-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Crx/EqQfwdwobO1Nrg7eGkcvdOGK+AH4tTAeY+kCViPUOgHlI1oT5JRJsrPSG0S+ GT73LQiOguQQiGsbpGN60g== 0000950109-95-005219.txt : 19951213 0000950109-95-005219.hdr.sgml : 19951213 ACCESSION NUMBER: 0000950109-95-005219 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19951028 FILED AS OF DATE: 19951212 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: DAIRY MART CONVENIENCE STORES INC CENTRAL INDEX KEY: 0000721675 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-CONVENIENCE STORES [5412] IRS NUMBER: 042497894 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-12497 FILM NUMBER: 95601090 BUSINESS ADDRESS: STREET 1: ONE VISION DRIVE CITY: ENFIELD STATE: CT ZIP: 06082 BUSINESS PHONE: 2037414444 10-Q 1 FORM 10-Q FOR PERIOD ENDED 10/28/95 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q - --- X Quarterly Report Pursuant to Section 13 or - --- 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended October 28, 1995 ---------------- - --- 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 (IRS 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 -------------- N/A ------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report.) 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 ___ --- Shares of Class A Common Stock outstanding October 28, 1995 - 2,800,934 Shares of Class B Common Stock outstanding October 28, 1995 - 2,783,060 PART I. FINANCIAL INFORMATION DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except per share amounts)
FOR THE THIRD FISCAL FOR THE THREE FISCAL QUARTER ENDED QUARTERS ENDED ------------------------ ------------------------ OCTOBER 28, OCTOBER 29, OCTOBER 28, OCTOBER 29, 1995 1994 1995 1994 - ---------------------------------------------------------------------------------------------------------- Net Sales of the Company, Its Subsidiaries and Franchises................. $ 181,935 $ 197,543 $ 542,928 $ 581,139 - --------------------------------------------------------------------------------------------------------- Revenues......................................... $ 143,492 $ 157,067 $ 428,194 $ 460,135 ----------- ----------- ---------- ---------- Cost of goods sold and expenses: Cost of goods sold.............................. 102,878 114,620 309,649 340,580 Selling, general and administrative expenses....................................... 36,770 38,415 106,325 113,186 Interest expense................................ 2,359 2,361 6,982 6,995 Loss (gain) on disposition of properties, net................................ (38) 297 54 643 Nonrecurring charges............................ 2,197 750 2,450 3,953 ----------- ----------- ---------- ---------- 144,166 156,443 425,460 465,357 ----------- ----------- ---------- ---------- Income (loss) before income taxes and cumulative effect of accounting change............................ (674) 624 2,734 (5,222) Benefit (provision) from income taxes............ 269 (256) (1,231) 2,110 ----------- ----------- ---------- ---------- Income (loss) before cumulative effect of accounting change.................. (405) 368 1,503 (3,112) Cumulative effect of accounting change (net of income tax benefit of $271)........... - - - (389) ----------- ----------- ---------- ---------- Net income (loss)............................. $ (405) $ 368 $ 1,503 $ (3,501) - --------------------------------------------------------------------------------------------------------- Weighted average shares outstanding 5,582 5,545 5,823 5,538 ----------- ----------- ---------- ---------- Earnings (loss) per share: Before cumulative effect of accounting change.............................. $ (0.07) $ 0.07 $ 0.26 $ (0.56) Cumulative effect of accounting change.......... - - - (0.07) ----------- ----------- ---------- ---------- Earnings (loss) per share........................ $ (0.07) $ 0.07 $ 0.26 $ (0.63) - ---------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements. DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands)
OCTOBER 28, 1995 JANUARY 28, 1995 - ----------------------------------------------------------------------------------------------- ASSETS (Unaudited) CURRENT ASSETS: Cash................................................. $ 15,666 $ 4,512 Short-term investment................................ 2,131 2,053 Accounts and notes receivable........................ 10,997 12,398 Inventory............................................ 19,820 26,044 Prepaid expenses and other current assets............ 2,516 1,945 Deferred income taxes................................ 2,051 3,537 ------------ ------------ Total current assets.............................. 53,181 50,489 ------------ ------------ NET BOOK VALUE OF PROPERTY AND EQUIPMENT HELD FOR SALE.... 9,874 23,378 ------------ ------------ PROPERTY AND EQUIPMENT: Land and improvements................................ 9,178 9,180 Buildings and leaseholds............................. 31,913 31,370 Equipment............................................ 70,307 59,358 ------------ ------------ 111,398 99,908 Less - Accumulated depreciation...................... 35,733 30,345 ------------ ------------ Net property and equipment........................ 75,665 69,563 ------------ ------------ PROPERTY UNDER CAPITAL LEASES, NET........................ 1,545 1,015 ------------ ------------ OTHER ASSETS: Goodwill, net........................................ 10,393 10,647 Franchise and operating rights, net.................. 7,059 7,314 Notes receivable..................................... 2,466 2,494 Other................................................ 6,496 7,328 ------------ ------------ Total other assets................................ 26,414 27,783 ------------ ------------ TOTAL ASSETS.............................................. $ 166,679 $ 172,228 - ----------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt.................... $ 1,285 $ 1,285 Current portion of capital lease obligations......... 418 285 Accounts payable..................................... 29,939 28,942 Accrued expenses..................................... 11,198 17,214 Accrued interest..................................... 1,062 3,052 ------------ ------------ Total current liabilities......................... 43,902 50,778 ------------ ------------ LONG-TERM DEBT, LESS CURRENT PORTION ABOVE................ 86,125 87,324 ------------ ------------ CAPITAL LEASE OBLIGATIONS, LESS CURRENT PORTION ABOVE..... 1,749 1,374 ------------ ------------ OTHER LIABILITIES AND DEFERRED CREDITS.................... 5,736 6,837 ------------ ------------ DEFERRED INCOME TAXES..................................... 4,754 3,098 ------------ ------------ STOCKHOLDERS' EQUITY: Class A Common Stock................................. 33 33 Class B Common Stock................................. 30 30 Paid-in capital in excess of par value............... 27,673 27,580 Retained earnings.................................... 1,682 179 Treasury stock, at cost.............................. (5,005) (5,005) ------------ ------------ Total stockholders' equity........................ 24,413 22,817 ------------ ------------ Total liabilities and stockholder's equity................ $ 166,679 $ 172,228 - -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements. DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands)
FOR THE THREE FISCAL QUARTERS ENDED ----------------------------------- OCTOBER 28, 1995 OCTOBER 29, 1994 - ------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss)................................................ $ 1,503 $ (3,501) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Cash flow effect of nonrecurring items......................... (2,310) 3,258 Cumulative effect of accounting change......................... - 389 Depreciation and amortization.................................. 9,060 9,336 Change in deferred income taxes................................ 3,142 (2,100) Loss on other disposition of properties, net................... 54 643 Decrease (increase) in accounts and notes receivable........... 1,401 (467) Decrease (increase) in inventory............................... 6,224 (756) Increase in accounts payable................................... 997 1,485 (Decrease) increase in accrued interest........................ (1,990) 115 Increase in other current assets and liabilities, net.......... (4,565) (2,986) (Decrease) increase in other noncurrent liabilities and deferred credits......................................... (813) 496 ---------- ---------- Net cash provided by operating activities.......................... 12,703 5,912 ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Increase in short-term investment................................ (78) (2,031) Purchase of property and equipment............................... (13,820) (12,766) Proceeds from sale of property and equipment..................... 13,817 638 Proceeds from long-term notes receivable......................... 729 972 Increase in long-term notes receivable........................... (701) (1,400) (Increase) decrease in intangibles and other assets, net......... (69) 185 ---------- ---------- Net cash used by investing activities.............................. (122) (14,402) ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of senior subordinated notes, net of offering costs..... - 72,653 Repayment of term debt........................................... - (22,000) Retirement of subordinated debentures............................ - (27,944) Decrease in revolving loan, net.................................. - (12,100) Additional long-term debt........................................ - 1,362 Repayment of other long-term debt and capital lease obligations.. (1,520) (1,300) Increases in common stock and paid-in capital.................... 93 81 ---------- ---------- Net cash (used) provided by financing activities................... (1,427) 10,752 ---------- ---------- Increase in cash................................................... 11,154 2,262 Cash at beginning of fiscal year................................... 4,512 6,632 ---------- ---------- CASH AT END OF THIRD FISCAL QUARTER................................ $ 15,666 $ 8,894 - ------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements. DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 28, 1995 (Unaudited) The unaudited consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information presented not misleading. The information furnished reflects all adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented, and which are of a normal, recurring nature. It is suggested that these financial statements be read in conjunction with the financial statements and the notes thereto included in the Company's Form 10-K, filed with the Securities and Exchange Commission on May 15, 1995. 1. Accounting Policies ------------------- The financial statements included herein have been prepared in accordance with the accounting policies described in Note 1 to the January 28, 1995 audited consolidated financial statements included in the Company's Form 10-K. Certain prior year amounts have been reclassified to conform to the presentation used for the current year. 2. Changes in Capital Accounts --------------------------- An analysis of the capital stock accounts for the first three fiscal quarters ended October 28, 1995 follows:
COMMON STOCK -------------------------------------------------------------------------- CLASS A SHARES CLASS B SHARES PAID-IN-CAPITAL ISSUED AT ISSUED AT IN EXCESS OF $.01 PAR VALUE $.01 PAR VALUE AMOUNT PAR VALUE -------------- -------------- --------------- --------------- Balance January 28, 1995 3,290,460 2,961,953 $ 62,526 $ 27,579,716 Employee stock purchase plan 13,038 - 129 48,914 Stock options exercised 16,125 - 161 44,182 Exchange of Class B shares for Class A shares 2,936 (2,936) - - Balance October 28, 1995 ----------- ----------- ---------- -------------- 3,322,559 2,959,017 $ 62,816 $ 27,672,812 ----------- ----------- ---------- --------------
As of October 28, 1995, there were 521,625 shares of Class A Common Stock and 175,957 shares of Class B Common Stock held as treasury stock at an aggregate cost of $5,004,847, leaving 2,800,934 Class A shares and 2,783,060 Class B shares outstanding. 3. Earnings (Loss) Per Share ------------------------- Earnings (loss) per share is based on the weighted average number of shares outstanding, including the dilutive effect of stock options, if appropriate, during each period. 4. Seasonality ----------- The results of operations for the third fiscal quarter ended October 28, 1995 are not necessarily indicative of results to be expected for the full fiscal year. The convenience store industry in the Company's marketing areas experiences a higher percentage of revenues and profit margins during the summer months than during the winter months. Historically, the Company has achieved more favorable financial results in its second and third fiscal quarters, as compared to its first and fourth fiscal quarters. 5. Nonrecurring Charges -------------------- A summary of nonrecurring charges for the third fiscal quarter and the three fiscal quarters ended October 28, 1995 and October 29, 1994 is as follows:
FOR THE THIRD FISCAL FOR THE THREE FISCAL QUARTER ENDED QUARTERS ENDED --------------------- --------------------- OCT 28, OCT 29, OCT 28, OCT 29, 1995 1994 1995 1994 - --------------------------------------------------------------- --------------------- (IN THOUSANDS) Expenses associated with purchase of majority shareholder's interest.. $ 945 $ - $ 945 $ - Costs of store closings................ 500 - 740 518 Costs to divest of dairy manufacturing and distribution operations.......................... 752 - 765 - Regulatory and financing fees and expenses........................ - - - 285 Administrative severance, settlement and related costs........ - 750 - 2,550 Writedown of non-operating properties to net realizable value............................... - - - 600 --------------------- --------------------- Total $ 2,197 $ 750 $ 2,450 $ 3,953 ===================== =====================
During the current year third fiscal quarter, the Company incurred $945,000 in legal and professional fees associated with the purchase of a former majority shareholder's interest in the Company (see Note 6). The further effects of such purchase will be reflected in the fourth fiscal quarter financial statements of the Company. In the prior fiscal year, the Company recorded a nonrecurring charge for costs associated with the sale or closing of 143 of its retail convenience stores and the closing of 81 of its retail gasoline facilities. During the current year three fiscal quarters, the Company has incurred $740,000 of costs in excess of the previously recorded estimate to close or sell such stores. Such costs relate, in part, to disposal of equipment, inventory and leases associated with closed stores and the removal of underground storage tanks associated with the closed gasoline facilities. In the prior fiscal year, the Company recorded a nonrecurring charge for costs associated with the discontinuance and sale of its dairy manufacturing and distribution operations. During the current year three fiscal quarters, the Company has incurred $765,000 of costs in excess of the previously recorded estimate to close and sell such operations. In the prior fiscal year, the Company incurred $285,000 in nonrecurring duplicative interest expense, net of interest income, due to the issuance of the Company's 10.25% senior subordinated notes on March 3, 1994 and the subsequent retirement of the Company's 14.25% subordinated debentures on April 4, 1994. In the prior year three fiscal quarters, the Company recorded nonrecurring charges of $2,550,000 for costs, including legal expenses, associated with the removal of the Company's former president and Chief Executive Officer by the Board of Directors, and the settlement of legal disputes arising therefrom and severance and other personnel related costs associated with a reduction in other administrative support positions by the Company. 6. Subsequent Events ----------------- Subsequent to the end of the current year third fiscal quarter, the Company consummated the purchase of the interests of Charles Nirenberg and certain of his affiliates (collectively, "Nirenberg") in DM Associates Limited Partnership (the "Nirenberg Transaction"). Nirenberg's interests in the limited partnership included limited partnership interests and a promissory note secured by 1,220,000 shares of the Company's Class B Common Stock. The aggregate cash consideration paid by the Company to Nirenberg for their interests in the limited partnership, including the note, was $10,000,000. In addition, Dairy Mart agreed to pay Nirenberg $2,300,000 in consideration of certain matters, including Nirenberg waiving certain claims against the Company, Nirenberg executing a non-compete agreement and Nirenberg allowing Dairy Mart to use his name and likeness in advertising and marketing materials. Dairy Mart also agreed to reimburse Nirenberg for up to $850,000 of previously unreimbursed fees and expenses incurred in connection with activities relating to Dairy Mart. In order to finance the transaction, the Company issued $13,500,000 aggregate principal amount of its 10-1/4% Senior Subordinated Notes (Series B) due 2004 (the "Series B Notes"). The Series B Notes have substantially the same terms and conditions as the Company's current $75,000,000 10-1/4% Senior Subordinated Notes (Series A) due 2004 (the "Series A Notes"). The Indenture pursuant to which the Company issued the Series A Notes has been amended and restated so as to also apply to the Series B Notes. The Series B noteholders also acquired warrants (the "Warrants") with a six year maturity to purchase 1,215,000 shares of the Company's Class A Common Stock at $6.95 per share. The exercise price may be adjusted to 110% of the market price of the Company's Class A Common Stock one year after the issuance of the Warrants, if such adjustment results in a decrease of the exercise price. The Company has also agreed to register the Warrants and the underlying Class A Common Stock for sale with the Securities and Exchange Commission at the Company's expense. Failure to so register the Warrants and underlying Class A Common Stock may cause the interest rate on the Series B Notes to increase in increments to a maximum rate of 11-3/4%. The Company also obtained from the holders of a majority of the Company's Series A Notes a consent to the Nirenberg Transaction and a waiver of certain alleged events of default. For such consent and waiver, the Company issued to all of the holders of the Series A Notes, Warrants with a six year maturity to purchase 500,000 shares of the Company's Class A Common Stock at $6.95 per share. Such Warrants to purchase 500,000 shares of Class A Common Stock have substantially the same provisions as the Warrants to purchase 1,215,000 shares of Class A Common Stock. DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SUMMARY RESULTS OF OPERATIONS The Company's net income for the first three fiscal quarters ended October 28, 1995 was $1.5 million as compared to a net loss of $3.1 million in the first three fiscal quarters of the prior year. The three fiscal quarters and third fiscal quarter of both years included nonrecurring charges as follows:
FOR THE THIRD FISCAL FOR THE THREE FISCAL QUARTER ENDED QUARTERS ENDED --------------------- --------------------- OCT 28, OCT 29, OCT 28, OCT 29, (IN MILLIONS) 1995 1994 1995 1994 - ---------------------------------------------------------------- --------------------- Expenses associated with purchase of majority shareholder's interest $ 0.9 $ - $ 0.9 $ - Costs of store closings 0.5 - 0.7 0.5 Costs to divest of dairy manufacturing and distribution operations 0.8 - 0.8 - Regulatory and financing fees and expenses - - - 0.3 Administrative severance, settlement and related costs - 0.8 - 2.6 Writedown of non-operating properties to net realizable value - - - 0.6 -------------------- -------------------- Total $ 2.2 $ 0.8 $ 2.4 $ 4.0 ==================== =====================
RESULTS OF OPERATIONS REVENUES Revenues for the current year first three fiscal quarters decreased by $31.9 million from the prior year first three fiscal quarters and revenues for the current year third fiscal quarter decreased by $13.6 million from the prior year third fiscal quarter. A summary of revenues by operating area for the comparative third fiscal quarter and the three fiscal quarters is as follows:
FOR THE THIRD FISCAL FOR THE THREE FISCAL QUARTER ENDED QUARTERS ENDED --------------------- --------------------- OCT 28, OCT 29, OCT 28, OCT 29, (IN MILLIONS) 1995 1994 1995 1994 - -------------------------------------------------------- --------------------- Convenience store $ 87.3 $ 93.3 $256.8 $277.2 Gasoline 55.5 55.9 169.1 159.5 Manufacturing and distribution - 7.5 - 21.8 Other .7 .4 2.3 1.6 -------------------- --------------------- Total $143.5 $157.1 $428.2 $460.1 ==================== =====================
Convenience store revenues decreased $20.4 million, or 7.4%, in the current year first three fiscal quarters as compared to the prior year first three fiscal quarters, and convenience store revenues for the current year third fiscal quarter decreased by $6.0 million as compared to the prior year third fiscal quarter. These decreases are primarily due to the closing or sale of approximately 120 underperforming stores. Although such closures had a negative impact on revenues, they did have a material favorable effect on the results from operations, since the majority of stores closed or sold had been operating at a loss. Gasoline revenues increased $9.6 million in the current year first three fiscal quarters as compared to the prior year first three fiscal quarters due to an increase in the average selling price of gasoline of 5.8 cents per gallon combined with an increase in total gasoline gallons sold of 630,000. The increase in gasoline gallons sold was due to further development of new stores having a major gasoline presence and the remodeling and expansion of gasoline facilities at certain existing locations offset by the closure of certain low volume gasoline locations. Gasoline revenues decreased $400,000 in the current year third fiscal quarter as compared to the prior year third fiscal quarter due to a decrease in the average selling price of 0.5 cents per gallon combined with a decrease in total gasoline gallons sold of 94,000 resulting from the closure of low volume gasoline locations described above. Manufacturing and distribution revenues are not reflected in the current year first three fiscal quarters and the current year third fiscal quarter as compared to the corresponding periods of the prior fiscal year due to the closing and divestiture of the Company's dairy manufacturing and distribution operations in the current fiscal year. GROSS MARGINS Gross margins for the current year first three fiscal quarters decreased $1.1 million from the prior year first three fiscal quarters and gross margins for the current year third fiscal quarter decreased $1.8 million from the prior year third fiscal quarter. A summary of the gross margins by operating area for the comparative third fiscal quarter and the three fiscal quarters is as follows:
FOR THE THIRD FISCAL FOR THE THREE FISCAL QUARTER ENDED QUARTERS ENDED --------------------- ---------------------- OCT 28, OCT 29, OCT 28, OCT 29, (IN MILLIONS) 1995 1994 1995 1994 - -------------------------------------------------------- ---------------------- $ 33.5 $ 34.5 $ 97.9 $ 99.8 Convenience store Gasoline 6.4 7.3 18.3 17.5 Manufacturing and distribution - .2 - .7 Other .7 .4 2.3 1.6 ---------------------- ---------------------- Total $ 40.6 $ 42.4 $ 118.5 $119.6 ====================== ======================
Convenience store gross margins decreased by $1.9 million in the current year first three fiscal quarters as compared to the prior year first three fiscal quarters, and convenience store gross margins for the current year third fiscal quarter decreased $1.0 million as compared to the prior year third fiscal quarter. These decreases were due to the reduction in the number of stores described above, offset by improved product gross margins and higher lottery commissions. Gasoline gross margins increased by $800,000 in the current year first three fiscal quarters as compared to the prior year first three fiscal quarters and gasoline gross margins decreased by $900,000 in the current year third fiscal quarter as compared to the prior year third fiscal quarter. The increase for the current year first three fiscal quarters is primarily due to an increase of 0.5 cents in gross margin per gallon. The decrease for the current year third fiscal quarter is due to a decrease of 1.6 cents in gross margin per gallon combined with the decrease in gasoline gallons sold as described above. SELLING AND GENERAL AND ADMINISTRATIVE EXPENSES Selling expenses for the current year first three fiscal quarters decreased $4.3 million from the prior year first three fiscal quarters. General and administrative expenses for the current year first three fiscal quarters decreased $2.6 million from the prior year first three fiscal quarters. For the current year third fiscal quarter alone, selling expenses decreased $1.3 million and general and administrative expenses decreased $300,000 as compared to the corresponding period of the prior year. A summary of selling expenses by operating area and general and administrative expenses for the comparative third fiscal quarter and the three fiscal quarters is as follows:
FOR THE THIRD FISCAL FOR THE THREE FISCAL QUARTER ENDED QUARTERS ENDED -------------------- -------------------- OCT 28, OCT 29, OCT 28, OCT 29, (IN MILLIONS) 1995 1994 1995 1994 - --------------------------------------------------- -------------------- Convenience store $ 25.1 $ 26.6 $ 74.1 $ 79.0 Gasoline 3.2 3.0 9.6 9.0 -------------------- -------------------- 28.3 29.6 83.7 88.0 General and administrative expenses 8.5 8.8 22.6 25.2 -------------------- -------------------- Total $ 36.8 $ 38.4 $106.3 $113.2 ==================== ====================
Convenience store selling expenses decreased $4.9 million in the current year first three fiscal quarters as compared to the prior year first three fiscal quarters, and convenience store selling expenses decreased $1.5 million for the current year third fiscal quarter as compared to the prior year third fiscal quarter. These decreases were due to the closure or sale of underperforming stores as described above, partially offset by higher labor and rent costs on a per store basis. Gasoline selling expenses increased $600,000 in the current year first three fiscal quarters as compared to the prior year first three fiscal quarters and gasoline selling expenses increased $200,000 in the current year third fiscal quarter as compared to the prior year third fiscal quarter. These increases were primarily due to the operation of new or remodeled expanded facilities as described above combined with increased environmental expenses associated with the remediation of gasoline locations after considering expected reimbursements from various state environmental trust funds. General and administrative expenses decreased in the current year first three fiscal quarters and the current year third fiscal quarter as compared to the corresponding periods of the prior year primarily due to a reduced level of administrative support staff. INTEREST EXPENSE AND TAXES Interest expense remained relatively constant in the current year first three fiscal quarters as compared to the prior year first three fiscal quarters. The effective tax rate for the Company was a provision of 45% for the current year first three fiscal quarters as compared to a benefit of 40% for prior year first three fiscal quarters, and a benefit of 40% for the current year third fiscal quarter as compared to a provision of 41% for the prior year third fiscal quarter. The Company provides for income taxes at the effective rate expected to be incurred for the entire fiscal year. LIQUIDITY AND CAPITAL RESOURCES The Company generates substantial operating cash flow since most of its revenues are received in cash. The amount of cash generated from operations in the current year first three fiscal quarters significantly exceeded the current debt service requirements of the Company's long-term debt and capital lease obligations. Additional cash flow was generated in the current fiscal year from the sale of certain assets, including the sale and leaseback of 17 existing store properties. In addition, the Company has a revolving line of credit available, although not currently utilized, to address the timing of certain working capital disbursements. Management believes that the cash flow from operations and the sale of certain underperforming and non-operating assets will provide the Company with ample liquidity and the capital necessary to achieve the anticipated expansion in its retail operations (see Capital Expenditures). For information with respect to the issuance of $13,500,000 aggregate principal amount of the Company's 10-1/4% Senior Subordinated Notes (Series B) due 2004, see Part II - OTHER INFORMATION. CASH PROVIDED BY OPERATING ACTIVITIES During the current year first three fiscal quarters, net cash generated by operations was $6.8 million higher than the prior year first three fiscal quarters. This increase was primarily due to the improved results of operations in the current year first three fiscal quarters as compared to the prior year first three fiscal quarters (see RESULTS OF OPERATIONS) and to cash provided from working capital through the collection of certain accounts receivable and the liquidation of certain inventories associated with asset divestitures. During the current year first three fiscal quarters, the Company paid its trade payables in an average of 25 days, which compares to 24 days for the fiscal year ended January 28, 1995 and 25 days for the prior year first three fiscal quarters. The cash flow of the Company is also favorably impacted by the Company's use of funds from the sale of money orders, pending remittance of such funds to the issuer of the money orders. As of October 28, 1995 and January 28, 1995, the amounts due the issuer of the money orders were $6.7 million and $5.3 million, respectively. 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 $7.5 million. CASH PROVIDED BY FINANCING ACTIVITIES During the current year first three fiscal quarters, net cash of $1.4 million was used primarily to repay long-term debt and capital lease obligations. During the prior year first three fiscal quarters, net cash of $10.8 million was provided from the issuance of the Notes and the subsequent repayment of the indebtedness under a bank term loan and bank revolving loan and to redeem in full the Company's 14.25% subordinated debentures. During the current year first fiscal quarter, management finalized an amendment of the Company's senior credit facility temporarily reducing the total availability to $20.0 million with $15.0 million available for the issuance of letters of credit. As of October 28, 1995, the Company had no outstanding revolving credit loans under the amended credit facility, but did have $13.8 million of letters of credit outstanding thereunder. The Company may utilize the amended credit facility as needed for working capital and general corporate purposes. CASH USED BY INVESTING ACTIVITIES During the current year first three fiscal quarters, net cash of $122,000 was used by investing activities. The receipt of $13.8 million in proceeds from the sale of certain assets, as described above, offset the use of $13.8 million to fund the Company's capital expenditures. Consistent with the Company's overall objective to strengthen its investment in retail operations, proceeds from the sale of assets and cash generated from operations will be used to fund future capital expenditures of the Company including the development of new stores and the upgrading and remodeling of existing stores. CAPITAL EXPENDITURES The Company anticipates spending approximately $18 million for capital expenditures in the current fiscal year ending February 3, 1996 by purchasing store and gasoline equipment for new store locations, remodeling a limited number of its existing stores, introducing certain branded fast food concepts in a number of stores, and significantly upgrading certain gasoline locations to include the installation of credit card readers at the pump, to improve outdoor lighting and to meet current environmental standards (see Environmental Responsibility). ENVIRONMENTAL RESPONSIBILITY The Company accrues its estimate of all costs to be incurred for assessment and remediation with respect to releases of regulated substances from existing and previously operated retail gasoline facilities. As of October 28, 1995, the Company had recorded an accrual of $2,086,000 for such costs, the majority of which are anticipated to be spent over the next 3 to 5 years. The Company is entitled to reimbursement of a portion of the above costs from various state environmental trust funds based upon compliance with the terms and conditions of such trust funds. As of October 28, 1995, the Company has recorded a net state trust fund reimbursement receivable of $1,066,000 (representing a gross receivable of $1,244,000 less an allowance of $178,000). Although there are no assurances as to the timing, the Company anticipates receiving reimbursements from the state environmental trust funds within one to four years from the payment of the reimbursable assessment and remediation expenses. In addition, the Company estimates that future capital expenditure requirements to comply with federal and state underground gasoline storage tank regulations will be approximately $12.0 to $16.0 million in the aggregate through December 1998. These costs could be reduced for low volume locations closed in lieu of the capital cost of compliance. The Company's estimate of costs to be incurred for environmental assessment and remediation and for required underground storage tank upgrading and other regulatory compliance are based on factors and assumptions that could change due to modifications of regulatory requirements or detection of unanticipated environmental conditions. PART II. OTHER INFORMATION ITEM 5. OTHER INFORMATION - --------------------------- a. ISSUANCE OF $13.5 MILLION OF NOTES. On December 1, 1995, the Company ----------------------------------- issued $13.5 million aggregate principal amount of its 10-1/4% Senior Subordinated Notes (Series B) due 2004 (the "Series B Notes"). The Series B Notes have substantially the same terms and conditions as the Company's current $75,000,000 10-1/4% Senior Subordinated Notes (Series A) due 2004 (the "Series A Notes"). The Indenture pursuant to which the Company issued the Series A Notes has been amended and restated so as to also apply to the Series B Notes. In conjunction with the issuance of the Series B Notes, the Company issued to the purchasers of the Series B Notes, warrants to purchase 1,215,000 shares of the Class A Common Stock of the Company (the "Warrants"). The Warrants may be exercised at any time during the next 6 years. The initial exercise price of the Warrants is $6.95 per share, but the exercise price may be adjusted to 110% of the market price of the Company's Class A Common Stock one year after the issuance of the Warrants, if such adjustment results in a decrease of the exercise price. The exercise price will also be adjusted upon the occurrence of various events, including stock dividends and issuances of Common Stock by the Company for a per share price less than the exercise price of the Warrants or less than the then current market value of the Company's Class A Common Stock. The Company has also agreed to register the Warrants and the underlying Class A Common Stock for sale with the Securities and Exchange Commission, at the Company's expense. Failure to so register the Warrants and underlying Class A Common Stock may cause the interest rate to increase in increments to a maximum rate of 11-3/4%. b. PURCHASE BY THE COMPANY OF INTERESTS IN DM ASSOCIATES. The proceeds ------------------------------------------------------ of the Series B Notes were primarily used to fund the obligations of the Company under an Agreement dated October 30, 1995, as amended December 1, 1995 (the "Nirenberg Agreement"), by and among the Company, Charles Nirenberg, and certain of his affiliates (collectively, "Nirenberg"), pursuant to which, among other things, the Company purchased for $10 million (i) all of Nirenberg's limited partnership interests in DM Associates Limited Partnership ("DM Associates"), and (ii) a promissory note of DM Associates payable to Nirenberg in the principal amount of $7.1 million, which note is secured by a pledge of 1,220,000 shares of Class B Common Stock of the Company owned by DM Associates. DM Associates owns 1,858,743 shares, or 60.7%, of the Class B Common Stock of the Company. Pursuant to the Nirenberg Agreement, the Company also paid to Nirenberg $2.3 million in consideration of certain matters, including, Nirenberg's waiver of certain alleged claims against the Company, Nirenberg allowing the Company to use his name and likeness in advertising materials and Nirenberg's agreement that he will not for a period of five years compete with the Company, solicit employment of any employee of the Company, or interfere in a material manner with any material business relationship between the Company and any third party. The Company has also agreed to reimburse Nirenberg for up to $850,000 of previously unreimbursed fees and expenses incurred in connection with the activities relating to the Company. Under the terms of the Nirenberg Agreement, Nirenberg withdrew as a partner of New DM Management Associates I ("DM Management I") and New DM Management Associates II ("DM Management II"), which were the general partners of DM Associates. As a result, the remaining partners of DM Management I are Robert B. Stein, Jr., the President and a director of the Company; Gregory G. Landry, the Executive Vice President and a director of the Company; and Mitchell J. Kupperman, a former officer and director of the Company, each of whom owns one-third of the partnership interest of DM Management I. The remaining partners of DM Management II dissolved DM Management II and therefore DM Management I is the sole remaining general partner of DM Associates. Mr. Kupperman's employment with the Company was terminated on December 1, 1995. In connection with the termination of Mr. Kupperman's employment and Mr. Kupperman's waiver of certain alleged claims against the Company, the Company paid $1,036,412 to Mr. Kupperman. Effective December 1, 1995, Mr. Nirenberg and Mr. Kupperman each resigned as officers and directors of the Company, and M. Harold Jacobsen and Thomas O'Brien, temporary directors appointed by the Company pursuant to the Nirenberg Agreement, also resigned as directors. Thomas W. Janes, a principal of Triumph Capital Group, Inc., a holder of the Series B Notes, was appointed a director to fill the vacancy created by Mr. Kupperman's registration. Pursuant to the Partnership Agreement of DM Associates, DM Management I has the right to vote all of the shares of Class B Common Stock owned by DM Associates. Pursuant to the Partnership Agreement of DM Management I, the holders of a majority of the partnership interest of DM Management I determines how to vote 638,743 of the shares owned by DM Associates, and the remaining 1,220,000 shares will be voted for or against any motion or proposal in the same proportion that the other Class B shares (including the 638,743 of DM Associates) are voted. The Company has agreed to indemnify Nirenberg against any liability or expense incurred by them as a result of or in connection with the transactions consummated pursuant to the Nirenberg Agreement. c. ISSUANCE OF ADDITIONAL WARRANTS TO NOTEHOLDERS. In addition to the ----------------------------------------------- Warrants to purchase 1,215,000 shares of Class A Common Stock issued in connection with the sale of the Series B Notes, as described above, the Company issued Warrants to purchase 500,000 shares of Class A Common Stock to the holders of the Series A Notes, in consideration of their waiving any rights that they may have had as a result of any Change of Control, as defined in the Indenture, that they may have occurred, and in consideration of their agreement to certain amendments of the Indenture. Such Warrants to purchase 500,000 shares of Class A Common Stock have substantially the same provisions as the Warrants to purchase 1,215,000 shares of Class A Common Stock discussed above. d. AMENDED CREDIT AGREEMENT. Contemporaneously with the consummation of ------------------------- the Nirenberg Agreement and the issuance of the Series B Notes, the Credit Agreement among the Company, Society National Bank, and Fleet Bank, N.A. was amended and restated. The Credit Agreement provides that the issuance of the Series B Notes and the transactions provided for in the Nirenberg Agreement will not constitute defaults under the Credit Agreement. The financial covenants in the Credit Agreement have also been amended so as to reflect the anticipated effect of the Company of the transactions provided for the Nirenberg Agreement. Item 6. Exhibits and Reports on Form 8-K - ----------------------------------------- The following exhibits are filed as part of this report pursuant to Item 601 of Regulation S-K: (a) EXHIBITS: (4.1) Amended and Restated Indenture, dated as of December 1, 1995, by and among the Company, Certain Subsidiaries of the Company, as Guarantors, and First Bank National Association, as Trustee, is filed as Exhibit 4.1 attached hereto. (10.1) Note Purchase Agreement, dated as of December 1, 1995, between the Company and the Purchasers Listed in the Schedule of Purchasers therein, relating to 10-1/4% Senior Subordinated Notes (Series B) due March 15, 2004, is filed as Exhibit 10-1 attached hereto. (10.2) Form of Stock Purchase Warrant to Subscribe for and Purchase Shares of Class A Common Stock of the Company (Initially Exercisable for an Aggregate of 1,215,000 Shares of Class A Common Stock) is filed as Exhibit 10.2 attached hereto. (10.3) Form of Stock Purchase Warrant to Subscribe for and Purchase Shares of Class A Common Stock of the Company (Initially Exercisable for an Aggregate of 500,000 Shares of Class A Common Stock) is filed as Exhibit 10.3 attached hereto. (10.4) Registration Rights Agreement, dated December 1, 1995, by and among the Company and the Holders of (i) 10-1/4% Senior Subordinated Notes (Series B) of the Company, due March 15, 2004, and (ii) Warrants to Purchase 1,715,000 shares of Class A Common Stock, par value $.01 per share, of the Company is filed as Exhibit 10.4 attached hereto. (10.5) Credit Agreement, dated as of February 25, 1994, Amending and Restating the Credit Agreement, dated as of February 25, 1994, as Amended to Date, by and among the Company, Society National Bank, the Banks and Other Financial Institutions Listed on Schedule I therein, and Society National Bank, as Successor Trustee, is filed as Exhibit 10.5 attached hereto. (10.6) Modification Agreement, dated as of December 1, 1995, by and among the Company, Charles Nirenberg, FCN Properties Corporation, The Nirenberg Foundation, Inc., formerly known as The Nirenberg Family Charitable Foundation, Inc., Robert B. Stein, Jr., and Gregory G. Landry is filed as Exhibit 10.6 attached hereto. (10.7) Amended and Restated Letter Agreement, dated December 1, 1995, to Mitchell J. Kupperman from the Company, Robert B. Stein, Jr., and Gregory G. Landry is filed as Exhibit 10.7 attached hereto. (10.8) DM Associates Limited Partnership Agreement, dated March 12, 1992. Incorporated herein by reference to Exhibit E of the Schedule 13D, dated March 12, 1992, filed by DM Associates Limited Partnership, DM Management Associates and Frank Colaccino. (10.9) First Amendment to Partnership Agreement of DM Associates Limited Partnership, dated as of September 8, 1994. Incorporated herein by reference to Exhibit F of the Schedule 13D, Amendment No. 4, dated January 27, 1995, filed by DM Associates Limited Partnership, New DM Management Associates I, New DM Management Associates II, Charles Nirenberg, Robert B. Stein, Jr., Gregory G. Landry, Mitchell J. Kupperman and Frank Colaccino. (10.10) First Amendment to Partnership Agreement of New DM Management Associates I, dated as of December 1, 1995, between Robert B. Stein, Jr., Gregory G. Landry and Mitchell J. Kupperman is filed as Exhibit 10.10 attached hereto. (10.11) Partnership Agreement of New DM Management Associates I, dated as of September 8, 1994. Incorporated herein by reference to Exhibit G of the Schedule 13D, Amendment No. 4, dated January 27, 1995, filed by DM Associates Limited Partnership, New DM Management Associates I, New DM Management Associates II, Charles Nirenberg, Robert B. Stein, Jr., Gregory G. Landry, Mitchell J. Kupperman and Frank Colaccino. (27) Financial Data Schedule is filed as Exhibit 27 attached hereto. (b) REPORTS ON FORM 8-K: On August 28, 1995, the Company filed a Current Report on Form 8-K with the Securities and Exchange Commission (the "SEC") in which the Company reported certain matters related to litigation commenced by Charles Nirenberg and Mitchell J. Kupperman against the Company and the Company's other directors in the Delaware Chancery Court. On September 29, 1995, the Company filed a Current Report on Form 8-K with the SEC in which the Company reported that it had received notices from holders of a majority of the outstanding principal amount of its 10 1/4% Senior Subordinated Notes due 2004, stating that such holders believed a change of control of the Company and a consequent event of default had occurred under the indenture governing such Notes. On October 31, 1995, the Company filed a Current Report on Form 8-K with the SEC in which the Company reported that the Company, Charles Nirenberg, the former Chairman of the Board of Directors and a Director of the Company, and certain other parties executed Agreements settling certain disputes and litigation between the parties. No financial statements were filed with any of the Current Reports. SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DAIRY MART CONVENIENCE STORES, INC. Date: December 12, 1995 /s/ Gregory G. Landry --------------------------------------------- Gregory G. Landry Executive Vice President Chief Financial Officer EXHIBIT INDEX Exhibit Number: - -------------- (4.1) Amended and Restated Indenture, dated as of December 1, 1995, by and among the Company, Certain Subsidiaries of the Company, as Guarantors, and First Bank National Association, as Trustee, is filed as Exhibit 4.1 attached hereto. (10.1) Note Purchase Agreement, dated as of December 1, 1995, between the Company and the Purchasers Listed in the Schedule of Purchasers therein, relating to 10-1/4% Senior Subordinated Notes (Series B) due March 15, 2004, is filed as Exhibit 10-1 attached hereto. (10.2) Form of Stock Purchase Warrant to Subscribe for and Purchase Shares of Class A Common Stock of the Company (Initially Exercisable for an Aggregate of 1,215,000 Shares of Class A Common Stock) is filed as Exhibit 10.2 attached hereto. (10.3) Form of Stock Purchase Warrant to Subscribe for and Purchase Shares of Class A Common Stock of the Company (Initially Exercisable for an Aggregate of 500,000 Shares of Class A Common Stock) is filed as Exhibit 10.3 attached hereto. (10.4) Registration Rights Agreement, dated December 1, 1995, by and among the Company and the Holders of (iii) 10-1/4% Senior Subordinated Notes (Series B) of the Company, due March 15, 2004, and (iv) Warrants to Purchase 1,715,000 shares of Class A Common Stock, par value $.01 per share, of the Company is filed as Exhibit 10.4 attached hereto. (10.5) Credit Agreement, dated as of February 25, 1994, Amending and Restating the Credit Agreement, dated as of February 25, 1994, as Amended to Date, by and among the Company, Society National Bank, the Banks and Other Financial Institutions Listed on Schedule I therein, and Society National Bank, as Successor Trustee, is filed as Exhibit 10.5 attached hereto. (10.6) Modification Agreement, dated as of December 1, 1995, by and among the Company, Charles Nirenberg, FCN Properties Corporation, The Nirenberg Foundation, Inc., formerly known as The Nirenberg Family Charitable Foundation, Inc., Robert B. Stein, Jr., and Gregory G. Landry is filed as Exhibit 10.6 attached hereto. (10.7) Amended and Restated Letter Agreement, dated December 1, 1995, to Mitchell J. Kupperman from the Company, Robert B. Stein, Jr., and Gregory G. Landry is filed as Exhibit 10.7 attached hereto. (10.8) DM Associates Limited Partnership Agreement, dated March 12, 1992. Incorporated herein by reference to Exhibit E of the Schedule 13D, dated March 12, 1992, filed by DM Associates Limited Partnership, DM Management Associates and Frank Colaccino. (10.9) First Amendment to Partnership Agreement of DM Associates Limited Partnership, dated as of September 8, 1994. Incorporated herein by reference to Exhibit F of the Schedule 13D, Amendment No. 4, dated January 27, 1995, filed by DM Associates Limited Partnership, New DM Management Associates I, New DM Management Associates II, Charles Nirenberg, Robert B. Stein, Jr., Gregory G. Landry, Mitchell J. Kupperman and Frank Colaccino. (10.10) First Amendment to Partnership Agreement of New DM Management Associates I, dated as of December 1, 1995, between Robert B. Stein, Jr., Gregory G. Landry and Mitchell J. Kupperman is filed as Exhibit 10.10 attached hereto. (10.11) Partnership Agreement of New DM Management Associates I, dated as of September 8, 1994. Incorporated herein by reference to Exhibit G of the Schedule 13D, Amendment No. 4, dated January 27, 1995, filed by DM Associates Limited Partnership, New DM Management Associates I, New DM Management Associates II, Charles Nirenberg, Robert B. Stein, Jr., Gregory G. Landry, Mitchell J. Kupperman and Frank Colaccino. (27) Financial Data Schedule is filed as Exhibit 27 attached hereto. EX-4.1 2 AMENDED AND RESTATED INDENTURE 12/1/95 Exhibit 4.1 ________________________________________________________________________________ AMENDED AND RESTATED INDENTURE Dated as of December 1, 1995 by and among DAIRY MART CONVENIENCE STORES, INC. AND ITS SUBSIDIARIES EXECUTING A SIGNATURE PAGE HERETO, as Guarantors AND FIRST BANK NATIONAL ASSOCIATION as Trustee $75,000,000 aggregate principal amount of 10 1/4% Senior Subordinated Notes due 2004 $13,500,000 aggregate principal amount of 10-1/4% Senior Subordinated Notes (Series B) due 2004 ________________________________________________________________________________ CROSS REFERENCE TABLE/1/
TIA Indenture SECTION Section 310 (a)(1)........................................................... 8.10 (a)(2)........................................................... 8.10 (a)(3)........................................................... N.A./2/ (a)(4)........................................................... N.A. (b) ........................................................... 8.10 (c) ........................................................... N.A. 311 (a) ........................................................... 8.11 (b) ........................................................... 8.11 (c) ........................................................... N.A. 312 (a) ........................................................... 3.6 (b) ........................................................... 13.2 (c) ........................................................... 13.2 313 (a) ........................................................... 8.6 (b)(1)........................................................... N.A. (b)(2)........................................................... 8.6 (c) ........................................................... 13.1 (d) ........................................................... 8.6 314 (a) ........................................................... 5.2 (c)(1)........................................................... 1.6 (c)(2)........................................................... 1.6 (c)(3)........................................................... N.A. (e) ........................................................... 1.6 (f) ........................................................... 5.3 315 (a) ........................................................... 8.1 (b) ........................................................... 8.5 (c) ........................................................... 8.1 (e) ........................................................... 7.11 316 (a)(1)(A)........................................................ 7.5 (a)(1)(B)........................................................ 7.4 (a)(2)........................................................... N.A. (b) ........................................................... 7.7 317 (a)(1)........................................................... 7.8 (a)(2)........................................................... 7.9 (b) ........................................................... 3.5
____________________ 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. TABLE OF CONTENTS/3/
Page ARTICLE I DEFINITIONS AND INCORPORATION BY REFERENCE........................................ 2 SECTION 1.1. Definitions................................. 2 SECTION 1.2. Other Definitions........................... 26 SECTION 1.3. Incorporation by Reference of Trust Indenture Act............................... 26 SECTION 1.4. Rules of Construction....................... 27 SECTION 1.5. Acts of Holders............................. 28 SECTION 1.6. Compliance Certificates and Opinions29 SECTION 1.7. Form of Documents Delivered to Trustee..................................... 30 SECTION 1.8. Notices, etc., to Trustee and Company..................................... 31 SECTION 1.9. Notice to Holders; Waiver................... 31 SECTION 1.10. Effect of Headings and Table of Contents.................................... 32 SECTION 1.11. Successors and Assigns...................... 32 SECTION 1.12. Separability Clause......................... 32 SECTION 1.13. Benefits of Indenture....................... 32 SECTION 1.14. GOVERNING LAW............................... 32 SECTION 1.15. Legal Holidays.............................. 33 ARTICLE II SECURITY FORMS................................... 33 SECTION 2.1. Forms of Securities......................... 33 SECTION 2.2. Form of Trustee's Certificate of Authentication.............................. 34 SECTION 2.3. Forms of Securities Upon Increase in Interest Rate............................ 34 ARTICLE III THE SECURITIES................................... 34 SECTION 3.1. Title and Terms............................. 34 SECTION 3.2. Denominations............................... 34 SECTION 3.3. Execution and Authentication................ 34 SECTION 3.4. Securities Registrar and Paying Agent....................................... 36 SECTION 3.5. Paying Agent to Hold Money in Trust....................................... 36 SECTION 3.6. Securityholder Lists........................ 37 SECTION 3.7. Transfer and Exchange....................... 37
___________________ 3 This Table of Contents shall not, for any purpose, be deemed to be part of this Indenture. PAGE ---- SECTION 3.8. Replacement Securities...................... 39 SECTION 3.9. Outstanding Securities; Determinations of Holders' Action........... 40 SECTION 3.10. Temporary Securities........................ 40 SECTION 3.11. Cancellation................................ 41 SECTION 3.12. CUSIP Numbers............................... 42 SECTION 3.13. Defaulted Interest.......................... 42 SECTION 3.14. Increase in Interest Rate................... 42 ARTICLE IV REDEMPTION AND REPURCHASE........................ 43 SECTION 4.1. Right to Redeem; Notices to Trustee..................................... 43 SECTION 4.2. Public Equity Offering Redemption........... 43 SECTION 4.3. Selection of Securities to Be Redeemed.................................... 44 SECTION 4.4. Notice of Redemption........................ 44 SECTION 4.5. Effect of Notice of Redemption.............. 45 SECTION 4.6. Deposit of Redemption Price................. 46 SECTION 4.7. Securities Redeemed in Part................. 46 SECTION 4.8. Offer to Repurchase Upon Change of Control..................................... 46 SECTION 4.9. Offer to Repurchase With Net Cash Proceeds from Certain Asset Dispositions................................ 48 ARTICLE V COVENANTS........................................ 51 SECTION 5.1. Payment of Securities....................... 51 SECTION 5.2. Commission Reports.......................... 51 SECTION 5.3. Compliance Certificates..................... 52 SECTION 5.4. Further Instruments and Acts................ 53 SECTION 5.5. Maintenance of Office or Agency............. 53 SECTION 5.6. Limitation on Additional Indebtedness and New Operating Leases...................................... 54 SECTION 5.7. Limitation on Restricted Payments........... 55 SECTION 5.8. Limitation on Investments................... 56 SECTION 5.9. Limitation on Liens......................... 57 SECTION 5.10. Limitation on Dividends and Other Payment Restrictions Affecting Subsidiaries................................ 57 SECTION 5.11. Limitation on Sale-Leaseback Transactions................................ 58 SECTION 5.12. Limitation on Transactions with Affiliates.................................. 58 SECTION 5.13. Limitation on Other Senior Subordinated Indebtedness................... 59 SECTION 5.14. Additional Guarantors....................... 59 SECTION 5.15. Use of Proceeds............................. 60 SECTION 5.16. Limitation on Sales of Assets............... 60
ii Page ---- SECTION 5.17. Payment of Taxes and Other Claims........... 62 SECTION 5.18. Corporate Existence......................... 62 SECTION 5.19. Maintenance of Properties and Insurance................................... 63 SECTION 5.20. Conflicting Agreements...................... 63 SECTION 5.21. Investment Company Act...................... 64 SECTION 5.22. Payments for Consents....................... 64 SECTION 5.23. Covenant to Comply with Securities Laws Upon Purchase of Securities............ 64 SECTION 5.24. Covenant on Issuance of Class B Common Stock of the Company................. 64 ARTICLE VI SUCCESSOR CORPORATION............................ 64 SECTION 6.1. When the Company or any Guarantor May Merge, Etc.............................. 64 ARTICLE VII DEFAULTS AND REMEDIES............................ 66 SECTION 7.1. Events of Default........................... 66 SECTION 7.2. Acceleration................................ 68 SECTION 7.3. Other Remedies.............................. 69 SECTION 7.4. Waiver of Past Default...................... 69 SECTION 7.5. Control by Majority......................... 70 SECTION 7.6. Limitation on Suits......................... 70 SECTION 7.7. Rights of Holders to Receive Payment..................................... 71 SECTION 7.8. Collection Suit by Trustee.................. 71 SECTION 7.9. Trustee May File Proofs of Claim............ 71 SECTION 7.10. Priorities.................................. 72 SECTION 7.11. Undertaking for Costs....................... 72 SECTION 7.12. Waiver of Stay, Extension or Usury Laws..... 73 ARTICLE VIII TRUSTEE.......................................... 73 SECTION 8.1. Duties of Trustee........................... 73 SECTION 8.2. Rights of Trustee........................... 75 SECTION 8.3. Individual Rights of Trustee................ 75 SECTION 8.4. Trustee's Disclaimer........................ 75 SECTION 8.5. Notice of Defaults.......................... 76 SECTION 8.6. Reports by Trustee to Holders............... 76 SECTION 8.7. Compensation and Indemnity.................. 76 SECTION 8.9. Successor Trustee by Merger................. 79 SECTION 8.10. Eligibility; Disqualification............... 79 SECTION 8.11. Preferential Collection of Claims Against the Company......................... 79 SECTION 8.12. Trustee May Deal in Securities.............. 79
iii Page ---- ARTICLE IX SATISFACTION AND DISCHARGE OF INDENTURE; DEFEASANCE OF CERTAIN OBLIGATIONS; UNCLAIMED MONEYS................................. 80 SECTION 9.1. Satisfaction and Discharge of Indenture................................... 80 SECTION 9.2. Application by Trustee of Funds Deposited for Payment of Securities.................................. 85 SECTION 9.3. Return of Moneys Held by Paying Agent....................................... 85 SECTION 9.4. Return of Moneys Held by Trustee and Paying Agent Unclaimed for Three Years................................. 85 ARTICLE X AMENDMENTS....................................... 86 SECTION 10.1. Without Consent of Holders.................. 86 SECTION 10.2. With Consent of Holders..................... 86 SECTION 10.3. Compliance with Trust Indenture Act......................................... 89 SECTION 10.4. Revocation and Effect of Consents, Waivers and Actions......................... 89 SECTION 10.5. Notation on or Exchange of Securities.................................. 89 SECTION 10.6. Trustee to Sign Supplemental Indentures.................................. 90 SECTION 10.7. Effect of Supplemental Indentures........... 90 ARTICLE XI SUBORDINATION.................................... 90 SECTION 11.1. Securities Subordinated to Company Senior Indebtedness......................... 90 SECTION 11.2. Priority and Payment Over of Proceeds in Certain Events.................. 90 SECTION 11.3. Payments to Be Made Prior to Dissolution................................. 93 SECTION 11.4. Rights of Holders of Company Senior Indebtedness Not to Be Impaired............. 93 SECTION 11.5. Authorization to Trustee to Take Action to Effectuate Subordination.......... 94 SECTION 11.6. Subrogation................................. 94 SECTION 11.7. Obligations of Company Unconditional............................... 95 SECTION 11.8. Trustee Entitled to Assume Payments Not Prohibited in Absence of Notice...................................... 95 SECTION 11.9. Right of Trustee to Hold Company Senior Indebtedness......................... 96
iv Page ---- ARTICLE XII GUARANTEE OF SECURITIES.......................... 96 SECTION 12.1. Guarantees.................................. 96 SECTION 12.2. Agreement to Subordinate.................... 99 SECTION 12.3. Release of Guarantor........................ 99 SECTION 12.4. May Consolidate, etc., on Certain Terms...................................... 100 SECTION 12.5. Limitation on Guarantee.................... 100 SECTION 12.6. Execution and Delivery of Guarantees................................. 101 SECTION 12.7. Successors................................. 102 SECTION 12.8. Waiver of Subrogation...................... 102 ARTICLE XIII MISCELLANEOUS................................... 103 SECTION 13.1. Notices.................................... 103 SECTION 13.2. Communication by Holders with Other Holders.................................... 104 SECTION 13.3. Rules by Trustee, Paying Agent and Securities Registrar....................... 104 SECTION 13.4. Multiple of Originals...................... 104
v AMENDED AND RESTATED INDENTURE, dated as of December 1, 1995, 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 FIRST BANK NATIONAL ASSOCIATION, as trustee (the "Trustee"). ------- RECITALS OF THE COMPANY AND THE GUARANTORS WHEREAS, the Company, the Guarantors and Society National Bank, as trustee (the "Original Indenture Trustee") entered into the Indenture, dated as ------------------------------- of March 3, 1994 (as supplemented, the "Original Indenture"), providing for the ------------------ issue and sale of $75,000,000 aggregate principal amount of the 10-1/4% Senior Subordinated Notes of the Company, due March 15, 2004 (the "Series A Notes"); -------------- WHEREAS, the Original Indenture Trustee was removed as Indenture Trustee under the Original Indenture, First Bank National Association, was appointed a successor Trustee under the Original Indenture; WHEREAS, the Company desires to amend certain provisions of the Original Indenture to provide for the taking of certain action, including, without limitation, (i) the issue and sale of a second series of 10-1/4% Senior - Subordinated Notes of the Company, due March 15, 2004 (the "Series B Notes"), on -------------- the same terms and with the same conditions as the Series A Notes, including, without limitation, guarantees by the Guarantors, and to provide therefor the Company and each of the Guarantors have duly authorized the execution and delivery of this Agreement, (ii) the amendment of certain covenants and -- provisions to permit the purchase by the Company of certain interests of Mr. Charles Nirenberg and his affiliates, and (iii) the revision of certain other --- provisions of the Original Indenture; WHEREAS, pursuant to an agreement dated the date hereof (the "Consent ------- Agreement"), the Company and the holders of a majority in aggregate principal - --------- amount of the Series A Notes outstanding have agreed to the amendments to the Original Indenture set forth herein, and the Company has agreed to pay a fee to all Holders of the Series A Notes as of the date hereof, in accordance with the terms of the Consent Agreement; WHEREAS, the parties desire by this Indenture, among other things, (i) to amend and restate in its entirety the Original Indenture, (ii) to provide for the issuance by the Company of the Series B Notes, and (iii) to provide for the endorsement of guarantees by the Guarantors on the Series B Notes; WHEREAS, all things necessary to make this Indenture the legal, valid and binding obligation of the Company, the Guarantors and Trustee, for the uses and purposes herein set forth, in accordance with its terms, have been done and performed and have happened; This Indenture is subject to the provisions of the Trust Indenture Act of 1939, as amended, that are required to be part of this Indenture and shall, to the extent applicable, be governed by such provisions. All things necessary have been done to make the Securities and each of the Guarantees (each 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 Agreement a valid agreement of the Company and each Guarantor, in each case in accordance with their and its terms. NOW, THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the premises and the purchase of the Securities by the Holders thereof, it is mutually covenanted and agreed, for the equal and pro portionate benefit of all Holders (as defined in Section 1.1) of the Securities, as follows: ARTICLE I DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.1. Definitions. ----------- For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires: (1) the terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular; 2 (2) all other terms used herein which are defined in the Trust Indenture Act, either directly or by ref erence therein, have the meanings assigned to them therein; (3) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles as in effect from time to time; and (4) the words "herein", "hereof" and "hereunder" and other words of ------ ------ --------- similar import refer to this Inden ture as a whole and not to any particular Article, Section or other subdivision. "Acquired Indebtedness" means Indebtedness of a Person existing at the --------------------- time such Person becomes a Subsidiary (or at the time 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 at the time 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 of the Series A Notes 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. "Additional Guarantor" shall have the meaning set forth in Section -------------------- 5.14. "Affiliate" of any specified Person means any other Person directly or --------- indirectly controlling or con trolled 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 specified 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 bene ficially owning 30% or more of the voting power of the Voting Stock of a corporation will be presumed to control 3 such corporation unless another Person beneficially owns more Voting Stock than such specified Person beneficially owns and such other Person has actual control. Not withstanding 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, sub lease, 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 direc tors' qualifying shares and the Shares issuable in connection with the exercise of the Warrants), 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, Sale-Leaseback or other 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 deter mination, with respect ------------ to any Indebtedness, the quotient obtained by dividing (i) the sum of the - products of (x) the numbers of years from the date of determination to the dates - of each successive scheduled principal payment of such 4 Indebtedness multiplied by (y) 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. "Board of Directors" means the Board of Directors of the Company or ------------------ any committee thereof duly authorized to act on behalf of such Board. "Board Resolution" means a copy of a resolution of the Board of ---------------- Directors, certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of the certificate, and delivered to the Trustee. "Business Day", means any day that is not a Saturday, Sunday or a day ------------ on which the principal office of the Trustee or banking institutions in New York are autho rized or obligated by law, regulation or executive order 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 with out payment of a penalty. "Capital Stock" in any Person means any and all shares, interests, ------------- participations or other equivalents in the equity interest (however designated) in such Person and any rights (other than debt securities convertible into an equity interest), warrants or options to acquire an equity interest in such Person. 5 "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) 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 or replacement directors whose election by such Board of Directors or whose nomination for election by the shareholders of the Company was approved by a vote of a majority of the directors of the Company then still in office who either were directors at the beginning of such period or whose election or nomination for election was previously so approved by a majority of the directors at the beginning of such period) 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 - ---- sub stantially 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 per mitted by this Indenture; (iv) any acceleration of any Indebtedness under -- the New Credit Agreement occurs as a result of a change in the beneficial ownership of the Capi tal Stock of the Company; or (v) the Company consolidates - with or merges into another corporation or any Person con solidates with or merges into the Company, in either event pursuant to a transaction in which either (A) the out standing 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 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 im mediately prior to such transaction own, directly or in directly, less than a majority of the voting power of the Voting Stock of the surviving corporation immediately after such transaction; provided that, in respect of clause (i) of this definition, prior -------- to September 13, 1997, none of DM Associates, any of its general partners or any of the general partners of such general partners shall be deemed to be a "group" or "person" owning more than 50% of the total voting power of the Voting Stock of the Company solely due to such entity's beneficial ownership, of the 1,858,743 shares of Class B Common Stock of the Company held by DM Associates Limited Partnership. 6 "Code" means the Internal Revenue Code of 1986, as from time to time ---- amended. "Commission" means the Securities and Exchange Commission, as from ---------- time to time constituted, created under the Securities Exchange Act of 1934, as amended, or, if at any time after the execution of this Indenture such Commis sion is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body perform ing such duties at such time. "Company" means the party named as the Company in the first paragraph ------- of this Indenture until a successor corporation shall have become such pursuant to the appli cable provisions of this Indenture, and thereafter means such successor. "Company Order" means a written order signed in the name of the ------------- Company by two Officers, one of whom must be the Chairman of the Board, the President, the Chief Executive Officer, the Chief Financial Officer or the Treasurer of the Company. "Company Senior Indebtedness" means all In debtedness of the Company --------------------------- under: (i) the New Credit Agree ment as in effect on the Issue Date of the - Series A Notes; 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 (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 7 basis, of (i) the sum of Consolidated Net Income, Con solidated Fixed Charges - and Consolidated Tax Expense, plus depreciation, and without duplication, all amortization, in each case, for such period, of the Company and its sub sidiaries (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 re volving 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 op posite the caption "interest expense" or any like caption on an income statement for the Company and its subsidiaries (other than the Non- 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 the result of (A) one minus (B) the sum of 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, 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) - 8 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 a 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 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 9 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 cumulative effect of a change in accounting principles; (ix) all non- ---- -- recurring expenses up to ten million dollars ($10,000,000) arising from the Nirenberg Transaction; and (x) expenses resulting from the write-off of goodwill - and other intangible assets (as they are generally recognized under GAAP) in respect of the period commencing on the Issue Date of the Series B Notes and ending on February 3, 1996. "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 Subsidiaries" of any Person means all other Persons that ------------------------- would be accounted for as con solidated Persons in such Person's financial statements in accordance with GAAP. "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 sub sidiaries (other than the Non-Recourse Subsidiary) on a consolidated basis to the extent such income or profits (or 10 losses) were included in computing Consolidated Net Income of the Company for such period. "Control" means (except as otherwise specifically provided herein) the ------- possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of Voting Stock, by agreement or otherwise; and the terms "Controlling" and "Controlled" have meanings correlative to the foregoing. "Corporate Trust Office" means the principal office of the Trustee at ---------------------- which at any particular time its corporate trust business shall be administered. "Default" means any event or condition which is, or after notice or ------- passage of time, or both, would become, an Event of Default. "DM Associates" means DM Associates Limited Partnership, a Connecticut ------------- limited partnership, as such limited partnership is organized under the DM Associates Limited Partnership Agreement. "Dollar" means the currency of the United States as at the time of ------ payment is legal tender for the payment of public and private debts. "Event of Default" has the meaning specified in Section 7.1. ---------------- "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 Exchange able Stock nor redeemable stock). "Existing Indebtedness" means Indebtedness of the Company and each --------------------- Subsidiary in existence on the Issue Date of the Series A Notes. "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. 11 "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 or dinary course of business in connection with the franchising of the Company's convenience retail stores. "GAAP" means generally accepted accounting prin ciples set forth in ---- the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pro nouncements 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 pro fession of the United States, which are applicable as of the date of determination; provided, however, that these defini tions and all ratios -------- ------- and calculations contained in the covenants set forth in Sections 5.6, 5.7, 5.11 and 5.16 shall be determined in accordance with GAAP as in effect and applied by the Company on the Issue Date of the Series A Notes, 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 of the Series A Notes and/or the Issue Date of the Series B Notes and any Additional Guarantor, and any successors to or delegates of any of the foregoing. "Guarantor Senior Indebtedness" has the meaning set forth in Section ----------------------------- 12.2 hereof. "Guarantor Subordinated Indebtedness" means, with respect to a ----------------------------------- specified Guarantor, any Indebtedness of such Guarantor (whether outstanding on the Issue Date of the Series A Notes or thereafter Incurred) which is subordinated or junior in right of payment to the Guarantee of such Guarantor. "Holder" or "Securityholder" means a Person in whose name a Security ------ -------------- is registered on the Security Regis ter. For purposes of Article 7 hereof, the term "Securityholder" or "Holder" shall be interpreted to mean also the -------------- ------ corresponding Beneficial Owner(s) of the Securities. 12 "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 it is amended and restated as of --------- the date hereof and as further amended or supplemented from time to time in accordance with the terms hereof, including the provisions of the Trust Indenture Act that are deemed to be a part hereof. "Initial Purchasers" means the entities listed on the Schedule of ------------------ Purchasers to the Note and Warrant Purchase Agreements, dated the date hereof and providing for the issuance of the Series B Notes. "Interest Payment Date", when used with respect to any Security, means --------------------- the Stated Maturity of an installment of interest on such security. "Interest Rate Agreement" of any Person means any arrangement with any ----------------------- other Person whereby, directly or indirectly, such Person is entitled to receive from time to time periodic payments calculated by applying either a floating or fixed rate of interest on a notional amount in exchange for periodic payments made by such Person calcu lated by applying a fixed or floating rate of interest on the same notional amount and shall include, without limi tation, any interest rate swap agreement, interest rate cap, floor or collar agreement, option or futures contract or other similar agreements. "Investment" means, as to any investing Person, any direct or indirect ---------- advance, loan (other than extensions of trade credit on commercially reasonable terms in the ordinary course of business that are recorded as accounts receivable on the balance sheet of such Person or any of its Subsidiaries in accordance with GAAP) or other extension of credit, guarantee or capital contribution to, or any ac quisition by such Person of any Capital Stock, bonds, notes, debentures or other securities or evidences of Indebtedness issued by any other Person. In determining the amount of any Investment involving a transfer of property, such property shall be valued at its fair market value at the time of such transfer, and such fair market value shall be determined in good faith by the Board of Directors of the investing Person, whose determination in such regard shall be conclusive. "Issue Date" means, in the case of the Series A Notes, March 3, 1994, ---------- and, in the case of the Series B Notes, the date on which the Series B Notes are or were originally issued. 14 "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, without limitation, any Capital Lease Obli gations in the nature thereof, 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) or other en cumbrance of any kind or description, including, without limitation, any agreement to give or grant any of the fore going. "Maturity" when used with respect to any Security means the date on -------- which the principal of such Security becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, call for redemption or otherwise. "Net Available Cash Proceeds" from an Asset Dis position means cash --------------------------- payments received (including any cash payments received by way of deferred payment of principal pursuant to a Security or installment receivable or other wise, 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 re lating 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 lia bility under GAAP, as a consequence of such Asset Dis position, 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 15 required to be accrued as a liability under GAAP as a con sequence of, and in connection with, such transaction. "New Credit Agreement" means the Credit Agreement dated as of February -------------------- 25, 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 there under on the date of execution thereof. The term New Credit Agreement shall include all agreements executed in con nection 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) fol lowing the Issue Date of the Series A Notes 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. "Nirenberg Agreement" means that certain agreement, dated as of ------------------- October 30, 1995, by and among the Company, Charles Nirenberg ("Nirenberg"), FCN --------- Properties Corporation, a Connecticut corporation ("FCN"), and The Nirenberg --- Family Charitable Foundation, Inc., a Connecticut corporation (the "Foundation"), as amended through the date of this Indenture. ---------- "Nirenberg Transaction" means the purchase by the Company, pursuant to --------------------- and upon the terms set forth in that certain agreement, dated as of October 30, 1995, by and among Nirenberg, FCN, the Foundation and the Company, as amended through the date hereof, (i) all right, title and interest in and to the limited partner interests of Nirenberg and the Foundation in DM Associates; (ii) all right, title and interest in and ownership by FCN of the 9% Secured Promissory Note, dated March 12, 1992 (the "CDA Note"), in the principal amount of -------- $7,100,000 made by DM 16 Associates in favor of the Connecticut Development Authority (the "CDA") and --- subsequently assigned by the CDA to FCN on or about September 30, 1994, and FCN's right, title and interest in 1,220,000 shares of the Class B common stock, par value $.01 per share, of the Company pledged by DM Associates as security for the payment of the CDA Note pursuant to a Stock Pledge Agreement, dated March 12, 1992 (the "CDA Pledge Agreement"), between DM Associates and CDA, and -------------------- subsequently assigned by CDA to FCN on or about September 30, 1994 and all of FCN's rights pursuant to the CDA Pledge Agreement and any other agreement executed by DM Associates in favor of the CDA in connection with the CDA Note and/or the loan evidenced thereby; (iii) all right, title and interest of Nirenberg, FCN and the Foundation pursuant to the agreements, instruments and letters dated January 25, 1995 and entered into by such parties with the Company and/or the other limited partners of DM Associates and the other general partners of New DM Management Associates I, a Connecticut general partnership, and new DM Management Associates II, a Connecticut general partnership, in connection with the reconstitution of DM Associates and its general partners; and (iv) the issuance by the Company of its Series B Notes in the aggregate principal amount of $13,500,000 and the performance of its other obligations pursuant to those certain Note and Warrant Purchase Agreements, dated of even date herewith, among the Company, the the Persons listed in the Schedule of Purchasers thereto. "Non-Convertible Capital Stock" means, with re spect to any ----------------------------- corporation, any nonconvertible Capital Stock of such corporation and any Capital Stock of such cor poration convertible solely into nonconvertible common stock of such corporation which is not redeemable stock or Ex changeable Stock; provided, however, that Non-Convertible Capital Stock does not include -------- ------- any redeemable stock or Exchangeable Stock. "Non-Recourse Subsidiary" means FINOP, provided, however, 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 Sub sidiary, directly or indirectly, contingently or otherwise, to satisfaction thereof, 17 (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; (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 acti vities 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 Sub sidiary and does not otherwise commingle its funds or any other properties or assets with those of the Company or any Subsidiary; (f) from and after the 90th day following the Issue Date of the Series A Notes, 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 issu ance 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 re quirements 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, 18 it is properly characterized as such in accordance with the definition of "Subsidiary" set forth below. "Note and Warrant Purchase Agreements" means the several Note and ------------------------------------ Warrant Purchase Agreements, dated the Issue Date of the Series B Notes, by and between the Company and the several purchasers listed on the Schedule of Purchasers thereto, providing for the sale of the Series B Notes and the Purchase Warrants to such purchasers. "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 Secre tary of such corporation. "Officers' Certificate" means a written certi ficate containing the --------------------- information specified in Section 1.6 hereof, 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 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 pre pared in accordance with GAAP. "Opinion of Counsel" means a written opinion containing the ------------------ information specified in Section 1.6 hereof, rendered by legal counsel who is reasonably acceptable to the Trustee. "Original Indenture" has the meaning specified in the Recitals above. ------------------ "Original Indenture Trustee" has the meaning specified in the Recitals -------------------------- above. "Paying Agent" means the Trustee or any Person authorized by the ------------ Company to pay the principal of or interest on any Securities on behalf of the Company. "Permitted Indebtedness" means (i) Indebtedness incurred by the ---------------------- - Company under the New Credit Agreement as in effect on the Issue Date of the Series A Notes, provided that such amount shall be permanently reduced by (x) -------- the 19 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 second proviso set forth in Section 5.16 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; (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 Re financing Indebtedness (a) does not exceed the principal or - accredited 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 per mitted under - Section 5.7 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 Com pany's or any Subsidiary's convenience retail stores for the purpose of financing costs of equipment, leasehold im provements and/or inventory for such stores pursuant to a Franchise Agreement, provided that the aggregate liability in respect of all such Indebtedness shall not exceed $5.0 million at any one time under this clause (vii); (viii) Capitalized Lease Obligations of the Company or any Sub ---- sidiary 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; (x) Indebtedness not otherwise permitted in an - aggregate principal amount not in excess of $7.5 million at any one time outstanding; or (xi) Indebtedness corresponding to the issuance of the Series B Notes. 20 "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 Al and/or Pl 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 Per son, (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 In debtedness), utility services or leases to which such Person is a party, or deposits to secure public, regulatory or statutory obligations of such Person or deposits of cash or U.S. Government Obligations 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 busi ness; (ii) Liens arising by operation of law, such as carriers', -- warehousemen's, mechanics' and bankers' Liens and, in each case, incurred in the ordinary course of such Person's business and with respect to amounts not yet due or being contested in good faith by appropriate legal pro ceedings promptly instituted and diligently conducted and for which a reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made; (iii) Liens arising out of judgments or awards against such Person not --- giving rise to an Event of Default under Section 7.1(8) with respect to which such Person shall then be diligently prosecuting appeal or other proceedings for review; (iv) Liens for taxes not yet subject to penalties for non-payment or -- which are being contested in good faith and by appropriate legal proceedings promptly instituted and diligently conducted and for which a reserve or other ap propriate provision, if any, as shall be required in con formity with GAAP shall have been made; (v) Liens in favor of issuers of surety bonds or letters - of credit (other than to satisfy any judgment or judgments) issued pursuant to the request of and for the account of such Person in the or dinary course of its business; and (vi) minor survey excep tions, minor 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 prop- 21 erties or Liens which are incidental to the conduct of the business of such Person or to the ownership of its prop erties and which were incurred in the ordinary course of such Person's business and not in connection with In debtedness or other extensions of credit and which do not in the aggregate materially adversely affect the value of the aforementioned properties or materially impair their use in the operation of the business of such Person. "Person" means any individual, corporation, part nership, joint ------ venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity. "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 cen tral data system maintained by the Company certain in formation 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. "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. "Purchase Warrants" means the warrants sold by the Company and ----------------- purchased by the purchasers under the Note and Warrant Purchase Agreements. "Redemption Date" means, with respect to any Security to be redeemed, --------------- the date fixed for such redemption pursuant to this Indenture and such Security. "Redemption Price" means, with respect to any Security to be redeemed, ---------------- the price fixed for such redemption pursuant to this Indenture and such Security. 22 "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 Con solidated Fixed Charge Coverage Ratio. "Refinancing Indebtedness" shall have the meaning assigned to it in ------------------------ the definition of Permitted Indebtedness. "Registrable Securities" has the meaning set forth in the Registration ---------------------- Rights Agreement. "Registration Rights Agreement" means the registration rights ----------------------------- agreement, dated the date hereof, by and among the Company and the holders from time to time of the Series B Notes and the holders from time to time of the Warrants. "Regular Record Date" for the interest payable on any Interest Payment ------------------- Date on the Securities means the date specified for the purposes. "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. "Securities" means the Series A Notes and the Series B Notes. ---------- "Securities of the same Series" or "Security of the same Series" ----------------------------- --------------------------- means, in the case of the Series A Notes, other Series A Notes, and in the case of the Series B Notes, other Series B Notes. "Securities Act" means the Securities Act of 1933, as amended. -------------- 23 "Securities Registrar" or "Registrar" means the Person designated by -------------------- --------- the Company to register Securities and transfers of Securities as provided in this Indenture. "Security Register" means the register which the Company shall cause ----------------- to be kept at the office of the Securities Registrar in which the registration of Securities and transfers of Securities shall be recorded, subject to such reasonable regulations as the Company may prescribe. "Securityholder" or "Holder" means a Person in whose name a Security -------------- ------ is registered on the Security Regis ter. For purposes of Article 7 hereof, the term "Securityholder" or "Holder" shall be interpreted to mean also the corresponding Beneficial Owner(s) of the Securities. "Series A Notes" has the meaning specified in the Recitals above. -------------- "Series B Notes" has the meaning specified in the Recitals above. -------------- "Stated Maturity", when used 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 of the Series A Notes 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. "Trust Indenture Act" or "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 24 the Trust Indenture Act is amended after such date, Trust Indenture Act means, to the extent required by any such amendment, the Trust Indenture Act as so amended. "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 assis tant 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 cor porate 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 Obligation" means, with respect to the Securities of -------------------------- any series, securities which are (i) direct obligations of the United States of - America or (ii) obligations of a Person controlled or supervised by and acting -- as an agency or instrumentality of the United States of America the payment of which is unconditionally guaranteed by the United States of America and which, in either case, are full faith and credit obligations of the United States of America and are not callable or redeemable at the option of the issuer thereof and shall also include a depository receipt issued by a bank (as defined in Section 3(a)(2) of the Securities Act of 1993, as amended) as custodian with respect to any such Government Obligation or a specific payment of interest on or principal of any such Government Obligation held by such custodian for the account of the holder of such depository receipt; provided that (except as -------- required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the Government Obligation or the specific payment of interest on or principal of the Government Obligation evidenced by such depository receipt. "Voting Stock" means, with respect to any Person, securities of any ------------ class or classes of Capital Stock in such 25 Person entitling the holders thereof, under ordinary circumstances and in the absence of contingencies, to vote for members of the Board of Directors of such Person (or Persons performing functions equivalent to those of such members). "Warrants" shall mean (A) the warrants to purchase an aggregate of -------- - 500,000 shares of Class A Common Stock, par value $.01 per share, of the Company, as the same may be adjusted from time to time on the terms therein, distributed to Holders, as shown on the Securities Register, of the Series A Notes on the Issue Date of the Series B Notes, and (B) the Purchase Warrants. - "Wholly Owned Subsidiary" of a Person means any Subsidiary of such ----------------------- Person 100% of the total Voting Stock of which, other than directors' qualifying shares, is at the time owned by such Person and/or one or more other Wholly Owned Subsidiaries of such Person. SECTION 1.2. Other Definitions. -----------------
Term Defined in.Section ---- ------------------ "Acceleration Notice"............................................ 7 2 "Act"............................................................ 1.5 "Bankruptcy Law"................................................. 7.1 "Change of Control Offer"........................................ 4.8 "Change of Control Purchase Date"................................ 4.8 "Custodian"...................................................... 7.1 "Disposition Offer".............................................. 4.9 "Disposition Offer Amount"....................................... 4.9 "Disposition Offer Period"....................................... 4.9 "Disposition Purchase Date"...................................... 4.9 "Excess Proceeds"................................................ 5.16 "Existing Liens"................................................. 5.9 "Guarantor Senior Indebtedness".................................. 12.2 "Legal Holiday".................................................. 1.15 "Notice of Default".............................................. 7.1 "Participating Indebtedness"..................................... 12.5 "Prepayment Blockage Period"..................................... 11.2 "Restricted Payment"............................................. 5.7 "Significant Company Senior Indebtedness"........................ 11.2 "Successor Person"............................................... 6.1
SECTION 1.3. Incorporation by Reference of Trust Indenture Act. ------------------------------------------------- Whenever this indenture refers to a pro vision of the Trust Indenture Act, such provision is incorporated by reference in and made a part of this 26 Indenture. The following Trust Indenture Act terms used in this Indenture have the following meanings: "indenture securities" means the Securities. "indenture security holder" means a Security holder. "indenture to be qualified" means this Indenture. "indenture trustee" or "institutional trustee" means the Trustee. "obligor" on the indenture securities means the Company (or any successor or surviving corporation) and any other obligor on the Securities; such terms shall include the Guarantors if the Company fails to perform its obligations under such Securities. All other Trust Indenture Act terms used in this Indenture that are defined by the Trust Indenture Act, defined by Trust Indenture Act reference to another statute or defined by Commission rule have the meanings assigned to them by such definitions. SECTION 1.4. Rules of Construction. Unless the context otherwise --------------------- requires: (1) A term in this Article has the meaning in this Indenture assigned to it in this Article; (2) except as otherwise set forth in this In denture, an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP in effect on the date of this Indenture; (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", "hereunder" and other words of similar import refer to this In- 27 dentures as a whole and not to any particular Article, Section or other subdivision. SECTION 1.5. 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 by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner which the Trustee deems sufficient. (3) The principal amount and serial numbers of Securities held by any Person, and the date of holding the same, shall be proved by the Security 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. 28 (5) If the Company shall solicit from the Holders any request, demand, authorization, direction, notice, consent, waiver or other Act, the Company may, at 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. Notwithstanding Trust Indenture Act Section 316(c), such record date shall be a date not earlier than the date 30 days prior to the first solicitation of Holders generally in connection therewith and not later than the date such solicitation is completed. 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. SECTION 1.6. Compliance Certificates and Opinions. Upon any ------------------------------------ application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee an Officers' Certificate stating that all conditions precedent, if any, provided for in this Indenture (including any covenant compliance with which constitutes a condition precedent) relating to the proposed action have been complied with and an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent, if any, have been complied with, except that in the case of any such application or request as to which the furnishing of such documents is specifically required by any provision of this Indenture relating to such particular application or request, no additional certificate or opinion need be furnished. Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than pursuant to Section 5.3) shall include: 29 (1) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of each such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with. SECTION 1.7. Form of Documents Delivered to Trustee. In any case -------------------------------------- where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any such certificate or Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company stating that the information with respect to such factual matters is in the possession of the Company, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous. 30 Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. SECTION 1.8. Notices, etc., to Trustee and Company. Any request, ------------------------------------- demand, authorization, direction, notice, consent, waiver or Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with, (1) the Trustee by any Holder or by the Company shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the Trustee at its Corporate Trust Office, Attention: Corporate Trust Administration Division, or (2) the Company by the Trustee or by any Holder shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to the Company addressed to it at the address of its principal office specified in the first paragraph of this Indenture, or at any other address previously furnished in writing to the Trustee by the Company. SECTION 1.9. Notice to Holders; Waiver. ------------------------- Where this Indenture provides for notice of any event to Holders by the Company or the Trustee, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to each Holder affected by such event, at his address as it appears in the Security Register, not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice. In any case where notice to Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders. Any notice mailed to a Holder in the manner herein prescribed shall be conclusively deemed to have been received by such Holder, whether or not such Holder actually receives such notice. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed 31 with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. In case by reason of the suspension of or irregularities in regular mail service or by reason of any other cause, it shall be impracticable to mail notice of any event to Holders when such notice is required to be given pursuant to any provision of this Indenture, then any manner of giving such notice as shall be satisfactory to the Trustee shall be deemed to be a sufficient giving of such notice for every purpose hereunder. SECTION 1.10. Effect of Headings and Table of Contents. The Article ---------------------------------------- and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. SECTION 1.11. Successors and Assigns. All covenants and agreements ---------------------- in this Indenture by the Company shall bind its successors and assigns, whether so expressed or not. SECTION 1.12. Separability 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 1.13. Benefits of Indenture. Nothing in this Indenture or in --------------------- the Securities, express or implied, shall give to any Person, other than the parties hereto, any Paying Agent, any Securities Registrar and their successors hereunder and the Holders, any benefit or any legal or equitable right, remedy or claim under this Indenture. SECTION 1.14. GOVERNING LAW. THIS INDENTURE AND THE SECURITIES SHALL ------------- BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK. This Indenture is subject to the Trust Indenture Act and if any provision hereof limits, qualifies or conflicts with the Trust Indenture Act, the Trust Indenture Act shall control. Whether or not this Indenture is required to be qualified under the Trust Indenture Act, the provisions of the Trust Indenture Act required to be included in an indenture in order for such indenture to be so qualified shall be deemed to be included in this Indenture with the same effect as if such provisions were set forth herein and any provisions hereof which may not be included in an indenture which is so 32 qualified shall be deemed to be deleted or modified to the extent such provisions would be required to be deleted or modified in an indenture so qualified. SECTION 1.15. 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. ARTICLE II SECURITY FORMS -------------- SECTION 2.1. Forms of Securities. The Series A Notes and the Series B ------------------- Notes (in each case together with the notation thereon relating to the Guarantees) shall be, respectively, substantially in the forms of Exhibits A and B 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 Series A Notes and the Series B Notes, annexed hereto as Exhibits A and B, respectively, 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. Each Series B Note will contain the following legend, until the earlier to occur of the time when (i) such Series B Note shall have been - disposed of in accordance with the plan of distribution set forth in an effective Registration Statement with respect to the sale of such security or (ii) such Series B Note shall have been distributed to the public pursuant to -- Rule 144, Rule 144A or any successor provisions promulgated under the Securities Act: THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. 33 ACCORDINGLY, NO TRANSFER OF THIS SECURITY MAY BE MADE IN THE UNITED STATES EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR AN EXEMPTION FROM REGISTRATION THEREUNDER AND IN COMPLIANCE WITH ANY OTHER APPLICABLE SECURITIES LAWS. SECTION 2.2. Form of Trustee's Certificate of Authentication. The ----------------------------------------------- Trustee's certificate of authentication shall be substantially in the form set forth in Exhibits A and B hereto. SECTION 2.3. Forms of Securities Upon Increase in Interest Rate. If -------------------------------------------------- the interest rate payable on the Series B Notes increases and, after such an increase, decreases in accordance with the terms of Section 3.14 hereof, the Company shall, at its own cost and expense, exchange the Series B Notes for new notes, substantially in the form of Exhibit B-1, but showing the interest rate applicable under such Section 3.14. ARTICLE III THE SECURITIES -------------- SECTION 3.1. Title and Terms --------------- The aggregate principal amount of Securities which may be authenticated and delivered under this Indenture is limited to $75,000,000 aggregate principal amount in the case of the Series A Notes and $13,500,000 aggregate principal amount in the case of the Series B Notes. All Securities of the same Series shall be substantially identical except as to denomination and except as may otherwise be provided herein or in or pursuant to such Board Resolution and set forth in such Officers' Certificate setting forth the terms of such series. SECTION 3.2. Denominations. ------------- The Securities shall be issuable only in registered form without coupons and shall be issuable in denominations of $1,000 and any integral multiple thereof, unless otherwise specified as contemplated by Section 3.1. SECTION 3.3. 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 Secre- 34 taries. The signature of any such Officer on the Securities may be manual or facsimile and may be imprinted or otherwise reproduced on the Securities. 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. 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 Series B Notes for original issue in the aggregate principal amount of $13,500,000 upon a Board of Directors' resolution and a Company Order for the authentication and delivery of such Series B Notes, but without any further action by the Company. The Company Order shall specify the amount of the Series B Notes to be authenticated and the date on which the original issue of Series B Notes is to be authenticated and delivered. The aggregate principal amount of Securities outstanding at any time may not exceed $75,000,000 in the case of the Series A Notes or $13,500,000 in the case of the Series B Notes except as provided in Section 3.8 hereof. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities executed by the Company to the Trustee for authentication, together with a Company Order for the authentication and delivery of such Securities, and the Trustee in accordance with such Company Order shall authenticate and deliver such Securities. Each Security shall be dated the date of its authentication. The Trustee shall act as the initial authenticating agent. Thereafter, the Trustee may appoint an 35 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. SECTION 3.4. Securities Registrar and Paying Agent. Securities may be ------------------------------------- presented for registration of transfer or for exchange at the office or agency of the Securities Registrar and Securities may be presented or surrendered for purchase or payment at the office or agency of the Paying Agent. The Company shall also maintain or cause to be maintained 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 Securities Registrar shall keep the Security Register. The Company may have one or more co-Securities 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 Securities Registrar, Paying Agent or co-Securities 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 agent. If the Company fails to maintain a Securities 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 8.7 hereof. The Company or any Subsidiary or an Affiliate of either of them may act as Paying Agent, Securities Registrar or co- Securities Registrar or agent for service of notices and demands. The Company initially appoints the Trustee as Securities Registrar and Paying Agent and agent for service of notices and demands. SECTION 3.5. 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 36 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) until such sums shall be paid to Securityholders or otherwise disposed of as herein provided 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 written 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 for the benefit of the Securityholders. SECTION 3.6. 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 the registered Securityholders and the series of notes held by such registered Securityholders. If the Trustee is not the Securities 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. The Trustee and the Securities Registrar may rely on the accuracy of such list as the same may be amended from time to time. SECTION 3.7. Transfer and Exchange. Securities may be transferred or --------------------- exchanged only on the Securities Register maintained pursuant to Section 3.4. Prior to due presentment of a Security for registration of transfer, the Holder of any Securities, as shown on such Securities Register, shall be deemed the absolute owner thereof for all purposes, and none of the Company, the Trustee, or any agent of the Company or the Trustee shall be affected by any notice to the contrary, and payment of or on account of the principal or interest with respect to such Securities shall be made only to or in accordance with the written order of such Holder or of his attorney duly authorized in writing. 37 All such payments shall satisfy and discharge the liabilities upon such Securities to the extent of the amounts so paid. When Securities are presented to the Securities Registrar or a co-Securities Registrar with a request to register the transfer or to exchange them for an equal principal amount of Securities of other authorized denominations, the Securities Registrar or co- Securities Registrar shall register the transfer or make the exchange as requested if its requirements for such transactions are met, provided that 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 Securities Registrar, duly executed by the Securityholder or his attorney duly authorized in writing. To permit registrations of transfer and exchanges, the Company shall execute and the Trustee shall authenticate Securities and each Guarantor will execute its notation therein relating to its Guarantee thereof, all at the Securities Registrar's request. All Securities issued upon any registration of transfer or exchange of Securities shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Securities surrendered upon such registration of transfer or exchange. 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. The Company shall not be required to make, and the Securities 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 Regular Record - Date and the next succeeding Interest Payment Date. 38 SECTION 3.8. Replacement Securities. If (a) any mutilated Security ---------------------- - is surrendered to 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 the same series and 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 upon Company Order 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 4 hereof, the Company in its discretion may, instead of issuing a new Security of the same series and of like tenor and principal amount, or pay or purchase such Security, as the case may be. Upon the issuance of any new Security under this Section 3.8, the Company may require the payment of a sum sufficient to cover any tax or other 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 3.8 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 3.8 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. 39 SECTION 3.9. Outstanding Securities; Determinations of Holders' -------------------------------------------------- Action. Securities outstanding at any time are all the Securities executed on - ------ behalf of the Company and authenticated by the Trustee except for those cancelled by the Trustee, those delivered to the Trustee for cancellation, those referred to in Section 3.8 hereof, or purchased by the Company pursuant to Article 4 hereof and those described in this Section 3.9 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 7 and 10). If a Security is replaced pursuant to Section 3.8, 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 3.10. 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 Company Order, the Trustee shall 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 Company and the Trustee deem appropriate for temporary Securities. 40 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 3.4 hereof, without charge to the Securityholder. 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 Company Order, 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 rights, benefits and privileges under this Indenture as definitive Securities. SECTION 3.11. Cancellation. All Securities surrendered for payment, ------------ purchase by the Company, redemption by the Company pursuant to Article 4 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 cancelled 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 may deliver to the Trustee (or to any other Person for delivery to the Trustee) for cancellation any Securities previously authenticated hereunder which the Company has not issued and sold, and all Securities so delivered shall be promptly cancelled by the Trustee. If the Company shall so acquire any of the Securities, however, such acquisition shall not operate as a redemption or satisfaction of the indebtedness represented by such Securities unless and until the same are surrendered to the Trustee for cancellation. 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 cancelled as provided in this Section 3.11, except as expressly permitted by this Indenture. All cancelled Securities held by the Trustee shall be destroyed by the Trustee in accordance with its customary procedures and the Trustee shall deliver a certificate of destruction to the Company unless by Company Order the Company shall direct that cancelled Securities be returned to it. 41 SECTION 3.12. 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 other identification numbers printed on the Securities and any redemption shall not be affected by any defect in or omission of such numbers. SECTION 3.13. 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 3.13 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. SECTION 3.14. Increase in Interest Rate. In the event that the ------------------------- Company shall not have filed, within 90 calendar days of the Issue Date of the Series B Notes, one or more shelf registration statements providing for the sale of all of the Registerable Securities by the holders thereof, the interest rate on the Series B Notes shall increase by 75 basis points, per annum, over the interest rate in effect immediately preceding the 90th day after the Issue Date of the Series B Notes, and such increase in interest rate shall remain in effect until the Company shall file shelf registration statement(s) providing for the sale by the holders of all such Registrable Securities. In the event that, within 180 days of the Issue Date of the Series B Notes, any of the Registrable Securities are not subject to one or more shelf registration statements that have been declared and remain effective under the Securities Act, the interest rate on the Series B Notes shall increase by 75 basis points per annum over the interest rate in effect immediately prior to the 180th day after the Issue Date of the Series B Notes, and such increase in the interest rate shall remain in effect until the first Business Day 42 thereafter when all Registrable Securities outstanding are registered under the Securities Act pursuant to one or more shelf registration statements that have been declared effective under the Securities Act. ARTICLE IV REDEMPTION AND REPURCHASE SECTION 4.1. Right to Redeem; Notices to Trustee. Except as provided ----------------------------------- for under Section 4.2 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
The election of the Company to redeem any Securities pursuant to this Section 4.1 shall be evidenced by a Board Resolution. In case of any redemption at the election of the Company, the Company shall, at least 60 days prior to the Redemption Date fixed by the Company (unless a shorter notice shall be satisfactory to the Trustee), notify the Trustee of such Redemption Date and of the principal amount of Securities to be redeemed and shall deliver to the Trustee such documentation and records as shall enable the Trustee to select the Securities to be redeemed pursuant to Section 4.3. SECTION 4.2. Public Equity Offering Redemption. In addition to the --------------------------------- optional redemption of the Securities provided for under Section 4.1 hereof, up to $20.0 million aggregate principal amount of the Securities, allocated between the Series A Notes and the Series B Notes on a pro rata basis in respect of the --- ---- aggregate outstanding principal amount of each such series, 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 -------- ------- 43 redemption pursuant to this Section 4.2 may be effected on or after the third anniversary of the Issue Date of the Series A Notes. The New Credit Agreement may restrict the Company's ability to redeem the Securities as described in Sections 4.1 and 4.2 hereof. SECTION 4.3. Selection of Securities to Be Redeemed. If less than -------------------------------------- all the outstanding Securities are to be redeemed at any time, the Trustee shall allocate the total principal amount of Securities to be redeemed 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 called for redemption. SECTION 4.4. 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 Security Register. A copy of such notice shall be mailed to the Trustee on the same day the notice is mailed to Holders of Securities called for redemption. 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 3.12 hereof); 44 (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; (7) if any Security is being redeemed in part, the portion of the principal amount (equal to $1,000 or any integral multiple thereof) of such Security to be redeemed and that, on or after the Redemption Date, upon surrender of such Security, a new Security or Securities in principal amount equal to the unredeemed portion thereof will be issued; and (8) that, unless the Company defaults in making such redemption payment, interest on the Securities called for redemption will cease to accrue on and after the specified Redemption Date and the only remaining right of the Holders is to receive payment of the Redemption Price upon surrender to the Trustee or the Paying Agent of the Securities. 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 4.5. Effect of Notice of Redemption. Once notice of ------------------------------ redemption is mailed (after the Trustee has received the notice provided for in the last paragraph of Section 4.1), Securities called for redemption become due and payable on the Redemption Date and at the Redemption Price and shall cease to bear interest from and after the Redemption Date (unless the Company shall fail to make payment of the Redemption Price or accrued interest on the Redemption Date). 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 4.6 hereof. 45 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 4.6. Deposit of Redemption Price. Prior to any 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. So long as the Company complies with the preceding paragraph, interest on the Securities to be redeemed on the applicable Redemption Date shall cease to accrue and such Securities or portions thereof shall be deemed not to be entitled to any benefit under this Indenture except to receive payment of the Redemption Price together with interest accrued thereon to the Redemption Date. If any Security called for redemption shall not be so paid upon surrender for redemption because of failure of the Company to comply with the preceding paragraph, interest will be paid from Redemption Date until such principal is paid on the unpaid principal and, to the extent permitted by law, on any interest not paid on such unpaid principal, in each case at the rate provided by the Securities. The Paying Agent shall return to the Company any money not required for that purpose. SECTION 4.7. 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 4.8. 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 46 interest, if any, to the Change of Control Purchase Date (as defined in paragraph (b) of this Section 4.8), in accordance with the procedures set forth in paragraph (b) of this Section 4.8. (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 4.8: (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 on which the Company first has knowledge of the occurrence of a Change of Control) (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 47 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 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 4.9. 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 5.16, 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 5.16 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 48 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, which purchase date if notice is not given within 60 days of the consummation Asset Disposition, shall be deemed to be the 60th day after the Asset Disposition (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. (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 49 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. (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 4.9. A Security shall be deemed to have been accepted for purchase at the time the Trustee, directly or through an 50 agent, mails or delivers payment therefor to the surrendering Holder. ARTICLE V COVENANTS SECTION 5.1. Payment of Securities. The Company covenants and agrees --------------------- for the benefit of the Holders of the Securities that it will 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 5.2. Commission Reports. The Company covenants: ------------------ (a) to file with the Trustee, within 30 days after the Company is required to file the same with the Commission, copies of its annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the Commission may from time to time by rules and regulations prescribe) which the Company may be required to file with the Commission pursuant to section 13 or section 15(d) of the Exchange Act; or, if the Company is not required to file information, documents or reports pursuant to either of such sections, then to file with the Commission and the Trustee, in accordance with the rules and regulations prescribed from time to time by the Commission, such supplementary and periodic information, documents and reports which may be required pursuant to section 13 or section 15(d) of the 51 Exchange Act, in respect of a security listed and registered on a national securities exchange as may be prescribed from time to time in such rules and regulations; (b) to file with the Trustee and the Commission, in accordance with the rules and regulations prescribed from time to time by the Commission, such additional information, documents and reports with respect to compliance by the Company with the conditions and covenants provided for in this Indenture, as may be required from time to time by such rules and regulations; and (c) to transmit to all Holders of Securities, as shown on the Securities Register, within 30 days after the filing thereof with the Trustee, in the manner and to the extent provided in section 313(c) of the Trust Indenture Act, such summaries of information, documents and reports required to be filed by the Company pursuant to subsections (a) and (b) of this Section 5.2, as may be required by rules and regulations prescribed from time to time by the Commission. Delivery of such reports, information and documents to the Trustee is for informational purposes only and the Trustee's receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including information concerning the Company's compliance with any of its covenants hereunder, provided that the foregoing shall not relieve the Trustee of any of its - -------- responsibilities therefor. SECTION 5.3. 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, 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 5.3(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 52 Default or Event of Default, and its status. Such Officers' Certificate need not comply with Section 1.6 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 public 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 generally accepted auditing standards. (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 Trust Indenture Act. SECTION 5.4. Further Instruments and Acts. Upon request of the ---------------------------- Trustee, the Company, each Guarantor and any other obligor on the Securities will execute 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 5.5. 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, Securities Registrar and Paying Agent where 53 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 First Bank National Association, N.A., First Trust Center, 180 East Fifth Street, St. Paul, Minnesota 55101, 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 13.1 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 Trust of any such designation or rescission and of any change in location of any such other office or agency. SECTION 5.6. 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 54 Reference Period (it being understood that, for purposes of determining the Consolidated Fixed Charge Coverage Ratio, New Operating Lease 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 5.7. 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); 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 5.8 hereof) or any other Affiliate of the Company (any such dividend, limitation, 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 5.6 hereof; and (C) such Restricted Payment, together with the aggregate of all other - Restricted Payments made since November 26, 1995, 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 November 26, 1995 to the end of the most recent fiscal quarter ending prior to the date of such 55 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 of the Series A Notes (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 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) of the Series A Notes, subsequent to the Issue Date of the Series A Notes, 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 5.6 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); (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; and (v) any payments made by the Company to FCN, Nirenberg or the Foundation to purchase their respective interests in or relating to the Class B Common Stock of the Company, as outlined in the Nirenberg Transaction. SECTION 5.8. 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 Re- - -- 56 stricted Payment if such Restricted Payment is permitted by Section 5.7; (iii) --- Investments in the Non-Recourse Sub sidiary in an amount not to exceed $2.5 million; and (iv) the Nirenberg Transaction. -- SECTION 5.9. 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 5.6 hereof; (iv) Permitted Liens; (v) -- - Liens incurred in connection with a Sale-Leaseback Transaction permitted under Section 5.11 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 con templation 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 and improvements and construction on such property or assets, an Indebtedness secured by the Lien does not exceed the Indebtedness secured at the time by the Existing Lien. SECTION 5.10. 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 ad vances to the Company -- or any Subsidiary; (iii) guaranty the Securities or any renewals or refinancing --- 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 - 57 law, (2) this Indenture, (3) customary nonassignment pro visions of any lease - - governing a leasehold interest of the Company or any Subsidiary, (4) any - instrument governing Acquired Indebtedness (except to the extent such In debtedness was Incurred in connection with, or in con templation of, such acquisition) as in effect at the time of acquisition, which encumbrance or restriction is not ap plicable 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 re strictive than those contained in the agreements governing the Indebtedness being refinanced, as in effect on the Issue Date of the Series A Notes. SECTION 5.11. Limitation on Sale-Leaseback Trans actions. 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 sat isfied: (i) under the provisions described under Sections 5.6 and 5.9 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 5.12. 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 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 58 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 5.12; 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 aggre gate 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. The provisions of this Section 5.12 shall not apply to the Nirenberg Transaction. SECTION 5.13. Limitation on Other Senior Sub ordinated 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 5.14. 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 (an "Additional Guarantor") to (i) execute and -------------------- - deliver to the Trustee a supplemental indenture in form reasonably satisfactory to the Trustee pursuant to which 59 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 such Subsidiary. Thereafter, such Subsidiary shall be a Guarantor for all purposes of this Indenture. SECTION 5.15. Use of Proceeds. No part of the proceeds of the sale --------------- of the Securities 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 5.16. 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) re ceives 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 $100,000 (except in the case of Asset Dispositions to franchisees in the ordinary course of business), as cer tified 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 Dis position (no certificate being required for sales as to which the consideration is $100,000 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 under performing, non utilized or obsolete assets by the Company, or any Sub sidiary 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 60 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 re lated 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 lines 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 convenience stores, the franchising of convenience stores, and the manu facturing, processing, and distribution businesses currently conducted by the Company will be deemed to qualify as the same or substantially similar lines of business. Not withstanding 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 last sentence of this Section 5.16, any Net Available Cash Proceeds from any such Asset Disposition that are not applied or invested as provided in the pre ceding 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 Cap ital 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 a Disposition Offer (as defined in Section 4.9 hereof) to purchase Securities pursuant to and subject to the conditions of Section 4.9 hereof. Notwithstanding the foregoing, (i) an aggregate of $1.0 - million of Net Available Cash Proceeds received by the Company and/or the Sub sidiaries in any fiscal year from Asset Dispositions, not 61 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 5.16, 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 5.17. 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 has been made or where the failure to effect such payment or discharge is not adverse in any material respect to the Holders. SECTION 5.18. Corporate Existence. Subject to Article 6 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, part nership or other existence of any Subsidiary or the Non-Recourse Subsidiary in accordance with the respective or ganizational documents of such Subsidiary or the Non-Re course 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. 62 SECTION 5.19. Maintenance of Properties and Insurance. (a) The --------------------------------------- Company shall cause all material prop erties 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 main tained 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, re placements, 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, how ever, -------- -------- that nothing in this Section 5.19 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. (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 5.20. Conflicting Agreements. The Com pany will not, and ---------------------- will not permit any Subsidiary or the Non-Recourse Subsidiary to, enter into any agreement (other 63 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 4.8 or 4.9 hereof or otherwise in accordance with the terms of the Securities. SECTION 5.21. Investment Company Act. The Com pany shall not become ---------------------- an investment company subject to registration under the Investment Company Act of 1940, as amended. SECTION 5.22. 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 5.23. Covenant to Comply with Securities Laws Upon Purchase ----------------------------------------------------- of Securities. In connection with any offer to purchase or purchase of - ------------- Securities under Sections 4.2, 4.8 and 4.9 hereof, the Company shall (i) - comply with Rule 14e-1 under the Exchange Act, and any other ap plicable rules thereunder, and (ii) otherwise comply with all federal and state securities laws -- so as to permit the rights and obligations under Sections 4.2, 4.8 and 4.9 hereof to be exercised in the time and in the manner speci fied in Sections 4.2, 4.8 and 4.9 hereof. SECTION 5.24. Covenant on Issuance of Class B Common Stock of the --------------------------------------------------- Company. The Company agrees that it will not issue any shares of its Class B - ------- Common Stock, par value $.01 per share, unless it issues an equal number of shares of its Class A Common Stock, par value $.01 per share. ARTICLE VI SUCCESSOR CORPORATION SECTION 6.1. When the Company or any Guarantor May Merge, Etc. ------------------------------------------------ Subject to the provisions set forth in Section 12.3 hereof, neither the Company nor any Guarantor may consolidate with or merge with or into, or sell, convey, transfer or lease all or substantially all of its assets 64 (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 trans action, 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 5.6 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 65 (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 sup plemental indenture comply with this Indenture. The Successor Person will be the successor Com pany, or a successor Guarantor, as the case may be, but in the case of a sale, conveyance, transfer or lease 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 VII DEFAULTS AND REMEDIES SECTION 7.1. 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 5.16 or 6.1 hereof; (3) The Company fails to comply with Section 5.15 hereof; (4) The Company defaults in the performance of or 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 66 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; (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 67 (8) Any judgment or decree for the payment of money in excess of $1,500,000 (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. 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 7.2. 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 68 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 aggregate 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 7.3. 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 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 exclu sive of any other remedy. All available remedies are cumulative. SECTION 7.4. Waiver of Past Default. The Holders of a majority in ---------------------- aggregate principal amount of the Securities at the time outstanding (which Holders shall include Holders of at least a majority in aggregate 69 principal amount of the Series A Notes 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 7.1(1) hereof, or (b) a Default in respect of a provision that under Section 10.2 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 7.5. 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 Security holders 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 7.6. Limitation on Suits. Except as provided in Section 7.7 ------------------- 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; (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. 70 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 7.7. 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 7.8. Collection Suit by Trustee. If an Event of Default -------------------------- described in Section 7.1(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 7.7 hereof. SECTION 7.9. 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 one or more claims for all or part of the aggregate 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; 71 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 8.7 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 7.10. Priorities. If the Trustee collects any money pursuant ---------- to this Article 7, it shall pay out the money in the following order: FIRST: to the Trustee for amounts due under Section 8.7 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 7.10. SECTION 7.11. 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 7.11 does not apply to a suit by the Trustee, a suit by a Holder 72 pursuant to Section 7.7 hereof or a suit by Holders of more than 10% in aggregate principal amount of the Securities at the time outstanding. SECTION 7.12. 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 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 VIII TRUSTEE SECTION 8.1. 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 73 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 8.1; (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 7.5 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 8.1 and Section 8.2. (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. 74 SECTION 8.2. 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 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 8.3. 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, Securities Registrar or co-Securities Registrar may do the same with like rights. However, the Trustee must comply with Sections 8.10 and 8.11 hereof. SECTION 8.4. Trustee's Disclaimer. The Trustee makes no -------------------- representation as to the validity or adequacy of this Indenture or the Securities, it shall not be account able for the Company's use of the proceeds from the 75 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-1 filed with the Commission under the Trust Indenture Act) 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 8.5. 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 7.1(l) 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 8.5 shall be in lieu of the proviso to Section 315(b) of the Trust Indenture Act and said proviso is hereby expressly excluded from this Indenture, as permitted by the Trust Indenture Act. SECTION 8.6. Reports by Trustee to Holders. Within 60 days after each ----------------------------- May 15 beginning with May 15, 1995, 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 Trust Indenture Act. A copy of each report at the time of its mailing to Securityholders shall be filed with the Company, the Commission 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 8.7. Compensation and Indemnity. The Company and the -------------------------- Guarantors, jointly and severally, agree: (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); 76 (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 8.7, 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 8.7 are not subject to Article 11 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 7.1 hereof, the compensation for services and expenses are intended to constitute expenses of administration under any Bankruptcy Law. SECTION 8.8. 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 8.8. 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 and the Company in writing. Such removal shall be effective immediately upon the appointment and acceptance of a successor Trustee. The Trustee shall resign if: 77 (1) the Trustee fails to comply with Section 8.10 hereof; (2) the Trustee is adjudged bankrupt or insolvent; (3) a receiver of 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 the Trustee for any reason, a successor Trustee may be appointed by filing with the Company an instrument in writing, executed by the holders of not less than a majority in principal amount of Securities then outstanding. Copies of such instrument shall be promptly delivered to the predecessor Trustee and to the Trustee so appointed. Until a successor Trustee shall be appointed by the Securityholders as above provided, the Company may appoint a successor Trustee. Any new Trustee so appointed by the Company shall immediately and without further act be superseded by any Trustee appointed by the Securityholders in the manner above provided. 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 8.7 hereof and subject further to its lien under Section 8.7, the retiring Trustee shall promptly transfer all property and records 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. 78 If the Trustee fails to comply with Section 8.10 hereof, any Securityholder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. SECTION 8.9. 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 8.10. Eligibility; Disqualification. This Indenture will ----------------------------- always have a Trustee who satisfies the requirements of Trust Indenture Act (S)(S) 310(a)(1) and 310(a)(2). The Trustee is subject to Trust Indenture Act (S) 310(b). If at any time the Trustee ceases to be eligible in accordance with the provisions of this Section 8.10, it will resign immediately in the manner and with the effect specified in Section 8.8 hereof. SECTION 8.11. Preferential Collection of Claims Against the Company. ----------------------------------------------------- The Trustee is subject to Trust Indenture Act (S) 311(a), excluding any creditor relationship listed in Trust Indenture Act (S) 311(b). A Trustee who has resigned or been removed will be subject to Trust Indenture Act (S) 311(a) to the extent indicated therein. SECTION 8.12. Trustee May Deal in Securities. The Trustee may in good ------------------------------ faith buy, sell, own, hold and deal in any of the Securities issued hereunder and secured by this Indenture, and may join in any action which any Securityholder may be entitled to take with like effect as if the Trustee were not a party to this Indenture. The Trustee, either as principal or agent, may also engage in or be interested in any financial or other transaction with the Company, and may act as depository, trustee or agent for any Securityholder as freely as if it were not Trustee hereunder. Any cash held hereunder by the Trustee, absent an investment direction from holders of not less than a majority in principal amount of Securities, shall be deposited to a non-interest bearing demand deposit account in the Trustee's commercial department. 79 ARTICLE IX SATISFACTION AND DISCHARGE OF INDENTURE; DEFEASANCE OF CERTAIN OBLIGATIONS; UNCLAIMED MONEYS SECTION 9.1. 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 2.10 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, (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: 80 (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 81 such times and in such amounts as will insure the availability of cash or (iii) a combination thereof, --- sufficient, in the opinion of a nation 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 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 82 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. (c) The Company shall be released from its obligations under Sections 4.8, 4.9, 5.6 through 5.14, 5.16 and 6.1 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 froth 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 7.1, 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 9.1: 83 (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 time 84 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 9.2. Application by Trustee of Funds Deposited for Payment of -------------------------------------------------------- Securities. Subject to Section 9.4 hereof, and to the subordination provision - ---------- of this Indenture, all moneys deposited with the Trustee pursuant to Section 9.1 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 9.3. Return 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 9.4. 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 85 the Trustee or any Paying Agent with respect to such moneys shall thereupon cease. ARTICLE X AMENDMENTS SECTION 10.1. 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 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 6 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 Commission in connection with the qualification of this Indenture under the Trust Indenture Act; 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 10.2. 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 86 outstanding and the Holders of at least a majority in aggregate principal amount of the Series A Notes 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 Holders representing 100% in principal amount of the Series A Notes outstanding, a waiver or an amendment to this Indenture or the Series A Notes 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 Series A Notes or any Redemption Price thereof or impair the right to institute suit for the enforcement of any such payment or make any Series A Notes payable in currency or securities other than that stated in the Series A Notes; or (3) make any change in Article 11 hereof that adversely affects the rights of any Holder of Series A Notes or any change to any other Section hereof that adversely affects the rights, under Article 11 hereof, of any Holder of Series A Notes; or (4) waive a default in the payment of the principal of, premium, if any, or interest on, any Series A Notes; or (5) make any change in the provisions of Sections 5.15, 7.4 or 7.7 hereof; or (6) make any change to Article 12 hereof that adversely affects the rights of any Holder of Series A Notes or any change to any other Section hereof that adversely affects the rights, under Article 12 hereof, of any Holder of Series A Notes. Further, without the consent of Holders representing 100% in principal amount of the Series B Notes outstanding, a waiver or an amendment to this Indenture or the Series B Notes may not: (A) reduce the percentage of principal amount of the Series B Notes whose Holders must consent to an amendment or waiver; or 87 (B) make any change to the Stated Maturity of the principal of, premium, if any, or any interest on the Series B Notes or any Redemption Price thereof or impair the right to institute suit for the enforcement of any such payment or make any Series B Note payable in currency or securities other than that stated in the Series B Note; or (C) waive a default in the payment of the principal of, premium, if any, or interest on, any Series B Note; or (D) make any change in the provisions of Sections 5.15, 7.4 or 7.7 hereof; or (E) make any change to Article 12 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 12 hereof, of any Holder of Securities. Further, without the consent of Holders representing 100% in principal amount of the Securities outstanding, a waiver or an amendment to this Indenture or any of the Securities may not make any change in 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 10.2 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 10.2 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. 88 SECTION 10.3. Compliance with Trust Indenture Act. Every ----------------------------------- supplemental indenture executed pursuant to this Article 10 shall comply with the Trust Indenture Act. SECTION 10.4. 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. After an amendment, waiver or action becomes effective, it shall bind every Securityholder, except as provided in Section 10.2 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 10.5. Notation on or Exchange of Securities. Securities ------------------------------------- authenticated and made available for delivery after the execution of any supplemental indenture pursuant to this Article 10 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. 89 SECTION 10.6. Trustee to Sign Supplemental Indentures. The Trustee --------------------------------------- shall sign any supplemental indenture authorized pursuant to this Article 10 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 10.7. Effect of Supplemental Indentures. Upon the execution --------------------------------- of any supplemental indenture under this Article 10, 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 XI SUBORDINATION SECTION 11.1. Securities Subordinated to Company Senior Indebtedness. ------------------------------------------------------ Notwithstanding the provisions of Section 7.1 hereof or any other provision 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 11 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 11. SECTION 11.2. 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 90 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 11, 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)) 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 nonpayment event of default results from the - acceleration of the 91 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 10.2(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 11.2) at a time when such payment is prohibited by this Section 11.2 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 11.8) 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 11 shall limit the right of the Trustee or the Holders of Securities to take any action to accelerate the maturity of the Securities 92 pursuant to Section 7.2 hereof or to pursue any rights or remedies hereunder against the Company; provided that all Company Senior Indebtedness shall first -------- be paid in accordance with this Article 11 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 11, 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 11. SECTION 11.3. Payments to Be Made Prior to Dissolution. Nothing ---------------------------------------- contained in this Article 11 or elsewhere in this Indenture shall prevent (i) - the Company, except under the conditions described in Section 11.2 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 11.2 hereof) become due and payable, the Trustee shall have received the written notice provided for in Section 11.2(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 11.2(b) hereof, acceleration of the Securities is deemed to be sufficient notice to the Trustee for all purposes of this Article 11. SECTION 11.4. 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 93 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 11 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 11, to the extent the Holders or the Trustee have paid over or delivered to any holder of Company 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 11.2 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 11.5. 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 11 and appoints the Trustee his attorney-in-fact for any and all such purposes. SECTION 11.6. 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 11, and no payment pursuant to the provisions of this Article 11 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 11 are solely for the purpose of defining the relative rights of the holders of such 94 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 11 shall have been applied, pursuant to the provisions of this Article 11, 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 11.7. Obligations of Company Uncondi tional. Nothing ------------------------------------- contained in this Article 11 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 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 11 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 11 shall not be construed as preventing the occurrence of an Event of Default under Section 7.1 hereof. SECTION 11.8. 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 12.1 hereof from the Company or one or more holders of Company Senior Indebtedness or from any trustee or agent 95 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 11.2 and 11.3 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 11.8 shall limit the right of the holders of Company Senior Indebtedness to recover payments as contemplated by Section 11.2 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 Trustee shall not be deemed to have any duty to the holders of Company Senior Indebtedness. SECTION 11.9. 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 11 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 XII GUARANTEE OF SECURITIES SECTION 12.1. Guarantees. Subject to the provisions of this Article ---------- 12, each Guarantor hereby 96 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 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 97 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 or 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 9.1, 12.3 and 12.4 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 12, 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 98 the obligations guaranteed hereby, and (ii) in the event of any declarations of -- acceleration of such obligations as provided in Article 7 hereof, such obligations (whether or not due and payable) shall forthwith become due and payable by such Guarantor for the purpose of the Guaranties. In addition, without limiting the foregoing provisions, upon the effectiveness of an acceleration under Article 7, 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. SECTION 12.2. 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 12.2 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 (x) liability of such - Guarantor for state, local or other taxes, (y) any Indebtedness between or among - such Guarantor, the Company, any other Subsidiary or the Non-Recourse Subsidiary or (z) any Indebtedness of such Guarantor incurred for the purchase of goods or - materials or for services obtained in the ordinary course of business. SECTION 12.3. Release of Guarantor. In the event of a sale or other -------------------- disposition of all or substantially all 99 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 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 5.16 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 with out 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 12. SECTION 12.4. May Consolidate, etc., on Certain Terms. Except as set --------------------------------------- forth in Articles 5 and 6 and Section 12.3 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 12.5. Limitation on Guarantee. Notwith standing the other ----------------------- provisions of this Article 12, 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 100 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 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 12.6. Execution and Delivery of Guarantees. To evidence its ------------------------------------ Guarantee set forth in this Article 12, each Guarantor hereby agrees that a notation of such Guarantee substantially in the form of Exhibit C 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. 101 Each Guarantor hereby agrees that its Guarantee set forth in Section 12.1 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 12.7. Successors. The Guarantees 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 12.8. 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 102 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 12.8 is knowingly made in contemplation of such benefits. ARTICLE XIII MISCELLANEOUS SECTION 13.1. 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: Gregory G. Landry Executive Vice President and Chief Financial Officer if to the Trustee: First Bank National Association First Trust Center 180 East Fifth Street St. Paul, Minnesota 55101 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 books of the Securities 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 103 notice or communication is 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 Securities Registrar, Paying Agent or co-Securities Registrar. SECTION 13.2. Communication by Holders with Other Holders. ------------------------------------------- Securityholders may communicate pursuant to Trust Indenture Act Section 312(b) with other Securityholders with respect to their rights under this Indenture or the Securities. The Company, the Trustee, the Securities Registrar, the Paying Agent and anyone else shall have the protection of Trust Indenture Act Section 312(c). SECTION 13.3. Rules by Trustee, Paying Agent and Securities --------------------------------------------- Registrar. The Trustee may make reasonable rules for action by or a meeting of Securityholders. The Securities Registrar and Paying Agent may make reasonable rules for their functions. SECTION 13.4. 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. 104 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/ Gregory Wozniak ------------------------------- Name: Gregory Wozniak Title: Vice President-General Counsel 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 105 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 106 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 107 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 108 GREENWELL GROCERY CO., INC. By:/s/ Gregory Wozniak ------------------------------- Name: Gregory Wozinak Title: Vice President CIA FOOD MARTS, INC. By:/s/ Gregory Wozniak ------------------------------- Name: Gregory Wozinak Title: Vice President FOOD MERCHANDISERS, INCORPORATED By:/s/ Gregory Wozniak ------------------------------- Name: Gregory Wozinak Title: Vice President DAIRY MART CONVENIENCE STORES OF OHIO, INC. By:/s/ Gregory Wozniak ------------------------------- Name: Gregory Wozinak Title: Vice President FIRST BANK NATIONAL ASSOCIATION AS TRUSTEE By:/s/ Timothy J. Sandell ------------------------------- Name: Timothy J. Sandell Title: Vice President 109 EXHIBIT A [FORM OF FACE OF SERIES A NOTE] DAIRY MART CONVENIENCE STORES, INC. 10 1/4% SENIOR SUBORDINATED NOTE DUE 2004 No.__________ $_________________ CUSIP 233860 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 in accordance with paragraph 1 hereof. 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 and in the Indenture, dated as of December 1, 1995, 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. DAIRY 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. FIRST BANK NATIONAL ASSOCIATION, as Trustee By:________________________________________ Name:______________________________________ Title: A-1 [FORM OF REVERSE SIDE OF SERIES A NOTE] DAIRY MART CONVENIENCE STORES, INC. 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 Series A Notes 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 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 the March 1 and September 1 immediately preceding the interest payment date even if the Security is cancelled 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 Section 4.8 or 4.9 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 A-2 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 wail 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. 5. Indenture --------- The Company issued the Securities under an Indenture, dated as of March 3, 1994, by and among the Company, the Guarantors and Society National Bank, as trustee (the "Original Indenture"). The Original Indenture was supplemented by a Supplemental Indenture, dated as of November 29, 1995, by and among the Company, the Guarantors and the Trustee and amended as reflected in an Indenture, dated as of December 1, 1995 (the "Indenture"), among the Company, the Guarantors 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. The Series A Notes are 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 12 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 A-3 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 beginning 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 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 Redemption Date; provided, however, that no such optional -------- ------- redemption in connection with a Public Equity Offering may be effected on or after the third anniversary of the Issue Date of the Series A Notes. 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 a 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 $1,000 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 4.8 of A-4 the Indenture after the occurrence of a Change in Control of the Company at a price equal to 101% of the 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 5.16 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 4.9 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 $1,000. 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 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 the Holders of at least a majority in principal amount of the Series A Notes at the A-5 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 and the Holders of at least a majority in principal amount of the Series A Notes 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 6 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 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 A-6 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), TEN ENT (=tenants by the entireties), JT TEN (=joint tenants with right of survivorship and not as tenants in common), CUST (=custodian), and U/G/M/A (=Uniform 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-7 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 ------------- THE 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-8 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-9 OPTION OF 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 4.8 ("Change of Control Offer") or Section 4.9 ("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: _______________ Note: The amount you elect to have purchased must be an integral multiple of $1,000. A-10 EXHIBIT B [FORM OF FACE OF SERIES B NOTE] THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. ACCORDINGLY, NO TRANSFER OF THIS SECURITY MAY BE MADE IN THE UNITED STATES EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR AN EXEMPTION FROM REGISTRATION THEREUNDER AND IN COMPLIANCE WITH ANY OTHER APPLICABLE SECURITIES LAWS. FOR PURPOSES OF SECTION 1271 OF THE UNITED STATES INTERNAL REVENUE CODE OF 1986, AS AMENDED, THE ISSUE PRICE OF THIS SECURITY IS 88.00% OF ITS PRINCIPAL AMOUNT, AND THE ISSUE DATE IS DECEMBER 1, 1995. DAIRY MART CONVENIENCE STORES, INC. 10 1/4% SENIOR SUBORDINATED NOTE DUE 2004, SERIES B No.__________ $_________________ PPN 233860A*6 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 in accordance with paragraph 1 set forth on the reverse hereof. Interest Payment Dates: March 15 and September 15, commencing March 15, 1996. Record Dates: March 1 and September 1. Reference is hereby made to the further provisions of this Security set forth on the reverse hereof and in the Indenture, dated as of December 1, 1995, which further provisions shall for all purposes have the same effect as if set forth at this place. B-1 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. DAIRY MART CONVENIENCE STORES, INC. By_________________________________ Name: _____________________________ Title: DATED: ________________ TRUSTEE'S CERTIFICATE OF AUTHENTICATION: This is one of the Securities referred to in the within-mentioned Indenture. FIRST BANK NATIONAL ASSOCIATION, as Trustee - -------------------- Authorized Signatory B-2 [FORM OF REVERSE SIDE OF SERIES B NOTE] DAIRY MART CONVENIENCE STORES, INC. 10 1/4% SENIOR SUBORDINATED NOTE DUE 2004, SERIES B 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 March 15, 1996. Interest on the Series B Notes will accrue from the most recent date to which interest has been paid, or if no interest has been paid, from December 1, 1995; 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 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 the March 1 and September 1 immediately preceding the interest payment date even if the Security is cancelled 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 Section 4.8 or 4.9 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 B-3 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. 5. Indenture --------- The Company issued the Securities under an Amended and Restated Indenture, dated as of November 29, 1995 (the "Indenture"), among the Company, the Guarantors 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. The Series B Notes are limited to $13,500,000 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 12 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. B-4 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 beginning 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 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 Redemption Date; provided, however, that no such optional -------- ------- redemption in connection with a Public Equity Offering may be effected on or after the third anniversary of the Issue Date of the Series A Notes. 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 a 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 $1,000 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 4.8 of the Indenture after the occurrence of a Change in Control of the Company at a price equal to 101% of the aggregate principal amount plus accrued and unpaid interest, if any, B-5 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 5.16 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 4.9 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 $1,000. 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 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 the Holders of at least a majority in principal amount of the Series A Notes 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 B-6 amount of the Securities at the time outstanding and the Holders of at least a majority in principal amount of the Series A Notes 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 6 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 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. - -- B-7 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), TEN ENT (=tenants by the entireties), JT TEN (=joint tenants with right of survivorship and not as tenants in common), CUST (=custodian), and U/G/M/A (=Uniform 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. 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 ------------- THE 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. B-9 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:___________________ B-10 OPTION OF 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 4.8 ("Change of Control Offer") or Section 4.9 ("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: _______________ Note: The amount you elect to have purchased must be an integral multiple of $1,000. B-11 EXHIBIT C 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 12.1 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 12 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 C-1 obligations of the Guarantors pursuant to the Guarantees and the Indenture may be released in certain circumstances set forth in Article 12 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. C-2 EX-10.1 3 NOTE PURCHASE AGREEMENT 12/1/95 EXHIBIT 10.1 EXECUTION COPY ================================================================================ DAIRY MART CONVENIENCE STORES, INC. 10-1/4% Senior Subordinated Notes (Series B) due March 15, 2004 AND Warrants to Purchase 1,215,000 Shares of Class A Common Stock, par value $0.01 per Share, of Dairy Mart Convenience Stores, Inc. _______________________ NOTE AND WARRANT PURCHASE AGREEMENT _______________________ Dated as of December 1, 1995 ================================================================================ Note and Warrant Purchase Agreement TABLE OF CONTENTS -----------------
Page 1. AUTHORIZATION OF FINANCING AND GUARANTEES ............................. 1 1.1. Authorization of Notes........................................... 1 1.2. Authorization of Warrants........................................ 1 1.3. Authorization of Guarantees...................................... 1 1.4. Defined Terms.................................................... 2 2. PURCHASE AND SALE OF NOTES.............................................. 2 2.1. Sale and Purchase of Notes....................................... 2 2.2. Sale and Purchase of the Purchase Warrants....................... 2 2.3. Other Agreements................................................. 2 3. THE CLOSING............................................................. 3 4. CONDITIONS OF CLOSING................................................... 3 4.1. Documents Delivered.............................................. 3 4.2. Representations and Warranties................................... 5 4.3. Performance; No Default.......................................... 5 4.4. Opinions of Counsel.............................................. 5 4.5. Compliance Certificates.......................................... 5 4.6. Endorsement of Guarantees........................................ 6 4.7. Replacement of Original Trustee; Consent Agreement............... 6 4.8. Sale of Other Notes and Purchase Warrants........................ 6 4.9. Registration Rights Agreement.................................... 7 4.10. Consummation of the Nirenberg Transaction........................ 7 4.11. Purchase Permitted by Applicable Laws............................ 7 4.12. Proceedings and Documents........................................ 7 4.13. No Adverse U.S. Legislation, Action or Decision, etc............. 7 4.14. Compliance with Securities Laws.................................. 8 4.15. No Actions Pending............................................... 8 4.16. Private Placement Numbers........................................ 8 4.17. Conduct of Business.............................................. 8 4.18. Solvency of the Company; Fairness of Nirenberg Transaction...................................................... 9 4.19. Bank Credit Agreement............................................ 9 4.20. Legal Fees and Expenses.......................................... 9 4.21. Commitment Fee................................................... 9 5. REPRESENTATIONS, COVENANTS AND WARRANTIES............................... 9 5.1. Organization, etc................................................ 9 5.2. Authorization.................................................... 9 5.3. Subsidiaries..................................................... 10
Note and Warrant Purchase Agreement -----------------------------------
Page ---- 5.4. Governmental Consents, etc....................................... 10 5.5. Enforceability................................................... 11 5.6. Business; Financial Statements................................... 11 5.7. No Material Adverse Change....................................... 12 5.8. Indebtedness..................................................... 12 5.9. Litigation; Compliance with Laws................................. 12 5.10. Compliance with Orders, Other Instruments........................ 13 5.11. Patents, Trademarks, Authorizations, etc......................... 14 5.12. Certain Fees..................................................... 14 5.13. Federal Reserve Regulations...................................... 14 5.14. Taxes............................................................ 15 5.15. Compliance with ERISA............................................ 15 5.16. Disclosure....................................................... 17 5.17. Investment Company Act; Public Utility Holding Company Act...................................................... 17 5.18. Capitalization of the Company.................................... 17 5.19. Offering of Notes or Purchase Warrants........................... 18 5.20. Foreign Assets Control Regulations, etc.......................... 18 5.21. Absence of Undisclosed Liabilities............................... 19 5.22. Use of Proceeds.................................................. 19 5.23. Licenses......................................................... 19 5.24. Environmental Regulation, Etc.................................... 20 5.25. Transactions with Affiliates..................................... 20 6. REPRESENTATIONS OF THE PURCHASER........................................ 22 6.1. Purchase for Investment.......................................... 22 6.2. Corporate Authorization; Validity and Binding Effect............. 22 6.3. Source of Funds.................................................. 23 7. COVENANTS OF THE COMPANY................................................ 24 7.1. Performance of Company's Obligations............................. 24 7.2. NASDAQ Stock Market.............................................. 24 7.3. Financial Statements, Reports, etc............................... 24 7.4. Additional Distribution of Warrants.............................. 25 7.5. Agreement to Supplement Indenture................................ 25 8. PAYMENTS OF NOTES....................................................... 25 8.1. Place of Payment................................................. 25 8.2. Home Office Payment.............................................. 25 9. DEFINITIONS............................................................. 26 9.1. Accounting Terms................................................. 32 10. MISCELLANEOUS........................................................... 32
ii Note and Warrants Purchase Agreements ------------------------------------- 10.1. Expenses........................................................ 32 10.2. Indemnification................................................. 33 10.3. Amendments and Waivers.......................................... 34 10.4. Survival of Representations and Warranties; Entire Agreement.................................... 35 10.5. Successors and Assigns.......................................... 35 10.6. Disclosure to Other Persons..................................... 36 10.7. Notices......................................................... 36 10.8. Descriptive Headings............................................ 36 10.9. GOVERNING LAW................................................... 37 10.10. Counterparts.................................................... 37
iii Note and Warrants Purchase Agreements ------------------------------------- Exhibit A Form of Note Exhibit B Form of Amended and Restated Indenture, by and among the Company, the Guarantors and the Trustee Exhibit C-1 Form of Opinion of Weil, Gotshal & Manges Exhibit C-2 Form of Opinion of Gregory G. Wozniak, Esq. Exhibit D Consent Agreement Exhibit E Registration Rights Agreement Exhibit F Warrant Exhibit G Subsidiaries Schedule I Schedule of Purchasers Schedule 3 Wire Instructions Schedule 4.1(f) Nirenberg Documents Schedule 4.21 Schedule of Commitment Fees Schedule 5.4 Governmental Consents Schedule 5.8 Indebtedness Schedule 5.9 Actions, Suits, Proceedings, etc. Schedule 5.14 Taxes Schedule 5.15 ERISA Schedule 5.18 Capitalization Schedule 5.23 Licenses Schedule 5.24 Environmental iv Note and Warrants Purchase Agreements ------------------------------------- DAIRY MART CONVENIENCE STORES, INC. As of December 1, 1995 To Each of the Purchasers Listed in the Attached Schedule of Purchasers: Ladies and Gentlemen: The undersigned, Dairy Mart Convenience Stores, Inc., a Delaware corporation (herein called the "COMPANY"), hereby agrees with you as follows: 1. AUTHORIZATION OF FINANCING AND GUARANTEES. 1.1. Authorization of ---------------- Notes. The Company has duly authorized the issue and sale of its 10-1/4% Senior - ----- Subordinated Notes (Series B) due March 15, 2004, to be substantially in the form of Exhibit A hereto (including each Note delivered pursuant to any provision of this Agreement or the Other Purchase Agreements referred to in Section 2.3 and each Note delivered in substitution or exchange for any such Note pursuant to any such provision, the "NOTES"), in the aggregate principal amount of $13,500,000, with the terms set forth in the Amended and Restated Indenture, dated as of December 1, 1995, among the Company, the Guarantors (as defined therein) and First Bank National Association, as Trustee (as such Indenture may be amended, supplemented or otherwise modified from time to time, substantially in the form of Exhibit B hereto, the "INDENTURE"). 1.2. Authorization of Warrants. The Company has duly authorized the ------------------------- issue and sale of Common Stock Purchase Warrants (the "PURCHASE WARRANTS", such term to include any such purchase warrants issued in substitution therefor), to be in substantially the form of Exhibit F, for the purchase of an aggregate of 1,215,000 shares of Class A Common Stock, par value $0.01, of the Company (the "CLASS A COMMON STOCK"), at a purchase price as set forth in the Warrant. 1.3. Authorization of Guarantees. The Company will authorize and --------------------------- direct each of the Guarantor Subsidiaries to guarantee the Notes on the terms set forth in the Indenture and to endorse the guarantees on the Notes, in the form set forth in the Indenture (the "GUARANTEES"). Note and Warrant Purchase Agreement ----------------------------------- 1.4. Defined Terms. Certain capitalized terms used in this Agreement ------------- are defined in Section 9; references to "Exhibit" are, unless otherwise specified, to one of the exhibits attached to this Agreement and references to a "Section" are, unless otherwise specified, to one of the Sections of this Agreement. 2. PURCHASE AND SALE OF NOTES AND PURCHASE WARRANTS. 2.1. Sale ---- and of Notes. The Company hereby agrees to sell to you and, subject to the - ------------ terms and conditions herein set forth, you agree to purchase from the Company, at the Closing provided for in Section 3 hereof, Notes in the principal amount specified opposite your name in the schedule of purchasers at the end hereof (the "SCHEDULE OF PURCHASERS") at the purchase price of 88% of the principal amount of such Notes. You and the Company agree (as contemplated by section 1273(c) of the Code and Treasury Regulations section 1.1273-2(h) for federal income tax purposes, that the "issue price" of each Note under section 1273(b) of the Code shall equal the purchase price thereof (as set forth in the preceding sentence). You and the Company agree to use the foregoing issue price for U.S. federal income tax purposes with respect to this transaction. 2.2. Sale and Purchase of the Purchase Warrants. Subject to the terms ------------------------------------------ and conditions of this Agreement, the Company will issue and sell to you and you will purchase from the Company, at the Closing provided for in Section 3, Purchase Warrants for the purchase of the number of shares of Class A Common Stock specified opposite your name in the Schedule of Purchasers at a purchase price for such Purchase Warrants of $1.33 for each share of Class A Common Stock subject to such Purchase Warrants. You and the Company agree (as contemplated by Section 1273(c) of the Code and Treasury Regulations section 1.1273-2(h), for U.S. federal income tax purposes, that the aggregate purchase price of all the Purchase Warrants to be issued to you hereunder is the purchase price paid by you for such Purchase Warrants (as set forth in the preceding sentence). You and the Company agree to use the foregoing for all U.S. federal income tax purposes with respect to this transaction. 2.3. Other Agreements. Contemporaneously herewith, the Company is ---------------- entering into separate Note and Warrant Purchase Agreements (the "OTHER PURCHASE AGREEMENTS") identical to this Agreement with the other purchasers (the "OTHER PURCHASERS") named in the Schedule of Purchasers, providing for the sale to the Other Purchasers of the Notes 2 Note and Warrant Purchase Agreement ----------------------------------- and Purchase Warrants specified opposite their names in the Schedule of Purchasers. You and the Other Purchasers are herein referred to collectively as the "PURCHASERS" and individually as a "PURCHASER." 3. THE CLOSING. The sales of the Notes and Purchase Warrants to be purchased by you and the Other Purchasers shall take place at a closing (the "CLOSING") to be held at the offices of Weil, Gotshal & Manges, 767 Fifth Avenue, New York, New York at 11:00 a.m., New York time, on December 1, 1995, or such later time as the parties hereto may agree (such date, the "CLOSING DATE"). At the Closing, (a) the Company will deliver to you the Notes to be purchased by - you, in the form of a single Note (or such greater number of Notes as you may request), dated the Closing Date and registered in your name (or in the name of your nominee), against payment of the aggregate purchase price therefor by transfer of immediately available funds for credit as directed by the Company in writing in Schedule 3 hereto, and (b) the Company will delivery to you the - Purchase Warrants to be purchased by you, in the form of a single Purchase Warrant (or such greater number of Purchase Warrants as you may request), dated the Closing Date, and registered in your name (or in the name of your nominee), against payment of the aggregate purchase price therefor by transfer of immediately available funds for credit as directed by the Company in Schedule 3 hereto. If at the Closing, the Company shall fail to tender the Notes or Purchase Warrants to be purchased by you as provided above in this Section 3, or any of the conditions specified in Section 4 shall not have been fulfilled to your satisfaction, you shall, at your option, be relieved of all further obligations under this Agreement, without thereby waiving any other rights you may have by reason of such failure or such nonfulfillment. 4. CONDITIONS OF CLOSING. Your obligation to purchase and pay for the Notes and Purchase Warrants to be purchased by you at the Closing is subject to the satisfaction (or waiver by you), prior to or at the Closing, of the following conditions: 4.1. Documents Delivered. You and your special counsel shall have ------------------- received the following documents, in each case in form and substance satisfactory to you (except that documents required to be in a form of an exhibit hereto need only be in the form of such exhibit, appropriately completed): 3 Note and Warrant Purchase Agreement ----------------------------------- (a) This Agreement, duly executed by the Company; the Indenture, duly executed by the parties thereto; a Note or Notes, dated the Closing Date and registered in your name or the name of your nominee and duly executed by the Company, in the aggregate principal amount specified opposite your name in the Schedule of Purchasers and a Purchase Warrant or Purchase Warrants, dated the Closing Date and registered in your name or the name of your nominee and duly executed by the Company, for the purchase of the number of shares of Class A Common Stock specified opposite your name in the Schedule of Purchasers. (b) A copy of the Restated Certificate of Incorporation of the Company, certified as of a recent date by the Secretary of State of the State of Delaware. (c) Copies of certificates of the appropriate Secretary of State, relating to the Company and each Guarantor, dated as of a recent date, as to the good standing of the Company and such Guarantor in their respective states of incorporation. (d) Copies of all opinions of counsel to the Company delivered hereunder or in connection with the Registration Rights Agreement and the Consent Agreement addressed to you, of the counsel delivering such opinions. (e) Secretary's Certificates of each of the Company and each of the Guarantors as to (A) its Certificate of Incorporation and By-Laws, (B) the - - resolutions of the Board of Directors adopting and approving each of the Operative Agreements and any other agreements relating to the transactions contemplated by this Agreement to which it is a party, and (C) the names, - offices and signatures of the Company or such Guarantor's officers executing any documents in connection with the transactions contemplated by this Agreement. (f) You shall have received true and correct copies of the documents listed on Schedule 4.1(f) hereof. (g) Such other approvals, opinions or documents as you may reasonably request. 4 Note and Warrant Purchase Agreement ----------------------------------- 4.2. Representations and Warranties. The representations and ------------------------------ warranties of the Company contained in this Agreement, and those otherwise made in writing by the Company in the Consent Agreement or any Officers' Certificates delivered to you by or on behalf of the Company, in connection with the transactions contemplated by this Agreement, shall be true and correct when made and at and as of the time of the Closing. Each Guarantor's representations and warranties made by it in the Indenture shall be true and correct when made and as of the time of the Closing. 4.3. Performance; No Default. The Company shall have performed and ----------------------- complied with all agreements and conditions contained in this Agreement required to be performed or complied with by it prior to or at the Closing, and at the time of the Closing no default shall have occurred and be continuing with respect to any obligations of the Company or any Guarantor, as applicable, under any Operative Agreement. The Company shall have delivered to you an Officers' Certificate dated the Closing Date, certifying that, at the time of the Closing, after giving effect to the Required Consents, and immediately following consummation of the transactions contemplated by this Agreement to occur on the Closing Date, no default or event of default under the Indenture shall have occurred or be continuing. 4.4. Opinions of Counsel. You shall have received favorable ------------------- opinions, dated the Closing Date, from (a) Weil, Gotshal & Manges, special - counsel for the Company, substantially in the form set forth in Exhibit C-1, and covering such matters incident to the transactions and (b)Gregory Wozniak, Esq., - Corporate Counsel of the Company, substantially in the form set forth in Exhibit C-2. It is understood and agreed that the opinions are being delivered to you upon the direction of the Company and that you are hereby authorized to rely on such opinions. 4.5. Compliance Certificates. The Company shall have delivered to ----------------------- you an Officers' Certificate, dated the Closing Date, certifying that the conditions specified in Sections 4.2, 4.3 and 4.10 of this Agreement have been fulfilled and demonstrating that, after giving effect to the issuance of all of the Notes and the Purchase Warrants and the consummation of the other transactions contemplated by this Agreement (including, without limitation, the Nirenberg Transaction), the Company will be in compliance with the limitations on the incurrence or maintenance of Indebtedness contained in any instrument or agreement applicable to or binding on the Company or any of the Company's Subsidiaries 5 Note and Warrant Purchase Agreement ----------------------------------- (including, without limitation, the Indenture) or certifying that a complete and correct copy of a waiver or waivers of compliance with such limitations is attached to such Officers' Certificate. Each of the Guarantor's shall have delivered to you an Officers' Certificate, dated the Closing Date, certifying that the representations and warranties made by it in the Indenture are true and correct as of the time of the Closing. 4.6. Endorsement of Guarantees. Each of the Guarantors shall have ------------------------- duly endorsed the Guarantees on the Notes being purchased by you. 4.7. Replacement of Original Trustee; Consent Agreement. (a) -------------------------------------------------- Replacement of Original Trustee. The Original Trustee shall have been replaced - ------------------------------- as indenture trustee under the Original Indenture. First Bank National Association shall have accepted the appointment of the Company as successor trustee under the Original Indenture. (b) Execution and Performance of Consent Agreement by the Company. ------------------------------------------------------------- The Company shall have executed the Consent Agreement, substantially in the form of Exhibit D hereto, and shall have performed and complied with all agreements and conditions contained in the Consent Agreement required to be performed or complied with by it prior to or at the Closing, including without limitation, taking all action to authorize the execution and delivery of the Amendment Warrants to be distributed to the 1994 Note Holders. Each of the 1994 Note Holders executing the Consent Agreement as of the Closing Date shall have received their pro rata shares of the Amendment Warrants on such Closing Date. --- ---- (c) Execution of Required Consents. Holders of at least 51% of the ------------------------------ aggregate principal amount of the 1994 Notes shall have executed the Consent Agreement (the "REQUIRED CONSENTS"). The Required Consents shall be in full force and effect in accordance with the term of the Consent Agreement, subject only to the sale and purchase of the Notes. 4.8. Sale of Other Notes and Purchase Warrants. Contemporaneously ----------------------------------------- with the Closing, the Company shall have sold to the Other Purchasers the Notes and Purchase Warrants to be purchased by them at the Closing and shall have received payment in full therefor. 6 Note and Warrant Purchase Agreement ----------------------------------- 4.9. Registration Rights Agreement. A Registration Rights Agreement, ----------------------------- substantially in the form of Exhibit E hereto (the "REGISTRATION RIGHTS AGREEMENT") shall have been duly executed and delivered by the parties thereto and shall be in full force and effect. 4.10. Consummation of the Nirenberg Transaction. Contemporaneously ----------------------------------------- with the Closing, the Nirenberg Transaction shall have been consummated. You shall have received true, complete and correct copies of the Nirenberg Documents. 4.11. Purchase Permitted by Applicable Laws. On the Closing Date, ------------------------------------- the purchase of and payment for the Notes and Purchase Warrants to be purchased by you on the terms and conditions herein provided (including the use of the proceeds of the issuance of such Notes and Purchase Warrants by the Company) shall not violate any applicable law or governmental regulation (including, without limitation, Section 5 of the Securities Act or Regulation G, T or X of the Board of Governors of the Federal Reserve System) and shall not subject you to any tax (other than income tax), penalty, liability or other onerous condition under or pursuant to any applicable law or governmental regulation, and you shall have received such certificates or other evidence as you may reasonably request to establish compliance with this condition. 4.12. Proceedings and Documents. All corporate and other proceedings ------------------------- taken or to be taken by the Company or any of the Guarantors in connection with the transactions contemplated by this Agreement and all documents incident to such transactions (including, without limitation, the Notes, the Guarantees, the Registration Rights Agreement, the Warrants, the Indenture, the Consent Agreement and the Nirenberg Documents) shall be reasonably satisfactory in substance and form to you, and you and your special counsel shall have received all such counterpart originals or certified or other copies of such documents as you may reasonably request. 4.13. No Adverse U.S. Legislation, Action or Decision, etc. No ---------------------------------------------------- legislation shall have been passed by either House of Congress, or introduced and favorably reported for passage to either House of Congress by any committee of either such House, no other action shall have been taken by any United States governmental authority, whether by order, regulation, rule, ruling or otherwise, and no decision shall have been tendered by any court of com- 7 Note and Warrant Purchase Agreement ----------------------------------- petent jurisdiction in the United States, which would materially and adversely affect the Notes or Purchase Warrants being purchased by you hereunder as an investment or the payment of any part of the commitment fee provided for in Section 4.21 hereof or the issue and delivery of the Amendment Warrants. 4.14. Compliance with Securities Laws. The offering and sale of the ------------------------------- Notes and the Purchase Warrants to be issued at the Closing under this Agreement and the Other Purchase Agreements, the endorsement of the Guarantees on the Notes, the solicitation by the Company of the Consents, and the consummation of other transactions contemplated by the Operative Agreements (including, without limitation, the execution and delivery of the Indenture and the delivery of the Warrants) to be effected at or prior to the Closing shall have complied with all applicable requirements of federal and state securities laws, including, without limitation, the Securities Act, the Exchange Act and the Trust Indenture Act, and you shall have received evidence thereof satisfactory to you. 4.15. No Actions Pending. There shall be no suit, action, ------------------ investigation, inquiry or other proceeding by any governmental body or other Person or any other legal or administrative proceeding pending or threatened which (a) seeks to enjoin or otherwise prevent the consummation of, or to - recover any damages or obtain relief as a result of any of the transactions contemplated by the Agreement, or (b) is related to this Agreement and would, in - your reasonable opinion, have a reasonable likelihood of having a materially adverse effect on any of the parties hereto or any transaction contemplated hereby. 4.16. Private Placement Numbers. The Company shall have obtained for ------------------------- the Notes and for the Warrants, Private Placement Numbers issued by Standard & Poor's CUSIP Service Bureau (in cooperation with the Securities Valuation Office of the National Association of Insurance Commissioners). 4.17. Conduct of Business. Except as contemplated by this Agreement, ------------------- the Other Purchase Agreements, the Indenture and the Consent Agreement (i) there - shall not have occurred any change in the capitalization (whether in debt or equity) or corporate structure of the Company or any Guarantor, (ii) the Company -- shall not have declared or paid any common stock dividend or purchased or redeemed any shares of any class of its capital stock or set aside any 8 Note and Warrant Purchase Agreement ----------------------------------- amounts for such purposes or made any other payment or distribution on or in respect of any class of capital stock and (iii) neither the Company nor any --- Guarantor shall have made or announced its intention to make any agreement or commitment, or to issue any warrants or rights, contemplating any events specified in clause (i) or (ii) above. 4.18. Solvency of the Company; Fairness of Nirenberg Transaction. ---------------------------------------------------------- The Company shall have delivered to you a letter of Houlihan, Lokey, Howard & Zukin, Inc., addressed to the Company and you and the Other Purchasers, as to the solvency of the Company on the Closing Date and after giving effect to the Nirenberg Transaction and the other transactions contemplated by this Agreement. The Company shall have received a letter from Houlihan, Lokey, Howard & Zukin, Inc., addressed to the Company, as to the fairness of the consideration received by the Company in connection with the Nirenberg Transaction. 4.19. Bank Credit Agreement. The Bank Credit Agreement, which --------------------- provides for aggregate credit facilities in an aggregate principal amount of up to $20,000,000 shall be in full force and effect on the Closing Date and no term or condition thereof shall have been amended or modified in a manner which is adverse to you as a holder of Notes or 1994 Notes. The Company will have delivered to you a true and correct copy of the Amended and Restated Bank Credit Agreement. 4.20. Legal Fees and Expenses. Your special counsel shall have ----------------------- received payment from the Company of its statement for fees, expenses and disbursements in connection with the negotiation, preparation and review of this Agreement, the Other Purchase Agreements, the Notes and Purchase Warrants being purchased by you and the Other Purchasers, the Indenture and all other documents in connection with the transactions contemplated hereby and thereby. 4.21. Commitment Fee. The commitment fees set forth on Schedule 4.21 -------------- shall have been paid in the form indicated and in the manner indicated to the Persons on such Schedule in the amounts set forth opposite their respective names, in immediately available funds. 5. REPRESENTATIONS, COVENANTS AND WARRANTIES. The Company represents, covenants and warrants that: 5.1. Organization, etc. The Company is a corporation duly ----------------- organized, validly existing and in good stand- 9 Note and Warrnat Purchase Agreement ----------------------------------- ing under the laws of the State of Delaware, has all requisite power and authority, including all licenses, permits, franchises, patents, copyrights, trademarks, trade names, service marks, service names, consents, and approvals, to own its properties and assets and to carry on its business as presently conducted and as proposed to be conducted, and is duly qualified and is in good standing as a foreign corporation, and is authorized to do business, in each jurisdiction where such qualification or authorization is required, except where the failure so to qualify, to be authorized or to be in good standing would not have a Material Adverse Effect. 5.2. Authorization. Each of the Company and the Guarantors has all ------------- requisite power and authority to enter into and perform all of its obligations under this Agreement and the other Operative Agreements to which it is a party. The Company has all requisite power and authority to issue and sell the Notes and the Purchase Warrants. Each of the Guarantors has all requisite power and authority to endorse the Guarantees on the Notes. The Company has all requisite power and authority to issue the Amendment Warrants. 5.3. Subsidiaries. Exhibit G correctly lists the name of each ------------ Subsidiary of the Company, including, without limitation, each Guarantor Subsidiary on the date of this Agreement and (i) the jurisdiction of its - incorporation, and (ii) the percentage of its issued and outstanding shares -- owned by the Company or another of its Subsidiaries (specifying each such other Subsidiary). Each such Subsidiary is a corporation in good standing under the laws of the jurisdiction of its incorporation and has all requisite corporate power and authority to own and operate its properties, and to carry on its business as now conducted and as proposed to be conducted. All the issued and outstanding shares of capital stock of each such Subsidiary are validly issued, fully paid and non-assessable, and all such shares indicated in Exhibit G as owned by the Company or another Subsidiary are so owned beneficially and of record by the Company or such other Subsidiary free and clear of any Lien. From and immediately after the Closing, each of the Guarantor Subsidiaries is and will be a Guarantor under the Indenture. 5.4. Governmental Consents, etc. Except as set forth in Schedule -------------------------- 5.4, no registrations with, or consents or approvals of, filings and other action in respect of, any governmental authority are or will be required in connection with the transactions contemplated by the Agreement, the Other Purchase Agreements, any other Operative Agreement or 10 Note and Warrant Purchase Agreement ----------------------------------- the Nirenberg Documents, including, without limitation, the offering, issuance, sale and delivery of the Notes and the Purchase Warrants, the consummation of the Nirenberg Transaction, the delivery of the Amendment Warrants, other than any which have been made, obtained, given, filed or taken and are in full force and effect or the failure to make, obtain, give, file or take would not have a material adverse effect on the interests of the 1995 Note Holders, the 1994 Note Holders or the Warrant Holders under this Agreement, the Other Purchase Agreements or any of the other Operative Agreements, as applicable, or the ability of the Company, and each Guarantor as applicable, to perform timely its obligations under this Agreement, the Other Purchase Agreements and the other Operative Agreements. 5.5. Enforceability. Each of this Agreement and the other Operative -------------- Agreements constitutes the legal, valid and binding obligation of the Company, and each Guarantor, as applicable, in each case enforceable in accordance with its respective terms (subject, as to the enforcement of remedies, to applicable bankruptcy, reorganization, insolvency, moratorium and similar laws affecting creditors' rights generally and to general principles of equity). 5.6. Business; Financial Statements. (a) The Company has heretofore ------------------------------ furnished to the Purchasers complete and correct copies of (i) an audited - balance sheet and statement of operations of the Company and its Subsidiaries as of and for the Company's most recently completed full fiscal year (ii) a balance -- sheet and statement of operations for the Company and its Subsidiaries as of and for each of the last three fiscal quarters of the Company in each case showing the financial condition and results of operations of the Company and its consolidated Subsidiaries as of the end of each such period and for the then elapsed portion of the fiscal year of the Company. Each such financial statement presents fairly the financial position and results of operations of the Company and its Subsidiaries and has been prepared in accordance with GAAP applied on a consistent basis throughout the periods specified, subject, in the case of the financial statements referred to in clause (ii) of this Section 5.6(a), to normal year-end audit adjustments. The balance sheets referred to in clause (i) of this Section 5.6(a) and any notes thereto disclose all material liabilities, direct or contingent, of the Company and its Subsidiaries as of the respective dates thereof as required to be disclosed therein by GAAP. 11 Notes and Warrant Purchase Agreement ------------------------------------ (b) At the time of the Closing and immediately after giving effect to the transactions contemplated by this Agreement, the Other Purchase Agreements, and the other Operative Agreements, including, without limitation, the issue and sale of the Notes and the Purchase Warrants, the execution and delivery of the Indenture and the consummation of the Nirenberg Transaction: (i) the aggregate - value of all of the assets of the Company and the Subsidiaries, taken together, at a fair valuation, in each case, exceeds the respective probable liabilities of the Company and its Subsidiaries, taken together (including contingent, unmatured and unliquidated liabilities); (ii) the Company and its Subsidiaries, -- taken together, will (and have no reason to believe that they will not have thereafter) have sufficient cash flow to enable each of them to repay their respective debts and liabilities as they mature or come due; and (iii) none of --- the Company and its Subsidiaries will have unreasonably small capital. For purposes of this Section 5.6, the "fair value" of such assets shall be determined on the basis of that amount which may be realized within a reasonable time, either through collection or sale of such assets at the regular market value, conceiving the latter as the amount which could be obtained for the property in question within such period by a capable and diligent businessperson from an interested buyer who is willing to purchase under ordinary selling conditions. 5.7. No Material Adverse Change. There has been no material adverse -------------------------- change in the business, assets, prospects, properties, operations of or in the condition (financial or otherwise) of the Company and the Subsidiaries, taken as a whole (a "MATERIAL ADVERSE EFFECT"), since the date of the most recent balance sheet referred to in Section 5.6(a)(i) hereof. 5.8. Indebtedness. Schedule 5.8 correctly sets forth all ------------ Indebtedness of the Company and the Subsidiaries outstanding or proposed to be outstanding at the Closing, after giving effect to the transactions contemplated by this Agreement, or for which the Company or any of the Subsidiaries has commitments, and identifies the collateral, if any, securing any such Indebtedness. Neither the Company nor any of the Subsidiaries is in default on the date of this Agreement with respect to any Indebtedness outstanding. 5.9. Litigation; Compliance with Laws. (a) There are no actions, -------------------------------- suits or proceedings at law or in equity or by or before any governmental authority now pending or, to the knowledge of the Company or any Subsidiary, 12 Note and Warrant Purchase Agreement ----------------------------------- threatened against or affecting the Company or any Subsidiary or the businesses, assets or rights of the Company or any Subsidiary (i) which involve the - transactions contemplated by this Agreement or any other Operative Agreement except as set forth in Schedule 5.9, or (ii) except as set forth in Schedule -- 5.9, as to which there is a reasonable possibility of an adverse determination and which, if adversely determined, could, individually or in the aggregate, materially impair the ability of the Company and the Subsidiaries taken as a whole to conduct business substantially as now conducted or materially and adversely affect the business, assets, operations or condition, finan cial or otherwise, of the Company and the Subsidiaries taken as a whole or impair the validity or enforceability of, or the ability of any of the Company or, as applicable, any Subsidiary to perform its respective obligations under, this Agreement, the Other Purchase Agreements, any of the other Operative Agreements or the Nirenberg Documents. (b) None of the Company or any Subsidiary is in violation of any law, rule or regulation, or in default with respect to any judgment, order, writ, injunction, decree, rule or regulation of any court or governmental agency or instrumentality, where such violation or default could have a Material Adverse Effect. The issuance of the Notes and Purchase Warrants hereunder, the use of the proceeds from the sale of the Notes and Purchase Warrants, and the consummation of the other transactions contemplated by this Agreement and by the other Operative Agreements, will not violate any applicable law or regulation or violate or be prohibited by any applicable judgment, writ, injunction, decree or order of any court or governmental instrumentality or agency. 5.10. Compliance with Orders, Other Instruments. Neither the Company ----------------------------------------- nor any of its Subsidiaries is in viola tion of the terms of its certificate of incorporation or by-laws or any term of any agreement or instrument to which it is a party or by which it or any of its properties or assets is bound or any term of any applicable law, ordinance, rule or regulation of any governmental authority or any term of any applicable order, judgment or decree of any court, ar bitrator or governmental authority (including, without limitation, any law, ordinance, rule, regulation, or order relating to environmental, health and safety standards or equal employment practice requirements), the consequences of which violation would have a Material Adverse Effect. The consummation of the transactions contemplated by this Agree ment and the other Operative Agreements will not (i) violate - 13 Note and Warrant Purchase Agreement ----------------------------------- (A) any applicable provision of law, statute, rule or regulation or the - certificate of incorporation or by-laws or regulations of the Company or, in respect of the Guarantees, any Subsidiary, (B) any order of any court, or any - rule, regulation or order of any other agency of government binding on the Company or any Subsidiary, or (C) any provisions of any indenture, agreement or - other instrument to which the Company or any Subsidiary or any of their respective properties or assets is or may be bound, (ii) be in conflict with, -- result in a breach of or constitute (alone or with notice or lapse of time or both) a default under any indenture, agreement or other instrument referred to in (i) (C) above, or (iii) result in the creation or imposition of any Lien of - - --- any nature whatsoever upon any property or assets of the Company or any Subsidiary. 5.11. Patents, Trademarks, Authorizations, etc. The Company and each ----------------------------------------- of the Guarantors own or possess, without any material conflict with the rights of others, all licenses and authorizations, and all rights with respect to patents, trademarks, service marks, tradenames and copyrights which the failure to own or possess would have a Material Adverse Effect. 5.12. Certain Fees. No broker's, finder's, investment banker's or ------------ similar fee or commission has been paid or will be payable by the Company with respect to or for any services rendered to the Company or any Affiliate ancillary to the offer, issue and sale of the Notes or the Purchase Warrants or the other transactions contemplated by this Agreement except the commitment fees under Section 4.21 and the Amendment Warrants. 5.13. Federal Reserve Regulations. The Company does not own and does --------------------------- not have any present intention of acquiring any "margin stock" as defined in Regulation G (12 CFR Part 207) of the Board of Governors of the Federal Reserve System (herein called "margin stock"), the current market value of which would equal or exceed 25% of the assets of the Company. No part of the proceeds of the Notes or the Purchase Warrants will be used in a manner that violates Regulation G, Regulation T, Regulation X or any other regulation of the Board of Governors of the Federal Reserve Act. Neither the Company nor any agent acting on its behalf has taken or will take any action which would cause this Agreement, the Notes or the Purchase Warrants to violate Regulation G, Regulation T (12 CFR Part 224), Regulation X or any other regulation of the Board of Governors of the Federal Reserve System or to violate the 14 Note and Warrant Purchase Agreement ----------------------------------- Exchange Act, as amended, in each case as in effect now or as the same may hereafter be in effect. 5.14. Taxes. The Company and each of the Subsid iaries, has filed or ----- caused to be filed all Federal, state and local tax returns which are required to be filed by it, and has paid or caused to be paid all taxes required to be paid with respect to the taxable periods covered by such returns or on any assessment received by it, and has paid any taxes or assessments therefor required to be paid without the filing of any return, other than any taxes or assessments the validity of which the Company or any of its Subsidiaries is contesting in good faith by appropriate proceedings, and with respect to which the Company or any such Subsidiary shall have set aside on its books adequate reserves. The Federal income tax returns of each of the Company and its Consolidated Subsidiaries have been audited by the United States Internal Revenue Service through the respective year set forth opposite its name on Schedule 5.14, and, except as set forth on Schedule 5.14, neither the Company nor any of the Subsidiaries has, as of the date hereof, requested or been granted any extension of time to file any Federal tax return. 5.15. Compliance with ERISA. (a) Neither the Company nor any of its --------------------- Subsidiaries has breached the fiduciary rules of ERISA or engaged in any prohibited transaction, and no such breach or prohibited transaction has occurred, which, in any such case, could result in any direct or indirect liability (including, without limitation, as a result of an indemnification obligation) to the Company or any of its Subsidiaries in connection with a suit for damages or pursuant to section 409, 502(i) or 502(l) of ERISA or section 4975 of the Code where such breach or prohibited transaction would have a Material Adverse Effect. (b) Other than for premiums payable in the normal course that are not past due, none of the Company, any of its Subsidiaries nor any Related Person has incurred any direct or indirect material liability (including, without limitation, as a result of an indemnification obligation) under or pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans and no event, transaction or condition has occurred or exists or, to the Company's best knowledge, is expected to occur or exist with respect to any Plan that could result in any such liability to the Company, any of its Subsidiaries or any Related Person. There has been no reportable event (within the meaning of section 4043(b) of 15 Note and Warrant Purchase Agreement ----------------------------------- ERISA) or any other event or condition with respect to any Plan which presents a risk of the termination of, or the appointment of a trustee to administer, any such Plan by the PBGC. (c) Full timely payment has been made of all amounts which the Company, any of its Subsidiaries or any Related Person is required under applicable law, the terms of each Plan or any collective bargaining agreement to have paid as contributions to each such Plan , and no accumulated funding deficiency (as defined in section 302 of ERISA or section 412 of the Code), whether or not waived, exists or is expected to exist with respect to any Plan (other than a Multiemployer Plan). Except as set forth on Schedule 5.15, neither the Company, any of its Subsidiaries nor any Related Person maintains or contributes to, and at no time during the preceding six years has the Company, any of its Subsidiaries or any Related Person maintained or contributed to, any Plan that is subject to section 302 or Title IV of ERISA or section 412 of the Code. (d) The present value of the benefit liabilities (whether or not vested) under each Plan (other than a Multiemployer Plan), determined as of the end of each such Plan's most recently ended Plan year on the basis of the actuarial assumptions specified for funding purposes in each such Plan's actuarial valuation report for such Plan year, each of which assumptions is reasonable and in compliance with section 412 of the Code, did not exceed the current value of the assets of each such Plan allocable to such benefit liabilities, and no event has occurred since such date that could reasonably be expected to cause the present value of such benefit liabilities to increase by a material amount. The terms "present value," "current value," "benefit liabilities" and "unfunded benefit liabilities" shall have the meanings assigned to such terms in section 3 or 4001 of ERISA, as applicable. (e) No Plan is a Multiemployer Plan or a "multiple employer" plan (within the meaning of section 4063 or 4064 of ERISA) except as set forth on Schedule 5.15. (f) The execution and delivery of this Agreement and the Other Purchase Agreements and the issuance and sale of the Notes and the Purchase Warrants hereunder and thereunder will not involve any transaction which is subject to the prohibitions of section 406 of ERISA or in connection with which a tax could be imposed pursuant to section 4975 of the Code. 16 Note and Warrant Purchase Agreement ----------------------------------- The Company is not a party in interest with respect to any employee benefit plan whose name has been disclosed to the Company pursuant to Section 6.3 (b), and securities of the Company are not employer securities with respect to any such plan. The representation by the Company in the preceding sentence is made in reliance upon and subject to the accuracy of your representation in Section 6.3 of this Agreement and the respective representations of the Other Purchasers in Section 6.3 of the Other Purchase Agreement as to the source of the funds to be used by you and the Other Purchasers to pay the purchase price of the Notes to be purchased by you and the Other Purchasers. As used in this Section 5.15, the terms "employee benefit plan" and "party in interest" have the respective meanings assigned to such terms in section 3 of ERISA and the term "employer securities" has the meaning assigned to such term in section 407(d)(1) of ERISA. 5.16. Disclosure. None of the Operative Agreements, the Nirenberg ---------- Documents or any Officers' Certificate furnished to you by or on behalf of the Company or any of the Guarantors in connection with the transactions contemplated by the Operative Agreements, contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein and therein not misleading. There is no fact known to the Company which may reasonably be expected to be or result in a Material Adverse Effect. 5.17. Investment Company Act; Public Utility Holding Company Act. ---------------------------------------------------------- Neither the Company nor any Subsidiary is an "investment company" as defined in, or subject to regulation under, the Investment Company Act of 1940. Neither the Company nor any Subsidiary is a "holding company" as defined in, or subject to regulation under, the Public Utility Holding Company Act of 1935. 5.18. Capitalization of the Company. The authorized capital stock ----------------------------- of the Company is as set forth on Schedule 5.18 ("CAPITAL STOCK"). Except as set forth on Schedule 5.18, there are no outstanding subscriptions, options, warrants, calls, rights (including preemptive rights), commitments or agreements of any character relating to any capital stock of the Company. At the time of the sale of the Notes and Purchase Warrants and after giving effect to the other transactions contemplated by this Agreement and the other Operative 17 Note and Warrant Purchase Agreement ----------------------------------- Agreements, all outstanding shares of Capital Stock of the Company will be validly issued, fully paid and non-assessable. At the time of the Closing and after giving effect to the transactions contemplated by this Agreement, the Company will not have outstanding stock or securities convertible into or exchangeable or exercisable for any shares of its Capital Stock (other than pursuant to Section 4.5 of the Restated Certificate of Incorporation), nor will it have outstanding any rights to subscribe for or to purchase, or any options for the purchase of, or any agreements providing for the issuance (contingent or otherwise) of, or any calls, commitments or claims of any character relating to, any shares of Capital Stock. At the time of the Closing and after giving effect to the transactions contemplated by this Agreement, the Company shall not be subject to any obligation (contingent or otherwise) to redeem, purchase or otherwise acquire or retire any shares of Capital Stock. At the time of the Closing and after giving effect to the transactions contemplated by this Agreement, the Company shall not be a party to any agreement restricting the transfer of any shares of its Capital Stock except as may be required by applicable law. At the time of the Closing, assuming issuance of all the Amendment Warrants issuable pursuant to the Consent Agreement, the Warrants will be exercisable for Class A Common Stock constituting not less than 26% of the Class A Common Stock of the Company on a fully diluted basis. 5.19. Offering of Notes or Purchase Warrants. Neither the Company nor -------------------------------------- any agent acting on its behalf has, directly or indirectly, offered the Notes or Purchase Warrants or any similar security of the Company for sale to, or solicited any offers to buy the Notes or Purchase Warrants or any similar security of the Company from, or otherwise approached or negotiated with respect thereto with, any person other than you, the Other Purchasers and not more than three (3) other accredited investors and neither the Company nor any agent acting on its behalf has taken or will take any action which would subject the issuance or sale of the Notes or the issuance of the Warrants to the provisions of section 5 of the Securities Act or to the provisions of any securities or Blue Sky law of any applicable jurisdiction. 5.20. Foreign Assets Control Regulations, etc. Neither the issue and --------------------------------------- sale of the Notes or Purchase Warrants nor the use of the proceeds thereof as contemplated by this Agreement will violate any of the following regulations of the United States Treasury Department (31 C.F.R. Subtitle B, 18 Note and Warrant Purchase Agreement ----------------------------------- Chapter V, as amended): the Foreign Assets Control Regulations, the Transaction Control Regulations, the Cuban Assets Control Regulations, the Foreign Funds Control Regulations, the Iranian Assets Control Regulations, the South African Transactions Regulations, the Libyan Sanctions Regulations, the Nicaraguan Trade Control Regulations, the Panamanian Transaction Regulations and the Soviet Gold Coin Regulations of the United States Treasury Department (31 C.F.R., Subtitle B, Chapter V as amended), Executive Order No. 12635, 53 Fed. Reg. 12134 (1988), Executive Order 12724, 55 Fed. Reg. 33089 (1990) or Executive Order 12725, 55 Fed. Reg. 33091 (1990). 5.21. Absence of Undisclosed Liabilities. After giving effect to the ---------------------------------- transactions contemplated by this Agreement, neither the Company nor any Subsidiary will, to the best of the knowledge of the Company, have any obligation or liability (whether accrued, absolute, contingent, unliquidated or otherwise, whether due or to become due) arising out of transactions entered into at or prior to the Closing, or any action or inaction at or prior to the Closing, including taxes with respect to or based upon transactions or events occurring at or prior to the Closing, other than (i) the obligations of the - Company under this Agreement, (ii) liabilities fully and adequately reflected or -- reserved against in the financial statements referred to in Section 5.6(a) hereof, (iii) liabilities incurred under agreements (other than agreements to --- borrow money), leases or purchase orders entered into in the ordinary course of business, and (iv) other liabilities reflected in Schedules attached to this -- Agreement, and (v) such other obligations or liabilities that, singularly or in - the aggregate, would not have a Material Adverse Effect. 5.22. Use of Proceeds. Contemporaneously with the Closing, the --------------- Company will use the proceeds of the sale of the Notes and Purchase Warrants to consummate the Nirenberg Transaction. 5.23. Licenses. The Company and the Guarantors hold all licenses, -------- franchises, permits, consents, registrations, certificates and other approvals (including, without limitation, those relating to environmental matters, public and worker health and safety, buildings, highways or zoning) (individually, a "License") required for the conduct of their respective businesses as now being conducted, and are operating in compliance therewith, except where the failure to hold any such License or to operate in compliance therewith would not have a Material Adverse Effect. 19 Note and Warrant Purchase Agreement ----------------------------------- 5.24. Environmental Regulation, Etc. ------------------------------ (a) Except as set forth on Schedule 5.24, to the knowledge of the Company, each of the Company and its Subsidiaries (i) has no liability under any - Environmental Law or common law cause of action relating to or arising from environmental conditions which could have a Material Adverse Effect, and any property owned, operated, leased, or used by the Company and its Subsidiaries and any facilities and operations thereon comply with all applicable Environmental Laws to the extent that failure to comply could have a Material Adverse Effect; and (ii) has never entered into or been subject to any judgment, -- consent decree, compliance order, or administrative order with respect to any environmental or health and safety matter or claim with respect to any environmental or health and safety matter or the enforcement of any Environmental Law, other than such judgment, consent, decree, compliance order, administrative order or claim which, singularly or in the aggregate, do not have a Material Adverse Effect. (b) Except as set forth on Schedule 5.24, to the knowledge of the Company: (i) each of the Company and its Subsidiaries has not generated, - transported, used, stored, treated, disposed of, or managed any Hazardous Waste, except in accordance with applicable Environmental Laws or such violations as would not have a Material Adverse Effect; (ii) the Company is not aware of any -- Release or Threat of Release of a Hazardous Material at any site presently or formerly owned, operated, leased, or used by the Company or any of its Subsidiaries that would have a Material Adverse Effect; and (iii) the Company --- and its Subsidiaries have never had a lien imposed by any governmental agency or authority on any property, facility, machinery, or equipment owned, operated, leased, or used by the Company or any of its Subsidiaries in connection with the presence of any Hazardous Material which lien would have a Material Adverse Effect. 5.25. Transactions with Affiliates. Except for the Nirenberg ---------------------------- Transaction and the Kupperman Transaction, there are no material transactions, agreements or understandings, existing or presently contemplated, between or among the Company or any of its Subsidiaries and any of the Company's officers or directors or stockholders or any of their respective Affiliates or associates. Schedule 4.1(f) sets forth all of the documents entered into or to be entered into by the Company, any of the Guarantors, or any of their respective officers and directors in connection 20 Note and Warrant Purchase Agreement ----------------------------------- with the Nirenberg Transaction and the Kupperman Transaction (the "Nirenberg --------- Documents"). Upon consummation of the Nirenberg Transaction, none of Nirenberg, - --------- FCN, the Foundation or any other entity controlled by Nirenberg, FCN or the Foundation will have any right, interest or claim to any of the interests transferred to the Company in connection with the Nirenberg Transaction or any claim against the Company. Nirenberg, on behalf of himself and his affiliates, has released the Company and its affiliates from any and all claims that Nirenberg and/or his affiliates ever had, now has, or hereafter can, shall or may have, for, upon or by reason of his former employment with, service as an officer and director of, or direct or indirect holding of equity securities of the Company, including, without limitation, by virtue of the FCN Note (as defined in the Nirenberg Documents) or the agreements executed in connection therewith, or in any other capacity relating to the Company, and the termination of the foregoing relationships, including, but not limited to, any claims arising under any federal, state or local law or ordinance, tort, employment contract (express or implied), public policy, or any other obligation, including, without limitation, any claims arising under Title VII of the Civil Rights Act of 1964, as amended, the Age Discrimination in Employment Act, as amended, and all claims for wrongful discharge, workers' compensation, wages, monetary or equitable relief, vacation, compensation in lieu of vacation, disability, other employee fringe benefits, benefit plans, medical plans, or attorneys' fees; provided, however, that notwithstanding the foregoing, -------- ------- Nirenberg reserves and has not released (i) any rights he may have pursuant to the Company's 401(k) and profit sharing plans, (ii) his ability to seek and obtain indemnification by the Company to the extent he is entitled to be indemnified by the Company pursuant to this Agreement and the Company's Restated Certificate of Incorporation and Amended and Restated By-laws as in effect on the date hereof, (iii) all claims relating to the performance of the Company's obligations under the Nirenberg Documents, and (iv) his ability to assert claims for contribution or other appropriate relief against the Company or one or more affiliates in any action in which he is a defendant commenced by any third party, including but not limited to one or more stockholders of the Company seeking to act on behalf of the Company. Upon consummation of the Kupperman Transaction, Kupperman shall have resigned as employee, officer and director of the Company and all of its Subsidiaries. Mr. Kupperman, on behalf of himself and his affiliates, has released all claims against the Company, its 21 Notes and Warrant Purchase Agreement ------------------------------------ subsidiaries and their respective former, current and future officers, directors, employees, stockholders, agents, attorneys and other representatives from any and all actions, causes of action, suits, debts, accounts, covenants, contracts, controversies, agreements, promises, judgments, demands, liability, claims and damages whatsoever, in law or at equity, that Kupperman and/or his Affiliates ever had, or may have, for or upon or by reason of his employment with, service as director of, or direct or indirect holding of equity security in the Company; provided however, that notwithstanding the foregoing, Kupperman -------- ------- reserved (A) any rights he may have pursuant to the Company's 401k and profit - sharing plan, (B) any rights he may have under the Company's Other Employee - Benefit Arrangements, (C) his ability to seek certain indemnification by the - Company, (D) all claims relating to the performance of the Company's obligations - and (E) his ability to assert claims for contribution or other appropriate - relief against the Company and its Affiliates. 6. REPRESENTATIONS OF THE PURCHASER. 6.1. Purchase for Investment. You represent that you are purchasing ----------------------- the Notes and Purchase Warrants being purchased by you hereunder for your own account and not with a view to or for sale in connection with any distribution thereof within the meaning of the Securities Act, provided that the disposition -------- of your property shall at all times be and remain within your control. 6.2. Corporate Authorization; Validity and Binding Effect. You ---------------------------------------------------- represent that you have full power and authority and have taken all action necessary to authorize you to enter into and perform your obligations under this Agreement and all other documents or instruments contemplated hereby. This Agreement is a legal, valid and binding obligation of yours, and is enforceable in accordance with its terms, except for (a) the effect upon this Agreement of bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to or affecting the rights of creditors generally and (b) limitations imposed by a court of competent jurisdiction under general equitable principles upon the specific enforceability of any of the remedies, covenants or other provisions of this Agreement and upon the availability of injunctive relief or other equitable remedies. You further represent that you are an accredited investor as defined in Regulation D under the Securities Act and you understand and agree that the Notes have not been registered under the Securities Act or 22 Note and Warrant Purchase Agreement ----------------------------------- any state securities law and may be sold only if registered pursuant to the provisions of the Securities Act or if an exemption from registration is available. 6.3. Source of Funds. At least one of the fol lowing statements is --------------- an accurate representation as to the source of funds to be used by you to pay the purchase price of the Notes and Purchase Warrants purchased by you hereunder: (a) if you are an insurance company, no part of such funds constitutes assets allocated to any separate account maintained by you in which any employee benefit plan (or its related trust) has nay interests; or (b) if you are an insurance company, to the extent that any part of such funds constitutes assets allo cated to any separate account maintained by you, (i) such separate account is a "pooled separate account" within the meaning - of Prohibited Transaction Class Exemption 90-1, in which case you have disclosed to the Company the name of each employee benefit plan whose assets in such separate account exceed 10% of the total assets or are expected to exceed 10% of the total assets of such account as of the date of such purchase (and for the purposes of this sub division (b), all employee benefit plans maintained by the same employer or employee organization are deemed to be a single plan), or (ii) -- such separate account contains only the assets of a specific employee benefit plan, complete and accurate information as to the identity of which you have delivered to the Company; or (c) if you are other than an insurance company, all or a portion of such funds consists of funds which do not constitute assets of any employee benefit plan (other than a governmental plan exempt from the coverage of ERISA), and the remaining portion, if any, of such funds consists of funds which may be deemed to constitute assets of one or more specific employee benefit plans, complete and accurate information as to the identity of each of which you have delivered to the Company. As used in this Section 6.3, the terms "employee benefit plan", "governmental plan", "party in interest" and "sep arate account" shall have the respective meanings assigned to such terms in section 3 of ERISA. 23 Note and Warrant Purchase Agreement ----------------------------------- 7. COVENANTS OF THE COMPANY. 7.1. Performance of Company's Obligations. The Company shall at all ------------------------------------ times promptly perform its obligations under the Indenture, the Warrants and the Registration Rights Agreement. 7.2. NASDAQ Stock Market. As soon as practicable following the ------------------- Closing Date, the Company shall take all action necessary so that the Warrants and the shares of Class A Common Stock issuable on exercise thereof shall have been approved for trading on the NASDAQ Stock Market. 7.3. Financial Statements, Reports, etc. For so long as any Notes ---------------------------------- and Warrants are not registered under the Securities Act, the Company shall furnish to each holder of Notes and Warrants: (a) within 120 days after the end of each fiscal year of the Company, a balance sheet and an income statement of the Company, showing the financial condition of the Company and the Subsidiaries on a consolidated basis as of the close of such fiscal year and the results of operations during such year, and a statement of stockholders' equity and a statement of cash flows as of the close of such fiscal year, all the foregoing financial statements of the Company and the Subsidiaries on a consolidated basis to be prepared in accordance with GAAP consistently applied (except for such changes therein as the Accountants conclude are appropriate), such consolidated financial statements to be audited by the Accountants and accompanied by an opinion of the Accountants, which opinion shall state that said financial statements fairly present the financial condition and results of operations of the Company and the Subsidiaries, on a consolidated basis at the end of, and for, such fiscal year with such exceptions or qualifications as the Accountants deem appropriate except that the opinion of the Accountants shall be free of exceptions or qualifications as to scope; (b) within 60 days after the end of each of the first three fiscal quarters of each fiscal year of the Company, an unaudited balance sheet and an unaudited income statement showing the financial condition and results of operations of the Company and the Subsidiaries, on a consolidated basis as of the end of each such quarter and for the then elapsed portion of the fiscal year certified by a Financial Officer of the 24 Note and Warrant Purchase Agreement ----------------------------------- Company as presenting fairly the financial position and results of operations of the Company and the Subsidiaries on a consolidated basis and as having been prepared in accordance with GAAP consistently applied (except for such changes or exceptions therein as the Accountants conclude are appropriate), in each case subject to normal year-end audit adjustments; (c) promptly after the same become publicly available, copies of such annual, periodic and other reports, and such proxy statements and other information, as shall be filed by the Company or any Subsidiary with the Securities and Exchange Commission pursuant to the requirements of the Exchange Act. 7.4. Additional Distribution of Warrants. The Company agrees that, ----------------------------------- in the event that the Registrable Equity Securities (as defined in the Registration Rights Agreement) are not all registered under the Securities Act pursuant to an effective shelf registration statement (as provided for in the Registration Rights Agreement) on or before November 29, 1996, the Company shall, within 20 days of such date, distribute additional Warrants for the purchase of 121,500 Shares (as defined in the Warrant), on a pro rata basis to --- ---- holders of record of the Purchase Warrants on November 26, 1996. 7.5. Agreement to Supplement Indenture. The Company will undertake --------------------------------- to work with the Trustee under the Indenture to amend or supplement certain provisions of the Indenture identified to the Company prior to the date hereof as the Trustee may determine necessary or appropriate. 8. PAYMENTS OF NOTES. 8.1. Place of Payment. Payments of principal, premium, if any, and ---------------- interest becoming due and payable on the Notes shall be made at the principal office of the Trustee, unless the Company, by written notice to each holder of any Notes, shall designate the principal office of another bank or trust company in the Borough of Manhattan, the City and State of New York, as such place of payment, in which case the principal office of such other bank or trust company shall thereafter be such place of payment. 8.2. Home Office Payment. So long as you or your nominee shall be ------------------- the holder of any Note, and notwithstanding anything contained in Section 8.1, in the Indenture or on such Note to the contrary, all sums becoming due on such 25 Note and Warrant Purchase Agreement ----------------------------------- Note for principal, premium, if any, and interest will be paid by the method and at the address specified for such purpose in the Schedule of Purchasers, or by such other method or at such other address as you shall have from time to time specified to the Company in writing for such purpose, without the presentation or surrender of such Note or the making of any notation thereon, except that any Note paid or prepaid in full shall be surrendered to the Company at its principal office or at the place of payment maintained by the Company pursuant to Section 8.1 for cancellation. Prior to any sale or other disposition of any Note held by you or your nominee you will, at your election, either endorse thereon the amount of principal paid thereon and the last date to which interest has been paid thereon or surrender such Note to the Company in exchange for a new Note or Notes pursuant to Section 3.7 of the Indenture. The Company will afford the benefits of this Section 8.2 to any Institutional Holder which is the direct or indirect transferee of any Note purchased by you under this Agreement and which has made the same agreement relating to such Note as you have made in this Section 8.2. 9. DEFINITIONS. For the purpose of this Agreement, the following terms have the meanings specified with respect thereto below: "AFFILIATE" means, with respect to any Person, any other Person directly or indirectly controlling or controlled by or under common control with such 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. "AMENDMENT WARRANTS" means the warrants to purchase 500,000 shares of Class A Common Stock, subject to adjustment, substantially in the form of Exhibit F, at an initial exercise price as set forth therein issued or to be issued to the 1994 Note Holders in respect of the amendment of the Original Indenture embodied in the Indenture. "CAPITAL STOCK" has the meaning set forth in Section 5.18 hereof. "CDA" means the Connecticut Development Authority. 26 Note and Warrant Purchase Agreement ----------------------------------- "CDA NOTE" means the 9% Secured Promissory Note, dated March 12, 1992, in the original principal amount of $7,100,000, made by DM Associates in favor of the CDA. "CDA PLEDGE AGREEMENT" means the Stock Pledge Agreement, dated March 12, 1992, between DM Associates and CDA, which was subsequently assigned to FCN. "CLASS A COMMON STOCK" means the Class A Common Stock of the Company, par value $0.01 per share. "CLASS B COMMON STOCK" means the Class B Common Stock of the Company, par value $0.01 per share. "CLOSING" has the meaning set forth in Section 3 hereof. "CLOSING DATE" has the meaning set forth in Section 3 hereof. "CODE" means the Internal Revenue Code of 1986, as amended from time to time. "COMMISSION" means the U.S. Securities and Exchange Commission and any successor federal agency having similar powers. "COMPANY" has the meaning set forth in the Pre amble hereof. "COMPANY SENIOR INDEBTEDNESS" has the meaning set forth in the Indenture. "CONSENT" or "CONSENTS" means the consent of 1994 Note Holder(s) to waiver of certain defaults under the 1994 Indenture, which consents are contained in the Consent Agreement. "CONSENT AGREEMENT" means the Consent and Waiver Agreement, substantially in the form of Exhibit D hereto. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. "ENVIRONMENT" means soil, surface waters, groundwaters, land, stream sediments, surface or subsurface strata and ambient air. 27 Note and Warrant Purchase Agreement ----------------------------------- "ENVIRONMENTAL LAW(S)" means and includes any environmental or health and safety-related law, regulation, rule, ordinance, or legally enforceable requirement at the foreign, Federal, state, or local level. "EXCHANGE ACT" means, at any time, the Securities Exchange Act of 1934, as then in effect, or any similar Federal Statute then in effect, any reference to a particular section of such Act shall include a reference to the comparable section, if any, of any such similar federal statute. "EVENT OF DEFAULT" has the meaning set forth in the Indenture. "FCN" means FCN Partners Corporation, a Connecticut corporation. "GAAP" means generally accepted accounting principles as in effect at the time of application to the provisions hereof. "GUARANTEES" has the meaning set forth in Section 1.3 hereof. "GUARANTORS" has the meaning set forth in the Indenture. "GUARANTOR 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, without limitation, partnership interests) entitled 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 or (ii) one or more Guarantor Subsidiaries. Notwithstanding - -- the foregoing, the Non-Recourse Subsidiary shall not be deemed to be a Guarantor Subsidiary. "HAZARDOUS MATERIALS" means and includes any hazardous waste, hazardous material, hazardous substance, petroleum product, oil, toxic substance, pollutant, contaminant, or other human health or safety, as defined or regulated under any Environmental Law. "HAZARDOUS WASTE" means and includes any hazardous waste as defined or regulated under any Environmental Law. 28 Note and Warrant Purchase Agreement ----------------------------------- "INDEBTEDNESS" has the meaning assigned to such term in the Indenture. "INDEMNIFIED PARTY" has the meaning set forth in Section 10.2 hereof. "KUPPERMAN" means Mitchell J. Kupperman. "KUPPERMAN TRANSACTION" means the resignation and termination of Kupperman as an employee, officer and director of the Company and its Subsidiaries. "MATERIAL ADVERSE EFFECT" has the meaning set forth in Section 5 hereof. "MULTIEMPLOYER PLAN" means a Plan which is a "multiemployer plan" (as such term is defined in section 4001(a)(3) of ERISA). "1995 NOTE HOLDERS" means the beneficial owners of the Notes. "1994 NOTE HOLDERS" means the owners of record of the 1994 Notes on the date hereof. "1994 NOTES" means the 10-1/4% Senior Subordinated Notes of the Company issued pursuant to the 1994 Indenture. "NIRENBERG" means Charles Nirenberg. "NIRENBERG AGREEMENT" means that certain agreement dated as of October 30, 1995, by and among Nirenberg, FCN, the Nirenberg Foundation and the Company, as amended through the date hereof. "NIRENBERG DOCUMENTS" has the meaning set forth in Section 5.25 hereto. "NIRENBERG TRANSACTION" means the purchase by the Company, pursuant to and upon the terms set forth in the Nirenberg Agreement, (i) all right, title and interest in and to the limited partner interests of Nirenberg and the Nirenberg Foundation in DM Associates; (ii) all right, title and interest in and ownership by FCN of the CDA Note and all of FCN's right, title and interest in 1,220,000 shares of the Class B Common Stock pledged by DM Associates as security for the payment of the CDA Note pursuant to the CDA Pledge Agreement, the CDA Pledge Agreement and any other agreement executed by DM Associates in favor of the CDA in 29 Note and Warrant Purchase Agreement ----------------------------------- connection with the CDA Note and/or the loan evidenced thereby; and (iii) all right, title and interest of Nirenberg, FCN and the Nirenberg Foundation pursuant to the agreements, instruments and letters dated January 25, 1995 and entered into by such parties with the Company and/or the other limited partners of DM Associates and the other general partners of New DM Management Associates I, a Connecticut general partnership, and new DM Management Associates II, a Connecticut general partnership, in connection with the reconstitution of DM Associates and its general partners. "NOTES" has the meaning set forth in Section 1.1 hereof. "OFFICERS' CERTIFICATE" means with respect to either the Company or any of its Subsidiaries, as the case may be, a certificate executed on behalf of such entity by (i) its President, one of its Vice Presidents and (ii) its chief - -- financial officer, chief accounting officer or its treasurer. "OPERATIVE AGREEMENTS" means this Agreement, the Other Purchase Agreements, the Guarantees the Indenture, the Notes, the Consent Agreement, the Warrants, the Registration Rights Agreement, and the Supplemental Indenture. "ORIGINAL INDENTURE" means the Indenture, among the Company, the Guarantors and Society National Bank, dated as of March 15, 1994, relating to the original issuance of the 1994 Notes, as supplemented by the Supplemental Indenture. "ORIGINAL TRUSTEE" means Society National Bank. "OTHER PURCHASE AGREEMENTS" has the meaning set forth in Section 2.3. "OTHER PURCHASERS" has the meaning set forth in Section 2.3. "PBGC" means the Pension Benefit Guaranty Corporation or any governmental authority succeeding to any of its functions. "PERSON" means an individual, a partnership, a joint venture, a corporation, a trust, an unincorporated organization or a government or any department or agency thereof. 30 Note and Warrant Purchase Agreement ----------------------------------- "PLAN" means an "employee benefit plan" (within the meaning of section 3 of ERISA) which is or has been established or maintained, or to which contributions are or have been made by the Company, any of its Subsidiaries or any Related Person. "PURCHASE WARRANTS" has the meaning set forth in Section 1.2 hereof. "PURCHASERS" means the purchasers listed in the Schedule of Purchasers. "REGISTRATION RIGHTS AGREEMENT" has the meaning set forth in Section 4.9 hereof. "REGULATION G" shall mean Regulation G of the Board, as the same is from time to time in effect, and all official rulings and interpretations thereunder or thereof. "REGULATION T" shall mean Regulation T of the Board, as the same is from time to time in effect, and all official rulings and interpretations thereunder or thereof. "REGULATION X" means Regulation X of the Board, as the same is from time to time in effect, and all official rulings and interpretations thereunder or thereof. "RELATED PERSON" means, as of any date of determination, any trade or business, whether or not incorporated, which, together with the Company or any of its Subsidiaries, is treated as a single employer under section 414 of the Code or the regulations promulgated thereunder. "RELEASE" means any releasing, spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, disposing, or dumping into the Environment. "REPORTABLE EVENT" means any reportable event as defined in section 4043(b) of ERISA or the regulations issued thereunder with respect to a Plan (other than a Plan maintained by an ERISA Affiliate which is considered an ERISA Affiliate only pursuant to subsection (m) or (o) of section 414 of the Code). "REQUIRED CONSENTS" has the meaning set forth in Section 4.7(c) hereof. 31 Note and Warrant Purchase Agreement ----------------------------------- "SCHEDULE OF PURCHASERS" has the meaning set forth in Section 2.1. "SECURITIES ACT" means, at any time, the Securities Act of 1933, as then in effect or any similar federal statute then in effect, and any reference to a particular section of such Act shall include a reference to the comparable section, if any, of any such similar federal statute. "SUBSIDIARY" means any subsidiary of the Company which is a corporation, association or other business entity (including a partnership) that is incorporated or formed under the law of any United States jurisdiction. "SUPPLEMENTAL INDENTURE" means the Supplemental Indenture, dated as of November 29, 1995, by and among the Company, the Guarantors and First Bank National Association, as trustee. "THREAT OF RELEASE" means a substantial likelihood of a Release which requires action to prevent or mitigate damage to the Environment which may result from such Release. "WARRANTS" means the Purchase Warrants and the Amendment Warrants. 9.1. Accounting Terms. For the purposes of this Agreement, all ---------------- accounting terms not otherwise defined herein shall have the respective meaning assigned to them in accordance with GAAP. 10. MISCELLANEOUS. 10.1. Expenses. Whether or not the transactions contemplated by this -------- Agreement shall be consummated, the Company agrees to pay on demand all expenses in connection with such transactions and in connection with any amendment or waivers (whether or not the same become effective) under or in respect of this Agreement, the Notes and Purchase Warrants purchased by you, the Amendment Warrants issued to you, if any, or the other Operative Agreements, including, without limitation: (i) the cost and expenses of duplicating and printing this - Agreement, the other Operative Agreements, the Notes, the Warrants, of furnishing all opinions by counsel for the Company, and of the Company's performance and compliance with all agreements and conditions contained herein on its part to be performed or 32 Note and Warrant Purchase Agreement ----------------------------------- complied with; (ii) the fees, expenses and disbursements of your special counsel -- in connection with the negotiation, preparation and review of this Agreement, the Other Purchase Agreements, the other Operative Agreements, the Notes, the Warrants, and in connection with the other transactions contemplated by this Agreement, and in connection with any amendment or waivers (whether or not the same become effec tive) of any documents thereof; (iii) the cost and expenses --- of obtaining Private Placement Numbers for the Notes and for the Warrants; and (iv) the reasonable out-of-pocket expenses incurred by you in connection with - --- such transactions and any such amendments or waivers. The Company also agrees to save you and each of your Affiliates, your and their respective directors, officers, employees, agents and each Person who controls you or any Affiliate of yours within the meaning of the Securities Act or the Exchange Act harmless from, all claims, demands, or liabilities asserted against you in respect of the fees, if any, of brokers, finders or investment bankers or other similar fees and any and all liabilities with respect to any taxes (including interest and penalties) which may be payable in respect of the execution and delivery of this Agreement, the issue of the Notes at the Closing, the issue of the Warrants at or prior to the Closing, and the waiver under or in respect of this Agreement, the other Operative Agreements, the Notes or the Warrants. 10.2. Indemnification. The Company will indem nify and hold harmless --------------- each of you or any Affiliate of you, your and its respective directors, officers, employees, agents and each Person, if any, who controls you or any Affiliate of yours within the meaning of the Securities Act or Exchange Act (any and all of whom are referred to as the "INDEMNIFIED PARTY") from and against any and all losses, claims, damages and liabilities, whether joint or several (including all legal fees or other expenses reasonably incurred by any Indemnified Party in connection with the preparation for or defense of any pending or threatened third party claim, action or proceeding, whether or not resulting in any liability), to which such Indemnified Party may become subject (whether or not such Indemnified Party is a party thereto) under any applicable federal or state law or otherwise, caused by or arising out of, or allegedly caused by or arising out of, (i) the execution and delivery of any of the - Operative Agreements and the other documents contemplated hereby, the performance by the parties hereto and thereto of their respective obligations under any of the Operative Agreements (including, but not limited to, the issue and sale of the Notes and the Purchase Warrants) and 33 Note and Warrant Purchase Agreement ----------------------------------- the consummation of the transactions contemplated hereby and thereby, (ii) the -- use of the proceeds of the Notes and the Purchase Warrants or (iii) any claim, --- litigation, inves tigation or proceeding relating to any of the foregoing, whether or not any Indemnified Party is a party thereto; provided, however, that -------- ------- such indemnity shall not, as to any Indemnified Party, apply to any such losses, claims, dam ages, liabilities or related expenses which shall have been determined, in a final, nonappealable judgment of a court of competent jurisdiction, to have resulted solely from the gross negligence or willful misconduct of such Indemnified Party. Promptly after receipt by an Indemnified Party of notice of any claim, action or proceeding with respect to which an Indemnified Party is entitled to indemnity hereun der, such Indemnified Party will notify the Company of such claim or the commencement of such action or proceeding, provided that the -------- failure of an Indemnified Party to give notice as provided herein shall not relieve the Company of its obligations under this Section 10.2 with respect to such Indemnified Party, except to the extent that the Company is actually prejudiced by such failure. The Company will assume the defense of such claim, action or proceeding and will employ counsel reasonably satisfactory to the Indem nified Party and will pay the fees and expenses of such counsel. Notwithstanding the preceding sentence, the Indem nified Party will be entitled, at the expense of the Com pany, to employ counsel separate from counsel for the Com pany and for any other party in such action if the Indemni fied Party reasonably determines that a conflict of interest or other reasonable basis exists which makes representation by counsel chosen by the Company not advisable. This indemnification will be in addition to any other obligation that the Company may otherwise have under any of the Operative Agreements, and shall survive the transfer of any Note or Warrant or portions thereof or interest therein by you or any of your Affiliates and the payment of any Note or exercise of any Warrant. 10.3. Amendments and Waivers. Any term of this Agreement and the ---------------------- observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of (a)the Company and (b) the holders of at least a majority in - - principal amount of the Notes at the time outstanding issued pursuant hereto and pursuant to the Other Purchase Agreements, provided that, (i) without the -------- - 34 Note and Warrant Purchase Agreement ----------------------------------- prior written consent of the holders of all the Notes at the time outstanding, no such amendment or waiver shall amend Section 10.3, or reduce the aforesaid percentages of the principal amount of the Notes the holders of which are required to consent to any such amendment or waiver; and (ii) without the prior -- consent of the holders of all the Warrants amend Section 10.2. Any amendment or waiver effected in accordance with this Section 10.3 shall be binding on each holder of any Note issued and sold pursuant to this Agreement, any of the Other Purchase Agreements or the Indenture at the time outstanding, each future holder of any Note, each holder of any Warrant issued in connection with the transactions contemplated by this Agreement, each future holder of any Warrant, and the Company and its Subsidiaries. 10.4. Survival of Representations and Warranties; Entire Agreement. ------------------------------------------------------------ All representations and warranties con tained in this Agreement or otherwise made in writing in any Officers' Certificate delivered to you by or on behalf of the Company or any of its Subsidiaries, shall survive the execution and the delivery of this Agreement, any inves tigation at any time made by you or on your behalf, the purchase of the Notes by you under this Agreement, any payment of the Notes, the issuance of any Warrants as contemplated by this Agreement or by the Consent Agreement, and any disposition of such Notes or Warrants. All statements contained in any Officers' Certificate delivered by or on behalf of the Company or any of its Subsidiaries pursuant to this Agreement or in connection with the transactions contemplated hereby shall be deemed representations or warranties of the Company under this Agreement. 10.5. Successors and Assigns. This Agreement shall be binding upon ---------------------- and inure to the benefit of and be enforceable by or against the respective successors and assigns of the parties hereto, whether so expressed or not, and, in particular, shall inure to the benefit of and be enforceable against any holder or holders at any time of the Notes or the Purchase Warrants sold hereunder or any part thereof. Notwithstanding anything herein to the contrary, the Company may not assign its rights and obligations under this Agreement, other than by operation of law, without the prior written consent of (i) the - holders of 66-2/3% of the outstanding principal amount of the Notes and (ii) the -- holders of 66-2/3% of the outstanding Purchase Warrants. This Agreement embodies the entire agreement and understanding between you and the Company and supersedes all prior agreements and understandings relating to the subject matter hereof. 35 Note and Warrant Purchase Agreement ----------------------------------- 10.6. Disclosure to Other Persons. The Company acknowledges that the --------------------------- holder of any Note or Purchase Warrants may deliver copies of any financial statements and other documents delivered to such holder, and disclose any other information disclosed to such holder, by or on behalf of the Company or any Subsidiary in connection with or pursuant to this Agreement to (i) such holder's - directors, officers, employees, agents and professional consultants, (ii) any other holder of any Note or Purchase Warrants, (iii) any Person to - --- --- which such holder offers to sell such Note or Purchase Warrant or any part thereof, (iv) any Person to which such holder sells or offers to sell a -- participation in all or any part of such Note or Purchase Warrant, (v) any - governmental authority having jurisdiction over such holder, (vi) the National -- Association of Insurance Commissioners or any similar organization or (vii) any --- other Person to which such delivery or disclosure may be necessary or appropriate (a) in compliance with any law, rule, regulation or order applicable - to such holder, (b) in response to any subpoena or other legal process, (c) in - - connection with any litigation to which such holder is a party or (d) in order - to protect such holder's investment in such Note or Purchase Warrant. 10.7. Notices. All written communications provided for hereunder ------- shall be sent by first class mail or nationwide overnight delivery service (with charges prepaid) or telecopied and (i) if to you, addressed or telecopied to you - at the address or telecopy number specified for such communications in the Schedule of Purchasers attached hereto as Schedule I, or at such other address or telecopy number as you shall have specified to the Company in writing, (ii) -- if to any other holder of any Note or Purchase Warrant, addressed or telecopied to such other holder at such address or telecopy number as such other holder shall have specified to the Company in writing or, if any such other holder shall not have so specified an address or telecopy number to the Company, then addressed or telecopied to such other holder in care of the last holder of such Note which shall have so specified an address or telecopy number to the Company, and (iii) if to the Company, addressed to it at One Vision Drive, Enfield, --- Connecticut, 06082, Attention: Gregory G. Landry, or at such other address or to such other telecopy number as the Company shall have specified to the holder of each Note in writing. Any notice given by telecopy must be confirmed in writing. 10.8. Descriptive Headings. The descriptive headings of the several -------------------- Sections of this Agreement are 36 Note and Warrant Purchase Agreement ----------------------------------- inserted for convenience only and do not constitute a part of this Agreement. 10.9. GOVERNING LAW. (A) THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO CHOICE OF LAW DOCTRINE. Such choice of law is made pursuant to Section 5-1401 of the General Obligations Law of the State of New York. (b) The Company hereby irrevocably submits itself to the jurisdiction of the Supreme Court of the State of New York, New York County, and to the jurisdiction of the United States District Court for the Southern District of New York, for purpose of any suit, action or other proceeding arising out of or relating to this Agreement, the Notes or any other Operative Agreement or any of the transactions contemplated hereby or thereby, and hereby irrevocably agrees that all claims in respect of such action or proceeding may be heard and determined in such state or Federal court. The Company hereby irrevocably waives, to the fullest extent it may effectively do so, and agrees not to assert, by way of motion, as a defense, or otherwise, in any such suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of the above-named courts for any reason whatsoever, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper or that this Agreement or the Notes or any subject matter of any thereof may not be enforced in or by such courts. The Company agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in any other jurisdiction by suit on the judgment or in any other manner provided by law. 10.10. COUNTERPARTS. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, and it shall not be necessary in making proof of this Agreement to produce or account for more than one such counterpart. 37 Note and Warrant Purchase Agreement ----------------------------------- If you are in agreement with the foregoing, please sign the form of acceptance on the enclosed counterpart of this letter and return the same to the Company, whereupon this letter shall become a binding agreement between you and the Company. Very truly yours, DAIRY MART CONVENIENCE STORES, INC. By /s/ Gregory Wozniak ------------------------------ Name: Gregory Wozniak Title: Vice President The foregoing Agreement is hereby accepted as of the date first above written. VAR & CO. By /s/ Sheldon Solbro ---------------------------------- Name: Sheldon Solbro Title: Account Administrator 38 Note and Warrant Purchase Agreement ----------------------------------- If you are in agreement with the foregoing, please sign the form of acceptance on the enclosed counterpart of this letter and return the same to the Company, whereupon this letter shall become a binding agreement between you and the Company. Very truly yours, DAIRY MART CONVENIENCE STORES, INC. By /s/ Gregory Wozniak ---------------------------- Name: Gregory Wozniak Title: Vice President The foregoing Agreement is hereby accepted as of the date first above written. SUNAMERICA LIFE INSURANCE COMPANY By /s/ Robert E. Sydow ---------------------------------- Name: Robert E. Sydow Title: Authorized Agent 39 Note and Warrant Purchase Agreement ----------------------------------- If you are in agreement with the foregoing, please sign the form of acceptance on the enclosed counterpart of this letter and return the same to the Company, whereupon this letter shall become a binding agreement between you and the Company. Very truly yours, DAIRY MART CONVENIENCE STORES, INC. By /s/ Gregory Wozniak ----------------------------- Name: Gregory Wozniak Title: Vice President The foregoing Agreement is hereby accepted as of the date first above written. TRIUMPH-CONNECTICUT LIMITED PARTNERSHIP By /s/ Thomas W. Janes ---------------------------------- Name: Thomas W. Janes Title: Designated Signatory EX-10.2 4 FORM OF STOCK PURCHASE WARRANT Exhibit 10.2 THIS WARRANT AND THE CLASS A COMMON STOCK OR OTHER SECURITY ISSUABLE THEREFOR HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED, OR ANY OTHER APPLICABLE REGULATION OR LAW. ACCORDINGLY, NO TRANSFER OF THIS WARRANT OR ANY SHARE ISSUABLE OR ISSUED UPON EXERCISE HEREOF MAY BE MADE IN THE UNITED STATES EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR AN EXEMPTION FROM REGISTRATION THEREUNDER AND IN COMPLIANCE WITH ANY OTHER APPLICABLE SECURITIES LAWS AND THE TERMS HEREOF. STOCK PURCHASE WARRANT EACH HOLDER OF THIS WARRANT OR ANY SHARES, STOCK OR OTHER SECURITIES ACQUIRED UPON EXERCISE HEREOF OR ANY CERTIFICATE REPRESENTING SUCH SECURITIES IS ENTITLED TO THE BENEFITS OF THE TERMS OF THE REGISTRATION RIGHTS AGREEMENT, DATED AS OF DECEMBER 1, 1995, AMONG THE COMPANY AND HOLDERS OF THE COMPANY'S 10-1/4% SENIOR SUBORDINATED SECURITIES (SERIES B) AND THE WARRANTS OR OTHER REGISTRABLE SECURITIES. A COPY OF SUCH REGISTRATION RIGHTS AGREEMENT IS ON FILE AT THE OFFICES OF THE COMPANY. To Subscribe for and Purchase Shares of Class A Common Stock of DAIRY MART CONVENIENCE STORES, INC. No. __ PPN: 233860 2* 5 THIS CERTIFIES that, for value received, _________ (or registered assigns) is entitled to subscribe for and purchase from Dairy Mart Convenience Store, Inc., a Delaware corporation (herein referred to as the "Company" or "Dairy Mart") at any time and from time to time, from the date hereof to 5:00 p.m. (New York City time) on December 1, 2001 (the "Expiration Time"), up to _______ duly authorized, validly issued, fully paid and non-assessable shares of Class A Common Stock ("Class A Common Shares"), par value $.01 per share, of the Company, or any shares into which such Class A Common Shares shall have been changed or any stock or other securities resulting from a reclassification thereof or change thereto (all such shares, stock or other securities which may be purchased by this, and all other, Warrants are herein referred to as the "Shares"), at the price and upon the terms and conditions and subject to adjustment, all as hereinafter set forth. This Warrant Certificate is one of the Class A Common Stock Purchase Warrants (the "Warrants", which term includes all Warrants issued in substitution therefor) originally issued in connection with the issue and sale by the Company of its 10-1/4% Senior Subordinated Notes 2 (Series B) due 2004 (the "Series B Notes") and Warrants, pursuant to several Note and Warrant Purchase Agreements, dated as of December 1, 1995, by and between the Company and certain purchasers (the "Series B Purchase Agreements"), and the amendment to the Indenture, dated as of March 3, 1994, by and among the Company, certain Guarantors (as defined in such Indenture) and Society National Bank, as original Indenture Trustee, pursuant to which the Company's 10-1/4% Senior Subordinated Notes due 2004 (the "Series A Notes") were issued. On the date of initial issuance of the Warrants (the "Issue Date"), Warrants to purchase 1,215,000 Shares were issued to the purchasers under the Series B Purchase Agreements. The Company also agreed to issue Warrants to purchase 500,000 shares to holders of the Series A Notes. The Company represents that all Shares to which the holders of Warrants shall be entitled upon exercise thereof (i) are duly authorized by the Restated Certificate of Incorporation of the Company, in accordance with the laws of the State of Delaware, (ii) have been duly authorized to be issued upon the exercise of the Warrants from time to time, in whole or in part, (iii) will be, when issued in accordance with the terms of the Warrants, duly authorized, validly issued and fully paid and nonassessable and free and clear of all taxes, liens, fees, charges and preemptive rights (other than taxes, liens, fees, charges and rights of 3 others claiming by, and through, the holder hereof) and (iv) will not at the time of such exercise be subject to any restrictions on transfer or sale except as provided by applicable laws. 1. Exercise of Warrants. (a) The rights represented by this Warrant -------------------- may be exercised by the holder hereof, in whole or in part, by the surrender of this Warrant, with the purchase form attached hereto (or reasonable facsimile thereof) duly executed, at the principal office of the Company at One Vision Drive, Enfield, Connecticut 06082 (or such other office or agency of the Company as it may designate by notice in writing to the holder hereof at the address of such holder appearing on the books of the Company at any time during the period within which the rights represented by this Warrant may be exercised or, if such exercise is in connection with an underwritten public offering of Shares subject to this Warrant, at the location at which the underwriting agreement requires that such Shares be delivered) and upon payment as provided in Section 1(b) below. The Company agrees that the Shares so purchased shall be and will be deemed to be issued to the holder hereof as the record owner of such Shares immediately prior to the close of business on the date on which this Warrant shall have been surrendered and payment made for such Shares as aforesaid (except that if such exercise is in connection with an underwritten public 4 offering of Shares subject to this Warrant, then such exercise shall be deemed to have been effected upon such surrender of this Warrant). On each day that an exercise of this Warrant is deemed effected, the person or persons in whose name or names any certificate or certificates of Shares are issuable upon such exercise shall be deemed to have become the holder or holders of record of such Shares. Certificates for the Shares so purchased shall be delivered, at the Company's expense (including, without limitation, the payment by the Company of any applicable issue, stamp or other taxes), to the holder hereof as promptly as practicable thereafter, but in each case within five (5) days, after the rights represented by this Warrant shall have been exercised (unless such exercise shall be in connection with a public offering of Shares subject to this Warrant, in which event concurrently with such exercise) and, in case such exercise is in part only, a new Warrant or Warrants of like tenor, calling in the aggregate on the face or faces thereof for the number (which may be fractional) of Shares (without giving effect to any adjustment therein) equal to the Shares with respect to which this Warrant shall not then have been exercised shall also be issued to the holder within such time. Certificates for fractional Shares will not be issued. (b) Payment of the warrant purchase price for the Shares purchased upon the exercise of this Warrant shall be 5 made in full (i) by wire transfer, cash, check, or money order, payable in United States currency to the order of Company, (ii) by delivering to the Company the Company's Subordinated Notes (as hereinafter defined), such notes to be valued including 100% of principal amount plus accrued and unpaid interest, (iii), to the extent permitted by the Amended and Restated Indenture dated December 1, 1995 relating to the Series B Notes and the Credit Agreement dated as of February 25, 1994 among the Company, Fleet Bank, National Association and Society National Bank, as amended, by authorizing the Company to withhold from such issuance of Shares a number of Shares determined by dividing the warrant purchase price by the Closing Class A Common Stock Price (as hereinafter defined) on the date immediately preceding the date of the exercise or (iv) by any combination of the foregoing. For the purposes hereof, the Company's Subordinated Notes shall mean the Series A Notes or the Series B Notes. (c) The Company will, at the time of or at any time after each exercise of this Warrant, upon the request of the holder thereof or of any Shares issued upon any exercise, acknowledge in writing its continuing obligation to afford to such holder all rights (including, without limitation, any registration rights relating to such Shares pursuant to the Registration Rights Agreement) to which such holder shall continue to be entitled under this Warrant and 6 the Registration Rights Agreement; provided that, if any such holder shall fail to make any such request, the failure shall not affect the continuing obligation of the Company to afford such rights to such holder. 2. Transferability of Warrant. Subject to compliance with Section 4, -------------------------- if applicable, this Warrant is transferable on the books of the Company at its office described above by the holder hereof in person or by duly authorized attorney, upon surrender of this Warrant together with the assignment form attached hereto duly executed. Upon the surrender of this Warrant to the Company in proper form for transfer, as required hereby, the Company shall issue a new Warrant or new Warrants in the same form and of like tenor as this Warrant representing the right to subscribe for and purchase, in the aggregate, the number of Shares which may be, from time to time, subscribed for and purchased hereunder and, individually, the number of Shares the right to purchase which has been so transferred to each transferee and which has been retained by the transferor, if any. 3. Covenants of the Company. The Company hereby covenants and agrees ------------------------ as follows: (a) All Shares which may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, (i) be validly issued, fully paid and nonassessable, (ii) be free from any and all taxes, liens, 7 preemption and other rights of others, and charges with respect to the issue thereof (other than transfer taxes, if any, in respect of any transfer occurring contemporaneously with such issue) and (iii) not be, at the time of such exercise, subject to any restrictions on transfer or sale except as provided in Section 4 hereof. (b) During the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized and reserved a sufficient number of Shares to provide for the exercise of the rights represented by this Warrant. (c) The Company will pay all stamp taxes attributable to the initial issuance of Shares issuable upon the exercise of this Warrant; provided, -------- however, that the Company shall not be required to pay any tax or taxes which - ------- may be payable in respect of any transfer involved in the issue or delivery of any certificates for Shares or other securities in a name other than that of the registered holder of this Warrant in respect of which such Shares or securities are issued. (d) The Company will not, by way of amendment of its Restated Certificate of Incorporation, through any consolidation, mergers, reorganization, transfer of assets, distribution, issuance or sale of securities or any other voluntary action or omission avoid or seek to avoid the observance of any of the terms of this Warrant, but will at 8 all times in good faith observe and perform all such terms and take all such action (or refrain from taking such action) as appropriate in order protect the rights of the holder of this Warrant against dilution or other impairment. 4. Restrictions. The holder acknowledges that this Warrant and the ------------ Shares acquired upon exercise of the Warrant will be "restricted securities" as that term is defined under the regulations promulgated under the Securities Act of 1933, as amended (the "Securities Act"), will not be saleable in the absence of an effective registration statement under the Securities Act or an exemption from registration, and accordingly, may be required to be held for an indefinite period of time. The holder agrees that this Warrant may contain the following legend on the face thereof: THIS WARRANT AND THE CLASS A COMMON STOCK OR OTHER SECURITY ISSUABLE THEREFOR HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED, OR ANY OTHER APPLICABLE REGULATION OR LAW. ACCORDINGLY, NO TRANSFER OF THIS WARRANT OR ANY SHARE ISSUABLE OR ISSUED UPON EXERCISE HEREOF MAY BE MADE IN THE UNITED STATES EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR AN EXEMPTION FROM REGISTRATION THEREUNDER AND IN COMPLIANCE WITH ANY OTHER APPLICABLE SECURITIES LAWS AND THE TERMS HEREOF. The holder also agrees that the Shares issued pursuant hereto may contain the following legend on the face thereof: THIS SECURITY HAS NOT BEEN REGISTERED PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED, AND EACH HOLDER OF THIS SECURITY BY ACCEPTANCE OF THIS SECURITY AGREES THAT THIS SECURITY SHALL NOT BE TRANSFERRED IN VIOLATION OF SAID ACT OR SUCH OTHER REGULATION OR LAW. 9 Each holder of a Warrant by acceptance thereof agrees that it will not sell or otherwise dispose of any Warrants or Shares unless such Warrants or Shares have been registered under, or have been sold pursuant to an exemption from registration under, the Securities Act. Prior to any transfer of any Warrants or Shares which are not registered under an effective registration statement under the Securities Act (either of the foregoing a "Restricted Security"), the holder thereof will give written notice to the Company of such holder's intention to effect such transfer. Each such notice shall contain a description of the manner and circumstances of the proposed transfer in sufficient detail, and shall contain an undertaking by the holder giving such notice to furnish such other information as the Company may require, to enable counsel to the Company to render the opinion referred to below. The Company will promptly submit a copy of such notice to its counsel, and the following provisions shall then apply: (x) If in the opinion of such counsel the proposed transfer may be effected without registration of such Restricted Securities under the Securities Act, the Company shall, as promptly as practicable, so notify the holder of such Restricted Securities and such holder shall thereupon be entitled, subject to the other provisions of this Warrant and the Registration 10 Rights Agreement, to transfer such Restricted Securities in accordance with the terms of the notice delivered to the Company. (y) If such counsel is unable to conclude that the proposed transfer may be effected without registration of such Restricted Securities under the Securities Act (such view to be expressed in writing in a letter stating the legal or factual basis of the conclusions reached therein), the Company will, as promptly as practicable, so notify the holder thereof and thereafter such holder shall not be entitled to transfer such Restricted Securities until the provisions of this Section 4 have otherwise been complied with. Notwithstanding the provisions of this Section 4, any holder of Restricted Securities shall be permitted, subject to the other provisions of this Warrant and compliance with applicable law, to transfer any of such Restricted Securities to a limited number of institutional investors, provided that each -------- such investor either (a) represents in writing that it is an institutional accredited investor (as defined in Rule 501(A)(1), (2), (3) or (7) under the Securities Act) acquiring such Restricted Securities for investment and not with a view to the distribution thereof (subject, however, to any requirement of law that the disposition thereof shall at all times be within the control 11 of such transferee) and that it will comply with the limitations on resale imposed hereby, or (b) is an institutional investor to whom such Restricted Securities may be transferred pursuant to a rule or regulation of the Securities and Exchange Commission (or any governmental agency exercising like authority) permitting resales of securities to a limited class of institutional investors; and provided, further, that such holder notify the Company following such sale -------- ------- of the transfer. The Company shall pay the costs and expenses of any counsel described above. The restrictions imposed by this Section 4 upon the transferability of Restricted Securities are not applicable as to any particular Restricted Securities (X) when, in the opinion of counsel for the Company, such restrictions are no longer required in order to ensure compliance with the Securities Act, (Y) when such Restricted Securities shall have been effectively registered under the Securities Act (including, without limitation, pursuant to the Registration Rights Agreement), or (Z) when such Restricted Securities shall have been sold to the public pursuant to Rule 144 (or any successor provision) under the Securities Act. Whenever such restrictions shall cease and terminate as to any Restricted Securities, the holders thereof shall be entitled to receive from the Company, without expense (other than applicable transfer taxes, if 12 any) new certificates representing such Restricted Securities of like tenor but not bearing the legend otherwise required by this Section 4. 5. Warrant Purchase Price; Adjustments. The above provisions are, ----------------------------------- however, subject to the following: (a) The term "basic warrant purchase price" shall mean $6.95 (the "Initial Exercise Price"); provided, however, that on the first anniversary of -------- ------- the date hereof, the "basic warrant purchase price" will be reset to the lower of (i) the Initial Exercise Price as the same should have been adjusted in accordance with the provisions of this Section 5 or otherwise, if applicable, and (ii) 110% of the average Closing Class A Common Stock Price (as hereinafter defined) during the 30 trading days immediately preceding the first anniversary of the date hereof. (b) For purposes hereof, "Closing Class A Common Stock Price" shall mean as of any given date (i) the last reported sales price of Class A Common Stock on the National Market System of NASDAQ, or any similar system of automated quotation of securities prices then in common use, if so quoted for such date, or (ii) if not so quoted as described in clause (i) for any such date, the mean of the high and the low bid quotations for the Class A Common Stock as reported by the National Quotation Bureau Incorporated if at least two securities dealers have inserted bid quotations for such class of stock on at least five of the ten trading 13 days preceding the day in question, or (iii) if not so quoted as described in clauses (i) and (ii) above, for any such date if the Class A Common Stock is not listed or admitted for trading on any national securities exchange, the closing bid price of Class A Common Stock on the principal securities exchange on which such class of stock is listed. If none of the conditions set forth in the preceding sentence is met, the closing bid quotation of Class A Common Stock on any day or the average of such closing prices for any period shall be the fair market value of the Class A Common Stock as determined by a member firm of the New York Stock Exchange, Inc. of nationally recognized stature selected by the Company. (c) The basic warrant purchase price shall be subject to adjustment from time to time as hereinafter provided. The term "warrant purchase price" shall mean, unless and until any such adjustment shall occur, the basic warrant purchase price and, after any such adjustment, the warrant purchase price resulting from such adjustment. (d) Upon each adjustment of the warrant purchase price, other than pursuant to Section 5(f) hereof, the holder of this Warrant shall thereafter be entitled to purchase, at the warrant purchase price resulting from such adjustment, the number of Shares obtained by multiplying the warrant purchase price in effect immediately prior to such adjustment by the number of Shares purchasable pursuant 14 hereto immediately prior to such adjustment and dividing the product thereof by the warrant purchase price resulting from such adjustment. The holder of this Warrant on the Issue Date shall be initially entitled to purchase _______ Shares at the Initial Exercise Price. (e) If and whenever the Company shall at any time and from time to time issue, sell or grant any of its shares or other securities representing (i) Class A Common Stock, as currently constituted on the date hereof, (ii) Class B Common Stock, par value $.01 per share, as constituted on the date hereof, (iii) any stock into which the foregoing stock in clauses (i) or (ii) shall have been changed or any stock resulting from any reclassification of such stock, and (iv) all other stock of any class or classes (however designated) of the Company the holders of which have the right, without limitations as to amount, either to all or to a share of the balance of current dividends and liquidating dividends after the payment of dividends and distributions on any shares entitled to preference (the stock referred to in the foregoing clauses (i) through (iv) being hereinafter referred to as "Common Shares") (except for (x) Common Shares issued in an aggregate amount no greater than the aggregate number of shares issuable pursuant to options or other rights to acquire Common Shares outstanding as of the date hereof and on the terms of such options or other rights as in effect on the date hereof or (y) Common Shares sold, 15 issued or granted either directly or upon the exercise of options or other rights granted after the date hereof to the Company's employees or directors pursuant to any employee or director plan adopted by the Board of Directors of the Company up to a maximum during fiscal year 1996 of options to purchase and/or grants of restricted shares of Class A Common Stock not to exceed 200,000 shares of Class A Common Stock, such options to have an exercise price equal to the Closing Class A Common Stock Price at the date of issuance and to vest ratably over a period of four years and such grants of restricted Class A Common Stock not to exceed 100,000 shares, and, during any subsequent fiscal year, options to purchase or grants of Class A Common Stock not in excess of 90,000 shares of Class A Common Stock, all such grants not to exceed 650,000 shares of Class A Common Stock in the aggregate (collectively, "Plan Shares")), without consideration or for a consideration per share less than the "Base Price" which is, on any date specified herein, the greater of the market price on that date and the warrant purchase price in effect immediately prior to the time of such issue, sale or grant, then, and in each such case, concurrent with such issue, sale or grant, the warrant purchase price shall be reduced to a price (calculated to the nearest .001) determined by multiplying the warrant purchase price by a fraction (i) the numerator of which is an amount equal to the sum of (A) the number of Common 16 Shares outstanding immediately prior to such issue, sale or grant plus (B) the number of Common Shares that the aggregate consideration, if any, received by the Company upon such issue or sale (computed in accordance with Section 5(e)(vi) below) would purchase at the warrant purchase price then in effect, and (ii) the denominator of which is the total number of Common Shares outstanding immediately after such issue or sale. No adjustment of the warrant purchase price, however, shall be made in an amount less than $.01 per share, but any such lesser adjustment shall be carried forward and shall be made at the time and together with the next subsequent adjustment which together with any adjustments so carried forward shall amount to $.01 per share or more. For purposes of this Section 5(e), the following provisions (i) to (viii), inclusive, shall also be applicable: (i) If at any time the Company in any manner shall issue, sell or grant, or shall fix a record date for the determination of holders of any class of securities entitled to receive, any rights to subscribe for or to purchase, or any options for the purchase of, its Common Shares (other than Plan Shares) or any rights to subscribe for or to purchase, or any options for the purchase of, any shares or other securities convertible or exchangeable for Common Shares (other than Plan Shares) (such convertible or exchangeable shares or securities being herein referred to 17 as "Convertible Securities"), whether or not such rights or options or the rights to convert or exchange any such Convertible Securities are immediately exercisable, and the price per share for which Common Shares are issuable upon the exercise of such rights or options or upon conversion or exchange of such Convertible Securities (determined by dividing (1) the total amount, if any, received or receivable by the Company as consideration for the granting of such rights or options, plus the minimum aggregate amount of additional consideration payable to the Company upon the exercise of such rights or options, plus, in the case of such Convertible Securities, the minimum aggregate amount of additional consideration, if any, payable upon the conversion or exchange thereof, by (2) the total maximum number of Common Shares issuable upon the exercise of such rights or options or upon conversion or exchange of all such Convertible Securities issuable upon the exercise of such rights or options) shall be less than the Base Price in effect on the date of and immediately prior to the time of the issuance, sale or granting of such rights or options, or the date such record date is fixed, then the total maximum number of Common Shares issuable upon the exercise of such rights or options or upon conversion or exchange of the total maximum amount of such Convertible Securities issuable upon the exercise of such rights or options shall (as of the date of granting of such rights or options) be deemed to be 18 outstanding and to have been issued for such price per share as additional Common Shares, as of the time of such issue, sale or grant, or in case such a record date shall have been fixed, as of the close of business on such record date, and the warrant purchase price shall be adjusted as set forth in Section 5(e). No further adjustments of the warrant purchase price shall be made upon the actual issue of such Common Shares or of such Convertible Securities upon exercise of such rights or options or upon the actual issue of such Common Shares upon conversion or exchange of such Convertible Securities, except as otherwise provided in (iii) below. (ii) If at any time the Company in any manner, other than as specified in (i) above, shall issue, sell or grant, or shall fix a record date for the determination of holders of any class of securities entitled to receive, any rights to subscribe for or to purchase, or any options for the purchase of any Convertible Securities, whether or not the rights to exchange or convert thereunder are immediately exercisable, and the price per share for which Common Shares are issuable upon such conversion or exchange (determined by dividing (1) the total amount received or receivable by the Company as consideration for the issue or sale of such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Company upon the conversion or exchange 19 thereof, by (2) the total maximum number of Common Shares issuable upon the conversion or exchange of all such Convertible Securities) shall be less than the Base Price in effect on the date of and immediately prior to the time of such issue, sale or grant, or fixing of such record date, then the total maximum number of Common Shares issuable upon conversion or exchange of all such Convertible Securities shall (as of the date of the issue or sale of such Convertible Securities) be deemed to be outstanding and to have been issued for such price per share as additional Common Shares, as of the time of such issue, sale or grant, or in case such a record date shall have been fixed as of the close of business on such record date, and the warrant purchase price shall be adjusted as set forth in Section 5(e); provided, however, that, except as -------- ------- otherwise specified in (iii) below, (A) no further adjustments of the warrant purchase price shall be made upon the actual issue of such Common Shares upon conversion or exchange of such Convertible Securities, and (B) if any such issue or sale of such Convertible Securities is made upon exercise of any rights to subscribe for or to purchase or any option to purchase any such Convertible Securities for which adjustments of the warrant purchase price have been or are to be made pursuant to other provisions of this Section 5(e), no further adjustment of the warrant purchase price shall be made by reason of such issue or sale. 20 (iii) If at any time there shall be a change (other than under or by reason of provisions designed to protect against dilution) of the purchase price provided for in any rights or options referred to in (i) above, or of the additional consideration, if any, payable upon the conversion or exchange of Convertible Securities referred to in (i) or (ii) above or of the rate at which any Convertible Securities referred to in (i) or (ii) above are convertible into or exchangeable for Common Shares, then upon the happening of any such event the warrant purchase price in effect at the time of such event shall forthwith be readjusted to the warrant purchase price which would have been in effect at such time had such rights, options or Convertible Securities outstanding at the time of such event been initially adjusted as provided in (i) or (ii) above, whichever was applicable, except that the purchase price provided for in any such rights or options, the minimum aggregate amount of additional consideration payable and the total maximum number of Common Shares issuable shall be determined after giving effect to such event (and any prior event or events); and on the expiration of any such option or right or the termination of any such right to convert or exchange such Convertible Securities, the warrant purchase price then in effect hereunder shall forthwith be increased to the warrant purchase price which would have been in effect at the time of such expiration or termination had 21 such right, option or Convertible Securities never been issued, and the Common Shares issuable thereunder shall no longer be deemed to be outstanding; provided, however, that no such increase in the warrant purchase price shall be - -------- ------- made in an amount in excess of the amount of the adjustment thereof initially made in respect of the granting of such rights or options or the issue or sale of such Convertible Securities. If the purchase price provided for in any such right or option referred to in (i) above or the rate at which any Convertible Securities referred to in (i) or (ii) above are convertible into or exchangeable for Common Shares shall decrease at any time under or by reason of provisions with respect thereto designed to protect against dilution, then in case of the delivery of Common Shares upon the exercise of any such right or option or upon conversion or exchange of any such Convertible Security, the warrant purchase price then in effect hereunder shall forthwith be decreased to such amount as would have obtained had the adjustments made upon the issuance of such right, option or Convertible Security been made upon the basis of the issuance of (and the total consideration received for) the Common Shares delivered as aforesaid. (iv) If at any time the Company shall declare, pay or make, as applicable, any dividend or other distribution upon any shares of the Company capital stock payable in Common Shares or Convertible Securities or 22 options, rights or warrants to purchase Common Shares or Convertible Securities, any Common Shares or Convertible Securities, as the case may be, issuable in payment of such dividend or distribution shall be deemed to be additional Common Shares issued or sold without consideration and the warrant purchase price will be adjusted as set forth in this Section. (v) If at any time the Company shall issue any rights or options to purchase any of its Common Shares or Convertible Securities in connection with the issue or sale of other securities of the Company, together comprising one integral transaction in which no specific consideration is allocated to the rights or options, such rights or options shall be deemed to be additional Common Shares issued without consideration and the warrant purchase price will be adjusted as set forth in this Section 5. (vi) If any Common Shares or Convertible Securities or any rights or options to purchase any such Common Shares or Convertible Securities shall be issued or sold for cash, the consideration received therefor shall be deemed to be the amount received by the Company therefor, without deduction therefrom of any expenses incurred or any commissions or concessions paid or allowed by the Company to underwriters or others performing similar services in connection therewith. If any Common Shares or Convertible Securities or any rights or options to purchase any such 23 Common Shares or Convertible Securities shall be issued or sold for a consideration other than cash, the amount of such consideration received by the Company shall be deemed to be the lesser of (A) the fair market value on the issue date of the securities so issued by the Company, without deduction of any expenses incurred by the Company in connection therewith, or (B) the fair value of such consideration as determined in good faith by the Board of Directors of the Company without deduction of any such expenses. In the event of any merger or consolidation of the Company with any other corporation or in the event of any sale of all or substantially all of the assets of the Company for shares of capital stock or other securities of any other corporation, the Company shall be deemed to have issued a number of Common Shares for shares of capital stock or securities of the other corporation computed on the basis of the actual exchange ratio on which the transaction was predicated and the consideration received for such issuance shall be equal to the fair market value on the date of such transaction of such shares of capital stock or securities of the other corporation, and if any such calculation results in adjustment of the warrant purchase price, the determination of the number of Common Shares issuable upon exercise of the Warrants immediately prior to such merger, conversion or sale shall, for purposes of Section 5(h), be made after 24 giving effect to such adjustment of the warrant purchase price. (vii) If at any time the Company shall fix a record dated for the determination of the holders of its Common Shares entitled (A) to receive a dividend or other distribution payable in Common Shares, Convertible Securities or options, rights or warrants to purchase Common Shares or Convertible Securities, or (B) to subscribe for or purchase Common Shares, or Convertible Securities or options, rights or warrants to purchase Common Shares or Convertible Securities, then such record date shall be deemed to be the date of the issue or sale of the Common Shares deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be. (viii) The number of Common Shares outstanding at any given time shall not include shares owned or held by or for the account of the Company, and the disposition of any such shares shall be considered an issue or sale of Common Shares for the purposes of this Section 5(e). (f) If at any time the Company shall declare or pay any dividend or declare or make any other distribution in respect of any of its Common Shares, other than a cash dividend payable in cash out of earnings or earned surplus 25 and determined by the Board of Directors of the Company to be part of a regular, periodic dividend program and otherwise than Common Shares or Convertible Securities, the warrant purchase price in effect immediately prior to the record date for such distribution shall be reduced by an amount equal, in the case of a distribution in cash, by the amount thereof payable per share of Common Shares or, in the case of any other distribution, by the fair value thereof per share of Common Share as determined in good faith by the Board of Directors of the Company, whose determination shall be conclusive. For the purposes of the foregoing, a dividend in cash shall be considered payable out of earnings or earned surplus only to the extent that such earnings or earned surplus are charged an amount equal to such dividend as determined by the Board of Directors of the Company. Such reductions shall take effect as of the record date selected for the purpose of such distribution. (g) If at any time the Company subdivides its outstanding Shares into a greater number of shares, the warrant purchase price in effect immediately prior to such subdivision shall be proportionately reduced, and, conversely, if at any time the outstanding Shares of the Company shall be combined into a smaller number of shares, the warrant purchase price in effect immediately prior to such combination shall be proportionately increased. 26 (h) Upon any capital reorganization or reclassification of the shares of capital stock of the Company, or any merger or consolidation of the Company with another corporation or any sale of all or substantially all of the Company's assets to another corporation, then, as a condition of such reorganization, reclassification, merger, consolidation or sale, lawful and adequate provision shall be made whereby the holder hereof shall thereafter have the right to purchase and receive, upon the basis and upon the terms and conditions specified in this Warrant and in lieu of Shares of the Company immediately theretofore purchasable and receivable upon the exercise of this Warrant, such shares of capital stock, securities or assets as may be issued or payable with respect to or in exchange for a number of shares of outstanding Shares equal to the number of Shares immediately theretofore purchasable and receivable upon the exercise of this Warrant, and in any such case appropriate provision shall be made with respect to the rights and interests of the holder of this Warrant to the end that the provisions of this Section 5 shall thereafter be applicable, as nearly as may be, to any shares of capital stock, securities or assets thereafter deliverable upon the exercise of this Warrant. The Company shall not effect any such merger, consolidation or sale unless (i) prior to or simultaneously with the consummation thereof the successor corporation resulting from such merger or consolidation or 27 the corporation purchasing such assets shall assume, by written instrument reasonably satisfactory to the holder thereof (a copy of which shall be mailed or delivered to the registered holder hereof at the last address of such holder appearing on the books of the Company), the obligation to deliver to such holder such shares of capital stock, securities or assets as such holder may be entitled, in accordance with the foregoing provisions, to purchase upon the exercise of this Warrant and (ii) immediately after the date of consummation of such transaction the successor corporation or other party delivering securities as to which the holder may be entitled to purchase upon exercise of this Warrant, is required to file reports with the Commission pursuant to Section 13 or Section 15(d) of the Exchange Act and such securities are listed or admitted to trading on a national securities exchange or on the NASDAQ National Market. Nothing herein is intended to permit any merger, consolidation, sale or transaction not otherwise permitted by the Indenture (as amended and restated on the date hereof). (i) Upon each adjustment or readjustment of the warrant purchase price or in the nature of the Shares, securities or other property receivable upon the exercise of this Warrant, the Company promptly shall prepare and mail, by first class mail, postage prepaid, to the registered holder of this Warrant, at such holder's last address 28 appearing on the books of the Company, a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based, including a statement of (i) the consideration received or to be received by the Company for any additional Common Shares issued or sold or deemed to have been issued or sold, (ii) the number of Common Shares outstanding or deemed to be outstanding, (iii) the warrant purchase price in effect immediately prior to such issue or sale and as adjusted and readjusted (if required by this Section 5) on account thereof and (iv) the kind and amount of shares of capital stock, securities or other property thereafter to be received upon the exercise of this Warrant. Upon the written request at any time of the holder of this Warrant, the Company will furnish to such holder a like certificate setting forth the warrant purchase price at the time in effect and showing how it was calculated. (j) If the Company shall at any time after the date hereof purchase, redeem or otherwise acquire any shares of Class B Common Stock, par value $.01 per share, of the Company at an aggregate consideration that is greater than the average Closing Class A Common Stock Price (as referred to in Section 5(b) hereof) during the 30 trading days immediately preceding the date of such purchase, redemption or other acquisition of the Class B Common Stock, the warrant purchase price then in effect will be reduced by an 29 amount determined by multiplying the warrant purchase price by a fraction the (I) numerator of which is (a) an amount equal to the sum of (A) the number of Shares outstanding immediately prior to such purchase, redemption or acquisition plus (b) the number of Shares that would be purchasable, at the warrant purchase price, using the amount equal to the difference between the aggregate consideration received by Class B Common Stock holders and the market price for an equal number of Shares, and (II) the denominator of which shall be the total number of Shares outstanding immediately after such purchase or acquisition. (k) In case the Company shall take any action affecting the Shares, other than actions described in this Section 5, which in the opinion of a majority of the Company's non-employee directors would have a material and adverse effect on the rights of the holder of this Warrant (including, without limitation, with respect to the warrant purchase price and/or the number and/or kind of Shares purchasable upon exercise of this Warrant) then in each such case, the Company shall appoint a firm of independent public accountants of recognized national standing which shall give its opinion on the adjustment, if any, on a basis consistent with the essential intent and principles established in this Section 5, necessary to preserve, without dilution, the purchase rights represented by this Warrant. 30 (l) No Dilution or Impairment. The Company will not, by amendment of ------------------------- its Restated Certificate of Incorporation or through any consolidation, merger, reorganization, transfer of assets, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holder of this Warrant against dilution or other impairment. Without limiting the generality of the foregoing, the Company (a) will not permit the par value of any shares of stock receivable upon the exercise of this Warrant to exceed the amount payable therefor upon such exercise, and, if the warrant purchase price in effect at any time shall be reduced to such par value, the Company will promptly cause the par value of such shares to be reduced to $0.01 below such warrant purchase price, (b) will take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of stock upon the exercise of all of the Warrants from time to time outstanding, (c) will not take any action which results in any adjustment of the warrant purchase price if the total number of shares (or Convertible Securities) issuable after the action upon the exercise of all of the Warrants would 31 exceed to total number of shares (or Convertible Securities) then authorized by the Company's Restated Certificate of Incorporation and available for the purpose of issue upon such exercise, and (d) will not issue any capital stock of any class which as the right to more than one vote per share or which is preferred as to dividends or as to the distribution of assets upon voluntary or involuntary dissolution, liquidation or winding-up, unless such stock is sold for a cash consideration at least equal to the amount of its preference upon voluntary or involuntary dissolution, liquidation or winding-up and the rights of the holders thereof shall be limited to a fixed percentage (not exceeding 15%) of such cash consideration in respect of participation in dividends. 6. Notices to Holders of Warrants. If at any time: ------------------------------ (a) the Company shall pay any dividend payable in shares upon its Shares or make any distribution (other than cash dividends paid at an established annual or quarterly rate) to the holders of its Shares; or (b) the Company shall offer for subscription pro rata to the holders --- ---- of its Shares any additional shares of stock of any class or other rights; or (c) there shall be any capital reorganization, or reclassification of the shares of the Company, or merger or 32 consolidation of the Company with, or sale of all or substantially all of its assets to, another corporation; or (d) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Company; then, in any one or more of such cases, the Company shall give to the holder of this Warrant (i) at least 10 days' prior written notice of the date on which the books of the Company shall close or a record date shall be selected for such dividend, distribution or subscription rights or for determining rights to vote in respect of any such reorganization, reclassification, merger, consolidation, sale dissolution, liquidation or winding up, and (ii) in the case of any such reorganization, reclassification, merger, consolidation, sale, dissolution, liquidation or winding up, at least 10 days' prior written notice of the date when the same shall take place. Such notice in accordance with the foregoing clause also shall specify, (i) in the case of any such dividend distribution or subscription rights, the date on which the holders of Shares shall be entitled thereto, and (ii) the date on which the holders of Shares shall be entitled to exchange their shares for securities or other property deliverable upon such reorganization, reclassification, merger, consolidation, sale, dissolution, liquidation or winding up, as the case may be. Each such written notice shall be sufficiently given if addressed to the holder hereof at the last address of such holder 33 appearing on the books of the Company and (i) personally delivered, (ii) sent by telex provided that "answer-back" confirmation is received by the Company or (iii) sent by registered or certified mail, postage prepaid, return receipt requested. 7. No Fractional Shares. Upon the exercise of this Warrant, whether -------------------- in whole or in part, Company shall not be required to issue any fractional Shares or scrip certificates evidencing any fractional interest in Shares. In any case where, pursuant to the terms of this Warrant, the holder hereof would be entitled, except for the provisions of this Section 7, to receive a fractional Share, the number of Shares issuable upon such exercise shall be rounded to the next larger whole Share. 8. Governing Law. This Warrant shall be governed by and construed ------------- in accordance with the laws of the State of New York. 9. Authorized Shares. As a condition precedent to the taking of any ----------------- action which would require an adjustment pursuant to Section 5 of this Warrant, the Company shall take all action necessary and appropriate so that the Company has unissued and reserved in its authorized capital stock and may validly and legally issue as fully paid and non-assessable, free and clear of all taxes, charges, liens, preemptive and other rights, all of the 34 Shares which the holder of this Warrant is entitled to receive on the full exercise hereof. 10. Exchange of Warrant. This Warrant is exchangeable, upon the ------------------- surrender hereof by the holder hereof at the office or agency of the Company referred to in Section 1 hereof, for new Warrants of like tenor representing in the aggregate the right to subscribe for and purchase the number of Shares which may be subscribed for and purchased hereunder, each such new Warrant to represent the right to subscribe for and purchase such number of Shares as shall be designated by such holder hereof at the time of such surrender. 11. Mutilated or Missing Warrants. Upon receipt of evidence ----------------------------- satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such loss, theft or destruction, upon delivery of a bond or indemnity satisfactory to the Company, or, in the case of any such mutilation, upon surrender or cancellation of this Warrant, the Company will issue to the holder hereof a new warrant of like tenor, in lieu of this Warrant, representing the right to subscribe for and purchase the number of Shares which may be subscribed for and purchased hereunder. 12. Notice of Expiration. No later than 50 days and no earlier than -------------------- 80 days before the expiration of the 35 Warrants, the Company shall send to the registered holders a notice setting forth the expiration date of the Warrants. 36 IN WITNESS WHEREOF, Dairy Mart Convenience Stores, Inc. has caused this Warrant to be signed by its duly authorized officer, and this Warrant to be dated, December 1, 1995. DAIRY MART CONVENIENCE STORES, INC. By: /s/ Gregory Wozniak --------------------------------- Gregory Wozniak Vice President 37 PURCHASE FORM (To be signed only upon Exercise of this Warrant) The undersigned hereby exercises the within Warrant for the purchase of Shares (as defined in the Warrant) covered by such Warrant and in accordance with the terms and conditions thereof, and herewith makes payment of the exercise price in full. The Company is instructed to issue certificates for such Shares and any new Warrant to which the undersigned may be entitled on partial exercise hereof in the name of the undersigned and to deliver the same at the address indicated. _______________________________ TYPE OF SHARES _______________________________ NAME _______________________________ STREET AND NUMBER _______________________________ CITY AND STATE _______________________________ PURCHASER'S SIGNATURE Signature must conform exactly with the name of the registered owner on the front of this Warrant. 38 ASSIGNMENT FORM FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto _________________________ the rights represented by the foregoing Warrant of Dairy Mart Convenience Stores, Inc. and appoints ______________ attorney to transfer said rights on the books of said corporation, with full power of substitution in the premises. _________________________________ Dated: In the presence of __________________________ 39 EX-10.3 5 FORM OF STOCK PURCHASE WARRANT Exhibit 10.3 THIS WARRANT AND THE CLASS A COMMON STOCK OR OTHER SECURITY ISSUABLE THEREFOR HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED, OR ANY OTHER APPLICABLE REGULATION OR LAW. ACCORDINGLY, NO TRANSFER OF THIS WARRANT OR ANY SHARE ISSUABLE OR ISSUED UPON EXERCISE HEREOF MAY BE MADE IN THE UNITED STATES EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR AN EXEMPTION FROM REGISTRATION THEREUNDER AND IN COMPLIANCE WITH ANY OTHER APPLICABLE SECURITIES LAWS AND THE TERMS HEREOF. STOCK PURCHASE WARRANT EACH HOLDER OF THIS WARRANT OR ANY SHARES, STOCK OR OTHER SECURITIES ACQUIRED UPON EXERCISE HEREOF OR ANY CERTIFICATE REPRESENTING SUCH SECURITIES IS ENTITLED TO THE BENEFITS OF THE TERMS OF THE REGISTRATION RIGHTS AGREEMENT, DATED AS OF DECEMBER 1, 1995, AMONG THE COMPANY AND HOLDERS OF THE COMPANY'S 10-1/4% SENIOR SUBORDINATED SECURITIES (SERIES B) AND THE WARRANTS OR OTHER REGISTRABLE SECURITIES. A COPY OF SUCH REGISTRATION RIGHTS AGREEMENT IS ON FILE AT THE OFFICES OF THE COMPANY. To Subscribe for and Purchase Shares of Class A Common Stock of DAIRY MART CONVENIENCE STORES, INC. No. __ PPN: 233860 2* 5 THIS CERTIFIES that, for value received, _________ (or registered assigns) is entitled to subscribe for and purchase from Dairy Mart Convenience Store, Inc., a Delaware corporation (herein referred to as the "Company" or "Dairy Mart") at any time and from time to time, from the date hereof to 5:00 p.m. (New York City time) on December 1, 2001 (the "Expiration Time"), up to _______ duly authorized, validly issued, fully paid and non-assessable shares of Class A Common Stock ("Class A Common Shares"), par value $.01 per share, of the Company, or any shares into which such Class A Common Shares shall have been changed or any stock or other securities resulting from a reclassification thereof or change thereto (all such shares, stock or other securities which may be purchased by this, and all other, Warrants are herein referred to as the "Shares"), at the price and upon the terms and conditions and subject to adjustment, all as hereinafter set forth. This Warrant Certificate is one of the Class A Common Stock Purchase Warrants (the "Warrants", which term includes all Warrants issued in substitution therefor) originally issued in connection with the issue and sale by the Company of its 10-1/4% Senior Subordinated Notes 2 (Series B) due 2004 (the "Series B Notes") and Warrants, pursuant to several Note and Warrant Purchase Agreements, dated as of December 1, 1995, by and between the Company and certain purchasers (the "Series B Purchase Agreements"), and the amendment to the Indenture, dated as of March 3, 1994, by and among the Company, certain Guarantors (as defined in such Indenture) and Society National Bank, as original Indenture Trustee, pursuant to which the Company's 10-1/4% Senior Subordinated Notes due 2004 (the "Series A Notes") were issued. On the date of initial issuance of the Warrants (the "Issue Date"), Warrants to purchase 1,215,000 Shares were issued to the purchasers under the Series B Purchase Agreements. The Company also agreed to issue Warrants to purchase 500,000 shares to holders of the Series A Notes. The Company represents that all Shares to which the holders of Warrants shall be entitled upon exercise thereof (i) are duly authorized by the Restated Certificate of Incorporation of the Company, in accordance with the laws of the State of Delaware, (ii) have been duly authorized to be issued upon the exercise of the Warrants from time to time, in whole or in part, (iii) will be, when issued in accordance with the terms of the Warrants, duly authorized, validly issued and fully paid and nonassessable and free and clear of all taxes, liens, fees, charges and preemptive rights (other than taxes, liens, fees, charges and rights of 3 others claiming by, and through, the holder hereof) and (iv) will not at the time of such exercise be subject to any restrictions on transfer or sale except as provided by applicable laws. 1. Exercise of Warrants. (a) The rights represented by this Warrant -------------------- may be exercised by the holder hereof, in whole or in part, by the surrender of this Warrant, with the purchase form attached hereto (or reasonable facsimile thereof) duly executed, at the principal office of the Company at One Vision Drive, Enfield, Connecticut 06082 (or such other office or agency of the Company as it may designate by notice in writing to the holder hereof at the address of such holder appearing on the books of the Company at any time during the period within which the rights represented by this Warrant may be exercised or, if such exercise is in connection with an underwritten public offering of Shares subject to this Warrant, at the location at which the underwriting agreement requires that such Shares be delivered) and upon payment as provided in Section 1(b) below. The Company agrees that the Shares so purchased shall be and will be deemed to be issued to the holder hereof as the record owner of such Shares immediately prior to the close of business on the date on which this Warrant shall have been surrendered and payment made for such Shares as aforesaid (except that if such exercise is in connection with an underwritten public 4 offering of Shares subject to this Warrant, then such exercise shall be deemed to have been effected upon such surrender of this Warrant). On each day that an exercise of this Warrant is deemed effected, the person or persons in whose name or names any certificate or certificates of Shares are issuable upon such exercise shall be deemed to have become the holder or holders of record of such Shares. Certificates for the Shares so purchased shall be delivered, at the Company's expense (including, without limitation, the payment by the Company of any applicable issue, stamp or other taxes), to the holder hereof as promptly as practicable thereafter, but in each case within five (5) days, after the rights represented by this Warrant shall have been exercised (unless such exercise shall be in connection with a public offering of Shares subject to this Warrant, in which event concurrently with such exercise) and, in case such exercise is in part only, a new Warrant or Warrants of like tenor, calling in the aggregate on the face or faces thereof for the number (which may be fractional) of Shares (without giving effect to any adjustment therein) equal to the Shares with respect to which this Warrant shall not then have been exercised shall also be issued to the holder within such time. Certificates for fractional Shares will not be issued. (b) Payment of the warrant purchase price for the Shares purchased upon the exercise of this Warrant shall be 5 made in full (i) by wire transfer, cash, check, or money order, payable in United States currency to the order of Company, (ii) by delivering to the Company the Company's Subordinated Notes (as hereinafter defined), such notes to be valued including 100% of principal amount plus accrued and unpaid interest, (iii), to the extent permitted by the Amended and Restated Indenture dated December 1, 1995 relating to the Series B Notes and the Credit Agreement dated as of February 25, 1994 among the Company, Fleet Bank, National Association and Society National Bank, as amended, by authorizing the Company to withhold from such issuance of Shares a number of Shares determined by dividing the warrant purchase price by the Closing Class A Common Stock Price (as hereinafter defined) on the date immediately preceding the date of the exercise or (iv) by any combination of the foregoing. For the purposes hereof, the Company's Subordinated Notes shall mean the Series A Notes or the Series B Notes. (c) The Company will, at the time of or at any time after each exercise of this Warrant, upon the request of the holder thereof or of any Shares issued upon any exercise, acknowledge in writing its continuing obligation to afford to such holder all rights (including, without limitation, any registration rights relating to such Shares pursuant to the Registration Rights Agreement) to which such holder shall continue to be entitled under this Warrant and 6 the Registration Rights Agreement; provided that, if any such holder shall fail to make any such request, the failure shall not affect the continuing obligation of the Company to afford such rights to such holder. 2. Transferability of Warrant. Subject to compliance with Section 4, -------------------------- if applicable, this Warrant is transferable on the books of the Company at its office described above by the holder hereof in person or by duly authorized attorney, upon surrender of this Warrant together with the assignment form attached hereto duly executed. Upon the surrender of this Warrant to the Company in proper form for transfer, as required hereby, the Company shall issue a new Warrant or new Warrants in the same form and of like tenor as this Warrant representing the right to subscribe for and purchase, in the aggregate, the number of Shares which may be, from time to time, subscribed for and purchased hereunder and, individually, the number of Shares the right to purchase which has been so transferred to each transferee and which has been retained by the transferor, if any. 3. Covenants of the Company. The Company hereby covenants and agrees ------------------------ as follows: (a) All Shares which may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, (i) be validly issued, fully paid and nonassessable, (ii) be free from any and all taxes, liens, 7 preemption and other rights of others, and charges with respect to the issue thereof (other than transfer taxes, if any, in respect of any transfer occurring contemporaneously with such issue) and (iii) not be, at the time of such exercise, subject to any restrictions on transfer or sale except as provided in Section 4 hereof. (b) During the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized and reserved a sufficient number of Shares to provide for the exercise of the rights represented by this Warrant. (c) The Company will pay all stamp taxes attributable to the initial issuance of Shares issuable upon the exercise of this Warrant; provided, -------- however, that the Company shall not be required to pay any tax or taxes which - ------- may be payable in respect of any transfer involved in the issue or delivery of any certificates for Shares or other securities in a name other than that of the registered holder of this Warrant in respect of which such Shares or securities are issued. (d) The Company will not, by way of amendment of its Restated Certificate of Incorporation, through any consolidation, mergers, reorganization, transfer of assets, distribution, issuance or sale of securities or any other voluntary action or omission avoid or seek to avoid the observance of any of the terms of this Warrant, but will at 8 all times in good faith observe and perform all such terms and take all such action (or refrain from taking such action) as appropriate in order protect the rights of the holder of this Warrant against dilution or other impairment. 4. Restrictions. The holder acknowledges that this Warrant and the ------------ Shares acquired upon exercise of the Warrant will be "restricted securities" as that term is defined under the regulations promulgated under the Securities Act of 1933, as amended (the "Securities Act"), will not be saleable in the absence of an effective registration statement under the Securities Act or an exemption from registration, and accordingly, may be required to be held for an indefinite period of time. The holder agrees that this Warrant may contain the following legend on the face thereof: THIS WARRANT AND THE CLASS A COMMON STOCK OR OTHER SECURITY ISSUABLE THEREFOR HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED, OR ANY OTHER APPLICABLE REGULATION OR LAW. ACCORDINGLY, NO TRANSFER OF THIS WARRANT OR ANY SHARE ISSUABLE OR ISSUED UPON EXERCISE HEREOF MAY BE MADE IN THE UNITED STATES EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR AN EXEMPTION FROM REGISTRATION THEREUNDER AND IN COMPLIANCE WITH ANY OTHER APPLICABLE SECURITIES LAWS AND THE TERMS HEREOF. The holder also agrees that the Shares issued pursuant hereto may contain the following legend on the face thereof: THIS SECURITY HAS NOT BEEN REGISTERED PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED, AND EACH HOLDER OF THIS SECURITY BY ACCEPTANCE OF THIS SECURITY AGREES THAT THIS SECURITY SHALL NOT BE TRANSFERRED IN VIOLATION OF SAID ACT OR SUCH OTHER REGULATION OR LAW. 9 Each holder of a Warrant by acceptance thereof agrees that it will not sell or otherwise dispose of any Warrants or Shares unless such Warrants or Shares have been registered under, or have been sold pursuant to an exemption from registration under, the Securities Act. Prior to any transfer of any Warrants or Shares which are not registered under an effective registration statement under the Securities Act (either of the foregoing a "Restricted Security"), the holder thereof will give written notice to the Company of such holder's intention to effect such transfer. Each such notice shall contain a description of the manner and circumstances of the proposed transfer in sufficient detail, and shall contain an undertaking by the holder giving such notice to furnish such other information as the Company may require, to enable counsel to the Company to render the opinion referred to below. The Company will promptly submit a copy of such notice to its counsel, and the following provisions shall then apply: (x) If in the opinion of such counsel the proposed transfer may be effected without registration of such Restricted Securities under the Securities Act, the Company shall, as promptly as practicable, so notify the holder of such Restricted Securities and such holder shall thereupon be entitled, subject to the other provisions of this Warrant and the Registration 10 Rights Agreement, to transfer such Restricted Securities in accordance with the terms of the notice delivered to the Company. (y) If such counsel is unable to conclude that the proposed transfer may be effected without registration of such Restricted Securities under the Securities Act (such view to be expressed in writing in a letter stating the legal or factual basis of the conclusions reached therein), the Company will, as promptly as practicable, so notify the holder thereof and thereafter such holder shall not be entitled to transfer such Restricted Securities until the provisions of this Section 4 have otherwise been complied with. Notwithstanding the provisions of this Section 4, any holder of Restricted Securities shall be permitted, subject to the other provisions of this Warrant and compliance with applicable law, to transfer any of such Restricted Securities to a limited number of institutional investors, provided that each -------- such investor either (a) represents in writing that it is an institutional accredited investor (as defined in Rule 501(A)(1), (2), (3) or (7) under the Securities Act) acquiring such Restricted Securities for investment and not with a view to the distribution thereof (subject, however, to any requirement of law that the disposition thereof shall at all times be within the control 11 of such transferee) and that it will comply with the limitations on resale imposed hereby, or (b) is an institutional investor to whom such Restricted Securities may be transferred pursuant to a rule or regulation of the Securities and Exchange Commission (or any governmental agency exercising like authority) permitting resales of securities to a limited class of institutional investors; and provided, further, that such holder notify the Company following such sale -------- ------- of the transfer. The Company shall pay the costs and expenses of any counsel described above. The restrictions imposed by this Section 4 upon the transferability of Restricted Securities are not applicable as to any particular Restricted Securities (X) when, in the opinion of counsel for the Company, such restrictions are no longer required in order to ensure compliance with the Securities Act, (Y) when such Restricted Securities shall have been effectively registered under the Securities Act (including, without limitation, pursuant to the Registration Rights Agreement), or (Z) when such Restricted Securities shall have been sold to the public pursuant to Rule 144 (or any successor provision) under the Securities Act. Whenever such restrictions shall cease and terminate as to any Restricted Securities, the holders thereof shall be entitled to receive from the Company, without expense (other than applicable transfer taxes, if 12 any) new certificates representing such Restricted Securities of like tenor but not bearing the legend otherwise required by this Section 4. 5. Warrant Purchase Price; Adjustments. The above provisions are, ----------------------------------- however, subject to the following: (a) The term "basic warrant purchase price" shall mean $6.95 (the "Initial Exercise Price"); provided, however, that on the first anniversary of -------- ------- the date hereof, the "basic warrant purchase price" will be reset to the lower of (i) the Initial Exercise Price as the same should have been adjusted in accordance with the provisions of this Section 5 or otherwise, if applicable, and (ii) 110% of the average Closing Class A Common Stock Price (as hereinafter defined) during the 30 trading days immediately preceding the first anniversary of the date hereof. (b) For purposes hereof, "Closing Class A Common Stock Price" shall mean as of any given date (i) the last reported sales price of Class A Common Stock on the National Market System of NASDAQ, or any similar system of automated quotation of securities prices then in common use, if so quoted for such date, or (ii) if not so quoted as described in clause (i) for any such date, the mean of the high and the low bid quotations for the Class A Common Stock as reported by the National Quotation Bureau Incorporated if at least two securities dealers have inserted bid quotations for such class of stock on at least five of the ten trading 13 days preceding the day in question, or (iii) if not so quoted as described in clauses (i) and (ii) above, for any such date if the Class A Common Stock is not listed or admitted for trading on any national securities exchange, the closing bid price of Class A Common Stock on the principal securities exchange on which such class of stock is listed. If none of the conditions set forth in the preceding sentence is met, the closing bid quotation of Class A Common Stock on any day or the average of such closing prices for any period shall be the fair market value of the Class A Common Stock as determined by a member firm of the New York Stock Exchange, Inc. of nationally recognized stature selected by the Company. (c) The basic warrant purchase price shall be subject to adjustment from time to time as hereinafter provided. The term "warrant purchase price" shall mean, unless and until any such adjustment shall occur, the basic warrant purchase price and, after any such adjustment, the warrant purchase price resulting from such adjustment. (d) Upon each adjustment of the warrant purchase price, other than pursuant to Section 5(f) hereof, the holder of this Warrant shall thereafter be entitled to purchase, at the warrant purchase price resulting from such adjustment, the number of Shares obtained by multiplying the warrant purchase price in effect immediately prior to such adjustment by the number of Shares purchasable pursuant 14 hereto immediately prior to such adjustment and dividing the product thereof by the warrant purchase price resulting from such adjustment. The holder of this Warrant on the Issue Date shall be initially entitled to purchase _______ Shares at the Initial Exercise Price. (e) If and whenever the Company shall at any time and from time to time issue, sell or grant any of its shares or other securities representing (i) Class A Common Stock, as currently constituted on the date hereof, (ii) Class B Common Stock, par value $.01 per share, as constituted on the date hereof, (iii) any stock into which the foregoing stock in clauses (i) or (ii) shall have been changed or any stock resulting from any reclassification of such stock, and (iv) all other stock of any class or classes (however designated) of the Company the holders of which have the right, without limitations as to amount, either to all or to a share of the balance of current dividends and liquidating dividends after the payment of dividends and distributions on any shares entitled to preference (the stock referred to in the foregoing clauses (i) through (iv) being hereinafter referred to as "Common Shares") (except for (x) Common Shares issued in an aggregate amount no greater than the aggregate number of shares issuable pursuant to options or other rights to acquire Common Shares outstanding as of the date hereof and on the terms of such options or other rights as in effect on the date hereof or (y) Common Shares sold, 15 issued or granted either directly or upon the exercise of options or other rights granted after the date hereof to the Company's employees or directors pursuant to any employee or director plan adopted by the Board of Directors of the Company up to a maximum during fiscal year 1996 of options to purchase and/or grants of restricted shares of Class A Common Stock not to exceed 200,000 shares of Class A Common Stock, such options to have an exercise price equal to the Closing Class A Common Stock Price at the date of issuance and to vest ratably over a period of four years and such grants of restricted Class A Common Stock not to exceed 100,000 shares, and, during any subsequent fiscal year, options to purchase or grants of Class A Common Stock not in excess of 90,000 shares of Class A Common Stock, all such grants not to exceed 650,000 shares of Class A Common Stock in the aggregate (collectively, "Plan Shares")), without consideration or for a consideration per share less than the "Base Price" which is, on any date specified herein, the greater of the market price on that date and the warrant purchase price in effect immediately prior to the time of such issue, sale or grant, then, and in each such case, concurrent with such issue, sale or grant, the warrant purchase price shall be reduced to a price (calculated to the nearest .001) determined by multiplying the warrant purchase price by a fraction (i) the numerator of which is an amount equal to the sum of (A) the number of Common 16 Shares outstanding immediately prior to such issue, sale or grant plus (B) the number of Common Shares that the aggregate consideration, if any, received by the Company upon such issue or sale (computed in accordance with Section 5(e)(vi) below) would purchase at the warrant purchase price then in effect, and (ii) the denominator of which is the total number of Common Shares outstanding immediately after such issue or sale. No adjustment of the warrant purchase price, however, shall be made in an amount less than $.01 per share, but any such lesser adjustment shall be carried forward and shall be made at the time and together with the next subsequent adjustment which together with any adjustments so carried forward shall amount to $.01 per share or more. For purposes of this Section 5(e), the following provisions (i) to (viii), inclusive, shall also be applicable: (i) If at any time the Company in any manner shall issue, sell or grant, or shall fix a record date for the determination of holders of any class of securities entitled to receive, any rights to subscribe for or to purchase, or any options for the purchase of, its Common Shares (other than Plan Shares) or any rights to subscribe for or to purchase, or any options for the purchase of, any shares or other securities convertible or exchangeable for Common Shares (other than Plan Shares) (such convertible or exchangeable shares or securities being herein referred to 17 as "Convertible Securities"), whether or not such rights or options or the rights to convert or exchange any such Convertible Securities are immediately exercisable, and the price per share for which Common Shares are issuable upon the exercise of such rights or options or upon conversion or exchange of such Convertible Securities (determined by dividing (1) the total amount, if any, received or receivable by the Company as consideration for the granting of such rights or options, plus the minimum aggregate amount of additional consideration payable to the Company upon the exercise of such rights or options, plus, in the case of such Convertible Securities, the minimum aggregate amount of additional consideration, if any, payable upon the conversion or exchange thereof, by (2) the total maximum number of Common Shares issuable upon the exercise of such rights or options or upon conversion or exchange of all such Convertible Securities issuable upon the exercise of such rights or options) shall be less than the Base Price in effect on the date of and immediately prior to the time of the issuance, sale or granting of such rights or options, or the date such record date is fixed, then the total maximum number of Common Shares issuable upon the exercise of such rights or options or upon conversion or exchange of the total maximum amount of such Convertible Securities issuable upon the exercise of such rights or options shall (as of the date of granting of such rights or options) be deemed to be 18 outstanding and to have been issued for such price per share as additional Common Shares, as of the time of such issue, sale or grant, or in case such a record date shall have been fixed, as of the close of business on such record date, and the warrant purchase price shall be adjusted as set forth in Section 5(e). No further adjustments of the warrant purchase price shall be made upon the actual issue of such Common Shares or of such Convertible Securities upon exercise of such rights or options or upon the actual issue of such Common Shares upon conversion or exchange of such Convertible Securities, except as otherwise provided in (iii) below. (ii) If at any time the Company in any manner, other than as specified in (i) above, shall issue, sell or grant, or shall fix a record date for the determination of holders of any class of securities entitled to receive, any rights to subscribe for or to purchase, or any options for the purchase of any Convertible Securities, whether or not the rights to exchange or convert thereunder are immediately exercisable, and the price per share for which Common Shares are issuable upon such conversion or exchange (determined by dividing (1) the total amount received or receivable by the Company as consideration for the issue or sale of such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Company upon the conversion or exchange 19 thereof, by (2) the total maximum number of Common Shares issuable upon the conversion or exchange of all such Convertible Securities) shall be less than the Base Price in effect on the date of and immediately prior to the time of such issue, sale or grant, or fixing of such record date, then the total maximum number of Common Shares issuable upon conversion or exchange of all such Convertible Securities shall (as of the date of the issue or sale of such Convertible Securities) be deemed to be outstanding and to have been issued for such price per share as additional Common Shares, as of the time of such issue, sale or grant, or in case such a record date shall have been fixed as of the close of business on such record date, and the warrant purchase price shall be adjusted as set forth in Section 5(e); provided, however, that, except as -------- ------- otherwise specified in (iii) below, (A) no further adjustments of the warrant purchase price shall be made upon the actual issue of such Common Shares upon conversion or exchange of such Convertible Securities, and (B) if any such issue or sale of such Convertible Securities is made upon exercise of any rights to subscribe for or to purchase or any option to purchase any such Convertible Securities for which adjustments of the warrant purchase price have been or are to be made pursuant to other provisions of this Section 5(e), no further adjustment of the warrant purchase price shall be made by reason of such issue or sale. 20 (iii) If at any time there shall be a change (other than under or by reason of provisions designed to protect against dilution) of the purchase price provided for in any rights or options referred to in (i) above, or of the additional consideration, if any, payable upon the conversion or exchange of Convertible Securities referred to in (i) or (ii) above or of the rate at which any Convertible Securities referred to in (i) or (ii) above are convertible into or exchangeable for Common Shares, then upon the happening of any such event the warrant purchase price in effect at the time of such event shall forthwith be readjusted to the warrant purchase price which would have been in effect at such time had such rights, options or Convertible Securities outstanding at the time of such event been initially adjusted as provided in (i) or (ii) above, whichever was applicable, except that the purchase price provided for in any such rights or options, the minimum aggregate amount of additional consideration payable and the total maximum number of Common Shares issuable shall be determined after giving effect to such event (and any prior event or events); and on the expiration of any such option or right or the termination of any such right to convert or exchange such Convertible Securities, the warrant purchase price then in effect hereunder shall forthwith be increased to the warrant purchase price which would have been in effect at the time of such expiration or termination had 21 such right, option or Convertible Securities never been issued, and the Common Shares issuable thereunder shall no longer be deemed to be outstanding; provided, however, that no such increase in the warrant purchase price shall be - -------- ------- made in an amount in excess of the amount of the adjustment thereof initially made in respect of the granting of such rights or options or the issue or sale of such Convertible Securities. If the purchase price provided for in any such right or option referred to in (i) above or the rate at which any Convertible Securities referred to in (i) or (ii) above are convertible into or exchangeable for Common Shares shall decrease at any time under or by reason of provisions with respect thereto designed to protect against dilution, then in case of the delivery of Common Shares upon the exercise of any such right or option or upon conversion or exchange of any such Convertible Security, the warrant purchase price then in effect hereunder shall forthwith be decreased to such amount as would have obtained had the adjustments made upon the issuance of such right, option or Convertible Security been made upon the basis of the issuance of (and the total consideration received for) the Common Shares delivered as aforesaid. (iv) If at any time the Company shall declare, pay or make, as applicable, any dividend or other distribution upon any shares of the Company capital stock payable in Common Shares or Convertible Securities or 22 options, rights or warrants to purchase Common Shares or Convertible Securities, any Common Shares or Convertible Securities, as the case may be, issuable in payment of such dividend or distribution shall be deemed to be additional Common Shares issued or sold without consideration and the warrant purchase price will be adjusted as set forth in this Section. (v) If at any time the Company shall issue any rights or options to purchase any of its Common Shares or Convertible Securities in connection with the issue or sale of other securities of the Company, together comprising one integral transaction in which no specific consideration is allocated to the rights or options, such rights or options shall be deemed to be additional Common Shares issued without consideration and the warrant purchase price will be adjusted as set forth in this Section 5. (vi) If any Common Shares or Convertible Securities or any rights or options to purchase any such Common Shares or Convertible Securities shall be issued or sold for cash, the consideration received therefor shall be deemed to be the amount received by the Company therefor, without deduction therefrom of any expenses incurred or any commissions or concessions paid or allowed by the Company to underwriters or others performing similar services in connection therewith. If any Common Shares or Convertible Securities or any rights or options to purchase any such 23 Common Shares or Convertible Securities shall be issued or sold for a consideration other than cash, the amount of such consideration received by the Company shall be deemed to be the lesser of (A) the fair market value on the issue date of the securities so issued by the Company, without deduction of any expenses incurred by the Company in connection therewith, or (B) the fair value of such consideration as determined in good faith by the Board of Directors of the Company without deduction of any such expenses. In the event of any merger or consolidation of the Company with any other corporation or in the event of any sale of all or substantially all of the assets of the Company for shares of capital stock or other securities of any other corporation, the Company shall be deemed to have issued a number of Common Shares for shares of capital stock or securities of the other corporation computed on the basis of the actual exchange ratio on which the transaction was predicated and the consideration received for such issuance shall be equal to the fair market value on the date of such transaction of such shares of capital stock or securities of the other corporation, and if any such calculation results in adjustment of the warrant purchase price, the determination of the number of Common Shares issuable upon exercise of the Warrants immediately prior to such merger, conversion or sale shall, for purposes of Section 5(h), be made after 24 giving effect to such adjustment of the warrant purchase price. (vii) If at any time the Company shall fix a record dated for the determination of the holders of its Common Shares entitled (A) to receive a dividend or other distribution payable in Common Shares, Convertible Securities or options, rights or warrants to purchase Common Shares or Convertible Securities, or (B) to subscribe for or purchase Common Shares, or Convertible Securities or options, rights or warrants to purchase Common Shares or Convertible Securities, then such record date shall be deemed to be the date of the issue or sale of the Common Shares deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be. (viii) The number of Common Shares outstanding at any given time shall not include shares owned or held by or for the account of the Company, and the disposition of any such shares shall be considered an issue or sale of Common Shares for the purposes of this Section 5(e). (f) If at any time the Company shall declare or pay any dividend or declare or make any other distribution in respect of any of its Common Shares, other than a cash dividend payable in cash out of earnings or earned surplus 25 and determined by the Board of Directors of the Company to be part of a regular, periodic dividend program and otherwise than Common Shares or Convertible Securities, the warrant purchase price in effect immediately prior to the record date for such distribution shall be reduced by an amount equal, in the case of a distribution in cash, by the amount thereof payable per share of Common Shares or, in the case of any other distribution, by the fair value thereof per share of Common Share as determined in good faith by the Board of Directors of the Company, whose determination shall be conclusive. For the purposes of the foregoing, a dividend in cash shall be considered payable out of earnings or earned surplus only to the extent that such earnings or earned surplus are charged an amount equal to such dividend as determined by the Board of Directors of the Company. Such reductions shall take effect as of the record date selected for the purpose of such distribution. (g) If at any time the Company subdivides its outstanding Shares into a greater number of shares, the warrant purchase price in effect immediately prior to such subdivision shall be proportionately reduced, and, conversely, if at any time the outstanding Shares of the Company shall be combined into a smaller number of shares, the warrant purchase price in effect immediately prior to such combination shall be proportionately increased. 26 (h) Upon any capital reorganization or reclassification of the shares of capital stock of the Company, or any merger or consolidation of the Company with another corporation or any sale of all or substantially all of the Company's assets to another corporation, then, as a condition of such reorganization, reclassification, merger, consolidation or sale, lawful and adequate provision shall be made whereby the holder hereof shall thereafter have the right to purchase and receive, upon the basis and upon the terms and conditions specified in this Warrant and in lieu of Shares of the Company immediately theretofore purchasable and receivable upon the exercise of this Warrant, such shares of capital stock, securities or assets as may be issued or payable with respect to or in exchange for a number of shares of outstanding Shares equal to the number of Shares immediately theretofore purchasable and receivable upon the exercise of this Warrant, and in any such case appropriate provision shall be made with respect to the rights and interests of the holder of this Warrant to the end that the provisions of this Section 5 shall thereafter be applicable, as nearly as may be, to any shares of capital stock, securities or assets thereafter deliverable upon the exercise of this Warrant. The Company shall not effect any such merger, consolidation or sale unless (i) prior to or simultaneously with the consummation thereof the successor corporation resulting from such merger or consolidation or 27 the corporation purchasing such assets shall assume, by written instrument reasonably satisfactory to the holder thereof (a copy of which shall be mailed or delivered to the registered holder hereof at the last address of such holder appearing on the books of the Company), the obligation to deliver to such holder such shares of capital stock, securities or assets as such holder may be entitled, in accordance with the foregoing provisions, to purchase upon the exercise of this Warrant and (ii) immediately after the date of consummation of such transaction the successor corporation or other party delivering securities as to which the holder may be entitled to purchase upon exercise of this Warrant, is required to file reports with the Commission pursuant to Section 13 or Section 15(d) of the Exchange Act and such securities are listed or admitted to trading on a national securities exchange or on the NASDAQ National Market. Nothing herein is intended to permit any merger, consolidation, sale or transaction not otherwise permitted by the Indenture (as amended and restated on the date hereof). (i) Upon each adjustment or readjustment of the warrant purchase price or in the nature of the Shares, securities or other property receivable upon the exercise of this Warrant, the Company promptly shall prepare and mail, by first class mail, postage prepaid, to the registered holder of this Warrant, at such holder's last address 28 appearing on the books of the Company, a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based, including a statement of (i) the consideration received or to be received by the Company for any additional Common Shares issued or sold or deemed to have been issued or sold, (ii) the number of Common Shares outstanding or deemed to be outstanding, (iii) the warrant purchase price in effect immediately prior to such issue or sale and as adjusted and readjusted (if required by this Section 5) on account thereof and (iv) the kind and amount of shares of capital stock, securities or other property thereafter to be received upon the exercise of this Warrant. Upon the written request at any time of the holder of this Warrant, the Company will furnish to such holder a like certificate setting forth the warrant purchase price at the time in effect and showing how it was calculated. (j) If the Company shall at any time after the date hereof purchase, redeem or otherwise acquire any shares of Class B Common Stock, par value $.01 per share, of the Company at an aggregate consideration that is greater than the average Closing Class A Common Stock Price (as referred to in Section 5(b) hereof) during the 30 trading days immediately preceding the date of such purchase, redemption or other acquisition of the Class B Common Stock, the warrant purchase price then in effect will be reduced by an 29 amount determined by multiplying the warrant purchase price by a fraction the (I) numerator of which is (a) an amount equal to the sum of (A) the number of Shares outstanding immediately prior to such purchase, redemption or acquisition plus (b) the number of Shares that would be purchasable, at the warrant purchase price, using the amount equal to the difference between the aggregate consideration received by Class B Common Stock holders and the market price for an equal number of Shares, and (II) the denominator of which shall be the total number of Shares outstanding immediately after such purchase or acquisition. (k) In case the Company shall take any action affecting the Shares, other than actions described in this Section 5, which in the opinion of a majority of the Company's non-employee directors would have a material and adverse effect on the rights of the holder of this Warrant (including, without limitation, with respect to the warrant purchase price and/or the number and/or kind of Shares purchasable upon exercise of this Warrant) then in each such case, the Company shall appoint a firm of independent public accountants of recognized national standing which shall give its opinion on the adjustment, if any, on a basis consistent with the essential intent and principles established in this Section 5, necessary to preserve, without dilution, the purchase rights represented by this Warrant. 30 (l) No Dilution or Impairment. The Company will not, by amendment of ------------------------- its Restated Certificate of Incorporation or through any consolidation, merger, reorganization, transfer of assets, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holder of this Warrant against dilution or other impairment. Without limiting the generality of the foregoing, the Company (a) will not permit the par value of any shares of stock receivable upon the exercise of this Warrant to exceed the amount payable therefor upon such exercise, and, if the warrant purchase price in effect at any time shall be reduced to such par value, the Company will promptly cause the par value of such shares to be reduced to $0.01 below such warrant purchase price, (b) will take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of stock upon the exercise of all of the Warrants from time to time outstanding, (c) will not take any action which results in any adjustment of the warrant purchase price if the total number of shares (or Convertible Securities) issuable after the action upon the exercise of all of the Warrants would 31 exceed to total number of shares (or Convertible Securities) then authorized by the Company's Restated Certificate of Incorporation and available for the purpose of issue upon such exercise, and (d) will not issue any capital stock of any class which as the right to more than one vote per share or which is preferred as to dividends or as to the distribution of assets upon voluntary or involuntary dissolution, liquidation or winding-up, unless such stock is sold for a cash consideration at least equal to the amount of its preference upon voluntary or involuntary dissolution, liquidation or winding-up and the rights of the holders thereof shall be limited to a fixed percentage (not exceeding 15%) of such cash consideration in respect of participation in dividends. 6. Notices to Holders of Warrants. If at any time: ------------------------------ (a) the Company shall pay any dividend payable in shares upon its Shares or make any distribution (other than cash dividends paid at an established annual or quarterly rate) to the holders of its Shares; or (b) the Company shall offer for subscription pro rata to the holders --- ---- of its Shares any additional shares of stock of any class or other rights; or (c) there shall be any capital reorganization, or reclassification of the shares of the Company, or merger or 32 consolidation of the Company with, or sale of all or substantially all of its assets to, another corporation; or (d) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Company; then, in any one or more of such cases, the Company shall give to the holder of this Warrant (i) at least 10 days' prior written notice of the date on which the books of the Company shall close or a record date shall be selected for such dividend, distribution or subscription rights or for determining rights to vote in respect of any such reorganization, reclassification, merger, consolidation, sale dissolution, liquidation or winding up, and (ii) in the case of any such reorganization, reclassification, merger, consolidation, sale, dissolution, liquidation or winding up, at least 10 days' prior written notice of the date when the same shall take place. Such notice in accordance with the foregoing clause also shall specify, (i) in the case of any such dividend distribution or subscription rights, the date on which the holders of Shares shall be entitled thereto, and (ii) the date on which the holders of Shares shall be entitled to exchange their shares for securities or other property deliverable upon such reorganization, reclassification, merger, consolidation, sale, dissolution, liquidation or winding up, as the case may be. Each such written notice shall be sufficiently given if addressed to the holder hereof at the last address of such holder 33 appearing on the books of the Company and (i) personally delivered, (ii) sent by telex provided that "answer-back" confirmation is received by the Company or (iii) sent by registered or certified mail, postage prepaid, return receipt requested. 7. No Fractional Shares. Upon the exercise of this Warrant, whether -------------------- in whole or in part, Company shall not be required to issue any fractional Shares or scrip certificates evidencing any fractional interest in Shares. In any case where, pursuant to the terms of this Warrant, the holder hereof would be entitled, except for the provisions of this Section 7, to receive a fractional Share, the number of Shares issuable upon such exercise shall be rounded to the next larger whole Share. 8. Governing Law. This Warrant shall be governed by and construed ------------- in accordance with the laws of the State of New York. 9. Authorized Shares. As a condition precedent to the taking of any ----------------- action which would require an adjustment pursuant to Section 5 of this Warrant, the Company shall take all action necessary and appropriate so that the Company has unissued and reserved in its authorized capital stock and may validly and legally issue as fully paid and non-assessable, free and clear of all taxes, charges, liens, preemptive and other rights, all of the 34 Shares which the holder of this Warrant is entitled to receive on the full exercise hereof. 10. Exchange of Warrant. This Warrant is exchangeable, upon the ------------------- surrender hereof by the holder hereof at the office or agency of the Company referred to in Section 1 hereof, for new Warrants of like tenor representing in the aggregate the right to subscribe for and purchase the number of Shares which may be subscribed for and purchased hereunder, each such new Warrant to represent the right to subscribe for and purchase such number of Shares as shall be designated by such holder hereof at the time of such surrender. 11. Mutilated or Missing Warrants. Upon receipt of evidence ----------------------------- satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such loss, theft or destruction, upon delivery of a bond or indemnity satisfactory to the Company, or, in the case of any such mutilation, upon surrender or cancellation of this Warrant, the Company will issue to the holder hereof a new warrant of like tenor, in lieu of this Warrant, representing the right to subscribe for and purchase the number of Shares which may be subscribed for and purchased hereunder. 12. Notice of Expiration. No later than 50 days and no earlier than -------------------- 80 days before the expiration of the 35 Warrants, the Company shall send to the registered holders a notice setting forth the expiration date of the Warrants. 36 IN WITNESS WHEREOF, Dairy Mart Convenience Stores, Inc. has caused this Warrant to be signed by its duly authorized officer, and this Warrant to be dated, December 1, 1995. DAIRY MART CONVENIENCE STORES, INC. By: /s/ Gregory Wozniak _________________________________ Gregory Wozniak Vice President 37 PURCHASE FORM (To be signed only upon Exercise of this Warrant) The undersigned hereby exercises the within Warrant for the purchase of Shares (as defined in the Warrant) covered by such Warrant and in accordance with the terms and conditions thereof, and herewith makes payment of the exercise price in full. The Company is instructed to issue certificates for such Shares and any new Warrant to which the undersigned may be entitled on partial exercise hereof in the name of the undersigned and to deliver the same at the address indicated. __________________________________ TYPE OF SHARES __________________________________ NAME __________________________________ STREET AND NUMBER __________________________________ CITY AND STATE __________________________________ PURCHASER'S SIGNATURE Signature must conform exactly with the name of the registered owner on the front of this Warrant. 38 ASSIGNMENT FORM FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto _________________________ the rights represented by the foregoing Warrant of Dairy Mart Convenience Stores, Inc. and appoints ______________ attorney to transfer said rights on the books of said corporation, with full power of substitution in the premises. __________________________________ Dated: In the presence of _______________________________________ 39 EX-10.4 6 REGISTRATION RIGHTS AGREEMENT Exhibit 10.4 REGISTRATION RIGHTS AGREEMENT ----------------------------- Registration Rights Agreement, dated as of December 1, 1995, by and among Dairy Mart Convenience Stores, Inc., a Delaware corporation (the "Company"), and holders (each a "Holder" and collectively, the "Holders") of (i) the Company's 10-1/4% Senior Subordinated Notes (Series B), due March 15, 2004 (the "Series B Notes") and (ii) warrants to purchase shares of Class A Common Stock, par value $.01 per share, of the Company (the "Warrants"). W I T N E S S E T H : ------------------- Background. This Agreement is entered into in connection with (A) the ---------- several Note and Warrant Purchase Agreements, dated as of December 1, 1995, among the Company and each of the purchasers, respectively (the "Purchasers") listed on Schedule I (the "Schedule of Purchasers") thereto (the "Purchase Agreement"), relating to the issuance and sale by the Company of an aggregate of U.S. $13,500,000 of the Series B Notes and Warrants to purchase an aggregate of 1,215,000 shares of the Class A Common Stock, (B) the Consent Agreement, dated as of December 1, 1995, by and among the Company and the consenting noteholders (the "Consenting Noteholders") listed in Schedule A thereto (the "Consent Agreement"), relating to the waiver of certain defaults and the consent to certain amendments to the Indenture, dated as of March 3, 1994, by and among the Company, the Guarantors (as defined therein) and Society National Bank, as trustee, as supplemented (the "Original Indenture"). In order to induce the Purchasers to enter into the Purchase Agreement and to induce the Consenting Noteholders to enter into the Consent Agreement, the Company has agreed to provide the registration rights set forth in this Agreement for the equal benefit of all Holders from time to time of Registrable Securities (as hereinafter defined). The execution and delivery of this Agreement is a condition precedent to each such Purchaser's obligation to purchase the Series B Notes and Warrants pursuant to the Purchase Agreement and each such Consenting Noteholder's obligation to deliver a waiver and consent pursuant to the Consent Agreement. NOW, THEREFORE, in consideration of the premises and the covenants hereinafter contained, it is agreed as follows: ARTICLE I 1.1. Definitions. The following shall have (unless otherwise ----------- provided elsewhere in this Registration Rights Agreement) the following respective meanings (such meanings being equally applicable to both the singular and plural form of the terms defined): "Agreement" shall mean this Registration Rights Agreement, including all amendments, modifications and supplements and any exhibits or schedules to any of the foregoing, and shall refer to the Agreement as the same may be in effect at the time such reference becomes operative. "Business Day" shall mean any day that is not a Saturday, a Sunday or a day on which banks are required or permitted to be closed in the State of Connecticut. Unless specifically stated herein as a Business Day, all days referred to herein shall mean calendar days. "Commission" shall mean the Securities and Exchange Commission or any other federal agency then administering the Securities Act and other federal securities laws. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect from time to time. "Holders" has the meaning set forth in the introductory paragraph hereto. "NASD" shall mean the National Association of Securities Dealers, Inc., or any successor corporation thereto. "Registrable Debt Securities" shall mean (a) the Series B Notes; (b) any other securities issued in exchange for or substitution of any Series B Notes; and (c) any securities issued or issuable with respect to the Series B Notes or any other securities issued or issuable in exchange for or substitution of any such Series B Notes in connection with a combination, recapitalization, merger, consolidation or other reorganization or otherwise; provided that any -------- such securities shall cease to be Registrable Debt Securities with respect to a proposed offer or sale thereof when a Registration Statement with respect to the sale of such securities shall have become effective under the Securities Act and such securities have been disposed of in accordance with the plan of distribution set forth in such Registration Statement or when they shall have been distributed to the 2 public pursuant to Rule 144, Rule 144A or any successor provisions under the Securities Act. "Registrable Equity Securities" shall mean (a) the Warrants, (b) any securities, including without limitation, any Class A Common Stock, issued or issuable upon exercise of the Warrants, (c) any securities issued or issuable with respect to the Warrants or any securities issued or issuable upon exercise of the Warrants, by way of a dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization or otherwise; provided that any such Registrable Equity -------- Securities shall cease to be Registrable Equity Securities (i) with respect to a proposed offer or sale thereof when a Registration Statement with respect to the sale of such securities shall have become effective under the Securities Act and such securities have been disposed of in accordance with the plan of distribution set forth in such Registration Statement, (ii) when they shall have been distributed to the public pursuant to Rule 144, Rule 144A or any successor provisions under the Securities Act, or (iii) with respect to any Warrant, if and when such Warrant is exercised or terminates by its terms without having been exercised; provided that the securities issued or issuable upon exercise of -------- any Warrant shall not cease to be "Registrable Equity Securities" by reason of such exercise of a Warrant. "Registrable Securities" shall mean, collectively, the Registrable Debt Securities and the Registrable Equity Securities. "Registration Expenses" shall mean all expenses incident to the Company's performance of or compliance with Article II or Article III hereof, including, without limitation: (i) all Commission and stock exchange or NASD registration and filing fees and expenses; (ii) all fees and expenses of compliance with applicable state securities or "blue sky" laws (including, without limitation, reasonable fees and disbursements of counsel for the underwriters in connection with "blue sky" qualification of any Registrable Security); (iii) all word processing, duplicating, printing expenses, messenger and delivery expenses; (iv) all fees and expenses incurred in connection with the listing of the Registrable Securities to be registered on each securities exchange or national market system on which such securities are listed; (v) all fees and disbursements of counsel for the Company and all independent certified public accountants (including the expenses of any annual audit and "cold comfort" letters required by or incident to such performance and compliance); (vi) all fees and disbursements of underwriters customarily paid by issuers or sellers of 3 securities (including the fees and expenses of any "qualified independent underwriters" required by the NASD); (vii) the reasonable fees and expenses of one counsel retained in connection with each such registration by each of the Holders of a majority of the Registrable Securities being registered; (viii) the fees and expenses of any special experts retained by the Company; (ix) fees and expenses of any other persons retained by the Company; and (x) premiums and other costs of policies of insurance against liabilities arising out of the public offering of the Registrable Securities being registered. The foregoing shall not include any underwriting discounts or commissions or transfer taxes, if any, attributable to the sale of Registrable Securities by Holders of such Registrable Securities if obtained at the discretion of the Company. "Registration Statement" shall mean each registration statement filed with the Commission pursuant to the provisions provided herein and all amendments and supplements to such registration statement, including post- effective amendments, in each case including the prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. "Securities Act" shall mean the Securities Act of 1933, as amended, or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect from time to time. "Shelf Registration Statement" shall mean a "shelf" registration statement with respect to Registrable Securities on an appropriate form under Rule 415 under the Securities Act, or any similar rule that may be adopted by the Commission, and all amendments and supplements to such registration statement, including post-effective amendments, in each case including the prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. "Trust Indenture Act" shall mean the Trust Indenture Act of 1939, as amended, or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect from time to time. "Underwritten Offering" shall mean a sale of securities of the Company to an underwriter or underwriters for reoffering to the public. "Warrants" has the meaning set forth in the introductory paragraph hereto. 4 1.2. Construction. Unless the context otherwise requires, "or" is not ------------ exclusive. ARTICLE II 2.1. Shelf Registration. The Company shall file within 90 calendar ------------------ days of the date hereof one or more Shelf Registration Statements providing for the sale by the Holders of all of the Registrable Securities. The Company shall use its best efforts to have such Shelf Registration Statement declared effective by the Commission as soon as practicable after such filing. The Company shall use its best efforts to keep the Shelf Registration Statement continuously effective for a period of at least three years following the date on which such Shelf Registration Statement is initially declared effective or such shorter period which will terminate when all of the Registrable Securities covered by the Shelf Registration Statement have been sold pursuant to the Shelf Registration Statement. The Company further agrees, if necessary, to supplement or amend the Shelf Registration Statement, if required by, or appropriate under, the rules, regulations or instructions applicable to the registration form used by the Company for such Shelf Registration Statement or by the Securities Act or by any other rules and regulations thereunder. 2.2. Required Registration. (a) From and after the expiration of --------------------- the Shelf Registration Statement provided for in Section 2.1, after receipt of a written request from (x) the Holders of Registrable Equity Securities representing at least an aggregate of 50% of the total of all Registrable Equity Securities outstanding or (y) the Holders of Registrable Debt Securities representing at least an aggregate of 50% of the total of all Registrable Debt Security outstanding, requesting that the Company effect the registration of such Registrable Securities under the Securities Act, the Company shall promptly give written notice, pursuant to Section 2.2(c) hereof, to the Holders of such Registrable Equity Securities or Registrable Debt Securities, as the case may be, of the receipt of such request and each such other Holder, in lieu of exercising its rights under Section 2.3, may elect (by written notice sent to the Company within ten Business Days from the date of such Holder's receipt of the aforementioned notice) to have such Registrable Equity Securities or Registrable Debt Securities, as the case may be, held by it included in such registration thereof pursuant to this Section 2.2. Thereupon the Company shall, as expeditiously as is possible and subject to the other terms and conditions of this Agreement, file with the Commission a Registration Statement under the Securities Act in accordance with Section 2.5 5 covering the Registrable Securities requested to be included in such registration, and the Company will use its best efforts to cause such Registration Statement to become effective as expeditiously as practicable. (b) Form of Request. (i) All requests for registration pursuant to --------------- this Section 2.2 of any Holder shall (A) describe the number and class of Registrable Securities to be sold, (B) contain an undertaking to furnish all such information and materials of such Holder and to take all such action as may be reasonably required by such Holder in order to permit the Company to comply with all applicable requirements of the Commission and to obtain acceleration of the effective date of the Registration Statement; update, to the extent required by applicable law, any information about such Holder contained in such Registration Statement during the period such Registration Statement is effective; and indicate whether such request pertains to an Underwritten Offering. (ii) As a condition precedent to the inclusion of Registrable Securities owned by or issuable to any Holder that has not executed a copy of this Agreement in any registration, such Holder's request for registration pursuant to this Section 2.2 shall in addition to the information required by subparagraph (i) of this subsection (b) contain an undertaking to comply with all provisions of this Agreement. (c) Rights of Other Holders. If the Company shall receive a request ----------------------- to file a Registration Statement pursuant to Section 2.2(a), the Company shall (A) give written notice within 10 Business Days of such request to the other Holders of the Registrable Securities to be subject to the Registration Statement, which notice shall identify the number and type of Registrable Securities proposed to be registered by such Holder, and (B) use its best efforts to include in such offering, subject to Section 2.2(f), Registrable Securities subject to such registration as are owned by or issuable to each Holder as such Holder shall request within 20 Business Days after the date of such notice from the Company. (d) Limitations on Filing. Notwithstanding the foregoing provisions --------------------- of this Section 2.2, the Company shall not be obligated to file a registration statement pursuant to this Section 2.2 during any 180 day period following the date on which a prior Registration Statement filed pursuant to this Section 2.2 becomes effective. The Company shall be obligated to effect, pursuant to this Section 2.2, no more than two (2) registrations required to be effected by 6 Holders of Registrable Equity Securities and no more than two (2) registrations required to be effected by Holders of Registrable Debt Securities pursuant to this Section 2.2. (e) Effective Registration Statement. A registration requested -------------------------------- pursuant to this Section 2.2 will not be deemed to have been effected (i) unless it has become effective, provided that a registration which does not become -------- effective after the Company has filed a Registration Statement with respect thereto solely by reason of the refusal to proceed of the Holders initiating such request shall be deemed to have been effected by the Company at the request of such Holders, unless such Holders shall have elected to pay all Registration Expenses in connection with such registration, (ii) if, after it has become effective, such registration is interfered with by any stop order, injunction or other order or requirement of the Commission or other governmental agency or court, or (iii) if the conditions to closing specified in the purchase agreement or underwriting agreement entered into in connection with such registration are not satisfied. (f) Underwriting Procedures. If the Holders of a majority of the ----------------------- Registrable Securities subject to a registration requested pursuant this Section 2.2 so elect, the offering of all or a portion of such Registrable Securities shall be in the form of an Underwritten Offering. The managing underwriter or underwriters for such offering shall be selected by such Holders, and shall be reasonably acceptable to the Company. The Holders shall provide the Company with notice of the identity or identities of the managing underwriter or underwriters they have selected within a reasonable time prior to the commencement of the Underwritten Offering. If the managing underwriter advises in writing that, in its opinion the number of securities to be included in such registration exceeds the number which can be sold in such offering, the Company will include in such registration Registrable Securities requested to be included, pro rata among the Holders thereof. --- ---- 2.3. Incidental Registration. (a) (i) If the Company at any time ----------------------- proposes to register any of its equity securities under the Securities Act, on its behalf and/or on behalf of any of its security holders ("the demanding security holders") (other than a registration pursuant to Section 2.1 or 2.2 or registration on Form S-4 or S-8 or any successor form for securities to be offered in a transaction of the type referred to in Rule 145 under the Securities Act or to employees of the Company pursuant to any employee benefit plan, respectively), on a form and in a manner that would permit registration of the Registrable Equity Securities for sale to the public under the Securities Act, 7 it will give written notice to all Holders of such Registrable Equity Securities promptly of its intention to do so, describing such securities and specifying the form and manner and the other relevant facts (including, without limitation, (x) whether or not such registration will be in connection with an Underwritten Offering and, if so, the identity of the managing underwriter and whether such offering will be pursuant to a "best efforts" or "firm commitment" underwriting, and (y) the price (net of underwriting commissions, discounts and the like) at which the securities are reasonably expected to be sold). (ii) If the Company at any time proposes to register any of its debt securities under the Securities Act, on its behalf and/or on behalf of any of its security holders ("the demanding security holders") (other than a registration pursuant to Section 2.1 or 2.2) on a form and in a manner than would permit registration of the Registrable Debt Securities for sale to the public under the Securities Act, it will give written notice to all Holders of such Registrable Debt Securities promptly of its intention to do so, describing such securities and specifying the form and manner and the other relevant facts (including, without limitation, (x) whether or not such registration will be in connection with an Underwritten Offering and, if so, the identity of the managing underwriter and whether such offering will be pursuant to a "best efforts" or "firm commitment" underwriting, and (y) the price (net of underwriting commissions, discounts and the like) at which the securities are reasonably expected to be sold). (b) Each Holder of any such Registrable Securities desiring to have Registrable Securities registered under this Section 2.3 shall advise the Company in writing within 20 Business Days after the date of such notice from the Company, setting forth the amount of such Registrable Securities for which registration is requested. The Company shall thereupon include in such filing the number of shares of Registrable Securities for which registration is so requested, subject to the next sentence, and shall use its best efforts to effect registration under the Securities Act of such securities. If, in an Underwritten Offering, the managing underwriter shall advise the Company in writing that, in its opinion, the number of securities proposed to be included in such registration must be limited due to market considerations, then the Company will include in such registration to the extent of the number which the Company is so advised can be sold in such offering securities determined as follows: 8 (i) if such registration as initially proposed by the Company was solely a primary registration of its securities, (x) first, the securities proposed by the Company to be sold for its own account, and (y) second, any Registrable Securities requested to be included in such registration pro rata among the Holders thereof requesting such --- ---- registration on the basis of the number of shares of such securities requested to be included by such holders, and (z) third any other securities of the Company proposed to be included in such registration, in accordance with the priorities, if any, then existing among the Company and the holders of such other securities, and (ii) if such registration as initially proposed by the Company was in whole or in part requested by holders of securities of the Company, other than holders of Registrable Securities, pursuant to demand registration rights, (x) first, such securities held by the holders initiating such registration, pro rata among the holders thereof, on the --- ---- basis of the number of shares of such securities requested to be included by such holders, (y) second, any Registrable Securities requested to be included in such registration and any other securities proposed to be sold by the Company in such registration), pro rata among the holders thereof --- ---- requesting such registration and the Company on the basis of the number of shares of such securities requested to be included by such holders and the shares to be sold by the Company and (z) third, any other securities of the Company proposed to be included in such registration, in accordance with the priorities, if any, then existing among the Company and the holders of such other securities. (c) If any registration under Sections 2.1 or 2.2 or this Section 2.3 involves an Underwritten Offering, all Holders requesting inclusion of Registrable Securities must sell their Registrable Securities to the underwriters selected by the Company on the same terms and conditions as apply to the Company or other selling security holders participating in such registration. No registration under this Section 2.3 shall relieve the Company of its obligations to effect any registration pursuant to Section 2.2 hereof. (d) In connection with an Underwritten Offering with respect to which Holders of Registrable Securities shall have requested registration pursuant to this Section 2.3, the Company shall have the right to select the managing underwriter. The Holders of Registrable Securities to be distributed to the underwriter or underwriters shall be 9 parties to the underwriting agreement between the Company and such underwriter(s) and the representations and warranties by, and the other agreements on the part of, the Company to and for the benefit of such underwriter(s) shall also be made to and for the benefit of the Holders and the conditions precedent to the obligations of such Holders of Registrable Securities under such underwriting agreement shall be reasonably satisfactory to such Holders. Such Holders shall not be required to make any representations or warranties to the Company or its underwriter(s) other than representations or warranties regarding such Holder and such Holder's intended method of distribution, the ownership of Registrable Securities to be distributed to the underwriter or underwriters and any other information required to be included in the applicable Registration Statement in respect of such Holders pursuant to applicable law. (e) Notwithstanding anything in this Section 2.3 to the contrary, if, at any time after giving written notice as described in Section 2.3(a) of its intention to register securities and prior to the effective date of the Registration Statement filed in connection with such registration, the Company shall determine either not to register or to discontinue registration of such securities, the Company may, at its election, give written notice of such determination to each Holder of Registrable Securities and, thereupon, shall be relieved of its obligation to register any Registrable Securities in connection with such registration (but not from its obligation to pay the Registrable Expenses in connection therewith). 2.4. Right to Review Registration Statements. (a) In connection --------------------------------------- with the preparation and prior to the filing of each Registration Statement under the Securities Act under which Registrable Securities are or are proposed to be registered, the Company will give the holders of Registrable Securities registered under such Registration Statement, and their respective counsel and accountants, the opportunity to review and comment upon such Registration Statement, each prospectus included therein or filed with the Commission and each amendment thereof or supplement thereto, and will give each of them such access to its books and records and such opportunities to discuss the business of the Company with its officers and the independent public accountants who have certified its financial statements as shall be necessary, in the opinion of such Holders' and such underwriters' respective counsel to conduct a reasonable investigation within the meaning of the Securities Act. (b) Each such Holder of Registrable Securities shall have the right to review and comment upon such Registration Statement and to request the insertion therein 10 of material furnished to the Company in writing which in the judgment of such Holder (a "Requesting Holder") of Registrable Securities should be included; provided, however, such information shall not be required to be included if in - -------- ------- the reasonable opinion of counsel of the Company, the inclusion of such material furnished by such Requesting Holder would be misleading or otherwise in violation of the rules and regulations of the Securities Act. Furthermore, a Requesting Holder has the right to require the deletion of any reference to such Requesting Holder by name or otherwise if such reference is not required by the Securities Act or the rules promulgated thereunder. (c) The Company will not file any Registration Statement (including any amendment thereto, any prospectus, any supplement thereto including such documents incorporated by reference and proposed to be filed after the initial filing of the Registration Statement) to which the holders of at least a majority of the securities (including Registrable Securities) covered by such Registration Statement or the underwriter or underwriters, if any, shall reasonably object; provided that the Company may file such document in a form -------- required by law or upon the advice of its counsel. 2.5. Registration Procedures. In connection with the registration of ----------------------- any of its securities under the Securities Act effected pursuant to the requirements of this Agreement, the Company will, as expeditiously as possible and subject to the other terms and conditions of this Agreement: (a) notify each Holder of Registrable Securities as to the filing of a Registration Statement covering securities of that Holder, and of all amendments or supplements thereto filed prior to the effective date of such Registration Statement; (b) notify each Holder of Registrable Securities covered by a Registration Statement promptly after it shall receive notice thereof, of the time when said Registration Statement becomes effective or when any amendment or supplement to any prospectus forming a part of said Registration Statement has been filed; (c) notify each Holder of Registrable Securities covered by a Registration Statement promptly of any request by the Commission for the amending or supplementing of such Registration Statement or prospectus or for additional information; 11 (d) prepare and promptly file with the Commission amendments and supplements to such Registration Statement and the prospectus used in connection therewith as may be necessary to keep such Registration Statement effective as required hereby and to comply with the provisions of the Securities Act with respect to the sale or other disposition of all securities covered by such Registration Statement (including, without limitation, as may be necessary to correct any statements or omissions if, at any time when a prospectus relating to the Registrable Securities is required to be delivered under the Securities Act, any event with respect to the Company shall have occurred as a result of which any such prospectus or any other prospectus as then in effect would include an untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading); and, in addition, prepare and file with the Commission, promptly upon the written request of any Holder of Registrable Securities, any amendments or supplements to such Registration Statement or prospectus which may be reasonably necessary or advisable in connection with the distribution of the Registrable Securities; (e) furnish each Holder, as soon as available, such number of copies of each Registration Statement, in conformity with the requirements of the Securities Act, and such other documents, as such selling Holders may from time to time reasonably request; (f) use its best efforts to register or qualify the securities covered by such Registration Statement under such securities or blue sky laws of such jurisdictions within the United States and Puerto Rico as each holder of such securities shall request (provided, however, that the Company shall not be -------- ------- obligated to qualify as a foreign corporation to do business under the laws of any jurisdiction in which it is not then qualified or to file any general consent to service or process), and do such other reasonable acts and things as may be required of it to enable such holder to consummate the disposition in such jurisdiction of the securities covered by such Registration Statement; (g) in the case of the registration of the Registrable Debt Securities, the Company shall use its best efforts to qualify the indenture under which such securities were issued (the "Indenture") under the Trust Indenture Act; (h) enter into customary agreements (including an underwriting agreement in customary form in the case of an underwritten offering of Registrable Equity Securities) and 12 take such other actions as are reasonably required by the Holders of Registrable Securities or the underwriters, if any, in order to expedite or facilitate the disposition of such Registrable Securities (including, without limitation, providing for the benefit of the Holders the representations and warranties by, and the other agreements on the part of, the Company to and for the benefit of such underwriter(s)); (i) comply with all applicable rules and regulations of the Commission, and make generally available to its security holders, earnings statements satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder (or any similar rule promulgated under the Securities Act) no later than forty-five (45) days after the end of any 12-month period (or ninety (90) days after the end of any 12-month period if such period is a fiscal year) (i) commencing at the end of any fiscal quarter in which Registrable Securities are sold to an underwriter or to underwriters in a firm commitment or best efforts Underwritten Offering and (ii) if not sold to an underwriter or to underwriters in such an offering, commencing on the first day of the first fiscal quarter of the Company after the effective date of the relevant Registration Statement, which statements shall cover said 12-month periods; (j) advise each Holder of Registrable Securities promptly after the Company shall receive notice or obtain knowledge of the issuance of any stop order by the Commission suspending the effectiveness of any Registration Statement or amendment thereto or of the initiation or threatening of any proceeding for that purpose, and promptly use its best efforts to prevent the issuance of any stop order or obtain its withdrawal promptly if such stop order should be issued; (k) deliver an opinion of counsel for the Company in customary form and covering such matters of the type customarily covered by opinions of issuer's counsel and such other matters as the Holders of a majority of the Registrable Securities covered by a Registration Statement or the underwriters reasonably request and, in the case of an underwritten offering, deliver to the underwriters a "cold comfort" letter from the Company's independent public accountants in customary form and covering such matters of the type customarily covered by such letters; (l) prior to the effective date of a Registration Statement, (i) provide the registrar for the Registrable Securities with printed certificates for such securities in a form eligible for deposit with DTC and (ii) provide a CUSIP number for such securities; and 13 (m) use its best efforts to list all Registrable Securities covered by such registration statement on any securities exchange on which any of the securities of the same class as the Registrable Securities are then listed. At its expense, the Company shall, in addition to the requirements of Section 2.1 hereof, keep each Registration Statement effective until the earlier of (i) such time when all Registrable Securities covered by such Registration Statement have been sold and (ii) 90 days from the date the Registration Statement first becomes effective or such longer period as may be required by the Securities Act. It shall be a condition precedent to the obligation of Company to take any action pursuant to this Agreement in respect of the securities which are to be registered at the request of any Holder of Registrable Securities that such Holder shall furnish to Company such information regarding the securities held by such Holder and the intended method of disposition thereof as Company shall reasonably request and as shall be required in connection with the action taken by Company. The Company shall be entitled to postpone for a reasonable period of time (but not exceeding 90 days) the filing of any registration statement (other than pursuant to Section 2.1 hereof) otherwise required to be prepared and filed by it pursuant to this Agreement if the Company determines, in its reasonable judgment, that such registration and offering would materially and adversely interfere with any material financing, acquisition, corporate reorganization or other material transaction involving the Company or would require premature disclosure thereof. The Company shall promptly give the Holders of Registrable Securities requesting registration thereof pursuant to Section 2.2 or 2.3 hereof written notice of such determination, containing a general statement of the reasons for such postponement and an approximation of the anticipated delay. If the Company shall so postpone the filing of a registration statement, such Holders of Registrable Securities requesting registration thereof pursuant to Section 2.2 shall have the right to withdraw the request for registration by giving written notice to the Company within 10 Business Days after receipt of the notice of postponement and, in the event of such withdrawal, such request shall not be counted for purposes of the requests for registration to which Holders of Registrable Securities are entitled pursuant to Section 2.2 hereof. 14 In the case of a Shelf Registration Statement, each Holder of Registrable Securities covered thereby, upon receipt of any notice (a "Suspension Notice") from the Company of the happening of any event of the kind requiring an action pursuant to Section 2.5(d) hereof, shall forthwith discontinue disposition of the Registrable Securities pursuant to the Shelf Registration Statement covering such Registrable Securities until such Holder's receipt of the copies of the supplemented or amended prospectus contemplated by Section 2.5(d) or until it is advised in writing (the "Advice") by the Company that the use of the prospectus may be resumed, and has received copies of any additional or supplemental filings which are incorporated by reference in the prospectus, and, if so directed by the Company, such Holder will, or will request the managing underwriter or underwriters, if any, to, deliver to the Company (at the Company's expense) all copies, other than permanent file copies then in such Holder's possession, of the prospectus covering such Registrable Securities current at the time of receipt of such notice. In the event that the Company shall give any Suspension Notice, (i) the Company shall use its best efforts and take such actions as are reasonably necessary to render the Advice and end the Suspension Period as promptly as practicable and (ii) the time periods for which a Shelf Registration Statement is required to be kept effective pursuant to Section 2.1 hereof shall be extended by the number of days during the Suspension Period. 2.6. Expenses. All Registrable Expenses incurred in connection with -------- this Agreement shall be paid by the Company. 2.7. Rule 144, Rule 144A. The Company covenants that it will file ------------------- the reports required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations adopted by the Commission thereunder in a timely manner and, if at any time the Company is not required to file such reports, it will, upon the reasonable request of any Holder of Registrable Securities, make publicly available other information so long as necessary to permit sales pursuant to Rule 144 and Rule 144A under the Securities Act. The Company further covenants that it will take such further action as any Holder of Registrable Securities may reasonably request, all to the extent required from time to time to enable such Holder to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by (a) Rule 144 and Rule 144A under the Securities Act, as such Rules may be amended from time to time, or (b) any similar rule or regulation hereafter adopted by the Commission. Upon the request of any Holder of Registrable 15 Securities, the Company will deliver to such Holder a written statement as to whether it has complied with such information requirements. ARTICLE III 3.1. Indemnification and Contribution. (a) In the event of any -------------------------------- registration of any Registrable Securities under the Securities Act pursuant to this Agreement, the Company shall indemnify and hold harmless each Holder of such Registrable Securities, and each other person (including each underwriter) who participated in the offering or sale of such Registrable Securities and each other person, if any, who controls such Holder or such participating person within the meaning of the Securities Act, and their respective directors, officers, partners, agents and affiliates (each, an "Indemnified Person") against any losses, claims, damages or liabilities, joint or several, to which such Indemnified Person may become subject under the Securities Act or otherwise (including, without limitation, the reasonable fees and expenses of legal counsel), insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise out of or are based upon (i) any untrue or alleged untrue statement of any material fact contained in any Registration Statement or any part thereof under which such securities were registered under the Securities Act (including, without limitation, any documents incorporated therein by inference, any exhibits thereto, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereto), or (ii) any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and shall reimburse such Indemnified Person for any legal or any other expenses reasonably incurred by such person in connection with investigating or defending any such loss, claim, damage, liability, action or proceeding; provided, -------- however, that the Company shall not be liable in any such case to the extent - ------- that any such loss, claim, damage or liability arises out of or is based upon any alleged untrue statement or alleged omission made in such registration statement, preliminary prospectus, prospectus or amendment or supplement in reliance upon and in conformity with written information furnished to the Company by such Indemnified Person specifically for use therein or in the case of any underwritten offering, so furnished for such purposes by any underwriter. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such Indemnified Person, and shall survive the transfer of securities by a Holder. 16 (b) Each Holder of any Registrable Securities, by acceptance thereof, agrees to indemnify and hold harmless the Company, its directors and officers and each other person, if any, who controls the Company within the meaning of the Securities Act against any losses, claims, damages or liabilities, severally, to which the Company or any such director or officer or any such person may become subject under the Securities Act or any other statute or at common law, insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise out of any statement or alleged statement in or omission or alleged omission from such Registration Statement, if such statement or alleged statement or omission or alleged omission was made in reliance on and in conformity with written information furnished to the Company by such selling Holder expressly for use in the preparation of such Registration Statement; provided, however, that (A) the indemnifying Holder -------- ------- shall not be liable in any such case to the extent that any such statement or omission is completely corrected (x) in the final prospectus, in the case of a preliminary prospectus, or (y) in an amendment or supplement to a prospectus or prospectus supplement (provided, however, that nothing in this clause (y) shall -------- ------- limit the indemnifying Holder's liability with respect to sales made prior to the receipt by the Company from the indemnifying Holder of written notice of such an untrue statement or such an omission) and (B) the liability of such indemnifying Holder under this Section 3.1(b) shall be limited to the amount of proceeds received by such indemnifying Holder in the offering giving rise to the liability. (c) If the indemnification provided for in this Section 7 from the indemnifying party is unavailable to an indemnified party hereunder in respect of any losses, claims, damages, liabilities or expenses referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or expenses in such proportion as is appropriate to reflect the relative fault of the indemnifying party and indemnified parties in connection with the actions which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative fault of such indemnifying party and indemnified parties shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact, has been made by, or relates to information supplied by, such indemnifying party or indemnified parties, and the parties' relative intent, knowledge, access to information and opportunity to correct 17 or prevent such action. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include any legal or other fees or expenses reasonably incurred by such party in connection with any investigation or proceeding. (d) The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 7(c) were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. Each prospective selling Holder's obligations to contribute as provided in this Section 3.1(c) are several in proportion to the relative value of their respective Registrable Securities covered by such Registration and are not joint. (e) The obligations of the Company and of each of the Holders under this Section 3.1 shall be in addition to any liability which the Company or which any of the Holders may otherwise have. (f) The indemnification and contribution payments required by this Section 3.1 shall be made by periodic payments of the amounts thereof during the course of the investigation or defense, as and when bills are received or expense, loss, damage or liability is incurred. ARTICLE IV 4.1. Miscellaneous. (a) No Inconsistent Agreements. The Company ------------- -------------------------- will not hereafter enter into any agreement with respect to its securities which is inconsistent with the rights granted to the Holders of Registrable Securities in this Agreement. The Company has not previously entered into any agreement which remains in effect with respect to any of its securities granting any registration rights to any person. (b) Remedies. Each holder of Registrable Securities, in addition to -------- being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Agreement. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Agreement and 18 hereby agrees to waive the defense in any action for specific performance that a remedy at law would be adequate. (c) Amendments and Waivers. Except as otherwise provided herein, the ---------------------- provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departure from the provisions hereof may not be given unless the Company has obtained the written consent of, in respect of any of the foregoing affecting the holders of Registrable Debt Securities, holders of a majority of the principal amount of Registrable Debt Securities then outstanding and, in respect of the foregoing affecting the holders of Registrable Equity Securities, holders of a majority of the shares of Registrable Equity Securities then outstanding and subject to unexercised Warrants. (d) Notice Generally. Any notice, demand, request, consent, ---------------- approval, declaration, delivery or other communication hereunder to be made pursuant to the provisions of this Agreement shall be sufficiently given or made if in writing and either delivered in person with receipt acknowledged or sent by registered or certified mail, return receipt requested, postage prepaid, or by telecopy and confirmed by telecopy answerback, addressed as follows: (i) If to any initial Holder of Registrable Securities, as indicated on Schedule A. (ii) If to any other Holder of Registrable Securities at its last known address appearing on the books of the Company maintained for such purpose. (iii) If to the Company at Dairy Mart Convenience Stores, Inc. One Vision Drive Enfield, CT 06082 Attention: Gregory G. Landry or at such other address as may be substituted by notice given as herein provided. The giving of any notice required hereunder may be waived in writing by the party entitled to receive such notice. Every notice, demand, request, consent, approval, declaration, delivery or other communication hereunder shall be deemed to have been duly given or served on the date on which personally delivered, with receipt acknowledged, telecopied and confirmed by telecopy answerback or three (3) Business Days after the same shall have been deposited in the United States mail. Failure or delay in delivering copies of any notice, demand, request, approval, declaration, delivery or other 19 communication to the person designated above to receive a copy shall in no way adversely affect the effectiveness of such notice, demand, request, approval, declaration, delivery or other communication. (e) Successors and Assigns. This Agreement shall inure to the ---------------------- benefit of and be binding upon the successors and assigns of each of the parties hereto including any person to whom Registrable Securities are transferred; provided that, except by operation of law, this Agreement may not be assigned by - -------- the Company without the prior written consent of the Holders of 66-2/3% of the Registrable Securities at the time such consent is requested. All references to "Holder" in this Agreement shall include any Person for whom the Holder is a nominee, and the benefits of and rights of this Agreement shall accrue to such Person or Persons which have a beneficial interest in the Registrable Securities and for whom the Holder is a nominee. (f) Headings. The headings in this Agreement are for convenience of -------- reference only and shall not limit or otherwise affect the meaning hereof. (g) Governing Law. This Agreement shall be governed by the laws of ------------- the State of New York, without regard to the provisions thereof relating to conflict of laws. (h) Severability. Wherever possible, each provision of this ------------ Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. (i) Entire Agreement. This Agreement, represents the complete ---------------- agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein. This Agreement supersedes all prior agreements and understandings between the parties with respect to the subject matter hereof. 20 IN WITNESS WHEREOF, the Company and Purchasers have executed this Agreement as of the date first above written. DAIRY MART CONVENIENCE STORES, INC. By: /s/ Gregory Wozniak __________________________________ Name: Gregory Wozniak Title: Vice President IDS EXTRA INCOME FUND, INC. By: /s/ Leslie L. Ogg ---------------------------------- Name: Leslie L. Ogg Title: Vice President and General Counsel SUNAMERICA LIFE INSURANCE COMPANY By: /s/ Robert Sydow ---------------------------------- Name: Robert Sydow Title: Authorized Agent TRIUMPH-CONNECTICUT LIMITED PARTNERSHIP By: its General Partner By /s/ Thomas W. Janes ______________________________ Name: Thomas W. Janes Title: Designated Signatory 21 SCHEDULE A ----------
Number of Class A Principal Amount of Common Shares Name of Purchaser Subordinated Notes Subject to Warrants - ----------------- ------------------- ------------------- IDS Extra Income $2,000,000 180,000 Fund, Inc. 901 Marquette Ave. South Suite 2810 Minneapolis, MN 55402 SunAmerica Life $3,000,000 270,000 Insurance Company 1999 Avenue of the Stars Suite 3800 Los Angeles, CA 90067-6022 Attn: Robert Sydow Triumph - Connecticut $8,500,000 765,000 Limited Partnership 60 State Street - 21st Fl. Boston, MA 02109
22 EX-10.5 7 CREDIT AGREEMENT 2/25/94 Exhibit 10.5 CREDIT AGREEMENT CREDIT AGREEMENT (as hereafter amended, from time to time, the "Credit Agreement") dated as of February 25, 1994, amending and restating the Credit Agreement dated as of February 25, 1994, as amended to date (such credit agreement, as so amended to date, the "Original Credit Agreement"), by and among DAIRY MART CONVENIENCE STORES, INC., a Delaware corporation (the "Company"), SOCIETY NATIONAL BANK, a national banking association organized under the laws of the United States of America, and the banks and other financial institutions listed on Schedule I attached hereto and made a part hereof (Society National Bank and such banks hereinafter sometimes collectively called the "Banks" and individually "Bank") and SOCIETY NATIONAL BANK, successor agent for the Banks under the Original Credit Agreement, as agent (Society National Bank in such capacity, the "Agent"). W I T N E S S E T H: ------------------- WHEREAS, the Company, the Designated Subsidiaries, the Banks, and the Agent entered into the Original Credit Agreement pursuant to which the Banks agreed 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 were, and are, to be used for the purposes therein and hereinafter set forth; WHEREAS, of the $30,000,000 of aggregate extensions of credit to be made available to the Company under the Original Credit Agreement and 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 Company has requested the Banks to amend the Original Credit Agreement to amend certain provisions thereof and to amend and restate the entire agreement to, among other things, facilitate the Company's issuance of $13,500,000 in senior subordinated notes; WHEREAS, the Banks are willing to amend and restate the Original Credit Agreement and to continue to extend the credit provided thereunder 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. GENERAL PROVISIONS. 1.1 Defined Terms. Certain terms used in this Agreement are defined in ------------- the Recitals hereto. In addition, 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, with respect to the Company only, a Subsidiary and other than, with respect to a Subsidiary of the Company only, the Company) 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. "Agreement": this Credit Agreement, as amended, supplemented or otherwise --------- modified from time to time. "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. "Asset Disposition": 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 FinOp (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 FinOp, including any disposition by means of a merger, consolidation, or similar transaction; provided, however, that, for purposes of this definition, disposition shall not include (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 or convertible into any security other than Capital Stock of the Company that, by its terms or otherwise, is neither exchangeable or convertible into another security or required to be redeemed, or subject to redemption at the option of the holder, before March 15, 2005; (iv) the 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 FinOp not constituting, together with any related dispositions by FinOp, a sale of all or substantially all of the assets of FinOp, and (vi) any disposition to a Designated Subsidiary. "Assignment and Acceptance": an Assignment and Acceptance, substantially ------------------------- in the form of Exhibit A. "Available Commitment": as to any Bank at any time, an amount equal to the -------------------- excess, if any, of the amount of such Bank's Commitment over the sum 2 of (i) the aggregate principal amount of all Working Capital Loans made by such Bank then outstanding and (ii) the product of such Bank's L/C Commitment Percentage times the L/C Obligations then outstanding. "Available L/C Commitment": as to any Bank at any time, an amount equal to ------------------------ the excess, if any, of the amount of such Bank's L/C Commitment over the product of such Bank's L/C Commitment Percentage times the L/C Obligations then outstanding. "Available Working Capital Loan Commitment": as to any Bank at any time, ----------------------------------------- an amount equal to the excess, if any, of the amount of such Bank's Working Capital Loan Commitment over the aggregate principal amount of all Working Capital Loans made by such Bank then outstanding. "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 Cleveland, Ohio are authorized or required by law to close. "Capital Expenditures": the amount as determined in accordance with GAAP. -------------------- "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 Collateral Account": as defined in Section 8.3. ----------------------- "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 3 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; or (v) neither Gregory Landry nor Robert Stein shall any longer be a member of the Company's senior management. "Closing Date": November 29, 1995. ------------ "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, the Subsidiary Pledge Agreement, the Company Security Agreement Regarding Inventory and Other Collateral (executed and delivered by the Company to the Agent as of May 12, 1995) and each Security Agreement of Subsidiary Guarantor Regarding Inventory and Other Collateral (executed and delivered by the Subsidiaries to the Agent as of May 12, 1995), as such documents may from time to time be amended, modified or supplemented. "Commitment": as to any Bank, the obligation of such Bank to extend credit ---------- to the Company hereunder in an aggregate principal amount (including an amount equal to such Bank's L/C Percentage times the aggregate stated amount of issued and outstanding Letters of Credit) at any one time outstanding not to exceed the amount set forth opposite such Bank's name in the Commitment Amount column on Schedule I of this Agreement. "Commitments" refers to the Working Capital Loan ----------- Commitments and the L/C Commitments, collectively. "Commitment Percentage": as to any Bank at any time, such Bank's --------------------- percentage of the relevant commitment as set forth on Schedule I of this Agreement. 4 "Commitment Period": the period from and including February 25, 1994 to ----------------- but not including the Termination Date or such earlier date on which the Commitments shall terminate as provided herein. "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 B, 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 C, executed and delivered by the Company, as the same may be amended, supplemented or otherwise modifIed from time to time. "Compliance Certificate": a certificate of a Responsible Officer which ---------------------- shall certify 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. "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 and (c) Consolidated Rent Expense for such period. "Consolidated EBIDA": for any period, Consolidated Net Income for such ------------------ period plus the aggregate amounts deducted (in the cases of (d) and (e) below, whether or not so deducted) in determining such Consolidated Net Income in respect of (a) Consolidated Interest Expense, (b) depreciation expense, (c) the expense associated with amortization of intangible and other assets, (d) the proceeds from either the sale of assets or a Sale/Leaseback Transaction, as defined in subsection 7.12, (e) the net cash proceeds from the issuance of any equity security, and (f) that portion of the provision for income taxes, determined in accordance with GAAP, that has not been paid or received. "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 5 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 Loans, but excluding any Financing Leases entered into by the Company or its consolidated Subsidiaries after February 25, 1994. "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, excluding any nonrecurring interest, and including the interest component of payments under Financing Leases. "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 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 of any Subsidiary) and other non-recurring gains or losses during such period. "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 subleases 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. 6 "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. "Default Rate": at any time, the per annum rate of interest equal to the ------------ sum of the Prime Rate, from time to time in effect, and 3.00%. "Designated Subsidiary": a Subsidiary listed on Part A of Schedule VI. --------------------- "DM Associates": DM Associates Limited Partnership, a Connecticut limited ------------- partnership. "DM Associates Note": that certain promissory note from DM Associates in ------------------ the original principal amount of $7,100,000, originally payable to the Connecticut Development Authority, and due on July 31, 1997, a copy of which is attached hereto as Exhibit D hereto. "Dollars" and "$": 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. "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 2.12. --------- "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. 7 "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. "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 of ---------------- any Subsidiary sold or otherwise transferred to any franchisee of the Company or such Subsidiary pursuant to the Company's ongoing 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 of any --------------------- Subsidiary guaranteeing Indebtedness of a franchisee of the Company with respect to the Company's ongoing 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 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 8 (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. "Indenture": the Amended and Restated Indenture, dated as of November 29, --------- 1995, among the Company, certain of its Subsidiaries, as guarantors, and First Bank National Association (as successor to Society National Bank) as trustee, amending and restating the indenture pursuant to which the Company has issued its 10.25% Senior Subordinated Notes due 2004 in the aggregate original principal amount of $75,000,000, and providing for issuance by the Company of its 10.25% Senior Subordinated Notes, Series B, due 2004 in the aggregate original principal amount of $13,500,000--as such Indenture may, with the prior written consent of the Banks, be amended, supplemented or otherwise modified from time to time. 9 "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. --------- "Interest Payment Date": the last day of each March, June, September and --------------------- December to occur while such Loan is outstanding. "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": as to any Bank, the obligation of such Bank to -------------- participate in the issuance of Letters of Credit hereunder in an aggregate principal amount at any one time outstanding not to exceed the amount set forth opposite such Bank's name in the L/C Commitment Amount column on Schedule I of this Agreement. "L/C Commitment Percentage": as to any Bank at any time, the percentage ------------------------- set forth opposite such Bank's name in the L/C Commitment Percentage column on Schedule I of this Agreement. "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 2.50%. "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 10 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, advance or other disbursement by Agent or by any or all ---- of the Banks to or for the account of the Company under the 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. "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. "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 by the Company or by 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 11 associated with such sale or other disposition of assets; and (b) when used in respect of the issuance of any debt securities by 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 Working Capital Loan 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 Holder": DM Associates, Gregory Landry or Robert Stein and ---------------- their respective Related Parties. "Permitted Holders" refers to such Persons, ----------------- collectively. "Person": an individual, partnership, corporation, business trust, joint ------ stock company, trust, unincorporated association, joint venture, Governmental Authority or other entity of whatever nature. "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 interest rate established from time to time by the Agent ---------- as Agent's "prime", "base" or "reference" rate, whether or not such rate is publicly announced; the Prime Rate may not be the lowest rate charged by the Agent for commercial or other extensions of credit. 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. "Purchasing Banks": as defined in subsection 10.6(c). ---------------- "Register": as defined in subsection 10.6(d). -------- 12 "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 3.4 for amounts drawn under Letters of Credit. "Reimbursing Bank": as defined in subsection 2.11(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, any Bank or group of Banks having more than -------------- 50%, collectively, of the Commitment Percentages. "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. "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, the Company Security ------------------ Agreement, the Company Security Agreement Regarding Inventory and Other Collateral (executed and delivered by the Company to the Agent as of May 12, 1995) and each Security Agreement of Subsidiary Guarantor 13 Regarding Inventory and Other Collateral (executed and delivered by the Subsidiaries to the Agent as of May 12, 1995), as such documents may from time to time be amended, modified or supplemented. "Senior Subordinated Notes": the 10.25% Senior Subordinated Notes due 2004 ------------------------- in the original principal amount of $75,000,000 and the Senior Subordinated Notes due 2004, Series B, in the original principal amount of $13,500,000 issued pursuant to the Indenture--as such Notes may, with the prior written consent of the Banks, be amended, modified, supplemented, renewed or extended from time to time. "Single Employer Plan": any Plan which is covered by Article IV of ERISA, -------------------- but which is not a Multiemployer Plan. "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 so long as such contingency has not occurred) 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 Amended and Restated Guarantee, substantially in -------------------- the form of Exhibit E, 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 F, 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 Security Agreement": the Security Agreement, substantially in ----------------------------- the form of Exhibit G, executed and delivered by certain of Subsidiaries, as the same may be amended, supplemented or otherwise modifIed from time to time. 14 "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": May 31, 1996, or such later date to which the ---------------- Termination Date may be extended in accordance with subsection 2.12. "Transferee": as defined in subsection 10.6(f). ---------- "Uniform Customs": the "Uniform Customs and Practice for Documentary --------------- Credits" (1993 Revision), International Chamber of Commerce Publication No. 500, as the same may be amended from time to time. "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. "Working Capital Loan Commitment": as to any Bank, the obligation of such ------------------------------- Bank to make Working Capital 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 in the Working Capital Loan Commitment Amount column on Schedule I of this Agreement. "Working Capital Loan Commitment Percentage": as to any Bank at any time, ------------------------------------------ the percentage set forth opposite such Bank's name in the Working Capital Loan Commitment Percentage column on Schedule I of this Agreement. "Working Capital Loan Note": as defined in subsection 2.5. ------------------------- "Working Capital Loans": Any loans, advances or other disbursements by --------------------- the Agent or any or all of the Banks to or for the account of the Company under the Working Capital Loan Commitments or, in the discretion of the Agent, in respect of any amounts due and not paid by the Company in accordance with subsection 10.5. 1.2 Rules of Construction. (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 15 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. (e) All references in the Loan Documents to the Original Credit Agreement, in whatever form or manner, shall be deemed and construed to be references to this Credit Agreement. 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. 1.4 Acknowledgment of Continuing Obligations under Original Credit -------------------------------------------------------------- Agreement. The Company hereby acknowledges and agrees that: (i) this Agreement - ---------- is an amendment and restatement of the Original Credit Agreement and does not constitute or represent an extension of new credit; (ii) all the obligations incurred by the Company under the Original Credit Agreement and the other Loan Documents continue as obligations of the Company, in accordance with the terms thereof, with the same force and effect as though the Original Credit Agreement were not being amended and restated by this Agreement; and (iii) such obligations include, without limitation, (A) the obligations of the Company under the Company Security Agreement and the Company Pledge Agreement, neither of which documents is being amended or restated at this time, (B) the obligations under the Working Capital Loan Notes, (C) the obligations of the Company with respect to Letters of Credit heretofore issued by the Issuing Bank, (D) the obligations of the Company and the signatory Subsidiaries under the Security Documents other than the Company Security Agreement and the Company Pledge Agreement, and (E) the obligations of the Company under certain letters delivered to Society National Bank and Fleet Bank National Association in connection with the execution and delivery by the Company of the Second Amendment Agreement dated as of May 12, 1995, which amended the Original Credit Agreement. 1.5 Conditions to Effectiveness of this Agreement. The effectiveness of --------------------------------------------- this Credit Agreement is subject to each of the following conditions precedent: 16 (i) Agreement. The Agent shall have received with a counterpart for --------- each Bank, this Agreement, executed and delivered by a duly authorized officer of the Company. (ii) Reaffirmation. The Agent shall have received, with a counterpart ------------- for each Bank, the Consent, Acknowledgement and Reaffirmation Agreement, substantially in the form of Exhibit H hereto, of each Subsidiary that has heretofore executed and delivered to Agent a Subsidiary Pledge Agreement, Subsidiary Security Agreement or a Subsidiary Guarantee, executed and delivered by a duly authorized officer of each such Subsidiary; (iii) Indenture. The Agent shall have received for each Bank, a copy --------- of the Indenture together with a certificate, dated the Closing Date and executed by a duly authorized officer of the Company certifying that such copies are true, correct and complete copies of such indentures as of the date of such certificate; (iv) 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; (v) 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; (vi) Closing Certificate. The Agent shall have received, with a ------------------- counterpart for each Bank, a Closing Certificate, substantially in the form of Exhibit I and dated the Closing Date, executed by a duly authorized officer of the Company and each Designated Subsidiary; 17 (vii) 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 (A) in connection with any Loan Document or any of the transactions contemplated hereby or thereby or (B) which, in the reasonable opinion of the Banks, could have a Material Adverse Effect; (viii) 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; (ix) Fees. The Agent and each Bank shall have received the fees to ---- be received by it on the Closing Date referred to in subsection 2.6 and those fees to be paid on the Closing Date by the Company pursuant to its written agreement or agreements executed prior to the date hereof; (x) 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 J 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; and (xi) Insolvency Letter. The Agent shall have received, with a copy ----------------- for each Bank, copies of the "Solvency" and "Fairness" letters delivered by Houlihan Lokey Howard & Zukin of New York City in connection with the closing under the Settlement Agreements referred to in subsection 1.6(v) below. 1.6 Provisions Relating to Settlement Agreements. (a) The consummation -------------------------------------------- by the Company of any or all of the following transactions shall not constitute either a Default or an Event of Default under this Agreement or any of the other Loan Documents except as and to the extent that the consummation of any of such transactions would cause a breach of subsection 7.1 hereof, and, to the extent that steps taken in connection with the consummation of any of such transactions has or, but for the execution of this Agreement, would have constituted a Default or an Event of Default under 18 the Original Credit Agreement, the Banks hereby waive such Default or Event of Default under the Original Credit Agreement: (i) the execution and delivery of the Indenture and the issuance pursuant thereto, on or before the Closing Date, of the Senior Subordinated Notes, Series B, in the original principal amount of $13,500,000 and bearing interest at 10.25% per annum or, in the event that registration of the note issue is not effected as required under the Registration Rights Agreement applicable to the notes, such higher rate, not to exceed 11.75% per annum, as is specified in such agreement; (ii) the issuance on or before the Closing Date of Warrants, substantially in the form of Exhibit K hereto, for the purchase from the Company of up to 1,715,000 shares of Capital Stock of the Company, subject to adjustment asset forth in the provisions of the Stock Purchase Agreement, a copy of which has heretofore been provided to the Agent, and the exercise from time to time of some or all of such Warrants in accordance with their terms; (iii) the transfer of the interests of Charles Nirenberg and his Affiliates and Related Parties in DM Associates and the acquisition of such interests by the Company; (iv) the acquisition of the DM Associates Note; or (v) the incurring of Indebtedness to the extent necessary to honor the Company's obligations under the Settlement Agreements, copies of which are attached hereto as Exhibit L; provided that the total amount of such Indebtedness shall not exceed $13,500,000; (b) Nothing in this Agreement and the execution and delivery hereof by the Banks shall be construed to imply, represent or constitute, in any manner or to any degree whatsoever, that the Agent or any of the Banks has reviewed, approved, consented or refused to consent to, recommended, offered advice with respect to, or in any other manner whatsoever participated in the negotiation of or the execution and delivery by the Company of, the Settlement Agreements, or any of them. No person may or should rely on the Banks' execution and delivery of this Agreement and, in particular, the content of this subsection 1.6, as evidencing in any sense or to any degree, whatsoever, any conclusion or view or opinion by the Banks as to the wisdom, fairness, appropriateness, propriety or potential consequences of the Company's execution and delivery of the Settlement Agreements or the consummation thereof. 19 1.7 Provisions Relating to DM Associates Note. Notwith-standing anything ----------------------------------------- to the contrary in any of the other Loan Documents, the DM Associates Note shall not constitute part of the Collateral. 1.8 Release and Covenant not to Sue. The Company hereby fully, ------------------------------- unconditionally and forever, jointly and severally releases and discharges the Agent and each of the Banks of and from the following, to the extent arising out of or in any manner connected or related, directly or indirectly, in whole or in part, to the Original Credit Agreement or any of the Loan Documents and existing or arising from or predicated upon circumstances existing or having occurred on or prior to the Closing Date: any and all claims, demands, agreements, contracts, covenants, actions, suits, causes of action, obligations, controversies, debts, costs, expenses, accounts, damages, judgments, losses and liabilities of whatever kind or nature in law, equity or otherwise, whether known or unknown, and of every nature and extent whatsoever, which the Company had, may have had, now has, or can, shall or may have, for or by reason of any and all matters, causes, or things whatsoever from the beginning of time to and including the Closing Date; and the Company agrees that it will not institute any action at law or suit in equity against the Agent or any of the Banks, nor institute, prosecute or in any way aid in the institution or prosecution of any claim, demand, action, or cause of action for damages, costs, loss of services, expenses, or compensation for or on account of any damage, loss or injury either to person or property, or both, whether contingent or not, liquidated or unliquidated, developed or undeveloped, resulting or to result, known or unknown, past, present or future which are, were, might or could have been asserted against the Agent or any of the Banks in connection with any of the matters released herein. Section 2. AMOUNT AND TERMS OF COMMITMENTS. 2.1 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 Working Capital Loans to the Company and to participate in the issuance of Letters of Credit, from time to time on or after the date each of the conditions precedent set forth in Section 5 has been satisfied or waived by the Required Banks 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 Commitment. 2.2 Working Capital Loan 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 Working Capital Loans to the Company, from time to time during the Commitment Period, in an aggregate principal amount at any one time outstanding not to exceed the amount of such Bank's Available Working Capital Loan Commitment. During the Commitment Period, the Company 20 may use the Working Capital Loan Commitments by borrowing, prepaying the Working Capital Loans in whole or in part, and reborrowing in accordance with the terms and conditions hereof. 2.3 Interest Rate and Payment Dates. (a) Each Working Capital Loan shall ------------------------------- bear interest for so long as it is outstanding and unpaid at a rate per annum equal to the Prime Rate from time to time in effect. (b) If all or a portion of the principal amount of any Loan, any interest payable thereon, any Reimbursement Obligation or any fee required to be paid under this Agreement shall not be paid when due (whether at the stated maturity, by acceleration or otherwise), such overdue amount shall bear interest at the Default Rate from the date of such non-payment until such amount is paid in full (after as well as before judgment). (c) Interest shall be payable in arrears on each Interest Payment Date; provided that interest accruing at the Default Rate pursuant to subsection 2.3(b) shall be payable on demand. (d) In the event that 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 the Agent or the Issuing Bank, as the case may be, within ten days following the due date of such payment, the Company shall, in addition to and together with such payment, pay to the Agent or the Issuing Bank, as the case may be, a late charge equal to five percent of the total amount of such payment or amount due. 2.4 Procedure for Borrowing. The Company may borrow under the Working ----------------------- Capital Loan Commitments during the Commitment Period on any Business Day by giving the Agent irrevocable notice (which notice must be received by the Agent prior to 1:00 P.M., Cleveland, Ohio local time, on the requested Borrowing Date), specifying (i) the amount to be borrowed, and (ii) the requested Borrowing Date. Each borrowing under the Working Capital Loan Commitments shall be in an amount equal to $100,000 or a whole multiple thereof (or, if the then Available Working Capital Loan Commitments are less than $100,000, such lesser amount). With each request for a borrowing hereunder, the Company shall deliver a Compliance Certificate to the Agent. 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., Cleveland, Ohio local 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 by crediting the account of the Company on the books of such office with the aggregate of the amounts made 21 available to the Agent by the Banks and in like funds as received by the Agent. 2.5 Working Capital Loan Notes. The Working Capital Loans made by each -------------------------- Bank shall be evidenced by a promissory note of the Company, substantially in the form of Exhibit M with appropriate insertions as to payee, date and principal amount(a "Working Capital Loan Note"), payable to the order of such Bank and in a principal amount equal to the amount of the Working Capital Loan Commitment of such Bank. Each Bank is hereby authorized to record the date and amount of each Working Capital Loan made by such Bank, and the date and amount of each payment or prepayment of principal thereof on the Working Capital Loan Note, and any such recordation shall constitute prima facie evidence of the accuracy of the information so recorded. Each Working Capital Loan Note shall (i) be dated May 12, 1995, (ii) be stated to mature on the Termination Date and (iii) provide for the payment of interest in accordance with subsection 2.3. 2.6 Fees. The Company agrees to pay to the Agent for the account of each ---- Bank a commitment fee for the period from and including February 25, 1994, to the Termination Date, computed at the rate of 1/2 of 1% per annum on the average daily amount of the Available 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 Commitments shall terminate as provided herein, commencing on the first of such dates to occur after February 25, 1994. On the Closing Date, the Company shall pay to Society National Bank for its own account a fee equal to 0.50% of such Bank's Commitment and to Fleet Bank, National Association for its own account a fee equal to $10,000, and, unless Fleet Bank, National Association shall no longer be a Participant on such date, the Company shall pay to Fleet Bank, National Association for its own account on December 31, 1995, an additional fee equal to $100,500. The Company shall pay such other fees as may from time to time be agreed to by the Company and the Agent or by the Company and any Bank, as the case may be. 2.7 Termination or Reduction of 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 Commitments; provided that no such termination or reduction shall be permitted if, after giving effect thereto and to any prepayments of the Working Capital Loans made on the effective date thereof, the aggregate principal amount of the Working Capital Loans then outstanding, when added to such Bank's Commitment Percentage of the L/C Obligations, would exceed the Commitments then in effect. Any such reduction shall be in an amount not less than $250,000 (or such lesser amount as shall equal the aggregate of the Commitments then outstanding) and shall reduce permanently the Commitments then in effect. 22 (b) Simultaneously with any required prepayment of the Working Capital Loans pursuant to subsection 2.9(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 2.9(d), the Commitments shall automatically terminate. 2.8 Optional Prepayments. The Company may at any time and from time to -------------------- time, prepay the Working Capital Loans, in whole or in part, without premium or penalty, upon irrevocable notice (which notice must be received by 1:00 P.M., Cleveland, Ohio local time, on or before the proposed date of prepayment) to the Agent, specifying the date and amount of prepayment. 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 Working Capital Loans shall be in an aggregate principal amount of $100,000 or a whole multiple thereof. 2.9 Mandatory Payments; Cash Collateralization. (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 evidenced by debt securities issued and outstanding as of the Closing Date, 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 Working Capital 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, then the Company shall, within 210 days from the date of such Asset Disposition, apply all of the Net Cash Proceeds from such Asset Disposition to either or both (in the sole discretion of the Company) of (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 any such Asset Dispositions shall not be subject to this subsection 2.9(b) and (B) no application of the Net Cash Proceeds resulting from any such Asset Dispositions shall be subject to this paragraph until the aggregate amount of such Net Cash Proceeds (other than the proceeds of the $13,500,000 Senior Subordinated Notes, Series B) received after February 24, 1994 (above the aforesaid $1,000,000) equals or exceeds $5,000,000. Without limiting the generality of the foregoing, no repayments by the Company of outstanding Working Capital Loans shall be considered mandatory prepayments under this subsection unless and until the Company shall have designated such repayments as such. 23 (c) Upon the Company's receipt of any payments on account of the DM Associates Note or the Company's receipt of the proceeds of the sale or transfer of any collateral securing the obligations of DM Associates under such note, then the Company shall immediately pay over such proceeds to the Agent and such proceeds shall be applied in accordance with the terms of subsections 2.9(a) or 2.9(b) above and subsection 2.9(d) below with like effect as if such proceeds were the Net Cash Proceeds of the issuance of equities or debt or of an Asset Disposition. (d) Amounts prepaid on account of Working Capital Loans pursuant to this subsection 2.9 shall be allocated to the outstanding principal amount of the Working Capital Loans, together with a corresponding permanent reduction of the Working Capital Loan Commitments; provided that, if the amount of such prepayment (the "Prepayment Amount") exceeds the then outstanding Working Capital Loans or is made at a time when no Working Capital Loans are outstanding, then the Company shall deposit such Prepayment Amount as collateral for the then outstanding L/C Obligations in the Cash Collateral Account, which deposit shall be made on the payment date specified in the notice of prepayment. 2.10 Computation of Interest and Fees. Interest on the Loans, Letter of -------------------------------- Credit commissions and commitment fees shall each be calculated on the basis of a 360-day year for the actual number of days elapsed. Any change in the interest rate on a Loan resulting from a change in the Prime Rate shall become effective as of the opening of business on the day on which such change becomes effective. The Agent shall notify the Company and the Banks as soon as practicable 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. 2.11 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 (A) 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 24 available to the Agent and (B) 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 Working Capital 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 Working Capital Loan shall be made by the Banks pro rata in accordance with the respective Working Capital Loan Commitment Percentage of such Banks. Each payment by the Company on account of the principal of and interest on the Working Capital Loans, any commitment fee hereunder and any reduction of the Commitments of the Banks shall be payable or allocable 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 2.11(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 2.11(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., Cleveland, Ohio local 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 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. 2.12 Extension of Termination Date. By the date which is 60 days prior to ----------------------------- the Termination Date, the Company may notify the Agent of its desire to extend the Termination Date for an additional year (each such extension, an "Extension"), and 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. 25 2.13 Clean-Down of Working Capital Loans. For a period of at least five ----------------------------------- consecutive Business Days in each calendar month, the aggregate principal amount of Working Capital Loans outstanding shall be reduced to zero. In addition, after each Borrowing Period, the aggregate principal amount of Working Capital Loans outstanding shall be reduced to zero for at least two consecutive Business Days. As used herein, "Borrowing Period" shall mean a period of one or more days, not to exceed five consecutive Business Days, on which the Company requests a Working Capital Loan. 2.14 Requirements of Law. 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 February 25, 1994, 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. 2.15 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 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 26 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 27 shall furnish all such required forms and statements to the Bank from which the related participation shall have been purchased. Section 3. LETTERS OF CREDIT. 3.1 L/C Commitment. (a) Prior to the date hereof, the Issuing 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 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 February 25, 1994 and all letters of credit issued thereafter under the Original Credit Agreement or 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 the request for 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 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. (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 28 information as the Issuing Bank may request. With each request for the issuance of a Letter of Credit hereunder, the Company shall deliver a Compliance Certificate to the Issuing Bank. 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 360. 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 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 L/C 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 29 (whether at stated maturity, by acceleration or otherwise) until payment in full at the Default Rate. 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 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 3.5(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 30 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 he 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 Ohio, 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 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 the requirements set out in 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 31 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 28, 1995 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 LLP, 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 September 23, 1995 and the related unaudited consolidated statements of operations and retained earnings for the eight-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 eight-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 a 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 28, 1995 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 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 28, 1995. 4.2 No Change. Since January 28, 1995 (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 32 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. Each of the ------------------------------------------------------- Company and each Designated Subsidiary 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 Note, 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 33 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). 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. (a) 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 (other than with respect to the Collateral) in title thereto or leasehold interest therein which would not in the aggregate have a Material Adverse Effect; (b) none of the property (other than Collateral) owned or leased by the Company or any Designated Subsidiary is subject to any Lien except as permitted by subsection 7.3 or which, in the aggregate, would not have a Material Adverse Effect; and (c) none of the Collateral is subject to any Lien except as permitted by subsection 7.3 or any Lien granted in favor of the Agent . 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 34 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 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 35 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 in such 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 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 28, 1995 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 28, 1995 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. 36 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. 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 37 interest in, all right, title and interest of the Company in the Collateral described therein, (c) The provisions of the Subsidiary Security Agreements 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 Subsidiaries parties thereto in the Collateral as described therein. The Subsidiary Security Agreements constitutes a fully perfected first Lien on, and security interest in, all right, title and interest of the respective Subsidiary parties thereto 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 Indebtedness. The extensions of credit under this Agreement, ------------------- the Notes and each Application will be, and are hereby designated as, Senior Indebtedness under and as defined in the Indenture. Section 5. CONDITIONS PRECEDENT TO EXTENSION OF CREDIT. The obligation of each Bank to make an extension of credit requested to be made by it under this Agreement is subject to the satisfaction of each 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 Closing Date, Guarantee Obligations incurred after the Closing 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). 38 (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 documents and legal opinions in respect of any aspect or consequence of the transactions contemplated hereby or thereby as it shall reasonably request. (e) No Circumstances with Material Adverse Effect. No event shall --------------------------------------------- have occurred or set of circumstances then be in existence that, in the reasonable judgment of Agent or the Banks, has had or is likely to have a Material Adverse Effect. Each borrowing by and Letter of Credit issued on behalf of the Company or any of its Designated Subsidiaries 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 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 the financial statements -------------------- described in this subsection 6.1, complete and correct in all material respects and prepared in reasonable detail in accordance with GAAP applied consistently throughout the periods reflected therein and with prior periods (except as approved by the independent certified public accountants auditing or the officer certifying the same, as the case may be, and disclosed therein): (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 39 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 LLP 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 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). 40 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 2.9 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 any correspondence between the Company and the certified public accountants who prepared the financial statements referred to in subsection 6.1(a) for such fiscal year, including, without limitation, any so called "management letter" or similar document if one is prepared by such accountants; (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 fiscal year and (ii) the projected consolidated balance sheet of the Company and its consolidated subsidiaries as at the last day of the succeeding 41 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, and 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, 42 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 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 43 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. 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 44 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 ail 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 the Indenture is required to cause one or more of its Subsidiaries to become an additional "Guarantor" (as defined in the Indenture) (in either case, an "Undesignated Subsidiary"), then as soon as possible and in any event concurrently with any actions taken in respect thereof under the 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. Furthermore, upon the request of the Required Banks, the Company shall deliver to the Agent for the benefit of the Banks, the guarantee of any Subsidiary whose guarantee is so requested, other than FinOp. Such guarantee shall be in the form and substance of the Subsidiary Guarantee, as it may be from time to time amended. 45 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. Effective at FYED 1995 and thereafter, ----------------------------- (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 the applicable period to (ii) the sum of Consolidated Interest Expense and Consolidated Rent Expense for such period to be less than (A) 0.86 to 1.00 at FYED 1995, (B) 0.87 to 1.00 at first FQED 1996, (C) 1.00 to 1.00 at second FQED 1996, (D) 1.10 to 1.00 at third FQED 1996, and (E) 1.10 to 1.00 at each FQED thereafter. (b) EBIDA to Interest, Capital Expenditures and Current Maturities. -------------------------------------------------------------- Commencing at the first FQED 1996, permit the ratio of (i) Consolidated EBIDA for the applicable period to (ii) the sum, for the Company and its Subsidiaries, for such period, of (A) Consolidated Interest Expense, (B) Capital Expenditures and (C) current maturities of long-term debt, to be less than 1.00 to 1.00 during any fiscal quarter, based upon the Company's financial statements for the fiscal year to date period at the end of such quarter; provided that, for fiscal quarters subsequent to FYED 1996, such ratio shall be tested based upon a period of four consecutive fiscal quarters ending on any 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 to (ii) Consolidated EBITDA for such period to be more than the ratio set forth opposite such period below:
Test Period Ratio ----------- ----- At Third FQED 1996 4.75 to 1.00 Thereafter 4.25 to 1.00
(d) Maintenance of Net Worth. Permit Consolidated Net Worth of the ------------------------ Company to be less than: (i)$24,000,000 at third FQED 1996 or (ii) at each FQED thereafter, the greater of (A) $9,000,000 and (B) $17,000,000 less the net amount by which the 46 Consolidated Net Worth of the Company is reduced, as a result of being required to treat the stock in the Company held by DM Associates as treasury stock, after taking into account the increase in Consolidated Net Worth resulting from the issuance of warrants in connection with the issuance of the Senior Subordinated Notes, Series B. 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 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; (f) Indebtedness under any Interest Rate Agreement; and (g) Indebtedness incurred in connection with the transactions described in subsection 1.6 hereof, subject to the limitations contained in such section 1.6. 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: (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 47 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 expanded 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 incurring 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 (v) there shall be no Liens on any of the following types of collateral, as those terms are 48 defined in Chapter 1309 of the Ohio Revised Code: inventory, accounts or general intangibles (except Liens on general intangibles that result from the granting of a mortgage, equipment lease financing or other equipment financing arrangement); 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; (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 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 49 (c) any Subsidiary which is not a Designated Subsidiary (i) may be merged or consolidated with or into any other Subsidiary (provided that if it is merged or consolidated with a Designated Subsidiary, the continuing or surviving entity must be the Designated 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, such dispositions being subject to the provisions of subsection 2.9(b) hereof. 7.7 Limitation on Dividends. Declare or pay any dividend 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 (other than (i) dividends payable solely in common stock of a Subsidiary so long as any such common stock dividend is pledged by the stockholder pursuant to the Pledge Agreement to which such stockholder is a party, (ii) dividends payable solely to the Company or a Subsidiary which has executed and delivered to the Agent a Subsidiary Guarantee, or (iii) dividends payable solely in the common stock of the Company to stockholders of the Company). 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 Expenditures more than $22,850,000, in the aggregate, for the Company and its Subsidiaries, during any fiscal year of the Company. 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: 50 (a) extensions of trade credit in the ordinary course of business; (b) investments in (i) 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, (ii) certificates of deposit and eurodollar time deposits with maturities of six months or less from the date of acquisition, bankers' acceptances 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, (iii) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (i) and (ii) entered into with any financial institution meeting the qualifications specified in clause (ii) above, and (iv) 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. (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 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 D.M. Insurance, Ltd., a Bermuda corporation, 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 51 Company's cash concentration account at least once during each seven-day period; (h) Investments by the Company or any Designated Subsidiary 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 request. Notwithstanding the foregoing, the Company or any Subsidiary shall not make any Investment in any Person which exceeds one percent 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 (i) the acquisition of the interests in DM Associates described in subsection 1.6. 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 Indebtedness under this Agreement, including, without limitation (except to the extent permitted by 52 subsection 7.7), the Senior Subordinated Notes; (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 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, a 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 2.9 and 7.6 to be applied to prepay the Loans, or (b) the proceeds received therefrom are so applied. 7.13 Corporate Documents/Corporate Names/Location of Assets. (a) Amend ------------------------------------------------------ its Certificate of Incorporation (except to increase the number of authorized shares of common stock); or (b) do any of the following, unless, in each case, it shall provide the Agent with at least 30 days prior written notice of such action: (i) change its corporate name; (ii) change the location of its inventory or equipment; (iii) change the location of the office where its maintains its records pertaining to its accounts; (iv) change the location of its existing places of business or open any new places of business; or (v) change the location of its chief executive office; provided, however, that anything herein to the contrary notwithstanding, (A) in the alternative, with respect to store openings and closings, the Company may satisfy the requirement of this subsection with respect to such stores by submitting to the Agent, on a monthly basis, a list of all stores opened and closed, and (B) with respect to 53 moving inventory from store to store, no notice need be provided pursuant to this subsection so long as the Company, or a Subsidiary, as the case may be, has executed and delivered to the Agent a Uniform Commercial Code financing statement appropriate for filing to perfect the Agent's security interest in the inventory in its new location. As used herein, "inventory", "equipment" and "accounts" have the respective meanings ascribed to them in Chapter 1309 of the Ohio Revised Code. 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 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; provided, however, that this subsection 7.15 shall not prohibit the Company from entering into such an agreement to the extent otherwise permitted by this Agreement or in connection with any industrial revenue bonds, purchase money or other mortgages, the Indenture or a Financing Lease to the extent that any prohibition or limitation contained in any such agreement shall apply only to assets financed thereunder. 7.16 Amendments to Indenture. Consent to any amendment, supplement, ----------------------- modification or alteration of the Indenture or the Senior Subordinated Notes (or the Company's obligations thereunder) or any agreement or instrument related to the Indenture or the Senior Subordinated Notes without the prior written consent of the Required Banks. Section 8. EVENTS OF DEFAULT. 8.1. Events of Default. Each of the following events shall constitute an ----------------- "Event of Default" under this Agreement: (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 54 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 subsection), and such default shall continue unremedied for a period of 30 days after the earlier of (i) an officer of the Company becomes 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 becomes 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 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 55 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 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 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 56 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 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; or (m) An "Event of Default" (as defined therein) shall occur under the Indenture; or (n) Circumstances develop or events occur which constitute a Material Adverse Effect. 8.2 Remedies. Upon the occurrence of any Event of Default, (A) if such -------- event is an Event of Default specified in clause (i) or (ii) of subsection 8.1(g) above with respect to the Company, then the Commitments shall immediately and automatically 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, then either or both of the following actions may be taken: 57 (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 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. 8.3 Cash Collateral Account. 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. 8.4 Presentment, Demand and Protest Waived. Except as expressly provided -------------------------------------- in this Section 8, 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 ----------- Society National Bank as the Agent of such Bank under this Agreement and the other Loan Documents, and each such Bank irrevocably authorizes Society National Bank, as the Agent for such Bank, to take such 58 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. 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 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 59 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 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, and keep itself informed, 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. 60 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 as to any actions taken or omitted to be taken by it while it was Agent under this Agreement and the other Loan Documents. 9.10 No Duties except as Expressly Set Out Herein. 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, 61 responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against the Agent. 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 62 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) 741-4467 The Agent: Society National Bank 127 Public Square Cleveland, Ohio 44114 Marvin S. Kodish Vice President Telecopy: (216) 689-8468 provided that any notice, request or demand to or upon the Agent or the Banks pursuant to subsections 2.4, 2.7, 2.11 and 2.12 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 repre-sentations 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 63 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 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 commence, against the Agent or any such Bank by any other Bank or by any Transferee. The agreement: 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 64 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 2.13, 2.14, 2.15 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 ("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 65 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 Working Capital Loan Note a new Working Capital Loan Note to the order of such Purchasing Bank in an amount equal to the 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 Commitment retained by it hereunder. Such new Notes shall be dated May 12, 1995, 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. (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. 66 (g) If, pursuant to this subsection 10.6, 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) United States Internal Revenue Service Form 4224 or United States 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 United States 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 United States laws and regulations and amendments duly executed and completed by such Transferee, and to comply from time to time with all applicable United States 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 -------------------- 2.11, 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 subsection 8.1(g), or otherwise), in a greater proportion than any such payment to or collateral received by any other Bank, if any, in respect of Loans or Reimbursement Obligations owing to it, or interest thereon, then such benefitted Bank shall purchase for cash from the other Bank such portion of such other Bank's Loans or the Reimbursement Obligations owing to it, or shall provide such other Bank 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 other 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 the purchase price and benefits returned, to the extent of such recovery, but without interest. The Company agrees that each Bank 67 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 laws of the state of Ohio. 68 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 Ohio, the courts of the United States of America for the Northern District of Ohio, 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 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. 69 10.14 Warrant of Attorney. The Company authorizes any attorney at law at ------------------- any time or times after the maturity hereof (whether maturity occurs by lapse of time or by acceleration) to appear in any state or federal court of record in the United States of America, to waive the issuance and service of process, to admit the maturity of this note and the nonpayment thereof when due, to confess judgment against the Company in favor of the holder of this note for the amount then appearing due, together with interest and costs of suit, and thereupon to release all errors and to waive all rights of appeal and stay of execution. The foregoing warrant of attorney shall survive any judgment, and if any judgment be vacated for any reason, the holder hereof nevertheless may thereafter use the foregoing warrant of attorney to obtain an additional judgment or judgments against the Company. The Company agrees that the Agent or the Banks' attorney may confess judgment pursuant to the foregoing warrant of attorney. The Company further agrees that the attorney confessing judgment pursuant to the foregoing warrant of attorney may receive a legal fee or other compensation from the Agent or the Banks. 10.15. Construction of Ambiguities. The Company has requested, on behalf --------------------------- of itself and the Designated Subsidiaries, that Agent and the other Banks complete, approve and execute this Agreement as quickly as possible and in the shortest feasible time. Agent and Banks have agreed to this request and, accordingly, have exerted every effort to close on this Agreement in the shortest possible time, foregoing the careful and extensive (and therefore time- consuming) review of the documentation that is their normal practice in order to accommodate the needs of the Company and the Designated Subsidiaries. Further, this Agreement and the related Loan Documents have been the subject of extensive negotiations and numerous revisions at the request of all parties. Accordingly, the parties agree that any ambiguity in any of the Loan Documents shall be construed in favor of the Agent and the Banks. Further, the Company agrees that the Agent, notwithstanding that such document has already been executed by all the parties, may correct any obvious error and complete any blank in any Loan Document, and the Agent shall not be liable to the Company or any Designated Subsidiary for any such action unless in taking such action the Agent acts in bad faith or gross negligence or with a wilful disregard for the interests of the Company or such Designated Subsidiary. 10.16 JURY TRIAL WAIVER. TO THE EXTENT PERMITTED BY LAW, THE COMPANY, THE ----------------- AGENT AND EACH OF THE BANKS EACH HEREBY WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE, AMONG THE COMPANY, THE AGENT AND THE BANKS, OR ANY THEREOF, ARISING OUT OF, IN CONNECTION WITH, RELATED TO, OR INCIDENTAL TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS AGREEMENT OR ANY NOTE OR OTHER INSTRUMENT, DOCUMENT 70 OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS RELATED THERETO. THIS WAIVER SHALL NOT IN ANY WAY AFFECT, WAIVE, LIMIT, AMEND OR MODIFY (I) THE ABILITY OF THE AGENT OR ANY BANK TO PURSUE REMEDIES PURSUANT TO ANY WARRANT OF ATTORNEY, CONFESSION OF JUDGMENT OR COGNOVIT PROVISION CONTAINED IN THIS OR ANY OTHER AGREEMENT OR ANY NOTE OR OTHER INSTRUMENT, DOCUMENT OR AGREEMENT AMONG THE COMPANY, THE AGENT AND THE BANKS, OR ANY THEREOF, OR (II) ANY OTHER WAIVERS OF JURY TRIAL. [SIGNATURE PAGES FOLLOW] 71 - -------------------------------------------------------------------------------- "WARNING -- BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT OR ANY OTHER CAUSE." - -------------------------------------------------------------------------------- DAIRY MART CONVENIENCE STORES, INC. By:/s/ Gregory Wozniak -------------------------------- Gregory Wozniak, Vice President and Corporate Counsel SOCIETY NATIONAL BANK, Individually and as Agent By:/s/ Marvin S. Kodish -------------------------------- Marvin S. Kodish Vice President FLEET BANK, NATIONAL ASSOCIATION By:/s/ William Theriault -------------------------------- William Theriault Vice President 72 EXHIBIT M WORKING CAPITAL LOAN NOTE $__________________ Cleveland, Ohio May 12, 1995 FOR VALUE RECEIVED, the undersigned DAIRY MART CONVENIENCE STORES, INC. (the "Company") promises to pay on May 31, 1996, to the order of ______________________ (the "Bank") at the Main Office of Society National Bank, the Agent, 127 Public Square, Cleveland, Ohio 44114-1306 the principal sum of ________________________________________________________________________DOLLARS or the aggregate unpaid principal amount of all Loans made by Bank to the undersigned pursuant to the Credit Agreement, as hereinafter defined, whichever is less, in lawful money of the United States of America. As used herein, "Credit Agreement" means the credit agreement dated as of February 25, 1994, as the same may from time to time be amended, among the Company, the Banks named therein and Society National Bank, as Successor Agent to Fleet Bank, National Association. Capitalized terms used herein shall have the meanings ascribed to them in the Credit Agreement. The undersigned also promises to pay interest on the unpaid principal amount of each Loan from time to time outstanding, from the date of such Loan until the payment in full thereof, at the rates per annum which shall be determined in accordance with the provisions of the Credit Agreement. Such interest shall be payable on the last day of each March, June, September and December of each year; provided, however, that interest on any principal portion which is not paid when due shall be payable on demand. The Bank is authorized to record the date and amount of each Loan made by the Bank pursuant to the Credit Agreement and the date and amount of each payment or prepayment of principal hereof on the reverse side hereof, or reflect such information on the records of the Bank by such other methods as Bank may generally employ; provided, however, that failure to make any such entry shall in no way detract from the undersigned's obligations under this Note. If this Note shall not be paid at maturity, whether such maturity occurs by reason of lapse of time or by operation of any provision for acceleration of maturity contained in the Credit Agreement, the principal hereof and the unpaid interest thereon shall bear interest, until paid, at a rate per annum which shall be three per cent (3%) in excess of the Prime Rate from time to time in effect. All payments of principal of and interest on this Note shall be made in immediately available funds. In an Event of Default in the payment of interest or balance of principal, when the same becomes due, the Bank may M-1 collect and the undersigned agrees to pay a late charge of an amount equal to the greater of (a) ten per cent (10%) of the amount of such late payment, or (b) Twenty Five Dollars ($25). This Note is one of the Working Capital Loan Notes referred to in the Credit Agreement. Reference is made to the Credit Agreement for a description of the right of the undersigned to anticipate payments hereof, the right of the holder hereof to declare this Note due prior to its stated maturity, and other terms and conditions upon which this Note is issued. The undersigned authorizes any attorney at law at any time or times after the maturity hereof (whether maturity occurs by lapse of time or by acceleration) to appear in any state or federal court of record in the United States of America, to waive the issuance and service of process, to admit the maturity of this Note and the nonpayment thereof when due, to confess judgment against the undersigned in favor of the holder of this Note for the amount then appearing due, together with interest and costs of suit, and thereupon to release all errors and to waive all rights of appeal and stay of execution. The foregoing warrant of attorney shall survive any judgment, and if any judgment be vacated for any reason, the holder hereof nevertheless may thereafter use the foregoing warrant of attorney to obtain an additional judgment or judgments against the undersigned. The undersigned agrees that the Agent or the Banks' attorney may confess judgment pursuant to the foregoing warrant of attorney. The undersigned further agrees that the attorney confessing judgment pursuant to the foregoing warrant of attorney may receive a legal fee or other compensation from the Agent or the Banks. DAIRY MART CONVENIENCE STORES, INC. By:_________________________________ Gregory Wozniak Vice President and Corporate Counsel ================================================================================ "WARNING -- BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT OR ANY OTHER CAUSE." ================================================================================ M-2 SCHEDULE 1
Working Bank Capital L/C Commitment Commitment Commitment % $ Amount % $ Amount $ Amount - --------------------------------------------------------------------------- Society National Bank 55 8,300,000 100% 5,000,000 13,300,000 127 Public Square Cleveland, OH 44114 Attention: Marvin S. Kodish ---------- Telecopy No.: 216/689-8468 ------------- Fleet Bank, National 45 6,700,000 0 0 6,700,000 Association 40 Westminster Street P.O. Box 366, Mail Stop RI-OP-TO-5A Providence, RI 02903-0366 Attention: William Theriault ---------- Telecopy No. 401/459-4964 ------------ TOTALS: 100 15,000,000 100 5,000,000 20,000,000 === ========== === ========= ==========
* The amount of the Working Capital Loan Commitment portion of the Commitment has been temporarily reduced to $5,000,000 and shall be increased to $30,000,000 upon the occurrence of all of the following conditions described in (i) or the condition described in (ii) and provided that the L/C Commitment shall then become, by further amendment of the Credit Agreement, a sublimit of the overall credit facility of $30,000,000: (i) (a) The Company shall have recorded a Consolidated Net Income (excluding any income from sale of capital assets and nonrecurring gains) of not less than $19,500,000 on a rolling four quarter basis at the end of any fiscal quarter, as confirmed (in the discretion of the Agent) by an audit report of the Company's independent public accountant; (b) the payment of fees satisfactory to the Agent; and (c) no Default shall exist; or (ii) the Agent and the Bank otherwise agree to increase the Working Capital Loan Commitment. EXHIBITS -------- Exhibit A Assignment and Acceptance Exhibit B Company Pledge Agreement Exhibit C Company Security Agreement Exhibit D DM Associates Note Exhibit E Amended and Restated Subsidiary Guarantee Exhibit F Subsidiary Pledge Agreement Exhibit G Subsidiary Security Agreement Exhibit H Consent, Acknowledgement and Reaffirmation Agreement Exhibit I Closing Certificate Exhibit J Legal Opinions - The 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 Exhibit K Warrant Exhibit L Settlement Agreements Exhibit M Working Capital Loan Note EX-10.6 8 MODIFICATION AGREEMENT 12/1/95 Exhibit 10.6 MODIFICATION AGREEMENT This MODIFICATION AGREEMENT (this "Modification Amendment") is made as of ------------ --------- this 1st day of December, 1995, by and among Dairy Mart Convenience Stores, Inc., a Delaware corporation (the "Company"), Charles Nirenberg ("Nirenberg"), ------- --------- FCN Properties Corporation, a Connecticut corporation ("FCN"), The Nirenberg --- Foundation, Inc., a Connecticut corporation formerly known as The Nirenberg Family Charitable Foundation, Inc. (the "Foundation"), Robert B. Stein, Jr. ---------- ("Stein") and Gregory G. Landry ("Landry"). - ------- ------ W I T N E S S E T H: ------------------- WHEREAS, the Company, Nirenberg, FCN, the Foundation, Stein and Landry are parties to that certain Agreement dated October 30, 1995 (the "Original -------- Agreement"); and - --------- WHEREAS, the parties desire to amend and modify the Original Agreement in certain respects. NOW, THEREFORE, the parties hereto hereby agree to amend and modify the Original Agreement as follows: 1. DEFINITIONS. Except to the extent amended, modified and/or ----------- supplemented by this Modification Agreement, capitalized terms used herein without definition shall have the meaning ascribed to such terms in the Original Agreement. 2. AMENDMENTS TO SECTION 1(a). (a) Section 1(a) of the Original Agreement is hereby amended to delete the words "(i) right, title and interest in and to Nirenberg's general partner interests in New DM Management Associates I, a Connecticut general partnership ("New DM Management I"), and New DM Management Associates II, a Connecticut general partnership ("New DM Management II");" commencing on the fifth line of such Section 1(a), and by renumbering clauses (ii), (iii) and (iv) of such Section 1(a) as clauses (i), (ii) and (iii), respectively. (b) Section 1(a) of the Original Agreement is hereby further amended by deleting the words "New DM Management I and New DM Management II" on the 31st line of such Section 1(a) and inserting in lieu thereof the words "New DM Management Associates I, a Connecticut general partnership ("New DM Management I"), and New DM Management Associates II, a Connecticut general partnership ("New DM Management II")". -2- 3. ADDITION OF NEW SECTION 1(c). Section 1 of the Original Agreement is hereby amended by adding a new subparagraph (c) thereunder to read in its entirety as follows: "(c) At the Closing, Nirenberg shall withdraw as a partner of New DM Management I and New DM Management II." 4. ADDITION OF NEW SECTION 1(d). Section 1 of the Original Agreement is hereby amended by adding a new subparagraph (d) thereunder to read in its entirety as follows: "(d) In the event that the Closing occurs on a date after November 29, 1995, then, in addition to the amount payable at the Closing under each of Sections 1(b), 6(e) and 8(e), the Company shall, at the Closing, pay to each of Nirenberg, FCN and the Foundation, as applicable, interest at the rate of 8 3/4% per annum on the amount payable to such person, if any, under each of Sections 1(b), 6(e) and 8(e), for the number of days from November 29, 1995 through and including the date of the Closing." 5. AMENDMENT OF SECTION 2. Section 2 of the Original Agreement is hereby amended by changing the reference to November 29, 1995 to December 1, 1995. 6. AMENDMENT OF SECTION 4. Section 4 of the Original Agreement is hereby amended by changing the reference to November 29, 1995 to December 1, 1995. 7. AMENDMENT OF SECTION 6(e). Section 6(e) of the Original Agreement is hereby amended to delete the dollar figure "$2,300,000" on the third line of such Section 6(e) and to insert in lieu thereof the dollar figure "$800,000." Section 6(e) of the Original Agreement is hereby further amended by adding the following sentence at the end thereof: "The amount payable by the Company to Nirenberg pursuant to this Section 6(e) shall be subject to adjustment pursuant to, and in accordance with, Section 1(d) hereof." 8. ADDITION OF NEW SECTION 8(e). Section 8 of the Original Agreement is hereby amended by adding a new subparagraph (e) thereunder to read in its entirety as follows: "(e) The parties hereby acknowledge and agree that, without limiting the generality of Section 8(a) above, among the claims being released by Nirenberg pursuant to said Section 8(a) are claims that Nirenberg may have against the Company (which the Company does not -3- hereby acknowledge) for pain and suffering and damage to reputation suffered by Nirenberg as a result of the Company's termination of Nirenberg's employment with the Company and his position as Chairman. The parties hereby further acknowledge and agree that, in consideration of Nirenberg's agreement to release the Company from any such claims for pain and suffering and damage to reputation, the Company shall pay to Nirenberg at the Closing a non-refundable sum of $1,500,000 by wire transfer of federal funds to an account or accounts designated by Nirenberg. The amount payable by the Company to Nirenberg pursuant to this Section 8(e) shall be subject to adjustment pursuant to, and in accordance with, Section 1(d) hereof." 9. AMENDMENT OF SECTION 9. Section 9 of the Original Agreement is hereby amended to read in its entirety as follows: "9. Indemnification. Provided the Closing occurs, the Company --------------- agrees to the fullest extent permitted under Delaware law to indemnify and hold Nirenberg harmless from and against any costs, expenses (including, without limitation, reasonable legal fees and expenses), judgments, fines, penalties and amounts paid in settlement (collectively "Costs") which he may incur or to which he may become subject by reason of (i) the transactions contemplated hereby, (ii) his service as an officer, director and/or employee of the Company (to the fullest extent permitted under Section 145 of the Delaware General Corporation Law), including, without limitation, Costs in connection with the Kahn litigation, (iii) the transactions relating to the reconstitution of DM Associates and the dissolution and replacement of DM Management Associates as the general partner of DM Associates by New DM Management I and New DM Management II, (iv) private causes of action by reason of the actions taken by Nirenberg and/or any of the foregoing entities to effect a change in the composition of the Board of Directors of the Company, (v) any claim made by, or any action, suit, arbitration or other proceeding commenced or threatened by any partner of DM Associates or any stockholders or other affiliates of such partner against Nirenberg, FCN, the Foundation, any other -4- affiliate of Nirenberg, DM Associates, New DM Management I or New DM Management II that is based on or predicated on a claim or allegation that (A) the consummation of the transactions contemplated under this Agreement caused, gave rise to or have resulted in a breach of any provision of the partnership agreement of DM Associates, (B) the consummation of the transactions contemplated under this Agreement gave rise to, have resulted in, or were in breach of any fiduciary duty owed by Nirenberg, FCN, the Foundation, any other affiliate of Nirenberg, DM Associates, New DM Management I or New DM Management II to any such partner of DM Associates, any stockholders or other affiliates of such partner or DM Associates or (C) the failure of New DM Management I to exercise (or the failure of Nirenberg to cause New DM Management I to exercise), whether for the account of New DM Management I or the account of DM Associates, the right of first refusal contemplated under Section 10.4 of the partnership agreement of DM Associates as in effect on the date hereof was a breach of such Section 10.4 or a breach of a fiduciary duty owed by New DM Management I or Charles Nirenberg, as the case may be, or (vi) any claim made by, or any action, suit, arbitration or other proceeding commenced or threatened by, any person (including, without limitation, any partner of DM Associates or any stockholders or other affiliates of such partner) against Nirenberg or the Foundation that is based on or predicated on (A) any action taken or failure to act by either Nirenberg or the Foundation as a limited partner of DM Associates at any time from and after the Closing or (B) any action taken or failure to act by the Company and/or its assignees in their capacities as attorneys-in-fact of Nirenberg or the Foundation in their respective capacities as limited partners of DM Associates. Upon its receipt of any notice from Nirenberg with respect to any matter for which indemnification is available, the Company shall have the right to assume the defense thereof with counsel of its choice and thereafter the Company shall not be responsible for any legal fees incurred by Nirenberg in respect thereof; provided, that if -------- Nirenberg is advised by counsel that there may be defenses available to him that differ from those available to the Company or other indemnified parties or otherwise that the potential exists for a conflict between Nirenberg shall be entitled to retain one firm of legal counsel on his behalf at the Company's expense. Nirenberg shall not compromise or settle any action for which indemnification may be available without the Company's prior written consent, which shall not be unreasonably withheld. Such indemnification shall be conditional on Nirenberg reasonably cooperating with the Company with respect to any matter for which indemnification is available." 10. AMENDMENT TO SECTION 10(c). Section 10(c) of the Original Agreement is hereby amended by deleting the text thereof in its entirety and substituting therefor the following: "(c) [INTENTIONALLY DELETED]" 11. AMENDMENT TO SECTION 10(f). Section 10(f) of the Original Agreement is hereby amended by deleting the words "to be reconvened on -5- November 30, 1995 or such earlier date as is required pursuant to Section 10(c) hereof" commencing on the 6th line of said Section 10(f). Section 10(f) of the Original Agreement is hereby further amended by inserting the words "in the event the Closing does not occur on or prior to the Agreement Termination Date" immediately after the word "stockholders" on the last line of said Section 10(f). 12. GENERAL. ------- 12.1. Ratification. Except to the extent modified, supplemented and/or ------------- amended by this Modification Agreement, all of the terms, provisions and conditions of the Original Agreement are hereby ratified and confirmed and shall remain in full force and effect. 12.2. Entire Agreement. The Original Agreement and this Modification ----------------- Agreement contain the entire agreement among the parties with respect to the subject matter thereof and hereof. The Original Agreement and this Modification Agreement shall be read and construed together as a single agreement, and the term "Agreement", as used throughout the Original Agreement, is hereby modified --------- to mean, and shall hereinafter be deemed to make reference to, the Original Agreement as amended by this Modification Agreement. 12.3. Counterparts. This Modification Agreement may be executed in any ------------- number of counterparts, and each such counterpart shall be deemed to be an original instrument, but all such counterparts together shall constitute but one agreement. 12.4. Governing Law. This Modification Agreement shall be governed by and -------------- construed, interpreted and enforced in accordance with the laws of the State of Connecticut, excluding the choice of laws rules thereof. IN WITNESS WHEREOF, the parties hereto have executed this Modification Agreement under seal as of the date and year first above written. /s/ Charles Nirenberg ------------------------------------------------- CHARLES NIRENBERG -6- FCN PROPERTIES CORPORATION By: /s/ Charles Nirenberg -------------------------------------- Charles Nirenberg, President THE NIRENBERG FOUNDATION, INC. By: /s/ Charles Nirenberg -------------------------------------- Charles Nirenberg, President DAIRY MART CONVENIENCE STORES, INC. By: /s/ Robert B. Stein, Jr. -------------------------------------- Robert B. Stein, Jr., President /s/ Robert B. Stein, Jr. ----------------------------------------- ROBERT B. STEIN, JR. /s/ Gregory G. Landry ----------------------------------------- GREGORY G. LANDRY EX-10.7 9 AMENDED AND RESTATED LTR AGMT 12/1/95 EXHIBIT 10.7 DAIRY MART CONVENIENCE STORES, INC. ROBERT B. STEIN, JR. GREGORY G. LANDRY C/O DAIRY MART CONVENIENCE STORES, INC. ONE VISION DRIVE ENFIELD, CONNECTICUT 06082 DECEMBER 1, 1995 Mr. Mitchell J. Kupperman c/o First Merchants Group, Inc. Devonshire Place, Suite 106 48 Holy Family Road Holyoke, MA Re: Termination of Employment, Separation and Related Matters --------------------------------------------------------- Dear Mitch: This letter agreement, effective as of October 30, 1995, sets forth the terms and conditions pursuant to which, among other things, (i) you (hereinafter sometimes referred to as "Kupperman") shall terminate your employment and directorship with Dairy Mart Convenience Stores, Inc., a Delaware corporation (the "Company"), (ii) the Company shall compensate you in connection with the termination of your employment with the Company, (iii) the parties hereto will settle potential claims between them for certain consideration, (iv) you will agree not to compete with the Company for certain consideration, (v) the Company will pay you certain amounts for past services rendered, and (vi) you, on the one hand, and the Company, Robert B. Stein, Jr. ("Stein") and Gregory G. Landry ("Landry"), on the other hand, shall grant mutual releases. Intending to be legally bound, the parties hereby agree as follows: 1. Termination. At the closing (the "Closing") of the transactions ----------- contemplated under that certain Agreement, dated as of October 30, 1995, among the Company, Charles Nirenberg, FCN Properties Corporation and The Nirenberg Foundation, Inc., as amended and modified by that certain Modification Agreement, dated of even date herewith, by and among the Company, Charles Nirenberg, FCN Properties Corporation and The Nirenberg Foundation, Inc. (said Agreement, as amended and modified by said Modification Agreement, being referred to herein as the "Nirenberg Settlement Agreement"), Kupperman shall deliver to the Company his written resignation from his positions as an officer, employee and director of the Company Mr. Mitchell J. Kupperman December 1, 1995 Page 2 and its subsidiaries (the "Kupperman Resignation"). Kupperman's resignation as an officer, employee and director of the Company and its subsidiaries shall become effective immediately upon delivery of the Kupperman Resignation to the Company at the Closing, without any further act being required by either the Company or Kupperman. For purposes of this Agreement, the effective date of the termination of Kupperman's employment with the Company is hereinafter referred to as the "Termination Date." 2. Consideration. ------------- For and in consideration of (i) Kupperman's agreement to terminate his employment with the Company, (ii) the release by Kupperman of certain claims against the Company, (iii) Kupperman's agreement not to compete with the Company, and (iv) past services rendered by Kupperman to the Company, the Company shall make the payments provided for or referred to in Section 3 below and shall deliver or otherwise make available to Kupperman the benefits or other consideration referred to in Sections 4 and 5 below. 3. Payments. -------- 3.1 Amount and Timing of Payments. The Company shall make the ----------------------------- following payments to Kupperman: (i) At the Closing, the Company shall make a cash severance payment to Kupperman of $433,000. (ii) Prior to the execution and delivery by Kupperman of this letter agreement, the Company has made the cash payment to Kupperman provided for in Section 11. (iii) At the Closing, the Company shall make the additional cash payments to Kupperman required pursuant to Sections 8(e) and 10 hereof. 3.2 Payment Mechanics. All payments that the Company is required to ----------------- make pursuant to Section 3.1 above shall be made by certified check or by wire transfer thereof in immediately available funds to an account designated by Kupperman. Mr. Mitchell J. Kupperman December 1, 1995 Page 3 4. Stock Options. ------------- 4.1 Grant of Class A Stock Option. At the Closing, the Company shall ----------------------------- issue to Kupperman a stock option (the "Class A Stock Option") exercisable for 10,000 shares (the "Class A Option Shares") of Class A Common Stock of the Company, at an exercise price of $2.875. The Class A Stock Option shall be fully vested and be immediately exercisable for all of the Class A Option Shares and shall be exercisable for a period of 18 months from the Termination Date. At the Closing, the Company and Kupperman shall execute and deliver a stock option agreement, in form and substance similar to the form customarily used by the Company for such purposes, evidencing the issuance of the Class A Stock Option and the terms hereof. 4.2 Payment in Respect of Class B Stock Option. At the Closing, the ------------------------------------------ Company shall pay Kupperman $15,000 in respect of its determination not to issue to Kupperman any option in replacement of Kupperman's previously outstanding stock option (the "Class B Stock Option") exercisable for 3,750 shares (the "Class B Option Shares") of Class B Common Stock of the Company. Such payment pursuant to this Section 4.2 shall be made, at the Closing, by certified check or by wire transfer thereof in immediately available funds to an account designated by Kupperman. 4.3 Agreement Concerning Option Profits Agreement. The parties --------------------------------------------- hereby acknowledge that Kupperman, Stein and Landry are parties to that certain Agreement Regarding Obligation to Pay Amount of Option Profits, dated March 12, 1992, by and among HNB Investment Corp. ("HNB"), Frank Colaccino, Kupperman, Stein and Landry (the "Option Profits Agreement"). Each of the Company, Stein and Landry hereby agrees that, in the event that (i) Landry or Stein effects an amendment or modification to, or in any way supersedes in whole or in part, his obligations under the Option Profits Agreement so as to decrease, release, terminate or otherwise eliminate such obligations, or (ii) Landry or Stein reaches any kind of agreement with HNB that improves his position under the Option Profits Agreement in any way, then (a) concurrently with any such decrease, reduction, termination or other elimination of the obligations of Landry or Stein, the obligations of Kupperman under the Option Profits Agreement shall be decreased, reduced, terminated or otherwise eliminated to the same extent as the obligations of Landry or Stein, as the case may be, and/or (b) concurrently with any such improvement in the position of Landry or Stein, the position of Kupperman under the Option Profits Agreement shall be improved to the same extent as Mr. Mitchell J. Kupperman December 1, 1995 Page 4 the position of Landry or Stein is improved. Each of the Company, Stein and/or Landry, as the case may be, shall notify Kupperman promptly of the commencement of any discussions with HNB in connection with the taking, or any proposal to take, any of the actions described above in this Section 4.3. 5. Additional Benefits ------------------- 5.1. Benefits. In addition to the payments contemplated under -------- Section 3 hereof and the stock option benefits contemplated under Section 4 hereof, Kupperman shall be entitled to the following benefits in connection with the termination of his employment with the Company: (i) At the Closing, the Company shall at its sole cost and expense transfer unrestricted ownership and legal title, free and clear of any liens or other encumbrances (including, without limitation, payment or reimbursement by the Company of any sales or other similar taxes due and owing as a result of such transfer), to the automobile made available by the Company for Kupperman's use as of the date hereof. (ii) From the Termination Date through the earlier of two years thereafter or the date on which Kupperman and his dependents become eligible for substantially equivalent coverage provided by a subsequent employer, the Company shall provide Kupperman and his eligible dependents with continued coverage under all health, medical, dental and hospitalization plans maintained by the Company during such time period on the same terms and conditions applicable to executive officers of the Company. (iii) On the Termination Date, all options to purchase stock or other rights to purchase or own stock (including grants of stock) held by Kupperman that are not vested shall immediately vest and become exercisable in full (without any further action by the Company or Kupperman being required therefor) and all options to purchase stock and other rights to purchase or own stock (including grants of stock) then held by Kupperman shall remain in effect and be exercisable until the last business day of the 18th month following the Termination Date. (iv) At the Closing, the Company will assign and transfer to Kupperman, or his designee, all of the Company's right, title and interest in the life insurance policies covering Kupperman's life that were held by the Company as of the Termination Date. From and after the Closing, Kupperman shall, at Mr. Mitchell J. Kupperman December 1, 1995 Page 5 his election, assume and pay any and all premiums and other costs associated with the continuation of such policies. The Company shall execute and deliver any and all appropriate instruments necessary to evidence the foregoing assignment and transfer as promptly as practicable after the Closing. (v) From and after the Termination Date, Kupperman shall continue his participation in, and shall retain all of his rights (including, without limitation, his right to receive benefits and his right to make elections or other decisions or determinations) under, all of the other employee benefit plans, practices and policies of the Company (the "Other Employee Benefit Arrangements") to the extent that such plans, practices and policies as in effect on the date hereof contemplate or provide, by their own respective terms, that (i) participating employees may continue their participation thereunder after the termination of their employment with the Company or (ii) participating employees may or shall receive benefits thereunder after such termination. Notwithstanding any term of the Other Employee Benefit Arrangements to the contrary, on the Termination Date Kupperman shall become vested on all benefits, if any, to which he would otherwise be entitled under the Other Employee Benefit Arrangements. The determination of the amount of benefits, if any, to which Kupperman is entitled under the Other Employee Benefit Arrangements shall be made as of either the date hereof or the Termination Date, whichever results in the highest benefit to Kupperman. 5.2. Mitigation. Subject to the provisions of Section 5.1(ii) ---------- hereof, Kupperman shall not be required to mitigate any of the benefits provided in this letter agreement by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for in this letter agreement be reduced by any compensation or benefit earned by Kupperman as the result of employment by another employer after the Termination Date or otherwise. 6. Expenses and Taxes. The parties hereto agree that (i) all attorney, ------------------ accounting and other consultant fees incurred by each of the parties in connection with the negotiation and signing of the Agreement and (ii) all federal and state tax liabilities of each party relating to this Agreement and the transactions comtemplated hereby shall be the responsibility of such party, except for any tax liabilities of Kupperman pursuant to Section 5.1(i) which shall be the responsibility of the Company. Mr. Mitchell J. Kupperman December 1, 1995 Page 6 7. Condition Precedent. It shall be a condition precedent to the ------------------- obligation of each of Kupperman and the Company to consummate the transactions contemplated under this letter agreement that the Closing, and all of the transactions to be performed at the Closing under the Nirenberg Settlement Agreement, shall have been consummated. 8. Releases. Provided the Closing occurs: -------- (a) Kupperman, on behalf of himself and his affiliates, hereby agrees to waive all claims against the Company, its subsidiaries and their respective former, current and future officers, directors, employees, stockholders, agents, attorneys, and other representatives (collectively, "Affiliates") and hereby releases and discharges the Company and its Affiliates from any all actions, causes of action, suits, debts, sums of money, accounts, covenants, contracts, controversies, agreements, promises, judgments, demands, liability, claims and damages whatsoever, in law or equity, that Kupperman and/or his affiliates ever had, now has, or hereafter can, shall or may have, for, upon or by reason of his former employment with, service as a director of, or direct or indirect holding of equity securities in, the Company, including, without limitation, any claims arising under any federal, state or local law or ordinance, tort, employment contract (express or implied), public policy, or any other obligation, including, without limitation, any claims arising under Title VII of the Civil Rights Act of 1964, as amended, the Age Discrimination in Employment Act, as amended, and all claims for wrongful discharge, workers' compensation, wages, monetary or equitable relief, vacation, disability, other employee fringe benefits, benefit plans, medical plans, or attorneys' fees; provided, however, that notwithstanding the foregoing, Kupperman reserves and shall not be deemed to have released (i) any rights he may have pursuant to the Company's 401(k) and profit sharing plans, (ii) any rights he may have pursuant to the Company's Other Employee Benefit Arrangements, (iii) his ability to seek and obtain indemnification by the Company pursuant this Agreement and the Company's Restated Certificate of Incorporation and Amended and Restated By-laws, each as in effect on the date hereof, (iv) all claims relating to the performance of the Company's obligations under this Agreement, and (v) his ability to assert claims for contribution or other appropriate relief against the Company or one or more of its Affiliates in any action in which he is a defendant commenced by any third party, including but not limited to one or more stockholders of the Company seeking to act on behalf of the Company. Mr. Mitchell J. Kupperman December 1, 1995 Page 7 (b) Kupperman hereby agrees to waive all claims against each of Stein and Landry in their capacity as direct or indirect general partners of DM Associates Limited Partnership ("DM Associates"), New DM Management Associates I ("New DM Management I"), New DM Management Associates II ("New DM Management II"), and any attorneys of the foregoing and hereby releases and discharges them from any and all actions, causes of action, suits, debts, dues, sums of money, accounts, covenants, contracts, controversies, agreements, promises, judgments, demands, liability, claims and damages whatsoever, in law or equity, that Kupperman ever had, now has, or hereafter can, shall or may have, for, upon or by reason of any event or thing whatsoever occurring on or prior to the Termination Date and relating to his interests in DM Associates, New DM Management I and New DM Management II; provided, however, that notwithstanding -------- ------- the foregoing, Kupperman reserves and shall not be deemed to have released any rights he may have to seek and obtain indemnification and/or contribution or other appropriate relief from DM Associates, New DM Management I or New DM Management II or any of the partners of such partnerships pursuant to such partnerships' respective partnership agreements as in effect on the date hereof or pursuant to applicable law. (c) The Company hereby agrees to waive all claims against Kupperman and his affiliates and their respective former, current and future officers, directors, employees, stockholders, agents, attorneys and other representatives and hereby releases and discharges Kupperman, his affiliates and such other persons from any and all actions causes of action, suits, debts, dues, sums of money, accounts, covenants, contracts, controversies, agreements promises, judgments, demands, liability, claims and damages whatsoever, in law or equity, that the Company ever had, now has, or hereafter can, shall or may have for, upon or by reason of Kupperman's former employment with, service as an officer and director of, direct or indirect holding of equity securities in, or in any other capacity relating to the Company (including as direct or indirect general partner of DM Associates, New DM Management I and New DM Management II, including any claims in connection with the transactions relating to the dissolution of DM Management Associates and DM Associates, the reconstitution of DM Associates and the replacement of DM Management Associates as the general partner of DM Associates by New DM Management I and New DM Management II, and any claims in connection with any action taken by Charles Nirenberg, Kupperman, New DM Management I and DM Associates to effect a change in the composition of the Board of Directors of the Company), including, but not limited, to any claims arising under any federal, state or local law or ordinance, Mr. Mitchell J. Kupperman December 1, 1995 Page 8 tort, employment contract (express or implied), public policy, or any other obligation other than (i) those relating to the performance of Kupperman's obligations under this Agreement and (ii) subject to Kupperman's reservation of rights pursuant to Section 8(a) hereof and rights pursuant to Section 9 hereof, claims made prior to or after the date of this letter agreement by one or more stockholders of the Company seeking to act on behalf of the Company. (d) Stein and Landry in their individual capacities and as general partners of New DM Management I and New DM Management II, each hereby agrees to waive all claims against Kupperman in his capacity as general partner of New DM Management I and New DM Management II, and as indirect general partner of DM Associates, and any attorneys of the foregoing and hereby releases and discharges them from any and all actions, causes of action, suits, debts, dues, sums of money, accounts, covenants, contracts controversies, agreements, promises, judgments, demands, liability, claims and damages whatsoever, in law or equity, that either or both of them ever had, now has, or hereafter can, shall or may have, for, upon or by reason of any event or thing whatsoever occurring on or prior to the Termination Date and relating to Kupperman's interests in DM Associates, New DM Management I and New DM Management Associates II, including, without limitation, any claims in connection with the transactions relating to the dissolution of DM Management Associates and DM Associates, the reconstitution of DM Associates and the replacement of DM Management Associates as the general partner of DM Associates by New DM Management I and New DM Management II and any claims in connection with any action taken by Charles Nirenberg and Kupperman, for and on behalf of New DM Management I and DM Associates, to effect a change in the composition of the Board of Directors of the Company; provided, however, that notwithstanding the -------- ------- foregoing, each of Stein and Landry reserves and shall not be deemed to have released his ability to seek and obtain contribution or other appropriate relief against Kupperman pursuant to the respective partnership agreements of DM Associates, New DM Management I or New DM Management II, each as in effect on the date hereof, or pursuant to applicable law. Consistent with the foregoing, Stein and Landry each hereby agrees that he will not vote or take action, individually or with respect to his general partner interests in New DM Management I or New DM Management II to assert, or to cause New DM Management I or New DM Management II or DM Associates to assert, any claims against Kupperman in the capacities specified and with respect to the matters released in this Section 8(d). Mr. Mitchell J. Kupperman December 1, 1995 Page 9 (e) The parties hereby acknowledge and agree that, without limiting the generality of Section 8(a) above, among the claims being released by Kupperman pursuant to said Section 8(a) are claims that Kupperman may have against the Company (which the Company does not hereby acknowledge) for pain and suffering and damage to reputation suffered by Kupperman as a result of the termination of Kupperman's employment with the Company and his position as Executive Vice President. The parties hereby further acknowledge and agree that, in consideration of Kupperman's agreement to release the Company from any such claims for pain and suffering and damage to reputation, the Company shall pay to Kupperman at the Closing a non-refundable sum of $348,000 by wire transfer of federal funds to an account or accounts designated by Kupperman. 9. Indemnification. Provided the Closing occurs, the Company agrees to --------------- the fullest extent permitted under Delaware law to indemnify and hold Kupperman harmless from and against any costs, expenses (including, without limitation, reasonable legal fees and expenses), judgments, fines, penalties and amounts paid in settlement (collectively, "Costs") which he may incur or to which he may become subject by reason of (i) the transactions contemplated hereby, except for those relating to any expenses or taxes set forth in Section 6 hereof, (ii) his service as director, officer and/or employee of the Company (to the fullest extent permitted under Section 145 of the Delaware General Corporation Law), including, without limitation, Costs in connection with the Kahn litigation and (iii) the transactions relating to the dissolution of DM Management Associates and DM Associates, the reconstitution of DM Associates and the replacement of DM Management Associates as general partner of DM Associates by New DM Management I and New DM Management II and any action taken by Charles Nirenberg, Kupperman and/or any of the foregoing entities to effect a change in the composition of the Board of Directors of the Company. Upon its receipt of any notice from Kupperman with respect to any matter for which indemnification is available, the Company shall have the right to assume the defense thereof with counsel of its choice and thereafter the Company shall not be responsible for any legal fees incurred by Kupperman in respect thereof; provided, that if Kupperman is advised by counsel that there may be defenses available to him that differ from those available to the Company or other indemnified parties or otherwise that the potential exists for a conflict between Kupperman and the Company and/or such other indemnified persons, then Kupperman shall be entitled to retain one firm of legal counsel on his behalf at the Company's expense. Kupperman shall not compromise or settle any Mr. Mitchell J. Kupperman December 1, 1995 Page 10 action for which indemnification may be available without the Company's prior written consent, which shall not be unreasonably withheld. Such indemnification shall be conditional on Kupperman reasonably cooperating with the Company with respect to any matter for which indemnification is available. Kupperman's rights to obtain indemnification from the Company under this Section 9 shall be in addition to, and not in lieu of, any right that Kupperman may have to obtain indemnification from the Company under the Company's Restated Certificate of Incorporation and Amended and Restated By-laws, each as in effect on the date hereof, under any other agreement entered into by Kupperman with the Company, or under any other applicable provision of law. 10. Non-Competition; Non-Solicitation; Consultation. Provided that the ----------------------------------------------- Closing occurs, in consideration of the payment referred to in Section 10(d) below: (a) Kupperman agrees and covenants that for the period of time commencing on the date of the Closing and ending on the third anniversary of such date (the "Non-Compete Period") he will not, directly or indirectly: (i) for his own account or as an employee, officer, director, partner, joint venturer, shareholder, investor, consultant or otherwise (except as an investor in a corporation whose stock is publicly traded and in which Kupperman holds less than 5% of the outstanding voting shares), engage in the business of owning, managing or operating convenience stores in Massachusetts, Connecticut, Hudson Valley in New York State, Rhode Island, Ohio, Southern and Middle Michigan, Kentucky, Southern Indiana, Western Pennsylvania, Tennessee or North Carolina (the "Covered Areas"), such geographical areas constituting places in which the Company conducts business as of the date hereof; (ii) solicit the employment of any current employee of the Company or any employee who first enters the employ of the Company during such period; provided, that such prohibition shall not apply to any employee who has left the employ of the Company; (iii) induce or encourage any current employee of the Company or any employee who first enters the employ of the Company during such period to leave the employ of the Company; or (iv) interfere in a material manner with any material business relationship in any Covered Area between the Company and any third party, including any shareholder or any creditor of the Company. (b) The Company and Kupperman acknowledge and agree that the provisions of Section 10(a) hereof are reasonable because the scope thereof encompasses only the business of the Company as conducted on the date hereof and they are limited to the locations in which the Company does business as of the date hereof. Mr. Mitchell J. Kupperman December 1, 1995 Page 11 (c) Notwithstanding anything contained in this Section 10 to the contrary, if the period of time or the geographical areas specified in Section 10(a) hereof is determined to be unreasonable in any proceeding before any court or agency legally empowered to enforce the provisions of this Section 10, then the period of time and area of the restriction shall be reduced so that this Agreement may be enforced in such area and during such period of time as shall be determined to be reasonable; provided, however, that such reduction shall not -------- ------- extend to any period of time or jurisdiction where such reduction is unnecessary to make the period of time or the geographical area specified in Section 10(a) enforceable therein. (d) As compensation for the matters referred to in this Section 10, the Company shall pay to Kupperman at the Closing a non-refundable sum of $240,000 by wire transfer of federal funds to an account designated by Kupperman. 11. Special Bonus. In conformity with the Special Bonus paid to Messrs. ------------- Stein and Landry pursuant to Section 6 of each of their employment agreements with the Company, both dated September 14, 1995, the Company has paid a Special Bonus to Kupperman for the six month financial period ended July 29, 1995 of $131,500. 12. Deductions and Withholding. Kupperman agrees that the Company shall -------------------------- withhold from any and all payments required to be made to Kupperman pursuant to this letter agreement, all federal, state, local and/or other taxes which the Company determines are required to be withheld in accordance with applicable statutes and/or regulations from time to time in effect. 13. Miscellaneous. This letter agreement supersedes in its entirety all ------------- previous employment, severance or other agreements between the parties hereto relating to the subject matter set forth herein, and shall be governed by the internal substantive laws of the Commonwealth of Massachusetts and shall inure to the benefit of, and be binding upon, the heirs, personal representatives, executors, administrators, successors and permitted assigns of the parties hereto. This letter agreement shall be enforceable by Kupperman's person or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Kupperman should die while any amount or benefit would still be payable or available to Kupperman under this letter agreement if Kupperman had continued to live, any such amount or benefit shall be paid or made available in accordance with the terms of this letter agreement to Kupperman's devisees, legatees or Mr. Mitchell J. Kupperman December 1, 1995 Page 12 other designees or, if there is no such designee, to Kupperman's estate. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this letter agreement in the same manner and to the same extent as required of the Company. The rights and obligations of any party under this letter agreement may only be assigned with the prior written consent of each of the other parties hereto. This letter agreement may only be modified or amended pursuant to a written instrument signed by all of the parties hereto. If the foregoing accurately reflects our understanding, please so acknowledge by countersigning this letter agreement in the space provided for your signature below, whereupon this letter agreement shall become our legally binding agreement. Very truly yours, /s/ Robert B. Stein, Jr. ----------------------------------------- Robert B. Stein, Jr. /s/ Gregory G. Landry ----------------------------------------- Gregory G. Landry DAIRY MART CONVENIENCE STORES, INC. By: /s/ Robert B. Stein, Jr. -------------------------------------- Title: President Accepted and Agreed to as of this 1st day of December, 1995: /s/ Mitchell J. Kupperman - ------------------------------ Mitchell J. Kupperman EX-10.10 10 FIRST AMENDMENT TO PTNR AGMT 12/1/95 EXHIBIT 10.10 FIRST AMENDMENT TO PARTNERSHIP AGREEMENT OF NEW DM MANAGEMENT ASSOCIATES I --------------------------------- This Agreement is made as of the 1st day of December, 1995 between Robert B. Stein, Jr., Gregory G. Landry and Mitchell J. Kupperman. PREAMBLE -------- New DM Management Associates I (the "Partnership") was formed as of September 8, 1994 by the execution of a Partnership Agreement by Charles Nirenberg and the parties hereto (the "Partnership Agreement"). Contemporaneously herewith, Charles Nirenberg is withdrawing from the Partnership. This Agreement is an amendment to the Partnership Agreement which sets forth certain amended terms that have been agreed upon in conjunction with the withdrawal of Charles Nirenberg from the Partnership. Capitalized terms used herein which are not defined herein shall have the meanings ascribed to them in the Partnership Agreement. WITNESSETH: ---------- NOW, THEREFORE, the parties hereto have agreed as follows: 1. Section 2.2 of the Partnership Agreement is hereby amended by deleting the reference to Charles Nirenberg and substituting therefor a reference to Gregory G. Landry. 2. Section 3.8 of the Partnership Agreement is hereby amended to remove the reference therein to Charles Nirenberg and to provide that the Standard Allocation shall be 33.33% to Robert B. Stein, Jr., 33.33% to Gregory G. Landry and 33.33% to Mitchell J. Kupperman. 3. Exhibit A to the Partnership Agreement is hereby amended to remove the reference therein to Charles Nirenberg and to provide that the Percentage Interests of Robert B. Stein, Jr., Gregory G. Landry and Mitchell J. Kupperman shall be 33.33% each. 4. Section 7.1(a) of the Partnership Agreement is hereby amended to provide that Robert B. Stein, Jr. shall serve as Managing Partner, on the same terms and with the same authority as was provided for Charles Nirenberg under the Partnership Agreement. -2- 5. Section 7.1(b) of the Partnership Agreement is hereby deleted and the following new Section 7.1(b) is inserted in its place: (b) The Managing Partner shall take such action as he deems necessary to provide for and supervise the operation of the Property and to manage the Partnership for the purposes set forth in Section 2.1, including, but not limited to, exercising on behalf of the Partnership, any and all authority and rights granted to the Partnership, as general partner of DM Associates Limited Partnership ("DM Associates"), a Connecticut limited partnership, pursuant to the Agreement of Limited Partnership of DM Associates Limited Partnership, except that the Managing Partner shall not, and shall not have the authority to, vote or exercise consensual rights or direct the voting or exercise of consensual rights of any DMCS Shares, as defined in the Partnership Agreement of DM Associates (the "DMCS Shares"), that the Partnership has the power and authority to vote pursuant to such Partnership Agreement, as to any matter, unless such vote or exercise of consensual rights by the Managing Partner is agreed to by Partners representing more than 50% of the Partner Percentage Interests (and the Managing Partner shall vote (or direct the voting of) such DMCS Shares, or shall exercise consensual rights (or direct the exercise of consensual rights) in connection with such DMCS Shares in such manner as Partners representing more than 50% of the Partner Percentage Interests shall direct). If the Managing Partner fails to vote (or direct the voting of) or exercise consensual rights with respect to (or direct the exercise of consensual rights with respect to) DMCS Shares that the Partnership has the power and authority to vote, in such manner as Partners representing more than 50% of the Partner Percentage Interests shall direct, then such DMCS Shares may be voted by ballot, proxy, or consent executed by Partners representing more than 50% of the Partner Percentage Interests. Notwithstanding anything in this Section 7.1(b) to the contrary, any of the DMCS Shares that the Partnership has the power and authority to vote pursuant to the Partnership Agreement of DM Associates that are Pledged Shares shall be voted in accordance with the Majority of Other Shares Procedure. As used herein, "Pledged Shares" shall mean DMCS Shares that are pledged by DM Associates to the Company as security for indebtedness of the Partnership to the Company. The Managing Partner agrees to manage and control the affairs of the Partnership to the best of his ability and to conduct the operations contemplated by this Agreement in a careful and prudent manner. The Managing Partner shall devote to the Partnership business all such time -3- and effort as shall be required to operate and manage the business of the Partnership effectively and to carry out the purposes set forth in Section 2.1. As used herein, the "Majority of Other Shares Procedure" shall be as follows: (i) At any meeting of the shareholders of the Company, the Partnership shall cause one preliminary calculation (each, a "Preliminary Calculation") to be made not less than 5 minutes after the commencement of voting upon each election, proposal or other matter (each, a "Proposal") to be voted on at such meeting by holders of shares of Class B Common Stock of the Company, in order to determine the manner in which the shares of Class B Common Stock of the Company voted at such meeting, including the DMCS Shares owned by DM Associates, other than the Pledged Shares (the "Other Class B Shares"), have been voted on each Proposal; (ii) Upon completing the Preliminary Calculation and determining the percentage of the Other Class B Shares that were voted for or against a Proposal (and in an election, for or against the election of any person), the Partnership shall vote the same percentage of the Pledged Shares for and against the Proposal as the percentage of Other Class B Shares in the Preliminary Calculation that were voted for and against the Proposal; for such purpose, the percentage of the Other Class B Shares that were voted for or against a Proposal shall be calculated based upon (a) the total number of outstanding shares of Class B Common Stock on the record date of the shareholders meeting, if Delaware law or the Company's Certificate of Incorporation or Bylaws requires that the Proposal be approved by a specified percentage of all of the outstanding shares of Class B Common Stock or of the combined voting power of all outstanding shares of Class A Common Stock and Class B Common Stock of the Company, or (b) the number of Other Class B Shares that are present (in person or by proxy) and voting at the meeting of the shareholders, if subclause (a) of this Section 7.1(b)(ii) is not applicable; and (iii) With respect to any action proposed to be taken by the written consent of the holders of (a) the Class B Common Stock of the Company, or (b) the Class A and B Common Stock of the Company, the same percentage of Pledged Shares shall consent to the proposed action as the percentage of all outstanding Other Class B Shares that have consented to such action; for such purpose, the total number of outstanding shares of Class -4- B Common Stock shall be determined as of the record date for the taking of such action. 6. The parties acknowledge that a Termination Event has occurred and that the limitations set forth in Section 7.2(c) with respect to the sale or disposition of Excluded Shares, are no longer in effect. 7. Section 8.5 of the Partnership Agreement is hereby amended to provide that Robert B. Stein, Jr. is hereby designated as the Tax Matters Partner. 8. The parties hereto agree to continue the business of the Partnership, notwithstanding the withdrawal of Charles Nirenberg from the Partnership. 9. The following is hereby deleted from Section 10.2: "in the event Gregory Landry and the Managing Partner each furnish a written consent to such modification or amendment, Mr. Landry's consent will be considered null and void and shall be deemed to not have been cast; provided further, however,". 10. Section 10.6 of the Partnership Agreement is hereby deleted and the following new Section 10.6 is inserted in its place: 10.6 ENTIRE AGREEMENT. This Agreement, together with the Partnership Agreement and the letter from Charles Nirenberg to FCN Properties Corporation, DM Associates Limited Partnership, New DM Management Associates I, New DM Management Associates II, The Nirenberg Family Charitable Foundation, Inc. (k/n/a The Nirenberg Foundation, Inc.), HNB Investment Corp., Mr. Gregory G. Landry, Mr. Robert B. Stein, Jr., and Mr. Mitchell J. Kupperman, dated January 25, 1995 and agreed to in writing by such addressees, a copy of which is attached hereto as Exhibit A, --------- constitute the entire agreement among the parties with respect to the subject matter hereof and thereof and supersedes any prior agreement or understanding among them, oral or written. 11. References in Sections 1.8, 1.17 and 6.5 of the Agreement to Charles Nirenberg are hereby deleted. Section 1.13 of the Partnership Agreement is hereby amended by deleting the reference to Charles Nirenberg and substituting therefor a reference to Robert B. Stein, Jr. -5- 12. Any notice required with respect to any of the matters set forth herein is hereby waived. 13. Except to the extent expressly amended herein, the Partnership Agreement shall continue in full force and effect in accordance with its terms. IN WITNESS WHEREOF, the parties have executed this Agreement this 1st day of December, 1995. /s/ Robert B. Stein, Jr. ----------------------------------------- Robert B. Stein, Jr. /s/ Gregory G. Landry ----------------------------------------- Gregory G. Landry /s/ Mitchell J. Kupperman ----------------------------------------- Mitchell J. Kupperman The undersigned Class B limited partners of DM Associates Limited Partnership consent to this First Amendment to Partnership Agreement of New DM Management Associates I. THE NIRENBERG FOUNDATION, INC. By /s/ Charles Nirenberg --------------------------------------- Charles Nirenberg Its President December 1, 1995 /s/ Charles Nirenberg ----------------------------------------- Charles Nirenberg December 1, 1995 EX-27 11 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from Consolidated Statements of Operations and Consolidated Balance Sheets and is qualified in its entirety by reference to such financial statements. 1,000 9-MOS FEB-03-1996 JAN-29-1995 OCT-28-1995 15,666 2,131 15,224 1,761 19,820 53,181 111,398 35,733 166,679 43,902 87,874 63 0 0 24,350 166,679 542,928 428,194 309,649 415,974 0 450 6,982 2,734 (1,231) 1,503 0 0 0 1,503 0.26 0.26
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