Amcon Distributing Co 10-Q for FY2023 Q2
Amcon Distributing Co (DIT)
About this 10-Q
Amcon Distributing Co filed this 10-Q on April 18, 2023, covering the quarter ended March 31, 2023 (FY2023 Q2).
Headline figures
Quarter ended March 31, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $584.99M
- up 49.3% from $391.89M a year earlier
- Net income
- $2.07M
- down 31.3% from net income of $3.01M a year earlier
- Diluted EPS
- $3.49
- down 32.8% from $5.19 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
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| For the quarterly period ended |
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
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| For the transition period from ___________to _________ |
Commission File Number
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction | | (I.R.S. Employer |
of incorporation or organization) | | Identification No.) |
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(Address of principal executive offices) | | (Zip code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class | Trading symbol(s) | Name of each exchange on which registered |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ◻ | Accelerated filer ◻ | | |
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Smaller reporting company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ◻ No
The Registrant had
Form 10-Q
2nd Quarter
INDEX
2
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
AMCON Distributing Company and Subsidiaries
Condensed Consolidated Balance Sheets
March 31, 2023 and September 30, 2022
| | March | | September | ||
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| 2023 |
| 2022 | ||
| | (Unaudited) | | | | |
ASSETS | | | | | | |
Current assets: | | | | | | |
Cash | | $ | | | $ | |
Accounts receivable, less allowance for doubtful accounts of $ | |
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Inventories, net | |
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Income taxes receivable | | | | | | |
Prepaid expenses and other current assets | |
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Total current assets | |
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Property and equipment, net | |
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Operating lease right-of-use assets, net | | | | | | |
Goodwill | |
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Other intangible assets, net | |
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Other assets | |
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Total assets | | $ | | | $ | |
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LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | |
Current liabilities: | | | | | | |
Accounts payable | | $ | | | $ | |
Accrued expenses | |
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Accrued wages, salaries and bonuses | |
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Current operating lease liabilities | | | | | | |
Current maturities of long-term debt | |
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Current mandatorily redeemable non-controlling interest | | | | | | |
Total current liabilities | |
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Credit facilities | |
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Deferred income tax liability, net | |
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Long-term operating lease liabilities | | | | | | |
Long-term debt, less current maturities | |
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Mandatorily redeemable non-controlling interest, less current portion | | | | | | |
Other long-term liabilities | |
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Shareholders’ equity: | | | | | | |
Preferred stock, $ | |
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Common stock, $ | |
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Additional paid-in capital | |
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Retained earnings | |
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Treasury stock at cost | |
| ( | |
| ( |
Total shareholders’ equity | | | | | | |
Total liabilities and shareholders’ equity | | $ | | | $ | |
The accompanying notes are an integral part of these condensed consolidated unaudited financial statements.
3
AMCON Distributing Company and Subsidiaries
Condensed Consolidated Unaudited Statements of Operations
for the three and six months ended March 31, 2023 and 2022
| | For the three months ended March | | For the six months ended March | ||||||||
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| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||
Sales (including excise taxes of $ | | $ | | | $ | | | $ | | | $ | |
Cost of sales | |
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Gross profit | |
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Selling, general and administrative expenses | |
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Depreciation and amortization | |
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Operating income | |
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Other expense (income): | | | | | | | | | | | | |
Interest expense | |
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Change in fair value of mandatorily redeemable non-controlling interest | | | | | | — | | | | | | — |
Other (income), net | |
| ( | |
| ( | |
| ( | |
| ( |
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Income from operations before income taxes | |
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Income tax expense | |
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Equity method investment earnings, net of tax | |
| — | |
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| — | |
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Net income available to common shareholders | | $ | | | $ | | | $ | | | $ | |
| | | | | | | | | | | | |
Basic earnings per share available to common shareholders | | $ | | | $ | | | $ | | | $ | |
Diluted earnings per share available to common shareholders | | $ | | | $ | | | $ | | | $ | |
| | | | | | | | | | | | |
Basic weighted average shares outstanding | |
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Diluted weighted average shares outstanding | |
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Dividends paid per common share | | $ | | | $ | | | $ | | | $ | |
The accompanying notes are an integral part of these condensed consolidated unaudited financial statements.
4
AMCON Distributing Company and Subsidiaries
Condensed Consolidated Unaudited Statements of Shareholders’ Equity
for the three and six months ended March 31, 2023 and 2022
| | | | | | | | | | | | Additional | | | | | | | |
| | Common Stock | | Treasury Stock | | Paid-in | | Retained | | | | ||||||||
|
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Earnings |
| Total | |||||
THREE MONTHS ENDED MARCH 2022 | | | | | | | | | | | | | | | | | | | |
Balance, January 1, 2022 | | | | $ | | | ( | | $ | ( | | $ | | | $ | | | $ | |
Dividends on common stock, $ | | — | | | — | | — | | | — | | | — | | | ( | | | ( |
Compensation expense and settlement of equity-based awards | | | | | | | — | | | — | | | ( | | | — | | | ( |
Net income available to common shareholders | | — | |
| — | | — | | | — | | | — | | | | | | |
Balance, March 31, 2022 | | | | $ | | | ( | | $ | ( | | $ | | | $ | | | $ | |
| | | | | | | | | | | | | | | | | | | |
THREE MONTHS ENDED MARCH 2023 | | | | | | | | | | | | | | | | | | | |
Balance, January 1, 2023 | | | | $ | | | ( | | $ | ( | | $ | | | $ | | | $ | |
Dividends on common stock, $ | | — | | | — | | — | | | — | | | — | | | ( | | | ( |
Compensation expense related to equity-based awards | | — | | | — | | — | | | — | | | | | | — | | | |
Net income available to common shareholders | | — | |
| — | | — | | | — | | | — | | | | | | |
Balance, March 31, 2023 | | | | $ | | | ( | | $ | ( | | $ | | | $ | | | $ | |
| | | | | | | | | | | | Additional | | | | | | | |
| | Common Stock | | Treasury Stock | | Paid-in | | Retained | | | | ||||||||
|
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Earnings |
| Total | |||||
SIX MONTHS ENDED MARCH 2022 | | | | | | | | | | | | | | | | | | | |
Balance, October 1, 2021 | | | | $ | | | ( | | $ | ( | | $ | | | $ | | | $ | |
Dividends on common stock, $ | | — | | | — | | — | | | — | | | — | | | ( | | | ( |
Compensation expense and settlement of equity-based awards | | | | | | | — | | | — | | | | | | — | | | |
Net income available to common shareholders | | — | |
| — | | — | | | — | | | — | | | | | | |
Balance, March 31, 2022 | | | | $ | | | ( | | $ | ( | | $ | | | $ | | | $ | |
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SIX MONTHS ENDED MARCH 2023 | | | | | | | | | | | | | | | | | | | |
Balance, October 1, 2022 | | | | $ | | | ( | | $ | ( | | $ | | | $ | | | $ | |
Dividends on common stock, $ | | — | | | — | | — | | | — | | | — | | | ( | | | ( |
Compensation expense and settlement of equity-based awards | | | | | | | — | | | — | | | | | | — | | | |
Net income available to common shareholders | | — | |
| — | | — | | | — | | | — | | | | | | |
Balance, March 31, 2023 | | | | $ | | | ( | | $ | ( | | $ | | | $ | | | $ | |
The accompanying notes are an integral part of these condensed consolidated unaudited financial statements.
5
AMCON Distributing Company and Subsidiaries
Condensed Consolidated Unaudited Statements of Cash Flows
for the six months ended March 31, 2023 and 2022
| | March | | March | ||
|
| 2023 |
| 2022 | ||
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | |
Net income available to common shareholders | | $ | | | $ | |
Adjustments to reconcile net income available to common shareholders to net cash flows from (used in) operating activities: | | | | | | |
Depreciation | | | | | | |
Amortization | | | | | | — |
Equity method investment earnings, net of tax | | | — | | | ( |
(Gain) loss on sales of property and equipment | | | ( | | | ( |
Equity-based compensation | | | | | | |
Deferred income taxes | | | | | | |
Provision for losses on doubtful accounts | | | ( | | | ( |
Inventory allowance | | | ( | | | |
Change in fair value of mandatorily redeemable non-controlling interest | | | | | | — |
Changes in assets and liabilities, net of effects of business acquisition: | | | | | | |
Accounts receivable | | | | | | |
Inventories | | | | | | |
Prepaid and other current assets | | | ( | | | ( |
Equity method investment distributions | | | — | | | |
Other assets | | | ( | | | ( |
Accounts payable | | | | | | |
Accrued expenses and accrued wages, salaries and bonuses | | | ( | | | ( |
Other long-term liabilities | | | | | | ( |
Income taxes payable and receivable | | | ( | | | ( |
Net cash flows from (used in) operating activities | | | | | | |
| | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | |
Purchase of property and equipment | | | ( | | | ( |
Proceeds from sales of property and equipment | | | | | | |
Principal payment received on note receivable | | | — | | | |
Acquisition of Henry's (See Note 2) | | | ( | | | — |
Net cash flows from (used in) investing activities | | | ( | | | ( |
| | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | |
Borrowings under revolving credit facilities | | | | | | |
Repayments under revolving credit facilities | | | ( | | | ( |
Proceeds from borrowings on long-term debt | | | | | | — |
Principal payments on long-term debt | | | ( | | | ( |
Proceeds from exercise of stock options | | | — | | | |
Dividends on common stock | | | ( | | | ( |
Settlement and withholdings of equity-based awards | | | — | | | ( |
Net cash flows from (used in) financing activities | | | | | | ( |
Net change in cash | | | | | | |
Cash, beginning of period | | | | | | |
Cash, end of period | | $ | | | $ | |
| | | | | | |
Supplemental disclosure of cash flow information: | | | | | | |
Cash paid during the period for interest | | $ | | | $ | |
Cash paid during the period for income taxes, net of refunds | |
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| | | | | | |
Supplemental disclosure of non-cash information: | | | | | | |
Equipment acquisitions classified in accounts payable | | $ | | | $ | |
Issuance of common stock in connection with the vesting and exercise of | | | | |
| |
The accompanying notes are an integral part of these condensed consolidated unaudited financial statements.
6
AMCON Distributing Company and Subsidiaries
Notes to Condensed Consolidated Unaudited Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION
AMCON Distributing Company and Subsidiaries (“AMCON” or the “Company”) operate
| ● | Our wholesale distribution segment (“Wholesale Segment”) distributes consumer products and provides a full range of programs and services to our customers that are focused on helping them manage their business and increase their profitability. We serve customers in |
| ● | Our retail health food segment (“Retail Segment”) operates |
WHOLESALE SEGMENT
Our Wholesale Segment is one of the largest wholesale distributors in the United States, serving approximately
Our Wholesale Segment offers retailers the ability to take advantage of manufacturer- and Company-sponsored sales and marketing programs, merchandising and product category management services, and the use of information systems and data services that are focused on minimizing retailers’ investment in inventory, while seeking to maximize their sales and profits. In addition, our wholesale distributing capabilities provide valuable services to both manufacturers of consumer products and convenience retailers. Manufacturers benefit from our broad retail coverage, inventory management, efficiency in processing small orders, and frequency of deliveries. Convenience retailers benefit from our distribution capabilities by gaining access to a broad product line, inventory optimization and merchandising expertise, information systems, and accessing trade credit.
Our Wholesale Segment operates
As further described in Note 2, on February 3, 2023, the Company closed on its acquisition of Henry’s Foods, Inc. (“Henry’s”), purchasing substantially all of Henry’s operating assets for approximately $
RETAIL SEGMENT
Our Retail Segment, through our Healthy Edge Retail Group subsidiary, is a specialty retailer of natural/organic groceries and dietary supplements that focuses on providing high quality products at affordable prices, with an exceptional level of customer service and nutritional consultation. All of the products carried in our stores must meet strict quality and ingredient guidelines, and include offerings such as gluten-free and antibiotic-free groceries and meat products, as well as products containing no artificial colors, flavors, preservatives, or partially hydrogenated oils. We design our retail sites in an efficient and flexible small-store format, which emphasizes a high energy and shopper-friendly environment.
We operate within the natural products retail industry, which is a subset of the U.S. grocery industry. This industry includes conventional, natural, gourmet and specialty food markets, mass and discount retailers, warehouse clubs, health food stores, dietary supplement retailers, drug stores, farmers markets, mail order and online retailers, and multi-level marketers.
7
Our Retail Segment operates
FINANCIAL STATEMENTS
The Company’s fiscal year ends on September 30th, except for one non-wholly owned subsidiary whose fiscal year ends on the last Friday of September. The results for the interim period included with this Quarterly Report may not be indicative of the results which could be expected for the entire fiscal year. All significant intercompany transactions and balances have been eliminated in consolidation. Certain information and footnote disclosures normally included in our annual financial statements prepared in accordance with generally accepted accounting principles (“GAAP”) have been condensed or omitted. In the opinion of management, the accompanying condensed consolidated unaudited financial statements (“financial statements”) contain all adjustments necessary to fairly present the financial information included herein. The Company believes that although the disclosures contained herein are adequate to prevent the information presented from being misleading, these financial statements should be read in conjunction with the Company’s annual audited consolidated financial statements for the fiscal year ended September 30, 2022, as filed with the Securities and Exchange Commission on Form 10-K. For purposes of this report, unless the context indicates otherwise, all references to “we”, “us”, “our”, the “Company”, and “AMCON” shall mean AMCON Distributing Company and its consolidated subsidiaries. Additionally, the three month fiscal periods ended March 31, 2023 and March 31, 2022 have been referred to throughout this Quarterly Report as Q2 2023 and Q2 2022, respectively. The fiscal balance sheet dates as of March 31, 2023 and September 30, 2022 have been referred to as March 2023 and September 2022, respectively.
ACCOUNTING PRONOUNCEMENTS
Recent Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, which introduces a forward-looking approach, based on expected losses, to estimate credit losses on certain types of financial instruments, including trade receivables. The estimate of expected credit losses will require entities to incorporate considerations of historical information, current information, and reasonable and supportable forecasts. This ASU also expands the disclosure requirements to enable users of financial statements to understand the entity’s assumptions, models, and methods for estimating expected credit losses. This guidance is effective for fiscal years beginning after December 15, 2022 (fiscal 2024 for the Company) with early adoption permitted. The Company is currently reviewing this ASU and its potential impact on our consolidated financial statements.
2. ACQUISITION
On February 3, 2023, the Company, through its wholly owned subsidiary LOL Foods, Inc., paid approximately $
The Company paid cash consideration for the net acquired assets and their related acquisition date fair values measured in accordance with FASB Accounting Standards Codification (“ASC”) 805 – Business Combinations. In valuing identifiable intangible assets, the Company has estimated the fair value using the discounted cash flows methodology with the assistance of an independent valuation advisor. Inputs and projections used to measure the acquisition-date fair value included but were not limited to sales growth, gross profit estimates, royalty and customer retention rates, economic and industry conditions, working capital requirements and various other operational considerations.
8
The following purchase price allocation reflects the Company’s provisional (preliminary) estimates and analyses and is subject to change during the measurement period, which is generally one year from the acquisition date. All amounts are provisional and incomplete at the reporting date and may change materially in subsequent reporting periods during the measurement period while additional information is obtained, particularly as it relates to certain accounts receivable, property and equipment, inventory, other intangible assets and certain liability balances while final appraisal and valuation work is completed. Accordingly, any changes to the Company’s provisional recording of the transaction may materially impact its financial statements, including but not limited to its consolidated balance sheets, statements of operations, shareholders’ equity and cash flows, and related disclosures. All assets acquired and operating liabilities assumed have been recorded as a component of our Wholesale Segment.
Provisional (preliminary) amounts of identifiable assets and liabilities assumed:
| | | |
Accounts receivable | | $ | |
Inventories | | | |
Prepaid and other assets | | | |
Property and equipment | | | |
Other intangible assets | | | |
Liabilities assumed | | | ( |
Total identifiable net assets | | $ | |
| | | |
Total identifiable net assets | | $ | |
Goodwill | | | |
Consideration transferred | | $ | |
Accounts receivable were recorded at their fair value representing the amount we expect to collect, which also approximated the gross contractual values of such receivables at the acquisition date. Goodwill totaling approximately $
The provisional (preliminary) value of other intangible assets acquired consisted of the following:
|
| Acquisition-Date |
| Useful Life | ||
Other Intangible Asset | | Fair Value | | (Years) | ||
Customer list | | $ | | | | |
Non-competition agreement | | | | | | |
Trade name | | | | | | |
| | $ | | | | |
The following table sets forth the unaudited supplemental financial data for Henry’s from the acquisition date through March 2023, which is included in the Company’s consolidated results for the three and six months ended March 2023.
Revenue | | $ | |
Net loss available to common shareholders | | $ | ( |
The following table presents unaudited supplemental pro forma information assuming the Company acquired Henry’s on October 1, 2021, in addition to holding a
|
| For the three months ended March 2023 |
| For the three months ended March 2022 |
| For the six months ended March 2023 |
| For the six months ended March 2022 | ||||
Revenue | | $ | | | $ | | | $ | | | $ | |
Net income available to common shareholders | | $ | | | $ | | | $ | | | $ | |
9
3. INVENTORIES
Inventories in our Wholesale Segment consisted of finished goods and are stated at the lower of cost or net realizable value, utilizing FIFO and average cost methods. Inventories in our Retail Segment consisted of finished goods and are stated at the lower of cost or market using the retail method. 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. Finished goods included total reserves of approximately $
4. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill at March 2023 and September 2022 was as follows:
|
| March |
| September | ||
| 2023 | | 2022 | |||
Beginning Balance | | $ | | | $ | |
Acquisition of Henry's | |
| | |
| — |
Wholesale Segment | | $ | | | $ | |
Other intangible assets at March 2023 and September 2022 consisted of the following:
| | | | | | |
|
| March |
| September | ||
| | 2023 | | 2022 | ||
Customer lists (Wholesale Segment) (less accumulated amortization of $ | | $ | | | $ | |
Non-competition agreements (Wholesale Segment) (less accumulated amortization of $ | | | | | | |
Trademarks and tradenames (Wholesale Segment) (less accumulated amortization of less than $ | | | | | | — |
Trademarks and tradenames (Retail Segment) | | | | | | |
| | $ | | | $ | |
Goodwill and the trademarks and tradenames for our Retail Segment are considered to have indefinite useful lives and therefore no amortization has been recorded on these assets. Goodwill recorded on the Company’s consolidated balance sheets represent amounts allocated to its wholesale reporting unit which totaled approximately $
At March 2023, identifiable intangible assets considered to have finite lives were represented by customer lists which are being amortized over
10
Estimated future amortization expense related to identifiable intangible assets with finite lives was as follows at March 2023:
| | | |
| | March | |
|
| 2023 | |
Fiscal 2023 (1) | | $ | |
Fiscal 2024 | | | |
Fiscal 2025 | | | |
Fiscal 2026 | | | |
Fiscal 2027 | | | |
Fiscal 2028 and thereafter | | | |
| | $ | |
| (1) | Represents amortization for the remaining six months of Fiscal 2023. |
5. DIVIDENDS
The Company paid cash dividends on its common stock totaling $
6. EARNINGS PER SHARE
Basic earnings per share available to common shareholders is calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding for each period. Diluted earnings per share available to common shareholders is calculated by dividing net income available to common shareholders by the sum of the weighted average number of common shares outstanding and the weighted average dilutive equity awards.
| | | | | | | | | | | | |
| | For the three months ended March | ||||||||||
| | 2023 | | 2022 | ||||||||
|
| Basic |
| Diluted |
| Basic |
| Diluted | ||||
Weighted average number of common shares outstanding | | | | | | | | | | | | |
Weighted average net additional shares outstanding assuming dilutive options exercised and proceeds used to purchase treasury stock (1) | | | — | | | | | | — | | | |
Weighted average number of shares outstanding | | | | | | | | | | | | |
Net income available to common shareholders | | $ | | | $ | | | $ | | | $ | |
| | | | | | | | | | | | |
Net earnings per share available to common shareholders | | $ | | | $ | | | $ | | | $ | |
| (1) | Diluted earnings per share calculation includes all equity-based awards deemed to be dilutive. |
| | | | | | | | | | | | |
| | For the six months ended March | ||||||||||
| | 2023 | | 2022 | ||||||||
|
| Basic |
| Diluted |
| Basic |
| Diluted | ||||
Weighted average number of common shares outstanding | | | | | | | | | | | | |
Weighted average net additional shares outstanding assuming dilutive options exercised and proceeds used to purchase treasury stock (1) | | | — | | | | | | — | | | |
Weighted average number of shares outstanding | | | | | | | | | | | | |
Net income available to common shareholders | | $ | | | $ | | | $ | | | $ | |
| | | | | | | | | | | | |
Net earnings per share available to common shareholders | | $ | | | $ | | | $ | | | $ | |
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7. DEBT
The Company primarily finances its operations through
The amount available for use from the Facilities at any given time is subject to a number of factors, including eligible accounts receivable and inventory balances that fluctuate day-to-day, as well as the value of certain real estate collateral. Based on the collateral and loan limits as defined in the Facility agreements, the credit limit of the combined Facilities at March 2023 was $
The average interest rate of the Facilities was
LONG-TERM DEBT
In addition to the Facilities, the Company also had the following long-term obligations at March 2023 and September 2022.
|
| March 2023 |
| September 2022 | ||
Unsecured note payable, interest payable at a fixed rate of | | | | | | |
Note payable, interest payable at a fixed rate of | | | | | | |
Note payable, interest payable at a fixed rate of | | | | | | |
Note payable with monthly installments of principal and interest of $ | | | | | | |
Note payable, interest payable at a fixed rate of | |
| | |
| — |
| |
| | |
| |
Less current maturities | |
| ( | |
| ( |
| | $ | | | $ | |
12
The aggregate minimum principal maturities of the long-term debt for each of the next five fiscal years are as follows:
Fiscal Year Ending |
| | |
2023 (1) | | $ | |
2024 | | | |
2025 | | | |
2026 | |
| |
2027 | | | |
2028 and thereafter | |
| |
| | $ | |
(1)Represents payments for the remaining six months of Fiscal 2023.
Cross Default and Co-Terminus Provisions
Team Sledd’s
Other
The Company has issued a letter of credit for $
8. INCOME TAXES
The change in the Company’s effective income tax rate for the three and six month periods ended March 2023 as compared to the respective prior year periods, was primarily related to non-deductible compensation expense in relation to the amount of income from operations before income tax expense between the comparative periods.
9. MANDATORILY REDEEMABLE NON-CONTROLLING INTEREST
Mandatorily redeemable non-controlling interest (“MRNCI”) recorded on the Company’s consolidated balance sheet represents the non-controlling interest in the Company’s strategic investment in Team Sledd. The Company owned approximately
Fair value of MRNCI as of September 2022 |
| $ | |
Change in fair value | | | |
Fair value of MRNCI as of March 2023 | | $ | |
Less current portion at fair value | | | ( |
| | $ | |
During April 2023, subsequent to Q2 2023, certain membership interests in Team Sledd were redeemed, which resulted in AMCON’s ownership of Team Sledd’s outstanding equity increasing to approximately
13
10. BUSINESS SEGMENTS
The Company has
| | Wholesale | | Retail | | | | | ||||
|
| Segment |
| Segment |
| Other |
| Consolidated | ||||
THREE MONTHS ENDED MARCH 2023 | | | | | | | | | | | | |
External revenue: | | | | | | | | | | | | |
Cigarettes | | $ | | | $ | — | | $ | — | | $ | |
Tobacco | | | | | | — | | | — | | | |
Confectionery | | | | | | — | | | — | | | |
Health food | | | — | | | | | | — | | | |
Foodservice & other | | | | | | — | | | — | | | |
Total external revenue | | | | | | | | | — | | | |
Depreciation | | | | | | | | | — | | | |
Amortization | | | | | | — | | | — | | | |
Operating income (loss) | | | | | | | | | ( | | | |
Interest expense | | | — | | | — | | | | | | |
Income (loss) from operations before taxes | | | | | | | | | ( | | | |
Total assets | | | | | | | | | | | | |
Capital expenditures | | | | | | | | | — | | | |
| | Wholesale | | Retail | | | | | ||||
|
| Segment |
| Segment |
| Other |
| Consolidated | ||||
THREE MONTHS ENDED MARCH 2022 | | | | | | | | | | | | |
External revenue: | | | | | | | | | | | | |
Cigarettes | | $ | | | $ | — | | $ | — | | $ | |
Tobacco | | | | | | — | | | — | | | |
Confectionery | | | | | | — | | | — | | | |
Health food | | | — | | | | | | — | | | |
Foodservice & other | | | | | | — | | | — | | | |
Total external revenue | | | | | | | | | — | | | |
Depreciation | | | | | | | | | — | | | |
Operating income (loss) | | | | | | | | | ( | | | |
Interest expense | | | — | | | — | | | | | | |
Income (loss) from operations before taxes | | | | | | | | | ( | | | |
Equity method investment earnings, net of tax | | | — | | | — | | | | | | |
Total assets | | | | | | | | | | | | |
Capital expenditures | | | | | | | | | — | | | |
14
| | Wholesale | | Retail | | | | | ||||
|
| Segment |
| Segment |
| Other |
| Consolidated | ||||
SIX MONTHS ENDED MARCH 2023 | | | | | | | | | | | | |
External revenue: | | | | | | | | | | | | |
Cigarettes | | $ | | | $ | — | | $ | — | | $ | |
Tobacco | | | | | | — | | | — | | | |
Confectionery | | | | | | — | | | — | | | |
Health food | | | — | | | | | | — | | | |
Foodservice & other | | | | | | — | | | — | | | |
Total external revenue | | | | | | | | | — | | | |
Depreciation | | | | | | | | | — | | | |
Amortization | | | | | | — | | | — | | | |
Operating income (loss) | | | | | | ( | | | ( | | | |
Interest expense | | | — | | | — | | | | | | |
Income (loss) from operations before taxes | | | | | | ( | | | ( | | | |
Total assets | | | | | | | | | | | | |
Capital expenditures | | | | | | | | | — | | | |
| | Wholesale | | Retail | | | | | ||||
|
| Segment |
| Segment |
| Other |
| Consolidated | ||||
SIX MONTHS ENDED MARCH 2022 | | | | | | | | | | | | |
External revenue: | | | | | | | | | | | | |
Cigarettes | | $ | | | $ | — | | $ | — | | $ | |
Tobacco | | | | | | — | | | — | | | |
Confectionery | | | | | | — | | | — | | | |
Health food | | | — | | | | | | — | | | |
Foodservice & other | | | | | | — | | | — | | | |
Total external revenue | | | | | | | | | — | | | |
Depreciation | | | | | | | | | — | | | |
Operating income (loss) | | | | | | | | | ( | | | |
Interest expense | | | — | | | — | | | | | | |
Income (loss) from operations before taxes | | | | | | | | | ( | | | |
Equity method investment earnings, net of tax | | | — | | | — | | | | | | |
Total assets | | | | | | | | | | | | |
Capital expenditures | | | | | | | | | — | | | |
15
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
BUSINESS UPDATE
Our businesses continue to be impacted by a number of macro-economic factors including ongoing disruptions to global supply chains and product availability. These factors, combined with a highly inflationary operating environment have resulted in cost pressures across our business segments as product, labor, fuel, interest and other costs have all increased markedly, while at the same time pressuring consumer discretionary spending and impacting retail demand trends.
We continue to closely monitor proposals from governmental and regulatory bodies, including the United States Food and Drug Administration (“FDA”), which are evaluating the prohibition and/or limitations on the sale of certain cigarette, tobacco and vaping products, including menthol. If such regulations were to be implemented, they would have a negative impact on the Company’s financial results.
As previously disclosed, the Company closed on its acquisition of Henry’s Foods, Inc. (“Henry’s”), purchasing substantially all of Henry’s operating assets for approximately $55.0 million in cash. The acquisition expands the Company’s footprint, increases its product offerings in the foodservice space and brings the Company’s customer-centric service approach to a broader customer base.
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q, including the Management’s Discussion and Analysis of Financial Condition and Results of Operations and other sections, contains forward-looking statements that are subject to risks and uncertainties and which reflect management’s current beliefs and estimates of future economic circumstances, industry conditions, Company performance and financial results. Forward-looking statements include information concerning the possible or assumed future results of operations of the Company and those statements preceded by, followed by or that include the words “future,” “position,” “anticipate(s),” “expect(s),” “believe(s),” “see,” “plan,” “further improve,” “outlook,” “should” or similar expressions. For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not guarantees of future performance or results. They involve risks, uncertainties and assumptions.
It should be understood that the following important factors, in addition to those discussed elsewhere in this document, could affect the future results of the Company and could cause those results to differ materially from those expressed in our forward-looking statements:
| ● | risks associated with higher interest rates and the related impact on profitability and cash flows for both the Company and its customer base, particularly as it relates to variable interest rate borrowings, as well as risk that such borrowings may not be renewed in the future on favorable terms or at all, |
| ● | risks associated with any systemic pressures in the banking system, particularly as they relate to customer credit risk and any resulting impact on our cash flow and our ability to collect on our receivables, |
| ● | risks associated with an inflationary operating environment, particularly as it relates to wages, fuel, interest, and commodity prices, which impact our operating cost structure and could impact food ingredient costs and demand for many of the products we sell, |
| ● | regulations, potential bans and/or litigation related to the manufacturing, distribution, and sale of certain cigarette, tobacco, and vaping products imposed by the FDA, state or local governmental agencies, or other parties, including proposed forthcoming regulations around the manufacture and distribution of certain menthol and flavored tobacco products, |
| ● | risks associated with the threat or occurrence of epidemics or pandemics (such as COVID-19 or its variants) or other public health issues, including the continued health of our employees and management, the reduced demand for our goods and services or increased credit risk from customer credit defaults resulting from an economic downturn, |
16
| ● | risks associated with the imposition of governmental orders restricting our operations and the operations of our suppliers and customers, in particular, disruptions to our supply chain or our ability to procure products or fulfill orders due to labor shortages in our warehouse operations, |
| ● | risks associated with the Company’s business model which experienced both higher sales volumes and labor costs during the COVID-19 pandemic, and the risk of sales returning to pre-pandemic levels without the Company being able to offset increases in its cost structure, |
| ● | risks associated with the acquisition of assets or new businesses or investments in equity investees by either of our business segments including, but not limited to, risks associated with consummating such transactions on expected terms or timing, purchase price and business valuation and recording risks, vendor and customer retention risks, employee and technology integration risks, and risks related to the assumption of certain liabilities or obligations, |
| ● | increasing competition and market conditions in our wholesale and retail health food businesses and any associated impact on the carrying value and any potential impairment of assets (including intangible assets) within those businesses, |
| ● | risk that our repositioning strategy for our retail business will not be successful, |
| ● | risks associated with opening new retail stores, |
| ● | if online shopping formats such as Amazon™ continue to grow in popularity and further disrupt traditional sales channels, it may present a significant direct risk to our brick and mortar retail business and potentially to our wholesale distribution business, |
| ● | the potential impact that ongoing, decreasing, or changing trade tariff and trade policies may have on our product costs or on consumer disposable income and demand, |
| ● | increasing product and operational costs resulting from ongoing supply chain disruptions, an intensely competitive labor market with a limited pool of qualified workers, and higher incremental costs associated with the handling and transportation of certain product categories such as foodservice, |
| ● | increases in state and federal excise taxes on cigarette and tobacco products and the potential impact on demand, particularly as it relates to current legislation under consideration which could significantly increase such taxes, |
| ● | risks associated with disruptions to our technology systems or those of third parties upon which we rely, including security breaches, cyber-attacks, malware, or other methods by which such information systems could be compromised, |
| ● | increases in inventory carrying costs and customer credit risks, |
| ● | changes in pricing strategies and/or promotional/incentive programs offered by cigarette and tobacco manufacturers, |
| ● | changing demand for the Company’s products, particularly cigarette, tobacco and vaping products, |
| ● | risks that product manufacturers may begin selling directly to convenience stores and bypass wholesale distributors, |
| ● | changes in laws and regulations and ongoing compliance related to health care and associated insurance, |
| ● | increasing health care costs for both the Company and consumers and their potential impact on discretionary consumer spending, |
| ● | decreased availability of capital resources, |
| ● | domestic regulatory and legislative risks, |
| ● | poor weather conditions, and the adverse effects of climate change, |
17
| ● | consolidation trends within the convenience store, wholesale distribution, and retail health food industries, |
| ● | natural disasters, domestic/political unrest and incidents of violence, or any restrictions, regulations, or security measures implemented by governmental bodies in response to these items, and |
| ● | other risks over which the Company has little or no control, and any other factors not identified herein. |
Changes in these factors could result in significantly different results. Consequently, future results may differ from management’s expectations. Moreover, past financial performance should not be considered a reliable indicator of future performance. Any forward-looking statement contained herein is made as of the date of this document. Except as required by law, the Company undertakes no obligation to publicly update or correct any of these forward-looking statements in the future to reflect changed assumptions, the occurrence of material events or changes in future operating results, financial conditions or business over time.
CRITICAL ACCOUNTING ESTIMATES
Certain accounting estimates used in the preparation of the Company’s condensed consolidated unaudited financial statements (“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 in our annual report on Form 10-K for the fiscal year ended September 30, 2022, as filed with the Securities and Exchange Commission. There have been no significant changes with respect to these estimates and related policies during the six months ended March 2023.
SECOND FISCAL QUARTER 2023 (Q2 2023)
The following discussion and analysis includes the Company’s results of operations for the three and six months ended March 2023 and March 2022:
Wholesale Segment
Our Wholesale Segment is one of the largest wholesale distributors in the United States serving approximately 6,800 retail outlets including convenience stores, grocery stores, liquor stores, drug stores, and tobacco shops. We currently distribute over 17,000 different consumer products, including cigarettes and tobacco products, candy and other confectionery products, beverages, groceries, paper products, health and beauty care products, frozen and refrigerated products and institutional foodservice products. Convenience stores represent our largest customer category. In December 2022, Convenience Store News ranked us as the sixth (6th) largest convenience store distributor in the United States based on annual sales.
Our Wholesale Segment offers retailers the ability to take advantage of manufacturer- and Company-sponsored sales and marketing programs, merchandising and product category management services, and the use of information systems and data services that are focused on minimizing retailers’ investment in inventory, while seeking to maximize their sales and profits. In addition, our wholesale distributing capabilities provide valuable services to both manufacturers of consumer products and convenience retailers. Manufacturers benefit from our broad retail coverage, inventory management, efficiency in processing small orders, and frequency of deliveries. Convenience retailers benefit from our distribution capabilities by gaining access to a broad product line, inventory optimization and merchandising expertise, information systems, and accessing trade credit.
Our Wholesale Segment operates eight distribution centers located in Illinois, Minnesota, Missouri, Nebraska, North Dakota, South Dakota, Tennessee and West Virginia. These distribution centers, combined with cross-dock facilities, include approximately 1.1 million square feet of permanent floor space. Our principal suppliers include Altria, RJ Reynolds, ITG Brands, Hershey, Kellogg’s, Kraft Heinz, and Mars Wrigley. We also market private label lines of water, candy products, batteries, and other products. We do not maintain any long-term purchase contracts with our suppliers.
18
Retail Segment
Our Retail Segment, through our Healthy Edge Retail Group subsidiary, is a specialty retailer of natural/organic groceries and dietary supplements which focuses on providing high quality products at affordable prices, with an exceptional level of customer service and nutritional consultation. All of the products carried in our stores must meet strict quality and ingredient guidelines, and include offerings such as gluten-free and antibiotic-free groceries and meat products, as well as products containing no artificial colors, flavors, preservatives, or partially hydrogenated oils. We design our retail sites in an efficient and flexible small-store format, which emphasizes a high energy and shopper-friendly environment.
We operate within the natural products retail industry, which is a subset of the U.S. grocery industry. This industry includes conventional, natural, gourmet and specialty food markets, mass and discount retailers, warehouse clubs, health food stores, dietary supplement retailers, drug stores, farmers markets, mail order and online retailers, and multi-level marketers.
Our Retail Segment operates eighteen retail health food stores as Chamberlin’s Natural Foods, Akin’s Natural Foods, and Earth Origins Market. These stores carry over 35,000 different national and regionally branded and private label products including high-quality natural, organic, and specialty foods consisting of produce, baked goods, frozen foods, nutritional supplements, personal care items, and general merchandise.
RESULTS OF OPERATIONS – THREE MONTHS ENDED MARCH:
|
| 2023 |
| 2022 |
| Incr (Decr) |
| % Change | |||
CONSOLIDATED: | | | | | | | | | | | |
Sales (1) | | $ | 584,993,848 | | $ | 391,888,192 | | $ | 193,105,656 |
| 49.3 |
Cost of sales | |
| 543,861,287 | |
| 365,211,270 | |
| 178,650,017 |
| 48.9 |
Gross profit | |
| 41,132,561 | |
| 26,676,922 | |
| 14,455,639 |
| 54.2 |
Gross profit percentage | |
| 7.0 | % |
| 6.8 | % |
| | | |
| | | | | | | | | | | |
Operating expense | | $ | 35,804,741 | | $ | 22,733,573 | | $ | 13,071,168 |
| 57.5 |
Operating income | |
| 5,327,820 | |
| 3,943,349 | |
| 1,384,471 |
| 35.1 |
Interest expense | |
| 2,169,541 | |
| 244,920 | |
| 1,924,621 |
| 785.8 |
Change in fair value of mandatorily redeemable non-controlling interest | | | 221,030 | | | — | | | 221,030 | | N/A |
Income tax expense | |
| 1,045,400 | |
| 1,345,000 | |
| (299,600) |
| (22.3) |
Equity method investment earnings, net of tax | | | — | | | 591,795 | | | (591,795) | | (100.0) |
Net income available to common shareholders | |
| 2,065,574 | |
| 3,006,182 | |
| (940,608) |
| (31.3) |
| | | | | | | | | | | |
BUSINESS SEGMENTS: | | | | | | | | | | | |
Wholesale | | | | | | | | | | | |
Sales | | $ | 573,645,837 | | $ | 379,468,896 | | $ | 194,176,941 |
| 51.2 |
Gross profit | |
| 37,096,448 | |
| 21,939,991 | |
| 15,156,457 |
| 69.1 |
Gross profit percentage | |
| 6.5 | % |
| 5.8 | % |
| | | |
Retail | | | | | | | | | | | |
Sales | | $ | 11,348,011 | | $ | 12,419,296 | | $ | (1,071,285) |
| (8.6) |
Gross profit | |
| 4,036,113 | |
| 4,736,931 | |
| (700,818) |
| (14.8) |
Gross profit percentage | |
| 35.6 | % |
| 38.1 | % |
| | | |
| (1) | Sales are reported net of costs associated with incentives provided to retailers. These incentives totaled $10.3 million in Q2 2023 and $8.2 million in Q2 2022. |
19
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 and mix 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 – Q2 2023 vs. Q2 2022
Sales in our Wholesale Segment increased $194.2 million during Q2 2023 as compared to Q2 2022. Significant items impacting sales during Q2 2023 included a $152.2 million increase in sales related to the acquisition of a controlling interest in Team Sledd, LLC (“Team Sledd”) during Q3 2022, a $44.0 million increase in sales related to the acquisition of Henry’s Foods, Inc. (“Henry’s”) during Q2 2023, a $21.0 million increase in sales related to price increases implemented by cigarette manufacturers, and a $11.7 million increase in sales related to higher sales volumes in our tobacco, confectionery, foodservice, and other categories (“Other Products”), partially offset by a $34.7 million decrease in sales related to the volume and mix of cigarette cartons sold. Sales in our Retail Segment decreased $1.1 million during Q2 2023 as compared to Q2 2022. This decrease was due to approximately $0.9 million related to the temporary closure of our Port Charlotte store due to damage from Hurricane Ian and approximately $0.6 million related to the closure of two stores between the comparative periods, partially offset by a $0.4 million increase related to higher sales volumes in our existing stores.
GROSS PROFIT – Q2 2023 vs. Q2 2022
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 those of other entities. Some entities may classify such costs as a component of cost of sales. Cost of sales, a component used in determining gross profit, for the wholesale and retail segments includes the cost of products purchased from manufacturers, less incentives we receive which are netted against such costs.
Gross profit in our Wholesale Segment increased $15.2 million during Q2 2023 as compared to Q2 2022. Significant items impacting gross profit during Q2 2023 included an $8.9 million increase in gross profit related to the acquisition of a controlling interest in Team Sledd during Q3 2022, a $4.8 million increase in gross profit related to the acquisition of Henry’s in Q2 2023, a $1.1 million increase in gross profit related to higher sales volumes and promotions in our Other Products category and a $0.7 million increase in gross profit due to the timing and related benefits of cigarette manufacturer price increases between the comparative periods, partially offset by a $0.3 million decrease in gross profit related to net impact of cigarette manufacturer promotions and the volume and mix of cigarette cartons sold. Gross profit in our Retail Segment decreased $0.7 million during Q2 2023 as compared to Q2 2022. This change was primarily related to a $0.3 million decrease related to the temporary closure of our Port Charlotte store due to damage from Hurricane Ian, a $0.3 million decrease related to the closure of two stores between the comparative periods and a $0.1 million decrease in realized margins in our existing stores.
OPERATING EXPENSE – Q2 2023 vs. Q2 2022
Operating expense includes selling, general and administrative expenses and depreciation. Selling, general, and administrative expenses primarily consist of costs related to our sales, warehouse, delivery and administrative departments, including purchasing and receiving costs, warehousing costs and costs of picking and loading customer orders. Our most significant expenses relate to costs associated with employees, facility and equipment leases, transportation, fuel, and insurance. Our Q2 2023 operating expenses increased $13.1 million as compared to Q2 2022. Significant items impacting operating expenses during Q2 2023 included a $6.9 million increase in operating expenses related to the acquisition of a controlling interest in Team Sledd during Q3 2022, a $4.5 million increase in operating expenses related to the acquisition of Henry’s during Q2 2023, a $0.7 million increase related to employee compensation and benefit costs, a $0.7 million increase in other Wholesale Segment operating expenses, and a $0.4 million increase in insurance costs, partially offset by
20
a $0.1 million decrease in operating expenses in our Retail Segment. The decrease in our Retail Segment was related to a $0.2 million decrease related to the closure of two stores between the comparative periods, and a $0.2 million decrease related to the temporary closure of our Port Charlotte store due to damage from Hurricane Ian, partially offset by a $0.3 million increase in operating expenses at our existing stores.
INTEREST EXPENSE – Q2 2023 vs. Q2 2022
Interest expense increased $1.9 million in Q2 2023 as compared to Q2 2022, primarily related to higher interest rates as well as higher outstanding debt balances in the current period related to the acquisition of a controlling interest in Team Sledd in Q3 2022 and the acquisition of Henry’s in Q2 2023.
INCOME TAX EXPENSE – Q2 2023 vs. Q2 2022
The change in the Q2 2023 income tax rate as compared to Q2 2022 was primarily related to non-deductible compensation expense in relation to the amount of income from operations before income tax expense between the comparative periods.
RESULTS OF OPERATIONS – SIX MONTHS ENDED MARCH:
|
| 2023 |
| 2022 |
| Incr (Decr) |
| % Change | |||
CONSOLIDATED: | | | | | | | | | | | |
Sales(1) | | $ | 1,150,983,356 | | $ | 814,459,469 | | $ | 336,523,887 |
| 41.3 |
Cost of sales | | | 1,074,881,211 | | | 760,849,885 | | | 314,031,326 |
| 41.3 |
Gross profit | | | 76,102,145 | | | 53,609,584 | | | 22,492,561 |
| 42.0 |
Gross profit percentage | | | 6.6 | % | | 6.6 | % | | | | |
| | | | | | | | | | | |
Operating expense | | $ | 65,254,815 | | $ | 45,908,557 | | $ | 19,346,258 |
| 42.1 |
Operating income | | | 10,847,330 | | | 7,701,027 | | | 3,146,303 |
| 40.9 |
Interest expense | | | 3,863,698 | | | 567,018 | | | 3,296,680 |
| 581.4 |
Change in fair value of mandatorily redeemable non-controlling interest | | | 166,114 | | | — | | | 166,114 | | N/A |
Income tax expense | | | 2,350,200 | | | 2,590,000 | | | (239,800) |
| (9.3) |
Equity method investment earnings, | | | — | | | 1,362,161 | | | (1,362,161) |
| (100.0) |
Net income available to common shareholders | | | 4,694,575 | | | 6,007,238 | | | (1,312,663) |
| (21.9) |
| | | | | | | | | | | |
BUSINESS SEGMENTS: | | | | | | | | | | | |
Wholesale | | | | | | | | | | | |
Sales | | $ | 1,129,373,472 | | $ | 790,114,968 | | $ | 339,258,504 |
| 42.9 |
Gross profit | | | 68,371,710 | | | 44,318,794 | | | 24,052,916 |
| 54.3 |
Gross profit percentage | | | 6.1 | % | | 5.6 | % | | | | |
Retail | | | | | | | | | | | |
Sales | | $ | 21,609,884 | | $ | 24,344,501 | | $ | (2,734,617) |
| (11.2) |
Gross profit | |
| 7,730,435 | |
| 9,290,790 | |
| (1,560,355) |
| (16.8) |
Gross profit percentage | |
| 35.8 | % |
| 38.2 | % | | | | |
| (1) | Sales are reported net of costs associated with incentives provided to retailers. These incentives totaled $19.3 million for the six months ended March 2023 and $15.2 million for the six months ended March 2022. |
SALES – Six months ended March 2023
Sales in our Wholesale Segment increased $339.3 million for the six months ended March 2023 as compared to the same prior year period. Significant items impacting sales during the period included a $312.1 million increase in sales related to the acquisition of a controlling interest in Team Sledd during Q3 2022, a $44.0 million increase in sales related to the acquisition of Henry’s during Q2 2023, a $41.6 million increase in sales related to price increases implemented by cigarette manufacturers and an $18.1 million increase in sales related to higher sales volumes in our Other Products category,
21
partially offset by a $76.5 million decrease in sales related to the volume and mix of cigarette cartons sold. Sales in our Retail Segment decreased $2.7 million for the six months ended March 2023 as compared to the same prior year period. Significant items impacting sales in our Retail segment included a decrease of $1.7 million related to the temporary closure of our Port Charlotte store due to damage from Hurricane Ian and a decrease of $1.1 million related to the closure of two stores between the comparative periods, partially offset by a $0.1 million increase related to higher sales volumes in our existing stores.
GROSS PROFIT – Six months ended March 2023
Gross profit in our Wholesale Segment increased $24.1 million for the six months ended March 2023 as compared to the same prior year period. Significant items impacting gross profit during the period included a $17.9 million increase in gross profit related to the acquisition of a controlling interest in Team Sledd during Q3 2022, a $4.8 million increase in gross profit related to the acquisition of Henry’s in Q2 2023, a $2.0 million increase in gross profit related to higher sales volumes and promotions in our Other Products category, and a $0.5 million increase in gross profit related to the timing and related benefits of cigarette manufacturer price increases between the comparative periods, partially offset by a $1.1 million decrease in the net impact of cigarette manufacturer promotions and the volume and mix of cigarette cartons sold. Gross profit in our Retail Segment decreased $1.6 million for the six months ended March 2023 as compared to the same prior year period. This change was primarily related to a $0.6 decrease related to the temporary closure of our Port Charlotte store due to damage from Hurricane Ian, a $0.4 million decrease related to the closure of two stores between the comparative periods and a $0.6 million decrease in realized margins in our existing stores.
OPERATING EXPENSE – Six months ended March 2023
Operating expenses increased $19.3 million during the six months ended March 2023 as compared to the same prior year period. Significant items impacting operating expenses during the period included a $13.9 million increase in operating expenses related to the acquisition of a controlling interest in Team Sledd during Q3 2022, a $4.5 million increase in operating expenses related to the acquisition of Henry’s during Q2 2023, a $0.6 million increase in insurance costs, a $0.5 million increase in other Wholesale Segment operating expenses including employee compensation and benefit costs, and a $0.4 million increase in fuel costs primarily related to higher diesel fuel prices, partially offset by a $0.3 million decrease in our customer bad debt expense and a $0.3 million decrease in our Retail Segment operating expenses. The decrease in our Retail segment was related to a $0.4 million decrease related to the closure of two stores between the comparative periods, and a $0.3 million decrease related to the temporary closure of our Port Charlotte store due to damage from Hurricane Ian, partially offset by a $0.4 million increase in operating expenses at our existing stores.
INTEREST EXPENSE – Six months ended March 2023
Interest expense increased $3.3 million for the six months ended March 2023 as compared to the same prior year period, primarily related to higher interest rates as well as higher outstanding debt balances in the current period related to the acquisition of a controlling interest in Team Sledd in Q3 2022 and the acquisition of Henry’s in Q2 2023.
INCOME TAX EXPENSE – Six months ended March 2023
The change in the Company’s effective income tax rate during the six month period ended March 2023 as compared to the respective prior year period was primarily related to higher non-deductible compensation during the current year period.
LIQUIDITY AND CAPITAL RESOURCES
Overview
The Company’s variability in cash flows from operating activities is 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 our peak time of operations in the warm weather months, we generally carry higher amounts of inventory to ensure high fill rates and customer satisfaction.
22
The Company primarily finances its operations through three credit facility agreements (the “AMCON Facility”, the “Team Sledd Facility”, and the “Henry’s Facility”, and together the “Facilities”) and long-term debt agreements with banks. At March 2023, the Facilities had a total combined borrowing capacity of $290.0 million, including provisions for up to $30.0 million in credit advances for certain inventory purchases, which are limited by accounts receivable and inventory qualifications, and the value of certain real estate collateral. The Henry’s Facility matures in February 2026, the Team Sledd Facility matures in March 2027 and the AMCON Facility matures in June 2027, each without a penalty for prepayment. Obligations under the Facilities are collateralized by substantially all of the Company’s respective equipment, intangibles, inventories, accounts receivable, and certain real estate. The Facilities each feature an unused commitment fee and springing financial covenants. Borrowings under the Facilities bear interest at either the bank’s prime rate, the Secured Overnight Financing Rate (“SOFR”) or the London Interbank Offered Rate (“LIBOR”), plus any applicable spreads.
The amount available for use from the Facilities at any given time is subject to a number of factors, including eligible accounts receivable and inventory balances that fluctuate day-to-day, as well as the value of certain real estate collateral. Based on the collateral and loan limits as defined in the Facility agreements, the credit limit of the combined Facilities at March 2023 was $197.6 million, of which $103.1 million was outstanding, leaving $94.5 million available.
The average interest rate of the Facilities was 6.49% at March 2023. For the six months ended March 2023, the peak borrowings under the Facilities was $153.2 million, and the average borrowings and average availability under the Facilities was $120.7 million and $82.2 million, respectively.
Cross Default and Co-Terminus Provisions
Team Sledd’s three notes payable and the Team Sledd Facility contain cross default provisions. There were no such cross defaults at March 2023. The Company was in compliance with all of its financial covenants under the Facilities at March 2023.
Dividend Payments
The Company paid cash dividends on its common stock totaling $3.2 million and $3.3 million for the three and six month periods ended March 2023, respectively, and $0.1 million and $3.2 million for the three and six month periods ended March 2022, respectively.
Other
The Company has issued a letter of credit for $0.5 million to its workers’ compensation insurance carrier as part of its self-insured loss control program.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements.
Liquidity Risk
The Company’s liquidity position is significantly influenced by its ability to maintain sufficient levels of working capital. For our Company and our industry in general, customer credit risk and ongoing access to bank credit heavily influence liquidity positions.
The Company does not currently hedge its exposure to interest rate risk or fuel costs. Accordingly, significant price movements in these areas can and do impact the Company’s profitability.
While the Company believes its liquidity position going forward will be adequate to sustain operations in both the short- and long-term, a precipitous change in operating environment could materially impact the Company’s future revenue streams as well as its ability to collect on customer accounts receivable or secure bank credit.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
23
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in company reports filed or submitted under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s (“SEC”) rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in company reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
As required by Rules 13a-15(b) and 15d-15(b) under the Exchange Act, an evaluation of the effectiveness of our disclosure controls and procedures as of March 31, 2023 was made under the supervision and with the participation of our senior management, including our principal executive officer and principal financial officer. Based upon that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.
Limitations on Effectiveness of Controls
Our management, including our Chief Executive Officer and Chief Financial Officer, do not expect that our disclosure controls and procedures will prevent all errors and fraud. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives. Further, the design of a control system must reflect the fact that there are resource constraints, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management’s override of the control.
The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Other
As permitted by the SEC, our assessment of internal control over financial reporting excludes (i) internal control over financial reporting of equity method investees and (ii) internal control over the preparation of any financial statement schedules which would be required by Article 12 of Regulation S-X. However, our assessment of internal control over financial reporting with respect to equity method investees did include controls over the recording of amounts related to our investment that are recorded in the consolidated financial statements, including controls over the selection of accounting methods for our investments, the recognition of equity method earnings and losses and the determination, valuation and recording of our investment account balances.
Changes in Internal Control Over Financial Reporting
Other than changes implemented related to the consolidation of Henry’s and enhancements to the Company’s internal controls over complex financial instruments as described in Item 9A of our most recently filed Form 10-K for the fiscal year ended September 30, 2022, there were no changes in our internal control over financial reporting that occurred during the fiscal quarter ended March 2023, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II — OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
There have been no material changes to the Company’s risk factors as previously disclosed in Item 1A “Risk Factors” of the Company’s annual report on Form 10-K for the fiscal year ended September 30, 2022.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Not applicable.
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Item 6. Exhibits
(a) Exhibits
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| 10.1 | |
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| 10.2 | |
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| 10.3 | |
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| 31.1 | |
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| 31.2 | |
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| 32.1 | |
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| 32.2 | |
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| 101 | Interactive Data File (filed herewith electronically) |
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| 104 | Cover Page Interactive Data File – formatted in Inline XBRL and included as Exhibit 101 |
26
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| AMCON DISTRIBUTING COMPANY |
| (registrant) |
| |
Date: April 18, 2023 | /s/ Christopher H. Atayan |
| Christopher H. Atayan, |
| Chief Executive Officer and Chairman |
| |
Date: April 18, 2023 | /s/ Charles J. Schmaderer |
| Charles J. Schmaderer, |
| Vice President, Chief Financial Officer and Secretary |
| (Principal Financial and Accounting Officer) |
27
Exhibit 10.1
EIGHTH AMENDMENT TO
SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
THIS EIGHTH AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT (this “Amendment”) is dated as of February 2, 2023 among each of AMCON Distributing Company, a Delaware corporation, having its principal place of business at 7405 Irvington Road, Omaha, Nebraska 68122 (“AMCON”), Chamberlin Natural Foods, Inc., a Florida corporation, having its principal place of business at 3711 Oleander Way, Suite 1309, Casselberry, Florida 32707 (“Chamberlin Natural”), Health Food Associates, Inc., an Oklahoma corporation, having its principal place of business at 7807 East 51st Street, Tulsa, Oklahoma 74145 (“Health Food”), AMCON ACQUISITION CORP., a Delaware corporation, having its principal place of business at 7405 Irvington Road, Omaha, Nebraska 68122 (“AMCON Acquisition”), EOM ACQUISITION CORP., a Delaware corporation, having its principal place of business at 7807 East 51st Street, Tulsa, Oklahoma 74145 (“EOM Acquisition”), Charles Way LLC, a Missouri limited liability company, having its principal place of business at 7405 Irvington Road, Omaha, Nebraska 68122 (“Charles Way”), AMCON Bismarck Land Co., a Delaware corporation, having its principal place of business at 7405 Irvington Road, Omaha, Nebraska 68122 (“AMCON Bismarck; and together with AMCON, Chamberlin Natural, Health Food, AMCON Acquisition, EOM Acquisition and Charles Way, each a “Borrower” and, collectively, the “Borrowers”), BANK OF AMERICA, N.A., a national banking association (in its individual capacity, “BofA”), as agent (in such capacity as agent, “Agent”) for itself and all other lenders from time to time a party to the Loan Agreement (as defined below) (“Lenders”), with an office located at 110 North Wacker Drive, IL4-110-08-03, Chicago, Illinois 60606, and the Lenders party hereto.
W I T N E S E T H:
WHEREAS, Existing Borrowers, the Lenders and Agent have entered into that certain Second Amended and Restated Loan and Security Agreement dated as of April 18, 2011, as amended by that certain Consent and First Amendment to Second Amended and Restated Loan and Security Agreement dated as of May 27, 2011, that certain Second Amendment to Second Amended and Restated Loan and Security Agreement dated as of July 16, 2013, that certain Third Amendment to Second Amended and Restated Loan and Security Agreement dated as of November 6, 2017, that certain Fourth Amendment to Second Amended and Restated Loan and Security Agreement dated as of March 20, 2020, that certain Fifth Amendment to Second Amended and Restated Loan and Security Agreement dated as of December 22, 2020, that certain Sixth Amendment to Second Amended and Restated Loan and Security Agreement dated as of December 21, 2021 and that certain Seventh Amendment to Second Amended and Restated Loan and Security Agreement dated as of June 30, 2022 (as may be further amended, restated, supplemented or otherwise modified from time to time, the “Loan Agreement”) pursuant to which the Lenders agreed to provide certain credit facilities to the Borrowers;
WHEREAS, Existing Borrowers have requested that Agent and the Lenders (i) consent to the use of certain proceeds of Revolving Loans to acquire substantially all of the assets of Henry’s Foods, Inc., a Minnesota corporation (“Henry’s”) and certain real property and improvements of The Eidsvold Family LLC, a Minnesota limited liability company (“Eidsvold”; collectively with Henry’s, the “Seller”), in accordance with the terms of that certain Asset Purchase Agreement
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dated as of December 7, 2022 (the “Purchase Agreement”) by and among the Sellers, Brian Eidsvold, H. Thomas Eidsvold and LOL Foods, Inc., a Nebraska corporation (“LOL Foods”; such asset acquisition is referred to herein as the “Purchase”), (ii) consent to the formation of each of LOL Foods and HF Real Estate LLC, a Minnesota limited liability company (“HF Real Estate”; together with LOL Foods, the “New Subsidiaries”)), and (iii) amend the Loan Agreement in accordance with the terms herein; and
WHEREAS, the Agent and the Lenders are willing to accommodate the Borrowers’ requests on the terms and conditions set forth below.
NOW, THEREFORE, for and in consideration of the premises and mutual agreements herein contained and for the purposes of setting forth the terms and conditions of this Amendment, the parties, intending to be bound, hereby agree as follows:
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“Eighth Amendment Effective Date” means the date of the Eighth Amendment to Second Amended and Restated Loan and Security Agreement among the Borrowers, the Agent and the Lenders party thereto, as indicated in its introductory paragraph.
“Excluded Subsidiary” means each of HF Real Estate and LOL Foods and Team Sledd.
“Henry's Acquisition” means the acquisition by LOL Foods and HF Real Estate of certain assets of Henry's Foods, Inc. and The Eidsvold Family LLC on or about the Eight Amendment Effective Date.
“HF Real Estate” means HF Real Estate, LLC, a Minnesota limited liability company.
“January 2023 Special Dividend” shall mean a dividend payable to the equity holders of AMCON in an amount not to exceed $3,500,000 distributed on or before January 31, 2023.
“LOL Foods” means LOL Foods, Inc., a Nebraska corporation.
“LOL Intercompany Loan Agreement” means the Credit Agreement dated on or about the Eighth Amendment Effective Date between AMCON and LOL Foods pursuant to which AMCON may extend revolving credit loans to LOL Foods in an aggregate outstanding principal amount not to exceed $20,000,000 at any time.
“Team Sledd” means Team Sledd, LLC, a Delaware limited liability company.
“Fixed Charge Coverage Ratio” means for any period of determination for the Borrowers, the ratio of EBITDA to Fixed Charges determined in accordance with GAAP. Notwithstanding the foregoing, the (i) 2021 Special Dividend,
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(ii) December 2021 Special Dividend and (iii) January 2023 Special Dividend shall each be excluded from the calculation of Fixed Charge Coverage Ratio. Notwithstanding the foregoing, it is understood and agreed that all calculations of the Fixed Charge Coverage Ratio shall exclude all EBITDA and Fixed Charges of all Excluded Subsidiaries.
(c)Financial Statements. Borrower Representative shall deliver to Agent and each Lender the following financial information, all of which shall be prepared in accordance with generally accepted accounting principles consistently applied, and shall be accompanied by a compliance certificate in the form of Exhibit B (the “Compliance Certificate”) hereto (except with respect to statements required pursuant to clause (i) of this subsection), which compliance certificate shall include a calculation of all financial covenants contained in this Agreement: (i) no later than thirty (30) days after each calendar month (including, but not limited to, September 30 of each calendar year which is the fiscal year end of the Borrowers), copies of internally prepared financial statements, including, without limitation, balance sheets and statements of income, retained earnings and cash flow of Borrowers and their Subsidiaries (including all Excluded Subsidiaries) on a consolidated and consolidating basis, certified by the Chief Financial Officer of Borrower Representative and each of Borrowers’ Subsidiaries; (ii) no later than forty five (45) days after the end of each of the first three quarters of each Borrower’s Fiscal Year, copies of internally prepared financial statements including, without limitation, balance sheets, statements of income, retained earnings, cash flows and reconciliation of surplus of Borrowers and their Subsidiaries (including all Excluded Subsidiaries) on a consolidated and consolidating basis, certified by the Chief Financial Officer of Borrower Representative and each of Borrowers’ Subsidiaries and (iii) no later than ninety (90) days after the end of each of Borrowers’ Fiscal Years, certified annual financial statements of Borrowers and their Subsidiaries on a consolidated basis with an unqualified opinion by independent certified public accountants selected by Borrowers and their Subsidiaries and reasonably satisfactory to Agent, which financial statements shall be accompanied by (A) a letter from such accountants acknowledging that they are aware that a primary intent of Borrowers and their Subsidiaries in obtaining such financial statements is to influence Agent and Lenders and that Agent and Lenders are relying upon such financial statements in connection with the exercise of their rights hereunder, provided, that Borrowers shall only be required to use their reasonable efforts exercised in good faith to obtain such letter; (B) copies of any management letters sent to a Borrower or an Subsidiary by such accountants; and (C) internally prepared consolidating annual
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financial statements of AMCON and its Subsidiaries; provided that all of the foregoing may be limited to such documents and information as the Lenders deem acceptable in writing from time to time in their sole discretion,
(d)Annual Projections. As soon as practicable and in any event prior to the beginning of each Fiscal Year, Borrower Representative shall deliver to Agent and each Lender projected balance sheets, statements of income and cash flow for Borrowers and their subsidiaries (including all Excluded Subsidiaries) on a consolidated and consolidating basis, for each of the twelve (12) months during such Fiscal Year, which shall include the assumptions used therein, together with appropriate supporting details as reasonably requested by Agent; provided that all of the foregoing may be limited to such documents and information as the Lenders deem acceptable in writing from time to time in their sole discretion.
(e)Explanation of Budgets and Projections. In conjunction with the delivery of the annual presentation of projections or budgets referred to in subsection 9(d) above, Borrower Representative shall deliver a letter signed by the President or a Vice President of Borrower Representative and by the Treasurer or Chief Financial Officer of Borrower Representative, describing, comparing and analyzing, in detail, all changes and developments between the anticipated financial results included in such projections or budgets and the historical financial statements of Borrowers and their Subsidiaries.
(f)Public Reporting. Promptly upon the filing thereof, Borrower Representative shall deliver to Agent and each Lender copies of all registration statements and annual, quarterly, monthly or other regular reports which any Borrower or any of such Borrower’s Subsidiaries files with the Securities and Exchange Commission, as well as promptly providing to Agent and each Lender copies of any reports and proxy statements delivered to its shareholders.
(g)Other Information. Promptly following request therefor by Agent, Borrower Representative shall deliver to Agent such other business or financial data, reports, appraisals and projections as Agent may reasonably request related to Borrowers and their Subsidiaries.
(f) Investments; Loans; Transfers. No Borrower shall purchase or otherwise acquire, or contract to purchase or otherwise acquire, the obligations or equity of any Person (including, but not limited to, any equity investment), other than direct obligations of the United States; nor shall a Borrower lend or otherwise advance funds or transfer any assets to any Person (including, but not limited to, any Subsidiary which is not a Borrower hereunder) (collectively, “Investments”) except for advances made to employees, officers and directors for travel and other expenses arising in the ordinary course of business and Investments made by one Borrower in another Borrower; provided however, (i) so long as no Event of
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Default exists or would be caused thereby and (ii) (x) Borrowers have Excess Availability greater than or equal to seventeen and one-half percent (17.5%) of the Maximum Loan Limit on a pro forma basis for the thirty day period immediately prior to and after making any such Investment, or (y) Borrowers have Excess Availability greater than or equal to twelve and one-half percent (12.5%) of the Maximum Loan Limit on a pro forma basis for the thirty day period immediately prior to and after making such Investment and a pro-forma Fixed Charge Coverage Ratio of 1.00:1.0 prior to and immediately after giving effect to making such Investment (the “Payment Conditions”), Borrowers may make additional Investments in an amount not to exceed the Dividend Limit less the amount of all regularly scheduled dividends paid during such Fiscal Year, it being understood and agreed that (A) the $3,500,000 loan made by AMCON to Team Sledd pursuant to its January 3, 2020 Contribution Agreement shall be excluded for purposes of determining the cap on Borrowers’ ability to make additional Investments, (B) the 2021 Special Dividend, the December 2021 Special Dividend and the January 2023 Special Dividend shall be excluded from the Dividend Limit for purposes of determining the cap on Borrowers’ ability to make additional Investments, and (C) Investments made by AMCON in LOL Foods consisting of a $10,000,000 equity contribution and an intercompany loan an amount not to exceed $15,000,000 in connection with the Henry’s Acquisition on or about the Eighth Amendment Effective Date shall be excluded from the Dividend Limit for purposes of determining the cap on Borrowers’ ability to make additional Investments. At least five (5) days prior (or such lesser period approved by Agent in its sole discretion) to making any additional Investment after the Eighth Amendment Effective Date, Borrowers shall deliver an executed Officer’s Certificate in form and substance acceptable to Agent certifying to the satisfaction of the Payment Conditions.
(n) Guaranties. Notwithstanding anything to the contrary set forth in this Agreement, no Borrower shall guaranty, provide credit support, or otherwise become liable in any manner to pay any of the obligations or liabilities of any Subsidiary of any Borrower which is not a Borrower hereunder (including, but not limited to, any Excluded Subsidiary).
(m)Change of Control. The failure of AMCON to own and have voting control of at least one hundred percent (100%) of the issued and outstanding voting equity interest of Chamberlin Natural, Health Food, AMCON Acquisition, EOM Acquisition, Charles Way, AMCON Bismarck, LOL Foods and HF Real Estate.
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[SIGNATURE PAGE FOLLOWS]
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Exhibit 10.1
IN WITNESS WHEREOF, the parties hereto have duly executed this Eighth Amendment to Second Amended and Restated Loan and Security Agreement as of the date first above written.
BORROWERS: | AMCON DISTRIBUTING COMPANY By: /s/ Charles J. Schmaderer |
| CHAMBERLIN NATURAL FOODS, INC. By: /s/ Andrew C. Plummer |
| HEALTH FOOD ASSOCIATES, INC. By: /s/ Charles J. Schmaderer |
| AMCON ACQUISITION CORP. By: /s/ Andrew C. Plummer |
| EOM ACQUISITION CORP. By: /s/ Andrew C. Plummer |
| CHARLES WAY LLC By: /s/ Charles J. Schmaderer |
| AMCON BISMARCK LAND CO. By: /s/ Andrew C. Plummer |
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LENDERS: | BANK OF AMERICA, N.A., as Agent and a Lender By: /s/ Brad Breiderbach |
| BMO HARRIS BANK N.A., as a Lender By: /s/ Steve Teufel |
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Exhibit 10.2
LOAN AND SECURITY AGREEMENT
dated as of February 3, 2023
BMO Harris Bank N.A.,
as Agent,
The Financial Institutions From Time To Time
A Party Hereto,
as Lenders,
and
LOL FOODS, INC.
and
HF Real Estate, LLC,
as Borrowers
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Table of Contents
(continued)
Page
| -ii- | |
Table of Contents
(continued)
Page
| -iii- | |
Table of Contents
(continued)
Page
Exhibits and Schedules
EXHIBIT A | Business and Collateral Locations |
EXHIBIT B | Compliance Certificate |
EXHIBIT C | Commercial Tort Claims |
EXHIBIT D | Form of Assignment and Acceptance Agreement |
SCHEDULE 1 | Permitted Liens |
SCHEDULE 11(i) | Affiliate Transactions |
SCHEDULE 11(j) | Names & Trade Names |
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Table of Contents
(continued)
Page
SCHEDULE 11(n) | Indebtedness |
SCHEDULE 11(p) | Parent, Subsidiaries and Affiliates |
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LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (as amended, modified or supplemented from time to time, this “Agreement”) made as of February 3, 2022 by and among BMO Harris Bank N.A., a national banking association (in its individual capacity, “BMO”), as agent (in such capacity as agent, “Agent”) for itself and all other lenders from time to time a party hereto (“Lenders”), 320 S. Canal Street, 16th Floor, Chicago, Illinois 60606, all other Lenders and each of LOL FOODS, INC., a Nebraska corporation (“LOL”), and HF Real Estate, LLC, a Minnesota limited liability company (“HF” and together with LOL and any other Borrowers joined hereto from time to time, each a “Borrower” and collectively referred to as “Borrowers”).
W I T N E S E T H:
WHEREAS, Borrowers may, from time to time, request Loans from Agent and Lenders, and the parties wish to provide for the terms and conditions upon which such Loans or other financial accommodations, if made by Agent and Lenders, shall be made.
NOW, THEREFORE, in consideration of any Loan (including any Loan by renewal or extension) hereafter made to Borrowers by Agent and/or Lenders, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by Borrowers, the parties agree to enter into this Agreement as follows:
“Account”, “Account Debtor”, “Chattel Paper”, “Commercial Tort Claims”, "Commodity Account," “Deposit Accounts”, “Documents”, “Electronic Chattel Paper”, “Equipment”, “Fixtures”, “General Intangibles”, “Goods”, “Instruments”, “Inventory”, “Investment Property”, “Letter-of-Credit Right”, “Proceeds”, "Securities Account" and “Tangible Chattel Paper” shall have the respective meanings assigned to such terms in the Illinois Uniform Commercial Code, as the same may be in effect from time to time.
“Acquisition” means any transaction or series of related transactions for the purpose of or resulting, directly or indirectly, in (a) the acquisition of all or substantially all of the assets of a Person, or of all or substantially all of any business or division of a Person, (b) the acquisition of in excess of 50% of the equity interests of any Person, or otherwise causing any Person to become a Subsidiary, or (c) a merger or consolidation or any other combination with another Person (other than a Person that is already a Subsidiary).
“Affected Financial Institution” means (a) any EEA Financial Institution or (b) any UK Financial Institution.
“Affiliate” shall mean any Person (i) which directly or indirectly through one or more intermediaries controls, is controlled by, or is under common control with, a Borrower, (ii) which beneficially owns or holds five percent (5%) or more of the voting control or equity interests of a Borrower, or (iii) five percent (5%) or more of the voting control or equity interests of which is beneficially owned or held by a Borrower.
“AMCON” means AMCON Distribution Company, a Delaware corporation.
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“Applicable Margin” means, (a) from the Closing Date until the first Adjustment Date thereafter Level II below, and (b) thereafter, for any day, the rate per annum set forth below opposite the level (the “Level”) then in effect, it being understood that the Applicable Margin for Loans shall be the percentage set forth under the column “Applicable Margin” for such Loan based on average Excess Availability determined on a quarterly basis by dividing (i) the total of each day’s Excess Availability for such quarterly period by (ii) the number of days in such quarterly period, as a percentage of the aggregate Revolving Loan Commitments.
Level | Quarterly Excess Availability | Non-FILO Term SOFR Loans | FILO Term SOFR Loans | Non-FILO Base Rate Loans | FILO Base Rate Loans |
I | Greater than or equal to 20% | 1.50% | 2.50% | 0.50% | 1.50% |
II | Less than 20% but greater than or equal to 10% | 1.75% | 2.75% | 0.75% | 1.75% |
III | Less than 10% | 2.00% | 3.00% | 1.00% | 2.00% |
The Applicable Margin shall be determined on or prior to the fifth (5th) Business Day after the Borrowers are required to provide the quarterly financial statements and other information pursuant to Section 9(c) (each an “Adjustment Date”); provided that any change in the Applicable Margin shall be effective on the first day of the month in which such quarterly financial statements are delivered. Notwithstanding anything contained in this paragraph to the contrary, (a) unless otherwise waived in writing by the Lenders, if the Borrowers fail to deliver the financial statements in accordance with the provisions of Section 9(c), the Applicable Margin shall be based upon Level III above beginning on the first day of the month in which such financial statements were required to be delivered until the fifth (5th) Business Day after such financial statements are actually delivered, whereupon the Applicable Margin shall be determined by the then current Level; and (b) no reduction to any Applicable Margin shall become effective at any time when an Event of Default or unmatured Event of Default has occurred and is continuing.
“Approved Prepaid Vendor” means each of Phillip Morris (Altria); John Middleton (Altria); RJ Reynolds (RJR); RJ Reynolds Vapor (RJR); Rouseco; Republic Tobacco, Privateer Tobacco; Mars/Wrigley; Seneca; American Snuff (RJR); Santa Fe Tobacco (RJR) and any other vendor approved by the Agent in its sole discretion.
“Asset Purchase Agreement” means the Asset Purchase Agreement dated as of April 7, 2022 among Henry's Foods, Inc., The Eidsvold Family LLC, Brian Eidsvold, H. Thomas Eidsvold, and LOL, as in effect on the Closing Date.
“Assignment and Acceptance” shall have the meaning in Section 21 hereof.
“Bail-In Action” means the exercise of any Write-Down and Conversion Powers by the applicable Resolution Authority in respect of any liability of an Affected Financial Institution.
“Bail-In Legislation” means, (a) with respect to any EEA Member Country implementing Article 55 of Directive 2014/59/EU of the European Parliament and of the Council of the European
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Union, the implementing law, regulation rule or requirement for such EEA Member Country from time to time which is described in the EU Bail-In Legislation Schedule and (b) with respect to the United Kingdom, Part I of the United Kingdom Banking Act 2009 (as amended from time to time) and any other law, regulation or rule applicable in the United Kingdom relating to the resolution of unsound or failing banks, investment firms or other financial institutions or their affiliates (other than through liquidation, administration or other insolvency proceedings).
“BofA Equipment Leasing” means Bank of America Leasing & Capital, LLC, and its successors and assigns.
“BofA Equipment Leasing Indebtedness” means indebtedness for borrowed money, lease obligations or related obligations owing by a Borrower to BofA Equipment Leasing in connection with the financing of equipment or related personal property (including, without limitation, rolling stock, including trucks and trailers, and warehouse equipment).
“BofA Equipment Leasing Liens” means liens on or security interests in equipment or similar assets that secure BofA Equipment Leasing Indebtedness (including, without limitation, rolling stock, including trucks and trailers, and warehouse equipment).
“Base Rate” means, for any day, a fluctuating rate per annum equal to the highest of (a) the rate of interest announced by BMO from time to time as its prime rate for such day (with any change in such rate announced by BMO taking effect at the opening of business on the day specified in the public announcement of such change); (b) the Federal Funds Rate for such day, plus 0.50%, and (c) the sum of (i) Term SOFR in effect on such day plus (ii) 1.10%. Any change in the Base Rate due to a change in the prime rate, the quoted federal funds rates, or Term SOFR, as applicable, shall be effective from and including the effective date of the change in such rate. If the Base Rate is being used as an alternative rate of interest to Term SOFR, then the Base Rate shall be the greater of clauses (a) and (b) above and shall be determined without reference to clause (c) above, provided, that in no event shall Base Rate be less than zero (0).
“Base Rate Loan” means a Loan that bears interest based on the Base Rate.
“BHC Act Affiliate” of a party means an “affiliate” (as such term is defined under, and interpreted in accordance with, 12 U.S.C. 1841(k)) of such party.
“Borrower Representative” shall mean LOL.
“Bremer Account” shall mean a deposit or similar account maintained by LOL with Bremer Bank for petty cash or similar purposes.
“Business Day” shall mean any day other than a Saturday, a Sunday or other day on which commercial banks in Chicago, Illinois are required or permitted to close under the laws of, or are in fact closed in, Illinois.
“Capital Expenditures” shall mean with respect to any period, the aggregate of all expenditures (whether paid in cash or accrued as liabilities and including expenditures for capitalized lease obligations) by Borrowers and their Subsidiaries during such period that are required by generally accepted accounting principles, consistently applied, to be included in or
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reflected by the property, plant and equipment or similar fixed asset accounts (or intangible accounts subject to amortization) on the balance sheet of Borrowers and their Subsidiaries.
“Cigarette Inventory” shall mean Inventory of Borrowers consisting of cigarettes and cigarette tax stamps.
“Closing Date” shall mean the date on which the conditions precedent set forth in Section 17 are satisfied.
“CME” shall mean CME Group Benchmark Administration Limited.
“Collateral” shall mean all of the property of each Borrower described in Section 5 hereof, together with all other real or personal property of any Obligor or any other Person now or hereafter pledged to Agent, for the benefit of Agent and Lenders to secure, either directly or indirectly, repayment of any of the Liabilities, but excluding, for the avoidance of doubt, any Excluded Assets.
“Commodity Exchange Act” means the Commodity Exchange Act (7 U.S.C. §1, et seq.), as amended from time to time, and any successor statute.
“Compliance Certificate” shall have the meaning set forth in Section 9(c).
“Conforming Changes” shall mean with respect to use, administration of or conventions associated with SOFR, Term SOFR or any proposed Successor Rate, as applicable, any conforming changes to the definitions of SOFR and Term SOFR, timing and frequency of determining rates and making payments of interest and other technical, administrative or operational matters (including, for the avoidance of doubt, the definitions of Business Day or U.S. Government Securities Business Day, timing of borrowing requests or prepayment, conversion or continuation notices, and length of lookback periods) as may be appropriate, in Agent’s discretion, to reflect the adoption and implementation of such applicable rate(s), and to permit the administration thereof by Agent in a manner substantially consistent with market practice (or, if Agent determines that adoption of any portion of such market practice is not administratively feasible or that no market practice for the administration of such rate exists, in such other manner of administration as Agent determines is reasonably necessary in connection with the administration of any Loan Document).
“Control Agreement” means an agreement, in form and substance satisfactory to Agent, among Agent, the financial institution or other Person at which such account is maintained and the Borrower maintaining such account, effective to grant “control” (as defined under the applicable UCC) over such account to Agent.
“Covered Entity” means any of the following: (i) a “covered entity” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 252.82(b); (ii) a “covered bank” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 47.3(b); or (iii) a “covered FSI” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 382.2(b).
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“Daily Simple SOFR” shall mean with respect to any applicable determination date, the secured overnight financing rate published on the FRBNY website (or any successor source satisfactory to Agent).
“Default Right” has the meaning assigned to that term in, and shall be interpreted in accordance with, 12 C.F.R. §§ 252.81, 47.2 or 382.1, as applicable.
“Defaulting Lender” means any Lender that (a) has failed to comply with its funding obligations hereunder, and such failure is not cured within two Business Days; (b) has notified Agent or any Borrower that such Lender does not intend to comply with its funding obligations hereunder or under any other credit facility, or has made a public statement to that effect; (c) has failed, within three Business Days following request by Agent or any Borrower, to confirm in a manner satisfactory to Agent and Borrowers that such Lender will comply with its funding obligations hereunder; or (d) has, or has a direct or indirect parent company that has, become the subject of an insolvency proceeding (including reorganization, liquidation, or appointment of a receiver, custodian, administrator or similar Person by the Federal Deposit Insurance Corporation or any other regulatory authority) or Bail-In Action; provided, that a Lender shall not be a Defaulting Lender solely by virtue of a Governmental Authority’s ownership of an equity interest in such Lender or parent company unless the ownership provides immunity for such Lender from jurisdiction of courts within the United States or from enforcement of judgments or writs of attachment on its assets, or permits such Lender or governmental authority to repudiate or otherwise to reject such Lender’s agreements.
“Dominion Account” shall have the meaning specified in subsection 8(a) hereof.
“EBITDA” shall mean, with respect to any period, Borrowers’ net income after taxes for such period excluding (i) any after-tax gains or losses on the sale of assets (other than the sale of Inventory in the ordinary course of business), (ii) other after-tax extraordinary gains or losses and (iii) other non-cash impairment charges and cash or non-cash non-recurring charges as determined by Agent in its reasonable discretion) plus interest expense, income tax expense, depreciation and amortization for such period, plus or minus any other non-cash charges or gains which have been subtracted or added in calculating net income after taxes for such period.
“EEA Financial Institution” means (a) any credit institution or investment firm established in any EEA Member Country which is subject to the supervision of an EEA Resolution Authority, (b) any entity established in an EEA Member Country which is a parent of an institution described in clause (a) of this definition, or (c) any financial institution established in an EEA Member Country which is a subsidiary of an institution described in clauses (a) or (b) of this definition and is subject to consolidated supervision with its parent.
“EEA Member Country” means any of the member states of the European Union, Iceland, Liechtenstein, and Norway.
“EEA Resolution Authority” means any public administrative authority or any Person entrusted with public administrative authority of any EEA Member Country (including any delegee) having responsibility for the resolution of any EEA Financial Institution.
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“Eligible Account” shall mean an Account owing to a Borrower which is acceptable to Agent in its good faith credit judgment for lending purposes. Without limiting Agent’s discretion, Agent shall, in general, consider an Account to be an Eligible Account if it meets, and so long as it continues to meet, all of the following requirements:
(i)it is genuine and in all respects what it purports to be;
(ii)it is owned by such Borrower, such Borrower has the right to subject it to a security interest in favor of Agent or assign it to Agent and it is subject to a first priority perfected security interest in favor of Agent and to no other claim, lien, security interest or encumbrance whatsoever, other than Permitted Liens;
(iii)it arises from (A) the performance of services by such Borrower in the ordinary course of such Borrower’s business, and such services have been fully performed and acknowledged and accepted by the Account Debtor thereunder; or (B) the sale or lease of Goods by such Borrower in the ordinary course of such Borrower’s business, and (x) such Goods have been completed in accordance with the Account Debtor’s specifications (if any) and delivered to the Account Debtor, (y) such Account Debtor has not refused to accept, returned or offered to return, any of the Goods which are the subject of such Account, and (z) such Borrower has possession of, or such Borrower has delivered to Agent (at Agent’s request) shipping and delivery receipts evidencing delivery of such Goods;
(iv)it is evidenced by an invoice rendered to the Account Debtor thereunder, is due and payable within thirty (30) days after the date of the invoice and does not remain unpaid more than thirty (30) days past the invoice date thereof for invoices with seven (7) day terms or less or sixty (60) days past the invoice date thereof for all other invoices; provided, however, that if more than twenty-five percent (25%) of the aggregate dollar amount of invoices owing by a particular Account Debtor remain unpaid more than thirty (30) days past the invoice date thereof for invoices with seven (7) day terms or less or sixty (60) days after the respective invoice dates thereof for all other invoices, then all Accounts owing by that Account Debtor shall be deemed ineligible;
(v)it is a valid, legally enforceable and unconditional obligation of the Account Debtor thereunder, and is not subject to setoff, counterclaim, credit, allowance or adjustment by such Account Debtor, or to any claim by such Account Debtor denying liability thereunder in whole or in part;
(vi)it does not arise out of a contract or order which fails in any material respect to comply with the requirements of applicable law;
(vii)the Account Debtor thereunder is not a director, officer, employee or agent of a Borrower, or a Subsidiary, Parent or Affiliate;
(viii)it is not an Account with respect to which the Account Debtor is the United States of America or any state or local government, or any department, agency or instrumentality thereof, unless such Borrower assigns its right to payment
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of such Account to Agent pursuant to, and in full compliance with, the Assignment of Claims Act of 1940, as amended, or any comparable state or local law, as applicable;
(ix)it is not an Account with respect to which the Account Debtor is located in a state which requires such Borrower, as a precondition to commencing or maintaining an action in the courts of that state, either to (A) receive a certificate of authority to do business and be in good standing in such state; or (B) file a notice of business activities report or similar report with such state’s taxing authority, unless (x) such Borrower has taken one of the actions described in clauses (A) or (B); (y) the failure to take one of the actions described in either clause (A) or (B) may be cured retroactively by such Borrower at its election; or (z) such Borrower has proven, to Agent’s satisfaction, that it is exempt from any such requirements under any such state’s laws;
(x)the Account Debtor is located within the United States of America or is located within a foreign country and, in such case, the Account is payable in U.S. Dollars and with respect to Account Debtors who are located within a foreign country, the Account is supported by a letter of credit which is in form and substance satisfactory to Agent, issued by a financial institution acceptable to Agent and assigned to Agent in a manner acceptable to Agent;
(xi)it is an Account which arises out of a sale made in the ordinary course of each Borrower’s business;
(xii)it is not an Account with respect to which the Account Debtor’s obligation to pay is conditional upon the Account Debtor’s approval of the Goods or services or is otherwise subject to any repurchase obligation or return right (other than a right to return dated Cigarette Inventory which can, in turn, be returned by such Borrower to the manufacturer thereof for a full refund), as with sales made on a bill-and-hold, guaranteed sale, sale on approval, sale or return or consignment basis;
(xiii)it is not an Account (A) with respect to which any representation or warranty contained in this Agreement is untrue; or (B) which violates any of the covenants of such Borrower contained in this Agreement;
(xiv)it is not an Account which, when added to a particular Account Debtor’s other indebtedness to such Borrower, exceeds a credit limit determined by Agent in its good faith credit judgment discretion for that Account Debtor (except that Accounts excluded from Eligible Accounts solely by reason of this clause (xiv) shall be Eligible Accounts to the extent of such credit limit); and
(xv)it is not an Account with respect to which the prospect of payment or performance by the Account Debtor is or will be impaired, as determined by Agent in its sole discretion.
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“Eligible Cigarette Inventory” shall mean Inventory of a Borrower consisting of Cigarette Inventory which is acceptable to Agent in its good faith credit judgment discretion for lending purposes. Without limiting Agent’s discretion, Agent shall, in general, consider Cigarette Inventory to be Eligible Inventory if it meets and so long as it continues to meet the following requirements:
(i)it consists of cigarettes without tax stamps or cigarettes which have cigarette tax stamps affixed thereto which have been issued by any State or political subdivisions thereof where Agent determines, in its sole discretion, that the affixing of such jurisdiction’s tax stamps thereto does not render such Inventory ineligible;
(ii)it consists of tax stamps which have been paid in full with good funds by a Borrower to the applicable state or local agency (i.e. no “post-dated” checks) or by virtue of Borrower posting a bond in lieu of payment and no obligations for payment of the cigarette tax stamps remain outstanding with the applicable state or local agency (or are not covered by such bond, as applicable), unless such stamps have been issued by any State or political subdivisions thereof where Agent determines in its sole discretion that Agent would be unable to affix or redeem such cigarette tax stamps or otherwise determines that such Inventory shall be ineligible; and
(iii)such Cigarette Inventory otherwise constitutes Eligible Inventory.
“Eligible Inventory” shall mean Inventory of a Borrower which is acceptable to Agent in its good faith credit judgment discretion for lending purposes. Without limiting Agent’s and the Lenders’ discretion above, such parties shall, in general, consider Inventory to be Eligible Inventory if it meets, and so long as it continues to meet, the following requirements:
(i) it is owned by such Borrower, such Borrower has the right to subject it to a security interest in favor of Agent and it is subject to a first priority perfected security interest in favor of Agent and to no other claim, lien, security interest or encumbrance whatsoever, other than Permitted Liens;
(ii) it constitutes Prepaid Inventory or is located on one of the premises listed on Exhibit A (or other locations of which Agent has been advised in writing pursuant to subsection 12(b)(i) hereof), such locations are within the United States and is not in transit except to the extent that it may be in transit to another location listed on Exhibit A on vehicles owned by such Borrower;
(iii) if held for sale or lease or furnishing under contracts of service, it is (except as Agent may otherwise consent in writing) new and unused and free from defects which would, in Agent’s sole determination, affect its market value;
(iv) except for Prepaid Inventory, it is not stored with a bailee, consignee, warehouseman, processor or similar party unless Agent has given its prior written approval and such Borrower has caused any such bailee, consignee, warehouseman, processor or similar party to issue and deliver to Agent, in form and substance
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acceptable to Agent, such Uniform Commercial Code financing statements, warehouse receipts, waivers and other documents as Agent shall require;
(v) it is not Inventory consisting of perishable foods (unless frozen or refrigerated foods);
(vi) Agent has determined, in accordance with Agent’s customary business practices, that it is not unacceptable due to age, type, category or quantity; and
(vii) it is not Inventory (A) with respect to which any of the representations and warranties contained in this Agreement are untrue; or (B) which violates any of the covenants of such Borrower contained in this Agreement.
“Eligible Real Property” shall mean any parcel of Real Property which is acceptable to Agent in its good faith credit judgment discretion for lending purposes. Without limiting Agent’s discretion, for any Real Property to be an Eligible Real Property, it must meet all of the following requirements:
(i) such Real Property is subject to a first priority Mortgage in favor of Agent;
(ii) such Real Property has not been condemned or deemed uninhabitable, unfit for use, or prohibited for use by a governmental authority;
(iii) such Real Property is 100% owned by a Borrower (i.e., a full and undivided fee simple interest), and such Borrower has the right to subject it to a first priority Mortgage in favor of Agent subject to no other claim, lien, security interest or encumbrance whatsoever, other than Permitted Liens;
(iv) Borrower is not delinquent in the payment of any taxes or association dues or fees, or installments thereof, that could reasonably be expected to cause a lien on such property that would be of equal or superior priority to the lien of the Mortgage for such Real Property; and
(v) such Real Property has been appraised by an appraiser reasonably acceptable to the Lenders pursuant to an appraisal reasonably acceptable to the Lenders, upon which Agent is expressly entitled to rely, to determine its fair market value.
Notwithstanding the foregoing, the following property shall be deemed Eligible Real Property hereunder as of the Closing Date: 234 McKay Avenue N., Alexandria, Minnesota.
“Environmental Laws” shall mean all federal, state, district, local and foreign laws, rules, regulations, ordinances, and consent decrees relating to health, safety, hazardous substances, pollution and environmental matters, as now or at any time hereafter in effect, applicable to a Borrower’s business or facilities owned or operated by a Borrower, including laws relating to emissions, discharges, releases or threatened releases of pollutants, contamination, chemicals, or hazardous, toxic or dangerous substances, materials or wastes into the environment (including,
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without limitation, ambient air, surface water, ground water, land surface or subsurface strata) or otherwise relating to the generation, manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials.
“Equity Cure” means the net amount of cash contributions in exchange for common equity made by AMCON to a Borrower in immediately available funds which AMCON contributes as additional common equity contributions to Borrowers in immediately available funds and which is designated an “Equity Cure” by Borrowers under Section 14(b) at the time it is received.
“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended, modified or restated from time to time.
“EU Bail-In Legislation Schedule” means the EU Bail-In Legislation Schedule published by the Loan Market Association, as in effect from time to time.
“Event of Default” shall have the meaning specified in Section 15 hereof.
“Excess Availability” shall mean, as of any date of determination by agent, the excess, if any, of the lesser of (i) the Maximum Revolving Loan Limit less the sum of the outstanding Revolving Loans and Letter of Credit Obligations and (ii) the Revolving Loan Limit less the sum of the outstanding Revolving Loans and Letter of Credit Obligations, in each case as of the close of business on such date and assuming, for purposes of calculation, that all accounts payable which remain unpaid more than thirty (30) days after the due dates thereof as the close of business on such date are treated as additional Revolving Loans outstanding on such date.
“Excluded Assets” means any personal property subject to a lien or security interest permitted pursuant to clause (iv) of the definition of “Permitted Liens” in Section 1 of this Agreement (including, without limitation, BofA Equipment Leasing Liens) to the extent that, and for so long as, any agreement governing such Lien prohibits another Lien on such property.
“Excluded Hedging Obligations” means, with respect to any Borrower, any Rate Hedging Obligation constituting a Swap Obligation if, and to the extent that, all or a portion of the guaranty of any guarantor or such Borrower of, or the grant by such Borrower of a security interest to secure, such Rate Hedging Obligation (or any guarantee thereof) is or becomes illegal under the Commodity Exchange Act or any rule, regulation or order of the Commodity Futures Trading Commission (or the application or official interpretation of any thereof) by virtue of such Borrower’s failure for any reason to constitute an “eligible contract participant” as defined in the Commodity Exchange Act and the regulations thereunder at the time the guaranty of such Borrower or any guarantor, or the grant of such security interest becomes effective with respect to such Rate Hedging Obligation. If any Rate Hedging Obligation constituting a Swap Obligation arises under a master agreement governing more than one such Rate Hedging Obligation, such exclusion shall apply only to the portion of such Rate Hedging Obligation that is attributable to swaps for which such guaranty or security interest is or becomes illegal.
“Federal Funds Rate” means, for any day, the rate per annum equal to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day; provided that (a) if such day is not a
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Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (b) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate (rounded upward, if necessary, to a whole multiple of 1/100 of 1%) charged to BMO on such day on such transactions as determined by the Agent.
“FILO Advance Rate” means (a) with respect to Eligible Accounts, ten percent (10%), as reduced in equal quarterly increments of 0.834% on the first day of each fiscal quarter beginning April 1, 2023; plus (b) with respect to Eligible Cigarette Inventory, ten percent (10%), as reduced in equal quarterly increments of 0.834% on the first day of each fiscal quarter beginning April 1, 2023; plus (c) with respect to Eligible Inventory (consisting solely of Eligible Inventory other than Eligible Cigarette Inventory set forth in clause (b) above) ten percent (10%), as reduced in equal quarterly increments of 0.834% on the first day of each fiscal quarter beginning April 1, 2023; plus (d) with respect to Eligible Real Property, five percent (5%), as reduced in equal quarterly increments of 0.4167% on the first day of each fiscal quarter beginning April 1, 2023.
“FILO Amortization Amount” means each equal quarterly increment of $208,333,34 which shall be applicable on the first day of each fiscal quarter beginning April 1, 2023; provided such amortization amount shall include periodic increases thereto (resulting in one-time reductions in the FILO Cap Amount) equal to the remaining amortization amount of any Eligible Accounts or Eligible Inventory of the Borrowers that are disposed of, to the extent such assets were included in the calculation of thereof.
“FILO Amount” means, at any time an amount equal to the lesser of (a) the FILO Cap Amount and (b) (i) the applicable FILO Advance Rate times the of the face amount (less maximum discounts, credits and allowances which may be taken by or granted to Account Debtors in connection therewith in the ordinary course of Borrowers’ business) of Borrowers’ Eligible Accounts, plus (ii) the applicable FILO Advance Rate times the lower of cost or market value of Eligible Cigarette Inventory; plus (iii) the applicable FILO Advance Rate times the lower of cost or market value of Eligible Inventory(consisting solely of Eligible Inventory other than Eligible Cigarette Inventory set forth in clause (ii) above); plus (iv) the applicable FILO Advance Rate times the fair market value of all Eligible Real Property.
“FILO Cap Amount” means $2,500,000, as reduced by the aggregate FILO Amortization Amounts.
“FILO Loan” means a Revolving Loan that is borrowed and deemed outstanding as a “FILO Loan” pursuant to Section 2(a).
“Fiscal Year” shall mean each twelve (12) month accounting period of Borrowers, which ends on September 30 of each year.
“Fixed Charge Coverage Ratio” means for any period of determination for the Borrowers, the ratio of EBITDA to Fixed Charges determined in accordance with GAAP.
“Fixed Charges” shall mean for any period, without duplication, (i) scheduled payments of principal and interest during the applicable period with respect to all indebtedness of Borrowers for borrowed money (including scheduled reductions of the Real Property Sublimit as required
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pursuant to Section 2(b)(iii) herein and including all Scheduled FILO Amortization Amounts), plus scheduled payments of principal and interest during the applicable period with respect to all capitalized lease obligations of Borrowers, plus unfinanced Capital Expenditures of Borrowers during the applicable period, plus payments during the applicable period in respect of income or franchise taxes of Borrowers, plus any dividends or distributions made by Borrowers, including, without limitation, any Permitted Tax Distributions, plus any payments made by any Borrower in connection with contingent earn-out payments pursuant to any acquisition.
“Flood Hazard Property” means any parcel of any owned Real Property with improvements located thereon located in the United States that is subject to a Mortgage, which improvements are in an area designated by the Federal Emergency Management Agency as having special flood or mudslide hazards.
“FRBNY” shall mean the Federal Reserve Bank of New York.
“GAAP” means generally accepted accounting principles in the United States of America, applied in accordance with the consistency requirements thereof.
“Hazardous Materials” shall mean any hazardous, toxic or dangerous substance, materials and wastes, including, without limitation, hydrocarbons (including naturally occurring or man-made petroleum and hydrocarbons), flammable explosives, asbestos, urea formaldehyde insulation, radioactive materials, biological substances, polychlorinated biphenyls, pesticides, herbicides and any other kind and/or type of pollutants or contaminants (including, without limitation, materials which include hazardous constituents), sewage, sludge, industrial slag, solvents and/or any other similar substances, materials, or wastes and including any other substances, materials or wastes that are or become regulated under any Environmental Law (including, without limitation any that are or become classified as hazardous or toxic under any Environmental Law).
“Indemnified Party” shall have the meaning specified in Section 24 hereof.
“Intercompany Loans” means loans under that certain Credit Agreement by and between AMCON, as lender, and LOL, as borrower, dated on or about the date hereof in an aggregate outstanding principal amount not to exceed $20,000,000 at any time.
“ISDA Definitions”: 2006 ISDA Definitions published by the International Swaps and Derivatives Association, Inc. or any successor thereto, as amended or supplemented from time to time, or any successor definitional booklet for interest rate derivatives published from time to time by the International Swaps and Derivatives Association, Inc. or such successor thereto.
“Letter of Credit” shall mean any Letter of Credit issued on behalf of a Borrower in accordance with this Agreement.
“Letter of Credit Obligations” shall mean, as of any date of determination, the sum of (i) the aggregate undrawn face amount of all Letters of Credit, and (ii) the aggregate unreimbursed amount of all drawn Letters of Credit not already converted to Loans hereunder.
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“Liabilities” shall mean any and all obligations, liabilities and indebtedness, (including, without limitation, Rate Hedging Obligations and Letter of Credit Obligations) of Borrowers to Agent and each Lender or to any parent, affiliate or subsidiary of Agent and each Lender of any and every kind and nature arising under this Agreement, or the Other Agreements, including without limitation, any Letters of Credit, howsoever created, arising or evidenced and howsoever owned, held or acquired, whether now or hereafter existing, whether now due or to become due, whether primary, secondary, direct, indirect, absolute, contingent or otherwise (including, without limitation, obligations of performance), whether several, joint or joint and several, and whether arising or existing under written or oral agreement or by operation of law; provided that Liabilities shall not include Excluded Hedging Obligations.
“Loans” shall mean all loans and advances made by Agent and/or Lenders to or on behalf of Borrowers hereunder.
“Material Adverse Effect” shall mean a material adverse effect on the business, property, assets, prospects, operations or condition, financial or otherwise, of a Person.
“Maximum Revolving Loan Limit” shall have the meaning specified in subsection 2(a) hereof.
“Mortgage” means a mortgage (including, without limitation, a leasehold mortgage), hypothec, deed of trust or deed to secure debt, in form and substance reasonably satisfactory to Agent, made by a Borrower in favor of Agent for the benefit of the Agents and the Lenders, securing the obligations under the Loan Documents and delivered to Agent.
“Notice of Borrowing” shall mean notice by Borrower Agent of a borrowing, in form satisfactory to Agent.
“Notice of Conversion” shall mean notice by Borrower Agent for conversion of a Loan as a Term SOFR Loan or Base Rate Loan, in form satisfactory to Agent.
“Obligor” shall mean Borrowers and each other Person who is or shall become primarily or secondarily liable for any of the Liabilities.
“QFC” has the meaning assigned to the term “qualified financial contract” in, and shall be interpreted in accordance with, 12 U.S.C. 5390(c)(8)(D).
“Original Term” shall have the meaning specified in Section 10 hereof.
“Other Agreements” shall mean all agreements, instruments and documents, other than this Agreement, including, without limitation, guaranties, mortgages, trust deeds, pledges, powers of attorney, consents, assignments, contracts, notices, security agreements, leases, financing statements and all other writings heretofore, now or from time to time hereafter executed by or on behalf of a Borrower or any other Person and delivered to Agent and/or any Lender in connection with the Loans, the Letters of Credit or the other transactions contemplated hereby, as each of the same may be amended, modified or supplemented from time to time.
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“Parent” shall mean any Person now or at any time or times hereafter owning or controlling (alone or with any other Person) at least a majority of the issued and outstanding equity of a Borrower and, if a Borrower is a partnership, the general partner of such Borrower.
“PBGC” shall have the meaning specified in subsection 12(b)(v) hereof.
“Permitted Liens” shall mean (i) statutory liens of landlords, carriers, warehousemen, processors, mechanics, materialmen or suppliers incurred in the ordinary course of business and securing amounts not yet due or declared to be due by the claimant thereunder or amounts which are being contested in good faith and by appropriate proceedings and for which such Borrower has maintained adequate reserves; (ii) liens or security interests in favor of Agent; (iii) zoning restrictions and easements, licenses, covenants and other restrictions affecting the use of real property that do not individually or in the aggregate have a material adverse effect on a Borrower’s ability to use such real property for its intended purpose in connection with such Borrower’s business; (iv) liens in connection with purchase money indebtedness and capitalized leases otherwise permitted pursuant to this Agreement, provided, that such liens attach only to the assets the purchase of which was financed by such purchase money indebtedness or which is the subject of such capitalized leases (including, for the avoidance of doubt, BofA Equipment Leasing Liens provided that such BofA Equipment Leasing Liens are subject to access and use rights in favor of Agent and, with in thirty (30) days of the Closing Date, or such longer time period deemed acceptable to Agent in their sole discretion, are subject to an intercreditor agreement with Agent acceptable to Agent); (v) liens set forth on Schedule 1 hereto; (vi) liens specifically permitted by Requisite Lenders in writing; (vii) pledges or deposits in connection with worker’s compensation, unemployment insurance and other social security legislation, or to secure the performance of bids, tenders, contracts (other than for the repayment of borrowed money) or leases or to secure statutory obligations or surety, appeal or stay bonds, or to secure indemnity, performance or other similar bonds in the ordinary course of business; and (viii) liens for taxes not yet due or for taxes which are being contested in good faith and by appropriate proceeding provided that (x) the contesting of any such payment does not give rise to a lien for taxes and (y) such Borrower keeps on deposit with Agent (such deposit to be held without interest) an amount of money which, in the sole judgment of Agent, is sufficient to pay such taxes and any interest or penalties that may accrue thereon; and (ix) liens or security interest securing Intercompany Loans that are subordinated to liens and security interests in favor of Agent pursuant to a subordination agreement acceptable to Agent.
“Permitted Modifications” means (a) such amendments or other modifications to a Borrower’s organizational documents as are required under this Agreement or by applicable Law and fully disclosed to Agent within thirty (30) days after such amendments or modifications have become effective, and (b) such amendments or modifications to a Borrower’s organizational documents (other than those involving a change in the name of a Borrower or involving a reorganization of a Borrower under the Laws of a different jurisdiction) that would not adversely affect the rights and interests of the Agent or Lenders and are fully disclosed to Agent within thirty (30) days after such amendments or modifications have become effective.
“Permitted Tax Distributions” means, for any taxable period in which a Borrower is a member of a consolidated, combined or similar income tax group of which a direct or indirect parent of such Borrower is the common parent (a “Tax Group”), distributions by such Borrower
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to such direct or indirect parent of such Borrower to pay federal, foreign, state and local income Taxes of such Tax Group that are attributable to the taxable income of the Borrower; provided that, for each taxable period, the amount of such payments made in respect of such taxable period in the aggregate shall not exceed the amount that such Borrower would have been required to pay as a stand-alone Tax Group, reduced by any portion of such income Taxes directly paid by such Borrower.
“Person” shall mean any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, limited liability company, institution, entity, party or foreign or United States government (whether federal, state, county, city, municipal or otherwise), including, without limitation, any instrumentality, division, agency, body or department thereof.
“Plan” shall have the meaning specified in subsection 12(b)(v) hereof.
“Prepaid Inventory” shall mean Inventory of a Borrower that has been fully paid for by such Borrower and that is temporarily located on the premises of an Approved Prepaid Vendor pending shipment to such Borrower.
“Pre-Settlement Determination Date” shall have the meaning specified in Section 19 hereof.
“Pro Rata Share” shall mean at any time, with respect to any Lender, a fraction (expressed as a percentage in no more than nine (9) decimal places), the numerator of which shall be the Revolving Loan Commitment of such Lender at such time and the denominator of which shall be the Maximum Revolving Loan Limit at such time.
“Rate Hedging Obligations” shall mean any and all obligations of Borrowers to the Agent and/or the Lenders, whether absolute or contingent and howsoever and whensoever created, arising, evidenced or acquired (including all renewals, extensions and modifications thereof and substitutions therefor) under (1) any and all agreements designed to protect Borrowers from the fluctuations of interest rates, exchange rates or forward rates applicable to such party’s assets, liabilities or exchange transactions, including, but not limited to: interest rate swap agreements, dollar-denominated or cross-currency interest rate exchange agreements, forward currency exchange agreements, interest rate cap, floor or collar agreements, forward rate currency agreements relating to interest options, puts and warrants, and (2) any and all agreements relating to cancellations, buy backs, reversals, terminations or assignments of any of the foregoing. An agreement of the type described in clause (1) and/or clause (2) of the foregoing definition is referred to herein as a “Rate Hedging Agreement”.
“Real Property” means, with respect to any Person, the right, title and interest of such Person (including any leasehold, mineral or other estate) in and to any and all land, improvements and fixtures owned by such Person, together with, in each case, all easements, hereditaments and appurtenances relating thereto, all improvements and appurtenant fixtures and equipment, all general intangibles and contract rights and other property and rights incidental to the ownership, lease or operation thereof.
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“Real Property Deliverables” means each of the following agreements, instruments and other documents in respect of any Eligible Real Property of any Borrower, each in form and substance reasonably satisfactory to Agent:
(a)a Mortgage duly executed by the applicable Borrower;
(b)evidence of the recording of each Mortgage in such office or offices as may be necessary to perfect the lien purported to be created thereby or to otherwise protect the rights of Agent and the Lenders thereunder;
(c)a Title Insurance Policy or bring-down of the existing Title Insurance Policy with respect to each Mortgage;
(d)a reasonably current ALTA survey and a surveyor’s certificate, certified to Agent and to the issuer of the Title Insurance Policy with respect thereto by a professional surveyor licensed in the state, province or territory in which such Real Property is located and reasonably satisfactory to Agent (except to the extent the Agent, in its sole discretion, elects to waive some or all of the requirements of this clause (d));
(e)if and to the extent obtainable, a copy of a letter issued by each applicable governmental authority or a zoning report with respect to the property from a reputable zoning review company), evidencing such Real Property’s compliance in all material respects with all applicable building codes, fire codes, other health and safety rules and regulations, parking, density and height requirements and other building and zoning laws together with a copy of all certificates of occupancy issued with respect to such Real Property (except to the extent the Agent, in its sole discretion, elects to waive some or all of the requirements of this clause (e));
(f)an opinion of counsel in the state, province or territory where such Real Property is located with respect to the enforceability of the Mortgage to be recorded and such other matters as Agent may reasonably request;
(g)an ASTM E1527 Phase I Environmental Site Assessment (“Phase I ESA”) (and, if reasonably requested by the Lenders based upon the results of such Phase I ESA an ASTM E1903 Phase II Environmental Site Assessment) of such Real Property by an independent firm reasonably satisfactory to the Lenders, including a reliance provision in favor of Agent (except to the extent the Lenders, in their sole discretion, elect to waive some or all of the requirements of this clause (g));
(h)such other agreements, instruments and other documents (including opinion letters) as Agent may reasonably require; and
(i)evidence as to (i) whether such Real Property is a Flood Hazard Property and (ii) if such Real Property is a Flood Hazard Property, (A) whether the community in which such Real Property is located is participating in the National Flood Insurance Program, and (B) the applicable Borrower’s written acknowledgment of receipt of written notification from Agent (1) as to the fact that such Real Property is a Flood Hazard Property and (2) as to whether the community in which each such Flood Hazard Property is located
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is participating in the National Flood Insurance Program. For each Flood Hazard Property, Borrower shall deliver a flood insurance policy meeting the current guidelines of the Federal Emergency Management Agency is in effect with a generally acceptable insurance carrier, in an amount representing coverage not less than the least of (1) the full insurable value of such Real Property, and (2) the maximum amount of insurance available under the National Flood Insurance Act of 1968, as amended by the Flood Disaster Protection Act of 1974. All such insurance policies (collectively, the “hazard insurance policy”) shall contain a standard mortgagee clause naming Agent, its successors and assigns, as mortgagee, and may not be reduced, terminated or canceled without 30 days’ prior written notice to the mortgagee. All premiums on each such insurance policy have been paid. The hazard insurance policy is the valid and binding obligation of the insurer and is in full force and effect. Borrower shall not engage in any act or omission which would impair the coverage of any such policy, the benefits of the endorsement provided for herein, or the validity and binding effect of either including, without limitation, no unlawful fee, commission, kickback or other unlawful compensation or value of any kind has been or will be received, retained or realized by any attorney, firm or other Person, and no such unlawful items have been received, retained or realized by Borrower.
“Real Property Loan” means a Loan made in connection with and based upon a Borrower’s ownership or acquisition of specific Eligible Real Property. The original principal amount of a Real Property Loan shall be determined by the Agent and communicated to the Borrowers at the time such Real Property Loan is made and is not to exceed 80% of the fair market value of the related Eligible Real Property at any time.
“Requisite Lenders” shall mean, at any time, Lenders having Pro Rata Shares aggregating at least sixty-six and two-thirds percent (66-2/3rds%) at such time.
“Resolution Authority” means an EEA Resolution Authority or, with respect to any UK Financial Institution, a UK Resolution Authority.
“Revolving Loan Commitment” shall mean, with respect to any Lender, the maximum amount of Revolving Loans which such Lender has agreed to make to Borrowers, subject to the terms and conditions of this Agreement, as set forth on the signature page hereto or an Assignment and Acceptance Agreement executed by such Lender.
“Revolving Loan Limit” shall have the meaning specified in subsection 2(a) hereof.
“Revolving Loans” shall have the meaning specified in subsection 2(a) hereof.
“Scheduled FILO Amortization Amount” means FILO Amortization Amounts (excluding unscheduled periodic amortization described in the proviso thereto).
“Scheduled Unavailability Date” shall have the meaning as defined in Section 4(g) below.
“Settlement Date” shall have the meaning specified in Section 19 hereof.
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“SOFR” shall mean the secured overnight financing rate as administered by FRBNY (or a successor administrator).
“SOFR Adjustment” shall mean one tenth of one percent (0.10%).
“Subsidiary” shall mean any corporation of which more than fifty percent (50%) of the outstanding capital stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether at the time stock of any other class of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time, directly or indirectly, owned by a Borrower, or any partnership, joint venture or limited liability company of which more than fifty percent (50%) of the outstanding equity interests are at the time, directly or indirectly, owned by a Borrower or any partnership of which a Borrower is a general partner.
“Successor Rate” shall mean as defined in Section 4(g) below.
“Swap Contract” means (a) any and all rate swap transactions, basis swaps, credit derivative transactions, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions, currency options, spot contracts, or any other similar transactions or any combination of any of the foregoing (including any options to enter into any of the foregoing), whether or not any such transaction is governed by or subject to any master agreement, and (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any other master agreement (any such master agreement, together with any related schedules, a “Master Agreement”), including any such obligations or liabilities under any Master Agreement.
“Swap Obligations” means, with respect to any Borrower or guarantor hereunder, any obligation to pay or perform under any agreement, contract or transaction that constitutes a “swap” within the meaning of Section 1a(47) of the Commodity Exchange Act.
“Sweep to Loan Arrangement” means a cash management arrangement established by the Borrowers with the Agent, as depositary, pursuant to which the Agent is authorized (a) to make advances of Revolving Loans hereunder, the proceeds of which are deposited by the Agent into a designated account of the Borrowers maintained at the Agent, and (b) to accept as prepayments of Revolving Loans hereunder proceeds of excess targeted balances held in such designated account at the Agent, which cash management arrangement is subject to such agreement(s) and on such terms acceptable to the Agent in its sole discretion.
“Tax” shall mean any tax, levy, impost, duty, deduction, withholding or charges of whatever nature required to be paid by Agent to be withheld or deducted from any payment otherwise required hereby to be made by a Borrower to Agent; provided, that the term “Tax” shall not include any taxes imposed upon the net income of Agent.
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“Term SOFR” shall mean a per annum rate equal to the one month Term SOFR Screen Rate two (2) U.S. Government Securities Business Days prior to (a) in the case of Term SOFR Loans, the first day of each calendar month, or (b) with respect to Base Rate Loans, such day of determination of the Base Rate, (or if such rate is not published prior to 11:00 a.m. on the determination date, the applicable Term SOFR Screen Rate on the U.S. Government Securities Business Day immediately prior thereto), plus the SOFR Adjustment; provided, that in no event shall Term SOFR be less than zero (0).
“Term SOFR Loan” shall mean a Loan that bears interest based on Term SOFR.
“Term SOFR Screen Rate” shall mean the forward-looking SOFR term rate administered by CME (or any successor administrator satisfactory to Agent) and published on the applicable Reuters screen page (or such other commercially available source providing such quotations as may be designated by Agent from time to time).
“Title Insurance Policy” means a mortgagee’s loan policy, in form and substance reasonably satisfactory to Agent, together with all endorsements made from time to time thereto to the extent available in the applicable jurisdiction, issued to Agent by or on behalf of a title insurance company selected by or otherwise reasonably satisfactory to Agent, insuring the Lien created by a Mortgage in an amount and on terms and with such endorsements (to the extent available in the applicable jurisdiction) reasonably satisfactory to Agent, delivered to Agent.
“UK Financial Institution” means any BRRD Undertaking (as such term is defined under the PRA Rulebook (as amended form time to time) promulgated by the United Kingdom Prudential Regulation Authority) or any person falling within IFPRU 11.6 of the FCA Handbook (as amended from time to time) promulgated by the United Kingdom Financial Conduct Authority, which includes certain credit institutions and investment firms, and certain affiliates of such credit institutions or investment firms.
“UK Resolution Authority” means the Bank of England or any other public administrative authority having responsibility for the resolution of any UK Financial Institution.
“U.S. Government Securities Business Day” shall mean any Business Day, except any day on which the Securities Industry and Financial Markets Association, New York Stock Exchange or FRBNY is not open for business because the day is a legal holiday under New York law or U.S. federal law.
“Write-Down and Conversion Powers” means, (a) with respect to any EEA Resolution Authority, the write-down and conversion powers of such EEA Resolution Authority from time to time under the Bail-In Legislation for the applicable EEA Member Country, which write-down and conversion powers are described in the EU Bail-In Legislation Schedule, and (b) with respect to the United Kingdom, any powers of the applicable Resolution Authority under the Bail-In Legislation to cancel, reduce, modify or change the form of a liability of any UK Financial Institution or any contract or instrument under which that liability arises, to convert all or part of that liability into shares, securities or obligations of that person or any other person, to provide that any such contract or instrument is to have effect as if a right had been exercised under it or to
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suspend any obligation in respect of that liability or any of the powers under that Bail-In Legislation that are related to or ancillary to any of those powers.
1(A)Accounting Terms. Under the Agreement and the Other Agreements (the “Loan Documents”) (except as otherwise specified therein), all accounting terms shall be interpreted, all accounting determinations shall be made, and all financial statements shall be prepared, in accordance with GAAP applied on a basis consistent with AMCON’s audited financial statements delivered to Agent before the Closing Date and using the same inventory valuation method as used in such financial statements, except for any change required or permitted by GAAP if Borrowers’ certified public accountants concur in such change, the change is disclosed to Agent, and all relevant provisions of the Loan Documents are amended in a manner satisfactory to Requisite Lenders to take into account the effects of the change.
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provided, that the Revolving Loan Limit shall in no event exceed Forty Million and No/100 Dollars ($40,000,000.00) (the “Maximum Revolving Loan Limit”) except as such amount may be increased or, following the occurrence of an Event of Default, decreased by Agent from time to time, in Agent’s sole discretion. The aggregate unpaid principal balance of the Revolving Loans shall not at any time exceed the lesser of the (i) Revolving Loan Limit minus the Letter of Credit Obligations and (ii) the Maximum Revolving Loan Limit minus the Letter of Credit Obligations. If at any time the outstanding Revolving Loans exceeds either the Revolving Loan Limit or the Maximum Revolving Loan Limit (including, as a result of a scheduled reduction in the FILO Amount), in each case minus the Letter of Credit Obligations, or any portion of the Revolving Loans and Letter of Credit Obligations exceeds any applicable sublimit within the Revolving Loan Limit (the “Overadvance”), Borrowers shall immediately, and without the necessity of demand by Agent, pay to Agent such amount as may be necessary to eliminate such Overadvance and Agent shall apply such payment to the Revolving Loans in such order as Agent shall determine in its sole discretion. All Revolving Loans outstanding from time to time up to the FILO Amount shall be deemed to be outstanding FILO Loans for all purposes under this Agreement.
Notwithstanding the foregoing, the Borrower Representative may request an increase in (the “Increase”) the Revolving Loan Commitment by up to $5,000,000 by notice to the Agent and the Lenders in writing that it wishes to request such an Increase. The Increase shall become effective not less than twenty (20) Business Days after the date such notice is received by the Agent and the Lenders, so long as (a) no Event of Default or unmatured Event of Default is in existence on such date and (b) either (i) the then-existing Lenders agree to increase their Revolving Loan Commitments by the aggregate amount of such Increase, (ii) other third party financial institutions reasonably acceptable to the Agent and the Borrowers (“New Lenders”) agree to provide new Revolving Loan Commitments in the aggregate amount of such Increase or (iii) a combination of then-existing Lenders and New Lenders agree to provide the aggregate amount of such Increase by increasing their Revolving Loan Commitments or providing new Revolving Loan Commitments, as applicable. The then-existing Lenders shall have the first right of refusal to provide such Increase for a period of fifteen (15) Business Days after receipt by the Agent and the Lenders of the written notice described above; provided, however, that (i) no Lender shall be obligated to provide an Increase as a result of any such request by the Borrower Representative, and (ii) any additional New Lender shall be subject to the approval of the Agent and the Borrowers (which approval shall not be unreasonably withheld). In the event of over-subscription, the pro rata shares of each such Person in the Increase shall be determined by the Agent. Any Increase shall be effected by an amendment to this Agreement. In each case, the Borrowers will issue to each affected Lender new notes upon request of such Lender. Any Increase in the aggregate Revolving Loan Commitment shall also constitute an increase in the Maximum Revolving Loan Limit by a like amount.
Neither Agent nor any Lender shall be responsible for any failure by any other Lender to perform its obligations to make Revolving Loans hereunder, and the failure of any Lender to make its Pro Rata Share of any Revolving Loan hereunder shall not relieve any other Lender of its obligation, if any, to make its Pro Rata Share of any Revolving Loans hereunder.
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If Borrower Representative, on behalf of any Borrower, makes a request for a Revolving Loan as provided herein Agent, at its option and in its sole discretion, shall do either of the following:
If and to the extent that a Defaulting Lender does not settle with Agent as required under this Agreement Borrowers and Defaulting Lender severally agree to repay to Agent forthwith on demand such amount required to be paid by such Defaulting Lender to Agent, together with interest thereon, for each day from the date such amount is made available to a Borrower until the date such amount is repaid to Agent (x) in the case of a Defaulting Lender at the Federal Funds Rate, and (y) in the case of Borrowers, at the interest rate applicable at such time for such Loans; provided, that Borrowers’ obligation to repay such advance to Agent shall not relieve such Defaulting Lender of its liability to Agent for failure to settle as provided in this Agreement.
Each Borrower hereby authorizes Agent, in its sole discretion, to charge any of such Borrower’s accounts or advance Revolving Loans to make any payments of principal, interest, fees, costs or expenses required to be made under this Agreement or the Other Agreements.
A request for a Revolving Loan shall be made or shall be deemed to be made, each in the following manner: the Borrower Representative, on behalf of the Borrower requesting such Revolving Loan, shall give Agent same day notice, no later than 12:00 p.m. (Chicago time) for such day, of its request for a Revolving Loan, in which notice the Borrower Representative shall specify the amount of the proposed borrowing and the proposed borrowing date; provided, however, that no such request may be made at a time when there exists an Event of Default or an event which, with the passage of time or giving of notice, will become an Event of Default. In the event that a Borrower maintains a controlled disbursement account at BMO, each check presented for payment against such controlled disbursement account and any other charge or request for payment against such controlled disbursement account shall constitute a request for a Revolving Loan as a Base Rate Loan. As an accommodation to Borrowers, Agent may permit telephone
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requests for Revolving Loans and electronic transmittal of instructions, authorizations, agreements or reports to Agent by Borrower Representative, on behalf of Borrowers. Unless Borrower Representative specifically directs Agent in writing not to accept or act upon telephonic or electronic communications from Borrower Representative, Agent shall have no liability to Borrowers for any loss or damage suffered by Borrower Representative or any Borrower as a result of Agent’s honoring of any requests, execution of any instructions, authorizations or agreements or reliance on any reports communicated to it telephonically or electronically and purporting to have been sent to Agent by Borrower Representative and Agent shall have no duty to verify the origin of any such communication or the authority of the Person sending it.
Each Borrower hereby irrevocably authorizes Agent to disburse the proceeds of each Revolving Loan requested by Borrower Representative, or deemed to be requested by Borrower Representative, as follows: the proceeds of each Revolving Loan requested under Section 2(a) shall be disbursed by Agent in lawful money of the United States of America in immediately available funds, in the case of the initial borrowing, in accordance with the terms of the written disbursement letter from Borrower Representative, and in the case of each subsequent borrowing, by wire transfer or Automated Clearing House (ACH) transfer to such bank account as may be agreed upon by Borrower Representative and Agent from time to time, or elsewhere if pursuant to a written direction from Borrower Representative.
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then, on a date and time determined by Agent (any such date, “Term SOFR Replacement Date”), which date shall be the relevant interest payment date, as applicable, for interest calculated and, solely with respect to clause (B) above, no later than the Scheduled Unavailability Date, Term SOFR will be replaced hereunder and under any other applicable Loan Document with Daily Simple SOFR plus the SOFR Adjustment for any payment period for interest calculated that can be determined by Agent, in each case, without any amendment to, or further action or consent of any other party to any Loan Document (“Successor Rate”). If the Successor Rate is Daily Simple SOFR plus the SOFR Adjustment, all interest will be payable on a monthly basis.
Notwithstanding anything to the contrary herein, (1) if Agent determines that neither of the alternatives in clauses (I) and (II) above is available on or prior to the Term SOFR Replacement Date or (2) if the events or circumstances of the type described in Section (e)(ii)(A) or (B) above have occurred with respect to the Successor Rate then in effect, then in each case, Agent and Borrower Agent may amend this Agreement solely for the purpose of replacing Term SOFR or any then current Successor Rate in accordance with this Section, relevant interest payment date or payment period for interest calculated, as applicable, with an alternative benchmark rate giving due consideration to any evolving or then existing convention for similar U.S. dollar denominated syndicated credit facilities for such alternative benchmarks and, in each case, including any mathematical or other adjustments to such benchmark giving due consideration to any evolving or then existing convention for similar U.S. dollar denominated syndicated credit facilities for such benchmarks, which adjustment or method for calculating such adjustment shall be published on an information service selected by Agent from time to time in its discretion and may be periodically updated. For the avoidance of doubt, any such proposed rate and adjustments shall constitute a Successor Rate. Any such amendment shall become effective at 5:00 p.m. on the fifth Business Day after Agent posts such proposed amendment to all Lenders and Borrowers unless, prior to such time, Requisite Lenders deliver to Agent written notice that Requisite Lenders object to the amendment.
Agent will promptly (in one or more notices) notify Borrowers and Lenders of implementation of any Successor Rate. A Successor Rate shall be applied in a manner consistent with market practice; provided, that to the extent market practice is not administratively feasible for Agent, the Successor Rate shall be applied in a manner as otherwise reasonably determined by Agent. Notwithstanding anything else herein, if at any time any Successor Rate as so determined would otherwise be less than zero (0), the Successor Rate will be deemed to be zero (0) for all purposes of the Loan Documents.
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AHYDO Prepayment. Notwithstanding any provision of this Agreement to the contrary, if, at the end of each Accrual Period ending after the fifth (5th) anniversary of the Closing Date, the Borrower determines in its sole discretion that the amount of any accrued but unpaid original issue discount (as determined for U.S. federal income tax purposes and including any discount attributable to any fees, expense reimbursements or other payments to the Lender that may be treated for such purposes as a reduction in the “issue price” of the Loan as determined under Section 1.1273-2(a)(1) of the Treasury Regulations) exceeds the product of (i) the issue price (as defined in Sections 1273(b) and 1274(a) of the Code and the regulations promulgated thereunder) and (ii) the yield to maturity (interpreted in accordance with Section 163(i) of the Code) (the “Maximum Amount”), then an amount not less than the amount required to reduce the accrued but unpaid original issue discount at the end of such period to an amount less than the Maximum Amount (the “AHYDO Catch-Up Payment”) shall be paid in cash at such time; for the avoidance of doubt, the parties agree that such AHYDO Catch-Up Payments, as calculated pursuant to the preceding clause, shall be in an amount necessary so that the Loans will not be classified as “applicable high yield debt obligations” under Section 163(i) of the Code). For the purposes of the immediately preceding sentence, “Accrual Period” shall have the meaning assigned to it in Sections 163(i)(2) and 1272(a)(5) of the Code and Treasury Regulations Section 1.1272-1(b)(1)(ii) and, to the extent permitted under such Sections of the Code, the parties shall select quarterly Accrual Periods with respect to the Loans. It is the intent of the Borrower and the Lenders that Section 163(e)(5) of the Code not apply to the Loans and the provisions of this Agreement shall be applied consistently therewith.
“AHYDO Payment” shall mean any mandatory prepayment or redemption pursuant to the terms of any Indebtedness in an amount that is intended or designed to cause such Indebtedness not to be treated as an “applicable high yield discount obligation” within the meaning of Section 163(i) of the Code.
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All of the foregoing notices shall be provided by Borrower Representative to Agent in writing.
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If a Borrower at any time or times hereafter shall fail to obtain or maintain any of the policies of insurance required above or to pay any premium relating thereto, then Agent, without waiving or releasing any obligation or default by Borrowers hereunder, may (but shall be under no obligation to) obtain and maintain such policies of insurance and pay such premiums and take such other actions with respect thereto as Agent deems advisable. Such insurance, if obtained by Agent, may, but need not, protect such Borrower’s interests or pay any claim made by or against such Borrower with respect to the Collateral. Such insurance may be more expensive than the cost of insurance such Borrower may be able to obtain on its own and may be cancelled only upon Borrower Representative providing evidence that it has obtained the insurance as required above. All sums disbursed by Agent in connection with any such actions, including, without limitation, court costs, expenses, other charges relating thereto and reasonable attorneys’ fees, shall constitute Loans hereunder, shall be payable on demand by Borrowers to Agent and, until paid, shall bear interest at the highest rate then applicable to Loans hereunder.
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In addition to the foregoing, Borrowers may enter into Acquisitions solely to the extent the following conditions are satisfied:
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(i) Borrowers may pay Permitted Tax Distributions on a quarterly basis so long as no Event of Default shall have occurred and be continuing (both before or as a result of the making of such payment; and
(ii)Borrowers may pay other cash dividends so long as (w) no Event of Default shall have occurred and be continuing (both before or as a result of the making of such payment), (x) the Excess Availability for the prior and subsequent thirty (30) days exceeds $5,000,000, (y) the Fixed Charge Coverage Ratio on a trailing twelve (12) month basis shall not be less than 1.00:1.00 (both before or as a result of the making of such payment) and (z) the Intercompany Loans have been repaid in full and the Credit Agreement with respect thereto has been terminated.
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Notwithstanding the foregoing, Agent shall not be obligated to transfer to any Defaulting Lender any payment made by Borrowers to Agent, nor shall such Defaulting Lender be entitled to share any interest, fees or other payment hereunder, until payment is made by such Defaulting Lender to Agent as required in this Agreement.
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In the event that any consent, waiver or amendment requiring the agreement of all Lenders as set forth above is agreed to by the Requisite Lenders, but not all Lenders, Agent may, in its sole discretion, cause any non-consenting Lender to assign its rights and obligations under this Agreement and the Other Agreements to one or more new Lenders or existing Lenders in the manner and according to the terms set forth in Section 21 of this Agreement; provided, that (i) no
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Lender may be required to assign its rights and obligations to a new Lender because such lender is unwilling to increase its own loan commitments, (ii) such new Lender must be willing to consent to the proposed amendment, waiver or consent and (iii) in connection with such assignment the new Lender pays the assigning Lender an amount equal to the Liabilities owing to such assigning Lender, including all principal, accrued and unpaid interest and accrued and an unpaid fees to the date of assignment. Such assignment shall occur within thirty (30) days of notice by Agent to such non-consenting Lender of Agent’s intent to cause such non-consenting Lender to assign its interests hereunder.
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To induce Agent and Lenders to accept this Agreement, each Borrower irrevocably agrees that, subject to Agent’s sole and absolute election, ALL ACTIONS OR PROCEEDINGS IN ANY WAY, MANNER OR RESPECT, ARISING OUT OF OR FROM OR RELATED TO THIS AGREEMENT, THE OTHER AGREEMENTS OR THE COLLATERAL SHALL BE LITIGATED IN COURTS HAVING SITUS WITHIN THE CITY OF CHICAGO, STATE OF ILLINOIS. EACH BORROWER HEREBY CONSENTS AND SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURTS LOCATED WITHIN SAID CITY AND STATE. EACH BORROWER HEREBY WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS AND AGREES THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE UPON SUCH BORROWER BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, ADDRESSED TO SUCH BORROWER, AT THE ADDRESS SET FORTH FOR NOTICE IN THIS AGREEMENT AND SERVICE SO MADE SHALL BE COMPLETE TEN (10) DAYS AFTER THE SAME HAS BEEN POSTED. EACH BORROWER HEREBY WAIVES ANY RIGHT IT MAY HAVE TO TRANSFER OR CHANGE THE VENUE OF ANY LITIGATION BROUGHT AGAINST SUCH BORROWER BY AGENT OR LENDERS IN ACCORDANCE WITH THIS SECTION.
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(Signature Page Follows)
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(Signature Page to Loan and Security Agreement)
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first written above.
| BORROWERS: Title: Secretary |
| HF REAL ESTATE, LLC, a Minnesota limited liability company Title: Secretary |
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| BMO Harris Bank N.A., as Agent and a Lender Title: Director Revolving Loan Commitment: $40,000,000.00 |
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Exhibit 10.3
Banc of America Leasing & Capital, LLCMaster Loan and Security Agreement Number: 52836-70000
This Master Loan and Security Agreement, dated as of February 1, 2023 (this “Agreement”), is by and between Banc of America Leasing & Capital, LLC, a Delaware limited liability company having an office at Bank of America Plaza, 600 Peachtree Street NE, 11th Floor, Atlanta, GA 30308-2265 (together with its successors and assigns, “Lender”), and LOL Foods, Inc. (as “Borrower”), a corporation existing under the laws of the state of Nebraska, and having its chief executive office and any organizational identification number as specified with its execution of this Agreement below. Certain defined terms used herein are identified in bold face and quotation marks throughout this Agreement and in Section 14 below. This Agreement sets forth the terms and conditions for the financing of Equipment between Lender and Borrower pursuant to one or more "Equipment Notes" incorporating by reference the terms of this Agreement, together with all exhibits, addenda, schedules, certificates, riders and other documents and instruments executed and delivered in connection with such Equipment Note (as amended from time to time, an “Equipment Note”). Each Equipment Note constitutes a separate, distinct and independent financing of Equipment and contractual obligation of Borrower. This Agreement is not an agreement or commitment by Lender or Borrower to enter into any future Equipment Notes or other agreements, or for Lender to provide any financial accommodations to Borrower. Lender shall not be obligated under any circumstances to advance any progress payments or other funds for any Equipment or to enter into any Equipment Note if there shall have occurred a material adverse change in the operations, business, properties or condition, financial or otherwise, of Borrower or any Guarantor. This Agreement and each Equipment Note shall become effective only upon Lender’s acceptance and execution thereof at its corporate offices set forth above.
1.Equipment Notes; Grant of Security Interest. Lender and Borrower agree to finance Equipment described in one or more Equipment Notes entered into from time to time, together with all other documentation from Borrower required by Lender with respect to such Equipment Note. Upon receipt of any item or group of Equipment intended for financing hereunder, Borrower shall execute an Equipment Note, with all information fully completed and irrevocably accepting such Equipment for Equipment Note, and deliver such Equipment Note to Lender for its review and acceptance. To secure the punctual payment and performance of Borrower’s Obligations under each Equipment Note and, as a separate grant of security, to secure the payment and performance of all other Obligations owing to Lender, Borrower grants to Lender a continuing security interest in all of Borrower's right, title and interest in and to all Equipment, together with: (i) all parts, attachments, accessories and accessions to, substitutions and replacements for, each item of Equipment; (ii) all insurance, warranty and other claims against third parties with respect to any Equipment; (iii) all software and other intellectual property rights embedded in the Equipment; (iv) proceeds of all of the foregoing; and (v) all books and records regarding the foregoing; in each case, now existing or hereafter arising (the “Collateral”). Provided that there then exists no Event of Default, Lender’s security interest in Collateral subject to an Equipment Note shall terminate upon the payment and performance of all Obligations of Borrower under the applicable Equipment Note. Notwithstanding the grant of a security interest in any Collateral, Borrower shall have no right to sell, lease, rent, dispose or surrender possession, use or operation of any Equipment to any third parties without the prior written consent of Lender.
2.Payments. Each Equipment Note shall provide for scheduled “Payments” of principal and interest payable by Borrower to Lender in the amounts and at the times during the “Equipment Note Term” through and including the “Maturity Date”, all as provided in the Equipment Note. If any Payment or other amount payable hereunder is not paid within 10 days of its due date, Borrower shall pay an administrative late charge of 5% of the amount not timely paid. Such amount shall be payable in addition to all amounts payable by Borrower as a result of the exercise of any of the remedies herein provided. All Payments and other amounts payable under an Equipment Note shall be made in immediately available funds at Lender’s address above or such other place as Lender shall specify in writing. Except as specifically provided in the applicable Equipment Note, Borrower shall not have a right to prepay any Equipment Note. It is the intention of Lender to comply with all applicable usury laws and, accordingly, it is agreed that notwithstanding anything to the contrary contained herein or in any Equipment Note, in no event shall any provision herein or therein require or permit interest in excess of the maximum amount permitted by applicable law. If necessary to give effect to these provisions, Lender will, at its option, in accordance with applicable law, either refund any amount to Borrower to the extent in excess of that allowed by applicable law, or credit such excess amount against the then unpaid principal balance under the applicable Equipment Note(s). Unless otherwise provided herein, all amounts received under any Equipment Note will be applied, first, to accrued late charges, fees and other costs and expenses due and owing, second, to accrued interest and, third, to unpaid principal.
3.Unconditional Financing; Disclaimer of Warranties. Borrower’s Obligations under each Equipment Note (i) shall be non-cancelable, absolute and unconditional under all circumstances for the entire Equipment Note Term, (ii) shall be unaffected by the loss or destruction of any Equipment, and (iii) shall not be subject to any abatement, deferment, reduction, set-off, counterclaim, recoupment or defense for any reason whatsoever. LENDER IS NOT A VENDOR OR AGENT OF THE EQUIPMENT VENDOR, AND HAS NOT ENGAGED IN THE SALE OR DISTRIBUTION OF ANY EQUIPMENT. LENDER MAKES NO EXPRESS OR IMPLIED REPRESENTATIONS OR WARRANTIES AS TO TITLE, MERCHANTABILITY, PERFORMANCE, CONDITION, EXISTENCE, FITNESS OR SUITABILITY FOR BORROWER'S PURPOSES OF ANY EQUIPMENT, PATENT, TRADEMARK OR COPYRIGHT INFRINGEMENTS, THE CONFORMITY OF THE EQUIPMENT TO THE DESCRIPTION THEREOF IN ANY EQUIPMENT NOTE OR ANY OTHER REPRESENTATION OR WARRANTY OF ANY KIND WITH RESPECT TO THE EQUIPMENT. If Equipment is not delivered or properly installed, does not operate as warranted, becomes obsolete, or is unsatisfactory for any reason, Borrower shall make all claims on account thereof solely against Vendor and not against Lender. Borrower is solely responsible for the selection, shipment, delivery and installation of the Equipment and its Vendors, expressly disclaims any reliance upon any statements or representations made by Lender in connection therewith, and has received and approved the terms of any purchase orders, warranties, licenses or agreements with respect to the Equipment. To the extent that the manufacturer of Equipment provides any warranties with respect thereto, Borrower shall enforce such warranties and obtain at its own expense the customary services furnished by the manufacturer in connection with the Equipment.
4.Use; Maintenance; Location; Inspection. Borrower shall: (i) use, operate, protect and maintain the Equipment (a) in good operating order, repair,
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condition and appearance, in the same condition as when received, ordinary wear and tear excepted, (b) consistent with prudent industry practice (but in no event less than the extent to which Borrower maintains other similar equipment in the prudent management of its assets and properties), and (c) in compliance with all applicable insurance policies, laws, ordinances, rules, regulations and manufacturer's recommended maintenance and repair procedures, and (ii) maintain comprehensive books and records regarding the use, operation, maintenance and repair of the Equipment. The Equipment shall be used only within the 48 contiguous United States, solely for business purposes (and not for any consumer, personal, home, or family purpose), and shall not be abandoned or used for any unlawful purpose. Borrower shall not discontinue use of any Equipment except for normal maintenance nor, through modifications, alterations or otherwise, impair the current or residual value, useful life, utility or originally intended function of any Equipment without Lender's prior consent. Any replacement or substitution of parts, improvements, upgrades, or additions to the Equipment during the Equipment Note Term shall be part of the Collateral subject to Lender’s security interest and subject to the Equipment Note, except that if no Event of Default exists, Borrower may at its expense remove improvements or additions provided by Borrower that can be readily removed without impairing the value, function or remaining useful life of the Equipment. Borrower shall not change the location or, in the case of over-the-road vehicles, the base of any Equipment specified in its Equipment Note without Lender's prior written consent. Lender shall have the right to enter any premises where Equipment is located and inspect it (together with related books and records) at any reasonable time.
5.Loss and Damage. Borrower assumes all risk of (and shall promptly notify Lender in writing of any occurrence of) any damage to or loss, theft, confiscation or destruction of any Equipment from any cause whatsoever (a “Casualty”). If any Equipment suffers a Casualty which Lender determines is reparable, Borrower shall at its expense promptly place the same in good repair, condition or working order. If any Equipment suffers a Casualty which Lender determines is beyond repair or materially impairs its residual value (a “Total Loss”), Borrower shall at Lender’s option either (a) promptly replace such Equipment with a similar item reasonably acceptable to Lender having an equivalent value, utility and remaining useful life of such Equipment, whereupon such replacement items shall constitute Equipment and Collateral for all purposes hereunder and the applicable Equipment Note, or (b) on the Payment date following such Casualty pay Lender the Prepayment Amount for such Equipment, together with the Payment scheduled for payment on such date, and all accrued interest, late charges and other amounts then due and owing under the Equipment Note. Upon such payment following a Total Loss, the Equipment Note with respect to the Equipment suffering a Total Loss shall be deemed discharged, and Lender’s security interest in such Equipment shall terminate. If less than all Equipment under a Equipment Note suffers a Total Loss, (i) the Prepayment Amount with respect to any such item of Equipment shall be calculated by reference to the allocable portion of the unpaid principal balance of the applicable Equipment Note, as reasonably determined by Lender, and (ii) the remaining Payments under the Equipment Note shall be proportionately reduced as reasonably calculated by Lender upon Lender’s receipt of the payments described above.
6.Insurance. Borrower, at its own expense, shall keep each item of Equipment insured against all risks for its replacement value, and in no event less than its Prepayment Amount, and shall maintain public liability and, with respect to any Equipment that is over-the-road vehicles, automotive liability insurance against such risks and for such amounts as Lender may require. All such insurance shall (a) be with companies rated “A-” or better by A.M. Best Company, in such form as Lender shall approve, (b) specify Lender and Borrower as insureds and provide that it may not be canceled or altered in any way that would affect the interest of Lender without at least 30 days' prior written notice to Lender (10 days' in the case of nonpayment of premium), (c) be primary, without right of contribution from any other insurance carried by Lender and contain waiver of subrogation and “breach of warranty” provisions satisfactory to Lender, (d) provide that all amounts payable by reason of loss or damage to Equipment shall be payable solely to Lender, unless Lender otherwise agrees, and (e) contain such other endorsements as Lender may reasonably require. Borrower shall provide Lender with evidence satisfactory to Lender of the required insurance upon the execution of any Equipment Note and promptly upon any renewal of any required policy.
7.Indemnities; Taxes. Borrower's indemnity and reimbursement obligations set forth below shall survive the cancellation, termination or expiration of any Equipment Note or this Agreement.
(a) General Indemnity. Borrower shall indemnify, on an after-tax basis, defend and hold harmless Lender and its respective officers, directors, employees, agents and Affiliates (“Indemnified Persons”) against all claims, liabilities, losses and expenses whatsoever (except those determined by final decision of a court of competent jurisdiction to have been directly and primarily caused by the Indemnified Person's gross negligence or willful misconduct), including court costs and reasonable attorneys' fees and expenses (together, “Attorneys’ Fees”), in any way relating to or arising out of the Equipment or any Equipment Note at any time, or the ordering, acquisition, rejection, installation, possession, maintenance, use, ownership, condition, destruction or return of the Equipment, including any claims based in negligence, strict liability in tort, environmental liability or infringement.
(b) General Tax Indemnity. Borrower shall pay or reimburse Lender, and indemnify, defend and hold Lender harmless from, on an after-tax basis, all taxes, assessments, fees and other governmental charges paid or required to be paid by Lender or Borrower in any way arising out of or related to the Equipment or any Equipment Note before or during the Equipment Note Term or after the Equipment Note Term following an Event of Default, including foreign, Federal, state, county and municipal fees, taxes and assessments, and property, value-added, sales, use, gross receipts, excise, stamp and documentary taxes, and all related penalties, fines, additions to tax and interest charges (“Impositions”), excluding only Federal and state taxes based on Lender's net income. Upon Lender's request, Borrower shall furnish proof of its payment of any Imposition.
8.Borrower Representations and Agreements. Borrower represents, warrants and agrees that: (a) Borrower has had for the previous 5 years (except as previously disclosed to Lender in writing) the legal name and form of business organization in the state described above; (b) Borrower’s chief executive office and notice address, taxpayer identification number and any organizational identification number is as described with its execution of this Agreement below; (c) Borrower shall notify Lender in writing at least 30 days before changing its legal name, state of organization, chief executive office location or organizational identification number; (d) Borrower is duly organized and existing in good standing under the laws of the state described above and all other jurisdictions where legally required in order to carry on its business, shall maintain its good standing in all such jurisdictions, and shall conduct its businesses and manage its properties (and cause each of its Affiliates to conduct its businesses and manage its properties) in compliance with all applicable laws, rules or regulations binding, in any jurisdiction, on Borrower and its Affiliates including, without limitation, all anti-money laundering laws and regulations; (e) the execution, delivery and performance of this Agreement, each Equipment Note and Related Agreement to which it is a party has been duly authorized by Borrower, each of which are and will be binding on and enforceable against Borrower in accordance with their terms, and do not and will not contravene any other instrument or agreement binding on Borrower; and (f) there is no pending litigation, tax or environmental claim, proceeding, dispute or regulatory or enforcement action (and Borrower shall promptly notify Lender of any of the same that may hereafter arise) that may adversely affect any Equipment or
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Borrower's financial condition or impair its ability to perform its Obligations.
All covenants of Borrower that are based upon a specified level or ratio relating to assets, liabilities, indebtedness, rentals, net worth, cash flow, earnings, profitability, or any other accounting-based measurement or test, now or hereafter existing (collectively, the “Additional Covenants”), in that certain Loan and Security Agreement dated on or about the date hereof among Borrower, certain Affiliates of Borrower, the financial institutions from time to time party thereto and BMO Harris Bank N.A., as Agent, or in any replacement credit facility accepted in writing by Lender between Borrower and a United States national banking association or other financial institution (a “Bank Facility”), are hereby incorporated into and made a part of this Agreement (with such adjustments to defined terms as may be necessary to assure consistency) without modification or amendment unless specifically accepted and approved in writing by Lender. Borrower acknowledges and agrees that (i) the Additional Covenants in the form included in the existing Bank Facility shall be deemed to be permanently incorporated into this Agreement, and shall remain in effect for all purposes of this Agreement notwithstanding the cancellation or termination of a Bank Facility due to voluntary prepayment, payment at maturity, default or otherwise, unless a replacement credit facility with Additional Covenants has been accepted in writing by Lender in its sole discretion prior to the effective date of such cancellation or termination of such Bank Facility, and (ii) any waiver of any breach (or anticipated breach) of any Additional Covenant under the Bank Facility (by reason of amendment, forbearance or otherwise) shall not constitute a waiver of the corresponding default (or anticipated default) under this Agreement unless specifically agreed to in writing by Lender. Borrower hereby certifies that Lender has been furnished a true, correct and complete copy of all documentation concerning the existing Bank Facility, and further covenants and agrees to promptly provide Lender: (a) certified copies of true, correct and complete documentation of any other Bank Facility in effect from time to time, and any all proposed amendments and modifications to any Bank Facility; (b) notices of any event of default or other condition of non-compliance issued to Borrower in connection with a Bank Facility; (c) any certificates of compliance and supporting information and reports in the form required pursuant to a Bank Facility as they pertain to the Additional Covenants, and shall continue to provide the same to Lender notwithstanding the cancellation or other termination of such Bank Facility for so long as any Obligations owing to Lender remain outstanding in connection with this Agreement; and (d) prior written notice of the cancellation or termination of a Bank Facility for any reason. Borrower further acknowledges and agrees that any event of default under a Bank Facility shall constitute an Event of Default under this Agreement.
9.Title; Personal Property. Borrower shall be the sole owner of Equipment free and clear of all liens or encumbrances, other than Lender’s rights under the Equipment Note. Borrower will not create or permit to exist any lien, security interest, charge or encumbrance on any Equipment except those in favor of Lender. The Equipment shall remain personal property at all times, notwithstanding the manner in which it may be affixed to realty. Borrower shall obtain and record such instruments and take such steps as may be necessary to (i) prevent any creditor, landlord, mortgagee or other entity (other than Lender) from having any lien, charge, security interest or encumbrance on any Equipment, and (ii) ensure Lender's right of access to and removal of Equipment in accordance with the terms hereof.
10.Default. Each of the following (a “Default”) shall, with the giving of any notice or passage of any time period specified, constitute an "Event of Default" hereunder and under all Equipment Notes: (1) Borrower fails to pay any Payments or other amount owing under any Equipment Note within 10 days of its due date; (2) Borrower fails to maintain insurance as required herein, or sells, leases, assigns, conveys, or suffers to exist any lien, charge, security interest or encumbrance on, any Equipment without Lender's prior consent, or any Equipment is subjected to levy, seizure or attachment; (3) Borrower fails to perform or comply with any other covenant or obligation under any Equipment Note or Related Agreement and, if curable, such failure continues for 30 days after written notice thereof by Lender to Borrower; (4) any representation, warranty or other written statement made to Lender by Borrower in connection with this Agreement, any Equipment Note, Related Agreement or other Obligation, or by any Guarantor pursuant to any Guaranty (including financial statements) proves to have been incorrect in any material respect when made; (5) Borrower (w) enters into any merger or consolidation with, or sells or transfers all or any substantial portion of its assets to, or enters into any partnership or joint venture other than in the ordinary course of business with, any entity, (x) dies (if a natural person), dissolves, liquidates or ceases or suspends the conduct of business, or ceases to maintain its existence, (y) if Borrower is a privately held entity, enters into or suffers any transaction or series of transactions as a result of which Borrower is directly or indirectly controlled by persons or entities not directly or indirectly controlling Borrower as of the date hereof, or (z) if Borrower is a publicly held entity, there shall be a change in the ownership of Borrower's stock or other equivalent ownership interest such that Borrower is no longer subject to the reporting requirements of, or no longer has a class of equity securities registered under, the Securities Act of 1933 or the Securities Exchange Act of 1934; (6) Borrower undertakes any general assignment for the benefit of creditors or commences any voluntary case or proceeding for relief under the federal bankruptcy code, or any other law for the relief of debtors, or takes any action to authorize or implement any of the foregoing; (7) the filing of any petition or application against Borrower under any law for the relief of debtors, including proceedings under the federal bankruptcy code, or for the subjection of property of Borrower to the control of any court, receiver or agency for the benefit of creditors if such petition or application is consented to by Borrower or is otherwise not dismissed within 60 days from the date of filing; (8) any default occurs under any other lease, credit or other agreement or instrument to which Borrower and Lender or any Affiliate of Lender are now or hereafter party; (9) any default occurs under any other agreement or instrument to which Borrower is a party and under which there is outstanding, owing or committed an aggregate amount greater than $100,000; (10) any attempted repudiation, breach or default of any Guaranty; or (11) the occurrence of any event described in clauses (4) through (9) above with reference to any Guarantor or any controlling shareholder, general partner or member of Borrower. Borrower shall promptly notify Lender in writing of any Default or Event of Default.
11.Remedies. (a) Upon the occurrence of an Event of Default, Lender may, in its discretion, exercise any one or more of the following remedies with respect to any or all Equipment Notes or Equipment: (1) accelerate the maturity of any Equipment Note and declare the Prepayment Amount thereof to be immediately due and payable together with any other unpaid principal, accrued interest or other amounts due and owing thereunder; (2) cause Borrower to promptly discontinue use of or disable any Equipment, and, at Borrower’s expense, have the Equipment assembled, prepared and adequately protected for shipment (together with all related manuals, documents and records, and any other Collateral), and either surrendered to Lender in place or shipped (freight and insurance pre-paid) to such location as Lender may designate within the forty-eight contiguous United States, in the condition required under Section 4 hereof, qualified for the manufacturer’s (or its authorized servicing representative’s) then available service contract or warranty, and able to be put into immediate service and to perform at manufacturer's rated levels (if any); (3) remedy such Event of Default or proceed by court action, either at law or in equity, to enforce performance of the applicable provisions of any Equipment Note; (4) with or without court order, enter upon the premises where Equipment is located and repossess and remove the same, all without liability for damage to such premises or by reason such entry or repossession, except for Lender's gross negligence or willful misconduct; (5) dispose of any Equipment in a public or private transaction, or hold, use, operate or keep idle the
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Equipment, free and clear of any rights or interests of Borrower therein; (6) recover direct, incidental, consequential and other damages for the breach of any Equipment Note, including the payment of all unpaid principal, accrued interest and other amounts payable thereunder, and all costs and expenses incurred by Lender in exercising its remedies or enforcing its rights thereunder (including all Attorneys’ Fees); (7) without notice to Borrower, apply or set-off against any Obligations all security deposits, advance payments, proceeds of letters of credit, certificates of deposit (whether or not matured), securities or other additional collateral held by Lender or otherwise credited by or due from Lender to Borrower; or (8) pursue all other remedies provided under the UCC or other applicable law. Borrower shall pay interest equal to the lesser of (a) 12% per annum, or (b) the highest rate permitted by applicable law (“Default Rate”) on (i) any amount other than Payments owing under any Equipment Note and not paid when due, (ii) any Payment not paid within 30 days of its due date, and (iii) any amount required to be paid upon acceleration of any Equipment Note under this Section 11. Any payments received by Lender after an Event of Default, including proceeds of any disposition of Equipment, shall be applied in the following order: (A) to all of Lender's costs (including Attorneys’ Fees), charges and expenses incurred in taking, removing, holding, repairing and selling or leasing the Equipment or other Collateral or enforcing the provisions hereof; (B) to the satisfaction of all outstanding Obligations; and (C) the balance, if any, shall be disbursed to Borrower unless otherwise required by law. Lender shall account to Borrower for any surplus realized upon such sale or other disposition, and Borrower shall remain liable for any deficiency with respect to the Obligations.
(b) No remedy referred to in this Section 11 shall be exclusive, each shall be cumulative (but not duplicative of recovery of any Obligation) and in addition to any other remedy referred to above or otherwise available to Lender at law or in equity, and all such remedies shall survive the acceleration of any Equipment Note. Lender’s exercise or partial exercise of, or failure to exercise, any remedy shall not restrict Lender from further exercise of that remedy or any other available remedy. No extension of time for payment or performance of any Obligation shall operate to release, discharge, modify, change or affect the original liability of Borrower for any Obligations, either in whole or in part. Lender may proceed against any Collateral or Guarantor, or may proceed contemporaneously or in the first instance against Borrower, in such order and at such times following an Event of Default as Lender determines in its sole discretion. In any action to repossess any Equipment or other Collateral, Borrower waives any bonds and any surety or security required by any applicable laws as an incident to such repossession. Notices of Lender's intention to accelerate, acceleration, nonpayment, presentment, protest, dishonor, or any other notice whatsoever (other than notices of Default specifically required of Lender pursuant to Section 10 above) are waived by Borrower and any Guarantor. Any notice given by Lender of any disposition of Collateral or other intended action of Lender which is given in accordance with this Agreement at least 5 business days prior to such action, shall constitute fair and reasonable notice of such action.
12. Assignment. Lender and any Assignee may assign or transfer any of Lender's interests in any Equipment Note or Equipment without notice to Borrower,. Borrower agrees that: (i) the rights of any Assignee shall not be affected by any breach or default of Lender or any prior Assignee, and Borrower shall not assert any defense, rights of set-off or counterclaim against any Assignee, nor hold or attempt to hold such Assignee liable for any such breach or default; (ii) unless otherwise agreed by Lender and Assignee, Lender shall have no duties or responsibilities as a secured party with respect to the applicable Equipment or Collateral after such assignment and Lender shall be released from such duties or responsibilities, and (iii) Borrower shall execute and deliver upon request such additional documents, instruments and assurances as Lender deems necessary in order to (y) acknowledge and confirm all of the terms and conditions of any Equipment Note and Lender's or such Assignee’s rights with respect thereto, and Borrower’s compliance with all of the terms and provisions thereof, and (z) preserve, protect and perfect Lender’s or Assignee’s right, title or interest hereunder and in any Equipment, including, without limitation, such UCC financing statements or amendments, control agreements, corporate or member resolutions, votes, notices of assignment of interests, and confirmations of Borrower’s obligations and representations and warranties with respect thereto as of the dates requested. Lender may disclose to any potential Assignee any information regarding Borrower, any Guarantor and their Affiliates. Borrower shall not sell, assign, pledge, hypothecate or in any way dispose of any of its rights or obligations under any Equipment Note, or enter into any lease of any Equipment, without Lender's prior written consent. Any purported sale, assignment, pledge, hypothecation, disposal or lease by Borrower made without Lender’s prior written consent shall be null and void.
13. Financial and Other Data. (a) During any Equipment Note Term, Borrower shall: (i) maintain books and records in accordance with generally accepted accounting principles consistently applied (“GAAP”) and prudent business practice; (ii) promptly provide Lender, within 120 days after the close of each fiscal year, and, upon Lender's request, within 45 days of the end of each quarter of Borrower's and any Guarantor’s fiscal year, a copy of financial statements for Borrower and each Guarantor requested by Lender, in each case prepared in accordance with GAAP and (in the case of annual statements) audited by independent certified public accountants and (in the case of quarterly statements) certified by the chief financial officer of Borrower or Guarantor, as applicable; provided, however, that for so long as Borrower’s parent company, AMCON Distributing Company (“Parent”), is legally and timely filing annual and quarterly financial reports on Forms 10-K and 10-Q with the Securities and Exchange Commission which are readily available to the public, Borrower shall only be required to provide ) monthly internal financial statements for LOL Foods, Inc., and then internally prepared annual consolidating financial statements for AMCON Distributing Company which will agree to the consolidated audited financial statements for AMCON Distributing Company as included in the 10-K; and (iii) furnish Lender all other financial information and reports and such other information as Lender may reasonably request concerning Borrower, any Guarantor and their respective affairs, or the Equipment or its condition, location, use or operation.
(b) Borrower represents and warrants that all information and financial statements at any time furnished by or on behalf of Borrower or any Guarantor are accurate and reasonably reflect as of their respective dates, results of operations and the financial condition of Borrower, such Guarantor or other entity they purport to cover. Credit and other information regarding Borrower, any Guarantor or their Affiliates, any Equipment Note or Equipment may be disclosed by Lender to its Affiliates, agents and potential Assignees, notwithstanding anything contained in any agreement that may purport to limit or prohibit such disclosure.
14.Definitions.
As used herein, the following terms shall have the meanings assigned or referred to them below:
“Affiliate” means any entity controlling, controlled by or under common control with the referent entity; “control” includes (i) the ownership of 25% or more of the voting stock or other ownership interest of any entity and (ii) the status of a general partner of a partnership or managing member of a limited liability company.
“Assignee” means any assignee or transferee of all or any of Lender’s right, title and interest in any Equipment Note or any Equipment.
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”Code” means the Internal Revenue Code of 1986, as amended.
“Equipment” means the items, units and groups of personal property, licensed materials and fixtures described in each Equipment Note, together with all replacements, parts, additions, accessories and substitutions therefor; and “item of Equipment” means a commercial unit of such property which in commercial usage is treated as a single whole, division of which materially impairs its character or value on the market or in use, and includes each functionally integrated and separately marketable group or unit of Equipment and may be a single article (such as a machine) or a set of articles (such as a suite of furniture or a line of machinery).
“Guarantor” means any guarantor, surety, endorser, general partner or co-lessee of Borrower, or other party liable in any capacity, or providing additional collateral security for, the payment or performance of any Obligations of Borrower.
“Guaranty” means any guaranty, surety instrument, security, indemnity, “keep-well” agreement or other instrument or arrangement from or with any Guarantor.
"Obligations" means and includes all obligations of Borrower owing to Lender under this Agreement, any Equipment Note or Related Agreement, or of any Guarantor owing to Lender under any Guaranty, together with all other obligations, indebtedness and liabilities of Borrower to Lender under any other financings, leases, loans, notes, progress payment agreements, guaranties or other agreements, of every kind and description, now existing or hereafter arising, direct or indirect, joint or several, absolute or contingent, whether for payment or performance, regardless of how the same may arise or by what instrument, agreement or book account they may be evidenced, including without limitation, any such obligations, indebtedness and liabilities of Borrower to others which may be obtained by Lender through purchase, negotiation, discount, transfer, assignment or otherwise.
“Prepayment Amount” means, collectively, the entire unpaid principal balance of any Equipment Note as of any particular date, together with (a) all accrued interest and other charges then owing under such Equipment Note, and (b) the prepayment charge provided in the applicable Equipment Note, if any.
“Related Agreement” means and includes any Guaranty and any approval letter or progress payment, assignment, security or other agreement or addendum related to this Agreement, any Equipment Note or any Collateral to which Borrower or any Guarantor is a party.
“UCC” means the Uniform Commercial Code in effect in the state specified in Section 15(h) of this Agreement.
“Vendor” means the manufacturer, distributor, supplier or other seller (whether or not a merchant or dealer) of the Equipment and any sales representative or agent thereof.
15.Miscellaneous. (a) At Lender's request, Borrower shall execute, deliver, file and record such financing statements and other documents as Lender deems necessary to protect Lender's interest in the Equipment and to effectuate the purposes of any Equipment Note or Related Agreement, and Borrower authorizes, and irrevocably appoints Lender as its agent and attorney-in-fact, with right of substitution and coupled with an interest, to (i) execute, deliver, file, and record any such item, and to take such action for Borrower and in Borrower's name, place and stead, (ii) make minor corrections to manifest errors in factual data in any Equipment Note and any addenda, attachments, exhibits and riders thereto, and (iii) after the occurrence of an Event of Default, enforce claims relating to the Equipment against insurers, Vendors or other persons, and to make, adjust, compromise, settle and receive payment under such claims; but without any obligation to do so.
(b)Federal law requires all financial institutions to obtain, verify and record information that identifies each entity that obtains a loan or other financial accommodation. The first time Borrower requests a financial accommodation from Lender, the Lender may ask for Borrower’s (or any Guarantor’s) legal name, address, tax ID number and other identifying information. Borrower shall promptly provide copies of business licenses or other documents evidencing the existence and good standing of Borrower or any Guarantor requested by Lender.
(c) Time is of the essence in the payment and performance of all of Borrower’s Obligations under any Equipment Note or Related Agreement. This Agreement, and each Equipment Note or Related Agreement may be executed in one or more counterparts, each of which shall constitute one and the same agreement. All demands, notices, requests, consents, waivers and other communications concerning this Agreement and any Equipment Note or Related Agreement shall be in writing and shall be deemed to have been duly given when received, personally delivered or three business days after being deposited in the mail, first class postage prepaid, or the business day after delivery to an express carrier, charges prepaid, addressed to each party at the address provided herein (and, in the case of notices or other communications by Borrower to Lender, with a copy to atlcustomerservice@bankofamerica.com), or at such other address as may hereafter be furnished in writing by such party to the other.
(d) Except as otherwise agreed between Borrower and Lender in writing, Borrower shall reimburse Lender upon demand for costs and expenses incurred by Lender in connection with the execution and delivery of this Agreement, any Equipment Note or Related Agreement. Borrower shall reimburse Lender on demand for all costs (including Attorneys’ Fees) incurred by Lender in connection with Borrower’s exercise of any purchase or extension option under any Equipment Note, or any amendment or waiver of the terms of this Agreement or any Equipment Note or Related Agreement requested by Borrower.
(e) Any provisions of this Agreement or any Equipment Note or Related Agreement which are unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such unenforceability without invalidating the remaining provisions thereof, and any such unenforceability shall not render unenforceable such provisions in any other jurisdiction. Any requirement for the execution and delivery of any document, instrument or notice may be satisfied, in Lender’s discretion, by authentication as a record within the meaning of, and to the extent permitted by, Article 9 of the UCC.
(f) This Agreement and any Related Agreement or other document, amendment, approval, consent, information, notice, certificate, request, statement, disclosure or authorization related to hereto or thereto (each a “Communication”), including Communications required to be in writing, may, if agreed by Lender, be in the form of an Electronic Record (as defined below) and may be executed using Electronic Signatures (as defined below), including, without limitation, facsimile and/or .pdf. Borrower agrees that any Electronic Signature (including, without limitation, facsimile or .pdf) on or associated with any Communication shall be valid and binding on Borrower to the same extent as a manual, original signature, and that any Communication entered into by Electronic Signature, will constitute the legal, valid and binding obligation of Borrower, enforceable against Borrower in accordance with the terms thereof to the same extent as if a manually executed original signature was delivered to Lender. Any Communication may be executed in as many counterparts as necessary or convenient, including both paper and electronic counterparts, but all such counterparts are one and the same Communication. For the avoidance of doubt, the authorization under this paragraph may include, without limitation, use or acceptance by Lender of a manually signed paper Communication which has been converted into electronic form (such as scanned into .pdf format), or an electronically signed Communication converted into another format, for transmission, delivery and/or retention. Lender may, at its option, create one
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or more copies of any Communication in the form of an imaged Electronic Record (“Electronic Copy”), which shall be deemed created in the ordinary course of Lender’s business, and destroy the original paper document. All Communications in the form of an Electronic Record, including an Electronic Copy, shall be considered an original for all purposes, and shall have the same legal effect, validity and enforceability as a paper record. Notwithstanding anything contained herein to the contrary, Lender is under no obligation to accept an Electronic Signature in any form or in any format unless expressly agreed to by Lender pursuant to procedures approved by Lender; provided, however, without limiting the foregoing, (a) to the extent Lender has agreed to accept such Electronic Signature, Lender shall be entitled to rely on any such Electronic Signature without further verification and (b) upon the request of Lender any Electronic Signature shall be promptly followed by a manually executed, original counterpart. For purposes hereof, “Electronic Record” and “Electronic Signature” shall have the meanings assigned to them, respectively, by 15 USC §7006, as it may be amended from time to time.
(g) For the sole purpose of establishing original chattel paper to enforce a security interest, Lender and Borrower unconditionally agree that the physical printed version of any Equipment Note containing an Electronic Signature with the legend “Original” or “Original Chattel Paper” shall constitute the only original authoritative chattel paper version and record. Lender and Borrower further agree, unless the electronic platform used automatically includes an “Original,” “Original Chattel Paper” or other legend or indicia of singular authenticity acceptable to Lender thereon, Lender shall be the sole party responsible for adding such legend on to such document and Borrower shall not add such legend on such document unless expressly instructed by Lender. Should Lender add any legend to any Equipment Note, Lender shall at Borrower’s request also generate a duplicate document imprinted with “Duplicate Original” or other similar legend. The provisions of this Section shall not restrict or affect the offering or acceptance of any such document without a legend as evidence in non-security interest enforcement proceedings.
(h) THIS AGREEMENT AND ANY EQUIPMENT NOTE OR RELATED AGREEMENT, AND THE LEGAL RELATIONS OF THE PARTIES THERETO, SHALL IN ALL RESPECTS BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF RHODE ISLAND, WITHOUT REGARD TO CHOICE OF LAW PRINCIPLES; THE PARTIES CONSENT AND SUBMIT TO THE JURISDICTION OF THE STATE AND FEDERAL COURTS OF SUCH STATE FOR THE PURPOSES OF ANY SUIT, ACTION OR OTHER PROCEEDING ARISING THEREFROM, AND EXPRESSLY WAIVE ANY OBJECTIONS THAT IT MAY HAVE TO THE VENUE OF SUCH COURTS. THE PARTIES EXPRESSLY WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION BROUGHT ON OR WITH RESPECT THERETO. IN NO EVENT SHALL LENDER HAVE ANY LIABILITY TO BORROWER FOR INCIDENTAL, GENERAL, CONSEQUENTIAL, PUNITIVE OR EXEMPLARY DAMAGES. Any cause of action by Borrower against Lender relating to this Agreement or any Equipment Note or Related Agreement shall be brought within one year after any such cause of action first arises, and Borrower hereby waives the benefit of any longer period provided by statute.
(i)EACH EQUIPMENT NOTE, TOGETHER WITH THIS AGREEMENT AND ANY RELATED AGREEMENTS, (i) CONSTITUTES THE FINAL AND ENTIRE AGREEMENT BETWEEN THE PARTIES SUPERSEDING ALL CONFLICTING TERMS OR PROVISIONS OF ANY PRIOR PROPOSALS, APPROVAL LETTERS, TERM SHEETS OR OTHER AGREEMENTS OR UNDERSTANDINGS BETWEEN THE PARTIES, (ii) MAY NOT BE CONTRADICTED BY EVIDENCE OF (y) ANY PRIOR WRITTEN OR ORAL AGREEMENTS OR UNDERSTANDINGS, OR (z) ANY CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR UNDERSTANDINGS BETWEEN THE PARTIES; and (iii) MAY NOT BE AMENDED, NOR MAY ANY RIGHTS THEREUNDER BE WAIVED, EXCEPT BY AN INSTRUMENT IN WRITING SIGNED BY THE PARTY CHARGED WITH SUCH AMENDMENT OR WAIVER.
In Witness Whereof, Lender and Borrower have executed this Agreement as of the date first above written.
BANC OF AMERICA LEASING & CAPITAL, LLC (Lender) | LOL Foods, Inc. (Borrower) |
By: /s/ Allison R Hook Print Name: Allison R. Hook Title: Senior Vice President | By: /s/ Charles J. Schmaderer Print Name: Charles J. Schmaderer Title: Secretary Taxpayer ID # : ________________________ Org. ID # (if any) ________________________ Chief Executive Office: ____________________________ ____________________________ |
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Banc of America Leasing & Capital, LLCEquipment Security Note Number 001
This Equipment Security Note No. 001, dated as of February 1, 2023 (this "Equipment Note"), is entered into pursuant to and incorporates by this reference all of the terms and provisions of that certain Master Loan and Security Agreement No. 52836-70000 dated as of February 1, 2023 (the "Master Agreement"), by and between Banc of America Leasing & Capital, LLC ("Lender") and LOL Foods, Inc. ("Borrower"). All capitalized terms used herein and not defined herein shall have the respective meanings assigned to such terms in the Master Agreement. If any provision of this Equipment Note conflicts with any provision of the Master Agreement, the provisions contained in this Equipment Note shall prevail. Borrower hereby authorizes Lender to insert the serial numbers and other identification data of the Equipment, dates, and other omitted factual matters or descriptions in this Equipment Note.
The occurrence of an "Event of Default," as defined in the Master Agreement, shall entitle Lender to accelerate the maturity of this Equipment Note and to declare the Prepayment Amount to be immediately due and payable, and to proceed at once to exercise each and every one of the remedies provided in the Master Agreement or otherwise available at law or in equity. All of Borrower's Obligations under this Equipment Note are absolute and unconditional, and shall not be subject to any offset or deduction whatsoever. Borrower waives any right to assert, by way of counterclaim or affirmative defense in any action to enforce Borrower's Obligations hereunder, any claim whatsoever against Lender.
1.Equipment Financed; Equipment Location; Grant of Security Interest. Subject to the terms and provisions of the Master Agreement and as provided herein, Lender is providing financing in the principal amount described in Section 2 below to Borrower in connection with the acquisition or financing of the following described Equipment:
See Exhibit “A” attached hereto and incorporated herein by reference.
Location of Equipment. The Equipment will be located or (in the case of over-the-road vehicles) based at the following locations:
See Exhibit “A” attached hereto and incorporated herein by reference.
Borrower has agreed and does hereby grant a security interest in and to the Equipment and the Collateral related thereto, whether now owned or hereafter acquired and wherever located, in order to secure the payment and performance of all Obligations owing to Lender, including but not limited to this Equipment Note, all as more particularly provided in the Master Agreement. Lender's agreement to provide the financing contemplated herein shall be subject to the satisfaction of all conditions established by Lender and Lender's prior receipt of all required documentation in form and substance satisfactory to Lender in its sole discretion.
2.Payments. For value received, Borrower promises to pay to the order of Lender, the principal amount of $7,000,000.00, together with interest thereon as provided herein. This Equipment Note shall be payable by Borrower to Lender in sixty (60) consecutive monthly installments of principal and interest (the "Payments") commencing on March 2, 2023 (the “Initial Payment”) and continuing thereafter through and including the Maturity Date (as defined below) (collectively, the “Equipment Note Term”). Each Payment shall be in the amount provided below, and due and payable on the same day of the month as the Initial Payment set forth above in each succeeding payment period (each, a "Payment Date" and the final such scheduled Payment Date, the "Maturity Date") during Equipment Note Term. All interest hereunder shall be calculated on the basis of a year of 360 days comprised of 12 months of 30 days each. The final Payment due and payable on the Maturity Date shall in any event be equal to the entire outstanding and unpaid principal amount of this Equipment Note, together with all accrued and unpaid interest, charges and other amounts owing hereunder and under the Master Agreement.
(a) Interest Rate.
A Interest shall accrue on the entire principal amount of this Equipment Note outstanding from time to time at a fixed rate of six and 0428/10000 percent (6.0428%) per annum or, if less, the highest rate of interest permitted by applicable law (the "Interest Rate"), from the Advance Date set forth below until the principal amount of this Equipment Note is paid in full, and shall be due and payable on each Payment Date.
(b) Payment Amount.
The principal and interest amount of each Payment shall be $135,469.01.
3.Prepayment. Borrower may prepay all (but not less than all, except as noted below) of the outstanding principal balance of this Equipment Note on a scheduled Payment Date occurring after one (1) year from the date hereof upon 30 days prior written notice from Borrower to Lender, provided that any such prepayment shall be made together with all accrued interest and other charges and amounts owing hereunder through the date of prepayment, and a prepayment charge, which shall be the following percentage of the then-outstanding principal balance of this Equipment Note: (a) three percent (3%) if such prepayment occurs on a Payment Date occurring in months 13 through 24 of the Equipment Note Term; (b) two percent (2%) if such prepayment occurs on a Payment Date occurring in months 25 through 36 of the Equipment
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Note Term; and (c) no prepayment charge shall be applicable if the prepayment occurs on or subsequent to the Payment Date occurring in month 37 of the Equipment Note Term; provided, however, that, if any prepayment of this Equipment Note is made following an Event of Default, by reason of acceleration or otherwise, the prepayment charge shall be calculated as if such prepayment was made in month 13 of the Equipment Note Term. Notwithstanding the foregoing, Borrower shall be permitted to make partial prepayments of the outstanding principal balance of this Equipment Note from time to time to as and when an item or items of Equipment suffers a Total Loss or is deemed obsolete in the reasonable business discretion of Borrower (each such prepayment, a “Partial Prepayment”), provided that: (i) Borrower shall give Lender not less than 20 days’ notice of any Partial Prepayment; (ii) each Partial Prepayment shall be made on a scheduled Payment Date; (iii) Partial Prepayments made in any year of the Equipment Note Term shall not, in the aggregate, exceed in value ten percent (10.0%) of the outstanding aggregate principal balance due and owing under this Equipment Note at the beginning of such year of the Equipment Note Term; and (iv) each Partial Prepayment shall be made together with all interest and other charges accrued on the amounts to be prepaid through the date of such Partial Prepayment, and a prepayment charger which shall be the following percentage of the amount of the applicable Partial Prepayment: (w) one and one-half percent (1.5%) if such Partial Prepayment occurs on a Payment Date occurring in months one through 12 of the Equipment Note Term; (x) one percent (1.0%) if such Partial Prepayment occurs on a Payment Date occurring in months 13 through 24 of the Equipment Note Term; (y) one-half of one percent (0.5%) if such Partial Prepayment occurs on a Payment Date occurring in months 25 through 36 of the Equipment Note Term; and (z) no prepayment charge shall be applicable if the Partial Prepayment occurs on or subsequent to the Payment Date occurring in month 37 of the Equipment Note Term . Borrower may not sell or otherwise dispose of any item of Equipment without effectuating a Partial Prepayment in respect thereof. Except as provided herein, this Equipment Note may not be prepaid.
4.Borrower Acknowledgements. Upon delivery and acceptance of the Equipment, Borrower shall execute this Equipment Note evidencing the amounts financed by Lender in respect of such Equipment and the Payments of principal and interest hereunder. By its execution and delivery of this Equipment Note, Borrower:
(a)reaffirms of all of Borrower’s representations, warranties and covenants as set forth in the Master Agreement and represents and warrants that no Default or Event of Default under the Master Agreement exists as of the date hereof;
(b)represents, warrants and agrees that: (i) the Equipment has been delivered and is in an operating condition and performing the operation for which it is intended to the satisfaction of Borrower; (ii) each item of Equipment has been unconditionally accepted by Borrower for all purposes under the Master Agreement and this Equipment Note; and (iii) there has been no material adverse change in the operations, business, properties or condition, financial or otherwise, of Borrower or any Guarantor since January 31, 2023;
(c)authorizes and directs Lender (i) to advance the principal amount of this Equipment Note to reimburse Borrower or pay Vendors all or a portion of the purchase price of Equipment in accordance with Vendors’ invoices therefor, receipt and approval of which are hereby reaffirmed by Borrower, and (ii) to enter the date of such advance below Lender’s signature as the “Advance Date” for all purposes hereof; and
(d)agrees that Borrower is absolutely and unconditionally obligated to pay Lender all Payments at the times and in the manner set forth herein.
(e)An Event of Default shall arise under this Equipment Note and the Agreement in the event that the transaction relating to LOL Foods, Inc. acquisition of 100% of the equity interests of Henry’s Foods, Inc. is not consummated on or before March 31, 2023 (the target date for the transaction is February 3, 2023).
5. Registration.
(a) All items of Equipment that are motor vehicles shall at all times be registered and titled as follows:
(A)Registered Owner.LOL Foods, Inc.
7405 Irvington Road
Omaha, NE 68122
(B)Lienholder.Banc of America Leasing & Capital, LLC
600 Peachstree Street NE, 11th Floor
Atlanta, GA 30308
(b) | Borrower shall be responsible for the correct titling of all such items of Equipment. Borrower shall cause the original certificates of title to be delivered to Lender for retention in Lender's files throughout the term of the Equipment Note. All costs of such registration and licensing are for the account of Borrower. |
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BANC OF AMERICA LEASING & CAPITAL, LLC By: /s/ Allison R. Hook__________________________ Printed Name: Allison R. Hook___________________ Title: Senior Vice President______________________ Advance Date: _________________ | Borrower: LOL Foods, Inc. By: /s/ Charles J. Schmaderer__________________________ Printed Name: Charles J. Schmaderer________________ Title: Secretary___________________________________ |
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Exhibit 31.1
CERTIFICATION
I, Christopher H. Atayan, certify that:
1. I have reviewed this report on Form 10-Q of AMCON Distributing Company;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have:
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c. | 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 |
| d. | 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 control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: April 18, 2023 | /s/ Christopher H. Atayan |
| Christopher H. Atayan, |
| Chief Executive Officer and Chairman |
Exhibit 31.2
CERTIFICATION
I, Charles J. Schmaderer, certify that:
1. I have reviewed this report on Form 10-Q of AMCON Distributing Company;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have:
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c. | 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 |
| d. | 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 control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: April 18, 2023 | /s/ Charles J. Schmaderer |
| Charles J. Schmaderer, Vice President, Chief Financial Officer and Secretary |
| |
Exhibit 32.1
CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the accompanying Quarterly Report on Form 10-Q (the “Report”) of AMCON Distributing Company (the “Company”) for the fiscal quarter ended March 31, 2023, I, Christopher H. Atayan, Chief Executive Officer and Principal Executive Officer of the Company, hereby certify that, to the best of my knowledge and belief:
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: April 18, 2023 | /s/ Christopher H. Atayan |
| Christopher H. Atayan |
| Title: Chief Executive Officer and 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.
Exhibit 32.2
CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the accompanying Quarterly Report on Form 10-Q (the “Report”) of AMCON Distributing Company (the “Company”) for the fiscal quarter ended March 31, 2023, I, Charles J. Schmaderer, Vice President, Chief Financial Officer and Secretary of the Company, hereby certify that, to the best of my knowledge and belief:
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: April 18, 2023 | /s/ Charles J. Schmaderer |
| Charles J. Schmaderer |
| 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.