-----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, AReWqWFRdFhwhsPeL1ryE2XsCZsG5F74HGTY5WsFWaBfCsBbSjIkVypkiFc1VppO q81IsIuaRGUBJu6e2BouZA== 0000898430-97-005382.txt : 19971222 0000898430-97-005382.hdr.sgml : 19971222 ACCESSION NUMBER: 0000898430-97-005382 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 46 FILED AS OF DATE: 19971219 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PANTRY INC CENTRAL INDEX KEY: 0000915862 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-CONVENIENCE STORES [5412] IRS NUMBER: 561574463 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-42811 FILM NUMBER: 97741710 BUSINESS ADDRESS: STREET 1: 1801 DOUGLAS DR STREET 2: PO BOX 1410 CITY: SANFORD STATE: NC ZIP: 27330 BUSINESS PHONE: 9197746700 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LIL CHAMP FOOD STORES INC CENTRAL INDEX KEY: 0000059461 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 591147100 STATE OF INCORPORATION: FL FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-42811-01 FILM NUMBER: 97741711 BUSINESS ADDRESS: STREET 1: 9143 PHILLIPS HIGHWAY SUITE 200 STREET 2: PO BOX 23180 CITY: JACKSONVILLE STATE: FL ZIP: 32241 BUSINESS PHONE: 9044647200 MAIL ADDRESS: STREET 1: 9143 PHILLIPS HIGHWAY SUITE 200 STREET 2: PO BOX 23180 CITY: JACKSONVILLE STATE: FL ZIP: 32241 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SANDHILLS INC CENTRAL INDEX KEY: 0001051777 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 510347722 STATE OF INCORPORATION: FL FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-42811-02 FILM NUMBER: 97741712 BUSINESS ADDRESS: STREET 1: 913 MARKET STREET STREET 2: SUITE 806 CITY: WILMINGTON STATE: DE ZIP: 19801 BUSINESS PHONE: 3025765745 MAIL ADDRESS: STREET 1: 913 MARKET STREET STREET 2: SUITE 806 CITY: WILMINGTON STATE: DE ZIP: 19801 S-4 1 FORM S-4 As filed with the Securities and Exchange Commission on December 19, 1997 Registration No. ___________ ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------------- FORM S-4 REGISTRATION STATEMENT Under The Securities Act of 1933 ---------------------- THE PANTRY, INC. (Exact name of registrant as specified in its charter) Delaware 5411 56-1574463 (State or other jurisdiction of (Primary Standard Industrial (Employer incorporation or organization) Classification Code Number) Identification No.)
P.O. Box 1410 1801 Douglas Drive Sanford, North Carolina 27331-1410 (919) 774-6700 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) ---------------------- See Table of Co-Registrants below ---------------------- William T. Flyg Senior Vice President, Finance, Chief Financial Officer and Secretary The Pantry, Inc. P.O. Box 1410 1801 Douglas Drive Sanford, North Carolina 27331-1410 (919) 774-6700 (Name, address, including zip code, and telephone number, including area code, of agent for service) ---------------------- Copies to: Cynthia M. Dunnett, Esq. Riordan & McKinzie 300 South Grand Avenue 29th Floor Los Angeles, California 90071 ---------------------- Approximate date of commencement of proposed sale to the public: As soon as practicable after the Registration Statement becomes effective. If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box: [_] If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] CALCULATION OF REGISTRATION FEE ================================================================================
Amount to Proposed maximum Proposed maximum Amount of be offering price per aggregate offering registration fee Title of each class of securities to be registered registered unit/(1)/ price/(1)/ - ------------------------------------------------------------------------------------------------------------------------------------ 10 1/4% Senior Subordinated Notes due 2007 $200,000,000 100.0% $200,000,000 $59,000 - ------------------------------------------------------------------------------------------------------------------------------------ Guarantees of the 10 1/4% Senior Subordinated Notes due 2007 -- -- -- None/(2)/ ====================================================================================================================================
(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(f)(2). (2) Pursuant to Rule 457(n). ---------------------- The Registrant and the Co-Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant and the Co-Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. ================================================================================ Table of Co-Registrants -----------------------
I.R.S. State or Other Primary Standard Employer Jurisdiction Industrial Classification Identification Name of Incorporation Code Number Number - ---------------------- ---------------------- ------------------------- --------------------- Sandhills, Inc.(1) Delaware 6799 51-0347722 Lil' Champ Food Stores, Florida 5411 59-1147100 Inc.(2)
- ------------------------ (1) Address, including zip code and telephone number, including 913 Market Street, Suite 806 area code, of principal executive office of co-registrant. Wilmington, Delaware 19801 (302) 576-5745 (2) Address, including zip code and telephone number, including 9143 Phillips Highway, Suite 200 area code, of principal executive office of co-registrant. P.O. Box 23180 Jacksonville, Florida 32241-3180 (904) 464-7200
Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any State in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such State. Subject to Completion dated December 19, 1997 PROSPECTUS The Pantry, Inc. Offer to Exchange its 10 1/4% Senior Subordinated Notes due October 15, 2007, which have been registered under the Securities Act, for any and all of its outstanding 10 1/4% Senior Subordinated Notes due October 15, 2007 The Exchange Offer will expire at 5:00 P.M., New York City time, on , 1998, unless extended. ---------------------- The Pantry, Inc. (the "Company") hereby offers, upon the terms and subject to the conditions set forth in this Prospectus (the "Prospectus") and the accompanying Letter of Transmittal (the "Letter of Transmittal" and together with this Prospectus, the "Exchange Offer"), to exchange $1,000 principal amount of its 10 1/4% Senior Subordinated Notes due October 15, 2007 (the "Exchange Notes") which have been registered under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to a registration statement (the "Registration Statement") of which this Prospectus is a part, for each $1,000 principal amount of its outstanding 10 1/4% Senior Subordinated Notes due October 15, 2007 (the "Notes"), of which $200.0 million principal amount is outstanding as of the date hereof. The Company will accept for exchange any and all validly tendered Notes prior to 5:00 P.M., New York City time, on , 1998, unless extended (the "Expiration Date"). Notes may be tendered only in integral multiples of $1,000. Tenders of Notes may be withdrawn at any time prior to 5:00 P.M., New York City time, on the Expiration Date. The Exchange Offer is not conditioned upon any minimum principal amount of Notes being tendered for exchange. However, the Exchange Offer is subject to certain customary conditions. In the event the Company terminates the Exchange Offer and does not accept for exchange any Notes, the Company will promptly return the Notes to the holders thereof. The Company will not receive any proceeds from the Exchange Offer. See "The Exchange Offer." The Exchange Notes will be obligations of the Company evidencing the same debt as the Notes, and will be entitled to the benefits of the same indenture (the "Indenture"). See "Description of Exchange Notes". The form and terms of the Exchange Notes are the same as the form and terms of the Notes in all material respects except that the Exchange Notes have been registered under the Securities Act and hence do not include certain rights to registration thereunder and do not contain transfer restrictions or terms with respect to the special interest payments applicable to the Notes. The Notes were issued on October 23, 1997 pursuant to an offering exempt from registration under the Securities Act. See "The Exchange Offer". Continued on following page This Prospectus and the Letter of Transmittal are first being mailed to holders of the Notes on , 1998. See "Risk Factors" on page 15 for information that should be considered in connection with this offering. ---------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ---------------------- The date of this Prospectus is , 1998. (Continuation of cover page) The Exchange Notes are being offered hereunder in order to satisfy certain obligations of the Company under the Registration Rights Agreement, dated as of October 23, 1997 (the "Exchange Offer Registration Rights Agreement"), by and among the Company, the Guarantors (as defined) and the Initial Purchasers (as defined herein), a copy of which has been filed as an exhibit to the Registration Statement of which this Prospectus is a part. The Exchange Offer is intended to satisfy the Company's obligations under the Exchange Offer Registration Rights Agreement to register the Notes under the Securities Act. Once the Exchange Offer is consummated, the Company will have no further obligations to register any of the Notes not tendered by the holders of the Notes (the "Holders") for exchange. See "Risk Factors--Consequences to Non- Tendering Holders of Notes". Based on interpretations by the staff of the Securities and Exchange Commission (the "Commission") set forth in several no-action letters to third parties, the Company believes that the Exchange Notes issued pursuant to the Exchange Offer in exchange for Notes may be offered for resale, resold and otherwise transferred by holders thereof without compliance with the registration and prospectus delivery provisions of the Securities Act. However, any Holder who is an "affiliate" of the Company or who intended to participate in the Exchange Offer for the purpose of distributing the Exchange Notes (i) cannot rely on the interpretation by the staff of the Commission set forth in the above referenced no-action letters, (ii) cannot tender its Notes in the Exchange Offer, and (iii) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any sale or transfer of the Notes, unless such sale or transfer is made pursuant to an exemption from such requirements. See "Risk Factors--Consequences to Non- Tendering Holders of Notes". In addition, each broker-dealer that receives Exchange Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Notes received in exchange for Notes where such Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities and not acquired directly from the Company. The Company has agreed that for a period of 180 days after the Expiration Date, it will make this Prospectus available to any broker- dealer for use in connection with any such resale. See "Plan of Distribution." EXCEPT AS DESCRIBED IN THIS PARAGRAPH, THIS PROSPECTUS MAY NOT BE USED FOR AN OFFER TO RESELL, RESALE OR OTHER TRANSFER OF EXCHANGE NOTES. Notes were initially represented by two Global Notes (as defined herein) in fully registered form, each registered in the name of a nominee of The Depository Trust Company ("DTC"), as depository. The Exchange Notes exchanged for Notes represented by the Global Notes may be initially represented by one or more global securities ("Global Exchange Note") in fully registered form, each registered in the name of the nominee of DTC. The Global Exchange Note will be exchangeable for Exchange Notes in registered form, in denominations of $1,000 and integral multiples thereof as described herein. The Exchange Notes in global form will trade in The Depository Trust Company's Same-Day Funds Settlement System, and secondary market trading activity in such Exchange Notes will therefore settle in immediately available funds. See "Description of Exchange Notes--Form, Denomination and Book-Entry Procedures". The Exchange Notes will bear interest at a rate equal to 10 1/4% per annum from their date of issuance. Interest on the Exchange Notes is payable semi- annually on April 15 and October 15 of each year, commencing April 15, 1998. Holders whose Notes are accepted for exchange will receive, in cash, accrued interest thereon to, but not including, the date of issuance of the Exchange Notes. Such interest will be paid with the first interest payment on the Exchange Notes. Interest on the Notes accepted for exchange will cease to accrue interest upon cancellation of the Notes and issuance of the Exchange Notes. i (Continuation of cover page) The Exchange Notes will be redeemable at the option of the Company, in whole or in part, at any time on or after October 15, 2002, at the redemption prices set forth herein plus accrued interest to the date of redemption. In addition, the Company, at its option, may redeem in the aggregate up to 35% of the original principal amount of the Exchange Notes at any time and from time to time prior to October 15, 2000 at a redemption price equal to 110.25% of the principal amount thereof plus accrued interest to the redemption date with the Net Proceeds of one or more Public Equity Offerings (as defined); provided that, at least $130 million in principal amount of Exchange Notes remains outstanding immediately after the occurrence of any such redemption and that any such redemption occurs within 60 days following the closing of any such Public Equity Offering. In the event of a Change of Control (as defined herein), the Company will be required to make an offer to purchase all outstanding Exchange Notes at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest to the date of repurchase. See "Description of the Exchange Notes-- Change of Control Offer." There can be no assurance that the Company will have sufficient funds or will be contractually permitted by outstanding Senior Indebtedness to pay the required purchase price for any or all Exchange Notes tendered by holders upon a Change of Control. The Notes are, and the Exchange Notes will be, general unsecured obligations of the Company subordinate in right of payment to all existing and future Senior Indebtedness (as defined herein) of the Company and senior in right of payment to any subordinated indebtedness of the Company. The Exchange Notes will be effectively subordinated to any secured indebtedness of the Company. The Exchange Notes will be unconditionally guaranteed, on an unsecured senior subordinated basis, as to payment of principal, premium, if any, and interest, jointly and severally, by certain current and future Restricted Subsidiaries (as defined herein) of the Company (the "Guarantors"). The Exchange Notes will be structurally subordinated to indebtedness of any of the Company's subsidiaries that are not Guarantors. Prior to this offering, there has been no public market for the Notes. Following completion of the Exchange Offer, the Company does not intend to list the Exchange Notes on a national securities exchange or to seek approval for quotation through the Nasdaq National Market. The Initial Purchasers have informed the Company that they currently intend to make a market in the Exchange Notes. However, the Initial Purchasers are not obligated to do so and any such market making may be discontinued at any time without notice. Therefore, no assurance can be given as to whether an active trading market will develop or be maintained for the Exchange Notes. As the Notes were issued and the Exchange Notes are being issued to a limited number of institutions who typically hold similar securities for investment, the Company does not expect that an active public market for the Exchange Notes will develop. In addition, resales by certain holders of the Notes or the Exchange Notes of a substantial percentage of the aggregate principal amount of such notes could constrain the ability of any market maker to develop or maintain a market for the Exchange Notes. To the extent that a market for the Exchange Notes should develop, the market value of the Exchange Notes will depend on prevailing interest rates, the market for similar securities and other factors, including the financial condition, performance and prospects of the Company. Such factors might cause the Exchange Notes to trade at a discount from face value. See "Risk Factors--Lack of Public Market for the Exchange Notes". The Company has agreed to pay the expenses of the Exchange Offer. This Prospectus incorporates documents by reference which are not presented herein or delivered herewith. These documents are available upon request from William T. Flyg, Senior Vice President, Finance, Chief Financial Officer and Secretary, The Pantry, Inc., P.O. Box 1410, 1801 Douglas Drive, Sanford, North Carolina 27331-1410, telephone number (919) 774-6700. ii AVAILABLE INFORMATION The Company has filed with the Securities and Exchange Commission (the "Commission") a registration statement on Form S-4 (together with all amendments thereto, the "Registration Statement") under the Securities Act for the registration of the Exchange Notes offered hereby. As permitted by the rules and regulations of the Commission, this Prospectus does not contain all of the information set forth in the Registration Statement and the exhibits and schedules thereto. For further information with respect to the Company and the Exchange Notes offered hereby, reference is made to the Registration Statement and to the exhibits and schedules filed therewith. Statements contained in this Prospectus concerning the contents of any contract or other document are not necessarily complete. With respect to each such contract or other document filed with the Commission as an exhibit to the Registration Statement, reference is made to the exhibit for a more complete description of the matter involved, and each such statement shall be deemed qualified in its entirety by such reference. Upon consummation of the Exchange Offer, the Company will be subject to the informational requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder (the "Exchange Act") for a period following the effectiveness of the Registration Statement. The Registration Statement, the exhibits and schedules forming a part thereof and the reports and other information filed by the Company with the Commission in accordance with the Exchange Act may be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and will also be available for inspection and copying at the regional offices of the Commission located at 7 World Trade Center, 13th Floor, New York, New York 10048 and at Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material may also be obtained upon written request from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The Commission also maintains a World Wide Web site (http://www.sec.gov) that contains reports, proxy and other information regarding registrants that file electronically with the SEC. While any Notes remain outstanding, the Company will make available, upon request, to any holder and any prospective purchaser of the Notes the information required by Rule 144A(d)(4) under the Securities Act during any period in which the Company is not subject to Section 13 or 15(d) of the Exchange Act. Any such request should be mailed to The Pantry, Inc., 1801 Douglas Drive, Post Office Box 1410, Sanford, North Carolina 27330. Telephone requests may be directed to the Corporate Secretary at (919) 774-6700. The Indenture provides that, following the filing date of this Registration Statement and for so long as any of the Exchange Notes are outstanding, the Company will file with the Commission the periodic reports required to be filed with the Commission under the Exchange Act, whether or not the Company is subject to Section 13(a) or 15(d) of the Exchange Act. The Company will also, within 15 days of filing each such report with the Commission, provide the Trustee and the holders of the Exchange Notes with annual reports containing the information required to be contained in Form 10-K promulgated under the Exchange Act, quarterly reports containing the information required to be contained in Form 10-Q promulgated under the Exchange Act, and from time to time such other information as is required to be contained in Form 8-K promulgated under the Exchange Act. If filing such reports with the Commission is prohibited by the Exchange Act, the Company will also provide copies of such reports to prospective purchasers of the Exchange Notes upon written request. iii SUMMARY The following is a summary of certain information contained elsewhere in this Prospectus. Reference is made to, and this summary is qualified in its entirety by, the more detailed information and financial statements, including the notes thereto, contained elsewhere in this Prospectus. Unless the context otherwise requires, "The Pantry" refers to The Pantry, Inc. and its subsidiaries, before the Lil' Champ Acquisition (as defined herein), the term "Lil' Champ" refers to Lil' Champ Food Stores, Inc. and the term "Company" refers to The Pantry and its subsidiaries (including Lil' Champ) on a combined basis after the Lil' Champ Acquisition. All references to a fiscal year of The Pantry and the Company refer to a year ending on the last Thursday in September for a stated year (e.g., "fiscal 1997" refers to the year ended September 25, 1997). All references to a fiscal year of Lil' Champ refer to a year ending on the last Saturday in December for a stated year. Unless otherwise indicated, all references to non-financial data are as of September 25, 1997. The Company On October 23, 1997, The Pantry, Inc., the largest convenience store operator in North Carolina and South Carolina, purchased Lil' Champ Food Stores, Inc. (the "Lil' Champ Acquisition"). Lil' Champ is the largest convenience store chain in northern Florida, operating 488 convenience stores located in 33 counties in northern Florida and southeastern Georgia. The combination of The Pantry and Lil' Champ has created the third largest independent convenience store chain in the United States (based on number of stores) with 878 stores and a strong concentration in the Southeast. The Pantry. The Pantry is the largest operator of convenience stores in North Carolina and South Carolina, where 289 of its 390 stores are located. The other 101 Pantry stores are located in western Kentucky, Tennessee and southern Indiana. The Pantry operates its convenience stores under the name "The Pantry," primarily in smaller towns and suburban areas. The Pantry's stores offer a broad selection of affordable, high quality merchandise and services, including tobacco products, beer, soft drinks, self-service fast food and beverages, publications, dairy products, groceries, health and beauty aids, video games and money orders. In its Kentucky and Indiana stores, The Pantry also sells lottery products. In addition, self-service gasoline is sold at 364 Pantry stores, 314 of which sells gasoline under brand names including Amoco, British Petroleum (BP), Exxon, Shell and Texaco. Since fiscal 1994, merchandise sales (including commissions from services) and gasoline sales have each averaged approximately 50% of total revenues. Management believes The Pantry has the following principal strengths: . Leading market position. The Pantry, which commenced operations in 1967, is a leading operator of convenience stores in the Southeast. Since 1979, The Pantry has operated the largest number of convenience stores in North Carolina and South Carolina, and currently has approximately twice the number of stores as its largest competitor. Throughout its operating history, The Pantry has captured many prime locations in its market areas. The Pantry's geographically concentrated store base in North Carolina and South Carolina generates operational and marketing efficiencies and enhances its negotiating position with suppliers. . Attractive markets. North Carolina and South Carolina are among the fastest growing states in terms of population, employment and gross state product. According to the U.S. Census Bureau, the population of these two states increased 8.5% for the period from 1990 through 1996, compared to the national average of 6.4% over the same period. According to the U.S. Bureau of Labor Statistics, employment in these two states increased 7.8% for the period from 1990 through 1996, compared to the national average of 6.7% over the same period. According to the U.S. Department of Commerce, the gross state product of these two states increased 12.6% for the period from 1990 through 1994, compared to the national average of 8.2% during the same period. Additionally, approximately 23% of The Pantry stores are located in coastal resort areas which attract vacationing customers, who tend to shop more frequently at convenience stores and are less sensitive to prices than local populations. 1 . Experienced management. Beginning in the second quarter of fiscal 1996, The Pantry hired a new management team led by Peter J. Sodini. This team, with an average of 31 years of experience in various retailing industries, has been successful in improving The Pantry's operating and financial performance. Specific strategies implemented by The Pantry's new senior management team include: improving merchandising and supplier relationships, increasing expense controls, repositioning and rebranding gasoline operations, completing "tuck in" acquisitions, upgrading store facilities and increasing management depth to facilitate The Pantry's growth plans. . Branded gasoline offerings. The Pantry derives significant benefits from offering such branded gasolines as Amoco, British Petroleum (BP), Exxon, Shell and Texaco at 314 locations. Such benefits include increased customer traffic, higher gasoline margins, improved merchandise sales and a built-in credit card customer base. In addition, The Pantry receives reimaging allowances and marketing support from these branded gasoline suppliers which are used to upgrade facilities and maintain The Pantry's attractive customer image. . Attractive customer image. The Pantry prides itself on building a local, repeat customer base by emphasizing competitive prices, fully stocked stores, prompt and friendly customer service, cleanliness and safety at convenient, well-lighted locations. The Pantry's new merchandising programs, which offer expanded product selections tailored to local markets, have increased merchandise sales, gross margins and inventory turnover. Lil' Champ. Lil' Champ is a leading operator of convenience stores in Florida and the largest convenience store operator in northern Florida. Lil' Champ's 488 stores, operated under the name "Lil' Champ", are located primarily in northern Florida and Georgia, with 151 stores concentrated in the Jacksonville, Florida area. Like The Pantry, Lil' Champ stores offer a broad selection of affordable, high quality merchandise and services. Self-service gasoline is sold at 434 Lil' Champ stores, 202 of which sell gasoline under brand names including British Petroleum (BP), Chevron, Fina, and Texaco. In addition, Lil' Champ has developed a food service operation which includes 49 in-store quick service restaurants ("QSRs") offering national brands such as Taco Bell, A&W Root Beer, Long John Silver's and Pizza Hut. Since fiscal 1994, merchandise sales (including commissions from services) and gasoline sales have averaged approximately 46% and 54% of total revenues, respectively. Management believes Lil' Champ's strong financial performance is a result of the following key strengths: . Leading market position. As the largest convenience store chain in northern Florida, Lil' Champ has a strong regional identity. In its core Jacksonville, Florida market area, Lil' Champ operates 151 stores, approximately three times as many stores as its largest competitor. Lil' Champ's geographically concentrated store base in northern Florida generates operational and marketing efficiencies and enhances its negotiating position with suppliers. . Attractive markets. Northern Florida is a rapidly growing market for convenience stores. Lil' Champ stores are located predominantly in Florida, which is one of the fastest growing states in terms of population, employment and gross state product. According to the U.S. Census Bureau, the population of Florida increased 10.6% for the period from 1990 through 1996, compared to the national average of 6.4% over the same period. Jacksonville is among the fastest growing metropolitan areas in the United States. According to the U.S. Bureau of Labor Statistics, employment in Florida increased 8.4% for the period from 1990 through 1996, compared to the national average of 6.7% over the same period. According to the U.S. Department of Commerce, the gross state product of Florida increased 10.7% for the period from 1990 through 1994, compared to the national average of 8.2% during the same period. . Prime store locations. During its 26 years of operation, Lil' Champ has selectively chosen its store locations as new residential areas and interstate routes have been developed. Management believes that many of Lil' Champ's stores are in developed areas where current land prices and 2 the unavailability of suitable plots make it difficult for competitors to replicate Lil' Champ's existing store base. Operating Strategy Management's strategic goal is to continue to capitalize on and enhance the Company's position as a leading convenience store retailer in the Southeast. Management believes that the Company, with its established market positions, extensive network of locations and attractive customer image, will have a significant competitive advantage in generating operating efficiencies and pursuing "tuck in" acquisitions. Management intends to continue utilizing operating strategies that have been successfully employed at The Pantry. Elements of management's strategic plan include the following: . Focus on merchandising mix and margins. The Company's merchandising strategy is to offer a broader and more locally defined variety of products than is provided by other convenience stores, with particular emphasis on "fresh" food and beverage offerings, general merchandise and monthly promotional displays. This tailored product mix appeals to the tastes and needs of local customers and improves inventory turnover. During the summer season, for example, the Company's stores in resort areas carry more vacation oriented items such as large souvenir assortments, beachwear, beach toys and beach chairs. Furthermore, specific improvements have been implemented to enhance the breadth, quality and presentation of The Pantry's cigarette, coffee, prepared foods, general merchandise and novelty product offerings. These improvements have contributed to increases in merchandise sales and gross profit margin. Management believes there are opportunities to increase Lil' Champ's revenues and gross profit margin by applying elements of The Pantry's merchandising strategy to the Lil' Champ operations. . Leverage relationships with suppliers. An important element of the Company's operating strategy is developing and maintaining strong relationships with its merchandise and gasoline suppliers. The Pantry represents an attractive distribution channel to suppliers given its geographically concentrated store base and demonstrated ability to increase its merchandise sales and gasoline volumes. These factors enhance The Pantry's ability to obtain favorable terms from key suppliers. Management believes opportunities exist to similarly leverage Lil' Champ's supply relationships, given its high geographic concentration. Moreover, management believes the consolidation of the purchasing power of The Pantry and Lil' Champ will lead to additional cost savings. . Strengthen expense controls. The Pantry has significantly reduced its operating expenses as a percentage of sales by eliminating redundant positions, outsourcing certain non-core functions to third parties, renegotiating supply and service agreements and implementing improved employee training and retention, risk management and inventory shrink procedures and programs. Management believes that additional savings will be achieved by introducing The Pantry's expense control procedures in the Lil' Champ operations. . Improve gasoline operations. The Company will continue to focus on improving gasoline sales volumes at existing locations through its "Major Market" improvement program. The program involves (i) increasing the competitiveness of The Pantry's gasoline pricing, while maintaining acceptable profit margins, (ii) upgrading gasoline facilities and equipment and (iii) selectively rebranding stores. The Pantry has successfully implemented this program at 100 stores in four markets (representing 40% of The Pantry's gasoline volume) as evidenced by increased comparable store gasoline volumes of approximately 25% at these stores for the six months ended September 25, 1997 compared to the prior year period. As part of this effort, The Pantry is consolidating its gasoline purchasing among a select number of branded gasoline suppliers. Since February 1997, The Pantry has rebranded 71 stores with Shell gasoline pursuant to a long-term supply agreement and anticipates a total of 180 stores will be rebranded upon full implementation of the Shell rebranding program in 1998. Benefits of consolidating gasoline purchases include 3 lower costs through volume rebates as well as obtaining allowances from certain gas suppliers for advertising and reimaging, which includes upgrading gasoline equipment by installing multi-product dispensers ("MPDs") and pay-at-the-pump credit card readers ("CRINDs"). While Lil' Champ has historically maintained competitive gasoline prices, management believes that Lil' Champ can achieve cost savings and volume increases through similar gasoline equipment upgrades and rebranding. For example, only 29 Lil' Champ stores currently have CRINDs compared to 131 stores at The Pantry. . Upgrade store facilities and equipment. The Pantry's store renovation program is an integral part of the Company's operating strategy. The Pantry continually evaluates the performance of individual stores and periodically upgrades store facilities and equipment based on sales volumes, the lease term for leased locations and management's assessment of the potential return on investment. Typical upgrades include improvements to interior fixtures and equipment for self- service food and beverages, interior lighting, in-store restrooms for customers and exterior lighting and signage. The upgrading program for The Pantry's gasoline operations typically includes upgrading canopies, the addition of automated gasoline dispensing and payment equipment to enhance customer convenience and service and the installation of underground petroleum storage tank ("UST") leak detection and other equipment in accordance with applicable Environmental Protection Agency ("EPA") environmental regulations. The Pantry remodeled a total of 70 stores in seven markets in fiscal 1997. The total cost of these remodels was $4.6 million, a portion of which was paid for by branded gasoline suppliers. Since remodeling, these stores have achieved merchandise sales and gasoline gallon increases of 7.3% and 22.6%, respectively, as compared to the comparable period of the prior year. At its Lil' Champ stores the Company intends to implement a program of cosmetic upgrades, including new paint and interior lighting, in addition to selectively upgrading gasoline facilities and equipment. Management believes that its store upgrade program offers an opportunity to improve the performance of Lil' Champ operations. . Pursue "tuck in" acquisitions and new store development. Management believes there are opportunities to increase the Company's sales and gain operating efficiencies through store acquisitions and new store development. The Pantry's "tuck in" acquisition strategy focuses on acquiring individual stores or small chains within The Pantry's existing market area. The Pantry's "tuck in" acquisition program is complemented by new store development in existing markets with strong growth characteristics. By pursuing this growth strategy, the Company believes it can increase its market share and improve operating results, while taking advantage of such markets' favorable growth prospects. During the current fiscal year, The Pantry has acquired a total of 35 stores in five separate transactions, with aggregate annual revenues of $45.0 million. All of the acquired stores are in locations within The Pantry's existing markets. Management believes these acquisitions are made on favorable terms and will provide opportunities to improve merchandise sales, gross margins and gasoline volumes and eliminate overhead related to the acquired stores. The Company will continue to pursue this acquisition strategy in its primary markets including the newly acquired Lil' Champ markets. Synergies of the Lil' Champ Acquisition Through the Lil' Champ Acquisition, management anticipates that the Company will improve operating profit by (i) negotiating more favorable arrangements with suppliers of merchandise and other services due to increased purchasing volumes; (ii) concentrating Lil' Champ gasoline purchases among fewer suppliers to achieve lower supply costs and more favorable advertising and reimaging allowances; and (iii) reducing operating expenses through improved expense controls, the elimination of certain overlapping administrative costs and the renegotiation of outside service arrangements such as property and general liability insurance, employee benefits, environmental services, equipment purchasing and gas hauling. Although the operations of Lil' Champ are integrated with The Pantry, the Company will continue to operate the Lil' Champ locations under the "Lil' Champ" name in order to 4 capitalize on its strong regional identity. There can be no assurance that such synergies or cost savings will be realized or that there will not be delays in achieving such synergies or cost savings. The Transactions The Lil' Champ Acquisition, the Notes Offering and the Equity Investment. On October 23, 1997, The Pantry purchased all of the capital stock of Lil' Champ for $132.7 million in cash and repaid all outstanding indebtedness of Lil' Champ. The purchase price, the refinancing of existing Lil' Champ debt, and the fees and expenses of the Lil' Champ Acquisition were financed with the proceeds from the offering of the Notes (the "Notes Offering"), cash on hand and the purchase by existing stockholders and management of the Company of an additional $32.4 million of the Company's capital stock in connection with the Lil' Champ Acquisition (the "Equity Investment"). The New Credit Facility. On October 23, 1997, the Company entered into a new bank credit facility (the "New Credit Facility") consisting of a $45.0 million revolving credit facility and a $30.0 million acquisition facility. The New Credit Facility has availability for letter of credit usage, is secured by substantially all of the assets of the Company and the Guarantors and is guaranteed by the Guarantors. See "Description of Other Indebtedness--New Credit Facility." The Tender Offer and the Consent Solicitation. On October 23, 1997, the Company purchased $51.0 million in principal amount of the Company's 12% Series B Senior Notes due 2000 (the "Senior Notes") at a purchase price of 110% of the aggregate principal amount of each tendered Senior Note plus accrued and unpaid interest up to, but not including, the date of purchase (the "Tender Offer"). The Company obtained consents (the "Consent Solicitation") from the holders of the Senior Notes to amendments and waivers to certain of the covenants contained in the indenture governing the Senior Notes (the "Senior Notes Indenture"). The Senior Notes Indenture contains covenants including restrictions on the Company's ability to incur additional indebtedness and make acquisitions. The Company obtained consents to, among other things, permit the offering of the Notes, the Lil' Champ Acquisition and the New Credit Facility described herein. The consideration paid in respect of validly delivered, and not revoked, consents was 1-3/4% of the principal amount of the Senior Notes for which consents have been validly delivered and not revoked. See "Description of Other Indebtedness--Senior Notes." The Notes Offering, the Lil' Champ Acquisition, the Equity Investment, the New Credit Facility, the Tender Offer and the Consent Solicitation are sometimes referred to herein collectively as the "Transactions." Risk Factors Holders of the Notes should consider carefully all of the information set forth in this Prospectus, and in particular, the information set forth on page 15 under "Risk Factors" before tendering the Notes in exchange for the Exchange Notes. 5 Terms of Exchange Notes Issuer.................... The Pantry, Inc. Securities Offered........ $200.0 million principal amount of 10 1/4% Senior Subordinated Notes due 2007 (the "Exchange Notes"). Maturity Date............. October 15, 2007. Interest Rate............. The Exchange Notes will bear interest at a rate of 10 1/4% per annum. Interest Payment Dates.... Interest will accrue on the Exchange Notes from the date of issuance (the "Issue Date") and will be payable semi-annually on each April 15 and October 15, commencing April 15, 1998. Ranking................... The Exchange Notes will be general unsecured obligations of the Company subordinate in right of payment to all existing and future Senior Indebtedness (as defined herein) of the Company and senior in right of payment to any subordinated indebtedness of the Company. The Exchange Notes will be effectively subordinated to any secured indebtedness of the Company. As of September 25, 1997, on a pro forma basis and after giving effect to the consummation of the Notes Offering and the Transactions, the aggregate principal amount of all Senior Indebtedness would have been approximately $50.3 million, and the Guarantors would have had approximately $12.8 million of Guarantor Senior Indebtedness (as defined herein), excluding guarantees of Senior Indebtedness. In addition, the Company is permitted to incur Senior Indebtedness of up to $75.0 million under the New Credit Facility. As of September 25, 1997, $8.6 million of letters of credit were issued under the New Credit Facility, and the Company could have incurred an additional $66.4 million of Senior Indebtedness under the New Credit Facility. Guarantees................ The Exchange Notes will be unconditionally guaranteed, on an unsecured senior subordinated basis, as to the payment of principal, premium, if any, and interest, jointly and severally (the "Guarantees"), by all current and future direct and indirect Restricted Subsidiaries of the Company having either assets or stockholders' equity in excess of $25,000 (the "Guarantors"). Each Guarantee will be subordinated to all Guarantor Senior Indebtedness of such Guarantor. The Exchange Notes will be structurally subordinated to all indebtedness and other liabilities of any of the Company's subsidiaries that are not Guarantors. See "Description of the Exchange Notes--Certain Covenants--Limitation on Creation of Subsidiaries" and "Description of the Exchange Notes--Guarantees." Optional Redemption....... The Exchange Notes will be redeemable at the option of the Company, in whole or in part, at any time on or after October 15, 2002, at the redemption prices set forth herein plus accrued interest to the date of redemption. In addition, the Company, at its option, may redeem in the aggregate up to 35% of the original principal amount of the Exchange Notes at any time and from time to time prior to October 15, 2000 at a redemption price equal to 110.25% of the principal amount thereof plus accrued interest to the redemption date with the Net Proceeds of one or 6 more Public Equity Offerings, provided that at least $130.0 million principal amount of Exchange Notes remains outstanding immediately after the occurrence of any such redemption and that any such redemption occurs within 60 days following the closing of any such Public Equity Offering. Change of Control......... In the event of a Change of Control (as defined herein), the Company will be required to make an offer to purchase all outstanding Exchange Notes at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest to the date of repurchase. See "Description of the Exchange Notes--Change of Control Offer." There can be no assurance that the Company will have sufficient funds or will be contractually permitted by outstanding Senior Indebtedness to pay the required purchase price for any or all Exchange Notes tendered by holders upon a Change of Control. Certain Covenants......... The Indenture will contain covenants for the benefit of the holders of the Exchange Notes that, among other things, restrict the ability of the Company and any Restricted Subsidiaries (as defined) to: (i) incur additional Indebtedness; (ii) pay dividends and make distributions; (iii) issue stock of subsidiaries; (iv) make certain investments; (v) repurchase stock; (vi) create liens; (vii) enter into transactions with affiliates; (viii) enter into sale and leaseback transactions; (ix) merge or consolidate the Company or any of its Subsidiaries; and (x) transfer and sell assets. These covenants are subject to a number of important exceptions. See "Description of the Exchange Notes--Certain Covenants." Exchange Offer; Registration Rights.................... Holders of Exchange Notes are not entitled to any exchange rights with respect to the Exchange Notes. Holders of Notes are entitled to certain exchange rights pursuant to the Exchange Offer Registration Rights Agreement. Under the Exchange Offer Registration Rights Agreement, the Company is required to offer to exchange the Notes for the Exchange Notes having substantially identical terms which have been registered under the Securities Act. This Exchange Offer is intended to satisfy such obligation. The form and terms of the Exchange Notes are the same as the form and terms of the Notes in all material respects except that the Exchange Notes have been registered under the Securities Act and hence do not include certain rights to registration thereunder and do not contain transfer restrictions or terms with respect to the special interest payments applicable to the Notes. Once the Exchange Offer is consummated, the Company will have no further obligations to register any of the Notes not tendered by the Holders for exchange. See "Risk Factors--Consequences to Non-Tendering Holders of Notes". Use of Proceeds........... The Company will not receive any proceeds from the Exchange Offer. 7 The Exchange Offer The Exchange Offer........ $1,000 principal amount of Exchange Notes in exchange for each $1,000 principal amount of Notes. As of the date hereof, $200.0 million in aggregate principal amount of Notes were outstanding. The Company will issue the Exchange Notes to Holders on or promptly after the Expiration Date. Based on an interpretation by the staff of the Commission set forth in no-action letters issued to third parties, the Company believes that Exchange Notes issued pursuant to the Exchange Offer in exchange for Notes may be offered for resale, resold and otherwise transferred by Holders thereof without compliance with the registration and prospectus delivery provisions of the Securities Act provided that such Exchange Notes are acquired in the ordinary course of such holders' business and such holders have no arrangement with any person to participate in the distribution of such Exchange Notes. However, the Company does not intend to request the Commission to consider, and the Commission has not considered, the Exchange Offer in a no-action letter and there can be no assurance that the Commission would make a similar determination with respect to the Exchange Offer. However, any Holder who is an "affiliate" of the Company or who intends to participate in the Exchange Offer for the purpose of distributing the Exchange Notes (i) cannot rely on the interpretation by the staff of the Commission set forth in the above referenced no-action letters, (ii) cannot tender its Notes in the Exchange Offer, and (iii) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any sale or transfer of the Notes, unless such sale or transfer is made pursuant to an exemption from such requirements. See "Risk Factors--Consequences to Non-Tendering Holders of Notes". Each broker-dealer that receives Exchange Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Notes received in exchange for Notes where such Notes were acquired by such broker- dealer as a result of market-making activities or other trading activities and not acquired directly from the Company. The Company has agreed that for a period of 180 days after the Expiration Date, it will make this Prospectus available to any broker- dealer for use in connection with any such resale. See "Plan of Distribution." 8 Expiration Date........... 5:00 p.m., New York City time, on ________ __, 1998, unless the Exchange Offer is extended, in which case the term "Expiration Date" means the latest date and time to which the Exchange Offer is extended. Interest on the Exchange Notes; Accrued Interest on the Notes............. The Exchange Notes will bear interest from their issuance date. Holders whose Notes are accepted for exchange will receive, in cash, accrued interest thereon to, but excluding, the issuance date of the Exchange Notes. Such interest will be paid with the first interest payment on the Exchange Notes. Interest on the Notes accepted for exchange will cease to accrue upon cancellation of the Notes and issuance of the Exchange Notes. Holders of Notes whose Notes are not exchanged will receive the accrued interest payable on __________ __, 1998 on such date in accordance with the terms of the Indenture. Condition to the Exchange Notes.................... The Exchange Offer is subject to certain customary conditions. The conditions are limited and relate in general to proceedings which have been instituted or laws which have been adopted that might impair the ability of the Company to proceed with the Exchange Offer. As of ________ __, 1998, none of these events had occurred, and the Company believes their occurrence to be unlikely. If any such conditions do exist prior to the Expiration Date, the Company may (i) refuse to accept any Notes and return all previously tendered Notes, (ii) extend the Exchange Offer or (iii) waive such conditions. See "The Exchange Offer--Conditions." Procedures for Tendering Notes.................... Each Holder of Notes wishing to accept the Exchange Offer must complete, sign and date the Letter of Transmittal, or a facsimile thereof, in accordance with the instructions contained herein and therein, and mail or otherwise deliver such Letter of Transmittal, or such facsimile, together with such Notes to be exchanged and any other required documentation to United States Trust Company of New York, as Exchange Agent, at the address set forth herein and therein or effect a tender of such Notes pursuant to the procedures for book-entry transfer as provided for herein. By executing the Letter of Transmittal, each Holder will represent to the Company that, among other things, the Exchange Notes acquired pursuant to the Exchange Offer are being obtained in the ordinary course of business of the person receiving such Exchange Notes, whether or not such person is the Holder, that neither the Holder nor any such other person has an arrangement or understanding with any person to participate in the distribution of such Exchange Notes and that neither the Holder nor any such person is an "affiliate," as defined in Rule 405 under the Securities Act, of the Company. Each broker-dealer that receives Exchange Notes for its own account in exchange for Notes, where such Notes were acquired by such broker-dealer as a result of market-making activities or other trading 9 activities and not acquired directly from the Company, must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. See "The Exchange Offer-- Procedures for Tendering" and "Plan of Distribution." Special Procedures for Beneficial Owners........ Any beneficial owner whose Notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender such Notes in the Exchange Offer should contact such registered Holder promptly and instruct such registered Holder to tender on such beneficial owner's behalf. If such beneficial owner wishes to tender on such owner's own behalf, such owner must, prior to completing and executing the Letter of Transmittal and delivering its Notes, either make appropriate arrangements to register ownership of the Notes in such owner's name or obtain a properly completed bond power from the registered Holder. The transfer of registered ownership may take considerable time and may not be able to be completed prior to the Expiration Date. See "The Exchange Offer-- Procedures for Tendering." Guaranteed Delivery Procedures............... Holders of Notes who wish to tender their Notes and whose Notes are not immediately available or who cannot deliver their Notes, the Letter of Transmittal or any other documents required by the Letter of Transmittal to United States Trust Company of New York, as Exchange Agent, or cannot complete the procedure for book-entry transfer, prior to the Expiration Date must tender their Notes according to the guaranteed delivery procedures set forth in "The Exchange Offer-- Guaranteed Delivery Procedures." Withdrawal Rights......... Tenders may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date. Acceptance of Notes and Delivery of Exchange Notes.................... The Company will accept for exchange any and all Notes which are properly tendered in the Exchange Offer prior to 5:00 p.m., New York City time, on the Expiration Date. The Exchange Notes issued pursuant to the Exchange Offer will be delivered promptly following the Expiration Date. Any Notes not accepted for exchange will be returned without expense to the tendering Holder thereof as promptly as practicable after the expiration or termination of the Exchange Offer. See "The Exchange Offer--Terms of the Exchange Offer." Certain Tax Considerations........... The exchange pursuant to the Exchange Offer will not be a taxable event for Federal income tax purposes. See "Certain U.S. Federal Income Tax Considerations." Exchange Agent............ United States Trust Company of New York is serving as Exchange Agent in connection with the Exchange Offer. 10 General The Company's principal executive offices are located at 1801 Douglas Drive, Sanford, North Carolina 27331-1410 and its telephone number is (919) 774- 6700. Additional Information For additional information regarding the Exchange Notes, see "Description of Exchange Notes" and "Certain U.S. Federal Income Tax Consequences." 11 Summary Historical and Pro Forma Financial Information of The Pantry and Lil' Champ The following summary historical statement of operations data have been derived from the audited financial statements of The Pantry and Lil' Champ. The unaudited pro forma financial data for the year ended September 25, 1997 includes the historical results of The Pantry and give effect to the Transactions and other acquisitions/ dispositions as if they had occurred on September 25, 1997, for purposes of the balance sheet data, and on September 27, 1996, for purposes of the statement of operations data. See "Summary--The Transactions." The selected financial data for Lil' Champ for the nine months ended September 28, 1996 and September 27, 1997 are derived from financial statements that have not been audited. In the opinion of management, the unaudited financial data for Lil' Champ includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial position and results of operations for these periods. The results of operations for these periods are not necessarily indicative of the results of operations for any future period. The information contained in this table should be read in conjunction with The Pantry's audited consolidated financial statements and notes thereto at September 26, 1996 and September 25, 1997 and for each of the three years in the period ended September 25, 1997 and Lil' Champ's audited financial statements and notes thereto at December 30, 1995 and December 28, 1996 and for each of the three years in the period ended December 28, 1996 included elsewhere in this Prospectus.
The Pantry Pro Forma Year Ended Year Ended -------------------------------------------------------------- September September September September September September 25, 30, 1993 29, 1994 28, 1995 26, 1996 25, 1997 1997(a) ---------- ---------- ---------- ---------- ---------- ---------- (53 weeks) (52 weeks) (52 weeks) (52 weeks) (52 weeks) (dollars in thousands) Statement of Operations Data: Revenues: Merchandise sales.......... $191,881 $189,244 $187,380 $188,091 $202,440 $ 443,571 Gasoline sales............. 175,690 175,083 187,165 192,737 220,166 525,060 Commissions................ 4,362 4,466 4,516 3,979 4,787 13,379 -------- -------- -------- -------- -------- --------- Total revenues............... 371,933 368,793 379,061 384,807 427,393 982,010 Cost of Sales: Merchandise................ 126,352 123,142 121,976 125,979 132,846 291,982 Gasoline................... 154,617 153,476 161,179 167,610 197,268 472,112 -------- -------- -------- -------- -------- --------- Gross profit................. 90,964 92,175 95,906 91,218 97,279 217,916 Store operating expenses..... 54,074 53,201 56,206 57,841 60,208 138,297 General and administrative expenses.................... 16,840 17,893 18,159 17,127 16,796 31,451 Environmental remediation charges..................... -- -- -- -- -- 3,381(e) Restructuring charges........ -- -- -- 2,184(d) -- -- Impairment of long-lived assets...................... -- -- -- 3,034(d) -- -- Income from operations....... 10,216 10,917 10,071 1,874 10,771 20,987 Interest expense............. (7,434) (12,047) (13,240) (11,992) (13,039) (28,486) Due diligence costs.......... -- -- (1,181)(c) -- -- Net income (loss)............ $ 2,633 $ (480)(b) $ (4,245)(b) $ (8,114) (975) (4,034) Other Financial Data: EBITDA (f)................... 20,594 22,030 22,252 15,590 21,568 50,827(g) Ratio of earnings to fixed charges (h)................. 1.3x -- -- -- -- -- Ratio of EBITDA to Interest Expense..................... 2.8x 1.8x 1.7x 1.3x 1.7x 1.8x Net cash provided by (used in): Operating activities....... 14,423 (4,120) 11,903 5,415 7,338 19,195 Investing activities....... (9,788) (10,612) (15,281) (7,204) (25,079) (163,141) Financing activities....... (2,302) 25,955 (950) (3,872) 15,750 157,661 Capital expenditures......... 11,193 9,862 16,650 7,084 14,749 30,131
12
As of September 25, 1997 ----------------------- Historical Pro Forma ---------- ---------- Balance Sheet Data: Working capital (deficit)............................. (8,245) 5,595 Total assets.......................................... 142,799 383,013 Total debt (i)........................................ 101,302 263,129 Shareholders' equity (deficit)........................ (17,873) 7,205
Lil' Champ Year Ended Nine Months Ended -------------------------------------------------------------- ----------------------- December December December December December September September 26, 1992 25, 1993 31, 1994 30, 1995 28, 1996 28, 1996 28, 1996 ---------- ---------- ---------- ---------- ---------- ---------- ---------- (52 weeks) (52 weeks) (53 weeks) (52 weeks) (52 weeks) (39 weeks) (39 weeks) (dollars in thousands) Statement of Operations Data: Revenues: Merchandise sales............. $212,110 $209,741 $212,310 $217,282 $226,146 $171,322 $177,426 Gasoline sales................ 229,709 237,714 248,507 257,056 278,905 207,208 214,676 Commissions................... 6,616 7,645 7,683 7,978 8,164 5,979 5,971 -------- -------- -------- -------- -------- -------- -------- Total revenues................. 448,435 455,100 468,500 482,316 513,215 384,509 398,073 Cost of Sales: Merchandise................... 137,483 137,547 139,054 143,598 148,877 112,909 116,879 Gasoline...................... 209,252 211,212 219,736 227,592 251,614 186,110 193,499 -------- -------- -------- -------- -------- -------- -------- Gross profit................... 101,700 106,341 109,710 111,126 112,724 85,490 87,695 Store operating expenses....... 65,785 66,698 68,524 70,289 73,721 55,486 56,339 General and administrative expenses...................... 16,160 16,418 17,965 15,452 14,191 11,397 12,581 Environmental remediation charges....................... -- -- -- -- -- -- 3,381 (e) Income from operations......... 7,239 11,095 11,267 13,817 13,451 10,168 6,405 Interest expense............... (5,358) (4,684) (3,938) (3,219) (2,670) (1,994) (1,712) Net income..................... $ 1,534 $ 4,505 $ 5,326 $ 7,486 $ 7,447 $ 5,417 $ 3,058
- --------------------- (a) Pro forma amounts reflect the Lil' Champ Acquisition, Notes Offering, Equity Investment, and Tender Offer and Consent Solicitation. See "Unaudited Pro Forma Financial Data." (b) In fiscal 1994, The Pantry recorded an extraordinary loss of $671,000, net of taxes, related to the early extinguishment of debt. In fiscal 1995, The Pantry adopted, SFAS No. 112, "Employer's Accounting for Postretirement Benefits," and, as a result, recorded a cumulative effect for a change in accounting principle of $(960,000), net of taxes. (c) During fiscal 1995, The Pantry expended $1,181,000 in due diligence costs related to the evaluation of the potential purchase of a regional convenience store company. The proposed transaction was abandoned and, as a result, the costs incurred in connection with the prospective acquisition were charged to earnings in fiscal 1995. (d) During 1996, The Pantry recorded restructuring charges of $2,184,000 pursuant to a formal plan to restructure its corporate offices. The costs include: $1,484,000 for employee severance; $350,000 for employee moving costs; and $350,000 for charges associated with the investment by FS&Co. and CMC. Substantially all of these amounts were expended during fiscal 1996. During fiscal 1996, The Pantry early-adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." Pursuant to SFAS No. 121, The Pantry evaluated its long-lived assets for impairment on a store-by-store basis by comparing the sum of the projected future undiscounted cash flows attributable to each store to the carrying value of the long-lived assets (including an allocation of goodwill, if appropriate) of that store. Based on this evaluation, The Pantry determined that certain long-lived assets were impaired and recorded an impairment loss based on the difference between the carrying value and the fair value of property and equipment and goodwill of $415,000 and $2,619,000, respectively. (e) During the nine months ended September 27, 1997, Lil' Champ performed a comprehensive review of the status of its stores as it relates to environmental remediation and recorded an additional charge of $3,381,000. (f) "EBITDA" represents income (loss) before depreciation and amortization, interest expense, income tax expense (benefit), restructuring charges, impairment of long-lived assets, extraordinary loss, cumulative effect of change in accounting principle, the write-off of due 13 diligence costs incurred in connection with a potential purchase of a regional convenience store company that was abandoned in 1995, and a 1997 charge for establishing a reserve for environmental remediation. EBITDA is not a measure of performance under generally accepted accounting principles, and should not be considered as a substitute for net income, cash flows from operating activities and other income or cash flow statement data prepared in accordance with generally accepted accounting principles, or as a measure of profitability or liquidity. The Company has included information concerning EBITDA as one measure of an issuer's historical ability to service debt. EBITDA should not be considered as an alternative to, or more meaningful than, income from operations or cash flow as an indication of the Company's operating performance. (g) Pro forma EBITDA, as presented, includes the effect of the pro forma adjustments and does not reflect certain additional adjustments which management believes are relevant to evaluating the future operating performance of the Company. The following additional adjustments, which eliminate the impact of certain nonrecurring charges and reflect the estimated impact of management's business and operating strategy, are based on estimates and assumptions made and believed to be reasonable by the Company and are inherently uncertain and subject to change. There can be no assurance that the estimated impact of management's business and operating strategy will be realized or that there will not be delays in achieving the estimated improvements or enhancements described below. The following calculation should not be viewed as indicative of actual or future results. The following table reflects the effects of these items:
Year Ended September 25, 1997 ------------- Pro forma EBITDA......................................... $50,827 Additional adjustments: Nonrecurring noncompete payments(1)..................... 500 Improvement in gross profit(2).......................... 2,700 Improvement in store operating expense(3)............... 2,900 Enhancements related to a certain other acquisition(4).. 600 ------- Total adjustments...................................... 6,700 ------- Adjusted pro forma EBITDA................................ $57,527 =======
---------------------------------- (1) In May 1990, DUSA purchased Huntley's Jiffy Stores ("Huntley's") and, in 1991, Huntley's was merged into Lil' Champ. In connection with this acquisition, Lil' Champ incurred a consulting fee payable to the Huntley family of approximately $0.5 million per year. This obligation expires in April 1998. (2) This adjustment gives effect to (i) a 1.0% improvement (as a percent of merchandise sales, excluding cigarette sales), or $1.7 million, in Lil' Champ's merchandise gross margin and (ii) purchasing benefits to the Company of approximately $1.0 million as a result of the combined Company's increased purchasing volume. Management believes these improvements are achievable by applying The Pantry's merchandising and buying practices to the Lil' Champ operation and consolidating the Company's purchases. These savings are expected to be achieved through the renegotiation and consolidation of the Company's principal supply contracts, including those related to general merchandise and grocery, cigarettes, beer, coffee, magazines, and dairy. (3) This adjustment gives effect to a 1.25% improvement (as a percent of merchandise sales) in Lil' Champ's store operating expense margin, which management believes is achievable by implementing cost control programs at Lil' Champ similar to those successfully implemented at The Pantry beginning in fiscal 1996. These savings are expected to be achieved in the following areas: store labor, supplies, repair and maintenance, workers' compensation and general liability insurance. (4) This adjustment gives effect to enhancements made in connection with a certain other acquisition The Pantry has made, including store remodeling and conversions from unbranded to branded gasoline. (h) For purposes of determining the ratio of earnings to fixed charges: (i) earnings consist of income (loss) before income tax benefit (expense) and extraordinary items plus fixed charges and (ii) fixed charges consist of interest expense, amortization of deferred financing costs, preferred stock dividends and the portion of rental expense representative of interest (deemed to be one-third of rental expense). The Pantry's earnings were inadequate to cover fixed charges by $0.2 million, $3.6 million, $10.8 million and $1.0 million for fiscal years 1994, 1995, 1996 and 1997, respectively. On a pro forma basis, The Pantry's earnings were inadequate to cover fixed charges by $4.8 million for the year ended September 25, 1997. (i) Total debt includes capital lease obligations. 14 This Prospectus includes "forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. All statements other than statements of historical facts included in this Prospectus, including without limitation, certain statements under the sections "Summary", "Selected Historical Consolidated Financial Information of The Pantry", "Selected Historical Financial Information of Lil' Champ," "Unaudited Pro Forma Financial Data", "Management's Discussion and Analysis of Financial Condition and Results of Operations", "Business" and Pro Forma Consolidated Financial Statements and the notes thereto located elsewhere herein regarding the Company's financial position, business strategy, prospects and other related matters, may constitute such forward-looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. Actual results could differ materially from the Company's expectations as a result of a number of factors, including without limitation those set forth below and those located elsewhere in this Prospectus. RISK FACTORS In evaluating the Exchange Offer, Holders of the Notes should carefully consider the following factors in addition to the other information contained in this Prospectus. Leverage and Liquidity; Loss History The Company is highly leveraged. The Company has entered into the indenture governing the Notes (the "Indenture") pursuant to which it borrowed money in order to finance the Lil' Champ Acquisition, refinance certain outstanding indebtedness of Lil' Champ and refinance a portion of the Senior Notes. In addition, the Company has entered into the New Credit Facility to provide additional working capital for the Company. After giving effect to the Transactions, the Company's consolidated indebtedness as of September 25, 1997 (including the remaining Senior Notes) would have been approximately $263.1 million. In addition, the Company is permitted to incur additional indebtedness of up to $75.0 million under the New Credit Facility. As of September 25, 1997, $8.6 million of letters of credit were issued under the New Credit Facility, and the Company could have incurred an additional $66.4 million of Senior Indebtedness under the New Credit Facility. This increased indebtedness of the Company in comparison to that of The Pantry and Lil' Champ on a historical basis may reduce the flexibility of the Company to respond to changing business and economic conditions. The Company's high degree of leverage may have important consequences for the Company, including: (i) the ability of the Company to obtain additional financing for acquisitions, working capital, capital expenditures or other purposes, if necessary, may be impaired or such financing may not be available on terms favorable to the Company; (ii) a substantial portion of the Company's cash flow will be used to pay the Company's interest expense and, after 1999, for principal repayment, which will reduce the funds that would otherwise be available to the Company for its operations and future business opportunities; (iii) a decrease in net operating cash flows or an increase in expenses of the Company could make it difficult for the Company to meet its debt service requirements and force it to modify its operations; (iv) the Company may be more highly leveraged than its competitors, which may place it at a competitive disadvantage; and (v) the Company's high degree of leverage may make it more vulnerable to a downturn in its business or the economy generally. If the Company is unable to comply with the terms of its debt agreements and fails to generate sufficient cash flow from operations in the future, it may be required to refinance all or a portion of its existing debt or to obtain additional financing. In addition, the Senior Notes mature in 2000 and the Company will need to refinance the outstanding principal balance of the Senior Notes. There can be no assurance that any such refinancing would be possible or that any additional financing could be obtained, particularly in view of the Company's anticipated high levels of debt, the fact that a significant portion of the Company's assets will be given as collateral to secure senior indebtedness of the Company and the debt incurrence restrictions under its existing debt agreements. Any inability of the Company to service its indebtedness or obtain additional financing, as needed, would have a material adverse effect on the Company and could cause the Company to reduce its capital expenditure and expansion activities. In addition, the Company could be forced to default on its debt obligations and, as an ultimate remedy, seek protection under the federal bankruptcy laws. The Pantry experienced net losses of $4.2 million, $8.1 million and $1.0 million for fiscal 1995, 1996 and 1997, respectively. After giving effect to the Transactions, the Company would have a net loss of $4.0 million (excluding the effect of charges, net of tax, related to costs of the Tender Offer and Consent Solicitation and write-off of deferred financing costs in connection with the repurchase of $51.0 million of the Senior Notes ($4.6 million 15 and $1.4 million, respectively)) for fiscal 1997. The Pantry's earnings were inadequate to cover fixed charges in each of fiscal 1995, 1996 and 1997 by $3.6 million, $10.8 million and $1.0 million, respectively. After giving effect to the Transactions, the Company's earnings would be inadequate to cover fixed charges for fiscal 1997 by $4.8 million. Subordination of Notes, Exchange Notes and the Guarantees The Notes and the Guarantees are, and the Exchange Notes will be, subordinated to the prior payment in full of all Senior Indebtedness of the Company and Guarantor Senior Indebtedness of the Guarantors, respectively, whether existing upon the consummation of the Notes Offering or thereafter incurred. In addition, the Notes are, and the Exchange Notes will be, subordinated to the Senior Notes in right of payment and the Guarantors will guarantee, on a senior basis, the Senior Notes. As of September 25, 1997, on a pro forma basis and after giving effect to the Transactions, the aggregate outstanding principal amount of all Senior Indebtedness would have been approximately $50.3 million, and the Guarantors would have had approximately $12.8 million of Guarantor Senior Indebtedness (excluding guarantees of Senior Indebtedness). In addition, the Company is permitted to incur Senior Indebtedness of up to $75.0 million under the New Credit Facility. As of September 25, 1997, $8.6 million of letters of credit were issued under the New Credit Facility, and the Company could have incurred an additional $66.4 million of Senior Indebtedness under the New Credit Facility. The Notes are, and the Exchange Notes will be, structurally subordinated to indebtedness and other liabilities of any of the Company's subsidiaries that are not Guarantors. In the event of a bankruptcy, liquidation or reorganization of the Company or the Guarantors, the assets of the Company and the Guarantors will be available to pay obligations on the Notes and the Exchange Notes only after all Senior Indebtedness and Guarantor Senior Indebtedness, as the case may be, have been paid in full, and there may not be sufficient assets remaining to pay amounts due on any or all of the Notes and the Exchange Notes then outstanding. The indebtedness under the New Credit Facility is secured by a first priority lien on substantially all of the assets of the Company and the Guarantors now owned or hereafter acquired and is guaranteed by the Guarantors. The Company may not pay principal or premium, if any, or interest on the Notes or the Exchange Notes if certain Senior Indebtedness, including indebtedness under the New Credit Facility, is not paid when due unless such amount has been paid in full. In addition, if any default occurs with respect to such Senior Indebtedness, and certain other conditions are satisfied, the Company may not make any payments on the Notes or the Exchange Notes for a designated period of time. Finally, if any judicial proceeding is pending with respect to any such default in payment on any Senior Indebtedness, or other default with respect to certain Senior Indebtedness, including indebtedness under the New Credit Facility, or if the maturity of the Notes or the Exchange Notes is accelerated because of a default under the Indenture and such default constitutes a default with respect to any Senior Indebtedness, the Company may not be able to make any payment on the Notes or the Exchange Notes. Restrictive Debt Covenants The Senior Notes Indenture and the New Credit Facility contain a number of significant covenants that, among other things, restrict the ability of the Company and its subsidiaries to (i) incur additional indebtedness; (ii) pay dividends and make distributions; (iii) redeem or repurchase capital stock; (iv) make loans and investments; (v) create liens; (vi) merge or consolidate the Company or any of its subsidiaries; (vii) transfer and sell assets; (viii) engage in transactions with affiliates; and (ix) alter the business the Company conducts. In addition, the New Credit Facility will also restrict the ability of the Company to (a) prepay, redeem or purchase debt and (b) make capital expenditures, and will require the Company to comply with financial covenants with respect to (w) a minimum interest coverage ratio; (x) a minimum EBITDA; (y) a maximum leverage ratio; and (z) a maximum capital expenditure allowance. The Indenture contains a number of covenants for the benefit of the holders of the Notes that, among other things, restrict the ability of the Company and any Restricted Subsidiaries to: (i) incur additional indebtedness; (ii) pay dividends and make distributions; (iii) issue stock of subsidiaries; (iv) make certain investments; (v) repurchase stock; (vi) create liens; (vii) enter into transactions with affiliates; (viii) enter into sale and leaseback transactions; (ix) merge or consolidate the Company or any of its subsidiaries; and (x) transfer and sell assets. See "Description of Exchange Notes--Certain Covenants." 16 The Company's ability to meet the financial ratios and financial tests contained in the New Credit Facility can be affected by events beyond its control, and there can be no assurance that the Company will meet those ratios and tests. A breach of any of the covenants under the Senior Notes Indenture, the New Credit Facility or the Indenture could result in a default under the Senior Notes Indenture, the New Credit Facility and/or the Indenture. If an event of default occurs under the Senior Notes Indenture, the New Credit Facility or the Indenture, the lenders could elect to declare all amounts outstanding thereunder, together with accrued interest, to be immediately due and payable. If the Company is unable to repay those amounts, the lenders under the New Credit Facility could proceed against the collateral granted to them to secure that indebtedness. If the Company were unable to borrow under the New Credit Facility due to a default or failure to meet certain specified borrowing base prerequisites for borrowing, it could be left without sufficient liquidity. See "Description of the Exchange Notes" and "Description of Other Indebtedness-- New Credit Facility." Challenges of Business Integration The full benefits of a business combination of The Pantry and Lil' Champ (and, to a lesser extent, the continuation by The Pantry of its "tuck in" acquisition strategy) will require the integration of each company's administrative, finance, sales and marketing organizations, the coordination of each company's sales efforts, and the implementation of appropriate operations, financial and management systems and controls in order to capture the efficiencies and the cost reductions that are expected to result from the Lil' Champ Acquisition. This will require substantial attention from the Company's management team. The diversion of management attention, as well as any other difficulties which may be encountered in the transition and integration process, could have an adverse impact on the revenue and operating results of the Company. There can be no assurance that the Company will be able to integrate the operations of The Pantry and Lil' Champ successfully. There can also be no assurance that the synergies or cost savings expected to result from the Lil' Champ Acquisition will be realized or that there will not be delays in achieving such synergies or cost savings. Dependence on Gasoline and Tobacco Sales Gasoline revenues have averaged approximately 50% of The Pantry's total revenues and 54% of Lil' Champ's total revenues over the past three fiscal years. The volume of gasoline sold by the Company and the profit margins associated with these sales are affected by numerous factors outside of the Company's control, including the supply and demand for these products and the pricing policies of competitors. Since the Company typically has no more than a seven-day supply of gasoline, it is susceptible to interruptions in the supply of gasoline at its facilities and to increases in the cost of gasoline. However, the Company has not to date experienced a serious interruption in the supply of gasoline. Although the Company can rapidly adjust its pump prices to reflect higher gasoline costs, it can be adversely affected if it is required to reduce its gasoline profit margins in such an environment. In addition, sharp increases in gasoline prices have historically tended to lead to temporary declines in gasoline sales volumes. The Company experienced rapid increases in gasoline prices during the latter part of 1990, for example, due to a combination of the effects of Iraq's invasion of Kuwait and recessionary conditions in the United States. Although the Company's results were adversely affected by these sharp price increases, the effects of the increases were relatively brief as the markets returned to normal within several months. In the future, unforeseeable interruptions in world fuel markets may cause shortages in, or a total curtailment of, fuel supplies. Moreover, a substantial portion of the oil refining capacity in the United States is controlled by major oil companies. These companies could in the future determine to limit the amount of gasoline sold to independent operators such as the Company. In addition, any new standards that the EPA may impose on refiners that would necessitate changes in the refining process could limit the volume of petroleum products available from refiners in the future. A material decrease in the volume of gasoline sold for an extended time period would have a material adverse effect on the Company's results of operations. Similarly, an extended period of instability in the price of gasoline could adversely affect the Company's results. See "Business--Gasoline Operations." Sales of tobacco products have averaged approximately 13% of The Pantry's total revenues and 11% of Lil' Champ's total revenues over the past three fiscal years. National and local campaigns to discourage smoking 17 in the United States, as well as increases in taxes on cigarettes and other tobacco products, may have a material impact on the Company's sales of tobacco products and there can be no assurance that such sales levels can be maintained. In addition, the pending national tobacco settlement could lead to price increases for tobacco products as well as restrictions on promotional activities, which could adversely impact the Company's financial performance. The Company would attempt to pass any price or tax increases on to its customers, but there can be no assurance that doing so would not adversely and significantly affect demand. See "Business--Merchandise Sales." Competition The convenience store and retail gasoline industries are highly competitive. The performance of individual stores can be affected by changes in traffic patterns and the type, number and location of competing stores. Major competitive factors include, among others, location, ease of access, gasoline brands, pricing, product and service selections, customer service, store appearance, cleanliness and safety. In addition, factors such as inflation, increased labor and benefit costs and the availability of experienced management and hourly employees may adversely affect the convenience store industry in general and the Company's stores in particular. The Company competes with numerous other convenience store chains, franchisees of other convenience stores chains, local owner-operated convenience stores and grocery stores, and convenience stores owned and operated by major oil companies. In addition, the Company's stores offering self-service gasoline compete with gasoline service stations, including service stations operated by major oil companies. The Company's stores also compete to some extent with supermarket chains, drug stores, fast food operations and other similar retail outlets. In some of the Company's markets, certain competitors, particularly major oil companies, have been in existence longer and have substantially greater financial, marketing and other resources than the Company. See "Business--Competition." Effects of Weather, Seasonality and Regional Concentration Weather conditions in the Company's operating area have a significant effect on its operating results. When weather conditions are favorable, particularly during the spring and summer vacation season, customers are more likely to purchase higher profit margin items at the Company's stores, such as fast foods, fountain drinks and other beverages, and more gasoline at its gasoline locations. As a result, the Company typically generates higher revenues and gross margins during warmer weather months, which fall within the Company's third and fourth quarters. If weather conditions are not favorable during these periods, the Company's operating results and cash flow from operations would be adversely affected. Over the past five years, The Pantry averaged 65% of its EBITDA in the second half of its fiscal year. In addition, the Company has a significant number (19%) of stores concentrated in coastal areas in the southeastern United States, and is therefore exposed to risks associated with the weather conditions at these areas. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Quarterly Results and Seasonality." Substantially all of the Company's stores are located in the Southeast region. As a result, the Company's results of operations are subject to a significant degree to general economic conditions in that region and in the event of an economic downturn in the Southeast, the Company's financial condition could be adversely impacted. Environmental Matters The Company's business is subject to extensive federal, state and local government regulations, including regulations relating to building, zoning and environmental requirements, particularly environmental laws regulating USTs. Federal, state and local regulatory authorities have adopted regulations governing USTs, a portion of which are being phased in over a period extending to December 1998. The UST regulations require the Company to make significant expenditures for compliance with corrosion protection requirements and required spill/overfill equipment by December 1998. Failure to comply with any of such laws or regulations could have a material adverse effect on the Company. The Company anticipates it will spend an aggregate $5.5 million in 1998 to comply with these regulations. Under various federal, state and local laws, ordinances and regulations, the Company, as the owner or operator of its locations, may be liable for the costs of removal or remediation of contamination at these or its 18 former locations, without regard to whether it knew of, or was responsible for, the presence of such contamination. The failure to properly remediate such contamination may subject the Company to liability to third parties and may adversely affect the ability to sell or rent such property or to borrow money using such property as collateral. Additionally, persons who arrange for the disposal or treatment of certain hazardous or toxic substances may also be liable for the costs of removal or remediation of such substances at sites where they are located, whether or not such site is owned or operated by such person. Although the Company does not typically arrange for the treatment or disposal of such hazardous substances, the Company may be considered as having arranged for the disposal or treatment of hazardous or toxic substances and, therefore, may be liable for removal or remediation costs, as well as certain other related costs, including governmental fines, and injuries to persons, property and natural resources. The Company estimates that its expenditures for remediation over the next five years will be approximately $4.5 million. In addition, a substantial amount will be expended for remediation on behalf of the Company by state trust funds established in the Company's operating areas or other responsible third parties (including insurers). To the extent such third parties do not pay for remediation as anticipated by the Company, the Company will be obligated to make such payments, which could materially adversely affect the Company's financial condition and results of operations. Reimbursements from state trust funds will be dependent on the continued solvency of these funds. The State of Florida trust fund will cease accepting new claims for reimbursement for releases discovered after December 31, 1998. However, the State of Florida trust fund will continue to reimburse claims for remedial work performed on sites that were accepted into its program before December 31, 1998. Historically, a significant portion of the Lil' Champ environmental claims have been covered by this trust fund. As a result, the Company will have to rely on private indemnity, available third-party insurance or self insure with respect to certain future UST related problems at its Florida store locations. Under the Acquisition Agreement, the Company has no recourse against Docks U.S.A., Inc., the former stockholder of Lil' Champ, for environmental liabilities and is required to indemnify it against any environmental liabilities arising from past or future operations of Lil' Champ. The Company may incur additional substantial expenditures for remediation of contamination that has not been discovered at existing locations or locations which the Company may acquire in the future. There can be no assurance that the Company has identified all environmental liabilities at all of its current and former locations; that material environmental conditions not known to the Company do not exist; that future laws, ordinances or regulations will not impose material environmental liability on the Company, or that a material environmental condition does not otherwise exist as to any one or more of the Company's locations. See "Management's Discussion and Analysis of Results of Operations and Financial Condition--Liquidity and Capital Resources," and "Business--Government Regulation and Environmental Matters." Government Regulation The Company's operations are subject to federal and state laws governing such matters as wage rates, overtime, working conditions, citizenship requirements and alcohol and tobacco sales. A violation of these laws could adversely impact the Company's financial condition. At the federal level, there are proposals under consideration from time to time to increase minimum wage rates and to introduce a system of mandated health insurance which could adversely affect the Company's financial condition and results of operations and such impact could be material. See "Business--Government Regulation and Environmental Matters." Control of Company Freeman Spogli & Co. Incorporated, through its affiliated investment funds (collectively, "FS&Co."), controls approximately 83% of the voting securities of the Company on a fully diluted basis. As a result, FS&Co. has the ability to control the Company's management, policies and financing decisions. See "Management" and "Security Ownership of Certain Beneficial Owners." Change of Control Upon a Change of Control, the Company will be required to offer to repurchase all of the outstanding Notes and Exchange Notes at 101% of the principal amount thereof, plus accrued interest to the date of repurchase. There can be no assurance that the Company will have sufficient funds available or will be permitted by its other debt agreements to repurchase the Notes and Exchange Notes upon the occurrence of a Change of Control. In 19 addition, a Change of Control may cause a default under the New Credit Facility and other Senior Indebtedness of the Company, in which case the subordination provisions of the Notes and Exchange Notes would require payment in full of all such Senior Indebtedness of the Company before repurchase of the Notes and Exchange Notes. See "Description of the Exchange Notes--Subordination" and "Description of the Exchange Notes--Change of Control Offer." The inability to repay Senior Indebtedness, if accelerated, and to repurchase all of the tendered Notes and Exchange Notes, would constitute an event of default under the Indenture. Lack of Public Market for the Exchange Notes The Exchange Notes are being offered to the Holders of the Notes. Prior to this Exchange Offer, there has been no public market for the Notes. The Company does not intend to apply for listing of the Exchange Notes on any securities exchange or for quotation through the Nasdaq National Market. The Initial Purchasers have informed the Company that they currently intend to make a market in the Exchange Notes. However, the Initial Purchasers are not obligated to do so and any such market making may be discontinued at any time without notice. Therefore, no assurance can be given as to whether an active trading market will develop or be maintained for the Exchange Notes. As the Notes were issued and the Exchange Notes are being issued to a limited number of institutions who typically hold similar securities for investment, the Company does not expect that an active public market for the Exchange Notes will develop. In addition, resales by certain holders of the Notes or the Exchange Notes of a substantial percentage of the aggregate principal amount of such notes could constrain the ability of any market maker to develop or maintain a market for the Exchange Notes. To the extent that a market for the Exchange Notes should develop, the market value of the Exchange Notes will depend on prevailing interest rates, the market for similar securities and other factors, including the financial condition, performance and prospects of the Company. Such factors might cause the Exchange Notes to trade at a discount from face value. Fraudulent Conveyance The incurrence by the Company of indebtedness such as the Exchange Notes may be subject to review under relevant state and federal fraudulent conveyance laws if a bankruptcy case or lawsuit is commenced by or on behalf of unpaid creditors of the Company. Under these laws, if a court were to find that, after giving effect to the sale of the Notes, the application of the net proceeds therefrom, and the issuance of the Exchange Notes, either (a) the Company incurred such indebtedness with the intent of hindering, delaying or defrauding creditors or contemplated insolvency with a design to prefer one or more creditors to the exclusion in whole or in part of others or (b) the Company received less than reasonably equivalent value or consideration for incurring such indebtedness and (i) was insolvent or rendered insolvent by reason of such transactions, (ii) was engaged in a business or transaction for which the assets remaining with the Company constituted unreasonably small capital or (iii) intended to incur, or believed that it would incur, debts beyond its ability to pay such debts as they matured, such court may subordinate such indebtedness to presently existing and future indebtedness of the Company, avoid the issuance of such indebtedness and direct the repayment of any amounts paid thereunder to the Company's creditors or take other action detrimental to the holders of such indebtedness. The Company's obligations under the Notes are, and the Exchange Notes will be, guaranteed by the Guarantors. The incurrence by a Guarantor of a Guarantee may be subject to review under relevant state and federal fraudulent conveyance laws if a bankruptcy case or lawsuit is commenced by or on behalf of unpaid creditors of such Guarantor. Under these laws, if a court were to find that either (a) a Guarantee was incurred by a Guarantor with the intent of hindering, delaying or defrauding creditors or such Guarantor contemplated insolvency with a desire to prefer one or more creditors to the exclusion in whole or in part of others or (b) such Guarantor received less than reasonably equivalent value or consideration for incurring such Guarantee and (i) was insolvent or rendered insolvent by reason of such transaction, (ii) was engaged in a business or transaction for which the assets remaining with such Guarantor constituted unreasonably small capital or (iii) intended to incur, or believed that it would incur, debts beyond its ability to pay such debts as they matured, such court may subordinate such Guarantee to presently existing and future indebtedness of such Guarantor, avoid the issuance of such Guarantee and direct the repayment of any amounts paid thereunder to such Guarantor's creditors or take other action detrimental to the holders of such Guarantee. A legal challenge of a Guarantee on fraudulent conveyance grounds, 20 may, among other things, focus on the benefits, if any, realized by the Guarantor as a result of the issuance by the Company of the Notes and the Exchange Notes. To the extent any Guarantee were avoided as a fraudulent conveyance or held unenforceable for any other reason, holders of the Notes and the Exchange Notes would cease to have any claim in respect of such Guarantor and would be creditors solely of the Company and any Guarantor whose Guarantee was not avoided or held unenforceable. In such event, the claims of the holders of the applicable Notes and the Exchange Notes against the issuer of an invalid Guarantee would be subject to the prior payment of all liabilities and preferred stock claims of such Guarantor. There can be no assurance that, after providing for all prior claims and preferred stock interests, if any, there would be sufficient assets to satisfy the claims of the holders of the applicable Notes and the Exchange Notes relating to any voided portions of any of the Guarantees. The measure of insolvency for purposes of determining whether a transfer is avoidable as a fraudulent transfer varies depending upon the law of the jurisdiction which is being applied. Generally, however, a debtor would be considered insolvent if the sum of all its liabilities, including contingent liabilities, were greater than the value of all its property at a fair valuation, or if the present fair saleable value of the debtor's assets were less than the amount required to repay its probable liabilities on its debts, including contingent liabilities, as they become absolute and matured. Based upon financial and other information currently available to it, management of the Company believes that the indebtedness to be retired with the proceeds of the Notes Offering was, and the Notes, the Exchange Notes and the Guarantees are being, incurred for proper purposes and in good faith and that at the time it incurred the indebtedness to be retired with the proceeds of the Notes Offering the Company was, and at the time the Notes, the Exchange Notes and the Guarantees are issued the Company and each Guarantor, as the case may be, will be, (i) neither insolvent nor rendered insolvent thereby, (ii) in possession of sufficient capital to run its business effectively and (iii) incurring debts within its ability to pay as the same mature or become due. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." In reaching these conclusions, the Company has relied upon various valuations and estimates of future cash flow that necessarily involve a number of assumptions and choices of methodology. No assurance can be given, however, that the assumptions and methodologies chosen by the Company would be adopted by a court or that a court would concur with the Company's conclusions. Consequences to Non-Tendering Holders of Notes and Requirements for Transfer of Exchange Notes Upon consummation of the Exchange Offer, the Company will have no further obligation to register the Notes. Thereafter, any Holder of Notes who does not tender its Notes in the Exchange Offer, including any Holder which is an "affiliate" (as that term is defined in Rule 405 of the Securities Act) of the Company which cannot tender its Notes in the Exchange Offer, will continue to hold restricted securities which may not be offered, sold or otherwise transferred, pledged or hypothecated except pursuant to Rule 144 and Rule 144 A under the Securities Act or pursuant to any other exemption from registration under the Securities Act relating to the disposition of securities, provided that an opinion of counsel is furnished to the Company that such an exemption is available. 21 USE OF PROCEEDS This Exchange Offer is intended to satisfy certain of the Company's obligations under the Exchange Offer Registration Rights Agreement. The Company will not receive any cash proceeds from the issuance of the Exchange Notes offered in the Exchange Offer. In consideration for issuing the Exchange Notes as contemplated in this Prospectus, the Company will receive in exchange Notes in like principal amount, the form and terms of which are the same in all material respects as the form and terms of the Exchange Notes except that the Exchange Notes have been registered under the Securities Act and do not contain transfer restrictions or terms with respect to the special interest payments applicable to the Notes. The Notes surrendered in exchange for Exchange Notes will be retired and canceled and cannot be reissued. Accordingly, issuance of the Exchange Notes will not result in any increase in the indebtedness of the Company. Net proceeds from the Notes Offering were approximately $194.5 million. Such proceeds, together with cash on hand and the proceeds of the Equity Investment, were used (i) to finance the Lil' Champ Acquisition (including repayment of Lil' Champ indebtedness), (ii) to acquire $51.0 million aggregate principal amount of the Senior Notes and pay premium and interest in respect thereof pursuant to the Tender Offer and to make payments required by the Consent Solicitation, and (iii) to pay related fees and expenses. As of the date hereof, $49.0 million aggregate principal amount of Senior Notes are outstanding. The Senior Notes currently bear interest at the rate of 12.5% per annum and mature in 2000. Lil' Champ indebtedness that was repaid from the net proceeds of the sale of Notes consisted of approximately $10.7 million aggregate principal amount of indebtedness to Societe Generale at a weighted interest rate of approximately 6.0% per annum as of August 31, 1997. See "Summary--The Transactions." Approximately $13.6 million of net proceeds from the Notes Offering were available for general corporate purposes. 22 CAPITALIZATION The following table sets forth the capitalization of the Company on an actual basis and on a pro forma basis as adjusted to give effect to the Transactions as if they had occurred on September 25, 1997. This table should be read in conjunction with "Unaudited Pro Forma Financial Data" and the notes thereto, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and The Pantry's and Lil' Champ's financial statements and the notes thereto included elsewhere in this Prospectus.
Pantry Lil' Champ Pro Forma Actual Actual As Adjusted September 25, September 27, Pro Forma September 25, 1997 1997 Adjustments 1997 ------------- ------------- ----------- ------------- (dollars in thousands) Current maturities of long-term debt and capital lease obligations................. $ 318 $ 11,690 $(10,700)(a) $ 1,308 -------- -------- -------- -------- Long-term debt: Senior notes............................... 100,000 -- (51,000)(a) $ 49,000 Notes...................................... -- -- 200,000 (b) 200,000 Capitalized leases and other debt.......... 984 11,837 -- 12,821 -------- -------- -------- -------- Total long-term debt.................. 100,984 11,837 149,000 261,821 -------- -------- -------- -------- Shareholders' equity (deficit): Preferred stock............................ -- -- -- -- Common stock............................... 1 1 (1)(c) 1 Additional paid in capital................. 5,396 67,966 (36,966)(c) 36,396 Retained earnings (deficit)................ (23,270) 29,958 (35,880)(c) (29,192) -------- -------- -------- -------- Total shareholders' equity (deficit).. (17,873) 97,925 (72,847) 7,205 -------- -------- -------- -------- Total capitalization............. $ 83,429 $121,452 $ 65,453 $270,334 ======== ======== ======== ========
- ------------------------- (a) Reflects the repayment of Lil' Champ debt in connection with the Lil' Champ Acquisition and the repurchase of $51.0 million of the Senior Notes in connection with the Tender Offer. (b) Reflects the issuance of the Notes in connection with the Notes Offering. (c) Reflects the following:
Additional Retained Common Paid-in Earnings Stock Capital (Deficit) ------ ---------- --------- (dollars in thousands) Proceeds, net of $1.4 million of expenses, related to the Equity Investment............. $-- $ 31,000 $ -- Elimination of Lil' Champ historical shareholders' equity......................... (1) (67,966) (29,958) Nonrecurring charges, net of tax, related to the costs of the Tender Offer and write-off of deferred financing costs.................. -- -- (5,922) ---- -------- -------- Total adjustments to shareholders' equity... $ (1) $(36,966) $(35,880) ==== ======== ========
23 THE EXCHANGE OFFER Purposes of the Exchange Offer The Notes were issued and sold by the Company on October 23, 1997 to CIBC Wood Gundy Securities Corp. and First Union Capital Markets Corp. (collectively, the "Initial Purchasers"), who subsequently resold the Notes to (a) "qualified institutional buyers" (in reliance on Rule 144A under the Securities Act) and (b) non-U.S. persons outside the United States in reliance on Regulation S under the Securities Act. In connection with the issuance and sale of the Notes, the Company and the Initial Purchasers entered into the Exchange Offer Registration Rights Agreement pursuant to which the Company agreed to use its best efforts to cause a registration statement with respect to the Exchange Offer to become effective within 150 days of October 23, 1997, the date of issuance of the Notes. However, in the event that applicable interpretations of the staff of the Commission do not permit the Company to effect such an Exchange Offer, or if for any other reason the Exchange Offer is not consummated within 210 days of the Issue Date or, under certain circumstances, if the Initial Purchasers or other holders shall so request, the Company and the Guarantors will, at their own expense, (a) as promptly as practicable, file a shelf registration statement covering resales of the Notes (the "Shelf Registration Statement"), (b) use their respective best efforts to cause the Shelf Registration Statement to be declared effective under the Securities Act and (c) use their respective best efforts to keep effective the Shelf Registration Statement until two years after the Issue Date. The Exchange Offer is being made by The Pantry to satisfy its obligations pursuant to the Exchange Offer Registration Rights Agreement. The form and terms of the Exchange Notes are the same as the form and terms of the Notes in all material respects except that the Exchange Notes have been registered under the Securities Act and hence do not include certain rights to registration thereunder and do not contain transfer restrictions or terms with respect to the special interest payments applicable to the Notes. Once the Exchange Offer is consummated, The Pantry will have no further obligations to register any of the Notes not tendered by the Holders for exchange. See "Risk Factors--Consequences to Non-Tendering Holders of Notes". A copy of the Exchange Offer Registration Rights Agreement has been filed as an exhibit to the Registration Statement of which this Prospectus is a part. Based on interpretations by the staff of the Commission set forth in several no-action letters issued to third parties, the Company believes that Exchange Notes issued pursuant to the Exchange Offer in exchange for Notes may be offered for resale, resold and otherwise transferred by holders thereof without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such Exchange Notes are acquired in the ordinary course of such holders' business and such holders have no such arrangement with any person to participate in the distribution of such Exchange Notes. However, the Company does not intend to request the Commission to consider, and the Commission has not considered, the Exchange Offer in a no- action letter and there can be no assurance that the Commission would make a similar determination with respect to the Exchange Offer. However, any Holder who is an "affiliate" of the Company or who intends to participate in the Exchange Offer for the purpose of distributing the Exchange Notes (i) cannot rely on the interpretation by the staff of the Commission set forth in the above referenced no-action letters, (ii) cannot tender its Notes in the Exchange Offer, and (iii) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any sale or transfer of the Notes, unless such sale or transfer is made pursuant to an exemption from such requirements. See "Risk Factors--Consequences to Non-Tendering Holders of Notes". In addition, each broker-dealer that receives Exchange Notes for its own account in exchange for Notes, where such Notes were acquired by such broker- dealer as a result of market-making activities or other trading activities and not acquired directly from the Company, must acknowledge that it will deliver a copy of this Prospectus in connection with any resale of such Exchange Notes. See "Plan of Distribution". Except as aforesaid, this Prospectus may not be used for an offer to resell, resale or other transfer of Exchange Notes. 24 Terms of the Exchange Offer General Upon the terms and subject to the conditions of the Exchange Offer set forth in this Prospectus and in the Letter of Transmittal, the Company will accept any and all Notes validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on the Expiration Date. The Company will issue $1,000 principal amount of Exchange Notes in exchange for each $1,000 principal outstanding Notes accepted in the Exchange Offer. Holders may tender some or all of their Notes pursuant to the Exchange Offer. However, Exchange Notes may be tendered only in integral multiples of $1,000. As of October 23, 1997, there was $200.0 million aggregate principal amount of the Notes outstanding and one registered Holder of Notes. This Prospectus, together with the Letter of Transmittal, is being sent to such registered Holder as of , 1998. In connection with the issuance of the Notes, the Company arranged for the Notes to be issued and transferable in book-entry form through the facilities of DTC, acting as depository. The Exchange Notes also will be issued and transferable in book-entry form through DTC. See "Description of Exchange Notes--Form, Denomination and Book-Entry Procedures." The Company shall be deemed to have accepted validly tendered Notes when, as and if the Company has given oral or written notice thereof to the Exchange Agent. The Exchange Agent will act as agent for the tendering Holders of Notes for the purpose of receiving the Exchange Notes from the Company. If any tendered Notes are not accepted for exchange because of an invalid tender, the occurrence of certain other events set forth herein or otherwise, certificates for any such unaccepted Notes will be returned, without expense, to the tendering Holder thereof as promptly as practicable after the Expiration Date. Holders of Notes who tender in the Exchange Offer will not be required to pay brokerage commissions or fees or, subject to the instructions in the Letter of Transmittal, transfer taxes with respect to the exchange of Notes pursuant to the Exchange Offer. The Company will pay the expenses, other than certain applicable taxes, of the Exchange Offer. See "--Fees and Expenses." Expiration Date; Extensions; Amendments The term "Expiration Date" shall mean , 1998, unless the Company in its sole discretion, extends the Exchange Offer, in which case the term "Expiration Date" shall mean the latest date to which the Exchange Offer is extended. In order to extend the Expiration Date, the Company will notify the Exchange Agent and the record Holders of Notes of any extension by oral or written notice, each prior to 9:00 a.m., New York City time, on the next business day after the previously scheduled expiration date. Such notice may state that the Company is extending the Exchange Offer for a specified period of time or on a daily basis until 5:00 p.m., New York City time, on the date on which a specified percentage of Notes are tendered. The Company reserves the right to delay accepting any Notes, to extend the Exchange Offer, to amend the Exchange Offer or to terminate the Exchange Offer and not accept Notes not previously accepted if any of the conditions set forth herein under "--Conditions" shall have occurred and shall not have been waived by the Company by giving oral or written notice of such delay, extension, amendment or termination to the Exchange Agent. Any such delay in acceptance, extension, amendment or termination will be followed as promptly as practicable by oral or written notice thereof. If the Exchange Offer is amended in a manner determined by the Company to constitute a material change, the Company will promptly disclose such amendment in a manner reasonably calculated to inform the Holders of such amendment and the Company will extend the Exchange Offer for a period of five to 10 business days, depending upon the significance of the amendment and the manner of 25 disclosure to Holders of the Notes, if the Exchange Offer would otherwise expire during such five to 10 business day period. Without limiting the manner in which the Company may choose to make public announcement of any extension, amendment or termination of the Exchange Offer, the Company shall have no obligation to publish, advertise, or otherwise communicate any such public announcement, other than by making a timely release to the Dow Jones News Service. Accrued Interest on the Exchange Notes and the Notes The Exchange Notes will bear interest at a rate equal to 10 1/4% per annum from their date of issuance. Interest on the Exchange Notes is payable semi- annually on April 15 and October 15 of each year, commencing on April 15, 1998. Holders whose Notes are accepted for exchange will receive, in cash, accrued interest thereon to, but excluding, the date of issuance of the Exchange Notes. Such interest will be paid with the first interest payment on the Exchange Notes. Interest on the Notes accepted for exchange will cease to accrue upon cancellation of the Notes and issuance of the Exchange Notes. Holders of Notes whose Notes are not exchanged will receive the accrued interest payable on April 15, 1998. Procedures for Tendering To tender in the Exchange Offer, a Holder must complete, sign and date the Letter of Transmittal, or a facsimile thereof, have the signatures thereon guaranteed if required by Instruction 4 of the Letter of Transmittal, and mail or otherwise deliver such Letter of Transmittal or such facsimile, together with the Notes and any other required documents, to the Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration Date. Any financial institution that is a participant in DTC's Book-Entry Transfer Facility system may make book-entry delivery of the Notes by causing DTC to transfer such Notes into the Exchange Agent's account in accordance with DTC's procedure for such transfer. Although delivery of Notes may be effected through book-entry transfer into the Exchange Agent's account at DTC, the Letter of Transmittal (or facsimile thereof), with any required signature guarantees and any other required documents, must, in any case, be transmitted to and received or confirmed by the Exchange Agent at its address set forth in "-- Exchange Agent" below prior to 5:00 p.m., New York City time, on the Expiration Date. DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH ITS PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. The tender by a Holder will constitute an agreement between such Holder and the Company in accordance with the terms and subject to the conditions set forth herein and in the Letter of Transmittal. Delivery of all documents must be made to the Exchange Agent at its address set forth below. Holders may also request their respective brokers, dealers, commercial banks, trust companies or nominees to effect the above transactions for such Holders. The method of delivery of Notes and the Letter of Transmittal and all other required documents to the Exchange Agent is at the election and risk of the Holders. Instead of delivery by mail, it is recommended that Holders use an overnight or hand delivery service. In all cases, sufficient time should be allowed to assure timely delivery. No Letter of Transmittal or Notes should be sent to the Company. Only a Holder of Notes may tender such Notes in the Exchange Offer. The term "Holder" with respect to the Exchange Offer means any person in whose name Notes are registered on the books of the Company or any other person who has obtained a properly completed bond power from the registered Holder. Any beneficial holder whose Notes are registered in the name of its broker, dealer, commercial bank, trust company or other nominee and who wishes to tender should contact such registered Holder promptly and instruct such registered Holder to consent and/or tender on its behalf. If such beneficial Holder wishes to tender on its own behalf, such beneficial Holder must, prior to completing and executing the Letter of Transmittal and delivering its Notes, either make appropriate arrangements to register ownership of the Notes 26 in such Holder's name or obtain a properly completed bond power from the registered Holder. The transfer of record ownership may take considerable time. Signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, must be guaranteed by an Eligible Institution (as defined below) unless the Notes tendered pursuant thereto are tendered (i) by a registered Holder who has not completed the box entitled "Special Payment Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or (ii) for the account of an Eligible Institution. In the event that signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, are required to be guaranteed, such guarantee must be by a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., or a commercial bank or trust company having an office or correspondent in the United States (an "Eligible Institution"). If the Letter of Transmittal is signed by a person other than the registered Holder of any Notes listed therein, such Notes must be endorsed or accompanied by appropriate bond powers signed as the name of the registered Holder or Holders appears on the Notes. If the Letter of Transmittal or any Notes or powers of attorney are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and unless waived by the Company, evidence satisfactory to the Company of their authority to so act must be submitted with the Letter of Transmittal. All questions as to the validity, form, eligibility (including time of receipt) and acceptance of tendered Notes and withdrawal of tendered Notes will be determined by the Company in its sole discretion, which determination will be final and binding. The Company reserves the absolute right to reject any and all Notes not properly tendered or any Notes the Company's acceptance of which would, in the opinion of counsel for the Company, be unlawful. The Company also reserves the right to waive any defects, irregularities or conditions of tender as to particular Notes. The Company's interpretation of the terms and conditions of the Exchange Offer (including the instructions in the Letter of Transmittal) will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Notes must be cured within such time as the Company shall determine. Neither the Company, the Exchange Agent nor any other person shall be under any duty to give notification of defects or irregularities with respect to tenders of Notes, nor shall any of them incur any liability for failure to give such notification. Tenders of Notes will not be deemed to have been made until such irregularities have been cured or waived. Any Notes received by the Exchange Agent that are not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned by the Exchange Agent to the tendering Holders of Notes, unless otherwise provided in the Letter of Transmittal, as soon as practicable following the Expiration Date. In addition, the Company reserves the right in its sole discretion to purchase or make offers for any Notes that remain outstanding subsequent to the Expiration Date or, as set forth under "--Conditions," to terminate the Exchange Offer and, to the extent permitted by applicable law, purchase Notes in the open market, in privately negotiated transactions or otherwise. The terms of any such purchases or offers could differ from the terms of the Exchange Offer. By tendering, each Holder will represent to the Company that, among other things, the Exchange Notes acquired pursuant to the Exchange Offer are being obtained in the ordinary course of such Holder's business, that such Holder has no arrangement with any person to participate in the distribution of such Exchange Notes, and that such Holder is not an "affiliate", as defined under Rule 405 of the Securities Act, of the Company. If the Holder is a broker- dealer that will receive Exchange Notes for its own account in exchange for Notes that were acquired as a result of market-making activities or other trading activities and not acquired directly from the Company, such Holder by tendering will acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. See "Plan of Distribution." 27 Guaranteed Delivery Procedures Holders who wish to tender their Notes and (i) whose Notes are not immediately available, or (ii) who cannot deliver their Notes, the Letter of Transmittal or any other required documents to the Exchange Agent prior to the Expiration Date, may effect a tender if: (a) The tender is made through an Eligible Institution; (b) Prior to the Expiration Date, the Exchange Agent receives from such Eligible Institution a properly completed and duly executed Notice of Guaranteed Delivery (by facsimile transmission, mail or hand delivery) setting forth the name and address of the Holder of the Notes, the certificate number or numbers of such Notes and the principal amount of Notes tendered, stating that the tender is being made thereby and guaranteeing that, within five New York Stock Exchange trading days after the Expiration Date, the Letter of Transmittal (or facsimile thereof) together with the certificate(s) representing the Notes to be tendered in proper form for transfer (or a confirmation of a book-entry transfer into the Exchange Agent's account at DTC of Notes delivered electronically) and any other documents required by the Letter of Transmittal will be deposited by the Eligible Institution with the Exchange Agent; and (c) Such properly completed and executed Letter of Transmittal (or facsimile thereof), as well as the certificate(s) representing all tendered Notes in proper form for transfer (or confirmation of a book-entry transfer into the Exchange Agent's account at DTC of Notes delivered electronically) and all other documents required by the Letter of Transmittal are received by the Exchange Agent within five New York Stock Exchange trading days after the Expiration Date. Upon request of the Exchange Agent, a Notice of Guaranteed Delivery will be sent to Holders who wish to tender their Notes according to the guaranteed delivery procedures set forth above. Withdrawal of Tenders Except as otherwise provided herein, tenders of Notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date. To withdraw a tender of Notes in the Exchange Offer, a written or facsimile transmission notice of withdrawal must be received by the Exchange Agent at its address set forth herein prior to 5:00 p.m., New York City time, on the Expiration Date. Any such notice of withdrawal must (i) specify the name of the person having deposited the Notes to be withdrawn (the "Depositor"), (ii) identify the Notes to be withdrawn (including the certificate number or numbers and principal amount of such Notes), (iii) be signed by the Holder in the same manner as the original signature on the Letter of Transmittal by which such Notes were tendered (including any required signature guarantees) or be accompanied by documents of transfer sufficient to have the Trustee with respect to the Notes register the transfer of such Notes into the name of the person withdrawing the tender, and (iv) specify the name in which any such Notes are to be registered, if different from that of the Depositor. All questions as to the validity, form and eligibility (including time of receipt) of such notices will be determined by the Company, whose determination shall be final and binding on all parties. Any Notes so withdrawn will be deemed not to have been validly tendered for purposes of the Exchange Offer and no Exchange Notes will be issued with respect thereto unless the Notes so withdrawn are validly retendered. Any Notes which have been tendered but which are not accepted for payment will be returned to the Holder thereof without cost to such Holder as soon as practicable after withdrawal, rejection of tender or termination of the Exchange Offer. Properly withdrawn Notes may be retendered by following one of the procedures described above under "--Procedures for Tendering" at any time prior to the Expiration Date. Conditions Notwithstanding any other term of the Exchange Offer, the Company will not be required to accept for exchange, or exchange Exchange Notes for, any Notes not theretofore accepted for exchange, and may terminate 28 or amend the Exchange Offer as provided herein before the acceptance of such Notes, if any of the following conditions exist: (a) the Exchange Offer, or the making of any exchange by a Holder, violates applicable law or any applicable interpretation of the Commission; or (b) any action or proceeding is instituted or threatened in any court or by or before any governmental agency with respect to the Exchange Offer which, in the sole judgment of the Company, might impair the ability of the Company to proceed with the Exchange Offer; or (c) there shall have been adopted or enacted any law, statute, rule or regulation which, in the sole judgment of the Company, might materially impair the ability of the Company to proceed with the Exchange Offer. If any such conditions exist, the Company may (i) refuse to accept any Notes and return all tendered Notes to exchanging Holders, (ii) extend the Exchange Offer and retain all Notes tendered prior to the expiration of the Exchange Offer, subject, however, to the rights of Holders to withdraw such Notes (see "--Withdrawal of Tenders") or (iii) waive certain of such conditions with respect to the Exchange Offer and accept all properly tendered Notes which have not been withdrawn or revoked. If such waiver constitutes a material change to the Exchange Offer, the Company will promptly disclose such waiver in a manner reasonably calculated to inform Holders of Notes of such waiver. The foregoing conditions are for the sole benefit of the Company and may be asserted by the Company regardless of the circumstances giving rise to any such condition or may be waived by the Company in whole or in part at any time and from time to time in its sole discretion. The failure by the Company at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right and each such right shall be deemed an ongoing right which may be asserted at any time and from time to time. In addition to the foregoing conditions, if, because of any change in applicable law or applicable interpretations thereof by the Commission, the Company is not permitted to complete the Exchange Offer, then the Company shall file a Shelf Registration Statement. Thereafter, the Company's obligation to consummate the Exchange Offer shall be terminated. Exchange Agent United States Trust Company of New York has been appointed as Exchange Agent for the Exchange Offer. Questions and requests for assistance, requests for additional copies of this Prospectus or of the Letter of Transmittal and requests for Notices of Guaranteed Delivery should be directed to the Exchange Agent addressed as follows:
By Registered or Certified Mail: By Overnight Courier and By Hand after 4:30 p.m.: United States Trust Company of New York United States Trust Company of New P.O. Box 844 Cooper Station York New York, New York 10276 770 Broadway, 13th Floor Attention: Corporate Trust Services New York, New York 10003 By Hand before 4:30 p.m.: By Facsimile: United States Trust Company of New York (212) 780-0592 111 Broadway Attention: Customer Service New York, New York 10006 Attention: Lower Level Confirm by telephone: Corporate Trust Window (800) 548-6565
29 Fees and Expenses The expenses of soliciting tenders will be borne by the Company. The principal solicitation is being made by mail; however, additional solicitation may be made by telegraph, telephone or in person by officers and regular employees of the Company and its affiliates. The Company will not make any payments to brokers, dealers or others soliciting acceptances of the Exchange Offer. The Company, however, will pay the Exchange Agent reasonable and customary fees for its services and will reimburse it for its reasonable out-of-pocket expenses in connection therewith. The Company may also pay brokerage houses and other custodians, nominees and fiduciaries the reasonable out-of-pocket expenses incurred by them in forwarding copies of the Prospectus and related documents to the beneficial owners of the Notes, and in handling or forwarding tenders for exchange. The cash expenses to be incurred in connection with the Exchange Offer will be paid by the Company, are estimated in the aggregate to be approximately $100,000, and include fees and expenses of the Exchange Agent and Trustee under the Indenture and accounting and legal fees. The Company will pay all transfer taxes, if any, applicable to the exchange of Notes pursuant to the Exchange Offer. If, however, certificates representing Exchange Notes or Notes for principal amounts not tendered or accepted for exchange are to be delivered to, or are to be registered or issued in the name of, any person other than the registered Holder of the Notes tendered, or if tendered Notes are registered in the name of any person other than the person signing the Letter of Transmittal, or if a transfer tax is imposed for any reason other than the exchange of Notes pursuant to the Exchange Offer, then the amount of any such transfer taxes (whether imposed on the registered holder or any other persons) will be payable by the tendering Holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted with the Letter of Transmittal, the amount of such transfer taxes will be billed directly to such tendering Holder. Accounting Treatment The Exchange Notes will be recorded at the same carrying value as the Notes, which is face value as reflected in the Company's accounting records on the date of the exchange. Accordingly, no gain or loss for accounting purposes will be recognized upon consummation of the Exchange Offer. The issuance costs incurred in connection with the Exchange Offer will be capitalized and amortized over the term of the Exchange Notes. 30 UNAUDITED PRO FORMA FINANCIAL DATA The following unaudited pro forma consolidated financial data (the "Unaudited Pro Forma Financial Data") of the Company have been derived by the application of pro forma adjustments to the historical financial statements of The Pantry and Lil' Champ for the periods indicated. The adjustments are described in the accompanying notes. The Unaudited Pro Forma Financial Data give effect to the Transactions as if these transactions occurred as of September 25, 1997, for purposes of the balance sheet data, and on September 27, 1996, for purposes of the statement of operations data. The Unaudited Pro Forma Financial Data do not give effect to any transactions other than the Transactions and those discussed in the accompanying notes. The Unaudited Pro Forma Financial Data are provided for informational purposes only and do not purport to represent the results of operations or financial position of the Company had the transactions in fact occurred on such dates, nor do they purport to be indicative of the financial position or results of operations as of any futures date or for any future period. The Lil' Champ Acquisition will be accounted for using the purchase method of accounting. The total cost of the Lil' Champ Acquisition will be allocated to the tangible and intangible assets acquired and liabilities assumed based upon their respective fair values as of the time the Lil' Champ Acquisition was consummated. The excess of the purchase price over the historical basis of the net assets acquired has not been allocated in the accompanying Unaudited Pro Forma Financial Data. The pro forma adjustments are based upon available information and upon certain assumptions that management believes are reasonable. The actual allocation of the purchase price, however, and the resulting effect on income from operations may differ significantly from the pro forma amounts included herein. The Unaudited Pro Forma Financial Data and accompanying notes should be read in conjunction with the financial statements and accompanying notes thereto and the other financial information included elsewhere in this Prospectus. 31 UNAUDITED PRO FORMA BALANCE SHEET DATA September 25, 1997 (dollars in thousands)
Historical Adjustments -------------------------- ------------------- The Pantry Lil' Champ The Transactions Pro Forma ---------- ---------- ------------------- --------- Assets: Current assets: Cash and cash equivalents................................. $ 3,347 $ 9,506 $ 17,674 (a) $ 30,527 -------- -------- -------- -------- Certificates of deposit................................... -- 805 -- 805 Receivables, net.......................................... 2,101 3,154 -- 5,255 Inventories............................................... 17,161 18,017 -- 35,178 Prepaid expenses.......................................... 1,204 1,881 -- 3,085 Property held for sale.................................... 3,323 -- -- 3,323 Deferred income taxes..................................... 1,142 -- -- 1,142 -------- -------- -------- -------- Total current assets.................................... 28,278 33,363 17,674 79,315 -------- -------- -------- -------- Property and equipment, net................................. 77,986 129,554 -- 207,540 Other assets: Goodwill, net............................................. 20,318 13,625 40,495 (b) 74,438 Deferred lease cost, net.................................. 314 -- -- 314 Deferred financing cost, net.............................. 4,578 -- 6,989 (c) 11,567 Environmental receivables, net............................ 6,511 1,521 -- 8,032 Deferred income taxes..................................... 156 -- -- 156 Other..................................................... 4,658 1,042 (4,049)(a) 1,651 -------- -------- -------- -------- Total other assets..................................... 36,535 16,188 43,435 96,158 -------- -------- -------- -------- Total assets................................................ $142,799 $179,105 $ 61,109 $383,013 ======== ======== ======== ======== Liabilities and Shareholders' Equity Current Liabilities: Current maturities of long-term debt..................... $ 33 $ 10,700 $(10,700)(a) $ 33 Current maturities of capital lease obligations............................................. 285 990 -- 1,275 Accounts payable......................................... 19,057 20,378 -- 39,435 Accrued expenses......................................... 17,148 16,329 (500)(d) 32,977 -------- -------- -------- -------- Total current liabilities.............................. 36,523 48,397 (11,200) 73,720 -------- -------- -------- -------- Senior notes payable, 12%, due November 15, 2000............ 100,000 -- (51,000)(a) 49,000 Senior subordinated notes................................... -- -- 200,000 (a) 200,000 Other long-term debt........................................ 305 -- -- 305 -------- -------- -------- -------- Total long-term debt...................................... 100,305 -- 149,000 249,305 -------- -------- -------- -------- Other non-current liabilities: Environmental reserve..................................... 7,806 3,150 -- 10,956 Capital lease obligations................................. 679 11,837 -- 12,516 Employment obligations.................................... 1,341 -- -- 1,341 Accrued dividends on preferred stock...................... 7,958 -- -- 7,958 Deferred income taxes....................................... -- 9,824 (3,844)(e) 5,980 Other..................................................... 6,060 7,972 -- 14,032 -------- -------- -------- -------- Total other non-current liabilities..................... 23,844 32,783 (3,844) 52,783 -------- -------- -------- -------- Shareholders' equity: Preferred stock........................................... -- -- -- -- Common stock.............................................. 1 1 (1)(f) 1 Additional paid-in capital................................ 5,396 67,966 (36,966)(a)(f) 36,396 Retained earnings (deficit)............................... (23,270) 29,958 (35,880)(f) (29,192) Total shareholders' equity.............................. (17,873) 97,925 (72,847) 7,205 -------- -------- -------- -------- Total liabilities and shareholders' equity.................. $142,799 $179,105 $ 61,109 $383,013 ======== ======== ======== ========
See Notes to Unaudited Pro Forma Balance Sheet Data 32 Notes to Unaudited Pro Forma Balance Sheet Data (a) Reflects the following:
Cash Inflows: Proceeds from issuance of Notes...................................... $200,000 Proceeds from Equity Investment...................................... 32,400 -------- Total cash inflows................................................... 232,400 -------- Cash Outflows: Purchase price of Lil' Champ Acquisition (net of cash in escrow of $4,049)................................................ 128,651 Repayment of existing Lil' Champ debt................................ 10,700 Repurchase of Senior Notes........................................... 51,000 Payment of accrued interest related to Senior Notes and existing Lil' Champ debt............................................ 2,375 Costs related to the Tender Offer.................................... 7,000 Transaction expenses................................................. 15,000 -------- Total cash outflows.................................................. 214,726 -------- Net cash inflows..................................................... $ 17,674 ========
(b) For purposes of the pro forma information, the excess of the purchase price over the historical net assets of Lil' Champ has been considered to be goodwill and other intangible assets, pending the completion of appraisals and other purchase price allocation adjustments. The adjustment reflects the following: Purchase price of Lil' Champ Acquisition............................. $132,700 Allocation of transaction expenses to the Lil' Champ Acquisition..... 4,500 Severance, net of tax................................................ 1,220 Elimination of historical shareholders' equity of Lil' Champ......... (97,925) -------- $ 40,495 ========
(c) Reflects the (i) write-off of deferred financing costs upon the repurchase of $51.0 million of the Senior Notes ($2.1 million) and (ii) allocation of transaction expenses related to the Notes Offering ($9.1 million). (d) Reflects the (i) repayment of accrued interest in connection with the repayment of existing Lil' Champ debt and the repurchase of $51.0 million of the Senior Notes ($2.4 million) and (ii) severance incurred in connection with the Lil' Champ Acquisition ($1.9 million). (e) Reflects the tax effects of (i) costs related to the Tender Offer and Consent Solicitation and write-off of deferred financing costs in connection with the repurchase of $51.0 million of the Senior Notes and (ii) severance incurred in connection with the acquisition of Lil' Champ. (f) Reflects the (i) proceeds, net of $1.4 million of transaction expenses, from the Equity Investment of $31.0 million, (ii) elimination of historical shareholders' equity of Lil' Champ and (iii) nonrecurring charges, net of tax, related to the costs of the Tender Offer and the Consent Solicitation and write-off of deferred financing costs in connection with the repurchase of $51.0 million of the Senior Notes (approximately $4.6 million and $1.4 million, respectively). 33 UNAUDITED PRO FORMA STATEMENT OF OPERATIONS DATA Year Ended September 25, 1997 (dollars in thousands)
Historical ----------------------- Year Ended ----------------------- Latest Twelve Months Ended September September 25, 1997 27, 1997 Pro Forma Adjustments ---------- --------- ---------------------------------------------------- Other Lil' Acquisitions/ The Pantry Champ The Transactions Dispositions(f) Pro Forma ---------- --------- ---------------- --------------- --------- (52 weeks) (52 weeks) Revenues: Merchandise sales............................... $202,440 $232,250 $ -- $ 8,881 $443,571 Gasoline sales................................. 220,166 286,373 -- 18,521 525,060 Commissions.................................... 4,787 8,156 -- 436 13,379 -------- -------- --------- ------- -------- Total revenues................................. 427,393 526,779 -- 27,838 982,010 -------- -------- --------- ------- -------- Cost of Sales: Merchandise.................................... 132,846 152,847 -- 6,289 291,982 Gasoline....................................... 197,268 259,003 -- 15,841 472,112 -------- -------- --------- ------- -------- Total cost of sales............................ 330,114 411,850 -- 22,130 764,094 -------- -------- --------- ------- -------- Gross profit.................................... 97,279 114,929 -- 5,708 217,916 -------- -------- --------- ------- -------- Store operating expenses........................ 60,208 74,574 -- 3,295 138,077 General and administrative expenses....................................... 16,796 15,375 (500)(a) -- 31,671 Environmental remediation charge.............. -- 3,381 -- -- 3,381 Depreciation and amortization................... 9,504 11,911 2,306 (b) 79 23,800 -------- -------- --------- ------- -------- Total operating expenses....................... 86,508 105,241 1,806 3,374 196,929 -------- -------- --------- ------- -------- Income from operations.......................... 10,771 9,688 (1,806) 2,334 20,987 Other income (expense): Interest....................................... (13,039) (2,388) (13,042)(c) (17) (28,486) Miscellaneous.................................. 1,293 1,370 -- (4) 2,659 -------- -------- --------- ------- -------- Total other expenses........................... (11,746) (1,018) (13,042) (21) (25,827) -------- -------- --------- ------- -------- Income (loss) before income taxes............... (975) 8,670 (14,848) 2,313 (4,840) Income tax benefit (expense).................... -- (3,582) 5,198 (d) (810) 806 -------- -------- --------- ------- -------- Net income (loss)............................... $ (975) $ 5,088 $ (9,650)(e) $ 1,503 $ (4,034) ======== ======== ======== ======= ========
See Notes to Unaudited Pro Forma Statement of Operations Data 34 Notes to Unaudited Pro Forma Statement of Operations Data (a) Historically, Lil' Champ paid Docks U.S.A., Inc. ("DUSA"), Lil' Champ's parent company, service agreement fees. The service agreement has been terminated concurrent with the Lil' Champ Acquisition and will not be replaced by a similar arrangement. (b) The Lil' Champ Acquisition will be accounted for under the purchase method of accounting. Under the purchase method of accounting, the total purchase price will be allocated to the tangible and intangible assets acquired and liabilities assumed by The Pantry based on their respective fair values as of the acquisition date based upon valuations and other studies not yet available. For purposes of the pro forma information, the excess of the purchase price over the historical net assets of Lil' Champ has been considered to be goodwill and other intangible assets, pending the completion of appraisals and other purchase price allocation adjustments. Assuming the pro forma remaining excess purchase costs to be allocated will be amortized over a weighted-average period of approximately 30 years, the resulting amortization is approximately $1.4 million for the year ended September 25, 1997. Additionally, deferred financing costs incurred in connection with the Notes Offering will be amortized over 10 years. The resulting amortization is approximately $0.9 million for the year ended September 25, 1997. (c) Reflects additional interest expense to be incurred by the Company in connection with the Notes Offering, and reductions in interest expense for the repayment of existing Lil' Champ debt and the repurchase of Senior Notes as follows:
Principal Interest --------- -------- (dollars in thousands) Notes Offering.................................. $200,000 $20,500 Repayment of existing Lil' Champ Debt........... 10,700 (1,140) Repurchase of Senior Notes...................... 51,000 (6,318) ------- $13,042 =======
(d) Adjusts income tax benefit for assumed tax effect of pro forma adjustments using an estimated 35% rate. (e) Net income (loss) excludes the effect of charges, net of tax, related to the costs of the Tender Offer and Consent Solicitation and write-off of deferred financing costs in connection with the repurchase of $51.0 million of the Senior Notes ($4.6 million and $1.4 million, respectively). (f) Subsequent to fiscal 1996, The Pantry has acquired 35 stores, acquired 23 third-party gasoline operations and disposed of 21 stores. This adjustment gives effect to the acquisitions and dispositions as if they occurred at the beginning of the period. 35 SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION OF THE PANTRY The following selected historical consolidated statement of operations and balance sheet data have been derived from the audited consolidated financial statements of The Pantry. The information contained in this table should be read in conjunction with The Pantry's audited consolidated financial statements and notes thereto at September 26, 1996 and September 25, 1997 and for each of the three years in the period ended September 25, 1997 included elsewhere in this Prospectus. 36
Year Ended ------------------------------------------------------------------------------------------- September 30, September 29, September 28, September 26, September 25, 1993 1994 1995 1996 1997 ------------ ------------- ------------- ------------- ------------- (53 weeks) (52 weeks) (52 weeks) (52 weeks) (52 weeks) Statement of Operations Data Revenues: Merchandise sales.................. $191,881 $189,244 $187,380 $188,091 $202,440 Gasoline sales..................... 175,690 175,083 187,165 192,737 220,166 Commissions........................ 4,362 4,466 4,516 3,979 4,787 -------- -------- -------- -------- -------- Total revenues....................... 371,933 368,793 379,061 384,807 427,393 Cost of Sales: Merchandise........................ 126,352 123,142 121,976 125,979 132,846 Gasoline........................... 154,617 153,476 161,179 167,610 197,268 -------- -------- -------- -------- -------- Gross profit......................... 90,964 92,175 95,906 91,218 97,279 Store operating expenses............. 54,074 53,201 56,206 57,841 60,208 General and administrative expenses.. 16,840 17,893 18,159 17,127 16,796 Restructuring charges................ -- -- -- 2,184(4) -- Impairment of long-lived assets...... -- -- -- 3,034(4) -- Depreciation and amortization........ 9,834 10,164 11,470 9,158 9,504 -------- -------- -------- -------- -------- Income from operations............... 10,216 10,917 10,071 1,874 10,771 Interest expense..................... (7,434) (12,047) (13,240) (11,992) (13,039) Due diligence costs.................. -- -- (1,181)(2) -- -- Income (loss) before income taxes and other items..................... 3,326 (181) (3,639) (10,778) (975) Income tax benefit (expense)......... (693) 372 354 2,664 -- Cumulative effect of change in accounting principle................ -- -- (960)(3) -- -- Extraordinary loss................... -- (671)(1) -- -- -- Net income (loss).................... $ 2,633 $ (480) $ (4,245) $ (8,114) $ (975) Other Financial Data EBITDA(5)............................ $ 20,594 $ 22,030 $ 22,252 $ 15,590 $ 21,568 Net cash provided by (used in): Operating activities............... 14,423 (4,120) 11,691 5,415 7,338 Investing activities............... (9,788) (10,612) (15,281) (7,204) (25,079) Financing activities............... (2,302) 25,955 (738) (3,872) 15,750 Capital expenditures(6)............ 11,193 9,862 16,650 7,084 14,749 Ratio of earnings to fixed charges(7).......................... 1.3x -- -- -- -- Operating Data Merchandise gross margin............. 34.2% 34.9% 34.9% 33.0% 34.4% Gasoline gallons sold (in millions)....................... 156.9 158.5 160.3 160.7 179.4 Retail price per gallon.............. $ 1.120 $ 1.105 $ 1.168 $ 1.199 $ 1.227 Gross profit per gallon.............. $ 0.134 $ 0.136 $ 0.162 $ 0.156 $ .128 Store Data Number of stores (end of period)..... 415 406 403 379 390 Average sales per store (in thousands): Merchandise sales.................. 451.5 460.4 462.7 479.8 525.8 Gasoline gallons................... 398.1 423.7 440.3 448.8 501.2 Comparable store sales growth:(8) Merchandise sales.................. 4.3% 3.3% -0.8% 2.8% 8.5% Gasoline gallons................... 5.7% 5.2% 0.2% -4.3% 7.2% Balance Sheet Data Working capital (deficit)............ $ 547 $ 6,652 $ (761) $ (6,513) $ (8,245) Total assets......................... 105,672 124,015 127,720 120,880 142,799 Total debt(9)........................ 63,468 102,382 101,798 101,431 101,302 Shareholders' deficit................ (11,576) (12,087) (16,332) (27,547) (17,873)
(footnotes on following page) 37 ___________________________ (1) In fiscal 1994, The Pantry recorded an extraordinary loss of $671,000, net of a taxes, related to the early extinguishment of debt. (2) During fiscal 1995, The Pantry expended $1,181,000 in due diligence costs related to the evaluation of the potential purchase of a regional convenience store company. The proposed transaction was abandoned and, as a result, the costs incurred in connection with the prospective acquisition were charged to earnings in fiscal 1995. (3) In fiscal 1995, The Pantry adopted, SFAS No. 112, "Employer's Accounting for Postretirement Benefits," and, as a result, recorded a cumulative effect for a change in accounting principle of $(960,000), net of taxes. (4) During 1996, The Pantry recorded restructuring charges of $2,184,000 pursuant to a formal plan to restructure its corporate offices. The costs include: $1,484,000 for employee severance; $350,000 for employee moving costs; and $350,000 for charges associated with the investment by FS&Co. and CMC. Substantially all of these amounts were expended during fiscal 1996. During fiscal 1996, The Pantry early-adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." Pursuant to SFAS No. 121, The Pantry evaluated its long- lived assets for impairment on a store-by-store basis by comparing the sum of the projected future undiscounted cash flows attributable to each store to the carrying value of the long-lived assets (including an allocation of goodwill, if appropriate) of that store. Based on this evaluation, The Pantry determined that certain long-lived assets were impaired and recorded an impairment loss based on the difference between the carrying value and the fair value of property and equipment and goodwill of $415,000 and $2,619,000, respectively. (5) "EBITDA" represents income (loss) before depreciation and amortization, interest expense, income tax expense (benefit), restructuring charges, impairment of long-lived assets, extraordinary item, cumulative effect of change in accounting principle and the write-off of due diligence costs incurred in connection with a potential purchase of a regional convenience store company that was abandoned in 1995. EBITDA is not a measure of performance under generally accepted accounting principles, and should not be considered as a substitute for net income, cash flows from operating activities and other income or cash flow statement data prepared in accordance with generally accepted accounting principles, or as a measure of profitability or liquidity. The Pantry has included information concerning EBITDA as one measure of an issuer's historical ability to service debt. EBITDA should not be considered as an alternative to, or more meaningful than, income from operations or cash flow as an indication of The Pantry's operating performance. (6) For the fiscal year ended 1993, capital expenditures included the purchase by The Pantry of its corporate office building in April 1993 for $3.9 million and the purchase by The Pantry of four previously leased stores in August 1993 for $3.2 million. Purchases of assets to be held for sale are excluded from these amounts. (7) For purposes of determining the ratio of earnings to fixed charges: (i) earnings consist of income (loss) before income tax benefit (expense) and extraordinary item plus fixed charges and (ii) fixed charges consist of interest expense, amortization of deferred financing costs, preferred stock dividends and the portion of rental expense representative of interest (deemed to be one-third of rental expense). The Pantry's earnings were inadequate to cover fixed charges by $0.2 million, $3.6 million, $10.8 million and $1.0 million for fiscal years 1994, 1995, 1996 and 1997, respectively. (8) The stores included in calculating same stores sales growth are stores that were in operation for both fiscal years of the comparable period. The same stores sales results for fiscal 1993, which was a 53-week year, has been adjusted to reflect a 52-week year. (9) Total debt includes capital lease obligations. 38 SELECTED HISTORICAL FINANCIAL INFORMATION OF LIL' CHAMP The following selected historical statement of operations and balance sheet data have been derived from the audited financial statements of Lil' Champ. The selected financial data for Lil' Champ for the nine months ended September 28, 1996 and September 27, 1997 are derived from financial statements that have not been audited. In the opinion of management, the unaudited financial data includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial position and results of operations for these periods. The results of operations for these periods are not necessarily indicative of the results of operations for any future period. The information contained in this table should be read in conjunction with Lil' Champ's audited financial statements and notes thereto at December 28, 1996 and December 30, 1995 and for each of the three years in the period ended December 28, 1996 included elsewhere in this Prospectus. 39
Year Ended Nine Months Ended ------------------------------------------------------------ ------------------------ December December December December December September September 26, 1992 25, 1993 31, 1994 30, 1995 28, 1996 28, 1996 27, 1997 ---------- ---------- ---------- ---------- ---------- ---------- ---------- (52 weeks) (52 weeks) (53 weeks) (52 weeks) (52 weeks) (39 weeks) (39 weeks) (dollars in thousands) Statement of Operations Data Revenues: Merchandise sales................ $212,110 $209,741 $212,310 $217,282 $226,146 $171,322 $177,426 Gasoline sales................... 229,709 237,714 248,507 257,056 278,905 207,208 214,676 Commissions...................... 6,616 7,645 7,683 7,978 8,164 5,979 5,971 -------- -------- -------- -------- -------- -------- -------- Total revenues................. 448,435 455,100 468,500 482,316 513,215 384,509 398,073 Cost of Sales: Merchandise...................... 137,483 137,547 139,054 143,598 148,877 112,909 116,879 Gasoline......................... 209,252 211,212 219,736 227,592 251,614 186,110 193,499 -------- -------- -------- -------- -------- -------- -------- Gross profit....................... 101,700 106,341 109,710 111,126 112,724 85,490 87,695 Store operating expenses........... 65,785 66,698 68,524 70,289 73,721 55,486 56,339 General and administrative expenses.......................... 16,160 16,418 17,965 15,452 14,191 11,397 12,581 Environmental remediation charges(1)........................ -- -- -- -- -- -- 3,381 Depreciation and amortization...... 12,516 12,130 11,954 11,568 11,361 8,439 8,989 -------- -------- -------- -------- -------- -------- -------- Income from operations............. 7,239 11,095 11,267 13,817 13,451 10,168 6,405 Interest expense................... (5,358) (4,684) (3,938) (3,219) (2,670) (1,994) (1,712) Income before income taxes......... 3,138 7,713 9,059 12,471 12,428 9,039 5,281 Income tax expense................. 1,604 3,208 3,733 4,985 4,981 3,622 2,223 Net income......................... $ 1,534 $ 4,505 $ 5,326 $ 7,486 $ 7,447 $ 5,417 $ 3,058 Other Financial Data EBITDA(2).......................... $ 21,012 $ 24,527 $ 24,951 $ 27,258 $ 26,459 $ 19,472 $ 19,363 Net cash provided by (used in): Operating activities............. 17,297 15,979 20,175 17,821 23,022 21,219 22,579 Investing activities............. (9,575) (6,699) (5,820) (11,345) (14,645) (12,948) (9,476) Financing activities............. (3,959) (9,829) (13,967) (9,783) (2,420) (14,238) (23,107) Depreciation and amortization...... 12,516 12,130 11,954 11,568 11,361 8,439 8,989 Capital expenditures............... 9,905 8,208 7,738 11,977 21,353 16,124 10,153 Ratio of earnings to fixed charges(3)........................ 1.4x 2.1x 2.4x 3.1x 3.3x 3.2x 2.3x Operating Data Merchandise gross margin........... 35.2% 34.4% 34.5% 33.9% 34.2% 34.1% 34.1% Gasoline gallons sold (in millions)..................... 203.4 211.5 216.5 219.5 224.2 168.3 169.8 Retail price per gallon............ $ 1.129 $ 1.124 $ 1.148 $ 1.171 $ 1.244 $ 1.231 $ 1.264 Gross profit per gallon............ $ 0.101 $ 0.125 $ 0.133 $ 0.134 $ 0.122 $ 0.125 $ 0.125 Store Data Number of stores (end of period)........................... 541 518 508 501 495 499 488 Average sales per store (in thousands): Merchandise sales................ 388.0 395.4 415.6 430.0 452.8 342.7 361.4 Gasoline gallons................. 428.4 453.1 472.9 485.3 509.3 382.4 389.7 Comparable store sales growth(4): Merchandise sales................ -2.3% 0.3% 1.3% 4.7% 4.1% 3.3% 3.7% Gasoline gallons................. -- 2.9% 2.3% 1.3% 1.9% 3.2% -0.6% Balance Sheet Data Working capital.................... $ 3,913 $ 3,805 $ 4,390 $ 1,804 $ 8,147 $ (9,012) $(15,034) Total assets....................... 190,208 185,732 179,784 176,537 191,507 178,732 179,105 Total debt(5)...................... 77,965 68,143 54,661 44,878 46,634 33,786 23,527 Shareholder's equity............... 70,103 74,608 79,934 87,420 94,867 92,837 97,925
(footnotes on following page) 40 ______________________ (1) During the nine months ended September 27, 1997, Lil' Champ performed a comprehensive review of the status of its stores as it relates to environmental remediation and recorded an additional charge of $3,381,000. (2) "EBITDA" represents income before depreciation and amortization, interest expense, income tax expense and a 1997 charge for establishing a reserve for environmental remediation. EBITDA is not a measure of performance under generally accepted accounting principles, and should not be considered as a substitute for net income, cash flows from operating activities and other income or cash flow statement data prepared in accordance with generally accepted accounting principles, or as a measure of profitability or liquidity. Lil' Champ has included information concerning EBITDA as one measure of an issuer's historical ability to service debt. EBITDA should not be considered as an alternative to, or more meaningful than, income from operations or cash flow as an indication of Lil' Champ's operating performance. (3) For purposes of determining the ratio of earnings to fixed charges: (i) earnings consist of income before income tax expense plus fixed charges and (ii) fixed charges consist of interest expense and the portion of rental expense representative of interest (deemed to be one-third of rental expense). (4) The stores included in calculating same stores sales growth are stores that were in operation for both fiscal years of the comparable period. The same stores sales results for fiscal 1994, which was a 53-week year, has been adjusted to reflect a 52-week year. (5) Total debt includes capital lease obligations. 41 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of each of The Pantry's and Lil' Champ's historical results of operations and financial condition should be read in conjunction with the financial statements of The Pantry and Lil' Champ and the notes thereto included elsewhere in this Prospectus. The following discussion and analysis covers periods before completion of the Transactions. See "Risk Factors" and "Unaudited Pro Forma Financial Data" for a further discussion relating to the effect that the Transactions described herein may have on The Pantry and Lil' Champ. General The Pantry was founded in 1967 with the opening of its first location in Sanford, North Carolina. The Pantry subsequently grew through a combination of internal growth and strategic acquisitions to become the largest convenience store chain in North Carolina and South Carolina. In 1977, The Pantry acquired two companies, McMillan in Winston-Salem, North Carolina and Little Giant in Fayetteville, North Carolina, adding a total of 80 stores. In 1979, The Pantry added 121 stores with its acquisitions of Caper House in Greenville, South Carolina and In and Out in Gaffney, South Carolina. In 1981, The Pantry acquired Quik Pic in Madisonville, Kentucky, adding another 114 stores to the chain. During the early 1990s, The Pantry's operating strategy focused on enhancing financial performance by maintaining high merchandise and gasoline gross margins relative to its primary competitors. By late 1995, this strategy had become unsustainable and was leading to declining same store merchandise sales and gasoline gallons and, consequently, deteriorating financial performance. In related transactions in November 1995 and August 1996, FS&Co. and Chase Manhattan Capital, L.P. (as successor to Chase Manhattan Capital Corporation) ("CMC") acquired a 76.9% and 23.1% interest in The Pantry, respectively. Within two months after this initial investment, The Pantry recruited a new management team led by Peter J. Sodini. This team, with an average of 31 years of experience in various retailing industries, has been successful in improving The Pantry's operating and financial performance. Specific strategies implemented by The Pantry's new senior management team include: improving merchandising and supplier relationships, increasing expense controls, repositioning and rebranding gasoline operations, implementing the "tuck in" acquisition program, upgrading store facilities and increasing management depth to facilitate the Company's growth plans. See "Business--Operating Strategy." In December 1996, FS&Co. invested additional equity in The Pantry, thereby increasing its aggregate ownership interest to approximately 83.6%. These funds were used in 1997 to acquire a total of 35 convenience stores in North Carolina and South Carolina in five separate transactions, to purchase the gasoline operations and equipment at 23 existing Pantry stores from a third-party operator and to upgrade existing store facilities. The Pantry continues to supplement its "tuck in" acquisition strategy with new site development in primary locations within selected markets. The Pantry continually evaluates individual store performance and facility conditions and closes underperforming stores. On October 23, 1997, The Pantry purchased Lil' Champ from Docks U.S.A., Inc. and consummated the other Transactions. See "Summary--The Transactions," "Business--Lil' Champ" and "Unaudited Pro Forma Financial Data." Results of Operations of The Pantry The Pantry's operations for fiscal years 1995, 1996 and 1997 each contained 52 weeks. The following table sets forth certain of The Pantry's results as a percentage of revenues for the periods indicated: 42
Fiscal Year Ended --------------------- 1995 1996 1997 ---- ---- ---- Revenues: Merchandise sales.................................. 49.4% 48.9% 47.4% Gasoline sales..................................... 49.4 50.1 51.5 Commissions........................................ 1.2 1.0 1.1 --------------------- Total revenues.................................... 100.0 100.0 100.0 Gross profit....................................... 25.3 23.7 22.8 Operating, general and administrative expenses...... 20.1 20.8 18.0 Depreciation and amortization....................... 2.5 2.4 2.2 Income from operations.............................. 2.7 0.5 2.5
Fiscal 1997 Compared to Fiscal 1996 Revenues. Total revenues increased 11.1% in fiscal 1997 from fiscal 1996. This increase is attributable to significant revenue increases in merchandise, gasoline and commissions despite a reduction in average store count compared to the prior year. Merchandise revenues increased 7.6% in fiscal 1997 from fiscal 1996 due to increased volume in major categories, a general increase in the price of cigarettes and growth in new merchandising programs and categories. Same store merchandise sales increased 8.5% over fiscal 1996 and average merchandise sales per store increased as the Company closed or sold 25 lower volume stores while acquiring or opening 36 new stores. Gasoline sales increased 14.2% in fiscal 1997 from fiscal 1996 primarily due to the Company's competitive pricing strategy, the closing of underperforming stores and acquiring or opening 36 new stores with average gasoline volume greater than the Company's overall average. Additionally, the average retail price per gallon in fiscal 1997 was $1.23 versus an average retail price per gallon in fiscal 1996 of $1.20. This average retail price is indicative of the Company's more competitive gasoline pricing strategy, general gasoline market conditions and increased price competition from other gasoline marketers in certain markets. The Company's same store gasoline volume increase of 7.2% in fiscal 1997 can be attributed to more competitive pricing and a relatively mild 1996-1997 winter season compared to the prior year. Commission revenues increased 20.3% in fiscal 1997 from fiscal 1996 due to the expansion and enhancement of existing commission related programs and the introduction of new programs in selected markets. Gross Profit. Gross profit for fiscal 1997 increased 6.6% or $6.1 million from fiscal 1996 as a result of the increases in merchandise, gasoline and commission revenues discussed above and an increase in merchandise gross profit margin from 33.0% in fiscal 1996 to 34.4% in fiscal 1997. Overall gross profit margin declined from 23.7% in fiscal 1996 to 22.8% in fiscal 1997 due to the decrease in gasoline margin per gallon from $0.156 in 1996 to $0.128 in 1997. The decrease in gasoline gross profit margin is attributable to a shift in the Company's pricing practices and less favorable conditions in the wholesale and retail gasoline markets. Store Operating Expenses. Store operating expenses increased in fiscal 1997 over fiscal 1996 in terms of total dollars, but decreased as a percentage of merchandise sales. Store expenses increased due to increases in store personnel related expenses of $1.0 million, real estate lease expense of $0.9 million and equipment rental expense of $0.5 million. The increase in store personnel related expenses is attributable to increased customer traffic and transaction volume. The increase in real estate leases is attributable to the consummation of several sale/leaseback transactions. The increase in equipment rental expense is primarily attributable to the Company roll-out of a frozen drink program to a majority of stores. 43 General and Administrative Expenses. General and administrative expenses for fiscal 1997 decreased 1.9% from fiscal 1996. The decrease in both total dollar terms and as a percentage of merchandise sales is attributable to improved fiscal management of major expense categories. Income from Operations. Income from operations increased from $1.9 million in fiscal 1996 to $10.8 million in fiscal 1997. The increase is attributable to the items discussed above, as well as nonrecurring restructuring charges and charges for impairment of long-lived assets of $2.2 million and $3.0 million, respectively, in fiscal 1996 which were not present in fiscal 1997. Interest Expense. Interest expense for fiscal 1997 increased $1 million from 1996 due to (i) a temporary interest rate increase on the Company's Senior Notes from 12% to 12 1/2% (see "Item 8. Consolidated Financial Statements and Supplementary Data - Note 4. Long-Term Debt") and (ii) a nonrecurring decrease of $0.6 million related to an interest accrual that was reversed in fiscal 1996 and did not occur in fiscal 1997. The accrual had been recorded related to a potential income tax issue that was resolved in The Pantry's favor in fiscal 1996. Income Tax Benefit (Expense). The Company's income tax benefit decreased in fiscal 1997 due to a $9.8 million decrease in pre-tax loss compared to the prior year and the computation of the Company's tax liability for fiscal 1997. Additionally, no income tax benefit was recorded in fiscal 1997, which was principally attributable to an increase in the valuation allowance for state deferred income tax assets of approximately $325,000. Earnings Before Interest, Taxes, Depreciation and Amortization. EBITDA represents income (loss) before depreciation and amortization, interest expense, income tax (expense) benefit, restructuring charges, impairment of long-lived assets, extraordinary item and write-off of acquisition due diligence costs. EBITDA for fiscal 1997 increased $6.0 million from 1996 due to the items discussed above. Fiscal 1996 Compared to Fiscal 1995 Revenues. Total revenues increased 1.5% in fiscal 1996 from fiscal 1995 and the increase was attributable to significant improvements in same store merchandise sales in the third and fourth quarters. Merchandise sales increased 0.4% in fiscal 1996 from fiscal 1995 due to an increase in same store sales which was partially offset by a reduction in the total number of stores. The increase in same store sales came from increased sales of cigarettes and improved and new merchandising programs. At the beginning of fiscal 1996, in response to same store merchandise decreases in fiscal 1995, The Pantry lowered the retail prices in several major categories and late in fiscal 1996 began to introduce new merchandising and marketing programs in selected markets. These programs included the addition of off-shelf merchandise displays to its stores, new products and the modification of certain of its ongoing merchandise programs such as its novelty and fresh food programs. During the year, especially in the third and fourth quarters, The Pantry experienced significant increases in the volume sold of cigarettes and other major categories over fiscal 1995. Together, along with other changes including the change in wholesale grocer supplier to McLane Company, Inc., same store sales increased 2.8% over fiscal 1995. Average merchandise sales per store increased as The Pantry shut down or sold 28 lower volume stores while opening up four new stores. Gasoline sales increased 3.0% in fiscal 1996 from fiscal 1995 due to an increase in retail price per gallon and a slight increase in total volume sold which offset a decrease in same store sales volume. The average retail price per gallon in fiscal 1996 was $1.20 versus an average retail price per gallon in fiscal 1995 of $1.17. The Pantry raised its retail prices in response to higher costs charged by its suppliers. Total gasoline volume increased, despite the same store volume decrease of 4.3%, as The Pantry benefited from a full year's operation at the ten high volume stores opened in fiscal 1995 and from the operations at the four high volume stores opened in fiscal 1996. Gross Profit. Gross profit for fiscal 1996 decreased from fiscal 1995 as The Pantry experienced lower margins on its merchandise sales and a lower gross profit per gallon on its gasoline volume. These lower margins offset the increase in sales. The gross margin on merchandise sales was 33.0% in fiscal 1996 compared to 34.9% in fiscal 1995. The primary reason for the decrease in merchandise gross margin was the decrease in cigarette margins resulting from The Pantry lowering its retail prices to become more competitive. The Pantry includes purchase rebates, mark-downs, inventory spoilage and shrink in its merchandise gross profit computation. Gasoline 44 gross profit decreased 3.3% in fiscal 1996 from fiscal 1995 as the gross profit per gallon in fiscal 1996 decreased to $0.1564 cents per gallon from $0.1621 cents per gallon in fiscal 1995. Store Operating Expenses. Store operating expenses increased in fiscal 1996 over fiscal 1995 both in terms of total dollars and as a percentage of merchandise sales. Store expenses increased due to an increase in rent expense associated with the new stores opened in fiscal 1995 and fiscal 1996 and non- recurring advertising expenses related to the first quarter introduction of Bean Street Coffee Company coffee. In addition, fiscal 1995 store operating expense benefited from the one time positive effect totaling $750,000 which resulted from the qualification of a contaminated site for reimbursement under a state tank fund. Fiscal 1996 store expenses were 30.8% of merchandise sales, up from 30.0% of merchandise sales in fiscal 1995. General and Administrative Expenses. Fiscal 1996 general and administrative expenses, exclusive of restructuring charges, were down 5.7%. The decrease in general and administrative expenses was due to lower workers' compensation expense resulting from improved management control in this area, lower incentive compensation expense (bonuses) due to lower fiscal 1996 operating results and lower recruiting expenses, which were partially offset by an increase in medical benefit costs and management development costs resulting from The Pantry's November 1995 convention. Restructuring Charges. During fiscal 1996, after disappointing operating results, management changes were made, including the hiring of new senior managers. The Pantry also released certain personnel, including certain former officers. The Pantry accrued for all liabilities due under employment contracts due to these former officers and paid severance compensation to others in accordance with a pre-existing severance plan. Additionally, concurrent with the investment by FS&Co. and CMC in The Pantry, The Pantry bought out the contract of its former CEO for $0.8 million. Additional expenses included in this line item consist of moving expenses to move new employees and additional charges associated with the investment by FS&Co. and CMC in The Pantry. Income from Operations. Income from operations decreased as a result of the items discussed above as well as the fiscal 1996 $3.0 million write-down of certain long-lived assets in accordance with The Pantry's adoption of Statement of Financial Accounting Standards No. 121 (SFAS No. 121), "Accounting for the Impairment of Long-Lived Assets." Interest Expense. Interest expense for fiscal 1996 decreased as a $0.6 million interest accrual that was recorded in fiscal 1995 was reversed in fiscal 1996. The accrual had been recorded related to a potential income tax issue that was resolved in The Pantry's favor in fiscal 1996. Cumulative Effect of Accounting Change. During the fourth quarter of fiscal 1995, The Pantry adopted, retroactive to September 30, 1994, Statement of Financial Accounting Standards No. 112 (SFAS No. 112), "Employer's Accounting for Postemployment Benefits" and restated its first quarter results to reflect the adoption. SFAS No. 112 requires that employers expense the costs of postemployment benefits over the service lives of employees if certain conditions are met. The cumulative effect of adopting SFAS No. 112 as of September 30, 1994 was an after-tax charge of $1.0 million. Acquisition Due Diligence Costs. During fiscal 1995, The Pantry spent approximately $1.2 million in due diligence costs related to the evaluation of the potential purchase of a regional convenience store company. The proposed transaction was abandoned and as a result, the costs incurred in connection with the prospective acquisition were charged to earnings in fiscal 1995. Income Tax Benefit. Income tax benefit increased in fiscal 1996 as a result of the increase in The Pantry's pre-tax loss. The increase in benefit was partially offset by the non-deductible write-off of goodwill associated with the adoption of SFAS No. 121. Earnings Before Interest, Taxes, Depreciation and Amortization. EBITDA represents income (loss) before depreciation and amortization, interest expense, income tax (expense) benefit, restructuring charges, impairment of long-lived assets, extraordinary item and write-off of acquisition due diligence costs. Exclusive of the impact of SFAS No. 121, EBITDA decreased for fiscal 1996 due to a combination of the decrease in gross profit discussed 45 above and the increases in store operating and general and administrative expenses previously discussed. The resulting EBITDA/interest expense coverage for fiscal 1996 was 1.3 to 1. Quarterly Results and Seasonality The Pantry has historically generated approximately 54% of its revenues during its third (April, May, June) and fourth (July, August and September) fiscal quarters due to increased consumer spending activity in its market areas resulting from the warmer weather and increased consumer travel in the spring and summer, particularly in coastal resort locations. This seasonality effect is partially offset by Thanksgiving and Christmas holiday travel and shopping periods, as well as stores in non-seasonal locations, such as urban and military base markets, and contra-seasonal locations, such as college towns where revenues are typically higher in the winter months. Additionally, The Pantry experiences seasonal fluctuations in its merchandise gross margin and gross profit per gallon. Due to this seasonality and the high portion of its costs that are fixed, The Pantry typically generates approximately 65% of its operating income and EBITDA during its third and fourth quarters. The Pantry seeks to mitigate seasonal fluctuations in cash flows by reducing inventory and labor hours and using its line of credit to provide cash and working capital in its first and second fiscal quarters. The table below provides quarterly data for selected operating items:
Fiscal Year 1996 Fiscal Year 1997 ------------------------------------------ ---------------------------------------- 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr ------- ------- ------- ------- ------- ------- ------- ------- Merchandise Sales (% volume contribution)............... 23.4% 22.0% 26.8% 27.9% 23.4% 22.1% 26.0% 28.5% Gasoline Gallons (% volume contribution)............... 24.1% 24.8% 25.3% 25.8% 23.0% 22.3% 26.5% 28.2% Merchandise Gross Margin %.... 34.2% 32.5% 32.1% 33.4% 33.5% 34.5% 34.3% 35.2% Gasoline Gross Profit per Gallon...................... $0.152 $0.165 $0.176 $0.179 $0.126 $0.118 $0.125 $0.139
Results of Operations of Lil' Champ Lil' Champ's operations for the fiscal years ended December 30, 1995 and December 28, 1996 each contained 52 weeks. The fiscal year ended December 31, 1994 contained 53 weeks. The following table sets forth Lil' Champ's results as a percentage of revenues for the periods indicated:
Year Ended December Nine Months Ended -------------------------- ------------------------------ September 28, September 27, 1994 1995 1996 1996 1997 -------------------------- ------------------------------ Revenues: Merchandise sales............................. 45.3% 45.0% 44.1% 44.6% 44.6% Gasoline sales................................ 53.0 53.3 54.3 53.9 53.9 Commissions................................... 1.7 1.7 1.6 1.5 1.5 -------------------------- ------------------------------ Total revenues............................... 100.0 100.0 100.0 100.0 100.0 Gross profit................................... 23.4 23.0 22.0 22.2 22.0 Operating, general and administrative expenses...................................... 18.5 17.7 17.1 17.4 17.3 Depreciation and amortization.................. 2.5 2.4 2.2 2.2 2.3 Income from operations......................... 2.4 2.9 2.7 2.6 1.6
46 Nine Months Ended September 27, 1997 Compared to Nine Months Ended September 28, 1996 Revenues. Total revenues for the nine months ended September 27, 1997 increased 3.5% from the comparable period in the prior year to $398.1 million. This increase is attributable to higher merchandise sales, gasoline sales and commissions, despite a 1.8% reduction in the average store count during this period. Total merchandise sales increased 3.6% for the first nine months of 1997 as compared to the first nine months of 1996 primarily as the result of a same store merchandise sales increase of 3.7%. The increase in merchandise sales for the period is attributable to the addition of branded fast food operations in certain stores and increased sales of tobacco products, beer, general merchandise and health and beauty care items. Gasoline revenues for the nine months ended September 27, 1997 increased 3.6% over the same period in the prior year. This increase reflects higher retail price per gallon and total gallons sold of 2.7% and 0.9%, respectively. Higher retail gasoline prices for the period were attributable to increases in wholesale costs which were passed on to consumers. Gross Profit. Gross profit for the nine months ended September 27, 1997 increased 2.6% from the comparable period in the prior year as a result of increases in merchandise and gasoline gross profit of 3.7% and 0.4%, respectively. For the nine months ended September 27, 1997, merchandise gross profit as a percentage of sales remained flat at 34.1% when compared with the same period in 1996. However, increased sales related to branded fast food operations resulted in a higher total gross profit. Gasoline gross profit per gallon remained flat at $0.125 for the same periods. This decrease in gasoline gross margins is attributable to slightly less favorable conditions in the retail gasoline markets. Store Operating and General and Administrative Expenses. Store operating expenses increased 1.5% in the first nine months of 1997 as compared to the comparable period in 1996 as a result of higher store labor and rental expenses. As a percentage of merchandise sales, store operating expense decreased to 31.8% from 32.4% for these periods. General and administrative expenses for the nine months ended September 27, 1997 increased 10.4% over the same period in the prior year due to higher personnel expenses and an increase in third party professional services associated with the sale of Lil' Champ. General and administrative expenses as a percentage of merchandise sales increased to 7.1% from 6.7%. Lil' Champ took a $3.4 million charge in the nine month period ended September 27, 1997 to establish a reserve for the remediation of environmental contamination. Income from Operations. Income from operations for the nine months ended September 27, 1997 decreased to $6.4 million from $10.2 million for the nine months ended September 28, 1996 primarily as a result of the $3.4 million environmental charge discussed above. Excluding the effects of the environmental charge, income from operations would have only decreased by 3.8%. Earnings Before Interest, Taxes, Depreciation and Amortization. EBITDA represents income (loss) before interest expense, income tax benefit (expense), depreciation and amortization and the 1997 charge for establishing a reserve for environmental remediation. EBITDA is not a measure of performance under generally accepted accounting principles, and should not be considered as a substitute for net income, cash flows from operating activities and other income or cash flow statement data prepared in accordance with generally accepted accounting principles, or as a measure of profitability or liquidity. EBITDA remained constant over the first nine months of 1997 as compared to 1996, $19.4 million and $19.5 million, respectively. Interest Expense. Interest expenses for Lil' Champ arises from bank borrowings, notes held by Lil' Champ's parent and interest on capitalized lease obligations. For the nine months ended September 27, 1997 interest expense decreased slightly to $1.7 million from $2.0 million for the comparable period in the prior year. This decrease resulted from lower average bank borrowings during 1997. 47 Fiscal 1996 Compared to Fiscal 1995 Revenues. Total revenues for the year ended December 28, 1996 increased 6.4% from the prior year to $513.2 million. This increase is attributable to higher merchandise sales, gasoline sales and commissions, despite a 1.2% reduction in the average store count during this period. Total merchandise sales increased 4.1% for the year ended December 28, 1996 as compared to the year ended December 30, 1995, primarily as the result of a same store merchandise sales increase of 4.1%. The merchandise sales increase for the year is attributable to the net addition of 16 branded fast food locations, increased sales of tobacco products and beer and improvements in Lil' Champ's coffee program, including the installation of cappuccino equipment in certain stores. In addition, Lil' Champ's merchandise sales benefitted from the change in wholesale suppliers to McLane Company in April 1996 which resulted in improved inventory selection, more timely deliveries and reduced out of stocks. Gasoline revenues for the year ended December 28, 1996 increased 8.5% over 1995 as a result of increases in retail price per gallon and total gallons sold of 6.2% and 2.1%, respectively. Retail gasoline prices increased in 1996 due to cost increases at the wholesale level. The increase in gasoline gallons sold reflects a same store gasoline gallon increase of 1.9% as well as the opening of four new higher-than-average volume stores which were partially offset by the closing of five lower-than-average volume stores during the year. For the year ended December 28, 1996, commission revenue increased 2.3% over the prior year to $8.2 million. This increase resulted from the introduction of video gaming machines in certain Georgia stores and higher lottery commission income. Gross Profit. Gross profit for the year ended December 28, 1996 increased 1.4% from the prior year to $112.7 million. Factors contributing to higher gross profits were increases in merchandise gross profit of 4.9% and commission revenues of 2.3%, partially offset by a decrease in gasoline gross profit of 7.4%. Merchandise gross profit margin increased to 34.2% in 1996 from 33.9% in 1995, reflecting increased sales of high margin branded fast food. Gasoline gross profit per gallon decreased to $0.122 in 1996 from $0.134 in 1995 as a result of Lil' Champ's inability to pass along all of the gasoline supply cost increases experienced during the year due to a more competitive retail gasoline environment. Store Operating and General and Administrative Expenses. Store operating expenses increased 4.9% for the year ended December 28, 1996 over the prior year due primarily to increased store labor costs related to higher sales volumes. Store operating expenses as a percentage of merchandise sales increased to 32.6% in 1996 from 32.3% in 1995. General and administrative expenses for the year ended December 28, 1996 decreased 8.2% from the prior year due to lower workers compensation expense and a reversal of a closed store reserve related primarily to a store that remained open following improved performance. General and administrative expenses as a percentage of merchandise sales decreased in 1996 to 6.3% from 7.1% in 1995. Income from Operations. Income from operations for the year ended December 28, 1996 decreased slightly to $13.5 million from $13.8 million for the year ended December 30, 1995. This decrease is attributable to lower gasoline gross profit, offset partially by increased merchandise gross profit and lower general and administrative expenses. Earnings Before Interest, Taxes, Depreciation and Amortization. EBITDA represents income (loss) before interest expense, income tax benefit (expense) and depreciation and amortization. EBITDA for the year ended December 28, 1996 was $26.5 million, a 2.9% decrease from 1995. Interest Expense. Interest expense for Lil' Champ arises from bank borrowings, notes held by Lil' Champ's parent and interest on capitalized lease obligations. Interest expense in 1996 decreased to $2.7 million from $3.2 million in 1995. This decrease reflects the reduction of debt outstanding during 1996. 48 Fiscal 1995 Compared to Fiscal 1994 Revenues. Total revenues for the year ended December 30, 1995 increased 2.9% from the 53-week prior year to $482.3 million. On a comparable 52-week basis, total revenues in 1995 increased 4.9% over 1994. This increase resulted from higher merchandise sales, gasoline sales and commissions, despite a 1.1% reduction in the average store count during this period. Total merchandise sales were 2.3% higher for the year ended December 30, 1995 as compared to the year ended December 31, 1994. On a comparable 52-week basis, merchandise sales increased 4.3% in 1995. This increase resulted primarily from a same store merchandise sales increase of 4.7% on a 52-week basis. The increase in merchandise sales for the year is attributable to the addition of branded fast food operations in certain stores, more promotional cigarette sales activity, improvements in Lil' Champ's frozen carbonated beverage offerings and the introduction of a new prepaid phone card program. Gasoline revenues for the year ended December 30, 1995 increased 3.4% as compared to the prior year. The increase was 5.4% on a comparable 52-week basis. Higher gasoline revenue resulted from increases in retail price per gallon and total gallons sold (on a 52-week basis) of 4.0% and 3.3%, respectively. The increase in gasoline gallons sold reflects a same store gasoline gallon increase of 1.3% on a comparable 52-week basis and the opening of three new stores, partially offset by the closing of 21 lower-than-average volume stores. For the year ended December 30, 1995, commission revenue increased 3.8% over the prior year to $8.0 million. This increase is attributable to increased money orders and the benefits of a new pay phone service contract. Gross Profit. Gross profit for the year ended December 30, 1995 increased 1.3% from the prior year to $111.1 million. The increase consisted of increases in gasoline gross profit, merchandise gross profit and commission revenue of 2.4%, 0.6% and 3.8%, respectively. Merchandise gross profit margin decreased to 33.9% in 1995 from 34.5% in 1994 due to increased sales of lower margin private label cigarettes and increased soft drink promotions. Gasoline gross profit per gallon increased to $0.134 in 1995 from $0.130 in 1994 as a result of the closure of 21 underperforming stores and the opening of three new stores with higher-than-average gasoline gross margins. Store Operating and General and Administrative Expenses. Store operating expenses increased 2.6% for the year ended December 30, 1995 over the prior year. This increase was due to the introduction of branded fast food in certain stores and higher gas maintenance and tank removal costs related to store closings. These factors were partially offset by lower labor and other store variable costs in 1995 related to the 52-week year as compared to the 53-week year in 1994. Store operating expenses as a percentage of merchandise sales for the year were flat compared to 1994 at 32.3%. General and administrative expenses for the year ended December 30, 1995 decreased 14.0% from the prior year primarily because of a $1.5 million write-down of the Eli Witt investment in 1994 and the impact of one additional week in 1994. General and administrative expenses as a percentage of merchandise sales decreased in 1995 to 7.1% from 8.5% in 1994. Income from Operations. Income from operations for the year ended December 30, 1995 increased to $13.8 million from $11.3 million for the year ended December 31, 1994 primarily due to the reduction in general and administrative expenses. Earnings Before Interest, Taxes, Depreciation and Amortization. EBITDA represents income (loss) before interest expense, income tax benefit (expense) and depreciation and amortization. EBITDA for the year ended December 30, 1995 increased 9.2% from the prior year to $27.3 million. Interest Expense. Interest expense for Lil' Champ arises from bank borrowings, notes held by Lil' Champ's parent and interest on capitalized lease obligations. Interest expense in 1995 decreased to $3.2 million from $3.9 million in 1994. This decrease reflects the reduction of debt outstanding during 1995. 49 Liquidity and Capital Resources The Pantry Due to the nature of The Pantry's business, substantially all sales are for cash, and cash provided by operations is The Pantry's primary source of liquidity. Capital expenditures, acquisitions and interest expense represent the primary uses of funds. The Pantry has relied primarily upon cash provided by operating activities, supplemented as necessary from time to time by borrowings under its working capital line, sale-leaseback transactions, asset dispositions and equity investments, to finance its operations, pay interest and fund capital expenditures and acquisitions. Cash provided by operating activities in fiscal 1995, fiscal 1996 and fiscal 1997 totaled $11.7 million, $5.4 million and $7.3 million, respectively. The Pantry also had $3.3 million of cash and cash equivalents on hand at September 25, 1997. Capital expenditures in fiscal 1995, fiscal 1996 and fiscal 1997 were $16.7 million, $7.1 million and $14.7 million, respectively. Capital expenditures are primarily expenditures for existing store improvements, store equipment, new store development and expenditures to comply with regulatory statutes, including those related to the environment. The Pantry finances substantially all new store development and acquisition activity through cash flow from operations and a sale-leaseback program or similar lease activity and asset dispositions. The Pantry spent $12.3 million related to its tuck-in acquisition program for the year ended September 25, 1997. The Pantry's long-term debt at September 25, 1997 consisted primarily of $100.0 million of the Senior Notes. The interest payments on the Senior Notes are due May 15 and November 15. See "Description of Other Indebtedness--Senior Notes". Lil' Champ Lil' Champ's primary source of liquidity is cash flow from operating activities. Capital expenditures, including costs associated with retrofitting USTs to meet new regulatory standards, and debt service payments are Lil' Champ's primary uses of funds. Lil' Champ has relied primarily on cash flow from operations, supplemented periodically with borrowings under its working capital facility and intercompany loans from its parent, Docks de France and proceeds from asset dispositions to finance its operations, make debt services payments and fund capital expenditures. Net cash provided by operating activities for fiscal 1994, fiscal 1995 and fiscal 1996 and the nine months ended September 27, 1997 was $20.2 million, $17.8 million, $23.0 million and $22.6 million, respectively. As of September 27, 1997, Lil' Champ had $9.5 million in cash and cash equivalents. Capital expenditures for fiscal 1994, fiscal 1995, fiscal 1996 and the nine months ended September 27, 1997 were $7.7 million, $12.0 million, $21.4 million and $10.2 million, respectively. Capital expenditures are primarily related to gasoline equipment retrofits, including those related to complying with environmental regulations, the installation of QSRs in existing stores, new store development, store remodels and for maintenance purposes. Lil' Champ's revolving credit and letter of credit facilities were refinanced in connection with the Lil' Champ Acquisition. The Company The Company's future liquidity needs will arise primarily from principal and interest payments under its outstanding indebtedness, and from the funding of its capital expenditures and acquisitions. The Company has outstanding approximately $263.1 million of indebtedness, including $200.0 million principal amount of the Notes and $49.0 million principal amount of the Senior Notes. The Company has entered into the New Credit Facility, consisting of a $45.0 million revolving credit facility and a $30.0 million acquisition facility. The New Credit Facility has availability for letter of credit usage, is secured by substantially all of the assets of the Company and the Guarantors and is guaranteed by the Guarantors. Principal and interest payments under the New Credit Facility and interest payments on the Notes, the Exchange Notes and the Senior Notes represent significant liquidity requirements for the Company. The loans under the New Credit Facility bear interest at floating rates based upon the interest rate option elected by the Company. See "Description of Other Indebtedness--New Credit Facility." The Senior Notes are due in 2000. The Company 50 anticipates that it will refinance the Senior Notes, but there can be no assurance that such refinancing can be obtained. Capital expenditures of the Company will primarily be expenditures for existing store improvements, store equipment, new store development and environmental expenditures. Estimated capital expenditures for the Company are approximately $30.0 million for 1998 and approximately $20.0 million for each year thereafter through 2003. "Tuck in" acquisition expenditures will be funded by a combination of cash provided by operations, sale-leaseback transactions and the acquisition facility portion of the New Credit Facility and are estimated at $4.0 million for 1998 and thereafter $12.0 million per year through 2003. Federal, state, and local regulatory agencies have adopted various regulations governing USTs that require the Company to make certain expenditures for compliance. Regulations enacted by the EPA in 1988 established requirements for UST systems and ongoing monitoring of USTs. The Pantry has upgraded approximately 81% of Pantry locations, and approximately 71% of Lil' Champ locations have been upgraded. The Company plans to have all operating locations in compliance in advance of the required date. To meet these regulatory requirements, the Company's estimated 1998 capital expenditures include an estimated $1.0 million and $4.5 million for Pantry and Lil' Champ stores, respectively. For a more detailed discussion relating to USTs and other regulatory requirements, see "Business--Government Regulation and Environmental Matters." Due to the nature of the Company's business, substantially all sales will be for cash, and cash provided by operations will be the Company's primary source of liquidity. Capital expenditures and debt service represent the primary uses of funds. The Company believes cash provided by operating activities, supplemented as necessary from time to time by amounts available under the New Credit Facility, will be sufficient to finance its operations, service the interest payment on its debt, and fund capital expenditures for the foreseeable future. Inflation. General inflation has not had a significant impact on the Company over the past three years. Management expects the cost of tobacco products to increase over the next several years and, as a result, expects merchandise revenues to increase and merchandise gross margin percentage to decline. Management believes it can pass along these and other cost increases to its customers over the long-term and, therefore, does not expect inflation to have a significant impact on the results of operations or financial condition in the forseeable future. 51 BUSINESS Overview On October 23, 1997, The Pantry, Inc., the largest convenience store operator in North Carolina and South Carolina, purchased Lil' Champ Food Stores, Inc. Lil' Champ is the largest convenience store chain in northern Florida, operating 488 convenience stores located in 33 counties in northern Florida and southeastern Georgia. The combination of The Pantry and Lil' Champ has created the third largest independent convenience store chain in the United States (based on number of stores) with 878 stores and a strong concentration in the Southeast. The Pantry. The Pantry is the largest operator of convenience stores in North Carolina and South Carolina, where 289 of its 390 stores are located. The other 101 Pantry stores are located in western Kentucky, Tennessee and southern Indiana. The Pantry operates its convenience stores under the name "The Pantry," primarily in smaller towns and suburban areas. The Pantry's stores offer a broad selection of affordable, high quality merchandise and services, including tobacco products, beer, soft drinks, self-service fast food and beverages, publications, dairy products, groceries, health and beauty aids, video games and money orders. In its Kentucky and Indiana stores, The Pantry also sells lottery products. In addition, self-service gasoline is sold at 364 Pantry stores, 314 of which sells gasoline under brand names including Amoco, British Petroleum (BP), Exxon, Shell and Texaco. Since fiscal 1994, merchandise sales (including commissions from services) and gasoline sales have each averaged approximately 50% of total revenues. Management believes The Pantry has the following principal strengths: . Leading market position. The Pantry, which commenced operations in 1967, is a leading operator of convenience stores in the Southeast. Since 1979, The Pantry has operated the largest number of convenience stores in North Carolina and South Carolina, and currently has approximately twice the number of stores as its largest competitor. Throughout its operating history, The Pantry has captured many prime locations in its market areas. The Pantry's geographically concentrated store base in North Carolina and South Carolina generates operational and marketing efficiencies and enhances its negotiating position with suppliers. . Attractive markets. North Carolina and South Carolina are among the fastest growing states in terms of population, employment and gross state product. According to the U.S. Census Bureau, the population of these two states increased 8.5% for the period from 1990 through 1996, compared to the national average of 6.4% over the same period. According to the U.S. Bureau of Labor Statistics, employment in these two states increased 7.8% for the period from 1990 through 1996, compared to the national average of 6.7% over the same period. According to the U.S. Department of Commerce, the gross state product of these two states increased 12.6% for the period from 1990 through 1994, compared to the national average of 8.2% during the same period. Additionally, approximately 23% of The Pantry stores are located in coastal resort areas which attract vacationing customers, who tend to shop more frequently at convenience stores and are less sensitive to prices than local populations. . Experienced management. Beginning in the second quarter of fiscal 1996, The Pantry hired a new management team led by Peter J. Sodini. This team, with an average of 31 years of experience in various retailing industries, has been successful in improving The Pantry's operating and financial performance. Specific strategies implemented by The Pantry's new senior management team include: improving merchandising and supplier relationships, increasing expense controls, repositioning and rebranding gasoline operations, completing "tuck in" acquisitions, upgrading store facilities and increasing management depth to facilitate The Pantry's growth plans. . Branded gasoline offerings. The Pantry derives significant benefits from offering such branded gasolines as Amoco, British Petroleum (BP), Exxon, Shell and Texaco at 314 locations. Such benefits include increased customer traffic, higher gasoline margins, improved merchandise sales and a built-in credit card customer base. In addition, The Pantry receives reimaging allowances and marketing support from these branded gasoline suppliers which are used to upgrade facilities and maintain The Pantry's attractive customer image. 52 . Attractive customer image. The Pantry prides itself on building a local, repeat customer base by emphasizing competitive prices, fully stocked stores, prompt and friendly customer service, cleanliness and safety at convenient, well-lighted locations. The Pantry's new merchandising programs, which offer expanded product selections tailored to local markets, have increased merchandise sales, gross margins and inventory turnover. Lil' Champ. Lil' Champ is a leading operator of convenience stores in Florida and the largest convenience store operator in northern Florida. Lil' Champ's 488 stores, operated under the name "Lil' Champ", are located primarily in northern Florida and Georgia, with 151 stores concentrated in the Jacksonville, Florida area. Like The Pantry, Lil' Champ stores offer a broad selection of affordable, high quality merchandise and services. Self-service gasoline is sold at 434 Lil' Champ stores, 202 of which sell gasoline under brand names including British Petroleum (BP), Chevron, Fina, and Texaco. In addition, Lil' Champ has developed a food service operation which includes 49 in-store QSRs offering national brands such as Taco Bell, A&W Root Beer, Long John Silver's and Pizza Hut. Since fiscal 1994, merchandise sales (including commissions from services) and gasoline sales have averaged approximately 46% and 54% of total revenues, respectively. Management believes Lil' Champ's strong financial performance is a result of the following key strengths: . Leading market position. As the largest convenience store chain in northern Florida, Lil' Champ has a strong regional identity. In its core Jacksonville, Florida market area, Lil' Champ operates 151 stores, approximately three times as many stores as its largest competitor. Lil' Champ's geographically concentrated store base in northern Florida generates operational and marketing efficiencies and enhances its negotiating position with suppliers. . Attractive markets. Northern Florida is a rapidly growing market for convenience stores. Lil' Champ stores are located predominantly in Florida, which is one of the fastest growing states in terms of population, employment and gross state product. According to the U.S. Census Bureau, the population of Florida increased 10.6% for the period from 1990 through 1996, compared to the national average of 6.4% over the same period. Jacksonville is among the fastest growing metropolitan areas in the United States. According to the U.S. Bureau of Labor Statistics, employment in Florida increased 8.4% for the period from 1990 through 1996, compared to the national average of 6.7% over the same period. According to the U.S. Department of Commerce, the gross state product of Florida increased 10.7% for the period from 1990 through 1994, compared to the national average of 8.2% during the same period. . Prime store locations. During its 26 years of operation, Lil' Champ has selectively chosen its store locations as new residential areas and interstate routes have been developed. Management believes that many of Lil' Champ's stores are in developed areas where current land prices and the unavailability of suitable plots make it difficult for competitors to replicate Lil' Champ's existing store base. Operating Strategy Management's strategic goal is to continue to capitalize on and enhance the Company's position as a leading convenience store retailer in the Southeast. Management believes that the Company, with its established market positions, extensive network of locations and attractive customer image, will have a significant competitive advantage in generating operating efficiencies and pursuing "tuck in" acquisitions. Management intends to continue utilizing operating strategies that have been successfully employed at The Pantry. Elements of management's strategic plan include the following: . Focus on merchandising mix and margins. The Company's merchandising strategy is to offer a broader and more locally defined variety of products than is provided by other convenience stores, with particular emphasis on "fresh" food and beverage offerings, general merchandise and monthly promotional displays. This tailored product mix appeals to the tastes and needs of local customers and improves inventory turnover. During the summer season, for example, the Company's stores in resort areas carry more vacation oriented items such as large souvenir assortments, beachwear, 53 beach toys and beach chairs. Furthermore, specific improvements have been implemented to enhance the breadth, quality and presentation of The Pantry's cigarette, coffee, prepared foods, general merchandise and novelty product offerings. These improvements have contributed to increases in merchandise sales and gross profit margin. Management believes there are opportunities to increase Lil' Champ's revenues and gross profit margin by applying elements of The Pantry's merchandising strategy to the Lil' Champ operations. . Leverage relationships with suppliers. An important element of the Company's operating strategy is developing and maintaining strong relationships with its merchandise and gasoline suppliers. The Pantry represents an attractive distribution channel to suppliers given its geographically concentrated store base and demonstrated ability to increase its merchandise sales and gasoline volumes. These factors enhance The Pantry's ability to obtain favorable terms from key suppliers. Management believes opportunities exist to similarly leverage Lil' Champ's supply relationships, given its high geographic concentration. Moreover, management believes the consolidation of the purchasing power of The Pantry and Lil' Champ will lead to additional cost savings. . Strengthen expense controls. The Pantry has significantly reduced its operating expenses as a percentage of sales by eliminating redundant positions, outsourcing certain non-core functions to third parties, renegotiating supply and service agreements and implementing improved employee training and retention, risk management and inventory shrink procedures and programs. Management believes that additional savings will be achieved by introducing The Pantry's expense control procedures in the Lil' Champ operations. . Improve gasoline operations. The Company will continue to focus on improving gasoline sales volumes at existing locations through its "Major Market" improvement program. The program involves (i) increasing the competitiveness of The Pantry's gasoline pricing, while maintaining acceptable profit margins, (ii) upgrading gasoline facilities and equipment and (iii) selectively rebranding stores. The Pantry has successfully implemented this program at 100 stores in four markets (representing 40% of The Pantry's gasoline volume) as evidenced by increased comparable store gasoline volumes of approximately 25% at these stores for the six months ended September 25, 1997 compared to the prior year period. As part of this effort, The Pantry is consolidating its gasoline purchasing among a select number of branded gasoline suppliers. Since February 1997, The Pantry has rebranded 71 stores with Shell gasoline pursuant to a long-term supply agreement and anticipates a total of 180 stores will be rebranded upon full implementation of the Shell rebranding program in 1998. Benefits of consolidating gasoline purchases include lower costs through volume rebates as well as obtaining allowances from certain gas suppliers for advertising and reimaging, which includes upgrading gasoline equipment by installing MPDs and CRINDs. While Lil' Champ has historically maintained competitive gasoline prices, management believes that Lil' Champ can achieve cost savings and volume increases through similar gasoline equipment upgrades and rebranding. For example, only 29 Lil' Champ stores currently have CRINDs compared to 131 stores at The Pantry. . Upgrade store facilities and equipment. The Pantry's store renovation program is an integral part of the Company's operating strategy. The Pantry continually evaluates the performance of individual stores and periodically upgrades store facilities and equipment based on sales volumes, the lease term for leased locations and management's assessment of the potential return on investment. Typical upgrades include improvements to interior fixtures and equipment for self- service food and beverages, interior lighting, in-store restrooms for customers and exterior lighting and signage. The upgrading program for The Pantry's gasoline operations typically includes upgrading canopies, the addition of automated gasoline dispensing and payment equipment to enhance customer convenience and service and the installation of UST leak detection and other equipment in accordance with applicable EPA environmental regulations. The Pantry remodeled a total of 70 stores in seven markets in fiscal 1997. The total cost of these remodels was $4.6 million, a portion of which was paid for by branded gasoline suppliers. Since remodeling, these stores have achieved merchandise sales and gasoline gallon 54 increases of 7.3% and 22.6%, respectively, as compared to the comparable period of the prior year. At its Lil' Champ stores the Company intends to implement a program of cosmetic upgrades, including new paint and interior lighting, in addition to selectively upgrading gasoline facilities and equipment. Management believes that its store upgrade program offers an opportunity to improve the performance of Lil' Champ operations. . Pursue "tuck in" acquisitions and new store development. Management believes there are opportunities to increase the Company's sales and gain operating efficiencies through store acquisitions and new store development. The Pantry's "tuck in" acquisition strategy focuses on acquiring individual stores or small chains within The Pantry's existing market area. The Pantry's "tuck in" acquisition program is complemented by new store development in existing markets with strong growth characteristics. By pursuing this growth strategy, the Company believes it can increase its market share and improve operating results, while taking advantage of such markets' favorable growth prospects. During the current fiscal year, The Pantry has acquired a total of 35 stores in five separate transactions, with aggregate annual revenues of $45.0 million. All of the acquired stores are in locations within The Pantry's existing markets. Management believes these acquisitions are made on favorable terms and will provide opportunities to improve merchandise sales, gross margins and gasoline volumes and eliminate overhead related to the acquired stores. The Company will continue to pursue this acquisition strategy in its primary markets including the newly acquired Lil' Champ markets. Synergies of the Lil' Champ Acquisition Through the Lil' Champ Acquisition, management anticipates that the Company will improve operating profit by (i) negotiating more favorable arrangements with suppliers of merchandise and other services due to increased purchasing volumes; (ii) concentrating Lil' Champ gasoline purchases among fewer suppliers to achieve lower supply costs and more favorable advertising and reimaging allowances; and (iii) reducing operating expenses through improved expense controls, the elimination of certain overlapping administrative costs and the renegotiation of outside service arrangements such as property and general liability insurance, employee benefits, environmental services, equipment purchasing and gas hauling. Although the operations of Lil' Champ are integrated with The Pantry, the Company will continue to operate the Lil' Champ locations under the "Lil' Champ" name in order to capitalize on its strong regional identity. There can be no assurance that such synergies or cost savings will be realized or that there will not be delays in achieving such synergies or cost savings. The Convenience Store Industry Total convenience store industry sales rose 5.4% in 1996 over the prior year to $151.9 billion, with 46.5% of revenues from merchandise sales and 53.5% from gasoline. This increase in sales compares favorably to the total increase in retail sales and grocery store sales, which increased 5.3% and 3.2%, respectively. The industry employed over 772,000 people in 1996, an increase of 1.1% from 1995, and industry store count increased 1.1% to 94,200 in 1996, the first increase since 1990. The growth in store count marks a turning point for an industry that has been restructuring, merging and downsizing for several years. Industry pre-tax profitability fell during 1996 from the record levels of the prior two years to $2.4 billion, but still represented the third highest year of pre-tax profit in history. For the first time since 1988, convenience store chains with over 200 stores were more profitable than smaller category chains. This major reversal reflects the cost-cutting efforts by the larger chains over the last few years, particularly in the area of general and administrative costs. These larger size companies are beginning to reap the benefits of lower cost structures, investments in technology and economies of scale. In 1996, merchandise sales grew 1.4% to $70.7 billion. Tobacco was the predominant category, comprising 26.4% of all merchandise purchases. Fast food in all forms contributed 13.9% to total merchandise purchases, and beer represented 12.6%. Total merchandise gross profit margin rose to $22.1 billion in 1996 from $21.2 billion, and merchandise gross profit margin increased in 1996 to 31.2% from 30.4% in 1995. This increase 55 was due to increasing sales in the higher margin foodservice items in proportion to sales of lower margin tobacco products. The trend to combine gasoline operations with merchandise-selling stores has played a key role in the growth of the industry. Since 1988, the convenience store industry has steadily increased its share of the market for gasoline from 36.5% to 53.5% in 1996. Its share is expected to increase to almost 60% by the year 2000. Gross margins per gallon have increased from $0.105 in 1991 to $0.131 in 1996. Management believes that the increase in gasoline gross margins was due in part to the increased use of branded gasoline in the industry. The benefits of branded gasoline include name recognition, use of an oil company's credit card program, and a more reliable supply source during times of crisis, e.g., the Gulf War. Total gasoline sales increased 9.1% to $81.2 billion in 1996 from $74.4 billion in 1995 due primarily to increased average retail gasoline prices and, to a lesser extent, increased usage. During 1996, gasoline margins dropped to $0.131 from $0.134 in 1995 due to general market conditions and increased price competition. The industry is in the midst of a consolidation trend with a number of significant mergers and acquisitions in recent years. This consolidation trend is driven by the increasing costs of doing business, in particular, the increasing costs of compliance with environmental laws and, more recently, increasing technology requirements. The 50 largest convenience store operators in North America operate more than 45,500 stores, representing 49% of the total 93,200 stores for the industry. Based on the number of stores, The Pantry was ranked the 32nd largest operator in 1996 and the 33rd largest operator in 1997. Lil' Champ was ranked the 29th largest operator for 1996 and 27th in 1997. The combined entities on a pro forma basis would have ranked 12th in 1996 and 14th in 1997. Of the ten largest chains in 1997, only the industry's number-one ranked chain, Southland Corp. (7-Eleven), is an "independent"--not owned by an oil company. The Company is now the third largest independent convenience store operator in the United States. The Pantry On November 30, 1995, FS&Co. and CMC acquired ownership interests in The Pantry. Beginning in the second quarter of fiscal 1996, The Pantry strengthened its senior management team. Peter J. Sodini, an experienced retail executive, was hired in February 1996 and was appointed President and Chief Executive Officer in June 1996. Concurrently, several key executive positions were filled including: Senior Vice President of Administration and Gasoline Marketing, Senior Vice President of Operations and Vice President of Marketing. In January 1997, a new Senior Vice President of Finance joined The Pantry. In addition, several other new employees were hired to fill other positions with specific skill requirements. These individuals all bring strong experience in retail operations. The management team has reorganized The Pantry's management structure and reporting relationships to improve organizational effectiveness, reduce operating costs and increase profitability. Having made progress towards reducing overhead, the management team focused on reducing the acquisition cost of goods and services. At the same time, store expenses were examined and a number of new policies and procedures were implemented to reduce costs, particularly store labor. These cost savings measures enabled The Pantry to implement a number of initiatives designed to improve merchandising and increase customer traffic, transaction size and same store sales volume and to focus on the competitive repositioning of its gasoline operations. Merchandise Sales. For the year ended September 25, 1997, The Pantry's merchandise sales (including commissions from services) were 48.5% of total revenues. The Pantry's gross margins on merchandise sales after purchase rebates, mark-downs, inventory spoilage and inventory shrink increased to 34.4% for this period from 33.0% in the same period of the prior year. Merchandise sales per store for the year ended September 25, 1997 increased by 9.6% from the comparable period for the previous year. The following table highlights certain information with respect to The Pantry merchandise sales for the last two fiscal years: 56
Fiscal Year Ended -------------------- 1996 1997 ------- ------- Merchandise sales (in millions)............................ $188.1 $202.4 Average merchandise sales per store (in thousands)......... $479.8 $525.8 Merchandise gross margins (after purchase rebates, mark- downs, inventory spoilage and inventory shrink)........... 33.0% 34.4% Average number of stores................................... 392 385
The Pantry's stores generally carry approximately 4,200 stock keeping units and offer a full line of convenience products, including tobacco products, beer, soft drinks, self-service fast foods and beverages (including fountain beverages and coffee), candy, newspapers and magazines, snack foods, dairy products, canned goods and groceries, health and beauty aids and other immediate consumables. The Pantry has also developed an in-house food service program featuring breakfast biscuits, fried chicken, deli and other hot food offerings. The following table describes The Pantry's merchandise sales mix for the last two fiscal years:
Fiscal Year Ended ----------------- 1996 1997 ------ ----- Tobacco products........................ 25.2% 27.8% Beer.................................... 14.5 15.1 Soft drinks............................. 13.8 13.7 Self-service fast foods and beverages... 7.4 6.9 General Merchandise..................... 6.0 6.4 Candy................................... 5.0 4.8 Newspapers and magazines................ 5.7 5.0 Snack foods............................. 4.5 4.6 Dairy products.......................... 2.8 2.8 Bread/Cake.............................. 2.3 2.1 Grocery and Other....................... 12.8 10.8 ---- ---- Total.................................. 100% 100% ==== ====
The Pantry purchases over 50% of its general merchandise (including most tobacco products, candy, paper products, pet food and food service items) and groceries from a single wholesale grocer, McLane Company, Inc. ("McLane"). In addition, McLane supplies health and beauty aids, cigars, smokeless tobacco, toys, and seasonal items to all stores. However, there are adequate alternative sources available to purchase this merchandise should a change from the current wholesaler become necessary or desirable. The Pantry purchases the balance of its merchandise from a variety of other distributors. Gasoline Operations. For the year ended September 25, 1997, The Pantry's revenues from sales of gasoline were 51.5% of total revenues, and the number of gallons sold on a company-wide and per store basis increased each by 11.7%, for the year ended September 25, 1997, compared to fiscal 1996. Since the beginning of fiscal 1997, both the total gallons sold and the average volume per store increased due to (i) more competitive pricing; (ii) the acquisition or opening of 36 stores, which had in the aggregate higher than average gasoline volumes and (iii) the upgrading of many locations with automated gasoline dispensing or payment equipment such as the installation of MPDs or CRINDs. MPDs and CRINDs increase gasoline volume and the percentage of premium grade gasoline sold, which typically has higher margins than lower grade gasoline. To upgrade a location with CRINDs, The Pantry can either retro-fit existing MPDs with CRINDs or install new MPDs with CRINDs. The Pantry installed a total of 64 CRINDs at existing stores in fiscal 1996 and fiscal 1997. In addition, each of the new stores opened since fiscal 1994 sell gasoline and have MPDs and CRINDs. 57 The following table highlights certain information regarding The Pantry's gasoline operations for the last two fiscal years:
Fiscal Year Ended ---------------------- 1996 1997 --------- --------- Operating data: Gasoline sales ($ in millions)......................... $192.7 $220.2 Gasoline gallons sold (in millions).................... 160.7 179.4 Average gallons sold per store (in thousands).......... 448.8 501.2 Average retail price per gallon........................ $ 1.20 $ 1.23 Average gross profit per gallon (in cents)............. $0.156 $0.128 Locations selling gasoline............................. 352 364 Number of company-owned branded locations.............. 285 300 Number of company-owned unbranded locations............ 6 35 Number of third-party locations (branded & unbranded).. 61 29
The decrease in gross profit per gallon in fiscal 1997 was due to The Pantry's more competitive gasoline pricing strategy, general gasoline market conditions and increased price competition from other gasoline marketers in certain markets. Of the 364 Pantry stores that sold gasoline as of September 25, 1997, 314 (including third-party locations selling under these brands) or 86% were branded under the Amoco, Ashland, British Petroleum (BP), Chevron, Citgo, Exxon, Shell or Texaco brand names. The Pantry has continually sought to increase the number of its branded locations by opening new branded locations and by converting unbranded locations to branded locations. As of September 25, 1997, The Pantry owned the gasoline operations at 335 locations and at 29 locations had gasoline operations that were operated under third-party arrangements. At company-operated locations, The Pantry owns the gasoline storage tanks, pumping equipment and canopies, and retains 100% of the gross profit received from gasoline sales. In fiscal 1997, these locations accounted for 90.0% of total gallons sold. Under third-party arrangements, an independent gasoline distributor owns and maintains the gasoline storage tanks and pumping equipment at the site, prices the gasoline and pays The Pantry approximately 50% of the gross profit. In fiscal 1997, third-party locations accounted for 10.0% of the total gallons sold by The Pantry. In the fourth quarter of fiscal 1997, The Pantry purchased 23 third-party locations and anticipates further reduction of third-party arrangements in the future. The Pantry has been phasing out third-party arrangements because its owned operations are more profitable. The Pantry purchases its gasoline from major oil companies and independent refiners. There are 18 gasoline terminals in The Pantry's operating areas, enabling The Pantry to choose from more than one distribution point for most of its stores. The Pantry's inventories of gasoline (both branded and unbranded) turn approximately every seven days. Store Locations. As of September 25, 1997, The Pantry operated 390 convenience stores located primarily in smaller towns and suburban areas in five states. Substantially all of The Pantry's stores are free standing structures averaging approximately 2,400 square feet and provide ample customer parking. The following table shows the geographic distribution by state of The Pantry's stores at September 25, 1997: 58
Number of Percent of State Stores Total Stores --------------------- --------- ------------ North Carolina....... 155 40.0% South Carolina....... 134 35.0 Kentucky............. 56 14.0 Tennessee............ 24 6.0 Indiana.............. 21 5.0 --- ----- Total........... 390 100.0% === =====
Since fiscal 1994, The Pantry has opened a limited number of new stores and closed or sold a substantial number of underperforming stores. Beginning in 1997, The Pantry turned its attention from closing underperforming stores, which management believes has largely been accomplished, to commencing its "tuck in" acquisition program. The following table summarizes these activities:
Fiscal Year Ended ---------------------------- 1994 1995 1996 1997 ---- ---- ---- ---- Number of stores at beginning of period... 415 406 403 379 Opened or acquired........................ 1 10 4 36 Closed or sold............................ (10) (13) (28) (25) --- --- --- --- Number of stores at end of period......... 406 403 379 390 === === === ===
The Pantry continually evaluates the performance of each of its stores to determine whether any particular store should be closed or sold based on its sales trends and profitability. In deciding to close or sell an underperforming store, The Pantry considers such factors as store location, gasoline volumes and margins, merchandise sales and gross profits, lease term, rental rate and other obligations and the store's contribution to corporate overhead. Although closing or selling underperforming stores reduces revenues, The Pantry's operating results typically improve since these stores were generally unprofitable. Site Selection. Most of The Pantry's stores are located in smaller towns and suburban areas of medium size cities in its market areas. In opening new stores in recent years, The Pantry has focused on selecting store sites on highly traveled thoroughfares in coastal resort areas and suburban markets of larger cities or near exit and entrance ramps of highly traveled highways that provide convenient access to the store location. The Pantry's cost of opening new stores in these high-traffic areas has been higher than it has incurred in connection with its prior store development activities. In selecting sites for new stores, The Pantry uses an evaluation process designed to enhance its return on investment by focusing on market area demographics, population density, traffic volume, visibility, ingress and egress and economic development in the market area. The Pantry also reviews the location of competitive stores and customer activity at those stores. In fiscal 1996 and fiscal 1997, The Pantry opened an aggregate of five stores at an average cost of approximately $1.5 million per store. "Tuck In" Acquisitions. In five separate transactions since April 1, 1997, The Pantry has acquired 35 operating convenience stores in North Carolina and South Carolina with aggregate annual revenues of $45.0 million. Nineteen stores are located in or around Charleston and Hilton Head, South Carolina, increasing The Pantry's total number of stores in this area to over 50 and solidifying The Pantry as the largest operator in this growing market. The remaining 16 acquired stores are located in eastern North Carolina in markets where The Pantry was previously under-represented or operated only a few locations. These "tuck in" acquisitions strengthen The Pantry's market share and name recognition. Additionally, management believes these acquisitions were made on favorable terms and will provide opportunities to improve revenue, gross margins and eliminate overhead related to the acquired stores. Upgrading of Store Facilities and Equipment. During fiscal 1996 and fiscal 1997, The Pantry upgraded the facilities and equipment at many of its store locations, including gasoline equipment upgrades, at a cost of 59 approximately $6.1 million and $9.2 million, respectively. The Pantry's store renovation program is an integral part of The Pantry's operating strategy. The Pantry continually evaluates the performance of individual stores and periodically upgrades store facilities and equipment based on sales volumes, the lease term for leased locations and management's assessment of the potential return on investment. Typical upgrades for many stores include improvements to interior fixtures and equipment for self-service food and beverages, interior lighting, in-store restrooms for customers and exterior lighting and signage. The upgrading program for The Pantry's gasoline operations includes the addition of automated gasoline dispensing and payment systems, such as MPDs and CRINDs, to enhance customer convenience and service and the installation of UST leak detection and other equipment in accordance with applicable EPA environmental regulations. See "Government Regulation and Environmental Matters." Store Operations. Each store is staffed with a manager, an assistant manager and sales associates, and most stores are open 24 hours, seven days a week. The Pantry's field operations organization is comprised of a network of regional and district managers who, with The Pantry's corporate management, evaluate store operations on a weekly basis. The Pantry also monitors store conditions, maintenance and customer service through a regular store visitation program by district and regional management. Lil' Champ Merchandise Sales. For the nine months ended September 27, 1997, Lil' Champ's sales of merchandise (including commissions from services) were 46.1% of total revenues. Lil' Champ's gross margins on merchandise sales after purchase rebates, mark-downs, inventory spoilage and inventory shrink averaged approximately 34.1% over that period. Lil' Champ has made an effort to promote its strongest gross margin products by (i) expanding fountain and coffee product areas; (ii) improving the quality controls on deli items; and (iii) adding branded fast food service to more of its stores. The following table highlights certain information with respect to Lil' Champ merchandise sales for the last fiscal year and for the nine months ended September 28, 1996 and September 27, 1997:
Nine Months Ended Fiscal Year ----------------------------- Ended September 28, September 27, 1996 1996 1997 ------------ ------------- ------------- Merchandise sales (in millions)....................... $226.1 $171.3 $177.4 Average merchandise sales per store (in thousands).... $452.8 $342.7 $361.4 Merchandise gross margins (after purchase rebates, mark-downs, inventory spoilage and inventory shrink)............................................. 34.2% 34.1% 34.1% Average number of stores.............................. 499 500 491
Lil' Champ stores generally carry approximately 4,000 stock keeping units. Tobacco, alcoholic beverages and soft drinks provided Lil' Champ with approximately 60% of its total merchandise sales for the nine months ended September 27, 1997. Lil' Champ sells tobacco in all of its stores and sells alcohol in all but six locations (five are not permitted by local law to sell alcohol and one is restricted by the terms of its lease). The following table describes Lil' Champ's merchandise sales mix for the last fiscal year and for the nine months ended September 28, 1996 and September 27, 1997: 60
Nine Months Ended ----------------------------- Fiscal Year September 28, September 27, Ended 1996 1996 1997 ----------- ------------- ------------- Tobacco products.............. 25.0% 24.8% 25.9% Alcoholic beverages........... 19.5 19.4 19.4 Soft drinks................... 15.3 15.7 14.8 Branded fast foods and deli... 3.7 3.6 4.0 Candy......................... 4.3 4.3 4.2 Newspapers and magazines...... 4.0 3.9 3.7 Snack foods................... 4.9 4.9 4.9 Dairy products................ 5.5 5.4 5.1 Bakery........................ 2.5 2.5 2.4 General Merchandise........... 15.3 15.5 15.6 ----- ----- ----- Total..................... 100.0% 100.0% 100.0% ===== ===== =====
Lil' Champ operates 72 QSRs, with 49 stores offering customers nationally branded fast food including Taco Bell (35 stores), A&W Root Beer (four stores), Long John Silvers (five stores), Pizza Hut (four stores) and Sobiks Subs (one store). The remaining QSRs offer in-house branded hot foods and deli items under the "Knockout Deli" name. As of April 1996, Lil' Champ switched its primary grocery supplier from The Eli Witt Company to McLane, which is also the supplier for The Pantry. McLane is the largest supplier of groceries to convenience stores in the country. For non-grocery products, Lil' Champ does business with various other wholesalers and is the largest customer for a number of these distributors. For instance, in Jacksonville, Lil' Champ is the largest customer of three major beer wholesalers for Anheuser-Busch, Miller Brewing and Strohs Brewing. Gasoline Operations. For the nine months ended September 27, 1997, Lil' Champ's revenues from the sale of gasoline were approximately 53.9% of total revenues, and the number of gallons sold on a company-wide and per store basis increased by 0.9% and 1.9%, respectively, for the nine months ended September 27, 1997, compared to the same period in 1996. As of September 25, 1997, Lil' Champ had MPDs and CRINDs in 254 and 29 stores, respectively. Management believes that the installation of additional MPDs and CRINDs at the Lil' Champ stores would increase gasoline volumes and gasoline gross margins at those stores. The following table highlights certain information regarding Lil' Champ's gasoline operations for the last fiscal year and for the nine months ended September 28, 1996 and September 27, 1997: 61
Nine Months Ended -------------------------- Fiscal Year September 28, September 27, Ended 1996 1996 1997 ----------- ------------ ------------ Operating data: Gasoline sales ($ in millions)................. $278.9 $207.2 $214.7 Gasoline gallons sold (in millions)............ 224.2 168.3 169.8 Average gallons sold per store (in thousands).. 509.3 $382.4 $389.7 Average retail price per gallon................ $ 1.24 $ 1.23 $ 1.26 Average gross profit per gallon (in cents)..... $0.122 $0.125 $0.125 Store data (at end of period): Locations selling gasoline..................... 438 441 434 Number of company-owned branded locations...... 200 198 202 Number of company-owned unbranded locations.... 238 243 232
While Lil' Champ sources its branded gasoline from seven different suppliers, Chevron and British Petroleum (BP) account for 63% of the Company's branded stores. In addition to branded gasoline, Lil' Champ purchases gasoline from approximately 15 other sources which Lil' Champ then sells under its own name. The upgrading program for Lil' Champ's gasoline operations has also included the installation and retrofitting of UST leak detection and other equipment in order to comply with EPA's UST Regulation and the related FDEP Regulation. See "Government Regulation and Environmental Matters." Store Locations. As of September 25, 1997, Lil' Champ operated 488 stores in Florida and Georgia. The Florida stores are concentrated in northern and central Florida (from Jacksonville to Tampa). In Georgia, stores are located in the southeast corner of the state and as far north as Savannah. The vast majority of Lil' Champ stores constructed prior to 1992 average 2,400 square feet, most of which are laid out in a 60' by 40' design. Newer stores can be more than 3,400 square feet with the additional capacity designed to accommodate larger fountain units, additional cooler door windows, branded fast food operations and seating areas. In most stores, between 75% and 80% of the total square footage is used as selling spacing. The following table shows the geographic distribution by state of Lil' Champ stores at September 27, 1997:
Number of Percent of State Stores Total Stores - ----------------------- --------- ------------ Florida................ 437 90% Georgia................ 51 10 --- --- Total............. 488 100% === ===
Lil' Champ continually evaluates the performance of its stores to determine whether any particular store should be closed or sold based on its sales trends and profitability. Since 1991, Lil' Champ has strategically closed stores in locations which are no longer profitable and has pursued a selective approach to new store openings. The three main criteria which lead to a store closing are: (i) a prolonged history of loss, (ii) expiration of lease on an underperforming or older store without future potential and (iii) the cost of upgrading to meet environmental regulations. Following the Lil' Champ Acquisition, management will review the Lil' Champ stores for additional closure candidates. Since fiscal 1994, Lil' Champ has opened a limited number of new stores and closed or sold a substantial number of underperforming stores. The following table summarizes these activities: 62
Fiscal Year Ended Nine Months Ended -------------------- ------------------------------- September 28, September 27, 1994 1995 1996 1996 1997 ---- ---- ---- ------------ ------------ Number of stores at beginning of year... 518 508 501 501 495 Opened or acquired...................... 2 4 4 3 1 Closed or sold.......................... (12) (11) (10) (5) (8) --- --- --- --- --- Number of stores at end of year......... 508 501 495 499 488 === === === === ===
Upgrading of Store Facilities and Equipment. Lil' Champ has focused approximately 33% of its capital expenditures for the last three years on upgrading gasoline facilities and retrofitting of USTs in accordance with new regulatory standards. The balance of Lil' Champ's capital expenditures during this period have been used for general maintenance, new stores, remodelling and installing fast food operations. For the nine months ended September 27, 1997, Lil' Champ invested $5.2 million in gasoline equipment upgrades and retrofits for USTs and $0.5 million for remodelling stores. Lil' Champ will complete its environmental compliance projects in 1998. Site Selection. In recent years, Lil' Champ's new store development activity has been limited primarily due to capital constraints. Additionally, opening new stores in Lil' Champ's markets is a lengthy process due to land availability and zoning regulations which may require more than one year until opening. In the Jacksonville, Florida area, management of Lil' Champ estimates that only seven new convenience stores were opened in 1996, one of which was a Lil' Champ store. In August 1997, Lil' Champ opened one new store located in Flagler County, Florida. Store Operations. Each store is staffed with a manager, an assistant manager and a clerk. Most stores are open 18 hours, seven days a week, with opening and closing times commensurate with customer traffic. Twenty-five percent of the stores operate on a 24-hour basis. Lil' Champ's field operations organization is comprised of a network of regional and district managers. Lil' Champ also monitors store conditions, maintenance and customer service through a regular store visitation program by district and regional management. Competition The convenience store and retail gasoline industries are highly competitive. The performance of individual stores can be affected by changes in traffic patterns and the type, number and location of competing stores. Major competitive factors include, among others, location, ease of access, gasoline brands, pricing, product and service selections, customer service, store appearance, cleanliness and safety. In addition, factors such as inflation, increased labor and benefit costs and the availability of experienced management and hourly employees may adversely affect the convenience store industry in general and the Company's stores in particular. The Company competes with numerous other convenience store chains, franchisees of other convenience stores chains, local owner-operated convenience stores and grocery stores, and convenience stores owned and operated by major oil companies. In addition, the Company's stores offering self-service gasoline compete with gasoline service stations, including service stations operated by major oil companies. The Company's stores also compete to some extent with supermarket chains, drug stores, fast food operations and other similar retail outlets. In some of the Company's markets, certain competitors, particularly major oil companies, have been in existence longer and have substantially greater financial, marketing and other resources than the Company. Trade Names, Service Marks and Trademarks The Company has registered or applied for registration of a variety of trade names, service marks and trademarks for use in its business, including The Pantry(TM), Worth(TM), Bean Street Coffee Company(TM), Big Chill(R), Lil' Chill(R) and others, which the Company regards as having significant value and as being important factors in the marketing of the Company and its convenience stores. In connection with the Lil' Champ Acquisition, the Company acquired the Lil' Champ Food Stores(TM) and Knock Out(TM) marks. 63 Government Regulation and Environmental Matters Many aspects of the Company's operations are subject to regulation under federal, state and local laws. The most significant of such laws are summarized below. General. As of September 25, 1997, the Company is responsible for the remediation of contamination at 56 sites. Other third parties are responsible for remediation of contamination at another 13 sites. The Pantry has accrued $7,806,000 for estimated total future remediation costs at the sites for which it is responsible. The Pantry anticipates that approximately $1,295,000 of these future remediation costs will not be reimbursed by state trust funds or covered by private insurance. Of the remaining $6,511,000, The Pantry believes that (i) approximately $6,341,000 will be reimbursed from state funds based on prior acceptance of sites for reimbursement under these programs or anticipated acceptance based on date of discovery of contamination and program regulations and (ii) approximately $170,000 will be covered by insurance based on prior acceptance of sites for such coverage. Reimbursements from state trust funds will be dependent upon the continued solvency of the various funds. These estimates are based on consultants' and management's estimates of the cost of remediation, tank removal, and litigation associated with all known contaminated sites as a result of releases (e.g. overfills, spills and UST system leaks). Although the Company is not aware of releases or contamination at other locations where it currently operates or has operated stores, any such releases or contamination could require substantial remediation costs, some or all of which may not be eligible for reimbursement from state trust funds. Several of the locations identified as contaminated are being cleaned up by third parties who have indemnified The Pantry as to responsibility for clean up matters. Additionally, The Pantry is awaiting closure notices on several other locations which will release the Company from responsibility related to known contamination at those sites. Storage and Sale of Gasoline. The Company is subject to various federal, state and local environmental laws. Federal, state, and local regulatory agencies have adopted regulations governing USTs that require the Company to make certain expenditures for compliance. In particular, at the federal level, the Resource Conservation and Recovery Act of 1976, as amended, requires the EPA to establish a comprehensive regulatory program for the detection, prevention and cleanup of leaking USTs. In addition to the technical standards, the Company is required by federal and state regulations to maintain evidence of financial responsibility for taking corrective action and compensating third parties in the event of a release from its UST systems. In order to comply with the applicable requirements, The Pantry maintains a letter of credit in the aggregate amount of $2.1 million issued by a commercial bank in favor of state environmental agencies in the states of North Carolina, South Carolina, Tennessee, Kentucky and Indiana and relies upon the reimbursement provisions of applicable state trust funds. Regulations enacted by the EPA in 1988 established requirements for (i) installing UST systems; (ii) upgrading UST systems; (iii) taking corrective action in response to releases; (iv) closing UST systems; (v) keeping appropriate records; and (vi) maintaining evidence of financial responsibility for taking corrective action and compensating third parties for bodily injury and property damage resulting from releases. These regulations permit states to develop, administer and enforce their own regulatory programs, incorporating requirements which are at least as stringent as the federal standards. The following is an overview of the requirements imposed by these regulations: Leak Detection. The EPA and states' release detection regulations were phased in based on the age of the USTs. All USTs were required to comply with leak detection requirements by December 22, 1993. The Pantry utilizes two approved leak detection methods for all Pantry-owned UST systems. Daily and monthly inventory reconciliations are completed at the store level and at the corporate support center. The daily and monthly reconciliation data is also analyzed using statistical inventory reconciliation which compares the reported volume of gasoline purchased and sold with the capacity of each UST system and highlights discrepancies. The Pantry also performs annual leak detection tests. Lil' Champ utilizes tank and line monitoring systems, monitoring wells, inventory control and annual tank and line tests in its leak detection program. The Company believes it is in full or substantial compliance with the leak detection requirements applicable to its USTs. Corrosion Protection. The 1988 EPA regulations require that all UST systems have corrosion protection by December 22, 1998. The Company began installing non-corrosive fiberglass tanks and piping in 1982. The Company has a comprehensive plan to upgrade all of its steel tank UST systems to 1998 standards by December 22, 1998 through internal tank lining and cathodic protection. Approximately 81% of Pantry stores' and 85% of Lil' Champ stores' USTs have been protected from corrosion either through the installation of fiberglass tanks or upgrading steel USTs with interior fiberglass lining or the installation of cathodic protection. Overfill/Spill Prevention. The 1988 EPA regulations require that all sites have overfill/spill prevention devices by December 22, 1998. The Company will systematically install these devices on all Company-owned UST systems to meet the regulations. Spill/overfill equipment has been installed for approximately 81% of Pantry store USTs and 73% of Lil' Champ store USTs. The Company anticipates that it will meet the 1998 deadline for installing corrosion protection and spill/overfill equipment for all of its USTs and has budgeted approximately $5.5 million of capital expenditures for these purposes in fiscal 1998. State Trust Funds. All states in which the Company will operate UST systems have established trust funds for the sharing, recovering and reimbursing of certain cleanup costs and liabilities incurred as a result of releases from UST systems. These trust funds, which essentially provide insurance coverage for the cleanup of 64 environmental damages caused by the operation of UST systems, are funded by a UST registration fee and a tax on the wholesale purchase of motor fuels within each state. The Company has paid UST registration fees and gasoline taxes to each state where it operates to participate in these trust programs and the Company has filed claims and received reimbursement in North Carolina, South Carolina, Tennessee, Georgia and Florida. The coverage afforded by each state fund varies but generally provides from $150,000 to $1.0 million per site for the cleanup of environmental contamination, and most provide coverage for third- party liabilities. However, Florida does not provide coverage for third-party claims, and Georgia does not provide coverage for third-party claims relating to personal injury or diminution in property values. Costs for which the Company does not receive reimbursement include but are not limited to: (i) the per-site deductible; (ii) costs incurred in connection with releases occurring or reported to trust funds prior to their inception; (iii) removal and disposal of UST systems; and (iv) costs incurred in connection with sites otherwise ineligible for reimbursement from the trust funds. The trust funds require the Company to pay deductibles ranging from $10,000 to $100,000 per occurrence depending on the upgrade status of its UST system, the date the release is discovered/reported and the type of cost for which reimbursement is sought. The Company estimates that its expenditures for remediation over the next five years will be approximately $4.5 million. In addition, a substantial amount will be expended for remediation on behalf of the Company by state trust funds established in the Company's operating areas or other responsible third parties (including insurers). To the extent such third parties do not pay for remediation as anticipated by the Company, the Company will be obligated to make such payments, which could materially adversely affect the Company's financial condition and results of operations. Reimbursements from state trust funds will be dependent upon the continued maintenance and solvency of the various funds. The State of Florida trust fund will cease accepting new claims for reimbursement for releases discovered after December 31, 1998. However, the State of Florida trust fund will continue to reimburse claims for remedial work performed on sites accepted into its program before December 31, 1998. Historically, a significant portion of the Lil' Champ's environmental claims have been covered by this trust fund. As a result, the Company will have to rely on private indemnity, available third-party insurance or self insure with respect to certain future UST related problems at its Florida store locations. See "Risk Factors--Environmental Matters." Sale of Alcoholic Beverages. In certain areas where stores are located, state or local laws limit the hours of operation for the sale of certain products, the most significant of which limit or govern the sale of alcoholic beverages. State and local regulatory agencies have the authority to approve, revoke, suspend or deny applications for and renewals of permits and licenses relating to the sale of alcoholic beverages and to impose various restrictions and sanctions. In many states, retailers of alcoholic beverages have been held responsible for damages caused by intoxicated individuals who purchased alcoholic beverages from them. While the potential exposure to the Company for damage claims as a seller of alcoholic beverages is substantial, the Company has adopted procedures intended to minimize such exposure. In addition, the Company maintains general liability insurance which may mitigate the cost of any liability. Store Operations. The Company's stores are subject to regulation by federal agencies and to licensing and regulations by state and local health, sanitation, safety, fire and other departments relating to the development and operation of convenience stores, including regulations relating to zoning and building requirements and the preparation and sale of food. Difficulties in obtaining or failures to obtain the required licenses or approvals could delay or prevent the development of a new store in a particular area. The Company's operations are also subject to federal and state laws governing such matters as wage rates, overtime, working conditions and citizenship requirements. At the federal level, there are proposals under consideration from time to time to increase minimum wage rates and to introduce a system of mandated health insurance which could affect the Company's results of operations. Legal Proceedings In the ordinary course of its business, the Company is party to various legal actions which the Company believes are routine in nature and incidental to the operation of its business. While the outcome of such actions cannot be predicted with certainty, the Company believes that the ultimate resolution of these matters will not have a material adverse impact on the business, financial condition or prospects of the Company. The Company makes routine applications to state trust funds for the sharing, recovering and reimbursement of certain cleanup costs and 65 liabilities incurred as a result of releases from UST systems. See "Business-- Government Regulation and Environmental Matters." Properties The Pantry owns the real property at 126 Pantry stores and leases the real property at 264 Pantry stores. Lil' Champ operates 488 stores of which 213 are owned and 275 are leased. Management believes that none of these leases is individually material to the Company. Most of the Company's leases are net leases requiring the Company to pay taxes, insurance and maintenance costs. Although the Company's leases expire at various times, approximately 80% of such leases have terms, including renewal options, extending beyond the end of fiscal 2002. Of the Company's leases that expire prior to the end of fiscal 2002, management anticipates that it will be able to negotiate acceptable extensions of the leases for those locations that it intends to continue operating. When appropriate, the Company has chosen to sell and then lease-back properties. Factors leading to this decision include alternative desires for use of cash, beneficial taxation, and minimization of the risks associated with owning the property (especially changes in valuation due to population shifts, urbanization, and/or proximity to high volume streets) and the economic terms of such sale-leaseback transactions. The Pantry owns its corporate headquarters, a three-story, 51,000 square foot office building in Sanford, North Carolina. Management believes that The Pantry's headquarters are adequate for its present and foreseeable needs. Lil' Champ leases a 21,538 square foot office facility in Jacksonville, Florida. This lease expires October 31, 1998. Employees As of September 25, 1997, The Pantry employed approximately 2,161 full-time and 312 part-time employees. Fewer part-time employees are employed during the winter months than during the peak spring and summer seasons. Of The Pantry's employees, approximately 2,370 are employed in The Pantry's stores and 103 are corporate and field management personnel. As of September 27, 1997, Lil' Champ employed approximately 2,429 full-time and 331 part-time employees. Of Lil' Champ's employees, approximately 2,560 are employed in Lil' Champ's stores and 200 are corporate and field management personnel. None of The Pantry's or Lil' Champ's employees are represented by unions. The Company considers its employee relations to be good with respect to each of The Pantry and Lil' Champ operations. 66 MANAGEMENT Directors and Executive Officers The following table sets forth certain information regarding the directors and executive officers of the Company as of November 30, 1997:
Name Age Position with the Company - ------------------------- --- ------------------------------------------------------------ Peter J. Sodini 56 President, Chief Executive Officer and Director Dennis R. Crook 54 Senior Vice President, Administration and Gasoline Marketing William T. Flyg 55 Senior Vice President, Finance and Chief Financial Officer Douglas M. Sweeney 58 Senior Vice President, Operations John H. Hearne 54 Vice President, Real Estate Daniel J. McCormack 54 Vice President, Marketing Ronald P. Spogli 49 Director Charles P. Rullman 49 Director Todd W. Halloran 35 Director Jon D. Ralph 33 Director Christopher C. Behrens 36 Director
Peter J. Sodini, President, Chief Executive Officer and Director, joined The Pantry in February 1996 as Chief Operating Officer and was named President and Chief Executive Officer in June 1996. Mr. Sodini has served as a director of the Company since November 1995. Mr. Sodini is a director of Buttrey Food and Drug Stores Company and Pamida Holding Corporation. From December 1991 to November 1995, Mr. Sodini was Chief Executive Officer and a director of Purity Supreme, Inc. Prior to 1991, Mr. Sodini held executive positions at several supermarket chains including Boys Markets, Inc. and Piggly Wiggly Southern, Inc. Dennis R. Crook, Senior Vice President, Administration and Gasoline Marketing, joined The Pantry in March 1996. From December 1987 to November 1995, Mr. Crook was Senior Vice President, Human Resources and Labor Relations of Purity Supreme, Inc. William T. Flyg, Senior Vice President, Finance and Chief Financial Officer. Mr. Flyg joined The Pantry in January 1997. He was employed by Purity Supreme, Inc. ("Purity") as Chief Financial Officer from January 1992 until the Company was sold in November 1995, at which time he continued as an employee of Purity until December 1996. Douglas M. Sweeney, Senior Vice President, Operations, joined The Pantry in March 1996. From December 1991 to December 1995, Mr. Sweeney was Senior Vice President, Operations of Purity Supreme, Inc. John H. Hearne, Vice President, Real Estate, joined the Company in 1984. Prior to joining the Company, Mr. Hearne was employed for 15 years by Sears, Roebuck, and Company. He has been active in construction since 1965 and in commercial real estate and property management since 1977. He holds a real estate broker's license in both North Carolina and South Carolina. Daniel J. McCormack, Vice President, Marketing, joined The Pantry in March 1996. From 1989 to February 1996, Mr. McCormack was Director of Purchasing of Purity Supreme, Inc. Ronald P. Spogli, Director, has been a director of the Company since November 1995. He is a founding partner of FS&Co. which was founded in 1983. Mr. Spogli is the Chairman of the Board and a director of EnviroSource, Inc. Mr. Spogli also serves on the Boards of Directors of Calmar Inc., Buttrey Food and Drug Stores Company, AFC Enterprises, Inc. and Brylane Inc. 67 Charles P. Rullman, Director, has been a director of the Company since November 1995. Mr. Rullman joined FS&Co. as a General Partner in 1995. From 1992 to 1995, Mr. Rullman was a General Partner of Westar Capital, a private equity investment firm specializing in middle market transactions. Prior to joining Westar, Mr. Rullman spent twenty years at Bankers Trust Company and its affiliate BT Securities Corporation where he was a Managing Director and Partner. Todd W. Halloran, Director, has been a director of the Company since November 1995. Mr. Halloran joined FS&Co. in 1995. From 1994 to 1995 and from 1990 to 1994, Mr. Halloran was a Vice President and Associate at Goldman, Sachs & Co., respectively, where he worked in the Mergers and Acquisition Department and in the Principal Investment Area. Mr. Halloran is also a director of AFC Enterprises, Inc. Jon D. Ralph, Director, has been a director of the Company since November 1995. Mr. Ralph joined FS&Co. in 1989. Prior to joining FS&Co., Mr. Ralph spent three years at Morgan Stanley & Co. where he served as an Analyst in the Investment Banking Division. Mr. Ralph is also a director of EnviroSource, Inc. Christopher C. Behrens, Director, has been a director of the Company since February 1996. Since 1994, he has been a principal of Chase Capital Partners, an affiliate of The Chase Manhattan Corporation engaged in the venture capital and leveraged buyout business. From 1990 to 1994, Mr. Behrens was a Vice President in The Chase Manhattan Corporation's Merchant Banking Group. Mr. Behrens is a director of Portola Packaging and a number of other private companies. Directors of the Company are elected annually and hold office until the next annual meeting of stockholders and until their successors are duly elected and qualified. Executive Compensation The following table sets forth information with respect to the fiscal 1995, fiscal 1996 and fiscal 1997 compensation for services in all capacities of The Pantry's Chief Executive Officer and the four other most highly compensated executive officers who were serving as executive officers during the last completed fiscal year and two additional individuals for whom disclosures would have been provided as an executive officer but for the fact that the individual was not serving as an executive officer of the Company at the end of the last fiscal year (collectively, the "Executive Officers"). Summary Compensation Table
Annual Compensation --------------------------------------------------------- Fiscal Other Annual All Other Name and Principal Position Year Salary Bonus Compensation(a) Compensation(b) - ----------------------------------- ------ --------- --------- --------------- --------------- Peter J. Sodini.................... 1997 $305,218 $150,000 $ 5,908 $ 2,500 President and Chief 1996 124,086 50,000 3,392 -- Executive Officer(c) Dennis R. Crook.................... 1997 $151,832 $ 70,000 $ 1,025 $ 2,019 Senior Vice President, 1996 82,933 20,000 41,250 -- Administration and Gasoline Marketing(d) William T. Flyg.................... 1997 $109,615 $ 54,000 $ 3,076 $ -- Senior Vice President, Finance and Chief Financial Officer(e) Douglas Sweeney.................... 1997 $149,983 $ 72,000 $ 2,593 $ 2,014 Senior Vice President, 1996 91,334 20,000 1,352 -- Operations (f)
68
Annual Compensation --------------------------------------------------------- Fiscal Other Annual All Other Name and Principal Position Year Salary Bonus Compensation(a) Compensation(b) - ----------------------------------- ------ --------- --------- --------------- --------------- Daniel J. McCormack................ 1997 $ 95,488 $ 45,000 $ 4,269 $ 1,279 Vice President, 1996 45,334 15,000 5,934 -- Marketing (g) Eugene B. Horne, Jr................ 1997 $102,925 $ -- $ 11,436 $ 2,617 Vice Chairman (h) 1996 182,804 49,413 14,464 3,321 1995 198,747 171,916 17,046 4,620 Mark C. King....................... 1997 $ 95,233 $ -- 10,344 $ 2,435 Senior Vice President, 1996 119,923 -- 11,280 2,885 Finance (i) 1995 100,000 26,607 10,670 3,723
______________________ (a) Consists primarily of executive medical reimbursements, but includes car allowances for Mr. Horne in the amount of $10,400, $10,400 and $12,000 in fiscal 1997, 1996 and 1995, respectively, and car allowances for Mr. King in the amount of $10,200 in each of fiscal 1997, 1996 and 1995, respectively. (b) Consists of matching contributions to the Company's 401(k) savings plan. See "---Benefit Plan". (c) Mr. Sodini was appointed Chief Operating Officer in February 1996 and appointed President and Chief Executive Officer of the Company in June 1996 and, accordingly, only fiscal year 1996 and 1997 information is provided. (d) Dennis R. Crook was appointed Senior Vice President, Administration and Gasoline Marketing in March 1996 and, accordingly, only fiscal 1996 and fiscal 1997 information is provided. (e) William T. Flyg was appointed Senior Vice President, Finance and Chief Financial Officer of the Company in January 1997 and, accordingly, only fiscal 1997 information is provided. (f) Douglas M. Sweeney was appointed Senior Vice President, Operations in February 1996 and, accordingly, only fiscal year 1996 and 1997 information is provided. (g) Daniel J. McCormack was appointed Director, Marketing in March 1996 and, accordingly, only fiscal year 1996 and 1997 information is provided. (h) Mr. Horne served as Chief Executive Officer of the Company from December 1, 1995 until April 30, 1996. Mr. Horne served as Vice Chairman of the Company from May 1996 until June 30, 1997 when he resigned from the Company. (i) Mr. King served as Senior Vice President, Finance from July 1, 1993 to June 30, 1997 when he resigned from the Company. Executive Employment Contracts On October 1, 1997, The Pantry entered into an employment agreement with Mr. Sodini. This agreement contains customary employment terms and provides for an annual base salary of $475,000, subject to annual adjustment by the Board of Directors, participation in any benefit or bonus programs instituted by The Pantry, participation in an incentive bonus program which provides for a payout of a minimum of 25% upon the achievement of goals determined by the Board of Directors, and other perquisites. This agreement terminates on September 30, 2000. Pursuant to the terms of the agreement, if Mr. Sodini is terminated by The Pantry prior to a "change in control" (as defined) with "just cause" (as defined) or upon death or disability, Mr. Sodini shall be entitled to his then effective compensation and benefits through the last day of his actual employment by The Pantry (for termination for just cause or upon death) or his effective date of termination, as determined by the Board of Directors (for termination upon disability). In addition, if Mr. Sodini is terminated because of death or disability, The Pantry shall pay to the estate of Mr. Sodini or to Mr. Sodini, as the case may be, one year's pay (less amounts paid under any disability plan). If Mr. Sodini is terminated by The Pantry prior to a change in control without cause, Mr. Sodini shall be entitled to severance pay (including regular benefits) through the term of the agreement until such time as he engages in other employment. If Mr. Sodini is terminated by The Pantry following a change in control without cause or Mr. Sodini terminates his employment for "good reason" (as defined), Mr. Sodini shall be entitled to severance pay (including regular benefits) for a period of 18 months from the termination date, subject 69 to certain limitations. This agreement contains covenants prohibiting Mr. Sodini, through the period ending on the later of (i) 18 months after termination or (ii) such time at which he no longer receives severance benefits from The Pantry, from competing with The Pantry or soliciting employees of The Pantry for employment. On June 3, 1996, The Pantry entered into an employment agreement with Mr. Crook. This agreement contains customary employment terms and provides for an annual base salary of $150,000, subject to annual adjustment by the Board of Directors and participation in any benefit or bonus programs instituted by The Pantry. The agreement terminates on March 31, 1998. Pursuant to the terms of the agreement, if Mr. Crook is terminated by The Pantry prior to a "change of control" (as defined) without cause, Mr. Crook shall be entitled to severance pay for the longer of the balance of the term or one year from the termination date, subject to certain limitations. If Mr. Crook is terminated by The Pantry following a change of control without cause or Mr. Crook terminates his employment for "good reason" (as defined), Mr. Crook shall be entitled to severance pay (including regular benefits) for a period of two years from the termination date, subject to certain limitations. This agreement contains covenants prohibiting Mr. Crook, for so long as he is employed by or receiving severance benefits from The Pantry, from competing with The Pantry or soliciting employment from employees of The Pantry. Compensation of Directors Directors of The Pantry receive no compensation as directors. Directors are reimbursed for their reasonable expenses in attending meetings. Benefit Plan The Pantry sponsors a 401(k) employee retirement savings plan with Fidelity Investments for eligible employees. Employees must be at least nineteen years of age and have one year of service working at least 1,000 hours to be eligible to participate in the 401(k) plan. Employees may contribute up to 15% of their annual compensation and contributions are matched by The Pantry on the basis of 50% of the first 5% contributed. Matching contribution expense for The Pantry was $346,000, $330,000 and $305,000 for fiscal years 1995, 1996 and 1997, respectively. Compensation Committee Interlocks and Insider Participation The Board of Directors of The Pantry determines the compensation of the Executive Officers. During fiscal 1996 and fiscal 1997, Mr. Sodini participated in Board of Director deliberations regarding the compensation of The Pantry's Executive Officers. 70 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS The following table sets forth certain information, as of November 30, 1997, with respect to the beneficial ownership of common stock by (i) each person who beneficially owns more than 5% of such shares, (ii) each of the executive officers named in the Summary Compensation Table, (iii) each director of the Company and (iv) all executive officers and directors of the Company as a group.
Amount of and Nature of Beneficial Percentage Name and Address of Beneficial Owner Ownership of Class -------------------------------------------- ------------- ---------- Freeman Spogli & Co. Incorporated(1)........ 193,134 83.2% Ronald P. Spogli(1)........................ -- -- Charles P. Rullman(1)...................... -- -- Jon D. Ralph(2)............................ -- -- Todd W. Halloran(2)........................ -- -- Chase Manhattan Capital, L.P.(3)............ 32,743 17.6% Christopher C. Behrens(3)(4)............... 5,263 2.8% Peter J. Sodini............................. 889 * Dennis R. Crook............................. -- -- William T. Flyg............................. -- -- Douglas Sweeney............................. -- -- Daniel J. McCormack......................... -- -- All directors and executive officers as a group (11 individuals)..................... -- --
______________________ * Less than 1.0%. (1) Includes 46,000 shares issuable on the exercise of currently exercisable warrants. 141,441 shares and 5,693 shares of common stock are held of record, by FSEP III and FSEP International, respectively. As general partner of FS Capital Partners, L.P. ("FS Capital"), which is general partner of FSEP III, FS Holdings, Inc. ("FSHI") has the sole power to vote and dispose of the shares owned by FSEP III. As general partner of FS&Co. International, L.P. ("FS&Co. International"), which is the general partner of FSEP International, FS International Holdings Limited ("FS International Holdings") has the sole power to vote and dispose of the shares owned by FSEP International. Messrs. Spogli and Rullman and Bradford M. Freeman, William M. Wardlaw, J. Frederick Simmons and John M. Roth are the sole directors, officers and shareholders of FSHI, FS International Holdings and Freeman Spogli & Co. Incorporated, and as such may be deemed to be the beneficial owners of the shares of the common stock and rights to acquire the common stock owned by FSEP III and FSEP International. The business address of Freeman Spogli & Co. Incorporated, FSEP III, FS Capital, FSHI and its sole directors, officers and shareholders is 11100 Santa Monica Boulevard, Suite 1900, Los Angeles, California 90025 and the business address of FSEP International, FS&Co. International and FS International Holdings is c/o Padget-Brown & Company, Ltd., West Winds Building, Third Floor, Grand Cayman, Cayman Islands, British West Indies. (2) Each of Messrs. Ralph and Halloran is an employee of an affiliate of Freeman Spogli & Co. Incorporated. (3) The business address of Chase Manhattan Capital, L.P. is 380 Madison Avenue, 12th Floor, New York, New York 10017. Mr. Behrens is a principal at Chase Capital Partners, an affiliate of CMC. (4) Mr. Behrens is a general partner of Baseball Partners, a New York general partnership, that is the beneficial owner of 5,263 shares of common stock. Mr. Behrens disclaims beneficial ownership of such shares except to the extent of his pecuniary interest therein. The Pantry has outstanding 17,500 shares of Series B Preferred Stock. The Series B Preferred Stock has a liquidation preference of $1,000 per share and accrues cumulative dividends at the rate of 13% per annum. Each share of Series B Preferred Stock is entitled to ten votes on all matters on which holders of the Common Stock vote. FS&Co. owns the 17,500 outstanding shares of Series B Preferred Stock. 71 CERTAIN TRANSACTIONS In November 1995, FS&Co. and CMC purchased a 39.9% and 12.0% interest in The Pantry, respectively. In August 1996, FS&Co. and CMC acquired an additional approximately 37.0% and 11.1% interest in The Pantry, respectively. In December 1996, FS&Co. invested additional equity in The Pantry, thereby increasing its aggregate ownership interest to approximately 83.6% on a fully diluted basis. In October 1997, FS&Co., CMC and Peter J. Sodini purchased an aggregate of $32.4 million of the common stock of the Company in connection with the Lil' Champ Acquisition, thereby changing FS&Co.'s aggregate ownership interest to approximately 83.2% on a fully diluted basis. Mr. Sodini purchased 889 shares of the common stock of the Company for an aggregate purchase price of $400,500, payable $185,000 in cash and $215,500 in the form of a secured promissory note in favor of the Company. FS&Co. and CMC have together invested $92.8 million in the aggregate, $54.8 million of which has been invested in new equity securities of The Pantry. In connection with FS&Co.'s previous investments in The Pantry, The Pantry has paid transaction fees in the amount of $2.5 million to FS&Co. In addition, in connection with the Lil' Champ Acquisition, The Pantry paid a fee in the amount of $2.0 million to FS&Co. In August 1996, FS&Co., CMC, The Pantry and other stockholders entered into a stockholders' agreement whereby (i) FS&Co. was granted certain rights of first offer prior to any transfer of securities, (ii) FS&Co. was granted certain "drag-along" rights with respect to the sale of securities, (iii) FS&Co., CMC and other stockholders were granted certain "tag-along" rights to the sale of securities by other stockholders, (iv) various transfer restrictions were agreed upon by the stockholders and (v) certain Board representation rights of CMC were established. In August 1996, FS&Co., CMC, The Pantry and other stockholders entered into registration rights agreements relating to the common stock and preferred stock of The Pantry whereby certain demand and "piggyback" registration rights were granted to the stockholders. In connection with the Equity Investment, the stockholders agreement and registration rights agreements were amended to include Mr. Sodini as a party and make the shares purchased subject to such agreements. 72 DESCRIPTION OF OTHER INDEBTEDNESS New Credit Facility The Company has entered into the New Credit Facility, which was co-arranged by CIBC Wood Gundy Securities Corp. and First Union Capital Markets Corp. Pursuant to the New Credit Facility, a syndicate of lenders ("Lenders") have agreed to lend to the Company up to $75.0 million in the form of senior secured credit facilities, consisting of a $45.0 million revolving credit facility (the "Revolving Credit Facility") and a $30.0 million acquisition facility (the "Acquisition Facility"). The Revolving Credit Facility has a letter of credit sublimit of $20.0 million, of which [$10.8] million of letters of credit are outstanding as of September 25, 1997. Use of Proceeds; Maturity. The New Credit Facility is available to the Company and its subsidiaries (i) for working capital and general corporate purposes of the Company, (ii) for issuing commercial and standby letters of credit and (iii) for acquisitions. The New Credit Facility will mature on the fifth anniversary of closing of the Lil' Champ Acquisition. Prepayment; Reduction of Commitments. The Company may borrow from time to time under the Acquisition Facility through the second anniversary of the New Credit Facility. The Acquisition Facility will convert to a term loan on the second anniversary of the New Credit Facility, with scheduled amortization through final maturity. In addition, borrowings under the New Credit Facility are required to be prepaid, subject to certain exceptions, with (i) 100% of the net after-tax cash proceeds of the sale or other disposition of any properties or assets, other than net cash proceeds of sales or other dispositions (a) of inventory in the ordinary course of business, (b) involving certain sale- leaseback transactions, (c) that are reinvested within 270 days (subject to certain exceptions) or (d) involving certain excluded transactions, (ii) 100% of the net cash proceeds received from the issuance of equity securities (other than under employee equity plans), and (iii) 100% of the net proceeds of certain issuances of debt obligations of the Company and its subsidiaries. The New Credit Facility must be prepaid in the event that the Senior Notes are not refinanced by April 30, 2000. Voluntary prepayments are permitted in whole or in part, at the option of the Company, in minimum principal amounts to be agreed upon, without premium or penalty, subject to reimbursement of the Lenders' redeployment costs in the case of prepayment of eurodollar borrowings other than on the last day of the relevant interest period. Interest. The interest rate under the New Credit Facility is based, at the option of the Company, upon either a eurodollar rate plus 2.50% per annum or a base rate plus 1.00% per annum. If the Company achieves a leverage ratio (as defined) of less than 4:0 to 1, after the first anniversary of the closing, the margins will be reduced by 25 basis points each. A commitment fee of 0.50% per annum will be charged on the unused portion of the New Credit Facility. Collateral and Guarantees. The New Credit Facility is guaranteed by all of the Company's existing restricted subsidiaries (including Lil' Champ). The New Credit Facility is secured by a first priority lien in substantially all of the properties and assets of the Company and its respective restricted subsidiaries, and the Guarantors now owned or acquired later, including a pledge of all of the shares of the Company's respective existing and future subsidiaries. Covenants. The New Credit Facility contains covenants restricting the ability of the Company and its subsidiaries to, among others, (i) incur additional debt, (ii) declare dividends or redeem or repurchase capital stock, (iii) prepay, redeem or purchase debt, (iv) incur liens, (v) make loans and investments, (vi) make capital expenditures, (vii) engage in mergers, acquisitions and asset sales, (viii) engage in transactions with affiliates. The Company is also required to comply with financial covenants with respect to (a) a minimum interest coverage ratio, (b) a minimum pro forma EBITDA, (c) a maximum pro forma leverage ratio, and (d) a maximum capital expenditure allowance. Events of Default. Events of default under the New Credit Facility include but are not limited to (i) the Company's failure to pay principal when due or interest after a grace period, (ii) the Company's material breach 73 of any covenant, representation or warranty contained in the loan documents, (iii) customary cross-default provisions, (iv) events of bankruptcy, insolvency or dissolution of the Company or its subsidiaries, (v) the levy of certain judgments against the Company, its subsidiaries, or their assets, (vi) the actual or asserted invalidity of security documents or guarantees of the Company or its subsidiaries, and (vii) a change of control of the Company. The preceding discussion of certain of the provisions of the New Credit Facility is not intended to be exhaustive and is qualified in its entirety by reference to the provisions of the New Credit Facility. Senior Notes The Company's 12% Series B Senior Notes due 2000 are senior unsecured obligations of the Company and senior to the Notes. Currently, the principal amount of the Senior Notes outstanding is approximately $49.0 million. Interest accrues at a rate of 12% per annum, payable semi-annually on May 15 and November 15. Currently, interest on the Senior Notes accrues at a rate of 12.5% in accordance with the requirements of the Senior Notes Indenture because The Pantry's fixed charge coverage ratio was below a minimum specified level on the relevant measurement date. The Senior Notes are redeemable at the option of the Company, on or after November 15, 1998, at the redemption price of 104%, together with accrued and unpaid interest, if any, to the date of redemption. The Senior Notes are guaranteed, on a senior basis, by the Guarantors. Upon the occurrence of a Change of Control (as defined in the Senior Notes Indenture), each holder of the Senior Notes may require the Company to repurchase all or a portion of such holder's Senior Notes at a purchase price in cash equal to 101% of the principal amount thereof, together with accrued and unpaid interest, if any, to the date of repurchase. The Senior Notes Indenture contains certain restrictive covenants, including, but not limited to, covenants with respect to the following matters: (i) limitations on the incurrence of additional indebtedness and the issuance of certain capital stock; (ii) limitations on restricted payments; (iii) limitations on the sales of assets and issuance of subsidiary stock; (iv) limitations on lines of business; (v) limitations on transactions with affiliates; (vi) limitations on liens; (vii) restrictions on mergers, consolidations and the transfer of all or substantially all of the assets of the Company and its subsidiaries to another person; and (viii) limitations on dividends and other payment restrictions affecting subsidiaries. The Senior Notes Indenture provides for customary events of default. In connection with the Consent Solicitation, the Company obtained consents from holders of the Senior Notes to a waiver (the "Waiver") with respect to the application to the Lil' Champ Acquisition of one of the restrictive covenants of the Senior Notes Indenture, and to the amendment of the Senior Notes Indenture in certain other respects (the "Amendments" and, together with the Waiver, the "Waiver and Amendments"). Promptly after receipt by the Company of the consent of the holders of at least a majority in aggregate principal amount of the Senior Notes outstanding, the Company entered into a supplemental indenture implementing the Waiver and Amendments. The Waiver waived the requirement of Section 4.17 of the Senior Notes Indenture that a "fairness opinion" of an independent investment banking firm be obtained in connection with: (i) the assignment by a subsidiary of The Pantry to, and the assumption by, The Pantry of the Acquisition Agreement; and (ii) the delivery to Docks U.S.A., Inc., the stockholder of Lil' Champ, in partial satisfaction of the purchase price (for the benefit of The Pantry), of $4.0 million placed in escrow by a subsidiary of The Pantry pursuant to the Acquisition Agreement. The Amendments modified the definition of Restricted Investment: (i) to permit the Company to reinvest in PH Holding Corporation, a wholly owned subsidiary of The Pantry, funds that PH Holding Corporation returns to, or expends for the benefit of, the Company; (ii) to permit the Company to invest in a subsidiary other than an Unrestricted Subsidiary (as defined in the Senior Notes Indenture) or in an entity that thereby becomes a subsidiary other than an Unrestricted Subsidiary; and (iii) to permit subsidiaries to invest in the Company or any of its subsidiaries other than any Unrestricted Subsidiaries. The Amendments also modified Section 4.10 of the Senior Notes Indenture to permit the Company to incur indebtedness under or pursuant to: (i) the New Credit Facility; (ii) a Consolidated Fixed Charges Coverage Ratio (as defined in the Senior Notes Indenture) that is reduced to 2.00 to 1 from 2.25 to 1 until November 15, 1998 and which will return to 2.25 to 1 thereafter; (iii) the guarantees by certain of the Company's subsidiaries of the New Credit Facility, the Notes and the Senior Notes; (iv) up to $14.0 million of 74 capital lease obligations and Permitted PP&E Financing (as defined in the Senior Notes Indenture) not to exceed 10% of the Company's Consolidated Total Tangible Assets (as defined in the Senior Notes Indenture); and (v) the issuance of the Notes. The Amendments also added a new provision to the Senior Notes Indenture governing the terms and conditions of the guarantee of the Senior Notes by certain of the Company's subsidiaries. Finally, conforming changes to certain definitions were made, and certain new definitions were added, as required for the Amendments described above. 75 DESCRIPTION OF THE EXCHANGE NOTES The Notes were, and the Exchange Notes will be, issued under an Indenture, dated as of October 23, 1997 (the "Indenture") by and among the Company, the Guarantors and United States Trust Company of New York, as trustee (the "Trustee"), a copy of which has been filed as an exhibit to the Registration Statement of which this Prospectus is a part. Upon the effectiveness of this Registration Statement filed under the Securities Act with respect to the Exchange Notes, the Indenture will be subject to and governed by the Trust Indenture Act of 1939, as amended (the "TIA"). The terms of the Exchange Notes include those stated in the Indenture and those made part of the Indenture by reference to the TIA as in effect on the date of the Indenture. The Exchange Notes are subject to all such terms, and holders of the Exchange Notes are referred to the Indenture and the TIA for a statement of them. The following is a summary of the material terms and provisions of the Exchange Notes. This summary does not purport to be a complete description of the Exchange Notes and is subject to the detailed provisions of, and qualified in its entirety by reference to, the Exchange Notes and the Indenture (including the definitions contained therein). A copy of the form of Indenture may be obtained from the Company by any holder or prospective investor upon request. Definitions relating to certain capitalized terms are set forth under "-- Certain Definitions". Capitalized terms that are used but not otherwise defined herein have the meanings ascribed to them in the Indenture and such definitions are incorporated herein by reference. General The Exchange Notes will be limited in aggregate principal amount to $200.0 million. The Exchange Notes will be general unsecured obligations of the Company, subordinated in right of payment to Senior Indebtedness of the Company and senior in right of payment to any current or future subordinated indebtedness of the Company. The Exchange Notes will be unconditionally guaranteed, on an unsecured senior subordinated basis, as to payment of principal, premium, if any, and interest, jointly and severally, by all current and future direct and indirect Restricted Subsidiaries of the Company having either assets or stockholders' equity in excess of $25,000 (together with each other Restricted Subsidiary of the Company which guarantees payment of the Exchange Notes pursuant to the covenant described under "--Certain Covenants--Limitation on Creation of Subsidiaries"). The Notes and the Exchange Notes will be considered collectively to be a single class for all purposes under the Indenture, including, without limitation, waivers, amendments, redemptions and Offers to Purchase, and for purposes of this "Description of Exchange Notes" all reference herein to "Exchange Notes" shall be deemed to refer collectively to any Notes and the Exchange Notes, unless the context otherwise requires. Maturity, Interest and Principal The Exchange Notes will mature on October 15, 2007. The Exchange Notes will bear interest at a rate of 10 1/4% per annum from the Issue Date until maturity. Interest is payable semi-annually in arrears on each April 15 and October 15 commencing April 15, 1998, to holders of record of the Exchange Notes at the close of business on the immediately preceding April 1 and October 1, respectively. Optional Redemption The Exchange Notes will be redeemable at the option of the Company, in whole at any time or in part from time to time on or after October 15, 2002 at the following redemption prices (expressed as percentages of the principal amount thereof), together, in each case, with accrued and unpaid interest, if any, to the redemption date, if redeemed during the twelve-month period beginning on October 15 of each year listed below: 76
Year Percentage ---- ---------- 2002...................... 105.125% 2003...................... 103.417% 2004...................... 101.708% 2005 and thereafter....... 100.000%
Notwithstanding the foregoing, the Company may redeem in the aggregate up to 35% of the original principal amount of Exchange Notes at any time and from time to time prior to October 15, 2000 at a redemption price equal to 110.25% of the aggregate principal amount so redeemed, plus accrued and unpaid interest, if any, to the redemption date out of the Net Proceeds of one or more Public Equity Offerings; provided that at least $130.0 million of the principal amount of Exchange Notes originally issued remain outstanding immediately after the occurrence of any such redemption and that any such redemption occurs within 60 days following the closing of any such Public Equity Offering. In the event of a redemption of fewer than all of the Exchange Notes, the Trustee shall select the Exchange Notes to be redeemed in compliance with the requirements of the principal national securities exchange, if any, or while such Exchange Notes are listed, or if such Exchange Notes are not then listed on a national securities exchange, on a pro rata basis, by lot or in such other manner as the Trustee shall deem fair and equitable. The Exchange Notes will be redeemable in whole or in part upon not less than 30 nor more than 60 days prior written notice, mailed by first class mail to a holder's last address as it shall appear on the register maintained by the Registrar of the Exchange Notes. On and after any redemption date, interest will cease to accrue on the Exchange Notes or portions thereof called for redemption unless the Company shall fail to redeem any such Exchange Note. Subordination The indebtedness represented by the Exchange Notes will be, to the extent and in the manner provided in the Indenture, subordinated in right of payment to the prior indefeasible payment and satisfaction in full in cash of all existing and future Senior Indebtedness of the Company. As of September 25, 1997, on a pro forma basis and after giving effect to the Transactions, the aggregate outstanding principal amount of all Senior Indebtedness would have been approximately $50.4 million, and the Guarantors would have had approximately $13.1 million of Guarantor Senior Indebtedness (excluding guarantees of Senior Indebtedness). As of September 25, 1997, $8.6 million of letters of credit were issued under the Senior Credit Facility, and the Company could have incurred an additional $66.4 million of Senior Indebtedness under the Senior Credit Facility. In the event of any insolvency or bankruptcy case or proceeding, or any receivership, arrangement, reorganization, liquidation, dissolution or other winding-up or other similar case or proceeding in connection therewith whether or not involving insolvency or bankruptcy, relative to the Company or to its creditors, as such, or to the Company's assets, whether voluntary or involuntary, or any general assignment for the benefit of creditors or other marshalling of assets or liabilities of the Company (except in connection with the merger or consolidation of the Company or its liquidation or dissolution following the transfer of all or substantially all of its assets, upon the terms and conditions permitted under the circumstances described under "--Merger, Consolidation or Sale of Assets" below) (all of the foregoing referred to herein individually as a "Bankruptcy Proceeding" and collectively as "Bankruptcy Proceedings"), the holders of Senior Indebtedness of the Company will be entitled to receive payment and satisfaction in full in cash of all amounts due on or in respect of all Senior Indebtedness of the Company (including any interest accruing after the commencement of any such Bankruptcy Proceeding whether or not such interest is an allowable claim enforceable against the Company in any such proceeding) before the holders of the Exchange Notes are entitled to receive or retain any payment or distribution of any kind on account of the Exchange Notes. In the event that, notwithstanding the foregoing, the Trustee or any holder of Exchange Notes receives any payment or distribution of assets of the Company of any kind, whether in cash, property or securities, including, without limitation, by way of set-off or otherwise, in respect of the Exchange Notes before all Senior Indebtedness of the Company is paid and satisfied in full in cash, then such payment or distribution will be held by the recipient in trust for the benefit of holders of Senior Indebtedness and will be immediately paid over or delivered 77 to the holders of Senior Indebtedness or their representative or representatives to the extent necessary to make payment in full of all Senior Indebtedness remaining unpaid, after giving effect to any concurrent payment or distribution to or for the holders of Senior Indebtedness. By reason of such subordination, in the event of any such Bankruptcy Proceeding, creditors of the Company who are holders of Senior Indebtedness may recover more, ratably, than other creditors of the Company, including holders of the Exchange Notes. Upon the occurrence of a Payment Default on Designated Senior Indebtedness, no payment or distribution of any kind or character (including, without limitation, cash, property and any payment or distribution which may be payable or deliverable by reason of the payment of any other Indebtedness of the Company being subordinated to the payment of the Exchange Notes by the Company) may be made by or on behalf of the Company or any Restricted Subsidiary of the Company, including, without limitation, by way of set-off or otherwise, for or on account of the Exchange Notes, or for or on account of the purchase, redemption or other acquisition of any Exchange Notes, and neither the Trustee nor any holder or owner of any Exchange Notes shall take or receive from the Company or any Restricted Subsidiary of the Company, directly or indirectly in any manner, payment in respect of all or any portion of Exchange Notes commencing on the date of receipt by the Trustee of written notice from the representative of the holders of Designated Senior Indebtedness (the "Representative") of the occurrence of such Payment Default, and in any such event, such prohibition shall continue until such Payment Default is cured, waived in writing or otherwise ceases to exist. At such time as the prohibition set forth in the preceding sentence shall no longer be in effect, subject to the provisions of the preceding and following paragraphs, the Company shall resume making any and all required payments in respect of the Exchange Notes, including any missed payments. Upon the occurrence of a Non-Payment Event of Default on Designated Senior Indebtedness, no payment or distribution of any kind or character (including, without limitation, cash, property and any payment or distribution which may be payable or deliverable by reason of the payment of any other indebtedness of the Company being subordinated to the payment of the Exchange Notes by the Company) may be made by the Company or any Restricted Subsidiary of the Company, including, without limitation, by way of set-off or otherwise, for or on account of the Exchange Notes, or for or on account of the purchase, redemption or other acquisition of any Exchange Notes, and neither the Trustee nor any holder or owner of any Exchange Notes shall take or receive from the Company or any Restricted Subsidiary of the Company, directly or indirectly in any manner, payment in respect of all or any portion of the Exchange Notes for a period (a "Payment Blockage Period") commencing on the date of receipt by the Trustee of written notice from the Representative of such Non-Payment Event of Default unless and until (subject to any blockage of payments that may then be in effect under the preceding paragraphs) the earliest of (x) more than 179 days shall have elapsed since receipt of such written notice by the Trustee, (y) such Non- Payment Event of Default shall have been cured or waived in writing or otherwise shall have ceased to exist or such Designated Senior Indebtedness shall have been paid in full or (z) such Payment Blockage Period shall have been terminated by written notice to the Company or the Trustee from the Representative, after which, in the case of clause (x), (y) or (z), the Company shall resume making any and all required payments in respect of the Exchange Notes, including any missed payments. Notwithstanding any other provision of the Indenture, in no event shall a Payment Blockage Period commenced in accordance with the provisions of the Indenture described in this paragraph extend beyond 179 days from the date of the receipt by the Trustee of the notice referred to above (the "Initial Blockage Period"). Any number of additional Payment Blockage Periods may be commenced during the Initial Blockage Period; provided, however, that no such additional Payment Blockage Period shall extend beyond the Initial Blockage Period. After the expiration of the Initial Blockage Period, no Payment Blockage Period may be commenced until at least 180 consecutive days have elapsed from the last day of the Initial Blockage Period. Notwithstanding any other provision of the Indenture, no Non-Payment Event of Default with respect to Designated Senior Indebtedness which existed or was continuing on the date of the commencement of any Payment Blockage Period initiated by the Representative shall be, or be made, the basis for the commencement of a second Payment Blockage Period initiated by the Representative, whether or not within the Initial Blockage Period, unless such Non-Payment Event of Default shall have been cured or waived for a period of not less than 90 consecutive days. Each Guarantee will, to the extent set forth in the Indenture, be subordinated in right of payment to the prior payment in full of all Guarantor Senior Indebtedness of the respective Guarantor and will be subject to the rights of holders of Designated Senior Indebtedness of such Guarantor to initiate blockage periods, upon terms substantially comparable to the subordination of the Exchange Notes to all Senior Indebtedness of the Company. 78 If the Company or any Guarantor fails to make any payment on the Exchange Notes or any Guarantee, as the case may be, when due or within any applicable grace period, whether or not on account of payment blockage provisions, such failure would constitute an Event of Default under the Indenture and would enable the holders of the Exchange Notes to accelerate the maturity thereof. See "--Events of Default." A holder of Exchange Notes by its acceptance of Exchange Notes agrees to be bound by such provisions and authorizes and expressly directs the Trustee, on its behalf, to take such action as may be necessary or appropriate to effectuate the subordination provided for in the Indenture and appoints the Trustee its attorney-in-fact for such purpose. Certain Covenants The Indenture contains, among others, the following covenants: Limitation on Additional Indebtedness The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, incur any Indebtedness (including Acquired Indebtedness); provided that if no Default or Event of Default shall have occurred and be continuing at the time or as a consequence of the incurrence of such Indebtedness, the Company or any of the Guarantors may incur Indebtedness including Acquired Indebtedness if after giving effect to the incurrence of such Indebtedness and the receipt and application of the proceeds thereof, the Company's Consolidated Fixed Charge Coverage Ratio is at least 2.0 to 1. Notwithstanding the foregoing, the Company and the Guarantors may incur Permitted Indebtedness; provided that the Company will not incur any Permitted Indebtedness that ranks junior in right of payment to the Exchange Notes that has a maturity or mandatory sinking fund payment prior to the maturity of the Exchange Notes. Limitation on Other Senior Subordinated Indebtedness The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, incur, contingently or otherwise, any Indebtedness that is both (i) subordinated in right of payment to any Senior Indebtedness of the Company or any of its Restricted Subsidiaries, as the case may be, and (ii) senior in right of payment to the Exchange Notes and the Guarantees, as the case may be. For purposes of this covenant, Indebtedness is deemed to be senior in right of payment to the Exchange Notes or the Guarantees, as the case may be, if it is not explicitly subordinated in right of payment to Senior Indebtedness at least to the same extent as the Exchange Notes and the Guarantees, as the case may be, are subordinated to such Senior Indebtedness. Limitation on Restricted Payments The Company will not make, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, make, any Restricted Payment, unless: (a) no Default or Event of Default shall have occurred and be continuing at the time of or immediately after giving effect to such Restricted Payment; (b) immediately after giving pro forma effect to such Restricted Payment, the Company could incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) under "--Limitation on Additional Indebtedness" above; and (c) immediately after giving effect to such Restricted Payment, the aggregate of all Restricted Payments declared or made after the Issue Date does not exceed the sum of (1) 50% of the Company's Cumulative Consolidated Net Income (or minus 100% of any cumulative deficit in Consolidated Net Income during such period), (2) 100% of the aggregate Net Proceeds received by the Company from the issue or sale after the Issue Date of Capital Stock (other than Disqualified Capital Stock or Capital Stock of the Company issued to any Subsidiary of the 79 Company) of the Company or any Indebtedness or other securities of the Company convertible into or exercisable or exchangeable for Capital Stock (other than Disqualified Capital Stock) of the Company which has been so converted, exercised or exchanged, as the case may be, and (3) without duplication of any amounts included in clause (c)(2) above, 100% of the aggregate Net Proceeds received by the Company of any equity contribution from a holder of the Company's Capital Stock, excluding, in the case of clauses (c)(2) and (3), any Net Proceeds from a Public Equity Offering to the extent used to redeem the Exchange Notes. For purposes of determining under this clause (c) the amount expended for Restricted Payments, cash distributed shall be valued at the face amount thereof and property other than cash shall be valued at its fair market value. The provisions of this covenant shall not prohibit (i) the payment of any distribution within 60 days after the date of declaration thereof, if at such date of declaration such payment would comply with the provisions of the Indenture, (ii) the repurchase, redemption or other acquisition or retirement of any shares of Capital Stock of the Company or Indebtedness subordinated to the Exchange Notes by conversion into, or by or in exchange for, shares of Capital Stock of the Company (other than Disqualified Capital Stock), or in an amount not in excess of the Net Proceeds of the substantially concurrent sale (other than to a Subsidiary of the Company) of other shares of Capital Stock of the Company (other than Disqualified Capital Stock), (iii) the redemption or retirement of Indebtedness of the Company subordinated to the Exchange Notes in exchange for, by conversion into, or in an amount not in excess of the Net Proceeds of, a substantially concurrent sale or incurrence of Indebtedness of the Company (other than any Indebtedness owed to a Subsidiary) that is contractually subordinated in right of payment to the Exchange Notes to at least the same extent as the Indebtedness being redeemed or retired, (iv) the retirement of any shares of Disqualified Capital Stock of the Company by conversion into, or by exchange for, shares of Disqualified Capital Stock of the Company, or in an amount not in excess of the Net Proceeds of the substantially concurrent sale (other than to a Subsidiary of the Company) of other shares of Disqualified Capital Stock of the Company, (v) repurchases from employees of the Company or its Subsidiaries in connection with the termination of employment of shares of the Company's Capital Stock (other than Disqualified Capital Stock) in an amount not to exceed in the aggregate the sum of (A) $2 million plus (B) the aggregate Net Cash Proceeds received by the Company from the sale to employees of Capital Stock of the Company (other than Disqualified Capital Stock) after the Issue Date; (vi) the Company's provision of seller financing in the form of purchase money mortgages in connection with sales of convenience stores and/or sites; provided, that the aggregate amount of such seller financing does not exceed $10 million at any time outstanding; (vii) the making of Investments in Unrestricted Subsidiaries or other entities; provided that the Net Investment at any time after the Issue Date shall not exceed $15 million; or (viii) the making of other Restricted Payments not specifically permitted herein not in excess of $5 million; provided that in calculating the aggregate amount of Restricted Payments made subsequent to the Issue Date for purposes of clause (c) of the immediately preceding paragraph, amounts expended pursuant to clause (i) and (v) shall be included in such calculation. Not later than the date of making any Restricted Payment, the Company shall deliver to the Trustee an Officers' Certificate stating that such Restricted Payment is permitted and setting forth the basis upon which the calculations required by the covenant described above were computed, which calculations may be based upon the Company's latest available financial statements, and that no Default or Event of Default has occurred and is continuing and no Default or Event of Default will occur immediately after giving effect to any such Restricted Payments. Limitation on Liens The Company will not, and will not permit any of its Restricted Subsidiaries to, create, incur or otherwise cause or suffer to exist or become effective any Liens of any kind (other than Permitted Liens) upon any property or asset of the Company or any of its Restricted Subsidiaries or any shares of Capital Stock or Indebtedness of any Restricted Subsidiary of the Company which owns property or assets, now owned or hereafter acquired, to secure Indebtedness which is pari passu with or subordinate in right of payment to the Exchange Notes, unless (i) if such Lien secures Indebtedness which is pari passu with the Exchange Notes, then the Exchange Notes are secured on an equal and ratable basis with the obligations so secured until such time as such obligation is no longer secured by a Lien or (ii) if such Lien secures Indebtedness which is subordinated to the Exchange Notes, any such Lien shall 80 be subordinated to the Lien granted to the holders of the Exchange Notes to the same extent as such Indebtedness is subordinated to the Exchange Notes. Limitation on Transactions with Affiliates The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, enter into or suffer to exist any transaction or series of related transactions (including, without limitation, the sale, purchase, exchange or lease of assets, property or services) with any Affiliate (each an "Affiliate Transaction") or extend, renew, waive or otherwise modify the terms of any Affiliate Transaction entered into prior to the Issue Date unless (i) such Affiliate Transaction is between or among the Company and its Wholly Owned Subsidiaries; or (ii) the terms of such Affiliate Transaction are fair and reasonable to the Company or such Restricted Subsidiary, as the case may be, and the terms of such Affiliate Transaction are at least as favorable as the terms which could be obtained by the Company or such Restricted Subsidiary, as the case may be, in a comparable transaction made on an arm's- length basis between unaffiliated parties. In any Affiliate Transaction (or any series of related Affiliate Transactions which are similar or part of a common plan) involving an amount or having a fair market value in excess of $2 million which is not permitted under clause (i) above, the Company must obtain a resolution of the Board of Directors of the Company certifying that such Affiliate Transaction complies with clause (ii) above. In any Affiliate Transaction (or any series of related Affiliate Transactions which are similar or part of a common plan) involving an amount or having a fair market value in excess of $10 million which is not permitted under clause (i) above, the Company must obtain a favorable written opinion as to the fairness of such transaction or transactions, as the case may be, from an Independent Financial Advisor. The foregoing provisions will not apply to (i) any Restricted Payment that is not prohibited by the provisions described under "--Limitation on Restricted Payments" above or any transaction that is permitted by the definition of "Restricted Payment" (other than the transactions described in clauses (iv) and (vii) of the definition of "Permitted Investments"), (ii) reasonable fees and compensation paid to and indemnity provided on behalf of, officers, directors or employees of the Company or any Restricted Subsidiary of the Company as determined in good faith by the Company's Board of Directors or senior management or (iii) any agreement as in effect as of the Issue Date or any amendment thereto or any transaction contemplated thereby (including pursuant to any amendment thereto) in any replacement agreement thereto so long as any such amendment or replacement agreement is not more disadvantageous to the holders in any material respect than the original agreement as in effect on the Issue Date. Limitation on Creation of Subsidiaries The Company will not create or acquire, and will not permit any of its Restricted Subsidiaries to create or acquire, any Subsidiary other than (i) a Restricted Subsidiary existing as of the Issue Date, or (ii) a Restricted Subsidiary that is conducting or will conduct only a business similar or reasonably related to the business conducted by the Company and its Subsidiaries on the Issue Date, or (iii) an Unrestricted Subsidiary; provided, however, that each Restricted Subsidiary acquired or created pursuant to clause (ii) shall at the time it has either assets or stockholders equity in excess of $25,000 have executed a guarantee, substantially in the form attached to the Indenture (and with such documentation relating thereto as the Trustee shall require, including, without limitation a supplement or amendment to the Indenture and opinions of counsel as to the enforceability of such guarantee), pursuant to which such Restricted Subsidiary will become a Guarantor. See "Description of the Exchange Notes--General." Limitation on Certain Asset Sales The Company will not, and will not permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the Company or such applicable Restricted Subsidiary, as the case may be, receives consideration at the time of such sale or other disposition at least equal to the fair market value of the assets sold or otherwise disposed of (as determined in good faith by the Board of Directors of the Company, and evidenced by a board resolution); (ii) not less than 80% of the consideration received by the Company or such applicable Restricted Subsidiary, as the case may be, is in the form of (x) cash or Cash Equivalents other than in the case where the Company is undertaking a Permitted Asset Swap or (y) the assumption of any Indebtedness or liabilities reflected on the balance sheet of the Company or a Restricted Subsidiary in accordance with GAAP (other than Indebtedness that is 81 subordinated to or pari passu with the Exchange Notes); and (iii) the Asset Sale Proceeds received by the Company or such Restricted Subsidiary are applied (a) first, to the extent the Company or any such Restricted Subsidiary, as the case may be, elects, or is required, to prepay, repay or purchase indebtedness under any then existing Senior Indebtedness of the Company or any such Restricted Subsidiary within 270 days following the receipt of the Asset Sale Proceeds from any Asset Sale; provided that any such repayment shall result in a permanent reduction of the commitments thereunder in an amount equal to the principal amount so repaid; (b) second, to the extent of the balance of Asset Sale Proceeds after application as described above, to the extent the Company elects, to an investment in assets (including Capital Stock or other securities purchased in connection with the acquisition of Capital Stock or property of another Person) used or useful in businesses similar or ancillary to the business of the Company or any such Restricted Subsidiary as conducted on the Issue Date; provided that (1) such investment occurs or the Company or any such Restricted Subsidiary enters into contractual commitments to make such investment, subject only to customary conditions (other than the obtaining of financing), within 270 days following receipt of such Asset Sale Proceeds and (2) Asset Sale Proceeds so contractually committed are so applied within 360 days following the receipt of such Asset Sale Proceeds; and (c) third, if on such 270th day in the case of clauses (iii)(a) and (iii)(b)(1) or on such 360th day in the case of clause (iii)(b)(2) with respect to any Asset Sale, the Available Asset Sale Proceeds exceed $10 million, the Company shall apply an amount equal to such Available Asset Sale Proceeds to an offer to repurchase the Exchange Notes, at a purchase price in cash equal to 100% of the principal amount thereof plus accrued and unpaid interest, if any, to the purchase date (an "Excess Proceeds Offer"). If an Excess Proceeds Offer is not fully subscribed, the Company may retain the portion of the Available Asset Sale Proceeds not required to repurchase Exchange Notes. If the Company is required to make an Excess Proceeds Offer, the Company shall mail, within 30 days following the date specified in clause (iii)(c) above, a notice to the holders stating, among other things: (1) that such holders have the right to require the Company to apply the Available Asset Sale Proceeds to repurchase such Exchange Notes at a purchase price in cash equal to 100% of the principal amount thereof plus accrued and unpaid interest, if any, to the purchase date; (2) the purchase date, which shall be no earlier than 30 days and not later than 45 days from the date such notice is mailed; (3) the instructions that each holder must follow in order to have such Exchange Notes purchased; and (4) the calculations used in determining the amount of Available Asset Sale Proceeds to be applied to the purchase of such Exchange Notes. In the event of the transfer of substantially all of the property and assets of the Company and its Restricted Subsidiaries as an entirety to a Person in a transaction permitted under "Merger, Consolidation or Sale of Assets" below, the successor Person shall be deemed to have sold the properties and assets of the Company and its Restricted Subsidiaries not so transferred for purposes of this covenant, and shall comply with the provisions of this covenant with respect to such deemed sale as if it were an Asset Sale. The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of Exchange Notes pursuant to an Excess Proceeds Offer. To the extent that the provisions of any securities laws or regulations conflict with the "Asset Sale" provisions of the Indenture, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under the "Asset Sale" provisions of the Indenture by virtue thereof. Limitation on Preferred Stock of Restricted Subsidiaries The Company will not permit any of its Restricted Subsidiaries to issue any Preferred Stock (except Preferred Stock issued to the Company or a Wholly Owned Subsidiary of the Company) or permit any Person (other than the Company or a Wholly Owned Subsidiary of the Company) to hold any such Preferred Stock unless the Company or such Restricted Subsidiary would be entitled to incur or assume Indebtedness under "--Limitation on Additional Indebtedness" above (other than Permitted Indebtedness) in the aggregate principal amount equal to the aggregate liquidation value of the Preferred Stock to be issued. 82 Limitation on Capital Stock of Restricted Subsidiaries The Company will not (i) sell, pledge, hypothecate or otherwise convey or dispose of any Capital Stock of a Restricted Subsidiary of the Company or (ii) permit any of its Restricted Subsidiaries to issue any Capital Stock, other than to the Company or a Wholly Owned Subsidiary of the Company. The foregoing restrictions shall not apply to an Asset Sale made in compliance with "-- Limitation on Certain Asset Sales" above, the issuance of Preferred Stock in compliance with "--Limitation on Preferred Stock of Restricted Subsidiaries" above or the pledge or hypothecation of Capital Stock of a Restricted Subsidiary of the Company made in compliance with "--Limitation on Liens". Limitation on Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any Restricted Subsidiary of the Company to (a)(i) pay dividends or make any other distributions to the Company or any Restricted Subsidiary of the Company (A) on its Capital Stock or (B) with respect to any other interest or participation in, or measured by, its profits or (ii) repay any Indebtedness or any other obligation owed to the Company or any Restricted Subsidiary of the Company, (b) make loans or advances or capital contributions to the Company or any of its Restricted Subsidiaries or (c) transfer any of its properties or assets to the Company or any of its Restricted Subsidiaries, except for such encumbrances or restrictions existing under or by reason of (i) encumbrances or restrictions existing on the Issue Date to the extent and in the manner such encumbrances and restrictions are in effect on the Issue Date, (ii) the Senior Credit Facility, (iii) the Indenture, the Exchange Notes and the Guarantees, (iv) applicable law, (v) any instrument governing Acquired Indebtedness, which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person (including any Subsidiary of the Person), so acquired, (vi) customary non- assignment provisions in leases or other agreements entered in the ordinary course of business and consistent with past practices, (vii) Refinancing Indebtedness; provided that such restrictions are no more restrictive, taken as a whole, than those contained in the agreements governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded, (viii) customary restrictions in security agreements or mortgages securing Indebtedness of the Company or a Restricted Subsidiary to the extent such restrictions restrict the transfer of the property subject to such security agreements and mortgages or (ix) customary restrictions with respect to a Restricted Subsidiary of the Company pursuant to an agreement that has been entered into for the sale or disposition of all or substantially all of the Capital Stock or assets of such Restricted Subsidiary. Limitation on Conduct of Business The Company and its Restricted Subsidiaries will not engage in any businesses which are not the same, similar or related to the businesses in which the Company and its Restricted Subsidiaries are engaged in on the Issue Date or which are in support of or ancillary to such businesses. Limitation on Sale and Lease-Back Transactions The Company will not, and will not permit any of its Restricted Subsidiaries to, enter into any Sale and Lease-Back Transaction unless (i) the consideration received in such Sale and Lease-Back Transaction is at least equal to the fair market value of the property sold, as determined in good faith by the Board of Directors of the Company and evidenced by a board resolution and (ii) the Company could incur the Attributable Indebtedness in respect of such Sale and Lease-Back Transaction in compliance with "--Limitation on Additional Indebtedness" above; provided, that, for purposes of this covenant, clause (v) of the definition of Permitted Indebtedness shall be deemed to include Attributable Indebtedness relating to operating leases. Payments for Consent The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any holder of any Exchange Notes for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of the Indenture 83 or the Exchange Notes unless such consideration is offered to be paid or agreed to be paid to all holders of the Exchange Notes which so consent, waive or agree to amend in the time frame set forth in solicitation documents relating to such consent, waiver or agreement. Change of Control Offer Upon the occurrence of a Change of Control, the Company shall be obligated to make an offer to purchase (the "Change of Control Offer") each holder's outstanding Exchange Notes at a purchase price (the "Change of Control Purchase Price") equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the Change of Control Payment Date (as defined) in accordance with the procedures set forth below. Within 20 days of the occurrence of a Change of Control, the Company shall (i) cause a notice of the Change of Control Offer to be sent at least once to the Dow Jones News Service or similar business news service in the United States and (ii) send by first-class mail, postage prepaid, to the Trustee and to each holder of the Exchange Notes, at the address appearing in the register maintained by the Registrar of the Exchange Notes, a notice stating: (1) that the Change of Control Offer is being made pursuant to this covenant and that all Exchange Notes tendered will be accepted for payment; (2) the Change of Control Purchase Price and the purchase date (which shall be a Business Day no earlier than 30 days nor later than 45 days from the date such notice is mailed (the "Change of Control Payment Date")); (3) that any Exchange Note not tendered will continue to accrue interest; (4) that, unless the Company defaults in the payment of the Change of Control Purchase Price, any Exchange Notes accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest after the Change of Control Payment Date; (5) that holders accepting the offer to have their Exchange Notes purchased pursuant to a Change of Control Offer will be required to surrender the Exchange Notes to the Paying Agent at the address specified in the notice prior to the close of business on the Business Day preceding the Change of Control Payment Date; (6) that holders will be entitled to withdraw their acceptance if the Paying Agent receives, not later than the close of business on the third Business Day preceding the Change of Control Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the holder, the principal amount of the Exchange Notes delivered for purchase, and a statement that such holder is withdrawing his election to have such Exchange Notes purchased; (7) that holders whose Exchange Notes are being purchased only in part will be issued new Exchange Notes equal in principal amount to the unpurchased portion of the Exchange Notes surrendered; (8) any other procedures that a holder must follow to accept a Change of Control Offer or effect withdrawal of such acceptance; and (9) the name and address of the Paying Agent. On the Change of Control Payment Date, the Company shall, to the extent lawful, (i) accept for payment Exchange Notes or portions thereof tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent money sufficient to pay the purchase price of all Exchange Notes or portions thereof so tendered and (iii) deliver or cause to be delivered to the Trustee Exchange Notes so accepted together with an Officers' Certificate stating the Exchange Notes or portions thereof tendered to the Company. The Paying Agent shall promptly mail to each holder of Exchange Notes so accepted payment in an amount equal to the purchase price for such Exchange 84 Notes, and the Company shall execute and issue, and the Trustee shall promptly authenticate and mail to such holder, a new Exchange Note equal in principal amount to any unpurchased portion of the Exchange Notes surrendered; provided that each such new Exchange Note shall be issued in an original principal amount in denominations of $1,000 and integral multiples thereof. The Indenture requires that if the Senior Credit Facility or other Senior Indebtedness is in effect, or any amounts are owing thereunder or in respect thereof, at the time of the occurrence of a Change of Control, prior to the mailing of the notice to holders described in the second preceding paragraph, but in any event within 20 days following any Change of Control, the Company covenants to (i) repay in full all obligations and terminate all commitments under or in respect of the Senior Credit Facility and all other Senior Indebtedness the terms of which require repayment upon a Change of Control or offer to repay in full all obligations and terminate all commitments under or in respect of the Senior Credit Facility and all such Senior Indebtedness and repay the Indebtedness owed to each such lender who has accepted such offer or (ii) obtain the requisite consents under the Senior Credit Facility and all such other Senior Indebtedness to permit the repurchase of the Exchange Notes as described above. The Company must first comply with the covenant described in the preceding sentence before it shall be required to purchase Exchange Notes in the event of a Change of Control; provided that the Company's failure to comply with the covenant described in the preceding sentence constitutes an Event of Default described in clause (iii) under "--Events of Default" below if not cured within 30 days after the notice required by such clause. As a result of the foregoing, a holder of the Exchange Notes may not be able to compel the Company to purchase the Exchange Notes unless the Company is able at the time to refinance all of the obligations under or in respect of the Senior Credit Facility and all such other Senior Indebtedness or obtain requisite consents under the Senior Credit Facility and all such other Senior Indebtedness. The Indenture will further provide that, (A) if the Company or any Restricted Subsidiary thereof has issued any outstanding (i) Indebtedness that is subordinated in right of payment to the Exchange Notes or (ii) Preferred Stock, and the Company or such Restricted Subsidiary is required to make a change of control offer or to make a distribution with respect to such subordinated Indebtedness or Preferred Stock in the event of a change of control, the Company shall not consummate any such offer or distribution with respect to such subordinated indebtedness or Preferred Stock until such time as the Company shall have paid the Change of Control Purchase Price in full to the holders of Exchange Notes that have accepted the Company's change of control offer and shall otherwise have consummated the change of control offer made to holders of the Exchange Notes and (B) the Company will not issue Indebtedness that is subordinated in right of payment to the Exchange Notes or Preferred Stock with change of control provisions requiring the payment of such Indebtedness or Preferred Stock prior to the payment of the Exchange Notes in the event of a Change in Control under the Indenture. The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of Exchange Notes pursuant to a Change of Control Offer. To the extent that the provisions of any securities laws or regulations conflict with the "Change of Control" provisions of the Indenture, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under the "Change of Control" provisions of the Indenture by virtue thereof. Merger, Consolidation or Sale of Assets The Company will not and will not permit any of its Restricted Subsidiaries to consolidate with, merge with or into, or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its assets (as an entirety or substantially as an entirety in one transaction or a series of related transactions), to any Person unless: (i) the Company or such Restricted Subsidiary, as the case may be, shall be the continuing Person, or the Person (if other than the Company or such Restricted Subsidiary) formed by such consolidation or into which the Company or such Restricted Subsidiary, as the case may be, is merged or to which the properties and assets of the Company or such Restricted Subsidiary, as the case may be, are sold, assigned, transferred, leased, conveyed or otherwise disposed of shall be a corporation organized and existing under the laws of the United States or any state thereof or the District of Columbia and shall expressly assume, by a supplemental indenture, executed and delivered to the Trustee, in form satisfactory to the Trustee, all of the obligations of the Company or such Restricted Subsidiary, as the case may be, under the Indenture, the Exchange Notes and the Guarantees, and the obligations thereunder 85 shall remain in full force and effect; (ii) immediately before and immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing; and (iii) immediately after giving effect to such transaction on a pro forma basis the Company or such Person could incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) under "--Certain Covenants--Limitation on Additional Indebtedness" above; provided that a Person that is a Guarantor may merge into the Company or another Person that is a Guarantor without complying with this clause (iii). In connection with any consolidation, merger or transfer of assets contemplated by this provision, the Company shall deliver, or cause to be delivered, to the Trustee, in form and substance reasonably satisfactory to the Trustee, an Officers' Certificate and an opinion of counsel, each stating that such consolidation, merger or transfer and the supplemental indenture in respect thereto comply with this provision and that all conditions precedent herein provided for relating to such transaction or transactions have been complied with. For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise, in a single transaction or series of transactions) of all or substantially all of the properties or assets of one or more Restricted Subsidiaries of the Company the Capital Stock of which constitutes all or substantially all of the properties and assets of the Company, shall be deemed to be the transfer of all or substantially all of the properties and assets of the Company. In the case of a transfer of assets, upon the assumption of the Company's obligations under the Indenture and the Exchange Notes by the transferee in accordance with the provisions of this covenant, the Company will be released from its obligations thereunder. Guarantees The Exchange Notes will be guaranteed on a senior subordinated basis by the Guarantors. All payments pursuant to the Guarantees by the Guarantors are subordinated in right of payment to the prior payment in full of all Guarantor Senior Indebtedness of each respective Guarantor, to the same extent and in the same manner that all payments pursuant to the Exchange Notes are subordinated in right of payment to the prior payment in full of all Senior Indebtedness of the Company. Notwithstanding any term or provision of the Indenture to the contrary, the maximum aggregate amount of the obligations guaranteed thereunder by any Guarantor will not exceed the maximum amount that can be guaranteed thereunder by such Guarantor without rendering the Guarantee, as it relates to such Guarantor, voidable under applicable law relating to fraudulent conveyance or fraudulent transfer or similar laws affecting the rights of creditors generally. A Guarantor shall be released from all of its obligations under its Guarantee if (i) all of its assets or Capital Stock is sold, in each case in a transaction in compliance with "--Certain Covenants--Limitation on Certain Asset Sales" above, or the Guarantor merges with or into or consolidates with, or transfers all or substantially all of its assets in compliance with "Merger, Consolidation or Sale of Assets" above, and such Guarantor has delivered to the Trustee an Officers' Certificate and an opinion of counsel, each stating that all conditions precedent herein provided for relating to such transaction have been complied with or (ii) all other guarantees in respect of borrowed money made by such Guarantor have been fully released and terminated. Events of Default The following events are defined in the Indenture as "Events of Default": (i) default in payment of any principal of, or premium, if any, on the Exchange Notes whether at maturity, upon redemption or otherwise (whether or not such payment shall be prohibited by the subordination provisions of the Indenture); (ii) default for 30 days in payment of any interest on the Exchange Notes; (iii) default by the Company or any Restricted Subsidiary in the observance or performance of any other covenant in the Exchange Notes or the Indenture for 30 days after written notice from the 86 Trustee or the holders of not less than 25% in aggregate principal amount of the Exchange Notes then outstanding (except in the case of a default with respect to the "Change of Control" or "Merger, Consolidation or Sale of Assets" covenant which shall constitute an Event of Default with such notice requirement but without such passage of time requirement); (iv) failure to pay at final maturity principal, interest or premium in an aggregate amount of $10 million or more with respect to any Indebtedness of the Company or any Restricted Subsidiary thereof (other than the Exchange Notes), or the acceleration of any such Indebtedness aggregating $10 million or more which default shall not be cured, waived or postponed pursuant to an agreement with the holders of such Indebtedness within 60 days after written notice as provided in the Indenture, or such acceleration shall not be rescinded or annulled within 20 days after written notice as provided in the Indenture; (v) any final judgment or judgments which can no longer be appealed for the payment of money in excess of $10 million shall be rendered against the Company or any Restricted Subsidiary thereof, and shall not be discharged for any period of 60 consecutive days during which a stay of enforcement shall not be in effect; and (vi) certain events involving bankruptcy, insolvency or reorganization of the Company or any Material Restricted Subsidiary thereof; and (vii) any of the Guarantees ceases to be in full force and effect or any of the Guarantees of a Material Restricted Subsidiary is declared to be null and void and unenforceable or any of the Guarantees of a Material Restricted Subsidiary is found to be invalid or any of the Guarantors denies its liability under its Guarantee (other than by reason of release of a Guarantor in accordance with the terms of the Indenture). The Indenture provides that the Trustee may withhold notice to the holders of the Exchange Notes of any default (except in payment of principal or premium, if any, or interest on the Exchange Notes) if the Trustee considers it to be in the best interest of the holders of the Exchange Notes to do so. The Indenture will provide that if an Event of Default (other than an Event of Default resulting from certain events of bankruptcy, insolvency or reorganization) shall have occurred and be continuing, then the Trustee or the holders of not less than 25% in aggregate principal amount of the Exchange Notes then outstanding may declare to be immediately due and payable the entire principal amount of all the Exchange Notes then outstanding plus accrued but unpaid interest to the date of acceleration (i) and the same shall become immediately due and payable or (ii) if there are any amounts outstanding under the Senior Credit Facility, shall become immediately due and payable upon the first to occur of an acceleration under the Senior Credit Facility or 5 business days after receipt by the Company and the representative under the Senior Credit Facility of a notice of acceleration; provided, however, that after such acceleration but before a judgment or decree based on acceleration is obtained by the Trustee, the holders of a majority in aggregate principal amount of outstanding Exchange Notes may, under certain circumstances, rescind and annul such acceleration if (i) all Events of Default, other than nonpayment of principal, premium, if any, or interest that has become due solely because of the acceleration, have been cured or waived as provided in the Indenture, (ii) to the extent the payment of such interest is lawful, interest on overdue installments of interest and overdue principal, which has become due otherwise than by such declaration of acceleration, has been paid, (iii) if the Company has paid the Trustee its reasonable compensation and reimbursed the Trustee for its expenses, disbursements and advances and (iv) in the event of the cure or waiver of an Event of Default of the type described in clause (iv) of the above Events of Default, the Trustee shall have received an Officers' Certificate and an opinion of counsel that such Event of Default has been cured or waived. No such rescission shall affect any subsequent Default or impair any right consequent thereto. In case an Event of Default resulting from certain events of bankruptcy, insolvency or reorganization shall occur, the principal, premium and interest amount with respect to all of the Exchange Notes shall be due and payable immediately without any declaration or other act on the part of the Trustee or the holders of the Exchange Notes. The holders of a majority in aggregate principal amount of the Exchange Notes then outstanding shall have the right to waive any existing default or compliance with any provision of the Indenture or the Exchange Notes 87 and to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, subject to certain limitations provided for in the Indenture and under the TIA. No holder of any Exchange Note will have any right to institute any proceeding with respect to the Indenture or for any remedy thereunder, unless such holder shall have previously given to the Trustee written notice of a continuing Event of Default and unless the holders of at least 25% in aggregate principal amount of the outstanding Exchange Notes shall have made written request and offered reasonable indemnity to the Trustee to institute such proceeding as Trustee, and unless the Trustee shall not have received from the holders of a majority in aggregate principal amount of the outstanding Exchange Notes a direction inconsistent with such request and shall have failed to institute such proceeding within 60 days. Notwithstanding the foregoing, such limitations do not apply to a suit instituted on such Exchange Note on or after the respective due dates expressed in such Exchange Note. Defeasance and Covenant Defeasance The Indenture provides that the Company may elect either (a) to defease and be discharged from any and all of its and any Guarantor's obligations with respect to the Exchange Notes (except for the obligations to register the transfer or exchange of such Exchange Notes, to replace temporary or mutilated, destroyed, lost or stolen Exchange Notes, to maintain an office or agency in respect of the Exchange Notes and to hold monies for payment in trust) ("defeasance") or (b) to be released from its obligations with respect to the Exchange Notes under certain covenants contained in the Indenture ("covenant defeasance") upon the deposit with the Trustee (or other qualifying trustee), in trust for such purpose, of money and/or non-callable U.S. government obligations which through the payment of principal and interest in accordance with their terms will provide money, in an amount sufficient to pay the principal of, premium, if any, and interest on the Exchange Notes, on the scheduled due dates therefor or on a selected date of redemption in accordance with the terms of the Indenture. Such a trust may only be established if, among other things, (i) the Company has delivered to the Trustee an opinion of counsel (as specified in the Indenture) (A) to the effect that neither the trust nor the Trustee will be required to register as an investment company under the Investment Company Act of 1940, as amended, and (B) describing either a private ruling concerning the Exchange Notes or a published ruling of the Internal Revenue Service, to the effect that holders of the Exchange Notes or persons in their positions will not recognize income, gain or loss for federal income tax purposes as a result of such deposit, defeasance and discharge and will be subject to federal income tax on the same amount and in the same manner and at the same times, as would have been the case if such deposit, defeasance and discharge had not occurred, (ii) no Default or Event of Default shall have occurred and be continuing on the date of such deposit or insofar as Events of Default from bankruptcy, insolvency or reorganization events are concerned, at any time in the period ending on the 91st day after the date of deposit; (iii) such defeasance or covenant defeasance shall not result in a breach or violation of, or constitute a default under the Indenture, the Senior Credit Facility or any other material agreement or instrument to which the Company or any of its Restricted Subsidiaries is a party or by which the Company or any or its Restricted Subsidiaries is bound; (iv) the Company shall have delivered to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of preferring the holders of the Exchange Notes over any other creditors of the Company or with the intent of defeating, hindering, delaying or defrauding any other creditors of the Company or others; (v) the Company shall have delivered to the Trustee an Officers' Certificate and an opinion of counsel, each stating that all conditions precedent provided for or relating to the defeasance or the covenant defeasance have been complied with; (vi) the Company shall have delivered to the Trustee an opinion of counsel to the effect that (A) the trust funds will not be subject to any rights of holders of Senior Indebtedness, including, without limitation, those arising under the Indenture and (B) after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; and (vii) certain other customary conditions precedent are satisfied. Modification of Indenture From time to time, the Company, the Guarantors and the Trustee may, without the consent of holders of the Exchange Notes, amend or supplement the Indenture for certain specified purposes, including providing for uncertificated Exchange Notes in addition to certificated Exchange Notes, and curing any ambiguity, defect or inconsistency, or making any other change that does not materially and adversely affect the rights of any holder. The Indenture contains provisions permitting the Company, the Guarantors and the Trustee, with the consent of 88 holders of at least a majority in aggregate principal amount of the outstanding Exchange Notes, to modify or supplement the Indenture, except that no such modification shall, without the consent of each holder affected thereby, (i) reduce the amount of Exchange Notes whose holders must consent to an amendment, supplement, or waiver to the Indenture, (ii) reduce the rate of or change the time for payment of interest, including defaulted interest, on any Exchange Note, (iii) reduce the principal of or premium on or change the stated maturity of any Exchange Note or change the date on which any Exchange Notes may be subject to redemption or repurchase or reduce the redemption or repurchase price therefor, (iv) make any Exchange Note payable in money other than that stated in the Exchange Note or change the place of payment from New York, New York, (v) waive a default on the payment of the principal of, interest on, or redemption payment with respect to any Exchange Note, (vi) make any change in provisions of the Indenture protecting the right of each holder of Exchange Notes to receive payment of principal of and interest on such Exchange Note on or after the due date thereof or to bring suit to enforce such payment, or permitting holders of a majority in principal amount of Exchange Notes to waive Defaults or Events of Default; (vii) modify or change any provision of the Indenture or the related definitions affecting the subordination or ranking of the Exchange Notes or any Guarantee in a manner which adversely affects the holders of Exchange Notes; or (viii) release any Guarantor from any of its obligations under its Guarantee or the Indenture otherwise than in accordance with the terms of the Indenture. Reports to Holders So long as the Company is subject to the periodic reporting requirements of the Exchange Act, it will continue to furnish the information required thereby to the Commission and to the holders of the Exchange Notes. The Indenture provides that even if the Company is entitled under the Exchange Act not to furnish such information to the Commission or to the holders of the Exchange Notes, it will nonetheless continue to furnish such information to the Commission (to the extent permitted by the Commission) and holders of the Exchange Notes. Compliance Certificate The Company will deliver to the Trustee on or before 90 days after the end of the Company's fiscal year and on or before 45 days after the end of each of the first, second and third fiscal quarters in each year an Officers' Certificate stating whether or not the signers know of any Default or Event of Default that has occurred. If they do, the certificate will describe the Default or Event of Default, its status and the intended method of cure, if any. The Trustee The Trustee under the Indenture initially will be the Registrar and Paying Agent with regard to the Exchange Notes. The Indenture provides that, except during the continuance of an Event of Default, the Trustee will perform only such duties as are specifically set forth in the Indenture. During the existence of an Event of Default, the Trustee will exercise such rights and powers vested in it under the Indenture and use the same degree of care and skill in its exercise as a prudent person would exercise under the circumstances in the conduct of such person's own affairs. Transfer and Exchange Holders of the Exchange Notes may transfer or exchange Exchange Notes in accordance with the Indenture. The Registrar under such Indenture may require a holder, among other things, to furnish appropriate endorsements and transfer documents, and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar is not required to transfer or exchange any Exchange Note selected for redemption and, further, is not required to transfer or exchange any Exchange Note for a period of 15 days before selection of the Exchange Notes to be redeemed. The registered holder of a Exchange Note may be treated as the owner of it for all purposes. 89 Additional Information Anyone who receives this Prospectus may obtain a copy of the Indenture without charge from the Company. Certain Definitions Set forth below is a summary of certain of the defined terms used in the Indenture. Reference is made to the Indenture for the full definition of all such terms as well as any other capitalized terms used herein for which no definition is provided. "Acquired Indebtedness" means Indebtedness of a Person (including an Unrestricted Subsidiary) existing at the time such Person becomes a Restricted Subsidiary or is merged into or consolidated with any other Person or which is assumed in connection with the acquisition of assets from such Person and, in each case, not incurred by such Person in connection with, or in anticipation or contemplation of, such Person becoming a Restricted Subsidiary or such merger, consolidation or acquisition. "Adjusted Net Assets" of any Person at any date shall mean the lesser of the amount by which (x) the fair value of the property of such Person exceeds the total amount of liabilities, including, without limitation, contingent liabilities (after giving effect to all other fixed and contingent liabilities), but excluding liabilities under the Guarantee of such Person at such date and (y) the present fair salable value of the assets of such Person at such date exceeds the amount that will be required to pay the probable liability of such Person on its debts (after giving effect to all other fixed and contingent liabilities and after giving effect to any collection from any Subsidiary of such Person in respect of the obligations of such Person under the Guarantee of such Person), excluding Indebtedness in respect of the Guarantee of such Person, as they become absolute and matured. "Affiliate" means, with respect to any specific Person, any other Person that directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, such specified Person. For the purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by," and "under common control with"), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided that, for purposes of the covenant described under "-- Certain Covenants--Limitation on Transactions with Affiliates" beneficial ownership of at least 10% of the voting securities of a Person, either directly or indirectly, shall be deemed to be control. "Asset Acquisition" means (a) an Investment by the Company or any Restricted Subsidiary of the Company in any other Person pursuant to which such Person shall become a Restricted Subsidiary of the Company or any Restricted Subsidiary of the Company, or shall be merged with or into the Company or any Restricted Subsidiary of the Company or (b) the acquisition by the Company or any Restricted Subsidiary of the Company of the assets of any Person (other than a Restricted Subsidiary of the Company) which constitute all or substantially all of the assets of such Person or comprise any division or line of business of such Person or any other properties or assets of such Person other than in the ordinary course of business. "Asset Sale" means the sale, transfer, assignment, conveyance or other disposition in any single transaction or series of related transactions of (i) any Capital Stock of or other equity interest in any Restricted Subsidiary of the Company, (ii) all or substantially all of the assets of any business owned by the Company or any Restricted Subsidiary thereof, or a division, line of business or comparable business segment of the Company or any Restricted Subsidiary or (iii) any other asset or property of the Company or any Restricted Subsidiary other than in the ordinary course of business; provided that Asset Sale shall not include (a) any sale, assignment, conveyance, transfer or other disposition (1) to the Company or to a Restricted Subsidiary or to any other Person if after giving effect thereto such other Person becomes a Wholly Owned Subsidiary or (2) by the Company or a Restricted Subsidiary to any Person as an Investment in such Person provided that the Company or such Restricted Subsidiary receives consideration at the time at least equal to the fair market value of such asset or properties and such Investment is included in clause (viii) of the second paragraph of "Limitation on Restricted Payments"; (b) Sale and Lease-Back Transactions completed within 270 days following the original acquisition of the subject assets where the original 90 acquisition occurred after the date of the Indenture; (c) the disposition of all or substantially all of the assets of the Company on a consolidated basis in a manner permitted pursuant to the provisions described under "Consolidation, Merger and Sale of Assets"; or (d) sales or dispositions of obsolete equipment or other assets in the ordinary course of business. "Asset Sale Proceeds" means, with respect to any Asset Sale, (i) cash received by the Company or any Restricted Subsidiary of the Company from such Asset Sale (including cash received as consideration for the assumption of liabilities incurred in connection with or in anticipation of such Asset Sale), after (a) provision for all income or other taxes measured by or resulting from such Asset Sale, (b) payment of all brokerage commissions, underwriting and other fees and expenses related to such Asset Sale, (c) provision for minority interest holders in any Restricted Subsidiary of the Company as a result of such Asset Sale, (d) repayment of Indebtedness that is required to be repaid in connection with such Asset Sale and (e) deduction of appropriate amounts to be provided by the Company or a Restricted Subsidiary of the Company as a reserve, in accordance with GAAP, against any liabilities associated with the assets sold or disposed of in such Asset Sale and retained by the Company or a Restricted Subsidiary after such Asset Sale, including, without limitation, pension and other post-employment benefit liabilities and liabilities related to environmental matters or against any indemnification obligations associated with the assets sold or disposed of in such Asset Sale, and (ii) promissory notes and other noncash consideration received by the Company or any Restricted Subsidiary of the Company from such Asset Sale or other disposition upon the liquidation or conversion of such notes or noncash consideration into cash. "Attributable Indebtedness" means, in respect of a Sale and Lease-Back Transaction, as of the time of determination, the present value (discounted according to GAAP at the cost of indebtedness implied in the lease) of the total obligations of the lessee for rental payments during the remaining term of the lease included in such Sale and Lease-Back Transaction (including any period for which such lease has been extended). "Available Asset Sale Proceeds" means, with respect to any Asset Sale, the aggregate Asset Sale Proceeds from such Asset Sale that have not been applied in accordance with clauses (iii)(a) or (iii)(b), and which have not yet been the basis for an Excess Proceeds Offer in accordance with clause (iii)(c) of the first paragraph of "Certain Covenants--Limitation on Certain Asset Sales." "Capital Stock" means, with respect to any Person, any and all shares, interests, participations or other equivalents (however designated and whether or not voting) of corporate stock, partnership interests or any other participation, right or other interest in the nature of an equity interest in such Person including, without limitation, Common Stock and Preferred Stock of such Person, or any option, warrant or other security convertible into any of the foregoing. "Capitalized Lease Obligations" means, with respect to any Person, Indebtedness represented by obligations under a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP, and the amount of such Indebtedness shall be the capitalized amount of such obligations determined in accordance with GAAP. "Cash Equivalents" means (i) marketable direct obligations issued by, or unconditionally guaranteed by, the United States Government or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within one year from the date of acquisition thereof; (ii) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within one year from the date of acquisition thereof and, at the time of acquisition, having one of the two highest ratings obtainable from either Standard & Poor's Corporation ("S&P") or Moody's Investors Service, Inc. ("Moody's"); (iii) commercial paper maturing no more than one year from the date of creation thereof and, at the time of acquisition, having a rating of at least A-1 from S&P or at least P-1 from Moody's; (iv) certificates of deposit or bankers' acceptances maturing within one year from the date of acquisition thereof issued by any bank organized under the laws of the United States of America or any state thereof or the District of Columbia or any U.S. branch of a foreign bank having at the date of acquisition thereof combined capital and surplus of not less than $250,000,000; (v) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clause (i) above entered into with any bank meeting the qualifications 91 specified in clause (iv) above; and (vi) investments in money market funds which invest substantially all their assets in securities of the types described in clauses (i) through (v) above. A "Change of Control" of the Company will be deemed to have occurred at such time as (i) any Person (including a Person's Affiliates and associates), other than a Permitted Holder, becomes the beneficial owner (as defined under Rule 13d-3 or any successor rule or regulation promulgated under the Exchange Act) of 50% or more of the total voting or economic power of the Company's Common Stock, (ii) any Person (including a Person's Affiliates and associates), other than a Permitted Holder, becomes the beneficial owner of more than 33-1/3% of the total voting power of the Company's Common Stock, and the Permitted Holders beneficially own, in the aggregate, a lesser percentage of the total voting power of the Common Stock of the Company than such other Person and do not have the right or ability by voting power, contract or otherwise to elect or designate for election a majority of the Board of Directors of the Company, (iii) there shall be consummated any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which the Common Stock of the Company would be converted into cash, securities or other property, other than a merger or consolidation of the Company in which the holders of the Common Stock of the Company outstanding immediately prior to the consolidation or merger hold, directly or indirectly, at least a majority of the Common Stock of the surviving corporation immediately after such consolidation or merger, or (iv) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors of the Company (together with any new directors whose election by such Board of Directors or whose nomination for election by the shareholders of the Company has been approved by 66-2/3% of the directors then still in office who either were directors at the beginning of such period or whose election or recommendation for election was previously so approved) cease to constitute a majority of the Board of Directors of the Company. "Common Stock" of any Person means all Capital Stock of such Person that is generally entitled to (i) vote in the election of directors of such Person or (ii) if such Person is not a corporation, vote or otherwise participate in the selection of the governing body, partners, managers or others that will control the management and policies of such Person. "Consolidated Fixed Charge Coverage Ratio" means, with respect to any Person, the ratio of EBITDA of such Person during the four full fiscal quarters (the "Four Quarter Period") for which financial information is available ending on or prior to the date of the transaction giving rise to the need to calculate the Consolidated Fixed Charge Coverage Ratio (the "Transaction Date") to Consolidated Fixed Charges of such Person for the Four Quarter Period. In addition to and without limitation of the foregoing, for purposes of this definition, "Consolidated EBITDA" and "Consolidated Fixed Charges" shall be calculated after giving effect on a pro forma basis for the period of such calculation to (i) the incurrence or repayment of any Indebtedness of such Person or any of its Restricted Subsidiaries (and the application of the proceeds thereof) giving rise to the need to make such calculation and any incurrence or repayment of other Indebtedness (and the application of the proceeds thereof), other than the incurrence or repayment of Indebtedness in the ordinary course of business for working capital purposes pursuant to working capital facilities, occurring during the Four Quarter Period or at any time subsequent to the last day of the Four Quarter Period and on or prior to the Transaction Date, as if such incurrence or repayment, as the case may be (and the application of the proceeds thereof), occurred on the first day of the Four Quarter Period and (ii) any Asset Sales or Asset Acquisitions (including, without limitation, any Asset Acquisition giving rise to the need to make such calculation as a result of such Person or one of its Restricted Subsidiaries (including any Person who becomes a Restricted Subsidiary as a result of the Asset Acquisition) incurring, assuming or otherwise being liable for Acquired Indebtedness) and also including any EBITDA (provided that such EBITDA shall be included only to the extent includable pursuant to the definition of "Consolidated Net Income") attributable to the assets which are the subject of the Asset Acquisition or Asset Sale during the Four Quarter Period) occurring during the Four Quarter Period or at any time subsequent to the last day of the Four Quarter Period and on or prior to the Transaction Date, as if such Asset Sale or Asset Acquisition (including the incurrence, assumption or liability for any such Acquired Indebtedness) occurred on the first day of the Four Quarter Period. If such Person or any of its Restricted Subsidiaries directly or indirectly guarantees Indebtedness of a third Person, the preceding sentence shall give effect to the incurrence of such guaranteed Indebtedness as if such Person or any Restricted Subsidiary of such Person had directly incurred or otherwise assumed such guaranteed Indebtedness. Furthermore, in calculating "Consolidated Fixed Charges" for purposes of determining the denominator (but not the numerator) of this "Consolidated Fixed Charge Coverage Ratio," (1) interest on outstanding Indebtedness determined on a fluctuating basis as of the 92 Transaction Date and which will continue to be so determined thereafter shall be deemed to have accrued at a fixed rate per annum equal to the rate of interest on such Indebtedness in effect on the Transaction Date; (2) if interest on any Indebtedness actually incurred on the Transaction Date may optionally be determined at an interest rate based upon a factor of a prime or similar rate, a eurocurrency interbank offered rate, or other rates, then the interest rate in effect on the Transaction Date will be deemed to have been in effect during the Four Quarter Period; and (3) notwithstanding clause (1) above, interest on Indebtedness determined on a fluctuating basis, to the extent such interest is covered by one or more Interest Rate Agreements, shall be deemed to accrue at the rate per annum resulting after giving effect to the operation of such agreements. "Consolidated Fixed Charges" means, with respect to any Person, for any period, the sum, without duplication, of (i) Consolidated Interest Expense, plus (ii) the product of (x) the amount of all dividend payments on any series of Preferred Stock of such Person (other than dividends paid in Capital Stock (other the Disqualified Capital Stock)) paid, accrued or scheduled to be paid or accrued during such period times (y) a fraction, the numerator of which is one and the denominator of which is one minus the then current effective consolidated federal, state and local tax rate of such Person, expressed as a decimal. "Consolidated Interest Expense" means, with respect to any Person, for any period, the aggregate amount of interest which, in conformity with GAAP, would be set forth opposite the caption "interest expense" or any like caption on an income statement for such Person and its Restricted Subsidiaries on a consolidated basis (including, but not limited to (i) imputed interest included in Capitalized Lease Obligations, (ii) all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing, (iii) the net costs associated with Interest Rate Agreements and other hedging obligations to the extent treated as interest expense under GAAP, (iv) the interest portion of any deferred payment obligation, (v) amortization of discount or premium, if any, and (vi) all other non-cash interest expense (other than interest amortized to cost of sales)) plus, without duplication, all net capitalized interest for such period and all interest incurred or paid under any guarantee of Indebtedness (including a guarantee of principal, interest or any combination thereof) of any Person, plus the amount of all dividends or distributions paid on Disqualified Capital Stock (other than dividends paid or payable in shares of Capital Stock of the Company) but excluding amortization of financing fees and expenses. "Consolidated Net Income" means, with respect to any Person, for any period, the aggregate of the Net Income of such Person and its Restricted Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided, however, that (a) the Net Income of any Person (the "other Person") in which the Person in question or any of its Restricted Subsidiaries has less than a 100% interest (which interest does not cause the Net Income of such other Person to be consolidated into the Net Income of the Person in question in accordance with GAAP) shall be included only to the extent of the amount of dividends or distributions paid to the Person in question or the Restricted Subsidiary, (b) the Net Income of any Restricted Subsidiary of the Person in question that is subject to any consensual restriction or limitation on the payment of dividends or the making of other distributions shall be excluded to the extent of such restriction or limitation, (c)(i) the Net Income of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition and (ii) any net gain or loss resulting from an Asset Sale by the Person in question or any of its Restricted Subsidiaries other than in the ordinary course of business shall be excluded, (d) extraordinary gains and losses shall be excluded, (e) income or loss attributable to discontinued operations (including, without limitation, operations disposed of during such period whether or not such operations were classified as discontinued) shall be excluded, (f) in the case of a successor to the referent Person by consolidation or merger or as a transferee of the referent Person's assets, any earnings of the successor corporation prior to such consolidation, merger or transfer of assets shall be excluded, (g) any non- recurring non-cash losses and charges shall be excluded, (h) for purposes of calculations referred to under "Limitation on Restricted Payments" only, any net income attributable to payments or dividends received by the Company or any Restricted Subsidiary that offset the amount of Investments made in reliance on clause (ii) of the definition of "Net Investments" shall be excluded, and (i) for purposes of clauses (c)(ii), (d) and (g) only, the associated tax effects in respect of such period shall be excluded. "Consolidated Total Tangible Assets" means, with respect to any Person, the total assets as would appear on a consolidated balance sheet of such person minus unamortized deferred charges, goodwill, patents, trademarks, service marks, trade names, copyrights and all other items which would be treated as intangibles on the consolidated balance sheet of the Company and its Subsidiaries prepared in accordance with GAAP. 93 "Currency Agreement" means, for any Person, any foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protect such Person against fluctuations in currency values. "Designated Senior Indebtedness," as to the Company or any Guarantor, as the case may be, means any Senior Indebtedness or Guarantor Senior Indebtedness, as the case may be, under (i) the Senior Credit Facility and (ii) any other Indebtedness in an original principal amount (or committed availability) of at least $25 million if the instrument governing the same expressly provides that such Indebtedness is "Designated Senior Indebtedness" for purposes of the Indenture. "Disqualified Capital Stock" means any Capital Stock of a Person or a Restricted Subsidiary thereof which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable at the option of the holder), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the option of the holder thereof, in whole or in part, on or prior to the maturity date of the Exchange Notes, for cash or securities constituting Indebtedness. Without limitation of the foregoing, Disqualified Capital Stock shall be deemed to include any Preferred Stock of a Person or a Restricted Subsidiary of such Person, with respect to either of which, under the terms of such Preferred Stock, by agreement or otherwise, such Person or Restricted Subsidiary is obligated to pay current dividends or distributions in cash during the period prior to the maturity date of the Exchange Notes; provided, however, that Preferred Stock of a Person or any Restricted Subsidiary thereof that is issued with the benefit of provisions requiring a change of control offer to be made for such Preferred Stock in the event of a change of control of such Person or Restricted Subsidiary which provisions have substantially the same effect as the provisions of the Indenture described under "Change of Control," shall not be deemed to be Disqualified Capital Stock solely by virtue of such provisions. "EBITDA" means, with respect to any Person and its Restricted Subsidiaries, for any period, an amount equal to (a) the sum of (i) Consolidated Net Income for such period, plus (ii) the provision for taxes for such period based on income or profits to the extent such income or profits were included in computing Consolidated Net Income and any provision for taxes utilized in computing net loss under clause (i) hereof, plus (iii) Consolidated Interest Expense for such period (but only including Redeemable Dividends in the calculation of such Consolidated Interest Expense to the extent that such Redeemable Dividends have not been excluded in the calculation of Consolidated Net Income), plus (iv) depreciation for such period on a consolidated basis, plus (v) amortization of intangibles for such period on a consolidated basis, plus (vi) any other non-cash items reducing Consolidated Net Income for such period, minus (b) all non-cash items increasing Consolidated Net Income for such period, all for such Person and its Restricted Subsidiaries determined on a consolidated basis in accordance with GAAP; and provided, however, that, for purposes of calculating EBITDA during any fiscal quarter, cash income from a particular Investment of such Person shall be included only (x) if cash income has been received by such Person with respect to such Investment during each of the previous four fiscal quarters, or (y) if the cash income derived from such Investment is attributable to Cash Equivalents. "Exchange Act" means the Securities Exchange Act of 1934, as amended and the rules and regulations of the Commission promulgated thereunder. "fair market value" means, with respect to any asset or property, the price which could be negotiated in an arm's-length, for cash, between a willing seller and a willing and able buyer, neither of whom is under undue pressure or compulsion to complete the transaction. Fair market value shall be determined by the Board of Directors of the Company acting reasonably and in good faith and shall be evidenced by a resolution of the Board of Directors of the Company delivered to the Trustee. "GAAP" means generally accepted accounting principles consistently applied as in effect in the United States from time to time, except that, for purposes of calculating financial ratios, GAAP shall mean generally accepted accounting principles utilized by the Company as of the Issue Date. "incur" means, with respect to any Indebtedness or other obligation of any Person, to create, issue, incur (by conversion, exchange or otherwise), assume, guarantee or otherwise become liable in respect of such Indebtedness or other obligation or the recording, as required pursuant to GAAP or otherwise, of any such Indebtedness or other obligation on the balance sheet of such Person (and "incurrence," "incurred," "incurable," 94 and "incurring" shall have meanings correlative to the foregoing); provided that a change in GAAP that results in an obligation of such Person that exists at such time becoming Indebtedness shall not be deemed an incurrence of such Indebtedness. "Indebtedness" means (without duplication), with respect to any Person, any obligation at any time outstanding, secured or unsecured, contingent or otherwise, which is for borrowed money (whether or not the recourse of the lender is to the whole of the assets of such Person or only to a portion thereof), or evidenced by bonds, notes, debentures or similar instruments or representing the balance deferred and unpaid of the purchase price of any property (excluding, without limitation, any balances that constitute accounts payable or trade payables, and other accrued liabilities arising in the ordinary course of business) if and to the extent any of the foregoing indebtedness would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP, and shall also include, to the extent not otherwise included (i) any Capitalized Lease Obligations (excluding any imputed interest included therein) of such Person, (ii) obligations secured by a lien to which the property or assets owned or held by such Person is subject, whether or not the obligation or obligations secured thereby shall have been assumed, to the extent of the fair market value of such property or assets, (iii) guarantees of items of other Persons which would be included within this definition for such other Persons (whether or not such items would appear upon the balance sheet of the Guarantor), to the extent of the amount of the Indebtedness so guaranteed, (iv) all obligations for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction, (v) Disqualified Capital Stock of such Person or any Restricted Subsidiary thereof, and (vi) obligations of any such Person under any Currency Agreement or any Interest Rate Agreement applicable to any of the foregoing (if and to the extent such Currency Agreement or Interest Rate Agreement obligations would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP). The amount of Indebtedness of any Person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and, with respect to contingent obligations, the maximum liability upon the occurrence of the contingency giving rise to the obligation; provided that (i) the amount outstanding at any time of any Indebtedness issued with original issue discount is the principal amount of such Indebtedness less the remaining unamortized portion of the original issue discount of such Indebtedness at such time as determined in conformity with GAAP and (ii) Indebtedness shall not include any liability for federal, state, local or other taxes. Notwithstanding any other provision of the foregoing definition, any trade payable arising from the purchase of goods or materials or for services obtained in the ordinary course of business shall not be deemed to be "Indebtedness" of the Company or any of its Restricted Subsidiaries for purposes of this definition. Furthermore, guarantees of (or obligations with respect to letters of credit supporting) Indebtedness otherwise included in the determination of such amount shall not also be included. "Independent Financial Advisor" means an investment banking firm of national reputation in the United States (i) which does not, and whose directors, officers and employees or Affiliates do not, have a direct or indirect financial interest in the Company and (ii) which, in the judgment of the Board of Directors of the Company, is otherwise independent and qualified to perform the task for which it is to be engaged. "Interest Rate Agreement" means, with respect to any Person, any interest rate swap agreement, interest rate cap agreement, interest rate collar agreement or other similar agreement designed to protect the party indicated therein against fluctuations in interest rates. "Investments" means, with respect of any Person, directly or indirectly, any advance, account receivable (other than an account receivable arising in the ordinary course of business of such Person), loan or capital contribution to (by means of transfers of property to others, payments for property or services for the account or use of others or otherwise), the purchase of any Capital Stock, bonds, notes, debentures, partnership or joint venture interests or other securities of, the acquisition, by purchase or otherwise, of all or substantially all of the business or assets or stock or other evidence of beneficial ownership of, any Person or the making of any investment in any Person. Investments shall exclude (i) extensions of trade credit on commercially reasonable terms in accordance with normal trade practices of such Person and (ii) the repurchase of securities of any Person by such Person. For the purposes of the "Limitation on Restricted Payments" covenant, (i) "Investment" shall include and be valued at the fair market value of the net assets of any Restricted Subsidiary at the time that such Restricted Subsidiary is designated an Unrestricted Subsidiary and shall exclude the fair market value of the net assets of any Unrestricted Subsidiary at the time that such Unrestricted Subsidiary is designated a Restricted Subsidiary and (ii) the amount 95 of any Investment shall be the original cost of such Investment plus the cost of all additional Investments by the Company or any of its Restricted Subsidiaries, without any adjustments for increases or decreases in value, or write-ups, write-downs or write-offs with respect to such Investment, reduced by the payment of dividends or distributions in connection with such Investment or any other amounts received in respect of such Investment; provided that no such payment of dividends or distributions or receipt of any such other amounts shall reduce the amount of any Investment if such payment of dividends or distributions or receipt of any such amounts would be included in Consolidated Net Income. If the Company or any Restricted Subsidiary of the Company sells or otherwise disposes of any Common Stock of any direct or indirect Restricted Subsidiary of the Company such that, after giving effect to any such sale or disposition, the Company no longer owns, directly or indirectly, greater than 50% of the outstanding Common Stock of such Restricted Subsidiary, the Company shall be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of the Common Stock of such Restricted Subsidiary not sold or disposed of. "Issue Date" means the date the Exchange Notes are first issued by the Company and authenticated by the Trustee under the Indenture. "Lien" means, with respect to any property or assets of any Person, any mortgage or deed of trust, pledge, hypothecation, assignment, deposit arrangement, security interest, lien, charge, easement, encumbrance, preference, priority, or other security agreement or preferential arrangement of any kind or nature whatsoever on or with respect to such property or assets (including without limitation, any Capitalized Lease Obligation, conditional sales, or other title retention agreement having substantially the same economic effect as any of the foregoing). "Material Restricted Subsidiary" means a Restricted Subsidiary that, as of the end of the most recent fiscal quarter accounted for 10% or more of the Company's consolidated (i) total assets, (ii) shareholders' equity or (iii) operating income (calculated for the four most recent fiscal quarters), determined in each case in accordance with GAAP. "Net Cash Proceeds" means the aggregate amount of U.S. Legal Tender and Cash Equivalents received by a Person from the sale of Capital Stock, after payment of expenses, commissions and the like incurred in connection therewith. "Net Income" means, with respect to any Person, for any period, the net income (loss) of such Person determined in accordance with GAAP. "Net Investment" means the excess of (i) the aggregate amount of all Investments in Unrestricted Subsidiaries or joint ventures made by the Company or any Restricted Subsidiary on or after the Issue Date (in the case of an Investment made other than in cash, the amount shall be the fair market value of such Investment as determined in good faith by the Board of Directors of the Company or such Restricted Subsidiary) over (ii) the sum of (a) the aggregate amount returned in cash on or with respect to such Investments whether through interest payments, principal payments, dividends or other distributions or payments and (b) the Net Cash Proceeds received by the Company or any Restricted Subsidiary or joint venture from the disposition of all or any portion of such Investments (other than to a Subsidiary of the Company); provided, however, that with respect to all Investments made in any Unrestricted Subsidiary or joint venture the sum of clauses (a) and (b) above with respect to such Investments shall not exceed the aggregate amount of all such Investments made in such Unrestricted Subsidiary. "Net Proceeds" means (a) in the case of any sale of Capital Stock by or equity contribution to any Person, the aggregate net proceeds received by such Person, after payment of expenses, commissions and the like incurred in connection therewith, whether such proceeds are in cash or in property (valued at the fair market value thereof, as determined in good faith by the Board of Directors of such Person, at the time of receipt) and (b) in the case of any exchange, exercise, conversion or surrender of outstanding securities of any kind for or into shares of Capital Stock of the Company which is not Disqualified Capital Stock, the net book value or principal amount of such outstanding securities on the date of such exchange, exercise, conversion or surrender (plus any additional amount required to be paid by the holder to such Person upon such exchange, exercise, conversion or surrender, less any and all payments made to the holders, e.g., on account of fractional shares and less all expenses incurred by such Person in connection therewith). 96 "Non-Payment Event of Default" means any event (other than a Payment Default) the occurrence of which entitles one or more Persons to accelerate the maturity of any Designated Senior Indebtedness. "Officers' Certificate" means, with respect to any Person, a certificate signed by the Chief Executive Officer, the President or any Vice President and the Chief Financial Officer or any Treasurer of such Person that shall comply with applicable provisions of the Indenture. "Payment Default" means any default, whether or not any requirement for the giving of notice, the lapse of time or both, or any other condition to such default becoming an event of default has occurred, in the payment of principal of or premium, if any, or interest on or any other amount payable in connection with Designated Senior Indebtedness. "Permitted Asset Swap" means any transfer of properties or assets by the Company or any of its Restricted Subsidiaries in which 80% of the consideration received by the transferor consists of properties or assets (other than cash) that will be used in the business of the transferor; provided, that (i) the aggregate fair market value (as determined in good faith by the Board of Directors of the Company) of the property or assets (including cash) being transferred by the Company or such Restricted Subsidiary is not greater than the aggregate fair market value (as determined in good faith by the Board of Directors of the Company), of the property or assets (including cash) received by the Company or such Restricted Subsidiary in such exchange and (ii) the aggregate fair market value (as determined in good faith by the Board of Directors of the Company) of all property or assets transferred by the Company and any of its Restricted Subsidiaries in connection with exchanges in any period of twelve consecutive months shall not exceed $20 million. "Permitted Holders" shall mean any member of senior management of the Company, Freeman Spogli & Co. Incorporated or Chase Manhattan Capital, L.P., and any successor entity thereof controlled by the principals of Freeman Spogli & Co. Incorporated or Chase Manhattan Capital, L.P., as the case may be and any entity controlled by either of them (other than any of their portfolio companies). "Permitted Indebtedness" means: (i) Indebtedness of the Company or any Restricted Subsidiary arising under or in connection with the Senior Credit Facility in an aggregate principal amount not to exceed (x) $50 million outstanding at any time under an acquisition facility plus (y) the greater of (A) $45 million or (B) an amount equal to the product of 4.0% times the Company's consolidated total revenues for the four full fiscal quarters for which financial information is available ended immediately preceding the date of determination, determined in accordance with GAAP, under a revolving credit and letter of credit facility less, in the case of (x) or (y), any mandatory prepayment actually made thereunder (to the extent, in the case of payments of revolving credit borrowings, that the corresponding commitments have been permanently reduced) or scheduled payments actually made thereunder; (ii) Indebtedness under the Exchange Notes and the Guarantees; (iii) Indebtedness not covered by any other clause of this definition which is outstanding on the Issue Date; (iv) Indebtedness of the Company to any Wholly Owned Subsidiary and Indebtedness of any Wholly Owned Subsidiary to the Company or another Wholly Owned Subsidiary; (v) Purchase Money Indebtedness and Capitalized Lease Obligations incurred to finance the acquisition, construction, improvement or remodeling of property or assets in the ordinary course of business, which Purchase Money Indebtedness and Capitalized Lease Obligations do not in the aggregate exceed 10% of the Company's Consolidated Total Tangible Assets at any time; (vi) Interest Rate Agreements and Currency Agreements; 97 (vii) Refinancing Indebtedness; (viii) Indebtedness under the Senior Notes; and (ix) additional Indebtedness of the Company and its Restricted Subsidiaries not to exceed $15 million in aggregate principal amount at any one time outstanding. "Permitted Investments" means Investments made on or after the Issue Date consisting of: (i) Investments by the Company, or by a Restricted Subsidiary thereof, in the Company or a Restricted Subsidiary; (ii) Investments by the Company, or by a Restricted Subsidiary thereof, in a Person, if as a result of such Investment (a) such Person becomes a Restricted Subsidiary of the Company or (b) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company or a Restricted Subsidiary thereof; (iii) Investments in cash and Cash Equivalents; (iv) reasonable and customary loans made to employees not to exceed $1 million in the aggregate at any one time outstanding; (v) an Investment that is made by the Company or a Restricted Subsidiary thereof in the form of any Capital Stock, bonds, notes, debentures, partnership or joint venture interests or other securities that are issued by a third party to the Company or such Restricted Subsidiary solely as partial consideration for the consummation of an Asset Sale that is otherwise permitted under "--Certain Covenants--Limitation on Certain Asset Sales" above; (vi) Interest Rate Agreements and Currency Agreements entered into in the ordinary course of the Company's or its Restricted Subsidiaries business; and (vii) recourse loans of up to an aggregate of $2 million outstanding at any time to employees of the Company or its Subsidiaries made in connection with the purchase of Capital Stock of the Company (other than Disqualified Capital Stock). "Permitted Liens" means (i) Liens on property or assets of, or any shares of Capital Stock of or secured indebtedness of, any corporation existing at the time such corporation becomes a Restricted Subsidiary of the Company or at the time such corporation is merged into the Company or any of its Restricted Subsidiaries; provided that such Liens are not incurred in connection with, or in contemplation of, such corporation becoming a Restricted Subsidiary of the Company or merging into the Company or any of its Restricted Subsidiaries, (ii) Liens securing Refinancing Indebtedness; provided that any such Lien does not extend to or cover any Property, Capital Stock or Indebtedness other than the Property, shares or debt securing the Indebtedness so refunded, refinanced or extended, (iii) Liens in favor of the Company or any of its Restricted Subsidiaries, (iv) Liens securing industrial revenue bonds, (v) Liens to secure Purchase Money Indebtedness that is otherwise permitted under the Indenture; provided that (a) any such Lien is created solely for the purpose of securing Indebtedness representing, or incurred to finance, refinance or refund, the cost (including sales and excise taxes, installation and delivery charges and other direct costs of, and other direct expenses paid or charged in connection with, such purchase or construction) of such Property, (b) the principal amount of the Indebtedness secured by such Lien does not exceed 100% of such costs, and (c) such Lien does not extend to or cover any Property other than such item of Property and any improvements on such item, (vi) statutory liens or landlords', carriers', warehouseman's, mechanics', suppliers', materialmen's, repairmen's or other like Liens arising in the ordinary course of business which do not secure any Indebtedness and with respect to amounts not yet delinquent or being contested in good faith by appropriate proceedings, if a reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made therefor, (vii) other Liens securing obligations incurred in the ordinary course of business which obligations do not exceed $5.0 million in the aggregate at any one time outstanding, (viii) any extensions, substitutions, replacements or renewals 98 of the foregoing, (ix) Liens for taxes, assessments or governmental charges that are not due or are being contested in good faith by appropriate proceedings and (x) Liens securing Capitalized Lease Obligations permitted to be incurred under clause (v) of the definition of "Permitted Indebtedness"; provided that such Lien does not extend to any property other than that subject to the underlying lease. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government (including any agency or political subdivision thereof). "Preferred Stock" means any Capital Stock of a Person, however designated, which entitles the holder thereof to a preference with respect to dividends, distributions or liquidation proceeds of such Person over the holders of other Capital Stock issued by such Person. "Property" of any Person means all types of real, personal, tangible, intangible or mixed property owned by such Person whether or not included in the most recent consolidated balance sheet of such Person and its Subsidiaries under GAAP. "Public Equity Offering" means a public offering by the Company of shares of its Common Stock (however designated and whether voting or non-voting) and any and all rights, warrants or options to acquire such Common Stock. "Purchase Money Indebtedness" means any Indebtedness incurred in the ordinary course of business by a Person to finance the cost (including the cost of construction, improvement or remodeling) of an asset or property, provided, that (x) the principal amount of such Indebtedness does not exceed the sum of (i) 100% of such cost and (ii) reasonable fees and expenses of such Person incurred in connection therewith and (y) any lien or encumbrance securing such Indebtedness is placed on such asset or property not more than 270 days after its acquisition or the completion of construction, improvement or remodeling, as the case may be. "Redeemable Dividend" means, for any dividend or distribution with regard to Disqualified Capital Stock, the quotient of the dividend or distribution divided by the difference between one and the maximum statutory federal income tax rate (expressed as a decimal number between 1 and 0) then applicable to the issuer of such Disqualified Capital Stock. "Refinancing Indebtedness" means Indebtedness that refunds, refinances or extends any Indebtedness of the Company outstanding on the Issue Date or other Indebtedness permitted to be incurred by the Company or its Restricted Subsidiaries pursuant to the terms of the Indenture, but only to the extent that (i) the Refinancing Indebtedness is subordinated to the Exchange Notes to at least the same extent as the Indebtedness being refunded, refinanced or extended, if at all, (ii) the Refinancing Indebtedness is scheduled to mature either (a) no earlier than the Indebtedness being refunded, refinanced or extended, or (b) after the maturity date of the Exchange Notes, (iii) the portion, if any, of the Refinancing Indebtedness that is scheduled to mature on or prior to the maturity date of the Exchange Notes has a weighted average life to maturity at the time such Refinancing Indebtedness is incurred that is equal to or greater than the weighted average life to maturity of the portion of the Indebtedness being refunded, refinanced or extended that is scheduled to mature on or prior to the maturity date of the Exchange Notes, (iv) such Refinancing Indebtedness is in an aggregate principal amount that is equal to or less than the sum of (a) the aggregate principal amount then outstanding under the Indebtedness being refunded, refinanced or extended, (b) the amount of accrued and unpaid interest, if any, and premiums owed, if any, not in excess of preexisting prepayment provisions on such Indebtedness being refunded, refinanced or extended and (c) the amount of customary fees, expenses and costs related to the incurrence of such Refinancing Indebtedness, and (v) such Refinancing Indebtedness is incurred by the same Person that initially incurred the Indebtedness being refunded, refinanced or extended, except that the Company may incur Refinancing Indebtedness to refund, refinance or extend Indebtedness of any Wholly Owned Subsidiary of the Company; provided, however, that any Indebtedness incurred to refund, refinance or extend Indebtedness incurred by the Company or its Restricted Subsidiaries after the Issue Date pursuant to the terms of the Indenture and any Indebtedness incurred under the Senior Credit Facility to refinance the Senior Exchange Notes need not comply with clauses (ii) or (iii) above; provided, further, that for purposes of calculations made under the Permitted Indebtedness definition, such Indebtedness may be treated as Refinancing Indebtedness. 99 "Restricted Payment" means any of the following: (i) the declaration or payment of any dividend or any other distribution or payment on Capital Stock of the Company or any Restricted Subsidiary of the Company or any payment made to the direct or indirect holders (in their capacities as such) of Capital Stock of the Company or any Restricted Subsidiary of the Company (other than (x) dividends or distributions payable solely in Capital Stock (other than Disqualified Capital Stock) or in options, warrants or other rights to purchase such Capital Stock (other than Disqualified Capital Stock), and (y) in the case of Restricted Subsidiaries of the Company, dividends or distributions payable to the Company or to a Wholly Owned Subsidiary of the Company), (ii) the purchase, redemption or other acquisition or retirement for value of any Capital Stock of the Company or any of its Restricted Subsidiaries (other than Capital Stock owned by the Company or a Wholly Owned Subsidiary of the Company, excluding Disqualified Capital Stock) or any option, warrants or other rights to purchase such Capital Stock, (iii) the making of any principal payment on, or the purchase, defeasance, repurchase, redemption or other acquisition or retirement for value, prior to any scheduled maturity, scheduled repayment or scheduled sinking fund payment, of any Indebtedness which is subordinated in right of payment to the Exchange Notes (other than subordinated Indebtedness acquired in anticipation of satisfying a scheduled sinking fund obligation, principal installment or final maturity, in each case due within one year of the date of acquisition), (iv) the making of any Investment or guarantee of any Investment in any Person other than a Permitted Investment, and (v) any designation of a Restricted Subsidiary as an Unrestricted Subsidiary on the basis of the Investment by the Company therein and (vi) forgiveness of any Indebtedness of an Affiliate of the Company to the Company or a Restricted Subsidiary of the Company. For purposes of determining the amount expended for Restricted Payments, cash distributed or invested shall be valued at the face amount thereof and property other than cash shall be valued at its fair market value. "Restricted Subsidiary" means a Subsidiary of the Company other than an Unrestricted Subsidiary and includes all of the Subsidiaries of the Company existing as of the Issue Date. The Board of Directors of the Company may designate any Unrestricted Subsidiary or any Person that is to become a Subsidiary as a Restricted Subsidiary if immediately after giving effect to such action (and treating any Acquired Indebtedness as having been incurred at the time of such action), (i) the Company could have incurred at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to "-- Certain Covenants--Limitation on Additional Indebtedness" above and (ii) no Default or Event of Default shall have occurred and be continuing. "Sale and Lease-Back Transaction" means any arrangement with any Person providing for the leasing by the Company or any Restricted Subsidiary of the Company of any real or tangible personal property, which property has been or is to be sold or transferred by the Company or such Restricted Subsidiary to such Person in contemplation of such leasing. "Senior Credit Facility" means the Credit Agreement dated as of October 23, 1997, among the Company, the lenders party thereto in their capacities as lenders thereunder, the Initial Purchasers, as co-arrangers and Canadian Imperial Bank of Commerce, as syndication agent, and First Union National Bank, as administrative agent, together with the related documents thereto (including, without limitation, any guarantee agreements and security documents), in each case as such agreements may be amended (including any amendment and restatement thereof), supplemented or otherwise modified from time to time, including any agreement extending the maturity of, refinancing, replacing or otherwise restructuring (including increasing the amount of available borrowings thereunder (provided that such increase in borrowings is permitted by the "Limitation on Additional Indebtedness" covenant, whether or not under clause (i) thereof) or adding Restricted Subsidiaries of the Company as additional borrowers or guarantors thereunder) all or any portion of the Indebtedness under such agreement or any successor or replacement agreement and whether by the same or any other agent, lender or group of lenders. "Senior Indebtedness" means the principal of and premium, if any, and interest on, and any and all other fees, expense reimbursement obligations and other amounts due pursuant to the terms of all agreements, documents and instruments providing for, creating, securing or evidencing or otherwise entered into in connection with (a) all Indebtedness of the Company owed to lenders under the Senior Credit Facility, (b) all obligations of the Company with respect to any Interest Rate Agreement or Currency Agreement, (c) all obligations of the Company to reimburse any bank or other person in respect of amounts paid under letters of credit, acceptances or other similar instruments, (d) all other Indebtedness of the Company which does not provide that it is to rank pari passu with or subordinate to the Exchange Notes and (e) all deferrals, renewals, refinancings, extensions and refundings of, and amendments, modifications and supplements to, any of the Senior Indebtedness described above. Notwithstanding 100 anything to the contrary in the foregoing, Senior Indebtedness will not include (i) Indebtedness of the Company to any of its Subsidiaries, or to any Affiliate of the Company or any of such Affiliate's Subsidiaries, (ii) Indebtedness represented by the Exchange Notes, (iii) any Indebtedness which by the express terms of the agreement or instrument creating, evidencing or governing the same is junior or subordinate in right of payment to any item of Senior Indebtedness, (iv) any trade payable arising from the purchase of goods or materials or for services obtained in the ordinary course of business, (v) Indebtedness incurred in violation of the Indenture, (vi) Indebtedness represented by Disqualified Capital Stock and (vii) any Indebtedness to or guaranteed on behalf of, any shareholders, director, officer or employee of the Company or any Subsidiary of the Company. "Subsidiary" of any specified Person means any corporation, partnership, joint venture, association or other business entity, whether now existing or hereafter organized or acquired, (i) in the case of a corporation, of which more than 50% of the total voting power of the Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, officers or trustees thereof is held by such first-named Person or any of its Subsidiaries; or (ii) in the case of a partnership, joint venture, association or other business entity, with respect to which such first-named Person or any of its Subsidiaries has the power to direct or cause the direction of the management and policies of such entity by contract or otherwise or if in accordance with GAAP such entity is consolidated with the first-named Person for financial statement purposes. "Unrestricted Subsidiary" means (a) PH Holding Corporation, a Delaware corporation, (b) any Subsidiary of an Unrestricted Subsidiary and (c) any other Subsidiary of the Company which is classified after the Issue Date as an Unrestricted Subsidiary by a resolution adopted by the Board of Directors of the Company; provided that a Subsidiary may be so classified as an Unrestricted Subsidiary only if such classification is in compliance with the "Limitation on Restricted Payments" covenant. The Trustee shall be given prompt notice by the Company of each resolution adopted by the Board of Directors of the Company under this provision, together with a copy of each such resolution adopted. "Wholly Owned Subsidiary" means any Restricted Subsidiary, all of the outstanding voting securities (other than directors' qualifying shares) of which are owned, directly or indirectly, by the Company. Book-Entry; Delivery and Form The Exchange Notes may be issued in the form of one or more global securities (collectively, the "Global Exchange Note"). The Global Exchange Note will be deposited with, or on behalf of, the DTC and registered in the name of the DTC or its nominee. Except as set forth below, the Global Exchange Note may be transferred, in whole and not in part, only to the DTC or another nominee of the DTC. Investors may hold their beneficial interests in the Global Exchange Note directly through the DTC if they have an account with the DTC or indirectly through organizations which have accounts with the DTC. Depository Procedures DTC has advised the Company that DTC is a limited-purpose trust company created to hold securities for its participating organizations (collectively, the "Participants") and to facilitate the clearance and settlement of transactions in those securities between the Participants through electronic book-entry changes in accounts of the Participants. The Participants include securities brokers and dealers (including the Initial Purchasers), banks, trust companies, clearing corporations and certain other organizations. Access to DTC's system is also available to other entities such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a Participant, either directly or indirectly (collectively, the "Indirect Participants"). Persons who are not Participants may beneficially own securities held by or on behalf of DTC only through the Participants or the Indirect Participants. The ownership interest and transfer of ownership interest of each actual purchaser of each security held by or on behalf of DTC are recorded on the records of the Participants and the Indirect Participants. DTC has also advised the Company that pursuant to procedures established by it, (i) upon deposit of the Global Exchange Notes, DTC will credit the accounts of Participants designated by the Initial Purchasers with portions of the principal amount of the Global Exchange Notes and (ii) ownership of such interests in the Global Exchange Notes will be shown on, and the transfer of ownership thereof will be effected only through, records 101 maintained by DTC (with respect to the Participants) or by the Participants and the Indirect Participants (with respect to other owners of beneficial interests in the Global Exchange Notes). Investors in the Global Exchange Note may hold their interests therein directly through DTC, if they are Participants in such system, or indirectly through organizations (including Euroclear and CEDEL) which are Participants in such system. The laws of some states require that certain persons take physical delivery in definitive form of securities that they own. Consequently, the ability to transfer beneficial interests in a Global Exchange Note to such persons may be limited to that extent. Because DTC can act only on behalf of the Participants, which in turn act on behalf of the Indirect Participants and certain banks, the ability of a person having beneficial interests in a Global Exchange Note to pledge such interests to persons or entities that do not participate in the DTC system, or otherwise take actions in respect of such interests, may be affected by the lack of a physical certificate evidencing such interests. For certain other restrictions on the transferability of the Exchange Notes, see "--Exchange of Book-Entry Exchange Notes for Certificated Exchange Notes." Except as described below, owners of interests in the Global Exchange Notes will not have Exchange Notes registered in their names, will not receive physical delivery of Exchange Notes in certificated form and will not be considered the registered owners or holders thereof under the Indenture for any purpose. Payments in respect of the principal of (and premium, if any) and interest on a Global Exchange Note registered in the name of DTC or its nominee will be payable to DTC or its nominee in its capacity as the registered holder under the Indenture. Under the terms of the Indenture, the Company and the Trustee will treat the persons in whose names the Exchange Notes, including the Global Exchange Notes, are registered as the owners thereof for the purpose of receiving such payments and for any and all other purposes whatsoever. Consequently, neither of the Company, the Initial Purchasers, the Trustee nor any agent of the Company, the Initial Purchasers or the Trustee has or will have any responsibility or liability for (i) any aspect or accuracy of DTC's records or any Participant's or Indirect Participant's records relating to or payments made on account of beneficial ownership interests in the Global Exchange Notes, or for maintaining, supervising or reviewing any of DTC's records or any Participant's or Indirect Participant's records relating to the beneficial ownership interests in the Global Exchange Notes, or (ii) any other matter relating to the actions and practices of DTC or any of the Participants or the Indirect Participants. DTC has advised the Company that its current practice, upon receipt of any payment in respect of securities such as the Exchange Notes (including principal and interest), is to credit the accounts of the relevant Participants with the payment on the payment date, in amounts proportionate to their respective holdings in principal amount of beneficial interests in the relevant security as shown on the records of DTC. Payments by the Participants and the Indirect Participants to the beneficial owners of the Exchange Notes will be governed by standing instructions and customary practices and will not be the responsibility of DTC, the Trustee or the Company. Neither the Company nor the Trustee will be liable for any delay by DTC or any of the Participants in identifying the beneficial owners of the Exchange Notes, and the Company and the Trustee may conclusively rely on and will be protected in relying on instructions from DTC or its nominee as the registered owner of the Global Exchange Notes for all purposes. Interests in the Global Exchange Notes will trade in DTC's Same-Day Funds Settlement System and secondary market trading activity in such interests will therefore settle in immediately available funds, subject in all cases to the rules and procedures of DTC and the Participants. Transfers between Participants in DTC will be effected in accordance with DTC's procedures and will be settled in same-day funds. DTC has advised the Company that it will take any action permitted to be taken by a holder of Exchange Notes only at the direction of one or more Participants to whose account with DTC interests in the Global Exchange Notes are credited and only in respect of such portion of the aggregate principal amount of the Exchange Notes as to which such Participant or Participants has or have given such direction. However, if any of the events described under "-- Exchange of Book Entry Exchange Notes for Certificated Exchange Notes" occurs, DTC reserves the right 102 to exchange the Global Exchange Notes for legended Exchange Notes in certificated form and to distribute such Exchange Notes to its Participants. The information in this section concerning DTC and its book-entry system has been obtained from sources that the Company believes to be reliable, but the Company takes no responsibility for the accuracy thereof. Although DTC has agreed to the foregoing procedures to facilitate transfers of interests in the Global Exchange Note among accountholders in DTC, it is under no obligation to perform or to continue to perform such procedures, and such procedures may be discontinued at any time. None of the Company, the Initial Purchasers or the Trustee nor any agent of the Company, the Initial Purchasers or the Trustee will have any responsibility for the performance by DTC or its participants, indirect participants or accountholders of their respective obligations under the rules and procedures governing their respective operations. Exchange of Book-Entry Exchange Notes for Certificated Exchange Notes The Global Exchange Note is exchangeable for definitive Exchange Notes in registered certificated form if (i) DTC (x) notifies the Company that it is unwilling or unable to continue as depository for the Global Exchange Note and the Company thereupon fails to appoint a successor depository or (y) has ceased to be a clearing agency registered under the Exchange Act, (ii) the Company, at its option, notifies the Trustee in writing that it elects to cause the issuance of the Exchange Notes in certificated form or (iii) there shall have occurred and be continuing a default or an Event of Default with respect to the Exchange Notes. In all cases, certificated Exchange Notes delivered in exchange for any beneficial interests in the Global Exchange Note will be registered in the names, and issued in any approved denominations, requested by or on behalf of DTC (in accordance with its customary procedures). Concerning the Trustee United States Trust Company of New York is the Trustee under the Indenture. Governing Law The Indenture and the Exchange Notes will be governed by and construed in accordance with the laws of the State of New York. CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES The following is a summary of the material federal income tax consequences expected to result to Holders whose Notes are exchanged for Exchange Notes in the Exchange Offer. This discussion is a summary for general information only and does not consider all aspects of U.S. federal income taxation that may be relevant to investors in light of such investor's personal circumstances. This discussion also does not address the U.S. federal income tax consequences of ownership of Exchange Notes not held as capital assets within the meaning of Section 1221 of the U.S. Internal Revenue Code of 1986, as amended (the "Code"), or the U.S. federal income tax consequences to investors subject to special treatment under the U.S. federal income tax laws, such as dealers in securities or foreign currency, tax-exempt entities, financial institutions, insurance companies, persons that hold the Exchange Notes as part of a "straddle," a "hedge" or a "conversion transaction," persons that have a "functional currency" other than the U.S. dollar, and investors in pass-through entities. In addition, this discussion does not describe any tax consequences arising under U.S. federal gift and estate taxes (except to the limited extent set forth below under "Non-U.S. Holders") or under the tax laws of any state, local or foreign jurisdiction. This discussion is based upon the Code, existing regulations thereunder, and current administrative rulings and court decisions. All of the foregoing is subject to change, possibly on a retroactive basis, and any such change could affect the continuing validity of this discussion. 103 Holders of the Notes should consult their own advisors as to how their own particular tax situation might be affected by the exchange of Notes for Exchange Notes and the purchase, holding and disposition of their Exchange Notes. U.S. Holders The following discussion is limited to the U.S. federal income tax consequences relevant to a holder of a Exchange Note that is (i) a citizen or resident (as defined in Section 7701(b)(1) of the Code) of the United States, (ii) a corporation organized under the laws of the United States or any political subdivision thereof or therein, (iii) an estate, the income of which is subject to U.S. federal income tax regardless of the source or (iv) a trust, with respect to which a court within the United States is able to exercise primary supervision over its administration and one or more United States persons have the authority to control all its substantial decisions (a "U.S. Holder"). Certain U.S. federal income tax consequences relevant to a holder other than a U.S. Holder are discussed separately below. Stated Interest Interest on a Exchange Note should be taxable to a U.S. Holder as ordinary interest income at the time it accrues or is received in accordance with such Holder's method of accounting for U.S. federal income tax purposes. Sale, Exchange or Redemption of the Exchange Notes Upon the disposition of a Exchange Note by sale, exchange or redemption, a U.S. Holder will generally recognize gain or loss equal to the difference between (i) the amount realized on the disposition (other than amounts attributable to accrued interest not yet taken into income) and (ii) the U.S. Holder's tax basis in the Exchange Note. A U.S. Holder's tax basis in a Exchange Note generally will equal the cost of the Exchange Note to the U.S. Holder increased by amounts includable in income as market discount (if the U.S. Holder elects to include market discount on a current basis) and reduced by any bond premium amortized by any U.S. Holder. Assuming the Exchange Note is held as a capital asset, such gain or loss (except to the extent that the market discount rules otherwise provide) will generally constitute capital gain or loss and will be long-term capital gain (taxable at a maximum rate of 20%) if a U.S. Holder who is an individual has held such Exchange Note for longer than eighteen months and mid-term capital gain (taxable at a maximum rate of 28%) if such a U.S. Holder has held such Exchange Note for more than 12 months and less than 18 months. Special rates apply in the case of holders whose income is subject to tax at less than maximum rates and for dispositions after 2000. Exchange Offer The exchange of the Notes for the Exchange Notes pursuant to the Exchange Offer should not constitute a taxable exchange. As a result, (i) a U.S. Holder should not recognize taxable gain or loss as a result of exchanging the Notes for the Exchange Notes pursuant to the Exchange Offer, (ii) the holding period of the Exchange Notes should include the holding period of the Notes exchanged therefor and (iii) the adjusted tax basis of the Exchange Notes should be the same as the adjusted tax basis of the Notes exchanged therefore immediately before the exchange. The Company will be required to pay additional cash interest on the Notes if it fails to comply with certain of its obligations under the Exchange Offer Registration Rights Agreement. Such additional interest should be taxable to a U.S. Holder as ordinary income at the time it accrues or is received in accordance with such holder's regular method of tax accounting. It is possible, however, that the IRS may take a different position, in which case a U.S. Holder might be required to include such additional interest in income as it accrues or becomes fixed (regardless of such holder's regular method of tax accounting). 104 Backup Withholding and Information Reporting Under the Code, a U.S. Holder of a Exchange Note may be subject, under certain circumstances, to information reporting and or backup withholding at a 31% rate with respect to cash payments in respect of interest on, or the gross proceeds from disposition of, a Exchange Note thereof. This withholding applies, only if a U.S. Holder (i) fails to furnish its social security or other taxpayer identification number ("TIN") within a reasonable time after a request therefor, (ii) furnishes an incorrect TIN, (iii) fails to report interest or dividends properly, or (iv) fails, under certain circumstances to provide a certified statement, signed under penalty of perjury, that the TIN provided is its correct number and that it is not subject to backup withholding. Any amount withheld from a payment to a U.S. Holder under the backup withholding rules is allowable as a credit (and may entitle such holder to a refund) against such Holder's U.S. federal income tax liability, provided that the required information is furnished to the IRS. Certain persons are exempt from backup withholding, including corporations and financial institutions. Holders of Exchange Notes should consult their tax advisors as to their qualification for exemption from withholding and the procedure for obtaining such exemption. Non-U.S. Holders The following discussion is limited to the U.S. federal income and estate tax consequences relevant to a holder of a Exchange Note that is not (i) a current or former citizen or resident of the United States, (ii) a corporation organized under the laws of the United States or any political subdivision thereof or therein or (iii) an estate the income of which is subject to U.S. federal income tax regardless of the source or (iv) a trust, with respect to which a court within the United States is able to exercise primary supervision over its administration and one or more United States persons have the authority to control all its substantial decisions (a "Non-U.S. Holder"). This discussion does not deal with all aspects of U.S. federal income and estate taxation that may be relevant to any particular Non-U.S. Holder in light of such Holder's personal circumstances, including holding the Exchange Notes through a partnership. For example, persons who are partners in foreign partnerships or beneficiaries of foreign trusts or estates and who are subject to U.S. federal income tax because of their own status, such as United States residents or foreign persons engaged in a trade or business in the United States, may be subject to U.S. federal income tax even though the entity is not subject to income tax on disposition of its Exchange Note. For purposes of the following discussion, interest and gain on the sale, exchange or other disposition of the Exchange Note will be considered "U.S. trade or business income" if such income or gain is (i) effectively connected with the conduct of a U.S. trade or business or (ii) in the case of a treaty, resident, attributable to a U.S. permanent establishment (or to a fixed base) in the United States. Stated Interest Generally, any interest paid to a Non-U.S. Holder of a Exchange Note that is not U.S. trade or business income will not be subject to U.S. federal income tax if the interest qualifies as "portfolio interest." Interest on the Exchange Notes will qualify as portfolio interest if (i) the Non-U.S. Holder does not actually or constructively own 10% or more of the total voting power of all voting stock of the Company and is not a "controlled foreign corporation" with respect to which the Company is a "related person" within the meaning of the Code, and (ii) the beneficial owner, under penalties of perjury, certifies that the beneficial owner is not a U.S. person and such certificate provides the beneficial owner's name and address. The gross amount of payments to a Non-U.S. Holder of interest that do not qualify for the portfolio interest exception and that are not U.S. trade or business income will be subject to U.S. withholding tax at the rate of 30%, unless a U.S. income tax treaty applies to reduce or eliminate withholding. U.S. trade or business income will be taxed at regular U.S. federal income tax rates rather than the 30% gross rate. To claim the benefit of a tax treaty or to claim exemption from withholding because the income is U.S. trade or business income, the Non-U.S. Holder must provide a properly executed Form 1001 or 4224 (or such successor forms as the IRS designates), as applicable, prior to payment of interest. These forms must be periodically updated. Under proposed regulations, the Forms 1001 and 4224 will be replaced by Form W-8. Also under proposed regulations, a Non-U.S. Holder who is 105 claiming the benefits of a tax treaty may be required to obtain a U.S. taxpayer identification number and to provide certain documentary evidence issued by foreign governmental authorities to prove residence in the foreign country. Certain special procedures are provided in the proposed regulations for payments through qualified intermediaries. Sale, Exchange or Redemption of Exchange Notes Except as described below and subject to the discussion concerning backup withholding, any gain realized by a Non-U.S. Holder on the sale, exchange or redemption of a Exchange Note generally will not be subject to U.S. federal income tax, unless (i) such gain is U.S. trade or business income or (ii) subject to certain exceptions, the Non-U.S. Holder is an individual who holds the Exchange Note as a capital asset and is present in the United States for 183 days or more in the taxable year of the disposition. Federal Estate Tax Notes held (or treated as held) by an individual who is a Non-U.S. Holder at the time of his or her death will not be subject to U.S. federal estate tax, provided that the individual did not actually or constructively, own 10% or more of the total voting power of all voting stock of the Company, and income on the Exchange Notes was not U.S. trade or business income. Information Reporting and Backup Withholding The Company must report annually to the IRS and to each Non-U.S. Holder any interest that is subject to U.S. withholding tax or that is exempt from withholding pursuant to a tax treaty or the portfolio interest exception. Copies of these information returns may also be made available under the provisions of a specific treaty or agreement to the tax authorities of the country in which the Non-U.S. Holder resides. The regulations provide that backup withholding and information reporting will not apply to payments of principal on the Exchange Notes by the Company to a Non-U.S. Holder, if the Holder certifies as to its non-U.S. status under penalties of perjury or otherwise establishes an exemption (provided that neither the Company nor its paying agent has actual knowledge that the Holder is a U.S. Holder or that the conditions of any other exemption are not, in fact, satisfied). The payment of the proceeds from the disposition of Exchange Notes to or through the United States office of any broker, U.S. or foreign, will be subject to information reporting and possible backup withholding unless the owner certifies as to its non-U.S. status under penalties of perjury or otherwise establishes an exception, provided that the broker does not have actual knowledge that the holder is a U.S. Holder or that the conditions of any other exemption are not, in fact, satisfied. The payment of the proceeds from the disposition of a Exchange Note to or through a non-U.S. office of a U.S. broker that is not a "U.S. related person" will not be subject to information reporting or backup withholding. (For this purpose, a "U.S. related person" is (i) a "controlled foreign corporation" for U.S. federal income tax purposes or (ii) a foreign person 50% or more of whose gross income from all sources for the three- year period ending with the close of its taxable year preceding the payment (or for such part of the period that the broker has been in existence) is derived from activities that are effectively connected with the conduct of a U.S. trade or business). In the case of the payment of proceeds from the disposition of Exchange Notes to or through a non-U.S. office of a broker that is either a U.S. person or a U.S. related person, the regulations require information reporting on the payment unless the broker has documentary evidence in its files that the owner is a Non-U.S. Holder and the broker has no knowledge to the contrary. Backup withholding will not apply to payments made through foreign offices of a broker that is a U.S. person or a U.S. related person (absent actual knowledge that the payee is a U.S. Holder). Proposed regulations provide similar rules but, in the case of payment of proceeds inside the United States, may require an additional certification that the beneficial owner has not and does not expect to be present in the United States for a period of 183 days or more during the year. 106 Any amounts withheld under the backup withholding rules from a payment to a Non-U.S. Holder will be allowed as a refund or a credit against such Non-U.S. Holder's U.S. federal income tax liability, provided that the requisite procedures are followed. 107 PLAN OF DISTRIBUTION Each broker-dealer that receives Exchange Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Notes received in exchange for Notes where such Notes were acquired as a result of market-making activities or other trading activities and not acquired directly from the Company. The Company has agreed that for a period of 180 days after the Expiration Date, it will make this Prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale. In addition, until , 1998, all dealers effecting transactions in the Exchange Notes may be required to deliver a prospectus. The Company will not receive any proceeds from any sale of Exchange Notes by broker-dealers. Exchange Notes received by broker-dealers for their own account pursuant to the Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the Exchange Notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer and/or purchasers of any such Exchange Notes. Any broker-dealer that resells Exchange Notes that were received by it for its own account pursuant to the Exchange Offer and any broker or dealer that participates in a distribution of such Exchange Notes may be deemed to be an "underwriter" within the meaning of the Securities Act, and any profit on any such resale of Exchange Notes and any commissions or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. For a period of 180 days after the Expiration Date, the Company will promptly send additional copies of this Prospectus and any amendment or supplement to this Prospectus to any broker-dealer that requests such documents in the Letter of Transmittal. The Company has agreed to pay the expenses incident to the Exchange Offer and to the Company's performance of, or compliance with, the Exchange Offer Registration Rights Agreement (other than commissions or concessions of any brokers or dealers) and will indemnify the Holders of the Notes against certain liabilities, including liabilities under the Securities Act, in connection with the Exchange Offer. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and persons controlling the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. EXPERTS The financial statements of The Pantry as of September 26, 1996 and September 25, 1997 and for the years then ended, the financial statements of Lil' Champ as of December 30, 1995 and December 28, 1996 and for each of the three years in the period ended December 28, 1996, and the financial statement schedule of The Pantry included elsewhere in the registration statement have been audited by Deloitte & Touche LLP, independent auditors, as stated in their reports appearing herein and elsewhere in the registration statement, and are included in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing. 108 The consolidated statements of operations, of cash flows and of changes in shareholders' deficit for the year ended September 28, 1995 included in this Prospectus have been so included in reliance on the report of Price Waterhouse LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. LEGAL MATTERS Certain legal matters with respect to the legality of the Exchange Notes offered hereby will be passed upon for the Company by Riordan & McKinzie, a Professional Corporation, Los Angeles, California. Certain principals and employees of Riordan & McKinzie are limited partners in a partnership which is a limited partner of an FS&Co. investment fund that owns a majority of the Company's equity interests. See "Security Ownership of Certain Beneficial Owners". 109 INDEX TO FINANCIAL STATEMENTS THE PANTRY, INC. CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 26, 1996 AND SEPTEMBER 25, 1997 AND FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED SEPTEMBER 25, 1997:
Page Independent Auditors' Report................................... F-1 Report of Independent Accountants.............................. F-2 Consolidated Balance Sheet as of September 26, 1996 and September 25, 1997.................................... F-3 Consolidated Statement of Operations for the years September 28, 1995, September 26, 1996, and September 25, 1997.................................... F-5 Consolidated Statement of Changes in Shareholders' Deficit for the years ended September 28, 1995, September 26, 1996, and September 25, 1997................ F-6 Consolidated Statement of Cash Flows for the years ended September 28, 1995, September 26, 1996, and September 25, 1997.................................... F-7 Notes to Consolidated Financial Statements..................... F-9
LIL' CHAMP FOOD STORES, INC. FINANCIAL STATEMENTS AS OF DECEMBER 30, 1995 AND DECEMBER 28, 1996 AND FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 28, 1996: Independent Auditors' Report................................... F-33 Statements of Operations....................................... F-36 Statements of Shareholder's Equity............................. F-37 Statement of Cash Flows........................................ F-38 Notes to Financial Statements.................................. F-39
INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of The Pantry, Inc. Sanford, North Carolina We have audited the accompanying consolidated balance sheets of The Pantry, Inc. and subsidiaries as of September 26, 1996 and September 25, 1997 and the related consolidated statements of operations, shareholders' deficit, and cash flows for each of the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. 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, such consolidated financial statements present fairly, in all material respects, the financial position of The Pantry, Inc. and subsidiaries as of September 26, 1996 and September 25, 1997, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. As discussed in Note 1 to the consolidated financial statements, in fiscal 1996 the Company adopted Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. /s/ DELOITTE & TOUCHE LLP Raleigh, North Carolina December 5, 1997 1 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of The Pantry, Inc. In our opinion, the consolidated statements of operations, of cash flows and of changes in shareholders' deficit for the year ended September 28, 1995 of The Pantry, Inc. present fairly, in all material respects, the results of operations and cash flows of The Pantry, Inc. and its subsidiaries for the year ended September 28, 1995 in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. We have not audited the consolidated financial statements of The Pantry, Inc. for any period subsequent to September 28, 1995. As discussed in Note 1 to the financial statements, the Company adopted Statement of Financial Accounting Standards No. 112 (SFAS 112), Employers' Accounting for Postemployment Benefits, during fiscal 1995. /s/ PRICE WATERHOUSE LLP Raleigh, North Carolina November 30, 1995 2
THE PANTRY, INC. ---------------- CONSOLIDATED BALANCE SHEET -------------------------- (dollars in thousands) September 26, September 25, 1996 1997 ---- ---- ASSETS - ------ Current assets: Cash $ 5,338 $ 3,347 Receivables (net of allowance for doubtful accounts of $150 at 1996 and $150 at 1997) 2,860 2,101 Inventories (Note 2) 13,223 17,161 Prepaid expenses 775 1,204 Income taxes receivable 63 - Property held for sale 2,816 3,323 Deferred income taxes (Note 6) 879 1,142 --------- --------- Total current assets 25,954 28,278 --------- --------- Property and equipment, net (Notes 3, 4, 7, 8 and 11) 65,455 77,986 --------- --------- Other assets: Goodwill (net of accumulated amortization of $9,705 at 1996 and $10,396 at 1997) (Note 11) 16,852 20,318 Deferred lease cost (net of accumulated amortization of $8,911 at 1996 and $8,956 at 1997) 359 314 Deferred financing cost (net of accumulated amortization of $2,884 at 1996 and $4,345 at 1997) 5,940 4,578 Environmental receivables (Note 9) 5,162 6,511 Deferred income taxes (Note 6) 790 156 Escrow for Lil' Champ acquisition (Note 15) - 4,049 Other 368 609 --------- --------- Total other assets 29,471 36,535 --------- --------- Total Assets $ 120,880 $ 142,799 ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 3 THE PANTRY, INC. ---------------- CONSOLIDATED BALANCE SHEET -------------------------- (dollars in thousands)
September 26, September 25, 1996 1997 ---- ---- LIABILITIES AND SHAREHOLDERS' DEFICIT - ------------------------------------- Current liabilities: Current maturities of long-term debt (Note 4) $ 16 $ 33 Current maturities of capital lease obligations (Note 7) 285 285 Accounts payable: Trade 15,666 16,035 Money orders 2,788 3,022 Accrued interest (Note 4) 4,416 4,592 Accrued compensation and related taxes 2,338 3,323 Income taxes payable (Note 6) - 296 Other accrued taxes 2,135 2,194 Accrued insurance 3,629 3,887 Other accrued liabilities 1,194 2,856 -------- --------- Total current liabilities 32,467 36,523 -------- --------- Long-term debt (Note 4) 100,148 100,305 -------- --------- Other noncurrent liabilities: Environmental costs (Note 9) 6,232 7,806 Capital lease obligations (Note 7) 982 679 Employment obligations (Note 8) 2,039 1,341 Accrued dividends on preferred stock (Note 13) 2,654 7,958 Other 3,905 6,060 -------- --------- Total other noncurrent liabilities 15,812 23,844 -------- --------- Shareholders' deficit: Preferred stock, $.01 par value, 150,000 shares authorized; 25,999 issued and outstanding at September 26, 1996 and 43,499 issued and outstanding at September 25, 1997 (Note 13) - - Common stock, $.01 par value, 300,000 shares authorized; 100,000 issued and outstanding at September 26, 1996 and 114,029 issued and outstanding at September 25, 1997 1 1 Additional paid-in capital (10,557) 5,396 Accumulated deficit (16,991) (23,270) ------- --------- Total shareholders' deficit (27,547) (17,873) Commitments and contingencies (Notes 5, 7 and 9) - - --------- --------- Total Liabilities and Shareholders' Deficit $ 120,880 $ 142,799 ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 4 THE PANTRY, INC. ---------------- CONSOLIDATED STATEMENT OF OPERATIONS ------------------------------------ (dollars in thousands)
September 28, September 26, September 25, 1995 1996 1997 ---- ---- ---- (52 weeks) (52 weeks) (52 weeks) Revenues: Merchandise sales $187,380 $188,091 $202,440 Gasoline sales 187,165 192,737 220,166 Commissions 4,516 3,979 4,787 -------- -------- -------- Total revenues 379,061 384,807 427,393 -------- -------- -------- Cost of sales: Merchandise 121,976 125,979 132,846 Gasoline 161,179 167,610 197,268 -------- -------- -------- Total cost of sales 283,155 293,589 330,114 -------- -------- -------- Gross profit 95,906 91,218 97,279 -------- -------- -------- Operating expenses: Store expenses 55,122 56,567 58,928 Store expenses - related parties (Note 8) 1,084 1,274 1,280 General and administrative expenses 18,159 17,127 16,796 Restructuring charges (Note 12) - 2,184 - Impairment of long-lived assets (Note 11) - 3,034 - Depreciation and amortization 9,505 9,158 9,504 Amortization of non-compete agreement 1,965 - - -------- -------- -------- Total operating expenses 85,835 89,344 86,508 -------- -------- -------- Income from operations 10,071 1,874 10,771 -------- -------- -------- Other income (expense): Interest (12,974) (11,807) (12,889) Interest - related parties (Note 8) (266) (185) (150) Miscellaneous 711 (660) 1,293 Due diligence costs (1,181) - - -------- -------- -------- Total other expense (13,710) (12,652) (11,746) -------- -------- -------- Loss before income taxes and cumulative effect of accounting change (3,639) (10,778) (975) Income tax benefits (Note 6) 354 2,664 - -------- -------- -------- Loss before cumulative effect of accounting change (3,285) (8,114) (975) Cumulative effect of change in accounting for post-employment benefits (net of income tax benefit of $640) (960) - - -------- -------- -------- Net loss $ (4,245) $ (8,114) $ (975) ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 5 THE PANTRY, INC. ---------------- CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIT ---------------------------------------------------------- (dollars in thousands)
Preferred Stock Common Stock --------------- ------------ Additional Par Par Paid in Accumulated Shares Value Shares Value Capital Other (1) Total Deficit Total ------ ----- ------ ----- ---------- --------- ----- ------------ ----- Balance, September 29, 1994 - - 100,000 1 6,999 (17,109) (10,109) (1,978) (12,087) Net loss - - - - - - - (4,245) (4,245) ------ ----- ------- -- ------- -------- -------- -------- -------- Balance, September 28, 1995 - - 100,000 1 6,999 (17,109) (10,109) (6,223) (16,332) Net loss - - - - - - - (8,114) (8,114) Net proceeds from stock issue 25,999 - 14,029 - (447) - (447) - (447) Dividends on preferred stock - - - - - - - (2,654) (2,654) ------ ----- ------- -- ------- -------- -------- -------- -------- Balance, September 26, 1996 25,999 - 114,029 1 6,552 (17,109) (10,556) (16,991) (27,547) Net loss - - - - - - - (975) (975) Net proceeds from stock issue 17,500 - - - 15,953 - 15,953 - 15,953 Dividends on preferred stock - - - - - - - (5,304) (5,304) ------ ----- ------- -- ------- -------- -------- -------- -------- Balance, September 25, 1997 43,499 $ - 114,029 $1 $22,505 $(17,109) $ 5,397 $(23,270) $(17,873) ====== ===== ======= == ======= ======== ======== ======== ========
(1) Represents excess of amount paid in 1987 leveraged buy-out over net book value for "carry over" shareholders (Note 1). The accompanying notes are an integral part of these consolidated financial statements. 6 THE PANTRY, INC. ---------------- CONSOLIDATED STATEMENT OF CASH FLOWS ------------------------------------ (dollars in thousands)
Year Ended ---------------------------------------------------- September 28, September 26, September 25, 1995 1996 1997 ---- ---- ---- (52 weeks) (52 weeks) (52 weeks) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (4,245) $(8,114) $ (975) Adjustments to reconcile net loss to net cash provided by operating activities: Cumulative effect of change in accounting for post-employment benefits 1,600 - - Impairment of long-lived assets - 3,034 - Depreciation and amortization 11,470 9,158 9,504 Provision (benefit) for deferred income taxes (2,451) (1,558) 371 (Gain) loss on sale of property and equipment 2 470 (1,054) Provision (benefit) for environmental expenses (418) 512 1,574 Provision for closed stores 292 673 (11) Write-off of property held for sale - 168 - Changes in operating assets and liabilities, net: Receivables 394 (539) (527) Inventories 1,694 (937) (2,273) Prepaid expenses 119 20 (429) Other non-current assets (279) 432 (4,295) Accounts payable 2,294 2,104 603 Other current liabilities and accrued expenses (37) (639) 3,393 Employment obligations (140) (255) (698) Other noncurrent liabilities 1,608 886 2,155 -------- ------- -------- Net cash provided by operating activities 11,903 5,415 7,338 -------- ------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property held for sale (Note 7) (18,600) (4,050) (1,828) Additions to property and equipment (16,650) (7,084) (14,749) Proceeds from sale of property held for sale (Note 7) 19,436 2,462 1,345 Proceeds from sale of property and equipment 533 1,468 2,315 Acquisitions of related businesses - - (12,162) -------- ------- -------- Net cash used in investing activities (15,281) (7,204) (25,079) ======== ======= ========
The accompanying notes are an integral part of these consolidated financial statements. 7 THE PANTRY, INC. ---------------- CONSOLIDATED STATEMENT OF CASH FLOWS ------------------------------------ (dollars in thousands)
Year Ended ---------------------------------------------------- September 28, September 26, September 25, 1995 1996 1997 ---- ---- ---- (52 weeks) (52 weeks) (52 weeks) CASH FLOWS FROM FINANCING ACTIVITIES: Principal repayments under capital leases (413) (347) (303) Principal repayments of long-term debt (7,281) (20) (26) Net proceeds from issuance of long-term debt 7,267 - 200 Net proceeds from equity issue - (447) 15,953 Other financing costs (523) (3,058) (74) ------- ------- ------- Net cash provided by (used in) financing activities (950) (3,872) 15,750 ------- ------- ------- Net decrease in cash (4,328) (5,661) (1,991) CASH AT BEGINNING OF YEAR 15,327 10,999 5,338 ------- ------- ------- CASH AT END OF YEAR $10,999 $ 5,338 $ 3,347 ======= ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
Year Ended ----------------------------------------------------- September 28, September 26, September 25, 1995 1996 1997 ---- ---- ---- Cash paid (refunded) during the year: Interest $12,650 $12,719 $12,863 ======= ======= ======= Taxes $ 1,197 $ (403) $ (917) ======= ======= =======
SUPPLEMENTAL NONCASH INVESTING AND FINANCING ACTIVITIES ------------------------------------------------------- During fiscal 1997, the Company acquired 35 stores, acquired the gasoline operations at 23 third-party locations and disposed of 21 stores. The net assets acquired and liabilities assumed are as follows (in thousands):
Year Ended September 25, 1997 ---- Inventories $ 1,665 Property and equipment 6,374 Other noncurrent assets 9 Accrued expenses (43) ------- $ 8,005 Goodwill 4,157 ------- Acquisitions of related business $12,162 =======
The accompanying notes are an integral part of these consolidated financial statements. 8 THE PANTRY, INC. ---------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ NOTE 1 - HISTORY OF COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: - -------------------------------------------------------------------------- The Company - ----------- The consolidated financial statements include the accounts of The Pantry, Inc. ("The Pantry" or the "Company") and its wholly-owned subsidiaries, Sandhills, Inc. and PH Holding Corporation ("PH") and PH's wholly-owned subsidiaries, TC Capital Management, Inc. and Pantry Properties, Inc. All intercompany transactions and balances have been eliminated in consolidation. The Pantry owns and operates approximately 390 convenience stores in North Carolina, South Carolina, Tennessee, Kentucky, and Indiana. Prior to November 2, 1993, The Pantry was a wholly-owned subsidiary of Montrose Pantry Acquisition Corporation ("MPAC"), an entity formed to affect the 1987 leveraged buy-out of The Pantry. On November 2, 1993, The Pantry was merged into MPAC and MPAC's name was changed to The Pantry. MPAC had no assets or operations other than its investment in The Pantry. On November 30, 1995, Freeman Spogli & Co. Incorporated, through its affiliates, FS Equity Partners III, L.P., a Delaware limited partnership ("FSEP III") and FS Equity Partners International, L.P., a Delaware limited partnership ("FSEP International," collectively with FSEP III, "the FS Group") acquired a 39.9% interest in the Company and Chase Manhattan Capital Corporation ("Chase") acquired a 12.0% interest in the Company through a series of transactions which included the purchase of common stock from certain shareholders and the purchase of newly issued common and preferred stock. The FS Group and Chase subsequently acquired the remaining interests of approximately 37.0% and 11.1%, respectively, on August 19, 1996 through the purchase of common and preferred stock from certain shareholders. On December 30, 1996, the Company issued and the FS Group purchased additional preferred stock. As of September 25, 1997, the Company was owned 83.6% and 16.4% by the FS Group and Chase, respectively. On October 23, 1997, The Pantry acquired 100% of the outstanding common stock of Lil' Champ Food Stores, Inc. ("Lil' Champ") from Docks U.S.A., Inc. (the "Lil' Champ Acquisition"). The combination of The Pantry and Lil' Champ has created one of the largest independent convenience stores in the United States (based on number of stores) with 878 stores primarily located in the Southeast. The acquisition was funded by a combination of Senior Subordinated Notes and an additional equity investment by the FS Group and Chase (see Note 15 - Subsequent Events). Acquisition accounting - ---------------------- MPAC acquired all of The Pantry's common stock in a leveraged buy-out as of August 13, 1987. Certain individuals and entities which held an ownership interest in The Pantry retained approximately 45% of ownership interest after the August 13, 1987 transaction. A new basis of accounting was established as a result of the acquisition to the extent of the "new" equity interests (partial step-up). The original basis of accounting was retained for those shareholders that retained an equity interest in MPAC after the acquisition. To the extent of ownership change, the excess amount paid over The Pantry's net book value was allocated to property and equipment, inventories, deferred lease cost and goodwill based on relative fair market values. To the extent that certain individuals and entities maintained their equity interests, the excess amount paid over net book value was recorded as a debit in shareholders' deficit ($17,109,000). Had there not been a partial step-up, this amount would have been allocated to property and equipment, inventories, deferred lease cost and goodwill based on relative fair market values. Long-lived assets - ----------------- In 1996, the Company early-adopted Statement of Financial Accounting Standards ("SFAS") No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. Accordingly, long-lived assets are reviewed for impairment on a store-by-store basis whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If an evaluation is required, the projected future undiscounted cash flows attributable to each store would be compared to the carrying value of the long-lived assets (including an allocation of goodwill, if appropriate) of that store to determine if a write-down to fair value is required (see Note 11 - Impairment of Long-Lived Assets). 9 Goodwill - -------- Goodwill, which represents the excess of purchase price over fair value of net assets acquired, is amortized on a straight-line basis over the expected periods to be benefited. The Company assesses the recoverability of this intangible asset by determining whether amortization of the goodwill balance over its remaining life can be recovered through estimated undiscounted future operating results. Estimated future results are based on a trend of historical results for the trailing three fiscal years and management's estimate of future results which indicate that the goodwill balances will be recovered over the various periods remaining to be benefited. Goodwill of $24,946,000 with accumulated amortization of $8,790,000 as of September 25, 1997 related to the 1987 leveraged buy-out is being amortized on a straight-line basis over 40 years. Goodwill of $5,768,000 with accumulated amortization of $1,606,000 as of September 25, 1997 related to acquisitions of stores is being amortized on a straight-line basis over 20 years. Deferred lease cost - ------------------- Deferred lease cost represents the value assigned to favorable leases acquired. Such amounts are being amortized over the remaining term of the respective leases. Property held for sale - ---------------------- Certain property is classified as current assets when management's intent is to sell these assets in the ensuing fiscal year, and is recorded at the lower of cost or fair value less cost to sale. Deferred financing cost - ----------------------- Deferred financing cost represents expenses related to issuing the Company's long-term debt (see Note 4 - Long-Term Debt and Note 15 - Subsequent Events), obtaining its lines of credit (see Note 5 - Lines of Credit), and obtaining lease financing (see Note 7 - Leases). Such amounts are being amortized over the remaining term of the respective financing. Property and equipment - ---------------------- Property and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation and amortization is provided primarily by the straight-line method over the estimated useful lives of the assets for financial statement purposes and by accelerated methods for income tax purposes. Upon sale or retirement of depreciable assets, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is recognized. Leased buildings capitalized in accordance with SFAS No. 13 are recorded at the lesser of fair value or the discounted present value of future lease payments at the inception of the leases. Amounts capitalized are amortized over the estimated useful lives of the assets or terms of the leases (generally 5 to 20 years) using the straight-line method. Inventories - ----------- Inventories are valued at the lower of cost or market. Cost is determined using the last-in, first-out ("LIFO") method. Non-compete agreement - --------------------- Effective with the July 11, 1994, termination of a former officer of The Pantry, the non-compete portion of a fiscal 1993 contract between the Company and the former officer, which restricted the former officer and his affiliated companies from operating convenience stores in competition with The Pantry, became the principal source of value. On June 30, 1995, the terms of this contract were amended, including a change in the expiration of the non-compete period from December 2001 to December 1996. Due to the significance of the reduction of the non-compete period, the unamortized balance of the non-compete asset was written off in fiscal 1995. Income taxes - ------------ All operations of The Pantry and its subsidiaries are included in a consolidated Federal income tax return. Pursuant to SFAS No. 109, Accounting for Income Taxes, The Pantry recognizes deferred tax liabilities and assets for the expected future tax consequences of temporary differences between financial statement carrying amounts and the related tax bases. 10 Use of estimates - ---------------- 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Recently issued accounting standards not yet adopted - ---------------------------------------------------- In October 1996, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued Statement of Position ("SOP") 96-1, Environmental Remediation Liabilities. SOP 96-1 contains authoritative guidance on specific accounting issues that are present in the recognition, measurement, display and disclosure of environmental remediation liabilities. The provisions of SOP 96-1 are effective for fiscal years beginning after December 15, 1996 (the Company's 1998 fiscal year). The Company does not believe the adoption of SOP 96-1 will have a material effect on its consolidated financial statements. Accounting period - ----------------- The Pantry operates on a 52-53 week fiscal year ending on the last Thursday in September. For 1995, 1996 and 1997, each of the Company's fiscal years contained 52 weeks. Reclassifications - ----------------- Certain amounts in the fiscal 1995 and 1996 consolidated financial statements have been reclassified to conform to the current year presentation. Accounting Change - ----------------- During the fourth quarter of fiscal 1995, the Company adopted, retroactive to September 30, 1994, SFAS No. 112, "Employer's Accounting for Postemployment Benefits" and restated its first quarter results to reflect the adoption. SFAS No. 112 requires that employers expense the costs of postemployment benefits over the service lives of employees if certain conditions are met. The cumulative effect of adopting SFAS No. 112 as of September 30, 1994 was an after tax charge of $960,000. NOTE 2 - INVENTORIES: - -------------------- At September 26, 1996 and September 25, 1997, inventories consisted of the following (in thousands):
1996 1997 -------- -------- Inventories at FIFO cost: Merchandise $13,841 $16,877 Gasoline 4,013 4,969 ------- ------- 17,854 21,846 Less adjustment to LIFO cost: Merchandise (4,012) (4,203) Gasoline (619) (482) ------- ------- Inventories at LIFO cost $13,223 $17,161 ======= =======
The positive effect on cost of sales of LIFO inventory liquidations was $957,000, $68,000 and $4,141 for fiscal years 1995, 1996 and 1997, respectively. 11 NOTE 3 - PROPERTY AND EQUIPMENT: - ------------------------------- At September 26, 1996 and September 25, 1997, property and equipment consisted of the following (in thousands):
1996 1997 --------- --------- Land $ 16,116 $ 16,109 Buildings 28,731 29,928 Gasoline equipment 39,670 50,362 Other equipment, furniture and fixtures 24,020 26,657 Leasehold improvements 8,403 10,743 Automobiles 123 134 Construction in progress 110 1,471 -------- -------- 117,173 135,404 Less - accumulated depreciation and amortization (51,718) (57,418) -------- -------- $ 65,455 $ 77,986 ======== ======== NOTE 4 - LONG-TERM DEBT: - ----------------------- At September 26, 1996 and September 25, 1997, long-term debt consisted of the following (in thousands): 1996 1997 -------- -------- Notes payable ("Senior Notes"); due November 15, 2000; interest payable semi-annually at 12.5% $ 99,995 $ 99,995 Note payable; secured by certain property; due monthly through 2004; interest at 10% 169 137 Note payable; secured by certain property; due monthly through 2005; interest at 8% - 206 -------- -------- 100,164 100,338 Less - current maturities (16) (33) -------- -------- $100,148 $100,305 ======== ========
While the Senior Notes are unsecured, the terms of the Senior Notes contain certain covenants restricting (i) the use of proceeds from the offering; (ii) the placing of liens on properties; (iii) certain "restricted payments" as defined in the agreement; (iv) the incurrance of additional debt; (v) the sale of assets; (vi) any merger, (vii) consolidation or change in control; (viii) lines of business and (ix) transactions with affiliates. In addition, the Indenture requires certain positive covenants including the maintenance of a "Consolidated Fixed Charge Ratio" (the "Coverage Ratio") of greater than 1.69 to 1.0. On December 26, 1997 (the first "Measurement Date" in fiscal year 1997), the Company's Coverage Ratio was less than 1.69 to 1.0 and, therefore, the interest rate on the Senior Notes was temporarily increased to 12 1/2% and remains at this rate as of December 5, 1997. The next Measurement Date is December 25, 1997. On October 23, 1997 in connection with the Lil' Champ Acquisition, the Company completed the offering of $200 million of 10 1/4% Senior Subordinated Notes due 2007 and, in a related transaction, completed a tender offer and consent solicitation with respect to the $100 million of 12% Senior Notes due 2000. The tender offer resulted in the Company's purchase of $51 million in principal amount of the Senior Notes at a purchase price of 110% of the aggregate principal amount plus accrued and unpaid interest and other related fees (see Note 15 - Subsequent Events). NOTE 5 - LINES OF CREDIT: - ------------------------- As of September 25, 1997, The Pantry had two bank lines of credit with borrowing capacity limits of $10 million and $15 million, respectively. The $10 million line of credit bears interest at prime (8.50% at September 25, 1997) plus 0.5%. As of September 25, 1997, there were no balances outstanding under the $10 million line of credit. The $15 million line of credit secures the Company's outstanding letters of credit of $8,563,000 at September 25, 1997. During fiscal 1997 and as of September 25, 1997, there were no draws against the letters of credit. On October 23, 1997 in connection with the Lil' Champ Acquisition, the Company entered into a new bank credit facility (the "New Credit Facility") replacing the $10 million and $15 million bank lines discussed above. The New Credit Facility consists of a $45 million revolving credit facility and a $30 million acquisition facility. The New Credit Facility has availability for letter of credit usage, is secured by substantially all of the assets of the Company and the Guarantors (as defined herein) and is guaranteed by the Guarantors (see Note 15 - Subsequent Events). 12 NOTE 6 - INCOME TAXES: - --------------------- The components of income tax expense (benefit) are summarized below (in thousands):
1995 1996 1997 --------- -------- ------ Current: Federal $ 1,033 $(1,111) $ 163 State 424 5 (534) ------- ------- ----- 1,457 (1,106) (371) ------- ------- ----- Deferred: Federal (1,839) (1,074) 371 State (612) (484) -- ------- ------- ----- (2,451) (1,558) 371 ------- ------- ----- $ (994) $(2,664) $ -- ======= ======= =====
As of September 26, 1996 and September 25, 1997, deferred tax liabilities (assets) are comprised of the following (in thousands):
1996 1997 -------- -------- Depreciation $ 5,523 $ 6,513 Deferred lease cost 16 27 Inventory 994 940 Other 491 469 ------- ------- Gross deferred tax liabilities 7,024 7,949 ------- ------- Capital lease obligations (205) (321) Allowance for doubtful accounts (57) (58) Environmental expenses (410) (500) Accrued insurance reserves (1,391) (1,607) Accrued compensation (932) (667) Other (478) (616) ------- ------- Gross deferred tax assets (3,473) (3,769) ------- ------- Net operating loss carryforwards (2,921) (2,622) General business credits (1,695) (1,846) AMT Credits (2,386) (2,696) Deferred tax assets valuation allowance 1,782 1,686 ------- ------- $(1,669) $(1,298) ======= =======
Reconciliations of income taxes at the Federal statutory rate (34%) to actual taxes provided are as follows (in thousands):
1995 1996 1997 -------- -------- ------ Tax benefit at Federal statutory rate $(1,783) $(3,665) (332) Tax benefit at state rate, net of Federal income tax benefit (779) (316) (325) Permanent differences: Amortization of goodwill 237 1,127 235 Other 75 14 248 Tax benefit from creation of general business credits (175) -- (151) Interperiod tax allocation 920 -- -- Other -- -- -- Valuation allowance 511 176 325 ------- ------- ----- Net income tax benefit $ (994) $(2,664) $ -- ======= ======= =====
As of September 27, 1997 The Pantry had net operating loss carryforwards, general business credits and AMT credits which can be used to offset future Federal income taxes. The benefit of these carryforwards is recognized, net of a valuation allowance, as a reduction in the Company's net deferred tax asset. Loss carryforwards as of September 25, 1997 have the following expiration dates (in thousands): 13
Federal State ---------- ------- 1998 $---- $ 3,478 1999 ---- 5,526 2000 ---- 5,532 2001 ---- 10,034 2002 ---- 7,639 2012 371 ---- ---- ------- Total loss carryforwards. $ 371 $32,209 ===== =======
The valuation allowance increased $176,000 and $325,000 in 1996 and 1997, respectively, to provide for state net economic loss carryforwards. The valuation allowance decreased $421,000 in 1997, which was primarily attributable to the expiration of net operating loss carryforwards. The State of North Carolina and the State of Tennessee have assessed Sandhills, Inc., a subsidiary of the Company, with additional taxes plus penalties and accrued interest totaling approximately $5.0 million, for the periods February 1, 1992 to September 26, 1996, respectively. The Company is contesting these tax assessments and believes that it has meritorious defenses to the proposed adjustments. Additionally, the Company believes that, in the event of a mutual settlement, the assessment amount and related penalties would be substantially reduced. Based on this, the Company believes the outcome of the audits will not have a material adverse effect on the Company's financial condition or results of operations. NOTE 7 - LEASES: - --------------- The Pantry leases store buildings, office facilities and store equipment under both capital and operating leases. The asset balances related to capital leases at September 26, 1996 and September 25, 1997, are as follows (in thousands):
1996 1997 -------- -------- Buildings $ 2,196 $ 2,196 Less - accumulated amortization (1,464) (1,649) ------- ------- $ 732 $ 547 ======= =======
Amortization expense related to capitalized leased assets was $269,000, $261,000, and $185,000 for fiscal 1995, 1996 and 1997, respectively. Future minimum lease payments as of September 25, 1997, for capital leases and operating leases that have initial or remaining terms in excess of one year are as follows (in thousands):
Fiscal Capital Operating year leases leases - --------- ------- --------- 1998 $ 381 $ 8,447 1999 308 7,947 2000 193 7,146 2001 106 5,681 2002 103 4,961 Thereafter 287 53,342 ------ ------- Net minimum lease payments 1,378 $87,524 ======= Amount representing interest (8% to 20%) 414 ------ Present value of net minimum lease payments 964 Less - current maturities 285 ------ $ 679 ======
The above amounts do not include total future minimum sublease rentals of approximately $85,250 related to capital and operating leases. Rental expense for operating leases was approximately $6,759,000, $8,126,000 and $9,618,000 for fiscal years 1995, 1996 and 1997, respectively. NOTE 8 - RELATED PARTIES: - ------------------------- 14 Certain of the above leases are with partnerships and corporations controlled by former shareholders, former officers and current and former directors of The Pantry. Rents under these leases were approximately $1,079,000, $1,274,000, and $1,280,000 for fiscal years 1995, 1996, and 1997, respectively. Such leases expire at various intervals over the next twenty years. During fiscal 1995, the Company sold certain convenience stores to an entity controlled by former officers and current and former directors of the Company for approximately $3,300,000, which approximated the Company's investment in these properties. These stores are currently being leased back from this entity (rental amounts are included above). Under the terms of a contract with a former officer, the Company is obligated to pay the former officer certain amounts through September 30, 2000. The Company has recorded a liability equal to the net present value of the payments due under the contract and has classified the resulting annual interest expense as related party interest. NOTE 9 - COMMITMENTS AND CONTINGENCIES: - -------------------------------------- As of September 25, 1997, The Pantry was contingently liable for outstanding letters of credit in the amount of $8,563,000 related primarily to several areas in which The Pantry is self-insured. The letters of credit are not to be drawn against unless The Pantry defaults on the timely payment of related liabilities. The Pantry is involved in certain legal actions arising in the normal course of business. In the opinion of management, based on a review of such legal proceedings, the ultimate outcome of these actions will not have a material effect on the consolidated financial statements. Environmental liabilities and contingencies - ------------------------------------------- The Company is subject to various federal, state and local environmental laws and regulations governing underground petroleum storage tanks ("USTs") that require The Pantry to make certain expenditures for compliance. In particular, at the federal level, the Resource Conservation and Recovery Act, as amended, requires the EPA to establish a comprehensive regulatory program for the detection, prevention, and cleanup of leaking USTs. Regulations enacted by the EPA in 1988 established requirements for (i) installing UST systems; (ii) upgrading UST systems; (iii) taking corrective action in response to releases; (iv) closing UST systems; (v) keeping appropriate records; and (vi) maintaining evidence of financial responsibility for taking corrective action and compensating third parties for bodily injury and property damage resulting from releases. These regulations permit states to develop, administer and enforce their own regulatory programs, incorporating requirements which are at least as stringent as the federal standards. The following is an overview of the requirements imposed by these regulations: * Leak Detection: The EPA and states' release detection regulations were phased in based on the age of the USTs. All USTs were required to comply with leak detection requirements by December 22, 1993. The Company utilizes two approved leak detection methods for all Company-owned UST systems. Daily and monthly inventory reconciliations are completed at the store level and at the corporate support center. The daily and monthly reconciliation data is also analyzed using Statistical Inventory Reconciliation ("SIR") which compares the reported volume of gasoline purchased and sold with the capacity of each UST system and highlights discrepancies. The Company also performs annual leak detection tests. * Corrosion Protection: The 1988 EPA regulations require that all UST systems have corrosion protection by December 22, 1998. The Company began installing non-corrosive fiberglass tanks and piping in 1982. The Company has a comprehensive plan to upgrade all its steel tank UST systems to 1998 standards by 1998 through internal tank lining and cathodic protection. As of September 25, 1997, approximately 81% of the Company's USTs have been protected from corrosion either through the installation of fiberglass tanks or upgrading steel USTs with interior fiberglass lining and the installation of cathodic protection. * Overfill/Spill Prevention: The 1988 EPA regulations require that all sites have overfill/spill prevention devices by December 22, 1998. The Pantry is systematically installing devices on all Company-owned UST systems to meet these regulations. The Pantry has installed spill/overfill equipment for approximately 81% of its USTs. The Pantry anticipates that it will meet the 1998 deadline for installing corrosion protection and spill/overfill equipment for all of its USTs and has budgeted approximately $1.0 million of capital expenditures for these purposes in fiscal 1998. In addition to the technical standards, The Pantry is required by federal and state regulations to maintain evidence of financial responsibility for taking corrective action and compensating third parties in the event of a release from its UST systems. In order to comply with this requirement, The Pantry maintains a letter of credit in the aggregate amount of $2.1 million issued by a commercial bank in favor of state environmental enforcement agencies in the states of North Carolina, South Carolina, Tennessee, Indiana and Kentucky and relies on reimbursements from applicable state trust funds. 15 All states in which The Pantry operates or has operated UST systems have established trust funds for the sharing, recovering, and reimbursing of certain cleanup costs and liabilities incurred as a result of releases from UST systems. These trust funds, which essentially provide insurance coverage for the cleanup of environmental damages caused by the operation of UST systems, are funded by a UST registration fee and a tax on the wholesale purchase of motor fuels within each state. The Company has paid UST registration fees and gasoline taxes to each state where it operates to participate in these programs and has filed claims and received reimbursement in North Carolina, South Carolina, and Tennessee. The coverage afforded by each state fund varies but generally provides up to $1.0 million per site for the cleanup of environmental contamination, and most provide coverage for third party liabilities. Costs for which the Company does not receive reimbursement include but are not limited to: (i) the per-site deductible; (ii) costs incurred in connection with releases occurring or reported to trust funds prior to their inception;(iii) removal and disposal of UST systems and (iv) costs incurred in connection with sites otherwise ineligible for reimbursement from the trust funds. The trust funds require the Company to pay deductibles ranging from $10,000 to $100,000 per occurrence depending on the upgrade status of its UST system, the date the release is discovered/reported and the type of cost for which reimbursement is sought. Reimbursement from state trust funds will be dependent upon the maintenance and continued solvency of the various funds. As of September 25, 1997, the Company is responsible for the remediation of contamination at 56 sites. Other third parties are responsible for remediation of contamination at another 13 sites. The Pantry has accrued $7,806,000 for estimated total future remediation costs at the sites for which it is responsible. The Pantry anticipates that approximately $1,295,000 of these future remediation costs will not be reimbursed by state trust funds or covered by private insurance. Of the remaining $6,511,000, The Pantry believes that (i) approximately $6,341,000 will be reimbursed from state funds based on prior acceptance of sites for reimbursement under these programs or anticipated acceptance based on date of discovery of contamination and program regulations and (ii) approximately $170,000 will be covered by insurance based on prior acceptance of sites for such coverage. Reimbursements from state trust funds will be dependent upon the continued solvency of the various funds. Remediation cost estimates are based on consultants' and management's estimates of the cost of remediation, tank removal, and litigation associated with all known contaminated sites as a result of releases (e.g. overfills, spills and UST system leaks). Although the Company is not aware of releases or contamination at other locations where it currently operates or has operated stores, any such releases or contamination could require substantial remediation costs, some or all of which may not be eligible for reimbursement from state trust funds. Several of the locations identified as contaminated are being cleaned up by third parties who have indemnified The Pantry as to responsibility for clean up matters. Additionally, The Pantry is awaiting closure notices on several other locations which will release the Company from responsibility related to known contamination at those sites. NOTE 10 - BENEFIT PLANS: - ----------------------- The Pantry sponsors a 401(k) Employee Retirement Savings Plan for eligible employees. Employees must be at least nineteen years of age and have one year of service with at least 1,000 hours worked to be eligible to participate in the plan. Employees may contribute up to 15% of their annual compensation, and contributions are matched by The Pantry on the basis of 50% of the first 5% contributed. Matching contribution expense was $346,000, $330,000, and $305,000 for fiscal years 1995, 1996 and 1997, respectively. NOTE 11 - IMPAIRMENT OF LONG-LIVED ASSETS: - ----------------------------------------- In fiscal year 1996, the Company early-adopted SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. SFAS No. 121 establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles and goodwill related to those assets to be held and used and for long-lived and certain identifiable intangibles to be disposed of. 16 Pursuant to SFAS No. 121, the Company evaluated its long-lived assets for impairment on a store-by-store basis by comparing the sum of the projected future undiscounted cash flows attributable to each store to the carrying value of the long-lived assets (including an allocation of goodwill, if appropriate) of that store. Projected future cash flows for each store were estimated for a period approximating the remaining lives of that store's long-lived assets, based on earnings history, lease expiration dates and renewal periods, market conditions and assumptions reflected in internal operating plans and strategies. Based on this evaluation, the Company determined that certain long-lived assets were impaired and recorded an impairment loss based on the difference between the carrying value and the fair value of the assets. Fair value was determined based on an evaluation of each property's value. The impairment consists of the following assets (in thousands): Property, plant and equipment $ 415 Goodwill 2,619 ------ Total $3,034 ======
NOTE 12 - RESTRUCTURING CHARGES: - ------------------------------- In fiscal year 1996, the Company recorded restructuring charges of $2,184,000 pursuant to a formal plan to restructure its corporate offices. The costs include $1,484,000 for employee severance; $350,000 for employee moving costs; and $350,000 for legal costs related to the ownership litigation. Substantially all of these amounts were expended during fiscal 1996. NOTE 13 - PREFERRED STOCK: - ------------------------- As of September 25, 1997, preferred stock consists of 150,000 authorized shares. Issued and outstanding shares at September 25, 1997 includes 25,999 shares which have been designated as Series A and 17,500 shares designated as Series B, all of which is held by FS Group. The Company is limited from paying dividends under the terms and conditions of the Senior Notes Indenture, Senior Subordinated Notes Indenture and the Certificate of Designation of Preferences of the Series B Preferred Stock of The Pantry, Inc. In addition, without consent of the holders of a majority of the outstanding shares of Series B Preferred Stock, voting separately as a single class, the Company is restricted from: (i) the issuance of any securities with equal or superior rights with respect to dividends or liquidation preferences, (ii) the repurchase of any shares of, making of any dividend or distribution to, or any reclassification with respect to any of the Company's outstanding shares of capital stock, and (iii) amendment or modification of the Company's Article of Incorporation or Bylaws so as to adversely affect the relative rights, preferences, qualification, limitations or restrictions or the Series B Preferred Stock. (a) Series A Except as required by Delaware law, the holders of the Series A Preferred Stock (i) shall not be entitled to vote on any matter coming before the stockholders of the Company and (ii) shall not be included in determining the number of shares voting or entitled to vote on any such matters. The holders of Series A Preferred Stock are entitled to cumulative dividends from the Company on each share of Series A Preferred Stock at a semi-annual rate equal to $60.00 per share plus an amount determined by applying a twelve percent (12%) annual rate compounded semi-annually to any accrued but unpaid dividend. Except as limited by the Senior Note Indenture, Senior Subordinated Notes Indenture and the Certificate of Designation of Preferences of the Series B Preferred Stock, such dividends on the outstanding shares of Series A Preferred Stock shall be payable at such intervals as the Board of Directors of the Company may from time to time determine and may be paid in cash or by issuing additional shares, including fractional shares of Series A Preferred Stock, at the rate of one share for each $1,000 of dividends outstanding. Upon the dissolution, liquidation or winding up of the Company, whether voluntary or involuntary, the holders of outstanding shares of Series A Preferred Stock, shall be entitled to be paid out of the assets of the Company available for distribution to its stockholders, whether such assets are capital, surplus or earnings, before any payment or declaration and setting apart for payment of any amount shall be made in respect of the outstanding shares of the Company's Common Stock, but following the preferences of Series B Preferred Stock as discussed herein, an amount equal to each $1,000 per share of Series A Preferred Stock then outstanding, plus all accrued but unpaid dividends thereon to the date fixed for liquidation (whether or not declared), and no more. If upon the dissolution, liquidation or winding up of the Company, whether voluntary or involuntary, the assets to be distributed after satisfaction of the preferences of Series B Preferred Stock among the holders of outstanding shares of Series A Preferred Stock shall be insufficient to permit the payment to such stockholders of the full preferential amounts aforesaid, then the entire assets of the Company to be distributed 17 ratably among the holders of outstanding shares of Series A Preferred Stock based on the full preferential amounts for the number of outstanding shares of Series A Preferred Stock held by each holder. (b) Series B At all meetings of the stockholders of the Company and in the case of any actions of stockholders in lieu of a meeting and holder of the Series B Preferred Stock shall be entitled to ten (10) votes per share and except as required by Delaware law shall vote together with the holders of Common Stock as a single class. The holders of Series B Preferred Stock are entitled to cumulative dividends from the Company on each share of Series B Preferred Stock at a quarterly rate equal to $32.5 per share plus an amount determined by applying a thirteen percent (13%) annual rate compounded quarterly to any accrued but unpaid dividend. Except as limited by both the Senior Notes and Senior Subordinated Notes Indentures, such dividends on the outstanding shares of Series B Preferred Stock shall be payable at such intervals as the Board of Directors of the Company may from time to time determine and may be paid in cash or by issuing additional shares, including fractional shares of Series B Preferred Stock, at the rate of one share for each $1,000 of dividends outstanding. Upon the dissolution, liquidation or winding up of the Company, whether voluntary or involuntary, the holders of outstanding shares of Series B Preferred Stock, shall be entitled to be paid out of the assets of the Company available for distribution to its stockholders, whether such assets are capital, surplus or earnings, before any payment or declaration and setting apart for payment of any amount shall be made in respect of the outstanding shares of any other class or series of the Company's capital stock, including without limitation, shares of Series A Preferred Stock and of Common Stock, an amount equal to $1,000 per share of Series B Preferred Stock then outstanding, plus all accrued but unpaid dividends thereon to the date fixed for liquidation (whether or not declared), and no more. If upon the dissolution, liquidation or winding up of the Company, whether voluntary or involuntary, the assets to be distributed among the holders of outstanding shares of Series B Preferred Stock shall be insufficient to permit the payment to such stockholders of the full preferential amounts aforesaid, then the entire assets of the Company to be distributed ratably among the holders of outstanding shares of Series B Preferred Stock based on the full preferential amounts for the number of outstanding shares of Series B Preferred Stock held by each holder. NOTE 14 - SUPPLEMENTAL GUARANTOR INFORMATION: - -------------------------------------------- On October 23, 1997, the Company purchased all of the capital stock of Lil' Champ Food Stores, Inc. ("Lil' Champ") (see Note 15 - Subsequent Events). Sandhills, Inc., Lil' Champ and all future direct and indirect restricted subsidiaries (together the "Guarantors"), jointly and severally, unconditionally guaranteed, on an unsecured senior subordinated basis, the full and prompt performance of The Pantry's obligations under its $200.0 million, 10 1/4% Senior Subordinated Notes due 2007 (the "Senior Subordinated Notes") and the related Indenture, the issuance of which occurred on October 23, 1997. The Senior Subordinated Notes will be exchanged for new notes (the "Exchange Notes"; together with the Senior Subordinated Notes, the "Notes") in an exchange offer upon the effectiveness of The Pantry's pending Form S-4 Registration Statement. The form and terms of the Exchange Notes are the same as the form and terms of the Senior Subordinated Notes (which they replace) except that (i) the Exchange Notes will be registered under the Securities Act and, therefore, will not bear legends restricting the transfer thereof, and (ii) the holders of the Exchange Notes will not be entitled to certain rights under the Registration Rights Agreement by virtue of consummation of the exchange offer. The Senior Subordinated Notes contain covenants that, among other things, restrict the ability of The Pantry and any restricted subsidiary to: (i) incur additional indebtedness; (ii) pay dividends or make distributions; (iii) issue stock of subsidiaries; (iv) make certain investments; (v) repurchase stock; (vi) create liens; (vii) enter into transaction with affiliates; (viii) enter into sale-leaseback transactions; (ix) merge or consolidate The Pantry or any of its subsidiaries; and (x) transfer and sell assets. Management has determined that separate, full financial statements of the Guarantor (Sandhills, Inc. as of September 25, 1997) would not be material to investors and therefore such financial statements are not provided. The following supplemental combining financial statements present information regarding the Guarantor and The Pantry. The Pantry accounts for its wholly-owned subsidiaries on the equity basis. Certain reclassifications have been made to conform all of the financial information to the financial presentation on a consolidated basis. The principal eliminating entries eliminate investments in subsidiaries and intercompany balances. 18
THE PANTRY, INC. SUPPLEMENTAL COMBINING STATEMENTS OF OPERATIONS YEAR ENDED SEPTEMBER 28, 1995 (DOLLARS IN THOUSANDS) Guarantor Non-Guarantor The Pantry Subsidiary Subsidiary Eliminations Total ------------------------------------------------------------------------ Revenues: Merchandise sales $187,380 $ - $ - $ - $187,380 Gasoline sales 187,165 - - - 187,165 Commissions 4,516 - - - 4,516 ------------------------------------------------------------------------ Total revenues 379,061 - - - 379,061 ------------------------------------------------------------------------ Cost of sales: Merchandise 121,976 - - - 121,976 Gasoline 161,179 - - - 161,179 Total cost of sales 283,155 - - - 283,155 ------------------------------------------------------------------------ Gross profit 95,906 - - - 95,906 ------------------------------------------------------------------------ Operating expenses: Store expenses 66,432 - - (11,310) 55,122 Store expenses - related parties 1,084 - - - 1,084 General and administrative expenses 18,089 45 25 - 18,159 Depreciation and amortization 9,494 5 6 - 9,505 Amortization of non-compete agreement 1,965 - - - 1,965 ------------------------------------------------------------------------ Total operating expenses 97,064 50 31 (11,310) 85,835 ------------------------------------------------------------------------ Income from operations (1,158) (50) (31) 11,310 10,071 ------------------------------------------------------------------------ Equity in earnings of subsidiaries 12,163 - - (12,163) - ------------------------------------------------------------------------ Other income (expense): Interest expense (14,449) - (17) 1,492 (12,974) Interest - related parties (266) - - - (266) Miscellaneous 161 13,091 260 (12,801) 711 Due diligence costs (101) - (1,080) - (1,181) ------------------------------------------------------------------------ Total other expense (14,655) 13,091 (837) (11,309) (13,710) ------------------------------------------------------------------------ Loss before income taxes (3,650) 13,041 (868) (12,162) (3,639) Income tax benefit (expense) 365 (4,434) (120) 4,543 354 ------------------------------------------------------------------------ Loss before extraordinary item and cumulative effect of accounting change (3,285) 8,607 (988) (7,619) (3,285) Cumulative effect of change in accounting for post-employment benefits (net of income tax benefit of $640) (960) - - - (960) ------------------------------------------------------------------------ Net loss $ (4,245) $ 8,607 $ (988) $ (7,619) $ (4,245) ========================================================================
19 THE PANTRY, INC. SUPPLEMENTAL COMBINING STATEMENTS OF CASH FLOWS YEAR ENDED SEPTEMBER 28, 1995 (DOLLARS IN THOUSANDS)
Guarantor Non-Guarantor The Pantry Subsidiary Subsidiary Eliminations Total ---------- ---------- ------------- ------------ ----- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income (loss) $(4,245) $ 8,607 $(987) $(7,620) $(4,245) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Cumulative effect of change in accounting for post-employment benefits 1,600 - - - 1,600 Depreciation and amortization 11,464 - 6 - 11,470 Provision for deferred income taxes (2,451) - - - (2,451) Loss on sale of property and equipment 2 - - - 2 Provision for environmental expenses (418) - - - (418) Provision for closed stores 292 - - - 292 Equity earnings of affiliates (7,620) - - 7,620 - Changes in operating assets and liabilities, net: Receivables (284) (1,392) (30) 2,100 394 Inventories 1,694 - - - 1,694 Prepaid expenses 121 - (2) - 119 Other non-current assets (322) (58) 101 - (279) Accounts payable 2,294 - - - 2,294 Other current liabilities and accrued expenses (126) 447 198 (556) (37) Employment obligations (140) - - - (140) Other noncurrent liabilities 2,871 281 - (1,544) 1,608 ------- ------- ----- ------- ------- Net cash provided by operating activities 4,732 7,885 (714) - 11,903 ------- ------- ----- ------- -------
20 THE PANTRY, INC. SUPPLEMENTAL COMBINING STATEMENTS OF CASH FLOWS - CONTINUED YEAR ENDED SEPTEMBER 28, 1995 (DOLLARS IN THOUSANDS)
Guarantor Non-Guarantor The Pantry Subsidiary Subsidiary Eliminations Total ----------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property held for sale (7,853) - (10,747) - (18,600) Additions to property and equipment (16,543) - (107) - (16,650) Proceeds from sale of property held for sale 8,644 - 10,792 - 19,436 Proceeds from sale of property and equipment 533 - - - 533 Intercompany notes receivable (payable) 12,950 (12,950) - - - Acquisition of related businesses - - - - - ----------------------------------------------------------------------- Net cash used in investing activities (2,269) (12,950) (62) - (15,281) ----------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal repayments under capital lease obligations (413) - - - (413) Principal repayments of long-term debt - - (7,281) - (7,281) Proceeds from issuance of long-term debt - - 7,267 - 7,267 Other financing costs (523) - - - (523) ----------------------------------------------------------------------- ----------------------------------------------------------------------- Net cash provided by (used in) financing activities (936) - (14) - (950) ----------------------------------------------------------------------- Net increase (decrease) in cash 1,527 (5,065) (790) - (4,328) CASH AT BEGINNING OF YEAR 1,720 8,649 4,958 - 15,327 ----------------------------------------------------------------------- CASH AT END OF YEAR $ 3,247 $ 3,584 $ 4,168 $- $ 10,999 =======================================================================
21 THE PANTRY, INC. SUPPLEMENTAL COMBINING BALANCE SHEETS SEPTEMBER 26, 1996 (DOLLARS IN THOUSANDS)
Guarantor Non-Guarantor The Pantry Subsidiary Subsidiary Eliminations Total ----------- ------------ -------------- ------------- -------- ASSETS - ------ Current assets: Cash $ 1,512 $ 135 $3,690 $ - $ 5,337 Receivables, net 4,411 3,898 30 (5,479) 2,860 Inventories 13,223 - - - 13,223 Prepaid expenses 770 3 3 - 776 Income taxes receivable 55 - 8 - 63 Property held for sale 2,068 - 748 - 2,816 Deferred income taxes 879 - - - 879 ----------- ------------ -------------- ------------- -------- Total current assets 22,918 4,036 4,479 (5,479) 25,954 ----------- ------------ -------------- ------------- -------- Investment in subsidiaries 36,267 - - (36,267) - ----------- ------------ -------------- ------------- -------- Property & Equipment, net 65,105 - 350 - 65,455 ----------- ------------ -------------- ------------- -------- Other assets: Goodwill, net 16,852 - - - 16,852 Deferred lease cost, net 359 - - - 359 Deferred financing cost, net 5,940 - - - 5,940 Environmental receivables 5,162 - - - 5,162 Deferred income taxes 790 - - - 790 Intercompany notes receivable - 29,452 - (29,452) - Other 279 87 2 - 368 ----------- ------------ -------------- ------------- -------- Total other assets 29,382 29,539 2 (29,452) 29,471 ----------- ------------ -------------- ------------- -------- Total Assets $153,672 $33,575 $4,831 $(71,198) $120,880 =========== ============ ============== ============== ========
22 THE PANTRY, INC. SUPPLEMENTAL COMBINING BALANCE SHEETS - CONTINUED SEPTEMBER 26, 1996 (DOLLARS IN THOUSANDS)
Guarantor Non-Guarantor The Pantry Subsidiary Subsidiary Eliminations Total ------------ ------------ ------------- -------------- ---------- LIABILITIES AND SHAREHOLDERS' - ----------------------------- EQUITY (DEFICIT) - ---------------- Current liabilities: Current maturities of long-term debt $ - $ - $ 16 $ - $ 16 Current maturities of capital lease obligations 285 - - - 285 Accounts payable: Trade 15,666 - - - 15,666 Money orders 2,788 - - - 2,788 Accrued interest 5,143 - 1 (728) 4,416 Accrued compensation and related taxes 2,336 1 1 - 2,338 Income taxes payable - 1,331 98 (1,429) - Other accrued taxes 2,135 - - - 2,135 Accrued insurance 3,629 - - - 3,629 Other Accrued Liabilities 4,299 94 122 (3,321) 1,194 ------------ ------------ ------------- -------------- ---------- Total current liabilities 36,281 1,426 238 (5,478) 32,467 ------------ ------------ ------------- -------------- ---------- Long-term debt 99,995 - 153 - 100,148 ------------ ------------ ------------- -------------- ---------- Other non-current liabilities: Environmental expenses 6,232 - - - 6,232 Capital lease obligations 982 - - - 982 Employment obligations 2,039 - - - 2,039 Accrued dividends on preferred stock 2,654 - - - 2,654 Intercompany note payable 29,452 - - (29,452) - Other 3,581 281 43 - 3,905 ------------ ------------ ------------- -------------- ---------- Total other non-current 44,940 281 43 (29,452) 15,812 liabilities ------------ ------------ ------------- -------------- ---------- SHAREHOLDERS' EQUITY (DEFICIT): Preferred stock - - - - - Common stock 1 - - - 1 Additional paid-in capital (10,557) 25 5,001 (5,026) (10,557) Retained earnings (deficit) (16,991) 31,843 (602) (31,241) (16,991) ------------ ------------ ------------- -------------- ---------- Total shareholders' equity (deficit) (27,547) 31,868 4,399 (36,267) (27,547) ------------ ------------ ------------- -------------- ---------- Total Liabilities and Shareholders Deficit $153,669 $33,575 $4,833 $(71,197) $120,880 ============ ============ ============= ============== ===========
23 THE PANTRY, INC. SUPPLEMENTAL COMBINING STATEMENTS OF OPERATIONS YEAR ENDED SEPTEMBER 26, 1996 (DOLLARS IN THOUSANDS)
Guarantor Non-Guarantor The Pantry Subsidiary Subsidiary Eliminations Total ------------- ------------ --------------- -------------- --------- Revenues: Merchandise sales $188,091 $ - $ - $ - $188,091 Gasoline sales 192,737 - - - 192,737 Commissions 3,979 - - - 3,979 ------------- ------------ --------------- -------------- --------- Total revenues 384,807 - - - 384,807 ------------- ------------ --------------- -------------- --------- Cost of sales: Merchandise 125,979 - - - 125,979 Gasoline 167,610 - - - 167,610 ------------- ------------ --------------- -------------- --------- Total cost of sales 293,589 - - - 293,589 ------------- ------------ --------------- -------------- --------- Gross profit 91,218 - - - 91,218 ------------- ------------ --------------- -------------- --------- Operating expenses: Store expenses 68,331 - (293) (11,471) 56,567 Store expenses - related parties 1,274 - - - 1,274 General and administrative expenses 17,024 80 23 - 17,127 Restructuring charges 2,184 2,184 Impairment of long-lived assets 3,034 3,034 Depreciation and amortization 9,138 14 6 - 9,158 ------------- ------------ --------------- -------------- --------- Total operating expenses 100,985 94 (264) (11,471) 89,344 ------------- ------------ --------------- -------------- --------- Income from operations (9,767) (94) 264 11,471 1,874 ------------- ------------ --------------- -------------- --------- Equity in earnings of subsidiaries 14,597 - - (14,597) - ------------- ------------ --------------- -------------- --------- Other income (expense): Interest expense (14,540) - (14) 2,562 (11,992) Miscellaneous (1,068) 14,243 198 (14,033) (660) ------------- ------------ --------------- -------------- --------- Total other expense (15,608) 14,243 184 (11,471) (12,652) ------------- ------------ --------------- -------------- --------- Loss before income taxes (10,778) 14,149 448 (14,597) (10,778) Income tax benefit (expense) 2,664 (4,811) (128) 4,939 2,664 ------------- ------------ --------------- -------------- --------- Net loss $ (8,114) $ 9,338 $ 320 $ (9,658) $ (8,114) ============= ============ =============== ============== =========
24 THE PANTRY, INC. SUPPLEMENTAL COMBINING STATEMENTS OF CASH FLOWS YEAR ENDED SEPTEMBER 26, 1996 (DOLLARS IN THOUSANDS)
Guarantor Non-Guarantor The Pantry Subsidiary Subsidiary Eliminations Total ------------ ------------ -------------- -------------- ------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income (loss) $(8,114) $9,339 $319 $(9,658) $(8,114) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Impairment of long-lived assets 3,034 - - - 3,034 Depreciation and amortization 9,152 - 6 - 9,158 Provision for deferred income taxes (1,558) - - - (1,558) Loss on sale of property and equipment 470 - - - 470 Provision for environmental expenses 512 - - - 512 Provision for closed stores 673 - - - 673 Write-off of property held for sale 168 - - - 168 Equity earnings of affiliates (9,658) - - 9,658 - Changes in operating assets and liabilities, net: Receivables (627) (392) (8) 488 (539) Inventories (937) - - - (937) Prepaid expenses 19 (1) 2 - 20 Other non-current assets 448 (17) 1 - 432 Accounts payable 2,104 - - - 2,104 Other current liabilities and accrued expenses (641) 125 (27) (96) (639) Employment obligations (255) - - - (255) Other noncurrent liabilities 1,279 - (1) (392) 886 ------------ ------------ -------------- -------------- ------- Net cash provided by operating activities (3,931) 9,054 292 - 5,415 ------------ ------------ -------------- -------------- -------
25 THE PANTRY, INC. SUPPLEMENTAL COMBINING STATEMENTS OF CASH FLOWS - CONTINUED YEAR ENDED SEPTEMBER 26, 1996 (DOLLARS IN THOUSANDS)
Guarantor Non-Guarantor The Pantry Subsidiary Subsidiary Eliminations Total ------------ ------------ -------------- -------------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property held for sale (3,301) - (799) 50 (4,050) Additions to property and equipment (7,070) - (14) - (7,084) Proceeds from sale of property held for sale 2,462 - 50 (50) 2,462 Proceeds from sale of property and equipment 1,458 - 10 - 1,468 Intercompany notes receivable (payable) 12,502 (12,502) - - Acquisition of related businesses - - - - - ------------ ------------ -------------- -------------- ------- Net cash used in investing activities 6,051 (12,502) (753) - (7,204) ------------ ------------ -------------- -------------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal repayments under capital lease obligations (347) - - - (347) Principal repayments of long-term debt (5) - (15) - (20) Net proceeds from equity issue (447) - - (447) Other financing costs (3,058) - - - (3,058) ------------ ------------ -------------- -------------- ------- ------------ ------------ -------------- -------------- ------- Net cash provided by (used in) (3,857) - (15) - (3,872) financing activities ------------ ------------ -------------- -------------- ------- Net increase (decrease) in cash (1,737) (3,448) (476) - (5,661) CASH AT BEGINNING OF YEAR 3,247 3,584 4,168 - 10,999 ------------ ------------ -------------- -------------- ------- CASH AT END OF YEAR $ 1,510 $ 136 $3,692 $ - $ 5,338 ============ ============ ============== ============== ========
26 THE PANTRY, INC. SUPPLEMENTAL COMBINING BALANCE SHEETS SEPTEMBER 25, 1997 (DOLLARS IN THOUSANDS)
Guarantor Non-Guarantor The Pantry Subsidiary Subsidiary Eliminations Total ------------ ---------- -------------- -------------- -------- ASSETS - ------ Current assets: Cash $ 2,247 $ 279 $ 821 $ - $ 3,347 Receivables, net 4,056 4,562 30 (6,547) 2,101 Inventories 17,161 - - - 17,161 Prepaid expenses 1,195 6 3 - 1,204 Property held for sale 3,323 - - - 3,323 Deferred income taxes 1,142 - - - 1,142 ------------ ---------- -------------- -------------- -------- Total current assets 29,124 4,847 854 (6,547) 28,278 ------------ ---------- -------------- -------------- -------- Investment in subsidiaries 47,225 - - (47,225) - ------------ ---------- -------------- -------------- -------- Property & Equipment, net 77,641 - 345 - 77,986 ------------ ---------- -------------- -------------- -------- Other assets: Goodwill, net 20,318 - - - 20,318 Deferred lease cost, net 314 - - - 314 Deferred financing cost, net 4,578 - - - 4,578 Environmental receivables 6,511 - - - 6,511 Deferred income taxes 156 - - - 156 Escrow for Lil' Champ acquisition - - 4,049 - 4,049 Intercompany notes receivable - 39,434 - (39,434) - Other 534 74 1 - 609 ------------ ---------- -------------- -------------- -------- Total other assets 32,411 39,508 4,050 (39,434) 36,535 ------------ ---------- -------------- -------------- -------- Total Assets $186,401 $44,355 $5,249 $(93,206) $142,799 ============ ========== ============== ============== ========
27 THE PANTRY, INC. SUPPLEMENTAL COMBINING BALANCE SHEETS - CONTINUED SEPTEMBER 25, 1997 (DOLLARS IN THOUSANDS)
Guarantor Non-Guarantor The Pantry Subsidiary Subsidiary Eliminations Total ------------ ------------ -------------- -------------- --------- LIABILITIES AND SHAREHOLDERS' - ----------------------------- EQUITY (DEFICIT): - ------------------- Current liabilities: Current maturities of long-term debt $ 17 $ - $ 16 $ - $ 33 Current maturities of capital lease obligations 285 - - - 285 Accounts payable: Trade 16,032 3 - - 16,035 Money orders 3,022 - - - 3,022 Accrued interest 5,564 - 1 (973) 4,592 Accrued compensation and related taxes 3,322 - 1 - 3,323 Income taxes payable 313 1,560 235 (1,812) 296 Other accrued taxes 2,194 - - - 2,194 Accrued insurance 3,887 - - - 3,887 Other Accrued Liabilities 6,382 113 122 (3,761) 2,856 ------------ ------------ -------------- -------------- --------- Total current liabilities 41,018 1,676 375 (6,546) 36,523 ------------ ------------ -------------- -------------- --------- Long-term debt 100,168 - 137 - 100,305 ------------ ------------ -------------- -------------- --------- Other non-current liabilities: Environmental expenses 7,806 - - - 7,806 Capital lease obligations 679 - - - 679 Employment obligations 1,341 - - - 1,341 Accrued dividends on preferred stock 7,958 - - - 7,958 Intercompany note payable 39,434 - - (39,434) - Other 5,870 150 40 - 6,060 ------------ ------------ -------------- -------------- --------- Total other non-current liabilities 63,088 150 40 (39,434) 23,844 ------------ ------------ -------------- -------------- --------- SHAREHOLDERS' EQUITY (DEFICIT): Preferred stock - - - - - Common stock 1 - - - 1 Additional paid-in capital 5,396 25 5,001 (5,026) 5,396 Retained earnings (deficit) (23,270) 42,504 (304) (42,200) (23,270) ------------ ------------ -------------- -------------- --------- Total shareholders' equity (deficit) (17,873) 42,529 4,697 (47,226) (17,873) ------------ ------------ -------------- -------------- --------- Total Liabilities and Shareholders Deficit $186,401 $44,355 $5,249 $(93,206) $142,799 ============ ============ ============== ============== =========
28 THE PANTRY, INC. SUPPLEMENTAL COMBINING STATEMENT OF OPERATIONS YEAR ENDED SEPTEMBER 25, 1997 (DOLLARS IN THOUSANDS)
Guarantor Non-Guarantor The Pantry Subsidiary Subsidiary Eliminations Total ------------ ------------ -------------- -------------- -------- Revenues: Merchandise sales $202,440 $ - $ - $ - $202,440 Gasoline sales 220,166 - - - 220,166 Commissions 4,787 - - - 4,787 ------------ ------------ -------------- -------------- -------- Total revenues 427,393 - - - 427,393 ------------ ------------ -------------- -------------- -------- Cost of sales: Merchandise 132,846 - - - 132,846 Gasoline 197,268 - - - 197,268 ------------ ------------ -------------- -------------- -------- Total cost of sales 330,114 - - - 330,114 ------------ ------------ -------------- -------------- -------- Gross profit 97,279 - - - 97,279 ------------ ------------ -------------- -------------- -------- Operating expenses: Store expenses 71,944 - (291) (12,725) 58,928 Store expenses - related parties 1,280 - - - 1,280 General and administrative expenses 16,731 42 23 - 16,796 Depreciation and amortization 9,485 13 6 - 9,504 ------------ ------------ -------------- -------------- -------- Total operating expenses 99,440 55 (262) (12,725) 86,508 ------------ ------------ -------------- -------------- -------- Income from operations (2,161) (55) 262 12,725 10,771 ------------ ------------ -------------- -------------- -------- Equity in earnings of subsidiaries 16,605 - - (16,605) - ------------ ------------ -------------- -------------- -------- Other income (expense): Interest expense (16,095) - (13) 3,069 (13,039) Miscellaneous 677 16,207 204 (15,795) 1,293 ------------ ------------ -------------- -------------- -------- Total other expense (15,418) 16,207 191 (12,726) (11,746) ------------ ------------ -------------- -------------- -------- Loss before income taxes (974) 16,152 453 (16,606) (975) Income tax benefit (expense) - (5,492) (155) 5,646 - ------------ ------------ -------------- -------------- -------- Net loss $ (974) $10,660 $ 298 $(10,960) $ (975) ============ ============ ============== ============== ========
29 THE PANTRY, INC. SUPPLEMENTAL COMBINING STATEMENTS OF CASH FLOWS YEAR ENDED SEPTEMBER 25, 1997 (DOLLARS IN THOUSANDS)
Guarantor Non-Guarantor The Pantry Subsidiary Subsidiary Eliminations Total ------------ ------------ -------------- ------------ ------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income (loss) $ (975) $10,660 $298 $(10,958) $ (975) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 9,499 - 5 - 9,504 Provision for deferred income taxes 371 - - - 371 Gain on sale of property and equipment (1,054) - - - (1,054) Provision for environmental expenses 1,574 - - - 1,574 Provision for closed stores (11) - - - (11) Equity earnings of affiliates (10,958) - - 10,958 - Changes in operating assets and liabilities, net: Receivables 129 (664) 8 (527) Inventories (2,273) - - - (2,273) Prepaid expenses (426) (3) - (429) Other non-current assets (5,378) 14 1 1,068 (4,295) Accounts payable 600 3 - 603 Other current liabilities and accrued expenses 3,396 246 135 (384) 3,393 Employment obligations (698) - - (698) Other noncurrent liabilities 2,970 (131) - (684) 2,155 ------------ ------------ -------------- ------------ ------- Net cash provided by operating activities (3,234) 10,125 447 - 7,338 ------------ ------------ -------------- ------------ -------
30 THE PANTRY, INC. SUPPLEMENTAL COMBINING STATEMENTS OF CASH FLOWS - CONTINUED YEAR ENDED SEPTEMBER 25, 1997 (DOLLARS IN THOUSANDS)
Guarantor Non-Guarantor The Pantry Subsidiary Subsidiary Eliminations Total ------------ ------------ -------------- ------------ -------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property held for sale (1,874) - (4) 50 (1,828) Additions to property and equipment (14,749) - - - (14,749) Proceeds from sale of property held for sale 642 - 753 (50) 1,345 Proceeds from sale of property and equipment 2,315 - - - 2,315 Intercompany notes receivable (payable) 9,982 (9,982) - - Acquisition of related businesses (12,162) - - - (12,162) ------------ ------------ -------------- ------------ -------- Net cash used in investing activities (15,846) (9,982) 749 - (25,079) ------------ ------------ -------------- ------------ -------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal repayments under capital lease obligations (303) - - - (303) Principal repayments of long-term debt (10) - (16) - (26) Proceeds from issuance of long-term debt 200 - - - 200 Net proceeds from equity issue 15,953 - - 15,953 Other financing costs (74) - - - (74) ------------ ------------ -------------- ------------ -------- ------------ ------------ -------------- ------------ -------- Net cash provided by (used in) financing activities 15,766 - (16) - 15,750 ------------ ------------ -------------- ------------ -------- Net increase (decrease) in cash (3,314) 143 1,180 - (1,991) CASH AT BEGINNING OF YEAR 1,512 136 3,690 - 5,338 ------------ ------------ -------------- ------------ -------- CASH AT END OF YEAR $ (1,802) $ 279 $4,870 $ - $ 3,347 ============ ============ =============== ============= ========
31 NOTE 15 - SUBSEQUENT EVENTS: - ---------------------------- On October 23, 1997, the Company acquired all of the outstanding common stock of Lil' Champ Food Stores, Inc. ("Lil' Champ") from Docks U.S.A. Inc. for $132.7 million in cash and repaid $10.7 million outstanding indebtedness of Lil' Champ (the "Lil' Champ Acquisition"). Lil Champ is a leading operator of convenience stores in Florida and the largest convenience store operator in northern Florida. Lil Champ's 489 stores are located primarily in northern Florida and Georgia, with 151 stores concentrated in the Jacksonville, Florida area. The purchase price, the refinancing of existing Lil' Champ debt, and the fees and expenses of the Lil' Champ acquisition were financed with the proceeds from the offering of $200.0 million, 10 1/4% Senior Subordinated Notes due 2007 (the "Senior Subordinated Notes"), cash on hand and the sale to existing stockholders and management of the Company of an additional $32.4 million of the Company's $.01 par value common stock (the "Equity Investment") in connection with the Lil' Champ Acquisition. In connection with the Equity Investment, all shares of Series A Preferred Stock were cancelled and all rights to accrued dividends relating to the Series A Preferred Stock were waived. The Senior Subordinated Notes are unconditionally guaranteed, on an unsecured senior subordinated basis, as to the payment of principal, premium, if any, and interest, jointly and severally, by all current direct and indirect restricted subsidiaries (Sandhills, Inc. and Lil Champ, wholly-owned subsidiaries of the Company) and future direct and indirect restricted subsidiaries (the "Guarantors"). The Senior Subordinated Notes contain covenants that, among other things, restrict the ability of the Company and any restricted subsidiary to: (i) incur additional indebtedness; (ii) pay dividends or make distributions; (iii) issue stock of subsidiaries; (iv) make certain investments; (v) repurchase stock; (vi) create liens; (vii) enter into transaction with affiliates; (viii) enter into sale-leaseback transactions; (ix) merge or consolidate the Company or any of its subsidiaries; and (x) transfer and sell assets. On October 23, 1997, the Company entered into a new bank credit facility (the "New Credit Facility") consisting of a $45.0 million revolving credit facility and a $30.0 million acquisition facility. The New Credit Facility is available (i) for working capital and general corporate purposes of the Company, (ii) having commercial and standby letters of credit and (iii) for acquisitions. The New Facility is secured by substantially all of the assets of the Company and its respective restricted subsidiaries and the Guarantors and is guaranteed by the Guarantors. The New Credit Facility contains covenants restricting the ability of the Company and any its subsidiaries to, among others: (i) incur additional debt; (ii) declare dividends or redeem or repurchase capital stock; (iii) prepay, redeem or purchase debt; (iv) incur liens; (v) make loans and investments; (vi) make capital expenditures; (vii) engage in mergers, acquisitions and asset sales; and (viii) engage in transactions with affiliates. The Company is also required to comply with financial covenants with respect to (a) a minimum coverage ratio, (b) a minimum pro forma EBITDA, (c) a maximum pro forma leverage ratio, and (d) a maximum capital expenditure allowance. On October 23, 1997, the Company purchased $51.0 million in principal amount of Senior Notes at a purchase price of 110% of the aggregate principal amount of each tendered Senior Note plus accrued and unpaid interest up to, but not including, the date of purchase (the "Tender Offer"). The Company obtained consents (the "Consent Solicitation") from the holders of the Senior Notes to amendments and waivers to certain of the covenants contained in the indenture governing the Senior Notes (the "Senior Notes Indenture"). The Senior Notes Indenture contains covenants including the restrictions on the Company's ability to incur additional indebtedness and make acquisitions. The Company obtained consents to, among other things, permit the offering of the Senior Subordinated Notes, the Lil' Champ Acquisition and enter into the New Credit Facility. The consideration paid in respect of validly delivered, and not revoked, consents was 1 3/4% of the principal amount of the Senior Notes for which consents have been validity delivered and not revoked. The Company recognized an extraordinary loss, net of taxes, of approximately $6.0 million in connection with the Tender Offer and Consent Solicitation. The Lil' Champ Acquisition will be accounted for under the purchase method of accounting. Under the purchase method of accounting, the total purchase price will be allocated to the tangible and intangible assets acquired and liabilities assumed by the Company based on their respective fair values as of the acquisition date as determined by valuations and other studies not yet completed. For purposes of supplemental pro forma information, the excess of the purchase price over the historical net assets of Lil' Champ (approximately $54.0 million) has been considered to be goodwill and other intangible assets amortized over a weighted-average period of 30 years, pending the completion of appraisals and other purchase price allocation adjustments. Supplemental pro forma information, assuming the Lil' Champ Acquisition, the refinancing of existing Lil Champ debt, the issuance of the Senior Subordinated Notes, the Tender Offer and Consent Solicitation, and the Equity Investment occurred at the beginning of each of the periods presented is as follows:
1996 1997 --------- --------- Revenues $929,472 $982,010 Income (loss) before extraordinary items (6,965) (4,034) Net income (loss) (12,534) (9,956)
32 INDEPENDENT AUDITORS' REPORT Board of Directors Lil' Champ Food Stores, Inc. Jacksonville, Florida We have audited the accompanying balance sheets of Lil' Champ Food Stores, Inc. (a wholly-owned subsidiary of Docks U.S.A., Inc.) as of December 30, 1995 and December 28, 1996, and the related statements of operations, shareholder's equity, and cash flows for the three years in the period ended December 28, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. 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, such financial statements present fairly, in all material respects, the financial position of Lil' Champ Food Stores, Inc. as of December 30, 1995 and December 28, 1996 and the results of its operations and its cash flows for each of the three years in the period ended December 28, 1996 in conformity with generally accepted accounting principles. /s/ Deloitte & Touche LLP Jacksonville, Florida February 14, 1997 -33- LIL' CHAMP FOOD STORES, INC. (A WHOLLY-OWNED SUBSIDIARY OF DOCKS U.S.A., INC.)
BALANCE SHEETS (DOLLAR AMOUNTS IN THOUSANDS) - ----------------------------------------------------------------------------------------- DECEMBER 30, DECEMBER 28, SEPTEMBER 27, 1995 1996 1997 (UNAUDITED) ASSETS CURRENT ASSETS: Cash and equivalents $ 13,553 $ 19,510 $ 9,506 Certificates of deposit 805 805 805 Receivables, net of allowance for doubtful accounts (1995-$0; 1996-$21; 1,518 1,820 1,824 1997-$21) Environmental receivables, current portion, net of allowance for uncollectible amounts (1995-$545; 1996-$710; 1,798 2,066 1,330 1997-$515) Inventories 17,072 17,938 18,017 Prepaid income taxes 68 2,784 545 Current portion of deferred income 313 taxes Prepaid expenses and other assets 1,444 1,365 1,032 Due from affiliates 238 225 304 -------- -------- -------- Total current assets 36,809 46,513 33,363 -------- -------- -------- PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, net of accumulated depreciation and amortization (1995-$56,543; 1996-$62,062; 1997-$61,848) 110,083 117,354 119,158 BUILDINGS UNDER CAPITAL LEASES, net of accumulated amortization (1995-$7,592; 1996-$7,895; 1997-$8,664) 8,210 11,264 10,396 OTHER ASSETS: Investment in The Eli Witt Company 2,037 Goodwill, net of accumulated amortization (1995-$4,391; 1996-$5,166; 14,981 14,206 13,625 1997-$5,747) Environmental receivables, net of allowance for uncollectible amounts (1995-$1,013; 1996-$429; 1997-$734) 3,341 1,249 1,521 Other 1,076 921 1,042 -------- -------- -------- Total other assets 21,435 16,376 16,188 -------- -------- -------- TOTAL ASSETS $176,537 $191,507 $179,105 ======== ======== ======== See notes to financial statements. (Continued)
-34-
LIL' CHAMP FOOD STORES, INC. (A WHOLLY-OWNED SUBSIDIARY OF DOCKS U.S.A., INC.) BALANCE SHEETS (DOLLAR AMOUNTS IN THOUSANDS) - ----------------------------------------------------------------------------------------- DECEMBER 30, DECEMBER 28, SEPTEMBER 27, 1995 1996 1997 (UNAUDITED) LIABILITIES AND SHAREHOLDER'S EQUITY CURRENT LIABILITIES: Accounts payable, trade $ 12,841 $ 18,287 $ 19,612 Current portion of obligations under 871 1,037 990 capital leases Current portion of long-term debt 4,353 4,355 10,700 Accrued compensation and employee 1,867 2,146 2,182 benefits Current portion of accrued workers' compensation self insurance 2,579 2,271 2,261 Accrued medical and health insurance 900 630 565 Accrued interest 179 272 46 Lottery payable 1,828 2,131 1,657 Other taxes payable 4,809 2,766 4,081 Deferred income taxes payable 90 159 Money orders trust fund payable 242 (309) 766 Other accrued liabilities 4,536 4,690 5,378 -------- -------- -------- Total current liabilities 35,005 38,366 48,397 -------- -------- -------- DEFERRED INCOME 211 298 259 DEFERRED INCOME TAXES 7,856 10,060 9,824 OBLIGATIONS UNDER CAPITAL LEASES, less current portion 9,604 12,547 11,837 ACCRUED WORKERS' COMPENSATION SELF-INSURANCE less current portion 6,391 6,674 7,713 ENVIRONMENTAL RESERVE 3,150 LONG-TERM DEBT, less current portion 18,050 22,695 DUE TO DOCKS de FRANCE, S.A. 12,000 6,000 -------- -------- -------- Total liabilities 89,117 96,640 81,180 -------- -------- -------- COMMITMENTS AND CONTINGENCIES (Notes 4, 6, 8 and 11) SHAREHOLDER'S EQUITY: Common stock; authorized issued and outstanding 500 shares of $1 par 1 1 1 value Additional paid-in capital 67,966 67,966 67,966 Retained earnings 19,453 26,900 29,958 -------- -------- -------- Total shareholder's equity 87,420 94,867 97,925 -------- -------- -------- TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $176,537 $191,507 $179,105 ======== ======== ========
See notes to financial statements. (Concluded) -35-
LIL' CHAMP FOOD STORES, INC. (A WHOLLY-OWNED SUBSIDIARY OF DOCKS U.S.A., INC.) STATEMENTS OF OPERATIONS (IN THOUSANDS EXCEPT STORE DATA) - ------------------------------------------------------------------------------------------------------------------------ YEARS ENDED NINE MONTHS ENDED --------------------------------------------- --------------------------------- DECEMBER 31, DECEMBER 30, DECEMBER 28, SEPTEMBER 28, SEPTEMBER 27, 1994 1995 1996 1996 1997 (UNAUDITED) Number of stores in operation at end of period 508 501 495 499 488 ======== ======== ======== ======== ======== REVENUES: Gasoline sales $248,507 $257,056 $278,905 $207,208 $214,676 Merchandise sales 212,310 217,282 226,146 171,322 177,426 Commissions 7,683 7,978 8,164 5,979 5,971 -------- -------- -------- -------- -------- Total revenues 468,500 482,316 513,215 384,509 398,073 -------- -------- -------- -------- -------- COST OF SALES: Gasoline $219,736 $227,592 251,614 186,110 193,499 Merchandise 139,054 143,598 148,877 112,909 116,879 -------- -------- -------- -------- -------- Total cost of sales 358,790 371,190 400,491 299,019 310,378 -------- -------- -------- -------- -------- GROSS PROFIT 109,710 111,126 112,724 85,490 87,695 -------- -------- -------- -------- -------- Store operating expense 68,524 70,289 73,721 55,486 56,339 General and administrative expenses 17,965 15,452 14,191 11,397 12,581 Environmental contamination charge 3,381 Depreciation and amortization 11,954 11,568 11,361 8,439 8,989 -------- -------- -------- -------- -------- Total operating expenses 98,443 97,309 99,273 75,322 81,290 -------- -------- -------- -------- -------- INCOME FROM OPERATIONS 11,267 13,817 13,451 10,168 6,405 OTHER INCOME (EXPENSE): Interest expense (3,938) (3,219) (2,670) (1,994) (1,712) Miscellaneous 1,730 1,873 1,647 865 588 -------- -------- -------- -------- -------- Total other expense (2,208) (1,346) (1,023) (1,129) (1,124) -------- -------- -------- -------- -------- INCOME BEFORE INCOME TAXES 9,059 12,471 12,428 9,039 5,281 INCOME TAX EXPENSE (3,733) (4,985) (4,981) (3,622) (2,223) -------- -------- -------- -------- -------- NET INCOME $ 5,326 $ 7,486 $ 7,447 $ 5,417 $ 3,058 ======== ======== ======== ======== ========
See notes to financial statements. -36- LIL' CHAMP FOOD STORES, INC. (A WHOLLY-OWNED SUBSIDIARY OF DOCKS U.S.A., INC.) STATEMENTS OF SHAREHOLDER'S EQUITY YEARS ENDED DECEMBER 31, 1994, DECEMBER 30, 1995 and DECEMBER 28, 1996 (IN THOUSANDS EXCEPT SHARE DATA)
- -------------------------------------------------------------------------------------------------------------------------- COMMON STOCK ----------------------------- ADDITIONAL PAR PAID-IN RETAINED SHARES VALUE CAPITAL EARNINGS TOTAL BALANCE, DECEMBER 25, 1993 500 $ 1 $67,966 $ 6,641 $74,608 Net income 5,326 5,326 --- ---- ------- ------- ------- BALANCE, DECEMBER 31, 1994 500 1 67,966 11,967 79,934 Net income 7,486 7,486 --- ---- ------- ------- ------- BALANCE, DECEMBER 30, 1995 500 1 67,966 19,453 87,420 Net income 7,447 7,447 --- ---- ------- ------- ------- BALANCE, DECEMBER 28, 1996 500 $ 1 $67,966 $26,900 $94,867 === ==== ======= ======= =======
See notes to financial statements. -37- LIL' CHAMP FOOD STORES, INC. (A WHOLLY-OWNED SUBSIDIARY OF DOCKS U.S.A., INC.) STATEMENTS OF CASH FLOWS (IN THOUSANDS)
- ------------------------------------------------------------------------------------------------------------------------------------ YEARS ENDED NINE MONTHS ENDED -------------------------------------------------- ---------------------------------- DECEMBER 31, DECEMBER 30, DECEMBER 28, SEPTEMBER 28, SEPTEMBER 27, 1994 1995 1996 1996 1997 (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 5,326 $ 7,486 $ 7,447 $ 5,417 $ 3,058 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 11,954 11,568 11,361 8,439 8,989 Loss on investment 1,500 37 (Gain) loss on sale of assets (12) 225 (90) 193 132 Changes in assets and liabilities Deferred income taxes (1,037) (744) 2,607 (167) Receivables 387 (10) (302) (300) (4) Inventories 130 (467) (866) (1,352) (79) Prepaid taxes 213 (68) (2,716) (507) 2,239 Prepaid expenses and other assets (1,227) 89 2,058 1,416 676 Due from affiliates (43) 13 43 (79) Accounts payable, trade (901) 795 5,446 5,630 1,325 Enviromental Reserve 3,150 Other liabilities 3,173 (345) (2,066) 2,148 3,565 Income taxes payable 598 (598) Accrued interest 71 (67) 93 92 (226) -------- -------- -------- -------- -------- Net cash provided by operating activities 20,175 17,821 23,022 21,219 22,579 -------- -------- -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property, equipment and leasehold improvements (7,738) (11,977) (21,353) (16,124) (10,153) Proceeds from sale of property equipment and leasehold improvements 1,918 632 4,708 3,176 677 Proceeds related to Eli Witt investment 2,000 -------- -------- -------- -------- -------- Net cash used in investing activities (5,820) (11,345) (14,645) (12,948) (9,476) -------- -------- -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Additional borrowings under long-term debt 9,000 2,000 20,000 12,000 Payments to Docks de France, S.A. (6,000) (6,000) (6,000) (6,000) (6,000) Principal payments under long-term debt (15,603) (4,862) (15,353) (7,348) (28,350) Principal payments under capital lease obligations (1,364) (921) (1,067) (890) (757) -------- -------- -------- -------- -------- Net cash used in financing activities (13,967) (9,783) (2,420) (14,238) (23,107) -------- -------- -------- -------- -------- NET INCREASE (DECREASE) 388 (3,307) 5,957 (5,967) (10,004) CASH AND EQUIVALENTS, BEGINNING OF YEAR 16,472 16,860 13,553 13,553 19,510 -------- -------- -------- -------- -------- CASH AND EQUIVALENTS, END OF YEAR 16,860 $ 13,553 $ 19,510 $ 7,586 $ 9,506 ======== ======== ======== ======== ======== CASH PAID FOR: Interest $ 3,867 $ 3,286 $ 2,577 $ 1,902 $ 1,937 ======== ======== ======== ======== ======== Income taxes $ 3,959 $ 6,438 $ 5,090 $ 4,130 $ 2,250 ======== ======== ======== ======== ======== See notes to financial statements.
-38- LIL' CHAMP FOOD STORES, INC. (A WHOLLY-OWNED SUBSIDIARY OF DOCKS U.S.A., INC.) NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1994, DECEMBER 30, 1995 and DECEMBER 28, 1996 (UNAUDITED AS TO SEPTEMBER 27, 1997 INFORMATION) - -------------------------------------------------------------------------------- 1. COMPANY'S BUSINESS Lil' Champ Food Stores, Inc. ("LCFS"). LCFS is a convenience store chain operating in central and northern Florida and southeastern Georgia. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FISCAL YEAR - The Company operates on the basis of a 52-53 week fiscal year ending on the last Saturday in December. The years ended December 28, 1996 and December 30, 1995 consisted of 52 weeks. The year ended December 31, 1994 consisted of 53 weeks. UNAUDITED FINANCIAL STATEMENTS - In the opinion of management, the statements of Operations and Cash Flows for the nine months ended September 28, 1996 and September 27, 1997 and the Balance Sheet as of September 27, 1997 include all adjustments (which include only normal recurring adjustments) necessary to present the financial position and results of operations and cash flows for the periods then ended in accordance with generally accepted accounting principles. CASH AND EQUIVALENTS - LCFS considers all investments with an original maturity of three months or less to be cash equivalents. CERTIFICATES OF DEPOSIT - Certificates of deposit for $500,000 secure a standby letter of credit and are pledged to the State of Georgia as security for payment of workers' compensation claims. Certificates of deposit for $305,000 are pledged to the State of Florida as security for payment of workers' compensation claims. INVENTORIES - Merchandise inventories are valued at the lower of last-in, first-out (LIFO) cost or market using the retail method. Information relating to the first-in, first-out (FIFO) method may be useful in comparing operating results to those companies not on LIFO. If the FIFO method had been used by the Company, merchandise inventory would have been $2,906,000, $3,112,000 and $3,086,000 higher than as reported as of December 28, 1994, December 30, 1995 and December 31, 1996. Due to the LIFO method of inventory valuation, income before income taxes was increased by $86,000 and $206,000 for the years December 31, 1994 and December 30, 1995 and decreased by $26,000 for the year ended December 28, 1996. Gasoline is valued at the lower of FIFO cost or market. -39- LIL' CHAMP FOOD STORES, INC. (A Wholly-Owned Subsidiary of Docks U.S.A., Inc.) NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1994, DECEMBER 30, 1995 AND DECEMBER 28, 1996 (UNAUDITED AS TO SEPTEMBER 27, 1997 INFORMATION) (CONTINUED) - -------------------------------------------------------------------------------- PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS - Property, equipment and leasehold improvements are stated at cost, which includes cost of construction, property taxes and interest incurred during development. Depreciation and amortization for financial reporting purposes are computed using the straight-line method based upon the following estimated useful lives in years:
Buildings 18-30 Office and store equipment 3-15 Automotive equipment 3-4 Leasehold improvements, Shorter of the initial lease equipment and buildings term or estimated useful under lease life of asset.
Repairs and maintenance are charged to income; major expenditures for renewals and betterments are capitalized. When items of property are sold or otherwise disposed of, the related costs and accumulated depreciation or amortization are removed from the accounts, and any resulting gains or losses are credited or charged to income. INVESTMENT IN THE ELI WITT COMPANY - The Company accounts for its investment in The Eli Witt Company ("Eli Witt"), formerly known as Certified Grocers of Florida, Inc., at lower of cost or estimated market. Writedowns of this investment are considered to be permanent diminutions in value. GOODWILL - Goodwill is being amortized using the straight-line method over twenty-five years. LEASING ARRANGEMENTS - A substantial portion of the Company's operations are conducted in leased premises. Some leases on convenience store locations provide for a base rental amount per month and contingent additional rentals if an annual gross sales floor is exceeded. Renewal options generally provide for multiple terms of five years each and in some instances are at increased rentals. Some leases require the Company to pay real estate taxes and other expenses. Certain building and equipment leases have been capitalized and are being amortized over the shorter of the lease term or the estimated useful life of the asset. All other leases are accounted for as operating leases. In most cases, management expects that leases will be renewed or replaced by other leases in the normal course of business. WORKERS' COMPENSATION SELF-INSURANCE - The Company self-insures its exposure to workers' compensation claims up to certain limits. The Company records estimated liabilities based on currently available information. Ultimate claims and expenses may vary from the current estimates and as adjustments become necessary, they are recorded in earnings in the periods in which they become known. GROUP HEALTH SELF INSURANCE - The Company self-insures its group health insurance claims to certain limits per occurrence. Estimated liabilities are based on prior years' experience on claims and on current year fixed administrative costs. -40- LIL' CHAMP FOOD STORES, INC. (A WHOLLY-OWNED SUBSIDIARY OF DOCKS U.S.A., INC.) NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1994, DECEMBER 30, 1995 AND DECEMBER 28, 1996 (UNAUDITED AS TO SEPTEMBER 27, 1997 INFORMATION) (CONTINUED) - -------------------------------------------------------------------------------- INCOME TAXES - The Company's parent files consolidated Federal income tax returns. For financial statement purposes, the Company determines its income tax liability and provisions using the separate return method. Deferred income taxes are provided on temporary differences between the financial reporting and the tax basis of the Company's assets and liabilities. DEFERRED INCOME - Gains resulting from sale/leaseback transactions involving land and buildings have been deferred. Such gains are being amortized in proportion to the amortization of the leased asset, if a capital lease, or in proportion to the related gross rental charged to expense over the lease term, if an operating lease. USE OF ESTIMATES - 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 disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 3. PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS A summary of property, equipment and leasehold improvements, net, follows (in thousands):
DECEMBER 30, DECEMBER 28, 1995 1996 Land $ 44,581 $ 44,894 Buildings 30,172 29,000 Store equipment 26,327 34,539 Leasehold improvements 7,629 7,468 Automotive equipment 547 581 Office equipment 589 587 Construction in progress 238 285 -------- -------- $110,083 $117,354 ======== ========
-41- LIL' CHAMP FOOD STORES, INC. (A WHOLLY-OWNED SUBSIDIARY OF DOCKS U.S.A., INC.) NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1994, DECEMBER 30, 1995 AND DECEMBER 28, 1996 (UNAUDITED AS TO SEPTEMBER 27, 1997 INFORMATION) (CONTINUED) - -------------------------------------------------------------------------------- 4. LEASES CAPITAL LEASES - Minimum future lease payments under capital leases at December 28, 1996 are as follows (in thousands):
FISCAL YEAR ENDING: 1997 $ 2,274 1998 2,170 1999 2,083 2000 2,039 2001 1,973 Thereafter 10,750 ------- Total minimum lease payments 21,289 Less interest portion (7,705) ------- Present value of minimum lease payments (current portion of $1,037) $13,584 =======
OPERATING LEASES - Rent expense for the years December 28, 1994, December 30, 1995 and December 31, 1996 was approximately $7,658,000, $7,935,000 and $8,552,000. Minimum annual rentals under noncancellable leases having an initial or remaining term of more than one year at December 28, 1996 are as follows (in thousands):
FISCAL YEAR ENDING: 1997 $ 4,672 1998 4,342 1999 3,995 2000 3,465 2001 2,756 Thereafter 9,865 ------- Total $29,095 =======
-42- LIL' CHAMP FOOD STORES, INC. (A WHOLLY-OWNED SUBSIDIARY OF DOCKS U.S.A., INC.) NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1994, DECEMBER 30, 1995 and DECEMBER 28, 1996 (UNAUDITED AS TO SEPTEMBER 27, 1997 INFORMATION) (Continued) - -------------------------------------------------------------------------------- 5. LONG-TERM DEBT At December 30, 1995 and December 28, 1996 long-term debt comprised the following (in thousands):
1995 1996 Borrowings under revolving credit agreement with Credit Lyonnais; interest is based on the New York interbank eurodollar market rate ("Eurorate") plus .4% (6.30% and 6.08% at December 30, 1995 and December 28, 1996); expiring January 31, 1997. Guaranteed by Docks de France, S.A. $ 6,000 $ 3,000 Note payable to bank under a commitment for total borrowings up to $8,000 at a variable rate (6.684% and 6.50% at December 30, 1995 and December 28, 1996), payable in annual installments of 16.67% of the loan balance payable January 1996 and 1997 and the balance due January 1998; guaranteed by Docks de France, S.A. 5,334 4,001 Borrowings under $20,000 revolving credit agreement with Credit Lyonnais; interest is based on the Paris Interbank Official Rate ("PIBOR") plus .25% (5.84% at December 28, 1996), maturing on June 8, 1998. Guaranteed by Docks de France, S.A. 20,000 Borrowings under $15,000 revolving credit agreement with Societe Generale; interest is based on the Eurorate plus .35% (6.314% at December 30, 1995), guaranteed by Docks de France, S.A. On December 30, 1996 the Company secured a letter of intent to extend this credit facility for one year. 11,000 Other notes and mortgages payable, generally due in monthly installments of principal plus interest at various rates and terms 69 49 ------- ------- 22,403 27,050 Less current portion (4,353) (4,355) ------- ------- $18,050 $22,695 ======= =======
-43- LIL' CHAMP FOOD STORES, INC. (A WHOLLY-OWNED SUBSIDIARY OF DOCKS U.S.A., INC.) NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1994, DECEMBER 30, 1995 AND DECEMBER 28, 1996 (UNAUDITED AS TO SEPTEMBER 27, 1997 INFORMATION) (Continued) - -------------------------------------------------------------------------------- The borrowings with Credit Lyonnais require the Company to obtain consent from Credit Lyonnais before paying any dividends. Because the Company has the ability and the intent to refinance $6,000,000 of borrowings from Docks de France, S.A. otherwise coming due during 1997, this amount has been reclassified from current liabilities to long-term as of December 28, 1996. Aggregate principal payments required on long-term debt during each of the fiscal years ending subsequent to December 28, 1996 are as follows (in thousands):
FISCAL YEAR ENDING IN: 1997 $ 4,355 1998 22,691 1999 4 ------- $27,050 =======
6. RELATED PARTY TRANSACTIONS Certain premises used by LCFS in its operations are leased under arrangements with related parties. Rental payments under such leases for the years ended December 28, 1994, December 30, 1995 and December 31, 1996 were approximately $2,408,000, $2,417,000 and $2,582,000. Required future rentals, which relate to both capital and operating leases, at December 28, 1996 are as follows (in thousands):
FISCAL YEAR ENDING IN: 1997 $ 2,825 1998 2,813 1999 2,749 2000 2,672 2001 2,600 Thereafter 12,498 ------- $26,157 =======
Sunbelt Wholesale, a company controlled by Robert Jackson, a brother of an officer of the Company, furnishes certain supplies to the Company. Payments to Sunbelt Wholesale were approximately $1,996,000, $2,233,000 and $2,102,000 for the years ended December 28, 1994, December 30, 1995 and December 31, 1996. -44- LIL' CHAMP FOOD STORES, INC. (A WHOLLY-OWNED SUBSIDIARY OF DOCKS U.S.A., INC.) NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1994, DECEMBER 30, 1995 AND DECEMBER 28, 1996 (UNAUDITED AS TO SEPTEMBER 27, 1997 INFORMATION) (CONTINUED) - -------------------------------------------------------------------------------- Allsafe Security Systems, Inc. and Allsafe Paging Systems, Inc., companies controlled by Lester Jackson, a brother of an officer of the Company, supplies burglar alarms, security systems and an alerting system which allows mobility to store personnel. This equipment is subject to a monthly rental fee plus charges for initial installation and maintenance. Approximately $1,064,000, $882,000 and $1,207,000 was expended for this service for the years ended December 28, 1994, December 30, 1995 and December 31, 1996. The $6,000,000 due to Docks de France, S.A. is payable June 25, 1997. Interest accrues at 6.6% per annum. Interest of $1,386,000, $990,000 and $594,000 was paid for the years ended December 28, 1994, December 30, 1995 and December 31, 1996. See note 5 related to the classification of this amount. LCFS paid Docks U.S.A., Inc. approximately $500,000 of service agreement fees for the years ended December 28, 1994, December 30, 1995 and December 31, 1996. During 1996, the company entered into sale-leaseback transactions with a director whereby buildings were sold to the director for $4,176,000. This same property was then leased back to the company. The leases were classified as capital leases, therefore the underlying property was capitalized and the obligation recognized. 7. INCOME TAXES The provision for income taxes for the years ended December 31, 1994, December 30, 1995 and December 28, 1996 is comprised of the following (in thousands):
1994 1995 1996 Current: Federal $ 4,115 $4,897 $2,028 State 655 832 346 ------- ------ ------ 4,770 5,729 2,374 ------- ------ ------ Deferred: Federal (2,009) (634) 2,223 State 972 (110) 384 ------- ------ ------ (1,037) (744) 2,607 ------- ------ ------ Provision for income taxes $ 3,733 $4,985 $4,981 ======= ====== ======
-45- LIL' CHAMP FOOD STORES, INC. (A WHOLLY-OWNED SUBSIDIARY OF DOCKS U.S.A., INC.) NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1994, DECEMBER 30, 1995 AND DECEMBER 28, 1996 (UNAUDITED AS TO SEPTEMBER 27, 1997 INFORMATION) (CONTINUED) - -------------------------------------------------------------------------------- Income taxes, for the years ended December 31, 1994, December 30, 1995 and December 28, 1996, differ from the amount computed by applying the federal statutory corporate rate to earnings before income taxes. The amounts of such differences (in thousands) and the reasons are set forth in the table below:
1994 1995 1996 Provision based on federal income tax rate $3,080 $4,240 $4,226 State income taxes - net of federal income tax benefit 456 580 481 Nondeductible amortization 267 267 267 Other (70) (102) 7 ------ ------ ------ Actual provision for income taxes $3,733 $4,985 $4,981 ====== ====== ======
The types of temporary differences and their related tax effects which create deferred tax liabilities at December 30, 1995 and December 28, 1996 are summarized below (in thousands):
1995 1996 Deferred tax liabilities: Fixed asset basis differences $ 7,960 $10,525 Reserve for LIFO 1,821 1,582 Deductible prepaids 3,066 1,762 Other 609 ------- ------- 12,847 14,478 ------- ------- Deferred tax assets: Capital leases 853 874 Writedown of investment in Eli Witt 516 Self-insured liabilities 3,719 3,454 Other 216 ------- ------- 5,304 4,328 ------- ------- Net deferred tax liability $ 7,543 $10,150 ======= =======
8. COMMITMENTS AND CONTINGENCIES The Company is a party to various lawsuits, threatened suits and claims. It is the opinion of management that the resolution of such matters will not have a material adverse effect on the Company's financial position or results of operations. -46- LIL' CHAMP FOOD STORES, INC. (A WHOLLY-OWNED SUBSIDIARY OF DOCKS U.S.A., INC.) NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1994, DECEMBER 30, 1995 AND DECEMBER 28, 1996 (UNAUDITED AS TO SEPTEMBER 27, 1997 INFORMATION)(Continued) - -------------------------------------------------------------------------------- 9. CASH FLOW Supplemental disclosure of noncash investing and financing activities (in thousands):
1994 1995 1996 Additional capital lease obligations on buildings $ 485 $ -0- $4,176 ===== ===== ======
10. RETIREMENT SAVINGS PLAN LCFS has a 401(k) plan for all full-time employees who are 21 years of age or older and who have been employed one year with at least 1,000 hours of service. Participants can contribute 1% to 10% of their salary, not to exceed a maximum allowable contribution amount. Participant contributions are 100% vested. Distributions may be made at employment termination, retirement, or in the event participants are disabled or can demonstrate financial hardship. The Company matches an amount equal to 15% of the participants' contribution. The total contribution for the years ended December 31, 1994, December 30, 1995 and December 28, 1996 was $85,000, $83,000 and $98,000. 11. ENVIRONMENTAL MATTERS The ownership and/or operation of underground storage tanks is subject to federal, state and local laws and regulations. Prior to 1996, LCFS was involved in evaluating and cleaning up environmental contamination caused by releases of petroleum products at its stores. The costs related to this process are reimbursable from state programs in both Florida and Georgia, which are funded from taxes and fees paid based on the purchase of petroleum products. The Company has not been able to reasonably estimate that amount which will be reimbursed by the state of Georgia; therefore, amounts expended for clean-up in Georgia have generally been expensed and although some portion of this amount may be reimbursed in the future the Company has not recorded a receivable for such amounts. LCFS has recorded receivables for amounts recoverable from the state of Florida and outside engineering firms and has provided an allowance on environmental receivables of $1,558,000 and $1,139,000 as of December 30, 1995 and December 28, 1996 and $1,249,000 (unaudited) as of September 27, 1997. This allowance is an estimate of amounts that LCFS has incurred that may not be reimbursed by the state of Florida and outside engineering firms. In prior years, LCFS entered into agreements with outside engineering firms to assume the clean-up of contamination sites in Florida. Under these arrangements LCFS was still responsible for the clean-up of the sites but LCFS did not incur significant expenditures to complete the clean-up of existing sites. LCFS had expended funds which were submitted to the State for reimbursement by the outside engineering firms. These amounts, which represent approximately 48% of the gross environmental receivable, will be reimbursed directly to the engineering firms who will in-turn reimburse LCFS. -47- LIL' CHAMP FOOD STORES, INC. (A WHOLLY-OWNED SUBSIDIARY OF DOCKS U.S.A., INC.) NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1994, DECEMBER 30, 1995 AND DECEMBER 28, 1996 (UNAUDITED AS TO SEPTEMBER 27, 1997 INFORMATION) (CONTINUED) - -------------------------------------------------------------------------------- During 1996, new legislation was enacted by the State of Florida which replaced the State's previous reimbursement program. All expenditures incurred through March 29, 1995 and submitted for reimbursement by December 31, 1996 will be evaluated and reimbursed on the same basis as prior submissions. Under the new legislation, the State has assumed the responsibility for clean-up of registered sites assessed and reported to the State under the previous program, but not yet remediated, exclusive of tank or other hardware replacement. Georgia Underground Storage Tank Fund - Remediation of contaminated sites in Georgia will be reimbursed under the state program for eligible costs to a maximum of $1,000,000 per site. A $10,000 deductible applies to each site. All LCFS sites in Georgia qualify for coverage from this fund. LCFS does not currently expect remediation at any of its sites to exceed $1,000,000 of coverage. Florida Underground Storage Tank Fund - Remediation of contaminated sites in Florida is eligible for reimbursement under the state's program. For incidents discovered and reported to the state prior to July 1, 1992, the state will reimburse for all eligible remediation costs to a maximum of $1,000,000 per incident with an annual aggregate of $2,000,000 per facility. For incidents discovered from July 1, 1992 to June 30, 1993, the state will reimburse for all eligible reimbursement costs to a maximum of $1,000,000 subject to a $1,000 deductible. For incidents discovered from July 1, 1993 to December 31, 1993, the state will reimburse for all eligible reimbursement costs to a maximum of $1,000,000 subject to a $5,000 deductible. For incidents discovered from January 1, 1994 to December 31, 1996 the maximum reimbursement was reduced to $300,000 per site with a $10,000 deductible. For incidents discovered subsequent to December 31, 1996, the maximum reimbursement was reduced to $150,000 per site with a $10,000 deductible. For incidents discovered subsequent to December 31, 1998 no costs will be eligible for reimbursement under this program. LCFS is responsible for all costs in excess of the state limits. Notwithstanding this schedule of limits, certain of the LCFS sites are covered under the other Florida "trust fund" programs pursuant to which the state will pay all required costs. During 1997 management of the Company did a comprehensive review of the status of its stores as it relates to environmental remediation and as a result decided to record an enviromental contamination charge as of September 27, 1997 of approximately $3,381,000 (Unaudited). In October 1996, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued Statement of Position ("SOP") 96-1, Environmental Remediation Liabilities. SOP 96-1 provides authoritative guidance on specific accounting issues that are present in the recognition, measurement, display and disclosure of environmental remediation liabilities. The provisions of this SOP are effective for fiscal years beginning after December 15, 1996. The Company's management does not believe the adoption of this statement will have a material impact on the Company's financial statements. 12. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying value of all of the Company's financial instruments approximates their fair value. 13. SUBSEQUENT EVENT (UNAUDITED). On October 23, 1997, The Pantry, Inc. purchased all the capital stock of LCFS for $132.7 million in cash and repaid all outstanding indebtedness of LCFS. -48- ================================================================================ No dealer, salesperson or other person has been authorized to give any information or to make any representations other than those contained in this Prospectus, and, if given or made, such information or representation must not be relied upon as having been authorized by the Company or the Initial Purchasers. This Prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities other than the securities to which it relates or an offer to sell or the solicitation of an offer to buy such securities in any circumstances in which such offer or solicitation is unlawful. Neither the delivery of this Prospectus nor any sale made hereunder shall create any implication that there has been no change in the affairs of the Company since the date hereof or that the information contained herein is correct as of any time subsequent to the date hereof. _________________ TABLE OF CONTENTS
Page ---- Prospectus Summary...................................................... 1 Risk Factors............................................................ 15 Use of Proceeds......................................................... 22 Capitalization.......................................................... 23 Exchange Offer.......................................................... 24 Unaudited Pro Forma Financial Data...................................... 31 Selected Historical Consolidated Financial Information of The Pantry.... 36 Selected Historical Financial Information of Lil' Champ................. 39 Management's Discussion and Analysis of Financial Condition and Results of Operations.................................................. 42 Business................................................................ 52 Management.............................................................. 67 Security Ownership of Certain Beneficial Owners......................... 71 Certain Transactions.................................................... 72 Description of Other Indebtedness....................................... 73 Description of the Exchange Notes....................................... 76 Certain U.S. Federal Income Tax Consequences............................ 103 Plan of Distribution.................................................... 108 Experts................................................................. 108 Legal Matters........................................................... 109 Index to Financial Statements........................................... F-1
================================================================================ ================================================================================ $200,000,000 [LOGO OF THE PANTRY, INC.] The Pantry, Inc. 10 1/4% Senior Subordinated Notes due 2007 , 1998 ================================================================================ PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS Pursuant to Section 145 of the General Corporation Law of Delaware (the "Delaware Corporation Law"), Article VI of the Certificate of Incorporation of the Registrant, as amended, a copy of which is filed as Exhibit 3.1 to this Registration Statement (the "Certificate of Incorporation"), provides that the Registrant shall indemnify and hold harmless to the fullest extent authorized by the Delaware Corporation Law any person made a party or threatened to be made a party to or involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was a director or officer of the Registrant or is or was serving at the request of the Registrant as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent, against all expense, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith, and such indemnification continues as to a person who has ceased to be a director, officer, employee or agent and inures to the benefit of his or her heirs, executors and administrators. If a claim under the foregoing provision is not paid in full by Registrant within thirty days after its receipt of a written claim, the claimant may bring suit against the Registrant to recover the unpaid amount of the claim, and if successful, in whole or in part, the claimant is entitled to the expenses of prosecuting such claim. It is a defense to any such action that the claimant has not met the standards of conduct which make it permissible under the Delaware Corporation Law for the Registrant to indemnify the claimant for the amount claimed. Article VI of the Certificate of Incorporation permits the Registrant to maintain insurance to protect itself and any director, officer, employee or agent or another corporation, partnership, joint venture, trust, or other enterprise against any such foregoing expense, liability or loss, whether or not the Registrant would have the power to indemnify such person against such expense, liability or loss under the Delaware Corporation Law. Pursuant to Section 102(b)(7) of the Delaware Corporation Law, Article V of the Certificate of Incorporation provides that no director of the Registrant shall be personally liable for monetary damages for a breach of his duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Registrant or its stockholders, (ii) for acts or omissions not in good faith which involve intentional misconduct or a knowing violation of the law, (iii) under Section 174 of the Delaware Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. Reference is made to the Registration Rights Agreement (attached as Exhibit 4.6 to this Registration Statement) which provides for indemnification by the Participants (as defined therein) of the Registrant, its directors and officers and each person controlling the Registrant, but only with reference to information relating to such Participant furnished to the Registrant in writing by such Participant expressly for use in any registration statement or prospectus. Reference is also made to the Amended and Restated Registration Rights Agreement (attached as Exhibit 4.7 to this Registration Statement) which provides for indemnification by the Holders (as defined therein) of the directors and officers of the Registrant signing the Registration Statement and certain controlling persons of the Registrant against certain liabilities, including those arising under the Securities Act of 1933. Insofar as indemnification for liabilities under the Securities Act of 1933 may be permitted with respect to directors, officers or persons controlling the Registrant pursuant to the foregoing provisions, the Registrant has been informed that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Act and is therefore unenforceable. The foregoing discussion of the Certificate of Incorporation and the Delaware Corporation Law is not intended to be exhaustive and is qualified in its entirety by the Certificate of Incorporation and the relevant provisions of the Delaware Corporation Law. II-1 Item 21. Exhibits and Financial Statement Schedules (a) Exhibits
Exhibit Number Description - ------- ----------- 1.1 Purchase Agreement dated October 17, 1997 among The Pantry, Inc. ("The Pantry" or the "Company") and First Union Capital Markets Corp. 2.1 Stock Purchase Agreement dated August 26, 1997 by and between PH Holding Corporation ("PH Holding") and Docks U.S.A., Inc. 2.2 Assignment and Assumption Agreement dated October 23, 1997 between PH Holding and The Pantry. 3.1 Restated Certificate of Incorporation of The Pantry, as amended to date. 3.2(1) Bylaws of The Pantry, as amended to date. 3.3 Certificate of Incorporation of Sandhills, Inc. ("Sandhills"), as amended to date. 3.4 Bylaws of Sandhills. 3.5 Amended and Restated Articles of Incorporation of Lil' Champ Food Stores, Inc. ("Lil' Champ"). 3.6 Amended and Restated Bylaws of Lil' Champ. 4.1(2) Indenture, including the form of 12% Senior Note due 2000, dated November 4, 1993 between The Pantry and IBJ Schroder Bank and Trust Company ("IBJ Schroder"). 4.2(1) Supplemental Indenture dated December 4, 1995 between The Pantry and IBJ Schroder. 4.3 Second Supplemental Indenture dated October 23, 1997 among The Pantry, Sandhills and IBJ Schroder. 4.4 Third Supplemental Indenture dated October 23, 1997 between The Pantry, Lil' Champ and IBJ Schroder. 4.5 Indenture dated as of October 23, 1997 among The Pantry, Sandhills, Lil' Champ (together with Sandhills, the "Guarantors") and United States Trust Company of New York, as Trustee, with respect to the 10 1/4% Senior Subordinated Notes due 2007 (including the form of 10 1/4% Senior Subordinated Note due 2007). 4.6 Registration Rights Agreement dated as of October 23, 1997 among The Pantry, the Guarantors, CIBC Wood Gundy Securities Corp. and First Union Capital Markets Corp. 4.7 Amended and Restated Registration Rights Agreement dated October 23, 1997 among The Pantry, FS Equity Partners III, L.P. ("FSEP III"), FS Equity Partners International, L.P. ("FSEP International"), Peter J. Sodini, Chase Manhattan Capital, L.P., CB Capital Investors, L.P., and Baseball Partners. 4.8 Amended and Restated Stockholders' Agreement dated October 23, 1997 among The Pantry, FSEP III, FSEP International, Chase Manhattan Capital, L.P., CB Capital Investors, L.P., Baseball Partners and Peter J. Sodini. 5.1 Opinion of Riordan & McKinzie as to the legality of securities registered hereunder. 10.1(3) Stock Purchase Agreement dated November 30, 1995 among The Pantry, FSEP III, FSEP International, Montrose Value Fund Limited Partnership ("MVP"), Montrose Financial No. 6 Limited Partnership (Pantry) ("MF#6"), W. Clay Hamner and Wayne M. Rogers. 10.2(4) Stock Purchase Agreement dated November 30, 1995 among The Pantry, Chase Manhattan Capital Corporation, MVP, MF#6, W. Clay Hamner and Wayne M. Rogers. 10.3(5) Option Agreement dated November 30, 1995 among The Pantry, MVP and MF#6. 10.4(6) Commitment dated December 1, 1995 by FSEP III, FSEP International and Chase Manhattan Capital Corporation for the benefit of MVP and MF#6. 10.5(7) Agreement to Exercise or Assign Option dated December 1, 1995 among The Pantry, FSEP III, FS Holdings, Inc., and Chase Manhattan Capital Corporation.
II-2
Exhibit Number Description - ------- ----------- 10.6(8) Settlement Agreement dated July 16, 1996 among MVP, MF#6, W. Clay Hamner, Wayne M. Rogers, FSEP III, FSEP International, Chase Manhattan Capital Corporation and The Pantry. 10.7 Stock Purchase Agreement dated October 23, 1997 among The Pantry, FSEP III, FSEP International, CB Capital Investors, L.P. and Peter J. Sodini. 10.8 Contribution to Capital Agreement dated October 23, 1997 among The Pantry, FSEP III, FSEP International, Chase Manhattan Capital, L.P., and Baseball Partners. 10.9 Stock Pledge Agreement dated October 23, 1997 between Peter J. Sodini and The Pantry. 10.10 Secured Promissory Note dated October 23, 1997 between Peter J. Sodini and The Pantry. 10.11 Employment Agreement dated June 3, 1996 between Dennis R. Crook and The Pantry. 10.12 Employment Agreement dated October 1, 1997 between Peter J. Sodini and The Pantry. 10.13 Credit Agreement dated as of October 23, 1997 among The Pantry, the financial institutions listed therein (collectively, "Lenders"), First Union National Bank ("First Union"), as administrative agent, and Canadian Imperial Bank of Commerce ("CIBC"), as syndication agent for Lenders. 10.14 Company Security Agreement dated as of October 23, 1997 between The Pantry and First Union, as administrative agent. 10.15 Company Pledge Agreement dated as of October 23, 1997 between The Pantry and First Union, as administrative agent. 10.16 Company Trademark Security Agreement dated as of October 23, 1997 between The Pantry and First Union, as administrative agent. 10.17 Collateral Account Agreement dated as of October 23, 1997 between The Pantry and First Union, as administrative agent. 10.18 Form of Amended and Restated Deed of Trust, Security Agreement, Assignment of Rents and Leases and Fixture Filing (North Carolina) dated October 23, 1997 among The Pantry, David R. Cannon, as Trustee, and First Union as Agent. 10.19 Form of Amended and Restated Mortgage, Security Agreement, Assignment of Rents and Leases and Fixture Filing (South Carolina) dated October 23, 1997 between The Pantry and First Union, as Agent. 10.20 Form of Amended and Restated Deed of Trust, Security Agreement, Assignment of Rents and Leases and Fixture Filing (Tennessee) dated October 23, 1997 among The Pantry, David R. Cannon, as Trustee, and First Union, as Agent. 10.21 Form of Amended and Restated Mortgage, Security Agreement, Assignment of Rents and Leases (Kentucky) dated October 23, 1997 between The Pantry and First Union, as Agent. 10.22 Form of Amended and Restated Mortgage, Security Agreement, Assignment of Rents and Leases and Fixture Filing (Indiana) dated as of October 23, 1997 between The Pantry and First Union, as Agent. 10.23 Form of Mortgage, Security Agreement, Assignment of Rents and Leases and Fixture Filing (Florida) dated October 23, 1997 between Lil' Champ and First Union, as Agent. 10.24 Form of Deed to Secure Debt, Security Agreement, and Assignment of Rents (Georgia) dated October 23, 1997 between Lil' Champ and First Union, as Agent. 10.25 Form of Subsidiary Guaranty. 10.26 Form of Subsidiary Security Agreement. 10.27 Form of Subsidiary Pledge Agreement. 10.28 Form of Subsidiary Trademark Security Agreement. 12.1 Statement re Computation of Earnings to Fixed Charges Ratio. 21.1 Subsidiaries of The Pantry. 23.1 Consent of Riordan & McKinzie (contained in Exhibit 5.1).
II-3
Exhibit Number Description - ------- ----------- 23.2 Consent and Report on Schedule of Deloitte & Touche LLP. 23.3 Consent of Price Waterhouse LLP. 24.1 Power of Attorney (included on Pages II-6, II-7 and II-8 hereto). 25.1 Form T-1 Statement of Eligibility and Qualification under the Trust Indenture Act of 1939 of United States Trust Company of New York. 27.1 Financial Data Schedule. 99.1 Form of Letter of Transmittal with respect to the Exchange Offer. 99.2 Form of Notice of Guaranteed Delivery with respect to the Exchange Offer.
___________________ (1) Incorporated by reference to the exhibit designated by the same number in the Company's Annual Report on Form 10-K for the year ended September 28, 1995 (File No. 33-72574) (the "1995 Form 10-K"). (2) Incorporated by reference to the exhibit designated by same number in the Company's Registration Statement on Form S-1 (Registration No. 33-72574). (3) Incorporated by reference to the exhibit designated by exhibit number 10.12 in the Company's 1995 Form 10-K. (4) Incorporated by reference to the exhibit designated by exhibit number 10.13 in the Company's 1995 Form 10-K. (5) Incorporated by reference to the exhibit designated by exhibit number 10.14 in the Company's 1995 Form 10-K. (6) Incorporated by reference to the exhibit designated by exhibit number 10.15 in the Company's 1995 Form 10-K. (7) Incorporated by reference to the exhibit designated by exhibit number 10.16 in the Company's 1995 Form 10-K. (8) Incorporated by reference to the exhibit designated by exhibit number 10.1 in the Company's Current Report on Form 8-K dated August 30, 1996. (b) Financial Statement Schedule Schedule I - Valuation and Qualifying Accounts and Reserves. No other schedules have been included because the information required to be set forth therein is not applicable. Item 22. Undertakings 1. The undersigned Registrant hereby undertakes as follows: (a) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: (i) to include any prospectus required by Section 10(a)(3) of the Securities Act; (ii) to reflect in the prospectus any facts or events arising II-4 after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement; (iii) to include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement. (b) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (c) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. 2. The undersigned Registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in this Registration Statement when it became effective. II-5 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Sanford, State of North Carolina, on December 19, 1997. THE PANTRY, INC. By: /s/ William T. Flyg -------------------------------------- William T. Flyg Senior Vice President, Finance Chief Financial Officer and Secretary POWER OF ATTORNEY AND SIGNATURES We, the undersigned officers and directors of The Pantry, Inc., hereby severally constitute and appoint William T. Flyg, our true and lawful attorney, with full power to him to sign for us and in our names in the capacities indicated below, the Registration Statement on Form S-4 filed herewith and any and all pre-effective and post-effective amendments to said Registration Statement, and generally to do all such things in our names and on our behalf in our capacities as officers and directors to enable The Pantry, Inc. to comply with the provisions of the Securities Act of 1933, and the requirements of the Securities and Exchange Commission, hereby ratifying and confirming our signatures as they may be signed by our said attorneys, or any of them, to said Registration Statement and any and all amendments thereto. Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
Signature Title Date /s/ Peter J. Sodini President, Chief Executive Officer December 19, 1997 - -------------------------- and Director (Principal Executive Officer) Peter J. Sodini /s/ William T. Flyg Senior Vice President, Finance, Chief December 19, 1997 - -------------------------- Financial Officer and Secretary (Principal William T. Flyg Financial Officer) /s/ Joseph J. Duncan Controller (Principal Accounting Officer) December 19, 1997 - -------------------------- Joseph J. Duncan /s/ Ronald P. Spogli Director December 19, 1997 - -------------------------- Ronald P. Spogli /s/ Charles P. Rullman Director December 19, 1997 - -------------------------- Charles P. Rullman /s/ Todd W. Halloran Director December 19, 1997 - -------------------------- Todd W. Halloran /s/ Jon D. Ralph Director December 19, 1997 - -------------------------- Jon D. Ralph /s/ Christopher C. Behrens Director December 19, 1997 - -------------------------- Christopher C. Behrens
II-6 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Sanford, State of North Carolina, on December 19, 1997. LIL' CHAMP FOOD STORES, INC. By: /s/ William T. Flyg ---------------------------- William T. Flyg Executive Vice President and Assistant Secretary POWER OF ATTORNEY AND SIGNATURES We, the undersigned officers and directors of Lil' Champ Food Stores, Inc., hereby severally constitute and appoint William T. Flyg, our true and lawful attorney, with full power to him to sign for us and in our names in the capacities indicated below, the Registration Statement on Form S-4 filed herewith and any and all pre-effective and post-effective amendments to said Registration Statement, and generally to do all such things in our names and on our behalf in our capacities as officers and directors to enable Lil' Champ Food Stores, Inc. to comply with the provisions of the Securities Act of 1933, and the requirements of the Securities and Exchange Commission, hereby ratifying and confirming our signatures as they may be signed by our said attorneys, or any of them, to said Registration Statement and any and all amendments thereto. Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
Signature Title Date /s/ Peter J. Sodini Chairman of the Board and December 19, 1997 - ------------------------- Director (Principal Executive Officer) Peter J. Sodini /s/ W. Dale Fish Chief Financial Officer, Treasurer, December 19, 1997 - ------------------------- Secretary, and Director (Principal W. Dale Fish Financial and Accounting Officer) /s/ William T. Flyg Executive Vice President, Assistant December 19, 1997 - ------------------------- Secretary and Director William T. Flyg /s/ Jon D. Ralph Assistant Secretary and Director December 19, 1997 - ------------------------- Jon D. Ralph December 19, 1997 /s/ Charles P. Rullman Director - ------------------------- Charles P. Rullman
II-7 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Sanford, State of North Carolina, on December 19, 1997. SANDHILLS, INC. By: /s/ William T. Flyg ---------------------------------------- William T. Flyg Vice President POWER OF ATTORNEY AND SIGNATURES We, the undersigned officers and directors of Sandhills, Inc., hereby severally constitute and appoint William T. Flyg, our true and lawful attorney, with full power to him to sign for us and in our names in the capacities indicated below, the Registration Statement on Form S-4 filed herewith and any and all pre-effective and post-effective amendments to said Registration Statement, and generally to do all such things in our names and on our behalf in our capacities as officers and directors to enable Sandhills, Inc. to comply with the provisions of the Securities Act of 1933, and the requirements of the Securities and Exchange Commission, hereby ratifying and confirming our signatures as they may be signed by our said attorneys, or any of them, to said Registration Statement and any and all amendments thereto. Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
Signature Title Date /s/ Joseph J. Duncan President and Director December 19, 1997 - ---------------------------- (Principal Executive Officer) Joseph J. Duncan /s/ Francis B. Jacobs, II Treasurer, Secretary and Director December 19, 1997 - ---------------------------- (Principal Financial and Accounting Francis B. Jacobs, II Officer) /s/ David C. Eppes Vice President and Director December 19, 1997 - ---------------------------- David C. Eppes /s/ Robert C. Campbell Director December 19, 1997 - ---------------------------- Robert C. Campbell
II-8 THE PANTRY, INC. ---------------- SCHEDULE I - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES ----------------------------------------------------------- (Dollars in thousands)
Additions Deductions Balance at charged to for Balance at beginning costs and payments or end of period expenses write-offs of period ---------- ---------- ----------- ---------- Year ended September 28, 1995: Allowance for doubtful accounts......................... $ 376 $ (125) $ - $ 251 Reserve for environmental issues........................... 1,203 4,356 161 5,720 Reserve for closed stores.......... 410 365 (312) 463 Deferred tax asset valuation allowance.............. 62 511 - 573 ------ ------ ----- ------- $2,051 $5,107 $(151) $ 7,007 ====== ====== ===== ======= Year ended September 26, 1996: Allowance for doubtful accounts......................... $ 251 $ (46) $ (55) $ 150 Reserve for environmental issues........................... 5,720 617 (105) 6,232 Reserve for closed stores.......... 463 707 (210) 960 Deferred tax asset valuation allowance.............. 573 1,209 - 1,782 ------ ------ ----- ------- $7,007 $2,487 $(370) $ 9,124 ====== ====== ===== ======= Year ended September 25, 1997: Allowance for doubtful accounts......................... $ 150 $ - $ - $ 150 Reserve for environmental issues........................... 6,232 1,574 - 7,806 Reserve for closed stores.......... 960 - (10) 950 Deferred tax asset valuation allowance.............. 1,782 (96) - 1,686 ------ ------ ----- ------- $9,124 $1,478 $ (10) $10,592 ====== ====== ===== =======
S-1 EXHIBIT INDEX
Exhibit Number Description - ------- ----------- 1.1 Purchase Agreement dated October 17, 1997 among The Pantry, Inc. ("The Pantry" or the "Company") and First Union Capital Markets Corp. 2.1 Stock Purchase Agreement dated August 26, 1997 by and between PH Holding Corporation ("PH Holding") and Docks U.S.A., Inc. 2.2 Assignment and Assumption Agreement dated October 23, 1997 between PH Holding and The Pantry. 3.1 Restated Certificate of Incorporation of The Pantry, as amended to date. 3.2(1) Bylaws of The Pantry, as amended to date. 3.3 Certificate of Incorporation of Sandhills, Inc. ("Sandhills"), as amended to date. 3.4 Bylaws of Sandhills. 3.5 Amended and Restated Articles of Incorporation of Lil' Champ Food Stores, Inc. ("Lil' Champ"). 3.6 Amended and Restated Bylaws of Lil' Champ. 4.1(2) Indenture, including the form of 12% Senior Note due 2000, dated November 4, 1993 between The Pantry and IBJ Schroder Bank and Trust Company ("IBJ Schroder"). 4.2(1) Supplemental Indenture dated December 4, 1995 between The Pantry and IBJ Schroder. 4.3 Second Supplemental Indenture dated October 23, 1997 among The Pantry, Sandhills and IBJ Schroder. 4.4 Third Supplemental Indenture dated October 23, 1997 between The Pantry, Lil' Champ and IBJ Schroder. 4.5 Indenture dated as of October 23, 1997 among The Pantry, Sandhills, Lil' Champ (together with Sandhills, the "Guarantors") and United States Trust Company of New York, as Trustee, with respect to the 10 1/4% Senior Subordinated Notes due 2007 (including the form of 10 1/4% Senior Subordinated Note due 2007). 4.6 Registration Rights Agreement dated as of October 23, 1997 among The Pantry, the Guarantors, CIBC Wood Gundy Securities Corp. and First Union Capital Markets Corp. 4.7 Amended and Restated Registration Rights Agreement dated October 23, 1997 among The Pantry, FS Equity Partners III, L.P. ("FSEP III"), FS Equity Partners International, L.P. ("FSEP International"), Peter J. Sodini, Chase Manhattan Capital, L.P., CB Capital Investors, L.P., and Baseball Partners. 4.8 Amended and Restated Stockholders' Agreement dated October 23, 1997 among The Pantry, FSEP III, FSEP International, Chase Manhattan Capital, L.P., CB Capital Investors, L.P., Baseball Partners and Peter J. Sodini. 5.1 Opinion of Riordan & McKinzie as to the legality of securities registered hereunder. 10.1(3) Stock Purchase Agreement dated November 30, 1995 among The Pantry, FSEP III, FSEP International, Montrose Value Fund Limited Partnership ("MVP"), Montrose Financial No. 6 Limited Partnership (Pantry) ("MF#6"), W. Clay Hamner and Wayne M. Rogers. 10.2(4) Stock Purchase Agreement dated November 30, 1995 among The Pantry, Chase Manhattan Capital Corporation, MVP, MF#6, W. Clay Hamner and Wayne M. Rogers.
Exhibit Number Description - ------- ----------- 10.3(5) Option Agreement dated November 30, 1995 among The Pantry, MVP and MF#6. 10.4(6) Commitment dated December 1, 1995 by FSEP III, FSEP International and Chase Manhattan Capital Corporation for the benefit of MVP and MF#6. 10.5(7) Agreement to Exercise or Assign Option dated December 1, 1995 among The Pantry, FSEP III, FS Holdings, Inc., and Chase Manhattan Capital Corporation. 10.6(8) Settlement Agreement dated July 16, 1996 among MVP, MF#6, W. Clay Hamner, Wayne M. Rogers, FSEP III, FSEP International, Chase Manhattan Capital Corporation and The Pantry. 10.7 Stock Purchase Agreement dated October 23, 1997 among The Pantry, FSEP III, FSEP International, CB Capital Investors, L.P. and Peter J. Sodini. 10.8 Contribution to Capital Agreement dated October 23, 1997 among The Pantry, FSEP III, FSEP International, Chase Manhattan Capital, L.P., and Baseball Partners. 10.9 Stock Pledge Agreement dated October 23, 1997 between Peter J. Sodini and The Pantry. 10.10 Secured Promissory Note dated October 23, 1997 between Peter J Sodini and The Pantry. 10.11 Employment Agreement dated June 3, 1996 between Dennis R. Crook and The Pantry. 10.12 Employment Agreement dated October 1, 1997 between Peter J. Sodini and The Pantry. 10.13 Credit Agreement dated as of October 23, 1997 among The Pantry, the financial institutions listed therein (collectively, "Lenders"), First Union National Bank ("First Union"), as administrative agent, and Canadian Imperial Bank of Commerce ("CIBC"), as syndication agent for Lenders. 10.14 Company Security Agreement dated as of October 23, 1997 between The Pantry and First Union, as administrative agent. 10.15 Company Pledge Agreement dated as of October 23, 1997 between The Pantry and First Union, as administrative agent. 10.16 Company Trademark Security Agreement dated as of October 23, 1997 between The Pantry and First Union, as administrative agent. 10.17 Collateral Account Agreement dated as of October 23, 1997 between The Pantry and First Union, as administrative agent. 10.18 Form of Amended and Restated Deed of Trust, Security Agreement, Assignment of Rents and Leases and Fixture Filing (North Carolina) dated October 23, 1997 among The Pantry, David R. Cannon, as Trustee, and First Union as Agent. 10.19 Form of Amended and Restated Mortgage, Security Agreement, Assignment of Rents and Leases and Fixture Filing (South Carolina) dated October 23, 1997 between The Pantry and First Union, as Agent. 10.20 Form of Amended and Restated Deed of Trust, Security Agreement, Assignment of Rents and Leases and Fixture Filing (Tennessee) dated October 23, 1997 among The Pantry, David R. Cannon, as Trustee, and First Union, as Agent. 10.21 Form of Amended and Restated Mortgage, Security Agreement, Assignment of Rents and Leases (Kentucky) dated October 23, 1997 between The Pantry and First Union, as Agent. 10.22 Form of Amended and Restated Mortgage, Security Agreement, Assignment of Rents and Leases and Fixture Filing (Indiana) dated as of October 23, 1997 between The Pantry and First Union, as Agent.
Exhibit Number Description - ------- ----------- 10.23 Form of Mortgage, Security Agreement, Assignment of Rents and Leases and Fixture Filing (Florida) dated October 23, 1997 between Lil' Champ and First Union, as Agent. 10.24 Form of Deed to Secure Debt, Security Agreement, and Assignment of Rents (Georgia) dated October 23, 1997 between Lil' Champ and First Union, as Agent. 10.25 Form of Subsidiary Guaranty. 10.26 Form of Subsidiary Security Agreement. 10.27 Form of Subsidiary Pledge Agreement. 10.28 Form of Subsidiary Trademark Security Agreement. 12.1 Statement re Computation of Earnings to Fixed Charges Ratio. 21.1 Subsidiaries of The Pantry. 23.1 Consent of Riordan & McKinzie (contained in Exhibit 5.1). 23.2 Consent and Report on Schedule of Deloitte & Touche LLP. 23.3 Consent of Price Waterhouse LLP. 24.1 Power of Attorney (included on Pages II-6, II-7 and II-8 hereto). 25.1 Form T-1 Statement of Eligibility and Qualification under the Trust Indenture Act of 1939 of United States Trust Company of New York. 27.1 Financial Data Schedule. 99.1 Form of Letter of Transmittal with respect to the Exchange Offer. 99.2 Form of Notice of Guaranteed Delivery with respect to the Exchange Offer.
________________________________ (1) Incorporated by reference to the exhibit designated by the same number in the Company's Annual Report on Form 10-K for the year ended September 28, 1995 (File No. 33-72574) (the "1995 Form 10-K"). (2) Incorporated by reference to the exhibit designated by same number in the Company's Registration Statement on Form S-1 (Registration No. 33-72574). (3) Incorporated by reference to the exhibit designated by exhibit number 10.12 in the Company's 1995 Form 10-K. (4) Incorporated by reference to the exhibit designated by exhibit number 10.13 in the Company's 1995 Form 10-K. (5) Incorporated by reference to the exhibit designated by exhibit number 10.14 in the Company's 1995 Form 10-K. (6) Incorporated by reference to the exhibit designated by exhibit number 10.15 in the Company's 1995 Form 10-K. (7) Incorporated by reference to the exhibit designated by exhibit number 10.16 in the Company's 1995 Form 10-K. (8) Incorporated by reference to the exhibit designated by exhibit number 10.1 in the Company's Current Report on Form 8-K dated August 30, 1996. EX-1.1 2 PURCHASE AGREEMENT EXHIBIT 1.1 THE PANTRY, INC. $200,000,000 Senior Subordinated Notes due 2007 PURCHASE AGREEMENT ------------------ October 17, 1997 CIBC WOOD GUNDY SECURITIES CORP. FIRST UNION CAPITAL MARKETS CORP. c/o CIBC Wood Gundy Securities Corp. 425 Lexington Avenue 3rd Floor New York, New York 10017 Ladies and Gentlemen: The Pantry, Inc., a Delaware corporation (the "Company"), and each of the Company's subsidiaries listed in Exhibit A-1 hereto (subject to the last ----------- sentence of Section 1 with respect to Lil' Champ (as defined below)) (each, a "Guarantor" and, collectively, the "Guarantors" and, together with the Company, the "Issuers") hereby confirm their agreement with you (the "Initial Purchasers"), as set forth below. 1. The Securities. Subject to the terms and conditions -------------- herein contained, the Company proposes to issue and sell to the Initial Purchasers $200,000,000 aggregate principal amount of its 10 1/4% Senior Subordinated Notes due 2007 (the "Notes"). The obligations of the Company under the Indenture (as hereinafter defined) and the Notes will be unconditionally guaranteed on a senior subordinated basis (the "Guarantees"), on a joint and several basis, by each Guarantor. The Notes and the Guarantees are to be issued pursuant to the Indenture (the "Indenture"), dated as of October 23, 1997, among the Company, the Guarantors and United States Trust Company of New York, as trustee (the "Trustee"). The Notes and the Guarantees are hereinafter referred to collectively as the "Securities." -2- The Notes will be offered and sold to the Initial Purchasers under the Securities Act of 1933, as amended (together with the rules and regulations of the Securities and Exchange Commission (the "Commission") promulgated thereunder, the "Securities Act"), in reliance on exemptions therefrom. In connection with the sale of the Notes, the Company has prepared a preliminary offering memorandum dated September 29, 1997 (the "Preliminary Memorandum") and a final offering memorandum dated October 17, 1997 (the "Final Memorandum"; the Preliminary Memorandum and the Final Memorandum each herein being referred to as a "Memorandum"), each setting forth or including a description of the terms of the Securities, the terms of the offering of the Notes, a description of the Company and its subsidiaries and Lil' Champ Food Stores, Inc., a Florida corporation ("Lil' Champ") and any material developments relating to the Company and its subsidiaries and Lil' Champ occurring after the date of the most recent historical financial statements included therein. The Company and the Guarantors understand that the Initial Purchasers propose to make an offering of the Notes only on the terms and in the manner set forth in the Memorandum and Section 9 hereof as soon as the Initial Purchasers deem advisable after this Agreement has been executed and delivered, to persons in the United States whom the Initial Purchasers reasonably believe to be qualified institutional buyers ("QIBs") as defined in Rule 144A under the Securities Act, as such rule may be amended from time to time ("Rule 144A"), in transactions under Rule 144A, and outside the United States to certain persons in reliance on Regulation S under the Securities Act. The Initial Purchasers and their direct and indirect transferees of the Notes will be entitled to the benefits of a Registration Rights Agreement substantially in the form attached hereto as Annex A among the parties hereto (the "Registration Rights Agreement") pursuant to which the Issuers have agreed, among other things, to file (i) a registration -3- statement (the "Registration Statement") with the Commission registering the Notes or the Exchange Notes (as defined in the Registration Rights Agreement) under the Securities Act or (ii) a shelf registration statement pursuant to Rule 415 under the Securities Act relating to the resale of the Notes by holders thereof or, if applicable, relating to the resale of Private Exchange Notes (as defined in the Registration Rights Agreement) by the Initial Purchasers pursuant to an exchange of the Notes for Private Exchange Notes. The Securities, the Exchange Notes, the Private Exchange Notes, the Indenture, the Registration Rights Agreement and this Agreement are herein collectively referred to as the "Basic Documents." The Issuers propose to issue the Securities in connection with the consummation of certain related transaction including (i) the acquisition (the "Lil' Champ Acquisition") by the Company of Lil' Champ and (ii) an equity investment in the Company of $32.4 million by certain existing stockholders and management of the Company (the "Equity Investment"). In addition, the Company is (i) entering into a New Credit Facility (as defined in the Final Memorandum) and (ii) conducting a tender offer (the "Tender Offer") and consent solicitation (the "Consent Solicitation") with respect to its 12% Series B Senior Notes due 2000 (the "Senior Notes"). The Lil' Champ Acquisition, the Equity Investment, the New Credit Facility, the Tender Offer and the Consent Solicitation are collectively referred to herein as the "Transactions" and the stock purchase agreement relating to the Lil' Champ Acquisition, the stock purchase agreement relating to the Equity Investment, the New Credit Facility and the supplemental indenture relating to the consent solicitation are collectively referred to as the "Transaction Documents". At the time the Lil' Champ Acquisition is consummated (the "Effective Time"), which shall occur simultaneously with the consummation of the sale of the Securities, Lil' Champ will become a wholly owned subsidiary of the Company and will execute and deliver this Agreement and the Guarantees and become subject to all of the provisions of this Agreement and the Guarantees as a Guarantor. -4- 2. Representations and Warranties of the Issuers. The --------------------------------------------- Issuers, jointly and severally, represent and warrant to and agree with each Initial Purchaser that: (a) Neither the Preliminary Memorandum as of the date thereof nor the Final Memorandum nor any amendment or supplement thereto as of the date thereof and at all times subsequent thereto up to the Closing Date (as defined in Section 3 below) contained or contains any untrue statement of a material fact or omitted or omits to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, except that the representations and warranties set forth in this Section 2 do not apply to statements or omissions made in reliance upon and in conformity with information relating to the Initial Purchasers furnished to the Company in writing by the Initial Purchasers expressly for use in the Preliminary Memorandum, the Final Memorandum or any amendment or supplement thereto. (b) Each of the Company and its subsidiaries set forth in Exhibit ------- A-2 hereto (the "Subsidiaries") and, to the best knowledge of the Company, --- Lil' Champ has been duly incorporated and each of the Company and the Subsidiaries and, to the best knowledge of the Company, Lil' Champ is validly existing in good standing as a corporation under the laws of its jurisdiction of incorporation, with the requisite corporate power and authority to own its properties and conduct its business as now conducted as described in the Final Memorandum (or, if the Final Memorandum is not in existence, the most recent Preliminary Memorandum) and is duly qualified to do business as a foreign corporation in good standing in all other jurisdictions where the ownership or leasing of its properties or the conduct of its business requires such qualification, except where the failure to be so qualified would not, individually or in the aggregate, have a material adverse effect on the general affairs, -5- management, business, condition (financial or other), properties, prospects or results of operations of the Company, Lil' Champ and the Subsidiaries, taken as a whole (any such event, a "Material Adverse Effect"); as of the Closing Date, the Company will have the authorized, issued and outstanding capitalization set forth in the Final Memorandum; except as set forth in Exhibit A-2 hereto, neither the Company nor, to the best knowledge of the ----------- Company, Lil' Champ have any subsidiaries or own directly or indirectly any of the capital stock or other equity or long-term debt securities of or have any equity interest in any other person; except as set forth in the Final Memorandum (or, if the Final Memorandum is not in existence, the most recent Preliminary Memorandum) all of the outstanding shares of capital stock of the Company and the Subsidiaries and, to the best knowledge of the Company, Lil' Champ have been duly authorized and validly issued, are fully paid and nonassessable and were not issued in violation of any preemptive or similar rights and the Subsidiaries and Lil' Champ Stock is owned free and clear of all liens, encumbrances, equities and restrictions on transferability (other than those imposed by the Securities Act and the state securities or "Blue Sky" laws) or voting; except as set forth in the Final Memorandum (or, if the Final Memorandum is not in existence, the most recent Preliminary Memorandum), all of the outstanding shares of capital stock of the Subsidiaries are owned, directly or indirectly, by the Company; except as set forth in the Final Memorandum (or, if the Final Memorandum is not in existence, the most recent Preliminary Memorandum), no options, warrants or other rights to purchase from the Company or any Subsidiary, or, to the best knowledge of the Company, Lil' Champ, and no agreements or other obligations of the Company or any Subsidiary or, to the best knowledge of the Company, Lil' Champ to issue or other rights to convert any obligation into, or exchange any securities for, shares of capital stock of or ownership interests in the Company or any Subsidiary or, to the best knowledge of the Company, Lil' Champ are outstanding and no holder of securities of the Company or any Subsidiary is entitled to have such securities registered under the Registration Statement; and except as set forth in the Final Memorandum (or, if the Final Memorandum is not in existence, the most recent Preliminary Memorandum), there is no agreement, understanding or arrangement among the Company or any Subsidiary or, to the best knowledge of the Company, Lil' Champ and each of their respective stockholders or any other person relating to the ownership or disposition of any capital stock of the Company or any Subsidiary or, to the best knowledge of the Company, Lil' Champ or the election of directors of the Company or any Subsidiary or, to the best knowledge of the -6- Company, Lil' Champ or the governance of their respective affairs, and, if any, such agreements, understandings and arrangements will not be breached or violated as a result of the execution and delivery of, or the consummation of the transactions contemplated by, this Agreement, the other Basic Documents and the Transaction Documents. (c) Each of the Issuers has the requisite corporate power and authority to execute, deliver and perform its obligations under the Securities, the Exchange Notes and the Private Exchange Notes. The Notes, the Exchange Notes and the Private Exchange Notes have each been duly and validly authorized by the Company for issuance and, when executed by the Company and authenticated by the Trustee in accordance with the provisions of the Indenture and the Registration Rights Agreement and, in the case of the Notes, delivered to and paid for by the Initial Purchasers in accordance with the terms hereof, will have been duly executed, issued and delivered and will constitute valid and legally binding obligations of the Company, entitled to the benefits of the Indenture and enforceable against the Company in accordance with their terms except that the enforcement thereof may be limited by (i) bankruptcy, insolvency, reorganization, moratorium or other similar -7- laws now or hereafter in effect relating to or affecting creditors' rights generally or (ii) general principles of equity and the discretion of the court before which any proceeding therefor may be brought (regardless of whether such enforcement is considered in a proceeding at law or in equity) (collectively, the "Enforceability Exceptions"); the Guarantees endorsed on the Notes and the guarantees to be endorsed on the Exchange Notes and the Private Exchange Notes have each been duly and validly authorized by each of the Guarantors and, when the Notes are executed by the Company and authenticated by the Trustee in accordance with the provisions of the Indenture, and delivered to and paid for by the Initial Purchasers in accordance with the terms hereof, will have been duly executed, issued and delivered and will constitute valid and legally binding obligations of the Guarantors, entitled to the benefits of the Indenture and enforceable against the Guarantors in accordance with their terms except that the enforcement thereof may be limited by the Enforceability Exceptions; the Securities are in the form contemplated by the Indenture. (d) Each of the Issuers has the requisite corporate power and authority to execute, deliver and perform its obligations under the Indenture. The Indenture has been duly and validly authorized by the Issuers and meets the requirements for qualification under the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"), and, when executed and delivered by the Issuers (assuming the due authorization, execution and delivery by the Trustee), will constitute a valid and legally binding agreement of the Issuers, enforceable against the Issuers in accordance with its terms except that the enforcement thereof may be limited by the Enforceability Exceptions. (e) Each of the Issuers has the requisite corporate power and authority to execute, deliver and perform its obligations under this Agreement. This Agreement has been duly and validly authorized, executed and delivered by the -8- Issuers and constitutes a valid and legally binding agreement of the Issuers, enforceable against the Issuers in accordance with its terms except that the enforcement thereof may be limited by the Enforceability Exceptions and except as any rights to indemnity or contribution hereunder may be limited by federal and state securities laws and public policy considerations. (f) Each of the Issuers has the requisite corporate power and authority to execute, deliver and perform its obligations under the Registration Rights Agreement. The Registration Rights Agreement has been duly and validly authorized by the Issuers and, when executed and delivered by the Issuers, will constitute a valid and legally binding agreement of the Issuers, enforceable against the Issuers in accordance with its terms except that the enforcement thereof may be limited by the Enforceability Exceptions and except as any rights to indemnity or contribution hereunder may be limited by federal and state securities laws and public policy considerations. The Securities, the Indenture and the Registration Rights Agreement conform in all material respects to the descriptions thereof in the Final Memorandum (or, if the Final Memorandum is not in existence, the most recent Preliminary Memorandum). (g) Each of the Issuers and, to the best knowledge of the Company, after due inquiry, Lil' Champ, to the extent a party thereto, has the requisite corporate power and authority to execute, deliver and perform its obligations under the Transaction Documents. The Transaction Documents have been duly and validly authorized by each Issuer and, to the best knowledge of the Company, after due inquiry, Lil' Champ, to the extent a party thereto and, when executed and delivered by such Issuer, and, to the best knowledge of the Company, after due inquiry, Lil' Champ, will constitute a valid and legally binding agreement of such Issuer, enforceable against the Issuers and, to the best knowledge of the -9- Company, after due inquiry, Lil' Champ, to the extent a party thereto in accordance with their terms except that the enforcement thereof may be limited by the Enforceability Exceptions and except as any rights to indemnity or contribution thereunder may be limited by federal and state securities laws and public policy considerations. Each of the Transaction Documents conforms in all material respects to the description thereof in the Final Memorandum (or, if the Final Memorandum is not in existence, the most recent Preliminary Memorandum). (h) (i) The Issuers have delivered to the Initial Purchasers a true and correct copy of each of the Transaction Documents that have been executed and delivered prior to the date of this Agreement and each other Transaction Document in the form substantially as it will be executed and delivered on or prior to the Closing Date, together with all related agreements and all schedules and exhibits thereto, and as of the date hereof there have been no amendments, alterations, modifications or waivers of any of the provisions of any of the Transaction Documents from the form in which any such Transaction Document has been delivered to the Initial Purchasers; and (ii) there exists as of the date hereof (after giving effect to the transactions contemplated by each of the Transaction Documents) no event or condition that would constitute a default or an event of default (in each case as defined in each of the Transaction Documents) under any of the Transaction Documents that would result in a Material Adverse Effect or materially adversely affect the ability of the Company to consummate the Transactions. (i) Assuming the Securities are sold in the manner described in this Agreement, no consent, approval, authorization, license, qualification, exemption or order of any court or governmental agency or body or third party is required for the performance of this Agreement, the -10- Registration Rights Agreement, the Securities, the Indenture or any Transaction Document by the Issuers and, to the best knowledge of the Company, after due inquiry, Lil' Champ, or for the consummation by the Issuers and, to the best knowledge of the Company, after due inquiry, Lil' Champ, of any of the transactions contemplated hereby and thereby, or the application of the proceeds of the issuance of the Securities as described in the Final Memorandum (or, if the Final Memorandum is not in existence, the most recent Preliminary Memorandum), except for consents the failure of which to obtain would not, individually or in the aggregate, cause a Material Adverse Effect and as has already been acquired or as may be required under state securities or "Blue Sky" laws in connection with the purchase and distribution of the Securities by the Initial Purchasers or the Securities Act and Trust Indenture Act in the case of the Registration Rights Agreement; all such consents, approvals, authorizations, licenses, qualifications, exemptions and orders set forth in the Final Memorandum (or, if the Final Memorandum is not in existence, the most recent Preliminary Memorandum) which are required to be obtained by the Closing Date have been or will be prior to the Closing Date obtained or made, as the case may be, and are or will be prior to the Closing Date in full force and effect and not the subject of any pending or, to the best knowledge of the Issuers, and, to the best knowledge of the Company, after due inquiry, Lil' Champ, threatened attack by appeal or direct proceeding or otherwise. (j) None of the Company or the Subsidiaries or, to the best knowledge of the Company, Lil' Champ, is (i) in violation of its certificate of incorporation or bylaws (or similar organizational document), (ii) in breach or violation of any statute, judgment, decree, order, rule or regulation applicable to it or any of its properties or assets, which violation would, individually or in the aggregate, have a Material Adverse Effect, or (iii) in default (nor has any event occurred which with notice or -11- passage of time, or both, would constitute a default) in the performance or observance of any obligation, agreement, covenant or condition contained in this Agreement, the Registration Rights Agreement, the Securities, the Indenture or any Transaction Document or any other contract, indenture, mortgage, deed of trust, loan agreement, note, lease, license, franchise agreement, permit, certificate or agreement or instrument to which it is a party or to which it is subject, which default would, individually or in the aggregate, have a Material Adverse Effect. (k) The execution, delivery and performance by the Issuers of this Agreement, the Registration Rights Agreement, the Securities, the Indenture and the Transaction Documents and the consummation by the Issuers of the transactions contemplated hereby and thereby and the fulfillment of the terms hereof and thereof will not (a) violate, conflict with or constitute or result in a breach of or a default under (or an event that, with notice or lapse of time, or both, would constitute a breach of or a default under) any of (i) the terms or provisions of any contract, indenture, mortgage, deed of trust, loan agreement, note, lease, license, franchise agreement, permit, certificate or agreement or instrument to which any of the Company or the Subsidiaries or, to the best knowledge of the Company, Lil' Champ is a party or to which any of their respective properties or assets are subject, (ii) the certificate of incorporation or bylaws of any of the Company or the Subsidiaries or, to the best knowledge of the Company, Lil' Champ (or similar organizational document) or (iii) (assuming compliance with all applicable state securities or "Blue Sky" laws and with respect to the Registration Rights Agreement, the Securities Act and the Trust Indenture Act) any statute, judgment, decree, order, rule or regulation of any court or governmental agency or other body applicable to the Company or the Subsidiaries or the best knowledge of the Company, Lil' Champ, or any of their respective properties -12- or assets or (b) result in the imposition of any lien upon or with respect to any of the properties or assets now owned or hereafter acquired by the Company or any of the Subsidiaries or to the best knowledge of the Company, Lil' Champ, which violation, conflict, breach, default or lien would, individually or in the aggregate, have a Material Adverse Effect. (l) The audited consolidated financial statements of The Pantry, Inc. and the audited financial statements of Lil' Champ Food Stores, Inc. included in the Final Memorandum (or, if the Final Memorandum is not in existence, the most recent Preliminary Memorandum) present fairly the financial position, results of operations and cash flows of the Company on a Consolidated basis and to the best knowledge of the Company, after due inquiry, of Lil' Champ, at the dates and for the periods to which they relate and have been prepared in accordance with generally accepted accounting principles applied on a consistent basis; the interim unaudited financial statements included in the Final Memorandum (or, if the Final Memorandum is not in existence, the most recent Preliminary Memorandum) present fairly the financial position, results of operations and cash flows of the Company and, to the best knowledge of the Company after due inquiry, Lil' Champ at the dates and for the periods to which they relate subject to year-end audit adjustments and have been prepared in accordance with generally accepted accounting principles applied on a consistent basis with the audited financial statements included therein; the summary and selected financial and statistical data included in the Final Memorandum (or, if the Final Memorandum is not in existence, the most recent Preliminary Memorandum) present fairly the information shown therein and have been prepared and compiled on a basis consistent with the audited financial statements included therein, except as otherwise stated therein; and Deloitte & Touche LLP and Price Waterhouse LLP, each of which has examined certain of such financial statements as set forth in their reports -13- included in the Final Memorandum (or, if the Final Memorandum is not in existence, the most recent Preliminary Memorandum), are independent public accounting firms as required by the Securities Act. (m) The unaudited pro forma financial data (including the notes thereto) included in the Final Memorandum (or, if the Final Memorandum is not in existence, the most recent Preliminary Memorandum) (A) (except with respect to Note (c) to Summary Unaudited Pro Forma Financial Data, Note (h) to Unaudited Pro Forma Statement of Operations Data and Note (h) to Supplemental Unaudited Pro Forma Statement of Operations Data, which each includes supplemental adjustments not provided under the Securities Act) have been prepared in accordance with applicable requirements of Regulation S-X promulgated under the Securities Exchange Act of 1934, as amended (together with the rules and regulations of the Commission promulgated thereunder, the "Exchange Act") and (B) have been properly computed on the bases described therein; and the assumptions used in the preparation of the unaudited pro forma data included in the Final Memorandum (or, if the Final Memorandum is not in existence, the most recent Preliminary Memorandum) are reasonable and the adjustments used therein are appropriate to give effect to the transactions or circumstances referred to therein. (n) Except as described in the Final Memorandum (or, if the Final Memorandum is not in existence, the most recent Preliminary Memorandum), there is not pending or, to the best knowledge of the Issuers, threatened any action, suit, proceeding, inquiry or investigation, governmental or otherwise, to which any of the Company or the Subsidiaries or, to the best knowledge of the Company, Lil' Champ, is a party, or to which their respective properties or assets are subject, before or brought by any court, arbitrator or governmental agency or body, that, if determined adversely to the Company or any such subsidiary or Lil' Champ would, individually or in the aggregate, -14- have a Material Adverse Effect or that seeks to restrain, enjoin, prevent the consummation of or otherwise challenge the Transaction or the issuance or sale of the Securities to be sold hereunder or the application of the proceeds therefrom or the other transactions described in the Final Memorandum (or, if the Final Memorandum is not in existence, the most recent Preliminary Memorandum). (o) None of the Company or the Subsidiaries or, to the best knowledge of the Company, Lil' Champ has, and, after giving effect to the Transactions and the issuance and sale of the Securities, will not have, any material liability for any prohibited transaction or funding deficiency or any complete or partial withdrawal liability with respect to any pension, profit sharing or other plan which is subject to the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), to which any of the Company or the Subsidiaries or, to the best knowledge of the Company, Lil' Champ makes or ever has made a contribution and in which any employee of any of the Company or the Subsidiaries is or has ever been a participant. With respect to such plans, the Company and the Subsidiaries and, to the best knowledge of the Company, Lil' Champ are, and, after giving effect to the Transaction and the issuance and sale of the Securities, will be, in compliance in all material respects with all provisions of ERISA. (p) The Company and the Subsidiaries and to the best knowledge of the Company, Lil' Champ own or possess adequate licenses or other rights to use all patents, trademarks, service marks, trade names, copyrights and know-how that are necessary to conduct their business as described in the Final Memorandum (or, if the Final Memorandum is not in existence, the most recent Preliminary Memorandum). None of the Company or the Subsidiaries or to the best knowledge of the Company, after due inquiry, Lil' Champ has received any notice of infringement of or conflict with (or knows of any such -15- infringement of or conflict with) asserted rights of others with respect to any patents, trademarks, service marks, trade names, copyrights or know-how that, if such assertion of infringement or conflict were sustained, would, individually or in the aggregate, have a Material Adverse Effect. (q) Each of the Company and the Subsidiaries and, to the best knowledge of the Company, after due inquiry, Lil' Champ possesses all licenses, permits, certificates, consents, orders, approvals and other authorizations from, and has made all declarations and filings with, all federal, state, local and other governmental authorities, all self- regulatory organizations and all courts and other tribunals presently required or necessary to own or lease, as the case may be, and to operate its respective properties and to carry on its respective businesses as now or proposed to be conducted as set forth in the Final Memorandum (or, if the Final Memorandum is not in existence, the most recent Preliminary Memorandum) ("Permits"), except where the failure to obtain such Permits would not, individually or in the aggregate, have a Material Adverse Effect; each of the Company and the Subsidiaries and to the best knowledge of the Company, after due inquiry, Lil' Champ has fulfilled and performed all of its obligations with respect to such Permits and no event has occurred which allows, or after notice or lapse of time would allow, revocation or termination thereof or results in any other material impairment of the rights of the holder of any such Permit; and none of the Company or the Subsidiaries or to the best knowledge of the Company, after due inquiry, Lil' Champ has received any notice of any proceeding relating to revocation or modification of any such Permit, except as described in the Final Memorandum (or, if the Final Memorandum is not in existence, the most recent Preliminary Memorandum) and except where such revocation or modification would not, individually or in the aggregate, have a Material Adverse Effect. -16- (r) Subsequent to the respective dates as of which information is given in the Final Memorandum (or, if the Final Memorandum is not in existence, the most recent Preliminary Memorandum) and except as described therein, (i) the Company and the Subsidiaries and to the best knowledge of the Company, after due inquiry, Lil' Champ have not incurred any material liabilities or obligations, direct or contingent, or entered into any material transactions, in either case whether or not in the ordinary course of business, (ii) the Company and the Subsidiaries and to the best knowledge of the Company, after due inquiry, Lil' Champ have not purchased any of their respective outstanding capital stock, or declared, paid or otherwise made any dividend or distribution of any kind on any of their respective capital stock or otherwise (other than, with respect to any of such Subsidiaries, the purchase of, or dividend or distribution on, Capital Stock owned by the Company) and (iii) there shall not have been any change in the capital stock or long-term indebtedness (other than under the existing credit agreement) of the Company or the Subsidiaries or to the best knowledge of the Company, after due inquiry, Lil' Champ. (s) There are no legal or governmental proceedings, nor are there any contracts or other documents required by the Securities Act to be described in a prospectus that are not described in the Final Memorandum (or, if the Final Memorandum is not in existence, the most recent Preliminary Memorandum). Except as described in the Final Memorandum (or, if the Final Memorandum is not in existence, the most recent Preliminary Memorandum), none of the Company or the Subsidiaries or to the best knowledge of the Company, after due inquiry, Lil' Champ is in default under any of the contracts described in the Final Memorandum (or, if the Final Memorandum is not in existence, the most recent Preliminary Memorandum), has received a notice or claim of any such default or has knowledge of any breach of such contracts by the other party or parties thereto, except such defaults or breaches -17- as would not, individually or in the aggregate, have a Material Adverse Effect. (t) Neither the issuance or sale of the Securities will violate Regulation G, T, U or X of the Board of Governors of the Federal Reserve System, in each case as in effect on the Closing Date. (u) Each of the Company and the Subsidiaries and to the best knowledge of the Company, after due inquiry, Lil' Champ has good and marketable title to all real property described in the Final Memorandum (or, if the Final Memorandum is not in existence, the most recent Preliminary Memorandum) as being owned by it and good and marketable title to the leasehold estate in the real property described therein as being leased by it, free and clear of all liens, charges, encumbrances or restrictions, except, in each case, as described in the Final Memorandum (or, if the Final Memorandum is not in existence, the most recent Preliminary Memorandum) or such as would not, individually or in the aggregate, have a Material Adverse Effect. All leases, contracts and agreements, including those referred to in the Final Memorandum (or, if the Final Memorandum is not in existence, the most recent Preliminary Memorandum) to which the Company or Lil' Champ or any of the Subsidiaries is a party or by which any of them is bound are valid and enforceable against the Company or any such Subsidiary or, to the best knowledge of the Company, after due inquiry, Lil' Champ, and are, to the best knowledge of the Issuers, valid and enforceable against the other party or parties thereto and are in full force and effect except where the failure to be valid and enforceable against the other party or parties thereto or to be in full force and effect would not have a Material Adverse Effect. (v) Each of the Company, the Subsidiaries and to the best knowledge of the Company, after due inquiry, Lil' Champ, has filed all necessary federal, state and foreign -18- income and franchise tax returns, except where the failure to so file such returns would not, individually or in the aggregate, have a Material Adverse Effect, and have paid all taxes shown as due thereon; and other than tax deficiencies which the Company, any Subsidiary or Lil' Champ is contesting in good faith and for which adequate reserves have been provided, in accordance with generally accepted accounting principles, there is no tax deficiency that has been asserted against the Company or any Subsidiary or to the best knowledge of the Company, after due inquiry, Lil' Champ, that would, individually or in the aggregate, have a Material Adverse Effect. (w) (i) Immediately after the consummation of the Transaction and the other transactions contemplated by this Agreement, the other Basic Documents and the Transaction Documents, the fair value and present fair saleable value of the assets of each of the Company and the Subsidiaries and to the best knowledge of the Company, after due inquiry, Lil' Champ, will exceed the sum of its stated liabilities and identified contingent liabilities; and (ii) each of the Company and the Subsidiaries and to the best knowledge of the Company, after due inquiry, Lil' Champ, is not, nor will it be, after giving effect to the execution, delivery and performance of this Agreement, the other Basic Documents and the Transaction Documents, and the consummation of the Transactions and the other transactions contemplated hereby and thereby, (a) left with unreasonably small capital with which to carry on its business as it is proposed to be conducted, (b) unable to pay its debts (contingent or otherwise) as they mature or (c) otherwise insolvent. (x) Except as disclosed in the Final Memorandum (or, if the Final Memorandum is not in existence, the most recent Preliminary Memorandum) and except as would not, individually or in the aggregate, have a Material Adverse Effect, (A) each of the Company and the Subsidiaries and, to the best knowledge of the Company, after due inquiry, -19- Lil' Champ is in compliance with all applicable Environmental Laws, (B) each of the Company and the Subsidiaries has made all filings and provided all notices required under any applicable Environmental Law, and has all permits, authorizations and approvals required under any applicable Environmental Laws and is in compliance with their requirements, (C) there is no civil, criminal or administrative action, suit, demand, claim, hearing, notice of violation, investigation, proceeding, notice or demand letter or request for information pending or, to the best knowledge of the Issuers, threatened against the Company or any of the Subsidiaries or to the best knowledge of the Company, after due inquiry, Lil' Champ under any Environmental Law, (D) no lien, charge, encumbrance or restriction has been recorded under any Environmental Law with respect to any assets, facility or property owned, operated, leased or controlled by the Company or any of the Subsidiaries, (E) neither the Company nor any of the Subsidiaries nor to the best knowledge of the Company, after due inquiry, Lil' Champ has received notice that it has been identified as a potentially responsible party under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA") or any comparable state law, (F) no property or facility of the Company or any of the Subsidiaries (or any predecessor in interest of the Company or Subsidiary or to the best knowledge of the Company after due inquiry, Lil' Champ is (i) listed or proposed for listing on the National Priorities List under CERCLA or (ii) listed in the Comprehensive Environmental Response, Compensation, Liability Information System List promulgated pursuant to CERCLA, or (iii) listed on any comparable list maintained by any state or local governmental authority, and (G) there are no past or present actions, events, operations or activities which could reasonably be expected to prevent or interfere with compliance by the Company or any Subsidiary with any applicable, Environmental Law or to result in liability under any applicable Environmental Law. -20- For purposes of this Agreement, the following terms shall have the following meanings: "Environmental Law" means any federal, state, local or municipal statute, law, rule, regulation, ordinance, code, published policy or rule of common law and any judicial or administrative interpretation thereof, including without limitation any judicial or administrative order, consent decree or judgment binding on any of the Company or the Subsidiaries, relating to pollution or protection of the environment or health or safety or any pollutant, contaminant, waste, chemical, material, substance or constituent, including without limitation petroleum, including crude oil or any component thereof, that is subject to regulation thereunder. "Environmental Claims" means any and all administrative, regulatory or judicial actions, suits, demands, demand letters, claims, notices of responsibility, information requests, liens, notices of noncompliance or violation, investigations or proceedings relating in any way to any Environmental Law. (y) None of the Company or the Subsidiaries is, or immediately after the Closing Date will be, required to register as an "investment company" or a company "controlled by" an "investment company" within the meaning of the Investment Company Act of 1940, as amended. (z) None of the Company or the Subsidiaries or to the Company's knowledge any of such entities' directors, officers, employees, agents or controlling persons has taken, directly or indirectly, any action designed, or that might reasonably be expected, to cause or result, under the Securities Act or otherwise, in, or that has constituted, stabilization or manipulation of the price of the Securities. (aa) None of the Company, the Subsidiaries or any of their respective Affiliates (as defined in Rule 501(b) of Regulation D under the Securities Act) or, to the best knowledge of the Company, after due inquiry, Lil' Champ or -21- any of its Affiliates directly, or through any agent, (i) sold, offered for sale, solicited offers to buy or otherwise negotiated in respect of any "security" (as defined in the Securities Act) which is or could be integrated with the sale of the Securities in a manner that would require the registration under the Securities Act of the Securities or (ii) engaged in any form of general solicitation or general advertising (as those terms are used in Regulation D under the Securities Act) in connection with the offering of the Securities or in any manner involving a public offering within the meaning of Section 4(2) of the Securities Act. Assuming the accuracy of the representations and warranties of the Initial Purchasers in Section 9 hereof, it is not necessary in connection with the offer, sale and delivery of the Securities to the Initial Purchasers in the manner contemplated by this Agreement to register any of the Securities under the Securities Act or to qualify the Indenture under the Trust Indenture Act. (bb) No securities of any Issuer are of the same class (within the meaning of Rule 144A under the Securities Act) as the Securities and listed on a national securities exchange registered under Section 6 of the Exchange Act, or quoted in a U.S. automated inter-dealer quotation system. (cc) Except as set forth in the Final Memorandum (or, if the Final Memorandum is not in existence, the most recent Preliminary Memorandum), there is no strike, labor dispute, slowdown or work stoppage by the employees of the Company or any of the Subsidiaries or, to the best knowledge of the Company, after due inquiry, Lil' Champ which is pending or, to the best knowledge of the Company or any of the Subsidiaries, threatened. (dd) Each of the Company and the Subsidiaries carries insurance (including self-insurance) in such amounts and covering such risks as in its reasonable determination is -22- adequate for the conduct of its business and the value of its properties. (ee) Each of the Company and the Subsidiaries (i) makes and keeps accurate books and records and (ii) maintains internal accounting controls which provide reasonable assurance that (A) transactions are executed in accordance with management's authorization, (B) transactions are recorded as necessary to permit preparation of its financial statements and to maintain accountability for its assets, (C) access to its assets is permitted only in accordance with management's authorization and (D) the reported accountability for its assets is compared with existing assets at reasonable intervals. (ff) No holder of securities of the Company or any Subsidiary will be entitled to have such securities registered under the registration statements required to be filed by the Company pursuant to the Registration Rights Agreement other than as expressly permitted thereby. (gg) The statistical and market and industry-related data included in the Final Memorandum (or, if the Final Memorandum is not in existence, the most recent Preliminary Memorandum) are based on or derived from sources which the Issuers believe to be reliable and accurate or represent the Issuers good faith estimates that are made on the basis of data derived from such sources. (hh) Except as stated in the Final Memorandum (or, if the Final Memorandum is not in existence, the most recent Preliminary Memorandum), the Company does not know of any claims for services, either in the nature of a finder's fee or financial advisory fee, with respect to the offering of the Securities and the transactions contemplated by the Final Memorandum. -23- (ii) None of the Company, the Subsidiaries, any of their respective Affiliates or any person acting on its or their behalf (other than the Initial Purchasers) has engaged in any directed selling efforts (as that term is defined in Regulation S under the Securities Act ("Regulation S")) with respect to the Securities and the Company, the Subsidiaries and their respective Affiliates and any person acting on its or their behalf have acted in accordance with the offering restrictions requirement of Regulation S. Any certificate signed by any officer of the Company or any Subsidiary and delivered to any Initial Purchaser or to counsel for the Initial Purchasers shall be deemed a joint and several representation and warranty by the Issuers to each Initial Purchaser as to the matters covered thereby. 3. Purchase, Sale and Delivery of the Securities. On the --------------------------------------------- basis of the representations, warranties, agreements and covenants herein contained and subject to the terms and conditions herein set forth, the Company agrees to issue and sell to the Initial Purchasers, and each Initial Purchaser acting severally and not jointly agrees to purchase from the Company, the Notes in the respective amounts set forth on Schedule 1 hereto, at 97.25% of their ---------- principal amount. One or more certificates in definitive form for the Notes and the related Guarantees that the Initial Purchasers have agreed to purchase hereunder, and in such denomination or denominations and registered in such name or names as the Initial Purchasers request upon notice to the Company at least 48 hours prior to the Closing Date (as defined) shall be delivered by or on behalf of the Company, against payment by or on behalf of the Initial Purchasers, of the purchase price therefor by wire transfer of immediately available funds to the account of the Company previously designated by it in writing. Such delivery of and payment for the Notes and the related Guarantees shall be made at the offices of Cahill Gordon & Reindel, 80 Pine Street, New York, New York 10005, at 9:00 -24- A.M., New York time, on October 23, 1997, or at such date as the Initial Purchasers and the Company may agree upon, such time and date of delivery against payment being herein referred to as the "Closing Date." The Company will make such certificate or certificates for the Notes available for checking and packaging by the Initial Purchasers at the offices in New York, New York of CIBC Wood Gundy Securities Corp. at least 24 hours prior to the Closing Date. 4. Offering by the Initial Purchasers. The Initial ---------------------------------- Purchasers propose to make an offering of the Securities at the price and upon the terms set forth in the Final Memorandum as soon as practicable after this Agreement is entered into and as in the judgment of the Initial Purchasers is advisable. 5. Certain Covenants. The Issuers jointly and severally ----------------- covenant and agree with the Initial Purchasers that: (i) The Issuers will not amend or supplement the Final Memorandum or any amendment or supplement thereto of which the Initial Purchasers shall not have been advised and furnished a copy for a reasonable period of time prior to the proposed amendment or supplement and as to which the Initial Purchasers shall not have given their consent (which consent shall not be unreasonably withheld). The Issuers will promptly, upon the reasonable request of the Initial Purchasers or counsel for the Initial Purchasers, make any amendments or supplements to the Preliminary Memorandum or the Final Memorandum that may be necessary in connection with the resale of the Securities by the Initial Purchasers. (ii) The Issuers will cooperate with the Initial Purchasers in arranging for the qualification of the Securities for offering and sale under the securities or "Blue Sky" laws of such jurisdictions as the Initial Purchasers may designate and will continue such qualifications in effect for as long as may be necessary to complete the resale of the Securities by the Initial -25- Purchasers; provided, however, that in connection therewith none of the -------- ------- Issuers shall be required to qualify as a foreign corporation or to execute a general consent to service of process in any jurisdiction or to take any other action that would subject it to general service of process or to taxation in excess of a nominal amount in respect of doing business in any jurisdiction in which it is not otherwise subject. (iii) If, at any time prior to the completion of the resale by the Initial Purchasers of the Notes or the Private Exchange Notes, but in no event longer than one year after the date of the Final Memorandum any event shall occur as a result of which it is necessary, in the opinion of counsel for the Initial Purchasers, to amend or supplement the Final Memorandum in order to make such Final Memorandum not misleading in the light of the circumstances existing at the time it is delivered to a purchaser, or if for any other reason it shall be necessary to amend or supplement the Final Memorandum in order to comply with applicable laws, rules or regulations, the Issuers shall (subject to Section 5(i)) forthwith amend or supplement such Final Memorandum at their own expense so that, as so amended or supplemented, such Final Memorandum will not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing at the time it is delivered to a purchaser, not misleading and will comply with applicable laws, rules or regulations. (iv) The Issuers will, without charge, provide to the Initial Purchasers and to counsel for the Initial Purchasers as many copies of each Preliminary Memorandum or Final Memorandum or any amendment or supplement thereto as the Initial Purchasers may reasonably request. (v) None of the Issuers or any of their respective Affiliates will sell, offer for sale or solicit offers to -26- buy or otherwise negotiate in respect of any "security" (as defined in the Securities Act) which could be integrated with the sale of the Securities in a manner which would require the registration under the Securities Act of the Securities. (vi) (a) For so long as any of the Securities remain outstanding, the Company will furnish to the Initial Purchasers as soon as available, a copy of each report or other communication (financial or otherwise) of the Company mailed to the Trustee or holders of the Securities or stockholders or filed with the Commission or any national securities exchange on which any class of securities of the Company may be listed, and (b) for a period of five years from the Closing Date from time to time the Company will furnish to the Initial Purchasers such other information concerning the Issuers as the Initial Purchasers may reasonably request. (vii) The Company will apply the net proceeds from the sale of the Securities as set forth under "Use of Proceeds" in the Final Memorandum. (viii) Prior to the Closing Date, the Company will furnish to the Initial Purchasers, as soon as they have been prepared by or are available to the Company, a copy of any unaudited interim consolidated financial statements of the Company and the Subsidiaries, for any period subsequent to the period covered by the most recent financial statements appearing in the Final Memorandum. (ix) The Issuers will not, and will not permit any of their Subsidiaries to, engage in any form of general solicitation or general advertising (as those terms are used in Regulation D under the Securities Act) in connection with the offering of the Securities or in any manner involving a public offering within the meaning of Section 4(2) of the Securities Act. -27- (x) For so long as any of the Securities remain outstanding, the Company will make available at its expense, upon request, to any holder of Securities and any prospective purchasers thereof the information specified in Rule 144A(d)(4) under the Securities Act, unless the Company is then subject to Section 13 or 15(d) of the Exchange Act. (xi) The Issuers will use their best efforts to (i) permit the Securities to be designated PORTAL securities in accordance with the rules and regulations adopted by the National Association of Securities Dealers, Inc. (the "NASD") relating to trading in the Private Offerings, Resales and Trading through Automated Linkages market (the "Portal Market") and (ii) permit the Securities to be eligible for clearance and settlement through The Depository Trust Company. (xii) In connection with Securities offered and sold in an offshore transaction (as defined in Regulation S), the Issuers will not register any transfer of such Securities not made in accordance with the provisions of Regulation S and will not, except in accordance with the provisions of Regulation S, if applicable, issue any such Securities in the form of definitive securities. (xiii) If this Agreement shall be terminated by the Initial Purchasers because of any failure or refusal on the part of the Issuers to comply with the terms or fulfill any of the conditions of this Agreement other than pursuant to Section 11(a) hereof (ii) through (iv), the Issuers, on a joint and several basis, agree to reimburse the Initial Purchasers for all reasonable out-of-pocket expenses (including fees and expenses of counsel for the Initial Purchasers) incurred by the Initial Purchasers in connection herewith, but in no event will the Issuers be liable to the Initial Purchasers for damages on account of loss of anticipated profits from the sale of the Securities. -28- (xiv) The Issuers will use their reasonable best efforts to do and perform all things required to be done and performed by them under this Agreement and the other Basic Documents prior to or after the Closing Date and to satisfy all conditions precedent on their part to the obligations of the Initial Purchasers to purchase and accept delivery of the Securities. 6. Expenses. Notwithstanding any termination of this -------- Agreement (pursuant to Section 11 or otherwise), the Issuers jointly and severally agree to pay the following costs and expenses and all other costs and expenses incident to the performance by the Issuers of their obligations hereunder: (i) the printing, typing, reproduction, of this Agreement and of the other Basic Documents, any amendment or supplement to or modification of any of the foregoing and any and all other documents furnished pursuant hereto or thereto or in connection herewith or therewith; (ii) the printing or reproduction of each Preliminary Memorandum, the Final Memorandum and each amendment or supplement to any of them; (iii) the printing (or reproduction) and delivery (including postage, air freight charges and charges for counting and packaging) of such copies of each Preliminary Memorandum, the Final Memorandum and all amendments or supplements to any of them as may be reasonably requested for use in connection with the offering and sale of the Securities; (iv) the printing, authentication, issuance and delivery of certificates for the Securities, including any stamp taxes in connection with the original issuance and sale of the Securities and trustees' fees; (v) the reproduction and delivery of this Agreement, the preliminary and supplemental "Blue Sky" memoranda and all other agreements or documents reproduced and delivered in connection with the offering of the Securities; (vi) the registration or qualification of the Securities for offer and sale under the securities or Blue Sky laws of the several states (including filing fees and the reasonable fees, expenses and disbursements of Cahill Gordon & Reindel, counsel to the Initial Purchasers, relating to such registration and qualification); (vii) the filing fees in connection with any filings required to be made with the NASD; -29- (viii) expenses in connection with any meetings with prospective investors in the Securities; (ix) the fees and expenses of the Company's accountants and the fees and expenses of counsel (including local and special counsel) for the Issuers; (x) fees and expenses of the Trustee including fees and expenses of its counsel; (xi) all expenses and listing fees incurred in connection with the application for quotation of the Securities on the PORTAL Market; and (xii) any fees charged by investment rating agencies for the rating of the Securities. The Initial Purchasers will pay all of their own costs and expenses, including fees of counsel other than as provided in clauses (vi) and (viii). 7. Conditions of the Initial Purchasers' Obligations. The ------------------------------------------------- obligation of each Initial Purchaser to purchase and pay for the Securities is subject to the accuracy of the representations and warranties contained herein, to the performance by the Issuers of their respective covenants and agreements hereunder and to the following additional conditions unless waived in writing by the Initial Purchasers: (i) The Initial Purchasers shall have received an opinion of counsel to the Issuers in form and substance satisfactory to the Initial Purchasers and Cahill Gordon & Reindel, counsel to the Initial Purchasers, dated the Closing Date, of Riordan & McKinzie. In rendering such opinion, Riordan & McKinzie shall have received and may rely upon such certificates and other documents and information, including one or more opinions of local counsel reasonably acceptable to the Initial Purchasers and Cahill Gordon & Reindel, counsel to the Initial Purchasers, as they may reasonably request to pass upon such matters. In addition, the Initial Purchasers shall have received a letter or letters permitting them to rely on any opinions rendered by counsel to the Issuers in connection with the Transactions. (ii) The Initial Purchasers shall have received an opinion, dated the Closing Date, of Cahill Gordon & -30- Reindel, counsel to the Initial Purchasers, with respect to the sufficiency of certain legal matters relating to this Agreement and such other related matters as the Initial Purchasers may require. In rendering such opinion, Cahill Gordon & Reindel shall have received and may rely upon such certificates and other documents and information as they may reasonably request to pass upon such matters. In addition, in rendering their opinion, Cahill Gordon & Reindel may state that their opinion is limited to matters of New York, Delaware corporate and federal law. (iii) The Initial Purchasers shall have received from independent public accountants for the Issuers, "comfort" letters dated the date hereof and the Closing Date, in form and substance reasonably satisfactory to the Initial Purchasers and Cahill Gordon & Reindel, counsel to the Initial Purchasers. (iv) The representations and warranties of the Issuers contained in this Agreement shall be true and correct on and as of the Closing Date; the Issuers shall have complied in all material respects with all agreements and satisfied all conditions on their part to be performed or satisfied hereunder at or prior to the Closing Date. (v) There shall not have been any change in the capital stock of the Company or the Subsidiaries or any material increase in the consolidated short-term or long-term debt of the Company or the Subsidiaries from that set forth or contemplated in the Final Memorandum (other than additional borrowings under existing credit facilities) and the Company and the Subsidiaries shall not have any liabilities or obligations, contingent or otherwise (whether or not in the ordinary course of business), that are material to the Company and the Subsidiaries, taken as a whole, other than those reflected in the Final Memorandum. -31- (vi) None of the issuance and sale of the Securities pursuant to this Agreement or any of the transactions contemplated by any of the other Basic Documents or the Transaction Documents shall be enjoined (temporarily or permanently) and no restraining order or other injunctive order shall have been issued; and there shall not have been any legal action, order, decree or other administrative proceeding instituted or threatened against any of the Issuers or against the Initial Purchasers relating to the issuance of the Securities or the Initial Purchasers' activities in connection therewith or any other transactions contemplated by this Agreement or the Final Memorandum, the other Basic Documents or the Transaction Documents. (vii) Subsequent to the date of this Agreement, and since the date of the most recent financial statements in the Final Memorandum (exclusive of any amendment or supplement thereto after the date thereof), there shall not have occurred (i) any change, or any development involving a prospective change, in or affecting the general affairs, management, business, condition (financial or other), properties, prospects or results of operations of the Company and the Subsidiaries, taken as a whole, or Lil' Champ not contemplated by the Final Memorandum that, in the opinion of the Initial Purchasers, would materially adversely affect the market for the Securities, or (ii) any event or development relating to or involving any of the Company or the Subsidiaries or Lil' Champ or any of the officers or directors of the Company or the Subsidiaries or Lil' Champ that makes any statement made in the Final Memorandum untrue or that, in the opinion of the Issuers and their counsel or the Initial Purchasers and their counsel, requires the making of any addition to or change in the Final Memorandum in order to state a material fact required by any applicable law, rule or regulation to be stated therein or necessary in order to make the statements made therein not misleading. -32- (viii) The Initial Purchasers shall have received certificates, dated the Closing Date and signed by the chief executive officer and the chief financial officer of each Issuer, to the effect that: a. All of the representations and warranties of the Issuers set forth in this Agreement are true and correct as if made on and as of the Closing Date and the Issuers have complied in all material respects with all agreements and satisfied all conditions on their part to be performed or satisfied at or prior to the Closing Date. b. The issuance and sale of the Securities pursuant to this Agreement or the Final Memorandum and the consummation of the transactions contemplated by the Transaction Documents have not been enjoined (temporarily or permanently) and no restraining order or other injunctive order has been issued and there has not been any legal action, order, decree or other administrative proceeding instituted or to such officers' knowledge threatened against any of the Issuers relating to the issuance of the Securities or the Initial Purchasers' activities in connection therewith or in connection with any other transactions contemplated by this Agreement or the Final Memorandum, the other Basic Documents or the Transaction Documents. c. Subsequent to the date of this Agreement and since the date of the most recent financial statements in the Final Memorandum (exclusive of any amendment or supplement thereto after the date hereof), there has not occurred (i) any change, or any development involving a prospective change, in or affecting the general affairs, management, business, condition (financial or other), properties, prospects or -33- results of operations of the Company, the Subsidiaries and Lil' Champ, taken as a whole, not contemplated by the Final Memorandum that would materially adversely affect the market for the Securities, or (ii) any event or development relating to or involving any of the Company or the Subsidiaries, or Lil' Champ, or any of the respective officers or directors of the Company or the Subsidiaries, or Lil' Champ, that makes any statement made in the Final Memorandum untrue or that requires the making of any addition to or change in the Final Memorandum in order to state a material fact required by any applicable law, rule or regulation to be stated therein or necessary in order to make the statements made therein not misleading. d. There has not been any change in the capital stock of the Company or the Subsidiaries, or Lil' Champ, nor any material increase in the consolidated short-term or long-term debt of the Company or Lil' Champ, from that set forth or contemplated in the Final Memorandum (other than borrowings under existing credit facilities) and the Company and the Subsidiaries and Lil' Champ have no liabilities or obligations, contingent or otherwise (whether or not in the ordinary course of business), that are material to the Company, the Subsidiaries and Lil' Champ, taken as a whole, other than those reflected in the Final Memorandum. e. At the Closing Date and after giving effect to the consummation of the transactions contemplated by this Agreement, the other Basic Documents and the Transaction Documents, there exists no Default or Event of Default (as defined in the Indenture). -34- (ix) Each of the Transaction Documents and each other agreement or instrument executed in connection with the Transactions shall be reasonably satisfactory in form and substance to the Initial Purchasers and shall have been executed and delivered by all the respective parties thereto and shall be in full force and effect, and there shall have been no material amendments, alterations, modifications or waivers of any provision thereof since the date of this Agreement. On the Closing Date, the New Credit Facility shall provide for (i) a revolving credit facility of not less than $45 million (with a $20 million sublimit for letters of credit), all of which shall be available on the Closing Date, and (ii) an acquisition facility of not less than $30 million, all of which shall be available to --- the Company on the Closing Date. The Lil' Champ Acquisition, the Equity Investment, the Tender Offer and the Consent Solicitation shall each have been consummated on or prior to the Closing Date. (x) All proceedings taken in connection with the issuance of the Securities and the transactions contemplated by this Agreement, the other Basic Documents and the Transaction Documents and all documents and papers relating thereto shall be reasonably satisfactory to the Initial Purchasers and counsel to the Initial Purchasers. The Initial Purchasers and counsel to the Initial Purchasers shall have received copies of such papers and documents as they may reasonably request in connection therewith, all in form and substance reasonably satisfactory to them. (xi) The Company shall apply the proceeds necessary from the issuance and sale of the Notes, together with cash on hand and the proceeds of the Equity Investment, as described under "Use of Proceeds" in the Final Memorandum. (xii) There shall not have been any announcement by any "nationally recognized statistical rating organization," as defined for purposes of Rule 436(g) -35- under the Securities Act, that (A) it is downgrading its rating assigned to any debt securities of the Company, or (B) it is reviewing its rating assigned to any debt securities of the Company with a view to possible downgrading, or with negative implications, or direction not determined. (xiii) On or before the Closing Date, the Initial Purchasers shall have received the Registration Rights Agreement executed by the Company and such agreement shall be in full force and effect at all times from and after the Closing Date. (xiv) The Issuers shall have furnished or caused to be furnished to the Initial Purchasers such further certificates and documents as the Initial Purchasers shall have reasonably requested. All such opinions, certificates, letters, schedules, documents or instruments delivered pursuant to this Agreement will comply with the provisions hereof only if they are reasonably satisfactory to the Initial Purchasers and counsel to the Initial Purchasers. The Issuers shall furnish to the Initial Purchasers such conformed copies of such opinions, certificates, letters, schedules, documents and instruments in such quantities as the Initial Purchasers shall reasonably request. 8. Indemnification and Contribution. (a) Each Issuer -------------------------------- jointly and severally agrees to indemnify and hold harmless the Initial Purchasers, each director, officer, employee or agent of any Initial Purchaser and each person, if any, who controls any Initial Purchaser within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, against any losses, claims, damages, -36- liabilities or expenses to which such Initial Purchaser or such director, officer, employee, agent or controlling person may become subject under the Securities Act, the Exchange Act or otherwise, insofar as any such losses, claims, damages, liabilities or expenses (or actions in respect thereof) arise out of or are based upon: (i) (A) any untrue statement or alleged untrue statement of any material fact contained in any Preliminary Memorandum or the Final Memorandum or any amendment or supplement thereto or (B) the breach of any representation and warranty of the Issuers made by the Issuers in this Agreement; or (ii) the omission or alleged omission to state, in any Preliminary Memorandum or the Final Memorandum or any amendment or supplement thereto, a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, and will reimburse, as incurred, the Initial Purchasers and each such director, officer, employee, agent or controlling person for any reasonable legal or other out of pocket expenses reasonably incurred by the Initial Purchasers or such director, officer, employee, agent or controlling person in connection with investigating, defending against or appearing as a third-party witness in connection with any such loss, claim, damage, liability, expense or action; provided, however, that -------- ------- none of the Issuers will be liable in any such case to an Initial Purchaser or any director, officer, employee, agent or controlling person of such Initial Purchaser to the extent that any such loss, claim, damages or liability, expense or action arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission made in any Preliminary Memorandum or the Final Memorandum or any amendment or supplement thereto, in reliance upon and in conformity with written information furnished to the Issuers by or on behalf of Initial Purchasers specifically for use therein; and provided, further, that none of the -------- ------- Issuers will be liable to any Initial Purchaser or any director, officer, employee, agent or any person controlling any Initial Purchaser with respect to any such -37- untrue statement or omission made in any Preliminary Memorandum that is corrected in the Final Memorandum (or any amendment or supplement thereto) if the person asserting any such loss, claim, damage, expense or liability purchased Securities from an Initial Purchaser in reliance upon the Preliminary Memorandum but was not sent or given a copy of the Final Memorandum (as amended or supplemented) that was made available by the Issuers to such Initial Purchaser at or prior to the written confirmation of the sale of the Securities to such person in any case where such delivery of such Final Memorandum (as so amended or supplemented) is required by the Securities Act, unless such failure to deliver such Final Memorandum (as amended or supplemented) was a result of noncompliance by the Issuers with Section 5(iv) of this Agreement. This indemnity agreement will be in addition to any liability that the Issuers may otherwise have to the indemnified parties. The Issuers further agree that the indemnification, contribution and reimbursement commitments set forth in this Section 8 shall apply whether or not any Initial Purchaser is a formal party to any such lawsuits, claims or other proceedings. None of the Issuers will without the prior written consent of the Initial Purchasers, settle or compromise or consent to the entry of any judgment in any pending or threatened claim, action, suit or proceeding in respect of which indemnification by the Initial Purchasers may be sought hereunder (whether or not the Initial Purchasers or any person who controls any Initial Purchaser within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act is a party to such claim, action, suit or proceeding), unless such settlement, compromise or consent includes an unconditional release of the Initial Purchasers and each such director, officer, employee, agent or controlling person from all liability arising out of such claim, action, suit or proceeding. (b) The Initial Purchasers severally and not jointly will indemnify and hold harmless the Issuers, their respective -38- directors, officers, employees and agents and each person, if any, who controls any of the Issuers within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act against any losses, claims, damages, liabilities or expenses to which any of the Issuers or any such director, officer, employee, agent or controlling person may become subject under the Securities Act, the Exchange Act or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any Preliminary Memorandum or the Final Memorandum or any amendment or supplement thereto, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement was made in reliance upon and in conformity with written information furnished to any of the Issuers by or on behalf of such Initial Purchaser specifically for use therein. This indemnity agreement will be in addition to any liability that the Initial Purchasers may otherwise have to the indemnified parties. (c) Promptly after receipt by an indemnified party under this Section 8 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 8, notify the indemnifying party of the commencement thereof; but the omission so to notify the indemnifying party will not relieve it from any liability that it may have to any indemnified party except to the extent that such omission results in the forfeiture by the indemnifying party of substantial rights and defenses. In case any such action is brought against any indemnified party, and such indemnified party notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party; provided, however, that if the named -------- ------- parties in any such action (including any impleaded parties) include both the indemnified party and the indemnifying party and the -39- indemnified party shall have reasonably concluded that there may be one or more legal defenses available to it and/or other indemnified parties that are different from or additional to those available to any such indemnifying party, then the indemnifying parties shall not have the right to direct the defense of such action on behalf of such indemnified party or parties and such indemnified party or parties shall have the right to select separate counsel to defend such action on behalf of such indemnified party or parties. After notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof and approval by such indemnified party of counsel appointed to defend such action, the indemnifying party will not be liable to such indemnified party under this Section 8 for any legal or other expenses, other than reasonable out-of-pocket costs of investigation, incurred by such indemnified party in connection with the defense thereof, unless (i) the indemnified party shall have employed separate counsel in accordance with the proviso to the immediately preceding sentence (it being understood, however, that in connection with such action the indemnifying party shall not be liable for the expenses of more than one separate counsel (in addition to local counsel) in any one action or separate but substantially similar actions in the same jurisdiction arising out of the same general allegations or circumstances, representing the indemnified parties under such paragraph (a) or paragraph (b), as the case may be, who are parties to such action or actions); (ii) the indemnifying party has authorized in writing the employment of counsel for the indemnified party at the expense of the indemnifying parties; or (iii) the indemnifying party shall have failed promptly to assume the defense or retain counsel reasonably satisfactory to the indemnified party. The indemnifying parties will not be liable under this Section 8 for the costs and expenses of any settlement of such action effected by such indemnified party without the consent of the indemnifying party (which consent shall not be unreasonably withheld). (d) In circumstances in which the indemnity agreement provided for in the preceding paragraphs of this -40- Section 8 is unavailable or insufficient to hold harmless an indemnified party in respect of any losses, claims, damages, expenses or liabilities (or actions in respect thereof), each indemnifying party, in order to provide for just and equitable contribution, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, expenses or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect (i) the relative benefits received by the indemnifying party or parties on the one hand and the indemnified party on the other from the offering of the Securities or (ii) if the allocation provided by the foregoing clause (i) is not permitted by applicable law, not only such relative benefits but also the relative fault of the indemnifying party or parties on the one hand and the indemnified party on the other in connection with the statements or omissions or alleged statements or omissions that resulted in such losses, claims, damages, expenses or liabilities (or actions in respect thereof). The relative benefits received by the Issuers on the one hand and the Initial Purchasers on the other shall be deemed to be in the same proportion as the total proceeds from the offering of the Securities (before deducting expenses) received by the Issuers bear to the total discounts and commissions received by the Initial Purchasers. The relative fault of the parties shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Issuers on the one hand or the Initial Purchasers on the other, the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission, and any other equitable considerations appropriate in the circumstances. The amount paid or payable by a party as a result of the losses, claims, damages and liabilities referred to above shall be deemed to include any legal or other fees or expenses incurred by such party in connection with investigating or defending any such claim. The Issuers and the Initial Purchasers agree that it would not be equitable if the amount of such contribution were determined by pro rata or per capita allocation (even if the -41- Issuers on the one hand and the Initial Purchasers on the other hand were treated as one entity for such purpose) or by any other method of allocation that does not take into account the equitable considerations referred to in the first sentence of this paragraph (d). Notwithstanding any other provision of this paragraph (d), the Initial Purchasers shall not be obligated to make contributions hereunder that in the aggregate exceed the total discounts and commissions received by the Initial Purchasers under this Agreement, less the aggregate amount of any damages that the Initial Purchasers have otherwise been required to pay by reason of the untrue or alleged untrue statements, and no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this paragraph (d), each director, officer, employee or agent of and each person, if any, who controls any Initial Purchaser within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act shall have the same rights to contribution as such Initial Purchaser, and each director, officer, employee and agent of any of the Issuers and each person, if any, who controls any of the Issuers within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act shall have the same rights to contribution as the Issuers. (e) Notwithstanding anything to the contrary in this Section 8, the indemnification and contribution provisions of the Registration Rights Agreement shall govern any claim with respect thereto. 9. Offering of Securities; Restrictions on Transfer. (a) ------------------------------------------------ Each Initial Purchaser represents and warrants as to itself only that it is a QIB. Each Initial Purchaser agrees with the Issuers as to itself only that (i) it has not solicited and will not solicit offers for, or offer or sell, the Securities by any form of general solicitation or general advertising (as those terms are used in Regulation D under the Securities Act) or in any manner involving a public offering -42- within the meaning of Section 4(2) of the Securities Act; and (ii) it has and will solicit offers for the Securities only from, and will offer the Securities only to, (A) in the case of offers inside the United States, persons whom such Initial Purchaser reasonably believes to be QIBs or, if any such person is buying for one or more institutional accounts for which such person is acting as fiduciary or agent, only when such person has represented to such Initial Purchaser that each such account is a QIB, to whom notice has been given that such sale or delivery is being made in reliance on Rule 144A and, in each case, in transactions under Rule 144A and (B) in the case of offers outside the United States, to persons other than U.S. persons ("foreign purchasers," which term shall include dealers or other professional fiduciaries in the United States acting on a discretionary basis for foreign beneficial owners (other than an estate or trust)); provided, however, that, in the case of this clause (B), -------- ------- in purchasing such Securities such persons are deemed to have represented and agreed as provided under the caption "Notice to Investors" contained in the Final Memorandum (or, if the Final Memorandum is not in existence, the most recent Preliminary Memorandum. (b) Each of the Initial Purchasers represents and warrants (as to itself only) with respect to offers and sales outside the United States that (i) it has and will comply with all applicable laws and regulations in each jurisdiction in which it acquires, offers, sells or delivers Securities or has in its possession or distributes any Memorandum or any such other material, in all cases at its own expense; (ii) the Securities have not been and will not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except in accordance with Regulation S under the Securities Act or pursuant to an exemption from the registration requirements of the Securities Act; (iii) it has offered the Securities and will offer and sell the Securities (A) as part of its distribution at any time and (B) otherwise until 40 days after the later of the commencement of the offering and the Closing Date, only in accordance with Rule 903 of Regulation S and, accordingly, neither it nor any persons -43- acting on its behalf have engaged or will engage in any directed selling efforts (within the meaning of Regulation S) with respect to the Securities, and any such persons have complied and will comply with the offering restrictions requirement of Regulation S; and (iv) it agrees that, at or prior to confirmation of sales of the Securities, it will have sent to each distributor, dealer or person receiving a selling concession, fee or other remuneration that purchases Securities from it during the restricted period a confirmation or notice to substantially the following effect: "The securities covered hereby have not been registered under the United States Securities Act of 1933 (the "Securities Act") and may not be offered and sold within the United States or to, or for the account or benefit of, U.S. persons (i) as part of the distribution of the securities at any time or (ii) otherwise until 40 days after the later of the commencement of the offering and the closing date of the offering, except in either case in accordance with Regulation S (or Rule 144A if available) under the Securities Act. Terms used above have the meaning given to them in Regulation S." Terms used in this Section 9 and not defined in this Agreement have the meanings given to them in Regulation S. 10. Survival Clause. The respective representations, --------------- warranties, agreements, covenants, indemnities and other statements of the Issuers, their respective officers and the Initial Purchasers set forth in this Agreement or made by or on behalf of them, respectively, pursuant to this Agreement shall remain in full force and effect, regardless of (i) any investigation made by or on behalf of the Issuers, any of their respective officers or directors, the Initial Purchasers or any controlling person referred to in Section 8 hereof and (ii) delivery of, payment for or disposition of the Securities. The respective agreements, covenants, indemnities and other statements set forth in Sections 6 and 8 hereof shall -44- remain in full force and effect, regardless of any termination or cancellation of this Agreement. 11. Termination. (a) This Agreement may be terminated in ----------- the sole discretion of the Initial Purchasers by notice to the Issuers given in the event that the Issuers shall have failed, refused or been unable to satisfy all conditions on their part to be performed or satisfied hereunder on or prior to the Closing Date or if at or prior to the Closing Date: (i) any of the Company or the Subsidiaries or Lil' Champ shall have sustained any loss or interference with respect to their respective businesses or properties from fire, flood, hurricane, earthquake, accident or other calamity, whether or not covered by insurance, or from any labor dispute or any legal or governmental proceeding, which loss or interference, in the sole judgment of the Initial Purchasers, has had or has a material adverse effect on the general affairs, management, business, condition (financial or other), properties, prospects or results of operations of the Company and the Subsidiaries and Lil' Champ, taken as a whole, or there shall have been any material adverse change, or any development involving a prospective material adverse change (including without limitation a change in management or control of the Company or any Subsidiary), in the general affairs, management, business, condition (financial or other), properties, prospects or results of operations of the Company and the Subsidiaries, taken as a whole, except as described in or contemplated by the Final Memorandum (exclusive of any amendment or supplement thereto); (ii) trading in securities of the Company or any Subsidiary or in securities generally on the New York Stock Exchange, the American Stock Exchange or the NASDAQ National Market shall have been suspended or minimum or maximum prices shall have been established on any such exchange; -45- (iii) a banking moratorium shall have been declared by New York or United States authorities; (iv) there shall have been (A) an outbreak or escalation of hostilities between the United States and any foreign power, (B) an outbreak or escalation of any other insurrection or armed conflict involving the United States or any other national or international calamity or emergency, or (C) any material change in the financial markets of the United States that, in the case of (A), (B) or (C) above, in the sole judgment of the Initial Purchasers, makes it impracticable or inadvisable to proceed with the delivery of the Securities as contemplated by the Final Memorandum, as amended as of the date hereof; or (v) any securities of the Company or any of the Subsidiaries shall have been downgraded or placed on any "watch list" for possible downgrading by any nationally recognized statistical rating organization. (b) Termination of this Agreement pursuant to this Section 11 shall be without liability of any party to any other party except as provided in Section 10 hereof. 12. Notices. All communications hereunder shall be in ------- writing and, if sent to the Initial Purchasers, shall be hand delivered, mailed by first-class mail, couriered by next-day air courier or telecopied and confirmed in writing to CIBC Wood Gundy Securities Corp., 425 Lexington Avenue, 3rd Floor, New York, New York 10017, Attention: Corporate Finance Department, and with a copy to Cahill Gordon & Reindel, 80 Pine Street, New York, New York 10005, Attention: Roger Meltzer, Esq. If sent to any of the Issuers, shall be mailed, delivered or telecopied and confirmed in writing, to 1801 Douglas Drive, Post Office Box 1410, Sanford, NC 27330, Attention: Peter J. Sodini, and with a copy to Riordan & McKinzie, 300 South Grand Avenue, Los Angeles, CA 90071, Attention: Roger H. Lustberg, Esq. -46- All such notices and communications shall be deemed to have been duly given: when delivered by hand, if personally delivered; five business days after being deposited in the mail, postage prepaid, if mailed; one business day after being timely delivered to a next-day air courier guaranteeing overnight delivery; and when receipt is acknowledged by the addressee, if telecopied. 13. Successors. This Agreement shall inure to the benefit of ---------- and be binding upon the Initial Purchasers and each of the Issuers and their respective successors and legal representatives, and nothing expressed or mentioned in this Agreement is intended or shall be construed to give any other person any legal or equitable right, remedy or claim under or in respect of this Agreement, or any provisions herein contained; this Agreement and all conditions and provisions hereof being intended to be and being for the sole and exclusive benefit of such persons and for the benefit of no other person except that (i) the indemnities of the Issuers contained in Section 8 of this Agreement shall also be for the benefit of the directors, officers, employees and agents and any person or persons who control the Initial Purchasers within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act and (ii) the indemnities of the Initial Purchasers contained in Section 8 of this Agreement shall also be for the benefit of the directors, officers, employees and agents and of the Issuers and any person or persons who control any Issuer within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act. No purchaser of Securities from any Initial Purchaser will be deemed a successor or assign because of such purchase. 14. No Waiver; Modifications in Writing. No failure or delay ----------------------------------- on the part of any Issuer or the Initial Purchasers in exercising any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The remedies provided for herein are -47- cumulative and are not exclusive of any remedies that may be available to any Issuer or the Initial Purchasers at law or in equity or otherwise. No waiver of or consent to any departure by any Issuer or the Initial Purchasers from any provision of this Agreement shall be effective unless signed in writing by the party entitled to the benefit thereof, provided that notice of any such waiver -------- shall be given to each party hereto as set forth below. Except as otherwise provided herein, no amendment, modification or termination of any provision of this Agreement shall be effective unless signed in writing by or on behalf of each of the Issuers and the Initial Purchasers. Any amendment, supplement or modification of or to any provision of this Agreement, any waiver of any provision of this Agreement, and any consent to any departure by the Issuers or the Initial Purchasers from the terms of any provision of this Agreement shall be effective only in the specific instance and for the specific purpose for which made or given. Except where notice is specifically required by this Agreement, no notice to or demand on the Issuers in any case shall entitle the Issuers to any other or further notice or demand in similar or other circumstances. 15. Information Supplied by the Initial Purchaser. The --------------------------------------------- statements set forth in the last two sentences of the third paragraph, and the third sentence of the fifth paragraph and the last three paragraphs, in each case under the heading "Plan of Distribution" in the Final Memorandum (to the extent such statements relate to the Initial Purchasers) constitute the only information furnished by the Initial Purchasers to the Issuers for purposes of Section 8 hereof. 16. Entire Agreement. This Agreement constitutes the entire ---------------- agreement among the parties hereto and supersedes all prior agreements, understandings and arrangements, oral or written, among the parties hereto with respect to the subject matter hereof. 17. APPLICABLE LAW. THE VALIDITY AND INTERPRETATION OF THIS -------------- AGREEMENT, AND THE TERMS AND CONDITIONS SET FORTH -48- HEREIN SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY PROVISIONS RELATING TO CONFLICTS OF LAW. 18. Counterparts. This Agreement may be executed in two or ------------ more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 19. Joint and Several Obligations. All of the obligations of ----------------------------- the Issuers hereunder shall be joint and several obligations of each of them. If the foregoing correctly sets forth our understanding, please indicate your acceptance thereof in the space provided below for that purpose, whereupon this Agreement shall constitute a binding agreement among the Company, Sandhills, Inc. and, at the Effective Time, Lil' Champ, and the Initial Purchasers. Very truly yours, THE PANTRY, INC. By: /s/ PETER J. SODINI Name: Peter J. Sodini Title: President & CEO Sandhills, Inc. By: /s/ JOSEPH J. DUNCAN Name: Joseph J. Duncan Title: President Lil' Champ Food Stores, Inc. By: /s/ WILLIAM T. FLYG Name: William T. Flyg Title: Executive V.P. & Assistant Secretary The foregoing Agreement is hereby confirmed and accepted as of the date first above written. CIBC WOOD GUNDY SECURITIES CORP. By: /s/ PATRICE M. DANIELS Name: Patrice M. Daniels Title: Managing Director By: Name: Title: FIRST UNION CAPITAL MARKETS CORP. By: /s/ ERIC LLOYD Name: Eric Lloyd Title: Director Exhibit A-1 ----------- Guarantors - ---------- Sandhills, Inc. Lil' Champ Food Stores, Inc. -1- Exhibit A-2 ----------- Subsidiaries - ------------ Sandhills, Inc. TC Capital Management, Inc. Pantry Properties, Inc. PH Holdings, Inc. 1 Schedule 1 ---------- CIBC Wood Gundy Securities Corp. $140,000,000 First Union Capital Markets Corp. 60,000,000 ------------ ============ Total.......................................................... $200,000,000 ============
EX-2.1 3 STOCK PURCHASE AGREEMENT EXHIBIT 2.1 STOCK PURCHASE AGREEMENT DATED AS OF AUGUST 26, 1997 BETWEEN PH HOLDING CORPORATION AND DOCKS U.S.A., INC. i TABLE OF CONTENTS
ARTICLE I.............................................................................. 1 SALE AND PURCHASE OF THE SHARES....................................................... 1 1.01 Shares to be Sold.............................................................. 1 1.02 Consideration.................................................................. 1 1.03 Earnest Money.................................................................. 1 ARTICLE II............................................................................. 1 THE CLOSING........................................................................... 2 2.01 Time and Place................................................................. 2 2.02 Deliveries by Seller........................................................... 2 2.03 Deliveries by Purchaser........................................................ 2 ARTICLE III............................................................................ 2 REPRESENTATIONS AND WARRANTIES OF SELLER.............................................. 2 3.01 Power to Sell the Shares....................................................... 2 3.02 Corporate Organization......................................................... 2 3.03 Due Authorization and Execution; Valid and Binding Agreement; No Violation..... 3 3.04 Capitalization................................................................. 3 3.05 Consents and Approvals of Governmental Authorities............................. 4 3.06 Financial Statements........................................................... 4 3.07 No Undisclosed Liabilities..................................................... 4 3.08 Absence of Certain Changes..................................................... 4 3.09 Real Property Owned by the Company............................................. 6 3.10 Maintenance of Stores and Equipment............................................ 6 3.11 Real Property Leases........................................................... 6 3.12 No Condemnation or Expropriation............................................... 7 3.13 Trademarks and Tradenames...................................................... 7 3.14 Litigation..................................................................... 7 3.15 Subsidiaries................................................................... 7 3.16 Taxes.......................................................................... 7 3.17 Employee Benefits.............................................................. 9 3.18 Bank Accounts.................................................................. 10 3.19 Compliance with Law............................................................ 10 3.20 Insurance...................................................................... 10 3.21 Labor Difficulties............................................................. 11 3.22 Contracts...................................................................... 11 3.23 Transactions with Certain Persons.............................................. 12
3.24 Environmental Disclaimer....................................................... 12 3.25 Suppliers...................................................................... 13
ii 3.26 Title to Assets................................................................ 13 3.27 Inventory...................................................................... 13 3.28 No Other Representations or Warranties; Disclaimer............................. 14 ARTICLE IV............................................................................. 15 REPRESENTATIONS AND WARRANTIES OF PURCHASER........................................... 15 4.01 Corporate Organization; Etc.................................................... 15 4.02 Authorization, Etc............................................................. 15 4.03 No Violation................................................................... 15 4.04 Consents and Approvals of Governmental Authorities............................. 16 ARTICLE V.............................................................................. 16 CONDUCT OF BUSINESS PENDING THE CLOSING............................................... 16 5.01 Regular Course of Business..................................................... 16 5.02 Amendments..................................................................... 16 5.03 Capital Changes................................................................ 16 5.04 Other Actions.................................................................. 16 5.05 Facilities Matters............................................................. 16 5.06 Approval and Consultation...................................................... 16 5.07 No Agreements.................................................................. 16 ARTICLE VI............................................................................. 17 COVENANTS OF THE PARTIES.............................................................. 18 6.01 Reasonable Access.............................................................. 18 6.02 Confidentiality................................................................ 18 6.03 Hart-Scott-Rodino Act.......................................................... 19 6.04 Records; Access by Seller...................................................... 19 6.05 Regulatory and Other Authorizations and Consents............................... 19 6.06 Employment and Employee Benefits............................................... 20 6.07 No Public Announcement......................................................... 20 6.08 Certain Indebtedness........................................................... 20 6.09 Consent Leases................................................................. 19 6.10 Long John Silver............................................................... 21 6.11 Further Assurances............................................................. 24 6.12 Supplements to Schedules....................................................... 24 6.13 Tax Matters.................................................................... 24 6.14 Acquisition Proposals.......................................................... 25 6.15 Reserve........................................................................ 26
iii ARTICLE VII............................................................................. 27 MUTUAL CONDITIONS...................................................................... 27 7.01 Hart-Scott-Rodino Act........................................................... 28 7.02 Orders; Etc..................................................................... 28 ARTICLE VIII............................................................................ 28 CONDITIONS TO PURCHASER'S OBLIGATIONS.................................................. 28 8.01 Representations and Warranties True............................................. 28 8.02 Performance..................................................................... 28 8.03 Certificates.................................................................... 28 8.04 Indemnity....................................................................... 28 8.05 Resignation..................................................................... 28 8.06 Auchan Letter................................................................... 27 8.07 Legal Opinions.................................................................. 27 8.08 Regulatory and other Authorizations and Consents................................ 27 8.09 Material Adverse Change......................................................... 27 ARTICLE IX.............................................................................. 29 CONDITIONS TO SELLER'S OBLIGATIONS..................................................... 29 9.01 Representations and Warranties True............................................. 29 9.02 Performance..................................................................... 29 9.03 Certificates.................................................................... 30 9.04 Legal Opinions.................................................................. 28 ARTICLE X............................................................................... 30 SURVIVAL AND INDEMNIFICATION........................................................... 30 10.01 Survival........................................................................ 30 10.02 Indemnification by Seller....................................................... 30 10.03 Indemnification by Purchaser.................................................... 30 10.04 Limitations on Indemnification.................................................. 31 10.05 Conditions of Indemnification................................................... 31 ARTICLE XI.............................................................................. 32 TERMINATION AND REMEDIES............................................................... 32 11.01 Termination..................................................................... 32 11.02 Remedies........................................................................ 32
iv ARTICLE XII............................................................................ 34 MISCELLANEOUS PROVISIONS.............................................................. 34 12.01 Commissions and Finders' Fees................................................. 34 12.02 Amendment and Modification.................................................... 33 12.03 Waiver of Compliance.......................................................... 34 12.04 Expenses...................................................................... 35 12.05 Notices....................................................................... 35 12.06 Assignment.................................................................... 36 12.07 Governing Law................................................................. 36 12.08 Counterparts.................................................................. 37 12.09 Effectiveness; Binding Effect................................................. 37 12.10 Headings...................................................................... 35 12.11 Entire Agreement.............................................................. 37 12.12 Third Parties................................................................. 37 12.13 No Recourse Against Others.................................................... 37 12.14 Mutual Agreement.............................................................. 38 12.15 Severability.................................................................. 38
v SCHEDULES --------- 3.03 Agreements Requiring Consent, Notification, Etc. (Seller) 3.05 Consents and Approvals of Governmental Authorities 3.07 Certain Liabilities 3.08 Certain Changes 3.09 Owned Real Property 3.10 Certain Maintenance 3.11 Real Property Leases 3.12 Condemnations 3.13 Trademarks and Tradenames 3.14 Litigation 3.15 Subsidiaries 3.16 Taxes 3.17 Employee Benefits 3.18 Bank Accounts 3.19 Compliance with Law 3.20 Insurance 3.21 Labor Difficulties 3.22 Material Contracts 3.23 Related Party Transactions 3.25 Suppliers 3.27 Inventory 4.03 Agreements Requiring Consent, Notification, Etc. (Purchaser) 4.04 Consents and Approvals of Governmental Authorities (Purchaser) 5.05 Facilities Matters 6.08 Certain Indebtedness 6.09 Consent Leases 6.13 Tax Matters 8.06 Auchan Letter 8.07 Legal Opinions (Counsels to Seller, the Company and Auchan) 9.04 Legal Opinions (Counsel to Purchaser)
STOCK PURCHASE AGREEMENT ------------------------ STOCK PURCHASE AGREEMENT dated as of August 26, 1997 between PH Holding Corporation, a North Carolina corporation ("Purchaser") and Docks U.S.A., Inc., a Nevada corporation ("Seller"). Seller owns an aggregate of 500 shares of Common Stock, $1.00 par value per share (the "Shares"), of Lil' Champ Food Stores, Inc., a Florida corporation (the "Company"), constituting all of the outstanding capital stock of the Company. This Agreement sets forth the terms and conditions upon which Purchaser will purchase the Shares from Seller. In consideration of the mutual agreements contained herein, the parties agree as follows: ARTICLE I SALE AND PURCHASE OF THE SHARES ------------------------------- 1.01 SHARES TO BE SOLD. Subject to the terms and conditions of this ----------------- Agreement, at the Closing provided for in Section 2.01 hereof (the "Closing"), Seller shall sell, transfer and deliver the Shares to Purchaser, and Purchaser shall purchase the Shares from Seller, free and clear of any Encumbrance (as hereinafter defined), and upon such transfer Purchaser shall have good title to all of the Shares. 1.02 CONSIDERATION. Subject to the terms and conditions of this ------------- Agreement, as consideration for the Shares, Purchaser will at the Closing (a) pay to Seller in cash an aggregate of $132,700,000; and (b) repay all outstanding indebtedness under the Credit Agreements (as hereinafter defined). 1.03 EARNEST MONEY. Simultaneously with the execution and delivery ------------- of this Agreement, Purchaser is depositing $4,000,000 (the "Earnest Money") by wire transfer at Purchaser's expense to Societe Generale, New York Branch to be held pursuant to the Escrow Agreement of even date herewith (the "Escrow Agreement") among Purchaser, Seller and Societe Generale, New York Branch as Escrow Agent. If the Closing occurs, the Earnest Money, together with all interest earned thereon, shall be applied to the purchase price payable by Purchaser pursuant to Section 1.02 hereof and shall be released to Seller at Closing. If the Closing does not occur, the Earnest Money and all interest earned thereon shall be held pursuant to the Escrow Agreement until final disposition thereof in accordance with Article XI hereof and the terms of the Escrow Agreement. 1 ARTICLE II THE CLOSING ----------- 2.01 TIME AND PLACE. The Closing of the transactions contemplated by -------------- this Agreement will take place at the offices of Bureau Francis Lefebvre-New York, 712 Fifth Avenue, New York at 10:00 A.M. local time, on the Closing Date (as hereinafter defined). Subject to Section 11.01 hereof and the satisfaction or waiver of the conditions set forth in Articles VII, VIII and IX, the Closing shall occur on October 31, 1997, or on such other date as the parties shall mutually agree. The date of the Closing is hereinafter sometimes referred to as the "Closing Date". 2.02 DELIVERIES BY SELLER. At the Closing, Seller shall deliver the -------------------- following: (a) the certificate representing the Shares, duly endorsed in blank or accompanied by stock powers duly executed in blank; and (b) the various certificates, documents and instruments referred to in Article VIII hereof. 2.03 DELIVERIES BY PURCHASER. At the Closing, Purchaser shall ----------------------- deliver the following: (a) the consideration set forth in Section 1.02(a) hereof, by wire transfer of funds to an account designated by Seller in writing at least three days prior to the Closing; (b) the consideration set forth in Section 1.02(b) hereof, by wire transfer of funds to the accounts designated by the lending banks named in the Credit Agreements at least three days prior to the Closing; and (c) the various certificates, documents and instruments referred to in Article IX hereto. ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER ---------------------------------------- Seller represents and warrants to Purchaser as follows: 3.01 POWER TO SELL THE SHARES. Seller has the power to and at the ------------------------ Closing shall, sell, assign, transfer and deliver to Purchaser good title to the Shares, free and clear of all claims, charges, security interests, liens, pledges, mortgages, assessments, options and encumbrances (collectively "Encumbrances"), and with no restriction on the voting rights and other incidents of record ownership pertaining thereto. 3.02 CORPORATE ORGANIZATION. Seller is a corporation validly ---------------------- existing and in good standing under the laws of the State of Nevada and has all requisite corporate power and corporate authority to enter into this Agreement and to perform its obligations hereunder. The Company is a corporation validly existing and in good standing under the laws of the State of Florida and has all requisite corporate power and corporate authority to carry on its business as it is now being conducted and to own the properties and assets it now owns; and is duly 2 qualified or licensed to do business as a foreign corporation in good standing in all jurisdictions in which the ownership of property or the conduct of its business requires such qualification, except where the failure to so qualify would not have a material adverse effect upon the financial condition, business, operations or prospects of the Company (a "Material Adverse Effect"). 3.03 DUE AUTHORIZATION AND EXECUTION; VALID AND BINDING AGREEMENT; ------------------------------------------------------------- NO VIOLATION. The execution, delivery and performance by Seller of this - ------------ Agreement have been duly authorized by all necessary corporate action required by law or Seller's organizational documents. This Agreement has been duly executed and delivered by Seller and, assuming due authorization, execution and delivery by Purchaser, constitutes a valid and binding agreement of Seller, enforceable in accordance with its terms. Except as set forth on Schedule 3.03, neither the execution and delivery of this Agreement by Seller nor the consummation of the transactions contemplated hereby will violate any provision of the organizational documents of Seller or the Company, or, to the knowledge of Seller, violate any law or regulation applicable to Seller or the Company, or, to the knowledge of Seller, violate, or be in conflict with, or constitute a default under, or cause the amendment, modification or acceleration of, or give any party the right to amend, modify or refuse to perform, or modify the time within which duties are to be performed or rights or benefits are to be received under, or cause the acceleration of the maturity of any debt or obligation pursuant to, or result in the creation or imposition of any security interest, lien or other encumbrance upon any property or asset of Seller or the Company under, any lease, agreement, understanding, restriction or commitment or any judgment, decree, or order of any court or governmental or regulatory authority or agency to which Seller or the Company is a party or by which Seller or the Company is bound, or to which the property of Seller or the Company is subject, except for minor violations, conflicts or defaults which would not have a Material Adverse Effect. As used in this Agreement, "knowledge of Seller" shall mean the actual knowledge of the executive officers of Seller or the actual knowledge after reasonable inquiry of the executive officers of the Company (i.e. Eddie Jackson, Victor Jackson and Dale Fish). ---- 3.04 CAPITALIZATION. The authorized capital stock of the Company -------------- consists of 500 shares of Common Stock, $1.00 par value, of which 500 shares are issued and outstanding and none are issued and held in treasury. All issued and outstanding shares of capital stock of the Company are duly authorized, validly issued, fully paid and nonassessable; and all such shares are owned beneficially and of record by Seller. There are no outstanding (a) securities convertible into, exchangeable for or evidencing the right to purchase any capital stock of the Company; (b) options, warrants, calls or other rights to purchase or subscribe to the Company's capital stock or securities convertible into, exchangeable for or evidencing the right to purchase any shares of the Company's capital stock; or (c) contracts, commitments, agreements, understandings or arrangements of any kind 3 relating to the issuance of any capital stock of the Company, any such convertible or exchangeable securities or any such other securities evidencing the right to purchase any such options, warrants or rights. 3.05 CONSENTS AND APPROVALS OF GOVERNMENTAL AUTHORITIES. Except as -------------------------------------------------- disclosed on Schedule 3.05, to the knowledge of Seller, no consent, approval or authorization of, or declaration, filing or registration with, any governmental or regulatory authority is required in connection with the execution, delivery and performance of this Agreement by Seller or the consummation by Seller of the transactions contemplated hereby or is required for the continued operation of the Company's business after the Closing. 3.06 FINANCIAL STATEMENTS. Seller has heretofore delivered to -------------------- Purchaser: (i) a balance sheet of the Company as at December 28, 1996, December 30, 1995 and December 31, 1994, and statements of operations, cash flow and stockholders' equity for each of the fiscal years then ended, audited by the Company's independent public accountants; and (ii) an audited balance sheet of the Company as at May 31, 1997 (the "Balance Sheet") and audited statements of income, cash flow and stockholders' equity for the five-month period then ended. Such balance sheets of the Company and the notes thereto present fairly the financial position of the Company as at the respective dates thereof, and such statements of operations, cash flow and stockholders' equity of the Company and the notes thereto present fairly the results of operations, cash flow and stockholders' equity of the Company for the periods therein referred to; all in accordance with generally accepted accounting principles consistently followed throughout the periods involved. 3.07 NO UNDISCLOSED LIABILITIES. To the knowledge of Seller, except -------------------------- as disclosed on Schedule 3.07 or otherwise in this Agreement and the Schedules hereto, the Company has no material liabilities which are not reflected or reserved against in the Balance Sheet, except for liabilities incurred in the ordinary course of business consistent with past practice since the date thereof. The Company has no unamortized liabilities for rebates under any gasoline supply agreements except as disclosed on Schedule 3.07. 3.08 ABSENCE OF CERTAIN CHANGES. Except as set forth on Schedule -------------------------- 3.08, to the knowledge of Seller, since the date of the Balance Sheet, the Company has conducted its business in the ordinary course consistent with past practice (except for reasonable activities relating to the proposed sale of the Company), and the Company has not (a) suffered any material adverse change in its financial condition, business, operations or prospects, provided that Seller makes no representations with respect to business or economic conditions which are generally applicable to companies in the Company's industry, or suffered any material damage or destruction to its assets, which is not covered by insurance; (b) sold, assigned or transferred any material assets of the Company, other than in the ordinary course of business consistent with past practice; (c) amended, canceled, surrendered or terminated any indebtedness, claim or material contract, license or instrument or other right material to the Company nor has any third party amended, canceled, surrendered or terminated 4 any indebtedness, claim or material contract, license or instrument or other right material to the Company; (d) failed to repay any material obligation of the Company when due; (e) made any change in its accounting methods, principles, or practices materially affecting its financial condition, results of operations or business; (f) made any material revaluation of any of its assets, including without limitation, any material write-offs, material increases in any reserves or any write-up of the value of inventory, property, plant, equipment or any other asset; (g) incurred any damage, destruction or loss (whether or not covered by insurance) affecting any facility maintained by the Company or any other material asset of the Company which would have a Material Adverse Effect; (h) voluntarily created any mortgage lien or any other Encumbrance with respect to any assets of the Company except for Encumbrances described in Sections 3.09 (other than mortgage liens) and 3.26 hereof; (i) declared, set aside or paid any dividend or other distribution or payment (whether in cash, stock or property) with respect to the capital stock or other equity securities of the Company or redeemed, purchased or otherwise acquired any of the securities of the Company or made any other payment to any stockholder of the Company in its capacity as a stockholder or repaid any intercompany indebtedness; (j) incurred any indebtedness for borrowed money or made any commitment to incur indebtedness for borrowed money except pursuant to commitments or credit facilities existing on the date of the Balance Sheet and set forth on Schedule 3.22 (the "Credit Agreements"); (k) increased the compensation of officers or employees (including any such increase pursuant to a modification or amendment to any bonus, pension, profit-sharing or other plan or commitment) or granted any severance, change of control or termination pay, except for increases in compensation in the ordinary course of business, consistent with past practice or as required by law or any existing agreement and except for cost-of-living or minimum wage adjustments and other similar increases consistent with past practice; (l) added or modified any employee benefit plans or arrangements or granted any bonus, incentive compensation, service, award or other like benefit to any officer or employee except in accordance with and as required by the terms of plans or arrangements disclosed on Schedule 3.17; (m) assumed, guaranteed, endorsed or otherwise become responsible for the obligations of any other individual, firm or corporation, or made any loans or advances to any other individual, firm or corporation (except for travel, entertainment or other similar advances to officers, directors or employees of the Company in the ordinary course of business consistent with past practice); (n) purchased or acquired any material assets, except in the ordinary course of business consistent with past practice; (o) settled any material litigation, other than with respect to matters fully covered by insurance (except for deductibles and other immaterial amounts) or with respect to which the Company is indemnified by a tobacco company; (p) entered into any material contract, except in the ordinary course of business consistent with past practice; (q) entered into any new transaction with any affiliate of the Company; or (r) failed to pay estimated taxes timely in an amount to avoid penalties and interest thereon, or failed to accrue any tax liability incurred since the date of the Balance 5 Sheet in the ordinary course of business consistent with the Company's past practice between year-end audits. 3.09 REAL PROPERTY OWNED BY THE COMPANY. Schedule 3.09 lists all ---------------------------------- real property owned by the Company (collectively the "Real Estate"). The Company has good, valid and marketable title in fee simple to all of the Real Estate subject to: (a) the exceptions shown in the deeds, title insurance policies and abstracts relating to the Real Estate, which have been made available for review by Purchaser, provided that with respect to mortgage liens, all the indebtedness underlying such liens has been repaid in full except as described on Schedule 3.09; (b) liens for taxes and assessments not yet delinquent; (c) survey exceptions, reciprocal easements relating to underground tanks located on adjacent properties, and encroachments, including encroachments by retention ponds, drain fields and septic systems which do not materially interfere with the present use by the Company of the Real Estate, taken as a whole; (d) mechanics', carriers', workers', repairers' and other similar liens or encumbrances arising or incurred in the ordinary course of business; (e) condemnations, expropriations and takings referred to in Schedule 3.12; (f) leases to third parties reflected on Schedule 3.11; and (g) such other liens, leases, imperfections in title, charges, easements, restrictions, rights-of-way, licenses, reservations, encumbrances and other matters as do not materially interfere with the present use by the Company of the Real Estate, taken as a whole. Except as set forth on Schedule 3.09, neither the Company nor any third party holds any option to purchase or sell any store or any interest in the Real Estate. 3.10 MAINTENANCE OF STORES AND EQUIPMENT. Except as disclosed on ----------------------------------- Schedule 3.10, and except for events of Force Majeure (as hereinafter defined) occurring after the date of this Agreement, since the date of the Balance Sheet, the Company has performed in all material respects maintenance and made capital expenditures in accordance with past practice and in accordance with the Company's capital budget, a copy of which is annexed to Schedule 3.10. As used in this Agreement, "Force Majeure" shall mean any cause beyond the reasonable control of Seller or the Company, including, without limitation, acts of God, hurricanes, riots, fires, floods, unusually severe weather, curtailment or termination of sources or supplies of energy or power, inability to obtain or delay in obtaining services, materials or supplies, embargoes or acts of governmental authorities. 3.11 REAL PROPERTY LEASES. Schedule 3.11 lists all leases, as -------------------- amended through the date hereof (each, a "Lease"), pursuant to which the Company leases real property from or to other parties. Except as set forth on Schedule 3.11, true, complete and correct copies of all the Leases have been made available for review by Purchaser. The Company is the holder of the tenant's interest under each Lease as to which it is the lessee. Except as set forth on Schedule 3.11, there are no existing defaults by the Company or, to the knowledge of Seller, any other party thereunder and no event of default has occurred which (whether with or without notice, lapse of time or the happening or occurrence of any other event) would 6 constitute a default thereunder by the Company or, to the knowledge of Seller, any other party, except such defaults, events of default or other events which would not result in damages or loss of properties or rental income which would have a Material Adverse Effect. 3.12 NO CONDEMNATION OR EXPROPRIATION. Except as disclosed on -------------------------------- Schedule 3.12, neither the whole nor any portion of the Real Estate or any leasehold of the Company is subject to any governmental decree or order to be sold or is being condemned, expropriated or otherwise taken by any public authority with or without payment of compensation therefor, nor, to the knowledge of Seller, has any such condemnation, expropriation or taking been proposed. 3.13 TRADEMARKS AND TRADENAMES. Schedule 3.13 lists the registered ------------------------- or unregistered trademarks and tradenames held by the Company and pending registrations by the Company of trademarks and tradenames (the "Marks"). Except as set forth on Schedule 3.13, the Company owns or possesses the exclusive right to use all the Marks except for rights of others which would not have a Material Adverse Effect. No person has the right to receive from the Company any royalty or similar payment in respect of the Marks. All of the Marks are valid and enforceable rights of the Company and will not be affected by the transactions contemplated by this Agreement (not including any action taken by Purchaser). To the knowledge of Seller, the Company has not transferred any rights in the Marks to any third party. No proceedings have been instituted or are pending or to the knowledge of Seller threatened which challenge the validity of the Company's use of any such trademark or trade name. Except as set forth on Schedule 3.13, Seller has no knowledge of any infringing use of any of the Marks by any other person. 3.14 LITIGATION. Except as disclosed on Schedule 3.14, there ---------- is no action, suit, arbitration or proceeding pending or, to the knowledge of Seller, threatened against the Company, which, if adversely determined against the Company, would have a Material Adverse Effect or which challenges the validity or propriety of the transactions contemplated by this Agreement which could have a Material Adverse Effect. Except as set forth on Schedule 3.14, to the knowledge of Seller, neither the Company nor any of its assets or properties is subject to any order, judgment, injunction or decree. To the knowledge of Seller, there is no investigation pending or threatened which, if adversely determined against the Company, would have a Material Adverse Effect. 3.15 SUBSIDIARIES. Except as disclosed on Schedule 3.15, the Company ------------ has no subsidiaries and does not own or have the power to vote or to acquire equity interests or any option, right, warrant or other right or instrument convertible into or exchangeable or exercisable for any such equity interest of any entity, corporate or otherwise. 3.16 TAXES. The Company has filed all federal, state and local tax ----- returns 7 required to be filed by it and, except as disclosed on Schedule 3.16, has duly paid all taxes shown to be due on such tax returns. The provisions for taxes reflected in the Balance Sheet are reasonable. There are no pending actions or proceedings for the assessment or collection of taxes from the Company and, except as disclosed on Schedule 3.16, there is currently no active or ongoing tax audit. Schedule 3.16 lists the periods through which the Company's tax returns have been examined or audited by the Internal Revenue Service or other appropriate taxing authority. Except as set forth on Schedule 3.16, all deficiencies and assessments asserted as a result of such examinations or other audits by federal, state or local taxing authorities have been paid and fully settled and no issue or claim has been asserted in writing for taxes by any taxing authority for any prior period, the adverse determination of which would result in a deficiency, other than those heretofore paid. Except as set forth on Schedule 3.16, there are no outstanding agreements or waivers extending the statutory period of limitation applicable to any tax return for any period. The Company has delivered to Purchaser true, complete and correct copies of all the income tax returns of the Company for the last three taxable years for which such tax returns have been filed. The Company is not required to file tax returns in any foreign, state or local jurisdiction for any tax period except in those foreign, state and local jurisdictions in which it has filed. The Company has paid or accrued as "Income taxes payable", "Other taxes payable" or "Deferred income taxes payable" in the Current Liabilities section on the Balance Sheet (i) all taxes (including interest, penalties or additions) for all taxable periods ended on or prior to the date of the Balance Sheet and (ii) all taxes (including interest, penalties or additions) properly apportionable to any day through the date of the Balance Sheet (apportioned as if the date of the Balance Sheet were the end of a taxable year or period) for all taxable years or periods including, but not ending on, the date of the Balance Sheet, except that Seller makes no representation or warranty with respect to the matter covered by Section 6.13(e). There are no liens for taxes (other than current taxes not yet due and payable) upon the assets of the Company except property tax liens which are immaterial in amount. The Company has collected all sales, use and value added taxes required to be collected, and has remitted on a timely basis such amounts to the appropriate governmental authorities and has furnished properly completed exemption certificates for all exempt transactions and the Company has properly withheld income and social security taxes with respect to all persons properly characterized as employees for federal, state or local tax purposes. Except as set forth on Schedule 3.16, the Company is not a party to or bound by any tax sharing, tax indemnity or tax allocation agreement or other similar arrangement. The Company has not taken any action that would require an adjustment pursuant to Section 481 of the Code, by reason of a change in accounting method or otherwise. The Company has not filed a consent under Section 341(f)(1) of the Code or agreed to have the provisions of Section 341(f)(2) of the Code applied to any disposition of "subsection (f) assets" as such term is defined in Section 341(f)(4) of the Code. The Company has delivered to Purchaser true and complete copies of all agreements, arrangements and understandings, including, without limitation, employment agreements, deferred compensation agreements, bonus arrangements, severance agreements, 8 and incentive agreements in which the Company could be obligated to make any payments that would not be deductible under Section 280G of the Code. 3.17 EMPLOYEE BENEFITS. ----------------- (a) Schedule 3.17 contains a complete list of all Employee Benefit Plans (as hereinafter defined) and all fringe benefits provided by the Company to its employees. For purposes of this Agreement, "Employee Benefit Plan" means any "employee pension benefit plan" (as defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")) and any "employee welfare benefit plan" (as defined in Section 3(1) of ERISA). Copies of (i) all Employee Benefit Plans, (ii) all related trust agreements, insurance contracts and summary plan descriptions, (iii) all annual reports filed on IRS Form 5500, 5500C or 5500R for the last three plan years for each Employee Benefit Plan and (iv) the most recent determination letters (if applicable) issued by the Internal Revenue Service with respect to each Employee Benefit Plan have been made available for review by Purchaser. To the knowledge of Seller, except as set forth on Schedule 3.17, each Employee Benefit Plan has been administered in accordance with its terms and the Company has met its obligations with respect to such Employee Benefit Plan and has made all required contributions thereto and all such amounts are fully deductible. To the knowledge of Seller, the Company has made no commitments to make any voluntary contributions to or to voluntarily fund any Employee Benefit Plans except as set forth in Schedule 3.17. To the knowledge of Seller, the Company and all Employee Benefit Plans are in compliance with the currently applicable provisions of ERISA and the Internal Revenue Code of 1986, as amended (the "Code"), and the regulations thereunder. (b) Except as set forth in Schedule 3.17, to the knowledge of Seller, there are no investigations by any governmental entity, termination proceedings or other claims, suits or proceedings against or involving any Employee Benefit Plan or asserting any rights or claims to benefits under any Employee Benefit Plan. (c) All the Employee Benefit Plans that are intended to be qualified under Section 401(a) of the Code have received determination letters from the Internal Revenue Service to the effect that such Employee Benefit Plans are qualified and the plans and the trusts related thereto are exempt from federal income taxes under Sections 401(a) and 501(a), respectively, of the Code, no such determination letter has been revoked and, to the knowledge of Seller, such revocation has not been threatened, and no such Employee Benefit Plan has been amended since the date of its most recent determination letter or application therefor in any respect, and, except as set forth on Schedule 3.17, no act or omission has occurred, that would adversely affect its qualification or increase its cost. (d) At no time has the Company been obligated to contribute to any "multiemployer plan" (as defined in Section 4001(a)(3) of ERISA). (e) There are no unfunded obligations under any Employee Benefit Plan providing benefits after termination of employment to any employee of the Company (or to any beneficiary of any such employee), excluding continuation of health coverage required 9 to be continued under Section 4980B of the Code or state insurance law and benefits provided pursuant to defined contribution retirement plans (as defined in Section 414(i) of the Code). (f) Except as set forth in Schedule 3.17 no act or omission has occurred and no condition exists with respect to any Employee Benefit Plan maintained by the Company that would subject the Company to any fine, penalty, tax or liability of any kind imposed under ERISA or the Code, the imposition of which would have a Material Adverse Effect. (g) To the knowledge of Seller, there exists no liability of the Company under any insurance policy or similar arrangement procured in connection with an Employee Benefit Plan in the nature of a retroactive rate adjustment or loss sharing arrangement. (h) None of the persons performing services for the Company have been improperly classified as independent contractors or have been exempt from the payment of wages for overtime. (i) The Company has no intention or commitment to create any additional Employee Benefit Plan or to modify or change any existing Employee Benefit Plan so as to increase benefits to participants or the cost of maintaining the Plan. 3.18 BANK ACCOUNTS. Schedule 3.18 sets forth the names of all banks, trust ------------- companies, savings and loan associations, brokerage houses and other financial institutions at which the Company maintains accounts or safe deposit boxes of any nature, and the names of all persons authorized to draw thereon or make withdrawals therefrom. 3.19 COMPLIANCE WITH LAW. Except as set forth on Schedule 3.19 or otherwise ------------------- in this Agreement and the Schedules hereto, to the knowledge of Seller, the Company is in compliance with all laws, ordinances, regulations, and orders applicable to it, the failure to comply with which would have a Material Adverse Effect. Except as set forth on Schedule 3.19, all licenses, franchises, permits and other governmental authorizations held by the Company are valid and sufficient to permit the operations thereof except where the failure to hold such licenses, franchises, permits and other governmental authorizations would not have a Material Adverse Effect. Except as set forth on Schedule 3.19 or otherwise in this Agreement and the Schedules hereto, (a) there are no citations, fines or penalties heretofore asserted against the Company under any federal, state or local law or regulation which remain unpaid or which otherwise bind any assets material to the Company, and (b) the Company has not received any unresolved notice from any federal, state or local governmental authority with respect to any violation of any federal, state or local law or regulation which, if resolved against the Company, would have a Material Adverse Effect. Nothing in this Section 3.19 shall be construed as a representation or warranty with respect to any "Environmental Condition" (as hereinafter defined). 3.20 INSURANCE. Schedule 3.20 contains a list of all policies of --------- fire, 10 liability, workers' compensation and other forms of insurance owned or held by or for the benefit of the Company, except title insurance and Employee Benefit Plans, and all letters of credit and surety bonds maintained by the Company. The Company has paid all premiums due under such policies. All such policies, letters of credit and bonds are in full force and effect, and no notice of cancellation or termination has been received with respect to any such policy. Except as disclosed on Schedule 3.20, there are no risks which the Company has designated as being self-insured. The amount and nature of the Company's self insurance reserves, as set forth on the Balance Sheet, have been calculated in accordance with customary actuarial practice. 3.21 LABOR DIFFICULTIES. Except as set forth on Schedule 3.21 ------------------ or otherwise in this Agreement and the Schedules hereto: (a) to the knowledge of Seller, the Company is in compliance with all applicable laws respecting employment and employment practices, terms and conditions of employment, employee health and safety, and wages and hours, and is not engaged in any unfair labor practice; (b) there is no unfair labor practice, wrongful termination or employment discrimination (age, sex, race or otherwise) charge or complaint against the Company pending or to the knowledge of Seller, threatened; (c) there is no labor strike, dispute, slowdown or stoppage actually pending or threatened against or affecting the Company; (d) to the knowledge of Seller, no representation question exists respecting the employees of the Company; (e) no grievance or arbitration proceedings arising out of or under collective bargaining agreements is pending and, to the knowledge of Seller, no claim therefor exists; (f) no collective bargaining agreement which is binding on the Company restricts it from relocating or closing any of its operations; and (g) to the knowledge of Seller, no organizational effort has been or is being made by or on behalf of any labor union with respect to any employees of the Company. 3.22 CONTRACTS. Schedule 3.22 lists (a) each material, written --------- contract or agreement to which the Company is party and which cannot be terminated without fee or penalty on notice of 30 days or less; (b) all contracts or agreements containing covenants not to compete or rights of first refusal; (c) all debt agreements or instruments and guarantees to which the Company is a party or bound; and (d) any employment or consulting agreement with any present or former director, officer or employee of the Company which remains an executory contract (each of which is herein referred to as a "Material Contract") other than real property leases referred to in Section 3.11. Each Material Contract is valid, binding and enforceable against the Company and, to the knowledge of Seller, each other party thereto in accordance with its terms. Except as set forth on Schedules 3.03 and 3.22, there is not, with respect to the Material Contracts, any existing default, or event of default by the Company or, to the knowledge of Seller, any other party, or event which with or without due notice or lapse of time or both would constitute a default or event of default on the part of the Company, except such defaults or events of default on the part of the Company or, to the knowledge of the Company, any other party and other events which would not have a Material Adverse 11 Effect. 3.23 TRANSACTIONS WITH CERTAIN PERSONS. Except as set forth on --------------------------------- Schedule 3.23, to the knowledge of Seller: (a) there are no agreements between the Company and any stockholder, affiliate, director, officer (or any member of an officer's immediate family) or employee of the Company; and (b) no stockholder, affiliate, director, officer (or any member of an officer's immediate family) or employee of the Company has any interest in any property used by the Company in the conduct of its business. 3.24 ENVIRONMENTAL DISCLAIMER. PURCHASER ACKNOWLEDGES THAT, ------------------------ HAVING BEEN GIVEN THE OPPORTUNITY TO CONDUCT ITS OWN ENVIRONMENTAL DUE DILIGENCE WITH RESPECT TO THE COMPANY'S REAL PROPERTY AND BUSINESS, PURCHASER IS RELYING SOLELY ON ITS OWN DUE DILIGENCE AND NOT ON ANY INFORMATION OR REPRESENTATIONS OR WARRANTIES OF SELLER IN CONNECTION WITH ANY PAST OR PRESENT "ENVIRONMENTAL CONDITION" (AS HEREINAFTER DEFINED). PURCHASER AGREES AND ACKNOWLEDGES THAT AS TO ENVIRONMENTAL CONDITIONS, PURCHASER IS ACQUIRING THE SHARES AND THE COMPANY "AS IS", "WHERE IS", "WITH ALL FAULTS" AND THAT SELLER MAKES NO REPRESENTATION, WARRANTY OR GUARANTY WHATSOEVER, EXPRESS, IMPLIED, STATUTORY OR ARISING BY OPERATION OF LAW, IN ANY WAY RELATING TO ANY ENVIRONMENTAL CONDITION AFFECTING ANY OF THE COMPANY'S REAL PROPERTY, WHETHER OWNED OR LEASED, ANY OTHER REAL PROPERTY OR OTHERWISE RELATING TO THE COMPANY. IN THE EVENT THAT ANY INVESTIGATION, REMEDIATION OR OTHER CORRECTIVE ACTION IS AT ANY TIME REQUIRED TO BE PERFORMED AFTER THE CLOSING AS A RESULT OF THE PRESENCE OF ANY ENVIRONMENTAL CONDITION, PURCHASER ACKNOWLEDGES AND AGREES THAT ANY SUCH INVESTIGATION, REMEDIATION OR CORRECTIVE ACTION SHALL BE PERFORMED BY THE COMPANY AND/OR PURCHASER AT ITS AND/OR THEIR SOLE COST AND EXPENSE, AND THAT SELLER HAS NO DUTY OR OBLIGATION TO PERFORM OR CAUSE TO BE PERFORMED ANY SUCH INVESTIGATION, REMEDIATION OR CORRECTIVE ACTION OR TO INDEMNIFY PURCHASER FOR, OR CONTRIBUTE TO THE COMPANY'S OR PURCHASER'S COST OF, SUCH INVESTIGATION, REMEDIATION OR CORRECTIVE ACTION. PURCHASER, FOR ITSELF, ITS SUCCESSORS AND ASSIGNS, HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES, RELEASES AND RELINQUISHES ALL CLAIMS, RIGHTS OF INDEMNIFICATION OR CONTRIBUTION, CAUSES OF ACTION OR DEMANDS (INCLUDING, WITHOUT LIMITATION, FOR ATTORNEYS' AND ENVIRONMENTAL CONSULTANTS' FEES), WHICH PURCHASER, THE COMPANY OR THEIR RESPECTIVE SUCCESSORS, LEGAL REPRESENTATIVES 12 OR ASSIGNS NOW HAS OR MAY HAVE OR ALLEGE AGAINST SELLER OR ANY OF ITS AFFILIATES, DIRECTORS, OFFICERS, EMPLOYEES OR AGENTS, BY REASON OF ANY PAST OR PRESENT ENVIRONMENTAL CONDITION BE IT KNOWN OR UNKNOWN, LATENT OR PATENT, OR ANY INVESTIGATION, REMEDIATION OR CORRECTIVE ACTION WHICH MAY BE REQUIRED OR DESIRABLE WITH RESPECT THERETO. AS USED HEREIN, "ENVIRONMENTAL CONDITION" MEANS (I) ANY ENVIRONMENTAL POLLUTION OR CONTAMINATION OF ANY KIND WHATSOEVER, INCLUDING, WITHOUT LIMITATION, ENVIRONMENTAL POLLUTION OR CONTAMINATION FROM ANY SPILL, DISCHARGE, LEAK, EMISSION, ESCAPE, INJECTION, DEPOSIT, EMANATION, DUMPING OR RELEASE OF ANY KIND, IN ANY AMOUNT WHATSOEVER, OR EXPOSURE OF ANY TYPE IN ANY WORKPLACE OR ELSEWHERE OR TO ANY MEDIUM, INCLUDING, WITHOUT LIMITATION, AMBIENT AIR, LAND SURFACE, SUBSURFACE STRATA, SURFACE WATERS (INCLUDING NAVIGABLE AND OCEAN WATERS), SUBSURFACE WATERS (INCLUDING GROUND WATER AND DRINKING WATER SUPPLIES), STREAM SEDIMENT, PLANT OR ANIMAL LIFE, OR ANY OTHER ENVIRONMENTAL OR NATURAL RESOURCE, OR FROM ANY SOURCE, USE, GENERATION, TRANSPORTATION, TREATMENT, DISCHARGE, STORAGE, HANDLING OR DISPOSAL OF WASTE MATERIALS, RAW MATERIALS, HAZARDOUS MATERIALS, HAZARDOUS CONSTITUENTS, TOXIC MATERIALS, PETROLEUM PRODUCTS OR PRODUCTS OR SUBSTANCES OF ANY KIND, OR (II) ANY VIOLATION OF OR NONCOMPLIANCE WITH ANY FEDERAL, STATE OR LOCAL LAW, RULE, REGULATION, ORDER, PERMIT, APPROVAL, AUTHORIZATION, LICENSE OR REGISTRATION RELATING TO THE ENVIRONMENT, NATURAL RESOURCES, PUBLIC OR EMPLOYEE HEALTH OR SAFETY AS A RESULT OF, RELATING TO, OR IN CONNECTION WITH, ANY OF THE FOREGOING, (III) ANY ACCUSATION, ALLEGATION, NOTICE OF VIOLATION, ACTION, CLAIM, LIEN, DEMAND, ABATEMENT, ORDER, JUDGMENT, DECREE, ASSESSMENT OR AWARD BY ANY GOVERNMENTAL AUTHORITY OR ANY OTHER PERSON AS A RESULT OF, RELATING TO, OR IN CONNECTION WITH ANY OF THE FOREGOING. 3.25 SUPPLIERS. Schedule 3.25 sets forth (a) the ten largest --------- suppliers of the Company for the 1996 calendar year other than suppliers of utilities (the "Large Suppliers"), and (b) the amount of such payments to each Large Supplier for the 1996 calendar year. Except set forth on Schedule 3.25, none of the Large Suppliers has canceled or otherwise terminated or, to the knowledge of Seller, threatened to cancel or otherwise terminate its relationship with the Company or, since January 1, 1997, decreased materially, or, to the knowledge of Seller, threatened to decrease or limit materially its services, supplies or materials to the Company, whether as a result of the transactions contemplated by this 13 Agreement or otherwise. 3.26 TITLE TO ASSETS. The Company has good and valid title to --------------- the assets owned by it, other than the Real Estate, except assets disposed of in the ordinary course of business. None of such assets are subject to any Encumbrance except (a) liens reflected on the Balance Sheet; (b) liens of landlords and liens imposed by law, such as carriers', warehousemen's, mechanics', materialmen's and vendors' liens incurred in the ordinary course of business; (c) purchase money liens arising or created in the ordinary course of business consistent with past practices; (d) minor imperfections of title, if any, none of which would have a Material Adverse Effect; and (e) liens for taxes not yet due. 3.27 INVENTORY. Except as set forth on Schedule 3.27, since --------- January 1, 1997, the Company has continued to replenish its inventory in the ordinary course of business consistent with past practice and has not made any change in its inventory policies or procedures, including its accounting policies or procedures with respect to inventory. 3.28 NO OTHER REPRESENTATIONS OR WARRANTIES; DISCLAIMER. -------------------------------------------------- Except for the representations and warranties contained in this Article III, neither Seller, the Company nor any other person acting on behalf thereof (including any of their respective affiliates, officers, directors, employees, agents or representatives) makes any representation or warranty, express, implied, statutory or arising by operation of law, and Seller hereby disclaims any such representation or warranty, whether by Seller, the Company or any of their respective affiliates, officers, directors, employees, agents or representatives or any other person, notwithstanding the delivery or disclosure to Purchaser or any of its affiliates, officers, directors, employees, agents or representatives or any other person of any documentation or other information by Seller, the Company or any of their respective affiliates, officers, directors, employees, agents or representatives or any other person. In connection with Purchaser's investigation of the Company, Purchaser has received from Seller and the Company certain projections, forecasts and business plan information relating to future periods. Purchaser agrees and acknowledges that there are uncertainties inherent in attempting to make such projections and other forecasts and plans, that Purchaser is familiar with such uncertainties, that Purchaser is taking full responsibility for making its own evaluation of the adequacy and accuracy of all projections and other forecasts and plans so furnished to it, and that Purchaser shall have no claim against Seller or any other person with respect thereto. Accordingly, Seller makes no representation or warranty with respect to such projections, forecasts or business plans. EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, PURCHASER IS ACQUIRING THE SHARES AND THE COMPANY "AS IS", "WHERE IS" AND "WITH ALL FAULTS", AND SELLER EXPRESSLY DISCLAIMS ALL OTHER REPRESENTATIONS OR WARRANTIES, WHETHER EXPRESS, IMPLIED, STATUTORY OR ARISING BY OPERATION OF LAW. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, IMPLIED 14 WARRANTIES OF FITNESS AND MERCHANTABILITY SHALL NOT APPLY. PURCHASER HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ALL PROVISIONS OF THE FLORIDA DECEPTIVE AND UNFAIR TRADE PRACTICES ACT AND ALL PROVISIONS OF THE GEORGIA UNIFORM DECEPTIVE TRADE PRACTICES ACT, AS AMENDED, TO THE EXTENT APPLICABLE TO THE TRANSACTIONS CONTEMPLATED HEREBY. PURCHASER FURTHER REPRESENTS AND WARRANTS TO SELLER THAT PURCHASER (I) HAS ASSETS OF $5,000,000 OR MORE; (II) HAS KNOWLEDGE OF AND EXPERIENCE IN FINANCIAL AND BUSINESS MATTERS THAT ENABLE PURCHASER TO EVALUATE THE MERITS AND RISKS OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT; (III) HAS HAD ACCESS TO ALL FINANCIAL, CORPORATE AND OTHER INFORMATION RELATED TO THE COMPANY AND ITS BUSINESS AND OPERATIONS AND HAS HAD THE OPPORTUNITY TO INTERVIEW AND QUESTION THE COMPANY'S MANAGEMENT CONCERNING THE COMPANY AND ITS BUSINESS AND OPERATIONS; (IV) IS REPRESENTED BY LEGAL COUNSEL IN CONNECTION WITH THIS AGREEMENT AND SUCH TRANSACTIONS; AND (V) IS NOT IN A DISPARATE BARGAINING POSITION RELATIVE TO SELLER. ARTICLE IV REPRESENTATIONS AND WARRANTIES ------------------------------- OF PURCHASER ------------ Purchaser hereby represents and warrants to Seller as follows: 4.01 CORPORATE ORGANIZATION; ETC. Purchaser is a corporation --------------------------- validly existing and in good standing under the laws of its jurisdiction of incorporation and has full corporate power and corporate authority to carry on its business as it is now being conducted and to own the properties and assets it now owns and to enter into this Agreement and to perform its obligations hereunder. 4.02 AUTHORIZATION, ETC. Purchaser has taken all corporate ------------------ action required by law or its organizational documents to authorize the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby, and this Agreement, assuming due authorization, execution and delivery by Seller, constitutes a valid and binding agreement of Purchaser enforceable in accordance with its terms. 4.03 NO VIOLATION. Except as set forth on Schedule 4.03, ------------ neither the execution and delivery of this Agreement by Purchaser nor the consummation of the transactions contemplated hereby will violate any provision of the organizational documents of Purchaser, or violate, or be in conflict with, or constitute a default under, or cause the amendment, modification or acceleration of, or give any party the right to amend, modify or 15 refuse to perform, or modify the time within which duties are to be performed or rights or benefits are to be received under, or cause the acceleration of the maturity of any debt or obligation pursuant to, or result in the creation or imposition of any security interest, lien or other encumbrance upon any property or asset of Purchaser under, any lease, agreement, understanding, restriction or commitment or any judgment, decree, or order of any court or governmental or regulatory authority or agency to which Purchaser is a party or by which Purchaser is bound or to which the property of Purchaser is subject. 4.04 CONSENTS AND APPROVALS OF GOVERNMENTAL AUTHORITIES. -------------------------------------------------- Except as disclosed on Schedule 4.04, no consent, approval or authorization of, or declaration, filing or registration with, any governmental or regulatory authority is required in connection with the execution, delivery and performance by Purchaser of this Agreement or the consummation by Purchaser of the transactions contemplated hereby. ARTICLE V CONDUCT OF BUSINESS PENDING THE CLOSING Pending the Closing, and except as otherwise consented to or approved by Purchaser in writing, Seller agrees to cause the Company to do the following: 5.01 REGULAR COURSE OF BUSINESS. The Company shall carry on -------------------------- its business diligently and substantially in the same manner as heretofore conducted, and the Company shall not institute any new methods of purchase, sale, lease, management, accounting or operation or engage in any transaction or activity, enter into any agreement or make any commitment, except in the ordinary course of business. The Company shall use its reasonable best efforts to preserve intact its business organization, to keep available the services of its key personnel and to preserve the goodwill of those having business relationships with it, including, without limitation, suppliers. 5.02 AMENDMENTS. No change or amendment shall be made in the ---------- organizational documents of the Company. 5.03 CAPITAL CHANGES. The Company will not issue or sell any --------------- shares of its capital stock, rights or options to acquire shares of its capital stock, or other securities, acquire directly or indirectly, by redemption or otherwise, any such capital stock, reclassify or split-up any such capital stock, declare or pay any dividends thereon or make any other distribution with respect thereto, or grant or enter into any options, warrants, calls or commitments of any kind with respect thereto. The Company will not repay any intercompany debt or make any intercompany transfers or payments. 5.04 OTHER ACTIONS. The Company shall not take or voluntarily ------------- suffer to 16 be taken any action which would require disclosure pursuant to Section 3.08. 5.05 FACILITIES MATTERS. The Company shall continue its ------------------ retrofit program relating to compliance with the December, 1998 underground storage tank regulations as described on Schedule 5.05, in all material respects, subject to Force Majeure. In addition, the Company shall comply with all applicable laws, regulations and ordinances relating to the environment, except where failure to comply would not have a Material Adverse Effect. In the event of any reportable release of petroleum products at any of the Company's properties, the Company will promptly comply with all reporting requirements and take such other measures as may be necessary to register or continue the registration of such property for state reimbursement programs. The second and third sentences of this Section 5.05 shall not survive the Closing and shall not affect Purchaser's obligations under Section 10.03(b). 5.06 APPROVAL AND CONSULTATION. In any instance in which the ------------------------- Company is prohibited by this Article V from taking any action, the Company shall obtain the consent of Peter Sodini or William Flyg of The Pantry, Inc. or, in their absence, Charles Rullman or Jon Ralph of Freeman Spogli & Co., Incorporated, which consent shall not be unreasonably withheld or delayed, prior to taking such action. The Company will notify and consult with Peter Sodini or William Flyg, or in their absence, Charles Rullman or Jon Ralph, prior to (a) closing any store, office or other facility, except as required by applicable law or in the event of casualty or as a result of the expiration of any lease; (b) entering into any new lease, lease termination agreement or amendment or renewal of any agreement to lease real property; or (c) selling, assigning, subleasing, acquiring or exercising any option with respect to any store, office, or other facility. Purchaser agrees that it has no right to prohibit any action listed in the preceding sentence. This Section 5.06 shall not survive the Closing. 5.07 NO AGREEMENTS. The Company will not enter into any ------------- agreement to do any of the things prohibited by this Article V. 17 ARTICLE VI COVENANTS OF THE PARTIES ------------------------ Seller hereby covenants and agrees with Purchaser, and Purchaser hereby covenants and agrees with Seller that: 6.01 REASONABLE ACCESS; COOPERATION. Seller shall cause the ------------------------------ Company to afford up to six authorized representatives of Purchaser at any one time reasonable access to the offices, properties, facilities, agreements, books and records of the Company and to make its officers and key employees reasonably available to answer all questions put to them thereby (all at reasonable times, upon prior notice and in a manner so as not to interfere with the normal business operations of the Company) in order that Purchaser may have full opportunity to make such investigations as it shall desire to make of the affairs of the Company. Seller shall cause the Company to cooperate with representatives of Purchaser to make the Company's officers and key employees reasonably available for meetings outside of the Company's offices (all at reasonable times, upon prior notice and in a manner so as not to interfere with the normal business operations of the Company) at which the number of authorized representatives of Purchaser shall not be limited. Seller shall cause the Company to cooperate with Purchaser and use its reasonable best efforts to make the officers of the Company available for presentations to Purchaser's financing sources and investors. As soon as reasonably practicable, Seller shall furnish Purchaser with the Company's unaudited monthly and quarterly financial statements and weekly sales reports for all periods subsequent to May 31, 1997. Seller makes no representation or warranty with respect to such presentations, statements or reports, and neither Seller, nor if the Closing does not occur, the Company nor its officers, shall have any liability with respect thereto. No investigation pursuant to this Section 6.01 will affect or be deemed to modify any representation or warranty of Seller. 6.02 CONFIDENTIALITY. Each party will hold and will cause its --------------- consultants and advisors to hold in strict confidence, unless compelled to disclose by judicial or administrative process or, in the reasonable opinion of its counsel, by other requirements of law, all documents and information concerning the other party furnished to it by such other party or its representatives in connection with the transactions contemplated by this Agreement (except to the extent that such information can be shown to have been (i) previously known by the party to which it was furnished, (ii) in the public domain through no fault of such party, or (iii) later lawfully acquired from other sources by such party, and each party will not release or disclose such information to any other person, except its auditors, attorneys, financial advisors, bankers and other consultants and advisors in connection with this Agreement. If the transactions contemplated by this Agreement are not consummated, such confidence shall be maintained except to the extent such information comes into the public domain through no fault of the party required to hold it in confidence, and such 18 information shall not be used to the detriment of the other party and all such documents (including all copies thereof) shall immediately thereafter be returned to the other party upon the written request of such other party. Each party shall be deemed to have satisfied its obligation to hold such information confidential if it exercises the same care as it takes to preserve the confidentiality of its own similar information. This Section 6.02 is in addition to the provisions of the Confidentiality Agreement dated April 16, 1997 (the "Confidentiality Agreement") to which Purchaser is a party. In the event of any conflict between this Section 6.02 and the Confidentiality Agreement, the Confidentiality Agreement shall prevail. 6.03 HART-SCOTT-RODINO ACT. Each party shall promptly file any --------------------- Notification and Report Form and related material that it may be required to file with the Federal Trade Commission and the Antitrust Division of the United States Department of Justice under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "Hart-Scott-Rodino Act"), and shall, subject to Section 6.05, use its best efforts to obtain an early termination of the applicable waiting period and make any further filings or information submissions pursuant thereto that may be necessary, proper or advisable. 6.04 RECORDS; ACCESS BY SELLER. Following the Closing, ------------------------- Purchaser shall afford Seller, its counsel, accountants and other representatives free access to and assistance with the books and records of the Company for periods ending on or before the Closing Date (collectively, the "Records"), upon reasonable notice during normal business hours. Purchaser shall not dispose of any Records for a period of seven (7) years after the Closing Date. Thereafter, Purchaser shall not dispose of any Records until it has given reasonable notice to Seller of its intention to do so and given Seller a reasonable opportunity to take possession of the Records to be disposed of. 6.05 REGULATORY AND OTHER AUTHORIZATIONS AND CONSENTS. Each ------------------------------------------------ party will use all reasonable efforts to obtain the authorizations, consents, approvals, and permits of federal, state or local regulatory bodies and officials or private persons that may be or become necessary for that party in connection with the performance of its obligations pursuant to this Agreement and the consummation of the transactions contemplated hereby and will cooperate fully with the other party in promptly seeking to obtain the authorizations, consents, approvals and permits that may be or become so necessary for that other party; provided, however, that, subject to Sections 6.09 and 6.10 neither Purchaser, on the one hand, nor Seller or the Company, on the other hand, shall be obligated to: (a) undertake any additional financial obligation, dispose of any property or surrender any material right; (b) otherwise consent to any arrangement or undertake any obligation which would in its judgment materially adversely affect its business or properties; or (c) consent to the extension of the Closing Date of this Agreement beyond that provided in Section 11.01(c) of this Agreement. Purchaser shall have the right to approve the form of any consent (and related correspondence) distributed by Seller or the Company hereunder, which approval shall not be unreasonably 19 withheld or delayed. The parties hereto will not take any action which will have the effect of delaying, impairing or impeding the receipt of any required authorizations, consents, approvals or permits. Subject to Sections 6.09 and 6.10, neither Purchaser, on the one hand, nor Seller or the Company, on the other hand, shall agree to any modifications nor grant any concessions in order to obtain any consents without the prior approval of Seller or Purchaser, as the case may be. 6.06 EMPLOYMENT AND EMPLOYEE BENEFITS. --------------------------------- (a) Purchaser presently intends that after the Closing the Company will continue the employment of the officers and employees of the Company employed on the Closing Date, and maintain compensation policies, Employee Benefit Plans and benefit arrangements of the Company at least equal to those presently made available by the Company as described on Schedule 3.17. (b) Any provision of this Agreement to the contrary notwithstanding, Seller shall indemnify Purchaser from any tax, interest or penalty or other amount payable to the Internal Revenue Service with respect to the matter described in paragraph 4 of Schedule 3.17 and Seller shall have the right to control and defend all communications and proceedings with the Internal Revenue Service relating thereto. Seller shall promptly provide to Purchaser all correspondence to and from the Internal Revenue Service in connection with such matter. 6.07 NO PUBLIC ANNOUNCEMENT. Except as required by law, ---------------------- neither party hereto shall issue any press release or make any other public announcement concerning this Agreement or the transactions contemplated hereby without the prior approval of the other party, which approval shall not be unreasonably withheld. 6.08 CERTAIN INDEBTEDNESS. Except as set forth on Schedule -------------------- 6.08, immediately prior to the Closing, Seller shall repay any indebtedness owed to the Company by Seller or any affiliate of Seller and Seller shall contribute an additional $250,000.00 to the capital of the Company. The Company shall have no obligation to repay any indebtedness, if any, owed to Seller. 6.09 CERTAIN LEASES. -------------- (a) Prior to the Closing, except as otherwise provided in this subsection (a), Seller shall use its reasonable best efforts to obtain the consent of the landlords under the leases specified on Schedule 6.09 (collectively, the "Consent Leases"). The form of consent letter shall be subject to the prior consent of Purchaser, which Purchaser consent shall not be unreasonably withheld or delayed. Seller shall control the process of obtaining consents with respect to the Consent Leases prior to the Closing, however, Seller shall consult with Purchaser prior to soliciting consents with respect to the Consent Leases. If within 10 days after receipt from Seller of the form of consent letter, Purchaser requests in writing to 20 Seller that Seller not solicit consents with respect to particular Consent Leases, then Seller shall not solicit such consents. In such event, Seller shall have no liability under this Section 6.09 or otherwise relating to the failure to obtain consents with respect to such Consent Leases. Seller shall keep Purchaser apprised of the status of obtaining consents and shall deliver copies of all consents obtained pursuant to this subsection (a) to Purchaser. In obtaining a consent, Seller may not agree to a modification of a lease without the prior written consent of Purchaser. (b) If Seller is unable to obtain any consent with respect to a Consent Lease prior to the Closing, then provided all other conditions to Closing have been fulfilled or waived, Purchaser and Seller shall nonetheless be obligated to close the transactions contemplated hereby. (c) Subject to the limitations specified below, Seller shall, within ten days after Purchaser's notice to Seller of incurrence of a covered expense, indemnify Purchaser for all amounts paid to landlords by Purchaser (including, without limitation, any increase in rent) and out-of-pocket expenses (including, without limitation, reasonable attorneys' fees and defense costs pursuant to Section 6.09(d) below) incurred by Purchaser in connection with continuing the Company's tenancy under any Consent Lease by reason of Seller's failure to obtain a consent prior to the Closing. (d) Purchaser shall defend in good faith with counsel reasonably acceptable to Seller all litigation or proceedings brought by landlords with respect to Consent Leases as to which Seller failed to obtain a consent. Purchaser shall control all such litigation and proceedings, however, Seller shall be entitled to participate in such defense at its own cost with counsel of its own choosing and Purchaser shall consult with Seller in respect of all major decisions relating to such defense. Purchaser shall not settle any such litigation or proceeding except with the prior written consent of Seller, which shall not be unreasonably withheld or delayed. Moreover, Purchaser and its counsel shall present evidence and justification to Seller in reasonable detail for all amounts for which indemnification is sought under this Section 6.09. This Section 6.09(d) shall only apply to litigation or proceedings for which Seller has an indemnity obligation under Section 6.09(c). (e) In no event shall Seller be liable, in the aggregate, for indemnification under this Section 6.09 in an amount greater than $650,000 (the "Limit"). In addition, and without regard to the Limit, in the event a final, unappealable judgment or order of a court having jurisdiction results in the eviction of the Company from, or an order to vacate, a store subject to a Consent Lease by reason of Seller's failure to have obtained a consent prior to the Closing, then Seller shall pay Purchaser $320,000 with respect to the loss of that store; provided further, that with respect to the stores listed on Schedule 6.09(a), the amount so payable with respect to the loss of any store so listed shall be $110,000; and further provided, however, that neither Purchaser nor the Company shall be required to appeal any eviction judgment or order to vacate of (i) a Florida court relating to a Consent Lease for a store located in Florida or (ii) a Georgia court relating to a Consent Lease for a store located in Georgia if prior to the date of such order, either the Georgia Supreme Court, 21 the Georgia Court of Appeals or the United States Court of Appeals for the Eleventh Circuit, applying Georgia law, has published a decision holding that a sale of a controlling corporate stock interest constitutes an assignment of lease where the lease prohibits assignment but does not expressly state that a sale of a controlling corporate stock interest is deemed an assignment. The foregoing to the contrary notwithstanding: (i) subject in all events to the Limit, to the extent a consent or settlement with a landlord under a Consent Lease, whether entered into before, or prior to the first anniversary of, the Closing (or entered into thereafter in settlement of a claim, litigation or proceeding that was pending on the first anniversary of the Closing), requires an increase in rent, the amount indemnifiable under this Section 6.09 shall be limited to the amount of the rent increase for the lesser of the three-year period following the Closing or the remaining term of the lease, provided that, subject in all events to the Limit, if prior to the third anniversary of the Closing, the Company (A) exercises its renewal option with respect to a Consent Lease, or (B) is required by any such consent or settlement to extend the term of a Consent Lease, the amount indemnifiable under this Section 6.09 shall also include that portion of any rent increase which is directly attributable to having obtained such consent of or settlement with the landlord and which is payable during that portion of the renewal or extended term ending on the third anniversary of the Closing Date; and (ii) all amounts paid by Seller to landlords under Consent Leases prior to the Closing in order to obtain consents shall reduce the Limit and Seller shall prior to the Closing notify Purchaser in a reasonably detailed writing of all amounts so paid. Any amounts payable by Seller to Purchaser under this Section 6.09(e) shall be paid within ten days after the earliest to occur of Purchaser's notice to Seller of Purchaser's incurrence of a covered expense or delivery to Seller of a copy of the applicable court decision, order or judgment resulting in the eviction of the Company from, or an order to vacate, a store subject to a Consent Lease. If Seller and Purchaser are unable to agree upon the monetary value of any concession provided to a landlord in order to obtain a consent under a Consent Lease, then such disagreement shall be submitted to binding arbitration as provided below to the American Arbitration Association ("AAA") in accordance with its rules and regulations. Each party shall select one arbitrator, with the two selected to choose the third. If the two selected are unable to choose the third within 25 days after the appointment of the first two, the third shall be appointed by the AAA. The decision of the arbitrators shall be final. (f) Any provision of this Agreement to the contrary notwithstanding, Seller's obligations and Purchaser's rights under this Section 6.09 shall expire on the first anniversary of the Closing, except as to claims, litigation and proceedings pending on or asserted by that date, as to which such obligations and rights shall survive until final resolution. (g) Any provision of this Agreement to the contrary notwithstanding, this Section 6.09 shall be Purchaser's exclusive remedy and Seller's exclusive obligation and liability with respect to the failure to obtain consents with respect to Consent Leases and is in lieu of all other representations, warranties, covenants and 22 indemnities with respect thereto. 6.10 LONG JOHN SILVER. ---------------- (a) Prior to the Closing, Seller shall use its reasonable best efforts to obtain the written consent of Long John Silver's Inc. ("LJS") under Section 13.02 of each of the Company's License and Franchise Agreements with LJS listed on Schedule 3.03 (collectively the "LJS Agreements") to any assignment or pledge of any interest in the LJS Agreements that may be deemed to occur in connection with the transactions contemplated by this Agreement, including, without limitation, any financing in connection therewith, together with written confirmation from LJS that Purchaser and its direct and indirect stockholders will not be required to execute the guarantees referred to in Subsection 13.02 (b) (2) of the LJS Agreements and that its Owners (as defined in the LJS Agreements) will not be subject to Section 13.02(b)(3) of the LJS Agreements in connection with the transactions contemplated by this Agreement. (b) If Seller is unable to obtain the consent and confirmation of LJS prior to the Closing, or if the LJS Agreements are terminated prior to the Closing, then provided all other conditions to the Closing have been fulfilled or waived, Purchaser and Seller shall nonetheless be obligated to close the transactions contemplated hereby. (c) Subject to the limitations specified below, Seller shall indemnify Purchaser for all amounts paid to LJS and all out-of-pocket expenses (including reasonable attorneys' fees) incurred by Purchaser by reason of Seller's failure to obtain the LJS consent and confirmation prior to the Closing. In the event that LJS refuses to provide its consent and confirmation, Seller may take all actions necessary to terminate the LJS Agreements; provided that Seller shall consult with Purchaser prior to taking any such action. In the event of any litigation or proceeding involving LJS, the provisions of Section 10.05 shall apply provided that Purchaser shall be entitled to assume and control the defense of any litigation or proceeding (and Seller may participate at its own cost) if there is a reasonable basis to conclude that Damages may exceed $120,000. (d) In no event shall Seller's liability, in the aggregate, for indemnification under this Section 6.10 exceed $120,000. (e) Any provision of this Agreement to the contrary notwithstanding, Seller's obligations and Purchaser's rights under this Section 6.10 shall expire on the first anniversary of the Closing, except as to claims, litigation or proceedings pending on or asserted by that date, as to which such obligations and rights shall survive until final resolution. (f) Any provision of this Agreement to the contrary notwithstanding, this Section 6.10 shall be Purchaser's exclusive right and remedy and Seller's exclusive obligation and liability with respect to Seller's failure to obtain the LJS consent and confirmation prior to the Closing and is in lieu of all other representations, warranties, covenants and indemnities with respect thereto. 23 6.11 FURTHER ASSURANCES. Each party shall execute and deliver ------------------ such instruments and take such other actions as the other party may reasonably require in order to carry out the intent of this Agreement. The parties shall give prompt notice to each other of the breach of any representation, warranty or covenant contained in this Agreement and shall use all reasonable best efforts to remedy such breach. In addition, Seller or the Company shall give prompt notice to Purchaser of any material developments involving the operations or activities of the Company including, without limitation, matters pertaining to Environmental Conditions (with respect to which, after such notification, Purchaser may consult with Marcia Glick). The second and third sentences of this Section 6.11 shall not survive the Closing and shall not affect Purchaser's obligations under Section 10.03(b). 6.12 SUPPLEMENTS TO SCHEDULES. ------------------------ (a) From time to time prior to the Closing, each party shall promptly supplement or amend its Schedules hereto with respect to any matter hereafter arising which, if existing or occurring at the date of this Agreement, would have been required to be set forth or described in such Schedules. (b) For purposes of determining the satisfaction of the conditions set forth in Sections 8.01 and 9.01, respectively, the Schedules shall be deemed to include only the information contained therein on the date hereof, without regard to any supplement or amendment, except those previously accepted in writing by Purchaser, in the case of Section 8.01, and Seller, in the case of Section 9.01. (c) For purposes of determining the accuracy of the representations and warranties of a party contained in this Agreement in order to determine the right of the other party to any indemnification under Article X hereof, the Schedules attached hereto on the date hereof and any supplement or amendment thereto provided pursuant to Section 6.12 (a) hereof shall be deemed included. 6.13 TAX MATTERS. ----------- (a) The parties agree that after the Closing Date, Seller shall have the right to review drafts of and approve (which approval shall not be unreasonably withheld) all tax returns of the Company relating to taxable periods ending (i) on or before the Closing Date and (ii) after the Closing Date, which encompass periods prior to the Closing Date. Copies of each draft tax return shall be delivered to Seller at least 60 days prior to the proposed filing date thereof. If Seller does not give Purchaser notice of any objection to such draft within 30 days of receipt of the draft, Seller shall be deemed to have approved such draft. Purchaser shall, and shall cause the Company to, cooperate with Seller in the review of all such tax returns and in connection therewith provide Seller and its accountants, attorneys and other representatives reasonable access to any and all books, records and data with respect to the Company relevant to such tax returns, including, without limitation, financial statements, management accounts and work papers of the Company's accounting department and the Company's independent accountants. 24 (b) In the event of a dispute with respect to any such tax return, Purchaser and Seller shall attempt to reconcile their differences. If Purchaser and Seller are unable to do so within ten (10) days, Purchaser and Seller shall submit the disputed items for resolution to Price Waterhouse (the "Independent Accounting Firm"), which, within 15 days from such submission, shall determine and report to the parties upon such disputed items, and such report shall be final, binding and conclusive on the parties hereto and such tax return shall be filed on a basis which reflects such report. In acting pursuant to this Section 6.13(b) the Independent Accounting Firm shall have the rights, privileges and immunities of an arbitrator, and its fees shall be paid one-half by Purchaser and one-half by Seller. (c) The provisions of subsections (a) and (b) of this Section 6.13 or any approval of any tax return by Seller notwithstanding, Seller shall have no liability pursuant to Article X or otherwise arising from or relating to any tax election or amended return filed by Purchaser or the Company or any change in the Company's tax accounting principles or policies after the Closing which recharacterizes, restates or otherwise affects any item for any taxable period ending on or prior to the Closing Date, except elections, amended returns or changes required by any law in effect as of the Closing Date or by any audit of periods prior to the Closing Date. (d) From and after the Closing, Seller shall indemnify and hold harmless Purchaser and the Company against (i) any federal, state, local or foreign tax, including any interest, penalty or addition ("Taxes"), imposed on any member of any affiliated group (other than the Company) with which Seller files or has filed a tax return on a consolidated, combined or unitary basis for a taxable year or period ending on or before the Closing Date with respect to income of a member (other than the Company); (ii) Taxes or other payments required to be made after the date of the Balance Sheet by the Company to any party under any Tax sharing, indemnity or allocation agreement (whether or not written) except Taxes payable on the income of the Company; or (iii) Taxes imposed on the Company for periods ending on or prior to the date of the Balance Sheet and Taxes properly apportioned for any partial period through the date of the Balance Sheet (apportioned as if the date of the Balance Sheet were the end of a taxable year or period), which Taxes have not been either (x) paid prior to the date of the Balance Sheet or (y) accrued as "Income taxes payable", "Other taxes payable" or "Deferred income taxes payable" in the Current Liabilities section of the Balance Sheet. Nothing in this Agreement shall require Seller to pay, reimburse or indemnify any taxes paid or payable on the income of the Company for periods beginning after the date of the Balance Sheet or properly apportioned and payable for any partial period beginning the day after the date of the Balance Sheet (apportioned as if the day after the date of the Balance Sheet were the beginning of a taxable year or period). (e) Any provision of this Agreement to the contrary notwithstanding, if Federal and/or State tax authorities challenge the Company's treatment (the "Treatment") of certain of its stores as "retail motor fuels outlets" under Section 168(e)(3)(E)(iii) of the Code using an applicable recovery period of 15 years and/or any corresponding provision of state law for tax periods ending on or before the Closing Date 25 (and for partial periods through the Closing Date, apportioned as if the Closing Date were the end of a taxable year or period), then Purchaser and Seller shall each bear one-half of any taxes, interest and/or penalties payable by the Company in connection therewith and one-half of all out-of-pocket expenses (including reasonable attorneys' and accountants' fees) incurred in connection therewith; provided, however, that in no event shall Purchaser's liability, in the aggregate, for such taxes, interest and/or penalties exceed $2,180,000 (and Seller shall bear 100% of any such taxes, interest and/or penalties exceeding $4,360,000); and further provided, however, that in no event shall Seller's liability for such out-of-pocket expenses exceed, in the aggregate, $500,000 (and Purchaser shall bear 100% of any such out-of-pocket expenses exceeding $1,000,000). The liability of the parties under this subsection 6.13(e) shall be determined without regard to any tax benefit to the Company, as determined under subsection 10.04(b)(ii)(A) or otherwise, and the liability of Seller under this subsection 6.13(e) shall be determined without regard to subsection 10.04(b)(i). In the event of any audit, litigation, proceeding or appeal with respect to the Treatment, the provisions of Section 10.05 shall apply, but Purchaser and the Company shall be deemed the "Indemnifying Party" and Seller shall be deemed the "Indemnified Party" (except that Purchaser shall give Seller prompt notice of any such audit, litigation, proceeding or appeal and the provisions of this subsection 6.13(e) shall control the payment of out-of-pocket expenses (including reasonable attorneys' and accountants' fees)). Any provision of this Agreement to the contrary notwithstanding, this subsection 6.13(e) shall be Purchaser's exclusive right and remedy and Seller's exclusive obligation and liability with respect to the Company's liability for taxes, interest and/or penalties and out-of-pocket expenses relating to any challenge by a tax authority of the Treatment for tax periods ending on or before the Closing Date (and for partial periods through the Closing Date, apportioned as if the Closing Date were the end of a taxable year or period) and is in lieu of all other representations, warranties, covenants and indemnities with respect thereto. (f) Seller and Purchaser mutually agree that any indemnification payment made by one party to the other pursuant to Sections 6.06(b), 6.09, 6.10 or 6.13 or Article X shall be treated as an adjustment to the purchase price, and shall be accounted for as such for all tax purposes. (g) As of the Closing Date, any and all tax sharing, indemnity or allocation agreements shall terminate as between the Company and Seller and, after the Closing Date, no Taxes or other amounts shall be paid or reimbursed by the Company under any such agreement, regardless of the taxable year or period for which such Taxes are imposed, but nothing herein shall relieve the Company from any liability to pay Taxes payable on its income. (h) After the date of the Balance Sheet, the Company has paid, and shall continue to pay, only taxes incurred in the ordinary course of business consistent with past practices and, with respect to taxes that are payable under a tax sharing, indemnity or allocation agreement, shall pay only such taxes as are set forth on Schedule 6.13. 26 (i) Seller shall obtain shareholder approval from the shareholder of the Company or of Seller, as reasonably requested by Purchaser, with respect to any agreement under which a payment may be made which, in Purchaser's reasonable judgment, could constitute a parachute payment under Code Section 280G and Proposed Treasury Regulations Section 1.280G-1, A-7. 6.14 ACQUISITION PROPOSALS. Prior to the Closing or termination of --------------------- this Agreement under Article XI, neither Seller nor the Company nor any of their respective directors, partners, officers, employees or other representatives or agents shall, directly or indirectly, communicate, solicit, initiate, encourage or participate in (including furnishing non-public information concerning the Company's business, properties or assets) any negotiations with regard to any proposal to acquire, directly or indirectly, any shares of the capital stock of Seller or the Company, or to invest any funds in Seller or the Company, whether such proposed acquisition or investment involves a stock sale, exchange offer, merger or other business combination involving Seller or the Company or the acquisition of a substantial portion of the assets of Seller or the Company; provided that nothing in this Section 6.14 shall prohibit any transfer of the shares or assets of Seller (other than capital stock of the Company) to any affiliate of Seller. 6.15 RESERVE. Seller and Purchaser have mutually agreed that -------- the Company reflect: (a) on the Balance Sheet (i) a long-term liability for "Accrued Environmental Remediation" in the amount of $3,150,000 and (ii) an additional current liability of $231,000 relating to underground storage tank removal ((i) and (ii) being collectively referred to as the "Environmental Accruals"); (b) on the Statement of Operations for the five months ended May 31, 1997, a reduction of "Income Before Provision for Income Taxes" resulting from the Environmental Accruals (the "Pre-Tax Reduction"); and (c) other changes in the Balance Sheet and the Statement of Operations directly resulting from the Environmental Accruals and/or the Pre-Tax Reduction (the "Related Changes"). Purchaser agrees that: (a) Seller makes no representation, warranty or covenant of any nature with respect to the Environmental Accruals, the Pre-Tax Reduction or the Related Changes; and (b) the Environmental Accruals, the Pre-Tax Reduction and the Related Changes shall in no way affect, or be considered in any way in determining the accuracy or breach of, any representation, warranty, disclaimer or covenant set forth in this Agreement, including, without limitation, those set forth in Sections 3.06, 3.07, 3.08, 3.19, 3.24, 3.28, 5.04, 5.05, 6.12, 8.01, 10.02 and 10.03. ARTICLE VII MUTUAL CONDITIONS ----------------- The respective obligations of each party to consummate the transactions 27 contemplated by this Agreement are subject to the satisfaction, on or before the Closing Date, of each of the following conditions, unless waived in writing by each party. 7.01 HART-SCOTT-RODINO ACT. All applicable waiting periods (and any --------------------- extensions thereof) under the Hart-Scott-Rodino Act shall have expired or otherwise been terminated. 7.02 ORDERS; ETC. Neither party hereto shall be subject to any order ----------- or injunction of a court of competent jurisdiction which prohibits the consummation of the transactions contemplated by this Agreement. ARTICLE VIII CONDITIONS TO PURCHASER'S OBLIGATIONS ------------------------------------- Each and every obligation of Purchaser under this Agreement to be performed on or before the Closing Date shall be subject to the satisfaction, on or before the Closing Date, of each of the following conditions, unless waived in writing by Purchaser: 8.01 REPRESENTATIONS AND WARRANTIES TRUE. The representations and ----------------------------------- warranties of Seller contained in Article III hereof shall be in all material respects true and accurate as of the date when made and at and as of the Closing Date as though such representations and warranties were made at and as of such date, except for Section 3.08(a). 8.02 PERFORMANCE. Seller shall have performed and complied with all ----------- agreements, obligations and conditions required by this Agreement to be performed or complied with by it on or prior to the Closing Date. 8.03 CERTIFICATES. Seller shall have furnished Purchaser with such ------------ certificates of Seller to evidence compliance with the conditions set forth in this Article VIII as may reasonably be requested by Purchaser. 8.04 INDEMNITY. The Company shall have obtained an indemnity letter --------- from a tobacco manufacturer in connection with each tobacco lawsuit pending on the date hereof, in form and substance substantially similar to the ones already obtained by the Company. 8.05 RESIGNATIONS. Purchaser shall have received letters of ------------ resignation from each of the members of the Company's Board of Directors, effective as of the Closing Date. 8.06 AUCHAN LETTER. Seller shall have furnished to Purchaser a letter ------------- from 28 Auchan SA ("Auchan") in the form of Schedule 8.06 hereto (the "Auchan Letter") pursuant to which Auchan agrees to be jointly and severally liable for the obligations of Seller under this Agreement to the same extent as if Auchan were a party hereto. 8.07 LEGAL OPINIONS. Purchaser shall have received opinions of in- -------------- house French counsel to Auchan and U.S. counsels to Seller and the Company in the forms of Schedule 8.07(a), (b), (c) and (d) hereof, respectively. 8.08 REGULATORY AND OTHER AUTHORIZATIONS AND CONSENTS. Subject to ------------------------------------------------ Sections 6.05, 6.09 and 6.10 all authorizations, consents, approvals and permits of federal, state and local governmental agencies and third parties necessary to the consummation of the transactions contemplated by this Agreement or necessary to the continued operation of the business of the Company after the Closing to the extent they must be obtained prior to the Closing shall have been obtained, except those which the failure to obtain would not have a Material Adverse Effect; provided, however, that if Purchaser waives the requirements of this Section 8.08 with respect to any such authorization, consent, approval or permit, Seller shall have no liability for "Damages" (as hereinafter defined) with respect thereto. 8.09 MATERIAL ADVERSE CHANGE. During the period commencing on the date ----------------------- of this Agreement and ending on October 15, 1997, the Company shall not have suffered any material adverse change in its financial condition, business, operations or prospects, excluding any such change, directly or indirectly, caused by or resulting from any Environmental Condition or by business or economic conditions which are generally applicable to companies in the Company's industry. ARTICLE IX CONDITIONS TO SELLER'S OBLIGATIONS ---------------------------------- Each and every obligation of Seller under this Agreement to be performed on or before the Closing Date shall be subject to the satisfaction, on or before the Closing Date, of each of the following conditions, unless waived in writing by Seller: 9.01 REPRESENTATIONS AND WARRANTIES TRUE. The representations ----------------------------------- and warranties of Purchaser contained in Article IV hereof shall be in all material respects true and accurate as of the date when made and at and as of the Closing Date as though such representations and warranties were made at and as of such date. START HERE 9.02 PERFORMANCE. Purchaser shall have performed and complied ----------- with all agreements, obligations and conditions required by this Agreement to be performed or complied with by it on or prior to the Closing Date. 29 9.03 CERTIFICATES. Purchaser shall have furnished Seller with ------------ such certificates of its officers to evidence compliance with the conditions set forth in this Article IX as may reasonably be requested by Seller. 9.04 LEGAL OPINIONS. Seller shall have received opinions of -------------- counsel to Purchaser and its assignee, if applicable, in the forms of Schedule 9.04(a) and (b) hereof. ARTICLE X SURVIVAL AND INDEMNIFICATION ---------------------------- 10.01 SURVIVAL. -------- (a) All representations and warranties made by any party in this Agreement shall survive the Closing hereunder for a period of twelve months following the Closing; provided that the representations and warranties contained in Sections 3.01 and 3.04 shall survive the Closing in perpetuity and the representations and warranties set forth in Sections 3.16 and 3.17 shall survive the Closing through the applicable statute of limitations period. Anything in this Agreement to the contrary notwithstanding, no claim based upon misrepresentation or breach of representation or warranty shall be made, no action or litigation with respect thereto commenced, and no remedy shall be available unless written notice specifying with particularity the misrepresentation or breach claimed shall have been delivered on or prior to the expiration of such period in which case such representation or warranty shall survive until the claim with respect thereto has been finally resolved. (b) Except as otherwise provided herein, all covenants and agreements made by any party in this Agreement shall survive the Closing hereunder until all obligations set forth therein shall have been satisfied. 10.02 INDEMNIFICATION BY SELLER. Subject to the limitations and ------------------------- conditions set forth in this Article X, Seller hereby agrees to indemnify, defend and hold harmless Purchaser and each subsidiary, affiliate, director, officer, employee or agent of Purchaser from and against all demands, claims, actions or causes of action, assessments, losses, damages, liabilities, costs and expenses, including, without limitation, interest, penalties and reasonable attorneys' fees and expenses of investigation, enforcement and collection (collectively "Damages"), asserted against or imposed upon or incurred by Purchaser or any subsidiary or affiliate, director, officer, employee or agent of Purchaser arising or resulting from a breach of any representation, warranty or covenant of Seller contained in this Agreement. 10.03 INDEMNIFICATION BY PURCHASER. Subject to the limitations ---------------------------- and conditions set forth in this Article X, Purchaser and the Company, jointly and severally, agree to indemnify, defend and hold harmless Seller, and each subsidiary, affiliate, director, officer, employee or agent of Seller from and against all Damages asserted against or imposed upon or incurred by Seller or any subsidiary, affiliate, director, officer, employee or agent of Seller 30 arising or resulting from (a) a breach of any representation, warranty or covenant of Purchaser contained in this Agreement, (b) any Environmental Condition or (c) the assets, liabilities, business, operations or employees of the Company, whether accruing before or after the Closing Date, provided that nothing in this clause (c) shall relieve Seller from any liability under Sections 6.06(b), 6.09, 6.10, 6.13(d), 6.13(e) or 10.02. 10.04 LIMITATIONS ON INDEMNIFICATION. ------------------------------ (a) Except as provided in Article VI, the remedies provided in this Article X shall be exclusive and shall preclude assertion by either party of any other rights or the seeking of any and all other remedies against the other for claims based on this Agreement. (b) Any claims for indemnity under this Agreement shall be subject to the following limitations and adjustments: (i) the provisions of Section 10.02 shall be effective only when the aggregate amount of all Damages for which Seller may be liable under this Article X exceeds $3,981,000 in which case Seller shall be liable for only such amounts as exceed $3,981,000, provided that this limitation shall not apply to indemnification for Damages for breaches of Sections 3.01, 3.04, 6.06(b), 6.09, 6.10, 6.13(d) and 6.13(e) and further provided that with respect to Damages arising out of a breach of Sections 3.16 or 6.13 (other than as specified in subsections 6.13(d)(i) and (ii) and 6.13(e)), which breach relates to income taxes of the Company (as opposed to and excluding any other taxes, such as sales, use, value added, withholding, social security, property or any other taxes), Section 10.02 shall be effective when the amount of such Damages for which Seller may be liable exceeds $500,000; (ii) the amount of any claim by either party for indemnification shall be subject to adjustment to reflect (A) any actual direct or indirect income tax benefit (taking into account the amount of any indemnification actually received) resulting therefrom to the indemnified party, (B) any insurance coverage with respect thereto and (C) any amounts reasonably recoverable from third parties (net of expenses) based on claims the indemnified party has against such third parties which would reduce the damages that could otherwise be sustained; (iii) in no event shall Seller be liable, in the aggregate, for indemnification hereunder in an amount greater than $33,175,000, provided, however, that Damages arising with respect to breaches of Sections 3.01 and 3.04 shall not be subject to such limitation; and (iv) neither party hereto shall be liable to the other party for special, incidental, consequential or punitive damages, except that nothing in this clause (iv) shall relieve an Indemnifying Party (as hereinafter defined) from liability for such damages where an Indemnified Party (as hereinafter defined) becomes liable therefor to a third party. 10.05 CONDITIONS OF INDEMNIFICATION. ----------------------------- (a) Any party claiming a right to indemnification hereunder (an "Indemnified Party") shall give prompt written notice to the other party (the "Indemnifying Party") of the commencement of any action, audit, investigation, suit or proceeding, the receipt of any demand or the occurrence of any item or incident in connection with which the 31 Indemnified Party bases its claim for indemnification from the Indemnifying Party under this Article X. (b) In the event the claim is a third party claim against an Indemnified Party, upon notice from the Indemnified Party, the Indemnifying Party may assume the defense of any such action, audit, investigation, suit, proceeding or demand, including its compromise or settlement, and the Indemnifying Party shall pay all reasonable costs and expenses thereof and shall be fully responsible for the outcome thereof, subject to the provisions of Section 10.04; provided that the Indemnifying Party's counsel shall be reasonably satisfactory to the Indemnified Party; and provided further that (i) the Indemnified Party is kept fully informed of all developments and is furnished copies of all relevant papers; (ii) the Indemnifying Party diligently prosecutes the defense; and (iii) the Indemnified Party shall have the right to participate, at its own expense and through counsel selected by it, in the defense of any such claim. The Indemnifying Party shall give notice to the Indemnified Party as to its intention to assume the defense of any such action, audit, investigation, suit, proceeding or demand within twenty (20) days after the date of the Indemnified Party's notice thereof. If the Indemnifying Party assumes the defense of such action, audit, investigation, suit, proceeding or demand, (i) no compromise or settlement thereof may be effected by the Indemnified Party without the Indemnifying Party's prior written consent (which shall not unreasonably be withheld) and (ii) the Indemnifying Party shall have no liability with respect to any compromise or settlement thereof effected without its consent. If the Indemnifying Party does not, within twenty (20) days after the receipt of written notice from the Indemnified Party, give notice to the Indemnified Party of its assumption of the defense of the action, audit, investigation, suit, proceeding or demand in question, then subject to the right of the Indemnifying Party, upon written notice to Indemnified Party, to assume the defense thereof, at any time prior to settlement, compromise or final determination, the Indemnifying Party shall be bound by the Indemnified Party's control of the defense thereof and by any determination made in such action, audit, investigation, suit, proceeding or demand by a court or decision maker of competent jurisdiction, but no compromise or settlement may be effected by the Indemnified Party without the prior written consent of the Indemnifying Party (which shall not be unreasonably withheld). ARTICLE XI TERMINATION AND REMEDIES ------------------------ 11.01 TERMINATION. Anything in this Agreement to the contrary ----------- notwithstanding: (a) MUTUAL CONSENT. This Agreement may be terminated -------------- by the mutual consent of the parties hereto, in which event the parties shall promptly issue joint instructions to the Escrow Agent to release the Earnest Money and all interest earned thereon to Purchaser. (b) DEFAULT. In the event that a party hereto shall, ------- contrary to the 32 terms of this Agreement, intentionally take any action which prevents consummation of the transactions contemplated hereby or intentionally fail or refuse to consummate the transactions contemplated herein or fail or refuse to take any other action referred to herein necessary to consummate the transactions contemplated herein (after any applicable conditions to such actions have been satisfied), then the non-defaulting party, after affording the defaulting party a 10-day period after notice in which to cure such breach or default, shall have the right, in addition to the other rights specified in Section 11.02 below, to terminate this Agreement by written notice given to the other party hereto. If the defaulting party is Purchaser, the Earnest Money and all interest earned thereon shall be released to Seller. In no event shall Purchaser be in default or Seller entitled to the Earnest Money as a result of a failure or refusal of Purchaser to consummate the transactions contemplated hereby unless the conditions to the Closing set forth in Article VII and Article VIII have been satisfied or waived by Purchaser prior to the Closing. (c) UPSET DATE. In the event that the Closing shall not have ---------- occurred on or prior to October 31, 1997, then, unless otherwise agreed to in writing between the parties hereto, this Agreement shall terminate on or following such date (as such date may be postponed pursuant hereto), upon written notice given by one party to the other, unless the absence of such occurrence shall be due to the failure or refusal of the party seeking to terminate this Agreement of the type described in Section 11.01(b). In the event of termination pursuant to this Section 11.01(c), where there has been no failure or refusal on the part of Purchaser of the type referred to in Section 11.01(b) or no default on the part of Purchaser, the Earnest Money and all interest earned thereon shall be released to Purchaser. In no event shall Purchaser be in default or Seller be entitled to the Earnest Money as a result of a failure or refusal of Purchaser to consummate the transactions contemplated hereby unless the conditions to the Closing set forth in Article VII and Article VIII have been satisfied or waived by Purchaser prior to the Closing. (d) LEGAL RESTRAINT. Either party may, by written notice to --------------- the other party, terminate this Agreement if at the time the written notice of termination is given, there is in effect a preliminary or permanent injunction enjoining consummation of the transactions contemplated hereby. 11.02 REMEDIES. -------- (a) SPECIFIC PERFORMANCE. Subject to compliance with the -------------------- terms of Section 11.02(d) hereof, any party desiring to proceed with the Closing despite any failure or refusal of the other party hereto of the type described in Section 11.01(b) hereof shall have the right to pursue the remedy of specific performance. (b) DAMAGES. Subject to compliance with the terms of Section ------- 11.02(d) hereof, any party terminating this Agreement pursuant to Section 11.01(b) hereof shall, if the failure or refusal referred to in Section 11.01(b) hereof constituted a material breach of this Agreement, have the right to sue for damages and all reasonable out-of-pocket costs and expenses, including reasonable attorneys' fees, theretofore suffered and sustained by 33 the non-defaulting party; provided, that no party shall be liable to the other for special, incidental, consequential or punitive damages by reason of such breach. The foregoing to the contrary notwithstanding, if the prevailing party is Seller, Seller shall receive (as liquidated damages and as its sole and exclusive remedy for loss of its bargain and not as a penalty) the Earnest Money and all interest earned thereon. (c) EFFECT OF TERMINATION. Except as set forth in Section --------------------- 11.02(b) above, any termination of this Agreement by any party hereto shall have the effect of causing this Agreement to thereupon become void and of no further force or effect whatsoever, and thereupon no party hereto will have any rights, duties, liabilities or obligations of any kind or nature whatsoever against any other party hereto based upon either this Agreement or the transactions contemplated hereby, except in each case the obligations of each party for its own expenses incurred in connection with the transactions contemplated by this Agreement as provided in Section 12.04 and the obligations of each party with respect to confidentiality set forth in Section 6.02 hereof. (d) CURE PERIOD. Any party seeking any form of relief ----------- referred to in Sections 11.02(a) or (b) hereof shall, as a condition to the right to seek such relief, afford the defaulting party hereto with a 10-day period to effect reasonable cure of such breach or default. ARTICLE XII MISCELLANEOUS PROVISIONS ------------------------ 12.01 COMMISSIONS AND FINDERS' FEES. Each of the parties ----------------------------- represents that the negotiations relative to this Agreement and the transactions contemplated hereby have been carried on by Seller directly with Purchaser in such manner as not to give rise to any claims against any of the parties hereto for a brokerage commission, finders' fee or other like payment, except for any fees owed to Societe Generale Securities Corporation, which are the responsibility of Seller. Insofar as any such claims are made which are alleged to be based on an agreement or arrangements made by, or on behalf of, a party, such party agrees to indemnify and hold the other party harmless from and against all liability, loss, cost, charge or expense, including reasonable counsel fees, arising therefrom. 12.02 AMENDMENT AND MODIFICATION. This Agreement may only be -------------------------- amended, modified and supplemented by written agreement executed by Purchaser and Seller. 12.03 WAIVER OF COMPLIANCE. Any failure of Seller, on the one -------------------- hand, or Purchaser, on the other, to comply with any obligation, covenant, agreement or condition herein may be expressly waived in writing by Purchaser or Seller, respectively, but such waiver or failure to insist upon strict compliance with such obligation, covenant, agreement or condition shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure. 34 12.04 EXPENSES. Subject to Article XI hereof and the parties' -------- ability to collect all Damages from a breach of this Agreement, if the transactions contemplated by this Agreement are not consummated, each of the parties hereto will pay its own expenses incurred by it or on its behalf in connection with this Agreement or any transaction contemplated by this Agreement, including, without limitation, all fees of its counsel. If the transactions contemplated by this Agreement are consummated, the Company shall pay all expenses of Purchaser in connection therewith. In addition, Seller shall bear the expense of any stock transfer tax or sales tax applicable to the transactions contemplated hereby. 12.05 NOTICES. All notices, requests, demands and other ------- communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given if delivered by hand or mailed, certified or registered mail with postage prepaid or delivered by express delivery or facsimile transmission (with copy by mail): (a) If to Seller, to: Docks U.S.A., Inc. c/o SA Auchan 40 Avenue de Flandre 59170 Croix, France Attention: Directeur Financier Groupe Fax: 33.3.20.89.25.02 With a copy to: Bureau Francis Lefebvre - New York 712 Fifth Avenue, 29/th/ floor New York, NY 10019 Attention: Carina Levintoff, Esq. Fax: (212) 246-2951 or to such other person or address as Seller shall furnish to Purchaser in writing. (b) If to Purchaser, to: PH Holding Corporation c/o The Pantry, Inc. 1801 Douglas Drive Sanford, NC 27330 Attention: Peter J. Sodini Fax: (919) 774-3329 35 With a copy to: Freeman Spogli & Co. Incorporated 11100 Santa Monica Boulevard, Suite 1900 Los Angeles, CA 90025 Attention: Charles P. Rullman and Jon D. Ralph Fax: (310) 444-1870 and to: Riordan & McKinzie 300 South Grand Avenue, 29/th/ Floor Los Angeles, CA 90071 Attention: Richard J. Welch, Esq. Fax: (213) 229-8550 or to such other person or address as Purchaser shall furnish to Seller in writing. 12.06 ASSIGNMENT. This Agreement and all of the provisions ---------- hereof shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, but neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any party hereto without the prior written consent of the other party, except that Purchaser may assign its rights hereunder to any lender or to a wholly- owned subsidiary of Purchaser, and Seller may assign its rights hereunder to an affiliate of Seller in accordance with Section 6.14, provided that no such assignment shall relieve the assignor of any of its obligations hereunder. 12.07 GOVERNING LAW. ------------- (a) This Agreement and the legal relations among the parties hereto shall be governed by and construed in accordance with the laws of the State of New York without regard to its conflicts of law doctrine. In the event of a breach of this Agreement by Seller, on the one hand, or Purchaser, on the other hand, the non-breaching party shall be entitled to recover its costs and expenses (including reasonable attorneys' fees) incurred in enforcing this Agreement. (b) The parties hereto, acting for themselves and for their respective successors and assigns, without regard to domicile, citizenship or residence, hereby expressly and irrevocably (i) consent and subject themselves to the exclusive jurisdiction of the United States District Court for the Southern District of New York or any New York State court sitting in New York City in respect of any and all matters arising under or in connection with this Agreement, (ii) agree that all claims, actions and proceedings arising under or 36 relating to this Agreement may be heard and determined in any such court, (iii) agree not to bring any action or proceeding arising out of or relating to this Agreement in any other forum, and (iv) agree to the enforcement of any judgment rendered by any such court in any court in the United States or foreign jurisdiction, in accordance with the laws governing enforcement of judgments in that jurisdiction. Each of the parties waives any defense of inconvenient forum to the maintenance of any action or proceeding so brought. Service of process, notices and demands of any such court may be made upon any party by personal service at any place where it may be found or by mailing copies of such process, notices, demands and communications by certified or registered mail, postage prepaid and return receipt requested, to the address of such party hereinabove set forth. Each party irrevocably and unconditionally waives its right to a trial by jury. 12.08 COUNTERPARTS. This Agreement may be executed ------------ simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 12.09 EFFECTIVENESS; BINDING EFFECT. This Agreement shall ----------------------------- become effective as to each party hereto when and only when this Agreement shall have been executed by such party; provided, however, that this Agreement shall -------- ------- be null and void ab initio as to each party hereto in the event that both -- ------ parties hereto shall not have executed this Agreement within five (5) days of the date upon which any party hereto shall have executed this Agreement. 12.10 HEADINGS. The headings of the Sections and Articles of -------- this Agreement are inserted for convenience only and shall not constitute a part hereof. 12.11 ENTIRE AGREEMENT. This Agreement, including the Schedules ---------------- hereto, and the Escrow Agreement set forth the entire agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein, and supersede all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, express or implied, by any officer, employee or representative of any party hereto, except the Confidentiality Agreement, which remains in full force and effect. 12.12 THIRD PARTIES. Except as specifically set forth or ------------- referred to herein, nothing herein expressed or implied is intended or shall be construed to confer upon or give to any person or entity other than the parties hereto and their successors or assigns, any rights or remedies under or by reason of this Agreement. 12.13 NO RECOURSE AGAINST OTHERS. This Agreement is solely and -------------------------- exclusively between Purchaser and Seller and any obligations of Seller created herein shall be 37 the obligations solely of Seller. The directors, officers, employees, representatives and affiliates of Seller or the Company shall have no liability for any obligations of Seller under this Agreement or for any Damages based on, in respect of or by reason of this Agreement or Seller's obligations hereunder or any breach thereof. Purchaser, for itself and its affiliates (including, post-Closing, the Company), hereby waives, remises and releases each director, officer, employee, representative and affiliate of Seller and the Company from all such obligations and Damages. The directors, officers, employees, representatives and affiliates of Purchaser (other than the Company) shall have no liability for any obligations of Purchaser or the Company under this Agreement or for any Damages based on, in respect of or by reason of this Agreement or Purchaser's or the Company's obligations hereunder or any breach thereof. Seller, for itself and its affiliates, hereby waives, remises and releases each director, officer, employee, representative and affiliate of Purchaser (other than the Company) from all such obligations and Damages. 12.14 MUTUAL AGREEMENT. This Agreement embodies the arm's- ---------------- length negotiation and mutual agreement between the parties hereto and shall not be construed against any party as having been drafted by it. 12.15 SEVERABILITY. If in any jurisdiction, any provision of ------------ this Agreement or its application to any party or circumstance is restricted, prohibited or unenforceable, such provision shall, as to such jurisdiction, be ineffective only to the extent of such restriction, prohibition or unenforceability without invalidating the remaining provisions hereof and without affecting the validity or enforceability of such provision in any other jurisdiction or its application to other parties or circumstances. In addition, if any one or more of the provisions contained in this Agreement shall for any reason in any jurisdiction be held to be excessively broad as to time, duration, geographical scope, activity or subject, it shall be construed, by limiting and reducing it, so as to be enforceable to the extent compatible with the applicable law of such jurisdiction as it shall then appear. 38 IN WITNESS WHEREOF, the parties hereto have executed this Agreement, each by its duly authorized officer, all as of the day and year first above written. DOCKS U.S.A., INC. /s/ GUY GEFFROY By:______________________________ Title: Treasurer PH HOLDING CORPORATION /s/ PETER J. SODINI By: _____________________________ Title: President LIL' CHAMP FOOD STORES, INC. solely for the purpose of Section 10.03 /s/ EDDIE JACKSON By: _____________________________ Title: President 39 EX-2.2 4 ASSIGNMENT & ASSUMPTION AGREEMENT EXHIBIT 2.2 ASSIGNMENT AND ASSUMPTION AGREEMENT This ASSIGNMENT AND ASSUMPTION AGREEMENT (the "Agreement") is made and entered into as of this 23rd day of October 1997, by and between PH HOLDING CORPORATION, a North Carolina corporation ("Assignor"), and THE PANTRY, INC., a Delaware corporation and owner of all of the outstanding capital stock of Assignor ("Assignee"), with reference to the following recitals of fact: R E C I T A L S: WHEREAS, Assignor and Docks U.S.A., Inc., a Nevada corporation ("Seller"), have entered into that certain Stock Purchase Agreement, dated as of August 26, 1997 (the "Purchase Agreement"), a copy of which is attached hereto as Exhibit A and made a part hereof, wherein Seller has agreed to sell and --------- Assignor has agreed to purchase all of the outstanding capital stock of Lil' Champ Food Stores, Inc., a Florida corporation and wholly-owned subsidiary of Seller (the "Acquisition"), on the terms and conditions contained therein. WHEREAS, Assignor desires to assign, and Assignee desires to assume all of Assignor's rights, interests and obligations under the Purchase Agreement, as hereinafter set forth. A G R E E M E N T: NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereto agree as follows: 1. Assignor hereby sells, assigns, transfers and conveys to Assignee all of its right, title and interest in, to and under the Purchase Agreement. 2. Assignee does hereby accept such assignment of the Purchase Agreement and covenants for itself and its successors and assigns that it will keep, observe, perform and does hereby assume all of the terms, covenants, conditions, duties, liabilities and obligations contained in the Purchase Agreement to be performed, observed or kept on the part of Assignor under the Purchase Agreement. 3. Nothing in this Agreement shall relieve Assignor of any of its obligations under the Purchase Agreement. 4. Assignor represents and warrants to Assignee that the Purchase Agreement attached hereto as Exhibit A (a) is the true, correct and complete --------- agreement between Assignor and Seller with respect to the Acquisition, and (b) is currently in full force and effect with no defaults by Assignor thereunder. Assignor further represents and warrants to Assignee that Assignor (c) has complied with all of its obligations under the Purchase Agreement, and (d) is the current holder of the rights of "Purchaser" under the Purchase Agreement, and has not previously assigned any of its rights as "Purchaser" under the Purchase Agreement to any other party. 5. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one agreement. 6. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. 7. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to conflict of law provisions. [Remainder of page intentionally left blank.] 2 IN WITNESS WHEREOF, the undersigned have entered into this Agreement as of the day and year first indicated above. "ASSIGNOR": PH HOLDING CORPORATION, a North Carolina corporation By: /s/ Peter J. Sodini ------------------------------------ Name: Peter J. Sodini Title: President "ASSIGNEE": THE PANTRY, INC., a Delaware corporation By: /s/ Peter J. Sodini ------------------------------------ Name: Peter J. Sodini Title: President and Chief Executive Officer 3 EX-3.1 5 RESTATED CERTIFICATE OF INC. OF THE PANTRY EXHIBIT 3.1 RESTATED CERTIFICATE OF INCORPORATION OF THE PANTRY, INC. The Pantry, Inc., a corporation organized and existing under the laws of the State of Delaware, hereby certifies the following: 1. The name of the Corporation is "The Pantry, Inc." and the name under which the Corporation was originally incorporated is "Montrose Pantry Acquisition Corporation." The date of filing of its original Certificate of Incorporation with the Secretary of State was July 13, 1987. 2. This Restated Certificate of Incorporation restates and integrates and further amends the Certificate of Incorporation of this Corporation. The text of the Certificate of Incorporation as amended or supplemented heretofore and as further amended hereby shall read as herein set forth in full: I. The name of the Corporation is THE PANTRY, INC. II. The address of its registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company. III. The nature of the business or purposes to be conducted or promoted by the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. IV. A. The Corporation shall have the authority to issue Three Hundred Thousand shares of common stock with the par value of one cent ($0.01) per share. B. The Corporation shall also have the authority to issue One Hundred and Fifty Thousand shares of preferred stock with a par value of one cent ($0.01) per share in one or more series with such preferences, limitations and relative rights as may be determined by the board of directors prior to the issuance of such stock. V. A director of the Corporation shall not be personally liable for monetary damages for breach of his duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law or (iv) for any transaction from which the director derives an improper personal benefit. VI. A. Right to Indemnification. Each person who was or is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal administrative or investigative (hereinafter a "proceeding"), by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment), against all expense, liability and loss (including attorneys' fees, judgements, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith and such indemnification shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of his or her heirs, executors and administrators; provided, however, that, except as provided in paragraph B. hereof, the Corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated -2- by such person only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. The right to indemnification conferred in this Section shall be a contract right and shall include the right to be paid by the Corporation the expense incurred in defending any such proceeding in advance of its final disposition; provided, however, that, if the Delaware General Corporation Law so requires, the payment of such expenses incurred by a director or officer in his or her capacity as a director of officer (and not in any other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of a proceeding, shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such director of officer, to repay all amounts so advanced if it shall ultimately be determined that such director of officer is not entitled to be indemnified under this Section or otherwise. The Corporation may, by action of its Board of Directors, provide indemnification to employees and agents of the Corporation with the same scope and effect as the foregoing indemnification of directors and officers. B. Right of Claimant to Bring Suit. If a claim under paragraph A. of this Section is not paid in full by the Corporation within thirty days after a written claim has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim, and if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the Corporation) that the claimant has not met the standards of conduct which make it permissible under the Delaware General Corporation Law for the Corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the claimant has not met such applicable standard or conduct, shall be a defense to the action or create a presumption -3- that the claimant has not met the applicable standard of conduct. C. Non-Exclusivity of Rights. The right to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Section shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, by-law, agreement, vote of stockholders or disinterested directors or otherwise. D. Insurance. The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any such expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law. VII. In furtherance and not in limitation of the powers conferred by statute, the board of directors of the Corporation shall have the power to adopt, amend or repeal the bylaws of the Corporation. VIII. Section 203 of the Delaware General Corporation Law shall not be applicable to the Corporation. IX. The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation in the manner now or hereafter prescribed by statute and all rights conferred upon the stockholders hereunder granted and subject to this reservation. 4. This Restated Certificate of Incorporation was duly approved by the stockholders in accordance with Section 228 of the General Corporation Law of the State of Delaware. -4- IN WITNESS WHEREOF, the said The Pantry, Inc. has caused this certificate to be signed by Eugene B. Horne, Jr., its President and attested by Mark W. King, Secretary, this 5th day of August, 1994. THE PANTRY, INC. /s/ Eugene B. Horne, Jr. ------------------------------- ATTEST: Eugene B. Horne, Jr., President /s/ Mark C. King - ------------------------- Mark C. King, Secretary -5- CERTIFICATE OF DESIGNATION OF PREFERENCES OF THE SERIES A PREFERRED STOCK OF THE PANTRY, INC. - -------------------------------------------------------------------------------- Pursuant to Section 151 of the General Corporation Law of the State of Delaware - -------------------------------------------------------------------------------- The undersigned, W. Clay Hamner, does hereby certify as follows: A. That W. Clay Hamner is, and at all times herein mentioned was, the duly elected and acting Chairman and Chief Executive Officer of The Pantry, Inc., a Delaware corporation (the "Corporation"). B. That the following resolution was duly adopted by the Board of Directors of the Corporation (the "Board"): RESOLVED, that pursuant to authority conferred upon the Board of Directors by the Certificate of Incorporation of the Corporation, there is hereby created a series of preferred stock of the Corporation, designated as "Series A Preferred Stock", which series shall consist of Fifty Thousand (50,000) shares, $0.01 par value per share. In addition to those set forth in the Certificate of Incorporation of the Corporation, the shares of Series A Preferred Stock shall have the powers and preferences, the participating, optional or other special rights, and the qualifications, limitations or restrictions set forth below: 1. Definitions. As used in this resolution, the following terms ----------- shall have the meanings indicated: (a) "Board" shall mean the Board of Directors of the Corporation. (b) "Common Stock" shall mean the Common Stock, $0.01 par value, per share issued or to be issued by the Corporation. (c) "Corporation" shall mean The Pantry, Inc. (d) "Original Issue Date" shall mean the date of the original issuance of any shares of Series A Preferred Stock. (e) "Series A Preferred Stock" shall mean the Series A Preferred Stock, $0.01 par value per share, issued or to be issued by the Corporation. (f) "Subsidiary" shall mean any corporation at least fifty percent (50%) of whose outstanding voting stock shall at the time be owned directly or indirectly by the Corporation, or by one or more Subsidiaries of the Corporation. 2. Dividends. --------- (a) The holders of shares of Series A Preferred Stock then outstanding shall be entitled to receive, when, as and if declared by the Board, out of funds legally available for the payment of dividends, cumulative dividends in an amount equal to Sixty Dollars ($60.00) per share per semi-annual calendar period, plus an amount determined by applying a twelve percent (12%) annual rate compounded semi-annually to any accrued but unpaid dividend amount from the last day of the semi-annual calendar period when such dividend accrues to the actual date of payment of such dividend, and no more. Such dividends on the outstanding shares of Series A Preferred Stock shall be payable at such intervals as the Board may from time to time determine (each of such dates being a "dividend payment date") to the persons who are holders of record of outstanding shares of Series A Preferred Stock on the respective dividend payment dates. Each of such semi-annual dividends (whether payable in cash or in stock) shall be fully cumulative and shall accrue from day to day (whether or not declared) from the first (1st) day of each semi-annual calendar period in which such dividend may be payable as herein provided, except that with respect to the first semi-annual calendar dividend, such dividend shall accrue from the Original Issue Date. Dividends, when, as and if declared, may, at the discretion of the Board, be payable in cash or by issuing additional shares, including fractional shares, of Series A Preferred Stock to the holders of record of outstanding shares of Series A Preferred Stock, at the rate of one share for each One Thousand Dollars ($1,000.00) of dividend, and the issuance of such additional shares shall constitute full payment of such dividends, with all holders entitled to receive the same proportions of cash and shares of Series A Preferred Stock if a dividend is payable in cash and shares or Series A Preferred Stock. No dividend shall be declared, set aside or paid to holders of any of the outstanding shares of the capital stock of the Corporation, including without limitation, any outstanding shares of Common Stock, unless at the same time a dividend in an amount equal to all accrued but unpaid dividends as set forth above is declared and paid to the holders of outstanding shares of Series A Preferred Stock. (b) All dividends paid with respect to the outstanding shares of Series A Preferred Stock pursuant to subparagraph 2(a) shall be paid pro rata to the holders entitled thereto. (c) Holders of outstanding fractional shares of Series A Preferred Stock shall be entitled to a ratably proportionate amount of all dividends accruing with respect to each outstanding share of Series A Preferred Stock pursuant to subparagraph 2(a), and all of such dividends with respect to such outstanding fractional shares shall be fully cumulative and shall accrue (whether or not declared) and shall be payable in the same manner and at such times as provided for in subparagraph 2(a). 2. 3. Liquidation Rights of Series A Preferred Stock. ---------------------------------------------- (a) In the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the holders of outstanding shares of Series A Preferred Stock shall be entitled to be paid out of the assets of the Corporation available for distribution to its stockholders, whether such assets are capital, surplus or earnings, before any payment or declaration and setting apart for payment of any amount shall be made in respect of the outstanding shares of Common Stock, an amount equal to One Thousand Dollars ($1,000.00) per share of Series A Preferred Stock then outstanding, plus all accrued but unpaid dividends thereon to the date fixed for liquidation (whether or not declared), and no more. If upon any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the assets to be distributed among the holders of the outstanding shares of Series A Preferred Stock shall be insufficient to permit the payment to such stockholders of the full preferential amounts aforesaid, then the entire assets of the Corporation to be distributed shall be distributed ratably among the holders of outstanding shares of Series A Preferred Stock based on the full preferential amounts for the number of outstanding shares of Series A Preferred Stock held by each holder. (b) After the payment or setting apart of the payment to the holders of outstanding shares of Series A Preferred Stock of the preferential amounts aforesaid, the holders of outstanding shares of Common Stock, after payment or setting apart of any payments to outstanding shares of preferred stock which are junior to the Series A Preferred Stock, shall be entitled to receive ratably all the remaining assets of the Corporation. (c) A consolidation or merger of the Corporation with or into any other corporation or corporations or a sale of all or substantially all of the assets of the Corporation shall not be deemed to be a liquidation, dissolution or winding up of the Corporation as those terms are used in this paragraph 3 unless such consolidation, merger or sale shall be in connection with a dissolution or winding up of the Corporation. (d) The payment of preferential amounts pursuant to this paragraph 3 with respect to each outstanding fractional share of Series A Preferred Stock shall be equal to a ratably proportionate amount of the preferential amount payable with respect to each outstanding share of Series A Preferred Stock. 4. Voluntary Redemption by the Corporation. --------------------------------------- (a) The Corporation, at the option of the Board, may at any time or from time to time redeem the outstanding shares of Series A Preferred Stock in whole or in part from any source of funds legally available therefor. (b) The redemption price for each outstanding share of Series A Preferred Stock shall be One Thousand Dollars ($1,000.00) plus an amount in cash equal to all accrued but unpaid dividends to the date of such redemption (whether or not declared) (the "Redemption Price"). 3. (c) In the event of a redemption of only a part of the outstanding shares of Series A Preferred Stock, the Corporation shall effect such redemption pro rata according to the number of shares held by each holder of outstanding shares of Series A Preferred Stock. (d) At least ten (10) days and not more than sixty (60) days prior to the date fixed for any redemption of the outstanding shares of Series A Preferred Stock (the "Redemption Date"), written notice (the "Redemption Notice" and the Series A Preferred Stock referenced in such Redemption Notice shall be referred to herein as the "Redeemed Stock") shall be mailed, postage prepaid, to each holder of record of the outstanding shares of Redeemed Stock at his or her post office address last shown on the records of the Corporation. The Redemption Notice shall state: (i) Whether all or less than all the outstanding shares of the Series A Preferred Stock are to be redeemed and the total number of shares being redeemed; (ii) The number of outstanding shares of Redeemed Stock held by the holder which the Corporation intends to redeem; (ii) The Redemption Date and Redemption Price; and (iv) That the holder is to surrender to the Corporation, in the manner and at the place designated, the certificate or certificates representing the outstanding shares of Redeemed Stock to be redeemed. (e) On or before the Redemption Date, each holder of outstanding shares of Redeemed Stock shall surrender the certificate or certificates representing such shares to the Corporation, in the manner and at the place designated in the Redemption Notice, and thereupon the Redemption Price for such shares shall be payable to the order of the person whose name appears on such certificate or certificates as the owner thereof, and each surrendered certificate shall be cancelled and retired. In the event less than all of the shares represented by any such certificate or certificates are redeemed, a new certificate or certificates shall be issued representing the unredeemed shares. (f) On or prior to the Redemption Date, the Company shall set apart, as a sinking fund, a sum equal to the Redemption Price of all of the outstanding shares of Redeemed Stock, with irrevocable instructions and authority to the appropriate officers of the Corporation to pay, on or after the Redemption Date, the Redemption Price to the respective holders upon the surrender of their share certificate or certificates. The establishment of the sinking fund shall constitute full payment of the shares to the holders thereof, and from and after the date of the establishment of such sinking fund, the shares shall be deemed to be no longer outstanding, and the holders thereof shall cease to be stockholders with respect to such shares and shall have no rights with respect thereto except the rights to receive payment of the Redemption Price of the shares, without interest, upon surrender of their certificate or certificates therefor. Any monies so set apart and unclaimed at the end of one (1) year from 4. the Redemption Date shall no longer be set aside as a sinking fund and shall become unallocated assets of the Corporation. 5. Voting Rights. Except as otherwise expressly provided herein or ------------- as required under Delaware law, shares of Series A Preferred Stock (a) shall not be entitled to vote on any matter coming for a vote before the stockholders of the Corporation and (b) shall not be included in determining the number of shares voting or entitled to vote on any such matters. 6. Exchange. -------- (a) Subject to the limitation set forth in this subparagraph 6(a), the Corporation, at its sole option, may require the outstanding shares of Series A Preferred Stock, including fractional shares thereof, to be exchanged, which exchange may be accomplished in whole or from time to time in part, on any dividend payment date (as described in subparagraph 2(a) hereof), for junior subordinated notes due 2005 of the Corporation paying interest semi-annually at a rate equal to twelve percent (12%) per annum (the "Notes"). The Notes shall be subject to mandatory redemption of the entire principal amount of each such Note on the date which is ten (10) years from Original Issue Date. No such exchange may be required by the Corporation unless all accrued but unpaid dividends (whether or not declared) on the outstanding shares of Series A Preferred Stock (whether or not such shares of Series A Preferred Stock are required to be exchanged) have been paid or will be paid concurrently with the exchange. The Notes may contain such subordination provisions as may be authorized by the Board. (b) The Corporation shall effect the exchange it is permitted to require under subparagraph 6(a) pro rata according to the number of shares held by each holder of outstanding shares of Series A Preferred Stock. Holders of outstanding shares of Series A Preferred Stock which are required to be exchanged will be entitled to receive One Thousand Dollars ($1,000.00) principal amount of the Notes in exchange for each outstanding share of Series A Preferred Stock (with appropriate adjustments for fractional shares) held by them which is required to be exchanged (the "Exchange Price"). Following any such exchange, the rights of holders of outstanding shares of Series A Preferred Stock as stockholders of the Corporation shall cease with respect to those outstanding shares of Series A Preferred Stock which are to be exchanged (except the right to receive on the date of exchange an amount equal to the amount of accrued and unpaid dividends to the date of exchange on the shares which are required to be exchanged), and the person or persons entitled to receive the Notes issuable upon exchange shall be treated, with respect to such Notes, for all purposes as the holder of such Notes. (c) At least ten (10) days and not more than sixty (60) days prior to the date fixed for any exchange of the outstanding shares of Series A Preferred Stock (the "Exchange Date"), written notice (the "Exchange Notice" and the Series A Preferred Stock referenced in such Exchange Notice shall be referred to herein as the "Exchanged Stock") shall be mailed, postage prepaid, to each holder of record of the outstanding shares of Exchanged Stock at his or her post office address last shown on the records of the Corporation. The Exchange Notice shall state: 5. (i) The percentage of the outstanding shares of the Series A Preferred Stock which are being required to be exchanged; (ii) The number of outstanding shares of Exchanged Stock held by the holder which the Corporation intends to exchange; (ii) The Exchange Date and Exchange Price; and (iv) That the holder is to surrender to the Corporation, in the manner and at the place designated, his or her certificate or certificates representing the outstanding shares of Exchanged Stock to be exchanged. (d) On or before the Exchange Date, each holder of outstanding shares of Exchanged Stock shall surrender the certificate or certificates representing such shares to the Corporation, in the manner and at the place designated in the Exchange Notice, and thereupon the Exchange Price for such shares shall be delivered to the person whose name appears on such certificate or certificates as the owner thereof, and each surrendered certificate shall be cancelled and retired. The shares to be exchanged shall be deemed to be no longer outstanding from and after the Exchange Date and the holders thereof shall cease to be stockholders with respect to such shares and shall have no rights with respect thereto except the rights to receive the Exchange Price upon surrender of their certificate or certificates therefor. In the event less than all of the shares represented by any such certificate or certificates are exchanged, a new certificate or certificates shall be issued representing the unexchanged shares. 7. Restrictions and Limitations. ---------------------------- (a) The Corporation shall not, without the consent of the holders of a majority of the outstanding shares of Series A Preferred Stock: (i) Change or alter, in a manner so as to affect adversely, the exchange, dividend, liquidation, voting or redemption rights or obligations of the holders of outstanding shares of Series A Preferred Stock provided for herein; or (ii) Amend this paragraph 7(a). (b) Except as otherwise expressly provided in this paragraph 7, any changes or amendments to the powers, preferences, and relative, participating, optional or other special rights, or the qualifications, limitations or restrictions thereof, with respect to the outstanding shares of Series A Preferred Stock may be made in accordance with applicable law. 6. IN WITNESS WHEREOF, the Corporation has caused this Certificate of Designation of Preferences of the Series A Preferred Stock of the Corporation to be signed by its duly authorized officer this 29/th/ day of November, 1995. /s/ W. Clay Hamner ------------------ W. Clay Hamner, Chairman and Chief Executive Officer NORTH CAROLINA DURHAM COUNTY I, Susan Calloway Posg, a Notary Public of the aforesaid County and State, do hereby certify that W. Clay Hamner personally appeared before me this day and acknowledged that he is the Chairman and Chief Executive Officer of The Pantry, Inc., a Delaware corporation, and that by authority duly given and as an act of the Corporation, the foregoing instrument was signed in its name by its Chairman and Chief Executive Officer, and sealed with its common corporate seal. Witness my hand and notarial seal this 29/th/ day of November, 1995. /s/ Susan Calloway Posg ------------------------------------------ Notary Public [seal] My Commission Expires 11/20/99 - -------------------------------- 7. CERTIFICATE OF AMENDMENT OF CERTIFICATE OF DESIGNATION OF THE SERIES A PREFERRED STOCK OF THE PANTRY, INC. The Pantry, Inc. (the "Company"), a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, does hereby certify: FIRST: That the Board of Directors of the Company (the "Board") ----- adopted resolutions proposing and declaring advisable each of the amendments to the Company's Certificate of Designation of the Series A Preferred Stock filed with the Delaware Secretary of State on November 30, 1995 at 12:40 p.m. with respect to its Series A Preferred Stock, $0.01 par value per share (the "Series A Preferred Stock"), set forth below, and that such amendments were approved by a majority of the holders of the Series A Preferred Stock and notice was provided to such holders pursuant to the applicable provisions of Section 228 of the General Corporation Law of the State of Delaware. SECOND: A new definition shall be added to Section 1 as follows: ------ (g) "Series B Preferred Stock" shall mean the Series B Preferred Stock, $0.01 par value per share, issued or to be issued by the Corporation. THIRD: The last sentence of Section 2(a) shall be deleted and ----- replaced with the following: Except with respect to the declaration, set aside or payment of a dividend to the holders of outstanding shares of Series B Preferred Stock, no dividend shall be declared, set aside or paid to holders of any of the outstanding shares of the capital stock of the Corporation, including without limitation, any outstanding shares of Common Stock, unless at the same time a dividend in an amount equal to all accrued but unpaid dividends as set forth above is declared and paid to the holders of outstanding shares of Series A Preferred Stock. FOURTH: A new clause (g) shall be added to Section 4 as follows: ------ Notwithstanding anything contained in this Section 4 top the contrary, the Company shall not redeem any shares of Series A Preferred Stock unless and until all accrued dividends due on shares of Series B Preferred Stock, if any, have been paid in full. FIFTH: That the aforesaid amendment was duly adopted in accordance ----- with the applicable provisions of Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, the Company has caused this Certificate to be executed this 26th day of December, 1996. THE PANTRY, INC., a Delaware corporation /s/ Peter J. Sodini --------------------------------------- Peter J. Sodini Chief Executive Officer 2. CERTIFICATE OF DESIGNATION OF PREFERENCES OF THE SERIES B PREFERRED STOCK OF THE PANTRY, INC. ------------------------------ Pursuant to Section 151 of the General Corporation Law of the State of Delaware ------------------------------ The undersigned, Peter J. Sodini and Mark C. King, do hereby certify as follows: A. That Peter J. Sodini is, and at all times herein mentioned was, the duly elected and acting Chief Executive Officer of The Pantry, Inc., a Delaware corporation (the "Corporation"), and that Mark C. King is, and at all times herein mentioned was, the duly elected and acting Secretary of the Corporation. B. That the following resolution was duly adopted by the Board of Directors of the Corporation (the "Board"): RESOLVED, that pursuant to authority conferred upon the Board of Directors by the Certificate of Incorporation of the Corporation, there is hereby created a series of preferred stock of the Corporation, designated as "Series B Preferred Stock", which series shall consist of Twenty Five Thousand (25,000) shares, $0.01 par value per share. In addition to those set forth in the Certificate of Incorporation of the Corporation, the shares of Series B Preferred Stock shall have the powers and preferences, the participating, optional or other special rights, and the qualifications, limitations or restrictions set forth below: 1. Definitions. As used in this resolution, the following terms ----------- shall have the meanings indicated: (a) "Board" shall mean the Board of Directors of the Corporation. (b) "Common Stock" shall mean the Common Stock, $0.01 par value, per share issued or to be issued by the Corporation. (c) "Corporation" shall mean The Pantry, Inc. (d) "Liquidation Event" shall mean any transaction or series of related transactions that result in the sale of fifty percent (50%) or more of the capital stock of the Corporation or of all or substantially all of the assets thereof and any merger, consolidation or similar transaction. (e) "Original Issue Date" shall mean the date of the original issuance of any shares of Series B Preferred Stock. (f) "Series A Certificate" shall mean the Certificate of Designation of Preferences of the Series A Preferred Stock, as filed with the Secretary of State of the State of Delaware on November 30, 1995. (g) "Series A Preferred Stock" shall mean the Series A Preferred Stock, $0.01 par value per share, issued by the Corporation pursuant to the Series A Certificate. (h) "Series B Preferred Stock" shall mean the Series B Preferred Stock, $0.01 par value per share, issued or to be issued by the Corporation. 2. Dividends. --------- (a) The holders of shares of Series B Preferred Stock then outstanding shall be entitled to receive, when, as and if declared by the Board, out of funds legally available for the payment of dividends, cumulative dividends in an amount equal to Thirty-Two Dollars and Fifty Cents ($32.50) per share per quarterly period, plus an amount determined by applying a thirteen percent (13%) annual rate compounded quarterly to any accrued but unpaid dividend amount from the last day of the quarterly period when such dividend accrues to the actual date of payment of such dividend, and no more. Such dividends on the outstanding shares of Series B Preferred Stock shall be payable at such intervals as the Board may from time to time determine (each of such dates being a "dividend payment date") to the persons who are holders of record of outstanding shares of Series B Preferred Stock on each of the respective dividend payment dates. Each of such quarterly dividends shall be fully cumulative and shall accrue from day to day (whether or not declared) from the first (1st) day of each quarterly period in which such dividend may be payable as herein provided, except that with respect to the first quarterly dividend due on the Series B Preferred Stock, such dividend shall accrue from the Original Issue Date. Dividends, when, as and if declared, may, at the discretion of the Board, be payable in cash or by issuing additional shares, including fractional shares, of Series B Preferred Stock to the holders of record of outstanding shares of Series B Preferred Stock, at the rate of one share for each One Thousand Dollars ($1,000) of dividend, and the issuance of such additional shares shall constitute full payment of such dividends, with all holders entitled to receive the same proportions of cash and shares of Series B Preferred Stock if a dividend is payable in cash and shares or Series B Preferred Stock. No dividend shall be declared, set aside or paid to holders of any of the outstanding shares of the capital stock of the Corporation, including without limitation, any outstanding shares of Series A Preferred Stock or Common Stock, unless at the same time a dividend in an amount equal to all accrued but unpaid dividends as set forth above is declared and paid to the holders of outstanding shares of Series B Preferred Stock. 2 (b) All dividends paid with respect to the outstanding shares of Series B Preferred Stock pursuant to subparagraph 2(a) shall be paid pro rata to the holders entitled thereto. (c) Holders of outstanding fractional shares of Series B Preferred Stock shall be entitled to a ratably proportionate amount of all dividends accruing with respect to each outstanding share of Series B Preferred Stock pursuant to subparagraph 2(a), and all of such dividends with respect to such outstanding fractional shares shall be fully cumulative and shall accrue (whether or not declared) and shall be payable in the same manner and at such times as provided for in subparagraph 2(a). 3. Liquidation Rights of Series B Preferred Stock. ---------------------------------------------- (a) In the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the holders of outstanding shares of Series B Preferred Stock, shall be entitled to be paid out of the assets of the Corporation available for distribution to its stockholders, whether such assets are capital, surplus or earnings, before any payment or declaration and setting apart for payment of any amount shall be made in respect of the outstanding shares of any other class or series of the Corporation's capital stock, including without limitation, shares of Series A Preferred Stock and of Common Stock, an amount equal to One Thousand Dollars ($1,000) per share of Series B Preferred Stock then outstanding, plus all accrued but unpaid dividends thereon to the date fixed for liquidation (whether or not declared), and no more. If upon any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the assets to be distributed among the holders of the outstanding shares of Series B Preferred Stock shall be insufficient to permit the payment to such stockholders of the full preferential amounts aforesaid, then the entire assets of the Corporation to be distributed shall be distributed ratably among the holders of outstanding shares of Series B Preferred Stock based on the full preferential amounts for the number of outstanding shares of Series B Preferred Stock held by each holder. (b) After the payment or setting apart of the payment to the holders of outstanding shares of Series B Preferred Stock of the preferential amounts aforesaid, the holders of outstanding shares of any other class or series of the capital stock of the Corporation shall be entitled to receive the remaining assets of the Corporation ratably, in order of seniority thereof. (c) Following a Liquidation Event, the holder of a majority of the outstanding shares of Series B Preferred Stock may, in the discretion thereof, deem such Liquidation Event a liquidation, dissolution or winding up of the Corporation that triggers the rights of such holders, as further set forth in Section 3(a) above. (d) The payment of preferential amounts pursuant to this paragraph 3 with respect to each outstanding fractional share of Series B Preferred Stock 3 shall be equal to a ratably proportionate amount of the preferential amount payable with respect to each outstanding share of Series B Preferred Stock. 4. Voting Rights. At all meetings of the stockholders of the ------------- Corporation and in the case of any actions of stockholders in lieu of a meeting, each holder of shares of Series B Preferred Stock shall be entitled to ten (10) votes per share of Series B Stock held thereby. Except as otherwise expressly provided in Section 5 below or as required by law, the holders of Common Stock and Series B Preferred Stock shall vote together as a single class in accordance with the preceding sentence, and neither the Common Stock nor the Series B Preferred Stock shall be entitled to vote as a separate class on any matter to be voted on by stockholders of the Corporation. 5. Restrictions and Limitations. ---------------------------- (a) The Corporation shall not, without the consent of the holders of a majority of the outstanding shares of Series B Preferred Stock, voting separately as a single class: (i) Issue any securities with equal or superior rights with respect to dividends or liquidation preference; (ii) Repurchase any shares of, make any dividend or distribution to, or any reclassification with respect to any of the Corporation's outstanding shares of capital stock, except that no such vote shall be required with respect to any such action taken in accordance with the Series A Certificate with respect to shares of Series A Preferred Stock; (iii) Amend or modify the Corporation's Articles of Incorporation or Bylaws so as to adversely affect the relative rights, preferences, qualification, limitations or restrictions or the Series B Preferred Stock; and (iv) Amend this paragraph 5(a). (b) Except as otherwise expressly provided in this paragraph 5, any changes or amendments to the powers, preferences, and relative, participating, optional or other special rights, or the qualifications, limitations or restrictions thereof, with respect to the outstanding shares of Series B Preferred Stock may be made in accordance with applicable law. 4 IN WITNESS WHEREOF, the Corporation has caused this Certificate of Designation of Preferences of the Series B Preferred Stock of the Corporation to be signed and attested by its duly authorized officers this 26th day of December, 1996. /s/ Peter J. Sodini --------------------------- Peter J. Sodini Chief Executive Officer Attest: /s/ Mark C. King - ---------------------- Mark C. King Secretary 5 EX-3.3 6 CERTIFICATE OF INCORPORATION OF SANDHILLS, INC. EXHIBIT 3.3 CERTIFICATE OF INCORPORATION OF SANDHILLS, INC. FIRST: The name of the corporation is Sandhills, Inc. SECOND: The corporation's registered office in the State of Delaware is located at 900 Market Street, Second Floor, Wilmington, County of New Castle, Delaware 19801. The registered agent at that address is Delaware Trust Capital Management, Inc. THIRD: The purpose of the corporation is to engage in any lawful act or activity in which a corporation organized under the Delaware General Corporation Law may engage; provided, that the corporation shall engage in no activity other than the maintenance and management of intangible investments and the collection and distribution of the income from such intangible investments. FOURTH: The corporation shall have the authority to issue One Thousand (1,000) shares of common stock, having a par value of One Cent ($0.01) per share and the corporation shall not change the authorization of the number of shares of stock, of any kind, which the corporation may issue without the unanimous consent of all of the stockholders of the corporation. FIFTH: To the fullest extent permitted by Delaware General Corporation Law, as currently in effect or as hereafter enacted, each director of the corporation shall incur no personal liability to the corporation or its stockholders for monetary damages for any breach of fiduciary duty as a director. SIXTH: To the fullest extent permitted by Delaware General Corporation Law, as currently in effect or as hereafter enacted, each director, officer, employee and agent of the corporation shall be indemnified and held harmless by the corporation. SEVENTH: The business and affairs of the corporation shall be managed by and under the direction of the Board of Directors, the number of members of which shall be as set forth in the bylaws of the corporation. Unless required by the bylaws of the corporation, the directors need not be elected by ballot. EIGHTH: Each meeting of the stockholders and directors of the corporation shall be held within Delaware. The books of the corporation physically shall be maintained in Delaware. NINTH: Neither the certificate of incorporation nor the bylaws of the corporation may be amended without the unanimous consent of all of the stockholders of the corporation. 1 TENTH: The named and mailing address of the incorporator is Michael J. Semes, Esquire, Suite 603, 1300 North Market Street, Wilmington, Delaware 19801. ELEVENTH: The powers of the incorporator shall terminate upon the appointment of directors. The undersigned, incorporator of the corporation, for the purpose of forming a corporation under the laws of the State of Delaware hereby files this certificate of incorporation, and accordingly sets his hand and seal hereunto this 24th day of November, 1992. /s/ Michael J. Semes -------------------- Michael J. Semes Incorporator 2 EX-3.4 7 BYLAWS OF SANDHILLS EXHIBIT 3.4 BYLAWS OF SANDHILLS, INC. As adopted November 24, 1992 TABLE OF CONTENTS -----------------
PAGE ---- ARTICLE I - STOCKHOLDERS' MEETINGS................................... 1 (S)1. General.................................................. 1 (S)2. Annual Meetings.......................................... 1 (S)3. Special Meetings......................................... 1 (S)4. Quorum................................................... 1 (S)5. Proxies.................................................. 2 (S)6. Voting................................................... 2 (S)7. Notice of Meetings....................................... 2 (S)8. Written Consent in Lieu of Meeting....................... 2 (S)9. List of Stockholders..................................... 2 ARTICLE II - DIRECTORS................................................ 3 (S)1. Number and Term.......................................... 3 (S)1.1 General......................................... 3 (S)1.2 Increase in Number of Directors................. 3 (S)1.3 Decrease in Number of Directors................. 3 (S)1.4 Vacancies....................................... 3 (S)2. Regular Meetings......................................... 4 (S)3. Special Meetings......................................... 4 (S)3.1 General......................................... 4 (S)3.2 Notice.......................................... 4 (S)4. Quorum................................................... 4 (S)5. Written Consent in Lieu of Meeting....................... 4 (S)6. Participation in Meeting by Conference Telephone......... 4 (S)7. Compensation............................................. 5 (S)8. Removal.................................................. 5 ARTICLE III - OFFICERS................................................. 5 (S)1. General.................................................. 5 (S)2. Salaries................................................. 5 (S)3. Term of Office........................................... 5 (S)4. President................................................ 5 (S)5. Vice President........................................... 6 (S)6. Secretary................................................ 6 (S)7. Treasurer................................................ 6 ARTICLE IV - CORPORATE RECORDS........................................ 6
-i- TABLE OF CONTENTS ----------------- (continued)
PAGE ---- ARTICLE V - STOCK CERTIFICATES....................................... 7 (S)1. General.................................................. 7 (S)2. Transfers................................................ 7 (S)3. Lost Certificates........................................ 7 (S)4. Record Date.............................................. 7 (S)4.1................................................... 7 (S)4.2................................................... 7 (S)4.3................................................... 8 (S)4.4................................................... 8 ARTICLE VI - DIVIDENDS................................................ 8 (S)1. Declaration and Payment.................................. 8 (S)2. Reserves................................................. 8 ARTICLE VII - NOTICE................................................... 8 (S)1. General.................................................. 8 (S)2. Waiver................................................... 8 ARTICLE VIII - MISCELLANEOUS............................................ 9 (S)1. Financial Transactions................................... 9 (S)2. Fiscal Year.............................................. 9 (S)3. Corporate Seal........................................... 9 (S)4. Reliance upon Books and Records.......................... 9 (S)5. Indemnification.......................................... 9
-ii- BYLAWS OF SANDHILLS, INC. As adopted by the incorporator on November 24, 1992 ************* ARTICLE I - STOCKHOLDERS' MEETINGS (S)1. General. ------- Each meeting of stockholders of the corporation shall be held at such place within Delaware as may be selected from time to time by the Board of Directors. (S)2. Annual Meetings. --------------- The annual meeting of the stockholders shall be held in November of each year on such specific date as determined by the Board of Directors. At the annual meeting, the stockholders shall elect Directors to succeed those Directors whose terms expire and shall transact such other business as may properly be brought before the meeting. (S)3. Special Meetings. ---------------- Special meetings of the stockholders may be called at any time by the President, the Board of Directors, a majority of the stockholders or as otherwise provided by the certificate of incorporation or the Delaware General Corporation Law ("DGCL") (the certificate of incorporation and DGCL are referred to hereinafter collectively as "law") and shall be held at such time and place within Delaware as he or they shall fix. Unless otherwise specified in the notice of such special meeting, any business may be brought before such meeting. (S)4. Quorum. ------ A majority of the outstanding shares of the corporation entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of stockholders. If less than a majority of the outstanding shares entitled to vote is represented at a meeting, a majority of the shares so represented may adjourn the meeting without further notice. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which -1- might have been transacted at the meeting as originally noticed. The stockholders present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. (S)5. Proxies. ------- Each stockholder entitled to vote at a meeting of stockholders may vote in person or by proxy authorized by an instrument in writing filed with the clerk of the meeting before the beginning of such meeting. (S)6. Voting. ------ Each stockholder shall have one vote for each share entitled to vote which is registered in such stockholder's name on the record date for such meeting, except as otherwise provided in these bylaws or by law. All voting, except as otherwise provided by law, may be by a voice vote; provided, that any stockholder may in person or by proxy, demand that a vote be taken by written ballot. Unless otherwise provided for in these bylaws or by law, all matters voted upon shall be determined by a majority of shares of stock outstanding that are entitled to vote on such matter. (S)7. Notice of Meetings. ------------------ Whenever stockholders are required or permitted to take any action at a meeting, a written notice of the meeting shall be given which shall state the place within Delaware, date and time of the meeting. Unless otherwise provided in these bylaws or by law, written notice of each meeting shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting. (S)8. Written Consent in Lieu of Meeting. ---------------------------------- Any action required or permitted to be taken at any annual or special meeting of stockholders may be taken without a meeting, without prior notice and without vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. (S)9. List of Stockholders. -------------------- Upon request in writing by a stockholder, the officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares -2- registered in the name of each stockholder. No share of stock upon which any installment is due and unpaid on the record date for a meeting shall be voted at such meeting. The list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the principal office of the corporation. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. ARTICLE II - DIRECTORS (S)1. Number and Term. --------------- (S)1.1 General. ------- The number of Directors who shall constitute the Board of Directors shall be such number as the Board of Directors shall, in accordance with the provisions provided in these bylaws, from time to time determine, except that in the absence of any such determination, such number shall be three (3). A Director need not be a stockholder in the corporation. The Directors shall be elected by the stockholders at the annual meeting of stockholders of the corporation, and each Director shall be elected for the term of one year, and until his successor shall be elected and shall qualify or until his earlier resignation or removal. (S)1.2 Increase in Number of Directors. ------------------------------- The Board of Directors may increase the number of Directors between annual meetings of stockholders upon the approval of a majority of the Directors then serving. Such additional Directors shall be elected by a vote of a majority of those Directors then holding office. Directors so elected shall serve until the next annual meeting of stockholders and until their successors are elected and qualified. (S)1.3 Decrease in Number of Directors. ------------------------------- Any decrease in the authorized number of Directors shall only become effective by approval of at least 75% of the stockholders of the corporation. (S)1.4 Vacancies. --------- If the office of any Director becomes vacant for any reason, a majority of the Directors remaining in office, even if less than a quorum, may elect a successor Director for the unexpired term of the position that was vacated. -3- (S)2. Regular Meetings. ---------------- Regular meetings of the Board of Directors shall be held without notice at such time, date and place within Delaware as shall be determined by the Board of Directors. (S)3. Special Meetings. ---------------- (S)3.1 General. ------- Special meetings of the Board of Directors may be called by any Director, such person whom the Board of Directors may designate, or a majority of the stockholders of the corporation. Special meetings of the Board of Directors shall be held at such time, date and place within Delaware as the person or persons calling such meeting shall designate. (S)3.2 Notice. ------ Notice of a special meeting of the Board of Directors shall be given to each Director, by whom it is not waived, not less than twenty four (24) hours in advance of such meeting. Unless otherwise indicated in the notice of such meeting, any business may be transacted at such meeting. (S)4. Quorum. ------ A majority of the total number of directors then authorized, who are physically present in Delaware, shall constitute a quorum for the transaction of any business of the Board of Directors. (S)5. Written Consent in Lieu of Meeting. ---------------------------------- Any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the Board of Directors or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or committee. (S)6. Participation in Meeting by Conference Telephone. ------------------------------------------------ One or more Directors may participate in a meeting of the Board of Directors, of a committee of the Board of Directors or of the stockholders, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Participation in this manner shall constitute presence at such meeting only if such Director is physically present in Delaware. -4- (S)7. Compensation. ------------ Directors shall receive compensation, if any, for their service as Directors of the corporation in the manner determined by the Board of Directors. Nothing contained in these bylaws shall be construed to preclude any Director from serving the corporation in any other capacity and receiving compensation therefor. (S)8. Removal. ------- Any Director may be removed, with or without cause, by the holders of a majority of the shares then of record. ARTICLE III - OFFICERS (S)1. General. ------- The executive officers of the corporation shall be chosen by the Directors and shall be a President, Vice President, Secretary and Treasurer. The Board of Directors shall also choose a Chairman of the Board of Directors, and may elect such other officers as it shall deem necessary. Any number of offices may be held by the same person. (S)2. Salaries. -------- Salary, if any, of each officer of the corporation shall be fixed by the Board of Directors. (S)3. Term of Office. -------------- The officers of the corporation shall hold office for one year and until successors are chosen and qualified. Any officer or agent elected or appointed by the Board of Directors may be removed, with or without cause, by the Board of Directors whenever in the judgment of the Board of Directors the best interest of the corporation will be served thereby. (S)4. President. --------- The President shall be the chief executive officer of the corporation and shall have general and active management of the business of the corporation, shall see that all orders and resolutions of the Board are carried into effect, subject, however, to the right of the Board of Directors to delegate any specific powers, except such as may be by law exclusively conferred on the President, to any other officer or officers of the corporation. The President shall execute bonds and mortgages requiring a seal, under the seal of the corporation, and shall have the general power and duties of supervision and management usually vested in the office of President of a corporation. In the absence of the Chairman of the Board of Directors, the President shall preside at the meetings of the stockholders and the Board of Directors. -5- (S)5. Vice President. -------------- The Vice President shall assist the President in the carrying out of the President's duties as an officer of the corporation and shall have such other powers and duties as may be assigned to him by the Board of Directors. In the absence or disability of the President, the Vice President shall perform the duties and exercise the powers of the President. (S)6. Secretary. --------- The Secretary shall attend all meetings of the Board of Directors and all meetings of the stockholders and act as clerk thereof, and record all the votes of the corporation and the minutes of all its transactions in a book to be kept for that purpose, and shall perform like duties for all committees of the Board of Directors when required. The Secretary shall be given, or cause to be given, notice of all meetings of the stockholders and of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or President. The Secretary shall keep in safe custody the corporate seal of the corporation, and when authorized by the Board of Directors shall affix the same to such instrument requiring the seal of the corporation. (S)7. Treasurer. --------- The Treasurer shall have custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation, and shall keep the moneys of the corporation in a separate account to the credit of the corporation. The Treasurer, along with such other properly authorized officer, if appropriate, shall disburse the funds of the corporation as directed by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the President and Directors, at the regular meetings of the Board, or whenever they may require it, an account of all transactions and of the financial condition of the corporation. ARTICLE IV - CORPORATE RECORDS Any stockholder of record, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders, and its other books and records, and to make copies or extracts therefrom. A proper purpose shall mean a purpose reasonably related to such person's interest as a stockholder. In every instance where an attorney or other agent shall be the person who seeks the right to inspection, the demand under the oath shall be accompanied by a power of attorney or such other writing which authorizes the attorney or such other agent to so act on behalf of the stockholder. The demand under oath shall be directed to the corporation at its principal office. -6- ARTICLE V - STOCK CERTIFICATES (S)1. General. ------- The stock certificates of the corporation shall be numbered and registered as they are issued in the stock ledger and transfer books of the corporation. They shall bear the corporate seal and shall be signed by the President and Secretary of the corporation. (S)2. Transfers. --------- Transfers of shares of stock shall be made on the books of the corporation upon surrender of the certificates therefor, endorsed by the person named in the certificate or by attorney, lawfully constituted in writing. No transfer shall be made which is inconsistent with law. (S)3. Lost Certificates. ----------------- The corporation may issue a new stock certificate in place of any certificate validly issued, which is alleged to have been lost, stolen or destroyed, and the corporation may require the owner of such certificate, or his legal representative, to give the corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate. (S)4. Record Date. ----------- In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix a record date, which shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days before any other action. If no record date is fixed: (S)4.1 the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. (S)4.2 the record date for determining stockholders entitled to express consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is necessary, shall be the day on which the first written consent is expressed. -7- (S)4.3 the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating to such matter. (S)4.4 a determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. ARTICLE VI - DIVIDENDS (S)1. Declaration and Payment. ----------------------- The Board of Directors may declare and pay dividends upon the outstanding shares of the corporation, from time to time and to such extent as they deem advisable, in the manner, and upon the terms and conditions provided by law. (S)2. Reserves. -------- Before payment of any dividend there may be set aside out of the net profits of the corporation such sums or sums as the Board of Directors, from time to time, in its sole discretion, determines to be in the best interests of the corporation. The Board of Directors may abolish any such reserve at any time in the same manner in which such reserve was created. ARTICLE VII - NOTICE (S)1. General. ------- Except as otherwise provided in these bylaws or by law, any notice required to be given to any stockholder, director, officer, employee or agent of the corporation shall be in writing and may be delivered by (i) hand, (ii) United States mail, postage prepaid, (iii) Federal Express (or any other nationally recognized courier), delivery charge prepaid, or (iv) telecopy or any other similar facsimile device. Each notice shall be addressed to the recipient at such recipient's last known address (or telecopy number) as it appears in the applicable records of the corporation. Such notice shall be effective (i) when received if hand delivered, mailed or couriered, and (ii) when dispatched if given by telecopy. (S)2. Waiver. ------ A written waiver of any notice, signed by the recipient thereof, whether before or after the time of the event for which notice is to be given, shall be deemed equivalent to the notice required to have been given to such recipient. Neither the business nor the purpose of any meeting is required to be specified in such waiver. -8- ARTICLE VIII - MISCELLANEOUS (S)1. Financial Transactions. ---------------------- All financial transactions of the corporation, including the execution of checks, demands and notes of the corporation, shall be approved by such officer or officers as the Board of Directors may from time to time determine. Such approval shall be evidenced by the signature of such officer or officers. (S)2. Fiscal Year. ----------- The fiscal year of the corporation shall be as determined by the Board of Directors. (S)3. Corporate Seal. -------------- The Board of Directors shall approve a seal of the corporation, which shall meet the requirements imposed by law. (S)4. Reliance upon Books and Records. ------------------------------- The Directors and officers of the corporation shall, in the performance of their duties as such, be fully protected in relying in good faith on the books and records of the corporation. (S)5. Indemnification. --------------- The corporation shall indemnify all officers, directors and employees to the fullest extent permitted by law as currently in effect or as amended from time to time. The undersigned, Secretary of the corporation, does hereby certify that the foregoing is a true copy of the bylaws of the corporation that are in effect on the date hereof. Dated: November 24, 1992 /s/ Francis B. Jacobs III [SEAL] -------------------------- ------------------------- -9- EX-3.5 8 AM. & RESTATED ARTICLES OF INC. OF LIL' CHAMP EXHIBIT 3.5 AMENDED AND RESTATED ARTICLES OF INCORPORATION OF LIL' CHAMP/JIFFY STORES, INC. Pursuant to Section 607.1007, Florida Statutes, as amended, the Articles of Incorporation, as amended, of Lil' Champ/Jiffy Stores, Inc., a Florida corporation, Charter No. 302305, are hereby amended by revising Section 1.1 thereof to read as set forth below, and, as so amended, are hereby restated to read in their entirety as follows: ARTICLE I NAME AND ADDRESS SECTION 1.1 NAME. The name of this corporation is Lil' Champ Food Stores, Inc. SECTION 1.2 ADDRESS. The address of this corporation, until changed by resolution of the board of directors, is 9143 Phillips Highway, Suite 200, Jacksonville, Florida 32256. ARTICLE II DURATION SECTION 2.1 DURATION. This corporation shall exist perpetually. ARTICLE III PURPOSES SECTION 3.1 PURPOSES. This corporation is organized for the purpose of transacting any or all lawful business permitted under the laws of the United States and of the State of Florida. ARTICLE IV CAPITAL STOCK SECTION 4.1 AUTHORIZED CAPITAL. The maximum number of shares of stock which this corporation is authorized to have outstanding at any one time is Five Hundred (500) shares, consisting of a single class designated "Common Stock," with a par value of One Dollar ($1.00) per share. SECTION 4.2 RESTRICTIONS ON TRANSFER OF STOCK. The shareholders may, by Bylaw provision or by shareholders' agreement recorded in the minute book, impose such restrictions on the sale, transfer or encumbrance of the capital stock of this corporation as they may see fit. ARTICLE V DIRECTORS SECTION 5.1 NUMBER. The number of directors of this corporation shall be fixed and may be increased or diminished from time to time by the Bylaws, but shall never be less than one. SECTION 5.2 COMPENSATION. The board of directors is hereby specifically authorized to make provision for reasonable compensation to its members for their services as directors, and to fix the basis and conditions upon which such compensation shall be paid. Any director of this corporation may also serve the corporation in any other capacity and receive compensation therefor in any form. SECTION 5.3 INDEMNIFICATION. The board of directors is hereby specifically authorized to make provision for indemnification of directors, officers, employees and agents to the full extent permitted by law. ARTICLE VI BYLAWS SECTION 6.1 BYLAWS. Bylaws shall be adopted and may be altered, amended or repealed from time to time by either the shareholders or the board of directors, but the board of directors shall not alter, amend or repeal any Bylaw adopted by the shareholders if the shareholders specifically provide in the Bylaw adopted by the shareholders if the shareholders specifically provide in the Bylaws that such Bylaw is not subject to amendment or repeal by the board of directors. ARTICLE VII MISCELLANEOUS SECTION 7.1 AFFILIATED TRANSACTIONS. This corporation expressly elects not to be governed by Section 607.104, Florida Statutes, or any successor provision thereto. SECTION 7.2 CONTROL-SHARE ACQUISITIONS. Section 607.109, Florida Statutes, or any successor provision thereto, does not apply to control-share acquisitions of shares of this corporation. ARTICLE VIII AMENDMENT SECTION 8.1 RESERVATION OF RIGHT TO AMEND. This corporation reserves the right to amend or repeal any provision contained in these Articles of Incorporation, and any right conferred upon the shareholders is subject to this reservation. 2 These Amended and Restated Articles of Incorporation of Lil' Champ Food Stores, Inc., were adopted August 18, 1992, pursuant to Section 607.0821, Florida Statutes, as amended, by unanimous written consent of the board of directors of Lil' Champ/Jiffy Stores, Inc., and were approved August 18, 1992, pursuant to Section 607.0704, Florida Statutes, as amended, by written consent of the sole shareholder of said corporation, which approval was sufficient for approval by said shareholder. Dated August 18, 1992. LIL' CHAMP/JIFFY STORES, INC. By: /s/ Eddie K. Jackson ------------------------------------- Eddie K. Jackson, President 3 EX-3.6 9 AMENDED AND RESTATED BYLAWS OF LIL' CHAMP EXHIBIT 3.6 AMENDED AND RESTATED BYLAWS OF LIL' CHAMP FOOD STORES, INC. (Adopted January 24, 1997) ARTICLE I --------- BUSINESS OFFICES ---------------- SECTION 1.1 GENERAL. The principal office of this Corporation shall be located at 9143 Phillips Highway, Suite 200, Jacksonville, Florida 32256. The Corporation shall have such other offices as its business may require and as may be approved by the Board of Directors, within or without the State of Florida. ARTICLE II ---------- REGISTERED OFFICES AND REGISTERED AGENTS ---------------------------------------- SECTION 2.1 FLORIDA. The address of the initial registered office of this Corporation in the State of Florida shall be c/o C T Corporation System, 8751 West Broward Boulevard, Plantation, Florida 33324, and the name of the registered agent of the Corporation at such address is C T Corporation System. The Corporation, with the approval of its Board of Directors, may from time to time designate a different address as its registered office or a different person as its registered agent in the State of Florida, or both; provided, however, that such designation shall become effective upon the filing of a statement of such change with the Department of State of the State of Florida as is required by Florida law. SECTION 2.2 OTHER STATES. In the event the Corporation is required or desires to qualify to transact or conduct business in one or more states other than Florida, the Corporation shall designate the location of the registered office in each such state and designate the registered agent for service of process at such address, in each case as determined by the Board of Directors, in the manner provided by the law of the state in which the Corporation is to be qualified. ARTICLE III ----------- SHAREHOLDERS MEETINGS --------------------- SECTION 3.1 PLACE OF MEETING. Meetings of the shareholders shall be held at the principal office of the Corporation or any other place, within or without the State of Florida, designated in the notice of the meeting. SECTION 3.2 ANNUAL MEETING. An annual meeting of the Shareholders shall be held within six (6) months after the close of each fiscal year of the Corporation at a time and place designated by the Board of Directors, at which meeting the Shareholders shall elect a Board of Directors and transact other business. If an annual meeting is not held within any 13-month period, the circuit court of the circuit in which the registered office of the Corporation is located may, on the application of any Shareholder, summarily order a meeting to be held. SECTION 3.3 SPECIAL MEETINGS. Special meetings of the Shareholders shall be held when directed by the Chair of the Board, the President or the Board of Directors, or when requested in writing by the holders of not less than ten percent (10%) of all the shares entitled to vote at the meeting. A meeting requested by Shareholders shall be called for a date not less than ten (10) nor more than sixty (60) days after the request is made, unless the Shareholders requesting the meeting designate a later date. The call for the meeting shall be issued by the Secretary, unless the Chair of the Board, the President, the Board of Directors or the Shareholders requesting the meeting shall designate another person to do so. SECTION 3.4 NOTICE. Written notice stating the place, day, hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered to each Shareholder of record entitled to vote at such meeting not less than ten (10) nor more than sixty (60) days before the meeting, either by personal delivery or by telegram, cablegram, telex, telephonic facsimile or by first class mail, by or at the direction of the Chair of the Board, the President, the Secretary, or the Officer or persons calling the meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail addressed to the Shareholder at his address as it appears on the stock transfer books of the Corporation, with postage thereon prepaid. Notwithstanding the foregoing, however, no such notice to Docks U.S.A., Inc., shall be deemed delivered until actually received by such Corporation at the address specified by it in writing for notice of Shareholder meetings. SECTION 3.5 NOTICE OF ADJOURNED MEETINGS. When a meeting is adjourned to another time or place, it shall not be necessary to give any notice of the adjourned meeting if the time and place to which the meeting is adjourned are announced at the meeting at which the adjournment is taken, and any business may be transacted at the adjourned meeting that might have been transacted on the original date of the meeting. If, however, after the adjournment of the Board of Directors fixes a new record date for the adjourned meeting, a notice of the adjourned meeting 2 shall be given as provided in Section 3.4 above, to each shareholder of record on the new record date entitled to vote at such meeting. SECTION 3.6 WAIVER OF NOTICE. Whenever notice is required to be given to any Shareholder, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be the equivalent to the giving of such notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Shareholders need be specified in the written waiver of notice. SECTION 3.7 CLOSING OF TRANSFER BOOKS AND FIXING RECORD DATE. (a) For the purpose of determining Shareholders entitled to notice of or to vote at any meeting of Shareholders or any adjournment thereof, or entitled to receive payment of any dividend, or in order to make a determination of Shareholders for any purpose, the Board of Directors may provide that the stock transfer books shall be closed for a stated period but not to exceed, in any case, sixty (60) days. If the stock transfer books shall be closed for the purpose of determining Shareholders entitled to notice of or to vote at a meeting of Shareholders, such books shall be closed for at least ten (10) days immediately preceding such meeting. (b) In lieu of closing the stock transfer books, the Board of Directors may fix in advance a date as the record date for any determination of Shareholders, such date in any case to be not more than sixty (60) days and, in case of a meeting of Shareholders, not less than ten (10) days prior to the date on which the particular action requiring such determination of Shareholders is to be taken. (c) If the stock transfer books are not closed and no record date is fixed for the determination of Shareholders entitled to notice or to vote at a meeting of Shareholders, or shareholders entitled to receive payment of a dividend or for any other purpose, the date on which notice of the meeting is mailed or the date on which the resolution of the Board of Directors declaring such dividend is adopted or such other action is taken, as the case may be, shall be the record date for such determination of Shareholders. (d) When a determination of Shareholders entitled to vote at any meeting of Shareholders has been made as provided in this section, such determination shall apply to any adjournment thereof, unless the Board of Directors fixes a new record date for the adjourned meeting. SECTION 3.8 RECORD OF SHAREHOLDERS HAVING VOTING RIGHTS. If the Corporation shall have six (6) or more shareholders, the Officer or agent having charge of the stock transfer books for shares of the Corporation shall make, at least ten (10) days before each meeting of 3 Shareholders, a complete list of the Shareholders entitled to vote at such meeting or any adjournment thereof, with the address of and the number and class and series, if any, of shares held by each. The list, for a period of ten (10) days prior to such meeting, shall be kept on file at the registered office of the Corporation, at the principal place of business of the Corporation or at the Office of the transfer agent or registrar of the Corporation, and any Shareholder shall be entitled to inspect the list at any time during usual business hours. The list shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any Shareholder at any time during the meeting. If the requirements of this section have not been substantially complied with, the meeting, on demand of any Shareholder in person or by proxy, shall be adjourned until the requirements are complied with. If no such demand is made, failure to comply with the requirements of the section shall not affect the validity of any action taken at such meeting. SECTION 3.9 SHAREHOLDER QUORUM. A majority of the shares entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of Shareholders. When a specified item of business is required to be voted on by a class or series of stock, a majority of the shares of such class or series shall constitute a quorum for the transaction of such item of business by that class or series. If a quorum is present, the affirmative vote of a majority of the shares represented at the meeting and entitled to vote on the subject matter shall be the act of the Shareholders, unless the vote of a greater number or voting by class is required by Florida law, by the Articles of Incorporation or by these Bylaws. After a quorum has been established at a Shareholders' meeting, the subsequent withdrawal of Shareholders, so as to reduce the number of shares entitled to vote at the meeting below the number required for a quorum, shall not affect the validity of any action taken at the meeting or any adjournment thereof. SECTION 3.10 VOTING OF SHARES. (a) Each outstanding share entitled to vote, regardless of class, shall be entitled to one vote on each matter submitted to a vote at a meeting of Shareholders, except as may otherwise be provided in the Articles of Incorporation. If the Articles of Incorporation provide for more or less than one vote for any share on any matter, every reference in these Bylaws to a majority or other proportion of shares shall refer to such a majority or other proportion of shares entitled to be cast. (b) A Shareholder may vote either in person or by proxy executed in writing by the Shareholder or his duly authorized attorney-in-fact. (c) At each election for Directors, every Shareholder entitled to vote at such election shall have the right to vote, in person or by proxy, the number of shares owned by him for as many persons as there are Directors to be elected at that time and for whose election he has a right to vote, and if cumulative voting is specifically authorized by the Articles of Incorporation, he shall have the right to cumulate his votes by giving one candidate as many votes as the 4 number of Directors to be elected at that time multiplied by the number of his shares, or by distributing such votes on the same principle among any number of such candidates. SECTION 3.11 PROXIES. (a) Every Shareholder entitled to vote at a meeting of Shareholders or to express consent or dissent without a meeting, or his duly authorized attorney- in-fact, may authorize another person or persons to act for him by proxy. (b) Every proxy must be signed by the Shareholder or his attorney-in-fact. No proxy shall be valid after the expiration of eleven (11) months from the date thereof unless otherwise provided in the proxy. Every proxy shall be revocable at the pleasure of the Shareholder executing it, except as otherwise provided by Florida law. (c) If a proxy for the same shares confers authority upon two or more persons and does not otherwise provide, a majority of them present at the meeting, or if only one is present then that one, may exercise all the powers conferred by the proxy; but if the proxy holders present at the meeting are equally divided as to the right and manner of voting in any particular case, the voting of such shares shall be prorated. SECTION 3.12 ACTION BY SHAREHOLDERS WITHOUT A MEETING. (a) Any action required to be taken at any annual or special meeting of Shareholders of the Corporation, or any action which may be taken at any annual or special meeting of such Shareholders, may be taken without a meeting, without prior notice, and without a vote if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. If any class of shares is entitled to vote thereon as a class, such written consent shall be required of the holders of a majority of the shares of each class of shares entitled to vote as a class thereon and of the total shares entitled to vote thereon. (b) Within ten (10) days after obtaining such authorization by written consent, notice must be given to those shareholders who have not consented in writing. The notice shall fairly summarize the material features of the authorized action and, if the action be a merger, consolidation, or sale or exchange of assets for which dissenters rights are provided by Florida law, the notice shall contain a clear statement of the right of Shareholders dissenting therefrom to be paid the fair value of their shares upon compliance with further provisions of such Florida law regarding the rights of dissenting Shareholders. (c) In the event that the action to which the shareholders consent is such as would have required the filing of a certificate under any provision of Florida law, if such action had 5 been voted on by Shareholders at a meeting thereof, the certificate filed under such section shall state that written consent has been given in accordance with the provisions of Section 607.394, Florida Statutes, or the applicable successor provision of Florida law. ARTICLE IV ---------- DIRECTORS --------- SECTION 4.1 FUNCTION. All corporate powers shall be exercised by or under the authority of, and the business and affairs of this Corporation shall be managed under the direction of the Board of Directors, except as otherwise may be required by Florida law. SECTION 4.2 QUALIFICATION. Directors need not be residents of the State of Florida or Shareholders of this Corporation. SECTION 4.3 COMPENSATION. Directors shall not be paid compensation as such except as otherwise approved by the shareholders. SECTION 4.4 NUMBER. The number of Directors of this Corporation shall be fixed from time to time by the Shareholders or by the Board of Directors, but shall never be less than one (1). Unless otherwise provided by resolution of the Shareholders, the number of Directors shall consist of that number elected at each annual meeting of the Shareholders. Either the Shareholders or the Board of Directors may by resolution increase or decrease the number of Directors at any time or from time to time between annual meetings of the Shareholders, provided that the number of Directors shall never be less than one (1). SECTION 4.5 ELECTION. At each annual meeting of Shareholders, the Shareholders shall elect Directors. SECTION 4.6 VACANCIES. Any vacancy occurring in the Board of Directors, including any vacancy created by reason of any increase in the number of Directors, may be filled either by the Shareholders or by the Board of Directors. SECTION 4.7 TERMS. Each Director, however elected or appointed, shall hold office until the next succeeding annual meeting of Shareholders and until such Director's successor shall have been elected and qualified, or until such Director's earlier resignation, removal from office, or death. SECTION 4.8 REMOVAL OF DIRECTORS. Any Director or the entire Board of Directors may be removed, with or without cause, at a meeting of the Shareholders called expressly for that purpose. 6 SECTION 4.9 QUORUM AND VOTING. A majority of the number of Directors fixed by these Bylaws shall constitute a quorum for the transaction of business. The act of the majority of the Directors present at a meeting at which the quorum is present shall be the act of the Board of Directors. SECTION 4.10 EXECUTIVE AND OTHER COMMITTEES. (a) The Board of Directors, by resolution adopted by a majority of the full Board of Directors, may designate from among its members an executive committee and one or more committees each of which, to the extent provided in such resolution, shall have and may exercise all the authority of the Board of Directors, except as limited by Florida law. (b) The Board of Directors, by resolution adopted in accordance with this section, may designate one or more Directors as alternate members of any such committee who may act in the place and stead of any absent member or members at any meeting of such committee. SECTION 4.11 PLACE OF MEETING. Regular and special meetings of the Board of Directors may be held within or without the State of Florida and, unless otherwise stated in a resolution of the Board of Directors fixing the time and place of the meeting or in the notice of the meeting, shall be held at the principal office of the Corporation. SECTION 4.12 TIME, NOTICE, AND CALL OF MEETINGS. (a) Regular meetings of the Board of Directors shall be held without notice immediately following the annual meeting of Shareholders each year, and may be held without notice at such other times, not more frequently than monthly, as the Board of Directors may fix by resolution. Special meetings of the Board of Directors may be held at such other times as called by the Chair of the Board or a majority of the Directors. Written notice of the time and place of special meetings of the Board of Directors shall be given to each Director either by personal delivery, telegram, cablegram, telex, or telephonic facsimile at least two (2) days before the meeting, or by notice mailed by first-class mail at least seven (7) days before the meeting. (b) Notice of a meeting of the Board of Directors need not be given to any Director who signs a waiver of notice either before or after the meeting. Attendance of a Director at a meeting shall constitute waiver of notice of such meeting and waiver of any and all objections to the place of the meeting, the time of the meeting, or the manner in which it has been called or convened, except when a Director states, at the beginning of the meeting, any objection to the transaction of business because the meeting is not lawfully called or convened. (c) Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting. 7 (d) Members of the Board of Directors may participate in a meeting of such board by conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other at the same time. Participation by such means shall constitute presence in person at a meeting. SECTION 4.13 ACTION WITHOUT A MEETING. Any action required to be taken at a meeting of the Board of Directors, or any action which may be taken at a meeting of the Directors or a committee thereof, may be taken without a meeting if a consent in writing, setting forth the action to be taken, signed by all of the Directors, or all the members of such committee, as the case may be, is filed in the minutes of the proceedings of the Board of Directors or of such committee. Such consent shall have the same effect as a unanimous vote. SECTION 4.14 DIRECTOR CONFLICTS OF INTEREST. (a) No contract or other transaction between this Corporation and one or more of its Directors, or between this Corporation and any other corporation, firm, association, or entity in which one or more of the Directors are Directors or Officers or are financially interested, shall be either void or voidable becuase of such relationship or interest, or because such Director or Directors are present at the meeting of the Board of Directors or a committee thereof that authorizes, approves, or ratifies such contract or transaction, or because the vote or votes of such Director or Directors are counted for such purpose, if: (i) The fact of such relationship or interest is disclosed or known to the Board of Directors or committee that authorizes, approves, or ratifies the contract or transaction by a vote or consent sufficient for the purpose without counting the votes or consents of such interested Directors; or (ii) The fact of such relationship or interest is disclosed or known to the Shareholders entitled to vote and they authorize, approve, or ratify such contract or transaction by vote or written consent; or (iii) The contract or transaction is fair and reasonable as to the Corporation at the time it is authorized by the Board of Directors, a committee, or the Shareholders. (b) Common or interested Directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or a committee thereof that authorizes, approves, or ratifies such contract or transaction. 8 ARTICLE V --------- CHAIR OF THE BOARD OF DIRECTORS ------------------------------- SECTION 5.1 DUTIES. The person who shall preside at all meetings of Shareholders and of the Board of Directors shall be known as the Chair of the Board, which person shall be the principal executive officer of Docks U.S.A., Inc., or such other person as may be designated from time to time by the principal executive officer of Docks U.S.A., Inc., or in the absence of such principal executive officer or his or her designee, such other person as may be designated by the Board of Directors of Docks U.S.A., Inc. If the Chair of the Board is absent or unable to act at any meeting of Shareholders or of the Board of Directors, the President, and in his or her absence or inability to act, the Executive Vice President, shall preside at the meeting. ARTICLE VI ---------- OFFICERS -------- SECTION 6.1 OFFICERS. This Corporation shall have a President, an Executive Vice President, a Secretary and a Treasurer, who may but need not be Directors, and may have one or more other Vice Presidents, who may but need not be Directors. Such Officers shall be chosen by the Board of Directors annually at the first meeting of the Board of Directors held following the annual meeting of Shareholders. Each such Officer shall serve until such Officer's successor shall have been chosen and qualified or until such Officer's earlier resignation, removal from office, or death. This Corporation may also have one or more other Officers and one or more Assistant Secretaries, Assistant Treasurers and other agents, who shall be chosen, serve for such terms, and have such duties as may be determined or provided for by the Board of Directors. Any person may hold two or more offices. Election or appointment of an Officer or agent shall not of itself create contract rights. SECTION 6.2 DUTIES. The Officers of this Corporation shall have the following duties: (a) PRESIDENT. The President shall be the chief executive officer of the --------- Corporation, shall generally and actively supervise and control the business and affairs of the Corporation and shall have such other duties as are normally incident to the office of President, subject to the direction of the Board of Directors. (b) EXECUTIVE VICE PRESIDENT. The Executive Vice President shall have ------------------------ such duties as are normally incident to the office of Executive Vice President, subject to the direction of the Board of Directors. If the President is absent or unable to act, the Executive Vice President shall perform the duties of the President. 9 (c) SECRETARY. The Secretary shall have custody of and maintain all of --------- the corporate records, except the financial records, shall record the minutes of all meetings of the Shareholders and the Board of Directors or its committees, shall send all notices of meetings, shall have such other duties as are normally incident to the office of Secretary, and shall perform such other duties as may be prescribed by the Board of Directors or the President. (d) TREASURER. The Treasurer shall have custody of all corporate funds and financial records, shall keep full and accurate accounts of receipts and disbursements and render accounts thereof at the annual meetings of Shareholders and whenever else required by the Board of Directors or the President, shall have such other duties as are normally incident to the office of Treasurer, and shall perform such other duties as may be prescribed by the Board of Directors or the President. (e) VICE PRESIDENTS. Each Vice President, if any are elected, shall have --------------- whatever powers the Board of Directors may from time to time assign and shall perform such duties as may be prescribed by the Board of Directors or the President. SECTION 6.3 REMOVAL OF OFFICERS. Any officer or agent may be removed by the Board of Directors, with or without cause, whenever in the judgment of the Board of Directors the best interests of the Corporation will be served thereby. SECTION 6.4 VACANCIES. Any vacancy, however occurring, in any office may be filled by the Board of Directors. SECTION 6.5 COMPENSATION. The compensation of the President, the Executive Vice President, the Secretary, the Treasurer, and any other Officers elected or appointed by the Board of Directors shall be fixed by the Board of Directors and may be changed from time to time by the Board of Directors. The fact that an Officer is also a Director shall not preclude such person from receiving compensation as either a Director or Officer, nor shall it affect the validity of any resolution by the Board of Directors fixing such compensation. The President, with the approval of the Treasurer, shall have authority to fix the salaries of all employees of the Corporation other than Officers elected or appointed by the Board of Directors. ARTICLE VII ----------- STOCK CERTIFICATES ------------------ SECTION 7.1 AUTHORIZED SHARES; ISSUANCE. This Corporation may issue the shares of stock authorized by its Articles of Incorporation and none other. Shares may be issued only pursuant to a resolution adopted by the Board of Directors. No shares shall be issued until the full amount of the consideration therefor has been paid, or in violation of any provision of law, 10 the Articles of Incorporation, these Bylaws, or any valid agreement recorded in the minute book of the Corporation. SECTION 7.2 CERTIFICATES. Every holder of shares in this Corporation shall be entitled to have a certificate representing all shares to which such holder is entitled. SECTION 7.3 SIGNATURES. Certificates representing shares in this Corporation shall be signed by the President or the Executive Vice President and by the Secretary or an Assistant Secretary, and may be sealed with the seal of this Corporation or a facsimile thereof. The signatures of the President or the Executive Vice President or the Secretary or Assistant Secretary may be facsimiles if the certificate is manually signed on behalf of a transfer agent or a registrar, other than the Corporation itself or an employee of the Corporation. SECTION 7.4 FORM. Each certificate representing shares shall state upon the face thereof: the name of the Corporation; that the Corporation is organized under the laws of Florida; the name of the person or persons to whom issued; the number and class of shares, and the designation of the series, if any, which such certificate represents; and the par value of each share represented by such certificate, or a statement that the shares are without par value. Each certificate shall otherwise comply, in all respects, with the requirements of law and, without limiting the generality of the foregoing, each certificate representing shares that are restricted as to the sale, disposition, or other transfer of such shares shall contain the statements required by Florida law. SECTION 7.5 TRANSFER OF SHARES. Subject to any valid restrictions on transfer and the provisions of these Bylaws for closing of the stock transfer books, and except as otherwise provided by law, the Corporation or its transfer agent shall register a share certificate presented to it for transfer only if the certificate is properly endorsed and surrendered for transfer by the holder of record or by his duly authorized attorney. The Corporation or its transfer agent may require the signature of such person to be guaranteed by a commercial bank or trust company or by a member of the New York or American Stock Exchange. SECTION 7.6 LOST, STOLEN, OR DESTROYED CERTIFICATES. The Corporation shall issue a new stock certificate in the place of any certificate previously issued if the holder of record of the certificate (a) makes proof in affidavit form that it has been lost, destroyed, or wrongfully taken; (b) requests the issue of a new certificate before the Corporation has notice that the certificate has been acquired by a purchaser for value in good faith and without notice of any adverse claim; (c) gives bond in such form as the Corporation may direct, to indemnify the Corporation, the transfer agent and the registrar against any claim that may be made on account of the alleged loss, destruction, or theft of the certificate; and (d) satisfies any other reasonable requirements imposed by the Corporation. 11 ARTICLE VII ----------- BOOKS AND RECORDS ----------------- SECTION 8.1 BOOKS AND RECORDS. (a) This Corporation shall keep correct and complete books and records of account and shall keep minutes of the proceedings of its Shareholders, the Board of Directors, and any committees of the Board of Directors. (b) This Corporation shall keep at its registered office or principal place of business, or at the office of its transfer agent or registrar, a record of its Shareholders, giving the names and addresses of all Shareholders, and the number, class, and series, if any, of the shares held by each. (c) Any books, records, and minutes may be in written form or in any other form capable of being converted into written form within a reasonable time. SECTION 8.2 SHAREHOLDERS' INSPECTION RIGHTS. Any person who shall have been a holder of record of at least one quarter of one percent ( 1/4%) of the shares or of voting trust certificates therefor at least six (6) months immediately preceding his demand or shall be the holder of record of, or the holder of record of voting trust certificates for, at least five percent (5%) of the outstanding shares of any class or series of the Corporation, upon written demand stating the purpose thereof, shall have the right to examine, in person or by agent or attorney, at any reasonable time or times, for any proper purpose, the Corporation's relevant books and records of accounts, minutes, and record of Shareholders and to make extracts therefrom. SECTION 8.3 FINANCIAL INFORMATION. (a) Unless modified by resolution of the Shareholders not later than four (4) months after the close of each fiscal year, this Corporation shall prepare a balance sheet showing in reasonable detail the financial condition of the Corporation as of the close of its fiscal year and a profit and loss statement showing the results of its operation during its fiscal year. (b) Upon the written request of any Shareholder or holder of voting trust certificates for shares of the Corporation, the Corporation shall mail to such Shareholder or holder of voting trust certificates a copy of the most recent such balance sheet and profit and loss statement. (c) Such balance sheets and profit and loss statements shall be filed in the registered office of the Corporation in the State of Florida, shall be kept for at least five (5) years, and shall be subject to inspection during business hours by any Shareholder or holder of voting trust certificates, in person or by agent. 12 ARTICLE IX ---------- DIVIDENDS --------- SECTION 9.1 PAYMENT. The Board of Directors of this Corporation from time to time may declare and the Corporation may pay dividends as permitted by law on its shares in cash, property, or its own shares, except when the Corporation is insolvent or when the payment thereof would render the Corporation insolvent, subject to the provisions of Florida law. ARTICLE X --------- CORPORATE SEAL -------------- SECTION 10.1 FORM. The Board of Directors shall provide a corporate seal, which shall have the name of the Corporation inscribed thereon, and may be facsimile, engraved, printed, or an impression seal. ARTICLE XI ---------- AMENDMENT --------- SECTION 11.1 POWER TO AMEND. These Bylaws may be altered, amended, or repealed, and new Bylaws may be adopted, only by the Shareholders. SECTION 11.2 REQUISITES FOR AMENDMENT BY SHAREHOLDERS. These Bylaws may be amended or repealed, wholly or in part, by a majority of the Shareholders entitled to vote thereon present at any Shareholders' meeting if notice of the proposed action was included in the notice of the meeting or is waived in writing by a majority of the Shareholders entitled to vote thereon. ARTICLE XII ----------- FISCAL YEAR ----------- SECTION 12.1 GENERAL. The fiscal year of the Corporation shall end on such date as may be fixed or approved by resolution of the Board of Directors. 13 ARTICLE XIII ------------ POLICIES AND GUIDELINES ----------------------- SECTION 13.1 POLICIES AND GUIDELINES. The duties and authority of the Board of Directors, Officers and other management personnel of the Corporation may be further defined or limited by policies and guidelines adopted and revised from time to time by the Shareholders or the Board of Directors. ARTICLE XIV ----------- INDEMNIFICATION --------------- SECTION 14.1 DEFINITIONS. For purposes of this Article: (a) "Directors" and "Officers" include persons who shall have served as Directors or Officers, respectively, at any time on or after May 3, 1991. (b) "Expenses" include all expenses actually and reasonably incurred with respect to a Proceeding, including, without limitation, fees, expenses and disbursements of attorneys, accountants, financial consultants and other professionals. (c) "Liabilities" include obligations to pay a judgment, settlement, penalty, fine or tax (including, without limitation, any withholding or employment tax and any excise tax assessed with respect to the Corporation, any employee benefit plan or any other enterprise as to which the Director or Officer is or was serving in an Official Capacity), together with any obligation to pay interest thereon. (d) "Proceeding" includes any threatened, asserted, pending or completed claim, action, suit or other type of proceeding, whether civil, criminal, administrative or investigative, whether formal or informal, including, without limitation, any arbitration proceeding or other proceeding for the resolution of any claim or dispute and any privately conducted negotiations, and including, without limitation, any settlement, hearing, trial or appeal of any of the foregoing. (e) "Serving in an Official Capacity" includes (i) serving as a Director, Officer or agent of the Corporation (other than as an attorney-at-law, accountant, financial consultant or other person separately retained and compensated for the provision of goods or services to the Corporation) or (ii) serving at the request of the Corporation as a director, officer or agent of another corporation, partnership, joint venture, trust or other enterprise, including any employee benefit plan (other than as an attorney-at-law, accountant, financial consultant or other person separately retained and compensated for the provision of goods or services to the enterprise). 14 SECTION 14.2 MANDATORY INDEMNIFICATION. The Corporation shall indemnify any Director or Officer who was or is a party to any Proceeding, other than an action by, or in the right of, the Corporation, by reason of the fact that such Director or Officer is or was Serving in an Official Capacity, against all Liabilities and Expenses incurred in connection with such Proceeding, if such Director or Officer acted in good faith, based on such investigation or care as the Board of Directors or the Shareholders may deem reasonable, and in a manner such Director or Officer reasonably believed to be in, or not opposed to, the best interests of the Corporation, and, with respect to any criminal Proceeding, had no reasonable cause to believe his or her conduct was unlawful. The Corporation also shall indemnify any Director or Officer who was or is a party to any Proceeding by or in the right of the Corporation against all Expenses incurred in connection with such Proceeding, if such Director or Officer has been successful on the merits or otherwise in the defense of such Proceeding. SECTION 14.3 ADVANCE OF EXPENSES. The Corporation shall advance Expenses incurred by a Director or Officer in defending any Proceeding for which such person may be entitled to indemnification under this Article, unless the Board of Directors makes a preliminary good faith determination that such Director or Officer engaged in willful misconduct or acted with a conscious disregard for the best interests of the Corporation. Any such advancement of Expenses with respect to a matter shall be conditioned upon the execution by such Director or Officer of a written agreement to repay any such advances of Expenses if such Director or Officer is ultimately found not to be entitled to indemnification under this Article with respect to such matter. SECTION 14.4 INSURANCE. Nothing in this Article shall be deemed to require indemnification to the extent that insurance proceeds under any policy or policies of insurance carried by the Corporation or any affiliate of the Corporation are available to satisfy any Liability or Expense incurred by a Director or Officer by reason of the fact that such Director or Officer is or was Serving in an Official Capacity. SECTION 14.5 NO THIRD PARTY BENEFICIARIES. This Article is not intended for the benefit of and shall not create any rights in favor of any third parties, it being the intent of the parties that this Article be solely for the benefit of Directors or Officers, their heirs and personal representatives, in the event that any Director or Officer incurs any Liability or Expense for which such Director or Officer is entitled to indemnification hereunder. SECTION 14.6 DURATION OF COVERAGE. Indemnification pursuant to this Article shall continue as to a person who has ceased to be an officer or director and shall inure to the benefit of such person's heirs and personal representatives. No amendment to this Article shall diminish any rights of a Director or Officer with respect to matters arising or causes of action accruing prior to such amendment. SECTION 14.7 OTHER INDEMNIFICATION. Nothing in this Article shall be deemed exclusive, and the Corporation may make any other or further indemnification of Liabilities and 15 Expenses or advancement of Expenses of any of its Directors, Officers, employees, or agents, under any agreement, vote of shareholders or disinterested directors, or otherwise, provided that any such indemnification or advancement of Expenses shall not be in violation of the Act or other applicable laws. SECTION 14.8 ADDITIONAL PROVISIONS. Notwithstanding anything in this Article XIV to the contrary: (a) the provisions of this Article XIV are supplemental and in addition to, and do not supersede or diminish, any rights of any person, or of the heirs or personal representatives of any person: (i) who shall have served as a director, officer, employee or agent of the Corporation's predecessor, Lil' Champ Food Stores, Inc., a Florida Corporation, under such predecessor Corporation's prior bylaw provisions for indemnification of directors, officers, employees or agents, with respect to matters arising or causes of action accruing prior to May 3, 1991, or (ii) who has entered or at any time after May 3, 1991, may enter into any separate indemnification contract or agreement with Docks U.S.A., Inc., with respect to matters arising or causes of action accruing either prior to or after May 3, 1991, and the Corporation shall indemnify any such person as provided in such prior bylaw provision or such separate indemnification contract or agreement; (b) the provisions of this Article XIV do not supersede any prior waivers or releases of indemnification rights or claims given to this Corporation (formerly Huntley's Jiffy Stores, Inc., a Florida corporation) or to Docks U.S.A., Inc., a Nevada Corporation, by any person who shall have served as a director, officer, employee or agent of said Huntley's Jiffy Stores, Inc., and do not apply to any rights or claims so waived or released, and such prior waivers or releases remain in full force and effect. The undersigned, W. Dale Fish, Secretary of Lil' Champ Food Stores, Inc., a Florida corporation, certifies that the foregoing Amended and Restated Bylaws were duly adopted by the sole shareholder of the Corporation, Docks U.S.A., Inc., on January 24, 1997. /s/ W. Dale Fish ------------------------ W. Dale Fish, Secretary [CORPORATE SEAL] 16 EX-4.3 10 2ND SUPPLEMENTAL INDENTURE EXHIBIT 4.3 SECOND SUPPLEMENTAL INDENTURE BETWEEN THE PANTRY, INC. AND IBJ SCHRODER BANK & TRUST COMPANY THIS SECOND SUPPLEMENTAL INDENTURE (the "Supplemental Indenture") is made as of the 23rd day of October, 1997 by and between THE PANTRY, INC., a Delaware corporation (hereinafter the "Company"), SANDHILLS, INC., a Delaware corporation ("Sandhills"), and IBJ SCHRODER BANK & TRUST COMPANY, a banking company organized under the laws of the State of New York, as trustee (hereinafter the "Trustee"). R E C I T A L S: - - - - - - - - WHEREAS, the Company and the Trustee have entered into an Indenture dated November 4, 1993 and a Supplemental Indenture dated December 4, 1995 (as so amended, the "Indenture"; all terms defined in the Indenture shall have the same meaning in this Supplemental Indenture unless otherwise defined herein); and WHEREAS, the Company is entering into certain financing and related transactions (the "Transactions") which will benefit the Company and its Subsidiaries; and WHEREAS, it is a condition to the Transactions that the Subsidiaries of the Company guarantee the obligations of the Company under the Indenture; and WHEREAS, Sandhills is the only Subsidiary of the Company as of the date hereof; and WHEREAS, the Boards of Directors of the Company, and Sandhills have determined that it is in the best interests of the Company and Sandhills to make Sandhills a guarantor of the obligations of the Company under the Indenture; and WHEREAS, Article IX of the Indenture provides a manner by which the Indenture may be amended, and by which compliance with the provisions of the Indenture may be waived, with the consent of the Holders of a majority in aggregate principal amount of the then outstanding Securities, by written act of said Holders delivered to the Company and the Trustee; and WHEREAS, the Holders of a majority in aggregate principal amount of the outstanding Securities have delivered said consents to the Trustee and the Company; and WHEREAS, pursuant to and in accordance with Section 9.2 of the Indenture, and with the consent of the Holders of a majority in aggregate principal amount of the outstanding Securities, the Company and Trustee have agreed to enter into this Supplemental Indenture; NOW THEREFORE, each party hereto agrees as follows for the benefit of each other party and for the equal and ratable benefit of the Holders of the Company's 12% Senior Notes due 2000: 1. Subject to Section 10 hereof, compliance by the Company with Section 4.17 of the Indenture is hereby waived, insofar as it would require that a favorable opinion by an investment banking firm of national standing be delivered to the Trustee as to the fairness to the Company or to PH Holding Corporation, an Unrestricted Subsidiary ("PHC") of the assignment to, and assumption by, the Company of that certain Stock Purchase Agreement dated as of August 26, 1997 providing for the acquisition of Lil' Champ Food Stores, Inc., a Florida corporation, and the use in the consummation of such acquisition of $4,000,000 placed in escrow for such purpose by PHC. As a result of such waiver, no such opinion shall be required in respect of such acquisition or such use of funds. 2. Subject to Section 10 hereof, the definition of "Consolidated EBITDA" contained in Section 1.1 of the Indenture is hereby amended to read in its entirety as follows: "Consolidated EBITDA" means, with respect to any person, for any ------------------- period, the Consolidated Net Income of such person for such period adjusted to add thereto (to the extent deducted from revenues in determining Consolidated Net Income), without duplication, the sum of (i) Consolidated Income Tax Expense, (ii) Consolidated Depreciation and Amortization Expense and (iii) Consolidated Fixed Charges; provided that in calculating the "Consolidated Fixed Charges Coverage Ratio" for purposes of Subsection 4.10(c)(i) only, Consolidated Net Income shall be further adjusted by adding thereto (without duplication) (iv) any other non-cash charges of such person in such period. 3. Subject to Section 10 hereof, the definition of "Permitted Liens" contained in Section 1.1 of the Indenture is hereby amended to read in its entirety as follows: "Permitted Liens" means any of the following: --------------- (a) Liens arising by reason of any judgment, decree or order of any court only to the extent, for an amount and for a period not resulting in an Event of Default with respect thereto and so long as such Lien is being contested in good faith and is adequately bonded, and any appropriate legal proceedings which may have been duly initiated for the review of such judgment, decree or order shall not have been finally determined or the period within which such proceedings may be initiated shall not have expired; (b) security for payment of worker's compensation or other federal or state mandated insurance made in the ordinary course of business consistent with past practices; (c) security for the performance of bids, tenders, trade contracts (other than contracts for the payment of money) or leases, public or statutory obligations, -2- surety or appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business consistent with past practice; (d) Liens for taxes, assessments or other governmental charges not yet due or which are being contested in good faith and by appropriate proceedings by the Company or the applicable Subsidiary if adequate reserves with respect thereto are maintained on the books of the Company or such Subsidiary, as the case may be, in accordance with GAAP; (e) Liens of carriers, warehousemen, mechanics, landlords, materialmen, repairmen or other like Liens arising by operation of law in the ordinary course of business and consistent with past practices and Liens on deposits made to obtain the release of such Liens if (i) the underlying obligations are not overdue for a period of more than 30 days or (ii) such Liens are being contested in good faith and by appropriate proceedings by the Company or the applicable Subsidiary and adequate reserves with respect thereto are maintained on the books of the Company or such Subsidiary, as the case may be, in accordance with GAAP; (f) easements, rights-of-way, zoning and similar restrictions and other similar encumbrances or title defects incurred in the ordinary course of business and consistent with past practices which, in the aggregate, are not substantial in amount, and which do not in any case materially detract from the value of the property subject thereto (as such property is used by the Company or such Subsidiary) or interfere with the ordinary conduct of the business of the Company or such Subsidiary or any of their Subsidiaries; provided, that any such Liens are not incurred in connection -------- with any borrowing of money or any commitment to loan any money or to extend any credit; (g) Liens incurred in connection with the incurrence of Refinancing Indebtedness in compliance with the Indenture with respect to Indebtedness secured by Liens, which are no more adverse to the interests of holders of the Notes than the Liens replaced or extended thereby; (h) Permitted PP&E Liens securing Indebtedness incurred pursuant to and in accordance with paragraph (d) of the covenant "Limitation on the Incurrence of Additional Indebtedness and the Issuance of Disqualified Capital Stock"; (i) Liens in existence and outstanding on the Issue Date after giving effect to the Offering and the application of the net proceeds thereof; (j) Liens which secure Acquired Indebtedness, provided that such Liens do not extend to or cover any other property or assets and were not put in place in connection with or in anticipation of such acquisition; and -3- (k) Liens securing Indebtedness incurred in accordance with paragraph (b) or paragraph (c) of the second paragraph of the covenant "Limitation on the Incurrence of Additional Indebtedness and the Issuance of Disqualified Capital Stock." 4. Subject to Section 10 hereof, the definition of "Restricted Investment" contained in Section 1.1 of the Indenture is hereby amended to read in its entirety as follows: "Restricted Investment" means any Investment other than (a) Cash --------------------- Equivalents, (b) investments in, or loans or advances made to employees, officers and directors of the Company or its Subsidiaries in the ordinary course of business consistent with past practices, which loans or advances are reasonably related to their duties on behalf of the Company or its Subsidiaries, (c) recourse loans of up to an aggregate of $1 million outstanding at any time to employees of the Company or its Subsidiaries made in connection with the purchase of Qualified Capital Stock of the Company, (d) contributions of up to $5 million in the aggregate to one particular Unrestricted Subsidiary of the Company, provided, to the extent -------- that such Unrestricted Subsidiary has distributed, returned or otherwise delivered cash or Cash Equivalents to, or for the benefit or account of, the Company, directly or indirectly, the amount of such distribution, return or delivery will be deemed to reduce the amount theretofore contributed pursuant to this clause (d) for the purposes of the $5 million limit, (e) Investments in any Subsidiary or any person which, as a result of such Investment, becomes a Subsidiary and (f) Investments by any Subsidiary in the Company or in any other Subsidiary of the Company. 5. Subject to Section 10 hereof, Section 4.10 of the Indenture is hereby amended to read in its entirety as follows: Section 4.10 Limitation on Incurrence of Additional Indebtedness and the ----------------------------------------------------------- Issuance of Disqualified Capital Stock. -------------------------------------- Except as set forth below in this Section 4.10, the Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, issue, assume, guaranty, incur, become directly or indirectly liable with respect to (including as a result of an acquisition, merger or consolidation), extend the maturity of, or otherwise become responsible for, contingently or otherwise (individually and collectively, to "incur," or, as appropriate, an "incurrence"), any Indebtedness or any Disqualified Capital Stock from and after the Issue Date. (a) If (i) no Default or Event of Default shall have occurred and be continuing at the time of, or would occur after giving effect, on a pro --- forma basis, to such incurrence of Indebtedness or issuance of Disqualified ----- Capital Stock, and (ii) on the date of the incurrence of such Indebtedness or issuance of Disqualified Capital -4- Stock (the "Incurrence Date"), the Consolidated Fixed Charges Coverage Ratio of the Company for the Reference Period immediately preceding the Incurrence Date, after giving effect, on a pro forma basis, to such --- ----- incurrence of Indebtedness or issuance of Disqualified Capital Stock, would be at least 2.00 to 1, if the Incurrence Date is prior to November 15, 1998, or 2.50 to 1, if the Incurrence Date is on or subsequent to November 15, 1998, then the Company may incur Indebtedness or issue Disqualified Capital Stock which, in either case, has an Average Life greater than the Notes. (b) (i) The Company and its Subsidiaries may incur revolving credit Indebtedness and letters of credit Indebtedness, in an aggregate principal amount at any one time outstanding (including any Indebtedness issued to refinance, replace or refund such Indebtedness) not to exceed $45 million, less the amount of Net Proceeds of Asset Sales that have been applied to permanently reduce borrowing and commitments under any such facilities; provided that the proceeds of such Indebtedness are used for working -------- capital and other general corporate purposes; and provided further, that -------- ------- $15 million of the Indebtedness that may be incurred under this paragraph (b) may be incurred only for working capital purposes and/or letters of credit Indebtedness and (ii) the Company's Subsidiaries may incur Indebtedness consisting of guarantees of such Indebtedness of the Company. (c) (i) The Company and its Subsidiaries may incur Indebtedness in an aggregate principal amount at any one time outstanding (including any Indebtedness issued to refinance, replace or refund such Indebtedness) not to exceed $50 million; provided that after giving effect, on a pro forma -------- --- ----- basis, to the incurrence of such Indebtedness, the Consolidated Fixed Charges Ratio of the Company for the Reference Period immediately preceding the Incurrence Date would be at least 1.70 to 1; and provided further that the proceeds of such Indebtedness are used for the acquisition of Capital Stock or convenience store assets of a person that is not affiliated with the Company and that is engaged in a Related Business; and (ii) the Company's Subsidiaries may incur Indebtedness consisting of guarantees of such Indebtedness of the Company. (d) The Company may incur Indebtedness evidenced by the Notes and other obligations pursuant to this Indenture up to the amounts specified herein as of the Issue Date, and the Company's Subsidiaries may incur Indebtedness consisting of guarantees of such Indebtedness of the Company. (e) The Company and its Subsidiaries may incur (i) Indebtedness of Lil' Champ consisting of Capital Lease Obligations of Lil' Champ existing at the date of its acquisition by the Company in an aggregate principal amount not to exceed $14 million and (ii) Permitted PP&E Financing, provided, that the aggregate principal amount of Indebtedness incurred -------- pursuant to this subparagraph (e)(ii) (including any Indebtedness issued to refinance, replace or refund such Indebtedness) shall not -5- exceed an amount equal to ten percent (10%) of the Company's Consolidated Total Tangible Assets as of the end of the fiscal quarter for which financial information is available most recently preceding the date of determination, determined in accordance with GAAP, and shall not constitute more than 100% of the cost (reportable on the balance sheet (including all appropriate notes thereto) of such consolidated entity in accordance with GAAP) of the PP&E so purchased or leased. (f) The Company may incur Indebtedness evidenced by up to $200.0 million in aggregate principal amount of its Senior Subordinated Notes due 2007 and other obligations pursuant to the Indenture related thereto, and the Company's Subsidiaries may incur Indebtedness consisting of guarantees of such Indebtedness of the Company. (g) The Company and its Subsidiaries may incur Indebtedness solely in respect of performance bonds (to the extent that such incurrence does not result in the incurrence of any obligation for the payment of borrowed money of others), all in the ordinary course of business, in amounts and for the purposes customary in the Company's industry for operations similar to those of the Company; provided, that the aggregate principal amount -------- outstanding of such Indebtedness (including any Indebtedness issued to refinance, refund or replace such Indebtedness) shall at no time exceed $1.0 million. (h) Indebtedness of any Wholly-Owned Subsidiary of the Company to the Company or any other Wholly-Owned Subsidiary of the Company or Indebtedness of the Company to any Wholly-Owned Subsidiary of the Company. (i) The Company (and in the case of (b), (e) (g) and (h), its Subsidiaries) may incur Refinancing Indebtedness with respect to any Indebtedness or Disqualified Capital Stock, as applicable, described in clauses (a) through (h) of this covenant so long as, in the case of Indebtedness used to refinance, refund, or replace Indebtedness in clauses (b), (e), (g) and such Refinancing Indebtedness is of the character that satisfies the applicable requirements of such clauses. (j) The Company and its Subsidiaries may incur Indebtedness representing the balance deferred and unpaid of the purchase price of any property or services used in the ordinary course of their business that would constitute ordinarily a trade payable to trade creditors (other than accounts payable or other obligations to trade creditors arising in the ordinary course of business which have remained unpaid for greater than 90 days, except those which are being contested in good faith and for which adequate reserves have been established in accordance with GAAP). 6. Subject to Section 10 hereof, Section 1.1 of the Indenture is hereby amended by the addition thereto of the following definitions. -6- "Consolidated Total Tangible Assets" means, with respect to any ---------------------------------- person, the total assets as would appear on a consolidated balance sheet of such person minus unamortized deferred charges, goodwill, patents, trademarks, service marks, trade names, copyrights and all other items which would be treated as intangibles on the consolidated balance sheet of the Company and its Subsidiaries prepared in accordance with GAAP. "Guarantee" means, as the context may require, individually, a --------- guarantee, or collectively, any and all guarantees, of the Obligations of the Company with respect to the Notes by each Guarantor pursuant to the terms of Article XIV hereof, substantially in the form set forth in Exhibit D. "Guarantor" means all direct and indirect Subsidiaries of the Company --------- listed on the signature pages hereto and each Subsidiary which guarantees payment of the Notes pursuant to Section 14.5 and "Guarantors" means such entities, collectively. 7. Subject to Section 10 hereof, the Indenture is hereby amended by the addition thereto of Article XIV, to read in its entirety as follows: ARTICLE XIV GUARANTEE Section 14.1 Guarantee. --------- Subject to the provisions of this Article XIV, each Guarantor hereby jointly and severally unconditionally guarantees to each Holder and to the Trustee, (i) the due and punctual payment of the principal of, and premium, if any, and interest on each Note, when and as the same shall become due and payable, whether at maturity, by acceleration or otherwise, the due and punctual payment of interest on the overdue principal of, and premium, if any, and interest on the Notes, to the extent lawful, and the due and punctual performance of all other obligations of the Company to the Holders or the Trustee (including, without limitation amounts due the Trustee under Section 7.7) all in accordance with the terms of such Note and this Indenture, and (ii) in the case of any extension of time of payment or renewal of any Notes or any of such other obligations, that the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, at stated maturity, by acceleration or otherwise. Each Guarantor hereby agrees that its obligations hereunder shall be absolute and unconditional, irrespective of, and shall be unaffected by, any invalidity, irregularity or unenforceability of any such Note or this Indenture, any failure to enforce the provisions of any such Note or this Indenture, any waiver, modification or indulgence granted to the Company with respect thereto by the Holder of such Note or the Trustee, or any other circumstances -7- which may otherwise constitute a legal or equitable discharge of a surety or such Guarantor. Each Guarantor hereby waives diligence, presentment, demand for payment, filing of claims with a court in the event of merger or bankruptcy of the Company, any right to require a proceeding first against the Company, protest or notice with respect to any such Note or the Indebtedness evidenced thereby and all demands whatsoever, and covenants that this Guarantee will not be discharged as to any such Note except by payment in full of the principal thereof, premium if any, and interest thereon and as provided in Section 8.1 hereof. Each Guarantor further agrees that, as between such Guarantor, on the one hand, and the Holders and the Trustee, on the other hand, (i) the maturity of the obligations guaranteed hereby may be accelerated as provided in Article VI hereof for the purposes of this Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (ii) in the event of any declaration of acceleration of such obligations as provided in Article VI hereof, such obligations (whether or not due and payable) shall forthwith become due and payable by each Guarantor for the purpose of this Guarantee. In addition, without limiting the foregoing provisions, upon the effectiveness of any acceleration under Article VI hereof, either the Trustee or the Holders of not less than twenty-five percent (25%) in aggregate principal amount of the then outstanding Securities may make a demand for payment on the Notes under the Guarantee provided for in this Article XIV and not discharged. The Guarantee set forth in this Section 14.1 shall not be valid or become obligatory for any purpose with respect to a Note until the certificate of authentication on such Note shall have been signed by or on behalf of the Trustee by its manual signature. Section 14.2 Execution and Delivery of Guarantees. ------------------------------------ To evidence the Guarantee set forth in this Article XIV, each Guarantor hereby agrees that a notation of such Guarantee substantially in the form included in Exhibit D hereto shall be placed on each Note authenticated and made available for delivery by the Trustee to the Registrar and that this Guarantee shall be executed on behalf of each Guarantor by the manual or facsimile signature of an Officer of each Guarantor. Each Guarantor hereby agrees that the Guarantee set forth in Section 14.1 shall remain in full force and effect notwithstanding any failure to endorse on each Note a notation of such Guarantee. -8- If an Officer of a Guarantor whose signature is on the Guarantee no longer holds that office at the time the Trustee authenticates the Note on which the Guarantee is endorsed, the Guarantee shall be valid nevertheless. The delivery of any Note by the Trustee to the Registrar, after the authentication thereof hereunder, shall constitute due delivery of the Guarantee set forth in this Indenture on behalf of each Guarantor. Section 14.3 Limitation of Guarantee. ----------------------- The obligations of each Guarantor are limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities of such Guarantor and after giving effect to any collections from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under its Guarantee or pursuant to its contribution obligations under this Indenture, result in the obligations of such Guarantor under the Guarantee not constituting a fraudulent conveyance or fraudulent transfer under federal or state law. Each Guarantor that makes a payment or distribution under a Guarantee shall be entitled to a contribution from each other Guarantor in a pro rata amount based on the Adjusted Net Assets of each Guarantor. Section 14.4 Additional Guarantors. --------------------- The Company covenants and agrees that it shall cause any Person which is or becomes, on or after October ___, 1997, a subsidiary of the Company, to execute a supplemental indenture and guarantee satisfactory in form and substance to the Trustee pursuant to which such Subsidiary shall guarantee the obligations of the Company under the Notes and this Indenture in accordance with this Article XIV with the same effect and to the same extent as if such Person had been named herein as a Guarantor. Each additional guarantee shall be substantially in the form of Exhibit D hereto, shall reference the Note to which it relates in a manner sufficiently specific to identify such Note and shall be authenticated and made available for delivery by the Trustee to the Registrar on or after the date of such supplemental indenture. Section 14.5 Release of Guarantor. -------------------- A guarantor shall be released from all of its obligations under its Guarantee if: (i) the Guarantor has sold all or substantially all of its assets or the Company and its Subsidiaries have sold all of the Capital Stock of the Guarantor owned by them, in each case in a transaction in compliance with Sections 4.13 and 5.1 hereof; or -9- (ii) the Guarantor merges with or into or consolidates with, or transfers all or substantially all of its assets to, the Company or another Guarantor in a transaction in compliance with Section 5.1 hereof; and in each such case, such Guarantor has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to such transactions have been complied with. Section 14.6 Trustee Duties, Notice, etc. ---------------------------- Any provision in this Article XIV or elsewhere in the Indenture allowing the Trustee to request information or to take any action authorized by, or on behalf of any Guarantor or Holder, shall be permissive and shall not be obligatory on the Trustee except as the Holders may direct in accordance with the provisions of this Indenture. The Trustee shall be under no obligation to marshal in favor of any Guarantor any other guarantees or other security or any moneys or other assets that the Trustee may be entitled to receive or upon which the Trustee or the Holders may have a claim. The Trustee shall not be bound by any representation, warranty or promise now, or at any time hereafter, made to any Guarantor. 8. Subject to Section 10 hereof, the Indenture is hereby amended by the addition thereto of Exhibit D and the form of Note to be issued pursuant to the Indenture is hereby amended by the addition thereto of the following provision, in each case to read in its entirety as follows: This Guarantee Agreement (this "Guarantee") is dated as of __________ and made by [each of] the undersigned in favor of the holder of Note No. ___ of the 12% Senior Notes due 2000 of The Pantry, Inc. (the "Company") issued pursuant to the Indenture dated as of November 4, 1993 as supplemented by the Supplemental Indenture dated as of December 4, 1995 and the Second Supplemental Indenture dated as of October __, 1997 and ____________ under which IBJ Schroder Bank & Trust Company acts as trustee (the "Indenture"). Capitalized terms used in this Guarantee without definition will have the meanings set forth for such terms in the Indenture. [Each of] the undersigned (the "Guarantors") hereby jointly and severally unconditionally guarantees, with all other Guarantors thereof, to the extent set forth in the Indenture, and subject to the provisions of the Indenture, (a) the due and punctual payment of the principal of, and premium, if any, and interest on the Notes, when and as the same shall become due and payable, whether at maturity, by acceleration or otherwise, the due and punctual payment of interest on overdue principal of, and premium and, to the extent permitted by law, interest, and the due and punctual performance of all other obligations of the Company to the Holders or the Trustee, all in accordance with the terms set forth in Article XIV of the Indenture, and (b) in case of any extension of time of payment or renewal of any Notes or any -10- of such other obligations, that the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. The obligations of the Guarantors to the Holders and to the Trustee pursuant to this Guarantee and the Indenture are expressly set forth in Article XIV of the Indenture and reference is hereby made to the Indenture for the precise terms and limitations of this Guarantee. ---------------------------------------- By: ----------------------------------- Name: Title: 9. Subject to Section 10 hereof, for value received, Sandhills hereby agrees to become a party to the Indenture as a Guarantor under and pursuant to Article XIV of the Indenture and to jointly and severally unconditionally guarantee to the Holders of the Securities (a) the due and punctual payment of the principal of, and premium, if any, and interest on the Securities, when and as the same shall become due and payable, whether at maturity, by acceleration or otherwise, the due and punctual payment of interest on overdue principal of, and premium and, to the extent permitted by law, interest, and the due and punctual performance of all other obligations of the Company to the Holders or the Trustee, all in accordance with the terms set forth in Article XIV of the Indenture, and (b) in case of any extension of time of payment or renewal of any Securities or any of such other obligations, that the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. Sandhills further agrees to waive and not in any manner whatsoever claim or take the benefit or advantage of any rights of reimbursement, indemnity or subrogation or any other rights against the Company or any other Subsidiary as a result of any payment by such Subsidiary under its Guarantee. 10. Upon the execution and delivery of this Supplemental Indenture by the Company, Sandhills and the Trustee, the Indenture shall be supplemented in accordance herewith, and this Supplemental Indenture shall form a part of the Indenture for all purposes, and every Holder of Securities heretofore or hereafter authenticated and delivered under the Indenture shall be bound thereby; provided, however, that Sections 1 through 9 hereof shall become -------- ------- operative upon the satisfaction (or waiver by the Company) of the conditions set forth in the Offer to Purchase and Consent Solicitation Statement, dated September 18, 1997, that was provided to Holders of Securities in connection with the Company's solicitation of consents by such Holders to the waiver and amendments set forth herein. Upon the receipt by the Trustee of (i) an Officers' Certificate certifying that such conditions have been satisfied, or waived by the Company, and (ii) an Opinion -11- of Counsel to the effect set forth in Section 9.6 of the Indenture, the amendments set forth herein shall become operative. 11. Except as supplemented hereby, all provisions in the Indenture shall remain in full force and effect. This Supplemental Indenture is an indenture supplemental to and in implementation of the Indenture, and the Indenture and this Supplemental Indenture shall henceforth be read and construed together. The Indenture as supplemented by this Supplemental Indenture is in all respects confirmed and preserved. 12. If any provision of this Supplemental Indenture limits, qualifies or conflicts with any provision of the Trust Indenture Act that is required under such Act to be part of and govern any provision of this Supplemental Indenture, the provision of such Act shall control. If any provision of this Supplemental Indenture modifies or excludes any provision of the Trust Indenture Act that may be so modified or excluded, the provision of such Act shall be deemed to apply to the Indenture as so modified or to be excluded by this Supplemental Indenture, as the case may be. 13. In case any provision in this Supplemental Indenture shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 14. Nothing in this Supplemental Indenture, the Indenture or the Securities, express or implied, shall give to any Person, other than the parties hereto and thereto and their successors hereunder and thereunder and the Holders of Securities, any benefit of any legal or equitable right, remedy or claim under the Indenture, this Supplemental Indenture or the Securities. 15. The recitals contained herein shall be taken as the statements of the Company, and the Trustee assumes no responsibility for their correctness. In entering into this Supplemental Indenture, the Trustee shall be entitled to the benefit of every provision of the Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee, whether or not elsewhere herein so provided. 16. This Supplemental Indenture shall be governed by and construed in accordance with the laws of the State of New York, without regard to the conflicts of law principles thereof. 17. This Supplemental Indenture may be executed in counterparts, each of which, when so executed, shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. -12- SIGNATURES IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed as of the date first written above. Company: THE PANTRY, INC. [CORPORATE SEAL] Attest: /s/ JON D. RALPH By: /s/ WILLIAM T. FLYG ---------------------- ---------------------------- Assistant Secretary Senior Vice President Title: --------------------- Guarantors: SANDHILLS, INC., [CORPORATE SEAL] Attest: /s/ JON D. RALPH By: /s/ WILLIAM T. FLYG ---------------------- --------------------------- Assistant Secretary Title: Executive Vice President ------------------------ Trustee: IBJ SCHRODER BANK & TRUST COMPANY Attest: /s/ By: /s/ STEPHEN J. GIURLANDO ---------------------- -------------------------- Assistant Vice President ----------------------, Secretary Title: ------------------------- Stephen J. Giurlando -13- EX-4.4 11 3RD SUPPLEMENTAL INDENTURE EXHIBIT 4.4 THIRD SUPPLEMENTAL INDENTURE BETWEEN THE PANTRY, INC. AND IBJ SCHRODER BANK & TRUST COMPANY THIS THIRD SUPPLEMENTAL INDENTURE (the "Supplemental Indenture") is made as of the 23rd day of October, 1997 by and between THE PANTRY, INC., a Delaware corporation (hereinafter the "Company"), LIL' CHAMP FOOD STORES, INC., a Florida corporation ("Lil' Champ"), and IBJ SCHRODER BANK & TRUST COMPANY, a banking company organized under the laws of the State of New York, as trustee (hereinafter the "Trustee"). R E C I T A L S: - - - - - - - - WHEREAS, the Company and the Trustee have entered into an Indenture dated November 4, 1993, a Supplemental Indenture dated December 4, 1995 and a Second Supplemental Indenture dated as of October 23, 1997 (as so amended, the "Indenture"; all terms defined in the Indenture shall have the same meaning in this Supplemental Indenture unless otherwise defined herein); and WHEREAS, the Company has entered into certain financing and related transactions (the "Transactions") which benefit the Company and its Subsidiaries; and WHEREAS, it is a requirement of the Transactions that the Subsidiaries of the Company guarantee the obligations of the Company under the Indenture; and WHEREAS, Lil' Champ has become a Subsidiary of the Company as of the date hereof; and WHEREAS, the Boards of Directors of the Company and Lil' Champ have determined that it is in the best interests of the Company and Lil' Champ to make Lil' Champ a guarantor of the obligations of the Company under the Indenture; and WHEREAS, Article XIV of the Indenture provides for the terms and conditions of the guarantee of the obligations of the Company under the Indenture by the Subsidiaries of the Company. NOW THEREFORE, each party hereto agrees as follows for the benefit of each other party and for the equal and ratable benefit of the Holders of the Company's 12% Senior Notes due 2000: 1. For value received, Lil' Champ hereby agrees to become a party to the Indenture as a Guarantor under and pursuant to Article XIV of the Indenture and to jointly and severally unconditionally guarantee to the Holders of the Securities (a) the due and punctual payment of the principal of, and premium, if any, and interest on the Securities, when and as the same shall become due and payable, whether at maturity, by acceleration or otherwise, the due and punctual payment of interest on overdue principal of, and premium and, to the extent permitted by law, interest, and the due and punctual performance of all other obligations of the Company to the Holders or the Trustee, all in accordance with the terms set forth in Article XIV of the Indenture, and (b) in case of any extension of time of payment or renewal of any Securities or any of such other obligations, that the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. Lil' Champ further agrees to waive and not in any manner whatsoever claim or take the benefit or advantage of any rights of reimbursement, indemnity or subrogation or any other rights against the Company or any other Subsidiary as a result of any payment by such Subsidiary under its Guarantee. 2. Upon the execution and delivery of this Supplemental Indenture by the Company, Lil' Champ and the Trustee, the Indenture shall be supplemented in accordance herewith, and this Supplemental Indenture shall form a part of the Indenture for all purposes. Upon the receipt by the Trustee of (i) an Officers' Certificate certifying that such conditions have been satisfied, or waived by the Company, and (ii) an Opinion of Counsel to the effect set forth in Section 9.6 of the Indenture, the amendments set forth herein shall become operative. 3. Except as supplemented hereby, all provisions in the Indenture shall remain in full force and effect. This Supplemental Indenture is an indenture supplemental to and in implementation of the Indenture, and the Indenture and this Supplemental Indenture shall henceforth be read and construed together. The Indenture as supplemented by this Supplemental Indenture is in all respects confirmed and preserved. 4. If any provision of this Supplemental Indenture limits, qualifies or conflicts with any provision of the Trust Indenture Act that is required under such Act to be part of and govern any provision of this Supplemental Indenture, the provision of such Act shall control. If any provision of this Supplemental Indenture modifies or excludes any provision of the Trust Indenture Act that may be so modified or excluded, the provision of such Act shall be deemed to apply to the Indenture as so modified or to be excluded by this Supplemental Indenture, as the case may be. 5. In case any provision in this Supplemental Indenture shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 6. Nothing in this Supplemental Indenture, the Indenture or the Securities, express or implied, shall give to any Person, other than the parties hereto and thereto and their successors hereunder and thereunder and the Holders of Securities, any benefit of any legal or equitable right, remedy or claim under the Indenture, this Supplemental Indenture or the Securities. 7. The recitals contained herein shall be taken as the statements of the Company, and the Trustee assumes no responsibility for their correctness. In entering into this Supplemental Indenture, the Trustee shall be entitled to the benefit of every provision of the Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee, whether or not elsewhere herein so provided. -2- 8. This Supplemental Indenture shall be governed by and construed in accordance with the laws of the State of New York, without regard to the conflicts of law principles thereof. 9. This Supplemental Indenture may be executed in counterparts, each of which, when so executed, shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. SIGNATURES IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed as of the date first written above. Company: THE PANTRY, INC. [CORPORATE SEAL] Attest: /s/ JON D. RALPH By: /s/ WILLIAM T. FLYG -------------------------- ------------------------------- Asst. Secretary Title: Senior Vice President -------------------------- ---------------------------- Guarantors: LIL' CHAMP FOOD STORES, INC., [CORPORATE SEAL] Attest: /s/ JON D. RALPH By: /s/ WILLIAM T. FLYG ------------------------- ------------------------------- Asst. Secretary Title: Executive Vice President ------------------------- ---------------------------- Trustee: IBJ SCHRODER BANK & TRUST COMPANY Attest: By: /s/ STEPHEN J. GIURLANDO ------------------------------- By: /s/ Title: Assistant Vice President ------------------------- ---------------------------- -3- EX-4.5 12 INDENTURE DATED OCTOBER 23, 1997 EXHIBIT 4.5 THE PANTRY, INC. THE GUARANTORS named herein and UNITED STATES TRUST COMPANY OF NEW YORK, as Trustee INDENTURE Dated as of October 23, 1997 $200,000,000 10 1/4% Senior Subordinated Notes due 2007 CROSS-REFERENCE TABLE
TIA Indenture Section Section ------- --------- 310(a)(1) 8.10 (a)(2) 8.10 (a)(3) N.A. (a)(4) N.A. (b) 8.08; 8.10; 12.02 (b)(1) 8.10 (b)(9) 8.10 (c) N.A. 311(a) 8.11 (b) 8.11 (c) N.A. 312(a) 2.05 (b) 12.03 (c) 12.03 313(a) 8.06 (b)(1) 8.06 (b)(2) 8.06 (c) 12.02 (d) 8.06 314(a) 4.02; 4.04; 12.02 (b) N.A. (c)(1) 12.04; 12.05 (c)(2) 12.04; 12.05 (c)(3) N.A. (d) N.A. (e) 12.05 (f) N.A. 315(a) 8.01; 8.02 (b) 8.05; 12.02 (c) 8.01 (d) 6.05; 8.01; 8.02 (e) 6.11
-------------------------------------------------------------------- ================ N.A means Not Applicable Note: This Cross-Reference Table shall not, for any purpose, be deemed to be a part of the Indenture 316(a) (last sentence) 12.06 (a)(1)(A) 6.05 (a)(1)(B) 6.04 (a)(2) 9.02 (b) 6.07 (c) 9.04 317(a)(1) 6.08 (a)(2) 6.09 (b) 8.12 318(a) 12.01
-------------------------------------------------------------------- ================ N.A means Not Applicable Note: This Cross-Reference Table shall not, for any purpose, be deemed to be a part of the Indenture TABLE OF CONTENTS
Page ---- ARTICLE ONE DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.01. Definitions................................................. 1 Section 1.02. Other Definitions........................................... 28 Section 1.03. Incorporation by Reference of Trust Indenture Act........... 29 Section 1.04. Rules of Construction....................................... 29 ARTICLE TWO THE NOTES Section 2.01. Amount of Notes............................................. 30 Section 2.02. Form and Dating............................................. 31 Section 2.03. Execution and Authentication................................ 31 Section 2.04. Registrar and Paying Agent.................................. 32 Section 2.05. Paying Agent to Hold Money in Trust......................... 33 Section 2.06. Noteholder Lists............................................ 34 Section 2.07. Transfer and Exchange....................................... 34 Section 2.08. Replacement Notes........................................... 35 Section 2.09. Outstanding Notes........................................... 36
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Page ---- Section 2.10. Treasury Notes............................................... 36 Section 2.11. Temporary Notes.............................................. 37 Section 2.12. Cancellation................................................. 37 Section 2.13. Defaulted Interest........................................... 37 Section 2.14. CUSIP Number................................................. 38 Section 2.15. Deposit of Moneys............................................ 38 Section 2.16. Book-Entry Provisions for Global Notes....................... 38 Section 2.17. Special Transfer Provisions.................................. 41 Section 2.18. Computation of Interest...................................... 44 ARTICLE THREE REDEMPTION Section 3.01. Election to Redeem; Notices to Trustee....................... 44 Section 3.02. Selection by Trustee of Notes To Be Redeemed................. 45 Section 3.03. Notice of Redemption......................................... 45 Section 3.04. Effect of Notice of Redemption............................... 46 Section 3.05. Deposit of Redemption Price.................................. 47 Section 3.06. Notes Redeemed in Part....................................... 47 ARTICLE FOUR COVENANTS Section 4.01. Payment of Notes............................................. 48
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Page ---- Section 4.02. SEC Reports.................................................. 48 Section 4.03. Waiver of Stay, Extension or Usury Laws...................... 49 Section 4.04. Compliance Certificate....................................... 49 Section 4.05. Taxes........................................................ 51 Section 4.06. Limitation on Additional Indebtedness........................ 51 Section 4.07. Limitation on Preferred Stock of Restricted Subsidiaries..... 51 Section 4.08. Limitation on Capital Stock of Restricted Subsidiaries....... 52 Section 4.09. Limitation on Restricted Payments............................ 52 Section 4.10. Limitation on Certain Asset Sales............................ 54 Section 4.11. Limitation on Transactions with Affiliates................... 57 Section 4.12. Limitations on Liens......................................... 58 Section 4.13. Limitation on Creation of Subsidiaries....................... 59 Section 4.14. Limitation on Sale and Lease-Back Transactions............... 59 Section 4.15. Limitation on Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries.............. 60 Section 4.16. Payments for Consent......................................... 60 Section 4.17. Legal Existence.............................................. 61 Section 4.18. Change of Control............................................ 61 Section 4.19. Maintenance of Properties; Insurance; Books and Records; Compliance with
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Page ---- Law......................................................... 64 Section 4.20. Further Assurance to the Trustee............................ 65 Section 4.21. Limitation on Other Senior Subordinated Indebtedness........ 65 Section 4.22. Limitation on Conduct of Business........................... 65 Section 4.23. Maintenance of Office or Agency............................. 66 ARTICLE FIVE SUCCESSOR CORPORATION Section 5.01. Limitation on Consolidation, Merger and Sale of Assets...... 66 Section 5.02. Successor Person Substituted................................ 67 ARTICLE SIX DEFAULTS AND REMEDIES Section 6.01. Events of Default.......................................... 68 Section 6.02. Acceleration............................................... 70 Section 6.03. Other Remedies............................................. 71 Section 6.04. Waiver of Defaults and Events of Default................... 72 Section 6.05. Control by Majority........................................ 72 Section 6.06. Limitation on Suits........................................ 72 Section 6.07. Rights of Holders To Receive Payment....................... 73 Section 6.08. Collection Suit by Trustee................................. 73 Section 6.09. Trustee May File Proofs of Claim........................... 74
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Page ---- Section 6.10. Priorities................................................... 74 Section 6.11. Undertaking for Costs........................................ 75 Section 6.12. Restoration of Rights and Remedies........................... 75 ARTICLE SEVEN SUBORDINATION Section 7.01. Notes Subordinate to Senior Indebtedness..................... 75 Section 7.02. Payment Over of Proceeds upon Dissolution, etc............... 76 Section 7.03. Suspension of Payment When Senior Indebtedness in Default..................................... 78 Section 7.04. Trustee's Relation to Senior Indebtedness.................... 80 Section 7.05. Subrogation to Rights of Holders of Senior Indebtedness...... 80 Section 7.06. Provisions Solely To Define Relative Rights.................. 81 Section 7.07. Trustee To Effectuate Subordination.......................... 81 Section 7.08. No Waiver of Subordination Provisions........................ 82 Section 7.09. Notice to Trustee............................................ 82 Section 7.10. Reliance on Judicial Order or Certificate of Liquidating Agent............................ 83 Section 7.11. Rights of Trustee as a Holder of Senior Indebtedness; Preservation of Trustee's Rights.............. 84 Section 7.12. Article Applicable to Paying Agents.......................... 84
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Page ---- Section 7.13. No Suspension of Remedies................................... 84 Section 7.14. Defeasance of Subordination................................. 84 ARTICLE EIGHT TRUSTEE Section 8.01. Duties of Trustee........................................... 85 Section 8.02. Rights of Trustee........................................... 86 Section 8.03. Individual Rights of Trustee................................ 87 Section 8.04. Trustee's Disclaimer........................................ 87 Section 8.05. Notice of Defaults.......................................... 87 Section 8.06. Reports by Trustee to Holders............................... 88 Section 8.07. Compensation and Indemnity.................................. 88 Section 8.08. Replacement of Trustee...................................... 90 Section 8.09. Successor Trustee by Consolidation, Merger, etc............. 91 Section 8.10. Eligibility; Disqualification............................... 91 Section 8.11. Preferential Collection of Claims Against Company........... 92 Section 8.12. Paying Agents............................................... 92 ARTICLE NINE AMENDMENTS, SUPPLEMENTS AND WAIVERS Section 9.01. Without Consent of Holders.................................. 92 Section 9.02. With Consent of Holders..................................... 93 Section 9.03. Compliance with Trust Indenture Act......................... 95
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Page ---- Section 9.04. Revocation and Effect of Consents........................... 95 Section 9.05. Notation on or Exchange of Notes............................ 96 Section 9.06. Trustee To Sign Amendments, etc............................. 96 ARTICLE TEN DISCHARGE OF INDENTURE; DEFEASANCE Section 10.01. Discharge of Indenture..................................... 96 Section 10.02. Legal Defeasance........................................... 97 Section 10.03. Covenant Defeasance........................................ 98 Section 10.04. Conditions to Legal Defeasance or Covenant Defeasance...... 98 Section 10.05. Deposited Money and U.S. Government Obligations To Be Held in Trust; Other Miscellaneous Provisions..... 101 Section 10.06. Reinstatement............................................. 101 Section 10.07. Moneys Held by Paying Agent............................... 102 Section 10.08. Moneys Held by Trustee.................................... 102 ARTICLE ELEVEN GUARANTEE OF NOTES Section 11.01. Guarantee................................................. 103 Section 11.02. Execution and Delivery of Guarantees...................... 104 Section 11.03. Limitation of Guarantee................................... 105 Section 11.04. Additional Guarantors..................................... 105 Section 11.05. Release of Guarantor...................................... 105
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Page ---- Section 11.06. Guarantee Obligations Subordinated to Guarantor Senior Indebtedness.......................... 106 Section 11.07. Payment Over of Proceeds upon Dissolution, etc., of a Guarantor......................................... 106 Section 11.08. Suspension of Guarantee Obligations When Guarantor Senior Indebtedness in Default............... 108 Section 11.09. Subrogation to Rights of Holders of Guarantor Senior Indebtedness.................................... 110 Section 11.10. Guarantee Subordination Provisions Solely To Define Relative Rights.............................. 111 Section 11.11. Application of Certain Article 7 Provisions............. 112 ARTICLE TWELVE MISCELLANEOUS Section 12.01. Trust Indenture Act Controls............................ 112 Section 12.02. Notices................................................. 112 Section 12.03. Communications by Holders with Other Holders............ 114 Section 12.04. Certificate and Opinion as to Conditions Precedent...... 114 Section 12.05. Statements Required in Certificate and Opinion.......... 114 Section 12.06. Rules by Trustee and Agents............................. 115 Section 12.07. Business Days; Legal Holidays........................... 115 Section 12.08. Governing Law........................................... 116 Section 12.09. No Adverse Interpretation of Other Agreements........... 116
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Page ---- Section 12.10. No Recourse Against Others.............................. 116 Section 12.11. Successors.............................................. 117 Section 12.12. Multiple Counterparts................................... 117 Section 12.13. Table of Contents, Headings, etc........................ 117 Section 12.14. Separability............................................ 117 EXHIBITS -------- Exhibit A. Form of Note............................................ A-1 Exhibit B. Form of Legend and Assignment for Rule 144A............. B-1 Exhibit C. Form of Legend and Assignment for Regulation S Note............................... C-1 Exhibit D. Form of Legend for Global Note.......................... D-1 Exhibit E. Form of Certificate to Be Delivered in Connection with Transfers to Non-QIB Accredited Investors......... E-1 Exhibit F. Form of Certificate to Be Delivered in Connection with Transfers Pursuant to Regulation S................ F-1 Exhibit G. Form of Guarantee....................................... G-1
-ix- -1- INDENTURE, dated as of October 23, 1997, among THE PANTRY, INC., a Delaware corporation (the "Company"), the Guarantors (as hereinafter defined) and UNITED STATES TRUST COMPANY OF NEW YORK, as trustee (the "Trustee"). Each party agrees as follows for the benefit of the other parties and for the equal and ratable benefit of the Holders of the Notes. ARTICLE ONE DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.01. Definitions. ----------- "Acquired Indebtedness" means Indebtedness of a Person (including an Unrestricted Subsidiary) existing at the time such Person becomes a Restricted Subsidiary or is merged into or consolidated with any other Person or which is assumed in connection with the acquisition of assets from such Person and, in each case, not incurred by such Person in connection with, or in anticipation or contemplation of, such Person becoming a Restricted Subsidiary or such merger, consolidation or acquisition. "Additional Interest" means additional interest on the Notes which the Company and the Guarantors, jointly and severally, agree to pay to the Holders pursuant to Section 4 of the Registration Rights Agreement. "Affiliate" means, with respect to any specific Person, any other Person which directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, such specified Person. For the purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by," and "under common control with"), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided that, for purposes of Section 4.11, beneficial -------- ownership of at least -2- 10% of the voting securities of a Person, either directly or indirectly, shall be deemed to be control. "Agent" means any Registrar, Paying Agent, or agent for service of notices and demands. "Asset Acquisition" means (a) an Investment by the Company or any Restricted Subsidiary of the Company in any other Person pursuant to which such Person shall become a Restricted Subsidiary of the Company or any Restricted Subsidiary of the Company, or shall be merged with or into the Company or any Restricted Subsidiary of the Company or (b) the acquisition by the Company or any Restricted Subsidiary of the Company of the assets of any Person (other than a Restricted Subsidiary of the Company) which constitute all or substantially all of the assets of such Person or comprise any division or line of business of such Person or any other properties or assets of such Person other than in the ordinary course of business. "Asset Sale" means the sale, transfer, assignment, conveyance or other disposition in any single transaction or series of related transactions of (i) any Capital Stock of or other equity interest in any Restricted Subsidiary of the Company, (ii) all or substantially all of the assets of any business owned by the Company or any Restricted Subsidiary thereof, or a division, line of business or comparable business segment of the Company or any Restricted Subsidiary or (iii) any other asset or property of the Company or any Restricted Subsidiary other than in the ordinary course of business; provided that Asset Sale shall not include (a) any sale, assignment, conveyance, transfer or other disposition (1) to the Company or to a Restricted Subsidiary or to any other Person if after giving effect thereto such other Person becomes a Wholly Owned Subsidiary or (2) by the Company or a Restricted Subsidiary to any Person as an Investment in such Person provided that the Company or such Restricted Subsidiary receives consideration at the time at least equal to the fair market value of such asset or properties and such Investment is included in clause (viii) of the second paragraph of Section 4.09; (b) Sale and Lease-Back Transactions completed within 270 days following the original acquisition of the subject assets where the original acquisition occurred after the date of the Indenture; (c) the disposition of all or substantially all of the assets of the Company on a consolidated basis in a manner -3- permitted pursuant to the provisions described under Section 5.01; or (d) sales or dispositions of obsolete equipment or other assets in the ordinary course of business. "Asset Sale Proceeds" means, with respect to any Asset Sale, (i) cash received by the Company or any Restricted Subsidiary of the Company from such Asset Sale (including cash received as consideration for the assumption of liabilities incurred in connection with or in anticipation of such Asset Sale), after (a) provision for all income or other taxes measured by or resulting from such Asset Sale, (b) payment of all brokerage commissions, underwriting and other fees and expenses related to such Asset Sale, (c) provision for minority interest holders in any Restricted Subsidiary of the Company as a result of such Asset Sale, (d) repayment of Indebtedness that is required to be repaid in connection with such Asset Sale and (e) deduction of appropriate amounts to be provided by the Company or a Restricted Subsidiary of the Company as a reserve, in accordance with GAAP, against any liabilities associated with the assets sold or disposed of in such Asset Sale and retained by the Company or a Restricted Subsidiary after such Asset Sale, including, without limitation, pension and other post-employment benefit liabilities and liabilities related to environmental matters or against any indemnification obligations associated with the assets sold or disposed of in such Asset Sale, and (ii) promissory notes and other noncash consideration received by the Company or any Restricted Subsidiary of the Company from such Asset Sale or other disposition upon the liquidation or conversion of such notes or noncash consideration into cash. "Attributable Indebtedness" means, in respect of a Sale and Lease-Back Transaction, as at the time of determination, the present value (discounted according to GAAP at the cost of indebtedness implied in the lease) of the total obligations of the lessee for rental payments during the remaining term of the lease included in such Sale and Lease-Back Transaction (including any period for which such lease has been extended). "Available Asset Sale Proceeds" means, with respect to any Asset Sale, the aggregate Asset Sale Proceeds from such Asset Sale that have not been applied in accordance with clauses (iii)(a) or (iii)(b), and which have not yet been the -4- basis for an Excess Proceeds Offer in accordance with clause (iii)(c) of the first paragraph of Section 4.10. "Board of Directors" with respect to any Person means the board of directors of such Person or any committee authorized to act therefor. "Board Resolution" means a copy of a resolution certified pursuant to an Officers' Certificate to have been duly adopted by the Board of Directors of the Company or a Guarantor, as appropriate, and to be in full force and effect, and delivered to the Trustee. "Capital Stock" means, with respect to any Person, any and all shares, interests, participations or other equivalents (however designated and whether voting or non-voting) of corporate stock, partnership interests or any other participation, right or other interest in the nature of an equity interest in such Person including, without limitation, Common Stock and Preferred Stock of such Person or any option, warrant or other security convertible into any of the foregoing. "Capitalized Lease Obligations" means, with respect to any Person, Indebtedness represented by obligations under a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP, and the amount of such Indebtedness shall be the capitalized amount of such obligations determined in accordance with GAAP. "Cash Equivalents" means (i) marketable direct obligations issued by, or unconditionally guaranteed by, the United States Government or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within one year from the date of acquisition thereof; (ii) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within one year from the date of acquisition thereof and, at the time of acquisition, having one of the two highest ratings obtainable from either S&P or Moody's; (iii) commercial paper maturing no more than one year from the date of creation thereof and, at the time of acquisition, having a rating of at least A-1 from S&P or at least P-1 from Moody's; (iv) certificates of deposit or bankers' acceptances maturing -5- within one year from the date of acquisition thereof issued by any bank organized under the laws of the United States of America or any state thereof or the District of Columbia or any U.S. branch of a foreign bank having at the date of acquisition thereof combined capital and surplus of not less than $250,000,000; (v) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clause (i) above entered into with any bank meeting the qualifications specified in clause (iv) above; and (vi) investments in money market funds which invest substantially all their assets in securities of the types described in clauses (i) through (v) above. A "Change of Control" of the Company will be deemed to have occurred at such time as (i) any Person (including a Person's Affiliates and associates), other than a Permitted Holder, becomes the beneficial owner (as defined under Rule 13d-3 or any successor rule or regulation promulgated under the Exchange Act) of 50% or more of the total voting or economic power of the Company's Common Stock, (ii) any Person (including a Person's Affiliates and associates), other than a Permitted Holder, becomes the beneficial owner of more than 33 1/3% of the total voting power of the Company's Common Stock, and the Permitted Holders beneficially own, in the aggregate, a lesser percentage of the total voting power of the Common Stock of the Company than such other Person and do not have the right or ability by voting power, contract or otherwise to elect or designate for election a majority of the Board of Directors of the Company, (iii) there shall be consummated any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which the Common Stock of the Company would be converted into cash, securities or other property, other than a merger or consolidation of the Company in which the holders of the Common Stock of the Company outstanding immediately prior to the consolidation or merger hold, directly or indirectly, at least a majority of the Common Stock of the surviving corporation immediately after such consolidation or merger, or (iv) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors of the Company (together with any new directors whose election by such Board of Directors or whose nomination for election by the shareholders of the Company has been approved by 66 2/3% of the directors then still in office who either were directors at the beginning of such period or whose -6- election or recommendation for election was previously so approved) cease to constitute a majority of the Board of Directors of the Company. "Common Stock" of any Person means all Capital Stock of such Person that is generally entitled to (i) vote in the election of directors of such Person or (ii) if such Person is not a corporation, vote or otherwise participate in the selection of the governing body, partners, managers or others that will control the management and policies of such Person. "Company" means the party named as such in the first paragraph of this Indenture until a successor replaces such party pursuant to Article 5 and thereafter means the successor. "Company Request" means any written request signed in the name of the Company by the Chairman of the Board of Directors, the Chief Executive Officer, the President, any Vice President, the Chief Financial Officer or the Treasurer of the Company and attested to by the Secretary or any Assistant Secretary of the Company. "Consolidated Fixed Charge Coverage Ratio" means, with respect to any Person, the ratio of EBITDA of such Person during the four full fiscal quarters (the "Four Quarter Period") for which financial information is available ending on or prior to the date of the transaction giving rise to the need to calculate the Consolidated Fixed Charge Coverage Ratio (the "Transaction Date") to Consolidated Fixed Charges of such Person for the Four Quarter Period. In addition to and without limitation of the foregoing, for purposes of this definition, "Consolidated EBITDA" and "Consolidated Fixed Charges" shall be calculated after giving effect on a pro forma basis for the period of such --------- calculation to (i) the incurrence or repayment of any Indebtedness of such Person or any of its Restricted Subsidiaries (and the application of the proceeds thereof) giving rise to the need to make such calculation and any incurrence or repayment of other Indebtedness (and the application of the proceeds thereof), other than the incurrence or repayment of Indebtedness in the ordinary course of business for working capital purposes pursuant to working capital facilities, occurring during the Four Quarter Period or at any time subsequent to the last day of the Four Quarter Period and on or prior to the Transaction Date, as if such incurrence or repayment, as the case may be (and the application of the -7- proceeds thereof), occurred on the first day of the Four Quarter Period and (ii) any Asset Sale or Asset Acquisitions (including, without limitation, any Asset Acquisition giving rise to the need to make such calculation as a result of such Person or one of its Restricted Subsidiaries (including any Person who becomes a Restricted Subsidiary as a result of the Asset Acquisition) incurring, assuming or otherwise being liable for Acquired Indebtedness) and also including any EBITDA (provided that such EBITDA shall be included only to the extent ------------- includable pursuant to the definition of "Consolidated Net Income") attributable to the assets which are the subject of the Asset Acquisition or Asset Sale during the Four Quarter Period) occurring during the Four Quarter Period or at any time subsequent to the last day of the Four Quarter Period and on or prior to the Transaction Date, as if such Asset Sale or Asset Acquisition (including the incurrence, assumption or liability for any such Acquired Indebtedness) occurred on the first day of the Four Quarter Period. If such Person or any of its Restricted Subsidiaries directly or indirectly guarantees Indebtedness of a third Person, the preceding sentence shall give effect to the incurrence of such guaranteed Indebtedness as if such Person or any Restricted Subsidiary of such Person had directly incurred or otherwise assumed such guaranteed Indebtedness. Furthermore, in calculating "Consolidated Fixed Charges" for purposes of determining the denominator (but not the numerator) of this "Consolidated Fixed Charge Coverage Ratio," (1) interest on outstanding Indebtedness determined on a fluctuating basis as of the Transaction Date and which will continue to be so determined thereafter shall be deemed to have accrued at a fixed rate per annum equal to the rate of interest on such Indebtedness in effect on the Transaction Date; (2) if interest on any Indebtedness actually incurred on the Transaction Date may optionally be determined at an interest rate based upon a factor of a prime or similar rate, a eurocurrency interbank offered rate, or other rates, then the interest rate in effect on the Transaction Date will be deemed to have been in effect during the Four Quarter Period; and (3) notwithstanding clause (1) above, interest on Indebtedness determined on a fluctuating basis, to the extent such interest is covered by one or more Interest Rate Agreements, shall be deemed to accrue at the rate per annum resulting after giving effect to the operation of such agreements. "Consolidated Fixed Charges" means, with respect to any Person, for any period, the sum, without duplication, of -8- (i) Consolidated Interest Expense, plus (ii) the product of (x) the amount of all dividend payments on any series of Preferred Stock of such Person (other than dividends paid in Capital Stock (other than Disqualified Capital Stock)) paid, accrued or scheduled to be paid or accrued during such period times (y) a fraction, the numerator of which is one and the denominator of which is one minus the then current effective consolidated federal, state and local tax rate of such Person, expressed as a decimal. "Consolidated Interest Expense" means, with respect to any Person, for any period, the aggregate amount of interest which, in conformity with GAAP, would be set forth opposite the caption "interest expense" or any like caption on an income statement for such Person and its Restricted Subsidiaries on a consolidated basis (including, but not limited to, (i) imputed interest included in Capitalized Lease Obligations, (ii) all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing, (iii) the net costs associated with Interest Rate Agreements and other hedging obligations to the extent treated as interest expense under GAAP, (iv) the interest portion of any deferred payment obligation, (v) amortization of discount or premium, if any, and (vi) all other non-cash interest expense (other than interest amortized to cost of sales)) plus, without duplication, all net capitalized interest for such period and all interest incurred or paid under any guarantee of Indebtedness (including a guarantee of principal, interest or any combination thereof) of any Person, plus the amount of all dividends or distributions paid on Disqualified Capital Stock (other than dividends paid or payable in shares of Capital Stock of the Company) but excluding amortization of financing fees and expenses. "Consolidated Net Income" means, with respect to any Person, for any period, the aggregate of the Net Income of such Person and its Restricted Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided, however, that (a) the Net Income of any Person (the "other -------- ------- Person") in which the Person in question or any of its Restricted Subsidiaries has less than a 100% interest (which interest does not cause the Net Income of such other Person to be consolidated into the Net Income of the Person in question in accordance with GAAP) shall be included only to the extent of the amount of dividends or distributions paid to the Person -9- in question or the Restricted Subsidiary, (b) the Net Income of any Restricted Subsidiary of the Person in question that is subject to any consensual restriction or limitation on the payment of dividends or the making of other distributions shall be excluded to the extent of such restriction or limitation, (c)(i) the Net Income of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition and (ii) any net gain or loss resulting from an Asset Sale by the Person in question or any of its Restricted Subsidiaries other than in the ordinary course of business shall be excluded, (d) extraordinary gains and losses shall be excluded, (e) income or loss attributable to discontinued operations (including, without limitation, operations disposed of during such period whether or not such operations were classified as discontinued) shall be excluded, (f) in the case of a successor to the referent Person by consolidation or merger or as a transferee of the referent Person's assets, any earnings of the successor corporation prior to such consolidation, merger or transfer of assets shall be excluded, (g) any non-recurring non-cash losses and charges shall be excluded, (h) for purposes of calculations referred to in Section 4.09 only, any net income attributable to payments or dividends received by the Company or any Restricted Subsidiary that offset the amount of Investments made in reliance on clause (ii) of the definition of "Net Investments" shall be excluded, and (i) for purposes of clauses (c)(ii), (d) and (g) only, the associated tax effects in respect of such period shall be excluded. "Consolidated Total Tangible Assets" means, with respect to any person, the total assets as would appear on a consolidated balance sheet of such person minus unamortized deferred charges, goodwill, patents, trademarks, service marks, trade names, copyrights and all other items which would be treated as intangibles on the consolidated balance sheet of the Company and its Subsidiaries prepared in accordance with GAAP. "Corporate Trust Office" means the office of the Trustee at which at any particular time its corporate trust business shall be principally administered, which office at the date of execution of this Indenture is located at United States Trust Company of New York, 114 West 47th Street, New York, NY 10036, attention: Corporate Trust Department. -10- "Currency Agreement" means, for any Person, any foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protect such Person against fluctuations in currency values. "Default" means any event that is, or with the passing of time or giving of notice or both would be, an Event of Default. "Depository" means, with respect to the Notes issued in the form of one or more Global Notes, The Depository Trust Company or another Person designated as Depository by the Company, which Person must be a clearing agency registered under the Exchange Act. "Designated Senior Indebtedness," as to the Company or any Guarantor, as the case may be, means any Senior Indebtedness or Guarantor Senior Indebtedness, as the case may be, under (i) the Senior Credit Facility and (ii) any other Indebtedness in an original principal amount (or committed availability) of at least $25 million if the instrument governing the same expressly provides that such Indebtedness is "Designated Senior Indebtedness" for purposes of the Indenture. "Disqualified Capital Stock" means any Capital Stock of a Person or a Restricted Subsidiary thereof which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable at the option of the holder), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the option of the holder thereof, in whole or in part, on or prior to the maturity date of the Notes, for cash or securities constituting Indebtedness. Without limitation of the foregoing, Disqualified Capital Stock shall be deemed to include any Preferred Stock of a Person or a Restricted Subsidiary of such Person, with respect to either of which, under the terms of such Preferred Stock, by agreement or otherwise, such Person or Restricted Subsidiary is obligated to pay current dividends or distributions in cash during the period prior to the maturity date of the Notes; provided, however, that -------- ------- Preferred Stock of a Person or any Restricted Subsidiary thereof that is issued with the benefit of provisions requiring a change of control offer to be made for such Preferred Stock in the event of a change of control of such Person or Restricted Subsidiary which provisions have -11- substantially the same effect as the provisions described in Section 4.18 shall not be deemed to be Disqualified Capital Stock solely by virtue of such provisions. "EBITDA" means with respect to any Person and its Restricted Subsidiaries, for any period, an amount equal to (a) the sum of (i) Consolidated Net Income for such period, plus (ii) the provision for taxes for such period based on income or profits to the extent such income or profits were included in computing Consolidated Net Income and any provision for taxes utilized in computing net loss under clause (i) hereof, plus (iii) Consolidated Interest Expense for such period (but only including Redeemable Dividends in the calculation of such Consolidated Interest Expense to the extent that such Redeemable Dividends have not been excluded in the calculation of Consolidated Net Income), plus (iv) depreciation for such period on a consolidated basis, plus (v) amortization of intangibles for such period on a consolidated basis, plus (vi) any other non-cash items reducing Consolidated Net Income for such period, minus (b) all non-cash items increasing Consolidated Net Income for such period, all for such Person and its Restricted Subsidiaries determined on a consolidated basis in accordance with GAAP; and provided, however, that, for -------- ------- purposes of calculating EBITDA during any fiscal quarter, cash income from a particular Investment of such Person shall be included only (x) if cash income has been received by such Person with respect to such Investment during each of the previous four fiscal quarters, or (y) if the cash income derived from such Investment is attributable to Cash Equivalents. "Exchange Act" means the Securities Exchange Act of 1934, as amended and the rules and regulations of the Commission promulgated thereunder. "Exchange Notes" has the meaning provided in the Registration Rights Agreement. "fair market value" means, with respect to any asset or property, the price which could be negotiated in an arm's-length transaction, for cash, between a willing seller and a willing and able buyer, neither of whom is under undue pressure or compulsion to complete the transaction. Fair market value shall be determined by the Board of Directors of the Company acting reasonably and in good faith and shall be evidenced by a -12- resolution of the Board of Directors of the Company delivered to the Trustee. "GAAP" means generally accepted accounting principles consistently applied as in effect in the United States from time to time, except that, for purposes of calculating financial ratios, GAAP shall mean generally accepted accounting principles utilized by the Company as of the Issue Date. "Guarantee" means the guarantee of the Obligations of the Company with respect to the Notes by each Guarantor pursuant to the terms of Article Eleven hereof. "Guarantor" means each of the Guarantors listed on the signature page to this Indenture as well as each Restricted Subsidiary which guarantees payment of the Notes pursuant to Section 4.13, and "Guarantors" means such entities, collectively. "Guarantor Senior Indebtedness," as to any Guarantor, means the principal of and premium, if any, and interest on, and any and all other fees, expense reimbursement obligations and other amounts due pursuant to the terms of all agreements, documents and instruments providing for, creating, securing or evidencing or otherwise entered into in connection with (a) all Indebtedness of such Guarantor owed to lenders under the Senior Credit Facility, (b) all obligations of such Guarantor with respect to any Interest Rate Agreement or Currency Agreement or any guarantee thereof, (c) all obligations of such Guarantor to reimburse any bank or other person in respect of amounts paid under letters of credit, acceptances or other similar instruments and all obligations of such Guarantor with respect to guarantees of such reimbursement obligations, (d) all other Indebtedness of such Guarantor which does not provide that it is to rank pari passu with or subordinate to the Guarantees and (e) all deferrals, renewals, refinancings, extensions and refundings of, and amendments, modifications and supplements to, any of the Guarantor Senior Indebtedness described above. Notwithstanding anything to the contrary in the foregoing, Guarantor Senior Indebtedness will not include (i) Indebtedness of such Guarantor to any of its Subsidiaries, or to any Affiliate of such Guarantor or any of such Affiliate's Subsidiaries, (ii) Indebtedness represented by the Guarantees, (iii) any Indebtedness which by the express terms of the agreement or instrument creating, evidencing or governing the -13- same is junior or subordinate in right of payment to any item of Guarantor Senior Indebtedness, (iv) any trade payable arising from the purchase of goods or materials or for services obtained in the ordinary course of business, (v) Indebtedness incurred in violation of this Indenture, (vi) Indebtedness represented by Disqualified Capital Stock and (vii) any Indebtedness to or guaranteed on behalf of, any shareholders, director, officer or employee of such Guarantor or any Subsidiary of such Guarantor. "Holder" or "Noteholder" means the Person in whose name a Note is registered on the Registrar's books. "incur" means, with respect to any Indebtedness or other obligation of any Person, to create, issue, incur (by conversion, exchange or otherwise), assume, guarantee or otherwise become liable in respect of such Indebtedness or other obligation or the recording, as required pursuant to GAAP or otherwise, of any such Indebtedness or other obligation on the balance sheet of such Person (and "incurrence," "incurred," "incurable," and "incurring" shall have meanings correlative to the foregoing); provided, that a change in GAAP that results in -------- an obligation of such Person that exists at such time becoming Indebtedness shall not be deemed an incurrence of such Indebtedness. "Indebtedness" means (without duplication), with respect to any Person, any obligation at any time outstanding, secured or unsecured, contingent or otherwise, which is for borrowed money (whether or not the recourse of the lender is to the whole of the assets of such Person or only to a portion thereof), or evidenced by bonds, notes, debentures or similar instruments or representing the balance deferred and unpaid of the purchase price of any property (excluding, without limitation, any balances that constitute accounts payable or trade payables, and other accrued liabilities arising in the ordinary course of business) if and to the extent any of the foregoing indebtedness would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP, and shall also include, to the extent not otherwise included, (i) any Capitalized Lease Obligations (excluding any imputed interest therein) of such Person, (ii) obligations secured by a lien to which the property or assets owned or held by such Person is subject, whether or not the obligation or obligations secured thereby shall have been assumed, to the extent of the -14- fair market value of such property or assets, (iii) guarantees of items of other Persons which would be included within this definition for such other Persons (whether or not such items would appear upon the balance sheet of the guarantor), to the extent of the amount of the Indebtedness so guaranteed, (iv) all obligations for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction, (v) Disqualified Capital Stock of such Person or any Restricted Subsidiary thereof, and (vi) obligations of any such Person under any Currency Agreement or any Interest Rate Agreement applicable to any of the foregoing (if and to the extent such Currency Agreement or Interest Rate Agreement obligations would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP). The amount of Indebtedness of any Person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and, with respect to contingent obligations, the maximum liability upon the occurrence of the contingency giving rise to the obligations; provided that (i) the amount -------- outstanding at any time of any Indebtedness issued with original issue discount is the principal amount of such Indebtedness less the remaining unamortized portion of the original issue discount of such Indebtedness at such time as determined in conformity with GAAP and (ii) Indebtedness shall not include any liability for federal, state, local or other taxes. Notwithstanding any other provision of the foregoing definition, any trade payable arising from the purchase of goods or materials or for services obtained in the ordinary course of business shall not be deemed to be "Indebtedness" of the Company or any of its Restricted Subsidiaries for purposes of this definition. Furthermore, guarantees of (or obligations with respect to letters of credit supporting) Indebtedness otherwise included in the determination of such amount shall not also be included. "Indenture" means this Indenture as amended, restated or supplemented from time to time. "Independent Financial Advisor" means an investment banking firm of national reputation in the United States (i) which does not, and whose directors, officers and employees or Affiliates do not, have a direct or indirect financial interest in the Company and (ii) which, in the judgment of the Board of Directors of the Company, is otherwise independent and qualified to perform the task for which it is to be engaged. -15- "Initial Purchasers" means CIBC Wood Gundy Securities Corp. and First Union Capital Markets Corp. "Institutional Accredited Investor" means an institution that is an "accredited investor" as that term is defined in Rule 501 (a)(1), (2), (3) or (7) promulgated under the Securities Act. "Interest Payment Date" means the stated maturity of an installment of interest on the Notes. "Interest Rate Agreement" means, with respect to any Person, any interest rate swap agreement, interest rate cap agreement, interest rate collar agreement or other similar agreement designed to protect the party indicated therein against fluctuations in interest rates. "Investments" means, with respect of any Person, directly or indirectly, any advance, account receivable (other than an account receivable arising in the ordinary course of business of such Person), loan or capital contribution to (by means of transfers of property to others, payments for property or services for the account or use of others or otherwise), the purchase of any Capital Stock, bonds, notes, debentures, partnership or joint venture interests or other securities of, the acquisition, by purchase or otherwise, of all or substantially all of the business or assets or stock or other evidence of beneficial ownership of, any Person or the making of any investment in any Person. Investments shall exclude (i) extensions of trade credit on commercially reasonable terms in accordance with normal trade practices of such Person and (ii) the repurchase of securities of any Person by such Person. For the purposes of Section 4.09 of this Indenture, (i) "Investment" shall include and be valued at the fair market value of the net assets of any Restricted Subsidiary at the time that such Restricted Subsidiary is designated an Unrestricted Subsidiary and shall exclude the fair market value of the net assets of any Unrestricted Subsidiary at the time that such Unrestricted Subsidiary is designated a Restricted Subsidiary and (ii) the amount of any Investment shall be the original cost of such Investment plus the cost of all additional Investments by the Company or any of its Restricted Subsidiaries, without any adjustments for increases or decreases in value, or write-ups, write-downs or write-offs with respect to such Investment, reduced by the payment of -16- dividends or distributions in connection with such Investment or any other amounts received in respect of such Investment; provided that no such -------- payment of dividends or distributions or receipt of any such other amounts shall reduce the amount of any Investment if such payment of dividends or distributions or receipt of any such amounts would be included in Consolidated Net Income. If the Company or any Restricted Subsidiary of the Company sells or otherwise disposes of any Common Stock of any direct or indirect Restricted Subsidiary of the Company such that, after giving effect to any such sale or disposition, the Company no longer owns, directly or indirectly, greater than 50% of the outstanding Common Stock of such Restricted Subsidiary, the Company shall be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of the Common Stock of such Restricted Subsidiary not sold or disposed of. "Issue Date" means the date the Notes are first issued by the Company and authenticated by the Trustee under this Indenture. "Lien" means with respect to any property or assets of any Person, any mortgage or deed of trust, pledge, hypothecation, assignment, deposit arrangement, security interest, lien, charge, easement, encumbrance, preference, priority, or other security agreement or preferential arrangement of any kind or nature whatsoever on or with respect to such property or assets (including without limitation, any Capitalized Lease Obligation, conditional sales, or other title retention agreement having substantially the same economic effect as any of the foregoing). "Material Restricted Subsidiary" means a Restricted Subsidiary that, as of the end of the most recent fiscal quarter, accounted for 10% or more of the Company's consolidated (i) total assets, (ii) shareholders' equity or (iii) operating income (calculated for the four most recent fiscal quarters), determined in each case in accordance with GAAP. "Maturity Date" means October 15, 2007. "Moody's" means Moody's Investors Service, Inc. and its successors. -17- "Net Cash Proceeds" means the aggregate amount of U.S. Legal Tender and Cash Equivalents received by a Person from the sale of Capital Stock, after payment of expenses, commissions and the like incurred in connection therewith. "Net Income" means, with respect to any Person, for any period, the net income (loss) of such Person determined in accordance with GAAP. "Net Investment" means the excess of (i) the aggregate amount of all Investments in Unrestricted Subsidiaries or joint ventures made by the Company or any Restricted Subsidiary on or after the Issue Date (in the case of an Investment made other than in cash, the amount shall be the fair market value of such Investment as determined in good faith by the Board of Directors of the Company or such Restricted Subsidiary) over (ii) the sum of (a) the aggregate amount returned in cash on or with respect to such Investments whether through interest payments, principal payments, dividends or other distributions or payments and (b) the Net Cash Proceeds received by the Company or any Restricted Subsidiary or joint venture from the disposition of all or any portion of such Investments (other than to a Subsidiary of the Company); provided, however, that -------- ------- with respect to all Investments made in any Unrestricted Subsidiary or joint venture the sum of clauses (a) and (b) above with respect to such Investments shall not exceed the aggregate amount of all such Investments made in such Unrestricted Subsidiary. "Net Proceeds" means (a) in the case of any sale of Capital Stock by or equity contribution to any Person, the aggregate net proceeds received by such Person, after payment of expenses, commissions and the like incurred in connection therewith, whether such proceeds are in cash or in property (valued at the fair market value thereof, as determined in good faith by the Board of Directors of such Person, at the time of receipt) and (b) in the case of any exchange, exercise, conversion or surrender of outstanding securities of any kind for or into shares of Capital Stock of the Company which is not Disqualified Capital Stock, the net book value or principal amount of such outstanding securities on the date of such exchange, exercise, conversion or surrender (plus any additional amount required to be paid by the holder to such Person upon such exchange, exercise, conversion or surrender, less any and all payments made to the holders, e.g., on account --- -18- of fractional shares and less all expenses incurred by such Person in connection therewith). "Non-Payment Event of Default" means any event (other than a Payment Default) the occurrence of which entitles one or more Persons to accelerate the maturity of any Designated Senior Indebtedness. "Non-U.S. Person" means a Person who is not a U.S. person, as defined in Regulation S. "Notes" means the securities issued by the Company, including, without limitation, the Private Exchange Notes, if any, and the Exchange Notes, treated as a single class of securities, as amended or supplemented from time to time in accordance with the terms hereof, that are issued pursuant to this Indenture. "Obligations" means, with respect to any Indebtedness, any principal, premium, interest, penalties, fees, indemnifications, reimbursements, damages and other expenses payable under the documentation governing such Indebtedness. "Offering" means the offering of the Notes as described in the Offering Memorandum. "Offering Memorandum" means the Offering Memorandum dated October 17, 1997 pursuant to which the Notes issued on the Issue Date were offered. "Officer", with respect to any Person (other than the Trustee), means the Chairman of the Board of Directors, Chief Executive Officer, the President, any Vice President and the Chief Financial Officer, the Treasurer or the Secretary of such Person, or any other officer of such Person designated by the Board of Directors of such Person and set forth in an Officers' Certificate delivered to the Trustee. "Officers' Certificate" means, with respect to any Person, a certificate signed by the Chief Executive Officer, the President or any Vice President and the Chief Financial Officer or any Treasurer of such Person that shall comply with applicable provisions of this Indenture. -19- "Opinion of Counsel" means a written opinion reasonably satisfactory in form and substance to the Trustee from legal counsel, which counsel is reasonably acceptable to the Trustee, stating the matters required by Section 12.05 and delivered to the Trustee. "Payment Default" means any default, whether or not any requirement for the giving of notice, the lapse of time or both, or any other condition to such default becoming an event of default has occurred, in the payment of principal of or premium, if any, or interest on or any other amount payable in connection with Designated Senior Indebtedness. "Permitted Asset Swap" means any transfer of properties or assets by the Company or any of its Restricted Subsidiaries in which 80% of the consideration received by the transferor consists of properties or assets (other than cash) that will be used in the business of the transferor; provided that -------- (i) the aggregate fair market value (as determined in good faith by the Board of Directors of the Company) of the property or assets (including cash) being transferred by the Company or such Restricted Subsidiary is not greater than the aggregate fair market value (as determined in good faith by the Board of Directors of the Company) of the property or assets (including cash) received by the Company or such Restricted Subsidiary in such exchange and (ii) the aggregate fair market value (as determined in good faith by the Board of Directors of the Company) of all property or assets transferred by the Company and any of its Restricted Subsidiaries in connection with exchanges in any period of twelve consecutive months shall not exceed $20 million. "Permitted Holders" shall mean any member of senior management of the Company, Freeman Spogli & Co. Incorporated or Chase Manhattan Capital, L.P., and any successor entity thereof controlled by the principals of Freeman Spogli & Co. Incorporated or Chase Manhattan Capital, L.P., as the case may be, and any entity controlled by either of them (other than any of their portfolio companies). "Permitted Indebtedness" means: (i) Indebtedness of the Company or any Restricted Subsidiary arising under or in connection with the Senior Credit Facility in an aggregate -20- principal amount not to exceed (x) $50 million outstanding at any time under an acquisition facility plus (y) the greater of (A) $45 million or (B) an amount equal to the product of 4.0% times the Company's consolidated total revenues for the four full fiscal quarters for which financial information is available ended immediately preceding the date of determination, determined in accordance with GAAP, under a revolving credit and letter of credit facility less, in the case of (x) or (y), any mandatory prepayment actually made thereunder (to the extent, in the case of payments of revolving credit borrowings, that the corresponding commitments have been permanently reduced) or scheduled payments actually made thereunder; (ii) Indebtedness under the Notes and the Guarantees; (iii) Indebtedness not covered by any other clause of this definition which is outstanding on the Issue Date; (iv) Indebtedness of the Company to any Wholly Owned Subsidiary and Indebtedness of any Wholly Owned Subsidiary to the Company or another Wholly Owned Subsidiary; (v) Purchase Money Indebtedness and Capitalized Lease Obligations incurred to finance the acquisition, construction, improvement or remodeling of property or assets in the ordinary course of business, which Purchase Money Indebtedness and Capitalized Lease Obligations do not in the aggregate exceed 10% of the Company's Consolidated Total Tangible Assets at any time; (vi) Interest Rate Agreements and Currency Agreements; (vii) Refinancing Indebtedness; (viii) Indebtedness under the Senior Notes and guarantees thereof by the Guarantors; and -21- (ix) additional Indebtedness of the Company and its Restricted Subsidiaries not to exceed $15 million in aggregate principal amount at any one time outstanding. "Permitted Investments" means Investments made on or after the Issue Date consisting of: (i) Investments by the Company, or by a Restricted Subsidiary thereof, in the Company or a Restricted Subsidiary; (ii) Investments by the Company, or by a Restricted Subsidiary thereof, in a Person, if as a result of such Investment (a) such Person becomes a Restricted Subsidiary of the Company or (b) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company or a Restricted Subsidiary thereof; (iii) Investments in cash and Cash Equivalents; (iv) reasonable and customary loans made to employees not to exceed $1 million in the aggregate at any one time outstanding; (v) an Investment that is made by the Company or a Restricted Subsidiary thereof in the form of any Capital Stock, bonds, notes, debentures, partnership or joint venture interests or other securities that are issued by a third party to the Company or such Restricted Subsidiary solely as partial consideration for the consummation of an Asset Sale that is otherwise permitted under Section 4.10; (vi) Interest Rate Agreements and Currency Agreements entered into in the ordinary course of the Company's or its Restricted Subsidiaries' business; and (vii) recourse loans of up to an aggregate of $2 million outstanding at any time to employees of -22- the Company or its Subsidiaries made in connection with the purchase of Capital Stock of the Company (other than Disqualified Capital Stock). "Permitted Liens" means (i) Liens on Property or assets of, or any shares of Capital Stock of or secured indebtedness of, any corporation existing at the time such corporation becomes a Restricted Subsidiary of the Company or at the time such corporation is merged into the Company or any of its Restricted Subsidiaries; provided that such Liens are not incurred in connection with, or -------- in contemplation of, such corporation becoming a Restricted Subsidiary of the Company or merging into the Company or any of its Restricted Subsidiaries, (ii) Liens securing Refinancing Indebtedness; provided that any such Lien does not -------- extend to or cover any Property, Capital Stock or Indebtedness other than the Property, shares or debt securing the Indebtedness so refunded, refinanced or extended, (iii) Liens in favor of the Company or any of its Restricted Subsidiaries, (iv) Liens securing industrial revenue bonds, (v) Liens to secure Purchase Money Indebtedness that is otherwise permitted under this Indenture; provided that (a) any such Lien is created solely for the purpose of securing - -------- Indebtedness representing, or incurred to finance, refinance or refund, the cost (including sales and excise taxes, installation and delivery charges and other direct costs of, and other direct expenses paid or charged in connection with, such purchase or construction) of such Property, (b) the principal amount of the Indebtedness secured by such Lien does not exceed 100% of such costs, and (c) such Lien does not extend to or cover any Property other than such item of Property and any improvements on such item, (vi) statutory liens or landlords', carriers', warehouseman's, mechanics', suppliers', materialmen's, repairmen's or other like Liens arising in the ordinary course of business which do not secure any Indebtedness and with respect to amounts not yet delinquent or being contested in good faith by appropriate proceedings, if a reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made therefor, (vii) other Liens securing obligations incurred in the ordinary course of business which obligations do not exceed $5,000,000 in the aggregate at any one time outstanding, (viii) any extensions, substitutions, replacements or renewals of the foregoing, (ix) Liens for taxes, assessments or governmental charges that are not due or are being contested in good faith -23- by appropriate proceedings and (x) Liens securing Capitalized Lease Obligations permitted to be incurred under clause (v) of the definition of "Permitted Indebtedness,"; provided that such Lien does not extend to any property other -------- than that subject to the underlying lease. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government (including any agency or political subdivision thereof). "Physical Notes" means certificated Notes in registered form in substantially the form set forth in Exhibit A. --------- "Preferred Stock" means any Capital Stock of a Person, however designated, which entitles the holder thereof to a preference with respect to dividends, distributions or liquidation proceeds of such Person over the holders of other Capital Stock issued by such Person. "Private Exchange" has the meaning set forth in the Registration Rights Agreement. "Private Exchange Notes" has the meaning set forth in the Registration Rights Agreement. "Private Placement Legend" means the legend initially set forth on the Rule 144A Notes in the form set forth in Exhibit B. --------- "Property" of any Person means all types of real, personal, tangible, intangible or mixed property owned by such Person whether or not included in the most recent consolidated balance sheet of such Person and its Subsidiaries under GAAP. "Public Equity Offering" means a public offering by the Company of shares of its Common Stock (however designated and whether voting or non-voting) and any and all rights, warrants or options to acquire such Common Stock. "Purchase Agreement" means the Securities Purchase Agreement dated October 17, 1997 by and among the Company, the Guarantors and the Initial Purchasers. -24- "Purchase Money Indebtedness" means any Indebtedness incurred in the ordinary course of business by a Person to finance the cost (including the cost of construction, improvement or remodeling) of an asset or property, provided -------- that (x) the principal amount of such Indebtedness does not exceed the sum of (i) 100% of such cost and (ii) reasonable fees and expenses of such Person incurred in connection therewith and (y) any lien or encumbrance securing such Indebtedness is placed on such asset or property not more than 270 days after its acquisition or the completion of construction, improvement or remodeling, as the case may be. "Qualified Institutional Buyer" or "QIB" shall have the meaning specified in Rule 144A promulgated under the Securities Act. "Redeemable Dividend" means, for any dividend or distribution with regard to Disqualified Capital Stock, the quotient of the dividend or distribution divided by the difference between one and the maximum statutory federal income tax rate (expressed as a decimal number between 1 and 0) then applicable to the issuer of such Disqualified Capital Stock. "Redemption Date" when used with respect to any Note to be redeemed means the date fixed for such redemption pursuant to the terms of the Notes. "Refinancing Indebtedness" means Indebtedness that refunds, refinances or extends any Indebtedness of the Company outstanding on the Issue Date or other Indebtedness permitted to be incurred by the Company or its Restricted Subsidiaries pursuant to the terms of this Indenture, but only to the extent that (i) the Refinancing Indebtedness is subordinated to the Notes to at least the same extent as the Indebtedness being refunded, refinanced or extended, if at all, (ii) the Refinancing Indebtedness is scheduled to mature either (a) no earlier than the Indebtedness being refunded, refinanced or extended, or (b) after the maturity date of the Notes, (iii) the portion, if any, of the Refinancing Indebtedness that is scheduled to mature on or prior to the maturity date of the Notes has a weighted average life to maturity at the time such Refinancing Indebtedness is incurred that is equal to or greater than the weighted average life to maturity of the portion of the Indebtedness being refunded, refinanced or extended that is scheduled to mature on or prior to the -25- maturity date of the Notes, (iv) such Refinancing Indebtedness is in an aggregate principal amount that is equal to or less than the sum of (a) the aggregate principal amount then outstanding under the Indebtedness being refunded, refinanced or extended, (b) the amount of accrued and unpaid interest, if any, and premiums owed, if any, not in excess of preexisting prepayment provisions on such Indebtedness being refunded, refinanced or extended and (c) the amount of customary fees, expenses and costs related to the incurrence of such Refinancing Indebtedness, and (v) such Refinancing Indebtedness is incurred by the same Person that initially incurred the Indebtedness being refunded, refinanced or extended, except that the Company may incur Refinancing Indebtedness to refund, refinance or extend Indebtedness of any Wholly-Owned Subsidiary of the Company; provided, however, that any Indebtedness incurred to -------- ------- refund, refinance or extend Indebtedness incurred by the Company or its Restricted Subsidiaries after the Issue Date pursuant to the terms of the Indenture and any Indebtedness incurred under the Senior Credit Facility to refinance the Senior Notes need not comply with clauses (ii) or (iii) above; provided, further, that, for purposes of calculations made under the Permitted - -------- ------- Indebtedness definition, such Indebtedness may be treated as Refinancing Indebtedness. "Registration Rights Agreement" means the Registration Rights Agreement dated as of the Issue Date among the Company, the Guarantors and the Initial Purchasers, as amended from time to time. "Regulation S" means Regulation S promulgated under the Securities Act. "Responsible Officer" when used with respect to the Trustee, means an officer or assistant officer assigned to the corporate trust department of the Trustee (or any successor group of the Trustee) with direct responsibility for the administration of this Indenture and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "Restricted Note" has the same meaning as "Restricted Security" set forth in Rule 144(a)(3) promulgated under the Securities Act; provided, that the -------- Trustee shall be entitled to -26- request and conclusively rely upon an Opinion of Counsel with respect to whether any Note is a Restricted Note. "Restricted Payment" means any of the following: (i) the declaration or payment of any dividend or any other distribution or payment on Capital Stock of the Company or any Restricted Subsidiary of the Company or any payment made to the direct or indirect holders (in their capacities as such) of Capital Stock of the Company or any Restricted Subsidiary of the Company (other than (x) dividends or distributions payable solely in Capital Stock (other than Disqualified Capital Stock) or in options, warrants or other rights to purchase such Capital Stock (other than Disqualified Capital Stock), and (y) in the case of Restricted Subsidiaries of the Company, dividends or distributions payable to the Company or to a Wholly Owned Subsidiary of the Company), (ii) the purchase, redemption or other acquisition or retirement for value of any Capital Stock of the Company or any of its Restricted Subsidiaries (other than Capital Stock owned by the Company or a Wholly Owned Subsidiary of the Company, excluding Disqualified Capital Stock) or any option, warrants or other rights to purchase such Capital Stock, (iii) the making of any principal payment on, or the purchase, defeasance, repurchase, redemption or other acquisition or retirement for value, prior to any scheduled maturity, scheduled repayment or scheduled sinking fund payment, of any Indebtedness which is subordinated in right of payment to the Notes (other than subordinated Indebtedness acquired in anticipation of satisfying a scheduled sinking fund obligation, principal installment or final maturity, in each case due within one year of the date of acquisition), (iv) the making of any Investment or guarantee of any Investment in any Person other than a Permitted Investment, (v) any designation of a Restricted Subsidiary as an Unrestricted Subsidiary on the basis of the Investment by the Company therein and (vi) forgiveness of any Indebtedness of an Affiliate of the Company to the Company or a Restricted Subsidiary of the Company. For purposes of determining the amount expended for Restricted Payments, cash distributed or invested shall be valued at the face amount thereof and property other than cash shall be valued at its fair market value. "Restricted Subsidiary" means a Subsidiary of the Company other than an Unrestricted Subsidiary and includes all of the Subsidiaries of the Company existing as of the Issue -27- Date. The Board of Directors of the Company may designate any Unrestricted Subsidiary or any Person that is to become a Subsidiary as a Restricted Subsidiary if immediately after giving effect to such action (and treating any Acquired Indebtedness as having been incurred at the time of such action), (i) the Company could have incurred at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to Section 4.06 and (ii) no Default or Event of Default shall have occurred and be continuing. "Rule 144" means Rule 144 promulgated under the Securities Act. "Rule 144A" means Rule 144A promulgated under the Securities Act. "Sale and Lease-Back Transaction" means any arrangement with any Person providing for the leasing by the Company or any Restricted Subsidiary of the Company of any real or tangible personal property, which property has been or is to be sold or transferred by the Company or such Restricted Subsidiary to such Person in contemplation of such leasing. "S&P" means Standard & Poor's Ratings Services and its successors. "SEC" means the United States Securities and Exchange Commission as constituted from time to time or any successor performing substantially the same functions. "Securities Act" means the Securities Act of 1933, as amended. "Senior Credit Facility" means the Credit Agreement dated as of October 23, 1997, among the Company, the lenders party thereto in their capacities as lenders thereunder, the Initial Purchasers, as co-arrangers, and Canadian Imperial Bank of Commerce, as syndication agent, and First Union National Bank, as administrative agent, together with the related documents thereto (including, without limitation, any guarantee agreements and security documents), in each case as such agreements may be amended (including any amendment and restatement thereof), supplemented or otherwise modified from time to time, including any agreement extending the maturity of, refinancing, replacing or otherwise restructuring -28- (including increasing the amount of available borrowings thereunder (provided -------- that such increase in borrowings is permitted by Section 4.06, whether or not under clause (i) of the definition of "Permitted Indebtedness") or adding Restricted Subsidiaries of the Company as additional borrowers or guarantors thereunder) all or any portion of the Indebtedness under such agreement or any successor or replacement agreement and whether by the same or any other agent, lender or group of lenders. "Senior Indebtedness" means the principal of and premium, if any, and interest on, and any and all other fees, expense reimbursement obligations and other amounts due pursuant to the terms of all agreements, documents and instruments providing for, creating, securing or evidencing or otherwise entered into in connection with (a) all Indebtedness of the Company owed to lenders under the Senior Credit Facility, (b) all obligations of the Company with respect to any Interest Rate Agreement or Currency Agreement, (c) all obligations of the Company to reimburse any bank or other person in respect of amounts paid under letters of credit, acceptances or other similar instruments, (d) all other Indebtedness of the Company which does not provide that it is to rank pari passu with or subordinate to the Notes and (e) all deferrals, ---- ----- renewals, refinancings, extensions and refundings of, and amendments, modifications and supplements to, any of the Senior Indebtedness described above. Notwithstanding anything to the contrary in the foregoing, Senior Indebtedness will not include (i) Indebtedness of the Company to any of its Subsidiaries, or to any Affiliate of the Company or any of such Affiliate's Subsidiaries, (ii) Indebtedness represented by the Notes, (iii) any Indebtedness which by the express terms of the agreement or instrument creating, evidencing or governing the same is junior or subordinate in right of payment to any item of Senior Indebtedness, (iv) any trade payable arising from the purchase of goods or materials or for services obtained in the ordinary course of business, (v) Indebtedness incurred in violation of this Indenture, (vi) Indebtedness represented by Disqualified Capital Stock and (vii) any Indebtedness to or guaranteed on behalf of any shareholders, director, officer or employee of the Company or any Subsidiary of the Company. "Senior Notes" means the Company's 12% Series B Senior Notes Due 2000. -29- "Subsidiary" of any specified Person means any corporation, partnership, joint venture, association or other business entity, whether now existing or hereafter organized or acquired, (i) in the case of a corporation, of which more than 50% of the total voting power of the Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, officers or trustees thereof is held by such first-named Person or any of its Subsidiaries; or (ii) in the case of a partnership, joint venture, association or other business entity, with respect to which such first-named Person or any of its Subsidiaries has the power to direct or cause the direction of the management and policies of such entity by contract or otherwise or if in accordance with GAAP such entity is consolidated with the first-named Person for financial statement purposes. "TIA" means the Trust Indenture Act of 1939 (15 U.S. Code (S)(S) 77aaa-77bbbb) as in effect on the date of this Indenture (except as provided in Section 9.03 hereof). "Trustee" means the party named as such in this Indenture until a successor replaces it pursuant to this Indenture and thereafter means the successor. "Unrestricted Subsidiary" means (a) PH Holding Corporation, a Delaware corporation, (b) any Subsidiary of an Unrestricted Subsidiary and (c) any other Subsidiary of the Company which is classified after the Issue Date as an Unrestricted Subsidiary by a resolution adopted by the Board of Directors of the Company; provided that a Subsidiary may be so classified as an Unrestricted -------- Subsidiary only if such classification is in compliance with Section 4.09. The Trustee shall be given prompt notice by the Company of each resolution adopted by the Board of Directors of the Company under this provision, together with a copy of each such resolution adopted. "U.S. Government Obligations" means (a) securities that are direct obligations of the United States of America for the payment of which its full faith and credit are pledged or (b) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America, the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case, are not callable or redeemable -30- at the option of the issuer thereof, and shall also include a depository receipt issued by a bank (as defined in Section 3(a)(2) of the Securities Act) as custodian with respect to any such U.S. Government Obligation or a specific payment of principal of or interest on any such U.S. Government Obligation held by such custodian for the account of the holder of such depository receipt; provided that (except as required by law) such custodian is not authorized to - -------- make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the U.S. Government Obligation or a specific payment of principal or interest on any such U.S. Government Obligation held by such custodian for the account of the holder of such depository receipt. "Wholly-Owned Subsidiary" means any Restricted Subsidiary, all of the outstanding voting securities (other than directors' qualifying shares) of which are owned, directly or indirectly, by the Company. Section 1.02. Other Definitions. ------------------ The definitions of the following terms may be found in the sections indicated as follows: Term Defined in Section ---- ------------------ -31- "Affiliate Transaction".............. 4.11 "Agent Members"...................... 2.16(a) "Bankruptcy Law"..................... 6.01 "Bankruptcy Proceeding".............. 7.02 "Business Day"....................... 12.07 "CEDEL".............................. 2.16(a) "Change of Control Offer"............ 4.18 "Change of Control Purchase Price"... 4.18 "Change of Control Payment Date"..... 4.18 "Covenant Defeasance"................ 10.03 "Custodian".......................... 6.01 "Euroclear".......................... 2.16(a) "Event of Default"................... 6.01 "Excess Proceeds Offer".............. 4.10 "Global Notes"....................... 2.16(a)
-32- "Guarantor Bankruptcy Proceeding".... 11.07 "Guarantor Blockage Period".......... 11.10 "Guarantor Default Notice"........... 11.10 "Initial Blockage Period"............ 7.03 "Legal Defeasance"................... 10.02 "Legal Holiday"...................... 12.07 "Offer Period"....................... 4.10 "Other Notes"........................ 2.02 "Paying Agent"....................... 2.04 "Payment Blockage Period"............ 7.03 "Purchase Date"...................... 4.10 "Registrar".......................... 2.04 "Regulation S Global Notes".......... 2.16(a) "Regulation S Notes"................. 2.02 "Reinvestment Date".................. 4.10 "Restricted Global Note"............. 2.16(a) "Rule 144A Notes".................... 2.02
Section 1.03. Incorporation by Reference of Trust Indenture Act. ----------------------------------- Whenever this Indenture refers to a provision of the TIA, the portion of such provision required to be incorporated herein in order for this Indenture to be qualified under the TIA is incorporated by reference in and made a part of this Indenture. If any provision of this Indenture modifies any provision of the TIA that may be so modified, such TIA provision shall be deemed to apply to this Indenture as so modified. If any provision of this Indenture excludes any TIA provision that may be so excluded, such TIA provision shall be excluded from this Indenture. The following TIA terms used in this Indenture have the following meanings: "Commission" means the SEC. "indenture securities" means the Notes. "indenture securityholder" means a Holder or Noteholder. "indenture to be qualified" means this Indenture. -33- "indenture trustee" or "institutional trustee" means the Trustee. "obligor on the indenture securities" means the Company, the Guarantors or any other obligor on the Notes. All other terms used in this Indenture that are defined by the TIA, defined in the TIA by reference to another statute or defined by SEC rule have the meanings therein assigned to them. Section 1.04. Rules of Construction. --------------------- Unless the context otherwise requires: (1) a term has the meaning assigned to it herein, whether defined expressly or by reference; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (3) "or" is not exclusive; (4) words in the singular include the plural, and in the plural include the singular; (5) words used herein implying any gender shall apply to both genders; and (6) whenever in this Indenture there is mentioned, in any context, Principal, interest or any other amount payable under or with respect to any Note, such mention shall be deemed to include mention of the payment of Additional Interest to the extent that, in such context, Additional Interest is, was or would be payable in respect thereof. ARTICLE TWO THE NOTES Section 2.01. Amount of Notes. --------------- -34- The Trustee shall authenticate Notes for original issue on the Issue Date in the aggregate principal amount of $200,000,000, upon a written order of the Company in the form of an Officers' Certificate of the Company. Such written order shall specify the amount of Notes to be authenticated and the date on which the Notes are to be authenticated. Upon receipt of a Company Request and an Officers' Certificate certifying that a registration statement relating to an exchange offer specified in the Registration Rights Agreement is effective and that the conditions precedent to a private exchange thereunder have been met, the Trustee shall authenticate an additional series of Notes in an aggregate principal amount not to exceed $200,000,000 for issuance in exchange for the Notes tendered for exchange pursuant to such exchange offer registered under the Securities Act not bearing the Private Placement Legend or pursuant to a Private Exchange. Exchange Notes or Private Exchange Notes may have such distinctive series designations and such changes in the form thereof as are specified in the Company Request referred to in the preceding sentence. Section 2.02. Form and Dating. --------------- The Notes and the Trustee's certificate of authentication with respect thereto shall be substantially in the form set forth in Exhibit A, which is --------- incorporated in and forms a part of this Indenture. The Notes may have notations, legends or endorsements required by law, rule or usage to which the Company is subject. Any such notations, legends or endorsements shall be furnished to the Trustee in writing. Without limiting the generality of the foregoing, Notes offered and sold to Qualified Institutional Buyers in reliance on Rule 144A ("Rule 144A Notes") shall bear the legend and include the form of assignment set forth in Exhibit B, Notes offered and sold in offshore --------- transactions in reliance on Regulation S ("Regulation S Notes") shall bear the legend and include the form of assignment set forth in Exhibit C, and Notes --------- transferred to Institutional Accredited Investors in transactions exempt from registration under the Securities Act not made in reliance on Rule 144A or Regulation S ("Other Notes") shall be represented by Physical Notes bearing the Private Placement Legend. Each Note shall be dated the date of its authentication. -35- The terms and provisions contained in the Notes shall constitute, and are expressly made, a part of this Indenture and, to the extent applicable, the Company and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and agree to be bound thereby. The Notes may be presented for registration of transfer and exchange at the offices of the Registrar. Section 2.03. Execution and Authentication. ---------------------------- Two Officers shall sign, or one Officer shall sign and one Officer (each of whom shall, in each case, have been duly authorized by all requisite corporate actions) shall attest to, the Notes for the Company by manual or facsimile signature. If an Officer whose signature is on a Note was an Officer at the time of such execution but no longer holds that office at the time the Trustee authenticates the Note, the Note shall be valid nevertheless. No Note shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Note a certificate of authentication substantially in the form provided for herein executed by the Trustee by manual signature, and such certificate upon any Note shall be conclusive evidence, and the only evidence, that such Note has been duly authenticated and delivered hereunder. Notwithstanding the foregoing, if any Note shall have been authenticated and delivered hereunder but never issued and sold by the Company, and the Company shall deliver such Note to the Trustee for cancellation as provided in Section 2.12, for all purposes of this Indenture such Note shall be deemed never to have been authenticated and delivered hereunder and shall never be entitled to the benefits of this Indenture. The Trustee may appoint an authenticating agent reasonably acceptable to the Company to authenticate the Notes. Unless otherwise provided in the appointment, an authenticating agent may authenticate the Notes whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with the Company and Affiliates of the Company. Each Paying Agent is designated as an authenticating agent for purposes of this Indenture. -36- The Notes shall be issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. Section 2.04. Registrar and Paying Agent. -------------------------- The Company shall maintain an office or agency (which shall be located in the Borough of Manhattan in The City of New York, State of New York) where Notes may be presented for registration of transfer or for exchange (the "Registrar"), and an office or agency where Notes may be presented for payment (the "Paying Agent") and an office or agency where notices and demands to or upon the Company, if any, in respect of the Notes and this Indenture may be served. The Registrar shall keep a register of the Notes and of their transfer and exchange. The Company may have one or more additional Paying Agents. The term "Paying Agent" includes any additional Paying Agent. Neither the Company nor any Affiliate thereof may act as Paying Agent. The Company may change any Paying Agent or Registrar without notice to any Noteholder. The Company may also from time to time designate one or more other offices or agencies (in or outside the Borough of Manhattan, The City of New York) where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, -------- ------- that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, The City of New York, for such purposes. The Company will give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. The Trustee is not required to qualify to do business in any jurisdiction outside the state of New York and shall be in full compliance with the provisions of this Indenture by refusing any request to so qualify. The Company shall enter into an appropriate agency agreement with any Agent not a party to this Indenture, which shall incorporate the provisions of the TIA. The agreement shall implement the provisions of this Indenture that relate to such Agent. The Company shall notify the Trustee of the name and address of any such Agent. If the Company fails to maintain a Registrar or Paying Agent, or fail to give the foregoing notice, the Trustee shall act as such and shall be entitled to compensation in accordance with Section 8.07. -37- The Company initially appoints the Trustee as Registrar, Paying Agent and agent for service of notices and demands in connection with the Notes and this Indenture. The Company shall give written notice to the Trustee in the event that the Company decides to act as Registrar. Section 2.05. Paying Agent to Hold Money in Trust. ----------------------------------- Each Paying Agent shall hold in trust for the benefit of the Noteholders or the Trustee all money held by the Paying Agent for the payment of principal of or premium, if any, or interest on the Notes (whether such money has been paid to it by the Company or any other obligor on the Notes), and the Company and the Paying Agent shall notify the Trustee of any default by the Company (or any other obligor on the Notes) in making any such payment. Money held in trust by the Paying Agent need not be segregated except as required by law and in no event shall the Paying Agent be liable for any interest on any money received by it hereunder. The Company at any time may require the Paying Agent to pay all money held by it to the Trustee and account for any funds disbursed and the Trustee may at any time during the continuance of any Event of Default specified in Section 6.01(1) or (2), upon written request to the Paying Agent, require such Paying Agent to pay forthwith all money so held by it to the Trustee and to account for any funds disbursed. Upon making such payment, the Paying Agent shall have no further liability for the money delivered to the Trustee. Section 2.06. Noteholder Lists. ---------------- The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of the Noteholders. If the Trustee is not the Registrar, the Company shall furnish to the Trustee at least five Business Days before each Interest Payment Date, and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of the Noteholders. Section 2.07. Transfer and Exchange. --------------------- Subject to Sections 2.16 and 2.17, when Notes are presented to the Registrar with a request from the Holder of such Notes to register a transfer or to exchange them for an equal principal amount of Notes of other authorized denominations, the -38- Registrar shall register the transfer as requested. Every Note presented or surrendered for registration of transfer or exchange shall be duly endorsed or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Registrar, duly executed by the Holder thereof or his attorneys duly authorized in writing. To permit registrations of transfers and exchanges, the Company shall issue and execute and the Trustee shall authenticate new Notes evidencing such transfer or exchange at the Registrar's request. No service charge shall be made to the Noteholder for any registration of transfer or exchange. The Company may require from the Noteholder payment of a sum sufficient to cover any transfer taxes or other governmental charge that may be imposed in relation to a transfer or exchange, but this provision shall not apply to any exchange pursuant to Section 2.11, 3.06, 4.10, 4.18 or 9.05 (in which events the Company shall be responsible for the payment of such taxes). The Company and the Registrar shall not be required to exchange or register a transfer of any Note for a period of 15 days immediately preceding the selection of Notes to be redeemed or any Note selected for redemption. Prior to due presentment for the registration of a transfer of any Note, the Trustee, the Registrar, the Paying Agent and the Company may deem and treat the Person in whose name any Note is registered as the absolute owner of such Note for the purpose of receiving payment of principal of, and premium, if any, or interest on such Note, and neither the Trustee, the Registrar, the Paying Agent nor the Company shall be affected by notice to the contrary. Any Holder of the Global Note shall, by acceptance of such Global Note, agree that transfers of the beneficial interests in such Global Note may be effected only through a book entry system maintained by the Holder of such Global Note (or its agent), and that ownership of a beneficial interest in the Global Note shall be required to be reflected in a book entry. Each Holder of a Note agrees to indemnify the Company, the Registrar and the Trustee against any liability that may result from the transfer, exchange or assignment of such Holder's Note in violation of any provision of this Indenture and/or applicable U.S. Federal or state securities law. Except as expressly provided herein, neither the Trustee nor the Registrar shall have any duty to monitor the -39- Company's compliance with or have any responsibility with respect to the Company's compliance with any Federal or state securities laws. Section 2.08. Replacement Notes. ----------------- If a mutilated Note is surrendered to the Registrar or the Trustee, or if the Holder of a Note claims that the Note has been lost, destroyed or wrongfully taken, the Company shall issue and the Trustee shall authenticate a replacement Note if the Holder of such Note furnishes to the Company and the Trustee evidence reasonably acceptable to them of the ownership and the destruction, loss or theft of such Note and if the requirements of Section 8-405 of the New York Uniform Commercial Code as in effect on the date of this Indenture are met. If required by the Trustee or the Company, an indemnity bond shall be posted, sufficient in the judgment of both to protect the Company, the Trustee or any Paying Agent from any loss that any of them may suffer if such Note is replaced. The Company may charge such Holder for the Company's reasonable out-of-pocket expenses in replacing such Note and the Trustee may charge the Company for the Trustee's expenses (including, without limitation, reasonable attorneys' fees and disbursements) in replacing such Note. Every replacement Note shall constitute an additional contractual obligation of the Company. Section 2.09. Outstanding Notes. ----------------- The Notes outstanding at any time are all Notes that have been authenticated and delivered by the Trustee except for (a) those canceled by it, (b) those delivered to it for cancellation, (c) to the extent set forth in Sections 10.01 and 10.02, on or after the date on which the conditions set forth in Section 10.01 or 10.02 have been satisfied, those Notes theretofore authenticated and delivered by the Trustee hereunder and (d) those described in this Section 2.09 as not outstanding. Subject to Section 2.10, a Note does not cease to be outstanding because the Company or one of its Affiliates holds the Note. If a Note is replaced pursuant to Section 2.08, it ceases to be outstanding unless the Trustee receives written notice satisfactory to it that the replaced Note is held by a bona fide purchaser in whose hands such Note is a legal, valid and binding obligation of the Company. -40- If the Paying Agent holds, in its capacity as such, on any Maturity Date or on any optional redemption date, money sufficient to pay all accrued interest and principal with respect to the Notes payable on that date and is not prohibited from paying such money to the Holders thereof pursuant to the terms of this Indenture, then on and after that date such Notes cease to be outstanding and interest on them ceases to accrue. Section 2.10. Treasury Notes. -------------- In determining whether the Holders of the required principal amount of Notes have concurred in any declaration of acceleration or notice of default or direction, waiver or consent or any amendment, modification or other change to this Indenture, Notes owned by the Company or any Affiliate of the Company shall be disregarded as though they were not outstanding, except that for the purposes of determining whether the Trustee shall be protected in relying on any such declaration, notice, direction, waiver or consent or any amendment, modification or other change to this Indenture, only Notes as to which a Responsible Officer of the Trustee has received an Officers' Certificate stating that such Notes are so owned shall be so disregarded. Notes so owned which have been pledged in good faith shall not be disregarded if the pledgee establishes the pledgee's right so to act with respect to the Notes and that the pledgee is not of the Company, any other obligor on the Notes or any of their respective Affiliates. Section 2.11. Temporary Notes. --------------- Until definitive Notes are prepared and ready for delivery, the Company may prepare and the Trustee shall authenticate temporary Notes. Temporary Notes shall be substantially in the form of definitive Notes but may have variations that the Company considers appropriate for temporary Notes. Without unreasonable delay, the Company shall prepare and the Trustee shall authenticate definitive Notes in exchange for temporary Notes. Until such exchange, temporary Notes shall be entitled to the same rights, benefits and privileges as definitive Notes. Section 2.12. Cancellation. ------------ The Company at any time may deliver Notes to the Trustee for cancellation. The Registrar and the Paying Agent -41- shall forward to the Trustee any Notes surrendered to them for registration of transfer, exchange or payment. The Trustee shall cancel all Notes surrendered for registration of transfer, exchange, payment, replacement or cancellation and shall (subject to the record-retention requirements of the Exchange Act) destroy canceled Notes and deliver a certificate of destruction thereof to the Company. The Company may not reissue or resell, or issue new Notes to replace, Notes that the Company has redeemed or paid, or that have been delivered to the Trustee for cancellation. Section 2.13. Defaulted Interest. ------------------ If the Company defaults on a payment of interest on the Notes, it shall pay the defaulted interest, plus (to the extent permitted by law) any interest payable on the defaulted interest, in accordance with the terms hereof, to the Persons who are Noteholders on a subsequent special record date, which date shall be at least five Business Days prior to the payment date. The Company shall fix such special record date and payment date and provide the Trustee at least 20-days notice of the proposed amount of defaulted interest to be paid and the special payment date and at the same time the Company shall deposit with the Trustee the aggregate amount proposed to be paid in respect of such defaulted interest or shall make arrangements satisfactory to the Trustee for such deposit on or prior to the date of the proposed payment. At least 15 days before such special record date, the Company or the Trustee, in the name and at the expense of the Company, shall mail to each Noteholder a notice that states the special record date, the payment date and the amount of defaulted interest, and interest payable on defaulted interest, if any, to be paid. The Company may make payment of any defaulted interest in any other lawful manner not inconsistent with the requirements (if applicable) of any securities exchange on which the Notes may be listed and, upon such notice as may be required by such exchange, if, after written notice given by the Company to the Trustee of the proposed payment pursuant to this sentence, such manner of payment shall be deemed practicable by the Trustee. Notwithstanding the foregoing, any interest which is paid prior to the expiration of the grace period provided in Section 6.01 hereof shall be paid to the Holders of the Notes as of the regular record date for the Interest Payment Date for which interest has not been paid. -42- Section 2.14. CUSIP Number. ------------ The Company in issuing the Notes may use a "CUSIP" number, and if so, such CUSIP number shall be included in notices of redemption or exchange as a convenience to Holders; provided that any such notice may state that no -------- representation is made as to the correctness or accuracy of the CUSIP number printed in the notice or on the Notes, and that reliance may be placed only on the other identification numbers printed on the Notes. The Company shall promptly notify the Trustee of any such CUSIP number used by the Company in connection with the issuance of the Notes and of any change in the CUSIP number. Section 2.15. Deposit of Moneys. ----------------- On or prior to 10:00 a.m., New York City time, on each due date of the principal of, and premium, if any, or interest on any of the Notes, the Company shall have deposited with the Paying Agent in immediately available funds money sufficient to make cash payments, if any, due on such due date, in a timely manner which permits the Trustee to remit payment to the Holders on such due date. The principal and interest on Global Notes shall be payable to the Depository or its nominee, as the case may be, as the sole registered owner and the sole holder of the Global Notes represented thereby. The principal of, premium, if any, and interest on Physical Notes shall be payable at the office of the Paying Agent. Section 2.16. Book-Entry Provisions for Global Notes. -------------------------------------- (a) Rule 144A Notes initially shall be represented by one or more notes in registered, global form without interest coupons (collectively, the "Restricted Global Note"). Regulation S Notes initially shall be represented by one or more notes in registered, global form without interest coupons (collectively, the "Regulation S Global Note," and, together with the Restricted Global Note and any other global notes representing Notes, the "Global Notes"). The Global Notes shall bear legends as set forth in Exhibit D. The Global Notes --------- initially shall (i) be registered in the name of the Depository or the nominee of such Depository, in each case for credit to an account of an Agent Member (or, in the case of the Regulation S Global Notes, of Euroclear System ("Euroclear") and Cedel Bank, S.A. ("CEDEL")), (ii) be delivered to the Trustee as custodian for such Depository and (iii) bear legends as set forth in Exhibit ------- B with respect to - - -43- Restricted Global Notes and Exhibit C with respect to Regulation S Global Notes. --------- Members of, or direct or indirect participants in, the Depository ("Agent Members") shall have no rights under this Indenture with respect to any Global Note held on their behalf by the Depository, or the Trustee as its custodian, or under the Global Notes, and the Depository may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of the Global Note for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Trustee or any agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depository or impair, as between the Depository and its Agent Members, the operation of customary practices governing the exercise of the rights of a Holder of any Note. (b) Transfers of Global Notes shall be limited to transfer in whole, but not in part, to the Depository, its successors or their respective nominees. Interests of beneficial owners in the Global Notes may be transferred or exchanged for Physical Notes in accordance with the rules and procedures of the Depository and the provisions of Section 2.17. In addition, a Global Note shall be exchangeable for Physical Notes if (i) the Depository (x) notifies the Company that it is unwilling or unable to continue as depository for such Global Note and the Company thereupon fails to appoint a successor depository or (y) has ceased to be a clearing agency registered under the Exchange Act, (ii) the Company, at its option, notifies the Trustee in writing that it elect to cause the issuance of such Physical Notes or (iii) there shall have occurred and be continuing a Default or an Event of Default with respect to the Notes. In all cases, Physical Notes delivered in exchange for any Global Note or beneficial interests therein shall be registered in the names, and issued in any approved denominations, requested by or on behalf of the Depository (in accordance with its customary procedures). (c) In connection with any transfer or exchange of a portion of the beneficial interest in any Global Note to beneficial owners pursuant to paragraph (b), the Registrar shall (if one or more Physical Notes are to be issued) reflect on its books and records the date and a decrease in the principal amount of the Global Note in an amount equal to the principal amount of the beneficial interest in the Global Note to be transferred, and -44- the Company shall execute, and the Trustee shall upon receipt of a written order from the Company authenticate and make available for delivery, one or more Physical Notes of like tenor and amount. (d) In connection with the transfer of Global Notes as an entirety to beneficial owners pursuant to paragraph (b), the Global Notes shall be deemed to be surrendered to the Trustee for cancellation, and the Company shall execute, and the Trustee shall authenticate and deliver, to each beneficial owner identified by the Depository in writing in exchange for its beneficial interest in the Global Notes, an equal aggregate principal amount of Physical Notes of authorized denominations. (e) Any Physical Note constituting a Restricted Note delivered in exchange for an interest in a Global Note pursuant to paragraph (b), (c) or (d) shall, except as otherwise provided by paragraphs (a)(i)(x) and (c) of Section 2.17, bear the Private Placement Legend or, in the case of the Regulation S Global Note, the legend set forth in Exhibit C, in each case, unless the Company --------- determine otherwise in compliance with applicable law. (f) On or prior to the 40th day after the later of the commencement of the offering of the Notes represented by a Regulation S Global Note and the original issue date of such Notes (such period through and including such 40th day, the "Restricted Period"), a beneficial interest in the Regulation S Global Note may be held only through Euroclear or CEDEL, as indirect participants in DTC, unless transferred to a Person who takes delivery in the form of an interest in the corresponding Restricted Global Note, only upon receipt by the Trustee of a written certification from the transferor to the effect that such transfer is being made (i)(a) to a Person who the transferor reasonably believes is a Qualified Institutional Buyer in a transaction meeting the requirements of Rule 144A or (b) pursuant to another exemption from the registration requirements under the Securities Act which is accompanied by an opinion of counsel regarding the availability of such exemption and (ii) in accordance with all applicable securities laws of any state of the United States or any other jurisdiction. (g) Beneficial interests in the Restricted Global Note may be transferred to a Person who takes delivery in the form of an interest in the Regulation S Global Note, whether before or after the expiration of the Restricted Period, only if -45- the transferor first delivers to the Trustee a written certificate to the effect that such transfer is being made in accordance with Rule 903 or 904 of Regulation S or Rule 144 (if available) and that, if such transfer occurs prior to the expiration of the Restricted Period, the interest transferred will be held immediately thereafter through Euroclear or CEDEL. (h) Any beneficial interest in one of the Global Notes that is transferred to a Person who takes delivery in the form of an interest in another Global Note shall, upon transfer, cease to be an interest in such Global Note and become an interest in such other Global Note and, accordingly, shall thereafter be subject to all transfer restrictions and other procedures applicable to beneficial interests in such other Global Note for as long as it remains such an interest. (i) The Holder of any Global Note may grant proxies and otherwise authorize any Person, including Agent Members and Persons that may hold interests through Agent Members, to take any action which a Holder is entitled to take under this Indenture or the Notes. Section 2.17. Special Transfer Provisions. --------------------------- (a) Transfers to Non-QIB Institutional Accredited Investors and Non- --------------------------------------------------------------- U.S. Persons. The following provisions shall apply with respect to the - ------------ registration of any proposed transfer of a Note constituting a Restricted Note to any Institutional Accredited Investor which is not a QIB or to any Non-U.S. Person: (i) the Registrar shall register the transfer of any Note constituting a Restricted Note, whether or not such Note bears the Private Placement Legend, if (x) the requested transfer is after October 23, 1999 or such other date as such Note shall be freely transferable under Rule 144 as certified in an Officer's Certificate or (y) (1) in the case of a transfer to an Institutional Accredited Investor which is not a QIB (excluding Non-U.S. Persons), the proposed transferee has delivered to the Registrar a certificate substantially in the form of Exhibit E --------- hereto or (2) in the case of a transfer to a Non-U.S. Person (including a QIB), the proposed transferor has delivered to the Registrar a -46- certificate substantially in the form of Exhibit F hereto; --------- provided that in the case of a transfer of a Note bearing the -------- Private Placement Legend for a Note not bearing the Private Placement Legend, the Registrar has received an Officers' Certificate authorizing such transfer; and (ii) if the proposed transferor is an Agent Member holding a beneficial interest in a Global Note, upon receipt by the Registrar of (x) the certificate, if any, required by paragraph (i) above and (y) instructions given in accordance with the Depository's and the Registrar's procedures, whereupon (a) the Registrar shall reflect on its books and records the date and (if the transfer does not involve a transfer of outstanding Physical Notes) a decrease in the principal amount of a Global Note in an amount equal to the principal amount of the beneficial interest in a Global Note to be transferred, and (b) the Registrar shall reflect on its books and records the date and an increase in the principal amount of a Global Note in an amount equal to the principal amount of the beneficial interest in the Global Note transferred or the Company shall execute and the Trustee shall authenticate and make available for delivery one or more Physical Notes of like tenor and amount. (b) Transfers to QIBs. The following provisions shall apply with ----------------- respect to the registration of any proposed registration of transfer of a Note constituting a Restricted Note to a QIB (excluding transfers to Non-U.S. Persons): (i) the Registrar shall register the transfer if such transfer is being made by a proposed transferor who has checked the box provided for on such Holder's Note stating, or has otherwise advised the Company and the Registrar in writing, that the sale has been made in compliance with the provisions of Rule 144A to a transferee who has signed the certification provided for on such Holder's Note stating, or has otherwise advised the Company and the Registrar in writing, that it is purchasing the Note for its own account or an account with respect to which it exercises sole investment discretion and that it and any such -47- account is a QIB within the meaning of Rule 144A, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as it has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon its foregoing representations in order to claim the exemption from registration provided by Rule 144A; and (ii) if the proposed transferee is an Agent Member, and the Notes to be transferred consist of Physical Notes which after transfer are to be evidenced by an interest in the Restricted Global Note, upon receipt by the Registrar of instructions given in accordance with the Depository's and the Registrar's procedures, the Registrar shall reflect on its books and records the date and an increase in the principal amount of the Restricted Global Note in an amount equal to the principal amount of the Physical Notes to be transferred, and the Trustee shall cancel the Physical Notes so transferred. (c) Private Placement Legend. Upon the registration of transfer, ------------------------ exchange or replacement of Notes not bearing the Private Placement Legend, the Registrar shall deliver Notes that do not bear the Private Placement Legend. Upon the registration of transfer, exchange or replacement of Notes bearing the Private Placement Legend, the Registrar shall deliver only Notes that bear the Private Placement Legend unless (i) it has received the Officers' Certificate required by paragraph (a)(i)(x) of this Section 2.17, (ii) there is delivered to the Registrar an Opinion of Counsel reasonably satisfactory to the Company to the effect that neither such legend nor the related restrictions on transfer are required in order to maintain compliance with the provisions of the Securities Act or (iii) such Note has been sold pursuant to an effective registration statement under the Securities Act and the Registrar has received an Officers' Certificate from the Company to such effect. (d) General. By its acceptance of any Note bearing the Private ------- Placement Legend, each Holder of such Note acknowledges the restrictions on transfer of such Note set forth -48- in this Indenture and in the Private Placement Legend and agrees that it will transfer such Note only as provided in this Indenture. The Registrar shall retain for a period of two years copies of all letters, notices and other written communications received pursuant to Section 2.16 or this Section 2.17. The Company shall have the right to inspect and make copies of all such letters, notices or other written communications at any reasonable time upon the giving of reasonable notice to the Registrar. Section 2.18. Computation of Interest. ----------------------- Interest on the Notes shall be computed on the basis of a 360-day year of twelve 30-day months. ARTICLE THREE REDEMPTION Section 3.01. Election to Redeem; Notices to Trustee. -------------------------------------- If the Company elects to redeem Notes pursuant to paragraph 6 of the Notes, at least 45 days prior to the Redemption Date (unless a shorter notice shall be agreed to in writing by the Trustee) but not more than 65 days before the Redemption Date, the Company shall notify the Trustee in writing of the Redemption Date, the principal amount of Notes to be redeemed and the redemption price, and deliver to the Trustee an Officers' Certificate stating that such redemption will comply with the conditions contained in paragraph 6 of the Notes. Notice given to the Trustee pursuant to this Section 3.01 may not be revoked after the time that notice is given to Noteholders pursuant to Section 3.03. If the Company is required to make an offer to repurchase Notes pursuant to the provisions of Section 4.10 or 4.18 hereof, it shall furnish to the Trustee at least 30 days but not more than 60 days before a repurchase date (or such shorter period as may be agreed to by the Trustee in writing), an Officers' Certificate setting forth (i) the Section of this Indenture pursuant to which the repurchase shall occur, (ii) the -49- repurchase date, (iii) the principal amount of Notes to be repurchased, (iv) the repurchase price and (v) a statement to the effect that (a) the Company or one of its Restricted Subsidiaries has effected an Asset Sale and the conditions set forth in Section 4.10 have been satisfied or (b) a Change of Control has occurred and the conditions set forth in Section 4.18 have been satisfied, as applicable. Section 3.02. Selection by Trustee of Notes To Be Redeemed. ----------------------------------- In the event that fewer than all of the Notes are to be redeemed, the Trustee shall select the Notes to be redeemed, if the Notes are listed on a national securities exchange, in accordance with the rules of such exchange or, if the Notes are not so listed, either on a pro rata basis or by lot, or such --- ---- other method as it shall deem fair and equitable; provided, however, that if a -------- ------- partial redemption is made with the proceeds of a Public Equity Offering, selection of the Notes or portion thereof for redemption shall be made by the Trustee on a pro rata basis to the extent practical, unless such a method is --- ---- prohibited. The Trustee shall promptly notify the Company and, unless the Trustee is acting as such, the Registrar of the Notes selected for redemption and, in the case of any Notes selected for partial redemption, the principal amount thereof to be redeemed. The Trustee may select for redemption portions of the principal of the Notes that have denominations larger than $1,000. Notes and portions thereof selected by the Trustee shall be redeemed in amounts of $1,000 or whole multiples of $1,000. For all purposes of this Indenture unless the context otherwise requires, provisions of this Indenture that apply to Notes called for redemption also apply to portions of Notes called for redemption. Section 3.03. Notice of Redemption. -------------------- At least 30 days, and no more than 60 days, before a Redemption Date, the Company shall mail, or cause to be mailed, a notice of redemption by first- class mail to each Holder of Notes to be redeemed at his or her last address as the same appears on the registry books maintained by the Registrar pursuant to Section 2.04 hereof. The notice shall identify the Notes to be redeemed (including the CUSIP numbers thereof) and shall state: -50- (1) the Redemption Date; (2) the redemption price and the amount of premium and accrued interest to be paid; (3) if any Note is being redeemed in part, the portion of the principal amount of such Note to be redeemed and that, after the Redemption Date and upon surrender of such Note, a new Note or Notes in principal amount equal to the unredeemed portion will be issued; (4) the name and address of the Paying Agent; (5) that Notes called for redemption must be surrendered to the Paying Agent to collect the redemption price; (6) that, unless the Company defaults in making the redemption payment, interest on Notes called for redemption ceases to accrue on and after the Redemption Date and the only remaining right of the Holders is to receive payment of the redemption price upon surrender to the Paying Agent; (7) the provision of paragraph 6 of the Notes pursuant to which the Notes called for redemption are being redeemed; and (8) the aggregate principal amount of Notes that are being redeemed. At the Company's written request made at least five Business Days prior to the date on which notice is to be given, the Trustee shall give the notice of redemption in the Company's name and at the Company's sole expense. Section 3.04. Effect of Notice of Redemption. ------------------------------ Once the notice of redemption described in Section 3.03 is mailed, Notes called for redemption become due and payable on the Redemption Date and at the redemption price, including any premium, plus interest accrued to the Redemption Date. Upon surrender to the Paying Agent, such Notes shall be paid at the redemption price, including any premium, plus interest accrued to the Redemption Date, provided that if the Redemption Date is after a regular record -------- date and on or prior to -51- the Interest Payment Date, the accrued interest shall be payable to the Holder of the redeemed Notes registered on the relevant record date, and provided, -------- further, that if a Redemption Date is a Legal Holiday, payment shall be made on - ------- the next succeeding Business Day and no interest shall accrue for the period from such Redemption Date to such succeeding Business Day. Section 3.05. Deposit of Redemption Price. --------------------------- On or prior to 10:00 A.M., New York City time, on each Redemption Date, the Company shall deposit with the Paying Agent in immediately available funds money sufficient to pay the redemption price of, including premium, if any, and accrued interest on all Notes to be redeemed on that date other than Notes or portions thereof called for redemption on that date which have been delivered by the Company to the Trustee for cancellation. All money earned on funds held in trust by the Trustee or any Paying Agent and any excess or remaining funds shall be remitted to the Company. On and after any Redemption Date, if money sufficient to pay the redemption price of, including premium, if any, and accrued interest on Notes called for redemption shall have been made available in accordance with the preceding paragraph, the Notes called for redemption will cease to accrue interest and the only right of the Holders of such Notes will be to receive payment of the redemption price of and, subject to the first proviso in Section 3.04, accrued and unpaid interest on such Notes to the Redemption Date. If any Note surrendered for redemption shall not be so paid, interest will be paid, from the Redemption Date until such redemption payment is made, on the unpaid principal of the Note and any interest not paid on such unpaid principal, in each case, at the rate and in the manner provided in the Notes. Section 3.06. Notes Redeemed in Part. ---------------------- Upon surrender of a Note that is redeemed in part (with, if the Company or Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or his attorney duly authorized in writing), the Trustee shall authenticate for the Holder thereof a new Note equal in principal amount to the unredeemed portion of the Note surrendered. -52- ARTICLE FOUR COVENANTS Section 4.01. Payment of Notes. ---------------- The Company shall pay the principal of and interest (including all Additional Interest as provided in the Registration Rights Agreement) on the Notes on the dates and in the manner provided in the Notes and this Indenture. An installment of principal or interest shall be considered paid on the date it is due if the Trustee or Paying Agent holds on that date money designated for and sufficient to pay such installment. The Company shall pay interest on overdue principal (including post- petition interest in a proceeding under any Bankruptcy Law), and overdue interest, to the extent lawful, at the rate specified in the Notes. Section 4.02. SEC Reports. ----------- (a) The Company shall file with the SEC all information, documents and reports to be filed with the SEC pursuant to Section 13 or 15(d) of the Exchange Act, provided that if the Company is not required to file with the SEC -------- pursuant to Section 13 or 15(d) of the Exchange Act, it will continue to make such filings to the extent permitted by the SEC. The Company (at its own expense) shall file with the Trustee within 15 days after it files them with the SEC, copies of the annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the SEC may by rules and regulations prescribe) which the Company files with the SEC pursuant to Section 13 or 15(d) of the Exchange Act. Upon qualification of this Indenture under the TIA, the Company shall also comply with the provisions of TIA (S) 314(a). Delivery of such reports, information and documents to the Trustee is for informational purposes only and the Trustee's receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Company's compliance with any of their covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officers' Certificates). -53- (b) At the Company's expense, regardless of whether the Company is required to furnish such reports and other information referred to in paragraph (a) above to their equityholders pursuant to the Exchange Act, the Company shall cause such reports and other information to be mailed to the Holders at their addresses appearing in the register of Notes maintained by the Registrar within 15 days after it files them with the SEC. (c) The Company shall, upon request, provide to any Holder of Notes or any prospective transferee of any such Holder any information concerning the Company (including financial statements) necessary in order to permit such Holder to sell or transfer Notes in compliance with Rule 144A under the Securities Act; provided, however, that the Company shall not be required to -------- ------- furnish such information in connection with any request made on or after the date which is two years from the later of (i) the date such Note (or any predecessor Note) was acquired from the Company or (ii) the date such Note (or any predecessor Note) was last acquired from an "affiliate" of the Company within the meaning of Rule 144 under the Securities Act. Section 4.03. Waiver of Stay, Extension or Usury Laws. --------------------------------------- The Company and the Guarantors covenant (to the extent that they may lawfully do so) that they shall not at any time insist upon, or plead (as a defense or otherwise) or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law or any usury law or other law which would prohibit or forgive the Company and the Guarantors from paying all or any portion of the principal of, premium, if any, and/or interest on the Notes as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Indenture; and (to the extent that they may lawfully do so) the Company and the Guarantors hereby expressly waive all benefit or advantage of any such law, and covenant that they will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. Section 4.04. Compliance Certificate. ---------------------- (a) The Company and the Guarantors shall deliver to the Trustee, within 90 days after the end of each fiscal year and -54- on or before 45 days after the end of the first, second and third quarters of each fiscal year, an Officers' Certificate (one of the signers on behalf of each of the Company and the Guarantors of which shall be the principal executive officer, principal financial officer or principal accounting officer of the Company and such Guarantors) stating that a review of the activities of the Company and its Subsidiaries during such fiscal year or fiscal quarter, as the case may be, has been made under the supervision of the signing Officers with a view to determining whether the Company and the Guarantors have kept, observed, performed and fulfilled their obligations under this Indenture, and further stating, as to each such Officer signing such certificate, that to the best of his or her knowledge, the Company and the Guarantors have kept, observed, performed and fulfilled each and every covenant contained in this Indenture and are not in default in the performance or observance of any of the terms, provisions and conditions hereof (or, if a Default or Event of Default shall have occurred, describing all such Defaults or Events of Default of which he or she may have knowledge and what action they are taking or propose to take with respect thereto) and that to the best of his or her knowledge no event has occurred and remains in existence by reason of which payments on account of the principal of or interest, if any, on the Notes is prohibited or if such event has occurred, a description of the event and what action the Company and the Guarantors is taking or propose to take with respect thereto. (b) So long as the Trustee has not received an Officer's Certificate stating that it would be contrary to the then current recommendations of the American Institute of Certified Public Accountants, the year-end financial statements delivered pursuant to Section 4.02 above shall be accompanied by a written statement of the Company's independent public accountants (who shall be a firm of established national reputation) that in making the examination necessary for certification of such financial statements nothing has come to their attention which would lead them to believe that the Company or any Guarantor has violated any provisions of this Article 4 or Article 5 of this Indenture or, if any such violation has occurred, specifying the nature and period of existence thereof, it being understood that such accountants shall not be liable directly or indirectly for any failure to obtain knowledge of any such violation. -55- (c) The Company and the Guarantors shall, so long as any of the Notes are outstanding, deliver to the Trustee, forthwith upon any Officer becoming aware of any Default or Event of Default, an Officers' Certificate specifying such Default or Event of Default and what action the Company and the Guarantors are taking or propose to take with respect thereto. (d) The Company currently operates on a 52-53 week fiscal year ending on the last Thursday in September of each year. The Company will provide written notice to the Trustee of any change in its fiscal year. Section 4.05. Taxes. ----- The Company and the Guarantors shall, and shall cause each of their Subsidiaries to, pay prior to delinquency all material taxes, assessments, and governmental levies except as contested in good faith and by appropriate proceedings. Section 4.06. Limitation on Additional Indebtedness. ------------------------------------- The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, incur any Indebtedness (including Acquired Indebtedness); provided that if no Default or Event of Default shall -------- have occurred and be continuing at the time or as a consequence of the incurrence of such Indebtedness, the Company or any of the Guarantors may incur Indebtedness including Acquired Indebtedness if after giving effect to the incurrence of such Indebtedness and the receipt and application of the proceeds thereof, the Company's Consolidated Fixed Charge Coverage Ratio is at least 2.0 to 1. Notwithstanding the foregoing, the Company and the Guarantors may incur Permitted Indebtedness; provided that the Company will not incur any -------- Permitted Indebtedness that ranks junior in right of payment to the Notes that has a maturity or mandatory sinking fund payment prior to the maturity of the Notes. Section 4.07. Limitation on Preferred Stock of Restricted Subsidiaries. -------------------------------- The Company shall not permit any of its Restricted Subsidiaries to issue any Preferred Stock (except Preferred Stock issued to the Company or a Wholly-Owned Subsidiary of the -56- Company) or permit any Person (other than the Company or a Wholly-Owned Subsidiary of the Company) to hold any such Preferred Stock unless the Company or such Restricted Subsidiary would be entitled to incur or assume Indebtedness under Section 4.06 (other than Permitted Indebtedness) in the aggregate principal amount equal to the aggregate liquidation value of the Preferred Stock to be issued. Section 4.08. Limitation on Capital Stock of Restricted Subsidiaries. ------------------------------ The Company shall not (i) sell, pledge, hypothecate or otherwise convey or dispose of any Capital Stock of a Restricted Subsidiary of the Company or (ii) permit any of its Restricted Subsidiaries to issue any Capital Stock, other than to the Company or a Wholly-Owned Subsidiary of the Company. The foregoing restrictions shall not apply to an Asset Sale made in compliance with Section 4.10, the issuance of Preferred Stock in compliance with Section 4.07 or the pledge or hypothecation of Capital Stock of a Restricted Subsidiary made in compliance with Section 4.12. Section 4.09. Limitation on Restricted Payments. --------------------------------- The Company shall not make, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, make, any Restricted Payment, unless: (a) no Default or Event of Default shall have occurred and be continuing at the time of or immediately after giving effect to such Restricted Payment; (b) immediately after giving pro forma effect to such Restricted --- ----- Payment, the Company could incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) under Section 4.06; and (c) immediately after giving effect to such Restricted Payment, the aggregate of all Restricted Payments declared or made after the Issue Date does not exceed the sum of (1) 50% of the Company's Cumulative Consolidated Net Income (or minus 100% of any cumulative deficit in Consolidated Net Income during such period), (2) 100% of the aggregate Net Proceeds received by the Company from the issue or sale after the Issue Date of Capital Stock (other than Disqualified Capital Stock or -57- Capital Stock of the Company issued to any Subsidiary of the Company) of the Company or any Indebtedness or other securities of the Company convertible into or exercisable or exchangeable for Capital Stock (other than Disqualified Capital Stock) of the Company which has been so converted, exercised or exchanged, as the case may be, and (3) without duplication of any amounts included in clause (c)(2) above, 100% of the aggregate Net Proceeds received by the Company of any equity contribution from a holder of the Company's Capital Stock, excluding, in the case of clauses (c)(2) and (3), any Net Proceeds from a Public Equity Offering to the extent used to redeem the Notes. For purposes of determining under this clause (c) the amount expended for Restricted Payments, cash distributed shall be valued at the face amount thereof and property other than cash shall be valued at its fair market value. The provisions of this Section 4.09 shall not prohibit (i) the payment of any distribution within 60 days after the date of declaration thereof, if at such date of declaration such payment would comply with the provisions of the Indenture, (ii) the repurchase, redemption or other acquisition or retirement of any shares of Capital Stock of the Company or Indebtedness subordinated to the Notes by conversion into, or by or in exchange for, shares of Capital Stock of the Company (other than Disqualified Capital Stock), or in an amount not in excess of the Net Proceeds of the substantially concurrent sale (other than to a Subsidiary of the Company) of other shares of Capital Stock of the Company (other than Disqualified Capital Stock), (iii) the redemption or retirement of Indebtedness of the Company subordinated to the Notes in exchange for, by conversion into, or in an amount not in excess of the Net Proceeds of, a substantially concurrent sale or incurrence of Indebtedness of the Company (other than any Indebtedness owed to a Subsidiary) that is contractually subordinated in right of payment to the Notes to at least the same extent as the Indebtedness being redeemed or retired, (iv) the retirement of any shares of Disqualified Capital Stock of the Company by conversion into, or by exchange for, shares of Disqualified Capital Stock of the Company, or in an amount not in excess of the Net Proceeds of the substantially concurrent sale (other than to a Subsidiary of the Company) of other shares of Disqualified Capital Stock of the Company, (v) repurchases from employees of the Company or its Subsidiaries in connection with the termination of employment of shares of the Company's Capital Stock (other than Disqualified Capital Stock) in an amount not to exceed in the aggregate the -58- sum of (A) $2 million plus (B) the aggregate Net Cash Proceeds received by the Company from the sale to employees of Capital Stock of the Company (other than Disqualified Capital Stock) after the Issue Date, (vi) the Company's provision of seller financing in the form of purchase money mortgages in connection with sales of convenience stores and/or sites; provided, that the aggregate amount -------- of such seller financing does not exceed $10 million at any time outstanding, (vii) the making of Investments in Unrestricted Subsidiaries or other entities; provided that the Net Investment at any time after the Issue Date shall not - -------- exceed $15 million, or (viii) the making of other Restricted Payments not specifically permitted herein not in excess of $5 million; provided that in -------- calculating the aggregate amount of Restricted Payments made subsequent to the Issue Date for purposes of clause (c) of the immediately preceding paragraph, amounts expended pursuant to clauses (i) and (v) shall be included in such calculation. Not later than the date of making any Restricted Payment, the Company shall deliver to the Trustee an Officers' Certificate stating that such Restricted Payment is permitted and setting forth the basis upon which the calculations required by the covenant described above were computed, which calculations may be based upon the Company's latest available financial statements, and that no Default or Event of Default has occurred and is continuing and no Default or Event of Default will occur immediately after giving effect to any such Restricted Payments. Section 4.10. Limitation on Certain Asset Sales. --------------------------------- (a) The Company shall not, and shall not permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the Company or such applicable Restricted Subsidiary, as the case may be, receives consideration at the time of such sale or other disposition at least equal to the fair market value of the assets sold or otherwise disposed of (as determined in good faith by the Board of Directors of the Company, and evidenced by a Board Resolution); (ii) not less than 80% of the consideration received by the Company or such applicable Restricted Subsidiary, as the case may be, is in the form of (x) cash or Cash Equivalents other than in the case where the Company is undertaking a Permitted Asset Swap or (y) the assumption of any Indebtedness or liabilities reflected on the balance sheet of the Company or a Restricted Subsidiary in accordance with GAAP (other than Indebtedness that is subordinated to or pari ---- passu - ----- -59- with the Notes); and (iii) the Asset Sale Proceeds received by the Company or such Restricted Subsidiary are applied (a) first, to the extent the Company or any such Restricted Subsidiary, as the case may be, elects, or is required, to prepay, repay or purchase indebtedness under any then existing Senior Indebtedness of the Company or any such Restricted Subsidiary within 270 days following the receipt of the Asset Sale Proceeds from any Asset Sale; provided that any such repayment shall result in a permanent reduction of the commitments thereunder in an amount equal to the principal amount so repaid; (b) second, to the extent of the balance of Asset Sale Proceeds after application as described above, to the extent the Company elects, to an investment in assets (including Capital Stock or other securities purchased in connection with the acquisition of Capital Stock or property of another Person) used or useful in businesses similar or ancillary to the business of the Company or any such Restricted Subsidiary as conducted on the Issue Date; provided that (1) such investment -------- occurs or the Company or any such Restricted Subsidiary enters into contractual commitments to make such investment, subject only to customary conditions (other than the obtaining of financing), within 270 days following receipt of such Asset Sale Proceeds (the "Reinvestment Date") and (2) Asset Sale Proceeds so contractually committed are so applied within 360 days following the receipt of such Asset Sale Proceeds; and (c) third, if on such 270th day in the case of clauses (iii)(a) and (iii)(b)(1) or on such 360th day in the case of clause (iii)(b)(2) with respect to any Asset Sale, the Available Asset Sale Proceeds exceed $10 million, the Company shall apply an amount equal to such Available Asset Sale Proceeds to an offer to repurchase the Notes, at a purchase price in cash equal to 100% of the principal amount thereof plus accrued and unpaid interest, if any, to the purchase date (an "Excess Proceeds Offer"). If an Excess Proceeds Offer is not fully subscribed, the Company may retain the portion of the Available Assets Sale Proceeds not required to repurchase Notes. (b) If the Company is required to make an Excess Proceeds Offer, the Company shall mail, within 30 days following the date specified in clause (iii)(c) above, a notice to the holders stating, among other things: (1) that such holders have the right to require the Company to apply the Available Asset Sale Proceeds to repurchase such Notes at a purchase price in cash equal to 100% of the principal amount thereof plus accrued and unpaid interest, if any, to the purchase date; (2) the purchase date, which shall be no earlier than 30 days and not -60- later than 45 days from the date such notice is mailed; (3) the instructions that each holder must follow in order to have such Notes purchased; and (4) the calculations used in determining the amount of Available Asset Sale Proceeds to be applied to the purchase of such Notes. The Excess Proceeds Offer shall remain open for a period of 20 Business Days following its commencement (the "Offer Period"). The notice, which shall govern the terms of the Excess Proceeds Offer, shall state: (1) that the Excess Proceeds Offer is being made pursuant to this Section 4.10 and the length of time the Excess Proceeds Offer will remain open; (2) the purchase price and the Purchase Date; (3) that any Note not tendered or accepted for payment will continue to accrue interest; (4) that any Note accepted for payment pursuant to the Excess Proceeds Offer shall cease to accrue interest on and after the Purchase Date and the deposit of the purchase price with the Trustee; (5) that Holders electing to have a Note purchased pursuant to any Excess Proceeds Offer will be required to surrender the Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Note completed, to the Company, a depositary, if appointed by the Company, or a Paying Agent at the address specified in the notice prior to the close of business on the Business Day preceding the Purchase Date; (6) that Holders will be entitled to withdraw their election if the Company, depositary or Paying Agent, as the case may be, receives, not later than the close of business on the third Business Day prior to the expiration of the Offer Period, a facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Note the Holder delivered for purchase and a statement that such Holder is withdrawing its election to have the Note purchased; (7) that, if the aggregate principal amount of Notes surrendered by Holders exceeds the Available Asset Sale Proceeds, the Company shall select the Notes to be purchased -61- on a pro rata basis (with such adjustments as may be deemed appropriate by ---- the Company so that only Notes in denominations of $1,000, or integral multiples thereof, shall be purchased); and (8) that Holders whose Notes were purchased only in part will be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered. On or before the Purchase Date, the Company shall, to the extent lawful, accept for payment, on a pro rata basis to the extent necessary, Notes or portions thereof tendered pursuant to the Excess Proceeds Offer, deposit with the Paying Agent U.S. legal tender sufficient to pay the purchase price plus accrued interest, if any, on the Notes to be purchased and deliver to the Trustee an Officers' Certificate stating that such Notes or portions thereof were accepted for payment by the Company in accordance with the terms of this Section 4.10. The Paying Agent shall promptly (but in any case not later than 5 days after the Purchase Date) mail or deliver to each tendering Holder an amount equal to the purchase price of the Note tendered by such Holder and accepted by the Company for purchase, and the Company shall promptly issue a new Note, the Guarantors shall endorse the guarantee thereon and the Trustee shall authenticate and mail or make available for delivery such new Note to such Holder equal in principal amount to any unpurchased portion of the Note surrendered. Any Note not so accepted shall be promptly mailed or delivered by the Company to the Holder thereof. If an Excess Proceeds Offer is not fully subscribed, the Company may retain that portion of the Available Asset Sale Proceeds not required to repurchase Notes and use such portion for general corporate purposes, and such retained portion shall not be considered in the calculation of "Available Asset Sale Proceeds" with respect to any subsequent offer to purchase Notes. In the event of the transfer of substantially all of the property and assets of the Company and its Restricted Subsidiaries as an entirety to a Person in a transaction permitted under Section 5.01, the successor Person shall be deemed to have sold the properties and assets of the Company and its Restricted Subsidiaries not so transferred for purposes of this Section 4.10, and shall comply with the provisions of this covenant with respect to such deemed sale as if it were an Asset Sale. -62- The Company shall comply with the requirements of Rule 14e-1 under the Exchange Act and other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of Notes pursuant to an Excess Proceeds Offer. To the extent that the provisions of any securities laws or regulations conflict with this Section 4.10, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under this Section 4.10 by virtue thereof. Section 4.11. Limitation on Transactions with Affiliates. ------------------------------------------ The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, enter into or suffer to exist any transaction or series of related transactions (including, without limitation, the sale, purchase, exchange or lease of assets, property or services) with any Affiliate (each an "Affiliate Transaction") or extend, renew, waive or otherwise modify the terms of any Affiliate Transaction entered into prior to the Issue Date unless (i) such Affiliate Transaction is between or among the Company and its Wholly Owned Subsidiaries; or (ii) the terms of such Affiliate Transaction are fair and reasonable to the Company or such Restricted Subsidiary, as the case may be, and the terms of such Affiliate Transaction are at least as favorable as the terms which could be obtained by the Company or such Restricted Subsidiary, as the case may be, in a comparable transaction made on an arm's- length basis between unaffiliated parties. In any Affiliate Transaction (or any series of related Affiliate Transactions which are similar or part of a common plan) involving an amount or having a fair market value in excess of $2 million which is not permitted under clause (i) above, the Company must obtain a resolution of the Board of Directors of the Company certifying that such Affiliate Transaction complies with clause (ii) above. In any Affiliate Transaction (or any series of related Affiliate Transactions which are similar or part of a common plan) involving an amount or having a fair market value in excess of $10 million which is not permitted under clause (i) above, the Company must obtain a favorable written opinion as to the fairness of such transaction or transactions, as the case may be, from an Independent Financial Advisor. The foregoing provisions shall not apply to (i) any Restricted Payment that is not prohibited by Section 4.09, or any -63- transaction that is permitted by the definition of "Restricted Payment" (other than the transactions described in clauses (iv) and (vii) of the definition of "Permitted Investments"), (ii) reasonable fees and compensation paid to and indemnity provided on behalf of officers, directors or employees of the Company or any Restricted Subsidiary of the Company as determined in good faith by the Company's Board of Directors or senior management or (iii) any agreement as in effect as of the Issue Date or any amendment thereto or any transaction contemplated thereby (including pursuant to any amendment thereto) in any replacement agreement thereto so long as any such amendment or replacement agreement is not more disadvantageous to the holders in any material respect than the original agreement as in effect on the Issue Date. Section 4.12. Limitations on Liens. -------------------- The Company shall not, and shall not permit any of its Restricted Subsidiaries to, create, incur or otherwise cause or suffer to exist or become effective any Liens of any kind (other than Permitted Liens) upon any property or asset of the Company or any of its Restricted Subsidiaries or any shares of Capital Stock or Indebtedness of any Restricted Subsidiary which owns property or assets, now owned or hereafter acquired, to secure Indebtedness which is pari ---- passu with or subordinate in right of payment to the Notes unless (i) if such - ----- Lien secures Indebtedness which is pari passu with the Notes, then the Notes are ---- ----- secured on an equal and ratable basis with the obligations so secured until such time as such obligation is no longer secured by a Lien or (ii) if such Lien secures Indebtedness which is subordinated to the Notes, any such Lien shall be subordinated to the Lien granted to the Holders of the Notes to the same extent as such Indebtedness is subordinated to the Notes. Section 4.13. Limitation on Creation of Subsidiaries. -------------------------------------- The Company shall not create or acquire, and shall not permit any of its Restricted Subsidiaries to create or acquire, any Subsidiary other than (i) a Restricted Subsidiary existing as of the Issue Date, or (ii) a Restricted Subsidiary that is conducting or will conduct only a business similar or reasonably related to the business conducted by the Company and its Subsidiaries on the Issue Date, or (iii) an Unrestricted Subsidiary; provided, however, that -------- ------- each Restricted Subsidiary acquired or created pursuant to clause (ii) shall at the time it -64- has either assets or stockholders equity in excess of $25,000 have executed a guarantee, substantially in the form attached to the Indenture (and with such documentation relating thereto as the Trustee shall require, including, without limitation a supplement or amendment to the Indenture and opinion of counsel as to the enforceability of such guarantee), pursuant to which such Restricted Subsidiary shall become a Guarantor. Section 4.14. Limitation on Sale and Lease-Back --------------------------------- Transactions. ------------ The Company shall not, and shall not permit any Restricted Subsidiary to, enter into any Sale and Lease-Back Transaction unless (i) the consideration received in such Sale and Lease-Back Transaction is at least equal to the fair market value of the property sold, as determined in good faith by the Board of Directors of the Company and evidenced by a board resolution and (ii) the Company could incur the Attributable Indebtedness in respect of such Sale and Lease-Back Transaction in compliance with Section 4.06; provided that for purposes of this Section 4.14, clause (v) of the definition of Permitted Indebtedness shall be deemed to include Attributable Indebtedness relating to operating leases. Section 4.15. Limitation on Dividend and Other Payment ---------------------------------------- Restrictions Affecting Restricted --------------------------------- Subsidiaries. ------------ The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any Restricted Subsidiary of the Company to (a)(i) pay dividends or make any other distributions to the Company or any Restricted Subsidiary of the Company (A) on its Capital Stock or (B) with respect to any other interest or participation in, or measured by, its profits or (ii) repay any Indebtedness or any other obligation owed to the Company or any Restricted Subsidiary of the Company, (b) make loans or advances or capital contributions to the Company or any of its Restricted Subsidiaries or (c) transfer any of its properties or assets to the Company or any of its Restricted Subsidiaries, except for such encumbrances or restrictions existing under or by reason of (i) encumbrances or restrictions existing on the Issue Date to the extent and in the manner such encumbrances and restrictions are in effect on the -65- Issue Date, (ii) the Senior Credit Facility, (iii) this Indenture, the Notes and the Guarantees, (iv) applicable law, (v) any instrument governing Acquired Indebtedness, which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person (including any Subsidiary of the Person), so acquired, (vi) customary non-assignment provisions in leases or other agreements entered in the ordinary course of business and consistent with past practices, (vii) Refinancing Indebtedness; provided that such restrictions are no more -------- restrictive, taken as a whole, than those contained in the agreements governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded, (viii) customary restrictions in security agreements or mortgages securing Indebtedness of the Company or a Restricted Subsidiary to the extent such restrictions restrict the transfer of the property subject to such security agreements and mortgages or (ix) customary restrictions with respect to a Restricted Subsidiary of the Company pursuant to an agreement that has been entered into for the sale or disposition of all or substantially all of the Capital Stock or assets of such Restricted Subsidiary. Section 4.16. Payments for Consent. -------------------- The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any Holder of any Notes for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of this Indenture or the Notes unless such consideration is offered to be paid or agreed to be paid to all Holders of the Notes which so consent, waive or agree to amend in the time frame set forth in solicitation documents relating to such consent, waiver or agreement. Section 4.17. Legal Existence. --------------- Subject to Article 5 hereof, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect (i) its legal existence, and the corporate, partnership or other existence of each Restricted Subsidiary, in accordance with the respective organizational documents (as the same may be amended from time to time) of each Restricted Subsidiary and the rights (charter and statutory), licenses and franchises of the Company and its Restricted Subsidiaries; -66- provided, however, that the Company shall not be required to preserve any such - -------- ------- right, license or franchise, or the corporate, partnership or other existence of any of its Restricted Subsidiaries if the Board of Directors of the Company shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and its Restricted Subsidiaries, taken as a whole, and that the loss thereof is not adverse in any material respect to the Holders. Section 4.18. Change of Control. ----------------- (a) Within 20 days of the occurrence of a Change of Control, the Company shall notify the Trustee in writing of such occurrence and shall make an offer to purchase (the "Change of Control Offer") the outstanding Notes at a purchase price equal to 101% of the principal amount thereof plus any accrued and unpaid interest thereon to the Change of Control Payment Date (as hereinafter defined) (such applicable purchase price being hereinafter referred to as the "Change of Control Purchase Price") in accordance with the procedures set forth below. If the Senior Credit Facility or other Senior Indebtedness is in effect, or any amounts are owing thereunder or in respect thereof, at the time of the occurrence of a Change of Control, prior to the mailing of the notice to Holders described in paragraph (b) below, but in any event within 20 days following any Change of Control, the Company shall (i) repay in full all obligations and terminate all commitments under or in respect of the Senior Credit Facility and all other Senior Indebtedness the terms of which require repayment upon a Change of Control or offer to repay in full all obligations and terminate all commitments under or in respect of the Senior Credit Facility and all other such Senior Indebtedness and repay the obligations of each such lender who has accepted such offer or (ii) obtain the requisite consent under the Senior Credit Facility and all other such Senior Indebtedness to permit the repurchase of the Notes pursuant to this Section 4.18. The Company must first comply with the covenant described in the preceding sentence before it shall be required to purchase Notes in the event of a Change of Control; provided that -------- the Company's failure to comply with the covenant described in the preceding sentence constitutes an Event of Default described in clause (3) under Section 6.01 hereof if not cured within 30 days after the notice required by such clause. -67- (b) Within 20 days of the occurrence of a Change of Control, the Company also shall (i) cause a notice of the Change of Control Offer to be sent at least once to the Dow Jones News Service or similar business news service in the United States and (ii) send by first-class mail, postage prepaid, to the Trustee and to each Holder of the Notes, at the address appearing in the register maintained by the Registrar of the Notes, a notice stating: (1) that the Change of Control Offer is being made pursuant to this Section 4.18 and that all Notes tendered will be accepted for payment, and otherwise subject to the terms and conditions set forth herein; (2) the Change of Control Purchase Price and the purchase date (which shall be a Business Day no earlier than 30 days nor later than 45 days from the date such notice is mailed (the "Change of Control Payment Date")); (3) that any Note not tendered will continue to accrue interest; (4) that, unless the Company defaults in the payment of the Change of Control Purchase Price, any Notes accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest after the Change of Control Payment Date; (5) that Holders accepting the offer to have their Notes purchased pursuant to a Change of Control Offer will be required to surrender the Notes, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Note completed, to a depository, if appointed, or the Paying Agent at the address specified in the notice prior to the close of business on the Business Day preceding the Change of Control Payment Date; (6) that Holders will be entitled to withdraw their acceptance if the depository or Paying Agent receives, not later than the close of business on the third Business Day preceding the Change of Control Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Notes delivered for purchase, and a statement that such Holder is withdrawing his election to have such Notes purchased; -68- (7) that Holders whose Notes are being purchased only in part will be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered, provided that each Note purchased and each such new -------- Note issued shall be in an original principal amount in denominations of $1,000 and integral multiples thereof; (8) any other procedures that a Holder must follow to accept a Change of Control Offer or effect withdrawal of such acceptance; and (9) the name and address of the depository or Paying Agent. On the Change of Control Payment Date, the Company shall, to the extent lawful, (i) accept for payment Notes or portions thereof tendered pursuant to the Change of Control Offer, (ii) deposit with the depository or Paying Agent money sufficient to pay the purchase price of all Notes or portions thereof so tendered and (iii) deliver or cause to be delivered to the Trustee Notes so accepted together with an Officers' Certificate stating the Notes or portions thereof tendered to the Company. The Paying Agent shall promptly mail to each Holder of Notes so accepted payment in an amount equal to the purchase price for such Notes, and the Company shall execute and issue, and the Trustee shall promptly authenticate and mail to such Holder, a new Note equal in principal amount to any unpurchased portion of the Notes surrendered; provided -------- that each such new Note shall be issued in an original principal amount in denominations of $1,000 and integral multiples thereof. (c) (A) If either the Company or any Restricted Subsidiary thereof has issued any outstanding (i) Indebtedness that is subordinated in right of payment to the Notes or (ii) Preferred Stock, and the Company or such Restricted Subsidiary is required to make a change of control offer or to make a distribution with respect to such subordinated Indebtedness or Preferred Stock in the event of a change of control, the Company shall not consummate any such offer or distribution with respect to such subordinated Indebtedness or Preferred Stock until such time as the Company shall have paid the Change of Control Purchase Price in full to the Holders of Notes that have accepted the Company's Change of Control Offer and shall otherwise have consummated the Change of Control Offer made to Holders of the Notes and (B) the Company shall not issue -69- Indebtedness that is subordinated in right of payment to the Notes or Preferred Stock with change of control provisions requiring the payment of such Indebtedness or Preferred Stock prior to the payment of the Notes in the event of a Change in Control under this Indenture. In the event that a Change of Control occurs and the Holders of Notes exercise their right to require the Company to purchase Notes, if such purchase constitutes a "tender offer" for purposes of Rule 14e-1 under the Exchange Act at that time, the Company shall comply with the requirements of Rule 14e-1 as then in effect with respect to such repurchase and shall not be deemed to have breached its obligations under this Section 4.18 by virtue thereof. Section 4.19. Maintenance of Properties; Insurance; Books and Records; ------------------------------------------------------- Compliance with Law. -------------------- (a) The Company shall, and shall cause each of its Restricted Subsidiaries to, at all times cause all material properties used or useful in the conduct of their business to be maintained and kept in good condition, repair and working order (reasonable wear and tear excepted), except where the failure to do so would not materially adversely affect the business, prospects earnings, properties, assets or financial condition of the Company and its Restricted Subsidiaries taken as a whole. (b) The Company shall maintain, and shall cause to be maintained for each of its Restricted Subsidiaries, insurance covering such risks as are usually and customarily insured against by corporations similarly situated, in such amounts as shall be customary for corporations similarly situated and with such deductibles and by such methods as shall be customary and reasonably consistent with past practice. (c) The Company shall, and shall cause each of its Restricted Subsidiaries to, keep proper books of record and account, in which full and correct entries shall be made of all financial transactions and the assets and business of the Company and each Restricted Subsidiary of the Company, in accordance with sound business practices sufficient to permit the preparation of financial statements based thereon in accordance with GAAP. -70- (d) The Company shall, and shall cause each of its Restricted Subsidiaries to, comply with all statutes, laws, ordinances or government rules and regulations to which they are subject, non-compliance with which would materially adversely affect the business, prospects, earnings, properties, assets or financial condition of the Company and its Restricted Subsidiaries taken as a whole; provided that the foregoing shall not be applicable to the -------- extent that the Company is contesting in good faith the application of the foregoing. Section 4.20. Further Assurance to the Trustee. -------------------------------- The Company shall, upon the reasonable request of the Trustee, execute and deliver such further instruments and do such further acts as may be reasonably necessary or proper to carry out more effectively the provisions of this Indenture. Section 4.21. Limitation on Other Senior Subordinated Indebtedness. ---------------------------------------------------- The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, incur, contingently or otherwise, any Indebtedness that is both (i) subordinate in right of payment to any Senior Indebtedness of the Company or any of its Restricted Subsidiaries, as the case may be, and (ii) senior in right of payment to the Notes and the Guarantees, as the case may be. For purposes of this Section 4.21, Indebtedness is deemed to be senior in right of payment to the Notes or the Guarantees, as the case may be, if it is not explicitly subordinate in right of payment to Senior Indebtedness at least to the same extent as the Notes and the Guarantees, as the case may be, are subordinated to Senior Indebtedness. Section 4.22. Limitation on Conduct of Business. --------------------------------- The Company and its Restricted Subsidiaries will not engage in any businesses which are not the same, similar or related to the businesses in which the Company and its Restricted Subsidiaries are engaged in on the Issue Date or which are in support of or ancillary to such businesses. Section 4.23. Maintenance of Office or Agency. ------------------------------- -71- The Company shall maintain an office or agency where Notes may be surrendered for registration of transfer or exchange or for presentation for payment and where notices and demands to or upon the Company in respect of the Notes and this Indenture may be served. The Company shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the address of the Trustee as set forth in Section 12.02. The Company may also from time to time designate one or more other offices or agencies where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations. The Company shall give prompt written notice to the Trustee of such designation or rescission and of any change in the location of any such other office or agency. The Company hereby initially designates the Corporate Trust Office of the Trustee set forth in Section 12.02 as such office of the Company. ARTICLE FIVE SUCCESSOR CORPORATION Section 5.01. Limitation on Consolidation, --------------------------- Merger and Sale of Assets. -------------------------- (a) The Company shall not and shall not permit any of its Restricted Subsidiaries to consolidate with, merge with or into, or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its assets (as an entirety or substantially as an entirety in one transaction or a series of related transactions), to any Person unless: (i) the Company or such Restricted Subsidiary, as the case may be, shall be the continuing Person, or the Person (if other than the Company or such Restricted Subsidiary) formed by such consolidation or into which the Company or such Restricted Subsidiary, as the case may be, is merged or to which the properties and assets of the Company or such Restricted Subsidiary, as the case may be, are -72- sold, assigned, transferred, leased, conveyed or otherwise disposed of shall be a corporation organized and existing under the laws of the United States or any state thereof or the District of Columbia and shall expressly assume, by a supplemental indenture, executed and delivered to the Trustee, in form satisfactory to the Trustee, all of the obligations of the Company or such Restricted Subsidiary, as the case may be, under this Indenture, the Notes and the Guarantees, and the obligations under this Indenture, the Notes and the Guarantees, shall remain in full force and effect; (ii) immediately before and immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing; and (iii) immediately after giving effect to such transaction on a pro forma basis the Company or such Person could incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) under Section 4.06 hereof; provided that a Person that -------- is a Guarantor may merge into the Company another Person that is a Guarantor without complying with this clause (iii). (b) In connection with any consolidation, merger or transfer of assets contemplated by this Section 5.01, the Company shall deliver, or cause to be delivered, to the Trustee, in form and substance reasonably satisfactory to the Trustee, an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger or transfer and the supplemental indenture in respect thereof, if required, comply with this provision and that all conditions precedent herein provided for relating to such transaction or transactions have been complied with. For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise, in a single transaction or series of transactions) of all or substantially all of the properties or assets of one or more Restricted Subsidiaries of the Company, the Capital Stock of which constitutes all or substantially all of the properties and assets of the Company, shall be deemed to be the transfer of all or substantially all of the properties and assets of the Company. Section 5.02. Successor Person Substituted. ---------------------------- Upon any consolidation or merger, or any transfer of all or substantially all of the assets of the Company or any Guarantor in accordance with Section 5.01 above, the successor entity formed by such consolidation or into which the Company or -73- such Guarantor is merged or to which such transfer is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company or such Guarantor under this Indenture and the Notes with the same effect as if such successor entity had been named as the Company or such Guarantor herein and therein, and thereafter the predecessor Company or such predecessor Guarantor, as the case may be, shall be relieved of all obligations, covenants and Guarantees, as applicable, under this Indenture and the Notes. ARTICLE SIX DEFAULTS AND REMEDIES Section 6.01. Events of Default. ----------------- An "Event of Default" occurs if: (1) there is a default in the payment of any principal of, or premium, if any, on the Notes when the same becomes due and payable at maturity, upon redemption or otherwise (whether or not such payment shall be prohibited by the subordination provisions of this Indenture); (2) there is a default in the payment of any interest on any Note when the same becomes due and payable and the Default continues for a period of 30 days; (3) either the Company or any Restricted Subsidiary defaults in the observance or performance of any other covenant in the Notes or this Indenture for 30 days after written notice from the Trustee or the Holders of not less than 25% in the aggregate principal amount of the Notes then outstanding (except in the case of a default with respect to the provisions of Section 4.18 or Section 5.01 which shall constitute an Event of Default with such notice requirement but without such passage of time requirement); (4) there is a default in the payment at final maturity of principal, interest or premium in an aggregate amount of $10,000,000 or more with respect to any Indebtedness of the Company or any Restricted Subsidiary thereof (other than the Notes), or there is an acceleration -74- of any such Indebtedness aggregating $10,000,000 or more, which default shall not be cured, waived or postponed pursuant to an agreement with the holders of such Indebtedness within 60 days after written notice of such default to the Company by the Trustee or to the Company and the Trustee by any Holder, or which acceleration shall not be rescinded or annulled within 20 days after written notice of such Default to the Company by the Trustee or to the Company and the Trustee by any Holder; (5) the entry of a final judgment or judgments which can no longer be appealed for the payment of money in excess of $10,000,000 against the Company or any Restricted Subsidiary thereof and such judgment remains undischarged, for a period of 60 consecutive days during which a stay of enforcement of such judgment shall not be in effect; (6) the Company or any Material Restricted Subsidiary pursuant to or within the meaning of any Bankruptcy Law: (A) commences a voluntary case, (B) consents to the entry of an order for relief against it in an involuntary case, (C) consents to the appointment of a Custodian of it or for all or substantially all of its property, (D) makes a general assignment for the benefit of its creditors, or (E) generally is not paying its debts as they become due; (7) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (A) is for relief against either of the Company or any Material Restricted Subsidiary in an involuntary case, (B) appoints a Custodian of either of the Company or any Material Restricted Subsidiary or for all or substantially all of the property of either of the Company or any Material Restricted Subsidiary, or -75- (C) orders the liquidation of either of the Company or any Material Restricted Subsidiary, and the order or decree remains unstayed and in effect for 60 days; or (8) any of the Guarantees ceases to be in full force and effect or any of the Guarantees of a Material Restricted Subsidiary is declared to be null and void and unenforceable or any of the Guarantees of a Material Restricted Subsidiary is found to be invalid or any of the Guarantors denies in writing its liability under its Guarantee (other than by reason of release of a Guarantor in accordance with the terms of Section 11.05). The term "Bankruptcy Law" means Title 11, U.S. Code or any similar Federal or state law for the relief of debtors. The term "Custodian" means any receiver, trustee, assignee, liquidator or similar official under any Bankruptcy law. The Trustee may withhold notice to the Holders of the Notes of any Default (except in payment of principal or premium, if any, or interest on the Notes) if the Trustee considers it to be in the best interest of the Holders of the Notes to do so. Subject to Sections 8.01 and 8.02, the Trustee shall not be charged with knowledge of any Default, Event of Default, Change of Control or Asset Sale or the requirement for payment of Additional Interest unless written notice thereof shall have been given to a Responsible Officer at the Corporate Trust Office of the Trustee by the Company or any other Person. Section 6.02. Acceleration. ------------ If an Event of Default (other than an Event of Default arising under Section 6.01(6) or (7) with respect to the Company) occurs and is continuing, the Trustee by notice to the Company, or the Holders of not less than 25% in aggregate principal amount of the Notes then outstanding may by written notice to the Company and the Trustee declare to be immediately due and payable the entire principal amount of all the Notes then outstanding plus accrued but unpaid interest to the date of acceleration and (i) such amounts shall become immediately due and payable or (ii) if there -76- are any amounts outstanding under or in respect of the Senior Credit Facility, such amounts shall become due and payable upon the first to occur of an acceleration of amounts outstanding under or in respect of the Senior Credit Facility or five Business Days after receipt by the Company and the representative under the Senior Credit Facility of a notice of acceleration; provided, however, that after such acceleration but before a -------- ------- judgment or decree based on such acceleration is obtained by the Trustee, the Holders of a majority in aggregate principal amount of the outstanding Notes may rescind and annul such acceleration if (i) all Events of Default, other than nonpayment of principal, premium, if any, or interest that has become due solely because of the acceleration, have been cured or waived, (ii) to the extent the payment of such interest is lawful, interest on overdue installments of interest and overdue principal, which has become due otherwise than by such declaration of acceleration, has been paid, (iii) if the Company has paid the Trustee its reasonable compensation and reimbursed the Trustee for its expenses, disbursements and advances and (iv) in the event of the cure or waiver of an Event of Default of the type described in Section 6.01(4), the Trustee shall have received an Officers' Certificate and an Opinion of Counsel that such Event of Default has been cured or waived. No such rescission shall affect any subsequent Default or impair any right consequent thereto. In case an Event of Default specified in Section 6.01(6) or (7) with respect to the Company occurs, such principal, premium, if any, and interest amount with respect to all of the Notes shall be due and payable immediately without any declaration or other act on the part of the Trustee or the Holders of the Notes. Section 6.03. Other Remedies. -------------- If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy by proceeding at law or in equity to collect the payment of principal of, and premium, if any, and interest on the Notes or to enforce the performance of any provision of the Notes or this Indenture and may take any necessary action requested of it as Trustee to settle, compromise, adjust or otherwise conclude any proceedings to which it is a party. -77- The Trustee may maintain a proceeding even if it does not possess any of the Notes or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Noteholder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. No remedy is exclusive of any other remedy. All available remedies are cumulative. Section 6.04. Waiver of Defaults and ---------------------- Events of Default. ------------------ Subject to Sections 6.02, 6.07 and 9.02 hereof, the Holders of a majority in aggregate principal amount of the Notes then outstanding have the right, on behalf of the Holders of all outstanding Notes, to waive any existing Default or Event of Default and its consequences or compliance with any provision of this Indenture or the Notes. Upon any such waiver, such Default shall cease to exist and be deemed to have been cured and not to have occurred, and any Event of Default arising therefrom shall be deemed to have been cured and not to have occurred for every purpose of this Indenture and the Notes; but no such waiver shall extend to any subsequent or other Default or Event of Default or impair any right consequent thereto. Section 6.05. Control by Majority. ------------------- The Holders of a majority in aggregate principal amount of the Notes then outstanding may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee by this Indenture. The Trustee, however, may refuse to follow any direction that conflicts with law or this Indenture or that the Trustee determines may be unduly prejudicial to the rights of another Noteholder not taking part in such direction, and the Trustee shall have the right to decline to follow any such direction if the Trustee, being advised by counsel, determines that the action so directed may not lawfully be taken or if the Trustee in good faith shall, by a Responsible Officer, determine that the proceedings so directed may involve it in personal liability; provided that the Trustee may take any other -------- action deemed proper by the Trustee which is not inconsistent with such direction. -78- Section 6.06. Limitation on Suits. ------------------- Subject to Section 6.07 below, a Noteholder may not institute any proceeding or pursue any remedy with respect to this Indenture or the Notes unless: (1) the Holder gives to the Trustee written notice of a continuing Event of Default; (2) the Holders of at least 25% in aggregate principal amount of the Notes then outstanding make a written request to the Trustee to pursue the remedy; (3) such Holder or Holders offer and if requested provide to the Trustee indemnity reasonably satisfactory to the Trustee against any loss, liability or expense; (4) the Trustee does not comply with the request within 60 days after receipt of the request and the offer, and, if requested, provision of indemnity; and (5) no direction inconsistent (in the reasonable opinion of the Trustee) with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in aggregate principal amount of the Notes then outstanding. A Noteholder may not use this Indenture to prejudice the rights of another Noteholder or to obtain a preference or priority over another Noteholder. Section 6.07. Rights of Holders To Receive Payment. ------------------------------------ Notwithstanding any other provision of this Indenture, the right of any Holder of a Note to receive payment of principal of, and premium, if any, and interest on the Note (including Additional Interest) on or after the respective due dates expressed in the Note, or to bring suit for the enforcement of any such payment on or after such respective dates, is absolute and unconditional and shall not be impaired or affected without the consent of the Holder. Section 6.08. Collection Suit by Trustee. -------------------------- -79- If an Event of Default in payment of principal, premium or interest specified in Section 6.01(1) or (2) hereof occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Company or the Guarantors (or any other obligor on the Notes) for the whole amount of unpaid principal and accrued interest remaining unpaid, together with interest on overdue principal and, to the extent that payment of such interest is lawful, interest on overdue installments of interest, in each case at the rate set forth in the Notes, and such further amounts as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. Section 6.09. Trustee May File Proofs of Claim. -------------------------------- The Trustee may file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 8.07 hereof) and the Noteholders allowed in any judicial proceedings relative to the Company or the Guarantors (or any other obligor upon the Notes), its creditors or its property and shall be entitled and empowered to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same after deduction of its charges and expenses to the extent that any such charges and expenses are not paid out of the estate in any such proceedings and any custodian in any such judicial proceeding is hereby authorized by each Noteholder to make such payments to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Noteholders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 8.07 hereof. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Noteholder any plan or reorganization, arrangement, adjustment or composition -80- affecting the Notes or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Noteholder in any such proceedings. Section 6.10. Priorities. ---------- If the Trustee collects any money pursuant to this Article 6, it shall pay out the money in the following order: FIRST: to the Trustee for amounts due under Section 8.07 hereof; SECOND: to Noteholders for amounts then due and unpaid on the Notes for principal, premium, if any, and interest (including Additional Interest, if any) as to each, ratably, without preference or priority of any kind, according to the amounts then due and payable on the Notes; and THIRD: to the Company or, to the extent the Trustee collects any amount from any Guarantor, to such Guarantor. The Trustee, upon prior written notice to the Company, may fix a record date and payment date for any payment to Noteholders pursuant to this Section 6.10. Section 6.11. Undertaking for Costs. --------------------- In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 6.11 does not apply to a suit by the Trustee, the Company, any Guarantor or a suit by a Holder pursuant to Section 6.07 hereof or a suit by Holders of more than 10% in aggregate principal amount of the Notes then outstanding. Section 6.12. Restoration of Rights and Remedies. ---------------------------------- -81- If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every case, subject to any determination in such proceeding, the Company, the Guarantors, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted. ARTICLE SEVEN SUBORDINATION Section 7.01. Notes Subordinate to Senior Indebtedness. ---------------------------------------- The Company covenants and agrees, and each Holder of Notes, by its acceptance thereof, likewise covenants and agrees, that, to the extent and in the manner hereinafter set forth in this Article 7, the Indebtedness represented by the Notes and the payment of the principal of, premium, if any, and interest on the Notes are hereby expressly made subordinate and subject in right of payment as provided in this Article 7 to the prior indefeasible payment and satisfaction in full in cash of all existing and future Senior Indebtedness. This Article Seven shall constitute a continuing offer to all Persons who, in reliance upon such provisions, become holders of or continue to hold Senior Indebtedness; and such provisions are made for the benefit of the holders of Senior Indebtedness; and such holders are made obligees hereunder and they or each of them may enforce such provisions. Section 7.02. Payment Over of Proceeds upon Dissolution, etc. ---------------------------------------------- In the event of (a) any insolvency or bankruptcy case or proceeding, or any receivership, arrangement, reorganization, liquidation, dissolution or other winding-up or other similar case or proceeding in connection therewith whether or not involving insolvency or bankruptcy, relative to the Company or to its creditors, as such, or to the Company's assets, -82- whether voluntary or involuntary, or (b) any general assignment for the benefit of creditors or other marshalling of assets or liabilities of the Company (except in connection with the merger or consolidation of the Company or its liquidation or dissolution following the transfer of all or substantially all of its assets, upon the terms and conditions permitted under Article 5) (all of the foregoing, referred to herein as a "Bankruptcy Proceeding," and collectively as "Bankruptcy Proceedings"), then and in any such event: (1) the holders of Senior Indebtedness shall be entitled to receive payment and satisfaction in full in cash of all amounts due on or in respect of all Senior Indebtedness of the Company (including any interest accruing after the commencement of any such Bankruptcy Proceeding whether or not such interest is an allowable claim enforceable against the Company in any such proceeding), before the Holders of the Notes are entitled to receive or retain any payment or distribution of any kind on account of the Notes; and (2) any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, by set-off or otherwise, to which the Holders or the Trustee would be entitled but for the provisions of this Article 7 shall be paid by the liquidating trustee or agent or other Person making such payment or distribution, whether a trustee in bankruptcy, a receiver or liquidating trustee or otherwise, directly to the holders of Senior Indebtedness or their representative or representatives or to the trustee or trustees under any indenture under which any instruments evidencing any of such Senior Indebtedness may have been issued, ratably according to the aggregate amounts remaining unpaid on account of the Senior Indebtedness held or represented by each, to the extent necessary to make payment in full in cash of all Senior Indebtedness remaining unpaid, after giving effect to any concurrent payment or distribution, or provision therefor, to the holders of such Senior Indebtedness; and (3) in the event that, notwithstanding the foregoing provisions of this Section 7.02, the Trustee or the Holder of any Note shall have received any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, including, without -83- limitation, by way of set-off or otherwise, in respect of the Notes before all Senior Indebtedness of the Company is paid and satisfied in full in cash, then such payment or distribution shall be held by the recipient in trust for the benefit of holders of Senior Indebtedness and shall be immediately paid over or delivered to the holders of Senior Indebtedness or their representative or representatives to the extent necessary to make payment in full of all Senior Indebtedness remaining unpaid after giving effect to any concurrent payment or distribution to or for the holders of Senior Indebtedness; and (4) the consolidation of the Company with, or the merger of the Company with or into, another Person or the liquidation or dissolution of the Company following the conveyance, transfer or lease of its properties and assets substantially as an entirety to another Person upon the terms and conditions set forth in Article 5 hereof shall not be deemed a dissolution, winding-up, liquidation, reorganization, assignment for the benefit of creditors or marshaling of assets and liabilities of the Company for the purposes of this Article 7 if the Person formed by such consolidation or the surviving entity of such merger or the Person which acquires by conveyance, transfer or lease such properties and assets substantially as an entirety, as the case may be, shall, as a part of such consolidation, merger, conveyance, transfer or lease, comply with the conditions set forth in such Article 5 hereof. Section 7.03. Suspension of Payment When Senior Indebtedness in Default. --------------------------------------------------------- (a) Unless Section 7.02 hereof shall be applicable, after the occurrence of a Payment Default on Designated Senior Indebtedness, no payment or distribution of any kind or character (including, without limitation, cash, property and any payment or distribution which may be payable or deliverable by reason of the payment of any other Indebtedness of the Company being subordinated to the payment of the Notes by the Company) may be made by or on behalf of the Company or any Restricted Subsidiary of the Company, including, without limitation, by way of set-off or otherwise, for or on account of the Notes, or for or on account of the purchase, redemption or other acquisition of the Notes, and neither the Trustee nor any holder or owner of any Notes shall take or receive from the Company or any Restricted -84- Subsidiary of the Company, directly or indirectly in any manner, payment in respect of all or any portion of Notes commencing on the date of receipt by the Trustee of written notice from the representative of the holders of Designated Senior Indebtedness (the "Representative") of the occurrence of such Payment Default, and in any such event, such prohibition shall continue until such Payment Default is cured, waived in writing or ceases to exist. At such time as the prohibition set forth in the preceding sentence shall no longer be in effect, subject to the provisions of the preceding and following paragraphs, the Company shall resume making any and all required payments in respect of the Notes, including any missed payments. (b) Unless Section 7.02 hereof shall be applicable, upon the occurrence of a Non-Payment Event of Default on Designated Senior Indebtedness, no payment or distribution of any kind or character (including, without limitation, cash, property and any payment or distribution which may be payable or deliverable by reason of the payment of any other Indebtedness of the Company being subordinated to the payment of the Notes by the Company) shall be made by the Company or any Restricted Subsidiary of the Company, including, without limitation, by way of set-off or otherwise, for or on account of the Notes or for or on account of the purchase, redemption or other acquisition of any Notes, and neither the Trustee nor any holder or owner of any Notes shall take or receive from the Company or any Restricted Subsidiary, directly or indirectly in any manner, payment in respect of all or any portion of the Notes for a period (a "Payment Blockage Period") commencing on the date of receipt by the Trustee of written notice from the Representative of such Non-Payment Event of Default unless and until (subject to any blockage of payments that may then be in effect under the preceding paragraphs) the earliest of: (x) 179 days shall have elapsed since the date of receipt of such written notice by the Trustee, (y) such Non-Payment Event of Default shall have been cured or waived in writing or shall have ceased to exist or such Designated Senior Indebtedness shall have been paid in full or (z) such Payment Blockage Period shall have been terminated by written notice to the Company or the Trustee from the Representative, after which, in the case of clause (x), (y) or (z), the Company shall resume making any and all required payments in respect of the Notes, including any missed payments. Notwithstanding any other provision of this Indenture, in no event shall a Payment Blockage Period extend beyond 179 days from the date of the receipt by the Trustee of the notice referred to -85- in this Section 7.03(b) (the "Initial Blockage Period"). Any number of additional Payment Blockage Periods may be commenced during the Initial Blockage Period; provided, however, that no such additional Payment Blockage Period shall -------- ------- extend beyond the Initial Blockage Period. After the expiration of the Initial Blockage Period, no Payment Blockage Period may be commenced under this Section 7.03(b) and no Guarantee Payment Blockage Period may be commenced under Section 11.08(b) hereof until at least 180 consecutive days have elapsed from the last day of the Initial Blockage Period. Notwithstanding any other provisions of this Indenture, no Non-Payment Event of Default with respect to Designated Senior Indebtedness which existed or was continuing on the date of the commencement of any Payment Blockage Period initiated by the Representative shall be, or be made, the basis for the commencement of a second Payment Blockage Period initiated by the Representative, whether or not within the Initial Blockage Period, unless such Non-Payment Event of Default shall have been cured or waived for a period of not less than 90 consecutive days. (c) In the event that, notwithstanding the foregoing, the Trustee or the Holder of any Note shall have received any payment prohibited by the foregoing provisions of this Section 7.03, then and in such event such payment shall be paid over and delivered forthwith to the Representative initiating the Payment Blockage Period, in trust for distribution to the holders of Senior Indebtedness or, if no amounts are then due in respect of Senior Indebtedness, promptly returned to the Company, or otherwise as a court of competent jurisdiction shall direct. Section 7.04. Trustee's Relation to Senior Indebtedness. ----------------------------------------- With respect to the holders of Senior Indebtedness, the Trustee undertakes to perform or to observe only such of its covenants and obligations as are specifically set forth in this Article 7, and no implied covenants or obligations with respect to the holders of Senior Indebtedness shall be read into this Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Indebtedness and the Trustee shall not be liable to any holder of Senior Indebtedness other than under the standards described in Section 8.01 if it shall mistakenly pay over or deliver to Holders, the Company or any other Person moneys or assets to which any holder of Senior Indebtedness shall be entitled by virtue of this Article 7 or otherwise. -86- Section 7.05. Subrogation to Rights of Holders of Senior Indebtedness. ------------------------------------------------------- Upon the payment in full of all Senior Indebtedness, the Holders of the Notes shall be subrogated to the rights of the holders of such Senior Indebtedness to receive payments and distributions of cash, property and securities applicable to the Senior Indebtedness until the principal of, premium, if any and interest on the Notes shall be paid in full. For purposes of such subrogation, no payments or distributions to the holders of Senior Indebtedness of any cash, property or securities to which the Holders of the Notes or the Trustee would be entitled except for the provisions of this Article 7, and no payments over pursuant to the provisions of this Article 7 to the holders of Senior Indebtedness by Holders of the Notes or the Trustee, shall, as among the Company, its creditors other than holders of Senior Indebtedness and the Holders of the Notes, be deemed to be a payment or distribution by the Company to or on account of the Senior Indebtedness. If any payment or distribution to which the Holders would otherwise have been entitled but for the provisions of this Article 7 shall have been applied, pursuant to the provisions of this Article 7, to the payment of all amounts payable under the Senior Indebtedness of the Company, then and in such case, the Holders shall be entitled to receive from the holders of such Senior Indebtedness at the time outstanding any payments or distributions received by such holders of such Senior Indebtedness in excess of the amount sufficient to pay all amounts payable under or in respect of such Senior Indebtedness in full in cash. Section 7.06. Provisions Solely To Define Relative Rights. ------------------------------------------- The provisions of this Article 7 are and are intended solely for the purpose of defining the relative rights of the Holders of the Notes on the one hand and the holders of Senior Indebtedness on the other hand. Nothing contained in this Article or elsewhere in this Indenture or in the Notes is intended to or shall (a) impair, as among the Company, its creditors other than holders of Senior Indebtedness and the Holders of the Notes, the obligation of the Company, which is absolute and unconditional, to pay to the Holders of the Notes the principal of, premium, if any, and interest on the Notes as -87- and when the same shall become due and payable in accordance with their terms; or (b) affect the relative rights against the Company of the Holders of the Notes and creditors of the Company other than the holders of Senior Indebtedness; or (c) prevent the Trustee or the Holder of any Note from exercising all remedies otherwise permitted by applicable law upon a Default or an Event of Default under this Indenture, subject to the rights, if any, under this Article 7 of the holders of Senior Indebtedness (1) in any case, proceeding, dissolution, liquidation or other winding-up, assignment for the benefit of creditors or other marshaling of assets and liabilities of the Company referred to in Section 7.02 hereof, to receive, pursuant to and in accordance with such Section, cash, property and securities otherwise payable or deliverable to the Trustee or such Holder, or (2) under the conditions specified in Section 7.03, to prevent any payment prohibited by such Section or enforce their rights pursuant to Section 7.03(c) hereof. The failure to make a payment on account of principal of, premium, if any, or interest on the Notes by reason of any provision of this Article 7 shall not be construed as preventing the occurrence of a Default or an Event of Default hereunder. Section 7.07. Trustee To Effectuate Subordination. ----------------------------------- Each Holder of a Note by his acceptance thereof authorizes and directs the Trustee on his behalf to take, in the Trustee's sole discretion, such action as may be necessary or appropriate to effectuate the subordination provided in this Article and appoints the Trustee his attorney-in-fact for any and all such purposes, including, in the event of any dissolution, winding-up, liquidation or reorganization of the Company whether in bankruptcy, insolvency, receivership proceedings, or otherwise, the timely filing of a claim for the unpaid balance of the indebtedness of the Company owing to such Holder in the form required in such proceedings and the causing of such claim to be approved. If the Trustee does not file such a claim prior to 30 days before the expiration of the time to file such a claim, the holders of Senior Indebtedness, or any Representative, may file such a claim on behalf of Holders of the Notes. Section 7.08. No Waiver of Subordination Provisions. ------------------------------------- (a) No right of any present or future holder of any Senior Indebtedness to enforce subordination as herein provided -88- shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder, or by any non-compliance by the Company with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof any such holder may have or be otherwise charged with. (b) Without limiting the generality of subsection (a) of this Section 7.08, the holders of Senior Indebtedness may, at any time and from time to time, without the consent of or notice to the Trustee or the Holders of the Notes, without incurring responsibility to the Holders of the Notes and without impairing or releasing the subordination provided in this Article 7 or the obligations hereunder of the Holders of the Notes to the holders of Senior Indebtedness, do any one or more of the following: (1) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, Senior Indebtedness or any instrument evidencing the same or any agreement under which Senior Indebtedness is outstanding; (2) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Senior Indebtedness; (3) release any Person liable in any manner for the collection or payment of Senior Indebtedness; and (4) exercise or refrain from exercising any rights against the Company and any other Person; provided, however, that in no -------- ------- event shall any such actions limit the right of the Trustee or the Holders of the Notes to take any action to accelerate the maturity of the Notes pursuant to Article 6 hereof or to pursue any rights or remedies hereunder or under applicable laws if the taking of such action does not otherwise violate the terms of this Indenture. Section 7.09. Notice to Trustee. ----------------- (a) The Company shall give prompt written notice to the Trustee of any fact known to the Company which would prohibit the making of any payment to or by the Trustee at its Corporate Trust Office in respect of the Notes. Notwithstanding the provisions of this Article 7 or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts which would prohibit the making of any payment to or by the Trustee in respect of the Notes, unless and until the Trustee shall have received written notice thereof from the Company or a holder of Senior Indebtedness or from any trustee, fiduciary or agent therefor; and, prior to the receipt of any such written notice, the Trustee, subject to -89- provisions of this Section 7.09, shall be entitled in all respects to assume that no such facts exist. (b) Subject to the provisions of Section 8.01 hereof, the Trustee shall be entitled to rely on the delivery to it and the Company of a written notice by a Person representing itself to be a holder of Senior Indebtedness (or a trustee, fiduciary or agent therefor) to establish that such notice has been given by a holder of Senior Indebtedness (or a trustee, fiduciary or agent therefor); provided, however, that failure to give such notice to the Company -------- ------- shall not affect in any way the right of the Trustee to rely on such notice. In the event that the Trustee determines in good faith that further evidence is required with respect to the right of any Person as a holder of Senior Indebtedness to participate in any payment or distribution pursuant to this Article 7, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article 7, and if such evidence is not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. Section 7.10. Reliance on Judicial Order or Certificate of Liquidating Agent. ----------------------------------------- Upon any payment or distribution of assets of the Company referred to in this Article 7, the Trustee, subject to the provisions of Section 7.01 hereof, and the Holders shall be entitled to rely upon any order or decree entered by any court of competent jurisdiction in which such insolvency, bankruptcy, receivership, liquidation, reorganization, dissolution, winding-up or similar case or proceeding is pending, or a certificate of the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit of creditors, agent or other Person making such payment or distribution, delivered to the Trustee or to the Holders, for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of Senior Indebtedness and other Indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article 7. -90- Section 7.11. Rights of Trustee as a Holder of Senior Indebtedness; Preservation of Trustee's Rights. --------------------------------------- The Trustee in its individual capacity shall be entitled to all the rights set forth in this Article 7 with respect to any Senior Indebtedness which may at any time be held by it, to the same extent as any other holder of Senior Indebtedness, and nothing in this Indenture shall deprive the Trustee of any of its rights as such holder. Nothing in this Article 7 shall apply to claims of, or payments to, the Trustee under or pursuant to Section 8.07 hereof. Section 7.12. Article Applicable to Paying Agents. ----------------------------------- In case at any time any Paying Agent other than the Trustee shall have been appointed by the Company and be then acting hereunder, the term "Trustee" as used in this Article 7 shall in such case (unless the context otherwise requires) be construed as extending to and including such Paying Agent within its meaning as fully for all intents and purposes as if such Paying Agent were named in this Article 7 in addition to or in place of the Trustee. Section 7.13. No Suspension of Remedies. ------------------------- Nothing contained in this Article 7 shall limit the right of the Trustee or the Holders of Notes to take any action to accelerate the maturity of the Notes pursuant to Article 6 or to pursue any rights or remedies hereunder or under applicable law, subject to the rights, if any, under this Article 7 of the holders, from time to time, of Senior Indebtedness. Section 7.14. Defeasance of Subordination. --------------------------- The subordination of the Notes provided by this Article 7 is expressly made subject to the provisions for defeasance or covenant defeasance in Article 10 hereof and, anything herein to the contrary notwithstanding, upon the effectiveness of any such defeasance or covenant defeasance, the Notes then outstanding shall thereupon cease to be subordinated pursuant to this Article 7. -91- ARTICLE EIGHT TRUSTEE Section 8.01. Duties of Trustee. ----------------- (a) If an Event of Default actually known to a Responsible Officer of the Trustee has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture and use the same degree of care and skill in their exercise as a prudent man would exercise or use under the same circumstances in the conduct of his own affairs. (b) Except during the continuance of an Event of Default: (1) The Trustee need perform only those duties that are specifically set forth in this Indenture and no others. (2) In the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture but, in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform on their face to the requirements of this Indenture (but need not confirm or investigate the accuracy of mathematical calculations or other facts stated therein). (c) The Trustee shall not be relieved from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (1) This paragraph does not limit the effect of paragraph (b) of this Section 8.01. (2) The Trustee shall not be liable for any error of judgment made in good faith, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts. -92- (3) The Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to the terms hereof. (4) No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its rights, powers or duties if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity satisfactory to it against such risk or liability is not reasonably assured to it. (d) Whether or not therein expressly so provided, paragraphs (a), (b), (c) and (e) of this Section 8.01 shall govern every provision of this Indenture that in any way relates to the Trustee. (e) The Trustee may refuse to perform any duty or exercise any right or power unless it receives indemnity satisfactory to it in its sole discretion against any loss, liability, expense or fee. (f) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company or any Guarantor. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by the law. Section 8.02. Rights of Trustee. ----------------- Subject to Section 8.01 hereof: (1) The Trustee may rely on any document reasonably believed by it to be genuine and to have been signed or presented by the proper person. The Trustee need not investigate any fact or matter stated in the document. (2) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel, or both, which shall conform to the provisions of Section 12.05 hereof. The Trustee shall be protected and shall not be liable for any action it takes or omits to take in good faith in reliance on such certificate or opinion. -93- (3) The Trustee may act through its attorneys and agents and shall not be responsible for the misconduct or negligence of any agent (other than an agent who is an employee of the Trustee, as provided in Section 8.01(c)) appointed by it with due care. (4) The Trustee shall not be liable for any action it takes or omits to take in good faith which it reasonably believes to be authorized or within its rights or powers. (5) The Trustee may consult with counsel of its selection, and the written advice or written opinion of such counsel as to matters of law shall be full and complete authorization and protection from liability in respect of any action taken, omitted or suffered by it hereunder in good faith and in accordance with the advice or opinion of such counsel. Section 8.03. Individual Rights of Trustee. ---------------------------- The Trustee in its individual or any other capacity may become the owner or pledgee of Notes and may make loans to, accept deposits from, perform services for or otherwise deal with either the Company or any Guarantor, or any Affiliates thereof, with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. The Trustee, however, shall be subject to Sections 8.10 and 8.11 hereof. Section 8.04. Trustee's Disclaimer. -------------------- The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture or the Notes or any Guarantee, it shall not be accountable for the Company's or any Guarantor's use of the proceeds from the sale of Notes or any money paid to the Company or any Guarantor pursuant to the terms of this Indenture, it shall not be responsible for the use or application of any money received by any Paying Agent other than the Trustee, and it shall not be responsible for any statement in the Notes, Guarantee or this Indenture other than its certificate of authentication. Section 8.05. Notice of Defaults. ------------------ If a Default occurs and is continuing and if it is known to the Trustee, the Trustee shall mail to each Noteholder -94- notice of the Default within 90 days after it occurs unless such Default has been cured or waived. Except in the case of a Default in payment of the principal of, or premium, if any, or interest on any Note, the Trustee may withhold the notice if and so long as a committee of its Responsible Officers in good faith determine(s) that withholding the notice is in the interests of the Noteholders. Section 8.06. Reports by Trustee to Holders. ----------------------------- If required by TIA (S) 313(a), within 60 days after May 15 of any year, commencing May 15, 1998 the Trustee shall mail to each Noteholder a brief report dated as of such date that complies with TIA (S) 313(a). The Trustee also shall comply with TIA (S) 313(b)(2). The Trustee shall also transmit by mail all reports as required by TIA (S) 313(c) and TIA (S) 313(d). Reports pursuant to this Section 8.06 shall be transmitted by mail: (1) to all Holders of Notes, as the names and addresses of such Holders appear on the Registrar's books; and (2) to such Holders of Notes as have, within the two years preceding such transmission, filed their names and addresses with the Trustee for that purpose. A copy of each report at the time of its mailing to Noteholders shall be filed with the SEC and each stock exchange on which the Notes are listed. The Company shall promptly notify the Trustee when the Notes are listed on any stock exchange. Section 8.07. Compensation and Indemnity. -------------------------- The Company and the Guarantors shall pay to the Trustee and Agents from time to time such compensation as shall be agreed in writing between the Company and the Trustee for its services hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust). The Company and the Guarantors shall reimburse the Trustee and Agents upon request for all reasonable disbursements, expenses and advances incurred or made by it in connection with its duties under this Indenture, including the reasonable compensation, disbursements and expenses of the -95- Trustee's agents and counsel, except any disbursement, expense, compensation or advances as may be attributable to the negligence, willful misconduct or bad faith of the Trustee or its agents or counsel. The Company and the Guarantors shall indemnify each of the Trustee and any predecessor Trustee for, and hold each of them harmless against, any and all loss, damage, claim, liability or expense, including without limitation taxes (other than franchise taxes imposed on the Trustee and taxes based on the income of the Trustee or such Agent) and reasonable attorneys' fees and expenses incurred by it in connection with the acceptance or performance of its duties under this Indenture, including the reasonable costs and expenses of enforcing this Indenture against the Company and the Guarantors (including this Section 8.07) and of defending itself against any claim (whether asserted by any Noteholder, the Company or any Guarantor) or liability in connection with the exercise or performance of any of its powers or duties hereunder (including, without limitation, settlement costs). The Trustee or Agent shall notify the Company and the Guarantors in writing promptly of any claim asserted against the Trustee or Agent for which it may seek indemnity. However, the failure by the Trustee or Agent to so notify the Company and the Guarantors shall not relieve the Company and the Guarantors of its obligations hereunder, except to the extent the Company and the Guarantors are prejudiced thereby. The Company and the Guarantors shall defend the claim and the Trustee or Agent shall cooperate in the defense (and may employ its own counsel) at the Company's and the Guarantors' expense; provided, however, that the Company and the Guarantors -------- ------- shall not be responsible for the fees and expenses of the Trustee's or Agent's separate counsel unless the Trustee or Agent is advised by counsel in writing that it may have available to it defenses that are in addition to or in conflict with the defenses available to the Company, and in such event, that the Company's and the Guarantors' reimbursement obligation with respect to such counsel will be limited to the reasonable fees and expenses of such counsel and the reasonable fees and expenses of other advisors, professionals and experts engaged in connection with such additional or conflicting defenses. The Company need not pay for any settlement made without its written consent, which consent shall not be unreasonably withheld. The Company and the Guarantors need not reimburse any expense or indemnify against any loss or liability incurred by the Trustee or Agent solely as -96- a result of the Trustee's or Agent's finally adjudicated violation of this Indenture. Notwithstanding the foregoing, the Company and the Guarantors need not reimburse the Trustee for any expense or indemnify it against any loss or liability incurred by the Trustee through its negligence, willful misconduct or bad faith. To secure the payment obligations of the Company in this Section 8.07, the Trustee shall have a lien prior to the Notes on all money or property held or collected by the Trustee except such money or property held in trust to pay principal of and interest on particular Notes. The Trustee's right to receive payment of any amounts under this Section 8.07 shall not be subordinate to any other liability or indebtedness of the Company (even though the Notes may be so subordinated). The obligations of the Company under this Section 8.07 to compensate and indemnify the Trustee and each predecessor Trustee and to pay or reimburse the Trustee and each predecessor Trustee for expenses, disbursements and advances shall survive the resignation or removal of the Trustee and the satisfaction, discharge or other termination of this Indenture, including any termination or rejection hereof under any Bankruptcy Law. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.01(6) or (7) hereof occurs, the expenses and the compensation for the services are intended to constitute expenses of administration under any Bankruptcy Law. For purposes of this Section 8.07, the term "Trustee" shall include any trustee appointed pursuant to Article 8. Section 8.08. Replacement of Trustee. ---------------------- No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article 8 shall become effective until the acceptance of appointment by the successor Trustee under this Section. The Trustee may resign by so notifying the Company and the Guarantors in writing. The Holders of a majority in aggregate principal amount of the outstanding Notes may remove the Trustee by notifying the Company and the Trustee in writing and may appoint a successor Trustee with the Company's written -97- consent, which consent shall not be unreasonably withheld. The Company may remove the Trustee at its election if: (1) the Trustee fails to comply with Section 8.10 hereof; (2) the Trustee is adjudged a bankrupt or an insolvent; (3) a receiver or other public officer takes charge of the Trustee or its property; or (4) the Trustee otherwise becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint a successor Trustee. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company or the Holders of a majority in aggregate principal amount of the outstanding Notes may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee fails to comply with Section 8.10 hereof, any Noteholder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Immediately following such delivery, the retiring Trustee shall, subject to its rights under Section 8.07 hereof, transfer all property held by it as Trustee to the successor Trustee, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. A successor Trustee shall mail notice of its succession to each Noteholder. Notwithstanding replacement of the Trustee pursuant to this Section 8.08, the Company obligations under Section 8.07 hereof shall continue for the benefit of the retiring Trustee. -98- Section 8.09. Successor Trustee by Consolidation, Merger, etc. ----------------------------------- If the Trustee consolidates with, merges or converts into, or transfers all or substantially all of its corporate trust assets to, another corporation, subject to Section 8.10 hereof, the successor corporation without any further act shall be the successor Trustee. Section 8.10. Eligibility; Disqualification. ----------------------------- This Indenture shall always have a Trustee who satisfies the requirements of TIA (S) 310(a)(1) and (2) in every respect. The Trustee (together with its corporate parent) shall have a combined capital and surplus of at least $100,000,000 as set forth in the most recent applicable published annual report of condition. The Trustee shall comply with TIA (S) 310(b), including the provision in (S) 310(b)(1). Section 8.11. Preferential Collection of Claims Against Company. -------------------------- The Trustee shall comply with TIA (S) 311(a), excluding any creditor relationship listed in TIA (S) 311 (b). A Trustee who has resigned or been removed shall be subject to TIA (S) 311(a) to the extent indicated therein. Section 8.12. Paying Agents. ------------- The Company shall cause each Paying Agent other than the Trustee to execute and deliver to it and the Trustee an instrument in which such agent shall agree with the Trustee, subject to the provisions of this Section 8.12: (A) that it will hold all sums held by it as agent for the payment of principal of, or premium, if any, or interest on the Notes (whether such sums have been paid to it by the Company or by any obligor on the Notes) in trust for the benefit of Holders of the Notes or the Trustee; (B) that it will at any time during the continuance of any Event of Default, upon written request from the Trustee, deliver to the Trustee all sums so held in trust by it together with a full accounting thereof; and -99- (C) that it will give the Trustee written notice within three (3) Business Days of any failure of the Company (or by any obligor on the Notes) in the payment of any installment of the principal of, premium, if any, or interest on, the Notes when the same shall be due and payable. ARTICLE NINE AMENDMENTS, SUPPLEMENTS AND WAIVERS Section 9.01. Without Consent of Holders. -------------------------- The Company and the Guarantors, when authorized by a Board Resolution of each of them, and the Trustee may amend, waive or supplement this Indenture or the Notes without notice to or consent of any Noteholder: (1) to comply with Section 5.01 hereof; (2) to provide for uncertificated Notes in addition to or in place of certificated Notes; (3) to comply with any requirements of the SEC under the TIA; (4) to cure any ambiguity, defect or inconsistency; (5) to make any other change that does not materially and adversely affect the rights of any Noteholders hereunder; (6) to add a Guarantor; or (7) to provide for the issuance of the Exchange Notes and the Private Exchange Notes in accordance with Section 2.01 in a manner that does not materially and adversely affect the rights of any Noteholder. Upon the request of the Company accompanied by a resolution of its Board of Directors authorizing the execution of any such amended or supplemental indenture, and upon receipt by the Trustee of the documents described in Section 9.06 hereof, -100- the Trustee is hereby authorized to join with the Company and the Guarantors in the execution of any supplemental indenture authorized or permitted by the terms of this Indenture and to make any further appropriate agreements and stipulations which may be therein contained, but the Trustee shall not be obligated to enter into any such supplemental indenture which adversely affects its own rights, duties or immunities under this Indenture. Section 9.02. With Consent of Holders. ----------------------- The Company (when authorized by a Board Resolution), the Guarantors (each when authorized by a Board Resolution) and the Trustee may modify or supplement this Indenture or the Notes with the written consent of the Holders of not less than a majority in aggregate principal amount of the outstanding Notes. The Holders of not less than a majority in aggregate principal amount of the outstanding Notes may waive compliance in a particular instance by the Company or Guarantors with any provision of this Indenture or the Notes. Subject to Section 9.04, without the consent of each Noteholder affected, however, an amendment, supplement or waiver, including a waiver pursuant to Section 6.04, may not: (1) reduce the principal amount of outstanding Notes whose Holders must consent to an amendment, supplement or waiver to this Indenture or the Notes; (2) reduce the rate of or change the time for payment of interest, including defaulted interest, on any Note; (3) reduce the principal of or premium on or change the stated maturity of any Note or change the date on which any Note may be subject to redemption or repurchase or reduce the redemption or repurchase price therefor; (4) make any Note payable in money other than that stated in the Note or change the place of payment from New York, New York; (5) waive a default in the payment of the principal of, or interest on, or redemption payment with respect to, any Note; -101- (6) make any changes in Sections 6.04 or 6.07 hereof or this sentence of Section 9.02; or (7) modify or change any provision of this Indenture or the related definitions affecting the subordination or ranking of the Notes or any Guarantee in a manner which adversely affects the Holders of the Notes; or (8) release any Guarantor from any of the obligations under its Guarantee or this Indenture other than in accordance with the terms of this Indenture. After an amendment, supplement or waiver under this Section 9.02 becomes effective, the Company shall mail to the Holders a notice briefly describing the amendment, supplement or waiver. Upon the written request of the Company, accompanied by a Board Resolution authorizing the execution of any such supplemental indenture, and upon the receipt by the Trustee of evidence reasonably satisfactory to the Trustee of the consent of the Noteholders as aforesaid and upon receipt by the Trustee of the documents described in Section 9.06 hereof, the Trustee shall join with the Company and the Guarantors in the execution of such supplemental indenture unless such supplemental indenture affects the Trustee's own rights, duties or immunities under this Indenture, in which case the Trustee may, but shall not be obligated to, enter into such supplemental indenture. It shall not be necessary for the consent of the Holders under this Section to approve the particular form of any proposed amendment, supplement or waiver, but it shall be sufficient if such consent approves the substance thereof. Section 9.03. Compliance with Trust Indenture Act. ----------------------------------- Every amendment or supplement to this Indenture or the Notes shall comply with the TIA as then in effect. Section 9.04. Revocation and Effect of Consents. --------------------------------- Until an amendment, supplement, waiver or other action becomes effective, a consent to it by a Holder of a Note is a continuing consent conclusive and binding upon such Holder and every subsequent Holder of the same Note or portion thereof, and -102- of any Note issued upon the transfer thereof or in exchange therefor or in place thereof, even if notation of the consent is not made on any such Note. Any such Holder or subsequent Holder, however, may revoke the consent as to his Note or portion of a Note, if the Trustee receives the written notice of revocation before the date the amendment, supplement, waiver or other action becomes effective. The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Holders entitled to consent to any amendment, supplement, or waiver. If a record date is fixed, then, notwithstanding the preceding paragraph, those Persons who were Holders at such record date (or their duly designated proxies), and only such Persons, shall be entitled to consent to such amendment, supplement, or waiver or to revoke any consent previously given, whether or not such Persons continue to be Holders after such record date. No such consent shall be valid or effective for more than 90 days after such record date unless the consent of the requisite number of Holders has been obtained. After an amendment, supplement, waiver or other action becomes effective, it shall bind every Noteholder, unless it makes a change described in any of clauses (1) through (8) of Section 9.02 hereof. In that case the amendment, supplement, waiver or other action shall bind each Holder of a Note who has consented to it and every subsequent Holder of a Note or portion of a Note that evidences the same debt as the consenting Holder's Note. Section 9.05. Notation on or Exchange of Notes. -------------------------------- If an amendment, supplement, or waiver changes the terms of a Note, the Trustee (in accordance with the specific written direction of the Company) shall request the Holder of the Note (in accordance with the specific written direction of the Company) to deliver it to the Trustee. In such case, the Trustee shall place an appropriate notation on the Note about the changed terms and return it to the Holder. Alternatively, if the Company or the Trustee so determines, the Company in exchange for the Note shall issue, the Guarantors shall endorse, and the Trustee shall authenticate a new Note that reflects the changed terms. Failure to make the appropriate notation or issue a new Note shall not affect the validity and effect of such amendment, supplement or waiver. -103- Section 9.06. Trustee To Sign Amendments, etc. ------------------------------- The Trustee shall sign any amendment, supplement or waiver authorized pursuant to this Article 8 if the amendment, supplement or waiver does not adversely affect the rights, duties, liabilities or immunities of the Trustee. If it does, the Trustee may, but need not, sign it. In signing or refusing to sign such amendment, supplement or waiver the Trustee shall be entitled to receive and, subject to Section 8.01 hereof, shall be fully protected in relying upon an Officers' Certificate and an Opinion of Counsel stating, in addition to the matters required by Section 12.04, that such amendment, supplement or waiver is authorized or permitted by this Indenture and is a legal, valid and binding obligation of the Company and Guarantors, enforceable against the Company and Guarantors in accordance with its terms (subject to customary exceptions). ARTICLE TEN DISCHARGE OF INDENTURE; DEFEASANCE Section 10.01. Discharge of Indenture. ---------------------- The Company and the Guarantors may terminate their obligations under the Notes, the Guarantees and this Indenture, except the obligations referred to in the last paragraph of this Section 10.01, if there shall have been cancelled by the Trustee or delivered to the Trustee for cancellation all Notes theretofore authenticated and delivered (other than any Notes that are asserted to have been destroyed, lost or stolen and that shall have been replaced as provided in Section 2.08 hereof) and the Company has paid all sums payable by them hereunder or deposited all required sums with the Trustee. After such delivery, the Trustee upon Company Request shall acknowledge promptly in writing the discharge of the Company's and the Guarantors' obligations under the Notes, the Guarantees and this Indenture except for those surviving obligations specified below. Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company in Sections 8.07, 10.05 and 10.06 hereof shall survive. -104- Section 10.02. Legal Defeasance. ---------------- The Company may at its option, by Board Resolution of the Board of Directors of the Company, be discharged from its obligations with respect to the Notes and the Guarantors discharged from their obligations under the Guarantees on the date the conditions set forth in Section 10.04 below are satisfied (hereinafter, "Legal Defeasance"). For this purpose, such Legal Defeasance means that the Company shall be deemed to have paid and discharged the entire indebtedness represented by the Notes and to have satisfied all its other obligations under such Notes and this Indenture insofar as such Notes are concerned (and the Trustee, at the expense of the Company, shall, subject to Section 10.06 hereof, execute instruments in form and substance reasonably satisfactory to the Trustee and Company acknowledging the same), except for the following which shall survive until otherwise terminated or discharged hereunder: (A) the rights of Holders of outstanding Notes to receive solely from the trust funds described in Section 10.04 hereof and as more fully set forth in such Section, payments in respect of the principal of, premium, if any, and interest on such Notes when such payments are due, (B) the Company's obligations with respect to such Notes under Sections 2.03, 2.04, 2.05, 2.06, 2.07, 2.08, 2.09 and 4.23 hereof, (C) the rights, powers, trusts, duties, and immunities of the Trustee hereunder (including claims of, or payments to, the Trustee under or pursuant to Section 8.07 hereof) and (D) this Article 10. Subject to compliance with this Article 10, the Company may exercise its option under this Section 10.02 with respect to the Notes notwithstanding the prior exercise of its option under Section 10.03 below with respect to the Notes. Section 10.03. Covenant Defeasance. ------------------- At the option of the Company, pursuant to a Board Resolution of the Board of Directors of the Company, the Company and the Guarantors shall be released from their respective obligations under Sections 4.02 (except for obligations mandated by the TIA) through 4.19 and 4.21 through 4.22, inclusive, and clause (a)(iii) of Section 5.01 hereof with respect to the outstanding Notes on and after the date the conditions set forth in Section 10.04 hereof are satisfied (hereinafter, "Covenant Defeasance"). For this purpose, such Covenant Defeasance means that the Company and the Guarantors may omit to comply with and shall have no liability in respect of any term, condition or -105- limitation set forth in any such specified Section or portion thereof, whether directly or indirectly by reason of any reference elsewhere herein to any such specified Section or portion thereof or by reason of any reference in any such specified Section or portion thereof to any other provision herein or in any other document, but the remainder of this Indenture and the Notes shall be unaffected thereby. Section 10.04. Conditions to Legal Defeasance or Covenant Defeasance. ------------------------------ The following shall be the conditions to application of Section 10.02 or Section 10.03 hereof to the outstanding Notes: (1) the Company shall irrevocably have deposited or caused to be deposited with the Trustee (or another trustee satisfying the requirements of Section 8.10 hereof who shall agree to comply with the provisions of this Article 10 applicable to it) as funds in trust for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of the Notes, (A) money in an amount, or (B) U.S. Government Obligations which through the scheduled payment of principal and interest in respect thereof in accordance with their terms will provide, not later than the due date of any payment, money in an amount, or (C) a combination thereof, sufficient, in the opinion of a nationally-recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge, and which shall be applied by the Trustee (or other qualifying trustee) to pay and discharge, the principal of, premium, if any, and accrued interest on the outstanding Notes at the maturity date of such principal, premium, if any, or interest, or on dates for payment and redemption of such principal, premium, if any, and interest selected in accordance with the terms of this Indenture and of the Notes; (2) no Default or Event of Default with respect to the Notes shall have occurred and be continuing on the date of such deposit, or, with respect to Events of Default described under Section 6.01, shall have occurred and be continuing at any time during the period ending on the 91st day after the date of such deposit or, if longer, ending on -106- the day following the expiration of the longest preference period under any Bankruptcy Law applicable to the Company in respect of such deposit (it being understood that this condition shall not be deemed satisfied until the expiration of such period); (3) such Legal Defeasance or Covenant Defeasance shall not cause the Trustee to have a conflicting interest for purposes of the TIA with respect to any securities of the Company; (4) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute default under this Indenture, the Senior Credit Facility or any other material agreement or instrument to which the Company or any of its Restricted Subsidiaries is a party or by which they are bound; (5) the Company shall have delivered to the Trustee an Opinion of Counsel stating that, as a result of such Legal Defeasance or Covenant Defeasance, neither the trust nor the Trustee will be required to register as an investment company under the Investment Company Act of 1940, as amended; (6) in the case of an election under Section 10.02 above, the Company shall have delivered to the Trustee an Opinion of Counsel stating that (i) the Company has received from, or there has been published by, the Internal Revenue Service a ruling to the effect that or (ii) there has been a change in any applicable Federal income tax law with the effect that, and such opinion shall confirm that, the Holders of the outstanding Notes or Persons in their positions will not recognize income, gain or loss for Federal income tax purposes solely as a result of such Legal Defeasance and will be subject to Federal income tax on the same amounts, in the same manner, including as a result of prepayment, and at the same times as would have been the case if such Legal Defeasance had not occurred; (7) in the case of an election under Section 10.03 hereof, the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that the Holders of the outstanding Notes will not recognize income, gain or loss for Federal income tax purposes as a result of such Covenant -107- Defeasance and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (8) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for or relating to either the Legal Defeasance under Section 10.02 above or the Covenant Defeasance under Section 10.03 hereof (as the case may be) have been complied with; (9) the Company shall have delivered to the Trustee an Officers' Certificate stating that the deposit under clause (1) was not made by the Company with the intent of preferring the Holders of the Notes over any other creditors of the Company or with the intent of defeating, hindering, delaying or defrauding any creditors of the Company or others; (10) the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that (A) the trust funds will not be subject to any rights of holders of Senior Indebtedness, including, without limitation, those arising under the Indenture and (B) after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; and (11) the Company shall have paid or duly provided for payment under terms mutually satisfactory to the Company and the Trustee all amounts then due to the Trustee pursuant to Section 8.07 hereof. Section 10.05. Deposited Money and U.S. Government Obligations To Be Held in Trust; Other Miscellaneous Provisions. -------------------------------------- All money and U.S. Government Obligations (including the proceeds thereof) deposited with the Trustee pursuant to Section 10.04 hereof in respect of the outstanding Notes shall be held in trust and applied by the Trustee, in accordance with the provisions of such Notes and this Indenture, to the payment, either directly or through any Paying Agent, to the Holders of such Notes, of all sums due and to become due thereon in respect -108- of principal, premium, if any, and accrued interest, but such money need not be segregated from other funds except to the extent required by law. The Company and the Guarantors shall (on a joint and several basis) pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the U.S. Government Obligations deposited pursuant to Section 10.04 hereof or the principal, premium, if any, and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the outstanding Notes. Anything in this Article 10 to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon an Company Request any money or U.S. Government Obligations held by it as provided in Section 10.04 hereof which, in the opinion of a nationally-recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are in excess of the amount thereof which would then be required to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance. Section 10.06. Reinstatement. ------------- If the Trustee or Paying Agent is unable to apply any money or U.S. Government Obligations in accordance with Section 10.01, 10.02 or 10.03 hereof by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Company's and each Guarantor's obligations under this Indenture, the Notes and the Guarantees shall be revived and reinstated as though no deposit had occurred pursuant to this Article 10 until such time as the Trustee or Paying Agent is permitted to apply all such money or U.S. Government Obligations in accordance with Section 10.01 hereof; provided, -------- however, that if the Company or the Guarantors have made any payment of - ------- principal of, premium, if any, or accrued interest on any Notes because of the reinstatement of their obligations, the Company or the Guarantors, as the case may be, shall be subrogated to the rights of the Holders of such Notes to receive such payment from the money or U.S. Government Obligations held by the Trustee or Paying Agent. Section 10.07. Moneys Held by Paying Agent. --------------------------- -109- In connection with the satisfaction and discharge of this Indenture, all moneys then held by any Paying Agent under the provisions of this Indenture shall, upon written demand of the Company, be paid to the Trustee, or if sufficient moneys have been deposited pursuant to Section 10.01 hereof, to the Company upon an Company Request (or, if such moneys had been deposited by the Guarantors, to such Guarantors), and thereupon such Paying Agent shall be released from all further liability with respect to such moneys. Section 10.08. Moneys Held by Trustee. ---------------------- Any moneys deposited with the Trustee or any Paying Agent or then held by the Company or the Guarantors in trust for the payment of the principal of, or premium, if any, or interest on any Note that are not applied but remain unclaimed by the Holder of such Note for two years after the date upon which the principal of, or premium, if any, or interest on such Note shall have respectively become due and payable shall be repaid to the Company (or, if appropriate, the Guarantors) upon a Company Request, or if such moneys are then held by the Company or the Guarantors in trust, such moneys shall be released from such trust; and the Holder of such Note entitled to receive such payment shall thereafter, as an unsecured general creditor, look only to the Company and the Guarantors for the payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money shall thereupon cease; provided, -------- however, that the Trustee or any such Paying Agent, before being required to - ------- make any such repayment, may, at the expense of the Company and the Guarantors, either mail to each Noteholder affected, at the address shown in the register of the Notes maintained by the Registrar pursuant to Section 2.03 hereof, or cause to be published once a week for two successive weeks, in a newspaper published in the English language, customarily published each Business Day and of general circulation in the City of New York, New York, a notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such mailing or publication, any unclaimed balance of such moneys then remaining will be repaid to the Company. After payment to the Company or the Guarantors or the release of any money held in trust by the Company or any Guarantors, as the case may be, Noteholders entitled to the money must look only to the Company and the Guarantors for payment as general creditors unless applicable abandoned property law designates another Person. -110- ARTICLE ELEVEN GUARANTEE OF NOTES Section 11.01. Guarantee. --------- Subject to the provisions of this Article 11, each Guarantor hereby jointly and severally unconditionally guarantee to each Holder and to the Trustee, (i) the due and punctual payment of the principal of, and premium, if any, and interest on each Note, when and as the same shall become due and payable, subject to any applicable grace period, whether at maturity, by acceleration or otherwise, the due and punctual payment of interest (including Additional Interest) on the overdue principal of, and premium, if any, and interest on the Notes, to the extent lawful, and the due and punctual performance of all other Obligations of the Company to the Holders or the Trustee (including without limitation amounts due the Trustee under Section 8.07) all in accordance with the terms of such Note and this Indenture, subject, however, to the limitations set forth in Section 11.03, and (ii) in the case of any extension of time of payment or renewal of any Notes or any of such other Obligations, that the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, at stated maturity, by acceleration or otherwise. Each Guarantor hereby agrees that its obligations thereunder and hereunder shall be absolute and unconditional, irrespective of, and shall be unaffected by, any invalidity, irregularity or unenforceability of any such Note or this Indenture, any failure to enforce the provisions of any such Note or this Indenture, any waiver, modification or indulgence granted to the Company with respect thereto by the Holder of such Note or the Trustee, or any other circumstances which may otherwise constitute a legal or equitable discharge of a surety or such Guarantor. Each Guarantor hereby waives diligence, presentment, demand for payment, filing of claims with a court in the event of merger or bankruptcy of the Company, any right to require a proceeding first against the Company, protest or notice with respect to any such Note or the Indebtedness evidenced thereby and all demands whatsoever, and will covenant that this Guarantee will not be discharged as to any such Note except by payment in full of the principal thereof, premium if any, and interest -111- thereon and as provided in Section 10.01 hereof. Each Guarantor further agrees that, as between such Guarantor, on the one hand, and the Holders and the Trustee, on the other hand, (i) the maturity of the Obligations guaranteed hereby may be accelerated as provided in Article 6 hereof for the purposes of this Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the Obligations guaranteed hereby, and (ii) in the event of any declaration of acceleration of such Obligations as provided in Article 6 hereof, such Obligations (whether or not due and payable) shall forthwith become due and payable by each Guarantor for the purpose of this Guarantee. In addition, without limiting the foregoing provisions, upon the effectiveness of an acceleration under Article 6 hereof, the Trustee shall promptly make a demand for payment on the Notes under the Guarantee provided for in this Article 11 and not discharged. The Guarantee set forth in this Section 11.01 shall not be valid or become obligatory for any purpose with respect to a Note until the certificate of authentication on such Note shall have been signed by or on behalf of the Trustee. Section 11.02. Execution and Delivery of Guarantees. ------------------------------------ To evidence the Guarantee set forth in this Article 11, each Guarantor hereby agrees that a notation of such Guarantee substantially in the form included in Exhibit G hereto shall be placed on each Note authenticated and made available for delivery by the Trustee and that this Guarantee shall be executed on behalf of each Guarantor by the manual or facsimile signature of an Officer of each Guarantor. Each Guarantor hereby agrees that the Guarantee set forth in Section 11.01 shall remain in full force and effect notwithstanding any failure to endorse on each Note a notation of such Guarantee. If an Officer of a Guarantor whose signature is on the Guarantee no longer holds that office at the time the Trustee authenticates the Note on which the Guarantee is endorsed, the Guarantee shall be valid nevertheless. The delivery of any Note by the Trustee, after the authentication thereof hereunder, shall constitute due delivery -112- of the Guarantee set forth in this Indenture on behalf of each Guarantor. Section 11.03. Limitation of Guarantee. ----------------------- Notwithstanding any term or provision of this Indenture to the contrary, the maximum aggregate amount of the obligations guaranteed hereunder by any Guarantor shall not exceed the maximum amount that can be guaranteed hereunder by such Guarantor without rendering the Guarantee, as it relates to such Guarantor, voidable under applicable law relating to fraudulent conveyance or fraudulent transfer or similar laws affecting the rights of creditors generally. Section 11.04. Additional Guarantors. --------------------- The Company covenants and agrees that it shall cause any Person which becomes obligated to guarantee the Notes, pursuant to the terms of Section 4.13 hereof, to execute a guarantee satisfactory in form and substance to the Trustee pursuant to which such Restricted Subsidiary shall guarantee the obligations of the Company under the Notes and this Indenture in accordance with this Article 11 with the same effect and to the same extent as if such Person had been named herein as a Guarantor. Section 11.05. Release of Guarantor. -------------------- A Guarantor shall be released from all of its obligations under its Guarantee if: (a) (i) the Guarantor has sold all or substantially all of its assets or the Company and its Restricted Subsidiaries have sold all of the Capital Stock of the Guarantor owned by them, in each case in a transaction in compliance with Sections 4.10 and 5.01 hereof; or (ii) the Guarantor merges with or into or consolidates with, or transfers all or substantially all of its assets to, the Company or another Guarantor in a transaction in compliance with Section 5.01 hereof; -113- and in each such case, such Guarantor has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to such transactions have been complied with or (b) all other guarantees in respect of borrowed money made by such Guarantor have been fully released and terminated. The Trustee shall, at the sole cost and expense of the Company and upon receipt at the reasonable request of the Trustee of an Opinion of Counsel that the provisions of this Section 11.05 have been complied with, deliver an appropriate instrument evidencing such release, and take such other actions as may be reasonably necessary or desirable, upon receipt of a Company Request accompanied by an Officers' Certificate certifying as to the compliance with this Section 11.05. Section 11.06. Guarantee Obligations Subordinated to Guarantor Senior Indebtedness. ------------------------------------- Each Guarantor hereby covenants and agrees, and each Holder of Notes, by its acceptance thereof, likewise covenants and agrees, that to the extent and in the manner hereinafter set forth in this Article 11, the Indebtedness represented by the Guarantee and the payment of the principal of, premium, if any, and interest on the Notes pursuant to the Guarantee by such Guarantor are hereby expressly made subordinate and subject in right of payment as provided in this Article 11 to the prior indefeasible payment and satisfaction in full in cash of all Guarantor Senior Indebtedness of such Guarantor. This Section 11.06 and the following Sections 11.07 through 11.11 shall constitute a continuing offer to all Persons who, in reliance upon such provisions, become holders of or continue to hold Guarantor Senior Indebtedness of any Guarantor; and such provisions are made for the benefit of the holders of Guarantor Senior Indebtedness of each Guarantor; and such holders are made obligees hereunder and they or each of them may enforce such provisions. Section 11.07. Payment Over of Proceeds upon Dissolution, etc., of a Guarantor. ------------------------------------------ In the event of (a) any insolvency or bankruptcy case or proceeding, or any receivership, arrangement, reorganization, liquidation, dissolution or other similar case or proceeding in -114- connection therewith whether or not involving insolvency or bankruptcy, relative to any Guarantor or to its creditors, as such, or to its assets, whether voluntary or involuntary, or (b) any general assignment for the benefit of creditors or other marshaling of assets or liabilities of any Guarantor (except in connection with the merger or consolidation of a Guarantor or its liquidation or dissolution following the transfer of all or substantially all of its assets, upon the terms and conditions permitted under Article 5 of this Indenture) (all of the foregoing referred to herein individually as a "Guarantor Bankruptcy Proceeding" and collectively as "Guarantor Bankruptcy Proceedings"), then and in any such event: (1) the holders of all Guarantor Senior Indebtedness of such Guarantor shall be entitled to receive payment and satisfaction in full in cash of all amounts due on or in respect of all such Guarantor Senior Indebtedness (including any interest accruing after the commencement of any such Bankruptcy Proceeding whether or not such interest is an allowable claim enforceable against the Company in any such proceeding) before the Holders of the Notes are entitled to receive or retain, pursuant to the Guarantee of such Guarantor, any payment or distribution of any kind by such Guarantor on account of its Guarantee; and (2) any payment or distribution of assets of such Guarantor of any kind or character, whether in cash, property or securities, by set-off or otherwise, to which the Holders or the Trustee would be entitled but for the subordination provisions of this Article 11 shall be paid by the liquidating trustee or agent or other Person making such payment or distribution, whether a trustee in bankruptcy, a receiver or liquidating trustee or otherwise, directly to the holders of Guarantor Senior Indebtedness of such Guarantor or their representative or representatives or to the trustee or trustees under any indenture under which any instruments evidencing any of such Guarantor Senior Indebtedness may have been issued, ratably according to the aggregate amounts remaining unpaid on account of such Guarantor Senior Indebtedness held or represented by each, to the extent necessary to make payment in full in cash of all such Guarantor Senior Indebtedness remaining unpaid, after giving effect to any concurrent payment or distribution, or provision therefor, to the holders of such Guarantor Senior Indebtedness; and -115- (3) in the event that, notwithstanding the foregoing provisions of this Section 11.07, the Trustee or the Holder of any Note shall have received any payment or distribution of assets of such Guarantor of any kind or character, whether in cash, property or securities, including, without limitation, by way of set-off or otherwise, in respect of its Guarantee before all Guarantor Senior Indebtedness of such Guarantor is paid and satisfied in full in cash, then such payment or distribution shall be held by the recipient in trust for the benefit of holders of such Guarantor Senior Indebtedness and shall be immediately paid over or delivered to the holders of such Guarantor Senior Indebtedness or their representative or representatives to the extent necessary to make payment in full of all such Guarantor Senior Indebtedness remaining unpaid after giving effect to any concurrent payment or distribution to or for the holders of such Guarantor Senior Indebtedness; (4) the consolidation of such Guarantor with, or the merger of such Guarantor with or into, another Person or the liquidation or dissolution of such Guarantor following the conveyance, transfer or lease of its properties and assets substantially as an entirety to another Person upon the terms and conditions set forth in Article 5 hereof and in this Article 11 shall not be deemed a dissolution, winding-up, liquidation, reorganization, assignment for the benefit of creditors or marshaling of assets and liabilities of such Guarantor for the purposes of Article 5 hereof if the Person formed by such consolidation or the surviving entity of such merger or the Person which acquires by conveyance, transfer or lease such properties and assets substantially as an entirety, as the case may be, shall, as a part of such consolidation, merger, conveyance, transfer or lease, comply with the conditions set forth in such Article 5 hereof Section 11.08. Suspension of Guarantee Obligations When Guarantor Senior Indebtedness in Default. ---------------------------------------- (a) Unless Section 11.07 hereof shall be applicable, after the occurrence of a Payment Default with respect to any Designated Senior Indebtedness which constitutes Guarantor Senior Indebtedness, no payment or distribution of any kind or character of a Guarantor (including, without limitation, cash, property and any payment or distribution which may be payable or deliverable by reason of the payment of any other Indebtedness of such -116- Guarantor being subordinated to its Obligations on its Guarantee) may be made by or on behalf of such Guarantor or any Restricted Subsidiary of such Guarantor, including, without limitation, by way of set-off or otherwise, for or on account of its Guarantee, and neither the Trustee nor any Holder of any Notes shall take or receive from any Guarantor or any Restricted Subsidiary of such Guarantor, directly or indirectly in any manner, payment in respect of all or any portion of its Obligations on its Guarantee commencing on the date of receipt by the Trustee of written notice from the representative of the holders of any Designated Senior Indebtedness which constitutes Guarantor Senior Indebtedness (the "Guarantor Representative") of such Payment Default, and in any such event, such prohibition shall continue until such Payment Default is cured, waived in writing or ceases to exist. At such time as the prohibition set forth in the preceding sentence shall no longer be in effect, subject to the provisions of the preceding and following paragraph, such Guarantor shall resume making any and all required payments in respect of its Guarantee, including any missed payments. (b) Unless Section 11.07 hereof shall be applicable, upon the occurrence of a Non-Payment Event of Default on Designated Senior Indebtedness guaranteed by a Guarantor (which guarantee constitutes Guarantor Senior Indebtedness of such Guarantor), no payment or distribution of any kind or character (including, without limitation, cash, property and any payment or distribution which may be payable or deliverable by reason of the payment of any other Indebtedness of such Guarantor being subordinated to its Obligations on its Guarantee) shall be made by such Guarantor or any Restricted Subsidiary of such Guarantor, including, without limitation, by way of set-off or otherwise, for or on account of any of its Obligations on its Guarantee, and neither the Trustee nor any Holder of any Notes shall take or receive from any Guarantor or any Restricted Subsidiary of such Guarantor, directly or indirectly in any manner, payment in respect of all or any portion of its Obligations on its Guarantee for a period (a "Guarantee Payment Blockage Period") commencing on the date of receipt by the Trustee of written notice from the Guarantor Representative of such Non-Payment Event of Default, unless and until (subject to any blockage of payments that may then be in effect under the preceding paragraphs the earliest of: (x) 179 days shall have elapsed since the date of receipt of such written notice by the Trustee, (y) such Non-Payment Event of Default shall have been cured or waived in writing or shall have ceased to exist or such Designated Senior Indebtedness shall have -117- been paid in full or (z) such Guarantee Payment Blockage Period shall have been terminated by written notice to such Guarantor or the Trustee from the Guarantor Representative, after which, in the case of clause (x), (y) or (z), such Guarantor shall resume making any and all required payments in respect of its Obligations on its Guarantee, including any missed payments. Notwithstanding any other provision of this Indenture, in no event shall a Guarantee Payment Blockage Period extend beyond 179 days from the date of the receipt by the Trustee of the notice referred to in this Section 11.08(b) or, in the event of a Non-Payment Event of Default which formed the basis for a Payment Blockage Period under Section 7.03(b) hereof, 179 days from the date of the receipt by the Trustee of the notice referred to in Section 7.03(b) (the "Initial Guarantee Blockage Period"). Any number of additional Guarantee Payment Blockage Periods may be commenced during the Initial Guarantee Blockage Period; provided, -------- however, that no such additional Guarantee Payment Blockage Period shall extend - ------- beyond the Initial Guarantee Blockage Period. After the expiration of the Initial Guarantee Blockage Period, no Guarantee Payment Blockage Period may be commenced under this Section 11.08(b) and no Payment Blockage Period may be commenced under Section 7.03(b) hereof until at least 180 consecutive days have elapsed from the last day of the Initial Guarantee Blockage Period. Notwithstanding any other provisions of this Indenture, no Non-Payment Event of Default with respect to Designated Senior Indebtedness which existed or was continuing on the date of the commencement of any Guarantee Payment Blockage Period initiated by the Guarantor Representative shall be, or be made, the basis for the commencement of a second Guarantee Payment Blockage Period initiated by the Guarantor Representative, whether or not within the Initial Guarantee Blockage Period, unless such Non-Payment Event of Default shall have been cured or waived for a period of not less than 90 consecutive days. (c) In the event that, notwithstanding the foregoing, the Trustee or the Holder of any Note shall have received any payment from a Guarantor prohibited by the foregoing provisions of this Section 11.08, then and in such event such payment shall be paid over and delivered forthwith to the Guarantor Representative initiating the Guarantee Payment Blockage Period, in trust for distribution to the holders of Guarantor Senior Indebtedness or, if no amounts are then due in respect of Guarantor Senior Indebtedness, promptly returned to the Guarantor, or otherwise as a court of competent jurisdiction shall direct. -118- Section 11.09. Subrogation to Rights of Holders of Guarantor Senior Indebtedness. ----------------------------------- Upon the payment in full of all Guarantor Senior Indebtedness of a Guarantor, the Holders shall be subrogated to the rights of the holders of such Guarantor Senior Indebtedness to receive payments and distributions of cash, property and securities of such Guarantor made on such Guarantor Senior Indebtedness until all amounts due to be paid under the Guarantee shall be paid in full. For purposes of such subrogation, no payments or distributions to holders of Guarantor Senior Indebtedness of any cash, property or securities to which Holders of the Notes or the Trustee would be entitled except for the provisions of this Article 11, and no payments over pursuant to the provisions of this Article 11 to holders of Guarantor Senior Indebtedness by Holders of the Notes or the Trustee, shall, as among each Guarantor, its creditors other than holders of Guarantor Senior Indebtedness and the Holders of the Notes, be deemed to be a payment or distribution by such Guarantor to or on account of such Guarantor Senior Indebtedness. If any payment or distribution to which the Holders would otherwise have been entitled but for the provisions of this Article 11 shall have been applied, pursuant to the provisions of this Article 11, to the payment of all amounts payable under Guarantor Senior Indebtedness, then and in such case, the Holders shall be entitled to receive from the holders of such Guarantor Senior Indebtedness at the time outstanding any payments or distributions received by such holders of Guarantor Senior Indebtedness in excess of the amount sufficient to pay all amounts payable under or in respect of such Guarantor Senior Indebtedness in full in cash. Section 11.10. Guarantee Subordination Provisions Solely To Define Relative Rights. ----------------------------------------- The subordination provisions of this Article 11 are and are intended solely for the purpose of defining the relative rights of the Holders of the Notes on the one hand and the holders of Guarantor Senior Indebtedness on the other hand. Nothing contained in this Article 11 or elsewhere in this Indenture or in the Notes is intended to or shall (a) impair, as among each Guarantor, its creditors other than holders of its Guarantor Senior Indebtedness and the Holders of the Notes, the obligation of such Guarantor, which is absolute and -119- unconditional, to make payments to the Holders in respect of its Obligations on its Guarantee in accordance with its terms; or (b) affect the relative rights against such Guarantor of the Holders of the Notes and creditors of such Guarantor other than the holders of the Guarantor Senior Indebtedness; or (c) prevent the Trustee or the Holder of any Note from exercising all remedies otherwise permitted by applicable law upon a Default or an Event of Default under this Indenture, subject to the rights, if any, under this Article 11 of the holders of Guarantor Senior Indebtedness (1) in any case, proceeding, dissolution, liquidation or other winding-up, assignment for the benefit of creditors or other marshaling of assets and liabilities of the Company referred to in Section 11.07 hereof, to receive, pursuant to and in accordance with such Section, cash, property and securities otherwise payable or deliverable to the Trustee or such Holder, or (2) under the conditions specified in Section 11.08 hereof, to prevent any payment prohibited by such Section or enforce their rights pursuant to Section 11.08(c) hereof. The failure by any Guarantor to make a payment in respect of its obligations on its Guarantee by reason of any provision of this Article 11 shall not be construed as preventing the occurrence of a Default or an Event of Default hereunder. Section 11.11. Application of Certain Article 7 Provisions. ------------------------------------------- The provisions of Sections 7.04, 7.07, 7.08, 7.09, 7.10, 7.12 and 7.13 hereof shall apply, mutatis mutandis, to each Guarantor and their respective ------- -------- holders of Guarantor Senior Indebtedness and the rights, duties and obligations set forth therein shall govern the rights, duties and obligations of each Guarantor, the holders of Guarantor Senior Indebtedness, the Holders and the Trustee with respect to the Guarantee and all references therein to Article 7 shall mean this Article 11. ARTICLE TWELVE MISCELLANEOUS Section 12.01. Trust Indenture Act Controls. ---------------------------- -120- If any provision of this Indenture limits, qualifies or conflicts with another provision which is required to be included in this Indenture by the TIA, the required provision shall control. Section 12.02. Notices. ------- Except for notice or communications to Holders, any notice or communication shall be given in writing and delivered in person, sent by facsimile, delivered by commercial courier service or mailed by first-class mail, postage prepaid, addressed as follows: If to the Company or any Guarantor: THE PANTRY, INC. 1801 Douglas Drive Post Office Box 1410 Sanford, NC 27330 Attention: Chief Financial Officer Fax Number: (919) 774-3320 If to the Trustee: United States Trust Company of New York 114 West 47th Street New York, NY 10036 Attention: Corporate Trust Department Fax Number: (212) 852-1626/7 All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five business days after being deposited in the mail with first-class postage prepaid, if mailed; when receipt acknowledged, if sent by facsimile; and the next business day after timely delivery to the courier, if sent by recognized overnight courier guaranteeing next-day delivery. The Company, the Guarantors or the Trustee by written notice to the others may designate additional or different addresses for subsequent notices or communications. -121- When this Indenture provides for notice to Holders of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and hand delivered, mailed with first-class postage prepaid or delivered by recognized overnight courier, to each Holder affected by such event, at his address as it appears in the Security Register, not later than the latest date (if any), and not earlier than the earliest date (if any), prescribed for the giving of such notice. In any case where notice to Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders. In case by reason of the suspension of regular mail service, or by reason of any other cause, it shall be impossible to mail any notice as required by this Indenture, then such method of notification as shall be made with the approval of the Trustee shall constitute a sufficient mailing of such notice. Section 12.03. Communications by Holders with Other Holders. ------------------ Noteholders may communicate pursuant to TIA (S) 312(b) with other Noteholders with respect to their rights under this Indenture or the Notes. The Company, the Guarantors, the Trustee, the Registrar and anyone else shall have the protection of TIA (S) 312(c). Section 12.04. Certificate and Opinion as to Conditions Precedent. ----------------------- Upon any request or application by the Company or any Guarantor to the Trustee to take any action under this Indenture, the Company or such Guarantor shall furnish to the Trustee: (1) an Officers' Certificate (which shall include the statements set forth in Section 12.05 below) stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with; and (2) an Opinion of Counsel (which shall include the statements set forth in Section 12.05 below) stating that, in the opinion of such counsel, all such conditions precedent have been complied with. -122- Section 12.05. Statements Required in Certificate and Opinion. ----------- Each certificate and opinion with respect to compliance by or on behalf of the Company or any Guarantor with a condition or covenant provided for in this Indenture shall include: (1) a statement that the Person making such certificate or opinion has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of such Person, it or he has made such examination or investigation as is necessary to enable it or him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether or not, in the opinion of such Person, such covenant or condition has been complied with. Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous, and provided that any such certificate or opinion names the Trustee as an addressee and is furnished to the Trustee at the time of delivery of such certificate or opinion. Any such certificate or opinion of counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company stating that the information with respect to such factual matters is in the possession of the Company, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous. Opinions of Counsel required to be delivered to the Trustee may have qualifications customary for opinions of the type required and counsel delivering such -123- Opinions of Counsel may rely on certificates of the Company or government or other officials customary for opinions of the type required, including certificates certifying as to matters of fact, including that various financial covenants have been complied with. Section 12.06. Rules by Trustee and Agents. --------------------------- The Trustee may make reasonable rules for action by or meetings of Noteholders. The Registrar and Paying Agent may make reasonable rules for their functions. Section 12.07. Business Days; Legal Holidays. ----------------------------- A "Business Day" is a day that is not a Legal Holiday. A "Legal Holiday" is a Saturday, a Sunday, a federally-recognized holiday or a day on which banking institutions are not required to be open in the State of New York. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. Section 12.08. Governing Law. ------------- THIS INDENTURE AND THE NOTES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS INDENTURE OR THE NOTES. Section 12.09. No Adverse Interpretation of Other Agreements. ----------- This Indenture may not be used to interpret another indenture, loan, security or debt agreement of the Company or any Subsidiary thereof. No such indenture, loan, security or debt agreement may be used to interpret this Indenture. Section 12.10. No Recourse Against Others. -------------------------- No recourse for the payment of the principal of or premium, if any, or interest, including Additional Interest, on any of the Notes, or for any claim based thereon or otherwise in -124- respect thereof, and no recourse under or upon any obligation, covenant or agreement of the Company or any Guarantor in this Indenture or in any supplemental indenture, or in any of the Notes, or because of the creation of any Indebtedness represented thereby, shall be had against any stockholder, officer, director or employee, as such, past, present or future, of the Company or of any successor entity or against the property or assets of any such stockholder, officer, employee or director, either directly or through the Company or any Guarantor, or any successor entity thereof, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise; it being expressly understood that this Indenture and the Notes are solely obligations of the Company and the Guarantors, and that no such personal liability whatever shall attach to, or is or shall be incurred by, any stockholder, officer, employee or director of the Company or any Guarantor, or any successor entity thereof, because of the creation of the indebtedness hereby authorized, or under or by reason of the obligations, covenants or agreements contained in this Indenture or the Notes or implied therefrom, and that any and all such personal liability of, and any and all claims against every stockholder, officer, employee and director, are hereby expressly waived and released as a condition of, and as a consideration for, the execution of this Indenture and the issuance of the Notes. It is understood that this limitation on recourse is made expressly for the benefit of any such shareholder, employee, officer or director and may be enforced by any of them. Section 12.11. Successors. ---------- All agreements of the Company and the Guarantors in this Indenture and the Notes shall bind their respective successors. All agreements of the Trustee, any additional trustee and any Paying Agents in this Indenture shall bind its successor. Section 12.12. Multiple Counterparts. --------------------- The parties may sign multiple counterparts of this Indenture. Each signed counterpart shall be deemed an original, but all of them together represent one and the same agreement. Section 12.13. Table of Contents, Headings, etc. -------------------------------- -125- The table of contents, cross-reference sheet and headings of the Articles and Sections of this Indenture have been inserted for convenience of 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. Section 12.14. Separability. ------------ Each provision of this Indenture shall be considered separable and if for any reason any provision which is not essential to the effectuation of the basic purpose of this Indenture or the Notes shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. S-1 IN WITNESS WHEREOF, the parties have caused this Indenture to be duly executed all as of the date and year first written above. THE PANTRY, INC. By: /s/ WILLIAM T. FLYG Name: William T. Flyg Title: Senior V.P., Finance & CFO GUARANTORS Sandhills, Inc. By: /s/ WILLIAM T. FLYG Name: William T. Flyg Title: Vice President Lil' Champ Food Stores, Inc. By: /s/ WILLIAM T. FLYG Name: William T. Flyg Title: Executive V.P. & Assistant Secretary United States Trust Company of New York, as Trustee By: /s/ JAMES E. LOGAN Name: James E. Logan Title: Vice President EXHIBIT A --------- [FORM OF FACE OF NOTE] Number CUSIP THE PANTRY, INC. 10 1/4% SENIOR SUBORDINATED NOTE DUE 2007 The Pantry, Inc., a Delaware corporation (the "Company", which term includes any successor corporation), for value received promises to pay to or registered assigns the principal sum of ($ ), on October 15, 2007. Interest Payment Dates: April 15 and October 15, commencing April 15, 1998 Record Dates: April 1 and October 1 This Note shall not be valid or obligatory for any purpose until the certificate of authentication shall have been executed by the Trustee by its manual signature. Reference is made to the further provisions of this Security contained herein, which will for all purposes have the same effect as if set forth at this place. A-1 IN WITNESS WHEREOF, the Company has caused this Note to be signed manually or by facsimile by its duly authorized Officers. THE PANTRY, INC. By: Name: Title: By: Name: Title: Certificate of Authentication: This is one of the 10 1/4% Senior Subordinated Notes due 2007 referred to in the within-mentioned Indenture Dated: United States Trust Company of New York, as Trustee By: ____________________ Authorized Signatory A-2 (REVERSE SIDE) THE PANTRY, INC. 10 1/4% SENIOR SUBORDINATED NOTE DUE 2007 1. INTEREST. The Pantry, Inc., a Delaware corporation (the "Company"), promises to pay interest on the principal amount of this Note semiannually on April 15 and October 15 of each year (each an "Interest Payment Date"), commencing on April 15, 1998, at the rate of 10 1/4% per annum. Interest will be computed on the basis of a 360-day year of twelve 30-day months. Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of the original issuance of the Notes. The Company shall pay interest on overdue principal, and on overdue premium, if any, and overdue interest, to the extent lawful, at the rate equal to 2% per annum in excess of the rate borne by the Notes. 2. METHOD OF PAYMENT. The Company will pay interest on this Note provided for in Paragraph 1 above (except defaulted interest) to the person who is the registered Holder of this Note at the close of business on the April 1st or October 1st preceding the Interest Payment Date (whether or not such day is a Business Day). The Holder must surrender this Note to a Paying Agent to collect principal payments. The Company will pay principal, premium, if any, and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts; provided, however, that the Company may pay principal, premium, -------- ------- if any, and interest by check payable in such money. They may mail an interest check to the Holder's registered address. 3. PAYING AGENT AND REGISTRAR. Initially, United States Trust Company of New York (the "Trustee") will act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar without notice A-3 to the Holders of the Notes. Neither the Company nor any of its Subsidiaries or Affiliates may act as Paying Agent but may act as Registrar. 4. INDENTURE; RESTRICTIVE COVENANTS. The Company issued this Note under an Indenture dated as of October 23, 1997 (the "Indenture") among the Company, the Guarantors and the Trustee. The terms of this Note include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S. Code (S)(S) 77aaa-77bbbb) as in effect on the date of the Indenture. This Note is subject to all such terms, and the Holder of this Note is referred to the Indenture and said Trust Indenture Act for a statement of them. All capitalized terms in this Note, unless otherwise defined, have the meanings assigned to them by the Indenture. The Notes are general unsecured obligations of the Company limited to $200,000,000 aggregate principal amount. The Indenture imposes certain restrictions on, among other things, the incurrence of indebtedness, the incurrence of liens and the issuance of capital stock by Restricted Subsidiaries of the Company, mergers and sale of assets, the payments of dividends on, or the repurchase of, capital stock of the Company and its Restricted Subsidiaries, certain other restricted payments by the Company and its Restricted Subsidiaries, certain transactions with, and investments in, their affiliates, certain sale and lease-back transactions and contains a provision regarding change-of-control transactions. 5. SUBORDINATION. The Indebtedness evidenced by the Notes is, to the extent and in the manner provided in the Indenture, subordinated and subject in right of payment to the prior payment in full of all Senior Indebtedness as defined in the Indenture, and this Note is issued subject to such provisions. Each Holder of this Note, by accepting the same, (a) agrees to and shall be bound by such provisions, (b) authorizes and directs the Trustee, on behalf of such Holder, to take such action as may be necessary or appropriate to effectuate the subordination as provided in the Indenture and (c) appoints the Trustee attorney-in-fact of such Holder for such purpose; provided, however, that the -------- ------- Indebtedness A-4 evidenced by this Note shall cease to be so subordinate and subject in right of payment upon any defeasance of this Note referred to in Paragraph 18 below. 6. OPTIONAL REDEMPTION. The Company, at its option, may redeem the Notes, in whole at any time or in part from time to time, at any time on or after October 15, 2002 upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount), set forth below, plus accrued and unpaid interest to the Redemption Date, if redeemed during the twelve month period beginning on October 15 of each year listed below: A-5
Year Redemption Price ---- ---------------- 2002.................. 105.125% 2003.................. 103.417% 2004.................. 101.708% 2005 and thereafter... 100.000%
Notwithstanding the foregoing, the Company may redeem in the aggregate up to 35% of the original principal amount of Notes at any time and from time to time prior to October 15, 2000 at a redemption price equal to 110.25% of the aggregate principal amount so redeemed, plus accrued and unpaid interest, if any, to the Redemption Date out of the Net Proceeds of one or more Public Equity Offerings; provided that at least $130,000,000 of the aggregate principal amount -------- of Notes originally issued remain outstanding immediately after the occurrence of any such redemption and that any such redemption occurs within 60 days following the closing of any such Public Equity Offering. 7. NOTICE OF REDEMPTION. Notice of redemption will be mailed via first class mail at least 30 days but not more than 60 days prior to the Redemption Date to each Holder of Notes to be redeemed at its registered address as it shall appear on the register of the Notes maintained by the Registrar. On and after any Redemption Date, interest will cease to accrue on the Notes or portions thereof called for redemption unless the Company shall fail to redeem any such Note. 8. OFFERS TO PURCHASE. The Indenture requires that certain proceeds from Asset Sales be used, subject to further limitations contained therein, to make an offer to purchase certain amounts of Notes in accordance with the procedures set forth in the Indenture. The Company is also required to make an offer to purchase Notes upon the occurrence of a Change of Control in accordance with procedures set forth in the Indenture. 9. REGISTRATION RIGHTS. Pursuant to the Registration Rights Agreement among the Company, the Guarantors, CIBC Wood Gundy Securities Corp. and A-6 First Union Capital Markets Corp., as initial purchasers of the Notes, the Company will be obligated to consummate an exchange offer pursuant to which the Holder of this Note shall have the right to exchange this Note for Notes of a separate series issued under the Indenture (or a trust indenture substantially identical to the Indenture in accordance with the terms of the Registration Rights Agreement) which have been registered under the Securities Act, in like principal amount and having substantially identical terms as the Notes. The Holders shall be entitled to receive certain additional interest payments in the event such exchange offer is not consummated and upon certain other conditions, all pursuant to and in accordance with the terms of the Registration Rights Agreement. 10. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form without coupons in denominations of $1,000 and integral multiples thereof. A Holder may register the transfer or exchange of Notes in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not register the transfer of or exchange any Note selected for redemption or register the transfer of or exchange any Note for a period of 15 days before the mailing of notice of redemption of Notes to be redeemed or any Note after it is called for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part. 11. PERSONS DEEMED OWNERS. The registered Holder of this Note may be treated as the owner of it for all purposes. 12. UNCLAIMED MONEY. If money for the payment of principal, premium or interest on any Note remains unclaimed for two years, the Trustee or Paying Agent will pay the money back to the Company at its written request. After that, Holders entitled to money must look to the Company for payment as general creditors unless an "abandoned property" law designates another person. A-7 13. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, the Indenture or the Notes may be modified, amended or supplemented by the Company, the Guarantors and the Trustee with the consent of the Holders of at least a majority in aggregate principal amount of the Notes then outstanding and any existing default or compliance with any provision may be waived in a particular instance with the consent of the Holders of a majority in aggregate principal amount of the Notes then outstanding. Without the consent of Holders, the Company, the Guarantors and the Trustee may amend the Indenture or the Notes or supplement the Indenture for certain specified purposes including providing for uncertificated Notes in addition to certificated Notes, and curing any ambiguity, defect or inconsistency, or making any other change that does not materially and adversely affect the rights of any Holder. 14. SUCCESSOR ENTITY. When a successor corporation assumes all the obligations of its predecessor under the Notes and the Indenture and immediately before and thereafter no Default exists and certain other conditions are satisfied, the predecessor corporation will be released from those obligations. 15. DEFAULTS AND REMEDIES. Events of Default are set forth in the Indenture. If an Event of Default (other than an Event of Default pursuant to Section 6.01(6) or (7) of the Indenture with respect to the Company) occurs and is continuing, the Trustee by notice to the Company, or the Holders of not less than 25% in aggregate principal amount of the Notes then outstanding, may declare to be immediately due and payable the entire principal amount of all the Notes then outstanding plus accrued but unpaid interest to the date of acceleration and (i) such amounts shall become immediately due and payable or (ii) if there are any amounts outstanding under or in respect of the Senior Credit Facility, such amounts shall become due and payable upon the first to occur of an acceleration of amounts outstanding under or in respect of the Senior Credit Facility or five Business Days after receipt by the Company and the representative under the Senior Credit Facility of a notice of acceleration; provided, however, that -------- ------- after such acceleration but before judgment or decree based on A-8 such acceleration is obtained by the Trustee, the Holders of a majority in aggregate principal amount of the outstanding Notes may, under certain circumstances, rescind and annul such acceleration and its consequences if all existing Events of Default, other than the nonpayment of principal, premium, if any or interest that has become due solely because of the acceleration, have been cured or waived and if the rescission would not conflict with any judgment or decree. No such rescission shall affect any subsequent Default or impair any right consequent thereto. In case an Event of Default specified in Section 6.01(6) or (7) of the Indenture with respect to the Company occurs, such principal amount, together with premium, if any, and interest with respect to all of the Notes, shall be due and payable immediately without any declaration or other act on the part of the Trustee or the Holders of the Notes. 16. TRUSTEE DEALINGS WITH THE COMPANY The Trustee under the Indenture, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company, any Guarantor or their Affiliates, and may otherwise deal with the Company, any Guarantor or their Affiliates, as if it were not Trustee. 17. NO RECOURSE AGAINST OTHERS. As more fully described in the Indenture, a director, officer, employee or stockholder, as such, of the Company or any Guarantor shall not have any liability for any obligations of the Company or any Guarantor under the Notes or the Indenture or for any claim based on, in respect or by reason of, such obligations or their creation. The Holder of this Note by accepting this Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of this Note. 18. DEFEASANCE AND COVENANT DEFEASANCE. The Indenture contains provisions for defeasance of the entire indebtedness on this Note and for defeasance of certain covenants in the Indenture upon compliance by the Company with certain conditions set forth in the Indenture. 19. ABBREVIATIONS. A-9 Customary abbreviations may be used in the name of a Holder of a Note or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (Uniform Gifts to Minors Act). 20. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on Uniform Note Identification Procedures, the Company has caused CUSIP Numbers to be printed on the Notes and have directed the Trustee to use CUSIP numbers in notices of redemption as a convenience to Holders of the Notes. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. 21. GOVERNING LAW. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS NOTE. THE COMPANY WILL FURNISH TO ANY HOLDER OF A NOTE UPON WRITTEN REQUEST AND WITHOUT CHARGE A COPY OF THE INDENTURE. REQUESTS MAY BE MADE TO: THE PANTRY, INC., 1801 Douglas Drive, Post Office Box 1410, Sanford, North Carolina 27330, Attention: Chief Financial Officer. 22. GUARANTEES. The Notes will be entitled to the benefits of certain Guarantees made for the benefit of the Holders. Reference is hereby made to the Indenture for a statement of the respective rights, limitations of rights, duties and obligations thereunder of the Guarantors, the Trustee and the Holders. A-10 -1- ASSIGNMENT ---------- I or we assign and transfer this Note to: (Insert assignee's social security or tax I.D. number) ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (Print or type name, address and zip code of assignee) and irrevocably appoint: ________________________________________________________________________________ ________________________________________________________________________________ Agent to transfer this Note on the books of the Company. The Agent may substitute another to act for him. Date: ____________ Your Signature: ___________________________________ (Sign exactly as your name appears on the other side of this Note) Signature Guarantee: _____________________________________________ OPTION OF HOLDER TO ELECT PURCHASE ---------------------------------- If you want to elect to have all or any part of this Note purchased by the Company pursuant to Section 4.10 or Section 4.18 of the Indenture, check the appropriate box: Section 4.10 [ ] Section 4.18 If you want to have only part of this Note purchased by the Company pursuant to Section 4.10 or Section 4.18 of the Indenture, state the amount you elect to have purchased: $_______________________ Date: __________________ Your Signature: _____________________________________ (Sign exactly as your name appears on the face of this Note) _________________________ Signature Guaranteed EXHIBIT B --------- [FORM OF LEGEND FOR 144A NOTE] ------------------------------ THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER AGREES THAT IT WILL NOT PRIOR TO THE DATE (THE "RESALE RESTRICTION TERMINATION DATE") THAT IS TWO YEARS AFTER THE DATE OF THE ORIGINAL ISSUE DATE OF THIS NOTE AND THE LAST DATE ON WHICH THE COMPANY, OR ANY AFFILIATE OF THE COMPANY, WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY), RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE ACT, (C) INSIDE THE UNITED STATES TO AN ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES (OR HAS FURNISHED ON ITS BEHALF BY A U.S. BROKER-DEALER) TO THE COMPANY AND THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS NOTE (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE), (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE ACT (IF AVAILABLE) OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS NOTE IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS NOTE PRIOR TO THE RESALE RESTRICTION TERMINATION DATE, IF THE PROPOSED TRANSFEREE IS AN ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE TRUSTEE AND THE COMPANY SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM OR IN A TRANSACTION NOT SUBJECT TO THE REGISTRATION REQUIREMENTS OF THE ACT. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANING GIVEN TO THEM BY REGULATION S UNDER THE ACT. B-1 [FORM OF ASSIGNMENT FOR 144A NOTE] ---------------------------------- I or we assign and transfer this Note to: (Insert assignee's social security or tax I.D. number) ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (Print or type name, address and zip code of assignee) and irrevocably appoint: ________________________________________________________________________________ ________________________________________________________________________________ Agent to transfer this Note on the books of the Company. The Agent may substitute another to act for him. [Check One] ----------- [ ] (a) this Note is being transferred in compliance with the exemption from registration under the Securities Act provided by Rule 144A thereunder. or -- [ ] (b) this Note is being transferred other than in accordance with (a) above and documents are being furnished which comply with the conditions of transfer set forth in this Note and the Indenture. If none of the foregoing boxes is checked, the Trustee or Registrar shall not be obligated to register this Note in the name of any person other than the Holder hereof unless and until the conditions to any such transfer of registration set forth herein and in Sections 2.16 and 2.17 of the Indenture shall have been satisfied. Date: __________________ Your Signature: _____________________ (Sign exactly as your name appears on the other side of this Note) B-2 Signature Guarantee: ____________________________________ B-3 TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED ---------------------------------------------------- The undersigned represents and warrants that it is purchasing this Note for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. Dated: __________________ ________________________________ NOTICE: To be executed by an executive officer B-4 EXHIBIT C --------- [FORM OF LEGEND FOR REGULATION S NOTE] -------------------------------------- THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, UNLESS SO REGISTERED, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS UNLESS REGISTERED UNDER THE SECURITIES ACT OR EXCEPT PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. C-1 [FORM OF ASSIGNMENT FOR REGULATION S NOTE] ------------------------------------------ I or we assign and transfer this Note to: (Insert assignee's social security or tax I.D. number) ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (Print or type name, address and zip code of assignee) and irrevocably appoint: ________________________________________________________________________________ ________________________________________________________________________________ Agent to transfer this Note on the books of the Company. The Agent may substitute another to act for him. [Check One] ----------- [ ] (a) this Note is being transferred in compliance with the exemption from registration under the Securities Act provided by Rule 144A thereunder. or -- [ ] (b) this Note is being transferred other than in accordance with (a) above and documents are being furnished which comply with the conditions of transfer set forth in this Note and the Indenture. If none of the foregoing boxes is checked, the Trustee or Registrar shall not be obligated to register this Note in the name of any person other than the Holder hereof unless and until the conditions to any such transfer of registration set forth herein and in Sections 2.16 and 2.17 of the Indenture shall have been satisfied. Date: __________________ Your Signature: _____________________ (Sign exactly as your name appears on the other side of this Note) C-2 Signature Guarantee: ____________________________________ C-3 TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED ---------------------------------------------------- The undersigned represents and warrants that it is purchasing this Note for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. Dated: __________________ ________________________________ NOTICE: To be executed by an executive officer C-4 EXHIBIT D --------- [FORM OF LEGEND FOR GLOBAL NOTE] -------------------------------- Any Global Note authenticated and delivered hereunder shall bear a legend (which would be in addition to any other legends required in the case of a Restricted Note or Regulation S Note) in substantially the following form: THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A NOMINEE OF A DEPOSITORY. THIS NOTE IS NOT EXCHANGEABLE FOR NOTES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS NOTE (OTHER THAN A TRANSFER OF THIS NOTE AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (A NEW YORK CORPORATION) ("DTC") TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IT REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. D-1 EXHIBIT E --------- Form of Certificate to Be - -------------------------------------------------------------------------------- Delivered in Connection with - -------------------------------------------------------------------------------- Transfers to Non-QIB Accredited Investors ----------------------------------------- ___________, ____ Attention: Re: The Pantry, Inc. (the "Company") 10 1/4% Senior Subordinated Notes due 2007 (the "Notes") ---------------------------------------- Dear Sirs: In connection with our proposed purchase of Notes, we confirm that: 1. We understand that any subsequent transfer of the Notes is subject to certain restrictions and conditions set forth in the Indenture dated as of , 1997 relating to the Notes and we agree to be bound by, and not to resell, pledge or otherwise transfer the Notes except in compliance with, such restrictions and conditions and the Securities Act of 1933, as amended (the "Securities Act"). 2. We understand that the Notes have not been registered under the Securities Act, and that the Notes may not be offered, sold, pledged or otherwise transferred except as permitted in the following sentence. We agree, on our own behalf and on behalf of any accounts for which we are acting as hereinafter stated, that if we should sell any Notes, we will do so only (i) to the Company or any subsidiary thereof, (ii) pursuant to an effective registration statement under the Securities Act, (iii) in accordance with Rule 144A under the Securities Act to a "qualified institutional buyer" (as defined in Rule 144A), (iv) to an institutional "accredited investor" (as defined E-1 below) that, prior to such transfer, furnishes (or has furnished on its behalf by a U.S. broker-dealer) to you a signed letter containing certain representations and agreements relating to the restrictions on transfer of the Notes, (v) outside the United States to persons other than U.S. persons in offshore transactions meeting the requirements of Rule 904 of Regulation S under the Securities Act, or (vi) pursuant to any other exemption from registration under the Securities Act (if available), and we further agree to provide to any person purchasing any of the Notes from us a notice advising such purchaser that resales of the Notes are restricted as stated herein. 3. We understand that, on any proposed resale of any Notes, we will be required to furnish to you and the Company such certifications, legal opinions and other information as you and the Company may reasonably require to confirm that the proposed sale complies with the foregoing restrictions. We further understand that the Notes purchased by us will bear a legend to the foregoing effect. 4. We are an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of our investment in the Notes, and we and any accounts for which we are acting each are able to bear the economic risk of our or their investment, as the case may be. 5. We are acquiring the Notes purchased by us for our account or for one or more accounts (each of which is an institutional "accredited investor") as to each of which we exercise sole investment discretion. You and the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceeding or official inquiry with respect to the matters covered hereby. Very truly yours, [Name of Transferee] E-2 By: _______________________________ _______________________________ _______________________________ Authorized Signature E-3 EXHIBIT F --------- Form of Certificate to Be Delivered in Connection with Transfers Pursuant to Regulation S __________, ____ Attention: Re: The Pantry, Inc. (the "Company") 10 1/4% Senior Subordinated Notes due 2007 (the "Notes") --------------------------------- Dear Sirs: In connection with our proposed sale of $__________ aggregate principal amount of the Notes, we confirm that such sale has been effected pursuant to and in accordance with Regulation S under the U.S. Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, we represent that: (1) the offer of the Notes was not made to a U.S. person or to a person in the United States; (2) either (a) at the time the buy offer was originated, the transferee was outside the United States or we and any person acting on our behalf reasonably believed that the transferee was outside the United States, or (b) the transaction was executed in, on or through the facilities of a designated offshore securities market and neither we nor any person acting on our behalf knows that the transaction has been prearranged with a buyer in the United States; (3) no directed selling efforts have been made in the United States in contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S, as applicable; F-1 (4) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act; and (5) we have advised the transferee of the transfer restrictions applicable to the Notes. You and the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. Terms used in this certificate have the meanings set forth in Regulation S. Very truly yours, [Name of Transferor] By: _____________________________ _____________________________ _____________________________ Authorized Signature F-2 EXHIBIT G --------- [FORM OF GUARANTEE] Each of the undersigned (the "Guarantors") hereby jointly and severally unconditionally guarantees, to the extent set forth in the Indenture dated as of October 23, 1997 by and among The Pantry Inc., as issuer, the Guarantors, as guarantors, and United States Trust Company of New York, as Trustee (as amended, restated or supplemented from time to time, the "Indenture"), and subject to the provisions of the Indenture, (a) the due and punctual payment of the principal of, and premium, if any, and interest on the Notes, when and as the same shall become due and payable, whether at maturity, by acceleration or otherwise, the due and punctual payment of interest on overdue principal of, and premium and, to the extent permitted by law, interest, and the due and punctual performance of all other obligations of the Company to the Noteholders or the Trustee, all in accordance with the terms set forth in Article 11 of the Indenture, and (b) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. The obligations of the Guarantors to the Noteholders and to the Trustee pursuant to this Guarantee and the Indenture are expressly set forth in Article 11 of the Indenture and reference is hereby made to the Indenture for the precise terms and limitations of this Guarantee. SANDHILLS, INC. By: Name: Title: LIL' CHAMP FOOD STORES, INC. By: __________________________ Name: Title: (1) (i) (2) (i) (3) (i) (4) (i) (5) (i) (6) (i) EX-4.6 13 REGISTRATION RIGHTS AGREEMENT EXHIBIT 4.6 REGISTRATION RIGHTS AGREEMENT Dated as of October 23, 1997 by and among THE PANTRY, INC., THE GUARANTORS named herein and CIBC WOOD GUNDY SECURITIES CORP. and FIRST UNION CAPITAL MARKETS CORP. as Initial Purchasers __________________________ $200,000,000 10 1/4% SENIOR SUBORDINATED NOTES DUE 2007 TABLE OF CONTENTS -----------------
Page ---- 1. Definitions.................................................... 1 2. Exchange Offer................................................. 5 3. Shelf Registration............................................. 9 4. Additional Interest............................................ 10 5. Registration Procedures........................................ 13 6. Registration Expenses.......................................... 23 7. Indemnification................................................ 24 8. Rules 144 and 144A............................................. 28 9. Underwritten Registrations..................................... 28 10. Miscellaneous.................................................. 29 (a) Remedies................................................... 29 (b) No Inconsistent Agreements................................. 30 (c) Adjustments Affecting Registrable Notes.................... 29 (d) Amendments and Waivers..................................... 29 (e) Notices.................................................... 31 (f) Successors and Assigns..................................... 31 (g) Counterparts............................................... 32 (h) Headings................................................... 32 (i) Governing Law.............................................. 32 (j) Severability............................................... 32
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Page ---- (k) Notes Held by any Issuer or Its Affiliates................ 32 (l) Third Party Beneficiaries................................. 32 (m) Entire Agreement.......................................... 33 (n) Joint and Several Obligations............................. 33
-ii- -1- REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (the "Agreement") is made and --------- entered into as of October 23, 1997, by and among The Pantry, Inc., a Delaware corporation (the "Company"), the Guarantors (as defined) and CIBC Wood Gundy ------- Securities Corp. and First Union Capital Markets Corp. (the "Initial ------- Purchasers"). - ---------- This Agreement is entered into in connection with the Purchase Agreement, dated as of October 17, 1997, by and among the Company, the Guarantors and the Initial Purchasers (the "Purchase Agreement") relating to the ------------------ sale by the Company to the Initial Purchasers of $200,000,000 aggregate principal amount of the Company's 10 1/4% Senior Subordinated Notes due 2007 (the "Notes") and the unconditional senior subordinated Guarantee thereof by the ----- Guarantors on a joint and several basis (the "Guarantee"). In order to induce --------- the Initial Purchasers to enter into the Purchase Agreement, the Issuers have agreed to provide the registration rights set forth in this Agreement for the benefit of the holders of Registrable Notes (as defined), including, without limitation, the Initial Purchasers. The execution and delivery of this Agreement is a condition to the Initial Purchasers' obligation to purchase the Notes under the Purchase Agreement. The parties hereby agree as follows: 1. Definitions ----------- As used in this Agreement, the following terms shall have the following meanings: Additional Interest: See Section 4(a). ------------------- Advice: See the last paragraph of Section 5. ------ -2- Agreement: See the first introductory paragraph to this --------- Agreement. Applicable Period: See Section 2(b). ----------------- Business Day: A day that is not a Saturday, a Sunday, or a day on ------------ which banking institutions in New York, New York are required to be closed. Closing Date: The Closing Date as defined in the Purchase ------------ Agreement. Commission: The Securities and Exchange Commission. ---------- Company: See the first introductory paragraph to this Agreement. ------- Effectiveness Date: The 150th day after the Issue Date. ------------------ Effectiveness Period: See Section 3(a). -------------------- Event Date: See Section 4(b). ---------- Exchange Act: The Securities Exchange Act of 1934, as amended, and ------------ the rules and regulations of the Commission promulgated thereunder. Exchange Notes: See Section 2(a). -------------- Exchange Offer: See Section 2(a). -------------- Exchange Registration Statement: See Section 2(a). ------------------------------- Filing Date: The 60th day after the Issue Date. ----------- -3- Guarantee: See the second introductory paragraph to this Agreement --------- Guarantors: Sandhills, Inc. and Lil' Champs Food Stores, Inc. ---------- Holder: Any registered holder of Registrable Notes. ------ Indemnified Person: See Section 7(c). ------------------ Indemnifying Person: See Section 7(c). ------------------- Indenture: The Indenture, dated as of October 23, 1997, by and --------- among the Company, the Guarantors and United States Trust Company of New York as trustee, pursuant to which the Notes are being issued, as amended or supplemented from time to time in accordance with the terms thereof. Initial Purchasers: See the first introductory paragraph to ------------------ this Agreement. Initial Shelf Registration: See Section 3(a). -------------------------- Inspectors: See Section 5(o). ---------- Issue Date: October 23, 1997. ---------- Issuers: The Company and the Guarantors, collectively. ------- NASD: National Association of Securities Dealers, Inc. ---- Notes: See the second introductory paragraph to this ----- Agreement. Participant: See Section 7(a). ----------- -4- Participating Broker-Dealer: See Section 2(b). --------------------------- Person: Any individual, corporation, partnership, limited liability ------ company, joint venture, association, joint stock company, trust, unincorporated organization or government (including any agency or political subdivision thereof). Private Exchange: See Section 2(b). ---------------- Private Exchange Notes: See Section 2(b). ---------------------- Prospectus: The prospectus included in any Registration Statement ---------- (including, without limitation, any prospectus subject to completion and a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Notes covered by such Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus. Purchase Agreement: See the second introductory paragraph to ------------------ this Agreement. Records: See Section 5(o). ------- Registrable Notes: Each Note upon original issuance thereof and at ----------------- all times subsequent thereto, each Exchange Note as to which Section 2(c)(iv) hereof is applicable upon original issuance thereof and at all times subsequent thereto and each Private Exchange Note upon original issuance thereof and at all times subsequent thereto, until, in the case of any such Note, Exchange Note or Private Exchange Note, as the case may be, the -5- earliest to occur of (i) a Registration Statement (other than, with respect to any Exchange Note as to which Section 2(c)(iv) hereof is applicable) covering such Note, Exchange Note or Private Exchange Note, as the case may be, has been declared effective by the Commission and such Note, Exchange Note or Private Exchange Note, as the case may be, has been disposed of in accordance with such effective Registration Statement, (ii) such Note, Exchange Note or Private Exchange Note, as the case may be, is sold in compliance with Rule 144, (iii) in the case of any Note, such Note has been exchanged pursuant to the Exchange Offer for an Exchange Note or Exchange Notes which may be resold without restriction under federal securities laws, or (iv) such Note, Exchange Note or Private Exchange Note, as the case may be, ceases to be outstanding for purposes of the Indenture. Registration Statement: Any registration statement of the Company, ---------------------- including, but not limited to, the Exchange Registration Statement, that covers any of the Registrable Notes pursuant to the provisions of this Agreement, including the Prospectus, amendments and supplements to such registration statement, including post-effective amendments, all exhibits, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement. Rule 144: Rule 144 under the Securities Act, as such Rule may be -------- amended from time to time, or any similar rule (other than Rule 144A) or regulation hereafter adopted by the Commission providing for offers and sales of securities made in compliance therewith resulting in offers and sales by subsequent holders that are not affiliates of an issuer of such securities being free of the registration and prospectus delivery requirements of the Securities Act. Rule 144A: Rule 144A under the Securities Act, as such Rule may be --------- amended from time to time, or any similar rule -6- (other than Rule 144) or regulation hereafter adopted by the Commission. Rule 415: Rule 415 under the Securities Act, as such Rule may be -------- amended from time to time, or any similar rule or regulation hereafter adopted by the Commission. Securities Act: The Securities Act of 1933, as amended, and the rules -------------- and regulations of the Commission promulgated thereunder. Shelf Notice: See Section 2(c). ------------ Shelf Registration: See Section 3(b). ------------------ Subsequent Shelf Registration: See Section 3(b). ----------------------------- TIA: The Trust Indenture Act of 1939, as amended. --- Trustee: The trustee under the Indenture and, if existent, the ------- trustee under any indenture governing the Exchange Notes and Private Exchange Notes (if any). Underwritten registration or underwritten offering: A registration in -------------------------------------------------- which securities of one or more of the Issuers are sold to an underwriter for reoffering to the public. 2. Exchange Offer -------------- (a) Each of the Issuers agrees to file with the Commission, no later than the Filing Date, an offer to exchange (the "Exchange Offer") any and all of -------------- the Registrable Notes (other than Private Exchange Notes, if any) for a like aggregate principal amount of debt securities of the Company, guaranteed by the Guarantors, which are identical in all material respects to the Notes (the "Exchange Notes") (and which are entitled to the benefits of -------------- -7- the Indenture or a trust indenture which is identical in all material respects to the Indenture (other than such changes to the Indenture or any such identical trust indenture as are necessary to comply with any requirements of the Commission to effect or maintain the qualification thereof under the TIA) and which, in either case, has been qualified under the TIA), except that the Exchange Notes shall have been registered pursuant to an effective Registration Statement under the Securities Act, shall not contain terms regarding Additional Interest or registration rights and shall contain no restrictive legend thereon. The Exchange Offer shall be registered under the Securities Act on the appropriate form (the "Exchange Registration Statement") and shall comply with ------------------------------- all applicable tender offer rules and regulations under the Exchange Act. Each of the Issuers agrees to use its best efforts to (x) cause the Exchange Registration Statement to be declared effective under the Securities Act on or before the Effectiveness Date; (y) keep the Exchange Offer open for at least 30 days (or longer if required by applicable law) after the date that notice of the Exchange Offer is first mailed to Holders; and (z) consummate the Exchange Offer on or prior to the 60th day following the date on which the Exchange Registration Statement is declared effective. If after such Exchange Registration Statement is initially declared effective by the Commission, the Exchange Offer or the issuance of the Exchange Notes thereunder is interfered with by any stop order, injunction or other order or requirement of the Commission or any other governmental agency or court, such Exchange Registration Statement shall be deemed not to have become effective for purposes of this Agreement. Each Holder who participates in the Exchange Offer will be required to represent that any Exchange Notes received by it will be acquired in the ordinary course of its business, that at the time of the consummation of the Exchange Offer such Holder will have no arrangement or understanding with any Person to participate in and is not engaged in and does not intend to engage in the distribution of the Exchange Notes, that such -8- Holder is not an affiliate of any Issuer within the meaning of the Securities Act (or if it is an affiliate, it will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable) and if such Holder is a Broker Dealer, that will receive Exchange Notes for its own account that were acquired as a result of market-making activities (or other trading activities), it must acknowledge that it will deliver a prospectus in connection with any resale of Exchange Notes, and any additional representations that in the written opinion of counsel to the Company are necessary under then- existing interpretations of the Commission in order for the Exchange Registration Statement to be declared effective. Upon consummation of the Exchange Offer in accordance with this Section 2, the provisions of this Agreement shall continue to apply, mutatis mutandis, solely with respect to ------- -------- Registrable Notes that are Private Exchange Notes and Exchange Notes held by Participating Broker-Dealers, and the Issuers shall have no further obligation to register Registrable Notes (other than Private Exchange Notes and other than in respect of any Exchange Notes as to which clause 2(c)(iv) hereof applies) pursuant to Section 3 of this Agreement. (b) The Issuers shall include within the Prospectus contained in the Exchange Registration Statement a section entitled "Plan of Distribution," reasonably acceptable to the Initial Purchasers, which shall contain a summary statement of the positions taken or policies made by the Staff of the Commission with respect to the potential "underwriter" status of any broker-dealer that is the beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of Exchange Notes received by such broker-dealer in the Exchange Offer (a "Participating Broker-Dealer"), whether such positions or policies have been --------------------------- publicly disseminated by the Staff of the Commission or such positions or policies, in the judgment of the Initial Purchasers, represent the prevailing views of the Staff of the Commission. Such "Plan of Distribution" section shall also allow, to the -9- extent permitted by applicable policies and regulations of the Commission, the use of the Prospectus by all Persons subject to the prospectus delivery requirements of the Securities Act, including, to the extent so permitted, all Participating Broker-Dealers, and include a statement describing the manner in which Participating Broker-Dealers may resell the Exchange Notes. Each of the Issuers shall use its best efforts to keep the Exchange Registration Statement effective and to amend and supplement the Prospectus contained therein, in order to permit such Prospectus to be lawfully delivered by all Persons subject to the prospectus delivery requirements of the Securities Act for such period of time as such Persons must comply with such requirements in connection with offers and sales of the Exchange Notes, provided that such -------- period shall not exceed 180 days (or such longer period if extended pursuant to the last paragraph of Section 5) (the "Applicable Period"). ----------------- If, upon consummation of the Exchange Offer, any Initial Purchaser holds any Notes acquired by it and having the status of an unsold allotment in the initial distribution, the Issuers upon the request of any such Initial Purchaser shall, simultaneously with the delivery of the Exchange Notes in the Exchange Offer, issue and deliver to such Initial Purchaser, in exchange (the "Private Exchange") for the Notes held by such Initial Purchaser, a like ---------------- principal amount of debt securities of the Company that are identical in all material respects to the Exchange Notes except for the existence of restrictions on transfer thereof under the Securities Act and securities laws of the several states of the U.S. (the "Private Exchange Notes") (and which are issued pursuant ---------------------- to the same indenture as the Exchange Notes). The Private Exchange Notes shall bear the same CUSIP number as the Exchange Notes. Interest on the Exchange Notes and Private Exchange Notes will accrue from the last interest payment date on which interest was paid on the -10- Notes surrendered in exchange therefor or, if no interest has been paid on the Notes, from the Issue Date. In connection with the Exchange Offer, the Issuers shall: (1) mail to each Holder a copy of the Prospectus forming part of the Exchange Registration Statement, together with an appropriate letter of transmittal and related documents; (2) utilize the services of a depositary for the Exchange Offer with an address in the Borough of Manhattan, The City of New York, which may be the Trustee or an affiliate thereof; (3) permit Holders to withdraw tendered Registrable Notes at any time prior to the close of business, New York time, on the last Business Day on which the Exchange Offer shall remain open; and (4) otherwise comply in all material respects with all applicable laws. As soon as practicable after the close of the Exchange Offer or the Private Exchange, as the case may be, the Issuers shall: (1) ACCEPT FOR EXCHANGE ALL REGISTRABLE NOTES VALIDLY TENDERED AND NOT VALIDLY WITHDRAWN PURSUANT TO THE EXCHANGE OFFER OR THE PRIVATE EXCHANGE; (2) deliver to the Trustee for cancellation all Registrable Notes so accepted for exchange; and (3) cause the Trustee to authenticate and deliver promptly to each Holder tendering such Registrable Notes, -11- Exchange Notes or Private Exchange Notes, as the case may be, equal in principal amount to the Notes of such Holder so accepted for exchange. The Exchange Notes and the Private Exchange Notes may be issued under (i) the Indenture or (ii) an indenture identical in all material respects to the Indenture, which in either event will provide that the Exchange Notes will not be subject to the transfer restrictions set forth in the Indenture and that the Exchange Notes, the Private Exchange Notes and the Notes, if any, will vote and consent together on all matters as one class and that none of the Exchange Notes, the Private Exchange Notes or the Notes, if any, will have the right to vote or consent as a separate class on any matter. (c) If, (i) because of any change in law or in currently prevailing interpretations of the staff of the Commission, the Company is not permitted to effect an Exchange Offer, (ii) the Exchange Offer is not consummated within 210 days of the Issue Date, (iii) any holder of Private Exchange Notes holding at least $1 million of Private Exchange Notes so requests within 120 days of the consummation of the Exchange Offer or (iv) in the case of Holders holding at least $1 million of Exchange Notes that participate in the Exchange Offer (and tender their Registrable Notes prior to the expiration thereof), such Holders do not receive Exchange Notes on the date of the exchange that may be sold without restriction under federal securities laws (other than due solely to (i) the status of such Holders as affiliates of any Issuer within the meaning of the Securities Act and/or (ii) restrictions relating to any requirement to deliver a prospectus upon resale, which requirement may be fulfilled by delivery of a Prospectus contained in an Exchange Offer Registration Statement) and so notifies the Company within 30 days following the consummation of the Exchange Offer (and providing a reasonable basis for their conclusions), in the case of each of clauses (i)-(iv), then the Issuers shall promptly deliver to the Holders and the Trustee written notice -12- thereof (the "Shelf Notice") and shall file a Shelf Registration pursuant to ------------ Section 3. 3. Shelf Registration ------------------ If a Shelf Notice is delivered as contemplated by Section 2(c), then: (a) Shelf Registration. The Issuers shall as promptly as reasonably ------------------ practicable file with the Commission a Registration Statement for an offering to be made on a continuous basis pursuant to Rule 415 covering all of the then Registrable Notes (the "Initial Shelf Registration"). If the Issuers shall not -------------------------- have yet filed the Exchange Registration Statement, each of the Issuers shall file with the Commission the Initial Shelf Registration on or prior to the Filing Date and shall use its best efforts to cause such Initial Shelf Registration to be declared effective under the Securities Act on or prior to the Effectiveness Date. Otherwise, each of the Issuers shall file with the Commission the Initial Shelf Registration within 30 days of the delivery of the Shelf Notice and shall use its best efforts to cause such Shelf Registration to be declared effective under the Securities Act, if an Exchange Registration Statement has not yet been declared effective, on or prior to the Effectiveness Date or, in any other instance, as soon as practicable after the filing thereof and in no event later than 90 days after filing of the initial Shelf Registration Statement. The Initial Shelf Registration shall be on Form S-1 or another appropriate form permitting registration of such Registrable Notes for resale by Holders in the manner or manners designated by them (including, without limitation, one or more underwritten offerings). The Issuers shall not permit any securities other than the Registrable Notes to be included in any Shelf Registration. Each of the Issuers shall use its best efforts to keep the Initial Shelf Registration continuously effective under the Securities Act until the date which is 24 months from the effective date of such Initial -13- Shelf Registration (or, if Rule 144(k) under the Securities Act is amended to permit unlimited resales by non-affiliates within a lesser period, such lesser period) (subject to extension pursuant to the last paragraph of Section 5 hereof) (the "Effectiveness Period") or such shorter period ending when (i) all --------------------- Registrable Notes covered by the Initial Shelf Registration have been sold in the manner set forth and as contemplated in the Initial Shelf Registration or (ii) a Subsequent Shelf Registration covering all of the Registrable Notes has been declared effective under the Securities Act. (b) Subsequent Shelf Registrations. If the Initial Shelf Registration ------------------------------ or any Subsequent Shelf Registration ceases to be effective for any reason at any time during the Effectiveness Period (other than because of the sale of all of the securities registered thereunder), each of the Issuers shall use its best efforts to obtain the prompt withdrawal of any order suspending the effectiveness thereof, and in any event shall within 30 days of such cessation of effectiveness amend the Shelf Registration in a manner to obtain the withdrawal of the order suspending the effectiveness thereof, or file an additional "shelf" Registration Statement pursuant to Rule 415 covering all of the Registrable Notes (a "Subsequent Shelf Registration"). If a Subsequent ----------------------------- Shelf Registration is filed, each of the Issuers shall use its best efforts to cause the Subsequent Shelf Registration to be declared effective as soon as practicable after such filing and to keep such Subsequent Shelf Registration continuously effective for a period equal to the number of days in the Effectiveness Period less the aggregate number of days during which the Initial Shelf Registration or any Subsequent Shelf Registrations was previously continuously effective. As used herein the term "Shelf Registration" means the ------------------ Initial Shelf Registration and any Subsequent Shelf Registration. (c) Supplements and Amendments. Each of the Issuers shall promptly -------------------------- supplement and amend any Shelf Registration if required by the -14- rules, regulations or instructions applicable to the registration form used for such Shelf Registration, if required by the Securities Act, or if reasonably requested by the Holders of a majority in aggregate principal amount of the Registrable Notes covered by such Shelf Registration or by any underwriter of such Registrable Notes, in each case, with each Issuer's consent, which consent shall not be unreasonably withheld or delayed. 4. Additional Interest ------------------- (a) The Issuers and the Initial Purchasers agree that the Holders of Registrable Notes will suffer damages if the Issuers fail to fulfill their obligations under Section 2 or Section 3 hereof and that it would not be feasible to ascertain the extent of such damages with precision. Accordingly, each of the Issuers agrees to pay, as liquidated damages, additional interest on the Registrable Notes ("Additional Interest") under the circumstances and to the ------------------- extent set forth below (each of which shall be given independent effect) (a "Registration Default"): (i) if (A) neither the Exchange Registration Statement nor the Initial Shelf Registration has been filed on or prior to the Filing Date or (B) notwithstanding that the Issuers have consummated or will consummate an Exchange Offer, the Issuers are required to file a Shelf Registration and such Shelf Registration is not filed on or prior to the 30th day after delivery of the Shelf Notice, then, in the case of subclause (A), commencing on the day after the Filing Date or, in the case of subclause (B), commencing on the 31st day following delivery of the Shelf Notice, Additional Interest shall accrue on the Registrable Notes over and above the stated interest at a rate of 0.50% per annum for the first 90 days immediately following the Filing Date or such 30th day, as the case may be, such Additional Interest rate increasing by an additional 0.25% per annum -15- at the beginning of each subsequent 90-day period during which a Registration Default remains uncured; (ii) if (A) neither the Exchange Registration Statement nor the Initial Shelf Registration is declared effective on or prior to the Effectiveness Date or (B) notwithstanding that the Issuers have consummated or will consummate an Exchange Offer, the Issuers are required to file a Shelf Registration and such Shelf Registration is not declared effective by the Commission on or prior to the 90th day following the date such Shelf Registration was required to be filed, then, in the case of subclause (A), commencing on the day after such Effectiveness Date or, in the case of subclause (B), commencing on the 91st day following the date such Shelf Registration was required to be filed, Additional Interest shall accrue on the Registrable Notes over and above the stated interest at a rate of 0.50% per annum for the first 90 days immediately following the day after the Effectiveness Date or such 91st day, as the case may be, such Additional Interest rate increasing by an additional 0.25% per annum at the beginning of each subsequent 90-day period during which a Registration Default remains uncured; and (iii) if (A) the Company has not exchanged Exchange Notes for all Notes validly tendered in accordance with the terms of the Exchange Offer on or prior to 60 days after the date on which the Exchange Registration Statement was declared effective, (B) the Exchange Registration Statement ceases to be effective prior to consummation of the Exchange Offer or (C) if applicable, a Shelf Registration has been declared effective and such Shelf Registration ceases to be effective at any time during the Effectiveness Period, then Additional Interest shall accrue on the Registrable Notes over and above the stated interest at a rate of 0.50% per annum for the first 90 days commencing on the (x) 61st day after such -16- effective date in the case of (A) above or (y) the day such Exchange Registration Statement or Shelf Registration ceases to be effective in the case of (B) and (C) above, such Additional Interest rate increasing by an additional 0.25% per annum at the beginning of each such subsequent 90-day period during which a Registration Default remains uncured; provided, however, that the Additional Interest rate on the Registrable Notes - -------- ------- may not exceed in the aggregate 2.0% per annum; provided further that (1) upon -------- ------- the filing of the Exchange Registration Statement or each Shelf Registration (in the case of (i) above), (2) upon the effectiveness of the Exchange Registration Statement or each Shelf Registration, as the case may be (in the case of (ii) above), or (3) upon the exchange of Exchange Notes for all Registrable Notes tendered (in the case of (iii)(A) above) or upon the effectiveness of an Exchange Registration Statement or Shelf Registration which had ceased to remain effective (in the case of (iii)(B) and (C) above), Additional Interest on any Registrable Notes then accruing Additional Interest as a result of such clause (or the relevant subclause thereof), as the case may be, shall cease to accrue. (b) The Issuers shall notify the Trustee within one business day after each and every date on which an event occurs in respect of which Additional Interest is required to be paid (an "Event Date"). Any amounts of Additional ---------- Interest due pursuant to (a)(i), (a)(ii) or (a)(iii) of this Section 4 will be payable in cash semi-annually on each regular interest payment date specified in the Indenture (to the Holders of Registrable Notes of record on the regular record date therefor (specified in the Indenture) immediately preceding such dates), commencing with the first such regular interest payment date occurring after any such Additional Interest commences to accrue. The amount of Additional Interest will be determined by multiplying the applicable Additional Interest rate by the principal amount of -17- the Notes subject thereto, multiplied by a fraction, the numerator of which is the number of days such Additional Interest rate was applicable during such period (determined on the basis of a 360-day year comprised of twelve 30-day months), and the denominator of which is 365. 5. Registration Procedures ----------------------- In connection with the filing of any Registration Statement pursuant to Sections 2 or 3 hereof, each Issuer shall use its best efforts effect such registrations to permit the sale of such securities covered thereby in accordance with the intended method or methods of disposition thereof, and pursuant thereto and in connection with any Registration Statement filed by each Issuer hereunder, each Issuer shall: (a) Prepare and file with the Commission prior to the Filing Date, the Exchange Registration Statement or if the Exchange Registration Statement is not filed or is unavailable, a Shelf Registration as prescribed by Section 2 or 3, and use its best efforts to cause each such Registration Statement to become effective and remain effective as provided herein; provided that, if (1) a Shelf -------- Registration is filed pursuant to Section 3, or (2) a Prospectus contained in an Exchange Registration Statement filed pursuant to Section 2 is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period and has advised the Company that it is a Participating Broker-Dealer, before filing any Registration Statement or Prospectus or any amendments or supplements thereto, the Issuers shall, if requested, furnish to and afford the Holders of the Registrable Notes to be registered pursuant to such Shelf Registration or each such Participating Broker-Dealer, as the case may be, covered by such Registration Statement, their counsel and the managing underwriters, if any (with respect to a Shelf Registration), a reasonable opportunity to review copies of all such documents (including copies of any documents to be -18- incorporated by reference therein and all exhibits thereto) proposed to be filed (in each case at least five Business Days prior to such filing). The Issuers shall not file any such Registration Statement or Prospectus or any amendments or supplements thereto if the Holders of a majority in aggregate principal amount of the Registrable Notes covered by such Registration Statement, or any such Participating Broker-Dealer, as the case may be, their counsel, or the managing underwriters, if any, (with respect to a Shelf Registration) shall reasonably object. (b) Prepare and file with the Commission such amendments and post- effective amendments to each Shelf Registration or Exchange Registration Statement, as the case may be, as may be necessary to keep such Registration Statement continuously effective for the Effectiveness Period or the Applicable Period, as the case may be; cause the related Prospectus to be supplemented by any Prospectus supplement required by applicable law, and as so supplemented to be filed pursuant to Rule 424 (or any similar provisions then in force) under the Securities Act; and comply with the provisions of the Securities Act and the Exchange Act applicable to it with respect to the disposition of all securities covered by such Registration Statement as so amended or in such Prospectus as so supplemented and with respect to the subsequent resale of any securities being sold by a Participating Broker-Dealer covered by any such Prospectus. The Issuers shall be deemed not to have used their best efforts to keep a Registration Statement effective during the Applicable Period if they voluntarily take any action that would result in selling Holders of the Registrable Notes covered thereby or Participating Broker-Dealers seeking to sell Exchange Notes not being able to sell such Registrable Notes or such Exchange Notes during that period unless such action is required by applicable law, rule or regulation or unless the Issuers comply with this Agreement, including, without limitation, the provisions of paragraph 5(k) hereof and the last paragraph of Section 5. -19- (c) If (1) a Shelf Registration is filed pursuant to Section 3, or (2) a Prospectus contained in an Exchange Registration Statement filed pursuant to Section 2 is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period from whom the Company has received notice that it will be a Participating Broker-Dealer, notify the selling Holders of Registrable Notes, and each such Participating Broker-Dealer, their counsel and the managing underwriters, if any (with respect to a Shelf Registration), promptly (but in any event within five Business Days), and confirm such notice in writing, (i) when a Prospectus or any Prospectus supplement or post-effective amendment has been filed, and, with respect to a Registration Statement or any post-effective amendment, when the same has become effective (including in such notice a written statement that any Holder may, upon request, obtain, without charge, one conformed copy of such Registration Statement or post-effective amendment including financial statements and schedules, documents incorporated or deemed to be incorporated by reference and exhibits), (ii) of the issuance by the Commission of any stop order suspending the effectiveness of a Registration Statement or of any order preventing or suspending the use of any preliminary prospectus or the initiation of any proceedings for that purpose, (iii) if at any time when a prospectus is required by the Securities Act to be delivered in connection with sales of the Registrable Notes the representations and warranties of any Issuer contained in any agreement (including any underwriting agreement contemplated by Section 5(n) hereof) cease to be true and correct in any material respect, (iv) of the receipt by any Issuer of any notification with respect to the suspension of the qualification or exemption from qualification of a Registration Statement or any of the Registrable Notes or the Exchange Notes to be sold by any Participating Broker-Dealer for offer or sale in any jurisdiction, or the initiation or threatening of any proceeding for such purpose, (v) of the happening of any event, the existence of any condition or any information becoming -20- known that makes any statement made in such Registration Statement or related Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires the making of any changes in, or amendments or supplements to, such Registration Statement, Prospectus or documents so that, in the case of the Registration Statement, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and that in the case of the Prospectus, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and (vi) of the Issuers' reasonable determination that a post-effective amendment to a Registration Statement would be appropriate. (d) If (1) a Shelf Registration is filed pursuant to Section 3, or (2) a Prospectus contained in an Exchange Registration Statement filed pursuant to Section 2 is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, use its best efforts to prevent the issuance of any order suspending the effectiveness of a Registration Statement or of any order preventing or suspending the use of a Prospectus or suspending the qualification (or exemption from qualification) of any of the Registrable Notes or the Exchange Notes to be sold by any Participating Broker-Dealer, for sale in any jurisdiction, and, if any such order is issued, to use its best efforts to obtain the withdrawal of any such order at the earliest possible date. (e) If a Shelf Registration is filed pursuant to Section 3 and if reasonably requested by the managing underwriters, if any, or the Holders of a majority in aggregate principal amount of the Registrable Notes being sold in connection with an underwritten offering, (i) as promptly as practicable incorporate in a prospectus -21- supplement or post-effective amendment such information or revisions to information therein as the managing underwriters, if any, or such Holders or their counsel reasonably request to be included or made therein, (ii) make all required filings of such prospectus supplement or such post-effective amendment as soon as practicable after the Issuers have received notification of the matters to be incorporated in such prospectus supplement or post-effective amendment, and (iii) supplement or make amendments to such Registration Statement. (f) If (1) a Shelf Registration is filed pursuant to Section 3, or (2) a Prospectus contained in an Exchange Registration Statement filed pursuant to Section 2 is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, furnish to each selling Holder of Registrable Notes and to each such Participating Broker-Dealer who so requests and to counsel and each managing underwriter, if any, without charge, one conformed copy of the Registration Statement or Registration Statements and each post-effective amendment thereto, including financial statements and schedules, and, if requested, all documents incorporated or deemed to be incorporated therein by reference and all exhibits. (g) If (1) a Shelf Registration is filed pursuant to Section 3, or (2) a Prospectus contained in an Exchange Registration Statement filed pursuant to Section 2 is required to be delivered under the Securities Act by any Participating Broker-Dealer, deliver to each selling Holder of Registrable Notes or each such Participating Broker-Dealer, as the case may be, their respective counsel, and the underwriters, if any, without charge, as many copies of the Prospectus or Prospectuses (including each form of preliminary prospectus) and each amendment or supplement thereto and any documents incorporated by reference therein as such Persons may reasonably request; and, subject to the last paragraph of this Section 5, the -22- Company hereby consents to the use of such Prospectus and each amendment or supplement thereto by each of the selling Holders of Registrable Notes and each Participating Broker-Dealer, and the underwriters or agents, if any, and dealers (if any), in connection with the offering and sale of the Registrable Notes covered by, or the sale by Participating Broker-Dealers of the Exchange Notes pursuant to, and in the manner described in such Prospectus and any amendment or supplement thereto. (h) Prior to any public offering of Registrable Notes or any delivery of a Prospectus contained in the Exchange Registration Statement by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, use its best efforts to register or qualify, and cooperate with the selling Holders of Registrable Notes and each such Participating Broker-Dealer, the underwriters, if any, and their respective counsel in connection with the registration or qualification (or exemption from such registration or qualification) of such Registrable Notes or Exchange Notes, as the case may be, for offer and sale under the securities or Blue Sky laws of such jurisdictions within the United States as any selling Holder, Participating Broker-Dealer, or the managing underwriter or underwriters, if any, reasonably request in writing; provided that where Exchange Notes held by Participating -------- Broker-Dealers or Registrable Notes are offered pursuant to an underwritten offering, counsel to the underwriters shall, at the cost and expense of the Issuers, perform the Blue Sky investigations and file registrations and qualifications required to be filed pursuant to this Section 5(h); keep each such registration or qualification (or exemption therefrom) effective during the period such Registration Statement is required to be kept effective and do any and all other acts or things reasonably necessary or advisable to enable the disposition in such jurisdictions of the Exchange Notes by Participating Broker- Dealers or the Registrable Notes covered by the applicable Registration Statement; provided that no Issuer shall be required to (A) qualify as a foreign -------- corporation in any -23- jurisdiction where it is not then so qualified, (B) take any action that would subject it to general service of process in any such jurisdiction where it is not then so subject or (C) subject itself to taxation in excess of a nominal dollar amount in any such jurisdiction where it is not then so subject. (i) If a Shelf Registration is filed pursuant to Section 3, cooperate with the selling Holders of Registrable Notes and the managing underwriter or underwriters, if any, to facilitate the timely preparation and delivery of certificates representing Registrable Notes to be sold, which certificates shall not bear any restrictive legends and shall be in a form eligible for deposit with The Depository Trust Company; and enable such Registrable Notes to be in such denominations and registered in such names as the managing underwriter or underwriters, if any, or Holders may reasonably request. (j) Use its best efforts to cause the Registrable Notes covered by the Registration Statement to be registered with or approved by such governmental agencies or authorities as may be necessary to enable the seller or sellers thereof or the underwriters, if any, to consummate the disposition of such Registrable Notes, in which case the Issuers will cooperate in all reasonable respects with the filing of such Registration Statement and the granting of such approvals. (k) If (1) a Shelf Registration is filed pursuant to Section 3, or (2) a Prospectus contained in an Exchange Registration Statement filed pursuant to Section 2 is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, upon the occurrence of any event contemplated by paragraph 5(c)(v) or 5(c)(vi) hereof, as promptly as practicable prepare and (subject to Section 5(a) hereof) file with the Commission, at the Issuers' sole expense, a supplement or post-effective amendment to the Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be -24- incorporated therein by reference, or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Notes being sold thereunder or to the purchasers of the Exchange Notes to whom such Prospectus will be delivered by a Participating Broker-Dealer, any such Prospectus will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (l) Use its best efforts to cause the Registrable Notes covered by a Registration Statement to be rated with the appropriate rating agencies, if so requested by the Holders of a majority in aggregate principal amount of Registrable Notes covered by such Registration Statement or the managing underwriter or underwriters, if any. (m) Prior to the effective date of the first Registration Statement relating to the Registrable Notes, (i) provide the Trustee with printed certificates for the Registrable Notes in a form eligible for deposit with The Depository Trust Company and (ii) provide a CUSIP number for the Registrable Notes. (n) In connection with an underwritten offering of Registrable Notes pursuant to a Shelf Registration, enter into an underwriting agreement as is customary in underwritten offerings of debt securities similar to the Notes and take all such other actions as are reasonably requested by the managing underwriter or underwriters in order to expedite or facilitate the registration or the disposition of such Registrable Notes and, in such connection, (i) make such representations and warranties to the underwriters, with respect to the business of the Issuers and their subsidiaries and the Registration Statement, Prospectus and documents, if any, incorporated or deemed to be incorporated by reference therein, in each case, as are customarily made by issuers to underwriters in -25- underwritten offerings of debt securities similar to the Notes, and confirm the same in writing if and when requested; (ii) obtain the opinion of counsel to the Issuers and updates thereof in form and substance reasonably satisfactory to the managing underwriter or underwriters, addressed to the underwriters covering the matters customarily covered in opinions requested in underwritten offerings of debt securities similar to the Notes and such other matters as may be reasonably requested by underwriters; (iii) obtain "cold comfort" letters and updates thereof in form and substance reasonably satisfactory to the managing underwriter or underwriters from the independent certified public accountants of the Issuers (and, if necessary, any other independent certified public accountants of any subsidiary of any Issuer or of any business acquired by any Issuer for which financial statements and financial data are, or are required to be, included in the Registration Statement), addressed to each of the underwriters, such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters in connection with underwritten offerings of debt securities similar to the Notes and such other matters as reasonably requested by the managing underwriter or underwriters; and (iv) if an underwriting agreement is entered into, the same shall contain indemnification provisions and procedures no less favorable than those set forth in Section 7 hereof (or such other provisions and procedures acceptable to Holders of a majority in aggregate principal amount of Registrable Notes covered by such Registration Statement and the managing underwriter or underwriters or agents) with respect to all parties to be indemnified pursuant to said Section. The above shall be done at each closing under such underwriting agreement, or as and to the extent required thereunder. (o) If (1) a Shelf Registration is filed pursuant to Section 3, or (2) a Prospectus contained in an Exchange Registration Statement filed pursuant to Section 2 is required to be delivered under -26- the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, make available for inspection by any selling Holder of such Registrable Notes being sold, and each Participating Broker- Dealer, any underwriter participating in any such disposition of Registrable Notes, if any, and one counsel for the selling Holders and one counsel for the underwriters (collectively, the "Inspectors"), at the offices where normally ---------- kept, during reasonable business hours, all financial and other records, pertinent corporate documents and properties of each Issuer and its subsidiaries (collectively, the "Records") as shall be reasonably necessary to enable them to ------- exercise any applicable due diligence responsibilities, and cause the officers, directors and employees of each Issuer and its subsidiaries to supply all information reasonably requested by any such Inspector in connection with such Registration Statement. Records which an Issuer determines, in good faith, to be confidential and any Records which it notifies the Inspectors are confidential shall not be disclosed by the Inspectors unless (i) the disclosure of such Records is necessary to avoid or correct a misstatement or omission in such Registration Statement, (ii) the release of such Records is ordered pursuant to a subpoena or other order from a court of competent jurisdiction only after the Inspector has given the Company notice of such requirement or (iii) the information in such Records has been made generally available to the public other than as a result of a disclosure or failure to safeguard by such Inspector. Each selling Holder of such Registrable Notes and each Participating Broker-Dealer will be required to enter into a customary confidentiality agreement and shall agree that information obtained by it and its agents as a result of such inspections shall be deemed confidential and shall not be used by it as the basis for any market transactions in the securities of any Issuer unless and until such is made generally available to the public. Each Inspector will be required to further agree that it will, upon learning that disclosure of such Records is sought in a court of competent -27- jurisdiction pursuant to clauses (ii) or (iv) of the previous sentence or otherwise, give notice to the Issuers and allow the Issuers to undertake appropriate action to obtain a protective order or otherwise prevent disclosure of the Records deemed confidential at its expense. (p) Provide an indenture trustee for the Registrable Notes or the Exchange Notes, as the case may be, and cause the Indenture or the trust indenture provided for in Section 2(a), as the case may be, to be qualified under the TIA not later than the effective date of the Exchange Offer or the first Registration Statement relating to the Registrable Notes; and in connection therewith, cooperate with the trustee under any such indenture and the Holders of the Registrable Notes, to effect such changes to such indenture as may be required for such indenture to be so qualified in accordance with the terms of the TIA; and execute, and use its best efforts to cause such trustee to execute, all documents as may be required to effect such changes, and all other forms and documents required to be filed with the Commission to enable such indenture to be so qualified in a timely manner. (q) Comply with all applicable rules and regulations of the Commission and make generally available to its securityholders earnings statements satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder (or any similar rule promulgated under the Securities Act) no later than 45 days after the end of any 12-month period (or 90 days after the end of any 12-month period if such period is a fiscal year) (i) commencing at the end of any fiscal quarter in which Registrable Notes are sold to underwriters in a firm commitment or best efforts underwritten offering and (ii) if not sold to underwriters in such an offering, commencing on the first day of the first fiscal quarter of the Company after the effective date of a Registration Statement, which statements shall cover said 12-month periods. -28- (r) Upon consummation of the Exchange Offer or a Private Exchange, obtain an opinion of counsel to the Issuers, in a form customary for underwritten transactions, addressed to the Trustee for the benefit of all Holders of Registrable Notes participating in the Exchange Offer or the Private Exchange, as the case may be, that the Exchange Notes or the Private Exchange Notes, as the case may be, the guarantees thereof and the related indenture constitute legally valid and binding obligations of the Issuers, to the extent they are parties, enforceable against the Issuers, to the extent they are parties, in accordance with their respective terms. (s) If the Exchange Offer or a Private Exchange is to be consummated, upon delivery of the Registrable Notes by Holders to the Issuers (or to such other Person as directed by the Company) in exchange for the Exchange Notes or the Private Exchange Notes, as the case may be, the Issuers shall mark, or caused to be marked, on such Registrable Notes that such Registrable Notes are being cancelled in exchange for the Exchange Notes or the Private Exchange Notes, as the case may be; in no event shall such Registrable Notes be marked as paid or otherwise satisfied. (t) Cooperate with each seller of Registrable Notes covered by any Registration Statement and each underwriter, if any, participating in the disposition of such Registrable Notes and their respective counsel in connection with any filings required to be made with the NASD. (u) Use its best efforts to take all other steps reasonably necessary to effect the registration of the Registrable Notes covered by a Registration Statement contemplated hereby. The Issuers may require each seller of Registrable Notes as to which any registration is being effected to furnish to the Issuers such information regarding such seller and the distribution of such Registrable Notes as the Issuers may, from time to time, reasonably request. The Issuers may exclude from -29- such registration the Registrable Notes of any seller who fails to furnish such information within a reasonable time after receiving such request. Each seller as to which any Shelf Registration Statement is being effected agrees to furnish promptly to the Issuers all information required to be disclosed in order to make the information previously furnished to the Issuers by such seller not materially misleading. Each Holder of Registrable Notes and each Participating Broker-Dealer agrees by acquisition of such Registrable Notes or Exchange Notes to be sold by such Participating Broker-Dealer, as the case may be, that, upon receipt of any notice from the Issuers of the happening of any event of the kind described in Section 5(c)(ii), 5(c)(iv), 5(c)(v), or 5(c)(vi), such Holder will forthwith discontinue disposition of such Registrable Notes covered by such Registration Statement or Prospectus or Exchange Notes to be sold by such Holder or Participating Broker-Dealer, as the case may be, and, in each case, dissemination of such Prospectus until such Holder's or Participating Broker- Dealer's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 5(k), or until it is advised in writing (the "Advice") ------ by the Company that the use of the applicable Prospectus may be resumed, and has received copies of any amendments or supplements thereto. In the event the Issuers shall give any such notice, each of the Effectiveness Period and the Applicable Period shall be extended by the number of days during such periods from and including the date of the giving of such notice to and including the date when each seller of Registrable Notes covered by such Registration Statement or Exchange Notes to be sold by such Participating Broker-Dealer, as the case may be, shall have received (x) the copies of the supplemented or amended Prospectus contemplated by Section 5(k) or (y) the Advice. 6. Registration Expenses --------------------- -30- (a) All fees and expenses incident to the performance of or compliance with this Agreement by the Issuers shall be borne by the Issuers whether or not the Exchange Offer or a Shelf Registration is filed or becomes effective, including, without limitation, (i) all registration and filing fees (including, without limitation, (A) fees with respect to filings required to be made with the NASD in connection with an underwritten offering and (B) fees and expenses of compliance with state securities or Blue Sky laws (including, without limitation, reasonable fees and disbursements of counsel in connection with Blue Sky qualifications of the Registrable Notes or Exchange Notes (x) where the holders of Registrable Notes are located, in the case of the Exchange Notes, or (y) as provided in Section 5(h) hereof, in the case of Registrable Notes or Exchange Notes to be sold by a Participating Broker-Dealer during the Applicable Period)), (ii) printing expenses, including, without limitation, expenses of printing certificates for Registrable Notes or Exchange Notes in a form eligible for deposit with The Depository Trust Company and of printing prospectuses if the printing of prospectuses is requested by the managing underwriter or underwriters, if any of a Shelf Registration Statement, (iii) messenger, telephone and delivery expenses incurred in connection with the Exchange Registration Statement and any Shelf Registration, (iv) reasonable fees and disbursements of counsel for the Issuers and, in the case of a Shelf Registration only, reasonable fees and disbursements of special counsel for the Initial Purchasers and the sellers of Registrable Notes (subject to Section 6(b)), (v) fees and disbursements of all independent certified public accountants referred to in Section 5(n)(iii) (including, without limitation, the expenses of any special audit and "cold comfort" letters required by or incident to such performance), (vi) rating agency fees, (vii) Securities Act liability insurance, if any Issuer desires such insurance, (viii) fees and expenses of all other Persons retained by the Issuers, (ix) internal expenses of the Issuers (including, without limitation, all salaries and expenses of officers and employees -31- of the Issuers performing legal or accounting duties), (x) the expense of any annual or special audit, (xi) the fees and expenses incurred in connection with any listing of the securities to be registered on any securities exchange, (xii) the fees and disbursements of underwriters, if any, customarily paid by issuers or sellers of securities (but not including any underwriting discounts or commissions or transfer taxes, if any, attributable to the sale of the Registrable Notes which discounts, commissions or taxes shall be paid by Holders of such Registrable Notes) and (xiii) the expenses relating to printing, word processing and distributing all Registration Statements and Prospectuses. (b) In connection with any Shelf Registration hereunder, the Company and the Guarantors, jointly and severally, shall reimburse the Holders of the Registrable Notes being registered in such registration for the reasonable fees and disbursements (which fees and disbursements shall not in any event exceed $25,000) of not more than one counsel (and any appropriate local counsel) chosen by the Holders of a majority in aggregate principal amount of the Registrable Notes to be included in such Registration Statement. The Company and the Guarantors shall not have any obligation to pay any underwriting fees, discounts or commissions attributable to the sale of Registrable Securities. 7. Indemnification --------------- (a) Each of the Issuers jointly and severally agrees to indemnify and hold harmless each Holder of Registrable Notes and each Participating Broker- Dealer, the officers, directors, employees and agents of each such Person, and each Person, if any, who controls any such Person within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act (each, a "Participant"), from and against any and all losses, claims, damages and ----------- liabilities (including, without limitation, the reasonable legal fees and other reasonable -32- expenses actually incurred in connection with any suit, action or proceeding or any claim asserted) caused by, arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement or Prospectus (as amended or supplemented if the Issuers shall have furnished any amendments or supplements thereto) or caused by, arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, except insofar as such losses, claims, damages or liabilities are caused by any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with information relating to any Participant furnished to the Issuers in writing by or on behalf of such Participant expressly for use therein; provided, however, that the Issuers shall -------- ------- not be liable if such untrue statement or omission or alleged untrue statement or omission was contained or made in any preliminary prospectus and corrected in the Prospectus or any amendment or supplement thereto and the Prospectus does not contain any other untrue statement or omission or alleged untrue statement or omission of a material fact that was the subject matter of the related proceeding and any such loss, liability, claim, damage or expense suffered or incurred by the Participants resulted from any action, claim or suit by any Person who purchased Registrable Notes or Exchange Notes which are the subject thereof from such Participant and it is established in the related proceeding that such Participant failed to deliver or provide a copy of the Prospectus (as amended or supplemented) to such Person with or prior to the confirmation of the sale of such Registrable Notes or Exchange Notes sold to such Person if required by applicable law, unless such failure to deliver or provide a copy of the Prospectus (as amended or supplemented) was a result of noncompliance by the Issuers with Section 5 of this Agreement. -33- (b) Each Participant will be required to agree, severally and not jointly, to indemnify and hold harmless each Issuer, its directors and officers and each Person who controls each Issuer within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent as the foregoing indemnity from the Issuers to each Participant, but only with reference to information relating to such Participant furnished to the Issuers in writing by such Participant expressly for use in any Registration Statement or Prospectus, any amendment or supplement thereto, or any preliminary prospectus. The liability of any Participant under this paragraph shall in no event exceed the proceeds received by such Participant from sales of Registrable Notes or Exchange Notes giving rise to such obligations. (c) If any suit, action, proceeding (including any governmental or regulatory investigation), claim or demand shall be brought or asserted against any Person in respect of which indemnity may be sought pursuant to either of the two preceding paragraphs, such Person (the "Indemnified Person") shall promptly ------------------ notify the Person against whom such indemnity may be sought (the "Indemnifying ------------ Person") in writing of the commencement of such action; but the omission so to - ------ notify the indemnifying party will not relieve it from any liability that it may have to any indemnified party except to the extent that such omission results in the forfeiture by the indemnifying party of substantial rights and defenses. The Indemnifying Person shall be entitled to participate therein and assume the defense thereof, with counsel reasonably satisfactory to the Indemnified Person to represent the Indemnified Person and any others the Indemnifying Person may reasonably designate in such proceeding and shall pay the reasonable fees and expenses incurred by such counsel related to such proceeding. In any such proceeding, any Indemnified Person shall have the right to retain its own counsel, but the fees and expenses of such counsel and all other expenses incurred by the Indemnified Person shall be at the expense of such Indemnified Person unless (i) the -34- Indemnifying Person and the Indemnified Person shall have mutually agreed in writing to the contrary, (ii) the Indemnifying Person has failed within a reasonable time to retain counsel reasonably satisfactory to the Indemnified Person or (iii) the named parties in any such proceeding (including any impleaded parties) include both the Indemnifying Person and the Indemnified Person and such Indemnified Person shall have been advised by counsel that there may be one or more legal defenses available to it which are different from or additional to those available to any such Indemnifying Person. It is understood that the Indemnifying Person shall not, in connection with any proceeding or related proceeding or separate but substantially similar proceedings in the same jurisdiction, be liable for the fees and expenses of more than one separate firm (in addition to any reasonably required local counsel) for all Indemnified Persons, and that all such fees and expenses shall be reimbursed as they are incurred. Any such separate firm for the Participants and such control Persons of Participants shall be designated in writing by Participants who sold a majority in interest of Registrable Notes sold by all such Participants and any such separate firm for each Issuer, its directors, officers and such control Persons of each Issuer shall be designated in writing by the Company. The Indemnifying Person shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there is a final judgment for the plaintiff, the Indemnifying Person agrees to indemnify any Indemnified Person from and against any loss or liability by reason of such settlement or judgment. Notwithstanding the foregoing sentence, if at any time an Indemnified Person shall have requested an Indemnifying Person to reimburse the Indemnified Person for reasonable fees and expenses incurred by counsel as contemplated by the third sentence of this paragraph, the Indemnifying Person agrees that it shall be liable for any settlement of any proceeding effected without its consent if (i) such settlement is entered into more than 30 days after receipt by such Indemnifying -35- Person of the aforesaid request and (ii) such Indemnifying Person shall not have reimbursed the Indemnified Person in accordance with such request prior to the date of such settlement; provided, however, that the Indemnifying Person shall -------- ------- not be liable for any settlement effected without its consent pursuant to this sentence if the Indemnifying Person is contesting, in good faith, the request for reimbursement. No Indemnifying Person shall, without the prior written consent of the Indemnified Person, effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Person is or could have been a party and indemnity could have been sought hereunder by such Indemnified Person, unless such settlement (A) includes an unconditional release of such Indemnified Person, in form and substance satisfactory to such Indemnified Person, from all liability on claims that are the subject matter of such proceeding and (B) does not include any statement as to an admission of fault, culpability or failure to act by or on behalf of an Indemnified Person. (d) If the indemnification provided for in the first and second paragraphs of this Section 7 is unavailable to, or insufficient to hold harmless, an Indemnified Person in respect of any losses, claims, damages or liabilities referred to therein, then each Indemnifying Person under such paragraphs, in lieu of indemnifying such Indemnified Person thereunder and in order to provide for just and equitable contribution, shall contribute to the amount paid or payable by such Indemnified Person as a result of such losses, claims, damages or liabilities in such proportion as is appropriate to reflect the relative fault of the Indemnifying Person or Persons on the one hand and the Indemnified Person or Persons on the other in connection with the statements or omissions (or alleged statements or omissions) that resulted in such losses, claims, damages or liabilities (or actions in respect thereof) as well as any other relevant equitable considerations. The relative fault of the parties shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a -36- material fact or the omission or alleged omission to state a material fact relates to information supplied by the Issuers on the one hand or by the Participants or such other Indemnified Person, as the case may be, on the other, the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission and any other equitable considerations appropriate under the circumstances. (e) The parties agree that it would not be just and equitable if contribution pursuant to this Section 7 were determined by pro rata allocation --- ---- (even if the Participants were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an Indemnified Person as a result of the losses, claims, damages and liabilities referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any reasonable legal or other expenses actually incurred by such Indemnified Person in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 7, in no event shall a Participant be required to contribute any amount in excess of the amount by which proceeds received by such Participant from sales of Registrable Notes, Exchange Notes or Private Exchange Notes, as the case may be, exceeds the amount of any damages that such Participant has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. (f) The indemnity and contribution agreements contained in this Section 7 will be in addition to any liability which the Indemnifying Persons may otherwise have to the Indemnified Persons referred to above. -37- 8. Rules 144 and 144A ------------------ Each of the Issuers covenants that it will file the reports required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations adopted by the Commission thereunder in a timely manner and, if at any time it is not required to file such reports, it will, upon the request of any Holder of Registrable Notes, make publicly available other information so long as necessary to permit sales pursuant to Rule 144 and Rule 144A under the Securities Act. Each of the Issuers further covenants, for so long as any Registrable Notes remain outstanding, to make available to any Holder or beneficial owner of Registrable Notes in connection with any sale thereof and any prospective purchaser of such Registrable Notes from such Holder or beneficial owner, the information required by Rule 144A(d)(4) under the Securities Act in order to permit resales of such Registrable Notes pursuant to Rule 144A. 9. Underwritten Registrations -------------------------- If any of the Registrable Notes covered by any Shelf Registration are to be sold in an underwritten offering, the investment banker or investment bankers and manager or managers that will manage the offering will be selected by the Holders of a majority in aggregate principal amount of such Registrable Notes included in such offering and reasonably acceptable to the Issuers. No Holder of Registrable Notes may participate in any underwritten registration hereunder unless such Holder (a) agrees to sell such Holder's Registrable Notes on the basis provided in any underwriting arrangements approved by the Persons entitled hereunder to approve such arrangements and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other -38- documents required under the terms of such underwriting arrangements. 10. Miscellaneous ------------- (a) Remedies. In the event of a breach by any Issuer of any of its -------- obligations under this Agreement, each Holder of Registrable Notes and each Participating Broker-Dealer holding Exchange Notes, in addition to being entitled to exercise all rights provided herein, in the Indenture or, in the case of an Initial Purchaser, in the Purchase Agreement, or granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Agreement. Each Issuer agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agrees that, in the event of any action for specific performance in respect of such breach, it shall waive the defense that a remedy at law would be adequate. (b) No Inconsistent Agreements. None of the Issuers has entered, as -------------------------- of the date hereof, and none of the Issuers shall enter, after the date of this Agreement, into any agreement with respect to any of its securities that is inconsistent with the rights granted to the Holders of Registrable Notes in this Agreement or otherwise conflicts with the provisions hereof. None of the Issuers has entered and none of the issuers shall enter into any agreement with respect to any of its securities which will grant to any Person piggy-back rights with respect to a Registration Statement. (c) Adjustments Affecting Registrable Notes. None of the Issuers --------------------------------------- shall, directly or indirectly, take any action with respect to the Registrable Notes as a class that would adversely affect the ability of the Holders of Registrable Notes to include such Registrable Notes in a registration undertaken pursuant to this Agreement. -39- (d) Amendments and Waivers. The provisions of this Agreement may not ---------------------- be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, other than with the prior written consent of (A) the Holders of not less than a majority in aggregate principal amount of the then outstanding Registrable Notes and (B) in circumstances that would adversely affect Participating Broker-Dealers, the Participating Broker- Dealers holding not less than a majority in aggregate principal amount of the Exchange Notes held by all Participating Broker-Dealers; provided, however, that -------- ------- Section 7 and this Section 10(d) may not be amended, modified or supplemented without the prior written consent of each Holder and each Participating Broker- Dealer (including any person who was a Holder or Participating Broker-Dealer of Registrable Notes or Exchange Notes, as the case may be, disposed of pursuant to any Registration Statement). Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders of Registrable Notes whose securities are being tendered pursuant to the Exchange Offer or sold pursuant to a Registration Statement and that does not directly or indirectly affect, impair, limit or compromise the rights of other Holders of Registrable Notes may be given by Holders of at least a majority in aggregate principal amount of the Registrable Notes being tendered or being sold by such Holders pursuant to such Registration Statement. (e) Notices. All notices and other communications provided for or ------- permitted hereunder shall be made in writing by hand-delivery, registered first- class mail, next-day air courier or telecopier: 1. if to a Holder of Registrable Notes or any Participating Broker-Dealer, at the most current address of such Holder or Participating Broker-Dealer, as the case may be, set forth on the records of the registrar under the Indenture, with a copy in like manner to the Initial Purchasers as follows: -40- CIBC WOOD GUNDY SECURITIES CORP. FIRST UNION CAPITAL MARKETS CORP. c/o CIBC Wood Gundy Securities Corp. 424 Lexington Avenue 3rd Floor New York, New York 10017 Facsimile No.: (212) Attention: Corporate Finance Department with a copy to: Cahill Gordon & Reindel 80 Pine Street New York, New York 10005 Facsimile No.: (212) 269-5420 Attention: Roger Meltzer, Esq. 2. if to the Initial Purchasers, at the address specified in Section 10(e)(1); 3. if to the Company, as follows: 1801 Douglas Drive Post Office Box 1410 Sanford, NC 27330 Facsimile No.: (919) 774-3324 Attention: Chief Financial Officer -41- with copies to: Riordan & McKinzie 300 South Grand Avenue Los Angeles, CA 90071 Facsimile No.: (213) 229-8550 Attention: Roger H. Lustberg, Esq. All such notices and communications shall be deemed to have been duly given: when delivered by hand, if personally delivered; five business days after being deposited in the mail, postage prepaid, if mailed; one business day after being timely delivered to a next-day air courier guaranteeing overnight delivery; and when receipt is acknowledged by the addressee, if telecopied. Copies of all such notices, demands or other communications shall be concurrently delivered by the Person giving the same to the Trustee under the Indenture at the address specified in such Indenture. (f) Successors and Assigns. This Agreement shall inure to the benefit ---------------------- of and be binding upon the successors and assigns of each of the parties hereto and the Holders; provided, however, that this Agreement shall not inure to the -------- ------- benefit of or be binding upon a successor or assign of a Holder unless and to the extent such successor or assign holds Registrable Notes. (g) Counterparts. This Agreement may be executed in any number of ------------ counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (h) Headings. The headings in this Agreement are for convenience of -------- reference only and shall not limit or otherwise affect the meaning hereof. -42- (i) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED ------------- IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT. (j) Severability. If any term, provision, covenant or restriction of ------------ this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. (k) Notes Held by any Issuer or Its Affiliates. Whenever the consent ------------------------------------------ or approval of Holders of a specified percentage of Registrable Notes is required hereunder, Registrable Notes held by any Issuer or its affiliates (as such term is defined in Rule 405 under the Securities Act) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage. (l) Third Party Beneficiaries. Holders of Registrable Notes and ------------------------- Participating Broker-Dealers are intended third party beneficiaries of this Agreement and this Agreement may be enforced by such Persons. -43- (m) Entire Agreement. This Agreement, together with the Purchase ---------------- Agreement and the Indenture, is intended by the parties as a final and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein and any and all prior oral or written agreements, representations, or warranties, contracts, understandings, correspondence, conversations and memoranda among the Initial Purchasers on the one hand and the Issuers on the other, or between or among any agents, representatives, parents, subsidiaries, affiliates, predecessors in interest or successors in interest with respect to the subject matter hereof and thereof are merged herein and replaced hereby. (n) Joint and Several Obligations. All of the obligations of the ----------------------------- Issuers hereunder shall be joint and several obligations of each of them. -44- IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. THE PANTRY, INC. /s/ WILLIAM T. FLYG By:____________________________ Name: William T. Flyg Title: Senior V.P., Finance & CFO LIL' CHAMPS FOOD STORES, INC. /s/ WILLIAM T. FLYG By:____________________________ Name: William T. Flyg Title: Executive V.P. & Assistant Secretary CIBC WOOD GUNDY SECURITIES CORP. /s/ PATRICE M. DANIELS By:____________________________ Name: Patrice M. Daniels Title: Managing Director FIRST UNION CAPITAL MARKETS CORP. /s/ ERIC LLOYD By:____________________________ Name: Eric Lloyd Title: Director -45- SANDHILLS, INC. By: /s/ WILLIAM T. FLYG --------------------------------- Name: William T. Flyg Title: Vice President EX-4.7 14 AM. & RESTATED REGISTRATION RIGHTS AGREEMENT EXHIBIT 4.7 AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT THIS AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and entered into as of October 23, 1997 by and between The Pantry, Inc., a Delaware corporation (the "Company"), FS Equity Partners III, L.P., a Delaware limited partnership ("FSEP III"), FS Equity Partners International, L.P., a Delaware limited partnership ("FSEP International"; FSEP III and FSEP International are sometimes collectively referred to herein as the "FS Entities"), Peter J. Sodini, an individual ("Sodini"), Chase Manhattan Capital, L.P., a Delaware limited partnership, as successor to Chase Manhattan Capital Corporation, a Delaware corporation ("CMC"), CB Capital Investors, L.P., a Delaware limited partnership ("CBC"), and Baseball Partners, a New York general partnership ("BP"; CMC, CBC and BP, together with any other member of the Chase Capital Group (as defined herein) to which any of CMC, CBC or BP transfers Registrable Securities (as defined herein), are sometimes collectively referred to herein as the "Chase Entities"). The FS Entities, the Chase Entities and Sodini are sometimes collectively referred to as the "Holders" and individually as the "Holder." R E C I T A L S - - - - - - - - A. The Company, the FS Entities, CMC and BP have previously entered into an Amended and Restated Registration Rights Agreement (the "Common Stock Registration Rights Agreement") dated as of August 19, 1996 with respect to an aggregate of One Hundred Fourteen Thousand Twenty-Nine (114,029) shares of the Company's common stock, par value $0.01 per share (the "Common Stock"), held by such parties; B. Pursuant to that certain Stock Purchase Agreement (the "Stock Purchase Agreement") dated October 23, 1997 entered into by and among the Company, the FS Entities, CBC and Sodini (collectively, the "Purchasers"), the Purchasers have agreed to purchase and the Company has agreed to sell to the Purchasers an aggregate of Seventy-Two Thousand (72,000) shares of Common Stock (all such shares of Common Stock purchased pursuant to the Stock Purchase Agreement, the One Hundred Fourteen Thousand Twenty-Nine (114,029) shares of Common Stock defined as Registrable Securities under the Common Stock Registration Rights Agreement, together with any other securities for which or into which they may be converted or exchanged, shall be referred to herein as the "Registrable Securities"); C. It is a condition precedent to the consummation of the transactions contemplated by the Stock Purchase Agreement that each of the FS Entities, CMC and BP contribute each outstanding share of Series A Preferred Stock, $.01 par value per share of the Company (the "Series A Preferred"), owned by such entity to the capital of the Company pursuant to the terms of that certain Contribution to Capital Agreement dated as of an even date herewith by and among the Company, the FS Entities, CMC and BP (the "Contribution Agreement"); D. Section 17 of that certain Amended and Restated Registration Rights Agreement (the "Series A Registration Rights Agreement") dated as of August 19, 1996 by and among the Company, the FS Entities, CMC and BP, which sets forth certain registration rights with respect to the Series A Preferred, provides that the Series A Registration Rights Agreement may be canceled or discharged by written instrument executed by the Company and the holders of at least fifty percent (50%) of the Registrable Securities, as defined therein, (i) held by the FS Entities and (ii) held by CMC and BP; E. Section 17 of the Common Stock Registration Rights Agreement provides that the Common Stock Registration Rights Agreement may be amended by written instrument executed by the Company and the holders of at least fifty percent (50%) of the Registrable Securities, as defined therein, (i) held by the FS Entities and (ii) held by CMC and BP; F. The Holders collectively own at least fifty percent (50%) of the Registrable Securities, as defined in the Series A Registration Rights Agreement and the Common Stock Registration Rights Agreement, held by each of the FS Entities, CMC and BP, respectively, and hereby desire to terminate the Series A Registration Rights Agreement and to amend and restate the Common Stock Registration Rights Agreement in its entirety; and G. The Board of Directors of the Company (the "Board") has approved this Agreement and the transactions contemplated hereby, upon the terms and subject to the conditions set forth herein. A G R E E M E N T - - - - - - - - - 1. Termination of Series A Registration Rights Agreement. Effective ----------------------------------------------------- as of the date hereof, and simultaneous with the consummation of the transactions contemplated by the Contribution Agreement, the Series A Registration Rights Agreement shall terminate and be of no further force or effect. 2. Restrictions on Transfer. Notwithstanding any provision ------------------------ contained in this Agreement to the contrary, the Registrable Securities shall not be transferable except upon the conditions specified in this Agreement, which conditions are intended, among other things, to insure compliance with the provisions of the Securities Act of 1933, as amended (the "Securities Act"), in respect of the transfer of such Registrable Securities. Each Holder, on the execution and delivery of this Agreement, agrees that such Holder will not transfer the Registrable Securities prior to delivery to the Company of an opinion of counsel (as such opinion and such counsel are described in Section 3 of this Agreement), or until registration of such Registrable Securities under the Securities Act has become effective. 2 3. Opinion of Counsel. In connection with any exercise or transfer ------------------ of the Registrable Securities, the following provisions shall apply: (a) If in the opinion of Riordan & McKinzie, or such other counsel as shall reasonably be approved by the Company, the proposed transfer of Registrable Securities may be effected without registration of such Registrable Securities under the Securities Act, each Holder shall be entitled to transfer such Registrable Securities in accordance with the proposed method of disposition. (b) If, in the opinion of such counsel the proposed transfer of such Registrable Securities may not be effected without registration of such Registrable Securities under the Securities Act, then none of the Holders shall be entitled to transfer such Registrable Securities until such registration is effected. (c) CMC and CBC may transfer Registrable Securities within the "Chase Capital Group" without complying with the above opinion procedures provided that the transferee agrees to be bound by all provisions of this Agreement. "Chase Capital Group" means and includes (a) The Chase Manhattan Corporation, (b) entities that are controlled Affiliates (as defined in Rule 12b-2 of the General Rules and Regulations promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act") of The Chase Manhattan Corporation and (c) entities the majority of the equity owners of which are employees, officers or directors of any of the foregoing. BP may transfer Registrable Securities to a member of the Chase Capital Group in the manner described in Section 6(b) of that certain Amended and Restated Stockholders' Agreement dated as of an even date herewith (the "Stockholders' Agreement") by and among the Company and the Holders. 4. Demand Registration. ------------------- (a) Upon the written request of the Holder or Holders of at least fifty percent (50%) of the Registrable Securities (the "Initiating Holders") the Company shall be obligated to effect the registration under the Securities Act of such Registrable Securities as are requested to be registered by the Initiating Holders, all in accordance with the following provisions of this Agreement, provided that the obligation of the Company to effect such registration shall not be deemed to have been satisfied until the registration statement with respect thereto has become effective under the Securities Act and only so long as no stop order suspending the effectiveness of the registration statement or the qualification or registration of any of the Registrable Securities for sale in any jurisdiction in which the Company shall be required pursuant to Section 6(d) to register or qualify such Registrable Securities shall not have been issued and no proceedings for that purpose shall have been initiated or threatened by the Securities and Exchange Commission (the "Commission") or any similar state agency. Within ten (10) days of the request for registration by the Initiating Holders, the Company shall give written notice of such request to all Holders, who shall be entitled, by written notice to the Company and subject to Section 5(a) hereof, to include shares of Registrable Securities 3 in any registration prepared by the Company pursuant to this Section 4(a). The Company shall not be obligated to effect more than three (3) demand registrations pursuant to this Section 4(a). (b) In addition to the registration rights provided pursuant to Section 4(a) hereof, at any time and from time to time after six months following a firm commitment underwritten initial public offering of the Company's Common Stock (an "IPO"), upon the written request of the Initiating Holders, or at the request of any Holder which agrees to register Registrable Securities having a value of Five Million Dollars ($5,000,000) or more after an IPO, the Company shall be obligated to effect the registration under the Securities Act on Form S-3 (if the Company is then eligible to use such registration form), or any similar short form registration adopted by the Commission for which the Company may then be eligible, of all or any portion of the Registrable Securities held by such Holder, all in accordance with the applicable provisions of this Agreement. (c) Whenever the Company shall be requested by the Initiating Holders pursuant to Section 4(a) or by a Holder pursuant to Section 4(b) to effect the registration of Registrable Securities under the Securities Act, the Company shall, as provided in Section 5, effect the registration under the Securities Act of the Registrable Securities which the Company has been requested to register pursuant to Section 4(a) or (b), all to the extent requisite to permit the disposition by such Holder of the Registrable Securities so registered. (d) In connection with requesting registration of Registrable Securities pursuant to Section 4(a) or (b), if the Initiating Holders or a Holder in the case of Section 4(b) advise the Company that they intend to publicly offer or distribute Registrable Securities to be covered by the registration statement pursuant to a firm commitment underwriting with an investment banking firm or firms selected by the Holders, the Company and any other person entitled to include shares of Common Stock in such registration statement shall enter into the same underwriting agreement with such underwriter or underwriters as shall such Holders, containing representations, warranties and agreements not substantially different from those customarily made by an issuer or selling shareholder in underwriting agreements with respect to secondary distributions. (e) Neither the Company nor any of its security holders (other than the Holders) shall have the right to include any securities of the Company in a registration requested pursuant to Section 4(a) or (b) unless (a) such securities are of the same class as any of the Registrable Securities included in such registration and (b) the offering is either (a) not being underwritten and the Holders of a majority of the Registrable Securities requesting registration consent to such inclusion in writing or (b) a firm commitment underwriting and the managing underwriter has informed the Holders that inclusion of such securities will not adversely affect the price range or the probability of success of the offering and such securities are allocated as provided in Section 4(f) and sold on the same terms and conditions as apply to the Registrable Securities being sold. If any security holders of the Company (other than the 4 Holders) register securities of the Company in a registration in accordance with the provisions of Section 4(a) or (b), such security holders shall pay their pro rata share of the Registration Expenses, as defined below, unless the Company has agreed to pay such expenses and, in the opinion of counsel to the Holders, such payment would not affect the ability of the Registrable Securities to be registered or qualified under the blue sky laws of any jurisdiction. (f) If the Company or any of its security holders request the right to include equity securities in a registration statement filed pursuant to Section 4(a) or (b) and such securities are proposed to be sold in a firm commitment underwritten offering and the managing underwriters advise the Company that, in their opinion, the total number of securities requested to be included in such registration exceeds the number of securities which can be sold in such offering without adversely affecting the price range or probability of success of such offering, the securities to be included in such offering shall include (a) first, all of the Registrable Securities being registered, (b) second, pro rata among the other holders of the Company's securities requesting inclusion in such registration on the basis of the number of shares of securities requested to be registered by such holders and (c) third, such other securities being offered by the Company. 5. "Piggyback" Registrations. ------------------------- (a) If the Company at any time or from time to time after the IPO, proposes to file with the Commission a registration statement under the Securities Act (other than a registration statement on Form S-4 or S-8, or any form substituting therefor, or filed in connection with an exchange offer) for the sale of shares of Common Stock, it will at each such time give written notice to each Holder of its intention so to do. Upon the written request of any Holder, the Company will use its best efforts to cause each Registrable Security which the Company has been requested to register by any Holder, in the aggregate, to be included in such registration statement under the Securities Act, all to the extent required to permit the sale or other disposition by each such Holder of the Registrable Securities so registered. Notwithstanding the foregoing, if the managing underwriter or underwriters, if any, of the offering to be effected pursuant to such registration statement delivers a written opinion to each Holder requesting the registration of Registrable Securities that the total number of shares of Common Stock which it and any other persons or entities intend to include in such offering would adversely affect the price range or probability of success of such offering, then the Company shall include in such registration: (a) first, all securities the Company proposes to sell, and (b) second, all Registrable Securities requested to be included in such registration by any Holders and all securities of the Company requested to be included in such registration by any other holders of Securities who are entitled to include securities in such registration pursuant to written registration rights agreements approved by the Board of Directors of the Company (the "Other Stockholders") in excess of the number of shares of its securities of the Company proposes to sell which, in the opinion of such underwriters, can be sold without adversely affecting the price range or probability of success of such offering (allocated pro rata 5 among such Holders and the Other Stockholders on the basis of the number of shares of such securities requested to be included therein). (b) If all or substantially all of the securities (other than the Registrable Securities) to be registered for sale pursuant to a registration statement, the intention to file which caused a notice to be given pursuant to Section 5(a), are to be offered for sale for the account of the Company and are to be distributed by or through an underwriter or underwriters of recognized standing pursuant to underwriting terms appropriate for such transactions, then each Holder agrees that such Holder shall forbear from selling Registrable Securities to the public (except as part of such underwritten registration) pursuant to a registration statement or pursuant to Rule 144 or 144A under the Securities Act for a period of fourteen (14) business days prior to and one hundred twenty (120) days following the effective date of the registration statement to which reference is made in Section 5(a). (c) Notwithstanding anything contained herein to the contrary, if the FS Entities are permitted to include any Registrable Securities in the IPO then each other Holder shall also be permitted to include a pro rata portion of the Registrable Securities held thereby. 6. Company's Obligations in Registration. If and whenever the ------------------------------------- Company is obligated by the provisions of this Agreement to effect the registration of Registrable Securities under the Securities Act, the Company will, as expeditiously as possible, (a) prepare and file with the Commission a registration statement with respect to such Registrable Securities and use its best efforts to cause such registration statement to become and remain effective during the period required for the distribution of the securities covered by the registration statement, provided that, if the Registrable Securities covered by such registration statement are not to be sold to or through underwriters acting for the Company, the Company shall not be required to keep such registration statement effective, or to prepare and file any amendment or supplement thereto, after the expiration of one hundred eighty (180) days following the date on which such registration statement becomes effective under the Securities Act or such longer period during which the Commission requires that such registration statement be kept effective with respect to any of the Registrable Securities so registered; (b) prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective and to comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities covered by such registration statement, whenever any Holder shall desire to dispose of the same, subject, however, to the proviso contained in Section 6(a) and provided that in any event the Company's obligations under this Section 6(b) shall terminate on the first anniversary of the effective date of any such registration statement; 6 (c) furnish to each Holder such number of copies of such registration statement, each amendment and supplement thereto, the prospectus included in such registration statement (including each preliminary prospectus) and such other documents as such Holder may reasonably request in order to facilitate the disposition of such Registrable Securities; (d) make the Chairman of the Board of Directors of the Company, the Chief Executive Officer and other members of the management of the Company available to cooperate fully in any offering of Registrable Securities hereunder, which cooperation shall include, among other things, the participation of such persons in meetings with potential investors and the assistance of such persons with the preparation of all materials for such investors; (e) use its best efforts to register or qualify the Registrable Securities covered by such registration statement under such other securities or blue sky laws of such jurisdictions as each Holder shall reasonably request, and do any and all other acts and things to so register or qualify which may be necessary or advisable to enable such Holder to consummate the disposition in such jurisdictions of such Registrable Securities; (f) if at any time a prospectus relating to the Registrable Securities covered by such registration statement is required to be delivered under the Securities Act and any event occurs as a result of which the prospectus included in such registration statement as then amended or supplemented would include an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if it is necessary at any time to amend the prospectus to comply with the Securities Act, the Company promptly will prepare and file with the Commission an amendment or supplement which will correct such statement or omission or an amendment which will effect such compliance and shall use its best efforts to cause any amendment of such registration statement containing an amended prospectus to be made effective as soon as possible; and (g) furnish to each Holder at the time of the disposition of Registrable Securities by such Holder an opinion of counsel for the Company, in form and substance satisfactory to such Holder, to the effect that (a) a registration statement covering such Registrable Securities has been filed with the Commission under the Securities Act and has been made effective by order of the Commission, (b) such registration statement and the prospectus contained therein comply in all material respects with the requirements of the Securities Act, and nothing has come to said counsel's attention which would cause it to believe that either such registration statement or the prospectus contains any untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, (c) the prospectus meeting the delivery requirements of the Securities Act is available for delivery, (d) no stop order has been issued by the Commission suspending the 7 effectiveness of such registration statement and, to the best of such counsel's knowledge, no proceedings for the issuance of such a stop order are threatened or contemplated, and (e) there has been compliance with the applicable provisions of the securities or blue sky laws of each jurisdiction in which the Company shall be required pursuant to Section 6(d) hereof to register or qualify such Registrable Securities, assuming the accuracy and completeness of the information furnished to such counsel with respect to each filing related to such laws. 7. Payment of Registration Expenses. The costs and expenses of all -------------------------------- "piggyback" registrations and qualifications under the Securities Act pursuant to Section 5 hereof, all registrations and qualifications under the Securities Act pursuant to Section 4(b) hereof and three (3) demand registrations and qualifications under the Securities Act pursuant to Section 4(a), and of all other actions which the Company is required to take or effect pursuant to this Agreement shall be paid by the Company (including without limitation all registration and filing fees, printing expenses, fees and disbursements of counsel for the Company and for each Holder and expenses of any special audit incident to or required in connection with any such registration) (collectively, "Registration Expenses"), provided that the Company shall not be obligated to pay the underwriters' discount or commission in respect of such Registrable Securities. 8. Information From Each Holder. Notices and requests delivered by ---------------------------- any Holder to the Company pursuant to this Agreement shall contain such information regarding the Holder, such Holder's Registrable Securities and the intended method of disposition thereof as shall reasonably be required in connection with the action to be taken. 9. Restrictions on Public Sale by the Company and Others. The ----------------------------------------------------- Company shall not effect any public sale or distribution of any of its equity securities, or cause to be effected any other registration of such securities (other than securities issued pursuant to an employee benefit plan), during the fourteen (14) business days prior to, and during the one hundred twenty (120)- day period beginning on the effective date of a registration statement covering the Registrable Securities (the "Holdback Period"), and the Company shall cause each holder of its equity securities (other than securities purchased in a registered public offering) issued after November 30, 1995 to agree not to effect any public sale or distribution of any securities during such period, except as part of such registration, if permitted. Each Holder agrees not to effect any public sale or distribution of such securities during any Holdback Period with respect to securities that the Company issued or agreed to be issued prior to November 30, 1995, except pursuant to a registration covering the Registrable Securities effected pursuant to Section 5 hereof. 10. Participation in Underwritten Registrations. No Holder may ------------------------------------------- participate in any underwritten registration hereunder unless such Holder (a) agrees to sell such Holder's securities on the basis provided in any underwriting arrangements approved by the Holders and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting 8 arrangements and this Agreement, provided that (x) if FSEP III, FSEP International or any of their Affiliates, or the Chase Entities or any of their Affiliates participate in such registration, such parties will not be required to make any representations or warranties except those that relate solely to such parties and (y) the liability of FSEP III, FSEP International or any of their Affiliates, and the Chase Entities or any of their Affiliates to any underwriter under such underwriting agreement will be limited to liability arising from misstatements in, or omissions from, written information regarding such parties provided by or on behalf of such parties for inclusion in the prospectus and shall be limited to proceeds received by such Holder from the offering. 11. Company's Indemnification. In the event of any registration ------------------------- under the Securities Act of Registrable Securities pursuant to this Agreement, the Company hereby agrees to indemnify and hold harmless each Holder and each other person, if any, who controls each such Holder within the meaning of Section 15 of the Securities Act and each other person (including any underwriter) who participates in the offering of such Registrable Securities, against any loss, claim, damage or liability, joint or several, to which any Holder or such controlling person or a participating person may become subject under the Securities Act, the Exchange Act or other federal or state law or regulation, at common law or otherwise, to the extent that such loss, claim, damage or liability (or proceeding in respect thereof) arises out of or is based upon any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which such Registrable Securities were registered under the Securities Act, in any preliminary prospectus or final prospectus contained therein, or in any amendment or supplement thereto, or arises out of or is based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse each Holder and each such controlling person or participating person for any legal or other expense reasonably incurred by such Holder or such controlling person or participating person in connection with investigating or defending any such loss, claim, damage, liability or proceeding, provided that the Company will not be liable in any such case to the extent that any such loss, claim, damage, liability or expense arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement, said preliminary or final prospectus or said amendment or supplement in reliance upon and in conformity with written information furnished to the Company by an instrument duly executed by such Holder or such controlling or participating person, as the case may be, specifically for use in the preparation thereof. This indemnity agreement will be in addition to any liability which the Company may otherwise have. 12. Indemnification of Each Holder. It shall be a condition of the ------------------------------ Company's obligation under this Agreement to effect any registration under the Securities Act that there shall have been delivered to the Company an agreement or agreements duly executed by each Holder whereby each Holder, severally but not jointly, agrees to indemnify and hold harmless the Company, each other person referred to in subparts (1), (2) and (3) of Section 11(a) of the Securities Act in respect of such registration statement and each other 9 person, if any, which controls the Company within the meaning of Section 15 of the Securities Act, against any loss, claim, damage or liability, joint or several, to which the Company or such other person or such person controlling the Company may become subject under the Securities Act, the Exchange Act or other federal or state law or regulation, at common law or otherwise, but only to the extent that such loss, claim, damage or liability (or proceeding in respect thereof) arises out of or is based upon any untrue statement or alleged untrue statement of a material fact contained in any registration statement under which such Registrable Securities were registered under the Securities Act, in any preliminary prospectus or final prospectus contained therein or in any amendment or supplement thereto, or arises out of or is based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, which, in each such case, has been made in or omitted from such registration statement, said preliminary or final prospectus or said amendment or supplement in reliance upon and in conformity with written information furnished to the Company by an instrument duly executed by such Holder specifically for use in the preparation thereof. Such indemnification shall be limited to proceeds received by such Holder from the offering. 13. Notification of and Participation in Actions. Promptly after -------------------------------------------- receipt by an indemnified party under this Agreement of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under this Agreement, notify the indemnifying party in writing of the commencement thereof, but the omission so to notify the indemnifying party will not affect the liability of the indemnifying party hereunder except to the extent it is actually prejudiced by such omission and will not relieve it from any liability which it may have to any indemnified party otherwise than under this Agreement. In case any such action is brought against any indemnified party and it notifies an indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate in and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its election so as to assume the defense thereof, the indemnifying party will not be liable to such indemnified party under this Agreement for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation. 14. Contribution. ------------ (a) If the indemnification provided for in this Agreement from the indemnifying party is unavailable to an indemnified party hereunder in respect of any losses, claims, damages or liabilities to which such indemnified party would be otherwise entitled under this Agreement, then the indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities in such proportion as is appropriate to reflect the relative fault of the indemnifying party and the indemnified parties in connection with the 10 actions which resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative fault of such indemnifying party and indemnified parties shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact, has been made by, or relates to information supplied by, such indemnifying party or indemnified parties, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such action. The amount paid or payable by a party as a result of the losses, claims, damages and liabilities referred to above shall be deemed to include any legal or other fees or expenses reasonably incurred by such party in connection with any investigation or proceeding. In no event shall any Holder be required to contribute an amount greater than the dollar amount of the net proceeds received by such Holder with respect to the sale of Registrable Securities to which such losses, claims, damages or liabilities relates. (b) The Company and each Holder agree that it would not be just and equitable if contribution pursuant to this Agreement were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. Neither the Company nor any Holder, if guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act), shall be entitled to contribution. The contribution provided for in this Agreement shall survive the transfer of the Registrable Securities and shall remain in full force and effect regardless of any investigation made by or on behalf of any indemnified party. 15. Public Information. At any time after the Company has completed ------------------ its initial public offering of Common Stock, if any Holder desires to make sales of any Registrable Securities in reliance on Rule 144 promulgated under the Securities Act the Company covenants and agrees that either there will be available adequate current public information with respect to the Company as required by paragraph (c) of said Rule 144 or the Company will use its best efforts to make such information available without delay if such information is not available. Without limiting the foregoing, after the Company has completed its initial public offering of Common Stock, the Company will timely file with the Commission all reports required to be filed under Sections 13 and 15(d) of the Exchange Act and will promptly furnish to each Holder, upon request, a written statement that the Company has complied with all such reporting requirements. 16. Subsequent Offerings of Shares. The Company hereby grants to ------------------------------ each Holder the right of first refusal to purchase, pro rata, all or any part of any Additional Securities, as defined below, which the Company may, from time to time, propose to sell and issue. A Holder's pro rata share, for purposes of this right of first refusal, shall be such Holder's percentage interest in the shares of Common Stock then outstanding (assuming, for purposes of such percentage interest, complete conversion of all outstanding convertible securities and complete exercise of any and all outstanding options and warrants of the Company). This right of first refusal shall be subject to the following provisions: 11 (a) "Additional Securities" shall mean any shares of capital stock of the Company, including any shares of Common Stock or of preferred stock, whether now authorized or not, and any rights, options or warrants to purchase such shares, and securities of any type whatsoever that are, or may become, convertible into such shares, provided that "Additional Securities" do not include (a) any securities that are issued on a proportional basis to all of the holders of Common Stock, (b) any securities that are issued or issuable in connection with any public offering of shares of Common Stock by the Company, (c) any securities issued pursuant to the acquisition of another corporation by the Company, (d) any of the Company's Common Stock (or related options exercisable for such Common Stock) issued to employees, officers and directors of, and consultants to, the Company, pursuant to any arrangement approved by the Board of Directors of the Company, (e) any securities issued upon conversion or exercise of any convertible securities, options or warrants, provided that the rights of first refusal established by this Section 16 first applied or were properly waived with respect to the initial sale or grant by the Company of such convertible securities, options or warrants, (f) any securities issued in connection with any stock split, stock dividend or recapitalization by the Company, and (g) any securities issued in connection with an issuance of debt securities of the Company where the primary purpose of such issuance is to provide debt financing for the Company. (b) In the event the Company proposes to undertake an issuance of Additional Securities, it shall give each Holder written notice of its intention, describing the type of Additional Securities, and the price and terms upon which the Company proposes to issue the same. Each Holder shall have fifteen (15) days from the date of receipt of any such notice to agree to purchase up to such Holder's pro rata share of such Additional Securities for the price and upon the terms specified in the notice by giving written notice to the Company and stating therein the quantity of Additional Securities to be purchased. (c) If a Holder fails to exercise the right of first refusal within such fifteen (15) days period, the Company shall have ninety (90) days thereafter to sell the Additional Securities with respect to which a Holder's option was not exercised, at the price and upon terms no more favorable to the purchasers of such securities than specified in the Company's notice. In the event the Company has not sold the Additional Securities within said ninety (90) day period, the Company shall not thereafter issue or sell any Additional Securities, without first offering such securities to the Holders in the manner provided in Section 16. (d) The rights granted to a Holder under this Section 16 shall terminate (a) upon completion of the Company's initial public offering of Common Stock pursuant to an effective registration statement that results in gross proceeds to the Company of Twenty Million Dollars ($20,000,000) or more or (b) upon the sale by a Holder of more than fifty percent (50%) of the shares of Common Stock held by such Holder on the date of such sale, provided that a transfer within the Chase Capital Group will not count against this 12 limitation if made in accordance with the provisions of Section 6 of the Stockholders Agreement of even date herewith. 17. Amendments. This Agreement may not be amended, supplemented, ---------- canceled or discharged except by written instrument executed by the Company and the holders of at least fifty percent (50%) of the Registrable Securities held by the FS Entities and fifty percent (50%) of the Registrable Securities held by the Chase Entities. 18. Successors and Assigns. This Agreement shall inure to the ---------------------- benefit of and be binding upon the successors and assigns of each of the parties, provided, however, that the registration and other rights set forth in this Agreement may only be assigned to a purchaser of at least fifty percent (50%) of the Registrable Securities held by such party on the date of such sale, provided that the Chase Entities may transfer their rights within the Chase Capital Group subject to and in accordance with the provisions of Section 6 of the Stockholders' Agreement. 19. Counterparts. This Agreement may be executed in one or more ------------ counterparts, all of which shall be considered one and the same Agreement and each of which shall be deemed an original. 20. Governing Law. This Agreement shall be governed by and construed ------------- in accordance with the laws of the State of North Carolina, without regard to principles of conflicts of laws. 21. Entire Agreement. This Agreement is intended by the parties ---------------- hereto as a final expression of their agreement, and is intended to be a complete and exclusive statement of the parties hereto in respect of the subject matter contained herein. This Agreement is intended to and does hereby supersede and restate entirely in all respects the Registration Rights Agreement. 22. Other Registration Rights. The Company will not enter into any ------------------------- agreement granting registration rights with respect to its securities which is in conflict or inconsistent with the rights of the Holders set forth in this Agreement. 23. Waiver of Rights. Each of CMC and BP hereby acknowledges and ---------------- agrees that, notwithstanding its rights under Section 17 of the Common Stock Registration Rights Agreement, it hereby waives any and all rights to acquire any Additional Securities with respect to the transactions contemplated by the Stock Purchase Agreement. 13 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed by an officer or partner thereunto duly authorized, all as of the date first written above. THE PANTRY, INC., a Delaware corporation By: /s/ WILLIAM T. FLYG -------------------------------------------------- Name: William T. Flyg ------------------------------------------- Title: Senior Vice President - Finance and Chief Financial Officer ------------------------------------------- FS EQUITY PARTNERS III, L.P., a Delaware limited partnership By: FS Capital Partners, L.P. Its: General Partner By: FS Holdings, Inc. Its: General Partner By: /s/ WILLIAM M. WARDLAW --------------------------------------- Name: William M. Wardlaw -------------------------------- Title: Vice President -------------------------------- FS EQUITY PARTNERS INTERNATIONAL, L.P., a Delaware limited partnership By: FS&Co. International, L.P. Its: General Partner By: FS International Holdings Limited Its: General Partner By: /s/ WILLIAM M. WARDLAW --------------------------------------- Name: William M. Wardlaw -------------------------------- Title: Vice President -------------------------------- [Signatures continued on following page] 14 [Signatures continued from previous page] CHASE MANHATTAN CAPITAL, L.P. a Delaware limited partnership By: Chase Manhattan Capital Corporation, Its: General Partner By: /s/ DONALD HOFMANN -------------------------------------- Name: Donald Hofmann ------------------------------------- Title: General Partner ------------------------------------- CB CAPITAL INVESTORS, L.P. By: CB Capital Investors, Inc., Its: General Partner By: /s/ DONALD HOFMANN -------------------------------------- Name: Donald Hofmann ------------------------------------- Title: General Partner ------------------------------------- BASEBALL PARTNERS, a New York general partnership By: /s/ CHRISTOPHER BEHRENS -------------------------------------------- Name: Christopher Behrens -------------------------------------- Title: General Partner PETER J. SODINI /s/ PETER J. SODINI -------------------------------------------- Peter J. Sodini 15 EX-4.8 15 AM. & RESTATED STOCKHOLDERS' AGREEMENT Exhibit 4.8 AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT BY AND AMONG THE PANTRY, INC., FS EQUITY PARTNERS III, L.P., FS EQUITY PARTNERS INTERNATIONAL, L.P., CHASE MANHATTAN CAPITAL, L.P., CB CAPITAL INVESTORS, L.P., BASEBALL PARTNERS AND PETER J. SODINI OCTOBER 23, 1997 THIS AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT (this "Agreement") is made and entered into as of October 23, 1997 by and among The Pantry, Inc., a Delaware corporation (the "Company"), FS Equity Partners III, L.P., a Delaware limited partnership ("FSEP III"), FS Equity Partners International, L.P., a Delaware limited partnership ("FSEP International"), Chase Manhattan Capital, L.P., a Delaware limited partnership and successor-in-interest to Chase Manhattan Capital Corporation, a Delaware corporation ("CMC"), CB Capital Investors, L.P., a Delaware limited partnership ("CBC"), Baseball Partners, a New York general partnership ("BP"), and Peter J. Sodini, an individual ("Sodini"). RECITALS 1. The Company, FSEP III, FSEP International, CMC and BP wish to amend and restate that certain Stockholders' Agreement dated as of August 19, 1996 (the "Old Stockholders' Agreement") by and among such parties, as further set forth below. 2. The execution and delivery of this Agreement is a condition to the consummation of the transactions contemplated by that certain Stock Purchase Agreement dated as of an even date herewith by and among the Company, FSEP III, FSEP International, CBC and Sodini. AGREEMENT NOW, THEREFORE, in consideration of the mutual covenants herein contained and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereto agree as follows: 1. Definitions. As used in this Agreement, the following capitalized ----------- terms shall have the following meanings: Affiliate: Such term shall have the meaning set forth in Rule 12b-2 of --------- the General Rules and Regulations promulgated under the Securities Exchange Act of 1934, as amended. Chase Entities: CMC, CBC, BP and any member of the Chase Capital Group -------------- to which any of CMC, CBC or BP transfers shares of Common Stock in accordance with Section 6. Common Stock: The Common Stock, par value $0.01 per share, of the ------------ Company. 1 Employee: Any employee, director or consultant of the Company. -------- FS Entities: FSEP III and FSEP International. ----------- Person: Any individual, corporation, entity, partnership, joint ------ venture, association, joint-stock company, trust, unincorporated organization or government or agency or political subdivision thereof. Public Market Sale: A sale of securities into the public market ------------------ pursuant to Rule 144 or an effective registration statement. SBIC: A Small Business Investment Company licensed by the U.S. Small ---- Business Administration (or any successor agency) (the "SBA") that owns shares of Common Stock. Securities Act: The Securities Act of 1933, as amended. -------------- SEC: Securities and Exchange Commission. --- Voting Securities: All of the outstanding shares of the capital stock ----------------- of the Company then possessing general voting power with respect to the election of directors. 2. Right of First Offer. -------------------- (a) Offer. Subject to Section 6(a), if either Sodini or any of ----- the Chase Entities determines to solicit, or causes to be solicited, proposals for the acquisition (whether by means of a sale of stock, exchange or other method of sale) of any shares of Common Stock, or receives an unsolicited offer to so acquire any such shares and such Person determines to pursue such an offer for the acquisition of such shares, such Person shall first give the FS Entities written notice (the "Notice") of such intention, which notice shall include a term sheet stating, among other material terms, the minimum sales price that such Person would accept for such shares (the "Target Price"). The FS Entities shall have the right for a period of 20 days following the delivery of the Notice (the "Acceptance Period") to accept the offer to purchase all but not less than all such shares at the Target Price and upon the other terms provided with the Notice. (b) Acceptance. The FS Entities shall, if either so desires, ---------- exercise their rights by delivering to such Person written notice of election prior to 5:00 p.m. Los Angeles time on or before the last day of the Acceptance Period. The acceptance of the offer to purchase all such shares of Common Stock shall identify the committed source of financing for such purchase or provide evidence that the FS Entities are able to effect the purchase. Such Person and the FS Entities shall, as soon as reasonably possible, negotiate in good faith a definitive acquisition agreement containing appropriate provisions customary for a 2 transaction of the type contemplated. If no definitive agreement is agreed upon within 30 days after negotiations are so commenced, such Person shall be free to resume its efforts to sell such shares of Common Stock to other prospective buyers, as further set forth in Section 2(c) below. (c) Rejection. If the FS Entities elect not to exercise their --------- purchase rights under Section 2(b) during the Acceptance Period or if such Person and the FS Entities are unable to conclude negotiations of a definitive agreement during the 30-day period described above, such Person shall have the right for a period of 60 days thereafter to sell such shares of Common Stock or, within such 60-day period, to enter into a definitive agreement to sell such shares within 30 days of the date of such agreement for a sales price equal to or greater than the Target Price and upon terms that are not materially less favorable to such Person than the terms provided to the FS Entities in the Notice. (d) Below Target Price Offer. If such Person receives a written ------------------------ offer for such shares of Common Stock at any time during such 60-day period which is acceptable to such Person but is less than the Target Price or upon terms materially less favorable to such Person than the terms provided to the FS Entities in the Notice (the "Below Target Price Offer"), such Person shall promptly deliver a copy of the Below Target Price Offer to the FS Entities. During the 20-day period following delivery of such written offer, the FS Entities shall have the right to accept the offer to purchase all, but not less than all, of such shares of Common Stock on the terms reflected in the Below Target Price Offer. The FS Entities shall, if they so desire, exercise such right by delivering to such Person written notice of election prior to 5:00 p.m. Los Angeles time on or before the final day of such additional 20-day period (and shall identify the committed source of financing or evidence that the FS Entities are able to effect the purchase), and such Person and the FS Entities shall then negotiate a definitive acquisition agreement, in each case in the manner contemplated by Section 2(b) above. If the FS Entities do not elect to accept the offer to purchase such shares on such terms within such 20-day period or if such Person and the FS Entities are unable to conclude negotiations of a definitive agreement within 30 days of the date of the acceptance of the Below Target Price Offer, such Person shall have 60 days to consummate the sale of such shares at a price and upon terms that are not materially less favorable to such Person than the price and terms specified in the Below Target Price Offer. (e) Exempt Transfers. The FS Entities' rights under this Section ---------------- 2 shall not apply to (i) transfers by Sodini or the Chase Entities in connection with a public offering of shares of Common Stock pursuant to a registration statement filed with and declared effective by the SEC, (ii) transfers pursuant to Rule 144 of the Securities Act or (iii) transfers permitted by Section 6 below. (f) Transferees Bound. The obligations of each of Sodini and the ----------------- Chase Entities pursuant to this Section 2 shall be binding upon any transferee of any of the shares of Common Stock held by such Persons, and Sodini and each of the Chase Entities shall 3 obtain and deliver to the FS Entities a written commitment to be bound by such provisions from such transferee prior to any transfer. 3. Obligation to Sell Securities. ----------------------------- (a) Sale Requirement. Subject to Section 6(a), if the FS ---------------- Entities find a third-party buyer, who is not an Affiliate of the FS Entities, for all, but not less than all, of the shares of Common Stock held by the FS Entities (whether such sale is by way of purchase, merger or other form of transaction), upon the request of the FS Entities, Sodini and each of the Chase Entities shall sell all of their respective shares of Common Stock to such third-party buyer pursuant to the terms and conditions negotiated by the FS Entities for the sale of all the shares of Common Stock held by the FS Entities. Sodini and each of the Chase Entities further agrees to timely take such other actions as the FS Entities may reasonably request to enforce each of Sodini's and the Chase Entities' respective obligation to sell his and its shares of Common Stock and otherwise as necessary in connection with the approval of the consummation of such sale, including any approval by the Company's stockholders of such sale. (b) Conditions to Sale Requirement. The obligations of each of ------------------------------ Sodini and the Chase Entities pursuant to this Section 3 are subject to the satisfaction of the following conditions: (i) Upon the consummation of a transaction as described in Section 3(a) (the "Proposed Transaction"), Sodini and the Chase Entities will each receive the same form and amount of consideration per share, or if the FS Entities are given an option as to the form and amount of consideration to be received, Sodini and the Chase Entities will be given the same option; (ii) No FS Entity or Affiliate of an FS Entity who holds any debt or other securities issued by the Company (i.e., securities other than shares of Common Stock) shall, pursuant to the Proposed Transaction, receive in consideration of such debt or other securities an amount greater than the sum of, without duplication, a) the face amount or liquidation value of such securities, plus b) any accrued but unpaid interest or dividends (including cumulative dividends, if applicable) plus c) any prepayment or redemption premium or penalty set forth in the terms of the agreements evidencing such securities; (iii) Neither Sodini nor any Chase Entity shall be obligated to make any out-of-pocket expenditure prior to the consummation of the Proposed Transaction (excluding modest expenditures for postage, copies, etc.) and neither Sodini nor any Chase Entity shall be obligated to pay more than his or its "pro rata share" of reasonable expenses incurred in connection with a consummated Proposed Transaction to the extent such costs are incurred for the 4 benefit of the FS Entities, Sodini and all Chase Entities selling shares of Common Stock and are not otherwise paid by the Company or the third-party (costs incurred by or on behalf of an FS Entity for its sole benefit will not be considered costs of the Proposed Transaction hereunder); (iv) In the event that either Sodini or the Chase Entities are required to make any representations or indemnities in connection with the Proposed Transaction (other than representations and indemnities concerning each such Person's valid ownership of his or its shares of Common Stock, free of all liens and encumbrances (other than those arising under applicable securities laws), and such Person's authority, power, and right to enter into and consummate such purchase or merger agreement without violating any other agreement), then each of Sodini and each Chase Entity shall not be liable with respect to a sale of such shares for more than his or its "pro rata share" of any liability for misrepresentation or indemnity and such liability shall be capped at no more than his or its "pro rata share" of the total purchase price received in such Proposed Transaction by such Person for such shares; and (v) Neither Sodini nor any Chase Entity shall be obligated to take any action, or refrain from taking any action, that he or it reasonably believes will result in his or in its or any of its Affiliates' violation of any law or order. (vi) As used in this Section 3, a "pro rata share" shall mean the ratio of (i) the total number of shares of Common Stock to be sold by such Person in a Proposed Transaction, to (ii) the total number of shares of Common Stock to be sold by all entities in such Proposed Transaction. (c) Transferees Bound. The obligations of each of Sodini and the ----------------- Chase Entities pursuant to this Section 3 shall be binding upon any transferee of any of his or their shares of Common Stock and each of Sodini and each Chase Entity shall obtain and deliver to the FS Entities a written commitment to be bound by such provisions from such transferee prior to any transfer. 4. Tag Along Rights. ---------------- (a) Rights. Neither the FS Entities nor the Chase Entities (each ------ of the foregoing may from time to time be the "Selling Holder") shall sell or otherwise dispose of to any Person (the "Buyer") (other than transfers within the Chase Capital Group pursuant to Section 6) any shares of Common Stock held or beneficially owned by the Selling Holder unless the non-Selling Holder (the "Non-Selling Holder") together with Sodini or any other holder of shares of Common Stock who have rights to participate in sales or other dispositions of such shares by any of the Stockholders pursuant to written agreements by and between such 5 Stockholder and any such holder (collectively, and together with the Non-Selling Holders, the "Co-Sale Right Holders"), are given an opportunity to sell or otherwise dispose of to the Buyer their respective Pro Rata Share (determined in accordance with Section 4(b) below) of any shares of Common Stock held by such Co-Sale Right Holders (the "Tag Along Rights"). (b) TAR Offer. Prior to the consummation by the Selling Holder --------- of any sale or other disposition of the Selling Holder's shares of Common Stock which is subject to the provisions of Section 4(a), the Selling Holder shall cause the bona fide offer from the Buyer to purchase or otherwise acquire such Selling Holder's shares of Common Stock from the Selling Holder to be reduced to writing (the "TAR Offer") and shall deliver written notice of the TAR Offer, together with a true copy of the TAR Offer (the "TAR Notice"), to each of the Co-Sale Right Holders in the event such proposed sale or other disposition is subject to the Tag Along Rights (a "TAR Sale"). Each TAR Offer shall include an offer to purchase or otherwise acquire from each Co-Sale Right Holder (individually, a "TAR Offeree" and collectively, the "TAR Offerees"), at the same time, at the same price and on the same terms as apply to the sale or other disposition by the Selling Holder to the Buyer and according to the terms and subject to the conditions of this Agreement, not less than the amount of the shares of Common Stock held by such TAR Offeree as shall be equal to the product of (i) the total number of shares of Common Stock which the Buyer desires to purchase or otherwise acquire, times (ii) the TAR Offeree's Pro Rata Share, which is a fraction, the numerator of which is the total number of shares of shares of Common Stock subject to the TAR Offer held by such TAR Offeree on the date of the TAR Notice and the denominator of which is the total number of shares of Common Stock held on such date by the Selling Holder and all the TAR Offerees who elect, pursuant to Section 4(c) below, to accept the TAR Offer. Pursuant to Section 4(d), the Selling Holder may then sell to the Buyer the number of shares of Common Stock remaining after the shares of Common Stock to be sold by the TAR Offerees are subtracted from the number of shares of Common Stock to be sold by the Selling Holder as contained in the TAR Offer. (c) Acceptance Notice. If a TAR Offeree desires to accept the ----------------- TAR Offer with respect to his or its shares of Common Stock, such TAR Offeree shall do so by delivering to the Selling Holder a written notice stating such TAR Offeree's irrevocable acceptance of the TAR Offer with respect to such TAR Offeree's shares of Common Stock and setting forth the amount of the shares of Common Stock that such TAR Offeree desires to sell to the Buyer (the "Acceptance Notice"), which Acceptance Notice shall be delivered to the Selling Holder within 20 days after the delivery of the TAR Notice to such TAR Offeree. Such Acceptance Notice shall constitute such TAR Offeree's agreement to sell to the Buyer the lesser of (i) the amount of such TAR Offeree's shares of Common Stock which such TAR Offeree is entitled to sell to the Buyer pursuant to this Section 4 and (ii) the amount of such TAR Offeree's shares of Common Stock which such TAR Offeree desires to sell to the Buyer as set forth in such TAR Offeree's Acceptance Notice. In addition, such Acceptance Notice shall include (i) a written undertaking of the TAR Offeree to deliver, at least three business days prior to the expected date of the consummation of such sale or other disposition to the 6 Buyer as indicated in the TAR Notice, such documents (including stock assignments and stock certificates, if any) as shall be reasonably required to transfer the amount of such TAR Offeree's shares of Common Stock that such TAR Offeree agrees to sell to the Buyer pursuant to the TAR Offer and (ii) a limited power-of-attorney authorizing the Selling Holder to transfer such shares to the Buyer pursuant to the terms of the TAR Offer. If a TAR Offeree does not deliver an Acceptance Notice to the Selling Holder in accordance with the provisions of this Section 4(c), such TAR Offeree shall be deemed to have irrevocably rejected the TAR Offer. (d) Consummation. If there is a decrease in the price to be ------------ paid by the Buyer for the shares of Common Stock to be sold from the price set forth in the TAR Offer, which decrease is acceptable to the Selling Holder or other material change in terms which are less favorable to the Selling Holder but which are acceptable to the Selling Holder, the Selling Holder shall notify the TAR Offerees of such decrease or other material terms, and each TAR Offeree shall have five business days from the date of receipt of the notice of such decrease to reduce the shares of Common Stock he or it will sell to such Buyer as previously indicated in the applicable Acceptance Notice. The Selling Holder shall act as agent for the TAR Offerees in connection with such sale or other disposition and shall cause to be remitted promptly to each of the TAR Offerees the total consideration for the shares of Common Stock sold by such TAR Offeree pursuant thereto, which consideration shall be in the same form as the consideration received by the Selling Holder and shall be net of such TAR Offeree's applicable portion of the expenses of such sale or other disposition, as provided in Section 4(e) below. The Selling Holder shall furnish, or shall cause to be furnished, promptly such other evidence of the consummation and time of consummation of such sale or other disposition and the terms thereof as shall be reasonably requested. If the Selling Holder does not complete such sale or other disposition, the Selling Holder shall return to the TAR Offerees all documents (including stock assignments and stock certificates, if any) and powers-of-attorney which the TAR Offerees delivered to the Selling Holder pursuant to the terms of this Section 4 or otherwise in connection with such sale or other disposition. (e) Expenses. Each Co-Sale Right Holder shall bear such -------- holder's pro rata share of the reasonable expenses incurred by the Selling Holder in connection with any sales or other dispositions of such Co-Sale Right Holder's shares of Common Stock made pursuant to the Tag Along Rights. (f) Exempt Sales. The Tag Along Rights and obligations set ------------ forth in this Section 4 shall not apply to a Public Market Sale. 5. Affiliate Transactions. ---------------------- (a) Neither the Company nor any Affiliate will enter into any transaction with any stockholder of the Company or any Affiliate thereof or with any member of management of the Company unless the terms and conditions of such transaction are no less 7 favorable to the Company or its Affiliate, as the case may be, than would be obtained in a comparable arm's length transaction with an unaffiliated third party. (b) As long as the Chase Entities (or any of them) own shares of Common Stock, no FS Entity or any Affiliate of an FS Entity will be entitled to payment of fees except for services rendered in connection with a material acquisition, merger, divestiture, reorganization or restructuring, provided that such fee is no more favorable to the FS Entity or an Affiliate of the FS Entity than would be available from a nationally recognized investment banking firm, and provided, further, that such fee shall not be payable without the consent of the Majority Chase Entities, as defined below, if the FS Entity is selling its entire interest in an acquisition, merger, reorganization or restructuring transaction. The foregoing shall not prevent payment after the date hereof of a fee of $2,000,000 to an FS Entity or an Affiliate of an FS Entity in connection with the consummation of the transactions contemplated by the Stock Purchase Agreement. 6. Transfers; Transfers Within Chase Capital Group. ----------------------------------------------- (a) Prior to February 18, 1998, no Chase Entity shall sell, assign, transfer, hypothecate, encumber or otherwise dispose of (collectively, a "Transfer") any shares of Common Stock or any right, title or interest therein, without the consent of the FS Entities. Except as otherwise set forth in Section 3, prior to February 18, 1998, no FS Entity shall sell, assign, transfer, hypothecate, encumber or otherwise dispose of any shares of Common Stock, or any right, title or interest therein, without the consent of the Majority Chase Entities. Any attempt to Transfer any shares of Common Stock, or any right, title or interest therein, other than in compliance with this Agreement, shall be null and void, and the Company shall not give effect to any such attempted transaction or transfer. (b) For purposes of this Agreement, "Chase Capital Group" means and includes (i) The Chase Manhattan Corporation, (ii) entities that are Affiliates of The Chase Manhattan Corporation and (iii) entities the majority of the equity owners of which are employees, officers or directors of any of the foregoing. Notwithstanding anything in this Agreement to the contrary, any member of the Chase Capital Group may Transfer its shares of Common Stock to other members of the Chase Capital Group without restriction, provided that any transferee agrees to be bound by provisions in this Agreement, and members of the Chase Capital Group may purchase shares of Common Stock from BP upon the Transfer of such shares of Common Stock by BP to such members, including without limitation, any Transfer resulting from the enforcement of a security interest by Chase in such shares existing as of the date hereof pursuant to the terms of a pledge agreement between Chase and BP (the "Pledge Agreement"), provided that the Transfer of such shares of Common Stock by BP or Chase in connection with the enforcement by Chase of its rights under the Pledge Agreement to any person other than a member of the Chase Capital Group shall be subject to Section 2 hereof, and provided, further, that, to the extent the terms of the Pledge Agreement are contrary to or otherwise inconsistent with the terms of this Agreement, the terms of this Agreement shall 8 supersede all such contrary or inconsistent terms. In the event of a Transfer within the Chase Capital Group, all references to "Chase" or the "Chase Entities" shall thereafter refer to each of the members of the Chase Capital Group with respect to the shares of Common Stock owned by such member. The FS Entities' Tag Along Rights pursuant to Section 4 will not apply to Transfers within the Chase Capital Group, or to Transfers from BP to the Chase Capital Group. 7. Regulatory Compliance Cooperation. --------------------------------- (a) In the event that an SBIC determines that it has a Regulatory Problem (as defined below), the Company agrees to use commercially reasonable efforts to take all such actions as are reasonably requested by such SBIC in order (i) to effectuate and facilitate any transfer by such SBIC of any Securities (as defined below) of the Company then held by such SBIC to any Person designated by such SBIC and approved by the FS Entities (with such approval not to be unreasonably withheld), (ii) to permit such SBIC (or any Affiliate of such SBIC) to exchange all or any portion of the voting Securities then held by such Person on a share-for-share basis for shares of a class of non-voting Securities of the Company, which non-voting Securities shall be identical in all respects to such voting Securities, except that such new Securities shall be non-voting and shall be convertible into voting Securities on such terms as are requested by such SBIC in light of regulatory considerations then prevailing, (iii) to continue and preserve the voting interests with respect to the Company arising out of such SBIC's ownership of voting Securities before the transfers and amendments referred to above (including entering into such additional agreements as are requested by such SBIC to permit any Person(s) designated by such SBIC and approved by the FS Entities (with such approval not to be unreasonably withheld) to exercise any voting power which is relinquished by such SBIC upon any exchange of voting Securities for nonvoting Securities of the Company) and (iv) entering into such additional agreements, adopting such amendments to this Agreement, the Certificate of Incorporation and Bylaws of the Company and other relevant agreements and taking such additional actions, in each case as are reasonably requested by such SBIC in order to effectuate the intent of the foregoing. If an SBIC elects to transfer Securities of the Company to a Regulated Holder (as defined below) in order to avoid a Regulatory Problem, the Company shall enter into such agreements with such Regulated Holder as it may reasonably request in order to assist such Regulated Holder in complying with applicable laws, rules and regulations to which it is subject. Such agreements may include restrictions on the redemption, repurchase or retirement of Securities of the Company that would result or be reasonably expected to result in such Regulated Holder holding more voting securities or total securities (equity and debt) than it is permitted to hold under such regulations. (b) In the event an SBIC has the right to acquire any of the Company's Securities (as the result of a preemptive offer, pro rata offer or otherwise), at such SBIC's request the Company will offer to sell to such SBIC non-voting Securities on the same 9 terms as would have existed had such SBIC acquired the Securities so offered and immediately requested their exchange for non-voting Securities pursuant to paragraph (a) above. (c) In the event that any subsidiary of the Company ever offers to sell any of its Securities to an SBIC, then the Company will cause such subsidiary to enter into agreements with such SBIC substantially similar to this Section 7 and Section 8. (d) For purposes of this Section 7: (i) "Regulated Holder" means any holder of the Company's Securities that is (or that is a subsidiary of a bank holding company that is) subject to the various provisions of Regulation Y of the Board of Governors of the Federal Reserve Systems, 12 C.F.R., Part 225 (or any successor to Regulation Y); (ii) "Regulatory Problem" means (A) any set of facts or circumstances wherein it has been asserted by any governmental regulatory agency (or an SBIC believes that there is a significant risk of such assertion) that such Person (or any bank holding company that controls such Person) is not entitled to hold, or exercise any material right with respect to, all or any portion of the Securities of the Company which such Person holds or (B) when such Person and its Affiliates would own, control or have power (including voting rights) over a greater quantity of Securities of the Company than is permitted under any law or regulation or any requirement of any governmental authority applicable to such Person or to which such Person is subject; and (iii) "Securities" means with respect to any Person, such Person's capital stock or any options, warrants or other Securities which are directly or indirectly convertible into, or exercisable or exchangeable for, such Person's capital stock (whether or not such derivative Securities are issued by the Company). Whenever a reference herein to Securities refers to any derivative Securities, the rights of an SBIC shall apply to such derivative Securities and all underlying Securities directly or indirectly issuable upon conversion, exchange or exercise of such derivative Securities. (e) Any transferee of Securities from Buyer must agree in writing to be bound by all of the provisions of this Agreement. 8. Information Rights and Related Covenants. ---------------------------------------- (a) Within 75 days after the closing of a purchase of shares of Common Stock pursuant to the terms of the Stock Purchase Agreement, the Company shall provide to each SBIC a certificate of its chief financial officer (i) verifying (and describing in 10 reasonable detail) the use of the proceeds of such SBIC's financing and (ii) certifying compliance by the Company with the provisions of this Agreement and any purchase or subscription agreement to which such SBIC is a party. In addition to any other rights granted hereunder, the Company shall provide each SBIC, any Affiliate of such SBIC and the SBA access to its books and records for the purpose of verifying the use of the proceeds of such Person's financing and for all other purposes required by the SBA. (b) Promptly after the end of each fiscal year (but in any event prior to February 28 of each year), the Company shall provide to each SBIC a written assessment, in form and substance satisfactory to such SBIC, of the economic impact of such SBIC's financing hereunder, specifying the full-time equivalent jobs created or retained, the impact of the financing on the Company's business in terms of expanded revenue and taxes and other appropriate economic benefits, including, but not limited to, technology development or commercialization, minority business development, urban or rural business development, expansion of exports and assistance to manufacturing firms. (c) Upon the request of an SBIC or any Affiliates of an SBIC, the Company will (i) provide to such Person such financial statements and other information as such Person may from time to time request for the purpose of assessing the Company's financial condition and (ii) furnish to such Person all information requested by it in order for it to prepare and file SBA Form 468 and any other information requested or required by any governmental agency asserting jurisdiction over such Person. (d) For a period of one year following the date hereof, neither the Company nor any of its subsidiaries will change its business activity if such change would render the Company ineligible to receive financial assistance from a Small Business Investment Company under the Small Business Investment Act and the regulations thereunder. If the Company breaches this covenant, then, in addition to all other remedies available to each SBIC, such SBIC may demand that the Company immediately repurchase all securities acquired by such SBIC at the purchase price paid therefor. (e) The Company will at all times comply with the non- discrimination requirements of 13 C.F.R., Parts 112, 113 and 117. 9. Observer Rights. From and after August 19, 1996, the Chase --------------- Entities shall no longer be entitled to designate one non-voting observer (the "Observer") to be admitted to each meeting of the Board of Directors of the Company and each subsidiary, including telephonic meetings. 10. Representation on the Board of Directors. Subject to the ---------------------------------------- terms and conditions of this Section 10, and provided that the Chase Entities own at least ten percent (10%) of the outstanding Common Stock of the Company, at each annual or special meeting of stockholders of Company, or in any written consent executed in lieu of a stockholder meeting, 11 at or pursuant to which persons are being elected to fill positions on the Board of Directors of Company, each of the FS Entities and the Chase Entities agrees to exercise, or cause to be exercised, voting rights with respect to Voting Securities then owned or held of record by such entity in such a manner that a candidate designated by a majority vote of the shares of Common Stock held by the Chase Entities (the "Majority Chase Entities") shall be elected to fill and continue to hold one of the positions on the Board of Directors of the Company. If at any time from and after the date hereof, the Majority Chase Entities shall notify the FS Entities of its desire to remove any director previously designated by the Majority Chase Entities to serve on the Board of Directors of the Company, each of the FS Entities agrees to exercise or cause to be exercised voting rights with respect to Voting Securities owned or held of record by such entity so as to remove such director of the Company. If at any time from and after the date hereof, any director previously designated by the Majority Chase Entities to serve on the Board of Directors of the Company ceases to be a director (whether by reason of death, resignation, removal or otherwise), the Majority Chase Entities shall be entitled to designate a successor director to fill the vacancy created thereby, and each of the FS Entities agrees to exercise its voting rights with respect to Voting Securities owned or held of record by such entity so as to elect such designee as a director of Company. The Majority Chase Entities may not assign their rights pursuant to this Section 10 and such rights will terminate if the Majority Chase Entities hold less than ten percent (10%) of the Company's outstanding Common Stock. 11. Copy of Agreement. A copy of this Agreement and all amendments ----------------- hereto shall be filed with the Secretary of the Company and shall be kept at the principal executive offices of the Company. 12. Governing Law. This Agreement shall be governed by and construed ------------- and enforced in accordance with the laws of the State of Delaware without regard to the conflicts of laws rules thereof. 13. Successors and Assigns. Except for the right set forth in Section ---------------------- 10 of this Agreement, which is not assignable, the FS Entities and the Chase Entities may assign their respective rights under this Agreement in connection with the transfer or sale of at least 50% of the Securities held by each; provided, however, that any such transfer or sale must be in compliance with this Agreement and all applicable federal and state securities laws. Any transferee of Securities will be bound by all obligations of the transferring party hereunder and shall obtain a written undertaking to be so bound prior to any such transfer. Each of the Chase Entities only may assign its rights under this Agreement to only one (1) assignee and such assignee shall not be entitled to further assign such rights. 14. Continuation of Rights and Obligations. All of the FS Entities' -------------------------------------- and the Chase Entities' other rights and obligations shall continue in full force and effect following the Company's initial public offering of shares of Common Stock pursuant to an effective registration statement. 12 15. Amendment and Waiver. This Agreement may be amended, modified or -------------------- supplemented, and compliance with any provision hereof may be waived, only with the written consent of the FS Entities, the Majority Chase Entities and Sodini, and any amendment, modification, supplement or waiver so consented to in writing shall be binding upon the parties hereto and all transferees of shares of Common Stock held by any of the FS Entities, the Majority Chase Entities and Sodini. 16. Interpretation. The headings of the sections contained in this -------------- Agreement are solely for the purpose of reference, are not part of the agreement of the parties and shall not affect the meaning or interpretation of this Agreement. 17. Notices. All notices and other communications provided for or ------- permitted hereunder shall be in writing and shall be deemed to have been duly given if delivered personally or delivered by telecopier (with receipt confirmed) or three (3) days after deposit in the mail, by registered or certified mail (return receipt requested) postage prepaid, (i) if to the FS Entities, at Freeman Spogli & Co. Incorporated, 11100 Santa Monica Boulevard, Suite 1900, Los Angeles, California 90025, Attention: William M. Wardlaw, telecopier: (310) 444-1870, (ii) if to the Chase Entities, at Chase Capital Partners, L.P., 380 Madison Avenue, 12th Floor, New York, New York 10017, Attention: Christopher C. Behrens, telecopier: (212) 622-3101 and (iii) if to Sodini, The Pantry, Inc., 1801 Douglas Drive, Sanford, North Carolina 27330, telecopier: (919) 774-3329 (or at such other address or telecopier number for any party as shall be specified by like notice provided that notices of a change of address or telecopier number shall be effective only upon receipt thereof). 18. Legends. All certificates evidencing shares of Common Stock that ------- are issued to the FS Entities, the Chase Entities and Sodini shall be legended as follows (in addition to any other legend required to be placed thereon): "THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS WITH RESPECT TO THE TRANSFER AND VOTING THEREOF AS SET FORTH IN THAT CERTAIN AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT DATED AS OF OCTOBER 23, 1997, WHICH MAY BE VIEWED AT THE PRINCIPAL PLACE OF BUSINESS OF THE CORPORATION AND A COPY OF WHICH MAY BE OBTAINED FROM THE ISSUER WITHOUT CHARGE UPON WRITTEN REQUEST THEREFOR." 19. Further Assurances. The Company covenants and agrees that it ------------------ will act in good faith to preserve for the FS Entities, the Chase Entities and Sodini the benefits of this Agreement and that it will take no voluntary action to impair the benefits hereof or to avoid or seek to avoid the observance or performance of any of the terms to be observed or performed 13 hereunder or to deny to the FS Entities, the Chase Entities or Sodini any of the benefits or protections contemplated hereby. 20. Injunctive Relief. It is acknowledged that it will be impossible ----------------- to measure in money the damages that would be suffered if the parties hereto fail to comply with any of the obligations herein imposed on them and that, in the event of any such failure, an aggrieved party hereto will be irreparably damaged and will not have an adequate remedy at law. Any such party shall, therefore, be entitled to injunctive relief, including specific performance, to enforce such obligations, and if any action should be brought in equity to enforce any of the provisions of this Agreement, none of the parties hereto shall raise the defense that there is an adequate remedy at law. 21. Counterparts. This Agreement may be executed in two or more ------------ counterparts, each of which shall be deemed an original but all of which shall constitute one and the same instrument. 22. Entire Agreement. This Agreement is intended by the parties ---------------- hereto as a final expression of their agreement, and is intended to be a complete and exclusive statement of the parties hereto in respect of the subject matter contained herein. This Agreement is intended to and does hereby supersede entirely in all respects the Old Stockholders' Agreement, which shall terminate and have no further force or effect. 14 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. THE PANTRY, INC., a Delaware corporation By: /s/ WILLIAM T. FLYG ---------------------------------------- Name: William T. Wardlaw --------------------------------- Title: Senior Vice President - Finance and Chief Financial Officer --------------------------------- FS EQUITY PARTNERS III, L.P., a Delaware limited partnership By: FS Capital Partners, L.P. Its: General Partner By: FS Holdings, Inc. Its: General Partner By: /s/ WILLIAM M. WARDLAW ---------------------------- Name: William M. Wardlaw ----------------------- Title: Vice President ---------------------- FS EQUITY PARTNERS INTERNATIONAL, L.P., a Delaware limited partnership By: FS&Co. International, L.P. Its: General Partner By: FS International Holdings Limited Its: General Partner By: /s/ WILLIAM M. WARDLAW ----------------------------- Name: William M. Wardlaw ---------------------- Title: Vice President ---------------------- 15 CHASE MANHATTAN CAPITAL, L.P. a Delaware limited partnership By: Chase Manhattan Capital Corporation Its: General Partner By: /s/ DONALD HOFMANN ------------------------------ Name: Donald Hofmann ------------------------------ Title: General Partner ------------------------------ CB CAPITAL INVESTORS, L.P., a Delaware limited partnership By: CB Capital Investors, Inc. Its: General Partner By: /s/ DONALD HOFMANN ------------------------------ Name: Donald Hofmann ------------------------------ Title: General Partner ------------------------------ BASEBALL PARTNERS, a New York general partnership By: /s/ CHRISTOPHER BEHRENS ---------------------------------------- Name: Christopher Behrens --------------------------------- Title: General Partner PETER J. SODINI By: /s/ PETER J. SODINI ---------------------------------------- Peter J. Sodini 16 EX-5.1 16 OPINION OF RIORDAN & MCKINZIE EXHIBIT 5.1 RIORDAN & McKINZIE 300 South Grand Avenue, Suite 2900 Los Angeles, California 90071 December 19, 1997 The Pantry, Inc. Post Office Box 1410 1801 Douglas Drive Sanford, North Carolina 27331-1440 Sandhills, Inc. 913 Market Street, Suite 806 Wilmington, Delaware 19801 Lil' Champ Food Stores, Inc. 9143 Phillips Highway, Suite 200 Post Office Box 23180 Jacksonville, Florida 32241-3180 Re: The Pantry, Inc. -- 10 1/4% Senior Subordinated Notes due October 15, 2007 -- Registration Statement on Form S-4 ----------------------------------------------------------- Ladies and Gentlemen: We have acted as counsel to The Pantry, Inc., a Delaware corporation (the "Company"), Sandhills, Inc., a Delaware corporation ("Sandhills'), and Lil' Champ Food Stores, Inc., a Florida corporation ("Lil' Champ"; Sandhills and Lil' Champ shall be collectively referred to as the "Guarantors"), in connection with the registration under the Securities Act of 1933, as amended (the "Securities Act") of, and the offer to exchange, the Company's 10 1/4% Senior Subordinated Notes due October 15, 2007 to be registered with the Securities and Exchange Commission (the "Commission") (the "Exchange Notes"), for its outstanding 10 1/4% Senior Subordinated Notes due October 15, 2007. This opinion is delivered to you in connection with the Registration Statement on Form S-4 (the "Registration Statement") for the aforementioned Exchange Notes and exchange offer, filed as of the date hereof with the Commission under the Securities Act. Capitalized terms used herein without definition shall have the meanings given to them in the Registration Statement. The Pantry, Inc. Sandhills, Inc. Lil' Champ Food Stores, Inc. December 19, 1997 Page 2 In rendering this opinion, we have examined copies identified to our satisfaction as being copies of the Indenture, attached as an exhibit to the Registration Statement, and originals, counterparts or copies identified to our satisfaction as being true copies of such other documents as we have deemed necessary or appropriate to render the opinions given below. We have assumed the authenticity of all documents submitted to us as originals and the conformity to authentic original documents of all documents submitted to us as certified, conformed or photostatic copies. We have investigated such questions of law for the purpose of rendering this opinion as we have deemed necessary. We express no opinion with respect to compliance with state securities laws or with respect to any state or federal fraudulent conveyance statutes. Based upon the foregoing and subject to the qualifications, exceptions and limitations set forth herein, we are of the opinion that, when the Indenture shall become qualified under the Trust Indenture Act of 1939, as amended, and when the Exchange Notes and the Guarantees shall have been duly executed, authenticated and delivered in accordance with the Indenture and the exchange offer contemplated by the Registration Statement, the Exchange Notes and Guarantees will be legally issued and fully paid and constitute the legally valid and binding obligations of the Company and the Guarantors, respectively. To the extent that the obligations of the Company under the Indenture may be dependent upon such matters, we assume for purposes of this opinion that the Trustee is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization; that the Trustee is duly qualified to engage in the activities contemplated by the Indenture; that the Indenture has been duly authorized, executed and delivered by the Trustee and constitutes the valid, binding and enforceable obligation of the Trustee; that the Trustee is in compliance, generally and with respect to acting as a trustee under the Indenture, with all applicable laws and regulations; and that the Trustee has the requisite corporate and legal power and authority to perform its obligations under the Indenture. We advise you that certain members of this firm own interests, directly or indirectly, in a partnership which owns a majority of the stock of the Company. The Pantry, Inc. Sandhills, Inc. Lil' Champ Food Stores, Inc. December 19, 1997 Page 3 We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to this firm under the caption "Legal Matters" in the Prospectus which is a part of the Registration Statement. Very truly yours, /s/ Riordan & McKinzie EX-10.7 17 STOCK PURCHASE AGREEMENT EXHIBIT 10.7 ------------------------------------- STOCK PURCHASE AGREEMENT among THE PANTRY, INC., FS EQUITY PARTNERS III, L.P., FS EQUITY PARTNERS INTERNATIONAL, L.P., CB CAPITAL INVESTORS, L.P. and PETER J. SODINI ------------------------------------- Dated as of October 23, 1997 ------------------------------------- TABLE OF CONTENTS
Page ---- ARTICLE I THE TRANSACTIONS................................ 1 1.1 Purchase and Sale............................... 1 1.2 Purchase Price.................................. 1 1.3 Closing Matters................................. 2 1.4 Time and Place of Closing....................... 2 1.5 Fees and Expenses............................... 2 ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS 2 2.1 Organization.................................... 2 2.2 Authority....................................... 2 2.3 No Violation.................................... 3 2.4 Brokers......................................... 3 2.5 Securities Act Representation................... 4 ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY... 4 3.1 Corporate Organization.......................... 4 3.2 Capital Stock................................... 4 3.3 Newly Issued Shares............................. 5 3.4 Authority....................................... 6 3.5 No Violation.................................... 6 3.6 Litigation...................................... 7 3.7 Financial Statements and SEC Reports............ 7
i TABLE OF CONTENTS (Continued)
Page ---- 3.8 Absence of Certain Changes or Events............ 8 3.9 Brokers; Certain Expenses....................... 8 3.10 Senior Notes Offering Memorandum................ 8 3.11 Small Business Matters.......................... 8 ARTICLE IV COVENANTS AND AGREEMENTS........................ 9 4.1 Efforts to Consummate........................... 9 4.2 Consents........................................ 9 4.3 Delivery of Financial Statements and Other Documents....................................... 10 ARTICLE V CONDITIONS PRECEDENT............................ 11 5.1 Conditions to Each Party's Obligations.......... 11 5.2 Conditions to the Obligations of the Company.... 11 5.3 Conditions to the Obligations of the Purchasers. 11 ARTICLE VI MISCELLANEOUS................................... 12 6.1 Notices......................................... 12 6.2 Headings; Agreement............................. 13 6.3 Publicity....................................... 13 6.4 Entire Agreement................................ 13 6.5 Conveyance Taxes................................ 14 6.6 Assignment...................................... 14
ii TABLE OF CONTENTS (Continued)
Page ---- 6.7 Counterparts.................................... 14 6.8 Amendment....................................... 14 6.9 Governing Law................................... 14 6.10 Third Party Beneficiaries....................... 14 6.11 Limitation of Liability......................... 14
iii EXHIBITS - -------- Exhibit A Amended and Restated Stockholders' Agreement Exhibit B Amended and Restated Registration Rights Agreement Exhibit C Contribution to Capital Agreement SCHEDULES - --------- Schedule A Schedule of Purchasers Schedule B Outstanding Common Stock iv STOCK PURCHASE AGREEMENT ------------------------ STOCK PURCHASE AGREEMENT ("Agreement") dated as of October 23, 1997 among The Pantry, Inc., a Delaware corporation (the "Company"), FS Equity Partners III, L.P., a Delaware limited partnership ("FSEP III"), FS Equity Partners International, L.P., a Delaware limited partnership ("FSEP International"), CB Capital Investors, L.P., a Delaware limited partnership ("Chase"), and Peter J. Sodini, an individual ("Sodini"). FSEP III, FSEP International, Chase and Sodini are sometimes collectively referred to herein as the "Purchasers" and individually as a "Purchaser". R E C I T A L S: - - - - - - - - The Purchasers wish to purchase from the Company an aggregate amount of 72,000 shares of the Company's common stock, par value $.01 per share (the "Common Stock"), for $450.00 per share of Common Stock in the amounts and for the consideration set forth opposite each such Purchaser's name on Schedule A ---------- attached hereto; and The Board of Directors of the Company (the "Board") has approved this Agreement and the transactions contemplated hereby, upon the terms and subject to the conditions set forth herein. A G R E E M E N T: - - - - - - - - - NOW, THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants, agreements and conditions contained herein, the sufficiency of which is hereby acknowledged, and in order to set forth the terms and conditions of the transactions described herein, the parties hereby agree as follows: ARTICLE THE TRANSACTIONS 1.1 Purchase and Sale. Upon the terms and subject to the conditions set ----------------- forth in this Agreement, at the Closing, as defined below, the Purchasers shall purchase from the Company and the Company shall sell to the Purchasers 72,000 shares of Common Stock. 1.2 Purchase Price. The purchase price to be paid by the Purchasers for -------------- the shares of Common Stock acquired hereunder shall be $450.00 per share of Common Stock. 1.3 Closing Matters. At the Closing each Purchaser will wire transfer in --------------- same day funds to the Company the sums set forth opposite such Purchaser's name on Schedule A in payment of the purchase price for the shares of Common Stock to ---------- be purchased by such Purchaser, provided that Sodini may pay a portion of his purchase price in cash and a portion in the form of a promissory note, the terms of which shall be acceptable to Sodini and the Company, and the Company shall deliver a certificate or certificates to such Purchaser, representing the shares of Common Stock purchased thereby. 1.4 Time and Place of Closing. The consummation of the transactions ------------------------- contemplated by this Agreement (the "Closing") shall take place at 10:00 a.m. New York time, at the offices of the Company at 1801 Douglas Drive, Sanford, North Carolina 27330 on the first business day following the satisfaction or waiver of all of the conditions required to be satisfied at or prior to the Closing, as set forth in Article V, or at such other time, place or date as the parties hereto shall agree upon in writing (the "Closing Date"). 1.5 Fees and Expenses. The Company shall on the first business day after ----------------- the Closing Date, pay to FS & Co. Incorporated a transaction fee of Two Million Dollars ($2,000,000), by wire transfer in same day funds. ARTICLE REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS Each Purchaser, severally as to itself only and not as to any other Purchaser, represents and warrants to the Company, to the extent applicable, as follows: 2.1 Organization. Purchaser is a limited partnership duly organized, ------------ validly existing and in good standing under the laws of the State of Delaware. 2.2 Authority. Purchaser has full partnership power and authority to --------- execute and deliver this Agreement, the Amended and Restated Stockholders' Agreement (the "Stockholders' Agreement") the form of which agreement is attached hereto as Exhibit A, the Amended and Restated Registration Rights Agreement, the form of which agreement is attached as Exhibit B hereto (the "Registration Rights Agreement"), and the Contribution to Capital Agreement, the form of which agreement is attached as Exhibit C hereto (the "Contribution Agreement", and, together with the Stockholders' Agreement and the Registation Rights Agreement, the "Ancillary Agreements"), and to consummate the transactions contemplated on its part hereby and thereby. The execution, delivery and performance by Purchaser of this Agreement and each of the Ancillary Agreements and the consummation of the transactions contemplated hereby and thereby have been duly authorized 2 by all necessary action on the part of Purchaser. No other action on the part of Purchaser or its partners is necessary to authorize the execution and delivery of this Agreement or the Ancillary Agreements by Purchaser or the performance by Purchaser of its obligations hereunder or thereunder. Each of this Agreement and each of the Ancillary Agreements has been duly executed and delivered by Purchaser and constitutes a legal, valid and binding agreement of Purchaser, enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium, reorganization or similar laws affecting creditors' rights generally and subject to general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law). Each other agreement to be executed by Purchaser in connection with this Agreement on or prior to the Closing Date will be duly executed and delivered by Purchaser and (assuming due execution and delivery by the other party or parties thereto) will constitute a legal, valid and binding obligation of Purchaser, enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium, reorganization or similar laws affecting creditors' rights generally and subject to general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law) and except to the extent that indemnification with respect to securities laws violations may be held void as against public policy. 2.3 No Violation. The execution and delivery of this Agreement and the ------------ Ancillary Agreements by Purchaser, the performance by Purchaser of his or its obligations hereunder and thereunder and the consummation by him or it of the transactions contemplated hereby and thereby, will not violate any provision of law, rule, regulation, order, writ, judgment, injunction, decree, determination or award applicable to Purchaser, require the consent, waiver, approval, license or authorization of or any filing by Purchaser with any person or governmental authority (other than such consents, waivers, approvals, licenses and authorizations and filings as shall have been or will be timely made or obtained by or on behalf of Purchaser) or violate, result (with or without notice or the passage of time, or both) in a breach of or give rise to the right to accelerate, terminate or cancel any obligation under or constitute (with or without notice or the passage of time, or both) a default under, any of the terms or provisions of any charter or bylaw, partnership agreement, indenture, mortgage, agreement, contract, order, judgment, ordinance, regulation or decree to which Purchaser is subject or by which Purchaser is bound and which would have an adverse effect on the ability of Purchaser to perform his or its obligations under this Agreement and the Ancillary Agreements. 2.4 Brokers. Purchaser has not paid or become obligated to pay any fee or ------- commission to any broker, finder, investment banker or other intermediary in connection with this Agreement, it being acknowledged and agreed that no Purchaser shall be liable to FS & Co. Incorporated or any affiliate thereof with respect to the fee payable by the Company pursuant to Section 1.5. 3 2.5 Securities Act Representation. Purchaser was not formed or organized ----------------------------- for the purpose of purchasing shares of Common Stock and is an "accredited investor" as defined in Rule 501 promulgated as part of Regulation D under the Securities Act of 1933, as amended (the "Securities Act"). Purchaser is not purchasing shares of Common Stock with a view to a distribution or resale of any of such shares in violation of any applicable securities laws. In making his or its decision to invest in shares of Common Stock, such Purchaser has relied upon independent investigations made by such Purchaser and, to the extent believed by him or it to be appropriate, has relied on investigations made by such Purchaser's representatives, including such Purchaser's own legal, accounting, investment, financial, tax and other professional advisors and such Purchaser has been afforded an opportunity to examine all documents and to ask questions of, and to receive answers from, the Company and its representatives concerning the current financial and operational condition of the Company, the Company's prospects, the terms of each of this Agreement and the Ancillary Agreements and the transactions contemplated hereby and thereby and such Purchaser's investment in such shares of Common Stock. ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company represents and warrants, except as disclosed on the schedules (the "Disclosure Schedules") attached hereto, each of which disclosures shall reference the applicable Section hereof to which it applies, to each Purchaser as follows: 3.1 Corporate Organization. The Company is a corporation duly organized, ---------------------- validly existing and in good standing under the laws of the State of Delaware, with all requisite corporate power and authority to own, operate and lease its properties and to carry on its business as it is now being conducted, and is qualified or licensed to do business and is in good standing in each jurisdiction in which the failure to be so qualified or licensed could reasonably be expected, individually or in the aggregate, to have a material and adverse effect upon the financial condition or results of operations of the Company and its subsidiaries, considered as a whole (a "Material Adverse Effect"). 3.2 Capital Stock. (a) As of the date hereof, the authorized capital stock ------------- of the Company consists in its entirety of (i) Three Hundred Thousand (300,000) shares of Common Stock, of which (A) One Hundred Fourteen Thousand Twenty-Nine (114,029) are issued and outstanding and are held of record by the persons and in the amounts set forth on Schedule B hereto, (B) Forty-Six Thousand (46,000) are reserved for issuance upon exercise of two (2) Common Stock Purchase Warrants (the "Warrants") and are held of record by the persons and in the amounts set forth on Schedule B hereto and (C) One Hundred Thirty-Nine 4 Thousand Nine Hundred Seventy-One (139,971) are authorized but unissued and none of which are held by the Company as treasury shares, and (ii) One Hundred Fifty Thousand (150,000) shares of Preferred Stock, of which (A) Fifty Thousand (50,000) shares have been designated as the Series A Preferred Stock of the Company (the "Series A Stock"), of which Twenty-Five Thousand Nine Hundred Ninety-Eight and Six Hundred Twelve Thousandths (25,998.612) shares of Series A Stock are issued and outstanding and none of which are held by the Company as treasury shares and (B) Twenty-Five Thousand (25,000) shares have been designated as the Series B Preferred Stock of the Company (the "Series B Stock"), of which Seventeen Thousand Five Hundred (17,500) shares of Series B Stock are issued and outstanding and none of which are held by the Company as treasury shares. (b) Following the consummation of the transactions contemplated by this Agreement and the Ancillary Agreements, there will be (i) One Hundred Eight-Six Thousand Twenty-Nine (186,029) shares of Common Stock outstanding and Forty-Six Thousand Shares (46,000) of Common Stock reserved for issurance on exercise of the Warrants, (ii) no shares of Series A Stock outstanding, (iii) Seventeen Thousand Five Hundred (17,500) shares of Series B Stock outstanding and (iv) except for the Warrants, no outstanding options, warrants or other similar securities. (c) All of the outstanding shares of capital stock of the Company have been duly authorized and validly issued and are fully paid and non-assessable and free of preemptive rights with respect thereto and were issued in compliance with all applicable federal and state securities laws and regulations. Except with respect to the Stockholders' Agreement, there are no voting trusts or other agreements, arrangements or understandings with respect to the voting of the capital stock of the Company to which the Company is a party or, to the best of the Company's knowledge, to which any other person is a party. Except as contemplated hereby or as set forth in the Disclosure Schedules, there are no preemptive rights, registration rights, subscriptions, options, warrants, rights, convertible securities or other agreements or commitments of any character relating to the issued or unissued capital stock or other securities of the Company (collectively, "Preemptive Rights") and there are no outstanding contractual obligations of the Company to repurchase, redeem or otherwise acquire or sell, issue or otherwise transfer any shares of capital stock. 3.3 Newly Issued Shares. ------------------- (a) The shares of Common Stock sold and issued by the Company to the Purchasers pursuant to the terms of this Agreement have been duly authorized and, when issued as contemplated hereby at the Closing, will be validly issued, fully paid and non-assessable and no person has Preemptive Rights with respect to such shares. At the Closing, the Purchasers will acquire good and marketable title to the shares of Common Stock, free and clear of any and all security interests, liens, claims, pledges, encumbrances or other rights of 5 any kind (collectively, "Encumbrances"), except as may exist under the Stockholders' Agreement, as amended by the Amendment. (b) The shares of Common Stock sold and issued by the Company to the Purchasers pursuant to the terms of this Agreement will be issued in compliance with all applicable federal and state securities laws and regulations. 3.4 Authority. The Company has full corporate power and authority to --------- execute and deliver this Agreement and the Ancillary Agreements to carry out its obligations hereunder and thereunder and to consummate the transactions contemplated on its part hereby and thereby. The execution, delivery and performance by the Company of this Agreement and each Ancillary Agreement and the consummation of the transactions contemplated on its part hereby and thereby have been duly authorized by the Board, and no other corporate proceedings on the part of the Company or its stockholders are necessary to authorize the execution and delivery of this Agreement or the Ancillary Agreements by the Company or to consummate the transactions contemplated on its part hereby or thereby. Each of this Agreement and each of the Ancillary Agreements has been duly executed and delivered by the Company and constitutes a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium, reorganization or similar laws affecting creditors' rights generally and subject to general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law) and except to the extent that indemnification with respect to securities laws violations may be held void as against public policy. 3.5 No Violation. The execution, delivery and performance of this ------------ Agreement and the Ancillary Agreements by the Company and the consummation by it of the transactions contemplated hereby and thereby will not (a) violate any provision of law, rule, regulation, order, writ, judgment, injunction, decree, determination or award applicable to the Company or any of its subsidiaries, (b) require the consent, waiver, approval or authorization of or any filing by the Company or any of its subsidiaries with any person or governmental authority, (c) violate, result (with or without notice or the passage of time, or both) in a breach of, or give rise to the right to terminate, accelerate or cancel any obligation under, or require the payment of any fee, or constitute (with or without notice or the passage of time, or both) a default under, any of the terms or provisions of the charter documents of the Company or any of its subsidiaries, or any indenture, mortgage, lien, order, judgment, ordinance, regulation, decree or other agreement or instrument to which the Company or any of its subsidiaries is subject or bound which could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect or interfere in any way with the Company's ability to consummate the transactions contemplated by this Agreement or the Ancillary Agreements, (d) result in the creation of any Encumbrance upon any property of the Company or any of its subsidiaries which could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect or result in a loss or adverse modification of any license, permit, 6 certificate, franchise or contract granted to or otherwise held by the Company or any of its subsidiaries which could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. 3.6 Litigation. Except as disclosed in the SEC Filings, as defined below, ---------- there are no actions, proceedings, complaints, grievances, investigations or unfair labor practice complaints or grievances or investigations pending or, to the best of the Company's knowledge, threatened, against the Company or any of its subsidiaries, assets or property before any court or governmental or regulatory authority or body or arbitrator, which could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. There are no such actions, proceedings or investigations pending or, to the best knowledge of the Company, threatened against the Company or, to the best knowledge of the Company, pending or threatened against any other party challenging the validity or propriety of the transactions contemplated by this Agreement. Except as disclosed in the SEC Filings, none of the Company or any of its subsidiaries, assets or property is subject to any order, judgment, injunction or decree, which could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. 3.7 Financial Statements and SEC Reports. The Company has delivered to the ------------------------------------ Purchasers true and complete copies of the Company's Annual Report on Form 10-K for the fiscal year ended September 26, 1996 (the "1996 10-K"), as filed with the Securities and Exchange Commission (the "SEC") on December 26, 1996, and all filings made with the SEC since September 26, 1996, including, without limitation, the Company's Quarterly Report on Form 10-Q for the quarter ended December 26, 1996, as filed with the SEC on February 10, 1997, the Company's Quarterly Report on Form 10-Q for the quarter ended March 27, 1997, as filed with the SEC on May 12, 1997, the Company's Quarterly Report on Form 10-Q for the quarter ended June 26, 1997, as filed with the SEC on July 31, 1997, and as amended by a Form 10-Q/A, as filed with the SEC on August 8, 1997, the Company's Current Report on Form 8-K dated September 5, 1997, as filed with the SEC on September 5, 1997, and any financial statements or schedules included or incorporated by reference therein (collectively, the "SEC Filings"). As of their respective dates, the SEC Filings did not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The consolidated financial statements of the Company and its subsidiaries included in the SEC Filings were prepared in accordance with generally accepted accounting principles ("GAAP") applied on a consistent basis (except as may be indicated therein or in the notes thereto and except that the quarterly financial statements do not contain all of the footnote disclosures required by GAAP for annual financial statements) and present fairly the consolidated financial position, results of operations and cash flows of the Company and its subsidiaries as of the dates and for the periods indicated. 7 3.8 Absence of Certain Changes or Events. Since June 26, 1997 the Company ------------------------------------ and its subsidiaries have conducted their respective businesses in the ordinary course and there has not been any 3.9 Brokers; Certain Expenses. Except as set forth in Section 1.5, the ------------------------- Company has not paid or become obligated to pay any fee or commission to any broker, finder, investment banker or other intermediary in connection with any of the transactions contemplated by this Agreement. 3.10 Senior Notes Offering Memorandum. The Company has delivered to the -------------------------------- Purchasers a true and complete copy of the Offering Memorandum dated September 29, 1997, relating to $190,000,000 of Senior Subordinated Notes due 2007 proposed to be issued by the Company (the "Offering Memorandum"). The Offering Memorandum does not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. 3.11 Small Business Matters. ---------------------- (a) The Company, together with its "affiliates" (as that term is defined in Title 13, Code of Federal Regulations, (S) 121.103), is a "small business concern" within the meaning of the Small Business Investment Act of 1958, as amended ("SBIA"), and the regulations thereunder, including Title 13, Code of Federal Regulations (S) 121.301(c). The information set forth in the Small Business Administration Forms 480, 652 and Parts A and B of Form 1031 regarding the Company and its affiliates that have been executed and delivered to Chase is accurate and complete. (b) The proceeds from the sale of Common Stock will be used by the Company for the purposes described in the Offering Memorandum. No portion of such proceeds will be used (i) to provide capital to a corporation licensed under the SBIA, (ii) to acquire farm land, (iii) to fund production of a single item or defined limited number of items, generally over a defined production period, where such production will constitute the majority of the activities of the Company and its subsidiaries (examples include motion pictures and electric generating plants), or (iv) for any purpose contrary to the public interest (including, but not limited to, activities which are in violation of law) or inconsistent with free competitive enterprise, in each case, within the meaning of 13 C.F.R. (S) 107.720. (c) Neither the Company's nor any of its subsidiaries' primary business activity involves, directly or indirectly, providing funds to others, the purchase or discounting of debt obligations, factoring or long-term leasing of equipment with no provision for maintenance or repair, and neither the Company nor any of its subsidiaries is classified under Major Group 65 (Real Estate) of the SIC Manual. The assets of the business of the 8 Company and its subsidiaries (the "Business") will not be reduced or consumed, generally without replacement, as the life of the Business progresses, and the nature of the Business does not require that a stream of cash payments be made to the Business's financing sources, on a basis associated with the continuing sale of assets (examples of such businesses would include real estate development projects and oil and gas wells). See 13 C.F.R. (S) 107.720. (d) The proceeds from the sale of the Common Stock to Chase at the Closing will not be used substantially for a foreign operation, and at Closing or within one year thereafter, no more than 49 percent of the employees or tangible assets of the Company and its subsidiaries will be located outside the United States (unless the Company can show, to the SBA's satisfaction, that the proceeds from the sale of Common Stock to Chase at the Closing will be used for a specific domestic purpose). This subsection (d) does not prohibit such proceeds from being used to acquire foreign materials and equipment or foreign property rights for use or sale in the United States. ARTICLE IV COVENANTS AND AGREEMENTS 4.1 Efforts to Consummate. Upon the terms and subject to the conditions --------------------- herein provided, each of the Purchasers and the Company agrees to use his or its commercially reasonable efforts to take, or cause to be taken, all action, and to do, or cause to be done, all things necessary, proper or advisable to consummate the transactions contemplated by this Agreement and each of the Ancillary Agreements including (a) to lift or rescind any injunction or restraining order or other order adversely affecting the ability of the parties to consummate the transactions contemplated hereby and (b) to fulfill all conditions on his or its part to be fulfilled under this Agreement. In case at any time after the Closing Date any further action is reasonably necessary or desirable to carry out the purposes of this Agreement or any of the Ancillary Agreements, the proper partners, officers or directors of each party to this Agreement or any of the Ancillary Agreements shall take all such reasonably necessary action. No party hereto will take any action for the purpose of delaying, impairing or impeding the receipt of any required consent, authorization, order or approval or the making of any required filing 4.2 Consents. The Company and each of the Purchasers will use his or its -------- reasonable best efforts to obtain all necessary waivers, consents and approvals of all third parties and governmental authorities necessary to the consummation of the transactions contemplated by this Agreement. 9 4.3 Delivery of Financial Statements and Other Documents. So long as the ---------------------------------------------------- Purchasers and/or their respective successors and assigns hold any shares of Common Stock, the Company shall deliver the following financial statements and other documents to such parties: (a) The Company shall deliver to the Purchasers, as soon as practicable, but in any event within ninety (90) days after the end of each fiscal year of the Company, a statement of operations for such fiscal year, a balance sheet of the Company as of the end of such year, and a statement of cash flows for such year, such year-end financial reports to be in reasonable detail and prepared in accordance with GAAP. (b) The Company shall deliver to the Purchasers, as soon as practicable, but in any event within forty-five (45) days after the end of each of the first three (3) quarters of each fiscal year of the Company, an unaudited statement of operations, balance sheet, and statement of cash flows of the Company for such fiscal quarters as of the end of such fiscal quarters. (c) The Company shall deliver to the Purchasers, as soon as practicable, but in any event within thirty (30) days after the end of each month, an unaudited statement of operations, balance sheet, and statement of cash flows of the Company for such month and for the fiscal year-to-date. (d) The Company shall deliver to the Purchasers prior to the close of each fiscal year, an operating budget for the next fiscal year forecasting the Company's revenues, expenses and cash position, prepared on a monthly basis, including balance sheets and sources and applications of funds statements for such months. (e) The Company shall deliver to the Purchasers, as soon as practicable, but in any event within ten (10) days of receipt by the Company, copies of any management letters of the Company's accountants. (f) The Company shall promptly deliver to the Purchasers: notice of any defaults under any material contracts or agreements; notice of any material litigation; and copies of all filings with the SEC. (g) The Company shall deliver to the Purchasers, as soon as practicable, all other information reasonably requested by the Purchasers, where such information is readily available and may be reduced to written form. 10 ARTICLE V CONDITIONS PRECEDENT 5.1 Conditions to Each Party's Obligations. The respective obligations of -------------------------------------- each party to effect the transactions contemplated by this Agreement shall be subject to the conditions that no United States or state governmental authority or other agency or commission or United States or state court of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any statute, rule, regulation, injunction or other order (whether temporary, preliminary, or permanent) which is in effect and has the effect of prohibiting consummation of the transactions contemplated by this Agreement. 5.2 Conditions to the Obligations of the Company. The obligation of the -------------------------------------------- Company to effect the transaction contemplated by this Agreement shall be subject to the fulfillment at or prior to the Closing Date of the following additional conditions: (a) The Purchasers shall have performed in all material respects their obligations under this Agreement required to be performed by them on or prior to the Closing Date pursuant to the terms hereof. (b) The transactions contemplated by the Contribution Agreement shall have been consummated. (c) The Purchasers and BP shall have executed and delivered the Stockholders' Agreement. (d) The Purchasers and BP shall have executed and delivered the Registration Rights Agreement. (e) The representations and warranties of the Purchasers contained in this Agreement shall be true and correct in all material respects at and as of the Closing Date as if made at and as of such date, except to the extent that any such representation or warranty is made as of a specified date in which case such representation and warranty shall have been true and correct as of such date. 5.3 Conditions to the Obligations of the Purchasers. The obligations of ----------------------------------------------- each Purchaser to effect the transactions contemplated by this Agreement shall be subject to the fulfillment at or prior to the Closing Date of the following additional conditions: 11 (a) Each of the Company and the other Purchasers shall have performed in all material respects its obligations under this Agreement required to be performed by it on or prior to the Closing Date pursuant to the terms hereof. (b) The representations and warranties of the Company and each other Purchaser contained in this Agreement shall be true and correct in all material respects at and as of the Closing Date as if made at and as of such date, except to the extent that any such representation or warranty is made as of a specified date in which case such representation or warranty shall have been true and correct as of such date. (c) Each of the Company and the other Purchasers shall have executed and delivered each of the Ancillary Agreements. (d) Each of the Purchasers shall have received such other duly and validly executed documents and instruments in connection with the Closing as are reasonably requested by him or it. (e) All necessary waivers, consents and approvals to or of the transactions contemplated by this Agreement of any third parties or governmental entities shall have been obtained and delivered to the Purchasers. (f) All of the conditions to the closing of the Li'l Champs Acquisition (as defined in the Offering Memorandum) shall have been satisfied or waived. ARTICLE VI MISCELLANEOUS 6.1 Notices. All notices and other communications given or made pursuant ------- hereto shall be in writing and shall be deemed to have been given or made if in writing and delivered personally, sent by commercial carrier or registered or certified mail (postage prepaid, return receipt requested) or transmitted by facsimile to the parties at the following addresses and numbers: (a) If to FSEP III or FSEP International, to: c/o Freeman Spogli & co. 11100 Santa Monica Boulevard Suite 1900 Los Angeles, California 90025 Attention: Mr. William M. Wardlow Facsimile No.: (310) 444-1870 12 (b) If to the Company, to: The Pantry, Inc. 1801 Douglas Drive Sanford, North Carolina 27330 Attention: William Flyg Facsimile No.: (919) 774-3329 (c) If to Chase, to: Chase Manhattan Capital, L.P. 380 Madison Avenue, 12/th/ Floor New York, NY 10017 Attention: Christopher Behrens Facsimile No.: (212) 622-3101 (d) If to Sodini, to: Peter J. Sodini The Pantry, Inc. 1801 Douglas Drive Sanford, North Carolina 27330 Facsimile No.: (919) 774-3329 or at such other addresses as shall be furnished by the parties by like notice, and such notice or communication shall be deemed to have been given or made as of the date actually received. 6.2 Headings; Agreement. The headings contained in this Agreement are ------------------- inserted for convenience only and do not constitute a part of this Agreement. The term "Agreement" for purposes of representations and warranties hereunder shall be deemed to include any Exhibits hereto to be executed and delivered by a party. 6.3 Publicity. So long as this Agreement is in effect, the parties hereto --------- shall not, and shall cause their affiliates not to, issue or cause the publication of any press release or other announcement with respect to the transactions contemplated by this Agreement or the Ancillary Agreements without the consent of the other parties, which consent shall not be unreasonably withheld or delayed. 6.4 Entire Agreement. This Agreement (including any Disclosure Schedules ---------------- and Exhibits hereto) constitutes the entire agreement among the parties and supersedes all other prior agreements and understandings, both written and oral, among the parties, or any of them, with respect to the subject matter hereof. 13 6.5 Conveyance Taxes. The Company agrees to assume liability for and to ---------------- hold the Purchasers harmless against any sales, use, transfer, stamp, stock transfer, real property transfer or gains, and value added taxes, any transfer, registration, recording or other fees, and any similar taxes incurred as a result of the transactions contemplated hereby. 6.6 Assignment. This Agreement and all of the provisions hereof shall be ---------- binding upon and inure to the benefits of the parties hereto and their respective successors and permitted assigns. Except as otherwise provided in the Ancillary Agreements or any Exhibits hereto, and except for an assignment of rights, interests or obligations by Purchasers after the Closing, neither this Agreement nor any of the rights, interests or obligations shall be assigned by any of the parties hereto without the prior written consent of the other parties. 6.7 Counterparts. This Agreement may be executed in one or more ------------ counterparts, all of which shall be considered one and the same agreement and each of which shall be deemed an original. 6.8 Amendment. This Agreement may be amended by the parties hereto. This --------- Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto, provided that after the Closing this Agreement may be amended without each party's written agreement, but no such amendment shall be enforceable against any party which has not signed such amendment. 6.9 Governing Law. The validity and interpretation of this Agreement shall ------------- be governed by the laws of the State of North Carolina, without reference to the conflict of laws principles thereof. 6.10 Third Party Beneficiaries. This Agreement is not intended to confer ------------------------- upon any other person any rights or remedies hereunder. 6.11 Limitation of Liability. In no event shall any partner or ----------------------- representative of any Purchaser or of any partnership which is a partner of any Purchaser or any partner of any such partnership, or any direct or indirect stockholder, officer, director, partner or any other such person, be personally liable for any obligation of any Purchaser under this Agreement. In no event shall recourse with respect to the obligations under this Agreement of any Purchaser be had to the assets or business of any person other than such Purchaser. 14 IN WITNESS WHEREOF, each of the Purchasers and the Company have caused this Agreement to be signed by a duly authorized officer, partner or other person, all as of the date first written above. COMPANY: THE PANTRY, INC., a Delaware corporation By: /s/ WILLIAM T. FLYG --------------------------------------- Name: William T. Flyg --------------------------------- Its: Senior Vice President - Finance and Chief Financial Officer --------------------------------- FSEP III: FS EQUITY PARTNERS III, L.P., a Delaware limited partnership By: FS Capital Partners, L.P. Its: General Partner By: FS Holdings, Inc. Its: General Partner By: /s/ WILLIAM M. WARDLAW ----------------------------- Name: William M. Wardlaw ------------------------ Its: Vice President ------------------------ FSEP INTERNATIONAL: FS EQUITY PARTNERS INTERNATIONAL, L.P., a Delaware limited partnership By: FS&Co. International, L.P. Its: General Partner By: FS International Holdings Limited Its: General Partner By: /s/ WILLIAM M. WARDLAW ---------------------------- Name: William M. Wardlaw ------------------------- Its: Vice President ------------------------ 15 CHASE: CB CAPITAL INVESTORS, L.P., a Delaware limited partnership By: CB Capital Investors, Inc. Its: General Partner By: /s/ DONALD HOFMANN ---------------------------- Name: Donald HOFMANN ------------------------ Its: General Partner ------------------------ SODINI: PETER J. SODINI /s/ PETER J. SODINI --------------------------------------- Peter J. Sodini 16 SCHEDULE A SCHEDULE OF PURCHASERS ----------------------
NUMBER OF SHARES OF NAME OF COMMON STOCK CONSIDERATION PURCHASER PURCHASED PAID - --------- ------ ----------- FSEP III 57,110 $25,699,500 FSEP 2,311 1,039,950 International Chase 11,690 5,260,500 Sodini 889 400,500 ------ ----------- TOTAL: 72,000 $32,400,000 ====== ===========
17 SCHEDULE B OUTSTANDING SHARES OF COMMON STOCK AND EQUIVALENTS Holder Securities Held - ------ --------------- FSEP III 84,331 shares of Common Stock Warrant to purchase 44,221 shares of Common Stock FSEP International 3,382 shares of Common Stock Warrant to purchase 1,779 shares of Common Stock Chase Manhattan Capital, L.P 21,053 shares of Common Stock Baseball Partners 5,263 shares of Common Stock 18 EX-10.8 18 CONTRIBUTION TO CAPITAL AGREEMENT EXHIBIT 10.8 CONTRIBUTION TO CAPITAL AGREEMENT --------------------------------- This CONTRIBUTION TO CAPITAL AGREEMENT (this "Agreement") is made and entered into as of October 23, 1997 by and among The Pantry, Inc., a Delaware corporation (the "Company"), FS Equity Partners III, L.P., a Delaware limited partnership ("FSEP III"), FS Equity Partners International, L.P., a Delaware limited partnership ("FS International"), Chase Manhattan Capital, L.P., a Delaware limited partnership, as predecessor-in-interest to Chase Manhattan Capital Corporation, a Delaware corporation ("Chase"), and Baseball Partners, a New York general partnership ("BP"). FSEP III, FS International, Chase and BP are sometimes collectively referred to as the "Holders" and individually as the "Holder." R E C I T A L S - - - - - - - - A. In connection with their investment in the Company on November 30, 1995, and on August 19, 1996, the Holders received a combination of (i) shares of the Company's common stock, $.01 par value per share (the "Common Stock"), and (ii shares of the Company's Series A Preferred Stock, $.01 par value per share (the "Series A Preferred"). B. The Company and the Holders wish to modify the Company's capital structure by eliminating the Series A Preferred and by treating such capital structure as if the Company had never issued shares of Series A Preferred (the "Restructuring"). C. In connection with the Restructuring, the Holders, being the holders of all of the outstanding shares of the Series A Preferred, have agreed to contribute to the capital of the Company each outstanding share of Series A Preferred held thereby (the "Series A Contribution") and, in connection therewith, to waive all rights and interests in and to any and all outstanding dividends related thereto. A G R E E M E N T - - - - - - - - - NOW, THEREFORE, in consideration of the above-stated premises and such other consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows: 1. Contribution of Series A Preferred. In connection with the ---------------------------------- Restructuring and immediately prior to the closing of the transactions contemplated by that certain Stock Purchase Agreement dated as of an even date herewith, by and among the Company, FSEP III, FS International, Chase and Peter J. Sodini, each Holder shall make the Series A Contribution. Immediately following the Series A Contribution, the Company shall take all steps and necessary and appropriate to complete the Restructuring, including without limitation, the cancellation of all shares of Series A Preferred contributed by the Holders and the elimination of the Series A Preferred from the Company's capital structure. 1 2. Waiver of All Dividends. Pursuant to the Restructuring, the ----------------------- Holders hereby (a) acknowledge and agree that the Company has not declared and will not pay any dividend with respect to the Series A Preferred and (b) waive any and all rights and interests (i) in and to any and all dividends that may be cumulatively due and payable with respect to the Series A Preferred and (ii) that may otherwise arise under to Section 2 of the Certificate of Designation of Preferences of the Series A Preferred Stock of the Company, as amended. 3. Acknowledgement Regarding Warrants. The parties hereto ---------------------------------- acknowledge and agree that, notwithstanding the completion of the Restructuring, no adjustment shall be made to the terms or conditions of the (a) the Common Stock Purchase Warrant dated December 30, 1996, relating to Forty-Four Thousand Two Hundred Twenty-One (44,221) shares of Common Stock issued by the Company in favor of FSEP III or (b) the Common Stock Purchase Warrant dated December 30, 1996 relating to One Thousand Seven Hundred Seventy-Nine (1,779) shares of Common Stock issued by the Company in favor of FSEP International, including without limitation, any adjustment of the exercise price of $380.00 per share or the number of shares issuable pursuant to the terms of either such warrant. 4. Governing Law. This Agreement shall be governed by and construed ------------- in accordance with the laws of the State of Delaware, without regard to principles of conflicts of laws. 5. Counterparts. This Agreement may be executed in one or more ------------ counterparts, all of which shall be considered one and the same Agreement and each of which shall be deemed an original. 2 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first set forth above. THE PANTRY, INC., a Delaware corporation By: /s/ WILLIAM T. FLYG -------------------------------- Name: William T. Flyg ------------------------- Title: Senior Vice President - Finance and ------------------------ Chief Financial Officer FS EQUITY PARTNERS III, L.P., a Delaware limited partnership By: FS Capital Partners, L.P. Its: General Partner By: FS Holdings, Inc. Its: General Partner By: /s/ WILLIAM M. WARDLAW ---------------------------- Name: William M. Wardlaw ---------------------- Title: Vice President --------------------- FS EQUITY PARTNERS INTERNATIONAL, L.P., a Delaware limited partnership By: FS&Co. International, L.P. Its: General Partner By: FS International Holdings Limited Its: General Partner By: /s/ WILLIAM M. WARDLAW ----------------------------- Name: William M. Wardlaw ---------------------- Title: Vice President --------------------- 3 [Signatures continued on following page] 4 [Signatures continued from previous page] CHASE MANHATTAN CAPITAL, L.P. a Delaware limited partnership By: Chase Manhattan Capital Corporation Its: General Partner By: /s/ DONALD HOFMAN ------------------------------------ Name: Donald Hofman ----------------------------- Title: General Partner ----------------------------- BASEBALL PARTNERS, a New York general partnership By: /s/ CHRISTOPHER BEHRENS ------------------------------------ Name: Christopher Behrens ----------------------------- Title: Principal ----------------------------- 5 EX-10.9 19 STOCK PLEDGE AGREEMENT Exhibit 10.9 STOCK PLEDGE AGREEMENT ---------------------- THIS STOCK PLEDGE AGREEMENT (this "Pledge Agreement") is made as of October 23, 1997 by and between Peter J. Sodini, as pledgor ("Pledgor"), and The Pantry, Inc., a Delaware corporation ("Pledgee"). R E C I T A L S: - - - - - - - - A. Pursuant to that certain Stock Purchase Agreement of even date herewith (the "Purchase Agreement") by and among Pledgee, Pledgor and certain other parties thereto, Pledgor has agreed to purchase 889 shares (the "Shares") of the Common Stock, $.01 par value per share, of Pledgee. B. Pursuant to the terms of that certain Secured Promissory Note (the "Note") of even date herewith delivered by Pledgor to Pledgee in partial payment for the Shares, Pledgor has agreed to make payments of principal and interest to Pledgee as provided in the Note. C. Pursuant to the terms of the Purchase Agreement and the Note, Pledgor is required to execute this Pledge Agreement to secure payment in full of all obligations under the Note, whether for principal, interest, fees, expenses or otherwise and to ensure compliance with the terms and conditions of this Pledge Agreement. D. In order to induce Pledgee to make the loan evidenced by the Note and in order to induce Pledgee to sell the Shares pursuant to the Purchase Agreement, Pledgor agrees to have the Shares subject to this Pledge Agreement. A G R E E M E N T: - - - - - - - - - NOW, THEREFORE, in consideration of the foregoing recitals and the mutual covenants and conditions contained herein, the parties hereto agree as follows: 1. Grant of Security Interest. Pledgor hereby grants to Pledgee a -------------------------- security interest in the Shares, pledges and hypothecates the Shares to Pledgee, and deposits the certificates evidencing the Shares (the "Certificates") with Pledgee as collateral security for the payment by Pledgor of all obligations existing under the Note, whether for principal, interest, fees, expenses or otherwise, and the satisfaction of all obligations of Pledgor under this Pledge Agreement. The Certificates, together with one or more stock assignments duly executed in blank with signatures appropriately guaranteed or witnessed, are being delivered herewith to Pledgee, to be retained by Pledgee as the pledgeholder for the Shares. 2. Representations and Warranties of Pledgor. Pledgor represents and ----------------------------------------- warrants to Pledgee that the Shares are free and clear of all claims, mortgages, pledges, liens and other encumbrances of any nature whatsoever, except (a) the liens and restrictions set forth herein and in the Note and (b) any restrictions upon sale and distribution imposed by the Securities Act of 1933, as amended (the "Act"), applicable state securities laws, and that certain Amended and Restated Stockholders' Agreement of even date herewith by and among Pledgee, Pledgor and certain other parties thereto (the "Stockholders' Agreement"). 3. Voting of Shares. So long as there shall exist no Event of ---------------- Default (as hereinafter defined), Pledgor shall be entitled to exercise, as Pledgor deems proper but in a manner not inconsistent with the terms hereof, Pledgor's rights to voting power with respect to the Shares. Pledgee, and not Pledgor, shall be entitled to vote the Shares at any time that there exists an Event of Default. 4. Dividends and Other Distributions. So long as there shall --------------------------------- exist no Event of Default and except as provided in Section 5 of this Pledge Agreement, Pledgor shall be entitled to receive any dividend or other distribution with respect to the Shares. If there exists an Event of Default, such dividend or distribution shall be delivered to Pledgee to be held as additional collateral security under this Pledge Agreement. 5. Stock Dividends. In the event of any dividend or distribution --------------- in shares of capital stock or other securities of Pledgee or any successor or assign of Pledgee which is issued in respect of, in exchange for or in substitution of, the Shares by reason of any stock dividend, stock split, reverse split, recapitalization, reclassification, combination, merger, consolidation or otherwise, the shares or other securities to be distributed to Pledgor shall be held by Pledgee as additional collateral security under this Pledge Agreement and shall be encompassed within the term "Shares" for purposes of this Pledge Agreement. 6. Pledgee's Duties. So long as Pledgee exercises reasonable ---------------- care with respect to the Shares in its possession, Pledgee shall have no liability for any loss or damage to such Shares, and in no event shall Pledgee have liability for any diminution in value of the Shares occasioned by economic or market conditions or events. Pledgee shall be deemed to have exercised reasonable care within the meaning of the preceding sentence if the Shares in its possession are accorded treatment substantially equal to that which Pledgee accords its own property, it being understood that Pledgee shall not have any responsibility under this Pledge Agreement for (a) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relating to the Shares, whether or not Pledgee has or is deemed to have knowledge of such matters, or (b) taking any necessary steps to preserve rights against any person or entity with respect to the Shares. 7. Release from Pledge; Transfers to Permitted Transferees. In ------------------------------------------------------- the event of a purchase of any or all of the Shares pursuant to Section 2 of the Stockholders' Agreement, such Shares shall be released from this Pledge Agreement. 2 No Shares may be Transferred (as defined in the Stockholders' Agreement) unless Pledgor has made payment to Pledgee of all unpaid obligations existing under the Note, whether for principal, interest, fees, expenses or otherwise and all unsatisfied obligations of Pledgor under this Pledge Agreement. Upon receipt by Pledgee of the payment required by this paragraph, the Shares shall be released from this Pledge Agreement. 8. Sale of Collateral. Upon the occurrence of any Event of ------------------ Default ,Pledgee shall have all the rights and remedies of a secured party under the Uniform Commercial Code as in effect in the State of California (the "UCC") and also may, without notice, except as specified below, at its option, sell all or any part of the Shares, for cash, notes or other property upon credit for future delivery or upon such other terms as Pledgee may deem commercially reasonable. Upon such sale, Pledgee, unless prohibited by a provision of any applicable statute, may purchase all or any part of the Shares being sold, free from and discharged of all trusts, claims, rights of redemption and equities of Pledgor. If the proceeds of any sale of the Shares shall be insufficient to pay all amounts due under the Note and satisfy the obligations of Pledgor under the Purchase Agreement and this Pledge Agreement, including collection costs and expenses of such sale, Pledgor shall remain obligated and liable for any deficiency with respect thereto. If, at any time when Pledgee shall determine to exercise its rights to sell all or any part of the Shares pursuant to this Section 8, such Shares, or the part thereof to be sold, shall not be effectively registered under the Act as then in effect or any similar statute then in force, subject to the provisions of Section 9 hereof, Pledgee, in its sole and absolute discretion, is hereby expressly authorized to sell such Shares, or any part thereof, by private sale in such manner and under such circumstances as Pledgee may deem necessary or advisable in order that such sale may be effectuated legally without such registration. Without limiting the generality of the foregoing, Pledgee, in its sole and absolute discretion, may approach and negotiate with a restricted number of potential purchasers to effectuate such sale or restrict such sale to a purchaser or purchasers who shall represent and agree that such purchaser or purchasers are purchasing for its or their own account, for investment only, and not with a view to the distribution or sale of such Shares or any part thereof. Any sale conducted in the manner described in the foregoing sentence shall be deemed to be a sale conducted in a commercially reasonable manner within the meaning of the UCC, and Pledgor hereby consents and agrees that Pledgee shall incur no responsibility or liability for selling all or any part of the Shares at a price which is not unreasonably low, notwithstanding the possibility that a substantially higher price might be realized if the sale were public. Pledgee shall not be obligated to make any sale of the Shares regardless of notice of sale having been given. Pledgee may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and any such sale may, without further notice, be made at the time and place to which it was so adjourned. 9. Redemption of Collateral. Notwithstanding any other provision ------------------------ of this Pledge Agreement, upon the occurrence of an Event of Default, Pledgee shall give Pledgor written notice of the time and place of any public sale or of the time on or after which any private sale or other Transfer is to be made at least five days before the date fixed for any public sale or before the day on or after which any private sale or other Transfer is to be made. Pledgor agrees that, to the 3 extent notice of sale shall be required by law, such five days' notice shall constitute reasonable notification. This notice shall also specify the aggregate outstanding monetary obligations of the Pledgor to Pledgee at the date of such notice (the "Total Obligation"). At any time during such five-day period, Pledgor shall have the right to redeem the Shares by the payment by certified or bank cashier's check of an amount equal to the Total Obligation. 10. Events of Default. At the option of Pledgee, the principal ----------------- balance of the Note and all accrued and unpaid interest thereon, and all other obligations of Pledgor to Pledgee thereunder, under the Purchase Agreement and hereunder, shall become and be immediately due and payable, without notice of default, presentment or demand for payment, protest or notice of nonpayment or dishonor, or other notices or demands of any kind (all of which are hereby expressly waived by Pledgor), upon the occurrence of any of the events set forth below (individually, an "Event of Default"): (a) Pledgor shall fail to make complete payment of any installment of accrued interest under the Note within five days after payment of such installment of accrued interest is due; (b) Pledgor shall fail to make complete payment of principal when due under the Note; (c) Pledgor shall fail to make the prepayment of principal and accrued interest on the Note as required by the fourth paragraph of the Note; or (d) Pledgor shall commit a breach of or default under this Pledge Agreement. 11. Termination. This Pledge Agreement shall terminate only upon ----------- payment to Pledgee of all unpaid obligations existing under the Note, whether for principal, interest, fees, expenses or otherwise and all unsatisfied obligations of Pledgor under the Purchase Agreement and this Pledge Agreement. Upon termination of this Pledge Agreement, Pledgor shall be entitled to the return of the Certificates then held by Pledgee and any other collateral security then held by Pledgee pursuant to Section 4 or 5 of this Pledge Agreement. 12. Cumulation of Remedies; Waiver of Rights. The remedies ---------------------------------------- provided herein in favor of Pledgee shall not be deemed exclusive but shall be cumulative and shall be in addition to all of the remedies in favor of Pledgee existing at law or in equity. Nothing in this Pledge Agreement shall require Pledgee to proceed against or exhaust its remedies against the Shares before proceeding against Pledgor or executing against any other security or collateral securing performance of Pledgor's obligations to Pledgee under the Note, the Purchase Agreement or this Pledge Agreement. No delay on the part of Pledgee in exercising any of its options, powers or rights, or the partial or single exercise thereof, shall constitute a waiver thereof. 4 13. Execution of Endorsements, Assignments, Etc. Upon the ------------------------------------------- occurrence of an Event of Default, Pledgee shall have the right for and in the name, place and stead of Pledgor to execute endorsements, assignments or other instruments of conveyance or transfer with respect to all or any of the Shares and any other shares of the capital stock of Pledgee or other property which is held by Pledgee as collateral security pursuant to this Pledge Agreement. 14. Miscellaneous. ------------- (a) Further Assurances. Each party hereto agrees to ------------------ perform any further acts and execute and deliver any documents which may be reasonably necessary to carry out the intent of this Pledge Agreement. (b) Notice. All notices, requests and other ------ communications hereunder shall be in writing and, if given by telegram, telecopy or telex, shall be deemed to have been validly served, given or delivered when sent, if given by personal delivery, shall be deemed to have been validly served, given or delivered upon actual delivery and, if mailed, shall be deemed to have been validly served, given or delivered three business days after deposit in the United States mail, as registered or certified mail, with proper postage prepaid and addressed to the party or parties to be notified, at the following addresses (or such other address(es) as a party may designate for itself by like notice): If to Pledgee: The Pantry, Inc. 1801 Douglas Drive Sanford, NC 27330 Attention: Chief Financial Officer If to Pledgor: Peter J. Sodini 1112 Silver Oak Court Raleigh, NC 27614 (c) Amendments. This Pledge Agreement may be amended only ---------- by a written agreement executed by the parties hereto. 5 (d) Governing Law. This Pledge Agreement shall be ------------- governed by and construed in accordance with the laws of the State of Delaware. (e) Disputes. In the event of any dispute between the -------- parties arising out of this Pledge Agreement, the prevailing party shall be entitled to recover from the nonprevailing party the reasonable expenses of the prevailing party including, without limitation, reasonable attorneys' fees and expenses. (f) Entire Agreement. This Pledge Agreement and the ---------------- instruments and agreements referred to herein constitute the entire agreement and understanding among the parties pertaining to the subject matter hereof and supersede any and all prior agreements, whether written or oral, relating hereto. (g) Successors and Assigns. Pledgee shall have the right ---------------------- to assign with absolute discretion any or all of its rights and/or obligations and/or delegate any or all of its duties under this Pledge Agreement to any of its affiliates, successors and/or assigns, including, without limitation to any of its banks or lending institutions as collateral security, and this Pledge Agreement shall inure to the benefit of, and be binding upon, such respective affiliates, successors and/or assigns of Pledgee in the same manner and to the same extent as if such affiliates, successors and/or assigns were original parties hereto. Unless specifically provided herein to the contrary, Pledgor may not assign any or all of its rights and/or obligations and/or delegate any or all of its duties under this Pledge Agreement without the prior written consent of Pledgee. Upon an assignment of any or all of Pledgor's rights and/or obligations and/or a delegation of any or all of its duties under this Pledge Agreement in accordance with the terms of this Pledge Agreement, this Pledge Agreement shall inure to the benefit of, and be binding upon, Pledgor's respective affiliates, successors and/or assigns in the same manner and to the same extent as if such affiliates, successors and/or assigns were original parties hereto. (h) Headings. Introductory headings at the beginning of -------- each section andsubsection of this Pledge Agreement are solely for the convenience of the parties and shall not be deemed to be a limitation upon or description of the contents of any such section and subsection of this Pledge Agreement. (i) Counterparts. This Pledge Agreement may be executed ------------ in two counterparts, each of which shall be deemed an original and both of which, when taken together, shall constitute one and the same Pledge Agreement. 6 IN WITNESS WHEREOF, the parties hereto have duly executed this Pledge Agreement as of the day and year first above written. PLEDGEE: THE PANTRY, INC., a Delaware corporation By: /s/ William T. Flyg _______________________ Name: William T. Flyg Title: Senior Vice President-Finance and Chief Financial Officer PLEDGOR: /s/ Peter J. Sodini ___________________________ Peter J. Sodini EX-10.10 20 SECURED PROMISSORY NOTE Exhibit 10.10 SECURED PROMISSORY NOTE ----------------------- $215,050 October 23, 1997 FOR VALUE RECEIVED, the undersigned, Peter J. Sodini ("Borrower") hereby promises to pay to the order of The Pantry, Inc., a Delaware corporation ("Payee"), the principal sum of Two Hundred Fifteen Thousand Fifty dollars ($215,050) together with interest on the unpaid balance of such principal amount from the date hereof at the rate of interest designated by Bankers Trust Company as the prime rate as it may change from time to time (the "Prime Rate"). Any change in the interest rate to be paid on this Promissory Note resulting from a change in the Prime Rate shall be effective on the date of such change. Accrued interest shall be payable quarterly in arrears commencing on the last day of the first December subsequent to the date hereof and continuing on the last day of each succeeding March, June, September and December thereafter until paid in full. The principal balance of, and all accrued and unpaid interest on, this Promissory Note shall be payable in full by Borrower to Payee on that date which is five years from the date hereof. Payments of principal and interest on this Promissory Note shall be made in legal tender of the United States of America and shall be made at the principal executive offices of Payee at 1801 Douglas Drive, Sanford, North Carolina 27330, or at such other place as Payee shall have designated in writing to Borrower. If the date set for any payment of principal or interest on this Promissory Note is a Saturday, Sunday or legal holiday, then such payment shall be due on the next succeeding business day. As of the date hereof, Borrower has purchased certain shares (the "Shares") of the capital stock of Payee pursuant to the terms of that certain Stock Purchase Agreement (the "Purchase Agreement") dated as of even date hereof by and among Payee, Borrower and certain other parties thereto. Payment of this Promissory Note shall be secured by the Shares as provided in that certain Stock Pledge Agreement of even date herewith by and between Payee and Borrower (the "Pledge Agreement"). The principal balance of, and accrued and unpaid interest on, this Promissory Note may be prepaid at any time, in whole or in part, without premium or penalty. In addition, in the event any of the Shares are sold, transferred, assigned, pledged or otherwise disposed of by Borrower to anyone, Borrower shall pay the principal balance of, and accrued but unpaid interest on, this Promissory Note or cause the purchaser(s), to the extent of any principal balance of, and accrued but unpaid interest on, this Promissory Note, to make payment for such Shares directly to Payee and such proceeds shall be applied by Payee to the prepayment of the principal balance of, and accrued and unpaid interest on, this Promissory Note. Any such prepayment shall be first applied to the payment of any accrued and unpaid interest and then to the unpaid balance of the principal amount. In the event Borrower shall (i) fail to make complete payment of any installment of accrued interest under this Promissory Note within five days after payment of such installment of accrued interest is due; (ii) fail to make complete payment of principal when due under this Promissory Note; (iii) fail to make the prepayment of principal and accrued interest on this Promissory Note as required by the fourth paragraph hereof; or (iv) commit a breach of or default under the Pledge Agreement, Payee may accelerate this Promissory Note and declare the entire unpaid principal amount of this Promissory Note and all accrued and unpaid interest hereon to be immediately due and payable and, thereupon, the unpaid principal amount and all such accrued and unpaid interest shall become and be immediately due and payable, without notice of default, presentment or demand for payment, protest or notice of nonpayment or dishonor, or other notices or demands of any kind (all of which are hereby expressly waived by Borrower). The failure of Payee to accelerate this Promissory Note shall not constitute a waiver of any of Payee's rights under this Promissory Note as long as Borrower's default under this Promissory Note or breach of or default under the Pledge Agreement continues. The provisions of this Promissory Note shall be governed by and construed in accordance with the laws of the State of Delaware without regard to the conflicts of law rules thereof. In the event that Payee is required to take any action to collect or otherwise enforce payment of this Promissory Note, Borrower agrees to pay such reasonable attorneys' fees, court costs and other expenses as Payee may incur as a result thereof, whether or not suit is commenced. All notices, requests, demands or other communications under this Promissory Note shall be delivered in accordance with the provisions of Section 6.1(d) of the Purchase Agreement to the address(es) set forth therein. IN WITNESS WHEREOF, this Promissory Note has been duly executed and delivered by Borrower on the date first above written. BORROWER: /s/ Peter J. Sodini _______________________________________ Peter J. Sodini EX-10.11 21 EMPLOYMENT AGREEMENT DATED JUNE 3, 1996 EXHIBIT 10.11 EMPLOYMENT AGREEMENT -------------------- THIS EMPLOYMENT AGREEMENT is made and entered into as of the third of June, 1996 by and between THE PANTRY, INC., a Delaware corporation (the "Corporation"), and Dennis Crook (the "Employee"). W I T N E S S E T H: WHEREAS, the Corporation desires to employ Employee as Senior Vice President -- Administration of the Corporation on the terms and conditions hereinafter set forth, and Employee is desirous of accepting said employment. NOW, THEREFORE, in consideration of the employment of Employee, the mutual terms and conditions set forth below, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: 1. Employment. Subject to the terms and conditions of this Agreement, the ---------- Corporation agrees to employ the Employee in a full time capacity to serve in the Position. Employee will carry out such duties and have such responsibilities as would normally be carried out by the Position in the Corporation, subject to the control of and in accordance with the directives and policies of the Board of Directors of the Corporation. The employment of Employee shall be on a full-time basis, but the Employee may be an investor or otherwise have an interest in other businesses, partnerships and entities so long as the other activities of the Employee do not interfere with the performance of his duties hereunder and so long as such other businesses, partnerships and entities do not cause the Employee to violate the non- competition restrictions of the Agreement, and so long as Employee discloses all such activities to the Board of Directors of the Employer. 2. Term. The Initial Term of this Agreement shall be from April 1, 1996 ---- until March 31, 1998. 3. Compensation. The Corporation shall provide Employee with an annual ------------ salary equal to $150,000 payable in equal monthly installments, or such other schedule established by the Corporation. The annual salary may, at the option of the Board of Directors, be subject to annual increases upon review by the Board of Directors. Any such reviews will be made after completion of the Corporation's fiscal year, with any increases to be retroactive to the first day of the fiscal year. 4. Bonus Program and Other Benefits. Employee shall be eligible to -------------------------------- participate in a manner commensurate with other senior management employees of the Corporation in all benefits or other programs available, to the extent such exist or are sponsored by the Corporation, providing that Employee shall be entitled to three weeks paid vacation per year. Without limiting the generality of the foregoing, Employee shall be entitled to participate in any bonus programs instituted by the Corporation, and any bonuses shall be in addition to the compensation provided for in section 2 hereof. 1 5. Employment Termination Prior To Change In Control. -------------------------------------------------- 5.1 Termination By The Corporation. Prior to a Change in Control (as ------------------------------ defined in Section 6.1 hereof), the Corporation may terminate Employee's employment upon the occurrence of any of the following: (a) At the election of the Corporation for just cause, immediately upon written notice by the Corporation to Employee. For the purpose of this Section 5.1(a), just cause for termination shall be deemed to exist in the event of: (A) the willful and continued failure by Employee to substantially perform his duties with the Corporation after instruction by the Corporation to do so, (B) conduct by the Employee which is demonstrably and materially injurious to the Corporation, monetarily or otherwise, or (C) the conviction of Employee of, or the entry of a pleading of guilty or nolo contendere by Employee to, any crime involving moral turpitude or any felony. (b) Thirty days after the death or disability of Employee. As used in this Section 5, the term "disability" shall mean the inability of Employee, due to a physical or mental disability, for a period of 180 days, during any consecutive 12-month period to perform the services contemplated under this Agreement. A determination of disability shall be made by a physician satisfactory to both Employee and the Corporation. (c) At the election of the Corporation at any time, subject to the provisions of Section 5.3 (b). 5.2 Termination By The Employee. The Employee may terminate his ---------------------------- employment upon 30 days' notice to the Corporation. 5.3 Effect of Termination Prior To Change In Control. ------------------------------------------------ (a) In the event Employee's employment is terminated for just cause pursuant to Section 5.1 (a) or should the Employee terminate his employment pursuant to Section 5.2, the Corporation shall pay to Employee the compensation and benefits otherwise payable to him under Section 2 through the last day of his actual employment by the Corporation. (b) Should Employee's employment be terminated by the Corporation pursuant to Section 5.1 (c), the Employee shall be entitled to salary continuance for the longer of the balance of the Term of this Agreement or one year from the date of the termination of his employment at his then-applicable salary level until such time as Employee engages in other employment, after which Employee shall receive the difference, if any, between his salary level with the Corporation and his new salary. This provision shall survive the Initial Term of this Agreement and shall become void only upon a change of control as set forth in paragraph 6 of this Agreement. 2 (c.) If Employee's employment is terminated by death or because of disability pursuant to Section 5.1(b), the Corporation shall pay to the estate of the Employee or to Employee, as the case may be, the compensation and benefits which would otherwise be payable to Employee up to the end of the month in which the termination of his employment because of death or disability occurs. 6. Employment and Termination Subsequent To A Change of Control. ------------------------------------------------------------ 6.1 Definition of Change of Control. For purposes of this Agreement, a ------------------------------- "Change in Control" shall mean a change in the Board of Directors of the Corporation such that representatives of Freeman, Spogli & Co., incorporated and [ Chase ] or like financial institution do not have voting control, regardless of whether such change occurs during the Initial Term of this Agreement. 6.2 Termination Following Change In Control. Unless Employee's employment --------------------------------------- is terminated: (A) because of Employee's death or disability (as defined in Section 6.2 (i)), (B) by the Corporation for cause as defined in Section 6.2 (ii), (C) by Employee other than for Good Reason as defined in Section 6.2 (iii), upon termination of Employee's employment subsequent to a Change of Control, Employee shall be entitled to salary continuance together with regular benefits for a period of two years from the date or the termination of his employment at his then-applicable salary and benefits level, until such time as Employee engages in other employment, after which Employee shall receive the difference, if any, between his salary level with the Corporation and his new salary. (i) Disability. If, as a result of Employee's incapacity due to physical ---------- or mental illness, he shall have been absent from the full-time performance of his duties with the Corporation for six (6) consecutive months, and within thirty (30) days after written notice of termination is given he shall not have returned to the full-time performance of his duties, Employee's employment may be terminated for "Disability". (ii) Cause. Termination by the Corporation of Employee's employment for ----- "Cause" shall mean termination upon the conviction of Employee of, or the entry of a pleading of guilty or nolo contendere by Employee to, any crime involving moral turpitude or any felony. (iii) Good Reason. Employee shall be entitled to terminate his ----------- employment for Good Reason. For purposes of this Agreement, "Good Reason" shall mean (1) during the twelve (12) month period following a Change in Control, actions by the Corporation which prevent Employee from being able to discharge his duties effectively, or (2) without Employee's express written consent, the occurrence after a Change in Control of any of the following circumstances: 3 (A) the assignment to Employee of any duties inconsistent (except in the nature of a promotion) with the position in the Corporation that he held immediately prior to the Change in Control or a substantial adverse alteration in the nature or status of his position or responsibilities or the conditions of his employment from those in effect immediately prior to the Change in Control; (B) a reduction by the Corporation in Employee's annual base salary as in effect on the date hereof or as the same may be increased from time to time; (C) the Corporation's requiring Employee to be based outside of the State of North Carolina; (D) the failure by the Corporation to pay to Employee any portion of his current compensation or compensation under any deferred compensation program of the Corporation within seven (7) days of the date such compensation is due; (E) the failure by the Corporation to continue in effect any material compensation or benefit plan in which Employee participates immediately prior to the Change in Control unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Corporation to continue the Employee's participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of his participation relative to other participants, than existed at the time of the Change in Control; (F) the failure by the Corporation to continue to provide Employee with benefits substantially similar to those enjoyed by him under any of the Corporation's plans in which he was participating at the time of the Change in Control, the taking of any action by the Corporation which would directly or indirectly materially reduce any of such benefits or deprive Employee of any material fringe benefit enjoyed by him at the time of the Change in Control, or the failure by the Corporation to provide Employee with a minimum of three weeks paid vacation per year; (G) the failure of the Corporation to obtain a satisfactory agreement from any successor to assume and agree to perform this Agreement, as contemplated in Section 11 hereto. Employee's right to terminate his employment pursuant to this Subsection shall not be affected by his incapacity due to physical or mental illness. Employee's continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstances constituting Good Reason hereunder. 4 7. Covenants. ---------- a. Non-competition Covenant. During Employee's employment and ------------------------ extending through the period in which Employee is receiving severance benefits, Employee shall not, either individually or on behalf of another, directly or indirectly, as employer, employee, owner, stockholder, independent contractor, agent, or otherwise enter into or in any manner participate in the convenience store business in North Carolina, South Carolina, Tennessee, Kentucky or Indiana or within any other state in which the Corporation or its affiliates operate ten (10) or more convenience stores upon the date or termination of employment. b. No Interference with Employees. Employee agrees that during ------------------------------ Employee's employment and extending through the period in which Employee is receiving severance benefits, Employee will not directly or indirectly, request or induce any other employee or the Corporation to: (i) terminate employment with the Corporation, or (ii) accept employment with another business entity, or (iii) become engaged in the convenience store business in competition with the Corporation. c. Trade Secrets; Confidential Information. --------------------------------------- i. General. Employee recognizes and acknowledges that Employee will ------- have access to certain highly sensitive, special, unique information of the Corporation that is confidential or proprietary. Employee hereby covenants and agrees not to use or disclose any Confidential Information (as hereinafter defined) or trade secrets except to authorized representatives of the Corporation or except as required by any governmental or judicial authority; provided, however, that the foregoing restrictions shall not apply to items that, through no fault of Employee's, have entered the public domain. ii. Confidential Information. For purposes of this Agreement, ------------------------ "Confidential Information" means any data or information with respect to the business conducted by the Corporation on the date of this Agreement, other than trade secrets, that is material to the Corporation and not generally known by the public. To the extent consistent with the foregoing definition, Confidential Information includes without limitation: (A) reports, pricing, sales manuals and training manuals, selling and pricing procedures, and financing methods of the Corporation, together with any techniques utilized by the Corporation in designing, developing, manufacturing, testing or marketing its products or in performing services for clients, customers and accounts of the Corporation; and (B) the business plans and financial statements, reports and projections of the Corporation. 5 iii. Ownership Return. Employee acknowledges that all trade secrets ----------------- and Confidential Information are and shall remain the sole, exclusive and valuable property of the Corporation and that Employee has and shall acquire no right, title or interest herein. Any and all printed, typed, written or other material which Employee may have or obtain with respect to trade secrets or Confidential Information (including without limitation all copyrights therein) shall be and remain the exclusive property of the Corporation, and any and all material (including any copies) shall, upon request of the Corporation, be promptly delivered by Employee to the Corporation. d. Validity of Covenants. Employee agrees that the restrictive --------------------- covenants contained in this Agreement are reasonably necessary to protect the legitimate business and other interests of the Corporation, are reasonable with respect to time and territory, and do not interfere with the interests of the public. e. Specific Performance. Employee agrees that a breach or violation of -------------------- any of the covenants under this Agreement will result in immediate and irreparable harm to the Corporation in an amount which will be impossible to ascertain at the time of the breach or violation and that the award of monetary damages will not be adequate relief to the Corporation. Therefore, the failure on the part of Employee to perform all of the covenants established by this Agreement shall give rise to a right of the Corporation to obtain enforcement of this Agreement in a court of equity by a decree of specific performance or other injunctive relief. This remedy, however, shall be cumulative and in addition to any other remedy the Corporation may have. 8. Notices. Any and all notices, designations, consents, offers, ------- acceptances, or any other communications provided for herein shall be given in writing and shall be deemed given three (3) days after the date postmarked if sent by first class, United States mail or by registered or certified mail, return receipt requested; or on the date actually received if sent by express mail or other similar overnight delivery or if hand delivered, which shall be addressed to the Corporation at its principal office and to the Employee at his last address as shown on the records of the Corporation. 9. Governing Law. This Agreement shall be subject to and governed by the ------------- laws of the State of North Carolina. 10. Invalid Provision. The invalidity or unenforceability of any ----------------- particular provision of this Agreement shall not affect the other provisions hereof, any this Agreement shall be construed in all respects as if such invalid or unenforceable provisions were omitted. 11. Binding Effect. This Agreement shall be binding upon and insure to -------------- the benefit of the Corporation and Employee and their respective heirs, legal representatives, executors, administrators, successors and assigns. 12. Entire Agreement. ---------------- 6 a. This Agreement constitutes the entire agreement among the parties with respect to the respect to the subject matter hereof and supersedes any and all other agreements, either oral or in writing, among the parties hereto with respect to the subject matter hereof. b. This Agreement may not be changed orally, but may be amended, revoked, changed or modified at any time by a written agreement executed by the Employee and the Corporation. IN WITNESS WHEREOF, this Agreement has been duly executed on the day and year set forth above. THE PANTRY, INC. Peter J. Sodini By: /s/ PETER J. SODINI _________________________________ Title: President and CFO _______________________________ /s/ DENNIS CROOK ____________________________________ (SEAL) Dennis Crook 7 EX-10.12 22 EMPLOYMENT AGREEMENT DATED OCTOBER 1, 1997 EXHIBIT 10.12 EMPLOYMENT AGREEMENT -------------------- THIS EMPLOYMENT AGREEMENT is made and entered into as of the 1st day of October, 1997 by and between THE PANTRY, INC., a Delaware corporation (the "Corporation"), and Peter J. Sodini (the "Employee"). W I T N E S S E T H: WHEREAS, the Corporation desires to employ Employee as President and CEO of the Corporation on the terms and conditions hereinafter set forth, and Employee is desirous of accepting said employment. NOW, THEREFORE, in consideration of the employment of Employee, the mutual terms and conditions set forth below, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: 1. Employment and Term. Subject to the terms and conditions of this ------------------- Agreement, the Corporation agrees to employ the Employee in a full time capacity to serve as President and CEO for a term commencing on October 1, 1997 and ending on September 30, 2000. Employee will carry out faithfully and to the best of his abilities such duties and have such responsibilities as would normally be carried out by the President and CEO of the Corporation, subject to the control of and in accordance with the directives and policies of the Board of Directors of the Corporation. The employment of Employee shall be on a full time basis, but the Employee may be a passive investor or otherwise have a passive interest in other businesses, partnerships and entities so long as such other activities of the Employee do not interfere with the performance of his duties hereunder and so long as such other businesses, partnerships and entities do not cause the Employee to violate the non-competition restrictions of this Agreement. 2. Compensation. The Corporation shall provide Employee with an annual ------------ salary equal to $475,000 payable in equal monthly installments, or such other schedule established by the Corporation. The annual salary may, at the option of the Board of Directors, be subject to annual increases upon review by the Board of Directors. Any such reviews will be made after completion of the Corporation's fiscal year, with any increases to be retroactive to the first day of the fiscal year. 3. Bonus Program and Other Benefits. Employee shall be eligible to -------------------------------- participate in a manner commensurate with other senior management employees of the Corporation in all benefits or other programs available, to the extent such exist or are sponsored by the Corporation. Without limiting the generality of the foregoing, Employee shall participate in an incentive bonus program which shall provide for a payout of a minimum of 25% upon the achievement of goals determined by the Board of Directors. 4. Car Allowance. During the initial term of this Agreement, the ------------- Corporation shall provide Employee with a company car at the commencement of the term of employment under this Agreement. 5. Employment Termination Prior to Change In Control. ------------------------------------------------- 5.1 Termination By The Corporation. Prior to a Change in Control (as ------------------------------ defined in Section 6.1 hereof), the Corporation may terminate Employee's employment upon the occurrence of any of the following: (a) At the election of the Corporation for just cause, immediately upon written notice by the Corporation to Employee. For the purpose of this Section 5.1(a), just cause for termination shall be deemed to exist in the event of: (A) the willful and continued failure by Employee to substantially perform his duties with the Corporation after written instruction by the Corporation to do so, (B) the engaging by Employee in conduct which is demonstrably and materially injurious to the Corporation, (C) the conviction of Employee of, or the entry of a pleading of guilty or nolo contendere by Employee to, any crime involving moral turpitude or any felony, (D) material breach by Employee of any of the terms of this Agreement or (E) gross negligence or willful misconduct in the performance of his duties. (b) Upon death or upon determination of disability of Employee. As used in this Section 5, the term "disability" or "disabled" shall mean the failure of Employee, due to a physical or mental disability, for a period of 180 days, during any consecutive 12-month period to substantially perform the services contemplated under this Agreement. (c) At the election of the Corporation at any time, subject to the provisions of Section 5.3(b). 5.2 Termination By The Employee. The Employee may terminate his --------------------------- employment upon 30 days' notice to the Corporation. 5.3 Effect of Termination Prior To Change In Control. ------------------------------------------------ (a) In the event Employee's employment is terminated pursuant to Sections 5.1(a) or (b) or should the Employee terminate his employment pursuant to Section 5.2, the Corporation shall pay to Employee the compensation and benefits otherwise payable to him under Section 2 through the last day of his actual employment by the Corporation (for termination for just cause or upon death) or his effective date of termination (for termination upon disability). (b) Should Employee's employment be terminated by the Corporation pursuant to Section 5.1(c), the Employee shall be entitled to salary continuance 2 through the term of this Agreement, at his then-applicable salary level until such time as Employee engages in other employment, after which Employee shall receive the difference, if any, between his salary with the Corporation and his new salary. If possible under the provisions of such plan, the Corporation shall continue Employee's medical insurance coverage through the term of this Agreement, upon a termination under Section 5.1(c) until he engages in other employment. In the event Employee is ineligible under such plan, the Corporation shall arrange to provide Employee with substantially similar benefits until he engages in other employment. (c) If Employee's employment is terminated by death or because of disability pursuant to Section 5.1(b), the Corporation shall pay to the estate of the Employee or to Employee, as the case may be, 12 months' compensation (less any amounts paid such individual under any disability plan). 6. Employment and Termination Subsequent To A Change of Control. ------------------------------------------------------------ 6.1 Definition of Change of Control. For purposes of this Agreement, ------------------------------- a "Change in Control" shall mean a change in control of the Corporation of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), whether or not the Corporation is in fact required to comply therewith; provided, that, without limitation, such a change in control shall be deemed to have occurred if: (a) Any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than the Corporation, trustee or other fiduciary holding securities under an employee benefit plan of the Corporation or a corporation owned, directly or indirectly, by the stockholders of the Corporation in substantially the same proportions as their ownership of stock of the Corporation or the existing holders of capital stock of the Corporation as of the date hereof, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Corporation representing more than 50% of the combined voting power of the Corporation's then outstanding securities; or (b) the consummation of a merger or consolidation of the Corporation with any other corporation, other than (i) a merger or consolidation which would result in the voting securities of the Corporation outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 50% of the combined voting securities of the Corporation or such surviving entity outstanding immediately after such merger or consolidation or (ii) a merger or consolidation effected to implement a recapitalization of the Corporation (or similar transaction) in which no "person" (as hereinabove defined and subject to the exceptions contained in such definition) acquires more than 50% of the combined voting power of the Corporation's then outstanding securities. 3 (c) the stockholders of the Corporation approve a plan of complete liquidation of the Corporation or an agreement for the sale or disposition by the Corporation of all or substantially all of the Corporation's assets. 6.2 Termination Following Change In Control. Unless Employee's --------------------------------------- employment is terminated: (a) because of Employee's death or disability (as defined in Section 6.2(i)), (b) by the Corporation for Cause as defined in Section 6.2(ii), (c) by Employee other than for Good Reason as defined in Section 6.2(iii), upon termination of Employee's employment subsequent to a Change of Control, Employee shall be entitled to salary continuance together with regular benefits for eighteen months from the date of the termination of his employment at his then-applicable salary and benefits level, which entitlement shall not be reduced even if Employee shall obtain other employment, provided that no payments shall be made under this Section 6.2 to the extent such payments would constitute "excess parachute payments" under the Internal Revenue Code of 1986, as amended (the "Code") or to the extent the deductibility of such payments is limited under the Code. (i) Disability. If Employee is "disabled" as defined in ---------- Section 5.1(b), and within thirty (30) days after written notice of termination is given he shall not have returned to the full-time performance of his duties, Employee's employment may be terminated. (ii) Cause. Termination by the Corporation of Employee's ----- employment for "Cause" shall mean termination in the event of: (A) the willful and continued failure by Employee to substantially perform his duties with the Corporation after written instruction by the Corporation to do so, (B) the engaging by Employee in conduct which is demonstrably and materially injurious to the Corporation, or (C) the conviction of Employee of, or the entry of a pleading of guilty or nolo contendere by Employee to, any crime involving moral turpitude or any felony. (iii) Good Reason. Employee shall be entitled to terminate ----------- his employment for Good Reason. For purposes of this Agreement, "Good Reason" shall mean (1) during the twelve (12) month period following a Change in Control, a good faith determination by Employee that, as a result of the Change in Control, he is not able to discharge his duties effectively, (2) at such time as a good faith determination is made by the Employee that he cannot carry out his duties consistent with his ethical responsibilities, or (3) 4 without Employee's express written consent, the occurrence after a Change in Control of any of the following circumstances: (A) the assignment to Employee of any duties inconsistent (except in the nature of a promotion) with the position in the Corporation that he held immediately prior to the Change in Control or a substantial adverse alteration in the nature or status of his position or responsibilities or the conditions of his employment from those in effect immediately prior to the Change in Control; (B) a reduction by the Corporation in Employee's annual base salary as in effect on the date hereof or as the same may be increased from time to time; (C) the Corporation's requiring Employee to be based more than twenty-five (25) miles from the Corporation's offices at which he was principally employed immediately prior to the date of the Change in Control; (D) the failure by the Corporation to pay to Employee any portion of his current compensation or compensation under any deferred compensation program of the Corporation within seven (7) days of the date such compensation is due; (E) the failure by the Corporation to continue in effect any material compensation or benefit plan in which Employee participates immediately prior to the Change in Control unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Corporation to continue the Employee's participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of his participation relative to other participants, than existed at the time of the Change in Control; (F) the failure by the Corporation to continue to provide Employee with benefits substantially similar to those enjoyed by him under any of the Corporation's plans in which he was participating at the time of the Change in Control, the taking of any action by the Corporation which would directly or indirectly materially reduce any of such benefits or deprive Employee of any material fringe benefit enjoyed by him at the time of the Change in Control, or the failure by the Corporation to provide Employee with the number of paid vacation days to which he is entitled on the basis of his years of service with the Corporation in accordance with the Corporation's normal vacation policy in effect at the time of the change in control; or (G) the failure of the Corporation to obtain a satisfactory agreement from any successor to assume and agree to perform this Agreement, as contemplated in Section 12 hereto. 5 Employee's right to terminate his employment pursuant to this subsection shall not be affected by his incapacity due to physical or mental illness. Employee's continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason hereunder. 7. Moving Expenses. In the event of any termination of Employee's --------------- employment, other than by the Corporation for "just cause" as defined in Section 5.1(a), Employer shall be entitled to a lump payment of funds sufficient to transport all of Employee's household effects and two automobiles to California. 8. Covenants. --------- (a) Non-competition Covenant. During Employee's employment and ------------------------ extending through the period ending on the later of (A) 18 months after termination or (B) the date in which Employee is no longer receiving severance benefits, Employee shall not, either individually or on behalf of another, directly or indirectly, as employer, employee, owner, stockholder, investor, consultant, independent contractor, agent, or otherwise enter into or in any manner participate in the convenience store business in North Carolina, South Carolina, Tennessee, Georgia, Florida, Kentucky or Indiana or within any other state in which the Corporation or its affiliates operate ten (10) or more convenience stores upon the date of termination of employment. (b) No Interference with Employees. Employee agrees that during ------------------------------ Employee's employment and extending through the period ending on the later of (A) 18 months after termination or (B) the date in which Employee is no longer receiving severance benefits, Employee will not directly or indirectly, request or induce any other employee of the Corporation or its affiliates or any person who was employed by the Corporation or its affiliates in the six months prior to the request or inducement to: (i) terminate employment with the Corporation, or (ii) accept employment with another business entity, or (iii) become engaged in the convenience store business in competition with the Corporation. (c) Trade Secrets; Confidential Information. --------------------------------------- (i) General. Employee recognizes and acknowledges that ------- Employee will have access to certain highly sensitive, special, unique information of the Corporation that is confidential or proprietary. Employee hereby covenants and agrees during the term of this Agreement and at all times thereafter not to use or disclose any Confidential Information (as hereinafter defined) or trade secrets except for the benefit of the Corporation and to authorized representatives of the Corporation or except as required by any governmental or judicial authority; provided, however, that the foregoing restrictions shall not apply to items that, through no fault of Employee's, have entered the public domain. 6 (ii) Confidential Information. For purposes of this ------------------------ Agreement, "Confidential Information" means any data or information with respect to the business conducted by the Corporation, that is material to the Corporation and not generally known by the public. To the extent consistent with the foregoing definition, Confidential Information includes without limitation: (A) reports, pricing, sales manuals and training manuals, selling and pricing procedures, and financing methods of the Corporation, together with any techniques utilized by the Corporation in designing, developing, manufacturing, testing or marketing its products or in performing services for clients, customers and accounts of the Corporation; and (B) the business plans and financial statements, reports and projections of the Corporation. (iii) Ownership Return. Employee acknowledges that all trade ---------------- secrets and Confidential Information are and shall remain the sole, exclusive and valuable property of the Corporation and that Employee has and shall acquire no right, title or interest therein. Any and all printed, typed, written or other material which Employee may have or obtain with respect to trade secrets or Confidential Information (including without limitation all copyrights therein) shall be and remain the exclusive property of the Corporation, and any and all material (including any copies) shall, upon request of the Corporation, be promptly delivered by Employee to the Corporation. (d) Validity of Covenants. Employee agrees that the restrictive --------------------- covenants contained in this Agreement are reasonably necessary to protect the legitimate business and other interests of the Corporation, and reasonable with respect to time and territory, and do not interfere with the interests of the public. (e) Specific Performance. Employee agrees that a breach or -------------------- violation of any of the covenants under this Agreement will result in immediate and irreparable harm to the Corporation in an amount which will be impossible to ascertain at the time of the breach or violation and that the award of monetary damages will not be adequate relief to the Corporation. Therefore, the failure on the part of Employee to perform all of the covenants established by this Agreement shall give rise to a right of the Corporation to obtain enforcement of this Agreement in a court of equity by a decree of specific performance or other injunctive relief. This remedy, however, shall be cumulative and in addition to any other remedy the Corporation may have. 9. Notices. Any and all notices, designations, consents, offers, ------- acceptances, or any other communications provided for herein shall be given in writing and shall be deemed given three (3) days after the date postmarked if sent by first class, United States mail or by registered or certified mail, return receipt requested; or on the date actually received if sent by express mail or other similar overnight delivery or if hand delivered, which shall be addressed to the Corporation at its principal office and to the Employee at his last address as shown on the records of the Corporation. 7 10. Governing Law. This Agreement shall be subject to and governed by the ------------- laws of the State of North Carolina. 11. Invalid Provision. The invalidity or unenforceability of any ----------------- particular provision of this Agreement shall not affect the other provisions hereof, and this Agreement shall be construed in all respects as if such invalid or unenforceable provision were omitted. 12. Binding Effect. This Agreement shall be binding upon and inure to the -------------- benefit of the Corporation and Employee and their respective heirs, legal representatives, executors, administrators, successors and assigns, provided that Employee may not assign his rights or delegate his obligations hereunder. 13. Entire Agreement. ---------------- (a) This Agreement constitutes the entire agreement among the parties with respect to the subject matter hereof and supersedes any and all other agreements, either oral or in writing, among the parties hereto with respect to the subject matter hereof. (b) This Agreement may not be changed orally, but may be amended, revoked, changed or modified at any time by a written agreement executed by the Employee and the Corporation. IN WITNESS WHEREOF, this Agreement has been duly executed on the day and year set forth above. THE PANTRY, INC. By: /s/William T. Flyg --------------------------------------- Title: Senior Vice President, Finance, Chief Financial Officer and Secretary /s/ Peter J. Sodini ------------------------------------------ Peter J. Sodini 8 EX-10.13 23 CREDIT AGREEMENT Exhibit 10.13 $75,000,000 CREDIT AGREEMENT DATED AS OF OCTOBER 23, 1997 AMONG THE PANTRY, INC., AS BORROWER, THE LENDERS LISTED HEREIN, AS LENDERS, FIRST UNION NATIONAL BANK, AS ADMINISTRATIVE AGENT AND CANADIAN IMPERIAL BANK OF COMMERCE, AS SYNDICATION AGENT ARRANGED BY: CIBC WOOD GUNDY SECURITIES CORP. AND FIRST UNION CAPITAL MARKETS CORP. THE PANTRY, INC. $75,000,000 CREDIT AGREEMENT TABLE OF CONTENTS
PAGE SECTION 1. DEFINITIONS................................................................................................................... 2 1.1 Certain Defined Terms......................................................................................... 2 1.2 Accounting Terms; Utilization of GAAP for Purposes of Calculations Under Agreement............................ 32 1.3 Other Definitional Provisions and Rules of Construction....................................................... 32 SECTION 2. AMOUNTS AND TERMS OF COMMITMENTS AND LOANS.................................................................... 32 2.1 Commitments; Making of Loans; the Register; Notes............................................................. 32 2.2 Interest on the Loans......................................................................................... 40 2.3 Fees.......................................................................................................... 45 2.4 Repayments, Prepayments and Reductions in Acquisition Term Loan Commitments and Revolving Loan Commitments; General Provisions Regarding Payments; Application of Proceeds of Collateral and Payments Under Subsidiary Guaranty...................................................................................................... 45 2.5 Use of Proceeds............................................................................................... 53 2.6 Special Provisions Governing Eurodollar Rate Loans............................................................ 54 2.7 Increased Costs; Taxes; Capital Adequacy...................................................................... 56 2.8 Obligation of Lenders and Issuing Lenders to Mitigate......................................................... 61 SECTION 3. LETTERS OF CREDIT............................................................................................ 62 3.1 Issuance of Letters of Credit and Lenders' Purchase of Participations Therein................................. 62 3.2 Letter of Credit Fees......................................................................................... 65 3.3 Drawings and Reimbursement of Amounts Paid Under Letters of Credit............................................ 66 3.4 Obligations Absolute.......................................................................................... 69 3.5 Indemnification; Nature of Issuing Lenders' Duties............................................................ 70 3.6 Increased Costs and Taxes Relating to Letters of Credit....................................................... 71 SECTION 4. CONDITIONS TO LOANS AND LETTERS OF CREDIT..................................................................... 72 4.1 Conditions to Initial Revolving Loans and Swing Line Loans.................................................... 72 4.2 Conditions to All Loans....................................................................................... 82 4.3 Conditions to Letters of Credit............................................................................... 83
(i)
PAGE ---- SECTION 5. COMPANY'S REPRESENTATIONS AND WARRANTIES...................................................................... 84 5.1 Organization, Powers, Qualification, Good Standing, Business and Subsidiaries................................. 84 5.2 Authorization of Borrowing, etc............................................................................... 85 5.3 Financial Condition........................................................................................... 87 5.4 No Material Adverse Change; No Restricted Junior Payments..................................................... 87 5.5 Title to Properties; Liens; Real Property..................................................................... 87 5.6 Litigation; Adverse Facts..................................................................................... 88 5.7 Payment of Taxes.............................................................................................. 89 5.8 Performance of Agreements; Materially Adverse Agreements; Material Contracts.................................. 89 5.9 Governmental Regulation....................................................................................... 89 5.10 Securities Activities......................................................................................... 90 5.11 Employee Benefit Plans........................................................................................ 90 5.12 Certain Fees.................................................................................................. 91 5.13 Environmental Protection...................................................................................... 91 5.14 Employee Matters.............................................................................................. 92 5.15 Solvency...................................................................................................... 92 5.16 Matters Relating to Collateral................................................................................ 92 5.17 Related Agreements............................................................................................ 93 5.18 Disclosure.................................................................................................... 94 5.19 Permits....................................................................................................... 94 SECTION 6. COMPANY'S AFFIRMATIVE COVENANTS............................................................................... 95 6.1 Financial Statements and Other Reports........................................................................ 95 6.2 Corporate Existence, etc...................................................................................... 101 6.3 Payment of Taxes and Claims; Tax Consolidation................................................................ 101 6.4 Maintenance of Properties; Insurance; Application of Net Asset Sale Proceeds.................................. 102 6.5 Inspection Rights; Lender Meeting............................................................................. 105 6.6 Compliance with Laws, etc..................................................................................... 105 6.7 Environmental Review and Investigation, Disclosure, Etc.; Company's Actions Regarding Hazardous Materials Activities, Environmental Claims and Violations of Environmental Laws......................................... 105 6.8 Execution of Subsidiary Guaranty and Personal Property Collateral Documents by Certain Subsidiaries and Future Subsidiaries.................................................................................................. 108 6.9 Matters Relating to Additional Real Property Collateral....................................................... 109 SECTION 7. COMPANY'S NEGATIVE COVENANTS.................................................................................. 111 7.1 Indebtedness.................................................................................................. 112 7.2 Liens and Related Matters..................................................................................... 113 7.3 Investments; Joint Ventures................................................................................... 115 7.4 Contingent Obligations........................................................................................ 116
(ii)
PAGE ---- 7.5 Restricted Junior Payments; Other Restricted Payments......................................................... 117 7.6 Financial Covenants........................................................................................... 118 7.7 Restriction on Fundamental Changes; Asset Sales and Acquisitions.............................................. 121 7.8 Consolidated Capital Expenditures............................................................................. 123 7.9 Sales and Lease-Backs......................................................................................... 124 7.10 Sale or Discount of Receivables............................................................................... 125 7.11 Transactions with Shareholders and Affiliates................................................................. 125 7.12 Disposal of Subsidiary Stock.................................................................................. 125 7.13 Conduct of Business........................................................................................... 126 7.14 Amendments or Waivers of Certain Related Agreements; Amendments of Documents Relating to Subordinated Indebtedness or the Senior Notes; Designation of "Designated Senior Indebtedness"............................. 126 7.15 Fiscal Year................................................................................................... 127 SECTION 8. EVENTS OF DEFAULT............................................................................................. 127 8.1 Failure to Make Payments When Due............................................................................. 127 8.2 Default in Other Agreements................................................................................... 128 8.3 Breach of Certain Covenants................................................................................... 128 8.4 Breach of Warranty............................................................................................ 128 8.5 Other Defaults Under Loan Documents........................................................................... 128 8.6 Involuntary Bankruptcy; Appointment of Receiver, etc.......................................................... 129 8.7 Voluntary Bankruptcy; Appointment of Receiver, etc............................................................ 129 8.8 Judgments and Attachments..................................................................................... 129 8.9 Dissolution................................................................................................... 130 8.10 Employee Benefit Plans........................................................................................ 130 8.11 Change in Control............................................................................................. 130 8.12 Invalidity of Subsidiary Guaranty; Failure of Security; Repudiation of Obligations............................ 130 8.13 Failure to Consummate Lil' Champ Acquisition and Other Transactions........................................... 131 SECTION 9. AGENTS........................................................................................................ 132 9.1 Appointment................................................................................................... 132 9.2 Powers and Duties; General Immunity........................................................................... 134 9.3 Representations and Warranties; No Responsibility For Appraisal of Creditworthiness........................... 135 9.4 Right to Indemnity............................................................................................ 136 9.5 Successor Administrative Agent and Swing Line Lender.......................................................... 136 9.6 Collateral Documents and Guaranties........................................................................... 137 SECTION 10. MISCELLANEOUS................................................................................................. 138 10.1 Assignments and Participations in Loans and Letters of Credit................................................. 138 10.2 Expenses...................................................................................................... 141
(iii)
PAGE ---- 10.3 Indemnity..................................................................................................... 142 10.4 Set-Off; Security Interest in Deposit Accounts................................................................ 143 10.5 Ratable Sharing............................................................................................... 144 10.6 Amendments and Waivers........................................................................................ 144 10.7 Independence of Covenants..................................................................................... 145 10.8 Notices....................................................................................................... 146 10.9 Survival of Representations, Warranties and Agreements........................................................ 146 10.10 Failure or Indulgence Not Waiver; Remedies Cumulative......................................................... 146 10.11 Marshalling; Payments Set Aside............................................................................... 147 10.12 Severability.................................................................................................. 147 10.13 Obligations Several; Independent Nature of Lenders' Rights.................................................... 147 10.14 Headings...................................................................................................... 147 10.15 Applicable Law................................................................................................ 148 10.16 Successors and Assigns........................................................................................ 148 10.17 Consent to Jurisdiction and Service of Process................................................................ 148 10.18 Waiver of Jury Trial.......................................................................................... 149 10.19 Confidentiality............................................................................................... 149 10.20 Counterparts; Effectiveness................................................................................... 150 Signature pages............................................................................................... S-1
(iv) EXHIBITS I FORM OF NOTICE OF BORROWING II FORM OF NOTICE OF CONVERSION/CONTINUATION III FORM OF NOTICE OF ISSUANCE OF LETTER OF CREDIT IV FORM OF ACQUISITION TERM NOTE V FORM OF REVOLVING NOTE VI FORM OF SWING LINE NOTE VII FORM OF COMPLIANCE CERTIFICATE VIII FORM OF OPINION OF RIORDAN & MCKINZIE IX FORM OF OPINION OF O'MELVENY & MYERS LLP X FORM OF ASSIGNMENT AGREEMENT XI FORM OF AUDITOR'S LETTER XII FORM OF MORTGAGE XIII FORM OF FINANCIAL CONDITION CERTIFICATE XIV FORM OF COLLATERAL ACCOUNT AGREEMENT XV FORM OF COMPANY PLEDGE AGREEMENT XVI FORM OF COMPANY SECURITY AGREEMENT XVII FORM OF COMPANY TRADEMARK SECURITY AGREEMENT XVIII FORM OF SUBSIDIARY GUARANTY XIX FORM OF SUBSIDIARY PLEDGE AGREEMENT XX FORM OF SUBSIDIARY SECURITY AGREEMENT XXI FORM OF SUBSIDIARY TRADEMARK SECURITY AGREEMENT (v) SCHEDULES 2.1 LENDERS' COMMITMENTS AND PRO RATA SHARES 4.1C CORPORATE AND CAPITAL STRUCTURE; OWNERSHIP; MANAGEMENT 4.1I CLOSING DATE MORTGAGED PROPERTIES 5.1 SUBSIDIARIES OF COMPANY 5.5 REAL PROPERTY 5.11 CERTAIN EMPLOYEE BENEFIT PLANS 5.13 ENVIRONMENTAL MATTERS 5.17 AFFILIATE AGREEMENTS; AMENDMENTS TO RELATED AGREEMENTS 7.1 CERTAIN EXISTING INDEBTEDNESS 7.2 CERTAIN EXISTING LIENS 7.3 CERTAIN EXISTING INVESTMENTS 7.4 CERTAIN EXISTING CONTINGENT OBLIGATIONS (vi) THE PANTRY, INC. $75,000,000 CREDIT AGREEMENT This CREDIT AGREEMENT is dated as of October 23, 1997 and entered into by and among THE PANTRY, INC., a Delaware corporation ("COMPANY"), THE FINANCIAL INSTITUTIONS LISTED ON THE SIGNATURE PAGES HEREOF (each individually referred to herein as a "LENDER" and collectively as "LENDERS"), FIRST UNION NATIONAL BANK ("FIRST UNION"), as administrative agent for Lenders (in such capacity, the "ADMINISTRATIVE AGENT"), and CANADIAN IMPERIAL BANK OF COMMERCE ("CIBC"), as syndication agent for Lenders (in such capacity, "SYNDICATION AGENT"). R E C I T A L S - - - - - - - - WHEREAS, PHH (this and other capitalized terms used in these recitals without definition being used as defined in subsection 1.1) has entered into the Lil' Champ Stock Purchase Agreement; WHEREAS, PHH has assigned all of its rights and obligations under the Lil' Champ Stock Purchase Agreement to Company and Company has assumed all of the rights and obligations of PHH under the Lil' Champ Stock Purchase Agreement, in each case pursuant to the Assignment and Assumption Agreement, and upon the consummation of the transactions contemplated by the Lil' Champ Stock Purchase Agreement and the Assignment and Assumption Agreement, Company shall have acquired all of the outstanding shares of capital stock of Lil' Champ (the "LIL' CHAMP ACQUISITION"); WHEREAS, on or before the Closing Date, Freeman Spogli and CMC, together with certain members of Company's management, will purchase additional capital stock of Company for a cash consideration of not less than $32,400,000, which cash proceeds shall be used for purposes of effecting the Lil' Champ Acquisition (the "EQUITY INVESTMENT"); WHEREAS, on or before the Closing Date, Company will issue and sell not less than $190,000,000 in aggregate principal amount of Senior Subordinated Notes; WHEREAS, not less than $4,000,000 of cash of Company and its Subsidiaries will be used, together with the cash proceeds from the Senior Subordinated Notes and the Equity Investment, (i) to finance the purchase price payable in connection with the Lil' Champ Acquisition, (ii) to refinance Indebtedness of Company and Lil' Champ outstanding under the Existing Credit Agreements in an aggregate maximum 1 principal amount not exceeding $25,000,000 (including without limitation Existing Letters of Credit with an aggregate stated amount of approximately $9,100,000), (iii) to finance the repurchase of $51,000,000 in principal amount of Senior Notes and to pay accrued and unpaid interest thereon, (iv) to finance the payment of up to $7,000,000 in tender offer premiums and consent fees related to the repurchase of Senior Notes and the solicitation of consents from the holders of the Senior Notes to certain amendments to the Senior Note Indenture, and (v) to pay Transaction Costs in an aggregate amount of approximately $15,000,000; WHEREAS, Lenders have agreed to extend certain credit facilities to Company, which facilities will be available, upon the consummation of the Lil' Champ Acquisition, for acquisitions by Company permitted hereunder and to provide for the working capital requirements and general corporate purposes of Company and its Restricted Subsidiaries; WHEREAS, Company desires to secure all of the Obligations hereunder and under the other Loan Documents by granting to Administrative Agent, on behalf of Lenders, a first priority Lien on substantially all of its personal and owned real property, including a pledge of all of the capital stock of each of its Restricted Subsidiaries and PHH; and WHEREAS, all of the Restricted Subsidiaries of Company have agreed to guarantee the Obligations hereunder and under the other Loan Documents and to secure their guaranties by granting to Administrative Agent, on behalf of Lenders, a first priority Lien on substantially all of their respective personal and owned real property, including a pledge of all of the capital stock of each of their respective Restricted Subsidiaries: NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, Company, Lenders, Administrative Agent and Syndication Agent agree as follows: SECTION 1. DEFINITIONS 1.1. CERTAIN DEFINED TERMS. ---------------------- The following terms used in this Agreement shall have the following meanings: "ACQUISITION TERM LOAN COMMITMENT" means the commitment of a Lender to make an Acquisition Term Loan to Company pursuant to subsection 2.1A(i), and "ACQUISITION TERM LOAN COMMITMENTS" means such commitments of all Lenders in the aggregate. 2 "ACQUISITION TERM LOAN COMMITMENT TERMINATION DATE" means October 31, 1999. "ACQUISITION TERM LOAN EXPOSURE" means, with respect to any Lender as of any date of determination (i) prior to the termination of the Acquisition Term Loan Commitments, the sum of (a) that Lender's Acquisition Term Loan Commitment plus (b) the aggregate outstanding principal amount of the ---- Acquisition Term Loans of that Lender and (ii) after the termination of the Acquisition Term Loan Commitments, the aggregate outstanding principal amount of the Acquisition Term Loans of that Lender. "ACQUISITION TERM LOANS" means the Loans made by Lenders to Company pursuant to subsection 2.1A(i). "ACQUISITION TERM NOTES" means (i) the promissory notes of Company issued pursuant to subsection 2.1E(i)(a) on the Closing Date and (ii) any promissory notes issued by Company pursuant to the last sentence of subsection 10.1B(i) in connection with assignments of the Acquisition Term Loan Commitments or Acquisition Term Loans of any Lenders, in each case substantially in the form of Exhibit IV annexed hereto, as they may be amended, supplemented or otherwise ---------- modified from time to time. "ADJUSTED EURODOLLAR RATE" means a rate per annum (rounded upwards, if necessary, to the next higher 1/100th of 1%) determined by Administrative Agent pursuant to the following formula: Adjusted Eurodollar Rate = LIBOR ------------------------------------------ 1.00-Eurodollar Reserve Percentage "ADMINISTRATIVE AGENT" has the meaning assigned to that term in the introduction to this Agreement and also means and includes any successor Administrative Agent appointed pursuant to subsection 9.5A. "AFFECTED LENDER" means a Lender during such period of time as such Lender's obligation to make Loans as, or to convert Loans to, Eurodollar Rate Loans is suspended pursuant to subsection 2.6C. "AFFILIATE", as applied to any Person, means any other Person directly or indirectly controlling, controlled by, or under common control with, that Person. For the purposes of this definition, "control" (including, with correlative meanings, the terms "controlling", "controlled by" and "under common control with"), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that Person, whether through the ownership of voting securities or by contract or otherwise. 3 "AFFILIATE AGREEMENTS" means, collectively, all employment agreements, consulting agreements, and any other agreements, documents or arrangements between any Loan Party and any of its Affiliates, officers, directors, shareholders or any Affiliates of any such officers, directors or shareholders. "AGENTS" means, collectively, the Administrative Agent and the Syndication Agent, and also means and includes any successor Administrative Agent or Syndication Agent, as the case may be, appointed pursuant to subsection 9.5A. "AGREEMENT" means this Credit Agreement dated as of October 23, 1997, as it may be amended, supplemented or otherwise modified from time to time. "APPLICABLE BASE RATE MARGIN" means, as of any date of determination, (i) 0.75% per annum in the event that after the first anniversary of the Closing Date the Consolidated Pro Forma Leverage Ratio is less than 4.00:1.00; and (ii) 1.00% per annum in the event that the foregoing clause (i) is not applicable, including for the period from the Closing Date through the first anniversary of the Closing Date until a Margin Determination Certificate is delivered pursuant to subsection 6.1(xix) establishing that clause (i) is applicable. "APPLICABLE EURODOLLAR MARGIN" means, as of any date of determination, (i) 2.25% per annum in the event that after the first anniversary of the Closing Date the Consolidated Pro Forma Leverage Ratio is less than 4.00:1.00 and (ii) 2.50% per annum in the event that the foregoing clause (i) is not applicable, including for the period from the Closing Date through the first anniversary of the Closing Date until a Margin Determination Certificate is delivered pursuant to subsection 6.1(xix) establishing that clause (i) is applicable. "ASSET SALE" means (A) the sale, assignment or other transfer (whether voluntary or involuntary) for value (collectively, a "transfer") by Company or any of its Restricted Subsidiaries to any Person other than Company or any of its wholly-owned Restricted Subsidiaries of (i) any of the stock of PHH or any of Company's Restricted Subsidiaries, (ii) substantially all of the assets of any division or line of business of Company or any of its Restricted Subsidiaries, or (iii) any other assets (whether tangible or intangible) of Company or any of its Restricted Subsidiaries or (B) the occurrence of any loss or damage of any assets of Company or any of its Restricted Subsidiaries giving rise to insurance proceeds, including without limitation the proceeds of any related business interruption insurance, in each case other than (a) inventory sold in the ordinary course of business, (b) property or assets sold in sale/leaseback transactions permitted pursuant to subsection 7.9 and (c) any such other assets to the extent that the aggregate value of such assets transferred, lost or damaged (x) is equal to $50,000 or less in any single transaction or related series of transactions or (y) is equal to $500,000 or less in any Fiscal Year. 4 "ASSIGNMENT AGREEMENT" means an Assignment Agreement in substantially the form of Exhibit X annexed hereto. --------- "ASSIGNMENT AND ASSUMPTION AGREEMENT" means that certain Assignment and Assumption Agreement dated as of October 23, 1997 by and between Company, PHH and Docks U.S.A., Inc., as such agreement may be amended from time to time to the extent permitted under subsection 7.14A. "AUDITOR'S LETTER" means a letter, substantially in the form of Exhibit ------- XI annexed hereto, executed by Deloitte & Touche LLP and delivered to Agents - -- pursuant to subsection 4.1R. "BANKRUPTCY CODE" means Title 11 of the United States Code entitled "Bankruptcy", as now and hereafter in effect, or any successor statute. "BASE RATE" means, at any time, the higher of (x) the Prime Rate or (y) the rate which is 1/2 of 1% in excess of the Federal Funds Effective Rate. "BASE RATE LOANS" means Loans bearing interest at rates determined by reference to the Base Rate as provided in subsection 2.2A. "BUSINESS DAY" means (i) for all purposes other than as covered by clause (ii) below, any day excluding Saturday, Sunday and any day which is a legal holiday under the laws of the State of New York or North Carolina is a day on which banking institutions located in such state are authorized or required by law or other governmental action to close, and (ii) with respect to all notices, determinations, fundings and payments in connection with the Adjusted Eurodollar Rate or any Eurodollar Rate Loans, any day that is a Business Day described in clause (i) above and that is also a day for trading by and between banks in Dollar deposits in the interbank Eurodollar market. "CAPITAL LEASE", as applied to any Person, means any lease of any property (whether real, personal or mixed) by that Person as lessee that, in conformity with GAAP, is accounted for as a capital lease on the balance sheet of that Person. "CASH" means money, currency or a credit balance in a Deposit Account. "CASH EQUIVALENTS" means, as at any date of determination, (i) marketable securities (a) issued or directly and unconditionally guaranteed as to interest and principal by the United States Government or (b) issued by any agency of the United States the obligations of which are backed by the full faith and credit of the United States, in each case maturing within one year after such date; (ii) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof, in each case maturing within one year after such date and having, at the time of the acquisition thereof, the highest rating obtainable from either 5 Standard & Poor's Ratings Group ("S&P") or Moody's Investors Service, Inc. ("MOODY'S"); (iii) commercial paper maturing no more than one year from the date of creation thereof and having, at the time of the acquisition thereof, a rating of at least A-1 from S&P or at least P-1 from Moody's; (iv) certificates of deposit or bankers' acceptances maturing within one year after such date and issued or accepted by any Lender or by any commercial bank organized under the laws of the United States of America or any state thereof or the District of Columbia that (a) is at least "adequately capitalized" (as defined in the regulations of its primary Federal banking regulator) and (b) has Tier 1 capital (as defined in such regulations) of not less than $100,000,000; and (v) shares of any money market mutual fund that (a) has at least 95% of its assets invested continuously in the types of investments referred to in clauses (i) and (ii) above, (b) has net assets of not less than $500,000,000, and (c) has the highest rating obtainable from either S&P or Moody's. "CERTIFICATE RE NON-BANK STATUS" means a certificate, in form and substance satisfactory to Administrative Agent, delivered by a Lender to Administrative Agent pursuant to subsection 2.7B(iii) pursuant to which such Lender certifies that it is not (i) a "bank" as such term is defined in subsection 881(c)(3) of the Internal Revenue Code; (ii) a 10 percent shareholder of Company within the meaning of Section 871(h)(3)(B) or Section 881(c)(3)(B) of the Internal Revenue Code; or (iii) a "controlled" foreign corporation related to Company within the meaning of Section 864(d)(4) of the Internal Revenue Code. "CIBC" has the meaning assigned to that term in the introduction to this Agreement. "CIBC WG" means CIBC Wood Gundy Securities Corp. "CLOSING DATE" means the date on or before November 14, 1997, on which each of the conditions set forth in subsection 4.1 hereof shall have been satisfied or waived in accordance with the provisions of subsection 4.1. "CMC" means Chase Manhattan Capital, L.P. "COLLATERAL" means, collectively, all of the real, personal and mixed property (including capital stock) in which Liens are purported to be granted pursuant to the Collateral Documents as security for the Obligations. "COLLATERAL ACCOUNT" has the meaning assigned to that term in the Collateral Account Agreement. "COLLATERAL ACCOUNT AGREEMENT" means the Collateral Account Agreement executed and delivered by Company and Administrative Agent on the Closing Date, substantially in the form of Exhibit XIV annexed hereto, as such Collateral ----------- Account 6 Agreement may hereafter be amended, supplemented or otherwise modified from time to time. "COLLATERAL DOCUMENTS" means the Company Pledge Agreement, the Company Security Agreement, the Company Trademark Security Agreement, the Collateral Account Agreement, the Subsidiary Pledge Agreements, the Subsidiary Security Agreements, the Subsidiary Trademark Security Agreement, the Mortgages, and all other instruments or documents delivered by any Loan Party pursuant to this Agreement or any of the other Loan Documents in order to grant to Administrative Agent, on behalf of Lenders, a Lien on any real, personal or mixed property of that Loan Party as security for the Obligations. "COMMERCIAL LETTER OF CREDIT" means any letter of credit or similar instrument issued for the purpose of providing the primary payment mechanism in connection with the purchase of any materials, goods or services by Company or any of its Restricted Subsidiaries in the ordinary course of business of Company or such Restricted Subsidiary. "COMMITMENTS" means the commitments of Lenders to make Loans as set forth in subsection 2.1A. "COMPANY" has the meaning assigned to that term in the introduction to this Agreement. "COMPANY CERTIFICATE OF DESIGNATIONS" means the provisions of Company's Certificate of Designations, Preferences and Relative, Participating, Optional and Other Special Rights of Preferred Stock and Qualifications, Limitations and Restrictions Thereof relating to the Company Preferred Stock, in the form delivered to Agents and Lenders prior to their execution of this Agreement and as such provisions may be amended from time to time thereafter to the extent permitted under subsection 7.14A. "COMPANY CAPITAL STOCK" means, collectively, (i) the common stock, par value $.01 per share, of Company and (ii) the Company Preferred Stock. "COMPANY PLEDGE AGREEMENT" means the Company Pledge Agreement executed and delivered by Company on the Closing Date, substantially in the form of Exhibit XV annexed hereto, as such Company Pledge Agreement may thereafter be - ---------- amended, supplemented or otherwise modified from time to time. "COMPANY PREFERRED STOCK" means, collectively, (i) the Series A Preferred Stock, par value $.01 per share, of Company, and (ii) the Series B Preferred Stock, par value $.01 per share, of Company. 7 "COMPANY SECURITY AGREEMENT" means the Company Security Agreement executed and delivered by Company on the Closing Date, substantially in the form of Exhibit XVI annexed hereto, as such Company Security Agreement may thereafter ----------- be amended, supplemented or otherwise modified from time to time. "COMPANY TRADEMARK SECURITY AGREEMENT" means the Company Trademark Security Agreement executed and delivered by Company on the Closing Date, substantially in the form of Exhibit XVII annexed hereto, as such Company ------------ Trademark Security Agreement may thereafter be amended, supplemented or otherwise modified from time to time. "COMPLIANCE CERTIFICATE" means a certificate substantially in the form of Exhibit VII annexed hereto delivered to Administrative Agent and Lenders by ----------- Company pursuant to subsection 6.1(iv). "CONFIDENTIAL INFORMATION MEMORANDUM" means that certain Confidential Information Memorandum for The Pantry, Inc. $75,000,000 Senior Credit Facilities, dated September 1997. "CONSOLIDATED CAPITAL EXPENDITURES" means, for any period, the sum of the aggregate of all expenditures (whether paid in cash or other consideration or accrued as a liability and including that portion of Capital Leases which is capitalized on the consolidated balance sheet of Company and its Subsidiaries) by Company and its Subsidiaries during that period that, in conformity with GAAP, are included in "additions to property, plant or equipment" or comparable items reflected in the consolidated statement of cash flows of Company and its Subsidiaries net of the amount of any reimbursement payments made to Company or any of its Subsidiaries by any third parties in connection with any such expenditures to the extent that such expenditures have actually been made by Company or its Subsidiaries but excluding however any such expenditures made in --------- ------- connection with any Permitted Acquisition. "CONSOLIDATED EBITDA" means, for any period, the sum of the amounts for such period of (i) Consolidated Net Income, (ii) Consolidated Interest Expense, (iii) provisions for taxes based on income, (iv) total depreciation expense, (v) total amortization expense, including but not limited to goodwill, organization costs and other intangibles, (vi) adjustments relating to the Lil' Champ Acquisition for the four-Fiscal Quarter period ending as of the last day of the first Fiscal Quarter in Fiscal Year 1998, the second Fiscal Quarter in Fiscal Year 1998, the third Fiscal Quarter in Fiscal Year 1998 and the fourth Fiscal Quarter in Fiscal Year 1998, in the aggregate amount of $4,300,000, $4,300,000, $3,440,000 and $2,150,000, respectively, and (vii) other non-cash items reducing Consolidated Net Income less other non-cash items increasing Consolidated Net ---- Income, all of the foregoing as determined on a consolidated basis for Company and its Subsidiaries in conformity with GAAP. 8 "CONSOLIDATED INTEREST EXPENSE" means, for any period, total interest expense (including that portion attributable to Capital Leases in accordance with GAAP and capitalized interest) of Company and its Subsidiaries on a consolidated basis with respect to all outstanding Indebtedness of Company and its Subsidiaries, including all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing and net costs under Interest Rate Agreements, but excluding, however, any amounts referred to in subsection 2.3 payable to Agents, Affiliates of Agents and Lenders on or before the Closing Date. "CONSOLIDATED NET INCOME" means, for any period, the net income (or loss) of Company and its Subsidiaries on a consolidated basis for such period taken as a single accounting period determined in conformity with GAAP; provided -------- that there shall be excluded (i) the income (or loss) of any Person (other than a Subsidiary of Company) in which any other Person (other than Company or any of its Subsidiaries) has a joint interest, except to the extent of the amount of cash dividends or other distributions actually paid to Company or any of its Subsidiaries by such Person during such period, (ii) the income (or loss) of any Person accrued prior to the date it becomes a Subsidiary of Company or is merged into or consolidated with Company or any of its Subsidiaries or that Person's assets are acquired by Company or any of its Subsidiaries, (iii) the income of any Subsidiary of Company to the extent that the declaration or payment of dividends or similar distributions by that Subsidiary of that income is not at the time permitted by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary, (iv) any after-tax gains or losses attributable to Asset Sales or returned surplus assets of any Pension Plan, and (v) (to the extent not included in clauses (i) through (iv) above) any net extraordinary gains or net non-cash extraordinary losses. "CONSOLIDATED PRO FORMA EBITDA" means, for any consecutive four-Fiscal Quarter period, (a) Consolidated EBITDA for such four-Fiscal Quarter period less ---- (b) EBITDA attributable to all businesses acquired during such four-Fiscal Quarter period plus (c) for any business acquired during such four-Fiscal ---- Quarter period, EBITDA of such acquired business determined as though such business was acquired as of the first day of such period by Company and its Subsidiaries, which EBITDA shall be adjusted as follows with respect to any business acquired after the Closing Date: (1) for the four-Fiscal Quarter period ending with the Fiscal Quarter in which the acquisition of any such acquired business was consummated, an amount equal to 100% of the Adjustment Amount with respect to such acquired business shall be added, (2) for the four- Fiscal Quarter period ending one Fiscal Quarter after the four-Fiscal Quarter period described in clause (1), an amount equal to 75% of the Adjustment Amount with respect to such acquired business shall be added, (3) for the four-Fiscal Quarter period ending two Fiscal Quarters after the four-Fiscal Quarter period described in clause (1), an amount equal to 50% of the Adjustment Amount with respect to such acquired business shall be added, and (4) for the four-Fiscal Quarter period ending three Fiscal Quarters after the four-Fiscal Quarter period described in clause (1), an amount equal to 25% of the Adjustment Amount with respect to 9 such acquired business shall be added. For purposes of this definition, "Adjustment Amount" shall mean, with respect to any acquired business, the following as determined as of the date of such acquisition for the four-Fiscal Quarter period immediately preceding the date of such acquisition: (i) any historical extraordinary or non-recurring costs or expenses or other verifiable costs or expenses that will not continue after the acquisition date (including without limitation excess owner/management compensation) plus (ii) any reasonable operating expenses to be eliminated that are approved by Administrative Agent, plus (iii) any cost synergies that are reasonably expected ---- to be realized that are approved by Administrative Agent; provided that the aggregate amount of such synergies does not exceed 20% of EBITDA of such acquired business for the four Fiscal-Quarter period immediately preceding the date of acquisition, as such EBITDA is adjusted by the operation of the foregoing clauses (i) and (ii), minus (iv) any incremental expenses projected by Company in its assessment of the operations of such acquired business. "CONSOLIDATED PRO FORMA LEVERAGE RATIO" means, as of any date of determination, the ratio of (i) Consolidated Total Debt as of the last day of the Fiscal Quarter of Company ending immediately prior to such date of determination minus, to the extent that the aggregate amount of Cash and Cash ----- Equivalents on the consolidated balance sheet of Company and its Subsidiaries as of such last day exceeds $10,000,000, the amount of such Cash and Cash Equivalents in excess of $10,000,000 to (ii) Consolidated Pro Forma EBITDA for the four consecutive Fiscal Quarter period ending as of the last day of the Fiscal Quarter of Company ending immediately prior to such date of determination. "CONSOLIDATED RENTAL PAYMENTS" means, for any period, the aggregate amount of all rents paid or payable by Company and its Subsidiaries on a consolidated basis during that period under all Operating Leases to which Company or any of its Subsidiaries is a party as lessee (net of sublease income). "CONSOLIDATED TOTAL DEBT" means, as at any date of determination, the aggregate stated balance sheet amount of all Indebtedness of Company and its Subsidiaries, determined on a consolidated basis in accordance with GAAP. "CONTINGENT OBLIGATION", as applied to any Person, means any direct or indirect liability, contingent or otherwise, of that Person (i) with respect to any Indebtedness, lease, dividend or other obligation of another if the primary purpose or intent thereof by the Person incurring the Contingent Obligation is to provide assurance to the obligee of such obligation of another that such obligation of another will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such obligation will be protected (in whole or in part) against loss in respect thereof, (ii) with respect to any letter of credit issued for the account of that Person or as to which that Person is otherwise liable for reimbursement of drawings, or (iii) under Hedge Agreements. Contingent Obligations shall include (a) the direct or indirect guaranty, endorsement (otherwise than for collection or deposit in the ordinary course of business), co-making, discounting with recourse or sale with recourse by such Person of 10 the obligation of another, (b) the obligation to make take-or-pay or similar payments if required regardless of non-performance by any other party or parties to an agreement, and (c) any liability of such Person for the obligation of another through any agreement (contingent or otherwise) (X) to purchase, repurchase or otherwise acquire such obligation or any security therefor, or to provide funds for the payment or discharge of such obligation (whether in the form of loans, advances, stock purchases, capital contributions or otherwise) or (Y) to maintain the solvency or any balance sheet item, level of income or financial condition of another if, in the case of any agreement described under subclauses (X) or (Y) of this sentence, the primary purpose or intent thereof is as described in the preceding sentence. The amount of any Contingent Obligation shall be equal to the amount of the obligation so guaranteed or otherwise supported or, if less, the amount to which such Contingent Obligation is specifically limited. "CONTRACTUAL OBLIGATION", as applied to any Person, means any provision of any Security issued by that Person or of any material indenture, mortgage, deed of trust, contract, undertaking, agreement or other instrument to which that Person is a party or by which it or any of its properties is bound or to which it or any of its properties is subject. "CURRENCY AGREEMENT" means any foreign exchange contract, currency swap agreement, futures contract, option contract, synthetic cap or other similar agreement or arrangement to which Company or any of its Subsidiaries is a party. "DEPOSIT ACCOUNT" means a demand, time, savings, passbook or like account with a bank, savings and loan association, credit union or like organization, other than an account evidenced by a negotiable certificate of deposit. "DOLLARS" and the sign "$" mean the lawful money of the United States of America. "EBITDA" means for any business acquired by Company and its Subsidiaries, "Consolidated EBITDA" as defined herein substituting references to such acquired business for references to "Company and its Subsidiaries" as used in such definition. "ELIGIBLE ASSIGNEE" means (A) (i) a commercial bank organized under the laws of the United States or any state thereof having unimpaired capital and surplus of not less than $500,000,000; (ii) a savings and loan association or savings bank organized under the laws of the United States or any state thereof having unimpaired capital and surplus of not less than $500,000,000; (iii) a commercial bank organized under the laws of any other country or a political subdivision thereof having unimpaired capital and surplus of not less than $500,000,000; provided that (x) such bank is acting through a branch or agency -------- located in the United States or (y) such bank is organized under the laws of a country that is a member of the Organization for Economic Cooperation and Development or a political subdivision of such country; and (iv) any other entity that has net assets of not less than 11 $1,000,000,000 which is an "accredited investor" (as defined in Regulation D under the Securities Act) which extends credit or buys loans as one of its businesses including insurance companies, mutual funds and lease financing companies; and (B) any Lender and any Affiliate of any Lender; provided that no -------- Affiliate of Company shall be an Eligible Assignee. "EMPLOYEE BENEFIT PLAN" means any "employee benefit plan" as defined in Section 3(3) of ERISA which is or was maintained or contributed to by Company, any of its Subsidiaries or any of their respective ERISA Affiliates. "ENVIRONMENTAL CLAIM" means any written investigation, notice of violation, claim, action, suit, proceeding, demand, abatement order or other order or directive (conditional or otherwise), by any governmental authority or any other Person, arising (i) pursuant to or in connection with any actual or alleged violation of any Environmental Law, (ii) in connection with any Hazardous Materials or any actual or alleged Hazardous Materials Activity, or (iii) in connection with any actual or alleged damage, injury, threat or harm to health, safety, natural resources or the environment. "ENVIRONMENTAL LAWS" means any and all current or future statutes, ordinances, orders, rules, regulations, guidance documents, judgments, Governmental Authorizations, or any other published requirements of governmental authorities relating to (i) environmental matters, including those relating to any Hazardous Materials Activity, (ii) the generation, use, storage, transportation or disposal of Hazardous Materials, or (iii) occupational safety and health, industrial hygiene, land use or the protection of human, plant or animal health or welfare, in any manner applicable to Company or any of its Subsidiaries or any Facility, including the Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C. (S) 9601 et seq.), the -- --- Hazardous Materials Transportation Act (49 U.S.C. (S) 1801 et seq.), the -- --- Resource Conservation and Recovery Act (42 U.S.C. (S) 6901 et seq.), the Federal -- --- Water Pollution Control Act (33 U.S.C. (S) 1251 et seq.), the Clean Air Act (42 -- --- U.S.C. (S) 7401 et seq.), the Toxic Substances Control Act (15 U.S.C. (S) 2601 -- --- et seq.), the Federal Insecticide, Fungicide and Rodenticide Act (7 U.S.C. - -- --- (S)136 et seq.), the Occupational Safety and Health Act (29 U.S.C. (S) 651 et -- --- -- seq.), the Oil Pollution Act (33 U.S.C. (S) 2701 et seq) and the Emergency - --- ------ Planning and Community Right-to-Know Act (42 U.S.C. (S) 11001 et seq.), each as -- --- amended or supplemented, any analogous present or future state or local statutes or laws, and any regulations promulgated pursuant to any of the foregoing. "EQUITY INVESTMENT" has the meaning assigned to that term in the recitals of this Agreement. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any successor thereto. 12 "ERISA AFFILIATE" means, as applied to any Person, (i) any corporation which is a member of a controlled group of corporations within the meaning of Section 414(b) of the Internal Revenue Code of which that Person is a member; (ii) any trade or business (whether or not incorporated) which is a member of a group of trades or businesses under common control within the meaning of Section 414(c) of the Internal Revenue Code of which that Person is a member; and (iii) any member of an affiliated service group within the meaning of Section 414(m) or (o) of the Internal Revenue Code of which that Person, any corporation described in clause (i) above or any trade or business described in clause (ii) above is a member. Any former ERISA Affiliate of Company or any of its Subsidiaries shall continue to be considered an ERISA Affiliate of Company or such Subsidiary within the meaning of this definition with respect to the period such entity was an ERISA Affiliate of Company or such Subsidiary and with respect to liabilities arising after such period for which Company or such Subsidiary could be liable under the Internal Revenue Code or ERISA. "ERISA EVENT" means (i) a "reportable event" within the meaning of Section 4043 of ERISA and the regulations issued thereunder with respect to any Pension Plan (excluding those for which the provision for 30-day notice to the PBGC has been waived by regulation); (ii) the failure to meet the minimum funding standards of Section 412 of the Internal Revenue Code with respect to any Pension Plan (whether or not waived in accordance with Section 412(d) of the Internal Revenue Code) or the failure to make by its due date a required installment under Section 412(m) of the Internal Revenue Code with respect to any Pension Plan or the failure to make any required contribution to a Multiemployer Plan; (iii) the provision by the administrator of any Pension Plan pursuant to Section 4041(a)(2) of ERISA of a notice of intent to terminate such plan in a distress termination described in Section 4041(c) of ERISA; (iv) the withdrawal by Company, any of its Subsidiaries or any of their respective ERISA Affiliates from any Pension Plan with two or more contributing sponsors or the termination of any such Pension Plan resulting in liability pursuant to Section 4063 or 4064 of ERISA; (v) the institution by the PBGC of proceedings to terminate any Pension Plan, or the occurrence of any event or condition which constitutes grounds under ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan; (vi) the imposition of liability on Company, any of its Subsidiaries or any of their respective ERISA Affiliates pursuant to Section 4062(e) or 4069 of ERISA or by reason of the application of Section 4212(c) of ERISA; (vii) the withdrawal of Company, any of its Subsidiaries or any of their respective ERISA Affiliates in a complete or partial withdrawal (within the meaning of Sections 4203 and 4205 of ERISA) from any Multiemployer Plan if there is any potential liability therefor, or the receipt by Company, any of its Subsidiaries or any of their respective ERISA Affiliates of notice from any Multiemployer Plan that it is in reorganization or it is insolvent pursuant to Section 4241 or 4245 of ERISA, or that it intends to terminate or has terminated under Section 4041A or 4042 of ERISA; (viii) the occurrence of an act or omission which could give rise to the imposition on Company, any of its Subsidiaries or any of their respective ERISA Affiliates of fines, penalties, taxes or related charges under Chapter 43 of the Internal Revenue Code or under Section 409, Section 502(c), (i) or (l), or Section 4071 of 13 ERISA in respect of any Employee Benefit Plan; (ix) the assertion of a material claim (other than routine claims for benefits or for a qualified domestic relations order) against any Employee Benefit Plan other than a Multiemployer Plan or the assets thereof, or against Company, any of its Subsidiaries or any of their respective ERISA Affiliates in connection with any Employee Benefit Plan; (x) receipt from the Internal Revenue Service of notice of the failure of any Pension Plan (or any other Employee Benefit Plan intended to be qualified under Section 401(a) of the Internal Revenue Code) to qualify under Section 401(a) of the Internal Revenue Code, or the failure of any trust forming part of any Pension Plan to qualify for exemption from taxation under Section 501(a) of the Internal Revenue Code; or (xi) the imposition of a Lien pursuant to Section 401(a)(29) or 412(n) of the Internal Revenue Code or pursuant to ERISA with respect to any Pension Plan. "EURODOLLAR RATE LOANS" means Loans bearing interest at rates determined by reference to the Adjusted Eurodollar Rate as provided in subsection 2.2A. "EURODOLLAR RESERVE PERCENTAGE" means, for any day, the percentage (expressed as a decimal and rounded upwards, if necessary, to the next higher 1/100th of 1%) which is in effect for such day as prescribed by the Federal Reserve Board (or any successor) for determining the maximum reserve requirement (including without limitation any basic, supplemental or emergency reserves) in respect of Eurocurrency liabilities or any similar category of liabilities for a member bank of the Federal Reserve System in New York City. "EVENT OF DEFAULT" means each of the events set forth in Section 8. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended from time to time, and any successor statute. "EXISTING CREDIT AGREEMENTS" means (i) that certain Amended and Restated Loan Agreement dated as of January 31, 1994 between Company and First Union, (ii) that certain Revolving Facility dated as of November 8, 1994 between Lil' Champ and Societe General, New York Branch, (iii) that certain Revolving and Term Credit Agreement dated as of January 28, 1988 between Lil' Champ and Credit Agricole Indosuez (as successor by merger to Banque Indosuez), and (iv) that certain revolving credit facility between Lil' Champ and Credit Lyonnais, in each case as amended prior to the Closing Date. "EXISTING LETTERS OF CREDIT" means the letters of credit identified as such in Schedule 7.4 annexed hereto (but not any refinancings, renewals or ------------ extensions thereof). "FACILITIES" means any and all real property (including all buildings, fixtures or other improvements located thereon) now, hereafter or heretofore owned, leased 14 or operated by Company or any of its Subsidiaries or any of their respective predecessors or Affiliates. "FEDERAL FUNDS EFFECTIVE RATE" means, for any period, a fluctuating interest rate equal for each day during such period 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 which is a Business Day, the average of the quotations for such day on such transactions received by Administrative Agent from three Federal funds brokers of recognized standing selected by Administrative Agent. "FINANCIAL PLAN" means Company's consolidated plan and financial forecast for each Fiscal Year. "FIRST PRIORITY" means, with respect to any Lien purported to be created in any Collateral pursuant to any Collateral Document, that (i) such Lien has priority over any other Lien on such Collateral other than any Permitted Encumbrances having priority by operation of law over the Liens purported to be created pursuant to the Collateral Documents and (ii) such Lien is the only Lien (other than Permitted Encumbrances) to which such Collateral is subject. "FIRST UNION" has the meaning assigned to that term in the introduction to this Agreement. "FIRST UNION CMC" means First Union Capital Markets Corporation, a wholly-owned Subsidiary of First Union Corporation. "FISCAL QUARTER" means a fiscal quarter of any Fiscal Year. "FISCAL YEAR" means the fiscal year of Company and its Subsidiaries ending on the last Thursday in September of each calendar year. "FLOOD HAZARD PROPERTY" means a Mortgaged Property located in an area designated by the Federal Emergency Management Agency as having special flood or mud slide hazards. "FREEMAN SPOGLI" means Freeman Spogli & Co. Incorporated, a Delaware corporation, and/or its affiliated investment funds. "FUNDING AND PAYMENT OFFICE" means (i) the office of Administrative Agent and Swing Line Lender located at First Union National Bank, One First Union Center TW-10, 301 S. College Street, Charlotte, North Carolina 28288-0608, Attention: Syndication Agency Services, or (ii) such other office of Administrative Agent and Swing 15 Line Lender as may from time to time hereafter be designated as such in a written notice delivered by Administrative Agent and Swing Line Lender to Company and each Lender. "FUNDING DATE" means the date of the funding of a Loan. "GAAP" means, subject to the limitations on the application thereof set forth in subsection 1.2, generally accepted accounting principles set forth in opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession, in each case as the same are applicable to the circumstances as of the date of determination. "GOVERNMENTAL AUTHORIZATION" means any permit, license, authorization, plan, directive, consent order or consent decree of or from any federal, state or local governmental authority, agency or court. "HAZARDOUS MATERIALS" means (i) any chemical, material or substance at any time defined as or included in the definition of "hazardous substances", "hazardous wastes", "hazardous materials", "extremely hazardous waste", acutely hazardous waste", "radioactive waste", "biohazardous waste", "pollutant", "toxic pollutant", "contaminant", "restricted hazardous waste", "infectious waste", "toxic substances", or any other term or expression intended to define, list or classify substances by reason of properties harmful to health, safety or the indoor or outdoor environment (including harmful properties such as ignitability, corrosivity, reactivity, carcinogenicity, toxicity, reproductive toxicity, "TCLP toxicity" or "EP toxicity" or words of similar import under any applicable Environmental Laws); (ii) any oil, petroleum, petroleum fraction or petroleum derived substance; (iii) any drilling fluids, produced waters and other wastes associated with the exploration, development or production of crude oil, natural gas or geothermal resources; (iv) any flammable substances or explosives; (v) any radioactive materials; (vi) any asbestos-containing materials; (vii) urea formaldehyde foam insulation; (viii) electrical equipment which contains any oil or dielectric fluid containing polychlorinated biphenyls; (ix) pesticides; and (x) any other chemical, material or substance, exposure to which is prohibited, limited or regulated by any governmental authority or which may or could pose a hazard to the health and safety of the owners, occupants or any Persons in the vicinity of any Facility or to the indoor or outdoor environment. "HAZARDOUS MATERIALS ACTIVITY" means any past, current, proposed or threatened activity, event or occurrence involving any Hazardous Materials, including the use, manufacture, possession, storage, holding, presence, existence, location, Release, threatened Release, discharge, placement, generation, transportation, processing, construction, treatment, abatement, removal, remediation, disposal, disposition or handling of any Hazardous Materials, and any corrective action or response action with respect to any of the foregoing. 16 "HEDGE AGREEMENT" means an Interest Rate Agreement or a Currency Agreement designed to hedge against fluctuations in interest rates or currency values, respectively. "INDEBTEDNESS", as applied to any Person, means (i) all indebtedness for borrowed money, (ii) that portion of obligations with respect to Capital Leases that is properly classified as a liability on a balance sheet in conformity with GAAP, (iii) notes payable and drafts accepted representing extensions of credit whether or not representing obligations for borrowed money, (iv) any obligation owed for all or any part of the deferred purchase price of property or services (excluding any such obligations incurred under ERISA and any such obligations which represent accounts payable incurred in the ordinary course of business), which purchase price (a) is due more than six months from the date of incurrence of the obligation in respect thereof or (b) is evidenced by a note or similar written instrument, and (v) all indebtedness secured by any Lien on any property or asset owned or held by that Person regardless of whether the indebtedness secured thereby shall have been assumed by that Person or is nonrecourse to the credit of that Person. Obligations under Interest Rate Agreements and Currency Agreements constitute (X) in the case of Hedge Agreements, Contingent Obligations, and (Y) in all other cases, Investments, and in neither case constitute Indebtedness. "INDEMNITEE" means each of the Agents, the Lenders, CIBC WG, First Union CMC and their respective officers, directors, employees, agents and affiliates which are indemnified by Company pursuant to subsection 10.3. "INTELLECTUAL PROPERTY" means all patents, trademarks, tradenames, copyrights, technology, know-how and processes used in or necessary for the conduct of the business of Company and its Subsidiaries as currently conducted that are material to the condition (financial or otherwise), business or operations of Company and its Subsidiaries, taken as a whole. "INTEREST PAYMENT DATE" means (i) with respect to any Base Rate Loan, each January 31, April 30, July 31 and October 31 of each year, commencing on the first such date to occur after the Closing Date, and (ii) with respect to any Eurodollar Rate Loan, the last day of each Interest Period applicable to such Loan; provided that in the case of each Interest Period of six months -------- "Interest Payment Date" shall also include the date that is three months after the commencement of such Interest Period. "INTEREST PERIOD" means the interest period for each Eurodollar Rate Loan selected by Company, which interest period shall consist of a one, two, three or six month period. "INTEREST RATE AGREEMENT" means any interest rate swap agreement, interest rate cap agreement, interest rate collar agreement or other similar agreement or arrangement to which Company or any of its Subsidiaries is a party. 17 "INTEREST RATE DETERMINATION DATE" means, with respect to any Interest Period, the second Business Day prior to the first day of such Interest Period. "INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as amended to the date hereof and from time to time hereafter, and any successor statute. "INVENTORY" means, with respect to any Person as of any date of determination, all goods, merchandise and other personal property which are then held by such Person for sale or lease, including raw materials and work in process. "INVESTMENT" means (i) any direct or indirect purchase or other acquisition by Company or any of its Restricted Subsidiaries of, or of a beneficial interest in, any Securities of any other Person, (ii) any direct or indirect redemption, retirement, purchase or other acquisition for value, by any Restricted Subsidiary of Company from any Person other than Company or any of its Restricted Subsidiaries, of any equity Securities of such Person, (iii) any direct or indirect loan, advance (other than advances to employees for moving, entertainment and travel expenses, drawing accounts and similar expenditures in the ordinary course of business) or capital contribution by Company or any of its Restricted Subsidiaries to any other Person (other than a wholly-owned Restricted Subsidiary of Company), including all indebtedness and accounts receivable from that other Person that are not current assets or did not arise from sales to that other Person in the ordinary course of business, or (iv) Interest Rate Agreements or Currency Agreements not constituting Hedge Agreements. The amount of any Investment shall be the original cost of such Investment plus the cost of all additions thereto, without any adjustments for ---- increases or decreases in value, or write-ups, write-downs or write-offs with respect to such Investment. "IP COLLATERAL" means, collectively, the Collateral under the Company Trademark Security Agreement and the Subsidiary Trademark Security Agreements. "ISSUING LENDER" means, with respect to any Letter of Credit, the Lender which agrees or is otherwise obligated to issue such Letter of Credit, determined as provided in subsection 3.1B(ii). "JOINT VENTURE" means a joint venture, partnership or other similar arrangement, whether in corporate, partnership or other legal form; provided -------- that in no event shall any corporate Subsidiary of any Person be considered to be a Joint Venture to which such Person is a party. "LENDER" and "LENDERS" means the persons identified as "Lenders" and listed on the signature pages of this Agreement, together with their successors and permitted assigns pursuant to subsection 10.1, and the term "Lenders" shall include Swing Line Lender unless the context otherwise requires; provided that -------- the term "Lenders", when 18 used in the context of a particular Commitment, shall mean Lenders having that Commitment. "LETTER OF CREDIT" or "LETTERS OF CREDIT" means Commercial Letters of Credit and Standby Letters of Credit issued or to be issued by Issuing Lenders for the account of Company pursuant to subsection 3.1 and the Existing Letters of Credit. "LETTER OF CREDIT USAGE" means, as at any date of determination, the sum of (i) the maximum aggregate amount which is or at any time thereafter may become available for drawing under all Letters of Credit then outstanding plus ---- (ii) the aggregate amount of all drawings under Letters of Credit honored by Issuing Lenders and not theretofore reimbursed by Company. "LIBOR" means the rate for deposits in Dollars for a period equal to the Interest Period selected which appears on the Telerate Page 3750 at approximately 11:00 A.M. (London time), two (2) Business Days prior to the commencement of the applicable Interest Period. If, for any reason, such rate is not available, then "LIBOR" shall mean the rate per annum at which, as determined by Administrative Agent, Dollars in the amount of $5,000,000 are being offered to leading banks at approximately 11:00 A.M. (London time), two (2) Business Days prior to the commencement of the applicable Interest Period for settlement in immediately available funds by leading banks in the London interbank market for a period equal to the Interest Period selected. "LIEN" means any lien, mortgage, pledge, assignment, security interest, charge or encumbrance of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof, and any agreement to give any security interest) and any option, trust or other preferential arrangement having the practical effect of any of the foregoing. "LIL' CHAMP" means Lil' Champ Food Stores, Inc., a Florida corporation. "LIL' CHAMP ACQUISITION" has the meaning assigned to that term in the recitals of this Agreement. "LIL' CHAMP STOCK PURCHASE AGREEMENT" means that certain Stock Purchase Agreement by and among Docks U.S.A., Inc. and PHH dated as of August 26, 1997, in the form delivered to Agents and Lenders prior to their execution of this Agreement and as such agreement may be amended from time to time thereafter to the extent permitted under subsection 7.14A. "LOAN" or "LOANS" means one or more of the Acquisition Term Loans, Revolving Loans or Swing Line Loans or any combination thereof. 19 "LOAN DOCUMENTS" means this Agreement, the Notes, the Letters of Credit (and any applications for, or reimbursement agreements or other documents or certificates executed by Company in favor of an Issuing Lender relating to, the Letters of Credit), the Subsidiary Guaranty and the Collateral Documents. "LOAN PARTY" means each of Company and any of Company's Subsidiaries from time to time executing a Loan Document, and "LOAN PARTIES" means all such Persons, collectively. "MARGIN DETERMINATION CERTIFICATE" means an Officers' Certificate of Company delivered with the financial statements required pursuant to subsection 6.1(ii) or 6.1(iii) setting forth in reasonable detail the Consolidated Pro Forma Leverage Ratio which is applicable as of the date on which such Officers' Certificate is delivered. "MARGIN STOCK" has the meaning assigned to that term in Regulation U of the Board of Governors of the Federal Reserve System as in effect from time to time. "MATERIAL ADVERSE EFFECT" means (i) a material adverse effect upon the business, operations, properties, assets, condition (financial or otherwise) or prospects of Company or any of its Subsidiaries, taken as a whole, or (ii) the material impairment of the ability of any Loan Party to perform, or of Administrative Agent or Lenders to enforce, the Obligations. "MATERIAL CONTRACT" means any contract or other arrangement to which Company or any of its Subsidiaries is a party (other than the Loan Documents) for which breach, nonperformance, cancellation or failure to renew could have a Material Adverse Effect. "MORTGAGE" means a security instrument (whether designated as a deed of trust or a mortgage or by any similar title) executed and delivered by any Loan Party, substantially in the form of Exhibit XII annexed hereto or in such other ----------- form as may be approved by Administrative Agent in its sole discretion, in each case with such changes thereto as may be recommended by Administrative Agent's local counsel based on local laws or customary local mortgage or deed of trust practices, as such security instrument may be amended, supplemented or otherwise modified from time to time. "MULTIEMPLOYER PLAN" means any Employee Benefit Plan which is a "multiemployer plan" as defined in Section 3(37) of ERISA. "NET ASSET SALE PROCEEDS" means, with respect to any Asset Sale, Cash payments (including any Cash received by way of deferred payment pursuant to, or by monetization of, a note receivable or otherwise, but only as and when so received, and including any Cash received under any insurance policy or as a result of the taking of any assets pursuant to the power of eminent domain, condemnation or otherwise) received from 20 such Asset Sale, net of any direct costs incurred in connection with such Asset Sale, including (i) taxes reasonably estimated to be actually payable within two years of the date of such Asset Sale as a result of such Asset Sale, (ii) payment of the outstanding principal amount of, premium or penalty, if any, and interest on any Indebtedness (other than the Loans) that is secured by a Lien on the stock or assets in question and that is required to be repaid under the terms thereof as a result of such Asset Sale, and (iii) reasonable reserves established in good faith by Company to satisfy any indemnification obligations undertaken in connection with such Asset Sale. "NOTES" means one or more of the Acquisition Term Notes, Revolving Notes or Swing Line Note or any combination thereof. "NOTICE OF BORROWING" means a notice substantially in the form of Exhibit I annexed hereto delivered by Company to Administrative Agent pursuant - --------- to subsection 2.1B with respect to a proposed borrowing. "NOTICE OF CONVERSION/CONTINUATION" means a notice substantially in the form of Exhibit II annexed hereto delivered by Company to Administrative Agent ---------- pursuant to subsection 2.2D with respect to a proposed conversion or continuation of the applicable basis for determining the interest rate with respect to the Loans specified therein. "NOTICE OF ISSUANCE OF LETTER OF CREDIT" means a notice substantially in the form of Exhibit III annexed hereto delivered by Company to Administrative ----------- Agent pursuant to subsection 3.1B(i) with respect to the proposed issuance of a Letter of Credit. "OBLIGATIONS" means all obligations of every nature of each Loan Party from time to time owed to Agents, Lenders or any of them under the Loan Documents, whether for principal, interest, reimbursement of amounts drawn under Letters of Credit, fees, expenses, indemnification or otherwise. "OFFER AND CONSENT SOLICITATION" means, collectively, (i) the offer by Company to the holders of outstanding Senior Notes to repurchase for cash $51,000,000 in aggregate principal amount of such notes and (ii) the solicitation by Company from the holders of outstanding Senior Notes of consents to certain amendments and waivers to the Senior Note Indenture, in each case as described in the Offer and Consent Solicitation Materials, for an aggregate payment which does not exceed the principal amount of Senior Notes so repurchased, plus accrued and unpaid interest thereon, and up to $7,000,000 in tender offer premiums and consent fees. "OFFER AND CONSENT SOLICITATION MATERIALS" means, collectively, (i) the Offer to Purchase and Consent Solicitation Statement dated as of September 18, 1997, (ii) the Consent and Letter of Transmittal, together with the Substitute Form W-9, (iii) the Notice of Guaranteed Delivery, and (iv) such other documents, transmittal letters and related materials provided to the holders of outstanding Senior Notes in connection with 21 the Offer and Consent Solicitation and delivered to Agents and Lenders prior to their execution of this Agreement, as each such document, letter or material may be amended from time to time thereafter to the extent permitted under subsection 7.14A. "OFFERING MEMORANDUM" means that certain Offering Memorandum relating to the Senior Subordinated Notes dated October 17, 1997. "OFFICERS' CERTIFICATE" means, as applied to any corporation, a certificate executed on behalf of such corporation by its chairman of the board (if an officer) or its president or one of its vice presidents and by its chief financial officer or its treasurer; provided that every Officers' Certificate -------- with respect to the compliance with a condition precedent to the making of any Loans hereunder shall include (i) a statement that the officer or officers making or giving such Officers' Certificate have read such condition and any definitions or other provisions contained in this Agreement relating thereto, (ii) a statement that, in the opinion of the signers, they have made or have caused to be made such examination or investigation as is necessary to enable them to express an informed opinion as to whether or not such condition has been complied with, and (iii) a statement as to whether, in the opinion of the signers, such condition has been complied with. "OPERATING LEASE" means, as applied to any Person, any lease (including leases that may be terminated by the lessee at any time) of any property (whether real, personal or mixed) that is not a Capital Lease other than any such lease under which that Person is the lessor. "PBGC" means the Pension Benefit Guaranty Corporation or any successor thereto. "PENSION PLAN" means any Employee Benefit Plan, other than a Multiemployer Plan, which is subject to Section 412 of the Internal Revenue Code or Section 302 of ERISA. "PERMITTED ACQUISITION" means an acquisition of assets or a business effected in accordance with the provisions of subsection 7.7(vi). "PERMITTED ENCUMBRANCES" means the following types of Liens (excluding any such Lien imposed pursuant to Section 401(a)(29) or 412(n) of the Internal Revenue Code or by ERISA, any such Lien relating to or imposed in connection with any Environmental Claim, and any such Lien expressly prohibited by any applicable terms of any of the Collateral Documents): (i) Liens for taxes, assessments or governmental charges or claims the payment of which is not, at the time, required by subsection 6.3; 22 (ii) statutory Liens of landlords, statutory Liens of banks and rights of set-off, statutory Liens of carriers, warehousemen, mechanics, repairmen, workmen and materialmen, and other Liens imposed by law, in each case incurred in the ordinary course of business (a) for amounts not yet overdue or (b) for amounts that are overdue and that (in the case of any such amounts overdue for a period in excess of 30 days) are being contested in good faith by appropriate proceedings, so long as (1) such reserves or other appropriate provisions, if any, as shall be required by GAAP shall have been made for any such contested amounts, and (2) in the case of a Lien with respect to any portion of the Collateral, such contest proceedings conclusively operate to stay the sale of any portion of the Collateral on account of such Lien; (iii) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts, trade contracts, performance and return-of-money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money), so long as no foreclosure, sale or similar proceedings have been commenced with respect to any portion of the Collateral on account thereof; (iv) any attachment or judgment Lien not constituting an Event of Default under subsection 8.8; (v) leases or subleases granted to third parties in accordance with any applicable terms of the Collateral Documents and not interfering in any material respect with the ordinary conduct of the business of Company or any of its Subsidiaries or resulting in a material diminution in the value of any Collateral as security for the Obligations; (vi) easements, rights-of-way, restrictions, encroachments, and other minor defects or irregularities in title, in each case which do not and will not interfere in any material respect with the ordinary conduct of the business of Company or any of its Subsidiaries or result in a material diminution in the value of any Collateral as security for the Obligations; (vii) any (a) interest or title of a lessor or sublessor under any lease permitted by subsection 7.9, (b) restriction or encumbrance that the interest or title of such lessor or sublessor may be subject to, or (c) subordination of the interest of the lessee or sublessee under such lease to any restriction or encumbrance referred to in the preceding clause (b), so long as the holder of such restriction or encumbrance agrees to recognize the rights of such lessee or sublessee under such lease; 23 (viii) Liens arising from filing UCC financing statements relating solely to leases permitted by this Agreement; (ix) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods; (x) any zoning or similar law or right reserved to or vested in any governmental office or agency to control or regulate the use of any real property; (xi) Liens securing obligations (other than obligations representing Indebtedness for borrowed money) under operating, reciprocal easement or similar agreements entered into in the ordinary course of business of Company and its Subsidiaries; and (xii) licenses of patents, trademarks and other intellectual property rights granted by Company or any of its Subsidiaries in the ordinary course of business and not interfering in any material respect with the ordinary conduct of the business of Company or such Subsidiary. "PERSON" means and includes natural persons, corporations, limited partnerships, general partnerships, limited liability companies, limited liability partnerships, joint stock companies, Joint Ventures, associations, companies, trusts, banks, trust companies, land trusts, business trusts or other organizations, whether or not legal entities, and governments (whether federal, state or local, domestic or foreign, and including political subdivisions thereof) and agencies or other administrative or regulatory bodies thereof. "PHH" means PH Holding Corporation, a North Carolina corporation and a wholly-owned subsidiary of Company. "PLEDGED COLLATERAL" means, collectively, the "Pledged Collateral" as defined in the Company Pledge Agreement and the Subsidiary Pledge Agreements. "POTENTIAL EVENT OF DEFAULT" means a condition or event that, after notice or lapse of time or both, would constitute an Event of Default. "PRIME RATE" means the rate that First Union announces from time to time as its prime lending rate, as in effect from time to time. The Prime Rate is a reference rate and does not necessarily represent the lowest or best rate actually charged to any customer. First Union or any other Lender may make commercial loans or other loans at rates of interest at, above or below the Prime Rate. 24 "PRO RATA SHARE" means (i) with respect to all payments, computations and other matters relating to the Acquisition Term Loan Commitment or the Acquisition Term Loan of any Lender, the percentage obtained by dividing (x) the -------- Acquisition Term Loan Exposure of that Lender by (y) the aggregate Acquisition -- Term Loan Exposure of all Lenders, (ii) with respect to all payments, computations and other matters relating to the Revolving Loan Commitment or the Revolving Loans of any Lender or any Letters of Credit issued or participations therein purchased by any Lender or any participations in any Swing Line Loans purchased by any Lender, the percentage obtained by dividing (x) the Revolving -------- Loan Exposure of that Lender by (y) the aggregate Revolving Loan Exposure of all -- Lenders, and (iii) for all other purposes with respect to each Lender, the percentage obtained by dividing (x) the sum of the Acquisition Term Loan -------- Exposure of that Lender plus the Revolving Loan Exposure of that Lender by (y) ---- -- the sum of the aggregate Acquisition Term Loan Exposure of all Lenders plus the ---- aggregate Revolving Loan Exposure of all Lenders, in any such case as the applicable percentage may be adjusted by assignments permitted pursuant to subsection 10.1. The initial Pro Rata Share of each Lender for purposes of each of clauses (i), (ii) and (iii) of the preceding sentence is set forth opposite the name of that Lender in Schedule 2.1 annexed hereto. ------------ "PTO" means the United States Patent and Trademark Office or any successor or substitute office in which filings are necessary or, in the opinion of Administrative Agent, desirable in order to create or perfect Liens on any IP Collateral. "REAL PROPERTY ASSET" means, at any time of determination, any interest then owned by any Loan Party in any real property. "REFUNDED SWING LINE LOANS" means Swing Line Loans which are refunded through the proceeds of Revolving Loans made by the Lenders. "REGISTER" means the register established pursuant to subsection 2.1D for the recordation of each Lender's Commitments and Loans. "REGULATION D" means Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time. "REIMBURSEMENT DATE" means the date on which Company is required to reimburse the Issuing Lender for a drawing on a Letter of Credit. "RELATED AGREEMENTS" means, collectively, the Lil' Champ Stock Purchase Agreement, the Assignment and Assumption Agreement, the Offer and Consent Solicitation Materials, the Offering Memorandum, the Company Certificate of Designation, the Stockholders Agreement, the Related Financing Documents and the Affiliate Agreements. 25 "RELATED FINANCING DOCUMENTS" means, collectively, the Senior Notes, the Senior Note Indenture, the Senior Subordinated Notes, the Senior Subordinated Note Indenture and all other agreements or instruments delivered pursuant to or in connection with any of the foregoing including any purchase agreement or registration rights agreement. "RELEASE" means any release, spill, emission, leaking, pumping, pouring, injection, escaping, deposit, disposal, discharge, dispersal, dumping, leaching or migration of Hazardous Materials into the indoor or outdoor environment (including the abandonment or disposal of any barrels, containers or other closed receptacles containing any Hazardous Materials), including the movement of any Hazardous Materials through the air, soil, surface water or groundwater. "REQUISITE LENDERS" means Lenders having or holding more than 50% of the sum of the aggregate Acquisition Term Loan Exposure of all Lenders plus the ---- aggregate Revolving Loan Exposure of all Lenders. "RESTRICTED JUNIOR PAYMENT" means (i) any dividend or other distribution, direct or indirect, on account of any shares of any class of stock of Company now or hereafter outstanding, except a dividend payable solely in shares of that class of stock to the holders of that class, (ii) any redemption, retirement, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any shares of any class of stock of Company now or hereafter outstanding, (iii) any payment made to retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire shares of any class of stock of Company now or hereafter outstanding, and (iv) any payment or prepayment of principal of, premium, if any, or interest on, or redemption, purchase, retirement, defeasance (including in-substance or legal defeasance), sinking fund or similar payment with respect to, any Subordinated Indebtedness. "RESTRICTED SUBSIDIARY" means any Subsidiary of Company other than an Unrestricted Subsidiary. "REVOLVING LOAN COMMITMENT" means the commitment of a Lender to make Revolving Loans to Company pursuant to subsection 2.1A(ii), and "REVOLVING LOAN COMMITMENTS" means such commitments of all Lenders in the aggregate. "REVOLVING LOAN COMMITMENT TERMINATION DATE" means October 31, 2002. "REVOLVING LOAN EXPOSURE" means, with respect to any Lender as of any date of determination (i) prior to the termination of the Revolving Loan Commitments, that Lender's Revolving Loan Commitment and (ii) after the termination of the Revolving Loan Commitments, the sum of (a) the aggregate outstanding principal amount of the Revolving Loans of that Lender plus (b) in ---- the event that Lender is an Issuing Lender, the 26 aggregate Letter of Credit Usage in respect of all Letters of Credit issued by that Lender (in each case net of any participations purchased by other Lenders in such Letters of Credit or any unreimbursed drawings thereunder) plus (c) the ---- aggregate amount of all participations purchased by that Lender in any outstanding Letters of Credit or any unreimbursed drawings under any Letters of Credit plus (d) in the case of Swing Line Lender, the aggregate outstanding ---- principal amount of all Swing Line Loans (net of any participations therein purchased by other Lenders) plus (e) the aggregate amount of all participations ---- purchased by that Lender in any outstanding Swing Line Loans. "REVOLVING LOANS" means the Loans made by Lenders to Company pursuant to subsection 2.1A(ii). "REVOLVING NOTES" means (i) the promissory notes of Company issued pursuant to subsection 2.1E(i)(b) on the Closing Date and (ii) any promissory notes issued by Company pursuant to the last sentence of subsection 10.1B(i) in connection with assignments of the Revolving Loan Commitments and Revolving Loans of any Lenders, in each case substantially in the form of Exhibit V --------- annexed hereto, as they may be amended, supplemented or otherwise modified from time to time. "SECURITIES" means any stock, shares, partnership interests, voting trust certificates, certificates of interest or participation in any profit- sharing agreement or arrangement, options, warrants, bonds, debentures, notes, or other evidences of indebtedness, secured or unsecured, convertible, subordinated or otherwise, or in general any instruments commonly known as "securities" or any certificates of interest, shares or participations in temporary or interim certificates for the purchase or acquisition of, or any right to subscribe to, purchase or acquire, any of the foregoing. "SECURITIES ACT" means the Securities Act of 1933, as amended from time to time, and any successor statute. "SENIOR NOTE INDENTURE" means the indenture dated as of November 4, 1993 between Company and IBJ Schroder Bank & Trust Company, as trustee, pursuant to which the Senior Notes were issued, as amended by the supplemental indenture dated as of December 4, 1996, and as amended as described in the Offer and Consent Solicitation Materials and as such indenture may be further amended from time to time to the extent permitted under subsection 7.14C. "SENIOR NOTES" means $100,000,000 in initial aggregate principal amount of 12% Series B Senior Notes due 2000 of Company issued pursuant to the Senior Note Indenture, as such notes may be amended from time to time to the extent permitted under subsection 7.14C. 27 "SENIOR SUBORDINATED NOTE INDENTURE" means the indenture pursuant to which the Senior Subordinated Notes are issued, as such indenture may be amended from time to time to the extent permitted under subsection 7.14B. "SENIOR SUBORDINATED NOTES" means the 10 1/4% Senior Subordinated Notes due 2007 of Company issued pursuant to the Senior Subordinated Note Indenture, as such notes may be amended from time to time to the extent permitted under subsection 7.14B. "SOLVENT" means, with respect to any Person, that as of the date of determination both (A) (i) the then fair saleable value of the property of such Person is (y) greater than the total amount of liabilities (including contingent liabilities) of such Person and (z) not less than the amount that will be required to pay the probable liabilities on such Person's then existing debts as they become absolute and matured considering all financing alternatives and potential asset sales reasonably available to such Person; (ii) such Person's capital is not unreasonably small in relation to its business or any contemplated or undertaken transaction; and (iii) such Person does not intend to incur, or believe (nor should it reasonably believe) that it will incur, debts beyond its ability to pay such debts as they become due; and (B) such Person is "solvent" within the meaning given that term and similar terms under applicable laws relating to fraudulent transfers and conveyances. For purposes of this definition, the amount of any contingent liability at any time shall be computed as the amount that, in light of all of the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability. "STANDBY LETTER OF CREDIT" means any standby letter of credit or similar instrument issued for the purpose of supporting (i) Indebtedness of Company or any of its Restricted Subsidiaries in respect of industrial revenue or development bonds or financings, (ii) workers' compensation liabilities of Company or any of its Restricted Subsidiaries, (iii) the obligations of third party insurers of Company or any of its Restricted Subsidiaries arising by virtue of the laws of any jurisdiction requiring third party insurers, (iv) obligations with respect to Capital Leases or Operating Leases of Company or any of its Restricted Subsidiaries, and (v) performance, payment, deposit, surety or indemnity obligations of Company or any of its Restricted Subsidiaries, in any case if required by law or governmental rule or regulation or in accordance with custom and practice in the industry; provided that Standby Letters of Credit may -------- not be issued for the purpose of supporting (a) trade payables or (b) any Indebtedness constituting "antecedent debt" (as that term is used in Section 547 of the Bankruptcy Code). "STOCKHOLDERS AGREEMENT" means that certain Stockholders' Agreement dated as of August 19, 1996 by and among Company, Freeman Spogli, CMC and the other stockholders of Company, in the form delivered to Agents and Lenders prior to their execution of this Agreement and as such agreement may be amended from time to time thereafter to the extent permitted under subsection 7.14A. 28 "SUBORDINATED INDEBTEDNESS" means (i) the Indebtedness of Company evidenced by the Senior Subordinated Notes and (ii) any other Indebtedness of Company subordinated in right of payment to the Obligations pursuant to documentation containing maturities, amortization schedules, covenants, defaults, remedies, subordination provisions and other material terms in form and substance satisfactory to Administrative Agent and Requisite Lenders. "SUBSIDIARY" means, with respect to any Person, any corporation, partnership, limited liability company, association, joint venture or other business entity of which more than 50% of the total voting power of shares of stock or other ownership interests entitled (without regard to the occurrence of any contingency) to vote in the election of the Person or Persons (whether directors, managers, trustees or other Persons performing similar functions) having the power to direct or cause the direction of the management and policies thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof. "SUBSIDIARY GUARANTOR" means any Restricted Subsidiary of Company that executes and delivers a counterpart of the Subsidiary Guaranty on the Closing Date or from time to time thereafter pursuant to subsection 6.8. "SUBSIDIARY GUARANTY" means the Subsidiary Guaranty executed and delivered by existing Restricted Subsidiaries of Company on the Closing Date and to be executed and delivered by additional Restricted Subsidiaries of Company from time to time thereafter in accordance with subsection 6.8, substantially in the form of Exhibit XVIII annexed hereto, as such Subsidiary Guaranty may ------------- hereafter be amended, supplemented or otherwise modified from time to time. "SUBSIDIARY PLEDGE AGREEMENT" means each Subsidiary Pledge Agreement executed and delivered by an existing Subsidiary Guarantor on the Closing Date or executed and delivered by any additional Subsidiary Guarantor from time to time thereafter in accordance with subsection 6.8, in each case substantially in the form of Exhibit XIX annexed hereto, as such Subsidiary Pledge Agreement may ----------- be amended, supplemented or otherwise modified from time to time, and "SUBSIDIARY PLEDGE AGREEMENTS" means all such Subsidiary Pledge Agreements, collectively. "SUBSIDIARY SECURITY AGREEMENT" means each Subsidiary Security Agreement executed and delivered by an existing Subsidiary Guarantor on the Closing Date or executed and delivered by any additional Subsidiary Guarantor from time to time thereafter in accordance with subsection 6.8, in each case substantially in the form of Exhibit XX annexed hereto, as such Subsidiary ---------- Security Agreement may be amended, supplemented or otherwise modified from time to time, and "SUBSIDIARY SECURITY AGREEMENTS" means all such Subsidiary Security Agreements, collectively. 29 "SUBSIDIARY TRADEMARK SECURITY AGREEMENT" means each Subsidiary Trademark Security Agreement executed and delivered by an existing Subsidiary Guarantor on the Closing Date or executed and delivered by any additional Subsidiary Guarantor from time to time thereafter in accordance with subsection 6.8, in each case substantially in the form of Exhibit XXI annexed hereto, as ----------- such Subsidiary Trademark Security Agreement may be amended, supplemented or otherwise modified from time to time, and "SUBSIDIARY TRADEMARK SECURITY AGREEMENTS" means all such Subsidiary Trademark Security Agreements, collectively. "SUPPLEMENTAL COLLATERAL AGENT" means any additional collateral agent appointed pursuant to subsection 9.1D. "SWING LINE LENDER" means First Union, or any Person serving as a successor Administrative Agent hereunder, in its capacity as Swing Line Lender hereunder. "SWING LINE LOAN COMMITMENT" means the commitment of Swing Line Lender to make Swing Line Loans to Company pursuant to subsection 2.1A(iii). "SWING LINE LOANS" means the Loans made by Swing Line Lender to Company pursuant to subsection 2.1A(iii). "SWING LINE NOTE" means (i) the promissory note of Company issued pursuant to subsection 2.1E(ii) on the Closing Date and (ii) any promissory note issued by Company to any successor Administrative Agent and Swing Line Lender pursuant to the last sentence of subsection 9.5B, in each case substantially in the form of Exhibit VI annexed hereto, as it may be amended, supplemented or ---------- otherwise modified from time to time. "SYNDICATION AGENT" has the meaning assigned to that term in the introduction to this Agreement. "TAX" or "TAXES" means any present or future tax, levy, impost, duty, charge, fee, deduction or withholding of any nature and whatever called, by whomsoever, on whomsoever and wherever imposed, levied, collected, withheld or assessed; provided that "TAX ON THE OVERALL NET INCOME" of a Person shall be -------- construed as a reference to a tax imposed by the jurisdiction in which that Person is organized or in which that Person's principal office (and/or, in the case of a Lender, its lending office) is located or in which that Person (and/or, in the case of a Lender, its lending office) is deemed to be doing business on all or part of the net income, profits or gains (whether worldwide, or only insofar as such income, profits or gains are considered to arise in or to relate to a particular jurisdiction, or otherwise) of that Person (and/or, in the case of a Lender, its lending office). 30 "TOTAL UTILIZATION OF REVOLVING LOAN COMMITMENTS" means, as at any date of determination, the sum of (i) the aggregate principal amount of all outstanding Revolving Loans plus (ii) the aggregate principal amount of all ---- outstanding Swing Line Loans plus (iii) the Letter of Credit Usage. ---- "TRANSACTION COSTS" means the fees, costs and expenses payable by Company on or before the Closing Date in connection with the transactions contemplated by the Loan Documents and the Related Agreements. "UCC" means the Uniform Commercial Code (or any similar or equivalent legislation) as in effect in any applicable jurisdiction. "UNRESTRICTED SUBSIDIARIES" means PHH and any Subsidiary of PHH, whether in existence on the Closing Date or thereafter created or acquired; provided, that Company or any of its Restricted Subsidiaries do not directly own - -------- any equity interest in such Subsidiary. 1.2. ACCOUNTING TERMS; UTILIZATION OF GAAP FOR PURPOSES OF CALCULATIONS UNDER ------------------------------------------------------------------------ AGREEMENT. --------- Except as otherwise expressly provided in this Agreement, all accounting terms not otherwise defined herein shall have the meanings assigned to them in conformity with GAAP. Financial statements and other information required to be delivered by Company to Lenders pursuant to clauses (i), (ii), (iii) and (xiii) of subsection 6.1 shall be prepared in accordance with GAAP as in effect at the time of such preparation (and delivered together with the reconciliation statements provided for in subsection 6.1(v)). Calculations in connection with the definitions, covenants and other provisions of this Agreement shall utilize accounting principles and policies in conformity with those used to prepare the financial statements referred to in subsection 5.3. 1.3. OTHER DEFINITIONAL PROVISIONS AND RULES OF CONSTRUCTION. ------------------------------------------------------- A. Any of the terms defined herein may, unless the context otherwise requires, be used in the singular or the plural, depending on the reference. B. References to "Sections" and "subsections" shall be to Sections and subsections, respectively, of this Agreement unless otherwise specifically provided. C. The use in any of the Loan Documents of the word "include" or "including", when following any general statement, term or matter, shall not be construed to limit such statement, term or matter to the specific items or matters set forth immediately following such word or to similar items or matters, whether or not nonlimiting language (such as "without limitation" or "but not limited to" or words of similar import) is used with reference thereto, but rather shall be deemed to refer to all 31 other items or matters that fall within the broadest possible scope of such general statement, term or matter. SECTION 2. AMOUNTS AND TERMS OF COMMITMENTS AND LOANS 2.1 COMMITMENTS; MAKING OF LOANS; THE REGISTER; NOTES. ------------------------------------------------- A. Commitments. Subject to the terms and conditions of this Agreement and in reliance upon the representations and warranties of Company herein set forth, each Lender hereby severally agrees to make the Loans described in subsections 2.1A(i) and 2.1A(ii) and Swing Line Lender hereby agrees to make the Loans described in subsection 2.1A(iii). (i) Acquisition Term Loans. Each Lender severally agrees, subject to ---------------------- the provisions set forth in subsection 7.7(vi), to lend to Company from time to time during the period from the Closing Date to but excluding the Acquisition Term Loan Commitment Termination Date an amount not exceeding its Pro Rata Share of the aggregate amount of the Acquisition Term Loan Commitments to be used for the purposes identified in subsection 2.5A. The original amount of each Lender's Acquisition Term Loan Commitment is set forth opposite its name on Schedule 2.1 annexed hereto and the aggregate ------------ amount of the Acquisition Term Loan Commitments is $30,000,000; provided -------- that the Acquisition Term Loan Commitments of Lenders shall be adjusted to give effect to any assignments of the Acquisition Term Loan Commitments pursuant to subsection 10.1B; and provided, further that the amount of the -------- ------- Acquisition Term Loan Commitment of any Lender shall be reduced from time to time by the amount of any Acquisition Term Loan made by such Lender and shall be further reduced from time to time by the amount of any reductions thereto made pursuant to subsections 2.4B(ii) and 2.4B(iii). Each Lender's Acquisition Term Loan Commitment shall expire on the Acquisition Term Loan Commitment Termination Date and all outstanding Acquisition Term Loans on such date shall be repaid in accordance with subsection 2.4A; provided that -------- each Lender's Acquisition Term Loan Commitment shall expire immediately and without further action on November 14, 1997 if the Closing Date shall not have occurred on or before that date. Amounts borrowed under this subsection 2.1A(i) and subsequently repaid or prepaid may not be reborrowed. (ii) Revolving Loans. Each Lender severally agrees, subject to the --------------- limitations set forth below with respect to the maximum amount of Revolving Loans permitted to be outstanding from time to time, to lend to Company from time to time during the period from the Closing Date to but excluding the Revolving Loan Commitment Termination Date an aggregate amount not exceeding its Pro Rata Share of the aggregate amount of the Revolving Loan Commitments to be used for the purposes identified in subsection 2.5B. The original amount of each 32 Lender's Revolving Loan Commitment is set forth opposite its name on Schedule 2.1 annexed hereto and the aggregate original amount of the ------------ Revolving Loan Commitments is $45,000,000; provided that the Revolving Loan -------- Commitments of Lenders shall be adjusted to give effect to any assignments of the Revolving Loan Commitments pursuant to subsection 10.1B; and provided, further that the amount of the Revolving Loan Commitments shall -------- ------- be reduced from time to time by the amount of any reductions thereto made pursuant to subsections 2.4B(ii) and 2.4B(iii). Each Lender's Revolving Loan Commitment shall expire on the Revolving Loan Commitment Termination Date and all Revolving Loans and all other amounts owed hereunder with respect to the Revolving Loans and the Revolving Loan Commitments shall be paid in full no later than that date; provided that each Lender's Revolving -------- Loan Commitment shall expire immediately and without further action on November 14, 1997 if the Closing Date shall not have occurred on or before that date. Amounts borrowed under this subsection 2.1A(ii) may be repaid and reborrowed to but excluding the Revolving Loan Commitment Termination Date. Anything contained in this Agreement to the contrary notwithstanding, in no event shall the Total Utilization of Revolving Loan Commitments at any time exceed the Revolving Loan Commitments then in effect. (iii) Swing Line Loans. Swing Line Lender hereby agrees, subject to ---------------- the limitations set forth below with respect to the maximum amount of Swing Line Loans permitted to be outstanding from time to time, to make a portion of the Revolving Loan Commitments available to Company from time to time during the period from the Closing Date to but excluding the Revolving Loan Commitment Termination Date by making Swing Line Loans to Company in an aggregate amount not exceeding the amount of the Swing Line Loan Commitment to be used for the purposes identified in subsection 2.5B, notwithstanding the fact that such Swing Line Loans, when aggregated with Swing Line Lender's outstanding Revolving Loans and Swing Line Lender's Pro Rata Share of the Letter of Credit Usage then in effect, may exceed Swing Line Lender's Revolving Loan Commitment. The original amount of the Swing Line Loan Commitment is $3,000,000; provided that any reduction of the Revolving -------- Loan Commitments made pursuant to subsection 2.4B(ii) or 2.4B(iii) which reduces the aggregate Revolving Loan Commitments to an amount less than the then current amount of the Swing Line Loan Commitment shall result in an automatic corresponding reduction of the Swing Line Loan Commitment to the amount of the Revolving Loan Commitments, as so reduced, without any further action on the part of Company, any Agent or Swing Line Lender. The Swing Line Loan Commitment shall expire on the Revolving Loan Commitment Termination Date and all Swing Line Loans and all other amounts owed hereunder with respect to the Swing Line Loans shall be paid in full no later than that date; provided that the Swing Line Loan Commitment shall -------- expire immediately and without further action on November 14, 1997 if the Closing 33 Date shall not have occurred on or before that date. Amounts borrowed under this subsection 2.1A(iii) may be repaid and reborrowed to but excluding the Revolving Loan Commitment Termination Date. Anything contained in this Agreement to the contrary notwithstanding, in no event shall the Total Utilization of Revolving Loan Commitments at any time exceed the Revolving Loan Commitments then in effect. With respect to any Swing Line Loans which have not been voluntarily prepaid by Company pursuant to subsection 2.4B(i), Swing Line Lender may, at any time in its sole and absolute discretion, deliver to Administrative Agent (with a copy to Company), no later than 11:00 A.M. (Charlotte, NC time) on the first Business Day in advance of the proposed Funding Date, a notice (which shall be deemed to be a Notice of Borrowing given by Company) requesting Lenders to make Revolving Loans that are Base Rate Loans on such Funding Date in an amount equal to the amount of such Swing Line Loans (the "REFUNDED SWING LINE LOANS") outstanding on the date such notice is given which Swing Line Lender requests Lenders to prepay. Anything contained in this Agreement to the contrary notwithstanding, (i) the proceeds of such Revolving Loans made by Lenders other than Swing Line Lender shall be immediately delivered by Administrative Agent to Swing Line Lender (and not to Company) and applied to repay a corresponding portion of the Refunded Swing Line Loans and (ii) on the day such Revolving Loans are made, Swing Line Lender's Pro Rata Share of the Refunded Swing Line Loans shall be deemed to be paid with the proceeds of a Revolving Loan made by Swing Line Lender, and such portion of the Swing Line Loans deemed to be so paid shall no longer be outstanding as Swing Line Loans and shall no longer be due under the Swing Line Note, of Swing Line Lender but shall instead constitute part of Swing Line Lender's outstanding Revolving Loans and shall be due under the Revolving Note, of Swing Line Lender. Company hereby authorizes Administrative Agent and Swing Line Lender to charge Company's accounts with Administrative Agent and Swing Line Lender (up to the amount available in each such account) in order to immediately pay Swing Line Lender the amount of the Refunded Swing Line Loans to the extent the proceeds of such Revolving Loans made by Lenders, including the Revolving Loan deemed to be made by Swing Line Lender, are not sufficient to repay in full the Refunded Swing Line Loans. If any portion of any such amount paid (or deemed to be paid) to Swing Line Lender should be recovered by or on behalf of Company from Swing Line Lender in bankruptcy, by assignment for the benefit of creditors or otherwise, the loss of the amount so recovered shall be ratably shared among all Lenders in the manner contemplated by subsection 10.5. Immediately upon the funding of each Swing Line Loan by Swing Line Lender, each Lender shall be deemed to, and hereby agrees to, have purchased a participation in such outstanding Swing Line Loans in an amount equal to its Pro 34 Rata Share (calculated without giving effect to clauses (d) and (e) of the definition of Revolving Loan Exposure) of the unpaid amount of such Swing Line Loans together with accrued interest thereon. Upon one Business Day's notice from Swing Line Lender, each Lender shall deliver to Swing Line Lender an amount equal to its respective participation in same day funds at the Funding and Payment Office. In order to evidence such participation, each Lender agrees to enter into a separate participation agreement at the request of Swing Line Lender in form and substance reasonably satisfactory to all parties. In the event any Lender fails to make available to Swing Line Lender the amount of such Lender's participation as provided in this paragraph, Swing Line Lender shall be entitled to recover such amount on demand from such Lender together with interest thereon at the rate customarily used by Swing Line Lender for the correction of errors among banks for three Business Days and thereafter at the Base Rate. In the event Swing Line Lender receives a payment of any amount in which other Lenders have purchased participations as provided in this paragraph, Swing Line Lender shall promptly distribute to each such other Lender its Pro Rata Share of such payment. Anything contained herein to the contrary notwithstanding, each Lender's obligation to make Revolving Loans for the purpose of repaying any Refunded Swing Line Loans pursuant to the second preceding paragraph and each Lender's obligation to purchase a participation in any unpaid Swing Line Loans pursuant to the immediately preceding paragraph shall be absolute and unconditional and shall not be affected by any circumstance, including (a) any set-off, counterclaim, recoupment, defense or other right which such Lender may have against Swing Line Lender, Company or any other Person for any reason whatsoever; (b) the occurrence or continuation of an Event of Default or a Potential Event of Default; (c) any adverse change in the business, operations, properties, assets, condition (financial or otherwise) or prospects of Company or any of its Subsidiaries; (d) any breach of this Agreement or any other Loan Document by any party thereto; or (e) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing; provided that such obligations of each -------- Lender are subject to the condition that (X) Swing Line Lender believed in good faith that all conditions under Section 4 to the making of the applicable Refunded Swing Line Loans or other unpaid Swing Line Loans, as the case may be, were satisfied at the time such Refunded Swing Line Loans or unpaid Swing Line Loans were made or (Y) the satisfaction of any such condition not satisfied had been waived in accordance with subsection 10.6. B. Borrowing Mechanics. Acquisition Term Loans or Revolving Loans made on any Funding Date (other than Revolving Loans made pursuant to a request by Swing Line Lender pursuant to subsection 2.1A(iii) for the purpose of repaying any Refunded Swing Line Loans or Revolving Loans made pursuant to subsection 3.3B for the purpose of reimbursing any Issuing Lender for the amount of a drawing under a Letter of Credit issued by it) shall be in an aggregate minimum amount of $1,000,000 and integral 35 multiples of $500,000 in excess of that amount; provided that Acquisition Term -------- Loans or Revolving Loans made on any Funding Date as Eurodollar Rate Loans with a particular Interest Period shall be in an aggregate minimum amount of $3,000,000 and integral multiples of $1,000,000 in excess of that amount. Swing Line Loans made on any Funding Date shall be in an aggregate minimum amount of $200,000 and integral multiples of $100,000 in excess of that amount. Whenever Company desires that Lenders make Acquisition Term Loans or Revolving Loans it shall deliver to Administrative Agent a Notice of Borrowing no later than 11:00 A.M. (Charlotte, NC time) at least three Business Days in advance of the proposed Funding Date (in the case of a Eurodollar Rate Loan) or at least one Business Day in advance of the proposed Funding Date (in the case of a Base Rate Loan). Whenever Company desires that Swing Line Lender make a Swing Line Loan, it shall deliver to Administrative Agent a Notice of Borrowing no later than 12:00 Noon (Charlotte, NC time) on the proposed Funding Date. The Notice of Borrowing shall specify (i) the proposed Funding Date (which shall be a Business Day), (ii) the amount and type of Loans requested, (iii) in the case of Swing Line Loans and any Loans made on the Closing Date or the two Business Days immediately succeeding the Closing Date, that such Loans shall be Base Rate Loans, (iv) in the case of Acquisition Term Loans and Revolving Loans not made on the Closing Date, whether such Loans shall be Base Rate Loans or Eurodollar Rate Loans, and (v) in the case of any Loans requested to be made as Eurodollar Rate Loans, the initial Interest Period requested therefor. Acquisition Term Loans and Revolving Loans may be continued as or converted into Base Rate Loans and Eurodollar Rate Loans in the manner provided in subsection 2.2D. In lieu of delivering the above-described Notice of Borrowing, Company may give Administrative Agent telephonic notice by the required time of any proposed borrowing under this subsection 2.1B; provided that such notice shall be -------- promptly confirmed in writing by delivery of a Notice of Borrowing to Administrative Agent on or before the applicable Funding Date. Neither Administrative Agent nor any Lender shall incur any liability to Company in acting upon any telephonic notice referred to above that Administrative Agent believes in good faith to have been given by a duly authorized officer or other person authorized to borrow on behalf of Company or for otherwise acting in good faith under this subsection 2.1B, and upon funding of Loans by Lenders in accordance with this Agreement pursuant to any such telephonic notice Company shall have effected Loans hereunder. Company shall notify Administrative Agent prior to the funding of any Loans in the event that any of the matters to which Company is required to certify in the applicable Notice of Borrowing is no longer true and correct as of the applicable Funding Date, and the acceptance by Company of the proceeds of any Loans shall constitute a re-certification by Company, as of the applicable Funding Date, as to the matters to which Company is required to certify in the applicable Notice of Borrowing. 36 Except as otherwise provided in subsections 2.6B, 2.6C and 2.6G, a Notice of Borrowing for a Eurodollar Rate Loan (or telephonic notice in lieu thereof) shall be irrevocable on and after the related Interest Rate Determination Date, and Company shall be bound to make a borrowing in accordance therewith. C. Disbursement of Funds. All Acquisition Term Loans and Revolving Loans under this Agreement shall be made by Lenders simultaneously and proportionately to their respective Pro Rata Shares, it being understood that no Lender shall be responsible for any default by any other Lender in that other Lender's obligation to make a Loan requested hereunder nor shall the Commitment of any Lender to make the particular type of Loan requested be increased or decreased as a result of a default by any other Lender in that other Lender's obligation to make a Loan requested hereunder. Promptly after receipt by Administrative Agent of a Notice of Borrowing pursuant to subsection 2.1B (or telephonic notice in lieu thereof), Administrative Agent shall notify each Lender or Swing Line Lender, as the case may be, of the proposed borrowing. Each Lender shall make the amount of its Loan available to Administrative Agent not later than 1:00 P.M. (Charlotte, NC time) on the applicable Funding Date, and Swing Line Lender shall make the amount of its Swing Line Loan available to Administrative Agent not later than 2:00 P.M.(Charlotte, NC time) on the applicable Funding Date, in each case in same day funds in Dollars, at the Funding and Payment Office. Except as provided in subsection 2.1A(iii) or subsection 3.3B with respect to Revolving Loans used to repay Refunded Swing Line Loans or to reimburse any Issuing Lender for the amount of a drawing under a Letter of Credit issued by it, upon satisfaction or waiver of the conditions precedent specified in subsections 4.1 (in the case of Loans made on the Closing Date) and 4.2 (in the case of all Loans), Administrative Agent shall make the proceeds of such Loans available to Company on the applicable Funding Date by causing an amount of same day funds in Dollars equal to the proceeds of all such Loans received by Administrative Agent from Lenders or Swing Line Lender, as the case may be, to be credited to the account of Company at the Funding and Payment Office. Unless Administrative Agent shall have been notified by any Lender prior to the Funding Date for any Loans that such Lender does not intend to make available to Administrative Agent the amount of such Lender's Loan requested on such Funding Date, Administrative Agent may assume that such Lender has made such amount available to Administrative Agent on such Funding Date and Administrative Agent may, in its sole discretion, but shall not be obligated to, make available to Company a corresponding amount on such Funding Date. If such corresponding amount is not in fact made available to Administrative Agent by such Lender, Administrative Agent shall be entitled to recover such corresponding amount on demand from such Lender together with interest thereon, for each day from such Funding Date until the date such amount is paid to Administrative Agent, at the customary rate set by Administrative Agent for the correction of errors among banks for three Business Days and thereafter at the Base Rate. If such Lender does not pay such corresponding amount forthwith upon Administrative Agent's demand therefor, Administrative Agent shall promptly notify Company and Company shall 37 immediately pay such corresponding amount to Administrative Agent together with interest thereon, for each day from such Funding Date until the date such amount is paid to Administrative Agent, at the rate payable under this Agreement for Base Rate Loans. Nothing in this subsection 2.1C shall be deemed to relieve any Lender from its obligation to fulfill its Commitments hereunder or to prejudice any rights that Company may have against any Lender as a result of any default by such Lender hereunder. D. The Register. (i) Administrative Agent shall maintain, at its address referred to in subsection 10.8, a register for the recordation of the names and addresses of Lenders and the Commitments and Loans of each Lender from time to time (the "REGISTER"). The Register shall be available for inspection by Company or any Lender at any reasonable time and from time to time upon reasonable prior notice. (ii) Administrative Agent shall record in the Register the Acquisition Term Loan Commitment and Revolving Loan Commitment and the Acquisition Term Loan and Revolving Loans from time to time of each Lender, the Swing Line Loan Commitment and the Swing Line Loans from time to time of Swing Line Lender, and each repayment or prepayment in respect of the principal amount of the Acquisition Term Loan or Revolving Loans of each Lender or the Swing Line Loans of Swing Line Lender. Any such recordation shall be conclusive and binding on Company and each Lender, absent manifest error; provided that failure to make any such recordation, or any error in -------- such recordation, shall not affect any Lender's Commitments or Company's Obligations in respect of any applicable Loans. (iii) Each Lender shall record on its internal records (including the Notes held by such Lender) the amount of the Acquisition Term Loan and each Revolving Loan made by it and each payment in respect thereof. Any such recordation shall be conclusive and binding on Company, absent manifest error; provided that failure to make any such recordation, or any error in -------- such recordation, shall not affect any Lender's Commitments or Company's Obligations in respect of any applicable Loans; and provided, further that -------- ------- in the event of any inconsistency between the Register and any Lender's records, the recordations in the Register shall govern absent manifest error. (iv) Company, Agents and Lenders shall deem and treat the Persons listed as Lenders in the Register as the holders and owners of the corresponding Commitments and Loans listed therein for all purposes hereof, and no assignment or transfer of any such Commitment or Loan shall be effective, in each case unless and until an Assignment Agreement effecting the assignment or transfer thereof shall have been accepted by Administrative Agent and recorded in the Register as provided in subsection 10.1B(ii). Prior to such recordation, all amounts owed with 38 respect to the applicable Commitment or Loan shall be owed to the Lender listed in the Register as the owner thereof, and any request, authority or consent of any Person who, at the time of making such request or giving such authority or consent, is listed in the Register as a Lender shall be conclusive and binding on any subsequent holder, assignee or transferee of the corresponding Commitments or Loans. (v) Company hereby designates First Union to serve as Company's agent solely for purposes of maintaining the Register as provided in this subsection 2.1D, and Company hereby agrees that, to the extent First Union serves in such capacity, First Union and its officers, directors, employees, agents and affiliates shall constitute Indemnitees for all purposes under subsection 10.3. E. NOTES. Company shall execute and deliver on the Closing Date (i) to each Lender (or to Administrative Agent for that Lender) (a) an Acquisition Term Note substantially in the form of Exhibit IV annexed hereto to evidence that ---------- Lender's Acquisition Term Loan, in the principal amount of that Lender's Acquisition Term Loan Commitment and with other appropriate insertions, and (b) a Revolving Note substantially in the form of Exhibit V annexed hereto to --------- evidence that Lender's Revolving Loans, in the principal amount of that Lender's Revolving Loan Commitment and with other appropriate insertions, and (ii) to Swing Line Lender (or to Administrative Agent for Swing Line Lender) a Swing Line Note substantially in the form of Exhibit VI annexed hereto to evidence ---------- Swing Line Lender's Swing Line Loans, in the principal amount of the Swing Line Loan Commitment and with other appropriate insertions. 2.2 INTEREST ON THE LOANS. --------------------- A. Rate of Interest. Subject to the provisions of subsections 2.6 and 2.7, each Acquisition Term Loan and each Revolving Loan shall bear interest on the unpaid principal amount thereof from the date made to maturity (whether by acceleration or otherwise) at a rate determined by reference to the Base Rate or the Adjusted Eurodollar Rate. Subject to the provisions of subsection 2.7, each Swing Line Loan shall bear interest on the unpaid principal amount thereof from the date made to maturity (whether by acceleration or otherwise) at a rate determined by reference to the Base Rate. The applicable basis for determining the rate of interest with respect to any Acquisition Term Loan or any Revolving Loan shall be selected by Company initially at the time a Notice of Borrowing is given with respect to such Loan pursuant to subsection 2.1B, and the basis for determining the interest rate with respect to any Acquisition Term Loan or any Revolving Loan may be changed from time to time pursuant to subsection 2.2D. If on any day an Acquisition Term Loan or a Revolving Loan is outstanding with respect to which notice has not been delivered to Administrative Agent in accordance with the terms of this Agreement specifying the applicable basis for determining the rate of interest, then for that day that Loan shall bear interest determined by reference to the Base Rate. 39 Subject to the provisions of subsections 2.2E and 2.7, the Acquisition Term Loans and the Revolving Loans shall bear interest through maturity as follows: (i) if a Base Rate Loan, then at the sum of the Base Rate plus the ---- Applicable Base Rate Margin; or (ii) if a Eurodollar Rate Loan, then at the sum of the Adjusted Eurodollar Rate plus the Applicable Eurodollar Margin. ---- Upon delivery of the Margin Determination Certificate by Company to Administrative Agent pursuant to subsection 6.1(xix), the Applicable Base Rate Margin and the Applicable Eurodollar Margin shall automatically be adjusted in accordance with such Margin Determination Certificate, such adjustment to become effective on the next succeeding Business Day following the receipt by Administrative Agent of such Margin Determination Certificate; provided that if -------- a Margin Determination Certificate is not delivered at the time required pursuant to subsection 6.1(xix), clause (ii) of the definitions of "Applicable Base Rate Margin" and "Applicable Eurodollar Rate Margin", as the case may be, shall be applicable from such time until delivery of a succeeding Margin Determination Certificate; provided further that if a Margin Determination -------- ------- Certificate erroneously indicates an applicable margin more favorable to Company than should be afforded by the actual calculation of the Consolidated Pro Forma Leverage Ratio, Company shall promptly pay additional interest and letter of credit fees to correct for such error. Subject to the provisions of subsections 2.2E and 2.7, the Swing Line Loans shall bear interest to maturity at the sum of the Base Rate plus the ---- Applicable Base Rate Margin. B. Interest Periods. In connection with each Eurodollar Rate Loan, Company may, pursuant to the applicable Notice of Borrowing or Notice of Conversion/Continuation, as the case may be, select an interest period (each an "INTEREST PERIOD") to be applicable to such Loan, which Interest Period shall be, at Company's option, either a one, two, three or six month period; provided -------- that: (i) the initial Interest Period for any Eurodollar Rate Loan shall commence on the Funding Date in respect of such Loan, in the case of a Loan initially made as a Eurodollar Rate Loan, or on the date specified in the applicable Notice of Conversion/Continuation, in the case of a Loan converted to a Eurodollar Rate Loan; (ii) in the case of immediately successive Interest Periods applicable to a Eurodollar Rate Loan continued as such pursuant to a Notice of Conversion/Continuation, each successive Interest Period shall commence on the day on which the next preceding Interest Period expires; 40 (iii) if an Interest Period would otherwise expire on a day that is no a Business Day, such Interest Period shall expire on the next succeeding Business Day; provided that, if any Interest Period would otherwise expire -------- on a day that is not a Business Day but is a day of the month after which no further Business Day occurs in such month, such Interest Period shall expire on the next preceding Business Day; (iv) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall, subject to clause (v) of this subsection 2.2B, end on the last Business Day of a calendar month; (v) no Interest Period with respect to any portion of the Acquisition Term Loans shall extend beyond October 31, 2002 and no Interest Period with respect to any portion of the Revolving Loans shall extend beyond the Revolving Loan Commitment Termination Date; (vi) no Interest Period with respect to any portion of the Acquisition Term Loans shall extend beyond a date on which Company is required to make a scheduled payment of principal of the Acquisition Term Loans unless the sum of (a) the aggregate principal amount of Acquisition Term Loans that are Base Rate Loans plus (b) the aggregate principal amount ---- of Acquisition Term Loans that are Eurodollar Rate Loans with Interest Periods expiring on or before such date equals or exceeds the principal amount required to be paid on the Acquisition Term Loans on such date; (vii) there shall be no more than five Interest Periods outstanding at any time with respect to Revolving Loans and there shall be no more than five Interest Periods outstanding at any time with respect to Acquisition Term Loans; and (viii) in the event Company fails to specify an Interest Period for any Eurodollar Rate Loan in the applicable Notice of Borrowing or Notice of Conversion/Continuation, Company shall be deemed to have selected an Interest Period of one month. C. INTEREST PAYMENTS. Subject to the provisions of subsection 2.2E, interest on each Loan shall be payable in arrears on and to each Interest Payment Date applicable to that Loan, upon any prepayment of that Loan (to the extent accrued on the amount being prepaid) and at maturity (including final maturity); provided that in the event any Swing Line Loans or any Revolving -------- Loans that are Base Rate Loans are prepaid pursuant to subsection 2.4B(i), interest accrued on such Swing Line Loans or Revolving Loans through the date of such prepayment shall be payable on the next succeeding Interest Payment Date applicable to Base Rate Loans (or, if earlier, at final maturity). 41 D. CONVERSION OR CONTINUATION. Subject to the provisions of subsection 2.6, Company shall have the option (i) to convert at any time all or any part of its outstanding Acquisition Term Loans or Revolving Loans equal to $1,000,000 and integral multiples of $500,000 in excess of that amount from Loans bearing interest at a rate determined by reference to one basis to Loans bearing interest at a rate determined by reference to an alternative basis; provided -------- that Loans converted to Eurodollar Loans shall be in an aggregate minimum amount of $3,000,000 and integral multiples of $1,000,000 in excess of that amount; or (ii) upon the expiration of any Interest Period applicable to a Eurodollar Rate Loan, to continue all or any portion of such Loan equal to $3,000,000 and integral multiples of $1,000,000 in excess of that amount as a Eurodollar Rate Loan; provided, however, that a Eurodollar Rate Loan may only be converted into --------- ------- a Base Rate Loan on the expiration date of an Interest Period applicable thereto. Company shall deliver a Notice of Conversion/Continuation to Administrative Agent no later than 11:00 A.M. (Charlotte, NC time) at least one Business Day in advance of the proposed conversion date (in the case of a conversion to a Base Rate Loan) and at least three Business Days in advance of the proposed conversion/continuation date (in the case of a conversion to, or a continuation of, a Eurodollar Rate Loan). A Notice of Conversion/Continuation shall specify (i) the proposed conversion/continuation date (which shall be a Business Day), (ii) the amount and type of the Loan to be converted/continued, (iii) the nature of the proposed conversion/continuation, (iv) in the case of a conversion to, or a continuation of, a Eurodollar Rate Loan, the requested Interest Period, and (v) in the case of a conversion to, or a continuation of, a Eurodollar Rate Loan, that no Potential Event of Default or Event of Default has occurred and is continuing. In lieu of delivering the above-described Notice of Conversion/Continuation, Company may give Administrative Agent telephonic notice by the required time of any proposed conversion/continuation under this subsection 2.2D; provided that such notice shall be promptly confirmed in -------- writing by delivery of a Notice of Conversion/Continuation to Administrative Agent on or before the proposed conversion/continuation date. Upon receipt of written or telephonic notice of any proposed conversion/continuation under this subsection 2.2D, Administrative Agent shall promptly transmit such notice by telefacsimile or telephone to each Lender. Neither Administrative Agent nor any Lender shall incur any liability to Company in acting upon any telephonic notice referred to above that Administrative Agent believes in good faith to have been given by a duly authorized officer or other person authorized to act on behalf of Company or for otherwise acting in good faith under this subsection 2.2D, and upon conversion or continuation of the applicable basis for determining the interest rate with respect to any Loans in accordance with this Agreement pursuant to any such telephonic notice Company shall have effected a conversion or continuation, as the case may be, hereunder. Except as otherwise provided in subsections 2.6B, 2.6C and 2.6G, a Notice of Conversion/Continuation for conversion to, or continuation of, a Eurodollar Rate Loan 42 (or telephonic notice in lieu thereof) shall be irrevocable on and after the related Interest Rate Determination Date, and Company shall be bound to effect a conversion or continuation in accordance therewith. E. Default Rate. Upon the occurrence and during the continuation of any Event of Default, the outstanding principal amount of all Loans and, to the extent permitted by applicable law, any interest payments thereon not paid when due and any fees and other amounts then due and payable hereunder, shall thereafter bear interest (including post-petition interest in any proceeding under the Bankruptcy Code or other applicable bankruptcy laws) payable upon demand at a rate that is 2.00% per annum in excess of the interest rate otherwise payable under this Agreement with respect to the applicable Loans (or, in the case of any such fees and other amounts, at a rate which is 2.00% per annum in excess of the interest rate otherwise payable under this Agreement for Base Rate Loans); provided that, in the case of Eurodollar Rate Loans, upon the -------- expiration of the Interest Period in effect at the time any such increase in interest rate is effective such Eurodollar Rate Loans shall thereupon become Base Rate Loans and shall thereafter bear interest payable upon demand at a rate which is 2.00% per annum in excess of the interest rate otherwise payable under this Agreement for Base Rate Loans. Payment or acceptance of the increased rates of interest provided for in this subsection 2.2E is not a permitted alternative to timely payment and shall not constitute a waiver of any Event of Default or otherwise prejudice or limit any rights or remedies of any Agent or any Lender. F. COMPUTATION OF INTEREST. Interest on the Loans shall be computed on the basis of a 360-day year, in each case for the actual number of days elapsed in the period during which it accrues. In computing interest on any Loan, the date of the making of such Loan or the first day of an Interest Period applicable to such Loan or, with respect to a Base Rate Loan being converted from a Eurodollar Rate Loan, the date of conversion of such Eurodollar Rate Loan to such Base Rate Loan, as the case may be, shall be included, and the date of payment of such Loan or the expiration date of an Interest Period applicable to such Loan or, with respect to a Base Rate Loan being converted to a Eurodollar Rate Loan, the date of conversion of such Base Rate Loan to such Eurodollar Rate Loan, as the case may be, shall be excluded; provided that if a Loan is repaid -------- on the same day on which it is made, one day's interest shall be paid on that Loan. 2.3 FEES. ---- A. REVOLVING LOAN COMMITMENT FEES. Company agrees to pay to Administrative Agent, for distribution to each Lender in proportion to that Lender's Pro Rata Share, commitment fees for the period from and including the Closing Date to and excluding the Revolving Loan Commitment Termination Date in an amount equal to (x) the daily excess of the Revolving Loan Commitments over the sum of (i) the aggregate principal amount of outstanding Revolving Loans plus (ii) the aggregate principal amount of outstanding Swing Line Loans plus - ---- ---- (iii) the Letter of Credit Usage multiplied by (y) 0.50% per annum, such ------------- commitment fees to be calculated on the basis of a 360-day year 43 and the actual number of days elapsed and to be payable quarterly in arrears on January 31, April 30, July 31 and October 31 of each year, commencing on the first such date to occur after the Closing Date, and on the Revolving Loan Commitment Termination Date. B. ACQUISITION TERM LOAN COMMITMENT FEES. Company agrees to pay to Administrative Agent, for distribution to each Lender in proportion to that Lender's Pro Rata Share, commitment fees for the period from and including the Closing Date to and excluding the Acquisition Term Loan Commitment Termination Date in an amount equal to (x) the Acquisition Term Loan Commitments multiplied ---------- by (y) 0.50% per annum, such commitment fees to be calculated on the basis of a - -- 360-day year and the actual number of days elapsed and to be payable quarterly in arrears on January 31, April 30, July 31 and October 31 of each year, commencing on the first such date to occur after the Closing Date, and on the Acquisition Term Loan Commitment Termination Date. C. OTHER FEES. Company agrees to pay to Agents, CIBC WG and/or First Union CMC, as the case may be, such other fees in the amounts and at the times agreed upon between Company, Agents, CIBC WG and/or First Union CMC, as the case may be. 2.4 REPAYMENTS, PREPAYMENTS AND REDUCTIONS IN ACQUISITION TERM LOAN --------------------------------------------------------------- COMMITMENTS AND REVOLVING LOAN COMMITMENTS; GENERAL PROVISIONS REGARDING ------------------------------------------------------------------------ PAYMENTS; APPLICATION OF PROCEEDS OF COLLATERAL AND PAYMENTS UNDER ------------------------------------------------------------------ SUBSIDIARY GUARANTY. ------------------- A. SCHEDULED PAYMENTS OF ACQUISITION TERM LOANS. Company shall make principal payments on the Acquisition Term Loans in installments on each January 31, April 30, July 31 and October 31, commencing on January 31, 2000, in an amount equal to 8.33%, or 8.37% with respect to the installment payable on October 31, 2002, of the aggregate amount of the Acquisition Term Loans outstanding on the Acquisition Term Loan Commitment Termination Date; provided that the -------- scheduled installments of principal of the Acquisition Term Loans shall be reduced in connection with any voluntary or mandatory prepayments of the Acquisition Term Loans in accordance with subsection 2.4B(iv); and provided, further that the Acquisition Term Loans and all other amounts -------- ------- owed hereunder with respect to the Acquisition Term Loans shall be paid in full no later than October 31, 2002, and the final installment payable by Company in respect of the Acquisition Term Loans on such date shall be in an amount, if such amount is different from that specified above, sufficient to repay all amounts owing by Company under this Agreement with respect to the Acquisition Term Loans. 44 B. PREPAYMENTS AND REDUCTIONS IN COMMITMENTS. (i) Voluntary Prepayments. Company may, upon written or --------------------- telephonic notice to Administrative Agent on or prior to 12:00 Noon (Charlotte, NC time) on the date of prepayment, which notice, if telephonic, shall be promptly confirmed in writing, at any time and from time to time prepay any Swing Line Loan on any Business Day in whole or in part in an aggregate minimum amount of $200,000 and integral multiples of $100,000 in excess of that amount. Company may, upon not less than one Business Day's prior written or telephonic notice, in the case of Base Rate Loans, and three Business Days' prior written or telephonic notice, in the case of Eurodollar Rate Loans, in each case given to Administrative Agent by 12:00 Noon (Charlotte, NC time) on the date required and, if given by telephone, promptly confirmed in writing to Administrative Agent (which original written or telephonic notice Administrative Agent will promptly transmit by telefacsimile or telephone to each Lender), at any time and from time to time prepay any Acquisition Term Loans or Revolving Loans on any Business Day in whole or in part in an aggregate minimum amount of $1,000,000 and integral multiples of $500,000 in excess of that amount; provided, however, that a Eurodollar -------- ------- Rate may only be prepaid on a date prior to the date of the expiration of the Interest Period applicable thereto upon payment of all amounts due with respect to such prepayment under subsection 2.6D. Notice of prepayment having been given as aforesaid, the principal amount of the Loans specified in such notice shall become due and payable on the prepayment date specified therein. Any such voluntary prepayment shall be applied as specified in subsection 2.4B(iv). (ii) Voluntary Reductions of Commitments. Company may, upon not ----------------------------------- less than three Business Days' prior written or telephonic notice confirmed in writing to Administrative Agent (which original written or telephonic notice Administrative Agent will promptly transmit by telefacsimile or telephone to each Lender), at any time and from time to time terminate in whole or permanently reduce in part, without premium or penalty, (a) the Revolving Loan Commitments in an amount up to the amount by which the Revolving Loan Commitments exceed the Total Utilization of Revolving Loan Commitments at the time of such proposed termination or reduction or (b) the Acquisition Term Loan Commitments; provided that any such partial reduction of the Revolving Loan -------- Commitments or the Acquisition Term Loan Commitments shall be in an aggregate minimum amount of $1,000,000 and integral multiples of $500,000 in excess of that amount. Company's notice to Administrative Agent shall designate the date (which shall be a Business Day) of such termination or reduction and the amount of any partial reduction, and such termination or reduction of the Revolving Loan Commitments or the Acquisition Term Loan Commitments shall be effective on the date specified in Company's notice and shall reduce the Revolving Loan Commitment or the Acquisition Term Loan Commitments, as applicable, of each Lender proportionately to its Pro Rata Share. 45 (iii) Mandatory Prepayments and Mandatory Reductions of Commitments. ------------------------------------------------------------- The Loans shall be prepaid and/or the Commitments shall be permanently reduced in the amounts and under the circumstances set forth below, all such prepayments and/or reductions to be applied as set forth below or as more specifically provided in subsection 2.4B(iv): (a) Prepayments and Reductions From Net Asset Sale Proceeds. ------------------------------------------------------- No later than the first Business Day following the date of receipt by Company or its Restricted Subsidiaries of any Net Asset Sale Proceeds in respect of any Asset Sale and subject to subsection 6.4C in the case of insurance proceeds which constitute Net Asset Sale Proceeds, Company shall prepay the Loans and/or the Revolving Loan Commitments and/or the Acquisition Term Loan Commitments shall be permanently reduced in an aggregate amount equal to such Net Asset Sale Proceeds; provided, however, -------- ------- that, so long as no Event of Default shall have occurred and be continuing, Net Asset Sale Proceeds received by Company and its Restricted Subsidiaries from and after the date hereof need not be applied to the mandatory prepayment of the Loans pursuant to this subsection 2.4B(iii)(a) to the extent that such Net Asset Sale Proceeds are reinvested in assets or properties currently utilized or anticipated to be utilized in any line of business engaged in by Company and its Restricted Subsidiaries on the Closing Date, or any similar or related business, within 270 days of receipt thereof and so long as the aggregate amount of such Net Asset Sale Proceeds so held for reinvestment and excluded from the mandatory prepayment provisions of this subsection 2.4B(iii)(a) does not exceed $10,000,000 at any time; provided, further, that Company shall, within ten -------- ------- Business Days of the receipt by Company or any of its Restricted Subsidiaries of any Net Asset Sale Proceeds to be excluded from such mandatory prepayment provisions pursuant to the immediately preceding proviso, deliver to Administrative Agent an Officers' Certificate setting forth the amount of such Net Asset Sale Proceeds, the amount of other Net Asset Sale Proceeds excluded from such mandatory prepayment provisions pursuant to the immediately preceding proviso, and the amount of any mandatory prepayment to be made pursuant to this subsection 2.4B(iii)(a) and setting forth in reasonable detail the calculations from which such amounts were derived, which Officers' Certificate may be amended at any time and from time to time by Company during the 270-day period following receipt of such Net Asset Sale Proceeds. In the event that any portion of any Net Asset Sale Proceeds received by Company or any of its Restricted Subsidiaries which are so excluded from the mandatory prepayment of the Loans are not expended for the purposes permitted pursuant to this subsection 2.4B(iii)(a) within the 270-day period, Company shall, immediately upon the expiration of the applicable 270-day period, make a mandatory prepayment of the Loans as 46 specified in the first sentence of this subsection 2.4B(iii)(a) in an amount equal to such unexpended portion. (b) Prepayments and Reductions Due to Issuance of Equity ---------------------------------------------------- Securities. On the date of receipt by Company of the Cash proceeds (any ---------- such proceeds, net of underwriting discounts and commissions and other reasonable costs and expenses associated therewith, including reasonable legal fees and expenses, being "NET SECURITIES PROCEEDS") from the issuance of any equity Securities of Company after the Closing Date (other than issuances of equity to management employees pursuant to agreements or stock option plans permitted under subsection 7.11), Company shall prepay the Loans and/or the Revolving Loan Commitments and/or the Acquisition Term Loan Commitments shall be permanently reduced in an aggregate amount equal to such Net Securities Proceeds. (c) Prepayments and Reductions Due to Issuance of Debt -------------------------------------------------- Securities. On the date of receipt by Company of the Net Securities ---------- Proceeds from the issuance of any debt Securities of Company after the Closing Date (other than as permitted pursuant to subsection 7.1 as such subsection is in effect on the Closing Date), Company shall prepay the Loans and/or the Revolving Loan Commitments and/or the Acquisition Term Loan Commitments shall be permanently reduced in an aggregate amount equal to such Net Securities Proceeds. (d) Prepayments Due to Failure to Refinance Senior Notes. ---------------------------------------------------- In the event that by April 30, 2000 Company fails to retire from funds other than the proceeds of Revolving Loans (except to the extent permitted by subsection 7.5B) or to refinance all of the then outstanding principal amount of Senior Notes pursuant to subsection 7.1(vi), then on April 30, 2000 Company shall prepay all of the outstanding Loans and deliver to the Administrative Agent an amount equal to the maximum amount that may at any time be drawn under all Letters of Credit then outstanding (whether or not any beneficiary under any such Letter of Credit shall have presented, or shall be entitled at such time to present, the drafts or other documents or certificates required to draw under such Letter of Credit) to be held by Administrative Agent as cash collateral pursuant to the terms of the Collateral Account Agreement, and the Revolving Loan Commitments shall be permanently reduced to zero. (e) Calculations of Net Proceeds Amounts; Additional ------------------------------------------------ Prepayments and Reductions Based on Subsequent Calculations. Concurrently ----------------------------------------------------------- with any prepayment of the Loans and/or reduction of the Revolving Loan Commitments and/or the Acquisition Term Loan Commitments pursuant to subsections 2.4B(iii)(a)-(d), Company shall deliver 47 to Administrative Agent an Officers' Certificate demonstrating the calculation of the amount (the "NET PROCEEDS AMOUNT") of the applicable Net Asset Sale Proceeds or the applicable Net Securities Proceeds that gave rise to such prepayment and/or reduction. In the event that Company shall subsequently determine that the actual Net Proceeds Amount was greater than the amount set forth in such Officers' Certificate, Company shall promptly make an additional prepayment of the Loans (and/or, if applicable, the Revolving Loan Commitments and/or the Acquisition Term Loan Commitments shall be permanently reduced) in an amount equal to the amount of such excess, and Company shall concurrently therewith deliver to Administrative Agent an Officers' Certificate demonstrating the derivation of the additional Net Proceeds Amount resulting in such excess. (f) Prepayments Due to Reductions or Restrictions of ------------------------------------------------ Revolving Loan Commitments. Company shall from time to time prepay first -------------------------- ----- the Swing Line Loans and second the Revolving Loans to the extent ------ necessary so that the Total Utilization of Revolving Loan Commitments shall not at any time exceed the Revolving Loan Commitments then in effect. (iv) Application of Prepayments. -------------------------- (a) Application of Voluntary Prepayments by Type of Loans ----------------------------------------------------- and Order of Maturity. Any voluntary prepayments pursuant to subsection --------------------- 2.4B(i) shall be applied as specified by Company in the applicable notice of prepayment; provided that in the event Company fails to specify the -------- Loans to which any such prepayment shall be applied, such prepayment shall be applied first to repay outstanding Swing Line Loans to the full extent ----- thereof, second to repay outstanding Revolving Loans to the full extent ------ thereof, and third to repay outstanding Acquisition Term Loans to the full ----- extent thereof. Any voluntary prepayments of the Acquisition Term Loans pursuant to subsection 2.4B(i) shall be applied first to reduce the scheduled installments of principal of the Acquisition Term Loans due in the next succeeding twelve months in forward order of maturity and thereafter on a pro rata basis to reduce the remaining scheduled installments of principal of the Acquisition Term Loans set forth in subsection 2.4A. (b) Application of Mandatory Prepayments by Type of Loans. ----------------------------------------------------- Any amount (the "APPLIED AMOUNT") required to be applied as a mandatory prepayment of the Loans and/or a reduction of the Revolving Loan Commitments and/or the Acquisition Term Loan Commitments pursuant to subsections 2.4B(iii)(a)-(d) shall be applied first, to prepay the ----- Acquisition Term Loans to the full extent thereof, second, to the extent ------ of any remaining portion of the Applied Amount, to prepay the Swing Line Loans to the full extent thereof but without any reduction to the Revolving 48 Loan Commitments, third, to the extent of any remaining portion ----- of the Applied Amount, to prepay the Revolving Loans to the full extent thereof but without any reduction to the Revolving Loan Commitments, and fourth, to the extent of any remaining portion of the Applied Amount, to permanently reduce the Acquisition Term Loan Commitments to the full extent thereof; provided that notwithstanding the foregoing, to the extent -------- of any remaining portion of the Applied Amount after the reduction of all Acquisition Term Loan Commitments, the Revolving Loan Commitments shall be permanently reduced by the amount of such remaining portion of the Applied Amount. (c) Application of Mandatory Prepayments of Acquisition --------------------------------------------------- Term Loans by Order of Maturity. Any mandatory prepayments of the ------------------------------- Acquisition Term Loans pursuant to subsection 2.4B(iii) shall be applied on a pro rata basis to reduce the scheduled installments of principal of the Acquisition Term Loans set forth in subsection 2.4A. (d) Application of Prepayments to Base Rate Loans and ------------------------------------------------- Eurodollar Rate Loans. Considering Acquisition Term Loans and Revolving Loans being prepaid separately, any prepayment thereof shall be applied first to Base Rate Loans to the full extent thereof before application to Eurodollar Rate Loans, in each case in a manner which minimizes the amount of any payments required to be made by Company pursuant to subsection 2.6D. C. General Provisions Regarding Payments. (i) Manner and Time of Payment. All payments by Company of principal, -------------------------- interest, fees and other Obligations hereunder and under the Notes shall be made in Dollars in same day funds, without defense, setoff or counterclaim, free of any restriction or condition, and delivered to Administrative Agent not later than 12:00 Noon (Charlotte, NC time) on the date due at the Funding and Payment Office for the account of Lenders; funds received by Administrative Agent after that time on such due date shall be deemed to have been paid by Company on the next succeeding Business Day. Company hereby authorizes Administrative Agent to charge its accounts with Administrative Agent in order to cause timely payment to be made to Administrative Agent of all principal, interest, fees and expenses due hereunder (subject to sufficient funds being available in its accounts for that purpose). (ii) Application of Payments to Principal and Interest. Except as ------------------------------------------------- provided in subsection 2.2C, all payments in respect of the principal amount of any Loan shall include payment of accrued interest on the principal amount being repaid or prepaid, and all such payments shall be applied to the payment of interest before application to principal. 49 (iii) Apportionment of Payments. Aggregate principal and interest ------------------------- payments in respect of Acquisition Term Loans and Revolving Loans shall be apportioned among all outstanding Loans to which such payments relate, in each case proportionately to Lenders' respective Pro Rata Shares. Administrative Agent shall promptly distribute to each Lender, at its primary address set forth below its name on the appropriate signature page hereof or at such other address as such Lender may request, its Pro Rata Share of all such payments received by Administrative Agent and the commitment fees of such Lender when received by Administrative Agent pursuant to subsection 2.3. Notwithstanding the foregoing provisions of this subsection 2.4C(iii), if, pursuant to the provisions of subsection 2.6C, any Notice of Conversion/Continuation is withdrawn as to any Affected Lender or if any Affected Lender makes Base Rate Loans in lieu of its Pro Rata Share of any Eurodollar Rate Loans, Administrative Agent shall give effect thereto in apportioning payments received thereafter. (iv) Payments on Business Days. Whenever any payment to be made ------------------------- hereunder shall be stated to be due on a day that is not a Business Day, such payment shall be made on the next succeeding Business Day and such extension of time shall be included in the computation of the payment of interest hereunder or of the commitment fees hereunder, as the case may be. (v) Notation of Payment. Each Lender agrees that before disposing of ------------------- any Note held by it, or any part thereof (other than by granting participations therein), that Lender will make a notation thereon of all Loans evidenced by that Note and all principal payments previously made thereon and of the date to which interest thereon has been paid; provided that the failure to make (or any -------- error in the making of) a notation of any Loan made under such Note shall not limit or otherwise affect the obligations of Company hereunder or under such Note with respect to any Loan or any payments of principal or interest on such Note. D. Application of Proceeds of Collateral and Payments Under Subsidiary Guaranty. (i) Application of Proceeds of Collateral. Except as provided in ------------------------------------- subsection 2.4B(iii)(a) with respect to prepayments from Net Asset Sale Proceeds, all proceeds received by Administrative Agent in respect of any sale of, collection from, or other realization upon all or any part of the Collateral under any Collateral Document may, in the discretion of Administrative Agent, be held by Administrative Agent as Collateral for, and/or (then or at any time thereafter) applied in full or in part by Administrative Agent against, the applicable Secured Obligations (as defined in such Collateral Document) in the following order of priority: 50 (a) To the payment of all costs and expenses of such sale, collection or other realization, including reasonable compensation to Administrative Agent and its agents and counsel, and all other expenses, liabilities and advances made or incurred by Administrative Agent in connection therewith, and all amounts for which Administrative Agent is entitled to indemnification under such Collateral Document and all advances made by Administrative Agent thereunder for the account of the applicable Loan Party, and to the payment of all costs and expenses paid or incurred by Administrative Agent in connection with the exercise of any right or remedy under such Collateral Document, all in accordance with the terms of this Agreement and such Collateral Document; (b) thereafter, to the extent of any excess such proceeds, to the payment of all other such Secured Obligations for the ratable benefit of the holders thereof; and (c) thereafter, to the extent of any excess such proceeds, to the payment to or upon the order of such Loan Party or to whosoever may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct. (ii) Application of Payments Under Subsidiary Guaranty. All payments ------------------------------------------------- received by Administrative Agent under the Subsidiary Guaranty shall be applied promptly from time to time by Administrative Agent in the following order of priority: (a) To the payment of the costs and expenses of any collection or other realization under the Subsidiary Guaranty, including reasonable compensation to Administrative Agent and its agents and counsel, and all expenses, liabilities and advances made or incurred by Administrative Agent in connection therewith, all in accordance with the terms of this Agreement and the Subsidiary Guaranty; (b) thereafter, to the extent of any excess such payments, to the payment of all other Guarantied Obligations (as defined in the Subsidiary Guaranty for the ratable benefit of the holders thereof; and (c) thereafter, to the extent of any excess such payments, to the payment to the applicable Subsidiary Guarantor or to whosoever may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct. 51 2.5 USE OF PROCEEDS. --------------- A. Acquisition Term Loans. Subject to subsection 7.7(vi), the proceeds of the Acquisition Term Loans may be used by Company to finance Permitted Acquisitions. B. Revolving Loans; Swing Line Loans. Up to $10,000,000 of the Revolving Loan Commitments shall be used by Company on the Closing Date in connection with the Existing Letters of Credit becoming Letters of Credit hereunder. The proceeds of any Revolving Loans and any Swing Line Loans shall be applied by Company for working capital and general corporate purposes, which may include the making of intercompany loans to any of Company's wholly-owned Restricted Subsidiaries, in accordance with subsection 7.1(iv), for their own working capital and general corporate purposes. C. Margin Regulations. No portion of the proceeds of any borrowing under this Agreement shall be used by Company or any of its Subsidiaries in any manner that might cause the borrowing or the application of such proceeds to violate Regulation G, Regulation U, Regulation T or Regulation X of the Board of Governors of the Federal Reserve System or any other regulation of such Board or to violate the Exchange Act, in each case as in effect on the date or dates of such borrowing and such use of proceeds. 2.6 SPECIAL PROVISIONS GOVERNING EURODOLLAR RATE LOANS. -------------------------------------------------- Notwithstanding any other provision of this Agreement to the contrary, the following provisions shall govern with respect to Eurodollar Rate Loans as to the matters covered: A. Determination of Applicable Interest Rate. As soon as practicable after 10:00 A.M. (Charlotte, NC time) on each Interest Rate Determination Date, Administrative Agent shall determine (which determination shall, absent manifest error, be final, conclusive and binding upon all parties) the interest rate that shall apply to the Eurodollar Rate Loans for which an interest rate is then being determined for the applicable Interest Period and shall promptly give notice thereof (in writing or by telephone confirmed in writing) to Company and each Lender. B. Inability to Determine Applicable Interest Rate. In the event that Administrative Agent shall have determined (which determination shall be final and conclusive and binding upon all parties hereto), on any Interest Rate Determination Date with respect to any Eurodollar Rate Loans, that by reason of circumstances affecting the interbank Eurodollar market adequate and fair means do not exist for ascertaining the interest rate applicable to such Loans on the basis provided for in the definition of Adjusted Eurodollar Rate, Administrative Agent shall on such date give notice (by telefacsimile or by telephone confirmed in writing) to Company and each Lender of such determination, whereupon (i) no Loans may be made as, or converted to, Eurodollar Rate Loans until such time as Administrative Agent notifies Company and Lenders that the 52 circumstances giving rise to such notice no longer exist and (ii) any Notice of Borrowing or Notice of Conversion/Continuation given by Company with respect to the Loans in respect of which such determination was made shall be deemed to be rescinded by Company. C. Illegality or Impracticability of Eurodollar Rate Loans. In the event that on any date any Lender shall have determined (which determination shall be final and conclusive and binding upon all parties hereto but shall be made only after consultation with Company and Administrative Agent) that the making, maintaining or continuation of its Eurodollar Rate Loans (i) has become unlawful as a result of compliance by such Lender in good faith with any law, treaty, governmental rule, regulation, guideline or order (or would conflict with any such treaty, governmental rule, regulation, guideline or order not having the force of law even though the failure to comply therewith would not be unlawful) or (ii) has become impracticable, or would cause such Lender material hardship, as a result of contingencies occurring after the date of this Agreement which materially and adversely affect the interbank Eurodollar market or the position of such Lender in that market, then, and in any such event, such Lender shall be an "AFFECTED LENDER" and it shall on that day give notice (by telefacsimile or by telephone confirmed in writing) to Company and Administrative Agent of such determination (which notice Administrative Agent shall promptly transmit to each other Lender). Thereafter (a) the obligation of the Affected Lender to make Loans as, or to convert Loans to, Eurodollar Rate Loans shall be suspended until such notice shall be withdrawn by the Affected Lender, (b) to the extent such determination by the Affected Lender relates to a Eurodollar Rate Loan then being requested by Company pursuant to a Notice of Borrowing or a Notice of Conversion/Continuation, the Affected Lender shall make such Loan as (or convert such Loan to, as the case may be) a Base Rate Loan, (c) the Affected Lender's obligation to maintain its outstanding Eurodollar Rate Loans shall be terminated at the earlier to occur of the expiration of the Interest Periods then in effect with respect to such outstanding Eurodollar Rate Loans or when required by law, and (d) such outstanding Eurodollar Rate Loans shall automatically convert into Base Rate Loans on the date of such termination. Notwithstanding the foregoing, to the extent a determination by an Affected Lender as described above relates to a Eurodollar Rate Loan then being requested by Company pursuant to a Notice of Borrowing or a Notice of Conversion/Continuation, Company shall have the option, subject to the provisions of subsection 2.6D, to rescind such Notice of Borrowing or Notice of Conversion/Continuation as to all Lenders by giving notice (by telefacsimile or by telephone confirmed in writing) to Administrative Agent of such rescission on the date on which the Affected Lender gives notice of its determination as described above (which notice of rescission Administrative Agent shall promptly transmit to each other Lender). Except as provided in the immediately preceding sentence, nothing in this subsection 2.6C shall affect the obligation of any Lender other than an Affected Lender to make or maintain Loans as, or to convert Loans to, Eurodollar Rate Loans in accordance with the terms of this Agreement. 53 D. Compensation For Breakage or Non-Commencement of Interest Periods. Company shall compensate each Lender, upon written request by that Lender (which request shall set forth the basis for requesting such amounts), for all reasonable losses, expenses and liabilities (including any interest paid by that Lender to lenders of funds borrowed by it to make or carry its Eurodollar Rate Loans and any loss, expense or liability sustained by that Lender in connection with the liquidation or re-employment of such funds) which that Lender may sustain: (i) if for any reason (other than a default by that Lender) a borrowing of any Eurodollar Rate Loan does not occur on a date specified therefor in a Notice of Borrowing or a telephonic request for borrowing, or a conversion to or continuation of any Eurodollar Rate Loan does not occur on a date specified therefor in a Notice of Conversion/Continuation or a telephonic request for conversion or continuation, (ii) if any prepayment (including any prepayment pursuant to subsection 2.4B(i)) or other principal payment or any conversion of any of its Eurodollar Rate Loans occurs on a date prior to the last day of an Interest Period applicable to that Loan, (iii) if any prepayment of any of its Eurodollar Rate Loans is not made on any date specified in a notice of prepayment given by Company, or (iv) as a consequence of any other default by Company in the repayment of its Eurodollar Rate Loans when required by the terms of this Agreement. E. Booking of Eurodollar Rate Loans. Any Lender may make, carry or transfer Eurodollar Rate Loans at, to, or for the account of any of its branch offices or the office of an Affiliate of that Lender. F. Assumptions Concerning Funding of Eurodollar Rate Loans. Calculation of all amounts payable to a Lender under this subsection 2.6 and under subsection 2.7A shall be made as though that Lender had actually funded each of its relevant Eurodollar Rate Loans through the purchase of a Eurodollar deposit bearing interest at the rate obtained pursuant to clause (i) of the definition of Adjusted Eurodollar Rate in an amount equal to the amount of such Eurodollar Rate Loan and having a maturity comparable to the relevant Interest Period and through the transfer of such Eurodollar deposit from an offshore office of that Lender to a domestic office of that Lender in the United States of America; provided, however, that each Lender may fund each of its Eurodollar Rate Loans - -------- ------- in any manner it sees fit and the foregoing assumptions shall be utilized only for the purposes of calculating amounts payable under this subsection 2.6 and under subsection 2.7A. G. Eurodollar Rate Loans After Default. After the occurrence of and during the continuation of a Potential Event of Default or an Event of Default, (i) Company may not elect to have a Loan be made or maintained as, or converted to, a Eurodollar Rate Loan after the expiration of any Interest Period then in effect for that Loan and (ii) subject to the provisions of subsection 2.6D, any Notice of Borrowing or Notice of Conversion/Continuation given by Company with respect to a requested borrowing or conversion/continuation that has not yet occurred shall be deemed to be rescinded by Company. 54 2.7 INCREASED COSTS; TAXES; CAPITAL ADEQUACY. ---------------------------------------- A. Compensation for Increased Costs and Taxes. Subject to the provisions of subsection 2.7B (which shall be controlling with respect to the matters covered thereby), in the event that any Lender shall determine (which determination shall, absent manifest error, be final and conclusive and binding upon all parties hereto) that any law, treaty or governmental rule, regulation or order, or any change therein or in the interpretation, administration or application thereof (including the introduction of any new law, treaty or governmental rule, regulation or order), or any determination of a court or governmental authority, in each case that becomes effective after the date hereof, or compliance by such Lender with any guideline, request or directive issued or made after the date hereof by any central bank or other governmental or quasi-governmental authority (whether or not having the force of law): (i) subjects such Lender (or its applicable lending office) to any additional Tax (other than any Tax on the overall net income of such Lender) with respect to this Agreement or any of its obligations hereunder or any payments to such Lender (or its applicable lending office) of principal, interest, fees or any other amount payable hereunder; (ii) imposes, modifies or holds applicable any reserve (including any marginal, emergency, supplemental, special or other reserve), special deposit, compulsory loan, FDIC insurance or similar requirement against assets held by, or deposits or other liabilities in or for the account of, or advances or loans by, or other credit extended by, or any other acquisition of funds by, any office of such Lender (other than any such reserve or other requirements with respect to Eurodollar Rate Loans that are reflected in the definition of Adjusted Eurodollar Rate); or (iii) imposes any other condition (other than with respect to a Tax matter) on or affecting such Lender (or its applicable lending office) or its obligations hereunder or the interbank Eurodollar market; and the result of any of the foregoing is to increase the cost to such Lender of agreeing to make, making or maintaining Loans hereunder or to reduce any amount received or receivable by such Lender (or its applicable lending office) with respect thereto; then, in any such case, Company shall promptly pay to such Lender, upon receipt of the statement referred to in the next sentence, such additional amount or amounts (in the form of an increased rate of, or a different method of calculating, interest or otherwise as such Lender in its sole discretion shall determine) as may be necessary to compensate such Lender for any such increased cost or reduction in amounts received or receivable hereunder. Such Lender shall deliver to Company (with a copy to Administrative Agent) a written statement, setting forth in reasonable detail the basis for calculating the additional amounts 55 owed to such Lender under this subsection 2.7A, which statement shall be conclusive and binding upon all parties hereto absent manifest error. B. Withholding of Taxes. (i) Payments to Be Free and Clear. All sums payable by Company or any ----------------------------- other Loan Party under this Agreement and the other Loan Documents shall (except to the extent required by law) be paid free and clear of, and without any deduction or withholding on account of, any Tax (other than a Tax on the overall net income of any Lender) imposed, levied, collected, withheld or assessed by or within the United States of America or any political subdivision in or of the United States of America or any other jurisdiction from or to which a payment is made by or on behalf of Company or any other Loan Party or by any federation or organization of which the United States of America or any such jurisdiction is a member at the time of payment. (ii) Grossing-up of Payments. If Company or any other Person is ----------------------- required by law to make any deduction or withholding on account of any such Tax from any sum paid or payable by Company or any other Loan Party to any Agent or any Lender under any of the Loan Documents: (a) Company shall notify Administrative Agent of any such requirement or any change in any such requirement as soon as Company becomes aware of it; (b) Company shall pay any such Tax before the date on which penalties attach thereto, such payment to be made (if the liability to pay is imposed on Company) for its own account or (if that liability is imposed on such Agent or such Lender, as the case may be) on behalf of and in the name of such Agent or such Lender; (c) the sum payable by Company in respect of which the relevant deduction, withholding or payment is required shall be increased to the extent necessary to ensure that, after the making of that deduction, withholding or payment, such Agent or such Lender, as the case may be, receives on the due date a net sum equal to what it would have received had no such deduction, withholding or payment been required or made; and (d) within 30 days after paying any sum from which it is required by law to make any deduction or withholding, and within 30 days after the due date of payment of any Tax which it is required by clause (b) above to pay, Company shall deliver to Administrative Agent evidence satisfactory to the other affected parties of such deduction, withholding or payment and of the remittance thereof to the relevant taxing or other authority; 56 provided that no such additional amount shall be required to be paid to -------- any Lender under clause (c) above except to the extent that any change after the date hereof (in the case of each Lender listed on the signature pages hereof) or after the date of the Assignment Agreement pursuant to which such Lender became a Lender (in the case of each other Lender) in any such requirement for a deduction, withholding or payment as is mentioned therein shall result in an increase in the rate of such deduction, withholding or payment from that in effect at the date of this Agreement or at the date of such Assignment Agreement, as the case may be, in respect of payments to such Lender. Upon the reasonable request of Company, and at Company's expense, each Lender shall cooperate with Company in seeking to obtain refunds of Taxes paid by Company. If a Lender shall receive a refund (or a refund in the form of a credit) from a taxing authority (as a result of any error in the imposition of Tax by such taxing authority) of any Taxes paid by Company pursuant to this subsection 2.7B(ii), such Lender, so long as no Event of Default shall then exist, shall promptly pay to Company the amount so received. (iii) Evidence of Exemption from U.S. Withholding Tax. ----------------------------------------------- (a) Each Lender that is organized under the laws of any jurisdiction other than the United States or any state or other political subdivision thereof (for purposes of this subsection 2.7B(iii), a "NON-US LENDER") shall deliver to Administrative Agent for transmission to Company, on or prior to the Closing Date (in the case of each Lender listed on the signature pages hereof) or on or prior to the date of the Assignment Agreement pursuant to which it becomes a Lender (in the case of each other Lender), and at such other times as may be necessary in the determination of Company or Administrative Agent (each in the reasonable exercise of its discretion), (1) two original copies of Internal Revenue Service Form 1001 or 4224 (or any successor forms), properly completed and duly executed by such Lender, together with any other certificate or statement of exemption required under the Internal Revenue Code or the regulations issued thereunder to establish that such Lender is not subject to deduction or withholding of United States federal income tax with respect to any payments to such Lender of principal, interest, fees or other amounts payable under any of the Loan Documents or (2) if such Lender is not a "bank" or other Person described in Section 881(c)(3) of the Internal Revenue Code and cannot deliver either Internal Revenue Service Form 1001 or 4224 pursuant to clause (1) above, a Certificate re Non-Bank Status together with two original copies of Internal Revenue Service Form W-8 (or any successor form), properly completed and duly executed by such Lender, together with any other certificate or statement of exemption required under the Internal Revenue Code or the regulations issued thereunder to establish that such Lender is not subject to deduction or withholding of United States federal 57 income tax with respect to any payments to such Lender of interest payable under any of the Loan Documents. (b) Each Lender required to deliver any forms, certificates or other evidence with respect to United States federal income tax withholding matters pursuant to subsection 2.7B(iii)(a) hereby agrees, from time to time after the initial delivery by such Lender of such forms, certificates or other evidence, whenever a lapse in time or change in circumstances renders such forms, certificates or other evidence obsolete or inaccurate in any material respect, that such Lender shall promptly (1) deliver to Administrative Agent for transmission to Company two new original copies of Internal Revenue Service Form 1001 or 4224, or a Certificate re Non-Bank Status and two original copies of Internal Revenue Service Form W-8, as the case may be, properly completed and duly executed by such Lender, together with any other certificate or statement of exemption required in order to confirm or establish that such Lender is not subject to deduction or withholding of United States federal income tax with respect to payments to such Lender under the Loan Documents or (2) notify Administrative Agent and Company of its inability to deliver any such forms, certificates or other evidence. (c) Company shall not be required to pay any additional amount to any Non-US Lender under clause (c) of subsection 2.7B(ii) if such Lender shall have failed to satisfy the requirements of clause (a) or (b)(1) of this subsection 2.7B(iii); provided that if such Lender shall -------- have satisfied the requirements of subsection 2.7B(iii)(a) on the Closing Date (in the case of each Lender listed on the signature pages hereof) or on the date of the Assignment Agreement pursuant to which it became a Lender (in the case of each other Lender), nothing in this subsection 2.7B(iii)(c) shall relieve Company of its obligation to pay any additional amounts pursuant to clause (c) of subsection 2.7B(ii) in the event that, as a result of any change in any applicable law, treaty or governmental rule, regulation or order, or any change in the interpretation, administration or application thereof, such Lender is no longer properly entitled to deliver forms, certificates or other evidence at a subsequent date establishing the fact that such Lender is not subject to withholding as described in subsection 2.7B(iii)(a). (C) Capital Adequacy Adjustment. If any Lender shall have determined that the adoption, effectiveness, phase-in or applicability after the date hereof of any law, rule or regulation (or any provision thereof) regarding capital adequacy, or any change therein or in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender (or its applicable lending office) with any guideline, request or directive regarding capital adequacy (whether or not having the force of law) of any such governmental authority, central bank or comparable agency, has or would have the effect 58 of reducing the rate of return on the capital of such Lender or any corporation controlling such Lender as a consequence of, or with reference to, such Lender's Loans or Commitments or Letters of Credit or participations therein or other obligations hereunder with respect to the Loans or the Letters of Credit to a level below that which such Lender or such controlling corporation could have achieved but for such adoption, effectiveness, phase-in, applicability, change or compliance (taking into consideration the policies of such Lender or such controlling corporation with regard to capital adequacy), then from time to time, within five Business Days after receipt by Company from such Lender of the statement referred to in the next sentence, Company shall pay to such Lender such additional amount or amounts as will compensate such Lender or such controlling corporation on an after-tax basis for such reduction. Such Lender shall deliver to Company (with a copy to Administrative Agent) a written statement, setting forth in reasonable detail the basis of the calculation of such additional amounts, which statement shall be conclusive and binding upon all parties hereto absent manifest error. 2.8 OBLIGATION OF LENDERS AND ISSUING LENDERS TO MITIGATE. ------------------------------------------------------ Each Lender and Issuing Lender agrees that, as promptly as practicable after the officer of such Lender or Issuing Lender responsible for administering the Loans or Letters of Credit of such Lender or Issuing Lender, as the case may be, becomes aware of the occurrence of an event or the existence of a condition that would cause such Lender to become an Affected Lender or that would entitle such Lender or Issuing Lender to receive payments under subsection 2.7 or subsection 3.6, it will, to the extent not inconsistent with the internal policies of such Lender or Issuing Lender and any applicable legal or regulatory restrictions, use reasonable efforts (i) to make, issue, fund or maintain the Commitments of such Lender or the affected Loans or Letters of Credit of such Lender or Issuing Lender through another lending or letter of credit office of such Lender or Issuing Lender, or (ii) take such other measures as such Lender or Issuing Lender may deem reasonable, if as a result thereof the circumstances which would cause such Lender to be an Affected Lender would cease to exist or the additional amounts which would otherwise be required to be paid to such Lender or Issuing Lender pursuant to subsection 2.7 or subsection 3.6 would be materially reduced and if, as determined by such Lender or Issuing Lender in its reasonable discretion, the making, issuing, funding or maintaining of such Commitments or Loans or Letters of Credit through such other lending or letter of credit office or in accordance with such other measures, as the case may be, would not otherwise materially adversely affect such Commitments or Loans or Letters of Credit or the interests of such Lender or Issuing Lender; provided -------- that such Lender or Issuing Lender will not be obligated to utilize such other lending or letter of credit office pursuant to this subsection 2.8 unless Company agrees to pay all incremental expenses incurred by such Lender or Issuing Lender as a result of utilizing such other lending or letter of credit office as described in clause (i) above. A certificate as to the amount of any such expenses payable by Company pursuant to this subsection 2.8 (setting forth in reasonable detail the basis for requesting such amount) submitted by such Lender or Issuing Lender to Company (with a copy to Administrative Agent) shall be conclusive absent manifest error. 59 SECTION 3. LETTERS OF CREDIT 3.1 ISSUANCE OF LETTERS OF CREDIT AND LENDERS' PURCHASE OF PARTICIPATIONS --------------------------------------------------------------------- THEREIN. ------- A. LETTERS OF CREDIT. In addition to Company requesting that Lenders make Revolving Loans pursuant to subsection 2.1A(ii) and that Swing Line Lender make Swing Line Loans pursuant to subsection 2.1A(iii), Company may request, in accordance with the provisions of this subsection 3.1, from time to time during the period from the Closing Date to but excluding the Revolving Loan Commitment Termination Date, that one or more Lenders issue Letters of Credit for the account of Company for the purposes specified in the definitions of Commercial Letters of Credit and Standby Letters of Credit. Subject to the terms and conditions of this Agreement and in reliance upon the representations and warranties of Company herein set forth, any one or more Lenders may, but (except as provided in subsection 3.1B(ii)) shall not be obligated to, issue such Letters of Credit in accordance with the provisions of this subsection 3.1; provided that Company shall not request that any Lender issue (and no Lender - -------- shall issue): (i) any Letter of Credit if, after giving effect to such issuance, the Total Utilization of Revolving Loan Commitments would exceed the Revolving Loan Commitments then in effect; (ii) any Letter of Credit if, after giving effect to such issuance, the Letter of Credit Usage would exceed $20,000,000; (iii) any Standby Letter of Credit having an expiration date later than the earlier of (a) the Revolving Loan Commitment Termination Date and (b) the date which is one year from the date of issuance of such Standby Letter of Credit; provided that the immediately preceding clause (b) shall -------- not prevent any Issuing Lender from agreeing that a Standby Letter of Credit will automatically be extended for one or more successive periods not to exceed one year each unless upon the giving of 30 days' prior notice thereof to Company and the beneficiary of such Letter of Credit, such Issuing Lender elects not to extend for any such additional period; and provided, further that such Issuing Lender shall elect not to extend such -------- ------- Standby Letter of Credit if it has knowledge that an Event of Default has occurred and is continuing (and has not been waived in accordance with subsection 10.6) at the time such Issuing Lender must elect whether or not to allow such extension; or (iv) any Commercial Letter of Credit having an expiration date (a) later than the earlier of (X) the Revolving Loan Commitment Termination Date and (Y) the date which is 180 days from the date of issuance of such Commercial Letter of Credit or (b) that is otherwise unacceptable to the applicable Issuing Lender in its reasonable discretion. 60 B. MECHANICS OF ISSUANCE. (i) Notice of Issuance. Whenever Company desires the issuance of a ------------------ Letter of Credit, it shall deliver to Administrative Agent a Notice of Issuance of Letter of Credit substantially in the form of Exhibit III ----------- annexed hereto no later than 12:00 Noon (Charlotte, NC time) at least three Business Days (in the case of Standby Letters of Credit) or five Business Days (in the case of Commercial Letters of Credit), or in each case such shorter period as may be agreed to by the Issuing Lender in any particular instance, in advance of the proposed date of issuance. The Notice of Issuance of Letter of Credit shall specify (a) the proposed date of issuance (which shall be a Business Day), (b) whether the Letter of Credit is to be a Standby Letter of Credit or a Commercial Letter of Credit, (c) the face amount of the Letter of Credit, (d) the expiration date of the Letter of Credit, (e) the name and address of the beneficiary, and (f) either the verbatim text of the proposed Letter of Credit or the proposed terms and conditions thereof, including a precise description of any documents to be presented by the beneficiary which, if presented by the beneficiary prior to the expiration date of the Letter of Credit, would require the Issuing Lender to make payment under the Letter of Credit; provided that the Issuing Lender, in its reasonable discretion, may require -------- changes in the text of the proposed Letter of Credit or any such documents; and provided, further that no Letter of Credit shall require payment -------- ------- against a conforming draft to be made thereunder on the same business day (under the laws of the jurisdiction in which the office of the Issuing Lender to which such draft is required to be presented is located) that such draft is presented if such presentation is made after 10:00 A.M. (in the time zone of such office of the Issuing Lender) on such business day. Company shall notify the applicable Issuing Lender (and Administrative Agent, if Administrative Agent is not such Issuing Lender) prior to the issuance of any Letter of Credit in the event that any of the matters to which Company is required to certify in the applicable Notice of Issuance of Letter of Credit is no longer true and correct as of the proposed date of issuance of such Letter of Credit, and upon the issuance of any Letter of Credit Company shall be deemed to have re-certified, as of the date of such issuance, as to the matters to which Company is required to certify in the applicable Notice of Issuance of Letter of Credit. (ii) Determination of Issuing Lender. Upon receipt by Administrative ------------------------------- Agent of a Notice of Issuance of Letter of Credit pursuant to subsection 3.1B(i) requesting the issuance of a Letter of Credit, in the event Administrative Agent elects to issue such Letter of Credit, Administrative Agent shall promptly so notify Company, and Administrative Agent shall be the Issuing Lender with respect thereto. In the event that Administrative Agent, in its sole discretion, elects not to issue such Letter of Credit, Administrative Agent shall promptly so notify Company, whereupon Company may request any other Lender to issue such Letter 61 of Credit by delivering to such Lender a copy of the applicable Notice of Issuance of Letter of Credit. Any Lender so requested to issue such Letter of Credit shall promptly notify Company and Administrative Agent whether or not, in its sole discretion, it has elected to issue such Letter of Credit, and any such Lender which so elects to issue such Letter of Credit shall be the Issuing Lender with respect thereto. In the event that all other Lenders shall have declined to issue such Letter of Credit, notwithstanding the prior election of Administrative Agent not to issue such Letter of Credit, Administrative Agent shall be obligated to issue such Letter of Credit and shall be the Issuing Lender with respect thereto, notwithstanding the fact that the Letter of Credit Usage with respect to such Letter of Credit and with respect to all other Letters of Credit issued by Administrative Agent, when aggregated with Administrative Agent's outstanding Revolving Loans and Swing Line Loans, may exceed Administrative Agent's Revolving Loan Commitment then in effect. (iii) Issuance of Letter of Credit. Upon satisfaction or waiver (in ---------------------------- accordance with subsection 10.6) of the conditions set forth in subsection 4.3, the Issuing Lender shall issue the requested Letter of Credit in accordance with the Issuing Lender's standard operating procedures. (iv) Notification to Lenders. Upon the issuance of any Letter of ----------------------- Credit the applicable Issuing Lender shall promptly notify Administrative Agent and each other Lender of such issuance, which notice shall be accompanied by a copy of such Letter of Credit. Promptly after receipt of such notice (or, if Administrative Agent is the Issuing Lender, together with such notice), Administrative Agent shall notify each Lender of the amount of such Lender's respective participation in such Letter of Credit, determined in accordance with subsection 3.1C. (v) Reports to Lenders. Within 15 days after the end of each ------------------ calendar quarter ending after the Closing Date, so long as any Letter of Credit shall have been outstanding during such calendar quarter, each Issuing Lender shall deliver to each other Lender a report setting forth for such calendar quarter the daily aggregate amount available to be drawn under the Letters of Credit issued by such Issuing Lender that were outstanding during such calendar quarter. C. Lenders' Purchase of Participations in Letters of Credit. Immediately upon the issuance of each Letter of Credit, each Lender shall be deemed to, and hereby agrees to, have irrevocably purchased from the Issuing Lender a participation in such Letter of Credit and any drawings honored thereunder in an amount equal to such Lender's Pro Rata Share of the maximum amount which is or at any time may become available to be drawn thereunder. Upon satisfaction of the conditions set forth in subsection 4.1, the Existing Letters of Credit shall, effective as of the Closing Date, become Letters of Credit under this Agreement to the same extent as if initially issued hereunder and each Revolving Loan Lender shall be deemed to have irrevocably purchased from the Issuing 62 Lender(s) of such Existing Letters of Credit a participation in such Letters of Credit and drawings thereunder in an amount equal to such Revolving Lender's Pro Rata Share of the maximum amount which is or at any time may become available to be drawn thereunder. All such Existing Letters of Credit which become Letters of Credit under this Agreement shall be fully secured by the Collateral commencing on the Closing Date to the same extent as if initially issued hereunder on such date. 3.2 LETTER OF CREDIT FEES. --------------------- Company agrees to pay the following amounts with respect to Letters of Credit issued hereunder: (i) with respect to each Standby Letter of Credit, (a) a fronting fee, payable directly to the applicable Issuing Lender for its own account, equal to the greater of (X) $500 and (Y) 0.25% per annum of the daily amount available to be drawn under such Standby Letter of Credit and (b) a letter of credit fee, payable to the Administrative Agent for the account of Lenders, equal to the Applicable Eurodollar Margin multiplied by the ---------- -- daily amount available to be drawn under such Letter of Credit, each such fronting fee or letter of credit fee to be payable in arrears on and to (but excluding) each January 31, April 30, July 31 and October 31 of each year and computed on the basis of a 360-day year for the actual number of days elapsed; (ii) with respect to each Commercial Letter of Credit, (a) a fronting fee, payable directly to the applicable Issuing Lender for its own account, equal to the greater of (X) $100 and (Y) 0.25% per annum of the daily amount available to be drawn under such Commercial Letter of Credit and (b) a letter of credit fee, payable to the Administrative Agent for the account of Lenders, equal to the Applicable Eurodollar Margin minus 1.00% per annum ----- multiplied by the daily amount available to be drawn under such Commercial ---------- -- Letter, each such fronting fee or letter of credit fee to be payable in arrears on and to (but excluding) each January 31, April 30, July 31 and October 31 of each year and computed on the basis of a 360-day year for the actual number of days elapsed; and (iii) with respect to the issuance, amendment or transfer of each Letter of Credit and each payment of a drawing made thereunder (without duplication of the fees payable under clauses (i) and (ii) above), documentary and processing charges payable directly to the applicable Issuing Lender for its own account in accordance with such Issuing Lender's standard schedule for such charges in effect at the time of such issuance, amendment, transfer or payment, as the case may be. For purposes of calculating any fees payable under clauses (i) and (ii) of this subsection 3.2, the daily amount available to be drawn under any Letter of Credit shall be determined as of the close of business on any date of determination. Promptly upon receipt by 63 Administrative Agent of any amount described in clauses (i)(b) or (ii)(b) of this subsection 3.2, Administrative Agent shall distribute to each Lender its Pro Rata Share of such amount. With respect to Existing Letters of Credit, the fees described in clauses (i) and (ii) above shall accrue from and including the Closing Date. 3.3 DRAWINGS AND REIMBURSEMENT OF AMOUNTS PAID UNDER LETTERS OF CREDIT. ------------------------------------------------------------------ A. RESPONSIBILITY OF ISSUING LENDER WITH RESPECT TO DRAWINGS. In determining whether to honor any drawing under any Letter of Credit by the beneficiary thereof, the Issuing Lender shall be responsible only to examine the documents delivered under such Letter of Credit with reasonable care so as to ascertain whether they appear on their face to be in accordance with the terms and conditions of such Letter of Credit. B. REIMBURSEMENT BY COMPANY OF AMOUNTS PAID UNDER LETTERS OF CREDIT. In the event an Issuing Lender has determined to honor a drawing under a Letter of Credit issued by it, such Issuing Lender shall immediately notify Company and Administrative Agent, and Company shall reimburse such Issuing Lender on or before the Business Day immediately following the date on which such drawing is honored (the "REIMBURSEMENT DATE") in an amount in Dollars and in same day funds equal to the amount of such honored drawing; provided that, anything contained -------- in this Agreement to the contrary notwithstanding, (i) unless Company shall have notified Administrative Agent and such Issuing Lender prior to 11:00 A.M. (Charlotte, NC time) on the date such drawing is honored that Company intends to reimburse such Issuing Lender for the amount of such honored drawing with funds other than the proceeds of Revolving Loans, Company shall be deemed to have given a timely Notice of Borrowing to Administrative Agent requesting Lenders to make Revolving Loans that are Base Rate Loans on the Reimbursement Date in an amount in Dollars equal to the amount of such honored drawing and (ii) subject to satisfaction or waiver of the conditions specified in subsection 4.2B, Lenders shall, on the Reimbursement Date, make Revolving Loans that are Base Rate Loans in the amount of such honored drawing, the proceeds of which shall be applied directly by Administrative Agent to reimburse such Issuing Lender for the amount of such honored drawing; and provided, further that if for any reason -------- ------- proceeds of Revolving Loans are not received by such Issuing Lender on the Reimbursement Date in an amount equal to the amount of such honored drawing, Company shall reimburse such Issuing Lender, on demand, in an amount in same day funds equal to the excess of the amount of such honored drawing over the aggregate amount of such Revolving Loans, if any, which are so received. Nothing in this subsection 3.3B shall be deemed to relieve any Lender from its obligation to make Revolving Loans on the terms and conditions set forth in this Agreement, and Company shall retain any and all rights it may have against any Lender resulting from the failure of such Lender to make such Revolving Loans under this subsection 3.3B. 64 C. PAYMENT BY LENDERS OF UNREIMBURSED AMOUNTS PAID UNDER LETTERS OF CREDIT. (i) Payment by Lenders. In the event that Company shall fail for any ------------------ reason to reimburse any Issuing Lender as provided in subsection 3.3B in an amount equal to the amount of any drawing honored by such Issuing Lender under a Letter of Credit issued by it, such Issuing Lender shall promptly notify each other Lender of the unreimbursed amount of such honored drawing and of such other Lender's respective participation therein based on such Lender's Pro Rata Share. Each Lender shall make available to such Issuing Lender an amount equal to its respective participation, in Dollars and in same day funds, at the office of such Issuing Lender specified in such notice, not later than 12:00 Noon (Charlotte, NC time) on the first business day (under the laws of the jurisdiction in which such office of such Issuing Lender is located) after the date notified by such Issuing Lender. In the event that any Lender fails to make available to such Issuing Lender on such business day the amount of such Lender's participation in such Letter of Credit as provided in this subsection 3.3C, such Issuing Lender shall be entitled to recover such amount on demand from such Lender together with interest thereon at the rate customarily used by such Issuing Lender for the correction of errors among banks for three Business Days and thereafter at the Base Rate. Nothing in this subsection 3.3C shall be deemed to prejudice the right of any Lender to recover from any Issuing Lender any amounts made available by such Lender to such Issuing Lender pursuant to this subsection 3.3C in the event that it is determined by the final judgment of a court of competent jurisdiction that the payment with respect to a Letter of Credit by such Issuing Lender in respect of which payment was made by such Lender constituted gross negligence or willful misconduct on the part of such Issuing Lender. (ii) Distribution to Lenders of Reimbursements Received From Company. --------------------------------------------------------------- In the event any Issuing Lender shall have been reimbursed by other Lenders pursuant to subsection 3.3C(i) for all or any portion of any drawing honored by such Issuing Lender under a Letter of Credit issued by it, such Issuing Lender shall distribute to each other Lender which has paid all amounts payable by it under subsection 3.3C(i) with respect to such honored drawing such other Lender's Pro Rata Share of all payments subsequently received by such Issuing Lender from Company in reimbursement of such honored drawing when such payments are received. Any such distribution shall be made to a Lender at its primary address set forth below its name on the appropriate signature page hereof or at such other address as such Lender may request. D. INTEREST ON AMOUNTS PAID UNDER LETTERS OF CREDIT. (i) Payment of Interest by Company. Company agrees to pay to each ------------------------------ Issuing Lender, with respect to drawings honored under any Letters of Credit issued 65 by it, interest on the amount paid by such Issuing Lender in respect of each such honored drawing from the date such drawing is honored to but excluding the date such amount is reimbursed by Company (including any such reimbursement out of the proceeds of Revolving Loans pursuant to subsection 3.3B) at a rate equal to (a) for the period from the date such drawing is honored to but excluding the Reimbursement Date, the rate then in effect under this Agreement with respect to Revolving Loans that are Base Rate Loans and (b) thereafter, a rate which is 2% per annum in excess of the rate of interest otherwise payable under this Agreement with respect to Revolving Loans that are Base Rate Loans. Interest payable pursuant to this subsection 3.3D(i) shall be computed on the basis of a 360-day year for the actual number of days elapsed in the period during which it accrues and shall be payable on demand or, if no demand is made, on the date on which the related drawing under a Letter of Credit is reimbursed in full. (ii) Distribution of Interest Payments by Issuing Lender. Promptly --------------------------------------------------- upon receipt by any Issuing Lender of any payment of interest pursuant to subsection 3.3D(i) with respect to a drawing honored under a Letter of Credit issued by it, (a) such Issuing Lender shall distribute to each other Lender, out of the interest received by such Issuing Lender in respect of the period from the date such drawing is honored to but excluding the date on which such Issuing Lender is reimbursed for the amount of such drawing (including any such reimbursement out of the proceeds of Revolving Loans pursuant to subsection 3.3B), the amount that such other Lender would have been entitled to receive in respect of the letter of credit fee that would have been payable in respect of such Letter of Credit for such period pursuant to subsection 3.2 if no drawing had been honored under such Letter of Credit, and (b) in the event such Issuing Lender shall have been reimbursed by other Lenders pursuant to subsection 3.3C(i) for all or any portion of such honored drawing, such Issuing Lender shall distribute to each other Lender which has paid all amounts payable by it under subsection 3.3C(i) with respect to such honored drawing such other Lender's Pro Rata Share of any interest received by such Issuing Lender in respect of that portion of such honored drawing so reimbursed by other Lenders for the period from the date on which such Issuing Lender was so reimbursed by other Lenders to but excluding the date on which such portion of such honored drawing is reimbursed by Company. Any such distribution shall be made to a Lender at its primary address set forth below its name on the appropriate signature page hereof or at such other address as such Lender may request. 3.4 OBLIGATIONS ABSOLUTE. -------------------- The obligation of Company to reimburse each Issuing Lender for drawings honored under the Letters of Credit issued by it and to repay any Revolving Loans made by Lenders pursuant to subsection 3.3B and the obligations of Lenders under subsection 3.3C(i) shall be unconditional and irrevocable and shall be paid strictly in accordance with 66 the terms of this Agreement under all circumstances including any of the following circumstances: (i) any lack of validity or enforceability of any Letter of Credit; (ii) the existence of any claim, set-off, defense or other right which Company or any Lender may have at any time against a beneficiary or any transferee of any Letter of Credit (or any Persons for whom any such transferee may be acting), any Issuing Lender or other Lender or any other Person or, in the case of a Lender, against Company, whether in connection with this Agreement, the transactions contemplated herein or any unrelated transaction (including any underlying transaction between Company or one of its Subsidiaries and the beneficiary for which any Letter of Credit was procured); (iii) any draft or other document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (iv) payment by the applicable Issuing Lender under any Letter of Credit against presentation of a draft or other document which does not substantially comply with the terms of such Letter of Credit; (v) any adverse change in the business, operations, properties, assets, condition (financial or otherwise) or prospects of Company or any of its Subsidiaries; (vi) any breach of this Agreement or any other Loan Document by any party thereto; (vii) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing; or (viii) the fact that an Event of Default or a Potential Event of Default shall have occurred and be continuing; provided, in each case, that payment by the applicable Issuing Lender under the - -------- applicable Letter of Credit shall not have constituted gross negligence or willful misconduct of such Issuing Lender under the circumstances in question (as determined by a final judgment of a court of competent jurisdiction). 3.5 INDEMNIFICATION; NATURE OF ISSUING LENDERS' DUTIES. -------------------------------------------------- A. INDEMNIFICATION. In addition to amounts payable as provided in subsection 3.6, Company hereby agrees to protect, indemnify, pay and save harmless each Issuing 67 Lender from and against any and all claims, demands, liabilities, damages, losses, costs, charges and expenses (including reasonable fees, expenses and disbursements of counsel and allocated costs of internal counsel) which such Issuing Lender may incur or be subject to as a consequence, direct or indirect, of (i) the issuance of any Letter of Credit by such Issuing Lender, other than as a result of (a) the gross negligence or willful misconduct of such Issuing Lender as determined by a final judgment of a court of competent jurisdiction or (b) subject to the following clause (ii), the wrongful dishonor by such Issuing Lender of a proper demand for payment made under any Letter of Credit issued by it or (ii) the failure of such Issuing Lender to honor a drawing under any such Letter of Credit as a result of any act or omission, whether rightful or wrongful, of any present or future de jure or de facto government or governmental authority (all such acts or omissions herein called "GOVERNMENTAL ACTS"). B. NATURE OF ISSUING LENDERS' DUTIES. As between Company and any Issuing Lender, Company assumes all risks of the acts and omissions of, or misuse of the Letters of Credit issued by such Issuing Lender by, the respective beneficiaries of such Letters of Credit. In furtherance and not in limitation of the foregoing, such Issuing Lender shall not be responsible for: (i) the form, validity, sufficiency, accuracy, genuineness or legal effect of any document submitted by any party in connection with the application for and issuance of any such Letter of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (ii) the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign any such Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason; (iii) failure of the beneficiary of any such Letter of Credit to comply fully with any conditions required in order to draw upon such Letter of Credit; (iv) errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise, whether or not they be in cipher; (v) errors in interpretation of technical terms; (vi) any loss or delay in the transmission or otherwise of any document required in order to make a drawing under any such Letter of Credit or of the proceeds thereof; (vii) the misapplication by the beneficiary of any such Letter of Credit of the proceeds of any drawing under such Letter of Credit; or (viii) any consequences arising from causes beyond the control of such Issuing Lender, including any Governmental Acts, and none of the above shall affect or impair, or prevent the vesting of, any of such Issuing Lender's rights or powers hereunder. In furtherance and extension and not in limitation of the specific provisions set forth in the first paragraph of this subsection 3.5B, any action taken or omitted by any Issuing Lender under or in connection with the Letters of Credit issued by it or any documents and certificates delivered thereunder, if taken or omitted in good faith, shall not put such Issuing Lender under any resulting liability to Company. Notwithstanding anything to the contrary contained in this subsection 3.5, Company shall retain any and all rights it may have against any Issuing Lender for any 68 liability arising solely out of the gross negligence or willful misconduct of such Issuing Lender, as determined by a final judgment of a court of competent jurisdiction. 3.6 INCREASED COSTS AND TAXES RELATING TO LETTERS OF CREDIT. ------------------------------------------------------- Subject to the provisions of subsection 2.7B (which shall be controlling with respect to the matters covered thereby), in the event that any Issuing Lender or Lender shall determine (which determination shall, absent manifest error, be final and conclusive and binding upon all parties hereto) that any law, treaty or governmental rule, regulation or order, or any change therein or in the interpretation, administration or application thereof (including the introduction of any new law, treaty or governmental rule, regulation or order), or any determination of a court or governmental authority, in each case that becomes effective after the date hereof, or compliance by any Issuing Lender or Lender with any guideline, request or directive issued or made after the date hereof by any central bank or other governmental or quasi- governmental authority (whether or not having the force of law): (i) subjects such Issuing Lender or Lender (or its applicable lending or letter of credit office) to any additional Tax (other than any Tax on the overall net income of such Issuing Lender or Lender) with respect to the issuing or maintaining of any Letters of Credit or the purchasing or maintaining of any participations therein or any other obligations under this Section 3, whether directly or by such being imposed on or suffered by any particular Issuing Lender; (ii) imposes, modifies or holds applicable any reserve (including any marginal, emergency, supplemental, special or other reserve), special deposit, compulsory loan, FDIC insurance or similar requirement in respect of any Letters of Credit issued by any Issuing Lender or participations therein purchased by any Lender; or (iii) imposes any other condition (other than with respect to a Tax matter) on or affecting such Issuing Lender or Lender (or its applicable lending or letter of credit office) regarding this Section 3 or any Letter of Credit or any participation therein; and the result of any of the foregoing is to increase the cost to such Issuing Lender or Lender of agreeing to issue, issuing or maintaining any Letter of Credit or agreeing to purchase, purchasing or maintaining any participation therein or to reduce any amount received or receivable by such Issuing Lender or Lender (or its applicable lending or letter of credit office) with respect thereto; then, in any case, Company shall promptly pay to such Issuing Lender or Lender, upon receipt of the statement referred to in the next sentence, such additional amount or amounts as may be necessary to compensate such Issuing Lender or Lender for any such increased cost or reduction in amounts received or receivable hereunder. Such Issuing Lender or Lender shall deliver to Company a written 69 statement, setting forth in reasonable detail the basis for calculating the additional amounts owed to such Issuing Lender or Lender under this subsection 3.6, which statement shall be conclusive and binding upon all parties hereto absent manifest error. SECTION 4. CONDITIONS TO LOANS AND LETTERS OF CREDIT The obligations of Lenders to make Loans and the issuance of Letters of Credit hereunder are subject to the satisfaction of the following conditions. 4.1 CONDITIONS TO INITIAL REVOLVING LOANS AND SWING LINE LOANS. ---------------------------------------------------------- The obligations of Lenders to make any Revolving Loans and Swing Line Loans to be made on the Closing Date are, in addition to the conditions precedent specified in subsection 4.2, subject to prior or concurrent satisfaction of the following conditions and the Existing Letters of Credit shall become Letters of Credit under this Agreement upon the prior or concurrent satisfaction of the following conditions: A. LOAN PARTY DOCUMENTS. On or before the Closing Date, Company shall, and shall cause each other Loan Party to, deliver to Lenders (or to Administrative Agent for Lenders with sufficient originally executed copies, where appropriate, for each Lender and its counsel) the following with respect to Company or such Loan Party, as the case may be, each, unless otherwise noted, dated the Closing Date: (i) Certified copies of the Certificate or Articles of Incorporation of such Person, together with a good standing certificate from the Secretary of State of its jurisdiction of incorporation and each other state in which such Person is qualified as a foreign corporation to do business and, to the extent generally available, a certificate or other evidence of good standing as to payment of any applicable franchise or similar taxes from the appropriate taxing authority of each of such jurisdictions, each dated a recent date prior to the Closing Date; (ii) Copies of the Bylaws of such Person, certified as of the Closing Date by such Person's corporate secretary or an assistant secretary; (iii) Resolutions of the Board of Directors of such Person approving and authorizing the execution, delivery and performance of the Loan Documents and Related Agreements to which it is a party, certified as of the Closing Date by the corporate secretary or an assistant secretary of such Person as being in full force and effect without modification or amendment; (iv) Signature and incumbency certificates of the officers of such Person executing the Loan Documents to which it is a party; 70 (v) Executed originals of the Loan Documents to which such Person is a party; and (vi) Such other documents as any Agent may reasonably request. B. NO MATERIAL ADVERSE EFFECT. Since September 26, 1996, no Material Adverse Effect (in the sole opinion of Agents) shall have occurred. C. CORPORATE AND CAPITAL STRUCTURE, OWNERSHIP, MANAGEMENT, ETC. (i) Corporate Structure. The corporate organizational structure of ------------------- Company and its Subsidiaries, both before and after giving effect to the Lil' Champ Acquisition, shall be as set forth on Schedule 4.1C annexed ------------- hereto. (ii) Capital Structure and Ownership. The capital structure and ------------------------------- ownership of Company, both before and after giving effect to the Lil' Champ Acquisition, shall be as set forth on Schedule 4.1C annexed hereto. ------------- (iii) Management; Employment Contracts; Management Incentive Plans. The ------------------------------------------------------------ management structure of Company after giving effect to the Lil' Champ Acquisition shall be as set forth on Schedule 4.1C annexed hereto, and ------------- Agents shall have received copies of, and shall be satisfied with the form and substance of, any and all employment contracts with senior management of Company and any and all management incentive plans of Company and its Subsidiaries. D. PROCEEDS OF DEBT AND EQUITY CAPITALIZATION OF COMPANY AND ITS SUBSIDIARIES. (i) Debt and Equity Capitalization of Company. On or before the ----------------------------------------- Closing Date, (a) Freeman Spogli, CMC and certain members of Company's management, shall have purchased additional Capital Stock of Company for a cash consideration of not less than $32,400,000 upon terms and conditions satisfactory to Agents, and (b) Company shall have issued and sold not less than $190,000,000 in aggregate principal amount of Senior Subordinated Notes having an interest rate not in excess of 14%. (ii) Use of Proceeds by Company. Company shall have provided evidence -------------------------- satisfactory to Agents that the proceeds of the debt and equity capitalization of Company described in the immediately preceding clause (i), together with cash of Company and its Subsidiaries of not less than $4,000,000, have been irrevocably committed, prior to the application of the proceeds of any Revolving Loans made on the Closing Date, to the payment of a portion of the following: (a) to finance the purchase price payable in connection with the Lil' Champ Acquisition, (b) to refinance Indebtedness of Company and Lil' Champ 71 outstanding under the Existing Credit Agreements in an aggregate maximum principal amount not exceeding $25,000,000 (including without limitation Existing Letters of Credit with an aggregate stated amount of approximately $9,100,000), (c) to finance the repurchase of $51,000,000 in principal amount of Senior Notes and to pay accrued and unpaid interest thereon, (d) to finance the payment of up to $7,000,000 in tender offer premiums and consent fees related to the repurchase of Senior Notes and the solicitation of consents from the holders of the Senior Notes to certain amendments to the Senior Note Indenture, and (e) to pay Transaction Costs in an aggregate amount of approximately $15,000,000. E. RELATED AGREEMENTS. (i) Senior Subordinated Note Indenture. The Senior Subordinated Note ---------------------------------- Indenture shall be in form and substance satisfactory to Agents and Requisite Lenders. (ii) Approval of Related Agreements. The Offer and Consent ------------------------------ Solicitation Materials and each of the other Related Agreements shall each be satisfactory in form and substance to Agents. (iii) Related Agreements in Full Force and Effect. Agents shall have ------------------------------------------- received a fully executed or conformed copy of each Related Agreement and any documents executed in connection therewith, and each Related Agreement shall be in full force and effect and no provision thereof shall have been modified or waived in any respect determined by Agents to be material, in each case without the consent of Agents. F. MATTERS RELATING TO EXISTING CREDIT AGREEMENTS AND OFFER AND CONSENT SOLICITATION; EXISTING LETTERS OF CREDIT. (i) Termination of Existing Credit Agreements and Related Liens; ------------------------------------------------------------ Existing Letters of Credit. On the Closing Date, Company and its -------------------------- Subsidiaries (including without limitation Lil' Champ) shall have (a) repaid in full all Indebtedness outstanding under the Existing Credit Agreements (the aggregate principal amount of which Indebtedness shall not exceed $25,000,000 (including without limitation Existing Letters of Credit with an aggregate stated amount of approximately $9,100,000)), (b) terminated any commitments to lend or make other extensions of credit thereunder, (c) delivered to Administrative Agent all documents or instruments necessary to release all Liens securing Indebtedness or other obligations of Company and its Subsidiaries thereunder or to assign such Liens to Administrative Agent for the benefit of Lenders, and (d) made arrangements satisfactory to Agents with respect to the cancellation of any letters of credit (other than the Existing Letters of Credit) outstanding thereunder or the issuance of Letters of Credit to support the obligations of Company and its Restricted Subsidiaries with 72 respect thereto. Company shall have furnished to Agents copies of all Existing Letters of Credit and all amendments thereto. Company shall have paid to the Lenders with respect to such Existing Letters of Credit all fees and other amounts owing with respect thereto but excluding the Closing Date. (ii) Offer and Consent Solicitation. Pursuant to the Offer and Consent ------------------------------ Solicitation, (i) $51,000,000 in aggregate principal amount of the Senior Notes shall have been tendered in exchange for an aggregate cash payment not exceeding the principal amount thereof plus accrued interest thereon plus tender premiums and consent fees not exceeding $7,000,000, and (ii) Company shall have obtained all such consents and amendments with respect to the Senior Note Indenture as may be required to permit the consummation of the Lil' Champ Acquisition, the related financings (including the incurrence of the Obligations hereunder) and the other transactions contemplated by the Loan Documents and the Related Agreements. The terms and conditions of such consents and amendments shall be as described in the Offer and Consent Solicitation Materials and shall otherwise be in form and substance satisfactory to Agents and Requisite Lenders. Company shall have delivered to Agents a fully executed or conformed copy of the Senior Note Indenture as so amended. (iii) Existing Indebtedness to Remain Outstanding. Agents shall have ------------------------------------------- received an Officers' Certificate of Company stating that, after giving effect to the transactions described in this subsection 4.1F, the Indebtedness of Loan Parties (other than Indebtedness under the Loan Documents, the Senior Notes and the Senior Subordinated Notes) shall consist of (a) approximately $190,000 in aggregate principal amount of outstanding Indebtedness described in Schedule 7.1 annexed hereto and (b) ------------ Indebtedness in an aggregate amount not to exceed $14,600,000 in respect of Capital Leases. G. NECESSARY GOVERNMENTAL AUTHORIZATIONS AND CONSENTS; EXPIRATION OF WAITING PERIODS, ETC. Company shall have obtained all Governmental Authorizations and all consents of other Persons, in each case that are necessary or advisable in connection with the Lil' Champ Acquisition, the other transactions contemplated by the Loan Documents and the Related Agreements, and the continued operation of the business conducted by Company, Lil' Champ and their respective Subsidiaries in substantially the same manner as conducted prior to the consummation of the Lil' Champ Acquisition, and each of the foregoing shall be in full force and effect, in each case other than those the failure to obtain or maintain which, either individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect. All applicable waiting periods shall have expired without any action being taken or threatened by any competent authority which would restrain, prevent or otherwise impose adverse conditions on the Lil' Champ Acquisition or the financing thereof. No action, request for stay, petition for review or rehearing, reconsideration, or appeal with respect to any of the foregoing shall be pending, 73 and the time for any applicable agency to take action to set aside its consent on its own motion shall have expired. H. CONSUMMATION OF LIL' CHAMP ACQUISITION. (i) All conditions to the Lil' Champ Acquisition set forth in the Lil' Champ Stock Purchase Agreement and the Assignment and Assumption Agreement shall have been satisfied or the fulfillment of any such conditions shall have been waived with the consent of Agents; (ii) The aggregate cash consideration paid to the holders of equity interests in Lil' Champ in respect of such equity interests in connection with the Lil' Champ Acquisition shall not exceed $132,700,000; (iii) Transaction Costs shall not exceed $15,000,000, and Agents shall have received evidence to its satisfaction to such effect; and (iv) Agents shall have received an Officers' Certificate of Company to the effect set forth in clauses (i)-(iii) above and stating that Company will proceed to consummate the Lil' Champ Acquisition immediately upon the making of the initial Loans. I. CLOSING DATE MORTGAGES; CLOSING DATE MORTGAGE POLICIES; ETC. Administrative Agent shall have received from Company and each applicable Subsidiary Guarantor: (i) Closing Date Mortgages. Fully executed and notarized Mortgages, ---------------------- or all required documents relating to assignments to Administrative Agent of Mortgages encumbering the owned Real Property Assets of Company and its Restricted Subsidiaries existing as of the Closing Date (each a "CLOSING DATE MORTGAGE" and, collectively, the "CLOSING DATE MORTGAGES"), duly recorded or in proper form for recording, as the case may be, in all appropriate places in all applicable jurisdictions, encumbering each Real Property Asset listed in Schedule 4.11 annexed hereto (each a "CLOSING DATE ------------- MORTGAGED PROPERTY" and, collectively, the "CLOSING DATE MORTGAGED PROPERTIES"); (ii) Opinions of Local Counsel. If requested by Agents, an opinion of ------------------------- counsel in each state in which a Closing Date Mortgaged Property is located with respect to the enforceability of the form(s) of Closing Date Mortgages to be recorded in such state and such other matters as Agents may reasonably request, in each case in form and substance reasonably satisfactory to Agents; (iii) Matters Relating to Flood Hazard Properties. (a) Evidence, which may be in the form of a letter from an insurance broker or a municipal engineer, as to whether (1) any Closing Date Mortgaged Property is a Flood Hazard Property 74 and (2) the community in which any such Flood Hazard Property is located is participating in the National Flood Insurance Program, (b) if there are any such Flood Hazard Properties, such Loan Party's written acknowledgement of receipt of written notification from Administrative Agent (1) as to the existence of each such Flood Hazard Property and (2) as to whether the community in which each such Flood Hazard Property is located is participating in the National Flood Insurance Program, and (c) in the event any such Flood Hazard Property is located in a community that participates in the National Flood Insurance Program, evidence that Company has obtained flood insurance in respect of such Flood Hazard Property to the extent required under the applicable regulations of the Board of Governors of the Federal Reserve System; and (iv) Environmental Indemnity . An environmental indemnity agreement, ------------------------ satisfactory in form and substance to Agents and their counsel, with respect to the indemnification of Agents and Lenders for any liabilities that may be imposed on or incurred by any of them as a result of any Hazardous Materials Activity. J. SECURITY INTERESTS IN PERSONAL AND MIXED PROPERTY. Agents shall have received evidence satisfactory to it that Company and Subsidiary Guarantors shall have taken or caused to be taken all such actions, executed and delivered or caused to be executed and delivered all such agreements, documents and instruments, and made or caused to be made all such filings and recordings (other than the filing or recording of items described in clauses (iii), (iv) and (v) below) that may be necessary or, in the opinion of Agents, desirable in order to create in favor of Administrative Agent, for the benefit of Lenders, a valid and (upon such filing and recording) perfected First Priority security interest in the entire personal and mixed property Collateral. Such actions shall include the following: (i) Schedules to Collateral Documents. Delivery to Agents of accurate --------------------------------- and complete schedules to all of the applicable Collateral Documents. (ii) Stock Certificates and Instruments. Delivery to Administrative ---------------------------------- Agent of (a) certificates (which certificates shall be accompanied by irrevocable undated stock powers, duly endorsed in blank and otherwise satisfactory in form and substance to Agents) representing all capital stock pledged pursuant to the Company Pledge Agreement and the Subsidiary Pledge Agreements and (b) all promissory notes or other instruments (duly endorsed, where appropriate, in a manner satisfactory to Agents) evidencing any Collateral; (iii) Lien Searches and UCC Termination Statements. Delivery to Agents -------------------------------------------- of (a) the results of a recent search, by a Person satisfactory to Agents, of all effective UCC financing statement filings which may have been made with respect to any personal or mixed property of any Loan Party, together with copies of all such filings disclosed by such search, and (b) UCC termination statements duly 75 executed by all applicable Persons for filing in all applicable jurisdictions as may be necessary to terminate any effective UCC financing statements disclosed in such search (other than any such financing statements in respect of Liens permitted to remain outstanding pursuant to the terms of this Agreement). (iv) UCC Financing Statements and Fixture Filings. Delivery to -------------------------------------------- Administrative Agent of UCC financing statements and, where appropriate, fixture filings, duly executed by each applicable Loan Party with respect to all personal and mixed property Collateral of such Loan Party, for filing in all jurisdictions as may be necessary or, in the opinion of Agents, desirable to perfect the security interests created in such Collateral pursuant to the Collateral Documents; (v) PTO Cover Sheets, Etc. Delivery to Administrative Agent of all --------------------- cover sheets or other documents or instruments required to be filed with the PTO in order to create or perfect Liens in respect of any IP Collateral; (vi) Certificates of Title, Etc. If requested by Agents, delivery to -------------------------- Administrative Agent of certificates of title with respect to all motor vehicles and other rolling stock of Loan Parties and the taking of all actions necessary to cause Administrative Agent to be noted as lienholder thereon or otherwise necessary to perfect the First Priority Lien granted to Administrative Agent on behalf of Lenders in such rolling stock; and (vii) Opinions of Local Counsel. If requested by Agents, delivery to ------------------------- Agents of an opinion of counsel (which counsel shall be reasonably satisfactory to Agents) under the laws of each jurisdiction in which any Loan Party or any personal or mixed property Collateral is located with respect to the creation and perfection of the security interests in favor of Administrative Agent in such Collateral and such other matters governed by the laws of such jurisdiction regarding such security interests as Agents may reasonably request, in each case in form and substance reasonably satisfactory to Agents. K. ENVIRONMENTAL REPORTS. Agents shall have received any existing reports and other information, in form, scope and substance satisfactory to Agents, regarding environmental matters relating to Company and its Subsidiaries and the Facilities. L. FINANCIAL STATEMENTS; PRO FORMA BALANCE SHEET. On or before the Closing Date, Lenders shall have received from Company (i) audited financial statements of Company and its Subsidiaries for Fiscal Years 1994, 1995 and 1996, and of Lil' Champ and its Subsidiaries for fiscal years ended on December 31, 1994, December 30, 1995 and December 28, 1996, in each case consisting of balance sheets and the related consolidated and consolidating statements of income, stockholders' equity and cash flows for such periods, (ii) unaudited financial statements of Company and its Subsidiaries as at June 26, 1997, and unaudited financial statements of Lil' Champ and its Subsidiaries as at June 28, 76 1997, in each case consisting of a balance sheet and the related consolidated and consolidating statements of income, stockholders' equity and cash flows for the 9-month period and 6-month period, respectively, ending on such date, all in reasonable detail and certified by the chief financial officer of Company that they fairly present the financial condition of Company and its Subsidiaries and Lil' Champ and its Subsidiaries as at the dates indicated and the results of their operations and their cash flows for the periods indicated, subject to changes resulting from audit and normal year-end adjustments, (iii) pro forma consolidated and consolidating balance sheets of Company and its Subsidiaries as at the Closing Date, prepared in accordance with GAAP and reflecting the consummation of the Lil' Champ Acquisition, the related financings and the other transactions contemplated by the Loan Documents and the Related Agreements, which pro forma financial statements shall be substantially consistent with any financial statements for the same periods delivered to Agents prior to September 30, 1997, and otherwise in form and substance satisfactory to Lenders, and (iv) projected consolidated and consolidating financial statements of Company and its Subsidiaries for the five-year period after the Closing Date consisting of consolidated and consolidating balance sheets and the related consolidated and consolidating statements of income, shareholders' equity and cash flows, which projected financial statements shall be substantially consistent with any projected financial results for the same period delivered to Agents prior to September 30, 1997 and otherwise in form and substance satisfactory to Agents and Lenders. M. SOLVENCY ASSURANCES. On the Closing Date, Agents and Lenders shall have received a Financial Condition Certificate dated the Closing Date, substantially in the form of Exhibit XIII annexed hereto and with appropriate ------------ attachments, demonstrating that, after giving effect to the consummation of the Lil' Champ Acquisition, the related financings and the other transactions contemplated by the Loan Documents and the Related Agreements, Company will be Solvent. N. EVIDENCE OF INSURANCE. Agents shall have received a list of all insurance policies of Company and its Subsidiaries and a summary of the coverages provided thereby and a certificate from Company's insurance broker or other evidence satisfactory to it that all insurance required to be maintained pursuant to subsection 6.4 is in full force and effect and that Administrative Agent on behalf of Lenders has been named as additional insured and/or loss payee thereunder to the extent required under subsection 6.4. O. OPINIONS OF COUNSEL TO LOAN PARTIES. Lenders and their respective counsel shall have received (i) originally executed copies of one or more favorable written opinions of Riordan & McKinzie, counsel for Loan Parties, in form and substance reasonably satisfactory to Agents and their counsel, dated as of the Closing Date and setting forth substantially the matters in the opinions designated in Exhibit VIII annexed hereto and as to such other matters as Agents ------------ acting on behalf of Lenders may reasonably request and (ii) evidence satisfactory to Agents that Company has requested such counsel to deliver such opinions to Lenders. 77 P. OPINIONS OF AGENTS' COUNSEL. Lenders shall have received originally executed copies of one or more favorable written opinions of O'Melveny & Myers LLP, counsel to Agents, dated as of the Closing Date, substantially in the form of Exhibit IX annexed hereto and as to such other matters as Agents acting on ---------- behalf of Lenders may reasonably request. Q. OPINIONS OF COUNSEL DELIVERED UNDER RELATED AGREEMENTS. Agents and their counsel shall have received copies of each of the opinions of counsel delivered to the parties under the Related Agreements, together with a letter from each such counsel (to the extent not inconsistent with such counsel's established internal policies) authorizing Lenders and Agents to rely upon such opinion to the same extent as though it were addressed to Lenders and Agents. R. AUDITOR'S LETTER. Agents shall have received an executed Auditor's Letter. S. FEES. Company shall have paid to Administrative Agent, for distribution (as appropriate) to Agents, Lenders, CIBC WG and First Union CMC, the fees payable on the Closing Date referred to in subsection 2.3. T. REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF AGREEMENTS. Company shall have delivered to Agents an Officers' Certificate, in form and substance satisfactory to Agents, to the effect that the representations and warranties in Section 5 hereof are true, correct and complete in all material respects on and as of the Closing Date to the same extent as though made on and as of that date (or, to the extent such representations and warranties specifically relate to an earlier date, that such representations and warranties were true, correct and complete in all material respects on and as of such earlier date), that Company shall have performed in all material respects all agreements and satisfied all conditions which this Agreement provides shall be performed or satisfied by it on or before the Closing Date except as otherwise disclosed to and agreed to in writing by Agents and Requisite Lenders, and, if no Loans are made on the Closing Date, that all conditions precedent described in subsection 4.2C have been satisfied to the same extent as if the Existing Letters of Credit becoming Letters of Credit under this Agreement were the making of a Loan and the date of the Existing Letters of Credit becoming Letters of Credit under this Agreement were a Funding Date. U. COMPLETION OF PROCEEDINGS. All corporate and other proceedings taken or to be taken in connection with the transactions contemplated hereby and all documents incidental thereto not previously found acceptable by Agents, acting on behalf of Lenders, and their counsel shall be satisfactory in form and substance to Agents and such counsel, and Agents and such counsel shall have received all such counterpart originals or certified copies of such documents as Agents may reasonably request. 78 4.2 CONDITIONS TO ALL LOANS. ----------------------- The obligations of Lenders to make Loans on each Funding Date are subject to the following further conditions precedent: A. Administrative Agent shall have received before that Funding Date, in accordance with the provisions of subsection 2.1B, an originally executed Notice of Borrowing, in each case signed by the chief executive officer, the chief financial officer or the treasurer of Company or by any executive officer of Company designated by any of the above-described officers on behalf of Company in a writing delivered to Administrative Agent. B. The Existing Letters of Credit shall have become Letters of Credit under this Agreement. C. As of that Funding Date: (i) The representations and warranties contained herein and in the other Loan Documents shall be true, correct and complete in all material respects on and as of that Funding Date to the same extent as though made on and as of that date, except to the extent such representations and warranties specifically relate to an earlier date, in which case such representations and warranties shall have been true, correct and complete in all material respects on and as of such earlier date; (ii) No event shall have occurred and be continuing or would result from the consummation of the borrowing contemplated by such Notice of Borrowing that would constitute an Event of Default or a Potential Event of Default; (iii) Each Loan Party shall have performed in all material respects all agreements and satisfied all conditions which this Agreement provides shall be performed or satisfied by it on or before that Funding Date; (iv) No order, judgment or decree of any court, arbitrator or governmental authority shall purport to enjoin or restrain any Lender from making the Loans to be made by it on that Funding Date; (v) The making of the Loans requested on such Funding Date shall not violate any law including Regulation G, Regulation T, Regulation U or Regulation X of the Board of Governors of the Federal Reserve System; and (vi) There shall not be pending or, to the knowledge of Company, threatened, any action, suit, proceeding, governmental investigation or arbitration against or affecting Company or any of its Subsidiaries or any property of Company or any of its Subsidiaries that has not been disclosed by Company in 79 writing pursuant to subsection 5.6 or 6.1(x) prior to the making of the last preceding Loans (or, in the case of the initial Loans, prior to the execution of this Agreement), and there shall have occurred no development not so disclosed in any such action, suit, proceeding, governmental investigation or arbitration so disclosed, that, in either event, in the opinion of Administrative Agent or of Requisite Lenders, would be expected to have a Material Adverse Effect; and no injunction or other restraining order shall have been issued and no hearing to cause an injunction or other restraining order to be issued shall be pending or noticed with respect to any action, suit or proceeding seeking to enjoin or otherwise prevent the consummation of, or to recover any damages or obtain relief as a result of, the transactions contemplated by this Agreement or the making of Loans hereunder. 4.3 CONDITIONS TO LETTERS OF CREDIT. ------------------------------- The issuance of any Letter of Credit hereunder (whether or not the applicable Issuing Lender is obligated to issue such Letter of Credit) is subject to the following conditions precedent: A. On or before the date of issuance of the initial Letter of Credit pursuant to this Agreement, the initial Loans shall have been made. B. On or before the date of issuance of such Letter of Credit, Administrative Agent shall have received, in accordance with the provisions of subsection 3.1B(i), an originally executed Notice of Issuance of Letter of Credit, in each case signed by the chief executive officer, the chief financial officer or the treasurer of Company or by any executive officer of Company designated by any of the above-described officers on behalf of Company in a writing delivered to Administrative Agent, together with all other information specified in subsection 3.1B(i) and such other documents or information as the applicable Issuing Lender may reasonably require in connection with the issuance of such Letter of Credit. C. On the date of issuance of such Letter of Credit, all conditions precedent described in subsection 4.2C shall be satisfied to the same extent as if the issuance of such Letter of Credit were the making of a Loan and the date of issuance of such Letter of Credit were a Funding Date. SECTION 5. COMPANY'S REPRESENTATIONS AND WARRANTIES In order to induce Lenders to enter into this Agreement and to make the Loans, to induce Issuing Lenders to issue Letters of Credit and to induce other Lenders to purchase participations therein, Company represents and warrants to each Lender, on the date of this Agreement, on each Funding Date and on the date of issuance of each Letter of Credit, that the following statements are true, correct and complete: 80 5.1 ORGANIZATION, POWERS, QUALIFICATION, GOOD STANDING, BUSINESS AND ---------------------------------------------------------------- SUBSIDIARIES. ------------ A. ORGANIZATION AND POWERS. Each Loan Party is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation as specified in Schedule 5.1 annexed hereto. Each ------------ Loan Party has all requisite corporate power and authority to own and operate its properties, to carry on its business as now conducted and as proposed to be conducted, to enter into the Loan Documents and Related Agreements to which it is a party and to carry out the transactions contemplated thereby. B. QUALIFICATION AND GOOD STANDING. Each Loan Party is qualified to do business and in good standing in every jurisdiction where its assets are located and wherever necessary to carry out its business and operations, except in jurisdictions where the failure to be so qualified or in good standing has not had and will not have a Material Adverse Effect. C. CONDUCT OF BUSINESS. Company and its Restricted Subsidiaries are engaged only in the businesses permitted to be engaged in pursuant to subsection 7.13. D. SUBSIDIARIES. All of the Subsidiaries of Company as of the Closing Date are identified in Schedule 5.1 annexed hereto, as said Schedule 5.1 may be ------------ ------------ supplemented from time to time pursuant to the provisions of subsection 6.1(xvi). The capital stock of each of the Subsidiaries of Company identified in Schedule 5.1 annexed hereto is duly authorized, validly issued, fully paid ------------ and nonassessable and none of such capital stock constitutes Margin Stock. Each of the Subsidiaries of Company identified in Schedule 5.1 annexed hereto is a ------------ corporation duly organized, validly existing and in good standing under the laws of its respective jurisdiction of incorporation set forth therein, has all requisite corporate power and authority to own and operate its properties and to carry on its business as now conducted and as proposed to be conducted, and is qualified to do business and in good standing in every jurisdiction where its assets are located and wherever necessary to carry out its business and operations, in each case except where failure to be so qualified or in good standing or a lack of such corporate power and authority has not had and will not have a Material Adverse Effect. Schedule 5.1 annexed hereto correctly sets ------------ forth for Company and each of its Subsidiaries (i) the ownership interest of Company and each of its Subsidiaries in each of the Subsidiaries of Company identified therein, (ii) the jurisdiction of incorporation of Company and each such Subsidiary, (iii) the number of issued and outstanding shares of capital stock of each such Subsidiary and the owners thereof, and (iv) as of the Closing Date, the number of issued and outstanding shares of capital stock of Company and the owners thereof. As of the Closing Date, the fair market value of the aggregate amount of assets of the Unrestricted Subsidiaries does not exceed $1,500,000 and there exists no Indebtedness nor Contingent Obligations of the Unrestricted Subsidiaries owed to Company or any of its Restricted Subsidiaries or for which Company or any of its Restricted Subsidiaries is or may become liable. 81 5.2 AUTHORIZATION OF BORROWING, ETC. ------------------------------- A. AUTHORIZATION OF BORROWING. The execution, delivery and performance of the Loan Documents and the Related Agreements have been duly authorized by all necessary corporate action on the part of each Loan Party that is a party thereto. B. NO CONFLICT. The execution, delivery and performance by Loan Parties of the Loan Documents and the Related Agreements to which they are parties and the consummation of the transactions contemplated by the Loan Documents and such Related Agreements do not and will not (i) violate any provision of any law or any governmental rule or regulation applicable to Company or any of its Subsidiaries, the Certificate or Articles of Incorporation or Bylaws of Company or any of its Subsidiaries or any order, judgment or decree of any court or other agency of government binding on Company or any of its Subsidiaries, (ii) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any Contractual Obligation of Company or any of its Subsidiaries, (iii) result in or require the creation or imposition of any Lien upon any of the properties or assets of Company or any of its Subsidiaries (other than any Liens created under any of the Loan Documents in favor of Administrative Agent on behalf of Lenders), or (iv) require any approval of stockholders or any approval or consent of any Person under any Contractual Obligation of Company or any of its Subsidiaries, except for such approvals or consents which will be obtained on or before the Closing Date and disclosed in writing to Lenders. C. GOVERNMENTAL CONSENTS. The execution, delivery and performance by Loan Parties of the Loan Documents and the Related Agreements to which they are parties and the consummation of the transactions contemplated by the Loan Documents and such Related Agreements do not and will not require any registration with, consent or approval of, or notice to, or other action to, with or by, any federal, state or other governmental authority or regulatory body. D. BINDING OBLIGATION. Each of the Loan Documents and Related Agreements has been duly executed and delivered by each Loan Party that is a party thereto and is the legally valid and binding obligation of such Loan Party, enforceable against such Loan Party in accordance with its respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally or by equitable principles relating to enforceability. E. VALID ISSUANCE OF COMPANY CAPITAL STOCK, SENIOR SUBORDINATED NOTES AND SENIOR NOTES. (i) Company Capital Stock. The Company Capital Stock to be sold on --------------------- or before the Closing Date, when issued and delivered, will be duly and validly issued, fully paid and nonassessable. Except as set forth in the Stockholders Agreement, no stockholder of Company has or will have any preemptive rights to subscribe for any 82 additional equity Securities of Company. The issuance and sale of such Company Capital Stock, upon such issuance and sale, will either (a) have been registered or qualified under applicable federal and state securities laws or (b) be exempt therefrom. (ii) Senior Subordinated Notes. Company has the corporate power and ------------------------- authority to issue the Senior Subordinated Notes. The Senior Subordinated Notes, when issued and paid for, will be the legally valid and binding obligations of Company, enforceable against Company in accordance with their respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally or by equitable principles relating to enforceability. The subordination provisions of the Senior Subordinated Notes will be enforceable against the holders thereof and the Loans and all other monetary Obligations hereunder are and will be within the definition of "Senior Indebtedness" included in such provisions. The Senior Subordinated Notes, when issued and sold, will either (a) have been registered or qualified under applicable federal and state securities laws or (b) be exempt therefrom. (iii) Senior Notes. The Senior Notes are the legally valid and binding ------------ obligations of Company, enforceable against Company in accordance with their respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally or by equitable principles relating to enforceability. The Senior Notes are either (a) registered or qualified under applicable federal and state securities laws or (b) exempt therefrom. 5.3 FINANCIAL CONDITION. ------------------- Company has heretofore delivered to Lenders, at Lenders' request, the following financial statements and information: (i) the audited consolidated balance sheet of Company and its Subsidiaries as at September 26, 1996 and the related consolidated statements of income, stockholders' equity and cash flows of Company and its Subsidiaries for the Fiscal Year then ended, (ii) the audited consolidated balance sheet of Lil' Champ and its Subsidiaries as at December 28, 1996 and the related consolidated statements of income, stockholders' equity and cash flows of Lil' Champ and its Subsidiaries for the fiscal year then ended and (iii) the unaudited consolidated balance sheets of Company and its Subsidiaries as at June 26, 1997 and the unaudited consolidated balance sheets of Lil' Champ and its Subsidiaries, each as at June 28, 1997, and the related unaudited consolidated statements of income, stockholders' equity and cash flows of Company and its Subsidiaries and of Lil' Champ and its Subsidiaries for the 9 months then ended and the 6 months then ended, respectively. All such statements were prepared in conformity with GAAP and fairly present, in all material respects, the financial position (on a consolidated basis) of the entities described in such financial statements as at the respective dates thereof and the results of operations and cash flows (on a consolidated basis) of the entities described therein for each of the periods then ended, subject, in the case of any such unaudited financial statements, to changes resulting from audit and normal year-end adjustments and the absence of footnotes. None of Company, Lil' Champ nor any of their 83 respective Subsidiaries has (and will not following the Closing Date have) any Contingent Obligation, contingent liability or liability for taxes, long-term lease or unusual forward or long-term commitment that is not reflected in the foregoing financial statements or the notes thereto and which in any such case is material and adverse in relation to the business, operations, properties, assets, condition (financial or otherwise) or prospects of Company, Lil' Champ and their respective Subsidiaries, taken as a whole. 5.4 NO MATERIAL ADVERSE CHANGE; NO RESTRICTED JUNIOR PAYMENTS. --------------------------------------------------------- Since September 26, 1996, no event or change has occurred that has caused or evidences, either in any case or in the aggregate, a Material Adverse Effect. Neither Company nor any of its Subsidiaries has directly or indirectly declared, ordered, paid or made, or set apart any sum or property for, any Restricted Junior Payment or agreed to do so except as permitted by subsection 7.5. 5.5 TITLE TO PROPERTIES; LIENS; REAL PROPERTY. ----------------------------------------- A. TITLE TO PROPERTIES; LIENS. Upon consummation of the Lil' Champ Acquisition, Company and its Subsidiaries will have (i) good, sufficient and legal title to (in the case of fee interests in real property), (ii) valid leasehold interests in (in the case of leasehold interests in real or personal property), or (iii) good title to (in the case of all other personal property), all of their respective properties and assets reflected in the financial statements referred to in subsection 5.3 or in the most recent financial statements delivered pursuant to subsection 6.1, in each case except for assets disposed of since the date of such financial statements in the ordinary course of business or as otherwise permitted under subsection 7.7. Except as permitted by this Agreement, all such properties and assets are free and clear of Liens. B. REAL PROPERTY. As of the Closing Date, Schedule 5.5 annexed ------------ hereto contains a true, accurate and complete list of (i) all fee properties and (ii) all leases, subleases or assignments of leases (together with all amendments, modifications, supplements, renewals or extensions of any thereof) affecting each Real Property Asset of any Loan Party, regardless of whether such Loan Party is the landlord or tenant (whether directly or as an assignee or successor in interest) under such lease, sublease or assignment. Except as specified in Schedule 5.5 annexed hereto, each agreement listed in clause (ii) ------------ of the immediately preceding sentence is in full force and effect and Company does not have knowledge of any default that has occurred and is continuing thereunder which, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect, and each such agreement constitutes the legally valid and binding obligation of each applicable Loan Party, enforceable against such Loan Party in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally or by equitable principles. 84 5.6 LITIGATION; ADVERSE FACTS. ------------------------- There are no actions, suits, proceedings, arbitrations or governmental investigations (whether or not purportedly on behalf of Company or any of its Subsidiaries) at law or in equity, or before or by any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign (including any Environmental Claims) that are pending or, to the knowledge of Company, threatened against or affecting Company or any of its Subsidiaries or any property of Company or any of its Subsidiaries and that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. Neither Company nor any of its Subsidiaries (i) is in violation of any applicable laws (including Environmental Laws) that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect, or (ii) is subject to or in default with respect to any final judgments, writs, injunctions, decrees, rules or regulations of any court or any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. 5.7 PAYMENT OF TAXES. ---------------- Except to the extent permitted by subsection 6.3, all tax returns and reports of Company and its Subsidiaries required to be filed by any of them have been timely filed, and all taxes shown on such tax returns to be due and payable and all assessments, fees and other governmental charges upon Company and its Subsidiaries and upon their respective properties, assets, income, businesses and franchises which are due and payable have been paid prior to delinquency. Company knows of no proposed tax assessment against Company or any of its Subsidiaries which is not being actively contested by Company or such Subsidiary in good faith and by appropriate proceedings; provided that such reserves or -------- other appropriate provisions, if any, as shall be required in conformity with GAAP shall have been made or provided therefor. 5.8 PERFORMANCE OF AGREEMENTS; MATERIALLY ADVERSE AGREEMENTS; MATERIAL ------------------------------------------------------------------ CONTRACTS. --------- A. Neither Company nor any of its Subsidiaries is in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any of its Contractual Obligations, and no condition exists that, with the giving of notice or the lapse of time or both, would constitute such a default, except where the consequences, direct or indirect, of such default or defaults, if any, would not have a Material Adverse Effect. B. Neither Company nor any of its Subsidiaries is a party to or is otherwise subject to any agreements or instruments or any charter or other internal 85 restrictions which, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. C. All Material Contracts are in full force and effect and no material defaults currently exist thereunder. 5.9 GOVERNMENTAL REGULATION. ----------------------- Neither Company nor any of its Subsidiaries is subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act or the Investment Company Act of 1940 or under any other federal or state statute or regulation which may limit its ability to incur Indebtedness or which may otherwise render all or any portion of the Obligations unenforceable. 5.10 SECURITIES ACTIVITIES. --------------------- A. Neither Company nor any of its Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying any Margin Stock. B. Following application of the proceeds of each Loan, not more than 25% of the value of the assets (either of Company only or of Company and its Subsidiaries on a consolidated basis) subject to the provisions of subsection 7.2 or 7.7 or subject to any restriction contained in any agreement or instrument, between Company and any Lender or any Affiliate of any Lender, relating to Indebtedness and within the scope of subsection 8.2, will be Margin Stock. 5.11 EMPLOYEE BENEFIT PLANS. ---------------------- A. Company, each of its Subsidiaries and each of their respective ERISA Affiliates are in compliance with all applicable provisions and requirements of ERISA and the regulations and published interpretations thereunder with respect to each Employee Benefit Plan, and have performed all their obligations under each Employee Benefit Plan. Each Employee Benefit Plan which is intended to qualify under Section 401(a) of the Internal Revenue Code is so qualified. B. No ERISA Event has occurred or is reasonably expected to occur. C. Except to the extent required under Section 4980B of the Internal Revenue Code or except as set forth in Schedule 5.11 annexed hereto, no Employee ------------- Benefit Plan provides health or welfare benefits (through the purchase of insurance or otherwise) for any retired or former employee of Company, any of its Subsidiaries or any of their respective ERISA Affiliates. 86 D. As of the most recent valuation date for any Pension Plan, the amount of unfunded benefit liabilities (as defined in Section 4001(a)(18) of ERISA), individually or in the aggregate for all Pension Plans (excluding for purposes of such computation any Pension Plans with respect to which assets exceed benefit liabilities), does not exceed $1,000,000. E. As of the most recent valuation date for each Multiemployer Plan for which the actuarial report is available, the potential liability of Company, its Subsidiaries and their respective ERISA Affiliates for a complete withdrawal from such Multiemployer Plan (within the meaning of Section 4203 of ERISA), when aggregated with such potential liability for a complete withdrawal from all Multiemployer Plans, based on information available pursuant to Section 4221(e) of ERISA, does not exceed $1,000,000. 5.12 CERTAIN FEES. ------------ No broker's or finder's fee or commission will be payable with respect to this Agreement or any of the transactions contemplated hereby, and Company hereby indemnifies Lenders against, and agrees that it will hold Lenders harmless from, any claim, demand or liability for any such broker's or finder's fees alleged to have been incurred in connection herewith or therewith and any expenses (including reasonable fees, expenses and disbursements of counsel) arising in connection with any such claim, demand or liability. 5.13 ENVIRONMENTAL PROTECTION. ------------------------ Except as set forth in Schedule 5.13 annexed hereto: ------------- (i) neither Company nor any of its Subsidiaries nor any of their respective Facilities or operations are subject to any outstanding written order, consent decree or settlement agreement with any Person relating to (a) any Environmental Law, (b) any Environmental Claim, or (c) any Hazardous Materials Activity that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect; (ii) neither Company nor any of its Subsidiaries has received any letter or request for information under Section 104 of the Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C. (S) 9604) or any comparable state law; (iii) there are and, to Company's knowledge, have been no conditions, occurrences, or Hazardous Materials Activities which could reasonably be expected to form the basis of an Environmental Claim against Company or any of its Subsidiaries that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect; 87 (iv) Company maintains an environmental management system for its and each of its Subsidiaries' operations that demonstrates a commitment to environmental compliance and includes procedures for (a) preparing and updating written compliance manuals covering pertinent regulatory areas, (b) tracking changes in applicable Environmental Laws and modifying operations to comply with new requirements thereunder, (c) training employees to comply with applicable environmental requirements and updating such training as necessary, (d) performing regular internal compliance audits of each Facility and ensuring correction of any incidents of non-compliance detected by means of such audits, and (e) reviewing the compliance status of off-site waste disposal facilities; (v) compliance with all current or reasonably foreseeable future requirements pursuant to or under Environmental Laws will not, individually or in the aggregate, have a reasonable possibility of giving rise to a Material Adverse Effect. Notwithstanding anything in this subsection 5.13 to the contrary, no event or condition has occurred or is occurring with respect to Company or any of its Subsidiaries relating to any Environmental Law, any Release of Hazardous Materials, or any Hazardous Materials Activity, including any matter disclosed on Schedule 5.13 annexed hereto, which individually or in the aggregate has had ------------- or could reasonably be expected to have a Material Adverse Effect. 5.14 EMPLOYEE MATTERS. ---------------- There is no strike or work stoppage in existence or threatened involving Company or any of its Subsidiaries that could reasonably be expected to have a Material Adverse Effect. 5.15 SOLVENCY. -------- Each Loan Party is and, upon the incurrence of any Obligations by such Loan Party on any date on which this representation is made, will be, Solvent. 5.16 MATTERS RELATING TO COLLATERAL. ------------------------------ A. CREATION, PERFECTION AND PRIORITY OF LIENs. The execution and delivery of the Collateral Documents by Loan Parties, together with (i) the actions taken on or prior to the date hereof pursuant to subsections 4.1I, 4.1J, 6.8, 6.9 and 7.7(vi) and the filing of any UCC financing statements and PTO filings delivered to Administrative Agent for filing (but not yet filed) and the recording of any Closing Date Mortgages delivered to Administrative Agent for recording (but not yet recorded), and (ii) the delivery to Administrative Agent of any Pledged Collateral not delivered to Administrative Agent at the time of execution and delivery of the applicable Collateral Document (all of which 88 Pledged Collateral has been so delivered) are effective to create in favor of Administrative Agent for the benefit of Lenders, as security for the respective Secured Obligations (as defined in the applicable Collateral Document in respect of any Collateral), a valid and perfected First Priority Lien on all of the Collateral, and all filings and other actions necessary or desirable to perfect and maintain the perfection and First Priority status of such Liens have been duly made or taken and remain in full force and effect, other than the filing of any UCC financing statements and PTO filings delivered to Administrative Agent for filing (but not yet filed) and the recording of any Closing Date Mortgages delivered to Administrative Agent for recording (but not yet recorded) and the periodic filing of UCC continuation statements in respect of UCC financing statements filed by or on behalf of Administrative Agent. B. Governmental Authorizations. No authorization, approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for either (i) the pledge or grant by any Loan Party of the Liens purported to be created in favor of Administrative Agent pursuant to any of the Collateral Documents or (ii) the exercise by Administrative Agent of any rights or remedies in respect of any Collateral (whether specifically granted or created pursuant to any of the Collateral Documents or created or provided for by applicable law), except for filings or recordings contemplated by subsection 5.16A and except as may be required, in connection with the disposition of any Pledged Collateral, by laws generally affecting the offering and sale of securities. C. Absence of Third-Party Filings. Except such as may have been filed in favor of Administrative Agent as contemplated by subsection 5.16A or except as such may constitute Permitted Encumbrances, (i) no effective UCC financing statement, fixture filing or other instrument similar in effect covering all or any part of the Collateral is on file in any filing or recording office and (ii) no effective filing covering all or any part of the IP Collateral is on file in the PTO. D. Margin Regulations. The pledge of the Pledged Collateral pursuant to the Collateral Documents does not violate Regulation G, T, U or X of the Board of Governors of the Federal Reserve System. E. Information Regarding Collateral. All information supplied to Agents by or on behalf of any Loan Party with respect to any of the Collateral (in each case taken as a whole with respect to any particular Collateral) is accurate and complete in all material respects. 5.17 RELATED AGREEMENTS. ------------------ A. Delivery of Related Agreements. Company has delivered to Lenders complete and correct copies of each Related Agreement and of all exhibits and schedules thereto. Schedule 5.17 annexed hereto lists all Affiliate Agreements ------------- as of the 89 Closing Date. Except as set forth in Schedule 5.17 annexed hereto, none of the ------------- Related Agreements have been amended, amended and restated, supplemented, restated or otherwise modified on or before the Closing Date since the date any such Related Agreement was first entered into. B. Seller's Warranties. Except to the extent otherwise set forth herein or in the schedules hereto, to Company's best knowledge, each of the representations and warranties given by Docks U.S.A., Inc. to PHH or to Company in the Lil' Champ Stock Purchase Agreement is true and correct in all material respects as of the date hereof (or as of any earlier date to which such representation and warranty specifically relates) and will be true and correct in all material respects as of the Closing Date (or as of such earlier date, as the case may be), in each case subject to the qualifications set forth in the schedules to the Lil' Champ Stock Purchase Agreement. C. Warranties of PHH and Company. Subject to the qualifications set forth therein, each of the representations and warranties given by PHH or Company to Docks U.S.A., Inc. in the Lil' Champ Stock Purchase Agreement or the Assignment and Assumption Agreement is true and correct in all material respects as of the date hereof and will be true and correct in all material respects as of the Closing Date. D. Survival. Notwithstanding anything in the Lil' Champ Stock Purchase Agreement to the contrary, the representations and warranties of Company set forth in subsections 5.17B and 5.17C shall, solely for purposes of this Agreement, survive the Closing Date for the benefit of Lenders. 5.18 DISCLOSURE. ----------- No representation or warranty of Company or any of its Subsidiaries contained in the Confidential Information Memorandum or in any Loan Document or Related Agreement or in any other document, certificate or written statement furnished to Lenders by or on behalf of Company or any of its Subsidiaries for use in connection with the transactions contemplated by this Agreement contains any untrue statement of a material fact or omits to state a material fact (known to Company, in the case of any document not furnished by it) necessary in order to make the statements contained herein or therein not misleading in light of the circumstances in which the same were made. Any projections and pro forma financial information contained in such materials are based upon good faith estimates and assumptions believed by Company to be reasonable at the time made, it being recognized by Lenders that such projections as to future events are not to be viewed as facts and that actual results during the period or periods covered by any such projections may differ from the projected results. There are no facts known (or which should upon the reasonable exercise of diligence be known) to Company (other than matters of a general economic nature) that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect and that have not been 90 disclosed herein or in such other documents, certificates and statements furnished to Lenders for use in connection with the transactions contemplated hereby. 5.19 PERMITS. ------- Each of the Loan Parties, prior to and after giving effect to the Lil' Champ Acquisition, the issuance of the Senior Subordinated Notes, the Equity Investment and the Offer and Consent Solicitation and the related transactions contemplated by the Loan Documents and the Related Agreements, has such certificates, permits, licenses, franchises, consents, approvals, authorizations and clearances that are material to the condition (financial or otherwise), business or operations of any Loan Party ("PERMITS") and is (and will be immediately after the consummation of such transactions) in compliance in all respects with all applicable laws as are necessary to own, lease or operate its properties and to conduct its businesses in the manner as presently conducted and to be conducted immediately after the consummation of such transactions except where failure to be in compliance could not reasonably be expected to result in a Material Adverse Effect, and all such Permits are valid and in full force and effect and will be valid and in full force and effect immediately upon consummation of such transactions except for those where the failure to be valid or in effect could not reasonably be expected to result in a Material Adverse Effect. Each of the Loan Parties, prior to and after giving effect to such transactions, is and will be in compliance in all respects with its obligations under such Permits except where failure to be in compliance could not reasonably be expected to result in a Material Adverse Effect, and no event has occurred that allows, or after notice or lapse of time would allow, revocation or termination of such Permits except where such revocation or termination could not reasonably be expected to result in a Material Adverse Effect. SECTION 6. COMPANY'S AFFIRMATIVE COVENANTS Company covenants and agrees that, so long as any of the Commitments hereunder shall remain in effect and until payment in full of all of the Loans and other Obligations and the cancellation or expiration of all Letters of Credit, unless Requisite Lenders shall otherwise give prior written consent, Company shall perform, and shall cause each of its Subsidiaries to perform, all covenants in this Section 6. 6.1 FINANCIAL STATEMENTS AND OTHER REPORTS. -------------------------------------- Company will maintain, and cause each of its Subsidiaries to maintain, a system of accounting established and administered in accordance with sound business practices to permit preparation of financial statements in conformity with GAAP. Company will deliver to Administrative Agent and Lenders: 91 (i) Monthly Financials: as soon as available and in any event within ------------------ 30 days after the end of each month ending after the Closing Date, the consolidated balance sheet of Company and its Subsidiaries as at the end of such month and the related consolidated statements of income, stockholders' equity and cash flows of Company and its Subsidiaries for such month and for the period from the beginning of the then current Fiscal Year to the end of such month, setting forth in each case in comparative form the corresponding figures for the corresponding periods of the previous Fiscal Year and the corresponding figures from the Financial Plan for the current Fiscal Year, to the extent prepared on a monthly basis, all in reasonable detail and certified by the chief financial officer of Company that they fairly present, in all material respects, the financial condition of Company and its Subsidiaries as at the dates indicated and the results of their operations and their cash flows for the periods indicated, subject to changes resulting from audit and normal year-end adjustments; (ii) Quarterly Financials: as soon as available and in any event -------------------- within 45 days after the end of each of the first three Fiscal Quarters of each Fiscal Year and within 90 days after the end of the fourth Fiscal Quarter of each Fiscal Year, (a) the consolidated and consolidating balance sheets of Company and its Subsidiaries as at the end of such Fiscal Quarter and the related consolidated and consolidating statements of income, stockholders' equity and cash flows of Company and its Subsidiaries for such Fiscal Quarter and for the period from the beginning of the then current Fiscal Year to the end of such Fiscal Quarter, setting forth in each case in comparative form the corresponding figures for the corresponding periods of the previous Fiscal Year and the corresponding figures from the Financial Plan for the current Fiscal Year, all in reasonable detail and certified by the chief financial officer of Company that they fairly present, in all material respects, the financial condition of Company and its Subsidiaries as at the dates indicated and the results of their operations and their cash flows for the periods indicated, subject to changes resulting from audit and normal year-end adjustments, and (b) a narrative report describing the operations of Company and its Subsidiaries in the form prepared for presentation to senior management for such Fiscal Quarter and for the period from the beginning of the then current Fiscal Year to the end of such Fiscal Quarter; (iii) Year-End Financials: as soon as available and in any event within ------------------- 90 days after the end of each Fiscal Year, (a) the consolidated and consolidating balance sheets of Company and its Subsidiaries as at the end of such Fiscal Year and the related consolidated and consolidating statements of income, stockholders' equity and cash flows of Company and its Subsidiaries for such Fiscal Year, setting forth in each case in comparative form the corresponding figures for the previous Fiscal Year and the corresponding figures from the Financial Plan for the Fiscal Year covered by such financial statements, all in reasonable detail and certified by the chief financial officer of Company that they fairly present, in all material 92 respects, the financial condition of Company and its Subsidiaries as at the dates indicated and the results of their operations and their cash flows for the periods indicated, (b) a narrative report describing the operations of Company and its Subsidiaries in the form prepared for presentation to senior management for such Fiscal Year, and (c) in the case of such consolidated financial statements, a report thereon of Deloitte & Touche LLP or other independent certified public accountants of recognized national standing selected by Company, which report shall be unqualified, shall express no doubts about the ability of Company and its Subsidiaries to continue as a going concern, and shall state that such consolidated financial statements fairly present, in all material respects, the consolidated financial position of Company and its Subsidiaries as at the dates indicated and the results of their operations and their cash flows for the periods indicated in conformity with GAAP applied on a basis consistent with prior years (except as otherwise disclosed in such financial statements) and that the examination by such accountants in connection with such consolidated financial statements has been made in accordance with generally accepted auditing standards; (iv) Officers' and Compliance Certificates: (a) together with each ------------------------------------- delivery of financial statements of Company and its Subsidiaries pursuant to subdivisions (i), (ii) and (iii) above, an Officers' Certificate of Company stating that the signers have reviewed the terms of this Agreement and have made, or caused to be made under their supervision, a review in reasonable detail of the transactions and condition of Company and its Subsidiaries during the accounting period covered by such financial statements and that such review has not disclosed the existence during or at the end of such accounting period, and that the signers do not have knowledge of the existence as at the date of such Officers' Certificate, of any condition or event that constitutes an Event of Default or Potential Event of Default, or, if any such condition or event existed or exists, specifying the nature and period of existence thereof and what action Company has taken, is taking and proposes to take with respect thereto; and (b) together with each delivery of financial statements of Company and its Subsidiaries pursuant to subdivisions (ii) and (iii) above, a Compliance Certificate demonstrating in reasonable detail compliance during and at the end of the applicable accounting periods with the restrictions contained in Section 7; (v) Reconciliation Statements: if, as a result of any change in ------------------------- accounting principles and policies from those used in the preparation of the audited financial statements referred to in subsection 5.3, the consolidated financial statements of Company and its Subsidiaries delivered pursuant to subdivisions (i), (ii), (iii) or (xiii) of this subsection 6.1 will differ in any material respect from the consolidated financial statements that would have been delivered pursuant to such subdivisions had no such change in accounting principles and policies been made, then (a) together with the first delivery of financial statements pursuant to subdivision (i), (ii), (iii) or (xiii) of this subsection 6.1 following such change, consolidated 93 financial statements of Company and its Subsidiaries for (y) the current Fiscal Year to the effective date of such change and (z) the two full Fiscal Years immediately preceding the Fiscal Year in which such change is made, in each case prepared on a pro forma basis as if such change had been in effect during such periods, and (b) together with each delivery of financial statements pursuant to subdivision (i), (ii), (iii) or (xiii) of this subsection 6.1 following such change, a written statement of the chief accounting officer or chief financial officer of Company setting forth the differences (including any differences that would affect any calculations relating to the financial covenants set forth in subsection 7.6) which would have resulted if such financial statements had been prepared without giving effect to such change; (vi) Accountants' Certification: together with each delivery of -------------------------- consolidated financial statements of Company and its Subsidiaries pursuant to subdivision (iii) above, a written statement by the independent certified public accountants giving the report thereon (a) stating that their audit examination has included a review of the terms of this Agreement and the other Loan Documents as they relate to accounting matters, (b) stating whether, in connection with their audit examination, any condition or event that constitutes an Event of Default or Potential Event of Default has come to their attention and, if such a condition or event has come to their attention, specifying the nature and period of existence thereof; provided that such accountants shall not -------- be liable by reason of any failure to obtain knowledge of any such Event of Default or Potential Event of Default that would not be disclosed in the course of their audit examination, and (c) stating that based on their audit examination nothing has come to their attention that causes them to believe either or both that the information contained in the certificates delivered therewith pursuant to subdivision (iv) above is not correct or that the matters set forth in the Compliance Certificates delivered therewith pursuant to clause (b) of subdivision (iv) above for the applicable Fiscal Year are not stated in accordance with the terms of this Agreement; (vii) Accountants' Reports: promptly upon receipt thereof (unless -------------------- restricted by applicable professional standards), copies of all reports submitted to Company by independent certified public accountants in connection with each annual, interim or special audit of the financial statements of Company and its Subsidiaries made by such accountants, including any comment letter submitted by such accountants to management in connection with their annual audit; (viii) SEC Filings and Press Releases: promptly upon their becoming ------------------------------ available, copies of (a) all financial statements, reports, notices and proxy statements sent or made available generally by Company to its security holders or by any Subsidiary of Company to its security holders other than Company or another Subsidiary of Company, (b) all regular and periodic reports and all registration statements (other than on Form S-8 or a similar form) and prospectuses, if any, filed by Company or any of its Subsidiaries with any securities exchange or 94 with the Securities and Exchange Commission or any governmental or private regulatory authority, and (c) all press releases and other statements made available generally by Company or any of its Subsidiaries to the public concerning material developments in the business of Company or any of its Subsidiaries; (ix) Events of Default, etc.: promptly upon any officer of Company ---------------------- obtaining knowledge (a) of any condition or event that constitutes an Event of Default or Potential Event of Default, or becoming aware that any Lender has given any notice (other than to Administrative Agent) or taken any other action with respect to a claimed Event of Default or Potential Event of Default, (b) that any Person has given any notice to Company or any of its Subsidiaries or taken any other action with respect to a claimed default or event or condition of the type referred to in subsection 8.2, (c) of any condition or event that would be required to be disclosed in a current report filed by Company with the Securities and Exchange Commission on Form 8-K (Items 1, 2, 4, 5 and 6 of such Form as in effect on the date hereof) if Company were required to file such reports under the Exchange Act, or (d) of the occurrence of any event or change that has caused or evidences, either in any case or in the aggregate, a Material Adverse Effect, an Officers' Certificate specifying the nature and period of existence of such condition, event or change, or specifying the notice given or action taken by any such Person and the nature of such claimed Event of Default, Potential Event of Default, default, event or condition, and what action Company has taken, is taking and proposes to take with respect thereto; (x) Litigation or Other Proceedings: promptly upon any officer of ------------------------------- Company obtaining knowledge of (X) the institution of, or non-frivolous threat of, any action, suit, proceeding (whether administrative, judicial or otherwise), governmental investigation or arbitration against or affecting Company or any of its Subsidiaries or any property of Company or any of its Subsidiaries (collectively, "PROCEEDINGS") not previously disclosed in writing by Company to Lenders or (Y) any material development in any Proceeding that, in any case: (1) if adversely determined, has a reasonable possibility of giving rise to a Material Adverse Effect; or (2) seeks to enjoin or otherwise prevent the consummation of, or to recover any damages or obtain relief as a result of, the transactions contemplated hereby; written notice thereof together with such other information as may be reasonably available to Company to enable Lenders and their counsel to evaluate such matters; (xi) ERISA Events: promptly upon becoming aware of the occurrence of or ------------ forthcoming occurrence of any ERISA Event that could reasonably be expected 95 to result in a material liability, a written notice specifying the nature thereof, what action Company, any of its Subsidiaries or any of their respective ERISA Affiliates has taken, is taking or proposes to take with respect thereto and, when known, any action taken or threatened by the Internal Revenue Service, the Department of Labor or the PBGC with respect thereto; (xii) ERISA Notices: with reasonable promptness, copies of (a) each ------------- Schedule B (Actuarial Information) to the annual report (Form 5500 Series) filed by Company, any of its Subsidiaries or any of their respective ERISA Affiliates with the Internal Revenue Service with respect to each Pension Plan; (b) all notices received by Company, any of its Subsidiaries or any of their respective ERISA Affiliates from a Multiemployer Plan sponsor concerning an ERISA Event that could reasonably be expected to result in a material liability; and (c) copies of such other documents or governmental reports or filings relating to any Employee Benefit Plan as Administrative Agent shall reasonably request; (xiii) Financial Plans: as soon as practicable and in any event no --------------- later than 30 days after the beginning of each Fiscal Year, a consolidated plan and financial forecast for such Fiscal Year (the "FINANCIAL PLAN" for such Fiscal Year), including (a) forecasted consolidated balance sheet and forecasted consolidated statements of income and cash flows of Company and its Subsidiaries for such Fiscal Year, together with an explanation of the assumptions on which such forecasts are based, and (b) such other information and projections as any Lender may reasonably request; (xiv) Insurance: as soon as practicable and in any event by the last --------- day of each Fiscal Year, a report in form and substance satisfactory to Administrative Agent outlining all material insurance coverage maintained as of the date of such report by Company and its Restricted Subsidiaries and all material insurance coverage planned to be maintained by Company and its Restricted Subsidiaries in the immediately succeeding Fiscal Year; (xv) Board of Directors: with reasonable promptness, written notice of ------------------ any change in the Board of Directors of Company; (xvi) New Subsidiaries: promptly upon any Person becoming a Subsidiary ---------------- of Company, a written notice setting forth with respect to such Person (a) the date on which such Person became a Subsidiary of Company and (b) all of the data required to be set forth in Schedule 5.1 annexed hereto with respect to all ------------ Subsidiaries of Company (it being understood that such written notice shall be deemed to supplement Schedule 5.1 annexed hereto for all purposes of this ------------ Agreement); 96 (xvii) Material Contracts: promptly, and in any event within ten ------------------ Business Days after any Material Contract of Company or any of its Restricted Subsidiaries is terminated or amended in a manner that is materially adverse to Company or such Restricted Subsidiary, as the case may be, a written statement describing such event with copies of such material amendments, and an explanation of any actions being taken with respect thereto; (xviii) UCC Search Report: as promptly as practicable after the date of ----------------- delivery to Administrative Agent of any UCC financing statement executed by any Loan Party pursuant to subsection 4.1J(iv), 6.8A or 7.7(vi), copies of completed UCC searches evidencing the proper filing, recording and indexing of all such UCC financing statement and listing all other effective financing statements that name such Loan Party as debtor, together with copies of all such other financing statements not previously delivered to Administrative Agent by or on behalf of Company or such Loan Party; (xix) Margin Determination Certificate: concurrently with the delivery -------------------------------- of the financial statements required under subsections 6.1(ii) and 6.1(iii), Company shall deliver a Margin Determination Certificate; and (xx) Other Information: with reasonable promptness, such other ----------------- information and data with respect to Company or any of its Subsidiaries as from time to time may be reasonably requested by any Lender through Administrative Agent. 6.2 CORPORATE EXISTENCE, ETC. ------------------------ Except as permitted under subsection 7.7, Company will, and will cause each of its Restricted Subsidiaries to, at all times preserve and keep in full force and effect its corporate existence and all rights and franchises material to its business; provided, however that neither Company nor any of its -------- ------- Restricted Subsidiaries shall be required to preserve any such right or franchise if the Board of Directors of Company or such Restricted Subsidiary shall determine that the preservation thereof is no longer desirable in the conduct of the business of Company or such Restricted Subsidiary, as the case may be, and that the loss thereof is not disadvantageous in any material respect to Company, such Restricted Subsidiary or Lenders. 6.3 PAYMENT OF TAXES AND CLAIMS; TAX CONSOLIDATION. ---------------------------------------------- A. Company will, and will cause each of its Restricted Subsidiaries to, pay all taxes, assessments and other governmental charges imposed upon it or any of its properties or assets or in respect of any of its income, businesses or franchises before any penalty accrues thereon, and all claims (including claims for labor, services, materials and supplies) for sums that have become due and payable and that by law have or may become 97 a Lien upon any of its properties or assets, prior to the time when any penalty or fine shall be incurred with respect thereto; provided that no such charge or -------- claim need be paid if it is being contested in good faith by appropriate proceedings promptly instituted and diligently conducted, so long as (1) such reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made therefor and (2) in the case of a charge or claim which has or may become a Lien against any of the Collateral, such contest proceedings conclusively operate to stay the sale of any portion of the Collateral to satisfy such charge or claim. B. Company will not, nor will it permit any of its Subsidiaries to, file or consent to the filing of any consolidated income tax return with any Person (other than Company or any of its Subsidiaries). 6.4 MAINTENANCE OF PROPERTIES; INSURANCE; APPLICATION OF NET ASSET SALE -------------------------------------------------------------------- PROCEEDS. -------- A. MAINTENANCE OF PROPERTIES. Company will, and will cause each of its Restricted Subsidiaries to, maintain or cause to be maintained in good repair, working order and condition, ordinary wear and tear excepted, all material properties used or useful in the business of Company and its Restricted Subsidiaries (including all Intellectual Property) and from time to time will make or cause to be made all appropriate repairs, renewals and replacements thereof. B. INSURANCE. Company will maintain or cause to be maintained, with financially sound and reputable insurers, such public liability insurance, third party property damage insurance, business interruption insurance and casualty insurance with respect to liabilities, losses or damage in respect of the assets, properties and businesses of Company and its Restricted Subsidiaries as may customarily be carried or maintained under similar circumstances by corporations of established reputation engaged in similar businesses, in each case in such amounts (giving effect to self-insurance), with such deductibles, covering such risks and otherwise on such terms and conditions as shall be customary for corporations similarly situated in the industry. Without limiting the generality of the foregoing, Company will maintain or cause to be maintained (i) flood insurance with respect to each Flood Hazard Property that is located in a community that participates in the National Flood Insurance Program, in each case in compliance with any applicable regulations of the Board of Governors of the Federal Reserve System, and (ii) replacement value casualty insurance on the Collateral under such policies of insurance, with such insurance companies, in such amounts, with such deductibles, and covering such risks as are at all times satisfactory to Administrative Agent in its commercially reasonable judgment. Each such policy of insurance shall (a) name Administrative Agent for the benefit of Lenders as an additional insured thereunder as its interests may appear and (b) in the case of each business interruption and casualty insurance policy, contain a loss payable clause or endorsement, satisfactory in form and substance to Administrative Agent, that names Administrative Agent for the benefit of Lenders as the loss payee thereunder 98 for any covered loss in excess of $1,000,000 and provides for at least 30 days prior written notice to Administrative Agent of any modification or cancellation of such policy. C. Application of Certain Net Asset Sale Proceeds. (i) Business Interruption Insurance. Upon receipt by Company or any of ------------------------------- its Restricted Subsidiaries of any business interruption insurance proceeds constituting Net Asset Sale Proceeds, (a) so long as no Event of Default shall have occurred and be continuing, Company or such Restricted Subsidiary may retain such Net Asset Sale Proceeds, and (b) if an Event of Default shall have occurred and be continuing, Company shall apply an amount equal to such Net Asset Sale Proceeds to prepay the Loans (and/or the Revolving Loan Commitments and/or the Acquisition Term Loan Commitments shall be reduced) as provided in subsection 2.4B(iii)(a); (ii) Casualty Insurance/Condemnation Proceeds. Upon receipt by Company ---------------------------------------- or any of its Restricted Subsidiaries of any insurance proceeds other than from business interruption insurance, (a) so long as no Event of Default shall have occurred and be continuing, Company shall, or shall cause one or more of its Restricted Subsidiaries to, promptly and diligently apply such Net Asset Sale Proceeds to pay or reimburse the costs of repairing, restoring or replacing the assets in respect of which such Net Asset Sale Proceeds were received or, to the extent not so applied or in the process of being so applied, to prepay the Loans (and/or the Revolving Loan Commitments and/or the Acquisition Term Loan Commitments shall be reduced) as provided in subsection 2.4B(iii)(a); provided -------- that if the aggregate amount of Net Asset Sale Proceeds received by Company or any of its Restricted Subsidiaries in respect of any covered loss exceeds $10,000,000, Company shall deliver such Net Asset Sale Proceeds to Administrative Agent to be held and disbursed by Administrative Agent in accordance with clause (b)(2) of subsection 6.4(C)(iii), and (b) if an Event of Default shall have occurred and be continuing, Company shall apply an amount equal to such Net Asset Sale Proceeds to prepay the Loans (and/or the Revolving Loan Commitments and/or the Acquisition Term Loan Commitments shall be reduced) as provided in subsection 2.4B(iii)(a). In the event that after receipt of any such insurance proceeds an Event of Default occurs, then so long as such Event of Default is continuing, Company shall cease using such Net Asset Sale Proceeds to pay or reimburse the costs of repairing, restoring or replacing any such assets and, in the event that such Event of Default is not cured or waived within 15 days after the occurrence thereof, Company shall apply an amount equal to such unexpended Net Asset Sale Proceeds to prepay the Loans (and/or the Revolving Loan Commitments and/or the Acquisition Term Loan Commitments shall be reduced) as provided in subsection 2.4B(iii)(a). 99 (iii) Net Asset Sale Proceeds Received by Administrative Agent. Upon -------------------------------------------------------- receipt by Administrative Agent of any Net Asset Sale Proceeds as loss payee, (a) if and to the extent Company would have been required to apply such Net Asset Sale Proceeds (if it had received them directly) to prepay the Loans and/or reduce the Revolving Loan Commitments and/or reduce the Acquisition Term Loan Commitments, Administrative Agent shall, and Company hereby authorizes Administrative Agent to, apply such Net Asset Sale Proceeds to prepay the Loans (and/or the Revolving Loan Commitments and/or the Acquisition Term Loan Commitments shall be reduced) as provided in subsection 2.4B(iii)(a), and (b) to the extent the foregoing clause (a) does not apply and (1) the aggregate amount of such Net Asset Sale Proceeds received (and reasonably expected to be received) by Administrative Agent in respect of any covered loss does not exceed $10,000,000, Administrative Agent shall deliver such Net Asset Sale Proceeds to Company, and Company shall, or shall cause one or more of its Restricted Subsidiaries to, promptly apply such Net Asset Sale Proceeds to the costs of repairing, restoring, or replacing the assets in respect of which such Net Asset Sale Proceeds were received, and (2) if the aggregate amount of Net Asset Sale Proceeds received (and reasonably expected to be received) by Administrative Agent in respect of any covered loss exceeds $10,000,000, Administrative Agent shall hold such Net Asset Sale Proceeds pursuant to the terms of the Collateral Account Agreement and, so long as Company or any of its Restricted Subsidiaries proceeds diligently to repair, restore or replace the assets of Company or such Restricted Subsidiary in respect of which such Net Asset Sale Proceeds were received, Administrative Agent shall from time to time disburse to Company or such Restricted Subsidiary from the Collateral Account, to the extent of any such Net Asset Sale Proceeds remaining therein in respect of the applicable covered loss, amounts necessary to pay the cost of such repair, restoration or replacement after the receipt by Administrative Agent of invoices or other documentation reasonably satisfactory to Administrative Agent relating to the amount of costs so incurred and the work performed (including, if required by Administrative Agent, lien releases and architects' certificates). In the event that after receipt of any such insurance proceeds an Event of Default occurs, then so long as such Event of Default is continuing, Administrative Agent shall cease using such Net Asset Sale Proceeds to pay or reimburse Company for the costs of repairing, restoring or replacing any such assets and, in the event that such Event of Default is not cured or waived within 15 days after the occurrence thereof, Administrative Agent shall, and Company hereby authorizes Administrative Agent to, apply an amount equal to such unexpended Net Asset Sale Proceeds to prepay the Loans (and/or the Revolving Loan Commitments and/or the Acquisition Term Loan Commitments shall be reduced) as provided in subsection 2.4B(iii)(a). 6.5 INSPECTION RIGHTS; LENDER MEETING. --------------------------------- A. INSPECTION RIGHTS. Company shall, and shall cause each of its Restricted Subsidiaries to, permit any authorized representatives designated by any Lender 100 to visit and inspect any of the properties of Company or of any of its Restricted Subsidiaries, to inspect, copy and take extracts from its and their financial and accounting records, and to discuss its and their affairs, finances and accounts with its and their officers and independent public accountants (provided that Company may, if it so chooses, be present at or participate in any such discussion), all upon reasonable notice and at such reasonable times during normal business hours and as often as may reasonably be requested. B. LENDER MEETING. Company will, upon the request of Administrative Agent or Requisite Lenders, participate in a meeting of Administrative Agent and Lenders once during each Fiscal Year to be held at Company's corporate offices (or at such other location as may be agreed to by Company and Administrative Agent) at such time as may be agreed to by Company and Administrative Agent. 6.6 COMPLIANCE WITH LAWS, ETC. ------------------------- Company shall comply, and shall cause each of its Restricted Subsidiaries to comply, with the requirements of all applicable laws, rules, regulations and orders of any governmental authority (including all Environmental Laws), noncompliance with which could reasonably be expected to cause, individually or in the aggregate, a Material Adverse Effect. 6.7 ENVIRONMENTAL REVIEW AND INVESTIGATION, DISCLOSURE, ETC.; COMPANY'S ACTIONS --------------------------------------------------------------------------- REGARDING HAZARDOUS MATERIALS ACTIVITIES, ENVIRONMENTAL CLAIMS AND ------------------------------------------------------------------ VIOLATIONS OF ENVIRONMENTAL LAWS. -------------------------------- A. ENVIRONMENTAL REVIEW AND INVESTIGATION. Company agrees that Administrative Agent may, from time to time and in its reasonable discretion, (i) retain, at Company's expense, an independent professional consultant to review any environmental audits, investigations, analyses and reports relating to Hazardous Materials prepared by or for Company and (ii) in the event (a) Administrative Agent reasonably believes that Company has breached any representation, warranty or covenant contained in subsection 5.6, 5.13, 6.6 or 6.7 or that there has been a material violation of Environmental Laws at any Facility or by Company or any of its Restricted Subsidiaries at any other location or (b) an Event of Default has occurred and is continuing, subject to the terms of any applicable lease, conduct its own investigation of any Facility; provided that, in the case of any Facility no longer owned, leased, -------- operated or used by Company or any of its Restricted Subsidiaries, Company shall only be obligated to use its best efforts to obtain permission for Administrative Agent's professional consultant to conduct an investigation of such Facility. For purposes of conducting such a review and/or investigation, subject to the terms of any applicable lease, Company hereby grants to Administrative Agent and its agents, employees, consultants and contractors the right to enter into or onto any Facilities currently owned, leased, operated or used by Company or any of its Restricted Subsidiaries and to perform such tests on such property (including taking samples of soil, groundwater 101 and suspected asbestos-containing materials) as are reasonably necessary in connection therewith. Any such investigation of any Facility shall be conducted, unless otherwise agreed to by Company and Administrative Agent, during normal business hours and, to the extent reasonably practicable, shall be conducted so as not to interfere with the ongoing operations at such Facility or to cause any damage or loss to any property at such Facility. Company and Administrative Agent hereby acknowledge and agree that any report of any investigation conducted at the request of Administrative Agent pursuant to this subsection 6.7A will be obtained and shall be used by Administrative Agent and Lenders for the purposes of Lenders' internal credit decisions, to monitor and police the Loans and to protect Lenders' security interests, if any, created by the Loan Documents. Administrative Agent agrees to deliver a copy of any such report to Company with the understanding that Company acknowledges and agrees that (x) it will indemnify and hold harmless Administrative Agent and each Lender from any costs, losses or liabilities relating to Company's use of or reliance on such report, (y) neither Administrative Agent nor any Lender makes any representation or warranty with respect to such report, and (z) by delivering such report to Company, neither Administrative Agent nor any Lender is requiring or recommending the implementation of any suggestions or recommendations contained in such report. B. Environmental Disclosure. Company will deliver to Administrative Agent and Lenders: (i) Environmental Audits and Reports. As soon as practicable following -------------------------------- receipt thereof, copies of all environmental audits, investigations, analyses and reports of any kind or character, whether prepared by personnel of Company or any of its Subsidiaries or by independent consultants, governmental authorities or any other Persons, with respect to significant environmental matters at any Facility which, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect or with respect to any Environmental Claims which, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect; (ii) Notice of Certain Releases, Remedial Actions, Etc. Promptly upon ------------------------------------------------- the occurrence thereof, written notice describing in reasonable detail (a) any Release required to be reported to any federal, state or local governmental or regulatory agency under any applicable Environmental Laws the existence of which has a reasonable possibility of resulting in one or more Environmental Claims having, individually or in the aggregate, a Material Adverse Effect, and (b) any remedial action taken by Company or any other Person in response to (1) any Hazardous Materials Activities the existence of which has a reasonable possibility of resulting in one or more Environmental Claims having, individually or in the aggregate, a Material Adverse Effect, or (2) any Environmental Claims that, individually or in the aggregate, have a reasonable possibility of resulting in a Material Adverse Effect. 102 (iii) Written Communications Regarding Environmental Claims, Releases, ---------------------------------------------------------------- Etc. As soon as practicable following the sending or receipt thereof by Company - --- or any of its Subsidiaries, a copy of any and all written communications with respect to (a) any Environmental Claims that, individually or in the aggregate, have a reasonable possibility of giving rise to a Material Adverse Effect, (b) any Release required to be reported to any federal, state or local governmental or regulatory agency the existence of which has a reasonable possibility of resulting in one or more Environmental Claims having, individually or in the aggregate, a Material Adverse Effect, and (c) any request for information from any governmental agency that suggests such agency is investigating whether Company or any of its Restricted Subsidiaries may be potentially responsible for any Hazardous Materials Activity that, individually or in the aggregate, have a reasonable possibility of giving rise to a Material Adverse Effect. (iv) Notice of Certain Proposed Actions Having Environmental Impact. -------------------------------------------------------------- Prompt written notice describing in reasonable detail (a) any proposed acquisition of stock, assets, or property by Company or any of its Subsidiaries that could reasonably be expected to (1) expose Company or any of its Subsidiaries to, or result in, Environmental Claims that could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect or (2) affect the ability of Company or any of its Restricted Subsidiaries to maintain in full force and effect all material Governmental Authorizations required under any Environmental Laws for their respective operations and (b) any proposed action to be taken by Company or any of its Restricted Subsidiaries to modify current operations in a manner that could reasonably be expected to subject Company or any of its Restricted Subsidiaries to any material additional obligations or requirements under any Environmental Laws. (v) Other Information. With reasonable promptness, such other documents ----------------- and information as from time to time may be reasonably requested by Administrative Agent in relation to any matters disclosed pursuant to this subsection 6.7. C. COMPANY'S ACTIONS REGARDING HAZARDOUS MATERIALS ACTIVITIES, ENVIRONMENTAL CLAIMS AND VIOLATIONS OF ENVIRONMENTAL LAWS. (i) Remedial Actions Relating to Hazardous Materials Activities. ----------------------------------------------------------- Company shall, to the extent required by law, promptly undertake, and shall cause each of its Restricted Subsidiaries promptly to undertake, any and all investigations, studies, sampling, testing, abatement, cleanup, removal, remediation or other response actions necessary to remove, remediate, clean up or abate any Hazardous Materials Activity on, under or about any Facility that is in violation of any Environmental Laws. In the event Company or any of its Restricted Subsidiaries undertakes any such action with respect to any Hazardous Materials, Company or 103 such Restricted Subsidiary shall conduct and complete such action in compliance with all applicable Environmental Laws and in accordance with the policies, orders and directives of all federal, state and local governmental authorities except when, and only to the extent that, Company's or such Restricted Subsidiary's liability with respect to such Hazardous Materials Activity is being contested in good faith by Company or such Restricted Subsidiary. (ii) Actions with Respect to Environmental Claims and Violations of -------------------------------------------------------------- Environmental Laws. Company shall promptly take, and shall cause each of its - ------------------ Subsidiaries promptly to take, any and all actions necessary to (i) cure any material violation of applicable Environmental Laws by Company or its Restricted Subsidiaries except when, and only to the extent that, Company's or such Restricted Subsidiary's liability with respect to such Hazardous Materials Activity is being contested in good faith by Company or such Restricted Subsidiary and (ii) make an appropriate response to any Environmental Claim against Company or any of its Subsidiaries and discharge any obligations it may have to any Person thereunder where failure to do so could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. 6.8 EXECUTION OF SUBSIDIARY GUARANTY AND PERSONAL PROPERTY COLLATERAL DOCUMENTS --------------------------------------------------------------------------- BY CERTAIN SUBSIDIARIES AND FUTURE SUBSIDIARIES. ----------------------------------------------- A. EXECUTION OF SUBSIDIARY GUARANTY AND PERSONAL PROPERTY COLLATERAL DOCUMENTS. In the event that any Person becomes a Subsidiary of Company after the date hereof, Company will promptly notify Administrative Agent of that fact and cause such Subsidiary to execute and deliver to Administrative Agent if so requested by Administrative Agent, within 30 days after such Person becomes a Subsidiary, or if no earlier request is made by Administrative Agent, within six months after such Person becomes a Subsidiary, a counterpart of the Subsidiary Guaranty and a Subsidiary Pledge Agreement, a Subsidiary Security Agreement and a Subsidiary Trademark Security Agreement and to take all such further actions and execute all such further documents and instruments (including actions, documents and instruments comparable to those described in subsection 4.1J) as may be necessary or, in the opinion of Administrative Agent, desirable to create in favor of Administrative Agent, for the benefit of Lenders, a valid and perfected First Priority Lien on all of the personal and mixed property assets of such Subsidiary described in the applicable forms of Collateral Documents. B. SUBSIDIARY CHARTER DOCUMENTS, LEGAL OPINIONS, ETC. Company shall deliver to Administrative Agent, together with such Loan Documents, (i) certified copies of such Subsidiary's Certificate or Articles of Incorporation, together with a good standing certificate from the Secretary of State of the jurisdiction of its incorporation and each other state in which such Person is qualified as a foreign corporation to do business and, to the extent generally available, a certificate or other evidence of good standing as to payment of any applicable franchise or similar taxes from the appropriate taxing authority 104 of each of such jurisdictions, each to be dated a recent date prior to their delivery to Administrative Agent, (ii) a copy of such Subsidiary's Bylaws, certified by its corporate secretary or an assistant secretary as of a recent date prior to their delivery to Administrative Agent, (iii) a certificate executed by the secretary or an assistant secretary of such Subsidiary as to (a) the fact that the attached resolutions of the Board of Directors of such Subsidiary approving and authorizing the execution, delivery and performance of such Loan Documents are in full force and effect and have not been modified or amended and (b) the incumbency and signatures of the officers of such Subsidiary executing such Loan Documents, and (iv) a favorable opinion of counsel to such Subsidiary, in form and substance satisfactory to Administrative Agent and its counsel, as to (a) the due organization and good standing of such Subsidiary, (b) the due authorization, execution and delivery by such Subsidiary of such Loan Documents, (c) the enforceability of such Loan Documents against such Subsidiary, (d) such other matters (including matters relating to the creation and perfection of Liens in any Collateral pursuant to such Loan Documents) as Administrative Agent may reasonably request, all of the foregoing to be satisfactory in form and substance to Administrative Agent and its counsel. 6.9 MATTERS RELATING TO ADDITIONAL REAL PROPERTY COLLATERAL. ------------------------------------------------------- From and after the Closing Date, in the event that (i) Company or any Subsidiary Guarantor acquires any fee interest in real property or (ii) at the time any Person becomes a Subsidiary Guarantor, such Person owns or holds any fee interest in real property, in either case excluding (a) any such Real Property Asset the encumbrancing of which requires the consent of any applicable then-existing senior lienholder, where Company and its Subsidiaries are unable to obtain such senior lienholder's consent or (b) so long as no Event of Default shall have occurred and be continuing, any such Real Property Asset that Company or such Subsidiary Guarantor intends to sell and lease back (and does sell and lease back) in accordance with subsection 7.9 within 270 days of the date of acquisition of such Real Property Asset or the date such Person becomes a Subsidiary Guarantor, as the case may be (any such non-excluded Real Property Asset described in the foregoing clause (i) or (ii) being an "ADDITIONAL MORTGAGED PROPERTY"), Company will promptly notify Administrative Agent of that fact and Company or such Subsidiary Guarantor shall deliver to Administrative Agent, if requested by Administrative Agent, within 30 days after such Person acquires such Additional Mortgaged Property or becomes a Subsidiary Guarantor or, in the case of any such Real Property Asset which was excluded from being an Additional Mortgaged Property pursuant to clause (b) above, and which was not sold and leased back within the applicable 270-day period, within 30 days of the expiration of such 270-day period, or if no earlier request is made by Administrative Agent, within six months after such Person acquires such Additional Mortgaged Property or becomes a Subsidiary Guarantor or within six months after the expiration of the applicable 270-day period, as the case may be, the following: (i) Additional Mortgage. A fully executed and notarized Mortgage (an ------------------- "ADDITIONAL MORTGAGE"), duly recorded in all appropriate places in all applicable 105 jurisdictions, encumbering the interest of such Loan Party in such Additional Mortgaged Property; (ii) Opinions of Counsel. Unless otherwise approved by Administrative ------------------- Agent, with respect to each Additional Mortgaged Property with a fair market value of $2,500,000 or more or which Additional Mortgaged Property is located in a jurisdiction as to which Lenders have not previously received an opinion as to the enforceability of the form of Mortgage to be placed on such Additional Mortgaged Property, (a) a favorable opinion of counsel to such Loan Party, in form and substance satisfactory to Administrative Agent and its counsel, as to the due authorization, execution and delivery by such Loan Party of such Additional Mortgage and such other matters as Administrative Agent may reasonably request, and (b) an opinion of counsel (which counsel shall be reasonably satisfactory to Administrative Agent) in the state in which such Additional Mortgaged Property is located with respect to the enforceability of the form of Additional Mortgage to be recorded in such states and such other matters (including any matters governed by the laws of such state regarding personal property security interests in respect of any Collateral) as Administrative Agent may reasonably request, in each case in form and substance reasonably satisfactory to Administrative Agent; (iii) Title Insurance. Unless otherwise approved by Administrative --------------- Agent, with respect to each Additional Mortgaged Property with a fair market value of $2,500,000 or more or if any Loan Party is purchasing title insurance or is otherwise being provided with title insurance with respect to such Additional Mortgaged Property, an ALTA mortgagee title insurance policy or an unconditional commitment therefor (an "ADDITIONAL MORTGAGE POLICY") with respect to such Additional Mortgaged Property, in an amount satisfactory to Administrative Agent, insuring fee simple title to such Additional Mortgaged Property vested in such Loan Party and assuring Administrative Agent that such Additional Mortgage creates a valid and enforceable First Priority mortgage Lien on such Additional Mortgaged Property, subject only to a standard survey exception, which Additional Mortgage Policy (1) shall include an endorsement for mechanics' liens, for future advances under this Agreement and for any other matters reasonably requested by Administrative Agent and (2) shall provide for affirmative insurance and such reinsurance as Administrative Agent may reasonably request, all of the foregoing in form and substance reasonably satisfactory to Administrative Agent; (iv) Title Report. Unless otherwise approved by Administrative Agent, a ------------ title report issued by a title company with respect thereto, in form and substance satisfactory to Administrative Agent, and copies of all recorded documents listed as exceptions to title or otherwise referred to in such title report; (v) Matters Relating to Flood Hazard Properties. (a) Evidence, which ------------------------------------------- may be in the form of a letter from an insurance broker or a municipal engineer, as 106 to (1) whether such Additional Mortgaged Property is a Flood Hazard Property and (2) if so, whether the community in which such Flood Hazard Property is located is participating in the National Flood Insurance Program, (b) if such Additional Mortgaged Property is a Flood Hazard Property, such Loan Party's written acknowledgement of receipt of written notification from Administrative Agent (1) that such Additional Mortgaged Property is a Flood Hazard Property and (2) as to whether the community in which such Flood Hazard Property is located is participating in the National Flood Insurance Program, and (c) in the event such Additional Mortgaged Property is a Flood Hazard Property that is located in a community that participates in the National Flood Insurance Program, evidence that Company has obtained flood insurance in respect of such Flood Hazard Property to the extent required under the applicable regulations of the Board of Governors of the Federal Reserve System; and (vi) Environmental Audit. Unless otherwise approved by Administrative ------------------- Agent, reports and other information, in form, scope and substance satisfactory to Administrative Agent, concerning any environmental hazards or liabilities to which Company or any of its Subsidiaries may be subject with respect to such Additional Mortgaged Property. SECTION 7. COMPANY'S NEGATIVE COVENANTS Company covenants and agrees that, so long as any of the Commitments hereunder shall remain in effect and until payment in full of all of the Loans and other Obligations and the cancellation or expiration of all Letters of Credit, unless Requisite Lenders shall otherwise give prior written consent, Company shall perform, and shall cause each of its Restricted Subsidiaries to perform, all covenants in this Section 7. 7.1 INDEBTEDNESS. ------------ Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume or guaranty, or otherwise become or remain directly or indirectly liable with respect to, any Indebtedness, except: (i) Company may become and remain liable with respect to the Obligations; (ii) Company and its Restricted Subsidiaries may become and remain liable with respect to Contingent Obligations permitted by subsection 7.4 and, upon any matured obligations actually arising pursuant thereto, the Indebtedness corresponding to the Contingent Obligations so extinguished; 107 (iii) Company and its Restricted Subsidiaries may become and remain liable with respect to Indebtedness in respect of Capital Leases and Indebtedness incurred in the ordinary course of business to finance the cost of acquisition or the cost of construction, improvement or remodeling of an asset used in the business of Company and its Restricted Subsidiaries; provided that -------- (x) the principal amount of such Indebtedness does not exceed the sum of 100% of such cost of acquisition plus the reasonable fees and expenses incurred in connection therewith, (y) any lien or encumbrance securing such Indebtedness is placed on such asset not more than 270 days after its acquisition or the completion of construction, improvement or remodeling, as the case may be, and (z) the aggregate amount of Indebtedness in respect of such Capital Leases and other Indebtedness does not exceed $30,000,000 at any time outstanding; (iv) Company may become and remain liable with respect to Indebtedness to any of its wholly-owned Restricted Subsidiaries, and any wholly-owned Restricted Subsidiary of Company may become and remain liable with respect to Indebtedness to Company or any other wholly-owned Restricted Subsidiary of Company; provided that (a) all such intercompany Indebtedness shall be evidenced -------- by promissory notes, (b) all such intercompany Indebtedness owed by Company to any of its Restricted Subsidiaries shall be subordinated in right of payment to the payment in full of the Obligations pursuant to the terms of the applicable promissory notes or an intercompany subordination agreement, and (c) any payment by any Restricted Subsidiary of Company under any guaranty of the Obligations shall result in a pro tanto reduction of the amount of any intercompany --- ----- Indebtedness owed by such Restricted Subsidiary to Company or to any of its Restricted Subsidiaries for whose benefit such payment is made; (v) Company and its Restricted Subsidiaries, as applicable, may remain liable with respect to Indebtedness described in Schedule 7.1 annexed hereto; ------------ (vi) Company may remain liable with respect to (x) Indebtedness evidenced by the Senior Notes in an aggregate principal amount not to exceed $49,000,000 and (y) Indebtedness incurred to refinance the then outstanding aggregate principal amount of such Senior Notes; provided that such refinancing Indebtedness (a) shall be in an aggregate principal amount not to exceed the then outstanding aggregate principal amount of such Senior Notes plus the amount of accrued and unpaid interest thereon; (b) shall not mature earlier than twelve months after the then-effective Revolving Loan Commitment Termination Date unless such refinancing Indebtedness is incurred under, and pursuant to the terms and conditions of, this Agreement; and (c) shall contain such other terms and conditions as are satisfactory to Requisite Lenders, including without limitation securing such refinancing Indebtedness on a pari passu basis with the Indebtedness incurred under this Agreement; 108 (vii) Company may become and remain liable with respect to Indebtedness evidenced by the Senior Subordinated Notes; provided that the aggregate -------- principal amount of the Senior Subordinated Notes does not exceed $215,000,000 or, if less, the aggregate principal amount of Senior Subordinated Notes issued on the Closing Date; and (viii) Company and its Restricted Subsidiaries may become and remain liable with respect to other Indebtedness in an aggregate principal amount not to exceed $5,000,000 at any time outstanding. 7.2 LIENS AND RELATED MATTERS. ------------------------- A. Prohibition on Liens. Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume or permit to exist any Lien on or with respect to any property or asset of any kind (including any document or instrument in respect of goods or accounts receivable) of Company or any of its Restricted Subsidiaries, whether now owned or hereafter acquired, or any income or profits therefrom, or file or permit the filing of, or permit to remain in effect, any financing statement or other similar notice of any Lien with respect to any such property, asset, income or profits under the Uniform Commercial Code of any State or under any similar recording or notice statute, except: (i) Permitted Encumbrances; (ii) Liens granted pursuant to the Collateral Documents; (iii) Liens granted in connection with any refinancing of the Senior Notes pursuant to subsection 7.1(vi); provided, however, that (x) Company shall -------- ------- obtain the prior written consent of Requisite Lenders and such Liens are granted on terms and conditions satisfactory to Requisite Lenders, and (y) to the extent that such Liens are on property other than the Collateral, Company shall make or cause to be made effective provision whereby the Obligations will be secured by such Liens equally and ratably with such refinancing Indebtedness as long as such refinancing Indebtedness shall be so secured; (iv) Liens described in Schedule 7.2 annexed hereto; ------------ (v) Liens securing Indebtedness permitted pursuant to subsection 7.1(iii); and (vi) Other Liens securing Indebtedness in an aggregate amount not to exceed $1,000,000 at any time outstanding. 109 B. EQUITABLE LIEN IN FAVOR OF LENDERS. If Company or any of its Restricted Subsidiaries shall create or assume any Lien upon any of its properties or assets, whether now owned or hereafter acquired, other than Liens excepted by the provisions of subsection 7.2A, it shall make or cause to be made effective provision whereby the Obligations will be secured by such Lien equally and ratably with any and all other Indebtedness secured thereby as long as any such Indebtedness shall be so secured; provided that, notwithstanding the -------- foregoing, this covenant shall not be construed as a consent by Requisite Lenders to the creation or assumption of any such Lien not permitted by the provisions of subsection 7.2A. C. NO FURTHER NEGATIVE PLEDGES. Except with respect to specific property encumbered to secure payment of particular Indebtedness or to be sold pursuant to an executed agreement with respect to an Asset Sale, neither Company nor any of its Restricted Subsidiaries shall enter into any agreement (other than the Senior Note Indenture, the Senior Subordinated Note Indenture or any other agreement prohibiting only the creation of Liens securing Subordinated Indebtedness) prohibiting the creation or assumption of any Lien upon any of its properties or assets, whether now owned or hereafter acquired. D. NO RESTRICTIONS ON SUBSIDIARY DISTRIBUTIONS TO COMPANY OR OTHER SUBSIDIARIES. Except as provided herein, Company will not, and will not permit any of its Restricted Subsidiaries to, create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction of any kind on the ability of any such Restricted Subsidiary to (i) pay dividends or make any other distributions on any of such Restricted Subsidiary's capital stock owned by Company or any other Restricted Subsidiary of Company, (ii) repay or prepay any Indebtedness owed by such Restricted Subsidiary to Company or any other Restricted Subsidiary of Company, (iii) make loans or advances to Company or any other Restricted Subsidiary of Company, or (iv) transfer any of its property or assets to Company or any other Restricted Subsidiary of Company. 7.3 INVESTMENTS; JOINT VENTURES. --------------------------- Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, make or own any Investment in any Person, including any Joint Venture, except: (i) Company and its Restricted Subsidiaries may make and own Investments in Cash Equivalents; (ii) Company and its Restricted Subsidiaries may continue to own the Investments owned by them as of the Closing Date, and may make additional Investments, in any Restricted Subsidiaries of Company; 110 (iii) Company and its Restricted Subsidiaries may make intercompany loans to the extent permitted under subsection 7.1(iv); (iv) Company and its Restricted Subsidiaries may make Consolidated Capital Expenditures permitted by subsection 7.8; (v) Company and its Restricted Subsidiaries may make and own Investments in connection with Permitted Acquisitions made in accordance with subsection 7.7(vi); provided that such Investments shall at all times be -------- Restricted Subsidiaries of Company; (vi) Company may continue to own the Investments owned by Company in the Unrestricted Subsidiaries as of the Closing Date and Company may make additional Investments in the Unrestricted Subsidiaries after the Closing Date in an aggregate amount not exceeding $4,500,000; (vii) Company and its Restricted Subsidiaries may continue to own the Investments owned by them and described in Schedule 7.3 annexed hereto; ------------ (viii) Company or any of its Restricted Subsidiaries may make loans to their employees for the purpose of purchasing Capital Stock of Company; provided -------- that the aggregate amount of such loans shall not exceed $1,000,000 at any time outstanding; and (ix) Company and its Restricted Subsidiaries may make and own other Investments (excluding Interest Agreements or Currency Agreements not constituting Hedge Agreements) in an aggregate amount not to exceed at any time $1,000,000. 7.4 CONTINGENT OBLIGATIONS. ---------------------- Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, create or become or remain liable with respect to any Contingent Obligation, except: (i) Restricted Subsidiaries of Company may become and remain liable with respect to Contingent Obligations in respect of the Subsidiary Guaranty; (ii) Company may become and remain liable with respect to Contingent Obligations in respect of Letters of Credit; provided that no Loan Party shall -------- have granted any Lien securing obligations (including any reimbursement obligations) relating to any Existing Letters of Credit (other than pursuant to the Loan Documents); 111 (iii) Company and its Restricted Subsidiaries may become and remain liable with respect to Contingent Obligations in respect of customary indemnification and purchase price adjustment obligations incurred in connection with Asset Sales or other sales of assets; (iv) Company and its Restricted Subsidiaries may become and remain liable with respect to Contingent Obligations under guarantees in the ordinary course of business of the obligations of suppliers, customers, franchisees and licensees of Company and its Restricted Subsidiaries in an aggregate amount not to exceed at any time $1,000,000; (v) Company and its Restricted Subsidiaries, as applicable, may remain liable with respect to Contingent Obligations described in Schedule 7.4 annexed ------------ hereto; (vi) Subsidiary Guarantors may become and remain liable with respect to Contingent Obligations arising under guaranties of the Senior Notes and the Senior Subordinated Notes as set forth in and to the extent required under the Senior Note Indenture and the Senior Subordinated Note Indenture as in effect on the Closing Date; (vii) Company may become and remain liable with respect to Contingent Obligations under guarantees in respect of Capital Leases and Operating Leases entered into by Company's Restricted Subsidiaries in the ordinary course of business or under guarantees in respect of obligations of Company's Restricted Subsidiaries (other than Indebtedness for borrowed money) incurred in the ordinary course of business; and (viii) Company and its Restricted Subsidiaries may become and remain liable with respect to other Contingent Obligations; provided that the maximum -------- aggregate liability, contingent or otherwise, of Company and its Restricted Subsidiaries in respect of all such Contingent Obligations shall at no time exceed $1,000,000. 7.5 RESTRICTED JUNIOR PAYMENTS; OTHER RESTRICTED PAYMENTS. ----------------------------------------------------- A. RESTRICTED JUNIOR PAYMENTS. Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, declare, order, pay, make or set apart any sum for any Restricted Junior Payment; provided that -------- Company may make regularly scheduled payments of interest (including any additional interest payable in the event the Company is not in compliance with its agreements to register the Senior Subordinated Notes under the Securities Act or effect an exchange offer pursuant to such registration) in respect of the Senior Subordinated Notes in accordance with the terms of, and only to the extent required by, and subject to the subordination provisions contained 112 in, the Senior Subordinated Indenture, as such indenture may be amended from time to time to the extent permitted under subsection 7.14B. B. OTHER RESTRICTED PAYMENTS. Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, declare, order, pay, make or set apart any sum for any payment on or with respect to the Senior Notes; provided that (i) on the Closing Date, Company may purchase an aggregate -------- principal amount of $51,000,000 of Senior Notes, pay accrued and unpaid interest thereon and pay tender offer premiums and consent fees related thereto, all as provided pursuant to the Offer and Consent Solicitation, (ii) Company may make regularly scheduled payments of interest in respect of the Senior Notes or refinancing Indebtedness with respect to such Senior Notes incurred pursuant to subsection 7.1(vi) in accordance with the terms of, and only to the extent required by, the Senior Notes Indenture or the agreement governing such refinancing Indebtedness as such indenture or agreement may be amended from time to time to the extent permitted under subsection 7.14C and (iii) so long as no Event of Default or Potential Event of Default shall have occurred and be continuing, Company may redeem an aggregate amount of up to $5,000,000 of principal amount of the Senior Notes after the Closing Date if after giving effect to any such redemption and to any Indebtedness incurred to effect such redemption, there shall be at least $5,000,000 of availability under the Revolving Loan Commitments. 113 7.6 FINANCIAL COVENANTS. ------------------- A. Minimum Coverage Ratio. Company shall not permit the ratio of (i) Consolidated EBITDA plus Consolidated Rental Payments to (ii) Consolidated ---- Interest Expense plus Consolidated Rental Payments, in each case for any ---- consecutive four-Fiscal Quarter period ending during any of the periods set forth below, to be less than the correlative ratio indicated:
Minimum Period Coverage Ratio - --------------------------------------- -------------- Last day of fourth Fiscal Quarter, 1.30:1.00 Fiscal Year 1998, through next to last day of fourth Fiscal Quarter, Fiscal Year 1999 Last day of fourth Fiscal Quarter, 1.50:1.00 Fiscal Year 1999, through next to last day of fourth Fiscal Quarter, Fiscal Year 2000 Last day of fourth Fiscal Quarter, 1.60:1.00 Fiscal Year 2000, through next to last day of fourth Fiscal Quarter, Fiscal Year 2001 Last day of fourth Fiscal Quarter, 1.70:1.00 Fiscal Year 2001, through next to last day of fourth Fiscal Quarter, Fiscal Year 2002 Last day of fourth Fiscal Quarter, 1.80:1.00 Fiscal Year 2002, through next to last day of fourth Fiscal Quarter, Fiscal Year 2003
114 B. Maximum Consolidated Pro Forma Leverage Ratio. Company shall not permit the Consolidated Pro Forma Leverage Ratio at any time during any of the periods set forth below to exceed the correlative ratio indicated:
Maximum Consolidated Pro Forma Leverage Period Ratio - ---------------------------- --------- Closing Date through next to 5.00:1.00 last day of third Fiscal Quarter, Fiscal Year 1999 Last day of third Fiscal 4.75:1.00 Quarter, Fiscal Year 1999 through next to last day of fourth Fiscal Quarter, Fiscal Year 1999 Last day of fourth Fiscal 4.50:1.00 Quarter, Fiscal Year 1999 through next to last day of second Fiscal Quarter, Fiscal Year 2000 Last day of second Fiscal 4.25:1.00 Quarter, Fiscal Year 2000 through next to last day of fourth Fiscal Quarter, Fiscal Year 2000 Last day of fourth Fiscal 4.00:1.00 Quarter, Fiscal Year 2000 through next to last day of fourth Fiscal Quarter, Fiscal Year 2001 Last day of fourth Fiscal 3.75:1.00 Quarter, Fiscal Year 2001 through next to last day of fourth Fiscal Quarter, Fiscal Year 2002 Last day of fourth Fiscal 3.50:1.00 Quarter, Fiscal Year 2002 through next to last day of fourth Fiscal Quarter, Fiscal Year 2003
115 C. MiNIMUM CONSOLIDATED PRO FORMA EBITDA. Company shall not permit Consolidated Pro Forma EBITDA for any consecutive four-Fiscal Quarter period ending during any of the periods set forth below to be less than the correlative amount indicated:
Minimum Consolidated Pro Period Forma EBITDA - ---------------------------- ------------ Closing through next to last $48,000,000 day of first Fiscal Quarter, Fiscal Year 1999 Last day of first Fiscal $49,000,000 Quarter, Fiscal Year 1999 through next to last day of second Fiscal Quarter, Fiscal Year 1999 Last day of second Fiscal $50,000,000 Quarter, Fiscal Year 1999 through next to last day of third Fiscal Quarter, Fiscal Year 1999 Last day of third Fiscal $52,000,000 Quarter, Fiscal Year 1999 through next to last day of fourth Fiscal Quarter, Fiscal Year 1999 Last day of fourth Fiscal $54,000,000 Quarter, Fiscal Year 1999 through next to last day of first Fiscal Quarter, Fiscal Year 2000 Last day of first Fiscal $55,000,000 Quarter, Fiscal Year 2000 through next to last day of second Fiscal Quarter, Fiscal Year 2000 Last day of second Fiscal $57,000,000 Quarter, Fiscal Year 2000 through next to last day of third Fiscal Quarter, Fiscal Year 2000 Last day of third Fiscal $59,000,000 Quarter, Fiscal Year 2000 through next to last day of fourth Fiscal Quarter, Fiscal Year 2000 Last day of fourth Fiscal $61,000,000 Quarter, Fiscal Year 2000 through next to last day of fourth Fiscal Quarter, Fiscal Year 2001 Last day of fourth Fiscal $65,000,000 Quarter, Fiscal Year 2001 through next to last day of fourth Fiscal Quarter, Fiscal Year 2002 Last day of fourth Fiscal $70,000,000 Quarter, Fiscal Year 2002 through next to last day of fourth Fiscal Quarter, Fiscal Year 2003
116 7.7 RESTRICTION ON FUNDAMENTAL CHANGES; ASSET SALES AND ACQUISITIONS. ---------------------------------------------------------------- Company shall not, and shall not permit any of its Restricted Subsidiaries to, alter the corporate, capital or legal structure of Company or any of its Restricted Subsidiaries, or enter into any transaction of merger or consolidation, or liquidate, wind-up or dissolve itself (or suffer any liquidation or dissolution), or convey, sell, lease or sub-lease (as lessor or sublessor), transfer or otherwise dispose of, in one transaction or a series of transactions, all or any part of its business, property or assets, whether now owned or hereafter acquired, or acquire by purchase or otherwise all or substantially all the business, property or fixed assets of, or stock or other evidence of beneficial ownership of, any Person or any division or line of business of any Person, except: (i) so long as no Event of Default or Potential Event of Default shall have occurred and be continuing or shall be caused thereby, (a) any Restricted Subsidiary of Company may be merged with or into Company or any wholly-owned Subsidiary Guarantor, or be liquidated, wound up or dissolved, or all or any part of its business, property or assets may be conveyed, sold, leased, transferred or otherwise disposed of, in one transaction or a series of transactions, to Company or any wholly-owned Subsidiary Guarantor and (b) in connection with any Permitted Acquisition, Company or any Subsidiary Guarantor may merge into or consolidate with any other Person or permit any other Person to merge into or consolidate with it; provided that, in the case of such a -------- merger, Company or such wholly-owned Subsidiary Guarantor shall be the continuing or surviving corporation; (ii) subject to subsection 7.7 (vi), Company and its Restricted Subsidiaries may make Consolidated Capital Expenditures permitted under subsection 7.8; (iii) Company and its Restricted Subsidiaries may dispose of obsolete, worn out or surplus property in the ordinary course of business; (iv) Company and its Restricted Subsidiaries may sell or otherwise dispose of assets in transactions that do not constitute Asset Sales; provided -------- the consideration received for such assets shall be in an amount at least equal to the fair market value thereof; (v) subject to subsection 7.12, Company and its Restricted Subsidiaries may make Asset Sales of assets having a fair market value not in excess of $10,000,000; provided that (x) the consideration received for such -------- assets shall be in an amount at least equal to the fair market value thereof; (y) the sole consideration received shall be cash; and (z) the proceeds of such Asset Sales shall be applied as required by subsection 2.4B(iii)(a); and 117 (vi) Company or any Restricted Subsidiary of Company may make non- hostile acquisitions of assets and businesses (including non-hostile acquisitions of the capital stock or other equity interests of another Person); provided that: - -------- (a) immediately prior to and after giving effect to any such acquisition, Company and its Restricted Subsidiaries shall be in compliance with the provisions of subsection 7.13 hereof; (b) such Person becomes a Restricted Subsidiary of Company, or such business, property or other assets are acquired by Company or a Restricted Subsidiary of Company; (c) prior to the consummation of such acquisition, Company shall deliver to Administrative Agent an Officers' Certificate (1) certifying that no Potential Event of Default or Event of Default under this Agreement shall then exist or shall occur as a result of such acquisition, (2) demonstrating that after giving effect to such acquisition and to all Indebtedness to be incurred or assumed or repaid in connection with or as consideration for such acquisition, that Company is in pro forma compliance with the financial --- ----- covenants referred to in subsection 7.6 for the four consecutive Fiscal Quarter period ending immediately prior to the date of the proposed acquisition, (3) delivering a copy, prepared in conformity with GAAP, of (i) financial statements of the Person or business so acquired for the immediately preceding four consecutive Fiscal Quarter period corresponding to the calculation period for the financial covenants in the immediately preceding clause, and (4) delivering a copy of all environmental reports obtained in connection with such acquisition, and (ii) if the aggregate consideration paid by Company and its Restricted Subsidiaries in connection with such proposed acquisition and any other related series of acquisitions(including without limitation earn outs or deferred compensation or non-competition arrangements and the amount of Indebtedness or other liability assumed by Company or any of its Restricted Subsidiaries) exceeds $20,000,000, then (v) audited financial statements of the Person or business so acquired for the fiscal year ended within such period and for the fiscal year immediately preceding such fiscal year, (w) unaudited interim financial statements (consisting of a balance sheet and statements of income, stockholders' equity and cash flows) of the Person or business so acquired for the fiscal periods most recently ended prior to the proposed acquisition, (x) a pro forma balance sheet of Company and its Subsidiaries as of --- ----- the date of the proposed acquisition after giving effect thereto, (y) projected financial statements (including balance sheets and statements of income, stockholders' equity and cash flows) of Company and its Subsidiaries for the five-year period after the date of the proposed acquisition after giving effect thereto, 118 and (z) such other information as Administrative Agent may reasonably request; (d) Company shall, and shall cause its Restricted Subsidiaries to, comply with the requirements of subsections 6.8 and 6.9 with respect to such acquisitions; (e) the aggregate consideration paid by Company and its Restricted Subsidiaries in connection with such proposed acquisition and any other related series of acquisitions (including without limitation earn outs or deferred compensation or non-competition arrangements and the amount of Indebtedness or other liability assumed by Company or any of its Subsidiaries) shall not exceed $50,000,000; and (vii) Company and its Restricted Subsidiaries may make transfers of any of their properties or assets to another Person in transactions in which 80% of the consideration received by the transferor consists of properties or assets (other than Cash) that will be used in the business of the transferor; provided -------- that (i) the aggregate fair market value (as determined in good faith by the Board of Directors of Company) of the property or assets being transferred by Company or such Restricted Subsidiary is not greater than the aggregate fair market value (as determined in good faith by the Board of Directors of Company), of the property or assets received by Company or such Restricted Subsidiary in such exchange and (ii) the aggregate fair market value (as determined in good faith by the Board of Directors of Company) of all property or assets transferred by Company and any of its Restricted Subsidiaries in connection with such exchanges in any Fiscal Year shall not exceed $20,000,000. 7.8 CONSOLIDATED CAPITAL EXPENDITURES. --------------------------------- Company shall not, and shall not permit its Restricted Subsidiaries to, make or incur Consolidated Capital Expenditures, in any Fiscal Year indicated below, in an aggregate amount in excess of the corresponding amount (the "MAXIMUM CONSOLIDATED CAPITAL EXPENDITURES AMOUNT") set forth below opposite such Fiscal Year; provided that the Maximum Consolidated Capital Expenditures -------- Amount for any Fiscal Year shall be increased by an amount equal to the excess, if any, of the Maximum Consolidated Capital Expenditures Amount for the previous Fiscal Year (prior to any adjustment in accordance with this proviso) over the actual amount of Consolidated Capital Expenditures for such previous Fiscal Year; provided, further that in no event shall the amount of such increase -------- ------- exceed the Maximum Consolidated Capital Expenditures Amount for such previous Fiscal Year (prior to any adjustment in accordance with this proviso): 119
MAXIMUM CONSOLIDATED CAPITAL PERIOD EXPENDITURES - ------------------------ ------------ Fiscal Year 1998 $31,000,000 Fiscal Year 1999 $28,000,000 Fiscal Year 2000 and each $27,000,000 Fiscal Year thereafter
7.9 SALES AND LEASE-BACKS. --------------------- Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, become or remain liable as lessee or as a guarantor or other surety with respect to any lease, whether an Operating Lease or a Capital Lease, of any property (whether real, personal or mixed), whether now owned or hereafter acquired, (i) which Company or any of its Restricted Subsidiaries has sold or transferred or is to sell or transfer to any other Person (other than Company or any of its Restricted Subsidiaries) or (ii) which Company or any of its Subsidiaries intends to use for substantially the same purpose as any other property which has been or is to be sold or transferred by Company or any of its Restricted Subsidiaries to any Person (other than Company or any of its Restricted Subsidiaries) in connection with such lease; provided that Company and its Restricted Subsidiaries may become and -------- remain liable as lessee, guarantor or other surety with respect to any such lease to the extent that (i) such lease, if a Capital Lease, is permitted pursuant to subsection 7.1(iii), (ii) the consideration received is at least equal to the fair market value of the property sold as determined in good faith by Company's Board of Directors, (iii) to the extent such sale and lease-back transaction relates to properties or assets acquired by Company or any of its Restricted Subsidiaries after the Closing Date, such sale and lease-back transaction occurs within 270 days of the acquisition or completion of construction, improvement or remodeling, as the case may be, of such property or asset by Company or any of its Restricted Subsidiaries, (iv) the aggregate consideration received for all such sold properties or assets does not exceed $30,000,000 in the aggregate, (v) the aggregate consideration received in any Fiscal Year for all such sold properties or assets does not exceed $10,000,000 and (vi) the aggregate consideration received for all such sold properties or assets which are properties or assets owned by Company and its Restricted Subsidiaries as of the Closing Date does not exceed $10,000,000 in the aggregate. 7.10 SALE OR DISCOUNT OF RECEIVABLES. ------------------------------- 120 Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, sell with recourse, or discount or otherwise sell for less than the face value thereof, any of its notes or accounts receivable. 7.11 TRANSACTIONS WITH SHAREHOLDERS AND AFFILIATES. --------------------------------------------- Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, enter into or permit to exist any transaction (including the purchase, sale, lease or exchange of any property or the rendering of any service) with any holder of 5% or more of any class of equity Securities of Company or with any Affiliate of Company or of any such holder (collectively "RELATED PERSONS") on terms that are less favorable to Company or that Restricted Subsidiary, as the case may be, than those that might be obtained at the time in an arm's length transaction from Persons who are not Related Persons; provided that the foregoing restriction shall not apply to (i) -------- any transaction between Company and any of its wholly-owned Restricted Subsidiaries or between any of its wholly-owned Restricted Subsidiaries, (ii) reasonable and customary fees paid to members of the Boards of Directors of Company, or (iii) Affiliate Agreements relating to any services (including, without limitation, consulting, management, broker or investment banking services) to be provided by any of Freeman Spogli, CMC or any of their respective Affiliates to any Loan Party as in effect on the Closing Date or as amended from time to time to the extent permitted under subsection 7.14. 7.12 DISPOSAL OF SUBSIDIARY STOCK. ---------------------------- Except for any sale of 100% of the capital stock or other equity Securities of any of its Restricted Subsidiaries in compliance with the provisions of subsection 7.7(v), Company shall not: (i) directly or indirectly sell, assign, pledge or otherwise encumber or dispose of any shares of capital stock or other equity Securities of any of its Restricted Subsidiaries, except to qualify directors if required by applicable law; or (ii) permit any of its Restricted Subsidiaries directly or indirectly to sell, assign, pledge or otherwise encumber or dispose of any shares of capital stock or other equity Securities of any of its Restricted Subsidiaries (including such Restricted Subsidiary), except to Company, another Restricted Subsidiary of Company, or to qualify directors if required by applicable law. 7.13 CONDUCT OF BUSINESS. ------------------- From and after the Closing Date, Company shall not, and shall not permit any of its Restricted Subsidiaries to, engage in any business other than the businesses engaged in by Company and its Restricted Subsidiaries on the Closing Date and similar or related businesses. 121 7.14 AMENDMENTS OR WAIVERS OF CERTAIN RELATED AGREEMENTS; AMENDMENTS OF ------------------------------------------------------------------ DOCUMENTS RELATING TO SUBORDINATED INDEBTEDNESS OR THE SENIOR NOTES; -------------------------------------------------------------------- DESIGNATION OF "DESIGNATED SENIOR INDEBTEDNESS". ----------------------------------------------- A. AMENDMENTS OR WAIVERS OF CERTAIN RELATED AGREEMENTS. Neither Company nor any of its Restricted Subsidiaries will agree to any material amendment to, or waive any of its material rights under, any Related Agreement (other than any Related Agreement evidencing or governing the Senior Notes or refinancing Indebtedness with respect to Senior Notes incurred under subsection 7.1(vi) or any Subordinated Indebtedness) after the Closing Date without in each case obtaining the prior written consent of Requisite Lenders to such amendment or waiver. B. AMENDMENTS OF DOCUMENTS RELATING TO SUBORDINATED INDEBTEDNESS. Company shall not, and shall not permit any of its Subsidiaries to, amend or otherwise change the terms of any Subordinated Indebtedness, or make any payment consistent with an amendment thereof or change thereto, if the effect of such amendment or change is to increase the interest rate on such Subordinated Indebtedness, change (to earlier dates) any dates upon which payments of principal or interest are due thereon, change any event of default or condition to an event of default with respect thereto (other than to eliminate any such event of default or increase any grace period related thereto), change the redemption, prepayment or defeasance provisions thereof, change the subordination provisions thereof (or of any guaranty thereof), or change any collateral therefor (other than to release such collateral), or if the effect of such amendment or change, together with all other amendments or changes made, is to increase materially the obligations of the obligor thereunder or to confer any additional rights on the holders of such Subordinated Indebtedness (or a trustee or other representative on their behalf) which would be adverse to Company or Lenders. C. AMENDMENTS OF DOCUMENTS RELATING TO SENIOR NOTES. Company shall not, and shall not permit any of its Restricted Subsidiaries to, amend or otherwise change the terms of the Senior Notes or refinancing Indebtedness with respect to such Senior Notes incurred under subsection 7.1(vi) or make any payment consistent with an amendment thereof or change thereto, if the effect of such amendment or change is to increase the interest rate on such Senior Notes or such refinancing Indebtedness (other than as provided for in the Senior Note Indenture as in effect on the Closing Date or other than as provided for in the agreement governing such refinancing Indebtedness as in effect on the date of incurrence thereof), change (to earlier dates) any dates upon which payments of principal or interest are due thereon, change any event of default or condition to an event of default with respect thereto (other than to eliminate any such event of default or increase any grace period related thereto), change the redemption, prepayment or defeasance provisions thereof, or change any collateral therefor (other than to release such collateral), or if the effect of such amendment or change, together with all other amendments or changes made, is to increase materially the obligations of the obligor thereunder or to confer any additional rights on the holders of such Senior Notes or such 122 refinancing Indebtedness (or a trustee or other representative on their behalf) which would be adverse to Company or Lenders. D. DESIGNATION OF "DESIGNATED SENIOR INDEBTEDNESS". Company shall not designate any Indebtedness as "Designated Senior Indebtedness" (as defined in the Senior Subordinated Note Indenture) for purposes of the Senior Subordinated Note Indenture without the prior written consent of Requisite Lenders. 7.15 FISCAL YEAR. ----------- No Loan Party shall change its Fiscal Year-end from the last Thursday in September; provided that Loan Parties may change their Fiscal Year-end once -------- after giving Administrative Agent not less than 30 days' prior written notice of such change. SECTION 8. EVENTS OF DEFAULT If any of the following conditions or events ("EVENTS OF DEFAULT") shall occur: 8.1 FAILURE TO MAKE PAYMENTS WHEN DUE. --------------------------------- Failure by Company to pay any installment of principal of any Loan when due, whether at stated maturity, by acceleration, by notice of voluntary prepayment, by mandatory prepayment or otherwise; failure by Company to pay when due any amount payable to an Issuing Lender in reimbursement of any drawing under a Letter of Credit (it being understood that the payment of such amount with the proceeds of Revolving Loans in accordance with subsection 3.3B hereof shall not be a failure by Company to pay when due such amount); or failure by Company to pay any interest on any Loan or any fee or any other amount due under this Agreement within five days after the date due; or 8.2 DEFAULT IN OTHER AGREEMENTS. --------------------------- (i) Failure of Company or any of its Restricted Subsidiaries to pay when due any principal of or interest on or any other amount payable in respect of one or more items of Indebtedness (other than Indebtedness referred to in subsection 8.1) or Contingent Obligations with an aggregate principal amount of $5,000,000 or more, in each case beyond the end of any grace period provided therefor; or (ii) breach or default by Company or any of its Restricted Subsidiaries with respect to any other material term of (a) one or more items of Indebtedness or Contingent Obligations in the aggregate principal amounts referred to in clause (i) above or (b) any loan agreement, mortgage, indenture or other agreement relating to such item(s) of Indebtedness or Contingent Obligation(s), if the effect of such breach or default is to cause, or to permit the holder or holders of that Indebtedness or Contingent Obligation(s) (or a trustee on behalf of such holder or holders) 123 to cause, that Indebtedness or Contingent Obligation(s) to become or be declared due and payable prior to its stated maturity or the stated maturity of any underlying obligation, as the case may be (upon the giving or receiving of notice, lapse of time, both, or otherwise); or 8.3 BREACH OF CERTAIN COVENANTS. --------------------------- Failure of Company to perform or comply with any term or condition contained in subsection 2.5 or 6.2 or Section 7 of this Agreement; or 8.4 BREACH OF WARRANTY. ------------------ Any representation, warranty, certification or other statement made by Company or any of its Restricted Subsidiaries in any Loan Document or in any statement or certificate at any time given by Company or any of its Restricted Subsidiaries in writing pursuant hereto or thereto or in connection herewith or therewith shall be false in any material respect on the date as of which made; or 8.5 OTHER DEFAULTS UNDER LOAN DOCUMENTS. ----------------------------------- Any Loan Party shall default in the performance of or compliance with any term contained in this Agreement or any of the other Loan Documents, other than any such term referred to in any other subsection of this Section 8, and such default shall not have been remedied or waived within 30 days after the earlier of (i) an officer of Company or such Loan Party becoming aware of such default or (ii) receipt by Company and such Loan Party of notice from any Administrative Agent or any Lender of such default; or 8.6 INVOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC. ----------------------------------------------------- (i) A court having jurisdiction in the premises shall enter a decree or order for relief in respect of Company or any of its Restricted Subsidiaries in an involuntary case under the Bankruptcy Code or under any other applicable bankruptcy, insolvency or similar law now or hereafter in effect, which decree or order is not stayed; or any other similar relief shall be granted under any applicable federal or state law; or (ii) an involuntary case shall be commenced against Company or any of its Restricted Subsidiaries under the Bankruptcy Code or under any other applicable bankruptcy, insolvency or similar law now or hereafter in effect; or a decree or order of a court having jurisdiction in the premises for the appointment of a receiver, liquidator, sequestrator, trustee, custodian or other officer having similar powers over Company or any of its Restricted Subsidiaries, or over all or a substantial part of its property, shall have been entered; or there shall have occurred the involuntary appointment of an interim receiver, trustee or other custodian of Company or any of its Restricted Subsidiaries for all or a substantial part of its property; or a warrant of attachment, execution or similar process 124 shall have been issued against any substantial part of the property of Company or any of its Restricted Subsidiaries, and any such event described in this clause (ii) shall continue for 60 days unless dismissed, bonded or discharged; or 8.7 VOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC. --------------------------------------------------- (i) Company or any of its Restricted Subsidiaries shall have an order for relief entered with respect to it or commence a voluntary case under the Bankruptcy Code or under any other applicable bankruptcy, insolvency or similar law now or hereafter in effect, or shall consent to the entry of an order for relief in an involuntary case, or to the conversion of an involuntary case to a voluntary case, under any such law, or shall consent to the appointment of or taking possession by a receiver, trustee or other custodian for all or a substantial part of its property; or Company or any of its Restricted Subsidiaries shall make any assignment for the benefit of creditors; or (ii) Company or any of its Restricted Subsidiaries shall be unable, or shall fail generally, or shall admit in writing its inability, to pay its debts as such debts become due; or the Board of Directors of Company or any of its Restricted Subsidiaries (or any committee thereof) shall adopt any resolution or otherwise authorize any action to approve any of the actions referred to in clause (i) above or this clause (ii); or 8.8 JUDGMENTS AND ATTACHMENTS. ------------------------- Any money judgment, writ or warrant of attachment or similar process involving in the aggregate at any time an amount in excess of $5,000,000 (not adequately covered by insurance as to which a solvent and unaffiliated insurance company has acknowledged coverage) shall be entered or filed against Company or any of its Restricted Subsidiaries or any of their respective assets and shall remain undischarged, unvacated, unbonded or unstayed for a period of 60 days (or in any event later than five days prior to the date of any proposed sale thereunder); or 8.9 DISSOLUTION. ----------- Any order, judgment or decree shall be entered against Company or any of its Restricted Subsidiaries decreeing the dissolution or split up of Company or that Restricted Subsidiary and such order shall remain undischarged or unstayed for a period in excess of 30 days; or 8.10 EMPLOYEE BENEFIT PLANS. ---------------------- There shall occur one or more ERISA Events which individually or in the aggregate results in or might reasonably be expected to result in liability of Company, any of its Restricted Subsidiaries or any of their respective ERISA Affiliates in excess of $1,000,000 during the term of this Agreement; or there shall exist an amount of unfunded benefit liabilities (as defined in Section 4001(a)(18) of ERISA), individually or in the 125 aggregate for all Pension Plans (excluding for purposes of such computation any Pension Plans with respect to which assets exceed benefit liabilities), which exceeds $1,000,000; or 8.11 CHANGE IN CONTROL. ----------------- (i) Freeman Spogli shall cease to beneficially own and control at least a majority of the issued and outstanding shares of capital stock of Company entitled (without regard to the occurrence of any contingency) to vote for the election of members of the Board of Directors of Company, (ii) Freeman Spogli shall cease to have the ability to elect a majority of the members of the Board of Directors of Company, (iii) Company shall cease to beneficially own and control 100% of capital stock of Lil' Champ or Company shall cease to have the ability to elect all of the Board of Directors of Lil' Champ, or (iv) a "Change of Control" as defined in the Subordinated Note Indenture, the Senior Note Indenture or the agreement governing refinancing Indebtedness with respect to the Senior Notes incurred pursuant to subsection 7.1(vi) shall occur; or 8.12 INVALIDITY OF SUBSIDIARY GUARANTY; FAILURE OF SECURITY; REPUDIATION OF ---------------------------------------------------------------------- OBLIGATIONS. ----------- At any time after the execution and delivery thereof, (i) the Subsidiary Guaranty for any reason, other than the satisfaction in full of all Obligations, shall cease to be in full force and effect (other than in accordance with its terms) or shall be declared to be null and void, (ii) any Collateral Document shall cease to be in full force and effect (other than by reason of a release of Collateral thereunder in accordance with the terms hereof or thereof, the satisfaction in full of the Obligations or any other termination of such Collateral Document in accordance with the terms hereof or thereof) or shall be declared null and void, or Administrative Agent shall not have or shall cease to have a valid and perfected First Priority Lien in any Collateral purported to be covered thereby, in each case for any reason other than the failure of Administrative Agent or any Lender to take any action within its control, or (iii) any Loan Party shall contest the validity or enforceability of any Loan Document in writing or deny in writing that it has any further liability, including with respect to future advances by Lenders, under any Loan Document to which it is a party; or 8.13 FAILURE TO CONSUMMATE LIL' CHAMP ACQUISITION AND OTHER TRANSACTIONS. ------------------------------------------------------------------- Any of the Lil' Champ Acquisition, the Offer and Consent Solicitation, the Equity Contribution and the issuance of the Senior Subordinated Notes shall not be consummated in accordance with this Agreement and the applicable Related Agreements concurrently with the making of the initial Loans, or the Lil' Champ Acquisition, the Offer and Consent Solicitation, the Equity Contribution or the issuance of the Senior Subordinated Notes shall be unwound, reversed or otherwise rescinded in whole or in part for any reason: 126 THEN (i) upon the occurrence of any Event of Default described in subsection 8.6 or 8.7, each of (a) the unpaid principal amount of and accrued interest on the Loans, (b) an amount equal to the maximum amount that may at any time be drawn under all Letters of Credit then outstanding (whether or not any beneficiary under any such Letter of Credit shall have presented, or shall be entitled at such time to present, the drafts or other documents or certificates required to draw under such Letter of Credit), and (c) all other Obligations shall automatically become immediately due and payable, without presentment, demand, protest or other requirements of any kind, all of which are hereby expressly waived by Company, and the obligation of each Lender to make any Loan, the obligation of Issuing Lender to issue any Letter of Credit and the right of any Lender to issue any Letter of Credit hereunder shall thereupon terminate, and (ii) upon the occurrence and during the continuation of any other Event of Default, Administrative Agent shall, upon the written request or with the written consent of Requisite Lenders, by written notice to Company, declare all or any portion of the amounts described in clauses (a) through (c) above to be, and the same shall forthwith become, immediately due and payable, and the obligation of each Lender to make any Loan, the obligation of Administrative Agent to issue any Letter of Credit and the right of any Lender to issue any Letter of Credit hereunder shall thereupon terminate; provided that the -------- foregoing shall not affect in any way the obligations of Lenders under subsection 3.3C(i) or the obligations of Lenders to purchase participations in any unpaid Swing Line Loans as provided in subsection 2.1A(iii). Any amounts described in clause (b) above, when received by Administrative Agent, shall be held by Administrative Agent pursuant to the terms of the Collateral Account Agreement and shall be applied as therein provided. Notwithstanding anything contained in the second preceding paragraph, if at any time within 60 days after an acceleration of the Loans pursuant to clause (ii) of such paragraph Company shall pay all arrears of interest and all payments on account of principal which shall have become due otherwise than as a result of such acceleration (with interest on principal and, to the extent permitted by law, on overdue interest, at the rates specified in this Agreement) and all Events of Default and Potential Events of Default (other than non- payment of the principal of and accrued interest on the Loans, in each case which is due and payable solely by virtue of acceleration) shall be remedied or waived pursuant to subsection 10.6, then Requisite Lenders, by written notice to Company, may at their option rescind and annul such acceleration and its consequences; but such action shall not affect any subsequent Event of Default or Potential Event of Default or impair any right consequent thereon. The provisions of this paragraph are intended merely to bind Lenders to a decision which may be made at the election of Requisite Lenders and are not intended, directly or indirectly, to benefit Company, and such provisions shall not at any time be construed so as to grant Company the right to require Lenders to rescind or annul any acceleration hereunder or to preclude any Agent or Lenders from exercising any of the rights or remedies available to them under any of the Loan Documents, even if the conditions set forth in this paragraph are met. 127 SECTION 9. AGENTS 9.1 APPOINTMENT. ----------- A. APPOINTMENT OF AGENTS. First Union is hereby appointed as Administrative Agent and CIBC is hereby appointed as Syndication Agent, each so appointed hereunder and under the other Loan Documents and each Lender hereby authorizes such Agent to act as its agent in accordance with the terms of this Agreement and the other Loan Documents. Each Agent agrees to act upon the express conditions contained in this Agreement and the other Loan Documents, as applicable. The provisions of this Section 9 are solely for the benefit of each Agent and each Lender and Company shall have no rights as a third party beneficiary of any of the provisions thereof. In performing its functions and duties under this Agreement, each Agent shall act solely as an agent of Lenders and does not assume and shall not be deemed to have assumed any obligation towards or relationship of agency or trust with or for Company or any of its Subsidiaries. B. Appointment of Supplemental Collateral Agents. It is the purpose of this Agreement and the other Loan Documents that there shall be no violation of any law of any jurisdiction denying or restricting the right of banking corporations or associations to transact business as agent or trustee in such jurisdiction. It is recognized that in case of litigation under this Agreement or any of the other Loan Documents, and in particular in case of the enforcement of any of the Loan Documents, or in case Administrative Agent deems that by reason of any present or future law of any jurisdiction it may not exercise any of the rights, powers or remedies granted herein or in any of the other Loan Documents or take any other action which may be desirable or necessary in connection therewith, it may be necessary that Administrative Agent appoint an additional individual or institution as a separate trustee, co-trustee, collateral agent or collateral co-agent (any such additional individual or institution being referred to herein individually as a "SUPPLEMENTAL COLLATERAL AGENT" and collectively as "SUPPLEMENTAL COLLATERAL AGENTS"). In the event that Administrative Agent appoints a Supplemental Collateral Agent with respect to any Collateral, (i) each and every right, power, privilege or duty expressed or intended by this Agreement or any of the other Loan Documents to be exercised by or vested in or conveyed to Administrative Agent with respect to such Collateral shall be exercisable by and vest in such Supplemental Collateral Agent to the extent, and only to the extent, necessary to enable such Supplemental Collateral Agent to exercise such rights, powers and privileges with respect to such Collateral and to perform such duties with respect to such Collateral, and every covenant and obligation contained in the Loan Documents and necessary to the exercise or performance thereof by such Supplemental Collateral Agent shall run to and be enforceable by either Administrative Agent or such Supplemental Collateral Agent, and (ii) the provisions of this Section 9 and of subsections 10.2 and 10.3 that refer to Administrative Agent shall inure to the benefit of 128 such Supplemental Collateral Agent and all references therein to Administrative Agent shall be deemed to be references to Administrative Agent and/or such Supplemental Collateral Agent, as the context may require. Should any instrument in writing from Company or any other Loan Party be required by any Supplemental Collateral Agent so appointed by Administrative Agent for more fully and certainly vesting in and confirming to him or it such rights, powers, privileges and duties, Company shall, or shall cause such Loan Party to, execute, acknowledge and deliver any and all such instruments promptly upon request by Administrative Agent. In case any Supplemental Collateral Agent, or a successor thereto, shall die, become incapable of acting, resign or be removed, all the rights, powers, privileges and duties of such Supplemental Collateral Agent, to the extent permitted by law, shall vest in and be exercised by Administrative Agent until the appointment of a new Supplemental Collateral Agent. 9.2 POWERS AND DUTIES; GENERAL IMMUNITY. ----------------------------------- A. POWERS; DUTIES SPECIFIED. Each Lender irrevocably authorizes each Agent to take such action on such Lender's behalf and to exercise such powers, rights and remedies hereunder and under the other Loan Documents as are specifically delegated or granted to such Agent by the terms hereof and thereof, together with such powers, rights and remedies as are reasonably incidental thereto. Each Agent shall have only those duties and responsibilities that are expressly specified in this Agreement and the other Loan Documents. Each Agent may exercise such powers, rights and remedies and perform such duties by or through its agents or employees. No Agent shall have, by reason of this Agreement or any of the other Loan Documents, a fiduciary relationship in respect of any Lender; and nothing in this Agreement or any of the other Loan Documents, expressed or implied, is intended to or shall be so construed as to impose upon any Agent any obligations in respect of this Agreement or any of the other Loan Documents except as expressly set forth herein or therein. B. NO RESPONSIBILITY FOR CERTAIN MATTERS. No Agent shall be responsible to any Lender for the execution, effectiveness, genuineness, validity, enforceability, collectibility or sufficiency of this Agreement or any other Loan Document or for any representations, warranties, recitals or statements made herein or therein or made in any written or oral statements or in any financial or other statements, instruments, reports or certificates or any other documents furnished or delivered by such Agent to Lenders or by or on behalf of Company to such Agent or any Lender in connection with the Loan Documents and the transactions contemplated thereby or for the financial condition or business affairs of Company or any other Person liable for the payment of any Obligations, nor shall such Agent be required to ascertain or inquire as to the performance or observance of any of the terms, conditions, provisions, covenants or agreements contained in any of the Loan Documents or as to the use of the proceeds of the Loans or the use of the Letters of Credit or as to the existence or possible existence of any Event of Default or 129 Potential Event of Default. Anything contained in this Agreement to the contrary notwithstanding, no Agent shall have any liability arising from confirmations of the amount of outstanding Loans or the Letter of Credit Usage or the component amounts thereof. C. EXCULPATORY PROVISIONS. None of the Agents nor any of their respective officers, directors, employees or agents shall be liable to Lenders for any action taken or omitted by any such Agent under or in connection with any of the Loan Documents except to the extent caused by such Agent's gross negligence or willful misconduct. Each Agent shall be entitled to refrain from any act or the taking of any action (including the failure to take an action) in connection with this Agreement or any of the other Loan Documents or from the exercise of any power, discretion or authority vested in it hereunder or thereunder unless and until such Agent shall have received instructions in respect thereof from Requisite Lenders (or such other Lenders as may be required to give such instructions under subsection 10.6) and, upon receipt of such instructions from Requisite Lenders (or such other Lenders, as the case may be), such Agent shall be entitled to act or (where so instructed) refrain from acting, or to exercise such power, discretion or authority, in accordance with such instructions. Without prejudice to the generality of the foregoing, (i) each Agent shall be entitled to rely, and shall be fully protected in relying, upon any communication, instrument or document believed by it to be genuine and correct and to have been signed or sent by the proper person or persons, and shall be entitled to rely and shall be protected in relying on opinions and judgments of attorneys (who may be attorneys for Company and its Subsidiaries), accountants, experts and other professional advisors selected by it; and (ii) no Lender shall have any right of action whatsoever against any Agent as a result of such Agent acting or (where so instructed) refraining from acting under this Agreement or any of the other Loan Documents in accordance with the instructions of Requisite Lenders (or such other Lenders as may be required to give such instructions under subsection 10.6). D. AGENTS ENTITLED TO ACT AS LENDERS. The agency hereby created shall in no way impair or affect any of the rights and powers of, or impose any duties or obligations upon, any Agent in its individual capacity as a Lender hereunder. With respect to its participation in the Loans and the Letters of Credit, each Agent shall have the same rights and powers hereunder as any other Lender and may exercise the same as though it were not performing the duties and functions delegated to it hereunder, and the term "Lender" or "Lenders" or any similar term shall, unless the context clearly otherwise indicates, include such Agent in its individual capacity. Each Agent and their respective Affiliates may accept deposits from, lend money to and generally engage in any kind of banking, trust, financial advisory or other business with Company or any of its Affiliates as if it were not performing the duties specified herein, and may accept fees and other consideration from Company for services in connection with this Agreement and otherwise without having to account for the same to Lenders. 130 9.3 REPRESENTATIONS AND WARRANTIES; NO RESPONSIBILITY FOR APPRAISAL OF ------------------------------------------------------------------ CREDITWORTHINESS. ---------------- Each Lender represents and warrants that it has made its own independent investigation of the financial condition and affairs of Company and its Subsidiaries in connection with the making of the Loans and the issuance of Letters of Credit hereunder and that it has made and shall continue to make its own appraisal of the creditworthiness of Company and its Subsidiaries. No Agent shall have any duty or responsibility, either initially or on a continuing basis, to make any such investigation or any such appraisal on behalf of Lenders or to provide any Lender with any credit or other information with respect thereto, whether coming into its possession before the making of the Loans or at any time or times thereafter, and no Agent shall have any responsibility with respect to the accuracy of or the completeness of any information provided to Lenders. 9.4 RIGHT TO INDEMNITY. ------------------ Each Lender, in proportion to its Pro Rata Share, severally agrees to indemnify each Agent, to the extent that such Agent shall not have been reimbursed by Company, for and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses (including counsel fees and disbursements) or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against such Agent in exercising its powers, rights and remedies or performing its duties hereunder or under the other Loan Documents or otherwise in its capacity as Syndication Agent or Administrative Agent, as the case may be, in any way relating to or arising out of this Agreement or the other Loan Documents; provided that no Lender shall be liable for any portion of such liabilities, - -------- obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from any Agent's gross negligence or willful misconduct. If any indemnity furnished to any Agent for any purpose shall, in the opinion of such Agent, be insufficient or become impaired, such Agent may call for additional indemnity and cease, or not commence, to do the acts indemnified against until such additional indemnity is furnished. 9.5 SUCCESSOR ADMINISTRATIVE AGENT AND SWING LINE LENDER. ---------------------------------------------------- A. SUCCESSOR ADMINISTRATIVE AGENT. Administrative Agent may resign at any time by giving 30 days' prior written notice thereof to the other Agents, Lenders and Company. Upon any such notice of resignation of Administrative Agent, Requisite Lenders shall have the right, upon the consent of Company (which approval shall not be unreasonably withheld), to appoint a successor Administrative Agent; provided that in the event that Company withholds such -------- consent with respect to any successor Administrative Agent, such successor Administrative Agent may nevertheless be appointed as successor Administrative Agent by the Requisite Lenders if Company shall not have identified a successor Administrative Agent approved by the Requisite Lenders (which approval shall not be unreasonably withheld) within 60 days. Upon the acceptance of any appointment as 131 Administrative Agent hereunder by a successor Administrative Agent, that successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent and the retiring Administrative Agent shall be discharged from its duties and obligations under this Agreement. After any retiring Administrative Agent's resignation hereunder as Administrative Agent, the provisions of this Section 9 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent, under this Agreement. B. SUCCESSOR SWING LINE LENDER. Any resignation of Administrative Agent pursuant to subsection 9.5A shall also constitute the resignation of First Union or its successor as Swing Line Lender, and any successor Administrative Agent appointed pursuant to subsection 9.5A shall, upon its acceptance of such appointment, become the successor Swing Line Lender for all purposes hereunder. In such event (i) Company shall prepay any outstanding Swing Line Loans made by the retiring or removed Administrative Agent in its capacity as Swing Line Lender, (ii) upon such prepayment, the retiring Administrative Agent and Swing Line Lender shall surrender the Swing Line Note held by it to Company for cancellation, and (iii) Company shall issue a new Swing Line Note to the successor Administrative Agent and Swing Line Lender substantially in the form of Exhibit VI annexed hereto, in the principal amount of the Swing Line Loan ---------- Commitment then in effect and with other appropriate insertions. 9.6 COLLATERAL DOCUMENTS AND GUARANTIES. ----------------------------------- Each Lender hereby further authorizes Administrative Agent, on behalf of and for the benefit of Lenders, to enter into each Collateral Document as secured party and to be the agent for and representative of Lenders under the Subsidiary Guaranty, and each Lender agrees to be bound by the terms of each Collateral Document and the Subsidiary Guaranty; provided that Administrative -------- Agent shall not (i) enter into or consent to any material amendment, modification, termination or waiver of any provision contained in any Collateral Document or the Subsidiary Guaranty or (ii) release any Collateral (except as otherwise expressly permitted or required pursuant to the terms of this Agreement or the applicable Collateral Document), in each case without the prior consent of Requisite Lenders (or, if required pursuant to subsection 10.6, all Lenders); provided further, however, that, without further written consent or -------- ------- ------- authorization from Lenders, Administrative Agent may execute any documents or instruments necessary to (a) release any Lien encumbering any item of Collateral that is the subject of a sale or other disposition of assets permitted by this Agreement or to which Requisite Lenders have otherwise consented or (b) release any Subsidiary Guarantor from the Subsidiary Guaranty if all of the capital stock of such Subsidiary Guarantor is sold to any Person (other than an Affiliate of Company) pursuant to a sale or other disposition permitted hereunder or to which Requisite Lenders have otherwise consented. Anything contained in any of the Loan Documents to the contrary notwithstanding, Company, Agents and each Lender hereby agree that (X) no Lender shall have any right individually to realize upon any of 132 the Collateral under any Collateral Document or to enforce the Subsidiary Guaranty, it being understood and agreed that all powers, rights and remedies under the Collateral Documents and the Subsidiary Guaranty may be exercised solely by Administrative Agent for the benefit of Lenders in accordance with the terms thereof, and (Y) in the event of a foreclosure by Administrative Agent on any of the Collateral pursuant to a public or private sale, any Agent or any Lender may be the purchaser of any or all of such Collateral at any such sale and Administrative Agent, as agent for and representative of Lenders (but not any Lender or Lenders in its or their respective individual capacities unless Requisite Lenders shall otherwise agree in writing) shall be entitled, for the purpose of bidding and making settlement or payment of the purchase price for all or any portion of the Collateral sold at any such public sale, to use and apply any of the Obligations as a credit on account of the purchase price for any collateral payable by Administrative Agent at such sale. SECTION 10 MISCELLANEOUS 10.1 ASSIGNMENTS AND PARTICIPATIONS IN LOANS AND LETTERS OF CREDIT. ------------------------------------------------------------- A. GENERAL. Subject to subsection 10.1B, each Lender shall have the right at any time to (i) sell, assign or transfer to any Eligible Assignee, or (ii) sell participations to any Person in, all or any part of its Commitments or any Loan or Loans made by it or its Letters of Credit or participations therein or any other interest herein or in any other Obligations owed to it; provided -------- that no such sale, assignment, transfer or participation shall, without the consent of Company, require Company to file a registration statement with the Securities and Exchange Commission or apply to qualify such sale, assignment, transfer or participation under the securities laws of any state; provided, -------- further that no such sale, assignment or transfer described in clause (i) above - ------- shall be effective unless and until an Assignment Agreement effecting such sale, assignment or transfer shall have been accepted by Administrative Agent and recorded in the Register as provided in subsection 10.1B(ii); provided, further -------- ------- that no such sale, assignment, transfer or participation of any Letter of Credit or any participation therein may be made separately from a sale, assignment, transfer or participation of a corresponding interest in the Revolving Loan Commitment and the Revolving Loans of the Lender effecting such sale, assignment, transfer or participation; and provided, further that, anything -------- ------- contained herein to the contrary notwithstanding, the Swing Line Loan Commitment and the Swing Line Loans of Swing Line Lender may not be sold, assigned or transferred as described in clause (i) above to any Person other than a successor Administrative Agent and Swing Line Lender to the extent contemplated by subsection 9.5. Except as otherwise provided in this subsection 10.1, no Lender shall, as between Company and such Lender, be relieved of any of its obligations hereunder as a result of any sale, assignment or transfer of, or any granting of participations in, all or any part of its Commitments or the Loans, the Letters of Credit or participations therein, or the other Obligations owed to such Lender. 133 B. Assignments. (i) Amounts and Terms of Assignments. Each Commitment, Loan, Letter of -------------------------------- Credit or participation therein, or other Obligation may (a) be assigned in any amount to another Lender, or to an Affiliate of the assigning Lender or another Lender, with the giving of notice to Company and Administrative Agent or (b) be assigned in an aggregate amount of not less than $5,000,000 (or such lesser amount as shall constitute the aggregate amount of the Commitments, Loans, Letters of Credit and participations therein, and other Obligations of the assigning Lender) to any other Eligible Assignee with the consent of Company and Administrative Agent (which consent of Company and such Agents shall not be unreasonably withheld or delayed). To the extent of any such assignment in accordance with either clause (a) or (b) above, the assigning Lender shall be relieved of its obligations with respect to its Commitments, Loans, Letters of Credit or participations therein, or other Obligations or the portion thereof so assigned. The parties to each such assignment shall execute and deliver to Administrative Agent, for its acceptance and recording in the Register, an Assignment Agreement, together with a processing and recordation fee of $3,500 and such forms, certificates or other evidence, if any, with respect to United States federal income tax withholding matters as the assignee under such Assignment Agreement may be required to deliver to Administrative Agent pursuant to subsection 2.7B(iii)(a); provided, however, that Administrative Agent may -------- ------- waive such $3,500 recordation fee in connection with assignments between any Lender and any of their Affiliates or between any Lenders party to this Agreement as of the Closing Date. Upon such execution, delivery, acceptance and recordation, from and after the effective date specified in such Assignment Agreement, (y) the assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment Agreement, shall have the rights and obligations of a Lender hereunder and (z) the assigning Lender thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment Agreement, relinquish its rights (other than any rights which survive the termination of this Agreement under subsection 10.9B) and be released from its obligations under this Agreement (and, in the case of an Assignment Agreement covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto; provided that, anything contained in any of the Loan Documents to the -------- contrary notwithstanding, if such Lender is the Issuing Lender with respect to any outstanding Letters of Credit such Lender shall continue to have all rights and obligations of an Issuing Lender with respect to such Letters of Credit until the cancellation or expiration of such Letters of Credit and the reimbursement of any amounts drawn thereunder). The Commitments hereunder shall be modified to reflect the Commitment of such assignee and any remaining Commitment of such assigning Lender and, if any such assignment occurs after the issuance of the Notes hereunder, the assigning Lender shall, upon the effectiveness of such assignment or as promptly thereafter as 134 practicable, surrender its applicable Notes to Administrative Agent for cancellation, and thereupon new Notes shall be issued to the assignee and, if applicable, to the assigning Lender, substantially in the form of Exhibit IV or ---------- Exhibit V annexed hereto, as the case may be, with appropriate insertions, to - --------- reflect the new Commitments and/or outstanding Acquisition Term Loans, as the case may be, of the assignee and, if applicable, the assigning Lender. (ii) Acceptance by Administrative Agent; Recordation in Register. ----------------------------------------------------------- Upon its receipt of an Assignment Agreement executed by an assigning Lender and an assignee representing that it is an Eligible Assignee, together with the processing and recordation fee referred to in subsection 10.1B(i) and any forms, certificates or other evidence with respect to United States federal income tax withholding matters that such assignee may be required to deliver to Administrative Agent pursuant to subsection 2.7B(iii)(a), Administrative Agent shall, if Administrative Agent and Company have consented to the assignment evidenced thereby (in each case to the extent such consent is required pursuant to subsection 10.1B(i)), (a) accept such Assignment Agreement by executing a counterpart thereof as provided therein (which acceptance shall evidence any required consent of Administrative Agent to such assignment), (b) record the information contained therein in the Register, and (c) give prompt notice thereof to Company. Administrative Agent shall maintain a copy of each Assignment Agreement delivered to and accepted by it as provided in this subsection 10.1B(ii). C. PARTICIPATIONS. The holder of any participation, other than an Affiliate of the Lender granting such participation, shall not be entitled to require such Lender to take or omit to take any action hereunder except action directly affecting (i) the extension of the scheduled final maturity date of any Loan allocated to such participation or (ii) a reduction of the principal amount of or the rate of interest payable on any Loan allocated to such participation, and all amounts payable by Company hereunder (including amounts payable to such Lender pursuant to subsections 2.6D, 2.7 and 3.6) shall be determined as if such Lender had not sold such participation. Company and each Lender hereby acknowledge and agree that, solely for purposes of subsections 10.4 and 10.5, (a) any participation will give rise to a direct obligation of Company to the participant and (b) the participant shall be considered to be a "Lender". D. ASSIGNMENTS TO FEDERAL RESERVE BANKS. In addition to the assignments and participations permitted under the foregoing provisions of this subsection 10.1, any Lender may assign and pledge all or any portion of its Loans, the other Obligations owed to such Lender, and its Notes to any Federal Reserve Bank as collateral security pursuant to Regulation A of the Board of Governors of the Federal Reserve System and any operating circular issued by such Federal Reserve Bank; provided that (i) no Lender shall, as between Company and such -------- Lender, be relieved of any of its obligations hereunder as a result of any such assignment and pledge and (ii) in no event shall such Federal Reserve 135 Bank be considered to be a "Lender" or be entitled to require the assigning Lender to take or omit to take any action hereunder. E. INFORMATION. Each Lender may furnish any information concerning Company and its Subsidiaries in the possession of that Lender from time to time to assignees and participants (including prospective assignees and participants), subject to subsection 10.19. F. REPRESENTATIONS OF LENDERS. Each Lender listed on the signature pages hereof hereby represents and warrants (i) that it is an Eligible Assignee described in clause (A) of the definition thereof; (ii) that it has experience and expertise in the making of loans such as the Loans; and (iii) that it will make its Loans for its own account in the ordinary course of its business and without a view to distribution of such Loans within the meaning of the Securities Act or the Exchange Act or other federal securities laws (it being understood that, subject to the provisions of this subsection 10.1, the disposition of such Loans or any interests therein shall at all times remain within its exclusive control). Each Lender that becomes a party hereto pursuant to an Assignment Agreement shall be deemed to agree that the representations and warranties of such Lender contained in Section 2(c) of such Assignment Agreement are incorporated herein by this reference. 10.2 EXPENSES. -------- Whether or not the transactions contemplated hereby shall be consummated, Company agrees to pay promptly (i) all the actual and reasonable costs and expenses of preparation of the Loan Documents and any consents, amendments, waivers or other modifications thereto; (ii) all the costs of furnishing all opinions by counsel for Company (including any opinions requested by Lenders as to any legal matters arising hereunder) and of Company's performance of and compliance with all agreements and conditions on its part to be performed or complied with under this Agreement and the other Loan Documents including with respect to confirming compliance with environmental, insurance and solvency requirements; (iii) the reasonable fees, expenses and disbursements of counsel to Agents, CIBC WG and First Union CMC (including allocated costs of internal counsel) in connection with the negotiation, preparation, execution and administration of the Loan Documents and any consents, amendments, waivers or other modifications thereto and any other documents or matters requested by Company; (iv) all the actual costs and reasonable expenses of creating and perfecting Liens in favor of Administrative Agent on behalf of Lenders pursuant to any Collateral Document, including filing and recording fees, expenses and taxes, stamp or documentary taxes, search fees, title insurance premiums, and reasonable fees, expenses and disbursements of counsel to Agents, CIBC WG and First Union CMC and of counsel providing any opinions that Agents, CIBC WG, First Union CMC or Requisite Lenders may request in respect of the Collateral Documents or the Liens created pursuant thereto; (v) all the actual costs and reasonable expenses (including the reasonable fees, expenses and disbursements of any auditors, accountants or appraisers and any environmental or other consultants, advisors and agents employed or retained by 136 Agents, CIBC WG and First Union CMC or their respective counsel) of obtaining and reviewing any environmental audits or reports provided for under subsection 4.1K or 6.9(v); (vi) the custody or preservation of any of the Collateral; (vii) all other actual and reasonable costs and expenses incurred by Agents, CIBC WG and First Union CMC in connection with the syndication of the Commitments and the negotiation, preparation and execution of the Loan Documents and any consents, amendments, waivers or other modifications thereto and the transactions contemplated thereby; and (viii) after the occurrence of an Event of Default, all costs and expenses, including reasonable attorneys' fees (including allocated costs of internal counsel) and costs of settlement, incurred by Agents, CIBC WG, First Union CMC and Lenders in enforcing any Obligations of or in collecting any payments due from any Loan Party hereunder or under the other Loan Documents by reason of such Event of Default (including in connection with the sale of, collection from, or other realization upon any of the Collateral or the enforcement of the Subsidiary Guaranty) or in connection with any refinancing or restructuring of the credit arrangements provided under this Agreement in the nature of a "work-out" or pursuant to any insolvency or bankruptcy proceedings. 10.3 INDEMNITY. --------- In addition to the payment of expenses pursuant to subsection 10.2, whether or not the transactions contemplated hereby shall be consummated, Company agrees to defend (subject to Indemnitees' selection of counsel), indemnify, pay and hold harmless Agents, Lenders, CIBC WG and First Union CMC and the officers, directors, employees, agents and affiliates of Agents, Lenders, CIBC WG and First Union CMC (collectively called the "INDEMNITEES"), from and against any and all Indemnified Liabilities (as hereinafter defined); provided that Company shall not have any obligation to any Indemnitee hereunder - -------- with respect to any Indemnified Liabilities to the extent such Indemnified Liabilities arise solely from the gross negligence or willful misconduct of that Indemnitee as determined by a final judgment of a court of competent jurisdiction. As used herein, "INDEMNIFIED LIABILITIES" means, collectively, any and all liabilities, obligations, losses, damages (including natural resource damages), penalties, actions, judgments, suits, claims (including Environmental Claims), costs (including the costs of any investigation, study, sampling, testing, abatement, cleanup, removal, remediation or other response action necessary to remove, remediate, clean up or abate any Hazardous Materials Activity), expenses and disbursements of any kind or nature whatsoever (including the reasonable fees and disbursements of counsel for Indemnitees in connection with any investigative, administrative or judicial proceeding commenced or threatened by any Person, whether or not any such Indemnitee shall be designated as a party or a potential party thereto, and any fees or expenses incurred by Indemnitees in enforcing this indemnity), whether direct, indirect or consequential and whether based on any federal, state or foreign laws, statutes, rules or regulations (including securities and commercial laws, statutes, rules or regulations and Environmental Laws), on common law or equitable cause or on contract or otherwise, that may be imposed on, incurred by, or 137 asserted against any such Indemnitee, in any manner relating to or arising out of (i) this Agreement or the other Loan Documents or the Related Agreements or the transactions contemplated hereby or thereby (including Lenders' agreement to make the Loans hereunder or the use or intended use of the proceeds thereof or the issuance of Letters of Credit hereunder or the use or intended use of any thereof, or any enforcement of any of the Loan Documents (including any sale of, collection from, or other realization upon any of the Collateral or the enforcement of the Subsidiary Guaranty), (ii) the statements contained in the commitment letter delivered by any Lender to Company with respect thereto, or (iii) any Environmental Claim or any Hazardous Materials Activity relating to or arising from, directly or indirectly, any past or present activity, operation, land ownership, or practice of Company or any of its Subsidiaries. To the extent that the undertakings to defend, indemnify, pay and hold harmless set forth in this subsection 10.3 may be unenforceable in whole or in part because they are violative of any law or public policy, Company shall contribute the maximum portion that it is permitted to pay and satisfy under applicable law to the payment and satisfaction of all Indemnified Liabilities incurred by Indemnitees or any of them. 10.4 SET-OFF; SECURITY INTEREST IN DEPOSIT ACCOUNTS. ---------------------------------------------- In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, upon the occurrence of any Event of Default each Lender is hereby authorized by Company at any time or from time to time, without notice to Company or to any other Person, any such notice being hereby expressly waived, to set off and to appropriate and to apply any and all deposits (general or special, including Indebtedness evidenced by certificates of deposit, whether matured or unmatured, but not including trust accounts) and any other Indebtedness at any time held or owing by that Lender to or for the credit or the account of Company against and on account of the obligations and liabilities of Company to that Lender under this Agreement, the Letters of Credit and participations therein and the other Loan Documents, including all claims of any nature or description arising out of or connected with this Agreement, the Letters of Credit and participations therein or any other Loan Document, irrespective of whether or not (i) that Lender shall have made any demand hereunder or (ii) the principal of or the interest on the Loans or any amounts in respect of the Letters of Credit or any other amounts due hereunder shall have become due and payable pursuant to Section 8 and although said obligations and liabilities, or any of them, may be contingent or unmatured. Company hereby further grants to Administrative Agent and each Lender a security interest in all deposits and accounts maintained with Administrative Agent or such Lender as security for the Obligations. 138 10.5 RATABLE SHARING. --------------- Lenders hereby agree among themselves that if any of them shall, whether by voluntary payment (other than a voluntary prepayment of Loans made and applied in accordance with the terms of this Agreement), by realization upon security, through the exercise of any right of set-off or banker's lien, by counterclaim or cross action or by the enforcement of any right under the Loan Documents or otherwise, or as adequate protection of a deposit treated as cash collateral under the Bankruptcy Code, receive payment or reduction of a proportion of the aggregate amount of principal, interest, amounts payable in respect of Letters of Credit, fees and other amounts then due and owing to that Lender hereunder or under the other Loan Documents (collectively, the "AGGREGATE AMOUNTS DUE" to such Lender) which is greater than the proportion received by any other Lender in respect of the Aggregate Amounts Due to such other Lender, then the Lender receiving such proportionately greater payment shall (i) notify Administrative Agent and each other Lender of the receipt of such payment and (ii) apply a portion of such payment to purchase participations (which it shall be deemed to have purchased from each seller of a participation simultaneously upon the receipt by such seller of its portion of such payment) in the Aggregate Amounts Due to the other Lenders so that all such recoveries of Aggregate Amounts Due shall be shared by all Lenders in proportion to the Aggregate Amounts Due to them; provided that if all or part of such proportionately -------- greater payment received by such purchasing Lender is thereafter recovered from such Lender upon the bankruptcy or reorganization of Company or otherwise, those purchases shall be rescinded and the purchase prices paid for such participations shall be returned to such purchasing Lender ratably to the extent of such recovery, but without interest. Company expressly consents to the foregoing arrangement and agrees that any holder of a participation so purchased may exercise any and all rights of banker's lien, set-off or counterclaim with respect to any and all monies owing by Company to that holder with respect thereto as fully as if that holder were owed the amount of the participation held by that holder. 10.6 AMENDMENTS AND WAIVERS. ---------------------- No amendment, modification, termination or waiver of any provision of this Agreement or of the Notes, or consent to any departure by Company therefrom, shall in any event be effective without the written concurrence of Requisite Lenders; provided that no such amendment, modification, termination, -------- waiver or consent shall, without the consent of each Lender (with Obligations directly affected in the case of the following clause (i)): (i) extend the scheduled final maturity of any Loan or Note, or extend the stated expiration date of any Letter of Credit beyond the Revolving Loan Commitment Termination Date, or reduce the rate of interest (other than any waiver of any increase in the interest rate applicable to any of the Loans pursuant to subsection 2.2E) or fees thereon, or extend the time of payment of interest, principal or fees thereon, or reduce the principal amount thereof, (ii) release a material portion of the Collateral, release all or substantially all of the Loan Parties that are party to the Subsidiary Guaranty from the 139 Subsidiary Guaranty except as expressly provided in the Loan Documents, (iii) amend, modify, terminate or waive any provision of this subsection 10.6, (iv) reduce the percentage specified in the definition of Requisite Lenders (it being understood that, with the consent of the Requisite Lenders, additional extensions of credit pursuant to this Agreement may be included in the determination of the Requisite Lenders on substantially the same basis as the Acquisition Term Loan Commitment or the Revolving Loan Commitments are included), (v) amend, modify or waive any provision of subsection 2.4B(iii)(d) or (vi) consent to the assignment or transfer by Company of any of its respective rights and obligations under this Agreement; provided further that no -------- ------- such amendment, modification, terminatin or waiver shall (1) increase the Commitments of any Lender over the amount thereof then in effect without the consent of such Lender (it being understood that amendments, modifications or waivers of conditions precedent, covenants, Potential Events of Default or Events of Default or of a mandatory reduction in the Commitments shall not constitute an increase of the Commitment of any Lender, and that an increase in the available portion of any Commitment of any Lender shall not constitute an increase in the Commitment of such Lender), (2) no amendment, modification, termination or waiver of any provision of subsection 2.1A(iii) or any other provision of this Agreement relating to the Swing Line Loan Commitment or the Swing Line Loans shall be effective without the written concurrence of Swing Line Lender, (3) no amendment, modification, termination or waiver relating to the obligations of Lenders relating to the purchase or participation in Letters of Credit shall be effective without the written concurrence of each Issuing Lender having a Letter of Credit then outstanding or which has not been reimbursed for a drawing under a Letter of Credit issued by it and of Administrative Agent, and (4) no amendment, modification, termination or waiver of any provision of Section 9 or of any provision of this Agreement which, by its terms, expressly requires the approval or concurrence of any Agent shall be effective without the written concurrence of such Agent. Administrative Agent may, but shall have no obligation to, with the concurrence of any Lender, execute amendments, modifications, waivers or consents on behalf of that Lender. Any waiver or consent shall be effective only in the specific instance and for the specific purpose for which it was given. No notice to or demand on Company in any case shall entitle Company to any other or further notice or demand in similar or other circumstances. Any amendment, modification, termination, waiver or consent effected in accordance with this subsection 10.6 shall be binding upon each Lender at the time outstanding, each future Lender and, if signed by Company, on Company. 10.7 INDEPENDENCE OF COVENANTS. ------------------------- All covenants hereunder shall be given independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or would otherwise be within the limitations of, another covenant shall not avoid the occurrence of an Event of Default or Potential Event of Default if such action is taken or condition exists. 140 10.8 NOTICES. ------- Unless otherwise specifically provided herein, any notice or other communication herein required or permitted to be given shall be in writing and may be personally served, telexed or sent by telefacsimile or United States mail or courier service and shall be deemed to have been given when delivered in person or by courier service, upon receipt of telefacsimile or telex, or three Business Days after depositing it in the United States mail with postage prepaid and properly addressed; provided that notices to Agents shall not be effective -------- until received. For the purposes hereof, the address of each party hereto shall be as set forth under such party's name on the signature pages hereof or (i) as to Company and Agents, such other address as shall be designated by such Person in a written notice delivered to the other parties hereto and (ii) as to each other party, such other address as shall be designated by such party in a written notice delivered to Administrative Agent. 10.9 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. ------------------------------------------------------ A. All representations, warranties and agreements made herein shall survive the execution and delivery of this Agreement and the making of the Loans and the issuance of the Letters of Credit hereunder. B. Notwithstanding anything in this Agreement or implied by law to the contrary, the agreements of Company set forth in subsections 2.6D, 2.7, 3.5A, 3.6, 10.2, 10.3 and 10.4 and the agreements of Lenders set forth in subsections 9.2C, 9.4 and 10.5 shall survive the payment of the Loans, the cancellation or expiration of the Letters of Credit and the reimbursement of any amounts drawn thereunder, and the termination of this Agreement. 10.10 FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE. ----------------------------------------------------- No failure or delay on the part of any Agent, any Lender, CIBC WG and/or First Union CMC in the exercise of any power, right or privilege hereunder or under any other Loan Document shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other power, right or privilege. All rights and remedies existing under this Agreement and the other Loan Documents are cumulative to, and not exclusive of, any rights or remedies otherwise available. 10.11 MARSHALLING; PAYMENTS SET ASIDE. ------------------------------- None of Agents nor any Lender shall be under any obligation to marshal any assets in favor of Company or any other party or against or in payment of any or all of the Obligations. To the extent that Company makes a payment or payments to any Agent or 141 Lenders (or to any Agent for the benefit of Lenders), or any Agent or Lenders enforce any security interests or exercise their rights of setoff, and such payment or payments or the proceeds of such enforcement or setoff or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, any other state or federal law, common law or any equitable cause, then, to the extent of such recovery, the obligation or part thereof originally intended to be satisfied, and all Liens, rights and remedies therefor or related thereto, shall be revived and continued in full force and effect as if such payment or payments had not been made or such enforcement or setoff had not occurred. 10.12 SEVERABILITY. ------------ In case any provision in or obligation under this Agreement or the Notes shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. 10.13 OBLIGATIONS SEVERAL; INDEPENDENT NATURE OF LENDERS' RIGHTS. ---------------------------------------------------------- The obligations of Lenders hereunder are several and no Lender shall be responsible for the obligations or Commitments of any other Lender hereunder. Nothing contained herein or in any other Loan Document, and no action taken by Lenders pursuant hereto or thereto, shall be deemed to constitute Lenders as a partnership, an association, a joint venture or any other kind of entity. The amounts payable at any time hereunder to each Lender shall be a separate and independent debt, and each Lender shall be entitled to protect and enforce its rights arising out of this Agreement and it shall not be necessary for any other Lender to be joined as an additional party in any proceeding for such purpose. 10.14 HEADINGS. -------- Section and subsection headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose or be given any substantive effect. 10.15 APPLICABLE LAW. -------------- THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES. 142 10.16 SUCCESSORS AND ASSIGNS. ---------------------- This Agreement shall be binding upon the parties hereto and their respective successors and assigns and shall inure to the benefit of the parties hereto and the successors and assigns of Lenders (it being understood that Lenders' rights of assignment are subject to subsection 10.1). Neither Company's rights or obligations hereunder nor any interest therein may be assigned or delegated by Company without the prior written consent of all Lenders. 10.17 CONSENT TO JURISDICTION AND SERVICE OF PROCESS. ---------------------------------------------- ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST COMPANY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY OBLIGATIONS THEREUNDER, MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK. BY EXECUTING AND DELIVERING THIS AGREEMENT, COMPANY, FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, IRREVOCABLY (I) ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE JURISDICTION AND VENUE OF SUCH COURTS; (II) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS; (III) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO COMPANY AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH SUBSECTION 10.8; (IV) AGREES THAT SERVICE AS PROVIDED IN CLAUSE (III) ABOVE IS SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER COMPANY IN ANY SUCH PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT; (V) AGREES THAT LENDERS RETAIN THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST COMPANY IN THE COURTS OF ANY OTHER JURISDICTION; AND (VI) AGREES THAT THE PROVISIONS OF THIS SUBSECTION 10.17 RELATING TO JURISDICTION AND VENUE SHALL BE BINDING AND ENFORCEABLE TO THE FULLEST EXTENT PERMISSIBLE UNDER 143 NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1402 OR OTHERWISE. 10.18 WAIVER OF JURY TRIAL. -------------------- EACH OF THE PARTIES TO THIS AGREEMENT HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS LOAN TRANSACTION OR THE LENDER/BORROWER RELATIONSHIP THAT IS BEING ESTABLISHED. The scope of this waiver is intended to be all-encompassing of any and all disputes that may be filed in any court and that relate to the subject matter of this transaction, including contract claims, tort claims, breach of duty claims and all other common law and statutory claims. Each party hereto acknowledges that this waiver is a material inducement to enter into a business relationship, that each has already relied on this waiver in entering into this Agreement, and that each will continue to rely on this waiver in their related future dealings. Each party hereto further warrants and represents that it has reviewed this waiver with its legal counsel and that it knowingly and voluntarily waives its jury trial rights following consultation with legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY REFERRING TO THIS SUBSECTION 10.18 AND EXECUTED BY EACH OF THE PARTIES HERETO), AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE LOANS MADE HEREUNDER. In the event of litigation, this Agreement may be filed as a written consent to a trial by the court. 10.19 CONFIDENTIALITY. --------------- Each Lender shall hold all non-public information obtained pursuant to the requirements of this Agreement which has been identified as confidential by Company in accordance with such Lender's customary procedures for handling confidential information of this nature and in accordance with safe and sound banking practices, it being understood and agreed by Company that in any event a Lender may make disclosures to Affiliates of such Lender or disclosures reasonably required by any bona fide assignee, transferee or participant or any proposed assignee, transferee or participant in connection with the contemplated assignment or transfer by such Lender of any Loans or any participations therein (so long as such proposed assignee, transferee or participant agrees to hold all non-public information obtained from such Lender and which has been identified as confidential by Company in accordance with such Person's customary procedures for handling confidential information of this nature and in accordance with safe and sound 144 banking practices) or disclosures required or requested by any governmental agency or representative thereof or pursuant to legal process; provided that, ------- unless specifically prohibited by applicable law or court order, each Lender shall notify Company of any request by any governmental agency or representative thereof (other than any such request in connection with any examination of the financial condition of such Lender by such governmental agency) for disclosure of any such non-public information prior to disclosure of such information; and provided, further that in no event shall any Lender be obligated or required to - -------- ------- return any materials furnished by Company or any of its Subsidiaries. 10.20 COUNTERPARTS; EFFECTIVENESS. --------------------------- This Agreement and any amendments, waivers, consents or supplements hereto or in connection herewith may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. This Agreement shall become effective upon the execution of a counterpart hereof by each of the parties hereto and receipt by Company and Agents of written or telephonic notification of such execution and authorization of delivery thereof. [Remainder of page intentionally left blank] 145 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above. COMPANY: THE PANTRY, INC. By: /s/ WILLIAM T. FLYG -------------------------------- Title: Senior Vice President, Finance and Chief Financial Officer ------------------------------- Notice Address: 1801 Douglas Drive ------------------------------ Post Office Box 1410 ------------------------------ Sanford, NC 27330 ------------------------------ Attention: Corporate Secretary ------------------------------ Telephone: 919-774-6700 Telecopy: 919-774-3329 ------------------------------ S-1 LENDERS: FIRST UNION NATIONAL BANK, individually and as Administrative Agent By: /s/ MARK FELKER --------------------------------- Title: Sr. V.P. ------------------------------ Notice Address: Leveraged Finance Division ------------------------------ First Union Center ------------------------------ 301 South College Street DC-5 ------------------------------ Charlotte, NC 28288 ------------------------------ Attention: Mark Felker ------------------------------ Telephone: 704-374-7074 Telecopy: 704-374-3300 ------------------------------ S-2 CANADIAN IMPERIAL BANK OF COMMERCE, individually and as Syndication Agent By: /s/ -------------------------------- Title: Authorized Signatory ----------------------------- Notice Address: ____________________________ ____________________________ ____________________________ ____________________________ S-3 AMSOUTH BANK ------------------------------ By: /s/ ALAN LOTT -------------------------------- Title: Vice President ----------------------------- Notice Address: 1900 5th Avenue North ---------------------------- 7th Floor ---------------------------- Birmingham, AL 35203 ---------------------------- Attention: Alan Lott ---------------------------- Telephone: 205-583-4474 Telecopy: 205-583-4436 ---------------------------- S-4 BHF-BANK AKTIENGESELLSCHAFT ----------------------------------- By: /s/ -------------------------------- Title: VP ----------------------------- By: /s/ -------------------------------- Title: Assistant Vice President ----------------------------- Notice Address: 590 Madison Avenue ---------------------------- New York, NY 10022-2540 ---------------------------- Attention: Renate Boston ---------------------------- Telephone: 212-756-5543 Telecopy: 212-756-5536 ---------------------------- CREDIT LYONNAIS NEW YORK BRANCH ----------------------------------- By: /s/ MARK KONEVAL -------------------------------- Title: VP ----------------------------- Notice Address: 1301 Avenue of the Americas ---------------------------- 12th Floor ---------------------------- New York, NY 10019-6022 ---------------------------- Attention: Mark Koneval ---------------------------- Telephone: 212-261-7867 Telecopy: 212-459-3176 ---------------------------- ROYAL BANK OF CANADA ----------------------------------- By: /s/ STEVEN YOON -------------------------------- Title: Senior Manager ----------------------------- Notice Address: Financial Square ---------------------------- 32 Old Slip ---------------------------- 23rd Floor ---------------------------- New York, NY 10005-3521 ---------------------------- Attention: Steven Yoon ---------------------------- Telephone: 212-428-6429 Telecopy: 212-428-2319 ---------------------------- S-8 EX-10.14 24 COMPANY SECURITY AGREEMENT EXHIBIT 10.14 COMPANY SECURITY AGREEMENT This COMPANY SECURITY AGREEMENT (this "AGREEMENT") is dated as of October 23, 1997 and entered into by and between THE PANTRY, INC., a Delaware corporation ("GRANTOR"), and FIRST UNION NATIONAL BANK, as administrative agent for and representative of (in such capacity herein called "SECURED PARTY") the financial institutions ("LENDERS") party to the Credit Agreement referred to below and any Interest Rate Exchangers (as hereinafter defined). PRELIMINARY STATEMENTS A. Secured Party, Syndication Agent and Lenders have entered into a Credit Agreement dated as of October 23, 1997 (said Credit Agreement, as it may hereafter be amended, supplemented or otherwise modified from time to time, being the "CREDIT AGREEMENT", the terms defined therein and not otherwise defined herein being used herein as therein defined) with Grantor pursuant to which Lenders have made certain commitments, subject to the terms and conditions set forth in the Credit Agreement, to extend certain credit facilities to Grantor. B. Grantor may from time to time enter into one or more Interest Rate Agreements (collectively, the "LENDER INTEREST RATE AGREEMENTS") with one or more Lenders (in such capacity, collectively, "INTEREST RATE EXCHANGERS") in accordance with the terms of the Credit Agreement, and it is desired that the obligations of Grantor under the Lender Interest Rate Agreements, including the obligation of Grantor to make payments thereunder in the event of early termination thereof, together with all obligations of Grantor under the Credit Agreement and the other Loan Documents, be secured hereunder. C. It is a condition precedent to the initial extensions of credit by Lenders under the Credit Agreement that Grantor shall have granted the security interests and undertaken the obligations contemplated by this Agreement. NOW, THEREFORE, in consideration of the premises and in order to induce Lenders to make Loans and other extensions of credit under the Credit Agreement and to induce Interest Rate Exchangers to enter into the Lender Interest Rate Agreements, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Grantor hereby agrees with Secured Party as follows: SECTION 1. GRANT OF SECURITY. Grantor hereby grants to Secured Party ----------------- a security interest in, all of Grantor's right, title and interest in and to the following, in each case whether now or hereafter existing or in which Grantor now has or 1 hereafter acquires an interest and wherever the same may be located (the "COLLATERAL"): (a) all equipment in all of its forms, all parts thereof and all accessions thereto (any and all such equipment, parts and accessions being the "EQUIPMENT"); (b) all inventory in all of its forms (including (i) all goods held by Grantor for sale or lease or to be furnished under contracts of service or so leased or furnished, (ii) all raw materials, work in process, finished goods, and materials used or consumed in the manufacture, packing, shipping, advertising, selling, leasing, furnishing or production of such inventory or otherwise used or consumed in Grantor's business, (iii) all goods in which Grantor has an interest in mass or a joint or other interest or right of any kind, (iv) all goods which are returned to or repossessed by Grantor, and (v) all accessions thereto and products thereof (all such inventory, accessions and products being the "INVENTORY") and all negotiable documents of title (including warehouse receipts, dock receipts and bills of lading) issued by any Person covering any Inventory (any such negotiable document of title being a "NEGOTIABLE DOCUMENT OF TITLE"); (c) all accounts, contract rights, chattel paper, documents, instruments, general intangibles and other rights and obligations of any kind and all rights in, to and under all security agreements, leases and other contracts securing or otherwise relating to any such accounts, contract rights, chattel paper, documents, instruments, general intangibles or other obligations (any and all such accounts, contract rights, chattel paper, documents, instruments, general intangibles and other obligations being the "ACCOUNTS", and any and all such security agreements, leases and other contracts being the "RELATED CONTRACTS"); (d) the agreements listed in Part A of Schedule II annexed hereto, as ----------- each such agreement may be amended, supplemented or otherwise modified from time to time (said agreements, as so amended, supplemented or otherwise modified, being referred to herein individually as an "ASSIGNED AGREEMENT" and collectively as the "ASSIGNED AGREEMENTS"), including (i) all rights of Grantor to receive moneys due or to become due under or pursuant to the Assigned Agreements, (ii) all rights of Grantor to receive proceeds of any insurance, indemnity, warranty or guaranty with respect to the Assigned Agreements, (iii) all claims of Grantor for damages arising out of any breach of or default under the Assigned Agreements, and (iv) all rights of Grantor to terminate, amend, supplement, modify or exercise rights or options under the Assigned Agreements, to perform thereunder and to compel performance and otherwise exercise all remedies thereunder; 2 (e) all deposit accounts, including the deposit accounts listed on part B of Schedule II annexed hereto and all other deposit accounts maintained with ------------ Secured Party; (f) all trademarks, tradenames, tradesecrets, business names, patents, patent applications, licenses, copyrights, registrations and franchise rights, and all goodwill associated with any of the foregoing; (g) to the extent not included in any other paragraph of this Section 1, all other general intangibles (including tax refunds, rights to payment or performance, choses in action and judgments taken on any rights or claims included in the Collateral); (h) all plant fixtures, business fixtures and other fixtures and storage and office facilities, and all accessions thereto and products thereof; (i) all books, records, ledger cards, files, correspondence, computer programs, tapes, disks and related data processing software that at any time evidence or contain information relating to any of the Collateral or are otherwise necessary or helpful in the collection thereof or realization thereupon; and (j) all proceeds, products, rents and profits of or from any and all of the foregoing Collateral and, to the extent not otherwise included, all payments under insurance (whether or not Secured Party is the loss payee thereof), or any indemnity, warranty or guaranty, payable by reason of loss or damage to or otherwise with respect to any of the foregoing Collateral. For purposes of this Agreement, the term "PROCEEDS" includes whatever is receivable or received when Collateral or proceeds are sold, exchanged, collected or otherwise disposed of, whether such disposition is voluntary or involuntary. Notwithstanding the foregoing, nothing in this Section 1 or otherwise in this Agreement shall constitute a grant by Grantor of a security interest in any contract, document, instrument, general intangible, lease, license or other right of any kind to the extent such a grant of a security interest would, after giving effect to the provisions of subsection 9-318 of the Uniform Commercial Code for the relevant jurisdiction, constitute a breach or violation of any term thereof. SECTION 2. SECURITY FOR OBLIGATIONS. This Agreement secures, and the ------------------------ Collateral is collateral security for, the prompt payment or performance in full when due, whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise (including the payment of amounts that would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. (S)362(a)), of all obligations and liabilities of every nature of Grantor now or hereafter existing under or arising out of or in connection with 3 the Credit Agreement and the other Loan Documents and the Lender Interest Rate Agreements and all extensions or renewals thereof, whether for principal, interest (including interest that, but for the filing of a petition in bankruptcy with respect to Grantor, would accrue on such obligations), reimbursement of amounts drawn under Letters of Credit, payments for early termination of Lender Interest Rate Agreements, fees, expenses, indemnities or otherwise, whether voluntary or involuntary, direct or indirect, absolute or contingent, liquidated or unliquidated, whether or not jointly owed with others, and whether or not from time to time decreased or extinguished and later increased, created or incurred, and all or any portion of such obligations or liabilities that are paid, to the extent all or any part of such payment is avoided or recovered directly or indirectly from Secured Party, Syndication Agent or any Lender or Interest Rate Exchanger as a preference, fraudulent transfer or otherwise and all obligations of every nature of Grantor now or hereafter existing under this Agreement (all such obligations of Grantor being the "SECURED OBLIGATIONS"). SECTION 3. GRANTOR REMAINS LIABLE. Anything contained herein to the ---------------------- contrary notwithstanding, (a) Grantor shall remain liable under any contracts and agreements included in the Collateral, to the extent set forth therein, to perform all of its duties and obligations thereunder to the same extent as if this Agreement had not been executed, (b) the exercise by Secured Party of any of its rights hereunder shall not release Grantor from any of its duties or obligations under the contracts and agreements included in the Collateral, and (c) Secured Party shall not have any obligation or liability under any contracts and agreements included in the Collateral by reason of this Agreement, nor shall Secured Party be obligated to perform any of the obligations or duties of Grantor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder. SECTION 4. REPRESENTATIONS AND WARRANTIES. Grantor represents and ------------------------------ warrants as follows: (a) Ownership of Collateral. Except for the security interest created ----------------------- by this Agreement or any other Collateral Document, Grantor owns the Collateral free and clear of any Lien except for Permitted Encumbrances and Liens permitted under subsections 7.2A(iv) and (v) of the Credit Agreement (with regard to the Liens permitted under subsections 7.2A(iv) and (v) of the Credit Agreement, only to the extent such Liens relate to the specific property subject to such Liens). (b) Location of Equipment and Inventory. All of the Equipment and ----------------------------------- Inventory is, as of the date hereof, located in one of the states (and counties thereof) specified in Schedule I annexed hereto. ---------- (c) Negotiable Documents of Title. No Negotiable Documents of Title ----------------------------- are outstanding with respect to any of the 4 Inventory (other than in respect of (i) Inventory with an aggregate value not in excess of $500,000 or (ii) Inventory which, in the ordinary course of business, is in transit either (A) from a supplier to Grantor, (B) between Grantor's retail locations, or (C) to customers of Grantor). (d) Office Locations; Other Names. The chief place of business, the ----------------------------- chief executive office and the office where Grantor keeps its records regarding the Accounts and all originals of all chattel paper that evidence Accounts is, and has been for the four month period preceding the date hereof, located at the location(s) specified in Schedule I. Grantor has not in the past five years ---------- done, and does not now do, business under any other name (including any trade- name or fictitious business name), except as described in Schedule I. ---------- (e) Delivery of Certain Collateral. All notes and other instruments ------------------------------ (excluding checks) comprising any and all items of Collateral have been delivered to Secured Party duly endorsed and accompanied by duly executed instruments of transfer or assignment in blank. SECTION 5. FURTHER ASSURANCES. ------------------ (a) Grantor agrees that from time to time, at the expense of Grantor, Grantor will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable, or that Secured Party may request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable Secured Party to exercise and enforce its rights and remedies hereunder with respect to any Collateral. Without limiting the generality of the foregoing, Grantor will: (i) mark conspicuously each item of chattel paper included in the Accounts, each Related Contract and, at the request of Secured Party, each of its records pertaining to the Collateral, with a legend, in form and substance satisfactory to Secured Party, indicating that such Collateral is subject to the security interest granted hereby, (ii) at the request of Secured Party, deliver and pledge to Secured Party hereunder all promissory notes and other instruments (including checks) and all original counterparts of chattel paper constituting Collateral, duly endorsed and accompanied by duly executed instruments of transfer or assignment, all in form and substance satisfactory to Secured Party, (iii) execute and file such financing or continuation statements, or amendments thereto, and such other instruments or notices, as may be necessary or desirable, or as Secured Party may request, in order to perfect and preserve the security interests granted or purported to be granted hereby, (iv) upon the request of Secured Party, promptly after the acquisition by Grantor of any item of Equipment which is covered by a certificate of title under a statute of any jurisdiction under the law of which indication of a security interest on such certificate is required as a condition of perfection thereof, execute and file with the registrar of motor vehicles or other 5 appropriate authority in such jurisdiction an application or other document requesting the notation or other indication of the security interest created hereunder on such certificate of title, (v) upon the request of Secured Party, within 30 days after the end of each calendar quarter, deliver to Administrative Agent copies of all such applications or other documents filed during such calendar quarter and copies of all such certificates of title issued during such calendar quarter indicating the security interest created hereunder in the items of Equipment covered thereby, (vi) at any reasonable time, upon request by Secured Party, exhibit the Collateral to and allow inspection of the Collateral by Secured Party, or persons designated by Secured Party, and (vii) at Secured Party's request, appear in and defend any action or proceeding that may affect Grantor's title to or Secured Party's security interest in all or any part of the Collateral. (b) Grantor hereby authorizes Secured Party to file one or more financing or continuation statements, and amendments thereto, relative to all or any part of the Collateral without the signature of Grantor. Grantor agrees that a carbon, photographic or other reproduction of this Agreement or of a financing statement signed by Grantor shall be sufficient as a financing statement and may be filed as a financing statement in any and all jurisdictions. (c) Grantor will furnish to Secured Party from time to time statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as Secured Party may reasonably request, all in reasonable detail. SECTION 6. CERTAIN COVENANTS OF GRANTOR. Grantor shall: ---------------------------- (a) not use or permit any Collateral to be used unlawfully or in violation of any provision of this Agreement or any applicable statute, regulation or ordinance or any policy of insurance covering the Collateral; (b) notify Secured Party of any change in Grantor's name, identity or corporate structure within 15 days of such change; (c) give Secured Party 30 days' prior written notice of any change in Grantor's chief place of business, chief executive office or residence or the office where Grantor keeps its records regarding the Accounts and all originals of all chattel paper that evidence Accounts; (d) if Secured Party gives value to enable Grantor to acquire rights in or the use of any Collateral, use such value for such purposes; and 6 (e) pay promptly when due all property and other taxes, assessments and governmental charges or levies imposed upon, and all claims (including claims for labor, materials and supplies) against, the Collateral, except to the extent the validity thereof is being contested in good faith; provided that Grantor -------- shall in any event pay such taxes, assessments, charges, levies or claims not later than five days prior to the date of any proposed sale under any judgement, writ or warrant of attachment entered or filed against Grantor or any of the Collateral as a result of the failure to make such payment. SECTION 7. SPECIAL COVENANTS WITH RESPECT TO EQUIPMENT AND INVENTORY. --------------------------------------------------------- Grantor shall: (a) keep the Equipment and Inventory in the jurisdictions specified on Schedule I annexed hereto or, upon 30 days' prior written notice to Secured - ---------- Party, at such other places in jurisdictions where all action that may be necessary in order to perfect and protect any security interest granted or purported to be granted hereby, or to enable Secured Party to exercise and enforce its rights and remedies hereunder, with respect to such Equipment and Inventory shall have been taken; (b) cause the Equipment to be maintained and preserved in the same condition, repair and working order as when new, ordinary wear and tear excepted, and in accordance with Grantor's past practices. Grantor shall promptly furnish to Secured Party a statement respecting any material loss or damage to any of the Equipment; (c) keep correct and accurate records of the Inventory, itemizing and describing the kind, type and quantity of Inventory, Grantor's cost therefor and (where applicable) the current list prices for the Inventory; (d) if any Inventory is in possession or control of any of Grantor's agents or processors, if the aggregate book value of all such Inventory exceeds $500,000, and in any event upon the occurrence of an Event of Default (as defined in the Credit Agreement), instruct such agent or processor to hold all such Inventory for the account of Secured Party and subject to the instructions of Secured Party; and (e) promptly upon the issuance and delivery to Grantor of any Negotiable Document of Title (other than any one or more Negotiable Documents of Title covering (i) Inventory with an aggregate value not in excess of $500,000 or (ii) Inventory which, in the ordinary course of business, is in transit either (A) from a supplier to Grantor, (B) between Grantor's retail locations, or (C) to customers of Grantor), deliver such Negotiable Document of Title to Secured Party. SECTION 8. INSURANCE. Grantor shall, at its own expense, maintain --------- insurance with respect to the Equipment and Inventory in accordance with the terms of the Credit Agreement. 7 SECTION 9. SPECIAL COVENANTS WITH RESPECT TO ACCOUNTS AND RELATED ------------------------------------------------------ CONTRACTS. - --------- (a) Grantor shall keep its chief place of business and chief executive office and the office where it keeps its records concerning the Accounts and Related Contracts, and all originals of all chattel paper that evidence Accounts, at the location therefor specified in Section 4 or, upon 30 days' prior written notice to Secured Party, at such other location in a jurisdiction where all action that may be necessary or desirable, or that Secured Party may request, in order to perfect and protect any security interest granted or purported to be granted hereby, or to enable Secured Party to exercise and enforce its rights and remedies hereunder, with respect to such Accounts and Related Contracts shall have been taken. Grantor will hold and preserve such records and chattel paper and will permit representatives of Secured Party at any time during normal business hours to inspect and make abstracts from such records and chattel paper, and Grantor agrees to render to Secured Party, at Grantor's cost and expense, such clerical and other assistance as may be reasonably requested with regard thereto. Promptly upon the request of Secured Party, Grantor shall deliver to Secured Party complete and correct copies of each Related Contract. (b) Grantor shall, for not less than 5 years from the date on which such Account arose, maintain (i) complete records of each Account, including records of all payments received, credits granted and merchandise returned, and (ii) all documentation relating thereto. (c) Except as otherwise provided in this subsection (c), Grantor shall continue to collect, at its own expense, all amounts due or to become due to Grantor under the Accounts and Related Contracts. In connection with such collections, Grantor may take (and, at Secured Party's direction, shall take) such action as Grantor or Secured Party may deem necessary or advisable to enforce collection of amounts due or to become due under the Accounts; provided, -------- however, that Secured Party shall have the right at any time, upon the - ------- occurrence and during the continuation of an Event of Default and upon written notice to Grantor of its intention to do so, to notify the account debtors or obligors under any Accounts of the assignment of such Accounts to Secured Party and to direct such account debtors or obligors to make payment of all amounts due or to become due to Grantor thereunder directly to Secured Party, to notify each Person maintaining a lockbox or similar arrangement to which account debtors or obligors under any Accounts have been directed to make payment to remit all amounts representing collections on checks and other payment items from time to time sent to or deposited in such lockbox or other arrangement directly to Secured Party and, upon such notification and at the expense of Grantor, to enforce collection of any such Accounts and to adjust, settle or compromise the amount or payment thereof, in the same manner and to the same extent as Grantor might have done. After receipt by Grantor of the notice from 8 Secured Party referred to in the proviso to the preceding sentence, (i) all ------- amounts and proceeds (including checks and other instruments) received by Grantor in respect of the Accounts and the Related Contracts shall be received in trust for the benefit of Secured Party hereunder, shall be segregated from other funds of Grantor and shall be forthwith paid over or delivered to Secured Party in the same form as so received (with any necessary endorsement) to be held as cash Collateral and applied as provided by Section 18, and (ii) Grantor shall not adjust, settle or compromise the amount or payment of any Account, or release wholly or partly any account debtor or obligor thereof, or allow any credit or discount thereon. SECTION 10. SPECIAL PROVISIONS WITH RESPECT TO THE ASSIGNED ----------------------------------------------- AGREEMENTS. (a) Grantor shall at its expense: (i) perform and observe all terms and provisions of the Assigned Agreements to be performed or observed by it, maintain the Assigned Agreements in full force and effect, enforce the Assigned Agreements in accordance with their terms, and take all such action to such end as may be from time to time requested by Secured Party; and (ii) furnish to Secured Party, promptly upon receipt thereof, copies of all notices, requests and other documents received by Grantor under or pursuant to the Assigned Agreements, and from time to time (A) furnish to Secured Party such information and reports regarding the Assigned Agreements as Secured Party may reasonably request and (B) upon request of Secured Party make such demands and requests for information and reports or for action as Grantor is entitled to make under the Assigned Agreements. (b) Grantor shall not: (i) cancel or terminate any of the Assigned Agreements or consent to or accept any cancellation or termination thereof; (ii) amend or otherwise modify the Assigned Agreements or give any consent, waiver or approval thereunder; (iii) waive any default under or breach of the Assigned Agreements; (iv) consent to or permit or accept any prepayment of amounts to become due under or in connection with the Assigned Agreements, except as expressly provided therein; or (v) take any other action in connection with the Assigned Agreements that would impair the value of the 9 interest or rights of Grantor thereunder or that would impair the interest or rights of Secured Party. SECTION 11. DEPOSIT ACCOUNTS. Upon the occurrence and during the ---------------- continuation of an Event of Default, Secured Party may exercise dominion and control over, and refuse to permit further withdrawals (whether of money, securities, instruments or other property) from any deposit accounts maintained with Secured Party constituting part of the Collateral. SECTION 12. LICENSE OF PATENTS, TRADEMARKS, COPYRIGHTS, ETC. Grantor ----------------------------------------------- hereby assigns, transfers and conveys to Secured Party, effective upon the occurrence of any Event of Default, the nonexclusive right and license to use all trademarks, tradenames, copyrights, patents or technical processes owned or used by Grantor that relate to the Collateral and any other collateral granted by Grantor as security for the Secured Obligations, together with any goodwill associated therewith, all to the extent necessary to enable Secured Party to use, possess and realize on the Collateral and to enable any successor or assign to enjoy the benefits of the Collateral. This right and license shall inure to the benefit of all successors, assigns and transferees of Secured Party and its successors, assigns and transferees, whether by voluntary conveyance, operation of law, assignment, transfer, foreclosure, deed in lieu of foreclosure or otherwise. Such right and license is granted free of charge, without requirement that any monetary payment whatsoever be made to Grantor. SECTION 13. TRANSFERS AND OTHER LIENS. Grantor shall not: ------------------------- (a) sell, assign (by operation of law or otherwise) or otherwise dispose of any of the Collateral, except as permitted by the Credit Agreement; provided that in the event Grantor makes an Asset Sale or sale and lease-back - -------- transaction permitted by the Credit Agreement and the assets subject to such Asset Sale or sale and lease-back transaction constitute Collateral, Secured Party shall release the Collateral that is the subject of such Asset Sale to Grantor free and clear of any Lien and security interest under this Agreement or any other Collateral Document concurrently with the consummation of such Asset Sale or sale and lease-back transaction; provided, further that, as a condition -------- ------- precedent to such release, Secured Party shall have received evidence satisfactory to it that arrangements satisfactory to it have been made for delivery to Secured Party of that amount of Net Asset Sale Proceeds required to be delivered to Secured Party under the Credit Agreement; or (b) except for the security interest created by this Agreement, create or suffer to exist any Lien upon or with respect to any of the Collateral to secure the indebtedness or other obligations of any Person, except as otherwise permitted under subsections 7.2A(iv) and (v) of the Credit Agreement (with regard to the Liens permitted under sections 7.2A(iv) and (v) of 10 the Credit Agreement, only to the extent such Liens relate to the specific property subject to such Liens). If Grantor proposes to obtain financing permitted under Section 7.1(iii) of the Credit Agreement with respect to any asset acquired after the Closing Date ("PERMITTED CAPEX FINANCING"), Secured Party will either (a) with respect to such asset, subordinate the Lien and security interest created hereunder to the Lien securing such Permitted CapEx Financing by a subordination agreement reasonably acceptable to Secured Party and the provider thereof or (b) if Grantor has not been able, after reasonable effort, to get the provider of such Permitted CapEx Financing to agree to subordination, Secured Party will release the Lien and security interest granted hereunder in such asset. SECTION 14. SECURED PARTY APPOINTED ATTORNEY-IN-FACT. Grantor hereby ---------------------------------------- irrevocably appoints Secured Party as Grantor's attorney-in-fact, with full authority in the place and stead of Grantor and in the name of Grantor, Secured Party or otherwise, from time to time in Secured Party's discretion, upon the occurrence and during the continuation of an Event of Default or Potential Event of Default, to take any action and to execute any instrument that Secured Party may deem necessary or advisable to accomplish the purposes of this Agreement, including: (a) to obtain and adjust insurance required to be maintained by Grantor or paid to Secured Party pursuant to Section 8; (b) to ask for, demand, collect, sue for, recover, compound, receive and give acquittance and receipts for moneys due and to become due under or in respect of any of the Collateral; (c) to receive, endorse and collect any drafts or other instruments, documents and chattel paper in connection with clauses (a) and (b) above; (d) to file any claims or take any action or institute any proceedings that Secured Party may deem necessary or desirable for the collection of any of the Collateral or otherwise to enforce the rights of Secured Party with respect to any of the Collateral; (e) to pay or discharge taxes or Liens (other than Liens permitted under this Agreement or the Credit Agreement) levied or placed upon or threatened against the Collateral, the legality or validity thereof and the amounts necessary to discharge the same to be determined by Secured Party in its sole discretion, any such payments made by Secured Party to become obligations of Grantor to Secured Party, due and payable immediately without demand; (f) to sign and endorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications and notices in 11 connection with Accounts and other documents relating to the Collateral; and (g) generally to sell, transfer, pledge, make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though Secured Party were the absolute owner thereof for all purposes, and to do, at Secured Party's option and Grantor's expense, at any time or from time to time, all acts and things that Secured Party deems necessary to protect, preserve or realize upon the Collateral and Secured Party's security interest therein in order to effect the intent of this Agreement, all as fully and effectively as Grantor might do. SECTION 15. SECURED PARTY MAY PERFORM. If Grantor fails to perform ------------------------- any agreement contained herein within the period provided herein, upon reasonable notice, Secured Party may itself perform, or cause performance of, such agreement, and the expenses of Secured Party incurred in connection therewith shall be payable by Grantor under subsection 10.2 of the Credit Agreement. SECTION 16. STANDARD OF CARE. The powers conferred on Secured Party ---------------- hereunder are solely to protect its interest in the Collateral and shall not impose any duty upon it to exercise any such powers. Except for the exercise of reasonable care in the custody of any Collateral in its possession and the accounting for moneys actually received by it hereunder, Secured Party shall have no duty as to any Collateral or as to the taking of any necessary steps to preserve rights against prior parties or any other rights pertaining to any Collateral. Secured Party shall be deemed to have exercised reasonable care in the custody and preservation of Collateral in its possession if such Collateral is accorded treatment substantially equal to that which Secured Party accords its own property. SECTION 17. REMEDIES. If any Event of Default shall have occurred and -------- be continuing, Secured Party may exercise in respect of the Collateral, in addition to all other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party on default under the Uniform Commercial Code as in effect in any relevant jurisdiction (the "CODE") (whether or not the Code applies to the affected Collateral), and also may (a) require Grantor to, and Grantor hereby agrees that it will at its expense and upon request of Secured Party forthwith, assemble all or part of the Collateral as directed by Secured Party and make it available to Secured Party at a place to be designated by Secured Party that is reasonably convenient to both parties, (b) enter onto the property where any Collateral is located and take possession thereof with or without judicial process, (c) prior to the disposition of the Collateral, store, process, repair or recondition the Collateral or otherwise prepare the Collateral for disposition in any manner to the extent Secured Party deems appropriate, (d) take possession of Grantor's premises or place 12 custodians in exclusive control thereof, remain on such premises and use the same and any of Grantor's equipment for the purpose of completing any work in process, taking any actions described in the preceding clause (c) and collecting any Secured Obligation, and (e) without notice except as specified below, sell the Collateral or any part thereof in one or more parcels at public or private sale, at any of Secured Party's offices or elsewhere, for cash, on credit or for future delivery, at such time or times and at such price or prices and upon such other terms as Secured Party may deem commercially reasonable. Secured Party or any Lender or Interest Rate Exchanger may be the purchaser of any or all of the Collateral at any such public sale and, to the extent permitted by law, private sale, and Secured Party, as agent for and representative of Lenders and Interest Rate Exchangers (but not any Lender or Lenders or Interest Rate Exchanger or Interest Rate Exchangers in its or their respective individual capacities unless Requisite Obligees (as defined in Section 20(a)) shall otherwise agree in writing), shall be entitled, for the purpose of bidding and making settlement or payment of the purchase price for all or any portion of the Collateral sold at any such public sale, to use and apply any of the Secured Obligations as a credit on account of the purchase price for any Collateral payable by Secured Party at such sale. Each purchaser at any such sale shall hold the property sold absolutely free from any claim or right on the part of Grantor, and Grantor hereby waives (to the extent permitted by applicable law) all rights of redemption, stay and/or appraisal which it now has or may at any time in the future have under any rule of law or statute now existing or hereafter enacted. Grantor agrees that, to the extent notice of sale shall be required by law, at least ten days' notice to Grantor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. Secured Party shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. Secured Party may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. Grantor hereby waives any claims against Secured Party arising by reason of the fact that the price at which any Collateral may have been sold at such a private sale was less than the price which might have been obtained at a public sale, even if Secured Party accepts the first offer received and does not offer such Collateral to more than one offeree. If the proceeds of any sale or other disposition of the Collateral are insufficient to pay all the Secured Obligations, Grantor shall be liable for the deficiency and the fees of any attorneys employed by Secured Party to collect such deficiency. SECTION 18. APPLICATION OF PROCEEDS. Except as expressly provided ----------------------- elsewhere in this Agreement, all proceeds received by Secured Party in respect of any sale of, collection from, or other realization upon all or any part of the Collateral shall be applied as provided in subsection 2.4D of the Credit Agreement. 13 SECTION 19. CONTINUING SECURITY INTEREST; TRANSFER OF LOANS. This ----------------------------------------------- Agreement shall create a continuing security interest in the Collateral and shall (a) remain in full force and effect until the payment in full of the Secured Obligations, the cancellation or termination of the Commitments and the cancellation or expiration of all outstanding Letters of Credit, (b) be binding upon Grantor, its successors and assigns, and (c) inure, together with the rights and remedies of Secured Party hereunder, to the benefit of Secured Party and its successors, transferees and assigns. Without limiting the generality of the foregoing clause (c), but subject to the provisions of subsection 10.1 of the Credit Agreement, any Lender may assign or otherwise transfer any Loans held by it to any other Person, and such other Person shall thereupon become vested with all the benefits in respect thereof granted to Lenders herein or otherwise. Upon the payment in full of all Secured Obligations, the cancellation or termination of the Commitments and the cancellation or expiration of all outstanding Letters of Credit, the security interest granted hereby shall terminate and all rights to the Collateral shall revert to Grantor. Upon any such termination Secured Party will, at Grantor's expense, execute and deliver to Grantor such documents as Grantor shall reasonably request to evidence such termination. SECTION 20. SECURED PARTY AS ADMINISTRATIVE AGENT. ------------------------------------- (a) Secured Party has been appointed to act as Secured Party hereunder by Lenders and, by their acceptance of the benefits hereof, Interest Rate Exchangers. Secured Party shall be obligated, and shall have the right hereunder, to make demands, to give notices, to exercise or refrain from exercising any rights, and to take or refrain from taking any action (including the release or substitution of Collateral), solely in accordance with this Agreement and the Credit Agreement; provided that Secured Party shall exercise, -------- or refrain from exercising, any remedies provided for in Section 17 in accordance with the instructions of (i) Requisite Lenders or (ii) after payment in full of all Obligations under the Credit Agreement and the other Loan Documents, the holders of a majority of the aggregate notional amount (or, with respect to any Lender Interest Rate Agreement that has been terminated in accordance with its terms, the amount then due and payable (exclusive of expenses and similar payments but including any early termination payments then due) under such Lender Interest Rate Agreement) under all Lender Interest Rate Agreements (Requisite Lenders or, if applicable, such holders being referred to herein as "REQUISITE OBLIGEES"). In furtherance of the foregoing provisions of this Section 20(a), each Interest Rate Exchanger, by its acceptance of the benefits hereof, agrees that it shall have no right individually to realize upon any of the Collateral hereunder, it being understood and agreed by such Interest Rate Exchanger that all rights and remedies hereunder may be exercised solely by Secured Party for the benefit of Lenders and Interest Rate Exchangers in accordance with the terms of this Section 20(a). 14 (b) Secured Party shall at all times be the same Person that is Administrative Agent under the Credit Agreement. Written notice of resignation by Administrative Agent pursuant to subsection 9.5 of the Credit Agreement shall also constitute notice of resignation as Secured Party under this Agreement; removal of Administrative Agent pursuant to subsection 9.5 of the Credit Agreement shall also constitute removal as Secured Party under this Agreement; and appointment of a successor Administrative Agent pursuant to subsection 9.5 of the Credit Agreement shall also constitute appointment of a successor Secured Party under this Agreement. Upon the acceptance of any appointment as Administrative Agent under subsection 9.5 of the Credit Agreement by a successor Administrative Agent, that successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring or removed Secured Party under this Agreement, and the retiring or removed Secured Party under this Agreement shall promptly (i) transfer to such successor Secured Party all sums, securities and other items of Collateral held hereunder, together with all records and other documents necessary or appropriate in connection with the performance of the duties of the successor Secured Party under this Agreement, and (ii) execute and deliver to such successor Secured Party such amendments to financing statements, and take such other actions, as may be necessary or appropriate in connection with the assignment to such successor Secured Party of the security interests created hereunder, whereupon such retiring or removed Secured Party shall be discharged from its duties and obligations under this Agreement. After any retiring or removed Administrative Agent's resignation or removal hereunder as Secured Party, the provisions of this Agreement shall inure to its benefit as to any actions taken or omitted to be taken by it under this Agreement while it was Secured Party hereunder. SECTION 21. AMENDMENTS; ETC. No amendment, modification, termination --------------- or waiver of any provision of this Agreement, and no consent to any departure by Grantor therefrom, shall in any event be effective unless the same shall be in writing and signed by Secured Party and, in the case of any such amendment or modification, by Grantor. Any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which it was given. SECTION 22. NOTICES. Any notice or other communication herein ------- required or permitted to be given shall be in writing and may be personally served, telexed or sent by telefacsimile or United States mail or courier service and shall be deemed to have been given when delivered in person or by courier service, upon receipt of telefacsimile or telex, or three Business Days after depositing it in the United States mail with postage prepaid and properly addressed. For the purposes hereof, the address of each party hereto shall be as provided in subsection 10.8 of the Credit Agreement. 15 SECTION 23. SEVERABILITY. In case any provision in or obligation ------------ under this Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. SECTION 24. HEADINGS. Section and subsection headings in this -------- Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose or be given any substantive effect. SECTION 25. GOVERNING LAW; TERMS. THIS AGREEMENT AND THE RIGHTS AND -------------------- OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES, EXCEPT TO THE EXTENT THAT THE CODE PROVIDES THAT THE PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK. Unless otherwise defined herein or in the Credit Agreement, terms used in Articles 8 and 9 of the Uniform Commercial Code in the State of New York are used herein as therein defined. SECTION 26. COUNTERPARTS. This Agreement may be executed in one or ------------ more counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. [Remainder of page intentionally left blank] 16 IN WITNESS WHEREOF, Grantor and Secured Party have caused this Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above. THE PANTRY, INC., as Grantor By: /s/ WILLIAM T. FLYG ------------------- Title: Senior V.P. FIRST UNION NATIONAL BANK, as Secured Party By: /s/ MARK FELKER --------------- Title: Senior V.P. S-1 EX-10.15 25 COMPANY PLEDGE AGREEMENT EXHIBIT 10.15 COMPANY PLEDGE AGREEMENT This COMPANY PLEDGE AGREEMENT (this "AGREEMENT") is dated as of October 23, 1997 and entered into by and between THE PANTRY, INC., a Delaware corporation ("PLEDGOR"), and FIRST UNION NATIONAL BANK, as administrative agent for and representative of (in such capacity herein called "SECURED PARTY") the financial institutions ("LENDERS") party to the Credit Agreement referred to below and any Interest Rate Exchangers (as hereinafter defined). PRELIMINARY STATEMENTS A. Pledgor is the legal and beneficial owner of (i) the shares of stock (the "PLEDGED SHARES") described in Part A of Schedule I annexed hereto ---------- and issued by the corporations named therein and (ii) the indebtedness (the "PLEDGED DEBT") described in Part B of said Schedule I and issued by the ---------- obligors named therein. B. Secured Party, Syndication Agent and Lenders have entered into a Credit Agreement dated as of October 23, 1997 (said Credit Agreement, as it may hereafter be amended, supplemented or otherwise modified from time to time, being the "CREDIT AGREEMENT", the terms defined therein and not otherwise defined herein being used herein as therein defined) with Pledgor pursuant to which Lenders have made certain commitments, subject to the terms and conditions set forth in the Credit Agreement, to extend certain credit facilities to Pledgor. C. Pledgor may from time to time enter into one or more Interest Rate Agreements (collectively, the "LENDER INTEREST RATE AGREEMENTS") with one or more Lenders (in such capacity, collectively, "INTEREST RATE EXCHANGERS") in accordance with the terms of the Credit Agreement, and it is desired that the obligations of Pledgor under the Lender Interest Rate Agreements, including the obligation of Pledgor to make payments thereunder in the event of early termination thereof, together with all obligations of Pledgor under the Credit Agreement and the other Loan Documents, be secured hereunder. D. It is a condition precedent to the initial extensions of credit by Lenders under the Credit Agreement that Pledgor shall have granted the security interests and undertaken the obligations contemplated by this Agreement. NOW, THEREFORE, in consideration of the premises and in order to induce Lenders to make Loans and other extensions of credit under the Credit Agreement and to induce Interest Rate 1 Exchangers to enter into the Lender Interest Rate Agreements, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Pledgor hereby agrees with Secured Party as follows: SECTION 1. PLEDGE OF SECURITY. Pledgor hereby pledges and assigns to ------------------ Secured Party, and hereby grants to Secured Party a security interest in, all of Pledgor's right, title and interest in and to the following (the "PLEDGED COLLATERAL"): (a) the Pledged Shares and the certificates representing the Pledged Shares and any interest of Pledgor in the entries on the books of any financial intermediary pertaining to the Pledged Shares, and all dividends, cash, warrants, rights, instruments and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Pledged Shares; (b) the Pledged Debt and the instruments evidencing the Pledged Debt, and all interest, cash, instruments and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Pledged Debt; (c) all additional shares of, and all securities convertible into and warrants, options and other rights to purchase or otherwise acquire, stock of any issuer of the Pledged Shares from time to time acquired by Pledgor in any manner (which shares shall be deemed to be part of the Pledged Shares), the certificates or other instruments representing such additional shares, securities, warrants, options or other rights and any interest of Pledgor in the entries on the books of any financial intermediary pertaining to such additional shares, and all dividends, cash, warrants, rights, instruments and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such additional shares, securities, warrants, options or other rights; (d) all additional indebtedness from time to time owed to Pledgor by any obligor on the Pledged Debt and the instruments evidencing such indebtedness, and all interest, cash, instruments and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such indebtedness; (e) all shares of, and all securities convertible into and warrants, options and other rights to purchase or otherwise acquire, stock of any Person that, after the date of this Agreement, becomes, as a result of any occurrence, a direct Restricted Subsidiary of Pledgor (which shares shall be deemed to be part of the Pledged Shares), the certificates or other instruments representing such shares, securities, warrants, options or other rights and any interest of Pledgor in the entries on the books of any financial intermediary pertaining to 2 such shares, and all dividends, cash, warrants, rights, instru ments and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such shares, securities, warrants, options or other rights; (f) all indebtedness from time to time owed to Pledgor by any Person that, after the date of this Agreement, becomes, as a result of any occurrence, a direct or indirect Restricted Subsidiary of Pledgor, and all interest, cash, instruments and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such indebtedness; and (g) to the extent not covered by clauses (a) through (f) above, all proceeds of any or all of the foregoing Pledged Collateral. For purposes of this Agreement, the term "PROCEEDS" includes whatever is receivable or received when Pledged Collateral or proceeds are sold, exchanged, collected or otherwise disposed of, whether such disposition is voluntary or involuntary, and includes proceeds of any indemnity or guaranty payable to Pledgor or Secured Party from time to time with respect to any of the Pledged Collateral. SECTION 2. SECURITY FOR OBLIGATIONS. This Agreement secures, and the ------------------------ Pledged Collateral is collateral security for, the prompt payment or performance in full when due, whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise (including the payment of amounts that would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. (S)362(a)), of all obligations and liabilities of every nature of Pledgor now or hereafter existing under or arising out of or in connection with the Credit Agreement and the other Loan Documents and the Lender Interest Rate Agreements and all extensions or renewals thereof, whether for principal, interest (including interest that, but for the filing of a petition in bankruptcy with respect to Pledgor, would accrue on such obligations), reimbursement of amounts drawn under Letters of Credit, payments for early termination of Lender Interest Rate Agreements, fees, expenses, indemnities or otherwise, whether voluntary or involuntary, direct or indirect, absolute or contingent, liquidated or unliquidated, whether or not jointly owed with others, and whether or not from time to time decreased or extinguished and later increased, created or incurred, and all or any portion of such obligations or liabilities that are paid, to the extent all or any part of such payment is avoided or recovered directly or indirectly from Secured Party, Syndication Agent or any Lender or Interest Rate Exchanger as a preference, fraudulent transfer or otherwise, and all obligations of every nature of Pledgor now or hereafter existing under this Agreement (all such obligations of Pledgor being the "SECURED OBLIGATIONS"). 3 SECTION 3. DELIVERY OF PLEDGED COLLATERAL. All certificates or ------------------------------ instruments representing or evidencing the Pledged Collateral shall be delivered to and held by or on behalf of Secured Party pursuant hereto and shall be in suitable form for transfer by delivery or, as applicable, shall be accompanied by Pledgor's endorsement, where necessary, or duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to Secured Party. Upon the occurrence and during the continuance of an Event of Default (as defined in the Credit Agreement), Secured Party shall have the right, without notice to Pledgor, to transfer to or to register in the name of Secured Party or any of its nominees any or all of the Pledged Collateral, subject only to the revocable rights specified in Section 7(a). In addition, Secured Party shall have the right at any time to exchange certificates or instruments representing or evidencing Pledged Collateral for certificates or instruments of smaller or larger denominations. SECTION 4. REPRESENTATIONS AND WARRANTIES. Pledgor represents and ------------------------------ warrants as follows: (a) Due Authorization, etc. of Pledged Collateral. All of the Pledged --------------------------------------------- Shares have been duly authorized and validly issued and are fully paid and non- assessable. All of the Pledged Debt has been duly authorized, authenticated or issued, and delivered and is the legal, valid and binding obligation of the issuers thereof and is not in default. (b) Description of Pledged Collateral. The Pledged Shares constitute --------------------------------- all of the issued and outstanding shares of stock of each issuer thereof, and there are no outstanding warrants, options or other rights to purchase, or other agree ments outstanding with respect to, or property that is now or hereafter convertible into, or that requires the issuance or sale of, any Pledged Shares. The Pledged Debt constitutes all of the issued and outstanding intercompany indebtedness evidenced by a promissory note of the respective issuers thereof owing to Pledgor. (c) Ownership of Pledged Collateral. Pledgor is the legal, record and ------------------------------- beneficial owner of the Pledged Collateral free and clear of any Lien except for the security interest created by this Agreement or any other Collateral Document or Permitted Encumbrances. SECTION 5. TRANSFERS AND OTHER LIENS; ADDITIONAL PLEDGED COLLATERAL; --------------------------------------------------------- ETC. Pledgor shall: - ---- (a) not, except as expressly permitted by the Credit Agreement, (i) sell, assign (by operation of law or otherwise) or otherwise dispose of, or grant any option with respect to, any of the Pledged Collateral, (ii) create or suffer to exist any Lien upon or with respect to any of the Pledged Collateral, except for the security interest under this Agreement, or (iii) permit any issuer of Pledged Shares to merge or consolidate unless all the 4 outstanding capital stock of the surviving or resulting corporation is, upon such merger or consolidation, pledged hereunder and no cash, securities or other property is distributed in respect of the outstanding shares of any other constituent corporation; provided that in the event Pledgor makes an Asset Sale -------- permitted by the Credit Agreement and the assets subject to such Asset Sale are Pledged Collateral, Secured Party shall release the Pledged Collateral that is the subject of such Asset Sale to Pledgor free and clear of any Lien and security interest under this Agreement or any other Collateral Document concurrently with the consummation of such Asset Sale; provided, further that, -------- ------- as a condition precedent to such release, Secured Party shall have received evidence satisfactory to it that arrangements satisfactory to it have been made for delivery to Secured Party of the Net Asset Sale Proceeds of such Asset Sale to the extent required under the Credit Agreement; (b) (i) cause each issuer of Pledged Shares not to issue any stock or other securities in addition to or in substitution for the Pledged Shares issued by such issuer, except to Pledgor, (ii) pledge hereunder, immediately upon its acquisition (directly or indirectly) thereof, any and all additional shares of stock or other securities of each issuer of Pledged Shares, and (iii) pledge hereunder, immediately upon its acquisition (directly or indirectly) thereof, any and all shares of stock of any Person that, after the date of this Agreement, becomes, as a result of any occurrence, a direct Restricted Subsidiary of Pledgor; (c) (i) pledge hereunder, immediately upon their issuance, any and all instruments or other evidences of additional indebtedness from time to time owed to Pledgor by any obligor on the Pledged Debt, and (ii) pledge hereunder, immediately upon their issuance, any and all instruments or other evidences of indebtedness from time to time owed to Pledgor by any Person that after the date of this Agreement becomes, as a result of any occurrence, a direct or indirect Restricted Subsidiary of Pledgor; (d) promptly notify Secured Party of any event of which Pledgor becomes aware causing loss of the Pledged Collateral; (e) promptly deliver to Secured Party all written notices received by it with respect to the Pledged Collateral; and (f) pay promptly when due all taxes, assessments and governmental charges or levies imposed upon, and all claims against, the Pledged Collateral, except to the extent the validity thereof is being contested in good faith; provided that Pledgor shall in any event pay such taxes, assessments, charges, - -------- levies or claims not later than five days prior to the date of any proposed sale under any judgement, writ or warrant of 5 attachment entered or filed against Pledgor or any of the Pledged Collateral as a result of the failure to make such payment. SECTION 6. FURTHER ASSURANCES; PLEDGE AMENDMENTS. ------------------------------------- (a) Pledgor agrees that from time to time, at the expense of Pledgor, Pledgor will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable, or that Secured Party may request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable Secured Party to exercise and enforce its rights and remedies hereunder with respect to any Pledged Collateral. Without limiting the generality of the foregoing, Pledgor will: (i) execute and file such financing or continuation statements, or amendments thereto, and such other instruments or notices, as may be necessary or desirable, or as Secured Party may request, in order to perfect and preserve the security interests granted or purported to be granted hereby and (ii) at Secured Party's request, appear in and defend any action or proceeding that may affect Pledgor's title to or Secured Party's security interest in all or any part of the Pledged Collateral. (b) Pledgor further agrees that it will, upon obtaining any additional shares of stock or other securities required to be pledged hereunder as provided in Section 5(b) or (c), promptly (and in any event within five Business Days) deliver to Secured Party a Pledge Amendment, duly executed by Pledgor, in substantially the form of Schedule II annexed hereto (a "PLEDGE AMENDMENT"), in ----------- respect of the additional Pledged Shares or Pledged Debt to be pledged pursuant to this Agreement. Pledgor hereby authorizes Secured Party to attach each Pledge Amendment to this Agreement and agrees that all Pledged Shares or Pledged Debt listed on any Pledge Amendment delivered to Secured Party shall for all purposes hereunder be considered Pledged Collateral; provided that the failure -------- of Pledgor to execute a Pledge Amendment with respect to any additional Pledged Shares or Pledged Debt pledged pursuant to this Agreement shall not impair the security interest of Secured Party therein or otherwise adversely affect the rights and remedies of Secured Party hereunder with respect thereto. SECTION 7. VOTING RIGHTS; DIVIDENDS; ETC. ------------------------------ (a) So long as no Event of Default shall have occurred and be continuing: (i) Pledgor shall be entitled to exercise any and all voting and other consensual rights pertaining to the Pledged Collateral or any part thereof for any purpose not inconsistent with the terms of this Agreement or the Credit Agreement; provided, however, that Pledgor shall not exercise or -------- ------- refrain from exercising any such right if Secured Party shall have notified Pledgor that, in Secured Party's judgment, such action would have a material adverse 6 effect on the value of the Pledged Collateral or any part thereof; and provided, further, that Pledgor shall give Secured Party at least five -------- ------- Business Days' prior written notice of the manner in which it intends to exercise, or the reasons for refraining from exercising, any such right. It is understood, however, that neither (A) the voting by Pledgor of any Pledged Shares for or Pledgor's consent to the election of directors at a regularly scheduled annual or other meeting of stockholders or with respect to incidental matters at any such meeting nor (B) Pledgor's consent to or approval of any action otherwise permitted under this Agreement and the Credit Agreement shall be deemed inconsistent with the terms of this Agreement or the Credit Agreement within the meaning of this Section 7(a)(i), and no notice of any such voting or consent need be given to Secured Party; (ii) Pledgor shall be entitled to receive and retain, and to utilize free and clear of the lien of this Agreement, any and all dividends and interest paid in respect of the Pledged Collateral; provided, however, that -------- ------- any and all (A) dividends and interest paid or payable other than in cash in respect of, and instruments and other property received, receivable or otherwise distributed in respect of, or in exchange for, any Pledged Collateral, (B) dividends and other distributions paid or payable in cash in respect of any Pledged Collateral in connection with a partial or total liquidation or dissolution or in connection with a reduction of capital, capital surplus or paid-in-surplus, and (C) cash paid, payable or otherwise distributed in respect of principal or in redemption of or in exchange for any Pledged Collateral, shall be, and shall forthwith be delivered to Secured Party to hold as, Pledged Collateral and shall, if received by Pledgor, be received in trust for the benefit of Secured Party, be segregated from the other property or funds of Pledgor and be forthwith delivered to Secured Party as Pledged Collateral in the same form as so received (with all necessary indorsements); and (iii) Secured Party shall promptly execute and deliver (or cause to be executed and delivered) to Pledgor all such proxies, dividend payment orders and other instruments as Pledgor may from time to time reasonably request for the purpose of enabling Pledgor to exercise the voting and other consensual rights which it is entitled to exercise pursuant to paragraph (i) above and to receive the dividends, principal or interest payments which it is 7 authorized to receive and retain pursuant to paragraph (ii) above. (b) Upon the occurrence and during the continuation of an Event of Default: (i) upon written notice from Secured Party to Pledgor, all rights of Pledgor to exercise the voting and other consensual rights which it would otherwise be entitled to exercise pursuant to Section 7(a)(i) shall cease, and all such rights shall thereupon become vested in Secured Party who shall thereupon have the sole right to exercise such voting and other consensual rights; (ii) all rights of Pledgor to receive the dividends and interest payments which it would otherwise be authorized to receive and retain pursuant to Section 7(a)(ii) shall cease, and all such rights shall thereupon become vested in Secured Party who shall thereupon have the sole right to receive and hold as Pledged Collateral such dividends and interest payments; and (iii) all dividends, principal and interest pay ments which are received by Pledgor contrary to the provi sions of paragraph (ii) of this Section 7(b) shall be received in trust for the benefit of Secured Party, shall be segregated from other funds of Pledgor and shall forthwith be paid over to Secured Party as Pledged Collateral in the same form as so received (with any necessary indorsements). (c) In order to permit Secured Party to exercise the voting and other consensual rights which it may be entitled to exercise pursuant to Section 7(b)(i) and to receive all dividends and other distributions which it may be entitled to receive under Section 7(a)(ii) or Section 7(b)(ii), (i) Pledgor shall promptly execute and deliver (or cause to be executed and delivered) to Secured Party all such proxies, dividend payment orders and other instruments as Secured Party may from time to time reasonably request and (ii) without limiting the effect of the immediately preceding clause (i), Pledgor hereby grants to Secured Party an irrevocable proxy to vote the Pledged Shares and to exercise all other rights, powers, privileges and remedies to which a holder of the Pledged Shares would be entitled (including giving or withholding written consents of shareholders, calling special meetings of shareholders and voting at such meetings), which proxy shall be effective, automatically and without the necessity of any action (including any transfer of any Pledged Shares on the record books of the issuer thereof) by any other Person (including the issuer of the Pledged Shares or any officer or agent thereof), upon the occurrence of an Event of Default and which proxy shall only terminate upon the payment in full of the Secured Obligations. 8 SECTION 8. SECURED PARTY APPOINTED ATTORNEY-IN-FACT. Pledgor hereby ---------------------------------------- irrevocably appoints Secured Party as Pledgor's attorney-in-fact, with full authority in the place and stead of Pledgor and in the name of Pledgor, Secured Party or otherwise, from time to time in Secured Party's discretion to take any action and to execute any instrument that Secured Party may deem necessary or advisable to accomplish the purposes of this Agreement, including: (a) to file one or more financing or continuation statements, or amendments thereto, relative to all or any part of the Pledged Collateral without the signature of Pledgor; and (b) upon the occurrence and during the continuation of an Event of Default; (i) to ask, demand, collect, sue for, recover, compound, receive and give acquittance and receipts for moneys due and to become due under or in respect of any of the Pledged Collateral; (ii) to receive, endorse and collect any instruments made payable to Pledgor representing any divi dend, principal or interest payment or other distribution in respect of the Pledged Collateral or any part thereof and to give full discharge for the same; and (iii) to file any claims or take any action or institute any proceedings that Secured Party may deem necessary or desirable for the collection of any of the Pledged Collateral or otherwise to enforce the rights of Secured Party with respect to any of the Pledged Collateral. SECTION 9. SECURED PARTY MAY PERFORM. If Pledgor fails to perform ------------------------- any agreement contained herein after the period in which such performance is required, and after reasonable notice, Secured Party may itself perform, or cause performance of, such agreement, and the expenses of Secured Party incurred in connection therewith shall be payable by Pledgor under Section 14. SECTION 10. STANDARD OF CARE. The powers conferred on Secured Party ---------------- hereunder are solely to protect its interest in the Pledged Collateral and shall not impose any duty upon it to exercise any such powers. Except for the exercise of reasonable care in the custody of any Pledged Collateral in its possession and the accounting for moneys actually received by it hereunder, Secured Party shall have no duty as to any Pledged Collateral, it being understood that Secured Party shall have no responsibility for (a) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relating to any Pledged Collateral, whether or not Secured Party has or is deemed to have knowledge of such matters, (b) taking any necessary steps (other than steps taken in accordance with the standard of care set forth above to maintain possession of 9 the Pledged Collateral) to preserve rights against any parties with respect to any Pledged Collateral, (c) taking any necessary steps to collect or realize upon the Secured Obligations or any guarantee therefor, or any part thereof, or any of the Pledged Collateral, or (d) initiating any action to protect the Pledged Collateral against the possibility of a decline in market value. Secured Party shall be deemed to have exercised reasonable care in the custody and preservation of Pledged Collateral in its possession if such Pledged Collateral is accorded treatment substantially equal to that which Secured Party accords its own property consisting of negotiable securities. SECTION 11. REMEDIES. -------- (a) If any Event of Default shall have occurred and be continuing, Secured Party may exercise in respect of the Pledged Collateral, in addition to all other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party on default under the Uniform Commercial Code as in effect in any relevant jurisdiction (the "CODE") (whether or not the Code applies to the affected Pledged Collateral), and Secured Party may also in its sole discretion, without notice except as specified below, sell the Pledged Collateral or any part thereof in one or more parcels at public or private sale, at any exchange or broker's board or at any of Secured Party's offices or elsewhere, for cash, on credit or for future delivery, at such time or times and at such price or prices and upon such other terms as Secured Party may deem commercially reasonable, irrespective of the impact of any such sales on the market price of the Pledged Collateral. Secured Party or any Lender or Interest Rate Exchanger may be the purchaser of any or all of the Pledged Collateral at any such public sale and, to the extent permitted by law, private sale, and Secured Party, as agent for and representative of Lenders and Interest Rate Exchangers (but not any Lender or Lenders or Interest Rate Exchanger or Interest Rate Exchangers in its or their respective individual capacities unless Requisite Obligees (as defined in Section 16(a)) shall otherwise agree in writing), shall be entitled, for the purpose of bidding and making settlement or payment of the purchase price for all or any portion of the Pledged Collateral sold at any such public sale, to use and apply any of the Secured Obligations as a credit on account of the purchase price for any Pledged Collateral payable by Secured Party at such sale. Each purchaser at any such sale shall hold the property sold absolutely free from any claim or right on the part of Pledgor, and Pledgor hereby waives (to the extent permitted by applicable law) all rights of redemption, stay and/or appraisal which it now has or may at any time in the future have under any rule of law or statute now existing or hereafter enacted. Pledgor agrees that, to the extent notice of sale shall be required by law, at least ten days' notice to Pledgor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. Secured Party shall not be obligated to make any sale of Pledged Collateral regardless of notice of sale 10 having been given. Secured Party may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. Pledgor hereby waives any claims against Secured Party arising by reason of the fact that the price at which any Pledged Collateral may have been sold at such a private sale was less than the price which might have been obtained at a public sale, even if Secured Party accepts the first offer received and does not offer such Pledged Collateral to more than one offeree. If the proceeds of any sale or other disposition of the Pledged Collateral are insufficient to pay all the Secured Obligations, Pledgor shall be liable for the deficiency and the fees of any attorneys employed by Secured Party to collect such deficiency. (b) Pledgor recognizes that, by reason of certain prohibitions contained in the Securities Act and applicable state securities laws, Secured Party may be compelled, with respect to any sale of all or any part of the Pledged Collateral conducted without prior registration or qualification of such Pledged Collateral under the Securities Act and/or such state securities laws, to limit purchasers to those who will agree, among other things, to acquire the Pledged Collateral for their own account, for investment and not with a view to the distribution or resale thereof. Pledgor acknowledges that any such private sales may be at prices and on terms less favorable than those obtainable through a public sale without such restrictions (including a public offering made pursuant to a registration statement under the Securities Act) and, notwithstanding such circumstances and the registration rights granted to Secured Party by Pledgor pursuant to Section 12, Pledgor agrees that the effect of the foregoing in respect of any such private sale shall not be deemed per se --- -- to cause such private sale to have not been made in a commercially reasonable manner and that Secured Party shall have no obligation to engage in public sales and no obligation to delay the sale of any Pledged Collateral for the period of time necessary to permit the issuer thereof to register it for a form of public sale requiring registration under the Securities Act or under applicable state securities laws, even if such issuer would, or should, agree to so register it. (c) If Secured Party determines to exercise its right to sell any or all of the Pledged Collateral, upon written request, Pledgor shall and shall cause each issuer of any Pledged Shares to be sold hereunder from time to time to furnish to Secured Party all such information as Secured Party may request in order to determine the number of shares and other instruments included in the Pledged Collateral which may be sold by Secured Party in exempt transactions under the Securities Act and the rules and regulations of the Securities and Exchange Commission thereunder, as the same are from time to time in effect. SECTION 12. REGISTRATION RIGHTS. If Secured Party shall determine to ------------------- exercise its right to sell all or any of the Pledged Collateral pursuant to Section 11, Pledgor agrees that, 11 upon request of Secured Party (which request may be made by Secured Party in its sole discretion), Pledgor will, at its own expense: (a) execute and deliver, and use its best efforts to cause each issuer of the Pledged Collateral contemplated to be sold and the directors and officers thereof to execute and deliver, all such instruments and documents, and do or cause to be done all such other acts and things, as may be necessary or, in the opinion of Secured Party, advisable to file a registration statement covering such Pledged Collateral under the provisions of the Securities Act and to use its best efforts to cause the registration statement relating thereto to become effective and to remain effective for such period as prospectuses are required by law to be furnished, and to make all amendments and supplements thereto and to the related prospectus which, in the opinion of Secured Party, are necessary or advisable, all in conformity with the requirements of the Securities Act and the rules and regulations of the Securities and Exchange Commission applicable thereto; (b) use its best efforts to qualify the Pledged Collateral under all applicable state securities or "Blue Sky" laws and to obtain all necessary governmental approvals for the sale of the Pledged Collateral, as requested by Secured Party; (c) cause each such issuer to make available to its security holders, as soon as practicable, an earnings statement which will satisfy the provisions of Section 11(a) of the Securities Act; (d) use its best efforts to do or cause to be done all such other acts and things as may be necessary to make such sale of the Pledged Collateral or any part thereof valid and binding and in compliance with applicable law; and (e) bear all costs and expenses, including reasonable attorneys' fees, of carrying out its obligations under this Section 12. Pledgor further agrees that a breach of any of the covenants contained in this Section 12 will cause irreparable injury to Secured Party, that Secured Party has no adequate remedy at law in respect of such breach and, as a consequence, that each and every covenant contained in this Section 12 shall be specifically enforceable against Pledgor, and Pledgor hereby waives and agrees not to assert any defenses against an action for specific performance of such covenants except for a defense that no default has occurred giving rise to the Secured Obligations becoming due and payable prior to their stated maturities. Nothing in this Section 12 shall in any way alter the rights of Secured Party under Section 11. SECTION 13. APPLICATION OF PROCEEDS. All proceeds received by ----------------------- Secured Party in respect of any sale of, collection 12 from, or other realization upon all or any part of the Pledged Collateral shall be applied as provided in subsection 2.4D of the Credit Agreement. SECTION 14. INDEMNITY AND EXPENSES. Without limiting the generality ---------------------- of subsections 10.2 and 10.3 of the Credit Agreement, in the event of any public sale described in Section 12, Pledgor agrees to indemnify and hold harmless Secured Party, Syndication Agent, each Lender and each Interest Rate Exchanger and each of their respective directors, officers, employees and agents from and against any loss, fee, cost, expense, damage, liability or claim, joint or several, to which any such Persons may become subject or for which any of them may be liable, under the Securities Act or otherwise, insofar as such losses, fees, costs, expenses, damages, liabilities or claims (or any litigation commenced or threatened in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus, registration statement, prospectus or other such document published or filed in connection with such public sale, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse Secured Party and such other Persons for any legal or other expenses reasonably incurred by Secured Party and such other Persons in connection with any litigation, of any nature whatsoever, com menced or threatened in respect thereof (including any and all fees, costs and expenses whatsoever reasonably incurred by Secured Party and such other Persons and counsel for Secured Party and such other Persons in investigating, preparing for, defending against or providing evidence, producing documents or taking any other action in respect of, any such commenced or threatened litigation or any claims asserted). This indemnity shall be in addition to any liability which Pledgor may otherwise have and shall extend upon the same terms and conditions to each Person, if any, that controls Secured Party or such Persons within the meaning of the Securities Act. SECTION 15. CONTINUING SECURITY INTEREST; TRANSFER OF LOANS. This ----------------------------------------------- Agreement shall create a continuing security interest in the Pledged Collateral and shall (a) remain in full force and effect until the payment in full of all Secured Obligations, the cancellation or termination of the Commitments and the cancellation or expiration of all outstanding Letters of Credit, (b) be binding upon Pledgor, its successors and assigns, and (c) inure, together with the rights and remedies of Secured Party hereunder, to the benefit of Secured Party and its succes sors, transferees and assigns. Without limiting the generality of the foregoing clause (c), but subject to the provisions of subsection 10.1 of the Credit Agreement, any Lender may assign or otherwise transfer any Loans held by it to any other Person, and such other Person shall thereupon become vested with all the benefits in respect thereof granted to Lenders herein or other wise. Upon the payment in full of all Secured Obligations, the 13 cancellation or termination of the Commitments and the cancellation or expiration of all outstanding Letters of Credit, the security interest granted hereby shall terminate and all rights to the Pledged Collateral shall revert to Pledgor. Upon any such termination Secured Party will, at Pledgor's expense, execute and deliver to Pledgor such documents as Pledgor shall reasonably request to evidence such termination and Pledgor shall be entitled to the return, upon its request and at its expense, against receipt and without recourse to Secured Party, of such of the Pledged Collateral as shall not have been sold or otherwise applied pursuant to the terms hereof. SECTION 16. SECURED PARTY AS ADMINISTRATIVE AGENT. ------------------------------------- (a) Secured Party has been appointed to act as Secured Party hereunder by Lenders and, by their acceptance of the benefits hereof, Interest Rate Exchangers. Secured Party shall be obligated, and shall have the right hereunder, to make demands, to give notices, to exercise or refrain from exercising any rights, and to take or refrain from taking any action (including the release or substitution of Pledged Collateral), solely in accordance with this Agreement and the Credit Agreement; provided that Secured Party shall -------- exercise, or refrain from exercising, any remedies provided for in Section 11 in accordance with the instructions of (i) Requisite Lenders or (ii) after payment in full of all Obligations under the Credit Agreement and the other Loan Documents, the holders of a majority of the aggregate notional amount (or, with respect to any Lender Interest Rate Agreement that has been terminated in accordance with its terms, the amount then due and payable (exclusive of expenses and similar payments but including any early termination payments then due) under such Lender Interest Rate Agreement) under all Lender Interest Rate Agreements (Requisite Lenders or, if applicable, such holders being referred to herein as "REQUISITE OBLIGEES"). In furtherance of the foregoing provisions of this Section 16(a), each Interest Rate Exchanger, by its acceptance of the benefits hereof, agrees that it shall have no right individually to realize upon any of the Pledged Collateral hereunder, it being understood and agreed by such Interest Rate Exchanger that all rights and remedies hereunder may be exercised solely by Secured Party for the benefit of Lenders and Interest Rate Exchangers in accordance with the terms of this Section 16(a). (b) Secured Party shall at all times be the same Person that is Administrative Agent under the Credit Agreement. Written notice of resignation by Administrative Agent pursuant to subsection 9.5 of the Credit Agreement shall also constitute notice of resignation as Secured Party under this Agreement; removal of Administrative Agent pursuant to subsection 9.5 of the Credit Agreement shall also constitute removal as Secured Party under this Agreement; and appointment of a successor Administrative Agent pursuant to subsection 9.5 of the Credit Agreement shall also constitute appointment of a successor Secured Party under this Agreement. Upon the acceptance of any 14 appointment as Administrative Agent under subsection 9.5 of the Credit Agreement by a successor Administrative Agent, that successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring or removed Secured Party under this Agreement, and the retiring or removed Secured Party under this Agreement shall promptly (i) transfer to such successor Secured Party all sums, securities and other items of Collateral held hereunder, together with all records and other documents necessary or appropriate in connection with the performance of the duties of the successor Secured Party under this Agreement, and (ii) execute and deliver to such successor Secured Party such amendments to financing statements, and take such other actions, as may be necessary or appropriate in connection with the assignment to such successor Secured Party of the security interests created hereunder, whereupon such retiring or removed Secured Party shall be discharged from its duties and obligations under this Agreement. After any retiring or removed Administrative Agent's resignation or removal hereunder as Secured Party, the provisions of this Agreement shall inure to its benefit as to any actions taken or omitted to be taken by it under this Agreement while it was Secured Party hereunder. SECTION 17. AMENDMENTS; ETC. No amendment, modification, termination --------------- or waiver of any provision of this Agreement, and no consent to any departure by Pledgor therefrom, shall in any event be effective unless the same shall be in writing and signed by Secured Party and, in the case of any such amendment or modification, by Pledgor. Any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which it was given. SECTION 18. NOTICES. Any notice or other communication herein ------- required or permitted to be given shall be in writing and may be personally served, telexed or sent by telefacsimile or United States mail or courier service and shall be deemed to have been given when delivered in person or by courier service, upon receipt of telefacsimile or telex, or three Business Days after depositing it in the United States mail with postage prepaid and properly addressed. For the purposes hereof, the address of each party hereto shall be as provided in subsection 10.8 of the Credit Agreement. SECTION 19. SEVERABILITY. In case any provision in or obligation ------------ under this Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. SECTION 20. HEADINGS. Section and subsection headings in this -------- Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose or be given any substantive effect. 15 SECTION 21. GOVERNING LAW; TERMS. THIS AGREEMENT AND THE RIGHTS AND -------------------- OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES, EXCEPT TO THE EXTENT THAT THE CODE PROVIDES THAT THE PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR PLEDGED COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK. Unless otherwise defined herein or in the Credit Agreement, terms used in Articles 8 and 9 of the Uniform Commercial Code in the State of New York are used herein as therein defined. SECTION 22. COUNTERPARTS. This Agreement may be executed in one or ------------ more counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. 16 IN WITNESS WHEREOF, Pledgor and Secured Party have caused this Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above. THE PANTRY, INC., as Pledgor By: /s/ WILLIAM T. FLYG ------------------- Title: Senior V.P. FIRST UNION NATIONAL BANK, as Secured Party By: /s/ MARK FELKER --------------- Title: Senior V.P. S-1 EX-10.16 26 COMPANY TRADEMARK SECURITY AGREEMENT EXHIBIT 10.16 COMPANY TRADEMARK SECURITY AGREEMENT This TRADEMARK SECURITY AGREEMENT (this "AGREEMENT") is dated as of October 23, 1997 and entered into by and between THE PANTRY, INC., a Delaware corporation ("GRANTOR"), and FIRST UNION NATIONAL BANK, as administrative agent for and representative of (in such capacity herein called "SECURED PARTY") the financial institutions ("LENDERS") party to the Credit Agreement referred to below and any Interest Rate Exchangers (as hereinafter defined). PRELIMINARY STATEMENTS A. Secured Party, Syndication Agent and Lenders have entered into a Credit Agreement dated as of October 23, 1997 (said Credit Agreement, as it may hereafter be amended, supplemented or otherwise modified from time to time, being the "CREDIT AGREEMENT", the terms defined therein and not otherwise defined herein being used herein as therein defined) with Grantor pursuant to which Lenders have made certain commitments, subject to the terms and conditions set forth in the Credit Agreement, to extend certain credit facilities to Grantor. B. Grantor may from time to time enter into one or more Interest Rate Agreements (collectively, the "LENDER INTEREST RATE AGREEMENTS") with one or more Lenders (in such capacity, collectively, "INTEREST RATE EXCHANGERS") in accordance with the terms of the Credit Agreement, and it is desired that the obligations of Grantor under the Lender Interest Rate Agreements to which it is a party, including the obligations of Grantor to make payments thereunder in the event of early termination thereof, together with all obligations of Grantor under the Credit Agreement and the other Loan Documents, be secured hereunder. C. Grantor owns and uses in its business, and will in the future adopt and so use, various intangible assets, including trademarks, service marks, designs, logos, indicia, tradenames, corporate names, company names, business names, fictitious business names, trade styles and/or other source and/or business identifiers and applications pertaining thereto (collectively, the "TRADEMARKS"). D. Secured Party desires to become a secured creditor with respect to all of the existing and future Trademarks, all registrations that have been or may hereafter be issued or applied for thereon in the United States and any state thereof (the "REGISTRATIONS"), all common law and other rights in and to the Trademarks in the United States and any state thereof (the "TRADEMARK RIGHTS"), all goodwill of Grantor's business symbolized by the Trademarks and associated therewith, including without limitation the documents and things described in Section 1 1(b) (the "ASSOCIATED GOODWILL"), and all proceeds of the Trademarks, the Registrations, the Trademark Rights and the Associated Goodwill, and Grantor agrees to create a secured and protected interest in the Trademarks, the Registrations, the Trademark Rights, the Associated Goodwill and all the proceeds thereof as provided herein. E. Grantor has executed and delivered a Company Security Agreement dated as of October 23, 1997 (the "SECURITY AGREEMENT") between Grantor and Secured Party for the benefit of Lenders, pursuant to which Grantor has granted Secured Party a security interest in all of its personal property, including without limitation, the Collateral (as defined below), which Security Agreement is to be supplemented by this Agreement, and it is desired that all obligations of Grantor under the Credit Agreement, the other Loan Documents and the Lender Interest Rate Agreements to which it is a party, including the obligation of Grantor to make payments thereunder in the event of early termination thereof, be secured hereunder. F. Pursuant to the Security Agreement, Grantor has granted to Secured Party a lien on and security interest in, among other assets, the equipment and inventory relating to the products and services sold or delivered under or in connection with the Trademarks such that, upon the occurrence and during the continuation of an Event of Default, Secured Party would be able to exercise its remedies consistent with the Security Agreement, this Agreement and applicable law to foreclose upon Grantor's business and use the Trademarks, the Registrations and the Trademark Rights in conjunction with the continued operation of such business, maintaining substantially the same product and service specifications and quality as maintained by Grantor, and benefit from the Associated Goodwill. G. Upon the occurrence and during the continuation of an Event of Default, and to permit Secured Party to operate Grantor's business without interruption and to use the Trademarks, Registrations, Trademark Rights and Associated Goodwill in conjunction therewith, Grantor is willing to appoint Secured Party as Grantor's attorney-in-law and attorney-in-fact to execute documents and take actions consistent therewith. H. It is a condition precedent to the initial extensions of credit by Lenders under the Credit Agreement that Grantor shall have granted the security interests and undertaken the obligations contemplated by this Agreement. NOW, THEREFORE, in consideration of the premises and in order to induce Lenders to make Loans and other extensions of credit under the Credit Agreement as well as to induce Interest Rate Exchangers to enter into the Lender Interest Rate Agreements, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Grantor hereby agrees with Secured Party as follows: 2 SECTION 1. GRANT OF SECURITY. Grantor hereby grants to Secured Party ----------------- a security interest in all of Grantor's right, title and interest in and to the following, in each case whether now or hereafter existing or in which Grantor now has or hereafter acquires an interest and wherever the same may be located (the "COLLATERAL"): (a) each of the Trademarks and rights and interests in Trademarks which are presently, or in the future may be, owned, held (whether pursuant to a license or otherwise) or used by Grantor, in whole or in part (including, without limitation, the Trademarks specifically identified in Schedule A annexed ---------- hereto, as the same may be amended pursuant hereto from time to time), and including all Trademark Rights with respect thereto and all federal and state Registrations therefor heretofore or hereafter granted or applied for, the right (but not the obligation) to register claims under any state or federal trademark law and to apply for, renew and extend the Trademarks, Registrations and Trademark Rights, the right (but not the obligation) to sue or bring opposition or cancellation proceedings in the name of Grantor or in the name of Secured Party or otherwise for past, present and future infringements of the Trademarks, Registrations or Trademark Rights and all rights (but not obligations) corresponding thereto in the United States, and the Associated Goodwill; it being understood that the rights and interests included herein shall include, without limitation, all rights and interests pursuant to licensing or other contracts in favor of Grantor pertaining to the Trademarks, Registrations or Trademark Rights presently or in the future owned or used by third parties but, in the case of third parties which are not Affiliates of Grantor, only to the extent permitted by such licensing or other contracts and, if not so permitted, only with the consent of such third parties; (b) the following documents and things in Grantor's possession, or subject to Grantor's right to possession, related to (Y) the production, sale and delivery by Grantor, or by any Affiliate, licensee or subcontractor of Grantor, of products or services sold or delivered by or under the authority of Grantor in connection with the Trademarks, Registrations or Trademark Rights (which products and services shall, for purposes of this Agreement, be deemed to include, without limitation, products and services sold or delivered pursuant to merchandising operations utilizing any Trademarks, Registrations or Trademark Rights); or (Z) any retail or other merchandising operations conducted under the name of or in connection with the Trademarks, Registrations or Trademark Rights by Grantor or any Affiliate, licensee or subcontractor of Grantor: (i) all lists and ancillary documents that identify and describe any of Grantor's customers, or those of its Affiliates, licensees or subcontractors, for products sold and services delivered under or in connection with the Trademarks or Trademark Rights, including without limitation any lists and ancillary documents that contain a customer's 3 name and address, the name and address of any of its warehouses, branches or other places of business, the identity of the Person or Persons having the principal responsibility on a customer's behalf for ordering products or services of the kind supplied by Grantor, or the credit, payment, discount, delivery or other sale terms applicable to such customer, together with information setting forth the total purchases, by brand, product, service, style, size or other criteria, and the patterns of such purchases; (ii) all product and service specification documents and production and quality control manuals used in the manufacture or delivery of products and services sold or delivered under or in connection with the Trademarks or Trademark Rights; (iii) all documents which reveal the name and address of any source of supply, and any terms of purchase and delivery, for any and all materials, components and services used in the production of products and services sold or delivered under or in connection with the Trademarks or Trademark Rights; and (iv) all documents constituting or concerning the then current or proposed advertising and promotion by Grantor or its Affiliates, licensees or subcontractors of products and services sold or delivered under or in connection with the Trademarks or Trademark Rights including, without limitation, all documents which reveal the media used or to be used and the cost for all such advertising conducted within the described period or planned for such products and services; (c) all general intangibles relating to the Collateral; (d) all books, records, ledger cards, files, correspondence, computer programs, tapes, disks and related data processing software that at any time evidence or contain information relating to any of the Collateral or are otherwise necessary or helpful in the collection thereof or realization thereupon; and (e) all proceeds, products, rents and profits (including without limitation license royalties and proceeds of infringement suits) of or from any and all of the foregoing Collateral and, to the extent not otherwise included, all payments under insurance (whether or not Secured Party is the loss payee thereof), or any indemnity, warranty or guaranty, payable by reason of loss or damage to or otherwise with respect to any of the foregoing Collateral. For purposes of this Agreement, the term "PROCEEDS" includes whatever is receivable or received when Collateral or proceeds are sold, exchanged, collected or otherwise disposed of, whether such disposition is voluntary or involuntary. 4 SECTION 2. SECURITY FOR OBLIGATIONS. This Agreement secures, and the ------------------------ Collateral is collateral security for, the prompt payment or performance in full when due, whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise (including the payment of amounts that would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. (S)362(a)), of all obligations and liabilities of every nature of Grantor now or hereafter existing under or arising out of or in connection with the Credit Agreement, the other Loan Documents and the Lender Interest Rate Agreements and all extensions or renewals thereof, whether for principal, interest (including without limitation interest that, but for the filing of a petition in bankruptcy with respect to Grantor, would accrue on such obligations, whether or not a claim is allowed against Grantor for such interest in the related bankruptcy proceeding), reimbursement of amounts drawn under Letters of Credit, payments for early termination of Lender Interest Rate Agreements, fees, expenses, indemnities or otherwise, whether voluntary or involuntary, direct or indirect, absolute or contingent, liquidated or unliquidated, whether or not jointly owed with others, and whether or not from time to time decreased or extinguished and later increased, created or incurred, and all or any portion of such obligations or liabilities that are paid, to the extent all or any part of such payment is avoided or recovered directly or indirectly from Secured Party, Syndication Agent, any Lender or Interest Rate Exchanger as a preference, fraudulent transfer or otherwise (all such obligations and liabilities being the "UNDERLYING DEBT"), and all obligations of every nature of Grantor now or hereafter existing under this Agreement (all such obligations of Grantor, together with the Underlying Debt, being the "SECURED OBLIGATIONS"). SECTION 3. GRANTOR REMAINS LIABLE. Anything contained herein to the ---------------------- contrary notwithstanding, (a) Grantor shall remain liable under any contracts and agreements included in the Collateral, to the extent set forth therein, to perform all of its duties and obligations thereunder to the same extent as if this Agreement had not been executed, (b) the exercise by Secured Party of any of its rights hereunder shall not release Grantor from any of its duties or obligations under the contracts and agreements included in the Collateral, and (c) Secured Party shall not have any obligation or liability under any contracts and agreements included in the Collateral by reason of this Agreement, nor shall Secured Party be obligated to perform any of the obligations or duties of Grantor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder. SECTION 4. REPRESENTATIONS AND WARRANTIES. Grantor represents and ------------------------------ warrants as follows: (a) Description of Collateral. A true and complete list of all ------------------------- Trademarks, Registrations and Trademark Rights owned, held (whether pursuant to a license or otherwise) or used by 5 Grantor, in whole or in part, as of the date of this Agreement and which are material to the operation of the business of Grantor is set forth in Schedule A ---------- annexed hereto. (b) Validity and Enforceability of Collateral. Each of the Trademarks, ----------------------------------------- Registrations and Trademark Rights that is owned by Grantor and is material to the financial condition or business of Grantor is valid, subsisting and enforceable. Grantor is not aware of any pending or threatened claim by any third party that any such Trademarks, Registrations or Trademark Rights is invalid or unenforceable or that the use of any of the Trademarks, Registrations or Trademark Rights violates the rights of any third person or of any basis for any such claim. (c) Ownership of Collateral. Except for the security interest created ----------------------- by this Agreement or any other Collateral Document, Grantor owns the Collateral free and clear of any Lien (other than Permitted Encumbrances). Except such as may have been filed in favor of Secured Party relating to this Agreement, (i) no effective financing statement or other instrument similar in effect covering all or any part of the Collateral is on file in any filing or recording office and (ii) no effective filing covering all or any part of the Collateral is on file in the United States Patent and Trademark Office. (d) Office Locations; Other Names. The chief place of business, the ----------------------------- chief executive office and the office where Grantor keeps its records regarding the Collateral is, and has been for the four month period preceding the date hereof, located at the location identified in Schedule B attached hereto. ---------- Grantor has not in the past five years done, and does not now do, business under any other name (including any trade-name or fictitious business name), except as set forth in Schedule B attached hereto. ---------- (e) Governmental Authorizations. Except as contemplated by Sections --------------------------- 1(a) and 4(f) hereof, no authorization, approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for either (i) the grant by Grantor of the security interest hereby, (ii) the execution, delivery or performance of this Agreement by Grantor, or (iii) the perfection of or the exercise by Secured Party of its rights and remedies hereunder in the United States (except as may have been taken by or at the direction of Grantor). (f) Perfection. This Agreement, together with the filing of financing ---------- statements describing the Collateral with the Secretary of State of the State of North Carolina, and the recording of this Agreement with the United States Patent and Trademark Office, which have been made or will be made promptly following the Closing Date, creates a valid, perfected and, except for Permitted Encumbrances, First Priority security interest in the Collateral, securing the payment of the Secured 6 Obligations; provided that additional actions may be required with respect to -------- the perfection of proceeds of the Collateral. (g) Other Information. All information heretofore, herein or hereafter ----------------- supplied to Secured Party by or on behalf of Grantor with respect to the Collateral is accurate and complete in all material respects. SECTION 5. FURTHER ASSURANCES; NEW TRADEMARKS, REGISTRATIONS AND ----------------------------------------------------- TRADEMARK RIGHTS. - ---------------- (a) Grantor agrees that from time to time, at the expense of Grantor, Grantor will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary in order to perfect and protect any security interest granted or purported to be granted hereby or to enable Secured Party to exercise and enforce its rights and remedies hereunder with respect to any Collateral. Without limiting the generality of the foregoing, Grantor will: (i) at the request of Secured Party, mark conspicuously each of its records pertaining to the Collateral with a legend, in form and substance satisfactory to Secured Party, indicating that such Collateral is subject to the security interest granted hereby, (ii) execute and file such financing or continuation statements, or amendments thereto, and such other instruments or notices, as may be necessary in order to perfect and preserve the security interests granted or purported to be granted hereby, (iii)at the reasonable request of Secured Party use its best efforts to obtain any necessary consents of third parties to the grant and perfection of a security interest and assignment to Secured Party with respect to any Collateral, (iv) at any reasonable time, upon request by Secured Party, exhibit the Collateral to and allow inspection of the Collateral by Secured Party, or persons designated by Secured Party, and (v) at Secured Party's request, appear in and defend any action or proceeding that may affect Grantor's title to or Secured Party's security interest in all or any part of the Collateral. (b) Grantor hereby authorizes Secured Party to file one or more financing or continuation statements, and amendments thereto, relative to all or any part of the Collateral without the signature of Grantor. Grantor agrees that a carbon, photographic or other reproduction of this Agreement or of a financing statement signed by Grantor shall be sufficient as a financing statement and may be filed as a financing statement in any and all jurisdictions. (c) Grantor hereby authorizes Secured Party to modify this Agreement without obtaining Grantor's approval of or signature to such modification by amending Schedule A annexed hereto to include reference to any right, title or ---------- interest in any existing Trademark, Registration or Trademark Right or any Trademark, Registration or Trademark Right acquired or developed by Grantor after the execution hereof or to delete any reference to any right, title or interest in any Trademark, Registration or 7 Trademark Right in which Grantor no longer has or claims any right, title or interest. (d) Grantor will furnish to Secured Party from time to time statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as Secured Party may reasonably request, all in reasonable detail. (e) If Grantor shall obtain rights to any new Trademarks, Registrations or Trademark Rights, the provisions of this Agreement shall automatically apply thereto. Grantor shall promptly notify Secured Party in writing of any rights to any new Trademarks or Trademark Rights acquired by Grantor after the date hereof and of any Registrations issued or applications for Registration made after the date hereof. Concurrently with the filing of an application for Registration for any Trademark, Grantor shall execute, deliver and record in all places where this Agreement is recorded an appropriate Trademark Collateral Security Agreement, substantially in the form hereof, with appropriate insertions, or an amendment to this Agreement, in form and substance satisfactory to Secured Party, pursuant to which Grantor shall grant a security interest to the extent of its interest in such Registration as provided herein to Secured Party unless so doing would, in the reasonable judgment of Grantor, after due inquiry, result in the grant of a Registration in the name of Secured Party, in which event Grantor shall give written notice to Secured Party as soon as reasonably practicable and the filing shall instead be undertaken as soon as practicable but in no case later than immediately following the grant of the Registration. SECTION 6. CERTAIN COVENANTS OF GRANTOR. Grantor shall: ---------------------------- (a) not use or permit any Collateral to be used unlawfully or in violation of any provision of this Agreement or any applicable statute, regulation or ordinance or any policy of insurance covering the Collateral; (b) notify Secured Party of any change in Grantor's name, identity or corporate structure within 15 days of such change; (c) give Secured Party 30 days' prior written notice of any change in Grantor's chief place of business or chief executive office or the office where Grantor keeps its records regarding the Collateral; (d) pay promptly when due all property and other taxes, assessments and governmental charges or levies imposed upon, and all claims (including claims for labor, materials and supplies) against, the Collateral, except to the extent the validity thereof is being contested in good faith; provided that Grantor -------- shall in any event pay such taxes, assessments, charges, 8 levies or claims not later than five days prior to the date of any proposed sale under any judgement, writ or warrant of attachment entered or filed against Grantor or any of the Collateral as a result of the failure to make such payment; (e) not sell, assign (by operation of law or otherwise) or otherwise dispose of any of the Collateral, except as permitted herein or by the Credit Agreement; provided that in the event Grantor makes an Asset Sale permitted by -------- the Credit Agreement and the assets subject to such Asset Sale constitute Collateral, Secured Party shall release the Collateral that is the subject of such Asset Sale to Grantor free and clear of any Lien and security interest under this Agreement or any other Collateral Document concurrently with the consummation of such Asset Sale; provided, further that, as a condition -------- ------- precedent to such release, Secured Party shall have received evidence satisfactory to it that arrangements satisfactory to it have been made for delivery to Secured Party of that amount of Net Asset Sale Proceeds required to be delivered to Secured Party under the Credit Agreement; (f) except for the security interest created by this Agreement or any other Loan Document, not create or suffer to exist any Lien upon or with respect to any of the Collateral to secure the indebtedness or other obligations of any Person except for Permitted Encumbrances; (g) keep reasonable records respecting the Collateral and at all times keep at least one complete set of its records concerning substantially all of the Trademarks, Registrations and Trademark Rights at its chief executive office or principal place of business; (h) not permit the inclusion in any contract to which it becomes a party of any provision that could impair in any material respect or prevent the creation of a security interest in, or the assignment of, Grantor's rights and interests in any property included within the definitions of any Trademarks, Registrations, Trademark Rights and Associated Goodwill acquired under such contracts; (i) take all reasonable steps necessary to protect the secrecy of all trade secrets relating to the products and services sold or delivered under or in connection with the Trademarks and Trademark Rights, including without limitation entering into confidentiality agreements with employees and labeling and restricting access to secret information and documents; (j) use proper statutory notice in connection with its use of each of the Trademarks, Registrations and Trademark Rights; (k) use consistent standards of high quality (which may be consistent with Grantor's past practices) in the 9 manufacture, sale and delivery of products and services sold or delivered under or in connection with the Trademarks, Registrations and Trademark Rights, including, to the extent applicable, in the operation and maintenance of its retail stores and other merchandising operations; and (l) upon any officer of Grantor obtaining knowledge thereof, promptly notify Secured Party in writing of any event that may materially and adversely affect the value of the Collateral or any material portion thereof, the ability of Grantor or Secured Party to dispose of the Collateral or any material portion thereof, or the rights and remedies of Secured Party in relation thereto, including without limitation the levy of any legal process against the Collateral or any material portion thereof. SECTION 7. CERTAIN INSPECTION RIGHTS. Grantor hereby grants to Secured ------------------------- Party and its employees, representatives and agents the right to visit Grantor's and any of its Affiliate's or subcontractor's plants, facilities and other places of business that are utilized in connection with the manufacture, production, inspection, storage or sale of products and services sold or delivered under any of the Trademarks, Registrations or Trademark Rights (or which were so utilized during the prior six month period), and to inspect the quality control and all other records relating thereto upon reasonable notice to Grantor and as often as may be reasonably requested. SECTION 8. AMOUNTS PAYABLE IN RESPECT OF THE COLLATERAL. Except as -------------------------------------------- otherwise provided in this Section 8, Grantor shall continue to collect, at its own expense, all amounts due or to become due to Grantor in respect of the Collateral or any portion thereof. In connection with such collections, Grantor may take (and, at Secured Party's direction, shall take) such action as Grantor or Secured Party may deem necessary or advisable to enforce collection of such amounts; provided, however, that Secured Party shall have the right at any time, -------- ------- upon the occurrence and during the continuation of an Event of Default and upon written notice to Grantor of its intention to do so, to notify the obligors with respect to any such amounts of the existence of the security interest created and to direct such obligors to make payment of all such amounts directly to Secured Party, and, upon such notification and at the expense of Grantor, to enforce collection of any such amounts and to adjust, settle or compromise the amount or payment thereof, in the same manner and to the same extent as Grantor might have done. After receipt by Grantor of the notice from Secured Party referred to in the proviso to the preceding sentence, (i) all amounts and ------- proceeds (including checks and other instruments) received by Grantor in respect of amounts due to Grantor in respect of the Collateral or any portion thereof shall be received in trust for the benefit of Secured Party hereunder, shall be segregated from other funds of Grantor and shall be forthwith paid over or delivered to Secured Party in the same form as so received (with any necessary endorsement) to be held as cash Collateral and applied as 10 provided by Section 16, and (ii) Grantor shall not adjust, settle or compromise the amount or payment of any such amount or release wholly or partly any obligor with respect thereto or allow any credit or discount thereon. SECTION 9. TRADEMARK APPLICATIONS AND LITIGATION. ------------------------------------- (a) Grantor shall have the duty diligently, through counsel reasonably acceptable to Secured Party, to prosecute any trademark application relating to any of the Trademarks specifically identified in Schedule A annexed hereto that ---------- is pending as of the date of this Agreement, to make federal application on any existing or future registerable but unregistered Trademarks, and to file and prosecute opposition and cancellation proceedings, renew Registrations and do any and all acts which are necessary or desirable to preserve and maintain all rights in all Trademarks, Registrations and Trademark Rights. Any expenses incurred in connection therewith shall be borne solely by Grantor. Grantor shall not abandon any Trademark, Registration or Trademark Right that is material in value or to the conduct of Grantor's business without prior notice to, and the express consent of, Secured Party. (b) Except as provided in Section 9(d), Grantor shall have the right to commence and prosecute in its own name, as real party in interest, for its own benefit and at its own expense, such suits, proceedings or other actions for infringement, unfair competition, dilution or other damage as are in its reasonable business judgment necessary to protect the Collateral. Secured Party shall provide, at Grantor's expense, all reasonable and necessary cooperation in connection with any such suit, proceeding or action including, without limitation, joining as a necessary party. (c) Grantor shall promptly, following its becoming aware thereof, notify Secured Party of the institution of, or of any adverse determination in, any proceeding (whether in the United States Patent and Trademark Office or any federal, state, local or foreign court) described in Section 9(a) or 9(b) or regarding Grantor's claim of ownership in or right to use any of the Trademarks, Registrations or Trademark Rights, its right to register the same, or its right to keep and maintain such Registration. Grantor shall provide to Secured Party any information with respect thereto requested by Secured Party. (d) Anything contained herein to the contrary notwithstanding, upon the occurrence and during the continuation of an Event of Default, Secured Party shall have the right (but not the obligation) to bring suit, in the name of Grantor, Secured Party or otherwise, to enforce any Trademark, Registration, Trademark Right, Associated Goodwill and any license thereunder, in which event Grantor shall, at the request of Secured Party, do any and all lawful acts and execute any and all documents required by Secured Party in aid of such enforcement and Grantor shall promptly, upon demand, reimburse 11 and indemnify Secured Party as provided in Section 17 in connection with the exercise of its rights under this Section 9. To the extent that Secured Party shall elect not to bring suit to enforce any Trademark, Registration, Trademark Right, Associated Goodwill or any license thereunder as provided in this Section 9(d), Grantor agrees to use all reasonable measures, whether by action, suit, proceeding or otherwise, to prevent the infringement of any of the Trademarks, Registrations, Trademark Rights or Associated Goodwill by others and for that purpose agrees to diligently maintain any action, suit or proceeding against any Person so infringing necessary to prevent such infringement. SECTION 10. NON-DISTURBANCE AGREEMENTS, ETC. If and to the extent -------------------------------- that Grantor is permitted to license the Collateral, Secured Party shall enter into a non-disturbance agreement or other similar arrangement, at Grantor's request and expense, with Grantor and any licensee of any Collateral permitted hereunder in form and substance satisfactory to Secured Party pursuant to which (a) Secured Party shall agree not to disturb or interfere with such licensee's rights under its license agreement with Grantor so long as such licensee is not in default thereunder and (b) such licensee shall acknowledge and agree that the Collateral licensed to it is subject to the security interest created in favor of Secured Party and the other terms of this Agreement. SECTION 11. REASSIGNMENT OF COLLATERAL. If (a) an Event of Default -------------------------- shall have occurred and, by reason of cure, waiver, modification, amendment or otherwise, no longer be continuing, (b) no other Event of Default shall have occurred and be continuing, (c) an assignment to Secured Party of any rights, title and interests in and to the Collateral shall have been previously made and shall have become absolute and effective pursuant to Section 12(f) or Section 15(b), and (d) the Secured Obligations shall not have become immediately due and payable, upon the written request of Grantor and the written consent of Secured Party, Secured Party shall promptly execute and deliver to Grantor such assignments as may be necessary to reassign to Grantor any such rights, title and interests as may have been assigned to Secured Party as aforesaid, subject to any disposition thereof that may have been properly made by Secured Party pursuant hereto; provided that, after giving effect to such reassignment, -------- Secured Party's security interest granted pursuant to Section 1, as well as all other rights and remedies of Secured Party granted hereunder, shall continue to be in full force and effect; and provided, further that the rights, title and -------- ------- interests so reassigned shall be free and clear of all Liens other than Liens (if any) encumbering such rights, title and interest at the time of their assignment to Secured Party and Permitted Encumbrances. SECTION 12. SECURED PARTY APPOINTED ATTORNEY-IN-FACT. Grantor hereby ---------------------------------------- irrevocably appoints Secured Party as Grantor's attorney-in-fact, with full authority in the place and stead of 12 Grantor and in the name of Grantor, Secured Party or otherwise, from time to time in Secured Party's discretion, upon the occurrence and during the continuation of an Event of Default or Potential Event of Default, to take any action and to execute any instrument that Secured Party may deem necessary or advisable to accomplish the purposes of this Agreement, including without limitation: (a) to endorse Grantor's name on all applications, documents, papers and instruments necessary for Secured Party in the use or maintenance of the Collateral; (b) to ask for, demand, collect, sue for, recover, compound, receive and give acquittance and receipts for moneys due and to become due under or in respect of any of the Collateral; (c) to receive, endorse and collect any drafts or other instruments, documents and chattel paper in connection with clause (b) above; (d) to file any claims or take any action or institute any proceedings that Secured Party may deem necessary or desirable for the collection of any of the Collateral or otherwise to enforce the rights of Secured Party with respect to any of the Collateral; (e) to pay or discharge taxes or Liens (other than Liens permitted under this Agreement or the Credit Agreement) levied or placed upon or threatened against the Collateral, the legality or validity thereof and the amounts necessary to discharge the same to be determined by Secured Party in its sole discretion, any such payments made by Secured Party to become obligations of Grantor to Secured Party, due and payable immediately without demand; and (f) (i) to execute and deliver any of the assignments or documents requested by Secured Party pursuant to Section 15(b), (ii) to grant or issue an exclusive or non-exclusive license to the Collateral or any portion thereof to any Person, and (iii) otherwise generally to sell, transfer, pledge, make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though Secured Party were the absolute owner thereof for all purposes, and to do, at Secured Party's option and Grantor's expense, at any time or from time to time, all acts and things that are reasonably necessary to protect, preserve or realize upon the Collateral and Secured Party's security interest therein in order to effect the intent of this Agreement, all as fully and effectively as Grantor might do. SECTION 13. SECURED PARTY MAY PERFORM. If Grantor fails to perform ------------------------- any agreement contained herein during the period provided herein, upon reasonable notice, Secured Party may itself perform, or cause performance of, such agreement, and the 13 expenses of Secured Party incurred in connection therewith shall be payable by Grantor under Section 17. SECTION 14. STANDARD OF CARE. The powers conferred on Secured Party ---------------- hereunder are solely to protect its interest in the Collateral and shall not impose any duty upon it to exercise any such powers. Except for the exercise of reasonable care in the custody of any Collateral in its possession and the accounting for moneys actually received by it hereunder, Secured Party shall have no duty as to any Collateral or as to the taking of any necessary steps to preserve rights against prior parties or any other rights pertaining to any Collateral. Secured Party shall be deemed to have exercised reasonable care in the custody and preservation of Collateral in its possession if such Collateral is accorded treatment substantially equal to that which Secured Party accords its own property. SECTION 15. REMEDIES. If any Event of Default shall have occurred and -------- be continuing: (a) Secured Party may exercise in respect of the Collateral, in addition to all other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party on default under the Uniform Commercial Code as in effect in any relevant jurisdiction (the "CODE") (whether or not the Code applies to the affected Collateral), and also may (i) require Grantor to, and Grantor hereby agrees that it will at its expense and upon request of Secured Party forthwith, assemble all or part of the Collateral as directed by Secured Party and make it available to Secured Party at a place to be designated by Secured Party that is reasonably convenient to both parties, (ii) enter onto the property where any Collateral is located and take possession thereof with or without judicial process, (iii) prior to the disposition of the Collateral, store the Collateral or otherwise prepare the Collateral for disposition in any manner to the extent Secured Party deems appropriate, (iv) take possession of Grantor's premises or place custodians in exclusive control thereof, remain on such premises and use the same for the purpose of taking any actions described in the preceding clause (iii) and collecting any Secured Obligation, (v) exercise any and all rights and remedies of Grantor under or in connection with the contracts related to the Collateral or otherwise in respect of the Collateral, including without limitation any and all rights of Grantor to demand or otherwise require payment of any amount under, or performance of any provision of, such contracts, and (vi) without notice except as specified below, sell the Collateral or any part thereof in one or more parcels at public or private sale, at any of Secured Party's offices or elsewhere, for cash, on credit or for future delivery, at such time or times and at such price or prices and upon such other terms as Secured Party may deem commercially reasonable. Secured Party, any Lender or Interest Rate Exchanger may be the purchaser of any or all of the Collateral at any such public sale and, to the extent permitted by law, private sale, and Secured Party, as agent for 14 and representative of Lenders and Interest Rate Exchangers (but not any Lender or Lenders, Interest Rate Exchanger or Interest Rate Exchangers in its or their respective individual capacities unless Requisite Lenders and Requisite Obligees (as defined in Section 19(a)) shall otherwise agree in writing), shall be entitled, for the purpose of bidding and making settlement or payment of the purchase price for all or any portion of the Collateral sold at any such public sale, to use and apply any of the Secured Obligations as a credit on account of the purchase price for any Collateral payable by Secured Party at such sale. Each purchaser at any such sale shall hold the property sold absolutely free from any claim or right on the part of Grantor, and Grantor hereby waives (to the extent permitted by applicable law) all rights of redemption, stay and/or appraisal which it now has or may at any time in the future have under any rule of law or statute now existing or hereafter enacted. Grantor agrees that, to the extent notice of sale shall be required by law, at least ten days' notice to Grantor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. Secured Party shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. Secured Party may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. Grantor hereby waives any claims against Secured Party arising by reason of the fact that the price at which any Collateral may have been sold at such a private sale was less than the price which might have been obtained at a public sale, even if Secured Party accepts the first offer received and does not offer such Collateral to more than one offeree. If the proceeds of any sale or other disposition of the Collateral are insufficient to pay all the Secured Obligations, Grantor shall be liable for the deficiency and the fees of any attorneys employed by Secured Party to collect such deficiency. (b) Upon written demand from Secured Party, Grantor shall execute and deliver to Secured Party an assignment or assignments of the Trademarks, Registrations, Trademark Rights and the Associated Goodwill and such other documents as are necessary or appropriate to carry out the intent and purposes of this Agreement. SECTION 16. APPLICATION OF PROCEEDS. Except as expressly provided ----------------------- elsewhere in this Agreement, all proceeds received by Secured Party in respect of any sale of, collection from, or other realization upon all or any part of the Collateral shall be applied as provided in subsection 2.4D of the Credit Agreement. SECTION 17. INDEMNITY AND EXPENSES. ---------------------- (a) Grantor agrees to indemnify Secured Party, Syndication Agent, each Lender and each Interest Rate Exchanger from and against any and all claims, losses and liabilities in 15 any way relating to, growing out of or resulting from this Agreement and the transactions contemplated hereby (including, without limitation, enforcement of this Agreement), except to the extent such claims, losses or liabilities result solely from Secured Party's, Syndication Agent's, such Lender's or such Interest Rate Exchanger's gross negligence or willful misconduct as finally determined by a court of competent jurisdiction. (b) Grantor shall pay to Secured Party upon demand the amount of any and all costs and expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, that Secured Party may incur in connection with (i) the administration of this Agreement, (ii) the custody, preservation, use or operation of, or the sale of, collection from, or other realization upon, any of the Collateral, (iii) the exercise or enforcement of any of the rights of Secured Party hereunder, or (iv) the failure by Grantor to perform or observe any of the provisions hereof. SECTION 18. CONTINUING SECURITY INTEREST; TRANSFER OF LOANS. This ----------------------------------------------- Agreement shall create a continuing security interest in the Collateral and shall (a) remain in full force and effect until the payment in full of the Secured Obligations, the cancellation or termination of the Commitments and the cancellation or expiration of all outstanding Letters of Credit, (b) be binding upon Grantor, its successors and assigns, and (c) inure, together with the rights and remedies of Secured Party hereunder, to the benefit of Secured Party and its successors, transferees and assigns. Without limiting the generality of the foregoing clause (c), but subject to the provisions of subsection 10.1 of the Credit Agreement, any Lender may assign or otherwise transfer any Loans held by it to any other Person, and such other Person shall thereupon become vested with all the benefits in respect thereof granted to Lenders herein or otherwise. Upon the payment in full of all Secured Obligations, the cancellation or termination of the Commitments and the cancellation or expiration of all outstanding Letters of Credit, the security interest granted hereby shall terminate and all rights to the Collateral shall revert to Grantor. Upon any such termination Secured Party will, at Grantor's expense, execute and deliver to Grantor such documents as Grantor shall reasonably request to evidence such termination. SECTION 19. SECURED PARTY AS ADMINISTRATIVE AGENT. ------------------------------------- (a) Secured Party has been appointed to act as Secured Party hereunder by Lenders and, by their acceptance of the benefits hereof, Interest Rate Exchangers. Secured Party shall be obligated, and shall have the right hereunder, to make demands, to give notices, to exercise or refrain from exercising any rights, and to take or refrain from taking any action (including, without limitation, the release or substitution of Collateral), solely in accordance with this Agreement and the Credit Agreement; provided that Secured -------- Party shall exercise, or refrain from exercising, any remedies provided for in Section 15 16 in accordance with the instructions of (i) Requisite Lenders or (ii) after payment in full of all Obligations under the Credit Agreement and the other Loan Documents, the holders of a majority of the aggregate notional amount (or, with respect to any Lender Interest Rate Agreement that has been terminated in accordance with its terms, the amount then due and payable (exclusive of expenses and similar payments but including any early termination payments then due) under such Lender Interest Rate Agreement) under all Lender Interest Rate Agreements (Requisite Lenders or, if applicable, such holders being referred to herein as "REQUISITE OBLIGEES"). In furtherance of the foregoing provisions of this Section 19(a), each Interest Rate Exchanger, by its acceptance of the benefits hereof, agrees that it shall have no right individually to realize upon any of the Collateral hereunder, it being understood and agreed by such Interest Rate Exchanger that all rights and remedies hereunder may be exercised solely by Secured Party for the benefit of Lenders and Interest Rate Exchangers in accordance with the terms of this Section 19(a). (b) Written notice of resignation by Administrative Agent pursuant to subsection 9.5 of the Credit Agreement shall also constitute notice of resignation as Secured Party under this Agreement; removal of Administrative Agent pursuant to subsection 9.5 of the Credit Agreement shall also constitute removal as Secured Party under this Agreement; and appointment of a successor Administrative Agent pursuant to subsection 9.5 of the Credit Agreement shall also constitute appointment of a successor Secured Party under this Agreement. Upon the acceptance of any appointment as Administrative Agent under subsection 9.5 of the Credit Agreement by a successor Administrative Agent, that successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring or removed Secured Party under this Agreement, and the retiring or removed Secured Party under this Agreement shall promptly (i) transfer to such successor Secured Party all sums, securities and other items of Collateral held hereunder, together with all records and other documents necessary or appropriate in connection with the performance of the duties of the successor Secured Party under this Agreement, and (ii) execute and deliver to such successor Secured Party such amendments to financing statements, and take such other actions, as may be necessary or appropriate in connection with the assignment to such successor Secured Party of the security interests created hereunder, whereupon such retiring or removed Secured Party shall be discharged from its duties and obligations under this Agreement. After any retiring or removed Administrative Agent's resignation or removal hereunder as Secured Party, the provisions of this Agreement shall inure to its benefit as to any actions taken or omitted to be taken by it under this Agreement while it was Secured Party hereunder. SECTION 20. AMENDMENTS; ETC. No amendment, modification, termination --------------- or waiver of any provision of this Agreement, and no consent to any departure by Grantor therefrom, 17 shall in any event be effective unless the same shall be in writing and signed by Secured Party and, in the case of any such amendment or modification, by Grantor. Any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which it was given. SECTION 21. NOTICES. Any notice or other communication herein ------- required or permitted to be given shall be in writing and may be personally served, telexed or sent by telefacsimile or mail or courier service and shall be deemed to have been given when delivered in person or by courier service, upon receipt of telefacsimile or telex, or three Business Days after depositing it in the mail with postage prepaid and properly addressed. For the purposes hereof, the address of each party hereto shall be as provided in subsection 10.8 of the Credit Agreement. SECTION 22. FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE. No ----------------------------------------------------- failure or delay on the part of Secured Party in the exercise of any power, right or privilege hereunder shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude any other or further exercise thereof or of any other power, right or privilege. All rights and remedies existing under this Agreement are cumulative to, and not exclusive of, any rights or remedies otherwise available. SECTION 23. SEVERABILITY. In case any provision in or obligation ------------ under this Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. SECTION 24. HEADINGS. Section and subsection headings in this -------- Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose or be given any substantive effect. SECTION 25. GOVERNING LAW; TERMS. THIS AGREEMENT AND THE RIGHTS AND -------------------- OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES, EXCEPT TO THE EXTENT THAT THE CODE PROVIDES THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK. Unless otherwise defined herein or in the Credit Agreement, terms used in Articles 8 and 9 of the Uniform Commercial Code in the State of New York are used herein as therein defined. 18 SECTION 26. CONSENT TO JURISDICTION AND SERVICE OF PROCESS. ALL ---------------------------------------------- JUDICIAL PROCEEDINGS BROUGHT AGAINST GRANTOR ARISING OUT OF OR RELATING TO THIS AGREEMENT MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE OF NEW YORK, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT GRANTOR ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT. Grantor hereby agrees that service of all process in any such proceeding in any such court may be made by registered or certified mail, return receipt requested, to Grantor at its address provided in Section 21, such service being hereby acknowledged by Grantor to be sufficient for personal jurisdiction in any action against Grantor in any such court and to be otherwise effective and binding service in every respect. Nothing herein shall affect the right to serve process in any other manner permitted by law or shall limit the right of Secured Party to bring proceedings against Grantor in the courts of any other jurisdiction. SECTION 27. WAIVER OF JURY TRIAL. GRANTOR AND SECURED PARTY HEREBY -------------------- AGREE TO WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT. The scope of this waiver is intended to be all-encompassing of any and all disputes that may be filed in any court and that relate to the subject matter of this transaction, including without limitation contract claims, tort claims, breach of duty claims, and all other common law and statutory claims. Grantor and Secured Party each acknowledge that this waiver is a material inducement for Grantor and Secured Party to enter into a business relationship, that Grantor and Secured Party have already relied on this waiver in entering into this Agreement and that each will continue to rely on this waiver in their related future dealings. Grantor and Secured Party further warrant and represent that each has reviewed this waiver with its legal counsel, and that each knowingly and voluntarily waives its jury trial rights following consultation with legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT. In the event of litigation, this Agreement may be filed as a written consent to a trial by the court. SECTION 28. COUNTERPARTS. This Agreement may be executed in one or ------------ more counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. 19 [Remainder of page intentionally left blank] 20 IN WITNESS WHEREOF, Grantor and Secured Party have caused this Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above. THE PANTRY, INC., as Grantor By: /s/ WILLIAM T. FLYG ------------------- Title: Senior V.P. ---------------- FIRST UNION NATIONAL BANK, as Secured Party By: /s/ MARK FELKER --------------- Title: Senior V.P. ------------ S-1 EX-10.17 27 COLLATERAL ACCOUNT AGREEMENT EXHIBIT 10.17 COLLATERAL ACCOUNT AGREEMENT This COLLATERAL ACCOUNT AGREEMENT (this "AGREEMENT") is dated as of October 23, 1997 and entered into by and between THE PANTRY, INC., a Delaware corporation ("PLEDGOR"), and FIRST UNION NATIONAL BANK, as administrative agent for and representative of (in such capacity herein called "SECURED PARTY") the financial institutions ("LENDERS") party to the Credit Agreement referred to below. PRELIMINARY STATEMENTS A. Secured Party, Syndication Agent and Lenders have entered into a Credit Agreement dated as of October 23, 1997 (said Credit Agreement, as it may hereafter be amended, supplemented or otherwise modified from time to time, being the "CREDIT AGREEMENT", the terms defined therein and not otherwise defined herein being used herein as therein defined) with Pledgor pursuant to which Lenders have made certain commitments, subject to the terms and conditions set forth in the Credit Agreement, to extend certain credit facilities to Pledgor. B. It is a condition precedent to the initial extensions of credit by Lenders under the Credit Agreement that Pledgor shall have granted the security interests and undertaken the obligations contemplated by this Agreement. NOW, THEREFORE, in consideration of the premises and in order to induce Lenders to make Loans and issue Letters of Credit under the Credit Agreement and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Pledgor hereby agrees with Secured Party as follows: SECTION 1. CERTAIN DEFINITIONS. The following terms used in this ------------------- Agreement shall have the following meanings: "COLLATERAL" means (i) the Collateral Account, (ii) all amounts on deposit from time to time in the Collateral Account, (iii) all interest, cash, instruments, securities and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Collateral, and (iv) to the extent not covered by clauses (i) through (iii) above, all proceeds of any or all of the foregoing Collateral. "COLLATERAL ACCOUNT" means the restricted deposit account established and maintained by Secured Party pursuant to Section 2(a). 1 "SECURED OBLIGATIONS" means all obligations and liabilities of every nature of Pledgor now or hereafter existing under or arising out of or in connection with the Credit Agreement and the other Loan Documents and all extensions or renewals thereof, whether for principal, interest (including interest that, but for the filing of a petition in bankruptcy with respect to Pledgor, would accrue on such obligations), reimbursement of amounts drawn under Letters of Credit, fees, expenses, indemnities or otherwise, whether voluntary or involuntary, direct or indirect, absolute or contingent, liquidated or unliquidated, whether or not jointly owed with others, and whether or not from time to time decreased or extinguished and later increased, created or incurred, and all or any portion of such obligations or liabilities that are paid, to the extent all or any part of such payment is avoided or recovered directly or indirectly from Secured Party, Syndication Agent or any Lender as a preference, fraudulent transfer or otherwise, and all obligations of every nature of Pledgor now or hereafter existing under this Agreement. SECTION 2. ESTABLISHMENT AND OPERATION OF COLLATERAL ACCOUNT. ------------------------------------------------- (a) Secured Party is hereby authorized to establish and maintain at its office at [One First Union Center TW-10, 301 S. College Street, Charlotte, North Carolina 28288-0608], as a blocked account in the name of Secured Party and under the sole dominion and control of Secured Party, a restricted deposit account designated as "The Pantry, Inc. Collateral Account". (b) The Collateral Account shall be operated in accordance with the terms of this Agreement. (c) All amounts at any time held in the Collateral Account shall be beneficially owned by Pledgor but shall be held in the name of Secured Party hereunder, for the benefit of Lenders, as collateral security for the Secured Obligations upon the terms and conditions set forth herein. Pledgor shall have no right to withdraw, transfer or, except as expressly set forth herein, otherwise receive any funds deposited into the Collateral Account. (d) Anything contained herein to the contrary notwithstanding, the Collateral Account shall be subject to such applicable laws, and such applicable regulations of the Board of Governors of the Federal Reserve System and of any other appropriate banking or governmental authority, as may now or hereafter be in effect. SECTION 3. DEPOSITS OF CASH COLLATERAL. --------------------------- (a) All deposits of funds in the Collateral Account shall be made by wire transfer (or, if applicable, by intra-bank transfer from another account of Pledgor) of immediately available funds, in each case addressed as follows: 2 Account No.: ABA No.: Reference: Attention: Pledgor shall, promptly after initiating a transfer of funds to the Collateral Account, give notice to Secured Party by telefacsimile of the date, amount and method of delivery of such deposit. (b) If an Event of Default has occurred and is continuing and, in accordance with Section 8 of the Credit Agreement or if Company fails to refinance all of the then outstanding principal amount of Senior Notes pursuant to subsection 7.1(vi) by April 30, 2002, Pledgor is required to pay to Secured Party an amount (the "AGGREGATE AVAILABLE AMOUNT") equal to the maximum amount that may at any time be drawn under all Letters of Credit then outstanding under the Credit Agreement, Pledgor shall deliver funds in such an amount for deposit in the Collateral Account in accordance with Section 3(a). If for any reason the aggregate amount delivered by Pledgor for deposit in the Collateral Account as aforesaid is less than the Aggregate Available Amount, the aggregate amount so delivered by Pledgor shall be apportioned among all outstanding Letters of Credit for purposes of this Section 3(b) in accordance with the ratio of the maximum amount available for drawing under each such Letter of Credit (as to such Letter of Credit, the "MAXIMUM AVAILABLE AMOUNT") to the Aggregate Available Amount. Upon any drawing under any outstanding Letter of Credit in respect of which Pledgor has deposited in the Collateral Account any amounts described above, Secured Party shall apply such amounts to reimburse the Issuing Lender for the amount of such drawing. In the event of cancellation or expiration of any Letter of Credit in respect of which Pledgor has deposited in the Collateral Account any amounts described above, or in the event of any reduction in the Maximum Available Amount under such Letter of Credit, Secured Party shall apply the amount then on deposit in the Collateral Account in respect of such Letter of Credit (less, in the case of such a reduction, the ---- Maximum Avail able Amount under such Letter of Credit immediately after such reduction) first, to the payment of any amounts payable to Secured Party ----- pursuant to Section 13, second, to the extent of any excess, to the cash ------ collateralization pursuant to the terms of this Agreement of any outstanding Letters of Credit in respect of which Pledgor has failed to pay all or a portion of the amounts described above (such cash collateralization to be apportioned among all such Letters of Credit in the manner described above), third, to the ----- extent of any further excess, to the payment of any other outstanding Secured Obligations in such order as Secured Party shall elect, and fourth, to the ------ extent of any further excess, to the payment to whomsoever shall be lawfully entitled to receive such funds. SECTION 4. PLEDGE OF SECURITY FOR SECURED OBLIGATIONS. Pledgor ------------------------------------------ hereby pledges and assigns to Secured Party, and hereby 3 grants to Secured Party a security interest in, all of Pledgor's right, title and interest in and to the Collateral as collateral security for the prompt payment or performance in full when due, whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise (including the payment of amounts that would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. (S)362(a)), of all Secured Obligations. SECTION 5. NO INVESTMENT OF AMOUNTS IN THE COLLATERAL ACCOUNT; --------------------------------------------------- INTEREST ON AMOUNTS IN THE COLLATERAL ACCOUNT. - --------------------------------------------- (a) Cash held by Secured Party in the Collateral Account shall not be invested by Secured Party but instead shall be maintained as a cash deposit in the Collateral Account pending application thereof as elsewhere provided in this Agreement. (b) To the extent permitted under Regulation Q of the Board of Governors of the Federal Reserve System, any cash held in the Collateral Account shall bear interest at the standard rate paid by Secured Party to its customers for deposits of like amounts and terms. (c) Subject to Secured Party's rights under Section 12, any interest earned on deposits of cash in the Collateral Account in accordance with Section 5(b) shall be deposited directly in, and held in the Collateral Account. SECTION 6. REPRESENTATIONS AND WARRANTIES. Pledgor represents and ------------------------------ warrants as follows: (a) Ownership of Collateral. Pledgor is (or at the time of transfer ----------------------- thereof to Secured Party will be) the legal and beneficial owner of the Collateral from time to time transferred by Pledgor to Secured Party, free and clear of any Lien except for the security interest created by this Agreement or any other Collateral Document. (b) Governmental Authorizations. No authorization, approval or other --------------------------- action by, and no notice to or filing with, any governmental authority or regulatory body is required for either (i) the grant by Pledgor of the security interest granted hereby, (ii) the execution, delivery or performance of this Agreement by Pledgor, or (iii) the perfection of or the exercise by Secured Party of its rights and remedies hereunder (except as may have been taken by or at the direction of Pledgor). (c) Perfection. The pledge and assignment of the Collateral pursuant ---------- to this Agreement creates a valid and perfected first priority security interest in the Collateral, securing the payment of the Secured Obligations. (d) Other Information. All information heretofore, herein or ----------------- hereafter supplied to Secured Party by or on behalf of 4 Pledgor with respect to the Collateral is accurate and complete in all respects. SECTION 7. FURTHER ASSURANCES. Pledgor agrees that from time to ------------------ time, at the expense of Pledgor, Pledgor will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable, or that Secured Party may request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable Secured Party to exercise and enforce its rights and remedies hereunder with respect to any Collateral. Without limiting the generality of the foregoing, Pledgor will: (a) execute and file such financing or continuation statements, or amendments thereto, and such other instruments or notices, as may be necessary or desirable, or as Secured Party may request, in order to perfect and preserve the security interests granted or purported to be granted hereby and (b) at Secured Party's request, appear in and defend any action or proceeding that may affect Pledgor's beneficial title to or Secured Party's security interest in all or any part of the Collateral. SECTION 8. TRANSFERS AND OTHER LIENS. Pledgor agrees that it will ------------------------- not (a) sell, assign (by operation of law or otherwise) or otherwise dispose of any of the Collateral or (b) create or suffer to exist any Lien upon or with respect to any of the Collateral, except for the security interest under this Agreement. SECTION 9. SECURED PARTY APPOINTED ATTORNEY-IN-FACT. Pledgor hereby ---------------------------------------- irrevocably appoints Secured Party as Pledgor's attorney-in-fact, with full authority in the place and stead of Pledgor and in the name of Pledgor, Secured Party or otherwise, from time to time in Secured Party's discretion to take any action and to execute any instrument that Secured Party may deem necessary or advisable to accomplish the purposes of this Agreement, including to file one or more financing or continuation statements, or amendments thereto, relative to all or any part of the Collateral without the signature of Pledgor. SECTION 10. SECURED PARTY MAY PERFORM. If Pledgor fails to perform ------------------------- any agreement contained herein, Secured Party may itself perform, or cause performance of, such agreement, and the expenses of Secured Party incurred in connection therewith shall be payable by Pledgor under Section 13. SECTION 11. STANDARD OF CARE. The powers conferred on Secured Party ---------------- hereunder are solely to protect its interest in the Collateral and shall not impose any duty upon it to exercise any such powers. Except for the exercise of reasonable care in the custody of any Collateral in its possession and the accounting for moneys actually received by it hereunder, Secured Party shall have no duty as to any Collateral, it being understood that Secured Party shall have no responsibility for (a) taking any necessary steps (other than steps taken in accordance with the standard of care set forth above to maintain possession of the 5 Collateral) to preserve rights against any parties with respect to any Collateral or (b) taking any necessary steps to collect or realize upon the Secured Obligations or any guarantee therefor, or any part thereof, or any of the Collateral. Secured Party shall be deemed to have exercised reasonable care in the custody and preservation of Collateral in its possession if such Collateral is accorded treatment substantially equal to that which Secured Party accords its own property of like kind. SECTION 12. REMEDIES. Subject to the provisions of Section 3(b), -------- Secured Party may exercise in respect of the Collateral, in addition to all other rights and remedies otherwise available to it, all the rights and remedies of a secured party on default under the Uniform Commercial Code as in effect in any relevant jurisdiction (the "CODE") (whether or not the Code applies to the affected Collateral). SECTION 13. INDEMNITY AND EXPENSES. ---------------------- (a) Pledgor agrees to indemnify Secured Party and each Lender from and against any and all claims, losses and liabilities in any way relating to, growing out of or resulting from this Agreement and the transactions contemplated hereby (including enforcement of this Agreement), except to the extent such claims, losses or liabilities result solely from Secured Party's or such Lender's gross negligence or willful misconduct as finally determined by a court of competent jurisdiction. (b) Pledgor shall pay to Secured Party upon demand the amount of any and all costs and expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, that Secured Party may incur in connection with (i) the administration of this Agreement, (ii) the custody, preservation, use or operation of, or the sale of, collection from, or other realization upon, any of the Collateral, (iii) the exercise or enforcement of any of the rights of Secured Party hereunder, or (iv) the failure by Pledgor to perform or observe any of the provisions hereof. SECTION 14. CONTINUING SECURITY INTEREST; TRANSFER OF LOANS. This ----------------------------------------------- Agreement shall create a continuing security interest in the Collateral and shall (a) remain in full force and effect until the payment in full of the Secured Obligations, the cancellation or termination of the Commitments and the cancellation or expiration of all outstanding Letters of Credit, (b) be binding upon Pledgor, its successors and assigns, and (c) inure, together with the rights and remedies of Secured Party hereunder, to the benefit of Secured Party and its successors, transferees and assigns. Without limiting the generality of the foregoing clause (c), but subject to the provisions of subsection 10.1 of the Credit Agreement, any Lender may assign or otherwise transfer any Loans held by it to any other Person, and such other Person shall thereupon become vested with all the benefits in respect thereof granted to Lenders herein or otherwise. Upon the payment in full of all Secured Obligations, the cancellation or 6 termination of the Commitments and the cancellation or expiration of all outstanding Letters of Credit, the security interest granted hereby shall terminate and all rights to the Collateral shall revert to Pledgor. Upon any such termination Secured Party shall, at Pledgor's expense, execute and deliver to Pledgor such documents as Pledgor shall reasonably request to evidence such termination and Pledgor shall be entitled to the return, upon its request and at its expense, against receipt and without recourse to Secured Party, of such of the Collateral as shall not have been otherwise applied pursuant to the terms hereof. SECTION 15. SECURED PARTY AS ADMINISTRATIVE AGENT. ------------------------------------- (a) Secured Party has been appointed to act as Secured Party hereunder by Lenders. Secured Party shall be obligated, and shall have the right hereunder, to make demands, to give notices, to exercise or refrain from exercising any rights, and to take or refrain from taking any action (including the release or substitution of Collateral), solely in accordance with this Agreement and the Credit Agreement. (b) Secured Party shall at all times be the same Person that is Administrative Agent under the Credit Agreement. Written notice of resignation by Administrative Agent pursuant to subsection 9.5 of the Credit Agreement shall also constitute notice of resignation as Secured Party under this Agreement; removal of Administrative Agent pursuant to subsection 9.5 of the Credit Agreement shall also constitute removal as Secured Party under this Agreement; and appointment of a successor Administrative Agent pursuant to subsection 9.5 of the Credit Agreement shall also constitute appointment of a successor Secured Party under this Agreement. Upon the acceptance of any appointment as Administrative Agent under subsection 9.5 of the Credit Agreement by a successor Administrative Agent, that successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring or removed Secured Party under this Agreement, and the retiring or removed Secured Party under this Agreement shall promptly (i) transfer to such successor Secured Party all sums held by Secured Party hereunder (which shall be deposited in a new Collateral Account established and maintained by such successor Secured Party), together with all records and other documents necessary or appropriate in connection with the performance of the duties of the successor Secured Party under this Agreement, and (ii) execute and deliver to such successor Secured Party such amendments to financing statements, and take such other actions, as may be necessary or appropriate in connection with the assignment to such successor Secured Party of the security interests created hereunder, whereupon such retiring or removed Secured Party shall be discharged from its duties and obligations under this Agreement. After any retiring or removed Administrative Agent's resignation or removal hereunder as Secured Party, the provisions of this Agreement shall inure to its benefit as to any actions taken or omitted to be taken by it under this Agreement while it was Secured Party hereunder. 7 SECTION 16. AMENDMENTS; ETC. No amendment, modification, termination --------------- or waiver of any provision of this Agreement, and no consent to any departure by Pledgor therefrom, shall in any event be effective unless the same shall be in writing and signed by Secured Party and, in the case of any such amendment or modification, by Pledgor. Any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which it was given. SECTION 17. NOTICES. Unless otherwise specifically provided herein, ------- any notice or other communication herein required or permitted to be given shall be in writing and may be personally served, telexed or sent by telefacsimile or United States mail or courier service and shall be deemed to have been given when delivered in person or by courier service, upon receipt of telefacsimile or telex, or three Business Days after depositing it in the United States mail with postage prepaid and properly addressed. For the purposes hereof, the address of each party hereto shall be as provided in subsection 10.8 of the Credit Agreement. SECTION 18. FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE. ----------------------------------------------------- No failure or delay on the part of Secured Party in the exercise of any power, right or privilege hereunder shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude any other or further exercise thereof or of any other power, right or privilege. All rights and remedies existing under this Agreement are cumulative to, and not exclusive of, any rights or remedies otherwise available. SECTION 19. SEVERABILITY. In case any provision in or obligation ------------ under this Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. SECTION 20. HEADINGS. Section and subsection headings in this -------- Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose or be given any substantive effect. SECTION 21. GOVERNING LAW; TERMS. THIS AGREEMENT AND THE RIGHTS AND -------------------- OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES, EXCEPT TO THE EXTENT THAT THE CODE PROVIDES THAT THE PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK. Unless otherwise defined herein or in the Credit Agreement, terms used in Articles 8 8 and 9 of the Uniform Commercial Code in the State of New York are used herein as therein defined. SECTION 22. CONSENT TO JURISDICTION AND SERVICE OF PROCESS. ALL ---------------------------------------------- JUDICIAL PROCEEDINGS BROUGHT AGAINST PLEDGOR ARISING OUT OF OR RELATING TO THIS AGREEMENT MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE OF NEW YORK, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT PLEDGOR ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT. Pledgor hereby agrees that service of all process in any such proceeding in any such court may be made by registered or certified mail, return receipt requested, to Pledgor at its address provided in Section 17, such service being hereby acknowledged by Pledgor to be sufficient for personal jurisdiction in any action against Pledgor in any such court and to be otherwise effective and binding service in every respect. Nothing herein shall affect the right to serve process in any other manner permitted by law or shall limit the right of Secured Party to bring proceedings against Pledgor in the courts of any other jurisdiction. SECTION 23. WAIVER OF JURY TRIAL. PLEDGOR AND SECURED PARTY HEREBY -------------------- AGREE TO WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT. The scope of this waiver is intended to be all-encompassing of any and all disputes that may be filed in any court and that relate to the subject matter of this transaction, including contract claims, tort claims, breach of duty claims, and all other common law and statutory claims. Pledgor and Secured Party each acknowledge that this waiver is a material inducement for Pledgor and Secured Party to enter into a business relationship, that Pledgor and Secured Party have already relied on this waiver in entering into this Agreement and that each will continue to rely on this waiver in their related future dealings. Pledgor and Secured Party further warrant and represent that each has reviewed this waiver with its legal counsel, and that each knowingly and voluntarily waives its jury trial rights following consultation with legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY REFERRING TO THIS SECTION 23 AND EXECUTED BY EACH OF THE PARTIES HERETO), AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT. In the event of litigation, this Agreement may be filed as a written consent to a trial by the court. SECTION 24. COUNTERPARTS. This Agreement may be executed in one or ------------ more counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple 9 separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. [Remainder of page intentionally left blank] 10 IN WITNESS WHEREOF, Pledgor and Secured Party have caused this Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above. THE PANTRY, INC. By: /s/ WILLIAM T. FLYG ------------------- Title: Senior V.P. FIRST UNION NATIONAL BANK, as Secured Party By: /s/ MARK FELKER --------------- Title: Senior V.P. S-1 EX-10.18 28 FORM OF AM. & RESTATED DEED OF TRUST EXHIBIT 10.18 OBLIGATIONS SECURED HEREBY PROVIDE FOR A FLUCTUATING INTEREST RATE AMENDED AND RESTATED DEED OF TRUST, SECURITY AGREEMENT, ASSIGNMENT OF RENTS AND LEASES AND FIXTURE FILING (NORTH CAROLINA) BY AND FROM THE PANTRY, INC., "GRANTOR" TO DAVID R. CANNON, "TRUSTEE" FOR THE BENEFIT OF FIRST UNION NATIONAL BANK, IN ITS CAPACITY AS AGENT, "BENEFICIARY" DATED AS OF OCTOBER 23, 1997 COLLATERAL IS OR INCLUDES FIXTURES THE SECURED PARTY (BENEFICIARY) DESIRES THIS FIXTURE FILING TO BE INDEXED AGAINST THE RECORD OWNER OF THE REAL ESTATE DESCRIBED HEREIN PREPARED BY, RECORDING REQUESTED BY, AND WHEN RECORDED MAIL TO: F. THOMAS MULLER, ESQ. O'MELVENY & MYERS LLP 400 SOUTH HOPE STREET LOS ANGELES, CALIFORNIA FILE 154,607-004 AMENDED AND RESTATED DEED OF TRUST, SECURITY AGREEMENT, ASSIGNMENT OF RENTS AND LEASES AND FIXTURE FILING (NORTH CAROLINA) THIS AMENDED AND RESTATED DEED OF TRUST, SECURITY AGREEMENT, ASSIGNMENT OF RENTS AND LEASES AND FIXTURE FILING (North Carolina) (this "DEED OF TRUST") is dated as of October 23, 1997, by and from THE PANTRY, INC., a Delaware corporation ("GRANTOR"), whose address is 1801 Douglas Drive, Sanford, North Carolina 27330, to DAVID R. CANNON, the trustee hereunder ("TRUSTEE"), having an address c/o Nexsen Pruet Jacobs & Pollard LLP, 212 South Tryon Street, Suite 1700, Charlotte, North Carolina 28281, for the benefit of FIRST UNION NATIONAL BANK, as Agent ("AGENT") for the lenders party to the Credit Agreement (defined below) (such lenders, together with their respective successors and assigns, collectively, the "LENDERS"), having an address at 301 South College Street, Charlotte, North Carolina 28288 (Agent, together with its successors and assigns, "BENEFICIARY"). R E C I T A L S A. Beneficiary is the assignee of the beneficial interest in those certain deeds of trust described on Exhibit B hereto (the "ORIGINAL DEEDS OF TRUST") and of the obligations secured thereby, which encumber the properties described on Exhibit A hereto. B. Beneficiary and Grantor now desire to amend and restate the Original Deeds of Trust to contain all of the terms and conditions contained herein and in the Credit Agreement. NOW, THEREFORE, Beneficiary and Grantor hereby amend and restate the Original Deeds of Trust in their entirety to provide as follows: ARTICLE 1 DEFINITIONS ----------- SECTION 1.1 DEFINITIONS. All capitalized terms used herein without ----------- definition shall have the respective meanings ascribed to them in that certain Credit Agreement dated as of even date herewith (as amended, supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT") among Grantor, the Lenders, Canadian Imperial Bank of Commerce, as Syndication Agent, and Beneficiary. As used herein, the following terms shall have the following meanings: 1.1.1 "INDEBTEDNESS": (1) All indebtedness of Grantor to Beneficiary and the Lenders, including, without limitation, the sum of all (a) principal, interest and other amounts evidenced or secured by the Loan Documents, and (b) principal, interest and other amounts which may hereafter be loaned by Beneficiary or any of the Lenders under or in connection with the Credit Agreement or any of the other Loan Documents, whether evidenced by a promissory note or other instrument which, by its terms, is secured hereby, and (2) all other indebtedness, obligations and liabilities now or hereafter existing of any kind of Grantor to Beneficiary or any of the Lenders under documents which recite that they are intended to be secured by this Deed of Trust. 1.1.2 "TRUST PROPERTY": All of Grantor's interest in (1) the fee interest in the real property described in Exhibit A attached hereto and incorporated herein by this reference, together with any greater estate therein as hereafter may be acquired by Grantor (the "LAND"), (2) all improvements now owned or hereafter acquired by Grantor, now or at any time situated, placed or constructed upon the Land (the "IMPROVEMENTS"), (3) all materials, supplies, equipment, apparatus and other items of personal property now owned or hereafter acquired by Grantor and now or hereafter attached to, installed in or used in connection with any of the Improvements or the Land, and water, gas, electrical, storm and sanitary sewer facilities and all other utilities whether or not situated in easements (the "FIXTURES"), (4) all right, title and interest of Grantor in and to all goods, accounts, general intangibles, instruments, documents, chattel paper and all other personal property of any kind or character, including such items of personal property as defined in the UCC (defined below), now owned or hereafter acquired by Grantor and now or hereafter affixed to, placed upon, used in connection with, arising from or otherwise related to the Land and Improvements (the "PERSONALTY"), (5) all reserves, escrows or impounds required under the Credit Agreement and all deposit accounts maintained by Grantor with respect to the Trust Property, (6) all leases, licenses, concessions, occupancy agreements or other agreements (written or oral, now or at any time in effect) which grant to any Person a possessory interest in, or the right to use, all or any part of the Trust Property, together with all related security and other deposits (the "LEASES"), (7) all of the rents, revenues, income, proceeds, profits, security and other types of deposits, and other benefits paid or payable by parties to the Leases for using, leasing, licensing, possessing, operating from, residing in, selling or otherwise enjoying the Trust Property (the "RENTS"), (8) all other agreements, such as construction contracts, architects' agreements, engineers' contracts, utility contracts, maintenance agreements, management agreements, service contracts, permits, licenses, certificates and entitlements in any way relating to the construction, use, occupancy, operation, maintenance, enjoyment or ownership of the Trust Property (the "PROPERTY AGREEMENTS"), (9) all rights, privileges, tenements, hereditaments, rights-of-way, easements, appendages and appurtenances appertaining to the foregoing, (10) all accessions, replacements and substitutions for any of the foregoing and all proceeds thereof, (11) all insurance policies, unearned premiums therefor and proceeds from such policies covering any of the above property now or hereafter acquired by Grantor, and (12) all of Grantor's right, title and interest in and to any awards, remunerations, reimbursements, settlements or compensation heretofore made or hereafter to be made by any governmental authority pertaining to the Land, Improvements, Fixtures or Personalty. As used in this Deed of Trust, the term "TRUST PROPERTY" shall mean all or, where the context permits or requires, any portion of the above or any interest therein. 2 1.1.3 "OBLIGATIONS": All of the agreements, covenants, conditions, warranties, representations and other obligations of Grantor (including, without limitation, the obligation to repay the Indebtedness) under the Credit Agreement and the other Loan Documents. 1.1.4 "UCC": The Uniform Commercial Code of North Carolina or, if the creation, perfection and enforcement of any security interest herein granted is governed by the laws of a state other than North Carolina, then, as to the matter in question, the Uniform Commercial Code in effect in that state. ARTICLE 2 GRANT ----- SECTION 2.1 GRANT. ----- 2.1.1 To secure the full and timely payment of the Indebtedness and the full and timely performance of the Obligations, Grantor MORTGAGES, GRANTS, BARGAINS, ASSIGNS, SELLS and CONVEYS, to Trustee, with power of sale, the Trust Property, subject, however, to the Permitted Encumbrances, TO HAVE AND TO HOLD the Trust Property to Trustee, for the benefit of Beneficiary upon the terms and trusts herein, and Grantor does hereby bind itself, its successors and assigns to WARRANT AND FOREVER DEFEND the title to the Trust Property unto Trustee against the lawful claims of all persons whomsoever. 2.1.2 THIS CONVEYANCE IS MADE UPON THIS SPECIAL TRUST, that if Grantor shall pay the Indebtedness and perform the Obligations in accordance with the Credit Agreement, Notes, this Deed of Trust, and the other Loan Documents, then this conveyance shall be null and void and may be canceled of record at the request and at the cost of Grantor as provided in Section 7.7 ----------- hereof. 2.1.3 To the extent that any of the Trust Property is not real property that Trustee is empowered to sell at a public sale pursuant to N.C. Gen. Stat. (S) 45-21.1 et seq., or is not real property that could be sold at a -- ---- public sale pursuant to a judicial proceeding to foreclose the lien of this Deed of Trust, such property shall automatically be deemed to be personal property in which a security interest is granted by Grantor unto Beneficiary as provided in Section 6.1 of this Deed of Trust, effective as of the date of this Deed of - ----------- Trust. SECTION 2.2 FUTURE ADVANCES. This Deed of Trust is given to secure --------------- all present and future Indebtedness of Grantor to Beneficiary. The period in which future Indebtedness may be incurred and secured by this Deed of Trust is the period between the date hereof and that date which is ten years from the date hereof. The amount of present Indebtedness secured by this Deed of Trust is Seventy-Five Million Dollars ($75,000,000), and the maximum principal amount, including present and future Indebtedness that may be secured by this Deed of Trust at any one time is One Hundred Fifty Million Dollars ($150,000,000). Any additional amounts 3 advanced by Beneficiary or Trustee pursuant to previous provisions of this Deed of Trust or other Loan Documents shall be deemed necessary expenditures for the protection of the Trust Property. Grantor need not sign any instrument or notation evidencing or stipulating that future advances are secured by this Deed of Trust. ARTICLE 3 WARRANTIES, REPRESENTATIONS AND COVENANTS ----------------------------------------- Grantor warrants, represents and covenants to Beneficiary as follows: SECTION 3.1 TITLE TO TRUST PROPERTY AND LIEN OF THIS INSTRUMENT. --------------------------------------------------- Grantor owns the Trust Property free and clear of any liens, claims or interests, except the Permitted Encumbrances. This Deed of Trust creates valid, enforceable first priority liens and security interests against the Trust Property, subject to the Permitted Encumbrances. SECTION 3.2 FIRST LIEN STATUS. Grantor shall preserve and protect ----------------- the first lien and security interest status of this Deed of Trust and the other Loan Documents. If any lien or security interest other than the Permitted Encumbrances is asserted against the Trust Property, Grantor shall promptly, and at its expense, (a) give Beneficiary a detailed written notice of such lien or security interest (including origin, amount and other terms), and (b) pay the underlying claim in full or take such other action so as to cause it to be released or contest the same in compliance with the requirements of the Credit Agreement (including the requirement of providing a bond or other security satisfactory to Beneficiary). SECTION 3.3 PAYMENT AND PERFORMANCE. Grantor shall pay the ----------------------- Indebtedness when due under the Loan Documents and shall perform the Obligations in full when they are required to be performed. SECTION 3.4 REPLACEMENT OF FIXTURES AND PERSONALTY. Grantor shall -------------------------------------- not, without the prior written consent of Beneficiary (said consent not to be unreasonably withheld or delayed), permit any of the Fixtures or Personalty to be removed at any time from the Land or Improvements, unless the removed item is removed temporarily for maintenance and repair or, if removed permanently, is obsolete and is replaced by an article of equal or better suitability and value, owned by Grantor subject to the liens and security interests of this Deed of Trust and the other Loan Documents, and free and clear of any other lien or security interest except such as may be permitted under the Credit Agreement or first approved in writing by Beneficiary. SECTION 3.5 INSPECTION. Grantor shall permit Beneficiary and the ---------- Lenders, and their respective agents, representatives and employees, upon reasonable prior notice to Grantor, to inspect the Trust Property and all books and records of Grantor located thereon, and to conduct such environmental and engineering studies as provided in the Credit Agreement. 4 SECTION 3.6 OTHER COVENANTS. All of the covenants in the Credit --------------- Agreement are incorporated herein by reference and, together with covenants in this Article, shall be covenants running with the land. ------- SECTION 3.7 CONDEMNATION AWARDS AND INSURANCE PROCEEDS. ------------------------------------------ 3.7.1 Condemnation Awards. Grantor assigns all awards and ------------------- compensation to which it is entitled for any condemnation or other taking, or any purchase in lieu thereof, to Beneficiary and authorizes Beneficiary to collect and receive such awards and compensation and to give proper receipts and acquittances therefor, subject to the terms of the Credit Agreement. 3.7.2 Insurance Proceeds. Subject to the terms of the Credit ------------------ Agreement, Grantor assigns to Beneficiary all proceeds of any insurance policies insuring against loss or damage to the Trust Property. Subject to the terms of the Credit Agreement, Grantor authorizes Beneficiary to collect and receive such proceeds and authorizes and directs the issuer of each of such insurance policies to make payment for all such losses directly to Beneficiary, instead of to Grantor and Beneficiary jointly. ARTICLE 4 DEFAULT AND FORECLOSURE ----------------------- SECTION 4.1 REMEDIES. If an Event of Default exists, Beneficiary -------- may, at Beneficiary's election, exercise any or all of the following rights, remedies and recourses: 4.1.1 Acceleration. Declare the Indebtedness to be immediately due ------------ and payable, without further notice, presentment, protest, notice of intent to accelerate, notice of acceleration, demand or action of any nature whatsoever (each of which hereby is expressly waived by Grantor), whereupon the same shall become immediately due and payable. 4.1.2 Entry on Trust Property. Enter the Trust Property and take ----------------------- exclusive possession thereof and of all books, records and accounts relating thereto or located thereon. If Grantor remains in possession of the Trust Property after an Event of Default and without Beneficiary's prior written consent, Beneficiary may invoke any legal remedies to dispossess Grantor. 4.1.3 Operation of Trust Property. Hold, lease, develop, manage, --------------------------- operate or otherwise use the Trust Property upon such terms and conditions as Beneficiary may deem reasonable under the circumstances (making such repairs, alternations, additions and improvements and taking other actions, from time to time, as Beneficiary deems necessary or desirable), and apply all Rents and other amounts collected by Beneficiary in connection therewith in accordance with the provisions of Section 4.7. ----------- 5 4.1.4 Foreclosure and Sale. Institute proceedings for the complete -------------------- foreclosure of this Deed of Trust, either by judicial action or by power of sale in accordance with the provisions of applicable law, in which case the Trust Property may be sold for cash or credit in one or more parcels. With respect to any notices required or permitted under the UCC, Grantor agrees that five days' prior written notice shall be deemed commercially reasonable. At any such sale by virtue of any judicial proceedings, power of sale, or any other legal right, remedy or recourse, the title to and right of possession of any such property shall pass to the purchaser thereof, and to the fullest extent permitted by law, Grantor shall be completely and irrevocably divested of all of its right, title, interest, claim, equity, equity of redemption, and demand whatsoever, either at law or in equity, in and to the property sold and such sale shall be a perpetual bar both at law and in equity against Grantor, and against all other Persons claiming or to claim the property sold or any part thereof, by, through or under Grantor. Beneficiary or any of the Lenders may be a purchaser at such sale. If Beneficiary is the highest bidder, Beneficiary may credit the portion of the purchase price that would be distributed to Beneficiary against the Indebtedness in lieu of paying cash. In the event this Deed of Trust is foreclosed by judicial action, appraisement of the Trust Property is waived. 4.1.4.a Beneficiary instituting proceedings for foreclosure by power of sale shall direct Trustee to exercise the power of sale granted hereunder, and upon such direction, Trustee is hereby authorized and empowered to expose to sale and to sell the Trust Property or any part thereof at public sale to the highest bidder for cash, in compliance with all applicable requirements of North Carolina law with respect to powers of sale in deeds of trust. Trustee shall have the right to designate the place of sale in compliance with applicable law, and the sale shall be held at the place designated by the notice of sale. The successful bidder at any sale may be required by Trustee to immediately deposit with Trustee cash or certified check or cashier's check in an amount up to five percent of the bid, provided notice of such deposit requirement is published as required by law. Trustee may reject the bid if the deposit is not immediately made. Trustee shall refund such deposit in case of a resale because of an upset bid or if Trustee is unable to convey the portion of the Trust Property so sold to the bidder because the power of sale has been terminated in accordance with applicable law. If the purchaser fails to comply with its bid, Trustee may retain the deposit and apply the deposit to the expenses of the sale and any resales and to any damages and expenses incurred by reason of such default (including the amount that such bid exceeds the final sales price), or may deposit the deposit with the Clerk of Superior Court. In all other cases, Trustee shall apply the deposit to the purchase price. 4.1.4.b Pursuant to Section 25-9-501(4) of the North Carolina General Statutes, Beneficiary may direct Trustee to expose to sale and sell, together with the real estate, any portion of the Trust Property which is personal property. If personal property is sold hereunder, it need not be at the place of sale. Trustee shall not be entitled to a commission for any completed or uncompleted sale of real or personal property under this Section 4.1.4 upon an Event of Default, but shall be entitled to collect all reasonable expenses and attorneys' fees and court costs in connection with exercising its powers as Trustee. 6 4.1.5 Receiver. Make application to a court of competent -------- jurisdiction for, and obtain from such court as a matter of strict right and without notice to Grantor or regard to the adequacy of the Trust Property for the repayment of the Indebtedness, the appointment of a receiver of the Trust Property, and Grantor irrevocably consents to such appointment. Any such receiver shall have all the usual powers and duties of receivers in similar cases, including the full power to rent, maintain and otherwise operate the Trust Property upon such terms as may be approved by the court, and shall apply such Rents in accordance with the provisions of Section 4.7. ----------- 4.1.6 Other. Exercise all other rights, remedies and recourses ----- granted under the Loan Documents or otherwise available at law or in equity. SECTION 4.2 SEPARATE SALES. The Trust Property may be sold in one or -------------- more parcels and in such manner and order as Beneficiary in its reasonable discretion may elect; the right of sale arising out of any Event of Default shall not be exhausted by any one or more sales. SECTION 4.3 REMEDIES CUMULATIVE, CONCURRENT AND NONEXCLUSIVE. ------------------------------------------------ Beneficiary and the Lenders shall have all rights, remedies and recourses granted in the Loan Documents and available at law or equity (including the UCC), which rights (a) shall be cumulated and concurrent, (b) may be pursued separately, successively or concurrently against Grantor or others obligated under the Loan Documents, or against the Trust Property, or against any one or more of them, at the sole discretion of Beneficiary or the Lenders, (c) may be exercised as often as occasion therefor shall arise, and the exercise or failure to exercise any of them shall not be construed as a waiver or release thereof or of any other right, remedy or recourse, and (d) are intended to be, and shall be, nonexclusive. No action by Beneficiary or the Lenders in the enforcement of any rights, remedies or recourses under the Loan Documents or otherwise at law or equity shall be deemed to cure any Event of Default. SECTION 4.4 RELEASE OF AND RESORT TO COLLATERAL. Beneficiary may ----------------------------------- release, regardless of consideration and without the necessity for any notice to or consent by the holder of any subordinate lien on the Trust Property, any part of the Trust Property without, as to the remainder, in any way impairing, affecting, subordinating or releasing the lien or security interest created in or evidenced by the Loan Documents or their status as a first and prior lien and security interest in and to the Trust Property. For payment of the Indebtedness, Beneficiary may resort to any other security in such order and manner as Beneficiary may elect. SECTION 4.5 WAIVER OF REDEMPTION, NOTICE AND MARSHALLING OF ASSETS. ------------------------------------------------------- To the fullest extent permitted by law, Grantor hereby irrevocably and unconditionally waives and releases (a) all benefit that might accrue to Grantor by virtue of any present or future statute of limitations or law or judicial decision exempting the Trust Property from attachment, levy or sale on execution or providing for any stay of execution, exemption from civil process, redemption or extension of time for payment, (b) all notices of any Event of Default or of 7 Beneficiary's election to exercise or the actual exercise of any right, remedy or recourse provided for under the Loan Documents, and (c) any right to a marshalling of assets or a sale in inverse order of alienation. SECTION 4.6 DISCONTINUANCE OF PROCEEDINGS. If Beneficiary or the ----------------------------- Lenders or Trustee shall have proceeded to invoke any right, remedy or recourse permitted under the Loan Documents and shall thereafter elect to discontinue or abandon it for any reason, Beneficiary or the Lenders or Trustee, as the case may be, shall have the unqualified right to do so and, in such an event, Grantor, Beneficiary, the Lenders or Trustee, as the case may be, shall be restored to their former positions with respect to the Indebtedness, the Obligations, the Loan Documents, the Trust Property and otherwise, and the rights, remedies, recourses and powers of Beneficiary, the Lenders and Trustee shall continue as if the right, remedy or recourse had never been invoked, but no such discontinuance or abandonment shall waive any Event of Default which may then exist or the right of Beneficiary or the Lenders or Trustee, as the case may be, thereafter to exercise any right, remedy or recourse under the Loan Documents for such Event of Default. SECTION 4.7 ALLOCATION OF PROCEEDS. The proceeds of any sale of, and ---------------------- the Rents and other amounts generated by the holding, leasing, management, operation or other use of the Trust Property, shall be applied by Beneficiary (or the receiver, if one is appointed) in the following order unless otherwise required by applicable law: 4.7.1 to the payment of the reasonable costs and expenses of taking possession of the Trust Property and of holding, using, leasing, repairing, improving and selling the same, including, without limitation (1) receiver's fees and expenses, including the repayment of the amounts evidenced by any receiver's certificates, (2) court costs, (3) attorneys' and accountants' fees and expenses, and (4) costs of advertisement; 4.7.2 to the payment of the Indebtedness and performance of the Obligations in such manner and order of preference as Beneficiary in its sole discretion may determine; and 4.7.3 the balance, if any, to the payment of the Persons legally entitled thereto. SECTION 4.8 OCCUPANCY AFTER FORECLOSURE. Any sale of the Trust --------------------------- Property or any part thereof in accordance with Section 4.1.4 will, after the ------------- expiration of any upset period, divest all right, title and interest of Grantor in and to the property sold. Subject to applicable law, any purchaser at a foreclosure sale will receive immediate possession of the property purchased. If Grantor retains possession of such property or any part thereof subsequent to such sale, Grantor will be considered a tenant at sufferance of the purchaser, and will, if Grantor remains in possession after demand to remove, be subject to eviction and removal, with or without process of law. 8 SECTION 4.9 ADDITIONAL ADVANCES AND DISBURSEMENTS; COSTS OF ----------------------------------------------- ENFORCEMENT. - ----------- 4.9.1 If any Event of Default exists, Beneficiary and each of the Lenders shall have the right, but not the obligation, to cure such Event of Default in the name and on behalf of Grantor. All sums advanced and expenses incurred at any time by Beneficiary or any Lender under this Section, or ------- otherwise under this Deed of Trust or any of the other Loan Documents or applicable law, shall be deemed advances of principal evidenced by the Notes and shall bear interest from the date that such sum is advanced or expense incurred, to and including the date of reimbursement, computed at the rate or rates at which interest is then computed on the Indebtedness, and all such sums, together with interest thereon, shall be secured by this Deed of Trust. 4.9.2 Grantor shall pay all expenses (including reasonable attorneys' fees and expenses) of or incidental to the perfection and enforcement of this Deed of Trust and the other Loan Documents, or the enforcement, compromise or settlement of the Indebtedness or any claim under this Deed of Trust and the other Loan Documents, and for the curing thereof, or for defending or asserting the rights and claims of Beneficiary in respect thereof, by litigation or otherwise. Attorneys' fees and expenses payable by Grantor under this Section ------- 4.9 or otherwise under this Deed of Trust shall be limited to those reasonable - --- fees and expenses actually incurred at standard rates without reference to a specific percentage of the outstanding balance of the Indebtedness. SECTION 4.10 NO BENEFICIARY IN POSSESSION. Except as otherwise ---------------------------- provided by law, neither the enforcement of any of the remedies under this Article, the assignment of the Rents and Leases under Article 5, the security - ------- --------- interests under Article 6, nor any other remedies afforded to Beneficiary under --------- the Loan Documents, at law or in equity shall cause Beneficiary or any Lender to be deemed or construed to be a beneficiary in possession of the Trust Property, to obligate Beneficiary or any Lender to lease the Trust Property or attempt to do so, or to take any action, incur any expense, or perform or discharge any obligation, duty or liability whatsoever under any of the Leases or otherwise. ARTICLE 5 ASSIGNMENT OF RENTS AND LEASES ------------------------------ SECTION 5.1 ASSIGNMENT. In furtherance of and in addition to the ---------- assignment made by Grantor in Section 2.1 of this Deed of Trust, Grantor hereby ----------- absolutely and unconditionally assigns, sells, transfers and conveys to Beneficiary all of its right, title and interest in and to all Leases, whether now existing or hereafter entered into, and all of its right, title and interest in and to all Rents. If permitted under applicable law, this assignment is an absolute assignment and not merely an assignment for additional security. So long as no Event of Default shall have occurred and be continuing, Grantor shall have a revocable license from Beneficiary to exercise all rights extended to the landlord under the Leases, including the right 9 to receive and collect all Rents and to hold the Rents in trust for use in the payment and performance of the Obligations and to otherwise use the same. The foregoing license is granted subject to the conditional limitation that no Event of Default shall have occurred and be continuing. Upon the occurrence and during the continuance of an Event of Default, whether or not legal proceedings have commenced, and without regard to waste, adequacy of security for the Obligations or solvency of Grantor, the license herein granted shall automatically expire and terminate, without notice by Beneficiary (any such notice being hereby expressly waived by Grantor). SECTION 5.2 PERFECTION UPON RECORDATION. Grantor acknowledges that --------------------------- Beneficiary has taken all actions necessary to obtain, and that upon recordation of this Deed of Trust Beneficiary shall have, to the extent permitted under applicable law, a valid and fully perfected first priority present assignment of the Rents arising out of the Leases and all security for such Leases. Grantor acknowledges and agrees that upon recordation of this Deed of Trust Beneficiary's interest in the Rents shall be deemed to be fully perfected, "choate" and enforced as to Grantor and all third parties, including, without limitation, any subsequently appointed trustee in any case under Title 11 of the United States Code (the "BANKRUPTCY CODE"), without the necessity of commencing a foreclosure action with respect to this Deed of Trust, making formal demand for the Rents, obtaining the appointment of a receiver or taking any other affirmative action. SECTION 5.3 BANKRUPTCY PROVISIONS. Without limitation of the --------------------- absolute nature of the assignment of the Rents hereunder, Grantor and Beneficiary agree that (a) this Deed of Trust shall constitute a "security agreement" for purposes of Section 552(b) of the Bankruptcy Code, (b) the security interest created by this Deed of Trust extends to property of Grantor acquired before the commencement of a case in bankruptcy and to all amounts paid as Rents and (c) such security interest shall extend to all Rents acquired by the estate after the commencement of any case in bankruptcy. SECTION 5.4 NO MERGER OF ESTATES. So long as part of the -------------------- Indebtedness and the Obligations secured hereby remain unpaid and undischarged, the fee and leasehold estates to the Trust Property shall not merge, but shall remain separate and distinct, notwithstanding the union of such estates either in Grantor, Beneficiary, any tenant or any third party by purchase or otherwise. 10 ARTICLE 6 SECURITY AGREEMENT ------------------ SECTION 6.1 SECURITY INTEREST. This Deed of Trust constitutes a ----------------- "Security Agreement" on personal property within the meaning of the UCC and other applicable law and with respect to the Personalty, Fixtures, Leases, Rents and Property Agreements. To this end, Grantor grants to Beneficiary a first and prior security interest in the Personalty, Fixtures, Leases, Rents and Property Agreements and all other Trust Property which is personal property to secure the payment of the Indebtedness and performance of the Obligations, and agrees that Beneficiary shall have all the rights and remedies of a secured party under the UCC with respect to such property. Any notice of sale, disposition or other intended action by Beneficiary with respect to the Personalty, Fixtures, Leases, Rents and Property Agreements sent to Grantor at least five days prior to any action under the UCC shall constitute reasonable notice to Grantor. SECTION 6.2 FINANCING STATEMENTS. Grantor shall execute and deliver -------------------- to Beneficiary, in form and substance satisfactory to Beneficiary, such financing statements and such further assurances as Beneficiary may, from time to time, reasonably consider necessary to create, perfect and preserve Beneficiary's security interest hereunder and Beneficiary may cause such statements and assurances to be recorded and filed, at such times and places as may be required or permitted by law to so create, perfect and preserve such security interest. Grantor's chief executive office is in the State of North Carolina at the address set forth in the first paragraph of this Deed of Trust. SECTION 6.3 FIXTURE FILING. This Deed of Trust shall also constitute -------------- a "fixture filing" for the purposes of the UCC against all of the Trust Property which is or is to become fixtures. Information concerning the security interest herein granted may be obtained at the addresses of Debtor (Grantor) and Secured Party (Beneficiary) as set forth in the first paragraph of this Deed of Trust. For the purposes of complying with N.C. Gen. Stat. (S) 25-9-402: (i) the types or items of collateral are described in Section 6.1 hereof, as further described ----------- in Section 1.1.2 hereof; and (ii) the description of the Land to which any ------------- fixtures are attached is set forth in Exhibit A hereto. The collateral is or includes fixtures. ARTICLE 7 MISCELLANEOUS ------------- SECTION 7.1 NOTICES. Any notice required or permitted to be given ------- under this Deed of Trust shall be given in accordance with the provisions of the Credit Agreement. SECTION 7.2 COVENANTS RUNNING WITH THE LAND. All Obligations ------------------------------- contained in this Deed of Trust are intended by Grantor and Beneficiary to be, and shall be construed as, covenants running with the Trust Property. As used herein, "Grantor" shall refer to the party named in the first paragraph of this Deed of Trust and to any subsequent owner of all or any 11 portion of the Trust Property. All Persons who may have or acquire an interest in the Trust Property shall be deemed to have notice of, and be bound by, the terms of the Credit Agreement and the other Loan Documents; however, no such party shall be entitled to any rights thereunder without the prior written consent of Beneficiary. SECTION 7.3 ATTORNEY-IN-FACT. Grantor hereby irrevocably appoints ---------------- Beneficiary and its successors and assigns, as its attorney-in-fact, which agency is coupled with an interest, (a) to execute and/or record any notices of completion, cessation of labor or any other notices that Beneficiary deems appropriate to protect Beneficiary's interest, if Grantor shall fail to do so within ten (10) days after written request by Beneficiary, (b) upon the issuance of a deed pursuant to the foreclosure of this Deed of Trust or the delivery of a deed in lieu of foreclosure, to execute all instruments of assignment, conveyance or further assurance with respect to the Leases, Rents, Personalty, Fixtures and Property Agreements in favor of the grantee of any such deed and as may be necessary or desirable for such purpose, (c) to prepare, execute and file or record financing statements, continuation statements, applications for registration and like papers necessary to create, perfect or preserve Beneficiary's security interests and rights in or to any of the Trust Property, and (d) while any Event of Default exists, to perform any obligation of Grantor hereunder, however: (1) Beneficiary shall not under any circumstances be obligated to perform any obligation of Grantor; (2) any sums advanced by Beneficiary in such performance shall be added to and included in the Indebtedness and shall bear interest at the rate or rates at which interest is then computed on the Indebtedness; (3) Beneficiary as such attorney-in-fact shall only be accountable for such funds as are actually received by Beneficiary; and (4) Beneficiary shall not be liable to Grantor or any other person or entity for any failure to take any action which it is empowered to take under this Section. ------- SECTION 7.4 SUCCESSORS AND ASSIGNS. This Deed of Trust shall be ---------------------- binding upon and inure to the benefit of Beneficiary, the Lenders, and Grantor and their respective successors and assigns. Grantor shall not, without the prior written consent of Beneficiary, assign any rights, duties or obligations hereunder. SECTION 7.5 NO WAIVER. Any failure by Beneficiary to insist upon --------- strict performance of any of the terms, provisions or conditions of the Loan Documents shall not be deemed to be a waiver of same, and Beneficiary or the Lenders shall have the right at any time to insist upon strict performance of all of such terms, provisions and conditions. SECTION 7.6 CREDIT AGREEMENT. If any conflict or inconsistency ---------------- exists between this Deed of Trust and the Credit Agreement, the Credit Agreement shall govern. SECTION 7.7 RELEASE OR RECONVEYANCE. Upon payment in full of the ----------------------- Indebtedness and performance in full of the Obligations, the conveyance of the Trust Property to Trustee under this Deed of Trust shall be null and void, and upon Grantor's request, Trustee and Beneficiary, at Grantor's expense, shall release and cancel of record the liens and security 12 interests created by this Deed of Trust or reconvey the Trust Property to Grantor. In addition, as long as no Event of Default has occurred and is then continuing or would be caused thereby, if Grantor sells or transfers for value any portion of the Trust Property as permitted under Section 7.7 of the Credit ----------- Agreement, Beneficiary shall release the liens and security interests created by this Deed of Trust on such Trust Property or reconvey such Trust Property to Grantor, concurrently with the consummation of such sale or other transfer. Such release or reconveyance shall be at Grantor's sole cost and expense, and only upon not less than thirty days' prior written notice to Beneficiary. SECTION 7.8 WAIVER OF STAY, MORATORIUM AND SIMILAR RIGHTS. Grantor --------------------------------------------- agrees, to the full extent that it may lawfully do so, that it will not at any time insist upon or plead or in any way take advantage of any stay, marshalling of assets, extension, redemption or moratorium law now or hereafter in force and effect so as to prevent or hinder the enforcement of the provisions of this Deed of Trust or the Indebtedness secured hereby, or any agreement between Grantor and Beneficiary or any rights or remedies of Beneficiary or the Lenders. SECTION 7.9 APPLICABLE LAW. The provisions of this Deed of Trust -------------- regarding the creation, perfection and enforcement of the liens and security interests herein granted shall be governed by and construed under the laws of the state in which the Trust Property is located. All other provisions of this Deed of Trust and the Obligations shall be governed by the laws of the State of New York (including, without limitation, Section 5-1401 of the General Obligations Law of the State of New York), without regard to conflicts of laws principles. SECTION 7.10 HEADINGS. The Article, Section and Subsection titles -------- hereof are inserted for convenience of reference only and shall in no way alter, modify or define, or be used in construing, the text of such Articles, Sections or Subsections. SECTION 7.11 ENTIRE AGREEMENT. This Deed of Trust and the other Loan ---------------- Documents embody the entire agreement and understanding between Beneficiary and Grantor and supersede all prior agreements and understandings between such parties relating to the subject matter hereof and thereof. Accordingly, the Loan Documents may not be contradicted by evidence of prior, contemporaneous or subsequent oral agreements of the parties. There are no unwritten oral agreements between the parties. SECTION 7.12 SUBSTITUTION OF TRUSTEE. If, for any reason, ----------------------- Beneficiary shall elect a substitute for the Trustee herein named or any successor to said Trustee(s), Beneficiary shall have the right to appoint a successor Trustee by duly acknowledged written instruments, and each new Trustee immediately upon recordation of the instrument so appointing such new Trustee shall become successor in title to the Trust Property for the uses and purposes of this Deed of Trust, and with all the powers, duties and obligations conferred on the Trustee in the same manner and to the same effect as though he were named herein as the Trustee, including, 13 without limitation, the power of sale. If more than one Trustee has been appointed, each of such Trustees and each successor thereto shall be and hereby is empowered to act independently. ARTICLE 8 LOCAL LAW PROVISIONS -------------------- [TO COME] --------- [THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK] 14 IN WITNESS WHEREOF, Grantor and Beneficiary have on the date set forth in the acknowledgement hereto, effective as of the date first above written, caused this instrument to be duly EXECUTED UNDER SEAL AND DELIVERED by authority duly given. THE PANTRY, INC., a Delaware corporation By: _______________________________________ Name: William T. Flyg Title: Senior Vice President, Finance, Chief Financial Officer & Secretary ATTEST: ___________________________ ___________________________ [corporate seal] FIRST UNION NATIONAL BANK, in its capacity as Agent By: _______________________________________ Name: Mark Felker Title: Senior Vice President ATTEST: ___________________________ ___________________________ [corporate seal] S-1 ACKNOWLEDGEMENT STATE OF NEW YORK COUNTY OF NEW YORK I, the undersigned, Notary Public of the County and State aforesaid, certify that Jon D. Ralph personally came before me this day and acknowledged that he is a Assistant Secretary of The Pantry, Inc., a corporation and that by authority duly given and as the act of the corporation, the foregoing instrument was signed in its name by its Senior Vice President, sealed with its corporate seal, and attested by her/him as its Assistant Secretary. WITNESS my hand and official stamp or seal this _____ day of October, 1997. _______________________________________ Notary Public My Commission expires: ___________________________ [AFFIX NOTARIAL STAMP OR SEAL] S-2 STATE OF NEW YORK COUNTY OF NEW YORK I, the undersigned, Notary Public of the County and State aforesaid, certify that G. Mendal Lay, Jr. personally came before me this day and acknowledged that he is a Senior Vice President of First Union National Bank, a corporation and that by authority duly given and as the act of the corporation, the foregoing instrument was signed in its name by a Senior Vice President, sealed with its corporate seal, and attested by her/him as its Senior Vice President. WITNESS my hand and official stamp or seal this _____ day of October, 1997. _______________________________________ Notary Public My Commission expires: ___________________________ [AFFIX NOTARIAL STAMP OR SEAL] S-3 EXHIBIT A TRUST PROPERTY A-1 EXHIBIT B ORIGINAL DEEDS OF TRUST B-1 EX-10.19 29 FORM OF AM. & RESTATED MORTGAGE EXHIBIT 10.19 OBLIGATIONS SECURED HEREBY PROVIDE FOR A FLUCTUATING INTEREST RATE AMENDED AND RESTATED MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF RENTS AND LEASES AND FIXTURE FILING (SOUTH CAROLINA) BY AND FROM THE PANTRY, INC., "MORTGAGOR" TO FIRST UNION NATIONAL BANK, IN ITS CAPACITY AS AGENT, "MORTGAGEE" DATED AS OF OCTOBER 23, 1997 THE SECURED PARTY (MORTGAGEE) DESIRES THIS FIXTURE FILING TO BE INDEXED AGAINST THE RECORD OWNER OF THE REAL ESTATE DESCRIBED HEREIN PREPARED BY, RECORDING REQUESTED BY, AND WHEN RECORDED MAIL TO: O'MELVENY & MYERS LLP 400 SOUTH HOPE STREET LOS ANGELES, CALIFORNIA ATTENTION: F. THOMAS MULLER, ESQ. FILE 154,607-004 AMENDED AND RESTATED MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF RENTS AND LEASES AND FIXTURE FILING (SOUTH CAROLINA) THIS AMENDED AND RESTATED MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF RENTS AND LEASES AND FIXTURE FILING (South Carolina) (this "MORTGAGE") is dated as of October 23, 1997, by and from THE PANTRY, INC., a Delaware corporation ("MORTGAGOR"), whose address is 1801 Douglas Drive, Sanford, North Carolina 27330, to FIRST UNION NATIONAL BANK, as Agent ("AGENT") for the lenders party to the Credit Agreement (defined below) (such lenders, together with their respective successors and assigns, collectively, the "LENDERS"), having an address at 301 South College Street, Charlotte, North Carolina 28288 (Agent, together with its successors and assigns, "MORTGAGEE"). R E C I T A L S A. Mortgagee is the assignee, owner and holder of those certain mortgages described on Exhibit B hereto (the "ORIGINAL MORTGAGES") and the obligations secured thereby, which encumber the properties described on Exhibit A hereto. B. Mortgagee and Mortgagor now desire to amend and restate the Original Mortgages to contain all of the terms and conditions contained herein and in the Credit Agreement. NOW, THEREFORE, Mortgagee and Mortgagor hereby amend and restate the Original Mortgages in their entirety to provide as follows: ARTICLE 1 DEFINITIONS ----------- SECTION 1.1 DEFINITIONS. All capitalized terms used herein without ----------- definition shall have the respective meanings ascribed to them in that certain Credit Agreement dated as of even date herewith (as amended, supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT") among Mortgagor, the Lenders, Canadian Imperial Bank of Commerce, as Syndication Agent, and Mortgagee. As used herein, the following terms shall have the following meanings: 1.1.1 "INDEBTEDNESS": (1) All indebtedness of Mortgagor to Mortgagee and the Lenders, including, without limitation, the sum of all (a) principal, interest and other amounts evidenced or secured by the Loan Documents, and (b) principal, interest and other amounts which may hereafter be loaned by Mortgagee or any of the Lenders under or in connection with the Credit Agreement or any of the other Loan Documents, whether evidenced by a promissory note or other instrument which, by its terms, is secured hereby, and (2) all other indebtedness, obligations and liabilities now or hereafter existing of any kind of Mortgagor to Mortgagee or any of the Lenders under documents which recite that they are intended to be secured by this Mortgage. 1.1.2 "MORTGAGED PROPERTY": All of Mortgagor's interest in (1) the fee interest in the real property described in Exhibit A attached hereto and incorporated herein by this reference, together with any greater estate therein as hereafter may be acquired by Mortgagor (the "LAND"), (2) all improvements now owned or hereafter acquired by Mortgagor, now or at any time situated, placed or constructed upon the Land (the "IMPROVEMENTS"), (3) all materials, supplies, equipment, apparatus and other items of personal property now owned or hereafter acquired by Mortgagor and now or hereafter attached to, installed in or used in connection with any of the Improvements or the Land, and water, gas, electrical, storm and sanitary sewer facilities and all other utilities whether or not situated in easements (the "FIXTURES"), (4) all right, title and interest of Mortgagor in and to all goods, accounts, general intangibles, instruments, documents, chattel paper and all other personal property of any kind or character, including such items of personal property as defined in the UCC (defined below), now owned or hereafter acquired by Mortgagor and now or hereafter affixed to, placed upon, used in connection with, arising from or otherwise related to the Land and Improvements (the "PERSONALTY"), (5) all reserves, escrows or impounds required under the Credit Agreement and all deposit accounts maintained by Mortgagor with respect to the Mortgaged Property, (6) all leases, licenses, concessions, occupancy agreements or other agreements (written or oral, now or at any time in effect) which grant to any Person a possessory interest in, or the right to use, all or any part of the Mortgaged Property, together with all related security and other deposits (the "LEASES"), (7) all of the rents, revenues, income, proceeds, profits, security and other types of deposits, and other benefits paid or payable by parties to the Leases for using, leasing, licensing, possessing, operating from, residing in, selling or otherwise enjoying the Mortgaged Property (the "RENTS"), (8) all other agreements, such as construction contracts, architects' agreements, engineers' contracts, utility contracts, maintenance agreements, management agreements, service contracts, permits, licenses, certificates and entitlements in any way relating to the construction, use, occupancy, operation, maintenance, enjoyment or ownership of the Mortgaged Property (the "PROPERTY AGREEMENTS"), (9) all rights, privileges, tenements, hereditaments, rights-of-way, easements, appendages and appurtenances appertaining to the foregoing, (10) all accessions, replacements and substitutions for any of the foregoing and all proceeds thereof, (11) all insurance policies, unearned premiums therefor and proceeds from such policies covering any of the above property now or hereafter acquired by Mortgagor, and (12) all of Mortgagor's right, title and interest in and to any awards, remunerations, reimbursements, settlements or compensation heretofore made or hereafter to be made by any governmental authority pertaining to the Land, Improvements, Fixtures or Personalty. As used in this Mortgage, the term "MORTGAGED PROPERTY" shall mean all or, where the context permit or requires, any portion of the above or any interest therein. 2 1.1.3 "OBLIGATIONS": All of the agreements, covenants, conditions, warranties, representations and other obligations of Mortgagor (including, without limitation, the obligation to repay the Indebtedness) under the Credit Agreement and the other Loan Documents. 1.1.4 "UCC": The Uniform Commercial Code of South Carolina or, if the creation, perfection and enforcement of any security interest herein granted is governed by the laws of a state other than South Carolina, then, as to the matter in question, the Uniform Commercial Code in effect in that state. ARTICLE 2 GRANT ----- SECTION 2.1 GRANT. To secure the full and timely payment of the ----- Indebtedness and the full and timely performance of the Obligations, Mortgagor MORTGAGES, GRANTS, BARGAINS, ASSIGNS, SELLS and CONVEYS, to Mortgagee the Mortgaged Property, subject, however, to the Permitted Encumbrances, TO HAVE AND TO HOLD the Mortgaged Property to Mortgagee, and Mortgagor does hereby bind itself, its successors and assigns to WARRANT AND FOREVER DEFEND the title to the Mortgaged Property unto Mortgagee. SECTION 2.2 FUTURE ADVANCES. This Mortgage is given to secure all --------------- present and future Indebtedness of Mortgagor to Mortgagee. The period in which future Indebtedness may be incurred and secured by this Mortgage is the period between the date hereof and that date which is ten years from the date hereof. The amount of present Indebtedness secured by this Mortgage is Seventy-Five Million Dollars ($75,000,000), and the maximum principal amount, including present and future Indebtedness that may be secured by this Mortgage at any one time is One Hundred Fifty Million Dollars ($150,000,000). Any additional amounts advanced by Mortgagee pursuant to other provisions of this Mortgage or other Loan Documents shall be deemed necessary expenditures for the protection of the Mortgaged Property. Mortgagor need not sign any instrument or notation evidencing or stipulating that future advances are secured by this Mortgage. ARTICLE 3 WARRANTIES, REPRESENTATIONS AND COVENANTS ----------------------------------------- Mortgagor warrants, represents and covenants to Mortgagee as follows: SECTION 3.1 TITLE TO MORTGAGED PROPERTY AND LIEN OF THIS INSTRUMENT. ------------------------------------------------------- Mortgagor owns the Mortgaged Property free and clear of any liens, claims or interests, except the Permitted Encumbrances. This Mortgage creates valid, enforceable first priority liens and security interests against the Mortgaged Property. 3 SECTION 3.2 FIRST LIEN STATUS. Mortgagor shall preserve and protect ----------------- the first lien and security interest status of this Mortgage and the other Loan Documents. If any lien or security interest other than the Permitted Encumbrances is asserted against the Mortgaged Property, Mortgagor shall promptly, and at its expense, (a) give Mortgagee a detailed written notice of such lien or security interest (including origin, amount and other terms), and (b) pay the underlying claim in full or take such other action so as to cause it to be released or contest the same in compliance with the requirements of the Credit Agreement (including the requirement of providing a bond or other security satisfactory to Mortgagee). SECTION 3.3 PAYMENT AND PERFORMANCE. Mortgagor shall pay the ----------------------- Indebtedness when due under the Loan Documents and shall perform the Obligations in full when they are required to be performed. SECTION 3.4 REPLACEMENT OF FIXTURES AND PERSONALTY. Mortgagor shall -------------------------------------- not, without the prior written consent of Mortgagee, permit any of the Fixtures or Personalty to be removed at any time from the Land or Improvements, unless the removed item is removed temporarily for maintenance and repair or, if removed permanently, is obsolete and is replaced by an article of equal or better suitability and value, owned by Mortgagor subject to the liens and security interests of this Mortgage and the other Loan Documents, and free and clear of any other lien or security interest except such as may be permitted under the Credit Agreement or first approved in writing by Mortgagee. SECTION 3.5 INSPECTION. Mortgagor shall permit Mortgagee and the ---------- Lenders, and their respective agents, representatives and employees, upon reasonable prior notice to Mortgagor, to inspect the Mortgaged Property and all books and records of Mortgagor located thereon, and to conduct such environmental and engineering studies as Mortgagee or the Lenders may require, provided that such inspections and studies shall not materially interfere with the use and operation of the Mortgaged Property. SECTION 3.6 OTHER COVENANTS. All of the covenants in the Credit --------------- Agreement are incorporated herein by reference and, together with covenants in this Article, shall be covenants running with the land. ------- SECTION 3.7 CONDEMNATION AWARDS AND INSURANCE PROCEEDS. ------------------------------------------ 3.7.1 Condemnation Awards. Mortgagor assigns all awards and ------------------- compensation to which it is entitled for any condemnation or other taking, or any purchase in lieu thereof, to Mortgagee and authorizes Mortgagee to collect and receive such awards and compensation and to give proper receipts and acquittances therefor, subject to the terms of the Credit Agreement. 3.7.2 Insurance Proceeds. Mortgagor assigns to Mortgagee all ------------------ proceeds of any insurance policies insuring against loss or damage to the Mortgaged Property. Mortgagor 4 authorizes Mortgagee to collect and receive such proceeds and authorizes and directs the issuer of each of such insurance policies to make payment for all such losses directly to Mortgagee, instead of to Mortgagor and Mortgagee jointly. ARTICLE 4 DEFAULT AND FORECLOSURE ----------------------- SECTION 4.1 REMEDIES. If an Event of Default exists, Mortgagee may, -------- at Mortgagee's election, exercise any or all of the following rights, remedies and recourses: 4.1.1 Acceleration. Declare the Indebtedness to be immediately due ------------ and payable, without further notice, presentment, protest, notice of intent to accelerate, notice of acceleration, demand or action of any nature whatsoever (each of which hereby is expressly waived by Mortgagor), whereupon the same shall become immediately due and payable. 4.1.2 Entry on Mortgaged Property. Enter the Mortgaged Property and --------------------------- take exclusive possession thereof and of all books, records and accounts relating thereto or located thereon. If Mortgagor remains in possession of the Mortgaged Property after an Event of Default and without Mortgagee's prior written consent, Mortgagee may invoke any legal remedies to dispossess Mortgagor. 4.1.3 Operation of Mortgaged Property. Hold, lease, develop, manage, ------------------------------- operate or otherwise use the Mortgaged Property upon such terms and conditions as Mortgagee may deem reasonable under the circumstances (making such repairs, alternations, additions and improvements and taking other actions, from time to time, as Mortgagee deems necessary or desirable), and apply all Rents and other amounts collected by Mortgagee in connection therewith in accordance with the provisions of Section 4.7. ----------- 4.1.4 Foreclosure and Sale. Institute proceedings for the complete -------------------- foreclosure of this Mortgage, by judicial action, in which case the Mortgaged Property may be sold for cash or credit in one or more parcels. With respect to any notices required or permitted under the UCC, Mortgagor agrees that five days' prior written notice shall be deemed commercially reasonable. At any such sale by virtue of any judicial proceedings, or any other legal right, remedy or recourse, the title to and right of possession of any such property shall pass to the purchaser thereof, and to the fullest extent permitted by law, Mortgagor shall be completely and irrevocably divested of all of its right, title, interest, claim, equity, equity of redemption, and demand whatsoever, either at law or in equity, in and to the property sold and such sale shall be a perpetual bar both at law and in equity against Mortgagor, and against all other Persons claiming or to claim the property sold or any part thereof, by, through or under Mortgagor. Mortgagee or any of the Lenders may be a purchaser at such sale. If Mortgagee is the highest bidder, Mortgagee may credit the portion of the purchase price that would be distributed to 5 Mortgagee against the Indebtedness in lieu of paying cash. In the event this Mortgage is foreclosed by judicial action, appraisement of the Mortgaged Property is waived. 4.1.5 Receiver. Make application to a court of competent -------- jurisdiction for, and obtain from such court as a matter of strict right and without notice to Mortgagor or regard to the adequacy of the Mortgaged Property for the repayment of the Indebtedness, the appointment of a receiver of the Mortgaged Property, and Mortgagor irrevocably consents to such appointment. Any such receiver shall have all the usual powers and duties of receivers in similar cases, including the full power to rent, maintain and otherwise operate the Mortgaged Property upon such terms as may be approved by the court, and shall apply such Rents in accordance with the provisions of Section 4.7. ----------- 4.1.6 Other. Exercise all other rights, remedies and recourses ----- granted under the Loan Documents or otherwise available at law or in equity. SECTION 4.2 SEPARATE SALES. The Mortgaged Property may be sold in -------------- one or more parcels and in such manner and order as Mortgagee in its sole discretion may elect; the right of sale arising out of any Event of Default shall not be exhausted by any one or more sales. SECTION 4.3 REMEDIES CUMULATIVE, CONCURRENT AND NONEXCLUSIVE. ------------------------------------------------ Mortgagee and the Lenders shall have all rights, remedies and recourses granted in the Loan Documents and available at law or equity (including the UCC), which rights (a) shall be cumulated and concurrent, (b) may be pursued separately, successively or concurrently against Mortgagor or others obligated under the Loan Documents, or against the Mortgaged Property, or against any one or more of them, at the sole discretion of Mortgagee or the Lenders, (c) may be exercised as often as occasion therefor shall arise, and the exercise or failure to exercise any of them shall not be construed as a waiver or release thereof or of any other right, remedy or recourse, and (d) are intended to be, and shall be, nonexclusive. No action by Mortgagee or the Lenders in the enforcement of any rights, remedies or recourses under the Loan Documents or otherwise at law or equity shall be deemed to cure any Event of Default. SECTION 4.4 RELEASE OF AND RESORT TO COLLATERAL. Mortgagee may ----------------------------------- release, regardless of consideration and without the necessity for any notice to or consent by the holder of any subordinate lien on the Mortgaged Property, any part of the Mortgaged Property without, as to the remainder, in any way impairing, affecting, subordinating or releasing the lien or security interest created in or evidenced by the Loan Documents or their status as a first and prior lien and security interest in and to the Mortgaged Property. For payment of the Indebtedness, Mortgagee may resort to any other security in such order and manner as Mortgagee may elect. SECTION 4.5 WAIVER OF REDEMPTION, NOTICE AND MARSHALLING OF ASSETS. ------------------------------------------------------- To the fullest extent permitted by law, Mortgagor hereby irrevocably and unconditionally waives and 6 releases (a) all benefit that might accrue to Mortgagor by virtue of any present or future statute of limitations or law or judicial decision exempting the Mortgaged Property from attachment, levy or sale on execution or providing for any stay of execution, exemption from civil process, redemption or extension of time for payment, (b) all notices of any Event of Default or of Mortgagee's election to exercise or the actual exercise of any right, remedy or recourse provided for under the Loan Documents, and (c) any right to a marshalling of assets or a sale in inverse order of alienation. SECTION 4.6 DISCONTINUANCE OF PROCEEDINGS. If Mortgagee or the ----------------------------- Lenders shall have proceeded to invoke any right, remedy or recourse permitted under the Loan Documents and shall thereafter elect to discontinue or abandon it for any reason, Mortgagee or the Lenders shall have the unqualified right to do so and, in such an event, Mortgagor, Mortgagee, and the Lenders shall be restored to their former positions with respect to the Indebtedness, the Obligations, the Loan Documents, the Mortgaged Property and otherwise, and the rights, remedies, recourses and powers of Mortgagee and the Lenders shall continue and if the right, remedy or recourse had never been invoked, but no such discontinuance or abandonment shall waive any Event of Default which may then exist or the right of Mortgagee or the Lenders thereafter to exercise any right, remedy or recourse under the Loan Documents for such Event of Default. SECTION 4.7 ALLOCATION OF PROCEEDS. The proceeds of any sale of, and ---------------------- the Rents and other amounts generated by the holding, leasing, management, operation or other use of the Mortgaged Property, shall be applied by Mortgagee (or the receiver, if one is appointed) in the following order unless otherwise required by applicable law: 4.7.1 to the payment of the costs and expenses of taking possession of the Mortgaged Property and of holding, using, leasing, repairing, improving and selling the same, including, without limitation (1) receiver's fees and expenses, including the repayment of the amounts evidenced by any receiver's certificates, (2) court costs, (3) attorneys' and accountants' fees and expenses, and (4) costs of advertisement; 4.7.2 to the payment of the Indebtedness and performance of the Obligations in such manner and order of preference as Mortgagee in its sole discretion may determine; and 4.7.3 the balance, if any, to the payment of the Persons legally entitled thereto. SECTION 4.8 OCCUPANCY AFTER FORECLOSURE. Any sale of the Mortgaged --------------------------- Property or any part thereof in accordance with Section 4.1.4 will divest all ------------- right, title and interest of Mortgagor in and to the property sold. Subject to applicable law, any purchaser at a foreclosure sale will receive immediate possession of the property purchased. If Mortgagor retains possession of such property or any part thereof subsequent to such sale, Mortgagor will be considered a tenant at sufferance of the purchaser, and will, if Mortgagor remains in possession 7 after demand to remove, be subject to eviction and removal, forcible or otherwise, with or without process of law. SECTION 4.9 ADDITIONAL ADVANCES AND DISBURSEMENTS; COSTS OF ----------------------------------------------- ENFORCEMENT. - ----------- 4.9.1 If any Event of Default exists, Mortgagee and each of the Lenders shall have the right, but not the obligation, to cure such Event of Default in the name and on behalf of Mortgagor. All sums advanced and expenses incurred at any time by Mortgagee or any Lender under this Section, or otherwise ------- under this Mortgage or any of the other Loan Documents or applicable law, shall bear interest from the date that such sum is advanced or expense incurred, to and including the date of reimbursement, computed at the rate or rates at which interest is then computed on the Indebtedness, and all such sums, together with interest thereon, shall be secured by this Mortgage. 4.9.2 Mortgagor shall pay all expenses (including reasonable attorneys' fees and expenses) of or incidental to the perfection and enforcement of this Mortgage and the other Loan Documents, or the enforcement, compromise or settlement of the Indebtedness or any claim under this Mortgage and the other Loan Documents, and for the curing thereof, or for defending or asserting the rights and claims of Mortgagee in respect thereof, by litigation or otherwise. SECTION 4.10 NO MORTGAGEE IN POSSESSION. Neither the enforcement of -------------------------- any of the remedies under this Article, the assignment of the Rents and Leases ------- under Article 5, the security interests under Article 6, nor any other remedies --------- --------- afforded to Mortgagee under the Loan Documents, at law or in equity shall cause Mortgagee or any Lender to be deemed or construed to be a mortgagee in possession of the Mortgaged Property, to obligate Mortgagee or any Lender to lease the Mortgaged Property or attempt to do so, or to take any action, incur any expense, or perform or discharge any obligation, duty or liability whatsoever under any of the Leases or otherwise. ARTICLE 5 ASSIGNMENT OF RENTS AND LEASES ------------------------------ SECTION 5.1 ASSIGNMENT. In furtherance of and in addition to the ---------- assignment made by Mortgagor in Section 2.1 of this Mortgage, Mortgagor hereby ----------- absolutely and unconditionally assigns, sells, transfers and conveys to Mortgagee all of its right, title and interest in and to all Leases, whether now existing or hereafter entered into, and all of its right, title and interest in and to all Rents. If permitted under applicable law, this assignment is an absolute assignment and not merely an assignment for additional security. So long as no Event of Default shall have occurred and be continuing, Mortgagor shall have a revocable license from Mortgagee to exercise all rights extended to the landlord under the Leases, including the right to receive and collect all Rents and to hold the Rents in trust for use in the payment and performance of the Obligations and to otherwise use the same. The foregoing license is granted 8 subject to the conditional limitation that no Event of Default shall have occurred and be continuing. Upon the occurrence and during the continuance of an Event of Default, whether or not legal proceedings have commenced, and without regard to waste, adequacy of security for the Obligations or solvency of Mortgagor, the license herein granted shall automatically expire and terminate, without notice by Mortgagee (any such notice being hereby expressly waived by Mortgagor). SECTION 5.2 PERFECTION UPON RECORDATION. Mortgagor acknowledges that --------------------------- Mortgagee has taken all actions necessary to obtain, and that upon recordation of this Mortgage Mortgagee shall have, to the extent permitted under applicable law, a valid and fully perfected first priority present assignment of the Rents arising out of the Leases and all security for such Leases. Mortgagor acknowledges and agrees that upon recordation of this Mortgage Mortgagee's interest in the Rents shall be deemed to be fully perfected, "choate" and enforced as to Mortgagor and all third parties, including, without limitation, any subsequently appointed trustee in any case under Title 11 of the United States Code (the "BANKRUPTCY CODE"), without the necessity of commencing a foreclosure action with respect to this Mortgage, making formal demand for the Rents, obtaining the appointment of a receiver or taking any other affirmative action. SECTION 5.3 BANKRUPTCY PROVISIONS. Without limitation of the --------------------- absolute nature of the assignment of the Rents hereunder, Mortgagor and Mortgagee agree that (a) this Mortgage shall constitute a "security agreement" for purposes of Section 552(b) of the Bankruptcy Code, (b) the security interest created by this Mortgage extends to property of Mortgagor acquired before the commencement of a case in bankruptcy and to all amounts paid as Rents and (c) such security interest shall extend to all Rents acquired by the estate after the commencement of any case in bankruptcy. SECTION 5.4 NO MERGER OF ESTATES. So long as part of the -------------------- Indebtedness and the Obligations secured hereby remain unpaid and undischarged, the fee and leasehold estates to the Mortgaged Property shall not merge, but shall remain separate and distinct, notwithstanding the union of such estates either in Mortgagor, Mortgagee, any tenant or any third party by purchase or otherwise. ARTICLE 6 SECURITY AGREEMENT ------------------ SECTION 6.1 SECURITY INTEREST. This Mortgage constitutes a "Security ----------------- Agreement" on personal property within the meaning of the UCC and other applicable law and with respect to the Personalty, Fixtures, Leases, Rents and Property Agreements. To this end, Mortgagor grants to Mortgagee a first and prior security interest in the Personalty, Fixtures, Leases, Rents and Property Agreements and all other Mortgaged Property which is personal property to secure the payment of the Indebtedness and performance of the Obligations, and 9 agrees that Mortgagee shall have all the rights and remedies of a secured party under the UCC with respect to such property. Any notice of sale, disposition or other intended action by Mortgagee with respect to the Personalty, Fixtures, Leases, Rents and Property Agreements sent to Mortgagor at least five (5) days prior to any action under the UCC shall constitute reasonable notice to Mortgagor. SECTION 6.2 FINANCING STATEMENTS. Mortgagor shall execute and -------------------- deliver to Mortgagee, in form and substance satisfactory to Mortgagee, such financing statements and such further assurances as Mortgagee may, from time to time, reasonably consider necessary to create, perfect and preserve Mortgagee's security interest hereunder and Mortgagee may cause such statements and assurances to be recorded and filed, at such times and places as may be required or permitted by law to so create, perfect and preserve such security interest. Mortgagor's chief executive office is in the State of North Carolina at the address set forth in the first paragraph of this Mortgage. SECTION 6.3 FIXTURE FILING. This Mortgage shall also constitute a -------------- "fixture filing" for the purposes of the UCC against all of the Mortgaged Property which is or is to become fixtures. Information concerning the security interest herein granted may be obtained at the addresses of Debtor (Mortgagor) and Secured Party (Mortgagee) as set forth in the first paragraph of this Mortgage. ARTICLE 7 MISCELLANEOUS ------------- SECTION 7.1 NOTICES. Any notice required or permitted to be given ------- under this Mortgage shall be given in accordance with the provisions of the Credit Agreement. SECTION 7.2 COVENANTS RUNNING WITH THE LAND. All Obligations ------------------------------- contained in this Mortgage are intended by Mortgagor and Mortgagee to be, and shall be construed as, covenants running with the Mortgaged Property. As used herein, "Mortgagor" shall refer to the party named in the first paragraph of this Mortgage and to any subsequent owner of all or any portion of the Mortgaged Property. All Persons who may have or acquire an interest in the Mortgaged Property shall be deemed to have notice of, and be bound by, the terms of the Credit Agreement and the other Loan Documents; however, no such party shall be entitled to any rights thereunder without the prior written consent of Mortgagee. SECTION 7.3 ATTORNEY-IN-FACT. Mortgagor hereby irrevocably appoints ---------------- Mortgagee and its successors and assigns, as its attorney-in-fact, which agency is coupled with an interest, (a) to execute and/or record any notices of completion, cessation of labor or any other notices that Mortgagee deems appropriate to protect Mortgagee's interest, if Mortgagor shall fail to do so within ten (10) days after written request by Mortgagee, (b) upon the issuance of a deed pursuant to the foreclosure of this Mortgage or the delivery of a deed in lieu of 10 foreclosure, to execute all instruments of assignment, conveyance or further assurance with respect to the Leases, Rents, Personalty, Fixtures and Property Agreements in favor of the grantee of any such deed and as may be necessary or desirable for such purpose, (c) to prepare, execute and file or record financing statements, continuation statements, applications for registration and like papers necessary to create, perfect or preserve Mortgagee's security interests and rights in or to any of the Mortgaged Property, and (d) while any Event of Default exists, to perform any obligation of Mortgagor hereunder, however: (1) Mortgagee shall not under any circumstances be obligated to perform any obligation of Mortgagor; (2) any sums advanced by Mortgagee in such performance shall be added to and included in the Indebtedness and shall bear interest at the rate or rates at which interest is then computed on the Indebtedness; (3) Mortgagee as such attorney-in-fact shall only be accountable for such funds as are actually received by Mortgagee; and (4) Mortgagee shall not be liable to Mortgagor or any other person or entity for any failure to take any action which it is empowered to take under this Section. ------- SECTION 7.4 SUCCESSORS AND ASSIGNS. This Mortgage shall be binding ---------------------- upon and inure to the benefit of Mortgagee, the Lenders, and Mortgagor and their respective successors and assigns. Mortgagor shall not, without the prior written consent of Mortgagee, assign any rights, duties or obligations hereunder. SECTION 7.5 NO WAIVER. Any failure by Mortgagee to insist upon --------- strict performance of any of the terms, provisions or conditions of the Loan Documents shall not be deemed to be a waiver of same, and Mortgagee or the Lenders shall have the right at any time to insist upon strict performance of all of such terms, provisions and conditions. SECTION 7.6 CREDIT AGREEMENT. If any conflict or inconsistency ---------------- exists between this Mortgage and the Credit Agreement, the Credit Agreement shall govern. SECTION 7.7 RELEASE OR RECONVEYANCE. Upon payment in full of the ----------------------- Indebtedness and performance in full of the Obligations, Mortgagee, at Mortgagor's expense, shall release the liens and security interests created by this Mortgage or reconvey the Mortgaged Property to Mortgagor. In addition, as long as no Event of Default has occurred and is then continuing or would be caused thereby, if Mortgagor sells or transfers for value any portion of the Mortgaged Property as permitted under Section 7.7 of the Credit Agreement, Mortgagee shall release the liens and security interests created by this Mortgage on such Mortgaged Property or reconvey such Mortgaged Property to Mortgagor, concurrently with the consummation of such sale or other transfer. Such release or reconveyance shall be at Mortgagor's sole cost and expense, and only upon not less than thirty days' prior written notice to Mortgagee. SECTION 7.8 WAIVER OF STAY, MORATORIUM AND SIMILAR RIGHTS. Mortgagor --------------------------------------------- agrees, to the full extent that it may lawfully do so, that it will not at any time insist upon or plead or in any way take advantage of any stay, marshalling of assets, extension, redemption or moratorium law now or hereafter in force and effect so as to prevent or hinder the enforcement 11 of the provisions of this Mortgage or the Indebtedness secured hereby, or any agreement between Mortgagor and Mortgagee or any rights or remedies of Mortgagee or the Lenders. SECTION 7.9 APPLICABLE LAW. The provisions of this Mortgage -------------- regarding the creation, perfection and enforcement of the liens and security interests herein granted shall be governed by and construed under the laws of the state in which the Mortgaged Property is located. All other provisions of this Mortgage and the Obligations shall be governed by the laws of the State of New York (including, without limitation, Section 5-1401 of the General Obligations Law of the State of New York), without regard to conflicts of laws principles. SECTION 7.10 HEADINGS. The Article, Section and Subsection titles -------- hereof are inserted for convenience of reference only and shall in no way alter, modify or define, or be used in construing, the text of such Articles, Sections or Subsections. SECTION 7.11 ENTIRE AGREEMENT. This Mortgage and the other Loan ---------------- Documents embody the entire agreement and understanding between Mortgagee and Mortgagor and supersede all prior agreements and understandings between such parties relating to the subject matter hereof and thereof. Accordingly, the Loan Documents may not be contradicted by evidence of prior, contemporaneous or subsequent oral agreements of the parties. There are no unwritten oral agreements between the parties. [THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK] 12 The laws of South Carolina provide that in any real estate foreclosure proceeding a defendant against whom a personal judgment is taken or asked may within thirty days after the sale of the mortgaged property apply to the court for an order of appraisal. The statutory appraisal value as approved by the court would be substituted for the high bid and may decrease the amount of any deficiency owing in connection with the transaction. THE UNDERSIGNED HEREBY WAIVES AND RELINQUISHES THE STATUTORY APPRAISAL RIGHTS WHICH MEANS THE HIGH BID AT THE JUDICIAL FORECLOSURE SALE WILL BE APPLIED TO THE DEBT REGARDLESS OF ANY APPRAISED VALUE OF THE MORTGAGED PROPERTY. IN WITNESS WHEREOF, Mortgagor and Mortgagee have on the date set forth in the acknowledgement hereto, effective as of the date first above written, caused this instrument to be duly EXECUTED AND DELIVERED under seal by authority duly given. THE PANTRY, INC., a Delaware corporation By: _____________________________ Name: William T. Flyg Title: Senior Vice President, Finance, Chief Financial Officer & Secretary _________________________ Witness _________________________ Witness FIRST UNION NATIONAL BANK By: _____________________________ Name: Mark Felker Title: Senior Vice President _________________________ Witness _________________________ Witness S-1 ACKNOWLEDGEMENT STATE OF NEW YORK ) ) SS.: COUNTY OF NEW YORK ) Personally appeared before me ______________________ (first witness) and made oath that he/she saw the corporate seal of THE PANTRY, INC., affixed to the foregoing instrument and that he/she also saw William T. Flyg, Senior Vice President, and William T. Flyg, Secretary of said THE PANTRY, INC., sign and attest the same, and that he/she with ____________________ (second witness) witnessed the execution and delivery thereof as the act and deed of the said THE PANTRY, INC. __________________________________ FIRST WITNESS Sworn to before me this ____ day of October, 1997. __________________________________________________ (SIGNATURE AND OFFICE OF INDIVIDUAL TAKING ACKNOWLEDGEMENT) [SEAL] STATE OF NEW YORK ) ) SS.: COUNTY OF NEW YORK ) Personally appeared before me ______________________ (first witness) and made oath that he/she saw the corporate seal of FIRST UNION NATIONAL BANK affixed to the foregoing instrument and that he/she also saw Mark Felker, Senior Vice President, and ______________, Secretary of said FIRST UNION NATIONAL BANK, sign and attest the same, and that he/she with ____________________ (second witness) witnessed the execution and delivery thereof as the act and deed of the said THE PANTRY, INC. __________________________________ FIRST WITNESS Sworn to before me this ____ day of October, 1997. __________________________________________________ (SIGNATURE AND OFFICE OF INDIVIDUAL TAKING ACKNOWLEDGEMENT) [SEAL] S-2 EXHIBIT A MORTGAGED PROPERTY A-1 EXHIBIT B ORIGINAL MORTGAGES B-1 EX-10.20 30 FORM OF AM. & RESTATED DEED OF TRUST EXHIBIT 10.20 OBLIGATIONS SECURED HEREBY PROVIDE FOR A FLUCTUATING INTEREST RATE AMENDED AND RESTATED DEED OF TRUST, SECURITY AGREEMENT, ASSIGNMENT OF RENTS AND LEASES AND FIXTURE FILING (TENNESSEE) BY AND FROM THE PANTRY, INC., "GRANTOR" TO DAVID R. CANNON, "TRUSTEE" FOR THE BENEFIT OF FIRST UNION NATIONAL BANK, IN ITS CAPACITY AS AGENT, "BENEFICIARY" DATED AS OF OCTOBER 23, 1997 COLLATERAL IS OR INCLUDES FIXTURES THE SECURED PARTY (BENEFICIARY) DESIRES THIS FIXTURE FILING TO BE INDEXED AGAINST THE RECORD OWNER OF THE REAL ESTATE DESCRIBED HEREIN PREPARED BY, RECORDING REQUESTED BY, AND WHEN RECORDED MAIL TO: O'MELVENY & MYERS LLP 400 SOUTH HOPE STREET LOS ANGELES, CALIFORNIA ATTENTION: F. THOMAS MULLER, ESQ. FILE 154,607-004 AMENDED AND RESTATED DEED OF TRUST, SECURITY AGREEMENT, ASSIGNMENT OF RENTS AND LEASES AND FIXTURE FILING (TENNESSEE) THIS AMENDED AND RESTATED DEED OF TRUST, SECURITY AGREEMENT, ASSIGNMENT OF RENTS AND LEASES AND FIXTURE FILING (Tennessee) (this "DEED OF TRUST") is dated as of October 23, 1997, by and from THE PANTRY, INC., a Delaware corporation ("GRANTOR"), whose address is 1801 Douglas Drive, Sanford, North Carolina 27330, to CARLA PEACHER-RYAN, the trustee hereunder ("TRUSTEE"), having an address c/o Baker, Donelson, Bearman & Caldwell, First Tennessee Building, 165 Madison Avenue, Suite 2000, Memphis, Tennessee 38103, for the benefit of FIRST UNION NATIONAL BANK, as Agent ("AGENT") for the lenders party to the Credit Agreement (defined below) (such lenders, together with their respective successors and assigns, collectively, the "LENDERS"), having an address at 301 South College Street, Charlotte, North Carolina 28288 (Agent, together with its successors and assigns, "BENEFICIARY"). R E C I T A L S A. Beneficiary is the assignee of the beneficial interest in those certain deeds of trust described on Exhibit B hereto (the "ORIGINAL DEEDS OF TRUST") and of the obligations secured thereby, which encumber the properties described on Exhibit A hereto. B. Beneficiary and Grantor now desire to amend and restate the Original Deeds of Trust to contain all of the terms and conditions contained herein and in the Credit Agreement. NOW, THEREFORE, Beneficiary and Grantor hereby amend and restate the Original Deeds of Trust in their entirety to provide as follows: ARTICLE 1 DEFINITIONS ----------- SECTION 1.1 DEFINITIONS. All capitalized terms used herein without ----------- definition shall have the respective meanings ascribed to them in that certain Credit Agreement dated as of even date herewith (as amended, supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT") among Grantor, the Lenders, Canadian Imperial Bank of Commerce, as Syndication Agent, and Beneficiary. As used herein, the following terms shall have the following meanings: 1.1.1 "INDEBTEDNESS": (1) All indebtedness of Grantor to Beneficiary and the Lenders, including, without limitation, the sum of all (a) principal, interest and other amounts evidenced or secured by the Loan Documents, and (b) principal, interest and other amounts which may hereafter be loaned by Beneficiary or any of the Lenders under or in connection with the Credit Agreement or any of the other Loan Documents, whether evidenced by a promissory note or other instrument which, by its terms, is secured hereby, and (2) all other indebtedness, obligations and liabilities now or hereafter existing of any kind of Grantor to Beneficiary or any of the Lenders under documents which recite that they are intended to be secured by this Deed of Trust. 1.1.2 "TRUST PROPERTY": All of Grantor's interest in (1) the fee interest in the real property described in Exhibit A attached hereto and incorporated herein by this reference, together with any greater estate therein as hereafter may be acquired by Grantor (the "LAND"), (2) all improvements now owned or hereafter acquired by Grantor, now or at any time situated, placed or constructed upon the Land (the "IMPROVEMENTS"), (3) all materials, supplies, equipment, apparatus and other items of personal property now owned or hereafter acquired by Grantor and now or hereafter attached to, installed in or used in connection with any of the Improvements or the Land, and water, gas, electrical, storm and sanitary sewer facilities and all other utilities whether or not situated in easements (the "FIXTURES"), (4) all right, title and interest of Grantor in and to all goods, accounts, general intangibles, instruments, documents, chattel paper and all other personal property of any kind or character, including such items of personal property as defined in the UCC (defined below), now owned or hereafter acquired by Grantor and now or hereafter affixed to, placed upon, used in connection with, arising from or otherwise related to the Land and Improvements (the "PERSONALTY"), (5) all reserves, escrows or impounds required under the Credit Agreement and all deposit accounts maintained by Grantor with respect to the Trust Property, (6) all leases, licenses, concessions, occupancy agreements or other agreements (written or oral, now or at any time in effect) which grant to any Person a possessory interest in, or the right to use, all or any part of the Trust Property, together with all related security and other deposits (the "LEASES"), (7) all of the rents, revenues, income, proceeds, profits, security and other types of deposits, and other benefits paid or payable by parties to the Leases for using, leasing, licensing, possessing, operating from, residing in, selling or otherwise enjoying the Trust Property (the "RENTS"), (8) all other agreements, such as construction contracts, architects' agreements, engineers' contracts, utility contracts, maintenance agreements, management agreements, service contracts, permits, licenses, certificates and entitlements in any way relating to the construction, use, occupancy, operation, maintenance, enjoyment or ownership of the Trust Property (the "PROPERTY AGREEMENTS"), (9) all rights, privileges, tenements, hereditaments, rights-of-way, easements, appendages and appurtenances appertaining to the foregoing, (10) all accessions, replacements and substitutions for any of the foregoing and all proceeds thereof, (11) all insurance policies, unearned premiums therefor and proceeds from such policies covering any of the above property now or hereafter acquired by Grantor, and (12) all of Grantor's right, title and interest in and to any awards, remunerations, reimbursements, settlements or compensation heretofore made or hereafter to be made by any governmental authority pertaining to the Land, Improvements, Fixtures or Personalty. As used in this Deed of Trust, the term "TRUST PROPERTY" shall mean all or, where the context permits or requires, any portion of the above or any interest therein. 2 1.1.3 "OBLIGATIONS": All of the agreements, covenants, conditions, warranties, representations and other obligations of Grantor (including, without limitation, the obligation to repay the Indebtedness) under the Credit Agreement and the other Loan Documents. 1.1.4 "UCC": The Uniform Commercial Code of Tennessee or, if the creation, perfection and enforcement of any security interest herein granted is governed by the laws of a state other than Tennessee, then, as to the matter in question, the Uniform Commercial Code in effect in that state. ARTICLE 2 GRANT ----- SECTION 2.1 GRANT. ----- 2.1.1 To secure the full and timely payment of the Indebtedness and the full and timely performance of the Obligations, Grantor MORTGAGES, GRANTS, BARGAINS, ASSIGNS, SELLS and CONVEYS, to Trustee, with power of sale, the Trust Property, subject, however, to the Permitted Encumbrances, TO HAVE AND TO HOLD the Trust Property to Trustee, for the benefit of Beneficiary upon the terms and trusts herein, and Grantor does hereby bind itself, its successors and assigns to WARRANT AND FOREVER DEFEND the title to the Trust Property unto Trustee against the lawful claims of all persons whomsoever. 2.1.2 THIS CONVEYANCE IS MADE UPON THIS SPECIAL TRUST, that if Grantor shall pay the Indebtedness and perform the Obligations in accordance with the Credit Agreement, Notes, this Deed of Trust, and the other Loan Documents, then this conveyance shall be null and void and may be canceled of record at the request and at the cost of Grantor as provided in Section 7.7 ----------- hereof. 2.1.3 To the extent that any of the Trust Property is not real property that Trustee is empowered to sell at a public sale pursuant to N.C. Gen. Stat. (S) 45-21.1 et seq., or is not real property that could be sold at a -- ---- public sale pursuant to a judicial proceeding to foreclose the lien of this Deed of Trust, such property shall automatically be deemed to be personal property in which a security interest is granted by Grantor unto Beneficiary as provided in Section 6.1 of this Deed of Trust, effective as of the date of this Deed of - ----------- Trust. SECTION 2.2 FUTURE ADVANCES. This Deed of Trust is given to secure --------------- all present and future Indebtedness of Grantor to Beneficiary. The period in which future Indebtedness may be incurred and secured by this Deed of Trust is the period between the date hereof and that date which is ten years from the date hereof. The amount of present Indebtedness secured by this Deed of Trust is Seventy-Five Million Dollars ($75,000,000), and the maximum principal amount, including present and future Indebtedness that may be secured by this Deed of Trust at any one time is One Hundred Fifty Million Dollars ($150,000,000). Any additional amounts 3 advanced by Beneficiary or Trustee pursuant to previous provisions of this Deed of Trust or other Loan Documents shall be deemed necessary expenditures for the protection of the Trust Property. Grantor need not sign any instrument or notation evidencing or stipulating that future advances are secured by this Deed of Trust. ARTICLE 3 WARRANTIES, REPRESENTATIONS AND COVENANTS ----------------------------------------- Grantor warrants, represents and covenants to Beneficiary as follows: SECTION 3.1 TITLE TO TRUST PROPERTY AND LIEN OF THIS INSTRUMENT. --------------------------------------------------- Grantor owns the Trust Property free and clear of any liens, claims or interests, except the Permitted Encumbrances. This Deed of Trust creates valid, enforceable first priority liens and security interests against the Trust Property, subject to the Permitted Encumbrances. SECTION 3.2 FIRST LIEN STATUS. Grantor shall preserve and protect ----------------- the first lien and security interest status of this Deed of Trust and the other Loan Documents. If any lien or security interest other than the Permitted Encumbrances is asserted against the Trust Property, Grantor shall promptly, and at its expense, (a) give Beneficiary a detailed written notice of such lien or security interest (including origin, amount and other terms), and (b) pay the underlying claim in full or take such other action so as to cause it to be released or contest the same in compliance with the requirements of the Credit Agreement (including the requirement of providing a bond or other security satisfactory to Beneficiary). SECTION 3.3 PAYMENT AND PERFORMANCE. Grantor shall pay the ----------------------- Indebtedness when due under the Loan Documents and shall perform the Obligations in full when they are required to be performed. SECTION 3.4 REPLACEMENT OF FIXTURES AND PERSONALTY. Grantor shall -------------------------------------- not, without the prior written consent of Beneficiary (said consent not to be unreasonably withheld or delayed), permit any of the Fixtures or Personalty to be removed at any time from the Land or Improvements, unless the removed item is removed temporarily for maintenance and repair or, if removed permanently, is obsolete and is replaced by an article of equal or better suitability and value, owned by Grantor subject to the liens and security interests of this Deed of Trust and the other Loan Documents, and free and clear of any other lien or security interest except such as may be permitted under the Credit Agreement or first approved in writing by Beneficiary. SECTION 3.5 INSPECTION. Grantor shall permit Beneficiary and the ---------- Lenders, and their respective agents, representatives and employees, upon reasonable prior notice to Grantor, to inspect the Trust Property and all books and records of Grantor located thereon, and to conduct such environmental and engineering studies as provided in the Credit Agreement. 4 SECTION 3.6 OTHER COVENANTS. All of the covenants in the Credit --------------- Agreement are incorporated herein by reference and, together with covenants in this Article, shall be covenants running with the land. ------- SECTION 3.7 CONDEMNATION AWARDS AND INSURANCE PROCEEDS. ------------------------------------------ 3.7.1 Condemnation Awards. Grantor assigns all awards and ------------------- compensation to which it is entitled for any condemnation or other taking, or any purchase in lieu thereof, to Beneficiary and authorizes Beneficiary to collect and receive such awards and compensation and to give proper receipts and acquittances therefor, subject to the terms of the Credit Agreement. 3.7.2 Insurance Proceeds. Subject to the terms of the Credit ------------------ Agreement, Grantor assigns to Beneficiary all proceeds of any insurance policies insuring against loss or damage to the Trust Property. Subject to the terms of the Credit Agreement, Grantor authorizes Beneficiary to collect and receive such proceeds and authorizes and directs the issuer of each of such insurance policies to make payment for all such losses directly to Beneficiary, instead of to Grantor and Beneficiary jointly. ARTICLE 4 DEFAULT AND FORECLOSURE ----------------------- SECTION 4.1 REMEDIES. If an Event of Default exists, Beneficiary -------- may, at Beneficiary's election, exercise any or all of the following rights, remedies and recourses: 4.1.1 Acceleration. Declare the Indebtedness to be immediately due ------------ and payable, without further notice, presentment, protest, notice of intent to accelerate, notice of acceleration, demand or action of any nature whatsoever (each of which hereby is expressly waived by Grantor), whereupon the same shall become immediately due and payable. 4.1.2 Entry on Trust Property. Enter the Trust Property and take ----------------------- exclusive possession thereof and of all books, records and accounts relating thereto or located thereon. If Grantor remains in possession of the Trust Property after an Event of Default and without Beneficiary's prior written consent, Beneficiary may invoke any legal remedies to dispossess Grantor. 4.1.3 Operation of Trust Property. Hold, lease, develop, manage, --------------------------- operate or otherwise use the Trust Property upon such terms and conditions as Beneficiary may deem reasonable under the circumstances (making such repairs, alternations, additions and improvements and taking other actions, from time to time, as Beneficiary deems necessary or desirable), and apply all Rents and other amounts collected by Beneficiary in connection therewith in accordance with the provisions of Section 4.7. ----------- 5 4.1.4 Foreclosure and Sale. Institute proceedings for the complete -------------------- foreclosure of this Deed of Trust, either by judicial action or by power of sale in accordance with the provisions of applicable law, in which case the Trust Property may be sold for cash or credit in one or more parcels. With respect to any notices required or permitted under the UCC, Grantor agrees that five days' prior written notice shall be deemed commercially reasonable. At any such sale by virtue of any judicial proceedings, power of sale, or any other legal right, remedy or recourse, the title to and right of possession of any such property shall pass to the purchaser thereof, and to the fullest extent permitted by law, Grantor shall be completely and irrevocably divested of all of its right, title, interest, claim, equity, equity of redemption, and demand whatsoever, either at law or in equity, in and to the property sold and such sale shall be a perpetual bar both at law and in equity against Grantor, and against all other Persons claiming or to claim the property sold or any part thereof, by, through or under Grantor. Beneficiary or any of the Lenders may be a purchaser at such sale. If Beneficiary is the highest bidder, Beneficiary may credit the portion of the purchase price that would be distributed to Beneficiary against the Indebtedness in lieu of paying cash. In the event this Deed of Trust is foreclosed by judicial action, appraisement of the Trust Property is waived. 4.1.4.a Beneficiary instituting proceedings for foreclosure by power of sale shall direct Trustee to exercise the power of sale granted hereunder, and upon such direction, Trustee is hereby authorized and empowered to expose to sale and to sell the Trust Property or any part thereof at public sale to the highest bidder for cash, in compliance with all applicable requirements of Tennessee law with respect to powers of sale in deeds of trust. Trustee shall have the right to designate the place of sale in compliance with applicable law, and the sale shall be held at the place designated by the notice of sale. The successful bidder at any sale may be required by Trustee to immediately deposit with Trustee cash or certified check or cashier's check in an amount up to five percent of the bid, provided notice of such deposit requirement is published as required by law. Trustee may reject the bid if the deposit is not immediately made. Trustee shall refund such deposit in case of a resale because of an upset bid or if Trustee is unable to convey the portion of the Trust Property so sold to the bidder because the power of sale has been terminated in accordance with applicable law. If the purchaser fails to comply with its bid, Trustee may retain the deposit and apply the deposit to the expenses of the sale and any resales and to any damages and expenses incurred by reason of such default (including the amount that such bid exceeds the final sales price), or may deposit the deposit with the Clerk of Superior Court. In all other cases, Trustee shall apply the deposit to the purchase price. 4.1.4.b Beneficiary may direct Trustee to expose to sale and sell, together with the real estate, any portion of the Trust Property which is personal property. If personal property is sold hereunder, it need not be at the place of sale. Trustee shall not be entitled to a commission for any completed or uncompleted sale of real or personal property under this Section 4.1.4 upon an Event of Default, but shall be entitled to collect all reasonable expenses and attorneys' fees and court costs in connection with exercising its powers as Trustee. 6 4.1.5 Receiver. Make application to a court of competent -------- jurisdiction for, and obtain from such court as a matter of strict right and without notice to Grantor or regard to the adequacy of the Trust Property for the repayment of the Indebtedness, the appointment of a receiver of the Trust Property, and Grantor irrevocably consents to such appointment. Any such receiver shall have all the usual powers and duties of receivers in similar cases, including the full power to rent, maintain and otherwise operate the Trust Property upon such terms as may be approved by the court, and shall apply such Rents in accordance with the provisions of Section 4.7. ----------- 4.1.6 Other. Exercise all other rights, remedies and recourses ----- granted under the Loan Documents or otherwise available at law or in equity. SECTION 4.2 SEPARATE SALES. The Trust Property may be sold in one or -------------- more parcels and in such manner and order as Beneficiary in its reasonable discretion may elect; the right of sale arising out of any Event of Default shall not be exhausted by any one or more sales. SECTION 4.3 REMEDIES CUMULATIVE, CONCURRENT AND NONEXCLUSIVE. ------------------------------------------------ Beneficiary and the Lenders shall have all rights, remedies and recourses granted in the Loan Documents and available at law or equity (including the UCC), which rights (a) shall be cumulated and concurrent, (b) may be pursued separately, successively or concurrently against Grantor or others obligated under the Loan Documents, or against the Trust Property, or against any one or more of them, at the sole discretion of Beneficiary or the Lenders, (c) may be exercised as often as occasion therefor shall arise, and the exercise or failure to exercise any of them shall not be construed as a waiver or release thereof or of any other right, remedy or recourse, and (d) are intended to be, and shall be, nonexclusive. No action by Beneficiary or the Lenders in the enforcement of any rights, remedies or recourses under the Loan Documents or otherwise at law or equity shall be deemed to cure any Event of Default. SECTION 4.4 RELEASE OF AND RESORT TO COLLATERAL. Beneficiary may ----------------------------------- release, regardless of consideration and without the necessity for any notice to or consent by the holder of any subordinate lien on the Trust Property, any part of the Trust Property without, as to the remainder, in any way impairing, affecting, subordinating or releasing the lien or security interest created in or evidenced by the Loan Documents or their status as a first and prior lien and security interest in and to the Trust Property. For payment of the Indebtedness, Beneficiary may resort to any other security in such order and manner as Beneficiary may elect. SECTION 4.5 WAIVER OF REDEMPTION, NOTICE AND MARSHALLING OF ASSETS. ------------------------------------------------------- To the fullest extent permitted by law, Grantor hereby irrevocably and unconditionally waives and releases (a) all benefit that might accrue to Grantor by virtue of any present or future statute of limitations or law or judicial decision exempting the Trust Property from attachment, levy or sale on execution or providing for any stay of execution, exemption from civil process, redemption or extension of time for payment, (b) all notices of any Event of Default or of 7 Beneficiary's election to exercise or the actual exercise of any right, remedy or recourse provided for under the Loan Documents, and (c) any right to a marshalling of assets or a sale in inverse order of alienation. SECTION 4.6 DISCONTINUANCE OF PROCEEDINGS. If Beneficiary or the ----------------------------- Lenders or Trustee shall have proceeded to invoke any right, remedy or recourse permitted under the Loan Documents and shall thereafter elect to discontinue or abandon it for any reason, Beneficiary or the Lenders or Trustee, as the case may be, shall have the unqualified right to do so and, in such an event, Grantor, Beneficiary, the Lenders or Trustee, as the case may be, shall be restored to their former positions with respect to the Indebtedness, the Obligations, the Loan Documents, the Trust Property and otherwise, and the rights, remedies, recourses and powers of Beneficiary, the Lenders and Trustee shall continue as if the right, remedy or recourse had never been invoked, but no such discontinuance or abandonment shall waive any Event of Default which may then exist or the right of Beneficiary or the Lenders or Trustee, as the case may be, thereafter to exercise any right, remedy or recourse under the Loan Documents for such Event of Default. SECTION 4.7 ALLOCATION OF PROCEEDS. The proceeds of any sale of, and ---------------------- the Rents and other amounts generated by the holding, leasing, management, operation or other use of the Trust Property, shall be applied by Beneficiary (or the receiver, if one is appointed) in the following order unless otherwise required by applicable law: 4.7.1 to the payment of the reasonable costs and expenses of taking possession of the Trust Property and of holding, using, leasing, repairing, improving and selling the same, including, without limitation (1) receiver's fees and expenses, including the repayment of the amounts evidenced by any receiver's certificates, (2) court costs, (3) attorneys' and accountants' fees and expenses, and (4) costs of advertisement; 4.7.2 to the payment of the Indebtedness and performance of the Obligations in such manner and order of preference as Beneficiary in its sole discretion may determine; and 4.7.3 the balance, if any, to the payment of the Persons legally entitled thereto. SECTION 4.8 OCCUPANCY AFTER FORECLOSURE. Any sale of the Trust --------------------------- Property or any part thereof in accordance with Section 4.1.4 will, after the ------------- expiration of any upset period, divest all right, title and interest of Grantor in and to the property sold. Subject to applicable law, any purchaser at a foreclosure sale will receive immediate possession of the property purchased. If Grantor retains possession of such property or any part thereof subsequent to such sale, Grantor will be considered a tenant at sufferance of the purchaser, and will, if Grantor remains in possession after demand to remove, be subject to eviction and removal, with or without process of law. 8 SECTION 4.9 ADDITIONAL ADVANCES AND DISBURSEMENTS; COSTS OF ----------------------------------------------- ENFORCEMENT. - ----------- 4.9.1 If any Event of Default exists, Beneficiary and each of the Lenders shall have the right, but not the obligation, to cure such Event of Default in the name and on behalf of Grantor. All sums advanced and expenses incurred at any time by Beneficiary or any Lender under this Section, or ------- otherwise under this Deed of Trust or any of the other Loan Documents or applicable law, shall be deemed advances of principal evidenced by the Notes and shall bear interest from the date that such sum is advanced or expense incurred, to and including the date of reimbursement, computed at the rate or rates at which interest is then computed on the Indebtedness, and all such sums, together with interest thereon, shall be secured by this Deed of Trust. 4.9.2 Grantor shall pay all expenses (including reasonable attorneys' fees and expenses) of or incidental to the perfection and enforcement of this Deed of Trust and the other Loan Documents, or the enforcement, compromise or settlement of the Indebtedness or any claim under this Deed of Trust and the other Loan Documents, and for the curing thereof, or for defending or asserting the rights and claims of Beneficiary in respect thereof, by litigation or otherwise. Attorneys' fees and expenses payable by Grantor under this Section ------- 4.9 or otherwise under this Deed of Trust shall be limited to those reasonable - --- fees and expenses actually incurred at standard rates without reference to a specific percentage of the outstanding balance of the Indebtedness. SECTION 4.10 NO BENEFICIARY IN POSSESSION. Except as otherwise ---------------------------- provided by law, neither the enforcement of any of the remedies under this Article, the assignment of the Rents and Leases under Article 5, the security - ------- --------- interests under Article 5, nor any other remedies afforded to Beneficiary under --------- the Loan Documents, at law or in equity shall cause Beneficiary or any Lender to be deemed or construed to be a beneficiary in possession of the Trust Property, to obligate Beneficiary or any Lender to lease the Trust Property or attempt to do so, or to take any action, incur any expense, or perform or discharge any obligation, duty or liability whatsoever under any of the Leases or otherwise. ARTICLE 5 ASSIGNMENT OF RENTS AND LEASES ------------------------------ SECTION 5.1 ASSIGNMENT. In furtherance of and in addition to the ---------- assignment made by Grantor in Section 2.1 of this Deed of Trust, Grantor hereby ----------- absolutely and unconditionally assigns, sells, transfers and conveys to Beneficiary all of its right, title and interest in and to all Leases, whether now existing or hereafter entered into, and all of its right, title and interest in and to all Rents. If permitted under applicable law, this assignment is an absolute assignment and not merely an assignment for additional security. So long as no Event of Default shall have occurred and be continuing, Grantor shall have a revocable license from Beneficiary to exercise all rights extended to the landlord under the Leases, including the right 9 to receive and collect all Rents and to hold the Rents in trust for use in the payment and performance of the Obligations and to otherwise use the same. The foregoing license is granted subject to the conditional limitation that no Event of Default shall have occurred and be continuing. Upon the occurrence and during the continuance of an Event of Default, whether or not legal proceedings have commenced, and without regard to waste, adequacy of security for the Obligations or solvency of Grantor, the license herein granted shall automatically expire and terminate, without notice by Beneficiary (any such notice being hereby expressly waived by Grantor). SECTION 5.2 PERFECTION UPON RECORDATION. Grantor acknowledges that --------------------------- Beneficiary has taken all actions necessary to obtain, and that upon recordation of this Deed of Trust Beneficiary shall have, to the extent permitted under applicable law, a valid and fully perfected first priority present assignment of the Rents arising out of the Leases and all security for such Leases. Grantor acknowledges and agrees that upon recordation of this Deed of Trust Beneficiary's interest in the Rents shall be deemed to be fully perfected, "choate" and enforced as to Grantor and all third parties, including, without limitation, any subsequently appointed trustee in any case under Title 11 of the United States Code (the "BANKRUPTCY CODE"), without the necessity of commencing a foreclosure action with respect to this Deed of Trust, making formal demand for the Rents, obtaining the appointment of a receiver or taking any other affirmative action. SECTION 5.3 BANKRUPTCY PROVISIONS. Without limitation of the --------------------- absolute nature of the assignment of the Rents hereunder, Grantor and Beneficiary agree that (a) this Deed of Trust shall constitute a "security agreement" for purposes of Section 552(b) of the Bankruptcy Code, (b) the security interest created by this Deed of Trust extends to property of Grantor acquired before the commencement of a case in bankruptcy and to all amounts paid as Rents and (c) such security interest shall extend to all Rents acquired by the estate after the commencement of any case in bankruptcy. SECTION 5.4 NO MERGER OF ESTATES. So long as part of the -------------------- Indebtedness and the Obligations secured hereby remain unpaid and undischarged, the fee and leasehold estates to the Trust Property shall not merge, but shall remain separate and distinct, notwithstanding the union of such estates either in Grantor, Beneficiary, any tenant or any third party by purchase or otherwise. 10 ARTICLE 6 SECURITY AGREEMENT ------------------ SECTION 6.1 SECURITY INTEREST. This Deed of Trust constitutes a ----------------- "Security Agreement" on personal property within the meaning of the UCC and other applicable law and with respect to the Personalty, Fixtures, Leases, Rents and Property Agreements. To this end, Grantor grants to Beneficiary a first and prior security interest in the Personalty, Fixtures, Leases, Rents and Property Agreements and all other Trust Property which is personal property to secure the payment of the Indebtedness and performance of the Obligations, and agrees that Beneficiary shall have all the rights and remedies of a secured party under the UCC with respect to such property. Any notice of sale, disposition or other intended action by Beneficiary with respect to the Personalty, Fixtures, Leases, Rents and Property Agreements sent to Grantor at least five days prior to any action under the UCC shall constitute reasonable notice to Grantor. SECTION 6.2 FINANCING STATEMENTS. Grantor shall execute and deliver -------------------- to Beneficiary, in form and substance satisfactory to Beneficiary, such financing statements and such further assurances as Beneficiary may, from time to time, reasonably consider necessary to create, perfect and preserve Beneficiary's security interest hereunder and Beneficiary may cause such statements and assurances to be recorded and filed, at such times and places as may be required or permitted by law to so create, perfect and preserve such security interest. Grantor's chief executive office is in the State of North Carolina at the address set forth in the first paragraph of this Deed of Trust. SECTION 6.3 FIXTURE FILING. This Deed of Trust shall also constitute -------------- a "fixture filing" for the purposes of the UCC against all of the Trust Property which is or is to become fixtures. Information concerning the security interest herein granted may be obtained at the addresses of Debtor (Grantor) and Secured Party (Beneficiary) as set forth in the first paragraph of this Deed of Trust. For the purposes of complying with N.C. Gen. Stat. (S) 25-9-402: (i) the types or items of collateral are described in Section 6.1 hereof, as further described ----------- in Section 1.1.2 hereof; and (ii) the description of the Land to which any ------------- fixtures are attached is set forth in Exhibit A hereto. The collateral is or includes fixtures. ARTICLE 7 MISCELLANEOUS ------------- SECTION 7.1 NOTICES. Any notice required or permitted to be given ------- under this Deed of Trust shall be given in accordance with the provisions of the Credit Agreement. SECTION 7.2 COVENANTS RUNNING WITH THE LAND. All Obligations ------------------------------- contained in this Deed of Trust are intended by Grantor and Beneficiary to be, and shall be construed as, covenants running with the Trust Property. As used herein, "Grantor" shall refer to the party named in the first paragraph of this Deed of Trust and to any subsequent owner of all or any 11 portion of the Trust Property. All Persons who may have or acquire an interest in the Trust Property shall be deemed to have notice of, and be bound by, the terms of the Credit Agreement and the other Loan Documents; however, no such party shall be entitled to any rights thereunder without the prior written consent of Beneficiary. SECTION 7.3 ATTORNEY-IN-FACT. Grantor hereby irrevocably appoints ---------------- Beneficiary and its successors and assigns, as its attorney-in-fact, which agency is coupled with an interest, (a) to execute and/or record any notices of completion, cessation of labor or any other notices that Beneficiary deems appropriate to protect Beneficiary's interest, if Grantor shall fail to do so within ten (10) days after written request by Beneficiary, (b) upon the issuance of a deed pursuant to the foreclosure of this Deed of Trust or the delivery of a deed in lieu of foreclosure, to execute all instruments of assignment, conveyance or further assurance with respect to the Leases, Rents, Personalty, Fixtures and Property Agreements in favor of the grantee of any such deed and as may be necessary or desirable for such purpose, (c) to prepare, execute and file or record financing statements, continuation statements, applications for registration and like papers necessary to create, perfect or preserve Beneficiary's security interests and rights in or to any of the Trust Property, and (d) while any Event of Default exists, to perform any obligation of Grantor hereunder, however: (1) Beneficiary shall not under any circumstances be obligated to perform any obligation of Grantor; (2) any sums advanced by Beneficiary in such performance shall be added to and included in the Indebtedness and shall bear interest at the rate or rates at which interest is then computed on the Indebtedness; (3) Beneficiary as such attorney-in-fact shall only be accountable for such funds as are actually received by Beneficiary; and (4) Beneficiary shall not be liable to Grantor or any other person or entity for any failure to take any action which it is empowered to take under this Section. ------- SECTION 7.4 SUCCESSORS AND ASSIGNS. This Deed of Trust shall be ---------------------- binding upon and inure to the benefit of Beneficiary, the Lenders, and Grantor and their respective successors and assigns. Grantor shall not, without the prior written consent of Beneficiary, assign any rights, duties or obligations hereunder. SECTION 7.5 NO WAIVER. Any failure by Beneficiary to insist upon --------- strict performance of any of the terms, provisions or conditions of the Loan Documents shall not be deemed to be a waiver of same, and Beneficiary or the Lenders shall have the right at any time to insist upon strict performance of all of such terms, provisions and conditions. SECTION 7.6 CREDIT AGREEMENT. If any conflict or inconsistency ---------------- exists between this Deed of Trust and the Credit Agreement, the Credit Agreement shall govern. SECTION 7.7 RELEASE OR RECONVEYANCE. Upon payment in full of the ----------------------- Indebtedness and performance in full of the Obligations, the conveyance of the Trust Property to Trustee under this Deed of Trust shall be null and void, and upon Grantor's request, Trustee and Beneficiary, at Grantor's expense, shall release and cancel of record the liens and security 12 interests created by this Deed of Trust or reconvey the Trust Property to Grantor. In addition, as long as no Event of Default has occurred and is then continuing or would be caused thereby, if Grantor sells or transfers for value any portion of the Trust Property as permitted under Section 7.7 of the Credit ----------- Agreement, Beneficiary shall release the liens and security interests created by this Deed of Trust on such Trust Property or reconvey such Trust Property to Grantor, concurrently with the consummation of such sale or other transfer. Such release or reconveyance shall be at Grantor's sole cost and expense, and only upon not less than thirty days' prior written notice to Beneficiary. SECTION 7.8 WAIVER OF STAY, MORATORIUM AND SIMILAR RIGHTS. Grantor --------------------------------------------- agrees, to the full extent that it may lawfully do so, that it will not at any time insist upon or plead or in any way take advantage of any stay, marshalling of assets, extension, redemption or moratorium law now or hereafter in force and effect so as to prevent or hinder the enforcement of the provisions of this Deed of Trust or the Indebtedness secured hereby, or any agreement between Grantor and Beneficiary or any rights or remedies of Beneficiary or the Lenders. SECTION 7.9 APPLICABLE LAW. The provisions of this Deed of Trust -------------- regarding the creation, perfection and enforcement of the liens and security interests herein granted shall be governed by and construed under the laws of the state in which the Trust Property is located. All other provisions of this Deed of Trust and the Obligations shall be governed by the laws of the State of New York (including, without limitation, Section 5-1401 of the General Obligations Law of the State of New York), without regard to conflicts of laws principles. SECTION 7.10 HEADINGS. The Article, Section and Subsection titles -------- hereof are inserted for convenience of reference only and shall in no way alter, modify or define, or be used in construing, the text of such Articles, Sections or Subsections. SECTION 7.11 ENTIRE AGREEMENT. This Deed of Trust and the other Loan ---------------- Documents embody the entire agreement and understanding between Beneficiary and Grantor and supersede all prior agreements and understandings between such parties relating to the subject matter hereof and thereof. Accordingly, the Loan Documents may not be contradicted by evidence of prior, contemporaneous or subsequent oral agreements of the parties. There are no unwritten oral agreements between the parties. SECTION 7.12 SUBSTITUTION OF TRUSTEE. If, for any reason, ----------------------- Beneficiary shall elect a substitute for the Trustee herein named or any successor to said Trustee(s), Beneficiary shall have the right to appoint a successor Trustee by duly acknowledged written instruments, and each new Trustee immediately upon recordation of the instrument so appointing such new Trustee shall become successor in title to the Trust Property for the uses and purposes of this Deed of Trust, and with all the powers, duties and obligations conferred on the Trustee in the same manner and to the same effect as though he were named herein as the Trustee, including, 13 without limitation, the power of sale. If more than one Trustee has been appointed, each of such Trustees and each successor thereto shall be and hereby is empowered to act independently. [THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK] 14 IN WITNESS WHEREOF, Grantor and Beneficiary have on the date set forth in the acknowledgement hereto, effective as of the date first above written, caused this instrument to be duly EXECUTED UNDER SEAL AND DELIVERED by authority duly given. THE PANTRY, INC., a Delaware corporation By: _______________________________________ Name: William T. Flyg Title: Senior Vice President, Finance, Chief Financial Officer and Secretary FIRST UNION NATIONAL BANK, in its capacity as Agent By: _______________________________________ Name: Mark Felker Title: Senior Vice President S-1 ACKNOWLEDGEMENT STATE OF NEW YORK COUNTY OF NEW YORK I, the undersigned, Notary Public of the County and State aforesaid, certify that William T. Felker personally came before me this day and acknowledged that he is Secretary of The Pantry, Inc., a corporation and that by authority duly given and as the act of the corporation, the foregoing instrument was signed in its name by its Senior Vice President, sealed with its corporate seal, and attested by her/him as its _____________________ Secretary. WITNESS my hand and official stamp or seal this _____ day of October, 1997. _______________________________________ Notary Public My Commission expires: ___________________________ [AFFIX NOTARIAL STAMP OR SEAL] S-2 STATE OF NEW YORK COUNTY OF NEW YORK I, the undersigned, Notary Public of the County and State aforesaid, certify that Mark Felker personally came before me this day and acknowledged that he is _________________________ Secretary of First Union National Bank, a corporation and that by authority duly given and as the act of the corporation, the foregoing instrument was signed in its name by its Senior Vice President, sealed with its corporate seal, and attested by her/him as its _____________________ Secretary. WITNESS my hand and official stamp or seal this _____ day of October, 1997. _______________________________________ Notary Public My Commission expires: ___________________________ [AFFIX NOTARIAL STAMP OR SEAL] S-3 EXHIBIT A TRUST PROPERTY A-1 EXHIBIT B ORIGINAL DEEDS OF TRUST B-1 ANTINOVATION CLAUSE Trustor's obligations under the Mortgage Notes, the Forbearance Agreement and the other instruments executed and delivered in connection therewith, as amended by and pursuant to the General Restructuring Agreement and the New Instruments, shall continue to be secured by the Existing Mortgages, which are hereby amended to conform to the terms thereof and to secure the obligations of Trustor thereunder. Except as amended by this Amendment, the Existing Mortgages shall continue unmodified and in full force and effect. The parties hereto hereby ratify and confirm the Existing Mortgages, as amended herein. B-2 EX-10.21 31 FORM OF AM. & RESTATED MORTGAGE (KENTUCKY) EXHIBIT 10.21 OBLIGATIONS SECURED HEREBY PROVIDE FOR A FLUCTUATING INTEREST RATE AMENDED AND RESTATED MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF RENTS AND LEASES AND FIXTURE FILING (KENTUCKY) BY AND FROM THE PANTRY, INC., ``MORTGAGOR'' TO FIRST UNION NATIONAL BANK, IN ITS CAPACITY AS AGENT, ``MORTGAGEE'' DATED AS OF OCTOBER 23, 1997 THE SECURED PARTY (MORTGAGEE) DESIRES THIS FIXTURE FILING TO BE INDEXED AGAINST THE RECORD OWNER OF THE REAL ESTATE DESCRIBED HEREIN PREPARED BY, RECORDING REQUESTED BY, AND WHEN RECORDED MAIL TO: O'MELVENY & MYERS LLP 400 SOUTH HOPE STREET LOS ANGELES, CALIFORNIA ATTENTION: F. THOMAS MULLER, ESQ. FILE 154,607-004 _________________________________ AMENDED AND RESTATED MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF RENTS AND LEASES AND FIXTURE FILING (KENTUCKY) THIS AMENDED AND RESTATED MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF RENTS AND LEASES AND FIXTURE FILING (Kentucky) (this "MORTGAGE") is dated as of October 23, 1997, by and from THE PANTRY, INC., a Delaware corporation ("MORTGAGOR"), whose address is 1801 Douglas Drive, Sanford, North Carolina 27330, to FIRST UNION NATIONAL BANK, as Agent ("AGENT") for the lenders party to the Credit Agreement (defined below) (such lenders, together with their respective successors and assigns, collectively, the "LENDERS"), having an address at 301 South College Street, Charlotte, North Carolina 28288 (Agent, together with its successors and assigns, "MORTGAGEE"). R E C I T A L S A. Mortgagee is the assignee, owner and holder of those certain mortgages described on Exhibit B hereto (the "ORIGINAL MORTGAGES") and the obligations secured thereby, which encumber the properties described on Exhibit A hereto. Mortgagee's address is set forth above, and is located in the County of Mecklenburg. B. Mortgagee and Mortgagor now desire to amend and restate the Original Mortgages to contain all of the terms and conditions contained herein and in the Credit Agreement. NOW, THEREFORE, Mortgagee and Mortgagor hereby amend and restate the Original Mortgages in their entirety to provide as follows: ARTICLE 1 DEFINITIONS ----------- SECTION 1.1 DEFINITIONS. All capitalized terms used herein without ----------- definition shall have the respective meanings ascribed to them in that certain Credit Agreement dated as of even date herewith (as amended, supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT") among Mortgagor, the Lenders, Canadian Imperial Bank of Commerce, as Syndication Agent, and Mortgagee. As used herein, the following terms shall have the following meanings: 1.1.1 "INDEBTEDNESS": (1) All indebtedness of Mortgagor to Mortgagee and the Lenders, including, without limitation, the sum of all (a) principal, interest and other amounts evidenced or secured by the Loan Documents, including the aggregate original principal amount of the Notes, which is $75,000,000, and (b) principal, interest and other amounts which may hereafter be loaned by Mortgagee or any of the Lenders under or in connection with the Credit Agreement or any of the other Loan Documents, whether evidenced by a promissory note or other instrument which, by its terms, is secured hereby, and (2) all other indebtedness, obligations and liabilities now or hereafter existing of any kind of Mortgagor to Mortgagee or any of the Lenders under documents which recite that they are intended to be secured by this Mortgage. The current maturity date of the Notes is October 31, 2002. 1.1.2 "MORTGAGED PROPERTY": All of Mortgagor's interest in (1) the fee interest in the real property described in Exhibit A attached hereto and incorporated herein by this reference, together with any greater estate therein as hereafter may be acquired by Mortgagor (the "LAND"), (2) all improvements now owned or hereafter acquired by Mortgagor, now or at any time situated, placed or constructed upon the Land (the "IMPROVEMENTS"), (3) all materials, supplies, equipment, apparatus and other items of personal property now owned or hereafter acquired by Mortgagor and now or hereafter attached to, installed in or used in connection with any of the Improvements or the Land, and water, gas, electrical, storm and sanitary sewer facilities and all other utilities whether or not situated in easements (the "FIXTURES"), (4) all right, title and interest of Mortgagor in and to all goods, accounts, general intangibles, instruments, documents, chattel paper and all other personal property of any kind or character, including such items of personal property as defined in the UCC (defined below), now owned or hereafter acquired by Mortgagor and now or hereafter affixed to, placed upon, used in connection with, arising from or otherwise related to the Land and Improvements (the "PERSONALTY"), (5) all reserves, escrows or impounds required under the Credit Agreement and all deposit accounts maintained by Mortgagor with respect to the Mortgaged Property, (6) all leases, licenses, concessions, occupancy agreements or other agreements (written or oral, now or at any time in effect) which grant to any Person a possessory interest in, or the right to use, all or any part of the Mortgaged Property, together with all related security and other deposits (the "LEASES"), (7) all of the rents, revenues, income, proceeds, profits, security and other types of deposits, and other benefits paid or payable by parties to the Leases for using, leasing, licensing, possessing, operating from, residing in, selling or otherwise enjoying the Mortgaged Property (the "RENTS"), (8) all other agreements, such as construction contracts, architects' agreements, engineers' contracts, utility contracts, maintenance agreements, management agreements, service contracts, permits, licenses, certificates and entitlements in any way relating to the construction, use, occupancy, operation, maintenance, enjoyment or ownership of the Mortgaged Property (the "PROPERTY AGREEMENTS"), (9) all rights, privileges, tenements, hereditaments, rights-of-way, easements, appendages and appurtenances appertaining to the foregoing, (10) all accessions, replacements and substitutions for any of the foregoing and all proceeds thereof, (11) all insurance policies, unearned premiums therefor and proceeds from such policies covering any of the above property now or hereafter acquired by Mortgagor, and (12) all of Mortgagor's right, title and interest in and to any awards, remunerations, reimbursements, settlements or compensation heretofore made or hereafter to be made by any governmental authority pertaining to the Land, Improvements, Fixtures or Personalty. As used 2 in this Mortgage, the term "MORTGAGED PROPERTY" shall mean all or, where the context permit or requires, any portion of the above or any interest therein. 1.1.3 "OBLIGATIONS": All of the agreements, covenants, conditions, warranties, representations and other obligations of Mortgagor (including, without limitation, the obligation to repay the Indebtedness) under the Credit Agreement and the other Loan Documents. 1.1.4 "UCC": The Uniform Commercial Code of Kentucky or, if the creation, perfection and enforcement of any security interest herein granted is governed by the laws of a state other than Kentucky, then, as to the matter in question, the Uniform Commercial Code in effect in that state. ARTICLE 2 GRANT ----- SECTION 2.1 GRANT. To secure the full and timely payment of the ----- Indebtedness and the full and timely performance of the Obligations, Mortgagor MORTGAGES, GRANTS, BARGAINS, ASSIGNS, SELLS and CONVEYS, to Mortgagee the Mortgaged Property, subject, however, to the Permitted Encumbrances, TO HAVE AND TO HOLD the Mortgaged Property to Mortgagee, and Mortgagor does hereby bind itself, its successors and assigns to WARRANT AND FOREVER DEFEND the title to the Mortgaged Property unto Mortgagee. SECTION 2.2 FUTURE ADVANCES. This Mortgage is given to secure all --------------- present and future Indebtedness of Mortgagor to Mortgagee. The period in which future Indebtedness may be incurred and secured by this Mortgage is the period between the date hereof and that date which is ten years from the date hereof. The amount of present Indebtedness secured by this Mortgage is Seventy-Five Million Dollars ($75,000,000), and the maximum principal amount, including present and future Indebtedness that may be secured by this Mortgage at any one time is One Hundred Fifty Million Dollars ($150,000,000). Any additional amounts advanced by Mortgagee pursuant to other provisions of this Mortgage or other Loan Documents shall be deemed necessary expenditures for the protection of the Mortgaged Property. Mortgagor need not sign any instrument or notation evidencing or stipulating that future advances are secured by this Mortgage. ARTICLE 3 WARRANTIES, REPRESENTATIONS AND COVENANTS ----------------------------------------- Mortgagor warrants, represents and covenants to Mortgagee as follows: SECTION 3.1 TITLE TO MORTGAGED PROPERTY AND LIEN OF THIS INSTRUMENT. ------------------------------------------------------- Mortgagor owns the Mortgaged Property free and clear of any liens, claims or interests, except 3 the Permitted Encumbrances. This Mortgage creates valid, enforceable first priority liens and security interests against the Mortgaged Property. SECTION 3.2 FIRST LIEN STATUS. Mortgagor shall preserve and protect ----------------- the first lien and security interest status of this Mortgage and the other Loan Documents. If any lien or security interest other than the Permitted Encumbrances is asserted against the Mortgaged Property, Mortgagor shall promptly, and at its expense, (a) give Mortgagee a detailed written notice of such lien or security interest (including origin, amount and other terms), and (b) pay the underlying claim in full or take such other action so as to cause it to be released or contest the same in compliance with the requirements of the Credit Agreement (including the requirement of providing a bond or other security satisfactory to Mortgagee). SECTION 3.3 PAYMENT AND PERFORMANCE. Mortgagor shall pay the ----------------------- Indebtedness when due under the Loan Documents and shall perform the Obligations in full when they are required to be performed. SECTION 3.4 REPLACEMENT OF FIXTURES AND PERSONALTY. Mortgagor shall -------------------------------------- not, without the prior written consent of Mortgagee, permit any of the Fixtures or Personalty to be removed at any time from the Land or Improvements, unless the removed item is removed temporarily for maintenance and repair or, if removed permanently, is obsolete and is replaced by an article of equal or better suitability and value, owned by Mortgagor subject to the liens and security interests of this Mortgage and the other Loan Documents, and free and clear of any other lien or security interest except such as may be permitted under the Credit Agreement or first approved in writing by Mortgagee. SECTION 3.5 INSPECTION. Mortgagor shall permit Mortgagee and the ---------- Lenders, and their respective agents, representatives and employees, upon reasonable prior notice to Mortgagor, to inspect the Mortgaged Property and all books and records of Mortgagor located thereon, and to conduct such environmental and engineering studies as Mortgagee or the Lenders may require, provided that such inspections and studies shall not materially interfere with the use and operation of the Mortgaged Property. SECTION 3.6 OTHER COVENANTS. All of the covenants in the Credit --------------- Agreement are incorporated herein by reference and, together with covenants in this Article, shall be covenants running with the land. ------- SECTION 3.7 CONDEMNATION AWARDS AND INSURANCE PROCEEDS. ------------------------------------------ 3.7.1 Condemnation Awards. Mortgagor assigns all awards and ------------------- compensation to which it is entitled for any condemnation or other taking, or any purchase in lieu thereof, to Mortgagee and authorizes Mortgagee to collect and receive such awards and compensation and to give proper receipts and acquittances therefor, subject to the terms of the Credit Agreement. 4 3.7.2 Insurance Proceeds. Mortgagor assigns to Mortgagee all ------------------ proceeds of any insurance policies insuring against loss or damage to the Mortgaged Property. Mortgagor authorizes Mortgagee to collect and receive such proceeds and authorizes and directs the issuer of each of such insurance policies to make payment for all such losses directly to Mortgagee, instead of to Mortgagor and Mortgagee jointly. ARTICLE 4 DEFAULT AND FORECLOSURE ----------------------- SECTION 4.1 REMEDIES. If an Event of Default exists, Mortgagee may, -------- at Mortgagee's election, exercise any or all of the following rights, remedies and recourses: 4.1.1 Acceleration. Declare the Indebtedness to be immediately due ------------ and payable, without further notice, presentment, protest, notice of intent to accelerate, notice of acceleration, demand or action of any nature whatsoever (each of which hereby is expressly waived by Mortgagor), whereupon the same shall become immediately due and payable. 4.1.2 Entry on Mortgaged Property. Enter the Mortgaged Property and --------------------------- take exclusive possession thereof and of all books, records and accounts relating thereto or located thereon. If Mortgagor remains in possession of the Mortgaged Property after an Event of Default and without Mortgagee's prior written consent, Mortgagee may invoke any legal remedies to dispossess Mortgagor. 4.1.3 Operation of Mortgaged Property. Hold, lease, develop, manage, ------------------------------- operate or otherwise use the Mortgaged Property upon such terms and conditions as Mortgagee may deem reasonable under the circumstances (making such repairs, alternations, additions and improvements and taking other actions, from time to time, as Mortgagee deems necessary or desirable), and apply all Rents and other amounts collected by Mortgagee in connection therewith in accordance with the provisions of Section 4.7. ----------- 4.1.4 Foreclosure and Sale. Institute proceedings for the complete -------------------- foreclosure of this Mortgage, either by judicial action or by power of sale, in which case the Mortgaged Property may be sold for cash or credit in one or more parcels. With respect to any notices required or permitted under the UCC, Mortgagor agrees that five days' prior written notice shall be deemed commercially reasonable. At any such sale by virtue of any judicial proceedings, power of sale, or any other legal right, remedy or recourse, the title to and right of possession of any such property shall pass to the purchaser thereof, and to the fullest extent permitted by law, Mortgagor shall be completely and irrevocably divested of all of its right, title, interest, claim, equity, equity of redemption, and demand whatsoever, either at law or in equity, in and to the property sold and such sale shall be a perpetual bar both at law and in equity against Mortgagor, and against all other Persons claiming or to claim the property sold or any part thereof, by, through or under Mortgagor. Mortgagee or any of the Lenders may be a purchaser 5 at such sale. If Mortgagee is the highest bidder, Mortgagee may credit the portion of the purchase price that would be distributed to Mortgagee against the Indebtedness in lieu of paying cash. In the event this Mortgage is foreclosed by judicial action, appraisement of the Mortgaged Property is waived. 4.1.5 Receiver. Make application to a court of competent -------- jurisdiction for, and obtain from such court as a matter of strict right and without notice to Mortgagor or regard to the adequacy of the Mortgaged Property for the repayment of the Indebtedness, the appointment of a receiver of the Mortgaged Property, and Mortgagor irrevocably consents to such appointment. Any such receiver shall have all the usual powers and duties of receivers in similar cases, including the full power to rent, maintain and otherwise operate the Mortgaged Property upon such terms as may be approved by the court, and shall apply such Rents in accordance with the provisions of Section 4.7. ----------- 4.1.6 Other. Exercise all other rights, remedies and recourses ----- granted under the Loan Documents or otherwise available at law or in equity. SECTION 4.2 SEPARATE SALES. The Mortgaged Property may be sold in -------------- one or more parcels and in such manner and order as Mortgagee in its sole discretion may elect; the right of sale arising out of any Event of Default shall not be exhausted by any one or more sales. SECTION 4.3 REMEDIES CUMULATIVE, CONCURRENT AND NONEXCLUSIVE. ------------------------------------------------ Mortgagee and the Lenders shall have all rights, remedies and recourses granted in the Loan Documents and available at law or equity (including the UCC), which rights (a) shall be cumulated and concurrent, (b) may be pursued separately, successively or concurrently against Mortgagor or others obligated under the Loan Documents, or against the Mortgaged Property, or against any one or more of them, at the sole discretion of Mortgagee or the Lenders, (c) may be exercised as often as occasion therefor shall arise, and the exercise or failure to exercise any of them shall not be construed as a waiver or release thereof or of any other right, remedy or recourse, and (d) are intended to be, and shall be, nonexclusive. No action by Mortgagee or the Lenders in the enforcement of any rights, remedies or recourses under the Loan Documents or otherwise at law or equity shall be deemed to cure any Event of Default. SECTION 4.4 RELEASE OF AND RESORT TO COLLATERAL. Mortgagee may ----------------------------------- release, regardless of consideration and without the necessity for any notice to or consent by the holder of any subordinate lien on the Mortgaged Property, any part of the Mortgaged Property without, as to the remainder, in any way impairing, affecting, subordinating or releasing the lien or security interest created in or evidenced by the Loan Documents or their status as a first and prior lien and security interest in and to the Mortgaged Property. For payment of the Indebtedness, Mortgagee may resort to any other security in such order and manner as Mortgagee may elect. 6 SECTION 4.5 WAIVER OF REDEMPTION, NOTICE AND MARSHALLING OF ASSETS. ------------------------------------------------------- To the fullest extent permitted by law, Mortgagor hereby irrevocably and unconditionally waives and releases (a) all benefit that might accrue to Mortgagor by virtue of any present or future statute of limitations or law or judicial decision exempting the Mortgaged Property from attachment, levy or sale on execution or providing for any stay of execution, exemption from civil process, redemption or extension of time for payment, (b) all notices of any Event of Default or of Mortgagee's election to exercise or the actual exercise of any right, remedy or recourse provided for under the Loan Documents, and (c) any right to a marshalling of assets or a sale in inverse order of alienation. SECTION 4.6 DISCONTINUANCE OF PROCEEDINGS. If Mortgagee or the ----------------------------- Lenders shall have proceeded to invoke any right, remedy or recourse permitted under the Loan Documents and shall thereafter elect to discontinue or abandon it for any reason, Mortgagee or the Lenders shall have the unqualified right to do so and, in such an event, Mortgagor, Mortgagee, and the Lenders shall be restored to their former positions with respect to the Indebtedness, the Obligations, the Loan Documents, the Mortgaged Property and otherwise, and the rights, remedies, recourses and powers of Mortgagee and the Lenders shall continue and if the right, remedy or recourse had never been invoked, but no such discontinuance or abandonment shall waive any Event of Default which may then exist or the right of Mortgagee or the Lenders thereafter to exercise any right, remedy or recourse under the Loan Documents for such Event of Default. SECTION 4.7 ALLOCATION OF PROCEEDS. The proceeds of any sale of, and ---------------------- the Rents and other amounts generated by the holding, leasing, management, operation or other use of the Mortgaged Property, shall be applied by Mortgagee (or the receiver, if one is appointed) in the following order unless otherwise required by applicable law: 4.7.1 to the payment of the costs and expenses of taking possession of the Mortgaged Property and of holding, using, leasing, repairing, improving and selling the same, including, without limitation (1) receiver's fees and expenses, including the repayment of the amounts evidenced by any receiver's certificates, (2) court costs, (3) attorneys' and accountants' fees and expenses, and (4) costs of advertisement; 4.7.2 to the payment of the Indebtedness and performance of the Obligations in such manner and order of preference as Mortgagee in its sole discretion may determine; and 4.7.3 the balance, if any, to the payment of the Persons legally entitled thereto. SECTION 4.8 OCCUPANCY AFTER FORECLOSURE. Any sale of the Mortgaged --------------------------- Property or any part thereof in accordance with Section 4.1.4 will divest all ------------- right, title and interest of Mortgagor in and to the property sold. Subject to applicable law, any purchaser at a foreclosure sale will receive immediate possession of the property purchased. If Mortgagor retains 7 possession of such property or any part thereof subsequent to such sale, Mortgagor will be considered a tenant at sufferance of the purchaser, and will, if Mortgagor remains in possession after demand to remove, be subject to eviction and removal, forcible or otherwise, with or without process of law. SECTION 4.9 ADDITIONAL ADVANCES AND DISBURSEMENTS; COSTS OF ----------------------------------------------- ENFORCEMENT. - ----------- 4.9.1 If any Event of Default exists, Mortgagee and each of the Lenders shall have the right, but not the obligation, to cure such Event of Default in the name and on behalf of Mortgagor. All sums advanced and expenses incurred at any time by Mortgagee or any Lender under this Section, or otherwise ------- under this Mortgage or any of the other Loan Documents or applicable law, shall bear interest from the date that such sum is advanced or expense incurred, to and including the date of reimbursement, computed at the rate or rates at which interest is then computed on the Indebtedness, and all such sums, together with interest thereon, shall be secured by this Mortgage. 4.9.2 Mortgagor shall pay all expenses (including reasonable attorneys' fees and expenses) of or incidental to the perfection and enforcement of this Mortgage and the other Loan Documents, or the enforcement, compromise or settlement of the Indebtedness or any claim under this Mortgage and the other Loan Documents, and for the curing thereof, or for defending or asserting the rights and claims of Mortgagee in respect thereof, by litigation or otherwise. SECTION 4.10 NO MORTGAGEE IN POSSESSION. Neither the enforcement of -------------------------- any of the remedies under this Article, the assignment of the Rents and Leases ------- under Article 5, the security interests under Article 6, nor any other remedies --------- --------- afforded to Mortgagee under the Loan Documents, at law or in equity shall cause Mortgagee or any Lender to be deemed or construed to be a mortgagee in possession of the Mortgaged Property, to obligate Mortgagee or any Lender to lease the Mortgaged Property or attempt to do so, or to take any action, incur any expense, or perform or discharge any obligation, duty or liability whatsoever under any of the Leases or otherwise. ARTICLE 5 ASSIGNMENT OF RENTS AND LEASES ------------------------------ SECTION 5.1 ASSIGNMENT. In furtherance of and in addition to the ---------- assignment made by Mortgagor in Section 2.1 of this Mortgage, Mortgagor hereby ----------- absolutely and unconditionally assigns, sells, transfers and conveys to Mortgagee all of its right, title and interest in and to all Leases, whether now existing or hereafter entered into, and all of its right, title and interest in and to all Rents. If permitted under applicable law, this assignment is an absolute assignment and not merely an assignment for additional security. So long as no Event of Default shall have occurred and be continuing, Mortgagor shall have a revocable license from Mortgagee to exercise all rights extended to the landlord under the Leases, including the right 8 to receive and collect all Rents and to hold the Rents in trust for use in the payment and performance of the Obligations and to otherwise use the same. The foregoing license is granted subject to the conditional limitation that no Event of Default shall have occurred and be continuing. Upon the occurrence and during the continuance of an Event of Default, whether or not legal proceedings have commenced, and without regard to waste, adequacy of security for the Obligations or solvency of Mortgagor, the license herein granted shall automatically expire and terminate, without notice by Mortgagee (any such notice being hereby expressly waived by Mortgagor). SECTION 5.2 PERFECTION UPON RECORDATION. Mortgagor acknowledges that --------------------------- Mortgagee has taken all actions necessary to obtain, and that upon recordation of this Mortgage Mortgagee shall have, to the extent permitted under applicable law, a valid and fully perfected first priority present assignment of the Rents arising out of the Leases and all security for such Leases. Mortgagor acknowledges and agrees that upon recordation of this Mortgage Mortgagee's interest in the Rents shall be deemed to be fully perfected, ``choate'' and enforced as to Mortgagor and all third parties, including, without limitation, any subsequently appointed trustee in any case under Title 11 of the United States Code (the "BANKRUPTCY CODE"), without the necessity of commencing a foreclosure action with respect to this Mortgage, making formal demand for the Rents, obtaining the appointment of a receiver or taking any other affirmative action. SECTION 5.3 BANKRUPTCY PROVISIONS. Without limitation of the --------------------- absolute nature of the assignment of the Rents hereunder, Mortgagor and Mortgagee agree that (a) this Mortgage shall constitute a ``security agreement'' for purposes of Section 552(b) of the Bankruptcy Code, (b) the security interest created by this Mortgage extends to property of Mortgagor acquired before the commencement of a case in bankruptcy and to all amounts paid as Rents and (c) such security interest shall extend to all Rents acquired by the estate after the commencement of any case in bankruptcy. SECTION 5.4 NO MERGER OF ESTATES. So long as part of the -------------------- Indebtedness and the Obligations secured hereby remain unpaid and undischarged, the fee and leasehold estates to the Mortgaged Property shall not merge, but shall remain separate and distinct, notwithstanding the union of such estates either in Mortgagor, Mortgagee, any tenant or any third party by purchase or otherwise. 9 ARTICLE 6 SECURITY AGREEMENT ------------------ SECTION 6.1 SECURITY INTEREST. This Mortgage constitutes a "Security ----------------- Agreement" on personal property within the meaning of the UCC and other applicable law and with respect to the Personalty, Fixtures, Leases, Rents and Property Agreements. To this end, Mortgagor grants to Mortgagee a first and prior security interest in the Personalty, Fixtures, Leases, Rents and Property Agreements and all other Mortgaged Property which is personal property to secure the payment of the Indebtedness and performance of the Obligations, and agrees that Mortgagee shall have all the rights and remedies of a secured party under the UCC with respect to such property. Any notice of sale, disposition or other intended action by Mortgagee with respect to the Personalty, Fixtures, Leases, Rents and Property Agreements sent to Mortgagor at least five (5) days prior to any action under the UCC shall constitute reasonable notice to Mortgagor. SECTION 6.2 FINANCING STATEMENTS. Mortgagor shall execute and -------------------- deliver to Mortgagee, in form and substance satisfactory to Mortgagee, such financing statements and such further assurances as Mortgagee may, from time to time, reasonably consider necessary to create, perfect and preserve Mortgagee's security interest hereunder and Mortgagee may cause such statements and assurances to be recorded and filed, at such times and places as may be required or permitted by law to so create, perfect and preserve such security interest. Mortgagor's chief executive office is in the State of North Carolina at the address set forth in the first paragraph of this Mortgage. SECTION 6.3 FIXTURE FILING. This Mortgage shall also constitute a -------------- "fixture filing" for the purposes of the UCC against all of the Mortgaged Property which is or is to become fixtures. Information concerning the security interest herein granted may be obtained at the addresses of Debtor (Mortgagor) and Secured Party (Mortgagee) as set forth in the first paragraph of this Mortgage. ARTICLE 7 MISCELLANEOUS ------------- SECTION 7.1 NOTICES. Any notice required or permitted to be given ------- under this Mortgage shall be given in accordance with the provisions of the Credit Agreement. SECTION 7.2 COVENANTS RUNNING WITH THE LAND. All Obligations ------------------------------- contained in this Mortgage are intended by Mortgagor and Mortgagee to be, and shall be construed as, covenants running with the Mortgaged Property. As used herein, "Mortgagor" shall refer to the party named in the first paragraph of this Mortgage and to any subsequent owner of all or any portion of the Mortgaged Property. All Persons who may have or acquire an interest in the Mortgaged Property shall be deemed to have notice of, and be bound by, the terms of the Credit 10 Agreement and the other Loan Documents; however, no such party shall be entitled to any rights thereunder without the prior written consent of Mortgagee. SECTION 7.3 ATTORNEY-IN-FACT. Mortgagor hereby irrevocably appoints ---------------- Mortgagee and its successors and assigns, as its attorney-in-fact, which agency is coupled with an interest, (a) to execute and/or record any notices of completion, cessation of labor or any other notices that Mortgagee deems appropriate to protect Mortgagee's interest, if Mortgagor shall fail to do so within ten (10) days after written request by Mortgagee, (b) upon the issuance of a deed pursuant to the foreclosure of this Mortgage or the delivery of a deed in lieu of foreclosure, to execute all instruments of assignment, conveyance or further assurance with respect to the Leases, Rents, Personalty, Fixtures and Property Agreements in favor of the grantee of any such deed and as may be necessary or desirable for such purpose, (c) to prepare, execute and file or record financing statements, continuation statements, applications for registration and like papers necessary to create, perfect or preserve Mortgagee's security interests and rights in or to any of the Mortgaged Property, and (d) while any Event of Default exists, to perform any obligation of Mortgagor hereunder, however: (1) Mortgagee shall not under any circumstances be obligated to perform any obligation of Mortgagor; (2) any sums advanced by Mortgagee in such performance shall be added to and included in the Indebtedness and shall bear interest at the rate or rates at which interest is then computed on the Indebtedness; (3) Mortgagee as such attorney-in-fact shall only be accountable for such funds as are actually received by Mortgagee; and (4) Mortgagee shall not be liable to Mortgagor or any other person or entity for any failure to take any action which it is empowered to take under this Section. ------- SECTION 7.4 SUCCESSORS AND ASSIGNS. This Mortgage shall be binding ---------------------- upon and inure to the benefit of Mortgagee, the Lenders, and Mortgagor and their respective successors and assigns. Mortgagor shall not, without the prior written consent of Mortgagee, assign any rights, duties or obligations hereunder. SECTION 7.5 NO WAIVER. Any failure by Mortgagee to insist upon --------- strict performance of any of the terms, provisions or conditions of the Loan Documents shall not be deemed to be a waiver of same, and Mortgagee or the Lenders shall have the right at any time to insist upon strict performance of all of such terms, provisions and conditions. SECTION 7.6 CREDIT AGREEMENT. If any conflict or inconsistency ---------------- exists between this Mortgage and the Credit Agreement, the Credit Agreement shall govern. SECTION 7.7 RELEASE OR RECONVEYANCE. Upon payment in full of the ----------------------- Indebtedness and performance in full of the Obligations, Mortgagee, at Mortgagor's expense, shall release the liens and security interests created by this Mortgage or reconvey the Mortgaged Property to Mortgagor. In addition, as long as no Event of Default has occurred and is then continuing or would be caused thereby, if Mortgagor sells or transfers for value any portion of the Mortgaged Property as permitted under Section 7.7 of the Credit Agreement, Mortgagee shall release the 11 liens and security interests created by this Mortgage on such Mortgaged Property or reconvey such Mortgaged Property to Mortgagor, concurrently with the consummation of such sale or other transfer. Such release or reconveyance shall be at Mortgagor's sole cost and expense, and only upon not less than thirty days' prior written notice to Mortgagee. SECTION 7.8 WAIVER OF STAY, MORATORIUM AND SIMILAR RIGHTS. Mortgagor --------------------------------------------- agrees, to the full extent that it may lawfully do so, that it will not at any time insist upon or plead or in any way take advantage of any stay, marshalling of assets, extension, redemption or moratorium law now or hereafter in force and effect so as to prevent or hinder the enforcement of the provisions of this Mortgage or the Indebtedness secured hereby, or any agreement between Mortgagor and Mortgagee or any rights or remedies of Mortgagee or the Lenders. SECTION 7.9 APPLICABLE LAW. The provisions of this Mortgage -------------- regarding the creation, perfection and enforcement of the liens and security interests herein granted shall be governed by and construed under the laws of the state in which the Mortgaged Property is located. All other provisions of this Mortgage and the Obligations shall be governed by the laws of the State of New York (including, without limitation, Section 5-1401 of the General Obligations Law of the State of New York), without regard to conflicts of laws principles. SECTION 7.10 HEADINGS. The Article, Section and Subsection titles -------- hereof are inserted for convenience of reference only and shall in no way alter, modify or define, or be used in construing, the text of such Articles, Sections or Subsections. SECTION 7.11 ENTIRE AGREEMENT. This Mortgage and the other Loan ---------------- Documents embody the entire agreement and understanding between Mortgagee and Mortgagor and supersede all prior agreements and understandings between such parties relating to the subject matter hereof and thereof. Accordingly, the Loan Documents may not be contradicted by evidence of prior, contemporaneous or subsequent oral agreements of the parties. There are no unwritten oral agreements between the parties. [THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK] 12 IN WITNESS WHEREOF, Mortgagor and Mortgagee have on the date set forth in the acknowledgement hereto, effective as of the date first above written, caused this instrument to be duly EXECUTED AND DELIVERED by authority duly given. THE PANTRY, INC., a Delaware corporation By: _____________________________ Name: William T. Flyg Title: Senior Vice President, Finance,Chief Financial Officer & Secretary FIRST UNION NATIONAL BANK By: _____________________________ Name: Mark Felker Title: Senior Vice President S-1 ACKNOWLEDGEMENT STATE OF NEW YORK ) ) SS.: COUNTY OF NEW YORK ) The foregoing instrument was acknowledged before me this ____ day of October, 1977, by William T. Flyg, the Senior Vice President, Finance, Chief Financial officer and Secretary of THE PANTRY, INC., a Delaware corporation, on behalf of the corporation. __________________________________________________ (SIGNATURE AND OFFICE OF INDIVIDUAL TAKING ACKNOWLEDGEMENT) [SEAL] STATE OF NEW YORK ) ) SS.: COUNTY OF NEW YORK ) The foregoing instrument was acknowledged before me this ____ day of October, 1977, by Mark Felker, the Senior Vice President of FIRST UNION NATIONAL BANK, a North Carolina corporation, on behalf of the corporation. __________________________________________________ (SIGNATURE AND OFFICE OF INDIVIDUAL TAKING ACKNOWLEDGEMENT) [SEAL] S-2 EXHIBIT A MORTGAGED PROPERTY A-1 EXHIBIT B ORIGINAL MORTGAGES B-1 EX-10.22 32 FORM OF AM. & RESTATED MORTGAGE (INDIANA) EXHIBIT 10.22 OBLIGATIONS SECURED HEREBY PROVIDE FOR A FLUCTUATING INTEREST RATE AMENDED AND RESTATED MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF RENTS AND LEASES AND FIXTURE FILING (INDIANA) BY AND FROM THE PANTRY, INC., ``MORTGAGOR'' TO FIRST UNION NATIONAL BANK, IN ITS CAPACITY AS AGENT, ``MORTGAGEE'' DATED AS OF OCTOBER 23, 1997 THE SECURED PARTY (MORTGAGEE) DESIRES THIS FIXTURE FILING TO BE INDEXED AGAINST THE RECORD OWNER OF THE REAL ESTATE DESCRIBED HEREIN PREPARED BY, RECORDING REQUESTED BY, AND WHEN RECORDED MAIL TO: F. THOMAS MULLER, ESQ. O'MELVENY & MYERS LLP 400 SOUTH HOPE STREET LOS ANGELES, CALIFORNIA FILE 154,607-004 AMENDED AND RESTATED MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF RENTS AND LEASES AND FIXTURE FILING (INDIANA) THIS AMENDED AND RESTATED MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF RENTS AND LEASES AND FIXTURE FILING (Indiana) (this "MORTGAGE") is dated as of October 23, 1997, by and from THE PANTRY, INC., a Delaware corporation ("MORTGAGOR"), whose address is 1801 Douglas Drive, Sanford, North Carolina 27330, to FIRST UNION NATIONAL BANK, as Agent ("AGENT") for the lenders party to the Credit Agreement (defined below) (such lenders, together with their respective successors and assigns, collectively, the "LENDERS"), having an address at 301 South College Street, Charlotte, North Carolina 28288 (Agent, together with its successors and assigns, "MORTGAGEE"). R E C I T A L S A. Mortgagee is the assignee, owner and holder of those certain mortgages described on Exhibit B hereto (the "ORIGINAL MORTGAGES") and the obligations secured thereby, which encumber the properties described on Exhibit A hereto. B. Mortgagee and Mortgagor now desire to amend and restate the Original Mortgages to contain all of the terms and conditions contained herein and in the Credit Agreement. NOW, THEREFORE, Mortgagee and Mortgagor hereby amend and restate the Original Mortgages in their entirety to provide as follows: ARTICLE 1 DEFINITIONS ----------- SECTION 1.1 DEFINITIONS. All capitalized terms used herein without ----------- definition shall have the respective meanings ascribed to them in that certain Credit Agreement dated as of even date herewith (as amended, supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT") among Mortgagor, the Lenders, Canadian Imperial Bank of Commerce, as Syndication Agent, and Mortgagee. As used herein, the following terms shall have the following meanings: 1.1.1 "INDEBTEDNESS": (1) All indebtedness of Mortgagor to Mortgagee and the Lenders, including, without limitation, the sum of all (a) principal, interest and other amounts evidenced or secured by the Loan Documents, and (b) principal, interest and other amounts which may hereafter be loaned by Mortgagee or any of the Lenders under or in connection with the Credit Agreement or any of the other Loan Documents, whether evidenced by a promissory note or other instrument which, by its terms, is secured hereby, and (2) all other indebtedness, obligations and liabilities now or hereafter existing of any kind of Mortgagor to Mortgagee or any of the Lenders under documents which recite that they are intended to be secured by this Mortgage. 1.1.2 "MORTGAGED PROPERTY": All of Mortgagor's interest in (1) the fee interest in the real property described in Exhibit A attached hereto and incorporated herein by this reference, together with any greater estate therein as hereafter may be acquired by Mortgagor (the "LAND"), (2) all improvements now owned or hereafter acquired by Mortgagor, now or at any time situated, placed or constructed upon the Land (the "IMPROVEMENTS"), (3) all materials, supplies, equipment, apparatus and other items of personal property now owned or hereafter acquired by Mortgagor and now or hereafter attached to, installed in or used in connection with any of the Improvements or the Land, and water, gas, electrical, storm and sanitary sewer facilities and all other utilities whether or not situated in easements (the "FIXTURES"), (4) all right, title and interest of Mortgagor in and to all goods, accounts, general intangibles, instruments, documents, chattel paper and all other personal property of any kind or character, including such items of personal property as defined in the UCC (defined below), now owned or hereafter acquired by Mortgagor and now or hereafter affixed to, placed upon, used in connection with, arising from or otherwise related to the Land and Improvements (the "PERSONALTY"), (5) all reserves, escrows or impounds required under the Credit Agreement and all deposit accounts maintained by Mortgagor with respect to the Mortgaged Property, (6) all leases, licenses, concessions, occupancy agreements or other agreements (written or oral, now or at any time in effect) which grant to any Person a possessory interest in, or the right to use, all or any part of the Mortgaged Property, together with all related security and other deposits (the "LEASES"), (7) all of the rents, revenues, income, proceeds, profits, security and other types of deposits, and other benefits paid or payable by parties to the Leases for using, leasing, licensing, possessing, operating from, residing in, selling or otherwise enjoying the Mortgaged Property (the "RENTS"), (8) all other agreements, such as construction contracts, architects' agreements, engineers' contracts, utility contracts, maintenance agreements, management agreements, service contracts, permits, licenses, certificates and entitlements in any way relating to the construction, use, occupancy, operation, maintenance, enjoyment or ownership of the Mortgaged Property (the "PROPERTY AGREEMENTS"), (9) all rights, privileges, tenements, hereditaments, rights-of-way, easements, appendages and appurtenances appertaining to the foregoing, (10) all accessions, replacements and substitutions for any of the foregoing and all proceeds thereof, (11) all insurance policies, unearned premiums therefor and proceeds from such policies covering any of the above property now or hereafter acquired by Mortgagor, and (12) all of Mortgagor's right, title and interest in and to any awards, remunerations, reimbursements, settlements or compensation heretofore made or hereafter to be made by any governmental authority pertaining to the Land, Improvements, Fixtures or Personalty. As used A-2 in this Mortgage, the term "MORTGAGED PROPERTY" shall mean all or, where the context permit or requires, any portion of the above or any interest therein. 1.1.3 "OBLIGATIONS": All of the agreements, covenants, conditions, warranties, representations and other obligations of Mortgagor (including, without limitation, the obligation to repay the Indebtedness) under the Credit Agreement and the other Loan Documents. 1.1.4 "UCC": The Uniform Commercial Code of Indiana or, if the creation, perfection and enforcement of any security interest herein granted is governed by the laws of a state other than Indiana, then, as to the matter in question, the Uniform Commercial Code in effect in that state. ARTICLE 2 GRANT ----- SECTION 2.1 GRANT. To secure the full and timely payment of the ----- Indebtedness and the full and timely performance of the Obligations, Mortgagor MORTGAGES, GRANTS, BARGAINS, ASSIGNS, SELLS and CONVEYS, to Mortgagee the Mortgaged Property, subject, however, to the Permitted Encumbrances, TO HAVE AND TO HOLD the Mortgaged Property to Mortgagee, and Mortgagor does hereby bind itself, its successors and assigns to WARRANT AND FOREVER DEFEND the title to the Mortgaged Property unto Mortgagee. ARTICLE 3 WARRANTIES, REPRESENTATIONS AND COVENANTS ----------------------------------------- Mortgagor warrants, represents and covenants to Mortgagee as follows: SECTION 3.1 TITLE TO MORTGAGED PROPERTY AND LIEN OF THIS INSTRUMENT. ------------------------------------------------------- Mortgagor owns the Mortgaged Property free and clear of any liens, claims or interests, except the Permitted Encumbrances. This Mortgage creates valid, enforceable first priority liens and security interests against the Mortgaged Property. SECTION 3.2 FIRST LIEN STATUS. Mortgagor shall preserve and protect ----------------- the first lien and security interest status of this Mortgage and the other Loan Documents. If any lien or security interest other than the Permitted Encumbrances is asserted against the Mortgaged Property, Mortgagor shall promptly, and at its expense, (a) give Mortgagee a detailed written notice of such lien or security interest (including origin, amount and other terms), and (b) pay the underlying claim in full or take such other action so as to cause it to be released or contest the same in compliance with the requirements of the Credit Agreement (including the requirement of providing a bond or other security satisfactory to Mortgagee). A-3 SECTION 3.3 PAYMENT AND PERFORMANCE. Mortgagor shall pay the ----------------------- Indebtedness when due under the Loan Documents and shall perform the Obligations in full when they are required to be performed. SECTION 3.4 REPLACEMENT OF FIXTURES AND PERSONALTY. Mortgagor shall -------------------------------------- not, without the prior written consent of Mortgagee, permit any of the Fixtures or Personalty to be removed at any time from the Land or Improvements, unless the removed item is removed temporarily for maintenance and repair or, if removed permanently, is obsolete and is replaced by an article of equal or better suitability and value, owned by Mortgagor subject to the liens and security interests of this Mortgage and the other Loan Documents, and free and clear of any other lien or security interest except such as may be permitted under the Credit Agreement or first approved in writing by Mortgagee. SECTION 3.5 INSPECTION. Mortgagor shall permit Mortgagee and the ---------- Lenders, and their respective agents, representatives and employees, upon reasonable prior notice to Mortgagor, to inspect the Mortgaged Property and all books and records of Mortgagor located thereon, and to conduct such environmental and engineering studies as Mortgagee or the Lenders may require, provided that such inspections and studies shall not materially interfere with the use and operation of the Mortgaged Property. SECTION 3.6 OTHER COVENANTS. All of the covenants in the Credit --------------- Agreement are incorporated herein by reference and, together with covenants in this Article, shall be covenants running with the land. ------- SECTION 3.7 CONDEMNATION AWARDS AND INSURANCE PROCEEDS. ------------------------------------------ 3.7.1 Condemnation Awards. Mortgagor assigns all awards and ------------------- compensation to which it is entitled for any condemnation or other taking, or any purchase in lieu thereof, to Mortgagee and authorizes Mortgagee to collect and receive such awards and compensation and to give proper receipts and acquittances therefor, subject to the terms of the Credit Agreement. 3.7.2 Insurance Proceeds. Mortgagor assigns to Mortgagee all ------------------ proceeds of any insurance policies insuring against loss or damage to the Mortgaged Property. Mortgagor authorizes Mortgagee to collect and receive such proceeds and authorizes and directs the issuer of each of such insurance policies to make payment for all such losses directly to Mortgagee, instead of to Mortgagor and Mortgagee jointly. A-4 ARTICLE 4 DEFAULT AND FORECLOSURE ----------------------- SECTION 4.1 REMEDIES. If an Event of Default exists, Mortgagee may, -------- at Mortgagee's election, exercise any or all of the following rights, remedies and recourses: 4.1.1 Acceleration. Declare the Indebtedness to be immediately due ------------ and payable, without further notice, presentment, protest, notice of intent to accelerate, notice of acceleration, demand or action of any nature whatsoever (each of which hereby is expressly waived by Mortgagor), whereupon the same shall become immediately due and payable. 4.1.2 Entry on Mortgaged Property. Enter the Mortgaged Property and --------------------------- take exclusive possession thereof and of all books, records and accounts relating thereto or located thereon. If Mortgagor remains in possession of the Mortgaged Property after an Event of Default and without Mortgagee's prior written consent, Mortgagee may invoke any legal remedies to dispossess Mortgagor. 4.1.3 Operation of Mortgaged Property. Hold, lease, develop, manage, ------------------------------- operate or otherwise use the Mortgaged Property upon such terms and conditions as Mortgagee may deem reasonable under the circumstances (making such repairs, alternations, additions and improvements and taking other actions, from time to time, as Mortgagee deems necessary or desirable), and apply all Rents and other amounts collected by Mortgagee in connection therewith in accordance with the provisions of Section 4.7. ----------- 4.1.4 Foreclosure and Sale. Institute proceedings for the complete -------------------- foreclosure of this Mortgage, either by judicial action or by power of sale, in which case the Mortgaged Property may be sold for cash or credit in one or more parcels. With respect to any notices required or permitted under the UCC, Mortgagor agrees that five days' prior written notice shall be deemed commercially reasonable. At any such sale by virtue of any judicial proceedings, power of sale, or any other legal right, remedy or recourse, the title to and right of possession of any such property shall pass to the purchaser thereof, and to the fullest extent permitted by law, Mortgagor shall be completely and irrevocably divested of all of its right, title, interest, claim, equity, equity of redemption, and demand whatsoever, either at law or in equity, in and to the property sold and such sale shall be a perpetual bar both at law and in equity against Mortgagor, and against all other Persons claiming or to claim the property sold or any part thereof, by, through or under Mortgagor. Mortgagee or any of the Lenders may be a purchaser at such sale. If Mortgagee is the highest bidder, Mortgagee may credit the portion of the purchase price that would be distributed to Mortgagee against the Indebtedness in lieu of paying cash. In the event this Mortgage is foreclosed by judicial action, appraisement of the Mortgaged Property is waived. A-5 4.1.5 Receiver. Make application to a court of competent -------- jurisdiction for, and obtain from such court as a matter of strict right and without notice to Mortgagor or regard to the adequacy of the Mortgaged Property for the repayment of the Indebtedness, the appointment of a receiver of the Mortgaged Property, and Mortgagor irrevocably consents to such appointment. Any such receiver shall have all the usual powers and duties of receivers in similar cases, including the full power to rent, maintain and otherwise operate the Mortgaged Property upon such terms as may be approved by the court, and shall apply such Rents in accordance with the provisions of Section 4.7. ----------- 4.1.6 Other. Exercise all other rights, remedies and recourses ----- granted under the Loan Documents or otherwise available at law or in equity. SECTION 4.2 SEPARATE SALES. The Mortgaged Property may be sold in -------------- one or more parcels and in such manner and order as Mortgagee in its sole discretion may elect; the right of sale arising out of any Event of Default shall not be exhausted by any one or more sales. SECTION 4.3 REMEDIES CUMULATIVE, CONCURRENT AND NONEXCLUSIVE. ------------------------------------------------ Mortgagee and the Lenders shall have all rights, remedies and recourses granted in the Loan Documents and available at law or equity (including the UCC), which rights (a) shall be cumulated and concurrent, (b) may be pursued separately, successively or concurrently against Mortgagor or others obligated under the Loan Documents, or against the Mortgaged Property, or against any one or more of them, at the sole discretion of Mortgagee or the Lenders, (c) may be exercised as often as occasion therefor shall arise, and the exercise or failure to exercise any of them shall not be construed as a waiver or release thereof or of any other right, remedy or recourse, and (d) are intended to be, and shall be, nonexclusive. No action by Mortgagee or the Lenders in the enforcement of any rights, remedies or recourses under the Loan Documents or otherwise at law or equity shall be deemed to cure any Event of Default. SECTION 4.4 RELEASE OF AND RESORT TO COLLATERAL. Mortgagee may ----------------------------------- release, regardless of consideration and without the necessity for any notice to or consent by the holder of any subordinate lien on the Mortgaged Property, any part of the Mortgaged Property without, as to the remainder, in any way impairing, affecting, subordinating or releasing the lien or security interest created in or evidenced by the Loan Documents or their status as a first and prior lien and security interest in and to the Mortgaged Property. For payment of the Indebtedness, Mortgagee may resort to any other security in such order and manner as Mortgagee may elect. SECTION 4.5 WAIVER OF REDEMPTION, NOTICE AND MARSHALLING OF ASSETS. ------------------------------------------------------- To the fullest extent permitted by law, Mortgagor hereby irrevocably and unconditionally waives and releases (a) all benefit that might accrue to Mortgagor by virtue of any present or future statute of limitations or law or judicial decision exempting the Mortgaged Property from attachment, A-6 levy or sale on execution or providing for any stay of execution, exemption from civil process, redemption or extension of time for payment, (b) all notices of any Event of Default or of Mortgagee's election to exercise or the actual exercise of any right, remedy or recourse provided for under the Loan Documents, and (c) any right to a marshalling of assets or a sale in inverse order of alienation. SECTION 4.6 DISCONTINUANCE OF PROCEEDINGS. If Mortgagee or the ----------------------------- Lenders shall have proceeded to invoke any right, remedy or recourse permitted under the Loan Documents and shall thereafter elect to discontinue or abandon it for any reason, Mortgagee or the Lenders shall have the unqualified right to do so and, in such an event, Mortgagor, Mortgagee, and the Lenders shall be restored to their former positions with respect to the Indebtedness, the Obligations, the Loan Documents, the Mortgaged Property and otherwise, and the rights, remedies, recourses and powers of Mortgagee and the Lenders shall continue and if the right, remedy or recourse had never been invoked, but no such discontinuance or abandonment shall waive any Event of Default which may then exist or the right of Mortgagee or the Lenders thereafter to exercise any right, remedy or recourse under the Loan Documents for such Event of Default. SECTION 4.7 ALLOCATION OF PROCEEDS. The proceeds of any sale of, and ---------------------- the Rents and other amounts generated by the holding, leasing, management, operation or other use of the Mortgaged Property, shall be applied by Mortgagee (or the receiver, if one is appointed) in the following order unless otherwise required by applicable law: 4.7.1 to the payment of the costs and expenses of taking possession of the Mortgaged Property and of holding, using, leasing, repairing, improving and selling the same, including, without limitation (1) receiver's fees and expenses, including the repayment of the amounts evidenced by any receiver's certificates, (2) court costs, (3) attorneys' and accountants' fees and expenses, and (4) costs of advertisement; 4.7.2 to the payment of the Indebtedness and performance of the Obligations in such manner and order of preference as Mortgagee in its sole discretion may determine; and 4.7.3 the balance, if any, to the payment of the Persons legally entitled thereto. SECTION 4.8 OCCUPANCY AFTER FORECLOSURE. Any sale of the Mortgaged --------------------------- Property or any part thereof in accordance with Section 4.1.4 will divest all ------------- right, title and interest of Mortgagor in and to the property sold. Subject to applicable law, any purchaser at a foreclosure sale will receive immediate possession of the property purchased. If Mortgagor retains possession of such property or any part thereof subsequent to such sale, Mortgagor will be considered a tenant at sufferance of the purchaser, and will, if Mortgagor remains in possession A-7 after demand to remove, be subject to eviction and removal, forcible or otherwise, with or without process of law. SECTION 4.9 ADDITIONAL ADVANCES AND DISBURSEMENTS; COSTS OF ----------------------------------------------- ENFORCEMENT. - ----------- 4.9.1 If any Event of Default exists, Mortgagee and each of the Lenders shall have the right, but not the obligation, to cure such Event of Default in the name and on behalf of Mortgagor. All sums advanced and expenses incurred at any time by Mortgagee or any Lender under this Section, or otherwise ------- under this Mortgage or any of the other Loan Documents or applicable law, shall bear interest from the date that such sum is advanced or expense incurred, to and including the date of reimbursement, computed at the rate or rates at which interest is then computed on the Indebtedness, and all such sums, together with interest thereon, shall be secured by this Mortgage. 4.9.2 Mortgagor shall pay all expenses (including reasonable attorneys' fees and expenses) of or incidental to the perfection and enforcement of this Mortgage and the other Loan Documents, or the enforcement, compromise or settlement of the Indebtedness or any claim under this Mortgage and the other Loan Documents, and for the curing thereof, or for defending or asserting the rights and claims of Mortgagee in respect thereof, by litigation or otherwise. SECTION 4.10 NO MORTGAGEE IN POSSESSION. Neither the enforcement of -------------------------- any of the remedies under this Article, the assignment of the Rents and Leases ------- under Article 5, the security interests under Article 6, nor any other remedies --------- --------- afforded to Mortgagee under the Loan Documents, at law or in equity shall cause Mortgagee or any Lender to be deemed or construed to be a mortgagee in possession of the Mortgaged Property, to obligate Mortgagee or any Lender to lease the Mortgaged Property or attempt to do so, or to take any action, incur any expense, or perform or discharge any obligation, duty or liability whatsoever under any of the Leases or otherwise. ARTICLE 5 ASSIGNMENT OF RENTS AND LEASES ------------------------------ SECTION 5.1 ASSIGNMENT. In furtherance of and in addition to the ---------- assignment made by Mortgagor in Section 2.1 of this Mortgage, Mortgagor hereby ----------- absolutely and unconditionally assigns, sells, transfers and conveys to Mortgagee all of its right, title and interest in and to all Leases, whether now existing or hereafter entered into, and all of its right, title and interest in and to all Rents. If permitted under applicable law, this assignment is an absolute assignment and not merely an assignment for additional security. So long as no Event of Default shall have occurred and be continuing, Mortgagor shall have a revocable license from Mortgagee to exercise all rights extended to the landlord under the Leases, including the right to receive and collect all Rents and to hold the Rents in trust for use in the payment and A-8 performance of the Obligations and to otherwise use the same. The foregoing license is granted subject to the conditional limitation that no Event of Default shall have occurred and be continuing. Upon the occurrence and during the continuance of an Event of Default, whether or not legal proceedings have commenced, and without regard to waste, adequacy of security for the Obligations or solvency of Mortgagor, the license herein granted shall automatically expire and terminate, without notice by Mortgagee (any such notice being hereby expressly waived by Mortgagor). SECTION 5.2 PERFECTION UPON RECORDATION. Mortgagor acknowledges that --------------------------- Mortgagee has taken all actions necessary to obtain, and that upon recordation of this Mortgage Mortgagee shall have, to the extent permitted under applicable law, a valid and fully perfected first priority present assignment of the Rents arising out of the Leases and all security for such Leases. Mortgagor acknowledges and agrees that upon recordation of this Mortgage Mortgagee's interest in the Rents shall be deemed to be fully perfected, ``choate'' and enforced as to Mortgagor and all third parties, including, without limitation, any subsequently appointed trustee in any case under Title 11 of the United States Code (the "BANKRUPTCY CODE"), without the necessity of commencing a foreclosure action with respect to this Mortgage, making formal demand for the Rents, obtaining the appointment of a receiver or taking any other affirmative action. SECTION 5.3 BANKRUPTCY PROVISIONS. Without limitation of the --------------------- absolute nature of the assignment of the Rents hereunder, Mortgagor and Mortgagee agree that (a) this Mortgage shall constitute a ``security agreement'' for purposes of Section 552(b) of the Bankruptcy Code, (b) the security interest created by this Mortgage extends to property of Mortgagor acquired before the commencement of a case in bankruptcy and to all amounts paid as Rents and (c) such security interest shall extend to all Rents acquired by the estate after the commencement of any case in bankruptcy. SECTION 5.4 NO MERGER OF ESTATES. So long as part of the -------------------- Indebtedness and the Obligations secured hereby remain unpaid and undischarged, the fee and leasehold estates to the Mortgaged Property shall not merge, but shall remain separate and distinct, notwithstanding the union of such estates either in Mortgagor, Mortgagee, any tenant or any third party by purchase or otherwise. A-9 ARTICLE 6 SECURITY AGREEMENT ------------------ SECTION 6.1 SECURITY INTEREST. This Mortgage constitutes a "Security ----------------- Agreement" on personal property within the meaning of the UCC and other applicable law and with respect to the Personalty, Fixtures, Leases, Rents and Property Agreements. To this end, Mortgagor grants to Mortgagee a first and prior security interest in the Personalty, Fixtures, Leases, Rents and Property Agreements and all other Mortgaged Property which is personal property to secure the payment of the Indebtedness and performance of the Obligations, and agrees that Mortgagee shall have all the rights and remedies of a secured party under the UCC with respect to such property. Any notice of sale, disposition or other intended action by Mortgagee with respect to the Personalty, Fixtures, Leases, Rents and Property Agreements sent to Mortgagor at least five (5) days prior to any action under the UCC shall constitute reasonable notice to Mortgagor. SECTION 6.2 FINANCING STATEMENTS. Mortgagor shall execute and -------------------- deliver to Mortgagee, in form and substance satisfactory to Mortgagee, such financing statements and such further assurances as Mortgagee may, from time to time, reasonably consider necessary to create, perfect and preserve Mortgagee's security interest hereunder and Mortgagee may cause such statements and assurances to be recorded and filed, at such times and places as may be required or permitted by law to so create, perfect and preserve such security interest. Mortgagor's chief executive office is in the State of North Carolina at the address set forth in the first paragraph of this Mortgage. SECTION 6.3 FIXTURE FILING. This Mortgage shall also constitute a -------------- "fixture filing" for the purposes of the UCC against all of the Mortgaged Property which is or is to become fixtures. Information concerning the security interest herein granted may be obtained at the addresses of Debtor (Mortgagor) and Secured Party (Mortgagee) as set forth in the first paragraph of this Mortgage. ARTICLE 7 MISCELLANEOUS ------------- SECTION 7.1 NOTICES. Any notice required or permitted to be given ------- under this Mortgage shall be given in accordance with the provisions of the Credit Agreement. SECTION 7.2 COVENANTS RUNNING WITH THE LAND. All Obligations ------------------------------- contained in this Mortgage are intended by Mortgagor and Mortgagee to be, and shall be construed as, covenants running with the Mortgaged Property. As used herein, "Mortgagor" shall refer to the party named in the first paragraph of this Mortgage and to any subsequent owner of all or any portion of the Mortgaged Property. All Persons who may have or acquire an interest in the A-10 Mortgaged Property shall be deemed to have notice of, and be bound by, the terms of the Credit Agreement and the other Loan Documents; however, no such party shall be entitled to any rights thereunder without the prior written consent of Mortgagee. SECTION 7.3 ATTORNEY-IN-FACT. Mortgagor hereby irrevocably appoints ---------------- Mortgagee and its successors and assigns, as its attorney-in-fact, which agency is coupled with an interest, (a) to execute and/or record any notices of completion, cessation of labor or any other notices that Mortgagee deems appropriate to protect Mortgagee's interest, if Mortgagor shall fail to do so within ten (10) days after written request by Mortgagee, (b) upon the issuance of a deed pursuant to the foreclosure of this Mortgage or the delivery of a deed in lieu of foreclosure, to execute all instruments of assignment, conveyance or further assurance with respect to the Leases, Rents, Personalty, Fixtures and Property Agreements in favor of the grantee of any such deed and as may be necessary or desirable for such purpose, (c) to prepare, execute and file or record financing statements, continuation statements, applications for registration and like papers necessary to create, perfect or preserve Mortgagee's security interests and rights in or to any of the Mortgaged Property, and (d) while any Event of Default exists, to perform any obligation of Mortgagor hereunder, however: (1) Mortgagee shall not under any circumstances be obligated to perform any obligation of Mortgagor; (2) any sums advanced by Mortgagee in such performance shall be added to and included in the Indebtedness and shall bear interest at the rate or rates at which interest is then computed on the Indebtedness; (3) Mortgagee as such attorney-in-fact shall only be accountable for such funds as are actually received by Mortgagee; and (4) Mortgagee shall not be liable to Mortgagor or any other person or entity for any failure to take any action which it is empowered to take under this Section. ------- SECTION 7.4 SUCCESSORS AND ASSIGNS. This Mortgage shall be binding ---------------------- upon and inure to the benefit of Mortgagee, the Lenders, and Mortgagor and their respective successors and assigns. Mortgagor shall not, without the prior written consent of Mortgagee, assign any rights, duties or obligations hereunder. SECTION 7.5 NO WAIVER. Any failure by Mortgagee to insist upon --------- strict performance of any of the terms, provisions or conditions of the Loan Documents shall not be deemed to be a waiver of same, and Mortgagee or the Lenders shall have the right at any time to insist upon strict performance of all of such terms, provisions and conditions. SECTION 7.6 CREDIT AGREEMENT. If any conflict or inconsistency ---------------- exists between this Mortgage and the Credit Agreement, the Credit Agreement shall govern, except for Section 7.9 which shall, in all cases, control. SECTION 7.7 RELEASE OR RECONVEYANCE. Upon payment in full of the ----------------------- Indebtedness and performance in full of the Obligations, Mortgagee, at Mortgagor's expense, shall release the liens and security interests created by this Mortgage or reconvey the Mortgaged Property to A-11 Mortgagor. In addition, as long as no Event of Default has occurred and is then continuing or would be caused thereby, if Mortgagor sells or transfers for value any portion of the Mortgaged Property as permitted under Section 7.7 of the Credit Agreement, Mortgagee shall release the liens and security interests created by this Mortgage on such Mortgaged Property or reconvey such Mortgaged Property to Mortgagor, concurrently with the consummation of such sale or other transfer. Such release or reconveyance shall be at Mortgagor's sole cost and expense, and only upon not less than thirty days' prior written notice to Mortgagee. Any of the terms and provisions of this Mortgage that are intended to survive, shall nevertheless survive the release or satisfaction of this Mortgage whether voluntarily granted by Mortgagee, as a result of a judgment upon judicial foreclosure of this Mortgage or in the event a deed in lieu of foreclosure is granted by Mortgagor to Mortgagee. SECTION 7.8 WAIVER OF STAY, MORATORIUM AND SIMILAR RIGHTS. Mortgagor --------------------------------------------- agrees, to the full extent that it may lawfully do so, that it will not at any time insist upon or plead or in any way take advantage of any stay, marshalling of assets, extension, redemption or moratorium law now or hereafter in force and effect so as to prevent or hinder the enforcement of the provisions of this Mortgage or the Indebtedness secured hereby, or any agreement between Mortgagor and Mortgagee or any rights or remedies of Mortgagee or the Lenders. SECTION 7.9 APPLICABLE LAW. The provisions of this Mortgage -------------- regarding the creation, perfection and enforcement of the liens and security interests herein granted and warranties (statutory or otherwise) of title shall be governed by and construed under the laws of the state in which the Mortgaged Property is located. All other provisions of this Mortgage and the Obligations shall be governed by the laws of the State of New York (including, without limitation, Section 5-1401 of the General Obligations Law of the State of New York), without regard to conflicts of laws principles. SECTION 7.10 HEADINGS. The Article, Section and Subsection titles -------- hereof are inserted for convenience of reference only and shall in no way alter, modify or define, or be used in construing, the text of such Articles, Sections or Subsections. SECTION 7.11 ENTIRE AGREEMENT. This Mortgage and the other Loan ---------------- Documents embody the entire agreement and understanding between Mortgagee and Mortgagor and supersede all prior agreements and understandings between such parties relating to the subject matter hereof and thereof. Accordingly, the Loan Documents may not be contradicted by evidence of prior, contemporaneous or subsequent oral agreements of the parties. There are no unwritten oral agreements between the parties. A-12 ARTICLE 8 LOCAL LAW PROVISIONS -------------------- SECTION 8.1 This Mortgage shall be deemed to constitute a continuously perfected fixture filing to be filed of record in the office of the Recorder of the County in Indiana referred to in Exhibit A hereto, pursuant to IC 26-1-9-402 and 26-1-9-403. Part of the Mortgaged Property is or may become fixtures. It is intended that, as to such fixtures, this Mortgage shall be effective as a financing statement filed as a fixture filing from the date of the filing of the Mortgage for record with the Recorder of such County in Indiana. The information provided in this paragraph is provided in order that this Mortgage shall comply with the requirements of the Uniform Commercial Code as enacted in the State of Indiana ("State"), for a mortgage instrument to be filed as a financing statement. Mortgagor is the "debtor" and its name and mailing address are set forth in the preamble of this Mortgage. The "secured party" is Mortgagee and its name and mailing address from which information concerning the security interest granted herein may be obtained are as set forth in the preamble of this Mortgage. A statement describing the portion of the Mortgaged Property comprising the goods or other Personal Property that may now be or hereafter become fixtures hereby secured is set forth in the Granting Clauses hereof. The record owner of the Mortgaged Property is The Pantry, Inc. SECTION 8.2 The Notes/1/, by their terms, shall mature on October 31, 2002. SECTION 8.3 The Obligations secured by this Mortgage include, without limitation, judgment(s) or final decree(s) rendered to collect any money obligations of Mortgagor to Mortgagee and/or to enforce the performance or collection of all covenants, agreements and liabilities of Mortgagor under this Mortgage, the Credit Agreement and the other Loan Documents. SECTION 8.4 In the event a court of competent jurisdiction construes the assignment of the Rents set forth in Article 5 of this Mortgage to be collateral that secures the Obligations rather than an absolute assignment, the assignment shall constitute an assignment of rents as set forth in IC 32-1-2- 16.3 and thereby creates a security interest in the Rents that will be perfected upon the recording of this Mortgage. SECTION 8.5 Anything contained herein or in IC 32-8-16-1.5 to the contrary notwithstanding, no waiver made by Mortgagor in this Mortgage, the Credit Agreement or any of the other Loan Documents shall constitute the consideration for or be deemed to be a waiver or release by Mortgagee or any judgment holder of the Obligations of the right to seek a deficiency judgment against the Mortgagor or any other person or entity who may be personally - --------------------------- /1/ Define "Notes". A-13 liable for the Obligations, which right to seek a deficiency judgment is hereby reserved, preserved and retained by Mortgagee for its own behalf and its successors and assigns. SECTION 8.6 Mortgagee shall be entitled to all rights and remedies that a mortgagee would have under Indiana law or in equity in addition to all rights and remedies it may have hereunder. Where any provision of this Mortgage is inconsistent with any provision of the laws of Indiana regulating the creation or enforcement of a lien or security interest in real or personal property including, but not by way of limitation, IC 34-1-53-1 Foreclosure of -------------- Mortgages, the provisions of Indiana law shall take precedence over the - --------- provisions of this Mortgage, but shall not invalidate or render unenforceable any other provisions of this Mortgage that can be construed in a manner consistent with Indiana law. Should applicable Indiana law confer any rights or impose any duties inconsistent with or in addition to any of the provisions of this Mortgage, the affected provisions of this Mortgage shall be considered amended to conform to such applicable law, but all other provisions hereof shall remain in full force and effect without modification. To the extent the laws of Indiana limit (i) the availability of the exercise of any of the remedies set forth herein, including without limitation the remedies involving a power of sale on the part of Mortgagee and the right of Mortgagee to exercise self-help in connection with the enforcement of the terms of this Mortgage, or (ii) the enforcement of waivers and indemnities made by Mortgagor, such remedies, waivers, or indemnities shall be exercisable or enforceable, any provisions in this Mortgage to the contrary notwithstanding, if, and to the extent, permitted by the laws in force at the time of the exercise of such remedies or the enforcement of such waivers or indemnities without regard to the enforceability of such remedies, waivers or indemnities at the time of the execution and delivery of this Mortgage. SECTION 8.7 In the event Mortgagor fails to sign Uniform Commercial Code financing Statements upon Mortgagee's request, Mortgagee is hereby authorized by Mortgagor to execute and file financing statements signed only by a representative of Mortgagee covering the security interest of Mortgagee in any of the Personal Property and/or fixtures constituting part of the Mortgaged Property. SECTION 8.8 Mortgagor certifies and warrants to Mortgagee, to the best of Mortgagor's knowledge, after diligent inquiry and investigation, none of the Mortgaged Property is within the definition of the term "property" contained in Section 6 (IC 13-11-2-174) of the Indiana Responsible Property Transfer Law ("IRPTL") (IC13-25-3). Mortgagor shall observe, perform and comply with the requirements of IRPTL in connection with the Mortgage and the transaction evidenced by the Mortgage. SECTION 8.9 Notwithstanding anything contained in this Mortgage to the contrary, this Mortgage shall secure (i) a maximum amount not exceeding One Hundred Fifty Million Dollars ($150,000,000.00), exclusive of any items described in (ii) below, including any additional advances made from time to time after the date hereof pursuant to this Mortgage or A-14 the other Loan Documents whether made as a part of the Obligations secured hereby, made at the option of Mortgagee, made after a reduction to a zero (0) or other balance, or made otherwise, (ii) all other amounts payable by Mortgagor or advance by Mortgagee for the account, or on behalf, of Mortgagor, pursuant to this Mortgage or other Loan Documents, including amounts advanced with respect to the Mortgaged Property for the payment of taxes, assessments, insurance premiums and other costs and impositions incurred for the protection of the Mortgaged Property to the same extent as if the future obligations and advances were made ont he date of execution of the Mortgage; and (iii) future modifications, extensions, and renewals of the Obligations secured by this Mortgage and/or the other Loan Documents. Pursuant to IC 32-8-11-9, the lien of this Mortgage with respect to any future advances, modifications, extensions and renewals referred to herein and made from time to time shall have the same priority to which this Mortgage otherwise would be entitled as of the date the Mortgage is executed and recorded without regard to the fact that any such future advance, modification, extension or renewal may occur after the Mortgage is executed. SECTION 8.10 If, after the date of this Mortgage, Mortgagor acquires any property located on and used in connection with the Mortgaged Property and that by the terms of this Mortgage is required or intended to be encumbered by this Mortgage, the property shall become subject to the lien and security interest of this Mortgage immediately upon its acquisition by Mortgagor and without any further mortgage, conveyance, assignment or transfer. Nevertheless, upon Mortgagee's request at any time, Mortgagor will execute, acknowledge and deliver any additional instruments and assurances of title and will do or cause to be done anything further that is reasonably necessary for carrying out the intent of this Mortgage. SECTION 8.11 Notwithstanding anything in this Mortgage to the contrary, in the event of a conflict between any of the terms and provisions of this Article and those contained in the other Articles of this Mortgage, the terms and provisions of this Article shall control. SECTION 8.12 In addition to having any other right or remedy available at law or in equity, Mortgagee shall have the option pursuant to IC 26-1-9-501 of either (i) proceeding under the UCC and exercising such rights and remedies as may be provided to a secured party by the UCC with respect to all or any portion of the Mortgaged Property which is Fixtures and Personalty (including, without limitation, taking possession of and selling such Fixtures and Personalty) or (ii) treating such Fixtures and Personalty as real property and proceeding with respect to both the real and personal property constituting the Mortgaged Property in accordance with Mortgagee's rights, powers and remedies with respect to the real property (in which event the default provisions of the UCC shall not apply). SECTION 8.13 When the Indebtedness hereby secured, or any part thereof, shall become due, whether by acceleration or otherwise, Mortgagee shall have the right to foreclose the lien hereof for such Indebtedness or part thereof. In any suit to foreclose the lien hereof or A-15 enforce any other remedy of Mortgagee under this Mortgage or the Note, there shall be allowed and included as additional indebtedness in the decree for sale or other judgment or decree all expenditures and expenses which may be paid or incurred by or on behalf of Mortgagee for attorneys' fees, appraiser's fees, outlays for documentary and expert evidence, stenographers' charges, publication costs, and costs (which may be estimated as to items to be expended after entry of the decree) of procuring all such abstracts of title, title searches and examinations, title insurance policies, and similar data and assurances with respect to title as Mortgagee may deem reasonably necessary either to prosecute such suit or to evidence to bidders at any sale which may be had pursuant to such decree the true condition of the title to or the value of the Mortgaged Property. All expenditures and expenses of the nature in this paragraph mentioned, and such expenses and fees as may be incurred in the protection of the Mortgaged Property and the maintenance of the lien of this Mortgage, including the fees of any attorney employed by Mortgagee in any litigation or proceeding affecting this Mortgage, the Note or the Mortgaged Property, including probate and bankruptcy proceedings, or in preparations for the commencement or defense of any proceeding or threatened suite or proceeding, shall be immediately due and payable by Mortgagor, with interest thereon at the Default Rate set forth in the Credit Agreement and shall be secured by this Mortgage. SECTION 8.14 Upon, or at any time after the filing of a complaint to foreclose this Mortgage, the court in which such complaint is filed may appoint a receiver of the Mortgaged Property by the court in which such complaint is filed, and Mortgagor consents to the appointment of such receiver for the purpose of preserving and maximizing the value of the Mortgaged Property. Such appointment may be made either before or after sale, without notice, without regard to the solvency or insolvency of Mortgagor at the time of application for such receiver and without regard to the then value of the Mortgaged Property or whether the same shall be then occupied as a homestead or not. Such receiver shall have all of the usual powers and duties of receivers pursuant to IC 34-12, as amended from time to time including, without limitation, the power: (a) to collect the rents, issues and profits of the Mortgaged Property during the pendency of such foreclosure suit and, in case of a sale and a deficiency, during the full statutory period of redemption, whether there be redemption or not, as well as during any further times when Mortgagor, except for the intervention of such receiver, would be entitled to collect such rents, issues and profits; (b) to extend or modify any then existing leases and to make new leases, which extensions, modifications and new leases may provide for terms to expire, or for options to lessees to extend or renew terms to expire, beyond the maturity date of the Indebtedness hereunder and beyond the date of the issuance of a deed or deeds to a purchaser or purchasers at a foreclosure sale, it being understood and agreed that any such leases, and the options or other such provisions to be contained therein, shall be binding upon Mortgagor and all persons whose interests in the premises are subject to the lien hereof and upon the purchaser or purchasers at any foreclosure sale, notwithstanding any redemption from sale, discharge of the Mortgage indebtedness, satisfaction of any foreclosure decree, or issuance of any certificate of sale or deed to any purchaser; and (c) all other powers which may be necessary A-16 or are usual in such cases for the protection, possession, control, management, and operation of the premises during the whole of said period. The court from time to time may authorize the receiver to apply the net income in his hands in payment in whole or in part of: (a) the Indebtedness secured hereby, or by any decree foreclosing this mortgage, or any tax, special assessment or other lien which may be or become superior to the lien hereof or of such decree, provided such application is made prior to foreclosure sale; (b) the deficiency in case of a sale and deficiency. [THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK] A-17 IN WITNESS WHEREOF, Mortgagor and Mortgagee have on the date set forth in the acknowledgement hereto, effective as of the date first above written, caused this instrument to be duly EXECUTED AND DELIVERED by authority duly given. THE PANTRY, INC., a Delaware corporation By: _____________________________ Name: William T. Flyg Title: Senior Vice President, Finance, Chief Financial Officer & Secretary FIRST UNION NATIONAL BANK By: _____________________________ Name: Mark Felker Title: Senior Vice President This instrument was prepared by F. Thomas Muller of O'Melveny & Myers LLP, 400 South Hope Street, Los Angeles, California 90071-2899. S-1 ACKNOWLEDGEMENT STATE OF NEW YORK ) ) SS.: COUNTY OF NEW YORK ) Before me, a Notary Public in and for said County and State, personally appeared William T. Flyg, the Senior Vice President, Finance, Chief Financial Officer and Secretary of THE PANTRY, INC., a Delaware corporation, and acknowledged the execution of the foregoing instrument as such officer acting for and on behalf of said corporation, and who, having been duly sworn, stated that any representations therein contained are true and correct. Witness my hand and Notarial Seal this ____ day of October, 1997. _________________________________________ (signature) _________________________________________ (printed name) Notary Public My Commission Expires: ______________________ Resident of ________________ County [SEAL] STATE OF NEW YORK ) ) SS.: COUNTY OF NEW YORK ) Before me, a Notary Public in and for said County and State, personally appeared Mark Felker, the Senior Vice President of FIRST UNION NATIONAL BANK, a North Carolina corporation, and acknowledged the execution of the foregoing instrument as such officer acting for and on behalf of said corporation, and who, having been duly sworn, stated that any representations therein contained are true and correct. Witness my hand and Notarial Seal this ____ day of October, 1997. _________________________________________ (signature) _________________________________________ (printed name) Notary Public My Commission Expires: ______________________ Resident of ________________ County [SEAL] S-2 EXHIBIT A MORTGAGED PROPERTY A-1 EXHIBIT B ORIGINAL MORTGAGES B-1 EX-10.23 33 FORM OF MORTGAGE, SECURITY AGREEMENT (FLORIDA) EXHIBIT 10.23 OBLIGATIONS SECURED HEREBY PROVIDE FOR A FLUCTUATING INTEREST RATE MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF RENTS AND LEASES AND FIXTURE FILING (FLORIDA) BY AND FROM LIL' CHAMP FOOD STORES, INC., ``MORTGAGOR'' TO FIRST UNION NATIONAL BANK, IN ITS CAPACITY AS AGENT, ``MORTGAGEE'' DATED AS OF OCTOBER 23, 1997 THE SECURED PARTY (MORTGAGEE) DESIRES THIS FIXTURE FILING TO BE INDEXED AGAINST THE RECORD OWNER OF THE REAL ESTATE DESCRIBED HEREIN PREPARED BY, RECORDING REQUESTED BY, AND WHEN RECORDED MAIL TO: F. THOMAS MULLER, ESQ. O'MELVENY & MYERS LLP 400 SOUTH HOPE STREET LOS ANGELES, CALIFORNIA 90071-2899 FILE 154,607-004 MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF RENTS AND LEASES AND FIXTURE FILING (FLORIDA) THIS MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF RENTS AND LEASES AND FIXTURE FILING (Florida) (this "MORTGAGE") is dated as of October 23, 1997, by and from LIL' CHAMP FOOD STORES, INC., a Florida corporation ("MORTGAGOR"), having an address at 1801 Douglas Drive, Sanford, North Carolina 27330, to FIRST UNION NATIONAL BANK, as Agent ("AGENT") for the lenders party to the Credit Agreement (defined below) (such lenders, together with their respective successors and assigns, collectively, the "LENDERS"), having an address at 301 South College Street, Charlotte, North Carolina 28288 (Agent, together with its successors and assigns, "MORTGAGEE"). ARTICLE 1 DEFINITIONS ----------- SECTION 1.1 DEFINITIONS. All capitalized terms used herein without ----------- definition shall have the respective meanings ascribed to them in that certain Credit Agreement dated as of even date herewith (as amended, supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT") among The Pantry, Inc., a Delaware corporation ("PANTRY"), the Lenders, and Mortgagee. As used herein, the following terms shall have the following meanings: 1.1.1 "INDEBTEDNESS": (1) All indebtedness of Pantry to Mortgagee and the Lenders, including, without limitation, the sum of all (a) principal, interest and other amounts evidenced or secured by the Loan Documents, and (b) principal, interest and other amounts which may hereafter be loaned by Mortgagee or any of the Lenders under or in connection with the Credit Agreement or any of the other Loan Documents, whether evidenced by a promissory note or other instrument which, by its terms, is secured hereby, and (2) all other indebtedness, obligations and liabilities now or hereafter existing of any kind of Pantry or Mortgagor to Mortgagee or any of the Lenders under documents which recite that they are intended to be secured by this Mortgage. 1.1.2 "MORTGAGED PROPERTY": All of Mortgagor's interest in (1) the fee interest in the real property described in Exhibit A attached hereto and incorporated herein by this reference, together with any greater estate therein as hereafter may be acquired by Mortgagor (the "LAND"), (2) all improvements now owned or hereafter acquired by Mortgagor, now or at any time situated, placed or constructed upon the Land (the "IMPROVEMENTS"), (3) all materials, supplies, equipment, apparatus and other items of personal property now owned or hereafter acquired by Mortgagor and now or hereafter attached to, installed in or used in connection with any of the Improvements or the Land, and water, gas, electrical, storm and sanitary sewer facilities and all other utilities whether or not situated in easements (the "FIXTURES"), (4) all right, title and interest of Mortgagor in and to all goods, accounts, general intangibles, instruments, documents, chattel paper and all other personal property of any kind or character, including such items of personal property as defined in the UCC (defined below), now owned or hereafter acquired by Mortgagor and now or hereafter affixed to, placed upon, used in connection with, arising from or otherwise related to the Land and Improvements (the "PERSONALTY"), (5) all reserves, escrows or impounds required under the Credit Agreement and all deposit accounts maintained by Mortgagor with respect to the Mortgaged Property, (6) all leases, licenses, concessions, occupancy agreements or other agreements (written or oral, now or at any time in effect) which grant to any Person a possessory interest in, or the right to use, all or any part of the Mortgaged Property, together with all related security and other deposits (the "LEASES"), (7) all of the rents, revenues, income, proceeds, profits, security and other types of deposits, and other benefits paid or payable by parties to the Leases for using, leasing, licensing possessing, operating from, residing in, selling or otherwise enjoying the Mortgaged Property (the "RENTS"), (8) all other agreements, such as construction contracts, architects' agreements, engineers' contracts, utility contracts, maintenance agreements, management agreements, service contracts, permits, licenses, certificates and entitlements in any way relating to the construction, use, occupancy, operation, maintenance, enjoyment or ownership of the Mortgaged Property (the "PROPERTY AGREEMENTS"), (9) all rights, privileges, tenements, hereditaments, rights-of-way, easements, appendages and appurtenances appertaining to the foregoing, (10) all accessions, replacements and substitutions for any of the foregoing and all proceeds thereof, (11) all insurance policies, unearned premiums therefor and proceeds from such policies covering any of the above property now or hereafter acquired by Mortgagor, and (12) all of Mortgagor's right, title and interest in and to any awards, remunerations, reimbursements, settlements or compensation heretofore made or hereafter to be made by any governmental authority pertaining to the Land, Improvements, Fixtures or Personalty. As used in this Mortgage, the term "MORTGAGED PROPERTY" shall mean all or, where the context permit or requires, any portion of the above or any interest therein. 1.1.3 "OBLIGATIONS": All of the agreements, covenants, conditions, warranties, representations and other obligations of Pantry (including, without limitation, the obligation to repay the Indebtedness) under the Credit Agreement and the other Loan Documents. 1.1.4 "UCC": The Uniform Commercial Code of Florida or, if the creation, perfection and enforcement of any security interest herein granted is governed by the laws of a state other than Florida, then, as to the matter in question, the Uniform Commercial Code in effect in that state. 2 ARTICLE 2 GRANT ----- SECTION 2.1 GRANT. To secure the full and timely payment of the ----- Indebtedness and the full and timely performance of the Obligations, Mortgagor MORTGAGES, GRANTS, BARGAINS, ASSIGNS, SELLS and CONVEYS, to Mortgagee the Mortgaged Property, subject, however, to the Permitted Encumbrances, TO HAVE AND TO HOLD the Mortgaged Property to Mortgagee, and Mortgagor does hereby bind itself, its successors and assigns to WARRANT AND FOREVER DEFEND the title to the Mortgaged Property unto Mortgagee. ARTICLE 3 WARRANTIES, REPRESENTATIONS AND COVENANTS ----------------------------------------- Mortgagor warrants, represents and covenants to Mortgagee as follows: SECTION 3.1 TITLE TO MORTGAGED PROPERTY AND LIEN OF THIS INSTRUMENT. ------------------------------------------------------- Mortgagor owns the Mortgaged Property free and clear of any liens, claims or interests, except the Permitted Encumbrances. This Mortgage creates valid, enforceable first priority liens and security interests against the Mortgaged Property. SECTION 3.2 FIRST LIEN STATUS. Mortgagor shall preserve and protect ----------------- the first lien and security interest status of this Mortgage and the other Loan Documents. If any lien or security interest other than the Permitted Encumbrances is asserted against the Mortgaged Property, Mortgagor shall promptly, and at its expense, (a) give Mortgagee a detailed written notice of such lien or security interest (including origin, amount and other terms), and (b) pay the underlying claim in full or take such other action so as to cause it to be released or contest the same in compliance with the requirements of the Credit Agreement (including the requirement of providing a bond or other security satisfactory to Mortgagee). SECTION 3.3 PAYMENT AND PERFORMANCE. Mortgagor shall pay the ----------------------- Indebtedness when due under the Loan Documents and shall perform the Obligations in full when they are required to be performed. SECTION 3.4 REPLACEMENT OF FIXTURES AND PERSONALTY. Mortgagor shall -------------------------------------- not, without the prior written consent of Mortgagee, permit any of the Fixtures or Personalty to be removed at any time from the Land or Improvements, unless the removed item is removed temporarily for maintenance and repair or, if removed permanently, is obsolete and is replaced by an article of equal or better suitability and value, owned by Mortgagor subject to the liens and security interests of this Mortgage and the other Loan Documents, and free and clear of any other lien or security interest except such as may be permitted under the Credit Agreement or first approved in writing by Mortgagee. 3 SECTION 3.5 INSPECTION. Mortgagor shall permit Mortgagee and the ---------- Lenders, and their respective agents, representatives and employees, upon reasonable prior notice to Mortgagor, to inspect the Mortgaged Property and all books and records of Mortgagor located thereon, and to conduct such environmental and engineering studies as Mortgagee or the Lenders may require, provided that such inspections and studies shall not materially interfere with the use and operation of the Mortgaged Property. SECTION 3.6 OTHER COVENANTS. All of the covenants in the Credit --------------- Agreement are incorporated herein by reference and, together with covenants in this Article, shall be covenants running with the land. ------- SECTION 3.7 CONDEMNATION AWARDS AND INSURANCE PROCEEDS. ------------------------------------------ 3.7.1 Condemnation Awards. Mortgagor assigns all awards and ------------------- compensation to which it is entitled for any condemnation or other taking, or any purchase in lieu thereof, to Mortgagee and authorizes Mortgagee to collect and receive such awards and compensation and to give proper receipts and acquittances therefor, subject to the terms of the Credit Agreement. 3.7.2 Insurance Proceeds. Mortgagor assigns to Mortgagee all ------------------ proceeds of any insurance policies insuring against loss or damage to the Mortgaged Property. Mortgagor authorizes Mortgagee to collect and receive such proceeds and authorizes and directs the issuer of each of such insurance policies to make payment for all such losses directly to Mortgagee, instead of to Mortgagor and Mortgagee jointly. ARTICLE 4 DEFAULT AND FORECLOSURE ----------------------- SECTION 4.1 REMEDIES. If an Event of Default exists, Mortgagee may, -------- at Mortgagee's election, exercise any or all of the following rights, remedies and recourses: 4.1.1 Acceleration. Declare the Indebtedness to be immediately due ------------ and payable, without further notice, presentment, protest, notice of intent to accelerate, notice of acceleration, demand or action of any nature whatsoever (each of which hereby is expressly waived by Mortgagor), whereupon the same shall become immediately due and payable. 4.1.2 Entry on Mortgaged Property. Enter the Mortgaged Property and --------------------------- take exclusive possession thereof and of all books, records and accounts relating thereto or located thereon. If Mortgagor remains in possession of the Mortgaged Property after an Event of Default and without Mortgagee's prior written consent, Mortgagee may invoke any legal remedies to dispossess Mortgagor. 4 4.1.3 Operation of Mortgaged Property. Hold, lease, develop, manage, ------------------------------- operate or otherwise use the Mortgaged Property upon such terms and conditions as Mortgagee may deem reasonable under the circumstances (making such repairs, alternations, additions and improvements and taking other actions, from time to time, as Mortgagee deems necessary or desirable), and apply all Rents and other amounts collected by Mortgagee in connection therewith in accordance with the provisions of Section 4.7. ----------- 4.1.4 Foreclosure and Sale. Institute proceedings for the complete -------------------- foreclosure of this Mortgage, either by judicial action or by power of sale, in which case the Mortgaged Property may be sold for cash or credit in one or more parcels. With respect to any notices required or permitted under the UCC, Mortgagor agrees that five days' prior written notice shall be deemed commercially reasonable. At any such sale by virtue of any judicial proceedings, power of sale, or any other legal right, remedy or recourse, the title to and right of possession of any such property shall pass to the purchaser thereof, and to the fullest extent permitted by law, Mortgagor shall be completely and irrevocably divested of all of its right, title, interest, claim, equity, equity of redemption, and demand whatsoever, either at law or inequity, in and to the property sold and such sale shall be a perpetual bar both at law and in equity against Mortgagor, and against all other Persons claiming or to claim the property sold or any part thereof, by, through or under Mortgagor. Mortgagee or any of the Lenders may be a purchaser at such sale. If Mortgagee is the highest bidder, Mortgagee may credit the portion of the purchase price that would be distributed to Mortgagee against the Indebtedness in lieu of paying cash. In the event this Mortgage is foreclosed by judicial action, appraisement of the Mortgaged Property is waived. 4.1.5 Receiver. Make application to a court of competent -------- jurisdiction for, and obtain from such court as a matter of strict right and without notice to Mortgagor or regard to the adequacy of the Mortgaged Property for the repayment of the Indebtedness, the appointment of a receiver of the Mortgaged Property, and Mortgagor irrevocably consents to such appointment. Any such receiver shall have all the usual powers and duties of receivers in similar cases, including the full power to rent, maintain and otherwise operate the Mortgaged Property upon such terms as may be approved by the court, and shall apply such Rents in accordance with the provisions of Section 4.7. ----------- 4.1.6 Other. Exercise all other rights, remedies and recourses ----- granted under the Loan Documents or otherwise available at law or in equity. SECTION 4.2 SEPARATE SALES. The Mortgaged Property may be sold in -------------- one or more parcels and in such manner and order as Mortgagee in its sole discretion may elect; the right of sale arising out of any Event of Default shall not be exhausted by any one or more sales. 5 SECTION 4.3 REMEDIES CUMULATIVE, CONCURRENT AND NONEXCLUSIVE. ------------------------------------------------ Mortgagee and the Lenders shall have all rights, remedies and recourses granted in the Loan Documents and available at law or equity (including the UCC), which rights (a) shall be cumulated and concurrent, (b) may be pursued separately, successively or concurrently against Mortgagor or others obligated under the Loan Documents, or against the Mortgaged Property, or against any one or more of them, at the sole discretion of Mortgagee or the Lenders, (c) may be exercised as often as occasion therefor shall arise, and the exercise or failure to exercise any of them shall not be construed as a waiver or release thereof or of any other right, remedy or recourse, and (d) are intended to be, and shall be, nonexclusive. No action by Mortgagee or the Lenders in the enforcement of any rights, remedies or recourses under the Loan Documents or otherwise at law or equity shall be deemed to cure any Event of Default. SECTION 4.4 RELEASE OF AND RESORT TO COLLATERAL. Mortgagee may ----------------------------------- release, regardless of consideration and without the necessity for any notice to a consent by the holder of any subordinate lien on the Mortgaged Property, any part of the Mortgaged Property without, as to the remainder, in any way impairing, affecting, subordinating or releasing the lien or security interest created in or evidenced by the Loan Documents or their status as a first and prior lien and security interest in and to the Mortgaged Property. For payment of the Indebtedness, Mortgagee may resort to any other security in such order and manner as Mortgagee may elect. SECTION 4.5 WAIVER OF REDEMPTION, NOTICE AND MARSHALLING OF ASSETS. ------------------------------------------------------- To the fullest extent permitted by law, Mortgagor hereby irrevocably and unconditionally waives and releases (a) all benefit that might accrue to Mortgagor by virtue of any present or future statute of limitations or law or judicial decision exempting the Mortgaged Property from attachment, levy or sale on execution or providing for any stay of execution, exemption from civil process, redemption or extension of time for payment, (b) all notices of any Event of Default or of Mortgagee's election to exercise or the actual exercise of any right, remedy or recourse provided for under the Loan Documents, and (c) any right to a marshalling of assets or a sale in inverse order of alienation. SECTION 4.6 DISCONTINUANCE OF PROCEEDINGS. If Mortgagee or the ----------------------------- Lenders shall have proceeded to invoke any right, remedy or recourse permitted under the Loan Documents and shall thereafter elect to discontinue or abandon it for any reason, Mortgagee or the Lenders shall have the unqualified right to do so and, in such an event, Mortgagor, Mortgagee, and the Lenders shall be restored to their former positions with respect to the Indebtedness, the Obligations, the Loan Documents, the Mortgaged Property and otherwise, and the rights, remedies, recourses and powers of Mortgagee and the Lenders shall continue and if the right, remedy or recourse had never been invoked, but no such discontinuance or abandonment shall waive any Event of Default which may then exist or the right of Mortgagee or the Lenders 6 thereafter to exercise any right, remedy or recourse under the Loan Documents for such Event of Default. SECTION 4.7 ALLOCATION OF PROCEEDS. The proceeds of any sale of, and ---------------------- the Rents and other amounts generated by the holding, leasing, management, operation or other use of the Mortgaged Property, shall be applied by Mortgagee (or the receiver, if one is appointed) in the following order unless otherwise required by applicable law: 4.7.1 to the payment of the costs and expenses of taking possession of the Mortgaged Property and of holding, using, leasing, repairing, improving and selling the same, including, without limitation (1) receiver's fees and expenses, including the repayment of the amounts evidenced by any receiver's certificates, (2) court costs, (3) attorneys' and accountants' fees and expenses, and (4) costs of advertisement; 4.7.2 to the payment of the Indebtedness and performance of the Obligations in such manner and order of preference as Mortgagee in its sole discretion may determine; and 4.7.3 the balance, if any, to the payment of the Persons legally entitled thereto. SECTION 4.8 OCCUPANCY AFTER FORECLOSURE. Any sale of the Mortgaged --------------------------- Property or any part thereof in accordance with Section 4.1.4 will divest all ------------- right, title and interest of Mortgagor in and to the property sold. Subject to applicable law, any purchaser at a foreclosure sale will receive immediate possession of the property purchased. If Mortgagor retains possession of such property or any part thereof subsequent to such sale, Mortgagor will be considered a tenant at sufferance of the purchaser, and will, if Mortgagor remains in possession after demand to remove, be subject to eviction and removal, forcible or otherwise, with or without process of law. SECTION 4.9 ADDITIONAL ADVANCES AND DISBURSEMENTS; COSTS OF ----------------------------------------------- ENFORCEMENT. - ----------- 4.9.1 If any Event of Default exists, Mortgagee and each of the Lenders shall have the right, but not the obligation, to cure such Event of Default in the name and on behalf of Mortgagor. All sums advanced and expenses incurred at any time by Mortgagee or any Lender under this Section, or otherwise ------- under this Mortgage or any of the other Loan Documents or applicable law, shall bear interest from the date that such sum is advanced or expense incurred, to and including the date of reimbursement, computed at the rate or rates at which interest is then computed on the Indebtedness, and all such sums, together with interest thereon, shall be secured by this Mortgage. 4.9.2 Mortgagor shall pay all expenses (including reasonable attorneys' fees and expenses) of or incidental to the perfection and enforcement of this Mortgage and the other Loan 7 Documents, or the enforcement, compromise or settlement of the Indebtedness or any claim under this Mortgage and the other Loan Documents, and for the curing thereof, or for defending or asserting the rights and claims of Mortgagee in respect thereof, by litigation or otherwise. SECTION 4.10 NO MORTGAGEE IN POSSESSION. Neither the enforcement of -------------------------- any of the remedies under this Article, the assignment of the Rents and Leases ------- under Article 5, the security interests under Article 6, nor any other remedies --------- --------- afforded to Mortgagee under the Loan Documents, at law or in equity shall cause Mortgagee or any Lender to be deemed or construed to be a mortgagee in possession of the Mortgaged Property, to obligate Mortgagee or any Lender to lease the Mortgaged Property or attempt to do so, or to take any action, incur any expense, or perform or discharge any obligation, duty or liability whatsoever under any of the Leases or otherwise. ARTICLE 5 ASSIGNMENT OF RENTS AND LEASES ------------------------------ SECTION 5.1 ASSIGNMENT. In furtherance of and in addition to the ---------- assignment made by Mortgagor in Section 2.1 of this Mortgage, Mortgagor hereby ----------- absolutely and unconditionally assigns, sells, transfers and conveys to Mortgagee all of its right, title and interest in and to all Leases, whether now existing or hereafter entered into, and all of its right, title and interest in and to all Rents. If permitted under applicable law, this assignment is an absolute assignment and not merely an assignment for additional security. So long as no Event of Default shall have occurred and be continuing, Mortgagor shall have a revocable license from Mortgagee to exercise all rights extended to the landlord under the Leases, including the right to receive and collect all Rents and to hold the Rents in trust for use in the payment and performance of the Obligations and to otherwise use the same. The foregoing license is granted subject to the conditional limitation that no Event of Default shall have occurred and be continuing. Upon the occurrence and during the continuance of an Event of Default, whether or not legal proceedings have commenced, and without regard to waste, adequacy of security for the Obligations or solvency of Mortgagor, the license herein granted shall automatically expire and terminate, without notice by Mortgagee (any such notice being hereby expressly waived by Mortgagor). SECTION 5.2 PERFECTION UPON RECORDATION. Mortgagor acknowledges that --------------------------- Mortgagee has taken all actions necessary to obtain, and that upon recordation of this Mortgage Mortgagee shall have, to the extent permitted under applicable law, a valid and fully perfected, first priority, present assignment of the Rents arising out of the Leases and all security for such Leases. Mortgagor acknowledges and agrees that upon recordation of this Mortgage Mortgagee's interest in the Rents shall be deemed to be fully perfected, ``choate'' and enforced as to Mortgagor and all third parties, including, without limitation, any subsequently appointed trustee in any case under Title 11 of the United States Code (the "BANKRUPTCY CODE"), without 8 the necessity of commencing a foreclosure action with respect to this Mortgage, making formal demand for the Rents, obtaining the appointment of a receiver or taking any other affirmative action. SECTION 5.3 BANKRUPTCY PROVISIONS. Without limitation of the --------------------- absolute nature of the assignment of the Rents hereunder, Mortgagor and Mortgagee agree that (a) this Mortgage shall constitute a ``security agreement'' for purposes of Section 552(b) of the Bankruptcy Code, (b) the security interest created by this Mortgage extends to property of Mortgagor acquired before the commencement of a case in bankruptcy and to all amounts paid as Rents and (c) such security interest shall extend to all Rents acquired by the estate after the commencement of any case in bankruptcy. SECTION 5.4 NO MERGER OF ESTATES. So long as part of the -------------------- Indebtedness and the Obligations secured hereby remain unpaid and undischarged, the fee and leasehold estates to the Mortgaged Property shall not merge, but shall remain separate and distinct, notwithstanding the union of such estates either in Mortgagor, Mortgagee, any tenant or any third party by purchase or otherwise. ARTICLE 6 SECURITY AGREEMENT ------------------ SECTION 6.1 SECURITY INTEREST. This Mortgage constitutes a "Security ----------------- Agreement" on personal property within the meaning of the UCC and other applicable law and with respect to the Personalty, Fixtures, Leases, Rents and Property Agreements. To this end, Mortgagor grants to Mortgagee a first and prior security interest in the Personalty, Fixtures, Leases, Rents and Property Agreements and all other Mortgaged Property which is personal property to secure the payment of the Indebtedness and performance of the Obligations, and agrees that Mortgagee shall have all the rights and remedies of a secured party under the UCC with respect to such property. Any notice of sale, disposition or other intended action by Mortgagee with respect to the Personalty, Fixtures, Leases, Rents and Property Agreements sent to Mortgagor at least five (5) days prior to any action under the UCC shall constitute reasonable notice to Mortgagor. SECTION 6.2 FINANCING STATEMENTS. Mortgagor shall execute and -------------------- deliver to Mortgagee, in form and substance satisfactory to Mortgagee, such financing statements and such further assurances as Mortgagee may, from time to time, reasonably consider necessary to create, perfect and preserve Mortgagee's security interest hereunder and Mortgagee may cause such statements and assurances to be recorded and filed, at such times and places as may be required or permitted by law to so create, perfect and preserve such security interest. Mortgagor's chief executive office is in the State of North Carolina at the address set forth in the first paragraph of this Mortgage. 9 SECTION 6.3 FIXTURE FILING. This Mortgage shall also constitute a -------------- "fixture filing" for the purposes of the UCC against all of the Mortgaged Property which is or is to become fixtures. Information concerning the security interest herein granted may be obtained at the addresses of Debtor (Mortgagor) and Secured Party (Mortgagee) as set forth in the first paragraph of this Mortgage. ARTICLE 7 MISCELLANEOUS ------------- SECTION 7.1 NOTICES. Any notice required or permitted to be given ------- under this Mortgage shall be given in accordance with the provisions of the Credit Agreement. SECTION 7.2 COVENANTS RUNNING WITH THE LAND. All Obligations ------------------------------- contained in this Mortgage are intended by Mortgagor and Mortgagee to be, and shall be construed as, covenants running with the Mortgaged Property. As used herein, "Mortgagor" shall refer to the party named in the first paragraph of this Mortgage and to any subsequent owner of all or any portion of the Mortgaged Property. All Persons who may have or acquire an interest in the Mortgaged Property shall be deemed to have notice of, and be bound by, the terms of the Credit Agreement and the other Loan Documents; however, no such party shall be entitled to any rights thereunder without the prior written consent of Mortgagee. SECTION 7.3 ATTORNEY-IN-FACT. Mortgagor hereby irrevocably appoints ---------------- Mortgagee and its successors and assigns, as its attorney-in-fact, which agency is coupled with an interest, (a) to execute and/or record any notices of completion, cessation of labor or any other notices that Mortgagee deems appropriate to protect Mortgagee's interest, if Mortgagor shall fail to do so within ten (10) days after written request by Mortgagee, (b) upon the issuance of a deed pursuant to the foreclosure of this Mortgage or the delivery of a deed in lieu of foreclosure, to execute all instruments of assignment, conveyance or further assurance with respect to the Leases, Rents, Personalty, Fixtures and Property Agreements in favor of the grantee of any such deed and as may be necessary or desirable for such purpose, (c) to prepare, execute and file or record financing statements, continuation statements, applications for registration and like papers necessary to create, perfect or preserve Mortgagee's security interests and rights in or to any of the Mortgaged Property, and (d) while any Event of Default exists, to perform any obligation of Mortgagor hereunder, however: (1) Mortgagee shall not under any circumstances be obligated to perform any obligation of Mortgagor; (2) any sums advanced by Mortgagee in such performance shall be added to and included in the Indebtedness and shall bear interest at the rate or rates at which interest is then computed on the Indebtedness; (3) Mortgagee as such attorney-in-fact shall only be accountable for such funds as are actually received by Mortgagee; and (4) Mortgagee shall not be liable to Mortgagor or any other person or entity for any failure to take any action which it is empowered to take under this Section. ------- 10 SECTION 7.4 SUCCESSORS AND ASSIGNS. This Mortgage shall be binding ---------------------- upon and inure to the benefit of Mortgagee, the Lenders, and Mortgagor and their respective successors and assigns. Mortgagor shall not, without the prior written consent of Mortgagee, assign any rights, duties or obligations hereunder. SECTION 7.5 NO WAIVER. Any failure by Mortgagee to insist upon --------- strict performance of any of the terms, provisions or conditions of the Loan Documents shall not be deemed to be a waiver of same, and Mortgagee or the Lenders shall have the right at any time to insist upon strict performance of all of such terms, provisions and conditions. SECTION 7.6 CREDIT AGREEMENT. If any conflict or inconsistency ---------------- exists between this Mortgage and the Credit Agreement, the Credit Agreement shall govern. SECTION 7.7 RELEASE OR RECONVEYANCE. Upon payment in full of the ----------------------- Indebtedness and performance in full of the Obligations, Mortgagee, at Mortgagor's expense, shall release the liens and security interests created by this Mortgage or reconvey the Mortgaged Property to Mortgagor. In addition, as long as no Event of Default has occurred and is then continuing or would be caused thereby, if Mortgagor sells or transfers for value any portion of the Mortgaged Property as permitted under Section 7.7 of the Credit Agreement, Mortgagee shall release the liens and security interests created by this Mortgage on such Mortgaged Property or reconvey such Mortgaged Property to Mortgagor, concurrently with the consummation of such sale or other transfer. Such release or reconveyance shall be at Mortgagor's sole cost and expense, and only upon not less than thirty days' prior written notice to Mortgagee. SECTION 7.8 WAIVER OF STAY, MORATORIUM AND SIMILAR RIGHTS. Mortgagor --------------------------------------------- agrees, to the full extent that it may lawfully do so, that it will not at any time insist upon or plead or in any way take advantage of any stay, marshalling of assets, extension, redemption or moratorium law now or hereafter in force and effect so as to prevent or hinder the enforcement of the provisions of this Mortgage or the Indebtedness secured hereby, or any agreement between Mortgagor and Mortgagee or any rights or remedies of Mortgagee or the Lenders. SECTION 7.9 APPLICABLE LAW. The provisions of this Mortgage -------------- regarding the creation, perfection and enforcement of the liens and security interests herein granted shall be governed by and construed under the laws of the state in which the Mortgaged Property is located. All other provisions of this Mortgage and the Obligations shall be governed by the laws of the State of New York (including, without limitation, Section 5-1401 of the General Obligations Law of the State of New York), without regard to conflicts of laws principles. SECTION 7.10 HEADINGS. The Article, Section and Subsection titles -------- hereof are inserted for convenience of reference only and shall in no way alter, modify or define, or be used in construing, the text of such Articles, Sections or Subsections. 11 SECTION 7.11 ENTIRE AGREEMENT. This Mortgage and the other Loan ---------------- Documents embody the entire agreement and understanding between Mortgagee and Mortgagor and supersede all prior agreements and understandings between such parties relating to the subject matter hereof and thereof. Accordingly, the Loan Documents may not be contradicted by evidence of prior, contemporaneous or subsequent oral agreements of the parties. There are no unwritten oral agreements between the parties. SECTION 7.12 SURETYSHIP WAIVERS. ------------------ 7.12.1 Mortgagor agrees that its obligations hereunder are irrevocable, absolute, independent and unconditional and shall not be affected by any circumstance which constitutes a legal or equitable discharge of a guarantor or surety other than payment and performance in full of the Obligations. In furtherance of the foregoing and without limiting the generality thereof, each Loan Party agrees as follows: (i) Lender may from time to time, without notice or demand and without affecting the validity or enforceability of this Agreement or giving rise to any limitation, impairment or discharge of such Loan Party's liability hereunder, (A) renew, extend, accelerate or otherwise change the time, place, manner or terms of payment of the Obligations, (B) settle, compromise, release or discharge, or accept or refuse any offer of performance with respect to, or substitutions for, the Obligations or any agreement relating thereto and/or subordinate the payment of the same to the payment of any other obligations, (C) request and accept guaranties of the Obligations and take and hold other security for the payment of the Obligations, (D) release, exchange, compromise, subordinate or modify, with or without consideration, any other security for payment of the Obligations, any guaranties of the Obligations, or any other obligation of any Person with respect to the Obligations, (E) enforce and apply any other security now or hereafter held by or for the benefit of Lender in respect of the Obligations and direct the order or manner of sale thereof, or exercise any other right or remedy that Lender may have against any such security, as Lenders in their discretion may determine consistent with this Agreement and any other Loan Document including foreclosure on any such security pursuant to one or more judicial or nonjudicial sales, whether or not every aspect of any such sale is commercially reasonable, and (F) exercise any other rights available to Lender under the Loan Documents, at law or in equity; and (ii) this Agreement and the obligations of each Loan Party hereunder shall be valid and enforceable and shall not be subject to any limitation, impairment or discharge for any reason (other than payment in full of the Obligations), including without limitation the occurrence of any of the following, whether or not any Loan Party shall have had notice or knowledge of any of them: (A) any failure to assert or enforce or agreement not to assert or enforce, or the stay or enjoining, by order of court, by operation of law or otherwise, of the exercise or enforcement of, any claim or demand or any right, power or remedy with respect to the Obligations or any agreement relating thereto, or with respect to any guaranty of or other security for the payment of the Obligations, (B) any waiver, amendment or modification of, or any consent to departure from, any of the terms or provisions (including without limitation provisions relating to events 12 of default) of the Credit Agreement, any of the other Loan Documents or any agreement or instrument executed pursuant thereto, or of any guaranty or other security for the Obligations, (C) the Obligations, or any agreement relating thereto, at any time being found to be illegal, invalid or unenforceable in any respect, (D) the application of payments received from any source to the payment of indebtedness other than the Obligations, even though Lender might have elected to apply such payment to any part or all of the Obligations, (E) any failure to perfect or continue perfection of a security interest in any other collateral which secures any of the Obligations, (F) any defenses, set-offs or counterclaims which any other Loan Party may allege or assert against any Lender in respect of the Obligations, including but not limited to failure of consideration, breach of warranty, payment, statute of frauds, statute of limitations, accord and satisfaction and usury, and (G) any other act or thing or omission, or delay to do any other act or thing, which may or might in any manner or to any extent vary the risk of any Loan Party as an obligor in respect of the Obligations. 7.12.2 Each Loan Party waives, for the benefit of Lender: (i) any right to require Lender, as a condition of payment or performance by such Loan Party, to (A) proceed against any other Loan Party, any guarantor of the Obligations or any other Person, (B) proceed against or exhaust any other security held from any other Loan Party, any guarantor of the Obligations or any other Person, (C) proceed against or have resort to any balance of any deposit account or credit on the books of Lender in favor of any Loan Party or any other Person, or (D) pursue any other remedy in the power of Lender whatsoever; (ii) any defense arising by reason of the incapacity, lack of authority or any disability or other defense of any Loan Party including, without limitation, any defense based on or arising out of the lack of validity or the unenforceability of the Obligations or any agreement or instrument relating thereto or by reason of the cessation of the liability of any Loan Party from any cause other than payment in full of the Obligations; (iii) any defense based upon any statute or rule of law which provides that the obligation of a surety must be neither larger in amount nor in other respects more burdensome than that of the principal; (iv) any defense based upon Lender's errors or omissions in the administration of the Obligations, except behavior which amounts to bad faith; (v) (A) any principles or provisions of law, statutory or otherwise, which are or might be in conflict with the terms of this Agreement and any legal or equitable discharge of such Loan Party's obligations hereunder, (B) the benefit of any statute of limitations affecting such Loan Party's liability hereunder or the enforcement hereof, (C) any rights to set-offs, recoupments and counterclaims, and (D) promptness, diligence and any requirement that Lender protect, secure, perfect or insure any other security interest or lien or any property subject thereto; (vi) notices, demands, presentments, protests, notices of protest, notices of dishonor and notices of any action or inaction, notices of default under the Credit Agreement or any agreement or instrument related thereto, notices of any renewal, extension or modification of the Obligations or any agreement related thereto, notices of any extension of credit to Loan Parties and notices of any of the matters referred to in the preceding paragraph and any right to consent to any thereof; and (vii) to the fullest extent permitted by law, any defenses or benefits that may be derived from 13 or afforded by law which limit the liability of or exonerate guarantors or sureties, or which may conflict with the terms of this Agreement. 7.12.3 Until the Obligations shall have been paid in full, each Loan Party shall withhold exercise of (i) any claim, right or remedy, direct or indirect, that such Loan Party now has or may hereafter have against any other Loan Party or any of its assets in connection with this Agreement or the performance by any other Loan Party of its obligations hereunder, in each case whether such claim, right or remedy arises in equity, under contract, by statute, under common law or otherwise and including without limitation (A) any right of subrogation, reimbursement or indemnification that any Loan Party now has or may hereafter have against any other Loan Party, (B) any right to enforce, or to participate in, any claim, right or remedy that Lender now has or may hereafter have against any Loan Party, and (C) any benefit of, and any right to participate in, any other collateral or security now or hereafter held by Lender, and (ii) any right of contribution any Loan Party may have against any guarantor of the Obligations. Each Loan Party further agrees that, to the extent the waiver of its rights of subrogation, reimbursement, indemnification and contribution as set forth herein is found by a court of competent jurisdiction to be void or voidable for any reason, any rights of subrogation, reimbursement or indemnification such Loan Party may have against any other Loan Party or against any other collateral or security, and any rights of contribution such Loan Party may have against any such guarantor, shall be junior and subordinate to any rights Lender may have against any Loan Party, to all right, title and interest Lender may have in any such other collateral or security, and to any right Lender may have against any such guarantor. ARTICLE 8 LOCAL LAW PROVISIONS -------------------- SECTION 8.1 FUTURE ADVANCES. This Mortgage also secures such future --------------- additional advances as may be made by Mortgagee at Mortgagee's option to Mortgagor for any purposes, provided that all such advances are to be made within twenty (20) years from the date of this Mortgage. The total Indebtedness secured by this Mortgage may decrease or increase from time to time, but the total unpaid balance so secured at any one time may not exceed the maximum principal amount of Two Hundred Million Dollars ($200,000,000) plus interest accrued thereon, and any disbursements made for the payment of taxes, levies, assessments or insurance on the Mortgaged Property, with interest upon such disbursements. If, pursuant to Florida Statutes (S)697.04, Mortgagor files a notice specifying the dollar limit beyond which future advances made pursuant to this Mortgage will not be secured by this Mortgage, Mortgagor shall give immediate notice to Mortgagee by certified mail. Such filing constitutes an additional Event of Default hereunder. 14 SECTION 8.2 INSURANCE AND TAXES. Mortgagor shall at all time ------------------- provide, maintain and keep in force or cause to be provided, maintained and keep in force, at no expense to Mortgagee, policies of insurance in form and amounts and issued by companies, associations or organizations reasonably satisfactory to Mortgagee covering such casualties, risks, perils, liabilities and other hazards as set forth in the Credit Agreement or as Mortgagee reasonably requires. Mortgagor shall pay, or cause to be paid prior to delinquency, all real property taxes and assessments, general and special, and all other taxes and assessments of any kind or nature whatsoever, including, without limitation, nongovernmental levies or assessments such as maintenance charges, levies or charges resulting from covenants, conditions and restrictions affecting the Mortgaged Property, which are assessed or imposed upon the Mortgaged Property, or become due and payable, and which create, may create or appear to create a lien upon the Mortgaged Property or any part thereof, or upon any person, property, equipment or other facility used in the operation or maintenance thereof (all the above collectively hereinafter referred to as "IMPOSITIONS"); provided, however, if, by law any such Imposition is payable, or may at the option of the taxpayer be paid, in installments, Mortgagor may pay the same or cause it to be paid, together with any accrued interest on the unpaid balance of such Imposition, in installments before any fine, penalty, interest or cost may be added thereto for the nonpayment of any such installment and interest. If Mortgagor does not pay such insurance premiums and Impositions in accordance with the foregoing, Mortgagee may pay such amounts and Mortgagor shall reimburse Mortgagee upon demand for such payments and such reimbursement obligation shall be added to the Obligations secured hereby. [THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK] 15 IN WITNESS WHEREOF, Mortgagor has on the date set forth in the acknowledgement hereto, effective as of the date first above written, caused this instrument to be duly EXECUTED AND DELIVERED by authority duly given. LIL' CHAMP FOOD STORES, INC., a Florida corporation By: _____________________________ Name: William T. Flyg Its: Executive Vice President and Assistant Secretary S-1 ACKNOWLEDGEMENT STATE OF NEW YORK ) ) SS.: COUNTY OF NEW YORK ) The foregoing instrument was acknowledged before me this 23 day of October, 1997 by William T. Flyg, as the Executive Vice President and Assistant Secretary of Lil' Champ Food Stores, Inc., a Florida corporation, on behalf of the corporation. He is personally known to me or has produced a _______________________ as identification. _________________________________ Print Name:______________________ Notary Public, New York, New York My Commission Expires:___________ Commission No.:__________________ S-2 EXHIBIT A MORTGAGED PROPERTY A-1 EX-10.24 34 FORM OF DEED TO SECURE DEBT (GEORGIA) EXHIBIT 10.24 PREPARED BY, RECORDING REQUESTED BY, AND WHEN RECORDED MAIL TO: O'MELVENY & MYERS LLP 400 SOUTH HOPE STREET LOS ANGELES, CALIFORNIA ATTENTION: F. THOMAS MULLER, ESQ. FILE 154,607-004 OBLIGATIONS SECURED HEREBY PROVIDE FOR A FLUCTUATING INTEREST RATE DEED TO SECURE DEBT, SECURITY AGREEMENT, AND ASSIGNMENT OF RENTS [GEORGIA] BY AND FROM LIL' CHAMP FOOD STORES, INC., "GRANTOR" TO FIRST UNION NATIONAL BANK, IN ITS CAPACITY AS AGENT, "GRANTEE" DATED AS OF OCTOBER 23, 1997 DEED TO SECURE DEBT, SECURITY AGREEMENT, AND ASSIGNMENT OF RENTS THIS DEED TO SECURE DEBT, SECURITY AGREEMENT, AND ASSIGNMENT OF RENTS AND LEASES (Georgia) (this "DEED TO SECURE DEBT") is dated as of October 23, 1997, by and from LIL' CHAMP FOOD STORES, INC., a Florida corporation ("GRANTOR"), whose address is 1801 Douglas Drive, Sanford, North Carolina 27330, to FIRST UNION NATIONAL BANK, as Agent ("AGENT") for the lenders party to the Credit Agreement (defined below) (such lenders, together with their respective successors and assigns, collectively, the "LENDERS"), having an address at 301 South College Street, Charlotte, North Carolina 28288 (Agent, together with its successors and assigns, "GRANTEE"). ARTICLE 1 DEFINITIONS ----------- SECTION 1.1 DEFINITIONS. All capitalized terms used herein without ----------- definition shall have the respective meanings ascribed to them in that certain Credit Agreement dated as of even date herewith (as amended, supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT") among Grantor, the Lenders, Canadian Imperial Bank of Commerce, as Syndication Agent, and Grantee. As used herein, the following terms shall have the following meanings: 1.1.1 "INDEBTEDNESS": (1) (a) principal, interest and other amounts evidenced or secured by the Loan Documents in the face principal amount of Seventy-Five Million and No/100ths Dollars ($75,000,000.00), with principal and accrued unpaid interest being due and payable in full not later than October 31, 2002, set forth in the Credit Agreement, and (b) principal, interest and other amounts which may hereafter be loaned by Grantee or any of the Lenders under or in connection with the Credit Agreement or any of the other Loan Documents, whether evidenced by a promissory note or other instrument which, by its terms, is secured hereby, and (2) all other indebtedness, obligations and liabilities now or hereafter existing of any kind of Grantor to Grantee or any of the Lenders under documents which recite that they are intended to be secured by this Deed to Secure Debt. 1.1.2 "MORTGAGED PROPERTY": All of Grantor's right, title and interest in (1) the fee simple interest in the real property described in Exhibit A attached hereto and incorporated herein by this reference, together with any greater estate therein as hereafter may be acquired by Grantor (the "LAND"), (2) all improvements now owned or hereafter acquired by Grantor, now or at any time situated, placed or constructed upon the Land (the 1 "IMPROVEMENTS"), (3) all materials, supplies, equipment, apparatus and other items of personal property now owned or hereafter acquired by Grantor and now or hereafter attached to, installed in or used in connection with any of the Improvements or the Land, and water, gas, electrical, storm and sanitary sewer facilities and all other utilities whether or not situated in easements (the "FIXTURES"), (4) all right, title and interest of Grantor in and to all goods, accounts, general intangibles, instruments, documents, chattel paper and all other personal property of any kind or character, including such items of personal property as defined in the UCC (defined below), now owned or hereafter acquired by Grantor and now or hereafter affixed to, placed upon, used in connection with, arising from or otherwise related to the Land and Improvements (the "PERSONALTY"), (5) all reserves, escrows or impounds required under the Credit Agreement and all deposit accounts maintained by Grantor with respect to the Mortgaged Property, (6) all leases, licenses, concessions, occupancy agreements or other agreements (written or oral, now or at any time in effect) which grant to any Person a possessory interest in, or the right to use, all or any part of the Mortgaged Property, together with all related security and other deposits (the "LEASES"), (7) all of the rents, revenues, income, proceeds, profits, security and other types of deposits, and other benefits paid or payable by parties to the Leases for using, leasing, licensing, possessing, operating from, residing in, selling or otherwise enjoying the Mortgaged Property (the "RENTS"), (8) all other agreements, such as construction contracts, architects' agreements, engineers' contracts, utility contracts, maintenance agreements, management agreements, service contracts, permits, licenses, certificates and entitlements in any way relating to the construction, use, occupancy, operation, maintenance, enjoyment or ownership of the Mortgaged Property (the "PROPERTY AGREEMENTS"), (9) all rights, privileges, tenements, hereditaments, rights-of-way, easements, appendages and appurtenances appertaining to the foregoing, (10) all accessions, replacements and substitutions for any of the foregoing and all proceeds thereof, (11) all insurance policies, unearned premiums therefor and proceeds from such policies covering any of the above property now or hereafter acquired by Grantor, and (12) all of Grantor's right, title and interest in and to any awards, remunerations, reimbursements, settlements or compensation heretofore made or hereafter to be made by any governmental authority pertaining to the Land, Improvements, Fixtures or Personalty. As used in this Deed to Secure Debt, the term "MORTGAGED PROPERTY" shall mean all or, where the context permit or requires, any portion of the above or any interest therein. 1.1.3 "OBLIGATIONS": All of the agreements, covenants, conditions, warranties, representations and other obligations of Grantor (including, without limitation, the obligation to repay the Indebtedness) under the Credit Agreement and the other Loan Documents. 1.1.4 "UCC": The Uniform Commercial Code of Georgia or, if the creation, perfection and enforcement of any security interest herein granted is governed by the laws of 2 a state other than Georgia, then, as to the matter in question, the Uniform Commercial Code in effect in that state. ARTICLE 2 GRANT ----- SECTION 2.1 GRANT. To secure the full and timely payment of the ----- Indebtedness and the full and timely performance of the Obligations, Grantor GRANTS, BARGAINS, ASSIGNS, SELLS and CONVEYS, to Grantee the Mortgaged Property, subject, however, to the Permitted Encumbrances. TO HAVE AND TO HOLD the Mortgaged Property, and all parts, rights, members and appurtenances thereof, to the use, benefit and behalf of Grantee, for the benefit of Lenders and the successors and assigns of Grantee IN FEE SIMPLE forever; and Grantor covenants that Grantor is lawfully seized and possessed of the Mortgaged Property as aforesaid and has good right to convey the same, that the same are unencumbered except for the Permitted Encumbrances, and that Grantor will warrant and will forever defend the title thereto against the claims of all persons whomsoever, except as to the Permitted Encumbrances. THIS CONVEYANCE is intended: (i) to operate and to be construed as a deed passing the title to the Mortgaged Property to Grantee, for the benefit of the Lenders, and is made under those provisions of the existing laws of the State of Georgia relating to the deeds to secure debt, and not as a mortgage, and (ii) to constitute a security agreement pursuant to the UCC. ARTICLE 3 WARRANTIES, REPRESENTATIONS AND COVENANTS ----------------------------------------- Grantor warrants, represents and covenants to Grantee as follows: SECTION 3.1 TITLE TO MORTGAGED PROPERTY AND SECURITY TITLE OF THIS ------------------------------------------------------ INSTRUMENT. Grantor owns the Mortgaged Property free and clear of any liens, - ---------- claims or interests, except the Permitted Encumbrances. This Deed to Secure Debt creates a valid, enforceable first priority security title and security interests against the Mortgaged Property. SECTION 3.2 FIRST PRIORITY STATUS. Grantor shall preserve and --------------------- protect the first priority and security interest status of this Deed to Secure Debt and the other Loan Documents. If any lien or security interest other than the Permitted Encumbrances is asserted against the Mortgaged Property, Grantor shall promptly, and at its expense, (a) give Grantee a detailed written notice of such lien or security interest (including origin, amount and other terms), and (b) pay the underlying claim in full or take such other action so as to cause it to be released or contest the same in compliance with the requirements of the Credit 3 Agreement (including the requirement of providing a bond or other security satisfactory to Grantee). SECTION 3.3 PAYMENT AND PERFORMANCE. Grantor shall pay the ----------------------- Indebtedness when due under the Loan Documents and shall perform the Obligations in full when they are required to be performed. SECTION 3.4 REPLACEMENT OF FIXTURES AND PERSONALTY. Grantor shall -------------------------------------- not, without the prior written consent of Grantee, permit any of the Fixtures or Personalty to be removed at any time from the Land or Improvements, unless the removed item is removed temporarily for maintenance and repair or, if removed permanently, is obsolete and is replaced by an article of equal or better suitability and value, owned by Grantor subject to the liens and security interests of this Deed to Secure Debt and the other Loan Documents, and free and clear of any other lien or security interest except such as may be permitted under the Credit Agreement or first approved in writing by Grantee. SECTION 3.5 INSPECTION. Grantor shall permit Grantee and the ---------- Lenders, and their respective agents, representatives and employees, upon reasonable prior notice to Grantor, to inspect the Mortgaged Property and all books and records of Grantor located thereon, and to conduct such environmental and engineering studies as Grantee or the Lenders may require, provided that such inspections and studies shall not materially interfere with the use and operation of the Mortgaged Property. SECTION 3.6 OTHER COVENANTS. All of the covenants in the Credit --------------- Agreement are incorporated herein by reference and, together with covenants in this Article, shall be covenants running with the land. ------- SECTION 3.7 CONDEMNATION AWARDS AND INSURANCE PROCEEDS. ------------------------------------------ 3.7.1 Condemnation Awards. Grantor assigns all awards and ------------------- compensation to which it is entitled for any condemnation or other taking, or any purchase in lieu thereof, to Grantee and authorizes Grantee to collect and receive such awards and compensation and to give proper receipts and acquittances therefor, subject to the terms of the Credit Agreement. 3.7.2 Insurance Proceeds. Grantor assigns to Grantee all proceeds of ------------------ any insurance policies insuring against loss or damage to the Mortgaged Property. Grantor authorizes Grantee to collect and receive such proceeds and authorizes and directs the issuer of each of such insurance policies to make payment for all such losses directly to Grantee, instead of to Grantor and Grantee jointly. 4 ARTICLE 4 DEFAULT AND FORECLOSURE ----------------------- SECTION 4.1 REMEDIES. If an Event of Default exists, Grantee may, at -------- Grantee's election, exercise any or all of the following rights, remedies and recourses: 4.1.1 Acceleration. Declare the Indebtedness to be immediately due ------------ and payable, without further notice, presentment, protest, notice of intent to accelerate, notice of acceleration, demand or action of any nature whatsoever (each of which hereby is expressly waived by Grantor), whereupon the same shall become immediately due and payable. 4.1.2 Entry on Mortgaged Property. Enter the Mortgaged Property and --------------------------- take exclusive possession thereof and of all books, records and accounts relating thereto or located thereon. If Grantor remains in possession of the Mortgaged Property after an Event of Default and without Grantee's prior written consent, Grantee may invoke any legal remedies to dispossess Grantor. 4.1.3 Operation of Mortgaged Property. Hold, lease, develop, manage, ------------------------------- operate or otherwise use the Mortgaged Property upon such terms and conditions as Grantee may deem reasonable under the circumstances (making such repairs, alternations, additions and improvements and taking other actions, from time to time, as Grantee deems necessary or desirable), and apply all Rents and other amounts collected by Grantee in connection therewith in accordance with the provisions of Section 4.7. ----------- 4.1.4 Exercise Power of Sale. Sell the Mortgaged Property or any ---------------------- part of the Mortgaged Property at public sale or sales before the door of the courthouse of the County in which the Mortgaged Property or any part of the Mortgaged Property is situated, to the highest bidder for cash, in order to pay the Indebtedness, including, without limitation, all accrued, unpaid interest thereon, and all expenses of the sale and of all proceedings in connection therewith, including reasonable attorney's fees, if actually incurred, after advertising the time, place and terms of sale once a week for four (4) weeks immediately preceding such sale (but without regard to the number of days) in a newspaper in which Sheriff's sales are advertised in said County. The foregoing notwithstanding, Grantee may sell, or cause to be sold, any tangible or intangible personal property, or any part thereof, and which constitutes a part of the security hereunder in the foregoing manner, or as may otherwise be provided by law, including the UCC. With respect to any notices required or permitted by the UCC, Grantor agrees that five days' prior written notice shall be deemed commercially reasonable. Grantee may bid and purchase at any such sale and may satisfy Grantee's obligation to purchase pursuant to Grantee's bid by canceling an equivalent portion of any Indebtedness then outstanding and secured hereby. At any such sale, Grantee may execute and deliver to the purchaser a conveyance of the Mortgaged Property or any part of the Mortgaged Property in fee simple with full warranties of title and, to this end, Grantor 5 hereby constitutes and appoints Grantee the agent and attorney in fact of Grantor to make such sale and conveyance, and thereby to divest Grantor of all right, title and equity that Grantor may have in and to the Mortgaged Property and to vest the same in the purchaser or purchasers at such sale or sales, and all the acts and doings of said agent and attorney in fact are hereby ratified and confirmed and any recitals in said conveyance or conveyances as to facts essential to a valid sale shall be binding on Grantor. The aforesaid power of sale and agency hereby granted are coupled with an interest and are irrevocable by death or otherwise, are granted as cumulative of the other remedies provided by law for collection of the indebtedness secured hereby and shall not be exhausted by one exercise thereof but may be exercised until full payment of all sums secured hereby. 4.1.5 Receiver. Make application to a court of competent -------- jurisdiction for, and obtain from such court as a matter of strict right and without notice to Grantor or regard to the adequacy of the Mortgaged Property for the repayment of the Indebtedness, the appointment of a receiver of the Mortgaged Property, and Grantor irrevocably consents to such appointment. Any such receiver shall have all the usual powers and duties of receivers in similar cases, including the full power to rent, maintain and otherwise operate the Mortgaged Property upon such terms as may be approved by the court, and shall apply such Rents in accordance with the provisions of Section 4.7. ----------- 4.1.6 Other. Exercise all other rights, remedies and recourses ----- granted under the Loan Documents or otherwise available at law or in equity. SECTION 4.2 SEPARATE SALES. The Mortgaged Property may be sold in -------------- one or more parcels and in such manner and order as Grantee in its sole discretion may elect multiple sales are hereby expressly authorized and the right of sale arising out of any Event of Default shall not be exhausted by any one or more sales, until all the Mortgaged Property is sold or the Indebtedness is satisfied in full. SECTION 4.3 REMEDIES CUMULATIVE, CONCURRENT AND NONEXCLUSIVE. ------------------------------------------------ Grantee and the Lenders shall have all rights, remedies and recourses granted in the Loan Documents and available at law or equity (including the UCC), which rights (a) shall be cumulative and concurrent, (b) may be pursued separately, successively or concurrently against Grantor or others obligated under the Loan Documents, or against the Mortgaged Property, or against any one or more of them, at the sole discretion of Grantee or the Lenders, (c) may be exercised as often as occasion therefor shall arise, and the exercise or failure to exercise any of them shall not be construed as a waiver or release thereof or of any other right, remedy or recourse, and (d) are intended to be, and shall be, nonexclusive. No action by Grantee or the Lenders in the enforcement of any rights, remedies or recourses under the Loan Documents or otherwise at law or equity shall be deemed to cure any Event of Default. 6 SECTION 4.4 RELEASE OF AND RESORT TO COLLATERAL. Grantee may ----------------------------------- release, regardless of consideration and without the necessity for any notice to or consent by the holder of any subordinate lien on the Mortgaged Property, any part of the Mortgaged Property without, as to the remainder, in any way impairing, affecting, subordinating or releasing the security title or security interest created in or evidenced by the Loan Documents or their status as a first and prior security title and security interest in and to the Mortgaged Property. For payment of the Indebtedness, Grantee may resort to any other security in such order and manner as Grantee may elect. SECTION 4.5 NOTICE AND MARSHALLING OF ASSETS. To the fullest extent --------------------------------- permitted by law, Grantor hereby irrevocably and unconditionally waives and releases (a) all benefit that might accrue to Grantor by virtue of any present or future statute of limitations or law or judicial decision exempting the Mortgaged Property from attachment, levy or sale on execution or providing for any stay of execution, exemption from civil process, redemption or extension of time for payment, (b) all notices of any Event of Default or of Grantee's election to exercise or the actual exercise of any right, remedy or recourse provided for under the Loan Documents, and (c) any right to a marshalling of assets or a sale in inverse order of alienation. SECTION 4.6 DISCONTINUANCE OF PROCEEDINGS. If Grantee or the Lenders ----------------------------- shall have proceeded to invoke any right, remedy or recourse permitted under the Loan Documents and shall thereafter elect to discontinue or abandon it for any reason, Grantee or the Lenders shall have the unqualified right to do so and, in such an event, Grantor, Grantee, and the Lenders shall be restored to their former positions with respect to the Indebtedness, the Obligations, the Loan Documents, the Mortgaged Property and otherwise, and the rights, remedies, recourses and powers of Grantee and the Lenders shall continue as if the right, remedy or recourse had never been invoked, but no such discontinuance or abandonment shall waive any Event of Default which may then exist or the right of Grantee or the Lenders thereafter to exercise any right, remedy or recourse under the Loan Documents for such Event of Default. SECTION 4.7 ALLOCATION OF PROCEEDS. The proceeds of any sale of, and ---------------------- the Rents and other amounts generated by the holding, leasing, management, operation or other use of the Mortgaged Property, shall be applied by Grantee (or the receiver, if one is appointed) in the following order unless otherwise required by applicable law: 4.7.1 to the payment of the costs and expenses of taking possession of the Mortgaged Property and of holding, using, leasing, repairing, improving and selling the same, including, without limitation (1) receiver's fees and expenses, including the repayment of the amounts evidenced by any receiver's certificates, (2) court costs, (3) reasonable attorneys' and accountants' fees and expenses, and (4) costs of advertisement; 7 4.7.2 to the payment of the Indebtedness and performance of the Obligations in such manner and order of preference as Grantee in its sole discretion may determine; and 4.7.3 the balance, if any, to the payment of the Persons legally entitled thereto. SECTION 4.8 OCCUPANCY AFTER FORECLOSURE. Any sale of the Mortgaged --------------------------- Property or any part thereof in accordance with Section 4.1.4 will divest all ------------- right, title and interest of Grantor in and to the property sold. Subject to applicable law, any purchaser at a foreclosure sale will receive immediate possession of the property purchased. If Grantor retains possession of such property or any part thereof subsequent to such sale, Grantor will be considered a tenant at sufferance of the purchaser, and will, if Grantor remains in possession after demand to remove, be subject to eviction and removal, forcible or otherwise, with or without process of law. SECTION 4.9 ADDITIONAL ADVANCES AND DISBURSEMENTS; COSTS OF ----------------------------------------------- ENFORCEMENT. - ----------- 4.9.1 If any Event of Default exists, Grantee and each of the Lenders shall have the right, but not the obligation, to cure such Event of Default in the name and on behalf of Grantor. All sums advanced and expenses incurred at any time by Grantee or any Lender under this Section, or otherwise under this ------- Deed to Secure Debt or any of the other Loan Documents or applicable law, shall bear interest from the date that such sum is advanced or expense incurred, to and including the date of reimbursement, computed at the rate or rates at which interest is then computed on the Indebtedness, and all such sums, together with interest thereon, shall be secured by this Deed to Secure Debt. 4.9.2 Grantor shall pay all expenses (including reasonable attorneys' fees and expenses) of or incidental to the perfection and enforcement of this Deed to Secure Debt and the other Loan Documents, or the enforcement, compromise or settlement of the Indebtedness or any claim under this Deed to Secure Debt and the other Loan Documents, and for the curing thereof, or for defending or asserting the rights and claims of Grantee in respect thereof, by litigation or otherwise. SECTION 4.10 NO GRANTEE IN POSSESSION. Neither the enforcement of any ------------------------ of the remedies under this Article, the assignment of the Rents and Leases under ------- Article 5, the security interests under Article 6, nor any other remedies - --------- --------- afforded to Grantee under the Loan Documents, at law or in equity shall cause Grantee or any Lender to be deemed or construed to be a mortgagee in possession of the Mortgaged Property, to obligate Grantee or any Lender to lease the Mortgaged Property or attempt to do so, or to take any action, incur any expense, or perform or discharge any obligation, duty or liability whatsoever under any of the Leases or otherwise. 8 ARTICLE 5 ASSIGNMENT OF RENTS AND LEASES ------------------------------ SECTION 5.1 ASSIGNMENT. In furtherance of and in addition to the ---------- assignment made by Grantor in Section 2.1 of this Deed to Secure Debt, Grantor ----------- hereby absolutely and unconditionally assigns, sells, transfers and conveys to Grantee all of its right, title and interest in and to all Leases, whether now existing or hereafter entered into, and all of its right, title and interest in and to all Rents. If permitted under applicable law, this assignment is an absolute assignment and not merely an assignment for additional security. So long as no Event of Default shall have occurred and be continuing, Grantor shall have a revocable license from Grantee to exercise all rights extended to the landlord under the Leases, including the right to receive and collect all Rents and to hold the Rents in trust for use in the payment and performance of the Obligations and to otherwise use the same. The foregoing license is granted subject to the conditional limitation that no Event of Default shall have occurred and be continuing. Upon the occurrence and during the continuance of an Event of Default, whether or not legal proceedings have commenced, and without regard to waste, adequacy of security for the Obligations or solvency of Grantor, the license herein granted shall automatically expire and terminate, without notice by Grantee (any such notice being hereby expressly waived by Grantor). SECTION 5.2 PERFECTION UPON RECORDATION. Grantor acknowledges that --------------------------- Grantee has taken all actions necessary to obtain, and that upon recordation of this Deed to Secure Debt Grantee shall have, to the extent permitted under applicable law, a valid and fully perfected first priority present assignment of the Rents arising out of the Leases and all security for such Leases. Grantor acknowledges and agrees that upon recordation of this Deed to Secure Debt Grantee's interest in the Rents shall be deemed to be fully perfected, ``choate'' and enforced as to Grantor and all third parties, including, without limitation, any subsequently appointed trustee in any case under Title 11 of the United States Code (the "BANKRUPTCY CODE"), without the necessity of commencing a foreclosure action with respect to this Deed to Secure Debt, making formal demand for the Rents, obtaining the appointment of a receiver or taking any other affirmative action. SECTION 5.3 BANKRUPTCY PROVISIONS. Without limitation of the --------------------- absolute nature of the assignment of the Rents hereunder, Grantor and Grantee agree that (a) this Deed to Secure Debt shall constitute a ``security agreement'' for purposes of Section 552(b) of the Bankruptcy Code, (b) the security interest created by this Deed to Secure Debt extends to property of Grantor acquired before the commencement of a case in bankruptcy and to all amounts paid as Rents and (c) such security interest shall extend to all Rents acquired by the estate after the commencement of any case in bankruptcy. SECTION 5.4 NO MERGER OF ESTATES. So long as part of the -------------------- Indebtedness and the Obligations secured hereby remain unpaid and undischarged, the fee and leasehold estates to the Mortgaged Property shall not merge, but shall remain separate and distinct, notwithstanding the 9 union of such estates either in Grantor, Grantee, any tenant or any third party by purchase or otherwise. ARTICLE 6 SECURITY AGREEMENT ------------------ SECTION 6.1 SECURITY INTEREST. This Deed to Secure Debt constitutes ----------------- a "Security Agreement" on personal property within the meaning of the UCC and other applicable law and with respect to the Personalty, Fixtures, Leases, Rents and Property Agreements. To this end, Grantor grants to Grantee a first and prior security interest in the Personalty, Fixtures, Leases, Rents and Property Agreements and all other Mortgaged Property which is personal property to secure the payment of the Indebtedness and performance of the Obligations, and agrees that Grantee shall have all the rights and remedies of a secured party under the UCC with respect to such property. Any notice of sale, disposition or other intended action by Grantee with respect to the Personalty, Fixtures, Leases, Rents and Property Agreements sent to Grantor at least five (5) days prior to any action under the UCC shall constitute reasonable notice to Grantor. SECTION 6.2 FINANCING STATEMENTS. Grantor shall execute and deliver -------------------- to Grantee, in form and substance satisfactory to Grantee, such financing statements and such further assurances as Grantee may, from time to time, reasonably consider necessary to create, perfect and preserve Grantee's security interest hereunder and Grantee may cause such statements and assurances to be recorded and filed, at such times and places as may be required or permitted by law to so create, perfect and preserve such security interest. Grantor's chief executive office is in the State of North Carolina at the address set forth in the first paragraph of this Deed to Secure Debt. ARTICLE 7 MISCELLANEOUS ------------- SECTION 7.1 NOTICES. Any notice required or permitted to be given ------- under this Deed to Secure Debt shall be given in accordance with the provisions of the Credit Agreement. SECTION 7.2 COVENANTS RUNNING WITH THE LAND. All Obligations ------------------------------- contained in this Deed to Secure Debt are intended by Grantor and Grantee to be, and shall be construed as, covenants running with the Mortgaged Property. As used herein, "Grantor" shall refer to the party named in the first paragraph of this Deed to Secure Debt and to any subsequent owner of all or any portion of the Mortgaged Property. All Persons who may have or acquire an interest in the Mortgaged Property shall be deemed to have notice of, and be bound by, the terms of the Credit Agreement and the other Loan Documents; however, no such party shall be entitled to any rights thereunder without the prior written consent of Grantee. 10 SECTION 7.3 ATTORNEY-IN-FACT. Grantor hereby irrevocably appoints ---------------- Grantee and its successors and assigns, as its attorney-in-fact, which agency is coupled with an interest, (a) to execute and/or record any notices of completion, cessation of labor or any other notices that Grantee deems appropriate to protect Grantee's interest, if Grantor shall fail to do so within ten (10) days after written request by Grantee, (b) upon the issuance of a deed pursuant to the foreclosure of this Deed to Secure Debt or the delivery of a deed in lieu of foreclosure, to execute all instruments of assignment, conveyance or further assurance with respect to the Leases, Rents, Personalty, Fixtures and Property Agreements in favor of the grantee of any such deed and as may be necessary or desirable for such purpose, (c) to prepare, execute and file or record financing statements, continuation statements, applications for registration and like papers necessary to create, perfect or preserve Grantee's security interests and rights in or to any of the Mortgaged Property, and (d) while any Event of Default exists, to perform any obligation of Grantor hereunder, however: (1) Grantee shall not under any circumstances be obligated to perform any obligation of Grantor; (2) any sums advanced by Grantee in such performance shall be added to and included in the Indebtedness and shall bear interest at the rate or rates at which interest is then computed on the Indebtedness; (3) Grantee as such attorney-in-fact shall only be accountable for such funds as are actually received by Grantee; and (4) Grantee shall not be liable to Grantor or any other person or entity for any failure to take any action which it is empowered to take under this Section. ------- SECTION 7.4 SUCCESSORS AND ASSIGNS. This Deed to Secure Debt shall ---------------------- be binding upon and inure to the benefit of Grantee, the Lenders, and Grantor and their respective successors and assigns. Grantor shall not, without the prior written consent of Grantee, assign any rights, duties or obligations hereunder. SECTION 7.5 NO WAIVER. Any failure by Grantee to insist upon strict --------- performance of any of the terms, provisions or conditions of the Loan Documents shall not be deemed to be a waiver of same, and Grantee or the Lenders shall have the right at any time to insist upon strict performance of all of such terms, provisions and conditions. SECTION 7.6 CREDIT AGREEMENT. If any conflict or inconsistency ---------------- exists between this Deed to Secure Debt and the Credit Agreement, the Credit Agreement shall govern. SECTION 7.7 RELEASE OR RECONVEYANCE. Upon payment in full of the ----------------------- Indebtedness and performance in full of the Obligations, Grantee, at Grantor's expense, shall release the security title and security interests created by this Deed to Secure Debt or reconvey the Mortgaged Property to Grantor. In addition, as long as no Event of Default has occurred and is then continuing or would be caused thereby, if Grantor sells or transfers for value any portion of the Mortgaged Property as permitted under Section 7.7 of the Credit Agreement, Grantee shall release the liens and security interests created by this Deed to Secure Debt on such Mortgaged Property or reconvey such Mortgaged Property to Grantor, concurrently with the 11 consummation of such sale or other transfer. Such release or reconveyance shall be at Grantor's sole cost and expense, and only upon not less than thirty days' prior written notice to Grantee. SECTION 7.8 WAIVER OF STAY, MORATORIUM AND SIMILAR RIGHTS. Grantor --------------------------------------------- agrees, to the full extent that it may lawfully do so, that it will not at any time insist upon or plead or in any way take advantage of any stay, marshalling of assets, extension, redemption or moratorium law now or hereafter in force and effect so as to prevent or hinder the enforcement of the provisions of this Deed to Secure Debt or the Indebtedness secured hereby, or any agreement between Grantor and Grantee or any rights or remedies of Grantee or the Lenders. SECTION 7.9 APPLICABLE LAW. The provisions of this Deed to Secure -------------- Debt regarding the creation, perfection and enforcement of the liens and security interests herein granted shall be governed by and construed under the laws of the state in which the Mortgaged Property is located. All other provisions of this Deed to Secure Debt and the Obligations shall be governed by the laws of the State of New York (including, without limitation, Section 5-1401 of the General Obligations Law of the State of New York), without regard to conflicts of laws principles. SECTION 7.10 HEADINGS. The Article, Section and Subsection titles -------- hereof are inserted for convenience of reference only and shall in no way alter, modify or define, or be used in construing, the text of such Articles, Sections or Subsections. SECTION 7.11 ENTIRE AGREEMENT. This Deed to Secure Debt and the ---------------- other Loan Documents embody the entire agreement and understanding between Grantee and Grantor and supersede all prior agreements and understandings between such parties relating to the subject matter hereof and thereof. Accordingly, the Loan Documents may not be contradicted by evidence of prior, contemporaneous or subsequent oral agreements of the parties. There are no unwritten oral agreements between the parties. 12 IN WITNESS WHEREOF, Grantor has, effective as of the date first above written, caused this instrument to be duly EXECUTED, SEALED AND DELIVERED by authority duly given. LIL' CHAMP FOOD STORES, INC., a Florida corporation By: _____________________________ Name: William T. Flyg Title: Executive Vice President and Assistant Secretary [Affix Corporate Seal] ________________________________ Unofficial Witness _________________________________ Notary Public [Affix official seal and indicate expiration of commission] S-1 EXHIBIT A MORTGAGED PROPERTY A-1 EX-10.25 35 FORM OF SUBSIDIARY GUARANTY EXHIBIT 10.25 SUBSIDIARY GUARANTY This SUBSIDIARY GUARANTY is entered into as of October 23, 1997 by THE UNDERSIGNED (each a "GUARANTOR" and collectively, "GUARANTORS") in favor of and for the benefit of FIRST UNION NATIONAL BANK, as administrative agent for and representative of (in such capacity herein called "GUARANTIED PARTY") the financial institutions ("LENDERS") party to the Credit Agreement referred to below and any Interest Rate Exchangers (as hereinafter defined), and, subject to subsection 3.12, for the benefit of the other Beneficiaries (as hereinafter defined). RECITALS A. The Pantry, Inc., a Delaware corporation ("COMPANY"), has entered into that certain Credit Agreement dated as of October 23, 1997 with Guarantied Party, Syndication Agent and Lenders (said Credit Agreement, as it may hereafter be amended, supplemented or otherwise modified from time to time, being the "CREDIT AGREEMENT"; capitalized terms defined therein and not otherwise defined herein being used herein as therein defined). B. Company may from time to time enter, or may from time to time have entered, into one or more Interest Rate Agreements (collectively, the "LENDER INTEREST RATE AGREEMENTS") with or one or more Lenders (in such capacity, collectively, "INTEREST RATE EXCHANGERS") in accordance with the terms of the Credit Agreement, and it is desired that the obligations of Company under the Lender Interest Rate Agreements, including the obligation of Company to make payments thereunder in the event of early termination thereof (all such obligations being the "INTEREST RATE OBLIGATIONS"), together with all obligations of Company under the Credit Agreement and the other Loan Documents, be guarantied hereunder. C. A portion of the proceeds of the Loans may be advanced to Guarantors and thus the Guarantied Obligations (as hereinafter defined) are being incurred for and will inure to the benefit of Guarantors (which benefits are hereby acknowledged). D. It is a condition precedent to the making of the initial Loans under the Credit Agreement that Company's obligations thereunder be guarantied by Guarantors. E. Guarantors are willing irrevocably and unconditionally to guaranty such obligations of Company. NOW, THEREFORE, based upon the foregoing and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and in order to induce Lenders and Guarantied Party to enter into the Credit Agreement and to make 1 Loans and other extensions of credit thereunder and to induce Interest Rate Exchangers to enter into the Lender Interest Rate Agreements, Guarantors hereby agree as follows: SECTION 1. DEFINITIONS 1.1 CERTAIN DEFINED TERMS. As used in this Guaranty, the following terms --------------------- shall have the following meanings unless the context otherwise requires: "BENEFICIARIES" means Guarantied Party, Syndication Agent, Lenders and any Interest Rate Exchangers. "GUARANTIED OBLIGATIONS" has the meaning assigned to that term in subsection 2.1. "GUARANTY" means this Subsidiary Guaranty dated as of October 23, 1997, as it may be amended, supplemented or otherwise modified from time to time. "PAYMENT IN FULL", "PAID IN FULL" or any similar term means payment in full of the Guarantied Obligations, including all principal, interest, costs, fees and expenses (including reasonable legal fees and expenses) of Beneficiaries as required under the Loan Documents and the Lender Interest Rate Agreements. 1.2 INTERPRETATION. -------------- (a) References to "Sections" and "subsections" shall be to Sections and subsections, respectively, of this Guaranty unless otherwise specifically provided. (b) In the event of any conflict or inconsistency between the terms, conditions and provisions of this Guaranty and the terms, conditions and provisions of the Credit Agreement, the terms, conditions and provisions of this Guaranty shall prevail. SECTION 2. THE GUARANTY 2.1 GUARANTY OF THE GUARANTIED OBLIGATIONS. Subject to the provisions of -------------------------------------- subsection 2.2(a), Guarantors jointly and severally hereby irrevocably and unconditionally guaranty the due and punctual payment in full of all Guarantied Obligations when the same shall become due, whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise (including amounts that would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. (S) 362(a)). The term "GUARANTIED OBLIGATIONS" is used herein in its most comprehensive sense and includes: (a) any and all Obligations of Company and any and all Interest Rate Obligations, in each case now or hereafter 2 made, incurred or created, whether absolute or contingent, liquidated or unliquidated, whether due or not due, and however arising under or in connection with the Credit Agreement and the other Loan Documents and the Lender Interest Rate Agreements, including those arising under successive borrowing transactions under the Credit Agreement which shall either continue the Obligations of Company or from time to time renew them after they have been satisfied and including interest which, but for the filing of a petition in bankruptcy with respect to Company, would have accrued on any Guarantied Obligations, whether or not a claim is allowed against Company for such interest in the related bankruptcy proceeding; and (b) those expenses set forth in subsection 2.8 hereof. 2.2 LIMITATION ON AMOUNT GUARANTIED; CONTRIBUTION BY GUARANTORS. (a) ----------------------------------------------------------- Anything contained in this Guaranty to the contrary notwithstanding, if any Fraudulent Transfer Law (as hereinafter defined) is determined by a court of competent jurisdiction to be applicable to the obligations of any Guarantor under this Guaranty, such obligations of such Guarantor hereunder shall be limited to a maximum aggregate amount equal to the largest amount that would not render its obligations hereunder subject to avoidance as a fraudulent transfer or conveyance under Section 548 of Title 11 of the United States Code or any applicable provisions of comparable state law (collectively, the "FRAUDULENT TRANSFER LAWS"), in each case after giving effect to all other liabilities of such Guarantor, contingent or otherwise, that are relevant under the Fraudulent Transfer Laws (specifically excluding, however, any liabilities of such Guarantor (x) in respect of intercompany indebtedness to Company or other affiliates of Company to the extent that such indebtedness would be discharged in an amount equal to the amount paid by such Guarantor hereunder and (y) under any guaranty of Subordinated Indebtedness which guaranty contains a limitation as to maximum amount similar to that set forth in this subsection 2.2(a), pursuant to which the liability of such Guarantor hereunder is included in the liabilities taken into account in determining such maximum amount) and after giving effect as assets to the value (as determined under the applicable provisions of the Fraudulent Transfer Laws) of any rights to subrogation, reimbursement, indemnification or contribution of such Guarantor pursuant to applicable law or pursuant to the terms of any agreement (including any such right of contribution under subsection 2.2(b). (b) Guarantors under this Guaranty together desire to allocate among themselves, in a fair and equitable manner, their obligations arising under this Guaranty. Accordingly, in the event any payment or distribution is made on any date by any Guarantor under this Guaranty (a "FUNDING GUARANTOR") that exceeds its Fair Share (as defined below) as of such date, that Funding Guarantor shall be entitled to a contribution from each of the other Guarantors in the amount of such other Guarantor's 3 Fair Share Shortfall (as defined below) as of such date, with the result that all such contributions will cause each Guarantor's Aggregate Payments (as defined below) to equal its Fair Share as of such date. "FAIR SHARE" means, with respect to a Guarantor as of any date of determination, an amount equal to (i) the ratio of (x) the Adjusted Maximum Amount (as defined below) with respect to such Guarantor to (y) the aggregate of the Adjusted Maximum Amounts with respect to all Guarantors multiplied by (ii) the aggregate amount paid or ---------- -- distributed on or before such date by all Funding Guarantors under this Guaranty in respect of the obligations guarantied. "FAIR SHARE SHORTFALL" means, with respect to a Guarantor as of any date of determination, the excess, if any, of the Fair Share of such Guarantor over the Aggregate Payments of such Guarantor. "ADJUSTED MAXIMUM AMOUNT" means, with respect to a Guarantor as of any date of determination, the maximum aggregate amount of the obligations of such Guarantor under this Guaranty, determined as of such date in accordance with subsection 2.2(a); provided that, solely for purposes of calculating the "Adjusted Maximum -------- Amount" with respect to any Guarantor for purposes of this subsection 2.2(b), any assets or liabilities of such Guarantor arising by virtue of any rights to subrogation, reimbursement or indemnification or any rights to or obligations of contribution hereunder shall not be considered as assets or liabilities of such Guarantor. "AGGREGATE PAYMENTS" means, with respect to a Guarantor as of any date of determination, an amount equal to (i) the aggregate amount of all payments and distributions made on or before such date by such Guarantor in respect of this Guaranty (including in respect of this subsection 2.2(b)) minus ----- (ii) the aggregate amount of all payments received on or before such date by such Guarantor from the other Guarantors as contributions under this subsection 2.2(b). The amounts payable as contributions hereunder shall be determined as of the date on which the related payment or distribution is made by the applicable Funding Guarantor. The allocation among Guarantors of their obligations as set forth in this subsection 2.2(b) shall not be construed in any way to limit the liability of any Guarantor hereunder. 2.3 PAYMENT BY GUARANTORS; APPLICATION OF PAYMENTS. Subject to the ---------------------------------------------- provisions of subsection 2.2(a), Guarantors hereby jointly and severally agree, in furtherance of the foregoing and not in limitation of any other right which any Beneficiary may have at law or in equity against any Guarantor by virtue hereof, that upon the failure of Company to pay any of the Guarantied Obligations when and as the same shall become due, whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise (including amounts that would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. (S) 362(a)), Guarantors will upon demand pay, or cause to be paid, in cash, to Guarantied Party for the ratable benefit of Beneficiaries, an amount equal to the sum of the unpaid principal amount of all Guarantied Obligations then due as aforesaid, accrued and unpaid interest on such Guarantied Obligations (including interest which, but for the filing of a petition in bankruptcy with 4 respect to Company, would have accrued on such Guarantied Obligations, whether or not a claim is allowed against Company for such interest in the related bankruptcy proceeding) and all other Guarantied Obligations then owed to Beneficiaries as aforesaid. All such payments shall be applied promptly from time to time by Guarantied Party as provided in subsection 2.4D of the Credit Agreement. 2.4 LIABILITY OF GUARANTORS ABSOLUTE. Each Guarantor agrees that its -------------------------------- obligations hereunder are irrevocable, absolute, independent and unconditional and shall not be affected by any circumstance which constitutes a legal or equitable discharge of a guarantor or surety other than payment in full of the Guarantied Obligations. In furtherance of the foregoing and without limiting the generality thereof, each Guarantor agrees as follows: (a) This Guaranty is a guaranty of payment when due and not of collectibility. (b) Guarantied Party may enforce this Guaranty upon the occurrence of an Event of Default under the Credit Agreement notwithstanding the existence of any dispute between Company and any Beneficiary with respect to the existence of such Event of Default. (c) The obligations of each Guarantor hereunder are independent of the obligations of Company under the Loan Documents or the Lender Interest Rate Agreements and the obligations of any other guarantor (including any other Guarantor) of the obligations of Company under the Loan Documents or the Lender Interest Rate Agreements, and a separate action or actions may be brought and prosecuted against such Guarantor whether or not any action is brought against Company or any of such other guarantors and whether or not Company is joined in any such action or actions. (d) Payment by any Guarantor of a portion, but not all, of the Guarantied Obligations shall in no way limit, affect, modify or abridge any Guarantor's liability for any portion of the Guarantied Obligations which has not been paid. Without limiting the generality of the foregoing, if Guarantied Party is awarded a judgment in any suit brought to enforce any Guarantor's covenant to pay a portion of the Guarantied Obligations, such judgment shall not be deemed to release such Guarantor from its covenant to pay the portion of the Guarantied Obligations that is not the subject of such suit, and such judgment shall not, except to the extent satisfied by such Guarantor, limit, affect, modify or abridge any other Guarantor's liability hereunder in respect of the Guarantied Obligations. (e) Any Beneficiary, upon such terms as it deems appropriate, without notice or demand and without affecting the validity or enforceability of this Guaranty or giving 5 rise to any reduction, limitation, impairment, discharge or termination of any Guarantor's liability hereunder, from time to time may (i) renew, extend, accelerate, increase the rate of interest on, or otherwise change the time, place, manner or terms of payment of the Guarantied Obligations, (ii) settle, compromise, release or discharge, or accept or refuse any offer of performance with respect to, or substitutions for, the Guarantied Obligations or any agreement relating thereto and/or subordinate the payment of the same to the payment of any other obligations; (iii) request and accept other guaranties of the Guarantied Obligations and take and hold security for the payment of this Guaranty or the Guarantied Obligations; (iv) release, surrender, exchange, substitute, compromise, settle, rescind, waive, alter, subordinate or modify, with or without consideration, any security for payment of the Guarantied Obligations, any other guaranties of the Guarantied Obligations, or any other obligation of any Person (including any other Guarantor) with respect to the Guarantied Obligations; (v) enforce and apply any security now or hereafter held by or for the benefit of such Beneficiary in respect of this Guaranty or the Guarantied Obligations and direct the order or manner of sale thereof, or exercise any other right or remedy that such Beneficiary may have against any such security, in each case as such Beneficiary in its discretion may determine consistent with the Credit Agreement or the applicable Lender Interest Rate Agreement and any applicable security agreement, including foreclosure on any such security pursuant to one or more judicial or nonjudicial sales, whether or not every aspect of any such sale is commercially reasonable, and even though such action operates to impair or extinguish any right of reimbursement or subrogation or other right or remedy of any Guarantor against Company or any security for the Guarantied Obligations; and (vi) exercise any other rights available to it under the Loan Documents or the Lender Interest Rate Agreements. (f) This Guaranty and the obligations of Guarantors hereunder shall be valid and enforceable and shall not be subject to any reduction, limitation, impairment, discharge or termination for any reason (other than payment in full of the Guarantied Obligations), including the occurrence of any of the following, whether or not any Guarantor shall have had notice or knowledge of any of them: (i) any failure or omission to assert or enforce or agreement or election not to assert or enforce, or the stay or enjoining, by order of court, by operation of law or otherwise, of the exercise or enforcement of, any claim or demand or any right, power or remedy (whether arising under the Loan Documents or the Lender Interest Rate Agreements, at law, in equity or otherwise) with respect to the Guarantied Obligations or any agreement relating thereto, or with respect to any other guaranty of or security for the payment of the Guarantied Obligations; (ii) any rescission, waiver, amendment or 6 modification of, or any consent to departure from, any of the terms or provisions (including provisions relating to events of default) of the Credit Agreement, any of the other Loan Documents, any of the Lender Interest Rate Agreements or any agreement or instrument executed pursuant thereto, or of any other guaranty or security for the Guarantied Obligations, in each case whether or not in accordance with the terms of the Credit Agreement or such Loan Document, such Lender Interest Rate Agreement or any agreement relating to such other guaranty or security; (iii) the Guarantied Obligations, or any agreement relating thereto, at any time being found to be illegal, invalid or unenforceable in any respect; (iv) the application of payments received from any source (other than payments received pursuant to the other Loan Documents or any of the Lender Interest Rate Agreements or from the proceeds of any security for the Guarantied Obligations, except to the extent such security also serves as collateral for indebtedness other than the Guarantied Obligations) to the payment of indebtedness other than the Guarantied Obligations, even though any Beneficiary might have elected to apply such payment to any part or all of the Guarantied Obligations; (v) any Beneficiary's consent to the change, reorganization or termination of the corporate structure or existence of Company or any of its Subsidiaries and to any corresponding restructuring of the Guarantied Obligations; (vi) any failure to perfect or continue perfection of a security interest in any collateral which secures any of the Guarantied Obligations; (vii) any defenses, set-offs or counterclaims which Company may allege or assert against any Beneficiary in respect of the Guarantied Obligations, including failure of consideration, breach of warranty, payment, statute of frauds, statute of limitations, accord and satisfaction and usury; and (viii) any other act or thing or omission, or delay to do any other act or thing, which may or might in any manner or to any extent vary the risk of any Guarantor as an obligor in respect of the Guarantied Obligations. 2.5 WAIVERS BY GUARANTORS. Each Guarantor hereby waives, for the benefit --------------------- of Beneficiaries: (a) any right to require any Beneficiary, as a condition of payment or performance by such Guarantor, to (i) proceed against Company, any other guarantor (including any other Guarantor) of the Guarantied Obligations or any other Person, (ii) proceed against or exhaust any security held from Company, any such other guarantor or any other Person, (iii) proceed against or have resort to any balance of any deposit account or credit on the books of any Beneficiary in favor of Company or any other Person, or (iv) pursue any other remedy in the power of any Beneficiary whatsoever; 7 (b) any defense arising by reason of the incapacity, lack of authority or any disability or other defense of Company including any defense based on or arising out of the lack of validity or the unenforceability of the Guarantied Obligations or any agreement or instrument relating thereto or by reason of the cessation of the liability of Company from any cause other than payment in full of the Guarantied Obligations; (c) any defense based upon any statute or rule of law which provides that the obligation of a surety must be neither larger in amount nor in other respects more burdensome than that of the principal; (d) any defense based upon any Beneficiary's errors or omissions in the administration of the Guarantied Obligations, except behavior which amounts to bad faith; (e) (i) any principles or provisions of law, statutory or otherwise, which are or might be in conflict with the terms of this Guaranty and any legal or equitable discharge of such Guarantor's obligations hereunder, (ii) the benefit of any statute of limitations affecting such Guarantor's liability hereunder or the enforcement hereof, (iii) any rights to set-offs, recoupments and counterclaims, and (iv) promptness, diligence and any requirement that any Beneficiary protect, secure, perfect or insure any security interest or lien or any property subject thereto; (f) notices, demands, presentments, protests, notices of protest, notices of dishonor and notices of any action or inaction, including acceptance of this Guaranty, notices of default under the Credit Agreement, the Lender Interest Rate Agreements or any agreement or instrument related thereto, notices of any renewal, extension or modification of the Guarantied Obligations or any agreement related thereto, notices of any extension of credit to Company and notices of any of the matters referred to in subsection 2.4 and any right to consent to any thereof; and (g) any defenses or benefits that may be derived from or afforded by law which limit the liability of or exonerate guarantors or sureties, or which may conflict with the terms of this Guaranty. 2.6 GUARANTORS' RIGHTS OF SUBROGATION, CONTRIBUTION, ETC. Each Guarantor ---------------------------------------------------- hereby waives any claim, right or remedy, direct or indirect, that such Guarantor now has or may hereafter have against Company or any of its assets in connection with this Guaranty or the performance by such Guarantor of its obligations hereunder, in each case whether such claim, right or remedy arises in equity, under contract, by statute, under common law or otherwise and including (a) any right of subrogation, reimbursement or indemnification that such Guarantor now has or may hereafter have against Company, (b) any right to enforce, or 8 to participate in, any claim, right or remedy that any Beneficiary now has or may hereafter have against Company, and (c) any benefit of, and any right to participate in, any collateral or security now or hereafter held by any Beneficiary. In addition, until the Guarantied Obligations shall have been indefeasibly paid in full and the Commitments shall have terminated and all Letters of Credit shall have expired or been cancelled, each Guarantor shall withhold exercise of any right of contribution such Guarantor may have against any other guarantor (including any other Guarantor) of the Guarantied Obligations (including any such right of contribution under subsection 2.2(b)). Each Guarantor further agrees that, to the extent the waiver or agreement to withhold the exercise of its rights of subrogation, reimbursement, indemnification and contribution as set forth herein is found by a court of competent jurisdiction to be void or voidable for any reason, any rights of subrogation, reimbursement or indemnification such Guarantor may have against Company or against any collateral or security, and any rights of contribution such Guarantor may have against any such other guarantor, shall be junior and subordinate to any rights any Beneficiary may have against Company, to all right, title and interest any Beneficiary may have in any such collateral or security, and to any right any Beneficiary may have against such other guarantor. If any amount shall be paid to any Guarantor on account of any such subrogation, reimbursement, indemnification or contribution rights at any time when all Guarantied Obligations shall not have been paid in full, such amount shall be held in trust for Guarantied Party on behalf of Beneficiaries and shall forthwith be paid over to Guarantied Party for the benefit of Beneficiaries to be credited and applied against the Guarantied Obligations, whether matured or unmatured, in accordance with the terms hereof. 2.7 SUBORDINATION OF OTHER OBLIGATIONS. Any indebtedness of Company or any ---------------------------------- Guarantor now or hereafter held by any Guarantor (the "OBLIGEE GUARANTOR") is hereby subordinated in right of payment to the Guarantied Obligations, and any such indebtedness collected or received by the Obligee Guarantor after an Event of Default has occurred and is continuing shall be held in trust for Guarantied Party on behalf of Beneficiaries and shall forthwith be paid over to Guarantied Party for the benefit of Beneficiaries to be credited and applied against the Guarantied Obligations but without affecting, impairing or limiting in any manner the liability of the Obligee Guarantor under any other provision of this Guaranty. 2.8 EXPENSES. Guarantors jointly and severally agree to pay, or cause to -------- be paid, on demand, and to save Beneficiaries harmless against liability for, any and all costs and expenses (including fees and disbursements of counsel and allocated costs of internal counsel) incurred or expended by any Beneficiary in connection with the enforcement of or preservation of any rights under this Guaranty. 9 2.9 CONTINUING GUARANTY. This Guaranty is a continuing guaranty and shall ------------------- remain in effect until all of the Guarantied Obligations shall have been paid in full and the Commitments shall have terminated and all Letters of Credit shall have expired or been cancelled. Each Guarantor hereby irrevocably waives any right to revoke this Guaranty as to future transactions giving rise to any Guarantied Obligations. 2.10 AUTHORITY OF GUARANTORS OR COMPANY. It is not necessary for any ---------------------------------- Beneficiary to inquire into the capacity or powers of any Guarantor or Company or the officers, directors or any agents acting or purporting to act on behalf of any of them. 2.11 FINANCIAL CONDITION OF COMPANY. Any Loans may be granted to Company or ------------------------------ continued from time to time, and any Lender Interest Rate Agreements may be entered into from time to time, in each case without notice to or authorization from any Guarantor regardless of the financial or other condition of Company at the time of any such grant or continuation or at the time such Lender Interest Rate Agreement is entered into, as the case may be. No Beneficiary shall have any obligation to disclose or discuss with any Guarantor its assessment, or any Guarantor's assessment, of the financial condition of Company. Each Guarantor has adequate means to obtain information from Company on a continuing basis concerning the financial condition of Company and its ability to perform its obligations under the Loan Documents and the Lender Interest Rate Agreements, and each Guarantor assumes the responsibility for being and keeping informed of the financial condition of Company and of all circumstances bearing upon the risk of nonpayment of the Guarantied Obligations. Each Guarantor hereby waives and relinquishes any duty on the part of any Beneficiary to disclose any matter, fact or thing relating to the business, operations or conditions of Company now known or hereafter known by any Beneficiary. 2.12 RIGHTS CUMULATIVE. The rights, powers and remedies given to ----------------- Beneficiaries by this Guaranty are cumulative and shall be in addition to and independent of all rights, powers and remedies given to Beneficiaries by virtue of any statute or rule of law or in any of the other Loan Documents, any of the Lender Interest Rate Agreements or any agreement between any Guarantor and any Beneficiary or Beneficiaries or between Company and any Beneficiary or Beneficiaries. Any forbearance or failure to exercise, and any delay by any Beneficiary in exercising, any right, power or remedy hereunder shall not impair any such right, power or remedy or be construed to be a waiver thereof, nor shall it preclude the further exercise of any such right, power or remedy. 2.13 BANKRUPTCY; POST-PETITION INTEREST; REINSTATEMENT OF GUARANTY. (a) So ------------------------------------------------------------- long as any Guarantied Obligations remain outstanding, no Guarantor shall, without the prior written consent of Guarantied Party acting pursuant to the instructions of Requisite Obligees (as defined in subsection 3.14), commence 10 or join with any other Person in commencing any bankruptcy, reorganization or insolvency proceedings of or against Company. The obligations of Guarantors under this Guaranty shall not be reduced, limited, impaired, discharged, deferred, suspended or terminated by any proceeding, voluntary or involuntary, involving the bankruptcy, insolvency, receivership, reorganization, liquidation or arrangement of Company or by any defense which Company may have by reason of the order, decree or decision of any court or administrative body resulting from any such proceeding. (b) Each Guarantor acknowledges and agrees that any interest on any portion of the Guarantied Obligations which accrues after the commencement of any proceeding referred to in clause (a) above (or, if interest on any portion of the Guarantied Obligations ceases to accrue by operation of law by reason of the commencement of said proceeding, such interest as would have accrued on such portion of the Guarantied Obligations if said proceedings had not been commenced) shall be included in the Guarantied Obligations because it is the intention of Guarantors and Beneficiaries that the Guarantied Obligations which are guarantied by Guarantors pursuant to this Guaranty should be determined without regard to any rule of law or order which may relieve Company of any portion of such Guarantied Obligations. Guarantors will permit any trustee in bankruptcy, receiver, debtor in possession, assignee for the benefit of creditors or similar person to pay Guarantied Party, or allow the claim of Guarantied Party in respect of, any such interest accruing after the date on which such proceeding is commenced. (c) In the event that all or any portion of the Guarantied Obligations are paid by Company, the obligations of Guarantors hereunder shall continue and remain in full force and effect or be reinstated, as the case may be, in the event that all or any part of such payment(s) are rescinded or recovered directly or indirectly from any Beneficiary as a preference, fraudulent transfer or otherwise, and any such payments which are so rescinded or recovered shall constitute Guarantied Obligations for all purposes under this Guaranty. 2.14 NOTICE OF EVENTS. As soon as any Guarantor obtains knowledge thereof, ---------------- such Guarantor shall give Guarantied Party written notice of any condition or event which has resulted in (a) a material adverse change in the financial condition of any Guarantor or Company or (b) a breach of or noncompliance with any term, condition or covenant contained herein or in the Credit Agreement, any other Loan Document, any Lender Interest Rate Agreement or any other document delivered pursuant hereto or thereto. 2.15 SET OFF. In addition to any other rights any Beneficiary may have ------- under law or in equity, if any amount shall at any time be due and owing by any Guarantor to any Beneficiary under this Guaranty, such Beneficiary is authorized at any time or from time to time, without notice (any such notice being 11 hereby expressly waived), to set off and to appropriate and to apply any and all deposits (general or special, including indebtedness evidenced by certificates of deposit, whether matured or unmatured) and any other indebtedness of such Beneficiary owing to such Guarantor and any other property of such Guarantor held by any Beneficiary to or for the credit or the account of such Guarantor against and on account of the Guarantied Obligations and liabilities of such Guarantor to any Beneficiary under this Guaranty. 2.16 DISCHARGE OF GUARANTY UPON SALE OF GUARANTOR. If all of the stock of -------------------------------------------- any Guarantor or any of its successors in interest under this Guaranty shall be sold or otherwise disposed of (including by merger or consolidation) in an Asset Sale not prohibited by subsection 7.7 of the Credit Agreement or otherwise consented to by Requisite Lenders, the Guaranty of such Guarantor or such successor in interest, as the case may be, hereunder shall automatically be discharged and released without any further action by any Beneficiary or any other Person effective as of the time of such Asset Sale; provided that, as a -------- condition precedent to such discharge and release, Guarantied Party shall have received evidence satisfactory to it that arrangements satisfactory to it have been made for delivery to Guarantied Party of the applicable Net Asset Sale Proceeds. SECTION 3. MISCELLANEOUS 3.1 SURVIVAL OF WARRANTIES. All agreements, representations and ---------------------- warranties made herein shall survive the execution and delivery of this Guaranty and the other Loan Documents and the Lender Interest Rate Agreements and any increase in the Commitments under the Credit Agreement. 3.2 NOTICES. Any communications between Guarantied Party and any Guarantor ------- and any notices or requests provided herein to be given may be given by mailing the same, postage prepaid, or by telex, facsimile transmission or cable to each such party at its address set forth in the Credit Agreement, on the signature pages hereof or to such other addresses as each such party may in writing hereafter indicate. Any notice, request or demand to or upon Guarantied Party or any Guarantor shall not be effective until received. 3.3 SEVERABILITY. In case any provision in or obligation under this ------------ Guaranty shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. 3.4 AMENDMENTS AND WAIVERS. No amendment, modification, termination or ---------------------- waiver of any provision of this Guaranty, and no consent to any departure by any Guarantor therefrom, shall in any event be effective without the written concurrence of Guarantied Party and, in the case of any such amendment or modification, 12 each Guarantor against whom enforcement of such amendment or modification is sought. Any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which it was given. 3.5 HEADINGS. Section and subsection headings in this Guaranty are -------- included herein for convenience of reference only and shall not constitute a part of this Guaranty for any other purpose or be given any substantive effect. 3.6 APPLICABLE LAW; RULES OF CONSTRUCTION. THIS GUARANTY AND THE RIGHTS ------------------------------------- AND OBLIGATIONS OF GUARANTORS AND BENEFICIARIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES. The rules of construction set forth in subsection 1.3 of the Credit Agreement shall be applicable to this Guaranty mutatis mutandis. 3.7 SUCCESSORS AND ASSIGNS. This Guaranty is a continuing guaranty and ---------------------- shall be binding upon each Guarantor and its respective successors and assigns. This Guaranty shall inure to the benefit of Beneficiaries and their respective successors and assigns. No Guarantor shall assign this Guaranty or any of the rights or obligations of such Guarantor hereunder without the prior written consent of all Lenders. Any Beneficiary may, without notice or consent, assign its interest in this Guaranty in whole or in part. The terms and provisions of this Guaranty shall inure to the benefit of any transferee or assignee of any Loan, and in the event of such transfer or assignment the rights and privileges herein conferred upon such Beneficiary shall automatically extend to and be vested in such transferee or assignee, all subject to the terms and conditions hereof. 3.8 CONSENT TO JURISDICTION AND SERVICE OF PROCESS. ALL JUDICIAL ---------------------------------------------- PROCEEDINGS BROUGHT AGAINST ANY GUARANTOR ARISING OUT OF OR RELATING TO THIS GUARANTY, OR ANY OBLIGATIONS HEREUNDER, MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK. BY EXECUTING AND DELIVERING THIS AGREEMENT, EACH GUARANTOR, FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, IRREVOCABLY (I) ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE JURISDICTION AND VENUE OF SUCH COURTS; (II) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS; (III) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO SUCH GUARANTOR AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH SUBSECTION 3.2; 13 (IV) AGREES THAT SERVICE AS PROVIDED IN CLAUSE (III) ABOVE IS SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER SUCH GUARANTOR IN ANY SUCH PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT; (V) AGREES THAT BENEFICIARIES RETAIN THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST SUCH GUARANTOR IN THE COURTS OF ANY OTHER JURISDICTION; AND (VI) AGREES THAT THE PROVISIONS OF THIS SUBSECTION 3.8 RELATING TO JURISDICTION AND VENUE SHALL BE BINDING AND ENFORCEABLE TO THE FULLEST EXTENT PERMISSIBLE UNDER NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1402 OR OTHERWISE. 3.9 WAIVER OF TRIAL BY JURY. EACH GUARANTOR AND, BY ITS ACCEPTANCE OF THE ----------------------- BENEFITS HEREOF, EACH BENEFICIARY HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS GUARANTY. The scope of this waiver is intended to be all encompassing of any and all disputes that may be filed in any court and that relate to the subject matter of this transaction, including contract claims, tort claims, breach of duty claims and all other common law and statutory claims. Each Guarantor and, by its acceptance of the benefits hereof, each Beneficiary, each (i) acknowledges that this waiver is a material inducement for such Guarantor and Beneficiaries to enter into a business relationship, that such Guarantor and Beneficiaries have already relied on this waiver in entering into this Guaranty or accepting the benefits thereof, as the case may be, and that each will continue to rely on this waiver in their related future dealings and (ii) further warrants and represents that each has reviewed this waiver with its legal counsel, and that each knowingly and voluntarily waives its jury trial rights following consultation with legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY REFERRING TO THIS SUBSECTION 3.9 AND EXECUTED BY GUARANTIED PARTY AND EACH GUARANTOR), AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS GUARANTY. In the event of litigation, this Guaranty may be filed as a written consent to a trial by the court. 3.10 NO OTHER WRITING. This writing is intended by Guarantors and ---------------- Beneficiaries as the final expression of this Guaranty and is also intended as a complete and exclusive statement of the terms of their agreement with respect to the matters covered hereby. No course of dealing, course of performance or trade usage, and no parol evidence of any nature, shall be used to supplement or modify any terms of this Guaranty. There are no conditions to the full effectiveness of this Guaranty. 14 3.11 FURTHER ASSURANCES. At any time or from time to time, upon the ------------------ request of Guarantied Party, Guarantors shall execute and deliver such further documents and do such other acts and things as Guarantied Party may reasonably request in order to effect fully the purposes of this Guaranty. 3.12 ADDITIONAL GUARANTORS. The initial Guarantors hereunder shall be --------------------- such of the Restricted Subsidiaries of Company as are signatories hereto on the date hereof. From time to time subsequent to the date hereof, additional Restricted Subsidiaries of Company may become parties hereto, as additional Guarantors (each an "ADDITIONAL GUARANTOR"), by executing a counterpart of this Guaranty. Upon delivery of any such counterpart to Administrative Agent, notice of which is hereby waived by Guarantors, each such Additional Guarantor shall be a Guarantor and shall be as fully a party hereto as if such Additional Guarantor were an original signatory hereof. Each Guarantor expressly agrees that its obligations arising hereunder shall not be affected or diminished by the addition or release of any other Guarantor hereunder, nor by any election of Administrative Agent not to cause any Subsidiary of Company to become an Additional Guarantor hereunder. This Guaranty shall be fully effective as to any Guarantor that is or becomes a party hereto regardless of whether any other Person becomes or fails to become or ceases to be a Guarantor hereunder. 3.13 COUNTERPARTS; EFFECTIVENESS. This Guaranty may be executed in any --------------------------- number of counterparts and by the different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original for all purposes; but all such counterparts together shall constitute but one and the same instrument. This Guaranty shall become effective as to each Guarantor upon the execution of a counterpart hereof by such Guarantor (whether or not a counterpart hereof shall have been executed by any other Guarantor) and receipt by Guarantied Party of written or telephonic notification of such execution and authorization of delivery thereof. 3.14 GUARANTIED PARTY AS ADMINISTRATIVE AGENT. ---------------------------------------- (a) Guarantied Party has been appointed to act as Guarantied Party hereunder by Lenders and, by their acceptance of the benefits hereof, Interest Rate Exchangers. Guarantied Party shall be obligated, and shall have the right hereunder, to make demands, to give notices, to exercise or refrain from exercising any rights, and to take or refrain from taking any action, solely in accordance with this Guaranty and the Credit Agreement; provided that Guarantied -------- Party shall exercise, or refrain from exercising, any remedies hereunder in accordance with the instructions of (i) Requisite Lenders or (ii) after payment in full of all Obligations under the Credit Agreement and the other Loan Documents, the holders of a majority of the aggregate notional amount (or, with respect to any Lender Interest Rate Agreement that has been terminated in accordance with its terms, 15 the amount then due and payable (exclusive of expenses and similar payments but including any early termination payments then due) under such Lender Interest Rate Agreement) under all Lender Interest Rate Agreements (Requisite Lenders or, if applicable, such holders being referred to herein as "REQUISITE OBLIGEES"). In furtherance of the foregoing provisions of this subsection 3.14, each Interest Rate Exchanger, by its acceptance of the benefits hereof, agrees that it shall have no right individually to enforce this Guaranty, it being understood and agreed by such Interest Rate Exchanger that all rights and remedies hereunder may be exercised solely by Guarantied Party for the benefit of Beneficiaries in accordance with the terms of this subsection 3.14. (b) Guarantied Party shall at all times be the same Person that is Administrative Agent under the Credit Agreement. Written notice of resignation by Administrative Agent pursuant to subsection 9.5 of the Credit Agreement shall also constitute notice of resignation as Guarantied Party under this Guaranty; removal of Administrative Agent pursuant to subsection 9.5 of the Credit Agreement shall also constitute removal as Guarantied Party under this Guaranty; and appointment of a successor Administrative Agent pursuant to subsection 9.5 of the Credit Agreement shall also constitute appointment of a successor Guarantied Party under this Guaranty. Upon the acceptance of any appointment as Administrative Agent under subsection 9.5 of the Credit Agreement by a successor Administrative Agent, that successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring or removed Guarantied Party under this Guaranty, and the retiring or removed Guarantied Party under this Guaranty shall promptly (i) transfer to such successor Guarantied Party all sums held hereunder, together with all records and other documents necessary or appropriate in connection with the performance of the duties of the successor Guarantied Party under this Guaranty, and (ii) take such other actions as may be necessary or appropriate in connection with the assignment to such successor Guarantied Party of the rights created hereunder, whereupon such retiring or removed Guarantied Party shall be discharged from its duties and obligations under this Guaranty. After any retiring or removed Guarantied Party's resignation or removal hereunder as Guarantied Party, the provisions of this Guaranty shall inure to its benefit as to any actions taken or omitted to be taken by it under this Guaranty while it was Guarantied Party hereunder. [Remainder of page intentionally left blank] 16 IN WITNESS WHEREOF, each of the undersigned Guarantors has caused this Guaranty to be duly executed and delivered by its officer thereunto duly authorized as of the date first written above. [LIST ALL RESTRICTED SUBSIDIARIES] By __________________________________ Title _______________________________ Address: ____________________________ ____________________________ ____________________________ S-1 IN WITNESS WHEREOF, the undersigned Additional Guarantor has caused this Guaranty to be duly executed and delivered by its officer thereunto duly authorized as of ______________, 199_. ____________________________________ (Name of Additional Guarantor) By __________________________________ Title _______________________________ Address: ____________________________ ____________________________ ____________________________ S-2 EX-10.26 36 FORM OF SUBSIDIARY SECURITY AGREEMENT EXHIBIT 10.26 SUBSIDIARY SECURITY AGREEMENT This SUBSIDIARY SECURITY AGREEMENT (this "AGREEMENT") is dated as of October 23, 1997 and entered into by and between [INSERT NAME OF GRANTOR IN CAPS], a _____________________ corporation ("GRANTOR"), and FIRST UNION NATIONAL BANK, as administrative agent for and representative of (in such capacity herein called "SECURED PARTY") the financial institutions ("LENDERS") party to the Credit Agreement referred to below and any Interest Rate Exchangers (as hereinafter defined). PRELIMINARY STATEMENTS A. Secured Party, Syndication Agent and Lenders have entered into a Credit Agreement dated as of October 23, 1997 (said Credit Agreement, as it may hereafter be amended, supplemented or otherwise modified from time to time, being the "CREDIT AGREEMENT", the terms defined therein and not otherwise defined herein being used herein as therein defined) with The Pantry, Inc., Delaware corporation ("COMPANY"), pursuant to which Lenders have made certain commitments, subject to the terms and conditions set forth in the Credit Agreement, to extend certain credit facilities to Company. B. Company may from time to time enter, or may from time to time have entered, into one or more Interest Rate Agreements (collectively, the "LENDER INTEREST RATE AGREEMENTS") with one or more Lenders (in such capacity, collectively, "INTEREST RATE EXCHANGERS"). C. Grantor has executed and delivered that certain Subsidiary Guaranty dated as of October 23, 1997 (said Subsidiary Guaranty, as it may hereafter be amended, supplemented or otherwise modified from time to time, being the "GUARANTY") in favor of Secured Party for the benefit of Lenders and any Interest Rate Exchangers, pursuant to which Grantor has guarantied the prompt payment and performance when due of all obligations of Company under the Credit Agreement and the other Loan Documents and all obligations of Company under the Lender Interest Rate Agreements, including the obligation of Company to make payments thereunder in the event of early termination thereof. D. It is a condition precedent to the initial extensions of credit by Lenders under the Credit Agreement that Grantor shall have granted the security interests and undertaken the obligations contemplated by this Agreement. NOW, THEREFORE, in consideration of the premises and in order to induce Lenders to make Loans and other extensions of credit under the Credit Agreement and to induce Interest Rate 1 Exchangers to enter into the Lender Interest Rate Agreements, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Grantor hereby agrees with Secured Party as follows: SECTION 1. GRANT OF SECURITY. Grantor hereby grants to Secured Party ----------------- a security interest in, all of Grantor's right, title and interest in and to the following, in each case whether now or hereafter existing or in which Grantor now has or hereafter acquires an interest and wherever the same may be located (the "COLLATERAL"): (a) all equipment in all of its forms, all parts thereof and all accessions thereto (any and all such equipment, parts and accessions being the "EQUIPMENT"); (b) all inventory in all of its forms (including (i) all goods held by Grantor for sale or lease or to be furnished under contracts of service or so leased or furnished, (ii) all raw materials, work in process, finished goods, and materials used or consumed in the manufacture, packing, shipping, advertising, selling, leasing, furnishing or production of such inventory or otherwise used or consumed in Grantor's business, (iii) all goods in which Grantor has an interest in mass or a joint or other interest or right of any kind, (iv) all goods which are returned to or repossessed by Grantor, and (v) all accessions thereto and products thereof (all such inventory, accessions and products being the "INVENTORY") and all negotiable documents of title (including warehouse receipts, dock receipts and bills of lading) issued by any Person covering any Inventory (any such negotiable document of title being a "NEGOTIABLE DOCUMENT OF TITLE"); (c) all accounts, contract rights, chattel paper, documents, instruments, general intangibles and other rights and obligations of any kind and all rights in, to and under all security agreements, leases and other contracts securing or otherwise relating to any such accounts, contract rights, chattel paper, documents, instruments, general intangibles or other obligations (any and all such accounts, contract rights, chattel paper, documents, instruments, general intangibles and other obligations being the "ACCOUNTS", and any and all such security agreements, leases and other contracts being the "RELATED CONTRACTS"); (d) the agreements listed in Part A of Schedule II annexed hereto, as ----------- each such agreement may be amended, supplemented or otherwise modified from time to time (said agreements, as so amended, supplemented or otherwise modified, being referred to herein individually as an "ASSIGNED AGREEMENT" and collectively as the "ASSIGNED AGREEMENTS"), including (i) all rights of Grantor to receive moneys due or to become due under or pursuant to the Assigned Agreements, (ii) all rights of Grantor to receive proceeds of any insurance, indemnity, warranty or guaranty with respect to the Assigned Agreements, (iii) all 2 claims of Grantor for damages arising out of any breach of or default under the Assigned Agreements, and (iv) all rights of Grantor to terminate, amend, supplement, modify or exercise rights or options under the Assigned Agreements, to perform thereunder and to compel performance and otherwise exercise all remedies thereunder; (e) all deposit accounts, including the deposit accounts listed in Part B of Schedule II annexed hereto and all other deposit accounts maintained with ----------- Secured Party; (f) all trademarks, tradenames, tradesecrets, business names, patents, patent applications, licenses, copyrights, registrations and franchise rights, and all goodwill associated with any of the foregoing; (g) to the extent not included in any other paragraph of this Section 1, all other general intangibles (including tax refunds, rights to payment or performance, choses in action and judgments taken on any rights or claims included in the Collateral); (h) all plant fixtures, business fixtures and other fixtures and storage and office facilities, and all accessions thereto and products thereof; (i) all books, records, ledger cards, files, correspondence, computer programs, tapes, disks and related data processing software that at any time evidence or contain information relating to any of the Collateral or are otherwise necessary or helpful in the collection thereof or realization thereupon; and (j) all proceeds, products, rents and profits of or from any and all of the foregoing Collateral and, to the extent not otherwise included, all payments under insurance (whether or not Secured Party is the loss payee thereof), or any indemnity, warranty or guaranty, payable by reason of loss or damage to or otherwise with respect to any of the foregoing Collateral. For purposes of this Agreement, the term "PROCEEDS" includes whatever is receivable or received when Collateral or proceeds are sold, exchanged, collected or otherwise disposed of, whether such disposition is voluntary or involuntary. Notwithstanding the foregoing, nothing in this Section 1 or otherwise in this Agreement shall constitute a grant by Grantor of a security interest in any contract, document, instrument, general intangible, lease, license or other right of any kind to the extent such a grant of a security interest would, after giving effect to the provisions of subsection 9-318 of the Uniform Commercial Code for the relevant jurisdiction, constitute a breach or violation of any term thereof. SECTION 2. SECURITY FOR OBLIGATIONS. This Agreement secures, and the ------------------------ Collateral is collateral security for, the 3 prompt payment or performance in full when due, whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise (including the payment of amounts that would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. (S)362(a)), of all obligations and liabilities of every nature of Grantor now or hereafter existing under or arising out of or in connection with the Guaranty and all extensions or renewals thereof, whether for principal, interest (including interest that, but for the filing of a petition in bankruptcy with respect to Company, would accrue on such obligations, whether or not a claim is allowed against Company for such interest in the related bankruptcy proceeding), reimbursement of amounts drawn under Letters of Credit, payments for early termination of Lender Interest Rate Agreements, fees, expenses, indemnities or otherwise, whether voluntary or involuntary, direct or indirect, absolute or contingent, liquidated or unliquidated, whether or not jointly owed with others, and whether or not from time to time decreased or extinguished and later increased, created or incurred, and all or any portion of such obligations or liabilities that are paid, to the extent all or any part of such payment is avoided or recovered directly or indirectly from Secured Party, Syndication Agent or any Lender or Interest Rate Exchanger as a preference, fraudulent transfer or otherwise and all obligations of every nature of Grantor now or hereafter existing under this Agreement (all such obligations of Grantor being the "SECURED OBLIGATIONS"). SECTION 3. GRANTOR REMAINS LIABLE. Anything contained herein to the ---------------------- contrary notwithstanding, (a) Grantor shall remain liable under any contracts and agreements included in the Collateral, to the extent set forth therein, to perform all of its duties and obligations thereunder to the same extent as if this Agreement had not been executed, (b) the exercise by Secured Party of any of its rights hereunder shall not release Grantor from any of its duties or obligations under the contracts and agreements included in the Collateral, and (c) Secured Party shall not have any obligation or liability under any contracts and agreements included in the Collateral by reason of this Agreement, nor shall Secured Party be obligated to perform any of the obligations or duties of Grantor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder. SECTION 4. REPRESENTATIONS AND WARRANTIES. Grantor represents and ------------------------------ warrants as follows: (a) Ownership of Collateral. Except for the security interest created ----------------------- by this Agreement or any other Collateral Documents, Grantor owns the Collateral free and clear of any Lien except for Permitted Encumbrances and Liens permitted under subsection 7.2A(iv) and (v) of the Credit Agreement (with regard to the Liens permitted under sections 7.2A(iv) and (v) of the Credit Agreement, only to the extent such Liens relate to the specific property subject to such Liens). 4 (b) Location of Equipment and Inventory. All of the Equipment and ----------------------------------- Inventory is, as of the date hereof, located in one of the states (and counties thereof) specified in Schedule I annexed hereto. ---------- (c) Negotiable Documents of Title. No Negotiable Documents of Title ----------------------------- are outstanding with respect to any of the Inventory (other than in respect of (i) Inventory with an aggregate value not in excess of $500,000 or (ii) Inventory which, in the ordinary course of business, is in transit either (A) from a supplier to Grantor, (B) between Grantor's retail locations, or (C) to customers of Grantor). (d) Office Locations; Other Names. The chief place of business, the ----------------------------- chief executive office and the office where Grantor keeps its records regarding the Accounts and all originals of all chattel paper that evidence Accounts is, and has been for the four month period preceding the date hereof, located at the location(s) specified in Schedule I. Grantor has not in the past five years ---------- done, and does not now do, business under any other name (including any trade- name or fictitious business name), except as described in Schedule I. ---------- (e) Delivery of Certain Collateral. All notes and other instruments ------------------------------ (excluding checks) comprising any and all items of Collateral have been delivered to Secured Party duly endorsed and accompanied by duly executed instruments of transfer or assignment in blank. SECTION 5. FURTHER ASSURANCES. ------------------ (a) Grantor agrees that from time to time, at the expense of Grantor, Grantor will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable, or that Secured Party may request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable Secured Party to exercise and enforce its rights and remedies hereunder with respect to any Collateral. Without limiting the generality of the foregoing, Grantor will: (i) mark conspicuously each item of chattel paper included in the Accounts, each Related Contract and, at the request of Secured Party, each of its records pertaining to the Collateral, with a legend, in form and substance satisfactory to Secured Party, indicating that such Collateral is subject to the security interest granted hereby, (ii) at the request of Secured Party, deliver and pledge to Secured Party hereunder all promissory notes and other instruments (including checks) and all original counterparts of chattel paper constituting Collateral, duly endorsed and accompanied by duly executed instruments of transfer or assignment, all in form and substance satisfactory to Secured Party, (iii) execute and file such financing or continuation statements, or amendments thereto, and such other instruments or notices, as may be necessary or desirable, or as Secured Party may request, in order to perfect and preserve the security 5 interests granted or purported to be granted hereby, (iv) upon the request of Secured Party, promptly after the acquisition by Grantor of any item of Equipment which is covered by a certificate of title under a statute of any jurisdiction under the law of which indication of a security interest on such certificate is required as a condition of perfection thereof, execute and file with the registrar of motor vehicles or other appropriate authority in such jurisdiction an application or other document requesting the notation or other indication of the security interest created hereunder on such certificate of title, (v) upon the request of Secured Party within 30 days after the end of each calendar quarter, deliver to Administrative Agent copies of all such applications or other documents filed during such calendar quarter and copies of all such certificates of title issued during such calendar quarter indicating the security interest created hereunder in the items of Equipment covered thereby, (vi) at any reasonable time, upon request by Secured Party, exhibit the Collateral to and allow inspection of the Collateral by Secured Party, or persons designated by Secured Party, and (vii) at Secured Party's request, appear in and defend any action or proceeding that may affect Grantor's title to or Secured Party's security interest in all or any part of the Collateral. (b) Grantor hereby authorizes Secured Party to file one or more financing or continuation statements, and amendments thereto, relative to all or any part of the Collateral without the signature of Grantor. Grantor agrees that a carbon, photographic or other reproduction of this Agreement or of a financing statement signed by Grantor shall be sufficient as a financing statement and may be filed as a financing statement in any and all jurisdictions. (c) Grantor will furnish to Secured Party from time to time statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as Secured Party may reasonably request, all in reasonable detail. SECTION 6. CERTAIN COVENANTS OF GRANTOR. Grantor shall: ---------------------------- (a) not use or permit any Collateral to be used unlawfully or in violation of any provision of this Agreement or any applicable statute, regulation or ordinance or any policy of insurance covering the Collateral; (b) notify Secured Party of any change in Grantor's name, identity or corporate structure within 15 days of such change; (c) give Secured Party 30 days' prior written notice of any change in Grantor's chief place of business, chief executive office or residence or the office where Grantor keeps 6 its records regarding the Accounts and all originals of all chattel paper that evidence Accounts; (d) if Secured Party gives value to enable Grantor to acquire rights in or the use of any Collateral, use such value for such purposes; and (e) pay promptly when due all property and other taxes, assessments and governmental charges or levies imposed upon, and all claims (including claims for labor, materials and supplies) against, the Collateral, except to the extent the validity thereof is being contested in good faith; provided that Grantor -------- shall in any event pay such taxes, assessments, charges, levies or claims not later than five days prior to the date of any proposed sale under any judgement, writ or warrant of attachment entered or filed against Grantor or any of the Collateral as a result of the failure to make such payment. SECTION 7. SPECIAL COVENANTS WITH RESPECT TO EQUIPMENT AND INVENTORY. --------------------------------------------------------- Grantor shall: (a) keep the Equipment and Inventory in the jurisdictions specified on Schedule I annexed hereto or, upon 30 days' prior written notice to Secured - ---------- Party, at such other places in jurisdictions where all action that may be necessary in order to perfect and protect any security interest granted or purported to be granted hereby, or to enable Secured Party to exercise and enforce its rights and remedies hereunder, with respect to such Equipment and Inventory shall have been taken; (b) cause the Equipment to be maintained and preserved in the same condition, repair and working order as when new, ordinary wear and tear excepted, and in accordance with Grantor's past practices. Grantor shall promptly furnish to Secured Party a statement respecting any material loss or damage to any of the Equipment; (c) keep correct and accurate records of the Inventory, itemizing and describing the kind, type and quantity of Inventory, Grantor's cost therefor and (where applicable) the current list prices for the Inventory; (d) if any Inventory is in possession or control of any of Grantor's agents or processors, if the aggregate book value of all such Inventory exceeds $500,000, and in any event upon the occurrence of an Event of Default (as defined in the Credit Agreement), instruct such agent or processor to hold all such Inventory for the account of Secured Party and subject to the instructions of Secured Party; and (e) promptly upon the issuance and delivery to Grantor of any Negotiable Document of Title (other than any one or more Negotiable Documents of Title covering (i) Inventory with an aggregate value not in excess of $500,000 or (ii) Inventory which, in the ordinary course of business, is in transit either 7 (A) from a supplier to Grantor, (B) between Grantor's retail locations, or (C) to customers of Grantor), deliver such Negotiable Document of Title to Secured Party. SECTION 8. INSURANCE. Grantor shall, at its own expense, maintain --------- insurance with respect to the Equipment and Inventory in accordance with the terms of the Credit Agreement. SECTION 9. SPECIAL COVENANTS WITH RESPECT TO ACCOUNTS AND RELATED ------------------------------------------------------ CONTRACTS. - --------- (a) Grantor shall keep its chief place of business and chief executive office and the office where it keeps its records concerning the Accounts and Related Contracts, and all originals of all chattel paper that evidence Accounts, at the location therefor specified in Section 4 or, upon 30 days' prior written notice to Secured Party, at such other location in a jurisdiction where all action that may be necessary or desirable, or that Secured Party may request, in order to perfect and protect any security interest granted or purported to be granted hereby, or to enable Secured Party to exercise and enforce its rights and remedies hereunder, with respect to such Accounts and Related Contracts shall have been taken. Grantor will hold and preserve such records and chattel paper and will permit representatives of Secured Party at any time during normal business hours to inspect and make abstracts from such records and chattel paper, and Grantor agrees to render to Secured Party, at Grantor's cost and expense, such clerical and other assistance as may be reasonably requested with regard thereto. Promptly upon the request of Secured Party, Grantor shall deliver to Secured Party complete and correct copies of each Related Contract. (b) Grantor shall, for not less than 5 years from the date on which such Account arose, maintain (i) complete records of each Account, including records of all payments received, credits granted and merchandise returned, and (ii) all documentation relating thereto. (c) Except as otherwise provided in this subsection (c), Grantor shall continue to collect, at its own expense, all amounts due or to become due to Grantor under the Accounts and Related Contracts. In connection with such collections, Grantor may take (and, at Secured Party's direction, shall take) such action as Grantor or Secured Party may deem necessary or advisable to enforce collection of amounts due or to become due under the Accounts; provided, -------- however, that Secured Party shall have the right at any time, upon the - ------- occurrence and during the continuation of an Event of Default and upon written notice to Grantor of its intention to do so, to notify the account debtors or obligors under any Accounts of the assignment of such Accounts to Secured Party and to direct such account debtors or obligors to make payment of all amounts due or to become due to Grantor thereunder directly to Secured Party, to notify each Person maintaining a lockbox or similar arrangement to which account debtors or obligors under any Accounts have been 8 directed to make payment to remit all amounts representing collections on checks and other payment items from time to time sent to or deposited in such lockbox or other arrangement directly to Secured Party and, upon such notification and at the expense of Grantor, to enforce collection of any such Accounts and to adjust, settle or compromise the amount or payment thereof, in the same manner and to the same extent as Grantor might have done. After receipt by Grantor of the notice from Secured Party referred to in the proviso to the preceding ------- sentence, (i) all amounts and proceeds (including checks and other instruments) received by Grantor in respect of the Accounts and the Related Contracts shall be received in trust for the benefit of Secured Party hereunder, shall be segregated from other funds of Grantor and shall be forthwith paid over or delivered to Secured Party in the same form as so received (with any necessary endorsement) to be held as cash Collateral and applied as provided by Section 18, and (ii) Grantor shall not adjust, settle or compromise the amount or payment of any Account, or release wholly or partly any account debtor or obligor thereof, or allow any credit or discount thereon. SECTION 10. SPECIAL PROVISIONS WITH RESPECT TO THE ASSIGNED ----------------------------------------------- AGREEMENTS. - ---------- (a) Grantor shall at its expense: (i) perform and observe all terms and provisions of the Assigned Agreements to be performed or observed by it, maintain the Assigned Agreements in full force and effect, enforce the Assigned Agreements in accordance with their terms, and take all such action to such end as may be from time to time requested by Secured Party; and (ii) furnish to Secured Party, promptly upon receipt thereof, copies of all notices, requests and other documents received by Grantor under or pursuant to the Assigned Agreements, and from time to time (A) furnish to Secured Party such information and reports regarding the Assigned Agreements as Secured Party may reasonably request and (B) upon request of Secured Party make such demands and requests for information and reports or for action as Grantor is entitled to make under the Assigned Agreements. (b) Grantor shall not: (i) cancel or terminate any of the Assigned Agreements or consent to or accept any cancellation or termination thereof; (ii) amend or otherwise modify the Assigned Agreements or give any consent, waiver or approval thereunder; (iii) waive any default under or breach of the Assigned Agreements; 9 (iv) consent to or permit or accept any prepayment of amounts to become due under or in connection with the Assigned Agreements, except as expressly provided therein; or (v) take any other action in connection with the Assigned Agreements that would impair the value of the interest or rights of Grantor thereunder or that would impair the interest or rights of Secured Party. SECTION 11. DEPOSIT ACCOUNTS. Upon the occurrence and during the ---------------- continuation of an Event of Default, Secured Party may exercise dominion and control over, and refuse to permit further withdrawals (whether of money, securities, instruments or other property) from any deposit accounts maintained with Secured Party constituting part of the Collateral. SECTION 12. LICENSE OF PATENTS, TRADEMARKS, COPYRIGHTS, ETC. Grantor ----------------------------------------------- hereby assigns, transfers and conveys to Secured Party, effective upon the occurrence of any Event of Default, the nonexclusive right and license to use all trademarks, tradenames, copyrights, patents or technical processes owned or used by Grantor that relate to the Collateral and any other collateral granted by Grantor as security for the Secured Obligations, together with any goodwill associated therewith, all to the extent necessary to enable Secured Party to use, possess and realize on the Collateral and to enable any successor or assign to enjoy the benefits of the Collateral. This right and license shall inure to the benefit of all successors, assigns and transferees of Secured Party and its successors, assigns and transferees, whether by voluntary conveyance, operation of law, assignment, transfer, foreclosure, deed in lieu of foreclosure or otherwise. Such right and license is granted free of charge, without requirement that any monetary payment whatsoever be made to Grantor. SECTION 13. TRANSFERS AND OTHER LIENS. Grantor shall not: ------------------------- (a) sell, assign (by operation of law or otherwise) or otherwise dispose of any of the Collateral, except as permitted by the Credit Agreement; provided that in the event Grantor makes an Asset Sale or sale and lease-back - -------- transaction permitted by the Credit Agreement and the assets subject to such Asset Sale or sale and lease-back transaction constitute Collateral, Secured Party shall release the Collateral that is the subject of such Asset Sale to Grantor free and clear of any Lien and security interest under this Agreement or any other Collateral Document concurrently with the consummation of such Asset Sale or sale and lease-back transaction; provided, further that, as a condition -------- ------- precedent to such release, Secured Party shall have received evidence satisfactory to it that arrangements satisfactory to it have been made for delivery to Secured Party of that amount of Net Asset Sale Proceeds required to be delivered to Secured Party under the Credit Agreement; or 10 (b) except for the security interest created by this Agreement, create or suffer to exist any Lien upon or with respect to any of the Collateral to secure the indebtedness or other obligations of any Person, except as otherwise permitted under subsections 7.2A(iv) and (v) of the Credit Agreement (with regard to the Liens permitted under subsections 7.2A(iv) and (v) of the Credit Agreement, only to the extent such Liens relate to the specific property subject to such Liens). If Grantor proposes to obtain financing permitted under Section 7.1(iii) of the Credit Agreement with respect to any asset acquired after the Closing Date ("PERMITTED CAPEX FINANCING"), Secured Party will either (a) with respect to such asset, subordinate the Lien and security interest created hereunder to the Lien securing such Permitted CapEx Financing by a subordination agreement reasonably acceptable to Secured Party and the provider thereof or (b) if Grantor has not been able, after reasonable effort, to get the provider of such Permitted CapEx Financing to agree to subordination, Secured Party will release the Lien and security interest granted hereunder in such asset. SECTION 14. SECURED PARTY APPOINTED ATTORNEY-IN-FACT. Grantor hereby ---------------------------------------- irrevocably appoints Secured Party as Grantor's attorney-in-fact, with full authority in the place and stead of Grantor and in the name of Grantor, Secured Party or otherwise, from time to time in Secured Party's discretion, upon the occurrence and during the continuation of an Event of Default or Potential Event of Default, to take any action and to execute any instrument that Secured Party may deem necessary or advisable to accomplish the purposes of this Agreement, including: (a) to obtain and adjust insurance required to be maintained by Grantor or paid to Secured Party pursuant to Section 8; (b) to ask for, demand, collect, sue for, recover, compound, receive and give acquittance and receipts for moneys due and to become due under or in respect of any of the Collateral; (c) to receive, endorse and collect any drafts or other instruments, documents and chattel paper in connection with clauses (a) and (b) above; (d) to file any claims or take any action or institute any proceedings that Secured Party may deem necessary or desirable for the collection of any of the Collateral or otherwise to enforce the rights of Secured Party with respect to any of the Collateral; (e) to pay or discharge taxes or Liens (other than Liens permitted under this Agreement or the Credit Agreement) levied or placed upon or threatened against the Collateral, the legality or validity thereof and the amounts necessary to discharge the same to be determined by Secured Party in its sole discretion, any such payments made by Secured Party to become 11 obligations of Grantor to Secured Party, due and payable immediately without demand; (f) to sign and endorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications and notices in connection with Accounts and other documents relating to the Collateral; and (g) upon the occurrence and during the continuation of an Event of Default, generally to sell, transfer, pledge, make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though Secured Party were the absolute owner thereof for all purposes, and to do, at Secured Party's option and Grantor's expense, at any time or from time to time, all acts and things that Secured Party deems necessary to protect, preserve or realize upon the Collateral and Secured Party's security interest therein in order to effect the intent of this Agreement, all as fully and effectively as Grantor might do. SECTION 15. SECURED PARTY MAY PERFORM. If Grantor fails to perform ------------------------- any agreement contained herein within the period provided herein, upon reasonable notice, Secured Party may itself perform, or cause performance of, such agreement, and the expenses of Secured Party incurred in connection therewith shall be payable by Grantor under Section 19. SECTION 16. STANDARD OF CARE. The powers conferred on Secured Party ---------------- hereunder are solely to protect its interest in the Collateral and shall not impose any duty upon it to exercise any such powers. Except for the exercise of reasonable care in the custody of any Collateral in its possession and the accounting for moneys actually received by it hereunder, Secured Party shall have no duty as to any Collateral or as to the taking of any necessary steps to preserve rights against prior parties or any other rights pertaining to any Collateral. Secured Party shall be deemed to have exercised reasonable care in the custody and preservation of Collateral in its possession if such Collateral is accorded treatment substantially equal to that which Secured Party accords its own property. SECTION 17. REMEDIES. If any Event of Default shall have occurred and -------- be continuing, Secured Party may exercise in respect of the Collateral, in addition to all other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party on default under the Uniform Commercial Code as in effect in any relevant jurisdiction (the "CODE") (whether or not the Code applies to the affected Collateral), and also may (a) require Grantor to, and Grantor hereby agrees that it will at its expense and upon request of Secured Party forthwith, assemble all or part of the Collateral as directed by Secured Party and make it available to Secured Party at a place to be designated by Secured Party that is reasonably convenient to both parties, (b) enter onto the 12 property where any Collateral is located and take possession thereof with or without judicial process, (c) prior to the disposition of the Collateral, store, process, repair or recondition the Collateral or otherwise prepare the Collateral for disposition in any manner to the extent Secured Party deems appropriate, (d) take possession of Grantor's premises or place custodians in exclusive control thereof, remain on such premises and use the same and any of Grantor's equipment for the purpose of completing any work in process, taking any actions described in the preceding clause (c) and collecting any Secured Obligation, and (e) without notice except as specified below, sell the Collateral or any part thereof in one or more parcels at public or private sale, at any of Secured Party's offices or elsewhere, for cash, on credit or for future delivery, at such time or times and at such price or prices and upon such other terms as Secured Party may deem commercially reasonable. Secured Party or any Lender or Interest Rate Exchanger may be the purchaser of any or all of the Collateral at any such public sale and, to the extent permitted by law, private sale, and Secured Party, as agent for and representative of Lenders and Interest Rate Exchangers (but not any Lender or Lenders or Interest Rate Exchanger or Interest Rate Exchangers in its or their respective individual capacities unless Requisite Obligees (as defined in Section 21(a)) shall otherwise agree in writing), shall be entitled, for the purpose of bidding and making settlement or payment of the purchase price for all or any portion of the Collateral sold at any such public sale, to use and apply any of the Secured Obligations as a credit on account of the purchase price for any Collateral payable by Secured Party at such sale. Each purchaser at any such sale shall hold the property sold absolutely free from any claim or right on the part of Grantor, and Grantor hereby waives (to the extent permitted by applicable law) all rights of redemption, stay and/or appraisal which it now has or may at any time in the future have under any rule of law or statute now existing or hereafter enacted. Grantor agrees that, to the extent notice of sale shall be required by law, at least ten days' notice to Grantor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. Secured Party shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. Secured Party may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. Grantor hereby waives any claims against Secured Party arising by reason of the fact that the price at which any Collateral may have been sold at such a private sale was less than the price which might have been obtained at a public sale, even if Secured Party accepts the first offer received and does not offer such Collateral to more than one offeree. If the proceeds of any sale or other disposition of the Collateral are insufficient to pay all the Secured Obligations, Grantor shall be liable for the deficiency and the fees of any attorneys employed by Secured Party to collect such deficiency. 13 SECTION 18. APPLICATION OF PROCEEDS. Except as expressly provided ----------------------- elsewhere in this Agreement, all proceeds received by Secured Party in respect of any sale of, collection from, or other realization upon all or any part of the Collateral shall be applied as provided in subsection 2.4D of the Credit Agreement. SECTION 19. INDEMNITY AND EXPENSES. ---------------------- (a) Grantor agrees to indemnify Secured Party, Syndication Agent, each Lender and each Interest Rate Exchanger from and against any and all claims, losses and liabilities in any way relating to, growing out of or resulting from this Agreement and the transactions contemplated hereby (including enforcement of this Agreement), except to the extent such claims, losses or liabilities result solely from Secured Party's, Syndication Agent's or such Lender's or Interest Rate Exchanger's gross negligence or willful misconduct as finally determined by a court of competent jurisdiction. (b) Grantor shall pay to Secured Party upon demand the amount of any and all costs and expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, that Secured Party may incur in connection with (i) the administration of this Agreement, (ii) the custody, preservation, use or operation of, or the sale of, collection from, or other realization upon, any of the Collateral, (iii) the exercise or enforcement of any of the rights of Secured Party hereunder, or (iv) the failure by Grantor to perform or observe any of the provisions hereof. SECTION 20. CONTINUING SECURITY INTEREST; TRANSFER OF LOANS. This ----------------------------------------------- Agreement shall create a continuing security interest in the Collateral and shall (a) remain in full force and effect until the payment in full of the Secured Obligations, the cancellation or termination of the Commitments and the cancellation or expiration of all outstanding Letters of Credit, (b) be binding upon Grantor, its successors and assigns, and (c) inure, together with the rights and remedies of Secured Party hereunder, to the benefit of Secured Party and its successors, transferees and assigns. Without limiting the generality of the foregoing clause (c), but subject to the provisions of subsection 10.1 of the Credit Agreement, any Lender may assign or otherwise transfer any Loans held by it to any other Person, and such other Person shall thereupon become vested with all the benefits in respect thereof granted to Lenders herein or otherwise. Upon the payment in full of all Secured Obligations, the cancellation or termination of the Commitments and the cancellation or expiration of all outstanding Letters of Credit, the security interest granted hereby shall terminate and all rights to the Collateral shall revert to Grantor. Upon any such termination Secured Party will, at Grantor's expense, execute and deliver to Grantor such documents as Grantor shall reasonably request to evidence such termination. 14 SECTION 21. SECURED PARTY AS ADMINISTRATIVE AGENT. ------------------------------------- (a) Secured Party has been appointed to act as Secured Party hereunder by Lenders and, by their acceptance of the benefits hereof, Interest Rate Exchangers. Secured Party shall be obligated, and shall have the right hereunder, to make demands, to give notices, to exercise or refrain from exercising any rights, and to take or refrain from taking any action (including the release or substitution of Collateral), solely in accordance with this Agreement and the Credit Agreement; provided that Secured Party shall exercise, -------- or refrain from exercising, any remedies provided for in Section 17 in accordance with the instructions of (i) Requisite Lenders or (ii) after payment in full of all Obligations under the Credit Agreement and the other Loan Documents, the holders of a majority of the aggregate notional amount (or, with respect to any Lender Interest Rate Agreement that has been terminated in accordance with its terms, the amount then due and payable (exclusive of expenses and similar payments but including any early termination payments then due) under such Lender Interest Rate Agreement) under all Lender Interest Rate Agreements (Requisite Lenders or, if applicable, such holders being referred to herein as "REQUISITE OBLIGEES"). In furtherance of the foregoing provisions of this Section 21(a), each Interest Rate Exchanger, by its acceptance of the benefits hereof, agrees that it shall have no right individually to realize upon any of the Collateral hereunder, it being understood and agreed by such Interest Rate Exchanger that all rights and remedies hereunder may be exercised solely by Secured Party for the benefit of Lenders and Interest Rate Exchangers in accordance with the terms of this Section 21(a). (b) Secured Party shall at all times be the same Person that is Administrative Agent under the Credit Agreement. Written notice of resignation by Administrative Agent pursuant to subsection 9.5 of the Credit Agreement shall also constitute notice of resignation as Secured Party under this Agreement; removal of Administrative Agent pursuant to subsection 9.5 of the Credit Agreement shall also constitute removal as Secured Party under this Agreement; and appointment of a successor Administrative Agent pursuant to subsection 9.5 of the Credit Agreement shall also constitute appointment of a successor Secured Party under this Agreement. Upon the acceptance of any appointment as Administrative Agent under subsection 9.5 of the Credit Agreement by a successor Administrative Agent, that successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring or removed Secured Party under this Agreement, and the retiring or removed Secured Party under this Agreement shall promptly (i) transfer to such successor Secured Party all sums, securities and other items of Collateral held hereunder, together with all records and other documents necessary or appropriate in connection with the performance of the duties of the successor Secured Party under this Agreement, and (ii) execute and deliver to such successor Secured Party such amendments to financing statements, and take such other actions, 15 as may be necessary or appropriate in connection with the assignment to such successor Secured Party of the security interests created hereunder, whereupon such retiring or removed Secured Party shall be discharged from its duties and obligations under this Agreement. After any retiring or removed Administrative Agent's resignation or removal hereunder as Secured Party, the provisions of this Agreement shall inure to its benefit as to any actions taken or omitted to be taken by it under this Agreement while it was Secured Party hereunder. SECTION 22. AMENDMENTS; ETC. No amendment, modification, termination --------------- or waiver of any provision of this Agreement, and no consent to any departure by Grantor therefrom, shall in any event be effective unless the same shall be in writing and signed by Secured Party and, in the case of any such amendment or modification, by Grantor. Any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which it was given. SECTION 23. NOTICES. Any notice or other communication herein ------- required or permitted to be given shall be in writing and may be personally served, telexed or sent by telefacsimile or United States mail or courier service and shall be deemed to have been given when delivered in person or by courier service, upon receipt of telefacsimile or telex, or three Business Days after depositing it in the United States mail with postage prepaid and properly addressed. For the purposes hereof, the address of each party hereto shall be as set forth under such party's name on the signature pages hereof or, as to either party, such other address as shall be designated by such party in a written notice delivered to the other party hereto. SECTION 24. FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE. No ----------------------------------------------------- failure or delay on the part of Secured Party in the exercise of any power, right or privilege hereunder shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude any other or further exercise thereof or of any other power, right or privilege. All rights and remedies existing under this Agreement are cumulative to, and not exclusive of, any rights or remedies otherwise available. SECTION 25. SEVERABILITY. In case any provision in or obligation ------------ under this Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. SECTION 26. HEADINGS. Section and subsection headings in this -------- Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose or be given any substantive effect. 16 SECTION 27. GOVERNING LAW; TERMS; RULES OF CONSTRUCTION. THIS ------------------------------------------- AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES, EXCEPT TO THE EXTENT THAT THE CODE PROVIDES THAT THE PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK. Unless otherwise defined herein or in the Credit Agreement, terms used in Articles 8 and 9 of the Uniform Commercial Code in the State of New York are used herein as therein defined. The rules of construction set forth in subsection 1.3 of the Credit Agreement shall be applicable to this Agreement mutatis mutandis. SECTION 28. CONSENT TO JURISDICTION AND SERVICE OF PROCESS. ALL ---------------------------------------------- JUDICIAL PROCEEDINGS BROUGHT AGAINST GRANTOR ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR ANY OBLIGATIONS HEREUNDER, MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK. BY EXECUTING AND DELIVERING THIS AGREEMENT, GRANTOR, FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, IRREVOCABLY (I) ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE JURISDICTION AND VENUE OF SUCH COURTS; (II) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS; (III) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO GRANTOR AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH SECTION 23; (IV) AGREES THAT SERVICE AS PROVIDED IN CLAUSE (III) ABOVE IS SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER GRANTOR IN ANY SUCH PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT; (V) AGREES THAT SECURED PARTY RETAINS THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST GRANTOR IN THE COURTS OF ANY OTHER JURISDICTION; AND (VI) AGREES THAT THE PROVISIONS OF THIS SECTION 28 RELATING TO JURISDICTION AND VENUE SHALL BE BINDING AND ENFORCEABLE TO THE FULLEST EXTENT PERMISSIBLE UNDER NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1402 OR OTHERWISE. SECTION 29. WAIVER OF JURY TRIAL. GRANTOR AND SECURED PARTY HEREBY -------------------- AGREE TO WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT. The scope of this waiver is intended to be 17 all-encompassing of any and all disputes that may be filed in any court and that relate to the subject matter of this transaction, including contract claims, tort claims, breach of duty claims, and all other common law and statutory claims. Grantor and Secured Party each acknowledge that this waiver is a material inducement for Grantor and Secured Party to enter into a business relationship, that Grantor and Secured Party have already relied on this waiver in entering into this Agreement and that each will continue to rely on this waiver in their related future dealings. Grantor and Secured Party further warrant and represent that each has reviewed this waiver with its legal counsel, and that each knowingly and voluntarily waives its jury trial rights following consultation with legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY REFERRING TO THIS SECTION 29 AND EXECUTED BY EACH OF THE PARTIES HERETO), AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT. In the event of litigation, this Agreement may be filed as a written consent to a trial by the court. SECTION 30. COUNTERPARTS. This Agreement may be executed in one or ------------ more counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. [Remainder of page intentionally left blank] 18 IN WITNESS WHEREOF, Grantor and Secured Party have caused this Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above. [NAME OF GRANTOR], as Grantor By: ____________________ Title: Notice Address: _____________________ _____________________ _____________________ FIRST UNION NATIONAL BANK, as Secured Party By: ____________________ Title: Notice Address: _____________________ _____________________ _____________________ S-1 SCHEDULE I TO SECURITY AGREEMENT Chief Place of Business, Chief Executive Office and Location of Records: Locations of Equipment: Locations of Inventory: Trade Names: SCHEDULE II TO SECURITY AGREEMENT A. Assigned Agreements B. Deposit Accounts EX-10.27 37 FORM OF SUBSIDIARY PLEDGE AGREEMENT EXHIBIT 10.27 SUBSIDIARY PLEDGE AGREEMENT This SUBSIDIARY PLEDGE AGREEMENT (this "AGREEMENT") is dated as of October 23, 1997 and entered into by and between [INSERT NAME OF GRANTOR IN CAPS], a _____________ corporation ("PLEDGOR"), and FIRST UNION NATIONAL BANK, as administrative agent for and representative of (in such capacity herein called "SECURED PARTY") the financial institutions ("LENDERS") party to the Credit Agreement referred to below and any Interest Rate Exchangers (as hereinafter defined). PRELIMINARY STATEMENTS A. Pledgor is the legal and beneficial owner of (i) the shares of stock (the "PLEDGED SHARES") described in Part A of Schedule I annexed hereto ---------- and issued by the corporations named therein and (ii) the indebtedness (the "PLEDGED DEBT") described in Part B of said Schedule I and issued by the ---------- obligors named therein. B. Secured Party, Syndication Agent and Lenders have entered into a Credit Agreement dated as of October 23, 1997 (said Credit Agreement, as it may hereafter be amended, supplemented or otherwise modified from time to time, being the "CREDIT AGREEMENT", the terms defined therein and not otherwise defined herein being used herein as therein defined) with The Pantry, Inc., a Delaware corporation ("COMPANY"), pursuant to which Lenders have made certain commitments, subject to the terms and conditions set forth in the Credit Agreement, to extend certain credit facilities to Company. C. Company may from time to time enter, or may from time to time have entered, into one or more Interest Rate Agreements (collectively, the "LENDER INTEREST RATE AGREEMENTS") with one or more Lenders (in such capacity, collectively, "INTEREST RATE EXCHANGERS"). D. Pledgor has executed and delivered that certain Subsidiary Guaranty dated as of October 23, 1997 (said Subsidiary Guaranty, as it may hereafter be amended, supplemented or otherwise modified from time to time, being the "GUARANTY") in favor of Secured Party for the benefit of Lenders and any Interest Rate Exchangers, pursuant to which Pledgor has guarantied the prompt payment and performance when due of all obligations of Company under the Credit Agreement and all obligations of Company under the Lender Interest Rate Agreements, including the obligation of Company to make payments thereunder in the event of early termination thereof. 1 E. It is a condition precedent to the initial extensions of credit by Lenders under the Credit Agreement that Pledgor shall have granted the security interests and undertaken the obligations contemplated by this Agreement. NOW, THEREFORE, in consideration of the premises and in order to induce Lenders to make Loans and other extensions of credit under the Credit Agreement and to induce Interest Rate Exchangers to enter into Lender Interest Rate Agreements, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Pledgor hereby agrees with Secured Party as follows: SECTION 1. PLEDGE OF SECURITY. Pledgor hereby pledges and assigns to ------------------ Secured Party, and hereby grants to Secured Party a security interest in, all of Pledgor's right, title and interest in and to the following (the "PLEDGED COLLATERAL"): (a) the Pledged Shares and the certificates representing the Pledged Shares and any interest of Pledgor in the entries on the books of any financial intermediary pertaining to the Pledged Shares, and all dividends, cash, warrants, rights, instruments and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Pledged Shares; (b) the Pledged Debt and the instruments evidencing the Pledged Debt, and all interest, cash, instruments and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Pledged Debt; (c) all additional shares of, and all securities convertible into and warrants, options and other rights to purchase or otherwise acquire, stock of any issuer of the Pledged Shares from time to time acquired by Pledgor in any manner (which shares shall be deemed to be part of the Pledged Shares), the certificates or other instruments representing such additional shares, securities, warrants, options or other rights and any interest of Pledgor in the entries on the books of any financial intermediary pertaining to such additional shares, and all dividends, cash, warrants, rights, instruments and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such additional shares, securities, warrants, options or other rights; (d) all additional indebtedness from time to time owed to Pledgor by any obligor on the Pledged Debt and the instruments evidencing such indebtedness, and all interest, cash, instruments and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such indebtedness; (e) all shares of, and all securities convertible into and warrants, options and other rights to purchase or otherwise 2 acquire, stock of any Person that, after the date of this Agreement, becomes, as a result of any occurrence, a direct Restricted Subsidiary of Pledgor (which shares shall be deemed to be part of the Pledged Shares), the certificates or other instruments representing such shares, securities, warrants, options or other rights and any interest of Pledgor in the entries on the books of any financial intermediary pertaining to such shares, and all dividends, cash, warrants, rights, instru ments and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such shares, securities, warrants, options or other rights; (f) all indebtedness from time to time owed to Pledgor by any Person that, after the date of this Agreement, becomes, as a result of any occurrence, a direct or indirect Restricted Subsidiary of Pledgor, and all interest, cash, instruments and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such indebtedness; and (g) to the extent not covered by clauses (a) through (f) above, all proceeds of any or all of the foregoing Pledged Collateral. For purposes of this Agreement, the term "PROCEEDS" includes whatever is receivable or received when Pledged Collateral or proceeds are sold, exchanged, collected or otherwise disposed of, whether such disposition is voluntary or involuntary, and includes proceeds of any indemnity or guaranty payable to Pledgor or Secured Party from time to time with respect to any of the Pledged Collateral. SECTION 2. SECURITY FOR OBLIGATIONS. This Agreement secures, and the ------------------------ Pledged Collateral is collateral security for, the prompt payment or performance in full when due, whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise (including the payment of amounts that would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. (S)362(a)), of all obligations and liabilities of every nature of Pledgor now or hereafter existing under or arising out of or in connection with the Guaranty and all extensions or renewals thereof, whether for principal, interest (including interest that, but for the filing of a petition in bankruptcy with respect to Company, would accrue on such obligations, whether or not a claim is allowed against Company for such interest in the related bankruptcy proceeding), reimbursement of amounts drawn under Letters of Credit, payments for early termination of Lender Interest Rate Agreements, fees, expenses, indemnities or otherwise, whether voluntary or involuntary, direct or indirect, absolute or contingent, liquidated or unliquidated, whether or not jointly owed with others, and whether or not from time to time decreased or extinguished and later increased, created or incurred, and all or any portion of such obligations or liabilities that are paid, to the extent all or any part of such payment is avoided or recovered directly or 3 indirectly from Secured Party, Syndication Agent or any Lender or Interest Rate Exchanger as a preference, fraudulent transfer or otherwise, and all obligations of every nature of Pledgor now or hereafter existing under this Agreement (all such obligations of Pledgor being the "SECURED OBLIGATIONS"). SECTION 3. DELIVERY OF PLEDGED COLLATERAL. All certificates or ------------------------------ instruments representing or evidencing the Pledged Collateral shall be delivered to and held by or on behalf of Secured Party pursuant hereto and shall be in suitable form for transfer by delivery or, as applicable, shall be accompanied by Pledgor's endorsement, where necessary, or duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to Secured Party. Upon the occurrence and during the continuation of an Event of Default (as defined in the Credit Agreement), Secured Party shall have the right, without notice to Pledgor, to transfer to or to register in the name of Secured Party or any of its nominees any or all of the Pledged Collateral, subject only to the revocable rights specified in Section 7(a). In addition, Secured Party shall have the right at any time to exchange certificates or instruments representing or evidencing Pledged Collateral for certificates or instruments of smaller or larger denominations. SECTION 4. REPRESENTATIONS AND WARRANTIES. Pledgor represents and ------------------------------ warrants as follows: (a) Due Authorization, etc. of Pledged Collateral. All of the Pledged --------------------------------------------- Shares have been duly authorized and validly issued and are fully paid and non- assessable. All of the Pledged Debt has been duly authorized, authenticated or issued, and delivered and is the legal, valid and binding obligation of the issuers thereof and is not in default. (b) Description of Pledged Collateral. The Pledged Shares constitute --------------------------------- all of the issued and outstanding shares of stock of each issuer thereof, and there are no outstanding warrants, options or other rights to purchase, or other agree ments outstanding with respect to, or property that is now or hereafter convertible into, or that requires the issuance or sale of, any Pledged Shares. The Pledged Debt constitutes all of the issued and outstanding intercompany indebtedness evidenced by a promissory note of the respective issuers thereof owing to Pledgor. (c) Ownership of Pledged Collateral. Pledgor is the legal, record and ------------------------------- beneficial owner of the Pledged Collateral free and clear of any Lien except for the security interest created by this Agreement or any other Collateral Document or Permitted Encumbrances. 4 SECTION 5. TRANSFERS AND OTHER LIENS; ADDITIONAL PLEDGED COLLATERAL; --------------------------------------------------------- ETC. Pledgor shall: - ---- (a) not, except as expressly permitted by the Credit Agreement, (i) sell, assign (by operation of law or otherwise) or otherwise dispose of, or grant any option with respect to, any of the Pledged Collateral, (ii) create or suffer to exist any Lien upon or with respect to any of the Pledged Collateral, except for the security interest under this Agreement, or (iii) permit any issuer of Pledged Shares to merge or consolidate unless all the outstanding capital stock of the surviving or resulting corporation is, upon such merger or consolidation, pledged hereunder and no cash, securities or other property is distributed in respect of the outstanding shares of any other constituent corporation; provided that in the event Pledgor makes an Asset Sale permitted by -------- the Credit Agreement and the assets subject to such Asset Sale are Pledged Collateral, Secured Party shall release the Pledged Collateral that is the subject of such Asset Sale to Pledgor free and clear of any Lien and security interest under this Agreement or any other Collateral Document concurrently with the consummation of such Asset Sale; provided, further that, as a condition -------- ------- precedent to such release, Secured Party shall have received evidence satisfactory to it that arrangements satisfactory to it have been made for delivery to Secured Party of the Net Asset Sale Proceeds of such Asset Sale to the extent required under the Credit Agreement; (b) (i) cause each issuer of Pledged Shares not to issue any stock or other securities in addition to or in substitution for the Pledged Shares issued by such issuer, except to Pledgor, (ii) pledge hereunder, immediately upon its acquisition (directly or indirectly) thereof, any and all additional shares of stock or other securities of each issuer of Pledged Shares, and (iii) pledge hereunder, immediately upon its acquisition (directly or indirectly) thereof, any and all shares of stock of any Person that, after the date of this Agreement, becomes, as a result of any occurrence, a direct Restricted Subsidiary of Pledgor; (c) (i) pledge hereunder, immediately upon their issuance, any and all instruments or other evidences of additional indebtedness from time to time owed to Pledgor by any obligor on the Pledged Debt, and (ii) pledge hereunder, immediately upon their issuance, any and all instruments or other evidences of indebtedness from time to time owed to Pledgor by any Person that after the date of this Agreement becomes, as a result of any occurrence, a direct or indirect Restricted Subsidiary of Pledgor; (d) promptly notify Secured Party of any event of which Pledgor becomes aware causing loss of the Pledged Collateral; 5 (e) promptly deliver to Secured Party all written notices received by it with respect to the Pledged Collateral; and (f) pay promptly when due all taxes, assessments and governmental charges or levies imposed upon, and all claims against, the Pledged Collateral, except to the extent the validity thereof is being contested in good faith; provided that Pledgor shall in any event pay such taxes, assessments, charges, - -------- levies or claims not later than five days prior to the date of any proposed sale under any judgement, writ or warrant of attachment entered or filed against Pledgor or any of the Pledged Collateral as a result of the failure to make such payment. SECTION 6. FURTHER ASSURANCES; PLEDGE AMENDMENTS. ------------------------------------- (a) Pledgor agrees that from time to time, at the expense of Pledgor, Pledgor will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable, or that Secured Party may request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable Secured Party to exercise and enforce its rights and remedies hereunder with respect to any Pledged Collateral. Without limiting the generality of the foregoing, Pledgor will: (i) execute and file such financing or continuation statements, or amendments thereto, and such other instruments or notices, as may be necessary or desirable, or as Secured Party may request, in order to perfect and preserve the security interests granted or purported to be granted hereby and (ii) at Secured Party's request, appear in and defend any action or proceeding that may affect Pledgor's title to or Secured Party's security interest in all or any part of the Pledged Collateral. (b) Pledgor further agrees that it will, upon obtaining any additional shares of stock or other securities required to be pledged hereunder as provided in Section 5(b) or (c), promptly (and in any event within five Business Days) deliver to Secured Party a Pledge Amendment, duly executed by Pledgor, in substantially the form of Schedule II annexed hereto (a "PLEDGE AMENDMENT"), in ----------- respect of the additional Pledged Shares or Pledged Debt to be pledged pursuant to this Agreement. Pledgor hereby authorizes Secured Party to attach each Pledge Amendment to this Agreement and agrees that all Pledged Shares or Pledged Debt listed on any Pledge Amendment delivered to Secured Party shall for all purposes hereunder be considered Pledged Collateral; provided that the failure -------- of Pledgor to execute a Pledge Amendment with respect to any additional Pledged Shares or Pledged Debt pledged pursuant to this Agreement shall not impair the security interest of Secured Party therein or otherwise adversely affect the rights and remedies of Secured Party hereunder with respect thereto. 6 SECTION 7. VOTING RIGHTS; DIVIDENDS; ETC. ------------------------------ (a) So long as no Event of Default shall have occurred and be continuing: (i) Pledgor shall be entitled to exercise any and all voting and other consensual rights pertaining to the Pledged Collateral or any part thereof for any purpose not inconsistent with the terms of this Agreement or the Credit Agreement; provided, however, that Pledgor shall not exercise or -------- ------- refrain from exercising any such right if Secured Party shall have notified Pledgor that, in Secured Party's judgment, such action would have a material adverse effect on the value of the Pledged Collateral or any part thereof; and provided, further, that Pledgor shall give Secured Party at least five -------- ------- Business Days' prior written notice of the manner in which it intends to exercise, or the reasons for refraining from exercising, any such right. It is understood, however, that neither (A) the voting by Pledgor of any Pledged Shares for or Pledgor's consent to the election of directors at a regularly scheduled annual or other meeting of stockholders or with respect to incidental matters at any such meeting nor (B) Pledgor's consent to or approval of any action otherwise permitted under this Agreement and the Credit Agreement shall be deemed inconsistent with the terms of this Agreement or the Credit Agreement within the meaning of this Section 7(a)(i), and no notice of any such voting or consent need be given to Secured Party; (ii) Pledgor shall be entitled to receive and retain, and to utilize free and clear of the lien of this Agreement, any and all dividends and interest paid in respect of the Pledged Collateral; provided, however, that -------- ------- any and all (A) dividends and interest paid or payable other than in cash in respect of, and instruments and other property received, receivable or otherwise distributed in respect of, or in exchange for, any Pledged Collateral, (B) dividends and other distributions paid or payable in cash in respect of any Pledged Collateral in connection with a partial or total liquidation or dissolution or in connection with a reduction of capital, capital surplus or paid-in-surplus, and (C) cash paid, payable or otherwise distributed in respect of principal or in redemption of or in exchange for any Pledged Collateral, shall be, and shall forthwith be delivered to Secured Party to hold as, Pledged Collateral and shall, if received by Pledgor, be received in trust for the benefit of Secured 7 Party, be segregated from the other property or funds of Pledgor and be forthwith delivered to Secured Party as Pledged Collateral in the same form as so received (with all necessary indorsements); and (iii) Secured Party shall promptly execute and deliver (or cause to be executed and delivered) to Pledgor all such proxies, dividend payment orders and other instruments as Pledgor may from time to time reasonably request for the purpose of enabling Pledgor to exercise the voting and other consensual rights which it is entitled to exercise pursuant to paragraph (i) above and to receive the dividends, principal or interest payments which it is authorized to receive and retain pursuant to paragraph (ii) above. (b) Upon the occurrence and during the continuation of an Event of Default: (i) upon written notice from Secured Party to Pledgor, all rights of Pledgor to exercise the voting and other consensual rights which it would otherwise be entitled to exercise pursuant to Section 7(a)(i) shall cease, and all such rights shall thereupon become vested in Secured Party who shall thereupon have the sole right to exercise such voting and other consensual rights; (ii) all rights of Pledgor to receive the dividends and interest payments which it would otherwise be authorized to receive and retain pursuant to Section 7(a)(ii) shall cease, and all such rights shall thereupon become vested in Secured Party who shall thereupon have the sole right to receive and hold as Pledged Collateral such dividends and interest payments; and (iii) all dividends, principal and interest pay ments which are received by Pledgor contrary to the provi sions of paragraph (ii) of this Section 7(b) shall be received in trust for the benefit of Secured Party, shall be segregated from other funds of Pledgor and shall forthwith be paid over to Secured Party as Pledged Collateral in the same form as so received (with any necessary indorsements). (c) In order to permit Secured Party to exercise the voting and other consensual rights which it may be entitled to exercise pursuant to Section 7(b)(i) and to receive all dividends and other distributions which it may be entitled to receive under Section 7(a)(ii) or Section 7(b)(ii), (i) Pledgor shall promptly execute and deliver (or cause to be executed and delivered) to Secured Party all such proxies, dividend payment orders and other instruments as Secured Party may from time to time reasonably request and (ii) without limiting the effect of the immediately preceding clause (i), Pledgor hereby grants to Secured Party an irrevocable proxy to vote the Pledged Shares and to exercise all other rights, powers, privileges and remedies to which a holder 8 of the Pledged Shares would be entitled (including giving or withholding written consents of shareholders, calling special meetings of shareholders and voting at such meetings), which proxy shall be effective, automatically and without the necessity of any action (including any transfer of any Pledged Shares on the record books of the issuer thereof) by any other Person (including the issuer of the Pledged Shares or any officer or agent thereof), upon the occurrence of an Event of Default and which proxy shall only terminate upon the payment in full of the Secured Obligations. SECTION 8. SECURED PARTY APPOINTED ATTORNEY-IN-FACT. Pledgor hereby ---------------------------------------- irrevocably appoints Secured Party as Pledgor's attorney-in-fact, with full authority in the place and stead of Pledgor and in the name of Pledgor, Secured Party or otherwise, from time to time in Secured Party's discretion to take any action and to execute any instrument that Secured Party may deem necessary or advisable to accomplish the purposes of this Agreement, including: (a) to file one or more financing or continuation statements, or amendments thereto, relative to all or any part of the Pledged Collateral without the signature of Pledgor; and (b) upon the occurrence and during the continuation of an Event of Default: (i) to ask, demand, collect, sue for, recover, compound, receive and give acquittance and receipts for moneys due and to become due under or in respect of any of the Pledged Collateral; (ii) to receive, endorse and collect any instruments made payable to Pledgor representing any divi dend, principal or interest payment or other distribution in respect of the Pledged Collateral or any part thereof and to give full discharge for the same; and (iii) to file any claims or take any action or institute any proceedings that Secured Party may deem necessary or desirable for the collection of any of the Pledged Collateral or otherwise to enforce the rights of Secured Party with respect to any of the Pledged Collateral. SECTION 9. SECURED PARTY MAY PERFORM. If Pledgor fails to perform any ------------------------- agreement contained herein after the period in which such performance is required, and after reasonable notice, Secured Party may itself perform, or cause performance of, such agreement, and the expenses of Secured Party incurred in connection therewith shall be payable by Pledgor under Section 14(b). SECTION 10. STANDARD OF CARE. The powers conferred on Secured Party ---------------- hereunder are solely to protect its interest in the Pledged Collateral and shall not impose any duty upon it to 9 exercise any such powers. Except for the exercise of reasonable care in the custody of any Pledged Collateral in its possession and the accounting for moneys actually received by it hereunder, Secured Party shall have no duty as to any Pledged Collateral, it being understood that Secured Party shall have no responsibility for (a) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relating to any Pledged Collateral, whether or not Secured Party has or is deemed to have knowledge of such matters, (b) taking any necessary steps (other than steps taken in accordance with the standard of care set forth above to maintain possession of the Pledged Collateral) to preserve rights against any parties with respect to any Pledged Collateral, (c) taking any necessary steps to collect or realize upon the Secured Obligations or any guarantee therefor, or any part thereof, or any of the Pledged Collateral, or (d) initiating any action to protect the Pledged Collateral against the possibility of a decline in market value. Secured Party shall be deemed to have exercised reasonable care in the custody and preservation of Pledged Collateral in its possession if such Pledged Collateral is accorded treatment substantially equal to that which Secured Party accords its own property consisting of negotiable securities. SECTION 11. REMEDIES. -------- (a) If any Event of Default shall have occurred and be continuing, Secured Party may exercise in respect of the Pledged Collateral, in addition to all other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party on default under the Uniform Commercial Code as in effect in any relevant jurisdiction (the "CODE") (whether or not the Code applies to the affected Pledged Collateral), and Secured Party may also in its sole discretion, without notice except as specified below, sell the Pledged Collateral or any part thereof in one or more parcels at public or private sale, at any exchange or broker's board or at any of Secured Party's offices or elsewhere, for cash, on credit or for future delivery, at such time or times and at such price or prices and upon such other terms as Secured Party may deem commercially reasonable, irrespective of the impact of any such sales on the market price of the Pledged Collateral. Secured Party or any Lender or Interest Rate Exchanger may be the purchaser of any or all of the Pledged Collateral at any such public sale and, to the extent permitted by law, private sale, and Secured Party, as agent for and representative of Lenders and Interest Rate Exchangers (but not any Lender or Lenders or Interest Rate Exchanger or Interest Rate Exchangers in its or their respective individual capacities unless Requisite Obligees (as defined in Section 16(a)) shall otherwise agree in writing), shall be entitled, for the purpose of bidding and making settlement or payment of the purchase price for all or any portion of the Pledged Collateral sold at any such public sale, to use and apply any of the Secured Obligations as a credit on account of the purchase price for any Pledged Collateral payable by Secured Party at such sale. Each purchaser at any such sale 10 shall hold the property sold absolutely free from any claim or right on the part of Pledgor, and Pledgor hereby waives (to the extent permitted by applicable law) all rights of redemption, stay and/or appraisal which it now has or may at any time in the future have under any rule of law or statute now existing or hereafter enacted. Pledgor agrees that, to the extent notice of sale shall be required by law, at least ten days' notice to Pledgor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. Secured Party shall not be obligated to make any sale of Pledged Collateral regardless of notice of sale having been given. Secured Party may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. Pledgor hereby waives any claims against Secured Party arising by reason of the fact that the price at which any Pledged Collateral may have been sold at such a private sale was less than the price which might have been obtained at a public sale, even if Secured Party accepts the first offer received and does not offer such Pledged Collateral to more than one offeree. If the proceeds of any sale or other disposition of the Pledged Collateral are insufficient to pay all the Secured Obligations, Pledgor shall be liable for the deficiency and the fees of any attorneys employed by Secured Party to collect such deficiency. (b) Pledgor recognizes that, by reason of certain prohibitions contained in the Securities Act and applicable state securities laws, Secured Party may be compelled, with respect to any sale of all or any part of the Pledged Collateral conducted without prior registration or qualification of such Pledged Collateral under the Securities Act and/or such state securities laws, to limit purchasers to those who will agree, among other things, to acquire the Pledged Collateral for their own account, for investment and not with a view to the distribution or resale thereof. Pledgor acknowledges that any such private sales may be at prices and on terms less favorable than those obtainable through a public sale without such restrictions (including a public offering made pursuant to a registration statement under the Securities Act) and, notwithstanding such circumstances and the registration rights granted to Secured Party by Pledgor pursuant to Section 12, Pledgor agrees that the effect of the foregoing in respect of any such private sale shall not be deemed per se --- -- to cause such private sale to have not been made in a commercially reasonable manner and that Secured Party shall have no obligation to engage in public sales and no obligation to delay the sale of any Pledged Collateral for the period of time necessary to permit the issuer thereof to register it for a form of public sale requiring registration under the Securities Act or under applicable state securities laws, even if such issuer would, or should, agree to so register it. (c) If Secured Party determines to exercise its right to sell any or all of the Pledged Collateral, upon written request, Pledgor shall and shall cause each issuer of any Pledged 11 Shares to be sold hereunder from time to time to furnish to Secured Party all such information as Secured Party may request in order to determine the number of shares and other instruments included in the Pledged Collateral which may be sold by Secured Party in exempt transactions under the Securities Act and the rules and regulations of the Securities and Exchange Commission thereunder, as the same are from time to time in effect. SECTION 12. REGISTRATION RIGHTS. If Secured Party shall determine to ------------------- exercise its right to sell all or any of the Pledged Collateral pursuant to Section 11, Pledgor agrees that, upon request of Secured Party (which request may be made by Secured Party in its sole discretion), Pledgor will, at its own expense: (a) execute and deliver, and use its best efforts to cause each issuer of the Pledged Collateral contemplated to be sold and the directors and officers thereof to execute and deliver, all such instruments and documents, and do or cause to be done all such other acts and things, as may be necessary or, in the opinion of Secured Party, advisable to file a registration statement covering such Pledged Collateral under the provisions of the Securities Act and to use its best efforts to cause the registration statement relating thereto to become effective and to remain effective for such period as prospectuses are required by law to be furnished, and to make all amendments and supplements thereto and to the related prospectus which, in the opinion of Secured Party, are necessary or advisable, all in conformity with the requirements of the Securities Act and the rules and regulations of the Securities and Exchange Commission applicable thereto; (b) use its best efforts to qualify the Pledged Collateral under all applicable state securities or "Blue Sky" laws and to obtain all necessary governmental approvals for the sale of the Pledged Collateral, as requested by Secured Party; (c) cause each such issuer to make available to its security holders, as soon as practicable, an earnings statement which will satisfy the provisions of Section 11(a) of the Securities Act; (d) to use its best efforts to do or cause to be done all such other acts and things as may be necessary to make such sale of the Pledged Collateral or any part thereof valid and binding and in compliance with applicable law; and (e) bear all costs and expenses, including reasonable attorneys' fees, of carrying out its obligations under this Section 12. Pledgor further agrees that a breach of any of the covenants contained in this Section 12 will cause irreparable injury to Secured Party, that Secured Party has no adequate remedy at law in respect of such breach and, as a consequence, 12 that each and every covenant contained in this Section 12 shall be specifically enforceable against Pledgor, and Pledgor hereby waives and agrees not to assert any defenses against an action for specific performance of such covenants except for a defense that no default has occurred giving rise to the Secured Obligations becoming due and payable prior to their stated maturities. Nothing in this Section 12 shall in any way alter the rights of Secured Party under Section 11. SECTION 13. APPLICATION OF PROCEEDS. All proceeds received by Secured ----------------------- Party in respect of any sale of, collection from, or other realization upon all or any part of the Pledged Collateral shall be applied as provided in subsection 2.4D of the Credit Agreement. SECTION 14. INDEMNITY AND EXPENSES. ---------------------- (a) Pledgor agrees to indemnify Secured Party, Syndication Agent, each Lender and each Interest Rate Exchanger from and against any and all claims, losses and liabilities in any way relating to, growing out of or resulting from this Agreement and the transactions contemplated hereby (including enforcement of this Agreement), except to the extent such claims, losses or liabilities result solely from Secured Party's, Syndication Agent's or such Lender's or Interest Rate Exchanger's gross negligence or willful misconduct as finally determined by a court of competent jurisdiction. (b) Pledgor shall pay to Secured Party upon demand the amount of any and all costs and expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, that Secured Party may incur in connection with (i) the administration of this Agreement, (ii) the custody or preservation of, or the sale of, collection from, or other realization upon, any of the Pledged Collateral, (iii) the exercise or enforcement of any of the rights of Secured Party hereunder, or (iv) the failure by Pledgor to perform or observe any of the provisions hereof. (c) In the event of any public sale described in Section 12, Pledgor agrees to indemnify and hold harmless Secured Party, Syndication Agent, each Lender and each Interest Rate Exchanger and each of their respective directors, officers, employees and agents from and against any loss, fee, cost, expense, damage, liability or claim, joint or several, to which any such Persons may become subject or for which any of them may be liable, under the Securities Act or otherwise, insofar as such losses, fees, costs, expenses, damages, liabilities or claims (or any litigation commenced or threatened in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus, registration statement, prospectus or other such document published or filed in connection with such public sale, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a 13 material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse Secured Party and such other Persons for any legal or other expenses reasonably incurred by Secured Party and such other Persons in connection with any litigation, of any nature whatsoever, com menced or threatened in respect thereof (including any and all fees, costs and expenses whatsoever reasonably incurred by Secured Party and such other Persons and counsel for Secured Party and such other Persons in investigating, preparing for, defending against or providing evidence, producing documents or taking any other action in respect of, any such commenced or threatened litigation or any claims asserted). This indemnity shall be in addition to any liability which Pledgor may otherwise have and shall extend upon the same terms and conditions to each Person, if any, that controls Secured Party or such Persons within the meaning of the Securities Act. SECTION 15. CONTINUING SECURITY INTEREST; TRANSFER OF LOANS. This ----------------------------------------------- Agreement shall create a continuing security interest in the Pledged Collateral and shall (a) remain in full force and effect until the payment in full of all Secured Obligations, the cancellation or termination of the Commitments and the cancellation or expiration of all outstanding Letters of Credit, (b) be binding upon Pledgor, its successors and assigns, and (c) inure, together with the rights and remedies of Secured Party hereunder, to the benefit of Secured Party and its succes sors, transferees and assigns. Without limiting the generality of the foregoing clause (c), but subject to the provisions of subsection 10.1 of the Credit Agreement, any Lender may assign or otherwise transfer any Loans held by it to any other Person, and such other Person shall thereupon become vested with all the benefits in respect thereof granted to Lenders herein or other wise. Upon the payment in full of all Secured Obligations, the cancellation or termination of the Commitments and the cancellation or expiration of all outstanding Letters of Credit, the security interest granted hereby shall terminate and all rights to the Pledged Collateral shall revert to Pledgor. Upon any such termination Secured Party will, at Pledgor's expense, execute and deliver to Pledgor such documents as Pledgor shall reasonably request to evidence such termination and Pledgor shall be entitled to the return, upon its request and at its expense, against receipt and without recourse to Secured Party, of such of the Pledged Collateral as shall not have been sold or otherwise applied pursuant to the terms hereof. SECTION 16. SECURED PARTY AS ADMINISTRATIVE AGENT. ------------------------------------- (a) Secured Party has been appointed to act as Secured Party hereunder by Lenders and, by their acceptance of the benefits hereof, Interest Rate Exchangers. Secured Party shall be obligated, and shall have the right hereunder, to make demands, to give notices, to exercise or refrain from exercising any rights, and to take or refrain from taking any action (including the release or substitution of Pledged Collateral), solely in accordance with this Agreement and the Credit 14 Agreement; provided that Secured Party shall exercise, or refrain from -------- exercising, any remedies provided for in Section 11 in accordance with the instructions of (i) Requisite Lenders or (ii) after payment in full of all Obligations under the Credit Agreement and the other Loan Documents, the holders of a majority of the aggregate notional amount (or, with respect to any Lender Interest Rate Agreement that has been terminated in accordance with its terms, the amount then due and payable (exclusive of expenses and similar payments but including any early termination payments then due) under such Lender Interest Rate Agreement) under all Lender Interest Rate Agreements (Requisite Lenders or, if applicable, such holders being referred to herein as "REQUISITE OBLIGEES"). In furtherance of the foregoing provisions of this Section 16(a), each Interest Rate Exchanger, by its acceptance of the benefits hereof, agrees that it shall have no right individually to realize upon any of the Pledged Collateral hereunder, it being understood and agreed by such Interest Rate Exchanger that all rights and remedies hereunder may be exercised solely by Secured Party for the benefit of Lenders and Interest Rate Exchangers in accordance with the terms of this Section 16(a). (b) Secured Party shall at all times be the same Person that is Administrative Agent under the Credit Agreement. Written notice of resignation by Administrative Agent pursuant to subsection 9.5 of the Credit Agreement shall also constitute notice of resignation as Secured Party under this Agreement; removal of Administrative Agent pursuant to subsection 9.5 of the Credit Agreement shall also constitute removal as Secured Party under this Agreement; and appointment of a successor Administrative Agent pursuant to subsection 9.5 of the Credit Agreement shall also constitute appointment of a successor Secured Party under this Agreement. Upon the acceptance of any appointment as Administrative Agent under subsection 9.5 of the Credit Agreement by a successor Administrative Agent, that successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring or removed Secured Party under this Agreement, and the retiring or removed Secured Party under this Agreement shall promptly (i) transfer to such successor Secured Party all sums, securities and other items of Collateral held hereunder, together with all records and other documents necessary or appropriate in connection with the performance of the duties of the successor Secured Party under this Agreement, and (ii) execute and deliver to such successor Secured Party such amendments to financing statements, and take such other actions, as may be necessary or appropriate in connection with the assignment to such successor Secured Party of the security interests created hereunder, whereupon such retiring or removed Secured Party shall be discharged from its duties and obligations under this Agreement. After any retiring or removed Administrative Agent's resignation or removal hereunder as Secured Party, the provisions of this Agreement shall inure to its benefit as to any actions taken or omitted to be taken by it under this Agreement while it was Secured Party hereunder. 15 SECTION 17. AMENDMENTS; ETC. No amendment, modification, termination --------------- or waiver of any provision of this Agreement, and no consent to any departure by Pledgor therefrom, shall in any event be effective unless the same shall be in writing and signed by Secured Party and, in the case of any such amendment or modification, by Pledgor. Any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which it was given. SECTION 18. NOTICES. Any notice or other communication herein ------- required or permitted to be given shall be in writing and may be personally served, telexed or sent by telefacsimile or United States mail or courier service and shall be deemed to have been given when delivered in person or by courier service, upon receipt of telefacsimile or telex, or three Business Days after depositing it in the United States mail with postage prepaid and properly addressed. For the purposes hereof, the address of each party hereto shall be as set forth under such party's name on the signature pages hereof or, as to either party, such other address as shall be designated by such party in a written notice delivered to the other party hereto. SECTION 19. FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE. No ----------------------------------------------------- failure or delay on the part of Secured Party in the exercise of any power, right or privilege hereunder shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude any other or further exercise thereof or of any other power, right or privilege. All rights and remedies existing under this Agreement are cumulative to, and not exclusive of, any rights or remedies otherwise available. SECTION 20. SEVERABILITY. In case any provision in or obligation ------------ under this Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. SECTION 21. HEADINGS. Section and subsection headings in this -------- Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose or be given any substantive effect. SECTION 22. GOVERNING LAW; TERMS; RULES OF CONSTRUCTION. THIS ------------------------------------------- AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES, EXCEPT TO THE EXTENT THAT THE CODE PROVIDES THAT THE PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR PLEDGED COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN 16 THE STATE OF NEW YORK. Unless otherwise defined herein or in the Credit Agreement, terms used in Articles 8 and 9 of the Uniform Commercial Code in the State of New York are used herein as therein defined. The rules of construction set forth in subsection 1.3 of the Credit Agreement shall be applicable to this Agreement mutatis mutandis. SECTION 23. CONSENT TO JURISDICTION AND SERVICE OF PROCESS. ALL ---------------------------------------------- JUDICIAL PROCEEDINGS BROUGHT AGAINST PLEDGOR ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR ANY OBLIGATIONS HEREUNDER, MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK. BY EXECUTING AND DELIVERING THIS AGREEMENT, PLEDGOR, FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, IRREVOCABLY (I) ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE JURISDICTION AND VENUE OF SUCH COURTS; (II) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS; (III) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO PLEDGOR AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH SECTION 18; (IV) AGREES THAT SERVICE AS PROVIDED IN CLAUSE (III) ABOVE IS SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER PLEDGOR IN ANY SUCH PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT; (V) AGREES THAT SECURED PARTY RETAINS THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST PLEDGOR IN THE COURTS OF ANY OTHER JURISDICTION; AND (VI) AGREES THAT THE PROVISIONS OF THIS SECTION 23 RELATING TO JURISDICTION AND VENUE SHALL BE BINDING AND ENFORCEABLE TO THE FULLEST EXTENT PERMISSIBLE UNDER NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1402 OR OTHERWISE. SECTION 24. WAIVER OF JURY TRIAL. PLEDGOR AND SECURED PARTY HEREBY -------------------- AGREE TO WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT. The scope of this waiver is intended to be all-encompassing of any and all disputes that may be filed in any court and that relate to the subject matter of this transaction, including contract claims, tort claims, breach of duty claims, and all other common law and statutory claims. Pledgor and Secured Party each acknowledge that this waiver is a material inducement for Pledgor and Secured Party to enter into a business relationship, that Pledgor and Secured Party have already relied on this waiver in entering into this Agreement and that each will continue to rely on this waiver in their related future dealings. Pledgor and Secured Party further warrant and represent that each 17 has reviewed this waiver with its legal counsel, and that each knowingly and voluntarily waives its jury trial rights following consultation with legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY REFERRING TO THIS SECTION 24 AND EXECUTED BY EACH OF THE PARTIES HERETO), AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT. In the event of litigation, this Agreement may be filed as a written consent to a trial by the court. SECTION 25. COUNTERPARTS. This Agreement may be executed in one or ------------ more counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. 18 IN WITNESS WHEREOF, Pledgor and Secured Party have caused this Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above. [NAME OF PLEDGOR], as Pledgor By: __________________________ Title: Notice Address:_____________________ _____________________ _____________________ FIRST UNION NATIONAL BANK, as Secured Party By: __________________________ Title: Notice Address: _____________________ _____________________ _____________________ S-1 SCHEDULE I Attached to and forming a part of the Pledge Agreement dated as of October 23, 1997 between _______________, as Pledgor, and First Union National Bank, as Secured Party. Part A Class of Stock Certi- Par Number of Stock Issuer Stock ficate Nos. Value Shares - ------------ -------- ------------ ----- --------- Part B Debt Issuer Amount of Indebtedness - ----------- ---------------------- I-1 SCHEDULE II PLEDGE AMENDMENT This Pledge Amendment, dated ___________, ____, is delivered pursuant to Section 6(b) of the Pledge Agreement referred to below. The undersigned hereby agrees that this Pledge Amendment may be attached to the Pledge Agreement dated October 23, 1997, between the undersigned and First Union National Bank, as Secured Party (the "PLEDGE AGREEMENT," capitalized terms defined therein being used herein as therein defined), and that the [Pledged Shares] [Pledged Debt] listed on this Pledge Amendment shall be deemed to be part of the [Pledged Shares] [Pledged Debt] and shall become part of the Pledged Collateral and shall secure all Secured Obligations. [NAME OF PLEDGOR] By: ___________________________ Title: Class of Stock Certi- Par Number of Stock Issuer Stock ficate Nos. Value Shares - ------------ -------- ------------ ----- --------- Debt Issuer Amount of Indebtedness - ----------- ---------------------- II-1 EX-10.28 38 FORM OF SUBSIDIARY TRADEMARK SECURITY AGREEMENT EXHIBIT 10.28 SUBSIDIARY TRADEMARK SECURITY AGREEMENT This SUBSIDIARY TRADEMARK SECURITY AGREEMENT (this "AGREEMENT") is dated as of October 23, 1997 and entered into by and among [INSERT NAME OF GRANTOR IN CAPS], a ________________ corporation ("GRANTOR"), and FIRST UNION NATIONAL BANK, as administrative agent for and representative of (in such capacity herein called "SECURED PARTY") the financial institutions ("LENDERS") party to the Credit Agreement referred to below and any Interest Rate Exchangers (as hereinafter defined). PRELIMINARY STATEMENTS A. Secured Party, Syndication Agent and Lenders have entered into a Credit Agreement dated as of October 23, 1997 (said Credit Agreement, as it may hereafter be amended, supplemented or otherwise modified from time to time, being the "CREDIT AGREEMENT", the terms defined therein and not otherwise defined herein being used herein as therein defined) with The Pantry, Inc. (the "Borrower") pursuant to which Lenders have made certain commitments, subject to the terms and conditions set forth in the Credit Agreement, to extend certain credit facilities to the Borrower. B. Borrower may from time to time enter into one or more Interest Rate Agreements (collectively, the "LENDER INTEREST RATE AGREEMENTS") with one or more Lenders (in such capacity, collectively, "INTEREST RATE EXCHANGERS") in accordance with the terms of the Credit Agreement. C. Grantor owns and uses in its business, and will in the future adopt and so use, various intangible assets, including trademarks, service marks, designs, logos, indicia, tradenames, corporate names, company names, business names, fictitious business names, trade styles and/or other source and/or business identifiers and applications pertaining thereto (collectively, the "TRADEMARKS"). D. Secured Party desires to become a secured creditor with respect to all of the existing and future Trademarks, all registrations that have been or may hereafter be issued or applied for thereon in the United States and any state thereof (the "REGISTRATIONS"), all common law and other rights in and to the Trademarks in the United States and any state thereof (the "TRADEMARK RIGHTS"), all goodwill of Grantor's business symbolized by the Trademarks and associated therewith, including without limitation the documents and things described in Section 1(b) (the "ASSOCIATED GOODWILL"), and all proceeds of the Trademarks, the Registrations, the Trademark Rights and the Associated Goodwill, and Grantor agrees to create a secured and protected interest in the Trademarks, the Registrations, the 1 Trademark Rights, the Associated Goodwill and all the proceeds thereof as provided herein. E. Grantor has executed and delivered the Subsidiary Security Agreement dated as of October 23, 1997 (the "SUBSIDIARY SECURITY AGREEMENT") between Grantor and Secured Party for the benefit of Lenders, pursuant to which Grantor has granted Secured Party a security interest in all of its personal property, including, without limitation, the Collateral (as defined below), which Subsidiary Security Agreement is to be supplemented by this Agreement, and it is desired that all obligations of Grantor under the Guaranty be secured hereunder. F. Pursuant to the Subsidiary Security Agreement, Grantor has granted to Secured Party a lien on and security interest in, among other assets, the equipment and inventory relating to the products and services sold or delivered under or in connection with the Trademarks such that, upon the occurrence and during the continuation of an Event of Default, Secured Party would be able to exercise its remedies consistent with the Subsidiary Security Agreement, this Agreement and applicable law to foreclose upon Grantor's business and use the Trademarks, the Registrations and the Trademark Rights in conjunction with the continued operation of such business, maintaining substantially the same product and service specifications and quality as maintained by Grantor, and benefit from the Associated Goodwill. G. Upon the occurrence and during the continuation of an Event of Default, and to permit Secured Party to operate Grantor's business without interruption and to use the Trademarks, Registrations, Trademark Rights and Associated Goodwill in conjunction therewith, Grantor is willing to appoint Secured Party as Grantor's attorney-in-law and attorney-in-fact to execute documents and take actions consistent therewith. I. It is a requirement under the Credit Agreement that Grantor shall have granted the security interests and undertaken the obligations contemplated by this Agreement. NOW, THEREFORE, in consideration of the premises and in order to induce Lenders to make Loans and other extensions of credit under the Credit Agreement as well as to induce Interest Rate Exchangers to enter into the Lender Interest Rate Agreements to enter into the Lender Interest Rate Agreements and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Grantor hereby agrees with Secured Party as follows: SECTION 1. GRANT OF SECURITY. Grantor hereby grants to Secured Party ----------------- a security interest in, all of Grantor's right, title and interest in and to the following, in each case whether now or hereafter existing or in which Grantor now has or hereafter acquires an interest and wherever the same may be located (the "COLLATERAL"): 2 (a) each of the Trademarks and rights and interests in Trademarks which are presently, or in the future may be, owned, held (whether pursuant to a license or otherwise) or used by Grantor, in whole or in part (including, without limitation, the Trademarks specifically identified in Schedule A annexed ---------- hereto, as the same may be amended pursuant hereto from time to time), and including all Trademark Rights with respect thereto and all federal and state Registrations therefor heretofore or hereafter granted or applied for, the right (but not the obligation) to register claims under any state or federal trademark law and to apply for, renew and extend the Trademarks, Registrations and Trademark Rights, the right (but not the obligation) to sue or bring opposition or cancellation proceedings in the name of Grantor or in the name of Secured Party or otherwise for past, present and future infringements of the Trademarks, Registrations or Trademark Rights and all rights (but not obligations) corresponding thereto in the United States and the Associated Goodwill; it being understood that the rights and interests included herein shall include, without limitation, all rights and interests pursuant to licensing or other contracts in favor of Grantor pertaining to the Trademarks, Registrations or Trademark Rights presently or in the future owned or used by third parties but, in the case of third parties which are not Affiliates of Grantor, only to the extent permitted by such licensing or other contracts and, if not so permitted, only with the consent of such third parties; (b) the following documents and things in Grantor's possession, or subject to Grantor's right to possession, related to (Y) the production, sale and delivery by Grantor, or by any Affiliate, licensee or subcontractor of Grantor, of products or services sold or delivered by or under the authority of Grantor in connection with the Trademarks, Registrations or Trademark Rights (which products and services shall, for purposes of this Agreement, be deemed to include, without limitation, products and services sold or delivered pursuant to merchandising operations utilizing any Trademarks, Registrations or Trademark Rights); or (Z) any retail or other merchandising operations conducted under the name of or in connection with the Trademarks, Registrations or Trademark Rights by Grantor or any Affiliate, licensee or subcontractor of Grantor: (i) all lists and ancillary documents that identify and describe any of Grantor's customers, or those of its Affiliates, licensees or subcontractors, for products sold and services delivered under or in connection with the Trademarks or Trademark Rights, including without limitation any lists and ancillary documents that contain a customer's name and address, the name and address of any of its warehouses, branches or other places of business, the identity of the Person or Persons having the principal responsibility on a customer's behalf for ordering products or services of the kind supplied by Grantor, or the credit, payment, discount, delivery or other sale terms applicable to such customer, together with information setting forth 3 the total purchases, by brand, product, service, style, size or other criteria, and the patterns of such purchases; (ii) all product and service specification documents and production and quality control manuals used in the manufacture or delivery of products and services sold or delivered under or in connection with the Trademarks or Trademark Rights; (iii) all documents which reveal the name and address of any source of supply, and any terms of purchase and delivery, for any and all materials, components and services used in the production of products and services sold or delivered under or in connection with the Trademarks or Trademark Rights; and (iv) all documents constituting or concerning the then current or proposed advertising and promotion by Grantor or its Affiliates, licensees or subcontractors of products and services sold or delivered under or in connection with the Trademarks or Trademark Rights including, without limitation, all documents which reveal the media used or to be used and the cost for all such advertising conducted within the described period or planned for such products and services; (c) all general intangibles relating to the Collateral; (d) all books, records, ledger cards, files, correspondence, computer programs, tapes, disks and related data processing software that at any time evidence or contain information relating to any of the Collateral or are otherwise necessary or helpful in the collection thereof or realization thereupon; and (e) all proceeds, products, rents and profits (including without limitation license royalties and proceeds of infringement suits) of or from any and all of the foregoing Collateral and, to the extent not otherwise included, all payments under insurance (whether or not Secured Party is the loss payee thereof), or any indemnity, warranty or guaranty, payable by reason of loss or damage to or otherwise with respect to any of the foregoing Collateral. For purposes of this Agreement, the term "PROCEEDS" includes whatever is receivable or received when Collateral or proceeds are sold, exchanged, collected or otherwise disposed of, whether such disposition is voluntary or involuntary. SECTION 2. SECURITY FOR OBLIGATIONS. This Agreement secures, and the ------------------------ Collateral is collateral security for, the prompt payment or performance in full when due, whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise (including the payment of amounts that would become due but for the operation of the automatic stay under 4 Section 362(a) of the Bankruptcy Code, 11 U.S.C. (S)362(a)), of all obligations and liabilities of every nature of Grantor now or hereafter existing under or arising out of or in connection with the Guaranty and all extensions or renewals thereof, whether for principal, interest (including without limitation interest that, but for the filing of a petition in bankruptcy with respect to Company and/or Grantor, would accrue on such obligations, whether or not a claim is allowed against Company and/or Grantor for such interest in the related bankruptcy proceeding), reimbursement of amounts drawn under Letters of Credit, payments for early termination of Lender Interest Rate Agreements, fees, expenses, indemnities or otherwise, whether voluntary or involuntary, direct or indirect, absolute or contingent, liquidated or unliquidated, whether or not jointly owed with others, and whether or not from time to time decreased or extinguished and later increased, created or incurred, and all or any portion of such obligations or liabilities that are paid, to the extent all or any part of such payment is avoided or recovered directly or indirectly from Secured Party, Syndication Agent, any Lender or Interest Rate Exchanger as a preference, fraudulent transfer or otherwise (all such obligations and liabilities being the "UNDERLYING DEBT"), and all obligations of every nature of Grantor now or hereafter existing under this Agreement (all such obligations of Grantor, together with the Underlying Debt, being the "SECURED OBLIGATIONS"). SECTION 3. GRANTOR REMAINS LIABLE. Anything contained herein to the ---------------------- contrary notwithstanding, (a) Grantor shall remain liable under any contracts and agreements included in the Collateral, to the extent set forth therein, to perform all of its duties and obligations thereunder to the same extent as if this Agreement had not been executed, (b) the exercise by Secured Party of any of its rights hereunder shall not release Grantor from any of its duties or obligations under the contracts and agreements included in the Collateral, and (c) Secured Party shall not have any obligation or liability under any contracts and agreements included in the Collateral by reason of this Agreement, nor shall Secured Party be obligated to perform any of the obligations or duties of Grantor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder. SECTION 4. REPRESENTATIONS AND WARRANTIES. Grantor represents and ------------------------------ warrants as follows: (a) Description of Collateral. A true and complete list of all ------------------------- Trademarks, Registrations and Trademark Rights owned, held (whether pursuant to a license or otherwise) or used by Grantor, in whole or in part, as of the date of this Agreement and which are material to the operation of the business of Grantor is set forth in Schedule A annexed hereto. ---------- (b) Validity and Enforceability of Collateral. Each of the Trademarks, ----------------------------------------- Registrations and Trademark Rights that is owned by Grantor and is material to the financial condition or 5 business of Grantor is valid, subsisting and enforceable. Grantor is not aware of any pending or threatened claim by any third party that any such Trademarks, Registrations or Trademark Rights is invalid or unenforceable or that the use of any of the Trademarks, Registrations or Trademark Rights violates the rights of any third person or of any basis for any such claim. (c) Ownership of Collateral. Except for the security interest created ----------------------- by this Agreement or any other Collateral Document, Grantor owns the Collateral free and clear of any Lien (other than Permitted Encumbrances). Except such as may have been filed in favor of Secured Party relating to this Agreement, (i) no effective financing statement or other instrument similar in effect covering all or any part of the Collateral is on file in any filing or recording office and (ii) no effective filing covering all or any part of the Collateral is on file in the United States Patent and Trademark Office. (d) Office Locations; Other Names. The chief place of business, the ----------------------------- chief executive office and the office where Grantor keeps its records regarding the Collateral is, and has been for the four month period preceding the date hereof, located at the location identified in Schedule B attached hereto. ---------- Grantor has not in the past five years done, and does not now do, business under any other name (including any trade-name or fictitious business name), except as set forth in Schedule B attached hereto. ---------- (e) Governmental Authorizations. Except as contemplated by Sections --------------------------- 1(a) and 4(f) hereof, no authorization, approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for either (i) the grant by Grantor of the security interest hereby, (ii) the execution, delivery or performance of this Agreement by Grantor, or (iii) the perfection of or the exercise by Secured Party of its rights and remedies hereunder in the United States (except as may have been taken by or at the direction of Grantor). (f) Perfection. This Agreement, together with the filing of financing ---------- statements describing the Collateral with the Secretary of State of the State of [Delaware] [Florida], and the recording of this Agreement with the United States Patent and Trademark Office, which have been made or will be made promptly following the Closing Date, creates a valid, perfected and, except for Permitted Encumbrances, First Priority security interest in the Collateral, securing the payment of the Secured Obligations; provided that additional actions may be -------- required with respect to the perfection of proceeds of the Collateral. (g) Other Information. All information heretofore, herein or hereafter ----------------- supplied to Secured Party by or on behalf of Grantor with respect to the Collateral is accurate and complete in all material respects. 6 SECTION 5. FURTHER ASSURANCES; NEW TRADEMARKS, REGISTRATIONS AND ----------------------------------------------------- TRADEMARK RIGHTS. - ---------------- (a) Grantor agrees that from time to time, at the expense of Grantor, Grantor will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary in order to perfect and protect any security interest or conditional assignment granted or purported to be granted hereby or to enable Secured Party to exercise and enforce its rights and remedies hereunder with respect to any Collateral. Without limiting the generality of the foregoing, Grantor will: (i) at the request of Secured Party, mark conspicuously each of its records pertaining to the Collateral with a legend, in form and substance satisfactory to Secured Party, indicating that such Collateral is subject to the security interest granted hereby, (ii) execute and file such financing or continuation statements, or amendments thereto, and such other instruments or notices, as may be necessary in order to perfect and preserve the security interests granted or purported to be granted hereby, (iii) at the revocable request of Secured Party, use its best efforts to obtain any necessary consents of third parties to the grant and perfection of a security interest and assignment to Secured Party with respect to any Collateral, (iv) at any reasonable time, upon request by Secured Party, exhibit the Collateral to and allow inspection of the Collateral by Secured Party, or persons designated by Secured Party, and (v) at Secured Party's request, appear in and defend any action or proceeding that may affect Grantor's title to or Secured Party's security interest in all or any part of the Collateral. (b) Grantor hereby authorizes Secured Party to file one or more financing or continuation statements, and amendments thereto, relative to all or any part of the Collateral without the signature of Grantor. Grantor agrees that a carbon, photographic or other reproduction of this Agreement or of a financing statement signed by Grantor shall be sufficient as a financing statement and may be filed as a financing statement in any and all jurisdictions. (c) Grantor hereby authorizes Secured Party to modify this Agreement without obtaining Grantor's approval of or signature to such modification by amending Schedule A annexed hereto to include reference to any right, title or ---------- interest in any existing Trademark, Registration or Trademark Right or any Trademark, Registration or Trademark Right acquired or developed by Grantor after the execution hereof or to delete any reference to any right, title or interest in any Trademark, Registration or Trademark Right in which Grantor no longer has or claims any right, title or interest. (d) Grantor will furnish to Secured Party from time to time statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as Secured Party may reasonably request, all in reasonable detail. 7 (e) If Grantor shall obtain rights to any new Trademarks, Registrations or Trademark Rights, the provisions of this Agreement shall automatically apply thereto. Grantor shall promptly notify Secured Party in writing of any rights to any new Trademarks or Trademark Rights acquired by Grantor after the date hereof and of any Registrations issued or applications for Registration made after the date hereof. Concurrently with the filing of an application for Registration for any Trademark, Grantor shall execute, deliver and record in all places where this Agreement is recorded an appropriate Trademark Collateral Security Agreement, substantially in the form hereof, with appropriate insertions, or an amendment to this Agreement, in form and substance satisfactory to Secured Party, pursuant to which Grantor shall grant a security interest to the extent of its interest in such Registration as provided herein to Secured Party unless so doing would, in the reasonable judgment of Grantor, after due inquiry, result in the grant of a Registration in the name of Secured Party, in which event Grantor shall give written notice to Secured Party as soon as reasonably practicable and the filing shall instead be undertaken as soon as practicable but in no case later than immediately following the grant of the Registration. SECTION 6. CERTAIN COVENANTS OF GRANTOR. Grantor shall: ---------------------------- (a) not use or permit any Collateral to be used unlawfully or in violation of any provision of this Agreement or any applicable statute, regulation or ordinance or any policy of insurance covering the Collateral; (b) notify Secured Party of any change in Grantor's name, identity or corporate structure within 15 days of such change; (c) give Secured Party 30 days' prior written notice of any change in Grantor's chief place of business or chief executive office or the office where Grantor keeps its records regarding the Collateral; (d) pay promptly when due all property and other taxes, assessments and governmental charges or levies imposed upon, and all claims (including claims for labor, materials and supplies) against, the Collateral, except to the extent the validity thereof is being contested in good faith; provided that Grantor -------- shall in any event pay such taxes, assessments, charges, levies or claims not later than five days prior to the date of any proposed sale under any judgement, writ or warrant of attachment entered or filed against Grantor or any of the Collateral as a result of the failure to make such payment; (e) not sell, assign (by operation of law or otherwise) or otherwise dispose of any of the Collateral, except as permitted herein or by the Credit Agreement; provided that in the event Grantor makes an Asset Sale permitted by -------- the Credit 8 Agreement and the assets subject to such Asset Sale constitute Collateral, Secured Party shall release the Collateral that is the subject of such Asset Sale to Grantor free and clear of any Lien and security interest under this Agreement or any other Collateral Documents concurrently with the consummation of such Asset Sale; provided, further that, as a condition precedent to such -------- ------- release, Secured Party shall have received evidence satisfactory to it that arrangements satisfactory to it have been made for delivery to Secured Party of that amount of Net Asset Sale Proceeds required to be delivered to Secured Party under the Credit Agreement; (f) except for the security interest created by this Agreement or any other Loan Document, not create or suffer to exist any Lien upon or with respect to any of the Collateral to secure the indebtedness or other obligations of any Person except for Permitted Encumbrances; (g) keep reasonable records respecting the Collateral and at all times keep at least one complete set of its records concerning substantially all of the Trademarks, Registrations and Trademark Rights at its chief executive office or principal place of business; (h) not permit the inclusion in any contract to which it becomes a party of any provision that could impair in any material respect or prevent the creation of a security interest in, or the assignment of, Grantor's rights and interests in any property included within the definitions of any Trademarks, Registrations, Trademark Rights and Associated Goodwill acquired under such contracts; (i) take all reasonable steps necessary to protect the secrecy of all trade secrets relating to the products and services sold or delivered under or in connection with the Trademarks and Trademark Rights, including without limitation entering into confidentiality agreements with employees and labeling and restricting access to secret information and documents; (j) use proper statutory notice in connection with its use of each of the Trademarks, Registrations and Trademark Rights; (k) use consistent standards of high quality (which may be consistent with Grantor's past practices) in the manufacture, sale and delivery of products and services sold or delivered under or in connection with the Trademarks, Registrations and Trademark Rights, including, to the extent applicable, in the operation and maintenance of its retail stores and other merchandising operations; and (l) upon any officer of Grantor obtaining knowledge thereof, promptly notify Secured Party in writing of any event that may materially and adversely affect the value of the 9 Collateral or any material portion thereof, the ability of Grantor or Secured Party to dispose of the Collateral or any material portion thereof, or the rights and remedies of Secured Party in relation thereto, including without limitation the levy of any legal process against the Collateral or any material portion thereof. SECTION 7. CERTAIN INSPECTION RIGHTS. Grantor hereby grants to Secured ------------------------- Party and its employees, representatives and agents the right to visit Grantor's and any of its Affiliate's or subcontractor's plants, facilities and other places of business that are utilized in connection with the manufacture, production, inspection, storage or sale of products and services sold or delivered under any of the Trademarks, Registrations or Trademark Rights (or which were so utilized during the prior six month period), and to inspect the quality control and all other records relating thereto upon reasonable notice to Grantor and as often as may be reasonably requested. SECTION 8. AMOUNTS PAYABLE IN RESPECT OF THE COLLATERAL. Except as -------------------------------------------- otherwise provided in this Section 8, Grantor shall continue to collect, at its own expense, all amounts due or to become due to Grantor in respect of the Collateral or any portion thereof. In connection with such collections, Grantor may take (and, at Secured Party's direction, shall take) such action as Grantor or Secured Party may deem necessary or advisable to enforce collection of such amounts; provided, however, that Secured Party shall have the right at any time, -------- ------- upon the occurrence and during the continuation of an Event of Default and upon written notice to Grantor of its intention to do so, to notify the obligors with respect to any such amounts of the existence of the security interest created and to direct such obligors to make payment of all such amounts directly to Secured Party, and, upon such notification and at the expense of Grantor, to enforce collection of any such amounts and to adjust, settle or compromise the amount or payment thereof, in the same manner and to the same extent as Grantor might have done. After receipt by Grantor of the notice from Secured Party referred to in the proviso to the preceding sentence, (i) all amounts and ------- proceeds (including checks and other instruments) received by Grantor in respect of amounts due to Grantor in respect of the Collateral or any portion thereof shall be received in trust for the benefit of Secured Party hereunder, shall be segregated from other funds of Grantor and shall be forthwith paid over or delivered to Secured Party in the same form as so received (with any necessary endorsement) to be held as cash Collateral and applied as provided by Section 16, and (ii) Grantor shall not adjust, settle or compromise the amount or payment of any such amount or release wholly or partly any obligor with respect thereto or allow any credit or discount thereon. 10 SECTION 9. TRADEMARK APPLICATIONS AND LITIGATION. ------------------------------------- (a) Grantor shall have the duty diligently, through counsel reasonably acceptable to Secured Party, to prosecute any trademark application relating to any of the Trademarks specifically identified in Schedule A annexed hereto that ---------- is pending as of the date of this Agreement, to make federal application on any existing or future registerable but unregistered Trademarks, and to file and prosecute opposition and cancellation proceedings, renew Registrations and do any and all acts which are necessary or desirable to preserve and maintain all rights in all Trademarks, Registrations and Trademark Rights. Any expenses incurred in connection therewith shall be borne solely by Grantor. Grantor shall not abandon any Trademark, Registration or Trademark Right that is material in value or to the conduct of Grantor's business without prior written notice to, and express consent of, Secured Party. (b) Except as provided in Section 9(d), Grantor shall have the right to commence and prosecute in its own name, as real party in interest, for its own benefit and at its own expense, such suits, proceedings or other actions for infringement, unfair competition, dilution or other damage as are in its reasonable business judgment necessary to protect the Collateral. Secured Party shall provide, at Grantor's expense, all reasonable and necessary cooperation in connection with any such suit, proceeding or action including, without limitation, joining as a necessary party. (c) Grantor shall promptly, following its becoming aware thereof, notify Secured Party of the institution of, or of any adverse determination in, any proceeding (whether in the United States Patent and Trademark Office or any federal, state, local or foreign court) described in Section 9(a) or 9(b) or regarding Grantor's claim of ownership in or right to use any of the Trademarks, Registrations or Trademark Rights, its right to register the same, or its right to keep and maintain such Registration. Grantor shall provide to Secured Party any information with respect thereto requested by Secured Party. (d) Anything contained herein to the contrary notwithstanding, upon the occurrence and during the continuation of an Event of Default, Secured Party shall have the right (but not the obligation) to bring suit, in the name of Grantor, Secured Party or otherwise, to enforce any Trademark, Registration, Trademark Right, Associated Goodwill and any license thereunder, in which event Grantor shall, at the request of Secured Party, do any and all lawful acts and execute any and all documents required by Secured Party in aid of such enforcement and Grantor shall promptly, upon demand, reimburse and indemnify Secured Party as provided in Section 17 in connection with the exercise of its rights under this Section 9. To the extent that Secured Party shall elect not to bring suit to enforce any Trademark, Registration, Trademark Right, Associated Goodwill or any license thereunder as provided in this Section 11 9(d), Grantor agrees to use all reasonable measures, whether by action, suit, proceeding or otherwise, to prevent the infringement of any of the Trademarks, Registrations, Trademark Rights or Associated Goodwill by others and for that purpose agrees to diligently maintain any action, suit or proceeding against any Person so infringing necessary to prevent such infringement. SECTION 10. NON-DISTURBANCE AGREEMENTS, ETC. If and to the extent -------------------------------- that Grantor is permitted to license the Collateral, Secured Party shall enter into a non-disturbance agreement or other similar arrangement, at Grantor's request and expense, with Grantor and any licensee of any Collateral permitted hereunder in form and substance satisfactory to Secured Party pursuant to which (a) Secured Party shall agree not to disturb or interfere with such licensee's rights under its license agreement with Grantor so long as such licensee is not in default thereunder and (b) such licensee shall acknowledge and agree that the Collateral licensed to it is subject to the security interest created in favor of Secured Party and the other terms of this Agreement. SECTION 11. REASSIGNMENT OF COLLATERAL. If (a) an Event of Default -------------------------- shall have occurred and, by reason of cure, waiver, modification, amendment or otherwise, no longer be continuing, (b) no other Event of Default shall have occurred and be continuing, (c) an assignment to Secured Party of any rights, title and interests in and to the Collateral shall have been previously made and shall have become absolute and effective pursuant to Section 12(f) or Section 15(b), and (d) the Secured Obligations shall not have become immediately due and payable, upon the written request of Grantor and the written consent of Secured Party, Secured Party shall promptly execute and deliver to Grantor such assignments as may be necessary to reassign to Grantor any such rights, title and interests as may have been assigned to Secured Party as aforesaid, subject to any disposition thereof that may have been properly made by Secured Party pursuant hereto; provided that, after giving effect to such reassignment, -------- Secured Party's security interest granted pursuant to Section 1, as well as all other rights and remedies of Secured Party granted hereunder, shall continue to be in full force and effect; and provided, further that the rights, title and -------- ------- interests so reassigned shall be free and clear of all Liens other than Liens (if any) encumbering such rights, title and interest at the time of their assignment to Secured Party and Permitted Encumbrances. SECTION 12. SECURED PARTY APPOINTED ATTORNEY-IN-FACT. Grantor hereby ---------------------------------------- irrevocably appoints Secured Party as Grantor's attorney-in-fact, with full authority in the place and stead of Grantor and in the name of Grantor, Secured Party or otherwise, from time to time in Secured Party's discretion, upon the occurrence and during the continuation of an Event of Default or Potential Event of Default, to take any action and to execute any instrument that Secured Party may deem necessary or advisable to 12 accomplish the purposes of this Agreement, including without limitation: (a) to endorse Grantor's name on all applications, documents, papers and instruments necessary for Secured Party in the use or maintenance of the Collateral; (b) to ask for, demand, collect, sue for, recover, compound, receive and give acquittance and receipts for moneys due and to become due under or in respect of any of the Collateral; (c) to receive, endorse and collect any drafts or other instruments, documents and chattel paper in connection with clause (b) above; (d) to file any claims or take any action or institute any proceedings that Secured Party may deem necessary or desirable for the collection of any of the Collateral or otherwise to enforce the rights of Secured Party with respect to any of the Collateral; (e) to pay or discharge taxes or Liens (other than Liens permitted under this Agreement or the Credit Agreement) levied or placed upon or threatened against the Collateral, the legality or validity thereof and the amounts necessary to discharge the same to be determined by Secured Party in its sole discretion, any such payments made by Secured Party to become obligations of Grantor to Secured Party, due and payable immediately without demand; and (f) (i) to execute and deliver any of the assignments or documents requested by Secured Party pursuant to Section 15(b), (ii) to grant or issue an exclusive or non-exclusive license to the Collateral or any portion thereof to any Person, and (iii) otherwise generally to sell, transfer, pledge, make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though Secured Party were the absolute owner thereof for all purposes, and to do, at Secured Party's option and Grantor's expense, at any time or from time to time, all acts and things that are reasonably necessary to protect, preserve or realize upon the Collateral and Secured Party's security interest therein in order to effect the intent of this Agreement, all as fully and effectively as Grantor might do. SECTION 13. SECURED PARTY MAY PERFORM. If Grantor fails to perform ------------------------- any agreement contained herein, Secured Party may itself perform, or cause performance of, such agreement, and the expenses of Secured Party incurred in connection therewith shall be payable by Grantor under Section 17. SECTION 14. STANDARD OF CARE. The powers conferred on Secured Party ---------------- hereunder are solely to protect its interest in the Collateral and shall not impose any duty upon it to exercise any 13 such powers. Except for the exercise of reasonable care in the custody of any Collateral in its possession and the accounting for moneys actually received by it hereunder, Secured Party shall have no duty as to any Collateral or as to the taking of any necessary steps to preserve rights against prior parties or any other rights pertaining to any Collateral. Secured Party shall be deemed to have exercised reasonable care in the custody and preservation of Collateral in its possession if such Collateral is accorded treatment substantially equal to that which Secured Party accords its own property. SECTION 15. REMEDIES. If any Event of Default shall have occurred and -------- be continuing: (a) Secured Party may exercise in respect of the Collateral, in addition to all other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party on default under the Uniform Commercial Code as in effect in any relevant jurisdiction (the "CODE") (whether or not the Code applies to the affected Collateral), and also may (i) require Grantor to, and Grantor hereby agrees that it will at its expense and upon request of Secured Party forthwith, assemble all or part of the Collateral as directed by Secured Party and make it available to Secured Party at a place to be designated by Secured Party that is reasonably convenient to both parties, (ii) enter onto the property where any Collateral is located and take possession thereof with or without judicial process, (iii) prior to the disposition of the Collateral, store the Collateral or otherwise prepare the Collateral for disposition in any manner to the extent Secured Party deems appropriate, (iv) take possession of Grantor's premises or place custodians in exclusive control thereof, remain on such premises and use the same for the purpose of taking any actions described in the preceding clause (iii) and collecting any Secured Obligation, (v) exercise any and all rights and remedies of Grantor under or in connection with the contracts related to the Collateral or otherwise in respect of the Collateral, including without limitation any and all rights of Grantor to demand or otherwise require payment of any amount under, or performance of any provision of, such contracts, and (vi) without notice except as specified below, sell the Collateral or any part thereof in one or more parcels at public or private sale, at any of Secured Party's offices or elsewhere, for cash, on credit or for future delivery, at such time or times and at such price or prices and upon such other terms as Secured Party may deem commercially reasonable. Secured Party, any Lender or Interest Rate Exchanger may be the purchaser of any or all of the Collateral at any such public sale, and to the extent permitted by law, private sale, and Secured Party, as agent for and representative of Lenders and Interest Rate Exchangers (but not any Lender or Lenders, Interest Rate Exchanger or Interest Rate Exchangers in its or their respective individual capacities unless Requisite Lenders and Requisite Obligees (as defined in Section 19(a)) shall otherwise agree in writing), shall be entitled, for the purpose of bidding and making settlement or 14 payment of the purchase price for all or any portion of the Collateral sold at any such public sale, to use and apply any of the Secured Obligations as a credit on account of the purchase price for any Collateral payable by Secured Party at such sale. Each purchaser at any such sale shall hold the property sold absolutely free from any claim or right on the part of Grantor, and Grantor hereby waives (to the extent permitted by applicable law) all rights of redemption, stay and/or appraisal which it now has or may at any time in the future have under any rule of law or statute now existing or hereafter enacted. Grantor agrees that, to the extent notice of sale shall be required by law, at least ten days' notice to Grantor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. Secured Party shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. Secured Party may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. Grantor hereby waives any claims against Secured Party arising by reason of the fact that the price at which any Collateral may have been sold at such a private sale was less than the price which might have been obtained at a public sale, even if Secured Party accepts the first offer received and does not offer such Collateral to more than one offeree. If the proceeds of any sale or other disposition of the Collateral are insufficient to pay all the Secured Obligations, Grantor shall be liable for the deficiency and the fees of any attorneys employed by Secured Party to collect such deficiency. (b) Upon written demand from Secured Party, Grantor shall execute and deliver to Secured Party an assignment or assignments of the Trademarks, Registrations, Trademark Rights and the Associated Goodwill and such other documents as are necessary or appropriate to carry out the intent and purposes of this Agreement. SECTION 16. APPLICATION OF PROCEEDS. Except as expressly provided ----------------------- elsewhere in this Agreement, all proceeds received by Secured Party in respect of any sale of, collection from, or other realization upon all or any part of the Collateral shall be applied as provided in subsection 2.4D of the Credit Agreement. SECTION 17. INDEMNITY AND EXPENSES. ---------------------- (a) Grantor agrees to indemnify Secured Party, Syndication Agent, each Lender, each Interest Rate Exchanger from and against any and all claims, losses and liabilities in any way relating to, growing out of or resulting from this Agreement and the transactions contemplated hereby (including, without limitation, enforcement of this Agreement), except to the extent such claims, losses or liabilities result solely from Secured Party's, Syndication Agent's, such Lender's, such Interest Rate 15 Exchanger's gross negligence or willful misconduct as finally determined by a court of competent jurisdiction. (b) Grantor shall pay to Secured Party upon demand the amount of any and all costs and expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, that Secured Party may incur in connection with (i) the administration of this Agreement, (ii) the custody, preservation, use or operation of, or the sale of, collection from, or other realization upon, any of the Collateral, (iii) the exercise or enforcement of any of the rights of Secured Party hereunder, or (iv) the failure by Grantor to perform or observe any of the provisions hereof. SECTION 18. CONTINUING SECURITY INTEREST; TRANSFER OF LOANS. This ----------------------------------------------- Agreement shall create a continuing security interest in the Collateral and shall (a) remain in full force and effect until the payment in full of the Secured Obligations, the cancellation or termination of the Commitments and the cancellation or expiration of all outstanding Letters of Credit, (b) be binding upon Grantor, its successors and assigns, and (c) inure, together with the rights and remedies of Secured Party hereunder, to the benefit of Secured Party and its successors, transferees and assigns. Without limiting the generality of the foregoing clause (c), but subject to the provisions of subsection 10.1 of the Credit Agreement, any Lender may assign or otherwise transfer any Loans held by it to any other Person, and such other Person shall thereupon become vested with all the benefits in respect thereof granted to Lenders herein or otherwise. Upon the payment in full of all Secured Obligations, the cancellation or termination of the Commitments and the cancellation or expiration of all outstanding Letters of Credit, the security interest granted hereby shall terminate and all rights to the Collateral shall revert to Grantor. Upon any such termination Secured Party will, at Grantor's expense, execute and deliver to Grantor such documents as Grantor shall reasonably request to evidence such termination. SECTION 19. SECURED PARTY AS ADMINISTRATIVE AGENT. ------------------------------------- (a) Secured Party has been appointed to act as Secured Party hereunder by Lenders. Secured Party shall be obligated, and shall have the right hereunder, to make demands, to give notices, to exercise or refrain from exercising any rights, and to take or refrain from taking any action (including, without limitation, the release or substitution of Collateral), solely in accordance with this Agreement and the Credit Agreement; provided that Secured -------- Party shall exercise, or refrain from exercising, any remedies provided for in Section 15 in accordance with the instructions of (i) Requisite Lenders or (ii) after payment in full of all Obligations under the Credit Agreement and the other Loan Documents, the holders of a majority of the aggregate notional amount (or, with respect to any Lender Interest Rate Agreement that has been terminated in accordance with its terms, the amount then due and payable (exclusive of expenses and 16 similar payments but including any early termination payments then due) under such Lender Interest Rate Agreement) under all Lender Interest Rate Agreements (Requisite Lenders or, if applicable, such holders being referred to herein as "REQUISITE OBLIGEES"). In furtherance of the foregoing provisions of this Section 19(a), each Interest Rate Exchanger, by its acceptance of the benefits hereof, agrees that it shall have no right individually to realize upon any of the Collateral hereunder, it being understood and agreed by such Interest Rate Exchanger that all rights and remedies hereunder may be exercised solely by Secured Party for the benefit of Lenders and Interest Rate Exchangers in accordance with the terms of this Section 19(a). (b) Written notice of resignation by Administrative Agent pursuant to subsection 9.5 of the Credit Agreement shall also constitute notice of resignation as Secured Party under this Agreement; removal of Administrative Agent pursuant to subsection 9.5 of the Credit Agreement shall also constitute removal as Secured Party under this Agreement; and appointment of a successor Administrative Agent pursuant to subsection 9.5 of the Credit Agreement shall also constitute appointment of a successor Secured Party under this Agreement. Upon the acceptance of any appointment as Administrative Agent under subsection 9.5 of the Credit Agreement by a successor Administrative Agent, that successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring or removed Secured Party under this Agreement, and the retiring or removed Secured Party under this Agreement shall promptly (i) transfer to such successor Secured Party all sums, securities and other items of Collateral held hereunder, together with all records and other documents necessary or appropriate in connection with the performance of the duties of the successor Secured Party under this Agreement, and (ii) execute and deliver to such successor Secured Party such amendments to financing statements, and take such other actions, as may be necessary or appropriate in connection with the assignment to such successor Secured Party of the security interests created hereunder, whereupon such retiring or removed Secured Party shall be discharged from its duties and obligations under this Agreement. After any retiring or removed Administrative Agent's resignation or removal hereunder as Secured Party, the provisions of this Agreement shall inure to its benefit as to any actions taken or omitted to be taken by it under this Agreement while it was Secured Party hereunder. SECTION 20. AMENDMENTS; ETC. No amendment, modification, termination --------------- or waiver of any provision of this Agreement, and no consent to any departure by Grantor therefrom, shall in any event be effective unless the same shall be in writing and signed by Secured Party and, in the case of any such amendment or modification, by Grantor. Any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which it was given. 17 SECTION 21. NOTICES. Any notice or other communication herein ------- required or permitted to be given shall be in writing and may be personally served, telexed or sent by telefacsimile or mail or courier service and shall be deemed to have been given when delivered in person or by courier service, upon receipt of telefacsimile or telex, or three Business Days after depositing it in the mail with postage prepaid and properly addressed. For the purposes hereof, the address of each party hereto shall be as set forth under such party's name on the signature pages hereof or, as to either party, such other address as shall be designated by such party in a written notice delivered to the other party hereto. SECTION 22. FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE. No ----------------------------------------------------- failure or delay on the part of Secured Party in the exercise of any power, right or privilege hereunder shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude any other or further exercise thereof or of any other power, right or privilege. All rights and remedies existing under this Agreement are cumulative to, and not exclusive of, any rights or remedies otherwise available. SECTION 23. SEVERABILITY. In case any provision in or obligation ------------ under this Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. SECTION 24. HEADINGS. Section and subsection headings in this -------- Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose or be given any substantive effect. SECTION 25. GOVERNING LAW; TERMS. THIS AGREEMENT AND THE RIGHTS AND -------------------- OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES, EXCEPT TO THE EXTENT THAT THE CODE PROVIDES THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK. Unless otherwise defined herein or in the Credit Agreement, terms used in Articles 8 and 9 of the Uniform Commercial Code in the State of New York are used herein as therein defined. SECTION 26. CONSENT TO JURISDICTION AND SERVICE OF PROCESS. ALL ---------------------------------------------- JUDICIAL PROCEEDINGS BROUGHT AGAINST GRANTOR ARISING OUT OF OR RELATING TO THIS AGREEMENT MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE 18 OF NEW YORK, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT GRANTOR ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT. Grantor hereby agrees that service of all process in any such proceeding in any such court may be made by registered or certified mail, return receipt requested, to Grantor at its address provided in Section 21, such service being hereby acknowledged by Grantor to be sufficient for personal jurisdiction in any action against Grantor in any such court and to be otherwise effective and binding service in every respect. Nothing herein shall affect the right to serve process in any other manner permitted by law or shall limit the right of Secured Party to bring proceedings against Grantor in the courts of any other jurisdiction. SECTION 27. WAIVER OF JURY TRIAL. GRANTOR AND SECURED PARTY HEREBY -------------------- AGREE TO WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT. The scope of this waiver is intended to be all-encompassing of any and all disputes that may be filed in any court and that relate to the subject matter of this transaction, including without limitation contract claims, tort claims, breach of duty claims, and all other common law and statutory claims. Grantor and Secured Party each acknowledge that this waiver is a material inducement for Grantor and Secured Party to enter into a business relationship, that Grantor and Secured Party have already relied on this waiver in entering into this Agreement and that each will continue to rely on this waiver in their related future dealings. Grantor and Secured Party further warrant and represent that each has reviewed this waiver with its legal counsel, and that each knowingly and voluntarily waives its jury trial rights following consultation with legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT. In the event of litigation, this Agreement may be filed as a written consent to a trial by the court. SECTION 28. COUNTERPARTS. This Agreement may be executed in one or ------------ more counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. [Remainder of page intentionally left blank] 19 IN WITNESS WHEREOF, Grantor and Secured Party have caused this Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above. [NAME OF GRANTOR] By: ___________________________________ Title: _________________________________ Notice Address: __________________________ __________________________ __________________________ FIRST UNION NATIONAL BANK, as Secured Party By: ___________________________________ Title:__________________________________ Notice Address: S-1 SCHEDULE A TO TRADEMARK COLLATERAL SECURITY AGREEMENT AND CONDITIONAL ASSIGNMENT UNITED STATES REGISTERED TRADEMARK REGISTRATION REGISTRATION OWNER DESCRIPTION NUMBER DATE ---------- ------------- ------------ ------------ A-1 SCHEDULE B TO TRADEMARK COLLATERAL SECURITY AGREEMENT AND CONDITIONAL ASSIGNMENT Filing Jurisdictions: Office Locations: Other Names: B-1 EX-12.1 39 COMPUTATION OF EARNINGS TO FIXED RATIO CHARGES Exhibit 12.1 THE PANTRY, INC. ---------------- SCHEDULE I - COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES -------------------------------------------------------------- (Dollars in thousands)
Sep. 30, Sep. 29, Sep. 28, Sep. 26, Sep. 25, 1993 1994 1995 1996 1997 -------- -------- -------- -------- ------- Pretax (loss) income.............. $ 3,326 $ (181) $(3,639) $(10,778) $ (975) Fixed charges: Interest expense................. 7,434 12,047 13,241 11,992 13,039 Amortization of deferred financing costs................. 162 908 1,038 1,359 1,461 Preferred stock dividends........ 331 31 - 2,654 5,304 Rental expense (1)............... 2,334 2,183 2,253 2,709 2,901 ------- ------- ------- -------- ------- Total fixed charges............... $10,261 $15,169 $16,532 $ 18,714 $22,705 ------- ------- ------- -------- ------- Earnings.......................... $13,587 $14,988 $12,893 $ 7,936 $21,730 ------- ------- ------- -------- ------- Ratio (shortfall) of earnings to fixed charges........ 1.32 $ (181) $(3,639) $(10,778) $ (975) ======= ======= ======= ======== =======
(1) One-third of rental expense related to operating leases representing an appropriate interest factor. EX-21.1 40 SUBSIDIARIES OF THE PANTRY Exhibit 21.1 SUBSIDIARIES OF THE PANTRY, INC.
Name of Subsidiary (and Name under which does business) Jurisdiction of Incorporation --------------------------------------- ----------------------------- Sandhills, Inc. Delaware Lil' Champ Food Stores, Inc. Florida Pantry Properties, Inc. South Carolina TC Capital Management, Inc. Delaware PH Holdings, Inc. North Carolina
21.1-1 EX-23.2 41 CONSENT & REPORT ON SCHEDULE OF DELOITTE & TOUCHE Exhibit 23.2 INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE We consent to the use in this Registration Statement relating to the Offer to Exchange its unrestricted 10 1/4% Senior Subordinated Notes due October 15, 2007 for any and all of its outstanding restricted 10 1/4% Senior Subordinated Notes due October 15, 2007 of The Pantry, Inc. on Form S-4 of our report dated December 5, 1997, appearing in the Prospectus, which is part of the Registration Statement. We also consent to the use of our report dated February 14, 1997 on the financial statements of Lil' Champ Food Stores, Inc., appearing in the Prospectus, which is part of the Registration Statement. We also consent to the reference to us under the heading "Experts" in such Prospectus. Our audits of the consolidated financial statements of The Pantry, Inc. for the years ended September 26, 1996 and September 25, 1997 also included the financial statement schedule of The Pantry, Inc., listed in Item 21. This - ---------------------------- financial statement schedule is the responsibility of the Company's management. - ---------------------------- Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic ---------------------------- financial statements taken as a whole, presents fairly in all material respects the information set forth therein for the years ended September 26, 1996 and September 25, 1997. /s/ Deloitte & Touche LLP Raleigh, North Carolina December 19, 1997 EX-23.3 42 CONSENT OF PRICE WATERHOUSE LLP Exhibit 23.3 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in the Prospectus constituting part of this Registration Statement on Form S-4 of The Pantry, Inc. of our report dated November 30, 1995 relating to the consolidated statements of operations, of cash flows and of changes in shareholders' deficit for the year ended September 28, 1995 of The Pantry, Inc., which appears in such Prospectus. We also consent to the application of such report to the financial statement schedule for the year ended September 28, 1995 listed under Item 21(b) of this Registration Statement when such schedule is read in conjunction with the financial statements referred to in our report. We also consent to the reference to us under the heading "Experts" in such Prospectus. /s/ Price Waterhouse LLP Raleigh, North Carolina December 18, 1997 23.3-1 EX-25.1 43 FORM T-1 EXHIBIT 25.1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 __________________________ FORM T-1 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE __________________________ CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b)(2) _______ __________________________ UNITED STATES TRUST COMPANY OF NEW YORK (Exact name of trustee as specified in its charter) New York 13-3818954 (Jurisdiction of incorporation (I.R.S. Employer if not a U.S. national bank) Identification No.) 114 West 47th Street 10036-1532 New York, New York (Zip Code) (Address of principal executive offices) __________________________ The Pantry, Inc. (Exact name of OBLIGOR as specified in its charter) Delaware 56-1574463 (State or other jurisdiction of (I. R. S. Employer incorporation or organization) Identification No.) P. O. Box 1410 27331-1410 1801 Douglas Drive (Zip code) Sanford, North Carolina (Address of principal executive offices) - 2 - __________________________ Sandhills, Inc. (Exact name of OBLIGOR as specified in its charter) Delaware 51-0347722 (State or other jurisdiction of (I. R. S. Employer incorporation or organization) Identification No.) 913 Market Street, Suite 806 19801 Wilmington, Delaware (Zip code) (Address of principal executive offices) __________________________ Lil' Champ Food Stores, Inc. (Exact name of OBLIGOR as specified in its charter) Florida 59-1147100 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 9143 Phillips Highway, Suite 200 32241-3180 P. O. Box 23180 (Zip code) Jacksonville, Florida (Address of principal executive offices) __________________________ 10-1/4% Senior Subordinated Notes due 2007 (Title of the indenture securities) - -------------------------------------------------------------------------------- - 3 - GENERAL 1. GENERAL INFORMATION ------------------- Furnish the following information as to the trustee: (a) Name and address of each examining or supervising authority to which it is subject. Federal Reserve Bank of New York (2nd District), New York, New York (Board of Governors of the Federal Reserve System) Federal Deposit Insurance Corporation, Washington, D.C. New York State Banking Department, Albany, New York (b) Whether it is authorized to exercise corporate trust powers. The trustee is authorized to exercise corporate trust powers. 2. AFFILIATIONS WITH THE OBLIGOR ----------------------------- If the obligor is an affiliate of the trustee, describe each such affiliation. None 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15: The obligor currently is not in default under any of its outstanding securities for which United States Trust Company of New York is Trustee. Accordingly, responses to Items 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15 of Form T-1 are not required under General Instruction B. 16. LIST OF EXHIBITS ---------------- T-1.1 -- Organization Certificate, as amended, issued by the State of New York Banking Department to transact business as a Trust Company, is incorporated by reference to Exhibit T-1.1 to Form T-1 filed on September 15, 1995 with the Commission pursuant to the Trust Indenture Act of 1939, as amended by the Trust Indenture Reform Act of 1990 (Registration No. 33-97056). T-1.2 -- Included in Exhibit T-1.1. T-1.3 -- Included in Exhibit T-1.1. - 4 - 16. LIST OF EXHIBITS ---------------- (cont'd) T-1.4 -- The By-Laws of United States Trust Company of New York, as amended, is incorporated by reference to Exhibit T-1.4 to Form T-1 filed on September 15, 1995 with the Commission pursuant to the Trust Indenture Act of 1939, as amended by the Trust Indenture Reform Act of 1990 (Registration No. 33-97056). T-1.6 -- The consent of the trustee required by Section 321(b) of the Trust Indenture Act of 1939, as amended by the Trust Indenture Reform Act of 1990. T-1.7 -- A copy of the latest report of condition of the trustee pursuant to law or the requirements of its supervising or examining authority. NOTE ==== As of December 5, 1997, the trustee had 2,999,020 shares of Common Stock outstanding, all of which are owned by its parent company, U.S. Trust Corporation. The term "trustee" in Item 2, refers to each of United States Trust Company of New York and its parent company, U. S. Trust Corporation. In answering Item 2 in this statement of eligibility as to matters peculiarly within the knowledge of the obligor or its directors, the trustee has relied upon information furnished to it by the obligor and will rely on information to be furnished by the obligor and the trustee disclaims responsibility for the accuracy or completeness of such information. __________________ Pursuant to the requirements of the Trust Indenture Act of 1939, the trustee, United States Trust Company of New York, a corporation organized and existing under the laws of the State of New York, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of New York, and State of New York, on the 5th day of December 1997. UNITED STATES TRUST COMPANY OF NEW YORK, Trustee By: /s/ James E. Logan ------------------------------ James E. Logan Vice President Exhibit T-1.6 ------------- The consent of the trustee required by Section 321(b) of the Act. United States Trust Company of New York 114 West 47th Street New York, NY 10036 September 1, 1995 Securities and Exchange Commission 450 5th Street, N.W. Washington, DC 20549 Gentlemen: Pursuant to the provisions of Section 321(b) of the Trust Indenture Act of 1939, as amended by the Trust Indenture Reform Act of 1990, and subject to the limitations set forth therein, United States Trust Company of New York ("U.S. Trust") hereby consents that reports of examinations of U.S. Trust by Federal, State, Territorial or District authorities may be furnished by such authorities to the Securities and Exchange Commission upon request therefor. Very truly yours, UNITED STATES TRUST COMPANY OF NEW YORK By: /s/ Gerard F. Ganey --------------------------- Senior Vice President EXHIBIT T-1.7 UNITED STATES TRUST COMPANY OF NEW YORK CONSOLIDATED STATEMENT OF CONDITION SEPTEMBER 30, 1997 ------------------ ($ IN THOUSANDS)
ASSETS - ------ Cash and Due from Banks $ 116,582 Short-Term Investments 183,652 Securities, Available for Sale 691,965 Loans 1,669,611 Less: Allowance for Credit Losses 16,067 ---------- Net Loans 1,653,544 Premises and Equipment 61,796 Other Assets 125,121 ---------- Total Assets $2,832,660 ========== LIABILITIES - ----------- Deposits: Non-Interest Bearing $ 541,619 Interest Bearing 1,617,028 ---------- Total Deposits 2,158,647 Short-Term Credit Facilities 365,235 Accounts Payable and Accrued Liabilities 141,793 ---------- Total Liabilities $2,665,675 ========== STOCKHOLDER'S EQUITY - -------------------- Common Stock 14,995 Capital Surplus 49,542 Retained Earnings 99,601 Unrealized Gains (Losses) on Securities Available for Sale, Net of Taxes 2,847 ---------- TOTAL STOCKHOLDER'S EQUITY 166,985 ---------- TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $2,832,660 ==========
I, Richard E. Brinkmann, Senior Vice President & Comptroller of the named bank do hereby declare that this Statement of Condition has been prepared in conformance with the instructions issued by the appropriate regulatory authority and is true to the best of my knowledge and belief. Richard E. Brinkmann, SVP & Controller November 13, 1997 EX-27.1 44 FINANCIAL DATA SCHEDULE
5 THE PANTRY 0000915862 1,000 12-MOS SEP-25-1997 SEP-27-1996 SEP-25-1997 3,347 0 2,101 (150) 17,161 28,278 135,404 (57,418) 142,799 36,523 100,305 0 0 1 (17,873) 142,799 427,393 427,393 330,114 86,508 (1,293) 0 13,039 (975) 0 (975) 0 0 0 (975) 0 0
EX-99.1 45 FORM OF LETTER OF TRANSMITTAL EXHIBIT 99.1 LETTER OF TRANSMITTAL THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON ________, 1998, UNLESS EXTENDED (THE "EXPIRATION DATE"). THE PANTRY, INC. LETTER OF TRANSMITTAL 10 1/4% Senior Subordinated Notes due 2007
To: U.S. Trust Company of New York, The Exchange Agent By Registered or Certified Mail: By Overnight Courier and By Hand after 4:30 p.m.: United States Trust Company of New York United States Trust Company of New York P.O. Box 843 Cooper Station 770 Broadway, 13th Floor New York, New York 10276 New York, New York 10003 Attention: Corporate Trust Services By Hand before 4:30 p.m.: By Facsimile: United States Trust Company of New York (212) 780-0592 111 Broadway Attention: Customer Service New York, New York 10006 Attention: Lower Level Confirm by telephone: Corporate Trust Window (800) 548-6565
Delivery of this instrument to an address other than as set forth above or transmission of instructions via a facsimile number other than the one listed above will not constitute a valid delivery. The instructions accompanying this Letter of Transmittal should be read carefully before this Letter of Transmittal is completed. The undersigned acknowledges that he or she has received the Prospectus dated ___________, 1998, (the "Prospectus") of The Pantry, Inc. (the "Company") and this Letter of Transmittal (the "Letter of Transmittal"), which together constitute the Company's offer (the "Exchange Offer") to exchange $1,000 principal amount of its 10 1/4% Senior Subordinated Notes due 2007 (the "Exchange Notes") which have been registered under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to a Registration Statement of which the Prospectus is a part, for each $1,000 principal amount of its outstanding 10 1/4% Senior Subordinated Notes due 2007 (the "Notes"), of which $200,000,000 principal amount is outstanding. Other capitalized terms used but not defined herein have the meaning given to them in the Prospectus. The Letter of Transmittal is to be used by Holders of Notes (i) if certificates representing the Notes are to be physically delivered herewith; or (ii) if tender of Notes is to be made by book-entry transfer to the Exchange Agent's account at The Depository Trust Company ("DTC"), pursuant to the procedures set forth in the Prospectus under "The Exchange Offer - Procedures for Tendering" by any financial institution that is a participant in DTC and whose name appears on a security position listing as the owner of Notes; or (iii) if tender of Notes is to be made according to the guaranteed delivery procedures set forth in the Prospectus under "The Exchange Offer - Guaranteed Delivery Procedures." Delivery of documents to DTC does not constitute delivery to the Exchange Agent. The term "Holder" with respect to the Exchange Offer means any person (i) in whose name Notes are registered on the books of the Company or any other person who has obtained a properly completed bond power from the registered holder; or (ii) whose Notes are held of record by DTC who desires to deliver such Notes by book-entry transfer at DTC. The undersigned has completed, executed and delivered this Letter of Transmittal to indicate the action the undersigned desires to take with respect to the Exchange Offer. Holders who wish to tender their Notes must complete this letter in its entirety. PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL CAREFULLY BEFORE CHECKING ANY BOX BELOW
- ---------------------------------------------------------------------------------------------------------------------------------- DESCRIPTION OF 10 1/4% SENIOR SUBORDINATED NOTES DUE 2007 ("NOTES"): - ---------------------------------------------------------------------------------------------------------------------------------- Name(s) and Address(es) of Principal Amount Tendered Registered Holder(s) Aggregate Principal Amount (must be in integral multiple (Please fill in, if blank) Represented by Certificate(s) of $1,000)* ---------------------------------------------------------------------------------------------------------------------------------- ______________________________ ______________________________________________ ______________________________ ______________________________________________ ______________________________ ______________________________________________ ______________________________ ______________________________________________ Total - -----------------------------------------------------------------------------------------------------------------------------------
* Unless indicated in the column labeled "Principal Amount Tendered," any tendering Holder of Notes will be deemed to have tendered the entire aggregate principal amount represented by the column labeled "Aggregate Principal Amount Represented by Certificate(s)." If the space provided above is inadequate, list the principal amounts on a separate signed schedule and affix the list to this Letter of Transmittal. The minimum permitted tender is $1,000 in principal amount of Notes. All other tenders must be in integral multiples of $1,000.
- ----------------------------------------------------------------------------------------------------------------------------------- SPECIAL PAYMENT INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS (See Instructions 4, 5 and 6) (See Exchange Instructions 4, 5 and 6) To be completed ONLY if certificates for Notes in a To be completed ONLY if certificates for Notes in principal amount not tendered or not accepted for a principal amount not tendered or not accepted for exchange, or Exchange Notes issued in exchange for exchange, or Exchange Notes issued in exchange for Notes accepted for exchange, are to be issued in the Notes accepted for exchange, are to be sent to name of someone other than the undersigned, or if the someone other than the undersigned, or to the Notes tendered by book-entry transfer that are not undersigned at an address other than that shown accepted for exchange are to be credited to an account above. maintained by DTC. Issue certificate(s) to: Mail to: Name________________________________________ Name________________________________________ (Please Print) (Please Print) Address_____________________________________ Address_____________________________________ ____________________________________________ ____________________________________________ (Include Zip Code) (Include Zip Code) ____________________________________________ ____________________________________________ (Tax Identification or Social Security No.) (Tax Identification or Social Security No.) - ----------------------------------------------------------------------------------------------------------------
[_] CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED BY DTC TO THE EXCHANGE AGENT'S ACCOUNT AT DTC AND COMPLETE THE FOLLOWING: Name of Tendering Institution:______________________________________________ DTC Book-Entry Account No.: ______________________________________________ Transaction Code No.: ______________________________________________ [_] CHECK HERE IF YOU ARE A BROKER-DEALER. Name: ____________________________________________________________________ Address:____________________________________________________________________ ____________________________________________________________________ [_] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO. [_] CHECK HERE IF YOU ARE A BROKER-DEALER AND ANY OF THE NOTES YOU ARE TENDERING WERE ACQUIRED DIRECTLY FROM THE COMPANY. Principal Amount of Tendered Notes Acquired from the Company: $_____________ 2 Ladies and Gentlemen: Subject to the terms and conditions of the Exchange Offer, the undersigned hereby tenders to the Company the principal amount of Notes indicated above. Subject to and effective upon the acceptance for exchange of the principal amount of Notes tendered in accordance with this Letter of Transmittal, the undersigned sells, assigns and transfers to, or upon the order of, the Company all right, title and interest in and to the Notes tendered hereby. The undersigned hereby irrevocably constitutes and appoints the Exchange Agent its agent and attorney-in-fact (with full knowledge that the Exchange Agent also acts as the agent of the Company) with respect to the tendered Notes with full power of substitution to (i) deliver certificates for such Notes to the Company, or transfer ownership of such Notes on the account books maintained by DTC, and deliver all accompanying evidences of transfer and authenticity to, or upon the order of, the Company; and (ii) present such Notes for transfer on the books of the Company and receive all benefits and otherwise exercise all rights of beneficial ownership of such Notes, all in accordance with the terms of the Exchange Offer. The power of attorney granted in this paragraph shall be deemed irrevocable and coupled with an interest. The undersigned hereby represents and warrants that he or she has full power and authority to tender, sell, assign and transfer the Notes tendered hereby and that the Company will acquire good and unencumbered title thereto, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claim, when the same are acquired by the Company. The undersigned hereby further represents that any Exchange Notes acquired in exchange for Notes tendered hereby will have been acquired in the ordinary course of business of the Holder receiving such Exchange Notes, whether or not the undersigned, that neither the Holder nor any such other person has an arrangement with any person to participate in the distribution of such Exchange Notes and that neither the Holder nor any such other person is an "affiliate," as defined under Rule 405 of the Securities Act, of the Company or any of its subsidiaries. If the undersigned is not a broker-dealer, the undersigned represents that it is not engaged in, and does not intend to engage in, a distribution of Exchange Notes. If the undersigned is a broker-dealer that will receive Exchange Notes, it represents that, except to the extent indicated at the bottom of the preceding page, the Notes to be exchanged for Exchange Notes were acquired as a result of market-making activities or other trading activities and not acquired directly from the Company, and it acknowledges that it will deliver a prospectus in connection with any resale of such Exchange Notes; however, by so acknowledging and by delivering a prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. If the undersigned is a broker-dealer, it acknowledges that it may not use the prospectus in connection with resales of Exchange Notes received in exchange for Notes that were acquired directly from the Company. The undersigned will, upon request, execute and deliver any additional documents deemed by the Exchange Agent or the Company to be necessary or desirable to complete the assignment, transfer and purchase of the Notes tendered hereby. For purposes of the Exchange Offer, the Company shall be deemed to have accepted validly tendered Notes when, as and if the Company has given oral or written notice thereof to the Exchange Agent. If any tendered Notes are not accepted for exchange pursuant to the Exchange Offer for any reason, certificates for any such unaccepted Notes will be returned (except as noted below with respect to tenders through DTC), without expense, to the undersigned at the address shown below or at a different address as may be indicated herein under "Special Payment Instructions" as promptly as practicable after the Expiration Date. All authority conferred or agreed to be conferred by this Letter of Transmittal shall survive the death, incapacity or dissolution of the undersigned and every obligation of the undersigned under this Letter of Transmittal shall be binding upon the undersigned's heirs, personal representatives, successors and assigns. The undersigned understands that tenders of Notes pursuant to the procedures described under the caption "The Exchange Offer - Procedures for Tendering" in the Prospectus and in the instructions hereto will constitute a binding agreement between the undersigned and the Company upon the terms and subject to the conditions of the Exchange Offer. Unless otherwise indicated under "Special Payment Instructions," please issue the certificates representing the Exchange Notes issued in exchange for the Notes accepted for exchange and return any Notes not tendered or not exchanged, in the name(s) of the undersigned (or in either such event in the case of Notes tendered by DTC, by credit to the undersigned's account at DTC). Similarly, unless otherwise indicated under "Special Delivery Instructions," please send the certificates representing the Exchange Notes issued in exchange for the Notes accepted for exchange and any certificates for Notes not tendered or not exchanged (and accompanying documents, as appropriate) to the undersigned at the address shown below the undersigned's signature(s), unless, in either event, tender is being made through DTC. In the event that both "Special Payment Instructions" and "Special Delivery Instructions" are completed, please issue the certificates representing the Exchange Notes issued in exchange for the Notes accepted for 3 exchange and return any Notes not tendered or not exchanged in the name(s) of, and send said certificates to, the person(s) so indicated. The undersigned recognizes that the Company has no obligation pursuant to the "Special Payment Instructions" and "Special Delivery Instructions" to transfer any Notes from the name of the registered holder(s) thereof if the Company does not accept for exchange any of the Notes so tendered. Holders of Notes who wish to tender their Notes and (i) whose Notes are not immediately available, or (ii) who cannot deliver their Notes, this Letter of Transmittal or any other documents required hereby to the Exchange Agent, or cannot complete the procedure for book-entry transfer, prior to the Expiration Date, may tender their Notes according to the guaranteed delivery procedures set forth in the Prospectus under the caption "The Exchange Offer -Guaranteed Delivery Procedures". See Instruction 1 regarding the completion of the Letter of Transmittal printed below. PLEASE SIGN HERE WHETHER OR NOT NOTES ARE BEING PHYSICALLY TENDERED HEREBY X ---------------------------------------- ----------------------- Date X ---------------------------------------- ----------------------- Signature(s) of Registered Holder(s) Date or Authorized Signatory Area Code and Telephone Number:_______________________________________________ The above lines must be signed by the registered holder(s) of Notes as their name(s) appear(s) on the Notes or, if the Notes are tendered by a participant in DTC, as such participant's name appears on a security position listing as the owner of the Notes, or by person(s) authorized to become registered holder(s) by a properly completed bond power from the registered holder(s), a copy of which must be transmitted with this Letter of Transmittal. If Notes to which this Letter of Transmittal relates are held of record by two or more joint holders, then all such holders must sign this Letter of Transmittal. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, such person must (i) set forth his or her full title below and (ii) unless waived by the Company, submit evidence satisfactory to the Company of such person's authority so to act. See Instruction 4 regarding the completion of this Letter of Transmittal printed below. Name(s): _______________________________________________________________________ _______________________________________________________________________ (Please Print) Capacity:_______________________________________________________________________ Address: _______________________________________________________________________ _______________________________________________________________________ (Include Zip Code) Signature(s) Guaranteed by an Eligible Institution: (If required by Instruction 4) _______________________________________________________________________ (Authorized Signature) _______________________________________________________________________ (Title) _______________________________________________________________________ (Name of Firm) Dated:___________________________________, 199_ 4 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER 1. Delivery of this Letter of Transmittal and Notes. The tendered Notes (or a confirmation of a book-entry transfer into the Exchange Agent's account at DTC of all Notes delivered electronically), as well as a properly completed and duly executed copy of this Letter of Transmittal or facsimile hereof and any other documents required by this Letter of Transmittal, must be received by the Exchange Agent at its address set forth herein prior to 5:00 P.M., New York City time, on the Expiration Date. The method of delivery of the tendered Notes, this Letter of Transmittal and all other required documents to the Exchange Agent is at the election and risk of the Holder and, except as otherwise provided below, the delivery will be deemed made only when actually received by the Exchange Agent. Instead of delivery by mail, it is recommended that the Holder use an overnight or hand delivery service. In all cases, sufficient time should be allowed to assure timely delivery. No Letter of Transmittal or Notes should be sent to the Company. Holders who wish to tender their Notes and (i) whose Notes are not immediately available; or (ii) who cannot deliver their Notes, this Letter of Transmittal or any other documents required hereby to the Exchange Agent, or cannot complete the procedure for book-entry transfer, prior to 5:00 P.M., New York City time, on the Expiration Date must tender their Notes according to the guaranteed delivery procedures set forth in the Prospectus. Pursuant to such procedures: (i) such tender must be made by or through a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., or a commercial bank or trust company having an office or correspondent in the United States or an institution which falls within the definition of "Eligible Guarantor Institution" contained in Regulation 17Ad-15 promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended (each, an "Eligible Institution"); (ii) prior to the Expiration Date, the Exchange Agent must have received from the Eligible Institution a properly completed and duly executed Notice of Guaranteed Delivery (by facsimile transmission, mail or hand delivery) setting forth the name and address of the Holder of the Notes and the principal amount of Notes tendered, stating that the tender is being made thereby and guaranteeing that, within five New York Stock Exchange trading days after the Expiration Date, this Letter of Transmittal (or facsimile hereof) together with the certificate(s) representing the Notes (or a confirmation of electronic delivery of book-entry delivery into the Exchange Agent's account at DTC) and any other required documents will be deposited by the Eligible Institution with the Exchange Agent; and (iii) such properly completed and executed Letter of Transmittal (or facsimile hereof), as well as all other documents required by this Letter of Transmittal and the certificate(s) representing all tendered Notes in proper form for transfer (or a confirmation of electronic delivery of book-entry delivery into the Exchange Agent's account at DTC), must be received by the Exchange Agent within five New York Stock Exchange trading days after the Expiration Date, all as provided in the Prospectus under the caption "Exchange Offer -Guaranteed Delivery Procedures." Any Holder of Notes who wishes to tender his or her Notes pursuant to the guaranteed delivery procedures described above must ensure that the Exchange Agent receives the Notice of Guaranteed Delivery prior to 5:00 P.M., New York City time, on the Expiration Date. Upon request of the Exchange Agent, a Notice of Guaranteed Delivery will be sent to Holders who wish to tender their Notes according to the guaranteed delivery procedures set forth above. All questions as to the validity, form, eligibility (including time of receipt) and acceptance of tendered Notes and withdrawal of tendered Notes will be determined by the Company in its sole discretion, which determination will be final and binding. The Company reserves the absolute right to reject any and all Notes not properly tendered or any Notes the Company's acceptance of which would, in the opinion of counsel for the Company, be unlawful. The Company also reserves the right to waive any defects or irregularities or conditions of tender as to the Exchange Offer and/or particular Notes. The Company's interpretation of the terms and conditions of the Exchange Offer (including the instructions in this Letter of Transmittal) shall be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Notes must be cured within such time as the Company shall determine. Neither the Company, the Exchange Agent nor any other person shall be under any duty to give notification of defects or irregularities with respect to tenders of Notes, nor shall any of them incur any liability for failure to give such notification. Tenders of Notes will not be deemed to have been made until such defects or irregularities have been cured or waived. Any Notes received by the Exchange Agent that are not properly tendered and as to which the defects 5 or irregularities have not been cured or waived will be returned by the Exchange Agent to the tendering Holders of Notes, unless otherwise provided in this Letter of Transmittal, as soon as practicable following the Expiration Date. 2. Tender by Holder. Only a Holder of Notes may tender such Notes in the Exchange Offer. Any beneficial holder of Notes who is not the registered holder and who wishes to tender should arrange with the registered holder to execute and deliver this Letter of Transmittal on his or her behalf or must, prior to completing and executing this Letter of Transmittal and delivering his or her Notes, either make appropriate arrangements to register ownership of the Notes in such Holder's name or obtain a properly completed bond power from the registered holder. 3. Partial Tenders. Tenders of Notes will be accepted only in integral multiples of $1,000. If less than the entire principal amount of any Notes is tendered, the tendering Holder should fill in the principal amount tendered in the third column of the box entitled "Description of 10 1/4% Senior Subordinated Notes due 2007 ("Notes")" above. The entire principal amount of Notes delivered to the Exchange Agent will be deemed to have been tendered unless otherwise indicated. If the entire principal amount of all Notes is not tendered, then Notes for the principal amount of Notes not tendered and a certificate or certificates representing Exchange Notes issued in exchange for any Notes accepted will be sent to the Holder at his or her registered address, unless a different address is provided in the appropriate box on this Letter of Transmittal, promptly after the Notes are accepted for exchange. 4. Signatures on the Letter of Transmittal; Bond Powers and Endorsements; Guarantee of Signatures. If this Letter of Transmittal (or facsimile hereof) is signed by the record Holder(s) of the Notes tendered hereby, the signature must correspond with the name(s) as written on the face of the Notes or, if the Notes are tendered by a participant in DTC, as such participant's name appears on a security position listing as the owner of the Notes, without alteration, enlargement or any change whatsoever. If this Letter of Transmittal (or facsimile hereof) is signed by the registered Holder or Holders of Notes tendered and the certificate or certificates for Exchange Notes issued in exchange therefor are to be issued (or any untendered principal amount of Notes is to be reissued) to the registered Holder, the said Holder need not and should not endorse any tendered Notes, nor provide a separate bond power. In any other case, such Holder must either properly endorse the Notes tendered or transmit a properly completed separate bond power with this Letter of Transmittal, with the signatures on the endorsement or bond power guaranteed by an Eligible Institution. If this Letter of Transmittal (or facsimile hereof) is signed by a person other than the registered Holder or Holders of any Notes listed, such Notes must be endorsed or accompanied by appropriate bond powers signed as the name of the registered Holder or Holders appears on the Notes. If this Letter of Transmittal (or facsimile hereof) or any Notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys- in-fact or officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and unless waived by the Company, evidence satisfactory to the Company of their authority so to act must be submitted with this Letter of Transmittal. Endorsements on Notes or signatures on bond powers required by this Instruction 4 must be guaranteed by an Eligible Institution. Except as otherwise provided below, all signatures on this Letter of Transmittal (or facsimile hereof) must be guaranteed by an Eligible Institution. Signatures on this Letter of Transmittal need not be guaranteed if (i) this Letter of Transmittal is signed by the registered Holder(s) of the Notes tendered herewith and such Holder(s) have not completed the box set forth herein entitled "Special Payment Instructions" or the box entitled "Special Delivery Instructions;" or (ii) such Notes are tendered for the account of an Eligible Institution. 5. Special Payment and Delivery Instructions. Tendering Holders should indicate, in the applicable box or boxes, the name and address to which Exchange Notes or substitute Notes for principal amounts not tendered or not accepted for exchange are to be issued or sent, if different from the name and address of the person signing this Letter of Transmittal (or in the case of tender of Notes through DTC, if different from DTC). In the case of issuance in a different name, the taxpayer identification or social security number of the person named must also be indicated. 6 6. Tax Identification Number. Federal income tax law requires that a Holder whose offered Notes are accepted for exchange must provide the Company (as payor) with his, her or its correct Taxpayer Identification Number ("TIN"), which, in the case of an exchanging Holder who is an individual, is his or her social security number. If the Company is not provided with the correct TIN or an adequate basis for exemption, such Holder may be subject to a $50 penalty imposed by the Internal Revenue Service (the "IRS"). In addition, delivery to such Holder of Exchange Notes may be subject to backup withholding in an amount equal to 31% of the gross proceeds resulting from the Exchange Offer. If withholding results in an overpayment of taxes, a refund may be obtained from the IRS by the Holder. Exempt Holders (including, among others, all corporations and certain foreign individuals) are not subject to these backup withholding and reporting requirements. See instructions to the enclosed Form W-9. To prevent backup withholding, each exchanging Holder must provide his, her or its correct TIN by completing the Form W-9 enclosed herewith, certifying that the TIN provided is correct (or that such Holder is awaiting a TIN) and that (i) the Holder is exempt from backup withholding; (ii) the Holder has not been notified by the IRS that he, she or it is subject to backup withholding as a result of a failure to report all interest or dividends; or (iii) the IRS has notified the Holder that he, she or it is no longer subject to backup withholding. In order to satisfy the Exchange Agent that a foreign individual qualifies as an exempt recipient, such Holder must submit a statement signed under penalty of perjury attesting to such exempt status. Such statements may be obtained from the Exchange Agent. If the Notes are in more than one name or are not in the name of the actual owner, consult the Form W-9 for information on which TIN to report. If you do not provide your TIN to the Company within 60 days, backup withholding will begin and continue until you furnish your TIN to the Company. 7. Transfer Taxes. The Company will pay all transfer taxes, if any, applicable to the exchange of Notes pursuant to the Exchange Offer. If, however, certificates representing Exchange Notes or Notes for principal amounts not tendered or accepted for exchange are to be delivered to, or are to be registered or issued in the name of, any person other than the registered Holder of the Notes tendered hereby, or if tendered Notes are registered in the name of any person other than the person signing this Letter of Transmittal, or if a transfer tax is imposed for any reason other than the exchange of Notes pursuant to the Exchange Offer, then the amount of any such transfer taxes (whether imposed on the registered Holder or on any other persons) will be payable by the tendering Holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted with this Letter of Transmittal, the amount of such transfer taxes will be billed directly to such tendering Holder. Except as provided in this Instruction 7, it will not be necessary for transfer tax stamps to be affixed to the Notes listed in this Letter of Transmittal. 8. Waiver of Conditions. The Company reserves the absolute right to amend, waive or modify specified conditions in the Exchange Offer in the case of any Notes tendered. 9. Mutilated, Lost, Stolen or Destroyed Notes. Any tendering Holder whose Notes have been mutilated, lost, stolen or destroyed should contact the Exchange Agent at the address indicated herein for further instructions. 7 10. Requests for Assistance or Additional Copies. Questions and requests for assistance and requests for additional copies of the Prospectus or this Letter of Transmittal may be directed to the Exchange Agent at the address specified in the Prospectus. Holders may also contact their broker, dealer, commercial bank, trust company or other nominee for assistance concerning the Exchange Offer. (DO NOT WRITE IN SPACE BELOW)
Certificate Notes Notes Surrendered Tendered Accepted ------------------------------------ ---------------- ---------- -------- ---------------- ---------- --------
Delivery Prepared by_________________ Checked By____________ Date______________ 8 - ------------------------------------------------------------------------------------------------------------------------------------ Name (If joint names, see attached guidelines) - ------------------------------------------------------------------------------------------------------------------------------------ Business name (Sole proprietors, see attached guidelines) - ------------------------------------------------------------------------------------------------------------------------------------ Please check appropriate box: [_] Individual/Sole Proprietor [_] Corporation [_] Partnership [_] Other - ------------------------------------------------------------------------------------------------------------------------------------ Address (number, street, and apt. or suite no.) - ------------------------------------------------------------------------------------------------------------------------------------ City, state, and ZIP code - -----------------------------------------------------------------------------------------------------------------------------------
Part II -- For Payees Exempt From Backup SUBSTITUTE PART I -- Taxpayer Identification No. Withholding Form W-9 Enter your taxpayer identification (see enclosed Guidelines) Department of the Treasury number in the appropriate box. For _______________________ Internal Revenue Service most individuals, this is your social Social Security security number. If you do not have a Number number, see How to Obtain a "TIN" in the Payer's Request for Taxpayer enclosed Guidelines. Identification Number (TIN) _______________________ Employer Identification Note: If the account is more than one Number name, see the chart in enclosed Guidelines to determine what number to give.
- ------------------------------------------------------------------------------- PART III -- Certification -- Under penalties of perjury, I certify that: (1) The number shown on this form is my correct Taxpayer Identification Number (or I am waiting for a number to be issued to me), and (2) I am not subject to backup withholding because (a) I am exempt from backup withholding, or (b) I have not been notified by the Internal Revenue Service ("IRS") that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding. Certification Instructions. -- You must cross out item (2) above if you have been notified by the IRS that you are subject to backup withholding because of under-reporting interest or dividends on your tax return. However, if after being notified by the IRS that you are subject to backup withholding, you received another notification from the IRS that you are no longer subject to backup withholding, do not cross out item (2). - ------------------------------------------------------------------------------- SIGNATURE DATE , 1997 -------------------------------------- ------------------- - ------------------------------------------------------------------------------- NOTE: FAILURE TO COMPLETE THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU. PLEASE REVIEW ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 What Is Backup Withholding? -- Persons making certain payments to you are required to withhold and pay to IRS 31% of such payments under certain conditions. This is called "backup withholding." Payments that could be subject to backup withholding include interest, dividends, broker and barter exchange transactions, rents, royalties, nonemployee compensation, and certain payments from fishing boat operators, but do not include real estate transactions. If you give the requester your correct TIN, make the appropriate certifications, and report all your taxable interest and dividends on your tax return, your payments will not be subject to backup withholding. Payments you receive will be subject to backup withholding if: (1) You do not furnish your TIN to the requester, or (2) IRS notifies the requester that you furnished an incorrect TIN, or (3) You are notified by IRS that you are subject to backup withholding because you failed to report all your interest and dividends on your tax return (for interest and dividend accounts only), or (4) You fail to certify to the requester that you are not subject to backup withholding under (3) above (for interest and dividend accounts opened after 1983 only), or (5) You fail to certify your TIN. This applies only to interest, dividend, broker or barter exchange accounts opened after 1983, or broker accounts considered inactive in 1983. For other payments, you are subject to backup withholding only if (1) or (2) above applies. Certain Payees and payments are exempt from backup withholding and information reporting. See payees and Payments Exempt From Backup Withholding, below, and Exempt Payees and Payments under Specific Instructions below if you are an exempt payee. Payees and Payments Exempt From Backup Withholding. -- The following is a list of payees exempt from backup withholding and for which no information reporting is required. For interest and dividends, all listed payees are exempt except item (9). For broker transactions, payees listed in (1) through (13), and a person registered under the Investment Advisers Act of 1940 who regularly acts as a broker are exempt. Payments subject to reporting under sections 6041 and 6041A are generally exempt from backup withholding only if made to payees described in items (1) through (7), except that a corporation that provides medical and health care services or bills and collects payments for such services is not exempt from backup withholding or information reporting. Only payees described in items (2) through (6) are exempt from backup withholding for barter exchange transactions, patronage dividends, and payments by certain fishing boat operators. 11. A corporation. 12. An organization exempt from tax under section 501(a), or an individual retirement plan (IRA), or a custodial account under 403(b)(7). 13. The United States or any of its agencies or instrumentalities. 14. A state, the District of Columbia, a possession of the United States, or any of their political subdivisions or instrumentalities. 15. A foreign government or any of its political subdivisions, agencies or instrumentalities. 16. An international organization or any of its agencies or instrumentalities. 17. A foreign central bank of issue. 18. A dealer in securities or commodities required to register in the U.S. or a possession of the U.S. 19. A futures commission merchant registered with the Commodity Futures Trading Commission. 20. A real estate investment trust. 21. An entity registered at all times during the tax year under the Investment Company Act of 1940. 22. A common trust fund operated by a bank under section 584(a). 23. A financial institution. 24. A middleman known in the investment community as a nominee or listed in the most recent publication of the American Society of Corporate Securities, Inc., Nominee List. 25. A trust exempt from tax under section 664 or described in section 4947. Payments of dividends and patronage dividends generally not subject to backup withholding also include the following: . Payments to nonresident aliens subject to withholding under section 1441. . Payments to partnerships not engaged in a trade or business in the U.S. and that have at least one nonresident partner. Payments of interest generally not subject to backup withholding include the following: . Payments of interest on obligations issued by individuals. Note: You may be subject to backup withholding if this interest is $600 or more and is paid in the course of the payer's trade or business and you have not provided your correct TIN to the payer. Payments that are not subject to information reporting are also not subject to backup withholding. For details, see sections 6041, 6041A(a), 6042, 6044, 6045, 6049, 6050A, and 6050N, and the regulations under such sections. Penalties Failure to Furnish TIN. -- If you fail to furnish your TIN to a requester, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect. Misuse of TINs. -- If the requester discloses or uses TINs in violation of Federal laws, the requester may be subject to civil and criminal penalties. Civil Penalty for False Information With Respect to Withholding. -- If you make a false statement with no reasonable basis that results in no imposition of backup withholding, you are subject to a penalty of $500. Criminal Penalty for Falsifying Information. -- Willfully falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment. Specific Instructions Name. -- If you are an individual, generally provide the name shown on your social security cared. However, if you have changed your last name, for instance, due to marriage, without informing the Social Security Administration of the name change, please enter your first name and both the last name shown on your social security card and your new last name. Signing the Certification. -- (1) Interest, Dividend, and Barter Exchange Accounts Opened Before 1984 and Broker Accounts That Were Considered Active During 1983. -- You are not required to sign the certification; however, you may do so. You are required to provide your correct TIN. (2) Interest, Dividend, Broker and Barter Exchange Accounts Opened After 1983 and Broker Accounts That Were Considered Inactive During 1983. -- You must sign the certification or backup withholding will apply. If you are subject to backup withholding and you are merely providing your correct TIN to the requester, you must cross out item (2) in the certification before signing the form. (3) Other Payments. -- You are required to furnish your correct TIN, but you are not required to sign the certification unless you have been notified of an incorrect TIN. Other payments include payments made in the course of the requestor's trade or business for rents, royalties, goods (other than bills for merchandise), medical and health care services, payments to a nonemployee for services (including attorney and accounting fees), and payments to certain fishing boat crew members. (4) Exempt Payees and Payments -- If you are exempt from backup withholding, you should complete this form to avoid possible erroneous backup withholding. Enter your correct TIN in Part I, write "EXEMPT" in the block in Part II, sign and date the form. If you are a nonresident alien or foreign entity not subject to backup withholding, give the requester a completed Form W-8, Certificate of Foreign Status. (5) TIN "Applied For." -- Follow the instructions under How To Obtain a TIN, on page 1, sign and date this form. Signature.-- For a joint account, only the person whose TIN is shown in Part I should sign the form. Privacy Act Notice. -- Section 6109 requires you to furnish your correct taxpayer identification number (TIN) to persons who must file information returns with IRS to report interest, dividends, and certain other income paid to you, mortgage interest you paid, the acquisition or abandonment of secured property, or contributions you made to an individual retirement arrangement (IRA). IRS uses the numbers for identification purposes and to help verify the accuracy of your tax return. You must provide your TIN whether or not you are required to file a tax return. Payers must generally withhold 20% of taxable interest, dividend, and certain other payments to a payee who does not furnish a TIN to a payer. Certain penalties may also apply. GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER (TIN) ON SUBSTITUTE FORM W-9 (Section references are to the Internal Revenue Code) Guidelines for Determining the Proper Identification Number to Give the Payer.-- Social Security numbers have nine digits separated by two hyphens: i.e. 000-00-0000. Employer identification numbers have nine digits separate by only one hyphen: i.e. 00-0000000. The table below will help determine the number to give the payer.
- -------------------------------------------------------------- ---------------------------------------------------------------- Give the For this type of account: Give the For this type of account: EMPLOYER SOCIAL SECURITY IDENTIFICATION number of-- number of-- - -------------------------------------------------------------- ---------------------------------------------------------------- 1. An individual's account The individual 7. A valid trust, estate, or pension The legal entity (5) trust 2. Two or more individuals The actual owner of the 8. Corporate account The corporation (joint account) account or, if combined funds, any one of the 9. Association, club, religious, The organization individuals (1) charitable, educational or other exempt organization account 3. Custodian account of a The minor (2) minor (Uniform Gift to 10. Partnership account held in the The partnership Minors Act) name of the business 4. a. The usual revocable The grantor-trustee (1) 11. A broker or registered nominee The broker or nominee savings trust account (grantor is also trustee) 12. Account with the Department of The public entity Agriculture in the name of a b. So-called trust account The actual owner (1) public entity (such as a State that is not a legal or or local government, school valid trust under State district, or prison) that law receives agricultural program payments 5. Sole proprietorship account The owner (3) ---------------------------------------------------------------- 6. Sole Proprietorship The owner (3) - --------------------------------------------------------------
(1) List first and circle the name of the person whose number you furnish. (2) Circle the minor's name and furnish the minor's social security number. (3) Show the name of the owner. (5) List first and circle the name of the valid trust, estate, or pension trust. (Do not furnish the identifying number of the personal representative or trustee unless the legal entity itself is not designated in the account title) Note: If no name is circled when there is more than one name, the number will be considered to be that of the first name listed. EX-99.2 46 FORM OF NOTICE OF GUARANTEED DELIVERY EXHIBIT 99.2 Notice of Guaranteed Delivery for 10 1/4% Senior Subordinated Notes due 2007 of THE PANTRY, INC. This form, or one substantially equivalent hereto, must be used to accept the Exchange Offer of The Pantry, Inc. (the "Company") made pursuant to the Prospectus dated ____________________, 1998 (the "Prospectus"), if certificates for the 10 1/4% Senior Subordinated Notes due 2007 (the "Notes") of the Company are not immediately available or if the Notes, the Letter of Transmittal or any other documents required thereby cannot be delivered to the Exchange Agent or the procedure for book-entry transfer cannot be completed, prior to 5:00 P.M., New York City time, on the Expiration Date (as defined in the Prospectus). Such form may be delivered by hand or transmitted by facsimile transmission, overnight courier or mail to the Exchange Agent. Capitalized terms used but not defined herein have the meaning given to them in the Prospectus. To: U.S. Trust Company of New York, The Exchange Agent By Registered or Certified Mail: By Overnight Courier: United States Trust Company of New York United States Trust Company of New York P.O. Box 841 770 Broadway, 13th Floor Peter Cooper Station New York, New York 10003 New York, New York 10276-0841 Attention: Corporate Trust Municipal Operations By Hand: By Facsimile: United States Trust Company of New York (212) 420-6504 111 Broadway, Lower Level Attention: Customer Service New York, New York 10006-1906 Attention: Corporate Trust Operations Confirm by telephone: (800) 225-2398
Delivery of this instrument to an address, or transmission of instructions via facsimile, other than as set forth above, does not constitute a valid delivery. This form is not to be used to guarantee signatures. If a signature on the Letter of Transmittal to be used to tender Notes is required to be guaranteed by an "Eligible Institution" under the instructions thereto, such signature guarantee must appear in the applicable space provided in the Letter of Transmittal. Ladies and Gentlemen: The undersigned hereby tenders to The Pantry, Inc., a Delaware corporation (the "Company"), upon the terms and subject to the conditions set forth in the Prospectus and the Letter of Transmittal (which together constitute the "Exchange Offer"), receipt of which is hereby acknowledged,____________________ (principal amount of Notes) Notes pursuant to the guaranteed delivery procedures set forth in Instruction 1 of the Letter of Transmittal. NOTE: SIGNATURES MUST BE PROVIDED WHERE INDICATED BELOW. Principal Amount(s) of Notes Name(s) of Record Holder(s) ..................................... ...................................... ..................................... ...................................... Please print or type Address............................... ...................................... Zip Code Area Code and Tel. No................. Signature(s).......................... ...................................... Dated:................................ If Notes will be delivered by book- entry transfer at The Depository Trust Company ("DTC"), Depository Account No:...................................
This Notice of Guaranteed Delivery must be signed by the registered Holder(s) of Notes exactly as its (their) name(s) appear on certificates for Notes or on a security position listing as the owner of Notes, or by person(s) authorized to become registered Holder(s) by endorsements and documents transmitted with this Notice of Guaranteed Delivery. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer or other person acting in a fiduciary or representative capacity, such person must provide the following information. Please print name(s) and address(es) Name(s): ................................................................... ................................................................... Capacity: ................................................................... Address(es): ................................................................... ................................................................... 2 GUARANTEE (Not to be used for signature guarantee) The undersigned, a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., or a commercial bank or trust company having an office or correspondent in the United States or a commercial bank or trust company having an office or correspondent in the United States or an "Eligible Guarantor Institution" within the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), hereby (a) represents that the above named person(s) "own(s)" the Notes tendered hereby within the meaning of Rule 10b-4 under the Exchange Act, (b) represents that such tender of Notes complies with Rule 10b-4 and (c) guarantees that delivery to the Exchange Agent of certificates for the Notes tendered hereby, in proper form for transfer (or confirmation of the book-entry transfer of such Notes into the Exchange Agent's Account at DTC, pursuant to the procedures for book-entry transfer set forth in the Prospectus), with delivery of a properly completed and duly executed Letter of Transmittal (or manually signed facsimile thereof) with any required signature and any other required documents, will be received by the Exchange Agent at one of its addresses set forth above within five New York Stock Exchange trading days after the Expiration Date. The undersigned acknowledges that it must deliver the Letter of Transmittal and Notes tendered hereby to the Exchange Agent within the time period set forth above and that failure to do so could result in financial loss to the undersigned. Name of Firm......................... ....................................... Authorized Signature Address.............................. Name................................... Please Print or Type ..................................... Zip Code Title.................................. Area Code and Tel. No................ Date................................... Date:______________, 199_
NOTE: DO NOT SEND NOTES WITH THIS FORM; NOTES SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL SO THAT THEY ARE RECEIVED BY THE EXCHANGE AGENT WITHIN FIVE NEW YORK STOCK EXCHANGE TRADING DAYS AFTER THE EXPIRATION DATE. 3 -----END PRIVACY-ENHANCED MESSAGE-----