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Citgo Marketer Franchise Agreement

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CITGO Petroleum Corporation





MARKETER FRANCHISE AGREEMENT



Between CITGO Petroleum Corporation and THE PANTRY INC.



NOTICE



As a Franchised Marketer, under this Marketer Franchise Agreement you will be entitled to the protections of the Petroleum Marketing Practices Act, a federal law which was enacted on June 19, 1978. Title I of this law is intended to protect you against arbitrary or discriminatory termination or non-renewal of your Franchise. As a Franchisor under the Petroleum Marketing Practices Act, CITGO Petroleum Corporation will provide you with a summary of Title I of the Act whenever notification of termination or non-renewal of your Franchise is given. However, CITGO wishes to ensure that you are now totally familiar with your rights in this regard even prior to executing this Marketer Franchise Agreement. Accordingly, CITGO has produced the concise summary of the provisions of Title I as prepared and published by the U.S. Secretary of Energy in the Federal Register. Please review this summary carefully. You should resolve with your lawyer, or other appropriate parties any questions you might have, prior to executing this Marketer Franchise Agreement.





_________________



[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.


















MARKETER FRANCHISE AGREEMENT



On this 7th day of September, 2010, CITGO Petroleum Corporation, a Delaware corporation, having a principal place of business at 1293 Eldridge Parkway,



P.O. Box 4689, Houston, TX 77210-4689, hereinafter called "CITGO," and The Pantry,



Inc. a Delaware corporation, having a principal office and place of business at 305 Gregson Drive, Cary NC hereinafter called "MARKETER," hereby enter into this Marketer Franchise Agreement (the "Agreement ?). In the Agreement, CITGO and MARKETER may be collectively referred to as the "Parties."



WITNESSETH:



WHEREAS, the Parties understand that by this Agreement they create a "Franchise Relationship" within the meaning of the Petroleum Marketing Practices Act, 15 U.S.C. a7 2801-2806 (2000) ("the PMPA"); the Parties expressly do not intend by this Agreement to create a "franchise" within the meaning of any state law relating to franchises, but rather they intend to create a distribution agreement for branded products;




WHEREAS, CITGO is engaged in the business of refining and distributing petroleum products to the public under the CITGO trademark and trade names. MARKETER acknowledges that CITGO has expended significant effort over many years to develop public awareness of and trust in CITGO brands; CITGO, therefore, has a legitimate interest in protecting the CITGO brand and ensuring that CITGO brands are sold only from MARKETER locations that are inviting to the motoring public;




WHEREAS, MARKETER assures CITGO of its cooperation and best efforts to protect CITGO's brands, the values of its trade names and reputation to the motoring public; MARKETER understands its compliance is important not only to CITGO but to all other MARKETERS who serve the motoring public under the CITGO trademark and trade names;




WHEREAS, the Parties desire to facilitate MARKETER's purchase from CITGO of certain "Motor Fuels," which is defined under the PMPA as "gasoline and diesel fuel of a type distributed for use as a fuel in self-propelled vehicles designed primarily for use on public streets, roads, and highways;" and




WHEREAS, such Motor Fuels will be purchased from CITGO for resale by MARKETER under CITGO's brand name, trade dress, and trademarks ("CITGO Motor Fuels") to consumers and retailers.




NOW, THEREFORE, CITGO and MARKETER agree as follows:



1. TERM.



This Agreement shall be effective for the Term of three (3) years, beginning the first day of Sept., 2010, and expiring on the last day of August, 2013. MARKETER may cancel this Agreement by providing CITGO with ninety (90) days written notice prior to the end of the Term. Unless validly terminated or not renewed in accordance with the PMPA, this Agreement shall automatically renew for successive three (3) year periods.









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2. QUANTITIES.



a. MARKETER shall purchase and lift or accept delivery of quantities of CITGO Motor Fuels as set forth below during the respective monthly periods and CITGO shall sell and deliver to MARKETER the specified quantities of CITGO Motor Fuels during the respective monthly periods. MARKETER hereby acknowledges and agrees that the purchase and Ratable Basis lifting of the monthly quantities of Motor Fuels specified herein by MARKETER are reasonable, important and of material significance to the franchise relationship. The term "Ratable Basis" is defined in the Addendum to the Agreement.



b. MARKETER understands and agrees that, subject to the provisions of Section 8 or Section 13 hereof or the provisions of any Addendum hereto, any failure by MARKETER to purchase a minimum of ninety percent (90%) of the monthly quantity of CITGOad-branded Gasoline listed below in Subsection 2(d) during any month on a Ratable Basis shall be a violation of this Agreement. CITGO shall have no obligation at any time to provide more than one hundred ten percent (110%) of the quantities listed below.



c. The monthly quantities of CITGO Motor Fuels, as set forth below, are based on the sale of Motor Fuels projected by MARKETER at retail locations or other facilities owned, leased, operated, supplied, franchised, or licensed by or through MARKETER and which CITGO has approved for branding with the CITGO trade name and trademark ("MARKETER's Locations" or "Locations ?). The terms "MARKETER' s Locations" and "Locations" include, but are not limited to, CITGO-branded retail stations. In the event that CITGO agrees to brand additional Locations, the monthly quantities of Motor Fuels set forth below shall be increased by the projected sales of Motor Fuels at the newly branded Loc ations. Likewise, if any Location is debranded, the monthly quantities of Motor Fuels set forth below shall be decreased by the projected sales at such formerly branded Location. These adjustments to the monthly quantities of CITGO Motor Fuels shall be effective beginning with the month in which the installation (or removal and return) of all CITGO signs, poles and identification items is completed, and shall be confirmed by an Amendment to this Agreement. It is acknowledged that the purpose of this paragraph is to allow the Parties to adjust the volume requirements resulting from new brandings and debrandings that may take place from time to time in the ordinary course of MARKETER's business and does not supercede (i) a branding commitment for a particular Location agreed to by the MARKETER in a separate marketing agreement or program or (ii) other provisions of this Agreement including the term of the Agreement. MARKETER and CITGO will review the addition or deletion of Locations at least annually.







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d. MARKETER agrees that the monthly quantity of Motor Fuels set forth below shall be purchased and lifted on a Ratable Basis during each month. CITGO may establish limitations and restrictions, upon MARKETER's purchases of Motor Fuels that in CITGO's sole judgment, are necessary or appropriate to enforce MARKETER's obligations to make ratable purchases.



GASOLINE DIESEL

January Volume January Volume
February Volume February Volume
March Volume March Volume
April Volume April Volume
May Volume May Volume
June Volume June Volume
July Volume July Volume
August Volume August Volume
September Volume September Volume
October Volume October Volume
November Volume November Volume
December Volume December Volume

TOTAL Volume Volume



e. Quantities shall be determined at the time and place of loading. For quantities delivered by truck, MARKETER elects to use Net Gallons / Temperature Corrected (select preferred method) as the method for determining liquid measure. All measurements with regard to deliveries into marine vessel, pipeline or tank car shall be corrected to 60b0 F in accordance with prevailing ASTM procedures. In any jurisdiction where applicable law dictates the method of measurement, such method shall be used.



3. DELIVERY OF CITGO MOTOR FUELS.



CITGO Motor Fuels will be made available to MARKETER at terminals or other locations selected by CITGO, or by delivery to some other mutually agreeable destination by a method of transportation selected by CITGO. MARKETER shall strictly comply with all applicable rules and regulations of terminals and facilities at which MARKETER receives Motor Fuels from CITGO. Prior to transfer to MARKETER, MARKETER shall ensure that all trucks, tankers and fuel lines are clean and ready to receive CITGO Motor Fuels, so that said fuel is not mixed, blended or adulterated with any other substance or product. CITGO or the terminal operator may refuse to deliver CITGO Motor Fuels to any vehicle which, in the sole judgment of CITGO or the terminal operator, is contaminated, unsafe or inadequate. Unless prohibited by applicable state law, MARKETER agrees to obtain insurance coverage for MARKETER's liability for any negligent, grossly negligent, or willful acts it commits in connection with the loading, transporting and delivery of Motor Fuels. MARKETER further agrees to provide CITGO with a copy of said insurance policy at CITGO's request. Title and risk of loss on all Motor Fuels covered by this Agreement shall pass to MARKETER at the time and place of delivery. Time and place of delivery shall be when and at the point that Motor Fuels pass connections between the terminal's truck rack or pipeline flange and MARKETER or its agent's receiving connections, transport trucks, tank cars, or vessels. All demurrage is MARKETER' s responsibility.









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4. PRICES.



MARKETER shall pay CITGO's MARKETER prices in effect for each Grade of CITGO Motor Fuel at the time and place of delivery as determined by CITGO. [***] is defined by identifying the specification of the gasoline or diesel product, including, but not limited to, the following: [***]. MARKETER prices will be established by CITGO on an FOB, terminal basis, or other point of sale basis, including, upon mutual agreement, on a delivered basis. MARKETER shall also pay to CITGO amounts equivalent to any tax, duty or impost now or hereafter imposed by the United States and/or any state, municipality, or any other governmental authority. In a manner consistent with the Addendum to the Agreement, CITGO retains the right at any time during the term of this Agreement to establish, alter, or modify the price, methods of price delivery, pricing areas, or classes of trade.



5. TERMS OF PAYMENT.



a. MARKETER agrees to pay CITGO in accordance with such terms as CITGO's Credit Department may from time to time prescribe in writing. At the present time, CITGO's credit terms are [***]. The failure by MARKETER to pay any invoice within the terms then prescribed by CITGO's Credit Department may result in the restriction of credit, the denial of access to the terminals from which MARKETER is authorized to obtain its supply of CITGO Motor Fuels, the withholding of any rebates, discounts or benefits from CITGO programs that may otherwise be available to MARKETER, and shall constitute grounds for termination and/or non-renewal of this Agreement. Further, failure to make payment in accordance with CITGO's payment terms authorizes the imposition of fin ance charges in an amount [***] of (i) [***] (ii) [***]. MARKETER agrees to provide CITGO's Credit Department with a current, audited or certified financial statement within ninety (90) days after the end of each fiscal year and such other business related information as may be requested by CITGO's Credit Department from time to time.



b. At the time of execution of this Agreement and thereafter upon CITGO's request, in order to maintain a credit limit, MARKETER may be required to furnish CITGO with security agreements, financing statements, or letters of credit in an amount sufficient to secure payment of all CITGO Motor Fuels purchased by MARKETER and unpaid from time to time.





_________________



[***] Confidential treatment requested pursuant to a request for confidential treatment filed with the Securities and Exchange Commission. Omitted portions have been filed separately with the Commission.







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c. CITGO shall have the right to audit all delivery, inventory and sales records of the MARKETER and of any Location through which MARKETER markets, distributes or sells CITGO Motor Fuels. MARKETER shall provide CITGO with access to MARKETER's Locations during normal business hours.



d. If MARKETER fails to comply with the terms and conditions of payment and credit established by CITGO, or if CITGO has reasonable grounds for insecurity with respect to MARKETER's performance of any of MARKETER's obligations under this Agreement, then, in addition to all other rights and remedies afforded to CITGO under this Agreement and applicable law, CITGO may take such action as CITGO deems reasonable.



e. As referenced in Section 12 of this Agreement, CITGO shall have the right, but not the obligation, to apply the proceeds of Payment Card (as defined in Section 12) invoices, or any other credits which may be otherwise owing to MARKETER, toward the payment of any indebtedness which is owed or may be owed by MARKETER to CITGO. MARKETER grants to CITGO a security interest in all Payment Card invoices and proceeds from such Payment Card invoices to secure the payment of Motor Fuel(s) purchases from CITGO, and agrees to execute documents reasonably necessary to perfect such security interest.



6. BRANDS AND TRADE NAMES.



Subject to the following, CITGO hereby grants to MARKETER for the term of this Agreement, the right to use CITGO's applicable brand names, trademarks and other forms of CITGO's identification, in the manner established by CITGO from time to time, in connection with the resale by MARKETER of CITGO Motor Fuels.



a. CITGO reserves the right to control fully the quality and branding of CITGO Motor Fuels which may be sold and/or distributed under CITGO's brands and trade names. This includes the right to terminate or add types of Motor Fuel(s) to those which are currently available for purchase from CITGO, or to change the name or names of any CITGO Motor Fuels. MARKETER shall offer for sale all branded CITGO Motor Fuels that are delivered under such brand names, trademarks and trade names of CITGO as may be in use at the time of sale thereof. MARKETER shall not adulterate, change or alter the nature, quality or appearance of any of the Motor Fuels purchased hereunder.



b. If MARKETER elects to sell Motor Fuel(s) not purchased or acquired under this Agreement, MARKETER shall not allow nor permit the use of CITGO's brand names, trademarks, trade dress, and all other forms of CITGO identification, in connection with the resale of such Motor Fuel(s). CITGO's "brand names and trademarks," as used herein, include CITGO's logos, brand identification, product and service advertising, payment cards, product names and service marks. CITGO's "trade dress" refers to the manner and style of advertising material, including color graphics and art work on product labels, point of purchase ( ?POP") material, buildings, signs, pumps and other equipment.







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c. Any non-CITGO Motor Fuels sold by or through MARKETER shall be clearly identified and labeled in such language and print at least comparable in size to CITGO ?s brand names, trademarks, trade dress, and other forms of CITGO identification in order to make it unmistakably clear that such Motor Fuels are not CITGO Motor Fuels; the intent of this requirement is to preclude any likelihood of public confusion, mistake or deception. As an example, but not by way of limitation, if a MARKETER sells Motor Fuel(s) from a product dispenser which was not purchased or acquired under this Agreement, the MARKETER shall completely obliterate the CITGO brand names, trademarks, trade dress, and all other forms of CITGO identification. The des ignation "NO BRAND, THIS IS NOT A CITGO PRODUCT" shall appear in print at least comparable in size to the largest CITGO identification being used on any similar Motor Fuel(s) dispenser.



d. MARKETER agrees that if a customer of the MARKETER requests CITGO Motor Fuel(s) and such Motor Fuel(s) is not available, the customer of the MARKETER will be orally advised by the MARKETER that such CITGO Motor Fuel(s) is not available.



e. MARKETER recognizes that the identification, trademark and brand names of CITGO are the property of CITGO and the requirements as herein stated relating to the use of such identification, including their incorporation in any advertising campaign organized, supervised or paid for by MARKETER (to include advertisements on motor vehicles and dispensing equipment), are reasonable and of material significance to the franchise relationship. Accordingly, it is further agreed that a failure by the MARKETER to comply with the terms and provisions of this Section 6 shall constitute grounds for termination and/or non-renewal of this Agreement.



f. All signs, poles and identification items (collectively, "CITGO Branding Material") furnished to MARKETER by CITGO for display at locations through which MARKETER supplies CITGO Motor Fuels for resale, shall be erected, installed and maintained in accordance with CITGO's image specifications. MARKETER shall bear all responsibility for costs involved in such maintenance and repair of CITGO Branding Material, as well as any removal costs.



g. MARKETER understands and agrees that CITGO Branding Material will only be provided to those Locations that fulfill CITGO's image standards and requirements. Therefore, MARKETER shall not make available or erect any CITGO Branding Material at any location that has not been approved in writing by CITGO nor shall MARKETER relocate any CITGO Branding Material without CITGO's prior written consent.



h. MARKETER agrees to purchase insurance sufficient to cover the repair and/or replacement value of all CITGO Branding Material. MARKETER further agrees to indemnify and hold CITGO harmless from and against any and all damages and/or claims for damages arising out of the installation, use, repair, maintenance, or removal of all CITGO Branding Material or other equipment, furnished or leased to MARKETER by CITGO.







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i. CITGO retains title to and all ownership rights in all CITGO Branding Material that bears CITGO ?s name, trademarks and/or trade dress. MARKETER agrees to advise the owners and/or occupants of the Locations to which it supplies CITGO Motor Fuels ("MARKETER's Retailers" or "Retailers") of CITGO's ownership of CITGO Branding Material. MARKETER further agrees to notify its Retailers that MARKETER, CITGO, or an authorized representative of either party, has the right to remove same from the premises at any time.



j. All CITGO Branding Material that has been furnished by CITGO to any Location, including any installation costs paid by CITGO, shall be amortized over a sixty (60) month period on a straight-line basis. Should any such Location be debranded within the sixty (60) month amortization period, the MARKETER shall pay to CITGO the unamortized portion of the costs associated with the CITGO Branding Material as of the date of debranding. Notwithstanding the MARKETER's obligation to pay the unamortized portion of the costs, the ownership of that portion of the CITGO Branding Material that does not contain CITGO's name and trademarks shall pass to MARKETER upon installation of the Branding Material. Further, after the CITGO Brand ing Material is fully amortized, title to such Branding Material shall pass to MARKETER. Notwithstanding anything to the contrary, CITGO shall permanently retain ownership of sign faces, decals and other identification items that contain CITGO's name and trademarks.



k. MARKETER agrees to comply with applicable federal, state or local laws, statutes, codes, rules, ordinanaces, regulations and orders (collectively, "Laws ?) regarding the filing and payment of any taxes, fines, and fees regarding all signage, CITGO Branding Material, POP, EPOS and/or Payment Card equipment.



l. Upon debranding a Location, MARKETER shall remove all identification items, including CITGO Branding Material, furnished or leased by CITGO within thirty (30) days. Identification items shall be removed by MARKETER, CITGO or an authorized representative of either Party, at MARKETER's expense. CITGO has the right to remove all CITGO Branding Material not removed in a timely manner and charge MARKETER for the cost of removal.



7. RETAIL APPEARANCE.



MARKETER shall operate or cause to operate MARKETER's Locations, including all



buildings, equipment, restrooms, sidewalks, parking lots and driveways located on the premises, in a clean, healthful and lawful manner, and in compliance with CITGO's image guidelines.



a. MARKETER further acknowledges that CITGO does not want its brand and trademarks associated with illegal merchandise. Further, MARKETER will not sell or allow MARKETER ?s Locations to sell illegal materials, or to sell legal materials in a manner disparaging to CITGO's brand image, upon premises displaying the CITGO brand and trademarks.







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b. MARKETER shall participate in CITGO's sales and advertising programs including displaying POP advertising materials where legally permissible.



c. MARKETER is responsible for ensuring that MARKETER's Locations comply with CITGO's image guidelines and other applicable provisions of this Agreement.



d. CITGO shall have the right to debrand or require MARKETER to debrand any Location that fails to meet the provisions of this Section 7. CITGO shall have the right to inspect the retail location to confirm compliance with this Section 7.



8. ALLOCATION.



If CITGO, because of a shortage of crude oil, raw materials, products, or refining capacity, either of its own, or of its other regular sources of supply, or in the industry generally, or because of governmental regulations, or for any other reason, deems that it may be unable to meet all of its supply requirements, CITGO may allocate its CITGO Motor Fuels among its various customers pursuant to a plan, method or formula as CITGO believes fair and reasonable. MARKETER agrees to be bound by any such allocation. During the period of such allocation, the provisions of Section 2 relating to volume requirements shall not be effective, and the quantity deliverable under this Agreement shall then be such quantity as CITGO determines it can allocate to MARKETER. Upon cessation of any such period of allocation, neither CITGO nor MARKETER shall be obligated to make up any quantities omitted pursuant to the provisions herein.



9. CLAIMS.



Any claim for defect or variance in quality of CITGO Motor Fuels furnished hereunder shall be made in writing to CITGO within five (5) business days after discovery of the defect or variance. CITGO shall be furnished samples adequate to test the Motor Fuels claimed to be defective and shall be afforded the opportunity to take its own samples. Any and all claims not made within the time and in the manner herein provided shall be deemed waived and released by the MARKETER.



10. WARRANTIES AND DISCLAIMERS.



a. CITGO warrants good title to the Motor Fuels delivered to MARKETER, as set forth in Section 3, and further warrants that the Motor Fuels: (1) will meet, in all material respects, CITGO's specifications and octane ratings for the Motor Fuels, and (2) will comply with all applicable federal, state and local laws and regulations in effect at the time and place of delivery.



b. CITGO MAKES NO OTHER WARRANTIES OF ANY KIND OR NATURE WHATSOEVER, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.



11. LIMITATION OF LIABILITY.







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a. MARKETER'S SOLE AND EXCLUSIVE REMEDY FOR ANY CLAIM ARISING FROM OR IN CONNECTION WITH ANY ALLEGED FAILURE OF OR DEFECT IN ANY BRANDED MOTOR FUELS SOLD BY CITGO (WHETHER THAT CLAIM IS FOR BREACH OF CONTRACT OR WARRANTY OR IS UNDER TORT, STRICT LIABILITY, STATUTE OR OTHERWISE) IS (1) AT CITGO'S OPTION, REPLACEMENT OF THE FAILED, DEFECTIVE OR NON-CONFORMING BRANDED MOTOR FUELS OR REIMBURSEMENT OF THE PURCHASE PRICE THEREOF, AND (2) REIMBURSEMENT OF THE REASONABLE COST OF REPAIR OR REPLACEMENT OF ANY PARTS THAT ARE DAMAGED DIRECTLY BY THE USE OF THE FAILED, DEFECTIVE OR NON-CONFORMING BRANDED MOTOR FUELS.



b. IN NO EVENT WILL CITGO BE LIABLE OR RESPONSIBLE FOR ANY INCIDENTAL, INDIRECT, SPECIAL, EXEMPLARY, PUNITIVE, OR CONSEQUENTIAL DAMAGES (INCLUDING, WITHOUT LIMITATION, ECONOMIC LOSS AND LOSS OF PROFITS), WHETHER UNDER TORT, BREACH OF CONTRACT OR WARRANTY, STRICT LIABILITY, STATUTE OR OTHERWISE.



12. PAYMENT CARDS.



a. MARKETER shall accept as payment from retail customers CITGO-approved credit, debit and payment cards (collectively, "Payment Cards") in accordance with the provisions of CITGO's Payment Card Guide and Regulations, a copy of which has been provided to MARKETER. All Payment Cards are required to be processed through the CITGO Electronic Point of Sale ("EPOS") Network.



b. CITGO shall have the right, in its sole discretion, to amend or terminate the Payment Card Guide and Regulations and/or discontinue its program at any time. CITGO may reject or charge back any Payment Card invoices not conforming to the Payment Card Guide and Regulations. MARKETER further agrees that upon such rejection or charge back, the value of the Payment Card invoices which were rejected or charged back shall become immediately due and owing from MARKETER to CITGO and may be deducted from subsequent settlements of Payment Card transactions.



c. MARKETER expressly agrees that CITGO shall have the right but not the obligation to apply the proceeds of Payment Card invoices or any other credits which may be owing to MARKETER toward the payment of any indebtedness owed by MARKETER to CITGO. MARKETER grants to CITGO a security interest in all Payment Card invoices and proceeds from such Payment Card invoices to secure the payment of Motor Fuel purchases from CITGO, and agrees to execute documents reasonably necessary to perfect such security interest.



d. MARKETER further
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