<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended June 26, 1997
Commission File Number 33-72574
THE PANTRY, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 56-1574463
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1801 DOUGLAS DRIVE, SANFORD, NORTH CAROLINA
(Address of principal executive offices)
27330
(Zip Code)
(919) 774-6700
(Registrant's telephone number, including area code)
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
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $0.01 Par Value 114,029 shares
(Class) (Outstanding at July 31, 1997)
<PAGE>
THE PANTRY, INC.
Form 10-Q
June 26, 1997
Table of Contents
Part I - Financial Information
<TABLE>
<CAPTION>
Item 1. Financial Statements
<S> <C>
Consolidated Balance Sheets...................................................................2
Consolidated Statements of Operations.........................................................4
Consolidated Statements of Cash Flows.........................................................5
Notes to Consolidated Financial Statements....................................................7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..............................................................9
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K.............................................................13
</TABLE>
<PAGE>
PART I - Financial Information.
Item 1. Financial Statements.
THE PANTRY, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
September 26, June 26,
1996 1997
(Audited) (Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 5,338 $ 6,134
Receivables 2,860 2,961
Inventories 13,223 15,637
Prepaid expenses 775 960
Income taxes receivable 63 --
Property held for sale 2,816 8,168
Deferred income taxes 879 --
Total current assets 25,954 33,860
Property and equipment, net 65,455 72,085
Other assets:
Goodwill, net 16,852 20,565
Deferred lease cost, net 359 325
Deferred financing cost, net 5,940 6,077
Environmental receivables, net 5,162 5,162
Deferred income taxes 790 1,505
Other 368 329
Total other assets 29,471 33,963
$120,880 $139,908
</TABLE>
See Notes to Consolidated Financial Statements.
2
<PAGE>
THE PANTRY, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
September 26, June 26,
1996 1997
(Audited) (Unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Current maturities of long-term debt $ 16 $ 32
Current maturities of capital lease obligations 285 285
Line of credit -- 5,645
Accounts payable:
Trade 15,666 16,640
Money orders 2,788 3,154
Accrued interest 4,416 1,489
Accrued compensation and related taxes 2,338 3,228
Other accrued taxes 2,135 1,455
Accrued insurance 3,629 4,251
Other accrued liabilities 1,194 1,256
Total current liabilities 32,467 37,435
Long-term debt 100,148 100,314
Other non-current liabilities:
Environmental reserve 6,232 6,494
Capital lease obligations 982 755
Employment obligations 2,039 1,590
Accrued dividends on preferred stock 2,654 6,414
Other 3,905 4,584
Total other non-current liabilities 15,812 19,837
Shareholders' deficit:
Preferred stock, $.01 par value, 150,000 shares authorized; 25,999 issued and
outstanding at September 26, 1996 and
43,499 issued and outstanding at March 27, 1997 -- --
Common stock, $.01 par value, 300,000 shares authorized;
114,029 issued and outstanding 1 1
Additional paid in capital (10,557) 5,383
Accumulated deficit (16,991) (23,062)
Total shareholders' deficit (27,547) (17,678)
$ 120,880 $ 139,908
</TABLE>
See Notes to Consolidated Financial Statements.
3
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THE PANTRY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 27, June 26, June 27, June 26,
1996 1997 1996 1997
(13 weeks) (13 weeks) (39 weeks) (39 weeks)
<S> <C> <C> <C> <C>
Revenues:
Merchandise sales $ 50,351 $ 52,562 $ 135,611 $ 144,679
Gasoline sales 52,301 57,132 139,975 158,970
Commissions 998 1,338 3,019 3,624
Total revenues 103,650 111,032 278,605 307,273
Cost of sales:
Merchandise 34,196 34,552 91,007 95,384
Gasoline 45,617 51,166 121,886 143,084
Total cost of sales 79,813 85,718 212,893 238,468
Gross profit 23,837 25,314 65,712 68,805
Operating expenses:
Store expenses 14,002 14,959 42,893 43,644
General and administrative expenses 5,363 4,237 14,615 12,715
Depreciation and amortization 2,333 2,310 6,874 6,808
Total operating expenses 21,698 21,506 64,382 63,167
Income from operations 2,139 3,808 1,330 5,638
Other income (expense):
Interest (2,604) (3,284) (8,906) (9,763)
Miscellaneous (347) 517 (138) 1,236
Total other expense (2,951) (2,767) (9,044) (8,527)
Income (loss) before income taxes (812) 1,041 (7,714) (2,889)
Income tax benefit (expense) (286) (208) 1,392 578
Net income (loss) $ (1,098) $ 833 $ (6,322) $ (2,311)
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE>
THE PANTRY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
June 27, June 26,
1996 1997
(39 weeks) (39 weeks)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $(6,322) $(2,311)
Adjustments to reconcile net loss to net cash provided by (used in) operating
activities:
Depreciation and amortization 6,874 6,808
(Gain) loss on sale of property and equipment 268 (467)
Reserves for environmental issues 73 72
Reserves for closed stores 285 59
Write-off of property held for sale 125 --
Amortization of deferred revenues (1,011) (949)
(Increase) decrease in:
Receivables (249) (64)
Inventories (848) (1,019)
Prepaid expenses 4 (184)
Income taxes receivable (392) (644)
Other assets 262 26
Increase (decrease) in:
Accounts payable - trade 3,756 974
Accounts payable - money orders 778 366
Accrued interest (3,451) (2,927)
Accrued compensation and related taxes 393 890
Income taxes payable (657) --
Other accrued taxes 4 (681)
Accrued insurance 342 623
Employment obligations (71) (449)
Other accrued liabilities (246) 63
Other liabilities 1,831 1,739
Net cash provided by (used in) operating activities 1,748 1,925
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE>
THE PANTRY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
Nine Months Ended
June 27, June 26,
1996 1997
(39 weeks) (39 weeks)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property held for sale (3,362) (6,737)
Additions to property and equipment (5,447) (9,003)
Cash paid for businesses acquired -- (9,526)
Proceeds from sale of property held for sale 1,385 1,274
Proceeds from sale of property and equipment 1,421 1,406
Net cash provided by (used in) investing activities (6,003) (22,586)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under capital lease obligations (270) (227)
Principal payments on long-term debt (16) (18)
Proceeds from issuance of long-term debt -- 200
Proceeds from line of credit, net 2,585 5,645
Net proceeds (payments) related to equity issue (285) 15,941
Other financing costs (3,030) (84)
Net cash provided by (used in) financing activities (1,016) 21,457
Net increase (decrease) in cash (5,271) 796
CASH AT BEGINNING OF PERIOD 10,999 5,338
CASH AT END OF PERIOD $ 5,728 $ 6,134
See Notes to Consolidated Financial Statements.
6
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THE PANTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. The interim consolidated financial statements have
been prepared from the accounting records of The Pantry, Inc. and its
subsidiaries (the Company) and all amounts at June 26, 1997 and for the
comparative three and nine month periods are unaudited. Certain
information and note disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. 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 interim financial statements be read in conjunction with the
consolidated financial statements and the notes thereto included in the
Company's annual report on Form 10-K for the year ended September 26,
1996 and the Company's quarterly reports on Form 10-Q for the quarterly
periods ended December 26, 1996 and March 27, 1997.
2. The results of operations for the three and nine month periods ended June
26, 1997 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 higher levels of revenues and profit margins
during the summer months than during the winter months. Historically, the
Company has achieved higher revenues and earnings in its third and fourth
quarters.
3. Inventories are stated at the lower of last-in, first-out (LIFO) cost or
market. Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
September 26, June 26,
1996 1997
(Audited) (Unaudited)
<S> <C> <C>
Inventories at FIFO cost:
Merchandise $ 13,841 $ 16,180
Gasoline 4,013 4,691
17,854 20,871
Less adjustment to LIFO cost:
Merchandise (4,012) (4,352)
Gasoline (619) (882)
Inventories at LIFO cost $ 13,223 $ 15,637
</TABLE>
4. Environmental reserves of $6.2 million and $6.5 million as of September
26, 1996 and June 26, 1997 represent estimates for future expenditures
for remediation, tank removal and litigation associated with all known
contaminated sites as a result of releases (e.g., overfills, spills and
underground storage tank releases) and are based on current regulations,
historical results and certain other factors. The Company anticipates
that it will be reimbursed for a portion of these expenditures from state
insurance funds and private insurance. These anticipated reimbursements
of $5.2 million are recorded as long-term environmental receivables.
5. On December 30, 1996, the Company issued 17,500 shares of Series B
Preferred Stock, $0.01 par value, for $17.5 million (see Management's
Discussion and Analysis of Financial Condition and Results of Operations;
Liquidity and Capital Resources; Preferred and Common Stock). The Company
used the net proceeds of $16 million to fund acquisitions, existing store
remodels and new store development. This transaction increases the total
number of shares of Preferred Stock issued and outstanding to 43,499
consisting of 25,999 outstanding shares of Series A Preferred Stock and
17,500 outstanding shares of Series B Preferred Stock.
Under the terms of the Series A Preferred Stock, holders of the
outstanding shares are entitled to receive cumulative dividends in an
amount equal to sixty dollars ($60) per share per semi-annual calendar
period plus an amount determined by applying a 12% annual rate compounded
semi-annually to any accrued but unpaid dividend amount from the last day
of the semi-annual calendar period when such dividend accrues to the
actual
6
<PAGE>
date of payment of such dividend. In accordance with these terms,
the Company has accrued $5,258,271 of Series A Preferred Stock dividends
as of June 26, 1997.
Under the terms of the Series B Preferred Stock, holders of the
outstanding shares are entitled to receive cumulative dividends in an
amount equal to thirty-two dollars and fifty cents ($32.50) per share per
quarterly calendar period plus an amount determined by applying a 13%
annual rate compounded quarterly to any accrued but unpaid dividend
amount from the last day of the quarterly calendar period when such
dividend accrues to the actual date of payment of such dividend. In
accordance with these terms, the Company has accrued $1,155,984 of
Series B Preferred Stock dividends as of June 26, 1997.
6. In four separate and unrelated transactions, the Company acquired
thirty-two (32) convenience stores in existing markets in North and South
Carolina. The Company acquired the operating rights, leases, certain
equipment, inventory and certain real estate. The real estate purchased
is classified as property held for resale in the Company's financial
statements and sale and leaseback transactions are expected within the
next twelve months. The Company paid $14.7 million for the assets with
values attributed as follows (in thousands):
Property held for resale $ 5,150
Plant, property and equipment 3,974
Inventory 1,395
Value of tangible assets purchased 10,519
Cash paid in excess of value - goodwill 4,157
Cash paid for businesses acquired $ 14,676
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Revenues. Total revenues for the quarter and nine month periods ended
June 26, 1997 were 7% and 10% higher, respectively, than the comparable periods
ended June 27, 1996 (the "comparable periods in 1996"), despite a 4% decline in
average store count. The increase in revenues can be attributed to improved
store conditions including merchandising, competitiveness and overall store
appearance.
Total merchandise revenue for both the quarter and nine month periods
ended June 26, 1997 was 4% and 7% higher, respectively, than the comparable
periods in 1996. Same store merchandise revenues for the quarter and nine month
periods ended June 26, 1997 increased 6% and 9% over the comparable periods in
1996. The increase in merchandise sales can be attributed to improved volume in
major product categories, enhanced store merchandising and increased promotional
activity.
Gasoline revenues increased 9% and 14% for the quarter and nine month
periods ended June 26, 1997 over the comparable periods in 1996 due primarily to
increases in gasoline volume (gallons). In the quarter ended June 26, 1997
("third fiscal quarter 1997"), total gasoline volume and same store gallons
increased 18% and 13%, respectively. For the nine month period ended June 26,
1997 ("first fiscal nine months 1997"), total gasoline volume and same store
gallons increased 9% and 7%, respectively. The increase in gallons can be
attributed to a more competitive retail pricing strategy and a comparatively
milder winter in the Company's major markets. Commission revenues increased 34%
and 20% for the quarter and nine month periods ended June 26, 1997 over the
comparable periods in 1996 due to increases in money order, amusement and other
miscellaneous commission income.
Gross Profit. Gross profit for the quarter and nine month periods ended
June 26, 1997 increased 6% and 5%, respectively, compared to the comparable
periods in 1996, despite a 11% and 12% decline in gasoline gross profit,
respectively. The gasoline gross profit decline was offset by an increase in
merchandise gross profit attributable to increased revenue and higher average
gross margin. The increase in merchandise gross margin reflects changes in
merchandise mix and increased controls to lower inventory shrinkage. The decline
in gasoline margin per gallon is the result of general gasoline market
conditions, price competition from other gasoline marketers and a more
competitive gasoline pricing strategy.
Store Operating and General and Administrative Expenses. Store
operating expenses increased 7% and 2% for the quarter and nine month periods
ended June 26, 1997, respectively, compared to the comparable periods in 1996
due to increases in wage, repair & maintenance, rent and equipment lease
expenses. General and administrative expenses for the quarter and nine month
periods ended June 26, 1997 decreased over the comparable periods in 1996, both
in total dollars and as a percentage of merchandise sales. The decline in
general and administrative expenses was primarily due to lower employee related
expenses and lower general office expenses.
Income from Operations. Income from operations increased from $2.1
million in the third fiscal quarter 1996 to $3.8 million in the third fiscal
quarter 1997 for an increase of $1.7 million or 78%. The increase is primarily
due to increased merchandise gross profit, increased commission revenues and
lower administrative expenses as noted above. For the nine month period ended
June 26, 1997, income from operations totaled $5.6 million, a $4.3 million or
324% increase over the comparable period in 1996.
Earnings Before Interest, Taxes, Depreciation and Amortization
("EBITDA"). EBITDA represents income (loss) before interest expense, income tax
benefit (expense) and depreciation and amortization. EBITDA for the third fiscal
quarter 1997 was $6.6 million versus $4.1 million in the third fiscal quarter
1996. EBITDA for the first fiscal nine months 1997 was $13.7 million versus $8.1
million for the nine months ended June 27, 1996 ("first fiscal nine months
1996"). EBITDA increased over the comparable periods in 1996 primarily as a
result of the increase in income from operations discussed above. EBITDA in the
third fiscal quarter 1997 and nine months ended June 26, 1997 covered interest
expense 2.0 and 1.4 times, respectively.
Interest Expense (see Liquidity and Capital Resources; Long-Term Debt).
Interest expense is primarily interest on the $100 million of the Company's 12%
Senior Notes due 2000 (the "Notes") which is due and payable semi-annually on
May 15 and November 15. Interest expense increased $0.7 million and $0.9 million
for the quarter and nine month periods ended June 26, 1997, respectively, over
the comparable periods in 1996 as the rate on the Notes increased from 12% to
12.5% on December 27, 1996. The increase resulting from the rate increase was
partially offset by a decrease in the interest on the Company's Line of Credit
Facility as average borrowings were lower in the third fiscal quarter 1997 than
in the third fiscal quarter 1996.
8
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Liquidity and Capital Resources
Cash Flows from Operations. Due to the nature of the Company's
business, substantially all sales are for cash, and cash provided by operations
is the Company's primary source of liquidity. Currently, acquisition costs, new
store development, general capital expenditures and interest expense represent
the primary uses of Company funds. Cash provided by operating activities in the
first fiscal nine months 1997 increased primarily due to a $4 million lower net
loss from the first fiscal nine months 1996. The lower net loss was partially
offset by increases in the Company's merchandise inventory and higher weighted
average cost of gasoline inventory.
Line and Letter of Credit Facility. To supplement cash on hand and cash
provided by operating activities, the Company has a $25 million credit facility,
which will expire on January 31, 1998 consisting of a $10 million working
capital line of credit and a $15 million line of credit for issuance of standby
letters of credit to vendors, insurance companies, federal and state regulatory
agencies for self-insurance of workers compensation and for other letter of
credit needs. Up to $2.5 million of the standby letter of credit facility can be
used as an additional working capital line of credit. As of June 26, 1997, there
was a $5.6 million outstanding balance under the $10 million working capital
line of credit and approximately $8.2 million of letters of credit were issued
under the standby letter of credit facility.
Capital Expenditures. For the nine month period ended June 26, 1997,
capital expenditures totaled $25.3 million, primarily comprised of expenditures
for acquisition activity, existing store improvements, store equipment and new
store development. Of the $25.3 million, $14.7 million was expended to acquire
the operating rights, certain real estate, equipment and inventory of thirty-two
(32) convenience stores owned by four unrelated parties located within the
Company's existing markets. The remaining $10.6 million was expended to remodel
existing stores, acquire certain properties, and upgrade certain store
equipment. These activities are consistent with the Company's strategy to invest
through acquisition, new site development and upgrading existing store
facilities.
As of June 26, 1997, the Company has over $8.2 million in property held
for resale. Several of these properties are fully developed and sale-leaseback
transactions are expected within the next twelve months.
Long-Term Debt. The Company's long-term debt consists primarily of the
Notes. The interest payments on the Notes are due May 15 and November 15. The
Indenture, which governs the Notes, contains restrictive covenants that affect
the ability of the Company to expand its business. A Supplemental Indenture,
executed on December 4, 1995, by the Company and IBJ Schroder Bank & Trust
Company, as Trustee, became effective on December 30, 1996, when the Company
issued additional Qualified Capital Stock (as defined in the Indenture) raising
the total Qualified Capital Stock proceeds received since December 1995 to over
$22.6 million on or before December 31, 1996. The issuance of the additional
Qualified Capital Stock caused the Supplemental Indenture to become effective.
The Supplemental Indenture amends the Indenture as follows: (i)
permitted borrowings under Section 4.10(b) of the Indenture are increased from
$25 million to $35 million and the purposes for which such borrowings can be
used is expanded; (ii) borrowings permitted under Section 4.10(d) of the
Indenture are increased from $5 million to $10 million, the purposes for which
such borrowings can be used are expanded to include capital expenditures
generally (rather than furniture, fixtures and equipment) and the restriction
that all such borrowings be non-recourse to the Company is removed; (iii) the
time period in which proceeds of Asset Sales (as defined in the Indenture) can
be reinvested is increased and the amount of Asset Sales for which no prepayment
of the Notes is required under Section 4.13 of the Indenture is increased to
facilitate potential sale/leaseback transactions; (iv) the limitations on
Restricted Payments (as defined in the Indenture) are modified to allow the
Company to make loans to employees to purchase Company stock and to allow the
Company to repurchase stock from employees when their employment with the
Company terminates; (v) the Company is required to own a minimum of 112
convenience store properties at all times; and (vi) the interest rate payable on
the Notes will increase if the Consolidated Fixed Charge Coverage Ratio falls
for a Measurement Period ("the Coverage Ratio", as defined in the Indenture)
below 1.63 to 1.
The Company's Coverage Ratio for the Measurement Period for the twelve
months ending December 26, 1996 was .93 to 1, resulting in an increase in the
interest rate on the Notes from 12% to 12.5% for the period beginning December
27, 1996 and ending June 26, 1997. The Coverage Ratio for the Measurement Period
for the twelve months ending June 26, 1997 was 1.24 to 1, indicating an
improvement in the ratio though not sufficient to trigger a decline in the
interest rate. Since the Coverage Ratio does not equal or exceed 1.63 to 1, the
interest rate on the Notes will continue to be 12.5% through December 1997. The
incremental 0.5% interest accruing from May 16 through June 26, 1997 will be
paid on November 15, 1997.
The $0.2 million increase in long-term debt results from permitted
borrowings under the Notes to acquire property and convenience stores. The debt
is secured by the property with principal and interest payments monthly.
9
<PAGE>
Preferred and Common Stock. In a series of transactions during fiscal
1996, Freeman Spogli & Co. Incorporated, through its affiliates, FS Equity
Partners III, L.P., a Delaware limited partnership ("FSEP III") and FS Equity
Partners International, L.P., a Delaware limited partnership ("FSEP
International," collectively with FSEP III, "the FS Group," the FS Group
collectively with Freeman Spogli & Co. Incorporated, "FS&Co.") and Chase
Manhattan Capital Corporation ("Chase") purchased all of the newly issued
preferred stock and 95.4% of the outstanding common stock of the Company. A
partnership of which Mr. Christopher C. Behrens, a director of the Company and
an affiliate of Chase, is a partner owns 4.6% of the common stock.
On December 30, 1996, subsequent to the end of the Company's first
quarter fiscal 1997, the Company issued and FS&Co. purchased 17,500 shares of
Series B Preferred Stock for $17.5 million. The Company used the net proceeds of
$16 million to fund acquisitions, existing store remodels and new store
development. As a result of this transaction, the Company has issued and
outstanding (i) 114,029 shares of common stock, (ii) 25,999 shares of Series A
Preferred Stock, and (iii) 17,500 shares of Series B Preferred Stock.
Environmental Considerations. The Company is subject to various
federal, state and local environmental laws. Federal, state, and local
regulatory agencies have adopted regulations governing underground petroleum
storage tanks ("USTs") that require the Company to make certain expenditures for
compliance. Regulations enacted by the EPA in 1988 established requirements for
(i) installing UST systems; (ii) upgrading UST systems; (iii) taking corrective
action in response to releases; (iv) closing UST systems; (v) keeping
appropriate records; and (vi) maintaining evidence of financial responsibility
for taking corrective action and compensating third parties for bodily injury
and property damage resulting from releases. UST systems upgrading consists of:
installing and employing leak detection equipment and systems, upgrading UST
systems for corrosion protection and installing overfill/spill prevention
devices.
In addition to the technical standards, the Company is required by
federal and state regulations to maintain evidence of financial responsibility
for taking corrective action and compensating third parties in the event of a
release from its UST systems. In order to comply with the applicable
requirements, the Company maintains a letter of credit in the aggregate amount
of $2.1 million issued by a commercial bank in favor of state environmental
agencies in the states of North Carolina, South Carolina, Tennessee, Kentucky
and Indiana and relies upon the reimbursement provisions of applicable state
trust funds.
The Company believes it is in full or substantial compliance with
the leak detection requirements applicable to its USTs. The Company anticipates
that it will meet the 1998 deadline for installing corrosion protection and
spill/overfill equipment for all of its USTs and has budgeted approximately $2.0
million of capital expenditures for these purposes over the next two fiscal
years. Additional regulations or amendments to the existing UST regulations
could result in future revisions to the estimated upgrade compliance and
remediation costs outlined above.
All states in which the Company operates or has operated UST systems
have established trust funds for the sharing, recovering and reimbursing of
certain cleanup costs and liabilities incurred as a result of releases from UST
systems. These trust funds, which essentially provide coverage for taking
corrective action and compensating third parties in the event of a release from
its UST systems, are funded by a UST registration fee and a tax on the wholesale
purchase of motor fuels within each state. The Company has paid UST registration
fees and gasoline taxes to each state where it operates to participate in these
trust programs and the Company has filed claims and received reimbursement in
North Carolina, South Carolina, Tennessee and Kentucky. The coverage afforded by
each state fund varies but generally provides for up to $1 million per site for
the cleanup of environmental contamination, and most provide coverage for third
party liability subject to applicable deductibles. Costs for which the Company
does not receive reimbursement include but are not limited to: (i) the per-site
deductible; (ii) costs incurred in connection with releases occurring or
reported to trust funds prior to their inception; (iii) removal and disposal of
UST systems; and (iv) costs incurred in connection with sites otherwise
ineligible for reimbursement from the trust funds. The trust funds require the
Company to pay deductibles ranging from $10,000 to $100,000 per occurrence
depending on the upgrade status of its UST system, the date the release is
discovered/reported and the type of cost for which reimbursement is sought.
Reimbursements from state trust funds will be dependent upon the continued
maintenance and solvency of the various funds.
---------------------------------------
While no assurances can be given in this regard, management believes
that cash on hand, together with cash flow anticipated to be generated from
operations, short-term borrowing for seasonal working capital needs, sale and
leaseback programs, permitted borrowings under the Indenture and by its
Unrestricted Subsidiary will be adequate to
10
<PAGE>
fund existing store remodels, new store development, future acquisitions, its
debt service requirements and the other operating requirements of the Company
over the next twelve months.
11
<PAGE>
Part II - Other Information.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
3.1 Restated Certificate of Incorporation, including
Certificates of Designation of Preferences of the
Series A and Series B Preferred Stock
27.1 Financial Data Schedule.
(b) Reports on Form 8-K.
None.
12
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THE PANTRY, INC.
Date: July 31, 1997 By: \s\ William T. Flyg
William T. Flyg
Senior Vice President Finance and Secretary
(Authorized Officer and Principal Financial Officer)
13
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EXHIBIT INDEX
Exhibit No. Description of Document
3.1 Restated Certificate of Incorporation, including Certificates
of Designation of Preferences of the Series A and Series B
Preferred Stock
27.1 Financial Data Schedule.
<PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF
THE PANTRY, INC.
The Pantry, Inc., a corporation organized and existing under the laws
of the State of Delaware, hereby certifies the following:
1. The name of the Corporation is "The Pantry, Inc." and the name under
which the Corporation was originally incorporated is "Montrose Pantry
Acquisition Corporation." The date of filing of its original Certificate of
Incorporation with the Secretary of State was July 13, 1987.
2. This Restated Certificate of Incorporation restates and integrates
and further amends the Certificate of Incorporation of this Corporation. The
text of the Certificate of Incorporation as amended or supplemented heretofore
and as further amended hereby shall read as herein set forth in full:
I.
The name of the Corporation is THE PANTRY, INC.
II.
The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of its registered agent at
such address is The Corporation Trust Company.
III.
The nature of the business or purposes to be conducted or promoted by
the Corporation is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of
Delaware.
IV.
A. The Corporation shall have the authority to issue Three Hundred
Thousand shares of common stock with the par value of one cent ($0.01)
per share.
B. The Corporation shall also have the authority to issue One Hundred
and Fifty Thousand shares of preferred stock with a par value of one
cent ($0.01) per
<PAGE>
share in one or more series with such preferences, limitations and
relative rights as may be determined by the board of directors prior to
the issuance of such stock.
V.
A director of the Corporation shall not be personally liable for
monetary damages for breach of his duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good
faith which involved intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the Delaware General Corporation Law or
(iv) for any transaction from which the director derives an improper
personal benefit.
VI.
A. Right to Indemnification. Each person who was or is made a party or
is threatened to be made a party to or is involved in any action, suit
or proceeding, whether civil, criminal administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or
a person of whom he or she is the legal representative, is or was a
director or officer of the Corporation or is or was serving at the
request of the Corporation as a director, officer, employee or agent of
another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans,
whether the basis of such proceeding is alleged action in an official
capacity as a director, officer, employee or agent or in any other
capacity while serving as a director, officer, employee or agent, shall
be indemnified and held harmless by the Corporation to the fullest
extent authorized by the Delaware General Corporation Law, as the same
exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than said law
permitted the Corporation to provide prior to such amendment), against
all expense, liability and loss (including attorneys' fees, judgements,
fines, ERISA excise taxes or penalties and amounts paid or to be paid
in settlement) reasonably incurred or suffered by such person in
connection therewith and such indemnification shall continue as to a
person who has ceased to be a director, officer, employee or agent and
shall inure to the benefit of his or her heirs, executors and
administrators; provided, however, that, except as provided in
paragraph B hereof, the Corporation shall indemnify any such person
seeking indemnification in connection with a proceeding (or part
thereof) initiated by such person only if such proceeding (or part
thereof) was authorized by the Board of Directors of the Corporation.
The right to indemnification conferred in this Section shall be a
contract right and shall include the right to be paid by the
Corporation the expense incurred in defending any such proceeding in
advance of its final disposition; provided, however, that, if the
Delaware General Corporation Law so requires, the payment of such
expenses incurred by a director or officer in his or her capacity as a
director or officer (and not in any other capacity in which
2
<PAGE>
service was or is rendered by such person while a director or officer,
including, without limitation, service to an employee benefit plan) in
advance of the final disposition of a proceeding, shall be made only
upon delivery to the Corporation of an undertaking, by or on behalf of
such director or officer, to repay all amounts so advanced if it shall
ultimately be determined that such director or officer is not entitled
to be indemnified under this Section or otherwise. The Corporation may,
by action of its Board of Directors, provide indemnification to
employees and agents of the Corporation with the same scope and effect
as the foregoing indemnification of directors and officers.
B. Right of Claimant to Bring Suit. If a claim under paragraph A. of
this Section is not paid in full by the Corporation within thirty days
after a written claim has been received by the Corporation, the
claimant may at any time thereafter bring suit against the Corporation
to recover the unpaid amount of the claim, and if successful in whole
or in part, the claimant shall be entitled to be paid also the expense
of prosecuting such claim. It shall be a defense to any such action
(other than an action brought to enforce a claim for expenses incurred
in defending any proceeding in advance of its final disposition where
the required undertaking, if any is required, has been tendered to the
Corporation) that the claimant has not met the standards of conduct
which make it permissible under the Delaware General Corporation Law
for the Corporation to indemnify the claimant for the amount claimed,
but the burden of proving such defense shall be on the Corporation.
Neither the failure of the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) to have made
a determination prior to the commencement of such action that
indemnification of the claimant is proper in the circumstances because
he or she has met the applicable standard of conduct set forth in the
Delaware General Corporation Law, nor an actual determination by the
Corporation (including its Board of Directors, independent legal
counsel, or its stockholders) that the claimant has not met such
applicable standard of conduct, shall be a defense to the action or
create a presumption that the claimant has not met the applicable
standard of conduct.
C. Non-Exclusivity of Rights. The right to indemnification and the
payment of expenses incurred in defending a proceeding in advance of
its final disposition conferred in this Section shall not be exclusive
of any other right which any person may have or hereafter acquire under
any statute, provision of the Certificate of Incorporation, by-law,
agreement, vote of stockholders or disinterested directors or
otherwise.
D. Insurance. The Corporation may maintain insurance, at its expense,
to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust
or other enterprise against any such expense, liability or loss,
whether or not the Corporation would have the power to indemnify such
person against such expense, liability or loss under the Delaware
General Corporation Law.
3
<PAGE>
VII.
In furtherance and not in limitation of the powers conferred by
statute, the board of directors of the Corporation shall have the power
to adopt, amend or repeal the bylaws of the Corporation.
VIII.
Section 203 of the Delaware General Corporation Law shall not be
applicable to the Corporation.
IX.
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation in the
manner now or hereafter prescribed by statute and all rights conferred
upon the stockholders hereunder granted and subject to this
reservation.
3. This Restated Certificate of Incorporation was duly approved by the
stockholders in accordance with Section 228 of the General Corporation Law of
the State of Delaware.
IN WITNESS WHEREOF, the said The Pantry, Inc. has caused this
certificate to be signed by Eugene B. Horne, Jr., its President and attested by
Mark W. King, Secretary, this 5th day of August, 1994.
THE PANTRY, INC.
/s/ Eugene B. Horne, Jr.
ATTEST: Eugene B. Horne, Jr., President
/s/ Mark C. King
Mark C. King, Secretary
4
<PAGE>
CERTIFICATE OF DESIGNATION OF
PREFERENCES OF THE
SERIES A PREFERRED STOCK
OF THE PANTRY, INC.
--------------------------------
Pursuant to Section 151 of the
General Corporation Law of the
State of Delaware
--------------------------------
The undersigned, W. Clay Hamner, does hereby certify as follows:
A. That W. Clay Hamner is, and at all times herein mentioned was, the
duly elected and acting Chairman and Chief Executive Officer of The Pantry,
Inc., a Delaware corporation (the "Corporation").
B. That the following resolution was duly adopted by the Board of
Directors of the Corporation (the "Board"):
RESOLVED, that pursuant to authority conferred upon the Board of
Directors by the Certificate of Incorporation of the Corporation, there is
hereby created a series of preferred stock of the Corporation, designated as
"Series A Preferred Stock", which series shall consist of Fifty Thousand
(50,000) shares, $0.01 par value per share. In addition to those set forth in
the Certificate of Incorporation of the Corporation, the shares of Series A
Preferred Stock shall have the powers and preferences, the participating,
optional or other special rights, and the qualifications, limitations or
restrictions set forth below:
1. Definitions. As used in this resolution, the following terms shall
have the meanings indicated:
(a) "Board" shall mean the Board of Directors of the Corporation.
(b) "Common Stock" shall mean the Common Stock, $0.01 par value, per
share issued or to be issued by the Corporation.
(c) "Corporation" shall mean The Pantry, Inc.
(d) "Original Issue Date" shall mean the date of the original issuance
of any shares of Series A Preferred Stock.
(e) "Series A Preferred Stock" shall mean the Series A Preferred Stock,
$0.01 par value per share, issued or to be issued by the Corporation.
<PAGE>
(f) "Subsidiary" shall mean any corporation at least fifty percent
(50%) of whose outstanding voting stock shall at the time be owned
directly or indirectly by the Corporation, or by one or more
Subsidiaries of the Corporation.
2. Dividends.
(a) The holders of shares of Series A Preferred Stock then outstanding
shall be entitled to receive, when, as and if declared by the Board,
out of funds legally available for the payment of dividends, cumulative
dividends in an amount equal to Sixty Dollars ($60.00) per share per
semi-annual calendar period, plus an amount determined by applying a
twelve percent (12%) annual rate compounded semi-annually to any
accrued but unpaid dividend amount from the last day of the semi-annual
calendar period when such dividend accrues to the actual date of
payment of such dividend, and no more. Such dividends on the
outstanding shares of Series A Preferred Stock shall be payable at such
intervals as the Board may from time to time determine (each of such
dates being a "dividend payment date") to the persons who are holders
of record of outstanding shares of Series A Preferred Stock on the
respective dividend payment dates. Each of such semi-annual dividends
(whether payable in cash or in stock) shall be fully cumulative and
shall accrue from day to day (whether or not declared) from the first
(1st) day of each semi-annual calendar period in which such dividend
may be payable as herein provided, except that with respect to the
first semi-annual calendar dividend, such dividend shall accrue from
the Original Issue Date. Dividends, when, as and if declared, may, at
the discretion of the Board, be payable in cash or by issuing
additional shares, including fractional shares, of Series A Preferred
Stock to the holders of record of outstanding shares of Series A
Preferred Stock, at the rate of one share for each One Thousand Dollars
($1,000.00) of dividend, and the issuance of such additional shares
shall constitute full payment of such dividends, with all holders
entitled to receive the same proportions of cash and shares of Series A
Preferred Stock if a dividend is payable in cash and shares or Series A
Preferred Stock. No dividend shall be declared, set aside or paid to
holders of any of the outstanding shares of the capital stock of the
Corporation, including without limitation, any outstanding shares of
Common Stock, unless at the same time a dividend in an amount equal to
all accrued but unpaid dividends as set forth above is declared and
paid to the holders of outstanding shares of Series A Preferred Stock.
(b) All dividends paid with respect to the outstanding shares of Series
A Preferred Stock pursuant to subparagraph 2(a) shall be paid pro rata
to the holders entitled thereto.
(c) Holders of outstanding fractional shares of Series A Preferred
Stock shall be entitled to a ratably proportionate amount of all
dividends accruing with respect to each outstanding share of Series A
Preferred Stock pursuant to subparagraph 2(a), and all of such
dividends with respect to such outstanding fractional shares shall be
fully cumulative and shall accrue (whether or not declared) and shall
be payable in the same manner and at such times as provided for in
subparagraph 2(a).
2
<PAGE>
3. Liquidation Rights of Series A Preferred Stock.
(a) In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the holders of
outstanding shares of Series A Preferred Stock shall be entitled to be
paid out of the assets of the Corporation available for distribution to
its stockholders, whether such assets are capital, surplus or earnings,
before any payment or declaration and setting apart for payment of any
amount shall be made in respect of the outstanding shares of Common
Stock, an amount equal to One Thousand Dollars ($1,000.00) per share of
Series A Preferred Stock then outstanding, plus all accrued but unpaid
dividends thereon to the date fixed for liquidation (whether or not
declared), and no more. If upon any liquidation, dissolution or winding
up of the Corporation, whether voluntary or involuntary, the assets to
be distributed among the holders of the outstanding shares of Series A
Preferred Stock shall be insufficient to permit the payment to such
stockholders of the full preferential amounts aforesaid, then the
entire assets of the Corporation to be distributed shall be distributed
ratably among the holders of outstanding shares of Series A Preferred
Stock based on the full preferential amounts for the number of
outstanding shares of Series A Preferred Stock held by each holder.
(b) After the payment or setting apart of the payment to the holders of
outstanding shares of Series A Preferred Stock of the preferential
amounts aforesaid, the holders of outstanding shares of Common Stock,
after payment or setting apart of any payments to outstanding shares of
preferred stock which are junior to the Series A Preferred Stock, shall
be entitled to receive ratably all the remaining assets of the
Corporation.
(c) A consolidation or merger of the Corporation with or into any other
corporation or corporations or a sale of all or substantially all of
the assets of the Corporation shall not be deemed to be a liquidation,
dissolution or winding up of the Corporation as those terms are used in
this paragraph 3 unless such consolidation, merger or sale shall be in
connection with a dissolution or winding up of the Corporation.
(d) The payment of preferential amounts pursuant to this paragraph 3
with respect to each outstanding fractional share of Series A Preferred
Stock shall be equal to a ratably proportionate amount of the
preferential amount payable with respect to each outstanding share of
Series A Preferred Stock.
3
<PAGE>
4. Voluntary Redemption by the Corporation.
(a) The Corporation, at the option of the Board, may at any time or
from time to time redeem the outstanding shares of Series A Preferred
Stock in whole or in part from any source of funds legally available
therefor.
(b) The redemption price for each outstanding share of Series A
Preferred Stock shall be One Thousand Dollars ($1,000.00) plus an
amount in cash equal to all accrued but unpaid dividends to the date of
such redemption (whether or not declared) (the "Redemption Price").
(c) In the event of a redemption of only a part of the outstanding
shares of Series A Preferred Stock, the Corporation shall effect such
redemption pro rata according to the number of shares held by each
holder of outstanding shares of Series A Preferred Stock.
(d) At least ten (10) days and not more than sixty (60) days prior to
the date fixed for any redemption of the outstanding shares of Series A
Preferred Stock (the "Redemption Date"), written notice (the
"Redemption Notice" and the Series A Preferred Stock referenced in such
Redemption Notice shall be referred to herein as the "Redeemed Stock")
shall be mailed, postage prepaid, to each holder of record of the
outstanding shares of Redeemed Stock at his or her post office address
last shown on the records of the Corporation. The Redemption Notice
shall state:
(i) Whether all or less than all the outstanding shares of the
Series A Preferred Stock are to be redeemed and the total number
of shares being redeemed;
(ii) The number of outstanding shares of Redeemed Stock held by
the holder which the Corporation intends to redeem;
(iii) The Redemption Date and Redemption Price; and
(iv) That the holder is to surrender to the Corporation, in the
manner and at the place designated, the certificate or
certificates representing the outstanding shares of Redeemed Stock
to be redeemed.
(e) On or before the Redemption Date, each holder of outstanding shares
of Redeemed Stock shall surrender the certificate or certificates
representing such shares to the Corporation, in the manner and at the
place designated in the Redemption Notice, and thereupon the Redemption
Price for such shares shall be payable to the order of the person whose
name appears on such certificate or certificates as the owner thereof,
and each surrendered certificate shall be canceled and retired. In the
event less than all of the shares represented by any such certificate
or certificates are redeemed, a new certificate or certificates shall
be issued representing the unredeemed shares.
4
<PAGE>
(f) On or prior to the Redemption Date, the Company shall set apart, as
a sinking fund, a sum equal to the Redemption Price of all of the
outstanding shares of Redeemed Stock, with irrevocable instructions and
authority to the appropriate officers of the Corporation to pay, on or
after the Redemption Date, the Redemption Price to the respective
holders upon the surrender of their share certificate or certificates.
The establishment of the sinking fund shall constitute full payment of
the shares to the holders thereof, and from and after the date of the
establishment of such sinking fund, the shares shall be deemed to be no
longer outstanding, and the holders thereof shall cease to be
stockholders with respect to such shares and shall have no rights with
respect thereto except the rights to receive payment of the Redemption
Price of the shares, without interest, upon surrender of their
certificate or certificates therefor. Any monies so set apart and
unclaimed at the end of one (1) year from the Redemption Date shall no
longer be set aside as a sinking fund and shall become unallocated
assets of the Corporation.
5. Voting Rights. Except as otherwise expressly provided herein or as required
under Delaware law, shares of Series A Preferred Stock (a) shall not be entitled
to vote on any matter coming for a vote before the stockholders of the
Corporation and (b) shall not be included in determining the number of shares
voting or entitled to vote on any such matters.
6. Exchange.
(a) Subject to the limitation set forth in this subparagraph 6(a), the
Corporation, at its sole option, may require the outstanding shares of
Series A Preferred Stock, including fractional shares thereof, to be
exchanged, which exchange may be accomplished in whole or from time to
time in part, on any dividend payment date (as described in
subparagraph 2(a) hereof), for junior subordinated notes due 2005 of
the Corporation paying interest semi-annually at a rate equal to twelve
percent (12%) per annum (the "Notes"). The Notes shall be subject to
mandatory redemption of the entire principal amount of each such Note
on the date which is ten (10) years from Original Issue Date. No such
exchange may be required by the Corporation unless all accrued but
unpaid dividends (whether or not declared) on the outstanding shares of
Series A Preferred Stock (whether or not such shares of Series A
Preferred Stock are required to be exchanged) have been paid or will be
paid concurrently with the exchange. The Notes may contain such
subordination provisions as may be authorized by the Board.
(b) The Corporation shall effect the exchange it is permitted to
require under subparagraph 6(a) pro rata according to the number of
shares held by each holder of outstanding shares of Series A Preferred
Stock. Holders of outstanding shares of Series A Preferred Stock which
are required to be exchanged will be entitled to receive One Thousand
Dollars ($1,000.00) principal amount of the Notes in exchange for each
outstanding share of Series A Preferred Stock (with appropriate
adjustments for fractional shares) held by them which is required to be
exchanged (the "Exchange Price"). Following any such exchange, the
rights of holders of outstanding shares of Series A Preferred Stock as
stockholders of the Corporation shall cease with respect to those
outstanding shares of Series A Preferred Stock which are to be
exchanged (except the
5
<PAGE>
right to receive on the date of exchange an amount equal to the amount
of accrued and unpaid dividends to the date of exchange on the shares
which are required to be exchanged), and the person or persons entitled
to receive the Notes issuable upon exchange shall be treated, with
respect to such Notes, for all purposes as the holder of such Notes.
(c) At least ten (10) days and not more than sixty (60) days prior to
the date fixed for any exchange of the outstanding shares of Series A
Preferred Stock (the "Exchange Date"), written notice (the "Exchange
Notice" and the Series A Preferred Stock referenced in such Exchange
Notice shall be referred to herein as the "Exchanged Stock") shall be
mailed, postage prepaid, to such holder of record of the outstanding
shares of Exchanged Stock at his or her post office address last shown
on the records of the Corporation. The Exchange Notice shall state:
(i) The percentage of the outstanding shares of the Series A
Preferred Stock which are being required to be exchanged;
(ii) The number of outstanding shares of Exchanged Stock held by
the holder which the Corporation intends to exchange;
(iii) The Exchange Date and Exchange Price; and
(iv) That the holder is to surrender to the Corporation, in the
manner and at the place designated, his or her certificate or
certificates representing the outstanding shares of Exchanged
Stock to be exchanged.
(d) On or before the Exchange Date, each holder of outstanding shares
of Exchanged Stock shall surrender the certificate or certificates
representing such shares to the Corporation, in the manner and at the
place designated in the Exchange Notice, and thereupon the Exchange
Price for such shares shall be delivered to the person whose name
appears on such certificate or certificates as the owner thereof, and
each surrendered certificate shall be canceled and retired. The shares
to be exchanged shall be deemed to be no longer outstanding from and
after the Exchange Date and the holders thereof shall cease to be
stockholders with respect to such shares and shall have no rights with
respect thereto except the rights to receive the Exchange Price upon
surrender of their certificate or certificates therefor. In the event
less than all of the shares represented by any such certificate or
certificates are exchanged, a new certificate or certificates shall be
issued representing the unexchanged shares.
6
<PAGE>
7. Restrictions and Limitations.
(a) The Corporation shall not, without the consent of the holders of a
majority of the outstanding shares of Series A Preferred Stock:
(i) Change or alter, in a manner so as to affect adversely, the
exchange, dividend, liquidation, voting or redemption rights or
obligations of the holders of outstanding shares of Series A
Preferred Stock provided for herein; or
(ii) Amend this paragraph 7(a).
(b) Except as otherwise expressly provided in this paragraph 7, any
changes or amendments to the powers, preferences, and relative,
participating, optional or other special rights, or the qualifications,
limitations or restrictions thereof, with respect to the outstanding
shares of Series A Preferred Stock may be made in accordance with
applicable law.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designation of Preferences of the Series A Preferred Stock of the Corporation to
be signed by its duly authorized officer this 29 day of November, 1995.
/s/ W. Clay Hamner
W. Clay Hamner
Chairman and Chief Executive Officer
7
<PAGE>
NORTH CAROLINA
Durham COUNTY
I, Susan Calloway Posy, a Notary Public of the aforesaid County and
State, do hereby certify that W. Clay Hamner personally appeared before me this
day and acknowledged that he is the Chairman and Chief Executive Officer of The
Pantry, Inc., a Delaware corporation, and that by authority duly given and as an
act of the corporation, the foregoing instrument was signed in its name by its
Chairman and Chief Executive Officer, and sealed with its common corporate seal.
Witness my hand and notarial seal this 29th day of November, 1995.
/s/ Susan Callaway Posy
Notary Public
My Commission Expires:
11/20/99
8
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF DESIGNATION
OF THE
SERIES A PREFERRED STOCK
OF
THE PANTRY, INC.
The Pantry, Inc. (the "Company"), a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
does hereby certify:
FIRST: That the Board of Directors of the Company (the "Board") adopted
resolutions proposing and declaring advisable each of the amendments to the
Company's Certificate of Designation of the Series A Preferred Stock filed with
the Delaware Secretary of State on November 30, 1995 at 12:40 p.m. with respect
to its Series A Preferred Stock, $0.01 par value per share (the "Series A
Preferred Stock"), set forth below, and that such amendments were approved by a
majority of the holders of the Series A Preferred Stock and notice was provided
to such holders pursuant to the applicable provisions of Section 228 of the
General Corporation Law of the State of Delaware.
SECOND: A new definition shall be added to Section 1 as follows:
(g) "Series B Preferred Stock" shall mean the Series B
Preferred Stock, $0.01 par value per share, issued or to be
issued by the Corporation.
THIRD: The last sentence of Section 2(a) shall be deleted and
replaced with the following:
Except with respect to the declaration, set aside or payment
of a dividend to the holders of outstanding shares of Series B
Preferred Stock, no dividend shall be declared, set aside or
paid to holders of any of the outstanding shares of the
capital stock of the Corporation, including without
limitation, any outstanding shares of Common Stock, unless at
the same time a dividend in an amount equal to all accrued but
unpaid dividends as set forth above is declared and paid to
the holders of outstanding shares of Series A Preferred Stock.
FOURTH: A new clause (g) shall be added to Section 4 as follows:
Notwithstanding anything contained in this Section 4 to the
contrary, the Company shall not redeem any shares of Series A
<PAGE>
Preferred Stock unless and until all accrued dividends due on
shares of Series B Preferred Stock, if any, have been paid in
full.
FIFTH: That the aforesaid amendment was duly adopted in accordance with
the applicable provisions of Section 242 of the General Corporation Law of the
State of Delaware.
IN WITNESS WHEREOF, the Company has caused this Certificate to be
executed this 26th day of December, 1996.
THE PANTRY, INC., a Delaware corporation
By: /s/ Peter J. Sodini
Peter J. Sodini
Chief Executive Officer
<PAGE>
CERTIFICATE OF DESIGNATION OF
PREFERENCES OF THE
SERIES B PREFERRED STOCK
OF THE PANTRY, INC.
-----------------------------------
Pursuant to Section 151 of the
General Corporation Law of the
State of Delaware
-----------------------------------
The undersigned, Peter J. Sodini and Mark C. King, do hereby certify as
follows:
A. That Peter J. Sodini is, and at all times herein mentioned was, the
duly elected and acting Chief Executive Officer of The Pantry, Inc., a Delaware
corporation (the "Corporation"), and that Mark C. King is, and at all times
herein mentioned was, the duly elected and acting Secretary of the Corporation.
B. That the following resolution was duly adopted by the Board of
Directors of the Corporation (the "Board"):
RESOLVED, that pursuant to authority conferred upon the Board of
Directors by the Certificate of Incorporation of the Corporation, there is
hereby created a series of preferred stock of the Corporation, designated as
"Series B Preferred Stock", which series shall consist of Twenty Five Thousand
(25,000) shares, $0.01 par value per share. In addition to those set forth in
the Certificate of Incorporation of the Corporation, the shares of Series B
Preferred Stock shall have the powers and preferences, the participating,
optional or other special rights, and the qualifications, limitations or
restrictions set forth below:
1. Definitions. As used in this resolution, the following terms shall have the
meanings indicated:
(a) "Board" shall mean the Board of Directors of the Corporation.
(b) "Common Stock" shall mean the Common Stock, $0.01 par value, per
share issued or to be issued by the Corporation.
(c) "Corporation" shall mean The Pantry, Inc.
(d) "Liquidation Event" shall mean any transaction or series of related
transactions that result in the sale of fifty percent (50%) or more of
the capital stock of the Corporation or of all or substantially all of
the assets thereof and any merger, consolidation or similar
transaction.
<PAGE>
(e) "Original Issue Date" shall mean the date of the original issuance
of any shares of Series B Preferred Stock.
(f) "Series A Certificate" shall mean the Certificate of Designation of
Preferences of the Series A Preferred Stock, as filed with the
Secretary of State of the State of Delaware on November 30, 1995.
(g) "Series A Preferred Stock" shall mean the Series A Preferred Stock,
$0.01 par value per share, issued by the Corporation pursuant to the
Series A Certificate.
(h) "Series B Preferred Stock" shall mean the Series B Preferred Stock,
$0.01 par value per share, issued or to be issued by the Corporation.
2. Dividends.
(a) The holders of shares of Series B Preferred Stock then outstanding
shall be entitled to receive, when, as and if declared by the Board,
out of funds legally available for the payment of dividends, cumulative
dividends in an amount equal to Thirty-Two Dollars and Fifty Cents
($32.50) per share per quarterly period, plus an amount determined by
applying a thirteen percent (13%) annual rate compounded quarterly to
any accrued but unpaid dividend amount from the last day of the
quarterly period when such dividend accrues to the actual date of
payment of such dividend, and no more. Such dividends on the
outstanding shares of Series B Preferred Stock shall be payable at such
intervals as the Board may from time to time determine (each of such
dates being a "dividend payment date") to the persons who are holders
of record of outstanding shares of Series B Preferred Stock on each of
the respective dividend payment dates. Each of such quarterly dividends
shall be fully cumulative and shall accrue from day to day (whether or
not declared) from the first (1st) day of each quarterly period in
which such dividend may be payable as herein provided, except that with
respect to the first quarterly dividend due on the Series B Preferred
Stock, such dividend shall accrue from the Original Issue Date.
Dividends, when, as and if declared, may, at the discretion of the
Board, be payable in cash or by issuing additional shares, including
fractional shares, of Series B Preferred Stock to the holders of record
of outstanding shares of Series B Preferred Stock, at the rate of one
share for each One Thousand Dollars ($1,000) of dividend, and the
issuance of such additional shares shall constitute full payment of
such dividends, with all holders entitled to receive the same
proportions of cash and shares of Series B Preferred Stock if a
dividend is payable in cash and shares of Series B Preferred Stock. No
dividend shall be declared, set aside or paid to holders of any of the
outstanding shares of the capital stock of the Corporation, including
without limitation, any outstanding shares of Series A Preferred Stock
or Common Stock, unless at the same time a dividend in an amount equal
to all accrued but unpaid dividends as set forth above is declared and
paid to the holders of outstanding shares of Series B Preferred Stock.
2
<PAGE>
(b) All dividends paid with respect to the outstanding shares of Series
B Preferred Stock pursuant to subparagraph 2(a) shall be paid pro rata
to the holders entitled thereto.
(c) Holders of outstanding fractional shares of Series B Preferred
Stock shall be entitled to a ratably proportionate amount of all
dividends accruing with respect to each outstanding share of Series B
Preferred Stock pursuant to subparagraph 2(a), and all of such
dividends with respect to such outstanding fractional shares shall be
fully cumulative and shall accrue (whether or not declared) and shall
be payable in the same manner and at such times as provided for in
subparagraph 2(a).
3. Liquidation Rights of Series B Preferred Stock.
(a) In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the holders of
outstanding shares of Series B Preferred Stock, shall be entitled to be
paid out of the assets of the Corporation, available for distribution
to its stockholders, whether such assets are capital, surplus or
earnings, before any payment or declaration and setting apart for
payment of any amount shall be made in respect of the outstanding
shares of any other class or series of the Corporation's capital stock,
including without limitation, shares of Series A Preferred Stock and of
Common Stock, an amount equal to One Thousand Dollars ($1,000) per
share of Series B Preferred Stock then outstanding, plus all accrued
but unpaid dividends thereon to the date fixed for liquidation (whether
or not declared), and no more. If upon any liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, the
assets to be distributed among the holders of the outstanding shares of
Series B Preferred Stock shall be insufficient to permit the payment to
such stockholders of the full preferential amounts aforesaid, then the
entire assets of the Corporation to be distributed shall be distributed
ratably among the holders of outstanding shares of Series B Preferred
Stock based on the full preferential amounts for the number of
outstanding shares of Series B Preferred Stock held by each holder.
(b) After the payment or setting apart of the payment to the holders of
outstanding shares of Series B Preferred Stock of the preferential
amounts aforesaid, the holders of outstanding shares of any other class
or series of the capital stock of the Corporation shall be entitled to
receive the remaining assets of the Corporation ratably, in order of
seniority thereof.
(c) Following a Liquidation Event, the holder of a majority of the
outstanding shares of Series B Preferred Stock may, in the discretion
thereof, deem such Liquidation Event a liquidation, dissolution or
winding up of the Corporation that triggers the rights of such holders,
as further set forth in Section 3(a) above.
(d) The payment of preferential amounts pursuant to this paragraph 3
with respect to each outstanding fractional share of Series B Preferred
Stock shall be equal to a ratably proportionate amount of the
preferential amount payable with respect to each outstanding share of
Series B Preferred Stock.
3
<PAGE>
4. Voting Rights. At all meetings of the stockholders of the Corporation
and in the case of any actions of stockholders in lieu of a meeting, each holder
of shares of Series B Preferred Stock shall be entitled to ten (10) votes per
share of Series B Stock held thereby. Except as otherwise expressly provided in
Section 5 below or as required by law, the holders of Common Stock and Series B
Preferred Stock shall vote together as a single class in accordance with the
preceding sentence, and neither the Common Stock nor the Series B Preferred
Stock shall be entitled to vote as a separate class on any matter to be voted on
by stockholders of the Corporation.
5. Restrictions and Limitations.
(a) The Corporation shall not, without the consent of the holders of a
majority of the outstanding shares of Series B Preferred Stock, voting
separately as a single class:
(i) Issue any securities with equal or superior rights with
respect to dividends or liquidation preference;
(ii) Repurchase any shares of, make any dividend or distribution
to, or any reclassification with respect to any of the
Corporation's outstanding shares of capital stock, except that no
such vote shall be required with respect to any such action taken
in accordance with the Series A Certificate with respect to shares
of Series A Preferred Stock;
(iii) Amend or modify the Corporation's Articles of Incorporation
or Bylaws so as to adversely affect the relative rights,
preferences, qualification, limitations or restrictions of the
Series B Preferred Stock; and
(iv) Amend this paragraph 5(a).
(b) Except as otherwise expressly provided in this paragraph 5, any
changes or amendments to the powers, preferences, and relative,
participating, optional or other special rights, or the qualifications,
limitations or restrictions thereof, with respect to the outstanding
shares of Series B Preferred Stock may be made in accordance with
applicable law.
4
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designation of Preferences of the Series B Preferred Stock of the Corporation to
be signed and attested by its duly authorized officers this 26th day of
December, 1996.
/s/ Peter J. Sodini
Peter J. Sodini
Chief Executive Officer
ATTEST:
/s/ Mark C. King
Mark C. King
Secretary
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<MULTIPLIER> 1,000
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-25-1997
<PERIOD-START> SEP-27-1996
<PERIOD-END> JUN-26-1997
<CASH> 6,134
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<INVENTORY> 15,637
<CURRENT-ASSETS> 33,860
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<DEPRECIATION> (55,489)
<TOTAL-ASSETS> 139,908
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0
0
<OTHER-SE> (17,679)
<TOTAL-LIABILITY-AND-EQUITY> 139,908
<SALES> 307,273
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<CGS> 238,468
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<INTEREST-EXPENSE> 9,763
<INCOME-PRETAX> (2,889)
<INCOME-TAX> (578)
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