UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM to
------ ------
Commission File Number 1-15589
-------
|
Delaware 47-0702918
------------------------------ --------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
|
Name of each exchange
Title of each class on which registered
None None
---- ----
|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrants' knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /X/
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one):
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant on March 31, 2007 was $7,493,525, computed by reference to the $23.80 closing price of such common stock equity on March 30, 2007.
As of November 5, 2007 there were 529,436 shares of common stock outstanding.
Portions of the following document are incorporated by reference into the indicated parts of this report: definitive proxy statement for the 2008 annual meeting of stockholders to be filed with the Commission pursuant to Regulation 14A - Part III.
Page
----
PART I
Item 1. Business...................................................... 4
Item 1A. Risk Factors.................................................. 9
Item 1B. Unresolved Staff Comments..................................... 19
Item 2. Properties.................................................... 19
Item 3. Legal Proceedings............................................. 19
Item 4. Submission of Matters to a Vote of Security Holders........... 19
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder
Matters, and Issuer Purchases of Equity Securities............ 21
Item 6. Selected Financial Data....................................... 23
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 25
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.... 45
Item 8. Financial Statements and Supplementary Data................... 46
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure...................................... 85
Item 9A. Controls and Procedures....................................... 85
Item 9B. Other Information............................................. 86
PART III
Item 10. Directors, Executive Officers, and Corporate Governance....... 86
Item 11. Executive Compensation........................................ 86
Item 12. Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters ............... 87
Item 13. Certain Relationships and Related Transactions, and
Director Independence ........................................ 87
Item 14. Principal Accounting Fees and Services........................ 87
PART IV
Item 15. Exhibits, Financial Statement Schedules....................... 87
|
PART I
For purposes of this report, unless the context indicates otherwise, all references to "we", "us", "our", "Company", and "AMCON" shall mean AMCON Distributing Company and its subsidiaries. The wholesale distribution segment of our Company will be separately referred to as "ADC". Additionally, the Company's 2007, 2006 and 2005 fiscal years ended September 30, are herein referred to as fiscal 2007, fiscal 2006 and fiscal 2005, respectively. The fiscal year-end balance sheet dates of September 30, 2007 and September 30, 2006 are referred to herein as September 2007 and September 2006, respectively.
This report and the documents incorporated by reference herein, if any, contain forward looking statements, which are inherently subject to risks and uncertainties. See "Forward Looking Statements" under Item 7 of this report.
ITEM 1. BUSINESS
COMPANY OVERVIEW
AMCON Distributing Company was incorporated in Delaware in 1986 and our common stock is listed on the American Stock Exchange (AMEX) under the symbol "DIT". The Company operates two business segments:
- Wholesale Distribution Segment - The Company is a leading wholesale distributor of consumer products, including cigarettes and tobacco products, candy and other confectionery, beverages, groceries, paper products and health and beauty care products.
- Retail Health Food Segment - The Company operates thirteen retail health food stores in Florida and the Midwest.
WHOLESALE DISTRIBUTION SEGMENT
OPERATIONS. ADC serves approximately 4,000 retail outlets in the Great Plains and Rocky Mountain regions including convenience stores, grocery stores, liquor stores, drug stores and tobacco shops. In November 2006, ADC was ranked as the eighth (8th) largest convenience store distributor based on annual sales, by Convenience Store News, a trade periodical. ADC accounted for approximately 96% of the Company's total revenue for fiscal 2007.
ADC distributes approximately 14,000 different consumer products, including cigarettes and tobacco products, candy and other confectionery, beverages, groceries, paper products, health and beauty care products, frozen and chilled products and institutional food service products. In fiscal 2007, cigarette sales accounted for approximately 75% of ADC's revenue, with non-cigarette product categories comprising 25% of revenues. ADC's principal suppliers include Philip Morris USA, RJ Reynolds Tobacco, Proctor & Gamble, Hershey, Mars, William Wrigley and Nabisco. ADC also markets private label lines of tobacco, snuff, water, candy products, batteries, film, and other products.
ADC's main corporate office is in Omaha, Nebraska. Additionally, ADC operates five distribution centers located in Illinois, Missouri, Nebraska, North Dakota and South Dakota. These distribution centers, combined with two cross-dock facilities, contain a total of approximately 487,000 square feet of floor space and employ modern equipment for the distribution of our large and diverse product mix. ADC also operates a fleet of approximately 220 delivery vehicles, including straight trucks and over-the-road vehicles with both refrigerated and nonrefrigerated trailers.
COMPETITIVE STRENGTHS. The wholesale distribution business is a mature, highly competitive industry. To differentiate itself, ADC applies a number of strategies focused around providing market leading customer service programs and flexible delivery capabilities. These strategies have helped position ADC as a distributor of choice for both small independent retail outlets and multi-location retail outlets.
ADC's customer service programs include providing assistance in tracking and maximizing vendor promotions, access to private label and custom food services, store layout and design consultation, and overall profit maximization consulting. These programs have proven particularly popular with our independent retail outlets, many of which have less in-house expertise and resources than multi-location retailers.
ADC's distribution service capabilities include several programs designed to assist our customers in managing inventory and cash flow. These programs include our next-day delivery policy and our acceptance of orders for cut-case quantities (i.e. small quantity orders). Our customers also have the ability to place their orders electronically through a number of automated technologies, in addition to utilizing services such as automated inventory tracking, access to competitive retail pricing data, and advisement of new product offerings.
BUSINESS STRATEGY. The wholesale distribution industry (the "Industry") continues to experience significant changes driven by high fuel costs, increasing cigarette and tobacco excise taxes, the popularity of deep- discount cigarette brands, and consolidation within the Industry's customer base (particularly convenience stores and tobacco shops). Collectively, these items have pressured profit margins industry-wide.
Cigarette and tobacco sales remain a large percentage of our customers' total in-store sales volume. Historically, cigarette and tobacco products were purchased from a variety of sales channels, including grocery stores. In recent years, however, consumers have increasingly purchased their cigarette and tobacco products from convenience stores, which is one of ADC's largest customer segments. ADC remains largely dependent on or subject to the pricing and promotional programs offered by the major tobacco manufacturers, which can vary from year-to-year.
To capitalize on the industry-wide changes mentioned above, ADC has aggressively managed its cost structure, heavily leveraged inventory management strategies, and deployed new technologies and automation tools where possible. These actions have allowed ADC to maintain competitive pricing and position itself to capture new business, sell new services to
our existing customers, explore acquisition opportunities, and further penetrate the convenience store market. In addition, ADC remains committed to growing its sales of non-tobacco products, which offer higher profit margins and greater revenue stream diversity.
RETAIL HEALTH FOOD SEGMENT
AMCON's retail health food stores, which are operated as Chamberlin's Market & Cafe ("Chamberlin's" or "CNF") and Akin's Natural Foods Market ("Akin's" or "ANF"), offer thousands of different product selections to their customers. Chamberlin's, which was first established in 1935, is an award-winning and highly-acclaimed chain of six health and natural product retail stores, all offering an extensive selection of natural supplements and herbs, baked goods, dairy products, and organic produce. Chamberlin's operates all of its stores in and around Orlando, Florida.
Akin's, established in 1935, is also an award winning chain of seven health and natural product retail stores, each offering an extensive line of natural supplements and herbs, dairy products, and organic produce. Akin's has locations in Tulsa and Oklahoma City, Oklahoma; Lincoln, Nebraska; Springfield, Missouri; and Topeka, Kansas.
The retail health food industry has experienced strong growth in recent years driven primarily by the demand for natural products and more health conscious consumers. Our retail health food segment has benefited from this trend, experiencing sales growth in many key product categories. Management continues to closely monitor the performance of all store locations, in addition to identifying new locations for additional stores.
As described in Note 14 to the Consolidated Financial Statements, AMCON and TSI were parties to litigation with Crystal Paradise Holdings, Inc. ("CPH") regarding the April 24, 2004 Asset Purchase Agreement ("Asset Purchase Agreement"), under which TSI acquired certain assets from CPH. On September 30, 2007, the Company signed a Mutual Release and Settlement Agreement (the "Settlement Agreement") with CPH related to this litigation. The Settlement Agreement calls for the mutual release and settlement of all outstanding and potential litigation and claims among and between AMCON, TSI, and CPH with respect to the Asset Purchase Agreement and the related acquisition.
The Settlement Agreement also restructured the Company's obligations arising from the Asset Purchase Agreement with CPH totaling approximately $6.5 million into a new $5.0 million note payable to CPH. The $5.0 million note payable is due at the end of five years plus accrued interest at 5.0%. Items restructured into the $5.0 million note payable included CPH's minority interest in TSI, water royalties payable to CPH, notes payable to CPH, and accrued interest payable to CPH. Additionally, the agreement provides CPH with an eleven month option to purchase TSI's assets for a price equivalent to the amount due CPH under the $5.0 million note payable, plus accrued interest. The TSI asset purchase option can be extended an additional seven months at CPH's election.
No monetary exchanges between the Company and CPH were required under the Settlement Agreement. The Company has recorded a $1.5 million pre-tax deferred gain in connection with the above settlement. This deferred gain has been classified as a component of noncurrent liabilities of discontinued operations in the Company's September 2007 Consolidated Balance Sheet. The deferred gain will be recognized upon the earlier of CPH's election to exercise its TSI asset purchase option or the expiration of the asset purchase option.
In November 2006, the Company sold all of the operating assets of HNWC for approximately $3.8 million in cash plus the buyer's assumption of all operating and capital leases. The significant operating assets consisted of accounts receivable, inventory, furniture and fixtures, intellectual property and all of its bottling equipment. In connection with the sale, the Company has recorded a $1.6 million pre-tax gain on disposal of discontinued operations. HNWC remained a fully operational subsidiary of the Company through November 19, 2006.
PRINCIPAL PRODUCTS
Cigarette sales represented between 71% and 73% of the Company's total revenue for the fiscal years 2005 through 2007, while sales of candy, beverages, food service, groceries, health food products, paper products, health and beauty care products, and tobacco products accounted for between 27% and 29% of total revenue, during the same fiscal periods.
INFORMATION ON SEGMENTS
Information about our segments is presented in Note 17 to the Consolidated Financial Statements.
COMPETITION
There are a number of both small and large wholesale distributors operating in the same geographical regions as ADC, resulting in a highly competitive marketplace. ADC is one of the largest distribution companies of its kind operating in its market area. ADC's principal competitors are national wholesalers such as McLane Co., Inc. (Temple, Texas) and Core-Mark International (San Francisco, California) and regional wholesalers such as Eby-Brown LLP (Chicago, Illinois) and Farner-Bocken (Carroll, Iowa), along with a host of smaller grocery and tobacco wholesalers. Most of these competitors generally offer a wide range of products at prices comparable to those of ADC. ADC seeks to distinguish itself from its competitors by offering a higher level of technology to retailers than is offered by its smaller competitors and a higher level of customer service than is provided by its larger competitors.
The natural food retail industry is highly fragmented, with more than 9,000 stores operating independently or as part of small chains. The leading natural food chain, Whole Foods Market, continues to expand through new store openings and acquisitions, and competes with us in many markets. Additionally, conventional supermarkets and mass market outlets are also increasing their emphasis on the sale of natural food products.
SEASONALITY
Sales in the wholesale distribution industry are somewhat seasonal and tend to be higher in warm weather months as our convenience store customers experience increased customer traffic. The warm weather months generally fall within the Company's third and fourth fiscal quarters.
GOVERNMENT REGULATION
The Company is subject to regulation by federal, state and local governmental agencies, including the U.S. Department of Agriculture, the Food and Drug Administration, the Occupational Safety and Health Administration, and U.S. Department of Transportation. These regulatory agencies generally impose standards for product quality and sanitation, workplace safety, and security and distribution policies.
The Company is also subject to state regulations related to the distribution and sale of cigarettes and tobacco products, generally in the form of licensing and bonding requirements. Additionally, both federal and state regulatory agencies have the ability to impose excise taxes on cigarette and tobacco products. In the past several years, a number of states have increased excise taxes on cigarettes and tobacco products. Based on recent legislative activity, we expect this trend to continue in addition to possible increases in excise taxes by the federal government.
ENVIRONMENTAL MATTERS
All the facilities and operations of the Company are subject to state and federal environmental regulations. The Company believes all of its real property is in substantial compliance with regulations regarding the discharge of toxic substances into the environment and is not aware of any condition at its properties that could have a material adverse effect on its financial condition or results of operations. Further, the Company has not been notified by any governmental authority of any potential liability or other claim in connection with any of its properties.
EMPLOYEES
At September 2007, the Company, had 874 full-time and part-time employees in the following areas:
Managerial 34
Administrative 105
Delivery 108
Sales & Marketing 309
Warehouse 318
-----
Total Employees 874
=====
|
All of ADC's delivery employees in the Quincy, Illinois distribution center, representing approximately 4% of employees company-wide, are represented by the International Association of Machinists and Aerospace Workers. The current labor agreement with the union is effective through December 2008. Management believes its relations with its employees are satisfactory.
Corporate and Available Information
The Company's principal executive offices are located at 7405 Irvington Road, Omaha, Nebraska 68122. The telephone number at that address is 402-331-3727 and our website address is www.amcon.com. We provide free access to various reports we file with the United States Securities and Exchange Commission through our website. These reports include, but are not limited to, our Annual Reports on Form 10-K and quarterly reports on Form 10-Q, and any amendments to those reports. Please note that any internet addresses provided in this report are for information purposes only and are not intended to be hyperlinks. Accordingly, no information found and/or provided at such internet addresses is intended or deemed to be incorporated by reference herein.
ITEM 1A. RISK FACTORS
If any of the following risks actually materializes, our business, financial condition or results of operations could be materially adversely affected. In that case, the trading price of our common stock could decline substantially. This Annual Report also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of a number of factors, including the risks described below and elsewhere in this Annual Report. See "Forward Looking Statements" under Item 7 of this report for a discussion of forward looking statements.
- The Wholesale Distribution of Cigarettes and Convenience Store Products Is Significantly Affected by Cigarette Pricing Decisions and Promotional Programs Offered by Cigarette Manufacturers.
We receive payments from the manufacturers of the products we distribute including allowances, discounts, volume rebates, and other merchandising incentives in connection with various incentive programs. In addition, we receive discounts from states in connection with the purchase of excise stamps for cigarettes. If the manufacturers or states change or discontinue these programs or we are unable to maintain the volume of our sales, our results of operations, business, cash flow, and financial condition could be negatively affected.
- Increases in Fuel Prices Are Reducing Profit Margins and Adversely Affecting Our Business.
Increases in fuel prices have had a negative impact on our profits over the past fiscal year. If fuel prices remain high, and we are not able to pass on these costs to customers, it will have an adverse impact on our results of operations, business, cash flow, and financial condition.
- Increases in Wholesale Distribution Business Competition May Have an Adverse Effect on Our Business.
The wholesale distribution industry is highly competitive. There are many distribution companies operating in the same geographical regions as ADC. ADC's principal competitors are national and regional wholesalers, along with a host of smaller grocery and tobacco wholesalers. Most of these competitors generally offer a wide range of products at prices comparable to ADC's. Some of our competitors have substantial financial resources and long-standing customer relationships. Heightened competition may reduce our margins and adversely affect our business. If we fail to successfully respond to these competitive pressures or to implement our strategies effectively, we may lose market share and our results of operations, business, cash flow, and financial condition could suffer.
- Due to Low Margins on the Products We Distribute, Changes in General Economic Conditions Could Adversely Affect Our Operating Results.
We derive most of our revenues from the distribution of cigarettes, other tobacco products, candy, snacks, fast food, grocery products, non-alcoholic beverages, general merchandise and health and beauty care products.
The wholesale distribution industry is characterized by high sales volumes with relatively low profit margins. Our non-cigarette sales are at prices that are based on the cost of the product plus a percentage markup. As a result, our profit levels may be negatively impacted during periods of cost deflation for these products. Gross profit on cigarette sales are generally fixed on a cents per carton basis. If the cost of the cigarettes that we purchase increases due to manufacturer price increases, our inventory costs could rise. To the extent that product cost increases can not be passed on to our customers, our results from operations, business, cash flow, and financial condition could be negatively impacted.
- Our Sales Volume Is Largely Dependent upon the Distribution of Cigarette Products, Sales of Which Are Declining.
The distribution of cigarettes is currently a significant portion of our business. In fiscal 2007, approximately 71% of our revenues came from the distribution of cigarettes. During the same period, approximately 25% of our gross profit was generated from cigarettes. Due to increases in the prices of cigarettes, restrictions on advertising and promotions by cigarette manufacturers, increases in cigarette regulation and excise taxes, health concerns, increased pressure from anti-tobacco groups and other factors, the U.S. cigarette market has generally been declining, and is expected to continue to decline based on recent American Wholesale Marketers Association ("AWMA") studies. If this trend continues our results from operations, business, cash flow and financial condition will be negatively impacted.
- In the United States, We Purchase Cigarettes from Manufacturers Covered by the Industry's Master Settlement Agreement, Which Results in Competition from Lower Priced Sales of Cigarettes Produced by Manufacturers Who Do Not Participate in the Master Settlement Agreement.
Increased selling prices and higher cigarette taxes have resulted in the growth of deep-discount cigarette brands. Deep-discount brands are brands generally manufactured by companies that are not original participants to the master settlement agreement, and accordingly, do not have cost structures burdened with master settlement agreement related payments to the same extent as the original participating manufacturers. Since the master settlement agreement was signed in November 1998, the category of deep-discount brands manufactured by smaller manufacturers or supplied by importers has grown substantially.
As a result of purchasing premium and discount cigarettes exclusively from manufacturers that are parties to the master settlement agreement, we are adversely impacted by sales of brands manufactured by companies that are not parties to the master settlement agreement. The cigarettes subject to the master settlement agreement that we sell have been negatively impacted by widening price gaps in the prices between those brands and the deep-discount brands for the past several years. As a result, our results of operations, business, cash flow and financial condition may be negatively impacted as sales volumes of premium cigarettes erode.
- We Face Competition from Illicit and Other Low Priced Cigarettes.
We face competition from the diversion into the United States market of cigarettes intended for sale outside the United States, the sale of counterfeit cigarettes by third parties, the sale of cigarettes in non-taxable jurisdictions, inter-state and international smuggling of cigarettes, increased imports of foreign low priced brands, the sale of cigarettes by third parties over the Internet and by other means designed to avoid collection of applicable taxes. The competitive environment has been characterized by a continued influx of cheap products that challenge sales of higher priced and taxed cigarettes manufactured by parties to the master settlement agreement. Increased sales of counterfeit cigarettes, sales by third parties over the Internet, or sales by means to avoid the collection of applicable taxes, could have an adverse effect on our results of operations, business, cash flow, and financial condition.
- If the Tobacco Industry's Master Settlement Agreement Is Invalidated, or Tobacco Manufacturers Cannot Meet Their Obligations to Indemnify Us, We Could Be Subject to Substantial Litigation Liability.
In connection with the master settlement agreement, we are indemnified by the tobacco product manufacturers from which we purchase cigarettes and other tobacco products for liabilities arising from our sale of the tobacco products that they supply to us. However, if litigation challenging the validity of the master settlement agreement were to be successful and the master settlement agreement is invalidated, we could be subject to substantial litigation due to our sales of cigarettes and other tobacco products, and we may not be indemnified for such costs by the tobacco product manufacturers in the future. In addition, even if we continue to be indemnified by cigarette manufacturers that are parties to the master settlement agreement, future litigation awards against such cigarette manufacturers could be so large as to eliminate the ability of the manufacturers to satisfy their indemnification obligations. Our results of operations, business, cash flow and financial condition could be negatively impacted due to increased litigation costs and potential adverse rulings against us.
- Cigarettes and Other Tobacco Products Are Subject to Substantial Excise Taxes and If These Taxes Are Increased, Our Sales of Cigarettes and Other Tobacco Products Could Decline.
Cigarette and tobacco products are subject to substantial excise taxes in the United States. Significant increases in cigarette-related taxes and/or fees have been proposed or enacted and are likely to continue to be proposed or enacted within the United States. In particular, the United States Congress has recently proposed legislation to renew and expand the State Children's Health Insurance Program ("SCHIP"), funded largely through significant increases in federal excise taxes on cigarette and tobacco products. While the most recently passed legislation was vetoed by the President and the veto was upheld by the House, it is likely that Congress will consider similar legislation in the near term as the current extension of the SCHIP program expires in November 2007.
If such legislation passed, and included increases in federal excise taxes on cigarette and tobacco products, it could have an adverse impact on consumption levels and result in lower sales volumes and/or a sales shift from higher margin premium cigarette and tobacco products to lower margin deep-discount brands, which could materially impact the Company's profitability. Historically, increases in cigarette and tobacco excise taxes have resulted in reduced consumer cigarette demand.
Additionally, higher excise taxes increase the Company's accounts receivable and inventory carrying cost and could substantially impact our liquidity position. Accordingly, we may be required to obtain additional debt financing, which we may not be able to obtain on satisfactory terms or at all. Our inability to prepay the excise taxes may prevent or delay our purchase of cigarettes, which could adversely affect our ability to supply our customers.
- Increases in Retail Health Food Store Competition May Have an Adverse Effect on Our Business.
In the retail health food business, our primary competitors currently include national natural foods supermarkets, such as Whole Foods and Wild Oats, conventional and specialty supermarkets, regional natural foods stores, small specialty stores and restaurants. In addition, conventional supermarkets and mass market outlets are increasing their emphasis on the sale of natural products. In addition, some traditional and specialty supermarkets are expanding more aggressively in marketing a range of natural foods, thereby competing directly with us for products, customers and locations. Some of these potential competitors may have greater financial or marketing resources than we do and may be able to devote greater resources to sourcing, promoting and selling their products. Increased competition may have an adverse effect on our results of operations, business, cash flow, and financial condition as the result of lower sales, lower gross profits and/or greater operating costs such as marketing.
- Part of Our Strategy Is to Expand Our Retail Health Food Business Through The Opening of New Stores, If We Are Unsuccessful it May Have an Adverse Effect on Our Business.
Our expansion strategy is dependent on finding suitable locations, and we face intense competition from other retailers for such sites. We also need to be able to open new stores timely and operate them successfully. In addition, our success is dependant on our ability to hire, train and integrate new qualified team members. Our success is also dependent on our ability to adapt our distribution, management information and other operating systems to adequately supply products to new stores at competitive prices so that we can operate the stores in a successful and profitable manner. If we are not able to find and open new store locations and to close poor performing stores, this will have a material adverse impact on our results of operations, business, cash flow, and financial condition.
- Changes in the Availability of Quality Natural and Organic Products Could Impact Our Business.
There is no assurance that quality natural and organic products including dietary supplements, fresh and processed foods and vitamins will be available to meet our future needs. If conventional supermarkets increase their natural and organic product offerings or if new laws require the reformulation of certain products to meet tougher standards, the supply of these products may be constrained. Any significant disruption in the supply of quality natural and organic products could have a materially adverse impact on our overall sales and cost of goods.
- Perishable Food Product Losses Could Materially Impact Our Results.
We believe our stores more heavily emphasize perishable products than conventional supermarket stores. The Company's emphasis on perishable products may result in significant product inventory losses in the event of extended power outages, natural disasters or other catastrophic occurrences.
- Capital Needed for Expansion May Not Be Available.
The acquisition of existing stores, the opening of new retail stores, and the development of new production and distribution facilities requires significant amounts of capital. In the past, our growth has been funded primarily through proceeds from bank debt, private placements of equity and debt and internally generated cash flow. These and other sources of capital may not be available to us in the future, which could impair our ability to further expand our business.
- Restrictive Covenants in Our Revolving Credit Facility May Restrict Our Ability to React to Changes in Our Business or Industry Because They Restrict Our Ability to Obtain Additional Financing.
Our revolving credit facility imposes restrictions on us that could increase our vulnerability to general adverse economic and Industry conditions by limiting our flexibility in planning for and reacting to changes in our business and Industry. Specifically, these restrictions limit our ability, among other things, to: incur additional indebtedness, pay dividends and make distributions, issue stock of subsidiaries, make investments, repurchase stock, create liens, enter into transactions with affiliates, merge or consolidate, or transfer and sell our assets.
- Failure to Meet Restrictive Covenants in Our Revolving Credit Facility Could Result in Acceleration of the Facility and We May not be Able to Find Alternative Financing.
Under our credit facility, we are required to meet certain financial ratios and tests. Our ability to comply with these covenants may be affected by factors beyond our control. If we breach any of these covenants or restrictions, it could result in an event of default under our revolving credit facility, which would permit our lenders to declare all amounts
outstanding thereunder to be immediately due and payable, and our lenders under our revolving credit facility could terminate their commitments to make further extensions of credit under our revolving credit facility.
- Downturns in Economic Conditions Negatively Impacts Consumer Spending Resulting in a Reduction of Discretionary Spending for Items such as Snack Food, Cigarettes, and Health Foods.
Our results of operations and financial condition are particularly sensitive to changes in overall economic conditions that impact consumer spending, including discretionary spending. Future economic conditions affecting disposable consumer income such as employment levels, business conditions, interest rates and tax rates could reduce consumer spending or cause consumers to shift their spending to our competitors. A general reduction in the level of discretionary spending or shifts in consumer discretionary spending to our competitors could adversely affect our growth and profitability.
- We May Not Be Able to Obtain Capital or Borrow Funds to Provide Us with Sufficient Liquidity and Capital Resources Necessary to Meet Our Future Financial Obligations.
We expect that our principal sources of funds will be cash generated from our operations and financial condition and, if necessary, borrowings under our revolving credit facility. However, these sources may not provide us with sufficient liquidity and capital resources required to meet our future financial obligations, or to provide funds for our working capital, capital expenditures and other needs for the foreseeable future. We may require additional equity or debt financing to meet our working capital requirements or to fund our capital expenditures. We may not be able to obtain financing on terms satisfactory to us, or at all.
- We Depend on Relatively Few Suppliers for a Large Portion of Our Products, and Any Interruptions in the Supply of the Products That We Distribute Could Adversely Affect Our Results of Operations and Financial Condition.
We do not have any long-term contracts with our suppliers committing them to provide products to us. Although our purchasing volume can provide leverage when dealing with suppliers, suppliers may not provide the products we distribute in the quantities we request or on favorable terms. Because we do not control the actual production of the products we distribute, we are also subject to delays caused by interruption in production based on conditions outside our control. These conditions include job actions or strikes by employees of suppliers, inclement weather, transportation interruptions, and natural disasters or other catastrophic events. Our inability to obtain adequate supplies of the products we distribute as a result of any of the foregoing factors or otherwise, could cause us to fail to meet our obligations to our customers.
- We May Be Subject to Product Liability Claims Which Could Adversely Affect Our Business.
AMCON, as with other distributors of food and consumer products, faces the risk of exposure to product liability claims in the event that the use of products sold by us causes injury or illness. With respect to product liability claims, we believe that we have sufficient liability insurance coverage and indemnities from manufacturers. However, product liability insurance may not continue to be available at a reasonable cost, or, if available, may not be adequate to cover all of our liabilities. We generally seek contractual indemnification and insurance coverage from parties supplying the products we distribute, but this indemnification or insurance coverage is limited, as a practical matter, to the creditworthiness of the indemnifying party and the insured limits of any insurance provided by suppliers. If we do not have adequate insurance or if contractual indemnification is not available or if the counterparty can not fulfill its indemnification obligation, product liability relating to defective products could materially adversely impact our results of operations, business, cash flow and financial condition.
- We Depend on Our Senior Management and Key Personnel.
We substantially depend on the continued services and performance of our senior management and other key personnel, particularly William F. Wright, Chairman of the Board, Christopher H. Atayan, AMCON's Chief Executive Officer and Vice Chairman of the Board, Kathleen M. Evans, the Company's President, and Eric J. Hinkefent, the President of Health Food Associates, Inc. and Chamberlin's Natural Foods, Inc. While we maintain key person life insurance policies and have employment agreements with certain of these individuals, the loss of the services of any of our executive officers or key employees could harm our business.
- We Operate in a Competitive Labor Market and a Number of Our Employees Are Covered by Collective Bargaining Agreements.
We compete with other businesses in each of our markets with respect to attracting and retaining qualified employees. A shortage of qualified employees could require us to enhance our wage and benefits packages in order to compete effectively in the hiring and retention of qualified employees or to hire more expensive temporary employees.
In addition, at September 2007 approximately 4%, or approximately 36, of our employees are covered by a collective bargaining agreement with a labor organization, which expires December 2008. We may not be able to renew our respective collective bargaining agreement on favorable terms. Employees at other facilities may try to unionize. We may not be able to recover labor cost increases through increased prices charged to customers or suffer business interruptions as a result of strikes or other work stoppages.
- We Are Subject to Significant Governmental Regulation and If We Are Unable to Comply with Regulations That Affect Our Business or If There Are Substantial Changes in These Regulations, Our Business Could Be Adversely Affected.
As a distributor of food products, we are subject to the regulation by the U.S. Food and Drug Administration ("FDA"). Our operations are also subject to regulation by the Occupational Safety and Health Administration ("OSHA"), the Department of Transportation and other federal, state and local agencies. Each of these regulatory authorities have broad administrative powers with respect to our operations. If we fail to adequately comply with government regulations or regulations become more stringent, we could experience increased inspections, regulatory authorities could take remedial action including imposing fines or shutting down our operations or we could be subject to increased compliance costs. If any of these events were to occur, our results of operations, business, cash flow, and financial condition would be adversely affected.
We cannot predict the impact that future laws, regulations, interpretations or applications, the effect of additional government regulations or administrative orders, when and if promulgated, or disparate federal, state and local regulatory schemes would have on our business in the future. They could, however, require the reformulation of certain products to meet new standards, the recall or discontinuance of certain products not able to be reformulated, additional record keeping, expanded documentation of the properties of certain products, expanded or different labeling and/or scientific substantiation. Any or all of such requirements could have an adverse effect on our results of operations, business, cash flow, and financial condition.
- The Company Has Very Few Shareholders of Record And, If this Number Drops below 300, the Company Will No Longer Be Obligated to Report under the Securities Exchange Act of 1934 and in Such Case We May Be Delisted from the American Stock Exchange Reducing the Ability of Investors to Trade in Our Common Stock.
If the number of record owners (including direct participants in the Depository Trust Company) of our common stock is less than 300, our obligations to file reports under the Securities Exchange Act of 1934 is suspended. If we take advantage of this right we will likely reduce administrative costs of complying with public company rules, but periodic and current information updates about the Company will not be available to investors. In addition, the common stock of the Company would be removed from listing on the American Stock Exchange. This would likely impact an investors' ability to trade in our common stock.
- In Relation to the Size of Our Company We Incur Significant Costs as a Result of Being a Public Company.
As a public company, we incur significant accounting, legal, governance, compliance and other expenses that private companies do not incur. In addition, the Sarbanes-Oxley Act of 2002 and the rules subsequently
implemented by the Securities and Exchange Commission and the American Stock Exchange, have required changes in corporate governance practices of public companies. These rules and regulations increase our legal, audit and financial compliance costs and make some activities more time-consuming and costly. For example, as a result of being a public company, we are required to maintain additional board committees and formalize our internal control over financial reporting and disclosure controls and procedures. In addition, we incur additional costs associated with our public company reporting requirements. These rules and regulations also make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified persons to serve on our board of directors or as executive officers.
- We Have Various Mechanisms in Place to Discourage Takeover Attempts, Which May Reduce or Eliminate Our Stockholders' Ability to Sell Their Shares for a Premium in a Change of Control Transaction.
Various provisions of our bylaws and of corporate law may discourage, delay or prevent a change in control or takeover attempt of our company by a third party that is opposed to by our management and board of directors. These anti-takeover provisions could substantially impede the ability of public stockholders to benefit from a change of control or change in our management and board of directors. These provisions include:
-classification of our directors into three classes with respect to the time for which they hold office;
-supermajority voting requirements to amend the provision in our certificate of incorporation providing for the classification of our directors into three such classes;
-non-cumulative voting for directors;
-control by our board of directors of the size of our board of directors;
-limitations on the ability of stockholders to call special meetings of stockholders; and
-advance notice requirements for nominations of candidates for election to our board of directors or for proposing matters that can be acted upon by our stockholders at stockholder meetings.
- Failure to Regain Compliance with American Stock Exchange Listing Standards Could Have a Negative Effect on the Trading Price of Our Stock and Would likely Adversely Impact Our Investors' Ability to Trade in Our Common Stock
In fiscal 2007, the Company was notified by the American Stock Exchange (AMEX) that it was not in compliance with Section 1003(a)(ii)of the AMEX Company Guide regarding shareholders' equity of less than $4,000,000, and losses from continuing operations and/or net losses in three of its four most recent fiscal years. In order to maintain its AMEX listing, the Company submitted a plan outlining steps to regain compliance with the AMEX's
continued listing standards by March 11, 2008. As of September 30, 2007, the Company's shareholders' equity of $5.5 million exceeded the threshold set forth by Section 1003(a)(ii) of the AMEX Company Guide. After maintaining the required shareholders' equity for two successive quarters, the Company will have completed its comprehensive plan previously submitted to the AMEX.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
The location and approximate square footage of the Company's five distribution centers and thirteen retail stores at September 2007 are set forth below:
Location Square Feet
-------- -----------
Distribution - IL, MO, ND, NE & SD 487,000
Retail - FL, KS, MO, NE & OK 132,600
-------
Total Square Footage 619,600
=======
|
Our Quincy, Illinois, Bismarck, North Dakota and Rapid City, South Dakota distribution facilities are owned by ADC. Our Quincy, Bismarck and Rapid City distribution centers are subject to first mortgages by M&I Bank. The Company leases its remaining distribution facilities, retail stores, offices, and certain equipment under noncancellable operating and capital leases. Management believes that its existing facilities are adequate for the Company's present level of operations; however, larger facilities and additional cross-dock facilities and retail stores may be required if the Company experiences growth in certain market areas.
ITEM 3. LEGAL PROCEEDINGS
Information with respect to this item may be found in Note 14 to the Consolidated Financial Statements in Item 8, which is incorporated herein by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the fourth quarter of fiscal 2007.
EXECUTIVE OFFICERS OF THE REGISTRANT
Executive officers of our Company are appointed by the board of directors and serve at the discretion of the board. The following table sets forth certain information with respect to all executive officers of our Company.
Name Age Position
---- --- --------
William F. Wright 65 Chairman of the Board
Christopher H. Atayan 47 Chief Executive Officer,
Vice Chairman, Director
Kathleen M. Evans 60 President, Director
Andrew C. Plummer 33 Vice President, Chief
Financial Officer, and
Secretary
Philip E. Campbell 46 Senior Vice President of
Planning and Compliance
Eric J. Hinkefent 46 President of Chamberlin's Market
and Cafe and Akin's Natural
Foods Market
|
William F. Wright has served as the Chairman and Chief Executive Officer of AMCON Corporation (the former parent of our Company) since 1976, as Chief Executive Officer of our Company from 1986 until October 2006, and as Chairman of our Company since 1986. From 1968 to 1984, Mr. Wright practiced corporate and securities law in Lincoln, Nebraska. Mr. Wright is a graduate of the University of Nebraska and Duke University School of Law.
CHRISTOPHER H. ATAYAN has served as the Company's Chief Executive Officer since October 2006 and as its Vice Chairman since March 2006. Mr. Atayan served as the Company's Chief Corporate Officer from March 2006 through September 2006 and has been a director of the Company since 2004. Mr. Atayan is also Chairman of Hotlink Incorporated and a consultant to Draupnir, LLC, the parent of Draupnir Capital, LLC. Mr. Atayan has served as the Senior Managing Director of Slusser Associates, a New York investment banking firm since 1988 and is a director of AMCON Corporation.
KATHLEEN M. EVANS became President of the Company in February 1991. Prior to that time she served as Vice President of AMCON Corporation from 1985 to 1991. From 1978 until 1985, Ms. Evans acted in various capacities with AMCON Corporation and its operating subsidiaries.
ANDREW C. PLUMMER became Acting Chief Financial Officer of the Company in March 2006 and Chief Financial Officer and Secretary in January 2007. Prior to his appointment as Acting Chief Financial Officer, he served the Company as its Corporate Controller and Manager of SEC Compliance. Prior to joining AMCON in 2004, Mr. Plummer practiced public accounting for approximately seven years primarily with Deloitte and Touche, LLP.
Philip E. Campbell became the Senior Vice President of Planning and Compliance in January 2007. Mr. Campbell has provided consulting services to the Company since 2004 and most recently was the Chief Financial Officer of Franchise Concepts, Inc., a leading franchisor in the retail industry from 2001 to 2004. Mr. Campbell has 23 years of accounting, finance and senior management experience in a number of industries and is an officer and director of Hotlink Incorporated.
Although not an executive officer of our Company, Eric. J. Hinkefent is an executive officer of two of our subsidiaries. His business experience is as follows:
ERIC J. HINKEFENT has served as President of both Chamberlin's Natural Foods, Inc. and Health Food Associates, Inc. since October 2001. Prior to that time he served as President of Health Food Associates, Inc. beginning in 1993. He has also served on the board of The Healthy Edge, Inc. from 1999 through 2003.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
MARKET FOR COMMON STOCK
The Company's common stock trades on the American Stock Exchange ("AMEX") under the trading symbol "DIT". As of October 26, 2007, the closing stock price was $30.95 and there were 529,436 common shares outstanding. As of that date, the Company had approximately 360 common shareholders of record (including direct participants in the Depository Trust Company). The following table reflects the range of the high and low closing prices per share of the Company's common stock reported by AMEX for fiscal 2007 and 2006.
Fiscal 2007 Fiscal 2006
---------------- ----------------
High Low High Low
------- ------- ------- -------
4th Quarter $ 31.77 $ 22.05 $ 13.80 $ 9.15
3rd Quarter 28.85 20.62 12.10 9.15
2nd Quarter 33.75 18.25 16.55 10.80
1st Quarter 19.85 12.25 21.40 16.55
|
Dividend Policy
The Company does not pay dividends on its common stock but does periodically reevaluate this policy based on the funding requirements necessary to finance operations and future growth. The Company's revolving credit facility provides that it may not pay dividends on its common shares in excess of $0.72 per common share on an annual basis.
The Company has issued Series A, B and C Convertible Preferred Stock, which are not registered under the Securities and Exchange Act of 1934. Information regarding the issuance of these securities is set forth in Item 7 under the caption "Liquidity and Capital Resources".
The information under the caption "Equity Compensation Plan Information" in Item 12 of this Annual Report on Form 10-K, is incorporated into this Item 5 by reference.
COMPANY PERFORMANCE
The following stock performance graph and table provide a comparison over the five-year period ending September 30, 2007 of the cumulative total return from a $100 investment in our Company's common stock with the stocks listed on the American Stock Exchange Composite Total Return Index and the Standard & Poor's 600 Food Distributors Index.
[GRAPH OMITTED]
The comparison of cumulative total returns presented in the above graph was plotted using the following index values and common stock price values:
9/27/02 9/26/03 9/24/04 9/30/05 9/30/06 9/30/07
------- -------- -------- -------- -------- --------
AMCON Distributing Company $100.00 $ 89.69 $ 66.03 $ 68.07 $ 42.14 $ 87.47
AMEX Total Return Index $100.00 $ 128.21 $ 148.54 $ 175.67 $ 190.46 $ 215.74
S&P 600 Food Distributors Index $100.00 $ 113.32 $ 108.28 $ 143.42 $ 119.03 $ 122.73
|
COMPANY REPURCHASE OF SHARES
No purchases of our common stock were made by the Company during the fourth quarter of our 2007 fiscal year.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data presented below have been derived from AMCON
Distributing Company and Subsidiaries' (the "Company's") audited financial
statements. The information set forth below should be read in conjunction
with Item 7 "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION" and Item 8 "FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA" of this Annual Report on Form 10-K.
Results may not be comparable due to acquisitions and/or dispositions and the impact of discontinued operations on prior periods presented.
(Dollars in thousands, except per share data)
---------------------------------------------------------------------------------------------
Restated Restated Restated Restated
Fiscal Year 2007 2006/1/ 2005/1//2/ 2004/1/ 2003/1/
---------------------------------------------------------------------------------------------
Sales/3/.......................... $ 853,567 $839,540 $834,551 $817,285 $768,627
Cost of sales..................... 789,318 779,190 773,292 757,646 709,642
----------------------------------------------------------
Gross profit...................... 64,249 60,350 61,259 59,639 58,985
Operating expenses................ 52,796 53,658 53,188 50,975 50,854
Impairment charges/4/............. - - 4,235 - -
----------------------------------------------------------
Operating income.................. 11,453 6,692 3,836 8,664 8,131
Interest expense.................. 4,816 4,858 4,211 3,243 2,900
Other (income) expense, net....... (195) (137) (80) (569) (936)
----------------------------------------------------------
Income (loss) from continuing
operations before income taxes... 6,832 1,971 (295) 5,990 6,167
Income tax expense ............... 2,626 514 94 2,396 2,194
Minority interest................. - - (97) (91) -
----------------------------------------------------------
Income (loss) from continuing
operations....................... 4,206 1,457 (292) 3,685 3,973
Gain on disposal of discontinued
operations, net of income tax
expense of $626 829 - - - -
Loss from discontinued operations,
net of income tax benefit of
$(357), $(1,134), $(5,447),
$(4,682) and $(1,887) respectively (595) (2,436) (11,961) (7,597) (3,478)
----------------------------------------------------------
Net income (loss)................. 4,440 (979) (12,253) (3,912) 495
Preferred stock dividend
requirements..................... (419) (366) (295) (49) -
----------------------------------------------------------
Net income (loss) available to
common shareholders.............. $ 4,021 $ (1,345) $(12,548) $ (3,961) $ 495
==========================================================
23
----------------------------------------------------------------------------------------------
Restated Restated Restated Restated
Fiscal Year 2007 2006/1/ 2005/1/&/2/ 2004/1/ 2003/1/
----------------------------------------------------------------------------------------------
Basic earnings (loss) per share
available to common shareholders:
Continuing operations........... $ 7.19 $ 2.07 $ (1.11) $ 6.89 $ 7.53
Discontinued operations......... 0.44 (4.62) (22.70) (14.40) (6.59)
----------------------------------------------------------
Net basic earnings (loss) per
share available to common
shareholders................... $ 7.63 $ (2.55) $ (23.81) $ (7.51) $ 0.94
==========================================================
Diluted earnings (loss) per share
available to common shareholders:
Continuing operations........... $ 4.89 $ 1.82 $ (1.11) $ 6.55 $ 7.40
Discontinued operations......... 0.27 (3.44) (22.70) (13.50) (6.48)
----------------------------------------------------------
Net diluted earnings (loss)
per share available to common
shareholders................... $ 5.16 $ (1.62) $ (23.81) $ (6.95) $ 0.92
==========================================================
Weighted average shares outstanding:
Basic........................... 527,062 527,062 527,062 527,774 527,699
Diluted......................... 860,121 708,946 527,062 562,559 537,042
Working capital (deficit) /5/..... $ 34,938 $ 32,604 $ 35,312 $ (8,460) $ (4,911)
Total assets ..................... 92,064 98,018 98,327 115,141 102,618
Long-term obligations /6/......... 16,984 16,841 16,504 28,820 23,128
Shareholders' equity /7/.......... 5,544 1,404 2,790 15,297 19,604
Cash dividends declared
per common share................ - - - 0.72 0.72
|
/1/ Restated for the retroactive application of FIFO inventory valuation method. See Note 1 to the Consolidated Financial Statements.
/2/ During fiscal 2005, the Company changed its reporting period from a 52-53 week year to a calendar month reporting period ending on September 30. As a result of this change, fiscal 2005 was comprised of 53 weeks as compared to 52 weeks in fiscal 2007 and 2006.
/3/ In accordance with Emerging Issues Task Force (EITF) No. 01-9 "Accounting For Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor's Products)" sales incentives paid to customers have been recorded as a reduction of sales.
/4/ In fiscal year 2005 certain identifiable intangible assets in our Retail Health Food segment were impaired.
/5/ Current assets minus current liabilities.
/6/ Includes deferred taxes, noncurrent liabilities of discontinued operations, current and long-term portions of subordinated debt and long-term debt, TSI's water royalty payable obligation, and the deferred gain recorded in connection with the CPH litigation settlement. Excludes the Company's revolving credit facility.
/7/ Net of dividends declared of $0.4 million in fiscal 2003 and 2004.
The Company has declared no dividends since fiscal 2004.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
A separate discussion of our discontinued operations has been presented below under the caption "Discontinued Operations (Fiscal 2005 - 2007)" in this Item 7. Accordingly, the sales, gross profit (loss), selling, general and administrative, depreciation and amortization, direct interest, other expenses and income tax benefit for our discontinued operations are not a component of our analysis of continuing operations. For more information regarding our businesses, see Item 1 "Business" of this Annual Report on Form 10-K.
- refocusing resources to sustain and grow our two core business
segments - wholesale distribution and retail health food;
- improve the Company's liquidity position through debt reduction
- aggressively manage the Company's cost structure; and
- capitalize on acquisition opportunities
While management can give no assurances, these strategic initiatives are designed to improve profitability and strengthen the Company's ability to compete and grow its two core businesses on a long-term basis.
- In August 2007, the Company settled outstanding litigation with Television Events & Marketing, Inc. ("TEAM") as discussed in Note 14 to the Consolidated Financial Statements under Item 8.
- In November 2006, the Company sold all the operating assets of HNWC for approximately $3.8 million in cash plus the buyer's assumption of all operating and capital leases, which resulted in a gain on sale before income taxes of approximately $1.6 million.
- The Company increased shareholders' equity to $5.5 million, which exceeds the minimum equity requirements set forth in section 1003 (a)(ii) of the AMEX Company Guide. See further discussion in Note 14 to the Consolidated Financial Statements under Item 8.
- The Company experienced a $14.1 million increase in sales and a $2.7 million increase in income from continuing operations before income taxes for fiscal 2007 as compared to fiscal 2006.
- The Company recognized income from continuing operations per basic share of $7.19 in fiscal 2007 as compared to $2.07 per basic share in fiscal 2006.
- The Company recognized earnings from discontinued operations per basic share of $0.44 in fiscal 2007 as compared to a loss from discontinued operations per basic share of ($4.62) in fiscal 2006.
Fiscal Years
------------------------
Restated Restated
2007 2006/1/ 2005/1/
------------------------
Sales............................ 100.0% 100.0% 100.0%
Cost of sales.................... 92.5 92.8 92.7
------------------------
Gross profit..................... 7.5 7.2 7.3
Selling, general and
administrative expenses......... 6.0 6.2 6.1
Depreciation and amortization.... 0.2 0.2 0.3
Impairment charges............... - - 0.5
------------------------
Operating income ................ 1.3 0.8 0.4
Interest expense................. 0.5 0.6 0.5
------------------------
Income (loss) from continuing
operations before income taxes.. 0.8 0.2 (0.1)
Income tax (expense) benefit..... (0.3) (0.1) -
------------------------
Income (loss) from continuing
operations ..................... 0.5 0.1 (0.1)
Income (loss) from discontinued
operations, net of tax.......... - (0.3) (1.4)
------------------------
Net income (loss) ............... 0.5 (0.2) (1.5)
Preferred stock dividend
requirements.................... - - -
------------------------
Net income (loss) available to
common shareholders............. 0.5% (0.2)% (1.5)%
========================
/1/ Restated for the retroactive application of FIFO inventory valuation
method. See Note 1 to the Consolidated Financial Statements.
|
RESULTS OF OPERATIONS - CONTINUING OPERATIONS
SALES:
Changes in sales are driven by two primary components:
(i) changes to selling prices, which are largely controlled by our product suppliers, and excise taxes imposed on cigarettes and tobacco products by various states; and
(ii) changes in the volume of products sold to our customers, either due to a change in purchasing patterns resulting from consumer preferences or the fluctuation in the comparable number of business days in our reporting period.
Sales
------------------------
Restated Incr
2007 2006 (Decr)
------ ------- -------
Wholesale distribution segment $815.7 $ 802.7 $ 13.0
Retail health food segment 37.9 36.8 1.1
------ ------- -------
$853.6 $ 839.5 $ 14.1
====== ======= =======
|
Sales from our wholesale distribution segment increased $13.0 million in fiscal 2007 as compared to fiscal 2006. Of this increase, $2.0 million related to an increase in cigarette sales and $11.0 million related to an increase in tobacco, confectionary, food service, and other product sales.
Significant items impacting fiscal 2007 sales included the following items. During fiscal 2007, certain states imposed sizable increases in the excise taxes levied on cigarettes. As excise taxes are passed on to our customers, the associated increase in our prices had the impact of increasing our fiscal 2007 sales by approximately $15.6 million as compared to fiscal 2006. The increase in excise taxes also had the impact of decreasing the demand for cigarettes in the related states and accordingly reduced sales by approximately $19.8 million.
Also impacting fiscal 2007 cigarette sales were price increases implemented by major cigarette manufacturers during the fiscal year. These price increases had the effect of increasing fiscal 2007 sales by approximately $12.4 million as compared to fiscal 2006. The remaining change in cigarette sales as compared to fiscal 2006 was primarily attributable to a 0.9% decrease in cigarette carton volumes in states not impacted by excise tax increases. The $11.0 million increase in tobacco, confectionary, food service and other product sales was primarily the result of price increases and changes in sales volumes.
Sales from our retail health food segment increased $1.1 million, or 2.8%, during fiscal 2007 as compared to fiscal 2006. This increase was attributable to overall growth in same store sales, primarily within our vitamin and supplements product categories. Our retail health food segment continues to benefit from the general increase in demand for natural food products combined with the Company's continued marketing efforts to grow its customer base.
GROSS PROFIT
Our gross profit does not include fulfillment costs and costs related to the distribution network which are included in selling, general and administrative costs, and may not be comparable to the gross profit of other entities which do include such costs. Some entities may classify such costs as a component of cost of sales. Cost of sales, a component used in determining gross profit, for our wholesale and retail segments includes the cost of products purchased from manufacturers, less incentives that we receive which are netted against such costs.
Gross profit by business segment for the fiscal years ended September 2007 and September 2006 are as follows (dollars in millions):
Gross Profit
------------------------
Restated Incr
2007 2006/1/ (Decr)
------ ------- -------
Wholesale distribution segment $ 48.8 $ 45.8 $ 3.0
Retail health food segment 15.4 14.6 0.8
------ ------- -------
$ 64.2 $ 60.4 $ 3.8
====== ======= =======
/1/ Restated for the retroactive application of FIFO inventory valuation
method. See Note 1 to the Consolidated Financial Statements.
|
Gross profit for fiscal 2007 increased approximately $3.8 million, or 6.5% as compared to fiscal 2006, while gross profit as a percent of sales increased to 7.5% as compared to 7.2% in fiscal 2006.
During fiscal 2007, gross profit in our wholesale distribution segment increased approximately $3.0 million, or 6.6% as compared to fiscal 2006. Increasing wholesale segment gross profit during fiscal 2007 was a $1.7 million benefit resulting from the impact of excise tax increases. The remaining change in our wholesale distribution segment gross profit was primarily the result of fluctuations in product mix sold, promotional allowances received from manufacturers, price increases within both our cigarette and non-cigarette product categories, and changes in unit volumes sold.
Gross profit for the retail health food segment increased approximately $0.8 million in fiscal 2007 as compared to fiscal 2006. Of this increase, approximately $0.4 million related to higher sales volumes, with the remaining change primarily resulting from improved sales mix and improved inventory shrink and throw-out costs.
OPERATING EXPENSE
Operating expense includes selling, general and administrative expenses and depreciation and amortization and impairment charges. Selling, general and administrative expenses include costs related to our sales, warehouse, delivery and administrative departments for all segments. Specifically, purchasing and receiving costs, warehousing costs and cost of picking and loading customer orders are all classified as selling, general and administrative expenses. Our most significant expenses relate to employee costs, facility and equipment leases, transportation costs, insurance and professional fees.
Total operating expenses decreased approximately $0.9 million in fiscal 2007, or 1.6%, as compared to fiscal 2006. The decrease in operating costs was primarily related to a $0.8 million reduction in professional fees, with the remaining decrease primarily resulting from lower insurance and bad debt expense, partially offset by higher compensation costs.
INTEREST EXPENSE
Interest expense for fiscal 2007 decreased slightly from fiscal 2006. The Company's variable rate debt primarily consists of borrowing on its Facility, which bears interest at the prime interest rate. During fiscal 2007, the Company's average borrowing rate on variable rate debt increased approximately 0.69% and average borrowings on variable rate debt decreased approximately $2.5 million, as compared to fiscal 2006.
OTHER
The Company's effective income tax rate was 38.4% in fiscal 2007 as compared to 26.1% in fiscal 2006. The increase in the effective tax rate was primarily attributable to state net operating losses recorded in fiscal 2006, which reduced fiscal 2006 income tax expense and the related effective tax rate.
DISCONTINUED OPERATIONS (Fiscal 2005 - 2007)
For the fiscal years 2007, 2006 and 2005, HNWC and TSI have been reflected in the Company's Consolidated Financial Statements as components of discontinued operations. The Beverage Group, Inc. ("TBG") is also included in discontinued operations for the fiscal year 2005 and the first two quarters of fiscal 2006. TBG was a component of the Company's former beverage segment, which was closed in March 2005. TBG's final wind-down was completed in April 2006 at which time its residual liabilities were classified to continuing operations.
As previously discussed in Item 1, in September 2007 the Company settled all
outstanding litigation among and between AMCON, TSI and CPH, resulting in a
$1.5 million deferred gain for fiscal 2007, which has been classified as a
component of noncurrent liabilities of discontinued operations in the
Company's Consolidated Balance Sheet. The deferred gain will be recognized
upon the earlier of CPH's election to exercise its TSI asset purchase option
or the expiration of the asset purchase option. During fiscal 2007, the
Company also sold the assets of HNWC resulting in a $1.6 million pre-tax
gain.
Earnings from discontinued operations increased approximately $2.7 million from fiscal 2006 to fiscal 2007. This change primarily resulted from HNWC's asset sale in November 2006, which resulted in a $1.6 million pre-tax gain. Additionally, the sale of HNWC in November 2006 and the closure of TSI's operations in March 2006, prevented further operating losses in fiscal 2007 as compared to fiscal 2006.
Losses from discontinued operations decreased approximately $9.5 million from fiscal 2005 to fiscal 2006. This change was primarily the result of impairment charges incurred during fiscal 2005, which totaled $8.9 million. There were no such impairment charges incurred in discontinued operations during fiscal 2006. Additionally, TSI's closure in March 2006 stemmed further operating losses through the remainder of fiscal 2006.
A summary of discontinued operations is as follows:
Year ended
September
-----------------------------------------
Restated Restated
2007 2006/1/ 2005/1/
----------- ------------ ------------
Sales $ 862,852 $ 8,635,869 $ 13,185,114
Impairment charges - - (8,852,406)
Operating loss (576,101) (3,190,327) (17,101,139)
Gain on disposal of discontinued
operations, before income taxes 1,455,333 - -
Income tax expense (benefit) 269,000 (1,134,000) (5,446,000)
Earnings (loss) from
discontinued operations 234,551 (2,435,766) (11,960,904)
/1/ Restated for the retroactive application of FIFO inventory valuation
method. See Note 1 to the Consolidated Financial Statements.
|
Sales
-------------------------------------------
Extra Reported Incr
2006 2005/1/ week/2/ 2005 (Decr)
-------- -------- ------- ------- -----
Wholesale distribution segment $ 802.7 $ 786.4 $ 13.6 $ 800.0 $ 2.7
Retail health food segment 36.8 34.2 0.4 34.6 2.2
-------- -------- ------- ------- -----
$ 839.5 $ 820.6 $ 14.0 $ 834.6 $ 4.9
======== ======== ======= ======= =====
/1/ Excludes extra week discussed in /2/ below.
/2/ During fiscal 2005, the Company changed its reporting period from a 52-53 week
year to a calendar month reporting period ending on September 30. As a result
of this change, fiscal 2005 was comprised of 53 weeks as compared to 52 weeks
in fiscal 2006.
|
Sales in our wholesale distribution segment increased $2.7 million during fiscal 2006 as compared to fiscal 2005. This increase in sales included a $1.5 million decrease in cigarette sales and a $4.2 million increase in the sales of our tobacco, confectionary and other product categories. Of the decrease 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 fiscal 2005 as compared to fiscal 2006, and $5.6 million was the result of a 1.3% decrease in the volume of carton shipments (excluding the extra week). These decreases in cigarette sales were offset by a $8.5 million increase in sales due to higher excise taxes imposed by certain states and a $6.0 million benefit to sales attributable to price increases implemented by major cigarette manufacturers.
Sales from our retail health food segment increased $2.2 million, or 6.4%, during fiscal 2006 when compared to fiscal 2005. Of this sales increase, $2.6 million was attributable to sales growth in same store sales, primarily within our grocery and supplements product categories. This increase in sales volume was partially offset by a $0.4 million reduction in sales due to an extra week of sales in the fiscal 2005, resulting from the Company's change in reporting periods. The retail health food segment experienced strong growth during fiscal 2006 largely due to an increase in the demand for natural food products and combined with the Company's continued marketing efforts to grow its customer base.
GROSS PROFIT
Our gross profit does not include fulfillment costs and costs related to the distribution network which are included in selling, general and administrative costs, and may not be comparable to the gross profit of other entities which do include such costs. Some entities may classify such costs as a component of cost of sales. Cost of sales, a component used in determining gross profit, for our wholesale and retail segments includes the cost of products purchased from manufacturers, less incentives that we receive which are netted against such costs.
Gross profit by business segment for fiscal 2006 and fiscal 2005 are as follows (dollars in millions):
Gross Profit
----------------------------------------------
Extra Reported Incr
2006/1/ 2005/2/ week/3/ 2005/1/ (Decr)
------- ------- ------- --------- ------
Wholesale distribution segment $ 45.8 $ 47.0 $ 0.6 $ 47.6 $ (1.8)
Retail health food segment 14.6 13.5 0.2 13.7 0.9
------- ------- ------- --------- ------
$ 60.4 $ 60.5 $ 0.8 $ 61.3 $ (0.9)
======= ======= ======= ========= ======
32
/1/ Restated for the retroactive application of the FIFO inventory
valuation method. See Note 1 to the Consolidated Financial Statements.
/2/ Excludes extra week discussed in /3/ below
/3/ During fiscal 2005, the Company changed its reporting period from a 52-53 week
year to a calendar month reporting period ending on September 30. As a result
of this change, fiscal 2005 was comprised of 53 weeks as compared to 52 weeks
in fiscal 2006.
|
Gross profit for fiscal 2006 decreased approximately $0.9 million, or 1.5%, as compared to fiscal 2005. Gross profit as a percentage of sales decreased slightly from 7.3% in fiscal 2005 to 7.2% in fiscal 2006.
Gross profit from our wholesale distribution segment decreased approximately $1.8 million from fiscal 2005 to fiscal 2006. Items decreasing gross profits during fiscal 2006 were a $2.2 million reduction in gross profit related to a decrease in cigarette volumes sold, a $0.5 million reduction in incentive payments received from cigarette and non-cigarette vendors, and a $0.6 million decrease in gross profit attributable to an extra week of operations in fiscal 2005 as compared to fiscal 2006. These items were partially offset by a $1.4 million increase in gross profit resulting from higher sales in our tobacco, confectionary and other product categories.
Gross profit for the retail health food segment increased approximately $0.9 million in fiscal 2006 as compared to fiscal 2005. Of this increase, $0.1 million related to improved management of inventory and throw-out costs, $0.2 million was due to the extra week of operations in fiscal 2005, and $0.6 million was related to changes in sales mix and volume growth.
OPERATING EXPENSE
Operating expense includes selling, general and administrative expenses and depreciation and amortization and impairment charges. Selling, general and administrative expenses include costs related to our sales, warehouse, delivery and administrative departments for all segments. Specifically, purchasing and receiving costs, warehousing costs and cost of picking and loading customer orders are all classified as selling, general and administrative expenses. Our most significant expenses relate to employee costs, facility and equipment leases, transportation costs, insurance and professional fees.
Total operating expenses decreased approximately $3.8 million in fiscal 2006, or 6.6%, from fiscal 2005. The decrease in operating expense from fiscal 2005 was primarily attributable to a $4.2 reduction in intangible impairment charges incurred during fiscal 2005. The Company incurred no such impairment charges in fiscal 2006. Other significant items impacting operating expenses during fiscal 2006 included higher fuel and professional services expenses of $0.7 million and $0.3 million, respectively, and a $0.6 million reduction in workers compensation expense, as compared to fiscal 2005.
INTEREST EXPENSE
Interest expense for fiscal 2006 increased 0.6 million, or 15.3%, as compared to fiscal 2005. This increase was primarily related to an increase in the Company's average variable rate borrowings, the impact of the expiration of an interest rate swap in fiscal 2006 which had the effect of converting $10.0 million in variable rate borrowings under the Company's credit facility to a fixed borrowing rate of 4.87%, and increases in the prime interest rate, which is the rate at which the Company primarily borrows. On average, the Company's borrowing rates on variable rate debt were 1.71% higher and the average borrowings on variable rate debt were $3.5 million higher in fiscal 2006 as compared to fiscal 2005.
OTHER
During fiscal 2005, the Company allocated $0.1 million in losses, net of tax, to "Minority interest", which was related to a 15% minority ownership interest in the Company's TSI subsidiary. After this allocation, the 15% minority ownership interest in TSI had been reduced to zero resulting from cumulative TSI loss allocations. The minority shareholders provided no additional funding to TSI. Accordingly, no further allocations of losses to minority shareholders were made by the Company in fiscal 2006 or thereafter.
The Company's effective income tax rate was 26.1% in fiscal 2006. The change in effective tax rates from fiscal 2005 was primarily attributable to valuation allowances placed on state net operating losses in fiscal 2005, which reduced the income tax benefit and related effective tax rate in that fiscal year.
Our variability in cash flows from operating activities is heavily dependent on the timing of inventory purchases and seasonal fluctuations. For example, periodically we have inventory "buy-in" opportunities which offer more favorable pricing terms. As a result, we may have to hold inventory for a period longer than the payment terms. This generates a cash outflow from operating activities which we expect to reverse in later periods. Additionally, during the warm weather months, which is our peak time of operations, we generally carry higher amounts of inventory to ensure high fill rates and maintain customer satisfaction.
Investing Activities. The Company generated approximately $3.6 million in cash from investing activities during fiscal 2007. Of the cash generated, approximately $3.8 million resulted from the sale of HNWC's assets in November 2006 and $0.2 million related to the sale of TSI's distribution warehouse. Both of these items were included as components of our discontinued operations. These items were partially offset by $0.5 million in capital expenditures less $0.1 million in cash proceeds received from the sale of property, plant and equipment.
Financing Activities. The Company used net cash of $12.0 million for financing activities during fiscal 2007. Of this net change in cash, the Company used cash of $10.0 million for principal payments on its bank credit facility, $1.5 million for principal payments on long-term debt for both continuing and discontinued operations, $0.1 million related to debt issuance costs, and $0.4 million for the payment of preferred stock dividend payments.
Cash on Hand/Working Capital. As of September 2007, the Company had cash on hand of $0.7 million and working capital (current assets less current liabilities) of $34.9 million. This compares to cash on hand of $0.5 million and working capital of $32.6 million as of September 2006.
Payments Due By Period
-------------------------------------------------------------------
Fiscal Fiscal Fiscal
Contractual Obligations Total 2008 2009-2010 2011-2012 Thereafter
----------------------- -------------------------------------------------------------------
Credit Facility $ 38,854 $ 3,046 $ 35,808 $ - $ -
Long-term debt -
continuing operations 7,691 568 6,927 196 -
Long-term debt -
discontinued operations 5,000 - - 5,000 -
Related party debt 2,750 2,750 - - -
Interest on credit
facility and
long-term debt/1/ 6,508 3,944 1,174 1,390 -
Operating leases 18,169 3,349 6,060 4,700 4,060
-------------------------------------------------------------------
Total $ 78,972 $13,657 $ 49,969 $ 11,286 $ 4,060
===================================================================
Other Commercial Fiscal Fiscal Fiscal
Commitments Total 2008 2009-2010 2011-2012 Thereafter
--------------------- -------------------------------------------------------------------
Lines of credit/2/ $ 55,917 $ - $ 55,917 $ - $ -
Lines of credit in use (38,854) - (38,854) - -
Letters of credit (1,300) (450) (850) $ - -
-------------------------------------------------------------------
Lines of credit available $ 15,763 $ (450) $ 16,213 $ - $ -
===================================================================
35
/1/ Represents estimated interest payments on long-term debt, capital leases, and the
Facility. Certain obligations contain variable interest rates. For illustrative
purposes, the Company has projected future interest payments assuming that
interest rates will remain unchanged.
/2/ Includes Term Note A and Term Note B.
|
- A $55.0 million revolving credit limit, plus the outstanding balances on two term notes ("Term Note A" and "Term Note B") which totaled approximately $0.9 million at September 2007 for a total credit facility limit of $55.9 million at September 2007.
- Bears interest at the bank's prime interest rate, except for Term Note B which bears interest at the bank's prime rate plus 2%.
- Maturity and expiration dates for the Facility and Term Note A of April 2009 and March 2008 for Term Note B.
- Lending limits subject to accounts receivable and inventory limitations, an unused commitment fee equal to 0.25% per annum on the difference between the maximum loan limit and average monthly borrowings.
- A prepayment penalty of one percent (1%) of the prepayment loan limit of $55.0 million if prepayment occurs on or before April 30, 2008.
- Provides that the Company may not pay dividends on its common stock in excess of $0.72 per share on an annual basis.
The Facility also includes quarterly debt service and cumulative earnings before interest, taxes, depreciation and amortization ("EBITDA") financial covenants. Beginning with the fiscal quarter ended September 30, 2007, the Company must maintain a minimum debt service ratio of 1.0 to 1.0, as measured by the twelve month period then ended.
The cumulative minimum EBITDA requirements are as follows:
(a) $1,000,000 for the three months ending December 31, 2007 and
December 31, 2008 and;
(b) $2,000,000 for the six months ending March 31, 2008, and
March 31, 2009 and;
(c) $4,500,000 for the nine months ending June 30, 2008 and;
(d) $7,000,000 for the twelve months ending September 30, 2007
and September 30, 2008.
The Company was in compliance with the required debt service and minimum EBITDA covenants at September 30, 2007.
The Company's maximum available credit limit of the revolving portion of the Facility was $49.3 million at September 2007, however, the amount available for use at any given time is subject to many factors including eligible accounts receivable and inventory balances that are evaluated on a daily basis. At September 2007, the outstanding balance on the revolving portion of the Facility was $37.9 million. The Facility bears interest at a variable rate equal to the bank's prime rate, which was 7.75% at September 2007. Based on our collateral and loan limits as defined by the Facility agreement, the Company's excess availability under the Facility at September 2007 was approximately $11.4 million.
During fiscal 2007, our peak borrowings under the Facility were $52.6 million and our average borrowings and average availability were $46.1 and $4.9 million, respectively. Our availability to borrow under the Facility generally decreases as inventory and accounts receivable levels go up because of the borrowing limitations that are placed on collateralized assets.
As a component of the credit agreement, the Company has two term notes, Term Note A and Term Note B, with LaSalle Bank. Term Note A bears interest at the bank's prime rate (7.75% at September 2007) and is payable in monthly installments of $16,333. Term Note B bears interest at the bank's prime rate plus 2% (9.75% at September 2007) and is payable in monthly installments of $100,000. The outstanding balances on Term Note A and Term Note B were $0.6 million and $0.3 million, respectively, as of September 2007.
The Company's Chairman has personally guaranteed repayment of the Facility and the term loans. However, the amount of his guaranty is capped at $10.0 million and is automatically reduced by the amount of the repayment on Term Note B, which resulted in the guaranteed principal outstanding being reduced to approximately $5.4 million as of September 2007. AMCON pays 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's, Akin's, HNWC and TSI.
The Company's Chairman has also personally guaranteed a note payable issued in conjunction with the Television Events and Marketing, Inc. ("TEAM") litigation settlement as discussed in Note 14 to the Consolidated Financial Statements under Item 8. The Company pays the Chairman an annual fee equal to 2% of the guaranteed principal in return for the personal guarantee. The amount guaranteed in connection with this settlement at September 2007 was approximately $0.7 million.
The settlement also restructured the Company's obligations arising from the Asset Purchase Agreement with CPH totaling approximately $6.5 million into a new $5.0 million note payable to CPH. The $5.0 million note payable is due at the end of five years plus accrued interest at 5.0%. Items restructured into the $5.0 million note payable included CPH's minority interest in TSI,
water royalties payable to CPH, notes payable to CPH, and accrued interest payable to CPH. Additionally, the agreement provides CPH with an eleven month option to purchase TSI's assets for a price equivalent to the amount due CPH under the $5.0 million note payable, plus accrued interest. The TSI asset purchase option can be extended an additional seven months at CPH's election.
No monetary exchanges between the Company and CPH were required under the Settlement Agreement. The Company has recorded a $1.5 million pre-tax deferred gain in connection with the above settlement. This deferred gain has been classified as a component of noncurrent liabilities of discontinued operations in the Company's September 2007 Consolidated Balance Sheet. The deferred gain will be recognized upon the earlier of CPH's election to exercise its TSI asset purchase option or the expiration of the asset purchase option.
With the final settlement of the CPH litigation, the Company does not expect its future cash flows to be significantly impacted by future TSI related litigation.
AMCON has issued a letter of credit for $1.0 million to its workers' compensation insurance carrier as part of its self-insured loss control program. The letter of credit was reduced to approximately $0.9 million subsequent to September 2007.
During fiscal 2007, Securities and Exchange Commission ("SEC") Bulletin No. 108, "Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements" ("SAB 108") became effective for the Company. SAB 108 requires that registrants quantify errors using both a balance sheet approach and an income statement approach and then evaluate whether either approach results in a misstated amount that, when all relevant quantitative and qualitative factors are considered, is material. The adoption of this bulletin did not have a material effect on the Company's financial position or results of operations.
The Company is currently evaluating the impact of implementing the following new accounting standards:
On July 13, 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes, and Related Implementation Issues" ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in a Company's financial statements in accordance with Statement of Financial Accounting Standard No. 109, "Accounting for Income Taxes" ("SFAS 109"). FIN 48 prescribes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006 (the first fiscal quarter of 2008 for the Company). We do not believe that the cumulative effect of adopting FIN 48 will have a material impact on the Company's Consolidated Financial Statements.
In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements" ("SFAS No. 157"). SFAS No. 157 clarifies the principle that fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. Under the standard, fair value measurements would be separately disclosed by level within the fair value hierarchy. SFAS 157 is effective in fiscal 2008 for the Company.
In February 2007, FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities-Including an amendment of FASB Statement No. 115" ("SFAS 159"). SFAS 159 expands the use of fair value accounting but does not affect existing standards which require assets and liabilities to be carried at fair value. Under SFAS 159, a company may elect to use fair value to measure accounts and loans receivable, available-for- sale and held-to-maturity securities, equity method investments, accounts payable, guarantees, issued debt and other eligible financial instruments. SFAS 159 is effective for fiscal years beginning after November 15, 2007 (fiscal 2009 for the Company).
In March 2007, the FASB issued Emerging Issues Task Force Issue No. 06-10 "Accounting for Collateral Assignment Split-Dollar Life Insurance Agreements" (EITF 06-10). EITF 06-10 provides guidance for determining a liability for the postretirement benefit obligation as well as recognition and measurement of the associated asset on the basis of the terms of the collateral assignment agreement. EITF 06-10 is effective for fiscal years beginning after December 15, 2007 (fiscal 2009 for the Company).
CRITICAL ACCOUNTING ESTIMATES
Certain accounting estimates 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 judgments and estimates. Our critical accounting estimates are set forth below and have not changed during fiscal 2007.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
NATURE OF ESTIMATES REQUIRED. The allowance for doubtful accounts represents our estimate of uncollectible accounts receivable at the balance sheet date. We monitor our credit exposure on a weekly basis and assess the adequacy of our allowance for doubtful accounts on a quarterly basis. Because credit losses can vary significantly over time, estimating the required allowance requires a number of assumptions that are uncertain.
ASSUMPTIONS AND APPROACH USED. We estimate our required allowance for
doubtful accounts using the following key assumptions.
- Historical collections - Represented as the amount of historical
uncollectible accounts as a percent of total accounts
receivable.
- Specific credit exposure on certain accounts - Identified based on management's review of the accounts receivable portfolio and taking into account the financial wherewithal of particular customers that management deems to have a higher risk of collection.
SENSITIVITY ANALYSIS. We believe that our current level of allowance for doubtful accounts is adequate at September 2007 and that our credit exposure is very low compared with the high volume of sales and the nature of our Industry in which collections are generally made quickly. However, for every 1% percent of receivables deemed to require an additional reserve at September 2007, the impact on the statement of operations would be to increase selling, general and administrative expenses by approximately $0.3 million.
INVENTORIES
NATURE OF ESTIMATES REQUIRED. In our businesses, we carry large quantities and dollar amounts of inventory. Inventories consist primarily of finished products purchased in bulk quantities to be sold to our customers. Given the large quantities and broad range of products that we carry to better serve our customers, there is a risk of impairment in inventory that is unsaleable or unrefundable, slow moving, obsolete or is discontinued. The use of estimates is required in determining the salvage value of this inventory.
ASSUMPTIONS AND APPROACH USED. We estimate our inventory obsolescence reserve at each balance sheet date based on the following criteria:
-Slow moving products - Items identified as slow moving are evaluated on a case-by-case basis for impairment.
-Obsolete/discontinued inventory - Products identified that are near or beyond their expiration dates. In addition, we may discontinue carrying certain product lines for our customers. As a result, we estimate the market value of this inventory as if it were to be liquidated.
-Estimated salvage value/sales price - The salvage value of the inventory is estimated using management's evaluation of the congestion in the distribution channels and experience with brokers and inventory liquidators to determine the salvage value of the inventory.
DEPRECIATION, AMORTIZATION AND IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets consist primarily of fixed assets and intangible assets that were acquired in business combinations. Fixed assets and amortizable identified intangible assets are assigned useful lives ranging from 3 to 40 years. Goodwill is not amortized. Impairment of reporting units, which is measured in the Company's fourth fiscal quarter in order to coincide with its budgeting process, is evaluated annually with the assistance of an independent valuation specialist. The reporting units are valued using after-tax cash flows from operations (less capital expenditures) discounted to present value. No impairment charges were recorded by the Company in fiscal 2007 or fiscal 2006.
The impairment charges for our retail segment are recorded in the Company's statement of operations as a component of income (loss) from continuing operations. As previously discussed, the operations of TSI and HNWC were subsequently closed or sold. Accordingly, the impairment charges for TSI and HNWC are included in the statement of operations under the caption, loss from discontinued operations.
A summary of the impairment charges by entity for fiscal 2005 are as follows (in millions):
Continuing Discontinued Total
Operations Operations
---------- ---------------- -----
Retail TSI HNWC Total
Long-lived assets $ - $ 0.4 $ 2.5 $ 2.9
Goodwill 0.3 0.4 0.4 1.1
Water source - 3.7 - 3.7
Customer list - 0.3 0.1 0.4
Tradename 3.9 0.9 0.2 5.0
----- ----- ----- -----
$ 4.2 $ 5.7 $ 3.2 $13.1
===== ===== ===== =====
|
NATURE OF ESTIMATES REQUIRED. Management has to estimate the useful lives of the Company's long lived assets. In regard to the impairment analysis, the most significant assumptions include management's estimate of the annual growth rate used to project future sales and expenses used by the independent third party valuation specialist.
ASSUMPTIONS AND APPROACH USED. For fixed assets, depreciable lives are based on our accounting policy which is intended to mirror the expected useful life of the asset. In determining the estimated useful life of amortizable intangible assets, such as customer lists, we rely on our historical experience to estimate the useful life of the applicable asset and consider Industry norms as a benchmark. In evaluating potential impairment of long- lived assets we primarily use an income based approach (discounted cash flow method) in addition to both public and private company information. A discounted cash flow methodology requires estimation in (i) forecasting future earnings (ii) determining the discount rate applicable to the earnings stream being discounted, and (iii) computing a terminal value at some point in the future.
The forecast of future earnings is an estimate of future financial performance based on current year results and management's evaluation of the market potential for growth. The discount rate is a weighted average cost of capital using a targeted debt-to-equity ratio using the Industry average under the assumption that it represents our optimal capital structure and can be achieved in a reasonable time period. The terminal value is determined using a commonly accepted growth model.
SENSITIVITY ANALYSIS. We believe that the estimated useful lives of our fixed assets and amortizable intangibles are appropriate. If we shortened the estimated useful lives of our fixed assets by one year, the impact on the statement of operations for the current period would be to increase depreciation expense by approximately $0.2 million.
INSURANCE
The Company's insurance for workers' compensation, general liability and employee-related health care benefits are provided through high-deductible or self-insured programs. As a result, the Company accrues for its workers' compensation liability based upon claim reserves established with the assistance of a third-party administrator which are then trended and developed. The reserves are evaluated at the end of each reporting period. Due to the uncertainty involved with the realization of claims incurred but unreported, management is required to make estimates of these claims.
ASSUMPTIONS AND APPROACH USED. In order to estimate our reserve for incurred but unreported claims we consider the following key factors:
Employee Health Insurance Claims
- Historical claims experience - We review loss runs for each month to calculate the average monthly claims experience.
- Lag period for reporting claims - Based on analysis and consultation with our third party administrator, our experience is such that we have a one month lag period in which claims are reported.
Workers' Compensation Insurance Claims
- Historical claims experience - We review prior year's loss runs to estimate the average annual expected claims and review monthly loss runs to compare our estimates to actual claims.
- Lag period for reporting claims - We utilize the assistance of our insurance agent to trend and develop reserves on reported claims in order to estimate the amount of incurred but unreported claims. Our insurance agent uses standard insurance industry loss development models.
SENSITIVITY ANALYSIS. We believe that our current reserve for incurred but unreported insurance claims is adequate at September 2007. However, for every 5% percent increase in claims, an additional reserve of approximately $71,000 would be required at September 2007, the impact of which would increase selling, general and administrative expenses by that amount in the same period.
INCOME TAXES
The Company accounts for its income taxes by recording taxes payable or refundable for the current year and deferred tax assets and liabilities for the future tax consequences of events that have been recognized in our financial statements or tax returns. As required by SFAS No. 109, "Accounting for Income Taxes", these expected future tax consequences are measured based on provisions of tax law as currently enacted; the effects of future changes in tax laws are not anticipated. Future tax law changes, such as a change in the corporate tax rate, could have a material impact on our financial condition or results of operations. When appropriate, we record a valuation allowance against deferred tax assets to offset future tax benefits that may not be realized.
ASSUMPTIONS AND APPROACH USED. In determining whether a valuation allowance is appropriate, we consider whether it is more likely than not that all or some portion of our deferred tax assets will not be realized, based in part upon management's judgments regarding future events.
In making that estimate we consider the following key factors:
- our current financial position;
- historical financial information;
- future reversals of existing taxable temporary differences;
- future taxable income exclusive of reversing temporary differences
and carryforwards;
- taxable income in prior carryback years; and
- tax planning strategies.
SENSITIVITY ANALYSIS. Based on our analysis, we have determined that no valuation allowance was required at September 2007.
REVENUE RECOGNITION
We recognize revenue in our wholesale segment when products are delivered to customers (which generally is the same day products are shipped) and in our retail health food segment when products are sold to consumers. Sales are shown net of returns, discounts, and sales incentives to customers.
NATURE OF ESTIMATES REQUIRED. We estimate and reserve for anticipated sales discounts. We also estimate and provide a reserve for anticipated sales incentives to customers when earned under established program requirements.
ASSUMPTIONS AND APPROACH USED. We estimate the sales reserves using the following criteria:
- Sales discounts - We use historical experience to estimate the amount of accounts receivable that will not be collected due to customers taking advantage of authorized term discounts.
- Volume sales incentives - We use historical experience in combination with quarterly reviews of customers' sales progress in order to estimate the amount of volume incentives due to the customers on a periodic basis.
SENSITIVITY ANALYSIS. Based on the historical information used to estimate the reserves for sales discounts and volume sales incentives, we do not anticipate significant variances from the amounts reserved. However, there could be significant variances from period-to-period based on customer make- up and programs offered.
Our estimates and assumptions for each of the aforementioned critical accounting estimates have not changed materially during the periods presented, nor are we aware of any reasons that they would be reasonably likely to change in the future.
- increases in state and federal excise taxes on cigarette and tobacco
products,
- changing market conditions with regard to cigarettes,
- changes in promotional and incentive programs offered by manufacturers,
- the demand for the Company's products,
- new business ventures,
- domestic regulatory risks,
- competition,
- collection of guaranteed amounts,
- poor weather conditions,
- further increases in fuel prices,
- 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. 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to interest rate risk on its variable rate debt. At September 2007, the Company had $38.9 million of variable rate debt outstanding with maturities through April 2009 and interest rates ranging from 7.75% to 9.75%. We estimate that our annual cash flow exposure relating to interest rate risk based on our current borrowings is approximately $0.2 million for each 1% change in our lender's prime interest rate.
We do not utilize financial instruments for trading purposes and hold no derivative financial instruments which could expose us to significant market risk.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to 2007 Consolidated Financial Statements
Reports of Independent Registered Public Accounting Firms.....................................................47 Consolidated Balance Sheets as of September 2007 and September 2006.....49 Consolidated Statement of Operations for the Fiscal Years Ended September 2007, September 2006, and September 2005...................50 Consolidated Statement of Shareholders' Equity and Comprehensive Income (Loss) for the Fiscal Years Ended September 2007, September 2006, and September 2005...................................51 Consolidated Statement of Cash Flows for the Fiscal Years Ended September 2007, September 2006, and September 2005...................52 Notes to Consolidated Financial Statements..............................54 |
Report of Independent Registered Public Accounting Firm
To the Board of Directors
AMCON Distributing Company
Omaha, Nebraska
We have audited the consolidated balance sheets of AMCON Distributing Company and subsidiaries as of September 30, 2007 and 2006, and the related consolidated statements of operations, shareholders' equity and comprehensive income (loss) and cash flows for the years ended September 30, 2007 and 2006. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of AMCON Distributing Company and subsidiaries as of September 30, 2007 and 2006, and the results of their operations and their cash flows for the years ended September 30, 2007 and 2006, in conformity with U.S. generally accepted accounting principles.
As described in Note 1 to the financial statements, the Company changed its method of accounting for inventories in 2007. This change has been applied retroactively to 2003 and, accordingly, all prior financial statements have been restated.
We audited the adjustment described in Note 1 that was applied to restate the 2003, 2004, 2005 and 2006 financial statements. In our opinion, such adjustment is appropriate and has been properly applied.
/s/ McGLADREY & PULLEN LLP Omaha, Nebraska November 6, 2007 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
AMCON Distributing Company
Omaha, Nebraska
We have audited, before the effects of the adjustments to retrospectively apply the change in accounting discussed in Note 1, the consolidated statements of operations, shareholders' equity, and cash flows of AMCON Distributing Company and subsidiaries (the "Company") for the year ended September 30, 2005 (the 2005 consolidated financial statements before the effects of the adjustments discussed in Note 1 to the consolidated financial statements are not presented herein). Our audit also included the 2005 financial statement schedule, before the effects of the adjustments discussed in Note 1 to the consolidated financial statements, listed in the Index at Item 15. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such 2005 consolidated financial statements, before the effects of the adjustments to retrospectively apply the change in accounting discussed in Note 1 to the consolidated financial statements, present fairly, in all material respects, the results of AMCON Distributing Company and subsidiaries' operations and their cash flows for the year ended September 30, 2005, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion such financial statement schedule for the fiscal year ended September 30, 2005, before the effects of the adjustments to retrospectively apply the change in accounting discussed in Note 1 to the consolidated financial statements, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth within.
We were not engaged to audit, review, or apply any procedures to the adjustments to retrospectively apply the change in accounting discussed in Note 1 to the consolidated financial statements and, accordingly, we do not express an opinion or any other form of assurance about whether such retrospective adjustments are appropriate and have been properly applied. Those retrospective adjustments were audited by other auditors.
/s/ DELOITTE & TOUCHE LLP Omaha, Nebraska August 21, 2006 (December 28, 2006 as to Notes 2 and 17) |
CONSOLIDATED BALANCE SHEETS
AMCON Distributing Company and Subsidiaries
--------------------------------------------------------------------------------------------------
September 30, 2007 2006
(As restated
-see Note 1)
--------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash $ 717,554 $ 481,138
Accounts receivable, less allowance
for doubtful accounts of $0.3 million
and $0.9 million in 2007 and 2006, respectively 27,848,938 27,815,751
Inventories, net 29,738,727 29,407,201
Deferred income taxes 1,446,389 1,511,650
Current assets of discontinued operations 18,897 1,270,198
Prepaid and other current assets 5,935,208 5,369,154
------------------------------
Total current assets 65,705,713 65,855,092
Property and equipment, net 11,190,768 12,528,539
Goodwill 5,848,808 5,848,808
Other intangible assets, net 3,400,070 3,439,803
Deferred income taxes 2,768,043 5,324,043
Non-current assets of discontinued operations 2,057,033 3,774,106
Other assets 1,093,150 1,247,464
------------------------------
$ 92,063,585 $ 98,017,855
==============================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 15,253,562 $ 14,633,124
Accrued expenses 5,293,923 4,687,789
Accrued wages, salaries and bonuses 2,202,594 1,879,699
Income taxes payable 367,773 168,936
Current liabilities of discontinued operations 4,035,863 7,461,549
Current maturities of credit facility 3,046,000 3,896,000
Current maturities of long-term debt 568,024 524,130
------------------------------
Total current liabilities 30,767,739 33,251,227
Credit facility, less current maturities 35,808,180 44,927,429
Long-term debt, less current maturities 7,123,453 7,069,357
Noncurrent liabilities of discontinued operations 6,542,310 5,087,230
Series A cumulative, convertible preferred stock, $.01 par value
100,000 authorized and issued, liquidation preference
$25.00 per share 2,438,355 2,438,355
Series B cumulative, convertible preferred stock, $.01 par value
80,000 authorized and issued, liquidation preference
$25.00 per share 1,857,645 1,857,645
Series C cumulative, convertible preferred stock, $.01 par value
80,000 authorized and issued, liquidation preference
$25.00 per share 1,982,372 1,982,372
Commitments and contingencies (Note 14)
Shareholders' equity:
Preferred stock, $0.01 par value, 1,000,000 shares
authorized, 260,000 outstanding and issued in Series A, B and C
referred to above - -
Common stock, $.01 par value, 3,000,000 shares
authorized, 529,436 outstanding for 2007 and
527,062 outstanding for 2006 5,295 5,271
Additional paid-in capital 6,396,131 6,278,476
Accumulated deficit (857,895) (4,879,507)
------------------------------
Total shareholders' equity 5,543,531 1,404,240
------------------------------
$ 92,063,585 $ 98,017,855
==============================
The accompanying notes are an integral part of these consolidated
financial statements.
|
CONSOLIDATED STATEMENTS OF OPERATIONS
AMCON Distributing Company and Subsidiaries
----------------------------------------------------------------------------------------------
Fiscal Years Ended September 2007 2006 2005
(As restated (As restated
-see Note 1) -see Note 1)
----------------------------------------------------------------------------------------------
Sales (including excise taxes of $208.2 million,
$200.6 million and $197.7 million, respectively) $ 853,566,512 $ 839,539,780 $ 834,551,448
Cost of sales 789,317,758 779,189,369 773,292,164
-------------------------------------------
Gross profit 64,248,754 60,350,411 61,259,284
-------------------------------------------
Selling, general and administrative expenses 50,963,645 51,721,525 51,032,197
Depreciation and amortization 1,831,640 1,936,897 2,155,983
Impairment charges - - 4,234,856
-------------------------------------------
52,795,285 53,658,422 57,423,036
-------------------------------------------
Operating income 11,453,469 6,691,989 3,836,248
Other expense (income):
Interest expense 4,816,324 4,858,012 4,211,685
Other (income), net (194,608) (137,241) (80,105)
-------------------------------------------
4,621,716 4,720,771 4,131,580
-------------------------------------------
Income (loss) from continuing operations
before income tax expense 6,831,753 1,971,218 (295,332)
Income tax expense 2,626,000 514,000 94,000
Minority interest in loss, net of tax - - (97,100)
-------------------------------------------
Income (loss) from continuing operations 4,205,753 1,457,218 (292,232)
Discontinued operations (Note 2)
Gain on disposal of discontinued
operations, net of income tax expense
of $0.6 million 829,090 - -
Loss from discontinued operations, net of
income tax benefit of $0.3 million,
$1.1 million and $5.4 million, respectively (594,539) (2,435,766) (11,960,904)
-------------------------------------------
Income (loss) on discontinued operations 234,551 (2,435,766) (11,960,904)
-------------------------------------------
Net income (loss) 4,440,304 (978,548) (12,253,136)
Preferred stock dividend requirements (418,692) (366,042) (294,640)
-------------------------------------------
Net income (loss) available to common shareholders $ 4,021,612 $ (1,344,590) $ (12,547,776)
===========================================
Basic earnings (loss) per share
available to common shareholders:
Continuing operations $ 7.19 $ 2.07 $ (1.11)
Discontinued operations 0.44 (4.62) (22.70)
-------------------------------------------
Net basic earnings (loss) per share
available to common shareholders $ 7.63 $ (2.55) $ (23.81)
===========================================
Diluted earnings (loss) per share
available to common shareholders:
Continuing operations $ 4.89 $ 1.82 $ (1.11)
Discontinued operations 0.27 (3.44) (22.70)
-------------------------------------------
Net diluted earnings (loss) per share
available to common shareholders $ 5.16 $ (1.62) $ (23.81)
===========================================
Weighted average shares outstanding:
Basic 527,062 527,062 527,062
Diluted 860,121 708,946 527,062
The accompanying notes are an integral part of these consolidated
financial statements.
|
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
AND COMPREHENSIVE INCOME (LOSS) (As restated - see Note 1)
AMCON Distributing Company and Subsidiaries
----------------------------------------------------------------------------------------------------------
Accumulated
Common Stock Additional Other Retained
----------------- Paid in Comprehensive Earnings
Shares Amount Capital Income (Deficit) Total
---------------------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 24, 2004 527,062 $ 5,271 $ 6,218,476 $ 59,900 $ 9,012,859 $15,296,506
Dividends on preferred stock - - - - (294,640) (294,640)
Net loss - - - - (12,253,136) (12,253,136)
Change in the fair value of
interest rate swap, net of
tax of $0.03 million - - - 41,394 - 41,394
-----------
Total comprehensive loss (12,211,742)
-------------------------------------------------------------------------
Balance, September 30, 2005 527,062 5,271 6,218,476 101,294 (3,534,917) 2,790,124
Dividends on preferred stock - - - - (366,042) (366,042)
Stock option expense - - 60,000 - - 60,000
Net loss - - - - (978,548) (978,548)
Change in fair value of
interest rate swap, net of
tax of $0.05 million - - - (101,294) - (101,294)
----------
Total comprehensive loss (1,079,842)
-------------------------------------------------------------------------
Balance, September 30, 2006 527,062 5,271 6,278,476 - (4,879,507) 1,404,240
Dividends on preferred stock - - - - (418,692) (418,692)
Stock option expense - - 70,993 - - 70,993
Exercise of stock options 2,374 24 46,662 - - 46,686
Net income - - - - 4,440,304 4,440,304
----------
Total comprehensive income 4,440,304
-------------------------------------------------------------------------
Balance, September 30, 2007 529,436 $ 5,295 $ 6,396,131 $ - $ (857,895) $ 5,543,531
=========================================================================
The accompanying notes are an integral part of these consolidated
financial statements.
|
CONSOLIDATED STATEMENTS OF CASH FLOWS
AMCON Distributing Company and Subsidiaries
----------------------------------------------------------------------------------------------------------
Fiscal Years 2007 2006 2005
(As restated (As restated
-see Note 1) -see Note 1)
----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 4,440,304 $ (978,548) $(12,253,136)
Deduct: Income (loss) from discontinued operations,
net of tax 234,551 (2,435,766) (11,960,904)
----------- ----------- -----------
Income (loss) from continuing operations 4,205,753 1,457,218 (292,232)
Adjustments to reconcile income (loss) from
continuing operations to net cash flows
from operating activities:
Depreciation 1,791,907 1,897,166 2,039,553
Amortization 39,733 39,731 116,430
Impairment charges - - 4,234,856
Loss (gain) on sale of property and equipment 27,235 30,082 (13,116)
Stock based compensation 70,993 60,000 -
Deferred income taxes 2,621,261 (722,727) (5,691,019)
(Benefit) provision for losses on doubtful accounts (250,196) 179,196 (189,604)
(Benefit) provision for losses on inventory obsolescence 52,242 77,940 (33,520)
Minority interest - - (97,100)
Changes in assets and liabilities,
net of effect of acquisitions:
Accounts receivable 217,009 (814,916) 1,383,923
Inventories (383,768) (1,396,154) 9,288,767
Other current assets (566,058) (205,819) (4,848,246)
Other assets 254,314 (10,891) (160,509)
Accounts payable 739,188 (805,235) (670,130)
Accrued expenses and accrued wages, salaries and bonuses 1,574,429 641,863 1,280,966
Income taxes payable and receivable 198,837 50,138 1,281,423
----------- ----------- -----------
Net cash flows from operating activities
- continuing operations 10,592,879 477,592 7,630,442
Net cash flows from operating activities
- discontinued operations (1,929,323) (820,913) 897,434
----------- ----------- -----------
Net cash flows from operating activities 8,663,556 (343,321) 8,527,876
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (514,277) (980,510) (2,464,694)
Proceeds from sales of property and equipment 101,328 39,665 116,597
Purchase of trademark - (15,000) -
----------- ----------- -----------
Net cash flows from investing activities
- continuing operations (412,949) (955,845) (2,348,097)
Net cash flows from investing activities
- discontinued operations 3,965,394 (16,818) (585,451)
----------- ----------- -----------
Net cash flows from investing activities 3,552,445 (972,663) (2,933,548)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net principal (payments) borrowings on bank credit
agreements (9,969,248) (338,959) 4,352,573
Net proceeds from preferred stock issuance - 1,982,372 1,857,645
Proceeds from borrowings of long-term debt - 237,266 1,399,638
Payments on long-term and subordinated debt (734,416) (670,966) (8,413,374)
Proceeds from exercise of stock options 46,686 - -
Debt issuance costs (100,000) - (446,641)
Dividends paid on preferred stock (418,692) (366,042) (294,640)
----------- ----------- -----------
Net cash flows from financing activities
- continuing operations (11,175,670) 843,671 (1,544,799)
52
---------------------------------------------------------------------------------------------------------
Fiscal Years 2007 2006 2005
(As restated (As restated
-see Note 1) -see Note 1)
---------------------------------------------------------------------------------------------------------
Net cash flows from financing activities
- discontinued operations (803,915) 407,178 (3,919,329)
----------- ----------- -----------
Net cash flow from financing activities (11,979,585) 1,250,849 (5,464,128)
----------- ----------- -----------
Net change in cash 236,416 (65,135) 130,200
Cash, beginning of year 481,138 546,273 416,073
----------- ----------- -----------
Cash, end of year $ 717,554 $ 481,138 $ 546,273
=========== =========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 4,890,997 $ 4,858,960 $ 4,376,251
Cash paid (refunded) during the year for
income taxes 94,901 (647) (911,278)
Supplemental disclosure of non-cash information:
Forgiveness of debt and related interest in
connection with settlement of TSI litigation $(3,735,145) $ - $ -
Forgiveness of water royalty in connection
with settlement of TSI litigation (2,807,000) - -
Issuance of note payable in connection with
TSI litigation 5,000,000 - -
Issuance of note payable in connection with
settlement of TBG litigation 763,983 - -
Buyer's assumption of HNWC lease in connection with
the sale of HNWC's assets - discontinued operations (225,502) - -
Issuance of note payable in exchange for
accounts payable - discontinued operations - 362,716 -
Acquisition of equipment through capital leases 68,422 - 91,343
The accompanying notes are an integral part of these consolidated
financial statements.
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(a) Company Operations:
AMCON Distributing Company and Subsidiaries ("AMCON" and "the Company") is
primarily engaged in the wholesale distribution of consumer products in the
Great Plains and Rocky Mountain regions. In addition, the Company operates
thirteen retail health food stores in Florida and the Midwest.
AMCON's wholesale distribution business ("ADC") includes five distribution centers that sell approximately 14,000 different consumer products, including cigarettes and tobacco products, candy and other confectionery, beverages, groceries, paper products, health and beauty care products, frozen and chilled products and institutional food service products. The Company distributes products primarily to retailers such as convenience stores, discount and general merchandise stores, grocery stores and supermarkets, drug stores and gas stations. In addition, the Company services institutional customers, including restaurants and bars, schools, sports complexes and vendors, as well as other wholesalers.
AMCON also operates six retail health food stores in Florida under the name Chamberlin's Market & Cafe (Chamberlin's) and seven in the Midwest under the name Akin's Natural Foods Market (Akin's). These stores carry natural supplements, groceries, health and beauty care products and other food items.
The Company's operations are subject to a number of factors which are beyond the control of management, such as changes in manufacturers' cigarette pricing, state excise tax increases or the opening of competing retail stores in close proximity to the Company's retail stores. While the Company sells a diversified product line, it remains dependent upon cigarette sales which represented approximately 71% of revenue and 25% of gross profit in fiscal 2007, as compared to 72% and 27% of revenue and gross profit in fiscal 2006, and 73% and 33% of revenue and gross profit in fiscal 2005.
(b)Change in Accounting Principle:
In the fourth quarter of fiscal 2007, the Company changed its inventory
valuation method from the Last-In First-Out (LIFO) method to the First-In
First-Out (FIFO) method. The change is preferable as it provides a more
meaningful presentation of the Company's financial position as it values
inventory in a manner which more closely approximates current cost; better
represents the underlying commercial substance of selling the oldest products
first; and more accurately reflects the Company's realized periodic income.
As required by U.S. generally accepted accounting principles, this change in accounting principle has been reflected in the consolidated statements of financial position, consolidated statements of operations, and consolidated statements of cash flows through retroactive application of the FIFO method. Accordingly, inventories from continuing operations as of the beginning of fiscal 2005 were increased by the LIFO reserve ($4.0 million), net current deferred tax assets were decreased ($0.7 million), current assets of discontinued operations were increased for the impact of related LIFO reserves ($0.1 million), net non-current deferred tax liabilities were
increased ($0.9 million), and shareholders' equity was increased by the after-tax effect ($2.5 million). Previously reported net income (loss) available to common shareholders' for the fiscal years 2006 and 2005 were also increased by $0.1 million and $0.5 million after income taxes, respectively.
(c) Accounting Period:
During fiscal 2005, the Company changed its reporting period from a 52-53 week
year to a calendar month reporting period ending on September 30. As a result
of this change, the fiscal year 2005 was comprised of 53 weeks compared to 52
weeks in fiscal 2007 and 2006. The fiscal years 2007, 2006 and 2005 ended on
September 30 and are herein referred to as AMCON's fiscal years.
(d) Principles of Consolidation:
The consolidated financial statements include the accounts of AMCON and its
wholly-owned subsidiaries.
Prior to the settlement of the litigation among and between AMCON, TSI, and Crystal Paradise Holdings, Inc. ("CPH") in September 2007, as described in Note 14, the Company had a 85% ownership in TSI, with a 15% non-owned interest being held by a minority interest (CPH). For the fiscal years 2007, 2006, and 2005, TSI has been accounted for as a consolidated subsidiary of the Company and has been included as a component of discontinued operations in the Consolidated Financial Statements. During the first quarter of fiscal 2005, the Company suspended the allocation of TSI's losses to minority shareholders as their ownership basis in TSI had been reduced to zero and the minority shareholders did not guarantee TSI's debt or commit additional capital to TSI.
All significant intercompany accounts and transactions have been eliminated.
(e) Cash and Accounts Payable:
AMCON utilizes a cash management system under which an overdraft is the normal
book balance in the primary disbursing accounts. Overdrafts included in
accounts payable at fiscal 2007 and fiscal 2006 totaled approximately
$3.3 million and $3.2 million, respectively, and reflect checks drawn on the
disbursing accounts that have been issued but have not yet cleared through the
banking system. The Company's policy has been to fund these outstanding
checks as they clear with borrowings under its revolving credit facility (see
Note 9). These outstanding checks (book overdrafts) are classified as cash
flows from operating activities in the Consolidated Statements of Cash Flows.
(f) Accounts Receivable:
Accounts receivable consist primarily of amounts due to the Company from its
normal business activities. An allowance for doubtful accounts is maintained
to reflect the expected uncollectibility of accounts receivable based on past
collection history and specific risks identified in the portfolio.
(g) Inventories:
Inventories consisted of the following at September 2007 and 2006 (in
millions):
Restated/1/
September September
2007 2006
--------- ---------
Finished Goods $ 29.7 $ 29.4
========= =========
|
/1/ Restated for the retroactive application of the FIFO inventory valuation method. See Note 1 to the Consolidated Financial Statements.
Inventories are stated at the lower of cost, determined on a FIFO basis, or market. 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.
(h) Prepaid Expenses and Other Current Assets:
A summary of prepaid expenses and other current assets is as follows (in
millions):
September September
2007 2006
--------- ---------
Prepaid expenses $ 0.8 $ 1.2
Prepaid inventory 5.1 4.2
--------- ---------
$ 5.9 $ 5.4
========= =========
|
Prepaid inventory represents inventory in transit that has been paid for but has not yet been received.
(i) Property and Equipment:
Property and equipment are stated at cost less accumulated depreciation or
amortization. Major renewals and improvements are capitalized and charged to
expense over their useful lives through depreciation or amortization charges.
Repairs and maintenance are charged to expense in the period incurred. The
straight-line method of depreciation is used to depreciate assets over the
estimated useful lives as follows:
Years
-------
Buildings 40
Warehouse equipment 5-7
Furniture, fixtures and
leasehold improvements 5-18
Vehicles 5
|
Costs and accumulated depreciation applicable to assets retired or sold are eliminated from the accounts, and the resulting gains or losses are reported as a component of operating income.
(j) Long-Lived Assets:
The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of such asset may
not be recoverable. Long-lived assets are reviewed annually for impairment
and are reported at the lower of the carrying amount or fair value less the
cost to sell. During fiscal 2005, the Company recorded impairment charges of
$2.5 million and $0.4 million related to long-lived assets held by our
Hawaiian Natural Water Company ("HNWC") and TSI subsidiaries, respectively.
The impairments resulted from a shortfall in the projected future cash flows
necessary to support the assets and sustain operations. The Company did not
incur similar impairment charges in fiscal 2007 or fiscal 2006. See further
discussion regarding HNWC and TSI in Note 2.
(k) Goodwill, Intangible and Other Assets:
Goodwill consists of the excess purchase price paid in business acquisitions
over the fair value of assets acquired. At September 2007, intangible assets
consist primarily of tradenames and favorable leases assumed in acquisitions.
These assets are initially recorded at an amount equal to the purchase price paid or allocated to them. Other assets consist primarily of the cash surrender value of life insurance policies and debt issuance costs.
The Company employs the nonamortization approach to account for purchased goodwill and intangible assets having indefinite useful lives. Under a nonamortization approach, goodwill and intangible assets having indefinite useful lives are not amortized into results of operations, but instead are reviewed at least annually for impairment. During the fourth quarter of each fiscal year the Company engages an external consulting firm to assist in performing this valuation. If the recorded value of goodwill and intangible assets having indefinite useful lives is determined to exceed their fair value, the asset is written down to fair value and a charge is taken against the results of operations in that period. AMCON considers its tradenames to have indefinite lives.
As discussed in Note 7, during fiscal 2005 the Company determined that certain goodwill and intangible assets at TSI and HNWC, components of the Company's former beverage segment reporting unit, were impaired based on a valuation report provided by an independent valuation specialist. Additionally, the Company determined that a portion of the tradenames and goodwill carried by the Company's retail segment were impaired. The total amount of the impairment of goodwill and identifiable intangible assets before income taxes was $10.2 million and was included in the results of operations of discontinued operations. The Company did not incur similar impairment charges during fiscal 2007 or fiscal 2006. See further discussion of regarding HNWC and TSI in Note 2.
The Company's only intangible assets that are considered to have definite useful lives are favorable leases which continue to be charged to expense through amortization on the straight-line method over their estimated useful lives of three to seven years.
The benefit related to increases in the cash surrender value of split dollar life insurance policies are recorded as a reduction to insurance expense. The cash surrender value of life insurance policies is limited to the lesser of the cash value or premiums paid in accordance with regulatory guidance.
(l) Water Royalty in Perpetuity:
Water royalty in perpetuity represents the present value of the future minimum
water royalty payments and related brokers fees to be paid in perpetuity
incurred in connection with assets acquired by TSI in June 2004. As discussed
in Note 2, in September 2007 AMCON and TSI were released of this obligation in
connection with the terms of the litigation settlement.
(m) Debt Issuance Costs:
The costs related to the issuance of debt are capitalized in other assets and
amortized on an effective interest method to interest expense over the terms
of the related debt agreements.
(n) Revenue Recognition:
AMCON recognizes revenue in its wholesale distribution division when products
are delivered to customers (which generally is the same day products are
shipped) and in its retail health food business when products are sold to
consumers. Sales are shown net of returns and discounts.
(o) Insurance:
The Company's workers' compensation, general liability and employee-related
health care benefits are provided through high-deductible or self-insurance
programs. As a result, the Company accrues for its workers' compensation and
general liability based upon a claim reserve established with the assistance
of a third-party administrator. The Company has issued a letter of credit in
the amount of $1.0 million to its workers' compensation insurance carrier as
part of its loss control program. The letter of credit was reduced to
approximately $0.9 million subsequent to September 2007. The reserve for
incurred, but not reported, employee health care benefits is based on one
month of claims, calculated using the Company's historical claims experience
rate, plus specific reserves for large claims. The reserves associated with
the exposure to these liabilities are reviewed by management for adequacy at
the end of each reporting period.
(p) Income Taxes:
Deferred income taxes are determined based on temporary differences between
the financial reporting and tax basis of the Company's assets and liabilities,
using enacted tax rates in effect during the years in which the differences
are expected to reverse.
(q) Comprehensive Income (Loss):
Comprehensive income (loss) includes net income or loss, plus changes in the
valuation of interest rate swap contracts, which are treated as hedging
instruments and charged or credited to shareholders' equity.
(r) Stock-Based Compensation:
Prior to its expiration in June 2004, AMCON maintained a stock-based
compensation plan under which the Compensation Committee of the Board of
Directors could grant incentive stock options and non-qualified stock options.
On October 1, 2005, the Company adopted SFAS No. 123 (revised 2004)
(SFAS 123R), Share Based Payment. The Company chose to apply the modified
prospective transition method as permitted by SFAS 123R and therefore has not
restated prior periods. Under the transition method, compensation cost
associated with employee stock options has been recognized in the statement of
operations for fiscal 2007 and fiscal 2006. This expense represents the
amortization of unvested stock option awards granted prior to September 30,
2005, in addition to stock options granted the Company's Chief Executive
Officer in April 2007. This expense has been reflected in the consolidated
statement of operations under "selling, general and administrative expenses."
Prior to the adoption of SFAS 123R, the Company accounted for these plans
under APB Opinion 25, Accounting for Stock Issued to Employees, and related
Interpretations. Under APB Opinion 25, no compensation cost associated with
stock options was reflected in net income (loss) available to common
shareholders, as all options granted under these plans had an exercise price
equal to the market value of the underlying common stock on the date of grant.
The following table illustrates the effect on net loss available to common shareholders had the Company applied the fair value recognition provisions of FASB Statement No. 123R, Accounting for Stock-Based Compensation, to stock-based employee compensation for fiscal 2005.
Restated/1/
2005
------------
Loss available to common shareholders
------------------------------------------------
Net loss available to common
shareholders, as reported $(12,547,776)
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects (53,108)
------------
Pro forma loss $(12,600,884)
============
Loss per share available to common shareholders
------------------------------------------------
As reported: Basic $ (23.81)
Diluted $ (23.81)
Pro forma: Basic $ (23.91)
Diluted $ (23.91)
/1/ Restated for the retroactive application of the FIFO inventory
valuation method.
|
(s) Per-share results:
Basic earnings or loss per share data are based on the weighted-average number
of common shares outstanding during each period. Diluted earnings or loss per
share data are based on the weighted-average number of common shares
outstanding and the effect of all dilutive potential common shares including
stock options and conversion features of the Company's preferred stock
issuances.
(t) Use of Estimates:
The preparation of the consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
(u) Recently Issued Accounting Standards:
During fiscal 2007, Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 108, "Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year Financial
Statements" ("SAB 108") became effective for the Company. SAB 108 requires
that registrants quantify errors using both a balance sheet approach and an
income statement approach and then evaluate whether either approach results in
a misstated amount that, when all relevant quantitative and qualitative
factors are considered, is material. The adoption of SAB 108 did not have a
material effect on the Company's financial position or results of operations.
The Company is currently evaluating the impact of implementing the following new accounting standards:
On July 13, 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes, and Related Implementation Issues" ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in a Company's financial statements in accordance with Statement of Financial Accounting Standard No. 109, "Accounting for Income Taxes" ("SFAS 109"). FIN 48 prescribes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006 (the first fiscal quarter of 2008 for the Company). We do not believe that the cumulative effect of adopting FIN 48 will have a material impact on the Company's Consolidated Financial Statements.
In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements" ("SFAS No. 157"). SFAS No. 157 clarifies the principle that fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. Under the standard, fair value measurements would be separately disclosed by level within the fair value hierarchy. SFAS 157 is effective in fiscal 2008 for the Company.
In February 2007, FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities-Including an amendment of FASB Statement No. 115" ("SFAS 159"). SFAS 159 expands the use of fair value accounting but does not affect existing standards which require assets and liabilities to be carried at fair value. Under SFAS 159, a company may elect to use fair value to measure accounts and loans receivable, available-for- sale and held-to-maturity securities, equity method investments, accounts payable, guarantees, issued debt and other eligible financial instruments. SFAS 159 is effective for fiscal years beginning after November 15, 2007 (fiscal 2009 for the Company).
In March 2007, the FASB issued Emerging Issues Task Force Issue No. 06-10 "Accounting for Collateral Assignment Split-Dollar Life Insurance Agreements" (EITF 06-10). EITF 06-10 provides guidance for determining a liability for the postretirement benefit obligation as well as recognition and measurement of the associated asset on the basis of the terms of the collateral assignment agreement. EITF 06-10 is effective for fiscal years beginning after December 15, 2007 (fiscal 2009 for the Company).
2. DISPOSITIONS
For the fiscal years 2007, 2006 and 2005, HNWC and TSI have been reflected in the Company's Consolidated Financial Statements as components of discontinued operations. The Beverage Group, Inc. ("TBG") is also included in discontinued operations for the fiscal year 2005 and the first two quarters of fiscal 2006. TBG was a component of the Company's former beverage segment, which was closed in March 2005. TBG's final wind-down was completed in April 2006 at which time its residual liabilities were classified to continuing operations.
As described in Note 14, AMCON and TSI were parties to litigation with Crystal Paradise Holdings, Inc. ("CPH") regarding the April 24, 2004 Asset Purchase Agreement ("Asset Purchase Agreement"), under which TSI acquired certain assets from CPH. On September 30, 2007, the Company signed a Mutual Release and Settlement Agreement (the "Settlement Agreement") with CPH related to this litigation. The Settlement Agreement calls for the mutual release and settlement of all outstanding and potential litigation and claims among and between AMCON, TSI, and CPH with respect to the Asset Purchase Agreement and the related acquisition.
The Settlement Agreement also restructured the Company's obligations arising from the Asset Purchase Agreement with CPH totaling approximately $6.5 million into a new $5.0 million note payable to CPH. The $5.0 million note payable is due at the end of five years plus accrued interest at 5.0%. Items restructured into the $5.0 million note payable included CPH's minority interest in TSI, water royalties payable to CPH, notes payable to CPH, and accrued interest payable to CPH. Additionally, the agreement provides CPH with an eleven month option to purchase TSI's assets for a price equivalent to the amount due CPH under the $5.0 million note payable, plus accrued interest. The TSI asset purchase option can be extended an additional seven months at CPH's election.
No monetary exchanges between the Company and CPH were required under the Settlement Agreement. The Company has recorded a $1.5 million pre-tax deferred gain in connection with the above settlement. This deferred gain has been classified as component of noncurrent liabilities of discontinued operations in the Company's Consolidated Balance Sheet. The deferred gain will be recognized upon the earlier of CPH's election to exercise its TSI asset purchase option or the expiration of the asset purchase option.
In November 2006, the Company sold all of the operating assets of HNWC for approximately $3.8 million in cash plus the buyer's assumption of all operating and capital leases. The significant operating assets consisted of accounts receivable, inventory, furniture and fixtures, intellectual property and all of its bottling equipment. In connection with the sale, the Company has recorded a $1.6 million pre-tax gain on disposal of discontinued operations. HNWC remained a fully operational subsidiary of the Company through November 19, 2006.
A summary of discontinued operations is as follows:
Year ended
September
-----------------------------------------
Restated Restated
2007 2006/1/ 2005/1/
----------- ------------ ------------
Sales $ 862,852 $ 8,635,869 $ 13,185,114
Impairment charges - - (8,852,406)
Operating loss (576,101) (3,190,327) (17,101,139)
Gain on disposal of discontinued
operations, before income taxes 1,455,333 - -
Income tax expense (benefit) 269,000 (1,134,000) (5,446,000)
Earnings (loss) from
discontinued operations 234,551 (2,435,766) (11,960,904)
/1/ Restated for the retroactive application of FIFO inventory valuation
method. See Note 1 to the Consolidated Financial Statements.
|
The carrying amounts (net of allowances) of the major classes of assets and liabilities included in discontinued operations are as follows (in millions):
Restated/1/
September September
2007 2006
---------- ----------
Accounts receivable $ - $ 0.7
Inventories - 0.6
---------- ----------
Total current assets of discontinued operations $ - $ 1.3
========== ==========
Fixed assets - Total noncurrent assets of
discontinued operations $ 2.1 $ 3.8
========== ==========
Accounts payable $ 0.7 $ 2.0
Accrued expenses 0.5 1.0
Accrued wages, salaries and bonuses - 0.3
Current portion of long-term debt - 1.4
Current portion of long-term debt due related party 2.8 2.8
---------- ----------
Total current liabilities of discontinued operations $ 4.0 $ 7.5
========== ==========
Water royalty, in perpetuity /2/ $ - $ 2.8
Deferred gain on CPH settlement 1.5 -
Long-term debt, less current portion 5.0 2.3
---------- ----------
Noncurrent liabilities of discontinued operations $ 6.5 $ 5.1
========== ==========
/1/ Restated for the retroactive application of FIFO inventory valuation method.
See Note 1 to the Consolidated Financial Statements.
/2/ This obligation payable to CPH was released in conjunction with the legal settlement
previously discussed.
|
3. CONVERTIBLE PREFERRED STOCK:
The Company has the following Convertible Preferred Stock outstanding as of September 2007:
Series A Series B Series C
------------- --------------- ---------------
Date of issuance: June 17, 2004 October 8, 2004 March 6, 2006
Optionally redeemable beginning June 18, 2006 October 9, 2006 March 4, 2008
Par value (gross proceeds): $2,500,000 $2,000,000 $2,000,000
Number of shares: 100,000 80,000 80,000
Liquidation preference per share: $25.00 $25.00 $25.00
Conversion price per share: $30.31 $24.65 $13.62
Number of common shares in
which to be converted: 82,481 81,136 146,842
Dividend rate: 6.785% 6.37% 6.00%
|
The Series A Convertible Preferred Stock ("Series A"), Series B Convertible Preferred Stock ("Series B") and Series C Convertible Preferred Stock ("Series C"), collectively (the "Preferred Stock"), are 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 prices for the Preferred Stock are subject to customary adjustments in the event of stock splits, stock dividends and certain other distributions on the Common Stock. Cumulative dividends for the Preferred Stock 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 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 Preferred Stock also contain redemption features which trigger based on certain circumstances such as a change of control, minimum thresholds of ownership by the Chairman and his family in AMCON, or bankruptcy. The Preferred Stock are optionally redeemable by the Company beginning on various dates, as listed above, at redemption prices equal to 112% of the liquidation preference. The redemption prices decrease 1% annually thereafter until the redemption price equals the liquidation preference after which date it remains the liquidation preference. The Company's credit facility also prohibits the redemption of the Series A and Series B. Series C is only redeemable so long as no event of default is in existence at the time of, or would occur after giving effect to, any such redemption, and the Company has excess availability under the credit facility of not less than $2.0 million after giving effect to any such redemption.
The Company believes that redemption of these securities by the holders is not probable based on the following evaluation. Our executive officers and directors as a group beneficially own approximately 60% of the outstanding common stock at September 2007. Mr. William Wright, AMCON's Chairman of the Board, beneficially owns 27% of the outstanding common stock without giving effect to shares owned by his adult children. There is an identity of interest among AMCON and its officers and directors for purposes of the determination of whether the triggering redemption events described above are
within the control of AMCON since AMCON can only make decisions on control or other matters through those persons. Moreover, the Preferred Stock is in friendly hands with no expectation that there would be any effort by the holders of such Preferred Stock to seek optional redemption without the Board being supportive of the events that may trigger that right. The Series A is owned by Mr. Wright, the Company's Chairman, and a private equity firm (Draupnir, LLC) of which Mr. Hobbs, a director of the Company, is a member. The Series B Preferred Stock is owned by an institutional investor which has elected Mr. Chris Atayan, AMCON's Chief Executive Officer and Vice Chairman, to AMCON's Board of Directors pursuant to voting rights in the Certificate of Designation creating the Series B Preferred Stock. The Series C is owned by Draupnir Capital LLC, which is a subsidiary of Draupnir, LLC (the owner of Series A). Mr. Hobbs is also a Member of Draupnir Capital, LLC.
In view of the foregoing considerations, the Company believes it is not probable under Rule 5-02.28 of Regulation S-X that the Series A, Series B or Series C Preferred Stock will become redeemable in the future.
4. EARNINGS (LOSS) PER SHARE:
Basic earnings (loss) per share available to common shareholders is calculated
by dividing income (loss) from continuing operations less preferred stock
dividend requirements and income (loss) from discontinued operations by the
weighted average common shares outstanding for each period. Diluted earnings
(loss) per share available to common shareholders is calculated by dividing
income (loss) from continuing operations less preferred stock dividend
requirements (when anti-dilutive) and income (loss) from discontinued
operations by the sum of the weighted average common shares outstanding and
the weighted average dilutive options, using the treasury stock method.
Stock options and potential common stock outstanding at fiscal 2007, 2006 and
2005 that were anti-dilutive were not included in the computations of diluted
earnings per share. Such potential common shares totaled 20,245, 128,330 and
198,620 with average exercise prices of $38.74, $30.17 and $29.13,
respectively.
For Fiscal Years
-----------------------------------------
Restated/1/ Restated/1/
2007 2006 2005
-----------------------------------------
Basic Basic Basic
-----------------------------------------
Weighted average number of shares outstanding 527,062 527,062 527,062
=========================================
Income (loss) from continuing operations $ 4,205,753 $ 1,457,218 $ (292,232)
Deduct: preferred stock dividend requirements (418,692) (366,042) (294,640)
-----------------------------------------
$ 3,787,061 $ 1,091,176 $ (586,872)
=========================================
Income (loss) from discontinued operations $ 234,551 $ (2,435,766) $(11,960,904)
=========================================
Net income (loss) available to common shareholders $ 4,021,612 $ (1,344,590) $(12,547,776)
=========================================
64
Restated/1/ Restated/1/
2007 2006 2005
-----------------------------------------
Basic Basic Basic
-----------------------------------------
Earnings (loss) per share from continuing
operations $ 7.19 $ 2.07 $ (1.11)
Earnings (loss) per share from discontinued
operations 0.44 (4.62) (22.70)
-----------------------------------------
Net earnings (loss) per share available to
common shareholders $ 7.63 $ (2.55) $ (23.81)
=========================================
Diluted Diluted Diluted
-----------------------------------------
Weighted average common shares outstanding 527,062 527,062 527,062
Weighted average of net additional shares
outstanding assuming dilutive options
exercised and proceeds used to purchase
treasury stock /2/ 333,059 181,884 -
-----------------------------------------
Weighted average number of shares outstanding 860,121 708,946 527,062
=========================================
Income (loss) from continuing operations $ 4,205,753 $ 1,457,218 $ (292,232)
Deduct: preferred stock dividend requirements /3/ - (169,641) (294,640)
-----------------------------------------
$ 4,205,753 $ 1,287,577 $ (586,872)
=========================================
Income (loss) from discontinued operations $ 234,551 $ (2,435,766) $(11,960,904)
=========================================
Net income (loss) available to common shareholders $ 4,440,304 $ (1,148,189) $(12,547,776)
=========================================
Earnings (loss) per share from continuing
operations $ 4.89 $ 1.82 $ (1.11)
Earnings (loss) per share from discontinued
operations 0.27 (3.44) (22.70)
-----------------------------------------
Net earnings (loss) per share available to
common shareholders $ 5.16 $ (1.62) $ (23.81)
=========================================
/1/ Restated for the retroactive application of the FIFO inventory valuation method.
See Note 1 to the Consolidated Financial Statements.
/2/ Includes stock options plus Series A, B, and C Convertible Preferred Stock in fiscal 2007
and stock options plus Series B and C Convertible Preferred Stock in fiscal 2006.
/3/ Excludes preferred dividend payments for Series A, B, and C Convertible Preferred Stock
in fiscal 2007 and Series B and C Convertible Preferred Stock in fiscal 2006, as these
issues were dilutive and assumed to have been converted to common stock of the Company.
|
5. OTHER COMPREHENSIVE INCOME (LOSS):
The components of other comprehensive income (loss) for fiscal 2006 and 2005 are as follows. There were no such reconciling items to net income or accumulated other comprehensive income (loss) balances for fiscal 2007.
2006 2005
----------------------
Less reclassification adjustments
for gains which were included in
comprehensive income in prior periods:
Realized net gains $ - $ (2,638)
Interest rate swap valuation adjustment
during the period:
Unrealized gains (losses) (154,002) 71,018
Related tax (expense) benefit 52,708 (26,986)
----------------------
Total other comprehensive income (loss) $ (101,294) $ 41,394
======================
|
The accumulated balances for each classification of accumulated other comprehensive income (loss) are as follows:
Unrealized Interest Accumulated
gains on rate swap Other
securities mark-to Comprehensive
-market Income
-------------------------------------------
Balance, September 24, 2004 $ 2,638 $ 57,262 $ 59,900
Current period change (2,638) 44,032 41,394
--------- --------- ----------
Balance, September 30, 2005 - 101,294 101,294
Current period change - (101,294) (101,294)
--------- --------- ----------
Balance, September 30, 2006 $ - $ - $ -
========= ========= ==========
|
6. PROPERTY AND EQUIPMENT, NET:
Property and equipment at fiscal year ends 2007 and 2006 consisted of the
following:
2007 2006
---------------------------
Land $ 648,818 $ 648,818
Buildings and improvements 9,048,798 9,048,798
Warehouse equipment 6,341,848 5,358,310
Furniture, fixtures and
leasehold improvements 7,119,859 7,107,293
Vehicles 1,434,548 1,554,553
Capital equipment leases 91,343 1,158,657
---------------------------
24,685,214 24,876,429
Less accumulated depreciation
and amortization:
Owned buildings and equipment (13,461,822) (11,512,799)
Capital equipment leases (32,624) (835,091)
---------------------------
$ 11,190,768 $ 12,528,539
===========================
|
7. GOODWILL AND OTHER INTANGIBLE ASSETS:
Goodwill by reporting segment at fiscal year ends 2007 and 2006 was as follows:
2007 2006
------------ ------------
Wholesale $ 3,935,931 $ 3,935,931
Retail 1,912,877 1,912,877
------------ ------------
$ 5,848,808 $ 5,848,808
============ ============
|
Other intangible assets at fiscal year ends 2007 and 2006 consisted of the following:
2007 2006
------------ ------------
Trademarks and tradenames $ 3,373,269 $ 3,373,269
Favorable leases (less accumulated
amortization of $459,199 and $419,466) 26,801 66,534
------------ ------------
$ 3,400,070 $ 3,439,803
============ ============
|
The Company performs its annual impairment testing of goodwill and other intangible assets during the fourth fiscal quarter of each year, with the assistance of an independent valuation specialist. This annual review identified no impairments in fiscal 2007 or fiscal 2006.
After completing its fiscal 2005 impairment review, however, the Company concluded that a portion of the tradenames and goodwill at our retail and former beverage segment were impaired. These impairments were the result of projected shortfalls in operating cash flows necessary to support the reporting units carrying value. The fair values of the reporting units were estimated with the assistance of an independent valuation specialist using the expected present value of the discounted future cash flows and consideration of the net recoverable values.
The impairment charges for our Retail segment are recorded in the Company's statement of operations as a component of income (loss) from continuing operations. The impairment charges for TSI and HNWC have been included in the statement of operations as a component of loss from discontinued operations.
A summary of the impairment charges for fiscal 2005 by entity are as follows (in millions):
Continuing Discontinued Total
Operations Operations/1/
---------- ---------------- -----
Retail TSI HNWC Total
Long-lived assets $ - $ 0.4 $ 2.5 $ 2.9
Goodwill 0.3 0.4 0.4 1.1
Water source - 3.7 - 3.7
Customer list - 0.3 0.1 0.4
Tradename 3.9 0.9 0.2 5.0
----- ----- ----- -----
$ 4.2 $ 5.7 $ 3.2 $13.1
===== ===== ===== =====
/1/ See Note 2 to the Consolidated Financial Statements, regarding the
classification of TSI and HNWC at September 2007.
|
The five year estimated amortization expense for intangible assets held at September 2007 is as follows:
Fiscal Fiscal Fiscal Fiscal Fiscal
2008 2009 2010 2011 2012
--------- --------- -------- -------- --------
Favorable leases $ 27,000 $ - $ - $ - $ -
========= ========= ======== ======== ========
|
8. OTHER ASSETS:
Other assets at fiscal year ends 2007 and 2006 consisted of the following:
2007 2006
-------------------------
Cash surrender value of life
insurance policies $ 806,633 $ 801,238
Debt issuance costs 98,044 97,880
Other 188,473 348,346
-------------------------
$1,093,150 $1,247,464
=========================
|
Debt issuance costs represent fees incurred to obtain the Company's revolving credit facility and real estate loans, and are being amortized over the terms of the respective loan agreements. Amortization expense related to these debt issuance costs were $219,273, $385,487, and $410,764 for the fiscal years ended 2007, 2006 and 2005, respectively.
9. DEBT:
The Company primarily finances it operations through a credit facility agreement with LaSalle Bank (the "Facility") and long-term debt agreements with banks.
The Facility consisted of the following at fiscal 2007 and 2006:
2007 2006
---------------------------
Revolving portion of the Facility, interest payable
at the bank's prime rate (7.75% at fiscal 2007),
principal due April 2009 $37,936,847 $46,502,896
Term Note A, payable in monthly installments of $16,333
plus interest at the bank's base rate (7.75% at fiscal
2007), remaining principal due April 2009 567,333 770,533
Term Note B, payable in monthly installments of $100,000
plus interest at the bank's base rate plus 2%
(9.75% at fiscal 2007) through March 2008 350,000 1,550,000
---------------------------
38,854,180 48,823,429
Less current maturities 3,046,000 3,896,000
---------------------------
$35,808,180 $44,927,429
===========================
|
The significant terms of the Facility at September 2007 include:
- A $55.0 million revolving credit limit, plus the outstanding balances on two term notes ("Term Note A" and "Term Note B") which totaled approximately $0.9 million at September 2007 for a total credit facility limit of $55.9 million at September 2007.
- Bears interest at the bank's prime interest rate, except for Term Note B which bears interest at the bank's prime rate plus 2%.
- Lending limits subject to accounts receivable and inventory limitations, an unused commitment fee equal to 0.25% per annum on the difference between the maximum loan limit and average monthly borrowings.
- Collateral including all of the Company's equipment, intangibles, inventories, and accounts receivable.
- A prepayment penalty of one percent (1%) of the prepayment loan limit of $55.0 million if prepayment occurs on or before April 30, 2008.
- Provides that the Company may not pay dividends on its common stock in excess of $0.72 per share on an annual basis.
The Facility also includes quarterly debt service and cumulative earnings before interest, taxes, depreciation and amortization ("EBITDA") financial covenants. Beginning with the fiscal quarter ended September 2007, the Company must maintain a minimum debt service ratio of 1.0 to 1.0, as measured by the twelve month period then ended.
The cumulative minimum EBITDA requirements are as follows:
(a) $1,000,000 for the three months ending December 31, 2007 and
December 31, 2008 and;
(b) $2,000,000 for the six months ending March 31, 2008, and
March 31, 2009 and;
(c) $4,500,000 for the nine months ending June 30, 2008 and;
(d) $7,000,000 for the twelve months ending September 30, 2007
and September 30, 2008.
The Company was in compliance with the required debt service and minimum EBITDA covenants at September 30, 2007.
The Company's Chairman has personally guaranteed repayment of the Facility and the term loans. However, the amount of his guaranty is capped at $10.0 million and is automatically reduced by the amount of the repayment on Term Note B, which resulted in the guaranteed principal outstanding being reduced to approximately $5.4 million as of September 2007. AMCON pays 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's, Akin's, HNWC and TSI.
The Company's Chairman has also personally guaranteed a note payable issued in conjunction with the Television Events and Marketing, Inc. ("TEAM") litigation settlement as discussed in Note 14. The Company pays the Chairman an annual fee equal to 2% of the guaranteed principal in return for the personal guarantee. The amount guaranteed in connection with this settlement at September 2007 was approximately $0.7 million.
2007 2006
---------------------------
Continuing operations
---------------------
Note payable to a bank ("Real Estate Loan"),
interest payable at a fixed rate of 8.0% with
monthly installments of principal and interest
of $58,303 per month through April 2009 with
remaining principal due April 2009, collateralized
by two owned distribution facilities $5,786,352 $6,005,175
Note payable to a bank, interest payable monthly at a
fixed rate of 6.33% plus monthly principal payments of
$4,100 through December 2009 at which time the remaining
principal is due, collateralized by the Rapid City
building and equipment 869,200 918,400
Note payable to a bank, interest payable monthly at a
fixed rate of 6.33% plus monthly principal payments of
$8,000 through July 2009 collateralized by the Rapid City
building and equipment 167,429 263,429
Obligations under capital leases, payable in monthly
installments with interest rates from 4.91% to 8.25%
through July 2010 108,273 184,811
70
2007 2006
---------------------------
Notes payable, interest payable at a fixed rate between
8.0% - 9.5% with monthly installments of principal and
interest of $2,226 - $2,677 per month through July 2011
collateralized by delivery vehicles 180,805 221,672
Note payable, interest payable discounted at a rate of
8.25% with quarterly installments of principal and
interest of $31,250 - $46,875, beginning January 2008
through October 2011 579,418 -
---------------------------
7,691,477 7,593,487
Less current maturities - continuing operations 568,024 524,130
---------------------------
$7,123,453 $7,069,357
===========================
Discontinued operations
-----------------------
Note payable, fixed rate of 5% compounded annually,
principal and interest due September 2012,
collateralized by substantially all of the assets
of TSI/1/ 5,000,000 -
Revolving credit facility due to a related party, principal
and interest due December 2005, bearing interest at 8%
per annum, collateralized by a second mortgage on an
equal basis with the Company's existing second mortgage
on TSI's real property 1,000,000 1,000,000
Notes due to related parties, principal and interest
due December 2005, interest at 7% 1,000,000 1,000,000
Notes due to related party, principal and interest
due December 2005, bearing interest at 300 basis
points above the yield on 10-year treasury notes
(7.52% at September 2007) 750,000 750,000
Note payable, interest payable at a fixed rate of 5%
with monthly installments of principal and interest of
$30,000 per month. Collateralized by substantially
all of the assets of TSI /2/ - 2,488,700
Note payable, interest payable quarterly at a fixed rate
of 5% with interest due quarterly. Collateralized by
substantially all of the assets of TSI /2/ - 500,000
Note payable, interest payable at a fixed rate of 5% with
annual installments of principal and interest of $49,655.
Collateralized by a warehouse owned by TSI/3/ - 92,328
Note payable, interest payable at a fixed rate of 5%, due
currently with accrued interest - 14,042
Obligations under capital leases, payable in monthly
installments with a fixed rate of 5.55% - 265,287
Note payable, interest payable at a fixed rate of 10.0%
with weekly installments of principal and interest of
$3,000 per week. - 329,763
---------------------------
7,750,000 6,440,120
Less current maturities - discontinued operations 2,750,000 4,159,890
---------------------------
$5,000,000 $2,280,230
===========================
71
/1/ Note payable was issued during fiscal 2007 in conjunction with CPH litigation settlement
as discussed in Note 2.
/2/ The Company was released from this debt obligation in September 2007 in conjunction
with the CPH litigation settlement discussed in Note 14.
/3/ Note was paid off during the year in conjunction with the sale of TSI's warehouse.
|
Long-term obligations, excluding obligations under the Facility and related party debt, have contractual maturities as follows:
Fiscal Year Ending
------------------
2008 $ 568,024
2009 5,912,836
2010 1,013,947
2011 166,056
2012 5,030,614
Thereafter -
------------
$ 12,691,477
============
|
Market rate risk for fixed rate debt is estimated as the potential increase in fair value of debt obligations resulting from decreases in interest rates. Based on discounted cash flows using current market rates for similar agreements, the fair value of the Company's long-term debt obligations approximated carrying value at September 2007.
10. OTHER INCOME, NET:
Other income, net consisted of the following for fiscal 2007, 2006 and 2005:
2007 2006 2005
-----------------------------------------
Interest income $ (56,020) $ (51,865) $ (45,831)
Rent income - (3,503) (4,289)
Royalty (66,732) (72,771) (15,211)
Other (71,856) (9,102) (14,774)
-----------------------------------------
$ (194,608) $ (137,241) $ (80,105)
=========================================
|
11. INCOME TAXES:
Components of income tax expense (benefit) from continuing operations for fiscal 2007, 2006, and 2005 consisted of the following:
Restated/1/ Restated/1/
2007 2006 2005
-----------------------------------------
Current:
Federal $ 170,344 $ - $ 1,443,115
State 171,202 121,792 158,232
-----------------------------------------
341,546 121,792 1,601,347
-----------------------------------------
Deferred:
Federal 2,060,146 708,198 (1,709,836)
State 224,308 (315,990) 202,489
-----------------------------------------
2,284,454 392,208 (1,507,347)
-----------------------------------------
Income tax expense (benefit) $ 2,626,000 $ 514,000 $ 94,000
=========================================
|
The difference between the Company's income tax expense (benefit) in the accompanying financial statements and that which would be calculated using the statutory income tax rate of 34% on income (loss) before taxes is as follows for fiscal 2007, 2006 and 2005:
Restated Restated/1/ Restated/1/
2007 2006 2005
-----------------------------------------
Tax at statutory rate $ 2,322,795 $ 670,214 $ (100,413)
Amortization of goodwill and
other intangibles (5,302) (5,302) (4,777)
Nondeductible business expenses 34,286 34,675 12,224
Minority interest in subsidiary - - (53,074)
State income taxes, net of
federal tax benefit 112,993 83,206 398,735
Valuation allowance, state net
operating losses (37,428) - 52,297
State net operating loss - (257,965) -
Other 198,656 (10,828) (210,992)
-----------------------------------------
$ 2,626,000 $ 514,000 $ 94,000
=========================================
|
Temporary differences between the financial statement carrying balances and tax basis of assets and liabilities giving rise to the net deferred tax asset at fiscal year ends 2007 and 2006 relate to the following:
Restated/1/
2007 2006
---------------------------
Deferred tax assets:
Current:
Allowance for doubtful accounts $ 207,644 $ 492,796
Accrued expenses 756,854 526,685
Inventory 272,234 383,556
AMT credit carry forwards 405,105 285,333
Other 65,054 75,272
---------------------------
1,706,891 1,763,642
Noncurrent:
Fixed assets $ 766,457 $ 1,842,605
Intangible assets 1,571,628 2,167,630
Net operating loss carry
forwards - federal 1,781,297 3,276,583
Net operating loss carry
forwards - state 944,887 1,147,545
Other 27,173 88,815
---------------------------
5,091,442 8,523,178
---------------------------
Total deferred tax assets 6,798,333 10,286,820
Valuation allowance (1,102,157) (1,139,585)
---------------------------
Net deferred tax assets $ 5,696,176 $ 9,147,235
===========================
|
Restated/1/
2007 2006
---------------------------
Deferred tax liabilities:
Current:
Trade discounts $ 260,502 $ 251,992
---------------------------
260,502 251,992
Noncurrent:
Fixed assets 696,522 1,629,454
Goodwill 524,720 430,096
---------------------------
1,221,242 2,059,550
---------------------------
Total deferred tax liabilities $ 1,481,744 $ 2,311,542
===========================
Net deferred tax assets (liabilities):
Current $ 1,446,389 $ 1,511,650
Noncurrent 2,768,043 5,324,043
---------------------------
$ 4,214,432 $ 6,835,693
===========================
|
/1/ Restated for the retroactive application of the FIFO inventory valuation method. See Note 1 to the Consolidated Financial Statements.
During fiscal 2006, the Company recorded a valuation allowance of $0.5 million against deferred tax assets, primarily related to state net operating losses at TSI and HNWC, which more likely than not will not be realized. No such valuation allowance was recorded in fiscal 2007.
The Company's deferred tax asset at fiscal 2007 related to federal net operating loss carryforwards was $1.8 million, including the net operating losses of TSI and HNWC. Of the total net operating loss carryforwards $1.1 million expires in 2026. The remaining $0.7 million was acquired in connection with the acquisition of HNWC in fiscal 2002. The utilization of HNWC's deferred tax asset related to the net operating loss of $0.7 million is limited (by Internal Revenue Code Section 382) to approximately $0.1 million per year through 2022.
12. PROFIT SHARING PLAN:
AMCON maintains a profit sharing plan (i.e. a section 401(k) plan) covering substantially all employees. The plan allows employees to make voluntary contributions up to 100% of their compensation, subject to Internal Revenue Service limits. The Company matches 50% of the first 4% contributed and 100% of the next 2% contributed for a maximum match of 4% of employee compensation. The Company contributed $0.5 million, $0.6 million and $0.6 million (net of employee forfeitures) to the profit sharing plans in fiscal 2007, 2006, and 2005, respectively.
13. RELATED PARTY TRANSACTIONS:
In each of the fiscal years 2007, 2006, and 2005, the Company was charged $72,000 by AMCON Corporation, the former parent of the Company, as consideration for office rent and management services. These charges have been included as a component of selling, general and administrative expenses.
The Company's Chairman has personally guaranteed repayment of the Facility and the term loans. However, the amount of his guaranty is capped at $10.0 million and is automatically reduced by the amount of the repayment on Term Note B, which resulted in the guaranteed principal outstanding being reduced to approximately $5.4 million as of September 2007. AMCON pays 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's, Akin's, HNWC and TSI.
The Company's Chairman has also personally guaranteed a note payable issued in conjunction with the Television Events and Marketing, Inc. ("TEAM") litigation settlement as discussed in Note 14. The Company pays the Chairman an annual fee equal to 2% of the guaranteed principal in return for the personal guarantee. The amount guaranteed in connection with this settlement at September 2007 was approximately $0.7 million.
14. COMMITMENTS AND CONTINGENCIES:
At September 2007 the minimum future lease commitments for continuing and discontinued operations were as follows:
Capital Operating
Fiscal Year Ending Leases Leases
------------------ --------------------------
2008 $ 46,464 $ 3,349,263
2009 46,464 3,105,844
2010 25,652 2,953,749
2011 - 2,600,211
2012 - 2,099,733
Thereafter - 4,060,656
--------------------------
Total minimum lease payments $ 118,580 $ 18,169,456
============
Less amount representing interest 10,307
-----------
Present value of net minimum
lease payments $ 108,273
===========
|
The Company's insurance programs for workers' compensation, general liability and employee related health care benefits are provided through high deductible or self-insured programs. Claims in excess of self-insurance levels are fully insured. Accruals are based on claims filed and estimates of claims incurred but not reported.
The Company's liabilities for unpaid and incurred, but not reported claims, for workers' compensation and health insurance at fiscal 2007 and 2006 was $1.4 million and $1.1 million, respectively, and are included in other current liabilities in the accompanying consolidated balance sheets. While the ultimate amount of claims incurred are dependent on future developments, in the Company's opinion, recorded reserves are adequate to cover the future payment of claims previously incurred. However, it is reasonably possible that recorded reserves may not be adequate to cover the future payment of claims.
Adjustments, if any, to claims estimates previously recorded, resulting from actual claim payments, are reflected in operations in the periods in which such adjustments are known.
The settlement resolved all disputes between the minority shareholder plaintiffs and CPH, AMCON, TSI and the Defendant Directors. The Company faces no further known liability from that lawsuit or settlement.
CPH filed a separate lawsuit in the Fourth Judicial District of the State of Idaho (the "Court") against AMCON and TSI and other defendants relating to the transfer of the assets of CPH to TSI and TSI's operation of the business thereafter. In this lawsuit, CPH asserted claims of foreclosure; breach of the asset purchase agreement, promissory notes and water royalty obligations; quantum meruit; unjust enrichment; and collection and enforcement of its security interest.
That litigation has now been settled and the Parties are obligated under the Mutual Release and Settlement Agreement to file any and all papers with the Court that are required to dismiss the lawsuit with prejudice.
In exchange for (i) a full and complete release from CPH, (ii) cancellation of the promissory notes issued in connection with the original acquisition, (iii) termination of the Asset Purchase Agreement and water royalty contained therein, and (iv) relinquishment of the TSI stock owned by CPH, (a) TSI issued a promissory note in the amount of $5,000,000 to CPH, with interest accruing at 5% and secured by the assets currently held by TSI (the "New Note"), (b) AMCON amended and restated the existing Guaranty and Suretyship Agreement to substitute the New Note for the cancelled notes, and (c) TSI granted CPH an eleven-month option to purchase the assets of TSI. If CPH elects to exercise its purchase option, then CPH will cancel the New Note, including the obligation to pay any accrued interest. The purchase option may be extended for an additional seven months upon the discharge of all accrued interest during the initial option period.
This action concerned the alleged breach of two trademark licensing agreements
between TEAM and the Company's subsidiary, TBG and purportedly, the other
named defendants. On December 21, 2005, the Plaintiffs filed a Second Amended
Complaint. This Second Amended Complaint sought (i) an unstated amount of
damages for an alleged breach of those agreements and alleged
misrepresentation; (ii) interest and reasonable attorney's fees and costs; and
(iii) such other relief as the Court deemed just and proper.
The Company, together with its named subsidiary successfully obtained dismissal of certain legal theories by motions for summary judgment. The Company and its subsidiary also filed a Counterclaim in the action on July 5, 2006 against TEAM, TEAM's President and Archie Thornton alleging: (1) Thornton was an undisclosed dual agent and breached his fiduciary duty to TBG; (2) TEAM tortuously assisted Thornton in breaching his fiduciary duty; (3) unjust enrichment/restitution; (4) TEAM breached its duty of good faith and fair dealing; (5) TEAM and Thornton's failure to disclose Thornton's agency relationship with TEAM constituted fraud and misrepresentation; and (6) punitive damages.
As part of the settlement, AMCON paid TEAM $187,500 in August 2007 and became obligated to pay $187,500 in four equal quarterly installments of $46,875 beginning in January 2008 through October 2010 and $125,000 in four equal quarterly installments of $31,250 beginning in January 2011 through October 2011. The Company's Chairman has personally and unconditionally guaranteed the payment obligation of $687,500 as of September 30, 2007. AMCON has received certain promotion sponsorships as part of the settlement.
15. STOCK OPTION PLAN:
Prior to its expiration in June 2004, AMCON maintained a stock-based compensation plan ("the Stock Option Plan") which provided the Compensation Committee of the Board of Directors authorization to grant incentive stock options and non-qualified stock options, pursuant to the Stock Option Plan, of up to 550,000 shares. No shares have been issued under the Stock Option Plan since the end of fiscal 2003 and there was no unamortized compensation expense related to the Plan at September 2007.
On October 1, 2005, the Company adopted SFAS No. 123R, Shared Based Payment (SFAS 123R). The Company applied the modified prospective transition method as permitted by SFAS 123R and therefore has not restated prior periods. Prior to October 1, 2005, the Company accounted for stock option grants in accordance with Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees" using the intrinsic value method under which compensation cost was measured by the excess, if any, of the fair market value of its common stock on the date of grant over the exercise price of the stock option. Accordingly, stock-based compensation costs related to stock option grants was not reflected in income or loss as all options granted under the Plan had an exercise price equal to or above the market value of the underlying stock on the date of grant.
On December 11, 2006, prior to the approval of the Omnibus Plan referred to below, the Compensation Committee of the Board of Directors awarded Christopher Atayan, Chief Executive Officer ("CEO"), Vice Chairman and a Director of the Company, a non-qualified option to purchase 25,000 shares of the Company's common stock, subject to shareholder approval. On April 17, 2007, the Company's shareholders approved the stock option grant, which vests in three equal installments over a three year period and has an exercise price of $18.00 per share, the December 11, 2006 closing price of the Company's common stock on the American Stock Exchange.
The Company has estimated that the fair value of the non-qualified stock option award to Mr. Atayan was approximately $347,000 using the Black-Scholes option pricing model. This cost will be amortized to compensation expense over a three year service period. The following assumptions were used in connection with the Black-Scholes option pricing calculation:
Stock Option Pricing Assumptions
--------------------------------
Fiscal 2007 Awards
------------------
Risk-free interest rate 4.69%
Dividend yield 1.65%
Expected volatility 46%
Expected life in years 7
Forfeiture rate 0%
|
On April 17, 2007, the Board of Directors of the Company approved an equity incentive plan, the 2007 Omnibus Incentive Plan ("the Omnibus Plan"), to encourage employees of the Company and subsidiaries to acquire a proprietary and vested interest in the growth and performance of the Company. The Omnibus Plan permits the issuance of up to 150,000 shares of the Company's common stock in the form of stock options, restricted stock awards, restricted stock units, performance share awards as well as awards such as stock appreciation rights, performance units, performance shares, bonus shares and dividend share awards payable in the form of common stock or cash. As of September 2007, no awards have been granted under the Omnibus Plan.
Net income (loss) before incomes taxes for fiscal 2007 and 2006 included share-based compensation expense of approximately $71,000 and $60,000, respectively. At September 2007, there were 26,118 stock options fully vested and exercisable under the Stock Option Plan and no unamortized compensation expense. Total unamortized compensation expense related to the April 2007 stock option award to the Company's CEO totaled approximately $290,000 at September 2007.
Options issued and outstanding to management employees pursuant to the Stock Option Plan and April 2007 stock option award to the Company's CEO are summarized below:
Number of Number Aggregate
Date Exercise Price Options Exercisable Intrinsic Value
Outstanding September 2007
-------------------------------------------------------------------------------
Fiscal 1998 $ 15.68 7,630 7,630 $ 90,187
Fiscal 1999 $ 45.68 - $ 51.14 6,683 6,683 -
Fiscal 2000 $ 34.50 3,165 3,165 -
Fiscal 2003 $ 28.80 3,212 2,570 -
Fiscal 2007 $ 18.00 25,000 - 237,500
------ ------ --------
45,690 20,048 $327,687
====== ====== ========
|
At September 2007, there were 8,188 options fully vested and exercisable issued to outside directors, outside of the Stock Option Plan, as summarized as follows:
Number of Number Aggregate
Date Exercise Price Options Exercisable Intrinsic Value
Outstanding September 2007
------------------------------------------------------------------------------
Fiscal 1998 $ 15.68 1,834 1,834 $ 21,678
Fiscal 1999 $ 36.82 - $ 49.09 2,568 2,568 -
Fiscal 2002 $ 26.94 834 834 467
Fiscal 2003 $ 28.26 834 834 -
------ ------ --------
6,070 6,070 $ 22,145
====== ====== ========
|
The stock options have varying vesting schedules ranging up to five years and expire ten years after the date of grant.
The following is a summary of stock option activity during fiscal 2007.
September 2007
-----------------
Weighted
Number Average
of Exercise
Shares Price
-----------------
Outstanding at beginning of period 31,253 $30.62
Granted 25,000 $18.00
Exercised (2,375) $19.66
Forfeited/Expired (2,118) $35.79
-----------------
Outstanding at end of period 51,760 $24.81
=================
Options exercisable at end of period 26,118
========
|
The following summarizes all stock options outstanding at September 2007:
Exercisable
Remaining ----------------------------
Exercise Number Weighted-Average Weighted-Average Number Weighted-Average
Price Outstanding Contractual Life Exercise Price Exercisable Exercise Price
------------- ----------- ---------------- ---------------- ----------- ----------------
1998 Options $15.68 9,464 0.1 years $15.68 9,464 $15.68
1999 Options $36.82-$51.14 9,251 1.6 years $47.39 9,251 $47.39
2000 Options $34.50 3,165 2.7 years $34.50 3,165 $34.50
2002 Options $26.94 834 4.9 years $26.94 834 $26.94
2003 Options $28.26-$28.80 4,046 5.2 years $28.69 3,404 $28.67
2007 Options $18.00 25,000 9.5 years $18.00 - -
------ ------ ------ ------
51,760 $24.81 26,118 $31.25
====== ====== ====== ======
|
16. DERIVATIVE INSTRUMENTS:
The Company borrows money at variable interest rates which exposes it to risk that interest expense will increase if the benchmark interest rate used to set the variable rates increases. In order to reduce its exposure to this risk, the Company may use derivative instruments (i.e. interest rate swaps agreements) pursuant to established Company policies. At September 2005, the Company had an interest rate swap agreement outstanding with a notional amount of $10.0 million, with related borrowings on the Facility. The Company had no derivative instruments outstanding at September 2007 or 2006.
The interest rate swap was used to effectively convert portions of the Company's floating rate debt to fixed rate debt. The interest rate swap agreement outstanding at September 2005 was accounted for as cash flow hedge, with the associated gain deferred in accumulated other comprehensive income, as the hedge was considered to be effective. Any ineffectiveness associated with the Company's interest rate swaps is immediately recognized in earnings within interest expense.
17. BUSINESS SEGMENTS:
AMCON has two reportable business segments: the wholesale distribution of consumer products and the retail sale of health and natural food products. The retail health food stores' operations are aggregated to comprise the retail segment because such operations have similar economic characteristics, as well as similar characteristics with respect to the nature of products sold, the type and class of customers for the health food products and the methods used to sell the products. The segments are evaluated on revenues, gross margins, operating income (loss), and income before taxes. The table below has been restated to reflect the change in accounting principle as discussed in Note 1.
Wholesale
Distribution Retail Other/1/ Consolidated
---------------------------------------------------------------------
FISCAL YEAR ENDED 2007:
External revenues:
Cigarettes $ 607,831,882 $ - $ - $ 607,831,882
Health food - 37,880,246 - 37,880,246
Confectionery 57,515,227 - - 57,515,227
Tobacco, beverage & other 150,339,157 - - 150,339,157
---------------------------------------------------------------------
Total external revenues 815,686,266 37,880,246 - 853,566,512
Depreciation 1,256,223 535,265 419 1,791,907
Amortization - 39,733 - 39,733
Operating income (loss) 12,864,294 3,130,394 (4,541,219) 11,453,469
Interest expense 1,017,846 1,506,402 2,292,076 4,816,324
Income (loss) from continuing
operations before taxes 11,886,864 1,671,275 (6,726,386) 6,831,753
Total assets 73,617,793 11,857,395 6,588,397 92,063,585
Capital expenditures 300,897 213,380 - 514,277
82
Wholesale
Distribution Retail Other/1/ Consolidated
---------------------------------------------------------------------
FISCAL YEAR ENDED 2006:
External revenues:
Cigarettes $ 605,798,030 $ - $ - $ 605,798,030
Health food - 36,848,392 - 36,848,392
Confectionery 55,427,905 - - 55,427,905
Tobacco, beverage & other 141,465,453 - - 141,465,453
---------------------------------------------------------------------
Total external revenues 802,691,388 36,848,392 - 839,539,780
Depreciation 1,287,994 609,172 - 1,897,166
Amortization - 39,731 - 39,731
Operating income (loss) 8,208,936 2,378,155 (3,895,102) 6,691,989
Interest expense 1,700,935 1,611,619 1,545,458 4,858,012
Income (loss) from continuing
operations before taxes 6,607,833 803,920 (5,440,535) 1,971,218
Total assets 70,976,007 12,661,013 14,380,835 98,017,855
Capital expenditures 803,179 177,331 - 980,510
FISCAL YEAR ENDED 2005 (53 weeks):
External revenues:
Cigarettes $ 607,263,715 $ - $ - $ 607,263,715
Health food - 34,617,325 - 34,617,325
Confectionery 56,057,063 - - 56,057,063
Tobacco, beverage & other 136,725,439 - (112,094) 136,613,345
---------------------------------------------------------------------
Total external revenues 800,046,217 34,617,325 (112,094) 834,551,448
Depreciation 1,255,200 784,353 - 2,039,553
Amortization 57,752 58,678 - 116,430
Operating income (loss) 10,337,861 (3,389,055) (3,112,558) 3,836,248
Interest expense 1,042,685 1,580,033 1,588,967 4,211,685
Income (loss) from continuing
operations before taxes 9,336,613 (4,930,418) (4,701,527) (295,332)
Total assets 71,821,207 13,524,609 12,981,533 98,327,349
Capital expenditures 2,349,690 115,004 - 2,464,694
/1/ Includes interest expense previously allocated to HNWC and TSI, intercompany eliminations,
charges incurred by the holding company, and assets of discontinued operations.
|
18. SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
The following tables set forth selected financial information for each of the eight quarters in the two fiscal years ended September 30, 2007 and September 30, 2006. This information has been prepared by the Company on the same basis as the Consolidated Financial Statements and includes all normal and recurring adjustments necessary to present fairly this information when read in conjunction with the Company's audited Consolidated Financial Statements and Notes thereto included in this Annual Report.
The Company's quarterly earnings or loss per share are based on weighted average shares outstanding for the quarter, therefore, the sum of the quarters may not equal the full year earnings or loss per share amount.
(Dollars in thousands, except per share data)
------------------------------------------------------------------------------------------
Fiscal Year 2007 First/1/ Second/1/ Third/1/ Fourth
------------------------------------------------------------------------------------------
Sales...................................... $ 209,366 $ 201,177 $ 220,072 $ 222,952
Gross profit .............................. 15,094 15,248 17,045 16,862
Income from continuing operations ---------------------------------------------
before income taxes ..................... 994 540 2,548 2,750
Income from continuing operations.......... 611 332 1,553 1,710
Gain (loss) on disposal of discontinued
operations, net of income tax expense
(benefit) 895 (67) - -
Loss from discontinued operations.......... (258) (124) (132) (80)
---------------------------------------------
Net income................................. 1,248 141 1,421 1,630
Preferred stock dividend requirements...... (105) (103) (104) (106)
Net income available to common ---------------------------------------------
shareholders ............................. $ 1,143 $ 38 $ 1,317 $ 1,524
=============================================
Basic earnings (loss) per share available
to common shareholders:
Continuing operations ................... $ 0.96 $ 0.43 $ 2.75 $ 3.04
Discontinued operations ................. 1.21 (0.36) (0.25) (0.15)
---------------------------------------------
Net basic earnings per share available
to common shareholders ................. $ 2.17 $ 0.07 $ 2.50 $ 2.89
=============================================
Diluted earnings (loss) per share available
to common shareholders:
Continuing operations ................... $ 0.71 $ 0.37 $ 1.80 $ 1.99
Discontinued operations ................. 0.75 (0.27) (0.15) (0.09)
---------------------------------------------
Net diluted earnings (loss) per share
available to common shareholders $ 1.46 $ 0.10 $ 1.65 $ 1.90
=============================================
/1/ Restated for the retroactive application of the FIFO inventory valuation method.
See Note 1 to the Consolidated Financial Statements.
|
(Dollars in thousands, except per share data)
------------------------------------------------------------------------------------------
Fiscal Year 2006 (As Restated - see Note 1) First Second Third Fourth
------------------------------------------------------------------------------------------
Sales...................................... $ 198,217 $ 195,804 $ 222,190 $ 223,329
Gross profit .............................. 14,109 14,655 15,616 15,970
---------------------------------------------
(Loss) income from continuing operations
before income taxes ..................... (157) 510 1,120 498
(Loss) income from continuing operations... (109) 299 681 586
Loss from discontinued operations.......... (1,003) (827) (344) (262)
---------------------------------------------
Net (loss) income.......................... (1,112) (528) 337 324
Preferred stock dividend requirements...... (75) (81) (104) (106)
Net (loss) income available to common ---------------------------------------------
shareholders.............................. $ (1,187) $ (609) $ 233 $ 218
=============================================
Basic (loss) earnings per share available
to common shareholders:
Continuing operations ................... $ (0.35) $ 0.41 $ 1.09 $ 0.91
Discontinued operations ................. (1.90) (1.57) (0.65) (0.50)
---------------------------------------------
Net basic (loss) earnings per share
available to common shareholders......... $ (2.25) $ (1.16) $ 0.44 $ 0.41
=============================================
Diluted (loss) earnings per share available
to common shareholders:
Continuing operations ................... $ (0.35) $ 0.39 $ 0.80 $ 0.69
Discontinued operations ................. (1.90) (1.42) (0.41) (0.31)
---------------------------------------------
Net diluted (loss) earnings per share
available to common shareholders........ $ (2.25) $ (1.03) $ 0.39 $ 0.38
=============================================
|
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
NONE
ITEM 9A. CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")), that are designed to ensure that information required to be disclosed in the Company's reports filed or furnished under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the applicable Exchange Act rules and forms of the SEC. Such information is accumulated and communicated to the Company's management, including its Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives.
The Company carried out the evaluation required by paragraph (b) of the Exchange Act Rules 13a-15 or 15d-15, under the supervision and with the participation of our management, including the CEO and CFO, of the effectiveness of our disclosure controls and procedures. Based on that evaluation, the CEO and CFO concluded that, as of the end of the period covered by this report, the Company's disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by the Company in the reports the Company files or submits under the Exchange Act is (1) accumulated and communicated to management, including the Company's CEO and CFO, to allow timely decisions regarding required disclosures and (2) recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The Registrant's Proxy Statement to be used in connection with the 2008 Annual
Meeting of Shareholders (the "Proxy Statement") will contain under the
captions "Item 1: Election of Directors--What is the structure of our board
and how often are directors elected?", "Item 1: Election of Directors--Who are
this year's nominees?", "Item 1: Election of Directors--What is the business
experience of the nominees and of our continuing board members?", "Section
16(a) Beneficial Ownership Reporting Compliance", and "Corporate Governance
and Board Matters--Committees of the Board--Audit Committee", certain
information required by Item 10 of Form 10-K and such information is
incorporated herein by this reference.
The information appearing under the caption "Executive Officers of the Registrant" in Part I of this report also is incorporated herein by reference.
Our board of directors has adopted a code of ethical conduct that applies to our executive officers, including our principal executive officer and our principal financial officer. This code of ethical conduct is available without charge to any person who requests it by writing to our corporate secretary. It also is available on our internet website (www.amcon.com). Any substantive amendment to, or waiver from, a provision of this code that applies to our principal executive officer or principal financial officer will be disclosed on our internet website.
ITEM 11. EXECUTIVE COMPENSATION
The Registrant's Proxy Statement will contain under the captions "Executive Compensation and Related Matters", "Corporate Governance and Board Matters--Director Compensation" and "Corporate Governance and Board Matters--Compensation Committee Interlocks and Insider Participation", the information required by Item 11 of Form 10-K, and such information is incorporated herein by this reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Registrant's Proxy Statement will contain under the captions "Ownership of Our Common Stock by Our Directors and Executive Officers and Other Principal Stockholders" and "Compensation of Executive Officers - Equity Compensation Plan Information" the information required by Item 12 of Form 10-K and such information is incorporated herein by this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The Registrant's Proxy Statement will contain under the captions "Certain Relationships and Related Transactions", "Item 1: Election of Directors--What is the structure of our board and how often are directors elected?" and "Corporate Governance and Board Matters--Committees of the Board", the information required by Item 13 of Form 10-K and such information is incorporated herein by this reference.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The Registrant's Proxy Statement will contain under the caption "Independent Auditor Fees and Services", the information required by Item 14 of Form 10-K and such information is incorporated herein by this reference.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Financial Statements, Financial Statement Schedules, and Exhibits
(1) Financial Statements
The financial statements filed as part of this filing are listed on the index to Consolidated Financial Statements, Item 8, page 46.
(2) Financial Statement Schedules Schedule II - Valuation and Qualifying Accounts
Schedules not listed above have been omitted because they are not applicable or not required or the information required to be set forth therein is included in the Consolidated Financial Statements, Item 8, or notes thereto.
(3) Exhibits
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 Amended and Restated Bylaws of the Company dated December 27, 2006 (incorporated by reference to Exhibit 3.2 of AMCON's Annual Report on Form 10-K filed December 29, 2006)
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)
3.5 Certificate of Designations, Preferences and Rights of Series C
Convertible Preferred Stock dated March 6, 2006 (incorporated by
reference to Exhibit 4.1 of AMCON's Current Report on Form 8-K filed
on March 13, 2006)
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 Specimen Series C Convertible Preferred Stock Certificate (incorporated
by reference to Exhibit 4.2 of AMCON's Current Report on Form 8-K filed
on March 13, 2006)
4.5 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)
4.6 Securities Purchase Agreement dated October 8, 2004 between AMCON
Distributing Company and Spencer Street Investments, Inc. (incorporated
by reference to Exhibit 4.5 of AMCON's Annual Report on Form 10-K filed
on January 7, 2005)
4.7 Securities Purchase Agreement dated March 3, 2006 between AMCON
Distributing Company and Draupnir Capital, LLC. (incorporated
by reference to Exhibit 4.3 of AMCON's Current Report on Form 8-K filed
on March 13, 2006)
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 Revised First Amendment To Amended and Restated Loan and Security
Agreement, dated April 14, 2005 (incorporated by reference to Exhibit
10.2 of AMCON's Quarterly Report on Form 10-Q filed on May 27, 2005)
|
10.3 Revised Second Amendment to Amended and Restated Loan and Security
Agreement, dated May 23, 2005 (incorporated by reference to Exhibit
10.3 of AMCON's Quarterly Report on Form 10-Q filed on May 27, 2005)
10.4 Third Amendment to Amended and Restated Loan and Security Agreement,
dated August 12, 2005 (incorporated by reference to Exhibit 10.4 of
AMCON's Quarterly Report on Form 10-Q filed on August 22, 2005)
10.5 Fourth Amendment and Waiver to Amended and Restated Loan and Security
Agreement, dated January 9, 2006 (incorporated by reference to Exhibit
10.5 of AMCON's Annual Report on Form 10-K filed on August 23, 2006)
10.6 Fifth Amendment to Amended and Restated Loan and Security Agreement,
dated February 8, 2006 (incorporated by reference to Exhibit 10.6 of
AMCON's Annual Report on Form 10-K filed on August 23, 2006)
10.7 Sixth Amendment to Amended and Restated Loan and Security Agreement,
dated March 3, 2006 (incorporated by reference to Exhibit
10.1 of AMCON's Current Report on Form 8-K filed on March 13, 2006)
10.8 Seventh Amendment to Amended and Restated Loan and Security Agreement,
dated November 6, 2006 (incorporated by reference to Exhibit 10.37 of
AMCON's Quarterly Report on Form 10-Q filed on November 20, 2006)
10.9 Eighth Amendment to Amended and Restated Loan and Security Agreement,
dated December 28, 2006 (incorporated by reference to Exhibit 10.9 of
AMCON's Annual Report on Form 10-K filed December 29, 2006)
|
10.10 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)*
10.11 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)*
10.12 2007 Omnibus Incentive Plan dated April 17, 2007*
10.13 Nonqualified Stock Option Agreement for Christopher H. Atayan dated December 12, 2006*
10.14 Agreement, dated September 26, 2006, between the Company and William F. Wright regarding Mr. Wright's services to the Company (incorporated by reference to Exhibit 10.1 of AMCON's Interim Report on Form 8-K filed on October 10, 2006)*
10.15 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)*
10.16 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)*
10.17 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)*
10.18 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)
10.19 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)
10.20 Amended and Restated Guaranty and Suretyship Agreement dated September 30, 2007 by and between AMCON Distributing Company and Crystal Paradise Holdings, Inc. (formerly known as Trinity Springs, Ltd.)
10.21 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)
10.22 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)
10.23 Amendment to Guaranty Fee, Reimbursement and Indemnification Agreement, dated July 31, 2007, between AMCON Distributing Company and William F. Wright
10.24 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)
10.25 Guaranty and Suretyship Agreement between William F. Wright and the Company, dated June 17, 2004, regarding the guaranty of the Company's indebtedness to Trinity Springs, Ltd. (now Crystal Paradise Holdings) under the Three Year Note, the Ten Year Note and the Water Royalty (subject to a $5.0 million cap on the Water Royalty). (incorporated by reference to Exhibit 10.26 of AMCON's Report on Form 10-K filed December 29, 2006)
10.26 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)
10.27 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)
10.28 Term Real Estate Promissory Note, dated December 21, 2004, issued by AMCON Distributing Company to M&I (incorporated by reference to Exhibit 10.21 of AMCON's Quarterly Report on Form 10-Q filed on February 14, 2005)
10.29 Term Equipment Promissory Note, dated December 21, 2004 issued by AMCON Distributing Company to M&I (incorporated by reference to Exhibit 10.22 of AMCON's Quarterly Report on Form 10-Q filed on February 14, 2005)
10.30 One Hundred Eighty Day Redemption Mortgage and Security Agreement by and between AMCON Distributing Company and M&I (incorporated by reference to Exhibit 10.23 of AMCON's Quarterly Report on Form 10-Q filed on February 14, 2005)
10.31 Security Agreement by and between AMCON Distributing Company and M&I (incorporated by reference to Exhibit 10.24 of AMCON's Quarterly Report on Form 10-Q filed on February 14, 2005)
10.32 Promissory Note, dated March 30, 2005 issued by Trinity Springs, Inc. to Nebraska Distributing Company (incorporated by reference to Exhibit 10.28 of AMCON's Quarterly Report on Form 10-Q filed on August 22, 2005)
10.33 Subordinated Promissory Note, dated August 8, 2005 issued by Trinity Springs, Inc. to Draupnir, LLC (incorporated by reference to Exhibit 10.29 of AMCON's Quarterly Report on Form 10-Q filed on August 22, 2005)
10.34 Subordinated Promissory Note, dated August 8, 2005 issued by Trinity Springs, Inc. to Aristide Investments, L.P.(incorporated by reference to Exhibit 10.30 of AMCON's Quarterly Report on Form 10-Q filed on August 22, 2005)
10.35 Subordination Agreement, dated as of August 8, 2005, among Trinity Springs, Inc., Artiside Investment L.P., and Draupnir, LLC (incorporated by reference to Exhibit 10.31 of AMCON's Quarterly Report on Form 10-Q filed on August 22, 2005)
10.36 $400,000 Subordinated Promissory Note by and between Trinity Springs, Inc. and Draupnir, LLC dated October 20, 2005 (incorporated by reference to Exhibit 10.34 of AMCON's Quarterly Report on Form 10-Q filed on September 29, 2006)
10.37 $200,000 Subordinated Promissory Note by and between Trinity Springs, Inc. and Draupnir, LLC dated November 7, 2005 (incorporated by reference to Exhibit 10.35 of AMCON's Quarterly Report on Form 10-Q filed on September 29, 2006)
10.38 $150,000 Subordinated Promissory Note by and between Trinity Springs, Inc. and Draupnir, LLC dated December 1, 2005 (incorporated by reference to Exhibit 10.36 of AMCON's Quarterly Report on Form 10-Q filed on September 29, 2006)
10.39 $5,000,000 Secured Promissory Note by and between Trinity Springs, Inc. and Crystal Paradise Holdings, Inc. (also known as Trinity Springs, Ltd.) dated September 30, 2007
10.40 Change of Control Agreement between the Company and Christopher H. Atayan, dated December 29, 2006 (incorporated by reference to Exhibit 10.40 of AMCON's Annual Report on Form 10-K filed on December 29, 2006)*
10.41 Change of Control Agreement between the Company and Kathleen M. Evans, dated December 29, 2006 (incorporated by reference to Exhibit 10.41 of AMCON's Annual Report on Form 10-K filed on December 29, 2006)*
10.42 Settlement Agreement and Mutual General Release dated July 31, 2007 by and between Television Events & Marketing, Inc., Tom Kiely, The Beverage Group, Inc., AMCON Distributing Company, AMCON Corporation, William F. Wright, Archie Thornton and The Thornton Works.
10.43 Mutual Release and Settlement Agreement between AMCON Distributing Company, Trinity Springs, Inc., and Crystal Paradise Holdings, Inc. dated September 30, 2007
10.44 Asset Purchase Agreement between Hawaiian Natural Water Company, Inc.
and Hawaiian Springs, LLC dated November 20, 2006 (incorporated by
reference to Exhibit 10.42 of AMCON's Quarterly Report on Form 10-Q
filed on January 29, 2007)
11.1 Statement re: computation of per share earnings (incorporated by
reference to Note 4 to the Consolidated Financial Statements included
as a part of this report on Form 10-K under Item 8)
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)
18.1 Preferability Letter Regarding Change in Accounting Principle
21.1 Subsidiaries of the Company
23.1 Consent of Independent Registered Public Accounting Firm (McGladery &
Pullen LLP)
23.2 Consent of Independent Registered Public Accounting Firm (Deloitte &
Touche LLP)
31.1 Certification by Christopher H. Atayan, Chief Executive Officer and
Vice Chairman, furnished pursuant to section 302 of the
Sarbanes-Oxley Act
31.2 Certification by Andrew C. Plummer, Vice President and Chief
Financial Officer, furnished pursuant to section 302 of the
Sarbanes-Oxley Act
92
32.1 Certification by Christopher H. Atayan, Chief Executive Officer and
Vice Chairman, furnished pursuant to section 906 of the
Sarbanes-Oxley Act
32.2 Certification by Andrew C. Plummer, Vice President and Chief
Financial Officer, furnished pursuant to section 906 of the
Sarbanes-Oxley Act
|
* Represents management contract or compensation plan or arrangement.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Omaha, State of Nebraska, on the 6th day of November 2007.
AMCON DISTRIBUTING COMPANY
(registrant)
By: /s/ Christopher H. Atayan ----------------------------- Christopher H. Atayan, Chief Executive Officer |
and Vice Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on the 6th day of November 2007.
Signature Title
--------- -----
/s/ William F. Wright Chairman of the Board
------------------------ and Director
William F. Wright
/s/ Christopher H. Atayan Chief Executive Officer and
------------------------ Vice Chairman of the Board
Christopher H. Atayan
/s/ Kathleen M. Evans President and Director
------------------------
Kathleen M. Evans
/s/ Andrew C. Plummer Vice President and Chief Financial
------------------------ Officer (Principal Financial and
Andrew C. Plummer Accounting Officer)
|
/s/ Jeremy W. Hobbs Director ------------------------ Jeremy W. Hobbs /s/ John R. Loyack Director ------------------------ John R. Loyack /s/ Raymond F. Bentele Director ------------------------ Raymond F. Bentele /s/ Stanley Mayer Director ------------------------ Stanley Mayer /s/ Timothy R. Pestotnik Director ------------------------ Timothy R. Pestotnik |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
AMCON Distributing Company
Omaha, Nebraska
We have audited the consolidated financial statements of AMCON Distributing Company and subsidiaries (the Company) as of September 30, 2007 and for the year ended September 30, 2007, and have issued our report thereon dated November 6, 2007, which report expresses an unqualified opinion. Our audit also included the 2007 and 2006 information in the consolidated financial statement schedule of the Company, listed in Item 15. This consolidated financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
The Company's financial statements include a restatement for a change in accounting method.
McGladrey & Pullen LLP
Omaha, Nebraska
November 6, 2007
AMCON Distributing Company
Consolidated Financial Statement Schedule
Net
Amounts
Balance at Provision (Written Off) Balance at
Description Beginning of Period (Benefit) Recovered End of Period
------------------ ---------------------- --------- ------------- -----------------------
Allowance for
doubtful accounts Sep 24, 2004 539,604 220,233 (409,837) Sep 30, 2005 350,000
Sep 30, 2005 350,000 780,247/1/ (195,790) Sep 30, 2006 934,457
Sep 30, 2006 934,457 82,425 (737,882)/1/ Sep 30, 2007 279,000
Allowance for
inventory
obsolescence Sep 24, 2004 389,723 - (33,519) Sep 30, 2005 356,204
Sep 30, 2005 356,204 77,939 - Sep 30, 2006 434,143
Sep 30, 2006 434,143 49,244 - Sep 30, 2007 483,387
/1/ Includes $405,261 allowance for doubtful accounts for TBG, which was
reclassified from discontinued operations to continuing operations
in fiscal 2006 and written off against the associated accounts
receivable in fiscal 2007.
|
EXHIBIT 10.12
AMCON DISTRIBUTING COMPANY
2007 OMNIBUS INCENTIVE PLAN
SECTION 1
INTRODUCTION
1.1 ESTABLISHMENT. AMCON Distributing Company, a corporation organized and existing under the laws of the state of Delaware (the "Company"), hereby establishes the AMCON Distributing Company 2007 Omnibus Incentive Plan (the "Plan") for certain employees and non-employee directors of the Company.
1.2 PURPOSE. The purpose of this Plan is to encourage employees and non-employee directors of the Company and its affiliates and subsidiaries to acquire a proprietary and vested interest in the growth and performance of the Company. The Plan is also designed to assist the Company in attracting and retaining employees and non-employee directors by providing them with the opportunity to participate in the success and profitability of the Company.
1.3 DURATION. The Plan shall commence on the Effective Date and shall remain in effect, subject to the right of the Board to amend or terminate the Plan at any time pursuant to Section 15 hereof, until all Shares subject to the Plan shall have been issued, purchased or acquired according to the Plan's provisions. Unless the Plan shall be reapproved by the stockholders of the Company and the Board renews the continuation of the Plan, no Awards shall be issued pursuant to the Plan after the tenth (10th) anniversary of the Effective Date.
1.4 PLAN SUBJECT TO STOCKHOLDER APPROVAL. Although the Plan is effective on the Effective Date, the Plan's continued existence is subject to the Plan being approved by Company's stockholders within 12 months of the Effective Date. Any Awards granted under the Plan after the Effective Date but before the approval of the Plan by the Company's stockholders will become null and void if the Company's stockholders do not approve this Plan.
SECTION 2
DEFINITIONS
2.1 The following terms shall have the meanings set forth below. "1933 Act" means the Securities Act of 1933, as it may be amended from time to time.
"1934 Act" means the Securities Exchange Act of 1934, as it may be amended from time to time.
"Affiliate" of the Company means any Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by, or is under common Control with the Company. "Award" means a grant made under this Plan in any form which may include but is not limited to Stock Options, Restricted Stock, Restricted Stock Units, Bonus Shares, Deferred Shares, Performance Shares, Stock Appreciation Rights and Performance Units.
"Award Agreement" means a written agreement or instrument between the Company and a Holder evidencing an Award.
"Beneficiary" means the person, persons, trust or trusts which have been designated by a Holder in his or her most recent written beneficiary designation filed with the Company to receive the benefits specified under this Plan upon the death of the Holder, or, if there is no designated beneficiary or surviving designated beneficiary, then the Person or Persons entitled by will or the laws of descent and distribution to receive such benefits.
"Board" means the Board of Directors of the Company.
"Bonus Shares" means Shares that are awarded to a Participant without cost and without restriction in recognition of past performance (whether determined by reference to another employee benefit plan of the Company or otherwise) or as an incentive to become an employee of the Company or a Subsidiary.
"Cause" means, unless otherwise defined in an Award Agreement, any act or failure to act by a Participant that constitutes willful misconduct or gross negligence.
"Change in Control" means the first to occur of the following events:
(i) Any Person is or becomes the Beneficial Owner (within the
meaning set forth in Rule 13d-3 under the 1934 Act), directly or
indirectly, of securities of the Company (not including for this
purpose any securities acquired directly from the Company or its
Affiliates or held by an employee benefit plan of the Company)
representing 50% or more of the combined voting power of the Company's
then outstanding securities, excluding any Person who becomes such a
Beneficial Owner in connection with a transaction described in clause
(x) of paragraph(iii) of this definition; or
(ii) The following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on the Effective Date, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors on the Effective Date or whose appointment, election or nomination for election was previously so approved or recommended; or
(iii) There is consummated a merger or consolidation of the Company with any other corporation, OTHER THAN (x) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of the Company at least 50% of the combined voting power of the securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (y) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including for this purpose any securities acquired directly from the Company or its Affiliates other than in connection with the acquisition by the Company or its Affiliates of a business) representing 50% or more of the combined voting power of the Company's then outstanding securities; or
(iv) The stockholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets, other than a sale or disposition by the Company of all or substantially all of the Company's assets to an entity, at least 50% of the combined voting power of the voting securities of which are owned by stockholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale.
Notwithstanding the foregoing, a "Change in Control" shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions immediately following which the record holders of the Company's common stock immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in an entity which owns all or substantially all of the Company's assets immediately following such transaction or series of transactions.
"Code" means the Internal Revenue Code of 1986, as it may be amended from time to time, and the rules and regulations promulgated thereunder.
"Committee" means (i) the Board, or (ii) one or more committees of the Board to whom the Board has delegated all or part of its authority under this Plan. Initially, the Committee shall be the Compensation Committee of the Board which is delegated all of the Board's authority under this Plan, as contemplated by clause (ii) above.
"Company" means AMCON Distributing Company, a Delaware corporation, and any successor thereto.
"Continuing Director" means any person who was a member of the Board as of the Effective Date, and any person who subsequently becomes a member of such Board if such person's appointment, election or nomination for election to such Board is recommended or approved by a majority of the then Continuing Directors, unless the Continuing Directors designate such person as not a Continuing Director.
"Control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract or otherwise.
"Covered Employee" means an Employee that meets the definition of "covered employee" under Section 162(m)(3) of the Code.
"Date of Grant" or "Grant Date" means, with respect to any Award, the date as of which such Award is granted under the Plan.
"Deferred Shares" means Shares that are awarded to a Grantee on a deferred basis pursuant to Section 9.4.
"Disabled" or "Disability" means an individual (i) is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months or (ii) is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, receiving income replacement benefits for a period of not less than 3 months under a Company-sponsored accident and health plan. Notwithstanding the above, with respect to an Incentive Stock Option and the period of time following a separation from service in which a Holder may exercise such Incentive Stock Option, "disabled" shall have the same meaning as defined in Code section 22(e)(3).
"Effective Date" means April 17, 2007.
"Eligible Employees" means key Employees (including officers and directors who are also Employees) of the Company or an Affiliate upon whose judgment, initiative and efforts the Company depends, or will depend, for the successful conduct of the Company's business.
"Employee" means a common law employee of the Company or an Affiliate.
"Executive Officer" means (i) the president of the Company, any vice president of the Company, including any vice president of the Company in charge of a principal business unit, division or function (such as sales, administration, or finance), any other officer who performs a policy making function or any other person who performs similar policy making functions for the Company, (ii) Executive Officers (as defined in part (i) of this definition) of subsidiaries of the Company who perform policy making functions for the Company, and (iii) any Person designated or identified by the Board as being an Executive Officer for purposes of the 1933 Act or the 1934 Act, including any Person designated or identified by the Board as being a Section 16 Person.
"Fair Market Value" means, as of any date, the value of the Stock determined in good faith, from time to time, by the Committee in its sole discretion, and for this purpose the Committee may adopt such formulas as in its opinion shall reflect the true fair market value of such Stock from time to time and may rely on such independent advice with respect to such fair market value as the Committee shall deem appropriate. In the event that the Shares of the Company are traded on a national securities exchange, the Committee may determine that the Fair Market Value of the Stock shall be based upon the closing price on the trading day of the applicable date as reported in The Wall Street Journal and consistently applied. If the securities exchange is closed on the applicable date, the closing price on the next day the securities exchange is open will be the Fair Market Value.
"Freestanding SAR" means any SAR that is granted independently of any Option.
"Holder" means a Participant, Beneficiary or Permitted Transferee who
is in possession of an Award Agreement representing an Award that (i)
in the case of a Participant has been granted to such individual, (ii)
in the case of a Beneficiary has transferred to such person under the
laws of descent and distribution or (iii) in the case of a Permitted
Transferee, has been transferred to such person as permitted by the
Committee, and, with respect to all of the above cases (i), (ii) and
(iii), such Award Agreement has not expired, been canceled or
terminated.
"Incentive Stock Option" means any Option designated as such and granted in accordance with the requirements of Section 422 of the Code.
"Nonqualified Stock Option" means any Option to purchase Shares that is not an Incentive Stock Option.
"Option" means a right to purchase Stock at a stated price for a specified period of time. Such definition includes both Nonqualified Stock Options and Incentive Stock Options.
"Option Agreement" or "Option Award Agreement" means a written agreement or instrument between the Company and a Holder evidencing an Option.
"Option Exercise Price" means the price at which Shares subject to an Option may be purchased, determined in accordance with Section 6.2(b).
"Optionee" shall have the meaning as set forth in Section 6.2. For the avoidance of any doubt, in situations where the Option has been transferred to a Permitted Transferee or passed to a Beneficiary in accordance with the laws of descent and distribution, the Optionee will not be the same person as the Holder of the Option.
"Participant" means a Service Provider of the Company designated by the Committee from time to time during the term of the Plan to receive one or more Awards under the Plan.
"Performance Award" means any Award that will be issued or granted, or become vested or payable, as the case may be, upon the achievement of certain performance goals (as described in Section 10) to a Participant pursuant to Section 10.
"Performance Period" means the period of time as specified by the Committee during which any performance goals are to be measured.
"Performance Shares" means an Award made pursuant to Section 9 which entitles a Holder to receive Shares, their cash equivalent, or a combination thereof based on the achievement of performance targets during a Performance Period.
"Performance Units" means an Award made pursuant to Section 9 which entitles a Holder to receive cash, Stock or a combination thereof based on the achievement of performance goals during a Performance Period.
"Person" shall have the meaning ascribed to such term in Section 3(a)(9) of the 1934 Act and used in Sections 13(d) and 14(d) thereof, including "group" as defined in Section 13(d) thereof.
"Plan" means the AMCON Distributing Company 2007 Omnibus Incentive Plan, as set forth in this instrument and as hereafter amended from time to time.
"Restricted Stock" means Stock granted under Section 8 that is subject those restrictions set forth therein and the Award Agreement.
"Restricted Stock Unit" means an Award granted under Section 8 evidencing the Holder's right to receive a Share (or, at the Committee's discretion, a cash payment equal to the Fair Market Value of a Share) at some future date and that is subject those restrictions set forth therein and the Award Agreement.
"Rule 16b-3" means Rule 16b-3 promulgated under the 1934 Act.
"SAR" or "Stock Appreciation Right" means an Award, granted either alone or in connection with an Option, that is designated as a SAR pursuant to Section 7.
"SAR Holder" shall have the meaning as set forth in Section 7.2.
"Section 16 Person" means a Person who is subject to obligations under
Section 16 of the 1934 Act with respect to transactions involving
equity securities of the Company.
"Service Provider" means an Eligible Employee or a non-employee director of the Company.
"Share" means a share of Stock.
"Stock" means authorized and issued or unissued common stock of the Company, at such par value as may be established from time to time.
"Subsidiary" means (i) in the case of an Incentive Stock Option a "subsidiary corporation," whether now or hereafter existing, as defined in section 424(f) of the Code, and (ii) in the case of any other type of Award, in addition to a subsidiary corporation as defined in clause (i), a limited liability company, partnership or other entity in which the Company controls fifty percent (50%) or more of the voting power or equity interests.
"Tandem SAR" means a SAR which is granted in connection with, or related to, an Option, and which requires forfeiture of the right to purchase an equal number of Shares under the related Option upon the exercise of such SAR; or alternatively, which requires the cancellation of an equal amount of SARs upon the purchase of the Shares subject to the Option.
"Vested Option" means any Option, or portion thereof, which is exercisable by the Holder. Vested Options remain exercisable only for that period of time as provided for under this Plan and any applicable Option Award Agreement. Once a Vested Option is no longer exercisable after otherwise having been exercisable, the Option shall become null and void.
2.2 GENERAL INTERPRETIVE PRINCIPLES. (i) Words in the singular shall include the plural and vice versa, and words of one gender shall include the other gender, in each case, as the context requires; (ii) the terms "hereof," "herein," and "herewith" and words of similar import shall, unless otherwise stated, be construed to refer to this Plan and not to any particular provision of this Plan, and references to Sections are references to the Sections of this Plan unless otherwise specified; (iii) the word "including" and words of similar import when used in this Plan shall mean "including, without limitation," unless otherwise specified; and (iv) any reference to any U.S. federal, state, or local statute or law shall be deemed to also refer to all amendments or successor provisions thereto, as well as all rules and regulations promulgated under such statute or law, unless the context otherwise requires.
SECTION 3
PLAN ADMINISTRATION
3.1 COMPOSITION OF COMMITTEE. The Plan shall be administered by the Committee. To the extent the Board considers it desirable for transactions relating to Awards to be eligible to qualify for an exemption under Rule 16b-3, the Committee shall consist of two or more directors of the Company, all of whom qualify as "non-employee directors" within the meaning of Rule 16b-3. To the extent the Board considers it desirable for compensation delivered pursuant to Awards to be eligible to qualify for an exemption from the limit on tax deductibility of compensation under section 162(m) of the Code, the Committee shall consist of two or more directors of the Company, all of whom shall qualify as "outside directors" within the meaning of Code section 162(m).
3.2 AUTHORITY OF COMMITTEE. Subject to the terms of the Plan and applicable law, and in addition to other express powers and authorizations conferred on the Committee by the Plan, the Committee shall have full power and authority to:
(a) select the Service Providers to whom Awards may from time to time be granted hereunder;
(b) determine the type or types of Awards to be granted to eligible Service Providers;
(c) determine the number of Shares to be covered by, or with respect to which payments, rights, or other matters are to be calculated in connection with, Awards;
(d) determine the terms and conditions of any Award;
(e) determine whether, and to what extent, and under what circumstances Awards may be settled or exercised in cash, Shares, other securities, other Awards or other property;
(f) determine whether, and to what extent, and under what circumstance Awards may be canceled, forfeited, or suspended and the method or methods by which Awards may be settled, exercised, canceled, forfeited, or suspended;
(g) correct any defect, supply an omission, reconcile any inconsistency and otherwise interpret and administer the Plan and any instrument or Award Agreement relating to the Plan or any Award hereunder;
(h) modify and amend the Plan, establish, amend, suspend, or waive such rules, regulations and procedures of the Plan, and appoint such agents as it shall deem appropriate for the proper administration of the Plan; and
(i) make any other determination and take any other action that the Committee deems necessary or desirable for the administration of the Plan.
3.3 COMMITTEE DELEGATION. The Committee may delegate to any member of the Board or committee of Board members such of its powers as it deems appropriate, including the power to sub-delegate, except that, pursuant to such delegation or sub-delegation, only a member of the Board (or a committee thereof) may grant Awards from time to time to specified categories of Service Providers in amounts and on terms to be specified by the Board or the Committee; provided that no such grants shall be made other than by the Board or the Committee to individuals who are then Section 16 Persons or other than by the Committee to individuals who are then or are deemed likely to become a "covered employee" within the meaning of Code Section 162(m). A majority of the members of the Committee may determine its actions and fix the time and place of its meetings.
3.4 DETERMINATION UNDER THE PLAN. Unless otherwise expressly provided in the Plan, all designations, determinations, adjustments, interpretations, and other decisions under or with respect to the Plan, any Award or Award Agreement shall be within the sole discretion of the Committee, may be made at any time and shall be final, conclusive, and binding upon all persons, including the Company, any Participant, any Holder, and any stockholder. No member of the Committee shall be liable for any action, determination or interpretation made in good faith, and all members of the Committee shall, in addition to their rights as directors, be fully protected by the Company with respect to any such action, determination or interpretation.
SECTION 4
STOCK SUBJECT TO THE PLAN
4.1 NUMBER OF SHARES. Subject to adjustment as provided in Section 4.3 and subject to the maximum amount of Shares that may be granted to an individual in a calendar year as set forth in Section 5.5, no more than a total of 150,000 Shares are authorized for issuance under the Plan in accordance with the provisions of the Plan and subject to such restrictions or other provisions as the Committee may from time to time deem necessary. Any Shares issued hereunder may consist, in whole or in part, of authorized and unissued shares or treasury shares. The Shares may be divided among the various Plan components as the Committee shall determine. Shares that are subject to an underlying Award and Shares that are issued pursuant to the exercise of an Award shall be applied to reduce the maximum number of Shares remaining available for use under the Plan. The Company shall at all times during the term of the Plan and while any Awards are outstanding retain as authorized and unissued Stock, or as treasury Stock, at least the number of Shares from time to time required under the provisions of the Plan, or otherwise assure itself of its ability to perform its obligations hereunder.
4.2 UNUSED AND FORFEITED STOCK. Any Shares that are subject to an Award under this Plan that are not used because the terms and conditions of the Award are not met, including any Shares that are subject to an Award that expires or is terminated for any reason, any Shares that are used for full or partial payment of the purchase price of Shares with respect to which an Option is exercised and any Shares retained by the Company pursuant to Section 16.2 shall automatically become available for use under the Plan. Notwithstanding the foregoing, any Shares used for full or partial payment of the purchase price of the Shares with respect to which an Option is exercised and any Shares retained by the Company pursuant to Section 16.2 that were originally Incentive Stock Option Shares must still be considered as having been granted for purposes of determining whether the Share limitation provided for in Section 4.1 has been reached for purposes of Incentive Stock Option grants.
4.3 ADJUSTMENTS IN AUTHORIZED SHARES. If, without the receipt of consideration therefore by the Company, the Company shall at any time increase or decrease the number of its outstanding Shares or change in any way the rights and privileges of such Shares such as, but not limited to, the payment of a stock dividend or any other distribution upon such Shares payable in Stock, or through a stock split, subdivision, consolidation, combination, reclassification or recapitalization involving the Stock, such that an adjustment is necessary in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan then in relation to the Stock that is affected by one or more of the above events, the numbers, rights and privileges of (i) the Shares as to which Awards may be granted under the Plan, (ii) the exercise or purchase price of each outstanding Award, and (iii) the Shares then included in each outstanding Award granted hereunder, shall be increased, decreased or changed in like manner as if the Shares underlying the Award had been issued and outstanding, fully paid and non assessable at the time of such occurrence. The manner in which Awards are adjusted pursuant to this Section 4.3 is to be determined by the Board or the Committee; provided that all adjustments must be determined by the Board or Committee in good faith, and must be effectuated so as to preserve the value that any Participant has in outstanding Awards as of the time of the event giving rise to any potential dilution or enlargement of rights.
4.4 GENERAL ADJUSTMENT RULES.
(a) If any adjustment or substitution provided for in this Section 4 shall result in the creation of a fractional Share under any Award, such fractional Share shall be rounded up to the nearest whole Share and fractional Shares shall not be issued.
(b) In the case of any such substitution or adjustment affecting an Option or a SAR (including a Nonqualified Stock Option) such substitution or adjustments shall be made in a manner that is in accordance with the substitution and assumption rules set forth in Treasury Regulations 1.424-1 and the applicable guidance relating to Code section 409A.
SECTION 5
PARTICIPATION
5.1 BASIS OF GRANT. Participants in the Plan shall be those Service Providers, who, in the judgment of the Committee, have performed, are performing, or during the term of their incentive arrangement will perform, important services in the management, operation and development of the Company, and significantly contribute, or are expected to significantly contribute, to the achievement of long-term corporate economic objectives.
5.2 TYPES OF GRANTS; LIMITS. Participants may be granted from time to time one or more Awards; provided, however, that the grant of each such Award shall be separately approved by the Committee or its designee, and receipt of one such Award shall not result in the automatic receipt of any other Award. Written notice shall be given to such Person, specifying the terms, conditions, right and duties related to such Award. Under no circumstance shall Incentive Stock Options be granted to (i) non-employee directors or (ii) any person not permitted to receive Incentive Stock Options under the Code.
5.3 AWARD AGREEMENTS. Each Participant shall enter into an Award Agreement(s) with the Company, in such form as the Committee shall determine and which is consistent with the provisions of the Plan, specifying such terms, conditions, rights and duties. Unless otherwise explicitly stated in the Award Agreement, Awards shall be deemed to be granted as of the date specified in the grant resolution of the Committee, which date shall be the date of any related agreement(s) with the Participant. Unless explicitly provided for in a particular Award Agreement that the terms of the Plan are being superseded, in the event of any inconsistency between the provisions of the Plan and any such Award Agreement(s) entered into hereunder, the provisions of the Plan shall govern.
5.4 RESTRICTIVE COVENANTS. The Committee may, in its sole and absolute discretion, place certain restrictive covenants in an Award Agreement requiring the Participant to agree to refrain from certain actions. Such Restrictive Covenants, if contained in the Award Agreement, will be binding on the Participant.
5.5 MAXIMUM ANNUAL AWARD. The maximum number of Shares with respect to which an Award or Awards may be granted to any Participant in any one taxable year of the Company (the "Maximum Annual Participant Award") shall not exceed 75,000 Shares (subject to adjustment pursuant to Sections 4.3 and 4.4). If an Option is in tandem with a SAR, such that the exercise of the Option or SAR with respect to a Share cancels the tandem SAR or Option right, respectively, with respect to each Share, the tandem Option and SAR rights with respect to each Share shall be counted as covering but one Share for purposes of the Maximum Annual Participant Award.
SECTION 6
STOCK OPTIONS
6.1 GRAND OF OPTIONS. A Participant may be granted one or more Options. The Committee in its sole discretion shall designate whether an Option is an Incentive Stock Option or a Nonqualified Stock Option. The Committee may grant both an Incentive Stock Option and a Nonqualified Stock Option to the same Participant at the same time or at different times. Incentive Stock Options and Nonqualified Stock Options, whether granted at the same or different times, shall be deemed to have been awarded in separate grants, shall be clearly identified, and in no event shall the exercise of one Option affect the right to exercise any other Option or affect the number of Shares for which any other Option may be exercised.
6.2 OPTION AGREEMENTS. Each Option granted under the Plan shall be evidenced by a written Option Award Agreement which shall be entered into by the Company and the Participant to whom the Option is granted (the "Optionee"), and which shall contain, or be subject to, the following terms and conditions, as well as such other terms and conditions not inconsistent therewith, as the Committee may consider appropriate in each case.
(a) Number of Shares. Each Option Award Agreement shall state that it covers a specified number of Shares, as determined by the Committee. To the extent that the aggregate Fair Market Value of Shares with respect to which Options designated as Incentive Stock Options are exercisable for the first time by any Optionee during any calendar year exceeds $100,000 or, if different, the maximum limitation in effect at the time of grant under section 422(d) of the Code, such Options in excess of such limit shall be treated as Nonqualified Stock Options. The foregoing shall be applied by taking Options into account in the order in which they were granted. For the purposes of the foregoing, the Fair Market Value of any Share shall be determined as of the time the Option with respect to such Share is granted. In the event the foregoing results in a portion of an Option designated as an Incentive Stock Option exceeding the $100,000 limitation, only such excess shall be treated as a Nonqualified Stock Option.
(b) Price. Each Option Award Agreement shall state the Option Exercise Price at which each Share covered by an Option may be purchased. Such Option Exercise Price shall be determined in each case by the Committee, but in no event shall the Option Exercise Price for each Share covered by an Option be less than the Fair Market Value of the Stock on the Option's Grant Date, as determined by the Committee; provided, however, that the Option Exercise Price for each Share covered by an Incentive Stock Option granted to an Eligible Employee who then owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or any parent or Subsidiary corporation of the Company must be at least 110% of the Fair Market Value of the Stock subject to the Incentive Stock Option on the Option's Grant Date.
(c) Duration of Options. Each Option Award Agreement shall state the period of time, determined by the Committee, within which the Option may be exercised by the Holder (the "Option Period"). The Option Period must expire, in all cases, not more than ten years from the Option's Grant Date; provided, however, that the Option Period of an Incentive Stock Option granted to an Eligible Employee who then owns Stock possessing more than 10% of the total combined voting power of all classes of Stock of the Company must expire not more than five years from the Option's Grant Date. Each Option Award Agreement shall also state the periods of time, if any, as determined by the Committee, when incremental portions of each Option shall become exercisable. If any Option or portion thereof is not exercised during its Option Period, such unexercised portion shall be deemed to have been forfeited and have no further force or effect.
(d) Termination of Service, Death, Disability, etc. Each Option Agreement shall state the period of time, if any, determined by the Committee, within which the Vested Option may be exercised after an Optionee ceases to be a Service Provider on account of the Participant's death, Disability, voluntary resignation, retirement, cessation as a director, or the Company having terminated such Optionee's employment with or without Cause. Unless an Option Agreement provides otherwise, a Participant's change in status between serving as an employee and/or director will not be considered a termination of the Participant serving as a Service Provider for purposes of any Option expiration period under the Plan.
(e) Transferability. Except as otherwise determined by the Committee, Options shall not be transferable by the Optionee except by will or pursuant to the laws of descent and distribution. Each Vested Option shall be exercisable during the Optionee's lifetime only by him or her, or in the event of Disability or incapacity, by his or her guardian or legal representative. Shares issuable pursuant to any Option shall be delivered only to or for the account of the Optionee, or in the event of Disability or incapacity, to his or her guardian or legal representative.
(f) Exercise, Payments, etc.
(i) Unless otherwise provided in the Option Award Agreement, each Vested Option may be exercised by delivery to the Corporate Secretary of the Company a written notice specifying the number of Shares with respect to which such Option is exercised and payment of the Option Exercise Price. Such notice shall be in a form satisfactory to the Committee or its designee and shall specify the particular Vested Option that is being exercised and the number of Shares with respect to which the Vested Option is being exercised. The exercise of the Vested Option shall be deemed effective upon receipt of such notice by the Corporate Secretary and payment to the Company. The purchase of such Stock shall take place at the principal offices of the Company upon delivery of such notice, at which time the purchase price of the Stock shall be paid in full by any of the methods or any combination of the methods set forth in clause (ii) below.
(ii) The Option Exercise Price may be paid by any of the following methods:
A. Cash or certified bank check;
B. By delivery to the Company Shares then owned by the Holder, the Fair Market Value of which equals the purchase price of the Stock purchased pursuant to the Vested Option, properly endorsed for transfer to the Company; provided, however, that Shares used for this purpose must have been held by the Holder for such minimum period of time as may be established from time to time by the Committee; and provided further that the Fair Market Value of any Shares delivered in payment of the purchase price upon exercise of the Options shall be the Fair Market Value as of the exercise date, which shall be the date of delivery of the Stock used as payment of the Option Exercise Price; In lieu of actually surrendering to the Company the Shares then owned by the Holder, the Committee may, in its discretion permit the Holder to submit to the Company a statement affirming ownership by the Holder of such number of Shares and request that such Shares, although not actually surrendered, be deemed to have been surrendered by the Holder as payment of the exercise price;
C. For any Holder other than an Executive Officer or except as otherwise prohibited by the Committee, by payment through a broker in accordance with procedures permitted by Regulation T of the Federal Reserve Board; or
D. Any combination of the consideration provided in the foregoing subsections (A), (B), and (C).
(iii) The Company may not guarantee a third-party loan obtained by a Holder to pay any portion of the entire Option Exercise Price of the Shares.
(g) Date of Grant. Unless otherwise specifically specified in the Option Award Agreement, an option shall be considered as having been granted on the date specified in the grant resolution of the Committee.
(h) Withholding.
(A) Nonqualified Stock Options. Upon any exercise of a Nonqualified Stock Option, the Optionee shall make appropriate arrangements with the Company to provide for the minimum amount of additional withholding required by applicable federal and state income tax and payroll laws, including payment of such taxes through delivery of Stock or by withholding Stock to be issued under the Option, as provided in Section 16 hereof.
(B) Incentive Stock Options. In the event that an Optionee makes a disposition (as defined in Section 424(c) of the Code) of any Stock acquired pursuant to the exercise of an Incentive Stock Option prior to the later of (i) the expiration of two years from the date on which the Incentive Stock Option was granted or (ii) the expiration of one year from the date on which the Option was exercised, the Participant shall send written notice to the Company at its principal office (Attention: Corporate Secretary) of the date of such disposition, the number of shares disposed of, the amount of proceeds received from such disposition, and any other information relating to such disposition as the Company may reasonably request. The Optionee shall, in the event of such a disposition, make appropriate arrangements with the Company to provide for the amount of additional withholding, if any, required by applicable Federal and state income tax laws.
(i) Adjustment of Options. Subject to the limitations set forth below and those contained in Sections 6 and 15, the Committee may make any adjustment in the Option Exercise Price, the number of Shares subject to, or the terms of, an outstanding Option and a subsequent granting of an Option by amendment or by substitution of an outstanding Option. Such amendment, substitution, or re-grant may result in terms and conditions (including Option Exercise Price, number of Shares covered, vesting schedule or exercise period) that differ from the terms and conditions of the original Option; provided, however, the Committee may not, without stockholder approval (i) amend an Option to reduce its Option Exercise Price, (ii) cancel an Option and regrant an Option with a lower Option Exercise Price than the original Option Exercise Price of the cancelled Option, or (iii) take any other action (whether in the form of an amendment, cancellation or replacement grant) that has the effect of "repricing" an Option, as defined under applicable NYSE rules or the rules of the established stock exchange or quotation system on which the Company Stock is then listed or traded if such Exchange's or quotation system's rules define what constitutes a repricing. The Committee also may not adversely affect the rights of any Optionee to previously granted Options without the consent of such Optionee. If such action is affected by the amendment, the effective date of such amendment shall be the date of the original grant. Any adjustment, modification, extension or renewal of an Option shall be effected such that the Option is either exempt from, or is compliant with, Code section 409A.
6.3 STOCKHOLDER PRIVILEGES. No Holder shall have any rights as a stockholder with respect to any Shares covered by an Option until the Holder becomes the holder of record of such Stock, and no adjustments shall be made for dividends or other distributions or other rights as to which there is a record date preceding the date such Holder becomes the holder of record of such Stock, except as provided in Section 4.
SECTION 7
STOCK APPRECIATION RIGHTS
7.1 GRANT OF SARS. Subject to the terms and conditions of this Plan, a SAR may be granted to a Participant at any time and from time to time as shall be determined by the Committee in its sole discretion. The Committee may grant Freestanding SARs or Tandem SARs, or any combination thereof.
(a) Number of Shares. The Committee shall have complete discretion to determine the number of SARs granted to any Participant, subject to the limitations imposed in this Plan and by applicable law.
(b) Exercise Price and Other Terms. All SARs shall be granted with an exercise price no less than the Fair Market Value of the underlying Shares on the SARs' Date of Grant. The Committee, subject to the provisions of this Plan, shall have complete discretion to determine the terms and conditions of SARs granted under this Plan. The exercise price per Share of Tandem SARs shall equal the exercise price per Share of the related Option.
7.2 SAR AWARD AGREEMENT. Each SAR granted under the Plan shall be evidenced by a written SAR Award Agreement which shall be entered into by the Company and the Participant to whom the SAR is granted (the "SAR Holder"), and which shall specify the exercise price per share, the terms of the SAR, the conditions of exercise, and such other terms and conditions as the Committee in its sole discretion shall determine.
7.3 EXERCISE OF TANDEM SARS. Tandem SARs may be exercised for all or part of the Shares subject to the related Option upon the surrender of the right to exercise the equivalent portion of the related Option. A Tandem SAR may be exercised only with respect to the Shares for which its related Option is then exercisable. With respect to a Tandem SAR granted in connection with an Incentive Stock Option: (a) the Tandem SAR shall expire no later than the expiration of the underlying Incentive Stock Option; (b) the value of the payout with respect to the Tandem SAR shall be for no more than one hundred percent (100%) of the difference between the Exercise Price per Share of the underlying Incentive Stock Option and the Fair Market Value per Share of the Shares subject to the underlying Incentive Stock Option at the time the Tandem SAR is exercised; and (c) the Tandem SAR shall be exercisable only when the Fair Market Value per Share of the Shares subject to the Incentive Stock Option exceeds the per share Option Price per Share of the Incentive Stock Option.
7.4 EXERCISE OF FREESTANDING SARS. Freestanding SARs shall be exercisable on such terms and conditions as the Committee in its sole discretion shall determine; provided, however, that no Freestanding SAR granted to a Section 16 Person shall be exercisable until at least six (6) months after the Date of Grant or such shorter period as may be permissible while maintaining compliance with Rule 16b-3.
7.5 EXPIRATION OF SARS. Each SAR Award Agreement shall state the period of time, if any, determined by the Committee, within which the SAR may be exercised after a SAR Holder ceases to be a Service Provider on account of the Participant's death, Disability, voluntary resignation, cessation as a director, or the Company having terminated such SAR Holder's employment with or without Cause. Unless otherwise specifically provided for in the SAR Award agreement, a Tandem SAR granted under this Plan shall be exercisable at such time or times and only to the extent that the related Option is exercisable. The Tandem SAR shall terminate and no longer be exercisable upon the termination or exercise of the related Options, except that Tandem SARs granted with respect to less than the full number of shares covered by a related Option shall not be reduced until the exercise or termination of the related Option exceeds the number of Shares not covered by the SARs.
7.6 PAYMENT OF SAR AMOUNT. Upon exercise of a SAR, a Holder shall be entitled to receive payment from the Company in an amount determined by multiplying (i) the positive difference between the Fair Market Value of a Share on the date of exercise over the exercise price per Share by (ii) the number of Shares with respect to which the SAR is exercised. The payment upon a SAR exercise may be in whole Shares of equivalent value, cash, or a combination of whole Shares and cash. Fractional Shares shall be rounded up to the nearest whole Share.
SECTION 8
AWARDS OF RESTRICTED STOCK AND RESTRICTED STOCK UNITS
8.1 RESTRICTED STOCK AWARDS GRANTED BY COMMITTEE. Coincident with or following designation for participation in the Plan and subject to the terms and provisions of the Plan, the Committee, at any time and from time to time, may grant Restricted Stock to any Service Provider in such amounts as the Committee shall determine.
8.2 RESTRICTED STOCK UNIT AWARDS GRANTED BY COMMITTEE. Coincident with or following designation for participation in the Plan and subject to the terms and provisions of the Plan, the Committee may grant a Service Provider Restricted Stock Units in connection with or separate from a grant of Restricted Stock. Upon the vesting of Restricted Stock Units, the Holder shall be entitled to receive the full value of the Restricted Stock Units payable in either Shares or cash.
8.3 RESTRICTIONS. A Holder's right to retain Shares of Restricted Stock or be paid with respect to Restricted Stock Units shall be subject to such restrictions, including him or her continuing to perform as a Service Provider for a restriction period specified by the Committee, or the attainment of specified performance goals and objectives, as may be established by the Committee with respect to such Award. The Committee may in its sole discretion require different periods of service or different performance goals and objectives with respect to (i) different Holders, (ii) different Restricted Stock or Restricted Stock Unit Awards, or (iii) separate, designated portions of the Shares constituting a Restricted Stock Award. Any grant of Restricted Stock or Restricted Stock Units shall contain terms such that the Award is either exempt from Code section 409A or complies with such section.
8.4 PRIVILEGES OF STOCKHOLDER, TRANSFERABILITY. Unless otherwise provided in the Award Agreement, a Participant shall have all voting, dividend, liquidation and other rights with respect to Shares of Restricted Stock, provided however that any dividends paid on Shares of Restricted Stock prior to such Shares becoming vested shall be held in escrow by the Company and subject to the same restrictions on transferability and forfeitability as the underlying Shares of Restricted Stock. Any voting, dividend, liquidation or other rights shall accrue to the benefit of a Holder only with respect to Shares of Restricted Stock held by, or for the benefit of, the Holder on the record date of any such dividend or voting date. A Participant's right to sell, encumber or otherwise transfer such Restricted Stock shall, in addition to the restrictions otherwise provided for in the Award Agreement, be subject to the limitations of Section 12.2 hereof. The Committee may determine that a Holder of Restricted Stock Units is entitled to receive dividend equivalent payments on such units. If the Committee determines that Restricted Stock Units shall receive dividend equivalent payments, such feature will be specified in the applicable Award Agreement. Restricted Stock Units shall not have any voting rights.
8.5 ENFORCEMENT OF RESTRICTIONS. The Committee may in its sole discretion require one or more of the following methods of enforcing the restrictions referred to in Section 8.2 and 8.3:
(a) placing a legend on the stock certificates, or the Restricted Stock Unit Award Agreement, as applicable, referring to restrictions;
(b) requiring the Holder to keep the stock certificates, duly endorsed, in the custody of the Company while the restrictions remain in effect;
(c) requiring that the stock certificates, duly endorsed, be held in the custody of a third party nominee selected by the Company who will hold such Shares of Restricted Stock on behalf of the Holder while the restrictions remain in effect; or
(d) inserting a provision into the Restricted Stock Award Agreement prohibiting assignment of such Award Agreement until the terms and conditions or restrictions contained therein have been satisfied or released, as applicable.
8.6 TERMINATION OF SERVICE, DEATH DISABILITY ETC. In the event of the death or Disability of a Participant, all service period and other restrictions applicable to Restricted Stock Awards then held by him or her shall lapse, and such Awards shall become fully nonforfeitable. Subject to Section 11, in the event a Participant ceases to be a Service Provider for any other reason, any Restricted Stock Awards as to which the service period or other vesting conditions for have not been satisfied shall be forfeited.
SECTION 9
PERFORMANCE SHARES, PERFORMANCE UNITS, BONUS SHARES
AND DEFERRED SHARES
9.1 AWARDS GRANTED BY COMMITTEE. Coincident with or following designation for participation in the Plan, a Participant may be granted Performance Shares or Performance Units.
9.2 TERMS OF PERFORMANCE SHARES OR PERFORMANCE UNITS. The Committee shall establish maximum and minimum performance targets to be achieved during the applicable Performance Period. Each grant of a Performance Share or Performance Unit Award shall be subject to additional terms and conditions not inconsistent with the provisions of the Plan. The Committee shall determine what, if any, payment is due with respect to an Award and whether such payment shall be made in cash, Stock or some combination.
9.3 BONUS SHARES. Subject to the terms of the Plan, the Committee may grant Bonus Shares to any Participant, in such amount and upon such terms and at any time and from time to time as shall be determined by the Committee.
9.4 DEFERRED SHARES. Subject to the terms and provisions of the Plan, Deferred Shares may be granted to any Participant in such amounts and upon such terms, and at any time and from time to time, as shall be determined by the Committee. The Committee may impose such conditions or restrictions on any Deferred Shares as it may deem advisable, including time-vesting restrictions and deferred payment features. The Committee may cause the Company to establish a grantor trust to hold Shares subject to Deferred Share Awards. Without limiting the generality of the foregoing, the Committee may grant to any Participant, or permit any Participant to elect to receive, Deferred Shares in lieu of or in substitution for any other compensation (whether payable currently or on a deferred basis, and whether payable under this Plan or otherwise) which such Participant may be eligible to receive from the Company or a Subsidiary. Any grant of Deferred Shares shall comply with Section 409A of the Code.
SECTION 10 PERFORMANCE AWARDS; SECTION 162(M) PROVISIONS
10.1 TERMS OF PERFORMANCE AWARDS. Except as provided in Section 11, Performance Awards will be issued or granted, or become vested or payable, only after the end of the relevant Performance Period. The performance goals to be achieved for each Performance Period and the amount of the Award to be distributed upon satisfaction of those performance goals shall be conclusively determined by the Committee. When the Committee determines whether a performance goal has been satisfied for any Performance Period, the Committee, where the Committee deems appropriate, may make such determination using calculations which alternatively include and exclude one, or more than one, "extraordinary items" as determined under U.S. generally accepted accounting principles, and the Committee may determine whether a performance goal has been satisfied for any Performance Period taking into account the alternative which the Committee deems appropriate under the circumstances. The Committee also may take into account any other unusual or non-recurring items, including the charges or costs associated with restructurings of the Company, discontinued operations, and the cumulative effects of accounting changes and, further, may take into account any unusual or non-recurring events affecting the Company, changes in applicable tax laws or accounting principles or such other factors as the Committee may determine reasonable and appropriate under the circumstances (including any factors that could result in the Company's paying non-deductible compensation to an Employee or non-employee director).
10.2 PERFORMANCE GOALS. If an Award is subject to this Section 10, then the lapsing of restrictions thereon, or the vesting thereof, and the distribution of cash, Shares or other property pursuant thereto, as applicable, shall be subject to the achievement of one or more objective performance goals established by the Committee, which shall be based on the attainment of one or any combination of the following metrics, and which may be established on an absolute or relative basis for the Company as a whole or any of its subsidiaries, operating divisions or other operating units:
(a) Earnings (either in the aggregate or on a per-Share basis);
(b) Growth or rate of growth in earnings (either in the aggregate or on a per-Share basis);
(c) Net income or loss (either in the aggregate or on a per-Share basis);
(d) Cash flow provided by operations, either in the aggregate or on a per-Share basis;
(e) Growth or rate of growth in cash flow (either in the aggregate or on a per-Share basis);
(f) Free cash flow (either in the aggregate on a per-Share basis);
(g) Reductions in expense levels, determined either on a Company-wide basis or in respect of any one or more business units;
(h) Operating and maintenance cost management and employee productivity;
(i) Stockholder returns (including return on assets, investments, equity, or gross sales);
(j) Return measures (including return on assets, equity, or sales);
(k) Growth or rate of growth in return measures (including return on assets, equity, or sales);
(l) Share price (including attainment of a specified per-Share price during the Performance Period; growth measures and total stockholder return or attainment by the Shares of a specified price for a specified period of time);
(m) Strategic business criteria, consisting of one or more objectives based on meeting specified revenue, market share, market penetration, geographic business expansion goals, objectively identified project milestones, production volume levels, cost targets, and goals relating to acquisitions or divestitures; and/or
(n) Achievement of business or operational goals such as market share and/or business development; provided that applicable performance goals may be applied on a pre- or post-tax basis; and provided further that the Committee may, when the applicable performance goals are established, provide that the formula for such goals may include or exclude items to measure specific objectives, such as losses from discontinued operations, extraordinary gains or losses, the cumulative effect of accounting changes, acquisitions or divestitures, foreign exchange impacts and any unusual, nonrecurring gain or loss. In addition to the foregoing performance goals, the performance goals shall also include any performance goals which are set forth in a Company bonus or incentive plan, if any, which has been approved by the Company's stockholders, which are incorporated herein by reference. Such performance goals shall be set by the Committee within the time period prescribed by, and shall otherwise comply with the requirements of, Code Section 162(m).
10.3 ADJUSTMENTS. Notwithstanding any provision of the Plan other than Section 4.3 or Section 11, with respect to any Award that is subject to this Section 10, the Committee may not adjust upwards the amount payable pursuant to such Award, nor may it waive the achievement of the applicable performance goals except in the case of the death or Disability of the Participant.
10.4 OTHER RESTRICTIONS. The Committee shall have the power to impose such other restrictions on Awards subject to this Section 10 as it may deem necessary or appropriate to insure that such Awards satisfy all requirements for "performance-based compensation" within the meaning of Code Section 162(m)(4)(B).
10.5 SECTION 162(m)LIMITATIONS. Notwithstanding any other provision of this Plan, if the Committee determines at the time any Award is granted to a Participant that such Participant is, or is likely to be at the time he or she recognizes income for federal income tax purposes in connection with such Award, a Covered Employee, then the Committee may provide that this Section 10 is applicable to such Award.
SECTION 11 REORGANIZATION, CHANGE IN CONTROL OR LIQUIDATION
Except as otherwise provided in an Award Agreement or other agreement approved by the Committee to which any Participant is a party, in the event that the Company undergoes a Change in Control, each Option, share of Restricted Stock and/or other Award shall without regard to any vesting schedule, restriction or performance target, automatically become fully exercisable, fully vested or fully payable, as the case may be, as of the date of such Change in Control. In addition to the foregoing, in the event the Company undergoes a Change in Control or in the event of a corporate merger, consolidation, major acquisition of property (or stock), separation, reorganization or liquidation in which the Company is a party and in which a Change in Control does not occur, the Committee, or the board of directors of any corporation assuming the obligations of the Company, shall have the full power and discretion to prescribe and amend the terms and conditions for the exercise, or settlement, of any outstanding Awards granted hereunder. The Committee may remove restrictions on Restricted Stock and Restricted Stock Units and may modify the performance requirements for any other Awards. The Committee may provide that Options or other Awards granted hereunder must be exercised in connection with the closing of such transactions, and that if not so exercised such Awards will expire. Any such determinations by the Committee may be made generally with respect to all Participants, or may be made on a case-by-case basis with respect to particular Participants. Notwithstanding the foregoing, any transaction undertaken for the purpose of reincorporating the Company under the laws of another jurisdiction, if such transaction does not materially affect the beneficial ownership of the Company's capital stock, such transaction shall not constitute a merger, consolidation, major acquisition of property for stock, separation, reorganization, liquidation, or Change in Control.
SECTION 12 RIGHTS OF EMPLOYEES; PARTICIPANTS
12.1 EMPLOYMENT. Nothing contained in the Plan or in any Award granted under the Plan shall confer upon any Participant any right with respect to the continuation of his or her services as a Service Provider or interfere in any way with the right of the Company, subject to the terms of any separate employment or consulting agreement to the contrary, at any time to terminate such services or to increase or decrease the compensation of the Participant from the rate in existence at the time of the grant of an Award. Whether an authorized leave of absence, or absence in military or government service, shall constitute a termination of Participant's services as a Service Provider shall be determined by the Committee at the time.
12.2 NONTRANSFERABILITY. Except as provided in Section 12.3, no right or interest of any Holder in an Award granted pursuant to the Plan shall be assignable or transferable during the lifetime of the Participant, either voluntarily or involuntarily, or be subjected to any lien, directly or indirectly, by operation of law, or otherwise, including execution, levy, garnishment, attachment, pledge or bankruptcy. In the event of a Participant's death, a Holder's rights and interests in all Awards shall, to the extent not otherwise prohibited hereunder, be transferable by testamentary will or the laws of descent and distribution, and payment of any amounts due under the Plan shall be made to, and exercise of any Options or SARs may be made by, the Holder's legal representatives, heirs or legatees. If, in the opinion of the Committee, a person entitled to payments or to exercise rights with respect to the Plan is disabled from caring for his or her affairs because of a mental condition, physical condition or age, payment due such person may be made to, and such rights shall be exercised by, such person's guardian, conservator, or other legal personal representative upon furnishing the Committee with evidence satisfactory to the Committee of such status. "Transfers" shall not be deemed to include transfers to the Company or "cashless exercise" procedures with third parties who provide financing for the purpose of (or who otherwise facilitate) the exercise of Awards consistent with applicable laws and the authorization of the Committee.
12.3 PERMITTED TRANSFERS. Pursuant to conditions and procedures established by the Committee from time to time, the Committee may permit Awards to be transferred to, exercised by and paid to certain persons or entities related to a Participant, including members of the Participant's immediate family, charitable institutions, or trusts or other entities whose beneficiaries or beneficial owners are members of the Participant's immediate family and/or charitable institutions (a "Permitted Transferee"). In the case of initial Awards, at the request of the Participant, the Committee may permit the naming of the related person or entity as the Award recipient. Any permitted transfer shall be subject to the condition that the Committee receive evidence satisfactory to it that the transfer is being made for estate and/or tax planning purposes on a gratuitous or donative basis and without consideration (other than nominal consideration). Notwithstanding the foregoing, Incentive Stock Options shall only be transferable to the extent permitted in Section 422 of the Code, or such successor provision thereto, and the treasury regulations thereunder.
SECTION 13 GENERAL RESTRICTIONS
13.1 INVESTMENT REPRESENTATIONS. The Company may require any person to whom an Option or other Award is granted, as a condition of exercising such Option or receiving Stock under the Award, to give written assurances in substance and form satisfactory to the Company and its counsel to the effect that such person is acquiring the Stock subject to the Option or the Award for his own account for investment and not with any present intention of selling or otherwise distributing the same, and to such other effects as the Company deems necessary or appropriate in order to comply with federal and applicable state securities laws. Legends evidencing such restrictions may be placed on the certificates evidencing the Stock.
13.2 COMPLIANCE WITH SECURITIES LAWS.
(a) Each Award shall be subject to the requirement that, if at any time counsel to the Company shall determine that the listing, registration or qualification of the Shares subject to such Award upon any securities exchange or under any state or federal law, or the consent or approval of any governmental or regulatory body, is necessary as a condition of, or in connection with, the issuance or purchase of Shares thereunder, such Award may not be accepted or exercised in whole or in part unless such listing, registration, qualification, consent or approval shall have been effected or obtained on conditions acceptable to the Committee. Nothing herein shall be deemed to require the Company to apply for or to obtain such listing, registration or qualification.
(b) Each Holder who is a director or an Executive Officer is restricted from taking any action with respect to any Award if such action would result in a (i) violation of Section 306 of the Sarbanes-Oxley Act of 2002, and the regulations promulgated thereunder, whether or not such law and regulations are applicable to the Company, or (ii) any policies adopted by the Company restricting transactions in the Stock.
13.3 STOCK RESTRICTION AGREEMENT. The Committee may provide that Shares issuable upon the exercise of an Option shall, under certain conditions, be subject to restrictions whereby the Company has (i) a right of first refusal with respect to such Shares, (ii) specific rights or limitations with respect to the Participant's ability to vote such Shares, or (iii) a right or obligation to repurchase all or a portion of such Shares, which restrictions may survive a Participant's cessation or termination as a Service Provider.
SECTION 14 OTHER EMPLOYEE BENEFITS
The amount of any compensation deemed to be received by a Participant as a result of the exercise of an Option or the grant, payment or vesting of any other Award shall not constitute "earnings" with respect to which any other benefits of such Participant are determined, including benefits under (a) any pension, profit sharing, life insurance or salary continuation plan or other employee benefit plan of the Company or (b) any agreement between the Company and the Participant, except as such plan or agreement shall otherwise expressly provide.
SECTION 15 PLAN AMENDMENT, MODIFICATION AND TERMINATION
15.1 AMENDMENT, MODIFICATION AND TERMINATION. The Board may at any time terminate, and from time to time may amend or modify, the Plan; provided, however, that no amendment or modification may become effective without approval of the amendment or modification by the stockholders if stockholder approval is required to enable the Plan to satisfy any applicable statutory or regulatory requirements, to comply with the requirements for listing on any exchange where the Shares are listed, or if the Company, on the advice of counsel, determines that stockholder approval is otherwise necessary or desirable.
15.2 ADJUSTMENT UPON CERTAIN UNUSUAL OR NONRECURRING EVENTS. The Board may make adjustments in the terms and conditions of Awards in recognition of unusual or nonrecurring events (including the events described in Section 4.3) affecting the Company or the financial statements of the Company or of changes in applicable laws, regulations, or accounting principles, whenever the Board determines that such adjustments are appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan.
15.3 AWARDS PREVIOUSLY GRANTED. Notwithstanding any other provision of the Plan to the contrary (but subject to a Holder's employment being terminated for Cause and Section 15.2), no termination, amendment or modification of the Plan shall adversely affect in any material way any Award previously granted under the Plan, without the written consent of the Holder of such Award.
SECTION 16 WITHHOLDING
16.1 WITHHOLDING REQUIREMENT. The Company's obligations to deliver Shares upon the exercise of an Option, or upon the vesting of any other Award, shall be subject to the Participant's satisfaction of all applicable federal, state and local income and other tax withholding requirements.
16.2 WITHHOLDING WITH STOCK. The Committee may, in its sole discretion, permit the Holder to pay all minimum required amounts of tax withholding, or any part thereof, by electing to transfer to the Company, or to have the Company withhold from the Shares otherwise issuable to the Holder, Shares having a value not to exceed the minimum amount required to be withheld under federal, state or local law or such lesser amount as may be elected by the Holder. The Committee may require that any shares transferred to the Company have been held or owned by the Participant for a minimum period of time. All elections shall be subject to the approval or disapproval of the Committee. The value of Shares to be withheld shall be based on the Fair Market Value of the Stock on the date that the amount of tax to be withheld is to be determined (the "Tax Date"), as determined by the Committee. Any such elections by Holder to have Shares withheld for this purpose will be subject to the following restrictions:
(a) All elections must be made prior to the Tax Date;
(b) All elections shall be irrevocable; and
(c) If the Participant is an officer or director of the Company within the meaning of Section 16 of the 1934 Act ("Section 16"), the Participant must satisfy the requirements of such Section 16 and any applicable rules thereunder with respect to the use of Stock to satisfy such tax withholding obligation.
SECTION 17 NONEXCLUSIVITY OF THE PLAN
Neither the adoption of the Plan nor the submission of the Plan to stockholders of the Company for approval shall be construed as creating any limitations on the power or authority of the Board or the Committee to continue to maintain or adopt such other or additional incentive or other compensation arrangements of whatever nature as the Board or the Committee, as the case may be, may deem necessary or desirable, or to preclude or limit the continuation of any other plan, practice or arrangement for the payment of compensation or fringe benefits to employees, or non-employee directors generally, or to any class or group of employees, or non-employee directors, which the Company now has lawfully put into effect, including any retirement, pension, savings and stock purchase plan, insurance, death and disability benefits and executive short-term incentive plans.
SECTION 18 REQUIREMENTS OF LAW
18.1 REQUIREMENTS OF LAW. The issuance of Stock and the payment of cash pursuant to the Plan shall be subject to all applicable laws, rules and regulations, and to such approvals by any governmental agencies or stock exchanges as may be required. Notwithstanding any provision of the Plan or any Award, Holders shall not be entitled to exercise, or receive benefits under any Award, and the Company shall not be obligated to deliver any Shares or other benefits to a Holder, if such exercise, receipt of benefits or delivery would constitute a violation by the Holder or the Company of any applicable law or regulation.
18.2 CODE SECTION 409A. This Plan is intended to meet or to be exempt from the requirements of Section 409A of the Code, and shall be administered, construed and interpreted in a manner that is accordance with and furtherance of such intent. Any provision of this Plan that would cause an Award to fail to satisfy Section 409A of the Code or, if applicable, an exemption from the requirements of that Section, shall be amended (in a manner that as closely as practicable achieves the original intent of this Plan) to comply with Section 409A of the Code or any such exemption on a timely basis, which may be made on a retroactive basis, in accordance with regulations and other guidance issued under Section 409A of the Code.
18.3 RULE 16b-3. Each transaction under the Plan is intended to comply with all applicable conditions of Rule 16b-3, to the extent Rule 16b-3 reasonably may be relevant or applicable to such transaction. To the extent any provision of the Plan or any action by the Committee under the Plan fails to so comply, such provision or action shall, without further action by any person, be deemed to be automatically amended to the extent necessary to effect compliance with Rule 16b-3; provided, however, that if such provision or action cannot be amended to effect such compliance, such provision or action shall be deemed null and void to the extent permitted by law and deemed advisable by the Committee.
18.4 GOVERNING LAW. The Plan and all agreements hereunder shall be construed in accordance with and governed by the laws of the state of Delaware without giving effect to the principles of the conflict of laws to the contrary.
SUBJECT TO THE SHAREHOLDER APPROVAL REQUIREMENT NOTED BELOW, THIS AMCON DISTRIBUTING COMPANY 2007 OMNIBUS INCENTIVE PLAN HEREBY IS ADOPTED BY THE BOARD OF DIRECTORS OF AMCON DISTRIBUTING COMPANY THIS 7th DAY OF MARCH, 2007.
THE PLAN SHALL BECOME EFFECTIVE ONLY IF APPROVED BY THE SHAREHOLDERS OF THE COMPANY AND THE EFFECTIVE DATE OF THE PLAN SHALL BE SUCH DATE OF SHAREHOLDER APPROVAL.
AMCON DISTRIBUTING COMPANY
By: /s/ Andrew C. Plummer
Vice President, Chief Financial Officer and Secretary
|
EXHIBIT 10.13
AMCON DISTRIBUTING COMPANY
NONQUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT ("Agreement"), is made and entered as of December 12, 2006 (the "Granting Date"), by and between AMCON Distributing Company, a Delaware corporation (the "Company"), and Christopher H. Atayan (the "Optionee").
RECITALS
A. The Optionee is the Chief Executive Officer of the Company and the Company wants to grant the Optionee options to purchase shares of common stock of the Company (the "Common Stock") with respect to the Optionee's employment with the Company in order to more fully align the interests of the Optionee with the interests of the Company's stockholders as well as provide additional incentive for the Optionee to promote the success of its business through sharing in the future growth of such business.
B. The Compensation Committee of the Board of Directors of the Company (the "Compensation Committee") has granted the Optionee an option to purchase shares of Common Stock on the terms and conditions set forth in this Agreement, which option is subject to and contingent upon obtaining the stockholder approval contemplated by Section 1 hereof at the next Annual Meeting of Stockholders, and if such stockholder approval is not obtained, this option shall automatically terminate.
C. This Agreement is granted to the Optionee, and the shares issuable upon exercise of the option shall be issued, in reliance on the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act") and Regulation D thereunder.
AGREEMENT
In consideration of the mutual promises and covenants herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto do hereby agree as follows:
1. GRANT OF OPTION.
(a) The Company hereby grants to the Optionee as a matter of separate
inducement in connection with the Optionee's employment, but not in
lieu of any salary or other compensation for the Optionee's services,
the option (the "Option") to purchase from the Company, at the times
and on the terms and conditions hereinafter set forth, all or part of
an aggregate of 25,000 shares of Common Stock at the purchase price of
$18.00 per share, which represents the closing trading price of the
Company's Common Stock on the American Stock Exchange ("AMEX") on the
day immediately prior to the Granting Date. Notwithstanding any other
provision of this Agreement, in order to satisfy the requirements of
Section 711 of the AMEX Company Guide, the Option granted under this
Agreement shall be automatically terminated in the event that it is
submitted for approval by the holders of a majority of the shares of
common stock of the Company voting (the "Requisite Stockholder
Approval") at the next Annual Meeting of Stockholders of the Company
that is held after the date hereof and the Requisite Stockholder
Approval is not obtained at such meeting.
(b) Exercises of this Option may be honored by issuing authorized and unissued shares of Common Stock or, at the election of the Company, by transferring shares of Common Stock which may at the time be held by the Company as treasury shares.
(c) The Option granted hereunder is a non-qualified stock option and is not an incentive stock option within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, from time to time (the "Code").
2. TERMS OF OPTION. The Option granted hereunder may be exercised from time to time by the Optionee by giving written notice of exercise to the Company specifying the number of shares to be purchased, and by payment of the purchase price therefor by either (i) cash or check to the order of the Company, or (ii) shares of stock of the Company having a fair market value equal to the purchase price on the exercise date, subject, however, to the following restrictions:
(a) Notwithstanding any provision of this Agreement to the contrary, the Option may not be exercised after the tenth anniversary of the date of this Agreement (the "Expiration Date").
(b) Subject to Sections 7 of this Agreement, the Option is
exercisable only in the following maximum amounts: (i) no portion of
this Option may be exercised before the first anniversary of the
Granting Date, (ii) up to one-third of this Option (8,333.33 shares)
may be exercised after the first anniversary of the Granting Date,
(iii) up to two-thirds of this Option (16,666.66 shares) may be
exercised after the second anniversary of the Granting Date and (vi)
all of this Option may be exercised after the third anniversary of the
Granting Date. Notwithstanding the above sentence, but subject to
Section 7 of this Agreement, if there is a Change of Control of the
Company and the surviving, continuing, successor or purchasing
corporation, partnership, limited liability company, association,
trust, or other entity does not agree to assume the Option or replace
the Option with an option, then this Option will become fully
exercisable. For purposes of this Section 2(b), a "Change of Control"
means any of the following:
(i) the making of a tender or exchange offer by any person or entity
or group of associated persons or entities (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934
(the "Exchange Act")) (a "Person") (other than the Company or its
subsidiaries) for shares of Common Stock pursuant to which purchases
are made of securities representing at least fifty percent (50%) of
the total combined voting power of the then issued and outstanding
voting stock of the Company;
(ii) the merger or consolidation of the Company with, or the sale or disposition of all or substantially all of the assets of the Company to, any Person other than (A) a merger or consolidation which would result in the voting stock of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting stock of the surviving or parent entity) fifty percent (50%) or more of the total combined voting power of the voting stock of the Company or such surviving or parent entity outstanding immediately after such merger or consolidation; or (B) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the beneficial owner, directly or indirectly (as determined under Rule 13d-3 promulgated under the Securities Exchange Act of 1934), of securities representing fifty percent (50%) or more of the total combined voting power of the Voting Stock of the Corporation outstanding immediately after such merger or consolidation;
(iii) if, at any time within a two-year period following the acquisition by any Person of direct or indirect beneficial ownership (as determined under Rule 13d-3 promulgated under the Exchange Act), in the aggregate, of securities of the Company representing forty percent (40%) or more of the total combined voting power of the then issued and outstanding voting stock of the Company, the persons who at the time of such acquisition constitute the Board of Directors cease for any reason whatsoever to constitute a majority of the Board of Directors;
(iv) the acquisition of direct or indirect beneficial ownership (as determined under Rule 13d-3 promulgated under the Exchange Act), in the aggregate, of securities of the Corporation representing fifty percent (50%) or more of the outstanding voting stock of the Company by any person or group of persons acting in concert; or
(v) the approval by the shareholders of the Company of any plan or proposal for the complete liquidation or dissolution of the Company or for the sale of all or substantially all of the assets of the Company.
3. EFFECT OF TERMINATION OF SERVICE, DEATH, DISABILITY OR VOLUNTARY RESIGNATION.
(a) Termination/Removal for Cause. If the Optionee ceases to be an employee due to the termination of the Optionee's employment for Cause (as defined below), the Option will expire immediately and will thereafter be void for all purposes. For purposes of this Agreement, "Cause" means any act or failure to act by the Optionee that constitutes willful misconduct or gross negligence.
(b) To the extent exercisable in accordance with Section 2, the Option granted herein will remain exercisable for the following periods of time after an Optionee ceases to be an employee on account of the Optionee's death, disability, voluntary resignation or on account of having been terminated as an employee without Cause (as defined above). In no event may the Option be exercised after the Expiration Date.
(i) Death. If the Optionee dies while he is an Employee, the Option, to the extent exercisable, may be exercised by the Optionee's beneficiaries entitled to do so within twelve months following the date of the Optionee's death.
(ii) Disability. If the Optionee becomes disabled while he is an Employee, the Option, to the extent exercisable, may be exercised by the Optionee within twelve months following the date of the Optionee's disability.
(iii) Termination Without Cause or Voluntary Resignation. If the Optionee ceases to be an Employee due to (A) the Optionee's voluntary resignation, or (B) the termination of the Optionee's employment without Cause (as defined above), the Option may be exercised by the Optionee within three months following the date of the Optionee's termination of employment.
4. NOT AN EMPLOYMENT CONTRACT. Nothing herein contained is to be construed as requiring the Company or any affiliate of the Company to employ the Optionee for any specific period.
5. NONASSIGNABILITY. Except as otherwise herein provided, the Option herein granted and the rights and privileges conferred hereby may not be transferred, assigned, pledged or hypothecated in any way (whether by operation of law or otherwise) and may not be subject to execution, attachment, or similar process. Upon any attempt to transfer, assign, pledge, hypothecate or otherwise dispose of the Option herein granted, or of any right or privilege conferred hereby, or upon the levy of any attachment or similar process upon the rights and privileges conferred hereby, contrary to the provisions hereof, the Option and the rights and privileges conferred hereby will immediately become null and void.
6. ADJUSTMENTS FOR STOCK DIVIDENDS, SPLITS, ETC. If before the delivery to the Optionee by the Company of all the shares of the Common Stock in respect of which this Option is hereby granted, the Company has effected any stock dividend, stock split, recapitalization, combination or reclassification of shares or other similar transaction, then to the extent necessary to prevent dilution or enlargement of the Optionee's rights hereunder:
(a) if there is a net increase in the number of outstanding shares of Common Stock, the number of shares remaining subject to this Option will be proportionately increased, and the cash consideration payable per share will be proportionately reduced, and
(b) if there is a net reduction in the number of outstanding shares of Common Stock, the number of shares remaining subject to this Option will be proportionately reduced, and the cash consideration payable per share will be proportionately increased.
7. ADJUSTMENTS FOR MERGERS, REORGANIZATIONS, ETC. If the Company becomes a party to any corporate merger, consolidation, major acquisition of property for stock, separation, reorganization or liquidation, and the Company is not the surviving corporation in any such transaction, the Company or it successor may make arrangements which will be binding upon the Optionee for the (i) payment of cash equal to the excess of the fair market value of the total number of shares remaining subject to the Option less the exercise price for such total number of shares; (ii) substitution of a new option for the Option; or (iii) assumption of the Option.
8. RIGHTS OF OPTIONEE. The Optionee does not have any of the rights or privileges of a stockholder of the Company in respect of any of the shares issuable upon the exercise of this Option unless and until certificates representing the shares shall have been issued and delivered; except that the Company shall supply the Optionee with all financial information and other reports which the Company furnished its stockholders during the period any portion of this Option remains outstanding.
9. NOTICE. Any notice required to be given under the terms of this Agreement shall be addressed to the Company in care of its Chief Financial Officer at its offices at: 7405 Irvington Road, Omaha, Nebraska 68122, with a telephone number of (402) 331-3727 and fax number of (402) 331-4834, and any notice to be given to the Optionee shall be addressed to the Optionee at the address given beneath the Optionee's signature hereto. Either party hereto may from time to time change the address to which notices are to be sent to such party by giving written notice of such change to the other party. Any notice hereunder shall be deemed to have been duly given if and when addressed as aforesaid, registered and deposited, postage and registry fee prepaid, in a post office regularly maintained by the United States Government.
10. WITHHOLDING. The Optionee agrees to make appropriate arrangements with the Company for satisfaction of any applicable federal, state or local income tax withholding requirements or like requirements, including the payment to the Company at the time of exercise of an Option of all such taxes and requirements.
11. INVESTMENT INTENT.
(a) This Agreement is granted to, and the shares issuable upon exercise of this Option will be issued to the Optionee, in reliance on the exemption from registration provided in Section 4(2) of the Securities Act and Regulation D promulgated thereunder. Any stock certificates issued upon exercise of this Option may bear the following legend and stop transfer instructions may be given to the transfer agent for the Company's common stock that are consistent with such legend:
The shares represented by this certificate have not been registered under the Securities Act of 1933, as amended (the "Act"), or any state securities laws. These shares have been acquired for investment and not with a view to distribution or resale, and may not be sold, pledged, hypothecated, donated or otherwise transferred, whether or not for consideration, without an effective registration statement under the Act, and any applicable state securities laws, or an opinion of counsel satisfactory to the Corporation that such registration is not required with respect to the proposed disposition thereof and that such disposition will not cause the loss of the exemption upon which the Corporation relied in selling such shares to the original purchaser.
(b) The Company may, but in no event shall be required to, bear any expenses of complying with the 1933 Act, other applicable securities laws or the rules and regulations of any national securities exchange or other regulatory authority in connection with the registration, qualification, or transfer, as the case may be, of this Option or any Common Stock acquired upon the exercise thereof. The foregoing restrictions on the transfer of the Common Stock will be inoperative if (i) the Company has been furnished with an opinion of counsel, satisfactory to it, stating that the transfer will not involve any violation of the Securities Act and other applicable securities laws or (ii) the Common Stock has been duly registered in compliance with the Securities Act and other applicable securities laws.
12. BINDING EFFECT. This Agreement binds, and, except as specifically provided herein, inures to the benefit of the respective heirs, legal representatives, successors and assigns, as applicable, of the parties hereto.
13. GOVERNING LAW. This Agreement and the rights of all persons claiming hereunder are to be construed and determined in accordance with the laws of the State of Delaware.
This Nonqualified Stock Option Agreement is executed by the Company and Optionee as of the date stated above in the introductory paragraph.
AMCON DISTRIBUTING COMPANY
By: /s/ William F. Wright, Chairman /s/ Christopher H. Atayan Address: 515 North State Street, Suite 2650 Chicago, Illinois 60610 |
EXHIBIT 10.20
AMENDED AND RESTATED
GUARANTY AND SURETYSHIP AGREEMENT
This Amended and Restated Guaranty and Suretyship Agreement (this "Agreement" or the "Guaranty") is made as of the 17th day of June, 2004 and amended and restated as of the 30th day of September, 2007 by AMCON Distributing Company, a Delaware corporation (the "Guarantor"), in favor of Crystal Paradise Holdings, Inc., an Idaho corporation, also known as Trinity Springs, Ltd. ("CPH").
RECITALS
A. Trinity Springs Inc., a Delaware corporation and majority-owned subsidiary of AMCON ("TSI"), purchased substantially all of the assets of CPH pursuant to the terms of that certain Asset Purchase Agreement dated April 24, 2004, and amended on June 17, 2004 (the "Asset Purchase Agreement").
B. In connection with the transactions contemplated by the Asset Purchase Agreement, TSI issued to CPH (a) a Promissory Note in the original principal amount of FIVE HUNDRED THOUSAND DOLLARS AND 00/100 DOLLARS ($500,000.00) (the "Three Year Note"); (b) a Promissory Note in the original principal amount of TWO MILLION EIGHT HUNDRED TWENTY-EIGHT THOUSAND FOUR HUNDRED FORTY AND 00/100 DOLLARS ($2,828,440.00) (the "Ten Year Note"); and (c) pursuant to Section 11.1 of the Asset Purchase Agreement, certain royalty payment obligations with respect to the sale of water after the date hereof (the "Water Royalty").
C. As a condition to CPH's obligation to enter into the Asset Purchase Agreement and perform its obligations thereunder, Guarantor entered into this Agreement to guaranty TSI's payment obligations under the Three Year Note, the Ten Year Note and the Water Royalty, subject to certain limitations set forth herein.
D. In order to settle certain disputes and release each other from claims and causes of action that arose between CPH, TSI, and AMCON after the transfer of assets pursuant to the Asset Purchase Agreement, the parties hereto have entered into that certain Mutual Release and Settlement Agreement dated September 30, 2007 (the "Settlement Agreement").
E. As part of the Settlement Agreement, CPH has cancelled the Three Year Note, the Ten Year Note, the Asset Purchase Agreement and, consequently, the Water Royalty in exchange for, among other consideration, TSI issuing a new promissory note in the principal amount of FIVE MILLION AND NO/100 DOLLARS ($5,000,000.00) (the "Note").
F. AMCON desires to amend and restate this Guaranty to guarantee TSI's payment obligations under the Note instead of the Three Year Note, Ten Year Note, and Water Royalty, subject to certain limitations set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Guarantor hereby agrees as follows:
AGREEMENT
1. REPRESENTATIONS AND WARRANTIES. Guarantor hereby represents and warrants to CPH as follows:
(a) The execution and delivery by Guarantor of this Agreement and the performance by Guarantor of its obligations hereunder do not and will not contravene or conflict with any law, regulation or rule, any license, agreement, or instrument to which Guarantor is a party or by which Guarantor or any of Guarantor's property may be bound or affected, or any judgment, order or decree of any court of any federal, state, or local commission, board, or other administrative agency by which Guarantor or any of Guarantor's property may be bound or affected.
(b) This Agreement is the legal, valid, and binding obligation of Guarantor, enforceable against Guarantor in accordance with its terms.
2. GUARANTY. Guarantor absolutely, irrevocably and unconditionally guarantees the prompt payment when due of all amounts under the Note, in accordance with its terms, to CPH, including, without limitation, costs of collection, which shall include reasonable attorneys fees (collectively referred to herein as the "Obligations"). Notwithstanding anything to the contrary contained herein, to satisfy the Obligations when due, CPH shall be entitled to make a claim against all or any portion of the assets of Guarantor. Guarantor further agrees that:
(a) This Guaranty is in all respects continuing, absolute, and unconditional.
(b) This Guaranty is a guaranty of both performance and payment when due, and not of collection.
(c) CPH may, from time to time, at CPH's sole discretion and without notice to Guarantor, take any or all of the following actions:
(i) Accept a security interest in any property to secure payment of any or all of the Obligations;
(ii) Obtain the primary or secondary obligation of any third party in addition to the Guarantor with respect to any or all of the Obligations;
(iii) Release, compromise, extend, alter, or modify any of the Obligations or any obligation of any nature of any other obligor with respect to any of the Obligations;
(iv) Release, compromise, or extend any obligation of Guarantor hereunder;
(v) Release any security interest in, or surrender, release, or permit any substitution or exchange for, all or any part of any property securing any of the Obligations or any obligation hereunder, or release, compromise, extend, alter, or modify any obligation of any nature of any obligor with respect to any such property; and
(vi) Resort to or proceed against Guarantor for performance or payment of any of the Obligations whether or not CPH shall have proceeded against TSI or any other obligor primarily or secondarily obligated with respect to any of the Obligations, shall have resorted to any property securing any of the Obligations or any obligation hereunder, or shall have pursued any other remedy.
(d) As between CPH and the Guarantor, any amounts received by CPH from whatever source on account of any Obligation (arising by whatever means) shall be applied by CPH toward the payment of any Obligation then due and payable, in the following order:
(i) To Obligations that have matured; provided that if the payment is insufficient to pay all Obligations that have matured, pro rata between the matured Obligations according to the relative principal amounts due thereunder; and
(ii) If no Obligations are matured and unpaid, then pro rata between the unmatured Obligations according to the relative principal amounts due thereunder.
Notwithstanding any performance or payments made by or for the account of Guarantor pursuant to this Guaranty, Guarantor will not be subrogated to any rights of CPH until such time as CPH shall have received performance and payment in full of all of the Obligations and performance of all obligations of the Guarantor hereunder. Without limiting the generality of the foregoing, if CPH is required at any time to return all or part of any payment applied by CPH to the payment of the Obligations or any costs or expenses covered by this Guaranty, whether by virtue of the insolvency, bankruptcy, or reorganization of Guarantor or otherwise, the Obligations to which the returned payment was applied shall be deemed to have continued in existence and this Guaranty shall continue to be effective or to be reinstated, as the case may be, as to such Obligations, as though such payment had not been received and such application by CPH had not been made.
(e) Guarantor waives:
(i) Notice of the acceptance by CPH of this Guaranty;
(ii) Notice of the existence, creation, release, compromise,
extension, alteration, modification, non-performance, or non-payment
of any or all of the Obligations;
(iii) Presentment, demand, notice of dishonor, protest, and all other
notices whatsoever; and
(iv) All diligence in collection of or realization upon any payments on, or assurance of performance of, any of the Obligations or any obligation hereunder, or in collection on, realization upon, or protection of any security for, or guaranty of, any of the Obligations or any obligation hereunder.
(f) As between the Guarantor and CPH, CPH may assign or otherwise transfer the right to receive performance of or payment upon any of the Obligations to any third party.
3. OCCURRENCE OF DEFAULT. Notwithstanding anything in this Agreement to the contrary, CPH will not make any demand for payment or performance hereunder against Guarantor and Guarantor shall not be obligated to pay or perform any obligation hereunder unless an "Event of Default" has occurred under the Note.
4. NOTICES. All notices and communications under this Agreement
shall be in writing and shall be deemed to have been duly given when
delivered by messenger, by overnight delivery service, or by facsimile
(receipt confirmed), or mailed by first class certified mail, return
receipt requested; if to the Guarantor, at: 7405 Irvington Road,
Omaha, Nebraska 68122, attention: Chief Financial Officer, facsimile
number (402) 331-4834, and if to CPH, at: c/o Hawley Troxell Ennis &
Hawley LLP, 877 W. Main St., Suite 1000, Boise, ID 83702, attention:
Thomas Chandler, facsimile number (208) 342-3829, or in each case to
such other address respectively as the party shall have specified by
notice to the other.
5. INTEGRATION, ASSIGNMENT, MODIFICATION, PAYMENT OF EXPENSES AND CONSTRUCTION. This Guaranty constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes any prior written or oral agreements between the Guarantor and CPH with respect to the subject matter herein. This Guaranty may not be assigned by Guarantor without the prior written consent of CPH, which may be withheld for any reason whatsoever. Subject to the foregoing, this Guaranty will inure to the benefit of CPH, and be binding upon Guarantor, and its successors and assigns. This Guaranty may be amended or modified only by a writing signed by Guarantor and CPH. The Guarantor shall pay all of CPH's expenses (including, without limitation, costs and expenses of litigation and reasonable attorneys' fees) in enforcing or endeavoring to realize upon this Guaranty which is not paid when due. The unenforceability or invalidity of any provision of this Guaranty shall not affect the validity of the remainder of this Guaranty.
6. WAIVER. The failure of CPH to insist upon strict performance of any of the terms, conditions, agreements, or covenants in this Guaranty in any one or more instances shall not be deemed to be a waiver by CPH of its rights to enforce thereafter any of such terms, conditions, agreements, or covenants. Any waiver by CPH of any of the terms, conditions, agreements, or covenants in this Guaranty must be in writing signed by CPH.
7. APPLICABLE LAW. This Guaranty will be governed by, and construed and interpreted in accordance with, the laws of state of Idaho.
8. SECTION HEADINGS. The section headings used in this Guaranty are for the convenience of CPH and the Guarantor only and shall not affect the construction or interpretation of the provisions of this Guaranty.
[signature page to follow]
Guarantor has executed this Amended and Restated Guaranty and Suretyship Agreement as of September 30, 2007.
AMCON DISTRIBUTING COMPANY
Name: /s/ Andrew C. Plummer Title: Chief Financial Officer |
EXHIBIT 10.23
AMENDMENT TO GUARANTY FEE, REIMBURSEMENT AND
INDEMNIFICATION AGREEMENT
THIS AMENDMENT TO GUARANTY FEE, REIMBURSEMENT AND INDEMNIFICATION AGREEMENT (this "Amendment") is entered into as of July 31, 2007, by and between AMCON DISTRIBUTING COMPANY, a Delaware corporation ("AMCON") and WILLIAM F. WRIGHT, an individual (the "Guarantor") with reference to the following facts:
RECITALS
A. AMCON and the Guarantor have entered into a Guaranty Fee, Reimbursement And Indemnification Agreement dated September 30, 2004 (the "Agreement") which provides for a guaranty by the Guarantor to AMCON in exchange for a fee and the pledge of the Pledged Shares (as defined in the Agreement) to secure said guaranty.
B. Section 8 of the Agreement provides that the Agreement may be amended by a writing signed by AMCON and the Guarantor.
AGREEMENT
THE PARTIES AGREE AS FOLLOWS:
1. All capitalized terms used herein but not otherwise defined herein shall have the meanings ascribed thereto in the Agreement.
2. The Agreement shall be amended and restated as follows:
2.1 The following shall be added as the second paragraph under the "RECITALS" heading in the Agreement:
WHEREAS, AMCON is also in need of a guaranty of specific financial accommodations to be provided to AMCON by Television Events & Marketing, Inc. ("TEAM") under a Settlement Agreement and Mutual General Release ("Settlement Agreement") dated July 31, 2007, and TEAM has requested that the Guarantor provide said guaranty;
2.2 Section 1 of the Agreement shall be amended in its entirety by substituting the following therefor:
1. Agreement to Guaranty. Guarantor shall execute (1) a guaranty
form provided by the Agent pursuant to which Guarantor will guarantee
up to $10,000,000.00 of the obligations, liabilities and indebtedness
of Borrowers to Lenders incurred pursuant to the Loan Agreement, and
(2) the Settlement Agreement pursuant to which Guarantor will
guarantee up to $687,500.00 of the obligations, liabilities and
indebtedness of AMCON to TEAM incurred pursuant to the Settlement
Agreement (collectively, the "Guaranty").
3. Except as specifically set forth herein, the terms of the Agreement, and any exhibits and schedules thereto, shall remain unmodified and in full force and effect.
4. This Amendment shall be governed by and construed according to the laws of the State of Nebraska. This Amendment may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment to the Agreement as of the date first above written.
AMCON:
AMCON DISTRIBUTING COMPANY
By: /s/ Andrew C. Plummer Name: Andrew Plummer Title: Vice President and Chief Financial Officer |
GUARANTOR:
/s/ William F. Wright |
EXHIBIT 10.39
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS. THIS NOTE MAY NOT BE SOLD, PLEDGED, HYPOTHECATED, DONATED OR OTHERWISE TRANSFERRED, WHETHER OR NOT FOR CONSIDERATION, (A) WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, AND ANY APPLICABLE STATE SECURITIES LAWS, OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREUNDER, AND (B) EXCEPT AS OTHERWISE PERMITTED BY THE TERMS OF THIS NOTE.
SECURED PROMISSORY NOTE
$5,000,000
September 30, 2007
1. PRINCIPAL AMOUNT. For value received, TRINITY SPRINGS, INC., formerly known as TSL Acquisition Corp. (hereinafter referred to as "Maker"), unconditionally promises to pay to the order of CRYSTAL PARADISE HOLDINGS, INC., an Idaho corporation, also known as Trinity Springs, Ltd. ("CPH") at c/o Hawley Troxell Ennis & Hawley LLP, Attention: Thomas Chandler, 877 W. Main St., Suite 1000, Boise, ID 83702, or to such other place and in such other manner as CPH may from time to time designate, the principal sum of the principal sum of FIVE MILLION AND NO/100 DOLLARS ($5,000,000.00).
2. INTEREST. Interest shall accrue on the unpaid principal amount hereof from the date hereof at the rate of five percent (5%) per annum, compounded annually.
3. POST MATURITY INTEREST; COMPUTATION OF INTEREST. Any amount of principal and/or interest hereof which is not paid when due, whether at stated maturity, by acceleration or otherwise, shall bear interest from the date when due until said principal and/or interest amount is paid in full, payable on demand, at an interest rate which is one percent (1%) per annum in excess of the rate of interest otherwise payable under this Note. Interest shall be computed on the basis of a year of 365 days or the actual number of days elapsed. No provision of this Note shall require the payment or permit the collection of interest in excess of the maximum permitted by law. If any excess of interest in such respect is herein or in such other instrument provided for, or shall be adjudicated to be so provided for herein or in such other instrument, Maker shall not be obligated to pay such interest in excess of the maximum amount permitted by law and the right to demand the payment of any such excess shall be and hereby is waived. This provision shall control any other provision of this Note or such other instrument. If any such excess interest shall have been paid by Make it shall automatically be treated as a permitted additional prepayment of principal.
4. PAYMENTS. The principal sum and accrued interest thereon shall be due and payable in full on the fifth anniversary of the date of this Note. Payments shall be credited first to interest and then to principal.
5. PREPAYMENT. All of any portion of the indebtedness evidenced hereby may be prepaid at any time without premium or penalty.
6. SETTLEMENT AGREEMENT. This Note is being executed pursuant to that certain Mutual Release and Settlement Agreement of even date herewith (the "Settlement Agreement"), by and among Maker, CPH, and AMCON Distributing Co. ("AMCON"), pursuant to which Maker, CPH, and AMCON have agreed to settle certain outstanding claims, terminate the Asset Purchase Agreement, cancel the 3-Year Note and 10-Year Note in exchange for the issuance of this Note and the option to acquire substantially all of the assets of Maker, and certain other actions as further outlined therein. Capitalized terms used but not otherwise defined herein shall have the meaning set forth in the Settlement Agreement.
7. SECURITY. Maker's obligations under this Note shall be secured by
(i) certain of the Assets pursuant to that certain Security Agreement
dated June 17, 2004 between Maker and CPH (the "Security Agreement")
and (ii) the Real Property pursuant to that certain Mortgage dated
June 17, 2004 executed by Maker in favor of CPH.
8. GUARANTY. Maker's obligations under this Note shall be guaranteed by AMCON pursuant to that certain Guaranty and Suretyship Agreement dated June 17, 2004, and amended September 30, 2007 (the "Guaranty") executed by AMCON in favor of CPH.
9. EVENTS OF DEFAULT. The occurrence of any one or more of the following events shall constitute an "Event of Default" hereunder:
a. Maker shall fail to pay any amount under this Note when due, whether at maturity, by acceleration or otherwise, and such failure continues for five (5) days after CPH provides written note of such failure to Maker;
b. Maker or AMCON shall fail to perform its obligations under Section 2.1(h) or Article 6 of the Settlement Agreement and such breach and/or failure continues for thirty (30) days after CPH provides written notice of such breach and/or failure to Maker or AMCON;
c. any representation, warranty, or covenant of Maker made in this Note is or shall become incorrect or misleading in any material respect, and such breach and/or failure continues for thirty (30) days after CPH provides written notice of such breach and/or failure to Maker;
d. any representation, warranty, or covenant of AMCON under the Guaranty is or shall become incorrect or misleading in any material respect, and such breach and/or failure continues for thirty (30) days after CPH provides written notice of such breach and/or failure to Maker; or
e. Maker shall, except as may be expressly contemplated in the Settlement Agreement or consented to in writing by CPH: (i) file any proceeding in bankruptcy or reorganization; (ii) make an assignment for the benefit of creditors; or (iii) fail to vacate, discharge or dismiss within ninety (90) days of its initiation either: (x) the filing of a proceeding in bankruptcy against it; or (y) the appointment of a receiver or trustee for all or any part of Maker's assets or property.
10. REMEDIES. Upon the occurrence of an Event of Default, CPH at its option will have all rights and remedies of a secured party under the Uniform Commercial Code of the State of Idaho ("UCC"), and other applicable laws. In addition to the foregoing rights and remedies, upon the occurrence of an Event of Default, CPH shall have the right to declare all amounts due hereunder to be immediately due and payable, whereupon all such amounts shall become due and payable, without further notice, demand, or presentment of any kind. Maker promises to pay all costs of collection, including, but not limited to, reasonable attorneys' fees, incurred by CPH on account of such collection, whether or not suit is filed hereon.
11. MISCELLANEOUS.
a. Maker waives presentment, protest and demand, notice of protest, demand and dishonor and nonpayment of this Note.
b. The time of payment of this Note may be extended from time to time without notice to Maker, endorsers, guarantors, sureties and all other parties liable for payment of any sum or sums due or to become due under the terms of this Note. No extension of the time for the payment of this Note made by agreement with any person now or hereafter liable for the payment of this Note shall operate to release, discharge, modify, change, or affect the original liability under this Note, either in whole or in part, of Maker hereunder or any other person now or hereafter liable for the payment of this Note who is not a party to such agreement.
c. If any one or more of the covenants, agreements, terms or provisions contained in this Note shall be invalid, illegal, or unenforceable in any respect, the validity of the remaining covenants, agreements, terms or provisions contained herein shall be in no way affected, prejudiced, limited, or impaired thereby.
d. Maker agrees that this Note shall be deemed to have been made under and shall be governed by, and construed in accordance with, the laws of the state of Idaho (without regard to its conflicts of law rules) in all respects, including, without limitation, matters of construction, validity, and performance, and that none of its terms or provisions may be waived, altered, modified, or amended except as the parties may consent thereto in a writing duly signed by both parties.
e. The headings, titles, and subtitles herein are inserted for convenience of reference only and are to be ignored in any construction of the provisions hereof. The term "Maker" as defined herein includes the heirs, personal representatives, successors and assigns of Maker.
f. CPH, as the holder of this Note, and any subsequent holder of this Note, shall not sell, pledge, hypothecate, donate, or otherwise transfer or convey, whether or not for consideration, to any person, any interest in this Note representing less than the entire amount of this Note and the entire amount of indebtedness evidenced by this Note, but rather, any holder of this Note may only sell, pledge, hypothecate, donate, or otherwise transfer or convey such holder's entire interest in this Note representing the entire amount of this Note and the entire amount of indebtedness evidenced by this Note.
IN WITNESS WHEREOF, Maker has executed and delivered this Note on the day and year first above written.
MAKER:
TRINITY SPRINGS, INC.,
a Delaware corporation
/s/ Andrew C. Plummer President and Secretary |
EXHIBIT 10.42
SETTLEMENT AGREEMENT AND MUTUAL GENERAL RELEASE
THIS SETTLEMENT AGREEMENT AND MUTUAL GENERAL RELEASE (this "Agreement") is effective as of July 31, 2007 and is by and among, and is binding upon, the following parties: TELEVISIONS EVENTS & MARKETING, INC., a Hawaii corporation ("TEAM"); TOM KIELY, an individual ("Kiely"); THE BEVERAGE GROUP, INC., a Delaware corporation ("TBGI"); AMCON DISTRIBUTING COMPANY, a Delaware corporation ("Distributing"); AMCON CORPORATION, a Delaware corporation ("AC"); WILLIAM F. WRIGHT, an individual ("Wright"); and ARCHIE J. THORNTON, an individual ("Thornton"); THE THORNTON WORKS, INC., a California corporation ("TWI"), each of which may individually be referred to herein as a "Party," or collectively as the "Parties."
RECITALS:
1. On or about January 15, 2003, TEAM, as licensor, entered into two Trademark License Agreements (the "License Agreements") regarding its XTERRA trademark. The Parties dispute which person or entity is responsible as licensee under the License Agreements.
2. The Parties are currently engaged in litigation regarding the License Agreements, entitled Television Events & Marketing, Inc. v. AMCON Distributing Company, et al. and Related Counterclaim, United States District Court, District of Hawaii, Case No. 05 CV 00259 ACK (the "Action").
3. Without any of them admitting any fault, liability or wrongdoing, the Parties desire to resolve their disputes, dismiss the Action and settle all related claims of any kind or nature, in law or equity, known or unknown, past and present which the Parties may have against one another from any and all dealings concerning the License Agreements and the Action.
NOW, THEREFORE, according to the preceding recitals and in exchange for and considering the covenants, agreements, and representations set forth in this Agreement, the Parties agree as follows:
AGREEMENT
I. CONSIDERATION:
A. PAYMENT BY DISTRIBUTING. Distributing shall pay TEAM a total of $875,000 as follows:
1. $187,500 on or before August 17, 2007;
2. $187,500 in 2008 in four equal quarterly installments as follows: $46,875 on or before January 4, 2008, April 4, 2008, July 3, 2008 and October 3, 2008;
3. $187,500 in 2009 in four equal quarterly installments as
follows: $46,875 on or before January 2, 2009, April 3, 2009, July 3,
2009 and October 2, 2009;
4. $187,500 in 2010 in four equal quarterly installments as
follows: $46,875 on or before January 7, 2010, April 7, 2010, July 7,
2010 and October 7, 2010; plus
5. $125,000 in 2011 in four equal quarterly installments as follows: $31,250 on or before January 7, 2011, April 7, 2011, July 7, 2011 and October 7, 2011.
B. XTERRA PARTICIPATING SPONSOR PACKAGES BY TEAM. TEAM shall provide Distributing (at the rate of one per year in any three of 2008, 2009, 2010 and 2011, at Distributing's option) with three (3) one-year XTERRA Participating Sponsor Packages (the "Sponsor Packages") worth at least $100,000 each (as determined by TEAM's arms-length valuation with respect to other Participating Sponsors and not by the actual cost to TEAM) for the benefit of a product or service which does not conflict with any other existing Sponsor. The terms of the Sponsor Packages are set forth in the separate written agreement between TEAM and Distributing and the brochure attached as Exhibit "A" hereto, and such terms shall also include (if not already provided for in Exhibit "A"):
1. Signage at all Championship events (TEAM produces and displays) in the United States;
2. Logo and visibility in the touring XTERRA Pavilion which is on display at the XTERRA America Tour and World Championship package;
3. Provision of a sponsor pavilion at the Championship events in the United States for Distributing or its assignee to use for its promotional purposes. This includes set up / teardown and transportation of the pavilion;
4. Logo in all marketing materials and advertising in the United States;
5. XTERRAPlanet.com web link;
6. Product sampling at event sites and sales through the onsite vendor in the United States;
7. Category exclusivity;
8. Any other benefits normally conferred with Sponsor Packages in the United States at the level contemplated in the brochure attached as Exhibit "A" hereto;
9. Distributing is permitted to transfer, sell, assign, or hypothecate any or all of the Sponsor Packages to any reasonably suitable (e.g., no cigarette companies) non-duplicative brand/service; and
10. Each of the three Sponsor Packages can be used in any year (one or two packages per year) beginning in 2008 or later, and do not need to be used in consecutive years. Distributing (and/or its assignees) shall provide TEAM use of the relevant logo(s) and promotional items in the quantity and of the type customarily expected of other Sponsors under the customary pricing and delivery conditions.
C. GUARANTY BY WRIGHT. Wright shall personally and unconditionally
guaranty each of Distributing's payment obligations set forth in
Section I.A.2-5, above, totaling $687,500.
D. PAYMENT BY THORNTON. Thornton shall commit to pay TEAM a total of $50,000 on or before August 17, 2007.
Each Party hereto will bear its own attorneys' fees and costs arising from or in connection with the Action and the negotiation of this Agreement.
E. MUTUAL GENERAL RELEASES.
Except for the obligations set forth in this Agreement, each of (1) TEAM and Kiely, and (2) Thornton and TWI, and (3) TBGI, Distributing, AC and Wright, for themselves and for all of their respective heirs, successors, assigns, principals, agents, officers, directors, representatives, attorneys, promoters, partners, joint venturers, affiliates, parent companies, subsidiaries, independent contractors, employees, employers, trustees, sureties, bonding companies, insurers and all others who claim to have an interest in the claims released herein, hereby release and forever discharge each other and all of each other's respective heirs, successors, assigns, principals, agents, officers, directors, representatives, attorneys, promoters, partners, joint venturers, affiliates, parent companies, subsidiaries, independent contractors, employees, employers, trustees, sureties, bonding companies and insurers, including but not limited to what has been referred to as "The Beverage Group" by TEAM in the Action, from any and all actual or potential claims, demands, losses, damages, and liabilities of any nature whatsoever, whether based on contract, tort, constitution, statute, or other legal or equitable theory of recovery, known or unknown, past or present, which each have, had, or claim to have against each other relating to or arising out of (1) the License Agreements and (2) the events, transactions and relationships underlying and/or related to the Action.
F. DISMISSAL OF ACTION. All Parties shall execute the documents required to dismiss the Action with prejudice with each Party bearing its own fees and costs (except as provided in Paragraph X, below)..
G. RESERVATION OF RIGHTS.
The Parties expressly reserve the right to enforce this Agreement. The Parties further agree that dismissal of the Action shall not affect either (1) the effectiveness of this Agreement, or (2) the jurisdiction of the United States District Court for the District of Hawaii over them, and they agree that the District Court shall reserve jurisdiction for the purposes of enforcing this Agreement in the event it is breached by any Party. The order of dismissal will specifically recite that the District Court shall retain jurisdiction for these purposes.
II. NO ADMISSION OF LIABILITY:
This Agreement shall not be construed as an admission of liability by any party to it. This Agreement is a compromise of the Action and contested claims therein.
III. SUCCESSORS AND ASSIGNS:
This Agreement is binding upon, and shall inure to the benefit of the Parties hereto, and their respective agents, officers, representatives, successors, attorneys, agents, partners, past or present employees, past or present independent contractors, employers, heirs, trustees, personal representatives, sureties, bonding companies, insurers and assigns.
IV. OWNERSHIP OF CLAIMS:
Each releasing party represents and warrants that no person other than the releasing party has an interest in the claims released, and that each party has not sold, assigned, transferred, conveyed or otherwise disposed of any of the released claims.
V. GOVERNING LAW:
This Agreement shall in all respects be interpreted, enforced, and governed by and under the laws of the State of Hawaii.
VI. WAIVER:
The waiver of any breach of this Agreement by any Party shall not be a waiver as to any other subsequent or prior breach.
VII. ENTIRE AGREEMENT:
This Agreement contains the entire agreement between and among the Parties and supersedes any other prior representations, understandings, or agreements, except for any written agreement regarding the Sponsorship Packages referred to in Section I.B., above. The terms of this Agreement are contractual and not a mere recital.
VIII. AMENDMENT:
This Agreement shall not be amended, modified or otherwise changed in any respect or particular whatsoever, except in a writing duly executed by all Parties. The Parties hereby acknowledge and agree that they will make no claim at any time that this Agreement has been orally altered or modified in any respect.
IX. AUTHORITY:
Each Party represents that the Party has full power, authority, and capacity to execute and perform his, her or its obligations under this Agreement.
X. ENFORCEMENT OF RIGHTS UNDER THIS AGREEMENT:
If any Party hereto attempts to set aside this Agreement, or brings any action for its breach, the prevailing party shall be entitled to recover reasonable costs and attorneys' fees.
XI. INTERPRETATION:
This Agreement is the product of negotiations between the Parties and shall be construed without regard to the party or parties responsible for preparing or drafting of this document. Any ambiguity or uncertainty existing herein shall not be interpreted or construed against any Party hereto by virtue of identification of the party who drafted the language.
XII. ADVICE FROM COUNSEL:
The Parties each acknowledge that he, she or it has entered into the Agreement freely and voluntarily, that he, she or it has read and understands the terms of the Agreement, and that each has signed the Agreement with the advice of counsel. The terms of the Agreement have been negotiated at arm's length among knowledgeable parties, who are represented by experienced counsel. As a result, the rule of "interpretation against the draftsman" shall not apply in any dispute over the interpretation of the terms of the Agreement.
XIII. SEVERABILITY:
If one or more of the provisions, or portions thereof, of the Agreement is/are determined to be illegal or unenforceable, then the remainder of this Agreement shall not be affected, and each remaining provision or portion thereof shall continue to be valid and effective and shall be enforceable to the fullest extent permitted by law.
XIV. COUNTERPART SIGNATURES:
This Agreement may be executed in two or more counterparts, and by facsimile, each of which shall be deemed to be an original, and all of which taken together will be deemed one and the same instrument.
IN WITNESS WHEREOF, the Parties have executed this Agreement effective as of the date first mentioned above.
TELEVISIONS EVENTS & MARKETING, INC., a Hawaii corporation
By: /s/ Tom Kiely Its: President AMCON DISTRIBUTING COMPANY, a Delaware corporation By: /s/ Christopher Atayan Its: Chief Executive Officer |
TOM KIELY, an individual
By: /s/ Tom Kiely THE BEVERAGE GROUP, INC., a Delaware corporation By: /s/ Andrew Plummer Its: President |
THE THORNTON WORKS, INC., a California corporation
By: /s/ Archie J. Thornton Its: President |
AMCON CORPORATION, a Delaware corporation
By: /s/ William F. Wright Its: Chairman and Chief Executive Officer |
ARCHIE J. THORNTON, an individual
By: /s/ Archie J. Thornton WILLIAM F. WRIGHT, an individual By: /s/ William F. Wright |
EXHIBIT 10.43
MUTUAL RELEASE AND SETTLEMENT AGREEMENT
dated as of
September 30, 2007
between
CRYSTAL PARADISE HOLDINGS, INC.
and
AMCON DISTRIBUTING CO.
TRINITY SPRINGS, INC.
MUTUAL RELEASE AND SETTLEMENT AGREEMENT
This Mutual Release and Settlement Agreement ("Agreement") is dated September 30, 2007 (the "Effective Date"), by and between Crystal Paradise Holdings, Inc., an Idaho corporation, also known as Trinity Springs, Ltd. ("CPH"), AMCON Distributing Co., a Delaware corporation ("AMCON"), and Trinity Springs, Inc., a Delaware corporation ("TSI"). CPH, AMCON, and TSI may each be referred to as a "Party" or collectively as the "Parties."
RECITALS
A. On December 21, 2006, CPH filed an action against TSI and AMCON in the Fourth Judicial District of the State of Idaho (the "Court") (Case No. CV 06-1034) (the "Lawsuit"). CPH asserted claims for (i) foreclosure; (ii) breach of the asset purchase agreement between the Parties dated April 24, 2004, as amended (the "2004 Purchase Agreement"), and related promissory notes and water royalty obligations; (iii) quantum meruit; (iv) unjust enrichment; and (v) collection and enforcement of its security interest. In addition, CPH sought a declaratory judgment that: (i) AMCON and TSI are obligated to perform under the 2004 Purchase Agreement and other agreements related to the asset purchase transaction; (ii) the actions of AMCON and TSI constituted events of default; (iii) TSI has not cured the events of default; (iv) TSI's obligations are accelerated under certain promissory notes; and (v) AMCON is liable to CPH under a guaranty and suretyship agreement for all amounts owing to CPH under the 2004 Purchase Agreement and related agreements.
B. On May 29, 2007, TSI and AMCON responded and filed counterclaims against CPH in the Lawsuit for (i) breach of the 2004 Purchase Agreement; (ii) breach of the implied covenant of good faith and fair dealing; (iii) fraudulent misrepresentation; (iv) fraudulent inducement of AMCON; (v) breach of representations and warranties in the 2004 Purchase Agreement; (vi) negligence; (vii) unjust enrichment; and (viii) setoff for failure to mitigate damages. In addition, AMCON and TSI sought a declaratory judgment that (i) the 2004 Purchase Agreement is unenforceable against the parties, (ii) AMCON and TSI are excused from performance under the 2004 Purchase agreement, and (iii) CPH, TSI, and AMCON are required to return each other to their pre-contractual positions.
C. The Parties desire to dismiss the Lawsuit in its entirety with prejudice, settle all outstanding claims, and release the other Parties from any claims and causes of action on the terms and conditions set forth herein.
AGREEMENT
The Parties, intending to be legally bound, agree as follows:
ARTICLE 1
OPTION TO ACQUIRE ASSETS
1.1 OPTION TO ACQUIRE ASSETS
Upon the terms and subject to the conditions set forth in this Agreement, TSI hereby grants to CPH the exclusive option (the "Option") to acquire from TSI, all of TSI's right, title, and interest in and to all of TSI's property and assets possessed by or for which TSI has any rights of ownership or use as of September 30, 2007, whether real, personal, or mixed, tangible and intangible, or every kind and description, wherever located, including the following (but excluding the Excluded Assets as set forth in Section 1.2) (collectively, the "Assets"), on an "AS IS, WHERE IS" basis, except as set forth in Section 3.1(f).
(a) All Real Property, including but not limited to the Real Property described in Schedule 1.1(a);
(b) All Tangible Personal Property, including but not limited to those items described in Schedule 1.1(b);
(c) The Raw Materials Inventories, including but not limited to the Raw Materials Inventories described in Schedule 1.1(c);
(d) All TSI Contracts listed in Schedule 1.1(d);
(e) All data and Records in the possession of TSI or AMCON related to the operations of TSI or Trinity Springs, Ltd. ("TSLtd") including prior client and customer lists and Records, research and development reports and Records, production reports and Records, service and warranty Records, equipment logs, operating guides and manuals, and other similar documents and Records;
(f) All of the intangible rights and property of TSI, including Intellectual Property Assets, goodwill, telephone, telecopy, and e-mail addresses and listings and those Marks, Copyrights, and Net Names listed in Schedule 1.1(f);
(g) All insurance benefits, including rights and proceeds, arising from or relating to the Assets or the Assumed Liabilities prior to the Closing Date, unless expended in accordance with this Agreement;
(h) All claims of TSI and, to the extent applicable, of TSLtd against third parties relating to the Assets, whether choate or inchoate, known or unknown, contingent or noncontingent, including but not limited to all such claims listed in Schedule 1.1(h);
(i) All of TSI's Water Rights; and
(j) All rights of TSI relating to deposits and prepaid expenses, claims for refunds and right to offset in respect thereof.
1.2 EXCLUDED ASSETS
Notwithstanding anything to the contrary contained in Section 1.1 or elsewhere in this Agreement, the following assets will not be part of any assignment, transfer or delivery of Assets contemplated under this Agreement, are excluded from the Assets, shall remain the property of TSI from and after the Effective Date, and represent assets for which TSI shall have full rights of ownership or use, including but not limited to rights of disposition, after the Effective Date (the "Excluded Assets").
(a) All cash and cash equivalents;
(b) All minute books, stock Records, and corporate seals;
(c) Those rights relating to deposits and prepaid expenses, and claims for refunds and rights to offset in respect thereof specifically listed in Schedule 1.2(d);
(d) All insurance policies with respect to TSI and rights thereunder;
(e) All personnel Records and other Records (including financial and accounting Records) that TSI is required by law to retain in its possession;
(f) All claims for refund of Taxes and other governmental charges of whatever nature;
(g) All rights of TSI under this Agreement, the Bill of Sale, and the Assignment and Assumption Agreement;
(h) All of TSI's Net Operating Losses; and
(i) The additional assets of TSI specifically listed in Schedule 1.2(j).
1.3 LIABILITIES
(a) ASSUMED LIABILITIES. If CPH exercises the Option, CPH will assume and agree to discharge only the following "Assumed Liabilities." Except for the Assumed Liabilities, CPH will not assume and shall in no event be liable for (and TSI shall retain and pay, perform, or otherwise discharge) any debt, obligation, responsibility or Liability of TSI (which TSI shall retain and pay, perform or discharge before Closing).
(i) the Liabilities of TSI that are due and payable with respect to acts or omissions occurring in the periods after the Closing Date under the TSI Contracts listed on Schedule 1.1(d);
(ii) the Liabilities of TSI for acts or omissions occurring in the periods after the Closing Date under the Governmental Authorizations assigned to TSI;
(iii) state and local real estate and personal property taxes and water and sewer use charges assessed on the Assets payable at any time after the Closing Date;
(iv) the Permitted Encumbrances; and
(v) any liabilities arising solely from CPH's ownership and operation of the Assets after Closing.
(b) RETAINED LIABILITIES. From and after the Effective Date, TSI shall retain and before Closing pay, perform, or discharge the following Liabilities (the "Retained Liabilities"):
(i) Secured promissory note payable to Allen D. Petersen in the principal amount of $1,000,000 dated December 14, 2004;
(ii) Promissory note payable to Nebraska Distributing Co. in the principal amount of $500,000 dated March 30, 2005;
(iii) Subordinated promissory note payable to Aristide Investments, L.P. in the principal amount of $250,000 dated August 8, 2005;
(iv) Subordinated promissory note payable to Draupnir LLC in the principal amount of $250,000 dated August 8, 2005;
(v) Subordinated promissory note payable to Draupnir LLC in the principal amount of $400,000 dated October 20, 2005;
(vi) Subordinated promissory note payable to Draupnir LLC in the principal amount of $200,000 dated November 7, 2005;
(vii) Subordinated promissory note payable to Draupnir LLC in the principal amount of $150,000 dated December 1, 2005;
(viii) Trade accounts payable due and owed by TSI as of the Effective Effective Date totaling approximately $881,000, and all such trade accounts due and owed thereafter;
(ix) Any amounts owed by TSI or AMCON to LaSalle Bank NA as of the Effective Date totaling approximately $1,000,000, and all such other amounts owed to LaSalle Bank NA owed thereafter;
(x) Any amounts owed by TSI to AMCON as of the Effective Date totaling approximately $2,900,000, and all such amounts owed thereafter; and
(xi) Any other Liability of TSI, whether known or unknown, contingent or absolute, other than the Assumed Liabilities.
1.4 OPTION PERIOD
(a) CPH may elect to exercise the Option, by providing written notice to TSI and AMCON at any time before 5:00 pm, MST, on August 31, 2008 (the "Initial Option Period").
(b) CPH shall have the right to extend the Option until 5:00 pm, MST, on March 31, 2009 (the "Option Expiration Date") by (i) providing written notice to TSI and AMCON before 5:00 pm, MST on August 31, 2008, and (ii) foregoing its right to payment of all interest accrued or to be accrued with respect to the period from the Effective Date through the Initial Option Period. If CPH does not provide written notice before the expiration of the Initial Option Period or the Option Expiration Date, as the case may be, the Option shall automatically terminate and CPH shall release its security interests as provided in Section 2.1(e).
ARTICLE 2
CONSIDERATION FOR OPTION; MUTUAL RELEASES
2.1 CONSIDERATION FOR OPTION
(a) TERMINATION OF 2004 PURCHASE AGREEMENT. As of the Effective Date, the 2004 Purchase Agreement shall be terminated by mutual agreement of the Parties and none of the Parties shall have any further obligations, liabilities, or rights of any kind thereunder, including, without limitation, any water royalties and previously accrued payment obligations of any kind; provided that CPH shall be entitled to retain any and all funds otherwise received prior to the Effective Date pursuant to the 2004 Purchase Agreement.
(b) CANCELLATION OF EXISTING NOTES. As of the Effective Date, CPH shall unconditionally cancel and forever discharge TSI and AMCON from any unfulfilled obligations under (i) the Promissory Note made by TSI to the order of CPH in the principal amount of $500,000, dated June 17, 2004 (the "3-Year Note") and (ii) the Promissory Note made by TSI to the order of CPH in the principal amount of $2,828,400, dated June 17, 2004 (the "10-Year Note"). None of the Parties shall have any further obligations, liabilities, or rights of any kind thereunder. CPH shall deliver the original 3-Year Note and the original 10-Year Note promptly following the Effective Date with notations that each is cancelled and paid in full.
(c) ISSUANCE OF NEW NOTE. Concurrently with the execution and delivery of this Agreement, TSI shall issue to CPH a promissory note in the principal amount of Five Million Dollars ($5,000,000.00) and bearing interest at a rate of five percent (5%) per annum, compounded annually, which principal and accrued interest shall be due and payable on September 30, 2012, in the form attached to this Agreement as Exhibit A (the "Note").
(d) AMENDMENT OF GUARANTY. Concurrently with the execution and delivery of this Agreement, AMCON shall amend and restate that certain Guaranty and Suretyship Agreement dated June 17, 2004 to reflect AMCON's guarantee of payment in full of the principal and interest under the Note, in the form attached to this Agreement as Exhibit B (the "Guaranty").
(e) SECURITY AGREEMENT; SECURITY INSTRUMENTS. The Security Agreement between TSI and CPH dated June 17, 2004 (the "Security Agreement"), and the Mortgage granted by TSI to CPH dated June 17, 2004 (the "Mortgage," together with the Guaranty and Security Agreement, the "Security Instruments"), shall continue in full force and effect until the earlier of CPH's exercise of the Option or Option Expiration Date; provided that AMCON, TSI and CPH shall amend or replace such documents as may be necessary to reflect the terms of this Agreement, specifically the Option set forth herein, but only to the extent to which such amendment or replacement will not adversely affect the priority or other rights of CPH with respect to the Assets, it being the intention of AMCON, TSI and CPH that CPH continue in, or be placed in, a position with respect to other existing or potential creditors or other claimants that will ensure possession by CPH of the Assets upon exercise of the Option. In the event that CPH does not exercise the Option, promptly following the Option Expiration Date, CPH will release all of its security interests in the Assets.
(f) REDEMPTION OF TSI STOCK. As of the Effective Date, CPH shall transfer to TSI and TSI shall redeem from CPH all of the right, title and interest of CPH in and to the shares of common stock of TSI (the "Shares"). CPH shall transfer the Shares to TSI free and clear of any Encumbrance. CPH waives any right, option, right of first refusal, warrant, or any right to acquire shares of stock of other interest in TSI or AMCON. Promptly following the execution and delivery of this Agreement, CPH shall deliver to TSI the stock certificate representing the Shares, duly endorsed for transfer or a lost certificate affidavit in form reasonably acceptable to TSI, and a duly executed stock power to transfer and assign the Shares to TSI, in the form attached hereto as Exhibit C (the "Stock Power"), together with all other necessary endorsements, to TSI.
(g) MUTUAL RELEASE OF CLAIMS.
(i) Release by CPH. As of the Effective Date, CPH, on behalf of itself and its subsidiaries, predecessors and successors in interest (the "CPH Entities"), together with, but solely with respect to acts or omissions directly relating to their employment or other engagement by or contracts with one of the CPH Entities, all of its past, present, and future officers, directors, principals, stockholders, attorneys, insurers, agents, employees, representatives, and assigns (collectively with the CPH Entities, the "CPH Parties"), shall fully, finally, and forever discharge and release TSI, AMCON, and their respective subsidiaries, predecessors and successors in interest (the "AMCON Entities"), together with, but solely with respect to acts and omissions directly relating to their employment or other engagements by or contracts with one of the AMCON Entities, their respective past, present, and future officers, directors, principals, stockholders, attorneys, insurers, agents, employees, representatives, and assigns (collectively, with the AMCON Entities, the "AMCON Parties"), from any and all Damages (including general, special, compensatory, and punitive damages), Liabilities, and compensation of any kind or nature, whether based on contract, tort, strict liability, or other theory of recovery, whether known or unknown, which CPH or the CPH Parties now has or may have on account of, or in any way growing out of, or which is the subject of: (i) the Lawsuit, (ii) the 2004 Purchase Agreement (including the water royalties contemplated thereunder), the 3-Year Note, the 10-Year Note, the Security Instruments, and all other related documents executed in connection with the transactions contemplated in the 2004 Purchase Agreement (the "CPH Released Claims"), excluding only any claims arising out of any AMCON or TSI breach of the terms of this Agreement. Solely for the purpose of clarification and to correct any subsequent claims of ambiguity, TSI and AMCON understand and acknowledge that none of the CPH Parties is discharging or releasing any person or entity that previously had, currently has or may in the future have any employment, engagement or contractual relationship with any of the CPH Parties with respect to acts or omissions relating to or resulting from that relationship, including by way of example only, and without excluding other persons or entities, any employee or officer that previously worked for TSLtd, any previous TSLtd shareholder or any previous, current or subsequent professional services firm, such as Holland & Hart and Perkins Coie, engaged by any of the CPH Entities.
(ii) Release by TSI and AMCON. As of the Effective Date, TSI and AMCON, on behalf of themselves and the other AMCON Parties, together with, but solely with respect to acts or omissions directly relating to their employment or other engagements by or contracts with one of the AMCON Parties, shall fully, finally, and forever discharge and release each of the CPH Parties from any and all Damages (including general, special, compensatory, and punitive damages), Liabilities, and compensation of any kind or nature, whether based on contract, tort, strict liability, or other theory of recovery, whether known or unknown, which any of the AMCON Parties now has or may have on account of, or in any way growing out of, or which is the subject of: (i) the Lawsuit, (ii) the 2004 Purchase Agreement, the 3-Year Note, the 10-Year Note, the Security Instruments, and all other related documents executed in connection with the transactions contemplated in the 2004 Purchase Agreement (the "AMCON Released Claims"), excluding only any claims arising out of CPH's breach of the terms of this Agreement and claims against the law firm of Perkins Coie. Solely for the purpose of clarification and to correct any subsequent claims of ambiguity, CPH understands and acknowledges that none of the AMCON Parties are discharging or releasing any person or entity that previously had, currently has or may in the future have any employment, engagement or contractual relationship with any of the AMCON Parties with respect to acts or omissions relating to or resulting from that relationship, including by way of example only, and without excluding other persons or entities, any employee or officer that previously or currently works with any of the AMCON Parties, any previous TSLtd shareholder or any previous, current or subsequent professional services firm, such as Holland & Hart or Perkins Coie, engaged by any of the AMCON Parties.
(h) COVENANT NOT TO SUE. The Parties shall not sue or commence any action at law, equity, or otherwise against each other for the CPH Released Claims or the AMCON Released Claims. The Parties, however, may sue or commence any action at law, equity, or otherwise against each other for any excluded claims, including any rights of the Parties pursuant to the Note, the Guaranty or the promises, covenants and commitments of each other under this Agreement.
(i) LIABILITY CONTESTED AND DENIED. This settlement between the Parties as documented by this Agreement is a settlement of disputed claims between the Parties. Except as otherwise provided herein, nothing contained in this Agreement shall constitute an admission of fault or liability by any Party on any claim asserted or alleged. The Parties intend by this Agreement to fully, finally, and forever resolve certain claims, and the Parties intend only to avoid further litigation. This Agreement and the consideration provided are made and accepted in good faith with the understanding by the Parties of the risks attendant to litigation.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF TSI AND AMCON
3.1 TSI REPRESENTATIONS AND WARRANTIES
TSI represents and warrants to CPH as follows (which representations shall be made as of the Effective Date and shall be deemed to be made again at and as of the Closing):
(a) ORGANIZATION AND GOOD STANDING. TSI is a corporation duly organized, validly existing and in good standing under the laws of Delaware. TSI is duly qualified to do business as a foreign corporation and is in good standing under the laws of Idaho.
(b) ENFORCEABILITY; AUTHORITY. This Agreement has been duly authorized, executed and delivered by TSI and is the legal, valid and binding obligation of TSI, enforceable against TSI in accordance with its terms except to the extent that enforcement thereof may be limited by general principles of equity (regardless of whether enforcement is considered in a proceeding at law or in equity). TSI has the right, power and authority to execute and deliver this Agreement and all other documents to be signed and delivered by TSI on signing and at the Closing, and to perform its obligations thereunder. TSI is not required to obtain the Consent from any Person in connection with the execution and delivery of this Agreement and all other documents to be signed and delivered by TSI or the consummation or performance of any of the Contemplated Transactions.
(c) CERTAIN PROCEEDINGS. There is no pending or threatened Proceeding that challenges, or that may have the effect of preventing or making illegal, any of the Contemplated Transactions. To the best of TSI's Knowledge, no event has occurred or circumstance exists that is reasonably likely to give rise to or serve as a basis for the commencement of any such Proceeding.
(d) NO CONFLICT. Neither the execution and delivery by TSI of this Agreement nor the consummation by it of the Contemplated Transactions will violate, breach, be in conflict with, or constitute a default under, or permit the termination or the acceleration of maturity of any contract, agreement, or instrument, or any judgment, order, injunction, or decree by which TSI is bound, or to which the Assets are subject.
(e) NO ASSIGNMENT OF CLAIMS. TSI has not made, nor caused to be made, any assignment or transfer of any of their claims or causes of action covered by the releases in Section 2.1(g)(ii).
(f) TITLE TO THE ASSETS. TSI owns good and marketable title to Assets, free and clear of any Encumbrances, other than Permitted Encumbrances and with respect to any Encumbrances in favor of CPH or its shareholders or arising from or related to the Lawsuit or the previous lawsuit (Case No. 04-506 in the Fifth Judicial District of the State of Idaho). Without limiting the generality of the foregoing, there are no leases, licenses, occupancy or related agreements or tenancies affecting the Real Property. TSI has not granted, other than to CPH, any outstanding option, right of first refusal or any other right with respect to the purchase of all or any portion of the Real Property.
3.2 AMCON REPRESENTATIONS AND WARRANTIES
AMCON represents and warrants to CPH as follows (which representations shall be made as of the Effective Date and shall be deemed to be made again at and as of the Closing):
(a) ORGANIZATION AND GOOD STANDING. AMCON is a corporation duly organized, validly existing and in good standing under the laws of Delaware.
(b) ENFORCEABILITY; AUTHORITY. This Agreement has been duly authorized, executed and delivered by AMCON and is the legal, valid and binding obligation of AMCON, enforceable against AMCON in accordance with its terms except to the extent that enforcement thereof may be limited by general principles of equity (regardless of whether enforcement is considered in a proceeding at law or in equity). AMCON has the right, power, and authority to execute and deliver this Agreement and all other documents to be signed and delivered by AMCON on signing and at the Closing, and to perform its obligations thereunder. AMCON is not required to obtain the Consent from any Person in connection with the execution and delivery of this Agreement and all other documents to be signed and delivered by AMCON or the consummation or performance of any of the Contemplated Transactions.
(c) CERTAIN PROCEEDINGS. There is no pending or threatened Proceeding that challenges, or that may have the effect of preventing or making illegal, any of the Contemplated Transactions. To the best of AMCON's Knowledge, no event has occurred or circumstance exists that is reasonably likely to give rise to or serve as a basis for the commencement of any such Proceeding.
(d) NO CONFLICT. Neither the execution and delivery by AMCON of this Agreement nor the consummation by it of the Contemplated Transactions will violate, breach, be in conflict with, or constitute a default under, or permit the termination or the acceleration of maturity of any contract, agreement, or instrument, or any judgment, order, injunction, or decree by which AMCON is bound, or to which the Assets are subject.
(e) NO ASSIGNMENT OF CLAIMS. AMCON has not made, nor caused to be made, any assignment or transfer of any of their claims or causes of action covered by the releases in Section 2.1(g)(ii).
3.3 LIMITATIONS ON REPRESENTATIONS AND WARRANTIES.
EXCEPT AS EXPRESSLY STATED IN THIS AGREEMENT, TSI AND AMCON MAKE NO REPRESENTATIONS OR WARRANTIES EXPRESS OR IMPLIED REGARDING THE ASSETS, ASSUMED LIABILITIES, INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTY OF MERCHANTABILITY, TITLE, NONINFRINGEMENT, OR FITNESS FOR A PARTICULAR PURPOSE, AND ALL SUCH REPRESENTATIONS AND WARRANTIES ARE HEREBY DISCLAIMED.
Acknowledged and agreed: TSI /s/AP AMCON /s/ AP CPH /s/ RB |
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF CPH
CPH represents and warrants to TSI as follows (which representations shall be made as of the Effective Date and shall be deemed to be made again at and as of the Closing):
4.1 ORGANIZATION AND GOOD STANDING
CPH is a corporation duly organized, validly existing and in good standing under the laws of the State of Idaho, with full corporate power and authority to conduct its business as it is now conducted.
4.2 ENFORCEABILITY; AUTHORITY
This Agreement constitutes the legal, valid and binding obligation of CPH, enforceable against CPH in accordance with its terms except to the extent that enforcement thereof may be limited by general principles of equity (regardless of whether enforcement is considered in a proceeding at law or in equity). CPH has the right, power and authority to execute and deliver this Agreement and all other documents to be signed and delivered by CPH on signing or at the Closing, and to perform its obligations thereunder. CPH is not required to obtain the Consent from any Person in connection with the execution and delivery of this Agreement and all other documents to be signed and delivered by CPH or the consummation or performance of any of the Contemplated Transactions.
4.3 CERTAIN PROCEEDINGS
There is no pending or threatened Proceeding that challenges, or that may have the effect of preventing or making illegal, any of the Contemplated Transactions. To the Knowledge of CPH, no event has occurred or circumstance exists that is reasonably likely to give rise to or serve as a basis for the commencement of any such Proceeding.
4.4 NO CONFLICT
Neither the execution and delivery by CPH of this Agreement nor the consummation by it of the Contemplated Transactions will violate, breach, be in conflict with, or constitute a default under, or permit the termination or the acceleration of maturity of any contract, agreement, or instrument, or any judgment, order, injunction, or decree by which CPH is bound.
4.5 NO ASSIGNMENT OF CLAIMS
Neither CPH nor any CPH Party has made, nor caused to be made, any assignment or transfer of any of their claims or causes of action covered by the releases in Section 2.1(g)(i).
4.6 BROKERS OR FINDERS
Neither CPH nor any of its Representatives have incurred any obligation or liability, contingent or otherwise, for brokerage or finders' fees or agents' commissions or other similar payment in connection with the Contemplated Transactions.
ARTICLE 5
COVENANTS OF TSI AND AMCON
5.1 ACCESS AND INVESTIGATION
Between the Effective Date and the earlier of the Closing Date and Option Expiration Date, and upon reasonable advance notice received from CPH, TSI and AMCON will cooperate and assist, to the extent reasonably requested by CPH, with CPH's investigation of the Assets. In addition, CPH shall have the right to have the Real Property, Tangible Personal Property and other Assets inspected by CPH and its Representatives, at CPH's sole cost and expense, for purposes of determining the physical condition and legal characteristics of the Assets.
5.2 MAINTENANCE OF ASSETS
Subject to any limitations on TSI's business operations or disclosures of TSI (in either case as expressly set forth in this Agreement or the schedules hereto), and with CPH's acknowledgement that TSI ceased operations in March 2006, between the Effective Date and the earlier of the Closing Date and Option Expiration Date, TSI shall, unless otherwise consented to in writing by CPH:
(a) maintain the Assets in good order;
(b) comply in all material respects with all Legal Requirements and contractual obligations applicable to the Assets;
(c) not dispose of any material Asset; and
(d) maintain all books and Records of TSI relating to the Assets.
5.3 BULK SALES LAWS
CPH and TSI hereby waive compliance with the Bulk Sales Laws in connection with the Contemplated Transactions.
5.4 EMPLOYEES AND EMPLOYEE BENEFITS
Immediately before Closing, TSI will terminate all of its employees
and will continue to have no employees through the Closing Date and
shall remain obligated in respect of the following liabilities or
obligations to such terminated employees: (i) all claims for
compensation, (ii) claims under TSI benefit plans (including vacation
time and sick leave), (iii) any failure to provide health continuation
coverage, if any, required by applicable law to any employees who do
not accept employment with CPH; (iv) all workers' compensation claims,
(v) all filings required in connection with the termination of
employment by TSI of such employees and (vi) all other claims,
responsibilities, obligations and other Liabilities associated with
TSI's or AMCON's relationship with such employees.
ARTICLE 6
CLOSING FOLLOWING EXERCISE OF OPTION
6.1 OBLIGATION TO TRANSFER ASSETS
If CPH exercises its Option prior to the Option Expiration Date, upon the terms and subject to the conditions set forth in this Agreement, TSI shall convey, assign, transfer and deliver to CPH, free and clear of any Encumbrances other than Permitted Encumbrances, all of TSI's right, title and interest in and to the Assets as set forth in Section 1.1.
6.2 TIME AND PLACE OF CLOSING
(a) Promptly following the exercise by CPH of the Option, the Parties shall set a time and date for closing (the "Closing" and "Closing Date") no later than thirty (30) days after TSI's receipt of CPH's written notice.
(b) The Closing will take place at the offices of Holland & Hart LLP in Boise, Idaho, commencing at 10:00 a.m. (local time) on the Closing Date, unless CPH and TSI otherwise agree.
6.3 CONSIDERATION FOR TRANSFER OF ASSETS
(a) CANCELLATION OF NOTE. At Closing, CPH shall unconditionally cancel and forever discharge TSI and AMCON from any unfulfilled obligations, including without limitation the payment of any accrued interest, under the Note. None of the Parties shall have any further obligations, liabilities, or rights of any kind thereunder. CPH shall deliver the original Note at Closing with notations that each is cancelled and paid in full.
(b) TERMINATION OF GUARANTY. At Closing, the Guaranty shall be deemed terminated by mutual agreement of the Parties and none of the Parties shall have any further obligations, liabilities, or rights thereunder.
(c) ASSUMPTION OF LIABILITIES. CPH shall assume the Assumed Liabilities as provided in Section 1.3(a).
6.4 CLOSING OBLIGATIONS
In addition to any other documents to be delivered under other provisions of this Agreement, at the Closing:
(a) TSI shall deliver to CPH:
(i) the Bill of Sale in the form of Exhibit D executed by TSI;
(ii) the Assignment and Assumption Agreement in the form of Exhibit E executed by TSI;
(iii) for each interest in Real Property, a recordable special warranty deed or such other appropriate document or instrument of transfer, as the case may require, each in form and substance satisfactory to CPH and its counsel and executed by TSI;
(iv) assignments of all Intellectual Property Assets and separate Assignments of Copyrights, Patents, and Marks in the form of Exhibit F executed by TSI;
(v) such other deeds, bills of sale, assignments, documents and other instruments of transfer and conveyance as may reasonably be requested by CPH in connection with the Water Rights, each in form and substance satisfactory to CPH and its legal counsel and executed by TSI; and
(vi) such other deeds, bills of sale, assignments, certificates of title, documents and other instruments of transfer and conveyance as may reasonably be requested by CPH, each in form and substance satisfactory to CPH and its legal counsel and executed by TSI.
(b) CPH shall deliver to TSI:
(i) payment equal to all amounts paid by TSI with respect to the maintenance of the Anderson Ranch Reservoir Water Right from and after September 1, 2007;
(ii) the cancelled Note and evidence of termination of the Guaranty;
(iii) the Assignment and Assumption Agreement executed by CPH; and
(iv) such other documents as may reasonably be requested by TSI, each in form and substance satisfactory to TSI and its legal counsel and executed by CPH.
6.5 ALLOCATION
The consideration paid by CPH as set forth in Section 6.3 shall be allocated among the Assets in accordance with Section 1060 of the Code and pursuant to an allocation schedule to be agreed upon by the Parties. Within ten (10) days following the date TSI receives notice of CPH's exercise of the Option, TSI shall furnish CPH with a draft allocation schedule. CPH shall have five (5) days after receipt to propose any adjustments to such allocation schedule. If no such adjustments are proposed within such period, TSI's draft allocation schedule will become final. If adjustments are timely proposed, the Parties will work diligently to develop an agreed and final allocation schedule no later than ten (10) Business Days following CPH's proposal of adjustments. TSI and CPH each agree to report the federal, state and local income and other tax consequences of the transactions contemplated herein in a manner which gives effect to the final allocation schedule.
ARTICLE 7
ADDITIONAL COVENANTS
7.1 DISMISSAL OF LAWSUIT
Immediately following the Effective Date, the Parties shall prepare, execute, and file with the Court as part of the record, a final dismissal with prejudice of the Lawsuit in its entirety, including with respect to all other secured creditors named as defendants in connection with the foreclosure claims.
7.2 TSI LEGAL NAME
Immediately following the Closing Date, TSI shall change its legal name to a name which does not include "Trinity Springs" or confusingly similar phrases.
7.3 NONDISPARAGEMENT AND CONFIDENTIALITY
(a) No Party will disrupt, damage, impair, or otherwise interfere with any other Party's business or operations. No Party shall at any time publicly disparage any other Party to this Agreement. For purposes of this Section, the term "publicly disparage" means to discredit the other Party's agents, business, or property through a written or oral communication to any other Person.
(b) Except as specifically provided in this Agreement, and except for disclosures required by applicable laws and regulations, the Parties will (i) keep confidential and not disclose to any other Person the terms of this Agreement, (ii) keep confidential and not disclose to any other Person any information that is provided by one party to the other in connection with the performance of this Agreement that is marked or otherwise identified as "confidential," "proprietary," or with words of similar import, (iii) not disclose or use any such confidential information for any purpose other than performance of this Agreement. Notwithstanding the foregoing, each Party shall be entitled to disclose the terms of this Agreement to (x) its financial, legal, and other advisors and consultants and (y) CPH shall also be entitled to disclose the terms of this Agreement to the Person providing capital to CPH, interested in acquiring the assets or stock of CPH, or considering a merger or consolidation with CPH, in each case on a need-to-know basis; provided that such Party provides advance written notice to the other Parties identifying the proposed recipients and notifies the recipients that the information disclosed is done so without any representation or warranty, and such recipients are obligated to maintain the confidentiality thereof without further disclosure to any other Person.
(c) After the Effective Date and through the Closing Date or Option Expiration Date, as applicable, TSI and AMCON shall keep confidential and not disclose to any other Person any proprietary or confidential information of TSLtd or TSI relating to the Assets or operations of TSLtd or TSI with respect to such Assets. Notwithstanding the foregoing, TSI and AMCON shall be entitled to disclose such confidential information to its financial, legal, and other advisors and consultants in each case on a need-to-know basis and provided that such recipients are obligated to maintain the confidentiality thereof without further disclosure to any other Person.
7.4 PAYMENT OF ALL TAXES RESULTING FROM TRANSFER OF ASSETS
Each party shall be responsible for the payment of any state or local sales, use or similar transfer Taxes that are imposed on such party under applicable law on or as a result of the transfer of the Assets under this Agreement, including but not limited to all Idaho state sales or use Taxes.
7.5 RETENTION OF AND ACCESS TO RECORDS
After the Closing Date, CPH shall retain for a period consistent with CPH's record-retention policies and practices, and as required under applicable law to TSI and CPH, those Records of TSI delivered to CPH. CPH also shall provide TSI and their Representatives reasonable access thereto, during normal business hours and upon prior written notice, for any reasonable business purpose specified by TSI in such notice. After the Closing Date, TSI shall provide CPH and its Representatives reasonable access to Records that are Excluded Assets, during normal business hours and upon reasonable prior written notice, for any reasonable business purpose specified by CPH in such notice.
7.6 FURTHER ASSURANCES
Subsequent to the Effective Date (or with respect to access to books and records subsequent to the Closing Date), the parties shall cooperate reasonably with each other and with their respective Representatives in connection with any steps required to be taken as part of their respective obligations under this Agreement or to comply with orders or Governmental Bodies, including but not limited to, by way of example, (i) CPH making books and records obtained from TSI and AMCON available for clarifications and defense of claims of liability by third parties with respect to the ownership by TSI of assets and the operations of TSI, (ii) AMCON and TSI making books and records available to CPH with respect to the operations of TSI, as such operations may affect the ability of CPH to re-commence water acquisition, bottling and sales involving the Water Rights, and (iii) making TSI and AMCON personnel and professional advisers available, at out-of-pocket cost to be reimbursed by CPH, to provide information and assistance (A) in the prosecution of CPH's legal actions involving the Perkins Coie law firm, to the extent such legal actions involve matters related directly or indirectly to the matters that are the subject of the settlement and release contained in this Agreement and (B) the clarification, pursuit and defense of the Water Rights.
ARTICLE 8
GENERAL PROVISIONS
8.1 EXPENSES
Except as otherwise provided in this Agreement, each party to this Agreement will bear its respective fees and expenses incurred in connection with the preparation, negotiation, execution and performance of this Agreement and the Contemplated Transactions, including all fees and expenses of its Representatives.
8.2 PUBLIC ANNOUNCEMENTS
Except as permitted under Section 7.3(b), any public announcement,
press release or similar publicity with respect to this Agreement or
the Contemplated Transactions will be issued, if at all, at such time
and in such manner as the Parties jointly determine unless required by
applicable law or legal process. Except with the prior consent of the
other Parties or as permitted by this Agreement or as required by
applicable law or legal process, no Party shall disclose to any Person
(i) the fact that any confidential information of TSI has been
disclosed to CPH or its Representatives, that CPH or its
Representatives have inspected any portion of the confidential
information of TSI, that any confidential information of CPH has been
disclosed to TSI, or its Representatives or that TSI, or its
Representatives have inspected any portion of the confidential
information of CPH or (ii) any information about the Contemplated
Transactions, including the status of such discussions or
negotiations, the execution of any documents (including this
Agreement) or any of the terms of the Contemplated Transactions or the
related documents (including this Agreement).
8.3 NOTICES
All notices, Consents, waivers and other communications required or
permitted by this Agreement shall be in writing and shall be deemed
given to a Party when (i) delivered to the appropriate address by hand
or by nationally recognized overnight courier service (costs prepaid);
(ii) sent by facsimile with confirmation of transmission by the
transmitting equipment; or (iii) received or rejected by the
addressee, if sent by certified mail, return receipt requested, in
each case to the following addresses, or facsimile numbers and marked
to the attention of the person (by name or title) designated below (or
to such other address, facsimile number, address or person as a Party
may designate by notice to the other Parties):
TSI:
7405 Irvington Rd.
Omaha, NE 68122
Attention: Andy Plummer
Fax no.: (402) 331-4834
with a mandatory copy to:
Tobi J. Mott
Steven B. Andersen
Holland & Hart LLP
101 S. Capitol Blvd, Suite 1400
Boise, Idaho 83701
Fax no.: (208) 343-8869
AMCON:
515 N. State Street, Suite 2650
Chicago, IL 60610
Attention: Christopher H. Atayan
Fax no.: (312) 527-3964
with a mandatory copy to:
Tobi J. Mott
Steven B. Andersen
Holland & Hart LLP
101 S. Capitol Blvd, Suite 1400
Boise, Idaho 83701
Fax no.: (208) 343-8869
CPH:
Crystal Paradise Holdings, Inc.
c/o Thomas Chandler
Hawley Troxell Ennis & Hawley LLP
877 Main Street, Suite 1000
Boise, Idaho 83702
Fax no: (208) 342-3829
with a mandatory copy to:
Russell L. Case
Hawley Troxell Ennis & Hawley LLP
877 Main Street, Suite 1000
Boise, Idaho 83702
Fax no: (208) 342-3829
8.4 JURISDICTION; SERVICE OF PROCESS
Any Proceeding arising out of or relating to this Agreement or any Contemplated Transaction shall be brought in the Federal District Court for the District of Idaho or Idaho State Court with venue in the Fourth Judicial District, and each of the Parties irrevocably submits to the jurisdiction of each such court in any such Proceeding, waives any objection it may now or hereafter have to venue or to convenience of forum, and agrees that all claims in respect of the Proceeding may be heard and determined in any such court. The Parties agree that either or both of them may file a copy of this paragraph with any court as written evidence of the knowing, voluntary and bargained agreement between the Parties irrevocably to waive any objections to venue or to convenience of forum. Process in any Proceeding referred to in the first sentence of this section may be served on any Party anywhere in the world.
8.5 ENFORCEMENT OF AGREEMENT The Parties acknowledge and agree that the other Parties would be irreparably damaged if any of the provisions of this Agreement are not performed in accordance with their specific terms and that any Breach of this Agreement could not be adequately compensated in all cases by monetary damages alone. Accordingly, in addition to any other right or remedy to which a Party may be entitled, at law or in equity, it shall be entitled to enforce any provision of this Agreement by a decree of specific performance and to temporary, preliminary and permanent injunctive relief to prevent Breaches or threatened Breaches of any of the provisions of this Agreement, without posting any bond or other undertaking.
8.6 WAIVER; REMEDIES CUMULATIVE
The rights and remedies of the Parties are cumulative and not
alternative. Neither any failure nor any delay by any Party in
exercising any right, power or privilege under this Agreement or any
of the documents referred to in this Agreement will operate as a
waiver of such right, power or privilege, and no single or partial
exercise of any such right, power or privilege will preclude any other
or further exercise of such right, power or privilege or the exercise
of any other right, power or privilege. To the maximum extent
permitted by applicable law, (i) no claim or right arising out of this
Agreement or any of the documents referred to in this Agreement can be
discharged by one Party, in whole or in part, by a waiver or
renunciation of the claim or right unless in writing signed by the
other party; (ii) no waiver that may be given by a party will be
applicable except in the specific instance for which it is given; and
(iii) no notice to or demand on one party will be deemed to be a
waiver of any obligation of that party or of the right of the Party
giving such notice or demand to take further action without notice or
demand as provided in this Agreement or the documents referred to in
this Agreement.
8.7 ENTIRE AGREEMENT AND MODIFICATION
This Agreement supersedes all prior agreements, whether written or oral, between the Parties with respect to its subject matter (including any letter of intent and any confidentiality agreement between the Parties) and constitutes (along with the Schedules, Exhibits and other documents delivered pursuant to this Agreement) a complete and exclusive statement of the terms of the agreement between the Parties with respect to its subject matter. This Agreement may not be amended, supplemented, or otherwise modified except by a written agreement executed by the party to be charged with the amendment.
8.8 ASSIGNMENTS, SUCCESSORS AND NO THIRD-PARTY RIGHTS
No Party may assign any of its rights or delegate any of its obligations under this Agreement without the prior written consent of the other Parties. Subject to the preceding sentence, this Agreement will apply to, be binding in all respects upon and inure to the benefit of the successors and permitted assigns of the Parties. Nothing expressed or referred to in this Agreement will be construed to give any Person other than the Parties to this Agreement any legal or equitable right, remedy or claim under or with respect to this Agreement or any provision of this Agreement, except such rights as shall inure to a successor or permitted assignee pursuant to this Section.
8.9 SEVERABILITY
If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Agreement will remain in full force and effect. Any provision of this Agreement held invalid or unenforceable only in part or degree will remain in full force and effect to the extent not held invalid or unenforceable.
8.10 CONSTRUCTION
The headings of Articles and Sections in this Agreement are provided for convenience only and will not affect its construction or interpretation. All references to "Articles," "Sections" and "Schedules" refer to the corresponding Articles, Sections and Schedules of this Agreement.
8.11 TIME OF ESSENCE
With regard to all dates and time periods set forth or referred to in this Agreement, time is of the essence.
8.12 GOVERNING LAW
This Agreement will be governed by and construed under the laws of the State of Idaho, other than such laws that would direct the application of the laws of another jurisdiction.
8.13 EXECUTION OF AGREEMENT
This Agreement may be executed in one or more counterparts, each of which will be deemed to be an original copy of this Agreement and all of which, when taken together, will be deemed to constitute one and the same agreement. The exchange of copies of this Agreement and of signature pages by facsimile transmission shall constitute effective execution and delivery of this Agreement as to the Parties and may be used in lieu of the original Agreement for all purposes. Signatures of the Parties transmitted by facsimile shall be deemed to be their original signatures for all purposes.
[SIGNATURE PAGE ON FOLLOWING PAGE]
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the Effective Date.
The individuals signing below represent, warrant, and covenant to each other and the Parties that they are duly authorized to execute and deliver this Agreement on behalf of the entity for which they have signed.
CRYSTAL PARADISE HOLDINGS, INC., an Idaho corporation
By: /s/ Robert Burns Title: Chairman |
TRINITY SPRINGS, INC.,
a Delaware corporation
By: /s/ Andrew C. Plummer Title: President and Secretary |
AMCON DISTRIBUTING CO.,
a Delaware corporation
By: /s/ Andrew C. Plummer Title: Vice President and CFO |
DEFINITION ANNEX
As used herein, the following terms shall have the meanings set forth below:
"3-Year Note" has the meaning as set forth in Section 2.1(b).
"10-Year Note" has the meaning as set forth in Section 2.1(b).
"2004: Purchase Agreement" the Asset Purchase Agreement between the Parties dated April 24, 2004, as amended.
"Agreement" this Mutual Release and Settlement Agreement.
"AMCON" AMCON Distributing Co., a Delaware corporation.
"AMCON Parties" has the meaning as set forth in Section 2.1(e)(i).
"AMCON Released Claims" has the meaning as set forth in Section 2.1(e)(ii).
"AMCON's Knowledge" - the actual knowledge of AMCON's chief executive officer and chief financial officer.
"Accounts Receivable" (a) all trade accounts receivable and other rights to payment from customers of TSI and the full benefit of all security for such accounts or rights to payment, including all trade accounts receivable representing amounts receivable in respect of goods shipped or products sold or services rendered to customers of TSI; (b) all other accounts or notes receivable of TSI and the full benefit of all security for such accounts or notes; and (c) any claim, remedy or other right related to any of the foregoing.
"Assets" has the meaning set forth in Section 1.1.
"Assumed Liabilities" has the meaning as set forth in Section 1.3(b).
"Breach" any breach of, or any inaccuracy in, any material representation or warranty or any breach of, or failure to perform or comply with any material covenant or material obligation, in or of this Agreement or any other Contract, or any event which with the passing of time or the giving of notice, or both, would constitute such a breach, inaccuracy or failure.
"Bulk Sales Laws" the bulk-transfer provisions of the Uniform Commercial Code (or any similar law).
"Business Day" any day other than (a) Saturday or Sunday or (b) any other day on which banks in Idaho are permitted or required to be closed.
"CPH" Crystal Paradise Holdings, Inc., an Idaho corporation.
"CPH Parties" has the meaning as set forth in Section 2.1(e)(i).
"CPH Released Claims" has the meaning as set forth in Section 2.1(e)(i).
"Closing" the closing of the purchase and sale of the Assets pursuant to this Agreement.
"Closing Date" the date on which the Closing actually takes place.
"Code" the Internal Revenue Code of 1986, as amended.
"Consent" any approval, consent, ratification, waiver or other authorization.
"Contemplated Transactions" all of the transactions specifically set forth in this Agreement.
"Contract" any agreement, contract, any lease or rental agreement, license, right to use, installment and conditional sale agreement, consensual obligation, promise or undertaking (whether written or oral and whether express or implied), whether or not legally binding.
"Copyrights" all registered and unregistered copyrights in both published works and unpublished works.
"Court" has the meaning as set forth in Recital A.
"Damages" any loss, liability, claim, damage, expense (including reasonable attorneys' fees and expenses) whether or not involving a third-party claim.
"Effective Date" has the meaning as set forth in the Introductory Paragraph to this Agreement.
"Encumbrance" any charge, claim, community or other marital property interest, condition, equitable interest, lien, option, pledge, security interest, mortgage, right of way, easement, encroachment, servitude, right of first option, right of first refusal or similar restriction, including any restriction on use, voting (in the case of any security or equity interest), transfer, receipt of income or exercise of any other attribute of ownership.
"Excluded Assets" has the meaning as set forth in Section 1.2.
"Guaranty" the Guaranty and Suretyship Agreement between AMCON and CPH dated June 17, 2004, as amended.
"Governmental Authorization" any Consent, license, registration or permit issued, granted, given or otherwise made available by or under the authority of any Governmental Body or pursuant to any Legal Requirement.
"Governmental Body" any:
(a) nation, state, county, city, town, borough, village, district
or other jurisdiction;
(b) federal, state, local, municipal, foreign or other government;
(c) governmental or quasi-governmental authority of any nature
(including any agency, branch, department, board, commission, court,
tribunal or other entity exercising governmental or quasi-governmental
powers);
(d) multinational organization or body;
(e) body exercising, or entitled or purporting to exercise, any
administrative, executive, judicial, legislative, police, regulatory
or taxing authority or power; or
(f) official of any of the foregoing.
"Improvements" all buildings, structures, fixtures and improvements located on the Land or included in the Assets, including those under construction.
"Initial Option Period" has the meaning as set forth in Section 1.4(a).
"Intellectual Property Assets" all intellectual property owned or licensed (as licensor or licensee) by TSI in which TSI has a proprietary interest, including the Marks, Copyrights, Net Names, and all know-how, trade secrets, confidential or proprietary information, customer lists, technical information, data, process technology, plans, drawings and blue prints.
"IRS" the United States Internal Revenue Service and, to the extent relevant, the United States Department of the Treasury.
"Knowledge" an individual will be deemed to have Knowledge of a particular fact or other matter if that individual is actually aware of that fact or matter or a prudent individual could be expected to discover or otherwise become aware of that fact or matter in the course of conducting a reasonably comprehensive investigation regarding the accuracy of any representation or warranty contained in this Agreement. A Person (other than an individual) will be deemed to have Knowledge of a particular fact or other matter if any individual who is serving as an officer of that Person has, or at any time had, Knowledge of that fact or other matter.
"Land" all parcels and tracts of land in which TSI has an ownership interest.
"Lawsuit" has the meaning as set forth in Recital A.
"Legal Requirement" any federal, state, local, municipal, foreign, international, multinational or other constitution, law, ordinance, principle of common law, code, regulation, statute or treaty.
"Liability" with respect to any Person, any liability or obligation of such Person of any kind, character or description, whether known or unknown, absolute or contingent, accrued or unaccrued, disputed or undisputed, liquidated or unliquidated, secured or unsecured, joint or several, due or to become due, vested or unvested, executory, determined, determinable or otherwise, and whether or not the same is required to be accrued on the financial statements of such Person.
"Marks" TSI's name, all assumed fictional business names, trade names, registered and unregistered trademarks, service marks and applications.
"Mortgage" the Mortgage granted by TSI to CPH dated June 17, 2004.
"Net Names" all rights in internet web sites and internet domain names presently used by TSI.
"Net Operating Losses" any losses associated with TSI's Business for accounting and Tax purposes.
"Note" has the meaning as set forth in Section 2.1(c).
"Option" has the meaning as set forth in Section 1.1.
"Option Expiration Date" has the meaning as set forth in Section 1.4(b).
"Order" any order, injunction, judgment, decree, ruling, assessment or arbitration award of any Governmental Body or arbitrator.
"Party" or "Parties" has the meaning as set forth in the introductory paragraph of the Agreement.
"Permitted Encumbrances" all (i) liens for taxes, assessments or other governmental charges not yet due and payable; (ii) restrictions, conditions, reservations, limitations, easements and other matters of record, current zoning and any condition the physical inspection of the Real Property and an accurate and complete survey of the Real Property would disclose, (iii) matters identified as Permitted Encumbrances on the Schedules to this Agreement, and (v) any Encumbrances in favor of CPH.
"Person" an individual, partnership, corporation, business trust, limited liability company, limited liability partnership, joint stock company, trust, unincorporated association, joint venture or other entity or a Governmental Body.
"Proceeding" any action, arbitration, audit, hearing, investigation, litigation or suit (whether civil, criminal, administrative, judicial or investigative, whether formal or informal, whether public or private) commenced, brought, conducted or heard by or before, or otherwise involving, any Governmental Body or arbitrator.
"Raw Materials Inventories" the raw materials used previously used in TSI's business, such as boxes, labels, bottles, and other similar materials.
"Real Property" the Land and Improvements and all appurtenances thereto.
"Record" information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in perceivable form.
"Representative" with respect to a particular Person, any director, officer, manager, agent, consultant, advisor, accountant, financial advisor, legal counsel or other representative of that Person.
"Retained Liabilities" has the meaning as set forth in Section 1.3(a). "Security Agreement" the Security Agreement between TSI and CPH dated June 17, 2004. "Security Instruments" has the meaning as set forth in Section 2.1(e). |
"Shares" has the meaning as set forth in Section 2.1(f).
"Stock Power" has the meaning as set forth in Section 2.1(f).
"Subsidiary" with respect to any Person (the "Owner"), any corporation or other Person of which securities or other interests having the power to elect a majority of that corporation's or other Person's board of directors or similar governing body, or otherwise having the power to direct the business and policies of that corporation or other Person (other than securities or other interests having such power only upon the happening of a contingency that has not occurred), are held by the Owner or one or more of its Subsidiaries.
"TSI" Trinity Springs, Inc., a Delaware corporation.
"TSI's Knowledge" the actual knowledge of TSI's directors, officers, and employees. "TSI's Water Rights" all Water Rights or interests therein owned by |
or belonging to TSI, including but not limited to (a) those Water Rights represented by water right numbers 63-8206, 63-8207, 63-11051, 63-11053, 63-27144 and 63-11439, (b) any and all interests TSI holds in Water Rights associated with Paradise Lodge and/or Paradise Subdivision, including those held in the name of Paradise Homeowners' Association (including but not limited to 63-4221, 63-10559, 63-32016, and 63-10560), and (c) the Industrial Water Service Contract (Contract No. 2-07-10-W0943) dated August 24, 1992, and any amendments or assignment thereto, with the United States.
"Tangible Personal Property" all machinery, equipment, tools, furniture, office equipment, computer hardware, supplies, materials, vehicles and other items of tangible personal property (other than Raw Materials Inventories) of every kind owned or leased by TSI (wherever located and whether or not carried on TSI's books), together with any express or implied warranty by the manufacturers or TSI's or lessors of any item or component part thereof and all maintenance records and other documents relating thereto.
"Tax" any income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, property, environmental, windfall profit, customs, vehicle, airplane, boat, vessel or other title or registration, capital stock, franchise, employees' income withholding, foreign or domestic withholding, social security, unemployment, disability, real property, personal property, sales, use, transfer, value added, alternative, add-on minimum and other tax, fee, assessment, levy, tariff, charge or duty of any kind whatsoever and any interest, penalty, addition or additional amount thereon imposed, assessed or collected by or under the authority of any Governmental Body or payable under any tax-sharing agreement or any other Contract.
"Tax Return" any return (including any information return), report, statement, schedule, notice, form, declaration, claim for refund or other document or information filed with or submitted to, or required to be filed with or submitted to, any Governmental Body in connection with the determination, assessment, collection or payment of any Tax or in connection with the administration, implementation or enforcement of or compliance with any Legal Requirement relating to any Tax.
"Water Right" any and all rights to the use or control of water. The term shall be construed broadly to include, without limitation, rights to natural flow water, ground water, spring water, waste water, seepage, return flow, water of indeterminate origin, stored water, water recovered from an aquifer storage and recovery project, the right to store water, the right to store water in an aquifer storage and recovery project, the right to recharge water into an aquifer. It includes permits and licenses issued by the Idaho Department of Water Resources. It includes all water rights or similar entitlements reflected in any court decree (including any partial decree of the Snake River Basin Adjudication) confirming the right or entitlement. It also includes claims or entitlements (whether or not filed with a court or the Department) based on having placed water to beneficial use. It includes storage entitlements, whether by contract or otherwise. It includes entitlements to the use of water based on contract with the owner or acquirer of a water right (including rental, lease, sale, purchase, exchange, subordination, or mitigation agreement). It includes all ditch or canal company shares or other entitlements to receive water from any ditch or canal company, irrigation district or any other water delivery entity. It includes all ditch rights, easements or rights-of-way associated with any irrigation or other water delivery ditch, canal, lateral or pipeline.
EXHIBITS
Exhibit A Note Exhibit B Amended and Restated Guaranty Exhibit C Stock Power Exhibit D Bill of Sale Exhibit E Assignment and Assumption Agreement Exhibit F Assignment of Marks and Copyrights |
EXHIBIT 18.1
November 6, 2007
Board of Directors:
AMCON Distributing Company and Subsidiaries
7405 Irvington Road
Omaha, NE 68122
Re: Form 10-K Report for the year ended September 30, 2007
Directors:
This letter is written to meet the requirements of Regulation S-K calling for a letter from a registrant's independent accountants whenever there has been a change in accounting principle.
According to the management of the Company, this change in inventory methods from the last-in, first-out ("LIFO") method to the first-in, first-out ("FIFO") is preferable because it provides a more meaningful presentation of the Company's financial position as it values inventory in a manner which more closely approximates current or replacement costs; FIFO inventory values better represent the underlying commercial substance of selling the oldest products first; and more accurately reflects realized periodic income. The LIFO reserve was approximately $6,390,000 as of June 30, 2007, prior to the change which represents approximately 21% of total gross inventory.
A complete coordinated set of financial and reporting standards for determining the preferability of accounting principles among acceptable alternative principles has not been established by the accounting profession. Thus, we cannot make an objective determination of whether the change in accounting described in the preceding paragraph is to a preferable method. However, we have reviewed the pertinent factors, including those related to financial reporting, in this particular case on a subjective basis, and our opinion stated below is based on our determination made in this manner.
We are of the opinion that the Company's change in method of accounting is to an acceptable alternative method of accounting, which, based upon the reasons stated for the change and our discussions with you, is also preferable under the circumstances in this particular case. In arriving at this opinion, we have relied on the business judgment and business planning of your management.
Very Truly Yours,
/s/ McGladrey & Pullen LLP Omaha, Nebraska |
Exhibit-21.1
Subsidiaries of the Company
State of
Names Incorporation D/B/A (if applicable)
----------------------------- ------------- --------------------------
The Healthy Edge, Inc. Arizona
Chamberlin Natural Foods, Inc. Florida Chamberlin's Market & Cafe
Health Food Associates, Inc. Oklahoma Akin's Natural Foods Market
Hawaiian Natural Water Co., Inc. Delaware
The Beverage Group, Inc. Delaware
Trinity Springs, Inc. Delaware
|
Exhibit-23.1
To the Board of Directors
AMCON Distributing Company
Omaha, Nebraska
We consent to the incorporation by reference in Registration Statement No. 333-45338 on form S-8 of our report on the consolidated financial statements dated November 6, 2007, which report expresses an unqualified opinion, and our report on the 2007 information in the consolidated financial statement schedule, which expresses an unqualified opinion of AMCON Distributing Company and subsidiaries, appearing in this Annual Report on Form 10-K of AMCON Distributing Company and subsidiaries for the fiscal year ended September 30, 2007, respectively.
The Company's financial statements include a restatement for a change in accounting method.
/s/ McGladrey & Pullen LLP Omaha, Nebraska November 6, 2007 |
Exhibit-23.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement No. 333-45338 on Form S-8 of our report dated August 21, 2006 (December 28, 2006 as to Notes 2 and 17) relating to (1) the 2005 financial statements before retrospective adjustments to the financial statements and financial statement disclosures of AMCON Distributing Company and subsidiaries (not presented herein) (which report expresses an unqualified opinion and includes an explanatory paragraph regarding the adjustments to retrospectively apply the change in accounting discussed in Note 1 to the consolidated financial statements) and (2) the 2005 financial statement schedule of AMCON Distributing Company and subsidiaries appearing in this Annual Report on Form 10-K of AMCON Distributing Company and subsidiaries for the year ended September 30, 2007.
/s/ DELOITTE & TOUCHE LLP Omaha, Nebraska November 6, 2007 |
I, Christopher H. Atayan, certify that:
1. I have reviewed this Annual Report on Form 10-K of AMCON Distributing Company;
2. Based on my knowledge, this Annual 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 Annual Report;
3. Based on my knowledge, the financial statements, and other financial information included in this Annual 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 Annual 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 we 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 Annual 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 registrants' fiscal fourth 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 controls 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 controls 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: November 6, 2007 /s/ Christopher H. Atayan
-----------------------------
Christopher H. Atayan,
Chief Executive Officer
and Vice Chairman
|
I, Andrew C. Plummer, certify that:
1. I have reviewed this Annual Report on Form 10-K of AMCON Distributing Company;
2. Based on my knowledge, this Annual 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 Annual Report;
3. Based on my knowledge, the financial statements, and other financial information included in this Annual 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 Annual 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 we 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 Annual 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 registrants' fiscal fourth 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 controls 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 controls 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: November 6, 2007 /s/ Andrew C. Plummer
---------------------------------
Andrew C. Plummer, Vice President,
Chief Financial Officer and
Secretary
|
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 Annual Report on Form 10-K (the "Report") of AMCON Distributing Company (the "Company") for the fiscal year ended September 30, 2007, I, Christopher H. Atayan, Chief Executive Officer 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: November 6, 2007 /s/ Christopher H. Atayan
------------------------------
Title: Chief Executive Officer
and Vice Chairman
|
A signed original of this written statement required by Section 906 has been provided to AMCON Distributing Company and will be retained by AMCON Distributing Company and furnished to the Securities and Exchange Commission or its staff upon request.
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 Annual Report on Form 10-K (the
"Report") of AMCON Distributing Company (the "Company") for the fiscal year
ended September 30, 2007, I, Andrew C. Plummer, Vice President and Acting
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: November 6, 2007 /s/ Andrew C. Plummer
-------------------------
Title: Vice President,
Chief Financial Officer
and Secretary
|
A signed original of this written statement required by Section 906 has been provided to AMCON Distributing Company and will be retained by AMCON Distributing Company and furnished to the Securities and Exchange Commission or its staff upon request.