principal balances owing under any Credit Facility and/or
New Loan Agreement then outstanding and not being replaced by such Refinancing,
if any, plus any Credit Facility and/or New Loan Agreement then outstanding and
being replaced by such Refinancing, or (y) the principal balance owing under the
Credit Facilities on the date of this Guarantee. "Affiliate Subordination
Agreement" shall mean the agreement bearing that title executed contemporaneous
with the execution of this Guarantee by QDI, the Company, the Guarantors, the
Company's shareholders, and certain of its affiliates in the form attached to
the Note as Exhibit B.
(a) If (i) the Company or any Guarantor shall default beyond any applicable
grace period in the payment of any principal of, premium or interest on or fees
in respect of any Senior Indebtedness of such Guarantor when the same becomes
due and payable, whether at stated maturity or at a date fixed for prepayment or
as a result of a declaration of acceleration or otherwise or (ii) any other
event of default under and as defined in any Senior Indebtedness shall occur and
be continuing, then, unless and until such default shall have been remedied by
payment in full in cash or cash equivalents (if a payment default) or by other
cure or express written waiver, such defaulting Guarantor shall not pay and the
Holder shall not accept nor receive from such defaulting Guarantor any direct or
indirect payment (in cash, property, by set-off or otherwise) of or on account
of the Guaranteed Obligations; provided, however, that if within the period
specified in the next sentence with respect to an event of default referred to
in clause (ii) above, no holder of such Senior Indebtedness then subject to an
event of default has declared such Senior Indebtedness to be immediately due and
payable (or has declared such Senior Indebtedness to be immediately due and
payable and within such period has rescinded such acceleration), then in that
event, payment of the Guaranteed Obligations shall be resumed. With respect to
any event of default under clause (ii) above, the period referred to in the
preceding sentence shall commence upon receipt by the Holder of a written notice
or notices (each, a "Stopper Notice") of the commencement of such period from
Fleet or from a New Lender which has refinanced the Indebtedness under the
Credit Agreement or any subsequent Refinancing thereof (which notice shall
specify all events of default existing under the instruments and
<PAGE> 9
agreements governing such Senior Indebtedness on the date of such notice of
which such holder of such Senior Indebtedness had actual knowledge) and shall
end at the completion of the 179th day after the beginning of such period. Only
one such 179 day period may commence within any 360 consecutive days. No Event
of Default under clause (ii) above that existed or was continuing on the date of
delivery of any Stopper Notice to the Holder shall be, or be made, the basis for
a subsequent Stopper Notice. Upon termination of any such period, the Guarantor
shall resume payments on account of the Guaranteed Obligations, subject to the
provisions of this Section 3 with respect to any events of default not set forth
in any previously delivered Stopper Notice.
(b) If any event described in paragraphs (i) or (ii) of this Section 3.1(b)
occurs with respect to any Guarantor, then all Senior Indebtedness of such
Guarantor shall first be paid in full in cash or cash equivalents before any
payment by such Guarantor of or on account of the Guaranteed Obligations:
(i) the Guarantor or any of its Subsidiaries shall (A) apply for or consent to
the appointment of, or the taking of possession by, a receiver, custodian,
trustee, examiner or liquidator of itself or of all or a substantial part of its
assets or property, (B) make a general assignment for the benefit of its
creditors, (C) commence a voluntary case under the Federal Bankruptcy Code, (D)
file a petition seeking to take advantage of any other law relating to
bankruptcy, insolvency, reorganization, liquidation, dissolution, arrangement or
winding-up, or composition or readjustment of debts, (E) fail to controvert in a
timely and appropriate manner, or acquiesce in writing to, any petition filed
against it in an involuntary case under the Federal Bankruptcy Code, (F)
generally fail to pay its debts as they become due or (G) take any corporate or
limited liability company action for the purpose of effecting any of the
foregoing; or
(ii) a proceeding or case shall be commenced, without the application or consent
of the Guarantor or any of its Subsidiaries, in any court of competent
jurisdiction, seeking (A) its reorganization, liquidation, dissolution,
arrangement or winding-up, or the composition or readjustment of its debts, (B)
the appointment of a receiver, custodian, trustee, examiner, liquidator or the
like of the Guarantor or any of its Subsidiaries of all or any substantial part
of its property, or (C) similar relief in respect of the Guarantor or any of its
Subsidiaries under any law relating to bankruptcy, insolvency, reorganization or
winding-up, or composition or adjustment of debts, and such proceeding or case
shall continue undismissed, or an order, judgment or decree approving or
ordering any of the foregoing shall be entered and continue unstayed and in
effect, for a period of sixty (60) or more days; or an order for relief against
the Guarantor or any of its Subsidiaries shall be entered in an involuntary case
under the Federal Bankruptcy Code.
(c) In any of the proceedings referred to in paragraphs (i) or (ii) of Section
3.1(b) above, any payment or distribution of any kind or character, whether in
cash, property, stock or obligations (other than stock or obligations of the
maker issued pursuant to a plan of reorganization which are expressly
subordinated and junior (whether by law or agreement) at least to the extent
provided in this Section 3 to the payment of any stock or obligations which are
issued in exchange or substitution for any Senior Indebtedness), which may be
payable or deliverable by the Guarantor in respect of this Guarantee shall be
paid or delivered directly to the holders of Senior Indebtedness (or to a
<PAGE> 10
banking institution selected by the court or person or entity making the payment
or delivery or designated by any holder of Senior Indebtedness) for application
in payment thereof in accordance with the priorities then existing among such
holders, unless and until all Senior Indebtedness shall have been paid in full
in cash or cash equivalents.
(d) If any payment or distribution of any character, whether in cash, securities
or other property, shall be received by the Holder in contravention of any of
the terms of this Section 3 and before all the Senior Indebtedness shall have
been paid in full in cash or cash equivalents, such payment or distribution
shall be received in trust for the benefit of the holders of the Senior
Indebtedness at the time outstanding and shall forthwith be paid over or
delivered and transferred to the holders of Senior Indebtedness, or their
respective trustees, agents or representatives, as their respective interests
may appear.
Section 3.2. Obligation of Guarantors Unconditional. The provisions of this
Section 3 are for the purpose of defining the relative rights of the holders of
Senior Indebtedness on the one hand, and the Holder on the other hand, and
nothing herein shall impair, as between the Guarantors and the Holder, the
obligation of the Guarantors, which is unconditional and absolute, to pay to the
Holder the Guaranteed Obligations hereon in accordance with the terms and the
provisions hereof, nor shall anything herein prevent the Holder from exercising
all remedies otherwise permitted by applicable law or hereunder upon default
hereunder (including, without limitation, the right to demand payment and sue
for performance hereof), subject in each case to the rights under this Section 3
of holders of Senior Indebtedness.
Section 3.3. Subrogation. Upon payment in full of Senior Indebtedness in cash or
cash equivalents, the Holder shall be subrogated to the rights of the holders of
the Senior Indebtedness to receive payments or distributions of assets of the
Guarantors made in respect of Senior Indebtedness until the principal of and
interest on this Guarantee shall be paid in full, and, for the purposes of such
subrogation, no payments to the holders of Senior Indebtedness of any cash,
property, stock or obligations to which the Holder would have been entitled but
for the provisions of Section 3.1(c) above shall, as between the Guarantors,
their creditors (other than the holders of the Senior Indebtedness) and the
Holder, be deemed to be a payment by the Guarantors to or on account of Senior
Indebtedness.
Section 3.4. Rights of Holders of Senior Indebtedness. The provisions of this
Section 3 shall be deemed a continuing offer to all holders of Senior
Indebtedness to act in reliance on such provisions (but no such reliance shall
be required to be proven to receive the benefits hereof) and may be enforced by
such holders and no right of any present or future holder of any Senior
Indebtedness to enforce subordination as provided in this Section 3 shall at any
time in any way be prejudiced or impaired by any act or failure to act on the
part of any Guarantor or by any act or failure to act by any such holder, or by
any non-compliance by any Guarantor with the terms, provisions and covenants of
this Guarantee, regardless of any knowledge thereof any such holder may have or
be otherwise charged with and no purported change in the provisions of this
Section 3 shall be effective as against any holder of Senior Indebtedness
existing at the time of such change without the consent of such holder. Without
in any way limiting the generality of the foregoing, the holders of Senior
Indebtedness may, at any time and from time to time, without the consent of or
notice to the Holder, and
<PAGE> 11
without impairing or releasing the subordination provided in this Section 3 or
the obligations hereunder of the Holder to the holders of Senior Indebtedness,
do any one or more of the following: (i) change the manner, place or terms of
payment (including interest rates and fees) or extend the time of payment of, or
renew or alter, or waive defaults under, or take additional guarantees or
collateral for the benefit of, Senior Indebtedness, or otherwise amend or
supplement in any manner Senior Indebtedness or any instrument evidencing the
same or any agreement under which Senior Indebtedness is outstanding; (ii) sell,
exchange, release or otherwise deal with any property pledged, mortgaged or
otherwise securing Senior Indebtedness; (iii) release any Person liable in any
manner for the payment or collection of Senior Indebtedness; and (iv) exercise
or refrain from exercising any rights against the Guarantors and any other
person or entity, including any guarantor or surety. The provisions of this
Section 3 shall continue to be effective, or shall be reinstated, as the case
may be, if at any time payment, or any part thereof, in respect of any Senior
Indebtedness is rescinded or must otherwise be restored or returned by the
holders of Senior Indebtedness upon the insolvency, bankruptcy, dissolution,
liquidation or reorganization of the Guarantors or upon or as a result of the
appointment of a receiver, intervenor or conservator of, or trustee or similar
officer for, any Guarantor or any substantial part of its property, or
otherwise, all as though such payments had not been made.
Section 3.5. Notice by Guarantors. Each Guarantor shall promptly notify the
Holder of any facts known by such Guarantor that would cause a payment of any
Guaranteed Obligations to violate this Section 3 but failure to give such notice
shall not affect the subordination of the Guaranteed Obligations to the Senior
Indebtedness as provided in this Section 3.
Section 4. MISCELLANEOUS.
Section 4.1. Information. Each of the Guarantors covenants and agrees that it
will furnish, or cause to be furnished, to Holder copies of all documents, data,
and information (collectively, "Information") regarding the Guarantors provided
to Banks at the time such Information is provided to the Banks or as soon
thereafter as is practicable.
Section 4.2. No Waiver. No failure on the part of the Holder or any of its
agents to exercise, and no course of dealing with respect to, and no delay in
exercising, any right, power or remedy hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise by the Holder or any of its
agents of any right, power or remedy hereunder preclude any other or further
exercise thereof or the exercise of any other right, power or remedy. The
remedies herein are cumulative and are not exclusive of any remedies provided by
law.
Section 4.3. Successors and Assigns; Mergers. (a) All agreements contained in
this Guarantee bind the Guarantors and inure to the benefit of the Holder and to
its successors and assigns, whether so expressed or not. The Guarantors may not
transfer, assign or delegate their obligations or rights hereunder without the
prior, written consent of the Holder.
(b) No Guarantor may merge or consolidate with, or sell substantially all of its
assets to, another Person (other than another Guarantor) without the prior
written consent of the Holder which consent may not be
<PAGE> 12
unreasonably withheld, provided that such consent shall not be required if the
agreement pursuant to which the Guarantor will merge with, or sell substantially
all of its assets to, another Person requires that Person to assume the
Guarantor's obligations hereunder. Notwithstanding the foregoing, the following
shall not be prohibited by this Section 4.3(b) or any other provision of this
Guarantee: (i) a transfer or proposed transfer of the capital stock or other
equity of a Guarantor that is not deemed to be a Change of Control of such
Guarantor as defined in Section 3.1(f) of the Note; or (ii) any transfer of all
or a portion of the assets of a Guarantor, so long as such transfer is upon
terms which are fair and reasonable to the business of the Company and the
Guarantors, taken as a whole, that is either expressly authorized under a Credit
Facility or New Loan Agreement, as the case may be, to which such Guarantor is a
party or is consented to by the required Banks or New Lender of such Guarantor,
as the case may be (a "Permitted Transfer"). Upon the occurrence of a Permitted
Transfer constituting the transfer of the capital stock or other equity of a
Guarantor or Guarantors, the obligations of such Guarantor or Guarantors under
this Guarantee shall automatically terminate as of the date of closing of any
such Permitted Transfer, without the need for the Holder or said Guarantor or
Guarantors to take any further action, and said Guarantor or Guarantors shall be
released from any and all obligations under this Guarantee and the Note (the
"Termination and Release"). Upon the occurrence of a Permitted Transfer, the
proceeds of such Permitted Transfer, net of the reasonable costs and expenses
incurred by the applicable Guarantor in connection with the Permitted Transfer
and subject to the provisions for making distributions or dividends pursuant to
Section 4.4 of this Guarantee, shall be used in the manner permitted by the
Banks and/or any New Lender, as the case may be. Upon the occurrence of a
Permitted Transfer constituting a transfer of assets, the Guarantors and Holder
understand, acknowledge and agree that: (i) the Holder shall have no claim
whatsoever to such assets either pursuant to this Guarantee or at law or in
equity; and (ii) all such assets shall be transferred free and clear of any
obligations under this Guarantee. Notwithstanding anything to the contrary
contained in this Guarantee, the Holder shall execute all documents reasonably
requested by the Guarantor or Guarantors taking part in any Permitted Transfer
for purposes of (i) further evidencing a Termination and Release or (ii) with
respect to any Permitted Transfer constituting a transfer of assets, evidencing
that said assets are being transferred free and clear of any obligations under
this Guarantee.
(c) Except for the provisions for making those distributions or dividends
permitted under Section 4.4 of this Guarantee and except for any Permitted
Transfer, neither the Company nor any of the Guarantors will, nor permit any of
its Subsidiaries to, enter into any material transaction (including without
limitation the purchase, sale or exchange of property of a material value, the
rendering of any service of a material value, the making of any material
investment in a Related Party, or the repayment of any material indebtedness
owed to a Related Party) with a Related Party except upon terms which are fair
and reasonable to the business of the Company and the Guarantors, taken as a
whole. As used herein "Related Party" of any Person means any other Person
directly or indirectly controlling, controlled by or under common control with
such Person. A Person shall be deemed to control another Person if (i) the
controlling Person owns 10% or more of any class of voting securities (or other
voting ownership interests) of the controlled Person, (ii) the controlling
Person owns 50% of more of the equity of the controlled Person, or (iii)
possesses, directly or indirectly, the power to direct or cause the direction of
the management
<PAGE> 13
or policies of the controlled Person, whether through ownership of stock, by
contract or otherwise. Notwithstanding anything to the contrary contained in
this Guarantee, the term "Related Party" shall not include the Guarantors or the
Company.
Section 4.4. Restrictions on Distributions. (a) Until all the Guaranteed
Obligations have been paid in full, no Guarantor will declare or make, directly
or indirectly, any distribution or dividend of cash to its shareholders or
members, as the case may be, on account of being a shareholder or member, as the
case may be, except for distributions or dividends of cash to shareholders or
members, as the case may be, that: (i) constitute S Income Distributions; (ii)
are loaned by the recipient thereof to any one or more of the Guarantors or the
Company, provided that such recipient is either a party to the Affiliate
Subordination Agreement or, prior to making such loan, becomes a party to the
Affiliate Subordination Agreement; (iii) are contributed as capital by the
recipient thereof to the Company or any one or more of the Guarantors; (iv) are
paid to one or more of the Banks or a New Lender; or (v) with respect to any
such cash dividends or distributions to shareholders of those Guarantors which
are C-corporations, are used to pay federal and/or state income taxes as a
result of distributions made pursuant to clauses (ii), (iii) and/or (iv) above.
Nothing contained in this Section 4.4 shall impair or prohibit any Guarantor
from paying a reasonable salary or other compensation to its employees or
persons who perform management, consulting or other services for a Guarantor on
account of such employment or services.
(b) For purposes of the above: i) "S Income Distributions" means, with respect
to each Guarantor that is an S-corporation or limited liability company, any
distribution or dividend of cash made to any shareholder or member of such
Guarantor in amounts not in excess of the highest marginal rate payable by
individuals under federal and applicable state law, but in no event more than
fifty percent (50%) of the S Income of such Guarantor as determined by such
Guarantor's independent public accountants to be necessary for the related
fiscal year; and ii) "S Income" means the amount shown as taxable income
allocated to the shareholders or members of a Guarantor and attributable to the
net income of such Guarantor as reported each year on Form 1120-S or Form 1065,
as applicable, or any successor form thereto.
Section 4.5. Additional Subsidiaries. Each of the Guarantors covenants and
agrees with the Holder that it will cause each of its Subsidiaries, whether now
existing or hereafter in existence, to execute and deliver this Guarantee.
Section 4.6. Severability. Any provision of this Guarantee that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall (to the full extent permitted by law) not invalidate or
render unenforceable such provision in any other jurisdiction.
Section 4.7. Construction. Each agreement contained herein shall be construed
(absent express provision to the contrary) as being independent of each other
agreement contained herein, so that compliance with any one agreement shall not
(absent such an express contrary provision) be deemed to excuse compliance with
any other agreement. Where any provision herein refers to action to be taken by
any Person, or which such Person is prohibited from taking, such provision shall
be
<PAGE> 14
applicable whether such action is taken directly or indirectly by such Person.
Section 4.8. Governing Law. This Guarantee shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the law of
the State of Indiana without giving effect to the conflicts of laws principles
thereof.
Section 4.9. Expenses. The Guarantors shall indemnify the Holder on demand in
respect of all costs and expenses (including reasonable legal fees) incurred by
it in connection with the enforcement of this Guarantee or the preservation of
the rights of the Holder as a result of any breach by the Guarantors of their
obligations hereunder.
Section 4.10. Notices. All notices and communications provided for hereunder
shall be in writing and sent, and deemed received, as provided in Section 7.1 of
the Note (i) if to the Holder, to the address specified for the Holder in or
pursuant to the Note and (ii) if to the Guarantors, to the addresses for the
Guarantors set forth on the signature pages hereof.
Section 4.11. Amendments. This Guarantee may be amended, and observance of any
term hereof waived (either retroactively or prospectively), with (and only with)
the written consent of the Guarantors and the Holder.
Section 4.12. Obligation to Make Payment in U.S. Dollars. All payments made by
the Guarantors under this Guarantee shall be in U.S. Dollars and, to the fullest
extent permitted by law, the obligations of the Guarantors to make such payments
in U.S. Dollars shall not be discharged or satisfied by any tender, or any
recovery pursuant to any judgment, which is expressed in or converted into any
currency other than U.S. Dollars, except to the extent such tender or recovery
would result in the actual receipt by the Holder of the full amount of U.S.
Dollars expressed to be payable in respect of any such obligations at the
prevailing exchange rate on the date of such tender or recovery. To the fullest
extent permitted by law, the obligation of the Guarantors to make payments in
U.S. Dollars as aforesaid shall be enforceable as an alternative or additional
cause of action for the purpose of recovery in U.S. Dollars of the amount, it
any, by which such receipt shall fall short of the full amount of U.S. Dollars
expressed to be payable in respect of any such obligations, and shall not be
affected by judgment being obtained for any other sums due under this Guarantee.
Section 4.13. Release. Upon all amounts of principal of and interest on the Note
being paid in full, the Guarantors shall be released from their obligations
under this Guarantee.
Section 4.14. Jurisdiction and Process. The Guarantors agree that any legal
action or proceeding arising out of or relating to this Guarantee or any other
document executed in connection herewith, or any legal action or proceeding to
execute or otherwise enforce any judgment obtained against any Guarantor, for
breach hereof or thereof, or against any of its properties, may be brought in
the courts of the State of Indiana or the United States District Court for the
Northern District of Indiana by or on behalf of the Holder, as the Holder may
elect, and the Guarantors hereby irrevocably and unconditionally submit to the
non-exclusive jurisdiction of such courts for purposes of any such legal action
or proceeding. The Guarantors hereby agree that service of process in any such
proceeding may be effected by mailing a copy thereof
<PAGE> 15
by registered or certified mail (or any substantially similar form of mail),
postage prepaid, to them, at their respective addresses specified in Section 4.8
or at such other address of which the Holder shall have been notified pursuant
thereto. In addition, the Guarantors hereby irrevocably waive to the fullest
extent permitted by law, any objection which they may now or hereafter have to
the laying of venue of any suit, action or proceeding arising out of or relating
to this Guarantee or any other document executed in connection herewith brought
in the courts of the State of Indiana or the United States District Court for
the Northern District of Indiana, and any claim that any such suit, action or
proceeding brought in any such court has been brought in an inconvenient forum.
Section 4.15. Headings, Etc.. The headings of the Sections of this Guarantee
have been inserted for convenience and reference only, are not to be considered
a part hereof, and shall in no way modify or restrict any of the terms or
provisions hereof.
(rest of page left blank intentionally)
EXECUTED by the Guarantors as of the day and year first above written.
BF HOLDING, INC.
By /s/ Steven P. Schonberg
-----------------------
Name: Steven P. Schonberg
Title: Chief Financial Officer
BRUEGGERS FRANCHISE CORPORATION
By /s/ Steven P. Schonberg
-----------------------
Name: Steven P. Schonberg
Title: Chief Financial Officer
LETHE LLC
By /s/ Steven P. Schonberg
-----------------------
Name: Steven P. Schonberg
Title: President
ODYSSEY BAGELS, INC.
By /s/ Steven P. Schonberg
-----------------------
Name: Steven P. Schonberg
Title: Chief Financial Officer
<PAGE> 16
CHAMPLAIN MANAGEMENT SERVICES, INC.
By /s/ Steven P. Schonberg
------------------------
Name: Steven P. Schonberg
Title: President
CHAMPLAIN LEASING, L.L.C.
By /s/ Steven P. Schonberg
-----------------------
Name: Steven P. Schonberg
Title: President and Treasurer
FLOUR CITY BAGELS, INC.
By /s/ Steven P. Schonberg
-----------------------
Name: Steven P. Schonberg
Title: Vice President Finance and Treasurer
BAYSTATE BAGELS, INC.
By /s/ Steven P. Schonberg
-----------------------
Name: Steven P. Schonberg
Title: Vice President Finance and Treasurer
UPTOWN BAGELS, INC.
By /s/ Steven P. Schonberg
-----------------------
Name: Steven P. Schonberg
Title: Vice President Finance and Treasurer
IRON CITY BAGELS, INC.
By /s/ Steven P. Schonberg
-----------------------
Name: Steven P. Schonberg
Title: Vice President Finance and Treasurer
NORSTAR BAGEL BAKERIES, INC.
By /s/ Steven P. Schonberg
------------------------
Name: Steven P. Schonberg
Title: Vice President Finance and Treasurer
HAWKEYE BAGEL BAKERIES, INC.
By /s/ Steven P. Schonberg
-----------------------
Name: Steven P. Schonberg
Title: Vice President Finance and Treasurer
TARHEEL BAGELS, INC.
By /s/ Steven P. Schonberg
-----------------------
Name: Steven P. Schonberg
Title: Vice President Finance and Treasurer
Addresses of Guarantors: