-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, nYjT/AZXyudPNu2uR6V71AtqcnN7kjL+TeyD0MDOZyL9kG8gzmdszc0rOwtsjPkZ IHPNuNExKbDaH9WW9N8PVg== 0000950109-94-000747.txt : 19940513 0000950109-94-000747.hdr.sgml : 19940513 ACCESSION NUMBER: 0000950109-94-000747 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19940129 FILED AS OF DATE: 19940429 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DAIRY MART CONVENIENCE STORES INC CENTRAL INDEX KEY: 0000721675 STANDARD INDUSTRIAL CLASSIFICATION: 5412 IRS NUMBER: 042497894 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-12497 FILM NUMBER: 94525217 BUSINESS ADDRESS: STREET 1: ONE VISION DRIVE CITY: ENFIELD STATE: CT ZIP: 06082 BUSINESS PHONE: 2037414444 10-K 1 FORM 10-K 1/29/94 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark one) --- X Annual Report Pursuant to Section 13 or 15(d) of --- the Securities Exchange Act of 1934 For the fiscal year ended January 29, 1994 ---------------- --- Transition Report Pursuant to Section 13 or 15 (d) --- of the Securities Exchange Act of 1934 For the Transition Period From ________ to ________ Commission File Number 0-12497 DAIRY MART CONVENIENCE STORES, INC. ---------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 04-2497894 - - ------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) ONE VISION DRIVE, ENFIELD, CT 06082 ------------------------------------------- (Address of principal executive offices) Registrant's telephone number, including area code (203) 741-4444 --------------- Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered None None Securities registered pursuant to Section 12(g) of the Act: Class A Common Stock (Par Value $.01) Class B Common Stock (Par Value $.01) (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] As of April 1, 1994, 2,747,104 shares of Class A Common Stock and 2,780,058 shares of Class B Common Stock were outstanding, and the aggregate market value of both classes of Common Stock outstanding of DAIRY MART CONVENIENCE STORES, INC., held by nonaffiliates was approximately $23,700,000. -1- DOCUMENTS INCORPORATED BY REFERENCE ----------------------------------- Portions of the Registrant's 1994 definitive proxy statement to be filed pursuant to Regulation 14A within 120 days after the end of Registrant's fiscal year are incorporated by reference in Part III. PART I ------ ITEM 1. BUSINESS GENERAL Dairy Mart Convenience Stores, Inc., and its subsidiaries (the "Company" or "Dairy Mart"), operates one of the nation's largest convenience store chains. Founded in 1957, the Company operates or franchises approximately 1,000 stores under the "Dairy Mart" name in 11 states located in the Northeast, Midwest and Southeast. Approximately 420 stores sell gasoline and approximately 335 stores are franchised. The Company also manufactures, processes and distributes certain dairy and other products. Dairy Mart stores offer a wide range of products and services which cater to the convenience needs of its customers, including milk, ice cream, groceries, beverages, snack foods, candy, deli products, publications, health and beauty aids, tobacco products, lottery tickets and money orders. The stores are typically located in densely populated, suburban areas on sites which are easily accessible to customers and provide ample parking. Dairy Mart stores are generally free standing structures which are well-lit and are designed to encourage customers to purchase high profit margin products, such as deli items, coffee, fountain drinks and other fast food items. The Company's facilities in Enfield, Connecticut and Cuyahoga Falls, Ohio manufacture and process milk, fruit juices, and other non-carbonated beverages which are distributed to stores in the Northeast and the Midwest regions. The dairy plant in Ohio manufactures and distributes ice cream to most stores. In the Southeast region, the Company distributes dairy products, tobacco products, candy and certain other merchandise to stores in Kentucky and Indiana. The Company's primary growth strategy is to increase its retail gasoline presence. As a result, almost all of the stores recently opened by the Company are retail units, known as "super pumper" stores, which have approximately four times the gasoline retailing capacity and a significantly larger in-store size than the Company's traditional convenience stores. The Company plans to open approximately 20 new super pumper stores in the fiscal year ending January 28, 1995 and approximately 30 new super pumper stores per year thereafter for the foreseeable future. The Company is incorporated in Delaware and maintains its principal executive offices at One Vision Drive, Enfield, Connecticut 06082. The Company's telephone number is (203) 741-4444. STORES The Company's stores are generally located in densely populated suburban areas, and are situated close to single-family homes and apartments to attract neighborhood shoppers. Store location, design, lighting and layout are intended to cater to customers' desire for fast and convenient access. Approximately -2- 420 locations also sell gasoline, which the Company believes is an important convenience for customers. Shelving and displays, including refrigeration units, deli and other fast food counters and displays, are designed to encourage customers to purchase high profit margin products including impulse purchase items such as candy, fountain drinks and ice cream novelties. Stores are located on sites which are well-lit, easily accessible by customers and provide ample parking. All of the Company's stores also offer extended hours for additional convenience, with over one-half of the stores open 24 hours per day. A traditional Dairy Mart store is typically 2,400 square feet and most are free standing structures. As of January 29, 1994, the Company operated and franchised retail convenience stores in the following three regions of the United States:
NUMBER OF NORTHEAST REGION STORES --------- Massachusetts.............................................. 73 Connecticut................................................ 67 New York................................................... 37 Rhode Island............................................... 25 ----- Total Northeast Stores................................ 202 ----- MIDWEST REGION Ohio....................................................... 518 Michigan................................................... 49 Pennsylvania............................................... 41 ----- Total Midwest Stores.................................. 608 ----- SOUTHEAST REGION Kentucky................................................... 169 Indiana.................................................... 18 Tennessee.................................................. 14 North Carolina............................................. 11 ----- Total Southeast Stores................................ 212 ----- Total Stores...................................... 1,022 =====
SUPER PUMPER STORES Super pumper stores are an important part of the Company's strategy to expand and increase its profitability. Super pumper stores have approximately four times the gasoline retailing capacity of traditional gasoline convenience stores. Generally 2,700 square feet, super pumper stores are significantly larger than the Company's traditional convenience stores. The stores are designed to devote a greater amount of space to fast food counters, deli areas and refrigeration display units which attract customers to high profit margin products such as fountain drinks and fresh made sandwiches. Super pumper stores are generally located at high-traffic intersections to provide convenient access to customers, and all have -3- canopies to shield gasoline customers from inclement weather. As of January 29, 1994, the Company had 34 super pumper stores, a majority of which have been opened since February, 1992 and all of which have been opened since the beginning of fiscal 1990. UPGRADING EXISTING STORE BASE Over the next four fiscal years, the Company plans to upgrade and remodel up to 400 stores in order to modernize the stores' look, upgrade their equipment and increase the space devoted to higher profit margin items, such as fountain drinks and fast food and deli items. Management expects that this remodeling program will favorably impact the amount of maintenance capital expenditures required on its existing store base due to the installation of newer, more reliable equipment. The Company also intends to convert approximately 40 traditional gasoline convenience stores to super pumper status over the same period. Stores recently upgraded to super pumper status have shown significantly higher inside store and gasoline sales. CLOSING UNDER PERFORMING STORES The Company continually evaluates the performance of each of its stores in order to identify actions aimed at improving the Company's overall profitability. Based upon these evaluations, the Company continues to sell or close certain under performing stores. The Company considers various factors in deciding to sell or close stores, including store location, lease term, rental and other obligations and store performance. Sales or closures of stores, while reducing revenues, generally do not have an adverse effect on overall results, since a majority of such stores operate at a loss. The Company sold or closed approximately 60 stores in fiscal 1994. GASOLINE OPERATIONS A major part of the Company's growth strategy is to continue to increase its level of gasoline sales. This strategy enables the Company to significantly increase a store's total level of sales without a commensurate increase in overhead. The Company believes that the sale of gasoline at its stores offers a significant competitive advantage and that customers value this additional convenience. Gasoline sales accounted for approximately 37% of total revenues of the Company for each of the past three fiscal years. As of January 29, 1994, 419 stores sold gasoline. Financial information related to the Company's gasoline operations for the last three fiscal years is set forth in Note 9 to the Consolidated Financial Statements on page F-15. The Company's gasoline pricing strategy is designed, in part, to provide value to customers by offering the same quality gasoline offered by major oil companies at prices which are generally below nationally advertised brands and comparable to other convenience store chains. The Company obtains its gasoline from major oil company suppliers, primarily through spot market purchases, and believes that there are adequate supplies of fuel available from a number of sources at competitive prices. Gasoline profit margins have an impact on the Company's income. Such profit margins could be adversely influenced by factors beyond the Company's control, such as volatility in the wholesale gasoline market due to supply interruptions. In addition, gasoline profit margins are continually influenced by competition in each local market area. Substantial decreases in gasoline profit margins, or the volume of gasoline sold, may have an adverse impact on the Company's earnings. -4- PRODUCT SELECTION All stores generally offer more than 3,000 food and non-food items limited to a few, well-known brand names as well as the Company's private label products. Most of these items would typically be offered in supermarkets. Food items include a wide variety of products, including canned foods and groceries, dairy products, beverages, snack items, candy, baked goods and food service items, such as fountain soft drinks, coffee, hot dogs, deli meats and deli sandwiches and similar foods. Non-food products and services include gasoline, cigarettes, health and beauty aids, publications, lottery tickets and money orders. In addition to selling well-known brand name products, the stores offer many products that bear the "Dairy Mart" private label, including milk, bakery products, juices and other non-carbonated beverages, ice cream and other dairy products such as dips and cheeses. In recent years, the Company has been altering the mix of products to emphasize the sale of items carrying higher profit margins. Central to these efforts has been the Company's installation of fast food counters, the "Hot Dog Central" program which includes hot dog grills and related equipment and/or deli areas in approximately 500 stores over the last three fiscal years. Fast food items not only carry higher profit margins but also tend to lead to the purchase of other high profit margin products and impulse items, including salty-snacks, candy and beverages. Dairy Mart has introduced a number of new private label products, including ice cream products and juices, which generally carry a higher gross profit margin than the Company's average gross profit margin on comparable products. These private label products include Dairy Mart's "Party Time" (R) and "Special Occasion" (R) ice cream. POS SYSTEM The Company has initiated a program to install a Point-of-Sale (POS) system in all stores within three years. The Company anticipates that, upon completion of this program, each store will be equipped with a scanner and with a dedicated personal computer, into which sales, inventory and other data will be input at scheduled daily intervals, and then automatically transmitted to the Company's headquarters. The Company believes that the POS system will: (i) provide more accurate and timely information regarding store operations, including sales and merchandising, and inventory levels and composition; (ii) reduce paperwork for store managers, thereby allowing them to spend more time interacting with customers and improving operations; (iii) decrease administrative overhead, since the input and verification of data will be automated at both the store and office level; and (iv) improve verification of product costs and retail pricing. The cost of the POS system, including new cash registers and personal computers, is currently estimated to be approximately $7.0 million to $9.0 million, and is anticipated to be funded by third-party equipment financing. The Company believes it will be among the first of the larger convenience store chains to implement a chain-wide POS system. MANUFACTURING AND DISTRIBUTION OPERATIONS The Company supplies its stores and most franchised stores through a product distribution system which includes the Company's own manufacturing, distribution and processing facilities, and other distributors. Through its manufacturing, processing and distribution facilities in Connecticut and Ohio, the Company supplies all of the milk and a substantial portion of the ice cream, juices and non-carbonated beverages for the stores in the Northeast and the Midwest. Many other products which are not produced by the Company are supplied to the Northeast and Midwest regions by one wholesale distributor under a ten- year contract entered into in February, 1988. The Company supplies the Southeast region stores in large part through its 35,000 square foot distribution facility located in Louisville, Kentucky. -5- In fiscal 1993, the Company reversed a prior policy and began to actively market its excess manufacturing and processing capacity to third parties, such as wholesalers and supermarkets. These efforts have resulted in a wholesale arrangement with a regional brand name ice cream distributor which has more than doubled the utilization of the Company's ice cream production capacity since the beginning of fiscal 1993. To accommodate additional growth in the sale of ice cream to third party purchasers, the Company invested approximately $1.4 million to further enhance product quality and to improve the efficiency and capacity of its ice cream production. The Company also intends to continue to pursue sales to third parties of other products produced at its manufacturing and processing facilities. FRANCHISE OPERATIONS The Company franchises approximately 335 stores throughout its three geographic regions. Franchise stores generally follow the same operating policies as Company stores, and are subject to Company supervision under franchise agreements. Company operated and franchise stores are of the same basic store design and sell substantially the same products. The Company currently franchises only existing stores. Most franchisees purchase milk, ice cream, dairy products, fruit juices and other non-carbonated beverages distributed by the Company and generally purchase other products through the same suppliers used by the Company. The Company offers two types of franchising arrangements- the "full" franchise and the "limited" franchise. Under a full franchise agreement, the franchisee purchases and owns both the merchandise inventory and the equipment located in the store, and leases or subleases the store from the Company. Under a limited franchise agreement, the franchisee owns only the merchandise inventory while the Company retains ownership of the store equipment. Franchise fees are higher for limited franchisees. As of January 29, 1994, there were 161 full franchise locations and 174 limited franchise locations. The Company has recently revised its franchising strategy in order to: (i) improve the level of retail experience of its new franchisees; and (ii) increase the level of financial commitment by new franchisees. As part of this strategy, new franchisees are now required to undergo more rigorous and thorough interviews and background checks, receive increased levels of financial and retail training, and typically make larger initial cash payments. The following table sets forth the number of stores, on both a Company operated and franchise operated basis, that were opened or acquired, closed or sold, and transferred between Company operated and franchise operated, during the last three fiscal years:
January 29, 1994 January 30, 1993 February 2, 1992 ----------------------------- ----------------------------- ----------------------------- Company Franchise Company Franchise Company Franchise Operated Operated Total Operated Operated Total Operated Operated Total --------- ---------- ------ --------- ---------- ------ --------- ---------- ------ At beginning of period.... 709 370 1,079 685 449 1,134 725 465 1,190 Opened or acquired........ 4 -- 4 6 -- 6 6 -- 6 Closed or sold............ (50) (11) (61) (34) (27) (61) (48) (14) (62) Transferred (net)......... 24 (24) -- 52 (52) -- 2 (2) -- --- --- ----- --- --- ----- --- --- ----- At end of period.......... 687 335 1,022 709 370 1,079 685 449 1,134 === === ===== === === ===== === === =====
-6- INTERNATIONAL OPERATIONS The Company conducts business outside the United States as a joint- venturer, licensor or consultant. Currently, the Company is a party to two agreements with convenience store operators in South Korea and Mexico, and continues to pursue similar arrangements in other countries. As with the Company's prior international arrangements, both such agreements require a specified commitment of Company personnel, but do not require any significant commitment of capital. ADVERTISING To promote a uniform image for all stores, the Company designs and coordinates advertising for all stores to complement its marketing strategy, which is derived, in part, from market surveys and research. Largely in response to such research, the Company launched a new advertising program entitled "Close to Home" which emphasizes the high percentage of neighborhood locations throughout Dairy Mart's operating regions. In-store, newspaper, and direct-mail advertising, special promotions and seasonal radio and television advertising usually feature certain items which can be purchased at the stores, and frequently include national brand items for which advertising costs are often supplemented by the national brand suppliers. Sales promotions are generally established and maintained on a bi-weekly or monthly basis. COMPETITION The convenience store and retail gasoline industries are highly competitive. The number and type of competitors vary by location. The Company presently competes with other convenience stores, large integrated gasoline service station operators, supermarket chains, neighborhood grocery stores, independent gasoline service stations, fast food operations and other similar retail outlets, some of which are well recognized national or regional retail chains. Some of the Company's competitors have greater financial resources than the Company. Key competitive factors include, among others, location, ease of access, store management, product selection, pricing, hours of operation, store safety, cleanliness, product promotions and marketing. SEASONALITY Weather conditions have a significant effect on the Company's sales, as convenience store customers are more likely to go to stores to purchase convenience goods and services, particularly higher profit margin items such as fast food items, fountain drinks and other beverages, when weather conditions are favorable. Accordingly, the Company's stores generally experience higher revenues and profit margins during the warmer weather months, which fall within the Company's second and third fiscal quarters. EMPLOYEES As of January 29, 1994, exclusive of franchisees and franchisees' employees, the Company employed, on a full-time or part-time basis, approximately 5,000 employees. ENVIRONMENTAL COMPLIANCE The Company incurs ongoing costs to comply with federal, state and local environmental laws and regulations, including costs for assessment, compliance, remediation and certain capital expenditures -7- relating to its gasoline operations. These laws and regulations relate primarily to underground storage tanks ("USTs"). The United States Environmental Protection Agency has established standards for, among other things: (i) maintaining leak detection; (ii) upgrading UST systems; (iii) taking corrective action in response to releases; (iv) closing USTs to prevent future releases; (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. A number of states in which the Company operates also have adopted UST regulatory programs. In the ordinary course of business, the Company periodically detects releases of gasoline or other regulated substances from USTs it owns or operates. As part of its program to manage USTs, the Company is involved in environmental assessment and remediation activities with respect to releases of regulated substances from its existing and previously operated retail gasoline facilities. The Company accrues its estimates of all costs to be incurred for assessment and remediation for known releases. These accruals are adjusted if and when new information becomes known. Additionally, the Company records as receivables the expected reimbursements of a portion of the total costs from various state environmental trust funds which have provisions for sharing or reimbursing certain costs incurred by UST owners or operators based upon compliance with the terms and conditions of such funds. Due to the nature of such releases, the actual costs of assessment and remediation activities may vary significantly from year to year. Under current federal and state regulatory programs, the Company also will be obligated by December 22, 1998 to upgrade or replace most existing USTs it owns or operates to meet certain corrosion-, overfill- and spill-protection and leak-detection requirements. The Company currently is evaluating each site on an individual basis to determine the type of expenditures required to comply with these and other requirements under the federal and state UST regulatory programs. In addition to ongoing assessment and remediation costs, the Company presently estimates that it will be required to make capital expenditures, including those requiring upgrading or replacing of existing USTs, ranging from approximately $16.0 million to $20.0 million in the aggregate over the next five fiscal years to comply with current federal and state UST regulations, which capital expenditures could be reduced for locations (especially low volume locations) which may be closed in lieu of the capital costs of compliance. The Company's estimates of costs to be incurred for environmental assessment and remediation and for UST upgrading and other regulatory compliance are based on factors and assumptions that could change due to modifications of regulatory requirements, detection of unanticipated environmental conditions, or other unexpected circumstances. As a result, the actual costs incurred may vary significantly from the estimates noted above. RECENT DEVELOPMENTS SALE OF SENIOR SUBORDINATED NOTES On March 3, 1994, the Company issued $75 million of 10.25% Senior Subordinated Notes due 2004 (the "Notes") through a public offering underwritten by Bear, Stearns & Co., Inc. (the "Underwriter"). The Company used part of the net proceeds from the sale of the Notes: (1) to repay the entire indebtedness outstanding of approximately $34.0 million under the Company's credit agreement with -8- Chemical Bank (as successor to Manufacturers Hanover Trust Company) as agent lender, along with other lenders party thereto, dated as of January 9, 1991, as amended (the "Existing Credit Agreement"); and (2) to redeem all of the Company's outstanding 14.25% Subordinated Debentures Due 2000 ("Subordinated Debentures") in the aggregate principal amount of $27.9 million, which amount includes a premium for early redemption, and which redemption was completed on April 4, 1994. The net proceeds of the sale of the Notes remaining after the payment of the indebtedness under the Existing Credit Agreement, the redemption of the Subordinated Debentures, the payment of the Underwriter's discount, and the payment of fees and expenses was approximately $11.0 million and will be used for working capital and general corporate purposes. In connection with the above transaction, the Company entered into a senior revolving credit facility with Fleet Bank, National Association ("Fleet") and Society National Bank ("Society") (the "New Credit Agreement"). The New Credit Agreement provides for the availability of up to $30.0 million in revolving credit loans reduced by letters of credit not to exceed $15.0 million in the aggregate. All outstanding indebtedness, if any, under the New Credit Agreement will be due and payable in full on March 1, 1997; however, provided no default exists under the New Credit Agreement, the Company may extend such due date for up to two additional one-year periods, with the consent of the lenders. All amounts outstanding under the New Credit Agreement are secured by the pledge of all of the outstanding capital stock of most of the Company's direct and indirect subsidiaries, and by amounts payable to the Company which arise by, from, or were created by, loans or other extensions of credit by the Company to any of its subsidiaries. Loans under the New Credit Agreement will generally bear interest, at the Company's option, at the per annum rate of either (1) 0.25% above Fleet's then current prime rate and/or (2) from 2.00% to 2.50% above LIBOR. ITEM 2. PROPERTIES Of the 1,022 stores in operation as of January 29, 1994, 123 store locations were owned by the Company and 899 were leased. In addition, the Company owns 15 locations and is the primary lessee for 72 locations not currently operated as Dairy Mart stores. The Company's policy is to endeavor to lease or sublease such locations to third parties. The Company owns its corporate headquarters facility in Enfield, Connecticut. This facility is approximately 77,000 square feet and is located on eighty-eight acres of land. The Company also owns its Northeast region operating office building and manufacturing and processing plant located in a 33,000 square foot building, and its 200,000 square foot Midwest processing plant and regional administrative office located in Cuyahoga Falls, Ohio. The Company leases administrative offices for its Southeast regional offices and leases a warehouse facility in Louisville, Kentucky. ITEM 3. LEGAL PROCEEDINGS In the ordinary course of 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. The Company believes that the outcome of the proceedings to which the Company currently is party will not have a material adverse effect upon its results of operations or financial condition. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders during the fourth quarter of fiscal 1994. -9- PART II ------- ITEM 5. MARKET INFORMATION FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company is limited in the amount of cash dividends that it may pay and the amount of capital stock and subordinated indebtedness that it may repurchase by applicable covenants contained in the New Credit Agreement and Notes. As of January 29, 1994, taking into account such limitations, the Company would have been able to pay approximately $1,100,000 in cash dividends in the aggregate. The Company has not paid any cash dividends during the last two fiscal years. Both classes of the Company's common stock are traded in the over-the- counter market and are listed for quotation on the National Association of Securities Dealers (NASDAQ), National Market System (NMS). The following table sets forth the high and low sales prices per share of the Company's Common Stock as quoted on the NASDAQ, NMS for the last two fiscal years.
- - ---------------------------------------------------------------------- Class A Class B Common Common Stock Stock --------------------------------- High Low High Low - - ---------------------------------------------------------------------- Fiscal Year Ended January 29, 1994: - - ---------------------------------------------------------------------- First Quarter 6 4 1/2 6 3/4 4 3/4 Second Quarter 5 7/8 4 3/8 6 3/8 4 11/16 Third Quarter 6 7/8 5 1/2 6 3/4 5 5/8 Fourth Quarter 7 5 3/4 7 1/2 5 3/4 - - ---------------------------------------------------------------------- Fiscal Year Ended January 30, 1993: - - ---------------------------------------------------------------------- First Quarter 11 7 1/4 10 3/4 7 Second Quarter 8 7/8 6 1/4 9 1/4 7 Third Quarter 6 7/8 5 3/8 8 1/4 5 3/4 Fourth Quarter 6 1/2 5 1/8 7 1/2 6 - - ----------------------------------------------------------------------
There were approximately 2,800 stockholders as of January 29, 1994. Included in this number are shares held in nominee or street names. -10- ITEM 6. SELECTED FINANCIAL DATA
Five Year Summary Dairy Mart Convenience Stores, Inc. and Subsidiaries - - -------------------------------------------------------------------------------------------------------------------------------- Five Years Ended January 29, 1994 - - -------------------------------------------------------------------------------------------------------------------------------- 1994 (a) 1993 (b) 1992 1991 1990 - - -------------------------------------------------------------------------------------------------------------------------------- (in thousands, except per share amounts) Operating Results: Net Sales of the Company, Its Subsidiaries and Franchises.....................$ 760,551 $ 773,766 $ 794,758 $ 807,586 $ 741,183 - - -------------------------------------------------------------------------------------------------------------------------------- Revenues...................................................................... 590,751 578,767 571,980 586,984 535,640 - - -------------------------------------------------------------------------------------------------------------------------------- Earnings Before Interest Expense, Income Taxes, Depreciation, and Amortization (EBITDA)..................................................... 23,646 16,323 28,852 28,526 21,533 - - -------------------------------------------------------------------------------------------------------------------------------- Interest Expense.............................................................. 7,644 7,456 8,260 8,366 8,220 - - -------------------------------------------------------------------------------------------------------------------------------- Income (Loss) Before Income Taxes, Extraordinary Item and Cumulative Effect of Accounting Change............................................................. 3,102 (4,797) 7,021 6,802 1,259 - - -------------------------------------------------------------------------------------------------------------------------------- Net Income (Loss)............................................................. 866 (6,850) 4,092 3,813 682 - - -------------------------------------------------------------------------------------------------------------------------------- Earnings (Loss) Per Share: Before extraordinary item and cumulative effect of accounting change..... .33 (.53) .75 .72 .13 Net earnings (loss) per share............................................ .16 (1.26) .75 .72 .13 - - -------------------------------------------------------------------------------------------------------------------------------- Cash Dividends Paid Per Share................................................. - - - - .02 - - -------------------------------------------------------------------------------------------------------------------------------- Balance Sheet Data: Net Property and Equipment................................................... $ 92,014 $ 90,643 $ 82,974 $ 81,399 $ 68,227 - - -------------------------------------------------------------------------------------------------------------------------------- Total Assets................................................................. 169,442 175,178 165,555 165,068 149,109 - - -------------------------------------------------------------------------------------------------------------------------------- Long-Term Debt Including Capital Lease Obligations (c)....................... 77,343 81,035 79,119 78,576 66,703 - - -------------------------------------------------------------------------------------------------------------------------------- Stockholders' Equity......................................................... 33,870 32,732 39,100 34,842 30,966 - - --------------------------------------------------------------------------------------------------------------------------------
(a) Fiscal 1994 includes an extraordinary loss on extinguishment of debt of $928,000, net of related income tax benefit (see Note 4 of Notes to Consolidated Financial Statements). (b) Fiscal 1993 includes the cumulative effect of a change in accounting for income taxes of $3,951,000 (see Note 6 of Notes to Consolidated Financial Statements) and a nonrecurring pretax charge for restructuring of $5,200,000 (see Note 12 of Notes to Consolidated Financial Statements). (c) Long-term debt including capital lease obligations includes the current portion of long-term debt and capital lease obligations. 11 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES The Company generates substantial operating cash flow since most of its revenues are received in cash. Currently, the amount of cash generated from operations significantly exceeds all of the current debt service requirements of the Company's long-term debt and capital lease obligations. The capital expenditures of the Company are primarily funded by the excess cash flow available after debt service, but may also be funded using mortgage and equipment financing. Additionally, the Company has a revolving line of credit available to address the seasonality of operations and the timing of certain working capital disbursements. For the fiscal year ended January 29, 1994, the cash flow from operations available after meeting all of the Company's debt service requirements was insufficient to fund total capital expenditures due in large part to payments made related to nonrecurring restructuring expenses (as described below). As a result, the Company obtained new mortgage and equipment financing. During the fiscal year ended January 29, 1994, the Company paid its trade payables in an average of 24 days, which compares to 23 days for the fiscal year ended January 30, 1993 and 24 days for the fiscal year ended February 1, 1992. The cash flow of the Company is also favorably impacted by the Company's use of funds from the sale of money orders, pending weekly remittance of such funds to the issuer of the money orders. The amount due the issuer each week varies, depending on the volume and dollar values of money orders issued. At January 29, 1994 and January 30, 1993, $6.2 million and $6.0 million, respectively, were due the issuer. The Company's remittance obligation to the issuer of the money orders is primarily secured by an outstanding letter of credit in the amount of $6.5 million. During the current fiscal year, cash generated by operations was $1.6 million lower than the prior fiscal year. This decrease resulted from the payment in fiscal 1994 of $4.8 million in expenditures (which were accrued in fiscal 1993) related to severance, relocation and other personnel related costs associated with the Company's restructuring, which involved the downsizing and consolidation of three administrative offices into a new corporate headquarters facility in Enfield, Connecticut. The majority of these nonrecurring payments have been made in fiscal 1994. Partially offsetting the effect of the nonrecurring restructuring payments was the increase in earnings in the current fiscal year. See "Results of Operations." Cash used by the Company's investing activities was $6.2 million lower in the current fiscal year as compared to the prior fiscal year, primarily as a result of the fiscal 1993 purchase of the new corporate headquarters facility. The Company continues to develop new stores and remodel existing locations, the capital expenditures for which are being financed primarily by cash generated from operations and mortgage and equipment financing. In addition, in order to accelerate the development of new super pumper stores, the Company may sell and leaseback certain of its existing super pumper locations and may in the future lease, or sell and leaseback, the real estate of new super pumper locations. Additionally, the Company estimates that future capital expenditure requirements to comply with federal and state underground gasoline storage tank regulations will be approximately $16.0 million to $20.0 million in the aggregate through December, 1998, which cost could be reduced for locations (especially low volume locations) which may be closed in lieu of the capital costs of compliance. The Company has also initiated a program to install in all stores within three years a point-of-sale (POS) system designed to provide more accurate and timely information regarding store operations and to decrease administrative overhead. The cost of the POS system, including new cash registers and personal computers, is currently estimated to be approximately $7.0 million to $9.0 million, and is anticipated to be funded by equipment financing. The ultimate amount of discretionary capital expenditures that the Company will incur in the future will be determined by the available sources of funds, including, but not limited to, those described above. -12- During the past three fiscal years, the total number of store locations has fluctuated as follows:
1994 1993 1992 ------------------------------------------------------ Number of stores: At beginning of year........... 1,079 1,134 1,190 Opened or acquired during year................... 4 6 6 Closed or sold during year.......................... (61) (61) (62) ------------------------------------------------------ At end of year................. 1,022 1,079 1,134 ------------------------------------------------------
The decrease in the overall number of stores is due to the continual closing and/or sale of locations whose performance was deemed to be inadequate, which closings generally occur at the expiration of their lease terms in order to minimize the cost to close. Subsequent to year end, the Company issued $75.0 million principal amount of 10.25% senior subordinated notes (the "Notes") due March 15, 2004 (see Note 4 to Consolidated Financial Statements). The proceeds from the sale of the Notes, net of estimated offering expenses of $2.6 million, were used to repay the entire outstanding indebtedness under a previous bank term loan and a bank revolving loan and to redeem in full the Company's 14.25% subordinated debentures. Excess proceeds of approximately $11.0 million realized from the sale of the Notes will provide funds for general corporate and working capital purposes. The Company issued the Notes in order to facilitate future growth and to improve the Company's financial and operating flexibility by significantly reducing the Company's near-term debt amortization requirements. The Company's maturities on long-term debt for the next five fiscal years, based on the debt structure in place as of January 29, 1994, as well as after giving effect to the sale of the Notes and the application of the proceeds therefrom are as follows:
AS OF 1-29-94 ------------------------------ ACTUAL FISCAL AS YEAR ACTUAL ADJUSTED --------- ------------- ------------- 1995................. $ 8,071,000 $3,071,000/a/ 1996................. 17,996,000 1,746,000 1997................. 22,160,000 810,000 1998................. 6,038,000 788,000 1999................. 6,860,000 1,610,000 ------------ ---------- TOTAL................ $61,125,000 $8,025,000 ============ ==========
- - ----------- /a/ Includes $2.0 million paid on February 28, 1994 under the terms of the Company's previous credit facility. -13- In addition to cash flow from operations, potential mortgage, equipment and other financing and the available net proceeds from the sale of the Notes, the Company's sources of liquidity include borrowing availability under a new senior credit facility entered into by the Company subsequent to year end in connection with the issuance of the Notes and the repayment of the previous bank term and revolving loans. This new facility provides for the availability of up to $30.0 million in revolving credit loans reduced by outstanding letters of credit not to exceed $15.0 million in the aggregate (see Note 4 to the Consolidated Financial Statements). As of the date of the issuance of the Notes, the Company did not have outstanding revolving credit loans under the new credit facility, but did have $11.6 million of letters of credit outstanding thereunder including, as discussed above, the letter of credit issued to secure the Company's remittance obligation to the issuer of money orders. The Company intends to utilize the new credit facility as needed for working capital and general corporate purposes, especially to address the seasonality of operations and timing of certain working capital disbursements. RESULTS OF OPERATIONS FISCAL 1994 COMPARED TO FISCAL 1993 Revenues for the fiscal year ended January 29, 1994 increased by $12.0 million or 2.1% from the prior fiscal year ended January 30, 1993. This revenue increase was due to higher revenues from the convenience store, gasoline and manufacturing and distribution areas of the Company. Convenience store revenues increased to $355.8 million in fiscal 1994 from $345.4 million in fiscal 1993. This increase was primarily due to a change in the mix of stores in the current fiscal year to include more Company operated stores and fewer franchise stores, since the Company records as revenue the gross sales of Company operated stores compared with franchise fees which are a percentage of franchise store sales. This change in store mix was a result of the Company's ongoing review and evaluation of its store base to determine whether its stores are best suited as either a Company operated or franchise location, using economic and non-economic criteria. Such transfers between Company operated and franchise stores have occurred and will continue in the ordinary course of business, and generally result in minimal transfer costs to the Company. The overall increase in the Company's convenience store revenues was partially offset by decreased revenues resulting from the closing of sixty-one underperforming stores in the current fiscal year. Although such closures had a negative impact on revenues, they did not have a material adverse effect on the results of operations (other than the initial write-off of estimated unrecoverable costs as discussed in Note 1 to the Consolidated Financial Statements), since the majority of stores closed had been operating at a loss. Additionally, comparable store sales decreased by 0.4% in fiscal 1994 as compared to fiscal 1993. This slight decrease was entirely due to the effect of the tobacco industry's cigarette price reductions, substantially all of which were passed on to the Company's customers. These cigarette price reductions lowered comparable store sales by approximately 2.0% for the current fiscal year. The higher gasoline revenues in fiscal 1994 resulted from an increase in total gasoline gallons sold of 9.7 million gallons. On a per location basis, average gallonage increased by approximately 7.2% in the current fiscal year as compared to the prior fiscal year. These gallonage increases were due primarily to the further development of the Company's new super pumper stores as well as the remodeling and expansion of gasoline facilities at a number of existing locations. Partially offsetting the impact of the higher gallonage on total gasoline revenues was a decrease in the average selling price of gasoline of 3.5 cents per gallon for the current fiscal year as compared to the prior fiscal year. -14- Manufacturing and distribution revenues increased in the current fiscal year due to the introduction of new business, which began during the second quarter of the prior fiscal year. The new business includes the sale of ice cream to an external distributor as well as the distribution of new product lines, including cigarettes and candy, to stores in certain marketing areas of the Company. Income from operations increased by $8.6 million in fiscal 1994 as compared to fiscal 1993, due primarily to a $5.2 million nonrecurring charge in the prior fiscal year for restructuring expenses related to the downsizing and consolidation of the Company's administrative offices (see Note 12 to Consolidated Financial Statements) as well as increased income from both gasoline and convenience store operations in the current fiscal year. Income from gasoline operations increased due to the favorable impact of the higher gasoline gallons described above, combined with an increase in gasoline gross margins in fiscal 1994 as compared to fiscal 1993. Additionally, the Company incurred lower operating costs in the current fiscal year related to compliance with environmental regulations, reflecting a reduction in the expenses associated with the remediation of the Company's gasoline locations after considering expected reimbursements of a portion of total remediation costs from various state environmental trust funds. Such remediation costs are incurred in the ordinary course of business and can fluctuate significantly from year to year. Income from convenience store operations increased in the current fiscal year due to improved product gross margins as well as higher lottery and money order commissions. The increased product gross margins resulted, in part, from a reduction in costs associated with the Company's last-in, first-out (LIFO) inventory valuation method. This reduction in the LIFO provision resulted from a current year decrease in cigarette prices as discussed above, which constitutes one of the Company's major product categories. The overall increase in product margins for the current fiscal year was partially offset by a lower level of marketing allowances, related to monies received from vendors for specific product promotions, as compared to the prior fiscal year. Selling expenses associated with the convenience store group were increased over the prior year due, in part, to increased advertising and store maintenance expenses. Income from foreign consulting operations decreased primarily due to the recognition of a one-time license fee in fiscal 1993 which was earned upon the start-up of the Company's Mexican joint venture operation. Income from operations in the Company's manufacturing and distribution operation decreased in fiscal 1994 due primarily to reduced product margins resulting from an increase in raw product costs without a corresponding increase in retail dairy prices. This decrease was partially offset by increased profits realized from the new business described above. The overall increase in income from operations was also impacted by a decrease in administrative salaries in fiscal 1994 as compared to fiscal 1993 as a result of the corporate consolidation described above which was completed during the second half of the current fiscal year. The Company also benefitted from reduced costs in the current fiscal year related to legal and professional fees. Primarily offsetting these administrative expense decreases were higher costs in the current fiscal year for management bonuses and profit sharing due to the increased earnings in the current fiscal year as well as the implementation of a new 401(k) employee benefit program. Additionally, the Company incurred higher relocation costs in the current fiscal year. Inflation had little effect on the Company's revenues and income from operations in fiscal years 1994 and 1993, other than the effect of the cigarette price reductions discussed above. -15- The effective tax rate for the Company was a provision of 42% for the current fiscal year as compared to a benefit of 40% for fiscal 1993 (See Note 6 to the Consolidated Financial Statements). The Company provides for income taxes at the effective rate expected to be incurred for the entire year. Net income for fiscal 1994 was $866,000 or $.16 per share, as compared to a net loss of $6,850,000 or $1.26 per share for fiscal 1993. The Company incurred an extraordinary loss on extinguishment of debt in the current fiscal year, which reduced net income by $928,000 (See Note 4 to the Consolidated Financial Statements). Included in the net loss for the prior fiscal year was a $3,951,000 charge for the cumulative effect of a change in accounting for income taxes (See Note 6 to the Consolidated Financial Statements). This one-time cumulative charge related to the adoption of SFAS No. 109, "Accounting for Income Taxes." FISCAL 1993 COMPARED TO FISCAL 1992 Revenues for the fiscal year ended January 30, 1993 increased by $6.8 million or 1.2% from the prior fiscal year ended February 1, 1992. The higher revenues in fiscal 1993 were due to increased revenues from the Company's convenience store group as well as its gasoline and international operations, partially offset by decreased revenues from the Company's manufacturing and distribution operations. Convenience store revenues increased from $343.0 million in fiscal 1992 to $345.4 million in fiscal 1993. This increase was due to a change in the mix of stores in fiscal 1993 to include more Company operated stores and fewer franchise stores since the Company records as revenue the gross sales of Company operated stores compared with recording the lower franchise fees earned from franchise stores. The overall increase in the Company's convenience store revenues was partially offset by decreased revenues resulting from the closing of underperforming stores. Although such closures had a negative impact on revenues, they did not have a material adverse effect on the results of operations since the majority of stores closed had been operating at a loss. Comparable inside store sales decreased by 2.4% in fiscal 1993 as compared to fiscal 1992, due in large part to a continuing weak economy as well as adverse weather conditions, especially in the fiscal 1993 second fiscal quarter, in all of the Company's major market areas. The higher gasoline revenues in fiscal 1993 were attributable to an increase in total gasoline gallons sold. On a per location basis, average gallonage increased by approximately 8% in fiscal 1993 as compared to fiscal 1992. These gallonage increases were due primarily to the further development of the Company's new super pumper stores as well as the remodeling and expansion of gasoline facilities at a number of existing locations. The increased gallonage was partially offset by a decrease in the average selling price of gasoline of approximately 2.6 cents per gallon in fiscal 1993. Revenues from international operations were higher in fiscal 1993 due primarily to the recognition of a $450,000 one-time license fee earned upon the start up of the Company's Mexican joint venture operation. The Company will record its appropriate share of future profit and loss based upon the sales and performance of this one-third owned Mexican joint venture. However, any future earnings potential cannot be quantified at this time. The Company's manufacturing and distribution revenues decreased in fiscal 1993 due to reduced volume resulting from the lower number of stores as well as the overall decrease in average inside store sales, both of which are discussed above. This was partially offset by increased revenues resulting from -16- the introduction of new business, which included the sale of ice cream to an external distributor as well as the distribution of new product lines, including cigarettes and candy, to stores in certain marketing areas of the Company. Income from operations decreased by $13.0 million for fiscal 1993 as compared to fiscal 1992. $5.2 million of this decrease was due to a nonrecurring charge in fiscal 1993 for restructuring expenses related to the downsizing and consolidation of the Company's administrative offices (see Note 12 to the Consolidated Financial Statements). The Company anticipates that expense reductions, including reduced salaries and benefits, travel, telecommunication costs and other office overhead costs, realized from this restructuring will approximate $2.0 million annually which should favorably impact income from operations in future fiscal years once this restructuring is completed. In addition to the nonrecurring charge, income from operations was also lower in fiscal 1993 due to decreases from the convenience store and manufacturing and distribution groups as well as higher other selling, general and administrative expenses. The decrease from the convenience store group resulted primarily from the reduced comparable inside store sales and an increase in store selling expenses, partially offset by improved product gross margins. The store selling expense increase resulted primarily from increased labor expense, higher medical insurance costs and certain individually large claims incurred in the Company's commercial liability and worker's compensation insurance programs. Income from operations in the Company's manufacturing and distribution operations decreased in fiscal 1993 due to reduced volume resulting from the fewer number of stores as well as reduced product margins resulting from an increase in raw product costs without a corresponding increase in retail dairy prices. This was partially offset by profits realized from the introduction of new business described above. The increase in other selling, general and administrative expenses was caused by increases in group health and commercial liability insurance expense, based on specific claims experience, as well as normal increases in administrative salaries. Partially offsetting the decreases in income from operations discussed above was an increase in income from international operations, resulting primarily from the recognition of the Mexican joint venture license fee discussed above. Additionally, income from operations in the Company's gasoline operations was essentially the same in fiscal 1993 as compared to fiscal 1992. The positive impact of increased gasoline gallonage described above combined with a slight increase in gasoline margins was offset by an increase in the cost of compliance with environmental regulations due primarily to remediation requirements at gasoline sites closed by the Company. Inflation had little effect on the Company's revenues and income from operations in fiscal years 1993 and 1992. Interest expense (net of interest income) decreased by $1,270,000 in fiscal 1993 primarily due to a decrease in average interest rates related to the Company's variable rate term and revolving loans under the existing credit agreement. The Company recorded a net loss on disposition of properties of $433,000 in fiscal 1993 compared to a net loss of $298,000 in fiscal 1992. The majority of these losses resulted from the closing of underperforming stores and the resulting write-off of abandoned fixtures, equipment and leasehold improvements. -17- The effective tax rate for the Company was a benefit of 40% for fiscal 1993 as compared to a provision of 42% for fiscal 1992 (See Note 6 to the Consolidated Financial Statements). The Company recorded a net loss of $6,850,000, or $1.26 per share, for fiscal 1993 as compared to net income of $4,092,000 or $.75 per share, in fiscal 1992. In addition to the items discussed above, the net loss in fiscal 1993 was also partially attributable to a $3,951,000 charge for the cumulative effect of a change in accounting for income taxes (see Note 6 to the Consolidated Financial Statements). This one-time cumulative charge related to the adoption of SFAS No. 109, "Accounting for Income Taxes". -18- ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements of the Company and its subsidiaries and notes thereto, appear on Pages F-1 through F-18 of this Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES None. -19- PART III -------- Information required by items 10, 11 and 12 (Directors and Executive Officers of the Registrant, Executive Compensation and Security Ownership of Certain Beneficial Owners and Management) is incorporated herein by reference from the sections entitled "ITEM 1. - ELECTION OF DIRECTORS - Nominees For Election As Directors", "INFORMATION CONCERNING DIRECTORS AND EXECUTIVE OFFICERS", "THE BOARD OF DIRECTORS AND ITS COMMITTEES", "OUTSTANDING STOCK AND VOTING RIGHTS", "PRINCIPAL SHAREHOLDERS", and "COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS" of the Company's definitive proxy statement to be filed pursuant to Regulation 14A within 120 days after the close of its 1994 fiscal year. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information required by this item is set forth under "CERTAIN TRANSACTIONS" in the Company's definitive proxy statement, and is incorporated herein by reference. -20- PART IV ------- ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) The following are filed as part of this Form 10-K: (1) Financial Statements: For a listing of financial statements which are filed as part of this Form 10-K, see Page F-1.
Page -------- (2) Financial Statement Schedules: Report of Independent Public Accountants 25 Schedule V - Property, Plant and Equipment 26 Schedule VI - Accumulated Depreciation of Property, Plant and Equipment 27 Schedule VIII - Valuation Accounts 28 Schedule X - Supplementary Income Statement Information 29
All other schedules are omitted because they are not applicable, or not required, or because the required information is included in the consolidated financial statements or notes thereto. (3) Exhibits: Exhibit Number: (3) Articles of Incorporation and Bylaws. The Company's Restated ------------------------------------- Certificate of Incorporation, as amended, was filed as Exhibit 3.1 to the Company's Form 10-K for the fiscal year ended February 1, 1992 and is incorporated herein by reference. The Company's Bylaws, as amended, were filed as Exhibit 3.2 to the Company's Form 10-K for the fiscal year ended February 3, 1990, and are incorporated herein by reference. (4) Instruments defining the rights of security holders, including -------------------------------------------------------------- indentures. The instruments defining the rights of the holders ----------- of the Company's Common Stock include the Company's Restated Certificate of Incorporation and Bylaws, filed as Exhibit 3 hereto, and those instruments filed as Exhibit 4.1 of the Company's Registration Statement on Form S-1 (Registration No. 33-639) dated November -21- 5, 1985, which are incorporated herein by reference. The instrument defining the rights of the holders of the Company's 10.25% Senior Subordinated Notes due 2004 is the Indenture dated March 3, 1994, among the Company, Society National Bank, as trustee, and certain other parties, which is filed as Exhibit 4.1 hereto. (10.1) Material Contracts. Credit Agreement dated as of February 25, ------------------- 1994, among the Company, Fleet Bank, National Association and Society National Bank is attached hereto as Exhibit 10.1. (10.2) 1985 Incentive Stock Option Plan, as amended, and form of Incentive Stock Option Agreement, were filed as Exhibit 10.4 to the Company's annual report on Form 10-K for the fiscal year ended January 30, 1988, and are incorporated herein by reference. (10.3) 1983 Incentive Stock Option Plan and form of Incentive Stock Option Agreement thereunder were filed as Exhibits 4.1 and 4.2, respectively, to the Company's Registration Statement on Form S-8 (File No. 33-8209) filed on August 26, 1986, and are incorporated herein by reference. (10.4) 1990 Stock Option Plan and forms of qualified and non-qualified stock option agreements thereunder were filed as Exhibit 10.4 to the Company's Form 10-K for the fiscal year ended February 2, 1991, and are incorporated hereby by reference. (10.5) Employment Agreement between the Company and Charles Nirenberg, dated December 5, 1991, was filed as Exhibit 10.5 to the Company's annual report on Form 10-K for the fiscal year ended February 1, 1992, and is incorporated herein by reference. (21) Subsidiaries of the Registrant is attached hereto as Exhibit 21. (23) Consent of Arthur Andersen & Co. to the incorporation of their reports included in this Form 10-K, into the Company's previously filed Registration Statements on Forms S-8, is attached hereto as Exhibit 23. (b) Reports on Form 8-K None filed during fourth quarter. (c) See (3) above. (d) See (2) above. -22- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: April 29, 1994 DAIRY MART CONVENIENCE STORES, INC. By /s/ Frank Colaccino By /s/ Gregory G. Landry ---------------------------- -------------------------- Frank Colaccino Gregory G. Landry President and Executive Vice President and Chief Executive Officer Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. Dated: April 29, 1994 /s/ Frank Colaccino ---------------------------------------------- Frank Colaccino President, Chief Executive Officer and Director (Principal Executive Officer) Dated: April 29, 1994 /s/ Charles Nirenberg ---------------------------------------------- Charles Nirenberg Chairman of the Board and Director Dated: April 29, 1994 /s/ Gregory G. Landry ---------------------------------------------- Gregory G. Landry Executive Vice President, Chief Financial Officer and Director (Principal Financial and Accounting Officer) -23- Dated: April 29, 1994 /s/ Mitchell J. Kupperman ---------------------------------------------- Mitchell J. Kupperman Executive Vice President Director Dated: April 29, 1994 /s/ Robert B. Stein, Jr. ---------------------------------------------- Robert B. Stein, Jr. Executive Vice President Director Dated: April 29, 1994 /s/ Frank W. Barrett ---------------------------------------------- Frank W. Barrett Director Dated: April 29, 1994 /s/ Theodore W. Leed ---------------------------------------------- Theodore W. Leed Director -24- REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES ----------------------------------------------------- To Dairy Mart Convenience Stores, Inc.: We have audited in accordance with generally accepted auditing standards, the consolidated financial statements of Dairy Mart Convenience Stores, Inc. and subsidiaries (the Company) included in this Form 10-K, and have issued our report thereon dated April 21, 1994. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedules listed in the accompanying index are the responsibility of the Company's management and are presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic financial statements. These schedules have been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN & CO. Hartford, Connecticut April 21, 1994 -25- SCHEDULE V DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES PROPERTY, PLANT AND EQUIPMENT
Column A Column B Column C Column D Column E Column F ------------ ------------ ------------ ------------ ------------ ------------ Balance at Other Balance at Beginning Additions Changes End Description of Period at Cost Retirements Add(Deduct) of Period ------------ ------------ ------------ ------------ ------------ ------------ Fiscal year end February 1, 1992 Land and improvements $ 10,211,250 $ 1,377,498 $ (112,170) $ - $ 11,476,578 Buildings and leaseholds 42,206,298 3,484,100 (847,781) - 44,842,617 Equipment 60,186,906 7,866,648 (3,423,761) - 64,629,793 Property under capital leases 7,048,864 218,635 - - 7,267,499 ------------ ------------ ------------ ------------ ------------ $119,653,318 $ 12,946,881 $(4,383,712) $ - $128,216,487 ============ ============ ============ ============ ============ Fiscal year end January 30, 1993 Land and improvements $ 11,476,578 $ 2,717,987 $ (61,000) $ - $ 14,133,565 Buildings and leaseholds 44,842,617 5,397,704 (659,470) 2,078,518(a) 51,659,369 Equipment 64,629,793 9,876,728 (3,315,520) - 71,191,001 Property under capital leases 7,267,499 - - - 7,267,499 ------------ ------------ ------------ ------------ ------------ $128,216,487 $ 17,992,419 $(4,035,990) $ 2,078,518 $144,251,434 ============ ============ ============ ============ ============ Fiscal year end January 29, 1994 Land and improvements $ 14,133,565 $ 1,027,096 $ (64,823) $ 102,877 $ 15,198,715 Buildings and leaseholds 51,659,369 4,450,395 (2,048,753) 169,660 54,230,671 Equipment 71,191,001 8,271,404 (4,043,753) - 75,418,652 Property under capital leases 7,267,499 329,949 (692,044) - 6,905,404 ------------ ------------ ------------ ------------ ------------ $144,251,434 $ 14,078,844 $(6,849,373) $ 272,537 $151,753,442 ============ ============ ============ ============ ============
(a) Represents an adjustment to the carrying value of buildings due to a change in accounting for income taxes (See Note 6 of Notes to Consolidated Financial Statements). 26 SCHEDULE VI DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES ACCUMULATED DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT
Column A Column B Column C Column D Column E Column F -------- ------------ ------------ ------------- ----------- ------------- Additions Balance at Charged to Other Balance at Beginning Cost and Changes End Description of Period Expenses Retirements Add(Deduct) of Period ----------- ------------ ------------ ------------- ----------- ------------ Fiscal year end February 1, 1992 Land and improvements $ 94,044 $ 40,234 $ (1,750) $ - $ 132,528 Buildings and leaseholds 9,918,389 2,096,685 (426,928) - 11,588,146 Equipment 21,192,661 7,483,859 (2,422,706) - 26,253,814 Property under capital leases 2,647,468 1,156,522 - - 3,803,990 ------------ ------------ ------------- ----------- ------------ $ 33,852,562 $ 10,777,300 $ (2,851,384) $ - $ 41,778,478 ============ ============ ============= ============ ============ Fiscal year end January 30, 1993 Land and improvements $ 132,528 $ 58,617 $ (9,234) $ - $ 181,911 Buildings and leaseholds 11,588,146 2,546,574 (1,016,073) 642,359(a) 13,761,006 Equipment 26,253,814 7,118,095 (974,084) - 32,397,825 Property under capital leases 3,803,990 1,030,102 - - 4,834,092 ------------ ------------ ------------- ----------- ------------ $ 41,778,478 $ 10,753,388 $ (1,999,391) $ 642,359 $ 51,174,834 ============ ============ ============= ============ ============ Fiscal year end January 29, 1994 Land and improvements $ 181,911 $ 57,624 $ (409) $ - $ 239,126 Buildings and leaseholds 13,761,006 1,982,829 (911,092) (55,573) 14,777,170 Equipment 32,397,825 8,004,721 (2,584,373) - 37,818,173 Property under capital leases 4,834,092 1,002,326 (691,384) - 5,145,034 ------------ ------------ ------------- ----------- ------------ $ 51,174,834 $ 11,047,500 $ (4,187,258) $ (55,573) $ 57,979,503 ============ ============ ============= ============ ============
(a) Represents an adjustment to the carrying value of buildings due to a change in accounting for income taxes (See Note 6 of Notes to Consolidated Financial Statements). 27 SCHEDULE VIII DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES VALUATION ACCOUNTS
Column A Column B Column C Column D Column E - - -------------------------------------- ---------- ------------------------- ------------ ------------ Additions ------------------------- Balance at Charged to Deductions Balance at Beginning Costs and Other and Accounts End of Description of Period Expenses Recoveries Written off Period - - -------------------------------------- ---------- ---------- ----------- ------------ ------------ Reserve for Doubtful Accounts: Fiscal Year End February 1, 1992...... $ 814,319 $ 567,787 $ (17,997) $ (180,686) $ 1,183,423 Fiscal Year End January 30, 1993...... 1,183,423 955,220 -- (485,519) 1,653,124 Fiscal Year End January 29, 1994...... 1,653,124 958,336 -- (787,283) 1,824,177
28 SCHEDULE X DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES SUPPLEMENTARY INCOME STATEMENT INFORMATION
Column A Column B - - ----------------------------------- ------------------------------------ Item Charged to Costs and Expenses ------------------------------------ 1994 1993 1992 ------------------------------------ Maintenance and Repairs $9,538,625 $9,167,333 $8,902,331 Taxes other than payroll and income taxes $32,587,727 $27,082,748 $24,346,314
Royalties, advertising and amortization of intangible assets are not set forth inasmuch as each such item does not exceed 1% of revenues as shown in the related consolidated statements of operations. Taxes other than payroll and income taxes include excise taxes collected from customers on retail gasoline sales. 29 DAIRY MART CONVENIENCE STORES, INC. INDEX TO FINANCIAL STATEMENTS
Form 10-K Page --------- Report of Independent Public Accountants F-2 Consolidated Statements of Operations and Retained Earnings for the Fiscal Years Ended January 29, 1994, January 30, 1993 and February 1, 1992 F-3 Consolidated Balance Sheets as of January 29, 1994 and January 30, 1993 F-4 Consolidated Statements of Cash Flows for the Fiscal Years Ended January 29, 1994, January 30, 1993 and February 1, 1992 F-5 Notes to Consolidated Financial Statements for the Fiscal Years Ended January 29, 1994, January 30, 1993 and February 1, 1992 F-6 to F-18
F-1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ---------------------------------------- To the Stockholders and the Board of Directors of Dairy Mart Convenience Stores, Inc.: We have audited the accompanying consolidated balance sheets of Dairy Mart Convenience Stores, Inc. (a Delaware corporation) and subsidiaries as of January 29, 1994 and January 30, 1993, and the related consolidated statements of operations and retained earnings and cash flows for each of the three years in the period ended January 29, 1994. 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 audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Dairy Mart Convenience Stores, Inc. and subsidiaries as of January 29, 1994 and January 30, 1993, and the results of their operations and their cash flows for each of the three years in the period ended January 29, 1994, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN & CO. Hartford, Connecticut April 21, 1994 F-2 Consolidated Statements of Operations and Retained Earnings Dairy Mart Convenience Stores, Inc. and Subsidiaries - - -------------------------------------------------------------------------------
For the Years Ended January 29, 1994, January 30, 1993 and February 1, 1992 - - ---------------------------------------------------------------------------------------------------- 1994 1993 1992 - - ---------------------------------------------------------------------------------------------------- (in thousands, except per share amounts) Net Sales of the Company, its Subsidiaries and Franchises......... $ 760,551 $773,766 $794,758 ==================================================================================================== Revenues.......................................................... $ 590,751 $578,767 $571,980 Cost of goods sold and expenses: Cost of goods sold........................................... 430,254 425,180 415,981 Selling, general and administrative expenses................. 150,006 151,742 141,201 - - ---------------------------------------------------------------------------------------------------- Income from operations................................... 10,491 1,845 14,798 Interest expense.................................................. (7,644) (7,456) (8,260) Interest income................................................... 749 1,247 781 Loss on disposition of properties, net............................ (494) (433) (298) - - ----------------------------------------------------------------------------------------------------- Income (loss) before income taxes, extraordinary item and cumulative effect of accounting change.......... 3,102 (4,797) 7,021 (Provision for) benefit from income taxes......................... (1,308) 1,898 (2,929) - - ----------------------------------------------------------------------------------------------------- Income (loss) before extraordinary item and cumulative effect of accounting change......................... 1,794 (2,899) 4,092 Extraordinary loss on extinguishment of debt (net of income tax benefit of $677)............................ (928) - - - - ----------------------------------------------------------------------------------------------------- Income (loss) before cumulative effect of accounting change................................................ 866 (2,899) 4,092 Cumulative effect of change in accounting for income taxes........ - (3,951) - - - ----------------------------------------------------------------------------------------------------- Net income (loss)........................................ $ 866 $ (6,850) $ 4,092 ===================================================================================================== Earnings (loss) per share: Before extraordinary item and cumulative effect of accounting change..................................... $ .33 $ (.53) $ .75 Extraordinary loss on extinguishment of debt............. (.17) - - Cumulative effect of change in accounting for income taxes.................................................... - (.73) - - - ----------------------------------------------------------------------------------------------------- Earnings (loss) per share......................................... $ .16 $ (1.26) $ .75 ===================================================================================================== Retained earnings, beginning of year.............................. $ 10,463 $ 17,313 $ 13,221 Net income (loss)................................................. 866 (6,850) 4,092 - - ----------------------------------------------------------------------------------------------------- Retained earnings, end of year.................................... $ 11,329 $ 10,463 $ 17,313 =====================================================================================================
Note: Excise taxes approximating $29,209,000, $23,855,000 and $21,230,000 collected from customers on retail gasoline sales are included in Revenues and Cost of goods sold for fiscal years 1994, 1993 and 1992, respectively. The accompanying notes are an integral part of these financial statements. F-3
Consolidated Balance Sheets Dairy Mart Convenience Stores, Inc. and Subsidiaries - - -------------------------------------------------------------------------------------------------------------------------------- January 29, 1994 and January 30, 1993 1994 1993 - - -------------------------------------------------------------------------------------------------------------------------------- (in thousands, except share amounts) Assets Current Assets: Cash................................................................................................$ 6,632 $ 6,483 Accounts and notes receivable....................................................................... 11,770 11,700 Inventory........................................................................................... 26,269 26,857 Prepaid expenses and other current assets........................................................... 2,013 1,993 Deferred income taxes............................................................................... 2,098 4,045 ------------------ Total current assets............................................................................. 48,782 51,078 ------------------ Property and Equipment: Land and improvements............................................................................... 15,199 14,134 Buildings and leaseholds............................................................................ 54,231 51,659 Equipment........................................................................................... 75,418 71,191 ------------------ 144,848 136,984 Less -- Accumulated depreciation.................................................................... 52,834 46,341 ------------------ Net property and equipment....................................................................... 92,014 90,643 ------------------ Property Under Capital Leases, net of accumulated amortization of $5,145 and $4,834..................... 1,760 2,433 ------------------ Other Assets: Goodwill, net of accumulated amortization of $2,864 and $2,509...................................... 10,961 11,316 Franchise and operating rights, net of accumulated amortization of $2,488 and $2,135................ 7,656 8,009 Notes receivable.................................................................................... 2,267 3,607 Other............................................................................................... 6,002 8,092 ------------------ Total other assets............................................................................... 26,886 31,024 ------------------ Total assets...........................................................................................$ 169,442 $ 175,178 ================== Liabilities and Stockholders' Equity Current Liabilities: Current portion of long-term debt....................................................................$ 3,071 $ 7,803 Current portion of capital lease obligations......................................................... 1,038 1,087 Accounts payable..................................................................................... 29,461 27,768 Accrued expenses..................................................................................... 15,360 14,230 Accrued restructuring expenses....................................................................... 367 5,200 ------------------ Total current liabilities........................................................................ 49,297 56,088 ------------------ Long-Term Debt, less current portion above.............................................................. 71,604 69,645 ------------------ Capital Lease Obligations, less current portion above................................................... 1,630 2,500 ------------------ Other Liabilities and Deferred Credits.................................................................. 6,222 5,352 ------------------ Deferred Income Taxes................................................................................... 6,819 8,861 ------------------ Commitments and Contingencies (Note 11) Stockholders' Equity: Class A Common Stock, par value $.01, 20,000,000 shares authorized, 3,268,729 and 3,173,802 issued... 33 32 Class B Common Stock, par value $.01, 10,000,000 shares authorized, 2,956,015 and 2,971,318 issued... 30 30 Paid-in capital in excess of par value............................................................... 27,483 27,212 Retained earnings.................................................................................... 11,329 10,463 Treasury stock, at cost.............................................................................. (5,005) (5,005) ------------------ Total stockholders' equity....................................................................... 33,870 32,732 ------------------ Total liabilities and stockholders' equity.............................................................$ 169,442 $175,178 ==================
The accompanying notes are an integral part of these financial statements. F-4
Consolidated Statements of Cash Flows Dairy Mart Convenience Stores, Inc. and Subsidiaries - - -------------------------------------------------------------------------------------------------------------------------- For the Years Ended January 29, 1994, January 30, 1993 and February 1, 1992 - - -------------------------------------------------------------------------------------------------------------------------- 1994 1993 1992 - - -------------------------------------------------------------------------------------------------------------------------- (in thousands) Cash flows from operating activities: Net Income (loss) ..................................................................... $ 866 $ (6,850) $ 4,092 Adjustments to reconcile net income to net cash provided by operating activities: Extraordinary Item ................................................................ 928 - - Cumulative effect of change in accounting for income taxes......................... - 3,951 - Depreciation and amortization...................................................... 12,900 13,664 13,571 (Decrease) increase in deferred income taxes....................................... (95) (3,647) 1,231 Decrease in store fixed assets resulting from franchising activities............... 65 - 679 Loss on other disposition of properties, net....................................... 494 433 298 (Increase) decrease in accounts and notes receivable............................... (152) 1,438 (3,377) Decrease (increase) in inventory................................................... 588 (2,726) 2,244 Increase (decrease) in accounts payable............................................ 932 2,286 (4,360) (Decrease) increase in accrued restructuring....................................... (4,833) 5,200 - Decrease (increase) in other current assets and liabilities, net................... 1,787 1,090 (2,107) Increase (decrease) in other noncurrent liabilities and deferred credits........... 870 1,147 (24) - - -------------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities................................................ 14,350 15,986 12,247 - - -------------------------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Purchase of property and equipment..................................................... (13,749) (17,992) (12,521) Proceeds from sale of property and equipment........................................... 1,860 1,603 623 Increase in long-term notes receivable................................................. (291) (1,057) (1,791) Proceeds from long-term notes receivable............................................... 1,631 2,074 1,042 Decrease (increase) in intangibles and other assets.................................... 15 (1,383) (1,116) - - -------------------------------------------------------------------------------------------------------------------------- Net cash used by investing activities.................................................... (10,534) (16,755) (13,763) - - -------------------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Repayment of term debt................................................................. (7,000) (4,000) (2,000) Increase in revolving loan, net........................................................ 300 5,400 2,900 Additional long-term debt ............................................................. 4,915 2,327 1,736 Repayment of other long-term debt and capital lease obligations........................ (2,154) (1,811) (1,881) Repurchase of subordinated debentures.................................................. - - (380) Increases in common stock and paid-in capital.......................................... 272 482 166 - - -------------------------------------------------------------------------------------------------------------------------- Net cash (used in) provided by financing activities...................................... (3,667) 2,398 541 - - -------------------------------------------------------------------------------------------------------------------------- Increase (decrease) in cash.............................................................. 149 1,629 (975) Cash at beginning of year................................................................ 6,483 4,854 5,829 - - -------------------------------------------------------------------------------------------------------------------------- Cash at end of year...................................................................... $ 6,632 $ 6,483 $ 4,854 ========================================================================================================================== Supplemental disclosures: Cash paid during the year -- Interest............................................................................... $ 7,700 $ 7,191 $ 8,064 Income taxes........................................................................... 1,199 1,535 2,453 Noncash investing and financing activities -- Capital lease obligations.............................................................. 330 - 168 Investment in Mexican Joint Venture.................................................... - 500 - ==========================================================================================================================
The accompanying notes are an integral part of these financial statements. F-5 Notes To Consolidated Financial Statements Dairy Mart Convenience Stores, Inc. and Subsidiaries - - ------------------------------------------------------------------------------- January 29, 1994, January 30, 1993 and February 1, 1992 - - ------------------------------------------------------------------------------- 1. Significant Corporate organization and consolidation--The accompanying Accounting financial statements include the accounts of Dairy Mart Policies: Convenience Stores, Inc. and its subsidiaries (the Company). All intercompany transactions have been eliminated. Nature of business--The Company owns, operates and franchises convenience retail stores, a number of which also sell gasoline. The Company also manufactures and distributes certain dairy and other products for sale at the majority of these locations. Fiscal year--The Company's fiscal year ends on the Saturday closest to January 31. Inventory--Store and manufacturing and distribution inventory is stated primarily at the lower of last-in, first-out (LIFO) cost or market. Gasoline inventory is stated at the lower of first-in, first-out (FIFO) cost or market. Property and depreciation--Property is stated at cost and is depreciated on the straight-line basis for financial reporting purposes over the following estimated useful lives: ------------------------------------------------------------ Buildings.....................................30-40 years ------------------------------------------------------------ Equipment......................................5-20 years ------------------------------------------------------------ Leaseholds are depreciated primarily over 10 years or the life of the lease. Goodwill and franchise and operating rights--Goodwill represents the excess of cost over fair value of net assets purchased and is being amortized on a straight-line basis over a period of 40 years. Franchise and operating rights represent the value of franchise relationships purchased in connection with past acquisitions and are being amortized on a straight-line basis over 40 years. The Company assesses the recoverability of these intangibles by determining whether the amortization of the goodwill and franchise and operating rights over the remaining lives can be recovered through projected future operating results. At this time, the Company is profitable, and expects full recoverability. Therefore, it is the Company's belief that no impairment of goodwill and franchise and operating rights has occurred. Income taxes--Effective February 2, 1992, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes," which requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Prior to the implementation of SFAS No. 109, the Company accounted for income taxes using the deferral method as required by Accounting Principles Board Opinion No. 11. Self insurance reserves--The Company is self-insured for certain property and liability, and accident and health insurance risks and establishes reserves for estimated outstanding claims based on its historical claims experience and reviews by third-party loss reserve specialists. The Company has purchased insurance coverage for losses that may occur above certain levels. As of January 29, 1994 and January 30, 1993, the Company has established reserves for these risks of $6,696,000 and $6,231,000, respectively, which are recorded on a present value basis using a discount rate of 8%. The Company is considering changing its method of accounting to discount these reserves at a risk free rate of return. The cumulative effect of this change in accounting method, if adopted as of January 29, 1994, would have been a charge of approximately $700,000. Revenue recognition--The Company recognizes revenues as earned, including franchise revenues. Franchise revenues represent a percentage of franchise store sales remitted to the Company on a weekly or monthly basis, as well as revenues derived from initial fees and the gain on sale of store assets to franchisees. Net Sales of the Company, its Subsidiaries and Franchises is comprised of the Company's revenues plus store sales of franchise locations and excludes related franchise fees. Store preopening and closing costs--Expenditures of a non- capital nature associated with opening a new store are expensed as incurred. At the time the decision is made to close a store, estimated unrecoverable costs are charged to expense. Such costs include the net book value of abandoned fixtures, equipment, leasehold improvements and a provision for the present value of future lease obligations, less estimated sub-rental income. Earnings per share--Earnings per share have been calculated based on the weighted average number of shares outstanding and the effect of stock options, if dilutive, during each period. The number of shares used in the calculations for earnings per share were 5,532,201, 5,422,971 and 5,467,514 for the years ended January 29, 1994, January 30, 1993 and February 1, 1992, respectively. Reclassifications--Certain prior year amounts in the Consolidated Financial Statements have been reclassified to conform to the presentation used for the current year. F-6 Dairy Mart Convenience Stores, Inc. and Subsidiaries - - -------------------------------------------------------------------------------- 2. Accounts and A summary of accounts and notes receivable as of January Notes Receivable: 29, 1994 and January 30, 1993 is as follows:
---------------------------------------------------------------------------------- 1994 1993 ---------------------------------------------------------------------------------- (in thousands) Franchise accounts receivable.................................. $ 5,017 $ 4,614 Franchise notes receivable..................................... 2,476 3,967 Marketing allowances and other................................. 8,368 8,379 ---------------------------------------------------------------------------------- 15,861 16,960 Less allowance for doubtful accounts and notes................. 1,824 1,653 ---------------------------------------------------------------------------------- Net accounts and notes receivable.............................. 14,037 15,307 Less noncurrent notes receivable............................... 2,267 3,607 ---------------------------------------------------------------------------------- Current accounts and notes receivable.......................... $ 11,770 $ 11,700 ==================================================================================
The carrying amount of current accounts and notes receivable approximates fair value because of the short maturity of those receivables. The fair value of the Company's noncurrent notes receivable is estimated by discounting the future cash flows using the rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. As of January 29, 1994, the fair value of the noncurrent notes receivable exceeds the carrying value of $2,267,000 by approximately $400,000. As of January 30, 1993, the carrying amount of the noncurrent notes receivable of $3,607,000 approximated the fair value. F-7 Dairy Mart Convenience Stores, Inc. and Subsidiaries - - -------------------------------------------------------------------------------- 3. Inventory: A summary of inventory as of January 29, 1994, January 30, 1993 and February 1, 1992 is as follows:
- - ----------------------------------------------------------------------------------- 1994 1993 1992 - - ----------------------------------------------------------------------------------- (in thousands) Inventory valued at FIFO cost............................ $30,852 $32,265 $28,781 LIFO reserve............................................. (4,583) (5,408) (4,650) - - ----------------------------------------------------------------------------------- Inventory primarily valued at LIFO cost.................. $26,269 $26,857 $24,131 ===================================================================================
The LIFO reserve reflects the difference between stating the inventory at historical LIFO cost and the more current FIFO cost. Had the FIFO method been used, cost of goods sold would have been increased by $825,000 in 1994 and decreased by $758,000 and $470,000 in 1993 and 1992, respectively. Earnings per share would have been decreased by $.09 in 1994, and increased by $.05 in 1992 and loss per share would have been reduced by $.08 in 1993, had the FIFO method been used. During 1994, the Company liquidated certain LIFO inventory that was carried at higher costs prevailing in prior years. The effect of the liquidation was to decrease net income by approximately $45,000 ($.01 per share). During 1993 and 1992, the Company liquidated certain LIFO inventory that was carried at lower costs prevailing in prior years. The effect of the liquidation was to decrease net loss by approximately $60,000 ($.01 per share) in 1993 and increase net income by $61,000 ($.01 per share) in 1992. F-8 Dairy Mart Convenience Stores, Inc. and Subsidiaries - - ------------------------------------------------------------------------------- 4. Long-Term Debt: The Company had the following long-term debt at January 29, 1994 and on a pro forma basis after giving effect to the issuance of the Senior Subordinated Notes and the application of the proceeds therefrom, subsequent to year end, as described below:
------------------------------------------------------------------------------------------------------------- Interest Maturity January 29,1994 Pro Forma -------------------------- Rate (Fiscal Year) Current Long-Term Total Total ------------------------------------------------------------------------------------------------------------- (in thousands) Subordinated debentures.................... 14.25% 1996-2001 $ - $27,183 $27,183 $ - Bank term loan............................. Prime+1/4% 1995-1997 2,000 20,000 22,000 - Bank revolving loan........................ Prime+1/4% 1997 - 12,100 12,100 - Real estate mortgage notes payable.........6.25%-12.0% 1995-2012 268 5,933 6,201 6,201 Small Business Administration debentures... 7.9%-10.7% 1996-2002 - 4,220 4,220 4,220 Equipment financing........................ Various 1996-2000 803 2,168 2,971 2,971 Senior Subordinated Notes.................. 10.25% 2005 - - - 75,000 New bank revolving loan.................... Prime+1/4% 1998 - - - - ------------------------------------------------------------------------------------------------------------- $3,071 $71,604 $74,675 $88,392 =============================================================================================================
Subsequent to year end, the Company issued $75,000,000 principal amount of 10.25% senior subordinated notes (the "Notes") due March 15, 2004. The proceeds received from the sale of the Notes, net of estimated offering costs of $2,600,000, were used to repay the entire outstanding indebtedness under the previous bank term loan and bank revolving loan and to redeem in full the Company's 14.25% subordinated debentures due November, 2000. In connection with this transaction, the Company paid a premium of 2.8%, or $761,000, related to the redemption of the 14.25% subordinated debentures and recorded a charge of $844,000 representing the write-off of the remaining deferred financing costs related to the indebtedness repaid. At January 29, 1994, the Company accounted for the total of the premium paid and the charge for deferred financing costs as an extraordinary loss of $928,000, net of related income tax benefit. The Notes are redeemable, at the option of the Company, after March 15, 1999 at rates starting at 104.75% of principal amount reduced annually through March 15, 2002 at which time they become redeemable at 100% of principal amount. The terms of the Notes may restrict, among other things, the payment of dividends and other distributions, investments, the repurchase of capital stock and the making of certain other restricted payments by the Company and its subsidiaries, the incurrence of additional indebtedness and new operating lease obligations by the Company or any of its subsidiaries, and certain mergers, consolidations and dispositions of assets. Additionally, according to the terms of the Notes, if a change of control occurs, as defined, each holder of Notes will have the right to require the Company to repurchase such holder's Notes at 101% of the principal amount thereof. In connection with the sale of the Notes and the repayment of the indebtedness referred to above, the Company entered into a senior revolving credit facility with a group of banks which provides for the availability of up to $30,000,000 in revolving credit loans reduced by outstanding letters of credit not to exceed $15,000,000 in the aggregate. The outstanding balance, if any, is due and payable on March 1, 1997; however, provided no default exists under this new credit agreement, the Company may extend such due date for up to two additional one-year periods, with the consent of the lenders. Revolving credit loans under the credit agreement bear interest, at the Company's option, at the agent bank's prime rate plus 1/4% or from 2.00% to 2.50% above LIBOR. The credit agreement also provides for a commitment fee of 1/2% on any unused portion of the revolving credit facility. Among other restrictions, the credit agreement contains financial covenants relating to specified levels of: earnings before interest expense, rent and taxes to interest expense and rent; earnings before interest expense, taxes, depreciation and amortization (EBITDA) less capital expenditures paid in cash to interest expense; indebtedness to EBITDA; as well as the maintenance of a minimum net worth. In connection with the credit agreement, the Company pledged as collateral capital stock of certain subsidiary corporations of the Company, as well as any loans between the Company and its subsidiaries. The Company is limited in the amount of cash dividends that it may pay and the amount of capital stock and subordinated indebtedness that it may repurchase by applicable covenants contained in the senior revolving credit facility and Notes. As of January 29, 1994, taking into account such limitations, the Company would have been able to pay approximately $1,100,000 in cash dividends in the aggregate. As of January 29, 1994 and January 30, 1993, the fair value of the bank term loan, bank revolving loan, real estate mortgage notes payable and Small Business Administration debentures approximated the carrying amount. As of January 29, 1994 and January 30, 1993, the fair value of the 14.25% subordinated debentures was approximately $27,900,000 and $28,300,000, respectively. Maturities on long-term debt for the next five years, as of January 29, 1994 after giving effect to the issuance of the Notes and the application of the proceeds therefrom, are as follows:
------------------------------------------------------------------------------------------------------------------ January 29, Fiscal Year 1994 ------------------------------------------------------------------------------------------------------------------ (in thousands) 1995 $3,071 1996 1,746 1997 810 1998 788 1999 1,610 ------------------------------------------------------------------------------------------------------------------
F-9 Dairy Mart Convenience Stores, Inc. and Subsidiaries - - -------------------------------------------------------------------------------- 5. Leases: The Company leases operating properties, including store locations and office space, under various lease agreements expiring through 2015. Certain of these locations are sublet to the Company's franchisees. A summary of future minimum lease payments and sublease receipts at January 29, 1994 is as follows:
-------------------------------------------------------------------------------------------------------- Net Capital Operating Operating Operating Payable/Receivable in Fiscal Year Ending Leases Leases Subleases Leases -------------------------------------------------------------------------------------------------------- (in thousands) 1995....................................................... $1,202 $13,517 $3,460 $10,057 1996....................................................... 452 10,454 2,599 7,855 1997....................................................... 423 7,797 1,883 5,914 1998....................................................... 364 5,311 1,373 3,938 1999....................................................... 267 3,022 793 2,229 Thereafter................................................. 736 6,705 218 6,487 ---------------------------------------------------------------------------------------------------------- Total minimum.............................................. 3,444 $46,806 $10,326 $36,480 =================================== Less amounts representing interest and executory costs..... 776 ------------------------------------------------------------------- Present value of minimum lease payments.................... $2,668 ===================================================================
Rental expense for all operating leases was as follows: ---------------------------------------------------------------------------------------------------------- 1994 1993 1992 ---------------------------------------------------------------------------------------------------------- (in thousands) Leases............................................................ $14,803 $15,573 $15,579 Less subleases.................................................... 4,396 4,659 4,656 ---------------------------------------------------------------------------------------------------------- Net............................................................... $10,407 $10,914 $10,923 ==========================================================================================================
F-10 Dairy Mart Convenience Stores, Inc. and Subsidiaries - - -------------------------------------------------------------------------------- 6. Federal and State The Company adopted the provisions of SFAS No. 109 Income Taxes: effective February 2, 1992 and recorded a charge in fiscal 1993 of $3,951,000 which decreased earnings per share by $.73 for the cumulative effect of this change in accounting principle. The Company also adjusted the carrying value of certain assets and recorded additional depreciation and amortization expense of $452,000 in fiscal 1993 as a result of this change. The provision for (benefit from) income taxes for the fiscal years ended January 29, 1994, January 30, 1993 and February 1, 1992 was as follows:
--------------------------------------------------------------------------------- 1994 1993 1992 --------------------------------------------------------------------------------- (in thousands) Current provision Federal............................................... $ 188 $ 1,309 $1,215 State and local....................................... 447 440 483 --------------------------------------------------------------------------------- Total current provision............................. 635 1,749 1,698 --------------------------------------------------------------------------------- Deferred (benefit) provision Federal............................................... (115) (3,118) 930 State and local....................................... 111 (529) 301 --------------------------------------------------------------------------------- Total deferred (benefit) provision.................. (4) (3,647) 1,231 --------------------------------------------------------------------------------- Total provision (benefit)............................... $ 631 $(1,898) $2,929 =================================================================================
The Company is subject to minimum state taxes in excess of statutory state income taxes in many of the states in which it operates. These minimum taxes are included in the provision for (benefit from) state income taxes. In addition, the Company records a reduction in the provision for income taxes for the benefit to be realized from targeted jobs credits in the year in which they arise. A reconciliation of the difference between the statutory federal income tax rate and the effective income tax rate follows:
-------------------------------------------------------------------------------- Percent of Pretax Income -------------------------------------------------------------------------------- 1994 1993 1992 -------------------------------------------------------------------------------- Statutory federal income tax rate...................... 34 % (34)% 34% Increase (decrease) from: State income tax provision (benefit), net of federal tax effect.......................................... 24 (1) 7 Nondeductible depreciation and amortization of acquired assets..................................... 8 2 4 Targeted jobs credit................................. (27) (7) (3) Other................................................ 3 - - -------------------------------------------------------------------------------- Effective income tax rate.............................. 42 % (40)% 42% ================================================================================
F-11 Dairy Mart Convenience Stores, Inc. and Subsidiaries - - ------------------------------------------------------------------------------- Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Significant deferred tax assets (liabilities) as of January 29, 1994 and January 30, 1993 were as follows:
- - -------------------------------------------------------------------------------- 1994 1993 - - -------------------------------------------------------------------------------- (in thousands) Capitalized leases.........................................$ 269 $ 306 Depreciation and amortization.............................. (12,142) (11,474) Vacation accrual........................................... 314 402 Inventory (LIFO)........................................... (1,622) (1,628) Reserve for asset valuations............................... 982 677 Insurance reserves not deductible for tax purposes......... 1,245 1,586 Income deferred for financial statement purposes........... 955 842 Reserve for closed stores and renovations.................. 613 667 Accrued restructuring expenses............................. 149 2,111 Tax credit and state net operating loss carryforwards...... 3,581 1,883 Loss on extinguishment of debt............................. 677 -- Other...................................................... 258 (188) - - -------------------------------------------------------------------------------- Net deferred tax liability.................................$ (4,721) $ (4,816) ================================================================================
As of January 29, 1994, the Company had alternative minimum tax credits aggregating $1,015,000 which carryforward indefinitely for federal income tax purposes. These credits can be used in the future to the extent that the Company's regular tax liability exceeds its liability calculated under the alternative minimum tax method. In addition, the Company had $2,077,000 of targeted jobs credit carryforwards that expire from fiscal 2006 to 2009 and $179,000 of foreign tax credit carryforwards that expire in fiscal 1999. The Company and its subsidiaries file a consolidated federal income tax return but generally file separate state income tax returns. As of January 29, 1994, the Company had net operating loss carryforwards for state income tax purposes of $4,706,000 which expire, if unused, from fiscal 1995 to 2008. No valuation allowance for deferred tax assets was provided as of January 29, 1994 and January 30, 1993. F-12 Dairy Mart Convenience Stores, Inc. and Subsidiaries - - -------------------------------------------------------------------------------- 7. Capital Stock: An analysis of the capital stock accounts is as follows: ------------------------------------------------------------
Common Stock ------------------------------------------ Class A shares Class B shares Paid-in capital issued at $.01 issued at $.01 in excess of par value par value Amount par value ---------------------------------------------------------------------------------------------------------- Balance February 2, 1991..................... 2,368,669 2,451,335 $48,201 $26,576,593 Employee stock options exercised............. 2,187 14,275 165 69,522 Employee stock purchase plan................. 16,889 - 169 99,240 Exchange of Class B shares for Class A shares 101,400 (101,400) - - Five-for-four stock split.................... 596,314 609,483 12,058 (12,058) Other........................................ - - - (2,681) ---------------------------------------------------------------------------------------------------------- Balance February 1, 1992..................... 3,085,459 2,973,693 60,593 26,730,616 Employee stock options exercised............. 70,313 - 703 389,518 Employee stock purchase plan................. 15,655 - 157 91,672 Exchange of Class B shares for Class A shares 2,375 (2,375) - - ---------------------------------------------------------------------------------------------------------- Balance January 30, 1993..................... 3,173,802 2,971,318 61,453 27,211,806 Employee stock options exercised............. 2,812 49,697 525 149,053 Employee stock purchase plan................. 27,115 - 271 122,190 Exchange of Class B shares for Class A shares 65,000 (65,000) - - ---------------------------------------------------------------------------------------------------------- Balance January 29, 1994..................... 3,268,729 2,956,015 $62,249 $27,483,049 ==========================================================================================================
Dividends may be declared and paid on Class A Common Stock without being paid on Class B Common Stock. No dividend may be paid on Class B Common Stock without equal amounts paid concurrently on Class A Common Stock. Holders of Class A Common Stock have one-tenth vote per share and are entitled to elect 25% of the Board of Directors so long as the number of outstanding shares of Class A Common Stock is at least 10% of the total of all shares of Common Stock outstanding. Holders of Class B Common Stock have one vote per share. Holders of Class B Common Stock have the right to convert their shares at any time for an equivalent number of shares of Class A Common Stock. In June 1986, the stockholders approved an Employee Stock Purchase Plan. The plan, as amended in June, 1992, provides that employees may purchase quarterly, through payroll deductions, up to 250 shares of Class A Common Stock at 85% of the market value. Of the original 1,250,000 shares provided for under this plan, 1,089,805 shares remained available for issuance as of January 29, 1994. As of January 29, 1994, January 30, 1993, and February 1, 1992, the Company held 521,625 shares of Class A Common Stock and 175,957 shares of Class B Common Stock as treasury shares. F-13
Dairy Mart Convenience Stores, Inc. and Subsidiaries - - ------------------------------------------------------------------------------------------------------------------------------------ 8. Stock Option Plan: The Company adopted Stock Option Plans in 1983, 1985 and 1990 providing for the granting to employees of up to an aggregate of 226,875 shares of Class B Common Stock and 750,000 shares of Class A Common Stock. The Company granted incentive stock options pursuant to these Plans totalling 100,500, 10,000 and 150,000 in fiscal 1994, 1993 and 1992, respectively. At January 29, 1994, the Company had available for grant under these Plans options to purchase 24,508 shares of Class B Common Stock and 120,938 shares of Class A Common Stock, after considering the lapse of options previously granted. In addition to the incentive stock options granted under the above Plans, the Company has granted non-qualified stock options which are not part of a specific plan. A summary of activity for all stock options during the fiscal year ended January 29, 1994 is as follows: ------------------------------------------------------------------------------------------------------------------- Net Options Options Options Options Plan or Fiscal Stock Outstanding Granted Options Outstanding Exercisable Year Type Option Price January 30, 1993 (Lapsed) Exercised January 29, 1994 January 29, 1994 ------------------------------------------------------------------------------------------------------------------- Incentive Stock Options: 1983 Plan Class B $3.46 to $5.50 91,508 (4,011) (49,697) 37,800 37,800 1985 Plan Class A $6.20 to $10.75 301,500 58,250 - 359,750 252,750 1990 Plan Class A $4.60 to $7.25 219,375 (3,438) (2,812) 213,125 120,938 ------------------------------------------------------------------------------------------------------------------- Total Incentive Stock Options 612,383 50,801 (52,509) 610,675 411,488 ------------------------------------------------------------------------------------------------------------------- Non-qualified Stock Options: 1986 Class B $ 4.00 12,750 - - 12,750 12,750 1987 Class A $ 8.80 11,250 (1,250) - 10,000 10,000 1991 Class A $ 4.60 5,000 - - 5,000 5,000 ------------------------------------------------------------------------------------------------------------------- Total Non-qualified Stock Options 29,000 (1,250) - 27,750 27,750 ------------------------------------------------------------------------------------------------------------------- Total Stock Options 641,383 49,551 (52,509) 638,425 439,238 ===================================================================================================================
F-14 Dairy Mart Convenience Stores, Inc. and Subsidiaries - - ------------------------------------------------------------------------------ 9. Gasoline A summary of gasoline operations for the years ended Operations: January 29, 1994, January 30, 1993 and February 1, 1992 is as follows:
----------------------------------------------------------------------------- 1994 1993 1992 ----------------------------------------------------------------------------- (in thousands) Gasoline gallons sold........................ 206,365 196,703 189,625 Gasoline revenues............................ $217,289 $214,087 $211,152 Cost of gasoline sold........................ 191,969 194,110 192,340 Depreciation................................. 2,025 1,916 1,789 Capital expenditures......................... 952 2,128 2,118 Net book value of gasoline equipment......... 11,300 12,373 12,161 =============================================================================
F-15 Dairy Mart Convenience Stores, Inc. and Subsidiaries - - -------------------------------------------------------------------------------- 10. Employee The Company provides benefits to qualified employees through a Benefit defined contribution profit sharing plan. Contributions under Plans: this plan are made annually in amounts determined by the Company's Board of Directors. The Company recorded a provision for contributions under this plan of $100,000, $100,000 and $400,000 for fiscal 1994, 1993 and 1992, respectively. Effective January 1, 1993, the profit sharing plan was amended pursuant to section 401(k) of the Internal Revenue Code enabling eligible employees to contribute up to 15% of their annual compensation to the plan, with the Company matching 25% of such contributions up to 6% of the employees' annual compensation. Matching contributions from the Company for fiscal 1994 were $181,000. The Company does not offer any additional postretirement and postemployment benefits to its employees. F-16 Dairy Mart Convenience Stores, Inc. and Subsidiaries - - -------------------------------------------------------------------------------- 11. Commitments At January 29, 1994, the Company is contingently liable for and outstanding letters of credit amounting to $11,569,000. The Contingencies: Company is also contingently liable as guarantor on certain loans obtained by convenience store operators to finance the purchase of equipment and initial inventory in the approximate amount of $1,200,000 at January 29, 1994. In consideration of these guarantees, the Company participates with the lending institutions in the interest paid on these obligations which are secured by inventory and equipment owned by the convenience store operators. The Company has certain environmental contingencies related to the ongoing costs to comply with federal, state and local environmental laws and regulations, including costs for assessment, compliance, remediation and certain capital expenditures related to its gasoline operations. In the ordinary course of business, the Company is involved in environmental assessment and remediation activities with respect to releases of regulated substances from existing and previously operated retail gasoline facilities. The Company accrues its estimates of all costs to be incurred for assessment and remediation for known releases. These accruals are adjusted if and when new information becomes known. Due to the nature of such releases, the actual costs of assessment and remediation may vary significantly from year to year. At January 29, 1994, the Company had recorded an accrual of $2,219,000 for such costs. The Company is entitled to reimbursements of a portion of the above costs from various state environmental trust funds based upon compliance with the terms and conditions of such funds. At January 29, 1994, the Company had recorded a reimbursement receivable of $1,227,000. Additionally, under current federal and state regulatory programs, the Company will be obligated by December, 1998 to upgrade or replace most of its existing underground storage tanks ("USTs"). The Company presently estimates that it will be required to make capital expenditures related to the upgrading or replacing of USTs ranging from approximately $16.0 million to $20.0 million in the aggregate through December, 1998, which capital expenditures could be reduced for locations which may be closed in lieu of the capital costs of compliance. The Company's estimates of costs to be incurred for environmental assessment and remediation and for UST upgrading and other regulatory compliance are based on factors and assumptions that could change due to modifications of regulatory requirements, detection of unanticipated environmental conditions or other unexpected circumstances. In fiscal 1989, the Company entered into agreements for the wholesale supply of various grocery items to its Northeast and Midwest region stores. Under the supply agreement, the Company is obligated to annually purchase a minimum amount of merchandise for a period of ten years. The level of purchases was achieved during the first six years of the agreement and management believes it is readily achievable for the balance of the agreement. Prices to be charged by the supplier must be competitive. The Company is party to an employment agreement with the Chairman of the Board of the Company for a five year term that began on February 2, 1992 and ends on January 31, 1997, unless terminated earlier. Under the employment agreement, Mr. Nirenberg receives an annual salary of $500,000, payable in installments according to the Company's normal compensation policy, plus customary fringe benefits. The Company is party to a number of lawsuits which have arisen in the ordinary course of business. Management does not believe the outcome of this litigation will have a material impact on the Company's results of operations or financial position. F-17 Dairy Mart Convenience Stores, Inc. and Subsidiaries - - -------------------------------------------------------------------------------- 12. Nonrecurring In March 1993, the Company announced that it was downsizing Charge for and consolidating its three administrative offices into its Restructuring: new Corporate headquarters facility in Enfield, Connecticut. The Company historically maintained administrative offices in Enfield, Connecticut, Louisville, Kentucky and Cuyahoga Falls, Ohio. In fiscal 1993, the Company recorded a nonrecurring charge of $5,200,000 primarily related to severance, relocation and other personnel related costs associated with the Company's restructuring. F-18 EX-4.1 2 INDENTURE EXHIBIT 4.1 ================================================================================ INDENTURE Dated as of March 3, 1994 by and among DAIRY MART CONVENIENCE STORES, INC. AND ITS SUBSIDIARIES EXECUTING A SIGNATURE PAGE HERETO, as Guarantors AND SOCIETY NATIONAL BANK, as Trustee ------------------------------------ $75,000,000 10 1/4% Senior Subordinated Notes due 2004 ================================================================================ CROSS REFERENCE TABLE /1/
TIA Indenture Section Section 310 (a) (1)................................................... 7.10 (a) (2)................................................... 7.10 (a) (3)................................................... N.A./2/ (a) (4)................................................... N.A. (b)....................................................... 7.10 (c)....................................................... N.A. 311 (a)....................................................... 7.11 (b)....................................................... 7.11 (c)....................................................... N.A. 312 (a)....................................................... 2.05 (b)....................................................... 12.03 (c)....................................................... 12.03 313 (a)....................................................... 7.06 (b) (1)................................................... N.A. (b) (2)................................................... 7.06 (c)....................................................... 12.02 (d)....................................................... 7.06 314 (a)....................................................... 4.02 (c) (1)................................................... 12.04 (c) (2)................................................... 12.04 (c) (3)................................................... N.A. (e)....................................................... 12.05 (f)....................................................... 4.03 315 (a)....................................................... 7.01 (b)....................................................... 7.05 (c)....................................................... 7.01 (e)....................................................... 6.11 316 (a) (last sentence)....................................... 2.08 (a) (1) (A)............................................... 6.05 (a) (1) (B)............................................... 6.04 (a) (2)................................................... N.A. (b)....................................................... 6.07 317 (a) (1)................................................... 6.08 (a) (2)................................................... 6.09 (b)....................................................... 2.04 318 (a)....................................................... 12.01 - - ------------------------------
/1/. Note: This Cross Reference Table shall not, for any purpose, be deemed to be part of this Indenture. /2/. N.A. means Not Applicable. i TABLE OF CONTENTS/3/ -
Page ---- ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01. Definitions............................................... 1 SECTION 1.02. Other Definitions......................................... 17 SECTION 1.03. Incorporation by Reference of Trust Indenture Act......... 17 SECTION 1.04. Rules of Construction..................................... 18 SECTION 1.05. Acts of Holders........................................... 18 ARTICLE 2 THE SECURITIES SECTION 2.01. Form and Dating........................................... 19 SECTION 2.02. Execution and Authentication.............................. 20 SECTION 2.03. Registrar and Paying Agent................................ 21 SECTION 2.04. Paying Agent to Hold Money in Trust....................... 21 SECTION 2.05. Securityholder Lists...................................... 22 SECTION 2.06. Transfer and Exchange..................................... 22 SECTION 2.07. Replacement Securities.................................... 23 SECTION 2.08. Outstanding Securities; Determinations of Holders' Action. 23 SECTION 2.09. Temporary Securities...................................... 24 SECTION 2.10. Cancellation.............................................. 25 SECTION 2.11. CUSIP Numbers............................................. 25 SECTION 2.12. Defaulted Interest........................................ 25 ARTICLE 3 REDEMPTION AND REPURCHASE SECTION 3.01. Right to Redeem; Notices to Trustee....................... 26 SECTION 3.02. Public Equity Offering Redemption......................... 26 SECTION 3.03. Selection of Securities to be Redeemed.................... 26 SECTION 3.04. Notice of Redemption...................................... 27 SECTION 3.05. Effect of Notice of Redemption............................ 27 SECTION 3.06. Deposit of Redemption Price............................... 28 SECTION 3.07. Securities Redeemed in Part............................... 28 SECTION 3.08. Offer to Repurchase Upon Change of Control................ 28 SECTION 3.09. Offer to Repurchase With Cash Proceeds from Certain Asset Dispositions.................. 29 - - ------------------ /3/ This Table of Contents shall not, for any purpose, be deemed to be part of - this Indenture.
ii
ARTICLE 4 COVENANTS Page ---- SECTION 4.01. Payment of Securities.................................... 32 SECTION 4.02. SEC Reports.............................................. 32 SECTION 4.03. Compliance Certificates.................................. 32 SECTION 4.04. Further Instruments and Acts............................. 33 SECTION 4.05. Maintenance of Office or Agency.......................... 33 SECTION 4.06. Limitation on Additional Indebtedness and New Operating Leases................................. 34 SECTION 4.07. Limitation on Restricted Payments........................ 34 SECTION 4.08. Limitation on Investments................................ 37 SECTION 4.09. Limitation on Liens...................................... 36 SECTION 4.10. Limitation on Dividends and Other Payment Restrictions Affecting Subsidiaries...................... 36 SECTION 4.11. Limitation on Sale-Leaseback Transactions................ 37 SECTION 4.12. Limitation on Transactions with Affiliates............... 37 SECTION 4.13. Limitation on Other Senior Subordinated Indebtedness..... 38 SECTION 4.14. Additional Guarantors.................................... 38 SECTION 4.15. Use of Proceeds.......................................... 38 SECTION 4.16. Limitation on Sales of Assets............................ 39 SECTION 4.17. Payments of Taxes and Other Claims....................... 40 SECTION 4.18. Corporate Existence...................................... 41 SECTION 4.19. Maintenance of Properties and Insurance.................. 41 SECTION 4.20. Conflicting Agreements................................... 42 SECTION 4.21. Investment Company Act................................... 42 SECTION 4.22. Payments for Consents.................................... 42 SECTION 4.23. Covenant to Comply with Securities Laws Upon Purchase of Securities.............................. 42 ARTICLE 5 SUCCESSOR CORPORATION SECTION 5.01. When the Company or any Guarantor May Merge, Etc........ 42 ARTICLE 6 DEFAULTS AND REMEDIES SECTION 6.01. Events of Default........................................ 44 SECTION 6.02. Acceleration............................................. 46 SECTION 6.03. Other Remedies........................................... 47 SECTION 6.04. Waiver of Past Defaults.................................. 47
iii Page ---- SECTION 6.05. Control by Majority...................................... 47 SECTION 6.06. Limitation on Suits...................................... 47 SECTION 6.07. Rights of Holders to Receive Payment..................... 48 SECTION 6.08. Collection Suit by Trustee............................... 48 SECTION 6.09. Trustee May File Proofs of Claim......................... 48 SECTION 6.10. Priorities............................................... 49 SECTION 6.11. Undertaking for Costs.................................... 49 SECTION 6.12. Waiver of Stay, Extension or Usury Laws.................. 50
ARTICLE 7 TRUSTEE SECTION 7.01. Duties of Trustee........................................ 50 SECTION 7.02. Rights of Trustee........................................ 51 SECTION 7.03. Individual Rights of Trustee............................. 52 SECTION 7.04. Trustee's Disclaimer..................................... 52 SECTION 7.05. Notice of Defaults....................................... 52 SECTION 7.06. Reports by Trustee to Holders............................ 52 SECTION 7.07. Compensation and Indemnity............................... 53 SECTION 7.08. Replacement of Trustee................................... 53 SECTION 7.09. Successor Trustee by Merger.............................. 54 SECTION 7.10. Eligibility; Disqualification............................ 55 SECTION 7.11. Preferential Collection of Claims Against the Company.... 55 ARTICLE 8 SATISFACTION AND DISCHARGE OF INDENTURE; DEFEASANCE OF CERTAIN OBLIGATIONS; UNCLAIMED MONEYS SECTION 8.01. Satisfaction and Discharge of Indenture.................. 55 SECTION 8.02. Application by Trustee of Funds Deposited for Payment of Securities................................ 59 SECTION 8.03. Repayment of Moneys Held by Paying Agent................. 59 SECTION 8.04 Return of Moneys Held by Trustee and Paying Agent Unclaimed for Three Years................... 59 ARTICLE 9 AMENDMENTS SECTION 9.01. Without Consent of Holders............................... 60 SECTION 9.02. With Consent of Holders.................................. 60
iv Page ---- SECTION 9.03. Compliance with Trust Indenture Act...................... 61 SECTION 9.04. Revocation and Effect of Consents, Waivers and Actions... 62 SECTION 9.05. Notation on or Exchange of Securities.................... 62 SECTION 9.06. Trustee to Sign Supplemental Indentures.................. 62 SECTION 9.07. Effect of Supplemental Indentures........................ 63
ARTICLE 10 SUBORDINATION SECTION 10.01. Securities Subordinated to Senior Indebtedness........... 63 SECTION 10.02. Priority and Payment Over of Proceeds in Certain Events........................................... 63 SECTION 10.03. Payments to Be Made Prior to Dissolution................. 65 SECTION 10.04. Rights of Holders of Senior Indebtedness Not to Be Impaired........................................... 66 SECTION 10.05. Authorization to Trustee to Take Action to Effectuate Subordination................................. 66 SECTION 10.06. Subrogation.............................................. 66 SECTION 10.07. Obligations of Company Unconditional..................... 67 SECTION 10.8. Trustee Entitled to Assume Payments Not Prohibited in Absence of Notice.......................... 67 SECTION 10.09. Right of Trustee to Hold Senior Indebtedness............. 68 ARTICLE 11 GUARANTEE OF SECURITIES SECTION 11.01. Guarantee................................................ 68 SECTION 11.02. Agreement to Subordinate................................. 70 SECTION 11.03. Release of Guarantor..................................... 71 SECTION 11.04. Guarantor May Consolidate, etc., on Certain Terms........ 71 SECTION 11.05. Limitation on Guarantee.................................. 72 SECTION 11.06. Execution and Delivery of Guarantees..................... 72 SECTION 11.07. Successors............................................... 73 ARTICLE 12 MISCELLANEOUS SECTION 12.01. Trust Indenture Act Controls............................. 73 SECTION 12.02. Notices.................................................. 73 SECTION 12.03. Communications by Holders with Other Holders............. 74
v Page ---- SECTION 12.04. Certificate and Opinion as to Conditions Precedent....... 74 SECTION 12.05. Statements Required in Certificate or Opinions........... 75 SECTION 12.06. Severability Clause...................................... 75 SECTION 12.07. Rules by Trustee, Paying Agent and Registrar............. 75 SECTION 12.08. Legal Holidays........................................... 75 SECTION 12.09. GOVERNING LAW............................................ 76 SECTION 12.10. No Recourse Against Others............................... 76 SECTION 12.11. Successors............................................... 76 SECTION 12.12. Multiple of Originals.................................... 76 SECTION 12.13. No Adverse Interpretation of Other Agreements............ 76 SECTION 12.14. Table of Contents, Headings, etc......................... 76 SECTION 12.15. Benefits of Indenture.................................... 76 SIGNATURES ......................................................... 78 EXHIBIT I - FORM OF SECURITY EXHIBIT 2 - FORM OF NOTATION OF GUARANTEE ENDORSED ON SECURITY
vi INDENTURE, dated as of March 3, 1994, by and among DAIRY MART CONVENIENCE STORES, INC., a Delaware corporation (the "Company"), each of the subsidiaries of the Company executing a signature page hereto, as Guarantors (as hereinafter defined), and SOCIETY NATIONAL BANK, as trustee (the "Trustee"). The Company has authorized the issuance of the Securities (as hereinafter defined), and to provide therefor, the Company and each of the Guarantors have duly authorized the execution and delivery of this Indenture. All things necessary to make the Securities, and each of the Guarantees (as hereinafter defined), when duly issued and executed by the Company and each Guarantor and authenticated and delivered hereunder, the valid obligations of the Company and each Guarantor, and to make this Indenture a valid and binding agreement of the Company and each Guarantor, in accordance with their respective terms, have been done. Each party agrees as follows for the benefit of the other party and for the equal and ratable benefit of the Holders of the Company's 10 1/4% Senior Subordinated Notes due 2004 (the "Securities"): ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01 Definitions. ----------- "Acquired Indebtedness" means Indebtedness of a Person existing at the time such Person becomes a Subsidiary (or such Person is merged into the Company or a Subsidiary) or assumed in connection with the acquisition of properties or assets from any such Person and not incurred in connection with, or in contemplation of, such Person becoming a Subsidiary or such acquisition. "Acquired Operating Lease" means any Operating Lease of a Person existing at the time such Person becomes a Subsidiary (or such Person is merged into the Company or a Subsidiary) or assumed in connection with the acquisition of properties or assets from any such Person after the Issue Date and not entered into in connection with, or in contemplation of, such Person becoming a Subsidiary or in contemplation of such acquisition, and includes any replacements or renewals of any such Operating Lease. "Affiliate" of any specified Person means any other Person, directly or indirectly, controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. A specified Person beneficially owning 30% or more of the voting power of the Voting Stock of a corporation will be presumed to control such corporation unless another Person beneficially owns more Voting Stock than such specified Person beneficially owns and such other Person has actual control. Notwithstanding the foregoing, the term Affiliate shall not include any Wholly Owned Subsidiary which is a Guarantor but shall include the Non-Recourse Subsidiary. "Asset Disposition" means any sale, lease, sublease, transfer, issuance or other disposition (or series of related sales, leases, subleases, transfers, issuances or dispositions) of shares of Capital Stock of the Company, any Subsidiary or the Non-Recourse Subsidiary (other than directors' qualifying shares), property or other assets (each referred to for the purposes of this definition as a "disposition"), by the Company, any Subsidiary or the Non- Recourse Subsidiary, including any disposition by means of a merger, consolidation, or similar transaction (other than (i) a disposition of inventory at not less than fair market value in the ordinary course of business, (ii) a disposition of obsolete assets in the ordinary course of business, (iii) a sale or issuance of Capital Stock of the Company which is not Exchangeable Stock, (iv) sales of individual assets in the ordinary course of business having a fair market value of less than, and for consideration less than, $5,000, (v) any disposition of assets of the Non-Recourse Subsidiary not constituting, together with any related dispositions by the Non-Recourse Subsidiary, a sale of all or substantially all of the assets of the Non-Recourse Subsidiary, and (vi) any disposition to a Wholly Owned Subsidiary which is a Guarantor). "Attributable Indebtedness" in respect of a Sale-Leaseback Transaction means, as at the time of the Sale-Leaseback Transaction, the greater of (i) the fair value of the property subject to such arrangement (as determined in good faith by the Board of Directors) or (ii) the present value (discounted at the interest rate borne by the Securities, compounded annually) of the total obligations of the lessee for rental payments during the remaining term of the lease included in such arrangement (including any period for which such lease has been extended). "Average Life" means, as of the date of determination, with respect to any Indebtedness, the quotient obtained by dividing (i) the sum of the products of the numbers of years from the date of determination to the dates of each successive scheduled principal payment of such Indebtedness multiplied by the amount of such principal payment by (ii) the sum of all such principal payments. "beneficial owner" has the meaning ascribed thereto in Rules 13d-3 and 13d- 5 promulgated by the Commission under the Exchange Act, except that a person shall be deemed to be the beneficial owner of all shares that such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time; and the terms "beneficial ownership" and "beneficially owns" have meanings correlative to the foregoing. -2- "Board of Directors" means the Board of Directors of the Company or any committee thereof duly authorized to act on behalf of such Board. "Business Day" means any day that is not a Saturday, a Sunday or a day on which the principal office of the Trustee or banking institutions in New York are required to close. "Capital Lease Obligations" of a Person means any obligation which is required to be classified and accounted for as a capital lease on the face of a balance sheet of such Person prepared in accordance with GAAP; the amount of such obligation shall be the capitalized amount thereof, determined in accordance with GAAP; and the stated maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be terminated by the lessee without payment of a penalty. "Capital Stock" means any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) corporate stock, including any Preferred Stock. "Change of Control" means the occurrence of any of the following events: (i) any "person" or "group" (as such terms are used in Section 13(d) and 14(d) of the Exchange Act), other than one or more Permitted Holders or any Person or Persons controlled by one or more Permitted Holders, is or becomes the "beneficial owner", directly or indirectly, of more than 50% of the total voting power of the Voting Stock of the Company; (ii) 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 was approved by the Directors then still in office who either were Directors at the beginning of such period or whose election or nomination for Director was previously so approved) cease for any reason to constitute a majority of the Board of Directors of the Company then in office; (iii) the direct or indirect, sale, lease, exchange or other transfer of all or substantially all of the assets of the Company to any "person" (as such term is used in Section 13(d) or 14(d) of the Exchange Act), provided that the foregoing shall not apply to the granting of Liens on such assets to the extent permitted by this Indenture; (iv) the Permitted Holders cease to control at least 10% of the total voting power of the Voting Stock of the Company; (v) any acceleration of any Indebtedness under the New Credit Agreement occurs as a result of a change in the beneficial ownership of the Capital Stock of the Company; or (vi) the Company consolidates with or merges into another corporation or any Person consolidates with or merges into the Company, in either event pursuant to a transaction in which either (A) the outstanding Voting Stock of the Company is changed into or exchanged for cash, securities or other property (other than any such transaction where the outstanding Voting Stock of the Company is changed into or exchanged -3- for Voting Stock of the surviving corporation which is neither Redeemable Stock nor Exchangeable Stock) or (B) the holders of a majority of the voting power of the Voting Stock of the Company immediately prior to such transaction own, directly or indirectly, less than a majority of the voting power of the Voting Stock of the surviving corporation immediately after such transaction. "Code" means the Internal Revenue Code of 1986, as from time to time amended. "Company Senior Indebtedness" means all Indebtedness of the Company under: (i) the New Credit Agreement as in effect on the date hereof; and (ii) all additional Indebtedness that is permitted under the Indenture that is not by its terms subordinated to or pari passu with the Securities (it being understood that Indebtedness permitted under the Indenture that is not by its terms subordinated to or pari passu with the Securities shall not in any event constitute Company Senior Indebtedness if such Indebtedness is subordinated by its terms to any other Indebtedness that constitutes Company Senior Indebtedness). Notwithstanding anything to the contrary in the foregoing, Company Senior Indebtedness shall not include (w) the Company's 14.25% Subordinated Debentures Due 2000, (x) any liability of the Company, any Subsidiary or the Non-Recourse Subsidiary for state, local or other taxes, (y) any Indebtedness between or among the Company, any Subsidiary or the Non- Recourse Subsidiary, or (z) any Indebtedness of the Company, any Subsidiary or the Non-Recourse Subsidiary incurred for the purchase of goods or materials or for services obtained in the ordinary course of business (other than Indebtedness incurred under any revolving credit facility under the New Credit Agreement for such purpose). "Consolidated Fixed Charge Coverage Ratio" of the Company for any period means the ratio, on a pro forma basis, of (i) the sum of Consolidated Net Income, Consolidated Fixed Charges and Consolidated Tax Expense, plus depreciation, and without duplication, all amortization, in each case, for such period, of the Company and its subsidiaries (other than the Non-Recourse Subsidiary) on a consolidated basis, as determined in accordance with GAAP, to (ii) Consolidated Fixed Charges; provided, that in calculating Consolidated Fixed Charges on a pro forma basis, any Indebtedness bearing a floating interest rate shall be computed as if the rate in effect on the date of computation has been the applicable rate for the entire period and the aggregate amount of available commitments under any revolving credit facility (excluding any letter of credit facility) of the Company or any Subsidiary will be deemed to be outstanding. "Consolidated Fixed Charges" of the Company means, for any period, the sum of: (i) the aggregate amount of interest which, in conformity with GAAP, would be set opposite the caption "interest expense" or any like caption on an income statement for the Company and its subsidiaries (other than the Non- -4- Recourse Subsidiary) on a consolidated basis (including, without limitation, imputed interest included on Capital Lease Obligations, all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing, the net costs associated with any Interest Rate Agreement, foreign currency exchange agreement, option or futures contract or other similar agreement or arrangement relating to interest rates or foreign exchange rates); (ii) an amount equal to one-third of Consolidated Operating Lease Payments; and (iii) dividends on Preferred Stock of the Company or a Subsidiary held by Persons other than the Company or a Wholly Owned Subsidiary which is a Guarantor. For purposes of clause (iii) of the preceding sentence, dividends shall be deemed to be an amount equal to the actual dividends paid divided by one minus the applicable combined federal, state and local income tax rate of the Company (expressed as a decimal), on a consolidated basis, for the fiscal year immediately preceding the date of the transaction giving rise to the need to calculate Consolidated Fixed Charges. "Consolidated Net Income" means, for the Company for any period, the net income of the Company and its subsidiaries (other than, except as expressly provided below, the Non-Recourse Subsidiary) determined on a consolidated basis in accordance with GAAP; however, there will not be included in such Consolidated Net Income: (i) subject to clause (iv) below, any net income of the Non-Recourse Subsidiary or any Person which is not a Subsidiary, except that (A) the Company's equity in the net income of the Non-Recourse Subsidiary or any such Person for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash actually distributed by the Non-Recourse Subsidiary (including as a result of sales by the Non-Recourse Subsidiary of Capital Stock pledged or delivered by borrowers who are franchisees of convenience stores of the Company or any Subsidiary) or any such Person during such period to the Company or a Guarantor as a dividend or other distribution (subject, in the case of a dividend or other distribution to a Guarantor, to the limitations contained in clause (iii) below) and (B) the Company's equity in a net loss of the Non-Recourse Subsidiary or any such Person for such period shall be included in determining such Consolidated Net Income (ii) any net income (but not net loss) of any Person acquired by the Company or a Subsidiary in a pooling of interests transaction for any period prior to the date of such acquisition; (iii) any net income of any Subsidiary if such Subsidiary is subject to restrictions, directly or indirectly, on the payment of dividends or the making of distributions by such Subsidiary, directly or indirectly, to the Company, except that (A) the Company's equity in the net income of any such Subsidiary for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash actually distributed by such Subsidiary during such period to the Company or a Guarantor as a dividend or other distribution (subject, in the case of a dividend or other distribution to another Subsidiary, to the limitation contained in this clause) and (B) the Company's equity in a net loss of any such Subsidiary for such period shall be included in determining such Consolidated Net Income; (iv) any gain (but not loss) realized upon the sale or other disposition of any property, plant or -5- equipment of the Company or its consolidated subsidiaries (including the Non- Recourse Subsidiary and including pursuant to any Sale-Leaseback Transaction) which is not sold or otherwise disposed of in the ordinary course of business and any gain (but not loss) realized upon the sale or other disposition of any Capital Stock of any Person (except for sales by the Non-Recourse Subsidiary of Capital Stock pledged or delivered by borrowers who are franchisees of convenience stores of the Company or any Subsidiary up to the aggregate amount of cash actually distributed by the Non-Recourse Subsidiary during such period to the Company or a Guarantor as a dividend or other distribution); (v) any gains or losses from currency exchange transactions not in the ordinary course of business consistent with past practice; (vi) any gains (but not losses) attributable to any extraordinary items; (vii) all extraordinary expenses, including as a result of the write-off of deferred loan costs in connection with the application of the proceeds from the sale of the Securities; (viii) the amount of any premium payable on the Company's 14.25% Subordinated Debentures Due 2000 as a result of prepayment of such Debentures with the proceeds of the Securities in accordance with the Prospectus; and (ix) the cumulative effect of a change in accounting principles. "Consolidated Net Worth" of any Person means the total of the amounts shown on the balance sheet of such Person and its consolidated subsidiaries (including, with respect to the Company, the Non-Recourse Subsidiary), determined on a consolidated basis in accordance with GAAP, as of the end of the most recent fiscal quarter of such Person ending prior to the taking of any action for the purpose of which the determination is being made, as (i) the par or stated value of all outstanding Capital Stock of such Person plus (ii) paid- in capital or capital surplus relating to such Capital Stock plus (iii) any retained earnings or earned surplus less (A) any accumulated deficit, (B) any amounts attributable to Redeemable Stock (only to the extent such amounts shall be due prior to the final maturity of the Securities) and (C) any amounts attributable to Exchangeable Stock. "Consolidated Operating Lease Payments" means for any Reference Period: (i) the aggregate amount of all rents paid or payable (net of sublease income) by the Company or any of its consolidated subsidiaries (other than the Non-Recourse Subsidiary) under all Operating Leases of the Company or any of its consolidated subsidiaries, all as determined in accordance with GAAP; (ii) less $2.5 million. "Consolidated Tax Expense" means, for the Company for any period, the provision (benefit) for taxes based on income and profits (or losses) of the Company and its subsidiaries (other than the Non-Recourse Subsidiary) on a consolidated basis to the extent such income or profits (or losses) were included in computing Consolidated Net Income of the Company for such period. "Default" means any event which is, or after notice or passage of time, or both, would be, an Event of Default. -6- "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Exchangeable Stock" means any Capital Stock which is exchangeable or convertible into another security (other than Capital Stock of the Company which is neither Exchangeable Stock nor Redeemable Stock). "Existing Indebtedness" means Indebtedness of the Company and each Subsidiary in existence on the Issue Date. "FINOP" means Financial Opportunities, Inc., a Kentucky corporation, licensed as an SBIC by the SBA, all of the Capital Stock of which is owned by the Company or a Wholly Owned Subsidiary. "Fixed Assets" means assets of the Company, a Subsidiary or a Non-Recourse Subsidiary which are "fixed assets" as defined in accordance with GAAP. "Franchise Agreements" means franchise agreements entered into by the Company or any Subsidiary in the ordinary course of business in connection with the franchising of the Company's convenience retail stores. "GAAP" means generally accepted accounting principles set forth in the 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 of the United States, which are applicable as of the date of determination; provided, however, that these definitions and all ratios and calculations contained in the covenants set forth in Sections 4.06, 4.07, 4.11 and 4.16 shall be determined in accordance with GAAP as in effect and applied by the Company on the Issue Date, consistently applied. "Guarantee" means the guarantee by a Guarantor of the Company's obligations under the Securities. "Guarantor" means each Subsidiary executing a signature page hereto on the Issue date and any Person who becomes a Guarantor by execution of a supplement to this Indenture pursuant to Section 4.14 hereof, and any of their respective successors or assigns. "Guarantor Subordinated Indebtedness" means, with respect to a specified Guarantor, any Indebtedness of such Guarantor (whether outstanding on the Issue Date or thereafter Incurred) which is subordinate or junior in right of payment to the Guarantee of such Guarantor. -7- "Holder" or "Securityholder" means a Person in whose name a Security is registered on the Registrar's books. "Incurrence" means the incurrence, creation, assumption, issuance, guarantee of the payment of, or in any other manner becoming liable with respect to, the payment of, any Indebtedness. "Incur" and "Incurred" shall have a comparable meaning. "Indebtedness" means, with respect to any Person, without duplication, (i) the principal of and premium (if any) in respect of (A) indebtedness of such Person for money borrowed and (B) indebtedness evidenced by Securities, debentures, bonds or other similar instruments (including purchase money obligations) for payment of which such Person is responsible or liable; (ii) all Capital Lease Obligations of such Person; (iii) all obligations of such Person issued or assumed as the deferred purchase price of property, all conditional sale obligations of such Person and all obligations of such Person under any title retention agreement (but excluding trade accounts payable arising in the ordinary course of business); (iv) all obligations of such Person for the reimbursement of any obligor on any letter of credit, banker's acceptance, Securities purchase facility or similar credit transaction (other than obligations with respect to letters of credit securing obligations (other than obligations described in (i) through (iii) above) entered into in the ordinary course of business of such Person to the extent such letters of credit are not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no later than the third business day following receipt by such Person of a demand for reimbursement following payment on the letter of credit); (v) all obligations of the type referred to in clauses (i) through (iv) of other Persons and all dividends of other Persons for the payment of which, in either case, such Person is responsible or liable as obligor, guarantor or otherwise; (vi) all obligations of the type referred to in clauses (i) through (v) of other Persons secured by any Lien on any property or asset of such Person (whether or not such obligation is assumed by such Person), the amount of such obligation being deemed to be the lesser of the value of such property or assets or the amount of the obligation so secured; (vii) Redeemable Stock of such Person; and (viii) with respect to the Company or any Subsidiary, Preferred Stock of any Subsidiary (other than Preferred Stock held by the Company or any Wholly Owned Subsidiary which is a Guarantor); provided, however, that Indebtedness will not -------- ------- include endorsements of negotiable instruments for collection in the ordinary course of business. "Indenture" means this Indenture, as amended or supplemented from time to time in accordance with the terms hereof, including the provisions of the TIA that are deemed to be a part hereof. -8- "Interest Rate Agreement" means the obligation of any Person pursuant to any interest rate swap agreement, interest rate collar agreement, currency exchange agreement, or other similar agreement or arrangement entered into by such Person in the ordinary course of business. "Investment" in any Person means any loan or advance to, any acquisition of Capital Stock of, equity interest in, obligation or other security of, or capital contribution to or other investment in, such Person. "Issue Date" means the date on which the Securities are originally issued. "Lien" means any mortgage, lien, pledge, charge, security interest or encumbrance of any kind, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give any security interest in and any filing or other agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction). "Net Available Cash Proceeds" from an Asset Disposition means cash payments received (including any cash payments received by way of deferred payment of principal pursuant to a Security or installment receivable or otherwise, but only as and when received, but excluding any other consideration received in the form of assumption by the acquiring Person of Indebtedness or other obligations relating to such properties or assets or received in any other noncash form) therefrom, in each case net of all legal, title and recording tax expenses, commissions and other fees and expenses incurred, and all Federal, state, provincial, foreign and local taxes required to be accrued as a liability under GAAP, as a consequence of such Asset Disposition, and in each case net of all payments made on any Indebtedness which is secured by any assets subject to such Asset Disposition, in accordance with the terms of any Lien upon or other security agreement of any kind with respect to such assets, or which must by its terms, or in order to obtain a necessary consent to such Asset Disposition, or by applicable law, be repaid out of the proceeds from such Asset Disposition, and net of all distributions and other payments required to be made to minority interest holders in Subsidiaries or joint ventures as a result of such Asset Disposition. "Net Proceeds" means, with respect to a specified transaction, total cash proceeds net of all customary legal expenses, commissions and other fees and expenses incurred and all Federal, state, provincial, foreign and local taxes required to be accrued as a liability under GAAP as a consequence of, and in connection with, such transaction. -9- "New Credit Agreement" means the Credit Agreement dated as of , 1994, among the Company, Fleet Bank, National Association and Society National Bank, as such agreement may be amended, supplemented or otherwise modified from time to time and any agreement evidencing any refunding, replacement, refinancing or renewal, in whole or in part, of the Indebtedness permitted to be borrowed thereunder on the date of execution thereof. The term New Credit Agreement shall include all agreements executed in connection therewith on the date hereof, including, without limitation, any agreement executed by the Guarantors to evidence any guarantee by the Guarantors of the Company's obligations under the New Credit Agreement and shall also include any agreements evidencing amendments, supplements or modifications of such agreements. "New Operating Leases" means Operating Leases entered into by the Company or any of its consolidated subsidiaries (other than the Non-Recourse Subsidiary) following the Issue Date for the purpose of leasing real property, gasoline equipment or other equipment in connection with the operation of retail convenience stores not owned, operated or franchised by the Company or any of its consolidated subsidiaries on or prior to the Issue Date; provided, however, that the term New Operating Leases shall not be deemed to include Acquired Operating Leases. "Non-Convertible Capital Stock" means, with respect to any corporation, any nonconvertible Capital Stock of such corporation and any Capital Stock of such corporation convertible solely into nonconvertible common stock of such corporation which is not Redeemable Stock or Exchangeable Stock; provided, -------- however, that Non-Convertible Capital Stock does not include any Redeemable - - ------- Stock or Exchangeable Stock. "Non-Recourse Subsidiary" means FINOP, provided that: (a) no portion of FINOP's Indebtedness or any of its other obligations (contingent or otherwise), (i) is guaranteed by the Company or any Subsidiary, (ii) is recourse to or obligates the Company or any Subsidiary in any way or (iii) subjects any property or asset of the Company or any Subsidiary, directly or indirectly, contingently or otherwise, to satisfaction thereof; (b) neither the Company nor any Subsidiary has any contract, agreement, arrangement, understanding with FINOP or is subject to an obligation of any kind, written or oral, other than on terms no less favorable to the Company or such Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of the Company; -10- (c) neither the Company nor any Subsidiary has any obligation (i) to subscribe for additional shares of Capital Stock or other equity interests of FINOP or (ii) to maintain or preserve FINOP's financial condition or to cause FINOP to achieve certain levels of operating results; (d) FINOP continues to be an SBIC, regulated and licensed as such by the SBA, and performs no activities or engages in no business other than as an SBIC; (e) FINOP maintains a bank account or accounts separate from those of the Company and each Subsidiary and does not otherwise commingle its funds or any other properties or assets with those of the Company or any Subsidiary; (f) the Board of Directors of FINOP contains at least one independent director who is not an officer, director, employee, shareholder (other than a Shareholder owning less than 1% of the outstanding Capital Stock of any class of the Company's or any Subsidiary's Capital Stock) or Affiliate of the Company or any Subsidiary; and (g) the sum of Indebtedness and aggregate liquidation preference of Preferred Stock of FINOP does not exceed $20 million, unless at the time of the Incurrence of additional Indebtedness or the issuance of Preferred Stock by FINOP, the Consolidated Fixed Charge Coverage Ratio for the Company is equal to or greater than 2.0 to 1.0. At the time FINOP ceases to meet any of the requirements set forth above for characterization as the Non-Recourse Subsidiary, FINOP shall be deemed to be a Subsidiary for all purposes of the Indenture if, at such time, it is properly characterized as such in accordance with the definition of "Subsidiary" set forth below. "Officer" means, with respect to any corporation, the Chairman of the Board, the Chief Executive Officer, the President, any Vice President, the Treasurer or the Secretary of such corporation. "Officers' Certificate" means a written certificate containing the information specified in Sections 12.04 and 12.05 herein, signed in the name of the Company, any Guarantor or other obligor on the Securities, as the case may be, by any two of its Officers, and delivered to the Trustee. "Operating Lease" shall mean, as applied to any Person, any lease with respect to which such Person is the lessee (including, without limitation, leases which may be terminated by the lessee at any time) of any property (whether real, personal or -11- mixed) which is not a lease which is required to be classified and accounted for as a capital lease on the face of the balance sheet of such Person prepared in accordance with GAAP. "Opinion of Counsel" means a written opinion containing the information specified in Sections 12.04 and 12.05 hereof, rendered by legal counsel who is reasonably acceptable to the Trustee. "Permitted Holders" means Frank Colaccino and his Related Parties, or in the event of the death or mental or physical incapacity of Frank Colaccino, any of Gregory Landry, Robert Stein or Mitchell Kupperman and their respective Related Parties. "Permitted Indebtedness" means (i) Indebtedness incurred by the Company under the New Credit Agreement as in effect on the Issue Date, provided that such amount shall be permanently reduced by (x) the amount of any revolving loan commitment reductions from time to time effected under the New Credit Agreement, and (y) the amount of any prepayments of such Indebtedness which is not reborrowed and invested as described in the first proviso set forth in Section 4.16 hereof, and provided further that the aggregate amount of all Indebtedness permitted to be outstanding thereunder at any one time shall not exceed $30.0 million and the aggregate amount of Indebtedness evidenced by all letters of credit permitted to be outstanding thereunder (including the outstanding principal amount of any loans advanced for drawings thereunder) at any one time shall not exceed $15.0 million); (ii) guarantees by Subsidiaries of the Company's Indebtedness referred to in clause (i) of this paragraph; (iii) Existing Indebtedness and Indebtedness represented by the Securities; (iv) Indebtedness issued to repay, refund or refinance Indebtedness of the Company or any Subsidiary permitted under clauses (i), (ii) and (iii) of this paragraph (such Indebtedness being referred to herein as "Refinancing Indebtedness"), provided such Refinancing Indebtedness (a) does not exceed the principal or accreted amount of, (b) ranks in right of payment to the Securities no more than to the same extent as, (c) has an Average Life and Stated Maturity equal to, or greater than, and (d) shall not provide for any mandatory redemption, amortization or sinking fund requirements in an amount greater than or at a time prior to the amounts and times specified with respect to, the Indebtedness so repaid, refunded or refinanced; (v) intercompany Indebtedness permitted under Section 4.07 hereof; (vi) Indebtedness under Interest Rate Agreements; (vii) guarantees by the Company or any Wholly Owned Subsidiary which is a Guarantor of loans (other than loans made by the Non-Recourse Subsidiary) in the ordinary course of business to franchisees of the Company's or any Subsidiary's convenience retail stores for the purpose of financing costs of equipment, leasehold improvements and/or inventory for such stores pursuant to a Franchise Agreement, provided that the aggregate liability in respect of all such -12- Indebtedness shall not exceed $5.0 million at any one time under this clause (vii); (viii) Capitalized Lease Obligations of the Company or any Subsidiary for the purpose of purchasing or financing personal computers, equipment, software, supplies and/or other assets necessary for the operation of the Company's POS System, provided that the aggregate liability in respect of all such Indebtedness shall not exceed $6.0 million at any time; (ix) Indebtedness incurred by FINOP at a time when it satisfied the definition of Non-Recourse Subsidiary; or (x) Indebtedness not otherwise permitted in an aggregate principal amount not in excess of $7.5 million at any one time outstanding. "Permitted Investments" means: (a) certificates of deposit with a maturity of one year or less issued by U.S. commercial banks having capital and surplus in excess of $100.0 million; (b) commercial paper with a minimum rating of A1 and/or P1 by Standard & Poor's Corporation and/or Moody's Investors Service, Inc., respectively; (c) direct obligations of the United States or of a United States agency with a maturity of one year or less; and (d) shares of money market mutual or similar funds having assets in excess of $100.0 million. "Permitted Liens" means with respect to any Person, (i) pledges or deposits by such Person under workmen's compensation laws, unemployment insurance laws or similar legislation, or good faith deposits in connection with bids, tenders, contracts (other than for the payment of Indebtedness), utility services or leases to which such Person is a party, or deposits to secure public or statutory obligations of such Person or deposits of cash or U.S. Government bonds to secure surety or appeal bonds to which such Person is a party, or deposits as security for contested taxes or import duties or for the payment of rent and incurred in the ordinary course of such Person's business; (ii) Liens determined by law, such as carriers', warehousemen's, mechanics' and bankers' Liens and incurred in the ordinary course of such Person's business; (iii) Liens for taxes not yet subject to penalties for non-payment or which are being contested in good faith and by appropriate proceedings, if adequate reserve, as may be required by GAAP, shall have been made therefor; (iv) Liens in favor of issuers of surety bonds (other than to satisfy any judgment or judgments) issued pursuant to the request of and for the account of such Person in the ordinary course of its business; and (v) survey exceptions, encumbrances, easements or reservations of, or rights of others for, rights-of-way, sewers, electric lines, telegraph and telephone lines and other similar purposes, or zoning or other restrictions as to the use of real properties or Liens incidental to the conduct of the business of such Person or to the ownership of its properties and incurred in the ordinary course of such Person's business. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity. -13- "POS System" means the automated reporting system to be installed by the Company in certain of its retail convenience stores for the purpose of entering into a central data system maintained by the Company certain information with respect to such stores through the use of personal computers, equipment, software, supplies and/or other assets located at such stores. "Preferred Stock", as applied to the Capital Stock of any corporation, means Capital Stock of any class or classes (however designated) which is preferred, as to the payment of dividends or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such corporation, over shares of Capital Stock of any other class of such corporation. "Prospectus" means the Company's Prospectus dated February 24, 1994 with respect to the offer and sale of the Securities on the Issue Date. "Public Equity Offering" means an underwritten public offering of common stock of the Company (other than Redeemable Stock or Exchangeable Stock), pursuant to an effective registration statement filed pursuant to the Securities Act of 1933, as amended. "Redeemable Stock" means any Capital Stock that by its terms or otherwise is required to be redeemed prior to the first anniversary of the Stated Maturity of the Securities or is redeemable at the option of the holder thereof any time prior to the first anniversary of the Stated Maturity of the Securities. "Redemption Date" or "redemption date" means the date specified for redemption of Securities in accordance with the terms of the Securities and this Indenture. "Redemption Price" or "redemption price" shall have the meaning set forth in paragraph 5 of the Securities. "Reference Period" means, with respect to any computation of the Consolidated Fixed Charge Coverage Ratio, the most recent four fiscal quarters of the Company for which internal financial statements of the Company are available prior to the date of determination of the Consolidated Fixed Charge Coverage Ratio. "Related Party" with respect to each Permitted Holder means (a) any spouse or immediate family member of such Permitted Holder or (b) any trust, corporation, partnership or other entity, all of the beneficiaries, stockholders, partners, owners or Persons beneficially holding an 80% or more controlling interest of which consist of Permitted Holders and/or such other Persons referred to in the immediately preceding clause (a). -14- "Sale-Leaseback Transaction" means any arrangement relating to property now owned or hereafter acquired whereby the Company or a Subsidiary transfers such property to a Person and leases it back from such Person. "SBA" means the Small Business Administration or any successor thereto established by the Small Business Act (15 U.S.C., Section 633), or any successor statute to carry out the policies of that Act. "SBIC" means a small business investment company approved by the SBA to operate under the provisions of the Small Business Investment Act of 1958, as amended (15 U.S.C., Section 662), or any successor statute and issued a license as provided in Section 681 of that Act. "SEC" or "Commission" means the Securities and Exchange Commission. "Securities" means any of the Company's 10 1/4% Senior Subordinated Notes due 2004, issued under this Indenture. "Securities Act" means the Securities Act of 1933, as amended. "Securityholder" or "Holder" means a Person in whose name a Security is registered on the Registrar's books. "Stated Maturity" means, with respect to any security, the date specified in such security as the fixed date on which the principal of such security is due and payable, including pursuant to any mandatory redemption provision. "Subordinated Indebtedness" means any Indebtedness of the Company (whether outstanding on the Issue Date or thereafter Incurred) which is subordinated or junior in right of payment to the Securities. "Subsidiary" means any corporation, association, partnership or other business entity of which more than 50% of the total voting power of shares of Capital Stock or other interest (including partnership interests) entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by (i) the Company, (ii) the Company and one or more Subsidiaries, or (iii) one or more Subsidiaries. Notwithstanding the foregoing, the Non-Recourse Subsidiary shall not be deemed to be a Subsidiary. "TIA" means the Trust Indenture Act of 1939 as amended and as in effect on the date of this Indenture; provided, however, that in the event the TIA is -------- ------- amended after such date, TIA means, to the extent required by any such amendment, the TIA as so amended. -15- "Trust Officer", when used with respect to the Trustee, means the chairman or vice-chairman of the Board of Directors, the chairman or vice-chairman of the executive committee of the Board of Directors, the President, any vice president, the secretary, any assistant secretary, the treasurer, any assistant treasurer, the cashier, any assistant cashier, any trust officer or assistant trust officer, the controller and any assistant controller or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers 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. "Trustee" means the party named as the "Trustee" in the first paragraph of this Indenture until a successor replaces it pursuant to the applicable provisions of this Indenture and, thereafter, shall mean such successor. "U.S. Government Obligations" means direct obligations (or certificates representing an ownership interest in such obligations) of the United States of America (including any agency or instrumentality thereof) for the payment of which the full faith and credit of the United States of America is pledged and which are not callable at the issuer's option. "Voting Stock" means, with respect to a corporation, all classes of capital stock then outstanding of such corporation normally entitled to vote in elections of directors. "Wholly Owned Subsidiary" means a Subsidiary all the Capital Stock of which (other than directors' qualifying shares) is owned by the Company or another Wholly Owned Subsidiary. SECTION 1.02. Other Definitions. -----------------
Term Defined in Section ---- ------------------ "Act"............................................ 1.05 "Bankruptcy Law"................................. 6.01 "Change of Control Offer"........................ 3.08 "Change of Control Purchase Date"................ 3.08 "Custodian"...................................... 6.01 "Disposition Purchase Date"...................... 3.09 "Disposition Offer".............................. 3.09 "Disposition Offer Amount"....................... 3.09 "Event of Default"............................... 6.01 "Excess Proceeds"................................ 4.16
-16-
Term Defined in Section ---- ------------------ "Existing Liens"................................. 4.09 "Guarantor Senior Indebtedness".................. 11.02 "Legal Holiday".................................. 12.08 "Notice of Default".............................. 6.01 "Participating Indebtedness"..................... 11.05 "Paying Agent"................................... 2.03 "Register"....................................... 2.03 "Registrar"...................................... 2.03 "Restricted Payment"............................. 4.07 "Significant Company Senior Indebtedness"........ 10.02 "Successor Person"............................... 5.01
SECTION 1.03. Incorporation by Reference of Trust Indenture Act. Whenever ----------------------------------- ------------- this Indenture refers to a provision of the TIA, such provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: "Commission" means the SEC. "indenture securities" means the Securities. "indenture security holder" means a Securityholder. "indenture to be qualified" means this Indenture. "indenture trustee" or "institutional trustee" means the Trustee. "obligor" on the indenture securities means the Company and any other obligor on the Securities; with respect to the requirements of Section 3.12 to 3.17, inclusive of the TIA, such terms shall include the Guarantors if the Company fails to perform its obligations under such Securities. All other TIA terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule have the meanings assigned to them by such definitions. SECTION 1.04 Rules of Construction. Unless the context otherwise requires: --------------------- (1) A term has the meaning assigned to it; -17- (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (3) "or" is not exclusive; (4) "including" means including, without limitation; (5) words in the singular include the plural, and words in the plural include the singular; and (6) "herein," "hereof" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. SECTION 1.05. Acts of Holders. --------------- (1) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by an agent duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee and, where it is hereby expressly required, to the Company. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section. (2) The fact and date of the execution by any Person of any such instrument or writing may be proved in any manner which the Trustee deems sufficient. (3) The ownership of Securities shall be proved by the Register. (4) Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Security shall bind every future Holder of the same Security and the holder of every Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Security. (5) If the Company shall solicit from the Holders any request, demand, authorization, direction, notice, consent, waiver or other Act, the Company may, at -18- its option, by or pursuant to a resolution of its Board of Directors, fix in advance a record date for the determination of Holders entitled to give such request, demand, authorization, direction, notice, consent, waiver or other Act, but the Company shall have no obligation to do so. If such a record date is fixed, such request, demand, authorization, direction, notice, consent, waiver or other Act may be given before or after such record date, but only the Holders of record at the close of business on such record date shall be deemed to be Holders for the purposes of determining whether Holders of the requisite proportion of outstanding Securities have authorized or agreed or consented to such request, demand, authorization, direction, notice, consent, waiver or other Act, and for that purpose the outstanding Securities shall be computed as of such record date; provided that no such request, demand, authorization, direction, notice or consent, waiver or other Act by the Holders on such record date shall be deemed effective unless it shall become effective pursuant to the provisions of this Indenture not later than six months after the record date. ARTICLE 2 THE SECURITIES SECTION 2.01 Form and Dating. The Securities, the notation thereon --------------- relating to the Guarantees and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A attached hereto. The Securities may have notations, legends or endorsements required by law, stock exchange rule or usage. The form of the Securities and any notation, legend or endorsement shall be in a form acceptable to the Company. Each Security shall be dated the date of its authentication. The terms and provisions contained in the Securities, annexed hereto as Exhibit A, and the notation thereon relating to the Guarantees shall constitute, and are hereby expressly made, a part of this Indenture. To the extent applicable, the Company, the Guarantors and the Trustee by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. SECTION 2.02. Execution and Authentication. The Securities shall be ---------------------------- executed on behalf of the Company by its Chief Executive Officer, its President or one of its Vice Presidents, under its corporate seal reproduced thereon attested by its Secretary or one of its Assistant Secretaries. The signature of any such Officer on the Securities may be manual or facsimile. Securities bearing the manual or facsimile signatures of individuals who were at any time the proper Officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities or did not hold such offices at the date of such Securities. -19- No Security shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Security a certificate of authentication substantially in the form provided for in Exhibit I annexed hereto duly executed by the Trustee by manual signature of an authorized officer, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and made available for delivery hereunder. The Trustee shall authenticate and make available for delivery Securities for original issue in the aggregate principal amount of $75,000,000 upon a Board of Directors resolution and a written order of the Company signed by two Officers of the Company, but without any further action by the Company. Such order shall specify the amount of the Securities to be authenticated and the date on which the original issue of Securities is to be authenticated and delivered. The aggregate principal amount of Securities outstanding at any time may not exceed $75,000,000, except as provided in Section 2.07 hereof. The Trustee shall act as the initial authenticating agent. Thereafter, the Trustee may appoint an authenticating agent reasonably acceptable to the Company to authenticate Securities. An authenticating agent may authenticate Securities 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 a Paying Agent to deal with the Company or an Affiliate of the Company. The Securities shall be issuable only in registered form without coupons and only in denominations of $1,000 and any integral multiple thereof. SECTION 2.03. Registrar and Paying Agent. The Company shall maintain or -------------------------- cause to be maintained an office or agency where Securities may be presented for registration of transfer or for exchange ("Registrar"), an office or agency where Securities may be presented or surrendered for purchase or payment ("Paying Agent") and an office or agency where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served. The Registrar shall keep a register of the Securities and of their transfer and exchange (the "Register"). The Company may have one or more co-Registrars and one or more additional Paying Agents. The term Paying Agent includes any additional paying agent. The Company shall enter into an appropriate agency agreement with any Registrar, Paying Agent or co-Registrar (if not the Trustee or the Company). 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 -20- agent. If the Company fails to maintain a Registrar, Paying Agent or agent for service of notices or demands, the Trustee shall act as such and shall be entitled to appropriate compensation therefor pursuant to Section 7.07 hereof. The Company or any Subsidiary or an Affiliate of either of them may act as Paying Agent, Registrar or co-Registrar or agent for service of notices and demands. The Company initially appoints the Trustee as Registrar and Paying Agent and agent for service of notices and demands. SECTION 2.04. Paying Agent to Hold Money in Trust. Except as otherwise ----------------------------------- provided herein, prior to each due date of the principal, premium, if any, and interest on any Security, the Company shall deposit with the Paying Agent a sum of money sufficient to pay such principal, premium, if any, and interest so becoming due. The Company shall require each Paying Agent (other than the Trustee or the Company) to agree in writing that such Paying Agent shall hold in trust for the benefit of Securityholders or the Trustee all money held by the Paying Agent for the payment of principal, premium, if any, and interest on the Securities (whether such money has been paid to it by the Company, any Guarantor or any other obligor on the Securities) and shall notify the Trustee of any default by the Company (or any Guarantor or other obligor on the Securities) in making any such payment. At any time during the continuance of any such default, the Paying Agent shall, upon the request of the Trustee, forthwith pay to the Trustee all money so held in trust and account for any money disbursed by it. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee and to account for any money disbursed by it. Upon doing so, the Paying Agent shall have no further liability for the money so paid over to the Trustee. If the Company, a Subsidiary or an Affiliate of either of them acts as Paying Agent, it shall segregate the money held by it as Paying Agent and hold it as a separate trust fund. SECTION 2.05. Securityholder 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 Securityholders. If the Trustee is not the Registrar, the Company shall cause to be furnished to the Trustee on or before each interest payment date and at such other times as the Trustee may request in writing, within five Business Days of such request, a list in such form as the Trustee may reasonably require of the names and addresses of Securityholders. SECTION 2.06. Transfer and Exchange. When Securities are presented to the --------------------- Registrar or a co-Registrar with a request to register the transfer or to exchange them for an equal principal amount of Securities of other authorized denominations, the Registrar shall register the transfer or make the exchange as requested if its requirements for such transactions are met. To permit registrations of transfer and exchanges, the Company shall execute and the Trustee shall authenticate Securities -21- and each Guarantor will execute its notation therein relating to its Guarantee thereof, all at the Registrar's request. Every Security presented or surrendered for registration of transfer or for exchange shall (if so required by the Company or the Trustee) 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 or his attorney duly authorized in writing. The Company shall not charge a service charge for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to pay all taxes, assessments or other governmental charges that may be imposed in connection with the transfer or exchange of the Securities from the Securityholder requesting such transfer or exchange (other than any exchange of a temporary Security for a definitive Security not involving any change in ownership). The Company shall not be required to make, and the Registrar need not register, transfers or exchanges of (a) any Security for a period beginning at the opening of business 15 days before the mailing of a notice of repurchase of Securities and ending at the close of business on the day of such mailing, (b) any Security selected, called or being called for redemption, except, in the case of any Security to be redeemed in part, the portion thereof not to be redeemed or (c) any Security between a record date and the next succeeding interest payment date. SECTION 2.07. Replacement Securities. If (a) any mutilated Security is ---------------------- surrendered to the Company or the Trustee, or (b) the Company and the Trustee receive evidence to their satisfaction of the destruction, loss or theft of any Security, and there is delivered to the Company and the Trustee such Security or indemnity as may be required by them to save each of them harmless, then, in the absence of notice to the Company or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall execute in exchange for any such mutilated Security or in lieu of any such destroyed, lost or stolen Security, a new Security of like tenor and principal amount, bearing a number not contemporaneously outstanding, each Guarantor shall execute the notation on such new Security relating to its Guarantee thereof, and the Trustee shall authenticate and make such new Security available for delivery. In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, or is about to be purchased by the Company pursuant to Article 3 hereof, the Company in its discretion may, instead of issuing a new Security, pay or purchase such Security, as the case may be. Upon the issuance of any new Securities under this Section 2.07, the Company may require the payment of a sum sufficient to cover any tax or other -22- governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) in connection therewith. Every new Security issued pursuant to this Section 2.07 in lieu of any mutilated, destroyed, lost or stolen Security, and every Guarantee with respect thereto, shall constitute an original additional contractual obligation of the Company and each Guarantor thereunder, as the case may be, whether or not the mutilated, destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all benefits of this Indenture equally and proportionately with any and all other Securities duly issued hereunder. The provisions of this Section 2.07 are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities. SECTION 2.08. Outstanding Securities; Determinations of Holders' Action. --------------------------------------------------------- Securities outstanding at any time are all the Securities authenticated by the Trustee except for those canceled by it, those delivered to it for cancellation, those referred to in Section 2.07 hereof, or purchased by the Company pursuant to Article 3 hereof and those described in this Section 2.08 as not outstanding. A Security does not cease to be outstanding because the Company or an Affiliate thereof holds the Security; provided, however, that in determining whether the -------- ------- Holders of the requisite principal amount of Securities have given or concurred in any request, demand, authorization, direction, notice, consent or waiver hereunder, Securities owned by the Company, any Guarantor or other obligor upon the Securities or any Affiliate of the Company or such other obligor shall be disregarded and deemed not to be outstanding. Subject to the foregoing, only Securities outstanding at the time of such determination shall be considered in any such determination (including determinations pursuant to Articles 6 and 9). If a Security is replaced pursuant to Section 2.07, it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Security is held by a bona fide purchaser. If the Paying Agent (other than the Company) holds, in accordance with this Indenture, at maturity or on a Redemption Date, money sufficient to pay the Securities payable on that date, then immediately on the date of maturity or such Redemption Date, as the case may be, such Securities shall cease to be outstanding and interest, if any, on such Securities shall cease to accrue. SECTION 2.09. Temporary Securities. Until definitive Securities are ready -------------------- for delivery, the Company may execute temporary Securities, each Guarantor shall execute the notation thereon relating to its Guarantee thereof, and upon the Company's written request, signed by two Officers of the Company, the Trustee shall -23- authenticate and make such temporary Securities available for delivery. Temporary Securities shall be printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Securities in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the Officers of the Company executing such Securities may determine, as conclusively evidenced by their execution of such Securities. If temporary Securities are issued, the Company will cause definitive Securities to be prepared without unreasonable delay. After the preparation of definitive Securities, the temporary Securities shall be exchangeable for definitive Securities upon surrender of the temporary Securities at the office or agency of the Company designated for such purpose pursuant to Section 2.03 hereof, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Securities, the Company shall execute a like principal amount of definitive Securities of authorized denominations, each Guarantor shall execute the notation thereon of its Guarantee thereof and the Trustee, upon written request of the Company signed by two Officers of the Company, shall authenticate and make such Securities available for delivery in exchange therefor. Until so exchanged, the temporary Securities shall in all respects be entitled to the same benefits under this Indenture as definitive Securities. SECTION 2.10. Cancellation. All Securities surrendered for payment, ------------ purchase by the Company, redemption by the Company pursuant to Article 3 hereof, or registration of transfer or exchange shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee and shall be promptly canceled by the Trustee. The Company may at any time deliver to the Trustee for cancellation any Securities previously authenticated and made available for delivery hereunder which the Company may have acquired in any manner whatsoever, and all Securities so delivered shall be promptly canceled by the Trustee. The Company may not reissue, or issue new Securities to replace Securities it has paid or delivered to the Trustee for cancellation. No Securities shall be authenticated in lieu of or in exchange for any Securities canceled as provided in this Section 2.10, except as expressly permitted by this Indenture. All canceled Securities held by the Trustee shall be destroyed by the Trustee and the Trustee shall deliver a certificate of destruction to the Company. SECTION 2.11. CUSIP Numbers. The Company, in issuing the Securities may ------------- use "CUSIP" numbers (if then generally in use), and the Trustee shall use CUSIP numbers in notices of redemption or exchange as a convenience to Holders; provided that any such notice shall state that no representation is made as to the correctness of such numbers either as printed on the Securities or as contained in any notice of redemption or exchange and that reliance may be placed only on the -24- other identification numbers printed on the Securities and any redemption shall not be affected by any defect in or omission of such numbers. SECTION 2.12. Defaulted Interest. If the Company defaults in a payment of ------------------ interest on the Securities, it shall pay the defaulted interest, plus to the extent lawful) any interest payable on the defaulted interest, to the Persons who are Holders on a subsequent special record date, and such special record date, as used in this Section 2.12 with respect to the payment of any defaulted interest, shall mean the 15th day next preceding the date fixed by the Company for the payment of defaulted interest, whether or not such day is a Business Day. At least 15 days before the subsequent special record date, the Company shall mail to each Holder and to the Trustee a notice that states the subsequent special record date, the payment date and the amount of defaulted interest to be paid. The Company may also pay defaulted interest in any other lawful manner. ARTICLE 3 REDEMPTION AND REPURCHASE SECTION 3.01. Right to Redeem; Notices to Trustee. Except as provided for ----------------------------------- under Section 3.02 hereof, the Securities may not be redeemed at the option of the Company prior to March 15, 1999. On or after such date, the Securities may be redeemed at the option of the Company in whole, or from time to time in part, at the following redemption prices (expressed in percentages of the principal amount), plus accrued interest to the date of redemption, if redeemed during the twelve-month period beginning March 15, of the years indicated below. Year Percentage ---- ---------- 1999 104.750 2000 103.125 2001 101.500 2002 and thereafter 100.000 SECTION 3.02. Public Equity Offering Redemption. In addition to the --------------------------------- optional redemption of the Securities provided for under Section 3.01 hereof, up to $20.0 million aggregate principal amount of the Securities will be redeemable, at the option of the Company in whole or in part, with the Net Proceeds of a Public Equity Offering, at a redemption price equal to 110% of the principal amount of the Securities to be redeemed, plus accrued and unpaid interest to the date of redemption; provided, however, that no such optional -------- ------- redemption pursuant to this Section 3.02 may be effected on or after the third anniversary of the Issue Date. The New Credit Agreement may restrict the Company's ability to redeem the Securities as described in sections 3.01 and 3.02 hereof. -25- SECTION 3.03. Selection of Securities to be Redeemed. If less than all -------------------------------------- the outstanding Securities are to be redeemed at any time, the Trustee shall select the Securities to be redeemed in compliance with the rules of the principal national securities exchange, if any, on which the Securities are listed, or if the Securities are not listed on a national securities exchange, on a pro rata basis, by lot or, any other method the Trustee considers fair and appropriate. The Trustee shall make the selection at least 30 but not more than 60 days before the Redemption Date from outstanding Securities not previously called for redemption. Securities and portions of them the Trustee selects shall be in principal amounts of $1,000 or an integral multiple of $1,000. Provisions of this Indenture that apply to Securities called for redemption also apply to portions of Securities called for redemption. The Trustee shall notify the Company promptly of the Securities or portions of Securities to be redeemed. SECTION 3.04. Notice of Redemption. At least 30 days but not more than 60 -------------------- days before a Redemption Date (which may, in the case of redemption in connection with a Public Equity Offering, be adjusted to the extent necessary and appropriate under the circumstances and based solely on the timing of the consummation of the Public Equity Offering), a notice of redemption shall be mailed by first-class mail, postage prepaid, by the Company or, at the request of the Company, the Trustee to each Holder of Securities to be redeemed at the Holder's last address, as it shall appear on the registry book. A copy of such notice shall be mailed to the Trustee on the same day the notice is mailed to Holders of Securities. The notice shall identify the Securities to be redeemed the provision of the Securities or this Indenture pursuant to which the Securities called for redemption are being redeemed and shall state: (1) the Redemption Date; (2) the Redemption Price; (3) the CUSIP number (subject to the provisions of Section 2.11 hereof); (4) the name and address of the Paying Agent; (5) that Securities called for redemption must be surrendered to the Paying Agent to collect the Redemption Price; (6) if fewer than all the outstanding Securities are to be redeemed, the identification and principal amounts of the particular Securities to be redeemed and that, on and after the Redemption Date, upon surrender of such Securities, a new Security or Securities in principal amount equal to the unredeemed portion thereof will be issued; and -26- (7) that, unless the Company defaults in making such redemption payment, interest will cease to accrue on Securities called for redemption on and after the Redemption Date. At the Company's written request, the Trustee shall give the notice of redemption in the Company's name and at the Company's expense. SECTION 3.05. Effect of Notice of Redemption. Once notice of redemption ------------------------------ is given, Securities called for redemption become due and payable on the Redemption Date and at the Redemption Price. Upon the later of the Redemption Date and the date such Securities are surrendered to the Paying Agent, such Securities called for redemption shall be paid at the Redemption Price plus accrued interest to the Redemption Date, if money sufficient for that purpose has been deposited as provided in Section 3.05 hereof. Notice of redemption shall be deemed to be given when mailed, whether or not the Holder receives such notice. In any event, failure to give such notice, or any defect therein, shall not affect the validity of the proceedings for the redemption of the Securities. SECTION 3.06. Deposit of Redemption Price. Prior to the Redemption Date, --------------------------- the Company shall deposit with the Paying Agent (or if the Company or a Subsidiary or an Affiliate of either of them is the Paying Agent, shall segregate and hold in trust) money sufficient to pay the Redemption Price of all Securities to be redeemed on that date other than Securities or portions of Securities called for redemption which prior thereto have been delivered by the Company to the Trustee for cancellation. SECTION 3.07. Securities Redeemed in Part. Upon surrender of a Security --------------------------- that is redeemed in part, the Company shall execute a new Security in an authorized denomination equal in principal amount to the unredeemed portion of the Security surrendered, each Guarantor shall execute the notation thereon relating to its Guarantee thereof and the Trustee shall authenticate and make such new Security available for delivery to the Holder. SECTION 3.08. Offer to Repurchase Upon Change of Control. (a) Upon a ----------------------------------------- Change of Control, the Company shall promptly notify the Trustee thereof and shall purchase Securities tendered by Securityholders pursuant to a tender offer which shall be made by the Company for the Securities (a "Change of Control Offer") at the purchase price in cash equal to 101% of the principal amount thereof plus accrued interest, if any, to the Change of Control Purchase Date (as defined in paragraph (b) of this Section 3.08), in accordance with the procedures set forth in paragraph (b) of this Section 3.08. -27- (b) Promptly, and in any event within 30 days, after each Change of Control, the Company shall be obligated to deliver to the Trustee and send, by first-class mail to each Holder, a written notice stating that, pursuant to this Section 3.08: (i) a Change of Control has occurred and the Holder may elect to have his Securities purchased by the Company either in whole or in part, at a purchase price in cash equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of repurchase; (ii) the repurchase date (which shall be no less than 30 days nor more than 60 days after the date such notice is mailed) (the "Change of Control Purchase Date"); (iii) the circumstances and relevant facts known to the Company regarding such Change of Control (including, to the extent applicable, information with respect to pro forma historical income, cash flow and capitalization after giving effect to such Change of Control) which the Company in good faith believes will enable such Holders to make an informed decision; and (iv) all instructions and materials necessary to tender Securities pursuant to the Change of Control Offer, together with the information contained in paragraph (c) below. (c) Holders electing to have a Security purchased will be required to surrender the Security, with an appropriate form duly completed, to the Company at the address specified in the notice at least three Business Days prior to the Change of Control Purchase Date. Holders will be entitled to withdraw their election if the Corporate Trust Department of the Trustee or the Company receives, not later than three Business Days prior to the Change of Control Purchase Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Security which was delivered for purchase by the Holder and a statement that such Holder is withdrawing his election to have such Security Purchased. (d) On the Change of Control Purchase Date, all Securities purchased by the Company under this Section shall be delivered by the Trustee for cancellation, and the Company shall pay the purchase price plus accrued interest to the Holders entitled thereto. In connection with Holders whose Securities are purchased only in part, the Company shall execute new Securities equal in principal amount to the unpurchased portion of the Securities surrendered, each Guarantor shall execute the notation therein relating to its Guarantee thereof and the Trustee (at the Company's expense) shall authenticate and make such new Securities available for delivery to such Holders. At the time the Company delivers Securities to the Trustee which are -28- to be accepted for purchase, the Company will also deliver an Officers' Certificate stating that such Securities are to be accepted by the Company pursuant to and in accordance with the terms of this Section. A Security shall be deemed to have been accepted for purchase at the time payment therefor is mailed or delivered to the surrendering Holder. SECTION 3.09. Offer to Repurchase With Net Cash Proceeds from Certain ------------------------------------------------------- Asset Dispositions. (a) In the event of an Asset Disposition that requires the - - ------------------ purchase of Securities pursuant to Section 4.16, the Company will be required to make an offer for the Securities (a "Disposition Offer") and repurchase the Securities tendered pursuant thereto in an amount equal to the aggregate amount of Excess Proceeds, at a repurchase price in cash equal to 100% of their principal amount plus accrued interest to the date of repurchase in accordance with the procedures (including prorating in the event of oversubscription) set forth in paragraph (b) below. Upon completion of the repurchase, if any, of Securities pursuant to the Disposition Offer, the amount of Excess Proceeds shall be reset to zero. If the aggregate repurchase price of Securities tendered pursuant to the Disposition Offer is less than the Excess Proceeds allotted to the repurchase of the Securities, the Company may use the remaining Excess Proceeds for general corporate purposes. (b) (1) Promptly, and in any event within 30 days, after the date the Company must make a Disposition Offer for Securities pursuant to Section 4.16 hereof, the Company shall be obligated to deliver to the Trustee and send, by first-class mail to each Holder, a written notice stating that, pursuant to this Section, the Holder may elect to have his Securities purchased by the Company either in whole or in part (subject to prorating as hereinafter described in the event the Disposition Offer is oversubscribed) in integral multiples of $1,000 of principal amount, at the applicable purchase price. The notice shall specify a purchase date not less than 30 days nor more than 60 days after the date of such notice (the "Disposition Purchase Date") and shall contain information concerning the business of the Company which the Company in good faith believes will enable such Holders to make an informed decision (which will include (i) the most recently filed Annual Report on Form 10-K (including audited consolidated financial statements) of the Company, the most recent subsequently filed Quarterly Report on Form 10-Q and any Current Report on Form 8-K of the Company filed subsequent to such Quarterly Report, other than Current Reports describing Asset Dispositions otherwise described in the offering materials (or corresponding successor reports), or if the Company does not and is not required to file such reports, information similar to that required by such reports; (ii) a description of material developments in the Company's business subsequent to the date of the latest of such Reports; and (iii) if material, appropriate pro forma financial information) and all instructions and materials necessary to tender Securities pursuant to the Disposition Offer, together with the information contained in clause (3) below. -29- (2) Not later than the date upon which written notice of a Disposition Offer is delivered to the Trustee as provided above, the Company shall deliver to the Trustee an Officers' Certificate as to (i) the amount of Excess Proceeds applicable to the Disposition Offer (the "Disposition Offer Amount"), (ii) the allocation of the Net Available Cash Proceeds from the Asset Dispositions pursuant to which the Disposition Offer is being made, and (iii) the compliance of such amount and allocation with the provisions of paragraph (a) of this Section. Not later than one business day prior to the Disposition Purchase Date, the Company shall also irrevocably deposit with the Paying Agent for the Trustee (or, if the Company is acting as its own Paying Agent, segregate and hold in trust) in immediately available funds an amount equal to the Disposition Offer Amount to be held for payment in accordance with the provisions of this Section. Upon the expiration of the period for which the Disposition Offer remains open (the "Disposition Offer Period"), the Company shall deliver to the Trustee the Securities or portions thereof which have been properly tendered to and are to be accepted by the Company. The Trustee shall, on the Disposition Purchase Date, instruct the Paying Agent to mail or deliver payment to each tendering Holder in the amount of the purchase price with respect to the Securities tendered by such Holder and accepted by the Company from the funds provided by the Company for such payment. In the event that the aggregate purchase price of the Securities delivered by the Company to the Trustee is less than the Disposition Offer Amount, the Paying Agent shall deliver the excess to the Company immediately after the expiration of the Disposition Offer Period. (3) Holders electing to have a Security purchased will be required to surrender the Security, with an appropriate form duly completed, to the Company at the address specified in the notice at least three Business Days prior to the Disposition Purchase Date. Holders will be entitled to withdraw their election if the Corporate Trust Department of the Trustee or the Company receives not later than three Business Days prior to the Disposition Purchase Date a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the security which was delivered for purchase by the Holder and a statement that such Holder is withdrawing his election to have such Security purchased. If at the expiration of the Disposition Offer Period the aggregate principal amount of Securities surrendered by Holders exceeds the Disposition Offer Amount, the Company shall select the Securities to be purchased on a pro rata basis (with such adjustments as may be deemed appropriate by the Company so that only Securities in denominations of $1,000 or integral multiples thereof shall be purchased). In connection with Holders whose Securities are purchased only in part, the Company shall execute new Securities equal in principal surrendered, each Guarantor shall execute the notation therein relating to its Guarantee thereof and the Trustee, at the Company's expense, shall authenticate and make such new Securities available for delivery to such Holders. -30- (4) At the time the Company delivers Securities to the Trustee which are to be accepted for purchase, the Company will also deliver an Officers' Certificate stating that such Securities are to be accepted by the Company pursuant to and in accordance with the terms of this Section 3.09. A Security shall be deemed to have been accepted for purchase at the time the Trustee, directly or through an agent, mails or delivers payment therefor to the surrendering Holder. ARTICLE 4 COVENANTS SECTION 4.01. Payment of Securities. The Company shall pay the principal --------------------- of, premium, if any, and interest (including interest accruing on or after the filing of a petition in bankruptcy or reorganization relating to the Company, whether or not a claim for post-filing interest is allowed in such proceeding) on the Securities on (or prior to) the dates and in the manner provided in the Securities or pursuant to this Indenture. An installment of principal, premium, if any, or interest shall be considered paid on the applicable date due if on such date the Trustee or the Paying Agent holds, in accordance with this Indenture, money sufficient to pay all of such installment then due. The Company shall pay interest on overdue principal and premium, if any, and interest on overdue installments of interest (including interest accruing on or after the filing of a petition in bankruptcy or reorganization relating to the Company, whether or not a claim for post-filing interest is allowed in such proceeding), to the extent lawful, at the rate per annum borne by the Securities, which interest on overdue interest shall accrue from the date such amounts became overdue. SECTION 4.02. SEC Reports. The Company and each Guarantor, shall file ----------- with the Trustee and provide the Securityholders, within 15 days after it files them with the SEC, copies of its annual report 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 or any Guarantor, is required to file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act. Notwithstanding that the Company may not be required to remain subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company shall continue to file with the SEC and provide the Trustee and the Securityholders with such annual reports and such 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 are specified in Sections 13 or 15(d) of the Exchange Act. The Company, and each Guarantor also shall comply with the provisions of Section 314(a) of the TIA. -31- SECTION 4.03. Compliance Certificates. ----------------------- (1) The Company shall deliver to the Trustee within 90 days after the end of each of the Company's fiscal years an Officers' Certificate executed by at least two Officers of the Company, stating whether or not the signers know of any Default or Event of Default. Such certificate shall contain a certification from the principal executive officer, principal financial officer or principal accounting officer of the Company as to his or her knowledge of the Company's compliance with all conditions and covenants under this Indenture. For purposes of this Section 4.03(1), such compliance shall be determined without regard to any period of grace or requirement of notice provided under this Indenture. If such Officers do know of such a Default or Event of Default, the certificate shall describe any such Default or Event of Default, and its status. Such Officers' Certificate need not comply with Sections 12.04 and 12.05 hereof. (2) So long as not contrary to the then current recommendation of the American Institute of Certified Public Accountants, the Company shall deliver to the Trustee within 120 days after the end of each fiscal year a written statement by the Company's independent certified pubic accountants stating (A) that their audit examination has included a review of the terms of this Indenture and the Securities as they relate to accounting matters, and (B)) whether, in connection with their audit examination, any Default has come to their attention and, if such a Default has come to their attention, specifying the nature and period of the existence thereof; provided, however, that the -------- ------- independent certified public accountants delivering such statement shall not be liable in respect of such statement by reason of any failure to obtain knowledge of any such Default or Event of Default that would not be disclosed in the course of an audit examination conducted in accordance with GAAP. (3) The Company will, so long as any of the Securities are outstanding, deliver to the Trustee, within five Business Days of any Officer becoming aware of (i) any Default, Event of Default or default in the performance of any covenant, agreement or condition contained in this Indenture or (ii) any event of default under any other mortgage, indenture or instrument, an Officers' Certificate specifying such Default, Event of Default, default or event of default and what action the Company is taking or proposes to take with respect thereto. (4) The Company shall deliver to the Trustee any information reasonably requested by the Trustee in connection with the compliance by the Trustee or the Company with the TIA. SECTION 4.04. Further Instruments and Acts. Upon request of the Trustee, ---------------------------- the Company, each Guarantor and any other obligor on the Securities will execute -32- and deliver such further instruments and do such further acts as may be reasonably necessary or proper to carry out more effectively the purposes of this Indenture. SECTION 4.05. Maintenance of Office or Agency. The Company will maintain ------------------------------- or cause to be maintained, within or outside the State of New York, an office or agency of the Trustee, Registrar and Paying Agent where Securities may be presented or surrendered for payment, where Securities may be surrendered for registration of transfer, exchange or redemption and where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served. The corporate trust office of the Trustee at Society Trust Company of New York, 5 Hanover Square, 10th Floor, New York, New York 10004 Attention: Corporate Trust Department, shall initially be such office or agency for all of the aforesaid purposes. The Company shall give prompt written notice to the Trustee of any change of location of such office or agency. If at any time the Company shall fail to maintain or cause to be maintained 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 set forth in Section 12.02 hereof. The Company may also from time to time designate one or more other offices or agencies where the Securities may be presented or surrendered for any or all such purposes and may from time to time rescind such designations. The Company will give prompt written notice to the Trustee of any such designation or rescission and of any change in location of any such other office or agency. SECTION 4.06. Limitation on Additional Indebtedness and New Operating ------------------------------------------------------- Leases. The Company may not, and may not permit any of its Subsidiaries to, - - ------ Incur, directly or indirectly, any Indebtedness (including Acquired Indebtedness) or enter into any New Operating Lease, unless the Consolidated Fixed Charge Coverage Ratio for the Reference Period, determined on the date of issuance of such Indebtedness or the date of execution of such New Operating Lease, as the case may be, and after giving effect to: (i) Incurrence of such Indebtedness and (if applicable) the application of the Net Proceeds thereof to refinance other Indebtedness as if such Indebtedness was issued and the application of such Net Proceeds occurred at the beginning of the Reference Period; (ii) Incurrence and retirement of any other Indebtedness since the last day of the most recent fiscal quarter of the Company contained in the Reference Period as if such Indebtedness was Incurred or retired at the beginning of the Reference Period; and (iii) the execution of such New Operating Lease and any other New Operating Leases executed since the last day of the most recent fiscal quarter of the Company contained in the Reference Period as if such New Operating Lease and any such other New Operating Leases were executed at the beginning of the Reference Period (it being understood that, for purposes of determining the Consolidated Fixed Charge Coverage Ratio, New Operating Lease -33- payments shall be included in Consolidated Operating Lease Payments), is equal to or greater than the ratio of 2.0 to 1.0. Notwithstanding the preceding paragraph, the Company and the Subsidiaries may Incur Permitted Indebtedness. SECTION 4.07. Limitation on Restricted Payments. The Company may not, and --------------------------------- may not permit any Subsidiary, directly or indirectly, to (i) declare or pay any dividend or make any distribution in respect of the Company's or any Subsidiary's Capital Stock or to the direct or indirect holders of the Company's or any Subsidiary's Capital Stock (except dividends or distributions payable solely in the Company's Non-Convertible Capital Stock or in options, warrants or other rights to purchase the Company's Non-Convertible Capital Stock and except dividends or distributions payable from a Subsidiary to the Company or a Wholly Owned Subsidiary which is a Guarantor); (ii) purchase, redeem or otherwise acquire or retire for value, any Capital Stock of the Company or any Subsidiary; (iii) purchase, repurchase, redeem, defease or otherwise acquire or retire for value, prior to scheduled maturity, scheduled repayment or scheduled sinking fund payment, any Subordinated Indebtedness of the Company or any Indebtedness of a Subsidiary (other than Guarantor Senior Indebtedness and other than the Company's 14.25% Subordinated Debentures due 2000); or (iv) make any Investment in any Subsidiary (other than prepayments of leases of underperforming or nonutilized convenience stores in the ordinary course of business), the Non- Recourse Subsidiary (except as permitted by clause; (iii) of Section 4.08 hereof) or any other Affiliate of the Company (any such dividend, distribution, purchase, redemption, repurchase, defeasance, other acquisition, retirement or Investment being hereinafter referred to as a "Restricted Payment"), unless: (A) no Default or Event of Default will have occurred and be continuing at the time or as a consequence of such Restricted Payment; (B) at the time of such Restricted Payment, the Company could incur an additional $1.00 of Indebtedness (not including Permitted Indebtedness) under Section 4.06 hereof; and (C) such Restricted Payment, together with the aggregate of all other Restricted Payments made since May 1, 1993, would not exceed the sum of (x) 50% of Consolidated Net Income (or if Consolidated Net Income is a deficit minus 100% of such deficit) accrued on a cumulative basis from May 1, 1993 to the end of the most recent fiscal quarter ending prior to the date of such proposed Restricted Payment, calculated on a cumulative basis as if such period were a single accounting period; (y) the aggregate Net Proceeds received by the Company from any Person (other than a Subsidiary and the Non-Recourse Subsidiary) subsequent to the Issue Date (1) as a result of the issuance of Capital Stock of the Company (other than Redeemable Stock or Exchangeable Stock) or (2) as a result of a capital contribution from its shareholders, but, with respect to any proceeds received by the Company from an employee stock ownership plan that Incurs any Indebtedness, only to the extent that any such proceeds are equal to any increase in the Consolidated Net Worth of the Company resulting from principal repayments made by such -34- employee stock ownership plan with respect to the Indebtedness Incurred by it to finance the purchase of such Capital Stock; and (z) the amount by which Indebtedness of the Company is reduced on the Company's balance sheet upon the conversion or exchange (other than by a Subsidiary) subsequent to the Issue Date of any Indebtedness of the Company convertible into or exchangeable for Capital Stock (other than Redeemable Stock or Exchangeable Stock) of the Company. The foregoing provisions do not prohibit (i) the payment of any dividend in respect of the Company's or any Subsidiary's Capital Stock within 60 days after the date of declaration thereof, if on such date of declaration such payment complied with the provisions of this Indenture and provided that at the time of payment no other Default or Event of Default has occurred and is continuing; (ii) the purchase, redemption, acquisition or retirement of any Indebtedness with the Incurrence of Refinancing Indebtedness permitted under Section 4.06 hereof; (iii) any dividend on shares of the Company's or any Subsidiary's Capital Stock payable in shares of the Company's or such Subsidiary's Capital Stock (other than Redeemable Stock or Exchangeable Stock); and (iv) an Investment by the Company in a Wholly-Owned Subsidiary which is a Guarantor or a Person who will become a Wholly-Owned Subsidiary which is a Guarantor as a result of such Investment. SECTION 4.08. Limitation on Investments. The Company may not, and may not ------------------------- permit any Subsidiary, directly or indirectly, to make any Investment other than (i) Permitted Investments; (ii) an Investment constituting a Restricted Payment if such Restricted Payment is permitted by Section 4.07; or (iii) Investments in the Non-Recourse Subsidiary in an amount not to exceed $2.5 million. SECTION 4.09. Limitation on Liens. The Company may not, and may not ------------------- permit any Subsidiary, directly or indirectly, to create, incur, assume or permit to exist any Lien upon any of its or any Subsidiary's property or assets now owned or hereafter acquired, other than Liens that are: (i) outstanding immediately prior to the issuance of the Securities; (ii) Liens securing Indebtedness of a Subsidiary owing to the Company or a Wholly Owned Subsidiary which is a Guarantor; (iii) Liens securing Senior Indebtedness of the Company permitted to be Incurred under Section 4.06 hereof; (iv) Permitted Liens; (v) Liens incurred in connection with a Sale-Leaseback Transaction permitted under Section 4.11 hereof; (vi) Liens on property of a Person existing at the time such Person is acquired by, merged into or consolidated with the Company or any Subsidiary, (except to the extent such Liens were Incurred in connection with, or in contemplation of, such acquisition, merger or consolidation), which Lien is not applicable to any Person or the properties or assets of any Person, other than the Person, or the property or asset of the Person, so acquired; and (vii) any extension, renewal or replacement (including successive extensions, renewals or replacements) of Liens permitted by any of clauses (i) through (vi) above ("Existing Liens"), so long as (A) the Lien does not extend beyond property or assets of the Company and its Subsidiaries subject to the Existing Lien -35- and improvements and construction on such property or assets, and (B) the Indebtedness secured by the Lien does not exceed the Indebtedness secured at the time by the Existing Lien. SECTION 4.10. Limitation on Dividends and Other Payment Restrictions ------------------------------------------------------ Affecting Subsidiaries. The Company may not, and may not permit any Subsidiary - - ---------------------- to, create or otherwise cause or permit to exist or become effective any encumbrance or restriction of any kind which restricts the ability of any such Subsidiary to: (i) pay dividends or make any other distributions on such Subsidiary's Capital Stock or pay any Indebtedness or other obligation owed to the Company or any Subsidiary; (ii) make any loans or advances to the Company or any Subsidiary; (iii) guaranty the Securities or any renewals or refinancings thereof; or (iv) transfer any of its property or assets to the Company or any Subsidiary, except, in each case, for such encumbrances or restrictions existing under or by reason of (1) applicable law, (2) this Indenture, (3) customary nonassignment provisions of any lease governing a leasehold interest of the Company or any Subsidiary, (4) any instrument governing Acquired Indebtedness (except to the extent such Indebtedness was Incurred in connection with, or in contemplation of, such acquisition) as in effect at the time of acquisition, 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, so acquired, (5) Existing Indebtedness, or (6) permitted Refinancing Indebtedness provided that the encumbrances or restrictions contained in the agreements governing such Refinancing Indebtedness are no more restrictive than those contained in the agreements governing the Indebtedness being refinanced, as in effect on the Issue Date. SECTION 4.11. Limitation on Sale-Leaseback Transactions. The Company will ----------------------------------------- not, and will not permit any Subsidiary to, enter into any Sale-Leaseback Transaction unless at least one of the following conditions is satisfied: (i) under the provisions described under Section 4.09 hereof and Section 4.06 hereof the Company or a Subsidiary could create a Lien on the property to secure Indebtedness in an amount equal to the Attributable Indebtedness in connection with such Sale-Leaseback Transaction; or (ii) the net proceeds of such Sale- Leaseback Transaction are at least equal to the fair market value of such property as determined in good faith by the Board of Directors of the Company. SECTION 4.12. Limitation on Transactions with Affiliates. The Company ------------------------------------------ will not, and will not permit any Subsidiary to, directly or indirectly, enter into or permit to exist any transaction or series of related transactions (including the purchase, sale, lease or exchange of any property or the rendering of any service) with any Affiliate of the Company or of any Subsidiary (other than a Wholly Owned Subsidiary which is a Guarantor) on terms that are less favorable to the Company or such Subsidiary, as the case may be, than those which might be obtained at the time of such transaction from unrelated third parties. This provision will not prohibit -36- the payment of reasonable and customary directors' fees to directors who are not employees of the Company or the payment of reasonable compensation to employees of the Company in the ordinary course of business. Without in any way limiting the foregoing restriction, the Company will not, and will not permit any Subsidiary to, directly or indirectly, enter into or permit to exist any transactions or series of related transactions (including the purchase, sale, lease or exchange of any property or the rendering of any service) with any Affiliate of the Company or of any Subsidiary (other than a Wholly Owned Subsidiary which is a Guarantor) involving aggregate payments in excess of $250,000 unless: (i) a committee of independent members of the Board of Directors of the Company shall approve by resolution certifying that such transaction or series of transactions comply with the first sentence of this Section 4.12; and (ii) with respect to (A) a transaction or series of transactions involving aggregate payments equal to or greater than $2,000,000, the Company also receives a written opinion from a nationally-recognized investment bank with total assets in excess of $1.0 billion that such transaction or series of transactions is fair to the Company from a financial point of view; or (B) any purchase, sale, lease or exchange of real property or Fixed Assets involving aggregate payments equal to or greater than $2.0 million, in lieu of the opinion referred to in clause (A), at the option of the Company, the Company also receives an opinion from a qualified appraisal company, that the value of the property sold, purchased, leased or exchanged by the Company or any Subsidiary is substantially equal to (or more favorable to the Company than) the value of the consideration provided by or to the Company, as the case may be, in respect thereof. SECTION 4.13. Limitation on Other Senior Subordinated Indebtedness. The ---------------------------------------------------- Company will not incur any Indebtedness which is senior in right of payment to the Securities and is subordinate or junior in right of payment to the Company's Senior Indebtedness. No Guarantor will incur any Indebtedness which is senior in right of any payment to such Guarantor's obligations under its Guarantee and this Indenture and which is subordinate or junior in right of payment to Guarantor Senior Indebtedness of such Guarantor. SECTION 4.14. Additional Guarantors. If the Company or any Subsidiary --------------------- makes any Investment having a fair market value exceeding $1,000, in one or a series of related transactions, in any Subsidiary which is not a Guarantor, or any Subsidiary which is not a Guarantor holds property or assets (including, without limitation, cash, businesses, divisions, real property, assets or equipment) having a fair market value exceeding $1,000, the Company shall cause such Subsidiary to (i) execute and deliver to the Trustee a supplemental indenture in form reasonably satisfactory to the Trustee pursuant to which such Subsidiary shall unconditionally guarantee all of the Company's obligations under the Securities and the Indenture on the terms set forth in the Indenture and (ii) deliver to the Trustee an Opinion of Counsel that such supplemental indenture has been duly executed and delivered by -37- such Subsidiary. Thereafter, such Subsidiary shall be a Guarantor for all purposes of this Indenture. SECTION 4.15. Use of Proceeds. The proceeds of the Securities will be --------------- used by the Company in the manner described in the Prospectus. No part of such proceeds will be used to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any margin stock. Neither the issuance of any Security nor the use of the proceeds thereof will violate or be inconsistent with the provisions of Regulations G, T, U or X of the Board of Governors of the Federal Reserve System. SECTION 4.16. Limitation on Sales of Assets. The Company will not, and ----------------------------- will not permit any Subsidiary to, directly or indirectly, make any Asset Disposition unless the Company (or such Subsidiary, as the case may be) receives at the time of such Asset Disposition consideration which (x) is paid at least 85% in cash and (y) is at least equal to the fair market value (including the value of all noncash consideration), as determined in good faith by, and evidenced by a resolution of the Board of Directors, if the consideration to be received by the Company is equal to or greater than $1 million (or, if the consideration to be received by the Company is less than $1 million but greater than $25,000 (except in the case of Asset Dispositions to franchisees in the ordinary course of business), as certified in good faith by two Officers, one of whom shall be the President, in an Officers' Certificate delivered to the Trustee within 30 Business Days following such Asset Disposition (no certificate being required for sales as to which the consideration is $25,000 or less), of the shares and assets subject to such Asset Disposition; provided, however, that -------- ------- the requirement set forth in clause (x) above shall not apply to any sale, lease, sublease, transfer or other disposition of stores to franchisees in the ordinary course of business or of individual underperforming, nonutilized or obsolete assets by the Company, or any Subsidiary in the ordinary course of business. Within 210 days from the date of such Asset Disposition (the "Disposition Period"), the Company (or such Subsidiary, as the case may be) may apply all or any portion of the Net Available Cash Proceeds from such Asset Disposition to (x) the prepayment of Senior Indebtedness or (y) an investment in Fixed Assets in the same or substantially similar line of business as the assets that were the subject of such Asset Disposition, provided that, if such Net Available Cash Proceeds are applied to the prepayment of Senior Indebtedness, the related loan commitment, if any, shall be permanently reduced, except that in the event the Company repays revolving loans outstanding under the New Credit Agreement with such Net Available Cash Proceeds, the related loan commitment need not be permanently reduced so long as the Company reborrows the full amount of the amount so prepaid and invests such amount in Fixed Assets in the same or substantially similar line of business as the assets that were the subject of such Asset Disposition within the Disposition Period. Without limiting the lines of business which are considered the same or substantially similar for the purposes hereof, the sale of gasoline, the operation of -38- convenience stores, the franchising of convenience stores, and the manufacturing, processing, and distribution businesses currently conducted by the Company will be deemed to qualify as the same or substantially similar lines of business. Notwithstanding the foregoing, if the Company enters into a written agreement within the Disposition Period pursuant to which the Company commits to reinvest such Net Available Cash Proceeds in Fixed Assets in the same or substantially similar line of business as the assets that were the subject of such Asset Disposition, the Company shall be permitted to reinvest such Net Available Cash Proceeds within 90 days from the date of termination of the Disposition Period in accordance with such written agreement. Subject to the provisions of the next succeeding sentence, any Net Available Cash Proceeds from any such Asset Disposition that are not applied or invested as provided in the preceding three sentences shall constitute and be referred to herein as "Excess Proceeds." When (x) any Excess Proceeds arise from the sale, issuance or other disposition of Capital Stock of a Subsidiary or the Non-Recourse Subsidiary (except to a Wholly Owned Subsidiary which is a Guarantor) or the sale or other disposition of all or substantially all of the assets of a Subsidiary or the Non-Recourse Subsidiary in one transaction or a series of related transactions (except to a Wholly Owned Subsidiary which is a Guarantor) or (y) the aggregate amount of Excess Proceeds from all Asset Dispositions (other than those referred to in clause (x) of this sentence) exceeds $5.0 million, the Company shall make an Disposition Offer (as defined in Section 3.09 hereof) to purchase Securities pursuant to and subject to the conditions of Section 3.09 hereof. Notwithstanding the foregoing, (i) an aggregate of $1.0 million of Net Available Cash Proceeds received by the Company and/or the Subsidiaries in any fiscal year from Asset Dispositions, not involving the sale, issuance or other disposition of Capital Stock of a Subsidiary or the Non-Recourse Subsidiary or the sale or other disposition of all or substantially all of the assets of a Subsidiary or the Non-Recourse Subsidiary, shall not be subject to this Section 4.16, and (ii) the Company may not, and may not permit any Subsidiary to, directly or indirectly, make any Asset Disposition of any of the Capital Stock of a Subsidiary or the Non-Recourse Subsidiary except pursuant to an Asset Disposition of all of the Capital Stock of such Subsidiary or the Non-Recourse Subsidiary. SECTION 4.17. Payment of Taxes and Other Claims. The Company shall pay or --------------------------------- discharge or cause to be paid or discharged, before any penalty accrues thereon, (i) all material taxes, assessments and governmental charges levied or imposed upon the Company, any Subsidiary or the Non-Recourse Subsidiary upon the income, profits or property of the Company, any Subsidiary or the Non-Recourse Subsidiary and (ii) all material lawful claims for labor, materials and supplies which, if unpaid, would by law become a Lien upon the property of the Company or any Subsidiary; provided that none of the Company, any Subsidiary or the Non- Recourse Subsidiary shall be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claims the amount, applicability or validity of which is being contested in good faith by appropriate proceedings and for which adequate provision -39- has been made or where the failure to effect such payment or discharge is not adverse in any material respect to the Holders. SECTION 4.18. Corporate Existence. Subject to Article 5 hereof, the ------------------- Company will do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and the corporate, partnership or other existence of any Subsidiary or the Non-Recourse Subsidiary in accordance with the respective organizational documents of such Subsidiary or the Non- Recourse Subsidiary and the rights (charter and statutory), licenses and franchises of the Company and each Subsidiary and the Non-Recourse Subsidiary, 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 Subsidiary or the Non-Recourse Subsidiary, 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 Subsidiaries taken as a whole, and that the loss thereof is not adverse in any material respect to the Holders. SECTION 4.19. Maintenance of Properties and Insurance. (a) The Company --------------------------------------- shall cause all material properties owned by or leased to it or any Subsidiary or the Non-Recourse Subsidiary and used or useful in the conduct of its business or the business of such Subsidiary to be maintained and kept in normal condition, repair and working order and supplied with all necessary equipment and shall cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Company may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided, however, that -------- ------- nothing in this Section 4.19 shall prevent the Company, any Subsidiary or the Non-Recourse Subsidiary from discontinuing the maintenance of any such properties, if such discontinuance is desirable in the conduct of its business or the business of such Subsidiary or the Non-Recourse Subsidiary. (b) The Company shall provide or cause to be provided, for itself any Subsidiaries and the Non-Recourse Subsidiary, insurance (including appropriate self-insurance) against loss or damage of the kinds customarily insured against by corporations similarly situated and owning like properties, including, but not limited to, public liability insurance, with reputable insurers in such amounts with such deductibles and by such methods as shall be customary for corporations similarly situated in the industry. (c) The Company shall, and shall cause each Subsidiary and the Non- Recourse Subsidiary to, keep true books of records and accounts in which full and correct entries will be made of all its business transactions, in accordance with sound business practices, and reflect in its financial statements adequate accruals and appropriations to reserves, all in accordance with GAAP. -40- (d) The Company, shall and shall cause each Subsidiary and the Non- Recourse Subsidiary to, comply with all statutes, laws, ordinances, or government rules and regulations to which it is subject, non-compliance with which would materially adversely affect the prospects, earnings, properties, assets or condition, financial or otherwise, of the Company and the Subsidiaries, taken as a whole. SECTION 4.20. Conflicting Agreements. The Company will not, and will not ---------------------- permit any Subsidiary or the Non-Recourse Subsidiary to, enter into any agreement (other than the Credit Agreement as in effect on the date hereof) or instrument that by its terms expressly prohibits the Company from repurchasing the Securities in accordance with Sections 3.08 or 3.09 hereof or otherwise in accordance with the terms of the Securities. SECTION 4.21. Investment Company Act. The Company shall not become an ---------------------- investment company subject to registration under the Investment Company Act of 1940, as amended. SECTION 4.22. Payments for Consents. Neither the Company nor any --------------------- Subsidiary shall, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any Holder of any Securities for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of this Indenture or the Securities unless such consideration is offered to be paid or agreed to be paid to all Holders of the Securities 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 4.23. Covenant to Comply with Securities Laws Upon Purchase of -------------------------------------------------------- Securities. In connection with any offer to purchase or purchase of Securities - - ---------- under Sections 3.02, 3.08 and 3.09 hereof, the Company shall (i) comply with Rule 14e-1 under the Exchange Act, and any other applicable rules thereunder, and (ii) otherwise comply with all federal and state securities laws so as to permit the rights and obligations under Sections 3.02, 3.08 and 3.09 hereof to be exercised in the time and in the manner specified in Sections 3.02, 3.08 and 3.09 hereof. ARTICLE 5 SUCCESSOR CORPORATION SECTION 5.01. When the Company or any Guarantor May Merge, Etc. Subject ------------------------------------------------ to the provisions set forth in Section 11.03 hereof, neither the Company nor any Guarantor may consolidate with or merge with or into, or sell, convey, transfer -41- or lease all or substantially all of its assets (either in one transaction or a series of transactions) to, any Person unless: (1) the Person formed by or surviving such consolidation or merger (if other than the Company or such Guarantor, as the case may be) or to which such sale, conveyance, transfer or lease shall have been made (the "Successor Person") is organized and existing under the laws of the United States of America or any State thereof or the District of Columbia and such entity expressly assumes by a supplemental indenture, executed and delivered to the Trustee, in form satisfactory to the Trustee, all the obligations of the Company or such Guarantor, as the case may be, under the Securities or the Guarantees, as the case may be, and the Indenture; (2) immediately prior to and after giving effect to such transaction (and treating any Indebtedness which becomes an obligation of the Successor Person or any Subsidiary (including any Guarantor) as a result of such transaction as having been incurred by such Person or such Subsidiary (including any Guarantor) at the time of such transaction), no Default or Event of Default shall have occurred and be continuing; (3) except with respect to consolidations, mergers, sales, conveyances, transfers and leases between Guarantors, immediately after giving effect to such transaction, on a pro forma basis, the Successor Person would be able to incur an additional $1.00 of Indebtedness (other than Permitted Indebtedness) in accordance with Section 4.06 hereof; (4) if the Company is a party to such consolidation, merger, sale, conveyance, transfer and lease, immediately after giving effect to such transaction, on a pro forma basis, the Successor Person has Consolidated Net Worth in an amount which is not less than the Consolidated Net Worth of the Company immediately prior to such transaction; (5) if such Guarantor is a party to such consolidation, merger, sale, conveyance, transfer or lease, immediately after giving effect to such transaction, on a pro forma basis, the Company has Consolidated Net Worth in an amount which is not less than its Consolidated Net Worth immediately prior to such transaction; and (6) the Company, or such Guarantor, as the case may be, delivers to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, sale, conveyance, transfer or lease and such supplemental indenture comply with this Indenture. The Successor Person will be the successor Company, or a successor Guarantor, as the case may be, but in the case of a sale, conveyance, transfer or lease -42- of all or substantially all of the assets of the Company or Guarantor (i) the predecessor Company will not be released from its obligation to pay the principal of, premium, if any, and interest on the Securities, and (ii) the predecessor Guarantor will not be released from its obligation under its Guarantee. ARTICLE 6 DEFAULTS AND REMEDIES SECTION 6.01. Events of Default. An "Event of Default" occurs if one of ----------------- the following shall have occurred and be continuing: (1) The Company defaults in the payment, when due and payable, of (i) interest on any Security and the default continues for a period of 30 days, or (ii) the principal of, or premium, if any, on any Securities when the same becomes due and payable at maturity, acceleration, on any Redemption Date, on any Change in Control Purchase Date, on any Disposition Offer Purchase Date or otherwise; (2) The Company or any Subsidiary fails to comply with Sections 4.16 or 5.01 hereof; (3) The Company fails to comply with Section 4.15 hereof; (4) The Company defaults in the performance of, fails to comply with, any of its covenants or agreements in the Securities or this Indenture (other than those referred to in clause (1), (2) or (3) above) and such failure continues for 30 days after receipt by the Company of a Notice of Default; (5) The Company, any Subsidiary (including any Guarantor) or the Non- Recourse Subsidiary fails to pay the principal of any Indebtedness with a principal amount then outstanding in excess of $500,000, individually or in the aggregate, when the same becomes due and payable at its Stated Maturity and such failure shall continue after any applicable grace period specified in the mortgage, indenture, instrument or other agreement relating to such Indebtedness; or a default on any such Indebtedness which results in such Indebtedness becoming due and payable prior to its Stated Maturity; (6) The Company, any Subsidiary (including any Guarantor) or the Non- Recourse Subsidiary pursuant to or within the meaning of any Bankruptcy Law: (A) commences a voluntary case or proceeding; (B) consents to the entry of an order for relief against it in an involuntary case or proceeding; -43- (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) admits in writing its inability to pay its debts generally 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 the Company, any Subsidiary (including any Guarantor) or the Non-Recourse Subsidiary in an involuntary case or proceeding; (B) appoints a Custodian of the Company, any Subsidiary (including any Guarantor) or the Non-Recourse Subsidiary for all or substantially all of its properties; (C) orders the liquidation of the Company, any Subsidiary (including any Guarantor) or the Non-Recourse Subsidiary; (D) and in each case the order or decree remains unstayed and in effect for 60 days; or (8) Any judgment or decree for the payment of money in excess of $500,000 (to the extent not covered by insurance) is rendered against the Company, a Subsidiary (including any Guarantor) or the Non-Recourse Subsidiary and is not discharged and either (A) an enforcement proceeding has been commenced by a creditor upon such judgment or decree or (B) there is a period of 45 days following such judgment or decree during which such judgment or decree is not discharged, waived or the execution thereof stayed; or (9) Any of the Guarantees shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect, or any Guarantor, or any person acting by or on behalf of any Guarantor, shall deny or disaffirm its obligations under its Guarantee. The foregoing will constitute Events of Default whatever the reason for any such Event of Default and whether it is voluntary or involuntary or is effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body. -44- The term "Bankruptcy Law" means Title 11, United States Code, or any similar Federal or state law for the relief of debtors. "Custodian" means any receiver, trustee, assignee, liquidator, sequestrator, custodian or similar official under any Bankruptcy Law. A Default under clause (4) above is not an Event of Default until the Trustee notifies the Company or the Holders of at least 25% in aggregate principal amount of the Securities at the time outstanding notify the Company and the Trustee, of the Default and the Company does not cure such Default within the time specified in clause (4) above after receipt of such notice. Any such notice must specify the Default, demand that it be remedied and state that such notice is a "Notice of Default." SECTION 6.02. Acceleration. If any Event of Default, other than an Event ------------ of Default under clauses (6) or (7), occurs and is continuing, the Trustee may, by notice to the Company, or the Holders of at least 25% in aggregate principal amount of the Securities then outstanding may, by notice to the Company and the Trustee (each, an "Acceleration Notice"), and the Trustee shall, upon the request of such Holders, declare the principal of, and accrued but unpaid interest on all of the Securities to be due and payable. The Company shall deliver to the Trustee, within 10 days after it obtains knowledge thereof, written notice in the form of an Officers' Certificate of any event which with the giving of notice and the lapse of time would become an Event of Default under clause (4), (5), or (8), its status and what action the Company is taking or proposes to take with respect thereto. Upon such a declaration, such principal and interest shall be due and payable immediately. If an Event of Default specified in clause (6) or (7) with respect to the Company, any Subsidiary (including any Guarantor) or the Non-Recourse Subsidiary occurs and is continuing, the principal of and interest on all the Securities shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Securityholders. The Holders of a majority in principal amount of the Securities by notice to the Trustee may rescind an acceleration and its consequences if the rescission would not conflict with any judgment or decree and if all existing Events of Default have been cured or waived except nonpayment of principal or interest that has become due solely because of acceleration. No such rescission shall affect any subsequent Default or impair any right consequent thereto. 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, premium, if any, or interest on the -45- Securities or to enforce the performance of any provision of the Securities or this Indenture. The Trustee may maintain a proceeding even if the Trustee does not possess any of the Securities or does not produce any of the Securities in the proceeding. A delay or omission by the Trustee or any Securityholder 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 Past Defaults. The Holders of a majority in ----------------------- aggregate principal amount of the Securities at the time outstanding, by notice to the Trustee (and without notice to any other Securityholder), may waive an existing Default or Event of Default and its consequences except (a) an Event of Default described in Section 6.01(1) hereof, or (b) a Default in respect of a provision that under Section 9.02 hereof cannot be amended without the consent of each Securityholder affected. When a Default is waived, it is deemed cured and shall cease to exist, but no such waiver shall extend to any subsequent or other Default or impair any consequent right. SECTION 6.05. Control by Majority. The Holders of a majority in aggregate ------------------- principal amount of the Securities at the time outstanding may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or of exercising any trust or power conferred on the Trustee. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture or that the Trustee determines in good faith is unduly prejudicial to the rights of other Securityholders or would involve the Trustee in personal liability. The Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction. SECTION 6.06. Limitation on Suits. Except as provided in Section 6.07 ------------------- hereof, a Securityholder may not pursue any remedy with respect to this Indenture or the Securities unless: (1) the Holder gives to the Trustee written notice stating that an Event of Default is continuing; (2) the Holders of at least 25% in aggregate principal amount of the Securities at the time outstanding make a written request to the Trustee to pursue the remedy; (3) such Holder or Holders offer to the Trustee reasonable security or indemnity against any loss, liability or expense satisfactory to the Trustee; -46- (4) the Trustee does not comply with the request within 60 days after receipt of the notice, the request and the offer of security or indemnity; and (5) the Holders of a majority in aggregate principal amount of the Securities at the time outstanding do not give the Trustee a direction inconsistent with the request during such 60-day period. A Securityholder may not use this Indenture to prejudice the rights of any other Securityholder or to obtain a preference or priority over any other Securityholder. SECTION 6.07. Rights of Holders to Receive Payment. Notwithstanding any ------------------------------------ other provision of this Indenture, the right of any Holder to receive payment of the principal amount, premium, if any, or interest, in respect of the Securities held by such Holder, on or after the respective due dates expressed in the Securities, any Redemption Date, any Change in Control Purchase Date, or any Disposition Offer Purchase Date, or to bring suit for the enforcement of any such payment on or after such respective dates shall not be impaired or affected adversely without the consent of each such Holder. SECTION 6.08. Collection Suit by Trustee. If an Event of Default ---------- --------------- described in Section 6.01(1) hereof occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Company, each Guarantor or any other obligor on the Securities for the whole amount owing with respect to the Securities and the amounts provided for in Section 6.07 hereof. SECTION 6.09. Trustee May File Proofs of Claim. In case of the pendency -------------------------------- of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company, any Guarantor or other obligor on the Securities, or their respective properties or assets, the Trustee shall be entitled and empowered, by intervention in such proceeding or otherwise: (1) to file and prove a claim for the whole amount of the principal amount, premium, if any, and interest on the Securities and to file such 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 of the Holders allowed in such judicial proceeding; and (2) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; -47- and any Custodian in any such judicial proceeding is hereby authorized by each Holder 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 Holders, to pay the Trustee any amount due 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 7.07 hereof. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. 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 7.07 hereof; SECOND: to Securityholders for amounts due and unpaid on the Securities for the principal amount, Redemption Price or interest, if any, as the case may be, ratably, without preference or priority of any kind, according to such amounts due and payable on the Securities; and THIRD: the balance, if any, to the Company. The Trustee may fix a record date and payment date for any payment to Securityholders 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 (other than the Trustee) 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 and expenses, 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, 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 Securities at the time outstanding. SECTION 6.12. Waiver of Stay, Extension or Usury Laws. The Company and --------------------------------------- each Guarantor covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law or any usury or other law wherever enacted, now or at any time hereafter in force, that would prohibit or -48- forgive the Company or such Guarantor from paying all or any portion of the principal or premium, if any, or interest on the Securities as contemplated herein or affect the covenants or the performance by the Company of its obligations under this Indenture or by such Guarantor of its obligations under its Guarantee; and the Company and each Guarantor (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it 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. ARTICLE 7 TRUSTEE SECTION 7.01. Duties of Trustee. ----------------- (1) If an Event of Default has occurred and is continuing, the Trustee shall exercise the rights and powers vested in it by this Indenture and use the same degree of care and skill in its exercise as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (2) Except during the continuance of an Event of Default: (A) the Trustee need perform only those duties that are specifically set forth in this Indenture and no others; and (B) 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. However, in the case of any such certificate or opinion which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture. (3) The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act or its own willful misconduct, except that: (A) this paragraph (3) does not limit the effect of paragraph (2) of this Section 7.01; -49- (B) the Trustee shall not be liable for any error of judgment made in good faith by a Trust Officer unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (C) 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 Section 6.05 hereof. (4) Every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (1), (2), (3) and (5) of this Section 7.01 and Section 7.02. (5) The Trustee may refuse to perform any duty or exercise any right or power or extend or risk its own funds or otherwise incur any financial liability unless it receives security or indemnity satisfactory to it against any loss, liability or expense. (6) Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money held by it hereunder. SECTION 7.02. Rights of Trustee. ----------------- (1) The Trustee may rely on any document 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 and an Opinion of Counsel. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officers' Certificate and Opinion of Counsel. (3) The Trustee may act through agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care. (4) The Trustee shall not be liable for any action it takes or omits to take in good faith which it believes to be authorized or within its rights or powers. (5) The Trustee may consult with counsel of its selection and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon. (6) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders -50- pursuant to this Indenture, unless such Holders shall have offered to the Trustee reasonable security and indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction. SECTION 7.03. Individual Rights of Trustee. The Trustee in its individual ---------------------------- or any other capacity may become the owner or pledgee of Securities and may otherwise deal with the Company or its Affiliates with the same rights it would have if it were not Trustee. Any Paying Agent, Registrar or co-registrar may do the same with like rights. However, the Trustee must comply with Sections 7.10 and 7.11 hereof. SECTION 7.04. Trustee's Disclaimer. The Trustee makes no representation -------------------- as to the validity or adequacy of this Indenture or the Securities, it shall not be accountable for the Company's use of the proceeds from the Securities, and it shall not be responsible for any statement in the registration statement for the Securities under the Securities Act (other than statements contained in the Form T-l filed with the SEC under the TIA) or in this Indenture or the Securities (other than its certificate of authentication), or the determination as to which beneficial owners are entitled to receive any notices hereunder. SECTION 7.05. Notice of Defaults. If a Default occurs and is continuing ------------------ and if it is known to the Trustee, the Trustee shall mail to each Securityholder as their names and addresses appear on the Security Register notice of the Default within 60 days after it becomes known to the Trustee unless such Default shall have been cured or waived. Except in the case of a Default described in Section 6.01(1) hereof, the Trustee may withhold such notice if and so long as a committee of Trust Officers in good faith determines that the withholding of such notice is in the interests of Securityholders. The second sentence of this Section 7.05 shall be in lieu of the proviso to Section 315(b) of the TIA and said proviso is hereby expressly excluded from this Indenture, as permitted by the TIA. SECTION 7.06. Reports by Trustee to Holders. Within 60 days after each ----------------------------- May 15 beginning with May 15, 1994, the Trustee shall mail to each Securityholder a brief report dated as of such reporting date in accordance with and to the extent required under Section 313 of the TIA. A copy of each report at the time of its mailing to Securityholders shall be filed with the Company, the SEC and each stock exchange on which the Securities are listed. The Company agrees to promptly notify the Trustee whenever the Securities become listed on any stock exchange and of any delisting thereof. SECTION 7.07. Compensation and Indemnity. The Company and the Guarantors, -------------------------- jointly and severally, agree: -51- (1) To pay to the Trustee from time to time such compensation as shall be agreed in writing between the Company and the Trustee for all services rendered by it hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); (2) To reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses, disbursements and advances of its agents and counsel), including all reasonable expenses, disbursements and advances incurred or made by the Trustee in connection with any membership on any creditor's committee, except any such expense, disbursement or advance as may be attributable to its negligence or bad faith; and (3) To indemnify the Trustee, its officers, directors and shareholders, for, and to hold it harmless against, any and all loss, liability or expense, incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of this trust, including the reasonable costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. The Trustee shall have a claim and lien prior to the Securities as to all property and funds held by it hereunder for any amount owing it or any predecessor Trustee pursuant to this Section 7.07, except with respect to funds held in trust for the payment of principal of, premium, if any, or interest on particular Securities. The Company's payment obligations pursuant to this Section 7.07 are not subject to Article 10 of this Indenture and shall survive the discharge of this Indenture. When the Trustee renders services or incurs expenses after the occurrence of a Default specified in Section 6.01 hereof, the compensation for services and expenses are intended to constitute expenses of administration under any Bankruptcy Law. SECTION 7.08. Replacement of Trustee. The Trustee may resign by so ---------------------- notifying the Company in writing at least 30 days prior to the date of the proposed resignation; provided, however, no such resignation shall be effective until a successor Trustee has accepted its appointment pursuant to this Section 7.08. The Holders of a majority in aggregate principal amount of the Securities at the time outstanding may remove the Trustee by so notifying the Trustee in writing and may appoint a successor Trustee subject to the consent of the Company. The Trustee shall resign if: (1) the Trustee fails to comply with Section 7.10 hereof; -52- (2) the Trustee is adjudged bankrupt or insolvent; (3) a receiver or 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, by resolution of its Board of Directors, a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon 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. The successor Trustee shall mail a notice of its succession to Securityholders. Subject to payment of all amounts owing to the Trustee under Section 7.07 hereof and subject further to its lien under Section 7.07, the retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee. If a successor Trustee does not take office within 30 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 Securities at the time outstanding may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee fails to comply with Section 7.10 hereof, any Securityholder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. SECTION 7.09. Successor Trustee by Merger. If the Trustee consolidates --------------------------- with, merges or converts into, or transfers all or substantially all its corporate trust business or assets (including this Trusteeship) to, another corporation, the resulting, surviving or transferee corporation without any further act shall be the successor Trustee. SECTION 7.10. Eligibility; Disqualification. (a) There will at all times ----------------------------- be a Trustee hereunder which will (i) be a corporation organized and doing business under the laws of the United States, any state thereof or the District of Columbia, authorized under such laws to exercise corporate trust power; (ii) be subject to supervision or examination by federal or state (or the District of Columbia) authority; and (iii) have a combined capital and surplus of at least $150 million as set forth in its most recent published annual report of condition. -53- (b) This Indenture will always have a Trustee who satisfies the requirements of TIA (S)(S) 310(a)(1) and 310(a)(2). The Trustee is subject to TIA (S) 310(b). If at any time the Trustee ceases to be eligible in accordance with the provisions of this section 7.10, it will resign immediately in the manner and with the effect specified in Section 7.08 hereof. SECTION 7.11. Preferential Collection of Claims Against the Company. The --------------------------------- ------------------- Trustee is subject to TIA (S) 311(a), excluding any creditor relationship listed in TIA (S) 311(b). A Trustee who has resigned or been removed will be subject to TIA (S) 311(a) to the extent indicated therein. ARTICLE 8 SATISFACTION AND DISCHARGE OF INDENTURE; DEFEASANCE OF CERTAIN OBLIGATIONS; UNCLAIMED MONEYS SECTION 8.01. Satisfaction and Discharge of Indenture. (a) If at any --------------------------------------- time (i) the Company shall have paid or caused to be paid the principal of and interest on all the Securities outstanding hereunder, as and when the same shall have become due and payable, or (ii) the Company shall have delivered to the Trustee for cancellation all Securities theretofore authenticated (other than any Securities which shall have been destroyed, lost or stolen and which shall have been replaced or paid as provided in Section 2.07 hereof) or (iii) (A) all such Securities not theretofore delivered to the Trustee for cancellation shall have become due and payable or are by their terms to become due and payable within one year or are to be called for redemption under arrangements satisfactory to the Trustee for the giving of notice of redemption, and (B) the Company shall have irrevocably deposited or caused to be deposited with the Trustee, as trust funds, (i) the entire amount in cash, (ii) U.S. Government Obligations maturing as to principal and interest at such times and in such amounts as will insure the availability of cash or (iii) a combination thereof sufficient to pay at maturity or upon redemption, in the opinion of a nationally-recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, all such Securities not theretofore delivered to the Trustee for cancellation, including principal and interest due or to become due to such date of maturity, as the case may be, and if, in any such case, the Company shall also pay or cause to be paid all other sums payable hereunder by the Company, then this Indenture shall cease to be of further effect (except as to (1) rights of registration of transfer and exchange of Securities, (2) replacement of apparently mutilated, defaced, destroyed, lost or stolen Securities, (3) rights of Holders to receive payments of principal thereof and interest thereon, (4) rights of the Holders as beneficiaries hereof with respect to the property so deposited with the Trustee payable to all or any of them, -54- (5) the obligation of the Company to maintain an office or agency for payments on and registration of transfer of the Securities and (6) the rights, obligations and immunities of the Trustee hereunder), and the Trustee, on demand of the Company shall execute proper instruments acknowledging such satisfaction of and discharging this Indenture, if: (A) such deposit will not result in a breach or violation of, or constitute a default under, any agreement or instrument to which the Company is a party or by which it is bound; and (B) the Company has delivered to the Trustee an Officer's Certificate and an Opinion of Counsel, each stating that all conditions precedent relating to the defeasance contemplated by this provision have been complied with. The Company agrees to reimburse the Trustee for any costs or expenses thereafter reasonably and properly incurred and to compensate the Trustee for any services thereafter reasonably and properly rendered by the Trustee in connection with this Indenture or the Securities. (b) The Company shall be deemed to have paid and discharged the entire indebtedness on all Securities outstanding on the 91st day after the date of the deposit referred to in subparagraph (A) below, and the provisions of this Indenture with respect to the Securities shall no longer be in effect (except as to (1) rights of registration of transfer, substitution and exchange of Securities, (2) replacement of apparently mutilated, defaced, destroyed, lost or stolen Securities, (3) rights of Holders to receive payments of principal thereof and interest thereon, (4) rights of the Holders as beneficiaries hereof with respect to the property so deposited with the Trustee payable to all or any of them, (5) the obligation of the Company to maintain an office or agency for payments on and registration of transfer of the Securities and (6) the rights, obligations and immunities of the Trustee hereunder) rights, obligations, duties and immunities of the Trustee hereunder and the Trustee, at the expense of the Company, shall at the Company's request, execute proper instruments acknowledging the same, if: (A) with reference to this provision, the Company has irrevocably deposited or caused to be irrevocably deposited with the Trustee as trust funds in trust, specifically pledged as security for, and dedicated solely to, the benefit of the Holders (i) cash in an amount, or (ii) U.S. Government Obligations, maturing as to principal and interest at such times and in such amounts as will insure the availability of cash or (iii) 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 the -55- principal of (and premium if any) and interest on all Securities outstanding on each date that such principal or interest is due and payable, together with all other amounts payable by the Company hereunder; (B) no Default or Event of Default with respect to the Securities has occurred and is continuing on the date of such deposit or occurs as a result of such deposit or at any time during the period ending on the 91st day after the date of such deposit; (C) such deposit will not result in a breach or violation of, or constitute a default under, any agreement or instrument to which the Company or such Guarantor, as the case may be, is a party or by which it is bound; (D) the Company or such Guarantor, as the case may be, has delivered to the Trustee an Officer's Certificate and an Opinion of Counsel, each stating that all conditions precedent relating to the defeasance contemplated by this provision have been complied with; and (E) the Company or such Guarantor, as the case may be, has delivered to the Trustee (i) either a private Internal Revenue Service ruling or an Opinion of Counsel based on a ruling of the Internal Revenue Service or other change in Federal income tax law to the effect that the Holders 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 manner and at the same times as would have been the case if such deposit, defeasance and discharge had not occurred, and (ii) an Opinion of Counsel to the effect that (A) the deposit shall not result in the Company, the Trustee or the trust being deemed to be an "investment company" under the Investment Company Act of 1940, as amended, and (B) such deposit creates a valid trust in which the Holders of the Securities who are not "insiders" for purposes of any Bankruptcy Law have the sole beneficial ownership interest or that the Holders of the Securities have a nonavoidable first priority security interest in such trust. Notwithstanding the foregoing, the Company's obligations to pay principal, premium, if any, and interest on the Securities, and the Guarantors' obligations under the Guarantees and this Indenture, shall continue until the Internal Revenue Service ruling or Opinion of Counsel referred to in clause (i) above is provided with regard to and without reliance upon such obligations continuing to be obligations of the Company and the Guarantors, respectively. -56- (c) The Company shall be released from its obligations under Sections 3.08, 3.09 and 4.06 through 4.14, 4.16 and 5.01 hereof with respect to the Securities outstanding on and after the date the conditions set forth below are satisfied (hereinafter, "covenant defeasance"). For this purpose, such covenant defeasance means that, with respect to the Securities outstanding, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in such Section, whether directly or indirectly by reason of any reference elsewhere herein to such Sections or by reason of any reference in such Sections to any other provision herein or in any other document, and such omission to comply shall not constitute an Event of Default under Section 6.01, but the remainder of this Indenture and the Securities shall be unaffected thereby. The following shall be the conditions to application of this subsection (c) of this Section 8.01: (A) The Company has irrevocably deposited or caused to be deposited with the Trustee as trust funds in trust for the purposes of making the following payments, specifically pledged as security for, and dedicated solely to, the benefit of the Holders (i) cash in an amount, or (ii) U.S. Government Obligations maturing as to principal and interest at such times and in such amounts as will insure the availability of cash or (iii) 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 the principal of (and premium, if any) and interest on all Securities outstanding on each date that such principal or interest is due and payable, together with all other amounts payable by the Company hereunder; (B) No Default or Event of Default shall have occurred and be continuing on the date of such deposit; (C) Such covenant defeasance shall not cause the Trustee to have conflicting interest as defined in Section 310 of the Trust Indenture Act of 1939 with respect to any securities of the Company; (D) Such covenant defeasance shall not result in a breach or violation of, or constitute a Default under, this Indenture or any other agreement or instrument to which the Company is a party or by which it is bound; (E) The Company shall have delivered to the Trustee an Officer's Certificate and Opinion of Counsel to the effect that the Holders will not recognize income, gain or loss for Federal income tax purposes as a result of such covenant defeasance and will be subject to Federal income tax on the same amounts, in the same manner and at the same -57- time as would have been the case if such covenant defeasance had not occurred; and (F) The Company shall have delivered to the Trustee an Officer's Certificate and an Opinion of Counsel, each stating that all conditions precedent relating to the covenant defeasance contemplated by this provision have been complied with. SECTION 8.02. Application by Trustee of Funds Deposited for Payment of -------------------------------------------------------- Securities. Subject to Section 8.04 hereof, and to the subordination provision - - ---------- of this Indenture, all moneys deposited with the Trustee pursuant to Section 8.01 hereof shall be held in trust and applied by it to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent), to the Holders of the particular Securities for the payment or redemption of which such moneys have been deposited with the Trustee, of all sums due and to become due thereon for principal and interest; but such money need not be segregated from other funds except to the extent required by law. SECTION 8.03. Repayment of Moneys Held by Paying Agent. 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 demand of the Company, be repaid to it or paid to the Trustee and thereupon such Paying Agent shall be released from all further liability with respect to such moneys. SECTION 8.04. Return of Moneys Held by Trustee and Paying Agent Unclaimed ----------------------------------------------------------- for Three Years. Any moneys deposited with or paid to the Trustee or any Paying - - --------------- Agent for the payment of the principal, premium, if any, or interest on any Security and not applied but remaining unclaimed for three years after the date upon which such principal, premium, if any, or interest shall have become due and payable shall, upon the written request of the Company and unless otherwise required by mandatory provisions of applicable escheat or abandoned or unclaimed property law, be repaid to the Company by the Trustee or such Paying Agent, and the Holder of such Security shall, unless otherwise required by mandatory provisions of applicable escheat or abandoned or unclaimed property laws, thereafter look only to the Company for any payment which such Holder may be entitled to collect, and all liability of the Trustee or any Paying Agent with respect to such moneys shall thereupon cease. ARTICLE 9 AMENDMENTS SECTION 9.01. Without Consent of Holders. From time to time, when -------------------------- authorized by a resolution of their respective Boards of Directors, the Company and the Guarantors, and the Trustee, without notice to or the consent of the holders of -58- the Securities issued hereunder, may amend or supplement this Indenture as follows: (1) to cure any ambiguity, omission, defect or inconsistency; or (2) to comply with Article 5 hereof; or (3) to provide for uncertificated Securities in addition to or in place of certificated Securities (so long as such uncertificated Securities are issued in registered form for purposes of Section 163(f) of the Internal Revenue Code of 1986, as amended, or in manner such that the uncertificated Securities are described in Section 163(f)(2)(B) of the Code); or (4) to make any other change that does not adversely affect the rights of any Securityholder; or (5) to comply with any requirement of the SEC in connection with the qualification of this Indenture under the TIA; or (6) to add additional Guarantees of the Securities or to release a Guarantor in accordance with the terms of this Indenture; or (7) to add security for the Securities; or (8) to add to the covenants of the Company for the benefit of the Holders; or (9) to surrender any right or power conferred upon the Company. SECTION 9.02. With Consent of Holders. With the written consent of the ----------------------- Holders of at least a majority in aggregate principal amount of the Securities at the time outstanding, the Company, the Guarantors, and the Trustee may amend this Indenture or the Securities or may waive future compliance by the Company with any provisions of this Indenture or the Securities. However, without the consent of each Securityholder of an outstanding note, a waiver or an amendment to this Indenture or the Securities may not: (1) reduce the percentage of principal amount of the Securities whose Holders must consent to an amendment or waiver; or (2) make any change to the Stated Maturity of the principal of, premium, if any, or any interest on the Securities or any Redemption Price thereof or impair the right to institute suit for the enforcement of any such payment or make any Security payable in currency or securities other than that stated in the Security; or -59- (3) make any change in Article 10 hereof that adversely affects the rights of any Holder of Securities or any change to any other Section hereof that adversely affects the rights, under Article 10 hereof, of any Holder of Securities; or (4) waive a default in the payment of the principal of, premium, if any, or interest on, any Security; or (5) make any change in the provisions of Sections 4.15, 6.04 or 6.07 hereof; or (6) make any change to Article 11 hereof that adversely affects the rights of any Holder of Securities or any change to any other Section hereof that adversely affects the rights, under Article 11 hereof, of any Holder of Securities. It shall not be necessary for the consent of the Holders under this Section 9.02 to approve the particular form of any proposed amendment, but it shall be sufficient if such consent approves the substance thereof. In the event that certain Holders are willing to defer or waive certain obligations of the Company hereunder with respect to Securities held by them, such deferral or waiver shall not be deemed to affect any other Holder who receives the subject payment or performance in a timely manner. After an amendment or waiver under this Section 9.02 becomes effective, The Company shall mail to each Holder a notice briefly describing the amendment or waiver. Any failure of the Company to mail such notices, or any defect therein, shall not, however, in any way impair or affect the validity of any such amendment or waiver. SECTION 9.03. Compliance with Trust Indenture Act. Every supplemental ----------------------------------- indenture executed pursuant to this Article 9 shall comply with the TIA. SECTION 9.04. Revocation and Effect of Consents, Waivers and Actions. ------------------------------------------------------ Until an amendment, waiver or other action by Holders becomes effective, a consent to it or any other action by a Holder of a Security hereunder is a continuing consent by the Holder and every subsequent Holder of that Security or portion of the Security that evidences the same obligation as the consenting Holder's Security, even if notation of the consent, waiver or action is not made on the Security. However, any such Holder or subsequent Holder may revoke the consent, waiver or action as to such Holder's Security or portion of the Security if the Trustee receives the notice of revocation before the consent of the requisite aggregate principal amount of the Securities then outstanding has been obtained and not revoked. -60- After an amendment, waiver or action becomes effective, it shall bind every Securityholder, except as provided in Section 9.02 hereof. 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 or waiver. If a record date is fixed, then, notwithstanding the first two sentences of the immediately preceding paragraph, those Persons who were Holders at such record date (or their duly designated proxies), and only those 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. SECTION 9.05. Notation on or Exchange of Securities. Securities ------------------------------------- authenticated and made available for delivery after the execution of any supplemental indenture pursuant to this Article 9 may, and shall, if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Securities so modified as to conform, in the opinion of the Trustee and the Board of Directors, to any such supplemental indenture may be prepared and executed by the Company, with the notation thereon executed by each Guarantor with respect to its Guarantee thereof, and authenticated and made available for delivery by the Trustee in exchange for outstanding Securities. SECTION 9.06. Trustee to Sign Supplemental Indentures. The Trustee shall --------------------------------------- sign any supplemental indenture authorized pursuant to this Article 9 if the supplemental indenture 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 such amendment the Trustee shall be entitled to receive, and shall be fully protected in relying upon, an Officers' Certificate and Opinion of Counsel stating that such supplemental indenture is authorized or permitted by this Indenture. SECTION 9.07. Effect of Supplemental Indentures. Upon the execution of --------------------------------- any supplemental indenture under this Article 9, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Securities theretofore or thereafter authenticated and made available for delivery hereunder shall be bound thereby. ARTICLE 10 SUBORDINATION SECTION 10.01. Securities Subordinated to Company Senior Indebtedness. ------------------------------------------------------ Notwithstanding the provisions of Section 6.01 hereof or any other provision -61- herein or in the Securities, the Company covenants and agrees, and the Trustee and each Holder by his acceptance thereof likewise (a) covenants and agrees, that all payments of the principal, premium, if any, of and interest on the Securities by the Company shall be subordinated in accordance with the provisions of this Article Ten to the prior payment in full, in cash or cash equivalents, of all amounts payable on, under or in connection with Company Senior Indebtedness and (b) acknowledges that holders of Company Senior Indebtedness are or shall be relying on the provisions of this Article Ten. SECTION 10.02. Priority and Payment Over of Proceeds in Certain Events. ------------------------------------------------------- (a) Upon any payment or distribution of assets or securities of the Company, as the case may be, of any kind or character, whether in cash, property or securities, in any dissolution, winding up, total or partial liquidation or reorganization of the Company, whether voluntary or involuntary, or in bankruptcy, insolvency, receivership or other proceedings, all amounts payable on, under or in connection with Company Senior Indebtedness (including any interest accruing on such Company Senior Indebtedness subsequent to the commencement of a bankruptcy, insolvency or similar proceeding) shall first be paid in full in cash, or payment provided for in cash or cash equivalents, before the Holders or the Trustee on behalf of the Holders shall be entitled to receive from the Company any payment of principal of or interest on or any other amounts in respect of the Securities or distribution of any assets or securities. Before any payment may be made by the Company of the principal of or interest on the Securities and upon any such dissolution or winding up or liquidation or reorganization, any payment or distribution of assets or securities of the Company of any kind or character, whether in cash, property or securities to which the Holders or the Trustee on their behalf would be entitled, except for the provisions of this Article Ten, shall be made by the Company or by any receiver, trustee, in bankruptcy, liquidating trustee, agent or other Person making such payment or distribution first to the holders of all Company Senior Indebtedness or their representatives to the extent necessary to pay all Company Senior Indebtedness in full after giving effect to any concurrent payment or distribution to the holders of Company Senior Indebtedness. (b) (i) No direct or indirect payment by or on behalf of the Company of principal of or interest on the Securities whether pursuant to the terms of the Securities or upon acceleration or otherwise shall be made if, at the time of such payment there exists a default in the payment of all or any portion of any Company Senior Indebtedness (and the Trustee has received written notice thereof from the Company, one or more holders of Company Senior Indebtedness or from any trustee, representative or agent therefor), and such default shall not have been cured or waived or the benefits of this sentence waived by or on behalf of the holders of such Company Senior Indebtedness; and (ii) during the continuance of a default (other than a default of the nature described in clause (i) of this subsection (b)) -62- pursuant to which the maturity of Company Senior Indebtedness under the New Credit Agreement ("Significant Company Senior Indebtedness") may be accelerated, upon the earlier to occur of (A) receipt by the Trustee of written notice from the trustee or representative for the holders of any Significant Company Senior Indebtedness (or the holders of at least a majority in principal amount of the Significant Company Senior Indebtedness then outstanding) or (B) if such non- payment event of default results from the acceleration of the Securities, the date of such acceleration, no such payment may be made by the Company upon or in respect of the Securities for a period ("Payment Blockage Period") commencing on the earlier of the date of receipt of such notice or the date of such acceleration and ending 179 days thereafter unless such Payment Blockage Period shall be earlier terminated by written notice to the Trustee from any trustee, representative or agent for the holders of the Significant Company Senior Indebtedness (or the holders of at least a majority in principal amount of the Significant Company Senior Indebtedness then outstanding). Not more than one Payment Blockage Period with respect to the Securities may be commenced during any period of 360 consecutive days. For all purposes of this Section 10.02(b) and subject to the foregoing, no event of default that existed or was continuing on the date of the commencement of any Payment Blockage Period with respect to the Significant Company Senior Indebtedness initiating such Payment Blockage Period shall be, or be made, the basis for the commencement of a second Payment Blockage Period by the representative for or the holders of such Significant Company Senior Indebtedness whether or not within a period of 360 consecutive days. (c) In the event that, notwithstanding the foregoing provision prohibiting such payment or distribution, the Trustee or any Holder shall have received any payment on account of the principal of or interest on the Securities (other than as permitted by subsections (a) and (b) of this Section 10.02) at a time when such payment is prohibited by this Section 10.02 and before all amounts payable on, under or in connection with Company Senior Indebtedness is paid in full in cash or cash equivalents, then and in such event (subject to the provisions of Section 10.08) such payment or distribution shall be received and held in trust for the holders of Company Senior Indebtedness and shall be paid over or delivered first to the holders of the Significant Company Senior Indebtedness remaining unpaid to the extent necessary to pay in full in cash or cash equivalents such Significant Company Senior Indebtedness and second to the holders of all other Company Senior Indebtedness to the extent necessary to pay in full such other Company Senior Indebtedness both in accordance with their respective terms after giving effect to any concurrent payment or distribution to such holders. Nothing contained in this Article Ten shall limit the right of the Trustee or the Holders of Securities to take any action to accelerate the maturity of the Securities pursuant to Section 6.02 hereof or to pursue any rights or remedies hereunder against the Company; provided that all Company Senior -------- Indebtedness -63- shall first be paid in accordance with this Article Ten before the Holders or the Trustee are entitled to receive any payment from the Company of principal of or interest on the Securities. Upon any payment or distribution of assets or securities referred to in this Article Ten, the Trustee and the Holders shall be entitled to rely upon any order or decree of a court of competent jurisdiction in which such dissolution, winding up, liquidation or reorganization proceedings are pending, and upon a certificate of the receiver, trustee in bankruptcy, liquidating trustee, agent or other Person making any such payment or distribution, delivered to the Trustee for the purpose of ascertaining the Persons entitled to participate in such distribution, the holders of Company 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 Ten. SECTION 10.03. Payments to Be Made Prior to Dissolution. Nothing ---------------------------------------- contained in this Article 10 or elsewhere in this Indenture shall prevent (i) the Company, except under the conditions described in Section 10.02 hereof, from making payments at any time for the purpose of making such payments of principal of and interest on the Securities or from depositing with the Trustee any monies for such payments, or (ii) the application by the Trustee of any monies deposited with it for the purpose of making such payments of principal of and interest on the Securities, to the Holders entitled thereto, unless at least one day prior to the date upon which such payment would otherwise (except for the prohibitions contained in Section 10.02 hereof) become due and payable, the Trustee shall have received the written notice provided for in Section 10.02(b)(ii). The Company shall give prompt notice to the Trustee of any dissolution, winding up, liquidation or reorganization of the Company and, for purposes of Section 10.02(b) hereof, acceleration of the Securities is deemed to be sufficient notice to the Trustee for all purposes of this Article Ten. SECTION 10.04. Rights of Holders of Company Senior Indebtedness Not to Be ---------------------------------------------------------- Impaired. No right of any present or future holder of any Company Senior - - -------- Indebtedness to enforce subordination as herein provided shall at any time or in any way be prejudiced or impaired by any act or failure to act in good faith by any such holder, or by any noncompliance by the Company with the terms and provisions and covenants herein regardless of any knowledge thereof any such holder may have or otherwise be charged with. The provisions of this Article Ten are intended to be for the benefit of, and shall be enforceable directly by, the holders of Company Senior Indebtedness. Notwithstanding anything to the contrary in this Article Ten, to the extent the Holders or the Trustee have paid over or delivered to any holder of Company -64- Senior Indebtedness any payment or distribution received on account of the principal of or interest on the Securities to which any other holder of Company Senior Indebtedness shall be entitled to share in accordance with Section 10.02 hereof, no holder of Company Senior Indebtedness shall have a claim or right against the Holders or the Trustee with respect to any such payment or distribution or as a result of the failure to make payments or distributions to such other holder of Company Senior Indebtedness. SECTION 10.05. Authorization to Trustee to Take Action to Effectuate ----------------------------------------------------- Subordination. Each Holder by his acceptance thereof authorizes and directs the - - ------------- Trustee on his behalf to take such action as may be necessary or appropriate to effectuate, as between the holders of Company Senior Indebtedness and the Holders, the subordination as provided in this Article Ten and appoints the Trustee his attorney-in-fact for any and all such purposes. SECTION 10.06. Subrogation. Upon the payment in full, in cash or cash ----------- equivalents, of all Company Senior Indebtedness, the Holders shall be subrogated to the rights of the holders of such Company Senior Indebtedness to receive payments or distributions of assets of the Company made on such Company Senior Indebtedness until the Securities shall be paid in full; and for the purposes of such subrogation, no payments or distributions to holders of such Company Senior Indebtedness of any cash, property or securities to which Holders of the Securities would be entitled except for the provisions of this Article Ten, and no payment pursuant to the provisions of this Article Ten to holders of such Company Senior Indebtedness by the Holders, shall, as between the Company, its creditors other than holders of such Company Senior Indebtedness and the Holders, be deemed to be a payment by the Company to or on account of such Company Senior Indebtedness, it being understood that the provisions of this Article Ten are solely for the purpose of defining the relative rights of the holders of such Company Senior Indebtedness, on the one hand, and the Holders, on the other hand. If any payment or distribution to which the Holders would otherwise have been entitled but for the provisions of this Article Ten shall have been applied, pursuant to the provisions of this Article Ten, to the payment of all Company Senior Indebtedness, then and in such case, the Holder shall be entitled to receive from the holders of such Company Senior Indebtedness at the time outstanding any payments or distributions received by such holders of Company Senior Indebtedness in excess of the amount sufficient to pay in cash or cash equivalents all such Company Senior Indebtedness due in full. SECTION 10.07. Obligations of Company Unconditional. Nothing contained in ------------------------------------ this Article Ten or elsewhere in this Indenture or in any Security is intended to or shall impair, as between the Company and the Holders, the obligations of the Company, which are absolute and unconditional, to pay to the Holders the principal -65- of and interest on the Securities as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the Holders and creditors of the Company other than the holders of the Company Senior Indebtedness, nor shall anything herein or therein prevent the Trustee or any Holder from exercising all remedies otherwise permitted by applicable law upon Default under this Indenture, subject to the rights, if any, under this Article Ten of the holders of such Company Senior Indebtedness in respect of cash, property or securities of the Company received upon the exercise of any such remedy. The failure to make a payment on account of principal of, premium, if any, or interest on the Securities by reason of any provision of this Article Ten shall not be construed as preventing the occurrence of an Event of Default under Section 6.01 hereof. SECTION 10.08. Trustee Entitled to Assume Payments Not Prohibited in ----------------------------------------------------- Absence of Notice. The Trustee or Paying Agent shall not at any time be charged - - ----------------- with the knowledge of the existence of any facts which would prohibit the making of any payment to or by the Trustee or Paying Agent, unless and until the Trustee or Paying Agent shall have received written notice thereof at its notice address set forth in Section 12.02 hereof from the Company or one or more holders of Company Senior Indebtedness or from any trustee or agent therefor or unless the Trustee or Paying Agent otherwise had actual knowledge thereof; and, prior to the receipt of any such written notice or actual knowledge, the Trustee or Paying Agent shall be entitled to assume conclusively that no such facts exist. Unless at least one day prior to the date on which by the terms of this Indenture any monies are to be deposited by the Company with the Trustee or any Paying Agent for any purpose (including, without limitation, the payment of the principal or the interest on any Security), the Trustee or Paying Agent shall, except where no notice is necessary or where notice is deemed given in Sections 10.02 and 10.03 hereof, have received with respect to such monies the notice provided for in the preceding sentence, the Trustee or Paying Agent shall have full power and authority to receive such monies and to apply the same to the purpose for which they were received, and shall not be affected by any notice to the contrary, which may be received by it on or after such date, except for an acceleration of the Securities prior to such application. The foregoing shall not apply to the Paying Agent if the Company is acting as Paying Agent. Nothing contained in this Section 10.08 shall limit the right of the holders of Company Senior Indebtedness to recover payments as contemplated by Section 10.02 hereof. The Trustee or paying agent shall be entitled to rely on the delivery to it of a written notice by a Person representing himself or itself to be a holder of such Company Senior Indebtedness (or a trustee on behalf of, or other representative of, such holder) to establish that such notice has been given by a holder of such Company Senior Indebtedness or a trustee or representative on behalf of any such holder. The -66- Trustee shall not be deemed to have any duty to the holders of Company Senior Indebtedness. SECTION 10.09. Right of Trustee to Hold Company Senior Indebtedness. The ---------------------------------------------------- Trustee and any Paying Agent shall be entitled to all of the rights set forth in this Article Ten in respect of any Company Senior Indebtedness at any time held by it to the same extent as any other holder of such Company Senior Indebtedness, and nothing in this Indenture shall be construed to deprive the Trustee or any Paying Agent of any of its rights as such holder. ARTICLE 11 GUARANTEE OF SECURITIES SECTION 11.01. Guarantees. Subject to the provisions of this Article 11, ---------- each Guarantor hereby unconditionally, jointly and severally, guarantees, as a primary obligor and not as a surety, to each Holder of a Security authenticated and delivered by the Trustee and to the Trustee, its successor and assigns (i) the due and punctual payment of the principal of, premium, if any, and interest (including without limitation, interest that, but for the filing of a petition in bankruptcy with respect to the Company or any Guarantor, would have accrued, whether or not a claim is allowed against such Person for such interest in any such bankruptcy proceeding) on such Security, 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 interest on (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 Securities, to the extent lawful, 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 of such Security and of this Indenture, and (ii) in the 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, at Stated Maturity, by acceleration or otherwise. In case of the failure of the Company punctually to make any such payment of principal or interest, each Guarantor hereby agrees to cause any such payment to be made punctually when and as the same shall become due and payable, whether at maturity, by acceleration or otherwise, and as if such payment were made by the Company. 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 Security or this Indenture, any failure to enforce the provisions of any such Security or this Indenture, any waiver, modification or indulgence granted to the Company with respect thereto, by the Holder of such Security or the Trustee, any extension, renewal, settlement, compromise, waiver or release in respect of any obligation of the Company under -67- this Indenture or any Security by operation of law or otherwise; any modification or amendment of or supplement to this Indenture or any Security or any release, non-perfection or invalidity of any direct or indirect security for any obligation of the Company under this Indenture or any Security; any change in the corporate existence, structure or ownership of the Company, or any insolvency, bankruptcy, reorganization or other similar proceeding affecting the Company or its assets or any resulting release or discharge of any obligation of the Company contained in this Indenture or any Security; the existence of any claim, set-off or other rights which such Guarantor may have at any time against the Company, the Trustee, any Securityholder or any other Person, whether in connection herewith or any unrelated transactions; provided that nothing herein -------- shall prevent the assertion of any such claim by separate suit or compulsory counterclaim; any invalidity or unenforceability relating to or against the Company for any reason of this Indenture, any Security, or any provision of applicable law or regulation purporting to prohibit the payment by the Company of the principal of or interest on any Security or any other amount payable by the Company under this Indenture; or any other act or omission to act or delay of any kind by the Company, the Trustee, any Securityholder or any other Person or any other circumstance whatsoever which might, but for the provisions of this paragraph, constitute a legal or equitable discharge of such Guarantor's obligation hereunder. Each Guarantor hereby waives diligence, presentment, 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, the benefit of discussion, protest or notice with respect to any such Security or the Indebtedness evidenced thereby and all demands whatsoever, and covenants that the Guarantees will not be discharged as to any such Security except by payment in full of the principal thereof and interest thereon and as provided in Sections 8.01, 11.03 and 11.04 hereof. Each Guarantor's obligations hereunder shall remain in full force and effect until this Indenture shall have terminated and the principal of and interest on the Securities and all other amounts payable by the Company under this Indenture shall have been paid in full. If at any time any payment of the principal of or interest on any Security or any other amount payable by the Company under this Indenture is rescinded or must be otherwise restored or returned upon the insolvency, bankruptcy or reorganization of the Company or otherwise, such Guarantor's obligations hereunder with respect to such payment shall be reinstated as though such payment had been due but not made at such time, and this Article 11, to the extent theretofore discharged, shall be reinstated in full force and effect. 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 the Guaranties, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (ii) in the event of any declarations 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 such Guarantor for the purpose -68- of the Guaranties. In addition, without limiting the foregoing provisions, upon the effectiveness of an acceleration under Article 6, the Trustee shall promptly make a demand for payment on the Securities under each Guaranty provided for in this Article 11 and not discharged. The obligations of each Guarantor hereby shall be joint and several. The Guarantor shall be subrogated to all rights of the Holders against the Company in respect of any amounts paid by the Guarantor pursuant to the provisions of the Guarantees or this Indenture; provided, however, that the -------- ------- Guarantor shall not be entitled to enforce or to receive any payments arising out of, or based upon, such right of subrogation until the principal of and interest on all Securities issued hereunder shall have been indefeasibly paid in full. SECTION 11.02. Agreement to Subordinate. Each Guarantor agrees, and each ------------------------ Securityholder by accepting a Security agrees, that all payments pursuant to the Guaranties by such Guarantor are subordinated in right of payment to the prior payment in full of all Guarantor Senior Indebtedness, to the same extent and manner that all payments pursuant to the Securities are subordinated in right of payment to the prior payment in full of all Company Senior Indebtedness of the Company. This Section 11.02 is intended to be for the benefit of the holders of Guarantor Senior Indebtedness. "Guarantor Senior Indebtedness" means all Indebtedness of the specified ----------------------------- Guarantor under: (i) its guarantee of the Company's obligations under the New Credit Agreement and (ii) all additional Indebtedness that is permitted to be incurred by such Guarantor under the Indenture that is not by its terms subordinated to or pari passu with the obligations of such Guarantor under this Guarantee (it being understood that Indebtedness permitted to be incurred by such Guarantor under the Indenture that is not by its terms subordinated to or pari passu with the obligations of such Guarantor under its Guarantee shall not in any event constitute Guarantor Senior Indebtedness if such Indebtedness is subordinated by its terms to any other Indebtedness that constitutes Guarantor Senior Indebtedness). Notwithstanding anything to the contrary in the foregoing, Guarantor Senior Indebtedness shall not include (w) any liability of such Guarantor for state, local or other taxes, (x) any Indebtedness between or among such Guarantor, the Company, any other Subsidiary or the Non-Recourse Subsidiary, (y) any Indebtedness of such Guarantor incurred for the purchase of goods or materials or for services obtained in the ordinary course of business or (z) the Company's 14.25% Subordinated Debentures Due 2000. SECTION 11.03. Release of Guarantor. In the event of a sale or other -------------------- disposition of all or substantially all of the assets of any Guarantor, by way of merger, consolidation or otherwise, or all of the Capital Stock of any Guarantor, then such Guarantor (in the event of a sale or other disposition of all of the Capital Stock of such Guarantor) or the corporation acquiring the property (in the event of a sale or other disposition by way of a merger, consolidation or otherwise of all or -69- substantially all of the assets of such Guarantor) shall be released and relieved of its obligations under its Guarantee provided that (i) after giving effect thereto, no Event of Default shall have occurred and be continuing, (ii) the Company shall agree in writing to apply, and shall thereafter apply, the Net Cash Proceeds of such sale or other disposition in accordance with Section 4.16 hereof and (iii) such Guarantor has been unconditionally and fully released in writing from all obligations under guarantees of Indebtedness of the Company, each Subsidiary and Non-Recourse Subsidiary (including without limitation Indebtedness under the New Credit Agreement). Upon delivery by the Company to the Trustee of an Officers' Certificate and an Opinion of Counsel to the effect that such sale or other disposition was made by the Company in accordance with the provisions of this Indenture, the Trustee shall execute any documents reasonably required in order to evidence the release of the specified Guarantor from its obligations under its Guarantee. Any Guarantor not released from its obligations under its Guarantee shall remain liable for the full amount of principal of and interest on the Securities and for the other obligations of any Guarantor under the Indenture as provided in this Article 11. SECTION 11.04. Guarantor May Consolidate, etc., on Certain Terms. Except ------------------------------------------------- as set forth in Articles 4 and 5 and Section 11.03 hereof, nothing contained in this Indenture or in any of the Securities shall prevent any consolidation or merger of any Guarantor with or into the Company or shall prevent any sale or conveyance of the property of such Guarantor as an entirety or substantially as an entirety, to the Company. Upon any such consolidation, merger, sale or conveyance, the Guaranty given by such Guarantor shall no longer have any force or effect. Section 11.05. Limitation on Guarantee. Notwithstanding the other ----------------------- provisions of this Article 11, each Guarantor and by its acceptance hereof, each beneficiary hereof, hereby confirms that it is its intention that the guarantee by such Guarantor pursuant to its Guarantee, together with each other guarantee by such Guarantor of Participating Indebtedness, not constitute a fraudulent transfer or conveyance for the purposes of the Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar Federal or state law. To effectuate the foregoing intention, each such Person hereby irrevocably agrees that the obligations of such Guarantor under its Guarantee and each other guarantee by such Guarantor or Participating Indebtedness shall be limited, collectively, to the maximum amount as will, after giving effect to such maximum amount and all other (contingent or otherwise) liabilities of such Guarantor that are relevant under such laws, and after giving effect to any rights to contribution of such Guarantor pursuant to any agreement providing for an equitable contribution among such Guarantor and other Affiliates of the Company of payments made by guarantees by such parties, such maximum amount shall result in the obligations of such Guarantor in respect of such maximum amount not constituting a fraudulent transfer or conveyance. Each beneficiary under the Guarantees by the Guarantors, by accepting the benefits hereof, confirms its intention that, in the event of a -70- bankruptcy, reorganization or other similar proceeding of the Company or any Guarantor in which concurrent claims are made upon such Guarantor hereunder and under any other guarantee of Participating Indebtedness, to the extent such claims will not be fully satisfied, each such claimant with a valid claim against the Company shall be entitled to a ratable share of all payments by such Guarantor in respect of such concurrent claims. "Participating Indebtedness" means any Indebtedness of the Company that (i) is permitted to be incurred or to exist hereunder and guaranteed by a Guarantor pursuant to a Guarantee; (ii) is not prohibited by the terms of, or is permitted as a result of a consent or waiver under, the New Credit Agreement and all agreements governing any other Participating Indebtedness then outstanding; and (iii) contains a limitation of liability and confirmation of intention regarding ratability of payments on substantially the terms set forth above. SECTION 11.06. Execution and Delivery of Guarantees. To evidence its ------------------------------------ Guarantee set forth in this Article 11, each Guarantor hereby agrees that a notation of such Guarantee substantially in the form of Exhibit II hereto shall be endorsed on each Security authenticated and delivered by the Trustee on or after the date such Guarantor becomes a Guarantor and that this Indenture shall be executed on behalf of the Guarantor by an Officer of such Guarantor by manual or facsimile signature. Each Guarantor hereby agrees that its Guarantee set forth in Section 11.01 shall remain in full force and effect notwithstanding any failure to endorse on each Security a notation of such Guarantee. If an Officer whose signature is on this Indenture no longer holds that office at the time the Trustee authenticates the Security on which a Guarantee is endorsed, the Guarantee shall be valid nevertheless. The delivery of any Security by the Trustee, after the authentication thereof hereunder, shall constitute due delivery of the Guarantee set forth in this Indenture on behalf of the Guarantor. SECTION 11.07. Successors. The Guaranties shall be binding upon each ---------- Guarantor and its successors and assigns and shall inure to the benefit of the successors and assigns of the Holders and, in the event of any transfer or assignment of rights by any Holder, the rights and privileges herein conferred upon the party shall automatically extend to and be vested in such transferee or assignee, all subject to the terms and conditions hereof. SECTION 11.08. Waiver of Subrogation. Each Guarantor hereby irrevocably --------------------- waives any claim or other rights which it may now or hereafter acquire against the Company or any of its Subsidiaries which is not a Guarantor that arise from the existence, payment, performance or enforcement of such Guarantor's obligations under this Guarantee and this Indenture, including without limitation, any right of subrogation, reimbursement, exoneration, indemnification, and any right to participate in any claim or remedy of any Holder of Securities against the Company or any of its Subsidiaries which is not a Guarantor, whether or not such claim, remedy or right arises in equity, or under contract, statute or common law, including, without limitation, the right to take or receive from the Company or any of its Subsidiaries which is not a Guarantor, directly or indirectly, in cash or other property or by set- off or in any other manner, payment or security on account of such claim or other rights. If any amount shall be paid to any Guarantor in violation of the preceding sentence and the Securities shall not have been paid in full, such amount shall have been deemed to have been paid to such Guarantor for the benefit of, and held in trust for the benefit of, the Holders of the Securities, and shall forthwith be paid to the Trustee for the benefit of such Holders to be credited and applied upon the Securities, whether matured or unmatured, in accordance with the terms of this Indenture. Each Guarantor acknowledges that it will receive direct and indirect benefits from the financing arrangements contemplated by this Indenture and that the waiver set forth in this Section 11.08 is knowingly made in contemplation of such benefits. -71- ARTICLE 12 MISCELLANEOUS SECTION 12.01. Trust Indenture Act Controls. If any provision of this ---------------------------- Indenture limits, qualifies or conflicts with the duties imposes by operation of subsection (c) of Section 318 of the TIA, the imposed duties shall control. The provisions of Sections 310 to 317, inclusive, of the TIA that impose duties on any Person (including provisions automatically deemed included in an indenture unless the indenture provides that such provisions are excluded) are a part of and govern this Indenture, except as, and to the extent, expressly excluded from this Indenture, as permitted by the TIA. SECTION 12.02. Notices. Any notice or communication shall be in writing ------- and delivered in Person or mailed by first-class mail, postage prepaid, or recognized overnight delivery service, addressed as follows: if to the Company or any Guarantor: Dairy Mart Convenience Stores, Inc. One Vision Drive Enfield, Connecticut 06082 Attention: Greg Landry Executive Vice President and Chief Financial Officer if to the Trustee: Society National Bank 127 Public Square 15th Floor Society Center Cleveland, Ohio 44114-1306 Attention: Corporate Trust Division The Company or the Trustee by notice to the other may designate additional or different addresses for subsequent notices of communications. The Company shall notify the holder, if any, of Significant Company Senior Indebtedness of any such additional or different addresses of which the Company receives notice from the trustee. Any notice or communication given to a Securityholder shall be mailed to the Securityholder at the Securityholder's address as it appears on the registration -72- books of the Registrar and shall be sufficiently given if mailed within the time prescribed. Failure to mail a notice or communication to a Securityholder or any defect in it shall not affect its sufficiency with respect to other Securityholders. If a notice or communication if mailed in the manner provided above, it is duly given, whether or not received by the addressee. If the Company mails a notice or communication to the Securityholders, it shall mail a copy to the Trustee and each Registrar, Paying Agent or co- Registrar. SECTION 12.03. Communication by Holders with Other Holders. ------------------------------------------- Securityholders may communicate pursuant to TIA Section 312(b) with other Securityholders with respect to their rights under this Indenture or the Securities. The Company, the Trustee, the Registrar, the Paying Agent and anyone else shall have the protection of TIA Section 312(c). SECTION 12.04. Certificate and Opinion as to Conditions Precedent. Upon -------------------------------------------------- any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee, and the Trustee may rely upon, as conclusive evidence: (1) an Officers' Certificate (which will include the statements set forth in Section 12.05 hereof) stating that, in the opinion of the signers, all the conditions precedent and covenants, if any, provided for in this Indenture relating to the proposed action have been complied with; and (2) an Opinion of Counsel (which will include the statements set forth in Section 12.05 hereof) stating that, in the opinion of such counsel, all such conditions precedent and covenants, if any, provided for in this Indenture relating to the proposed action have been complied with. SECTION 12.05. Statements Required in Certificate or Opinions. Each ---------------------------------------------- Officers' Certificate and Opinion of Counsel with respect to compliance with a covenant or condition provided for in this Indenture shall include: (1) a statement that each Person making such Officers' Certificate or Opinion of Counsel 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 Officers' Certificate or Opinion of Counsel are based; -73- (3) a statement that, in the opinion of each such Person, he has made such examination or investigation as is necessary to enable such Person to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement that, in the opinion of such Person, such covenant or condition has been complied with; provided, however, that with respect to -------- ------- matters of fact not involving any legal conclusion, an Opinion of Counsel may rely on an Officers' Certificate or certificates of public officials. SECTION 12.06. Severability Clause. In case any provision in this ------------------- Indenture or in the Securities 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. SECTION 12.07. Rules by Trustee, Paying Agent and Registrar. The Trustee ---------------------------------- --------- may make reasonable rules for action by or a meeting of Securityholders. The Registrar and Paying Agent may make reasonable rules for their functions. SECTION 12.08. Legal Holidays. A "Legal Holiday" is any day other than a -------------- Business Day. If any specified date (including a date for giving notice) is a Legal Holiday, the action shall be taken on the next succeeding day that is not a Legal Holiday, and, if the action to be taken on such date is a payment in respect of the Securities, no principal, premium, if any, or interest installment shall accrue for the intervening period. SECTION 12.09. GOVERNING LAW. THIS INDENTURE AND THE SECURITIES 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 LAWS. SECTION 12.10. No Recourse Against Others. A director, officer, employee -------------------------- or stockholder, as such, of the Company shall not have any liability for any obligations of the Company under the Securities or this Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Security, each Securityholder shall waive and release all such liability. The waiver and release shall be part of the consideration for the issue of the Securities. SECTION 12.11. Successors. All agreements of The Company in this ---------- Indenture and the Securities shall bind its successors. All agreements of the Trustee in this Indenture shall bind its successor. -74- SECTION 12.12. Multiple of Originals. The parties may sign any number of --------------------- copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. SECTION 12.13. No Adverse Interpretation of Other Agreements. This --------------------------------------------- Indenture may not be used to interpret another indenture, loan or debt agreement of the Company or any Subsidiary. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. SECTION 12.14. Table of Contents, Headings, etc. The Table of Contents, -------------------------------- Cross-Reference Table, 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 12.15. Benefits of Indenture. Except as expressly provided in --------------------- Article 10 hereof, nothing in this Indenture or in the Securities, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder and the Holders, any benefit or any legal or equitable right, remedy or claim under this Indenture. -75- SIGNATURES IN WITNESS WHEREOF, the undersigned, being duly authorized, have executed this Indenture on behalf of the respective parties hereto as of the date first above written. DAIRY MART CONVENIENCE STORES, INC. By : /s/ Jeffrey Jones ------------------------------- Name: Jeffrey Jones Title: Vice President-Controller GUARANTORS: DAIRY MART EAST, INC. By : /s/ Gregory Wozniak ------------------------------- Name: Gregory Wozniak Title: Vice President DAIRY MART FARMS, INC. By : /s/ Gregory Wozniak ------------------------------- Name: Gregory Wozniak Title: Vice President DAIRY MART, INC. By : /s/ Gregory Wozniak ------------------------------- Name: Gregory Wozniak Title: Vice President -76- CONNA CORPORATION By : /s/ Gregory Wozniak ------------------------------- Name: Gregory Wozniak Title: Vice President THE LAWSON COMPANY By : /s/ Gregory Wozniak ------------------------------- Name: Gregory Wozniak Title: Vice President D.M. INSURANCE LIMITED By : /s/ Gregory Wozniak ------------------------------- Name: Gregory Wozniak Title: Vice President LMC, INC. By : /s/ Gregory Wozniak ------------------------------- Name: Gregory Wozniak Title: Vice President SNG OF SOUTHERN MINNESOTA, INC. By : /s/ Gregory Wozniak ------------------------------- Name: Gregory Wozniak Title: Vice President -77- THE LAWSON MILK COMPANY By : /s/ Gregory Wozniak ------------------------------- Name: Gregory Wozniak Title: Vice President GOLDEN STORES, INC. By : /s/ Gregory Wozniak ------------------------------- Name: Gregory Wozniak Title: Vice President LAKESIDE WHOLESALE, INC. By : /s/ Gregory Wozniak ------------------------------- Name: Gregory Wozniak Title: Vice President QUIK SHOPS, INC. By : /s/ Gregory Wozniak ------------------------------- Name: Gregory Wozniak Title: Vice President OPEN PANTRY PROPERTIES, INC. By : /s/ Gregory Wozniak ------------------------------- Name: Gregory Wozniak Title: Vice President -78- REMOTE SERVICES, INC. By : /s/ Gregory Wozniak ------------------------------- Name: Gregory Wozniak Title: Vice President CONVENIENT INDUSTRIES OF AMERICA, INC. By : /s/ Gregory Wozniak ------------------------------- Name: Gregory Wozniak Title: Vice President OSCAR EWING, INC. By : /s/ Gregory Wozniak ------------------------------- Name: Gregory Wozniak Title: Vice President CONVENIENT GASOLINE, INC. By : /s/ Gregory Wozniak ------------------------------- Name: Gregory Wozniak Title: Vice President JACKSON COUNTY GROCERY CO., INC. By : /s/ Gregory Wozniak ------------------------------- Name: Gregory Wozniak Title: Vice President -79- GREENWELL GROCERY CO., INC. By : /s/ Gregory Wozniak ------------------------------- Name: Gregory Wozniak Title: Vice President CIA FOOD MARTS, INC. By : /s/ Gregory Wozniak ------------------------------- Name: Gregory Wozniak Title: Vice President FOOD MERCHANDISERS, INCORPORATED By : /s/ Gregory Wozniak ------------------------------- Name: Gregory Wozniak Title: Vice President DAIRY MART CONVENIENCE STORES OF OHIO, INC. By : /s/ Gregory Wozniak ------------------------------- Name: Gregory Wozniak Title: Vice President SOCIETY NATIONAL BANK By : /s/ Clive M. Nagy ------------------------------- Name: Clive M. Nagy Title: Vice President -80- EXHIBIT I [FORM OF FACE OF SECURITY] 10 1/4% Senior Subordinated Note due 2004 No. _________ $____________________ CUSIP__________________ Dairy Mart Convenience Stores, Inc., a Delaware corporation (the "Company"), which term includes any successor corporation under the Indenture hereinafter referred to promises to pay to ______________________ or registered assigns, the principal amount of ________________________________________ Dollars on ___________, 2004. Interest Payment Dates; March 15 and September 15, commencing September 15, 1994. Record Dates: March 1 and September 1. Reference is hereby made to the further provisions of this Security set forth on the reverse hereof which further provisions shall for all purposes have the same effect as if set forth at this place. IN WITNESS WHEREOF, the Company has caused this Security to be signed manually or by facsimile by its duly authorized officers and a facsimile of its corporate seal to be affixed hereto or imprinted hereon. DIARY MART CONVENIENCE STORES, INC. By__________________________ [SEAL] Name:_______________________ Title: Dated: ____________ TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Securities referred to in the within-mentioned Indenture. SOCIETY NATIONAL BANK By __________________________________ Name: _______________________________ Title: A-1 [FORM OF REVERSE SIDE OF SECURITY] 10 1/4% Senior Subordinated Note due 2004 1. Principal --------- The Company hereby promises to pay to the Holder of this Security, subject to the provisions of paragraph 7 hereof, the principal amount of this Security on March 15, 2004, or if such date is not a Business Day, on the next succeeding Business Day. 2. Interest -------- Dairy Mart Convenience Stores, Inc., a Delaware corporation ("the Company"), promises to pay interest on the principal amount of this Security at the rate per annum shown above. Interest will be payable semi-annually on each interest payment date, commencing September 15, 1994. Interest on the Securities will accrue from the most recent date to which interest has been paid, or if no interest has been paid, from March 3, 1994; provided that, if there is no existing event of Default in the payment of interest and if this Security is authenticated between a record date referred to on the face hereof and the next succeeding interest payment date, interest shall accrue from such interest payment date. Interest will be computed on the basis of a 360-day year of twelve 30-day months. The Company shall pay interest on overdue principal and interest on overdue installments of interest, to the extent lawful, at the rate per annum borne by the Securities. 3. Method of Payment ----------------- The Company will pay interest on the Securities (except defaulted interest) to the persons who are registered Holders at the close of business on March 1 and September 1 immediately preceding the interest payment date even if the Security is canceled on registration of transfer or registration of exchange (other than with respect to the purchase of Securities pursuant to an offer to purchase Securities made in connection with Sections 3.08 or 3.09 of the Indenture after such record date). Holders must surrender Securities 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. However, the Company may pay principal and interest by its check payable in such money. It may mail an interest payment to a Securityholder's registered address. 4. Paying Agent and Registrar -------------------------- Initially, the Trustee will act as Paying Agent and Registrar. The Company may appoint and change any Paying Agent or Registrar without notice, other than notice to the Trustee. The Company or any Subsidiary or an Affiliate of either of them may act as Paying Agent, Registrar or co-Registrar. A-2 5. Indenture --------- The Company issued the Securities under an Indenture, dated as of March 3, 1994 (the "Indenture"), between the Company and the Trustee. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended and as in effect on the date of the Indenture (the "TIA") and as provided in the Indenture. Capitalized terms used herein and not defined herein have the meanings ascribed thereto in the Indenture. The Securities are subject to all such terms, and Securityholders are referred to the Indenture and the TIA for a statement of those terms. The Securities are general obligations of the Company limited to $75,000,000 aggregate principal amount. 6. Guarantee. --------- This Security is entitled to the benefit of the Guarantees of the Guarantors on a senior subordinated unsecured basis, which Guarantees are subject to release. Reference is hereby made to Article 11 of the Indenture and to the Guarantees endorsed on this Security for a statement of the respective rights, limitations of rights, duties and obligations thereunder of each of the Guarantors, the Trustee and the Holders, and to the release of the Guarantees under specified conditions. 7. Optional Redemption ------------------- The Securities are redeemable as a whole, or from time to time in part, at any time on and after March 15, 1999 at the option of the Company at the following redemption prices (expressed as a percentage of principal) together with accrued and unpaid interest to the Redemption Date if redeemed in the twelve-month period March 15 of the years indicated below: Percentage ---------- 1999 104.750 2000 103.125 2001 101.500 2002 and thereafter 100.000 In addition to the optional redemption of the Securities provided for above, the Company may redeem all or any portion of the Securities, in an aggregate principal amount thereof not to exceed $20,000,000, upon the occurrence of Public Equity Offering at a redemption price equal to 110% of the principal amount of the Securities to be redeemed plus accrued and unpaid interest to the Redemption Date; A-3 provided, however, that no such optional redemption in connection with an - - -------- ------- Initial Public Equity Offering may be effected on or after the third anniversary of the Issue Date. 8. Notice of Redemption -------------------- Notice of redemption will be mailed at least 30 days but not more than 60 days before the Redemption Date which may, in the case of a redemption in connection with Public Equity Offering, be adjusted based solely upon the timing of the consummation of the Public Equity Offering) to each Holder of Securities to be redeemed at the Holder's registered address. Securities in denominations larger than $l,000 of principal amount may be redeemed in part but only in integral multiples of $1,000 of principal amount. 9. Requirement that the Company Offer to Purchase Securities under Certain ----------------------------------------------------------------------- Circumstances - - ------------- Subject to the terms and conditions of the Indenture, the Company shall become immediately obligated to offer to purchase the Securities pursuant to Section 3.08 of the Indenture after the occurrence of a Change in Control of the Company at a price equal to 101% of aggregate principal amount plus accrued and unpaid interest, if any, to the date of purchase. In addition, to the extent that there are Excess Proceeds from Asset Dispositions which are not applied or reinvested in accordance with Section 4.16 of the Indenture, the Company will be obliged to offer to purchase Securities at 100% of principal amount plus accrued and unpaid interest, if any, in accordance with and to the extent provided in Section 3.09 of the Indenture. 10. Subordination ------------- The Securities are subordinated to Company Senior Indebtedness (as defined in the Indenture). To the extent provided in the Indenture, Company Senior Indebtedness must be paid before the Securities may be paid. The Company agrees, and each Securityholder by accepting a Security agrees, to such subordination and authorizes the Trustee to give it effect. 11. Denominations: Transfer: Exchange --------------------------------- The Securities are in registered form, without coupons, in denominations of $1,000 of principal amount and integral multiples of $l,000. A Holder may transfer or exchange Securities 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 transfer or exchange any Securities selected for A-4 redemption (except, in the case of a Security to be redeemed in part, the portion of the Security not to be redeemed) or any Securities for a period of 15 days before a selection of Securities to be redeemed. 12. Persons Deemed Owners --------------------- The registered Holder of this Security may be treated as the owner of this Security for all purposes. 13. Amendment: Waiver ----------------- Subject to certain exceptions set forth in the Indenture, (i) the Indenture or the Securities may be amended with the written consent of the Holders of at least a majority in aggregate principal amount of the Securities at the time outstanding; and (ii) certain defaults or noncompliance with certain provisions may be waived with the written consent of the Holders of a majority in aggregate principal amount of the Securities at the time outstanding. Subject to certain exceptions set forth in the Indenture, without the consent of any Securityholder, the Company and the Trustee may amend the Indenture or the Securities to cure any ambiguity, defect or inconsistency, or to comply with Article 5 of the Indenture, or to provide for uncertificated Securities in addition to certificated Securities, or to comply with any requirements of the Securities and Exchange Commission in connection with the qualification of the Indenture under the TIA or to reflect a Guarantor ceasing to be liable under its Guarantee because it is no longer a Subsidiary, or to make any change that does not adversely affect the rights of any Securityholder. 14. Defaults and Remedies --------------------- Under the Indenture, Events of Default include (i) default in payment of the principal amount, premium if any, or interest, in respect of the Securities when the same becomes due and payable, subject, in the case of interest, to the grace period contained in the Indenture; (ii) failure by the Company to comply with other agreements in the Indenture or the Securities, subject to notice and lapse of time; (iii) certain events of acceleration prior to maturity of certain indebtedness; (iv) certain final judgments which remain undischarged; or (v) certain events of bankruptcy or insolvency. If an Event of Default occurs and is continuing, the Trustee, or the Holders of at least 25% in aggregate principal amount of the Securities at the time outstanding, may declare all the Securities to be due and payable immediately. Certain events of bankruptcy or insolvency are Events of Default which will result in the Securities becoming due and payable immediately upon the occurrence of such Events of Default. Securityholders may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee may refuse to enforce the Indenture or the A-5 Securities unless it receives reasonable indemnity or security. Subject to certain limitations, Holders of a majority in aggregate principal amount of the Securities at the time outstanding may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Securityholders notice of any continuing Default (except a Default in payment of amounts specified in clause (i) above) if it determines that withholding notice is in their interests. 15. Trustee Dealings with the Company --------------------------------- Subject to certain limitations implored by the TIA, the Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with and collect obligations owed to it by The Company or its Affiliates and may otherwise deal with The Company or its Affiliates with the same rights it would have if it were not Trustee. 16. No Recourse Against Others -------------------------- A director, officer, employee or stockholder, as such, of the Company shall not have any liability for any obligations of The Company under the Securities or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Security, each Securityholder waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Securities. 17. Authentication -------------- This Security shall not be valid until an authorized officer of the Trustee manually signs the Trustee's Certificate of Authentication on the other side of this Security. 18. Abbreviations ------------- Customary abbreviations may be used in the name of a Securityholder or an assignee, such as TEN COM (=tenants in common), TBN 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 Gift to Minors Act). 19. Unclaimed Money --------------- If money for the payment of principal or interest remains unclaimed for three years, the Trustee or Paying Agent will pay the money back to the Company at its request. After that, Holders entitled to money must look to the Company for payment. A-6 20. Discharge Prior to Maturity --------------------------- If the Company deposits with the Trustee or Paying Agent money or U.S. Government Obligations sufficient to pay the principal of and interest on the Securities to maturity, the Company will be discharged from the Indenture except for certain Sections thereof. 21. Successor --------- When a Successor Person to the Company assumes all the obligations of its predecessor under the Securities and the Indenture such predecessor shall be released from those obligations. 22. GOVERNING LAW ------------- THIS INDENTURE AND THIS SECURITY 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 LAWS. A-7 ASSIGNMENT FORM To assign this Security, fill in the form below: (I) or (we) assign and transfer this Security to: - - -------------------------------------------------------------------------------- (Insert assignee's social security or tax I.D. number) - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- (print or type assignee's name, address and zip code) and irrevocably appoint agent to transfer this Security on the books of the Company. The agent may substitute another to act for him. Dated: ______________________ Signature:_____________________________ (Sign exactly as your name appears on the other side of this Security) Signature Guarantee: A-8 OPTION TO HOLDER TO ELECT PURCHASE If you wish to elect to have all or any portion of this Security purchased by the Company pursuant to section 3.08 ("Change of Control Offer") or Section 3.09 ("Disposition Offer") of the Indenture, check the applicable boxes: [_] Change of Control Offer: [_] Disposition Offer: in whole [_] in whole [_] in part [_] in part [_] Amount to be Amount to be purchased: $___________ purchased: $__________ Dated: ____________ Signature: ____________________________________ (Sign exactly as your name appears on the other side of this Security) Signature Guarantee: _____________________________ Social Security Number or Taxpayer Identification Number: A-9 EXHIBIT II NOTATION OF GUARANTEE Each of Dairy Mart East, Inc., Dairy Mart Farms, Inc., Dairy Mart, Inc., CONNA Corporation, The Lawson Company, D.M. Insurance Limited, LMC, Inc., SNG of Southern Minnesota, Inc., The Lawson Milk Company, Golden Stores, Inc., Lakeside Wholesale, Inc., Quik Shops, Inc., Open Pantry Properties, Inc., Remote Services, Inc., Convenient Industries of America, Inc., Oscar Ewing, Inc., Convenient Gasoline, Inc., Jackson County Grocery Co., Inc., Greenwell Grocery Co., Inc., CIA Food Marts, Inc., Food Merchandisers, Incorporated, and Dairy Mart Convenience Stores of Ohio, Inc. (collectively, the "Guarantors"), jointly and severally (subject to, with respect to the joint and several nature of each Guarantor's obligations hereunder the provisions of Section 11.01 of the Indenture) guarantee (i) the due and punctual payment of the principal of, premium, if any, and interest on the Securities whether at maturity, by acceleration or otherwise, the due and punctual payment of interest on the overdue principal of, premium and interest, if any, on the Securities, to the extent lawful, 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 the Indenture; and (ii) 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. In case of the failure of the Company punctually to make any such payment of principal, premium or interest, each Guarantor hereby agrees to cause any such payment to be made punctually when and as the same shall become due and payable, whether at maturity, by acceleration or otherwise, and as if such payment were made by the Company. The obligations of each Guarantor to the Holders of the Securities and to the Trustee pursuant to the Guarantees and the Indenture are expressly set forth and are expressly subordinated and subject in right of payment to the prior payment in full of all Guarantor Senior Indebtedness, to the extent and in the manner provided in Article 11 of the Indenture and reference is hereby made to such Indenture for the precise terms of the Guarantees and the subordination thereof therein made. In addition, the obligations of the Guarantors pursuant to the Guarantees and the Indenture may be released in certain circumstances set forth in Article 11 of the Indenture. Each Guarantor agrees, and each Securityholder by accepting a Security agrees, to such subordination and, to the extent applicable, authorizes the Trustee to give it effect. B-1 No stockholder, officer, director or incorporator, as such, past, present or future, of any Guarantor shall have any personal liability under this Guarantee by reason of his or its status as such stockholder, officer, director or incorporator. Each Securityholder by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Guarantee. This Guaranty shall not be valid or obligatory for any purpose until the certificate of authentication on the Security upon which this Guaranty is noted shall have been executed by the Trustee under the Indenture by the manual signature of one of its authorized representatives. DAIRY MART EAST, INC. /s/ Frank Colaccino By :__________________________________ Name: Frank Colaccino Title: President DAIRY MART FARMS, INC. /s/ Frank Colaccino By :__________________________________ Name: Frank Colaccino Title: President DAIRY MART, INC. /s/ Frank Colaccino By :__________________________________ Name: Frank Colaccino Title: President B-2 CONNA CORPORATION /s/ Frank Colaccino By :__________________________________ Name: Frank Colaccino Title: President THE LAWSON COMPANY /s/ Frank Colaccino By :__________________________________ Name: Frank Colaccino Title: President D.M. INSURANCE LIMITED /s/ Frank Colaccino By :__________________________________ Name: Frank Colaccino Title: President LMC, INC. /s/ Frank Colaccino By :__________________________________ Name: Frank Colaccino Title: President SNG OF SOUTHERN MINNESOTA, INC. /s/ Frank Colaccino By :__________________________________ Name: Frank Colaccino Title: President B-3 THE LAWSON MILK COMPANY /s/ Frank Colaccino By :__________________________________ Name: Frank Colaccino Title: President GOLDEN STORES, INC. /s/ Frank Colaccino By :__________________________________ Name: Frank Colaccino Title: President LAKESIDE WHOLESALE, INC. /s/ Frank Colaccino By :__________________________________ Name: Frank Colaccino Title: President QUIK SHOPS, INC. /s/ Frank Colaccino By :__________________________________ Name: Frank Colaccino Title: President OPEN PANTRY PROPERTIES, INC. /s/ Frank Colaccino By :__________________________________ Name: Frank Colaccino Title: President B-4 REMOTE SERVICES, INC. /s/ Frank Colaccino By :__________________________________ Name: Frank Colaccino Title: President CONVENIENT INDUSTRIES OF AMERICA, INC. /s/ Frank Colaccino By :__________________________________ Name: Frank Colaccino Title: President OSCAR EWING, INC. /s/ Frank Colaccino By :__________________________________ Name: Frank Colaccino Title: President CONVENIENT GASOLINE, INC. /s/ Frank Colaccino By :__________________________________ Name: Frank Colaccino Title: President JACKSON COUNTY GROCERY CO., INC. /s/ Frank Colaccino By :__________________________________ Name: Frank Colaccino Title: President B-5 GREENWELL GROCERY CO., INC. /s/ Frank Colaccino By :__________________________________ Name: Frank Colaccino Title: President CIA FOOD MARTS, INC. /s/ Frank Colaccino By :__________________________________ Name: Frank Colaccino Title: President FOOD MERCHANDISERS, INCORPORATED /s/ Frank Colaccino By :__________________________________ Name: Frank Colaccino Title: President DAIRY MART CONVENIENCE STORES OF OHIO, INC. /s/ Frank Colaccino By :__________________________________ Name: Frank Colaccino Title: President B-6 EX-10.1 3 CREDIT AGREEMENT =============================================================================== CREDIT AGREEMENT AMONG DAIRY MART CONVENIENCE STORES, INC., THE BANKS FROM TIME TO TIME PARTIES HERETO AND FLEET BANK, NATIONAL ASSOCIATION as Agent $30,000,000 Joint Revolving Credit Facility Dated as of February 25, 1994 ===============================================================================
TABLE OF CONTENTS ----------------- Page ---- SECTION 1. DEFINITIONS..................................................... 1 1.1 Defined Terms.................................................. 1 1.2 Other Definitional Provisions.................................. 14 1.3 Change in Accounting Principles................................ 14 SECTION 2. AMOUNT AND TERMS OF COMMITMENTS................................. 14 2.1 Revolving Credit Commitments................................... 14 2.2 Designation of Interest Rates; LIBOR Interest Periods......... 14 2.3 Interest Rates and Payment Dates............................... 15 2.4 Procedure for Borrowing........................................ 16 2.5 Conversion and Continuation Options............................ 16 2.6 Minimum Amounts and Maximum Number of Tranches................. 17 2.7 Revolving Credit Notes......................................... 17 2.8 Fees........................................................... 17 2.9 Termination or Reduction of Revolving Credit Commitments....... 17 2.10 Optional Prepayments........................................... 18 2.11 Mandatory Prepayments; Cash Collateralizations................. 18 2.12 Computation of Interest and Fees............................... 19 2.13 Inability to Determine Interest Rate........................... 19 2.14 Pro Rata Treatment and Payments................................ 20 2.15 Extension of Termination Date.................................. 21 2.16 Annual Clean-Down of Revolving Credit Loans.................... 21 2.17 Illegality..................................................... 21 2.18 Requirements of Law............................................ 21 2.19 Taxes.......................................................... 22 2.20 Indemnity...................................................... 24 SECTION 3. LETTERS OF CREDIT............................................... 24 3.1 L/C Commitment........................... ..................... 24 3.2 Procedure for Issuance of Letters of Credit.................... 25 3.3 Fees, Commissions and Other Charges............................ 25 3.4 Reimbursement Obligation of the Company........................ 26 3.5 L/C Draws and Reimbursements................................... 26 3.6 Obligations Absolute........................................... 27 3.7 Letter of Credit Payments...................................... 27 3.8 Application.................................................... 28 SECTION 4. REPRESENTATIONS AND WARRANTIES.................................. 28 4.1 Financial Condition............................................ 28 4.2 No Change...................................................... 29 4.3 Corporate Existence; Compliance with Law....................... 29 4.4 Corporate Power; Authorization; Enforceable Obligations........ 29 4.5 No Legal Bar................................................... 30
i 4.6 No Material Litigation........................................ 30 4.7 No Default.................................................... 30 4.8 Ownership of Property; Liens.................................. 30 4.9 Intellectual Property......................................... 30 4.10 No Burdensome Restrictions.................................... 30 4.11 Taxes......................................................... 30 4.12 Federal Regulations........................................... 31 4.13 ERISA......................................................... 31 4.14 Investment Company Act; Other Regulations..................... 31 4.15 Subsidiaries.................................................. 31 4.16 Purpose of Loans.............................................. 32 4.17 Environmental Matters......................................... 32 4.18 Security Documents............................................ 33 4.19 Senior Debt................................................... 33 SECTION 5. CONDITIONS PRECEDENT........................................... 33 5.1 Conditions to Initial Extension of Credit..................... 33 5.2 Conditions to Each Extension of Credit........................ 36 SECTION 6. AFFIRMATIVE COVENANTS.......................................... 37 6.1 Financial Statements.......................................... 37 6.2 Certificates; Other Information............................... 38 6.3 Payment of Obligations........................................ 39 6.4 Conduct of Business and Maintenance of Existence.............. 39 6.5 Maintenance of Property; Insurance............................ 39 6.6 Inspection of Property; Books and Records; Discussions........ 39 6.7 Notices....................................................... 40 6.8 Environmental Laws............................................ 41 6.9 Additional Designated Subsidiaries............................ 41 SECTION 7. NEGATIVE COVENANTS............................................. 42 7.1 Financial Condition Covenants................................. 42 7.2 Limitation on Indebtedness.................................... 43 7.3 Limitation on Liens 43 7.4 Limitation on Guarantee Obligations........................... 44 7.5 Limitations on Fundamental Changes............................ 45 7.6 Limitation on Sale of Assets.................................. 45 7.7 Limitation on Dividends....................................... 45 7.8 Limitation on Capital Expenditures............................ 46 7.9 Limitation on Investments, Loans and Advances................. 46 7.10 Limitation on Optional Payments and Modifications of Debt Instruments.................................................. 48 7.11 Transactions with Affiliates.................................. 48 7.12 Sale and Leaseback............................................ 48 7.13 Corporate Documents........................................... 48 7.14 Fiscal Year................................................... 49 7.15 Limitation on Negative Pledge Clauses......................... 49 SECTION 8. EVENTS OF DEFAULT.............................................. 49
ii SECTION 9. THE AGENT...................................................... 52 9.1 Appointment................................................... 52 9.2 Delegation of Duties.......................................... 52 9.3 Exculpatory Provisions........................................ 52 9.4 Reliance by Agent............................................. 53 9.5 Notice of Default............................................. 53 9.6 Non-Reliance on Agent and Other Banks......................... 53 9.7 Indemnification............................................... 54 9.8 Agent in Its Individual Capacity.............................. 54 9.9 Successor Agent............................................... 54 SECTION 10. MISCELLANEOUS.................................................. 55 10.1 Amendments and Waivers........................................ 55 10.2 Notices....................................................... 55 10.3 No Waiver; Cumulative Remedies................................ 56 10.4 Survival of Representations and Warranties.................... 56 10.5 Payment of Expenses and Taxes................................. 56 10.6 Successors and Assigns; Participations; Purchasing Banks...... 57 10.7 Adjustments; Set-off.......................................... 59 10.8 Counterparts.................................................. 60 10.9 Severability.................................................. 60 10.10 Integration................................................... 60 10.11 GOVERNING LAW................................................. 60 10.12 Submission To Jurisdiction; Waivers........................... 60 10.13 Acknowledgements.............................................. 61 10.14 WAIVERS OF JURY TRIAL......................................... 61 10.15 PREJUDGMENT REMEDY WAIVER..................................... 61
iii
SCHEDULES - - --------- SCHEDULE I Commitments; Addresses SCHEDULE II Long-Term Commitments SCHEDULE III Recent Acquisitions SCHEDULE IV Recent Distributions SCHEDULE V ERISA Matters SCHEDULE VI Subsidiaries SCHEDULE VIIA Environmental Matters SCHEDULE VIIB Litigation SCHEDULE VIII UCC Filing Locations SCHEDULE IX Indebtedness SCHEDULE X Liens SCHEDULE XI Management Loans and Advances SCHEDULE XII Tax Audits EXHIBITS - - -------- EXHIBIT A Form of Revolving Credit Note EXHIBIT B Form of Subsidiary Guarantee EXHIBIT C Form of Company Pledge Agreement EXHIBIT D Form of Subsidiary Pledge Agreement EXHIBIT E Form of Company Security Agreement EXHIBIT F Form of Closing Certificate EXHIBIT G Form of Assignment and Acceptance EXHIBIT H Form of Opinions of Counsel to the Company and its Subsidiaries
iv CREDIT AGREEMENT CREDIT AGREEMENT dated as of February 25, 1994 by and among DAIRY MART CONVENIENCE STORES, INC., a Delaware corporation (the "Company"), the banks and other financial institutions listed on Schedule I to this Agreement (collectively, together with any banks or financial institutions from time to time parties to this Agreement, the "Banks") and FLEET BANK, NATIONAL ASSOCIATION, a national banking association organized under the laws of the United States of America, as agent for the Banks hereunder (in such capacity, the "Agent"); W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Company has requested the Banks severally to extend credit to the Company in an aggregate principal amount not to exceed $30,000,000 at any time outstanding, the proceeds of which will be used for the purposes hereinafter set forth; WHEREAS, of the $30,000,000 of aggregate extensions of credit to be made available to the Company hereunder, up to $15,000,000 of such extensions of credit shall be available under the L/C Commitments (as hereinafter defined); and WHEREAS, the Banks are willing to extend such credit upon the terms and subject to the conditions hereinafter set forth; NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereto hereby agree as follows: SECTION 1. DEFINITIONS 1.1 Defined Terms. As used in this Agreement, the following terms shall ------------- have the following meanings: "Affiliate": of a Person (the "Primary Person"), (a) any other Person --------- (other than a Subsidiary) which, directly or indirectly, is in control of, is controlled by, or is under common control with, the Primary Person or (b) any Person who is a director or officer (i) of the Primary Person, (ii) of any Subsidiary of the Primary Person or (iii) of any Person described in clause (a) above. For purposes of this definition, control of a Person shall mean the power, directly or indirectly, (i) to vote 10% or more of the securities having ordinary voting power for the election of directors of such Person or (ii) to direct or cause the direction of the management and policies of such Person whether by contract or otherwise. "Aggregate Outstanding Extensions of Credit": as to any Bank at any time, ------------------------------------------ an amount equal to the sum of (a) the aggregate principal amount of all Revolving Credit Loans made by such Bank then outstanding, and (b) the product of such Bank's Commitment Percentage times the L/C Obligations then outstanding. 1 "Agreement": this Credit Agreement, as amended, supplemented or otherwise --------- modified from time to time. "Applicable Margin": (i) for each Prime Rate Loan, at any time, a rate per ----------------- annum equal to one quarter of one percent (1/4%) and (ii) for each LIBOR Loan, at any time, a rate per annum equal to the rate set forth below opposite the applicable classification of the ratio of Consolidated Indebtedness to Consolidated EBITDA as of the FQED immediately preceding such time:
============================================================================== Ratio of Consolidated Indebtedness to Applicable Margin: Consolidated EBITDA: - - ------------------------------------------------------------------------------ Equal to or greater than 3.50:1.00 2-1/2% - - ------------------------------------------------------------------------------ 3.25:1.00 up to but not including 3.50:1.00 2-1/4% - - ------------------------------------------------------------------------------ Less than 3.25:1.00 2.00% ==============================================================================
"Application": an application in such form as the Issuing Bank may specify ----------- from time to time, requesting the Issuing Bank to issue a Letter of Credit. "Assignment and Acceptance": an Assignment and Acceptance, substantially ------------------------- in the form of Exhibit G. "Available Revolving Credit Commitment": as to any Bank at any time, an ------------------------------------- amount equal to the excess, if any, of (a) the amount of such Bank's Revolving Credit Commitment over (b) such Bank's Aggregate Outstanding Extensions of Credit. "Borrowing Date": any Business Day specified in a notice pursuant to -------------- subsection 2.4 as a date on which the Company requests the Banks to make Loans hereunder. "Business Day": a day other than a Saturday, Sunday or other day on which ------------ commercial banks in Hartford, Connecticut are authorized or required by law to close. "Capital Expenditures": any payment made directly or indirectly for the -------------------- purpose of acquiring, constructing or improving fixed assets, real property or equipment which in accordance with GAAP would be added as a net debit (after giving effect to any credits) to the fixed asset account of the Person making such expenditure, including, without limitation, amounts paid or payable under any conditional sale or other title retention agreement. "Capital Stock": any and all shares, interests, participations or other ------------- equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person (other than a corporation) and any and all warrants or options to purchase any of the foregoing. "Cash Equivalents": (a) securities issued or directly and fully guaranteed ---------------- or insured by the United States Government or any agency or instrumentality thereof having maturities of not more than one year from the date of acquisition, (b) certificates of deposit and eurodollar time deposits with maturities of six months or less from the date of acquisition, bankers' acceptances 2 with maturities not exceeding six months and overnight bank deposits, in each case, with any Bank or with any domestic commercial bank having capital and surplus in excess of $100,000,000, (c) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (a) and (b) entered into with any financial institution meeting the qualifications specified in clause (b) above, and (d) commercial paper issued by any Bank or the parent corporation of any Bank and commercial paper of any other issuer rated at least A-1 or the equivalent thereof by Standard & Poor's Corporation or at least P-1 or the equivalent thereof by Moody's Investors Service, Inc. and in each case maturing within six months after the date of acquisition. "Cash Collateral Account": as defined in Section 8. ----------------------- "Change of Control": the occurrence of any of the following events: (i) ----------------- any "person" or "group" (as such terms are used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than one or more Permitted Holders or any Person or Persons controlled by one or more Permitted Holders, is or becomes the beneficial owner, directly or indirectly, of more than 50% of the total voting power of the Voting Stock of the Company; (ii) 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 was approved by the directors then still in office who either were directors at the beginning of such period or whose election or nomination for director was previously so approved) cease for any reason to constitute a majority of the Board of Directors of the Company then in office; (iii) the direct or indirect, sale, lease, exchange or other transfer of all or substantially all of the assets of the Company to any "person" or "group" (as such terms are used in Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended), provided that the foregoing shall not include the granting of liens permitted by this Agreement; (iv) the Permitted Holders cease to control at least 10% of the total voting power of the Company; or (v) the Company consolidates with or merges into another corporation or any Person consolidates with or merges into the Company, in either event pursuant to a transaction in which either (A) the outstanding Voting Stock of the Company is changed into or exchanged for cash, securities or other property (other than any such transaction where the outstanding Voting Stock of the Company is changed into or exchanged for Voting Stock of the surviving corporation) or (B) the holders of a majority of the voting power of the Voting Stock of the Company immediately prior to such transaction own, directly or indirectly, less than a majority of voting power of the Voting Stock of the surviving corporation immediately after such transaction. "Clean-Down Period": the period commencing on August 1 and ending on ----------------- November 1 of each year during the Commitment Period. "Closing Date": February 25, 1994. ------------ "Code": the Internal Revenue Code of 1986, as amended from time to time. ---- "Collateral": the collective reference to the Collateral, as such term is ---------- defined in each of the Company Security Agreement, the Company Pledge Agreement and the Subsidiary Pledge Agreement. 3 "Commitment Percentage": as to any Bank at any time, the percentage set --------------------- forth opposite such Bank's name on Schedule I of this Agreement with respect to such Bank. "Commitment Period": the period from and including the date hereof to but ----------------- not including the Termination Date or such earlier date on which the Commitments shall terminate as provided herein. "Commitments": the collective reference to the Revolving Credit ----------- Commitments and the L/C Commitments. "Commonly Controlled Entity": an entity, whether incorporated or not, -------------------------- which is under common control with the Company within the meaning of Section 4001 of ERISA or is part of a group which includes the Company and which is treated as a single employer under Section 414 of the Code. "Company Pledge Agreement": the Pledge Agreement, substantially in the ------------------------ form of Exhibit C, made by the Company in favor of the Agent for the ratable benefit of the Banks, as the same may be amended, supplemented or otherwise modified from time to time. "Company Security Agreement": the Security Agreement, substantially in the -------------------------- form of Exhibit E, to be executed and delivered by the Company, as the same may be amended, supplemented or otherwise modified from time to time. "Consolidated EBIRT": for any period, Consolidated Net Income for such ------------------ period plus the aggregate amounts deducted in determining such Consolidated Net Income in respect of (a) income taxes for such period, (b) Consolidated Interest Expense for such period, (c) Consolidated Rent Expense for such period and (d) depreciation and/or amortization expense with respect to Financing Leases. "Consolidated EBITDA": for any period, Consolidated Net Income for such ------------------- period plus the aggregate amounts deducted in determining such Consolidated Net Income in respect of (a) income taxes, (b) Consolidated Interest Expense, (c) depreciation expense and (d) the expense associated with amortization of intangible and other assets. "Consolidated Indebtedness": at a particular date, all Indebtedness of the ------------------------- Company and its consolidated Subsidiaries which by its terms matures more than one year after the date of calculation, and any other Indebtedness of the Company and its consolidated Subsidiaries maturing within one year from such date which is renewable or extendable at the option of the obligor to a date more than one year from such date, including, in any event, the Revolving Credit Loans, but excluding any Financing Leases entered into by the Company or its consolidated Subsidiaries after the Closing Date. "Consolidated Interest Expense": for any period, interest expense of the ----------------------------- Company and its Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP. "Consolidated Net Income": for any period, the consolidated net income (or ----------------------- loss) of the Company and its Subsidiaries for such period determined in accordance with GAAP; provided that there shall be excluded from the calculation thereof any non-operating gains or losses 4 (including, without limitation, extraordinary or unusual gains or losses, gains or losses from discontinuance of operations, gains or losses arising from the sale or disposition by the Company or any Subsidiary of any asset (including, without limitation, the issuance of any debt or equity securities, but excluding the sale or disposition of any Franchise Asset or any inventory of the Company or any Subsidiary) and other non-recurring gains or losses) during such period; and provided further that there shall be excluded from the calculation of Consolidated Net Income any net income or loss arising with respect to any Permitted Joint Venture Investment, except that the aggregate amount of cash actually distributed to the Company in respect of such Permitted Joint Venture Investment during such period as a dividend or other distribution shall be included in the calculation thereof. "Consolidated Net Worth": at a particular date, all amounts which would be ---------------------- included under shareholders' equity on a consolidated balance sheet of the Company and its Subsidiaries determined on a consolidated basis in accordance with GAAP as at such date. "Consolidated Rent Expense": for any period, the aggregate rental ------------------------- obligations of the Company and its Subsidiaries determined on a consolidated basis payable in respect of such period under leases of real and/or personal property (net of principal receipts from sub-leases thereof, and excluding taxes, insurance, maintenance and similar expenses which the lessee is obligated to pay under the terms of said leases), regardless of whether such obligations are reflected as liabilities or commitments on a consolidated balance sheet of the Company and its consolidated Subsidiaries or in the notes thereto; provided, that with respect to Financing Leases, the rental obligations referred - - -------- to herein shall be limited to the principal portion of the payments in respect of such obligations. "Contractual Obligation": as to any Person, any provision of any security ---------------------- issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound. "Default": any of the events specified in Section 8, regardless of whether ------- any requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied. "Designated Subsidiary": a Subsidiary listed on Part A of Schedule VI. --------------------- "DM Associates": DM Associates Limited Partnership, a Connecticut limited ------------- partnership. "Dollars" and "$": dollars in lawful currency of the United States of ------- - America. "Environmental Laws": any and all Federal, state, local or municipal laws, ------------------ rules, orders, regulations, statutes, ordinances, codes, decrees or requirements of any Governmental Authority regulating, relating to or imposing liability or standards of conduct concerning environmental protection matters, including without limitation, Hazardous Materials, as now or may at any time hereafter be in effect. "ERISA": The Employee Retirement Income Security Act of 1974, as amended ----- from time to time. 5 "Event of Default": any of the events specified in Section 8, provided ---------------- -------- that any requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied. "Extension": as defined in subsection 2.15. --------- "Federal Funds Effective Rate": at any time and with respect to any Bank, ---------------------------- shall mean the rate of interest charged to such Bank in the interbank market at such time for excess reserve balances. "Financing Lease": any lease of property, real or personal, the --------------- obligations of the lessee in respect of which are required in accordance with GAAP to be capitalized on a balance sheet of the lessee. "FinOp": Financial Opportunities, Inc., a Kentucky corporation that is a ----- Subsidiary and a small business investment company licensed by the SBA. "Fleet": Fleet Bank, National Association, a national banking association ----- organized and existing under the laws of the United States of America. "FQED": the end date of any fiscal quarter in any fiscal year of the ---- Company. "Franchise Assets": all real and personal property of the Company or any ---------------- Subsidiary sold or otherwise transferred to any franchisee of the Company or such Subsidiary pursuant to the Company's on-going franchise program, in the ordinary course of such program and pursuant to customary documentation of the Company or such Subsidiary for such purpose. "Franchisee Guarantees": Guarantee Obligations of the Company or any --------------------- Subsidiary guaranteeing Indebtedness of a franchisee of the Company with respect to the Company's on-going franchise program, which Guarantee Obligations are reflected on the consolidated financial statements of the Company and its consolidated Subsidiaries or in the notes thereto. "FYED": the end date of the Company's fiscal year designated with such ---- term, being the Saturday closest to January 31 in the calendar year designated with such term; thus FYED 1995 shall mean the Saturday closest to January 31, 1995, which shall be the date on which the Company's 1995 fiscal year shall end. "GAAP": generally accepted accounting principles in the United States of ---- America in effect from time to time. "Governmental Authority": any nation or government, any state or other ---------------------- political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Guarantee Obligation": as to any Person (the "guaranteeing person"), any -------------------- obligation of (a) the guaranteeing person or (b) another Person (including, without limitation, any bank under any letter of credit), to induce the creation of which obligation the guaranteeing person has issued a reimbursement, counterindemnity or similar obligation, in either case guaranteeing or in effect guaranteeing any Indebtedness, leases, dividends or other obligations (the "primary 6 obligations") of any other third Person (the "primary obligor") in any manner, whether directly or indirectly, including, without limitation, any obligation of the guaranteeing person, whether contingent or not, (i) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (ii) to advance or supply funds (A) for the purchase or payment of any such primary obligation or (B) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (iii) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (iv) otherwise to assure or hold harmless the owner of any such primary obligation against loss in respect thereof; provided, however, that the term -------- ------- "Guarantee Obligation" shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Guarantee Obligation of any guaranteeing person shall be deemed to be the lower of (x) an amount equal to the stated or determinable amount of the primary obligation in respect of which such Guarantee Obligation is made and (y) the maximum amount for which such guaranteeing person may be liable pursuant to the terms of the instrument embodying such Guarantee Obligation, unless such primary obligation and the maximum amount for which such guaranteeing person may be liable are not stated or determinable, in which case the amount of such Guarantee Obligation shall be such guaranteeing person's maximum reasonably anticipated liability in respect thereof as determined by the Company in good faith. "Hazardous Materials": any hazardous materials, hazardous wastes, ------------------- hazardous constituents, hazardous or toxic substances, petroleum products (including crude oil or any fraction thereof), defined or regulated as such in or under any Environmental Law. "Indebtedness": of any Person at any date, (a) all indebtedness of such ------------ Person for borrowed money or for the deferred purchase price of property or services (other than current trade liabilities incurred in the ordinary course of business and payable in accordance with customary practices) or which is evidenced by a note, bond, debenture or similar instrument, (b) all obligations of such Person under Financing Leases, (c) all obligations of such Person in respect of acceptances issued or created for the account of such Person, and (d) all liabilities secured by any Lien on any property owned by such Person even though such Person has not assumed or otherwise become liable for the payment thereof. "Initial Funding Date": as defined in subsection 2.1. -------------------- "Insolvency": with respect to any Multiemployer Plan, the condition that ---------- such Plan is insolvent within the meaning of Section 4245 of ERISA. "Insolvent": pertaining to a condition of Insolvency. --------- "Insurance Subsidiary": D.M. Insurance, Ltd., a Bermuda corporation. -------------------- "Interest Payment Date": (a) as to any Prime Rate Loan, the last day of --------------------- each March, June, September and December to occur while such Loan is outstanding, (b) as to any LIBOR Loan having a LIBOR Interest Period of three months or less, the last day of such LIBOR Interest Period, and (c) as to any LIBOR Loan having a LIBOR Interest Period longer than three months, each day which is three months or a whole multiple thereof, after the first day of such LIBOR Interest Period and the last day of such LIBOR Interest Period. 7 "Interest Rate Agreement": any interest rate swap agreement, interest rate ----------------------- collar agreement, currency exchange agreement, or other similar agreement or arrangement entered into by the Company, in order to hedge or minimize risk with respect to the fluctuation of interest rates, with (i) either of the initial Banks parties hereto or (ii) a financial institution with a minimum long-term indebtedness rating of at least A- by Standard & Poor's Corporation and at least A3 by Moody's Investors Service, Inc. "Issuing Bank": Society National Bank, in its capacity as issuer of any ------------ Letter of Credit. "L/C Commitment": $15,000,000. -------------- "L/C Fee": as defined in subsection 3.3(a). ------- "L/C Obligations": at any time, an amount equal to the sum of (a) the --------------- aggregate then undrawn and unexpired amount of the then outstanding Letters of Credit and (b) the aggregate amount of drawings under Letters of Credit which have not then been reimbursed pursuant to subsection 3.5. "L/C Participants": the collective reference to all the Banks other than ---------------- the Issuing Bank. "Letters of Credit": as defined in subsection 3.1(a). ----------------- "Letter of Credit Rate": for each Letter of Credit, at any time, a rate --------------------- per annum equal to the rate set forth below opposite the applicable classification of the ratio of Consolidated Indebtedness to Consolidated EBITDA as of the FQED immediately preceding such time:
=============================================================================== Ratio of Consolidated Indebtedness to Letter of Credit Rate: Consolidated EBITDA: - - ------------------------------------------------------------------------------- Equal to or greater than 3.50:1.00 1-1/2% - - ------------------------------------------------------------------------------- 3.25:1.00 up to but not including 3.50:1.00 1-1/4% - - ------------------------------------------------------------------------------- Less than 3.25:1.00 1.00% ===============================================================================
"LIBOR Base Rate": with respect to each day during each LIBOR Interest --------------- Period, the rate per annum equal to the rate at which Fleet is offered Dollar deposits at or about 10:00 A.M., Eastern time, two Business Days prior to the beginning of such LIBOR Interest Period in the London interbank market where the eurodollar and foreign currency and exchange operations in respect of its LIBOR Loans are then being conducted for delivery on the first day of such LIBOR Interest Period for the number of days comprised therein and in an amount comparable to the amount of its LIBOR Loan to be outstanding during such LIBOR Interest Period. "LIBOR Interest Period": any one (1), two (2), three (3) or six (6) month --------------------- period selected by the Company in respect to any LIBOR Loan pursuant to subsections 2.2, 2.4 or 2.5 of this Agreement. 8 "LIBOR Reserve Requirements": for any day as applied to a LIBOR Loan, the -------------------------- aggregate (without duplication) of the rates (expressed as a decimal fraction) of reserve requirements in effect on such day (including, without limitation, basic, supplemental, marginal and emergency reserves under any regulations of the Board of Governors of the Federal Reserve System or other Governmental Authority having jurisdiction with respect thereto) dealing with reserve requirements prescribed for eurocurrency funding maintained by a member bank of such System. "LIBOR Loans": Loans the rate of interest applicable to which is based ----------- upon the LIBOR Rate. "LIBOR Rate": with respect to each day during each LIBOR Interest Period, ---------- a rate per annum determined for such day in accordance with the following formula (rounded upward to the nearest 1/100th of 1%): LIBOR Base Rate ------------------------------------------------- 1.00 - LIBOR Reserve Requirements "Lien": any mortgage, pledge, hypothecation, assignment, security ---- interest, deposit arrangement, encumbrance, lien (statutory or other), or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement, any Financing Lease having substantially the same economic effect as any of the foregoing, and the filing of any financing statement under the Uniform Commercial Code or comparable law of any jurisdiction in respect of any of the foregoing). "Loan": any loan made by any Bank pursuant to this Agreement. ---- "Loan Documents": this Agreement, the Notes, the Applications, the -------------- Subsidiary Guarantee, the Pledge Agreements and the Company Security Agreement, together with any and all other instruments, documents and agreements executed and delivered by the Company or the Designated Subsidiaries from time to time in connection with the Indebtedness evidenced by this Agreement and the Notes, as the same may hereafter be amended, restated or modified, from time to time. "Material Adverse Effect": a material adverse effect on (a) the business, ----------------------- operations, property, condition (financial or otherwise) or prospects of the Company and its Subsidiaries taken as a whole, (b) the ability of the Company or any Designated Subsidiary to perform its obligations under the Loan Documents to which it is a party or (c) the validity or enforceability of this Agreement, the Notes or any of the other Loan Documents or the rights or remedies of the Agent or the Banks hereunder or thereunder. "Minimum Consolidated Net Worth": at each FQED to occur after FYED 1994, ------------------------------ an amount of Consolidated Net Worth equal to the excess of (a) the sum of (i) $34,200,000, plus (ii) the product of (a) 65% times (b) the cumulative Consolidated Net Income of the Company and its Subsidiaries (without deduction for any consolidated net loss in any fiscal quarter) for the period commencing on the first day of FYED 1995 and ending on such FQED, plus (iii) the net proceeds received by the Company after FYED 1994 in connection with the issuance and sale of any common stock of the Company, over (b) the aggregate amount of ---- any payments or distributions 9 by the Company after FYED 1994, whether as cash or as other property, in respect of any purchase, redemption, defeasance, retirement or other acquisition of any shares of Capital Stock of the Company permitted under subsection 7.7. "Multiemployer Plan": a Plan which is a multiemployer plan as defined in ------------------ Section 4001(a) (3) of ERISA. "Net Cash Proceeds": (a) when used in respect of any sale or other ----------------- disposition of assets that is not an issuance of debt securities of the Company or any Subsidiary, the gross proceeds received by the Company or such Subsidiary from such sale or disposition less (i) all reasonable legal, title, recording and transfer tax expenses, commissions and other customary fees and expenses incurred, and all other federal, state and local taxes assessed, in connection therewith, (ii) the principal amount of, premium, if any, and interest on any Indebtedness (other than the Loans and the Reimbursement Obligations) which is secured by the asset sold or otherwise disposed of and which is required to be repaid in connection with such sale or other disposition of assets and (iii) amounts to be provided by the Company or such Subsidiary as a reserve, in accordance with GAAP, against any liabilities associated with any such sale or other disposition of assets and retained by such Person after such sale or other disposition of assets, including, without limitation, pension and other post- employment benefit liabilities and liabilities related to environmental matters or against any indemnification obligations associated with such sale or other disposition of assets and (b) when used in respect of the issuance of any debt securities of the Company or any Subsidiary, the gross proceeds received by the Company or such Subsidiary from such issuance less all legal expenses, commissions and other fees and expenses incurred and all federal, state and local taxes assessed in connection therewith. "Notes": the collective reference to the Revolving Credit Notes. ----- "Participants": as defined in subsection 10.6(b). ------------ "PBGC": the Pension Benefit Guaranty Corporation established pursuant to ---- Subtitle A of Title IV of ERISA. "Permitted Holders": the collective reference to Frank Colaccino and his ----------------- Related parties, or in the event of the death or mental or physical incapacity of Frank Colaccino, any of Gregory Landry, Mitchell Kupperman, Robert Stein and their respective Related Parties. "Permitted Joint Venture Investment": investments in corporations, ---------------------------------- partnerships or joint ventures (other than Subsidiaries) which investments do not require investment by the Company of cash equity in excess of $50,000 in the aggregate; provided, that for the purpose of determining the amount of cash -------- equity invested, investments by the Company of the proceeds of any fees or other amounts received by the Company in connection with such investment shall not be deemed to be cash equity. "Person": an individual, partnership, corporation, business trust, joint ------ stock company, trust, unincorporated association, joint venture, Governmental Authority or other entity of whatever nature. 10 "Plan": at a particular time, any employee benefit plan which is covered ---- by ERISA and in respect of which the Company or a Commonly Controlled Entity is (or, if such plan were terminated at such time, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA. "Pledge Agreements": the Company Pledge Agreement and the Subsidiary ----------------- Pledge Agreement. "POS Program Expenses": those expenses incurred in connection with the -------------------- acquisition or installation by the Company or any Subsidiary of cash registers, personal computers and other inventory management equipment, and any licenses of intellectual property in connection therewith. "Prime Rate": the rate of interest per annum publicly announced from time ---------- to time by the Agent as its prime rate in effect at its principal office (the Prime Rate not being intended to be the best or lowest rate of interest charged by Fleet in connection with extensions of credit to debtors). Any change in the Prime Rate shall be effective as of the opening of business on the effective day of such change in the Prime Rate. "Prime Rate Loans": Loans the rate of interest applicable to which is ---------------- based upon the Prime Rate. "Purchasing Banks": as defined in subsection 10.6(c). ---------------- "Register": as defined in subsection 10.6(d). -------- "Regulation U": Regulation U of the Board of Governors of the Federal ------------ Reserve System. "Reimbursement Obligation": the obligation of the Company to reimburse the ------------------------ Issuing Bank pursuant to subsection 3.5 for amounts drawn under Letters of Credit. "Reimbursing Bank": as defined in subsection 2.14(a). ---------------- "Related Party": with respect to each Permitted Holder, (a) any spouse or ------------- immediate family member of such Permitted Holder or (b) any trust, corporation, partnership or other entity, all of the beneficiaries, stockholders, partners, owners or Persons beneficially holding an 80% or more controlling interest of which consist of Permitted Holders and/or such other Persons referred to in the immediately preceding clause (a). "Reorganization": with respect to any Multiemployer Plan, the condition -------------- that such plan is in reorganization within the meaning of Section 4241 of ERISA. "Reportable Event": any of the events set forth in Section 4043(b) of ---------------- ERISA, other than those events as to which the thirty day notice period is waived under subsections .13, .14, .16, .18, .19 or .20 of PBGC Reg. (S) 2615. "Required Banks": at any time, Banks the Commitment Percentages of which -------------- aggregate greater than 50%. 11 "Requirement of Law": as to any Person, the Certificate of Incorporation ------------------ and By-Laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "Responsible Officer": the chief executive officer or the president or ------------------- other executive officer of the Company or, with respect to financial matters, the chief financial officer or other executive officer of the Company. "Revolving Credit Commitment": as to any Bank, the obligation of such Bank --------------------------- to make Revolving Credit Loans to the Company hereunder in an aggregate principal amount at any one time outstanding not to exceed the amount set forth opposite such Bank's name on Schedule I under the caption, "Commitment Amount". "Revolving Credit Loans": any loans, advances or other disbursements by ---------------------- Agent, or any or all of the Banks to or for the account of the Company under the Revolving Credit Commitments (including without limitation, amounts paid in respect of any draft under any Letter of Credit) or in respect of any amounts due and not paid by the Company in accordance with subsection 10.5. "Revolving Credit Note": as defined in subsection 2.7. --------------------- "Sale/Leaseback Transaction": as defined in subsection 7.12. -------------------------- "SBA": the United States Small Business Administration or any regulatory --- body succeeding to all or any of the functions thereof. "Security Documents": the Pledge Agreements and the Company Security ------------------ Agreement. "Senior Subordinated Indenture": the indenture among the Company, certain ----------------------------- of its Subsidiaries, as guarantors, and Society National Bank, as trustee, pursuant to which the Company will issue its 10.25% Senior Subordinated Notes due 2004 in the aggregate original principal amount of $75,000,000, as such Indenture may be amended, supplemented or otherwise modified from time to time. "Senior Subordinated Notes": those 10.25% Senior Subordinated Notes due ------------------------- 2004 in the original principal amount of $75,000,000 issued pursuant to the Senior Subordinated Indenture, as such Notes may be amended, modified, supplemented, renewed or extended from time to time. "Single Employer Plan": any Plan which is covered by Title IV of ERISA, -------------------- but which is not a Multiemployer Plan. "Subordinated Debentures": those 14.25% Subordinated Debentures Due 2000 ----------------------- in the original aggregate principal amount of $35,000,000 issued pursuant to the Subordinated Indenture, as such Debentures may be amended, modified, supplemented, renewed or extended from time to time. 12 "Subordinated Indenture": the Indenture dated as of November 13, 1985 ---------------------- between the Company and Fleet Bank, National Association, as assignee of The New Connecticut Bank and Trust Company, N.A., as trustee, as such Indenture may be amended, supplemented or otherwise modified from time to time. "Subsequently Acquired Subsidiary": any Subsidiary acquired by the Company -------------------------------- or any Designated Subsidiary pursuant to subsection 7.9(i) if the assets or revenues of such Subsequently Acquired Subsidiary are considered, in the reasonable judgment of the Agent and the Banks, material in relation to the consolidated assets or consolidated revenues of the Company and its consolidated Subsidiaries (as shown from the most recent financial statements delivered pursuant to subsection 6.1). "Subsidiary": as to any Person, a corporation, partnership or other entity ---------- of which shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by such Person. Unless otherwise qualified, all references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries of the Company. "Subsidiary Guarantee": the Guarantee, substantially in the form of -------------------- Exhibit B, made by each Designated Subsidiary in favor of the Agent for the ratable benefit of the Banks, as the same may be amended, supplemented or otherwise modified from time to time. "Subsidiary Pledge Agreement": the Pledge Agreement, substantially in the --------------------------- form of Exhibit D, made by each Designated Subsidiary in favor of the Agent for the ratable benefit of the Banks, as the same may be amended, supplemented or otherwise modified from time to time. "Successor Agent": any Bank or any bank, depository or financial --------------- institution, trust company, bank and trust company having capital and surplus in excess of $100,000,000 and acceptable to the remaining Bank or Banks and to the Company, the Company's consent not to be unreasonably withheld or delayed. "Termination Date": March 1, 1997, or such later date to which the ---------------- Termination Date may be extended in accordance with subsection 2.15. "Tranche": the collective reference to LIBOR Loans having LIBOR Interest ------- Periods which begin on the same date and end on the same later date (whether such Loans shall originally have been made on the same day or not). "Transferee": as defined in subsection 10.6(f). ---------- "Type": as to any Loan, its nature as a Prime Rate Loan or a LIBOR Loan. ---- "Uniform Customs": the Uniform Customs and Practice for Documentary --------------- Credits (1983 Revision), International Chamber of Commerce Publication No. 400, as the same may be amended from time to time. 13 "Voting Stock": with respect to a corporation, all classes of Capital ------------ Stock then outstanding of such corporation normally entitled to vote in elections of directors. 1.2 Other Definitional Provisions. ----------------------------- (a) Unless otherwise specified therein, all terms defined in this Agreement shall have the defined meanings when used in the Notes or any certificate or other document made or delivered pursuant hereto. (b) As used herein and in the Notes, and any certificate or other document made or delivered pursuant hereto, accounting terms relating to the Company and its Subsidiaries not defined in subsection 1.1 and accounting terms partly defined in subsection 1.1, to the extent not defined, shall have the respective meanings given to them under GAAP. (c) The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section, subsection, Schedule and Exhibit references are to this Agreement unless otherwise specified. (d) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. 1.3 Change in Accounting Principles. Except as otherwise provided herein, ------------------------------- any changes in GAAP which are hereafter made and adopted by the Company with the agreement of its independent certified public accountants shall not affect the method of calculation of any of the financial covenants, standards or terms found in subsection 1.1 or Section 7. SECTION 2. AMOUNT AND TERMS OF COMMITMENTS 2.1 Revolving Credit Commitments. Subject to the terms and conditions ---------------------------- hereof, and provided that no Default or Event of Default shall have occurred and be continuing, each Bank severally agrees to make Revolving Credit Loans to the Company from time to time on or after the date each of the conditions precedent set forth in subsection 5.1 has been satisfied or waived by the Required Banks (the "Initial Funding Date") and continuing throughout the Commitment Period in an aggregate principal amount at any one time outstanding not to exceed the amount of such Bank's Available Revolving Credit Commitment. From and after the Initial Funding Date and continuing throughout the Commitment Period the Company may use the Revolving Credit Commitments by borrowing, prepaying the Revolving Credit Loans in whole or in part, and reborrowing in accordance with the terms and conditions hereof. 2.2 Designation of Interest Rates; LIBOR Interest Periods. ------------------------------------------------------ (a) The Revolving Credit Loans may from time to time be (i) LIBOR Loans, (ii) Prime Rate Loans or (iii) a combination thereof, as determined by the Company and notified to the Agent in accordance with subsections 2.4 and 2.5. In the event the Company fails to designate the Type of all or any portion of a Loan (whether initially or 14 upon expiration of a LIBOR Interest Period), the per annum rate of interest applicable thereto shall be or become the rate of interest applicable to Prime Rate Loans. (b) The Company may not select a LIBOR Interest Period pursuant to subsections 2.2(a), 2.5 or otherwise, which would expire on a day after the Termination Date. If any LIBOR Interest Period would otherwise end on a day that is not a Business Day, such LIBOR Interest Period shall be extended to the next succeeding Business Day unless the result of such extension would be to carry such LIBOR Interest Period into another calendar month in which event such LIBOR Interest Period shall end on the immediately preceding Business Day. If any LIBOR 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 LIBOR Interest Period) such LIBOR Interest Period shall end on the last Business Day of a calendar month. 2.3 Interest Rates and Payment Dates. -------------------------------- (a) Each LIBOR Loan shall bear interest, during the applicable LIBOR Interest Period, at a rate per annum equal to the applicable LIBOR Rate plus the Applicable Margin. The Applicable Margin for each LIBOR Loan shall be determined based upon the calculations submitted to the Banks pursuant to subsection 6.2(b) and shall be effective as of the first day of the fiscal quarter next following the date such calculations are submitted to the Banks, provided that such calculations shall be subject to the review and approval of the Banks. Any change in such Applicable Margin as a consequence of the Bank's review of the aforesaid calculation after the effective date of such Applicable Margin shall be retroactively applied to the first day such Applicable Margin became effective. In the event the Applicable Margin for a LIBOR Loan can not be determined at any time because the Company's financial statements for the immediately preceding fiscal quarter are not available at such time, the Applicable Margin for each LIBOR Loan shall be presumed to be the same as the Applicable Margin for such LIBOR Loans as of the last FQED for which the Company's financial statements were available. (b) Each Prime Rate Loan shall bear interest for so long as it is outstanding and unpaid at a rate per annum equal to the Prime Rate plus the Applicable Margin. (c) If all or a portion of the principal amount of any Loan or any interest payable thereon shall not be paid when due (whether at the stated maturity, by acceleration or otherwise), such overdue amount shall bear interest at a rate per annum (the "Default Rate") which is equal to the rate that would otherwise be applicable thereto pursuant to the foregoing provisions of this subsection plus 3% from the date of such non-payment until such amount is paid in full (as well after as before judgment). (d) Interest shall be payable in arrears on each Interest Payment Date; provided that interest accruing at the Default Rate pursuant to -------- subsection 2.3(c) shall be payable on demand. In the event the rate of interest applicable to any LIBOR Loan decreases as a consequence of a decrease in the Applicable Margin with respect thereto, the Company shall be entitled to apply the difference between the amount of interest paid and the amount of interest due (after giving effect to such reduction) as a credit against the next installment of interest due hereunder. In the event the rate of interest applicable 15 to any LIBOR Loan increases as a consequence of an increase in the Applicable Margin with respect thereto, the Company shall pay the difference between the amount of interest paid and the amount of interest due (after giving effect to such increase) on the next Interest Payment Date. (e) In the event the total amount of any payment of principal or interest or amounts due in respect of any Reimbursement Obligation or of any fee required to be paid under this Agreement is not received by Agent or Issuing Bank, as the case may be, within ten (10) days following the due date of such payment, the Company shall, in addition to and together with such payment, pay to Agent or Issuing Bank, as the case may be, a late charge equal to five percent (5%) of the total amount of such payment or amount due ; provided, such late charge shall not be payable in respect of any overdue payment in the event Borrower was entitled to an Advance in the amount of such payment under the provisions of subsection 2.1 at the time such payment became due. 2.4 Procedure for Borrowing. The Company may borrow under the Revolving ----------------------- Credit Commitments on or after the Initial Funding Date during the Commitment Period on any Business Day by giving the Agent irrevocable notice (which notice must be received by the Agent prior to (x) 1:00 P.M., Eastern time, at least three Business Days prior to the requested Borrowing Date, if all or any part of the requested Revolving Credit Loans are to be initially LIBOR Loans, or (y) 1:00 P.M., Eastern time, on the requested Borrowing Date, otherwise), specifying (i) the amount to be borrowed, (ii) the requested Borrowing Date, (iii) the Type of the requested borrowing and (iv) if the borrowing is to be entirely or partly of LIBOR Loans, the amounts and LIBOR Interest Periods thereof. Each borrowing under the Revolving Credit Commitments shall be in an amount equal to (A) in the case of Prime Rate Loans, $100,000 or a whole multiple thereof (or, if the then Available Revolving Credit Commitments are less than $100,000, such lesser amount) or (B) in the case of LIBOR Loans, $100,000 or a whole multiple thereof. Upon receipt of any such notice from the Company, the Agent shall promptly notify each Bank thereof. Each Bank will make the amount of its pro rata share (based on its Commitment Percentage) of each borrowing available to the Agent for the account of the Company at the office of the Agent specified in subsection 10.2 prior to 2:00 P.M., Eastern time, on the Borrowing Date requested by the Company in funds immediately available to the Agent. Such borrowing will then be made available to the Company by the Agent crediting the account of the Company on the books of such office with the aggregate of the amounts made available to the Agent by the Banks and in like funds as received by the Agent. 2.5 Conversion and Continuation Options. ----------------------------------- (a) The Company may elect from time to time to convert LIBOR Loans to Prime Rate Loans by giving the Agent at least two Business Days' prior irrevocable notice of such election, provided that any such conversion of -------- LIBOR Loans may only be made on and as of the last day of a LIBOR Interest Period with respect thereto. The Company may elect from time to time to convert Prime Rate Loans to LIBOR Loans by giving the Agent at least three Business Days' prior irrevocable notice of such election, which notice shall specify the length of the initial LIBOR Interest Period or LIBOR Interest Periods therefor. Upon receipt of any such notice the Agent shall promptly notify each Bank thereof. All or any part of outstanding LIBOR Loans and Prime Rate Loans may be converted as provided herein, provided -------- that no Loan may be converted into a LIBOR Loan when any 16 Event of Default has occurred and is continuing or the Agent has or the Required Banks have determined pursuant to subsection 2.13 that such a conversion is not appropriate. (b) The Company may elect to continue all or any portion of any LIBOR Loan upon the expiration of the designated LIBOR Interest Period in respect of such LIBOR Loan by giving the Agent at least three Business Days' prior irrevocable notice of such election; provided that no LIBOR Loan may be -------- continued as such when any Event of Default has occurred and is continuing or the Agent has or the Required Banks have determined pursuant to subsection 2.13 that such a continuation as a LIBOR Loan is not appropriate. The Company shall specify in the aforesaid notice the amount to be continued as a LIBOR Loan and the LIBOR Interest Period with respect thereto in accordance with subsection 2.2. 2.6 Minimum Amounts and Maximum Number of Tranches. All borrowings, ---------------------------------------------- conversions and continuations of Loans hereunder and all selections of LIBOR Interest Periods hereunder shall be in such amounts and be made pursuant to such elections so that, after giving effect thereto, the aggregate principal amount of the LIBOR Loans comprising each Tranche shall be equal to $100,000 or a whole multiple thereof and so that there shall not be more than 5 Tranches at any one time outstanding. 2.7 Revolving Credit Notes. The Revolving Credit Loans made by each Bank ---------------------- shall be evidenced by a promissory note of the Company, substantially in the form of Exhibit A with appropriate insertions as to payee, date and principal amount (a "Revolving Credit Note"), payable to the order of such Bank and in a principal amount equal to the amount of the initial Revolving Credit Commitment of such Bank. Each Bank is hereby authorized to record the date, Type and amount of each Revolving Credit Loan made by such Bank, each continuation thereof, each conversion of all or a portion thereof to another Type, the date and amount of each payment or prepayment of principal thereof and, in the case of LIBOR Loans, the length of each LIBOR Interest Period and LIBOR Rate with respect thereto, on the schedule annexed to and constituting a part of its Revolving Credit Note, and any such recordation shall constitute prima facie ----- ----- evidence of the accuracy of the information so recorded. Each Revolving Credit Note shall (x) be dated the Closing Date, (y) be stated to mature on the Termination Date and (z) provide for the payment of interest in accordance with subsection 2.3. 2.8 Fees. The Company agrees to pay to the Agent for the account of each ---- Bank a commitment fee for the period from and including the date hereof to the Termination Date, computed at the rate of 1/2 of 1% per annum on the average daily amount of the Available Revolving Credit Commitment of such Bank during the period for which payment is made, payable quarterly in arrears on the last day of each March, June, September and December and on the Termination Date or such earlier date as the Revolving Credit Commitments shall terminate as provided herein, commencing on the first of such dates to occur after the date hereof. 2.9 Termination or Reduction of Revolving Credit Commitments. -------------------------------------------------------- (a) The Company shall have the right, upon not less than three Business Days' notice to the Agent, to terminate the Commitments or, from time to time, to reduce the amount of the Revolving Credit Commitments; provided that no such termination or reduction shall be permitted if, after -------- giving effect thereto and to any prepayments of the 17 Revolving Credit Loans made on the effective date thereof, the aggregate principal amount of the Revolving Credit Loans then outstanding, when added to such Bank's Commitment Percentage of the L/C Obligations, would exceed the Revolving Credit Commitments then in effect. Any such reduction shall be in an amount not less than $250,000 and shall reduce permanently the Revolving Credit Commitments then in effect. (b) Simultaneously with any required prepayment of the Loans pursuant to subsection 2.11 (a) or (b), the Commitments shall automatically be reduced by an amount equal to the amount of such required prepayment. Simultaneously with the occurrence of any event requiring prepayment pursuant to subsection 2.11 (c), the Commitments shall automatically terminate. 2.10 Optional Prepayments. The Company may at any time and from time to -------------------- time, prepay the Revolving Credit Loans, in whole or in part, without premium or penalty, upon at least three Business Days' irrevocable notice, in the case of prepayment of any Revolving Credit Loans which are LIBOR Loans, or upon irrevocable notice (which notice must be received by 1:00 P.M., Eastern time, on or before the proposed date of prepayment), in the case of prepayments of any Revolving Credit Loans which are Prime Rate Loans, to the Agent, specifying the date and amount of prepayment and whether the prepayment is of LIBOR Loans, Prime Rate Loans or a combination thereof, and, in each case if a combination thereof, the amount allocable to each; provided that, if a LIBOR Loan is prepaid -------- other than at the end of the LIBOR Interest Period applicable thereto, the Company shall also pay any amounts required to be paid pursuant to subsection 2.20. Upon receipt of any such notice the Agent shall promptly give notice thereof to each Bank. If any such notice is given by the Company, the amount specified in such notice shall be due and payable on the date specified therein. Partial prepayments of the Revolving Credit Loans shall be in an aggregate principal amount of $100,000 or a whole multiple in excess thereof. 2.11 Mandatory Prepayments; Cash Collateralizations. ---------------------------------------------- (a) Immediately upon the occurrence of any public issuance or private placement of any debt securities of the Company or any Subsidiary (other than Indebtedness incurred pursuant to subsection 7.2(d) and other than renewals or refinancings of the indebtedness evidenced by the Senior Subordinated Notes or of Indebtedness of debt securities issued and outstanding as of the date hereof so long as the outstanding principal amount of such Indebtedness is not increased by such renewal or refinancing) the Company shall make or cause to be made a prepayment on the Loans equal to 100% of the Net Cash Proceeds received therefor. (b) If, at any time or from time to time, the Company makes an "Asset Disposition" (as defined under the Senior Subordinated Indenture), the Company shall, within 210 days from the date of such Asset Disposition (or such longer period permitted under the Senior Subordinated Indenture), apply all of the Net Cash Proceeds from such Asset Disposition to either or both of (in the sole discretion of the Company) (i) the prepayment of the Loans or (ii) an investment in "fixed assets" (as defined under GAAP) in the same or substantially similar line of business as defined in the Indenture as the assets that were the subject of such Asset Disposition, provided that, notwithstanding the foregoing, (A) up to $1,000,000 of the Net Cash Proceeds received in any fiscal year from 18 any such Asset Dispositions shall not be subject to this subsection 2.11(b) and (B) no application of the Net Cash Proceeds resulting from any such Asset Dispositions pursuant to this paragraph shall be necessary until the aggregate amount of such Net Cash Proceeds (above the aforesaid $1,000,000) equals or exceeds $5,000,000 at any time after the date hereof. Without limiting the generality of the foregoing, no repayments by the Company of outstanding Revolving Credit Loans shall be considered mandatory prepayments under this subsection unless and until the Company shall have designated such repayments as such. (c) Amounts prepaid on account of Revolving Credit Loans pursuant to this subsection 2.11 shall be allocated to the outstanding principal amount of the Revolving Credit Loans, together with a corresponding permanent reduction of the Revolving Credit Commitments; provided that, if the amount -------- of such prepayment (the "Prepayment Amount") exceeds the then outstanding Revolving Credit Loans or is made at a time when no Revolving Credit Loans are outstanding, then the Company shall deposit such Prepayment Amount as collateral for the then outstanding L/C Obligations in a cash collateral account maintained by the Agent pursuant to its customary documentation for such purposes, which deposit shall be made on the payment date specified in the notice of prepayment. 2.12 Computation of Interest and Fees. Interest on the Loans, Letter of -------------------------------- Credit commissions and commitment fees shall be calculated on the basis of a 360-day year for the actual days elapsed. The Agent shall as soon as practicable notify the Company and the Banks of each determination of a LIBOR Rate. Any change in the interest rate on a Loan resulting from a change in the Prime Rate or the LIBOR Reserve Requirements shall become effective as of the opening of business on the day on which such change becomes effective. The Agent shall as soon as practicable notify the Company and the Banks of the effective date and the amount of each such change in interest rate. Each determination of an interest rate by the Agent pursuant to any provision of this Agreement shall be conclusive and binding on the Company and the Banks in the absence of manifest error. 2.13 Inability to Determine Interest Rate. If prior to the first day of ------------------------------------ any LIBOR Interest Period: (a) the Agent shall have determined (which determination shall be conclusive and binding upon the Company) that, by reason of circumstances affecting the relevant market, adequate and reasonable means do not exist for ascertaining the LIBOR Rate for such LIBOR Interest Period, or (b) the Agent shall have received notice from the Required Banks that the LIBOR Rate determined or to be determined for such LIBOR Interest Period will not adequately and fairly reflect the cost to such Banks (as conclusively certified by such Banks) of making or maintaining their affected Loans during such LIBOR Interest Period, the Agent shall give telecopy or telephonic notice thereof to the Company and the Banks as soon as practicable thereafter. If such notice is given (x) any LIBOR Loans requested to be made on the first day of such LIBOR Interest Period shall be made as Prime Rate Loans, (y) any Loans that were to have been converted on the first day of such LIBOR Interest Period to LIBOR Loans 19 shall be converted to or continued as Prime Rate Loans and (z) any outstanding LIBOR Loans shall be converted, on the first day of such LIBOR Interest Period, to Prime Rate Loans. Until such notice has been withdrawn by the Agent, no further LIBOR Loans shall be made or continued as such, nor shall the Company have the right to convert Loans to LIBOR Loans. 2.14 Pro Rata Treatment and Payments. ------------------------------- (a) Unless the Agent shall have been notified in writing by any Bank prior to a Borrowing Date that such Bank will not make the amount that would constitute its Commitment Percentage of the borrowing on such date available to the Agent, the Agent may assume that such Bank (a "Reimbursing Bank") has made such amount available to the Agent on such Borrowing Date, and the Agent or any Bank may (but shall not be obligated), in reliance upon such assumption, make available to the Company a corresponding amount. If such amount is made available to the Agent on a date after such Borrowing Date, the Reimbursing Bank shall pay to the Agent on demand an amount equal to the product of (i) the daily average Federal Funds Effective Rate during such period as quoted by the Agent, times (ii) the amount of such Reimbursing Bank's Commitment Percentage of such borrowing, times (iii) a fraction the numerator of which is the number of days that elapse from and including such Borrowing Date to the date on which such Reimbursing Bank's Commitment Percentage of such borrowing shall have become immediately available to the Agent and the denominator of which is 360. A certificate of the Agent submitted to any Reimbursing Bank with respect to any amounts owing under this subsection shall be conclusive in the absence of manifest error. If a Reimbursing Bank's Commitment Percentage of such borrowing is not in fact made available to the Agent by such Reimbursing Bank within three Business Days of such Borrowing Date, the Agent shall be entitled to recover such amount, with interest thereon at the rate per annum applicable to Prime Rate Loans hereunder, on demand, from such Reimbursing Bank or the Company in such order and manner as Agent may determine in its discretion. (b) Each borrowing of Revolving Credit Loans by the Company from the Banks hereunder shall be made by the Banks pro rata in accordance with the respective Commitment Percentage of such Banks. Each payment by the Company on account of the principal of and interest on the Revolving Credit Loans, any commitment fee hereunder and any reduction of the Commitments of the Banks shall be payable to the Banks pro rata in accordance with the respective Commitment Percentages of the Banks; provided that in the event the Agent or any Bank pursuant to subsection 2.14(a) makes available to the Company a Reimbursing Bank's Commitment Percentage of a requested borrowing, the Agent or such Bank providing such funding shall be entitled to receive all payments that would otherwise be payable to such Reimbursing Bank until such time as the Agent or such Bank, as the case may be, shall have received an amount equal to the amount so funded on behalf of such Reimbursing Bank, together with interest thereon as provided in subsection 2.14(a). All payments (including prepayments) to be made by the Company hereunder and under the Notes, whether on account of principal, interest, fees or otherwise, shall be made without set off or counterclaim and shall be made prior to 1:00 P.M., Eastern time, on the due date thereof to the Agent, for the account of the Banks, at the Agent's office specified in subsection 10.2, in Dollars and in immediately available. funds. The Agent shall distribute such payments to the Banks promptly upon 20 receipt in like funds as received. If any payment hereunder becomes due and payable on a day other than a Business Day, such payment shall be extended to the next succeeding Business Day, and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension. 2.15 Extension of Termination Date. By the date which is one year and 60 ----------------------------- days prior to the initial Termination Date (and, if the initial Termination Date has been extended pursuant to this subsection, by the date which is one year and 60 days prior to the Termination Date as so extended by the first Extension), the Company may notify the Agent of its desire to extend the Termination Date each such Extension consisting of one additional year (each, an "Extension"), and its request that the Banks approve such Extension, whereupon the Agent shall promptly notify the Banks of such request. The Agent shall notify the Company of the decision of the Banks (to be made in the Banks' sole discretion) with respect thereto not later than 30 days after the Agent's receipt of the request for such Extension. If all of the Banks agree to the requested Extension, the Termination Date shall be so extended. 2.16 Annual Clean-Down of Revolving Credit Loans. For a period of at least ------------------------------------------- 30 consecutive days to occur during each Clean-Down Period, the aggregate principal amount of Revolving Credit Loans outstanding at all times during such 30-day period shall not exceed $5,000,000. 2.17 Illegality. Notwithstanding any other provision herein, if the ---------- adoption of or any change in any Requirement of Law or in the interpretation or application thereof shall make it unlawful for any Bank to make or maintain LIBOR Loans as contemplated by this Agreement, (a) the commitment of such Bank hereunder to make LIBOR Loans, continue LIBOR Loans as such and convert Prime Rate Loans to LIBOR Loans shall forthwith be cancelled and (b) such Bank's Loans then outstanding as LIBOR Loans, if any, shall be converted automatically to Prime Rate Loans on the respective last days of the then current LIBOR Interest Periods with respect to such Loans or within such earlier period as required by law. If any such conversion of a LIBOR Loan occurs on a day which is not the last day of the then current LIBOR Interest Period with respect thereto, the Company shall pay to such Bank such amounts, if any, as may be required pursuant to subsection 2.20. 2.18 Requirements of Law. ------------------- (a) If the adoption of or any change in any Requirement of Law or in the interpretation or application thereof or compliance by any Bank with any request or directive (whether having the force of law or not) from any central bank or other Governmental Authority made subsequent to the date hereof: (i) shall subject any Bank to any tax of any kind whatsoever with respect to this Agreement, any Note or any LIBOR Loan made by it, or change the basis of taxation of payments to such Bank in respect thereof (except for Non-Excluded Taxes covered by subsection 2.19 and changes in the rate of tax on the overall net income of such Bank); (ii) shall impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, deposits 21 or other liabilities in or for the account of, advances, loans or other extensions of credit by, or any other acquisition of funds by, any office of such Bank which is not otherwise included in the determination of the LIBOR Rate hereunder; or (iii) shall impose on such Bank any other condition; and the result of any of the foregoing is to increase the cost to such Bank, by an amount which such Bank deems to be material, of making, converting into, continuing or maintaining LIBOR Loans or to reduce any amount receivable hereunder in respect thereof, then, in any such case, the Company shall promptly pay such Bank, upon its demand, any additional amounts necessary to compensate such Bank for such increased cost or reduced amount receivable. If any Bank becomes entitled to claim any additional amounts pursuant to this subsection, it shall promptly notify the Company, through the Agent, of the event by reason of which it has become so entitled. A certificate as to any additional amounts payable pursuant to this subsection submitted by such Bank, through the Agent, to the Company shall be conclusive in the absence of manifest error. This covenant shall survive the termination of this Agreement and the payment of the Notes and all other amounts payable hereunder. (b) If any Bank shall have determined that the adoption of or any change in any Requirement of Law regarding capital adequacy or in the interpretation or application thereof or compliance by such Bank or any corporation controlling such Bank with any request or directive regarding capital adequacy (whether having the force of law or not) from any Governmental Authority made subsequent to the date hereof does or shall have the effect of reducing the rate of return on such Bank's or such corporation's capital as a consequence of its obligations hereunder to a level below that which such Bank or such corporation could have achieved but for such change or compliance (taking into consideration such Bank's or such corporation's policies with respect to capital adequacy) by an amount deemed by such Bank to be material, then from time to time, after submission by such Bank to the Company (with a copy to the Agent) of a written request therefore, the Company shall pay to such Bank such additional amount or amounts as will compensate such Bank for such reduction. 2.19 Taxes. ----- (a) All payments made by the Company under this Agreement and the Notes shall be made free and clear of, and without deduction or withholding for or on account of, any present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any Governmental Authority, excluding net income taxes and franchise taxes (imposed in lieu of net income taxes) imposed on the Agent or any Bank as a result of a present or former connection between the Agent or such Bank and the jurisdiction of the Governmental Authority imposing such tax or any political subdivision or taxing authority thereof or therein (other than any such connection arising solely from the Agent or such Bank having executed, delivered or performed its obligations or received a payment under, or enforced, this Agreement or the Notes). If any such non-excluded taxes, levies, imposts, duties, charges, fees deductions or withholdings ("Non-Excluded Taxes") are required to be withheld from any amounts payable to the Agent or any Bank 22 hereunder or under the Notes, the amounts so payable to the Agent or such Bank shall be increased to the extent necessary to yield to the Agent or such Bank (after payment of all Non-Excluded Taxes) interest or any such other amounts payable hereunder at the rates or in the amounts specified in this Agreement and the Notes, provided, however, that the Company shall not -------- ------- be required to increase any such amounts payable to any Bank that is not organized under the laws of the United States of America or a state thereof if such Bank fails to comply with the requirements of paragraph (b) of this subsection. Whenever any Non-Excluded Taxes are payable by the Company, as promptly as possible thereafter the Company shall send to the Agent for its own account or for the account of such Bank, as the case may be, a certified copy of an original official receipt received by the Company showing payment thereof. If the Company fails to pay any Non-Excluded Taxes when due to the appropriate taxing authority or fails to remit to the Agent the required receipts or other required documentary evidence, the Company shall indemnify the Agent and the Banks for any incremental taxes, interest or penalties that may become payable by the Agent or any Bank as a result of any such failure. The agreements in this subsection shall survive the termination of this Agreement and the payment of the Notes and all other amounts payable hereunder. (b) Each Bank that is not incorporated under the laws of the United States of America or a state thereof shall: (i) deliver to the Company and the Agent (A) two duly completed copies of United States Internal Revenue Service Form 1001 or 4224, or successor applicable form, as the case may be, and (B) an Internal Revenue Service Form W-8 or W-9, or successor applicable form, as the case may be; (ii) deliver to the Company and the Agent two further copies of any such form or certification on or before the date that any such form or certification expires or becomes obsolete and after the occurrence of any event requiring a change in the most recent form previously delivered by it to the Company; and (iii) obtain such extensions of time for filing and complete such forms or certifications as may reasonably be requested by the Company or the Agent; unless in any such case an event (including, without limitation, any change in treaty, law or regulation) has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent such Bank from duly completing and delivering any such form with respect to it and such Bank so advises the Company and the Agent. Such Bank shall certify (i) in the case of a Form 1001 or 4224, that it is entitled to receive payments under this Agreement without deduction or withholding of any United States federal income taxes and (ii) in the case of a Form W-8 or W-9, that it is entitled to an exemption from United States backup withholding tax. Each Person that shall become a Bank or a Participant pursuant to subsection 10.6 shall, upon the effectiveness of the related transfer, be required to provide all of the forms and statements required pursuant to this subsection, provided that in the case of a Participant such Participant shall furnish all such required forms and statements to the Bank from which the related participation shall have been purchased. 23 2.20 Indemnity. The Company agrees to indemnify each Bank and to hold each --------- Bank harmless from any loss or expense which such Bank may sustain or incur as a consequence of (a) default by the Company in making a borrowing of, conversion into or continuation of LIBOR Loans after the Company has given a notice requesting the same in accordance with the provisions of this Agreement, (b) default by the Company in making any prepayment after the Company has given a notice thereof in accordance with the provisions of this Agreement or (c) the making of a prepayment of LIBOR Loans on a day which is not the last day of an LIBOR Interest Period with respect thereto. Such indemnification may include, without limitation, any loss or expense incurred by reason of the liquidation or reemployment of deposits or other funds obtained to fund or maintain a LIBOR Loan during any LIBOR Interest Period, which any Bank may incur as a consequence of such failure to borrow, convert or continue, as the case may be. A certificate by Agent as to the amount of such loss, expense or increased costs shall, when submitted to the Company, be conclusive, in the absence of manifest error, unless the Company shall have provided the Agent with written notice of the Company's objection to all or any portion of such certificate not later than ten (10) days after the date on which such certificate is submitted to the Company. Any such LIBOR Loan shall not be deemed paid or satisfied until all such additional amounts are paid. Agent agrees to provide the Company with such information as the Company may reasonably request with respect to the calculation of any such losses or expenses. The covenant contained in this subsection 2.20 shall survive the termination of this Agreement and the payment of the Notes and all other amounts payable hereunder. SECTION 3. LETTERS OF CREDIT 3.1 L/C Commitment. -------------- (a) Prior to the date hereof, Society National Bank issued various letters of credit on behalf of the Company. Subject to the terms and conditions hereof, the Issuing Bank, in reliance on the agreements of the other Banks set forth in subsection 3.5(a), agrees to issue standby letters of credit for the account of the Company and its Designated Subsidiaries on any Business Day on or after the Initial Funding Date until the date which is five Business Days prior to the end of the Commitment Period in such form as may be approved from time to time by the Issuing Bank (all such letters of credit outstanding on the date hereof and all letters of credit to be issued hereunder, together with all extensions, renewals and replacements thereof, are herein collectively referred to as the "Letters of Credit"); provided that the Issuing Bank shall have no obligation to -------- issue any Letter of Credit if at the time of such issuance a Default exists or an Event of Default has occurred and is continuing or if, after giving effect to such issuance, (i) the L/C Obligations would exceed the L/C Commitment or (ii) the Available Revolving Credit Commitment would be less than zero. Each Letter of Credit shall (i) be denominated in Dollars, (ii) expire no later than the Termination Date and (iii) expire no later than a date one year after its issuance. Each Letter of Credit (except for previously issued Letters of Credit) shall be issued as credit support for (x) insurance and vendor financial obligations, (y) performance bonds issued on behalf of the Company or any Designated Subsidiary in its ordinary course of business or (z) other similar financial support for obligations of the Company. 24 (b) Each Letter of Credit shall be subject to the Uniform Customs and, to the extent not inconsistent therewith, the laws of the State of the Issuing Bank's principal place of business. (c) The Issuing Bank shall not at any time be obligated to issue any Letter of Credit hereunder if such issuance would conflict with, or cause the Issuing Bank or any L/C Participant to exceed any limits imposed by, any applicable Requirement of Law. 3.2 Procedure for Issuance of Letters of Credit. The Company may from ------------------------------------------- time to time request that the Issuing Bank issue a Letter of Credit by delivering to the Issuing Bank at its address for notices specified herein an Application therefor, completed to the satisfaction of the Issuing Bank, and such other certificates, documents and other papers and information as the Issuing Bank may request. Upon receipt of any Application, the Issuing Bank will process such Application and the certificates, documents and other papers and information delivered to it in connection therewith in accordance with its customary procedures and shall promptly issue the Letter of Credit requested thereby (but in no event shall the Issuing Bank be required to issue any Letter of Credit earlier than three Business Days after its receipt of the Application therefor and all such other certificates, documents and other papers and information relating thereto) by issuing the original of such Letter of Credit to the beneficiary thereof or as otherwise may be agreed by the Issuing Bank and the Company. The Issuing Bank shall furnish a copy of such Letter of Credit to the Company and the other Banks promptly following the issuance thereof. 3.3 Fees, Commissions and Other Charges. ----------------------------------- (a) The Company shall pay to the Agent a letter of credit facility fee (the "L/C Fee"), upon issuance of a Letter of Credit, in an amount equal to the product of (i) the face amount of such Letter of Credit, times (ii) the applicable Letter of Credit Rate, times (iii) the term of such Letter of Credit, expressed as a fraction equal to the number of days of such term divided by three hundred sixty (360). The applicable Letter of Credit Rate shall be determined based upon the calculations submitted to the Banks pursuant to subsection 6.2(b) and shall be effective as of the first day of the fiscal quarter next following the date such calculations are submitted to the Banks, provided that such calculations shall be subject to the review and approval of the Banks. Any change in the applicable Letter of Credit Rate as a consequence of the Bank's review of the aforesaid calculation after the effective date of such Letter of Credit Rate shall be retroactively applied to the first day such Letter of Credit Rate became effective. In the event that the Letter of Credit Rate can not be determined at any time because the Company's financial statements for the immediately preceding fiscal quarter are not available at such time, the Letter of Credit Rate shall be presumed to be the same as the Letter of Credit Rate as of the last FQED for which the Company's financial statements were available. Any change in the L/C Fee as a consequence of a change in the Letter of Credit Rate shall be effective as of the date of such change in the Letter of Credit Rate. Any increase or reduction in the L/C Fee as a consequence of an increase or reduction in the Letter of Credit Rate, as the case may be, shall be credited against or deducted from the next L/C Fee, as the case may be. In the event any Letter of Credit is terminated or the available credit thereunder is permanently reduced prior to the stated expiry date thereof, the Company shall be entitled to a rebate of that portion of the L/C Fee paid with respect to such Letter of Credit which is allocable pro rata to the portion of the Letter of Credit that 25 has been terminated or reduced, as the case may be, as determined by the Issuing Bank. Each L/C Fee payable under this subsection 3.3 shall be shared ratably among the Banks in accordance with their respective Commitment Percentages. (b) In addition to the L/C Fees, the Company shall pay or reimburse the Issuing Bank for such normal and customary costs and expenses as are incurred or charged by the Issuing Bank in issuing, processing, effecting payment under, amending or otherwise administering any Letter of Credit. (c) The Agent shall, promptly following its receipt thereof, distribute to the Issuing Bank and the L/C Participants all fees and commissions received by the Agent for their respective accounts pursuant to this subsection. 3.4 Reimbursement Obligation of the Company. The Company agrees to --------------------------------------- reimburse the Issuing Bank on each date on which the Issuing Bank notifies the Company of the date and amount of a draft presented under any Letter of Credit and paid by the Issuing Bank for the amount of (a) such draft so paid and (b) any taxes (other than income taxes), fees, charges or other costs or expenses incurred by the Issuing Bank in connection with such payment. Each such payment shall be made to the Issuing Bank at its address for notices specified herein in Dollars and in immediately available funds. Interest shall be payable on any and all amounts remaining unpaid by the Company under this subsection from the date such amounts become payable (whether at stated maturity, by acceleration or otherwise) until payment in full at the rate which would be payable on any outstanding Loans which were then overdue under subsection 2.3. Each drawing under any Letter of Credit shall constitute a request by the Company to the Agent for the borrowing pursuant to subsection 2.1 of Revolving Credit Loans in the amount of such drawing and any reimbursement made by an L/C Participant pursuant to subsection 3.5 shall constitute a Revolving Credit Loan pursuant to subsection 2.3. 3.5 L/C Draws and Reimbursements. ---------------------------- (a) Each L/C Participant unconditionally and irrevocably agrees with the Issuing Bank that, if a draft is paid under any Letter of Credit for which the Issuing Bank is not reimbursed in full by the Company in accordance with the terms of this Agreement, such L/C Participant shall pay to the Issuing Bank upon demand at the Issuing Bank's address for notices specified herein an amount equal to such L/C Participant's Commitment Percentage of the amount of such draft, or any part thereof, which is not so reimbursed through participation or otherwise. In furtherance of the foregoing, the Issuing Bank irrevocably agrees to grant and hereby grants to each L/C Participant, and, to induce the Issuing Bank to issue Letters of Credit hereunder, each L/C Participant irrevocably agrees to accept and purchase and hereby accepts and purchases from the Issuing Bank, on the terms and conditions hereinafter stated, for such L/C Participant's own account and risk an undivided interest equal to such L/C Participant's Commitment Percentage in the Issuing Bank's obligations and rights under each Letter of Credit issued hereunder and the amount of each draft paid by the Issuing Bank thereunder. (b) If any amount required to be paid by any L/C Participant to the Issuing Bank pursuant to subsection 3.5(a) in respect of any unreimbursed portion of any payment made by the Issuing Bank under any Letter of Credit is paid to the Issuing Bank 26 within three Business Days after the date such payment is due, such L/C Participant shall pay to the Issuing Bank on demand an amount equal to the product of (I) such amount, times (2) the daily average Federal Funds ----- Effective Rate, as quoted by the Issuing Bank, during the period from and including the date such payment is required to the date on which such payment is immediately available to the Issuing Bank, times (3) a fraction ----- the numerator of which is the number of days that elapse during such period and the denominator of which is 360. If any such amount required to be paid by any L/C Participant pursuant to subsection 3.4(a) is not in fact made available to the Issuing Bank by such L/C Participant within three Business Days after the date such payment is due, the Issuing Bank shall be entitled to recover from such L/C Participant, on demand, such amount with interest thereon calculated from such due date at the rate per annum equal to the Prime Rate. A certificate of the Issuing Bank submitted to any L/C Participant with respect to any amounts owing under this subsection shall be conclusive in the absence of manifest error. (c) Whenever, at any time after the Issuing Bank has made payment under any Letter of Credit and has received from any L/C Participant its share of such payment in accordance with subsection 3.5(a), the Issuing Bank receives any payment related to such Letter of Credit (whether directly from the Company or otherwise, including proceeds of collateral applied thereto by the Issuing Bank), or any payment of interest on account thereof, the Issuing Bank will distribute to such L/C Participant its share thereof; provided, however, that in the event that any such payment -------- ------- received by the Issuing Bank shall be required to be returned by the Issuing Bank, such L/C Participant shall return to the Issuing Bank the portion thereof previously distributed by the Issuing Bank to it. 3.6 Obligations Absolute. The Company's obligations under this Section 3 -------------------- shall be absolute and unconditional under any and all circumstances and irrespective of any set-off, counterclaim or defense to payment which the Company may have or have had against the Issuing Bank or any beneficiary of a Letter of Credit. The Company also agrees with the Issuing Bank that the Issuing Bank shall not be responsible for, and the Company's Reimbursement Obligations under subsection 3.4 shall not be affected by, among other things, the validity or genuineness of documents or of any endorsements thereon, even though such documents shall in fact prove to be invalid, fraudulent or forged, or any dispute between or among the Company and any beneficiary of any Letter of Credit or any other party to which such Letter of Credit may be transferred or any claims whatsoever of the Company against any beneficiary of such Letter of Credit or any such transferee. The Issuing Bank shall not be liable for any error, omission, interruption or delay in transmission, dispatch or delivery of any message or advice, however transmitted, in connection with any Letter of Credit, except for errors or omissions caused by the Issuing Bank's gross negligence or willful misconduct. The Company agrees that any action taken or omitted by the Issuing Bank under or in connection with any Letter of Credit or the related drafts or documents, if done in the absence of gross negligence or willful misconduct and in accordance with the standards of care specified in the Uniform Commercial Code of the State of Connecticut, shall be binding on the Company and shall not result in any liability of the Issuing Bank to the Company. 3.7 Letter of Credit Payments. If any draft shall be presented for ------------------------- payment under any Letter of Credit, the Issuing Bank shall promptly notify the Company and the Banks of the date and amount thereof. The responsibility of the Issuing Bank to the Company in connection with 27 any draft presented for payment under any Letter of Credit shall, in addition to any payment obligation expressly provided for in such Letter of Credit, be limited to determining that the documents (including each draft) delivered under such Letter of Credit in connection with such presentment are in conformity with such Letter of Credit. 3.8 Application. To the extent that any provision of any Application ----------- related to any Letter of Credit is inconsistent with the provisions of this Section 3, the provisions of this Section 3 shall apply. SECTION 4. REPRESENTATIONS AND WARRANTIES To induce the Banks to enter into this Agreement and to make the Loans and issue or participate in the Letters of Credit the Company hereby represents and warrants to the Agent and each Bank that: 4.1 Financial Condition. ------------------- (a) The consolidated balance sheet of the Company and its consolidated Subsidiaries as at January 30, 1993 and the related consolidated statements of operations and retained earnings and of cash flows for the fiscal year ended on such date, reported on by Arthur Andersen & Co., copies of which have heretofore been furnished to each Bank, are complete and correct and present fairly the consolidated financial condition of the Company and its consolidated Subsidiaries as at such date, and the consolidated results of their operations and their consolidated cash flows for the fiscal year then ended. The unaudited consolidated balance sheet of the Company and its consolidated Subsidiaries as at December 25, 1993 and the related unaudited consolidated statements of operations and retained earnings for the eleven-month period ended on such date, certified by a Responsible Officer, copies of which have heretofore been furnished to each Bank, are complete and correct and present fairly the consolidated financial condition of the Company and its consolidated Subsidiaries as at such date, and the consolidated results of their operations for the eleven-month period then ended (subject to normal year-end audit adjustments). All such financial statements, including the related schedules and notes thereto, have been prepared in accordance with GAAP applied consistently throughout the periods involved (except as approved by such accountants or Responsible Officer, as the case may be, and as disclosed therein). (b) Except as set forth on Schedule II, neither the Company nor any of its consolidated Subsidiaries had, at the date of the most recent balance sheet referred to in subsection 4.1(a), any material Guarantee Obligation, contingent liability or liability for taxes, or any long-term lease or unusual forward or long-term commitment, including, without limitation, any interest rate or foreign currency swap or exchange transaction, which is not reflected in the financial statements referred to in subsection 4.1(a) or in the notes thereto. (c) Except as set forth on Schedule III, during the period from January 30, 1993 to and including the date hereof there has been no sale, transfer or other disposition by the Company or any of its consolidated Subsidiaries of any material part of its business or property and no purchase or other acquisition of any business or 28 property (including any capital stock of any other Person) material in relation to the consolidated financial condition of the Company and its consolidated Subsidiaries at January 30, 1993. 4.2 No Change. Since January 30, 1993 (a) there has been no development --------- or event nor any prospective development or event which has had or could have a Material Adverse Effect and (b) except as set forth on Schedule IV or as permitted by this Agreement, no dividends or other distributions have been declared, paid or made upon the Capital Stock of the Company or any of its Subsidiaries nor has any of the Capital Stock of the Company been redeemed, retired, purchased or otherwise acquired for value by the Company or any of its Subsidiaries. 4.3 Corporate Existence; Compliance with Law. Each of the Company and ---------------------------------------- each Designated Subsidiary (a) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (b) has the corporate power and authority, and the legal right, to own and operate its property, to lease the property it operates as lessee and to conduct the business in which it is currently engaged in each jurisdiction where the failure to have such power, authority or right would have a Material Adverse Effect, (c) is duly qualified as a foreign corporation and in good standing under the laws of each jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such qualification except where the failure so to qualify could not have a Material Adverse Effect and (d) is in compliance with all Requirements of Law except to the extent that the failure to comply therewith could not, in the aggregate, have a Material Adverse Effect. 4.4 Corporate Power; Authorization; Enforceable Obligations. The Company ------------------------------------------------------- has the corporate power and authority, and the legal right, to make, deliver and perform this Agreement, the Notes, each Application and the other Loan Documents to which it is a party, to borrow hereunder and to grant the Liens pursuant to the Security Documents to which it is a party and has taken all necessary corporate action to authorize the borrowings on the terms and conditions of this Agreement and the Notes, the grant of the Liens pursuant to the Security Documents to which it is a party and the execution, delivery and performance of this Agreement, the Notes, each Application and each other Loan Document to which it is a party. No consent or authorization of, filing with or other act by or in respect of, any Governmental Authority or any other Person is required in connection with the borrowings hereunder, the grant of the Liens pursuant to the Security Documents or the execution, delivery, performance, validity or enforceability of this Agreement, the Notes, each Application or any other Loan Document except that prior authorization of the SBA is required for any exercise of remedies under the Subsidiary Pledge Agreement with respect to the FinOp common stock pledged thereunder and under the Company Pledge Agreement with respect to the common stock of CONNA Corporation pledged thereunder. This Agreement and each other Loan Document to which the Company is a party (except the Notes) has been, and each Note will be, duly executed and delivered on behalf of the Company. This Agreement and each other Loan Document to which the Company is a party (except the Notes) constitutes, and each Note when executed and delivered will constitute, a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law). 29 4.5 No Legal Bar. The execution, delivery and performance of this ------------ Agreement, the Notes, each Application and each other Loan Document, the grant of the Liens pursuant to the Security Documents, the borrowings hereunder and the use of the proceeds thereof will not violate any Requirement of Law or Contractual Obligation of the Company or of any Designated Subsidiary and will not result in, or require, the creation or imposition of any Lien on any of its or their respective properties or revenues pursuant to any such Requirement of Law or Contractual Obligation. 4.6 No Material Litigation. No litigation, investigation or proceeding of ---------------------- or before any arbitrator or Governmental Authority is pending or, to the knowledge of the Company, threatened by or against the Company or any Designated Subsidiary or against any of its or their respective properties or revenues (a) with respect to this Agreement, the Notes, any Application or any other Loan Document or any of the transactions contemplated hereby or thereby or (b) which could have a Material Adverse Effect, except with respect to matters described on Schedule VII. 4.7 No Default. Neither the Company nor any Designated Subsidiary is in ---------- default under or with respect to any of its Contractual Obligations or Capital Stock in any respect which could have a Material Adverse Effect. No Default or Event of Default has occurred and is continuing. 4.8 Ownership of Property; Liens. Each of the Company and each Designated ---------------------------- Subsidiary has good record and marketable title in fee simple to, or a valid leasehold interest in, all its real property, and good title to all its other property except for any defect in title thereto or leasehold interest therein which could not in the aggregate have a Material Adverse Effect, and none of the property owned or leased by the Company or any Designated Subsidiary is subject to any Lien except as permitted by subsection 7.3 or which could in the aggregate not have a Material Adverse Effect. 4.9 Intellectual Property. The Company and each Designated Subsidiary --------------------- owns, or is licensed to use, all trademarks, tradenames, copyrights, technology, know-how and processes necessary for the conduct of its business as currently conducted except for those the failure to own or license which could not have a Material Adverse Effect (the "Intellectual Property"). No claim has been asserted and is pending by any Person challenging or questioning the use of any such Intellectual Property or the validity or effectiveness of any such Intellectual Property, nor does the Company know of any valid basis for any such claim which could or might have a Material Adverse Effect. The use of such Intellectual Property by the Company and each Designated Subsidiary does not infringe on the rights of any Person, except for such claims and infringements that, in the aggregate, do not have a Material Adverse Effect. 4.10 No Burdensome Restrictions. No Requirement of Law or Contractual -------------------------- Obligation of the Company or any Designated Subsidiary has a Material Adverse Effect. 4.11 Taxes. Each of the Company and its Subsidiaries has filed or caused ----- to be filed all tax returns which, to the knowledge of the Company, are required to be filed (the "Tax Returns") and has paid all taxes shown to be due and payable on said returns or on any assessments made against it or any of its property and all other taxes, fees or other charges imposed on it or any of its property by any Governmental Authority (other than any the amount or validity of which are currently being contested in good faith by appropriate proceedings and 30 with respect to which reserves in conformity with GAAP have been provided on the books of the Company or its Subsidiaries, as the case may be) where the failure to so file such Tax Returns or to pay such taxes could or might have a Material Adverse Effect; no tax Lien has been filed, and, to the knowledge of the Company, no claim is being asserted, with respect to any such tax, fee or other charge. Schedule XII sets forth a complete and correct list of all audits concerning any Tax Return that are being conducted by any Governmental Authority or are otherwise in progress on the Closing Date. 4.12 Federal Regulations. No part of the proceeds of any Loans will be ------------------- used for "purchasing" or "carrying" any "margin stock" within the respective meanings of each of the quoted terms under Regulation U of the Board of Governors of the Federal Reserve System as now and from time to time hereafter in effect or for any purpose which violates the provisions of the Regulations of such Board of Governors. If requested by any Bank or the Agent, the Company will furnish to the Agent and each Bank a statement to the foregoing effect in conformity with the requirements of FR Form U-1 referred to in said Regulation U. 4.13 ERISA. No Reportable Event has occurred during the five-year period ----- prior to the date on which this representation is made or deemed made with respect to any Plan, and each Plan has complied in all material respects with the applicable provisions of ERISA and the Code. The present value of all accrued benefits under each Single Employer Plan maintained by the Company or any Commonly Controlled Entity (based on those assumptions used to fund the Plans) did not, as of the last annual valuation date prior to the date on which this representation is made or deemed made, exceed the value of the assets of such Plan allocable to such accrued benefits. Neither the Company nor any Commonly Controlled Entity has had a complete or partial withdrawal from any Multiemployer Plan except as set forth on Part A of Schedule V, and neither the Company nor any Commonly Controlled Entity would become subject to any liability under ERISA if the Company or any such Commonly Controlled Entity were to withdraw completely from all Multiemployer Plans as of the valuation date most closely preceding the date on which this representation is made or deemed made, except as set forth on Part B of Schedule V. No such Multiemployer Plan is in Reorganization or Insolvent. The present value (determined using actuarial and other assumptions which are reasonable in respect of the benefits provided and the employees participating) of the liability of the Company and each Commonly Controlled Entity for post-retirement benefits to be provided to their current and former employees under Plans which are welfare benefit plans (as defined in Section 3(1) of ERISA) does not, in the aggregate, exceed the assets under all such Plans allocable to such benefits. 4.14 Investment Company Act; Other Regulations. Neither the Company nor ----------------------------------------- any Subsidiary is an "investment company", or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. Neither the Company nor any Designated Subsidiary is subject to regulation under any Federal or State statute or regulation which limits its ability to incur Indebtedness. 4.15 Subsidiaries. All the Subsidiaries of the Company (other than the ------------ Designated Subsidiaries) are listed on Part B of Schedule VI except for those corporations or other entities not listed which are not known to the Company on the Closing Date due to the Company's or a Subsidiary's acquisition of certain businesses prior to the Closing Date, which corporations or other entities not so listed are immaterial to the business, operations, property, condition (financial or otherwise) of the Company or any Designated Subsidiary. The assets owned by the 31 Designated Subsidiaries on the Closing Date represent in the aggregate at least 90% of the total assets of the Company and its Subsidiaries as shown on the audited consolidated balance sheet as at January 30, 1993 referred to in subsection 4.1(a). The revenues of the Designated Subsidiaries represent in the aggregate at least 90% of the revenues of the Company and its Subsidiaries as shown on the audited consolidated statement of operations and retained earnings for the period ended January 30, 1993 referred to in subsection 4.1(a). 4.16 Purpose of Loans. The proceeds of the Loans shall be used by the ---------------- Company for the working capital needs of the Company, including, without limitation, financing any Reimbursement Obligations and financing any other general corporate purposes of the Company or any Designated Subsidiary in the ordinary course of the Company's or such Subsidiary's business. 4.17 Environmental Matters. To the best knowledge of the Company, each of --------------------- the representations and warranties set forth in paragraphs (a) through (e) of this subsection is true and correct with respect to each parcel of real property heretofore or now owned or operated by the Company or any Subsidiary (the "Properties"), except as set forth on Schedule VII and except to the extent that the facts and circumstances giving rise to any such failure to be so true and correct could not have a Material Adverse Effect: (a) The Properties do not contain, and have not previously contained, in, on, or under, including, without limitation, the soil and groundwater thereunder, any Hazardous Materials. (b) The Properties and all operations and facilities at the Properties are in compliance with all Environmental Laws, and there is no Hazardous Materials contamination or violation of any Environmental Law which could interfere with the continued operation of any of the Properties or impair the fair saleable value of any thereof. (c) Neither the Company nor any of its Subsidiaries has received any complaint, notice of violation, alleged violation, investigation or advisory action or of potential liability or of potential responsibility regarding environmental protection matters or permit compliance with regard to the Properties, nor is the Company aware that any Governmental Authority is contemplating delivering to the Company or any of its Subsidiaries any such notice. (d) Hazardous Materials have not been generated, treated, stored, disposed of, at, on or under any of the Properties, nor have any Hazardous Materials been transferred from the Properties to any other location. (e) There are no governmental, administrative or judicial proceedings pending or contemplated under any Environmental Laws to which the Company or any of its Subsidiaries is or will be named as a party with respect to the Properties, nor are there any consent decrees or other decrees, consent orders, administrative orders or other orders, or other administrative or judicial requirements outstanding under any Environmental Law with respect to any of the Properties. 32 4.18 Security Documents. ------------------ (a) The provisions of each Pledge Agreement are effective to create in favor of the Agent for the ratable benefit of the Banks a legal, valid and enforceable security interest in all right, title and interest of the pledgor in the Collateral as described therein. Each Pledge Agreement constitutes a fully perfected first lien on, and security interest in, all right, title and interest of the pledgor in the Collateral described therein. (b) The provisions of the Company Security Agreement are effective to create in favor of the Agent for the ratable benefit of the Banks a legal, valid and enforceable security interest in all right, title and interest of the Company in the Collateral as described therein. The Company Security Agreement constitutes a fully perfected first lien on, and security interest in, all right, title and interest of the Company in the Collateral described therein, and no Uniform Commercial Code financing statements have been filed by any other Person with respect to such Collateral other than as may be filed in connection with this Agreement. 4.19 Senior Debt. The extensions of credit under this Agreement, the Notes ----------- and each Application will be, and are hereby designated as, Senior Debt under and as defined in each of the Subordinated Indenture and the Senior Subordinated Indenture. SECTION 5. CONDITIONS PRECEDENT 5.1 Conditions to Initial Extension of Credit. The agreement of each Bank ----------------------------------------- to make the initial extension of credit requested to be made by it is subject to the satisfaction of the following conditions precedent: (a) Agreement, Notes. The Agent shall have received (i) with a ---------------- counterpart for each Bank, this Agreement, executed and delivered by a duly authorized officer of the Company, and (ii) for the account of each Bank, a Revolving Credit Note conforming to the requirements hereof and executed by a duly authorized officer of the Company. (b) Other Loan Documents. The Agent shall have received, with a -------------------- counterpart for each Bank, (i) the Subsidiary Guarantee, executed and delivered by a duly authorized officer of each Designated Subsidiary, (ii) the Company Pledge Agreement, executed and delivered by a duly authorized officer of the Company, (iii) the Subsidiary Pledge Agreement, executed and delivered by a duly authorized officer of each Designated Subsidiary and (iv) the Company Security Agreement, executed and delivered by a duly authorized officer of the Company. (c) Senior Subordinated Notes. The Agent shall have received, with a ------------------------- copy for each Bank, a certificate, dated on or before the Initial Funding Date, executed by a duly authorized officer of the Company certifying that, on or before the Initial Funding Date, the Company shall have received at least $75,000,000 in cash (less deduction of all underwriting discounts and commissions and any costs, fees and expenses related thereto) from the issuance of the Senior Subordinated Notes on terms and conditions set forth in the Registration Statement with respect to the Senior Subordinated Notes. 33 (d) Redemption of Subordinated Debentures. The Agent shall have ------------------------------------- received, with a copy for each Bank, a certificate, dated on or before the Initial Funding Date, executed by a duly authorized officer of the Company certifying that, on or before the Initial Funding Date, the Company shall have (i) initiated the process of redemption of the Subordinated Debentures and (ii) indefeasibly deposited in an escrow or trust account funds in an amount sufficient to effect such redemption of the Subordinated Debentures, each in accordance with the provisions of the Subordinated Indenture. (e) Satisfaction of Existing Credit Agreement Indebtedness. The ------------------------------------------------------ Agent shall have received, with a copy for each Bank, a certificate, dated on or before the Initial Funding Date, executed by a duly authorized officer of the Company certifying that, on or before the Initial Funding Date, the Company shall have paid in full all indebtedness of the Company outstanding under that certain Credit Agreement with PNC Bank, Kentucky, Inc., Chemical Bank and Fleet. (f) Pledged Stock; Stock Powers; UCC Filings. ---------------------------------------- (i) The Agent shall have received (A) certificates representing the stock pledged pursuant to each Pledge Agreement, together with an undated stock power executed in blank for each such certificate, and (B) the Acknowledgments and Consents attached as exhibits to each Pledge Agreement, in each case executed and delivered by a duly authorized officer of the relevant issuer. (ii) All documents (including, without limitation, financing statements) required to be filed in respect of the Company Security Agreement in order to create in favor of the Agent for the ratable benefit of the Banks a perfected, first-priority security interest in the Collateral described therein with respect to which a security interest may be perfected by filing under the Uniform Commercial Code shall have been properly filed in each office listed on Schedule VIII. The Agent shall have received acknowledgement copies of all such filings (or, in lieu thereof, other evidence satisfactory to it that all such filings have been made); and the Agent shall have received evidence that all necessary filing fees and all taxes or other expenses related to such filings have been paid in full. (g) Corporate Proceedings. The Agent shall have received, with a --------------------- counterpart for each Bank, a copy of the resolutions, in form and substance satisfactory to the Agent, of the Board of Directors of the Company and each Designated Subsidiary authorizing (i) the execution, delivery and performance of the Loan Documents to which it is a party, (ii) with respect to the Company, the borrowings contemplated hereunder, (iii) with respect to the Company, the grant of the Liens pursuant to the Security Documents to which it is a party, and (iv) with respect to each Designated Subsidiary, the grant of the Liens pursuant to the Subsidiary Pledge Agreement, in each case certified by the Secretary or an Assistant Secretary of the Company or such Designated Subsidiary at the Closing Date, which certificate shall state that the resolutions thereby certified have not been amended, modified, revoked or rescinded and shall be in form and substance satisfactory to the Agent. 34 (h) Incumbency Certificates. The Agent shall have received a ----------------------- certificate dated the Closing Date, of the Secretary or an Assistant Secretary of the Company and each Designated Subsidiary as to the incumbency and signature of the officer or officers signing the Loan Documents to which such Person is a party, together with evidence of the incumbency of such Secretary or Assistant Secretary. (i) Corporate Documents. The Agent shall have received, with a ------------------- counterpart for each Bank, true and complete copies of the certificate of incorporation and by-laws of the Company and each Designated Subsidiary, certified at the Closing Date as complete and correct copies thereof, by the Secretary or an Assistant Secretary of the Company or such Designated Subsidiary. (j) Good Standing Certificates. The Agent shall have received, with a -------------------------- copy for each Bank, copies of certificates dated as of a recent date from the Secretary of State or other appropriate authority of such jurisdiction, evidencing the good standing of the Company and each Designated Subsidiary. (k) Financial Statements. The Agent shall have received, with copies -------------------- for each Bank, copies of the financial statements referred to in subsection 4.1 and all other documents requested by the Agent in connection with its completion of a testing and review of the assets and liabilities of the Company and its Subsidiaries. (l) Closing Certificate. The Agent shall have received, with a ------------------- counterpart for each Bank, a Closing Certificate, substantially in the form of Exhibit F and dated the Initial Funding Date, executed by a duly authorized officer of the Company and each Designated Subsidiary. (m) Lien Searches. The Agent shall have received the results of a ------------- recent search by a Person satisfactory to the Agent, of Uniform Commercial Code and other filings which may have been filed with respect to the intangible personal property of the Company or any Designated Subsidiaries in those locations of which the Agent notifies the Company prior to the Closing Date. (n) Litigation. No suit, action, investigation, inquiry or other ---------- proceeding (including, without limitation, the enactment or promulgation of a statute or rule) by or before any arbitrator or any Governmental Authority shall be formally instituted or threatened and no preliminary or permanent injunction or restraining order by a state or federal court shall have been entered or threatened (i) in connection with any Loan Document or any of the transactions contemplated hereby or thereby or (ii) which, in the reasonable opinion of the Banks, could have a Material Adverse Effect. (o) No Violation. The consummation of the transactions contemplated ------------ by this Agreement, the Notes, each Application and the other Loan Documents shall not contravene, violate or conflict with, nor involve the Agent or any Bank in any violation of, any Requirement of Law. (p) Fees. The Agent and each Bank shall have received the fees to be ---- received by it on the Closing Date referred to in subsection 2.8 and those fees to be paid 35 on the Closing Date by the Company pursuant to its written agreement or agreements executed prior to the date hereof. (q) Legal Opinions. The Agent shall have received, with a -------------- counterpart for each Bank, the executed legal opinions of Schatz & Schatz, Ribicoff & Kotkin, counsel to the Company and its Subsidiaries, and Gregory Wozniak, General Counsel to the Company and its Subsidiaries, each dated the Closing Date and substantially in the form of Exhibit H with such changes thereto as the Agent shall approve. Such legal opinions shall cover such other matters incident to the transactions contemplated by this Agreement as the Agent may reasonably require. (r) Consents, Licenses and Approvals. The Agent shall have received, -------------------------------- with a counterpart for each Bank, a certificate, dated the Closing Date, executed by a duly authorized officer of the Company stating that all consents, authorizations, notices and filings necessary or advisable in connection with the financings contemplated by this Agreement and the continuing operations of the Company, have been obtained and are in full force and effect, except where the failure to obtain such consents, authorizations, notices or filings could not have a Material Adverse Effect. 5.2 Conditions to Each Extension of Credit. The agreement of each Bank to -------------------------------------- make any extension of credit requested to be made by it on any date (including, without limitation, its initial extension of credit) is subject to the satisfaction on the Initial Funding Date and on such borrowing date of the following conditions precedent: (a) Representations and Warranties. Each of the representations and ------------------------------ warranties made by the Company and each Subsidiary in or pursuant to the Loan Documents shall be true and correct in all material respects on and as of such date as if made on and as of such date; provided that, with respect -------- to extensions of credit made after the Initial Funding Date, Guarantee Obligations incurred after the Initial Funding Date and in accordance with the terms of this Agreement shall not be deemed a breach of the representation and warranty set forth in subsection 4.1(b) to the extent that such Guarantee Obligations are not described in the financial statements described in subsection 4.1(a). (b) No Default. No Default or Event of Default shall have occurred ---------- and be continuing on such date or after giving effect to the extension of credit requested to be made on such date. (c) Additional Documents. The Agent shall have received each -------------------- additional document, instrument, legal opinion or item of information reasonably requested by it, including, without limitation, a copy of any debt instrument, security agreement or other material contract to which the Company or any Subsidiary may be a party. (d) Additional Matters. All corporate and other proceedings, and all ------------------ documents, instruments and other legal matters in connection with the transactions contemplated by this Agreement and the other Loan Documents shall be satisfactory in form and substance to the Agent, and the Agent shall have received such other 36 documents and legal opinions in respect of any aspect or consequence of the transactions contemplated hereby or thereby as it shall reasonably request. Each borrowing by and Letter of Credit issued on behalf of the Company hereunder shall constitute a representation and warranty by the Company as of the date of such Loan or Letter of Credit that the conditions contained in this subsection 5.2 have been satisfied. SECTION 6. AFFIRMATIVE COVENANTS The Company hereby agrees that, so long as the Commitments remain in effect, any Note or any Letter of Credit remains outstanding and unpaid or any other amount is owing to any Bank or the Agent hereunder, the Company shall and (except in the case of delivery of financial information, reports and notices) shall cause each of its Subsidiaries to: 6.1 Financial Statements. Furnish to each Bank: -------------------- (a) as soon as available, but in any event within 90 days after the end of each fiscal year of the Company, a copy of the consolidated balance sheet of the Company and its consolidated Subsidiaries as at the end of such year and the related consolidated statements of operations and retained earnings and of cash flows for such year, setting forth in each case in comparative form the figures for the previous year, reported on without a "going concern" or like qualification or exception, or qualification arising out of the scope of the audit, by Arthur Andersen & Co. or other independent certified public accountants of nationally recognized standing not unacceptable to the Required Banks; (b) as soon as available, but in any event not later than 45 days after the end of each of the first three fiscal quarters of each fiscal year of the Company, the unaudited consolidated balance sheet of the Company and its consolidated Subsidiaries as at the end of such quarter, the related unaudited consolidated statement of operations and retained earnings of the Company and its consolidated Subsidiaries, for such quarter and the portion of the fiscal year through the end of such quarter, and the related unaudited consolidated statement of cash flows of the Company and its consolidated Subsidiaries for the portion of the fiscal year through the end of such quarter, setting forth in each case in comparative form the figures for the previous year, certified by a Responsible Officer as being fairly stated in all material respects when considered in relation to the consolidated financial statements of the Company and its consolidated Subsidiaries (subject to normal year-end audit adjustments); and (c) as soon as available, but in any event not later than 45 days after the last day of each of the 12 fiscal periods of each fiscal year of the Company (other than the last such fiscal period in each such fiscal year), (i) the unaudited consolidated balance sheet of the Company and its consolidated Subsidiaries as at the end of such fiscal period and the related unaudited consolidated statement of operations and retained earnings of the Company and its consolidated Subsidiaries for such fiscal period and the portion of the fiscal year of the Company through the end of such fiscal period, setting forth in each case in comparative form the figures for the previous year and (ii) a statement setting forth the aggregate amount of Capital Expenditures made by the Company and its consolidated Subsidiaries during such fiscal period (which aggregate 37 amount shall separately specify the total amount of Capital Expenditures consisting of cash and the total amount of Capital Expenditures consisting of Financing Leases and other non-cash financings), in each case, certified by a Responsible Officer as being fairly stated in all material respects when, in the case of the financial statements delivered pursuant to clause (i) above, considered in relation to the consolidated financial statements of the Company and its consolidated Subsidiaries (subject to normal year- end audit adjustments); all such financial statements to be complete and correct in all material respects and to be prepared in reasonable detail and in accordance with GAAP applied consistently throughout the periods reflected therein and with prior periods (except as approved by such accountants or officer, as the case may be, and disclosed therein). 6.2 Certificates; Other Information. Furnish to each Bank: ------------------------------- (a) concurrently with the delivery of the financial statements referred to in subsection 6.1(a), a certificate of the independent certified public accountants reporting on such financial statements stating that in making the examination necessary therefor no knowledge was obtained of any Default or Event of Default, except as specified in such certificate; (b) (i) concurrently with the delivery of each of the financial statements referred to in subsections 6.1 (a) and 6.1 (b), a certificate of a Responsible Officer (which certificate shall set forth, in detail, all interim and preparatory figures and calculations used in determining the Company's satisfaction of its covenants and agreements contained in subsection 7.1) stating that, to the best of such Officer's knowledge, each of the Company and its Subsidiaries during such period has observed or performed all of its covenants and other agreements, and satisfied every condition, contained in this Agreement, the Notes and the other Loan Documents to which it is a party to be observed, performed or satisfied by it, and that such Officer has obtained no knowledge of any Default or Event of Default except as specified in such certificate and (ii) concurrently with the delivery of the financial statements referred to in subsection 6.1(a), a certificate of a Responsible Officer setting forth the aggregate Net Cash Proceeds received by the Company and any of its Subsidiaries during the preceding fiscal year, the portion thereof which has been reinvested by the Company or its Subsidiaries in fixed or capital assets or POS Program Expenses, the portion thereof which has been applied by or on behalf of the Company to make any mandatory prepayment in accordance with subsection 2.11 and any remaining balances in respect of such Net Cash Proceeds which have not been so reinvested or applied; (c) as soon as delivered, but in any event within 120 days after the end of each fiscal year of the Company, a copy of the letter, addressed to the Company, of the certified public accountants who prepared the financial statements referred to in subsection 6.1(a) for such fiscal year and otherwise referred to as a "management letter"; (d) as soon as available, but in any event within 30 days after the end of each fiscal year of the Company, a copy of (i) the projections by the Company of the operating budget and cash flow budget of the Company and its Subsidiaries for the succeeding 38 fiscal year and (ii) the projected consolidated balance sheet of the Company and its consolidated subsidiaries as at the last day of the succeeding fiscal year, such projections and projected balance sheet to be accompanied by a certificate of a Responsible Officer to the effect that such projections and projected balance sheet have been prepared on the basis of sound financial planning practice and that such Officer has no reason to believe they are incorrect or misleading in any material respect; (e) within five days after the same are sent, copies of all financial statements and reports which the Company sends to its stockholders, and within five days after the same are filed, copies of all financial statements and reports which the Company may make to, or file with, the Securities and Exchange Commission or any successor or analogous Governmental Authority; and (f) promptly, such additional financial and other information as any Bank may from time to time reasonably request. 6.3 Payment of Obligations. Pay, discharge or otherwise satisfy at or ---------------------- before maturity or before they become delinquent, as the case may be, all its obligations of whatever nature, except where the amount or validity thereof is currently being contested in good faith by appropriate proceedings and reserves in conformity with GAAP with respect thereto have been provided on the books of the Company or its Subsidiaries, as the case may be or except where the failure to pay, discharge or otherwise satisfy could not have a Material Adverse Effect. 6.4 Conduct of Business and Maintenance of Existence. Continue to engage ------------------------------------------------ in business of the same general type as now conducted by it and preserve, renew and keep in full force and effect its corporate existence and take all reasonable action to maintain all rights, privileges and franchises necessary or desirable in the normal conduct of its business except as otherwise permitted pursuant to subsection 7.5; comply with all Contractual Obligations and Requirements of Law except to the extent that failure to comply therewith could not, in the aggregate, have a Material Adverse Effect. 6.5 Maintenance of Property; Insurance. (a) Keep all property useful and ---------------------------------- necessary in its business in good working order and condition except where the failure to do so could not have a Material Adverse Effect; (b) maintain with financially sound and reputable insurance companies insurance on all its property in at least such amounts and against at least such risks (but including in any event public liability, product liability and business interruption) as are usually insured against in the same general area by companies engaged in the same or a similar business; and furnish to each Bank, upon written request, full information as to the insurance carried; provided that a program of self- -------- insurance maintained by the Company and its Subsidiaries with respect to certain product liability, workmen's compensation, environmental liability, public liability, accident and health and property insurance risks shall comply with the requirements of subsection 6.5(b) so long as adequate reserves in connection with such self-insurance program are taken and maintained in accordance with GAAP and such program is otherwise reasonably satisfactory to the Agent. 6.6 Inspection of Property; Books and Records; Discussions. Keep proper ------------------------------------------------------ books of records and account in which full, true and correct entries in conformity with GAAP and all Requirements of Law shall be made of all dealings and transactions in relation to its business 39 and activities; and permit representatives of any Bank, upon reasonable notice to the Company, to visit and inspect any of its properties and examine and make abstracts from any of its books and records at any reasonable time and as often as may reasonably be desired and to discuss the business, operations, properties and financial and other condition of the Company and its Subsidiaries with officers and employees of the Company and its Subsidiaries and with its independent certified public accountants. 6.7 Notices. Promptly give notice to the Agent and each Bank of: ------- (a) the occurrence of any Default or Event of Default; (b) any (i) default or event of default under any Contractual Obligation of the Company or any of its Subsidiaries or (ii) litigation, investigation or proceeding which may exist at any time between the Company or any of its Subsidiaries and any Governmental Authority, which in either case, if not cured or if adversely determined, as the case may be, would have a Material Adverse Effect; (c) any litigation or proceeding affecting the Company or any of its Subsidiaries in which the amount involved is $1,000,000 or more and not covered by insurance or in which injunctive or similar relief is sought which individually or in the aggregate could or might have a Material Adverse Effect; provided that the Company shall not be required to give notice of any such litigation or proceeding if the Company has reasonably determined, after consultation with counsel, that the possibility is remote that such litigation or proceeding will result in a judgment of $1,000,000 or more or in injunctive or similar relief against the Company or its Subsidiaries; (d) the following events, as soon as possible and in any event within 30 days after the Company knows or has reason to know thereof: (i) the occurrence or expected occurrence of any Reportable Event with respect to any Plan, or any withdrawal from, or the termination, Reorganization or Insolvency of any Multiemployer Plan or (ii) the institution of proceedings or the taking of any other action by the PBGC or the Company or any Commonly Controlled Entity or any Multiemployer Plan with respect to the withdrawal from, or the terminating, Reorganization or Insolvency of, any Plan; (e) as soon as the Company knows or has reason to know that it or any Subsidiary has become liable for remediation and/or environmental compliance expenses and/or fines, penalties or other charges which, in the aggregate, are in excess of $2,000,000 at any one time outstanding (net of all reimbursements in respect of such amounts from any state trust funds which have been or are reasonably expected to be made to the Company or its Subsidiaries and have been recognized as a receivable or may properly be set off as a credit against such liabilities in accordance with GAAP); and (f) a material adverse change in the business, operations, property, condition (financial or otherwise) or prospects of the Company and its Subsidiaries taken as a whole. 40 Each notice pursuant to this subsection shall be accompanied by a statement of a Responsible Officer setting forth details of the occurrence referred to therein and stating what action the Company proposes to take with respect thereto. 6.8 Environmental Laws. ------------------ (a) Comply with, and insure compliance by all tenants and subtenants, if any, with, all Environmental Laws and obtain and comply with and maintain, and ensure that all tenants and subtenants obtain and comply with and maintain, any and all licenses, approvals, registrations or permits required by Environmental Laws, except to the extent that failure to do so could not have a Material Adverse Effect; (b) Conduct and complete all investigations, studies, sampling and testing, and all remedial, removal and other actions required under Environmental Laws and promptly comply with all lawful orders and directives of all Governmental Authorities respecting Environmental Laws, except to the extent that the same are being contested in good faith by appropriate proceedings and the pendency of such proceedings could not have a Material Adverse Effect; (c) Defend, indemnify and hold harmless the Agent and the Banks, and their respective employees, agents, officers and directors, from and against any claims, demands, penalties, fines, liabilities, settlements, damages, costs and expenses of whatever kind or nature known or unknown, contingent or otherwise, arising out of, or in any way relating to the violation of or noncompliance with any Environmental Laws by the Company or any of its Subsidiaries, or any orders, requirements or demands of Governmental Authorities related thereto, including, without limitation, attorney's and consultant's fees, investigation and laboratory fees, court costs and litigation expenses, except to the extent that any of the foregoing arise out of the gross negligence or willful misconduct of the party seeking indemnification therefor. (d) Prepare and deliver, at least as frequently as once each fiscal quarter, to the Agent and to each other Bank, a report setting forth a summary, as of the end of such fiscal quarter, of (i) the gross amount of all sums accrued in respect of any remediation required by applicable Environmental Laws, (ii) all reimbursements in respect of such amounts from any state trust funds which have been or are reasonably expected to be made to the Company or its Subsidiaries and have been recognized as a receivable or may properly be set off as a credit against the cost of such remediation under GAAP and (iii) the net amount of all sums accrued in respect of such remediation costs. 6.9 Additional Designated Subsidiaries. If, at any time following the ---------------------------------- delivery of the financial statements referred to in subsections 6.1(a) and (b), the Company cannot (x) represent and warrant to the Agent and the Banks as to the matters set forth in either the second or third sentences of subsection 4.15 because a Subsidiary or certain Subsidiaries not named a Designated Subsidiary on the Closing Date causes the Designated Subsidiaries to fail to reach the percentage threshold set forth in either of such sentences or (y) pursuant to the provisions of Section 4.14 of the Senior Subordinated Indenture, is required to cause one or more of its Subsidiaries to become an additional "Guarantor" (as defined in the Senior Subordinated Indenture) (in either case, an "Undesignated Subsidiary"), then as soon as possible and in any 41 event concurrently with any actions taken in respect thereof under the Senior Subordinated Indenture or within 15 days after the delivery of such financial statements, (a) the Company shall deliver to the Agent, with a counterpart for each Bank, (i) a supplement to the Subsidiary Guarantee, satisfactory in form and substance to the Agent, whereby such Undesignated Subsidiary guarantees the Obligations (as defined in the Subsidiary Guarantee and subject to the Maximum Guaranteed Amount, as defined therein, with respect to such Undesignated Subsidiary) and agrees to be bound by the terms and conditions of the Subsidiary Guarantee, (ii) the Capital Stock of any such Undesignated Subsidiary, pledged and delivered by the holder thereof pursuant to a supplement to the pledge agreement to which such holder is a party, duly authorized, executed and delivered by such holder and otherwise in form and substance satisfactory to the Agent and (iii) an opinion of counsel to such Undesignated Subsidiary and such pledgor addressed to the Agent and the Banks and covering such matters as the Agent may reasonably request and (b) Schedule VI shall be deemed amended to include the name of such Undesignated Subsidiary. SECTION 7. NEGATIVE COVENANTS The Company hereby agrees that, so long as the Commitments remain in effect, any Note or any Letter of Credit remains outstanding and unpaid or any other amount is owing to any Bank or the Agent hereunder, the Company shall not, and (except with respect to subsection 7.1) shall not permit any of its Subsidiaries to, directly or indirectly: 7.1 Financial Condition Covenants. ----------------------------- (a) EBIRT to Interest and Rent. For any period of four consecutive -------------------------- fiscal quarters ending on any FQED, permit the ratio of (i) Consolidated EBIRT for such period to (ii) the sum of Consolidated Interest Expense and Consolidated Rent Expense for such period to be less than 1.0 to 1.0. (b) EBITDA less Capital Expenditures to Interest. For any period of -------------------------------------------- four consecutive fiscal quarters ending on any FQED, permit the ratio of (i) an amount equal to Consolidated EBITDA minus Capital Expenditures (which, for purposes of this test only, shall not include (A) any Capital Expenditures of the Company which are financed by Indebtedness permitted by subsection 7.2(d) or (B) any Capital Expenditures with respect to the acquisition of assets which are subsequently leased through a Sale/Leaseback Transaction which lease would be treated as an operating lease under GAAP), in each case for such period, to (ii) Consolidated Interest Expense for such period to be less than 1.0 to 1.0; provided that, -------- on any FQED on which such ratio shall be less than 1.0 to 1.0, no breach of this test shall be deemed to occur until the earlier to occur of (i) the failure of the Company to negotiate in good faith with the Agent and the Banks to reset the amounts of Capital Expenditures permitted under the terms of this Agreement and (ii) the date on which the Company has delivered, pursuant to subsection 6.1(b), its quarterly financial statements with respect to its fiscal quarter ending on such FQED. (c) Consolidated Indebtedness to Consolidated EBITDA. For any period ------------------------------------------------ of four consecutive fiscal quarters ending on any FQED to occur during any "Test Period" set forth below, permit the ratio of (i) Consolidated Indebtedness at the end of such period 42 to (ii) Consolidated EBITDA for such period to be more than the ratio set forth opposite such period below:
Test Period Ratio ----------- ----- Closing Date through Third 4.25 to 1.0 FQED 1995 First day of Fourth FQED 4.00 to 1.0 1995 through the Fourth Fiscal Quarter of FYED 1996 First day of First FQED 3.75 to 1.0 1997 and each Fiscal Quarter thereafter
(d) Maintenance of Net Worth. Permit Consolidated Net Worth of the ------------------------ Company to be less than the Minimum Consolidated Net Worth. 7.2 Limitation on Indebtedness. Create, incur, assume or suffer to exist -------------------------- any Indebtedness, except: (a) Indebtedness in respect of the Loans, the Notes and the Letters of Credit and other obligations of the Company and its Designated Subsidiaries under the Loan Documents; (b) Indebtedness of the Company to any Designated Subsidiary and of any Designated Subsidiary to the Company or any other Designated Subsidiary; (c) Indebtedness outstanding on the Closing Date and listed on Part B of Schedule IX; (d) any Indebtedness of the Company or any Designated Subsidiary incurred after the Closing Date to finance the acquisition, improvement or construction of fixed or capital assets or POS Program Expenses (whether pursuant to a loan, a Financing Lease or otherwise), including any Indebtedness incurred in connection with any transaction permitted under subsection 7.3(g); (e) Indebtedness of FinOp to the SBA incurred in connection with the Company's on-going franchise program, in an aggregate amount not exceeding $20,000,000 at any one time outstanding; and (f) Indebtedness under any Interest Rate Agreement. 7.3 Limitation on Liens. Create, incur, assume or suffer to exist any ------------------- Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, except for: 43 (a) Liens for taxes not yet due or which are being contested in good faith by appropriate proceedings, provided that adequate reserves with -------- respect thereto are maintained on the books of the Company or its Subsidiaries, as the case may be, in conformity with GAAP; (b) carriers', warehousemen's, mechanics', materialmen's, repairmen's or other like Liens arising in the ordinary course of business which are not overdue for a period of more than 60 days or which are being contested in good faith by appropriate proceedings; (c) pledges or deposits in connection with workers' compensation, unemployment insurance and other social security legislation and deposits securing liability to insurance carriers under insurance or self-insurance arrangements; (d) deposits to secure the performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; (e) easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business 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 or materially interfere with the ordinary conduct of the business of the Company or such Subsidiary; (f) Liens in existence on the Closing Date listed on Schedule X, securing Indebtedness permitted by subsection 7.2(c), provided that no such -------- Lien is spread to cover any additional property after the Closing Date and that the amount of Indebtedness secured thereby is not increased; (g) Liens securing Indebtedness of the Company or a Designated Subsidiary permitted by subsection 7.2 (d), provided that (i) such Liens -------- shall be created promptly upon the acquisition, improvement or completion of the construction of such fixed or capital asset or the incurrence of such POS Program Expense, as the case may be (and in any event no later than the earlier of (A) twelve months from the date on which the construction of such fixed or capital asset is completed or such POS Program Expense is incurred and (B) 24 months from the date on which the real estate, on which such fixed or capital asset is located, was purchased by the Company, (ii) such Liens do not at any time encumber any property other than the property financed by such Indebtedness, (iii) the amount of Indebtedness secured thereby is not increased and (iv) the principal amount of Indebtedness secured by any such Lien shall at no time exceed 100% of the original purchase price of such property; and (h) Liens created under the Security Documents. 7.4 Limitation on Guarantee Obligations. Create, incur, assume or suffer ----------------------------------- to exist any Guarantee Obligation except: (a) the Subsidiary Guarantee; 44 (b) Guarantee Obligations arising from the issuance of the Letters of Credit issued pursuant to this Agreement and any Application issued for the account of the Company or any Designated Subsidiary in the ordinary course of its business, not to exceed an aggregate face amount and unreimbursed obligations of the L/C Commitment at any one time outstanding; (c) Guarantee Obligations arising with respect to the Franchisee Guarantees or under the Senior Subordinated Indenture; and (d) Guarantee Obligations arising as a result of guarantees by the Company of any Indebtedness of a consolidated Subsidiary that would appear as a liability on a consolidated balance sheet of the Company and its consolidated Subsidiaries. 7.5 Limitations on Fundamental Changes. Enter into any merger, ---------------------------------- consolidation or amalgamation, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution), or convey, sell, lease, assign, transfer or otherwise dispose of, all or substantially all of its property, business or assets, or make any material change in its present method of conducting business, except: (a) any Subsidiary of the Company may be merged or consolidated with or into the Company (provided that the Company shall be the continuing or -------- surviving corporation) or with or into any one or more wholly-owned Designated Subsidiaries of the Company (provided that the wholly-owned -------- Designated Subsidiary or Designated Subsidiaries shall be the continuing or surviving corporation and shall be a member of the Company's consolidated group for financial reporting and tax purposes); (b) any wholly-owned Designated Subsidiary may sell, lease, transfer or otherwise dispose of any or all of its assets (upon voluntary liquidation or otherwise) to the Company or any other wholly-owned Designated Subsidiary of the Company; and (c) any Subsidiary which is not a Designated Subsidiary (i) may be merged or consolidated with or into any other Subsidiary and (ii) may liquidate, wind up or dissolve itself (provided, in the case of clause (ii) only, that the Required Banks consent to such action (which consent will not be unreasonably withheld)). 7.6 Limitation on Sale of Assets. Convey, sell, lease, assign, transfer ---------------------------- or otherwise dispose of any of its property, business or assets (including, without limitation, receivables and leasehold interests), whether now owned or hereafter acquired, except: (a) the sale of inventory in the ordinary course of business; (b) as permitted by subsection 7.5(b); and (c) Asset Dispositions (as defined in the Senior Subordinate Indenture), such dispositions being subject to the provisions of subsection 2.11(b) hereof. 7.7 Limitation on Dividends. Declare or pay any dividend (other than (i) ----------------------- dividends payable solely in common stock of a Subsidiary so long as any such common stock dividend 45 is pledged by the stockholder pursuant to the Pledge Agreement to which such stockholder is a party, (ii) dividends payable solely in the common stock of the Company to stockholders of the Company, or (iii) dividends by a Subsidiary to another Subsidiary or to the Company) on, or make any payment on account of, or set apart assets for a sinking or other analogous fund for, the purchase, redemption, defeasance, retirement or other acquisition of, any shares of any class of Capital Stock of the Company or any Subsidiary or any warrants or options to purchase any such Stock, whether now or hereafter outstanding, or make any other distribution in respect thereof, either directly or indirectly, whether in cash or property or in obligations of the Company or any Subsidiary, (collectively, a "Dividend or Redemption") unless such Dividend or Redemption, when aggregated with any other Dividend or Redemption, and any repurchase by the Company of Senior Subordinated Indebtedness, made since May 1, 1993, would not exceed 50% of Consolidated Net Income accrued on a cumulative basis from May 1, 1993 to the end of the most recent fiscal quarter ending prior to the date of each such proposed Dividend or Redemption calculated on a cumulative basis as if such period were a single accounting period. 7.8 Limitation on Capital Expenditures. Make or commit to make (by way of ---------------------------------- the acquisition of securities of a Person or otherwise) any Capital Expenditure (excluding (i) with respect to both the "Gross Amount" and the "Net Amount" set forth below, any expenses incurred in connection with normal replacement and maintenance programs properly charged to current operations and (ii) with respect to only the "Net Amount" referred to below, (A) any Capital Expenditures which have been financed with Indebtedness permitted by subsection 7.2 (d) and (B) any Capital Expenditure with respect to the acquisition of assets which are subsequently leased through a Sale/Leaseback Transaction which lease would be treated as an operating lease under GAAP), in the aggregate for the Company and its Subsidiaries during any of the fiscal years of the Company set forth below, either the "Gross Amount" or the "Net Amount" set forth opposite such fiscal year below:
Fiscal Year Gross Amount Net Amount ----------- ------------ ----------- 1995 $28,000,000 $19,000,000 1996 $36,500,000 $22,500,000 1997 and thereafter $38,000,000 $24,000,000
provided that, POS Program Expenses shall not be subject to, nor be included in the calculations of, the foregoing maximum amounts. 7.9 Limitation on Investments, Loans and Advances. Make any advance, loan, --------------------------------------------- extension of credit or capital contribution to, or purchase any stock, bonds, notes, debentures or other securities of or any assets constituting a business unit of, or make any other investment in (each, an "Investment"), any Person, except: (a) extensions of trade credit in the ordinary course of business; (b) Investments in Cash Equivalents; 46 (c) loans and advances to employees of the Company or its Subsidiaries in the ordinary course of business in an aggregate amount for the Company and its Subsidiaries not to exceed $750,000 in the aggregate at any one time outstanding (including the principal amount of the loans listed on Schedule XI hereto); (d) Investments by the Company in its Subsidiaries and investments by a Designated Subsidiary in the Company and in other Designated Subsidiaries (other than, in either case, any investments in FinOp); provided that any -------- Designated Subsidiary making an investment or receiving the proceeds thereof is a member of the Company's consolidated group for financial reporting and tax purposes; (e) Investments after the date hereof by the Company or any Designated Subsidiary in FinOp in an aggregate amount of up to $2,500,000; (f) Investments by the Insurance Subsidiary of its statutory or regulatory reserves in accordance with the laws of the jurisdiction of its incorporation; (g) Investments of amounts held in depositary accounts in financial institutions geographically proximate to the location of the Company's or a Subsidiary's retail operations; provided that such amounts are withdrawn -------- from such accounts and deposited into the Company's cash concentration account at least once during each seven-day period; (h) Investments as a result of stock repurchases permitted by subsection 7.7; (i) Investments by the Company or any Designated Subsidiary (other than a Permitted Joint Venture Investment) in any Person not a Subsidiary on the Closing Date; provided that (i) any such Investment (whether made in one transaction or a series of transactions) does not exceed $2,000,000 (inclusive of commissions, fees and other transaction costs, but not including any portion of the Investments with respect to which the consideration is the capital stock of the Company), (ii) all such Investments made after the Closing Date do not exceed $5,000,000 in the aggregate (inclusive of commissions, fees and other transaction costs, but not including any portion of the Investments with respect to which the consideration is the capital stock of the Company), (iii) any such acquired Person that is a Subsequently Acquired Subsidiary executes and delivers to the Agent, with a counterpart for each Bank, a supplement to the Subsidiary Guarantee, satisfactory in form and substance to the Agent, whereby such Subsequently Acquired Subsidiary guarantees the Obligations (as defined in the Subsidiary Guarantee subject to the Maximum Guaranteed Amount, as defined therein, with respect to such Subsequently Acquired Subsidiary) and agrees to be bound by the terms and conditions of the Subsidiary Guarantee), (iv) the Capital Stock of any such acquired Person is pledged and delivered by the holder thereof pursuant to a supplement to the pledge agreement to which such holder is a party, duly authorized, executed and delivered by such holder and otherwise in form and substance satisfactory to the Agent and (v) in connection with the matters contemplated by the foregoing clauses (iii) and (iv) the Person executing such supplement contemporaneously therewith causes to be delivered an opinion of counsel to such Person so executing such supplement and such pledgor, addressed to the Agent and the Banks and covering such matters as the Agent may 47 request. Notwithstanding the foregoing, the Company or any Subsidiary shall not make any Investment in any Person which exceeds 1% of the voting power represented by the Capital Stock then outstanding of such Person if the Board of Directors or other governing body of such Person has disapproved or recommended against any such Investment or refused to negotiate or terminated negotiations, with the Company or such Subsidiary; and (j) Permitted Joint Venture Investments. 7.10 Limitation on Optional Payments and Modifications of Debt Instruments. ---------------------------------------------------------------------- (a) Make any optional payment or prepayment on or redemption of any Indebtedness (other than (i) Indebtedness pursuant to this Agreement, (ii) the redemption of the Subordinated Debentures or (iii) the repayment of that certain Indebtedness evidenced by the Company's existing Credit Agreement with PNC Bank, Kentucky, Inc., Chemical Bank and Fleet), including, without limitation, the Senior Subordinated Notes (except to the extent permitted by subsection 7.7), (b) amend, modify or change, or consent or agree to any amendment, modification or change to any of the terms of the Senior Subordinated Notes or the Senior Subordinated Indenture, including, without limitation, any amendment to the subordination provisions thereof or (c) amend, modify or change, or consent or agree to any amendment, modification or change to, any of the terms relating to the payment or prepayment of principal of or interest on any Indebtedness (other than Indebtedness pursuant to this Agreement or the Senior Subordinated Notes), other than, with respect to the Indebtedness described in the foregoing clauses (b) and (c), any such amendment, modification or change the primary effect of which would extend the maturity or reduce the amount of any payment of principal thereof or the primary effect of which would reduce the rate or extend the date for payment of interest thereon. 7.11 Transactions with Affiliates. Enter into any transaction, including, ---------------------------- without limitation, any purchase, sale, lease or exchange of property or the rendering of any service, with any Affiliate unless such transaction is not otherwise prohibited under this Agreement, is in the ordinary course of the Company's or such Subsidiary's business (including in connection with the Company's on-going franchise program) and is upon fair and reasonable terms no less favorable to the Company or such Subsidiary, as the case may be, than it would obtain in a comparable arm's length transaction with a Person not an Affiliate. 7.12 Sale and Leaseback. Enter into any arrangement with any Person ------------------ providing for the leasing by the Company or any Subsidiary of real or personal property which has been or is to be sold or transferred by the Company or such Subsidiary to such Person or to any other Person to whom funds have been or are to be advanced by such Person on the security of such property or rental obligations of the Company or such Subsidiary (a "Sale/Leaseback Transaction") unless (a) the proceeds received therefrom are not required by subsections 2.11 and 7.6 to be applied to prepay the Loans, or (b) the proceeds received therefrom are applied, if so required under subsections 2.11 and 7.6, to prepay the Loans in accordance with such subsections. 7.13 Corporate Documents. Amend its Certificate of Incorporation (except ------------------- to increase the number of authorized shares of common stock). 48 7.14 Fiscal Year. Permit the fiscal year of the Company to end on a day ----------- other than on the Saturday closest to January 31 of each calendar year. 7.15 Limitation on Negative Pledge Clauses. Enter into any agreement, ------------------------------------- other than (i) as permitted by this Agreement and (ii) any industrial revenue bonds, purchase money or other mortgages, the Senior Subordinated Indenture or a lease the obligations of which are required in accordance with GAAP to be capitalized on a balance sheet of the Company (in which cases, any prohibition or limitation shall only be effective against the assets financed thereby), with any Person other than the Banks pursuant hereto which prohibits or limits the ability of the Company or any of its Subsidiaries to create, incur, assume or suffer to exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired. SECTION 8. EVENTS OF DEFAULT If any of the following events shall occur and be continuing: (a) The Company shall fail to pay any principal of any Note or any Reimbursement Obligation when due in accordance with the terms thereof or hereof; or the Company shall fail to pay any interest on any Note or any Reimbursement Obligation, or any other amount payable hereunder, within five days after any such interest or other amount becomes due in accordance with the terms thereof or hereof; or (b) Any representation or warranty made or deemed made by the Company or any Subsidiary in any Loan Document to which the Company or such Subsidiary is a party or which is contained in any certificate, document or financial or other statement furnished at any time under or in connection with this Agreement or any other Loan Document shall prove to have been incorrect in any material respect on or as of the date made or deemed made; or (c) The Company shall default in the observance or performance of any agreement contained in Section 6 (other than subsection 6.7) and Section 7; or (d) The Company shall default in the observance or performance of any other agreement contained in this Agreement (other than as provided in paragraphs (a) through (c) of this Section), and such default shall continue unremedied for a period of 30 days after the earlier of (i) an officer of the Company becoming aware of such default or (ii) notice of such default to the Company by Agent or any Bank; or (e) Any Subsidiary shall default in the observance or performance of any agreement contained in any Loan Document to which it is a party, and such default shall continue unremedied for a period of 30 days after the earlier of (i) an officer of any such Subsidiary becoming aware of such default or (ii) notice of such default to such Subsidiary by Agent or any Bank; or (f) The Company or any of its Subsidiaries shall (i) default in any payment of principal of or interest of any Indebtedness (other than the Notes) which has an aggregate principal amount in excess of $500,000, individually or in the aggregate, or in the payment of any Guarantee Obligation under which the maximum liability of the 49 Company or such Subsidiary exceeds $500,000, individually or in the aggregate, beyond the period of grace (not to exceed 30 days), if any, provided in the instrument or agreement under which such Indebtedness or Guarantee Obligation was created; or (ii) default in the observance or performance of any other agreement or condition relating to any such Indebtedness or Guarantee Obligation or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the holder or holders of such Indebtedness or beneficiary or beneficiaries of such Guarantee Obligation (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause, with the giving of notice if required, such Indebtedness to become due prior to its stated maturity or such Guarantee Obligation to become payable; or (g) (i) The Company or any of its Subsidiaries shall commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its assets, or the Company or any of its Subsidiaries shall make a general assignment for the benefit of its creditors; or (ii) there shall be commenced against the Company or any of its Subsidiaries any case, proceeding or other action of a nature referred to in clause (i) above which (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed, undischarged or unbonded for a period of 60 days; or (iii) there shall be commenced against the Company or any of its Subsidiaries any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets which results in the entry of an order for any such relief which shall not have been vacated, discharged, or stayed or bonded pending appeal within 60 days from the entry thereof; or (iv) the Company or any of its Subsidiaries shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause (i), (ii), or (iii) above; or (v) the Company or any of its Subsidiaries shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due; or (h) (i) Any Person shall engage in any "prohibited transaction (as defined in Section 406 of ERISA or Section 4975 of the Code) involving any Plan, (ii) any "accumulated funding deficiency" (as defined in Section 302 of ERISA), whether waived or not, shall exist with respect to any Plan, (iii) a Reportable Event shall occur with respect to, or proceedings shall commence to have a trustee appointed, or a trustee shall be appointed, to administer or to terminate, any Single Employer Plan, which Reportable Event or commencement of proceedings or appointment of a trustee is, in the reasonable opinion of the Required Banks, likely to result in the termination of such Plan for purposes of Title IV of 59 ERISA, (iv) any Single Employer Plan shall terminate for purposes of Title IV of ERISA, (v) the Company or any Commonly Controlled Entity shall, or in the reasonable opinion of the Required Banks is likely to, incur any liability in connection with a withdrawal from, or the Insolvency or Reorganization of, a Multiemployer Plan or (vi) any 50 other event or condition shall occur or exist, with respect to a Plan; and in each case in clauses (i) through (vi) above, such event or condition, together with all other such events or conditions, if any, could subject the Company or any of its Subsidiaries to any tax, penalty or other liabilities in the aggregate material in relation to the business, operations, property or financial or other condition of the Company and its Subsidiaries taken as a whole; or (i) One or more judgments or decrees shall be entered against the Company or any of its Subsidiaries involving in the aggregate a liability (to the extent not paid or covered by insurance) of $1,000,000 or more and all such judgments or decrees shall not have been vacated, discharged, stayed or bonded pending appeal within 60 days from the entry thereof; or (j) If at any time the Company or all or any of its Subsidiaries shall become liable for remediation and/or environmental compliance expenses and/or fines, penalties or other charges which, in the aggregate, are in excess of $3,000,000 at any one time outstanding (net of all reimbursements in respect of such amounts from any state trust funds which have been or are reasonably expected to be made to the Company or its Subsidiaries and have been recognized as a receivable or may properly be set off as a credit against such liabilities under GAAP); or (k) A Change of Control shall have occurred; or (l) The Indebtedness of DM Associates under that certain Loan Agreement dated February 6, 1992, between DM Associates and the Connecticut Development Authority shall become due prior to the stated maturity of such Indebtedness; or (m) The Subsidiary Guarantee or any other Guarantee Obligation in respect of the Company's Indebtedness hereunder shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect, or any Person having a Guarantee Obligation in respect of the Company's Indebtedness hereunder, including without limitation each Designated Subsidiary (or any Person acting on behalf of any such Person) shall deny or disaffirm such Guarantee Obligation. then, and in any such event, (A) if such event is an Event of Default specified in clause (i) or (ii) of paragraph (g) above with respect to the Company, automatically the Commitments shall immediately terminate and the Loans hereunder (with accrued interest thereon) and all other amounts owing under this Agreement (including, without limitation, all amounts of L/C Obligations, regardless of whether the beneficiaries of the then outstanding Letters of Credit shall have presented the documents required thereunder) and the Notes shall immediately become due and payable, and (B) if such event is any other Event of Default, either or both of the following actions may be taken: (i) with the consent of the Required Banks, the Agent may, or upon the request of the Required Banks, the Agent shall, by notice to the Company declare the Commitments to be terminated forthwith, whereupon the Commitments shall immediately terminate; and (ii) with the consent of the Required Banks, the Agent may, or upon the request of the Required Banks, the Agent shall, by notice of default to the Company, declare the Loans hereunder (with accrued interest thereon) and all other amounts owing under this Agreement (including, without limitation, all amounts of L/C Obligations, regardless of whether the 51 beneficiaries of the then outstanding Letters of Credit shall have presented the documents required thereunder) and the Notes to be due and payable forthwith, whereupon the same shall immediately become due and payable. With respect to all Letters of Credit with respect to which presentment for honor shall not have occurred at the time of an acceleration pursuant to the preceding paragraph, the Company shall at such time deposit in a cash collateral account to be opened by the Agent (the "Cash Collateral Account") an amount equal to the aggregate then undrawn and unexpired amount of such Letters of Credit. The Company hereby grants to the Agent, for the benefit of the Issuing Bank and the L/C Participants, a security interest in the Cash Collateral Account and all amounts from time to time on deposit therein to secure all obligations of the Company in respect of such Letters of Credit under this Agreement and the other Loan Documents. The Company shall execute and deliver to the Agent, for the account of the Issuing Bank and the L/C Participants, such further documents and instruments as the Agent may request to evidence the creation and perfection of such security interest in the Cash Collateral Account. Amounts held in the Cash Collateral Account shall be applied by the Agent to the payment of drafts drawn under such Letters of Credit, and the unused portion thereof after all such Letters of Credit shall have expired or been fully drawn upon, if any, shall be applied to repay other obligations of the Company hereunder and under the Notes. After all such Letters of Credit shall have expired or been fully drawn upon, all Reimbursement Obligations shall have been satisfied and all other obligations of the Company hereunder and under the Notes shall have been paid in full, the balance, if any, in the Cash Collateral Account shall be returned to the Company. Except as expressly provided above in this Section, presentment, demand, protest and all other notices of any kind are hereby expressly waived. SECTION 9. THE AGENT 9.1 Appointment. Each Bank hereby irrevocably designates and appoints ----------- Fleet Bank, National Association as the Agent of such Bank under this Agreement and the other Loan Documents, and each such Bank irrevocably authorizes Fleet Bank, National Association, as the Agent for such Bank, to take such action on its behalf under the provisions of this Agreement and the other Loan Documents and to exercise such powers and perform such duties as are expressly delegated to the Agent by the terms of this Agreement and the other Loan Documents, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in this Agreement, the Agent shall not have any duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any Bank, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against the Agent. 9.2 Delegation of Duties. The Agent may execute any of its duties under -------------------- this Agreement and the other Loan Documents by or through agents or attorneys- in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Agent shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care. 9.3 Exculpatory Provisions. Neither the Agent nor any of its officers, ---------------------- directors, employees, agents, attorneys-in-fact or Affiliates shall be (i) liable for any action lawfully taken or 52 omitted to be taken by it or such Person under or in connection with this Agreement or any other Loan Document (except for its or such Person's own gross negligence or willful misconduct) or (ii) responsible in any manner to any of the Banks for any recitals, statements, representations or warranties made by the Company or any officer thereof contained in this Agreement or any other Loan Document or in any certificate, report, statement or other document referred to or provided for in, or received by the Agent under or in connection with, this Agreement or any other Loan Document or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or the Notes or any other Loan Document or for any failure of the Company to perform its obligations hereunder or thereunder. The Agent shall not be under any obligation to any Bank to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or records of the Company. 9.4 Reliance by Agent. The Agent shall be entitled to rely, and shall be ----------------- fully protected in relying, upon any Note, writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to the Company), independent accountants and other experts selected by the Agent. The Agent may deem and treat the payee of any Note as the owner thereof for all purposes unless a written notice of assignment, negotiation or transfer thereof shall have been filed with the Agent. The Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it shall first receive such advice or concurrence of the Required Banks as it deems appropriate or it shall first be indemnified to its satisfaction by the Banks against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement and the Notes and the other Loan Documents in accordance with a request of the Required Banks, and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Banks and all future holders of the Notes. 9.5 Notice of Default. The Agent shall not be deemed to have knowledge or ----------------- notice of the occurrence of any Default or Event of Default hereunder unless the Agent has received notice from a Bank or the Company referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default". In the event that the Agent receives such a notice, the Agent shall give notice thereof to the Banks. The Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Required Banks; provided that unless and until the -------- Agent shall have received such directions, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of the Banks. 9.6 Non-Reliance on Agent and Other Banks. Each Bank expressly ------------------------------------- acknowledges that neither the Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates has made any representations or warranties to it and that no act by the Agent hereinafter taken, including any review of the affairs of the Company, shall be deemed to constitute any representation or warranty by the Agent to any Bank. Each Bank represents to the Agent that it has, independently and without reliance upon the Agent or any other Bank, and 53 based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of the Company and made its own decision to make its Loans hereunder and enter into this Agreement. Each Bank also represents that it will, independently and without reliance upon the Agent or any other Bank, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of the Company. Except for notices, reports and other documents expressly required to be furnished to the Banks by the Agent hereunder, the Agent shall not have any duty or responsibility to provide any Bank with any credit or other information concerning the business, operations, property, condition (financial or otherwise), prospects or creditworthiness of the Company which may come into the possession of the Agent or any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates. 9.7 Indemnification. The Banks agree to indemnify the Agent in its --------------- capacity as such (to the extent not reimbursed by the Company and without limiting the obligation of the Company to do so), ratably according to the respective amounts of their original Commitments, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever which may at any time (including, without limitation, at any time following the payment of the Notes) be imposed on, incurred by or asserted against the Agent in any way relating to or arising out of this Agreement, any of the other Loan Documents or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by the Agent under or in connection with any of the foregoing; provided that no Bank shall be -------- liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting solely from the Agent's gross negligence or willful misconduct. The agreements in this subsection shall survive the payment of the Notes and all other amounts payable hereunder. 9.8 Agent in Its Individual Capacity. The Agent and its Affiliates may -------------------------------- make loans to, accept deposits from and generally engage in any kind of business with the Company as though the Agent were not the Agent hereunder and under the other Loan Documents. With respect to its Loans made or renewed by it and any Note issued to it and with respect to any Letter of Credit issued or participated in by it, the Agent shall have the same rights and powers under this Agreement and the other Loan Documents as any Bank and may exercise the same as though it were not the Agent, and the terms "Bank" and "Banks" shall include the Agent in its individual capacity. 9.9 Successor Agent. The Agent may resign as Agent upon 10 days' notice --------------- to the Banks. If the Agent shall resign as Agent under this Agreement and the other Loan Documents, then the Required Banks shall appoint a Successor Agent, whereupon such Successor Agent shall succeed to the rights, powers and duties of the Agent, and the term "Agent" shall mean such Successor Agent effective upon its appointment, and the former Agent's rights, powers and duties as Agent shall be terminated, without any other or further act or deed on the part of such former Agent or any of the parties to this Agreement or any holders of the Notes. After any retiring Agent's resignation as Agent, the provisions of this subsection shall inure to its benefit 54 as to any actions taken or omitted to be taken by it while it was Agent under this Agreement and the other Loan Documents. SECTION 10. MISCELLANEOUS 10.1 Amendments and Waivers. Neither this Agreement, any Note, any other ---------------------- Loan Document nor any terms hereof or thereof may be amended, supplemented or modified except in accordance with the provisions of this subsection. With the written consent of the Agent and the Required Banks, the Agent and the Company may, from time to time, enter into written amendments, supplements or modifications hereto and to the Notes and the other Loan Documents for the purpose of adding any provisions to this Agreement, the Notes or the other Loan Documents or changing in any manner the rights of the Banks or of the Company hereunder or thereunder or waiving, on such terms and conditions as the Agent may specify in such instrument, any of the requirements of this Agreement, the Notes or the other Loan Documents or any Default or Event of Default and its consequences; provided, however, that no such waiver and no such amendment, -------- ------- supplement or modification shall (a) reduce the amount or extend the maturity of any Note or any installment thereof, or reduce the rate or extend the time of payment of interest thereon, or reduce any fee payable to any Bank hereunder, or change the amount of any Bank's Commitment, in each case without the consent of the Bank affected thereby, or (b) amend, modify or waive any provision of this subsection or reduce the percentage specified in the definition of Required Banks, or consent to the assignment or transfer by the Company of any of its rights and obligations under this Agreement and the other Loan Documents or release any of the Collateral, in each case without the written consent of the Agent and all the Banks, or (c) amend, modify or waive any provision of Section 9 without the written consent of the then Agent. Any such waiver and any such amendment, supplement or modification shall apply equally to each of the Banks and shall be binding upon the Company, the Banks, the Agent and all future holders of the Notes. In the case of any waiver, the Company, the Banks and the Agent shall be restored to their former position and rights hereunder and under the outstanding Notes and any other Loan Documents, and any Default or Event of Default waived shall be deemed to be cured and not continuing; but no such waiver shall extend to any subsequent or other Default or Event of Default, or impair any right consequent thereon. 10.2 Notices. All notices, requests and demands to or upon the respective ------- parties hereto to be effective shall be in writing (including by telecopy, telegraph or telex), and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made when delivered by hand, or three days after being deposited in the mail, postage prepaid, or, in the case of telecopy notice, when received, or, in the case of telegraphic notice, when delivered to the telegraph company, or, in the case of telex notice, when sent, answerback received, addressed as follows in the case of the Company and the Agent, and as set forth in Schedule I in the case of the other parties hereto, or to such other address as may be hereafter notified by the respective parties hereto and any future holders of the Notes: The Company: Dairy Mart Convenience Stores, Inc. One Vision Drive Enfield, Connecticut 06082 Attention: Gregory G. Landry Telecopy: (203) 741-4487 55 The Agent: Fleet Bank, National Association One Constitution Plaza Hartford, Connecticut 06115 Attention: Walter P. Schuppe, Vice President Telecopy: (203) 244-4495 provided that any notice, request or demand to or upon the Agent or the Banks - - -------- pursuant to subsection 2.4, 2.5, 2.9, 2.14 or 2.15 shall not be effective until received. 10.3 No Waiver; Cumulative Remedies. No failure to exercise and no delay ------------------------------ in exercising, on the part of the Agent or any Bank, any right, remedy, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. 10.4 Survival of Representations and Warranties. All representations and ------------------------------------------ warranties made hereunder and in any document, certificate or statement delivered pursuant hereto or in connection herewith shall survive the execution and delivery of this Agreement and the Notes. 10.5 Payment of Expenses and Taxes. The Company agrees, within 15 days ----------------------------- after demand, (a) to pay or reimburse the Agent for all its out-of-pocket costs and expenses incurred in connection with the development, preparation and execution of, and any amendment, supplement or modification to, this Agreement, the Notes and the other Loan Documents and any other documents prepared in connection herewith or therewith, and the consummation of the transactions contemplated hereby and thereby, including, without limitation, the fees and disbursements of counsel to the Agent, (b) to pay or reimburse each Bank and the Agent for all its costs and expenses incurred in connection with the enforcement or preservation of any rights under this Agreement, the Notes, the other Loan Documents and any such other documents, including, without limitation, fees and disbursements of counsel to the Agent and to the several Banks, and (c) to pay, indemnify, and hold each Bank and the Agent harmless from, any and all recording and filing fees and any and all liabilities with respect to, or resulting from any delay in paying, stamp, excise and other taxes, if any, which may be payable or determined to be payable in connection with the execution and delivery of, or consummation of any of the transactions contemplated by, or any amendment, supplement or modification of, or any waiver or consent under or in respect of, this Agreement, the Notes, the other Loan Documents and any such other documents, and (d) to pay, indemnify and hold each Bank harmless from any and all fees, costs and expenses incurred by any such Bank after the occurrence and throughout the continuance of an Event of Default in connection with any inspection or examination pursuant to subsection 6.6, and (e) to pay, indemnify, and hold each Bank and the Agent (and their respective directors, officers, employees and agents) harmless from and against any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of this Agreement, the Notes, the other Loan Documents and any such other documents (all the foregoing, collectively, the "indemnified liabilities"), provided, that the -------- Company shall have no obligation hereunder to the Agent or any Bank with respect to indemnified liabilities arising from (i) the gross negligence or willful 56 misconduct of the Agent or any such Bank (or any of their respective directors, officers, employees or agents), (ii) legal proceedings commenced against the Agent or any such Bank by any security holder or creditor thereof arising out of and based upon rights afforded any such security holder or creditor solely in its capacity as such, or (iii) legal proceedings commenced against the Agent or any such Bank by any other Bank or by any Transferee. The agreements in this subsection shall survive repayment of the Notes and all other amounts payable hereunder. 10.6 Successors and Assigns; Participations; Purchasing Banks. -------------------------------------------------------- (a) This Agreement shall be binding upon and inure to the benefit of the Company, the Banks, the Agent, all future holders of the Notes and their respective successors and assigns, except that the Company may not assign or transfer any of its rights or obligations under this Agreement without the prior written consent of each Bank. (b) Without the consent of the Company, any Bank may, in the ordinary course of its commercial banking business and in accordance with applicable law, at any time sell to one or more banks or other entities (other than any entity which, to the knowledge of such Bank, is a competitor of the Company or an Affiliate of such a competitor ("Participants")) participating interests in any Loan owing to such Bank, any Note held by such Bank, any Commitment of such Bank or any other interest of such Bank hereunder and under the other Loan Documents. In the event of any such sale by a Bank of participating interests to a Participant, such Bank's obligations under this Agreement to the other parties to this Agreement shall remain unchanged, such Bank shall remain solely responsible for the performance thereof, such Bank shall remain the holder of any such Note for all purposes under this Agreement and the other Loan Documents, and the Company and the Agent shall continue to deal solely and directly with such Bank in connection with such Bank's rights and obligations under this Agreement and the other Loan Documents. The Company agrees that if amounts outstanding under this Agreement and the Notes are due or unpaid, or shall have been declared or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall be deemed to have the right of setoff in respect of its participating interest in amounts owing under this Agreement and any Note to the same extent as if the amount of its participating interest were owing directly to it as a Bank under this Agreement or any Note, provided that such Participant shall only be -------- entitled to such right of setoff if it shall have agreed in the agreement pursuant to which it shall have acquired its participating interest to share with the Banks the proceeds thereof as provided in subsection 10.7. The Company also agrees that each Participant shall be entitled to the benefits of subsections 2.16, 2.17, 2.18, 2.19 and 10.5 with respect to its participation in the Commitments and the Loans outstanding from time to time; provided, that no Participant shall be entitled to receive any -------- greater amount pursuant to such subsections than the transferor Bank would have been entitled to receive in respect of the amount of the participation transferred by such transferor Bank to such Participant had no such transfer occurred. (c) Any Bank may, in the ordinary course of its commercial banking business and in accordance with applicable law, at any time sell to any Bank or any affiliate thereof and, with the consent of the Company and each other Bank if a Purchasing Bank (as hereinafter defined) is not then a Bank party to this Agreement (which shall not be unreasonably withheld), to one or more additional banks or financial institutions 57 ("Purchasing Banks") all or any part of its rights and obligations under this Agreement and the Notes pursuant to an Assignment and Acceptance executed by such Purchasing Bank, such transferor Bank (and, in the case of a Purchasing Bank that is not then a Bank or an affiliate thereof, by the Company and the Agent) and delivered to the Agent for its acceptance and recording in the Register. Upon such execution, delivery, acceptance and recording, from and after the Transfer Effective Date determined pursuant to such Assignment and Acceptance, (x) the Purchasing Bank thereunder shall be a party hereto and, to the extent provided in such Assignment and Acceptance, have the rights and obligations of a Bank hereunder with a Commitment as set forth therein, and (y) the transferor Bank thereunder shall, to the extent provided in such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of a transferor Bank's rights and obligations under this Agreement, such transferor Bank shall cease to be a party hereto). Such Assignment and Acceptance shall be deemed to amend this Agreement to the extent, and only to the extent, necessary to reflect the addition of such Purchasing Bank and the resulting adjustment of the appropriate Commitment Percentages arising from the purchase by such Purchasing Bank of all or a portion of the rights and obligations of such transferor Bank under this Agreement and the Notes. On or prior to the Transfer Effective Date determined pursuant to such Assignment and Acceptance, the Company shall execute and deliver to the Agent in exchange for the surrendered Revolving Credit Note a new Revolving Credit Note to the order of such Purchasing Bank in an amount equal to the Revolving Credit Commitment assumed by it pursuant to such Assignment and Acceptance and, if the transferor Bank has retained a Commitment hereunder, new Notes to the order of the transferor Bank in an amount equal to the Revolving Credit Commitment retained by it hereunder. Such new Notes shall be dated the Closing Date and shall otherwise be in the form of the Notes replaced thereby. The Notes surrendered by the transferor Bank shall be returned by the Agent to the Company marked "cancelled". (d) The Agent shall maintain at its address referred to in subsection 10.2 a copy of each Assignment and Acceptance delivered to it and a register (the "Register") for the recordation of the names and addresses of the Banks and the Commitment of, and principal amount of the Loans owing to, each Bank from time to time. The entries in the Register shall be conclusive, in the absence of manifest error, and the Company, the Agent and the Banks may treat each Person whose name is recorded in the Register as the owner of the Loan recorded therein for all purposes of this Agreement. The Register shall be available for inspection by the Company or any Bank at any reasonable time and from time to time upon reasonable prior notice. (e) Upon its receipt of an Assignment and Acceptance executed by a transferor Bank and Purchasing Bank (and, in the case of a Purchasing Bank that is not then a Bank or an affiliate thereof, by the Company and the Agent) together with, if such Purchasing Bank is not then a Bank hereunder, payment by the transferor Bank and/or the Purchasing Bank of a registration and processing fee of $3,000, the Agent shall (i) promptly accept such Assignment and Acceptance (ii) on the Transfer Effective Date determined pursuant thereto record the information contained therein in the Register and give notice of such acceptance and recordation to the Banks and the Company. 58 (f) The Company authorizes each Bank to disclose to any Participant or Purchasing Bank (each, a "Transferee") and any prospective Transferee any and all financial information in such Bank's possession concerning the Company and its affiliates which has been delivered to such Bank by or on behalf of the Company pursuant to this Agreement or which has been delivered to such Bank by or on behalf of the Company in connection with such Bank's credit evaluation of the Company and its affiliates prior to becoming a party to this Agreement. (g) If, pursuant to this subsection, any interest in this Agreement or any Note is transferred to any Transferee which is organized under the laws of any jurisdiction other than the United States or any state thereof, the transferor Bank shall cause such Transferee, concurrently with the effectiveness of such transfer, (i) to represent to the transferor Bank (for the benefit of the transferor Bank, the Agent and the Company) that under applicable law and treaties no taxes will be required to be withheld by the Agent, the Company or the transferor Bank with respect to any payments to be made to such Transferee in respect of the Loans, (ii) to furnish to the transferor Bank (and, in the case of any Purchasing Bank registered in the Register, the Agent and the Company) either (A) U.S. Internal Revenue Service Form 4224 or U.S. Internal Revenue Service Form 1001 or (B) United States Internal Revenue Service Form W-8 or W-9, as applicable (wherein such Transferee claims entitlement to complete exemption from U.S. federal withholding tax on all interest payments hereunder), and (iii) to agree (for the benefit of the transferor Bank, the Agent and the Company) to provide the transferor Bank (and, in the case of any Purchasing Bank registered in the Register, the Agent and the Company) a new Form 4224 or Form 1001 or Form W-8 or W-9, as applicable, upon the expiration or obsolescence of any previously delivered form and comparable statements in accordance with applicable U.S. laws and regulations and amendments duly executed and completed by such Transferee, and to comply from time to time with all applicable U.S. laws and regulations with regard to such withholding tax exemption. (h) Nothing herein shall prohibit any Bank from pledging or assigning any Note to any Federal Reserve Bank in accordance with applicable law. 10.7 Adjustments; Set-off. -------------------- (a) Subject to the provisions of subsection 2.14(b), if any Bank (a "benefitted Bank") shall at any time receive any payment of all or part of its Loans or the Reimbursement Obligations owing to it, or interest thereon, or receive any collateral in respect thereof (whether voluntarily or involuntarily, by set-off, pursuant to events or proceedings of the nature referred to in Section 8(g), or otherwise), in a greater proportion than any such payment to or collateral received by any other Bank, if any, in respect of such other Bank's Loans or the Reimbursement Obligations owing to it, or interest thereon, such benefitted Bank shall purchase for cash from the other Banks such portion of each such other Bank's Loan or the Reimbursement Obligations owing to it, or shall provide such other Banks with the benefits of any such collateral, or the proceeds thereof, as shall be necessary to cause such benefitted Bank to share the excess payment or benefits of such collateral or proceeds ratably with each of the Banks; provided, however, that if all or any portion of such excess payment -------- ------- or benefits is thereafter recovered from such benefitted Bank, such purchase shall be rescinded, and 59 the purchase price and benefits returned, to the extent of such recovery, but without interest. The Company agrees that each Bank so purchasing a portion of another Bank's Loan or the Reimbursement Obligations owing to it may exercise all rights of payment (including, without limitation, rights of set-off) with respect to such portion as fully as if such Bank were the direct holder of such portion. (b) In addition to any rights and remedies of the Banks provided by law, each Bank shall have the right, without prior notice to the Company, any such notice being expressly waived by the Company to the extent permitted by applicable law, upon any amount becoming due and payable by the Company hereunder or under the Notes (whether at the stated maturity, by acceleration or otherwise) to set-off and appropriate and apply against such amount any and all deposits (general or special, time or demand, provisional or final), in any currency, and any other credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by such Bank to or for the credit or the account of the Company. Each Bank agrees promptly to notify the Company and the Agent after any such set-off and application made by such Bank, provided that the failure to give such -------- notice shall not affect the validity of such set-off and application. 10.8 Counterparts. This Agreement may be executed by one or more of the ------------ parties to this Agreement on any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. A set of the copies of this Agreement signed by all the parties shall be lodged with the Company and the Agent. 10.9 Severability. Any provision of this Agreement which is prohibited or ------------ unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 10.10 Integration. This Agreement represents the agreement of the ----------- Company, the Agent and the Banks with respect to the subject matter hereof, and there are no promises, undertakings, representations or warranties by the Agent or any Bank relative to subject matter hereof not expressly set forth or referred to herein or in the other Loan Documents. 10.11 GOVERNING LAW. THIS AGREEMENT AND THE NOTES AND THE RIGHTS AND ------------- OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF CONNECTICUT. 10.12 Submission To Jurisdiction; Waivers. The Company hereby irrevocably ----------------------------------- and unconditionally: (a) submits for itself and its property in any legal action or proceeding relating to this Agreement and the other Loan Documents to which it is a party, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the Courts of the State of Connecticut, the courts of the United States of America for the District of Connecticut, and appellate courts from any thereof; 60 (b) consents that any such action or proceeding may be brought in such courts and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same; (c) agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to the Company at its address set forth in subsection 10.2 or at such other address of which the Agent shall have been notified pursuant thereto; (d) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law or shall limit the right to sue in any other jurisdiction; and (e) waives, to the maximum extent not prohibited by law, any right it may have to claim or recover in any legal action or proceeding referred to in this subsection any special, exemplary, punitive or consequential damages. 10.13 Acknowledgements. The Company hereby acknowledges that: ---------------- (a) it has been advised by counsel in the negotiation, execution and delivery of this Agreement, the Notes and the other Loan Documents; (b) neither the Agent nor any Bank has any fiduciary relationship to the Company, and the relationship between Agent and Banks, on one hand, and Company, on the other hand, is solely that of debtor and creditor; and (c) no joint venture exists among the Banks or among the Company and the Banks. 10.14 WAIVERS OF JURY TRIAL. THE COMPANY, THE AGENT AND THE BANKS HEREBY --------------------- IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT, THE NOTES OR ANY OTHER LOAN DOCUMENTS AND FOR ANY COUNTERCLAIM THEREIN. 10.15 PREJUDGMENT REMEDY WAIVER. THE COMPANY AND EACH OTHER PERSON LIABLE ------------------------- OR WHO SHALL BECOME LIABLE FOR ALL OR ANY PART OF THE INDEBTEDNESS NOW OR HEREAFTER OWED TO THE BANKS UNDER OR IN CONNECTION WITH THIS AGREEMENT, HEREBY ACKNOWLEDGE THAT THE TRANSACTION OF WHICH THIS AGREEMENT IS A PART IS A COMMERCIAL TRANSACTION, AND TO THE EXTENT ALLOWED UNDER CONNECTICUT GENERAL STATUTES SECTIONS 52-278a TO 52-278n, INCLUSIVE, OR BY OTHER APPLICABLE LAW, HEREBY WAIVE THEIR RIGHT TO NOTICE AND HEARING WITH RESPECT TO ANY PREJUDGMENT REMEDY WHICH THE BANKS OR THEIR RESPECTIVE SUCCESSORS OR ASSIGNS MAY DESIRE TO USE. 61 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered in Hartford, Connecticut by their proper and duly authorized officers as of the day and year first above written. DAIRY MART CONVENIENCE STORES, INC. By: /s/ Jeffrey W. Jones ----------------------------- Name: Jeffrey W. Jones Title: Vice President - Controller FLEET BANK, NATIONAL ASSOCIATION as Agent and as a Bank By: /s/ Walter P. Schuppe ----------------------------- Walter P. Schuppe Vice President SOCIETY NATIONAL BANK, as Issuing Bank and as a Bank By: /s/ Peter D. Moore ----------------------------- Peter D. Moore Vice President SIGNATURE PAGE TO CREDIT AGREEMENT DATED FEBRUARY 25, 1994, AMONG DAIRY MART CONVENIENCE STORES, INC., FLEET BANK, NATIONAL ASSOCIATION, AS AGENT AND THE BANKS LISTED ON SCHEDULE I THERETO. SCHEDULE I Commitments; Addresses ----------------------
Commitment Commitment Percentage Amount ----------- ----------- Fleet Bank, National Association 50% $15,000,000 One Constitution Plaza Hartford, Connecticut 06115 Attention: Walter P. Schuppe - - --------- Telecopy No.: (203) 244-4495 - - ------------ Society National Bank 50% $15,000,000 127 Public Square Cleveland, Ohio 44114 Attention: Peter D. Moore - - ---------- Telecopy No.: (216) 689-4981 - - ------------ - - ------------------------------------------------------------ TOTAL 100% $30,000,000
Schedule I-1 SCHEDULE II ----------- LONG-TERM COMMITMENTS --------------------- Commitments and Contingencies - - ----------------------------- In addition to the commitments and contingencies described in the January 30, 1993 audited consolidated financial statements, the Company has certain environmental contingencies related to the ongoing costs to comply with federal, state and local environmental assessment and remediation activities with respect to releases of regulated substances from its existing and previously operated retail gasoline facilities. The Company accrues its estimates of all costs to be incurred for assessment and remediation for known releases. These accruals are adjusted if and when new information becomes known. Due to the nature of such releases, the actual costs of assessment and remediation activities may vary significantly from year to year. Additionally, under current federal and state regulatory programs, the Company will be obligated by December, 1998 to upgrade or replace all existing underground storage tanks ("UST's") it owns or operates. The Company presently estimates that it will be required to make capital expenditures related to the upgrading or replacing of UST's ranging from approximately $16.0 million to $20.0 million in aggregate through December, 1998, which capital expenditures could be reduced for locations which may be closed in lieu of the capital costs of compliance. The Company's estimates of costs to be incurred for environmental assessment and remediation and for UST upgrading and other regulatory compliance are based on factors and assumptions that could change due to modifications of regulatory requirements, detection of unanticipated environmental conditions or other unexpected circumstances. SCHEDULE III ------------ RECENT ACQUISITIONS ------------------- No material acquisitions or dispositions. SCHEDULE IV ----------- RECENT DISTRIBUTIONS -------------------- Dividends and/or distributions are made to the Company by its Subsidiaries out of the cash flow of the Subsidiaries on a continual basis, which amounts are used to fund the operations of the Company. SCHEDULE V ---------- ERISA MATTERS ------------- Part A Reportable Events On November 20, 1989, Central States, Southeast and Southwest Areas Pension Fund (the "Fund"), the Company and The Lawson Company (collectively, "Dairy Mart") entered into a settlement agreement whereby the Fund and Dairy Mart settled Dairy Mart's partial withdrawal liability for its withdrawal from the Fund for the International Brotherhood of Teamsters, Chauffeurs, Warehousemen and Helpers of America Locals 336 and 348. The total settlement amount of $2,460,000 was paid in full. Part B Multiemployer Plan Withdrawals Oscar Ewing, Inc., a wholly-owned subsidiary of CONNA Corporation (collectively, "CONNA"), recently entered into a new labor agreement with Teamsters Local 748 which agreement expires in March, 1996. Under the agreement, CONNA makes contributions on behalf of its employees to the Fund. Withdrawal is not currently contemplated; however, if withdrawal were to occur, Dairy Mart estimates, based on recent calculations, that withdrawal liabilities would not exceed $350,000. SCHEDULE VI ----------- SUBSIDIARIES ------------ Part A -- Designated Subsidiaries - - ------ Dairy Mart East, Inc. Dairy Mart Farms, Inc. Dairy Mart, Inc. CONNA Corporation The Lawson Company D.M. Insurance Limited LMC, Inc. SNG of Southern Minnesota, Inc. The Lawson Milk Company Golden Stores, Inc. Lakeside Wholesale, Inc. Quik Shops, Inc. Open Pantry Properties, Inc. Remote Services, Inc. Convenient Industries of America, Inc. Oscar Ewing, inc. Convenient Gasoline, Inc. Jackson County Grocery Co., Inc. Greenwell Grocery Co., Inc. CIA Food Marts, Inc. Food Merchandisers, Inc. Dairy Mart Convenience Stores of Ohio, Inc. Part B -- Other Subsidiaries - - ------ Financial Opportunities, Inc. * CONNA Limited * CONNA Australia, Ltd. * Petco Oil Co. of New York, Inc. * New York Dairy Mart, Inc. * These subsidiaries are in the process of being dissolved and the dissolutions will occur on or before the end of this calendar year. SCHEDULE VII ------------ A. ENVIRONMENTAL MATTERS -------------------------
SITE EXPENDITURES RESERVES - - ---- ------------ -------- GEORGETOWN, KY TO DATE: 54,965.00 $80,000.00 PROJECTED: 80,000.00 ---------- TOTAL: $134,965.00 ===========
Remodeled location, glass lined tanks, installed new lines and removed one tank. Soil test showed minimal contamination. Filed for closure with state. State required additional testing which showed ground water contamination. State has indicated a minimal public water supply contamination and is investigating potential sources of such contamination. Area has multiple sites which may have contributed to the minimal public water supply contamination. Awaiting state direction. B. LITIGATION -------------- No material litigation. SCHEDULE VIII ------------- UCC FILING LOCATIONS -------------------- Secretary of State of the State of Connecticut INDEBTEDNESS ------------ Part A ------ Indebtedness Paid on the Closing Date ------------------------------------- The proceeds of the Term Loans (and, if necessary, the proceeds of the Revolving Credit Loans) will be used by the Company to pay off its indebtedness under the terms of the Amended and Restated Loan Agreement between The Connecticut Bank and Trust Company, N.A. ("CBT") and the Company dated as of February 1, 1989 (the "Agreement"). The amount of $35,000,000.00 will be the principal outstanding under the Agreement as of the Closing Date. Part B ------
Indebtedness Outstanding after the Execution Date ------------------------------------------------- DAIRY MART CONVENIENCE STORES, INC. SCHEDULE OF DEBT AND CAPITAL LEASES (000's OMITTED) OBLIGATIONS PAYABLE TO: TYPE OF OBLIGATION AMOUNT - - ----------------------- ------------------ ------ Charlotte S. Blanton Capital Leases-Real Estate Leases 9 Kenneth and Thelma Gilmore Capital Leases-Real Estate Leases 45 Tradeway Center Capital Leases-Real Estate Leases 16 Bill R. Cole Capital Leases-Real Estate Leases 11 Ed Stephenson Capital Leases-Real Estate Leases 21 Habeeb Investment Company Capital Leases-Real Estate Leases 77 John Wells and William Jones Capital Leases-Real Estate Leases 21 William E. Monday Capital Leases-Real Estate Leases 49 Bissell Companies, Inc. Capital Leases-Real Estate Leases 12 Dr. Sam C. Williams Capital Leases-Real Estate Leases 9 W-M Lumber and Wood Products Capital Leases-Real Estate Leases 79 Ranseland Investment Capital Leases-Real Estate Leases 6 James and Carmen Walker Capital Leases-Real Estate Leases 92 Parks and Weisburb Realtors Capital Leases-Real Estate Leases 83 Westport Station Partners Capital Leases-Real Estate Leases 67 Michael Granus Capital Leases-Real Estate Leases 14 Sam Habeeb Capital Leases-Real Estate Leases 1 Kenneth H. Sharer Capital Leases-Real Estate Leases 2 John Wells Capital Leases-Real Estate Leases 13 Jerry W. Seligam Capital Leases-Real Estate Leases 2 Mark O'Brien Capital Leases-Real Estate Leases 86 John and Grace Harness Capital Leases-Real Estate Leases 47 Gilbert and Evelyn Miller Capital Leases-Real Estate Leases 23 Bissell Companies, Inc. Capital Leases-Real Estate Leases 24 Fleet Bank, N.A. Mortgage Note on Store C-19 35 Chicopee Savings Bank Mortgage Note on Store S-10 30 Presidential Savings Bank Mortgage Note on Store S-17 16 Park West Bank and Trust Company Mortgage Note on Store S-24 9 People's Bank Mortgage Note on Store C-18 31 North Brookfield Savings Bank Mortgage Note on Store W-3 16 Springfield Institution for Savings Mortgage Note on Stores S-9, S-19, S-20 and H-1 1,147
OBLIGATIONS PAYABLE TO: TYPE OF OBLIGATION AMOUNT - - ----------------------- ------------------ ------ Springfield Institution for Savings Mortgage Note on Corp. Headquarters 2,956 Springfield Institution for Savings Mortgage Note on Store C-21 631 Springfield Institution for Savings Mortgage Note on Store S-2 430 Nations Banc Equipment Notes 1,721 G.E. Capital Corp. Equipment Notes 1,245 Burton Feit Promissory Note Secured by Real Estate 145 Walter E. Baker Trust Promissory Note Secured by Real Estate 200 John F. and Eleanor C. Flibotte Promissory Note Secured by Real Estate 35 Security Pacific Credit Corp. Capital Lease-Telephone System 13 Unisys Corporation Capital Lease-Computer Systems 694 Varilease Capital Lease-POS Equipment 200 Connecticut Development Authority Note Payable Secured by Real Estate and Equipment 421 Manufacturers Hanover Trust Term Loan 22,000 * Manufacturers Hanover Trust Revolver Loan 12,100 * Debenture Holders 14.25% Subordinated Debenture 27,183 * Small Business Administration Debentures 4,220 Burdette W. London Promissory Note Secured by a Mortgage 11 Fred Johnson, Jr. Promissory Note Secured by a Mortgage 7 Society National Bank Promissory Note Secured by a Mortgage 81 Eugene Adams Capital Leases-Real Estate Leases 12 Walter R. Morris Capital Leases-Real Estate Leases 40 Charles E. Jennings Capital Leases-Real Estate Leases 29 Charles L. Hamilton Capital Leases-Real Estate Leases 86 Orbin Greene Capital Leases-Real Estate Leases 61 Jessee Ballew Capital Leases-Real Estate Leases 27 Catherine A. Habeeb Capital Leases-Real Estate Leases 12 Richard Applegate Capital Leases-Real Estate Leases 81 T.H. Crutcher Realty Corp. Capital Leases-Real Estate Leases 23 K.G. Bernard Capital Leases-Real Estate Leases 24 Bank One of Lexington Capital Leases-Real Estate Leases 76 William J. Howe Capital Leases-Real Estate Leases 240 Louis B. Green Capital Leases-Real Estate Leases 220 D & D Investment Company Capital Leases-Real Estate Leases 19 ---------- Total Debt and Capital Leases as of January 29, 1994 $ 77,336 ==========
*/ Indebtedness will be paid off on or before the Initial Funding Date. DAIRY MART CONVENIENCE STORES, INC. SCHEDULE OF OTHER LIABILITIES AND DEFERRED CREDITS (000'S OMITTED)
DESCRIPTION AMOUNT - - ----------- ------ DEFERRED FRITO-LAY PROGRAM MONIES 368 DEFERRED R.J. REYNOLDS PROGRAM MONIES 759 DEFERRED PEPSI-COLA FOUNTAIN PROGRAM MONIES 760 DEFERRED PHILIP MORRIS PROGRAM MONIES 94 DEFERRED GAIN ON SALE OF FULL FRANCHISES 217 DEFERRED FRANCHISE RENTAL INCOME 73 LONG-TERM SELF INSURANCE RESERVES 2,770 LONG-TERM OHIO WORKERS COMPENSATION RESERVES 1,183 LONG-TERM CLOSED STORE LEASE LIABILITY RESERVE 155 FRANCHISEE RENTAL SECURITY DEPOSITS RECEIVED 84 NON-COMPETE COVENANTS 25 OTHER MISCELLANEOUS ITEMS 70 ------ TOTAL OTHER LIABILITIES AND DEFERRED CREDITS AS OF 12/25/93 $7,188 ======
SCHEDULE X ----------
LIENS ----- I. DAIRY MART CONVENIENCE STORES, INC. Secured Party Date Filed Collateral - - ------------- ---------- ---------- 1. General Electric Capital 7/25/90 CT Soda fountain equipment and all proceeds Corporation #887659 replacements, accretions and substitutions 2. General Electric Capital 7/26/90 KY Soda fountain equipment and all proceeds Corporation #128231 replacements, accretions and substitutions 3. General Electric Capital 7/26/90 OH Soda fountain equipment and all proceeds Corporation #AE 08543 replacements, accretions and substitutions 4. Unisys Finance Corporation 9/26/89 CT Computer equipment and accessories #845602 2616-02 5. Unisys Finance Corporation 9/26/89 CT Computer equipment and accessories, #845601 additions and attachments 2616-01 6. Unisys Finance Corporation 9/29/89 CT Computer equipment and software #846127 2616-01 7. Unisys Finance Corporation 11/3/89 OH Computer equipment and software and all #AB 46912 accessories, additions and attachments 8. Unisys Finance Corporation 11/6/89 CT Computer equipment and software and all #851389 accessories, additions and attachments 2616-04 9. Unisys Finance Corporation 7/27/90 CT Computer equipment and accessories, #887982 additions, and attachments 2616-06 10. Unisys Finance Corporation 5/13/91 KY Computer equipment located at 6060 #637576 Dutchmans Lane, Louisville, KY 2616-06 11. United States Leasing 2/13/91 CT Computer equipment 2616-07 International, Inc. #913097 12. United States Leasing 6/14/91 OH Computer equipment International, Inc. #AE 76427 13. United States Leasing 8/5/91 CT Computer equipment International, Inc. #933811 19129
14. NationsBanc Leasing 11/27/92 CT Store and gas equipment Corporation #0989261 15. NationsBanc Leasing 11/30/92 KY Store and gas equipment for four stores Corporation #132475 in Kentucky 16. NationsBanc Leasing 11/30/92 KY Store and gas equipment for four stores Corporation #132476 in Kentucky 17. NationsBanc Leasing 12/3/92 OH Store equipment Corporation #AH 83822 18. NationsBanc Leasing 12/3/92 OH Gas equipment Corporation #AH 83823 19. NationsBanc Leasing 12/4/92 MA Store equipment store #2301 Corporation #128778 1502 Newman Ave., Seekonk,MA 20. NationsBanc Leasing 12/4/92 MA Gas equipment store #2301 Corporation #128779 1502 Newman Ave.,Seekonk,MA 21. The CIT Group/Equipment 2/23/93 MA Computer equipment,Schedule 1 Financing,Inc. #143686 22. The CIT Group/Equipment 2/23/93 CT Computer equipment, Schedule 1 Financing,Inc. #0999185 23. The CIT Group/Equipment 2/23/93 KY Computer equipment, Schedule 1 Financing,Inc. #132904 24. The CIT Group/Equipment 2/24/93 OH Computer equipment, Schedule 1 Financing, Inc. #AH 99966 25. The CIT Group/Equipment 6/10/93 CT Fujitsu Telephone System, Schedule 2 Financing,Inc. #1016311 26. The CIT Group/Equipment 8/3/93 CT Computer equipment, Schedule 4 Financing,Inc. #1023056 27. The CIT Group/Equipment 12/10/93 MA Computer equipment, Schedule 5 Financing,Inc. #202843 28. The CIT Group/Equipment 12/15/93 KY Computer equipment, Schedule 5 Financing,Inc. #134427 29. The CIT Group/Equipment 12/20/93 CT Computer equipment, Schedule 6 Financing,Inc. #1039592
30. The CIT Group/Equipment 12/20/93 CT Computer equipment, Schedule 6 Financing,Inc. #1039596 II. DAIRY MART, INC. Secured Party Date Filed Collateral - - ------------- ---------- ---------- 1. General Electric Capital 7/6/93 CT Office Furniture for One Vision Drive Corporation #1019490 2. General Electric Capital 7/28/93 CT Office Furniture for One Vision Drive Corporation #1022282 3. Springfield Institute for 7/19/93 CT Real estate and equipment at store 1521 Savings #1021151 1030 Hamilton Ave., Waterbury,CT 4. Springfield Institute for 11/17/93 MA Real estate and equipment at store 2102 Savings #198405 411 North Main St., Palmer, MA 5. Connecticut Development 10/6/76 CT Crapaco milk processing equipment Authority #330435 III. THE LAWSON COMPANY Secured Party Date Filed Collateral - - ------------- ---------- ---------- 1. General Electric Capital 8/19/93 OH Freezer Tunnel Corporation #AK 40696 IV. DAIRY MART FARMS,INC. Secured Party Date Filed Collateral - - ------------- ---------- ---------- 1. Connecticut Development 10/6/76 CT Crapaco milk processing equipment Authority #330436 2. Springfield Institute for 3/2/93 CT Real Estate at One Vision Drive, Enfield, Savings #1000111 Connecticut
In addition to the foregoing, see Schedule IX, Part B for a description of certain other liens securing indebtedness described as "Promissory Notes secured by a Mortgage," Mortgage Note" or "Equipment Notes." SCHEDULE XI ----------- MANAGEMENT LOANS AND ADVANCES -----------------------------
NAME OF EMPLOYEE AMOUNT - - ------------------ ------ LOANS AND ADVANCES OVER $1,000: David Bobzien $49,500.00 Vinny Desrochers 36,200.00 Roger Joplin 1,000.00 ---------- SUBTOTAL $86,700.00 LOANS AND ADVANCES UNDER $1,000: 3,802.00 ---------- TOTAL LOANS AND ADVANCES $90,502.00 ==========
SCHEDULE XII ------------ OUTSTANDING TAX AUDITS ----------------------
YEARS TYPE OF UNDER ENTITY FEDERAL EIN# STATE/FED TAX AUDIT - - ------ ------------ --------- --------- ----------------- Dairy Mart 04-2497894 IRS Income Fiscal 88,89* Convenience Stores & Subs CONNA Corporation 61-0960167 Kentucky Income/Lic. Fiscal 85 - 88** Oscar Ewing, Inc. 61-0187240 Kentucky Income/Lic. Fiscal 85 - 88** Convenient Equip., Inc. 61-0943209 Kentucky Income/Lic. Fiscal 85 - 88** Remote Services, Inc. 61-0667027 Kentucky Income/Lic. Fiscal 85 - 88** Conv. Indust. of America 61-0567766 Kentucky Income/Lic. Fiscal 85 - 88** Food Merchandisers, Inc. 56-0889198 N. Carolina Sales/Use 03/88 - 01/91 Dairy Mart, Inc. 04-2235065 Connecticut Sales/Use 12/88 - 11/91 Dairy Mart Farms, Inc. 06-0937127 Connecticut Sales/Use 12/88 - 11/91 Dairy Mart, Inc. 04-2235065 Massachusetts Sales/Use 07/91 - 12/93 Dairy Mart East, Inc. 04-2741427 Massachusetts Sales/Use 07/91 - 12/93 The Lawson Company 36-2998715 Ohio Sales/Use 07/89- 01/93 CONNA Corporation 61-0960167 Kentucky Income/Lic. Fiscal 89 - 92* Conv. Indust. of America 61-0567766 Kentucky Income/Lic. Fiscal 89 - 92* Remote Services, Inc. 61-0667027 Kentucky Income/Lic. Fiscal 89 - 92* CONNA Corporation 61-0960167 Kentucky Sales/Use Fiscal 89 - 92* Conv. Indust. of America 61-0567766 Kentucky Sales/Use Fiscal 89 - 92* Remote Services, Inc. 61-0667027 Kentucky Sales/Use Fiscal 89 - 92*
NOTES: * Fiscal year from February 1 to January 31 ** '85 and '86 fiscal years from June to May Stub period from June '86 to October 17, 1986 Stub period from October 18, 1986 to January 31, 1987 Fiscal years thereafter from February 1 to January 31 EXHIBIT A Form of Revolving Credit Note ----------------------------- See Tabs 2(a) and 2(b) Exhibit A-1 EXHIBIT B Form of Subsidiary Guarantee ---------------------------- See Tab 3 Exhibit B-1 EXHIBIT G ASSIGNMENT AND ACCEPTANCE Reference is made to the Credit Agreement, dated as of February 25, 1994, (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), among DAIRY MART CONVENIENCE STORES, INC., a Delaware corporation (the "Borrower"), the Banks named therein and FLEET BANK, NATIONAL ASSOCIATION, as agent for the Banks (in such capacity, the "Agent"). Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meaning given to them in the Credit Agreement. ______________________________(the "Assignor") and ______________________ (the "Assignee") agree as follows: 1. The Assignor hereby irrevocably sells and assigns to the Assignee without recourse to the Assignor, and the Assignee hereby irrevocably purchases and assumes from the Assignor without recourse to the Assignor, as of the Effective Date (as defined below), a ______% interest (the "Assigned Interest") in and to the Assignor's rights and obligations under the Credit Agreement with respect to the Assignor's Commitment thereunder in a principal amount as set forth on Schedule 1 hereto. 2. The Assignor (a) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Credit Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement, any other Loan Document or any other instrument or document furnished pursuant thereto, or any collateral security granted in connection therewith, other than that it has not created any adverse claim upon the interest being assigned by it hereunder and that such interest is free and clear of any such adverse claim; (b) makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Company, any of its Subsidiaries or any other obligor or the performance or the observance by the Company, any of its Subsidiaries or any other obligor of any of their respective obligations under the Credit Agreement or any other Loan Document or any other instrument or document furnished pursuant hereto or thereto; and (c) attaches the Note(s) held by it evidencing the Assignor's Commitment and requests that the Agent exchange such Note(s) for a new Note or Notes payable to the Assignee and (if the Assignor has retained any portion of its Commitment) a new Note or Notes payable to the Assignor in the respective amounts which reflect the assignment being made hereby (and after giving effect to any other assignments which have become effective on the Effective Date). 3. The Assignee (a) represents and warrants that it is legally authorized to enter into this Assignment and Acceptance; (b) confirms that it has received a copy of the Credit Agreement, together with copies of the financial statements delivered pursuant to subsection 6.1 thereof and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Acceptance; (c) agrees that it will, independently and without reliance upon the Assignor, the Agent or any other Bank based on such documents and information as it shall deem appropriate at the time, continue to make its own Credit Agreement, the other Loan Documents or any other instrument or document furnished Exhibit G-1 pursuant hereto or thereto; (d) appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers and discretion under the Credit Agreement, the other Loan Documents or other instrument or document furnished pursuant hereto or thereto as are delegated to the Agent by the terms thereof, together with such powers as are incidental thereto; and (e) agrees that it will be bound by the provisions of the Credit Agreement and will perform in accordance with its terms all the obligations which by the terms of the Credit Agreement are required to be performed by it as a Bank including, if it is organized under the laws of a jurisdiction outside the United States, its obligations pursuant to paragraph 2.19(b) of the Credit Agreement. 4. The effective date of this Assignment and Acceptance shall be______________, 199_ (the "Effective Date"). Following the execution of this Assignment and Acceptance, it will be delivered to the Agent for acceptance by it and recording by the Agent pursuant to subsection 10.6 of the Credit Agreement, effective as of the Effective Date (which shall not, unless otherwise agreed to by the Agent, be earlier than three Business Days after the date of such acceptance and recording by the Agent). 5. Upon such acceptance and recording, from and after the Effective Date, the Agent shall make all payments in respect of the Assigned Interest (including payments of principal, interest, fees and other amounts) to the Assignee whether such amounts have accrued prior to the Effective Date or accrue subsequent to the Effective Date. The Assignor and the Assignee shall make all appropriate adjustments in payments by the Agent for periods prior to the Effective Date or with respect to the making of this assignment directly between themselves. 6. From and after the Effective Date, (a) the Assignee shall be a party to the Credit Agreement and, to the extent provided in this Assignment and Acceptance, have the rights and obligations of a Bank thereunder and under the other Loan Documents and shall be bound by the provisions thereof and (b) the Assignor shall, to the extent provided in this Assignment and Acceptance, relinquish its rights and be released from its obligations under the Credit Agreement. 7. This Assignment and Acceptance shall be governed by and construed in accordance with the laws of the State of Connecticut. IN WITNESS WHEREOF, the parties hereto have caused this Assignment and Acceptance to be executed as of the date first above written by their respective duly authorized officers on Schedule 1 hereto. Exhibit G-2 SCHEDULE 1 to the Assignment and Acceptance ------------------------- Re: Credit Agreement, dated as of February 25, 1994, among Dairy Mart Convenience Stores, Inc., the Banks from time to time parties thereto, and Fleet Bank, National Association, as Agent ---------------------------------------------- Name of Assignor: Name of Assignee: Transfer Effective Date of Assignment: Principal Commitment Percentage Amount Assigned Assigned --------------- -------- $___________________ ____._______% [NAME OF ASSIGNEE] [NAME OF ASSIGNOR] By: By: ----------------------------- ---------------------------- Title: Title: Accepted: Consented To: FLEET BANK, NATIONAL ASSOCIATION DAIRY MART CONVENIENCE as Agent STORES, INC. By: By: -------------------------- ----------------------------- Title: Title: EXHIBIT H Form of Opinions of Counsel to the Company and Its Subsidiaries --------------------------------------------------------------- See Tabs 8(a) and 8(b) Exhibit H-1 2(a) REVOLVING CREDIT NOTE No. 1 Hartford, Connecticut $15,000,000 February 25, 1994 FOR VALUE RECEIVED, the undersigned, DAIRY MART CONVENIENCE STORES, INC., a Delaware corporation (the "Company"), promises to pay to the order of FLEET BANK, NATIONAL ASSOCIATION, a national banking association organized and existing under the laws of the United States of America, having a place of business at One Constitution Plaza, Hartford, Connecticut 06115 ("Payee"), or any subsequent assignee or holder hereof (Payee or any subsequent assignee or holder hereof sometimes being hereinafter referred to as "Holder"), at the office of Fleet Bank, National Association, One Constitution Plaza, Hartford, Connecticut 06103, or at such other location as the Agent (as defined in the Credit Agreement [as hereinafter defined]) may designate in writing, in lawful money of the United States of America and in immediately available funds, the principal amount of FIFTEEN MILLION DOLLARS ($15,000,000) or so much thereof as may be advanced or readvanced by Holder and remain unpaid from time to time under and pursuant to that certain Credit Agreement dated the date hereof by and between the Company, Payee and certain other parties (as the same may from time to time be amended, modified or supplemented, from time to time, the "Credit Agreement"), together with: (i) interest on the principal balance of this Note outstanding from time to time, from the date hereof until said balance shall have been paid in full, at the rate or rates and in the manner provided in the Credit Agreement (whether before or after judgment); (ii) all amounts which may be or become due under the Credit Agreement or any of the other Loan Documents (as defined in the Credit Agreement); (iii) all costs and expenses, including reasonable attorneys' and appraisers' fees, incurred in collecting or attempting to collect the indebtedness evidenced by this Note, or in enforcing any of the Loan Documents or protecting or sustaining any liens or security interests created thereby or in any litigation or controversy arising from or connected with this Note or any of the Loan Documents; and (iv) all taxes or duties assessed upon the indebtedness evidenced by this Note or by any of the Loan Documents or upon any collateral security for such indebtedness. All capitalized terms used in this Note but not defined herein shall have the respective meanings ascribed thereto in the Credit Agreement. This Note is one of the Revolving Credit Notes referred to in the Credit Agreement and is entitled to the benefits of and is subject to optional and mandatory prepayment provisions set forth in the Credit Agreement. Holder is authorized to record the date, Type and amount of each Revolving Credit Loan made by Holder pursuant to the Credit Agreement, each continuation thereof, each conversion of all or a portion thereof to another Type, the date and amount of each payment or prepayment of principal hereof and, in the case of LIBOR Loans, the length of each LIBOR Interest Period and LIBOR Rate with respect thereto, on the schedules annexed hereto and made a part hereof. Any such recordation shall constitute prima facie evidence of the accuracy of the ----- ----- information so recorded, provided that the failure of Holder to make such -------- recordation (or any error in such recordation) shall not affect the obligations of the Company hereunder, under the Credit Agreement, or under any other Loan Document. This Note is secured pursuant to the Pledge Agreements and the Company Security Agreement. Reference is hereby made to the Pledge Agreements and the Company Security Agreement for a description of the properties and assets in which a security interest has been granted, the nature and extent of the security, the terms and conditions upon which the security interest was granted and the respective rights of Holder and the Agent in respect thereof. Payment and performance of this Note is guaranteed as set forth in the Subsidiary Guarantee. If any payment on this Note becomes due and payable on a day other than a Business Day, such payment shall be extended to the next succeeding Business Day, and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension. Upon the occurrence of any one or more of the Events of Default specified in the Credit Agreement, all amounts then remaining unpaid on this Note may be declared to be immediately due and payable as provided in the Credit Agreement. The Company and each co-maker, endorser, guarantor and surety of this Note, any accommodation party, and each other Person liable or who shall become liable for all or any part of the indebtedness evidenced by this Note hereby: (a) waive demand, presentment, protest, notice of protest, notice of dishonor, diligence in collection, notice of nonpayment and all notices of a like nature; and (b) consent to (i) the release, surrender, exchange or substitution of all or any part of the security for the indebtedness evidenced by this Note, or the taking of any additional security, (ii) the release of any or all other Persons from liability, whether primary or contingent, for the indebtedness evidenced by this Note or for any related obligations, and (iii) the granting of any other indulgences to any such Person. Each endorser, guarantor and surety of this Note, and each other Person liable or who shall become liable for all or any part of the indebtedness evidenced by this Note, hereby consent to (i) all renewals, extensions or modifications of this Note or of any of the Loan Documents (including any affecting the time of payment) and (ii) all advances under the Credit Agreement, this Note or any of the other Loan Documents. Any such renewal, extension, modification, advance, release, surrender, exchange, substitution, taking or indulgence may take place without notice to any such Person, and, whether any such notice is given or not, shall not impair the liability of any such Person. The Company and each co-maker, endorser, guarantor and surety of this Note, any accommodation party, and each other Person liable or who shall become liable for all or any part of the indebtedness evidenced by this Note, hereby give Holder a lien and right of setoff for all of their respective liabilities in respect of such indebtedness upon and against all of their respective deposits, credits and property, now or hereafter in the possession or control of Holder (or any affiliate of Holder) or in transit to Holder (or any affiliate of Holder). Holder may, at any time after the occurrence and during the continuance of an Event of Default, apply the same, or any part thereof, to any liability of the Company or any such other Person, whether matured or unmatured. 2 THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CONNECTICUT. MAKER AND EACH ENDORSER, GUARANTOR AND SURETY OF THIS NOTE, AND EACH OTHER PERSON LIABLE OR WHO SHALL BECOME LIABLE FOR ALL OR ANY PART OF THE INDEBTEDNESS EVIDENCED BY THIS NOTE, HEREBY ACKNOWLEDGE THAT THE TRANSACTION OF WHICH THIS NOTE IS A PART IS A COMMERCIAL TRANSACTION, AND TO THE EXTENT ALLOWED UNDER CONNECTICUT GENERAL STATUTES SECTIONS 52-278a TO 52-278n, INCLUSIVE, OR BY OTHER APPLICABLE LAW, HEREBY WAIVE THEIR RIGHT TO NOTICE AND HEARING WITH RESPECT TO ANY PREJUDGMENT REMEDY WHICH HOLDER OR ITS SUCCESSORS OR ASSIGNS MAY DESIRE TO USE. If any one or more of the provisions of this Note shall for any reason be held to be invalid, illegal or unenforceable, in whole or in part, or in any respect, or if any one or more of the provisions of this Note shall operate, or would prospectively operate, to invalidate this Note, then such provision or provisions only shall be deemed to be null and void and of no force or effect and shall not affect any other provision of this Note, and the remaining provisions of this Note shall remain operative and in full force and effect, shall be valid, legal and enforceable, and shall in no way be affected, prejudiced or disturbed thereby. DAIRY MART CONVENIENCE STORES, INC. By: /s/ Gregory G. Landry -------------------------------- Name: Gregory G. Landry Title: Executive Vice President 3 Schedule A to Revolving Credit Note --------------------- LOANS, CONVERSIONS AND PAYMENTS OF LIBOR LOANS -----------------------
================================================================================================ Amount of LIBOR Amount of Prime Rate Interest LIBOR Unpaid Loans Period and Loans Principal Amount of Converted LIBOR Rate Converted Amount of Balance of LIBOR into LIBOR with Respect into Prime Principal LIBOR Notation Date Loans Made Loans Thereto Rate Loans Repaid Loans Made by - - ------------------------------------------------------------------------------------------------- =================================================================================================
4 Schedule B to Revolving Credit Note --------------------- LOANS, CONVERSIONS AND PAYMENTS OF PRIME RATE LOANS ----------------------------
================================================================================================ Amount of Amount of Unpaid LIBOR Loans Prime Rate Principal Amount of Converted into Loans Amount of Balance of Prime Rate Prime Rate Converted into Principal Prime Rate Notation Made Date Loan Made Loans LIBOR Loans Repaid Loans by - - ------------------------------------------------------------------------------------------------ =============================================================================================
5 2(b) REVOLVING CREDIT NOTE No. 2 Hartford, Connecticut $15,000,000 February 25, 1994 FOR VALUE RECEIVED, the undersigned, DAIRY MART CONVENIENCE STORES, INC., a Delaware corporation (the "Company"), promises to pay to the order of SOCIETY NATIONAL BANK, a national banking association organized and existing under the laws of the United States of America, having a place of business at 127 Public Square, Cleveland, Ohio 44114-1306 ("Payee"), or any subsequent assignee or holder hereof (Payee or any subsequent assignee or holder hereof sometimes being hereinafter referred to as "Holder"), at the office of Fleet Bank, National Association, One Constitution Plaza, Hartford, Connecticut 06103, or at such other location as the Agent (as defined in the Credit Agreement [as hereinafter defined]) may designate in writing, in lawful money of the United States of America and in immediately available funds, the principal amount of FIFTEEN MILLION DOLLARS ($15,000,000) or so much thereof as may be advanced or readvanced by Holder and remain unpaid from time to time under and pursuant to that certain Credit Agreement dated the date hereof by and between the Company, Payee and certain other parties (as the same may from time to time be amended, modified or supplemented, from time to time, the "Credit Agreement"), together with: (i) interest on the principal balance of this Note outstanding from time to time, from the date hereof until said balance shall have been paid in full, at the rate or rates and in the manner provided in the Credit Agreement (whether before or after judgment); (ii) all amounts which may be or become due under the Credit Agreement or any of the other Loan Documents (as defined in the Credit Agreement); (iii) all costs and expenses, including reasonable attorneys' and appraisers' fees, incurred in collecting or attempting to collect the indebtedness evidenced by this Note, or in enforcing any of the Loan Documents or protecting or sustaining any liens or security interests created thereby or in any litigation or controversy arising from or connected with this Note or any of the Loan Documents; and (iv) all taxes or duties assessed upon the indebtedness evidenced by this Note or by any of the Loan Documents or upon any collateral security for such indebtedness. All capitalized terms used in this Note but not defined herein shall have the respective meanings ascribed thereto in the Credit Agreement. This Note is one of the Revolving Credit Notes referred to in the Credit Agreement and is entitled to the benefits of and is subject to optional and mandatory prepayment provisions set forth in the Credit Agreement. Holder is authorized to record the date, Type and amount of each Revolving Credit Loan made by Holder pursuant to the Credit Agreement, each continuation thereof, each conversion of all or a portion thereof to another Type, the date and amount of each payment or prepayment of principal hereof and, in the case of LIBOR Loans, the length of each LIBOR Interest Period and LIBOR Rate with respect thereto, on the schedules annexed hereto and made a part hereof. Any such recordation shall constitute prima facie evidence of the accuracy of the ----- ----- information so recorded, provided that the failure of Holder to make such -------- recordation (or any error in such recordation) shall not affect the obligations of the Company hereunder, under the Credit Agreement, or under any other Loan Document. This Note is secured pursuant to the Pledge Agreements and the Company Security Agreement. Reference is hereby made to the Pledge Agreements and the Company Security Agreement for a description of the properties and assets in which a security interest has been granted, the nature and extent of the security, the terms and conditions upon which the security interest was granted and the respective rights of Holder and the Agent in respect thereof. Payment and performance of this Note is guaranteed as set forth in the Subsidiary Guarantee. If any payment on this Note becomes due and payable on a day other than a Business Day, such payment shall be extended to the next succeeding Business Day, and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension. Upon the occurrence of any one or more of the Events of Default specified in the Credit Agreement, all amounts then remaining unpaid on this Note may be declared to be immediately due and payable as provided in the Credit Agreement. The Company and each co-maker, endorser, guarantor and surety of this Note, any accommodation party, and each other Person liable or who shall become liable for all or any part of the indebtedness evidenced by this Note hereby: (a) waive demand, presentment, protest, notice of protest, notice of dishonor, diligence in collection, notice of nonpayment and all notices of a like nature; and (b) consent to (i) the release, surrender, exchange or substitution of all or any part of the security for the indebtedness evidenced by this Note, or the taking of any additional security, (ii) the release of any or all other Persons from liability, whether primary or contingent, for the indebtedness evidenced by this Note or for any related obligations, and (iii) the granting of any other indulgences to any such Person. Each endorser, guarantor and surety of this Note, and each other Person liable or who shall become liable for all or any part of the indebtedness evidenced by this Note, hereby consent to (i) all renewals, extensions or modifications of this Note or of any of the Loan Documents (including any affecting the time of payment) and (ii) all advances under the Credit Agreement, this Note or any of the other Loan Documents. Any such renewal, extension, modification, advance, release, surrender, exchange, substitution, taking or indulgence may take place without notice to any such Person, and, whether any such notice is given or not, shall not impair the liability of any such Person. The Company and each co-maker, endorser, guarantor and surety of this Note, any accommodation party, and each other Person liable or who shall become liable for all or any part of the indebtedness evidenced by this Note, hereby give Holder a lien and right of setoff for all of their respective liabilities in respect of such indebtedness upon and against all of their respective deposits, credits and property, now or hereafter in the possession or control of Holder (or any affiliate of Holder) or in transit to Holder (or any affiliate of Holder). Holder may, at any time after the occurrence and during the continuance of an Event of Default, apply the same, or any part thereof, to any liability of the Company or any such other Person, whether matured or unmatured. 2 THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CONNECTICUT. MAKER AND EACH ENDORSER, GUARANTOR AND SURETY OF THIS NOTE, AND EACH OTHER PERSON LIABLE OR WHO SHALL BECOME LIABLE FOR ALL OR ANY PART OF THE INDEBTEDNESS EVIDENCED BY THIS NOTE, HEREBY ACKNOWLEDGE THAT THE TRANSACTION OF WHICH THIS NOTE IS A PART IS A COMMERCIAL TRANSACTION, AND TO THE EXTENT ALLOWED UNDER CONNECTICUT GENERAL STATUTES SECTIONS 52-278a TO 52-278n, INCLUSIVE, OR BY OTHER APPLICABLE LAW, HEREBY WAIVE THEIR RIGHT TO NOTICE AND HEARING WITH RESPECT TO ANY PREJUDGMENT REMEDY WHICH HOLDER OR ITS SUCCESSORS OR ASSIGNS MAY DESIRE TO USE. If any one or more of the provisions of this Note shall for any reason be held to be invalid, illegal or unenforceable, in whole or in part, or in any respect, or if any one or more of the provisions of this Note shall operate, or would prospectively operate, to invalidate this Note, then such provision or provisions only shall be deemed to be null and void and of no force or effect and shall not affect any other provision of this Note, and the remaining provisions of this Note shall remain operative and in full force and effect, shall be valid, legal and enforceable, and shall in no way be affected, prejudiced or disturbed thereby. DAIRY MART CONVENIENCE STORES, INC. By: /s/ Gregory G. Landry -------------------------------- Name: Gregory G. Landry Title: Executive Vice President 3 Schedule A to Revolving Credit Note --------------------- LOANS, CONVERSIONS AND PAYMENTS OF LIBOR LOANS -----------------------
================================================================================================ Amount of LIBOR Amount of Prime Rate Interest LIBOR Unpaid Loans Period and Loans Principal Amount of Converted LIBOR Rate Converted Amount of Balance of LIBOR into LIBOR with Respect into Prime Principal LIBOR Notation Date Loans Made Loans Thereto Rate Loans Repaid Loans Made by - - ------------------------------------------------------------------------------------------------ ================================================================================================
4 Schedule B to Revolving Credit Note --------------------- LOANS, CONVERSIONS AND PAYMENTS OF PRIME RATE LOANS ----------------------------
================================================================================================= Amount of Amount of Unpaid LIBOR Loans Prime Rate Principal Amount of Converted into Loans Amount of Balance of Prime Rate Prime Rate Converted into Principal Prime Rate Notation Made Date Loan Made Loans LIBOR Loans Repaid Loans by - - ------------------------------------------------------------------------------------------------- =================================================================================================
5 SUBSIDIARY GUARANTEE THIS SUBSIDIARY GUARANTEE, dated as of February 25, 1994 (as amended, supplemented or otherwise modified from time to time, this "Guarantee"), by each of the corporations that are signatories hereto (the "Guarantors") in favor of FLEET BANK, NATIONAL ASSOCIATION, a national banking association organized and existing under the laws of the United States of America, as agent (the "Agent") for the ratable benefit of the Agent, as Agent and individually as a bank, and the other banks and financial institutions parties thereto from time to time (the "Banks") that are parties to the Credit Agreement (as hereinafter defined) W I T N E S S E T H: WHEREAS, Dairy Mart Convenience Stores, Inc., a Delaware corporation (the "Company"), is party to a Credit Agreement, dated as of February 25, 1994, with the Agent and the Banks (as the same may from time to time be amended, supplemented or otherwise modified, the "Credit Agreement"); WHEREAS, pursuant to the terms of the Credit Agreement and the other Loan Documents (as hereinafter defined), the Banks have agreed to make certain Extensions of Credit (as hereinafter defined) to or for the benefit of the Company; WHEREAS, the Company owns directly or indirectly all of the issued and outstanding stock of each Guarantor; WHEREAS, the proceeds of Extensions of Credit will be used in part for the benefit of each of the Guarantors in connection with the operation of their respective businesses; WHEREAS, the Company and the Guarantors are engaged in related businesses, and each Guarantor will derive substantial direct and indirect benefit from the making of the Extensions of Credit; and WHEREAS, the obligation of the Banks to make the Extensions of Credit is conditioned upon, among other things, the execution and delivery by the Guarantors of this Guarantee; NOW, THEREFORE, in consideration of the premises and to induce the Banks to enter into the Credit Agreement and to make Extensions of Credit, each Guarantor hereby agrees with and for the Agent, for the ratable benefit of the Banks, as follows: 1. Defined Terms. As used in this Guarantee, the following terms have ------------- the respective meanings set forth below or set forth in the Section hereof following such terms: Extensions of Credit -- (i) all Loans or advances made to the Company under any Loan Document, (ii) all Letters of Credit issued for the account of the Company under any Loan Document, (iii) all other extensions of credit to or for the benefit of the Company 1 under any Loan Document, and (iv) to the extent not otherwise included in the foregoing, all Obligations. Obligations -- the unpaid principal of and interest on (including, without limitation, interest accruing after the maturity of the Loans and interest accruing on or after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to the Company, whether or not a claim for post-filing or postpetition interest is allowed in such proceeding) the Notes and all other obligations and liabilities of the Company to the Agent or the Banks, whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter incurred, which may arise under, out of, or in connection with, the Credit Agreement, the Notes, the other Loan Documents or any other document made, delivered or given in connection therewith, and each other obligation and liability, whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, of the Company to the Agent or any Bank, whether on account of principal, interest, reimbursement obligations, fees, indemnities, costs, expenses (including, without limitation, all fees and disbursements of counsel to the Agent or any Bank) or otherwise . All capitalized terms used and not otherwise defined herein shall have the respective meanings ascribed thereto in the Credit Agreement. 2. Guarantee. --------- (a) Subject to the provisions of paragraph 2(b), each of the Guarantors hereby, jointly and severally, unconditionally and irrevocably, guarantees to the Agent and the Banks and their respective successors, indorsees, transferees and assigns, the prompt and complete payment by the Company when due (whether at the stated maturity, by acceleration or otherwise) of the Obligations. Each Guarantor further agrees to pay any and all reasonable expenses (including, without limitation, all fees and disbursements of counsel) which may be paid or incurred by the Agent or any Bank in enforcing, or obtaining advice of counsel in respect of enforcing, any rights with respect to, or collecting, any or all of the Obligations and/or enforcing any rights with respect to, or collecting against, such Guarantor under this Guarantee. This Guarantee shall remain in full force and effect until the Obligations are indefeasibly paid in full and the Commitments are terminated, notwithstanding that from time to time prior thereto the Company may be free from any Obligations. (b) Anything herein or in any other Loan Document to the contrary notwithstanding, each Guarantor and by its acceptance hereof, each beneficiary hereof, hereby confirms that it is its intention that the obligations of each Guarantor hereunder shall be in, but not in excess of, the maximum amount permitted by applicable law. To that end, but only to the extent such obligations would otherwise be avoidable, the obligations of each Guarantor hereunder shall be limited to the maximum amount that, after giving effect to the incurrence thereof and after giving effect to any rights to contribution of such Guarantor pursuant to any agreement providing for an equitable contribution among such Guarantor and other Affiliates of the Company of payments made by guarantees by such parties, would not render such Guarantor insolvent or unable to pay its debts (within the meaning of Title 11 of the United States Code or as 2 defined under the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any analogous applicable law) as they mature or leave such Guarantor with an unreasonably small capital. The need for any such limitation shall be determined, and any such needed limitation shall be effective, at the time or times that each Guarantor is deemed, under applicable law, to incur obligations hereunder. Any such limitation shall be apportioned amongst the Obligations owed to the respective Banks pro rata in accordance with their respective amount thereof. This paragraph 2(b) is intended solely to preserve the rights of each Bank to the maximum extent permitted by applicable law, and neither any of the Guarantors nor any other Person shall have any rights under this paragraph 2(b) that it would not otherwise have under applicable law. For the purposes of this paragraph 2(b), "insolvency," "unreasonably small capital" and "inability to pay debts" (as so defined) as they mature" shall be determined in accordance with applicable law. (c) Each Guarantor agrees that the Obligations may at any time and from time to time exceed the amount of the liability of such Guarantor or of all of the Guarantors without impairing this Guarantee or affecting the rights and remedies of the Agent and the Banks hereunder. (d) No payment or payments made by the Company, any of the Guarantors, any other guarantor or any other Person or received or collected by the Agent or any Bank from the Company, any of the Guarantors, any other guarantor or any other Person by virtue of any action or proceeding or any set-off or appropriation or application at any time or from time to time in reduction of or in payment of the Obligations shall be deemed to modify, reduce, release or otherwise affect the liability of any Guarantor hereunder which shall, notwithstanding any such payment or payments, remain liable for the Obligations up to the maximum liability of such Guarantor until the Obligations are paid in full and the Commitments are terminated . (e) Each Guarantor agrees that whenever, at any time, or from time to time, it shall make any payment to the Agent or any Bank on account of its liability hereunder, it will notify the Agent in writing that such payment is made under this Guarantee for such purpose. 3. Senior Guarantees. Each Guarantor agrees that all payments required ----------------- to be made pursuant to this Guarantee by such Guarantor are senior in right and priority of payment to the payment of any Guarantee Obligations of such Guarantor arising under or in connection with the guarantee made by such Guarantor of the Senior Subordinated Notes as set forth in the Senior Subordinated Indenture. 4. Right of Contribution. Each Guarantor hereby agrees that to the --------------------- extent that a Guarantor shall have paid more than its proportionate share of any payment made hereunder, such Guarantor shall be entitled to seek and receive contribution from and against any other Guarantor hereunder who has not paid its proportionate share of such payment. Each Guarantor's right of contribution shall be subject to the terms and conditions of paragraph 6 hereof. The provisions of this paragraph 4 shall in no respect limit the obligations and liabilities of any Guarantor to the Agent and the Banks, and each Guarantor shall remain liable to the Agent and the Banks for the full amount guaranteed by such Guarantor hereunder. 3 5. Right of Set-off. Each Guarantor hereby irrevocably authorizes the ---------------- Agent and each Bank at any time and from time to time, after the occurrence of any Event of Default specified in the Credit Agreement, without notice to such Guarantor or any other Guarantor, any such notice being expressly waived by each Guarantor, to set off and appropriate and apply, to the extent permitted by law, any and all deposits (general or special, time or demand, provisional or final), in any currency, and any other credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by the Agent or such Bank, against and on account of the obligations and liabilities of such Guarantor to the Agent or such Bank hereunder and claims of every nature and description of the Agent or such Bank against such Guarantor, in any currency, whether arising hereunder, under the Credit Agreement, any Note, any Application or any other Loan Document or otherwise, as the Agent or such Bank may elect, whether or not the Agent or any Bank has made any demand for payment and although such obligations, liabilities and claims may be contingent or unmatured. The Agent and each Bank agrees to notify such Guarantor promptly of any such set-off and the application made by the Agent or such Bank, provided that the failure to give such notice -------- shall not affect the validity of such set-off and application. The rights of the Agent and each Bank under this paragraph are in addition to other rights and remedies (including, without limitation, other rights of set-off) which the Agent or such Bank may have. 6. No Subrogation. Notwithstanding any payment or payments made by any -------------- of the Guarantors hereunder or any set-off or application of funds of any of the Guarantors by the Agent or any Bank or the receipt of any amounts by the Agent or any Bank with respect to any property held as collateral security for this Guarantee, no Guarantor shall be entitled to be subrogated to any of the rights of the Agent or any Bank against the Company or any other Guarantor or any collateral security or guarantee or right of offset held by the Agent or any Bank for the payment of the Obligations, nor shall any Guarantor seek or be entitled to seek any contribution or reimbursement from the Company or any other Guarantor in respect of payments made by such Guarantor hereunder, until all amounts owing to the Agent and the Banks by the Company on account of the Obligations are indefeasibly paid in full, and the Commitments are terminated. If any amount shall be paid to any Guarantor on account of such subrogation rights at any time when all of the Obligations shall not have been terminated, such amount shall be held by such Guarantor in trust for the Agent and the Banks, segregated from other funds of such Guarantor, and shall, forthwith upon receipt by such Guarantor, be turned over to the Agent in the exact form received by such Guarantor (duly indorsed by such Guarantor to the Agent, if required), to be applied against the Obligations, whether matured or unmatured, in such order as the Agent may determine. 7. Amendments, etc. with respect to the Obligations; Waiver of Rights. ------------------------------------------------------------------ Each Guarantor shall remain obligated hereunder notwithstanding that, without any reservation of rights against any Guarantor and without notice to or further assent by any Guarantor, (a) any demand for payment of any of the Obligations made by the Agent or any Bank may be rescinded by the Agent or such Bank and any of the Obligations continued or reinstated, or (b) the Obligations, or the liability of any other party upon or for any part thereof, or any collateral security or guarantee therefor or right of offset with respect thereto, may, from time to time, in whole or in part, be renewed, extended, amended, modified, accelerated, compromised, waived, surrendered or released by the Agent or any Bank, or (c) the Credit Agreement, any Note, any Application, this Guarantee, any other Loan Document and any other document executed and delivered in connection therewith or herewith may be amended, modified, supplemented or terminated, in 4 whole or in part, as the Agent and/or any Bank may deem advisable from time to time, or (d) any collateral security, guarantee or right of offset at any time held by the Agent or any Bank for the payment of the Obligations may be sold, exchanged, waived, surrendered or released. Neither the Agent nor any Bank shall have any obligation to protect, secure, perfect or insure any Lien at any time held by it as security for the Obligations or for this Guarantee or any property subject thereto. When making any demand hereunder against any of the Guarantors, the Agent or any Bank may, but shall be under no obligation to, make a similar demand on the Company or any other Guarantor or guarantor, and any failure by the Agent or any Bank to make any such demand or to collect any payments from the Company or any such other Guarantor or any release of the Company or any Guarantor shall not relieve any of the Guarantors in respect of which a demand or collection is not made or any of the Guarantors not so released of their several obligations or liabilities hereunder, and shall not impair, limit or otherwise adversely affect the rights and remedies, express or implied, or as a matter of law, of the Agent or any Bank against any of the Guarantors. For the purposes hereof "demand" shall include the commencement and continuance of any legal proceedings. 8. Guarantee Absolute and Unconditional. Each Guarantor waives any and ------------------------------------ all notice of the creation, renewal, extension or accrual of any of the Obligations and notice of or proof of reliance by the Agent or any Bank upon this Guarantee or acceptance of this Guarantee; the Obligations, and any of them, shall conclusively be deemed to have been created, contracted or incurred, or renewed, extended, amended or waived, in reliance upon this Guarantee; and all dealings between the Company or any of the Guarantors, on the one hand, and the Agent or any Bank, on the other, shall likewise be conclusively presumed to have been had or consummated in reliance upon this Guarantee. Each Guarantor waives diligence, presentment, protest, demand for payment and notice of default or nonpayment to or upon the Company or any of the Guarantors with respect to the Obligations. Each Guarantor understands and agrees that this Guarantee shall be construed as a continuing, absolute and unconditional guarantee of payment without regard to (a) the validity, regularity or enforceability of the Credit Agreement, any Note, any Application or any other Loan Document, or any of the Obligations or any other collateral security therefor or guarantee or right of offset with respect thereto at any time or from time to time held by the Agent or any Bank, (b) any defense, set-off or counterclaim (other than a defense of payment or performance) which may at any time be available to or be asserted by the Company or any other Guarantor against the Agent or any Bank, or (c) any other circumstance whatsoever (with or without notice to or knowledge of the Company or such Guarantor) which constitutes, or might be construed to constitute, an equitable or legal discharge of the Company or any other Guarantor for the Obligations, or of such Guarantor under this Guarantee, in bankruptcy or in any other instance. When pursuing their rights and remedies hereunder against any Guarantor, the Agent and any Bank may, but shall be under no obligation to, pursue such rights and remedies as it may have against the Company or any other Person or against any collateral security or guarantee for the Obligations or any right of offset with respect thereto, and any failure by the Agent or any Bank to pursue such other rights or remedies or to collect any payments from the Company or any such other Person or to realize upon any such collateral security or guarantee or to exercise any such right of offset, or any release of the Company or any such other Person or any such collateral security, guarantee or right of offset, shall not relieve such Guarantor of any liability hereunder, and shall not impair or affect the rights and remedies, whether express, implied or available as a matter of law, of the Agent or any Bank against such Guarantor. This Guarantee shall remain in full force and effect and be binding in accordance with and to the extent of its terms upon each Guarantor and the successors and 5 assigns thereof, and shall inure to the benefit of the Agent and the Banks, and their respective successors, indorsees, transferees and assigns, until all the Obligations and the obligations of each Guarantor under this Guarantee shall have been satisfied by indefeasible payment in full and the Commitments shall be terminated, notwithstanding that from time to time during the term of the Credit Agreement the Company may be free from any Obligations. 9. Reinstatement. This Guarantee shall continue to be effective, or be ------------- reinstated, as the case may be, if at any time payment, or any part thereof, of any of the Obligations is rescinded or must otherwise be restored or returned by the Agent or any Bank upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of the Company or any Guarantor, or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, the Company or any Guarantor or any substantial part of its property, or otherwise, all as though such payments had not been made. 10. Payments. Each Guarantor hereby guarantees that payments hereunder -------- will be paid to the Agent without set-off or counterclaim in Dollars and in immediately available funds at the office of the Agent located at One Constitution Plaza, Hartford, Connecticut 06103. 11. Representations and Warranties. Each Guarantor hereby represents and ------------------------------ warrants to the Agent and the Banks that: (a) such Guarantor is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, is in good standing as a foreign corporation in each jurisdiction where its ownership or lease of property or conduct of business requires such qualification and has the corporate power and authority and the legal right to own and operate its property, to lease the property it operates and to conduct the business in which it is currently engaged; (b) such Guarantor has the corporate power and authority and the legal right to execute and deliver, and to perform its obligations under, this Guarantee and the other Loan Documents to which it is a party and to grant the Liens by such Guarantor pursuant to the Subsidiary Pledge Agreement, and has taken all necessary corporate action to authorize its execution, delivery and performance of this Guarantee and such other Loan Documents and the grant of such Liens by such Guarantor; (c) this Guarantee and each other Loan Document to which such Guarantor is a party has been duly authorized, executed and delivered by such Guarantor and constitutes a legal, valid and binding obligation of such Guarantor enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law); (d) the execution, delivery and performance of this Guarantee and each other Loan Document to which it is a party and the grant of the Liens by such Guarantor pursuant to the Subsidiary Pledge Agreement will not violate any provision of any Requirement of Law or Contractual Obligation of such Guarantor and will not result in or require the creation or imposition of any Lien on any of the properties or revenues of 6 such Guarantor pursuant to any Requirement of Law or Contractual Obligation of such Guarantor except the Liens created by such Guarantor pursuant to the Subsidiary Pledge Agreement; (e) no consent or authorization of, filing with, or other act by or in respect of, any arbitrator or Governmental Authority and no consent of any other Person (including, without limitation, any stockholder or creditor of such Guarantor) is required in connection with the execution, delivery, performance, validity or enforceability of this Guarantee or the other Loan Documents to which it is a party or the grant of the Liens by such Guarantor pursuant to the Subsidiary Pledge Agreement; (f) no litigation, investigation or proceeding of or before any arbitrator or Governmental Authority is pending or, to the knowledge of such Guarantor, threatened by or against such Guarantor or against any of its properties or revenues (i) with respect to this Guarantee or any other Loan Document to which such Guarantor is a party or any of the transactions contemplated hereby or thereby or (ii) which could have a Material Adverse Effect; and (g) such Guarantor has good record and marketable title in fee simple to or valid leasehold interests in all its real property, and good title to all its other property, and none of such property is subject to any Lien of any nature whatsoever except as permitted by subsection 7.3 of the Credit Agreement. Each Guarantor agrees that the foregoing representations and warranties shall be deemed to have been made by such Guarantor on the date of each Extension of Credit to the Company under the Credit Agreement on and as of such date of such Extension of Credit as though made hereunder on and as of such date. 12. Further Assurances. Each Guarantor hereby covenants and agrees with ------------------ the Agent and the Banks that, from and after the date of this Guarantee until the Obligations are paid in full and the Commitments are terminated, at any time and from time to time, upon the written request of the Agent, and at the sole expense of each Guarantor, each Guarantor will promptly and duly execute and deliver such further instruments and documents and take such further actions as the Agent may reasonably request for the purposes of obtaining or preserving the full benefits of this Guarantee and of the rights and powers herein granted. 13. Severability. Any provision of this Guarantee which is prohibited or ------------ unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 14. Paragraph Headings. The paragraph headings used in this Guarantee are ------------------ for convenience of reference only and are not to affect the construction hereof or be taken into consideration in the interpretation hereof. 15. No Waiver; Cumulative Remedies. Neither the Agent nor any Bank shall ------------------------------ by any act (except by a written instrument pursuant to paragraph 16 hereof ), delay, indulgence, 7 omission or otherwise be deemed to have waived any right or remedy hereunder or to have acquiesced in any Default or Event of Default or in any breach of any of the terms and conditions hereof. No failure to exercise, nor any delay in exercising, on the part of the Agent or any Bank, any right, power or privilege hereunder shall operate as a waiver thereof. No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege. A waiver by the Agent or any Bank of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which the Agent or such Bank would otherwise have on any future occasion. The rights and remedies herein provided are cumulative, may be exercised singly or concurrently and are not exclusive of any rights or remedies provided by law. 16. Waivers and Amendments; Successors and Assigns. None of the terms and ---------------------------------------------- provisions of this Guarantee may be waived, amended or supplemented or otherwise modified except by a written instrument executed by each Guarantor and the Agent, provided that any provision of this Guarantee may be waived by the Agent -------- and the Banks in a letter or agreement executed by the Agent or by telex or facsimile transmission from the Agent. This Guarantee shall be binding upon the successors and assigns of each Guarantor and shall inure to the benefit of the Agent and the Banks and their respective successors and assigns. 17. Notices. Notices by the Agent to each Guarantor may be given by hand, ------- by mail, or by facsimile transmission, addressed to each Guarantor in care of the Company at its address set forth in subsection 10.2 of the Credit Agreement and shall be effective (a) when delivered by hand, (b) in the case of mail, three days after deposit in the postal system, first class postage prepaid, and (c) in the case of telecopy notice, when sent. Each Guarantor may change its address and transmission numbers by written notice to the Agent; provided that -------- notice of any change of address shall be effective only upon receipt thereof. 18. Counterparts. This Guarantee may be executed by one or more of the ------------ parties hereto on any number of separate counterparts and all of said counterparts taken together shall be deemed to constitute one and the same instrument. 19. Integration. This Guarantee represents the agreement of the ----------- Guarantors with respect to the subject matter hereof, and there are no promises, undertakings, representations or warranties by the Agent or any Bank relative to the subject matter hereof not expressly set forth or referred to herein or in the other Loan Documents. 20. Authority of Agent. Each Guarantor acknowledges that the rights and ------------------ responsibilities of the Agent under this Guarantee with respect to any action taken by the Agent or the exercise or non-exercise by the Agent of any option, right, request, judgment or other right or remedy provided for herein or resulting or arising out of this Guarantee shall, as between the Agent and the Banks, be governed by the Credit Agreement and by such other agreements with respect thereto as may exist from time to time among them, but, as between the Agent and each Guarantor, the Agent shall be deemed conclusively to have full and valid authority so to act or refrain from acting on behalf of the Banks, and each Guarantor shall not be under any obligation, or entitlement, to make any inquiry respecting such authority. 21. GOVERNING LAW. THIS GUARANTEE AND THE RIGHTS AND OBLIGATIONS OF THE ------------- GUARANTORS UNDER THIS GUARANTEE SHALL BE GOVERNED BY, AND 8 CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF CONNECTICUT. 22. Submission to Jurisdiction; Waivers. Each Guarantor hereby ----------------------------------- irrevocably and unconditionally: (a) submits for itself and its property in any legal action or proceeding relating to this Guarantee and the other Loan Documents to which it is a party, or for recognition and enforcement of any judgment in respect thereof, to the nonexclusive general jurisdiction of the Courts of the State of Connecticut, the courts of the United States of America for the District of Connecticut, and appellate courts from any thereof; (b) consents that any such action or proceeding may be brought in such courts and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same; (c) agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to such Guarantor at its address referred to in paragraph 17 hereof or at such other address of which the Agent shall have been notified pursuant thereto; (d) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law or shall limit the right to sue in any other jurisdiction; and (e) waives, to the maximum extent not prohibited by law, any right it may have to claim or recover in any legal action or proceeding referred to in this paragraph any special, exemplary, punitive or consequential damages. 23. Acknowledgments. Each Guarantor hereby acknowledges that: --------------- (a) such Guarantor has been advised by counsel in the negotiation, execution and delivery of this Guarantee and the other Loan Documents to which it is a party; (b) neither the Agent nor any Bank has any fiduciary relationship to such Guarantor, and the relationship between Agent and Banks, on one hand, and such Guarantor on the other hand, is solely that of debtor and creditor; and (c) no joint venture exists among the Banks or among such Guarantor and the Banks. 24. WAIVERS OF JURY TRIAL. THE GUARANTORS AND, BY THEIR ACCEPTANCE --------------------- HEREOF, THE AGENT AND THE BANKS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS GUARANTEE OR ANY OTHER LOAN DOCUMENT TO WHICH THE GUARANTORS ARE A PARTY AND FOR ANY COUNTERCLAIM THEREIN. 9 25. PREJUDGMENT REMEDY WAIVER. EACH GUARANTOR HEREBY ACKNOWLEDGES THAT ------------------------- THE TRANSACTION OF WHICH THIS GUARANTEE IS A PART IS A COMMERCIAL TRANSACTION, AND TO THE EXTENT ALLOWED UNDER CONNECTICUT GENERAL STATUTES SECTIONS 52-278a TO 52-278n, INCLUSIVE, OR BY OTHER APPLICABLE LAW, HEREBY WAIVES ITS RIGHT TO NOTICE AND HEARING WITH RESPECT TO ANY PREJUDGMENT REMEDY WHICH THE AGENT, THE BANKS OR THEIR RESPECTIVE SUCCESSORS OR ASSIGNS MAY DESIRE TO USE. IN WITNESS WHEREOF, each of the undersigned has caused this Guarantee to be duly executed and delivered in Hartford, Connecticut by its duly authorized officer as of the day and year first above written. CONNA CORPORATION By: /s/ Gregory G. Landry ---------------------------------- Gregory G. Landry Executive Vice President THE LAWSON COMPANY By: /s/ Gregory G. Landry ---------------------------------- Gregory G. Landry Executive Vice President DAIRY MART FARMS, INC. By: /s/ Gregory G. Landry ---------------------------------- Gregory G. Landry Executive Vice President DAIRY MART EAST, INC. By: /s/ Gregory G. Landry ---------------------------------- Gregory G. Landry Executive Vice President 10 DAIRY MART, INC. By: /s/ Gregory G. Landry ---------------------------------- Gregory G. Landry Executive Vice President REMOTE SERVICES, INC. By: /s/ Gregory G. Landry ---------------------------------- Gregory G. Landry Executive Vice President CONVENIENT INDUSTRIES OF AMERICA, INC. By: /s/ Gregory G. Landry ---------------------------------- Gregory G. Landry Executive Vice President CIA FOOD MARTS, INC. By: /s/ Gregory G. Landry ---------------------------------- Gregory G. Landry Executive Vice President QUIK SHOPS, INC. By: /s/ Gregory G. Landry ---------------------------------- Gregory G. Landry Executive Vice President D.M. INSURANCE LIMITED By: /s/ Gregory G. Landry ---------------------------------- Gregory G. Landry Executive Vice President 11 LMC, INC. By: /s/ Gregory G. Landry ---------------------------------- Gregory G. Landry Executive Vice President SNG OF SOUTHERN MINNESOTA, INC. By: /s/ Gregory G. Landry ---------------------------------- Gregory G. Landry Executive Vice President THE LAWSON MILK COMPANY By: /s/ Gregory G. Landry ---------------------------------- Gregory G. Landry Executive Vice President GOLDEN STORES, INC. By: /s/ Gregory G. Landry ---------------------------------- Gregory G. Landry Executive Vice President LAKESIDE WHOLESALE, INC. By: /s/ Gregory G. Landry ---------------------------------- Gregory G. Landry Executive Vice President OPEN PANTRY PROPERTIES, INC. By: /s/ Gregory G. Landry ---------------------------------- Gregory G. Landry Executive Vice President OSCAR EWING, INC. By: /s/ Gregory G. Landry ---------------------------------- Gregory G. Landry Executive Vice President 12 CONVENIENT GASOLINE, INC. By: /s/ Gregory G. Landry ---------------------------------- Gregory G. Landry Executive Vice President JACKSON COUNTY GROCERY CO., INC. By: /s/ Gregory G. Landry ---------------------------------- Gregory G. Landry Executive Vice President GREENWALL GROCERY CO., INC. By: /s/ Gregory G. Landry ---------------------------------- Gregory G. Landry Executive Vice President FOOD MERCHANDISERS, INC. By: /s/ Gregory G. Landry ---------------------------------- Gregory G. Landry Executive Vice President DAIRY MART CONVENIENCE STORES OF OHIO, INC. By: /s/ Gregory G. Landry ---------------------------------- Gregory G. Landry Executive Vice President Accepted: FLEET BANK, NATIONAL ASSOCIATION, as Agent By: /s/ Walter P. Schuppe ------------------------------ Walter P. Schuppe Vice President 13 COMPANY PLEDGE AGREEMENT THIS COMPANY PLEDGE AGREEMENT, dated as of February 25, 1994, made by DAIRY MART CONVENIENCE STORES, INC., a Delaware corporation (the "Pledgor"), in favor of FLEET BANK, NATIONAL ASSOCIATION, as agent (in such capacity, the "Agent") for the ratable benefit of the Agent, as Agent and individually as a bank, and the other banks and financial institutions parties thereto from time to time (the "Banks") parties to the Credit Agreement, dated as of February 25, 1994 (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), among the Pledgor, the Banks and the Agent; W I T N E S S E T H : WHEREAS, pursuant to the Credit Agreement, the Banks have severally agreed to extend credit to the Pledgor upon the terms and subject to the conditions set forth therein; WHEREAS, the Pledgor is the legal and beneficial owner of the shares of Pledged Stock (as hereinafter defined) issued by each of the Pledgor's Subsidiaries listed on Schedule I hereto (individually, an "Issuer"; collectively the "Issuers"); and WHEREAS, it is a condition precedent to the obligation of the Banks to make their respective extensions of credit to the Pledgor under the Credit Agreement that the Pledgor shall have executed and delivered this Pledge Agreement to the Agent for the ratable benefit of Agent and the Banks; NOW, THEREFORE, in consideration of the premises and to induce the Agent and the Banks to enter into the Credit Agreement and to induce the Agent and the Banks to make their respective extensions of credit and the Issuing Bank to issue certain Letters of Credit under the Credit Agreement, the Pledgor hereby agrees with the Agent, for the ratable benefit of the Banks, as follows: Section 1. Interpretation of this Agreement. -------------------------------- (a) Certain Defined Terms. As used in this Agreement, the --------------------- following terms have the respective meanings set forth below or set forth in the Section hereof following such term: Agent -- as defined in the introductory paragraph hereof. Banks -- as defined in the introductory paragraph hereof. Code -- the Uniform Commercial Code from time to time in effect in the State of Connecticut. Collateral -- the Pledged Stock and all Proceeds. Credit Agreement -- as defined in the introductory paragraph hereof. Issuer(s) -- as defined in the second recital paragraph. Obligations -- means, at any time, all obligations and undertakings of the Company under and in respect of the Credit Agreement, including, without limitation, the Company's obligations and undertakings with respect to the payment of the principal of, and interest on, the Notes, all of the Company's Reimbursement Obligations (as such term is defined in the Credit Agreement) and all other amounts payable, and all other indebtedness owing, by the Company under each of the Loan Documents. Pledge Agreement -- this Company Pledge Agreement, as amended, supplemented or otherwise modified from time to time. Pledged Stock -- the shares of capital stock of each Issuer listed on Schedule I hereto, together with all shares, stock certificates, options, warrants, offers or rights of any nature whatsoever that may be issued or granted by each Issuer to the Pledgor while this Pledge Agreement is in effect. Proceeds -- all "proceeds" as such term is defined in Section 9-306(1) of the Code on the date hereof and, in any event, shall include, without limitation, all dividends or other income from the Pledged Stock, collections thereon or distributions with respect thereto. (b) Rules for Interpreting Undefined Terms. All capitalized terms -------------------------------------- used in this Pledge Agreement and not otherwise defined herein shall have the respective meanings ascribed thereto in the Credit Agreement. All capitalized terms used in this Pledge Agreement and not defined herein or in the Credit Agreement but that are defined in the Code shall have the respective meanings assigned to such terms in the Code. (c) Headings, etc. The titles of the Sections appear as a matter of ------------- convenience only, do not constitute an operative part of this Pledge Agreement and shall not affect the construction hereof. Each covenant contained herein shall be construed (absent an express contrary provision herein) as being independent of each other covenant contained herein, and compliance with any one covenant shall not (absent such an express contrary provision) be deemed to excuse compliance with one or more other covenants. (d) Directly or Indirectly. Where any provision in this Pledge ---------------------- Agreement requires or prohibits certain actions by Persons, such provision shall be applicable regardless of whether such action is taken directly or indirectly by such Person. (e) Rules of Construction. The words "herein," "hereof," "hereto" --------------------- and "hereunder" and other words of similar import refer to this Pledge Agreement as a whole and not to any particular section, subsection or clause contained in this Pledge Agreement unless the context requires otherwise. Whenever from the context it appears appropriate, each term stated in either the singular or the plural includes the singular and the plural, and pronouns stated in the masculine, feminine or neuter gender include the masculine, feminine and the neuter. The word "including" shall mean "including, without limitation." Unless otherwise specified herein, any reference in this Pledge Agreement to an existing document, agreement or instrument means such document, agreement or instrument as it may have been amended, modified, supplemented or restated from time to time. 2 (f) Governing Law. THIS PLEDGE AGREEMENT SHALL BE GOVERNED BY, AND ------------- CONSTRUED AND ENFORCED IN ACCORDANCE WITH, INTERNAL CONNECTICUT LAW. Section 2. Pledge; Grant of Security Interest. The Pledgor hereby ---------------------------------- unconditionally and irrevocably pledges, assigns and delivers to the Agent, for the ratable benefit of Agent and the Banks, all the Pledged Stock issued and outstanding on the date hereof and hereby unconditionally and irrevocably grants to Agent, for the ratable benefit of the Banks, a first security interest in and lien upon the Collateral, as collateral security for the prompt and complete payment and performance when due (whether at the stated maturity, by acceleration or otherwise) of the Obligations. Section 3. Stock Powers. Concurrently with the delivery to the Agent of ------------ each certificate representing one or more shares of Pledges Stock to the Agent, the Pledgor shall deliver an undated stock power covering such certificate, duly executed in blank by the Pledgor with, if the Agent so requests, signature guaranteed. Section 4. Representations and Warranties. The Pledgor represents and ------------------------------ warrants to the Agent and the Banks that: (a) the shares of Pledged Stock listed on Schedule I constitute all the issued and outstanding shares of all classes of the capital stock of each Issuer; (b) all the shares of the Pledged Stock have been duly and validly authorized and issued and are fully paid and nonassessable and the certificates evidencing such shares are in proper form; (c) the Pledgor is the record and beneficial owner of, and has good and marketable title to, the Pledged Stock, free of any and all Liens or options in favor of, or claims of, any other Person, except the Lien created by this Pledge Agreement; (d) there are no restrictions upon the voting rights or transferability of the Pledged Stock and the Pledgor has all requisite power and authority to execute and deliver this Agreement and to grant the Liens granted hereby; and (e) upon delivery to the Agent of the Pledged Stock, the Lien granted pursuant to this Pledge Agreement will constitute a valid, perfected first- priority Lien on the Collateral, enforceable as such against all present and future creditors of the Pledgor and any Persons purporting to purchase any Collateral (or any interest therein) from the Pledgor. The Pledgor agrees that the foregoing representations and warranties shall be deemed to have been made by the Pledgor in a true and correct manner in all material respects on each date of each extension of credit to the Pledgor. Section 5. Covenants. The Pledgor covenants and agrees with the Agent and --------- the Banks that, from and after the date of this Pledge Agreement until the Obligations are paid in full and the Commitments are terminated: 3 (a) If the Pledgor shall, as a result of its ownership of the Pledged Stock, become entitled to receive or shall receive any stock certificate (including, without limitation, any certificate representing a stock dividend or a distribution in connection with any reclassification, increase or reduction of capital or any certificate issued in connection with any reorganization or recapitalization of any Issuer), option or rights, whether in addition to, in substitution of, as a conversion of, or in exchange for any of the Pledged Stock, or otherwise in respect thereof, the Pledgor shall accept the same as the agent of the Agent and the Banks, hold the same in trust for the Agent and the Banks and deliver the same forthwith to the Agent in the exact form received, duly indorsed by the Pledgor to the Agent, if required, together with an undated stock power covering such certificate duly executed in blank by the Pledgor and with, if the Agent so requests, signature guaranteed, to be held by the Agent, subject to the terms hereof, as additional collateral security for the Obligations. Any sums paid upon or in respect of the Pledged Stock upon the liquidation or dissolution of any Issuer shall be paid over to the Agent to be held by it hereunder as additional collateral security for the Obligations, and in case any distribution of capital shall be made on or in respect of the Collateral or any property shall be distributed upon or with respect to the Collateral pursuant to the recapitalization or reclassification of the capital of any Issuer or pursuant to the reorganization thereof, the property so distributed shall be delivered to the Agent to be held by it hereunder as additional collateral security for the Obligations. If any sums of money or property so paid or distributed in respect of the Pledged Stock shall be received by the Pledgor, the Pledgor shall, until such money or property is paid or delivered to the Agent, hold such money or property in trust for the Banks, segregated from other funds of the Pledgor, as additional collateral security for the Obligations. (b) Without the prior written consent of the Agent, the Pledgor will not (i) vote to enable, or take any other action to permit, any Issuer to issue any stock or other equity securities of any nature or to issue any other securities convertible into or granting the right to purchase or exchange for any stock or other equity securities of any nature of such Issuer, (ii) sell, assign transfer, exchange, or otherwise dispose of, or grant any option with respect to, the Collateral, or (iii) create, incur or permit to exist any Lien or option in favor of, or any claim of any Person with respect to, any of the Collateral, or any interest therein, except for the Lien provided by this Pledge Agreement. The Pledgor will defend the right, title and interest of the Agent, and the Banks in and to the Collateral against the claims and demands of all Persons whomsoever. (c) At any time and from time to time, upon the written request of the Agent, and at the sole expense of the Pledgor, the Pledgor will promptly and duly execute and deliver such further instruments and documents and take such further actions as the Agent may reasonably request for the purposes of obtaining or preserving the full benefits of this Pledge Agreement and of the rights and powers herein granted. If any amount payable under or in connection with any of the Collateral shall be or become evidenced by any promissory note, other instrument or chattel paper, such note, instrument or chattel paper (in each case, as defined in the Code) shall be immediately delivered to the Agent, duly endorsed in a manner satisfactory to the Agent, to be held as Collateral pursuant to this Pledge Agreement. 4 (d) The Pledgor agrees to pay, and to save the Agent and the Banks harmless from, any and all liabilities with respect to, or resulting from any delay in paying, any and all stamp, excise, sales or other taxes which may be payable or determined to be payable with respect to any of the Collateral or in connection with any of the transactions contemplated by this Pledge Agreement. Section 6. Cash Dividends; Voting Rights. Unless an Event of Default ----------------------------- shall have occurred and be continuing and the Agent shall have given notice to the Pledgor of the Agent's intent to exercise its corresponding rights pursuant to Section 7 below, the Pledgor shall be permitted to receive all cash dividends paid in the normal course of business of each Issuer and consistent with past practice to the extent permitted in the Credit Agreement in respect of the Pledged Stock and to exercise all voting and corporate rights with respect to the Pledged Stock, provided however, that no vote shall be cast or corporate right exercised or other action taken which, in the Agent's reasonable judgment, would impair the Collateral or which would be inconsistent with or result in any violation of any provision of the Credit Agreement, this Pledge Agreement, the Notes or any other Loan Document or any other document executed and delivered in connection therewith or herewith. Section 7. Rights of the Bank and the Agent. (a) If an Event of Default -------------------------------- shall occur and be continuing and the Agent shall give notice of its intent to exercise such rights to the Pledgor, (i) the Agent shall have the right to receive any and all cash dividends paid in respect of the Pledged Stock and make application thereof to the Obligations in such order as the Agent may determine and (ii) all shares of the Pledged Stock shall be registered in the name of the Agent or its nominee, and the Agent or its nominee may thereafter exercise (A) all voting, corporate and other rights pertaining to such shares of the Pledged Stock at any meeting of shareholders of each Issuer or otherwise and (B) any and all rights of conversion, exchange, subscription and any other rights, privileges or options pertaining to such shares of the Pledged Stock as if it were the absolute owner thereof (including, without limitation, the right to exchange at its discretion any and all of the Pledged Stock upon the merger, consolidation, reorganization, recapitalization or other fundamental change in the corporate structure of such Issuer, or upon the exercise by the Pledgor or the Agent of any right, privilege or option pertaining to such shares of the Pledged Stock, and in connection therewith, the right to deposit and deliver any and all of the Pledged Stock with any committee, depositary, transfer agent, registrar or other designated agency upon such terms and conditions as it may determine), all without liability except to account for property actually received by it, but the Agent shall have no duty to the Pledgor to exercise any such right, privilege or option and shall not be responsible for any failure to do so or delay in so doing. (b) The rights of the Agent and the Banks hereunder shall not be conditioned or contingent upon the pursuit by the Agent or any Bank of any right or remedy against the Pledgor or against any other Person which may be or become liable in respect of all or any portion of the Obligations or against any collateral security therefor, guarantee thereof or right of offset with respect thereto. Neither the Agent nor any Bank shall be liable for any failure to demand, collect or realize upon all or any part of the Collateral or for any delay in doing so, nor shall the Agent be under any obligation to sell or otherwise dispose of any Collateral upon the request of the Pledgor or any other Person or to take any other action whatsoever with regard to the Collateral or any party thereof. 5 Section 8. Remedies. If an Event of Default shall occur and be -------- continuing, the Agent, on behalf of the Banks, may exercise, in addition to all other rights and remedies granted in this Pledge Agreement and in any other instrument or agreement securing, evidencing or relating to the Obligations, all rights and remedies of a secured party under the Code. Without limiting the generality of the foregoing, the Agent, without demand of performance or other demand, presentment, protest, advertisement or notice of any kind (except any notice required by law referred to below) to or upon the Pledgor, each Issuer or any other Person (all and each of which demands, defenses, advertisements and notices are hereby waived) may in such circumstances forthwith collect, receive, appropriate and realize upon the Collateral, or any part thereof, and/or may forthwith sell, assign, grant options to purchase or otherwise dispose of and deliver the Collateral or any part thereof (or contract to do any of the foregoing), in one or more parcels at public or private sale or sales, in the over-the-counter market, at any exchange, broker's board or office of the Agent or any Bank or elsewhere upon such terms and conditions as Agent may deem advisable and at such prices as Agent may deem best, for cash or on credit or for future delivery without assumption of any credit risk. The Agent or any Bank shall have the right upon any such public sale or sales, and, to the extent permitted by law, upon any such private sale or sales, to purchase the whole or any part of the Collateral so sold, free of any right or equity of redemption in the Pledgor, which right or equity is hereby waived or released. The Agent shall apply any Proceeds from time to time held by it and the net proceeds of any such collection, recovery, receipt, appropriation, realization or sale, after deducting all reasonable costs and expenses of every kind incurred in respect thereof or incidental to the care or safekeeping of any of the Collateral or in any way relating to the Collateral or the rights of the Agent and the Banks hereunder, including, without limitation, reasonable attorneys' fees and disbursements of counsel to the Agent and the Banks, to the payment in whole or in part of the Obligations, in such order as the Agent may elect, and only after such application and after the payment by the Agent of any other amount required by any provision of law, including, without limitation, Section 9-504(1)(c) of the Code, need the Agent account for the surplus, if any, to the Pledgor. To the extent permitted by applicable law, the Pledgor waives all claims, damages and demands it may acquire against the Agent or any Bank arising out of the exercise by them of any rights hereunder. If any notice of a proposed sale or other disposition of Collateral shall be required by law, such notice shall be deemed reasonable and proper if given at least 10 days before such sale or other disposition. The Pledgor shall remain liable for any deficiency if the proceeds of any sale or other disposition of Collateral are insufficient to pay the Obligations and the fees and disbursements of any attorneys employed by the Agent or any Bank to collect such deficiency. Section 9. Registration Rights; Private Sales. (a) If the Agent shall ---------------------------------- determine to exercise its right to sell any or all of the Pledged Stock pursuant to Section 8 hereof, and if in the opinion of the Agent it is necessary or advisable to have the Pledged Stock, or that portion thereof to be sold, registered under the provisions of the Securities Act of 1933, as amended (the "Securities Act"), the Pledgor will cause each such Issuer whose security is to be so registered to (i) execute and deliver, and cause the directors and officers of such Issuer to execute and deliver, all such instruments and documents, and do or cause to be done all such other acts as may be, in the opinion of the Agent, necessary or advisable to register such Pledged Stock, or that portion thereof to be sold, under the provisions of the Securities Act, (ii) cause the registration statement relating thereto to become effective and to remain effective for a period of one year from the date of the first public offering of such Pledged Stock, or that portion thereof to be sold and (iii) make all amendments thereto and/or to the related prospectus which, in the opinion of the Agent, are necessary or advisable, all in conformity with the requirements of the 6 Securities Act and in the rules and regulations of the Securities and Exchange Commission applicable thereto. The Pledgor agrees to cause each such Issuer to comply with the provision of the securities or "Blue Sky" laws of any and all jurisdictions which the Agent shall designate and to make available to its security holders, as soon as practicable, an earnings statement (which need not be audited) which will satisfy the provisions of Section 11(a) of the Securities Act. (b) The Pledgor recognizes that the Agent may be unable to effect a public sale of any or all the Pledged Stock, by reason of certain prohibitions contained in the Securities Act and applicable state securities laws or otherwise, and may be compelled to resort to one or more private sales thereof to a restricted group of purchasers which will be obliged to agree, among other things, to acquire such securities for their own account for investment and not with a view to the distribution or resale thereof. The Pledgor acknowledges and agrees that any such private sale may result in prices and other terms less favorable than if such sale were a public sale and, notwithstanding such circumstances, agrees that any such private sale shall be deemed to have been made in a commercially reasonable manner. The Agent shall be under no obligation to delay a sale of any of the Pledged Stock for the period of time necessary to permit any Issuer to register such securities for public sale under the Securities Act or under applicable state securities laws, even if such Issuer would agree to do so. (c) The Pledgor further agrees to use its best efforts to do or cause to be done all such other acts as may be necessary to make such sale or sales of all or any portion of the Pledged Stock pursuant to this Section 8 valid and binding and in compliance with any and all other applicable Requirements of Law. The Pledgor further agrees that a breach of any of the covenants contained in this Section 8 will cause irreparable injury to the Agent and the Banks, that the Agent and the Banks have no adequate remedy at law in respect of such breach and, as a consequence, that each and every covenant contained in this Section 8 shall be specifically enforceable against the Pledgor, and the 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 Event of Default has occurred under the Credit Agreement. Section 10. Irrevocable Authorization and Instruction to Issuers. The ---------------------------------------------------- Pledgor hereby authorizes and instructs each Issuer to comply with any instruction received by such Issuer from the Agent in writing that (a) states that an Event of Default has occurred and (b) is otherwise in accordance with the terms of this Pledge Agreement, without any other or further instructions from the Pledgor, and the Pledgor agrees that each Issuer shall be fully protected in so complying. Section 11. Authority of Agent. The Pledgor acknowledges that the ------------------ rights and responsibilities of the Agent under this Pledge Agreement with respect to any action taken by the Agent or the exercise of non-exercise by the Agent of any option, voting right, request, judgment or other right or remedy provided for herein or resulting or arising out of this Pledge Agreement shall, as between the Agent and the Banks, be governed by the Credit Agreement and by such other agreements with respect thereto as may exist from time to time among them, but, as between the Agent and the Pledgor, the Agent shall be conclusively presumed to be acting as agent for the Banks with full and valid authority so to act or refrain from acting, and neither the Pledgor nor any Issuer shall be under any obligation, or entitlement, to make any inquiry respecting such authority. 7 Section 12. Amendments, etc. with respect to the Obligations. The ------------------------------------------------ Pledgor and the Pledged Stock shall remain subject to the Lien granted hereby, notwithstanding that, without any reservation of rights against the Pledgor, and without notice to or further assent by the Pledgor, any demand for payment of any of the Obligations made by the Agent or any Obligations continued, and the Obligations, or the liability of any Issuer or any other Person upon or for any part thereof, or any collateral security or guarantee therefor or right of offset with respect thereto, may, from time to time, in whole or in part, be renewed, extended, amended, modified, accelerated, compromised, waived, surrendered, or released by the Agent or any Bank, and the Credit Agreement, the Notes and any other Loan Document and any other documents executed and delivered in connection therewith may be amended, modified, supplemented or terminated, in whole or part, as the Agent or the Banks (or the Required Banks, as the case may be) may deem advisable from time to time, and any guarantee, right of offset or other collateral security at any time held by the Agent or any Bank for the payment of the Obligations may be sold, exchanged, waived, surrendered or released. Neither the Agent nor any Bank shall have any obligation to protect, secure, perfect or insure any other Lien at any time held by it as security for the Obligations or any property subject thereto. The Pledgor waives any and all notice of the creation, renewal, extension or accrual of any of the obligations and notice of or proof of reliance by the Agent or any Bank upon this Pledge Agreement; the Obligations, and any of them, shall conclusively be deemed to have been created, contracted or incurred in reliance upon this Pledge Agreement, and all dealings between any Issuer and the Pledgor on the one hand, and that the Agent and the Banks, on the other, shall likewise be conclusively presume to have been had or consummated in reliance upon this Pledge Agreement. The Pledgor waives diligence presentment protest demand for payment and notice or default or nonpayment to or upon any Issuer of one Pledgor with respect to the Obligations. Section 13. Limitation on Duties Regarding Collateral. The Agent's ----------------------------------------- sole duty with respect to the custody, safekeeping and physical preservation of the Collateral in its possession, under section 9-207 of the Code or otherwise, shall be to deal with it in the same manner as the Agent deals with similar securities and property for its own account. Neither the Agent, any Bank nor any of their respective directors, officers, employees or agents shall be liable for failure to demand, collect or realize upon any of the Collateral or for any delay in doing so or shall be under any obligation to sell or otherwise dispose of any Collateral upon the request of the Pledgor or otherwise. Section 14. Notices. Notices by the Agent to the Pledgor or any Issuer ------- may be given by hand, by mail, by telex or by facsimile transmission, addressed or transmitted to the Pledgor, or in the case of any Issuer, in care of the Pledgor, at the Pledgor's address or transmission number set forth in subsection 10.2 of the Credit Agreement and shall be effective (a) when delivered by hand, (b) in the case of mail, three days after deposit in the postal system, first class postage pre-paid and (c) in the case of telecopy notice, when sent. The Pledgor or any Issuer may change their respective addresses and transmission numbers by written notice to the Agent. Section 15. No Waiver; Cumulative Remedies. Neither the Agent nor any ------------------------------ Bank shall by any act (except by a written instrument pursuant to Section 14 hereof) be deemed to have waived any right or remedy hereunder or to have acquiesced in any Default or Event of Default or in any breach of any of the terms and conditions hereof. No failure to exercise, nor any delay in exercising, on the part of the Agent or any Bank, any right, power or privilege hereunder shall operate as a waiver thereof. No single or partial exercise of any right, power or privilege 8 hereunder shall preclude any other or further exercise thereof or the exercise of any other right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which the Agent or such Bank would otherwise have on any future occasion. The rights and remedies herein provided are cumulative, may be exercised singly or concurrently and are not exclusive of any other rights or remedies provided by law. Section 16. Waivers and Amendments; Successors and Assigns. None of the ---------------------------------------------- terms or provisions of this Pledge Agreement may be amended, supplemented or otherwise modified except by a written instrument executed by the Pledgor and the Agent, provided that any provision of this Pledge Agreement may be waived by -------- the Agent in a letter or agreement executed by the Agent or by telex or facsimile transmission from the Agent. This Pledge Agreement shall be binding upon the successors and assigns of the Pledgor and shall inure to the benefit of the Agent and the Banks and their respective successors and assigns. Section 17. Miscellaneous Provisions. ------------------------ (a) Powers Coupled with an Interest. All authorizations and agencies ------------------------------- herein contained with respect to the Collateral are irrevocable and powers coupled with an interest. (b) Severability. Any provision of this Pledge Agreement which is ------------ prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction where such provision is valid and enforceable. (c) Integration. This Pledge Agreement represents the agreement of ----------- the Pledgor with respect to the subject matter hereof, and there are no promises, undertakings, representations or warranties by the Agent or any Bank relative to subject matter hereof not expressly set forth or referred to herein or in the other Loan Documents. (d) Counterparts. This Pledge Agreement may be executed and ------------ delivered by the parties hereto through the use of two or more original identical counterparts hereof, each of which shall be deemed to be an original instrument and all of which shall be deemed to represent but one Pledge Agreement, fully binding upon and enforceable against the parties hereto. 9 IN WITNESS WHEREOF, the undersigned has caused this Pledge Agreement to be duly executed and delivered in Hartford, Connecticut as of the date first above written. DAIRY MART CONVENIENCE STORES, INC. By /s/ Gregory G. Landry --------------------------------- Gregory G. Landry Executive Vice President Accepted: FLEET BANK, NATIONAL ASSOCIATION as Agent By /s/ Walter P. Schuppe ------------------------------ Walter P. Schuppe Vice President 10 ISSUER ACKNOWLEDGEMENT AND CONSENT Each of the undersigned Issuers referred to in the foregoing Pledge Agreement hereby acknowledges receipt of a copy thereof agree to be bound thereby and to comply with the terms thereof insofar as such terms are applicable to such Issuer. Each of the undersigned Issuers agrees to notify the Agent promptly in writing of the occurrence of any of the events described in Section 5(a) of the Pledge Agreement with respect to such Issuer. Each of the undersigned Issuers further agrees that the terms of Section 9(a) of the Pledge Agreement shall apply to such Issuer, mutatis mutandis, with respect to all ------- -------- actions that may be required of it under or pursuant to or arising out of Section 9 of the Pledge Agreement. CONNA CORPORATION By: /s/ Gregory G. Landry ----------------------------- Gregory G. Landry Executive Vice President DAIRY MART EAST, INC. By: /s/ Gregory G. Landry ----------------------------- Gregory G. Landry Executive Vice President DAIRY MART FARMS, INC. By: /s/ Gregory G. Landry ----------------------------- Gregory G. Landry Executive Vice President DAIRY MART, INC. By: /s/ Gregory G. Landry ----------------------------- Gregory G. Landry Executive Vice President 11 THE LAWSON COMPANY By: /s/ Gregory G. Landry ----------------------------- Gregory G. Landry Executive Vice President D.M. INSURANCE LIMITED By: /s/ Gregory G. Landry ----------------------------- Gregory G. Landry Executive Vice President DAIRY MART CONVENIENCE STORES OF OHIO, INC. By: /s/ Gregory G. Landry ----------------------------- Gregory G. Landry Executive Vice President 12 SCHEDULE 1 TO PLEDGE AGREEMENT DESCRIPTION OF PLEDGED STOCK
Stock Issuer Class of Stock Certificate No. No. of Shares CONNA Corporation Common 1 1,000 Dairy Mart East, Inc. Common 2 1,000 Dairy Mart Farms, Inc. Common 2 1,000 Dairy Mart, Inc. Common 1 100 The Lawson Company Common 3 1,000 D.M. Insurance Limited Common 1 119,993 Dairy Mart Convenience Common 2 1,000 Stores of Ohio, Inc.
13 SUBSIDIARY PLEDGE AGREEMENT THIS SUBSIDIARY PLEDGE AGREEMENT, dated as of February 25, 1994, made by each of the corporations that are signatories hereto (individually, a Pledgor" and collectively, the "Pledgors"), in favor of FLEET BANK, NATIONAL ASSOCIATION, as agent (in such capacity, the "Agent") for the ratable benefit of the Agent, as Agent and individually as a bank, and the other banks and financial institutions parties thereto from time to time (the "Banks") parties to the Credit Agreement, dated as of February 25, 1994 (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), among Dairy Mart Convenience Stores, Inc., a Delaware corporation (the "Company"), the Banks and the Agent; W I T N E S S E T H : WHEREAS, pursuant to the Credit Agreement, the Banks have severally agreed to extend credit to the Company upon the terms and subject to the conditions set forth therein; WHEREAS, each Pledgor is the legal and beneficial owner of the shares of Pledged Stock (as hereinafter defined) in the amounts set forth on Schedule I hereto issued by the corporation named therein (individually, an "Issuer"; collectively, the "Issuers"); WHEREAS, each Pledgor has executed and delivered a Subsidiary Guarantee dated as of February 25, 1994 (as amended, supplemented or otherwise to time, the "Guarantee") in favor of the Agent for the ratable benefit of the Banks, pursuant to which such Pledgor has guaranteed the Obligations (as defined in the Guarantee); WHEREAS, each Pledgor desires to secure the guarantee made by it in the pledge of the Pledged Stock listed on Schedule I with the name of such Pledgor; WHEREAS, the Company owns directly or indirectly all of the issued and outstanding stock of each Pledgor and each Pledgor will receive substantial direct and indirect benefit from the Banks' extensions of credit to the Company; and WHEREAS, it is a condition precedent to the obligation of the Banks to extend credit to the Company under the Credit Agreement that each Pledgor shall have executed and delivered this Pledge Agreement to the Agent for the ratable benefit of Agent and the Banks. NOW, THEREFORE, in consideration of the premises and to induce the Agent and the Banks to enter into the Credit Agreement and to induce the Banks to extend credit to the Company under the Credit Agreement, each Pledgor hereby agrees with the Agent, for the ratable benefit of the Banks as follows: Section 1. Interpretation of this Agreement. -------------------------------- (a) Certain Defined Terms. As used in this Agreement, the --------------------- following terms have the respective meanings set forth below or set forth in the Section hereof following such term: Agent -- as defined in the introductory paragraph hereof. Banks -- as defined in the introductory paragraph hereof. Code -- the Uniform Commercial Code from time to time in effect in the State of Connecticut. Collateral -- the Pledged Stock and all Proceeds. Credit Agreement -- as defined in the introductory paragraph hereof. Issuer(s) -- as defined in the second recital paragraph. Obligations -- means, at any time, all obligations and undertakings of the Company under and in respect of the Credit Agreement, including, without limitation, the Company's obligations and undertakings with respect to the payment of the principal of, and interest on, the Notes, all of the Company's Reimbursement Obligations (as such term is defined in the Credit Agreement) and all other amounts payable, and all other indebtedness owing, by the Company under each of the Loan Documents. Pledge Agreement -- this Subsidiary Pledge Agreement, as amended, supplemented or otherwise modified from time to time. Pledged Stock -- the shares of capital stock of each Issuer listed on Schedule I hereto, together with all shares, stock certificates, options, warrants, offers or rights of any nature whatsoever that may be issued or granted by each Issuer to each respective Pledgor while this Pledge Agreement is in effect. Proceeds -- all "proceeds" as such term is defined in Section 9-306(1) of the Code on the date hereof and, in any event, shall include, without limitation, all dividends or other income from the Pledged Stock, collections thereon or distributions with respect thereto. (b) Rules for Interpreting Undefined Terms. All capitalized terms -------------------------------------- used in this Pledge Agreement and not otherwise defined herein shall have the respective meanings ascribed thereto in the Credit Agreement. All capitalized terms used in this Pledge Agreement and not defined herein or in the Credit Agreement but that are defined in the Code shall have the respective meanings assigned to such terms in the Code. (c) Headings, etc. The titles of the Sections appear as a matter of convenience only, do not constitute an operative part of this Pledge Agreement and shall not affect the construction hereof. Each covenant contained herein shall be construed (absent an express contrary provision herein) as being independent of each other covenant contained herein, and compliance with any one covenant shall not (absent such an express contrary provision) be deemed to excuse compliance with one or more other covenants. (d) Directly or Indirectly. Where any provision in this Pledge ---------------------- Agreement requires or prohibits certain actions by Persons, such provision shall be applicable regardless of whether such action is taken directly or indirectly by such Person. 2 (e) Rules of Construction. The words "herein," "hereof," "hereto" --------------------- and "hereunder" and other words of similar import refer to this Pledge Agreement as a whole and not to any particular section, subsection or clause contained in this Pledge Agreement unless the context requires otherwise. Whenever from the context it appears appropriate, each term stated in either the singular or the plural includes the singular and the plural, and pronouns stated in the masculine, feminine or neuter gender include the masculine, feminine and the neuter. The word "including" shall mean "including, without limitation." Unless otherwise specified herein, any reference in this Pledge Agreement to an existing document, agreement or instrument means such document, agreement or instrument as it may have been amended, modified, supplemented or restated from time to time. (f) Governing Law. THIS PLEDGE AGREEMENT SHALL BE GOVERNED BY, AND ------------- CONSTRUED AND ENFORCED IN ACCORDANCE WITH, INTERNAL CONNECTICUT LAW. Section 2. Pledge; Grant of Security Interest. Each Pledgor hereby ---------------------------------- unconditionally and irrevocably pledges, assigns and delivers to the Agent, for the ratable benefit of Agent and the Banks, all the Pledged Stock issued and outstanding on the date hereof and hereby unconditionally and irrevocably grants to Agent, for the ratable benefit of the Banks, a first security interest in and Lien upon the Collateral, as collateral security for the prompt and complete payment and performance when due (whether at the stated maturity, by acceleration or otherwise) of the Obligations. Section 3. Stock Powers. Concurrently with the delivery to the Agent of ------------ each certificate representing one or more shares of Pledged Stock to the Agent, each Pledgor shall deliver an undated stock power covering such certificate, duly executed in blank by such Pledgor with, if the Agent so requests, signature guaranteed. Section 4. Representations and Warranties. Each Pledgor represents and ------------------------------ warrants to the Agent and the Banks that: (a) the shares of Pledged Stock listed on Schedule I with the name of such Pledgor constitute all the issued and outstanding shares of all classes of the capital stock of each Issuer owned by such Pledgor, except as otherwise set forth on Schedule I; (b) all the shares of the Pledged Stock listed on Schedule I with the name of such Pledgor have been duly and validly authorized and issued and are fully paid and nonassessable and the certificates evidencing such shares are in proper form; (c) such Pledgor is the record and beneficial owner of, and has good and marketable title to, the Pledged Stock listed on Schedule I with the name of such Pledgor, free of any and all Liens or options in favor of, or claims of, any other Person, except the Lien created by this Pledge Agreement; (d) there are no restrictions upon the voting rights or transferability of the Pledged Stock and each Pledgor has all requisite power and authority to execute and deliver this Agreement and to grant the Liens granted hereby; and 3 (e) upon delivery to the Agent of the Pledged Stock listed on Schedule I with the name of such Pledgor, the Liens granted by such Pledgor pursuant to this Pledge Agreement will constitute valid, perfected first- priority Liens on such Pledged Stock and the Proceeds thereof, enforceable as such against all present and future creditors of such Pledgor and any Persons purporting to purchase such Collateral (or any interest therein) from such Pledgor. Each Pledgor agrees that the foregoing representations and warranties shall be deemed to have been made by such Pledgor in a true and correct manner in all material respects on each date of each extension of credit to the Company. Section 5. Covenants. Each Pledgor covenants and agrees with the Agent --------- and the Banks that, from and after the date of this Pledge Agreement until the Obligations are paid in full and the Commitments are terminated: (a) If such Pledgor shall, as a result of its ownership of the Pledged Stock, become entitled to receive or shall receive any stock certificate (including, without limitation, any certificate representing a stock dividend or a distribution in connection with any reclassification, increase or reduction of capital or any certificate issued in connection with any reorganization or recapitalization of any Issuer), option or rights, whether in addition to, in substitution of, as a conversion of, or in exchange for any of the Pledged Stock, or otherwise in respect thereof, such Pledgor shall accept the same as the agent of the Agent and the Banks, hold the same in trust for the Agent and the Banks and deliver the same forthwith to the Agent in the exact form received, duly indorsed by such Pledgor to the Agent, if required, together with an undated stock power covering such certificate duly executed in blank by such Pledgor and with, if the Agent so requests, signature guaranteed, to be held by the Agent, subject to the terms hereof, as additional collateral security for the Obligations. Any sums paid upon or in respect of the Pledged Stock upon the liquidation or dissolution of any Issuer shall be paid over to the Agent to be held by it hereunder as additional collateral security for the Obligations, and in case any distribution of capital shall be made on or in respect of the Collateral or any property shall be distributed upon or with respect to the Collateral pursuant to the recapitalization or reclassification of the capital of any Issuer or pursuant to the reorganization thereof, the property so distributed shall be delivered to the Agent to be held by it hereunder as additional collateral security for the Obligations. If any sums of money or property so paid or distributed in respect of the Pledged Stock shall be received by any Pledgor, such Pledgor shall, until such money or property is paid or delivered to the Agent, hold such money or property in trust for the Banks, segregated from other funds of such Pledgor, as additional collateral security for the Obligations. (b) Without the prior written consent of the Agent, such Pledgor will not (i) vote to enable, or take any other action to permit, any Issuer to issue any stock or other equity securities of any nature or to issue any other securities convertible into or granting the right to purchase or exchange for any stock or other equity securities of any nature of such Issuer, (ii) sell, assign transfer, exchange, or otherwise dispose of, or grant any option with respect to, the Collateral, or (iii) create, incur or permit to exist any Lien or option in favor of, or any claim of any Person with respect to, any of the Collateral, or any interest therein, except for the Lien provided by this Pledge Agreement. Such Pledgor will 4 defend the right, title and interest of the Agent, and the Banks in and to the Collateral against the claims and demands of all Persons whomsoever. (c) At any time and from time to time, upon the written request of the Agent, and at the sole expense of such Pledgor, such Pledgor will promptly and duly execute and deliver such further instruments and documents and take such further actions as the Agent may reasonably request for the purposes of obtaining or preserving the full benefits of this Pledge Agreement and of the rights and powers herein granted. If any amount payable under or in connection with any of the Collateral shall be or become evidenced by any promissory note, other instrument or chattel paper, such note, instrument or chattel paper (in each case, as defined in the Code) shall be immediately delivered to the Agent, duly endorsed in a manner satisfactory to the Agent, to be held as Collateral pursuant to this Pledge Agreement. (d) Such Pledgor agrees to pay, and to save the Agent and the Banks harmless from, any and all liabilities with respect to, or resulting from any delay in paying, any and all stamp, excise, sales or other taxes which may be payable or determined to be payable with respect to any of the Collateral or in connection with any of the transactions contemplated by this Pledge Agreement. Section 6. Cash Dividends; Voting Rights. Unless an Event of Default ----------------------------- shall have occurred and be continuing and the Agent shall have given notice to each Pledgor of the Agent's intent to exercise its corresponding rights pursuant to Section 7 below, each Pledgor shall be permitted to receive all cash dividends paid in the normal course of business of each Issuer and consistent with past practice to the extent permitted in the Credit Agreement in respect of the Pledged Stock and to exercise all voting and corporate rights with respect to the Pledged Stock, provided however, that no vote shall be cast or corporate right exercised or other action taken which, in the Agent's reasonable judgment, would impair the Collateral or which would be inconsistent with or result in any violation of any provision of the Credit Agreement, this Pledge Agreement, the Notes or any other Loan Document or any other document executed and delivered in connection therewith or herewith. Section 7. Rights of the Bank and the Agent. (a) If an Event of Default -------------------------------- shall occur and be continuing and the Agent shall give notice of its intent to exercise such rights to each Pledgor, (i) the Agent shall have the right to receive any and all cash dividends paid in respect of the Pledged Stock and make application thereof to the Obligations in such order as the Agent may determine and (ii) all shares of the Pledged Stock shall be registered in the name of the Agent or its nominee, and the Agent or its nominee may thereafter exercise (A) all voting, corporate and other rights pertaining to such shares of the Pledged Stock at any meeting of shareholders of each Issuer or otherwise and (B) any and all rights of conversion, exchange, subscription and any other rights, privileges or options pertaining to such shares of the Pledged Stock as if it were the absolute owner thereof (including, without limitation, the right to exchange at its discretion any and all of the Pledged Stock upon the merger, consolidation, reorganization, recapitalization or other fundamental change in the corporate structure of such Issuer, or upon the exercise by such Pledgor or the Agent of any right, privilege or option pertaining to such shares of the Pledged Stock, and in connection therewith, the right to deposit and deliver any and all of the Pledged Stock with any committee, depositary, transfer agent, registrar or other designated agency upon such terms and conditions as it may determine), all without liability 5 except to account for property actually received by it, but the Agent shall have no duty to such Pledgor to exercise any such right, privilege or option and shall not be responsible for any failure to do so or delay in so doing. (b) The rights of the Agent and the Banks hereunder shall not be conditioned or contingent upon the pursuit by the Agent or any Bank of any right or remedy against any Pledgor or against any other Person which may be or become liable in respect of all or any portion of the Obligations or against any collateral security therefor, guarantee thereof or right of offset with respect thereto. Neither the Agent nor any Bank shall be liable for any failure to demand, collect or realize upon all or any part of the Collateral or for any delay in doing so, nor shall the Agent be under any obligation to sell or otherwise dispose of any Collateral upon the request of any Pledgor or any other Person or to take any other action whatsoever with regard to the Collateral or any party thereof. Section 8. Remedies. If an Event of Default shall occur and be -------- continuing, the Agent, on behalf of the Banks, may exercise, in addition to all other rights and remedies granted in this Pledge Agreement and in any other instrument or agreement securing, evidencing or relating to the Obligations, all rights and remedies of a secured party under the Code. Without limiting the generality of the foregoing, the Agent, without demand of performance or other demand, presentment, protest, advertisement or notice of any kind (except any notice required by law referred to below) to or upon the Pledgors, each Issuer or any other Person (all and each of which demands, defenses, advertisements and notices are hereby waived) may in such circumstances forthwith collect, receive, appropriate and realize upon the Collateral, or any part thereof, and/or may forthwith sell, assign, grant options to purchase or otherwise dispose of and deliver the Collateral or any part thereof (or contract to do any of the foregoing), in one or more parcels at public or private sale or sales, in the over-the-counter market, at any exchange, broker's board or office of the Agent or any Bank or elsewhere upon such terms and conditions as Agent may deem advisable and at such prices as Agent may deem best, for cash or on credit or for future delivery without assumption of any credit risk. The Agent or any Bank shall have the right upon any such public sale or sales, and, to the extent permitted by law, upon any such private sale or sales, to purchase the whole or any part of the Collateral so sold, free of any right or equity of redemption in the Pledgors, which right or equity is hereby waived or released. The Agent shall apply any Proceeds from time to time held by it and the net proceeds of any such collection, recovery, receipt, appropriation, realization or sale, after deducting all reasonable costs and expenses of every kind incurred in respect thereof or incidental to the care or safekeeping of any of the Collateral or in any way relating to the Collateral or the rights of the Agent and the Banks hereunder, including, without limitation, reasonable attorneys' fees and disbursements of counsel to the Agent and the Banks, to the payment in whole or in part of the Obligations, in such order as the Agent may elect, and only after such application and after the payment by the Agent of any other amount required by any provision of law, including, without limitation, Section 9-504(1) (c) of the Code, need the Agent account for the surplus, if any, to the Pledgors. To the extent permitted by applicable law, each Pledgor waives all claims, damages and demands it may acquire against the Agent or any Bank arising out of the exercise by them of any rights hereunder. If any notice of a proposed sale or other disposition of Collateral shall be required by law, such notice shall be deemed reasonable and proper if given at least 10 days before such sale or other disposition. Each Pledgor shall remain liable for any deficiency if the proceeds of any sale or other disposition of Collateral are insufficient to pay the Obligations and the fees and disbursements of any attorneys employed by the Agent or any Bank to collect such deficiency. 6 Section 9. Registration Rights; Private Sales. (a) If the Agent shall ---------------------------------- determine to exercise its right to sell any or all of the Pledged Stock pursuant to Section 8 hereof, and if in the opinion of the Agent it is necessary or advisable to have the Pledged Stock, or that portion thereof to be sold, registered under the provisions of the Securities Act of 1933, as amended (the "Securities Act"), each Pledgor will cause each such Issuer whose security is to be so registered to (i) execute and deliver, and cause the directors and officers of such Issuer to execute and deliver, all such instruments and documents, and do or cause to be done all such other acts as may be, in the opinion of the Agent, necessary or advisable to register such Pledged Stock, or that portion thereof to be sold, under the provisions of the Securities Act, (ii) cause the registration statement relating thereto to become effective and to remain effective for a period of one year from the date of the first public offering of such Pledged Stock, or that portion thereof to be sold and (iii) make all amendments thereto and/or to the related prospectus which, in the opinion of the Agent, 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. Each Pledgor agrees to cause each such Issuer to comply with the provisions of the securities or "Blue Sky" laws of any and all jurisdictions which the Agent shall designate and to make available to its security holders, as soon as practicable, an earnings statement (which need not be audited) which will satisfy the provisions of Section 11(a) of the Securities Act. (b) Each Pledgor recognizes that the Agent may be unable to effect a public sale of any or all the Pledged Stock, by reason of certain prohibitions contained in the Securities Act and applicable state securities laws or otherwise, and may be compelled to resort to one or more private sales thereof to a restricted group of purchasers which will be obliged to agree, among other things, to acquire such securities for their own account for investment and not with a view to the distribution or resale thereof. Each Pledgor acknowledges and agrees that any such private sale may result in prices and other terms less favorable than if such sale were a public sale and, notwithstanding such circumstances, agrees that any such private sale shall be deemed to have been made in a commercially reasonable manner. The Agent shall be under no obligation to delay a sale of any of the Pledged Stock for the period of time necessary to permit any Issuer to register such securities for public sale under the Securities Act, or under applicable state securities laws, even if such Issuer would agree to do so. (c) Each Pledgor further agrees to use its best efforts to do or cause to be done all such other acts as may be necessary to make such sale or sales of all or any portion of the Pledged Stock pursuant to this Section 9 valid and binding and in compliance with any and all other applicable Requirements of Law. Each Pledgor further agrees that a breach of any of the covenants contained in this Section 9 will cause irreparable injury to the Agent and the Banks, that the Agent and the Banks have no adequate remedy at law in respect of such breach and, as a consequence, that each and every covenant contained in this Section 9 shall be specifically enforceable against each Pledgor, and each 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 Event of Default has occurred under the Credit Agreement. Section 10. No Subrogation. Notwithstanding any payment or payments made -------------- by the Pledgors hereunder, or any setoff or application of funds of the Pledgors by the Agent or any Bank, or the receipt of any amounts by the Agent or any Bank with respect to any of the Collateral, the Pledgors shall not be entitled to be subrogated to any of the rights of the Agent 7 or any Bank against the Company or against any other collateral security held by the Agent or any Bank for the payment of the Obligations, nor shall any Pledgor seek any reimbursement from the Company in respect of payments made by such Pledgor in connection with the Collateral, or amounts realized by the Agent or any Bank in connection with the Collateral, until all amounts owing to the Agent and the Banks on account of the Obligations are paid in full and the Commitments are terminated. If any amount shall be paid to any Pledgor on account of such subrogation rights at any time when all of the Obligations shall not have been paid in full, such amount shall be held by such Pledgor in trust for the Agent and the Banks, segregated from other funds of such Pledgor, and shall, forthwith upon receipt by such Pledgor, be turned over to the Agent in the exact form received by such Pledgor (duly indorsed by such Pledgor to the Agent, if required) to be applied against the Obligations, whether matured or unmatured, in such order as the Agent may determine. Section 11. Irrevocable Authorization and Instruction to Issuers. Each ---------------------------------------------------- Pledgor hereby authorizes and instructs each Issuer to comply with any instruction received by such Issuer from the Agent in writing that (a) states that an Event of Default has occurred and (b) is otherwise in accordance with the terms of this Pledge Agreement, without any other or further instructions from such Pledgor, and each Pledgor agrees that each Issuer shall be fully protected in so complying. Section 12. Authority of Agent. Each Pledgor and the Pledged Stock ------------------ acknowledges that the rights and responsibilities of the Agent under this Pledge Agreement with respect to any action taken by the Agent or the exercise of non- exercise by the Agent of any option, voting right, request, judgment or other right or remedy provided for herein or resulting or arising out of this Pledge Agreement shall, as between the Agent and the Banks, be governed by the Credit Agreement and by such other agreements with respect thereto as may exist from time to time among them, but, as between the Agent and such Pledgor, the Agent shall be conclusively presumed to be acting as agent for the Banks with full and valid authority so to act or refrain from acting, and neither such Pledgor nor any Issuer shall be under any obligation, or entitlement, to make any inquiry respecting such authority. Section 13. Amendments, etc. with respect to the Obligations. Each ------------------------------------------------ Pledgor shall remain obligated hereunder, and the Collateral shall remain subject to the Lien granted hereby, notwithstanding that, without any reservation of rights against such Pledgor, and without notice to or further assent by such Pledgor, any demand for payment of any of the Obligations made by the Agent or any Bank may be rescinded by the Agent or such Bank, and any of the Obligations continued, and the Obligations, or the liability of any Issuer or any other Person upon or for any part thereof, or any collateral security or guarantee therefor or right of offset with respect thereto, may, from time to time, in whole or in part, be renewed, extended, amended, modified, accelerated, compromised, waived, surrendered, or released by the Agent or any Bank, and the Credit Agreement, the Notes and any other Loan Document and any other documents executed and delivered in connection therewith may be amended, modified, supplemented or terminated, in whole or part, as the Agent or the Banks (or the Required Banks, as the case may be) may deem advisable from time to time, and any guarantee, right of offset or other collateral security at any time held by the Agent or any Bank for the payment of the Obligations may be sold, exchanged, waived, surrendered or released. Neither the Agent nor any Bank shall have any obligation to protect, secure, perfect or insure any other Lien at any time held by it as security for the Obligations or any property subject thereto. Each Pledgor waives any and all 8 notice of the creation, renewal, extension or accrual of any of the obligations and notice of or proof of reliance by the Agent or any Bank upon this Pledge Agreement; the Obligations, and any of them, shall conclusively be deemed to have been created, contracted or incurred in reliance upon this Pledge Agreement, and all dealings between any Issuer and any Pledgor on the one hand, and the Agent and the Banks, on the other, shall likewise be conclusively presumed to have been had or consummated in reliance upon this Pledge Agreement. Each Pledgor waives diligence, presentment, protest, demand for payment and notice of default or of nonpayment to or upon any Issuer or any Pledgor with respect to the Obligations. Section 14. Limitation on Duties Regarding Collateral. The Agent's sole ----------------------------------------- duty with respect to the custody, safekeeping and physical preservation of the Collateral in its possession, under Section 9-207 of the Code or otherwise, shall be to deal with it in the same manner as the Agent deals with similar securities and property for its own account. Neither the Agent, any Bank nor any of their respective directors, officers, employees or agents shall be liable for failure to demand, collect or realize upon any of the Collateral or for any delay in doing so or shall be under any obligation to sell or otherwise dispose of any Collateral upon the request of any Pledgor or otherwise. Section 15. Notices. Notices by the Agent to any Pledgor or any Issuer ------- may be given by hand, by mail, by telex or by facsimile transmission, addressed or transmitted to such Pledgor, or in the case of any Issuer, in care of such Pledgor, at such Pledgor's address or transmission number set forth in subsection 10.2 of the Credit Agreement and shall be effective (a) when delivered by hand, (b) in the case of mail, three days after deposit in the postal system, first class postage pre-paid and (c) in the case of telecopy notice, when sent. Any Pledgor or any Issuer may change their respective addresses and transmission numbers by written notice to the Agent. Section 16. No Waiver; Cumulative Remedies. Neither the Agent nor any ------------------------------ Bank shall by any act (except by a written instrument pursuant to Section 15 hereof) be deemed to have waived any right or remedy hereunder or to have acquiesced in any Default or Event of Default or in any breach of any of the terms and conditions hereof. No failure to exercise, nor any delay in exercising, on the part of the Agent or any Bank, any right, power or privilege hereunder shall operate as a waiver thereof. No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right or remedy hereunder on any one occasion shall not be construed as a bar to any right, power or privilege. A waiver by the Agent or any Bank of any right or remedy which the Agent or such Bank would otherwise have on any future occasion. The rights and remedies herein provided are cumulative, may be exercised singly or concurrently and are not exclusive of any other rights or remedies provided by law. Section 17. Waivers and Amendments; Successors and Assigns. None of the ---------------------------------------------- terms or provisions of this Pledge Agreement may be amended, supplemented or otherwise modified except by a written instrument executed by each Pledgor and the Agent, provided that any provision of this Pledge Agreement may be waived by -------- the Agent in a letter or agreement executed by the Agent or by telex or facsimile transmission from the Agent. This Pledge Agreement shall be binding upon the successors and assigns of each Pledgor and shall inure to the benefit of the Agent and the Banks and their respective successors and assigns. 9 Section 18. Miscellaneous Provisions. ------------------------ (a) Powers Coupled with an Interest. All authorizations and agencies ------------------------------- herein contained with respect to the Collateral are irrevocable and powers coupled with an interest. (b) Severability. Any provision of this Pledge Agreement which is ------------ prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction where such provision is valid and enforceable. (c) Integration. This Pledge Agreement represents the agreement of ----------- each Pledgor with respect to the subject matter hereof, and there are no promises, undertakings, representations or warranties by the Agent or any Bank relative to subject matter hereof not expressly set forth or referred to herein or in the other Loan Documents. (d) Counterparts. This Pledge Agreement may be executed and ------------ delivered by the parties hereto through the use of two or more original identical counterparts hereof, each of which shall be deemed to be an original instrument and all of which shall be deemed to represent but one Pledge Agreement, fully binding upon and enforceable against the parties hereto. 10 IN WITNESS WHEREOF, the undersigned has caused this Pledge Agreement to be duly executed and delivered in Hartford, Connecticut as of the date first above written. CONNA CORPORATION By: /s/ Gregory G. Landry ----------------------------- Gregory G. Landry Executive Vice President CONVENIENT INDUSTRIES OF AMERICA, INC. By: /s/ Gregory G. Landry ----------------------------- Gregory G. Landry Executive Vice President REMOTE SERVICES, INC. By: /s/ Gregory G. Landry ----------------------------- Gregory G. Landry Executive Vice President THE LAWSON COMPANY By: /s/ Gregory G. Landry ----------------------------- Gregory G. Landry Executive Vice President GOLDEN STORES, INC. By: /s/ Gregory G. Landry ----------------------------- Gregory G. Landry Executive Vice President Accepted: FLEET BANK, NATIONAL ASSOCIATION, as Agent By: /s/ Walter P. Schuppe ----------------------------- Walter P. Schuppe Vice President 11 ISSUER ACKNOWLEDGEMENT AND CONSENT Each of the undersigned Issuers referred to in the foregoing Pledge Agreement hereby acknowledges receipt of a copy thereof, and agrees to be bound thereby and to comply with the terms thereof insofar as such terms are applicable to such Issuer. Each of the undersigned Issuers agrees to notify the Agent promptly in writing of the occurrence of any of the events described in Section 5(a) of the Pledge Agreement with respect to such Issuer. Each of the undersigned Issuers further agrees that the terms of Section 9 (c) of the Pledge Agreement shall apply to such Issuer, mutatis mutandis, with respect to all ------- -------- actions that may be required of it under or pursuant to or arising out of Section 9 of the Pledge Agreement. CONVENIENT INDUSTRIES OF AMERICA, INC. By: /s/ Gregory G. Landry ------------------------------ Gregory G. Landry Executive Vice President REMOTE SERVICES INC. By: /s/ Gregory G. Landry ------------------------------ Gregory G. Landry Executive Vice President OSCAR EWING, INC. By: /s/ Gregory G. Landry ------------------------------ Gregory G. Landry Executive Vice President QUIK SHOPS, INC. By: /s/ Gregory G. Landry ------------------------------ Gregory G. Landry Executive Vice President THE LAWSON MILK COMPANY By: /s/ Gregory G. Landry ------------------------------ Gregory G. Landry Executive Vice President 12 LMC, INC. By: /s/ Gregory G. Landry ------------------------------ Gregory G. Landry Executive Vice President SNG OF SOUTHERN MINNESOTA, INC. By: /s/ Gregory G. Landry ------------------------------ Gregory G. Landry Executive Vice President GOLDEN STORES, INC. By: /s/ Gregory G. Landry ------------------------------ Gregory G. Landry Executive Vice President LAKESIDE WHOLESALE, INC. By: /s/ Gregory G. Landry ------------------------------ Gregory G. Landry Executive Vice President CIA FOOD MARTS, INC. By: /s/ Gregory G. Landry ------------------------------ Gregory G. Landry Executive Vice President FOOD MERCHANDISERS, INC. By: /s/ Gregory G. Landry ------------------------------ Gregory G. Landry Executive Vice President GREENWELL GROCERY CO., INC. By: /s/ Gregory G. Landry ------------------------------ Gregory G. Landry Executive Vice President 13 JACKSON COUNTY GROCERY CO., INC. By: /s/ Gregory G. Landry ------------------------------ Gregory G. Landry Executive Vice President CONVENIENT GASOLINE, INC. By: /s/ Gregory G. Landry ------------------------------ Gregory G. Landry Executive Vice President OPEN PANTRY PROPERTIES, INC. By: /s/ Gregory G. Landry ------------------------------ Gregory G. Landry Executive Vice President 14 SCHEDULE I TO PLEDGE AGREEMENT --------- DESCRIPTION OF PLEDGED STOCK ----------------------------
=============================================================================== Stock Class of Certificate No. of Pledgors Issuer Stock No(s). Sharexit - - -------------------------------------------------------------------------------- CONNA Corporation Convenient Common C 26058 2,000 Industries of C 26064 2,000 America, Inc. Oscar Ewing, Inc. Common 26 733 Preferred 12 350 Remote Services, Common 11 114 Inc. -------------------------------------------------------------------------------- The Lawson Company Quik Shops, Inc. Common 3 500 The Lawson Milk Common 1 500 Company Common 2 100 LMC, Inc. Common 2 500 SNG of Southern Common 10 125 Minnesota, Inc. Golden Stores, Common 2 100 Inc. 3 400 Lakeside Wholesale Common 2 500 - - --------------------------------------------------------------------------------- Convenient Industries of CIA Food Marts, Common 1 100 America, Inc. Inc. Food Common 1 100 Merchandisers, Inc. Greenwall Grocery Common 5 100 Co., Inc. Jackson County Common 5 100 Co., Inc. - - ---------------------------------------------------------------------------------- Remote Services, Inc. Convenient Common 1 10 Gasoline, Inc. - - ---------------------------------------------------------------------------------- Golden Stores, Inc. Open Pantry Common 1 100 Properties, Inc. ==================================================================================
15 SECURITY AGREEMENT THIS SECURITY AGREEMENT, dated as of February 25, 1994 (as amended, supplemented or otherwise modified from time to time, this "Security Agreement"), made by DAIRY MART CONVENIENCE STORES, INC., a Delaware corporation (the "Company"), in favor of FLEET BANK, NATIONAL ASSOCIATION, a national banking association organized and existing under the laws of the United States of America, as agent (the "Agent") for the ratable benefit of the Agent, as Agent and individually as a bank, and the other banks and financial institutions parties thereto from time to time (the "Banks") that are parties to the Credit Agreement (as hereinafter defined); W I T N E S S E T H: WHEREAS, the Company is party to a certain Credit Agreement, dated as of February 25, 1994, with the Agent and the Banks (as the same may from time to time be amended, supplemented or otherwise modified, the "Credit Agreement"); WHEREAS, pursuant to the terms of the Credit Agreement and the other Loan Documents (as hereinafter defined), the Banks have severally agreed to extend credit to the Company upon the terms and subject to the conditions set forth therein, to be evidenced by the Notes issued by the Company thereunder; and WHEREAS, it is a condition precedent to the obligation of the Banks to make their respective extensions of credit to the Company under the Credit Agreement that the Company shall have executed and delivered this Security Agreement to the Agent for the ratable benefit of the Banks; NOW THEREFORE, in consideration of the premises and to induce the Agent and the Banks to enter into the Credit Agreement and to induce the Banks to make their respective loans to the Company under the Credit Agreement, the Company hereby agrees with the Agent, for the ratable benefit of the Banks, as follows: Section 1. Interpretation of this Agreement. -------------------------------- (a) Certain Defined Terms. As used in this Agreement, the following --------------------- terms have the respective meanings set forth below or set forth in the Section hereof following such terms: Agent -- as defined in the introductory paragraph hereof. Banks -- as defined in the introductory paragraph hereof. Code -- means the Uniform Commercial Code as in effect from time to time in the State of Connecticut. Collateral -- means all of the following Property, whether now owned or hereafter acquired: (a) all General Intangibles; (b) all proceeds and products of the General Intangibles in whatever form, including, but not limited to: cash, deposit accounts (whether or not comprised solely of proceeds), certificates of deposit, negotiable instruments and other instruments for the payment of money, chattel paper, security agreements or documents; and (c) all of the Company's ledger sheets, files, records, books of account, business papers, computers, computer software and programs, and documents relating to the Property referred to in the foregoing clauses (a) and (b). Company -- as defined in the introductory paragraph hereof. General Intangibles -- means all loans, advances and extensions of credit from time to time advanced or extended by the Company to any direct or indirect Subsidiary of the Company and all right, title and interest of the Company in and to all choses in action, causes of action and all other general intangibles (as such term is defined in the Code) now or hereafter relating to such loans, advances or extensions of credit. Lien -- means any interest in Property securing an obligation owed to, or a claim by, a Person other than the owner of the Property, whether such interest is based on the common law, statute or contract, and including but not limited to the security interest lien arising from a mortgage, deed of trust, encumbrance, pledge, conditional sale or trust receipt or a lease, consignment or bailment for security purposes, and the filing of any financing statement under the Uniform Commercial Code of any jurisdiction, or an agreement to give any of the foregoing. The term "Lien" does not include negative pledge clauses in connection with the borrowing of money. Loan Documents -- as defined in the Credit Agreement. Notes -- as defined in the Credit Agreement. Property -- means any interest in any kind of property or asset, whether real, personal or mixed, and whether tangible or intangible. Secured Obligations -- means, at any time, all obligations and undertakings of the Company under and in respect of the Credit Agreement, including, without limitation, the Company's obligations and undertakings with respect to the payment of the principal of, and interest on, the Notes, all of the Company's Reimbursement Obligations (as such term is defined in the Credit Agreement) and all other amounts payable, and all other indebtedness owing, by the Company under each of the Loan Documents. Security -- has the same meaning as in Section 2(1) of the Securities Act of 1933, as amended. Security Agreement -- has the meaning specified in the introductory sentence hereof. (b) Rules for Interpreting Undefined Terms. All capitalized terms -------------------------------------- used and not otherwise defined herein shall have the respective meanings ascribed thereto in the Credit 2 Agreement. All capitalized terms used in this Security Agreement and not defined herein or in the Credit Agreement but that are defined in the Code shall have the respective meanings assigned to such terms in the Code. (c) Headings, etc. The titles of the Sections appear as a matter of ------------- convenience only, do not constitute an operative part of this Security Agreement and shall not affect the construction hereof. Each covenant contained herein shall be construed (absent an express contrary provision herein) as being independent of each other covenant contained herein, and compliance with any one covenant shall not (absent such an express contrary provision) be deemed to excuse compliance with one or more other covenants. (d) Directly or Indirectly. Where any provision in this Security ---------------------- Agreement requires or prohibits certain actions by Persons, such provision shall be applicable regardless of whether such action is taken directly or indirectly by such Person. (e) Rules of Construction. The words "herein," "hereof," "hereto" --------------------- and "hereunder" and other words of similar import refer to this Security Agreement as a whole and not to any particular section, subsection or clause contained in this Security Agreement unless the context requires otherwise. Whenever from the context it appears appropriate, each term stated in either the singular or the plural includes the singular and the plural, and pronouns stated in the masculine, feminine or neuter gender include the masculine, feminine and the neuter. The word "including" shall mean "including, without limitation." Unless otherwise specified herein, any reference in this Security Agreement to an existing document, agreement or instrument means such document, agreement or instrument as it may have been amended, modified, supplemented or restated from time to time. (f) Governing Law. THIS SECURITY AGREEMENT SHALL BE GOVERNED BY, AND ------------- CONSTRUED AND ENFORCED IN ACCORDANCE WITH, INTERNAL CONNECTICUT LAW. Section 2. Grant of Security Interest. As security for the payment by the -------------------------- Company of the Secured Obligations and the performance by the Company of its other obligations and undertakings under this Security Agreement and under the other Loan Documents, the Company does hereby grant, bargain, convey, assign, transfer, mortgage, hypothecate, pledge, confirm and grant a continuing security interest to the Agent (for the ratable benefit of the Agent and the Banks) in and to the Collateral. This Security Agreement is executed as security for the Secured Obligations, and, therefore, the execution and delivery of this Security Agreement shall not subject the Agent or any Bank to, or transfer or pass to Agent or any Bank, or in any way affect or modify, the liability of the Company under any instrument or agreement relating to the Collateral, it being understood and agreed that notwithstanding this Security Agreement or any subsequent assignment, all of the obligations of the Company to each and every other party under each and every one of said instruments and agreements shall be and remain enforceable by such other party, its successors and assigns, against, but only against, the Company or Persons other than the Agent or the Banks and their respective successors and assigns. Section 3. Representations and Warranties: The Company hereby ------------------------------ represents and warrants to the Agent and the Banks that: 3 (a) Title: No Other Liens. Except for the Lien granted to the Agent ---------------------- for the ratable benefit of the Banks pursuant to this Security Agreement, the Company owns each item of the Collateral free and clear of any and all Liens or claims of others. No security agreement, financing statement or other public notice with respect to all or any part of the Collateral is on file or of record in any public office, except such as may have been filed in favor of the Agent, for the ratable benefit of the Banks, pursuant to this Security Agreement. (b) Chief Executive Office. The Company's chief executive office and ---------------------- chief place of business is located at One Vision Drive, Enfield, Connecticut 06082. Section 4. Covenants. The Company covenants and agrees with the Agent and --------- the Banks that, from and after the date of this Security Agreement until the Obligations are paid in full and the Commitments are terminated: (a) Further Documentation: Pledge of Instruments and Chattel Paper. --------------------------------------------------------------- At any time and from time to time, upon the written request of the Agent, and at the sole expense of the Company, the Company will promptly and duly execute and deliver such further instruments and documents and take such further action as the Agent may reasonably request for the purpose of obtaining or preserving the full benefits of this Security Agreement and of the rights and powers herein granted, including, without limitation, the filing of any financing or continuation statements under the Uniform Commercial Code in effect in any jurisdiction with respect to the Liens created hereby on the Collateral described herein. The Company also hereby authorizes the Agent (as the Company's attorney-in-fact) to file any such financing or continuation statement without the signature of the Company to the extent permitted by applicable law. A carbon, photographic or other reproduction of this Security Agreement shall be sufficient as a financing statement for filing in any jurisdiction. If any Collateral or any amount payable under or in connection with any of the Collateral shall be or become evidenced by any Instrument or Chattel Paper, such Instrument or Chattel Paper shall be immediately delivered to the Agent, duly endorsed in a manner satisfactory to the Agent, to be held as Collateral pursuant to this Security Agreement. (b) Indemnification. The Company agrees to pay, and to save the --------------- Agent and the Banks harmless from, any and all liabilities and reasonable costs and expenses (including, without limitation, legal fees and expenses) (i) with respect to, or resulting from, any delay in paying, any and all excise, sales or other taxes which may be payable or determined to be payable with respect to any of the Collateral, (ii) with respect to, or resulting from, any delay in complying with any Requirement of Law applicable to any of the Collateral or (iii) in connection with any of the transactions contemplated by this Security Agreement. (c) Maintenance of Records. The Company will keep and maintain at its ---------------------- own cost and expense satisfactory and complete records of the Collateral. The Company will mark that portion of its books and records pertaining to the Collateral and any Instruments evidencing Collateral or the proceeds thereof to evidence this Security Agreement and the security interests granted hereby. 4 (d) Right of Inspection. The Agent and the Banks shall at all times ------------------- have full and free access during normal business hours to all the books, correspondence and records of the Company, and the Agent and the Banks and their respective representatives may examine the same, take extracts therefrom and make photocopies thereof, and the Company agrees to render to the Agent and the Banks, at the Company's cost and expense, such clerical and other assistance as may be reasonably requested with regard thereto. (e) Compliance with Laws, etc. The Company will comply in all -------------------------- material respects with all Requirements of Law applicable to the Collateral or any part thereof or to the operation of the Company's business; provided, however, that the Company may contest any Requirement of Law in any reasonable manner which shall not, in the sole opinion of the Agent, adversely affect the Agent's or the Banks' rights or the priority of their Liens on the Collateral. (f) Compliance with Terms of Contracts, etc. The Company will ---------------------------------------- perform and comply in all material respects with all its obligations under the contractual obligations relating to the Collateral. (g) Limitation on Liens on Collateral. The Company will not create, --------------------------------- incur or permit to exist, will defend the Collateral against, and will take such other action as is necessary to remove, any Lien or claim on or to the Collateral, other than the Liens created hereby and will defend the right, title and interest of the Agent and the Banks in and to any of the Collateral against the claims and demands of all Persons whomsoever. (h) Limitations on Dispositions and Alterations of Collateral. The --------------------------------------------------------- Company will not sell, transfer, lease or otherwise dispose of any of the Collateral, or attempt, offer or contract to do so, or modify or amend (or acquiesce in any modification or amendment of) any instrument, document or agreement evidencing or relating to the obligations constituting General Intangibles or any Person's liability therefor. (i) Further Identification of Collateral. The Company will furnish ------------------------------------ to the Agent and the Banks from time to time statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as the Agent may reasonably request, all in reasonable detail. (j) Notices. The Company will advise the Agent and the Banks ------- promptly, in reasonable detail, at their respective addresses set forth in the Credit Agreement, (i) of any Lien (other than Liens created hereby or permitted under the Credit Agreement) on, or claim asserted against, any of the Collateral and (ii) of the occurrence of any other event which could have a reasonably be expected to have a material adverse effect on the aggregate value of the Collateral or An the Liens created hereunder. (k) Changes in Locations, Names, etc. The Company will not (i) change --------------------------------- the location of its chief executive office/chief place of business from that specified in Section 3(b) hereof or remove its books and records from the location specified in Section 3(b) hereof or (ii) change its name, identity or corporate structure to such an extent that any financing statement filed by the Agent in connection with this Security Agreement would 5 become seriously misleading, unless it shall have given the Agent and the Banks at least 30 days' prior written notice thereof. Section 5. Agent's Appointment as Attorney-in-Fact. --------------------------------------- (a) Powers. The Company hereby irrevocably constitutes and appoints ------ the Agent and any officer or agent thereof, with full power of substitution, as its true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of the Company and in the name of the Company or in its own name, from time to time in the Agent's discretion, for the purpose of carrying out the terms of this Security Agreement, to take any and all appropriate action and to execute any and all documents and instruments which may be necessary or desirable to accomplish the purposes of this Security Agreement, and, without limiting the generality of the foregoing, the Company hereby gives the Agent the power and right, on behalf of the Company, without notice to or assent by the Company, to do the following: (i) at any time when any Event of Default shall have occurred and is continuing, in the name of the Company or its own name, or otherwise, to take possession of and endorse and collect any checks, drafts, notes, acceptances or other instruments for the payment of moneys due in respect of the Collateral and to file any claim or to take any other action or proceeding in any court of law or equity or otherwise deemed appropriate by the Agent for the purpose of collecting any and all such moneys due in respect thereof whenever payable; (ii) to pay or discharge taxes and Liens levied or placed on or threatened against the Collateral; and (iii) upon the occurrence and during the continuance of any Event of Default, (A) to direct any party liable for any payment in respect of any of the Collateral to make payment of any and all moneys due or to become due thereunder directly to the Agent or as the Agent shall direct; (B) to ask or demand for, collect, receive payment of and receipt for, any and all moneys, claims and other amounts due or to become due at any time in respect of or arising out of any Collateral; (C) to commence and prosecute any suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect all or any portion of the Collateral and to enforce any other right in respect of any Collateral; (D) to defend any suit, action or proceeding brought against the Company with respect to any Collateral; (E) to settle, compromise or adjust any suit, action or proceeding described in clause (D) above, and, in connection therewith, to give such discharge or releases as the Agent may deem appropriate; and (F) generally, to sell, transfer, pledge and make any agreement with respect to, or otherwise deal with, any of the Collateral, as fully and completely as though the Agent were the absolute owner thereof for all purposes, and to do, at the Agent's option and the Company's expense, at any time, or from time to time, all acts and things which the Agent deems necessary to protect, preserve or realize upon the Collateral and the Agent's and the Banks' Liens thereon and to effect the intent of this Security Agreement, all as fully and effectively as the Company might do. The Company hereby ratifies all that said attorneys shall lawfully do or cause to be done by virtue hereof. This power of attorney is a power coupled with an interest and shall be irrevocable. 6 (b) Other Powers. The Company also authorizes the Agent and the ------------ Banks, at any time and from time to time, to execute, in connection with the sale provided for in Section 8 hereof, any endorsements, assignments or other instruments of conveyance or transfer with respect to the Collateral. (c) No Duty on Agent or Banks' Part. The powers conferred on the ------------------------------- Agent and the Banks hereunder are solely to protect the Agent's and the Banks' interests in the Collateral and shall not impose any duty upon the Agent or any Bank to exercise any such powers. The Agent and the Banks shall be accountable only for amounts that they actually receive as a result of the exercise directors, employees or agents shall be responsible to the Company for any act or failure to act hereunder, except for their own gross negligence or willful misconduct. Section 6. Performance by Agent of Company's Obligations. If the Company --------------------------------------------- fails to perform or comply with any of its agreements contained herein and the Agent, as provided for by the terms of this Security Agreement, shall itself perform or comply, or otherwise cause performance or compliance, with such agreement, the expenses of the Agent incurred in connection with such performance or compliance, together with interest thereon at a rate per annum applicable to Prime Rate Loans under the Credit Agreement, shall be payable by the Company to the Agent on demand and shall constitute Secured Obligations. Section 7. Proceeds. If an Event of Default shall occur and be continuing -------- (a) all proceeds received by the Company consisting of cash, checks and other near-cash items shall be held by the Company in trust for the Agent and the Banks, segregated from other funds of the Company, and shall, forthwith upon receipt by the Company, be turned over to the Agent in the exact form received by the Company (duly endorsed by the Company to the Agent, if required), and (b) any and all such proceeds received by the Agent (whether from the Company or otherwise) may, in the sole discretion of the Agent, be held by the Agent for the ratable benefit of the Banks as collateral security for, and/or then or at any time thereafter may be applied by the Agent against, the Obligations (whether matured or unmatured), such application to be in such order as the Agent shall elect. Any balance of such proceeds remaining after the obligations shall have been paid in full and the Commitments shall have been terminated shall be paid over to the Company or to whomsoever may be lawfully entitled to receive the same. Section 8. Remedies. If an Event of Default shall occur and be -------- continuing, the Agent, on behalf of the Banks may exercise, in addition to all other rights and remedies granted to them in this Security Agreement and in any other instrument or agreement securing, evidencing or relating to the Obligations, all rights and remedies of a secured party under the Code. Without limiting the generality of the foregoing, the Agent, without demand of performance or other demand, presentment, protest, advertisement or notice of any kind (except any notice required by law referred to below) to or upon the Company or any other Person (all and each of which demands, defenses, advertisements and notices are hereby waived), may in such circumstances forthwith collect, receive, appropriate and realize upon the Collateral, or any part thereof, and/or may forthwith sell, lease, assign, grant options to purchase, or otherwise dispose of and deliver the Collateral or any part thereof (or contract to do any of the foregoing), in one or more parcels at public or private sale or sales, at any exchange, broker's board or office of the Agent or any Bank or elsewhere upon such terms and conditions as it may deem advisable and at such prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit 7 risk. The Agent or any Bank shall have the right upon any such public sale or sales, and, to the extent permitted by law, upon any such private sale or sales, to purchase the whole or any part of the Collateral so sold, free of any right or equity of redemption in the Company, which right or equity is hereby waived or released. The Company further agrees, at the Agent's request, to assemble the Collateral and make it available to the Agent at places which the Agent shall reasonably select, whether at the Company's premises or elsewhere. The Agent shall apply the net proceeds of any such collection, recovery, receipt, appropriation, realization or sale, after deducting all reasonable costs and expenses of every kind incurred therein or incidental to the care or safekeeping of any of the Collateral or in any way relating to the Collateral or the rights of the Agent and the Banks hereunder, including, without limitation, reasonable attorneys' fees and disbursements, to the payment in whole or in part of the Obligations, in such order as the Agent may elect, and only after such application and after the payment by the Agent of any other amount required by any provision of law, including, without limitation, Section 9-504(1)(c) of the Code, need the Agent account for the surplus, if any, to the Company. To the extent permitted by applicable law, the Company waives all claims, damages and demands it may acquire against the Agent or any Bank arising out of the exercise by them of any rights hereunder. If any notice of a proposed sale or other disposition of Collateral shall be required by law, such notice shall be deemed reasonable and proper if given at least 10 days before such sale or other disposition. The Company shall remain liable for any deficiency if the proceeds of any sale or other disposition of the Collateral are insufficient to pay the Secured Obligations and the fees and disbursements of any attorneys employed by the Agent or any Bank to collect such deficiency. Section 9. Limitation on Duties Regarding Preservation of Collateral. The --------------------------------------------------------- Agent's sole duty with respect to the custody, safekeeping and physical preservation of the Collateral in its possession, under Section 9-207 of the Code or otherwise, shall be to deal with it in the same manner as the Agent deals with similar property for its own account. Neither the Agent, any Bank, nor any of their respective directions, officers, employees or agents shall be liable for failure to demand, collect or realize upon all or any part of the Collateral or for any delay in doing so or shall be under any obligation to sell or otherwise dispose of any Collateral upon the request of the Company or otherwise. Section 10. Notices. Notices hereunder may be given by hand, by mail, by ------- telex or by facsimile transmission, addressed or transmitted to the Person to which it is being given at such Person's address or transmission number set forth in subsection 10.2 of the Credit Agreement and shall be effective (a) when delivered by hand (b) in the case of mail, three days after deposit in the postal system, first class postage pre-paid and (c) in the case of telecopy notices, when sent. The Company may change its address and transmission number by written notice to the Agent, and the Agent or any Bank may change its address and transmission number by written notice to the Company and, in the case of a Bank, to the Agent. Section 11. No Waiver; Cumulative Remedies. Neither the Agent nor any ------------------------------ Bank shall by any act (except by a written instrument pursuant to Section 10 hereof), delay, indulgence, omission or otherwise be deemed to have waived any right or remedy hereunder or to have acquiesced in any Default or Event of Default or in any breach of any of the terms and conditions hereof. No failure to exercise, nor any delay in exercising, on the part of the Agent or any Bank, any right, power or privileges hereunder shall operate as a waiver thereof. No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege. A waiver by the Agent or any Bank 8 of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which the Agent or such Bank would otherwise have on any future occasion. The rights and remedies herein provided are cumulative, may be exercised singly or concurrently and are not exclusive of any rights or remedies provided by law. Section 12. Waivers and Amendments; Successors and Assignee. None of the ----------------------------------------------- terms or provisions of this Security Agreement may be waived, amended, supplemented or otherwise modified except by a written instrument executed by the Company and the Agent, provided that any provision of this Security Agreement may be waived by the Agent in a written letter or agreement executed by the Agent or by telex or facsimile transmission from the Agent. This Security Agreement shall be binding upon the successors and assigns of the Company and shall inure to the benefit of the Agent and the Banks and their respective successors and assigns. Section 13. Miscellaneous Provisions. ------------------------ (a) Powers Coupled with an Interest. All authorizations and agencies ------------------------------- herein contained with respect to the Collateral are irrevocable and powers coupled with an interest. (b) Severability. Any provision of this Security Agreement which is ------------ prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. (c) Integration. This Security Agreement represents the agreement of ----------- the Company with respect to the subject matter hereof, and there are no promises, undertakings, representations or warranties by the Agent or any Bank relative to subject matter hereof not expressly set fort or referred to herein or in the other Loan Documents. (d) Counterparts. This Pledge Agreement may be executed and ------------ delivered by the parties hereto through the use of two or more original identical counterparts hereof, each of which shall be deemed to be an original instrument and all of which shall be deemed to represent but one Pledge Agreement, fully binding upon and enforceable against the parties hereto. 9 IN WITNESS WHEREOF, the Company has caused this Security Agreement to be duly executed and delivered as of the date first above written. DAIRY MART CONVENIENCE STORES, INC. By /s/ Gregory G. Landry ------------------------ Name: Gregory G. Landry Title: Exec. Vice President Accepted: FLEET BANK, NATIONAL ASSOCIATION as Agent By: /s/ Walter P. Schuppe ----------------------------- Walter P. Schuppe Vice President 10 PLEASE TYPE THIS FORM UNIFORM COMMERCIAL CODE-FINANCING STATEMENT FORM UCC.1 STATE OF CONNECTICUT INSTRUCTIONS 1. Remove Secured Party and Debtor copies and send other 4 copies with inter- leaved carbon paper to the Secretary of the State. Enclose filing fee. 2. If the space provided for any item(s) on the form is inadequate the item(s) should be continued on additional sheets, preferably 8" x 10". Only one copy of such additional sheets need be presented to the filing officer with a set of four copies of Form UCC-1 Long schedules of collateral, indentures, etc. may be on any size paper that is convenient for the secured party. Do not attach to UCC-1 form. 3. If collateral covers timber, minerals including oil and gas or accounts financed at the wellhead or minehead, this financial statement shall show that it covers this type of collateral, shall recite that it is to be filed in the real estate records and the financing statement shall contain a description of the real estate. 4. When a copy of the security agreement is used as a financing statement, it is requested that it be accompanied by a completed but unsigned set of UCC-1 forms without extra fee. Do not attach to UCC-1 form. 5. At the time of original filing, filing officer will return third copy as an acknowledgement. At a later time, secured party may date and sign Termination Legend and use third copy as a Termination Statement. This Financing Statement is filed with Office of the Secretary of the State, Uniform Commercial Code Div., 30 Trinity St., Hartford, Conn 06106. - - -------------------------------------------------------------------------------- NAME AND ADDRESS OF DEBTOR (Or Assignor) Dairy Mart Convenience Stores, Inc. One Vision Drive Enfield, Connecticut 06082 - - -------------------------------------------------------------------------------- NAME AND ADDRESS OF SECURED PARTY (Or Assignee) Fleet Bank, National Association, As Agent One Constitution Plaza Hartford, Connecticut 06115 - - -------------------------------------------------------------------------------- FOR FILING OFFICE (Date, Time, Number) - - -------------------------------------------------------------------------------- 1. This financing statement covers the | 5. Assignee(s) of Secured Party following types (or items) of property | and Address(es) (Describe) |_________________________________ See attached collateral description on Schedule A. - - --- ---------- - - -------------------------------------------------------------------------------- 2. (If collateral is crops) the above described crops are growing or are to be grown on (describe real estate above or on a separate sheet). 3. (If applicable) the above goods are to become fixtures on (describe real estate above or on a separate sheet) and filing statement is to be filed for record in the real estate records. (If debtor does not have an interest of record) the name of the owner is _____________________________________________ 4. [X] (If products of collateral are claimed) products of collateral are also covered. 1 Number of additional sheets presented. --- [ ] Debtor is a transmitting utility as defined in 42a-9-402 Conn, General Statutes - - -------------------------------------------------------------------------------- WHICHEVER | DAIRY MART CONVENIENCE STORES, INC. IS | By: /s/ Gregory G. Landry Exec. V.P. APPLICABLE | --------------------------------- | Signature of Debtor (Or Assignor) - - -------------------------------------------------------------------------------- | FLEET BANK, NATIONAL ASSOCIATION | By: | ---------------------------------------- | Signature of Secured Party (Or Assignee) - - -------------------------------------------------------------------------------- Part (1) Filing Officer Copy - Alphabetical STANDARD FORM - UNIFORM COMMERCIAL CODE - FORM UCC-1 (LOGO OF UNIFORM PRINT & SUPPLY, INC. APPEARS HERE) - - -------------------------------------------------------------------------------- Part (4) Secured Party Copy ORIGINATOR - Remove this copy and forward balance of form intact for filing. - - -------------------------------------------------------------------------------- Part (5) Debtor Copy ORIGINATOR - Remove this copy and forward balance of form intact for filing. - - -------------------------------------------------------------------------------- SCHEDULE A TO UCC-1 FINANCING STATEMENT DEBTOR: DAIRY MART CONVENIENCE STORES, INC. SECURED PARTY: FLEET BANK, NATIONAL ASSOCIATION, AS AGENT FOR THE BANKS AND OTHER FINANCIAL INSTITUTIONS FROM TIME TO TIME PARTIES TO THAT CERTAIN CREDIT AGREEMENT DATED FEBRUARY 25, 1994, AMONG DEBTOR, FLEET BANK, NATIONAL ASSOCIATION, AS AGENT, AND SAID BANKS AND OTHER FINANCIAL INSTITUTIONS All of the following property: (a) all loans, advances and extensions of credit from time to time advanced or extended by the Company to any direct or indirect Subsidiary of the Company and all right, title and interest of the Company in and to all choses in action, causes of action and all other general intangibles (as such term is defined in the Code) now or hereafter relating to such loans, advances or extensions of credit. (b) all proceeds and products of the property described in clause (a) above in whatever form, including, but not limited to: cash, deposit accounts (whether or not comprised solely of proceeds), certificates of deposit, negotiable instruments and other instruments for the payment of money, chattel paper, security agreements or documents; and (c) all of Debtor's ledger sheets, files, records, books of account, business papers, computers, computer software and programs, and documents relating to the property referred to in the foregoing clauses (a) and (b). As used herein, a "Subsidiary" shall mean any corporation, partnership or other entity of which shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by Debtor. RECEIPT DAIRY MART CONVENIENCE STORES, INC. Reference is made to that certain Credit Agreement dated February 25, 1994 (the "Credit Agreement") among DAIRY MART CONVENIENCE STORES, INC. (the "Company"), each of the banks listed on Schedule I thereto (collectively, the "Banks") and FLEET BANK, NATIONAL ASSOCIATION, as agent (the "Agent"). Capitalized terms used and not defined herein have the meanings specified in the Credit Agreement. The Agent, on behalf of the Banks, hereby acknowledges receipt from the Company of a Revolving Credit Notes, dated the date hereof, in the form attached as Exhibit A to the Credit Agreement, in the principle amount set forth opposite each such Bank's name on Schedule I to the Credit Agreement. Dated: February 25, 1994 FLEET BANK, NATIONAL ASSOCIATION, as Agent on behalf of the Banks By: /s/ Walter P. Schuppe ------------------------------ Walter P. Schuppe Vice President 8(a) [LETTERHEAD OF SCHATZ & SCHATZ, RIBICOFF & KOTKIN APPEARS HERE] February 25, 1994 To each of the banks and other financial institutions from time to time parties to the Credit Agreement dated as of February 25, 1994, among Dairy Mart Convenience Stores, Inc., said banks and other financial institutions and Fleet Bank, National Association, as agent for said banks and other financial institutions. Dear Sirs: We have acted as counsel for Dairy Mart Convenience Stores, Inc., a Delaware corporation (the "Company"), and for the Designated Subsidiaries, in connection with the execution and delivery of the Credit Agreement, dated as of February 25, 1994 (the "Credit Agreement"), among the Company, the banks and other financial institutions parties thereto from time to time (the "Banks") and Fleet Bank, National Association, as agent (in such capacity, the "Agent") and the execution and delivery pursuant thereto of the Subsidiary Guarantee, the Pledge Agreements, the Company Security Agreement, the Notes, and the other Loan Documents referred to in the Credit Agreement. This opinion is delivered to you pursuant to subsection 5.1(g) of the Credit Agreement. Terms used herein which are defined in the Credit Agreement shall have the respective meanings set forth in the Credit Agreement, unless otherwise defined herein. In connection with this opinion, we have reviewed executed copies of each of the Credit Agreement, the Revolving Credit Notes, the Subsidiary Guarantee, the Company Pledge Agreement, the Company Security Agreement, the Subsidiary Pledge Agreement and the documents listed on Schedule A attached hereto. In stating our opinion, we have assumed without investigation the genuineness of all signatures of, and the authority of, persons signing on behalf Schatz & Schatz, Ribicoff & Kotkin -2- of parties thereto other than the Company and its Designated Subsidiaries, 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, and that each of the Banks will act in good faith and deal fairly with the Company in enforcing their rights under the Credit Agreement. We note that (a) no opinion is expressed with respect to (i) the enforceability of any jury trial waiver (in that such waivers are not necessarily enforceable in Connecticut) or any provision providing for a method of service of process, or (ii) whether a right of setoff is enforceable with respect to certain specially designated bank accounts, (b) availability of your remedies under the Subsidiary Pledge Agreement with respect to the stock of Financial Opportunities, Inc. and the Company Pledge Agreement with respect to the stock of CONNA Corporation is subject to compliance with the procedures of, and to the approval of, the Small Business Administration, and (c) references herein to our knowledge refer to matters disclosed to us by the Company in connection herewith or which are otherwise within our actual knowledge, but not any other documents or information. We further note that we are familiar with the laws of Connecticut and the United States and with the corporate laws of Delaware (the "Covered Jurisdictions") and that the opinions set forth herein are subject to the effects that the laws of any other jurisdictions may have thereon. This opinion is also subject to the assumptions and limitations set forth on Schedule B attached hereto. Based on the foregoing, we are of the opinion that: 1. Except as set forth in Schedule C attached hereto, each of the Company and its Designated Subsidiaries is duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation. 2. The Company has the corporate power and authority, and the legal right, to make, deliver and perform the Credit Agreement, the Notes, and the other Loan Documents to which it is a party, to borrow under the Credit Agreement and the Notes and to grant the Liens pursuant to the Company Pledge Agreement and the Company Security Agreement and has taken all necessary corporate action to authorize the borrowings on the terms and conditions of the Credit Agreement and the Notes, the grant of the Liens pursuant to the Company Pledge Agreement and the Company Security Agreement and the execution, delivery and performance of the Credit Agreement, the Notes, and each other Loan Document to which it is a party. Each Designated Subsidiary has the corporate power and authority, and the legal right, to make, deliver and perform each of the Loan Documents to which such Designated Subsidiary is a party and to Schatz & Schatz, Ribicoff & Kotkin -3- grant the Liens pursuant to the Subsidiary Pledge Agreement and has taken all necessary corporate action to authorize the grant of the Liens pursuant to the Subsidiary Pledge Agreement and the execution, delivery and performance of each of the Loan Document to which such Designated Subsidiary is a party. 3. Each Loan Document has been duly executed and delivered on behalf of the Company or the Designated Subsidiary party thereto. Each of the Credit Agreement, the Pledge Agreements, the Company Security Agreement, the Revolving Credit Notes delivered at the Closing, and each other Loan Document (except for Notes subsequently delivered) constitutes a legal, valid and binding obligation of the Company or such subsidiary enforceable against the Company or such subsidiary in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law). 4. The execution, delivery and performance of the Credit Agreement, the Notes, and each other Loan Document, the grant of the Liens pursuant to the Pledge Agreements and the Company Security Agreement, the borrowings under the Credit Agreement and the Notes and the use of the proceeds thereof will not violate any Requirement of Law in the Covered Jurisdictions and will not result in, or require, the creation or imposition of any Lien on any of its or their respective properties or revenues pursuant to any such Requirement of Law in the Covered Jurisdictions, other than such Liens created by the Credit Agreement or other Loan Documents. 5. No consent or authorization of, filing with or other act by or in respect of, any Governmental Authority in the Covered Jurisdictions is required in connection with the extensions of credit under the Credit Agreement and the Notes, the grant of the Liens pursuant to the Pledge Agreements, the Company Security Agreement or the execution, delivery, performance, validity or enforceability of the Credit Agreement, the Notes, each Application or any other Loan Document. 6. Neither the Company nor any Subsidiary is an "investment company," or a company "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended. Neither the Company nor any Subsidiary is subject to regulation under any statute in the Covered Jurisdictions or regulation which limits its ability to incur Indebtedness. 7. The provisions of each Pledge Agreement are effective to create in favor of the Agent for the ratable benefit of the Banks a legal, valid and enforceable security interest in all right, title and interest of the pledgor in the Collateral as described therein. When the Pledged Stock (as defined in each such Pledge Schatz & Schatz, Ribicoff & Kotkin -4- Agreement) has been delivered to the Agent, each such Pledge Agreement will constitute a fully perfected lien on, and security interest in, all right, title and interest of the pledgor in the Collateral described therein, subject to no prior security interest under the Uniform Commercial Code assuming continuous possession by the Agent of the Pledged Stock. 8. Assuming the proceeds of the extensions of credit under the Credit Agreement are used solely for the purposes set forth in, and in accordance with the provisions of, the Credit Agreement, neither such extensions of credit nor the use of the proceeds thereof violates the provisions of Regulation U of the Board of Governors of the Federal Reserve System. 9. The provisions of the Company Security Agreement are effective to create in favor of the Agent for the ratable benefit of the Banks a legal, valid and enforceable security interest in all right, title and interest of the Company in the Collateral described therein. 10. The extensions of credit under the Credit Agreement and the Notes constitute Senior Debt under and as defined in the Subordinated Indenture and the Senior Subordinated Indenture. This letter is given pursuant to the Credit Agreement as of the date hereof and we do not undertake to update it. It may not be used for any other purpose or disclosed to or relied upon by anyone other than the Banks and the Agent and their professional advisors, auditors, and attorneys and as otherwise required under applicable law or regulation. Very truly yours, /s/ Schatz & Schatz, Ribicoff & Kotkin Schatz & Schatz, Ribicoff & Kotkin Schatz & Schatz, Ribicoff & Kotkin Schedule A ---------- For the Company and for each of the Designated Subsidiaries: (1) Certificates of Incorporation; (2) Bylaws; (3) UCC lien searches; (4) Certificates of good standing in the state of incorporation; (5) Minutes of resolutions approving the Credit Agreement; (6) Officers' certificates; (7) Incumbency certificates; and (8) Stock powers. Schatz & Schatz, Ribicoff & Kotkin Schedule B ---------- This opinion is further subject to the following assumptions and limitations: (a) There has not been any mutual mistake of fact or misunderstanding, fraud, duress or undue influence. (b) The constitutionality or validity of a relevant statute, rule, regulation or agency action is not in issue unless a reported decision in the jurisdictions covered by the opinion has specifically addressed but not resolved, or has established, its unconstitutionality or invalidity. (c) Limitations based upon laws and regulations relating to the operation and conduct of the business of the Bank. (d) There are no agreements or understandings among the parties, written or oral, and there is no usage of trade or course of prior dealing among the parties, that would, in either case, define, supplement or qualify the terms of the documents. (e) The parties will obtain all permits and approvals required in the future, and take all actions similarly required, relevant to subsequent performance of the Loan Documents. (f) Each document obtained from a government agency is accurate, authentic and complete and all official public records (including their proper indexing and filing) are accurate and complete. As used herein, "general principles of equity" include, without limitation, principles: (a) governing the availability of specific performance, injunctive relief or other equitable remedies, which generally place the award of such remedies, subject to certain guidelines, in the discretion of the court to which application for such relief is made; (b) affording equitable defenses (e.g., waiver, laches and estoppel) against a party seeking enforcement; (c) requiring good faith and fair dealing in the performance and enforcement of a contract by the party seeking its enforcement; Schatz & Schatz, Ribicoff & Kotkin -2- (d) requiring reasonableness in the performance and enforcement of an agreement by the party seeking enforcement of the contract; (e) requiring consideration of the materiality of (i) a breach and (ii) the consequences of the breach to the party seeking enforcement; (f) requiring consideration of the impracticability or impossibility of performance at the time of attempted enforcement; and (g) affording defenses based upon the unconscionability of the enforcing party's conduct after the parties have entered into the contract. The opinions set forth herein do not address any of the following legal issues: (a) The statutes and ordinances, administrative decisions, and the rules and regulations of counties, towns, municipalities and special political subdivisions, and judicial decisions to the extent that they deal with any of the foregoing; (b) fraudulent transfer and fraudulent conveyance laws; (c) Federal and state antitrust, securities, tax, health and safety, labor and environmental laws and regulations; (d) Federal and state land use and subdivision laws and regulations; (e) Federal patent, copyright and trademark, state trademark, and other Federal and state intellectual property laws and regulations; and (f) pension and employee benefits laws and regulations. Schatz & Schatz, Ribicoff & Kotkin Schedule C ---------- We express no opinion as to whether SNG of Southern Minnesota, Inc. and D.M. Insurance Limited are in good standing. 8(b) [LETTERHEAD OF DAIRY MART APPEARS HERE] February 25, 1994 To each of the banks and other financial institutions from time to time parties to the Credit Agreement dated as of February 25, 1994, among Dairy Mart Convenience Stores, Inc., said banks and other financial institutions and Fleet Bank, National Association, as agent for said banks and other financial institutions. Dear Sirs: I have acted as counsel for Dairy Mart Convenience Stores, Inc., a Delaware corporation (the "Company"), and for the Designated Subsidiaries, in connection with the execution and delivery of the Credit Agreement, dated as of February 25, 1994 (the "Credit Agreement"), among the Company, the banks and other financial institutions parties thereto from time to time (the "Banks") and Fleet Bank, National Association, as agent (in such capacity, the "Agent") and the execution and delivery pursuant thereto of the Subsidiary Guarantee, the Pledge Agreements, the Notes, the Company Security Agreement, and the other Loan Documents referred to in the Credit Agreement. This opinion is delivered to you pursuant to subsection 5.1(q) of the Credit Agreement. Terms used herein which are defined in the Credit Agreement shall have the respective meanings set forth in the Credit Agreement, unless otherwise defined herein. In connection with this opinion, I have reviewed executed copies of each of the Credit Agreement, the Revolving Credit Notes, the Subsidiary Guarantee, the Company Pledge Agreement, the Company Security Agreement, the Subsidiary Pledge Agreement, the certificates representing the Pledged Stock (as defined in the Pledge Agreement), the records of all relevant shareholder and directors actions of Company and Designated Subsidiaries and such other documents as were necessary for me to render this opinion. In stating my opinion, I have assumed without investigation the genuineness of all signatures of, and the authority of, persons signing on behalf of parties thereto other than the Company and the Designated Subsidiaries and its originals and the conformity to authentic original documents of all documents submitted to me as certified, conformed or photostatic copies, and that each of the Banks will act in good faith and deal fairly with the Company in enforcing their rights under the Credit Agreement. [LETTERHEAD OF DAIRY MART APPEARS HERE] I note that (a) no opinion is expressed with respect to (i) the enforceability of any jury trial waiver (in that such waivers are not necessarily enforceable in Connecticut) or any provision providing for a method of service of process if such method is not permitted by law, or (ii) whether a right of setoff is enforceable with respect to certain specially designated bank accounts, (b) availability of your remedies under the Subsidiary Pledge Agreement with respect to the stock of Financial Opportunities, Inc. is subject to compliance with the procedures of, and to the approval of, the Small Business Administration, and (c) references herein to my knowledge refer to matters disclosed to me by the Company in connection herewith or which are otherwise within my actual knowledge, but not any other documents or information. I further note that I am familiar with the laws of Connecticut and the United States and with the corporate laws of Delaware (the "Covered Jurisdictions") and that the opinions set forth herein are subject to the effects that the laws of any other jurisdictions may have thereon. Based on the foregoing, I am of the opinion that: 1. Each of the Company and its Designated Subsidiaries is duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, and (a) has the corporate power and authority, and the legal right, to own and operate its property, to lease the property its operates as lessee and to conduct the business in which it is currently engaged, and (b) is duly qualified as a foreign corporation and in good standing under the laws of each jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such qualification, except to the extent that the failure to so qualify would not have a Material Adverse Effect. 2. No consent or authorization of, filing with or other act by or in respect of, any Governmental Authority in the Covered Jurisdictions or, to the best of my knowledge, any other Person, is required in connection with the extensions of credit under the Credit Agreement and the Notes, the grant of the Liens pursuant to the Pledge Agreements, the Company Security Agreement or the execution, delivery, performance, validity or enforcement of the Credit Agreement, the Notes, or enforcement of the Credit Agreement, the Notes, or any other Loan Document, except to the extent that the failure to obtain such consent or authorization, or the failure to make any filing, would not have a Material Adverse Effect. 3. The execution, delivery and performance of the Credit Agreement, the Notes and each Loan Document, the grant of the Liens pursuant to the Company Security Agreement and the Pledge Agreements, the borrowings under the Credit Agreement and the Notes and the use of the proceeds thereof will not violate any Requirement of Law in the Covered Jurisdictions or, to the best of my knowledge, any Contractual Obligation of the Company of any of its Designated Subsidiaries and will not result in, or require, the creation or imposition of any Lien on any of its or their respective properties or revenues pursuant of any such Requirement of Law in the Covered Jurisdictions or, to the best of my knowledge, any Contractual Obligation, other thant such Liens created by the Credit Agreement of other Loan Documents. 2 [LETTERHEAD OF DAIRY MART APPEARS HERE] 4. To the best of my knowledge, no litigation, investigation or proceeding of or before any arbitrator or Governmental Authority is pending or threatened by or against the Company or any of its Subsidiaries or against any of its or their respective properties or revenues (a) with respect to the Credit Agreement, the Notes, any Application or any other Loan Document or any of the transactions contemplated thereby, or (b) which could have a Material Adverse Effect (except for matters disclosed in Schedule VII of the Credit Agreement). 5. The shares of the Pledged Stock have been duly authorized and are validly issued, fully paid, and non-assessable. The certificates representing such shares are in proper form. This letter is given pursuant to the Credit Agreement as of the date hereof and I do not undertake to update it. It may not be used for any other purpose or disclosed to or relied upon by anyone other than the Banks and the Agent and their professional advisors, auditors, and attorneys and as otherwise required under applicable law or regulation. Very truly yours, DAIRY MART CONVENIENCE STORES, INC. /s/ Gregory Wozniak Gregory Wozniak Vice President, Corporate Counsel GW:mag 3 [LETTERHEAD OF FLEET BANK APPEARS HERE] March 7, 1994 Dairy Mart Convenience Stores, Inc. One Vision Drive Enfield, Connecticut 06082 Attention: Gregory Wozniak, Esq. Vice President and General Counsel Re: Credit Agreement by and among Dairy Mart Convenience Stores, Inc., Fleet Bank, National Association and Society National Bank dated as of February 25, 1994 Dear Greg: This letter shall acknowledge our receipt of the stock certificates (and related stock powers) listed on Schedule A attached hereto, as Agent for the ---------- Banks under the above-referenced Credit Agreement. Very truly yours, FLEET BANK, NATIONAL ASSOCIATION By /s/ Walter P. Schuppe ------------------------------ Walter P. Schuppe Vice President cc: Peter H. Levine, Esq. Gerald M. Smith, Esq. SCHEDULE A
Stock Class of Certificate No. of Issuer Stock No(s). Shares CIA Food Marts, Inc. Common 1 100 CONNA Corporation Common 1 1,000 Convenient Gasoline, Inc. Common 1 10 Convenient Industries of America, Inc. Common C 26058 2,000 Common C 26064 2,000 D.M. Insurance Limited Common 1 119,993 Dairy Mart East, Inc. Common 2 1,000 Dairy Mart, Inc. Common 1 100 Dairy Mart Farms, Inc. Common 2 1,000 Dairy Mart Convenience Stores of Ohio, Inc. Common 2 1,000 Food Merchandisers, Inc. Common 1 100 Golden Stores, Inc. Common 2 100 Common 3 400 Greenwell Grocery Co., Inc. Common 5 100 Jackson County Co., Inc. Common 5 100 Lakeside Wholesale Common 2 500 LMC, Inc. Common 2 500 Open Pantry Properties, Inc. Common 1 100 Oscar Ewing, Inc. Common 26 733 Preferred 12 350 Quik Shops, Inc. Common 3 500 Remote Services, Inc. Common 11 114 SNG of Southern Minnesota, Inc. Common 10 125 The Lawson Milk Company Common 1 500 Common 2 100 The Lawson Company Common 3 1,000
DAIRY MART CONVENIENCE STORES, INC. CLOSING CERTIFICATE The undersigned, Gregory Wozniak, does hereby certify that he is the Vice President, Corporate Counsel and Assistant Secretary, of Dairy Mart Convenience Stores, Inc., a Delaware corporation (the "Company"), and that, as such, he is authorized to execute and deliver this Certificate in the name and on behalf of the Company, and that: 1. This certificate is being delivered pursuant to subsection 5.1(l) of that certain Credit Agreement dated as of February 25, 1994 (the "Credit Agreement") by and between the Company, Fleet Bank, National Association, as agent, and the banks listed on Schedule I thereto (the "Banks"). The terms used in this Certificate and not defined herein shall have the respective meanings ascribed to them in, or pursuant to the provisions of the Credit Agreement. 2. The representations and warranties contained in Section 4 of the Credit Agreement are (except as affected by transactions contemplated by the Credit Agreement) true and correct in all material respects on the date hereof with the same effect as though made on and as of the date hereof. 3. No event or condition has occurred or is continuing which with the giving of notice, the lapse of time, or both, would constitute an Event of Default. 4. The Company has performed and compiled with all agreements and conditions contained in the Credit Agreement which are required to be performed of compiled with by the Company before or at the date hereof. IN WITNESS WHEREOF, I have executed this Certificate in the name and on behalf of the Company this 4th day of March, 1994. DAIRY MART CONVENIENCE STORES, INC. By /s/ Gregory Wozniak --------------------------------- Gregory Wozniak Its Vice President - Corporate Counsel and Assistant Secretary DAIRY MART CONVENIENCE STORES, INC. OFFICER'S CERTIFICATE The undersigned hereby certifies that: 1. He is the duly qualified, elected, and acting Executive Vice President and Chief Financial Officer of Dairy Mart Convenience Stores, Inc., a Delaware corporation (the "Company"). 2. This Certificate is being delivered pursuant to subsection 5.1(r) of that certain Credit Agreement ("Credit Agreement") dated as of February 25, 1994 by and among the Company, Fleet Bank, National Association, as agent, and the banks listed on Schedule I thereto. The terms used in this Certificate and not defined herein shall have the respective meanings ascribed to them in, or pursuant to the provisions of, the Credit Agreement. 3. All consents, authorizations, notices and filings necessary or advisable in connection with the financings contemplated by the Credit Agreement and the continuing operations of the Company, have been obtained and are in full force and effect, except where the failure to obtain such consents, authorizations, notices or filings would not have a Material Adverse Effect. IN WITNESS WHEREOF, the undersigned has executed this Certificate this 25th day of February, 1994. /s/ Gregory G. Landry ------------------------- Gregory G. Landry Executive Vice President and Chief Financial Officer EX-21 4 SUBSIDIARIES LIST EXHIBIT 21 DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES SUBSIDIARIES OF THE REGISTRANT Dairy Mart, Inc. (a Massachusetts corporation) Dairy Mart Farms, Inc. (a Connecticut corporation) Dairy Mart East, Inc. (a Rhode Island corporation) The Lawson Company (a Delaware corporation) CONNA Corporation (a Kentucky corporation) EX-23 5 AA/CONSENT EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS ----------------------------------------- As independent public accountants, we hereby consent to the incorporation of our reports included in this Form 10-K, into the Company's previously filed Registration Statements on Forms S-8, File No. 33-8209 and File No. 33-47893. ARTHUR ANDERSEN & CO. Hartford, Connecticut April 21, 1994 -----END PRIVACY-ENHANCED MESSAGE-----