<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
Current Report Pursuant to Section 13 or 15(d) of
The Securities Act of 1934
Date of Report (Date of earliest event reported) December 19, 1997 (October
----------------------------
23, 1997)
- ---------
The Pantry, Inc.
- -----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 33-72574 56-1574463
- -----------------------------------------------------------------------------
(State or other (Commission (I.R.S. Employer
jurisdiction File Number) Identification No.)
of incorporation)
1801 Douglas Drive, P. O. Box 1410, Sanford, North Carolina 27330
- -----------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (919) 774-6700
-------------------------
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report.)
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On October 23, 1997, The Pantry, Inc. (the "Company") acquired all of
the outstanding capital stock of Lil' Champ Food Stores, Inc. ("Lil' Champ")
from Docks U.S.A., Inc., an indirect subsidiary of Auchan S.A. The purchase
price was $132,700,000 in cash and repayment by the Company of $10,694,335.77 of
debt obligations of Lil' Champ. The source of funds for this acquisition was
proceeds from the Company's $200 million private offering of 10-1/4% Senior
Subordinated Notes due 2007 and $32.4 million equity investment by existing
stockholders and management of the Company. Lil' Champ is an operator of 488
convenience stores in Florida and Georgia. The Company intends to continue to
operate Lil' Champ as it has historically been operated.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
Financial Statements of Lil' Champ Food Stores, Inc. for the Three
Year Period Ended December 28, 1996 and Independent Auditors'
Report and Unaudited Financial Statements for the Nine Months
Ended September 27, 1997 and September 28, 1996.
Independent auditors' report
Balance Sheets as of December 30, 1995 and December 28, 1996
and September 27, 1997 (Unaudited)
Statements of Operations for the Years Ended December 31, 1994,
December 30, 1995 and December 28, 1996 and the Nine Months
Ended September 28, 1996 and September 27, 1997 (Unaudited)
Statements of Shareholder's Equity for the Years Ended December
31, 1994, December 30, 1995 and December 28, 1996 and the Nine
Months Ended September 28, 1996 and September 27, 1997
(Unaudited)
Statements of Cash Flows for the Years Ended December 31, 1994,
December 30, 1995 and December 28, 1996 and the Nine Months
Ended September 28, 1996 and September 27, 1997 (Unaudited)
Notes to Financial Statements
(b) PRO FORMA FINANCIAL INFORMATION.
Unaudited Pro Forma Financial Data as of and for the Year Ended
September 25, 1997.
Balance Sheet
Statement of Operations
(c) EXHIBITS.
2.1 Stock Purchase Agreement, dated as of August 26, 1997, by
and between PH Holding Corporation and Docks U.S.A., Inc.
2.2 Assignment and Assumption Agreement, dated as of October 23,
1997, by and between The Pantry, Inc. and PH Holding
Corporation.
27.1 Financial Data Schedule for the Year Ended September 25,
1997.
2
<PAGE>
SIGNATURES
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 hereunto duly authorized.
Date: December 19, 1997
-----------------
THE PANTRY, INC.
By: /s/ Peter J. Sodini
-------------------------------------
Peter J. Sodini
President and Chief Executive Officer
3
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Lil' Champ Food Stores, Inc.
Jacksonville, Florida
We have audited the accompanying balance sheets of Lil' Champ Food Stores, Inc.
(a wholly-owned subsidiary of Docks U.S.A., Inc.) as of December 30, 1995 and
December 28, 1996, and the related statements of operations, shareholder's
equity, and cash flows for the three years in the period ended December 28,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Lil' Champ Food Stores, Inc. as of December
30, 1995 and December 28, 1996 and the results of its operations and its cash
flows for each of the three years in the period ended December 28, 1996 in
conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Jacksonville, Florida
February 14, 1997
-33-
<PAGE>
LIL' CHAMP FOOD STORES, INC.
(A WHOLLY-OWNED SUBSIDIARY OF DOCKS
U.S.A., INC.)
<TABLE>
<CAPTION>
BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS)
- -----------------------------------------------------------------------------------------
DECEMBER 30, DECEMBER 28, SEPTEMBER 27,
1995 1996 1997
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 13,553 $ 19,510 $ 9,506
Certificates of deposit 805 805 805
Receivables, net of allowance for
doubtful
accounts (1995-$0; 1996-$21; 1,518 1,820 1,824
1997-$21)
Environmental receivables, current
portion,
net of allowance for uncollectible
amounts (1995-$545; 1996-$710; 1,798 2,066 1,330
1997-$515)
Inventories 17,072 17,938 18,017
Prepaid income taxes 68 2,784 545
Current portion of deferred income 313
taxes
Prepaid expenses and other assets 1,444 1,365 1,032
Due from affiliates 238 225 304
-------- -------- --------
Total current assets 36,809 46,513 33,363
-------- -------- --------
PROPERTY, EQUIPMENT AND
LEASEHOLD IMPROVEMENTS,
net of accumulated depreciation and
amortization (1995-$56,543;
1996-$62,062; 1997-$61,848) 110,083 117,354 119,158
BUILDINGS UNDER CAPITAL LEASES, net of
accumulated amortization (1995-$7,592;
1996-$7,895; 1997-$8,664) 8,210 11,264 10,396
OTHER ASSETS:
Investment in The Eli Witt Company 2,037
Goodwill, net of accumulated
amortization
(1995-$4,391; 1996-$5,166; 14,981 14,206 13,625
1997-$5,747)
Environmental receivables, net of
allowance
for uncollectible amounts
(1995-$1,013; 1996-$429; 1997-$734) 3,341 1,249 1,521
Other 1,076 921 1,042
-------- -------- --------
Total other assets 21,435 16,376 16,188
-------- -------- --------
TOTAL ASSETS $176,537 $191,507 $179,105
======== ======== ========
See notes to financial statements. (Continued)
</TABLE>
-34-
<PAGE>
<TABLE>
<CAPTION>
LIL' CHAMP FOOD STORES, INC.
(A WHOLLY-OWNED SUBSIDIARY OF DOCKS U.S.A., INC.)
BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS)
- -----------------------------------------------------------------------------------------
DECEMBER 30, DECEMBER 28, SEPTEMBER 27,
1995 1996 1997
<S> <C> <C> <C>
(UNAUDITED)
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable, trade $ 12,841 $ 18,287 $ 19,612
Current portion of obligations under 871 1,037 990
capital leases
Current portion of long-term debt 4,353 4,355 10,700
Accrued compensation and employee 1,867 2,146 2,182
benefits
Current portion of accrued workers'
compensation self insurance 2,579 2,271 2,261
Accrued medical and health insurance 900 630 565
Accrued interest 179 272 46
Lottery payable 1,828 2,131 1,657
Other taxes payable 4,809 2,766 4,081
Deferred income taxes payable 90 159
Money orders trust fund payable 242 (309) 766
Other accrued liabilities 4,536 4,690 5,378
-------- -------- --------
Total current liabilities 35,005 38,366 48,397
-------- -------- --------
DEFERRED INCOME 211 298 259
DEFERRED INCOME TAXES 7,856 10,060 9,824
OBLIGATIONS UNDER CAPITAL LEASES,
less current portion 9,604 12,547 11,837
ACCRUED WORKERS' COMPENSATION
SELF-INSURANCE
less current portion 6,391 6,674 7,713
ENVIRONMENTAL RESERVE 3,150
LONG-TERM DEBT, less current portion 18,050 22,695
DUE TO DOCKS de FRANCE, S.A. 12,000 6,000
-------- -------- --------
Total liabilities 89,117 96,640 81,180
-------- -------- --------
COMMITMENTS AND CONTINGENCIES
(Notes 4, 6, 8 and 11)
SHAREHOLDER'S EQUITY:
Common stock; authorized issued and
outstanding 500 shares of $1 par 1 1 1
value
Additional paid-in capital 67,966 67,966 67,966
Retained earnings 19,453 26,900 29,958
-------- -------- --------
Total shareholder's equity 87,420 94,867 97,925
-------- -------- --------
TOTAL LIABILITIES AND
SHAREHOLDER'S EQUITY $176,537 $191,507 $179,105
======== ======== ========
</TABLE>
See notes to financial statements. (Concluded)
-35-
<PAGE>
<TABLE>
<CAPTION>
LIL' CHAMP FOOD STORES, INC.
(A WHOLLY-OWNED SUBSIDIARY OF DOCKS U.S.A., INC.)
STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT STORE DATA)
- ------------------------------------------------------------------------------------------------------------------------
YEARS ENDED NINE MONTHS ENDED
--------------------------------------------- ---------------------------------
DECEMBER 31, DECEMBER 30, DECEMBER 28, SEPTEMBER 28, SEPTEMBER 27,
1994 1995 1996 1996 1997
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Number of stores in operation
at end of period 508 501 495 499 488
======== ======== ======== ======== ========
REVENUES:
Gasoline sales $248,507 $257,056 $278,905 $207,208 $214,676
Merchandise sales 212,310 217,282 226,146 171,322 177,426
Commissions 7,683 7,978 8,164 5,979 5,971
-------- -------- -------- -------- --------
Total revenues 468,500 482,316 513,215 384,509 398,073
-------- -------- -------- -------- --------
COST OF SALES:
Gasoline $219,736 $227,592 251,614 186,110 193,499
Merchandise 139,054 143,598 148,877 112,909 116,879
-------- -------- -------- -------- --------
Total cost of sales 358,790 371,190 400,491 299,019 310,378
-------- -------- -------- -------- --------
GROSS PROFIT 109,710 111,126 112,724 85,490 87,695
-------- -------- -------- -------- --------
Store operating expense 68,524 70,289 73,721 55,486 56,339
General and administrative expenses 17,965 15,452 14,191 11,397 12,581
Environmental contamination charge 3,381
Depreciation and amortization 11,954 11,568 11,361 8,439 8,989
-------- -------- -------- -------- --------
Total operating expenses 98,443 97,309 99,273 75,322 81,290
-------- -------- -------- -------- --------
INCOME FROM OPERATIONS 11,267 13,817 13,451 10,168 6,405
OTHER INCOME (EXPENSE):
Interest expense (3,938) (3,219) (2,670) (1,994) (1,712)
Miscellaneous 1,730 1,873 1,647 865 588
-------- -------- -------- -------- --------
Total other expense (2,208) (1,346) (1,023) (1,129) (1,124)
-------- -------- -------- -------- --------
INCOME BEFORE INCOME TAXES 9,059 12,471 12,428 9,039 5,281
INCOME TAX EXPENSE (3,733) (4,985) (4,981) (3,622) (2,223)
-------- -------- -------- -------- --------
NET INCOME $ 5,326 $ 7,486 $ 7,447 $ 5,417 $ 3,058
======== ======== ======== ======== ========
</TABLE>
See notes to financial statements.
-36-
<PAGE>
LIL' CHAMP FOOD STORES, INC.
(A WHOLLY-OWNED SUBSIDIARY OF DOCKS U.S.A., INC.)
STATEMENTS OF SHAREHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1994, DECEMBER 30, 1995 and DECEMBER 28, 1996
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
COMMON STOCK
----------------------------- ADDITIONAL
PAR PAID-IN RETAINED
SHARES VALUE CAPITAL EARNINGS TOTAL
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 25, 1993 500 $ 1 $67,966 $ 6,641 $74,608
Net income 5,326 5,326
--- ---- ------- ------- -------
BALANCE, DECEMBER 31, 1994 500 1 67,966 11,967 79,934
Net income 7,486 7,486
--- ---- ------- ------- -------
BALANCE, DECEMBER 30, 1995 500 1 67,966 19,453 87,420
Net income 7,447 7,447
--- ---- ------- ------- -------
BALANCE, DECEMBER 28, 1996 500 $ 1 $67,966 $26,900 $94,867
=== ==== ======= ======= =======
</TABLE>
See notes to financial statements.
-37-
<PAGE>
LIL' CHAMP FOOD STORES, INC.
(A WHOLLY-OWNED SUBSIDIARY OF DOCKS U.S.A., INC.)
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
YEARS ENDED NINE MONTHS ENDED
-------------------------------------------------- ----------------------------------
DECEMBER 31, DECEMBER 30, DECEMBER 28, SEPTEMBER 28, SEPTEMBER 27,
1994 1995 1996 1996 1997
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,326 $ 7,486 $ 7,447 $ 5,417 $ 3,058
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization 11,954 11,568 11,361 8,439 8,989
Loss on investment 1,500 37
(Gain) loss on sale of assets (12) 225 (90) 193 132
Changes in assets and liabilities
Deferred income taxes (1,037) (744) 2,607 (167)
Receivables 387 (10) (302) (300) (4)
Inventories 130 (467) (866) (1,352) (79)
Prepaid taxes 213 (68) (2,716) (507) 2,239
Prepaid expenses and other assets (1,227) 89 2,058 1,416 676
Due from affiliates (43) 13 43 (79)
Accounts payable, trade (901) 795 5,446 5,630 1,325
Enviromental Reserve 3,150
Other liabilities 3,173 (345) (2,066) 2,148 3,565
Income taxes payable 598 (598)
Accrued interest 71 (67) 93 92 (226)
-------- -------- -------- -------- --------
Net cash provided by operating
activities 20,175 17,821 23,022 21,219 22,579
-------- -------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, equipment and
leasehold improvements (7,738) (11,977) (21,353) (16,124) (10,153)
Proceeds from sale of property
equipment and leasehold improvements 1,918 632 4,708 3,176 677
Proceeds related to Eli Witt investment 2,000
-------- -------- -------- -------- --------
Net cash used in investing
activities (5,820) (11,345) (14,645) (12,948) (9,476)
-------- -------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Additional borrowings under long-term debt 9,000 2,000 20,000 12,000
Payments to Docks de France, S.A. (6,000) (6,000) (6,000) (6,000) (6,000)
Principal payments under long-term debt (15,603) (4,862) (15,353) (7,348) (28,350)
Principal payments under capital lease
obligations (1,364) (921) (1,067) (890) (757)
-------- -------- -------- -------- --------
Net cash used in financing
activities (13,967) (9,783) (2,420) (14,238) (23,107)
-------- -------- -------- -------- --------
NET INCREASE (DECREASE) 388 (3,307) 5,957 (5,967) (10,004)
CASH AND EQUIVALENTS, BEGINNING OF YEAR 16,472 16,860 13,553 13,553 19,510
-------- -------- -------- -------- --------
CASH AND EQUIVALENTS, END OF YEAR 16,860 $ 13,553 $ 19,510 $ 7,586 $ 9,506
======== ======== ======== ======== ========
CASH PAID FOR:
Interest $ 3,867 $ 3,286 $ 2,577 $ 1,902 $ 1,937
======== ======== ======== ======== ========
Income taxes $ 3,959 $ 6,438 $ 5,090 $ 4,130 $ 2,250
======== ======== ======== ======== ========
See notes to financial statements.
</TABLE>
-38-
<PAGE>
LIL' CHAMP FOOD STORES, INC.
(A WHOLLY-OWNED SUBSIDIARY OF DOCKS U.S.A., INC.)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, DECEMBER 30, 1995 and DECEMBER 28, 1996
(UNAUDITED AS TO SEPTEMBER 27, 1997 INFORMATION)
- --------------------------------------------------------------------------------
1. COMPANY'S BUSINESS
Lil' Champ Food Stores, Inc. ("LCFS"). LCFS is a convenience store chain
operating in central and northern Florida and southeastern Georgia.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR - The Company operates on the basis of a 52-53 week fiscal year
ending on the last Saturday in December. The years ended December 28, 1996
and December 30, 1995 consisted of 52 weeks. The year ended December 31, 1994
consisted of 53 weeks.
UNAUDITED FINANCIAL STATEMENTS - In the opinion of management, the statements
of Operations and Cash Flows for the nine months ended September 28, 1996 and
September 27, 1997 and the Balance Sheet as of September 27, 1997 include all
adjustments (which include only normal recurring adjustments) necessary to
present the financial position and results of operations and cash flows for
the periods then ended in accordance with generally accepted accounting
principles.
CASH AND EQUIVALENTS - LCFS considers all investments with an original
maturity of three months or less to be cash equivalents.
CERTIFICATES OF DEPOSIT - Certificates of deposit for $500,000 secure a
standby letter of credit and are pledged to the State of Georgia as security
for payment of workers' compensation claims.
Certificates of deposit for $305,000 are pledged to the State of Florida as
security for payment of workers' compensation claims.
INVENTORIES - Merchandise inventories are valued at the lower of last-in,
first-out (LIFO) cost or market using the retail method. Information relating
to the first-in, first-out (FIFO) method may be useful in comparing operating
results to those companies not on LIFO. If the FIFO method had been used by
the Company, merchandise inventory would have been $2,906,000, $3,112,000 and
$3,086,000 higher than as reported as of December 28, 1994, December 30, 1995
and December 31, 1996. Due to the LIFO method of inventory valuation, income
before income taxes was increased by $86,000 and $206,000 for the years
December 31, 1994 and December 30, 1995 and decreased by $26,000 for the year
ended December 28, 1996.
Gasoline is valued at the lower of FIFO cost or market.
-39-
<PAGE>
LIL' CHAMP FOOD STORES, INC.
(A Wholly-Owned Subsidiary of Docks U.S.A., Inc.)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, DECEMBER 30, 1995 AND DECEMBER 28, 1996
(UNAUDITED AS TO SEPTEMBER 27, 1997 INFORMATION) (CONTINUED)
- --------------------------------------------------------------------------------
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS - Property, equipment and
leasehold improvements are stated at cost, which includes cost of
construction, property taxes and interest incurred during development.
Depreciation and amortization for financial reporting purposes are computed
using the straight-line method based upon the following estimated useful lives
in years:
<TABLE>
<CAPTION>
<S> <C>
Buildings 18-30
Office and store equipment 3-15
Automotive equipment 3-4
Leasehold improvements, Shorter of the initial lease
equipment and buildings term or estimated useful
under lease life of asset.
</TABLE>
Repairs and maintenance are charged to income; major expenditures for renewals
and betterments are capitalized. When items of property are sold or otherwise
disposed of, the related costs and accumulated depreciation or amortization
are removed from the accounts, and any resulting gains or losses are credited
or charged to income.
INVESTMENT IN THE ELI WITT COMPANY - The Company accounts for its investment
in The Eli Witt Company ("Eli Witt"), formerly known as Certified Grocers of
Florida, Inc., at lower of cost or estimated market. Writedowns of this
investment are considered to be permanent diminutions in value.
GOODWILL - Goodwill is being amortized using the straight-line method over
twenty-five years.
LEASING ARRANGEMENTS - A substantial portion of the Company's operations are
conducted in leased premises. Some leases on convenience store locations
provide for a base rental amount per month and contingent additional rentals
if an annual gross sales floor is exceeded. Renewal options generally provide
for multiple terms of five years each and in some instances are at increased
rentals. Some leases require the Company to pay real estate taxes and other
expenses.
Certain building and equipment leases have been capitalized and are being
amortized over the shorter of the lease term or the estimated useful life of
the asset. All other leases are accounted for as operating leases. In most
cases, management expects that leases will be renewed or replaced by other
leases in the normal course of business.
WORKERS' COMPENSATION SELF-INSURANCE - The Company self-insures its exposure
to workers' compensation claims up to certain limits. The Company records
estimated liabilities based on currently available information. Ultimate
claims and expenses may vary from the current estimates and as adjustments
become necessary, they are recorded in earnings in the periods in which they
become known.
GROUP HEALTH SELF INSURANCE - The Company self-insures its group health
insurance claims to certain limits per occurrence. Estimated liabilities are
based on prior years' experience on claims and on current year fixed
administrative costs.
-40-
<PAGE>
LIL' CHAMP FOOD STORES, INC.
(A WHOLLY-OWNED SUBSIDIARY OF DOCKS U.S.A., INC.)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, DECEMBER 30, 1995 AND DECEMBER 28, 1996
(UNAUDITED AS TO SEPTEMBER 27, 1997 INFORMATION) (CONTINUED)
- --------------------------------------------------------------------------------
INCOME TAXES - The Company's parent files consolidated Federal income tax
returns. For financial statement purposes, the Company determines its income
tax liability and provisions using the separate return method.
Deferred income taxes are provided on temporary differences between the
financial reporting and the tax basis of the Company's assets and liabilities.
DEFERRED INCOME - Gains resulting from sale/leaseback transactions involving
land and buildings have been deferred. Such gains are being amortized in
proportion to the amortization of the leased asset, if a capital lease, or in
proportion to the related gross rental charged to expense over the lease term,
if an operating lease.
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
A summary of property, equipment and leasehold improvements, net, follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28,
1995 1996
<S> <C> <C>
Land $ 44,581 $ 44,894
Buildings 30,172 29,000
Store equipment 26,327 34,539
Leasehold improvements 7,629 7,468
Automotive equipment 547 581
Office equipment 589 587
Construction in progress 238 285
-------- --------
$110,083 $117,354
======== ========
</TABLE>
-41-
<PAGE>
LIL' CHAMP FOOD STORES, INC.
(A WHOLLY-OWNED SUBSIDIARY OF DOCKS U.S.A., INC.)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, DECEMBER 30, 1995 AND DECEMBER 28, 1996
(UNAUDITED AS TO SEPTEMBER 27, 1997 INFORMATION) (CONTINUED)
- --------------------------------------------------------------------------------
4. LEASES
CAPITAL LEASES - Minimum future lease payments under capital leases at
December 28, 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDING:
<S> <C>
1997 $ 2,274
1998 2,170
1999 2,083
2000 2,039
2001 1,973
Thereafter 10,750
-------
Total minimum lease payments 21,289
Less interest portion (7,705)
-------
Present value of minimum lease
payments (current portion of $1,037) $13,584
=======
</TABLE>
OPERATING LEASES - Rent expense for the years December 28, 1994, December 30,
1995 and December 31, 1996 was approximately $7,658,000, $7,935,000 and
$8,552,000. Minimum annual rentals under noncancellable leases having an
initial or remaining term of more than one year at December 28, 1996 are as
follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDING:
<S> <C>
1997 $ 4,672
1998 4,342
1999 3,995
2000 3,465
2001 2,756
Thereafter 9,865
-------
Total $29,095
=======
</TABLE>
-42-
<PAGE>
LIL' CHAMP FOOD STORES, INC.
(A WHOLLY-OWNED SUBSIDIARY OF DOCKS U.S.A., INC.)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, DECEMBER 30, 1995 and DECEMBER 28, 1996
(UNAUDITED AS TO SEPTEMBER 27, 1997 INFORMATION) (Continued)
- --------------------------------------------------------------------------------
5. LONG-TERM DEBT
At December 30, 1995 and December 28, 1996 long-term debt comprised the
following (in thousands):
<TABLE>
<CAPTION>
1995 1996
<S> <C> <C>
Borrowings under revolving credit agreement with
Credit Lyonnais; interest is based on the New York
interbank eurodollar market rate ("Eurorate") plus .4%
(6.30% and 6.08% at December 30, 1995 and
December 28, 1996); expiring January 31, 1997.
Guaranteed by Docks de France, S.A. $ 6,000 $ 3,000
Note payable to bank under a commitment for total
borrowings up to $8,000 at a variable rate (6.684% and
6.50% at December 30, 1995 and December 28, 1996),
payable in annual installments of 16.67% of the loan
balance payable January 1996 and 1997 and the
balance due January 1998; guaranteed by Docks de France, S.A. 5,334 4,001
Borrowings under $20,000 revolving credit agreement
with Credit Lyonnais; interest is based on the Paris
Interbank Official Rate ("PIBOR") plus .25% (5.84%
at December 28, 1996), maturing on June 8, 1998.
Guaranteed by Docks de France, S.A. 20,000
Borrowings under $15,000 revolving credit agreement with
Societe Generale; interest is based on the Eurorate plus
.35% (6.314% at December 30, 1995), guaranteed by
Docks de France, S.A. On December 30, 1996 the
Company secured a letter of intent to extend this credit
facility for one year. 11,000
Other notes and mortgages payable, generally due in
monthly installments of principal plus interest at various
rates and terms 69 49
------- -------
22,403 27,050
Less current portion (4,353) (4,355)
------- -------
$18,050 $22,695
======= =======
</TABLE>
-43-
<PAGE>
LIL' CHAMP FOOD STORES, INC.
(A WHOLLY-OWNED SUBSIDIARY OF DOCKS U.S.A., INC.)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, DECEMBER 30, 1995 AND DECEMBER 28, 1996
(UNAUDITED AS TO SEPTEMBER 27, 1997 INFORMATION) (Continued)
- --------------------------------------------------------------------------------
The borrowings with Credit Lyonnais require the Company to obtain consent from
Credit Lyonnais before paying any dividends.
Because the Company has the ability and the intent to refinance $6,000,000 of
borrowings from Docks de France, S.A. otherwise coming due during 1997, this
amount has been reclassified from current liabilities to long-term as of
December 28, 1996.
Aggregate principal payments required on long-term debt during each of the
fiscal years ending subsequent to December 28, 1996 are as follows (in
thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDING IN:
<S> <C>
1997 $ 4,355
1998 22,691
1999 4
-------
$27,050
=======
</TABLE>
6. RELATED PARTY TRANSACTIONS
Certain premises used by LCFS in its operations are leased under arrangements
with related parties. Rental payments under such leases for the years ended
December 28, 1994, December 30, 1995 and December 31, 1996 were approximately
$2,408,000, $2,417,000 and $2,582,000. Required future rentals, which relate
to both capital and operating leases, at December 28, 1996 are as follows (in
thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDING IN:
<S> <C>
1997 $ 2,825
1998 2,813
1999 2,749
2000 2,672
2001 2,600
Thereafter 12,498
-------
$26,157
=======
</TABLE>
Sunbelt Wholesale, a company controlled by Robert Jackson, a brother of an
officer of the Company, furnishes certain supplies to the Company. Payments
to Sunbelt Wholesale were approximately $1,996,000, $2,233,000 and $2,102,000
for the years ended December 28, 1994, December 30, 1995 and December 31,
1996.
-44-
<PAGE>
LIL' CHAMP FOOD STORES, INC.
(A WHOLLY-OWNED SUBSIDIARY OF DOCKS U.S.A., INC.)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, DECEMBER 30, 1995 AND DECEMBER 28, 1996
(UNAUDITED AS TO SEPTEMBER 27, 1997 INFORMATION) (CONTINUED)
- --------------------------------------------------------------------------------
Allsafe Security Systems, Inc. and Allsafe Paging Systems, Inc., companies
controlled by Lester Jackson, a brother of an officer of the Company, supplies
burglar alarms, security systems and an alerting system which allows mobility
to store personnel. This equipment is subject to a monthly rental fee plus
charges for initial installation and maintenance. Approximately $1,064,000,
$882,000 and $1,207,000 was expended for this service for the years ended
December 28, 1994, December 30, 1995 and December 31, 1996.
The $6,000,000 due to Docks de France, S.A. is payable June 25, 1997.
Interest accrues at 6.6% per annum. Interest of $1,386,000, $990,000 and
$594,000 was paid for the years ended December 28, 1994, December 30, 1995
and December 31, 1996. See note 5 related to the classification of this
amount.
LCFS paid Docks U.S.A., Inc. approximately $500,000 of service agreement fees
for the years ended December 28, 1994, December 30, 1995 and December 31,
1996.
During 1996, the company entered into sale-leaseback transactions with a
director whereby buildings were sold to the director for $4,176,000. This
same property was then leased back to the company. The leases were classified
as capital leases, therefore the underlying property was capitalized and the
obligation recognized.
7. INCOME TAXES
The provision for income taxes for the years ended December 31, 1994, December
30, 1995 and December 28, 1996 is comprised of the following (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
Current:
<S> <C> <C> <C>
Federal $ 4,115 $4,897 $2,028
State 655 832 346
------- ------ ------
4,770 5,729 2,374
------- ------ ------
Deferred:
Federal (2,009) (634) 2,223
State 972 (110) 384
------- ------ ------
(1,037) (744) 2,607
------- ------ ------
Provision for income taxes $ 3,733 $4,985 $4,981
======= ====== ======
</TABLE>
-45-
<PAGE>
LIL' CHAMP FOOD STORES, INC.
(A WHOLLY-OWNED SUBSIDIARY OF DOCKS U.S.A., INC.)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, DECEMBER 30, 1995 AND DECEMBER 28, 1996
(UNAUDITED AS TO SEPTEMBER 27, 1997 INFORMATION) (CONTINUED)
- --------------------------------------------------------------------------------
Income taxes, for the years ended December 31, 1994, December 30, 1995 and
December 28, 1996, differ from the amount computed by applying the federal
statutory corporate rate to earnings before income taxes. The amounts of such
differences (in thousands) and the reasons are set forth in the table below:
<TABLE>
<CAPTION>
1994 1995 1996
<S> <C> <C> <C>
Provision based on federal income tax
rate $3,080 $4,240 $4,226
State income taxes - net of federal
income tax benefit 456 580 481
Nondeductible amortization 267 267 267
Other (70) (102) 7
------ ------ ------
Actual provision for income taxes $3,733 $4,985 $4,981
====== ====== ======
</TABLE>
The types of temporary differences and their related tax effects which create
deferred tax liabilities at December 30, 1995 and December 28, 1996 are
summarized below (in thousands):
<TABLE>
<CAPTION>
1995 1996
Deferred tax liabilities:
<S> <C> <C>
Fixed asset basis differences $ 7,960 $10,525
Reserve for LIFO 1,821 1,582
Deductible prepaids 3,066 1,762
Other 609
------- -------
12,847 14,478
------- -------
Deferred tax assets:
Capital leases 853 874
Writedown of investment in Eli Witt 516
Self-insured liabilities 3,719 3,454
Other 216
------- -------
5,304 4,328
------- -------
Net deferred tax liability $ 7,543 $10,150
======= =======
</TABLE>
8. COMMITMENTS AND CONTINGENCIES
The Company is a party to various lawsuits, threatened suits and claims. It
is the opinion of management that the resolution of such matters will not have
a material adverse effect on the Company's financial position or results of
operations.
-46-
<PAGE>
LIL' CHAMP FOOD STORES, INC.
(A WHOLLY-OWNED SUBSIDIARY OF DOCKS U.S.A., INC.)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, DECEMBER 30, 1995 AND DECEMBER 28, 1996
(UNAUDITED AS TO SEPTEMBER 27, 1997 INFORMATION)(Continued)
- --------------------------------------------------------------------------------
9. CASH FLOW
Supplemental disclosure of noncash investing and financing activities (in
thousands):
<TABLE>
<CAPTION>
1994 1995 1996
<S> <C> <C> <C>
Additional capital lease obligations
on buildings $ 485 $ -0- $4,176
===== ===== ======
</TABLE>
10. RETIREMENT SAVINGS PLAN
LCFS has a 401(k) plan for all full-time employees who are 21 years of age
or older and who have been employed one year with at least 1,000 hours of
service. Participants can contribute 1% to 10% of their salary, not to
exceed a maximum allowable contribution amount. Participant contributions
are 100% vested. Distributions may be made at employment termination,
retirement, or in the event participants are disabled or can demonstrate
financial hardship. The Company matches an amount equal to 15% of the
participants' contribution. The total contribution for the years ended
December 31, 1994, December 30, 1995 and December 28, 1996 was $85,000,
$83,000 and $98,000.
11. ENVIRONMENTAL MATTERS
The ownership and/or operation of underground storage tanks is subject to
federal, state and local laws and regulations.
Prior to 1996, LCFS was involved in evaluating and cleaning up environmental
contamination caused by releases of petroleum products at its stores. The
costs related to this process are reimbursable from state programs in both
Florida and Georgia, which are funded from taxes and fees paid based on the
purchase of petroleum products. The Company has not been able to reasonably
estimate that amount which will be reimbursed by the state of Georgia;
therefore, amounts expended for clean-up in Georgia have generally been
expensed and although some portion of this amount may be reimbursed in the
future the Company has not recorded a receivable for such amounts. LCFS has
recorded receivables for amounts recoverable from the state of Florida and
outside engineering firms and has provided an allowance on environmental
receivables of $1,558,000 and $1,139,000 as of December 30, 1995 and
December 28, 1996 and $1,249,000 (unaudited) as of September 27, 1997. This
allowance is an estimate of amounts that LCFS has incurred that may not be
reimbursed by the state of Florida and outside engineering firms.
In prior years, LCFS entered into agreements with outside engineering firms
to assume the clean-up of contamination sites in Florida. Under these
arrangements LCFS was still responsible for the clean-up of the sites but
LCFS did not incur significant expenditures to complete the clean-up of
existing sites. LCFS had expended funds which were submitted to the State
for reimbursement by the outside engineering firms. These amounts, which
represent approximately 48% of the gross environmental receivable, will be
reimbursed directly to the engineering firms who will in-turn reimburse
LCFS.
-47-
<PAGE>
LIL' CHAMP FOOD STORES, INC.
(A WHOLLY-OWNED SUBSIDIARY OF DOCKS U.S.A., INC.)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, DECEMBER 30, 1995 AND DECEMBER 28, 1996
(UNAUDITED AS TO SEPTEMBER 27, 1997 INFORMATION) (CONTINUED)
- --------------------------------------------------------------------------------
During 1996, new legislation was enacted by the State of Florida which
replaced the State's previous reimbursement program. All expenditures
incurred through March 29, 1995 and submitted for reimbursement by December
31, 1996 will be evaluated and reimbursed on the same basis as prior
submissions. Under the new legislation, the State has assumed the
responsibility for clean-up of registered sites assessed and reported to the
State under the previous program, but not yet remediated, exclusive of tank
or other hardware replacement.
Georgia Underground Storage Tank Fund - Remediation of contaminated sites in
Georgia will be reimbursed under the state program for eligible costs to a
maximum of $1,000,000 per site. A $10,000 deductible applies to each site.
All LCFS sites in Georgia qualify for coverage from this fund. LCFS does not
currently expect remediation at any of its sites to exceed $1,000,000 of
coverage.
Florida Underground Storage Tank Fund - Remediation of contaminated sites in
Florida is eligible for reimbursement under the state's program. For
incidents discovered and reported to the state prior to July 1, 1992, the
state will reimburse for all eligible remediation costs to a maximum of
$1,000,000 per incident with an annual aggregate of $2,000,000 per facility.
For incidents discovered from July 1, 1992 to June 30, 1993, the state will
reimburse for all eligible reimbursement costs to a maximum of $1,000,000
subject to a $1,000 deductible. For incidents discovered from July 1, 1993
to December 31, 1993, the state will reimburse for all eligible
reimbursement costs to a maximum of $1,000,000 subject to a $5,000
deductible. For incidents discovered from January 1, 1994 to December 31,
1996 the maximum reimbursement was reduced to $300,000 per site with a
$10,000 deductible. For incidents discovered subsequent to December 31,
1996, the maximum reimbursement was reduced to $150,000 per site with a
$10,000 deductible. For incidents discovered subsequent to December 31, 1998
no costs will be eligible for reimbursement under this program. LCFS is
responsible for all costs in excess of the state limits. Notwithstanding
this schedule of limits, certain of the LCFS sites are covered under the
other Florida "trust fund" programs pursuant to which the state will pay all
required costs.
During 1997 management of the Company did a comprehensive review of the
status of its stores as it relates to environmental remediation and as a
result decided to record an enviromental contamination charge as of
September 27, 1997 of approximately $3,381,000 (Unaudited).
In October 1996, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of
Position ("SOP") 96-1, Environmental Remediation Liabilities. SOP 96-1
provides authoritative guidance on specific accounting issues that are
present in the recognition, measurement, display and disclosure of
environmental remediation liabilities. The provisions of this SOP are
effective for fiscal years beginning after December 15, 1996. The Company's
management does not believe the adoption of this statement will have a
material impact on the Company's financial statements.
12. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of all of the Company's financial instruments
approximates their fair value.
13. SUBSEQUENT EVENT (UNAUDITED).
On October 23, 1997, The Pantry, Inc. purchased all the capital stock of
LCFS for $132.7 million in cash and repaid all outstanding indebtedness of
LCFS.
-48-
<PAGE>
UNAUDITED PRO FORMA FINANCIAL DATA
The following unaudited pro forma consolidated financial data (the
"Unaudited Pro Forma Financial Data") of the Company have been derived by the
application of pro forma adjustments to the historical financial statements of
The Pantry and Lil' Champ for the periods indicated. The adjustments are
described in the accompanying notes.
The Unaudited Pro Forma Financial Data give effect to the Transactions as if
these transactions occurred as of September 25, 1997, for purposes of the
balance sheet data, and on September 27, 1996, for purposes of the statement
of operations data. The Unaudited Pro Forma Financial Data do not give effect
to any transactions other than the Transactions and those discussed in the
accompanying notes. The Unaudited Pro Forma Financial Data are provided for
informational purposes only and do not purport to represent the results of
operations or financial position of the Company had the transactions in fact
occurred on such dates, nor do they purport to be indicative of the financial
position or results of operations as of any futures date or for any future
period.
The Lil' Champ Acquisition will be accounted for using the purchase method
of accounting. The total cost of the Lil' Champ Acquisition will be allocated
to the tangible and intangible assets acquired and liabilities assumed based
upon their respective fair values as of the time the Lil' Champ Acquisition was
consummated. The excess of the purchase price over the historical basis of the
net assets acquired has not been allocated in the accompanying Unaudited Pro
Forma Financial Data. The pro forma adjustments are based upon available
information and upon certain assumptions that management believes are
reasonable. The actual allocation of the purchase price, however, and the
resulting effect on income from operations may differ significantly from the pro
forma amounts included herein.
31
<PAGE>
UNAUDITED PRO FORMA BALANCE SHEET DATA
September 25, 1997
(dollars in thousands)
<TABLE>
<CAPTION>
Historical Adjustments
-------------------------- -------------------
The Pantry Lil' Champ The Transactions Pro Forma
---------- ---------- ------------------- ---------
<S> <C> <C> <C> <C>
Assets:
Current assets:
Cash and cash equivalents................................. $ 3,347 $ 9,506 $ 17,674 (a) $ 30,527
-------- -------- -------- --------
Certificates of deposit................................... -- 805 -- 805
Receivables, net.......................................... 2,101 3,154 -- 5,255
Inventories............................................... 17,161 18,017 -- 35,178
Prepaid expenses.......................................... 1,204 1,881 -- 3,085
Property held for sale.................................... 3,323 -- -- 3,323
Deferred income taxes..................................... 1,142 -- -- 1,142
-------- -------- -------- --------
Total current assets.................................... 28,278 33,363 17,674 79,315
-------- -------- -------- --------
Property and equipment, net................................. 77,986 129,554 -- 207,540
Other assets:
Goodwill, net............................................. 20,318 13,625 40,495 (b) 74,438
Deferred lease cost, net.................................. 314 -- -- 314
Deferred financing cost, net.............................. 4,578 -- 6,989 (c) 11,567
Environmental receivables, net............................ 6,511 1,521 -- 8,032
Deferred income taxes..................................... 156 -- -- 156
Other..................................................... 4,658 1,042 (4,049)(a) 1,651
-------- -------- -------- --------
Total other assets..................................... 36,535 16,188 43,435 96,158
-------- -------- -------- --------
Total assets................................................ $142,799 $179,105 $ 61,109 $383,013
======== ======== ======== ========
Liabilities and Shareholders' Equity
Current Liabilities:
Current maturities of long-term debt..................... $ 33 $ 10,700 $(10,700)(a) $ 33
Current maturities of capital lease
obligations............................................. 285 990 -- 1,275
Accounts payable......................................... 19,057 20,378 -- 39,435
Accrued expenses......................................... 17,148 16,329 (500)(d) 32,977
-------- -------- -------- --------
Total current liabilities.............................. 36,523 48,397 (11,200) 73,720
-------- -------- -------- --------
Senior notes payable, 12%, due November 15, 2000............ 100,000 -- (51,000)(a) 49,000
Senior subordinated notes................................... -- -- 200,000 (a) 200,000
Other long-term debt........................................ 305 -- -- 305
-------- -------- -------- --------
Total long-term debt...................................... 100,305 -- 149,000 249,305
-------- -------- -------- --------
Other non-current liabilities:
Environmental reserve..................................... 7,806 3,150 -- 10,956
Capital lease obligations................................. 679 11,837 -- 12,516
Employment obligations.................................... 1,341 -- -- 1,341
Accrued dividends on preferred stock...................... 7,958 -- -- 7,958
Deferred income taxes....................................... -- 9,824 (3,844)(e) 5,980
Other..................................................... 6,060 7,972 -- 14,032
-------- -------- -------- --------
Total other non-current liabilities..................... 23,844 32,783 (3,844) 52,783
-------- -------- -------- --------
Shareholders' equity:
Preferred stock........................................... -- -- -- --
Common stock.............................................. 1 1 (1)(f) 1
Additional paid-in capital................................ 5,396 67,966 (36,966)(a)(f) 36,396
Retained earnings (deficit)............................... (23,270) 29,958 (35,880)(f) (29,192)
Total shareholders' equity.............................. (17,873) 97,925 (72,847) 7,205
-------- -------- -------- --------
Total liabilities and shareholders' equity.................. $142,799 $179,105 $ 61,109 $383,013
======== ======== ======== ========
</TABLE>
See Notes to Unaudited Pro Forma Balance Sheet Data
32
<PAGE>
Notes to Unaudited Pro Forma Balance Sheet Data
(a) Reflects the following:
<TABLE>
<CAPTION>
Cash Inflows:
<S> <C>
Proceeds from issuance of Notes...................................... $200,000
Proceeds from Equity Investment...................................... 32,400
--------
Total cash inflows................................................... 232,400
--------
Cash Outflows:
Purchase price of Lil' Champ Acquisition (net of cash
in escrow of $4,049)................................................ 128,651
Repayment of existing Lil' Champ debt................................ 10,700
Repurchase of Senior Notes........................................... 51,000
Payment of accrued interest related to Senior Notes and
existing Lil' Champ debt............................................ 2,375
Costs related to the Tender Offer.................................... 7,000
Transaction expenses................................................. 15,000
--------
Total cash outflows.................................................. 214,726
--------
Net cash inflows..................................................... $ 17,674
========
</TABLE>
(b) For purposes of the pro forma information, the excess of the purchase price
over the historical net assets of Lil' Champ has been considered to be
goodwill and other intangible assets, pending the completion of appraisals
and other purchase price allocation adjustments. The adjustment reflects
the following:
<TABLE>
<S> <C>
Purchase price of Lil' Champ Acquisition............................. $132,700
Allocation of transaction expenses to the Lil' Champ Acquisition..... 4,500
Severance, net of tax................................................ 1,220
Elimination of historical shareholders' equity of Lil' Champ......... (97,925)
--------
$ 40,495
========
</TABLE>
(c) Reflects the (i) write-off of deferred financing costs upon the repurchase
of $51.0 million of the Senior Notes ($2.1 million) and (ii) allocation of
transaction expenses related to the Notes Offering ($9.1 million).
(d) Reflects the (i) repayment of accrued interest in connection with the
repayment of existing Lil' Champ debt and the repurchase of $51.0 million
of the Senior Notes ($2.4 million) and (ii) severance incurred in
connection with the Lil' Champ Acquisition ($1.9 million).
(e) Reflects the tax effects of (i) costs related to the Tender Offer and
Consent Solicitation and write-off of deferred financing costs in
connection with the repurchase of $51.0 million of the Senior Notes and
(ii) severance incurred in connection with the acquisition of Lil' Champ.
(f) Reflects the (i) proceeds, net of $1.4 million of transaction expenses,
from the Equity Investment of $31.0 million, (ii) elimination of historical
shareholders' equity of Lil' Champ and (iii) nonrecurring charges, net of
tax, related to the costs of the Tender Offer and the Consent Solicitation
and write-off of deferred financing costs in connection with the repurchase
of $51.0 million of the Senior Notes (approximately $4.6 million and $1.4
million, respectively).
33
<PAGE>
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS DATA
Year Ended September 25, 1997
(dollars in thousands)
<TABLE>
<CAPTION>
Historical
-----------------------
Year Ended
-----------------------
Latest
Twelve
Months
Ended
September September
25, 1997 27, 1997 Pro Forma Adjustments
---------- --------- ----------------------------------------------------
Other
Lil' Acquisitions/
The Pantry Champ The Transactions Dispositions(f) Pro Forma
---------- --------- ---------------- --------------- ---------
(52 weeks) (52 weeks)
<S> <C> <C> <C> <C> <C>
Revenues:
Merchandise sales............................... $202,440 $232,250 $ -- $ 8,881 $443,571
Gasoline sales................................. 220,166 286,373 -- 18,521 525,060
Commissions.................................... 4,787 8,156 -- 436 13,379
-------- -------- --------- ------- --------
Total revenues................................. 427,393 526,779 -- 27,838 982,010
-------- -------- --------- ------- --------
Cost of Sales:
Merchandise.................................... 132,846 152,847 -- 6,289 291,982
Gasoline....................................... 197,268 259,003 -- 15,841 472,112
-------- -------- --------- ------- --------
Total cost of sales............................ 330,114 411,850 -- 22,130 764,094
-------- -------- --------- ------- --------
Gross profit.................................... 97,279 114,929 -- 5,708 217,916
-------- -------- --------- ------- --------
Store operating expenses........................ 60,208 74,574 -- 3,295 138,077
General and administrative
expenses....................................... 16,796 15,375 (500)(a) -- 31,671
Environmental remediation charge.............. -- 3,381 -- -- 3,381
Depreciation and amortization................... 9,504 11,911 2,306 (b) 79 23,800
-------- -------- --------- ------- --------
Total operating expenses....................... 86,508 105,241 1,806 3,374 196,929
-------- -------- --------- ------- --------
Income from operations.......................... 10,771 9,688 (1,806) 2,334 20,987
Other income (expense):
Interest....................................... (13,039) (2,388) (13,042)(c) (17) (28,486)
Miscellaneous.................................. 1,293 1,370 -- (4) 2,659
-------- -------- --------- ------- --------
Total other expenses........................... (11,746) (1,018) (13,042) (21) (25,827)
-------- -------- --------- ------- --------
Income (loss) before income taxes............... (975) 8,670 (14,848) 2,313 (4,840)
Income tax benefit (expense).................... -- (3,582) 5,198 (d) (810) 806
-------- -------- --------- ------- --------
Net income (loss)............................... $ (975) $ 5,088 $ (9,650)(e) $ 1,503 $ (4,034)
======== ======== ======== ======= ========
</TABLE>
See Notes to Unaudited Pro Forma Statement of Operations Data
34
<PAGE>
Notes to Unaudited Pro Forma Statement of Operations Data
(a) Historically, Lil' Champ paid Docks U.S.A., Inc. ("DUSA"), Lil' Champ's
parent company, service agreement fees. The service agreement has been
terminated concurrent with the Lil' Champ Acquisition and will not be
replaced by a similar arrangement.
(b) The Lil' Champ Acquisition will be accounted for under the purchase method
of accounting. Under the purchase method of accounting, the total purchase
price will be allocated to the tangible and intangible assets acquired and
liabilities assumed by The Pantry based on their respective fair values as
of the acquisition date based upon valuations and other studies not yet
available. For purposes of the pro forma information, the excess of the
purchase price over the historical net assets of Lil' Champ has been
considered to be goodwill and other intangible assets, pending the
completion of appraisals and other purchase price allocation adjustments.
Assuming the pro forma remaining excess purchase costs to be allocated will
be amortized over a weighted-average period of approximately 30 years, the
resulting amortization is approximately $1.4 million for the year ended
September 25, 1997. Additionally, deferred financing costs incurred in
connection with the Notes Offering will be amortized over 10 years. The
resulting amortization is approximately $0.9 million for the year ended
September 25, 1997.
(c) Reflects additional interest expense to be incurred by the Company in
connection with the Notes Offering, and reductions in interest expense for
the repayment of existing Lil' Champ debt and the repurchase of Senior
Notes as follows:
<TABLE>
<CAPTION>
Principal Interest
--------- --------
(dollars in thousands)
<S> <C> <C>
Notes Offering.................................. $200,000 $20,500
Repayment of existing Lil' Champ Debt........... 10,700 (1,140)
Repurchase of Senior Notes...................... 51,000 (6,318)
-------
$13,042
=======
</TABLE>
(d) Adjusts income tax benefit for assumed tax effect of pro forma adjustments
using an estimated 35% rate.
(e) Net income (loss) excludes the effect of charges, net of tax, related to
the costs of the Tender Offer and Consent Solicitation and write-off of
deferred financing costs in connection with the repurchase of $51.0 million
of the Senior Notes ($4.6 million and $1.4 million, respectively).
(f) Subsequent to fiscal 1996, The Pantry has acquired 35 stores, acquired 23
third-party gasoline operations and disposed of 21 stores. This adjustment
gives effect to the acquisitions and dispositions as if they occurred at
the beginning of the period.
35
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
2.1 Stock Purchase Agreement, dated as of August 26, 1997, by and
between PH Holding Corporation and Docks U.S.A., Inc.
2.2 Assignment and Assumption Agreement, dated as of October 23, 1997,
by and between The Pantry, Inc. and PH Holding Corporation.
27.1 Financial Data Schedule for the Year ended September 25, 1997.
</TABLE>
<PAGE>
EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
DATED AS OF
AUGUST 26, 1997
BETWEEN
PH HOLDING CORPORATION
AND
DOCKS U.S.A., INC.
<PAGE>
i
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE I.............................................................................. 1
SALE AND PURCHASE OF THE SHARES....................................................... 1
1.01 Shares to be Sold.............................................................. 1
1.02 Consideration.................................................................. 1
1.03 Earnest Money.................................................................. 1
ARTICLE II............................................................................. 1
THE CLOSING........................................................................... 2
2.01 Time and Place................................................................. 2
2.02 Deliveries by Seller........................................................... 2
2.03 Deliveries by Purchaser........................................................ 2
ARTICLE III............................................................................ 2
REPRESENTATIONS AND WARRANTIES OF SELLER.............................................. 2
3.01 Power to Sell the Shares....................................................... 2
3.02 Corporate Organization......................................................... 2
3.03 Due Authorization and Execution; Valid and Binding Agreement; No Violation..... 3
3.04 Capitalization................................................................. 3
3.05 Consents and Approvals of Governmental Authorities............................. 4
3.06 Financial Statements........................................................... 4
3.07 No Undisclosed Liabilities..................................................... 4
3.08 Absence of Certain Changes..................................................... 4
3.09 Real Property Owned by the Company............................................. 6
3.10 Maintenance of Stores and Equipment............................................ 6
3.11 Real Property Leases........................................................... 6
3.12 No Condemnation or Expropriation............................................... 7
3.13 Trademarks and Tradenames...................................................... 7
3.14 Litigation..................................................................... 7
3.15 Subsidiaries................................................................... 7
3.16 Taxes.......................................................................... 7
3.17 Employee Benefits.............................................................. 9
3.18 Bank Accounts.................................................................. 10
3.19 Compliance with Law............................................................ 10
3.20 Insurance...................................................................... 10
3.21 Labor Difficulties............................................................. 11
3.22 Contracts...................................................................... 11
3.23 Transactions with Certain Persons.............................................. 12
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
3.24 Environmental Disclaimer....................................................... 12
3.25 Suppliers...................................................................... 13
</TABLE>
ii
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<S> <C> <C>
3.26 Title to Assets................................................................ 13
3.27 Inventory...................................................................... 13
3.28 No Other Representations or Warranties; Disclaimer............................. 14
ARTICLE IV............................................................................. 15
REPRESENTATIONS AND WARRANTIES OF PURCHASER........................................... 15
4.01 Corporate Organization; Etc.................................................... 15
4.02 Authorization, Etc............................................................. 15
4.03 No Violation................................................................... 15
4.04 Consents and Approvals of Governmental Authorities............................. 16
ARTICLE V.............................................................................. 16
CONDUCT OF BUSINESS PENDING THE CLOSING............................................... 16
5.01 Regular Course of Business..................................................... 16
5.02 Amendments..................................................................... 16
5.03 Capital Changes................................................................ 16
5.04 Other Actions.................................................................. 16
5.05 Facilities Matters............................................................. 16
5.06 Approval and Consultation...................................................... 16
5.07 No Agreements.................................................................. 16
ARTICLE VI............................................................................. 17
COVENANTS OF THE PARTIES.............................................................. 18
6.01 Reasonable Access.............................................................. 18
6.02 Confidentiality................................................................ 18
6.03 Hart-Scott-Rodino Act.......................................................... 19
6.04 Records; Access by Seller...................................................... 19
6.05 Regulatory and Other Authorizations and Consents............................... 19
6.06 Employment and Employee Benefits............................................... 20
6.07 No Public Announcement......................................................... 20
6.08 Certain Indebtedness........................................................... 20
6.09 Consent Leases................................................................. 19
6.10 Long John Silver............................................................... 21
6.11 Further Assurances............................................................. 24
6.12 Supplements to Schedules....................................................... 24
6.13 Tax Matters.................................................................... 24
6.14 Acquisition Proposals.......................................................... 25
6.15 Reserve........................................................................ 26
</TABLE>
<PAGE>
iii
<TABLE>
<S> <C> <C>
ARTICLE VII............................................................................. 27
MUTUAL CONDITIONS...................................................................... 27
7.01 Hart-Scott-Rodino Act........................................................... 28
7.02 Orders; Etc..................................................................... 28
ARTICLE VIII............................................................................ 28
CONDITIONS TO PURCHASER'S OBLIGATIONS.................................................. 28
8.01 Representations and Warranties True............................................. 28
8.02 Performance..................................................................... 28
8.03 Certificates.................................................................... 28
8.04 Indemnity....................................................................... 28
8.05 Resignation..................................................................... 28
8.06 Auchan Letter................................................................... 27
8.07 Legal Opinions.................................................................. 27
8.08 Regulatory and other Authorizations and Consents................................ 27
8.09 Material Adverse Change......................................................... 27
ARTICLE IX.............................................................................. 29
CONDITIONS TO SELLER'S OBLIGATIONS..................................................... 29
9.01 Representations and Warranties True............................................. 29
9.02 Performance..................................................................... 29
9.03 Certificates.................................................................... 30
9.04 Legal Opinions.................................................................. 28
ARTICLE X............................................................................... 30
SURVIVAL AND INDEMNIFICATION........................................................... 30
10.01 Survival........................................................................ 30
10.02 Indemnification by Seller....................................................... 30
10.03 Indemnification by Purchaser.................................................... 30
10.04 Limitations on Indemnification.................................................. 31
10.05 Conditions of Indemnification................................................... 31
ARTICLE XI.............................................................................. 32
TERMINATION AND REMEDIES............................................................... 32
11.01 Termination..................................................................... 32
11.02 Remedies........................................................................ 32
</TABLE>
<PAGE>
iv
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<S> <C> <C>
ARTICLE XII............................................................................ 34
MISCELLANEOUS PROVISIONS.............................................................. 34
12.01 Commissions and Finders' Fees................................................. 34
12.02 Amendment and Modification.................................................... 33
12.03 Waiver of Compliance.......................................................... 34
12.04 Expenses...................................................................... 35
12.05 Notices....................................................................... 35
12.06 Assignment.................................................................... 36
12.07 Governing Law................................................................. 36
12.08 Counterparts.................................................................. 37
12.09 Effectiveness; Binding Effect................................................. 37
12.10 Headings...................................................................... 35
12.11 Entire Agreement.............................................................. 37
12.12 Third Parties................................................................. 37
12.13 No Recourse Against Others.................................................... 37
12.14 Mutual Agreement.............................................................. 38
12.15 Severability.................................................................. 38
</TABLE>
<PAGE>
v
SCHEDULES
---------
<TABLE>
<S> <C>
3.03 Agreements Requiring Consent, Notification, Etc. (Seller)
3.05 Consents and Approvals of Governmental Authorities
3.07 Certain Liabilities
3.08 Certain Changes
3.09 Owned Real Property
3.10 Certain Maintenance
3.11 Real Property Leases
3.12 Condemnations
3.13 Trademarks and Tradenames
3.14 Litigation
3.15 Subsidiaries
3.16 Taxes
3.17 Employee Benefits
3.18 Bank Accounts
3.19 Compliance with Law
3.20 Insurance
3.21 Labor Difficulties
3.22 Material Contracts
3.23 Related Party Transactions
3.25 Suppliers
3.27 Inventory
4.03 Agreements Requiring Consent, Notification, Etc. (Purchaser)
4.04 Consents and Approvals of Governmental Authorities (Purchaser)
5.05 Facilities Matters
6.08 Certain Indebtedness
6.09 Consent Leases
6.13 Tax Matters
8.06 Auchan Letter
8.07 Legal Opinions (Counsels to Seller, the Company and Auchan)
9.04 Legal Opinions (Counsel to Purchaser)
</TABLE>
<PAGE>
STOCK PURCHASE AGREEMENT
------------------------
STOCK PURCHASE AGREEMENT dated as of August 26, 1997 between PH
Holding Corporation, a North Carolina corporation ("Purchaser") and Docks
U.S.A., Inc., a Nevada corporation ("Seller").
Seller owns an aggregate of 500 shares of Common Stock, $1.00 par
value per share (the "Shares"), of Lil' Champ Food Stores, Inc., a Florida
corporation (the "Company"), constituting all of the outstanding capital stock
of the Company. This Agreement sets forth the terms and conditions upon which
Purchaser will purchase the Shares from Seller. In consideration of the mutual
agreements contained herein, the parties agree as follows:
ARTICLE I
SALE AND PURCHASE OF THE SHARES
-------------------------------
1.01 SHARES TO BE SOLD. Subject to the terms and conditions of this
-----------------
Agreement, at the Closing provided for in Section 2.01 hereof (the "Closing"),
Seller shall sell, transfer and deliver the Shares to Purchaser, and Purchaser
shall purchase the Shares from Seller, free and clear of any Encumbrance (as
hereinafter defined), and upon such transfer Purchaser shall have good title to
all of the Shares.
1.02 CONSIDERATION. Subject to the terms and conditions of this
-------------
Agreement, as consideration for the Shares, Purchaser will at the Closing (a)
pay to Seller in cash an aggregate of $132,700,000; and (b) repay all
outstanding indebtedness under the Credit Agreements (as hereinafter defined).
1.03 EARNEST MONEY. Simultaneously with the execution and delivery
-------------
of this Agreement, Purchaser is depositing $4,000,000 (the "Earnest Money") by
wire transfer at Purchaser's expense to Societe Generale, New York Branch to be
held pursuant to the Escrow Agreement of even date herewith (the "Escrow
Agreement") among Purchaser, Seller and Societe Generale, New York Branch as
Escrow Agent. If the Closing occurs, the Earnest Money, together with all
interest earned thereon, shall be applied to the purchase price payable by
Purchaser pursuant to Section 1.02 hereof and shall be released to Seller at
Closing. If the Closing does not occur, the Earnest Money and all interest
earned thereon shall be held pursuant to the Escrow Agreement until final
disposition thereof in accordance with Article XI hereof and the terms of the
Escrow Agreement.
1
<PAGE>
ARTICLE II
THE CLOSING
-----------
2.01 TIME AND PLACE. The Closing of the transactions contemplated by
--------------
this Agreement will take place at the offices of Bureau Francis Lefebvre-New
York, 712 Fifth Avenue, New York at 10:00 A.M. local time, on the Closing Date
(as hereinafter defined). Subject to Section 11.01 hereof and the satisfaction
or waiver of the conditions set forth in Articles VII, VIII and IX, the Closing
shall occur on October 31, 1997, or on such other date as the parties shall
mutually agree. The date of the Closing is hereinafter sometimes referred to as
the "Closing Date".
2.02 DELIVERIES BY SELLER. At the Closing, Seller shall deliver the
--------------------
following: (a) the certificate representing the Shares, duly endorsed in blank
or accompanied by stock powers duly executed in blank; and (b) the various
certificates, documents and instruments referred to in Article VIII hereof.
2.03 DELIVERIES BY PURCHASER. At the Closing, Purchaser shall
-----------------------
deliver the following: (a) the consideration set forth in Section 1.02(a)
hereof, by wire transfer of funds to an account designated by Seller in writing
at least three days prior to the Closing; (b) the consideration set forth in
Section 1.02(b) hereof, by wire transfer of funds to the accounts designated by
the lending banks named in the Credit Agreements at least three days prior to
the Closing; and (c) the various certificates, documents and instruments
referred to in Article IX hereto.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
----------------------------------------
Seller represents and warrants to Purchaser as follows:
3.01 POWER TO SELL THE SHARES. Seller has the power to and at the
------------------------
Closing shall, sell, assign, transfer and deliver to Purchaser good title to the
Shares, free and clear of all claims, charges, security interests, liens,
pledges, mortgages, assessments, options and encumbrances (collectively
"Encumbrances"), and with no restriction on the voting rights and other
incidents of record ownership pertaining thereto.
3.02 CORPORATE ORGANIZATION. Seller is a corporation validly
----------------------
existing and in good standing under the laws of the State of Nevada and has all
requisite corporate power and corporate authority to enter into this Agreement
and to perform its obligations hereunder. The Company is a corporation validly
existing and in good standing under the laws of the State of Florida and has all
requisite corporate power and corporate authority to carry on its business as it
is now being conducted and to own the properties and assets it now owns; and is
duly
2
<PAGE>
qualified or licensed to do business as a foreign corporation in good standing
in all jurisdictions in which the ownership of property or the conduct of its
business requires such qualification, except where the failure to so qualify
would not have a material adverse effect upon the financial condition, business,
operations or prospects of the Company (a "Material Adverse Effect").
3.03 DUE AUTHORIZATION AND EXECUTION; VALID AND BINDING AGREEMENT;
-------------------------------------------------------------
NO VIOLATION. The execution, delivery and performance by Seller of this
- ------------
Agreement have been duly authorized by all necessary corporate action required
by law or Seller's organizational documents. This Agreement has been duly
executed and delivered by Seller and, assuming due authorization, execution and
delivery by Purchaser, constitutes a valid and binding agreement of Seller,
enforceable in accordance with its terms. Except as set forth on Schedule 3.03,
neither the execution and delivery of this Agreement by Seller nor the
consummation of the transactions contemplated hereby will violate any provision
of the organizational documents of Seller or the Company, or, to the knowledge
of Seller, violate any law or regulation applicable to Seller or the Company,
or, to the knowledge of Seller, violate, or be in conflict with, or constitute a
default under, or cause the amendment, modification or acceleration of, or give
any party the right to amend, modify or refuse to perform, or modify the time
within which duties are to be performed or rights or benefits are to be received
under, or cause the acceleration of the maturity of any debt or obligation
pursuant to, or result in the creation or imposition of any security interest,
lien or other encumbrance upon any property or asset of Seller or the Company
under, any lease, agreement, understanding, restriction or commitment or any
judgment, decree, or order of any court or governmental or regulatory authority
or agency to which Seller or the Company is a party or by which Seller or the
Company is bound, or to which the property of Seller or the Company is subject,
except for minor violations, conflicts or defaults which would not have a
Material Adverse Effect. As used in this Agreement, "knowledge of Seller" shall
mean the actual knowledge of the executive officers of Seller or the actual
knowledge after reasonable inquiry of the executive officers of the Company
(i.e. Eddie Jackson, Victor Jackson and Dale Fish).
----
3.04 CAPITALIZATION. The authorized capital stock of the Company
--------------
consists of 500 shares of Common Stock, $1.00 par value, of which 500 shares are
issued and outstanding and none are issued and held in treasury. All issued and
outstanding shares of capital stock of the Company are duly authorized, validly
issued, fully paid and nonassessable; and all such shares are owned beneficially
and of record by Seller. There are no outstanding (a) securities convertible
into, exchangeable for or evidencing the right to purchase any capital stock of
the Company; (b) options, warrants, calls or other rights to purchase or
subscribe to the Company's capital stock or securities convertible into,
exchangeable for or evidencing the right to purchase any shares of the Company's
capital stock; or (c) contracts, commitments, agreements, understandings or
arrangements of any kind
3
<PAGE>
relating to the issuance of any capital stock of the Company, any such
convertible or exchangeable securities or any such other securities evidencing
the right to purchase any such options, warrants or rights.
3.05 CONSENTS AND APPROVALS OF GOVERNMENTAL AUTHORITIES. Except as
--------------------------------------------------
disclosed on Schedule 3.05, to the knowledge of Seller, no consent, approval or
authorization of, or declaration, filing or registration with, any governmental
or regulatory authority is required in connection with the execution, delivery
and performance of this Agreement by Seller or the consummation by Seller of the
transactions contemplated hereby or is required for the continued operation of
the Company's business after the Closing.
3.06 FINANCIAL STATEMENTS. Seller has heretofore delivered to
--------------------
Purchaser: (i) a balance sheet of the Company as at December 28, 1996, December
30, 1995 and December 31, 1994, and statements of operations, cash flow and
stockholders' equity for each of the fiscal years then ended, audited by the
Company's independent public accountants; and (ii) an audited balance sheet of
the Company as at May 31, 1997 (the "Balance Sheet") and audited statements of
income, cash flow and stockholders' equity for the five-month period then ended.
Such balance sheets of the Company and the notes thereto present fairly the
financial position of the Company as at the respective dates thereof, and such
statements of operations, cash flow and stockholders' equity of the Company and
the notes thereto present fairly the results of operations, cash flow and
stockholders' equity of the Company for the periods therein referred to; all in
accordance with generally accepted accounting principles consistently followed
throughout the periods involved.
3.07 NO UNDISCLOSED LIABILITIES. To the knowledge of Seller, except
--------------------------
as disclosed on Schedule 3.07 or otherwise in this Agreement and the Schedules
hereto, the Company has no material liabilities which are not reflected or
reserved against in the Balance Sheet, except for liabilities incurred in the
ordinary course of business consistent with past practice since the date
thereof. The Company has no unamortized liabilities for rebates under any
gasoline supply agreements except as disclosed on Schedule 3.07.
3.08 ABSENCE OF CERTAIN CHANGES. Except as set forth on Schedule
--------------------------
3.08, to the knowledge of Seller, since the date of the Balance Sheet, the
Company has conducted its business in the ordinary course consistent with past
practice (except for reasonable activities relating to the proposed sale of the
Company), and the Company has not (a) suffered any material adverse change in
its financial condition, business, operations or prospects, provided that Seller
makes no representations with respect to business or economic conditions which
are generally applicable to companies in the Company's industry, or suffered any
material damage or destruction to its assets, which is not covered by insurance;
(b) sold, assigned or transferred any material assets of the Company, other than
in the ordinary course of business consistent with past practice; (c) amended,
canceled, surrendered or terminated any indebtedness, claim or material
contract, license or instrument or other right material to the Company nor has
any third party amended, canceled, surrendered or terminated
4
<PAGE>
any indebtedness, claim or material contract, license or instrument or other
right material to the Company; (d) failed to repay any material obligation of
the Company when due; (e) made any change in its accounting methods, principles,
or practices materially affecting its financial condition, results of operations
or business; (f) made any material revaluation of any of its assets, including
without limitation, any material write-offs, material increases in any reserves
or any write-up of the value of inventory, property, plant, equipment or any
other asset; (g) incurred any damage, destruction or loss (whether or not
covered by insurance) affecting any facility maintained by the Company or any
other material asset of the Company which would have a Material Adverse Effect;
(h) voluntarily created any mortgage lien or any other Encumbrance with respect
to any assets of the Company except for Encumbrances described in Sections 3.09
(other than mortgage liens) and 3.26 hereof; (i) declared, set aside or paid any
dividend or other distribution or payment (whether in cash, stock or property)
with respect to the capital stock or other equity securities of the Company or
redeemed, purchased or otherwise acquired any of the securities of the Company
or made any other payment to any stockholder of the Company in its capacity as a
stockholder or repaid any intercompany indebtedness; (j) incurred any
indebtedness for borrowed money or made any commitment to incur indebtedness for
borrowed money except pursuant to commitments or credit facilities existing on
the date of the Balance Sheet and set forth on Schedule 3.22 (the "Credit
Agreements"); (k) increased the compensation of officers or employees (including
any such increase pursuant to a modification or amendment to any bonus, pension,
profit-sharing or other plan or commitment) or granted any severance, change of
control or termination pay, except for increases in compensation in the ordinary
course of business, consistent with past practice or as required by law or any
existing agreement and except for cost-of-living or minimum wage adjustments and
other similar increases consistent with past practice; (l) added or modified any
employee benefit plans or arrangements or granted any bonus, incentive
compensation, service, award or other like benefit to any officer or employee
except in accordance with and as required by the terms of plans or arrangements
disclosed on Schedule 3.17; (m) assumed, guaranteed, endorsed or otherwise
become responsible for the obligations of any other individual, firm or
corporation, or made any loans or advances to any other individual, firm or
corporation (except for travel, entertainment or other similar advances to
officers, directors or employees of the Company in the ordinary course of
business consistent with past practice); (n) purchased or acquired any material
assets, except in the ordinary course of business consistent with past practice;
(o) settled any material litigation, other than with respect to matters fully
covered by insurance (except for deductibles and other immaterial amounts) or
with respect to which the Company is indemnified by a tobacco company; (p)
entered into any material contract, except in the ordinary course of business
consistent with past practice; (q) entered into any new transaction with any
affiliate of the Company; or (r) failed to pay estimated taxes timely in an
amount to avoid penalties and interest thereon, or failed to accrue any tax
liability incurred since the date of the Balance
5
<PAGE>
Sheet in the ordinary course of business consistent with the Company's past
practice between year-end audits.
3.09 REAL PROPERTY OWNED BY THE COMPANY. Schedule 3.09 lists all
----------------------------------
real property owned by the Company (collectively the "Real Estate"). The Company
has good, valid and marketable title in fee simple to all of the Real Estate
subject to: (a) the exceptions shown in the deeds, title insurance policies and
abstracts relating to the Real Estate, which have been made available for review
by Purchaser, provided that with respect to mortgage liens, all the indebtedness
underlying such liens has been repaid in full except as described on Schedule
3.09; (b) liens for taxes and assessments not yet delinquent; (c) survey
exceptions, reciprocal easements relating to underground tanks located on
adjacent properties, and encroachments, including encroachments by retention
ponds, drain fields and septic systems which do not materially interfere with
the present use by the Company of the Real Estate, taken as a whole; (d)
mechanics', carriers', workers', repairers' and other similar liens or
encumbrances arising or incurred in the ordinary course of business; (e)
condemnations, expropriations and takings referred to in Schedule 3.12; (f)
leases to third parties reflected on Schedule 3.11; and (g) such other liens,
leases, imperfections in title, charges, easements, restrictions, rights-of-way,
licenses, reservations, encumbrances and other matters as do not materially
interfere with the present use by the Company of the Real Estate, taken as a
whole. Except as set forth on Schedule 3.09, neither the Company nor any third
party holds any option to purchase or sell any store or any interest in the Real
Estate.
3.10 MAINTENANCE OF STORES AND EQUIPMENT. Except as disclosed on
-----------------------------------
Schedule 3.10, and except for events of Force Majeure (as hereinafter defined)
occurring after the date of this Agreement, since the date of the Balance Sheet,
the Company has performed in all material respects maintenance and made capital
expenditures in accordance with past practice and in accordance with the
Company's capital budget, a copy of which is annexed to Schedule 3.10. As used
in this Agreement, "Force Majeure" shall mean any cause beyond the reasonable
control of Seller or the Company, including, without limitation, acts of God,
hurricanes, riots, fires, floods, unusually severe weather, curtailment or
termination of sources or supplies of energy or power, inability to obtain or
delay in obtaining services, materials or supplies, embargoes or acts of
governmental authorities.
3.11 REAL PROPERTY LEASES. Schedule 3.11 lists all leases, as
--------------------
amended through the date hereof (each, a "Lease"), pursuant to which the Company
leases real property from or to other parties. Except as set forth on Schedule
3.11, true, complete and correct copies of all the Leases have been made
available for review by Purchaser. The Company is the holder of the tenant's
interest under each Lease as to which it is the lessee. Except as set forth on
Schedule 3.11, there are no existing defaults by the Company or, to the
knowledge of Seller, any other party thereunder and no event of default has
occurred which (whether with or without notice, lapse of time or the happening
or occurrence of any other event) would
6
<PAGE>
constitute a default thereunder by the Company or, to the knowledge of Seller,
any other party, except such defaults, events of default or other events which
would not result in damages or loss of properties or rental income which would
have a Material Adverse Effect.
3.12 NO CONDEMNATION OR EXPROPRIATION. Except as disclosed on
--------------------------------
Schedule 3.12, neither the whole nor any portion of the Real Estate or any
leasehold of the Company is subject to any governmental decree or order to be
sold or is being condemned, expropriated or otherwise taken by any public
authority with or without payment of compensation therefor, nor, to the
knowledge of Seller, has any such condemnation, expropriation or taking been
proposed.
3.13 TRADEMARKS AND TRADENAMES. Schedule 3.13 lists the registered
-------------------------
or unregistered trademarks and tradenames held by the Company and pending
registrations by the Company of trademarks and tradenames (the "Marks"). Except
as set forth on Schedule 3.13, the Company owns or possesses the exclusive right
to use all the Marks except for rights of others which would not have a Material
Adverse Effect. No person has the right to receive from the Company any royalty
or similar payment in respect of the Marks. All of the Marks are valid and
enforceable rights of the Company and will not be affected by the transactions
contemplated by this Agreement (not including any action taken by Purchaser). To
the knowledge of Seller, the Company has not transferred any rights in the Marks
to any third party. No proceedings have been instituted or are pending or to the
knowledge of Seller threatened which challenge the validity of the Company's use
of any such trademark or trade name. Except as set forth on Schedule 3.13,
Seller has no knowledge of any infringing use of any of the Marks by any other
person.
3.14 LITIGATION. Except as disclosed on Schedule 3.14, there
----------
is no action, suit, arbitration or proceeding pending or, to the knowledge of
Seller, threatened against the Company, which, if adversely determined against
the Company, would have a Material Adverse Effect or which challenges the
validity or propriety of the transactions contemplated by this Agreement which
could have a Material Adverse Effect. Except as set forth on Schedule 3.14, to
the knowledge of Seller, neither the Company nor any of its assets or properties
is subject to any order, judgment, injunction or decree. To the knowledge of
Seller, there is no investigation pending or threatened which, if adversely
determined against the Company, would have a Material Adverse Effect.
3.15 SUBSIDIARIES. Except as disclosed on Schedule 3.15, the Company
------------
has no subsidiaries and does not own or have the power to vote or to acquire
equity interests or any option, right, warrant or other right or instrument
convertible into or exchangeable or exercisable for any such equity interest of
any entity, corporate or otherwise.
3.16 TAXES. The Company has filed all federal, state and local tax
-----
returns
7
<PAGE>
required to be filed by it and, except as disclosed on Schedule 3.16, has duly
paid all taxes shown to be due on such tax returns. The provisions for taxes
reflected in the Balance Sheet are reasonable. There are no pending actions or
proceedings for the assessment or collection of taxes from the Company and,
except as disclosed on Schedule 3.16, there is currently no active or ongoing
tax audit. Schedule 3.16 lists the periods through which the Company's tax
returns have been examined or audited by the Internal Revenue Service or other
appropriate taxing authority. Except as set forth on Schedule 3.16, all
deficiencies and assessments asserted as a result of such examinations or other
audits by federal, state or local taxing authorities have been paid and fully
settled and no issue or claim has been asserted in writing for taxes by any
taxing authority for any prior period, the adverse determination of which would
result in a deficiency, other than those heretofore paid. Except as set forth on
Schedule 3.16, there are no outstanding agreements or waivers extending the
statutory period of limitation applicable to any tax return for any period. The
Company has delivered to Purchaser true, complete and correct copies of all the
income tax returns of the Company for the last three taxable years for which
such tax returns have been filed. The Company is not required to file tax
returns in any foreign, state or local jurisdiction for any tax period except in
those foreign, state and local jurisdictions in which it has filed. The Company
has paid or accrued as "Income taxes payable", "Other taxes payable" or
"Deferred income taxes payable" in the Current Liabilities section on the
Balance Sheet (i) all taxes (including interest, penalties or additions) for all
taxable periods ended on or prior to the date of the Balance Sheet and (ii) all
taxes (including interest, penalties or additions) properly apportionable to any
day through the date of the Balance Sheet (apportioned as if the date of the
Balance Sheet were the end of a taxable year or period) for all taxable years or
periods including, but not ending on, the date of the Balance Sheet, except that
Seller makes no representation or warranty with respect to the matter covered by
Section 6.13(e). There are no liens for taxes (other than current taxes not yet
due and payable) upon the assets of the Company except property tax liens which
are immaterial in amount. The Company has collected all sales, use and value
added taxes required to be collected, and has remitted on a timely basis such
amounts to the appropriate governmental authorities and has furnished properly
completed exemption certificates for all exempt transactions and the Company has
properly withheld income and social security taxes with respect to all persons
properly characterized as employees for federal, state or local tax purposes.
Except as set forth on Schedule 3.16, the Company is not a party to or bound by
any tax sharing, tax indemnity or tax allocation agreement or other similar
arrangement. The Company has not taken any action that would require an
adjustment pursuant to Section 481 of the Code, by reason of a change in
accounting method or otherwise. The Company has not filed a consent under
Section 341(f)(1) of the Code or agreed to have the provisions of Section
341(f)(2) of the Code applied to any disposition of "subsection (f) assets" as
such term is defined in Section 341(f)(4) of the Code. The Company has delivered
to Purchaser true and complete copies of all agreements, arrangements and
understandings, including, without limitation, employment agreements, deferred
compensation agreements, bonus arrangements, severance agreements,
8
<PAGE>
and incentive agreements in which the Company could be obligated to make any
payments that would not be deductible under Section 280G of the Code.
3.17 EMPLOYEE BENEFITS.
-----------------
(a) Schedule 3.17 contains a complete list of all Employee
Benefit Plans (as hereinafter defined) and all fringe benefits provided by the
Company to its employees. For purposes of this Agreement, "Employee Benefit
Plan" means any "employee pension benefit plan" (as defined in Section 3(2) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA")) and
any "employee welfare benefit plan" (as defined in Section 3(1) of ERISA).
Copies of (i) all Employee Benefit Plans, (ii) all related trust agreements,
insurance contracts and summary plan descriptions, (iii) all annual reports
filed on IRS Form 5500, 5500C or 5500R for the last three plan years for each
Employee Benefit Plan and (iv) the most recent determination letters (if
applicable) issued by the Internal Revenue Service with respect to each Employee
Benefit Plan have been made available for review by Purchaser. To the knowledge
of Seller, except as set forth on Schedule 3.17, each Employee Benefit Plan has
been administered in accordance with its terms and the Company has met its
obligations with respect to such Employee Benefit Plan and has made all required
contributions thereto and all such amounts are fully deductible. To the
knowledge of Seller, the Company has made no commitments to make any voluntary
contributions to or to voluntarily fund any Employee Benefit Plans except as set
forth in Schedule 3.17. To the knowledge of Seller, the Company and all Employee
Benefit Plans are in compliance with the currently applicable provisions of
ERISA and the Internal Revenue Code of 1986, as amended (the "Code"), and the
regulations thereunder.
(b) Except as set forth in Schedule 3.17, to the knowledge of
Seller, there are no investigations by any governmental entity, termination
proceedings or other claims, suits or proceedings against or involving any
Employee Benefit Plan or asserting any rights or claims to benefits under any
Employee Benefit Plan.
(c) All the Employee Benefit Plans that are intended to be
qualified under Section 401(a) of the Code have received determination letters
from the Internal Revenue Service to the effect that such Employee Benefit Plans
are qualified and the plans and the trusts related thereto are exempt from
federal income taxes under Sections 401(a) and 501(a), respectively, of the
Code, no such determination letter has been revoked and, to the knowledge of
Seller, such revocation has not been threatened, and no such Employee Benefit
Plan has been amended since the date of its most recent determination letter or
application therefor in any respect, and, except as set forth on Schedule 3.17,
no act or omission has occurred, that would adversely affect its qualification
or increase its cost.
(d) At no time has the Company been obligated to contribute to
any "multiemployer plan" (as defined in Section 4001(a)(3) of ERISA).
(e) There are no unfunded obligations under any Employee
Benefit Plan providing benefits after termination of employment to any employee
of the Company (or to any beneficiary of any such employee), excluding
continuation of health coverage required
9
<PAGE>
to be continued under Section 4980B of the Code or state insurance law and
benefits provided pursuant to defined contribution retirement plans (as defined
in Section 414(i) of the Code).
(f) Except as set forth in Schedule 3.17 no act or omission has
occurred and no condition exists with respect to any Employee Benefit Plan
maintained by the Company that would subject the Company to any fine, penalty,
tax or liability of any kind imposed under ERISA or the Code, the imposition of
which would have a Material Adverse Effect.
(g) To the knowledge of Seller, there exists no liability of the
Company under any insurance policy or similar arrangement procured in connection
with an Employee Benefit Plan in the nature of a retroactive rate adjustment or
loss sharing arrangement.
(h) None of the persons performing services for the Company have been
improperly classified as independent contractors or have been exempt from the
payment of wages for overtime.
(i) The Company has no intention or commitment to create any
additional Employee Benefit Plan or to modify or change any existing Employee
Benefit Plan so as to increase benefits to participants or the cost of
maintaining the Plan.
3.18 BANK ACCOUNTS. Schedule 3.18 sets forth the names of all banks, trust
-------------
companies, savings and loan associations, brokerage houses and other financial
institutions at which the Company maintains accounts or safe deposit boxes of
any nature, and the names of all persons authorized to draw thereon or make
withdrawals therefrom.
3.19 COMPLIANCE WITH LAW. Except as set forth on Schedule 3.19 or otherwise
-------------------
in this Agreement and the Schedules hereto, to the knowledge of Seller, the
Company is in compliance with all laws, ordinances, regulations, and orders
applicable to it, the failure to comply with which would have a Material Adverse
Effect. Except as set forth on Schedule 3.19, all licenses, franchises, permits
and other governmental authorizations held by the Company are valid and
sufficient to permit the operations thereof except where the failure to hold
such licenses, franchises, permits and other governmental authorizations would
not have a Material Adverse Effect. Except as set forth on Schedule 3.19 or
otherwise in this Agreement and the Schedules hereto, (a) there are no
citations, fines or penalties heretofore asserted against the Company under any
federal, state or local law or regulation which remain unpaid or which otherwise
bind any assets material to the Company, and (b) the Company has not received
any unresolved notice from any federal, state or local governmental authority
with respect to any violation of any federal, state or local law or regulation
which, if resolved against the Company, would have a Material Adverse Effect.
Nothing in this Section 3.19 shall be construed as a representation or warranty
with respect to any "Environmental Condition" (as hereinafter defined).
3.20 INSURANCE. Schedule 3.20 contains a list of all policies of
---------
fire,
10
<PAGE>
liability, workers' compensation and other forms of insurance owned or
held by or for the benefit of the Company, except title insurance and Employee
Benefit Plans, and all letters of credit and surety bonds maintained by the
Company. The Company has paid all premiums due under such policies. All such
policies, letters of credit and bonds are in full force and effect, and no
notice of cancellation or termination has been received with respect to any such
policy. Except as disclosed on Schedule 3.20, there are no risks which the
Company has designated as being self-insured. The amount and nature of the
Company's self insurance reserves, as set forth on the Balance Sheet, have been
calculated in accordance with customary actuarial practice.
3.21 LABOR DIFFICULTIES. Except as set forth on Schedule 3.21
------------------
or otherwise in this Agreement and the Schedules hereto: (a) to the knowledge
of Seller, the Company is in compliance with all applicable laws respecting
employment and employment practices, terms and conditions of employment,
employee health and safety, and wages and hours, and is not engaged in any
unfair labor practice; (b) there is no unfair labor practice, wrongful
termination or employment discrimination (age, sex, race or otherwise) charge or
complaint against the Company pending or to the knowledge of Seller, threatened;
(c) there is no labor strike, dispute, slowdown or stoppage actually pending or
threatened against or affecting the Company; (d) to the knowledge of Seller, no
representation question exists respecting the employees of the Company; (e) no
grievance or arbitration proceedings arising out of or under collective
bargaining agreements is pending and, to the knowledge of Seller, no claim
therefor exists; (f) no collective bargaining agreement which is binding on the
Company restricts it from relocating or closing any of its operations; and (g)
to the knowledge of Seller, no organizational effort has been or is being made
by or on behalf of any labor union with respect to any employees of the Company.
3.22 CONTRACTS. Schedule 3.22 lists (a) each material, written
---------
contract or agreement to which the Company is party and which cannot be
terminated without fee or penalty on notice of 30 days or less; (b) all
contracts or agreements containing covenants not to compete or rights of first
refusal; (c) all debt agreements or instruments and guarantees to which the
Company is a party or bound; and (d) any employment or consulting agreement with
any present or former director, officer or employee of the Company which remains
an executory contract (each of which is herein referred to as a "Material
Contract") other than real property leases referred to in Section 3.11. Each
Material Contract is valid, binding and enforceable against the Company and, to
the knowledge of Seller, each other party thereto in accordance with its terms.
Except as set forth on Schedules 3.03 and 3.22, there is not, with respect to
the Material Contracts, any existing default, or event of default by the Company
or, to the knowledge of Seller, any other party, or event which with or without
due notice or lapse of time or both would constitute a default or event of
default on the part of the Company, except such defaults or events of default on
the part of the Company or, to the knowledge of the Company, any other party and
other events which would not have a Material Adverse
11
<PAGE>
Effect.
3.23 TRANSACTIONS WITH CERTAIN PERSONS. Except as set forth on
---------------------------------
Schedule 3.23, to the knowledge of Seller: (a) there are no agreements between
the Company and any stockholder, affiliate, director, officer (or any member of
an officer's immediate family) or employee of the Company; and (b) no
stockholder, affiliate, director, officer (or any member of an officer's
immediate family) or employee of the Company has any interest in any property
used by the Company in the conduct of its business.
3.24 ENVIRONMENTAL DISCLAIMER. PURCHASER ACKNOWLEDGES THAT,
------------------------
HAVING BEEN GIVEN THE OPPORTUNITY TO CONDUCT ITS OWN ENVIRONMENTAL DUE DILIGENCE
WITH RESPECT TO THE COMPANY'S REAL PROPERTY AND BUSINESS, PURCHASER IS RELYING
SOLELY ON ITS OWN DUE DILIGENCE AND NOT ON ANY INFORMATION OR REPRESENTATIONS OR
WARRANTIES OF SELLER IN CONNECTION WITH ANY PAST OR PRESENT "ENVIRONMENTAL
CONDITION" (AS HEREINAFTER DEFINED). PURCHASER AGREES AND ACKNOWLEDGES THAT AS
TO ENVIRONMENTAL CONDITIONS, PURCHASER IS ACQUIRING THE SHARES AND THE COMPANY
"AS IS", "WHERE IS", "WITH ALL FAULTS" AND THAT SELLER MAKES NO REPRESENTATION,
WARRANTY OR GUARANTY WHATSOEVER, EXPRESS, IMPLIED, STATUTORY OR ARISING BY
OPERATION OF LAW, IN ANY WAY RELATING TO ANY ENVIRONMENTAL CONDITION AFFECTING
ANY OF THE COMPANY'S REAL PROPERTY, WHETHER OWNED OR LEASED, ANY OTHER REAL
PROPERTY OR OTHERWISE RELATING TO THE COMPANY. IN THE EVENT THAT ANY
INVESTIGATION, REMEDIATION OR OTHER CORRECTIVE ACTION IS AT ANY TIME REQUIRED TO
BE PERFORMED AFTER THE CLOSING AS A RESULT OF THE PRESENCE OF ANY ENVIRONMENTAL
CONDITION, PURCHASER ACKNOWLEDGES AND AGREES THAT ANY SUCH INVESTIGATION,
REMEDIATION OR CORRECTIVE ACTION SHALL BE PERFORMED BY THE COMPANY AND/OR
PURCHASER AT ITS AND/OR THEIR SOLE COST AND EXPENSE, AND THAT SELLER HAS NO DUTY
OR OBLIGATION TO PERFORM OR CAUSE TO BE PERFORMED ANY SUCH INVESTIGATION,
REMEDIATION OR CORRECTIVE ACTION OR TO INDEMNIFY PURCHASER FOR, OR CONTRIBUTE TO
THE COMPANY'S OR PURCHASER'S COST OF, SUCH INVESTIGATION, REMEDIATION OR
CORRECTIVE ACTION. PURCHASER, FOR ITSELF, ITS SUCCESSORS AND ASSIGNS, HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVES, RELEASES AND RELINQUISHES ALL CLAIMS,
RIGHTS OF INDEMNIFICATION OR CONTRIBUTION, CAUSES OF ACTION OR DEMANDS
(INCLUDING, WITHOUT LIMITATION, FOR ATTORNEYS' AND ENVIRONMENTAL CONSULTANTS'
FEES), WHICH PURCHASER, THE COMPANY OR THEIR RESPECTIVE SUCCESSORS, LEGAL
REPRESENTATIVES
12
<PAGE>
OR ASSIGNS NOW HAS OR MAY HAVE OR ALLEGE AGAINST SELLER OR ANY OF ITS
AFFILIATES, DIRECTORS, OFFICERS, EMPLOYEES OR AGENTS, BY REASON OF ANY PAST OR
PRESENT ENVIRONMENTAL CONDITION BE IT KNOWN OR UNKNOWN, LATENT OR PATENT, OR ANY
INVESTIGATION, REMEDIATION OR CORRECTIVE ACTION WHICH MAY BE REQUIRED OR
DESIRABLE WITH RESPECT THERETO. AS USED HEREIN, "ENVIRONMENTAL CONDITION" MEANS
(I) ANY ENVIRONMENTAL POLLUTION OR CONTAMINATION OF ANY KIND WHATSOEVER,
INCLUDING, WITHOUT LIMITATION, ENVIRONMENTAL POLLUTION OR CONTAMINATION FROM ANY
SPILL, DISCHARGE, LEAK, EMISSION, ESCAPE, INJECTION, DEPOSIT, EMANATION, DUMPING
OR RELEASE OF ANY KIND, IN ANY AMOUNT WHATSOEVER, OR EXPOSURE OF ANY TYPE IN ANY
WORKPLACE OR ELSEWHERE OR TO ANY MEDIUM, INCLUDING, WITHOUT LIMITATION, AMBIENT
AIR, LAND SURFACE, SUBSURFACE STRATA, SURFACE WATERS (INCLUDING NAVIGABLE AND
OCEAN WATERS), SUBSURFACE WATERS (INCLUDING GROUND WATER AND DRINKING WATER
SUPPLIES), STREAM SEDIMENT, PLANT OR ANIMAL LIFE, OR ANY OTHER ENVIRONMENTAL OR
NATURAL RESOURCE, OR FROM ANY SOURCE, USE, GENERATION, TRANSPORTATION,
TREATMENT, DISCHARGE, STORAGE, HANDLING OR DISPOSAL OF WASTE MATERIALS, RAW
MATERIALS, HAZARDOUS MATERIALS, HAZARDOUS CONSTITUENTS, TOXIC MATERIALS,
PETROLEUM PRODUCTS OR PRODUCTS OR SUBSTANCES OF ANY KIND, OR (II) ANY VIOLATION
OF OR NONCOMPLIANCE WITH ANY FEDERAL, STATE OR LOCAL LAW, RULE, REGULATION,
ORDER, PERMIT, APPROVAL, AUTHORIZATION, LICENSE OR REGISTRATION RELATING TO THE
ENVIRONMENT, NATURAL RESOURCES, PUBLIC OR EMPLOYEE HEALTH OR SAFETY AS A RESULT
OF, RELATING TO, OR IN CONNECTION WITH, ANY OF THE FOREGOING, (III) ANY
ACCUSATION, ALLEGATION, NOTICE OF VIOLATION, ACTION, CLAIM, LIEN, DEMAND,
ABATEMENT, ORDER, JUDGMENT, DECREE, ASSESSMENT OR AWARD BY ANY GOVERNMENTAL
AUTHORITY OR ANY OTHER PERSON AS A RESULT OF, RELATING TO, OR IN CONNECTION WITH
ANY OF THE FOREGOING.
3.25 SUPPLIERS. Schedule 3.25 sets forth (a) the ten largest
---------
suppliers of the Company for the 1996 calendar year other than suppliers of
utilities (the "Large Suppliers"), and (b) the amount of such payments to each
Large Supplier for the 1996 calendar year. Except set forth on Schedule 3.25,
none of the Large Suppliers has canceled or otherwise terminated or, to the
knowledge of Seller, threatened to cancel or otherwise terminate its
relationship with the Company or, since January 1, 1997, decreased materially,
or, to the knowledge of Seller, threatened to decrease or limit materially its
services, supplies or materials to the Company, whether as a result of the
transactions contemplated by this
13
<PAGE>
Agreement or otherwise.
3.26 TITLE TO ASSETS. The Company has good and valid title to
---------------
the assets owned by it, other than the Real Estate, except assets disposed of in
the ordinary course of business. None of such assets are subject to any
Encumbrance except (a) liens reflected on the Balance Sheet; (b) liens of
landlords and liens imposed by law, such as carriers', warehousemen's,
mechanics', materialmen's and vendors' liens incurred in the ordinary course of
business; (c) purchase money liens arising or created in the ordinary course of
business consistent with past practices; (d) minor imperfections of title, if
any, none of which would have a Material Adverse Effect; and (e) liens for taxes
not yet due.
3.27 INVENTORY. Except as set forth on Schedule 3.27, since
---------
January 1, 1997, the Company has continued to replenish its inventory in the
ordinary course of business consistent with past practice and has not made any
change in its inventory policies or procedures, including its accounting
policies or procedures with respect to inventory.
3.28 NO OTHER REPRESENTATIONS OR WARRANTIES; DISCLAIMER.
--------------------------------------------------
Except for the representations and warranties contained in this Article III,
neither Seller, the Company nor any other person acting on behalf thereof
(including any of their respective affiliates, officers, directors, employees,
agents or representatives) makes any representation or warranty, express,
implied, statutory or arising by operation of law, and Seller hereby disclaims
any such representation or warranty, whether by Seller, the Company or any of
their respective affiliates, officers, directors, employees, agents or
representatives or any other person, notwithstanding the delivery or disclosure
to Purchaser or any of its affiliates, officers, directors, employees, agents or
representatives or any other person of any documentation or other information by
Seller, the Company or any of their respective affiliates, officers, directors,
employees, agents or representatives or any other person. In connection with
Purchaser's investigation of the Company, Purchaser has received from Seller and
the Company certain projections, forecasts and business plan information
relating to future periods. Purchaser agrees and acknowledges that there are
uncertainties inherent in attempting to make such projections and other
forecasts and plans, that Purchaser is familiar with such uncertainties, that
Purchaser is taking full responsibility for making its own evaluation of the
adequacy and accuracy of all projections and other forecasts and plans so
furnished to it, and that Purchaser shall have no claim against Seller or any
other person with respect thereto. Accordingly, Seller makes no representation
or warranty with respect to such projections, forecasts or business plans.
EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, PURCHASER IS ACQUIRING THE
SHARES AND THE COMPANY "AS IS", "WHERE IS" AND "WITH ALL FAULTS", AND SELLER
EXPRESSLY DISCLAIMS ALL OTHER REPRESENTATIONS OR WARRANTIES, WHETHER EXPRESS,
IMPLIED, STATUTORY OR ARISING BY OPERATION OF LAW. WITHOUT LIMITING THE
GENERALITY OF THE FOREGOING, IMPLIED
14
<PAGE>
WARRANTIES OF FITNESS AND MERCHANTABILITY SHALL NOT APPLY. PURCHASER HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVES ALL PROVISIONS OF THE FLORIDA DECEPTIVE
AND UNFAIR TRADE PRACTICES ACT AND ALL PROVISIONS OF THE GEORGIA UNIFORM
DECEPTIVE TRADE PRACTICES ACT, AS AMENDED, TO THE EXTENT APPLICABLE TO THE
TRANSACTIONS CONTEMPLATED HEREBY. PURCHASER FURTHER REPRESENTS AND WARRANTS TO
SELLER THAT PURCHASER (I) HAS ASSETS OF $5,000,000 OR MORE; (II) HAS KNOWLEDGE
OF AND EXPERIENCE IN FINANCIAL AND BUSINESS MATTERS THAT ENABLE PURCHASER TO
EVALUATE THE MERITS AND RISKS OF THE TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT; (III) HAS HAD ACCESS TO ALL FINANCIAL, CORPORATE AND OTHER
INFORMATION RELATED TO THE COMPANY AND ITS BUSINESS AND OPERATIONS AND HAS HAD
THE OPPORTUNITY TO INTERVIEW AND QUESTION THE COMPANY'S MANAGEMENT CONCERNING
THE COMPANY AND ITS BUSINESS AND OPERATIONS; (IV) IS REPRESENTED BY LEGAL
COUNSEL IN CONNECTION WITH THIS AGREEMENT AND SUCH TRANSACTIONS; AND (V) IS NOT
IN A DISPARATE BARGAINING POSITION RELATIVE TO SELLER.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
-------------------------------
OF PURCHASER
------------
Purchaser hereby represents and warrants to Seller as follows:
4.01 CORPORATE ORGANIZATION; ETC. Purchaser is a corporation
---------------------------
validly existing and in good standing under the laws of its jurisdiction of
incorporation and has full corporate power and corporate authority to carry on
its business as it is now being conducted and to own the properties and assets
it now owns and to enter into this Agreement and to perform its obligations
hereunder.
4.02 AUTHORIZATION, ETC. Purchaser has taken all corporate
------------------
action required by law or its organizational documents to authorize the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby, and this Agreement, assuming due
authorization, execution and delivery by Seller, constitutes a valid and binding
agreement of Purchaser enforceable in accordance with its terms.
4.03 NO VIOLATION. Except as set forth on Schedule 4.03,
------------
neither the execution and delivery of this Agreement by Purchaser nor the
consummation of the transactions contemplated hereby will violate any provision
of the organizational documents of Purchaser, or violate, or be in conflict
with, or constitute a default under, or cause the amendment, modification or
acceleration of, or give any party the right to amend, modify or
15
<PAGE>
refuse to perform, or modify the time within which duties are to be performed or
rights or benefits are to be received under, or cause the acceleration of the
maturity of any debt or obligation pursuant to, or result in the creation or
imposition of any security interest, lien or other encumbrance upon any property
or asset of Purchaser under, any lease, agreement, understanding, restriction or
commitment or any judgment, decree, or order of any court or governmental or
regulatory authority or agency to which Purchaser is a party or by which
Purchaser is bound or to which the property of Purchaser is subject.
4.04 CONSENTS AND APPROVALS OF GOVERNMENTAL AUTHORITIES.
--------------------------------------------------
Except as disclosed on Schedule 4.04, no consent, approval or authorization of,
or declaration, filing or registration with, any governmental or regulatory
authority is required in connection with the execution, delivery and performance
by Purchaser of this Agreement or the consummation by Purchaser of the
transactions contemplated hereby.
ARTICLE V
CONDUCT OF BUSINESS PENDING THE CLOSING
Pending the Closing, and except as otherwise consented to or approved
by Purchaser in writing, Seller agrees to cause the Company to do the following:
5.01 REGULAR COURSE OF BUSINESS. The Company shall carry on
--------------------------
its business diligently and substantially in the same manner as heretofore
conducted, and the Company shall not institute any new methods of purchase,
sale, lease, management, accounting or operation or engage in any transaction or
activity, enter into any agreement or make any commitment, except in the
ordinary course of business. The Company shall use its reasonable best efforts
to preserve intact its business organization, to keep available the services of
its key personnel and to preserve the goodwill of those having business
relationships with it, including, without limitation, suppliers.
5.02 AMENDMENTS. No change or amendment shall be made in the
----------
organizational documents of the Company.
5.03 CAPITAL CHANGES. The Company will not issue or sell any
---------------
shares of its capital stock, rights or options to acquire shares of its capital
stock, or other securities, acquire directly or indirectly, by redemption or
otherwise, any such capital stock, reclassify or split-up any such capital
stock, declare or pay any dividends thereon or make any other distribution with
respect thereto, or grant or enter into any options, warrants, calls or
commitments of any kind with respect thereto. The Company will not repay any
intercompany debt or make any intercompany transfers or payments.
5.04 OTHER ACTIONS. The Company shall not take or voluntarily
-------------
suffer to
16
<PAGE>
be taken any action which would require disclosure pursuant to Section 3.08.
5.05 FACILITIES MATTERS. The Company shall continue its
------------------
retrofit program relating to compliance with the December, 1998 underground
storage tank regulations as described on Schedule 5.05, in all material
respects, subject to Force Majeure. In addition, the Company shall comply with
all applicable laws, regulations and ordinances relating to the environment,
except where failure to comply would not have a Material Adverse Effect. In the
event of any reportable release of petroleum products at any of the Company's
properties, the Company will promptly comply with all reporting requirements and
take such other measures as may be necessary to register or continue the
registration of such property for state reimbursement programs. The second and
third sentences of this Section 5.05 shall not survive the Closing and shall not
affect Purchaser's obligations under Section 10.03(b).
5.06 APPROVAL AND CONSULTATION. In any instance in which the
-------------------------
Company is prohibited by this Article V from taking any action, the Company
shall obtain the consent of Peter Sodini or William Flyg of The Pantry, Inc. or,
in their absence, Charles Rullman or Jon Ralph of Freeman Spogli & Co.,
Incorporated, which consent shall not be unreasonably withheld or delayed, prior
to taking such action. The Company will notify and consult with Peter Sodini or
William Flyg, or in their absence, Charles Rullman or Jon Ralph, prior to (a)
closing any store, office or other facility, except as required by applicable
law or in the event of casualty or as a result of the expiration of any lease;
(b) entering into any new lease, lease termination agreement or amendment or
renewal of any agreement to lease real property; or (c) selling, assigning,
subleasing, acquiring or exercising any option with respect to any store,
office, or other facility. Purchaser agrees that it has no right to prohibit
any action listed in the preceding sentence. This Section 5.06 shall not
survive the Closing.
5.07 NO AGREEMENTS. The Company will not enter into any
-------------
agreement to do any of the things prohibited by this Article V.
17
<PAGE>
ARTICLE VI
COVENANTS OF THE PARTIES
------------------------
Seller hereby covenants and agrees with Purchaser, and
Purchaser hereby covenants and agrees with Seller that:
6.01 REASONABLE ACCESS; COOPERATION. Seller shall cause the
------------------------------
Company to afford up to six authorized representatives of Purchaser at any one
time reasonable access to the offices, properties, facilities, agreements, books
and records of the Company and to make its officers and key employees reasonably
available to answer all questions put to them thereby (all at reasonable times,
upon prior notice and in a manner so as not to interfere with the normal
business operations of the Company) in order that Purchaser may have full
opportunity to make such investigations as it shall desire to make of the
affairs of the Company. Seller shall cause the Company to cooperate with
representatives of Purchaser to make the Company's officers and key employees
reasonably available for meetings outside of the Company's offices (all at
reasonable times, upon prior notice and in a manner so as not to interfere with
the normal business operations of the Company) at which the number of authorized
representatives of Purchaser shall not be limited. Seller shall cause the
Company to cooperate with Purchaser and use its reasonable best efforts to make
the officers of the Company available for presentations to Purchaser's financing
sources and investors. As soon as reasonably practicable, Seller shall furnish
Purchaser with the Company's unaudited monthly and quarterly financial
statements and weekly sales reports for all periods subsequent to May 31, 1997.
Seller makes no representation or warranty with respect to such presentations,
statements or reports, and neither Seller, nor if the Closing does not occur,
the Company nor its officers, shall have any liability with respect thereto. No
investigation pursuant to this Section 6.01 will affect or be deemed to modify
any representation or warranty of Seller.
6.02 CONFIDENTIALITY. Each party will hold and will cause its
---------------
consultants and advisors to hold in strict confidence, unless compelled to
disclose by judicial or administrative process or, in the reasonable opinion of
its counsel, by other requirements of law, all documents and information
concerning the other party furnished to it by such other party or its
representatives in connection with the transactions contemplated by this
Agreement (except to the extent that such information can be shown to have been
(i) previously known by the party to which it was furnished, (ii) in the public
domain through no fault of such party, or (iii) later lawfully acquired from
other sources by such party, and each party will not release or disclose such
information to any other person, except its auditors, attorneys, financial
advisors, bankers and other consultants and advisors in connection with this
Agreement. If the transactions contemplated by this Agreement are not
consummated, such confidence shall be maintained except to the extent such
information comes into the public domain through no fault of the party required
to hold it in confidence, and such
18
<PAGE>
information shall not be used to the detriment of the other party and all such
documents (including all copies thereof) shall immediately thereafter be
returned to the other party upon the written request of such other party. Each
party shall be deemed to have satisfied its obligation to hold such information
confidential if it exercises the same care as it takes to preserve the
confidentiality of its own similar information. This Section 6.02 is in addition
to the provisions of the Confidentiality Agreement dated April 16, 1997 (the
"Confidentiality Agreement") to which Purchaser is a party. In the event of any
conflict between this Section 6.02 and the Confidentiality Agreement, the
Confidentiality Agreement shall prevail.
6.03 HART-SCOTT-RODINO ACT. Each party shall promptly file any
---------------------
Notification and Report Form and related material that it may be required to
file with the Federal Trade Commission and the Antitrust Division of the United
States Department of Justice under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976 (the "Hart-Scott-Rodino Act"), and shall, subject to Section 6.05,
use its best efforts to obtain an early termination of the applicable waiting
period and make any further filings or information submissions pursuant thereto
that may be necessary, proper or advisable.
6.04 RECORDS; ACCESS BY SELLER. Following the Closing,
-------------------------
Purchaser shall afford Seller, its counsel, accountants and other
representatives free access to and assistance with the books and records of the
Company for periods ending on or before the Closing Date (collectively, the
"Records"), upon reasonable notice during normal business hours. Purchaser
shall not dispose of any Records for a period of seven (7) years after the
Closing Date. Thereafter, Purchaser shall not dispose of any Records until it
has given reasonable notice to Seller of its intention to do so and given Seller
a reasonable opportunity to take possession of the Records to be disposed of.
6.05 REGULATORY AND OTHER AUTHORIZATIONS AND CONSENTS. Each
------------------------------------------------
party will use all reasonable efforts to obtain the authorizations, consents,
approvals, and permits of federal, state or local regulatory bodies and
officials or private persons that may be or become necessary for that party in
connection with the performance of its obligations pursuant to this Agreement
and the consummation of the transactions contemplated hereby and will cooperate
fully with the other party in promptly seeking to obtain the authorizations,
consents, approvals and permits that may be or become so necessary for that
other party; provided, however, that, subject to Sections 6.09 and 6.10 neither
Purchaser, on the one hand, nor Seller or the Company, on the other hand, shall
be obligated to: (a) undertake any additional financial obligation, dispose of
any property or surrender any material right; (b) otherwise consent to any
arrangement or undertake any obligation which would in its judgment materially
adversely affect its business or properties; or (c) consent to the extension of
the Closing Date of this Agreement beyond that provided in Section 11.01(c) of
this Agreement. Purchaser shall have the right to approve the form of any
consent (and related correspondence) distributed by Seller or the Company
hereunder, which approval shall not be unreasonably
19
<PAGE>
withheld or delayed. The parties hereto will not take any action which will have
the effect of delaying, impairing or impeding the receipt of any required
authorizations, consents, approvals or permits. Subject to Sections 6.09 and
6.10, neither Purchaser, on the one hand, nor Seller or the Company, on the
other hand, shall agree to any modifications nor grant any concessions in order
to obtain any consents without the prior approval of Seller or Purchaser, as the
case may be.
6.06 EMPLOYMENT AND EMPLOYEE BENEFITS.
---------------------------------
(a) Purchaser presently intends that after the Closing the
Company will continue the employment of the officers and employees of the
Company employed on the Closing Date, and maintain compensation policies,
Employee Benefit Plans and benefit arrangements of the Company at least equal to
those presently made available by the Company as described on Schedule 3.17.
(b) Any provision of this Agreement to the contrary
notwithstanding, Seller shall indemnify Purchaser from any tax, interest or
penalty or other amount payable to the Internal Revenue Service with respect to
the matter described in paragraph 4 of Schedule 3.17 and Seller shall have the
right to control and defend all communications and proceedings with the Internal
Revenue Service relating thereto. Seller shall promptly provide to Purchaser all
correspondence to and from the Internal Revenue Service in connection with such
matter.
6.07 NO PUBLIC ANNOUNCEMENT. Except as required by law,
----------------------
neither party hereto shall issue any press release or make any other public
announcement concerning this Agreement or the transactions contemplated hereby
without the prior approval of the other party, which approval shall not be
unreasonably withheld.
6.08 CERTAIN INDEBTEDNESS. Except as set forth on Schedule
--------------------
6.08, immediately prior to the Closing, Seller shall repay any indebtedness owed
to the Company by Seller or any affiliate of Seller and Seller shall contribute
an additional $250,000.00 to the capital of the Company. The Company shall have
no obligation to repay any indebtedness, if any, owed to Seller.
6.09 CERTAIN LEASES.
--------------
(a) Prior to the Closing, except as otherwise provided in
this subsection (a), Seller shall use its reasonable best efforts to obtain the
consent of the landlords under the leases specified on Schedule 6.09
(collectively, the "Consent Leases"). The form of consent letter shall be
subject to the prior consent of Purchaser, which Purchaser consent shall not be
unreasonably withheld or delayed. Seller shall control the process of obtaining
consents with respect to the Consent Leases prior to the Closing, however,
Seller shall consult with Purchaser prior to soliciting consents with respect to
the Consent Leases. If within 10 days after receipt from Seller of the form of
consent letter, Purchaser requests in writing to
20
<PAGE>
Seller that Seller not solicit consents with respect to particular Consent
Leases, then Seller shall not solicit such consents. In such event, Seller shall
have no liability under this Section 6.09 or otherwise relating to the failure
to obtain consents with respect to such Consent Leases. Seller shall keep
Purchaser apprised of the status of obtaining consents and shall deliver copies
of all consents obtained pursuant to this subsection (a) to Purchaser. In
obtaining a consent, Seller may not agree to a modification of a lease without
the prior written consent of Purchaser.
(b) If Seller is unable to obtain any consent with respect to a
Consent Lease prior to the Closing, then provided all other conditions to
Closing have been fulfilled or waived, Purchaser and Seller shall nonetheless be
obligated to close the transactions contemplated hereby.
(c) Subject to the limitations specified below, Seller shall, within
ten days after Purchaser's notice to Seller of incurrence of a covered expense,
indemnify Purchaser for all amounts paid to landlords by Purchaser (including,
without limitation, any increase in rent) and out-of-pocket expenses (including,
without limitation, reasonable attorneys' fees and defense costs pursuant to
Section 6.09(d) below) incurred by Purchaser in connection with continuing the
Company's tenancy under any Consent Lease by reason of Seller's failure to
obtain a consent prior to the Closing.
(d) Purchaser shall defend in good faith with counsel reasonably
acceptable to Seller all litigation or proceedings brought by landlords with
respect to Consent Leases as to which Seller failed to obtain a consent.
Purchaser shall control all such litigation and proceedings, however, Seller
shall be entitled to participate in such defense at its own cost with counsel of
its own choosing and Purchaser shall consult with Seller in respect of all major
decisions relating to such defense. Purchaser shall not settle any such
litigation or proceeding except with the prior written consent of Seller, which
shall not be unreasonably withheld or delayed. Moreover, Purchaser and its
counsel shall present evidence and justification to Seller in reasonable detail
for all amounts for which indemnification is sought under this Section 6.09.
This Section 6.09(d) shall only apply to litigation or proceedings for which
Seller has an indemnity obligation under Section 6.09(c).
(e) In no event shall Seller be liable, in the aggregate, for
indemnification under this Section 6.09 in an amount greater than $650,000 (the
"Limit"). In addition, and without regard to the Limit, in the event a final,
unappealable judgment or order of a court having jurisdiction results in the
eviction of the Company from, or an order to vacate, a store subject to a
Consent Lease by reason of Seller's failure to have obtained a consent prior to
the Closing, then Seller shall pay Purchaser $320,000 with respect to the loss
of that store; provided further, that with respect to the stores listed on
Schedule 6.09(a), the amount so payable with respect to the loss of any store so
listed shall be $110,000; and further provided, however, that neither Purchaser
nor the Company shall be required to appeal any eviction judgment or order to
vacate of (i) a Florida court relating to a Consent Lease for a store located in
Florida or (ii) a Georgia court relating to a Consent Lease for a store located
in Georgia if prior to the date of such order, either the Georgia Supreme Court,
21
<PAGE>
the Georgia Court of Appeals or the United States Court of Appeals for the
Eleventh Circuit, applying Georgia law, has published a decision holding that a
sale of a controlling corporate stock interest constitutes an assignment of
lease where the lease prohibits assignment but does not expressly state that a
sale of a controlling corporate stock interest is deemed an assignment. The
foregoing to the contrary notwithstanding: (i) subject in all events to the
Limit, to the extent a consent or settlement with a landlord under a Consent
Lease, whether entered into before, or prior to the first anniversary of, the
Closing (or entered into thereafter in settlement of a claim, litigation or
proceeding that was pending on the first anniversary of the Closing), requires
an increase in rent, the amount indemnifiable under this Section 6.09 shall be
limited to the amount of the rent increase for the lesser of the three-year
period following the Closing or the remaining term of the lease, provided that,
subject in all events to the Limit, if prior to the third anniversary of the
Closing, the Company (A) exercises its renewal option with respect to a Consent
Lease, or (B) is required by any such consent or settlement to extend the term
of a Consent Lease, the amount indemnifiable under this Section 6.09 shall also
include that portion of any rent increase which is directly attributable to
having obtained such consent of or settlement with the landlord and which is
payable during that portion of the renewal or extended term ending on the third
anniversary of the Closing Date; and (ii) all amounts paid by Seller to
landlords under Consent Leases prior to the Closing in order to obtain consents
shall reduce the Limit and Seller shall prior to the Closing notify Purchaser in
a reasonably detailed writing of all amounts so paid. Any amounts payable by
Seller to Purchaser under this Section 6.09(e) shall be paid within ten days
after the earliest to occur of Purchaser's notice to Seller of Purchaser's
incurrence of a covered expense or delivery to Seller of a copy of the
applicable court decision, order or judgment resulting in the eviction of the
Company from, or an order to vacate, a store subject to a Consent Lease. If
Seller and Purchaser are unable to agree upon the monetary value of any
concession provided to a landlord in order to obtain a consent under a Consent
Lease, then such disagreement shall be submitted to binding arbitration as
provided below to the American Arbitration Association ("AAA") in accordance
with its rules and regulations. Each party shall select one arbitrator, with
the two selected to choose the third. If the two selected are unable to choose
the third within 25 days after the appointment of the first two, the third shall
be appointed by the AAA. The decision of the arbitrators shall be final.
(f) Any provision of this Agreement to the contrary notwithstanding,
Seller's obligations and Purchaser's rights under this Section 6.09 shall expire
on the first anniversary of the Closing, except as to claims, litigation and
proceedings pending on or asserted by that date, as to which such obligations
and rights shall survive until final resolution.
(g) Any provision of this Agreement to the contrary notwithstanding,
this Section 6.09 shall be Purchaser's exclusive remedy and Seller's exclusive
obligation and liability with respect to the failure to obtain consents with
respect to Consent Leases and is in lieu of all other representations,
warranties, covenants and
22
<PAGE>
indemnities with respect thereto.
6.10 LONG JOHN SILVER.
----------------
(a) Prior to the Closing, Seller shall use its reasonable best efforts
to obtain the written consent of Long John Silver's Inc. ("LJS") under Section
13.02 of each of the Company's License and Franchise Agreements with LJS listed
on Schedule 3.03 (collectively the "LJS Agreements") to any assignment or pledge
of any interest in the LJS Agreements that may be deemed to occur in connection
with the transactions contemplated by this Agreement, including, without
limitation, any financing in connection therewith, together with written
confirmation from LJS that Purchaser and its direct and indirect stockholders
will not be required to execute the guarantees referred to in Subsection 13.02
(b) (2) of the LJS Agreements and that its Owners (as defined in the LJS
Agreements) will not be subject to Section 13.02(b)(3) of the LJS Agreements in
connection with the transactions contemplated by this Agreement.
(b) If Seller is unable to obtain the consent and confirmation of LJS
prior to the Closing, or if the LJS Agreements are terminated prior to the
Closing, then provided all other conditions to the Closing have been fulfilled
or waived, Purchaser and Seller shall nonetheless be obligated to close the
transactions contemplated hereby.
(c) Subject to the limitations specified below, Seller shall indemnify
Purchaser for all amounts paid to LJS and all out-of-pocket expenses (including
reasonable attorneys' fees) incurred by Purchaser by reason of Seller's failure
to obtain the LJS consent and confirmation prior to the Closing. In the event
that LJS refuses to provide its consent and confirmation, Seller may take all
actions necessary to terminate the LJS Agreements; provided that Seller shall
consult with Purchaser prior to taking any such action. In the event of any
litigation or proceeding involving LJS, the provisions of Section 10.05 shall
apply provided that Purchaser shall be entitled to assume and control the
defense of any litigation or proceeding (and Seller may participate at its own
cost) if there is a reasonable basis to conclude that Damages may exceed
$120,000.
(d) In no event shall Seller's liability, in the aggregate, for
indemnification under this Section 6.10 exceed $120,000.
(e) Any provision of this Agreement to the contrary notwithstanding,
Seller's obligations and Purchaser's rights under this Section 6.10 shall expire
on the first anniversary of the Closing, except as to claims, litigation or
proceedings pending on or asserted by that date, as to which such obligations
and rights shall survive until final resolution.
(f) Any provision of this Agreement to the contrary notwithstanding,
this Section 6.10 shall be Purchaser's exclusive right and remedy and Seller's
exclusive obligation and liability with respect to Seller's failure to obtain
the LJS consent and confirmation prior to the Closing and is in lieu of all
other representations, warranties, covenants and indemnities with respect
thereto.
23
<PAGE>
6.11 FURTHER ASSURANCES. Each party shall execute and deliver
------------------
such instruments and take such other actions as the other party may reasonably
require in order to carry out the intent of this Agreement. The parties shall
give prompt notice to each other of the breach of any representation, warranty
or covenant contained in this Agreement and shall use all reasonable best
efforts to remedy such breach. In addition, Seller or the Company shall give
prompt notice to Purchaser of any material developments involving the operations
or activities of the Company including, without limitation, matters pertaining
to Environmental Conditions (with respect to which, after such notification,
Purchaser may consult with Marcia Glick). The second and third sentences of
this Section 6.11 shall not survive the Closing and shall not affect Purchaser's
obligations under Section 10.03(b).
6.12 SUPPLEMENTS TO SCHEDULES.
------------------------
(a) From time to time prior to the Closing, each party
shall promptly supplement or amend its Schedules hereto with respect to any
matter hereafter arising which, if existing or occurring at the date of this
Agreement, would have been required to be set forth or described in such
Schedules.
(b) For purposes of determining the satisfaction of the
conditions set forth in Sections 8.01 and 9.01, respectively, the Schedules
shall be deemed to include only the information contained therein on the date
hereof, without regard to any supplement or amendment, except those previously
accepted in writing by Purchaser, in the case of Section 8.01, and Seller, in
the case of Section 9.01.
(c) For purposes of determining the accuracy of the
representations and warranties of a party contained in this Agreement in order
to determine the right of the other party to any indemnification under Article X
hereof, the Schedules attached hereto on the date hereof and any supplement or
amendment thereto provided pursuant to Section 6.12 (a) hereof shall be deemed
included.
6.13 TAX MATTERS.
-----------
(a) The parties agree that after the Closing Date, Seller
shall have the right to review drafts of and approve (which approval shall not
be unreasonably withheld) all tax returns of the Company relating to taxable
periods ending (i) on or before the Closing Date and (ii) after the Closing
Date, which encompass periods prior to the Closing Date. Copies of each draft
tax return shall be delivered to Seller at least 60 days prior to the proposed
filing date thereof. If Seller does not give Purchaser notice of any objection
to such draft within 30 days of receipt of the draft, Seller shall be deemed to
have approved such draft. Purchaser shall, and shall cause the Company to,
cooperate with Seller in the review of all such tax returns and in connection
therewith provide Seller and its accountants, attorneys and other
representatives reasonable access to any and all books, records and data with
respect to the Company relevant to such tax returns, including, without
limitation, financial statements, management accounts and work papers of the
Company's accounting department and the Company's independent accountants.
24
<PAGE>
(b) In the event of a dispute with respect to any such tax return,
Purchaser and Seller shall attempt to reconcile their differences. If Purchaser
and Seller are unable to do so within ten (10) days, Purchaser and Seller shall
submit the disputed items for resolution to Price Waterhouse (the "Independent
Accounting Firm"), which, within 15 days from such submission, shall determine
and report to the parties upon such disputed items, and such report shall be
final, binding and conclusive on the parties hereto and such tax return shall be
filed on a basis which reflects such report. In acting pursuant to this Section
6.13(b) the Independent Accounting Firm shall have the rights, privileges and
immunities of an arbitrator, and its fees shall be paid one-half by Purchaser
and one-half by Seller.
(c) The provisions of subsections (a) and (b) of this Section 6.13 or
any approval of any tax return by Seller notwithstanding, Seller shall have no
liability pursuant to Article X or otherwise arising from or relating to any tax
election or amended return filed by Purchaser or the Company or any change in
the Company's tax accounting principles or policies after the Closing which
recharacterizes, restates or otherwise affects any item for any taxable period
ending on or prior to the Closing Date, except elections, amended returns or
changes required by any law in effect as of the Closing Date or by any audit of
periods prior to the Closing Date.
(d) From and after the Closing, Seller shall indemnify and hold
harmless Purchaser and the Company against (i) any federal, state, local or
foreign tax, including any interest, penalty or addition ("Taxes"), imposed on
any member of any affiliated group (other than the Company) with which Seller
files or has filed a tax return on a consolidated, combined or unitary basis for
a taxable year or period ending on or before the Closing Date with respect to
income of a member (other than the Company); (ii) Taxes or other payments
required to be made after the date of the Balance Sheet by the Company to any
party under any Tax sharing, indemnity or allocation agreement (whether or not
written) except Taxes payable on the income of the Company; or (iii) Taxes
imposed on the Company for periods ending on or prior to the date of the Balance
Sheet and Taxes properly apportioned for any partial period through the date of
the Balance Sheet (apportioned as if the date of the Balance Sheet were the end
of a taxable year or period), which Taxes have not been either (x) paid prior to
the date of the Balance Sheet or (y) accrued as "Income taxes payable", "Other
taxes payable" or "Deferred income taxes payable" in the Current Liabilities
section of the Balance Sheet. Nothing in this Agreement shall require Seller to
pay, reimburse or indemnify any taxes paid or payable on the income of the
Company for periods beginning after the date of the Balance Sheet or properly
apportioned and payable for any partial period beginning the day after the date
of the Balance Sheet (apportioned as if the day after the date of the Balance
Sheet were the beginning of a taxable year or period).
(e) Any provision of this Agreement to the contrary notwithstanding,
if Federal and/or State tax authorities challenge the Company's treatment (the
"Treatment") of certain of its stores as "retail motor fuels outlets" under
Section 168(e)(3)(E)(iii) of the Code using an applicable recovery period of 15
years and/or any corresponding provision of state law for tax periods ending on
or before the Closing Date
25
<PAGE>
(and for partial periods through the Closing Date, apportioned as if the Closing
Date were the end of a taxable year or period), then Purchaser and Seller shall
each bear one-half of any taxes, interest and/or penalties payable by the
Company in connection therewith and one-half of all out-of-pocket expenses
(including reasonable attorneys' and accountants' fees) incurred in connection
therewith; provided, however, that in no event shall Purchaser's liability, in
the aggregate, for such taxes, interest and/or penalties exceed $2,180,000 (and
Seller shall bear 100% of any such taxes, interest and/or penalties exceeding
$4,360,000); and further provided, however, that in no event shall Seller's
liability for such out-of-pocket expenses exceed, in the aggregate, $500,000
(and Purchaser shall bear 100% of any such out-of-pocket expenses exceeding
$1,000,000). The liability of the parties under this subsection 6.13(e) shall be
determined without regard to any tax benefit to the Company, as determined under
subsection 10.04(b)(ii)(A) or otherwise, and the liability of Seller under this
subsection 6.13(e) shall be determined without regard to subsection 10.04(b)(i).
In the event of any audit, litigation, proceeding or appeal with respect to the
Treatment, the provisions of Section 10.05 shall apply, but Purchaser and the
Company shall be deemed the "Indemnifying Party" and Seller shall be deemed the
"Indemnified Party" (except that Purchaser shall give Seller prompt notice of
any such audit, litigation, proceeding or appeal and the provisions of this
subsection 6.13(e) shall control the payment of out-of-pocket expenses
(including reasonable attorneys' and accountants' fees)). Any provision of this
Agreement to the contrary notwithstanding, this subsection 6.13(e) shall be
Purchaser's exclusive right and remedy and Seller's exclusive obligation and
liability with respect to the Company's liability for taxes, interest and/or
penalties and out-of-pocket expenses relating to any challenge by a tax
authority of the Treatment for tax periods ending on or before the Closing Date
(and for partial periods through the Closing Date, apportioned as if the Closing
Date were the end of a taxable year or period) and is in lieu of all other
representations, warranties, covenants and indemnities with respect thereto.
(f) Seller and Purchaser mutually agree that any indemnification
payment made by one party to the other pursuant to Sections 6.06(b), 6.09, 6.10
or 6.13 or Article X shall be treated as an adjustment to the purchase price,
and shall be accounted for as such for all tax purposes.
(g) As of the Closing Date, any and all tax sharing, indemnity or
allocation agreements shall terminate as between the Company and Seller and,
after the Closing Date, no Taxes or other amounts shall be paid or reimbursed by
the Company under any such agreement, regardless of the taxable year or period
for which such Taxes are imposed, but nothing herein shall relieve the Company
from any liability to pay Taxes payable on its income.
(h) After the date of the Balance Sheet, the Company has paid, and
shall continue to pay, only taxes incurred in the ordinary course of business
consistent with past practices and, with respect to taxes that are payable under
a tax sharing, indemnity or allocation agreement, shall pay only such taxes as
are set forth on Schedule 6.13.
26
<PAGE>
(i) Seller shall obtain shareholder approval from the shareholder
of the Company or of Seller, as reasonably requested by Purchaser, with respect
to any agreement under which a payment may be made which, in Purchaser's
reasonable judgment, could constitute a parachute payment under Code Section
280G and Proposed Treasury Regulations Section 1.280G-1, A-7.
6.14 ACQUISITION PROPOSALS. Prior to the Closing or termination of
---------------------
this Agreement under Article XI, neither Seller nor the Company nor any of their
respective directors, partners, officers, employees or other representatives or
agents shall, directly or indirectly, communicate, solicit, initiate, encourage
or participate in (including furnishing non-public information concerning the
Company's business, properties or assets) any negotiations with regard to any
proposal to acquire, directly or indirectly, any shares of the capital stock of
Seller or the Company, or to invest any funds in Seller or the Company, whether
such proposed acquisition or investment involves a stock sale, exchange offer,
merger or other business combination involving Seller or the Company or the
acquisition of a substantial portion of the assets of Seller or the Company;
provided that nothing in this Section 6.14 shall prohibit any transfer of the
shares or assets of Seller (other than capital stock of the Company) to any
affiliate of Seller.
6.15 RESERVE. Seller and Purchaser have mutually agreed that
--------
the Company reflect: (a) on the Balance Sheet (i) a long-term liability for
"Accrued Environmental Remediation" in the amount of $3,150,000 and (ii) an
additional current liability of $231,000 relating to underground storage tank
removal ((i) and (ii) being collectively referred to as the "Environmental
Accruals"); (b) on the Statement of Operations for the five months ended May 31,
1997, a reduction of "Income Before Provision for Income Taxes" resulting from
the Environmental Accruals (the "Pre-Tax Reduction"); and (c) other changes in
the Balance Sheet and the Statement of Operations directly resulting from the
Environmental Accruals and/or the Pre-Tax Reduction (the "Related Changes").
Purchaser agrees that: (a) Seller makes no representation, warranty or covenant
of any nature with respect to the Environmental Accruals, the Pre-Tax Reduction
or the Related Changes; and (b) the Environmental Accruals, the Pre-Tax
Reduction and the Related Changes shall in no way affect, or be considered in
any way in determining the accuracy or breach of, any representation, warranty,
disclaimer or covenant set forth in this Agreement, including, without
limitation, those set forth in Sections 3.06, 3.07, 3.08, 3.19, 3.24, 3.28,
5.04, 5.05, 6.12, 8.01, 10.02 and 10.03.
ARTICLE VII
MUTUAL CONDITIONS
-----------------
The respective obligations of each party to consummate the
transactions
27
<PAGE>
contemplated by this Agreement are subject to the satisfaction, on or before the
Closing Date, of each of the following conditions, unless waived in writing by
each party.
7.01 HART-SCOTT-RODINO ACT. All applicable waiting periods (and any
---------------------
extensions thereof) under the Hart-Scott-Rodino Act shall have expired or
otherwise been terminated.
7.02 ORDERS; ETC. Neither party hereto shall be subject to any order
-----------
or injunction of a court of competent jurisdiction which prohibits the
consummation of the transactions contemplated by this Agreement.
ARTICLE VIII
CONDITIONS TO PURCHASER'S OBLIGATIONS
-------------------------------------
Each and every obligation of Purchaser under this Agreement to be
performed on or before the Closing Date shall be subject to the satisfaction, on
or before the Closing Date, of each of the following conditions, unless waived
in writing by Purchaser:
8.01 REPRESENTATIONS AND WARRANTIES TRUE. The representations and
-----------------------------------
warranties of Seller contained in Article III hereof shall be in all material
respects true and accurate as of the date when made and at and as of the Closing
Date as though such representations and warranties were made at and as of such
date, except for Section 3.08(a).
8.02 PERFORMANCE. Seller shall have performed and complied with all
-----------
agreements, obligations and conditions required by this Agreement to be
performed or complied with by it on or prior to the Closing Date.
8.03 CERTIFICATES. Seller shall have furnished Purchaser with such
------------
certificates of Seller to evidence compliance with the conditions set forth in
this Article VIII as may reasonably be requested by Purchaser.
8.04 INDEMNITY. The Company shall have obtained an indemnity letter
---------
from a tobacco manufacturer in connection with each tobacco lawsuit pending on
the date hereof, in form and substance substantially similar to the ones already
obtained by the Company.
8.05 RESIGNATIONS. Purchaser shall have received letters of
------------
resignation from each of the members of the Company's Board of Directors,
effective as of the Closing Date.
8.06 AUCHAN LETTER. Seller shall have furnished to Purchaser a letter
-------------
from
28
<PAGE>
Auchan SA ("Auchan") in the form of Schedule 8.06 hereto (the "Auchan Letter")
pursuant to which Auchan agrees to be jointly and severally liable for the
obligations of Seller under this Agreement to the same extent as if Auchan were
a party hereto.
8.07 LEGAL OPINIONS. Purchaser shall have received opinions of in-
--------------
house French counsel to Auchan and U.S. counsels to Seller and the Company in
the forms of Schedule 8.07(a), (b), (c) and (d) hereof, respectively.
8.08 REGULATORY AND OTHER AUTHORIZATIONS AND CONSENTS. Subject to
------------------------------------------------
Sections 6.05, 6.09 and 6.10 all authorizations, consents, approvals and permits
of federal, state and local governmental agencies and third parties necessary to
the consummation of the transactions contemplated by this Agreement or necessary
to the continued operation of the business of the Company after the Closing to
the extent they must be obtained prior to the Closing shall have been obtained,
except those which the failure to obtain would not have a Material Adverse
Effect; provided, however, that if Purchaser waives the requirements of this
Section 8.08 with respect to any such authorization, consent, approval or
permit, Seller shall have no liability for "Damages" (as hereinafter defined)
with respect thereto.
8.09 MATERIAL ADVERSE CHANGE. During the period commencing on the date
-----------------------
of this Agreement and ending on October 15, 1997, the Company shall not have
suffered any material adverse change in its financial condition, business,
operations or prospects, excluding any such change, directly or indirectly,
caused by or resulting from any Environmental Condition or by business or
economic conditions which are generally applicable to companies in the Company's
industry.
ARTICLE IX
CONDITIONS TO SELLER'S OBLIGATIONS
----------------------------------
Each and every obligation of Seller under this Agreement to be
performed on or before the Closing Date shall be subject to the satisfaction, on
or before the Closing Date, of each of the following conditions, unless waived
in writing by Seller:
9.01 REPRESENTATIONS AND WARRANTIES TRUE. The representations
-----------------------------------
and warranties of Purchaser contained in Article IV hereof shall be in all
material respects true and accurate as of the date when made and at and as of
the Closing Date as though such representations and warranties were made at and
as of such date.
START HERE
9.02 PERFORMANCE. Purchaser shall have performed and complied
-----------
with all agreements, obligations and conditions required by this Agreement to be
performed or complied with by it on or prior to the Closing Date.
29
<PAGE>
9.03 CERTIFICATES. Purchaser shall have furnished Seller with
------------
such certificates of its officers to evidence compliance with the conditions set
forth in this Article IX as may reasonably be requested by Seller.
9.04 LEGAL OPINIONS. Seller shall have received opinions of
--------------
counsel to Purchaser and its assignee, if applicable, in the forms of Schedule
9.04(a) and (b) hereof.
ARTICLE X
SURVIVAL AND INDEMNIFICATION
----------------------------
10.01 SURVIVAL.
--------
(a) All representations and warranties made by any party
in this Agreement shall survive the Closing hereunder for a period of twelve
months following the Closing; provided that the representations and warranties
contained in Sections 3.01 and 3.04 shall survive the Closing in perpetuity and
the representations and warranties set forth in Sections 3.16 and 3.17 shall
survive the Closing through the applicable statute of limitations period.
Anything in this Agreement to the contrary notwithstanding, no claim based upon
misrepresentation or breach of representation or warranty shall be made, no
action or litigation with respect thereto commenced, and no remedy shall be
available unless written notice specifying with particularity the
misrepresentation or breach claimed shall have been delivered on or prior to the
expiration of such period in which case such representation or warranty shall
survive until the claim with respect thereto has been finally resolved.
(b) Except as otherwise provided herein, all covenants and
agreements made by any party in this Agreement shall survive the Closing
hereunder until all obligations set forth therein shall have been satisfied.
10.02 INDEMNIFICATION BY SELLER. Subject to the limitations and
-------------------------
conditions set forth in this Article X, Seller hereby agrees to indemnify,
defend and hold harmless Purchaser and each subsidiary, affiliate, director,
officer, employee or agent of Purchaser from and against all demands, claims,
actions or causes of action, assessments, losses, damages, liabilities, costs
and expenses, including, without limitation, interest, penalties and reasonable
attorneys' fees and expenses of investigation, enforcement and collection
(collectively "Damages"), asserted against or imposed upon or incurred by
Purchaser or any subsidiary or affiliate, director, officer, employee or agent
of Purchaser arising or resulting from a breach of any representation, warranty
or covenant of Seller contained in this Agreement.
10.03 INDEMNIFICATION BY PURCHASER. Subject to the limitations
----------------------------
and conditions set forth in this Article X, Purchaser and the Company, jointly
and severally, agree to indemnify, defend and hold harmless Seller, and each
subsidiary, affiliate, director, officer, employee or agent of Seller from and
against all Damages asserted against or imposed upon or incurred by Seller or
any subsidiary, affiliate, director, officer, employee or agent of Seller
30
<PAGE>
arising or resulting from (a) a breach of any representation, warranty or
covenant of Purchaser contained in this Agreement, (b) any Environmental
Condition or (c) the assets, liabilities, business, operations or employees of
the Company, whether accruing before or after the Closing Date, provided that
nothing in this clause (c) shall relieve Seller from any liability under
Sections 6.06(b), 6.09, 6.10, 6.13(d), 6.13(e) or 10.02.
10.04 LIMITATIONS ON INDEMNIFICATION.
------------------------------
(a) Except as provided in Article VI, the remedies provided in
this Article X shall be exclusive and shall preclude assertion by either party
of any other rights or the seeking of any and all other remedies against the
other for claims based on this Agreement.
(b) Any claims for indemnity under this Agreement shall be
subject to the following limitations and adjustments: (i) the provisions of
Section 10.02 shall be effective only when the aggregate amount of all Damages
for which Seller may be liable under this Article X exceeds $3,981,000 in which
case Seller shall be liable for only such amounts as exceed $3,981,000, provided
that this limitation shall not apply to indemnification for Damages for breaches
of Sections 3.01, 3.04, 6.06(b), 6.09, 6.10, 6.13(d) and 6.13(e) and further
provided that with respect to Damages arising out of a breach of Sections 3.16
or 6.13 (other than as specified in subsections 6.13(d)(i) and (ii) and
6.13(e)), which breach relates to income taxes of the Company (as opposed to and
excluding any other taxes, such as sales, use, value added, withholding, social
security, property or any other taxes), Section 10.02 shall be effective when
the amount of such Damages for which Seller may be liable exceeds $500,000; (ii)
the amount of any claim by either party for indemnification shall be subject to
adjustment to reflect (A) any actual direct or indirect income tax benefit
(taking into account the amount of any indemnification actually received)
resulting therefrom to the indemnified party, (B) any insurance coverage with
respect thereto and (C) any amounts reasonably recoverable from third parties
(net of expenses) based on claims the indemnified party has against such third
parties which would reduce the damages that could otherwise be sustained; (iii)
in no event shall Seller be liable, in the aggregate, for indemnification
hereunder in an amount greater than $33,175,000, provided, however, that Damages
arising with respect to breaches of Sections 3.01 and 3.04 shall not be subject
to such limitation; and (iv) neither party hereto shall be liable to the other
party for special, incidental, consequential or punitive damages, except that
nothing in this clause (iv) shall relieve an Indemnifying Party (as hereinafter
defined) from liability for such damages where an Indemnified Party (as
hereinafter defined) becomes liable therefor to a third party.
10.05 CONDITIONS OF INDEMNIFICATION.
-----------------------------
(a) Any party claiming a right to indemnification hereunder
(an "Indemnified Party") shall give prompt written notice to the other party
(the "Indemnifying Party") of the commencement of any action, audit,
investigation, suit or proceeding, the receipt of any demand or the occurrence
of any item or incident in connection with which the
31
<PAGE>
Indemnified Party bases its claim for indemnification from the Indemnifying
Party under this Article X.
(b) In the event the claim is a third party claim against an
Indemnified Party, upon notice from the Indemnified Party, the Indemnifying
Party may assume the defense of any such action, audit, investigation, suit,
proceeding or demand, including its compromise or settlement, and the
Indemnifying Party shall pay all reasonable costs and expenses thereof and shall
be fully responsible for the outcome thereof, subject to the provisions of
Section 10.04; provided that the Indemnifying Party's counsel shall be
reasonably satisfactory to the Indemnified Party; and provided further that (i)
the Indemnified Party is kept fully informed of all developments and is
furnished copies of all relevant papers; (ii) the Indemnifying Party diligently
prosecutes the defense; and (iii) the Indemnified Party shall have the right to
participate, at its own expense and through counsel selected by it, in the
defense of any such claim. The Indemnifying Party shall give notice to the
Indemnified Party as to its intention to assume the defense of any such action,
audit, investigation, suit, proceeding or demand within twenty (20) days after
the date of the Indemnified Party's notice thereof. If the Indemnifying Party
assumes the defense of such action, audit, investigation, suit, proceeding or
demand, (i) no compromise or settlement thereof may be effected by the
Indemnified Party without the Indemnifying Party's prior written consent (which
shall not unreasonably be withheld) and (ii) the Indemnifying Party shall have
no liability with respect to any compromise or settlement thereof effected
without its consent. If the Indemnifying Party does not, within twenty (20)
days after the receipt of written notice from the Indemnified Party, give notice
to the Indemnified Party of its assumption of the defense of the action, audit,
investigation, suit, proceeding or demand in question, then subject to the right
of the Indemnifying Party, upon written notice to Indemnified Party, to assume
the defense thereof, at any time prior to settlement, compromise or final
determination, the Indemnifying Party shall be bound by the Indemnified Party's
control of the defense thereof and by any determination made in such action,
audit, investigation, suit, proceeding or demand by a court or decision maker of
competent jurisdiction, but no compromise or settlement may be effected by the
Indemnified Party without the prior written consent of the Indemnifying Party
(which shall not be unreasonably withheld).
ARTICLE XI
TERMINATION AND REMEDIES
------------------------
11.01 TERMINATION. Anything in this Agreement to the contrary
-----------
notwithstanding:
(a) MUTUAL CONSENT. This Agreement may be terminated
--------------
by the mutual consent of the parties hereto, in which event the parties shall
promptly issue joint instructions to the Escrow Agent to release the Earnest
Money and all interest earned thereon to Purchaser.
(b) DEFAULT. In the event that a party hereto shall,
-------
contrary to the
32
<PAGE>
terms of this Agreement, intentionally take any action which prevents
consummation of the transactions contemplated hereby or intentionally fail or
refuse to consummate the transactions contemplated herein or fail or refuse to
take any other action referred to herein necessary to consummate the
transactions contemplated herein (after any applicable conditions to such
actions have been satisfied), then the non-defaulting party, after affording the
defaulting party a 10-day period after notice in which to cure such breach or
default, shall have the right, in addition to the other rights specified in
Section 11.02 below, to terminate this Agreement by written notice given to the
other party hereto. If the defaulting party is Purchaser, the Earnest Money and
all interest earned thereon shall be released to Seller. In no event shall
Purchaser be in default or Seller entitled to the Earnest Money as a result of a
failure or refusal of Purchaser to consummate the transactions contemplated
hereby unless the conditions to the Closing set forth in Article VII and Article
VIII have been satisfied or waived by Purchaser prior to the Closing.
(c) UPSET DATE. In the event that the Closing shall not have
----------
occurred on or prior to October 31, 1997, then, unless otherwise agreed to in
writing between the parties hereto, this Agreement shall terminate on or
following such date (as such date may be postponed pursuant hereto), upon
written notice given by one party to the other, unless the absence of such
occurrence shall be due to the failure or refusal of the party seeking to
terminate this Agreement of the type described in Section 11.01(b). In the event
of termination pursuant to this Section 11.01(c), where there has been no
failure or refusal on the part of Purchaser of the type referred to in Section
11.01(b) or no default on the part of Purchaser, the Earnest Money and all
interest earned thereon shall be released to Purchaser. In no event shall
Purchaser be in default or Seller be entitled to the Earnest Money as a result
of a failure or refusal of Purchaser to consummate the transactions contemplated
hereby unless the conditions to the Closing set forth in Article VII and Article
VIII have been satisfied or waived by Purchaser prior to the Closing.
(d) LEGAL RESTRAINT. Either party may, by written notice to
---------------
the other party, terminate this Agreement if at the time the written notice of
termination is given, there is in effect a preliminary or permanent injunction
enjoining consummation of the transactions contemplated hereby.
11.02 REMEDIES.
--------
(a) SPECIFIC PERFORMANCE. Subject to compliance with the
--------------------
terms of Section 11.02(d) hereof, any party desiring to proceed with the Closing
despite any failure or refusal of the other party hereto of the type described
in Section 11.01(b) hereof shall have the right to pursue the remedy of specific
performance.
(b) DAMAGES. Subject to compliance with the terms of Section
-------
11.02(d) hereof, any party terminating this Agreement pursuant to Section
11.01(b) hereof shall, if the failure or refusal referred to in Section 11.01(b)
hereof constituted a material breach of this Agreement, have the right to sue
for damages and all reasonable out-of-pocket costs and expenses, including
reasonable attorneys' fees, theretofore suffered and sustained by
33
<PAGE>
the non-defaulting party; provided, that no party shall be liable to the other
for special, incidental, consequential or punitive damages by reason of such
breach. The foregoing to the contrary notwithstanding, if the prevailing party
is Seller, Seller shall receive (as liquidated damages and as its sole and
exclusive remedy for loss of its bargain and not as a penalty) the Earnest Money
and all interest earned thereon.
(c) EFFECT OF TERMINATION. Except as set forth in Section
---------------------
11.02(b) above, any termination of this Agreement by any party hereto shall have
the effect of causing this Agreement to thereupon become void and of no further
force or effect whatsoever, and thereupon no party hereto will have any rights,
duties, liabilities or obligations of any kind or nature whatsoever against any
other party hereto based upon either this Agreement or the transactions
contemplated hereby, except in each case the obligations of each party for its
own expenses incurred in connection with the transactions contemplated by this
Agreement as provided in Section 12.04 and the obligations of each party with
respect to confidentiality set forth in Section 6.02 hereof.
(d) CURE PERIOD. Any party seeking any form of relief
-----------
referred to in Sections 11.02(a) or (b) hereof shall, as a condition to the
right to seek such relief, afford the defaulting party hereto with a 10-day
period to effect reasonable cure of such breach or default.
ARTICLE XII
MISCELLANEOUS PROVISIONS
------------------------
12.01 COMMISSIONS AND FINDERS' FEES. Each of the parties
-----------------------------
represents that the negotiations relative to this Agreement and the transactions
contemplated hereby have been carried on by Seller directly with Purchaser in
such manner as not to give rise to any claims against any of the parties hereto
for a brokerage commission, finders' fee or other like payment, except for any
fees owed to Societe Generale Securities Corporation, which are the
responsibility of Seller. Insofar as any such claims are made which are alleged
to be based on an agreement or arrangements made by, or on behalf of, a party,
such party agrees to indemnify and hold the other party harmless from and
against all liability, loss, cost, charge or expense, including reasonable
counsel fees, arising therefrom.
12.02 AMENDMENT AND MODIFICATION. This Agreement may only be
--------------------------
amended, modified and supplemented by written agreement executed by Purchaser
and Seller.
12.03 WAIVER OF COMPLIANCE. Any failure of Seller, on the one
--------------------
hand, or Purchaser, on the other, to comply with any obligation, covenant,
agreement or condition herein may be expressly waived in writing by Purchaser or
Seller, respectively, but such waiver or failure to insist upon strict
compliance with such obligation, covenant, agreement or condition shall not
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure.
34
<PAGE>
12.04 EXPENSES. Subject to Article XI hereof and the parties'
--------
ability to collect all Damages from a breach of this Agreement, if the
transactions contemplated by this Agreement are not consummated, each of the
parties hereto will pay its own expenses incurred by it or on its behalf in
connection with this Agreement or any transaction contemplated by this
Agreement, including, without limitation, all fees of its counsel. If the
transactions contemplated by this Agreement are consummated, the Company shall
pay all expenses of Purchaser in connection therewith. In addition, Seller
shall bear the expense of any stock transfer tax or sales tax applicable to the
transactions contemplated hereby.
12.05 NOTICES. All notices, requests, demands and other
-------
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given if delivered by hand or mailed, certified or
registered mail with postage prepaid or delivered by express delivery or
facsimile transmission (with copy by mail):
(a) If to Seller, to:
Docks U.S.A., Inc.
c/o SA Auchan
40 Avenue de Flandre
59170 Croix, France
Attention: Directeur Financier Groupe
Fax: 33.3.20.89.25.02
With a copy to:
Bureau Francis Lefebvre - New York
712 Fifth Avenue, 29/th/ floor
New York, NY 10019
Attention: Carina Levintoff, Esq.
Fax: (212) 246-2951
or to such other person or address as Seller shall furnish to Purchaser in
writing.
(b) If to Purchaser, to:
PH Holding Corporation
c/o The Pantry, Inc.
1801 Douglas Drive
Sanford, NC 27330
Attention: Peter J. Sodini
Fax: (919) 774-3329
35
<PAGE>
With a copy to:
Freeman Spogli & Co. Incorporated
11100 Santa Monica Boulevard, Suite 1900
Los Angeles, CA 90025
Attention: Charles P. Rullman and Jon D. Ralph
Fax: (310) 444-1870
and to:
Riordan & McKinzie
300 South Grand Avenue, 29/th/ Floor
Los Angeles, CA 90071
Attention: Richard J. Welch, Esq.
Fax: (213) 229-8550
or to such other person or address as Purchaser shall furnish to Seller in
writing.
12.06 ASSIGNMENT. This Agreement and all of the provisions
----------
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns, but neither this Agreement
nor any of the rights, interests or obligations hereunder shall be assigned by
any party hereto without the prior written consent of the other party, except
that Purchaser may assign its rights hereunder to any lender or to a wholly-
owned subsidiary of Purchaser, and Seller may assign its rights hereunder to an
affiliate of Seller in accordance with Section 6.14, provided that no such
assignment shall relieve the assignor of any of its obligations hereunder.
12.07 GOVERNING LAW.
-------------
(a) This Agreement and the legal relations among the parties
hereto shall be governed by and construed in accordance with the laws of the
State of New York without regard to its conflicts of law doctrine. In the event
of a breach of this Agreement by Seller, on the one hand, or Purchaser, on the
other hand, the non-breaching party shall be entitled to recover its costs and
expenses (including reasonable attorneys' fees) incurred in enforcing this
Agreement.
(b) The parties hereto, acting for themselves and for their
respective successors and assigns, without regard to domicile, citizenship or
residence, hereby expressly and irrevocably (i) consent and subject themselves
to the exclusive jurisdiction of the United States District Court for the
Southern District of New York or any New York State court sitting in New York
City in respect of any and all matters arising under or in connection with this
Agreement, (ii) agree that all claims, actions and proceedings arising under or
36
<PAGE>
relating to this Agreement may be heard and determined in any such court, (iii)
agree not to bring any action or proceeding arising out of or relating to this
Agreement in any other forum, and (iv) agree to the enforcement of any judgment
rendered by any such court in any court in the United States or foreign
jurisdiction, in accordance with the laws governing enforcement of judgments in
that jurisdiction. Each of the parties waives any defense of inconvenient forum
to the maintenance of any action or proceeding so brought. Service of process,
notices and demands of any such court may be made upon any party by personal
service at any place where it may be found or by mailing copies of such process,
notices, demands and communications by certified or registered mail, postage
prepaid and return receipt requested, to the address of such party hereinabove
set forth. Each party irrevocably and unconditionally waives its right to a
trial by jury.
12.08 COUNTERPARTS. This Agreement may be executed
------------
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
12.09 EFFECTIVENESS; BINDING EFFECT. This Agreement shall
-----------------------------
become effective as to each party hereto when and only when this Agreement shall
have been executed by such party; provided, however, that this Agreement shall
-------- -------
be null and void ab initio as to each party hereto in the event that both
-- ------
parties hereto shall not have executed this Agreement within five (5) days of
the date upon which any party hereto shall have executed this Agreement.
12.10 HEADINGS. The headings of the Sections and Articles of
--------
this Agreement are inserted for convenience only and shall not constitute a part
hereof.
12.11 ENTIRE AGREEMENT. This Agreement, including the Schedules
----------------
hereto, and the Escrow Agreement set forth the entire agreement and
understanding of the parties hereto in respect of the subject matter contained
herein and therein, and supersede all prior agreements, promises, covenants,
arrangements, communications, representations or warranties, whether oral or
written, express or implied, by any officer, employee or representative of any
party hereto, except the Confidentiality Agreement, which remains in full force
and effect.
12.12 THIRD PARTIES. Except as specifically set forth or
-------------
referred to herein, nothing herein expressed or implied is intended or shall be
construed to confer upon or give to any person or entity other than the parties
hereto and their successors or assigns, any rights or remedies under or by
reason of this Agreement.
12.13 NO RECOURSE AGAINST OTHERS. This Agreement is solely and
--------------------------
exclusively between Purchaser and Seller and any obligations of Seller created
herein shall be
37
<PAGE>
the obligations solely of Seller. The directors, officers, employees,
representatives and affiliates of Seller or the Company shall have no liability
for any obligations of Seller under this Agreement or for any Damages based on,
in respect of or by reason of this Agreement or Seller's obligations hereunder
or any breach thereof. Purchaser, for itself and its affiliates (including,
post-Closing, the Company), hereby waives, remises and releases each director,
officer, employee, representative and affiliate of Seller and the Company from
all such obligations and Damages. The directors, officers, employees,
representatives and affiliates of Purchaser (other than the Company) shall have
no liability for any obligations of Purchaser or the Company under this
Agreement or for any Damages based on, in respect of or by reason of this
Agreement or Purchaser's or the Company's obligations hereunder or any breach
thereof. Seller, for itself and its affiliates, hereby waives, remises and
releases each director, officer, employee, representative and affiliate of
Purchaser (other than the Company) from all such obligations and Damages.
12.14 MUTUAL AGREEMENT. This Agreement embodies the arm's-
----------------
length negotiation and mutual agreement between the parties hereto and shall not
be construed against any party as having been drafted by it.
12.15 SEVERABILITY. If in any jurisdiction, any provision of
------------
this Agreement or its application to any party or circumstance is restricted,
prohibited or unenforceable, such provision shall, as to such jurisdiction, be
ineffective only to the extent of such restriction, prohibition or
unenforceability without invalidating the remaining provisions hereof and
without affecting the validity or enforceability of such provision in any other
jurisdiction or its application to other parties or circumstances. In addition,
if any one or more of the provisions contained in this Agreement shall for any
reason in any jurisdiction be held to be excessively broad as to time, duration,
geographical scope, activity or subject, it shall be construed, by limiting and
reducing it, so as to be enforceable to the extent compatible with the
applicable law of such jurisdiction as it shall then appear.
38
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement,
each by its duly authorized officer, all as of the day and year first above
written.
DOCKS U.S.A., INC.
By: /s/ Guy Geffroy
----------------
Title: Treasurer
PH HOLDING CORPORATION
By: /s/ Peter J. Sodini
--------------------
Title: President
LIL' CHAMP FOOD STORES, INC.
solely for the purpose of Section 10.03
By: /s/ Eddie K. Jackson
---------------------
Title: President
39
<PAGE>
EXHIBIT 2.2
ASSIGNMENT AND ASSUMPTION AGREEMENT
This ASSIGNMENT AND ASSUMPTION AGREEMENT (the "Agreement") is made and
entered into as of this 23rd day of October 1997, by and between PH HOLDING
CORPORATION, a North Carolina corporation ("Assignor"), and THE PANTRY, INC., a
Delaware corporation and owner of all of the outstanding capital stock of
Assignor ("Assignee"), with reference to the following recitals of fact:
R E C I T A L S:
WHEREAS, Assignor and Docks U.S.A., Inc., a Nevada corporation
("Seller"), have entered into that certain Stock Purchase Agreement, dated as of
August 26, 1997 (the "Purchase Agreement"), a copy of which is attached hereto
as Exhibit A and made a part hereof, wherein Seller has agreed to sell and
---------
Assignor has agreed to purchase all of the outstanding capital stock of Lil'
Champ Food Stores, Inc., a Florida corporation and wholly-owned subsidiary of
Seller (the "Acquisition"), on the terms and conditions contained therein.
WHEREAS, Assignor desires to assign, and Assignee desires to assume
all of Assignor's rights, interests and obligations under the Purchase
Agreement, as hereinafter set forth.
A G R E E M E N T:
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto agree as follows:
1. Assignor hereby sells, assigns, transfers and conveys to Assignee
all of its right, title and interest in, to and under the Purchase Agreement.
2. Assignee does hereby accept such assignment of the Purchase
Agreement and covenants for itself and its successors and assigns that it will
keep, observe, perform and does hereby assume all of the terms, covenants,
conditions, duties, liabilities and obligations contained in the Purchase
Agreement to be performed, observed or kept on the part of Assignor under the
Purchase Agreement.
3. Nothing in this Agreement shall relieve Assignor of any of its
obligations under the Purchase Agreement.
<PAGE>
4. Assignor represents and warrants to Assignee that the Purchase
Agreement attached hereto as Exhibit A (a) is the true, correct and complete
---------
agreement between Assignor and Seller with respect to the Acquisition, and (b)
is currently in full force and effect with no defaults by Assignor thereunder.
Assignor further represents and warrants to Assignee that Assignor (c) has
complied with all of its obligations under the Purchase Agreement, and (d) is
the current holder of the rights of "Purchaser" under the Purchase Agreement,
and has not previously assigned any of its rights as "Purchaser" under the
Purchase Agreement to any other party.
5. This Agreement may be executed in one or more counterparts, each
of which shall be deemed to be an original, but all of which together shall
constitute one agreement.
6. This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns.
7. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York, without regard to conflict of law
provisions.
[Remainder of page intentionally left blank.]
2
<PAGE>
IN WITNESS WHEREOF, the undersigned have entered into this Agreement
as of the day and year first indicated above.
"ASSIGNOR": PH HOLDING CORPORATION, a North Carolina
corporation
By: /s/ Peter J. Sodini
------------------------------------
Name: Peter J. Sodini
Title: President
"ASSIGNEE": THE PANTRY, INC., a Delaware corporation
By: /s/ Peter J. Sodini
------------------------------------
Name: Peter J. Sodini
Title: President and Chief
Executive Officer
3
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<NAME> THE PANTRY
<CIK> 0000915862
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-25-1997
<PERIOD-START> SEP-27-1996
<PERIOD-END> SEP-25-1997
<CASH> 3,347
<SECURITIES> 0
<RECEIVABLES> 2,101
<ALLOWANCES> (150)
<INVENTORY> 17,161
<CURRENT-ASSETS> 28,278
<PP&E> 135,404
<DEPRECIATION> (57,418)
<TOTAL-ASSETS> 142,799
<CURRENT-LIABILITIES> 36,523
<BONDS> 100,305
0
0
<COMMON> 1
<OTHER-SE> (17,873)
<TOTAL-LIABILITY-AND-EQUITY> 142,799
<SALES> 427,393
<TOTAL-REVENUES> 427,393
<CGS> 330,114
<TOTAL-COSTS> 86,508
<OTHER-EXPENSES> (1,293)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,039
<INCOME-PRETAX> (975)
<INCOME-TAX> 0
<INCOME-CONTINUING> (975)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (975)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
