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    Pantry to Shareholders: Support Changes Already Underway

    Kangaroo Express parent continues to refute CPS' claims.

    CARY, N.C. -- With only one week to go until its annual meeting, The Pantry Inc. issued a letter to its shareholders today in a continuing attempt to refute claims put forth by Concerned Pantry Shareholders (CPS).

    Yesterday, CPS, a group led by Houston-based JCP Investment Management LLC and Old Greenwich, Conn.-based Lone Star Value Management LLC, sent a letter to Pantry shareholders outlining a six-point plan that the dissident group believes will turn around the company's stock price. Among the recommendations put forth by CPS are the implementation of a proper quick-service restaurant (QSR) strategy, a recommendation to sell 300 to 500 stores in "weak or non-growth markets," and converting the parent of 1,538 Kangaroo Express stores into a master limited partnership (MLP) or real estate investment trust (REIT).

    Today's letter written by Cary, N.C.-based The Pantry, tackles every CPS recommendation head on.

    Regarding QSRs, the convenience store retailer stated that it currently operates 223 such locations, is targeting 20 new QSRs in 2014, and has identified more than 500 additional sites for potential QSR expansion. In response to CPS' request to close 300 to 500 underperforming stores, The Pantry responded that it has closed 157 locations since 2011, which has had a positive impact on total profitability.

    "The dissident plan simply reiterates the current strategy with respect to portfolio optimization and does not provide any new ideas," The Pantry wrote today.

    The c-store retailer added that it has long considered the possibility of converting itself into an MLP or REIT, but "concluded that neither would be in the best interests" of The Pantry's shareholders.

    "Real estate monetization through a sale leaseback would potentially create tax leakage, as well as limit our ability to modify properties to accommodate QSRs or divest/close underperforming stores," The Pantry wrote in its letter. "Furthermore, incremental rental expense associated with a sale leaseback would impact the company's margins, create additional exposure to rising rent rates, and have a negative cash flow impact due to the current differential between capitalization rates on sale leasebacks and interest expense on our bank debt."

    The letter, signed by Chairman of the Board Edward J. Holman and President and CEO Dennis G. Hatchell, also reiterated prior comments that CPS' three board of director nominees, Todd Diener, James Pappas and Joshua Schechter, lack experience in the convenience store industry.

    CPS collectively owns 1.9 percent of The Pantry's stock.

    The Pantry's 2014 Annual Meeting of Stockholders is set to take place March 13. 

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