UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended December 31, 2004
OR
/ / Transition report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
AMCON DISTRIBUTING COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of Incorporation)
7405 Irvington Road
Omaha, NE 68122
(Address of principal executive offices)
(Zip Code)
47-0702918
(I.R.S. Employer Identification No.)
(402) 331-3727
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
The Registrant had 527,062 shares of its $.01 par value common stock outstanding as of February 7, 2005.
Form 10-Q 1st Quarter
INDEX
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PAGE
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
--------------------------------------------
Condensed consolidated unaudited balance sheets at
December 2004 and September 2004 3
Condensed consolidated unaudited statements of operations
for the three months ended December 2004 and 2003 4
Condensed consolidated unaudited statements of cash flows
for the three months ended December 2004 and 2003 5
Notes to condensed consolidated unaudited
financial statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 19
Item 3. Quantitative and Qualitative Disclosures About Market Risk 28
Item 4. Controls and Procedures 29
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 29
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 30
Item 3. Defaults Upon Senior Securities 30
Item 6. Exhibits 31
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
AMCON Distributing Company and Subsidiaries
Condensed Consolidated Unaudited Balance Sheets
December 2004 and September 2004
-------------------------------------------------------------------------------------------------------
December 2004 September 2004
------------ --------------
ASSETS
Current assets:
Cash $ 904,670 $ 416,073
Accounts receivable, less allowance for doubtful
accounts of $0.5 million and $0.7 million,
respectively 27,190,236 29,586,255
Inventories 36,617,385 36,481,014
Income tax receivable 955,839 1,162,625
Deferred income taxes 2,618,391 2,548,391
Other 1,179,421 708,916
------------ ------------
Total current assets 69,465,942 70,903,274
Fixed assets, net 20,958,714 20,095,334
Goodwill 6,449,741 6,449,741
Other intangible assets 13,216,751 13,271,211
Other assets 1,485,457 1,010,303
------------ ------------
$111,576,605 $111,729,863
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 11,924,157 $ 17,762,392
Accrued expenses 5,767,555 4,427,976
Accrued wages, salaries, bonuses 1,103,555 1,380,477
Current liabilities of discontinued operations 78,024 107,724
Current portion of long-term debt 9,562,560 11,409,234
Current portion of subordinated debt 1,076,219 7,876,219
------------ ------------
Total current liabilities 29,512,070 42,964,022
------------ ------------
Deferred income taxes 617,794 593,018
Other long-term liabilities 2,807,000 2,807,000
Long-term debt, less current portion 61,622,121 50,063,571
Minority interest - 97,100
Commitments and contingencies
Shareholders' equity:
Series A and B cumulative, convertible preferred stock,
$.01 par value 180,000 and 100,000 shares authorized
and issued, respectively 1,800 1,000
Common stock, $.01 par value, 15,000,000
shares authorized, 527,062 shares issued 5,271 5,271
Additional paid-in capital- preferred stock 4,294,200 2,437,355
Additional paid-in capital- common stock 6,218,476 6,218,476
Accumulated other comprehensive income,
net of tax of $0.1 million and $0.03 million, respectively 100,323 59,900
Retained earnings 6,397,550 6,483,150
------------ ------------
Total shareholders' equity 17,017,620 15,205,152
---------- ------------
$111,576,605 $111,729,863
============ ============
The accompanying notes are an integral part of these condensed consolidated financial statements.
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AMCON Distributing Company and Subsidiaries
Condensed Consolidated Unaudited Statements of Operations
for the three months ended December 2004 and 2003
----------------------------------------------------------------------------
2004 2003
------------- ------------
Sales (including excise taxes of
$49.6 million and $45.3 million,
respectively) $ 215,178,466 $ 193,037,116
Cost of sales 199,282,768 177,972,857
------------- -------------
Gross profit 15,895,698 15,064,259
------------- -------------
Selling, general and administrative
expenses 14,383,140 13,370,097
Depreciation and amortization 676,083 561,118
------------- -------------
15,059,223 13,931,215
------------- -------------
Income from operations 836,475 1,133,044
------------- -------------
Other expense (income):
Interest expense 1,076,082 778,908
Other income, net (59,389) (430,108)
------------- -------------
1,016,693 348,800
------------- -------------
(Loss) income from operations
before income taxes (180,218) 784,244
Income tax (benefit) expense (70,000) 270,000
Minority interest in loss, net of tax (97,100) -
------------- -------------
Net (loss) income $ (13,118) $ 514,244
Preferred stock dividend requirements 72,481 -
------------- -------------
(Loss) income available to common
shareholders $ (85,599) $ 514,244
============= =============
(Loss) earnings per share:
Basic $ (0.16) $ 0.97
============= =============
Diluted $ (0.16) $ 0.96
============= =============
Dividends per share $ - $ 0.18
============= =============
Weighted average shares outstanding:
Basic 527,062 528,165
Diluted 527,062 535,549
The accompanying notes are an integral part of these condensed consolidated financial statements.
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AMCON Distributing Company and Subsidiaries
Condensed Consolidated Unaudited Statements of Cash Flows
for the three months ended December 2004 and 2003
---------------------------------------------------------------------------------
2004 2003
------------ ------------
Net cash flows from operating activities $ (2,493,207) $ 4,759,176
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets (1,278,617) (422,123)
Proceeds from sales of fixed assets 16,500 55,000
Proceeds from sales of available-for-sale
securities - 457,053
Other (6,476) -
------------ ------------
Net cash flows from investing activities (1,268,593) 89,930
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments) proceeds on bank
credit agreements 13,621,209 (4,745,546)
Net proceeds from preferred stock issuance 1,857,645 -
Proceeds from borrowings of long-term debt 1,272,667 -
Preferred stock dividend requirements (72,481) -
Payments on long-term debt and
subordinated debt (11,982,000) (149,172)
Proceeds from exercise of stock options - 523
Debt issue costs (446,643) -
------------ ------------
Net cash flows from financing activities 4,250,397 (4,894,195)
------------ ------------
Net change in cash 488,597 (45,089)
Cash, beginning of period 416,073 668,073
------------ ------------
Cash, end of period $ 904,670 $ 622,984
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 1,012,476 $ 855,112
Cash paid (refunded) during the period
for income taxes (206,786) 879,813
The accompanying notes are an integral part of these condensed consolidated financial statements.
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AMCON Distributing Company and Subsidiaries
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION:
The accompanying unaudited condensed consolidated financial statements include the accounts of AMCON Distributing Company and its subsidiaries ("AMCON" or the "Company"). As a result of its 85% ownership in Trinity Springs, Inc. (TSI), the Company has included the operating results of TSI in the accompanying consolidated financial statements since the date of acquisition (June 17, 2004) and has presented the 15% non-owned interest in this subsidiary as a minority interest. During the first quarter of fiscal 2005, the Company suspended the allocation of TSI's losses to minority shareholders once their basis was reduced to zero because the minority shareholders have not guaranteed TSI debt or committed additional capital to TSI.
All significant intercompany transactions and balances have been eliminated in consolidation. Certain information and footnote disclosures normally included in our annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to fairly present the financial information included therein, such adjustments consisting of normal recurring items. It is suggested that these financial statements be read in conjunction with the audited financial statements and notes thereto for the fiscal year ended September 24, 2004, which are included in the Company's Annual Report to Shareholders filed with Form 10-K ("2004 Annual Report"). Results for the interim period are not necessarily indicative of results to be expected for the entire year.
AMCON's fiscal first quarters ended on December 31, 2004 and December 26, 2003. For convenience, the fiscal first quarters of 2005 and 2004 have been indicated as December 2004 and 2003, respectively. During the first quarter of fiscal 2005, the Company changed its reporting period from a 52-53 week year ending on the last Friday in September to a calendar month reporting period ending on September 30. As a result of this change, the first quarter of fiscal 2005 comprises 14 weeks of operations as compared to 13 weeks of operations in the first quarter of fiscal 2004. The additional week of operations increased sales, gross profit and net income by approximately $14.4 million, $0.8 million and $0.1 million, respectively.
During fiscal 2004, the shareholders' approved a one-for-six reverse stock split of the outstanding shares of its common stock. On May 14, 2004, the Company effected the reverse stock split and those shareholders who held fewer than six shares of AMCON's common stock immediately prior to the reverse stock split received a cash payment in exchange for their shares. All common stock shares and per share data (except par value) for all periods presented have been adjusted to reflect the reverse stock split.
The following table illustrates the required pro forma effect on income
(loss) and earnings (loss) per share assuming the Company had applied the
fair value recognition provisions of Statement of Financial Accounting
Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation" to
stock-based employee compensation:
For the three months
ended December
-------------------------
2004 2003
----------- -----------
(Loss) earnings
===============================
(Loss) income available to common
shareholders, as reported $ (85,599) $ 514,244
Deduct: Total stock-based employee
compensation expense determined
under fair value based method
for all awards, net of related
tax effects (14,008) (15,303)
----------- -----------
Pro forma (loss) income $ (99,607) $ 498,941
=========== ===========
(Loss) earnings per share
=========================================
As reported: Basic $ (0.16) $ 0.97
=========== ===========
Diluted $ (0.16) $ 0.96
=========== ===========
Pro forma: Basic $ (0.19) $ 0.94
=========== ===========
Diluted $ (0.19) $ 0.93
=========== ===========
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2. ACQUISITIONS
The total purchase price of $8.8 million was paid through a combination of $2.3 million in cash, $3.3 million in notes which were issued by TSI and guaranteed by AMCON; the assumption of approximately $0.2 million of liabilities and the issuance of TSI common stock representing 15% ownership of TSI which had an estimated fair value of $0.2 million. The TSI common stock is convertible into 16,666 shares of AMCON common stock at the option of the Seller. Additionally, the conversion option had an estimated fair value of $0.2 million. Included in the $2.3 million paid in cash are transaction costs totaling approximately $0.8 million that were incurred to complete the acquisition and consists primarily of fees and expenses for attorneys and investment bankers. In addition, TSI will pay an annual water royalty to the Seller, in perpetuity, in an amount equal to the greater of $0.03 per liter of water extracted from the source or 4% of water revenues (as defined by the purchase agreement) which is guaranteed by AMCON up to a maximum of $5 million, subject to a floor of $206,400 for the first year and $288,000 annually thereafter. The Company has recorded a $2.8 million liability for the present value of future minimum water royalty payments and related brokers fees to be paid in perpetuity. The discount rate utilized by the Company to determine the present value of the future minimum water royalty was based on a weighted average cost of capital which incorporated the Company's equity discount rate, dividend rate on the Series A Convertible Preferred Stock and the Company's average borrowing rate for all outstanding debt.
The promissory notes referred to above and the water royalty are secured by a first priority security and mortgage on the acquired assets, other than inventory and accounts receivable. The Seller retains the right to receive any water royalty payment for the first five years in shares of AMCON common stock up to a maximum of 41,666 shares. The water royalty can be cancelled after ten years have elapsed following the closing of the sale of assets of TSI, or if the business of TSI is sold to an unaffiliated third party, in which case the Seller would be entitled to receive the appraised fair market value of the water royalty but not less than $5 million. The Company's Chairman has, in turn, guaranteed AMCON for these payments as well as the promissory notes referred to above.
The acquisition has been recorded on the Company's books using the purchase method of accounting. The purchase price was allocated to the assets acquired and liabilities assumed based on their estimated fair values. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition based on a preliminary allocation of the purchase price and are subject to refinement.
At June 17, 2004
(Dollars in millions)
---------------------------------------
Current assets $ 0.5
Fixed assets 3.0
Intangible assets 5.5
------
Total assets acquired 9.0
------
Current liabilities 0.2
------
Total liabilities assumed 0.2
------
Net assets acquired $ 8.8
======
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The portion of the purchase price in excess of the estimated fair value of the net assets acquired to be allocated to identifiable intangible assets is approximately $5.5 million.
The initial purchase price allocation performed in the third quarter of fiscal 2004 was based on management's internal preliminary allocation and resulted in an estimated purchase price of approximately $11.1 million, with approximately $7.8 million of the purchase price being allocated to intangible assets, including customer list, the Trinity tradename and the water source. Subsequently, the Company engaged an independent valuation firm to further analyze the transaction and based on preliminary input from the independent valuation firm, the amount of purchase price was reduced from $11.1 million to $8.8 million based on reassessment of the future water royalty obligation and related brokers fees and the weighted average cost of capital rate applied to the payment stream in perpetuity. Accordingly, the amount allocated to intangible assets was also reduced from $7.8 million to $5.5 million. At this stage, the purchase price allocation remains preliminary and is subject to completion of an independent appraisal. The Company has engaged an independent valuation firm to value the identifiable intangible assets and it is expected that a final report will be completed by the end of the second fiscal quarter of 2005, at which time any differences from the preliminary purchase price allocation will be recorded.
The Company has determined that it has acquired a unique water source as part of the transaction which represents an intangible asset and the Company has assigned a preliminary value of $2.8 million to this intangible asset. Additionally, the Company has acquired the Trinity tradename and has assigned a preliminary value of $2.3 million to this intangible asset. Upon completion of the independent valuation, the amount assigned to the water source and/or the Trinity tradename could be different and any residual amount would then be assigned to goodwill. Since both the water source and the Trinity tradename have indefinite lives, as does any goodwill, the assets are not amortized. Therefore, any change resulting from completion of the independent valuation in the allocation of purchase price from water source or tradename to goodwill would not have any impact on operating income. Additionally, the Company has assigned a preliminary value of $0.4 million to a customer list which will be amortized over a five year period.
Assuming the above acquisition had hypothetically occurred on the first day of fiscal 2004 (September 27, 2003) unaudited pro forma consolidated sales, loss from operations, net loss and net loss per share would have been as follows:
For the three months
ended December 2003
--------------------
Sales $ 193,582,389
Loss from operations (846,064)
Net loss (89,277)
Loss per share:
Basic $ (0.17)
Diluted $ (0.17)
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At July 1, 2004
(Dollars in millions)
----------------------------------------
Current assets $ 0.1
Fixed assets 0.5
Intangible assets 0.7
------
Total assets acquired 1.3
Current liabilities 0.1
------
Total liabilities assumed 0.1
------
Net assets acquired $ 1.2
======
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The portion of the purchase price in excess of the estimated fair value of the net assets acquired to be allocated to identifiable intangible assets is approximately $0.7 million. The identifiable intangible assets consists of tradenames and a customer list. The tradenames of $0.1 million have indefinite lives and therefore are not amortized. The customer list of $0.2 million is amortized over a five year period. The remaining portion of the excess purchase price allocated to goodwill was $0.4 million. Proforma information is not presented due to the insignificance of the acquisition.
3. SHAREHOLDERS' EQUITY
In October 2004, the Company issued $2.0 million of Series B Convertible Preferred Stock ("Series B Preferred") representing 80,000 shares at a purchase price of $25 per share (the "Liquidation Preference"). The Series B Preferred is convertible at any time by the holders into a number of shares of AMCON common stock equal to the number of Preferred Shares being converted times a fraction equal to $25.00 divided by the conversion price. The conversion price is initially $24.65 per share, but is subject to customary adjustments in the event of stock splits, stock dividends and certain other distributions on the Common Stock. Cumulative dividends on the Series B Preferred are payable at a rate of 6.37% per annum and are payable in arrears, when, as and if declared by the Board of Directors, on March 31, June 30, September 30 and December 31 of each year. In the event of a liquidation of the Company, the holders of the Series B Preferred Stock are entitled to receive the Liquidation Preference plus any accrued and unpaid dividends prior to the distribution of any amount to the holders of the Common Stock. The Series B Preferred also contains redemption features in certain circumstances such as a change of control, minimum thresholds of ownership by the Chairman and his family in AMCON, or bankruptcy. Finally, the Series B Preferred are optionally redeemable by the Company beginning October 8, 2006 at a redemption price equal to 112% of the Liquidation Preference. The redemption price decreases 1% annually thereafter until October 8, 2018, after which date it remains the Liquidation Preference.
In addition, the Company has Series A Convertible Preferred Stock ("Series A Preferred") outstanding as of December 2004 that was issued during fiscal 2004. The Series A Preferred generated gross proceeds of $2.5 million and consisted of 100,000 Series A shares. All terms of the Series A Preferred are the same as Series B Preferred except for the dividend rate which is 6.785% for Series A and that the Series A is optionally redeemable by the Company beginning June 17, 2006.
4. INVENTORIES:
Inventories consisted of the following at December 2004 and September 2004:
December September
2004 2004
------------ ------------
Finished goods $ 39,386,083 $ 39,617,912
Raw materials 1,411,780 926,237
LIFO reserve (4,180,478) (4,063,135)
------------ ------------
$ 36,617,385 $ 36,481,014
============ ============
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The wholesale distribution and retail health food segment inventories consist of finished products purchased in bulk quantities to be redistributed to the Company's customers or sold at retail. The wholesale distribution operation's inventories are stated at the lower of cost (last-in, first-out or "LIFO" method) or market. The retail health food operation utilizes the retail LIFO inventory method of accounting stated at the lower of cost (LIFO) or market. The beverage operation's inventories are stated at the lower of cost (LIFO) or market and consist of raw materials and finished goods. The Company's finished goods inventory includes materials, labor and
manufacturing overhead costs. Raw materials inventory consists of pre-forms used to make bottles, caps, labels and various packaging and shipping materials. The LIFO reserve at December 2004 and September 2004 represents the amount by which LIFO inventories were less than the amount of such inventories valued on a first-in, first-out basis, respectively. An allowance for obsolete inventory is maintained in the retail health food and beverage segments to reflect the expected unsaleable or non-refundable inventory based on evaluation of slow moving and discontinued products.
5. OTHER INTANGIBLE ASSETS:
Other intangible assets at December 2004 and September 2004 consisted of the
following:
December September
2004 2004
------------ ------------
Trademarks and tradenames $ 9,686,997 $ 9,680,521
Water source 2,807,000 2,807,000
Covenants not to compete (less accumulated
amortization of $872,835 and $843,527) 47,390 76,698
Favorable leases (less accumulated
amortization of $349,936 and $340,003) 136,064 145,997
Customer lists (less accumulated
amortization of ($47,980 and $26,285) 539,300 560,995
------------ ------------
$ 13,216,751 $ 13,271,211
============ ============
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Trademarks, tradenames and the water source are considered to have indefinite useful lives, therefore, no amortization is taken on these assets. Amortization expense for the intangible assets that are considered to have finite lives was $60,936 and $79,822 for the three months ended December 2004 and 2003, respectively.
Amortization expense related to the amortizing intangible assets held at December 2004 for each of the five years subsequent to September 2004 is estimated to be as follows:
Fiscal Fiscal Fiscal Fiscal Fiscal
2005 2006 2007 2008 2009
--------- --------- -------- -------- --------
Covenants not to compete $ 77,000 $ - $ - $ - $ -
Favorable leases 40,000 40,000 40,000 26,000 -
Customer lists 117,000 117,000 117,000 117,000 92,000
--------- --------- -------- -------- --------
$ 234,000 $ 157,000 $157,000 $143,000 $ 92,000
========= ========= ======== ======== ========
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6. EARNINGS (LOSS) PER SHARE:
Basic earnings (loss) per share is calculated by dividing net income (loss) available to common shareholders by the weighted average common shares outstanding for each period. Diluted earnings per share is calculated by dividing net income (loss) available to common shareholders by the sum of the weighted average common shares outstanding and the weighted average dilutive options, using the treasury stock method. Stock options outstanding at December 2004 and 2003, which were not included in the computations of diluted earnings per share because the option's exercise price was greater than the average market price of the Company's common shares, totaled 194,195 with an average exercise price of $29.32 and 31,440 with an average exercise price of $39.75, respectively.
For the three months ended December
-------------------------------------------------------
2004 2003
------------------------- -------------------------
Basic Diluted Basic Diluted
----------- ----------- ----------- -----------
1. Weighted average common
shares outstanding 527,062 527,062 528,165 528,165
2. Weighted average of net
additional shares outstanding
assuming dilutive options
exercised and proceeds
used to purchase treasury
stock/1/ - - - 7,384
----------- ----------- ----------- -----------
3. Weighted average number of
shares outstanding 527,062 527,062 528,165 535,549
=========== =========== =========== ===========
4. (Loss) income available to
common shareholders $ (85,599) $ (85,599) $ 514,244 $ 514,244
=========== =========== =========== ===========
5. (Loss) earnings per share $ (0.16) $ (0.16) $ 0.97 $ 0.96
=========== =========== =========== ===========
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/1/ Weighted average of net additional shares not included for the period in 2004 as such shares are anti-dilutive due to the net loss incurred during the period.
7. COMPREHENSIVE INCOME (LOSS):
The following is a reconciliation of (loss) income available to common shareholders per the accompanying condensed consolidated unaudited statements of operations to comprehensive income for the periods indicated:
For the three months
ended December
-------------------------
2004 2003
----------- -----------
(Loss) income available to
common shareholders $ (85,599) $ 514,244
Other comprehensive income:
Unrealized holding gains from
investments arising during the
period, net of income tax expense of
$5,000 in 2003 - 7,471
Reclassification adjustments for
gains included in net income
in prior periods, net of income
tax expense of $145,000 in 2003 - (236,741)
Interest rate swap valuation
adjustment, net of income tax
expense $25,000 and $32,000,
respectively 40,423 50,702
----------- -----------
Comprehensive income (loss) $ (45,176) $ 335,676
=========== ===========
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8. DEBT
The Company's amended $55.0 million revolving credit facility (the "New Facility") with LaSalle Bank extends the credit agreement through April 2007 and retains many of the existing facility's terms including lending limits subject to accounts receivable and inventory limitations, an unused commitment fee and financial covenants. The significant changes under the New Facility are as follows:
- Inclusion of the subsidiaries, except TSI, as borrowers.
- Inclusion of Term Note A within the $55.0 million revolving limit that is amortized in equal monthly installments over 60 months.
- Replacement of the LIBOR interest rate borrowing option (LIBOR plus 2.50%) on the revolving portion of the New Facility and the $1.2 million term loan with the bank's base rate, except for $15.0 million of the new facility that corresponds with the Company's existing interest rate swap agreements which will remain at LIBOR plus 2.50%.
- Inclusion of a fixed charge coverage ratio of 0.8 to 1.0 through June 2005 and 1.0 to 1.0 thereafter in lieu of a debt service coverage ratio, which was subsequently amended in Q2 2005, effective December 2004 and decreased to 0.7 to 1.0.
- Amendment of the definition of minimum tangible net worth and reduction of the minimum tangible net worth requirement to $3.0 million through June 2005 which was subsequently amended in Q2 2005, effective December 2004 and decreased to $1.5 million through the end September 29, 2005 and $2.5 million thereafter.
- Inclusion of a prepayment penalty should the loans be paid off prior to September 30, 2006.
The Company's New Facility, including Term Note A, maintains the maximum borrowing limit at $55.0 million, subject to eligible accounts receivable and inventory requirements. As of December 2004, the outstanding balance on the New Facility was $53.4 million. The New Facility bears interest at the bank's base rate, which was 5.25% at December 2004. The Company is required to pay an unused commitment fee equal to 0.25% per annum on the difference between the maximum loan limit and the average monthly borrowing for the month. The New Facility is collateralized by all of the Company's equipment, intangibles, inventories, and accounts receivable, except those held by TSI.
The outstanding balance on Term Note B was $5.0 million at December 2004. It bears interest at the banks base rate, plus 2.0%, which was 7.25% at December 2004 and is payable in equal monthly installments of $0.3 million beginning May 1, 2005.
The Company's Chairman has personally guaranteed repayment of up to $10 million of the combined amount of the New Facility and the term loans. AMCON will pay the Company's Chairman an annual fee equal to 2% of the guaranteed principal then outstanding in return for the personal guarantee. This guarantee is secured by a pledge of the shares of Chamberlin Natural Foods, Inc., Health Food Associates, Inc., HNWC and TSI.
The Company was not in compliance with the minimum tangible net worth covenant as of December 2004 and has obtained a waiver from the lender for first quarter of fiscal 2005. In Q2 2005, the minimum tangible net worth covenant was amended effective December 2004 to reduce the tangible net worth covenant to $1.5 million through September 29, 2005 and $2.5 million thereafter, and to redefine and reduce the fixed charge coverage ratio to 0.7 for the remainder of fiscal 2005. The Company is currently in compliance with the covenants of the New Facility, as amended, effective December 2004 and expects to be in compliance with the amended covenant for the remainder of fiscal 2005.
basis with the Company's existing second mortgage on TSI's real property. The revolving credit line matures on December 14, 2005 at which time principal and accrued interest will be due.
At December 2004, the Company had borrowed $0.8 million of the $1.0 million maximum borrowings intended to finance the purchase of the building and the construction of the addition to the building. The additional $0.2 million of funds are expected to be borrowed in the second and third quarters of fiscal 2005 as the Company completes the addition. The terms of repayment are interest only through July 31, 2005 and then payable in 54 equal monthly installments of principal of $4,100 based on a twenty year amortization schedule with the entire remaining principal due and payable on December 31, 2009. The interest rate is 6.33%.
The Company also arranged the financing of certain equipment expenditures totaling $0.5 million, however at December 2004, the Company has not drawn on these funds. Once drawn upon, the principal payments will be made in 60 equal monthly installments of $8,000 beginning April 1, 2005. The interest rate is 6.33%.
9. BUSINESS SEGMENTS:
AMCON has three reportable business segments: the wholesale distribution of consumer products, the retail sale of health and natural food products, and the bottling, marketing and distribution of bottled water and other beverage products. The segments are evaluated on revenue, gross margins, operating income (loss) and income (loss) before taxes.
Wholesale
Distribution Retail Beverage Other /2/ Consolidated
------------- ----------- ----------- ------------ -------------
QUARTER ENDED DECEMBER 2004:
External revenue:
Cigarettes $ 155,561,138 $ - $ - $ - $ 155,561,138
Confectionery 14,038,345 - - - 14,038,345
Health food - 8,574,131 - - 8,574,131
Tobacco, beverage & other 34,240,324 - 2,805,634 (41,106) 37,004,852
------------- ----------- ----------- ---------- -------------
Total external revenue 203,839,807 8,574,131 2,805,634 (41,106) 215,178,466
Depreciation & amortization /1/ 312,955 212,114 205,479 - 730,548
Operating income (loss) 2,239,819 137,997 (1,557,703) 16,362 836,475
Interest expense 261,260 401,501 413,321 - 1,076,082
Income (loss) before taxes 2,024,309 (249,865) (1,971,024) 16,362 (180,218)
Total assets 70,482,360 17,287,930 23,629,968 176,347 111,576,605
Capital expenditures 1,140,534 6,656 131,427 - 1,278,617
QUARTER ENDED DECEMBER 2003:
External revenue:
Cigarettes $ 141,234,663 $ - $ - $ - $ 141,234,663
Confectionery 12,386,357 - - - 12,386,357
Health food - 8,169,000 - - 8,169,000
Tobacco, beverage & other 30,100,823 - 1,192,460 (46,187) 31,247,096
------------- ----------- ----------- ---------- -------------
Total external revenue 183,721,843 8,169,000 1,192,460 (46,187) 193,037,116
Depreciation & amortization /1/ 317,123 219,996 52,011 - 589,130
Operating income (loss) 2,079,718 277,874 (1,184,842) (39,706) 1,133,044
Interest expense 294,749 298,681 185,478 - 778,908
Income (loss) before taxes 2,207,135 (12,891) (1,370,294) (39,706) 784,244
Total assets 68,755,348 16,891,332 11,848,041 25,861 97,520,582
Capital expenditures 94,094 110,568 217,461 - 422,123
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/1/ Includes depreciation reported in cost of sales for the beverage segment.
/2/ Includes charges to operations incurred by discontinued operations and intercompany eliminations.
10. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:
In November 2004, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 151 "Inventory Costs." This statement amends Accounting Research Bulletin No. 43, Chapter 4, "Inventory Pricing" and removes the "so abnormal" criterion that under certain circumstances could have led to the capitalization of these items. SFAS No. 151 requires that idle facility expense, excess spoilage, double freight and rehandling costs be recognized as current-period charges regardless of whether they meet the criterion of "so abnormal." SFAS 151 also requires that allocation of fixed production overhead expenses to the costs of conversion be based on the normal capacity of the production facilities. SFAS No. 151 is effective for all fiscal years beginning after June 15, 2005 (fiscal 2006 for AMCON). Management does not
believe there will be a significant impact on the Company's results of operations or financial condition as a result of adopting this Statement.
In December 2004, the FASB published FASB Statement No. 123 (revised 2004), "Share-Based Payment." Statement 123(R) will provide investors and other users of financial statements with more complete and neutral financial information by requiring that the compensation cost relating to share-based payment transactions be recognized in financial statements. That cost will be measured based on the fair value of the equity or liability instruments issued. This Statement is the result of a two-year effort to respond to requests from investors and many others that the FASB improve the accounting for share-based payment arrangements with employees. Statement 123(R) replaces FASB Statement No. 123, "Accounting for Stock-Based Compensation," and supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees." Statement 123, as originally issued in 1995, established as preferable a fair-value-based method of accounting for share-based payment transactions with employees. However, that Statement permitted entities the option of continuing to apply the guidance in Opinion 25, as long as the footnotes to financial statements disclosed what net income would have been had the preferable fair-value-based method been used. Although those disclosures helped to mitigate the problems associated with accounting under Opinion 25, many investors and other users of financial statements said that the failure to include employee compensation costs in the income statement impaired the transparency, comparability, and credibility of financial statements. Public entities (other than those filing as small business issuers) will be required to apply Statement 123(R) as of the first interim or annual reporting period that begins after June 15, 2005 (the fourth quarter of fiscal 2005 for the Company). The Company is currently assessing the impact that this standard will have on the Company.
In December 2004, the FASB issued Statement No. 152, "Accounting for Real Estate Time-Sharing Transactions." Statement 152 amends FASB Statements No. 66, "Accounting for the Sales of Real Estate," and No. 67, "Accounting for Costs and Initial Rental Operations of Real Estate Projects," in association with the issuance of AICPA Statement of Position (SOP) 04-2, Accounting for Real Estate Time-Sharing Transactions. The guidance is effective for financial statements for fiscal years beginning after June 15, 2005 (fiscal 2006 for the Company), with earlier application encouraged. Management does not believe there will be an impact on the Company's results of operations or financial condition as a result of adopting this Statement.
In December 2004, the FASB issued Statement No. 153, "Exchanges of Nonmonetary Assets," an amendment of APB Opinion No. 29, "Accounting for Nonmonetary Transactions." The amendments made by Statement 153 are based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. Further, the amendments eliminate the narrow exception for nonmonetary exchanges of similar productive assets and replace it with a broader exception for exchanges of nonmonetary assets that do not have commercial substance. Previously, Opinion 29 required that the accounting for an exchange of a productive asset for a similar productive asset or an equivalent interest in the same or similar productive asset should be based on the recorded amount of the asset relinquished. The Statement is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005 (fiscal 2006 for the Company). Earlier application is permitted for nonmonetary asset exchanges occurring in fiscal periods beginning after the date of issuance. The Company is currently assessing the impact that this standard will have on the Company.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
FORWARD LOOKING STATEMENTS
This Quarterly Report, including the Management's Discussion and Analysis and other sections, contains forward looking statements that are subject to risks and uncertainties and which reflect management's current beliefs and estimates of future economic circumstances, industry conditions, company performance and financial results. Forward looking statements include information concerning the possible or assumed future results of operations of the Company and those statements preceded by, followed by or that include the words "future," "position," "anticipate(s)," "expect," "believe(s)," "see," "plan," "further improve," "outlook," "should" or similar expressions. For these statements, we claim the protection of the safe harbor for forward looking statements contained in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not guarantees of future performance or results. They involve risks, uncertainties and assumptions. You should understand that the following important factors, in addition to those discussed elsewhere in this document, could affect the future results of the Company and could cause those results to differ materially from those expressed in our forward looking statements:
- changing market conditions with regard to cigarettes,
- changes in promotional and incentive programs offered by cigarette
manufacturers,
- the demand for the Company's products,
- new business ventures,
- domestic regulatory risks,
- competition,
- other risks over which the Company has little or no control, and
- any other factors not identified herein could also have such an effect.
Changes in these factors could result in significantly different results. Consequently, future results may differ from management's expectations. Moreover, past financial performance should not be considered a reliable indicator of future performance. Any forward looking statement contained herein is made as of the date of this document. Except as required by law, the Company undertakes no obligation to publicly update or correct any of these forward looking statements in the future to reflect changed assumptions, the occurrence of material events or changes in future operating results, financial conditions or business over time.
CRITICAL ACCOUNTING POLICIES
Certain accounting policies used in the preparation of the Company's financial statements require us to make judgments and estimates and the financial results we report may vary depending on how we make these judgements and estimates. The Company's critical accounting policies are discussed in the Company's 2004 Annual Report to Shareholders on Form 10-K for the fiscal year ended September 24, 2004. There have been no significant changes with respect to these policies during the Company's first quarter of fiscal 2005.
COMPANY OVERVIEW - FIRST FISCAL QUARTER 2005
AMCON Distributing Company ("AMCON" or the "Company") is primarily engaged in the wholesale distribution business in the Great Plains and Rocky Mountain regions of the United States. In addition, AMCON operates thirteen retail health food stores and a non-alcoholic beverage business that includes natural spring and geothermal water bottling operations in the States of Hawaii and Idaho and a marketing and distribution operation which is focused on selling licensed speciality beverages and private label energy drinks. As used herein, unless the context indicates otherwise, the term "ADC" means the wholesale distribution segment and "AMCON" or the "Company" means AMCON Distributing Company and its consolidated subsidiaries.
During the first quarter of fiscal 2005, the Company:
- changed its reporting period from a 52-53 week year ending on the last Friday in September to a calendar month reporting period ending on September 30 which resulted in 14 weeks of operations during the first quarter of fiscal 2005 as compared to 13 weeks in Q1 2004.
- amended and restated its existing credit facility and security agreement in order to fund the payment of $6.8 million in subordinated term debt in the retail segment and $4.8 million of revolving debt in the beverage segment.
- completed a $2.0 million private placement of Series B Convertible Preferred Stock, a portion of which was used to fund the payment of the subordinated debt described above.
- purchased a building in order to relocate its distribution facility in Rapid City, South Dakota to replace the existing facility which will continue to be leased until the new distribution facility is ready for operation in the third quarter of fiscal 2005.
- experienced a 11.5% increase in sales compared to the first quarter of fiscal 2004 primarily due to the extra week of operations which resulted from the change in reporting periods from fiscal month to calendar month.
- recognized a loss per diluted share of $0.16 for the three months ended December 2004 compared to earnings per diluted share of $0.96 in the same period of the prior year.
- suspended payment of dividends on its common stock in order to conserve capital to fund operations.
INDUSTRY SEGMENT OVERVIEWS
manufacturers and occurred again at the beginning of the second quarter of fiscal 2004. The manufacturers followed by implementing promotional programs later in fiscal 2004 and then increased prices in Q1 2005 on certain brands. Based on these activities, it is difficult to predict how future changes in promotional programs will impact the Company and the industry in the future.
As a result of one of the manufacturer program changes discussed above, certain small wholesalers filed suit against Philip Morris and RJ Reynolds alleging unfair trade practices. In addition, due to the heightened level of competition in the marketplace from both a wholesale and retail convenience store perspective, a number of wholesalers and retailers have sought bankruptcy protection, been acquired or are on the market to be sold. Therefore, we expect that competition and pressure on profit margins will continue to affect both large and small distributors and demand that distributors consolidate in order to become more efficient.
The beverage marketing and distribution business (TBG) incurred significant losses during 2004 as significant expenditures were made for product development, distribution network development and marketing efforts to promote our portfolio of specialty beverages. The resulting sales were less than expected due to lack of market penetration of our new beverage products.
In October 2004, we took steps to reduce on-going operating expenses by reducing the work force and consolidating certain activities of marketing and distribution with other companies in the affiliated group. In addition, we are evaluating the line of product offerings and plan to discontinue non- contributing brands and focus on the brands with the greatest potential for market penetration.
RESULTS OF OPERATIONS
AMCON's fiscal first quarters ended on December 31, 2004 and December 26, 2003. For ease of discussion, these fiscal quarters are referred to herein as December 2004 and 2003, respectively or Q1 2005 and Q1 2004, respectively.
Wholesale distribution segment $ 20.1 million
Retail health food stores segment 0.4 million
Beverage segment 1.6 million
Intersegment eliminations - million
------
$ 22.1 million
======
|
Cigarette sales in the wholesale distribution business increased by $14.3 million and the sales of tobacco, confectionary and other products contributed an additional $5.8 million in Q1 2005 compared to Q1 2004. Of the increase in cigarette sales, $10.4 million was a result of the change in our monthly reporting period which added an extra week of sales in Q1 2005 as compared to Q1 2004, $0.7 million was attributable to price increases implemented by major cigarette manufacturers in December 2004 and $3.2 million was due to a 2.4% increase in carton volume (excluding the extra week). Of the increase in tobacco, confectionary and other products, $3.2 million was due to the extra week and $2.6 million was attributable primarily to new business obtained through expansion of our market area. We continue to market our full service capabilities in an effort to differentiate our Company from competitors who utilize pricing as their primary marketing tool.
Sales from the retail health food segment during Q1 2005 increased by $0.4 million when compared to Q1 2004 primarily due to the extra week of operations in Q1 2005 as compared to Q1 2004 resulting from the change in the Company's monthly reporting period. The retail health food segment experienced lower grocery sales of low carb products in Q1 2005 as these products continued to move to mainstream grocery channels.
The beverage segment accounted for $2.8 million in sales for Q1 2005 compared to $1.2 million in Q1 2004. TSI, which was acquired in June 2004, accounted for $0.7 of the increase in sales. The addition of Nesco Hawaii increased sales in Q1 2005 by $0.3 million. The remaining increase is primarily due to increased sales of Hawaiian Natural spring water, due to completion of plant construction in 2004, a change to a new distributor in the Hawaii market in
2004, and the extra week of operations in Q1 2005 resulting from the change in the Company's monthly reporting period which increased sales by $0.2 million as compared to Q1 2004.
Gross profit increased 5.5%, or $0.8 million, in Q1 2005 as compared to Q1
2004. Gross profit as a percent of sales decreased to 7.4% in Q1 2005
compared to 7.8% in Q1 2004. Gross profit by business segment is as follows:
(dollars in millions)
Quarter ended
December
---------------- Incr
2004 2003 (Decr)
------ ------ -----
Wholesale distribution segment $ 12.2 $ 11.5 $ 0.7
Retail health food stores segment 3.4 3.4 0.0
Beverage segment 0.3 0.2 0.1
------ ------ -----
$ 15.9 $ 15.1 $ 0.8
====== ====== =====
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Items increasing gross profit during Q1 2005 from our wholesale distribution business as compared to Q1 2004 were $0.6 million attributable to the extra week of operations resulting from the reporting period change, $0.3 million due to cigarette price increases implemented by major cigarette manufacturers in December 2004, a decrease in the quarterly impact of the LIFO reserve of $0.1 million and incentive payments of $0.4 million received from a non- cigarette vendors based on the Company's buying volumes. These increases were offset primarily by a decrease in cigarette manufacturer promotional allowances of $0.7 million resulting from changes in promotional programs.
Gross profit for the retail health food segment was flat at $3.4 million compared with Q1 2004, including the extra week of operations which contributed approximately $0.2 million in gross profit during the period.
Gross profit for the beverage segment increased in Q1 2005 primarily due to the incremental sales from TSI which was acquired in June 2004.
Total operating expense, which includes selling, general and administrative expenses and depreciation and amortization, increased 8.1% or approximately $1.1 million in Q1 2005 compared to Q1 2004. The increase is primarily related to the extra week of operations which increased the amount of payroll and certain other expenses during Q1 2005 as compared to Q1 2004 and the addition of TSI in June 2004 which added $1.0 million of additional operating expenses. These increases were offset by a $0.6 million decrease in operating expenses at TBG as a result of cost reduction strategies that were implemented in October 2004. In addition, the wholesale business had increases in bad debt expense and professional fees. The retail health food segment's operating expense increased slightly ($0.1 million) as a result of the additional week in Q1 2005.
As a result of the above, income from operations for Q1 2005 decreased $0.3 million compared to Q1 2004.
Interest expense for Q1 2005 increased 38.2%, or $0.3 million, during Q1 2005. The increase was primarily due to increases in the prime rate, which under the terms of the amended and restated credit facility, is the rate at which the Company primarily borrows and an increase in the Company's average borrowings of approximately $14.7 million. On average, the Company's borrowing rates on its variable rate debt were 0.95% higher in Q1 2005 as compared to Q1 2004.
Other income decreased $0.4 million in Q1 2005 because of the sale of available-for-sale securities in Q1 2004 that did not recur in Q1 2005.
During Q1 2005, the Company paid preferred dividends of $0.1 million on its Series A and B, Cumulative, Convertible Preferred Stock.
Minority interest in loss, net of tax, increased during the period (which decreased the net loss) by $0.1 million in Q1 2005 due to the 15% ownership of TSI that is not owned by AMCON.
LIQUIDITY AND CAPITAL RESOURCES
As of December 2004, the Company had cash on hand of $0.9 million and working capital (current assets less current liabilities) of $40.0 million. This compares to cash on hand of $0.4 million and working capital of $27.9 million as of September 2004. The Company's ratio of debt to equity decreased to 4.25 at December 2004 compared to 4.56 in September 2004.
The Company believes that funds generated from operations, supplemented as necessary with funds available under the New Facility will provide sufficient liquidity for the operation of its wholesale and retail businesses. Management is presently negotiating with LaSalle Bank to bring TSI into the Company's revolving credit facility and with investors to privately place
additional debt or equity to provide additional funding for TSI. Although management is optimistic that additional financing will be committed, the ultimate outcome of this financing is not certain at this time. If the Company is unable to raise the additional funds in the near future, plans for growth within TSI would be negatively impacted and could potentially impact the carrying value of the business.
Payments Due By Period
--------------------------------------------------------------------
Contractual Fiscal Fiscal Fiscal Fiscal Fiscal
Obligations Total 2005/1/ 2006 2007 2008 2009 Thereafter
------------------ --------- -------- -------- ------- ------- ------- ----------
Long-term debt/2/ $ 71,185 $ 7,612 $ 15,844 $44,959 $ 321 $ 2,449 $ -
Subordinated debt 1,076 1,076 - - - - -
Operating leases 19,108 4,037 4,489 2,712 1,963 1,505 4,402
Minimum water royalty/3/ 4,114 155 288 288 288 288 2,807
--------- -------- -------- ------- ------- ------- ---------
Total $ 95,483 $ 12,880 $ 20,621 $47,959 $ 2,572 $ 4,242 $ 7,209
========= ======== ======== ======= ======= ======= =========
Total
Other Commercial Amounts Fiscal Fiscal Fiscal Fiscal Fiscal
Commitments Committed 2005/1/ 2006 2007 2008 2009 Thereafter
------------------ --------- -------- -------- ------- ------- ------- ----------
Lines of credit (LOC) $ 56,000 $ - $ 1,000 $ 55,000 $ - $ - $ -
LOC in use (53,931) - (500) (53,431) - - -
--------- -------- -------- ------- ------- ------- ----------
LOC available 2,069 - 500 1,569 - - -
Water source guarantee 5,000 - - - - - 5,000
Letters of credit 837 837 - - - - -
--------- -------- -------- ------- ------- ------- ----------
Total $ 7,906 $ 837 $ 500 $ 1,569 $ - $ - $ 5,000
========= ======== ======== ======= ======= ======= =========
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/1/ Includes remaining payments scheduled to be made in the last nine months of fiscal 2005
/2/ Includes capital leases of $1.4 million.
/3/ Fiscal 2005 - 2009 represent the annual minimum water royalty and the balance thereafter represents the minimum water royalty in perpetuity.
The Company hedges its variable rate risk on a notional $15.0 million of its borrowings under the New Facility by use of interest rate swap agreements. These swap agreements have the effect of converting the interest on this amount of debt to fixed rates ranging between 4.38% and 4.87% per annum.
The Company is required to pay an unused commitment fee equal to 0.25% per annum on the difference between the maximum loan limit and average monthly borrowing for the month. The New Facility is collateralized by all of the Company's equipment, intangibles, inventories, and accounts receivable, except those held by TSI. The New Facility expires in April 2007.
The New Facility contains covenants which, among other things, set certain financial ratios and net worth requirements. The New Facility includes covenants that (i) restrict permitted investments, (ii) restrict intercompany advances to certain subsidiaries as described above, (iii) restrict incurrence of additional debt, (iv) restrict mergers and acquisitions and changes in business or conduct of business and (v) require the maintenance of certain financial ratios and net worth levels including an average annual fixed charge ratio of 0.8 to 1.0, and a minimum tangible net worth of $3.0 million through June 2005 and increases to $3.5 million in September 2005. The Facility also provides that the Company may not pay dividends on its common stock in excess of $0.72 per share on an annual basis. The Company was not in compliance with the minimum tangible net worth covenant as of December 2004 and has obtained a waiver from the lender for first quarter of fiscal 2005. In Q2 2005, the minimum tangible net worth covenant was amended effective December 2004 to reduce the tangible net worth covenant to $1.5 million through September 29, 2005 and $2.5 million thereafter, and to redefine and reduce the minimum fixed charge coverage ration to 0.7 for the remainder of fiscal 2005. The Company is currently in compliance with the covenants of the New Facility, as amended, effective December 2004 and expects to be in compliance with the amended covenant for the remainder of fiscal 2005.
In addition, the Company obtained Term Note B, which had an outstanding balance of $5.0 million at December 2004. Term Note B bears interest at the bank's base rate plus 2.00%, which was 7.25% at December 2004 and is required to be repaid in eighteen monthly installments of $0.3 million beginning March 2005.
The Company's Chairman has personally guaranteed repayment of up to $10 million of the combined amount of the New Facility and the term loans. AMCON will pay the Company's Chairman an annual fee equal to 2% of the guaranteed principal in return for the personal guarantee. This guarantee is secured by a pledge of the shares of Chamberlin Natural Foods, Inc., Health Food Associates, Inc., HNWC and TSI.
The Company's $2.8 million and $2.0 million credit facilities with a bank which were used to fund operating activities of our beverage segment were eliminated in October 2004 as they were brought into the Company's revolving credit facility as part of the debt restructuring transaction.
CERTAIN ACCOUNTING CONSIDERATIONS
In December 2004, the FASB published FASB Statement No. 123 (revised 2004), "Share-Based Payment." Statement 123(R) will provide investors and other users of financial statements with more complete and neutral financial information by requiring that the compensation cost relating to share-based payment transactions be recognized in financial statements. That cost will be measured based on the fair value of the equity or liability instruments issued. This Statement is the result of a two-year effort to respond to requests from investors and many others that the FASB improve the accounting for share-based payment arrangements with employees. Statement 123(R) replaces FASB Statement No. 123, "Accounting for Stock-Based Compensation," and supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees." Statement 123, as originally issued in 1995, established as preferable a fair-value-based method of accounting for share-based payment transactions with employees. However, that Statement permitted entities the option of continuing to apply the guidance in Opinion 25, as long as the footnotes to financial statements disclosed what net income would have been had the preferable fair-value-based method been used. Although those disclosures helped to mitigate the problems associated with accounting under Opinion 25, many investors and other users of financial statements said that the failure to include employee compensation costs in the income statement impaired the transparency, comparability, and credibility of financial statements. Public entities (other than those filing as small business issuers) will be required to apply Statement 123(R) as of the first interim or annual reporting period that begins after June 15, 2005 (the fourth quarter of fiscal 2005 for the Company). The Company is currently assessing the impact that this standard will have on the Company.
OFF-BALANCE SHEET ARRANGEMENTS
The Company does not have any off-balance sheet arrangements that have or are reasonably expected to have a material effect on the Company's financial position or results of operations.
RELATED PARTY TRANSACTIONS
As described under the headings LIQUIDITY AND CAPITAL RESOURCES - Credit Facilities and TSI Revolving Debt, the Company's Chairman has personally guaranteed repayment of certain obligations of the Company and is being paid a guarantee fee for that service. In addition, a director of the Company has extended a $1.0 million revolving line of credit to TSI.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company is exposed to interest rate risk on its variable rate debt. At December 2004, we had $38.4 million of variable rate debt outstanding (excluding $15.0 million variable rate debt which is fixed through the swaps described below), with maturities through April 2007. The interest rate on this debt was 5.25% at December 2004. We estimate that our annual cash flow exposure relating to interest rate risk based on our current borrowings is approximately $0.3 million for each 1% change in our lender's prime interest rate.
In June 2003, the Company entered into two interest rate swap agreements with a bank in order to mitigate the Company's exposure to interest rate risk on this variable rate debt. Under the agreements, the Company agrees to exchange, at specified intervals, fixed interest amounts for variable interest amounts calculated by reference to agreed-upon notional principal amounts of $10.0 million and $5.0 million. The interest rate swaps effectively convert $15.0 million of variable-rate senior debt to fixed-rate debt at rates of 4.87% and 4.38% on the $10.0 million and $5.0 million notional amounts through the maturity of the swap agreements on June 2, 2006 and 2005, respectively. These interest rate swap agreements have been designated as hedges and are accounted for as such for financial accounting purposes.
We do not utilize financial instruments for trading purposes and hold no derivative financial instruments other than the interest rate swaps which could expose us to significant market risk.
Item 4. Controls and Procedures
The Company maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in the Company's reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and that such information is accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. The Company's management, including the Company's Principal Executive Officer and Chief Financial Officer, reviewed and evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation and subject to the foregoing, the Principal Executive Officer and Chief Financial Officer have concluded that the Company's current disclosure controls and procedures, as designed and implemented provided reasonable assurance that the disclosure controls and procedures are effective as of the end of the period covered by this report. There have been no significant changes in the Company's internal controls or in other factors that could significantly affect the Company's internal controls subsequent to the date of their evaluation. There were no material weaknesses identified in the course of such review and evaluation and, therefore, no corrective measures were taken by the Company.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
AMCON announced in May 2004 that it was filing suit against Trinity Springs, Ltd. in order to obtain an order from the United States District Court for the District of Idaho declaring that a majority of the votes entitled to be cast by the shareholders of Trinity Springs, Ltd. were cast in favor of the sale of substantially all of its assets to AMCON's subsidiary, TSL Acquisition Corp. and thereby satisfied the shareholder approval condition of the asset purchase transaction. Subsequent to AMCON's filing of its lawsuit, the Inspectors of Election and the Board of Directors of Trinity Springs,
Ltd. certified the shareholder voting results in favor of the asset purchase transaction.
After the certification of the voting results, certain minority shareholders filed a complaint and motion seeking injunctive relief in the District Court of the Fifth Judicial District of the State of Idaho. The Court granted a temporary restraining order on June 11, 2004, which prevented the closing of the asset purchase transaction until the Court had an opportunity to review additional briefing on the issues presented and the parties could be heard by the Court. On June 16, 2004, the Court heard arguments on whether to extend the temporary restraining order and grant the minority shareholders' motion for preliminary injunction. As a result of the parties' briefing and the arguments presented, the Court dissolved the temporary restraining order and thereby enabled the asset sale transaction to be consummated.
On July 19, 2004, several of the same minority shareholders, along with some additional shareholders filed an amended complaint in the same Idaho state court action. The minority shareholders' amended complaint seeks (i) a declaration that the asset sale transaction is void and injunctive relief rescinding that transaction or, alternatively, that a new shareholder vote on the asset sale transaction be ordered, (ii) damages for the alleged breaches of fiduciary duty which are claimed to have arisen out of the disclosure made in connection with the solicitation of proxies, how the votes were counted, and conducting the closing without the requisite shareholder vote, and (iii) imposition of a constructive trust on the sale proceeds and requiring separate books to be maintained. AMCON continues to believe that the shareholders of Trinity Springs, Ltd. approved the sale of assets to the Company in accordance with applicable law and that the asset sale transaction was properly completed.
The Company is also party to other lawsuits and claims arising out of the operation of its businesses. Management believes the ultimate resolution of such matters should not have a material adverse effect on the Company's financial condition, results of operations or liquidity after giving consideration to amounts already recorded in the Company's financial statements.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
In October 2004, the Company completed a $2.0 million private placement of Series B Convertible Preferred Stock representing 80,000 shares at $25 per share which was primarily used in part to fund subordinated debt obligations of the Company. The Series B Convertible Preferred Stock is senior to the Company's outstanding common stock and provides for preferential treatment for preferred shareholders in the event of distributions, proceeds upon liquidation of the Company or the redemption of the stock.
Item 3. Defaults Upon Senior Securities
During the fiscal quarter ended December 2004, the Company's minimum tangible net worth dropped below that required by the New Facility. LaSalle has waived this default and we have entered into an amendment to the Credit Agreement effective December 31, 2004 which reduced the minimum tangible net worth covenant requirement to $1.5 million to September 29, 2005 and $2.5 million thereafter, and redefined and reduced the minimum fixed charge coverage ration to 0.7 million for the remainder of fiscal 2005.
Item 6. Exhibits
(a) EXHIBITS
2.1 Assets Purchase and Sale Agreement by and between Food For Health Company, Inc., AMCON Distributing Company and Tree of Life, Inc. dated March 8, 2001 (incorporated by reference to Exhibit 2.1 of AMCON's Current Report on Form 8-K filed on April 10, 2001)
2.2 Amendment to Assets Purchase and Sale Agreement by and between Food For Health Company, Inc., AMCON Distributing Company and Tree of Life, Inc. effective March 23, 2001 (incorporated by reference to Exhibit 2.2 of AMCON's Current Report on Form 8-K filed on April 10, 2001)
2.3 Asset Purchase Agreement, dated February 8, 2001, between AMCON Distributing Company, Merchants Wholesale Inc. and Robert and Marcia Lansing (incorporated by reference to Exhibit 2.1 of AMCON's Current Report on Form 8-K filed on June 18, 2001)
2.4 Addendum to Asset Purchase Agreement, dated May 30, 2001, between AMCON Distributing Company, Merchants Wholesale Inc. and Robert and Marcia Lansing (incorporated by reference to Exhibit 2.2 of AMCON's Current Report on Form 8-K filed on June 18, 2001)
2.5 Real Estate Purchase Agreement, dated February 8, 2001, between AMCON Distributing Company and Robert and Marcia Lansing (incorporated by reference to Exhibit 2.3 of AMCON's Current Report on Form 8-K filed on June 18, 2001)
2.6 Addendum to Real Estate Purchase Agreement, dated May 30, 2001, between AMCON Distributing Company and Robert and Marcia Lansing (incorporated by reference to Exhibit 2.4 of AMCON's Current Report on Form 8-K filed on June 18, 2001)
2.7 Asset Purchase Agreement, dated April 24, 2004, between TSL Acquisition Corp., AMCON Distributing Company and Trinity Springs, Ltd. (incorporated by reference to Exhibit 2.8 of AMCON's Quarterly Report on Form 10-Q filed on August 9, 2004)
2.8 First Amendment to Asset Purchase Agreement dated June 17, 2004 between TSL Acquisition Corp., AMCON Distributing Company and Trinity Springs, Ltd. (incorporated by reference to Exhibit 2.9 of AMCON's Quarterly Report on Form 10-Q filed on August 9, 2004)
3.1 Restated Certificate of Incorporation of the Company, as amended May 11, 2004 (incorporated by reference to Exhibit 3.1 of AMCON's Quarterly Report on Form 10-Q filed on August 9, 2004)
3.2 Bylaws of the Company (incorporated by reference to Exhibit 3.2 of AMCON's Registration Statement on Form S-1 (Registration No. 33-82848) filed on August 15, 1994)
3.3 Second Corrected Certificate of Designations, Preferences and Rights of
Series A Convertible Preferred Securities of AMCON Distributing Company
dated August 5, 2004 (incorporated by reference to Exhibit 3.3 of
AMCON's Quarterly Report on Form 10-Q filed on August 9, 2004)
3.4 Certificate of Designations, Preferences and Rights of Series B
Convertible Preferred Securities of AMCON Distributing Company dated
October 8, 2004 (incorporated by reference to Exhibit 3.4 of AMCON's
Annual Report on Form 10-K filed on January 7, 2005)
4.1 Specimen Common Stock Certificate (incorporated by reference to Exhibit
4.1 of AMCON's Registration Statement on Form S-1 (Registration No.
33-82848) filed on August 15, 1994)
4.2 Specimen Series A Convertible Preferred Stock Certificate (incorporated
by reference to Exhibit 4.2 of AMCON's Quarterly Report on Form 10-Q
filed on August 9, 2004)
4.3 Specimen Series B Convertible Preferred Stock Certificate (incorporated
by reference to Exhibit 3.4 of AMCON's Annual Report on Form 10-K filed
on January 7, 2005)
4.4 Securities Purchase Agreement dated June 17, 2004 between AMCON
Distributing Company, William F. Wright and Draupnir, LLC (incorporated
by reference to Exhibit 4.3 of AMCON's Quarterly Report on Form 10-Q
filed on August 9, 2004)
4.5 Securities Purchase Agreement dated October 8, 2004 between AMCON
Distributing Company and Spencer Street Investments, Inc. (incorporated
by reference to Exhibit 3.4 of AMCON's Annual Report on Form 10-K filed
on January 7, 2005)
10.1 Amended and Restated Loan and Security Agreement, dated September 30,
2004, between the Company and LaSalle National Bank, as agent
(incorporated by reference to Exhibit 3.4 of AMCON's Annual Report on
Form 10-K filed on January 7, 2005)
10.2 First Amended and Restated AMCON Distributing Company 1994 Stock Option
Plan (incorporated by reference to Exhibit 10.17 of AMCON's Current
Report on Form 10-Q filed on August 4, 2000)
10.3 AMCON Distributing Company Profit Sharing Plan (incorporated by
reference to Exhibit 10.8 of Amendment No. 1 to the Company's
Registration Statement on Form S-1 (Registration No. 33-82848) filed on
November 8, 1994)
10.4 Employment Agreement, dated May 22, 1998, between the Company and
William F. Wright (incorporated by reference to Exhibit 10.14 of
AMCON's Quarterly Report on Form 10-Q filed on August 6, 1998)
10.5 Employment Agreement, dated May 22, 1998, between the Company and
Kathleen M. Evans (incorporated by reference to Exhibit 10.15 of
AMCON's Quarterly Report on Form 10-Q filed on August 6, 1998)
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10.6 Agreement, dated December 10, 2004 between AMCON Distributing Company
and William F. Wright with respect to split dollar life insurance
(incorporated by reference to Exhibit 3.4 of AMCON's Annual Report on
Form 10-K filed on January 7, 2005)
10.7 Agreement, dated December 15, 2004 between AMCON Distributing Company
and Kathleen M. Evans with respect to split dollar life insurance
(incorporated by reference to Exhibit 3.4 of AMCON's Annual Report on
Form 10-K filed on January 7, 2005)
10.8 ISDA Master Agreement, dated as of May 12, 2003 between the Company and
LaSalle Bank National Association (incorporated by reference to Exhibit
10.13 of AMCON's Quarterly Report on Form 10-Q filed on August 11,
2003)
10.9 Swap Transaction Confirmation ($10,000,000) dated as of May 23, 2003
between the Company and LaSalle Bank National Association (incorporated
by reference to Exhibit 10.14 of AMCON's Quarterly Report on Form 10-Q
filed on August 11, 2003)
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10.10 Swap Transaction Confirmation ($5,000,000) dated as of May 23, 2003 between the Company and LaSalle Bank National Association (incorporated by reference to Exhibit 10.15 of AMCON's Quarterly Report on Form 10-Q filed on August 11, 2003)
10.11 Promissory Note ($2,828,440), dated as of June 17, 2004 between the Company and Trinity Springs, Ltd. (incorporated by reference to Exhibit 10.15 of AMCON's Quarterly Report on Form 10-Q filed on August 9, 2004)
10.12 Promissory Note ($500,000), dated as of June 17, 2004 between the Company and Trinity Springs, Ltd. (incorporated by reference to Exhibit 10.16 of AMCON's Quarterly Report on Form 10-Q filed on August 9, 2004)
10.13 Security Agreement, dated June 17, 2004 by and between TSL Acquisition Corp., AMCON Distributing Company and Trinity Springs,Ltd.(incorporated by reference to Exhibit 10.17 of AMCON's Quarterly Report on Form 10-Q filed on August 9, 2004)
10.14 Shareholders Agreement, dated June 17,2004, by and between TSL Acquisition Corp, AMCON Distributing Company and Trinity Springs, Ltd. (incorporated by reference to Exhibit 10.18 of AMCON's Quarterly Report on Form 10-Q filed on August 9, 2004)
10.15 Guaranty and Suretyship Agreement, dated June 17, 2004, by and between AMCON Distributing Company and Trinity Springs, Ltd. (incorporated by reference to Exhibit 10.19 of AMCON's Quarterly Report on Form 10-Q filed on August 9, 2004)
10.16 Mortgage, dated June 17, 2004, by and between TSL Acquisition Corp., AMCON Distributing Company and Trinity Springs, Ltd.(incorporated by reference to Exhibit 10.20 of AMCON's Quarterly Report on Form 10-Q filed on August 9, 2004)
10.17 Guaranty Fee, Reimbursement and Indemnification Agreement, dated as of September 30, 2004, between AMCON Distributing Company and William F. Wright (incorporated by reference to Exhibit 3.4 of AMCON's Annual Report on Form 10-K filed on January 7, 2005)
10.18 Unconditional Guaranty, dated as of September 30, 2004 between William F. Wright and LaSalle Bank, N.A.(incorporated by reference to Exhibit 3.4 of AMCON's Annual Report on Form 10-K filed on January 7, 2005)
10.19 Secured Promissory Note ($1,000,000), dated December 14, 2004, issued by Trinity Springs, Inc. to Allen D. Petersen (incorporated by reference to Exhibit 3.4 of AMCON's Annual Report on Form 10-K filed on January 7, 2005)
10.20 Modification and Extension of Second Lien Commercial Mortgage, Assignment of Leases and Rents, and Fixture Filing, dated as of December 14, 2004 between Trinity Springs, Inc. and Allen D. Petersen (incorporated by reference to Exhibit 3.4 of AMCON's Annual Report on Form 10-K filed on January 7, 2005)
10.21 Term Real Estate Promissory Note, dated December 21, 2004, issued by AMCON Distributing Company to Gold Bank
10.22 Term Equipment Promissory Note, dated December 21, 2004 issued by AMCON Distributing Company to Gold Bank
10.23 One Hundred Eighty Day Redemption Mortgage and Security Agreement by and between AMCON Distributing Company and Gold Bank
10.24 Security Agreement by and between AMCON Distributing Company and Gold
Bank
11.1 Statement re: computation of per share earnings (incorporated by
reference to footnote 4 to the financial statements which are
incorporated herein by reference to Item 1 of Part I herein)
14.1 Code of Ethics for Principal Executive and Financial Officers
(incorporated by reference to Exhibit 14.1 of AMCON's Annual Report on
Form 10-K filed on December 24, 2003)
31.1 Certification by William F. Wright, Chairman and Principal Executive
Officer, furnished pursuant to section 302 of the Sarbanes-Oxley Act
31.2 Certification by Michael D. James, Vice President and Chief Financial
Officer, furnished pursuant to section 302 of the Sarbanes-Oxley Act
32.1 Certification by William F. Wright, Chairman and Principal Executive
Officer, furnished pursuant to section 906 of the Sarbanes-Oxley Act
32.2 Certification by Michael D. James, Vice President and Chief Financial
Officer, furnished pursuant to section 906 of the Sarbanes-Oxley Act
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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.
AMCON DISTRIBUTING COMPANY
(registrant)
Date: February 14, 2005 /s/ William F. Wright
----------------- -----------------------------
William F. Wright
Chairman of the Board and
Principal Executive Officer
Date: February 14, 2005 /s/ Michael D. James
----------------- -----------------------------
Michael D. James
Treasurer & CFO and
Principal Financial and
Accounting Officer
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TERM REAL ESTATE PROMISSORY NOTE
$984,000.00 December 21, 2004
FOR VALUE RECEIVED, the undersigned borrower (hereinafter referred to as the "Borrower"), promises to pay to the order of GOLD BANK (herein, together with its successors and assigns who become holders of this Note, referred to as the "Lender") at 800 West 47th Street, Kansas City, Missouri 64112, or at such other place as may be designated in writing by Lender from time to time, the maximum principal sum of up to Nine Hundred Eighty-Four Thousand and No/100 Dollars ($984,000.00) provided the principal sum shall not exceed the lesser of 80% of the completed appraisal cost or actual purchase price cost and cost of planned addition of the Mortgaged Property as defined in the Real Estate Mortgage defined below, payable as to interest only through July 31, 2005, and payable thereafter as to principal plus interest in fifty-four (54) equal calendar monthly installments of $4,100 based on a two hundred forty (240) month amortization schedule with the entire remaining principal plus all accrued interest due and payable on December 31, 2009 (the "Maturity Date"). Interest on the unpaid principal balance of this Note will be payable monthly in arrears. Each monthly payment of interest only or principal and interest shall be paid on the first (1st) day of each month beginning January 1, 2005 and ending December 1, 2009; provided, however, that the entire unpaid principal balance of this Note plus accrued and unpaid interest thereon shall be due and payable prior to the Maturity Date upon the happening of certain events as set forth herein, in the Real Estate Mortgage of even date herewith between Borrower and Lender (as amended from time to time, the "Real Estate Mortgage") and in the Loan Documents as defined below. All interest payments made hereunder shall be calculated based on the five year United States Treasury Rate as of the date first written above plus 275 basis points ("Interest Rate"). All principal and interest payments due hereunder are to be made together with any additional payments provided for in the Real Estate Mortgage and in that certain Term Equipment Promissory Note ("Equipment Note") and Security Agreement executed by Borrower for the benefit of Lender of even date herewith ("Security Agreement") (collectively, this Note, the Equipment Note, the Mortgage, the Security Agreement and any other documents executed in connection therewith shall be referred to herein as the "Loan Documents").
This Note is secured by the collateral as set forth in the Real Estate Mortgage and is cross-collateralized against the equipment and other collateral as set forth in the Security Agreement, the other Loan Documents and any other collateral now or hereafter given by the Borrower to Lender to secure the Indebtedness ("Collateral"). In addition, this Note is cross-defaulted and co-terminus with any and all other loans now or hereafter existing by and between Debtor, Debtor's subsidiaries or affiliates and Secured Party. The cancellation or surrender of this Note, upon payment or otherwise, shall not affect any right Lender has to retain the Collateral, the Mortgage or any other collateral for any other Indebtedness of Borrower to Lender. All of the items described in such documents constitute security for this Note, whether filed of record or otherwise, and reference is made to the same for a further description of the rights of Lender thereunder.
Borrower shall have the right to prepay this Note in whole or in part at any time; provided, however, if a third party (i.e., not Borrower or a subsidiary thereof) prepays this Note in whole or in part prior to the Maturity Date, Borrower shall pay Lender (in addition to the outstanding principal and interest payments due Lender under the Loan Documents) a prepayment penalty of 1% calculated on the outstanding principal and interest balance of this Promissory Note and the Equipment Note at the time the prepayment is made. All prepayments shall be credited first to amounts owing by Borrower to Lender other than principal and interest, second to interest, and third to the principal balance.
Upon the occurrence of any of the following events:
1. Failure to pay when due any principal or interest or other amount due on this Note or the Equipment Note or any costs, fees, reimbursable expenses or other amounts payable by Borrower under any of the Loan Documents that is not cured within any applicable cure period in the Loan Documents; or
2. If for any reason Borrower dissolves, terminates or otherwise ceases to exist or is not extended beyond the term of this Note, the Equipment Note or the Loan Documents; or
3. The occurrence of any other Event of Default under this Note or the Loan Documents which is not cured within any applicable cure period (if any) contained in this Note or the Loan Documents; then Lender may, at Lender's option: (i) have all principal, interest, fees, charges, expenses and other costs outstanding or owing hereunder bear interest at the Interest Rate plus two percent (2%) ("Default Interest Rate") for so long as said Event of Default shall continue; and (ii) declare all sums outstanding or owing hereunder, in the Equipment Note and in the other Loan documents, including principal, interest, fees, charges, expenses and other costs to be immediately due and payable without presentment, demand or notice of any kind, all of which are hereby expressly waived by Borrower.
To induce Lender to enter into the Loan Documents, and to advance to Borrower as herein provided, Borrower represents and warrants and, so long as any indebtedness and Obligations (as defined in the Mortgage and other Loan Documents) remains unpaid or the Loan Documents remain in effect, Borrower shall be deemed continuously to represent and warrant as follows:
Borrower is and will continue to be a Delaware corporation duly formed and validly existing under the laws of the State of Delaware; Borrower has adequate power, authority and legal right to own, manage and hold the Real Estate as described in the Mortgage; and Borrower has adequate authority, power and legal right to enter into and carry out the provisions of this Note, to borrow money and to give security for borrowing as required by this Note and to consummate the transactions contemplated hereby and under the Loan Documents.
Neither this Note, nor any statements or documents referred to herein or delivered by Borrower in any of the other Loan Documents, contains any untrue statement or omits to state a material fact necessary to make the statements herein or therein not misleading.
Borrower will execute and deliver or cause to be executed and delivered to Lender all of the Loan Documents required by the terms hereof together with all other instruments and documents relating thereto as required by Lender.
Borrower will notify Lender in the event any lien is filed against the Collateral or Mortgage is foreclosed on the subject Real Estate.
Borrower will maintain and keep the Real Estate as described in the Mortgage and the contents thereof properly insured in all respects up to at least the fair market value of the Real Estate.
Borrower has or will perform and comply with each and all of the terms and provisions of this Note, any and all of the other Loan Documents and any and all other instruments and documents respecting the loan described herein.
All covenants, representations and warranties made herein shall survive the repayment of the Note, the Real Estate Note and the Loan Documents. Borrower's request for this loan shall constitute an affirmation on behalf of Borrower that the foregoing covenants, representations and warranties remain true and correct as of the date of such request.
No provision of this Note shall be construed to mean that Borrower has paid or agreed to pay, directly or indirectly, under any circumstances whatsoever, any interest in excess of that which lawfully may be charged under any applicable laws relating to interest. If for any reason interest in excess of the highest lawful rate shall at any time be paid hereunder, any such excess shall constitute and shall be treated as a payment on the principal amount due.
Each payment hereunder and in the Loan Documents shall be made in lawful money of the United States of America and payable in immediately available funds on the date that such funds are due at Lender's address set forth above or at such other place as the legal holder hereof shall from time to time designate to Borrower in writing. If any payment of principal or interest on this Note is due on a Saturday, a Sunday or a legal holiday under the laws of the State of Kansas, such payment shall be made on the next succeeding business day, and such extension of time shall be included in computing interest in connection with such payment.
Borrower agrees to pay to Lender a .50% loan fee on each amount borrowed under this Note and the Equipment Note. In addition, Borrower hereby agrees to reimburse the Lender and will pay all of Lender's reasonable costs and expenses incurred in connection with: i) due diligence costs, preparation, negotiation, execution, delivery, renewal, modification, amendment, regular review, and administration of the Note and the Loan Documents or any renewals, extensions or modifications of any of the foregoing; ii) the making or disbursement of the advances; and, iii) the exercise or enforcement of any of Lender's rights or remedies under this Note or any of the other Loan Documents, including, but not limited to, recording charges, attorneys' fees and disbursements (including duplicating and word processing fees), any other reasonable fees and costs for services that are not customarily performed by Lender's salaried employees, and any other fees, costs or expenses expended by Lender under this Note and the other Loan Documents. The provisions of this Section will survive the termination of this Note and the repayment of the Note. If an attorney is engaged by Lender because of any Event of Default under this Note, the Equipment Note, or any of the other Loan Documents or to enforce or defend any provision of any such document or instrument, then Borrower shall pay upon demand, to the extent permitted or not prohibited by applicable law, reasonable attorneys' fees and all costs and expenses so incurred by Lender.
The following representations, warranties and actions, in addition to any others contained in this Note, the Equipment Note and the Loan Documents executed or delivered in connection therewith, are required prior to Lender advancing funds hereunder:
The undersigned Borrower shall execute and deliver to Lender for the benefit of Borrower, the Mortgage securing all of Borrower's indebtedness hereunder as well as the Obligations as set forth in the Security Agreement and in the other Loan Documents in form and content satisfactory to Lender.
Borrower shall execute and in accordance with Lender's instructions, record a Mortgage in Pennington County, South Dakota, granting a security interest in that real estate listed in the Mortgage in form and content satisfactory to Lender.
Borrower will provide evidence that no default is continuing or currently exists under any other Loan Documents executed by Borrower.
Evidence that Borrower is in good standing in the States of Delaware and South Dakota as of the date hereof and evidence that the Note and all Loan Documents have been validly approved by corporate action with appropriate Corporate Resolutions as requested by Lender.
All expenses incurred by Lender in filing, recording and perfecting any mortgage, as well as any expenses or fees of any kind (including reasonable attorney fees) incurred in the inspection, audit, protection, collection or levy upon such secured Real Estate and Collateral shall be considered to be part of Borrower's obligations and payable by Borrower.
Each of the above conditions shall be considered both a condition precedent and a continuing condition of this Note and the Loan Documents, and shall remain in full force and effect until all of Borrower's obligations hereunder have been paid in full.
No waiver of any breach, Event of Default, default or failure of condition under the terms of this Note, the Equipment Note or the other Loan Documents shall be implied from any failure of Lender to take, or any delay by Lender in taking, any action with respect to any such breach, Event of Default, default or failure of condition or from any previous waiver of any similar or unrelated breach, Event of Default, default or failure of condition. A waiver of any term of this Note, the Equipment Note or the other Loan Documents must be made in writing by Lender and shall be limited to the express written terms of such waiver.
All obligations of Borrower and all rights, powers and remedies of Lender expressed herein shall be in addition to and not in limitation of those provided by law or in any written agreement or instrument (other than this Note) relating to any of the Indebtedness of Borrower to Lender or the security therefor.
Borrower waives presentment; demand; notice of dishonor; notice of protest and nonpayment; notice of default interest and late charges; notice of intent to accelerate; notice of acceleration; and diligence in Lender taking any action to collect any sums owing under this Note, the Equipment Note, the Loan Documents or in proceeding against any of the rights and interests in and to the Collateral and Real Estate securing payment of this Note and/or the Equipment Note.
Time is of the essence with respect to every provision hereof. Capitalized terms not otherwise defined in this Note shall have the meanings assigned to them under the Mortgage.
This Note shall be construed and enforced in accordance with the laws of the State of Kansas, without regard to principles of conflicts of law, except to the extent that federal laws preempt the laws of the State of Kansas.
BORROWER
AMCON Distributing Company
a Delaware Corporation
By: /s/ Michael D. James
-------------------------------
Name (print): Michael D. James
-------------------------------
Title: VP and CFO
-------------------------------
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TERM EQUIPMENT PROMISSORY NOTE
$480,000.00 December 21, 2004
FOR VALUE RECEIVED, the undersigned debtor (hereinafter referred to as the "Debtor"), promises to pay to the order of GOLD BANK (herein, together with its successors and assigns who become holders of this Note, called "Secured Party") at 800 West 47th Street, Kansas City, Missouri 64112, or at such other place as may be designated in writing by Secured Party from time to time, the maximum principal sum of up to Four Hundred Eighty Thousand and No/100 Dollars ($480,000.00), payable as to principal plus interest in sixty equal calendar monthly installments until fully paid. Interest on the unpaid principal balance of this Note will be payable monthly in arrears. Each monthly payment of principal plus interest shall be paid on the first (1st) day of each month beginning April 1, 2005 and ending on March 1, 2010 when all outstanding principal plus interest is due (the "Maturity Date"); provided, however, that the entire unpaid principal balance of this Note plus accrued and unpaid interest thereon shall be due and payable prior to the Maturity Date upon the happening of certain events as set forth herein, in the Security Agreement of even date herewith between Debtor and Secured Party (as amended from time to time, the "Security Agreement") and in the Loan Documents as defined below. All interest payments made hereunder shall be calculated based on the five year United States Treasury Rate as of the date first written above plus 275 basis points ("Interest Rate"). All principal plus interest payments due hereunder are to be made together with any additional payments provided for in the Security Agreement and that certain Term Real Estate Promissory Note ("Real Estate Note") and One Hundred Eighty Day Redemption Mortgage and Security Agreement executed by Debtor for the benefit of Secured Party of even date herewith ("Mortgage"), the Environmental Indemnity Agreement executed by Debtor in favor of Secured Party of even date herewith ("Environmental Agreement") (collectively, this Note, the Real Estate Note, the Security Agreement, the Mortgage, the Environmental Agreement and any other documents executed in connection therewith shall be referred to herein as the "Loan Documents").
This Note is secured by the collateral as set forth in the Security Agreement, related UCC-1 financing statements and is cross- collateralized against the real estate and other collateral as set forth in the Mortgage ("Real Estate"), the other Loan Documents and any other collateral now or hereafter given by the Debtor to Secured Party to secure the Indebtedness ("Collateral"). In addition, this Note is cross-defaulted and co-terminus with any and all other loans now or hereafter existing by and between Debtor, Debtor's subsidiaries or affiliates and Secured Party. The cancellation or surrender of this Note, upon payment or otherwise, shall not affect any right Secured Party has to retain the Collateral, the Mortgage or any other collateral for any other Indebtedness of Debtor to Secured Party. All of the items described in such documents constitute security for this Note, whether filed of record or otherwise, and reference is made to the same for a further description of the rights of Secured Party thereunder.
Debtor shall have the right to prepay this Note in whole or in part at any time; provided, however, if a third party (i.e., not Debtor or a subsidiary thereof) prepays this Note in whole or in part prior to the Maturity Date, Debtor shall pay Secured Party (in addition to the outstanding principal and interest payments due Secured Party under the Loan Documents) a prepayment penalty of 1% calculated on the outstanding principal and interest balance of this Promissory Note and the Real Estate Note at the time the prepayment is made. All prepayments shall be credited first to amounts owing by Debtor to Secured Party other than principal and interest, second to interest, and third to the principal balance.
Upon the occurrence of any of the following events:
1. Failure to pay when due any principal or interest or other amount due on this Note or the Real Estate Note or any costs, fees, reimbursable expenses or other amounts payable by Debtor under any of the Loan Documents that is not cured within any applicable cure period in the Loan Documents; or
2. If for any reason Debtor dissolves, terminates or otherwise ceases to exist or is not extended beyond the term of this Note, the Real Estate Note or the Loan Documents; or
3. The occurrence of any other Event of Default under this Note or the Loan Documents which is not cured within any applicable cure period (if any) contained in this Note or the Loan Documents; then Secured Party may, at Secured Party's option: (I) have all principal, interest, fees, charges, expenses and other costs outstanding or owing hereunder bear interest at the Interest Rate plus two percent (2%) ("Default Interest Rate") for so long as said Event of Default shall continue; and (ii) declare all sums outstanding or owing hereunder, in the Real Estate Note and in the other Loan documents, including principal, interest, fees, charges, expenses and other costs to be immediately due and payable without presentment, demand or notice of any kind, all of which are hereby expressly waived by Debtor.
To induce Secured Party to enter into the Loan Documents, and to advance to Debtor as herein provided, Debtor represents and warrants and, so long as any indebtedness and Obligations (as defined in the Security Agreement and other Loan Documents) remains unpaid or the Loan Documents remain in effect, Debtor shall be deemed continuously to represent and warrant as follows:
Debtor is and will continue to be a Delaware corporation duly formed and validly existing under the laws of the State of Delaware; Debtor has adequate power, authority and legal right to own, manage and hold the Real Estate as described in the Mortgage; and Debtor has adequate authority, power and legal right to enter into and carry out the provisions of this Note, to borrow money and to give security for borrowing as required by this Note and to consummate the transactions contemplated hereby and under the Loan Documents.
Neither this Note, nor any statements or documents referred to herein or delivered by Debtor in any of the other Loan Documents, contains any untrue statement or omits to state a material fact necessary to make the statements herein or therein not misleading.
Debtor will execute and deliver or cause to be executed and delivered to Secured Party all of the Loan Documents required by the terms hereof together with all other instruments and documents relating thereto as required by Secured Party.
Debtor will notify Secured Party in the event any lien is filed against the Collateral or Mortgage is foreclosed on the subject Real Estate.
Debtor will maintain and keep the Real Estate as described in the Mortgage and the contents thereof properly insured in all respects up to at least the fair market value of the Real Estate.
Debtor has or will perform and comply with each and all of the terms and provisions of this Note, any and all of the other Loan Documents and any and all other instruments and documents respecting the loan described herein.
All covenants, representations and warranties made herein shall survive the repayment of the Note, the Real Estate Note and the Loan Documents. Debtor's request for this loan shall constitute an affirmation on behalf of Debtor that the foregoing covenants, representations and warranties remain true and correct as of the date of such request.
No provision of this Note shall be construed to mean that Debtor has paid or agreed to pay, directly or indirectly, under any circumstances whatsoever, any interest in excess of that which lawfully may be charged under any applicable laws relating to interest. If for any reason interest in excess of the highest lawful rate shall at any time be paid hereunder, any such excess shall constitute and shall be treated as a payment on the principal amount due.
Each payment hereunder and in the Loan Documents shall be made in lawful money of the United States of America and payable in immediately available funds on the date that such funds are due at Secured Party's address set forth above or at such other place as the legal holder hereof shall from time to time designate to Debtor in writing. If any payment of principal or interest on this Note is due on a Saturday, a Sunday or a legal holiday under the laws of the State of Kansas, such payment shall be made on the next succeeding business day, and such extension of time shall be included in computing interest in connection with such payment.
Debtor agrees to pay to Secured Party a .50% loan fee on each amount borrowed under this Note and the Real Estate Note. In addition, Debtor hereby agrees to reimburse the Secured Party and will pay all of Secured Party's reasonable costs and expenses incurred in connection with: I) due diligence costs, preparation, negotiation, execution, delivery, renewal, modification, amendment, regular review, and administration of the Note and the Loan Documents or any renewals, extensions or modifications of any of the foregoing; ii) the making or disbursement of the advances; and, iii) the exercise or enforcement of any of Secured Party's rights or remedies under this Note or any of the other Loan Documents, including, but not limited to, recording charges, attorneys' fees and disbursements (including duplicating and word processing fees), any other reasonable fees and costs for services that are not customarily performed by Secured Party's salaried employees, and any other fees, costs or expenses expended by Secured Party under this Note and the other Loan Documents. The provisions of this Section will survive the termination of this Note and the repayment of the Note. If an attorney is engaged by Secured Party because of any Event of Default under this Note, the Real Estate Note, or any of the other Loan Documents or to enforce or defend any provision of any such document or instrument, then Debtor shall pay upon demand, to the extent permitted or not prohibited by applicable law, reasonable attorneys' fees and all costs and expenses so incurred by Secured Party.
The following representations, warranties and actions, in addition to any others contained in this Note, the Real Estate Note and the Loan Documents executed or delivered in connection therewith, are required prior to Secured Party advancing funds hereunder:
The undersigned Debtor shall execute and deliver to Secured Party for the benefit of Debtor, a security agreement securing all of Debtor's indebtedness hereunder as well as the Obligations as set forth in the Security Agreement and in the other Loan Documents in form and content satisfactory to Secured Party.
Debtor shall execute and in accordance with Secured Party's instructions, record a Mortgage in Pennington County South Dakota granting a security interest in that real estate listed in the Mortgage in form and content satisfactory to Secured Party.
Debtor will provide evidence that no default is continuing or currently exists under any other Loan Documents executed by Debtor.
Evidence that Debtor is in good standing in the States of Delaware and South Dakota as of the date hereof and evidence that the Note and all other Loan Documents have been validly approved by corporate action with appropriate Corporate Resolutions as requested by Secured Party.
All expenses incurred by Secured Party in filing, recording and perfecting any security interest, as well as any expenses or fees of any kind (including reasonable attorney fees) incurred in the inspection, audit, protection, collection or levy upon such secured Real Estate and Collateral shall be considered to be part of Debtor's obligations and payable by Debtor.
Each of the above conditions shall be considered both a condition precedent and a continuing condition of this Note and the Loan Documents, and shall remain in full force and effect until all of Debtor's obligations hereunder have been paid in full.
No waiver of any breach, Event of Default, default or failure of condition under the terms of this Note, the Real Estate Note or the other Loan Documents shall be implied from any failure of Secured Party to take, or any delay by Secured Party in taking, any action with respect to any such breach, Event of Default, default or failure of condition or from any previous waiver of any similar or unrelated breach, Event of Default, default or failure of condition. A waiver of any term of this Note, the Real Estate Note or the other Loan Documents must be made in writing by Secured Party and shall be limited to the express written terms of such waiver.
All obligations of Debtor and all rights, powers and remedies of Secured Party expressed herein shall be in addition to and not in limitation of those provided by law or in any written agreement or instrument (other than this Note) relating to any of the Indebtedness of Debtor to Secured Party or the security therefor.
Debtor waives presentment; demand; notice of dishonor; notice of protest
and nonpayment; notice of default interest and late charges; notice of
intent to accelerate; notice of acceleration; and diligence in Secured
Party taking any action to collect any sums owing under this Note, the
Real Estate Note, the Loan Documents or in proceeding against any of the
rights and interests in and to the Collateral and Real Estate securing
payment of this Note and/or the Real Estate Note.
Time is of the essence with respect to every provision hereof.
Capitalized terms not otherwise defined in this Note shall have the
meanings assigned to them under the Security Agreement.
This Note shall be construed and enforced in accordance with the laws of the State of Kansas, without regard to principles of conflicts of law, except to the extent that federal laws preempt the laws of the State of Kansas.
DEBTOR
AMCON Distributing Company
a Delaware Corporation
By: /s/ Michael D. James
----------------------
Name (print): Michael D. James
----------------------
Title: VP and CFO
----------------------
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Prepared by: Shughart, Thomson & Kilroy, P.C
Address: 120 West 12th Street
Kansas City, Missouri 64105
Telephone: (816) 421-3355
One hundred eighty day redemption MORTGAGE
AND SECURITY AGREEMENT
THIS ONE HUNDRED EIGHTY DAY REDEMPTION MORTGAGE AND SECURITY AGREEMENT (this "Mortgage") is made as of December 21, 2004, by and between AMCON Distributing Company, a Delaware corporation, having an address at 7405 Irvington Road, Omaha, Nebraska 68122 (the "Borrower"), in favor of GOLD BANK, a Kansas banking corporation, having an address at 800 West 47th Street, Kansas City, Missouri 64112 (the "Lender").
RECITALS:
A. Borrower has delivered to Lender the following promissory notes (collectively, the "Notes"):
1. A certain Term Real Estate Promissory Note (Real Estate Term Note) of even date herewith in the maximum principal amount of up to Nine Hundred Eighty-Four Thousand AND NO/100 DOLLARS ($984,000.00), with interest as therein specified, due December 31, 2009, if not sooner paid.
2. A certain Term Equipment Promissory Note (Equipment Term Note) of even date herewith in the maximum principal amount of up to Four Hundred Eighty Thousand AND NO/100 DOLLARS ($480,000.00), with interest as therein specified, due March 1, 2010, if not sooner paid.
The Notes, the Mortgage, the Security Agreement between Borrower and Lender of even date herewith ("Security Agreement"), the Environmental Indemnity Agreement executed by Borrower in favor of Lender of even date herewith ("Environmental Indemnity Agreement") and any and all other documents executed in connection therewith shall be referred to herein as the "Loan Documents".
B. Borrower is delivering this Mortgage to secure the payment of the Indebtedness (hereinafter defined) including future advances and future obligations pursuant to South Dakota law.
C. THE PARTIES AGREE THAT THE PROVISIONS OF THE ONE HUNDRED EIGHTY DAY REDEMPTION MORTGAGE ACT GOVERN THIS MORTGAGE.
NOW, THEREFORE, Borrower for legally sufficient consideration, the receipt and sufficiency of which is hereby acknowledged, executes and delivers this Mortgage to secure the payment of the following indebtedness and obligations (collectively, the "Indebtedness"):
(A) The payment of the principal, interest and premium, if any, on the Notes according to their tenor and effect;
(B) All other sums due to Lender (including all sums advanced by Lender) hereunder or under any other instrument securing the Notes; and
(C) All other future advances of Lender to Borrower and all other future obligations of Borrower to Lender.
GRANTING CLAUSE
To secure the payment of the Indebtedness, Borrower hereby grants, bargains, sells, conveys, assigns, grants a security interest in, mortgages and warrants unto Lender and to its successors and assigns forever, the following described property (real and personal) (collectively, the "Mortgaged Property"):
1. All of the real estate described in "Exhibit A" attached hereto and incorporated herein by reference, all tenements and hereditaments thereunto appertaining and all after acquired interests of every kind and nature therein, which real estate (the "Premises") is situated in the County of Pennington, State of South Dakota, together with all buildings, structures, fixtures, appurtenances and improvements thereon situate or which may hereafter be erected or placed thereon, all remainders and reversions in the Premises, all right, title and interest of Borrower in and to all streets, roads, boulevards, avenues or other public thoroughfares in front of and adjoining the Premises, including all easements, licenses and rights-of-way thereunto appurtenant, attached or belonging, and also all right, title and interest of Borrower in and to all strips and gores of land adjacent to the Premises; and
2. All engines, machinery, apparatus, equipment, furniture and furnishings now or hereafter located upon and used or furnished in connection with the letting or operation of said Premises (including, without limitation, all heating, lighting, ventilating, cooling, refrigeration and water supply apparatus and fixtures, ovens, furnaces, vent hoods and fans, bathtubs, sinks, water closets, basins, air conditioning units, pipes, faucets, mantels, refrigerators (mechanical or otherwise) dishwashers, disposals, stoves, ranges, clothes washers and dryers, shades, awnings, screens, blinds, rugs, carpets, mirrors, lamps, draperies, elevators, escalators, curtains, hangings, pictures, kitchen cabinets, sprinklers, alarm and monitoring systems, door opening and closing equipment, all equipment for the removal of dust, debris, snow, refuse or garbage, but excluding personal property owned by tenants and not by Borrower), and all replacements thereof; and
3. All rents, royalties, profits, revenues, incomes and other benefits of and from the property subject or required to be subject to the lien of this Mortgage, and all of the estate, right, title, and interest of every nature whatsoever of the Borrower in and to the same and every part and parcel thereof; and
4. All right, title and interest of Borrower in and to all leases, occupancy and rental agreements covering the Premises and the buildings, improvements and structures thereon, or any portion thereof, now or hereafter existing or entered into and all right, title and interest of Borrower thereunder, including, without limitation, all cash or security deposits, advance rentals and deposits or payments of a similar nature; and
5. All right, title and interest of Borrower in and to the following, including the right to receive the same, to-wit:
(a) All proceeds of insurance paid or payable as a result of damage to or destruction of the property described above; and
(b) Any and all awards or payments, including interest thereon, which may be made with respect to the property described above as a result of: (i) the exercise of the right of eminent domain; (ii) the alteration of the grade of any streets or roads; and (iii) any other damage or injury to or decrease in the value of the property described above;
in each such instance to the extent of all amounts which may be secured by this Mortgage on the date of receipt by the Lender of any such insurance proceeds, awards or payments, and to the extent of the reasonable counsel fees (to the extent not prohibited by law), costs and disbursements incurred by the Lender in connection with the collection of any such insurance proceeds, award or payment.
ARTICLE I
PARTICULAR COVENANTS OF BORROWER
Borrower covenants and agrees as follows:
1.01 PAYMENT OF INDEBTEDNESS.
That it will pay the Indebtedness in full as provided herein and in the Notes and the other Loan Documents and will perform and keep all the covenants and agreements in this Mortgage and in all other instruments securing payment of the Indebtedness. The Indebtedness shall not be prepaid except to the extent permitted by the terms of the Notes or the Loan Documents.
1.02 TITLE AND LIEN.
That at the delivery hereof, it is the lawful owner of the Mortgaged Property and is seized of a good and indefeasible estate of inheritance therein, free and clear of all liens and encumbrances, that it has full power to subject the same to the lien hereof and that it will warrant and defend the title thereto forever against the claims and demands of all persons whomsoever.
That the lien created by this Mortgage is a first and prior lien on the Mortgaged Property and that it will keep the Mortgaged Property free from all lien claims of every kind and will protect and defend the title and possession thereof so that this Mortgage shall be and remain a first lien thereon until the Indebtedness is fully paid, or if foreclosure sale be had hereunder so that the purchaser at the said sale shall acquire good title in fee simple to the Mortgaged Property free and clear of all liens and encumbrances.
1.03 FURTHER ASSURANCES.
That it will, at its expense, do all such further acts and execute, acknowledge, deliver and record financing and continuation statements and all such further instruments as Lender shall require to:
(a) Continue, preserve and maintain this Mortgage as a valid and subsisting first lien and prior security interest upon the Mortgaged Property enforceable in accordance with the terms and provisions of this Mortgage;
(b) Preserve and maintain the rights created by any other instruments securing the payment of the Indebtedness; and
(c) Preserve and maintain the priority of this Mortgage and all such other instruments securing the payment of the Indebtedness and the record notice thereof so that no rights or liens of others shall gain parity with or priority over this Mortgage and the other instruments securing the payment of the Indebtedness.
1.04 TAXES, ASSESSMENTS AND UTILITIES.
That it will forthwith pay all taxes, assessments, water and sewer charges and public charges, general and special, of every nature, now existing against the Mortgaged Property, and pay before delinquent all taxes, assessments, water and sewer charges and public charges, general and special of every nature hereafter levied or assessed thereon. In the event of the enactment after the date hereof of any Federal law or law of the State of South Dakota deducting from the value of land for the purpose of taxation, any lien thereon, or changing in any way the laws now in force for the taxation of deeds of trust or mortgages or debts secured by deeds of trust or mortgages, or the manner of the collection of any such taxes, so as to affect this Mortgage or the Indebtedness, then, in such case the whole of the unpaid principal sum secured by this Mortgage, together with the interest accrued thereon, shall, at the option of the Lender, without notice to any party, become immediately due and payable; provided, however, Lender agrees that it will not exercise such option to so declare such indebtedness to be immediately due and payable if Borrower shall pay before the same shall be delinquent any tax, imposition or assessment imposed by any such law resulting in Lender having to bear directly or indirectly the whole or any part of any tax, imposition or assessment imposed upon or with respect to the Mortgaged Property or this Mortgage or the lien created hereby. Borrower will pay (or cause to be paid) before delinquent all charges for gas, electricity, water, sewer or other public utility services furnished to the Mortgaged Property.
In the event Borrower shall fail to pay any of the foregoing before delinquent, Lender may (but shall not be obligated to) pay the same and any interest and penalties thereon and the sums so advanced with all costs and expenses thereof shall be secured hereby in accordance with the provisions hereof.
1.05 INSURANCE.
That it will keep the improvements now or hereafter on the Premises and the personal property, if any, included in the Mortgaged Property insured against loss or damage by fire and the hazards or perils covered by the extended coverage endorsement, boiler explosion, vandalism, malicious mischief and against such other casualties or hazards as may be required by Lender, including loss of rental income, all in companies, amounts, manner and form satisfactory to Lender so long as any of the Indebtedness remains unpaid, and will keep the originals of all such policies of insurance (the "Fire and Extended Coverage Policies") of whatever nature constantly assigned, pledged and delivered to Lender with a noncontributory mortgage endorsement making losses payable to Lender with the premiums thereon fully paid. The Fire and Extended Coverage Policies are hereby subjected to the lien of this Mortgage. All Fire and Extended Coverage Policies shall provide that the coverage evidenced thereby shall not be terminated or modified without thirty (30) days' prior written notice to Lender. Renewals of all Fire and Extended Coverage Policies shall be delivered to Lender at least thirty (30) days prior to the expiration of such policies. For further securing the payment thereof, Borrower hereby confers upon Lender the full right and power to settle and compromise all losses covered by the Fire and Extended Coverage Policies in excess of $15,000.00, together with the full right and power to demand, receive and receipt for all monies becoming payable thereunder, the same to apply, at the option of Lender toward the payment of the Indebtedness or the repair, restoration or rebuilding of the Mortgaged Property without affecting the lien of this Mortgage for the full amount of the Indebtedness before such damage or payment to Lender took place; and in the event of foreclosure hereunder, all right, title and interest of Borrower in and to the Fire and Extended Coverage Policies shall, at the option of the purchaser, pass to the purchaser at said foreclosure sale and Borrower shall receive credit in the amount of the applicable refund, if any. Notwithstanding anything to the contrary contained in this Section, insurance proceeds payable as a result of any damage to the Mortgaged Property in the amount of $15,000.00 or less for a single occurrence shall be paid to Borrower and Borrower shall restore, repair or replace the Mortgaged Property so damaged in accordance with the provisions of this Mortgage.
Borrower shall annually, so long as any of the Indebtedness remains unpaid, at least thirty (30) days prior to any applicable expiration dates, furnish Lender with receipts showing that the premiums for all Fire and Extended Coverage Policies have been paid in full for the next succeeding year. In the event Borrower shall for any reason fail to: (a) keep any of the Fire and Extended Coverage Policies in effect with the premiums fully paid; (b) keep the Fire and Extended Coverage Policies (including renewals thereof) duly assigned and delivered to Lender; and ) deliver certificates evidencing the renewals of the Fire and Extended Coverage Policies to Lender; all as above provided, Lender may (but shall not be obligated to) effect any such insurance paying the costs and expenses thereof and shall be secured for the sums so advanced in accordance with the provisions of this Mortgage.
1.06 MONTHLY TAX AND INSURANCE DEPOSITS.
Borrower will, at the option of Lender, at the time of each monthly
payment required by the Notes, deposit with Lender an amount estimated
by Lender to be sufficient to enable Lender to pay at least thirty
(30) days before they become due:
(a) All taxes, assessments, and other similar charges against the Mortgaged Property; and
(b) Yearly premiums to keep in force the insurance coverage required herein;
all of which funds shall be held by Lender for the benefit of Borrower without any obligation of Lender to pay interest thereon and shall be used and applied by Lender for the purposes and in the manner prescribed in this Section. In paying such items Lender may rely upon any tax bill, notice of assessment or premium notice furnished to Lender without further obligation to inquire into the validity or accuracy of such items. Upon demand of Lender, Borrower will deliver to Lender such additional monies as are necessary to make up any deficiency in the amount necessary to enable the Lender to pay the foregoing items. In the event of a default by Borrower in the performance of any of the terms, covenants or conditions contained herein or in the evidence of the Indebtedness, Lender may apply on the Indebtedness, in such manner as Lender shall determine, any funds of Borrower then in Lender's possession under this Section. A waiver by Lender of Lender's rights under this Section for any period of time or for Borrower or any of Borrower's successors in title shall not constitute a waiver of the provisions of this Section and Lender may on one or more occasions exercise its rights hereunder unless such waiver by Lender shall be in writing and shall specifically provide that Lender waives all of its rights under this Section for the entire term of this Mortgage. To the extent Borrower satisfies its obligations under this Section to deposit with Lender the amounts as herein above provided, Borrower shall be relieved of any further obligation to pay taxes, assessments and other similar charges against the Mortgaged Property and to pay the annual premiums to keep the required insurance in force as required hereby.
1.07 MAINTENANCE OF IMPROVEMENTS - COMPLIANCE WITH LAWS.
Borrower will:
(a) Keep the Mortgaged Property in good order and repair, and will not commit or suffer waste thereon, nor remove, raze or demolish any of the improvements located on the Premises without the prior written consent of Lender, nor do or permit to be done any act whereby the Mortgaged Property shall become less valuable;
(b) Perform and comply promptly with, and cause the Mortgaged Property to be maintained, used and operated in accordance with, any and all (i) present and future laws, ordinances, rules, regulations and requirements of every duly constituted governmental or quasi- governmental authority or agency having jurisdiction over Borrower or the Mortgaged Property, including without limitation, all applicable federal, state and local laws pertaining to air and water quality, hazardous materials, hazardous waste, waste disposal, air emissions and other environmental matters, all zoning and other land use matters, and rules, regulations and ordinances of the United States Environmental Protection Agency and all other applicable federal, state and local agencies and bureaus; (ii) similarly applicable orders, rules and regulations of any regulatory, licensing, accrediting, insurance underwriting or rating organization or other body exercising similar functions; (iii) similarly applicable duties or obligations of any kind imposed under any covenant, condition, agreement or easement, public or private; and (iv) policies of insurance at any time in force with respect to the Mortgaged Property. If Borrower receives any notice that Borrower or the Mortgaged Property is in default under or is not in compliance with any of the foregoing, or notice of any proceeding initiated under or with respect to any of the foregoing, Borrower will promptly furnish a copy of such notice to Lender; and
(c) Maintain and keep in full force and effect all licenses, permits and consents necessary or required by any such governmental authority or agency.
Borrower hereby represents and warrants that, neither Borrower nor, to
the best of Borrower's knowledge, any other person or entity used,
generated, stored or disposed of, on, under or about the Mortgaged
Property any hazardous waste, toxic substances or related materials
(hereafter referred to as "Hazardous Materials") (except for cleaning
solvents and other materials commonly used in the conduct of
Borrower's business in full compliance with all applicable laws). For
the purposes of this Mortgage, Hazardous Materials shall include, but
shall not be limited to, any substance, material, or waste which is or
becomes regulated by any State or local government authority or the
United States Government. The term "Hazardous Materials" includes,
without limitation, any material or substance which is listed in the
United States Department of Transportation Hazardous Materials Table
(49 C.F.R. s 172.101) or which is included within the definition of a
"hazardous substance", as that term is defined under the Comprehensive
Environmental Response Compensation and Liability Act [42 U.S.C. s
9601(14)], as the same may be amended from time to time ("CERCLA").
Further, Borrower agrees that it will not permit the storage of any
toxic materials or Hazardous Materials in, on or around the Mortgaged
Property now or at any future time (except for cleaning solvents and
other materials commonly used in the conduct of Borrower's business in
full compliance with all applicable laws) and will indemnify and hold
Lender harmless from and against any loss, liability, cost, expense or
action(s) which may result in connection with Hazardous Materials or
toxic material(s) as they relate to the Mortgaged Property.
Borrower's foregoing indemnity is independent of, and shall not be
measured or affected by: (i) any amounts at any time owing under the
Notes or the other Loan Documents; (ii) the sufficiency or
insufficiency of any collateral (including, without limitation, the
Premises) given to Lender to secure repayment of the Indebtedness;
(iii) any obligations of Borrower under the Notes or the other Loan
Documents; (iv) the consideration given by Lender or any other party
in order to acquire the Premises or any portion thereof; (v) the
modification, expiration or termination of any of the Notes or the
other Loan Documents; or (vi) the discharge or repayment in full of
the Indebtedness (including, without limitation, by amounts paid or
credit bid at a foreclosure sale or by discharge in connection with a
deed in lieu of foreclosure). Borrower's obligations hereunder shall
survive any transfer of title to all or any part of the Premises in
connection with a foreclosure of this Mortgage, including, without
limitation, a sale pursuant to judicial decree or power of sale,
judicial consent foreclosure or by deed in lieu of such foreclosure.
Lender's rights under this Section shall be in addition to any other
rights and remedies under any other document or instrument now or
hereafter executed by Borrower, or at law or in equity (including,
without limitation, any right of reimbursement or contribution
pursuant to CERCLA or any other law related to Hazardous Materials),
and shall not in any way be deemed a waiver of any such rights. All
obligations of Borrower hereunder shall be payable on demand, and
shall bear interest from the date of such demand at a per annum
interest rate equal to the default rate of interest calculated as
specified in the Loan Documents, whether or not any of the other Loan
Documents are then in effect.
If at any time it is determined that there are any toxic materials or Hazardous Materials located on the Mortgaged Property (other than cleaning solvents and other materials commonly used in the conduct of Borrower's business in full compliance with all applicable laws), Borrower shall diligently commence and continue to take such action, at its sole expense, as is necessary to comply with all environmental and safety requirements pertaining to the generation, transportation, use and disposal of such materials. Failure of Borrower to comply with all environmental and safety requirements of federal, state or local laws, statutes, ordinances or regulations, rules, court or administrative orders or decrees, or private agreements, shall constitute and be a default under this Mortgage and Lender, in lieu of foreclosure, shall have the option to require specific performance of Borrower's obligations hereunder.
Borrower hereby acknowledges and agrees that Lender has not participated, and shall not participate, in the management of Borrower and that any indicia of ownership which Lender may have in and to the Mortgaged Property by virtue of this Mortgage (and the rights granted to Lender herein) is primarily to protect Lender's security interest and lien in and to the Mortgaged Property.
If Borrower shall fail to comply with this Section, Lender may effect any needed repairs or alterations, maintain utility services and obtain security protection for the Mortgaged Property if the same is abandoned or vacant, obtain necessary licenses, permits and consents and take any other action Lender deems necessary to cause the Mortgaged Property to be in full compliance with this Section. In each such instance, Lender may (but shall not be obligated to) pay the costs and expenses thereof and shall be secured hereby for the sums so advanced.
1.08 PROTECTION OF MORTGAGES PROPERTY AND RIGHTS.
Lender shall have the right and power to institute and maintain or defend or intervene in such suits and proceedings as it may reasonably and in good faith deem necessary to:
(a) Prevent any impairment of the Mortgaged Property by any acts which may be unlawful or constitute a violation of this Mortgage;
(b) Enforce, defend, preserve or protect its interest (including the priority of the lien created hereby) in and to the Mortgaged Property and the income, royalties, revenue, rents, profits and other benefits arising therefrom and its rights and remedies under this Mortgage;
(c) Restrain the enforcement of or compliance with any legislation or other governmental enactment, rule or order that may be unconstitutional or otherwise invalid, if the enforcement of or compliance with such enactment, rule or order would substantially impair the security hereunder or be substantially prejudicial to the interest of the Lender; and
(d) Defend, preserve or protect its interests should Lender become a party to any suit or proceeding by reason of this Mortgage.
All of Lender's costs and expenses (including attorneys' fees to the extent now or hereafter not prohibited by law) incurred in any such actions shall be secured hereby and be paid by Borrower on demand as provided herein.
1.09 ADVANCES SECURED.
If Borrower shall fail to perform its obligations under this Mortgage and if Lender shall advance its funds to ensure performance of such obligations or if Lender shall advance sums for or in connection with any suit or proceeding referred to herein, then the sums so advanced by Lender, together with the costs and expenses of effecting the same, shall be payable on demand with interest, at the default rate of interest specified in the Real Estate Term Note, from the date of payment. All sums advanced by Lender pursuant to the provisions of the Mortgage and the costs and expenses thereof with interest from the date of the advance at the default rate of interest specified in the Real Estate Term Note shall be added to and become a part of the indebtedness of Borrower until paid and the repayment thereof shall be secured by this Mortgage with the same priority and in the same manner as the Indebtedness.
1.10 DAMAGE TO MORTGAGED PROPERTY.
If all or any part of the Mortgaged Property shall be damaged by fire or other casualty, Borrower will promptly restore the Mortgaged Property to the equivalent of its original condition, regardless of whether or not there shall be any insurance proceeds therefor; provided, however, if Lender shall elect to apply the insurance proceeds to the payment of the Indebtedness, Borrower shall not be obligated to restore the Mortgaged Property. If a part of the Mortgaged Property shall be physically damaged through condemnation, the Borrower will promptly restore, repair or alter the remaining property in a manner satisfactory to Lender.
1.11 INSPECTIONS.
Lender is hereby authorized to enter upon and inspect the Mortgaged Property at any time during normal business hours during the life of this Mortgage and for such purposes is hereby granted an easement to enter upon and inspect the Mortgaged Property.
1.12 REPLACEMENTS - ALTERATIONS.
That none of the improvements, fixtures, apparatus, equipment and personal property, except personal property and trade fixtures owned by tenants, now or hereafter owned or leased by Borrower and now or hereafter attached to or located upon and used or furnished in connection with the operation or letting of the Mortgaged Property or any part thereof shall be removed unless replaced with similar property of equal or greater value and no building or other improvement now or hereafter on the Premises shall be materially structurally altered without the prior written consent of Lender.
1.13 DEMOLITION - EMINENT DOMAIN - INJURY OR DAMAGE.
Upon the actual or threatened waste, demolition or removal of any of the improvements now or hereafter on the Mortgaged Property or the condemnation or other taking (including without limiting the generality of the foregoing, changes of grades of streets or roads) under the power of eminent domain of all or any part of the Mortgaged Property or upon any other damage or injury to or any decrease in the value of the Mortgaged Property, the entire Indebtedness shall, at the option of Lender, without notice, become immediately due and payable. Borrower hereby assigns to Lender as additional security for the Indebtedness, all awards in any and all such proceedings, including all awards or payments for injury or damage to or any decrease in the value of the Mortgaged Property, which may, at the option of Lender, be applied on the Indebtedness after first deducting the costs and expenses of Lender (including attorneys' fees to the extent now or hereafter not prohibited by law) incurred in such proceedings and any balance of such monies then remaining shall be paid to Borrower. Borrower will give notice of any such proceedings or event to Lender and Lender may intervene therein for the protection of its interest in the Mortgaged Property. Borrower will execute and deliver to Lender from time to time such further instruments as may be requested by Lender to confirm such assignment to Lender of any such award or payment.
1.14 RENT ASSIGNMENT.
That the income, rents and profits and rental value of the Mortgaged
Property and any and all present or future leases and rental and
occupancy agreements are hereby pledged and assigned to Lender as
additional security for the payment of the Indebtedness; provided,
however, until a default or defaults in any of the terms, covenants
and conditions of this Mortgage or of the Notes or any of the Loan
Documents, Borrower shall be suffered and permitted to use and enjoy
the Mortgaged Property and to receive when due, but not more than one
(1) month in advance except upon written approval of Lender, the
income, rents and profits and rental value thereof.
In the event and during the continuance of any default or defaults, Lender, at its option and without notice, shall have full power and authority to do and perform any one or more of the following, to-wit:
(a) To take possession of the Mortgaged Property and to operate and maintain the same with full power and authority to lease the whole or any part thereof and to collect the income, rents and profits therefrom;
(b) To institute and carry on all actions and proceedings deemed necessary for the recovery of possession or the protection of all or any portion of the Mortgaged Property, and to institute and prosecute all actions and proceedings for the collection of income, rents and rental value then due and unpaid and thereafter to become due;
(c) To make repairs, improvements, alterations or additions deemed necessary;
(d) To pay the costs and expenses (including, to the extent now or hereafter not prohibited by law, attorneys' fees if one be employed), of any or all of the foregoing out of the income, rents and profits received, and to apply the balance toward the cost of discharging the obligations imposed upon Borrower by this Mortgage and the Indebtedness; and
(e) Lender shall in addition be entitled to have a receiver appointed by a court of proper jurisdiction to perform any and all of the foregoing functions.
The foregoing powers and authorities shall be operative whether or not foreclosure proceedings have been initiated and shall remain in effect after sale and during redemption periods, if any. Upon or after default or defaults in any of the terms, covenants or conditions of this Mortgage, or the Notes or any other Loan Documents, Lender, in addition to the foregoing, at its option and without notice, shall have full right, power and authority to enter upon the Mortgaged Property and to collect the income, rents and profits hereby assigned with or without taking actual possession of the Mortgaged Property or any equivalent action.
1.15 FINANCIAL STATEMENTS.
Borrower, at its expense, shall furnish to Lender all financial statements and other information required to be provided under the terms of the Loan Documents.
1.16 LEASES AFFECTING MORTGAGED PROPERTY.
Borrower will not enter into any lease or other agreement for possession or use of the Mortgaged Property without the prior written consent of Lender, which consent shall not be unreasonably withheld. If Borrower is permitted to enter into any lease or other agreement affecting the Mortgaged Property, Borrower will comply with and observe its obligations as landlord under all such leases and other agreements affecting all or any part of the Mortgaged Property. Borrower will furnish Lender with executed copies of all such leases (together with all amendments, modifications, addenda and additions thereof or thereto). Borrower will not, without the prior written consent of the Lender, reduce the amount of rent due under, extend the term of, accept surrender of or terminate, either orally or in writing, any lease or tenancy now existing upon the Mortgaged Property nor will Borrower waive performance of the obligations of the tenants thereunder nor permit an assignment or sublease without the prior written consent of Lender unless the same shall be expressly permitted by the terms of the lease. Borrower will not accept payment of rent for more than one (1) month in advance without the prior written consent of Lender. If requested by Lender, Borrower will separately assign to Lender, as additional security, any and all such leases whether now existing or hereafter created, including, without limitation, all rents, royalties, issues and profits of the Mortgaged Property from time to time accruing.
At the request of Lender, Borrower will enter into appropriate agreements that will effect the subordination of this Mortgage to any present or future leases of all or any part of the Mortgaged Property.
1.17 NO FURTHER ASSIGNMENTS OF LEASES - RENTS.
Borrower will make no assignment of leases, income, rents, profits or rental value of the Mortgaged Property for any present or future debts or obligations other than those secured by this Mortgage.
1.18 LEASES - FORECLOSURE.
In the event of a default under this Mortgage, Lender, at Lender's option, is authorized to foreclose this Mortgage subject to the rights of any tenants of the Mortgaged Property, and the failure to make any such tenants parties defendant to any such foreclosure proceeding and to foreclose their rights will not be, nor be asserted to be by the Borrower, a defense to any proceedings instituted by the Lender to collect the Indebtedness or any deficiency remaining unpaid after the foreclosure sale of the Mortgaged Property.
1.19 MAXIMUM INTEREST.
No provision of this Mortgage, the Notes or any of the other Loan Documents shall require the payment or permit the collection of interest in excess of the maximum amount not prohibited by law. If any such excess interest is provided for, or shall be adjudicated to be so provided for, in this Mortgage, in the Notes or in any other Loan Documents, neither Borrower nor its successors in title shall be obligated to pay such excess interest and the right to demand the payment of any such excess interest is waived. This provision shall control any other provision of this Mortgage, the Notes, and the other Loan Documents. Any such excess interest paid by Borrower shall automatically be treated as a permitted additional prepayment of principal, but no premium for such prepayment shall be charged to Borrower.
1.20 SECURITY AGREEMENT.
This Mortgage constitutes a Security Agreement between Borrower, as debtor, and Lender, as secured party, with respect to that portion of the Mortgaged Property, if any, which shall be subject to the Uniform Commercial Code.
1.21 WAIVER OF REDEMPTION.
In the event of a default by Borrower in the performance of the obligations imposed upon it by the terms of this Mortgage, the Notes or the other Loan Documents, neither Borrower nor anyone claiming through or under it shall or will set up, claim or seek to take advantage of any stay, extension or redemption laws or redemption periods or grace periods now or hereafter in force and affecting the Mortgaged Property in order to prevent or hinder enforcement, foreclosure, sale, confirmation of sale, or conveyance of the Mortgaged Property upon foreclosure or the final and absolute putting in possession thereof immediately after any such sale of the purchaser or purchasers thereat, and Borrower, for itself and its successors in title, to the full extent that it may lawfully do so for itself and its successors in title, hereby waives the benefit of all such laws.
1.22 TRANSFER OR FURTHER ENCUMBRANCE OF MORTGAGED PROPERTY.
In the event that the Borrower sells, assigns, transfers, conveys or otherwise alienates or further mortgages or encumbers the Mortgaged Property or any part thereof or interest therein whether legal or equitable, and whether voluntarily or involuntarily or by operation of law, without in each such instance the prior written consent of Lender, which consent may be withheld for any reason, Lender may elect to (a) declare a default hereunder, (b) declare the total outstanding Indebtedness, together with interest thereon and premium, if any, at once due, payable and collectible, and/or (c) exercise any and all rights and remedies available to Lender by this Mortgage, the Notes, or any of the other Loan Documents, notice of such election being expressly waived.
1.23 USE OF MORTGAGED PROPERTY.
Borrower shall operate the Mortgaged Property at all times in accordance with all applicable laws.
ARTICLE II
DEFEASANCE - DEFAULTS
Borrower covenants and agrees with Lender as follows:
2.01 DEFEASANCE.
If the Indebtedness be paid when due and the covenants and agreements in this Mortgage, the Notes, and all other Loan Documents be faithfully kept and performed, then these presents shall be null and void and the Mortgaged Property shall be released from the lien hereof at the cost of Borrower.
2.02 DEFAULTS.
Upon the occurrence of an Event of Default (as defined in the Security Agreement and the Loan Documents), this Mortgage shall stay in force and during the continuance of any such Event of Default:
(a) Lender may declare the entire Indebtedness (including, without limitation, unpaid principal, accrued and unpaid interest and premiums, if any) to be due and payable immediately, and upon any such declaration the same shall be immediately due and payable;
(b) Lender shall be entitled to foreclose this Mortgage and shall be entitled to a judgment for the Indebtedness, including all attorney fees, costs and expenses of enforcing the same, to the extent now or hereafter not prohibited by law, and shall be entitled to a decree for the sale of the Mortgaged Property in satisfaction of said judgment foreclosing all of the rights and equities of Borrower in and to the Mortgaged Property, as well as all persons claiming under Borrower and at which sale appraisement of the Mortgaged Property, the marshalling of assets and all benefits of the Exemption and Stay Laws of the State of South Dakota are hereby expressly waived by Borrower;
(c) Lender shall continue to have the optional rights to exercise any or all other powers, rights and remedies given Lender by this Mortgage, including, but not by way of limitation, the right to pay taxes, assessments, insurance and the cost of repairs and the like given to it herein and the repayment of all such funds with interest thereon as herein provided shall be secured by this Mortgage;
(d) Lender shall have all the rights and remedies of a secured party under the Uniform Commercial Code; and
(e) Lender shall have, in addition to the foregoing, all rights and remedies given by law and equity, including the right to have a receiver appointed for the Mortgaged Property who shall take immediate possession of the Mortgaged Property, preserve, maintain, manage, operate and lease the Mortgaged Property and collect all income, rents and profits therefrom. All income, rents and profits so collected by such receiver, after first deducting therefrom all costs and expenses incurred by the receiver in the performance of his rights, duties and powers as receiver (including the fees of such receiver), shall be applied to the obligations imposed upon Borrower pursuant to this Mortgage, the Notes, the Loan Documents or any other Transaction Document. Any receiver or receivers so appointed shall have such rights, duties and powers as the court making the appointment shall confer, which shall include, but not by way of limitation, all of the rights and powers which Lender is authorized to exercise hereunder. Lender shall be entitled to such appointment of a receiver for the Mortgaged Property as a matter of right and if requested by Lender, Borrower shall consent to the appointment of such receiver. If the income, rents and profits collected by such receiver from the Mortgaged Property are not sufficient to pay all costs and expenses incurred by the receiver in the performance of his rights, duties and powers as receiver (including the fees of the receiver), Lender may pay such costs and expenses and the sums so advanced by Lender, together with interest thereon at the default rate of interest described in the Loan Documents, shall be immediately due and payable by Borrower to Lender, shall constitute a part of the indebtedness due Lender under this Mortgage and shall be secured by this Mortgage.
(f) In the case of a foreclosure by action, the holder of the certificate of sale may apply to the court for a reduction of the redemption period if the Mortgaged Property has been abandoned by Borrower. If, after notice to the parties as the court directs, the court finds the Mortgaged Property has been abandoned, the redemption period may be reduced to not less than sixty (60) days from the date of the recording of the certificate of sale.
Each and every remedy available to Lender pursuant to this Mortgage shall be cumulative and shall be in addition to every other remedy available to Lender hereunder, under the Notes, or any of the other Loan Documents or now or hereafter existing at law or in equity or by statute. No delay or omission of Lender to exercise any right or power accruing upon any Event of Default shall impair any such right or power or shall be construed to be a waiver of any such Event of Default or any acquiescence therein and every right, power or remedy given by this Mortgage or now or hereafter existing at law or in equity or by statute may be exercised from time to time and as often as may be deemed expedient by Lender.
MISCELLANEOUS
Borrower covenants and agrees with Lender as follows:
3.01 NO WAIVER OF PROVISIONS. No failure by Lender to insist upon the strict performance of any covenant, agreement, term or condition of this Mortgage or to exercise any right or remedy consequent upon a breach thereof, and no acceptance of full or partial payment on the Indebtedness during the continuance of any such breach, shall constitute a waiver of any such breach or of such covenant, agreement, term or condition. No covenant, agreement, term or condition of this Mortgage to be performed or complied with by Borrower, and no breach thereof, shall be waived, altered or modified except by an instrument executed by Lender. No waiver of any breach shall affect or alter this Mortgage, but each and every covenant, agreement, term and condition of this Mortgage shall continue in full force and effect with respect to any other then existing or subsequent breach thereof.
3.02 EXTENSIONS.
That any extension of the time for payment of the Indebtedness, release of security or any modification of this Mortgage, any of the Notes, or any of the other Loan Documents granted to any future owner of the Mortgaged Property, shall not relieve Borrower from liability to pay the Indebtedness nor release Borrower or any other party or entity liable for the Indebtedness and Borrower does hereby waive presentment, demand for payment, protest, notice of nonpayment and notice of protest.
3.03 POWERS NOT EXHAUSTED.
No right or power given to Lender by this instrument shall be exhausted by the exercise thereof on one or more occasions, but the same shall be a continuing right or power during the entire term of this Mortgage and may be exercised from time to time in accordance with the provisions of this instrument.
3.04 COVENANTS RUN WITH LAND.
The covenants and agreements herein contained shall run with the land and shall bind and inure to the benefit of the respective heirs, executors, administrators, legal representatives, successors and assigns of the parties hereto.
3.05 SUBROGATION.
Lender before a sale hereunder, and the purchaser at the sale hereunder, shall be subrogated to the lien of any prior encumbrance or vendor's lien, if any, on the Mortgaged Property paid out of the money secured by this Mortgage, whether or not such prior lien or encumbrance has been released of record.
3.06 SUCCESSORS AND ASSIGNS, ETC.
Whenever the singular or plural number, or masculine, feminine or neuter gender is used herein, it shall equally include the other, and every mention of the Lender or Borrower shall include the heirs, executors, legal representatives, administrators, successors and assigns of the party so designated. If more than one party or entity is designated as "Borrower" herein, each such party or entity shall be jointly and severally liable for the performance and observance of all the covenants, conditions and agreements of this Mortgage to be performed and observed by Borrower. The terms "Mortgage", "Notes", "Security Agreement", "Environmental Indemnity Agreement" and "Loan Documents" shall include all amendments, modifications and supplements thereto.
3.07 INVALID PROVISIONS TO AFFECT NO OTHERS.
If any one or more of the covenants, agreements, terms or provisions contained in this Mortgage, in the Notes or in any of the other Loan Documents shall be invalid, illegal or unenforceable in any respect, the validity of the remaining covenants, agreements, terms or provisions contained herein, in the Notes and in the Loan Documents shall be in no way affected, prejudiced, limited or impaired thereby.
3.08 NOTICE.
All notices to be given pursuant to this Mortgage shall be sufficient if given in accordance with the terms of the other Loan Documents.
3.09 HEADINGS.
The headings of the Sections of this Mortgage are for convenience of reference only, are not to be considered a part hereof, and shall not limit or otherwise affect any of the terms hereof or the interpretation hereof.
3.10 GOVERNING LAW.
This Mortgage shall be construed according to and shall be governed by South Dakota law.
IN WITNESS WHEREOF, Borrower has executed these presents as of the day and year first above written.
AMCON Distributing Company
By: /s/ Michael D. James
---------------------------
Name (print): Michael D. James
---------------------------
Title: VP and CFO
---------------------------
|
STATE OF NEBRASKA
ss.
COUNTY OF DOUGLAS
This instrument was acknowledged before me on DECEMBER 21, 2004, by Michael D. James, as VP and CFO of AMCON DISTRIBUTING COMPANY a foreign corporation.
Notary Public in and for said County and State
My Appointment Expires: February 7, 2005
/s/ Jan Klaus ----------------- |
EXHIBIT A
Legal Description
Lot 1R in Block Two (2), Rushmore Regional Industrial Park, City of Rapid City, as shown by the plat recorded in Book 16 of plats on page 107 in the office of the Register of Deeds, Pennington County, South Dakota.
SECURITY AGREEMENT
THIS SECURITY AGREEMENT ("Agreement") is dated as of this December 21, 2004 day of December, 2004, by and between Gold Bank having an address at 800 West 47th Street, Kansas City, Missouri 64112 ("Secured Party") and AMCON Distributing Company, a Delaware corporation having an address at 7405 Irvington Road, Omaha, NE 68122 ("Debtor").
WHEREAS, Debtor is the maker of that certain Term Equipment Promissory Note in the principal amount of up to $480,000.00 ("Term Equipment Promissory Note") and Term Real Estate Promissory Note in the principal amount of up to $984,000.00 ("Term Real Estate Promissory Note"), both of even date herewith executed by Debtor in favor of Secured Party (the Term Equipment Promissory Note and the Term Real Estate Promissory Note shall collectively be referred to herein as the "Promissory Notes" or the "Loans").
WHEREAS, as further inducement for Secured Party to advance the amounts contemplated by the Promissory Notes, Debtor has agreed to grant to Secured Party a security interest in all of the personal property and assets of Debtor as described herein.
NOW, THEREFORE, as a condition and as an inducement for Secured Party to accept the Promissory Notes, and for other good and valuable consideration given by Secured Party, the receipt and sufficiency of which is hereby acknowledged by Debtor, the parties hereto agree as follows:
ARTICLE 1
GRANT OF SECURITY INTEREST
As security for all Obligations (as such term is defined in Article 2 of this Agreement) now existing or hereinafter arising, Debtor hereby grants to Secured Party a security interest in the "Collateral" as defined in Exhibit A attached hereto and incorporated herein by reference, and all proceeds of said Collateral, as now owned or hereafter acquired.
ARTICLE 2
OBLIGATIONS SECURED
The term "Obligations" means all obligations, indebtedness or liabilities of Debtor to the Secured Party of every kind, including but not limited to Debtor's obligations pursuant to the Promissory Notes, now or hereafter existing, whether absolute or contingent, primary, or otherwise, and whether for principal, interest, fees, costs, expenses or otherwise, including all fees and expenses incurred in the enforcement or collection of amounts due under the Promissory Notes or other indebtedness, obligation or liability and all liabilities and obligations of Debtor incurred or to be incurred under the Term Equipment Promissory Note, Term Real Estate Promissory Note, this Security Agreement, the Mortgage executed by Debtor in favor of Secured Party of even date herewith securing the funds advanced under the Term Real Estate Promissory Note ("Mortgage") and all amendments thereto executed by Debtor in favor of Secured Party and all other liabilities and obligations of Debtor incurred or to be incurred under the Loan Documents as hereafter defined (the Promissory Notes, this Security Agreement, related UCC-1 financing statements, the Mortgage, and all such other related documents are hereafter referred to herein as the "Loan Documents"). The term "Obligations" shall also include all, fees, costs and expenses and reasonable attorney's fees incurred by Debtor in connection with the Loans both before and after Default (as hereinafter defined) to the extent allowed by Federal Bankruptcy Law.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES WITH RESPECT TO COLLATERAL
Debtor makes the following continuing warranties and representations with respect to the Collateral hereunder:
A. CORPORATE POWER AND AUTHORITY.
The execution, delivery, and performance by Debtor of this Agreement, the Promissory Notes, the Loan Documents and all other documents, agreements, instruments or certificates executed in connection therewith have been duly authorized by all necessary corporate action and do not and will not: (a) require any consent or approval of the stockholders of Debtor; (b) contravene Debtor's charter or bylaws; (c) violate any provision of any law, rule, regulation, order, writ, judgment, injunction, decree, determination, or award presently in effect having applicability to Debtor; (d) result in a breach of or constitute a default under any indenture or loan or credit agreement or any other agreement, lease, or instrument to which Debtor is a party or by which its properties may be bound or affected; result in, or require, the creation or imposition of any lien, upon or with respect to any of the properties now owned or hereafter acquired by Debtor; and (e) cause Debtor to be in default under any such law, rule, regulation, order, writ, judgment, injunction, decree, determination, or award or any such indenture, agreement, lease, or instrument.
B. LEGALLY ENFORCEABLE AGREEMENT.
This Agreement shall be, when executed and delivered by Debtor, the legal, valid, and binding obligations of Debtor, enforceable against Debtor, in accordance with their terms, except to the extent that such enforcement may be limited by applicable bankruptcy, insolvency, and other similar laws affecting creditors' rights generally.
C. LIENS AND ENCUMBRANCES.
Debtor represents and warrants to Secured Party that Debtor holds all Collateral, free and clear of all other liens and encumbrances. Except for the financing statements in favor of Secured Party pursuant to this Agreement, no financing statement covering any of the Collateral is on file in any public office and Secured Party shall remain first in priority with respect to the Collateral described in Exhibit A and the Real Estate as described in the Mortgage so long as any of the Loans are outstanding. Debtor shall defend Secured Party's rights in the Collateral against the claims and demands of all other persons.
D. DEBTOR'S PRINCIPAL OFFICE.
Debtor's chief executive office and the location where Debtor keeps its records concerning all Collateral is 7405 Irvington Road, Omaha, NE 68122.
E. NO MATERIAL MISREPRESENTATIONS.
The representations and warranties contained in this Article 3 and all other information, exhibits, reports, instruments, documents or certificates furnished by Debtor to Secured Party in connection with the negotiation of this Agreement do not contain any material misstatement of fact or omit to state a material fact or any fact necessary to make the statement contained therein not materially misleading.
ARTICLE 4
COVENANTS OF DEBTOR
So long as this Agreement is in effect and until such time as the Obligations secured hereunder have been fully paid and discharged, Debtor covenants and agrees that:
A. FURTHER ASSURANCES.
Debtor will execute and deliver to Secured Party, in a form acceptable to Secured Party, any instrument, document, financing statement, assignment or other writing which Secured Party may reasonably deem necessary or desirable to carry out the terms of this Agreement, to perfect Secured Party's security interest in the Collateral for the Obligations to Secured Party, or to enable Secured Party to enforce conveniently its security interest in any of the foregoing.
B. BOOKS AND RECORDS.
Debtor will maintain, in accordance with sound accounting practice, accurate records and books of account showing, among other things, all Collateral, the proceeds of the sale or other disposition thereof and the collections therefrom; and Secured Party shall have the right, upon the reasonable request of Secured Party, without hindrance or delay, to inspect the Collateral and to inspect, audit, check and make extracts from the books, records, journals, orders, receipts, correspondence and other data relating to Collateral, at Secured Party's sole expense.
C. LEGENDS.
Debtor will, if requested by Secured Party, mark its records concerning its Collateral in a manner satisfactory to Secured Party to show Secured Party's security interest therein.
D. FINANCIAL REPORTING.
Debtor will furnish Secured Party, from time to time when requested by Secured Party, with balance sheets, operating statements and net worth reconciliations financial statements of Debtor as of the close of such accounting periods as Secured Party may reasonably request; and such other information respecting the financial condition and affairs of Debtor (including, without limitation, copies of federal income tax returns) as Secured Party may, from time to time, reasonably request. Such balance sheets and operating statements shall be prepared in accordance with generally accepted accounting principles certified or audited by a firm of certified public accountants at least annually when requested by Secured Party.
(i) Debtor will pay and discharge when due all premiums of insurance required hereunder and all taxes, levies and other charges on its property; and authorizes Secured Party to pay for the account of Debtor any of the foregoing (or, as to insurance, premiums for insurance of Secured Party's interest alone) which Debtor fails to pay, and any such payment by Secured Party shall constitute an item of Obligations to Secured Party.
(ii) Debtor shall keep the Collateral insured in a manner consistent with sound business practices and Secured Party shall appear as a named insured (to whom loss shall be payable) in such amounts, in such companies and against such risks as may be reasonably satisfactory to Secured Party; pay the cost of all such insurance; secure the obligation of the insurer to notify Secured Party at least ten (10) days prior to the modification, expiration, revocation or cancellation of such insurance; deliver certificates evidencing such insurance to Secured Party; and, up to the amount of any and all of the Obligations, Debtor assigns to Secured Party all right to receive proceeds of such insurance; directs any insurer to pay all proceeds directly to Secured Party, and authorizes Secured Party to endorse Debtor's name to any draft or check for such proceeds; which proceeds Secured Party may set- off against Obligations, or hold as security for Obligations; any proceeds in excess of Obligations to be delivered to Debtor.
(iii) In addition to insuring its Collateral as required above, Debtor will maintain adequate insurance against loss or damage to all of its other properties in such manner and to the extent which like properties are so insured by others owning, operating or leasing properties of similar character, and will maintain adequate insurance against liability for damage to the person or property of others.
E. COSTS AND EXPENSES.
Upon the occurrence of a Default or an Event of Default, Debtor will pay Secured Party, upon demand, the cost of collection or enforcement (including reasonable attorneys' fees) of any Collateral for Obligations to Secured Party, if Secured Party itself undertakes such collection or enforcement, together with all charges and expenses of every kind or description (including taxes with respect to Collateral) paid or incurred by Secured Party under or with respect to the Obligations or any Collateral therefor, or execution or levy on such Collateral, and any such charges shall be considered part of the Obligations.
F. PRINCIPAL BUSINESS ADDRESS.
Debtor will promptly advise Secured Party in writing of any new principal place of business, and of any change in Debtor's name.
G. SCHEDULE OF PROPERTIES.
Debtor, upon request of Secured Party, will deliver to Secured Party in a form satisfactory to Secured Party a schedule of real properties and collateral locations relating to Debtor's operations, including without limitation the following: (a) all real property owned or being purchased by Debtor; (b) all real property being rented or leased by Debtor; (c) all storage facilities owned, rented, leased, or being used by Debtor; and (d) all of the properties where collateral is or may be located.
H. COLLATERAL.
(i) Except in the ordinary course of business, or as provided in this Agreement, or for purposes of replacement and repair, Debtor will not remove the Collateral (or allow removal), from Debtor's Rapid City facility legally described as set forth on Exhibit B attached hereto and incorporated by reference herein without the prior written consent of Secured Party. Debtor will promptly give written notice to Secured Party of any loss or damage by fire or other casualty to any substantial part of the Collateral.
(ii) Debtor, at its sole cost and expense, will protect and defend this Agreement, all of the rights of Secured Party hereunder, and its interest in the Collateral against the claims and demands of all other parties.
(iii) Debtor will at all times keep the Collateral in good order, repair and condition, ordinary wear and tear excepted, and, in the ordinary course of business, will promptly replace any part thereof that from time to time may become obsolete, badly worn, or in a state of disrepair.
(iv) Secured Party or its representative may at any and all reasonable times inspect the Collateral and may enter upon any and all of the premises where the same is kept or might be located.
(v) Debtor will not, without obtaining the prior written consent of Secured Party, transfer or permit any transfer of the Collateral or any part thereof to be made, or any interest therein to be created by way of a sale, or by way of a grant of a security interest, or by way of a levy or other judicial process.
(vi) Debtor will promptly notify Secured Party of any levy, distraint or other seizure by legal process or otherwise of any part of the Collateral, and of any threatened or filed claims or proceedings that might in any way affect or impair any of the rights of Secured Party under this Security Agreement.
(vii) Debtor has, and will continue to have, full title to the Collateral free from any liens, leases, encumbrances, judgments or other claims. Debtor will do all acts and things, and will execute and file all instruments (including but not limited to security agreements, financing statements, continuation statements, etc.) reasonably requested by Secured Party to establish, maintain and continue the perfected security interest of Secured Party in the Collateral.
(viii) Debtor agrees not to take any action whatsoever which would impair the Collateral as security for the Obligations.
I. RIGHT TO CURE.
Secured Party may, at its option, and without any obligation to do so, pay, perform and discharge any and all amounts, costs, expenses and liabilities herein agreed to be paid or performed by Debtor, and all amounts expended by Secured Party in so doing shall become part of the Obligations secured hereby, and shall be immediately due and payable by Debtor to Secured Party upon demand theretofore, and shall bear interest at the Default Interest Rate (as defined in the Promissory Notes) from the dates of such expenditures until paid.
ARTICLE 5
ADDITIONAL SECURITY
Secured Party shall have the right to call for and be provided with additional security reasonably satisfactory to Secured Party should the value of the existing security decline or be deemed by Secured Party to be inadequate or unsatisfactory. Debtor hereby agrees to execute and deliver to Secured Party such additional agreements, instruments, certificates or financing statements, and to take such additional actions, as Secured Party may reasonably require, to protect Secured Party's security interest in the Collateral granted hereunder and to perfect any additional security interest requested by Secured Party hereunder.
ARTICLE 6
WAIVER OF RIGHTS
Secured Party may, at its option, without notice to Debtor, extend the
maturity of the Obligations or exchange or release any of the Collateral
without affecting the liability of Debtor. Debtor hereby waives
presentment and demand for payment, protest and notice of nonpayment,
notice of dishonor, diligence and suit. Debtor hereby waives all
defenses based on suretyship or impairment of collateral, and any
defenses which Debtor may assert on the underlying debt including but
not limited to failure of consideration, breach of warranty, fraud,
statute of frauds, bankruptcy, lack of legal capacity, statute of
limitations, lender liability, accord and satisfaction and usury. The
delay or failure in the exercise of any right, remedy or power shall not
operate as a waiver thereof, nor shall any single or partial exercise or
waiver thereof preclude or limit any other or future exercise thereof.
All waivers, consents, notices and other communications must be in
writing and shall be sufficient if given in the manner as provided in
Section 9.A. hereof.
ARTICLE 7
DEFAULT
DEBTOR SHALL BE IN DEFAULT under this Security Agreement upon the happening of any one or more of the following events:
A. Default in the payment or performance of the Promissory Notes or any amounts due hereunder by Debtor or default in the payment or performance of any of the other Loan Documents or any Obligation, covenant or liability of the Debtor contained or referred to herein, including but not limited to those Obligations, covenants or liabilities referenced in the Promissory Notes, the Loan Documents or any other document executed in connection therewith, and such Default is not cured within ten (10) business days of such default, regardless of whether Debtor has received notice of such default.
B. Any warranty, representation or statement made or furnished to the Secured Party by the Debtor for the purpose of obtaining credit or pursuant to this Agreement the Promissory Notes or the Loan Documents proves to have been false in any material respect when made or furnished.
C. Significant loss, theft, damage, destruction, misuse, sale, lease or additional encumbrances on any of the Collateral, or the making of any levy, seizure or attachment or any other proceedings which in the opinion of the Secured Party would impair the Secured Party's rights to or diminish the value of the Collateral.
D. Dissolution, insolvency, business failure or cessation, appointment of a receiver of any part of the property of, assignment for the benefit of creditors by, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against the Debtor, or any endorser, guarantor or surety for Debtor.
E. Failure by the Debtor to keep, observe or perform any material provision of this Agreement or any other Loan Documents required to be kept, observed or performed by Debtor.
Should any of the above-described events occur and be continuing, each shall be considered to be an "Event of Default" (subject to the applicable cure period with respect to Article 7, Section A above).
ARTICLE 8
REMEDIES
Should an Event of Default occur, Secured Party shall have the right to:
A. avail itself of such rights with respect to any and all Collateral which are provided for herein, in the Promissory Notes, in the Loan Documents or in any other agreement between Secured Party and Debtor.
B. all rights of a secured party with respect to the Collateral which are provided for in the Uniform Commercial Code as amended from time to time and as adopted in the State of Kansas or other state with proper jurisdiction over the Collateral or this Agreement (hereinafter the "Code"), including the right to require Debtor, upon written notice, to promptly assemble any Collateral for Obligations to Secured Party, and to make it available to Secured Party at a place reasonably convenient to both parties.
C. deem that any notice of sale or other disposition of the whole or any part of the Collateral, received by Debtor at least five (5) days prior to such action, shall constitute reasonable notice to Debtor.
D. collect from Debtor and Debtor agrees that Debtor shall pay to Secured Party the reasonable costs and expenses (including attorneys' fees and disbursements) of the collection of the Obligations secured hereunder and of all of the Obligations, and that in the event of foreclosure upon Debtor's Collateral, the proceeds shall be first applied to such expenses.
E. take any and all actions and incur any and all expenses with respect to the Collateral which Secured Party reasonably deems necessary and proper in order to enhance Secured Party's ability to effectively levy on such Collateral, including without limitation, causing such Collateral to be completed, cleaned or repaired. Debtor shall assist Secured Party in such actions; any such expenses shall be included as Obligations; and any proceeds from the Collateral shall be first applied to such expenses.
F. take control of any and all contracts with respect to which "Contract Rights" (as defined in Exhibit A attached hereto) have arisen or may arise at the time of such default and perform and take title to such contracts, however, Secured Party shall be under absolutely no obligation to do so and shall not incur additional liability if Secured Party elects to do so or not.
G. set-off against any amounts owed by Secured Party to Debtor for any purpose whatsoever, at all times before, at or after such Default.
H. avail itself of any and all other remedies at law or equity which may be available to Secured Party with respect to Debtor, the Collateral and any co-signer, guarantor or surety.
The parties hereto hereby declare that all Collateral transferred to Secured Party hereunder is transferred in fact to secure loans and is not, in fact, sold to Secured Party regardless of whether any assignment thereof, which is separate from this Agreement, is in form absolute. All rights and remedies of Secured Party whether granted hereunder, under the Code or otherwise are cumulative and not alternative. The exercise, full or partial, or the commencement of the exercise of any one right or remedy, shall not preclude the further exercise of it or any other remedy.
ARTICLE 9
MISCELLANEOUS
A. NOTICES.
All notices and other communications required or permitted to be given hereunder shall be in writing and shall be deemed to have been fully given if delivered personally or sent by certified mail, postage prepaid, to the following addresses:
If to Debtor:
AMCON Distributing Company
Attn: Michael D. James
7405 Irvington Road
Omaha, NE 68122
If to Secured Party:
Gold Bank
Attn: Mark Jannaman
800 West 47th Street
Kansas City, Missouri 64112
with a copy to:
Attn: Thomas W. Gray, Esq.
Shughart Thomson & Kilroy, P.C.
Twelve Wyandotte Plaza
120 W. 12th Street, Suite 1600
Kansas City, MO 64105
or to any other address or addresses as may hereafter be specified by written notice given by any of the above for itself to the others. Additionally, notices and other communications required or permitted to be given hereunder may be sent using any other means (including expedited courier, messenger service, facsimile transmission or electronic mail), but no such notices or other communications shall be deemed to have been given unless and until they are actually received by the intended recipient if personally delivered or the next business day after the same is sent by facsimile transmission (if delivered by facsimile coupled with overnight delivery service).
B. WRITTEN AMENDMENT.
No amendment, modification or termination of any provision of this Agreement shall be effective unless set forth in a writing by all of the parties hereto.
C. SEVERABLILITY.
If any clause, provision or section of this Agreement be held illegal or invalid by any court, the invalidity of such clause, provision or section shall not affect any of the remaining clauses, provisions or sections hereof, and this Agreement shall be construed and enforced as if such illegal or invalid clause, provision or section had not been contained herein. In case any agreement or obligation contained in this Agreement be held to be in violation of law, then such agreement or obligation shall be deemed to be the agreement or obligation of Debtor, as the case may be, to the full extent permitted by law.
D. SUCCESSORS AND ASSIGNS.
This Agreement shall be binding upon and inure to the benefit of the parties hereto and the successors or assigns of Secured Party. Debtor shall not assign or delegate its rights, liabilities or obligations hereunder. Secured Party shall have the right to sell, transfer, delegate or assign its rights, liabilities or obligations under this Agreement, the Promissory Notes, the Loan Documents, and any UCC-1 financing statements filed in connection herewith.
E. STATE LAW.
The validity of this Agreement, the terms hereof, and all duties, obligations and rights arising therefrom, shall be governed by and interpreted in accordance with the laws and decisions of the State of Kansas, as applicable to contracts made and to be performed in the State of Kansas without reference or regard to conflicts of laws principles.
F. CAPTIONS.
All captions are for ease of reference only and shall in no way be construed to alter or limit the substance of the provisions of this Agreement. If more than one person executes this Agreement as a debtor, the term "Debtor" shall mean all such persons, shall apply to each person both individually and collectively and such persons shall be jointly and severally liable.
G. EXHIBITS.
All Exhibits referred to in this Agreement shall be attached hereto and incorporated herein by reference.
H. ENTIRE AGREEMENT.
This Agreement contains the entire agreement between the parties respecting the matters herein set forth and supersedes all prior agreements between the parties respecting such matters. Time is of the essence of this Agreement. If any party obtains a judgment against any other party by reason of a breach of this Agreement, a reasonable attorneys' fee as fixed by the court shall be included in such judgment. No remedy conferred upon a party in this Agreement is intended to be exclusive of any other remedy herein or by law provided or permitted, but each shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law, in equity or by statute.
I. CONTINUING AGREEMENT.
This Agreement shall remain in full force and effect until all Obligations pursuant to this Agreement, the Promissory Notes and the Loan Documents have been fully and completely terminated or discharged.
J. NO WAIVER.
No failure or delay by any party hereto in exercising any right, power or privilege hereunder (and no course of dealing between or among any of the parties) shall operate as or constitute a waiver of any subsequent or other default. No single or partial exercise of any right, power or privilege shall preclude the further exercise thereof or of any other right, power or privilege.
K. RECITALS/PREAMBLE.
The preamble and recitals to this Agreement are hereby incorporated by reference and made a part hereof.
L. FACSIMILE SIGNATURES.
The parties hereby agree that, for purposes of the execution of this
Agreement, facsimile signatures shall constitute original signatures.
M. COUNTERPARTS.
This Agreement may be executed in two or more counterparts and by the different parties hereto on separate counterparts, each of which shall be deemed an original, but all such counterparts shall together constitute but one and the same instrument.
N. WAIVER OF JURY TRIAL.
The parties hereto waive trial by jury in any action, proceeding or counterclaim brought by any party against the other on any matter arising out of or in any way connected with this Agreement, the Loan Documents or the relationship of the parties created hereunder.
O. LOAN FEE.
In addition to reimbursing the Secured Party for any and all costs and expenses incurred in connection with issuing the Loans as described herein, Debtor agrees to pay to Secured Party at Closing a .50% loan fee on each amount borrowed under the Promissory Notes.
P. CROSS COLLATERALIZED, CROSS-DEFAULTED AND CO-TERMINUS.
Debtor and Secured Party acknowledge and agree that the Loans are cross- collateralized, cross-defaulted and co-terminus. In addition, the Loans are cross-defaulted and co-terminus with any and all other loans now or hereafter existing by and between Debtor, Debtor's subsidiaries or affiliates and Secured Party.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written.
DEBTOR:
AMCON Distributing Company,
a Delaware corporation
By: /s/ Michael D. James
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Name: Michael D. James
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Title: VP of Finance and CFO
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SECURED PARTY:
GOLD BANK
By: /s/ Mark Jannaman
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Name: Mark Jannaman
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Title: Vice President
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EXHIBIT A
DESCRIPTION OF COLLATERAL
I. As used herein, the following terms mean:
(A) "Equipment" means any property, goods, furniture, office supplies, furnishings, machinery, tools, dies, hand tools, vehicles, motorized or otherwise, titled or otherwise, used, bought, leased or otherwise acquired for the business of DEBTOR.
(B) "Fixtures" means any goods, equipment or property which is so related or affixed to real property that it may not be easily or readily removed and in which an interest arises under the real estate law.
Except as otherwise defined in the Security Agreement, all terms of the Security Agreement shall have the meanings to the extent the same are defined or used therein, provided by the Code as defined in the Security Agreement, so long as such meaning is reasonable given the context in which it appears.
II. To secure prompt performance and payment of all Obligations (as defined in the Security Agreement) of the DEBTOR to SECURED PARTY pursuant to the Security Agreement, DEBTOR hereby grants to SECURED PARTY a continuing security interest in, a lien upon and a right of set off against, and hereby assigns to SECURED PARTY all right, title and interest in and to the following property of DEBTOR whether acquired by purchase, lease or otherwise, and whether now owned or hereafter acquired or existing, that is or at any time has been or hereafter is located in, on or around the warehouse facility of Debtor having an address at 1511 Turbine Drive, Rapid City, SD 57703 ("Warehouse") (together with all other collateral security for the Obligations at any time granted to or held by SECURED PARTY, collectively, the following is the "Collateral"):
(1) all of DEBTOR's right, title and interest in and to DEBTOR'S Equipment as well as all of DEBTOR'S right, title and interest to any and all equipment purchased with the proceeds of the Loans as defined in the Security Agreement (regardless of whether said equipment is located in, on or around the Warehouse);
(2) all of DEBTOR's Fixtures and Equipment, including but not limited to all furniture, furnishings, office supplies, machinery, storage shelves, vehicles, motorized or otherwise, titled or otherwise, used, bought, leased or otherwise, rolling stock and other goods used in the conduct of DEBTOR's business, now or hereafter acquired together with all increases, parts, fittings, accessories, attachments, additions, materials, components, special tools and accessions now or hereafter attached thereto or used in connection therewith, and any and all replacements of all or any part thereof;
(3) all interest of DEBTOR in parts, accessories, attachments, additions, materials, components, replacements and accessions to any and all of the foregoing, now existing or hereafter coming into existence;
(4) all of DEBTOR's books and records and other instruments and documents of title now existing or coming into existence pertaining to any of the collateral described above;
(5) all interest of DEBTOR in money, cash, non-cash and other proceeds received should any of the foregoing be sold, exchanged, collected or otherwise disposed of for all of the foregoing, including but not limited to, deposit accounts, claims and demands, and insurance proceeds (or rights thereto), now existing or hereafter coming into existence; and
(6) all interest of DEBTOR in any insurance proceeds received related to any of the foregoing.
EXHIBIT B
LEGAL DESCRIPTION
Lot 1R in Block Two (2), Rushmore Regional Industrial Park, City of Rapid City, as shown by the plat recorded in Book 16 of plats on page 107 in the office of the Register of Deeds, Pennington County, South Dakota.
CERTIFICATION
I, William F. Wright, certify that:
1. I have reviewed this quarterly report on Form 10-Q of AMCON Distributing Company;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: February 14, 2005 William F. Wright, Chairman and
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Principal Executive Officer
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CERTIFICATION
I, Michael D. James, certify that:
1. I have reviewed this quarterly report on Form 10-Q of AMCON Distributing Company;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: February 14, 2005 Michael D James
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Vice President and Chief
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Financial Officer
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CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the accompanying Quarterly Report on Form 10-Q (the "Report") of AMCON Distributing Company (the "Company") for the fiscal quarter ended December 31, 2004, I, William F. Wright, Chairman and Principal Executive Officer of the Company, hereby certify pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my knowledge, that:
(1)the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: February 14, 2005 /s/ William F. Wright
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Title: Chairman and Principal
Executive Officer
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CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the accompanying Quarterly Report on Form 10-Q (the "Report") of AMCON Distributing Company (the "Company") for the fiscal quarter ended December 31, 2004, I, Michael D. James, Vice President and Chief Financial Officer of the Company, hereby certify pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my knowledge, that:
(1)the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: February 14, 2005 /s/ Michael D. James
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Title: Vice President and
Chief Financial Officer
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