UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
|X| Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 26, 1999, or
|_| Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _______________ to _______________
Commission File No. 1-13727
FFP MARKETING COMPANY, INC.
(Exact name of registrant as specified in its charter)
Texas 75-2735779
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
2801 Glenda Avenue; Fort Worth, Texas 76117-4391
(Address of principal executive office, including zip code)
817/838-4700
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act
Title of Each Class Name of Each Exchange on Which Registered
Common Shares, par value $0.01 American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act
None
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. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of shares held by non-affiliates of the registrant
at March 31, 2000, was $5,296,000. For purposes of this computation, all
officers, directors, and beneficial owners of 10% or more of the common shares
of the registrant are deemed to be affiliates. Such determination should not be
deemed an admission that such officers, directors, and beneficial owners are
affiliates.
Common Shares 3,818,747
(Number of shares outstanding as of March 31, 2000)
<PAGE>
PART I
ITEM 1. BUSINESS
General Background
FFP Marketing Company, Inc. (the "Company"), was formed as a Texas
corporation in connection with the December 1997 restructuring of FFP Partners,
L.P. ("FFP Partners"). In that reorganization, all of FFP Partners' assets and
businesses were transferred to the Company, except for the real estate used by
FFP Partners in its former retail operations. Unless the context requires
otherwise, references in this report to "FFP Marketing" or to the "Company" for
periods or activities prior to the completion of the December 1997 restructuring
include the activities of FFP Partners and their respective subsidiaries. Two
members of the Company's senior management hold similar management positions
with FFP Partners. As a result of the restructuring of FFP Partners, the holders
of its limited partnership interests received one share of common stock of the
Company for each limited partnership unit that they owned on December 28, 1997,
resulting in each such person owning the same economic interest in the Company
as they had held in FFP Partners as of that date.
The Company maintains its principal executive offices at 2801 Glenda Avenue,
Fort Worth, Texas 76117-4391. Its telephone number is (817) 838-4700, and its
Internet web site is http://www.ffpmarketing.com.
Operating Segments
The Company and its subsidiaries are principally engaged in two operating
segments: (1) the retail and wholesale sale of motor fuel, merchandise and other
ancillary products and services at approximately 428 convenience stores, truck
stops, and other gasoline outlets ("Retail and Wholesale"), and (2) the
operation of a motor fuel terminal and processing facility ("Terminal
Operations"). {See "Management's Discussion and Analysis of Financial Condition
and Results of Operation" in Part II, Item 7 for financial information for each
of these segments.}
Retail and Wholesale Segment
Description of Operations. The Company commenced operations in May 1987 upon
the purchase of its initial base of retail outlets from companies owned by
members of its senior management and conducts its operations through its
100%-owned subsidiaries, FFP Operating Partners, L.P.; Direct Fuels, L.P.; FFP
Financial Services, L.P.; FFP Money Order Company, Inc.; Practical Tank
Management, Inc.; and FFP Transportation, L.L.C.
Convenience Stores. The Company operated an average of 213 convenience stores
during 1999, an increase of 10 stores, or 5%, over the average of 203
convenience stores operated during 1998. The Company's convenience stores
operate under several different trade names. The principal trade names are "Kwik
Pantry," "Nu-Way," "Economy Drive-Ins," and "Taylor Food Mart."
The Company's convenience stores are open seven days a week, offer extended
hours (53 of the stores are open 24 hours a day, the remainder generally are
open from 6:00 am to midnight), and emphasize convenience to the customer
through location, merchandise selection, and service. The convenience stores
sell groceries, tobacco products, take-out foods and beverages (including
alcoholic beverages where local laws permit), dairy products, and non-food
merchandise such as money orders, telephone calling cards, lottery tickets,
health and beauty aids, and magazines and, at all but two of the stores, motor
fuel. Food service in the convenience stores varies from pre-packaged sandwiches
and fountain drinks to full food-service delicatessens (at 62 stores), some with
limited in-store seating.
Since 1993, the Company has owned branded fast food outlets in selected
convenience stores and truck stops. Ten of its convenience stores had branded
food outlets at the end of 1999, including small "express" franchises of
Kentucky Fried Chicken, Subway Sandwiches, Baskin Robbins, and Blimpie's. {See
Store Development; Products, Store Design and Operation.}
At year end 1999, the Company operated 216 convenience stores. The number of
stores operated at the end of 1999 represented a net increase of 18 stores from
the number operated at the prior year end. This net increase resulted from the
acquisition of 23 additional convenience stores during the year, the opening of
1 convenience store, the sale of merchandise operations at 3 convenience stores
to independent operators and conversion to gasoline outlets of the Company {see
Store Development}, and the temporary or permanent closing of 3 convenience
stores.
The convenience stores accounted for 50% (48% in 1998) of the Company's
consolidated revenues in 1999. The percentage of revenues from convenience
stores increased primarily because of the increase in the sales price of motor
fuel during the year and the acquisition of 23 convenience stores in February
1999. The Company's convenience stores had average weekly merchandise sales of
$10,821 per store and average weekly motor fuel sales of 10,660 gallons per
store. In 1998, the average weekly per store sales were $9,095 of merchandise
and 10,281 gallons of fuel.
The average gross margin on motor fuel sales at convenience stores was 10.83
cents per gallon in 1999, compared to 11.67 cents per gallon in 1998, a 7.2%
decrease. The average gross margin on merchandise sales was 26.99% in 1999,
compared to 28.37% in 1998, a 4.9% decrease.
Truck Stops. At the end of 1999, the Company operated 13 truck stops, two
more than at 1998 year end. The Company acquired two truck stops in its February
1999 acquisition, both in Texas. The truck stops, which operate principally
under the trade name of "Drivers," are located on interstate and other highways
and are similar in their operations to the convenience stores, although the
merchandise mix is directed toward truck drivers and the traveling public. Five
of the truck stops have full service restaurants. The Company operates two of
the restaurants and leases the other three to independent operators. Three of
the other truck stops offer prepared-to-order food service, including two
outlets which have a combination Kentucky Fried Chicken/Taco Bell "express"
franchise and one which has a Pizza Hut franchise within the store. Three of the
truck stops do not provide food service. In 1999, the truck stops (including
their associated restaurants and food service facilities) accounted for 10% (11%
in 1998) of the Company's consolidated revenues, with average weekly per outlet
merchandise and food sales (including restaurants) of $16,840 ($17,210 in 1998)
and fuel sales of 59,085 gallons (59,858 gallons in 1998).
The average gross margin on motor fuel sales at truck stops was 8.84 cents
per gallon in 1999, compared to 10.16 cents per gallon in 1998, a 13.0%
decrease. The average gross margin on merchandise sales and food sales
(including restaurants) was 40.0% in 1999, compared to 43.7% in 1998, a 8.5%
decrease.
Motor Fuel Concessions at Independently Operated Outlets. The Company
operated the motor fuel concession at 199 independently operated convenience
stores at year end 1999, a decrease of 8 outlets from year end 1998. This
decrease was the net result of the routine opening and closing of certain
outlets and the addition of locations due to the sale of the merchandise
operations of convenience stores, referred to above. Although the merchandise
sale portion of the convenience store operations were sold, the Company retained
the motor fuel concession at these locations. The Company owns the motor fuel
inventory, fuel pumps, equipment and underground storage tanks located at these
independently operated convenience stores and provides the motor fuel supply for
them. The actual sale of the motor fuel to the public is conducted by the
operator of the outlet pursuant to contracts that generally obligate the Company
to provide the motor fuel inventory, the fuel storage and dispensing equipment,
and to maintain the fuel equipment while the store operator agrees to collection
and remittance procedures. The convenience store operators are compensated by
commissions based on profits and/or the volume of fuel sold. In those instances
where the operator owns the real estate underlying his store, the contracts
generally grant the Company the right of first refusal to purchase the
operator's convenience store if it is offered for sale. Many of the contracts
have renewal options. Based on past experience, the Company believes that a
significant number of those contracts which do not have renewal options will be
renegotiated and renewed upon expiration. In addition to the contractual
arrangement between the store operator and the Company, many of these operators
either lease or sublease the store building and land from the Company or its
affiliates.
During 1999, these gasoline outlets had average weekly per outlet fuel sales
of 9,990 gallons as compared to 8,867 gallons in fiscal 1998. In 1998, these
gasoline outlets accounted for 22% (22% in 1998 also) of the Company's
consolidated revenues.
The average gross margin on motor fuel sales at the gasoline outlets was 8.37
cents per gallon in 1999, compared to 9.30 cents per gallon in 1998, a 10.0%
decrease.
Wholesale Fuel Sales. The Company sells motor fuel on a wholesale basis to
smaller independent and regional chains of fuel retailers and to end users of
fuels, such as contractors, operators of vehicle fleets, and public utilities.
The Company has also been designated a "jobber" for Citgo, Chevron, Fina,
Conoco, Coastal, Diamond Shamrock, and Phillips 66. This designation enables the
Company to qualify independent fuel retailers to operate as a branded outlet for
the large oil company. FFP Marketing then supplies motor fuel to such retailers
on a wholesale basis under contracts ranging from five to ten years. The Company
makes purchases to fill specific orders by its branded wholesale customers.
Management believes the Company's fuel wholesale activities enhance its
relationships with its fuel vendors by increasing the volume of purchases from
such vendors. In addition, the wholesale activities permit the Company to
develop relationships with independent operators of convenience stores that may,
at some future time, be interested in entering into an agreement for FFP
Marketing to take over the fuel concession at their outlets. {See Motor Fuel
Concessions at Independently Operated Outlets.} Exclusive of sales made at its
terminal, the Company's wholesale operations contributed 18% of consolidated
revenues in 1999 (19% in 1998).
The average gross margin on motor fuel sales on a wholesale basis, exclusive
of sales made at its terminal, was 1.97 cents per gallon in 1999, compared to
1.98 cents per gallon in 1998, a 0.5% decrease.
Market Strategy. The Company's market strategy generally emphasizes the
operation and development of existing stores and retail outlets in small
communities rather than metropolitan markets. In general, the Company believes
stores in communities with populations of 50,000 or less experience a more
favorable operating environment, primarily due to less competition from larger
national or regional chains and access to a higher quality and more stable labor
force. In addition, land costs, reflected in both new store development costs
and acquisition prices for existing stores and retail outlets, are generally
lower in small communities. As a result of these factors, the Company believes
this market strategy enables it to achieve a higher average return on investment
than would be achieved by operating primarily in metropolitan markets.
Store Development. In 1994 the Company began a new strategy to increase the
productivity and operating efficiency of its existing store base by identifying
non-core convenience stores that could contribute more to its earnings if
operated by independent operators rather than by the Company. Since then, the
Company has engaged in a program of selling the merchandise operations at these
outlets to independent operators. Through the end of 1999, the Company has sold
the merchandise operations at 57 locations. Because of a different overhead
structure, independent operators are often able to operate the stores less
expensively than the Company can. These sales were structured such that the
Company retained the leasehold interest in the property and subleased the land
and building to the operator for a five year period with a five year renewal
option. The Company also entered into an agreement to operate the fuel
concession at these locations. {See Motor Fuel Concessions at Independently
Operated Outlets.} Management believes that the sales of these operations and
the resulting combination of rents, fuel profits, and other ancillary income
enhance the profitability of these outlets to the Company. In 2000, the Company
intends to accelerate greatly this strategy of selling the merchandise operation
at its lowest performing stores.
In addition to the sales of the merchandise operations at certain convenience
stores, discussed above, management continues to seek other ways to increase the
productivity of the Company's present base of convenience store and truck stop
outlets. As a part of this endeavor, the Company has installed limited-menu
"express" outlets of national food franchises in some of the Company's outlets.
The Company operates combination Kentucky Fried Chicken/Taco Bell outlets in two
truck stops, a Pizza Hut Express outlet in one truck stop, Kentucky Fried
Chicken outlet in two convenience stores, a Blimpie's Sandwich franchise in two
stores, a Subway Sandwich franchise in one store, a Baskin Robbins ice cream
franchise in one convenience store, and regional fast food franchises in four
convenience stores. The Company's experience with this type of food service
operation indicates that it increases store traffic because it offers the
advantage of national and regional name-brand recognition and advertising. In
addition, the training and operational programs of these franchisors provide a
consistent and high-quality product to customers. Management continues to
evaluate its existing operations to determine if it would be appropriate to
install additional outlets of this type in other locations. It is also
evaluating the relative merits of the various types of franchises.
In addition to working to enhance the performance of its existing outlets,
the Company also seeks opportunities to acquire operating outlets at attractive
prices. In December 1997, the Company completed the purchase of 94 convenience
stores. The stores acquired are all located in states in which the Company had
operations and about 80% of them are in Texas. In a similar manner, the Company
purchased 25 additional convenience stores and truck stops, plus one
non-operating convenience store, in February 1999. All of these new stores are
located in Texas. These acquisitions have had a positive impact on its earnings
and cash flow by operating the additional stores with minimal additional
overhead. Although additional field supervisory personnel have been added, the
management, purchasing and accounting for the stores requires minimal additional
administrative staff.
Opportunities to acquire and dispose of convenience stores, truck stops and
motor fuel concessions are limited by competitive factors, available financing,
and competing buyers. The Company continues to pursue these activities
principally by the development of relationships through normal industry channels
and through its fuel wholesaling operations.
Products, Store Design, and Operation. The number and type of merchandise
items stocked in the convenience stores varies from one store to another
depending upon the size and location of the store and the type of products
desired by the customer base served by the store. However, the stores generally
carry national or regional brand name merchandise of the type customarily
carried by competing convenience stores. Substantially all the Company's
convenience stores and truck stops offer fountain drinks and fast foods such as
hot dogs, pre-packaged sandwiches and other foods. Sixty-one of the convenience
stores have facilities for daily preparation of fresh food catering to local
tastes, including fried chicken and catfish, tacos, french fries, and
made-to-order sandwiches. Also, as discussed above 10 convenience stores and
three truck stops have small "express" outlets of national or regional fast-food
franchises.
Senior executives and other marketing and operations personnel continually
review and evaluate products and services for possible inclusion in the
Company's retail outlets. Special emphasis is given to those goods or services
that carry a higher gross profit margin than the Company's overall average, will
increase customer traffic within the stores, or complement other items already
carried by the stores. The marketing teams, which include the Company's regional
managers, in conjunction with the Company's vendors, develop and implement
promotional programs and incentives on selected items, such as fountain drinks
and fast food items. In addition, new products and services are reviewed on a
periodic basis to ensure a competitive product selection. Due to the geographic
distribution of the Company's stores and the variety of trade names under which
they are operated, the use of advertising is limited to location signage,
point-of-sale promotional materials, local newspaper and billboard advertising,
and locally distributed flyers.
Over the last several years, the Company has increased the number of its
outlets which are affiliated with a large oil company, referred to as "branded"
outlets. At year end 1999, the Company operated 273 branded outlets. By
comparison, the Company operated only 65 branded outlets in 1990.
Number of Outlets
Gas Truck
C-Stores Outlets Stops Total
Citgo 95 81 6 182
Chevron 17 8 1 26
Texaco 19 1 0 20
Conoco 4 14 1 19
Diamond Shamrock 13 1 0 14
Fina 0 10 0 10
Coastal 1 1 0 2
Total 149 116 8 273
Branded locations often have higher fuel sales volumes (in gallons) than
non-branded outlets due to the advertising and promotional activities of the
respective oil company and the acceptance of such oil company's proprietary
credit cards. The increased customer traffic associated with higher fuel sales
tends to increase merchandise sales volumes, as well. However, the Company pays
a higher cost for fuel at a branded location more than at an unbranded location.
The Company continues to evaluate the desirability of branding additional
outlets at certain locations. In addition to the Company-operated convenience
stores, truck stops, and fuel concessions at independently operated outlets that
are branded, the Company also serves as a wholesale distributor to approximately
200 unaffiliated retail outlets that are branded.
Merchandise Supply. Based on competitive bids, the Company has selected a
single company, Grocery Supply Company based in Sulphur Springs, Texas, as the
primary grocery and merchandise supplier to its convenience stores and truck
stops. However, some merchandise items, such as bakery goods, dairy products,
soft drinks, beer, and other perishable products, are generally purchased from
local vendors and/or wholesale route salespeople. The Company also purchases
merchandise directly from well-known vendors such as Coca-Cola and Frito-Lay.
The Company believes it could replace any of its merchandise suppliers,
including its primary merchandise supplier, with no significant adverse effect
on its operations.
Motor Fuel Supply. The Company purchases fuel for its branded retail outlets
and branded wholesale customers from the respective oil company which branded
the outlet and for its unbranded outlets from large integrated oil companies and
independent refineries. Fuel is purchased from approximately 40 vendors.
Principal fuel suppliers in 1999 were Citgo Petroleum Corporation, Conoco, Inc.,
Koch Refining Company, L.P., and Chevron U.S.A., Inc. Although the Company's
purchases are concentrated in a few vendors, largely due to the number of
branded outlets, management believes that the competition for retail outlets
among oil companies is such that the Company could find alternative supply
sources if the need to do so arose.
During recent years, the Company has not experienced any difficulties in
obtaining sufficient quantities of motor fuel to satisfy retail sales
requirements. However, unanticipated national or international events could
result in a curtailment of motor fuel supplies to the Company, thereby adversely
affecting motor fuel sales. In addition, management believes a significant
portion of its merchandise sales are to customers who also purchase motor fuel.
Accordingly, reduced availability of motor fuel could negatively impact other
facets of the Company's operations, as well.
Trademarks and Trade Names. The Company's convenience stores and truck stops
are operated under a variety of trade names, including "Kwik Pantry," "Nu-Way,"
"Economy," "Dynamic Minute Mart," "Taylor's Food Stores," "Drivers," and
"Drivers Diner." New outlets generally use the trade name of the Company's
stores predominant in the geographic area where the new store is located. The
Company sells money orders in its outlets, and through agents, under the service
mark "Financial Express Money Order Company." The money orders are produced
using a computer controlled laser printing system developed by the Company. This
system is also marketed to third parties under the name of "Lazer Wizard."
Eight of the Company's truck stops operate under the trade name of "Drivers".
The three other truck stops use the same trade name as the Company's convenience
stores in the area in which they are located.
The Company has registered the names "Kwik Pantry," "Drivers," "Drivers
Diner," "Financial Express Money Order Company," and "Lazer Wizard" as service
marks or trademarks under federal law.
Terminal Operations Segment
Terminal Operations. The Company's Terminal Operations increased
significantly in 1999, especially in the fourth quarter of 1999. Gross revenues
from Terminal Operations in 1999 were $34,473,000, before consolidating
eliminations, compared to only $4,504,000 in 1998, a 665% increase. Terminal
Operations accounted for 7% of the Company's consolidated revenues in 1999,
compared to only 1% in 1998. Operating income at the terminal improved from a
$1,295,000 loss in 1998 to an income of $234,000 in 1999. The average gross
margin on motor fuel sales at the terminal, before consolidating eliminations,
was 4.2 cents per gallon in 1999, compared to no margin in 1998.
The Terminal Operations are relatively new in comparison to its Retail and
Wholesale segment. In June 1997, the Company completed the renovation of a bulk
storage terminal and fuel processing facility located in Euless, Texas, that it
had purchased in 1996. Until fall 1999, the Company engaged in two activities at
its terminal facility: providing motor fuel terminal services (storage and
delivery services) for other wholesalers, and processing transmix, a commingled
product of refined gasoline and diesel, into their component parts for sale.
Those sales are made to retailers (including third parties and intercompany
sales to the Company's Retail and Wholesale segment) and end users.
In fall 1999, the Terminal Operations were greatly expanded to include a fuel
blending operation at the terminal. For this processing, the Company purchases
refined fuel products in much greater quantities and takes delivery via a
pipeline from the Texas Gulf Coast having a portal at the Company's terminal.
The Company then adds blend stock to the fuel, creating more volume, and resells
the resulting products on a wholesale basis to its own retail stores and to
third parties.
The terminal facility has gasoline storage capacity for 9,879,000 gallons of
motor fuel. The facility's capacity for processing commingled fuel product is
approximately 63,000 gallons per day. Until fall 1999, the Company operated
neither of these activities at near their respective capacity of operation. The
motor fuel obtained by separating commingled products is used by the Company to
satisfy a portion of the fuel supply needs for its own retail outlets and its
wholesale customers. Until fall 1999, the majority of the Company's revenues
derived from the terminal have been intercompany sales to its Retail and
Wholesale segment.
The Company also owns approximately 20 acres of land at this industrial,
metropolitan location, which is available for possible expansion.
Competition
The businesses in which the Company operates are highly competitive. Most
convenience stores and an increasing number of traditional grocery stores and
large discount stores in the Company's market areas sell motor fuel. In
addition, merchandise similar or identical to that sold by the Company's stores
is generally available to competitors. In addition to independently operated and
national and regional chains of convenience stores, the Company also competes
with local and national chains of supermarkets, drug stores, fast-food
operations, and motor fuel retailers. Major oil companies are also becoming a
significant factor in the convenience store industry as they remodel and expand
older convenience stores, as well as convert outlets that previously sold only
motor fuel to convenience stores. Major oil company stores sometimes carry a
more limited selection of merchandise than that carried by the Company's outlets
and operate principally in metropolitan areas, where the Company has few
outlets. Some of the Company's competitors have large sales volumes, benefit
from national or regional advertising, and have greater financial resources than
the Company.
The Company believes that each of its retail outlets generally competes with
other retailers that are within a radius of one to two miles of its locations
and that such competition is based on accessibility, the variety of products and
services offered, extended hours of operation, price, and prompt check-out
service.
The Company's truck stops experienced increased competition in 1999 as
competing truck stops were opened in many of the areas in which the Company's
truck stops are located. Such increased competition often causes a reduction in
fuel and merchandise sales, as well as reduced margins.
The Company's wholesale fuel operation is also very competitive. Management
believes this business is highly price sensitive, although the ability to
compete is also dependent upon providing quality products and reliable delivery
schedules. The Company's wholesale fuel operation competes for customers with
large integrated oil companies and smaller, independent refiners, and fuel
jobbers, some of which have greater financial resources than the Company.
Management believes it can compete effectively in this business because of the
Company's purchasing economies, numerous supply sources, including its terminal
facility, and the reluctance of many larger suppliers to sell to smaller
customers.
Employees
At year end 1999, the Company employed 1,865 people (including part-time
employees). There are no collective bargaining agreements between the Company
and any of its employees, and management believes the relationship with
employees of the Company is good.
Insurance
The Company carries workers' compensation insurance in all states in which it
operates but considers less costly alternatives on a state-by-state basis from
time to time.
The Company maintains liability coverage for its vehicles which meet or
exceed state requirements but it does not carry automobile physical damage
insurance. Insurance covering physical damage of properties owned by the Company
is generally carried only for selected properties. The Company maintains
property damage coverage on leased properties as required by the terms of the
leases thereon and maintains property damage coverage on other properties as it
deems appropriate.
The Company maintains general liability insurance with limits and deductibles
management believes prudent in light of the exposure of the Company to loss and
the cost of the insurance. The Company does not maintain any insurance covering
losses due to environmental contamination. {See Government Regulation -
Environmental Regulation.}
The Company monitors the insurance markets and modifies its insurance
coverage from time-to-time, both adding and eliminating coverage, as it believes
appropriate at such time in light of changes in the Company's exposure to loss
and the cost of insurance against such losses.
Government Regulation
Alcoholic Beverage Licenses. The Company's retail outlets sell alcoholic
beverages in areas where such sales are legally permitted. The sale of alcoholic
beverages is generally regulated by state and local laws which grant to various
agencies the authority to approve, revoke, or suspend permits and licenses
relating to the sale of such beverages. In most states, the regulatory agencies
have wide-ranging discretion to determine if a licensee or applicant is
qualified to be licensed. The State of Texas requires that licenses for the sale
of alcoholic beverages be held, directly or indirectly, only by individual
residents of Texas or by companies controlled by such persons. Therefore, the
Company has an agreement with a corporation controlled by John H. Harvison, its
Chairman and Chief Executive Officer, which permits that corporation to sell
alcoholic beverages in the Company's Texas outlets where such sales are legal.
In many states, sellers of alcoholic beverages have been held responsible for
damages caused by persons who purchased alcoholic beverages from them and who
were at the time of the purchase, or subsequently became, intoxicated. Although
the Company's retail operations have adopted procedures which are designed to
minimize such liability, the potential exposure to the Company as a seller of
alcoholic beverages is substantial. The Company's present liability insurance
provides coverage, within its limits and subject to its deductibles, for this
type of liability.
Environmental Regulation. The Company is subject to various federal, state,
and local environmental, health, and safety laws and regulations. Such laws and
regulation affect both of the Company's operating segments. In particular,
federal regulations issued in 1988 regarding underground storage tanks
established requirements for, among other things, underground storage tank leak
detection systems, upgrading of underground tanks with respect to corrosion
resistance, corrective actions in the event of leaks, and the demonstration of
financial responsibility to undertake corrective actions and compensate third
parties for damages in the event of leaks. Certain of these requirements were
effective immediately, and others were phased in over a 10-year period. However,
all underground storage tanks were required to comply with all requirements by
December 22, 1998. The Company implemented a plan several years ago to bring all
of its existing underground storage tanks and related equipment into compliance
with these laws and regulations and believes that it successfully met that
deadline.
All states in which the Company has underground storage tanks established
trust funds in prior years for the sharing, recovering, and reimbursing of
certain cleanup costs and liabilities incurred as a result of leaks in such
tanks. Trust fund programs in certain state have since been discontinued. The
ongoing trust funds, which essentially provide insurance coverage for the
cleanup of environmental damages caused by an underground storage tank leak, are
funded by a tax on underground storage tanks or the levy of a "loading fee" or
other tax on the wholesale purchase of motor fuels within each respective state.
The coverage afforded by each state vary but generally provide up to $1,000,000
for the cleanup of environmental contamination, and most provide coverage for
third-party liability, as well. Some of the funds require the Company to pay
deductibles up to $25,000 per occurrence. The Company believes that its past
taxes to fund those trust funds have exceeded the Company's cost of any
environmental cleanup.
Although the benefits afforded the Company as a result of the trust funds are
substantial, the Company may not be able to recover through higher retail prices
the costs associated with the fees and taxes which fund the trusts. In general,
this trust arrangement terminated in 1998 with respect to future, but not past,
environmental costs. Accordingly, the Company's environmental liabilities could
increase in the future, although its contributions to such state funds are
expected to decline by a greater amount.
Management believes the Company complies in all material respects with
existing environmental laws and regulations and is not currently aware of any
material capital expenditures, other than as discussed above, that will be
required to further comply with such existing laws and regulations. However, new
laws and regulations could be adopted which could require the Company to incur
significant additional costs.
Forward-Looking Statements
This Annual Report on Form 10-K and the Proxy Statement, incorporated herein
by reference, contain certain "forward looking" statements as such term is
defined in the U.S. Private Securities Litigation Reform Act of 1995, and
information relating to the Company and its subsidiaries that are based on the
beliefs of management and assumptions made by and information currently
available to management. The Company is relying upon the "safe harbor" contained
in Section 27A of such act in making such forward looking statements. Statements
that should generally be considered forward - looking include, but are not
limited to, those that contain the words "estimate," "anticipate," "in the
opinion of management,", "expects", "believes," and similar phrases. Among the
factors that could cause actual results to differ materially from the statements
made are the following: general business conditions in the local markets served
by the Company's convenience stores, truck stops, and other retail outlets, and
its wholesale fuel markets; the weather in the local markets served by the
Company; competitive factors such as changes in the locations, merchandise
offered, pricing, and other aspects of competitors' operations; increases in
cost of fuel and merchandise sold or reductions in the gross profit realized
from such sales; available product for processing and processing efficiencies at
the Company's fuel terminal; expense pressures relating to operating costs,
including labor, repair and maintenance, and supplies; unexpected outcome of
litigation; adverse liquidity situations; unanticipated general and
administrative expenses, including employee, taxes, insurance, expansion and
financing costs; and unexpected liabilities.
Should one or more of these risks or uncertainties materialize, or should any
underlying assumptions prove incorrect, actual results or outcomes may vary
materially from those described herein as anticipated, believed, estimated,
expected, or intended.
ITEM 2. PROPERTIES
Retail Properties. The Company currently leases all but one of the real
estate properties used in its retail operations. The following table summarizes
the ownership status of individual properties as of year end 1999:
Leased from
Affiliates Leased from
Leased from of Harvison Unrelated
FFP Partners Family Parties Total
Number of Locations
Convenience stores -
Land 55 51 110 216
Buildings 105 3 108 216
Truck Stops -
Land 4 8 1 13
Buildings 9 3 1 13
Third party gasoline
outlets -
Land 19 97 83 199
Buildings 69 47 83 199
Totals -
Land 78 156 194 428
Buildings 183 53 192 428
Geographical Location of Retail Stores. The table below sets forth the states
in which the Company's convenience store, third party gasoline outlets, and
truck stops are located at year end 1999.
Convenience Gas Truck
Stores Outlets Stops Total Percent
Texas 161 155 9 325 76%
Oklahoma 1 24 1 26 6%
Louisiana 18 3 0 21 5%
Missouri 17 2 0 19 4%
Kansas 6 6 0 12 3%
Mississippi 5 2 0 7 2%
Kentucky 3 1 1 5 1%
New Mexico 1 1 2 4 1%
Arkansas 1 3 0 4 1%
Tennessee 3 1 0 4 1%
Nebraska 0 1 0 1 0%
Totals 216 199 13 428 100%
Leases of Land and Buildings. On 66 retail sites at year end 1999, the
Company leases land and buildings for certain retail sites from FFP Partners
pursuant to lease agreements whose terms are currently scheduled to end in
December 2002, plus two five-year renewal options at the sole election of the
Company. Upon each renewal, the rent will be adjusted by the increase in the
consumer price index since the date the leases became effective (January 1,
1998). The leases on these properties were entered into in conjunction with the
restructuring of FFP Partners that was completed in December 1997 in which the
non-real estate assets and businesses of FFP Partners were transferred to the
Company while the real estate used in the retail operations was retained by FFP
Partners. The lease rates for the locations were established based on knowledge
of the properties by the management of FFP Partners and the Company and their
general experience in acting as lessor and lessee for similar properties. The
Company's management believes that the lease rates are comparable to leases that
could be entered into with unrelated third parties. The Company and FFP Partners
did not engage any third party advisors or refer to any third party surveys or
analyses of rental rates in making this determination.
Leases of Buildings Only. On 102 other retail sites at the end of 1999, the
Company leases only the buildings from FFP Partners which are located on lands
leased from affiliates of the Harvison Family, or from unrelated parties,
pursuant to lease agreements whose terms are currently scheduled to end
concurrently with underlying ground leases now scheduled to terminate on May
2002, plus one five-year option at the sole election of the Company until May
2007. The monthly rent upon each renewal will be adjusted by the increase in the
consumer price index since the original date of the leases. The building leases
on these properties were entered into in conjunction with the restructuring of
FFP Partners discussed above, and the lease rates on these locations were
established in the same manner as described above for the real estate leased
from FFP Partners. The affiliates of the Harvison Family have indicated their
intention not to extend the ground leases beyond May 2007 but instead will lease
the land and building for those sites directly to the Company under new leases
beginning May 2007 at increased rates considered equal to market rates. The
Company and the affiliates of the Harvison Family do not intend to engage any
third party advisors or refer to any third party surveys or analyses of rental
rates in negotiating the new lease. The new lease rates starting in May 2007
will be established based on knowledge of the properties by the management of
the Company and the affiliates of the Harvison Family based on their general
experience in acting as lessor and lessee for similar properties.
The Company's leases from affiliates of the Harvison Family generally expire
in May 2002 and provide for one or two five-year renewal periods at the sole
option of the Company. The monthly rent upon each renewal will be adjusted by
the increase in the consumer price index since the original date of the leases.
Management believes the terms and conditions of these leases are more favorable
to the Company than could have been obtained from unrelated third parties. The
Company did not engage any third party advisors or refer to any third party
surveys or analyses of rental rates in making this determination.
Terminal and Other Properties. The Company also owns a 33 acre tract of land
in Euless, Texas. Approximately 13 acres of that property is currently used as a
fuel terminal and fuel processing plant and 20 acres is currently vacant and
available for expansion.
The executive offices of the Company are located at 2801 Glenda Avenue, Fort
Worth, Texas, where it occupies approximately 15,000 square feet of office space
leased from three affiliates of the Harvison Family.
ITEM 3. LEGAL PROCEEDINGS
The Company is often involved in routine litigation arising in the ordinary
course of its businesses, particularly personal injury and employment related
claims. Management believes that the Company, its subsidiaries and their
properties are not subject to any material pending legal proceedings, other than
ordinary routine litigation incidental to their businesses.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its 1999 shareholder meeting in Fort Worth, Texas, on
December 22, 1999. J.D. St. Clair and John D. Harvison were re-elected to the
Company's Board of Directors at that meeting. The voting results were as
follows:
Nominees
J. D. St. Clair John D. Harvison
------------------- --------------------
Votes Percent Votes Percent
For 1,941,503 98.8% 1,941,503 98.8%
Against 7,980 0.4% 7,980 0.4%
Withheld 15,000 0.8% 15,000 0.8%
Totals 1,964,483 100.0% 1,964,483 100.0%
The other directors whose terms of office as a director continued after that
meeting were John H. Harvison, Robert J. Byrnes, Michael Triantafellou, John W.
Hughes, Garland McDonald, and E. Michael Gregory.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is listed for trading on the American Stock
Exchange ("AMEX") under the trading symbol "FMM". The shares began trading on
the AMEX on a "when issued" basis on December 29, 1997, the day following the
completion of the restructuring of FFP Partners {see Item 1. Business - General
Background} and commenced trading separately on January 14, 1998. The following
table sets forth the high and low sales prices per share for the Company's
common stock, as reported by AMEX for each quarter that the Company's common
stock has traded:
High Low
1999
First Quarter $6.938 $4.750
Second Quarter $4.750 $3.125
Third Quarter $3.250 $2.188
Fourth Quarter $2.750 $1.250
1998
First Quarter $4.750 $2.500
Second Quarter $9.250 $4.688
Third Quarter $8.625 $3.875
Fourth Quarter $6.500 $3.438
On March 15, 2000, the last reported sales price of the Company's common
stock was $2.625 per share. On such date, there were 210 stockholders of record
and approximately 813 beneficial shareholders. {See Item 12. Security Ownership
of Certain Beneficial Owners and Management.}
The Company may also issue preferred shares from time to time in one or more
series as authorized by its Board of Directors. There are currently no preferred
shares issued.
The Board of Directors has not established a dividend policy, but management
does not anticipate that dividends will be paid on the Company's common shares
in the foreseeable future. The amount of any dividends that the Company may pay
is subject to limitations in its loan agreements with various lenders, which
generally restrict the payment of dividends to an amount which would not cause
the Company to be unable to meet its financial covenants to such lenders.
<PAGE>
ITEM 6. SELECTED FINANCIAL AND OPERATING DATA
1999 1998 1997 1996 1995
Financial Data (in thousands, except per unit data):
Revenues and Margins -
Motor fuel sales $378,871 $311,52 $311,495 $321,814 $296,887
Motor fuel margin 28,638 26,916 21,702 20,672 22,813
Merchandise sales 114,422 94,629 61,652 60,579 65,512
Merchandise margin 33,737 29,447 18,739 17,821 19,187
Miscellaneous revenues 11,086 9,719 6,267 7,759 7,646
Total revenues 504,379 415,874 379,414 390,152 370,045
Total margin 73,461 66,082 46,708 46,252 49,646
Direct store expenses 50,524 44,154 28,241 27,062 28,496
General and administrative
expenses 14,389 15,831 12,113 11,506 11,795
Depreciation and amortization 6,724 5,636 5,488 3,951 3,769
Total operating expenses 71,637 65,621 45,842 42,519 44,060
Operating income 1,824 461 866 3,733 5,586
Interest expense, net 2,613 1,168 1,642 1,246 1,176
Income (loss) before taxes and
other items (789) (707) (776) 2,487 4,410
Income tax expense (benefit) (223) (244) (892) 2,646 500
Extraordinary loss, net of
tax effect 241 0 0 0 0
Net income (loss) $(807) $(463) $116 $(159) $3,910
Net income (loss) per share -
Basic (0.21) (0.12) 0.03 (0.04) 1.06
Diluted (0.21) (0.12) 0.03 (0.04) 1.02
Dividends/distributions
declared per Unit $0.000 $0.000 $0.000 $0.415 $0.870
Total assets $118,406 $97,040 $75,330 $78,599 $69,332
Long-term obligations, with
capital leases 36,832 20,380 24,575 9,418 7,100
Operating Data:
Gallons of motor fuel sold (in thousands) -
Retail 261,092 237,629 199,310 197,687 193,233
Wholesale 111,621 96,710 83,296 90,704 95,473
Fuel margin per gallon (in cents) -
Retail 9.6 10.6 9.8 9.3 10.9
Wholesale 2.0 2.0 2.5 1.9 1.7
Average weekly merchandise sales (per store)
Convenience stores $10,821 $9,095 $9,482 $9,454 $9,560
Truck stops 16,840 17,210 17,704 17,192 17,506
Merchandise margin 29.5% 31.1% 30.4% 29.4% 29.3%
Number of fuel locations at year end -
Convenience stores 216 198 207 117 127
Truck stops 13 11 11 10 10
Fuel concessions at
independent outlets 199 207 205 206 194
- ------------------------------------------------
Note: 1999 and 1998 results are not comparable
to pre-1998 results as a consequence of
the Company's December 1997 restructuring.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
This discussion should be read in conjunction with the selected financial and
operating data, the description of the Company's business operations, and the
financial statements and related notes included elsewhere in this annual report.
Some of the matters discussed in this annual report contain forward-looking
statements regarding the Company's future business which are subject to certain
risks and uncertainties, including competitive pressures, adverse economic
conditions and government regulations. These issues, and other factors, which
may be identified from time to time in the Company's reports filed with the SEC,
could cause actual results to differ materially from those indicated in the
forward-looking statements.
In a restructuring completed on December 28, 1997, the Company acquired all
of the assets and businesses formerly held by FFP Partners, except that the real
estate used in its retail operations was retained by FFP Partners. FFP Partners
also retained certain liabilities, principally bank debt and debt secured by the
retained real estate. All other liabilities (including trade accounts payable,
money orders payable, accrued expenses, deferred income taxes, obligations under
capital leases and other debt secured by various equipment) were transferred to
the Company.
The businesses transferred to the Company include the operation of
convenience stores, truck stops, and self-service motor fuel concessions at
independently operated convenience stores, motor fuel wholesaling activities,
the sale of money orders through the outlets operated by the Company and third
party agents, and the operation of a motor fuel terminal and processing
facility. The real estate retained by FFP Partners is leased to the Company for
use in the conduct of its retail convenience store and motor fuel operations.
The selected financial data that accompanies this discussion reflects the
historical operations of FFP Partners to which the Company succeeded in
connection with the aforementioned restructuring. However, the financial data
for years prior to 1998 is not considered comparable to prior years in the
following respects: rental expense is included in 1999 and 1998, but not in
prior years, for the leasing of the real properties retained by FFP Partners in
the December restructuring; depreciation expense related to such real properties
is not included for 1999 and 1998 (nor will it be incurred in future years), but
is included for prior years; and interest income received by the Company from
its note receivable from FFP Partners is included in 1999 and 1998 but not in
years prior to 1998. This note was repaid in full in October 1999.
Also in December 1997, the Company initially acquired 107 additional
convenience stores. Fourteen of the stores were sold to unrelated parties
shortly thereafter, resulting in a net increase from these transactions of 94
stores. The purchase of the stores was completed in December and had little
impact on 1997 results. The results from operations from these 94 stores had a
positive impact on results in 1999 and 1998 and are expected to continue to have
a similar impact in future years.
Similarly, the Company acquired 25 additional convenience stores and truck
stops in February 1999. The results from operations from these 25 stores have
also had a positive impact on results in 1999 and are expected to continue to
have a similar impact in future years.
The Company reports its results of operations using a fiscal year which ends
on the last Sunday in December. Most fiscal years have 52 weeks, but some
consist of 53 weeks. Fiscal years 1999, 1998, 1997, and 1996 were 52-week years,
while fiscal year 1995 was a 53-week year. This variation in time periods most
affects revenues (and related costs of sales) and salary costs, as other
expenses (such as rent and utilities) are usually recorded on a "monthly" basis.
However, differences in the number of weeks in a fiscal year should be
considered in reviewing the financial data.
Business Segments
The Company and its subsidiaries conduct business in two primary business
segments: (i) the operation of retail convenience stores, truck stops, and motor
fuel concessions at independently operated convenience stores, money orders
sales through Company stores and third party agents, underground tank monitoring
and testing, and motor fuel wholesaling activities (the "Retail and Wholesale
Operations"), and (ii) the operation of a motor fuel terminal and processing
facility (the "Terminal Operations"). Each of these business segments is subject
to differing opportunities and challenges. The following table sets forth
certain information about each segment's financial information in 1999, 1998,
and 1997:
Retail
and Terminal
Wholesale Operations Eliminations Consolidated
(In thousands)
1999
Revenues from external
sources $494,470 $9,909 $0 $504,379
Revenues from other
segment 0 24,564 (24,564) 0
Depreciation and
amortization 6,160 564 0 6,724
Interest income 1,376 0 0 1,376
Interest expense 3,989 843 (843) 3,989
(Loss) before income taxes
and extraordinary item (180) (609) 0 (789)
Extraordinary (loss)
before tax effect (375) 0 0 (375)
Total assets 109,408 8,998 0 118,406
Capital expenditures 12,626 406 0 13,032
1998
Revenues from external
sources $414,625 $1,249 $0 $415,874
Revenues from other
segment 0 3,602 (3,602) 0
Depreciation and
amortization 5,125 511 0 5,636
Interest income 1,406 0 (713) 693
Interest expense 1,861 713 (713) 1,861
Income (loss) before
income taxes 1,301 (2,008) 0 (707)
Total assets 89,739 7,301 0 97,040
Capital expenditures 6,605 182 0 6,787
1997
Revenues from external
sources $379,064 $350 $0 $379,414
Revenues from other
segment 0 2,174 (2,174) 0
Depreciation and
amortization 5,194 294 0 5,488
Interest income 427 0 (391) 36
Interest expense 1,678 391 (391) 1,678
Income (loss) before
income taxes 42 (818) 0 (776)
Total assets 67,844 7,486 0 75,330
Capital expenditures 14,247 3,163 0 17,410
In 2000 the Company will continue to analyze available opportunities to
expand its Retail and Wholesale Operations by acquiring additional convenience
stores. The acquisition of any additional stores will be dependent upon whether
acceptable purchase prices, terms and properties can be found.
In February 1999, the Company acquired the operations of 23 additional
convenience stores and two additional truck stops, all in Texas. Eleven of the
25 stores are third party leasehold locations where the Company purchased the
existing leasehold interest. The Company's purchase of those leasehold interests
was financed with a third party lender consisting of four fully amortizing loans
in the aggregate original principal amount of $1,012,000, maturity dates ranging
from 86 to 180 months, interest accruing at 9.275% per annum, and aggregate
payments of principal and interest of $13,000 per month. Real estate at 14
stores was purchased by FFP Partners and immediately leased to the Company under
15-year leases. The Company's rental payments under those leases equal $99,000
per month. The Company guaranteed the acquisition indebtedness of FFP Partners
of $9,550,000, which amount is no greater than the Company's aggregate rental
payments to FFP Partners over the initial 15-year period of the leases.
In the fourth quarter of 1999, the Company expanded its Terminal Operations
substantially with the commencement of a gasoline blending process at the
terminal and an increase in its transmix business. Although management believes
that this new blending process will become profitable in the future, it is a new
processing procedure at the terminal and therefore subject to economic risks.
The Company's Terminal Operations improved significantly in 1999. Revenues
from the terminal improved by $8,660,000 (693.4%), increasing from $1,249,000 in
1998 to $9,909,000 in 1999. Most of that increase came in the fourth quarter of
1999, and management believes that Terminal Operations will continue to show
improvement in 2000. In September 1999, the terminal began to purchase motor
fuel at the terminal with deliveries made through a pipeline having an exit at
the terminal, which allowed for substantially increased volumes at the terminal.
Also in September, the volume of transmix fluid processed at the terminal was
substantially increased. In November 1999, purchases of motor fuel through the
pipeline were increased to 6,300,000 gallons of motor fuel per month. In April
2000, the Company expects to increase that purchase volume to approximately
9,450,000 gallons per month via a second pipeline with an exit at the terminal.
As a result of the increased activity at the terminal in the fourth quarter
of 1999, the 1999 loss before income taxes from Terminal Operations improved to
$609,000, reflecting a 69.7% improvement compared to the loss before taxes from
the terminal of $2,008,000 in 1998.
1999 Compared with 1998
The Company incurred a net loss before extraordinary items of $566,000 in
1999, and a net loss of $807,000 in 1999, compared to net loss of $463,000 in
1998. Major reasons for the increased 1999 loss were the following: gross
margins from motor fuel retail sales decreased by 1.0 cents per gallon (9.4%) in
1999, interest expense increased by $2,128,000 in 1999, and an extraordinary
loss of $375,000 ($241,000 after taxes) was incurred in connection with the 1999
refinancing as a result of writing off loan costs and paying prepayments
penalties on the loans that were repaid. In order to quantify the scope of the
9.4% decrease in retail fuel margins, the Company would have earned an
additional $2,610,000 in motor fuel revenues in 1999 if the Company's retail
margins per gallon had remained constant during the year, although no assurance
can be given that such hypothetical results were achieveable or that net
earnings would have increased by the same amount.
The Company's total revenues topped the half-billion dollars for the first
time in 1999, as total revenues increased to $504,379,000, a 21.3% increase over
1998 total revenues of $415,874,000. Total revenues increased as a result of
higher pricing of motor fuel and cigarettes and increased sales resulting from
the additional 25 stores acquired in February 1999. This $88,505,000 increase in
total revenues is broken down as follows:
Increase
1999 1998 Amount Percentage
(In thousands, except percentages)
Motor fuel sales $378,871 $311,526 $67,345 21.6%
Merchandise sales 114,422 94,629 19,793 20.9%
Miscellaneous 11,086 9,719 1,367 14.1%
Total revenues $504,379 $415,874 $88,505 21.3%
Retail motor fuel sales increased by 23,463,000 gallons (9.9%) in 1999 over
1998 due to sales from the additional 25 convenience stores acquired in February
1999. In addition, wholesale fuel sales increased by 14,911,000 gallons (15.4%)
over the prior year.
Total motor fuel sales, in dollars, increased by $67,345,000 in 1999 to
$378,871,000, a 21.6% improvement compared to $311,526,000 in 1998. The gross
margin from motor fuel sales also increased in 1999 to $28,638,000, but only by
6.4% increase compared to the 1998 gross margin of $26,916,000. Gross margins
also increased in 1999 as a result of the additional stores acquired in February
1999 and higher fuel prices in 1999. The Company sold more motor fuel volume in
1999, which offset a gross margin per gallon decline. Retail margins showed a
1.0 cent per gallon (9.4%) decrease in 1999 compared to 1998 and was principally
attributable to lower margins in the areas served by competing stores and truck
stops. Wholesale per gallon margins were the same in 1999 when compared to 1998,
while the total whole gallons sold increased by 15.4%. For the first time, the
Company earned a margin on fuel sold from the terminal, 4.2 cents per gallon
margin on 34,473,000 gallons, calculated before reduction for intercompany
sales. In addition, the motor fuel mix between retail sales and wholesale sales
influenced the decline in per gallon margins. Retail motor fuel sales, which
have higher per gallon margins than wholesale, declined from 71.1% of total
motor fuel sales in 1998 to 70.1% in 1999.
A breakdown showing the Company's $64,345,000 increase in fuel sales is shown
in the table below:
Increase
1999 1998 Amount Percentage
(In thousands, except percentages)
Retail motor fuel sales -
Convenience stores $126,207 $107,486 $18,721 17.4%
Gas-only outlets 108,910 91,681 17,229 18.8%
Truck stops 40,742 33,793 6,949 20.1%
Total retail 275,859 232,960 42,899 18.4%
Wholesales motor fuel sales 91,831 77,317 14,514 18.8%
Terminal motor fuel sales 9,909 1,249 8,660 693.4%
Other motor fuel sales 1,272 0 1,272 n/a
Total motor fuel sales $378,871 $311,526 $67,345 21.6%
Merchandise sales improved to $114,442,000 in 1999, a 20.9% increase compared
to $94,629,00 in 1998. This $19,793,000 increase resulted principally from a 10
store increase in the average number of convenience stores operated in 1999
(4.8%) and higher cigarettes prices. Average weekly merchandise sales per
convenience store increased by 19.0% in 1999 to $10,821 per convenience store.
Major categories of merchandise sales in 1999 and 1998 were as follows:
Increase
1999 1998 Amount Percentage
(In thousands, except percentages)
Grocery sales $46,420 $49,022 $(2,602) (5.3%)
Deli, fast food, and
restaurant sales 12,377 9,413 2,964 31.5%
Soft drinks sales 10,209 6,443 3,766 58.5%
Beer and wine sales 6,971 8,305 (1,334) 16.1%
Cigarette sales 38,239 21,175 17,064 80.6%
Money order supplies and
equipment sales 125 271 (146) (53.9%)
Tank monitoring equipment sales 81 0 81 n/a
Total merchandise sales $114,422 $94,629 $19,793 20.9%
The Company's gross profit on merchandise sales increased to $33,737,000 in
1999, a $4,290,000 improvement (14.9) over 1998 merchandise gross profit of
$29,447,000. This decrease primarily came from additional merchandise gross
profit realized from the 25 stores acquired in February 1999, offset in part by
a decrease in gross margin percentage on merchandise sales to 29.5% in 1999,
compared to 31.1% in 1998. This lower merchandise margin percentage is largely
attributable to the 80.6% increase in cigarette sales, which provides a lower
margin that the other categories in the merchandising mix. The 1999 merchandise
margin follows a five-year trend of increasing merchandise margins. For example,
merchandise margins have increased from 27.7% in 1994 to 31.1% in 1998,
representing a 12.3% overall increase during that five-year period.
Miscellaneous revenues increased by 14.1% in 1999 to $11,086,000,
representing a $1,367,000 increase as compared to 1998, primarily due to the
greater number of stores in operation for the full year. Miscellaneous revenues
is one area of operations that the Company emphasizes in its efforts to improve
profitability. A breakdown of the Company's miscellaneous income is set forth in
the table below:
Increase
1999 1998 Amount Percentage
(In thousands, except percentages)
Money order fees $1,272 $1,352 $(80) (5.9%)
Lottery ticket revenue, net 1,926 1,728 198 11.5%
Telephone income 377 396 (19) 4.8%
ATM, video, and game income 552 390 162 4.5%
Gasoline excise tax handing fees 1,161 1,048 113 10.8%
Check cashing fees 465 372 93 25.0%
Commission income 731 571 160 28.0%
Gain on asset disposition 0 415 (415) n/a
Income from beverage agreement 2,993 2,081 912 43.8%
Realized, unrealized and discount
income from trading securities 232 0 232 n/a
Management fee from affiliate 200 200 0 0.0%
Scale and copying charges 123 118 5 4.2%
Income from aircraft jet fuel
joint venture 322 0 322 n/a
Terminal fee 227 334 (107) (32.0%)
Other 505 714 (209) (29.3%)
Total miscellaneous income $11,086 $9,719 $1,367 14.1%
Direct store expenses (those costs directly attributable to the operation of
retail outlets, such as salaries and other personnel costs, supplies, utilities,
rent, property taxes, repairs and maintenance, and commissions paid to the
operators of the self-service motor fuel outlets) increased by $6,370,000
(144.4%) in 1999, compared to direct store expenses in 1998. This increase was
primarily attributable to the 25 stores acquired in February 1999.
General and administrative expenses decreased by $1,442,000 (9.1%) in 1999
compared to 1998. The primary reason for the decrease was a reduction in bad
debt expense because the Company had in 1998 incurred bad debts of $1,500,000
arising out its money order operations. The Company has initiated litigation to
recover those bad debts and is optimistic that it will be able to recover
substantial portion.
Depreciation and amortization expenses increased by $1,088,000 (19.3%) in
1999 reflecting the significant capital expenditures incurred by the Company in
the last few years, primarily related to the upgrading of the Company's
underground storage tanks to meet 1998 environmental regulatory requirements,
the start of operations at the Company's fuel terminal in mid-1997, depreciation
of equipment acquired in the acquisitions of convenience stores made in December
1997 and in February 1999, and depreciation of buildings obtained under
transactions accounted for as capital leases in February 1999.
A $2,128,000 (114.3%) increase in interest expense in 1999, as compared to
1998, resulted primarily from additional long-term debt incurred in 1999 and
partially from higher interest rates in 1999. As a result of increasing interest
rates in the past year, the Company pursued long-term fixed rate financing for a
larger component in its capital structure. Most of the new debt was incurred in
connection with the acquisition of 94 convenience stores in 1997 and 25
convenience stores and truck stops in February 1999. The Company's liquidity
improved considerably in 1999 and is expected to allow the Company to expand its
retail, wholesale and terminal operations. Interest income rose significantly in
1999 by $683,000 (98.6%), compared to 1998, primarily as a result of interest
income earned on increasing investments in money market funds and other liquid
investments during 1999.
1998 Compared with 1997
The Company incurred a net loss of $463,000 in 1998, compared to net income
of $116,000 in 1997. The major reasons for this decline are the following:
additional bad debt losses of $1,500,000 were incurred in 1998 in money order
operations (a substantial portion of which the Company is currently seeking to
recover); rent expense of $2,628,000 was paid in 1998 to FFP Partners in the
leasing of real property for certain of the Company's retail sites, compared to
none in 1997, which was partially offset by an increase in interest income of
$693,000 and a decrease in depreciation of $1,203,000; the Company's Terminal
Operations segment incurred a loss before income taxes of $2,008,000 in 1998,
compared to a 1997 segment loss of $818,000; and an income tax benefit of only
$244,000 was recorded in 1998 compared to an $892,000 income tax benefit in
1997.
The Company's 1998 total revenues increased to $415,874,000, a 9.6% increase
over 1997 total revenues of $379,414,000. This increase resulted primarily from
a $32,977,000 (53.5%) increase in merchandise sales, which was primarily
attributable to merchandise sales at the additional 94 stores acquired in
December 1997.
Retail motor fuel sales increased by 38,319,000 gallons (19.2%) in 1998 over
1997 due to sales from the additional 94 convenience stores acquired in December
1997. In addition, wholesale fuel sales increased by 13,414,000 gallons (16.1%)
over the prior year. Total motor fuel sales, in dollars, were flat in 1998, when
compared to 1997, because motor fuel sales prices were lower in 1998 as compared
to 1997. The Company sold more motor fuel volume in 1998, which offset the price
decline. In addition, the Company's margin on such sales increased by $5,214,000
(24.0%) over 1997 levels. Retail fuel gross profit increased in absolute and per
gallon terms. Retail margins showed a 0.8 cent per gallon (8.2%) increase in
1998 over 1997 and was principally attributable to higher margins in the areas
served by the additional 94 stores acquired by the Company in December 1997. A
0.5 cent per gallon (20.0%) decline in wholesale margins resulted primarily from
competitive pricing pressure from other wholesalers in the Texas wholesale
markets served by the Company.
Merchandise sales improved from $61,652,000 in 1997 to $94,629,000 in 1998.
This large increase resulted principally from an increase of 81 stores in the
average number of convenience stores in 1998, a 66.0% increase over 1997, which
was partially offset by a 4.0% decline in the average weekly merchandise sales
to $9,095 per convenience store. Major categories of merchandise sales in 1998
were grocery sales ($49,022,000), deli and restaurant sales ($7,445,000), soft
drink sales ($6,443,000), beer and wine sales ($8,305,000), cigarette sales
($21,175,000), fast food sales ($1,968,000), and money order equipment and
supplies ($271,000).
The Company's gross profit on merchandise sales increased by $10,708,000
(57.1%) in 1998. This increase came from two sources: the additional merchandise
gross profit realized from the stores acquired in December 1997, and an increase
in gross margin on merchandise sales to 31.1% in 1998, compared to 30.4% in
1997. This increase in merchandise margins follows a five-year trend of
increasing merchandise margins. For example, merchandise margins have increased
from 27.7% in 1994 to 31.1% in 1998, representing a 12.3% overall increase
during that five-year period.
Miscellaneous revenues increased significantly to $9,719,000 in 1998,
representing a $3,452,000 (55.1%) increase in 1998 as compared to 1997,
primarily due to the greater number of stores in operation for the full year.
Miscellaneous revenues is one area of operations that the Company emphasizes in
its efforts to improve profitability. Categories of miscellaneous income include
money order fees, lottery ticket revenue, pay phone and calling card income,
automated teller machine income, gasoline excise tax handling fees, check
cashing fees, game machine income, gain or loss on property sales, interest
income, scale charges and copier income.
Direct store expenses (those costs directly attributable to the operation of
retail outlets, such as salaries and other personnel costs, supplies, utilities,
rent, property taxes, repairs and maintenance, and commissions paid to the
operators of the self-service motor fuel outlets) increased by $15,913,000
(56.3%) in 1998, compared to direct store expenses in 1997. This increase was
primarily attributable to the 94 stores acquired during December 1997. The
remaining increase in these expenses was primarily attributable to increased
wage costs, related to the federally mandated minimum wage increase which took
effect on September 1, 1997. Since the December 1997 restructuring of FFP
Partners, all of the real estate used in the Company's retail operations was
retained by FFP Partners and is now leased to the Company. As a result, rent
expense increased by $2,628,000 in 1998.
General and administrative expenses increased $3,718,000 (30.7%) in 1998 over
1997. Of this amount, $1,500,000 resulted from increased bad debt expense
arising out of the money order operations, a substantial portion of which the
Company is currently seeking to recover. In addition, a full year of costs were
incurred in 1998 for wages and initial operating costs at the Company's fuel
terminal and processing facility opened in mid-1997, and for field supervisory
personnel added in December 1997 to manage the 94 additional stores acquired in
late 1997.
Depreciation and amortization expenses increased by $148,000 (2.7%) in 1998
reflecting the impact of increased charges related to the Company's significant
capital expenditures in the last three years, primarily related to the upgrading
of the Company's underground storage tanks to meet 1998 environmental regulatory
requirements, the start of operations at the Company's fuel terminal in
mid-1997, and depreciation of equipment acquired in the late-1997 acquisition of
94 convenience stores. Offsetting the foregoing was a decline in depreciation
expense of $1,203,000 attributable to buildings that were retained by FFP
Partners in the December 1997 restructuring.
A $474,000 (28.9%) decrease in net interest expense in 1998, as compared to
1997, was the result of lower interest rates during 1998 and the receipt of
interest income of $693,000 from FFP Partners in the second half of 1998.
Partially offsetting that reduction in interest expense was additional interest
incurred as a result of increased borrowings to fund the Company's financing of
its December 1997 purchase of 94 convenience stores, investment in its fuel
terminal and processing facility, and purchase of equipment to upgrade its
underground storage tanks to meet environmental standards that became effective
in December 1998.
As a partnership, the Company paid no federal or state income tax prior to
the December 1997 restructuring of FFP Partners. Rather, the income or loss of
the Company was allocated to its partners to be included in their respective
income tax returns. Because the Company expected to become taxable as a
corporation beginning in 1998, applicable accounting pronouncements required it
to record a tax liability for those taxes it would have to pay on items of
income and expense recognized for financial reporting purposes before 1998 but
which would be recognized for tax reporting purposes in 1998 or later years.
Accordingly, the Company provided for these deferred tax expenses in its
consolidated statements of operations, while the current tax benefit of the
deferral of the recognition of income, or the acceleration of expenses, for tax
purposes was allocated the Company's partners. The primary items giving rise to
differences between financial and tax reporting were differences in the tax
bases and depreciation methods of the Company's fixed assets.
In 1996, the Company was able to substantially shorten the lives over which
certain buildings used in its retail operations were depreciated for tax
purposes. The benefit of this additional tax depreciation was allocated to the
Company's partners while the Company was required to record a deferred tax
expense related to it. In connection with the December 1997 restructuring of FFP
Partners, the ownership of the depreciable real property that gave rise to the
large deferred tax provision in 1996 was retained by FFP Partners, which
continues as a publicly-traded limited partnership, and not distributed to the
Company. Accordingly, the deferred taxes attributable to these buildings were
reversed in 1997.
As a corporation, the Company provides for both current and deferred federal
and state income tax expense on its earnings or benefit on its loss. For 1998
the Company recorded an income tax benefit of $244,000.
Liquidity and Capital Resources
The majority of the Company's working capital is provided from three sources:
(i) liquid, short-term investments since receiving the proceeds of the pay off
of a note receivable from FFP Partners in October 1999, (ii) cash flows
generated from its operating activities, and (ii) borrowings under its new
revolving line of credit facility. The Company believes that these investments,
operating activities, and short-term working capital facilities, will provide
sufficient liquidity to fund current commitments for operating and capital
expenditure programs, as well as to service debt requirements. Actual capital
expenditure funding will be dependent on the level of cash flow generated from
operating activities and the funds available from financings.
The Company's notes payable at year end 1999 and 1998 were $33,436,000 and
$20,380,000, as summarized in the table below:
1999 1998
Type of Loan Purpose of Loan (In thousands)
Bank revolver Operations $0 $2,407
Bank term note Operations 0 6,762
Equipment note Store computers and equipment 0 1,850
Store note Financing of gas only conversion 40 0
Sewer financing Truck stop improvements 85 108
15-year financing 1997 purchase of 94 stores 8,826 9,253
15-year financing 1999 purchase of 11 stores 970 0
15-year financing Refinancing of bank debt 23,515 0
New line of credit Operations 0 0
$33,436 $20,380
Of the total notes payable shown in the table above for 1999, $1,231,000 is
classified as short term, and $32,205,000 is long term debt. For 1998,
$1,959,000 is classified as short term, and $18,451,000 is long term debt.
In June 1998, the Company refinanced its December 1997 purchase of 94
convenience stores. That financing consists of 44 fully-amortizing loans in the
aggregate original principal amount of $9,420,000, an interest rate fixed at
8.66% per annum, maturity dates ranging from 112 to 180 months, and aggregate
payments of principal and interest of $101,000 per month.
In June 1999, the Company refinanced all of its prior bank revolving credit
facility and term loan and an equipment financing note. That financing consists
of 49 fully-amortizing loans in the aggregate original principal amount of
$23,800,000, an interest rate fixed at 9.9% per annum, maturity date in 180
months, and aggregate payments of principal and interest of $256,000 per month.
The Company has utilized the loan proceeds to repay the above described loans
and for general corporate purposes.
In October 1999, FFP Partners repaid all of its indebtedness of $13,249,000
owed to the Company and the Company, in turn, repaid all of its debt of
$2,550,000 to FFP Partners. The Company had incurred that debt in February 1999
to purchase inventory and equipment at 14 stores purchased by FFP Partners and
leased to the Company at that time.
Since October 1999, those net funds of approximately $10,000,000 provided the
Company by the pay off by FFP Partners have been invested in short-term, liquid
investments. These funds earned approximately $232,000 (plus interest) in the
last two months of 1999 and provide a new source of liquidity for future
operations.
In December 1999, the Company obtained a new revolving line of credit
providing for borrowings of up to $10,000,000, with the amount available at any
time limited to a borrowing base equal to 80% of certain of its trade
receivables plus 60% of its inventory at the terminal; provided, however, that
any amounts which would cause outstanding borrowings under the facility to
exceed $5,000,000 are limited to 140% of the net value of debt and equity
securities in the Company's trading account at a brokerage firm. At year end
1999, the borrowing base was $9,800,000, but the Company had not made any draws
on such facility, and the net value at the brokerage firm was approximately
$5,181,000. The revolving credit facility bears interest at the lender's prime
rate plus one percentage point, payable monthly on amounts borrowed, and matures
in December 2002. The loans are subject to a Loan Agreement and a Security
Agreement between the lender, the Company and two subsidiaries of the Company.
The agreement contains numerous, but typical, restrictive covenants including a
financial covenant relating to the maintenance of a specified fixed charge
coverage ratio of 1.25 to 1, all as defined in the agreement. The loan is
secured by all of the Company's trade accounts receivables and inventory at the
terminal.
When the Company operated as a publicly-traded limited partnership, it made
cash distributions to its partners from time to time to provide funds for them
to pay income taxes on the Company's income that was allocated to them. With the
change in the Company's tax status to a corporation, management does not
currently anticipate that any dividends will be paid on the Company's common
stock in the foreseeable future.
The Company's operating activities used $6,521,000 in net cash, compared to
providing net cash of $10,389,000 in 1998. Additional cash was required to fund
increased inventory at the terminal and receivables on wholesale sales, which
resulted from substantially increasing fuel purchases for the Company's terminal
and much higher fuel prices at the end of 1999 than at the end of 1998. This
increase was offset in part by additional cash flows as a result of operating a
greater number of convenience stores in 1999 than in 1998. The Company's
investment in property and equipment during 1999 rose to $13,032,000, an
increase of $6,245,000 (92.0%) compared to 1998. The Company's 1999 capital
expenditures were principally utilized in acquiring new convenience stores and
refurbishing Company's stores. In addition, the Company received $14,103,000
from affiliated entities during 1999 in repayment of notes receivable from such
entities. Net cash of $16,577,000 was provided by financing activities in 1999,
primarily as a result of additional long-term borrowings with fixed interest
rates.
Subject to obtaining satisfactory deal terms, the Company in 2000 intends to
increase significantly the outright sales of convenience stores and/or the sales
of its convenience store to independent operators while retaining a motor fuel
concession at those locations. It has identified more than 80 such convenience
stores that it would consider converting to gas-only stores in such a manner.
The Company may or may not purchase additional convenience stores in 2000 and
beyond as the convenience store industry goes through as period of greater
competition and consolidation. Any such dispositions or acquisitions will impact
the Company's financial results and liquidity.
The Company is party to commodity futures contracts and forward contracts to
buy and sell fuel, both of which are used principally to satisfy balances owed
on exchange agreements. Both of these types of contracts have off-balance sheet
risk as they involve the risk of dealing with others and their ability to meet
the terms of the contracts and the risk associated with unmatched positions and
market fluctuations. The open positions under these contracts were not
significant at year end 1999. {See Note 11 to the Consolidated Financial
Statements.}
Over the last few years, the Company's money order sales have increased
significantly. For example, money order payables at the end of fiscal year 1996
were $7,809,000, compared to money order payables of $12,749,000 at year end
1999. Money order payables represent those sales of money orders for which the
payee of the money order has not yet requested payment. Although the Company
collects money order receipts on a daily basis on sales of money orders made by
its own stores, the Company relies on receiving timely payment from its third
party money order sales agents. In 1998 the Company incurred an additional bad
debt loss from its money order operations. The Company is attempting to recover
a substantial portion of these losses that were attributable to two reasons:
bank encoding errors and fraudulent actions by a third party money order agent.
The Company's failure to receive money order payments on a timely basis from its
money order agents could negatively impact the Company's liquidity.
The Company had positive working capital of $14,397,000 at the end of 1999,
compared to a negative $4,557,000 at year end 1998, an improvement of
$18,954,000. In past years, the Company has been able to operate its business
with minimal or negative working capital, principally because most of its sales
are cash sales and it has received payment terms from vendors. The improvement
over 1998 working capital resulted primarily from the following:
(In thousands)
Additional cash and cash equivalents $11,331
Additional trade receivables 6,529
Additional inventories 8,386
Additional short-term investments 3,355
Reduced money order payables 2,441
Reduced notes receivable from affiliates (1,923)
Increased accounts payable (6,967)
Increased accrued expenses (4,396)
Other items 198
$18,954
The Company believes that the availability of funds from its short-term
investments, store operations, its new revolving line of credit (as discussed
above), and its traditional use of trade credit will permit operations to be
conducted in a customary manner.
"Year 2000" Issues
Over the past several years, the Company has prepared for the possible
disruptions that might have resulted from the date change to year 2000. No
significant year 2000 problems were experienced, and the Company believes that
no material exposure to year 2000 issues exist. Total expenditures related to
modifications of existing software and conversions to new software for the year
2000 issue were approximately $700,000, of which approximately $350,000 was
capitalized.
Inflation and Seasonality
The Company believes inflation can have a material effect on operating
results. One example is the upward pressure placed on wages caused by a low
unemployment and a robust economy and, for store wages, by the federal minimum
wage increases which took effect in 1997 and 1996. Increased costs of in-store
merchandise can often be quickly reflected in higher prices to customers, but
higher prices tend to reduce the demand for products. The Company's cost and
prices for motor fuel and cigarettes increased significantly in 1999.
Significant increases in cigarette prices has been caused by a pass through of
litigation costs in the tobacco industry. Motor fuel prices rose as a result of
a significant increase in the prices charged for refined fuel products, which in
turn was caused by a significant increase in crude oil prices. Management cannot
make accurate predictions as to future increases in tobacco or fuel prices or in
consumer demand for those products. Significant increases in the retail price of
motor fuels tend to reduce fuel demand and the Company's gross profit on fuel
sales, reduce merchandise sales as fewer customers stop to purchase motor fuel,
result in larger write offs of any bad debts on wholesale motor fuel sales that
are considered uncollectible, raise the possibility that third party operators
of convenience stores and money order sales agents will become more likely to
default in paying their obligations to the Company, and raise financing costs to
carry accounts receivable and inventories.
The Company's businesses are normally subject to seasonal influences, with
higher sales being experienced in the second and third quarters of the year as
customers tend to purchase more motor fuel and convenience items, such as soft
drinks, other beverages, and snack items, during the warmer months.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to market risks related to variable interest rates and
commodity prices. The interest rate calculated under the Company's new line of
credit facility is based on the prime rate of interest, which is subject to
change and exposes the Company to the possibility of increasing interest rates.
However, the Company had not borrowed under that facility at year end 1999. As a
result, all of the Company's obligations at year end 1999 were not subject to
interest rate risk because it had refinanced such indebtedness with fixed rate
financing.
The Company is also subject to the market risk of increasing commodity prices
and sometimes attempts to hedge that risk by purchasing commodity futures and
forward contracts. An attempt to hedge that risk is subject to risk because the
commodities subject to the hedging contract are not the same commodities as
those owned by the Company in its business. Open positions under these futures
and forward contracts were not significant at year end 1999 or 1998. {See Note
11 to the Consolidated Financial Statements.}
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements filed herewith begin on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
Reference is made to the Company's Current Report on Form 8-K dated December
29, 1999, which report is hereby incorporated herein by reference.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Certain portions of the information required to be set forth in this item
will be included in the Proxy to be filed by the Company within 120 days of its
1999 fiscal year end regarding its 2000 shareholder meeting. Such information is
incorporated herein by this reference.
The following table sets forth the names, ages, positions, and business
experience of the Company's executive officers and directors at year end 1999:
Name Age Position
John H. Harvison [1] 66 Chairman of the Board and Chief Executive Officer
Robert J. Byrnes [1] 59 President, Chief Operating Officer, and Director
Craig T. Scott 53 Vice President - Finance, General Counsel, Secretary,
Treasurer, and Chief Financial Officer
J. D. St. Clair 65 Vice President - Fuel Supply and Distribution and
Director
Michael Triantafellou 46 Vice President - Retail Operations and Director
John W. Hughes [1,2] 58 Director
Garland R. McDonald 62 Director
John D. Harvison 43 Director
E. Michael Gregory 48 Director
-------------------------------------
[1] Member of Compensation Committee
[2] Member of Audit Committee
John H. Harvison has been Chairman of the Board of the Company and its
predecessor since the commencement of the Company's operations in May 1987. Mr.
Harvison is a founder and an executive officer of each of the companies from
which the Company's initial base of retail outlets was acquired, and has been
active in the retail gasoline business since 1958 and in the convenience store
business since 1973. In addition, he has been involved in oil and gas
exploration and production, the ownership and management of an oil refinery and
other personal investments. In January 1995, Mr. Harvison consented to the entry
of a cease and desist order by the United States Office of Thrift Supervision
that, among other things, prohibits him from participating in any manner in the
conduct of the affairs of federally insured depository institutions. This Order
was issued in connection with Mr. Harvison's ownership in a federal savings bank
and transactions between him (and companies in which he had an ownership
interest) and that institution. In consenting to the issuance of the Order, Mr.
Harvison did not admit any of the allegations against him and consented to the
issuance of the Order solely to avoid the cost and distraction that would be
caused by prolonged litigation to contest the positions taken by the Office of
Thrift Supervision. Mr. Harvison is the father of John D. Harvison, who is also
a director of the Company.
Robert J. Byrnes has been the President of the Company and its predecessor
since April 1989 and has been a Director since May 1987. From May 1987 to April
1989, Mr. Byrnes served as Vice President - Truck Stop Operations for the
Company. Mr. Byrnes has been, since 1985, the President of Swifty Distributors,
Inc., one of the companies from which the Company acquired its initial retail
outlets. From 1975 through 1984, Mr. Byrnes was President of Independent
Enterprises, Inc., which owned and operated convenience stores and a truck stop.
During that period, he was also President of Enterprise Distributing, Inc., a
wholesaler of motor fuels. Prior to 1975, Mr. Byrnes was President of Foremost
Petroleum Corporation (which is now a subsidiary of Citgo Petroleum Corporation)
and was a distribution manager for ARCO Oil & Gas Company. He is currently a
director of Plaid Pantries, Inc., an operator of convenience stores
headquartered in Beaverton, Oregon.
Craig T. Scott has served as Vice President - Finance, General Counsel,
Secretary, and Treasurer of the Company since October 1998. From October 1996
until September 1998, Mr. Scott was engaged in the private practice of law in
Dallas and McKinney, Texas. From December 1991 until October 1996, he was
employed by Box Energy Corporation as an attorney and as its Executive Vice
President. Mr. Scott previously engaged in the practice of law for seven years
with large law firms in Dallas, Texas; practiced law in McKinney, Texas for four
years; and was the president and co-owner of an oil and gas exploration company
for two years. He was previously employed for six years by Arthur Andersen &
Co., an international public accounting firm. Mr. Scott obtained a BBA degree
from the University of Texas in 1968, a JD degree from the University of Texas
School of Law in 1972, and a LLM degree from Southern Methodist University
School of Law in 1980. He is a member of the American Institute of Certified
Public Accountants, the Texas Society of CPAs, and the State Bar of Texas.
J. D. St. Clair has been Vice President - Fuel Supply and Distribution and a
Director of the Company and its predecessor since May 1987. Mr. St. Clair is
a founder and an executive officer of several of the companies from which the
Company acquired its initial retail outlets. He has been involved in the retail
gasoline marketing and convenience store business since 1971. Prior to 1971, Mr.
St. Clair performed operations research and system analysis for Bell Helicopter,
Inc., from 1967 to 1971; for the National Aeronautics and Space Administration
from 1962 to 1967; and Western Electric Company from 1957 to 1962.
Michael Triantafellou was elected Vice President - Retail Operations and a
Director of the Company's predecessor in February 1997. He had served as
Director of Truck Stops and Food Service Operations for the Company since
January 1994. Mr. Triantafellou has been engaged in the truck stop and food
service industries since 1976, having held various middle and upper management
positions in the truck stop businesses of Truckstops of America (from 1975 to
1980), Bar-B Management (from 1980 to 1985) Greyhound-Dial Corp. (from 1985 to
1993), and Knox Oil of Texas (from 1993 to 1994). Mr. Triantafellou is a 1975
graduate of the Wharton School of the University of Pennsylvania.
John W. Hughes has been a Director of the Company and its predecessor since
May 1987. Mr. Hughes is an attorney with the law firm of Garrison & Hughes,
L.L.P., in Fort Worth, Texas. From 1991 to 1995 he was an attorney with the firm
of Simon, Anisman, Doby & Wilson, P.C., in Fort Worth, Texas. Since 1963, Mr.
Hughes has been a partner of Hughes Enterprises, which invests in venture
capital opportunities, real estate, and oil and gas.
Garland R. McDonald is employed by the Company to oversee and direct a
variety of special projects. He was elected to the Board of the Company's
predecessor in January 1990 and had previously served as a Director of the
predecessor company from May 1987 through May 1989. He also served as a Vice
President of the Company's predecessor from May 1987 to October 1987. Mr.
McDonald is a founder and the Chief Executive Officer of Hi-Lo Distributors,
Inc., and Gas-Go, Inc., two of companies from which the Company initially
acquired its retail outlets. He has been actively involved in the convenience
store and retail gasoline businesses since 1967.
John D. Harvison was elected a Director of the Company's predecessor in April
1995. Mr. Harvison has been Vice President of Dynamic Production, Inc., an
independent oil and gas exploration and production company since 1977. He
previously served as Operations Manager for Dynamic from 1977 to 1987. He also
serves as an officer of various other companies that are affiliated with Dynamic
that are involved in real estate management and various other investment
activities. Mr. Harvison is the son of John H. Harvison, the Chairman of the
Board of the Company.
E. Michael Gregory was elected to the Board of the Company's predecessor in
September 1995. Mr. Gregory is the founder and President of Gregory Consulting,
Inc., an engineering and consulting firm that is involved in the development of
products related to the distribution and storage of petroleum products and
computer software for a variety of purposes including work on such products and
software for the Company. Prior to founding Gregory Consulting in 1988, Mr.
Gregory was the Chief Electronic Engineer for Tidel Systems (a division of The
Southland Corporation, now known as 7-Eleven, Inc.) where he was responsible for
new product concept development and was involved in projects involving the
monitoring of fuel levels in underground storage tanks. He is a Registered
Professional Engineer in Texas.
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The information required to be set forth in this item will be included in the
Proxy to be filed by the Company within 120 days of its 1999 year end regarding
its 2000 shareholder meeting. Such information is incorporated herein by this
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required to be set forth in this item will be included in the
Proxy to be filed by the Company within 120 days of its 1999 year end regarding
its 2000 shareholder meeting. Such information is incorporated herein by this
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required to be set forth in this item will be included in the
Proxy to be filed by the Company within 120 days of its 1999 year end regarding
its 2000 shareholder meeting. Such information is incorporated herein by this
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORT ON FORM 8-K
a) The following documents are filed as part of this Annual Report on Form
10-K:
(1) Financial Statements. The Financial Statements as described in
Index to Financial Statements on page F-1 hereof.
(2) Financial Statement Schedules. No Financial Statement Schedules are
included because they are either not required, not applicable, or the
required information is included in the consolidated financial statements
or notes thereto.
(3) Exhibits.
3.1 Articles of Incorporation of FFP Marketing Company, Inc. {1}
3.2 Bylaws of FFP Marketing Company, Inc. {1}
10.1 Nonqualified Unit Option Plan of FFP Partners, L.P. {1}
10.2 Form of Ground Lease with affiliated companies. {1}
10.3 Form of Building Lease with affiliated companies. {1}
10.4 Form of Agreement with Product Supply Services, Inc. {1}
10.5 FFP Marketing Company. Inc. Stock Option Plan. {2}
10.6 Form of Secured Promissory Notes executed by FFP Operating
Partners, L.P. payable to Franchise Mortgage Acceptance Company,
dated February 26, 1999, related to refinancing of convenience
stores. {2}
10.7 Form of Secured Promissory Notes executed by FFP Operating
Partners, L.P. payable to Franchise Mortgage Acceptance Company,
dated June 24, 1999, related to refinancing of 44 convenience
stores. {2}
21.1 Subsidiaries of the Registrant. {2}
23.1 Consent of Independent Auditor. {2}
27 Financial Data Schedule. {2}
99.1 Current Report on Form 8-K regarding a change in the
Company's certifying accountant, dated December 29, 1999, which
report is hereby incorporated herein by reference.
--------------------------------------------------------------
Notes {1} Incorporated by reference to the Company's Form
10-K (file number 1-13727) filed with
Commission and effective on or about April 13,
1998.
{2} Included herewith.
(b) Current Report on Form 8-K regarding a change in the Company's certifying
accountant, dated December 29, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this Annual Report on Form
10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: April 11, 2000 FFP Marketing Company, Inc.
(Registrant)
By: /s/ John H. Harvison
John H. Harvison
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report has been signed below by the following persons on behalf of the
Registrant in the capacities indicated as of April 11, 2000.
/s/ John H. Harvison Chairman of the Board of Directors
John H. Harvison and Chief Executive Officer
(Principal executive officer)
/s/ Robert J. Byrnes President, Chief Operating Officer,
Robert J. Byrnes and Director (Principal operating
officer)
/s/ Craig T. Scott Vice President-Finance, Secretary,
Craig T. Scott Treasurer, and General Counsel
(Principal financial and
accounting officer)
/s/ J.D. St. Clair Director
J. D. St. Clair
/s/ Michael Triantafellou Director
Michael Triantafellou
John W. Hughes Director
Garland R. McDonald Director
/s/ John D. Harvison Director
John D. Harvison
E. Michael Gregory Director
<PAGE>
Item 8. Index to Financial Statements.
Page
Number
Reports of Independent Certified Public Accountants and
Independent Auditors' Report F-2
Consolidated Balance Sheets as of December 26, 1999, and
December 27, 1998 F-4
Consolidated Statements of Operations for the Years Ended
December 26, 1999, December 27, 1998, and December
28, 1997 F-5
Consolidated Statements of Stockholders' Equity/Partners'
Capital for the Years Ended December 26, 1999,
December 27, 1998, and December 28, 1997 F-6
Consolidated Statements of Cash Flows for the Years Ended
December 26, 1999, December 27, 1998, and December
28, 1997 F-7
Notes to Consolidated Financial Statements F-9
<PAGE>
Report of Independent Certified Public Accountants
The Stockholders of
FFP Marketing Company, Inc.:
We have audited the accompanying consolidated balance sheet of FFP Marketing
Company, Inc. (successor in interest to FFP Partners, L.P., a Delaware limited
partnership) and its subsidiaries as of December 26, 1999, and the related
statements of operations, stockholders' equity/partners' capital, and cash flows
for the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of FFP
Marketing Company, Inc. and its subsidiaries as of December 26, 1999, and the
consolidated results of their operations and their consolidated cash flows for
the year ended December 26, 1999, in conformity with accounting principles
generally accepted in the United States.
GRANT THORNTON LLP
Dallas, Texas
March 31, 2000
<PAGE>
Independent Auditors' Report
The Stockholders of
FFP Marketing Company, Inc.:
We have audited the accompanying consolidated balance sheet of FFP Marketing
Company, Inc. (successor in interest to FFP Partners, L.P., a Delaware limited
partnership) and its subsidiaries as of December 27, 1998, and the related
consolidated statements of operations, stockholders' equity/partners' capital,
and cash flows for each of the years in the two-year period then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of FFP
Marketing Company, Inc. and its subsidiaries as of December 27, 1998, and the
results of their operations and their consolidated cash flows for each of the
years in the two-year period then the year ended in conformity with generally
accepted accounting principles.
KPMG LLP
Fort Worth, Texas
March 30, 1999, except as to
the final paragraph of Note 6,
which is as of April 12, 1999
<PAGE>
FFP Marketing Company, Inc. and Subsidiaries
Consolidated Balance Sheets
December 26, 1999, and December 27, 1998
(In thousands, except share information)
1999 1998
Assets
Current assets -
Cash and cash equivalents $20,868 $9,537
Trade receivables, less allowance for
doubtful accounts of $976 and $758
in 1999 and 1998, respectively 18,430 11,901
Notes receivable, current portion 1,003 1,078
Notes receivable from affiliates,
current portion 878 1,923
Inventories 23,825 15,439
Investments in debt securities and
certain equity securities 3,355 0
Deferred tax asset 143 2,334
Prepaid expenses and other current assets 2,093 1,386
Total current assets 70,595 43,598
Property and equipment, net 40,072 33,602
Notes receivable from affiliates, excluding
current portion 0 13,058
Other assets, net 7,739 6,782
Total assets $118,406 $97,040
Liabilities and Stockholders' Equity
Current liabilities -
Current installments of long-term debt $1,231 $1,959
Current installments of obligations
under capital leases 250 401
Accounts payable 23,221 16,254
Money orders payable 12,749 15,190
Accrued expenses 18,747 14,351
Total current liabilities 56,198 48,155
Long-term debt, excluding current installments 32,205 18,421
Obligations under capital leases, excluding
current installments 4,627 955
Deferred income taxes 2,365 4,913
Other liabilities 2,046 2,824
Total liabilities 97,441 75,268
Commitments and contingencies
Stockholders' equity -
Preferred stock ($0.01 par value;
1,000,000 shares authorized;
no shares issued and outstanding) 0 0
Common stock ($0.01 par value;
9,000,000 shares authorized;
3,818,747 shares issued and
outstanding in 1999 and 1998) 22,235 22,235
Accumulated deficit (1,270) (463)
Total stockholders' equity 20,965 21,772
Total liabilities and stockholders' equity $118,406 $97,040
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
FFP Marketing Company, Inc. and Subsidiaries
Consolidated Statements of Operations
Years Ended December 26, 1999, December 27, 1998, and December 28, 1997
(In thousands, except per share information)
1999 1998 1997
Revenues -
Motor fuel $378,871 $311,526 $311,495
Merchandise 114,422 94,629 61,652
Miscellaneous 11,086 9,719 6,267
Total revenues 504,379 415,874 379,414
Costs and expenses -
Cost of motor fuel 350,233 284,610 289,793
Cost of merchandise 80,685 65,182 42,913
Direct store expenses 50,524 44,154 28,241
General and administrative expenses 14,389 15,831 12,113
Depreciation and amortization 6,724 5,636 5,488
Total costs and expenses 502,555 415,413 378,548
Operating income 1,824 461 866
Interest income 1,376 693 36
Interest expense 3,989 1,861 1,678
Loss before income taxes and
extraordinary items (789) (707) (776)
Income tax benefit (223) (244) (892)
Income (loss) before extraordinary items (566) (463) 116
Extraordinary loss (net of applicable
income tax benefit of $134) 241 0 0
Net income (loss) $(807) $(463) $116
Income (loss) before extraordinary
items, per share -
Basic $(0.15) $(0.12) $0.03
Diluted (0.15) (0.12) 0.03
Net income (loss) per share -
Basic (0.21) (0.12) 0.03
Diluted (0.21) (0.12) 0.03
Weighted average number of common shares
outstanding -
Basic 3,819 3,784 3,779
Diluted 3,819 3,784 3,802
Pro forma information (unaudited)
(Note 11) -
Historical loss before income taxes - - $(776)
Pro forma income tax benefit - - (287)
Pro forma net loss - - $(489)
Pro forma net loss per share -
Basic - - $(0.13)
Diluted - - (0.13)
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
FFP Marketing Company, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity/Partners' Capital
Years Ended December 26, 1999, December 27, 1998, and December 28, 1997
(In thousands)
Joint
Common Accum. Debt Limited General Treasury
Stock Deficit Obligations Partners Partner Units Total
Balance, December
29, 1996 $0 $0 $0 $24,165 $242 $(269) $24,138
Net income 0 0 0 115 1 0 116
Net assets distributed
in restructuring
transaction 22,202 0 0 (24,280) (243) 269 (2,052)
Reduction of equity
resulting from
reporting of joint
debt obligations
in restructuring 0 0 (15,938) 0 0 0 (15,938)
Balance, December
28, 1997 22,202 0 (15,938) 0 0 0 6,264
Net loss 0 (463) 0 0 0 0 (463)
Distribution of
amount owed for
prior year (70) 0 0 0 0 0 (70)
Increase in equity
resulting from
restructuring joint
debt obligations 0 0 15,938 0 0 0 15,938
Exercise of stock
options 103 0 0 0 0 0 103
Balance, December
27, 1998 22,235 (463) 0 0 0 0 21,772
Net loss 0 (807) 0 0 0 0 (807)
Balance, December
26, 1999 $22,235 $(1,270) $0 $0 $0 $0 $20,965
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
FFP Marketing Company, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Years Ended December 26, 1999, December 27, 1998, and December 28, 1997
(In thousands, except supplemental information)
1999 1998 1997
Cash Flows from Operating Activities -
Net income (loss) $(807) $(463) $116
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities -
Depreciation and amortization 6,724 5,636 5,488
Provision for doubtful accounts 651 1,916 199
(Benefit) for deferred income taxes (357) (310) (892)
(Gain)loss on sales of property and
equipment 307 96 (254)
Gain on sales of convenience store
operations (38) (445) (30)
(Increase) in trading securities (3,355) 0 0
Changes in operating assets and
liabilities -
(Increase) in trade receivables (7,180) (5,255) (54)
(Increase)decrease in inventories (8,386) 381 (3,331)
(Increase) in prepaid expenses and
other current assets (2,224) (679) (298)
Increase in accounts payable 6,967 935 1,169
Increase (decrease) in money orders
payable (2,441) 3,891 3,490
Increase in accrued expenses and
other liabilities 3,618 4,686 3,067
Net cash provided by (used in) operating
activities (6,521) 10,389 8,670
Cash Flows from Investing Activities -
Purchases of property and equipment (13,032) (6,787) (17,410)
Proceeds from sales of property and
equipment 129 82 1,289
Decrease (increase) in notes receivable
from affiliates 14,103 (14,555) 0
Decrease in notes receivable 75 12 846
Net cash provided by (used in) investing
activities 1,275 (21,248) (15,275)
Cash Flows from Financing Activities -
Borrowings (payments) on revolving
credit line, net 0 0 (6,823)
Proceeds from long-term debt 490,771 589,841 122,884
Payments on long-term debt (477,715) (576,196) (109,563)
Borrowings under capital lease obligations 3,985 311 2,522
Payments on capital lease obligations (464) (2,982) (1,270)
Proceeds from exercise of stock or
unit options 0 103 0
Distributions 0 (70) 0
Net cash provided by financing activities 16,577 11,007 7,750
Net increase in cash and cash equivalents 11,331 148 1,145
Cash and cash equivalents at beginning
of year 9,537 9,389 8,244
Cash and cash equivalents at end of year $20,868 $9,537 $9,389
Supplemental Disclosure of Cash Flow Information -
Cash paid for interest $3,884 $1,862 $1,917
Cash paid for estimated Federal income taxes $0 $125 $0
Capitalized interest on purchases of
property and equipment $0 $0 $148
Supplemental Schedule of Noncash Investing and Financing Activities -
In conjunction with the December 1997 organizational restructuring of FFP
Partners, L.P. that included the formation of the Company (see Note 1), FFP
Partners retained prepaid expenses of $196,000 and land and buildings of
$18,143,000, and distributed common stock of the Company in the amount of
$349,000 to the general partner of FFP Partners. Also in connection with that
1997 restructuring, the Company recorded a reduction in stockholders' equity of
$15,938,000 related to debt for which the Company and FFP Partners were jointly
liable. The Company restructured that debt in June 1998 and at that time
reversed the 1997 stockholders' equity reduction of $15,938,000 (see Note 6).
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
FFP Marketing Company, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 26, 1999, December 27, 1998, and December 28, 1997
1. Basis of Presentation
(a) Organization of Company
FFP Marketing Company, Inc., a Texas corporation (the "Company"), was formed
immediately prior to the December 1997 restructuring of FFP Partners, L.P. ("FFP
Partners"). In that restructuring, all of the assets and businesses of FFP
Partners was transferred to the Company, except that FFP Partners retained the
real estate previously used in its retail operations. Unless the context
requires otherwise, references in these consolidated financial statements to the
"Company" for periods or activities prior to the December 1997 restructuring
include the activities of FFP Partners. The net book value of the assets and
liabilities retained by FFP Partners has been reflected as a distribution to FFP
Partners in the accompanying consolidated statements of stockholders'
equity/partners' capital. Accordingly, no gain or loss was recognized as a
result of the restructuring.
In the 1997 restructuring of FFP Partners, the holders of its limited
partnership interests received one share of common stock of the Company for each
limited partnership unit that they owned on December 28, 1997, resulting in each
such person owning the same economic interest in the Company as they had held in
FFP Partners.
The Company and its subsidiaries are principally engaged in two operating
segments: (i) the retail and wholesale sale of motor fuel, merchandise and other
products and services at approximately 428 convenience stores, truck stops, and
other gasoline outlets ("Retail and Wholesale"), and (ii) the operation of a
motor fuel terminal and processing facility ("Terminal Operations") (see Note
17).
The Company conducts its operations through the following subsidiaries:
Entity Date Formed Principal Activity
FFP Operating Partners, December 1986 Operation of convenience
L.P., a Delaware stores and other retail
limited partnership outlets
Direct Fuels, L.P., a December 1988 Operation of fuel terminal and
Texas limited wholesale fuel sales
partnership
FFP Financial Services, September Sale of money order services
L.P., a Delaware 1990 and supplies
limited partnership
Practical Tank September Underground storage tank
Management, Inc., a 1993 monitoring
Texas corporation
FFP Transportation, September Ownership of tank trailers and
L.L.C., a Texas limited 1994 other transportation
liability company equipment
FFP Money Order Company, December 1996 Sale of money orders through
Inc., a Nevada agents
corporation
(b) Consolidation
The consolidated financial statements include the accounts of the Company and
its majority owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in the consolidated financial statements.
(c) Reclassifications
Certain 1998 and 1997 amounts have been reclassified to conform to 1999
presentation.
2. Significant Accounting Policies
(a) Fiscal Years
The Company prepares its financial statements and reports its results of
operations on the basis of a fiscal year which ends on the last Sunday of
December. Accordingly, each of the fiscal years ended December 26, 1999,
December 27, 1998, and December 28, 1997, consisted of 52 weeks. Year end data
in these notes is as of the respective dates above.
(b) Cash Equivalents
The Company considers all highly liquid investments with maturity dates at
date of purchase of three months or less to be cash equivalents.
(c) Notes Receivable
The Company evaluates the collectibility of notes receivable in accordance
with the provisions of Statement of Financial Accounting Standards ("SFAS") No.
114, "Accounting by Creditors for Impairment of Loans," as amended by SFAS No.
118, "Accounting by Creditors for Impairment of a Loan -- Income Recognition and
Disclosures." At year end 1999 and 1998, no notes receivable were determined to
be impaired.
(d) Inventories
Inventories consist of retail convenience store merchandise and motor fuel
products. Merchandise inventories are stated at the lower of cost or market as
determined by the retail method. Motor fuel inventories are stated at the lower
of cost or market using the first-in, first-out ("FIFO") inventory method.
The Company has selected a single company as the primary grocery and
merchandise supplier to its convenience stores and truck stops although certain
items, such as bakery goods, dairy products, soft drinks, beer, and other
perishable products, are generally purchased from local vendors and/or wholesale
route salespeople. The Company believes it could replace any of its merchandise
suppliers, including its primary grocery
and merchandise supplier, with no significant adverse effect on its operations.
The Company does not have long-term contracts with any suppliers of petroleum
products covering more than 10% of its motor fuel supply. Unanticipated national
or international events could result in a curtailment of motor fuel supplies to
the Company, thereby adversely affecting motor fuel sales. In addition,
management believes a significant portion of its merchandise sales are to
customers who also purchase motor fuel. Accordingly, reduced availability of
motor fuel could negatively impact other facets of the Company's operations.
(e) Property and Equipment
Property and equipment are stated at cost. Equipment acquired under capital
leases is stated at the present value of the initial minimum lease payments,
which is not in excess of the fair value of the equipment. Depreciation and
amortization of property and equipment are provided on the straight-line method
over the estimated useful lives of the respective assets, which range from three
to 20 years. Leasehold improvements are amortized on the straight-line method
over the shorter of the lease term, including option periods, or the estimated
useful lives of the respective assets.
(f) Investments in Joint Ventures and Other Entities
Investments in joint ventures and other entities that are 50% or less owned
are accounted for by the equity method and are included in other assets, on a
net basis, in the accompanying consolidated balance sheets.
(g) Intangible Assets
In connection with the allocation of the purchase price of the assets
acquired in 1987 upon the commencement of the Company's operations, $1,093,000
was allocated as the future benefit of real estate leased from affiliates of its
former general partner. The future benefit of these leases is being amortized
using the straight-line method over 20 years, the term including option periods
of such leases.
Goodwill at year end 1999 and 1998 of $1,445,000 and $1,524,000,
respectively, is being amortized using the straight-line method over 20 years.
The Company assesses the recoverability of goodwill by determining whether the
amortization of the balance over the remaining amortization period can be
recovered through undiscounted future operating cash flows of the acquired
operations. The amount of goodwill impairment, if any, is measured based on
projected discounted future operating cash flows using a discount rate
reflecting the Company's average cost of funds. The assessment of the
recoverability of goodwill would be impacted if anticipated future operating
cash flows are not achieved.
(h) Sales of Convenience Store Operations
In 1999 and in past years the Company sold the merchandise operations and
related inventories of certain convenience store locations to various third
parties in exchange for cash and notes receivable. The notes receivable
generally are for terms of five years, require monthly payments of principal and
interest, and bear interest at rates ranging from 8% to 11%. Summary information
about these sales is as follows:
Gains
------------------------
Number Notes Total Deferred
Sold Cash Receivable Proceeds Recognized (at year-end)
(In thousands, except number sold)
1999 3 $31 $110 $141 $38 $42
1998 9 312 683 995 445 265
1997 2 66 201 267 30 50
Gains on sales which meet specified criteria, including receipt of a
significant cash down payment and projected cash flow from store operations
sufficient to adequately service the debt, are recognized upon closing of the
sale. Gains on sales which do not meet the specified criteria are recognized
under the installment method as cash payments are received. Gains being
recognized under the installment method are evaluated periodically to determine
if full recognition of the gain is appropriate.
Under these sales, the Company generally retains the real estate or leasehold
interests and leases or subleases the store facilities (including the store
equipment) to the purchaser under five-year renewable operating lease
agreements. The Company usually retains ownership of the motor fuel operations
and pays the purchaser of the store commissions based on motor fuel sales. In
addition, the new store operators may purchase merchandise under the Company's
established buying arrangements.
(i) Environmental Costs
Environmental remediation costs are expensed; related environmental
expenditures that extend the life, increase the capacity, or improve the safety
or efficiency of existing assets are capitalized. Liabilities for environmental
remediation costs are recorded when environmental assessment and/or remediation
is probable and the amounts can be reasonably estimated. Environmental
liabilities are evaluated independently from potential claims for recovery.
Accordingly, the gross estimated liabilities and estimated claims for
reimbursement have been presented separately in the accompanying consolidated
balance sheets (see Note 14b).
In October 1996, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 96-1, Environmental Remediation
Liabilities. SOP 96-1, was adopted by the Company on December 29, 1997, and
requires, among other things, environmental remediation liabilities to be
accrued when the criteria of SFAS No. 5, "Accounting for Contingencies," have
been met. The SOP also provides guidance with respect to the measurement of
remediation liabilities. Such accounting was consistent with the Company's prior
method of accounting for environmental remediation costs; therefore, adoption of
SOP 96-1 in 1997 did not have a material impact on the Company's consolidated
financial position, results of operations, or liquidity.
(j) Motor Fuel Taxes
Motor fuel revenues and related costs of motor fuel in 1999, 1998, and 1997
include federal and state excise taxes of $139,711,000, $116,880,000, and
$99,911,000, respectively.
(k) Exchanges
The Company uses the exchange method of accounting for motor fuel exchange
transactions. Under this method, such transactions are considered as exchanges
of assets with deliveries being offset against receipts, or vice versa. Exchange
balances due from others are valued at current replacement costs. Exchange
balances due to others are valued at the cost of forward contracts (see Note 12)
to the extent they have been entered into, with any remaining balance valued at
current replacement cost. Exchange balances due to others at year end 1999 and
1998 were $311,000 and $375,000, respectively.
(l) Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the estimated future tax
consequences attributable to existing differences between financial statement
carrying amounts of assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to be in effect when such amounts are realized or settled. The effect
of a change in tax rates is recognized in income in the period that includes the
enactment date.
Under the Revenue Act of 1987, the Company qualified as a publicly-traded
partnership until the end of its 1997 fiscal year. Accordingly, the taxable
income or loss of the Company was allocated in the income tax returns of the
individual partners, and no provision for income taxes was made in the
accompanying consolidated financial statements, except for applying the
provisions of SFAS No. 109 "Accounting for Income Taxes."
The businesses and activities retained by FFP Partners in connection with its
December 1997 restructuring permit it to continue to be treated as a partnership
for income tax purposes. However, in connection with the restructuring, FFP
Marketing Company, Inc. was organized as a corporation. Accordingly, income tax
expense or benefit is recorded in its consolidated financial statements for 1999
or 1998.
(m) Fair Value of Financial Instruments
The carrying amounts of cash, receivables, investments in debt securities and
certain equity securities, amounts due under the revolving credit line, and
money orders payable approximate fair value because of the short maturity of
those instruments. The carrying amount of notes receivable and notes receivable
from affiliates approximates fair value, which is determined by discounting
expected future cash flows at current rates.
The carrying amount of long-term debt at year end 1999 was $33,436,000. The
fair value of such debt at year end 1999 was approximately $32,808,000, based on
the Company's current borrowing rate for debt with similar maturities. At year
end 1998, the carrying amount of long-term debt was $20,380,000, which
approximated fair value because (1) the interest rate on $9,169,000 of such
obligations varied with the prime rate, and (2) the fixed rate on the remainder
of the long-term obligations at that time, all of which had been incurred in
1998, was not materially different from the year end 1998 borrowing rate
available to the Company.
(n) Common Stock
Prior to the December 1997 restructuring of FFP Partners, the capital of the
Company consisted of partnership interests. These interests were converted into
common stock in connection with the restructuring. The average number of shares
shown as outstanding on the statement of operations has been adjusted to reflect
the number of common shares that would have been outstanding had the
restructuring occurred at the beginning of 1997 and giving effect to the shares
that would have been issued to the general partner. Treasury units previously
held by the Company (64,778 units, at cost) were retired in 1997 in conjunction
with the restructuring.
(o) Income (Loss) per Share
Basic net income (loss) per share is computed by dividing net income (loss)
by the weighted average number of common shares outstanding for the year.
Diluted net income (loss) per share is computed by dividing net income (loss) by
the weighted average number of common shares outstanding for the year plus
potentially dilutive common shares. At each of year end 1999 and 1998,
outstanding options to acquire 231,667 common shares have been excluded from the
diluted computation because the effect would have been anti-dilutive. (See Note
10.) A reconciliation of the denominators of the basic and diluted net income
(loss) per share computations for 1999, 1998, and 1997 follows:
1999 1998 1997
(In thousands)
Weighted average number of common
shares outstanding 3,819 3,784 3,779
Effect of dilutive options 0 0 23
Weighted average number of common
shares outstanding, assuming dilution 3,819 3,784 3,802
(p) Dividends to Stockholders/Distributions to Partners
Prior to the December 1997 restructuring of the Company, the Company's
distributions to its partners represented a return of capital and were allocated
pro rata to the general partner and holders of its limited partnership
interests. Because the Company is now a corporation, distributions to its
shareholders, if any, would usually be dividends.
(q) Employee Benefit Plan
The Company has a 401(k) profit sharing plan covering all employees who meet
age and tenure requirements. Participants may contribute to the plan a portion,
within specified limits, of their compensation under a salary reduction
arrangement. The Company may make discretionary matching or additional
contributions to the plan. The Company did not make any contributions to the
plan in 1999, 1998, or 1997.
(r) Use of Estimates
The use of estimates is required to prepare the Company's consolidated
financial statements in conformity with generally accepted accounting
principles. Although management believes that such estimates are reasonable,
actual results could differ from the estimates.
(s) Stock Option Plans
The Company accounts for its outstanding stock options in accordance with the
provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations. As such,
compensation expense is recorded only if the current market price of the
underlying stock on the date of grant of the option exceeds the exercise price
of the option. On January 1, 1996, the Company adopted SFAS No. 123, "Accounting
for Stock-Based Compensation," which permits entities either to (i) recognize as
expense over the vesting period the fair value of all stock-based awards on the
date of grant or (ii) continue to apply the provisions of APB Opinion No. 25 and
provide pro forma net income and earnings per share disclosures for employee
option grants made in 1995 and future years as if the fair-value-based method
defined in SFAS No. 123 had been applied. The Company elected the second
alternative (see Note 10).
(t) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to Be Disposed Of," requires that long-lived assets and
certain identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of such assets to future net cash flows
expected to be generated by the assets. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value less
costs to sell.
(u) Revenue Recognition
The Company recognizes revenue related to motor fuel and merchandise sales at
the time of the sale.
(v) New Accounting Pronouncement
FASB No. 133, "Accounting for Derivative Instruments and Hedging Activities"
was issued in June 1998. As amended, this statement is effective for fiscal
quarters beginning after January 1, 2001. This statement establishes standards
of accounting for and disclosures of derivative instruments and hedging
activities. The Company has not yet determined the impact of this statement on
its financial condition or results of operation.
3. Investments in Debt Securities and Certain Equity Securities
The Company classified at acquisition all of its investments in debt
securities and all of its investments in equity securities that have a readily
determinable fair value, other than investments accounted for under the equity
method or its investments in consolidated subsidiaries, as trading securities.
Trading securities are securities that are bought and held principally for the
purpose of a resale in the near term. FASB No. 115, "Accounting for Certain
Investments in Debt and Equity Securities", provides that unrealized and
realized gains and losses from trading securities are included in earnings.
Dividend and interest income from trading securities, including the amortization
of premium and discount arising at acquisition, are also included in earnings.
In addition to dividend and interest income, the Company's earnings in 1999
included $133,000 from net unrealized holding gains from trading securities and
$79,000 from realized gains from trading securities.
4. Property and Equipment
Property and equipment consists of the following:
1999 1998
(In thousands)
Land $1,655 $1,376
Buildings and leasehold improvements 15,013 9,462
Machinery and equipment 62,515 56,051
Construction in progress 123 292
79,306 67,181
Accumulated depreciation and (39,234) (33,579)
amortization
Total $40,072 $33,602
5. Other Assets
Other assets consist of the following:
1999 1998
(In thousands)
Intangible Assets (Note 2g)-
Ground leases $1,093 $1,093
Goodwill 1,445 1,524
Other 3,848 3,558
6,386 6,175
Accumulated amortization (3,857) (3,341)
2,529 2,834
Notes receivable 1,059 1,386
Environmental remediation reimbursement 1,283 1,297
claims
Investments in joint ventures and other 990 210
entities
Other 1,878 1,055
Total $7,739 $6,782
6. Notes Payable and Long-Term Debt
In June 1998 the Company refinanced a loan with an original principal amount
of $6,735,000 incurred in connection with its December 1997 acquisition of 94
convenience stores. The refinancing is comprised of 44 loans in the original
principal amount of $9,420,000 and bears interest at 8.66% per annum. The loans
will be fully amortized at various maturity dates ranging from October 2007 to
July 2013 by making principal and interest payments in equal monthly
installments over their respective terms. The loans are secured by the Company's
assets at 44 of the 94 convenience stores acquired in 1997. At year end 1999 and
1998, $8,825,000 and $9,253,000, respectively, remained outstanding on these
loans.
In February 1999 the Company acquired 23 convenience stores and two truck
stops. Eleven of the 25 stores are third party leasehold locations where the
Company purchased the existing leasehold interest, equipment, and inventory. The
Company financed its purchase of those properties with fully-amortizing mortgage
loans in the aggregate original principal amount of $1,012,000, with maturity
dates ranging from 86 to 180 months, interest payable at a fixed rate of 9.275%
per annum, a minimum fixed charge coverage ratio of 1.25 to 1, and aggregate
monthly payments of principal and interest of $13,000. At year end 1999,
$970,000 remained outstanding on these loans.
The land and building at the remaining 14 of those 25 stores were purchased
on the same date by FFP Partners and immediately leased to the Company under
real estate leases with a 15-year term. The real estate leases negotiated
between FFP Partners and the Company require a total monthly rent payment of
$99,000 with a rate of return of approximately 14%. Under generally accepted
accounting principles, each real estate lease is treated as two leases: a land
lease and a building lease. Each land lease is classified as an operating lease,
with monthly payments for all such land leases aggregating $28,000. Each
building lease is classified as a capital lease, with monthly payments for all
such building leases aggregating $71,000. The amount of rent allocated to the
capital lease obligation for the buildings in the original amount of $3,932,000
results in an implicit rate of approximately 20%. As a condition to the
Company's acquisition of store operations at those 14 fee locations, the Company
was required to guarantee the acquisition indebtedness of $9,550,000 incurred by
FFP Partners in its purchase of those stores, including land, building,
equipment and inventory. At year end 1999, $9,327,000 remained outstanding on
those loans of FFP Partners that were guaranteed by the Company. The Company's
scheduled real estate lease payments to FFP Partners will equal or exceed the
debt service costs of FFP Partners during the term of the leases.
In February 1999 the Company also purchased inventory and equipment from FFP
Partners at those 14 fee locations at a price of $2,692,000 and executed a note
payable to FFP Partners for such amount. This note, which was payable in monthly
installments with interest at the prime rate, was repaid in full by the Company
in October 1999.
In June 1999 the Company refinanced its previous long-term revolving credit
facility and term loan with the proceeds of fixed rate financing from a third
party lender in the original principal amount of $23,800,000. With the net loan
proceeds the Company repaid debts aggregating $19,988,000 and incurred an
extraordinary loss of $375,000 ($0.10 per share), before applicable income tax
benefit, as a result of prepayment penalties and the write off of previously
unamortized loan fees. This new long-term debt is payable in 180 equal, monthly
installments with interest at a fixed rate of 9.9% per annum, a minimum fixed
charge coverage ratio of 1.25 to 1, and aggregate monthly payments of principal
and interest of $256,000. This loan is secured by a lien against the Company's
leasehold, equipment, and inventory at 49 specific convenience stores, truck
stops and gas-only outlets. At year end 1999, $23,515,000 remained outstanding
on these loans.
In December 1999 the Company closed a new revolving credit facility with a
third party lender providing for borrowings up to $10,000,000. The amount
available at any time under the loan is equal to a borrowing base of 80% of
certain trade receivables plus 60% of the Company's inventory at its terminal
facility; provided, however, that any draw which would cause outstanding
borrowings under the facility to exceed $5,000,000 is limited to 140% of net
value of debt and equity securities in the Company's trading account at a
brokerage firm. At year end 1999, the Company's borrowing base was approximately
$9,800,000, and the net value at the brokerage firm was approximately
$5,181,000. The revolving credit facility bears interest at the lender's prime
rate plus one percentage point, payable monthly, and matures in December 2002.
At year end 1999, no amount was outstanding under the revolving line of credit.
The loan is subject to a Loan Agreement and a Security Agreement dated in
December 1999 between the lender, the Company and two subsidiaries of the
Company. The agreement contains numerous restrictive covenants including, but
not limited to, a financial covenant requiring the Company to maintain a minimum
fixed charge coverage ratio of 1.25 to 1. Loans under the agreement are secured
by all of the Company's trade accounts receivable, its inventories at the
terminal, not otherwise encumbered, a negative pledge of its other assets, and a
collateral assignment of the Company's note receivable and deed of trust lien
against the real properties of FFP Partners.
The amount of long-term debt payments for the next five years is as follows:
(In thousands)
2000 $1,231
2001 1,506
2002 1,580
2003 1,709
2004 1,868
Thereafter 25,542
Total $33,436
At year end 1998, $1,850,000 was outstanding on an equipment loan that the
Company had incurred in the original principal amount of $2,076,000. The note
had refinanced a prior capital lease obligation, bore interest at 8.93% per
annum, and matured in April 2003. The debt required monthly principal and
interest payments of $43,000 and was secured by various equipment. In June 1999
the Company repaid this loan in full.
The Company's bank revolving credit line that was paid off in July 1999
provided for borrowings up to $15,000,000, with the amount available at any time
limited to a borrowing base equal to 85% of the Company's trade receivables plus
50% of the Company's inventories. On December 27, 1998, the Company's borrowing
base was $12,383,000. The revolving credit facility and a term loan in the
original principal amount of $8,000,000 executed in October 1997 both bore
interest at the lender's prime rate (7.75% at the end of 1998), payable monthly.
The term loan required monthly principal payments of $95,000; and both loans
were scheduled to mature in November 2000. At December 27, 1998, the total
amount outstanding under the revolving line was $2,407,000, and the term loan
had an outstanding balance of $6,762,000. The loans were subject to a Loan and
Security Agreement dated in October 1997, and amended as of June 1998, between
the lender, the Company and two subsidiaries of the Company. The agreement
contained numerous restrictive covenants, including financial covenants relating
to the maintenance of a specified minimum tangible net worth, a maximum debt to
tangible net worth ratio, and a minimum cash flow coverage ratio. At year end
1998, the Company was not in compliance with certain requirements under the loan
agreement for the principal reason that the assets and operations of FFP
Partners are no longer included in the financial covenant calculations. The
lender waived declaring a default due to such noncompliance, and the lender and
the Company amended the applicable restrictive covenants so that the Company was
in compliance subsequent to December 27, 1998. The loans under the agreement
were secured by the Company's trade accounts receivable, inventories and
equipment not otherwise encumbered, a negative pledge of its other assets, and a
collateral assignment of the Company's note receivable and deed of trust lien
against the real properties of FFP Partners. The Company repaid this loan in
full in July 1999.
7. Capital Leases
The Company is obligated under noncancelable capital leases for computers and
convenience store equipment that begin to expire in 2000. Beginning February
1999, the Company also leases buildings at 14 convenience stores that are
classified for accounting purposes as capitalized leases. The building capital
lease obligations had an initial obligation of $3,932,000 in February 1999,
which had been reduced to $3,897,000 at year end 1999. The gross amount of the
assets covered by capital leases and included in property and equipment in the
accompanying consolidated balance sheets is as follows:
1999 1998
(In thousands)
Buildings $3,932 $0
Fixtures and equipment 1,980 2,001
Accumulated depreciation and
amortization (815) (363)
Totals $5,097 $1,638
The amortization of assets held under capital leases is included in
depreciation and amortization expense in the accompanying consolidated
statements of operations. Future minimum lease payments under the noncancelable
capital leases for years subsequent to 1999 are shown in the following table:
(In thousands)
2000 $1,244
2001 1,225
2002 1,083
2003 885
2004 853
Thereafter 7,819
Total minimum lease payments 13,109
Amount representing interest (8,232)
Present value of future minimum lease payments 4,877
Current installments (250)
Obligations under capital leases, excluding
current installments $4,627
8. Operating Leases
The Company operates all of its convenience stores and truck stops under
long-term operating leases, except for the buildings at the 14 convenience
stores classified as capital leases (see Note 7). A significant portion of the
leases are with related parties. Certain of the leases have contingent rentals
based on sales levels of the locations and/or have escalation clauses tied to
the consumer price index. During 1999 the Company extended the lease term of 63
properties leased from FFP Partners to 20 years. Minimum future rental payments
(including bargain renewal periods) and sublease receipts for years after 1999
are as follows:
Future Rental Payments
--------------------------- Future
Related Sublease
Parties Others Total Receipts
(In thousands)
2000 $3,689 $3,022 $6,711 $1,160
2001 3,607 2,860 6,467 846
2002 3,091 2,751 5,842 615
2003 2,550 2,532 5,082 425
2004 2,550 2,465 5,015 182
Thereafter 32,729 22,743 55,472 5
Totals $48,216 $36,373 $84,589 $3,233
Total rental expense and sublease income in 1999, 1998, and 1997 were as
follows:
Rent Expense
-----------------------
Related Sublease
Parties Others Total Income
(In thousands)
1999 $3,745 $3,247 $6,992 $1,683
1998 3,566 3,231 6,797 1,521
1997 915 922 1,837 1,370
9. Accrued Expenses
Accrued expenses in 1999 and 1998 consist of the following:
1999 1998
(In thousands)
Motor fuel taxes payable $12,502 $9,688
Accrued payroll and related expenses 1,704 1,084
Other 4,541 3,579
Totals $18,747 $14,351
10. Stock Option Plan and Nonqualified Unit Option Plan
The Company's Board of Directors initially adopted a Stock Option Plan in
July 1998 to provide an incentive for its employees to remain in the service of
the Company and to encourage them to apply their best efforts for the benefit of
the Company. The plan became null and void because the Company's shareholders
did not meet, and therefore did not approve, the plan within one year of the
Board's adoption of the plan. As a result, options granted in 1998 for 30,000
shares automatically expired in July 1999. The Company's Board of Directors
adopted a similar Stock Option Plan on August 6, 1999 to provide an incentive
for its employees to remain in the service of the Company and to encourage them
to apply their best efforts for the benefit of the Company. This Stock Option
Plan will become null and void if it is not approved by a majority of the
Company's shareholders at a meeting held before August 6, 2000.
The plan provides for the granting of stock options to employees for the
purchase of shares of the Company's common stock, but subject to a maximum of
1,000,000 shares under the plan for all employees. The exercise price of options
is determined by the Board of Directors but may not be less than the fair market
value of the shares, defined as 100% of the last reported sales price of the
Company's common stock on the last business day prior to the date of the grant,
except for employees owning more than 10% of the common stock, for whom the
exercise price may not be less than 110% of the fair market value. The plan
provides that a stock option agreement shall be entered into between the Company
and any employee granted options, which shall set forth a vesting schedule, time
period for exercising options, and other provisions regarding the grant of
options under the plan.
Prior to the company reorganization in December 1997, FFP Partners maintained
a Nonqualified Unit Option Plan and a Nonqualified Unit Option Plan for
Nonexecutive Employees. Those plans authorized the granting of options to
purchase up to 450,000 and 100,000 Class A Units of FFP Partners, respectively.
The exercise price of each option granted under the unit option plans was
determined by FFP Partners but could not be less than the fair market value of
the underlying units on the date of grant. All options to acquire Class A Units
of FFP Partners under those unit option plans that were outstanding at the
completion of the December 1997 restructuring were divided into separate options
to purchase Class A Units of FFP Partners and a like number of the Company's
common shares. The exercise price for the then existing FFP Partners unit
options was allocated among the two new options in proportion to the closing
prices on the American Stock Exchange of FFP Partners Class A Units and the
Company's common shares. The original and adjusted exercise prices of the
options outstanding at year end 1999 under the Non-Qualified Plans ("NQ") and
the 1999 Stock Option Plan ("ISO") are as follows:
Original Adjusted
Issue Exercise Exercise Options Options
Date Type Price Price Outstanding Exercisable
November 1992 NQ $3.7500 $2.5388 138,333 138,333
April 1995 NQ 4.3130 4.0620 25,000 25,000
September 1995 NQ 6.0000 4.7390 25,000 25,000
February 1997 NQ 7.0000 2.9196 13,334 6,667
August 1999 ISO 2.9380 2.9380 30,000 0
Totals 231,667 195,000
All outstanding options at year end 1999 are exercisable with respect to
one-third of the shares covered thereby on each of the anniversary dates of
their respective grants and will expire 10 years from the date of grant. Upon a
change in control
of the Company, any unexercisable options will become immediately exercisable.
A summary of activity under the stock option plan and the unit option plans
for 1999, 1998, and 1997 follows:
Weighted
Number of Exercise Average
Class A Price Exercise
Units Range Price
Non-Qualified Plan Before Restructuring -
Options outstanding, December 29, 1996 221,999 $3.75 - $7.00 $4.37
Options granted during year 20,000 $4.31 $4.31
Options expired or terminated
during year 0 0 0
Options exercised during year 0 0 0
Options outstanding, December 28, 1997 241,999 $3.75 - $7.00 $4.37
Stock Option Plan and Non-Qualifed
Plan After Restructuring -
Options outstanding, December 28, 1997 241,999 $3.75 - $7.00 $4.37
Options granted during year 30,000 $4.50 $4.50
Options expired or terminated
during year (1,000) $2.54 $2.54
Options exercised during year (39,332) $2.54 - $2.62 $2.92
Options outstanding, December 27, 1998 231,667 $2.54 - $3.22 4.74
Options granted during year 30,000 $2.94 $2.94
Options expired or terminated
during year (30,000) $4.50 $4.50
Options exercised during year 0 0 0
Options outstanding, December 26, 1999 231,667 $2.54 - $3.01 $4.74
Options exercisable, December 26, 1999 195,000 $2.54 - $3.03 $4.74
All outstanding options at year end 1999 were originally issued with a
10-year life and have a weighted-average remaining contractual life of 4.6
years.
The per share weighted-average fair value of options granted in 1999, 1998,
and 1997, estimated using the Black Scholes option-pricing model, and the
underlying assumptions used are:
Underlying Assumptions
-----------------------------------------
Estimated Risk-Free Expected
Year Fair Dividend Interest Expected Option
Granted Value Yield Rate Volatility Life
1999 $1.84 0.0% 6.47% 53% 7 years
1998 3.82 0.0% 6.00% 68% 7 years
1997 2.81 0.0% 6.40% 58% 7 years
The Company applies APB Opinion No. 25 in accounting for its option plans.
Accordingly, no compensation cost related to the plans has been recognized in
the consolidated financial statements. Had the Company determined compensation
under SFAS No. 123, the Company's net income (loss) would have been reduced to
the pro forma amounts indicated below:
1999 1998 1997
(In thousands, except per share
or per unit information)
Net income (loss) -
As reported $(807) $(463) $116
Pro forma (851) (510) 53
Net income (loss) per share -
As reported -
Basic $(0.21) (0.12) 0.03
Diluted (0.21) (0.12) 0.03
Pro forma -
Basic $(0.22) (0.13) 0.01
Diluted (0.22) (0.13) 0.01
Pro forma net income (loss) reflects only options granted subsequent to 1994.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net income (loss) amounts
presented above because compensation cost for options granted prior to 1995 is
not considered.
11. Income Taxes
Congress passed legislation in 1996 clarifying that certain buildings used in
connection with the retail sale of motor fuel qualified for a substantially
shorter depreciable life for tax purposes than was previously being utilized by
the Company. In January 1997, the Internal Revenue Service issued a notice
explaining how the tax deduction related to the change in the depreciable lives
on these assets should be determined. As a result, the Company deducted in 1996
the difference between the tax depreciation previously recorded and the
depreciation available using the shorter life and recognized an additional
deferred income tax provision of $2,089,000 in the fourth quarter 1996 related
to this temporary difference. The current tax benefit of this deduction was
allocated to the Company's unitholders, but the deferred tax expense associated
with the acceleration of this deduction for tax purposes was reflected in the
Company's 1996 consolidated statement of operations. In connection with the
December 1997 restructuring of FFP Partners, the buildings which gave rise to
this additional deferred income tax provision were retained by FFP Partners. As
a result, ownership of the buildings was continued in a partnership format, and
the deferred taxes attributable to the real estate assets were reversed in the
fourth quarter 1997.
At year end 1999, the Company has a net operating loss carryforward for
income tax purposes of $7,100,000. If not utilized, the tax loss carryforward
will expire in 2018 and in 2019.
The Company's income tax expense (benefit) for 1999, 1998, and 1997 consists
of the following:
1999 1998 1997
(In thousands)
Current federal income tax expense $0 $0 $0
Current state income tax expense 0 66 0
Total current income tax expense (benefit) 0 66 0
Deferred income tax expense (benefit) (357) (310) (892)
Income tax expense (benefit) $(357) $(244) $(892)
The Company's income tax expense (benefit) is different from the amount
computed by applying the federal income tax rate of 34% to the Company's loss
before income taxes for 1999 and 1998. The reasons for the difference are
illustrated in the following table:
1999 1998
(In thousands)
Income tax expense (benefit) at statutory
rate $(395) $(240)
State income tax, net of federal benefit 0 44
Amortization of goodwill 25 25
Meals and entertainment 8 22
State tax rate change at beginning of year 0 (66)
Other, net 5 (29)
Total income tax expense (benefit) $(357) $(244)
Effective tax rate 30.7% 34.5%
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at year end 1999 and 1998
are presented below.
1999 1998
(In thousands)
Deferred tax assets:
Accounts receivable, principally due to allowance
for doubtful accounts $332 $280
Accrued expenses, principally due to accruals for
financial reporting purposes 208 244
Net operating loss carryforward 2,428 2,016
Other, net 284 82
Total deferred tax assets, net $3,252 $2,622
Deferred tax liabilities:
Property and equipment, principally due
to basis differences and differences
in depreciation $(4,553) $(3,956)
Notes receivable, principally due to
basis differences (489) (681)
Other, net (432) (564)
Total deferred tax liabilities $(5,474) $(5,201)
In assessing the ability to realize a deferred tax asset, management
considers whether it is more likely than not that some portion or all of the
deferred tax asset will not be realized. The ultimate realization of a deferred
tax asset is dependent upon the generation of future taxable income during the
period in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, projected future
taxable income, and tax planning strategies in making this assessment. Based
upon the scheduled reversal of deferred tax liabilities over the period in which
the deferred tax assets are deductible, management believes that it is more
likely than not that the Company will realize the benefits of these deductible
differences.
The Company has provided unaudited pro forma information for 1997 in the
consolidated statement of operations as if the Company had been a taxable
corporation for that period. The unaudited pro forma income tax benefit includes
the actual deferred income tax benefit recorded by the Company in 1997 of
$892,000. This pro forma information has been prepared for comparative purposes
only and does not purport to be indicative of results if the Company had been a
taxable entity in prior years or of future results of operation.
12. Futures and Forward Contracts
The Company is party to commodity futures contracts with off-balance sheet
risk. Changes in the market value of open futures contracts are recognized as
gains or losses in the period of change. These investments involve the risk of
dealing with others and their ability to meet the terms of the contracts and the
risk associated with unmatched positions and market fluctuations. Contract
amounts are often used to express the volume of these transactions, but the
amounts potentially subject to risk are much smaller.
From time-to-time the Company enters into forward contracts to buy and sell
fuel, principally to satisfy balances owed on exchange agreements (see Note 2k).
These transactions, which together with futures contracts are classified as
operating activities for purposes of the consolidated statements of cash flows,
are included in motor fuel sales and related cost of sales and resulted in net
gains as follows:
(In thousands)
1999 $74
1998 169
1997 430
Open positions under futures and forward contracts were not significant at
year end 1999 and 1998.
13. Related Party Transactions
Two of the Company's officers, its chief executive officer and its vice
president-finance, secretary, treasurer, general counsel and chief financial
officer, hold similar positions with the sole general partner of FFP Partners.
In addition, entities owned directly or indirectly by the Company's chief
executive officer, members of his immediate family, and other members of the
senior management of the Company have in the past, and intend to do so in the
future, engaged in transactions with the Company.
The Company leases real property for some of its retail outlets from FFP
Partners. The Company's management believes that the lease rates are comparable
to leases that could be entered into with unrelated third parties. No lease
payments were made by the Company to FFP Partners in 1997 or other years prior
to the December 1997 reorganization. The Company made lease payments of
$2,952,000 and $2,628,000 to FFP Partners for its properties in 1999 and 1998,
respectively. In addition, the Company began to lease 14 additional properties
from FFP Partners in February 1999 in long-term leasing transactions treated as
capital leases. Pursuant to those capital leases, the Company paid FFP Partners
$675,000 and $35,000 in 1999 as interest expense and reduction of the capital
lease obligation, respectively.
The Company also leases real property for some of its retail outlets and some
administrative and executive office facilities from various other entities
affiliated with the senior management of the Company. During 1999, 1998, and
1997, the Company paid $944,000, $959,000, and $915,000, respectively, to such
entities with respect to these leases.
Prior to the December 1997 restructuring of FFP Partners, the Company
reimbursed its general partner and its affiliates for salaries and related costs
of executive officers and others and for expenses incurred by them in connection
with the management of the Company. The reimbursement for 1997 was $763,000.
The Company is not licensed to sell alcoholic beverages in Texas. In July
1991, the Company entered into an agreement with an affiliated company whereby
the affiliated company sells alcoholic beverages at the Company's stores in
Texas. The agreement provides that the Company will receive rent and a
management fee based on the gross receipts from sales of alcoholic beverages at
its stores. In July 1997, the agreement was amended to extend the term for five
years commencing on the date of amendment. In 1999, 1998, and 1997, the sales
recorded by the affiliated company under this agreement were $17,596,000,
$12,143,000, and $8,330,000, respectively. The Company received $3,036,000,
$2,117,000, and $1,355,000, in 1999, 1998, and 1997, respectively, in rent,
management fees, and interest, and such amounts are included in miscellaneous
revenues in the consolidated statements of operations. After deducting cost of
sales and other expenses related to these sales, including the amounts paid to
the Company, the affiliated company had earnings of $176,000, $121,000, and
$83,000 in 1999, 1998, and 1997, respectively, as a result of these alcoholic
beverage sales. Under a revolving note executed in connection with this
agreement, the Company advances funds to the affiliated company to pay for the
purchases of alcoholic beverages. Receipts from the sales of such beverages are
credited against the note balance. The revolving note provides for interest at
0.5% above the prime rate charged by a major financial institution and had a
balance of $878,000 and $780,000 at year end 1999 and 1998, respectively.
The Company purchases certain goods and services (including company
automobiles, office supplies, computer software and consulting services, and
fuel supply consulting and procurement services) from related entities. Amounts
incurred for these products and services were $224,000, $563,000, and $471,000
in 1999, 1998, and 1997, respectively.
In 1980 and 1982, certain companies from which the Company acquired its
initial base of retail outlets granted to a third party the right to sell motor
fuel at retail for a period of 10 years at self-serve gasoline stations owned or
leased by the affiliated companies or their affiliates. All rights to
commissions under these agreements and the right to sell motor fuel at wholesale
to the third party at such locations were assigned to the Company in May 1987 in
connection with the acquisition of its initial base of retail operations. In
December 1990, in connection with the expiration or termination of the
agreements with the third party, the Company entered into agreements with a
company owned and controlled by an affiliated party and members of his family,
which grant to the Company the exclusive right to sell motor fuel at retail at
these locations. The terms of these agreements are comparable to agreements that
the Company maintains with other unrelated parties. In 1999, 1998, and 1997, the
Company paid commissions to this affiliated company related to the sale of motor
fuel at these locations of $239,000, $318,000, and $323,000, respectively.
During 1997, the Company reimbursed various related companies in the amount
of $386,000 for legal fees that benefited the Company. These legal fees had been
charged to expense in 1996.
The Company and FFP Partners are parties to a reimbursement agreement
pursuant to which FFP Partners reimburses the Company for all direct costs of
FFP Partners (such as costs to prepare its annual partnership tax returns,
annual audit fees, et al.) plus $200,000 for indirect overhead costs of FFP
Partners. For each of 1999 and 1998, FFP Partners paid $200,000 to the Company
as the indirect overhead cost reimbursement.
14. Commitments and Contingencies
(a) Uninsured Liabilities
The Company maintains general liability insurance with limits and deductibles
management believes prudent in light of the exposure of the Company to loss and
the cost of the insurance.
The Company self-insures medical claims up to $45,000 per year for each
individual covered by its employee medical benefit plan for supervisory and
administrative employees. Such claims above $45,000 are covered by a stop-loss
insurance policy. The Company also self-insures medical claims for its eligible
store employees. However, claims under the plan for store employees are subject
to a $1,000,000 lifetime limit per employee. The Company does not maintain
stop-loss coverage for these claims. The Company and its covered employees
contribute to pay the self-insured claims and stop-loss insurance premiums.
Accrued liabilities include amounts management believes adequate to cover the
estimated claims arising prior to a year-end, including claims incurred but not
yet reported. The Company recorded expense related to these plans of $205,000,
$284,000, and $295,000 in 1999, 1998, and 1997, respectively.
The Company is insured for worker's compensation claims in all states through
incurred loss retrospective policies. Accruals for estimated claims (including
claims incurred but not reported) have been recorded at year end 1999 and 1998,
including the effects of any retroactive premium adjustments.
(b) Environmental Matters
The operations of the Company are subject to a number of federal, state, and
local environmental laws and regulations, which govern the storage and sale of
motor fuels, including those regulating underground storage tanks. In September
1988, the Environmental Protection Agency ("EPA") issued regulations that
require all newly installed underground storage tanks be protected from
corrosion, be equipped with devices to prevent spills and overfills, and have a
leak detection method that meets certain minimum requirements. The effective
commencement date for newly installed tanks was December 22, 1988. Underground
storage tanks in place prior to December 22, 1988, must have conformed to the
new standards by December 1998. The Company brought all of its existing
underground storage tanks and related equipment into compliance with these laws
and regulations. At year end 1999 and 1998, the Company recorded liabilities for
future estimated environmental remediation costs related to known leaking
underground storage tanks of $918,000 and $918,000, respectively, in other
liabilities. Corresponding claims for reimbursement of environmental remediation
costs of $918,000 and $918,000 were recorded in 1999 and 1998, respectively, as
the Company expects that such costs will be reimbursed by various environmental
agencies. Prior to 1999, the Company contracted with a third party to perform
site assessments and remediation activities on 78 sites located in Texas that
are known or thought to have leaking underground storage tanks. Under the
contract, the third party will coordinate with the state regulatory authority
the work to be performed and bill the state directly for such work. The Company
is liable for the $10,000 per occurrence deductible and for any costs in excess
of the $1,000,000 limit provided for by the state environmental trust fund. The
Company does not expect that the costs of remediation of any of these 35 sites
will exceed the $1,000,000 limit. The assumptions on which the foregoing
estimates are based may change and unanticipated events and circumstances may
occur which may cause the actual cost of complying with the above requirements
to vary significantly from these estimates.
Environmental expenditures incurred to comply with environmental laws and
regulations were $3,126,000, $2,849,000, and $1,665,000 in 1999, 1998, and 1997,
respectively (including capital expenditures of $2,610,000, $2,418,000, and
$1,267,000).
The Company does not maintain insurance covering losses associated with
environmental contamination. However, all the states in which the Company owns
or operates underground storage tanks have state operated funds which reimburse
the Company for certain cleanup costs and liabilities incurred as a result of
leaks in underground storage tanks. These funds, which essentially provide
insurance coverage for certain environmental liabilities, are funded by taxes on
underground storage tanks or on motor fuels purchased within each respective
state. The coverage afforded by each state vary but generally provide up to
$1,000,000 for the cleanup of environmental contamination and most provide
coverage for third-party liability as well. The funds require the Company to pay
deductibles ranging from $5,000 to $25,000 per occurrence. The majority of the
Company's environmental contamination cleanup activities relate to underground
storage tanks located in Texas. Due to an increase in claims throughout the
state, the Texas state environmental trust fund has significantly delayed
reimbursement payments for certain cleanup costs after September 30, 1992. In
1993, the Texas state fund issued guidelines that, among other things,
prioritize the timing of future reimbursements based upon the total number of
tanks operated by and the financial net worth of each applicant. The Company has
been classified in the category with the lowest priority. Because the state and
federal governments have the right, by law, to levy additional fees on fuel
purchases, the Company believes these clean up costs will ultimately be
reimbursed. However, due to the uncertainty of the timing of the receipt of the
reimbursements, the claims for reimbursement of environmental remediation costs,
totaling $1,275,000 and $1,297,000 at year end 1999 and 1998, respectively, have
been classified as long-term receivables and are included in other assets in the
accompanying consolidated balance sheets. Effective December 22, 1998, this
trust arrangement was terminated with respect to future, but not past,
environmental costs. Therefore, the Company's environmental costs in the future
could increase.
(c) Other
The Company is subject to various claims and litigation arising in the
ordinary course of business, particularly personal injury and employment related
claims. In the opinion of management, the outcome of such matters will not have
a material effect on the consolidated financial position or results of
operations of the Company.
15. Quarterly Operating Results (Unaudited)
Quarterly results of operations for 1999, 1998, and 1997, adjusted to reflect
a restatement of quarterly results for 1998 made in March 2000, were as follows:
First Second Third Fourth Full
Quarter Quarter Quarter Quarter Year
(In thousands, except per unit data)
1999
Total revenues $101,080 $124,982 $134,119 $144,198 $504,379
Total margin 16,914 18,438 18,440 19,669 73,461
Net income (loss) (190) (45) (792) 220 (807)
Net income (loss)
per share-
Basic $(0.05) $(0.01) $(0.21) $0.06 $(0.21)
Diluted $(0.05) $(0.01) $(0.21) $0.06 $(0.21)
1998
Total revenues $101,255 $112,562 $104,437 $97,620 $415,874
Total margin 15,789 16,572 17,679 16,042 66,082
Net income (loss) 277 (340) 394 (794) (463)
Net income (loss)
per share -
Basic $0.07 $(0.09) $0.10 $(0.20) $(0.12)
Diluted $0.07 $(0.09) $0.10 $(0.20) $(0.12)
1997
Total revenues $92,682 $99,332 $96,059 $91,341 $379,414
Total margin 9,979 11,951 11,734 13,044 46,708
Net income (loss) (1,262) 340 (375) 1,413 116
Net income (loss)
per share-
Basic $(0.33) $0.09 $(0.10) $0.38 $0.03
Diluted (0.33) 0.09 (0.10) 0.38 0.03
16. Valuation and Qualifying Accounts
The table below sets forth the beginning and ending balances, with additions
and deductions, for the Company's allowance for doubtful trade receivables for
year end 1999, 1998, and 1997:
Balance
at Additions Charge offs, Balance at
Beginning Charged net of End
of Period Expense recoveries of Period
(in thousands)
Allowances for doubtful accounts
for trade receivables
1999 $758 $651 $433 $976
1998 809 1,916 1,967 758
1997 883 199 273 809
17. Financial Information by Segment
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," was adopted by the Company in the current year for reporting
information about the Company's operating segments. The Company and its
subsidiaries are principally engaged in two operating segments: (i) the retail
and wholesale sale of motor fuel, merchandise and other products and services at
convenience stores, truck stops, and other gasoline outlets ("Retail and
Wholesale"), and (ii) the operation of a motor fuel terminal and processing
facility ("Terminal Operations"). The Company has identified such segments based
on management responsibility. There are no major distinctions in geographical
areas served or customer types. The following table sets forth certain
information about each segment's financial information in 1999, 1998, and 1997:
Retail
and Terminal
Wholesale Operations Eliminations Consolidated
(In thousands)
1999
Revenues from external
sources $494,470 $9,909 $0 $504,379
Revenues from other
segment 0 24,564 (24,564) 0
Depreciation and
amortization 6,160 564 0 6,724
Interest income 1,376 0 0 1,376
Interest expense 3,989 843 (843) 3,989
(Loss) before income taxes
and extraordinary item (180) (609) 0 (789)
Extraordinary (loss)
before tax effect (375) 0 0 (375)
Total assets 109,408 8,998 0 118,406
Capital expenditures 12,626 406 0 13,032
1998
Revenues from external
sources $414,625 $1,249 $0 $415,874
Revenues from other
segment 0 3,602 (3,602) 0
Depreciation and
amortization 5,125 511 0 5,636
Interest income 1,406 0 (713) 693
Interest expense 1,861 713 (713) 1,861
Income (loss) before
income taxes 1,301 (2,008) 0 (707)
Total assets 89,739 7,301 0 97,040
Capital expenditures 6,605 182 0 6,787
1997
Revenues from external
sources $379,064 $350 $0 $379,414
Revenues from other
segment 0 2,174 (2,174) 0
Depreciation and
amortization 5,194 294 0 5,488
Interest income 427 0 (391) 36
Interest expense 1,678 391 (391) 1,678
Income (loss) before
income taxes 42 (818) 0 (776)
Total assets 67,844 7,486 0 75,330
Capital expenditures 14,247 3,163 0 17,410
Exhibit 10.6
FFP MARKETING COMPANY, INC.
STOCK OPTION PLAN
Scope and Purpose of Plan
The purpose of the FFP Marketing Company, Inc. Stock Option Plan is to
provide an incentive for employees of FFP Marketing Company, Inc. (the
"Company") and its Affiliates (defined below) to remain in the service of the
Company or its Affiliates, to extend to them the opportunity to acquire a
proprietary interest in the Company so that they will apply their best efforts
for the benefit of the Company, and to aid the Company in attracting and
retaining personnel.
PARAGRAPH 1. Definitions.
1.1. "Act" shall mean the Securities Exchange Act of 1934, as amended or any
similar or superseding statute or statutes.
1.2. "Affiliates" shall mean (a) any corporation, other than the Company, in
an unbroken chain of corporations ending with the Company if each of the
corporations, other than the Company, owns stock possessing fifty percent (50%)
or more of the total combined voting power of all classes of stock in one of the
other corporations in such chain, and (b) any corporation, other than the
Company, in an unbroken chain of corporations beginning with the Company, if
each of the corporations, other than the last corporation in the unbroken chain,
owns stock possessing fifty percent (50%) or more of the total combined voting
power of all classes of stock in one of the other corporations in such chain;
provided, however, with respect to the grants of Nonstatutory Options only,
Affiliates shall also include (i) any limited liability company, partnership or
other entity, other than the Company, in an unbroken chain of entities ending
with the Company if each of the entities, other than the Company, controls fifty
percent (50%) or more of the total combined voting power or equity interests in
one of the other entities in such chain, and (ii) any limited liability company,
partnership or other entity, other than the Company, in an unbroken chain of
entities beginning with the Company, if each of the entities, other than the
last entity in the unbroken chain, controls fifty percent (50%) or more of the
total combined voting power or equity interests in one of the other entities in
such chain.
1.3. "Agreement" shall mean the written agreement between the Company and an
Optionee evidencing the Option granted by the Company.
1.4. "Board of Directors" or "Director(s)" shall mean the board of directors
of the Company.
1.5. "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.6. "Committee" shall mean the committee appointed pursuant to Paragraph 3
of the Plan by the Board of Directors to administer this Plan, or in the absence
of any such appointment, the Board of Directors.
1.7. "Company" shall mean FFP Marketing Company, Inc., a Texas corporation.
1.8. "Disability" shall mean a total and permanent disability as defined in
the Company's long term disability plan, or if the Company has no long term
disability plan in effect at the time of the Optionee's disability, shall have
the meaning provided in section 22(e)(3) of the Code. Notwithstanding the
preceding sentence, for any Incentive Option, "Disability" shall have the
meaning provided in section 22(e)(3) of the Code.
1.9. "Eligible Individuals" shall mean the employees, officers and directors
of the Company or of any of its Affiliates. For purposes of this Plan, the term
"employee" means an individual employed by the Company or its Affiliates whose
income from those entities is subject to Federal Insurance Contributions Act
("FICA") withholding.
1.10. "Exercise Price" shall mean the price per share of Stock as established
pursuant to Paragraph 6.2 of the Plan.
1.11. "Fair Market Value" shall mean:
(a) If shares of Stock of the same class are listed or admitted to unlisted
trading privileges on any national or regional securities exchange at the date
of determining the Fair Market Value, the last reported sale price on such
exchange on the last business day prior to the date in question; or
(b) If shares of Stock of the same class shall not be listed or admitted to
unlisted trading privileges as provided in Subparagraph 1.11(a) and sales prices
for such shares in the over-the-counter market shall be reported by the Nasdaq
stock market ("NASDAQ") National Market System at the date of determining the
Fair Market Value, the last reported sale price so reported on the last business
day prior to the date in question; or
(c) If shares of Stock of the same class shall not be listed or admitted to
unlisted trading privileges as provided in Subparagraph 1.11(a) and sales prices
for such shares shall not be reported by the NASDAQ National Market System as
provided in Subparagraph 1.11(b), and bid and asked prices therefor in the
over-the-counter market shall be reported by NASDAQ (or, if not so reported, by
the National Quotations Bureau Incorporated or the OTC Bulletin Board) at the
date of determining the Fair Market Value, the average of the closing bid and
asked prices on the last business day prior to the date in question; and
(d) If shares of Stock of the same class shall not be listed or admitted to
unlisted trading privileges as provided in Subparagraph 1.11(a) and sales prices
or bid and asked prices for such shares shall not be reported by NASDAQ (or the
National Quotations Bureau Incorporated) as provided in Subparagraph 1.11(b) or
Subparagraph 1.11(c) at the date of determining the Fair Market Value, the value
determined in good faith by the Board of Directors.
1.12. "For Cause" shall mean either (a) an Optionee's material failure or
refusal to perform his duties if Optionee has failed to cure such failure or
refusal to perform within thirty (30) days after the Company notifies Optionee
in writing of such failure or refusal to perform, or (b) that the Optionee is
involuntarily terminated from employment based upon his commission of any of the
following:
(i) an intentional act of fraud, embezzlement or theft in connection with his
duties or in the course of his employment with the Company;
(ii) intentional wrongful damage to property of the Company or any other
willful gross misconduct that causes material economic harm to the Company or
that brings substantial discredit to the Company's reputation;
(iii) intentional wrongful disclosure of trade secrets or confidential
information of the Company;
(iv) willful violation of any law, rule or regulation (other than traffic
violations or similar offenses) or final cease and desist order, including, but
not limited to, a final, nonappealable conviction of an Optionee for commission
of a felony involving moral turpitude; or
(v) intentional breach of fiduciary duty owed to the Company involving
personal profit.
For the purpose of this Agreement, no act, or failure to act, on the part of
the Optionee shall be deemed "intentional" unless the Board of Directors finds,
in its sole discretion, that the act or failure to act was done, or omitted to
be done, by the Optionee in other than good faith and without reasonable belief
that his action or omission was in the best interest of the Company. Any
determination that an Optionee has been terminated For Cause shall be made by
the Board of Directors in its sole and absolute discretion.
1.13. "Incentive Options" shall mean stock options that are intended to
satisfy the requirements of section 422 of the Code.
1.14. "Nonstatutory Options" shall mean stock options that do not satisfy the
requirements of section 422 of the Code.
1.15. "Optionee" shall mean an Eligible Individual to whom an Option has been
granted.
1.16. "Options" shall mean either Incentive Options or Nonstatutory Options,
or both.
1.17. "Plan" shall mean the FFP Marketing Company, Inc. Stock Option Plan.
1.18. "Retirement" shall mean "Retirement" as defined by any other pension or
retirement plan or policy of the Company, and if such term is not so defined
therein, shall mean an Optionee's termination of employment with the Company on
or after attainment of age 65.
1.19. "Securities Act" shall mean the Securities Act of 1933, as amended, or
any similar or superseding statute or statutes.
1.20. "Stock" shall mean the Company's authorized common stock, $0.01 par
value, together with any other securities that may be received upon the exercise
of Options granted under the Plan.
PARAGRAPH 2. Stock and Maximum Number of Shares Subject to the Plan.
2.1. Description of Stock and Maximum Shares Allocated. The Stock which may
be issued upon the exercise of an Option may be either unissued or reacquired
shares of Stock, as the Board of Directors may, in its sole and absolute
discretion, from time to time determine.
Subject to the adjustments provided in Paragraph 6.6, the aggregate number of
shares of Stock to be issued pursuant to the exercise of all Options granted
under the Plan may equal but shall not exceed 1,000,000 shares of Stock.
2.2. Restoration of Unpurchased Shares. If an Option granted under the Plan
expires or terminates for any reason during the term of this Plan and prior to
the exercise of the Option in full, the shares of Stock subject to, but not
issued under, such Option shall again be available for Options granted under the
Plan after such shares become available again.
PARAGRAPH 3. Administration of the Plan.
3.1. Committee. If so determined by the Board of Directors, the Plan shall be
administered by the Committee. The Committee shall consist of not less than two
(2) individuals. In the event a Committee is not appointed by the Board of
Directors, then the Board of Directors shall be the Committee. In the event that
the Stock is registered under section 12 of the Act, all members of the
Committee shall be "outside directors." "Outside directors" shall mean a member
of the Board of Directors who qualifies as an "outside director" under the
regulations promulgated under section 162 of the Code and as a "non-employee
director" under Rule 16b-3 promulgated under the Act.
3.2. Duration, Removal, Etc. The members of the Committee shall serve at the
pleasure of the Board of Directors, which shall have the power, at any time and
from time to time, to remove members from the Committee or to add members to the
Committee. Vacancies on the Committee, however caused, shall be filled by action
of the Board of Directors.
3.3. Meetings and Actions of Committee. The Committee shall elect one of its
members as its Chairman and shall hold its meetings at such times and places as
it may determine. All decisions and determinations of the Committee shall be
made by the majority vote or decision of all of its members present at a
meeting; provided, however, that any decision or determination reduced to
writing and signed by all of the members of the Committee shall be as fully
effective as if it had been made at a meeting duly called and held. The
Committee may make any rules and regulations for the conduct of its business, as
it may deem advisable, that are not inconsistent with the provisions of this
Plan and with the bylaws of the Company.
3.4. Committee's Powers. Subject to the express provisions of this Plan, the
Committee shall have the authority, in its sole and absolute discretion, (a) to
adopt, amend, and rescind administrative and interpretive rules and regulations
relating to the Plan; (b) to determine the terms and provisions of the
respective Agreements (which need not be identical), including provisions
defining or otherwise relating to (i) subject to Paragraph 6, the term and the
period or periods and extent of exercisability of the Options, (ii) the extent
to which the transferability of shares of Stock issued upon exercise of Options
is restricted, (iii) the effect of termination of employment upon the
exercisability of the Options, and (iv) the effect of approved leaves of absence
(consistent with any applicable regulations of the Internal Revenue Service);
(c) to accelerate the time of exercisability of any Option that has been
granted; (d) to construe the terms of any Agreement and the Plan; and (e) to
make all other determinations and perform all other acts necessary or advisable
for administering the Plan, including the delegation of such ministerial acts
and responsibilities as the Committee deems appropriate. The Committee may
correct any defect or supply any omission or reconcile any inconsistency in the
Plan or in any Agreement in the manner and to the extent it shall deem expedient
to carry it into effect, and it shall be the sole and final judge of such
expediency. The Committee shall have full discretion to make all determinations
on the matters referred to in this Paragraph and such
determinations shall be final, binding and conclusive.
PARAGRAPH 4. Eligibility and Participation.
4.1. Eligible Individuals. Options may be granted under the Plan only to
persons who are Eligible Individuals at the time of grant. Notwithstanding any
provision contained in the Plan to the contrary, a person shall not be eligible
to receive an Incentive Option hereunder if he, at the time such Option is
granted, would own (within the meaning of sections 422 and 424 of the Code)
Stock possessing more than ten percent (10%) of the total combined voting power
or value of all classes of Stock of the Company or of an Affiliate, unless at
the time such Incentive Option is granted the Exercise Price per share of Stock
is at least one hundred ten percent (110%) of the Fair Market Value of each
share of Stock to which the Incentive Option relates and the Incentive Option is
not exercisable after the expiration of five (5) years from the date it is
granted (the "Maximum Term").
4.2. No Right to Option. The adoption of the Plan shall not be deemed to give
any person a right to be granted an Option.
PARAGRAPH 5. Grant of Options and Certain Terms of the Agreements.
5.1. Award Criteria. Subject to the express provisions of this Paragraph, the
Committee shall, in its sole discretion, determine which Eligible Individuals
shall be granted Options under the Plan from time to time. In making grants, the
Committee shall take into consideration the level of responsibility within the
organization and the contribution the potential Optionee has made or may make to
the success of the Company or its Affiliates and such other considerations as
the Board of Directors may from time to time specify. The Committee shall also
determine the number of shares subject to each of such Options and shall
authorize and cause the Company to grant Options in accordance with such
determinations.
5.2. Grant. The date on which the Committee completes all action constituting
an offer of an Option to an individual, including the specification of the
Exercise Price and the number of shares of Stock to be subject to the Option,
shall be the date on which the Option covered by an Agreement is granted, even
though certain terms of the Agreement may not be at such time determined and
even though the Agreement may not be executed until a later time. For purposes
of the preceding sentence, an offer shall be deemed made if the Committee has
completed all such action except communication of the grant of the Option to the
potential Optionee. In no event, however, shall an Optionee gain any rights in
addition to those specified by the Committee in its grant, regardless of the
time that may pass between the grant of the Option and the actual execution of
the Agreement by the Company and the Optionee.
Each Option granted under the Plan shall be evidenced by an Agreement,
executed by the Company and the Eligible Individual to whom the Option is
granted, incorporating such terms as the Committee shall deem necessary or
desirable. More than one Option may be granted to the same Eligible Individual
and be outstanding concurrently. In the event an Eligible Individual is granted
both one or more Incentive Options and one or more Nonstatutory Options, such
grants shall be evidenced by separate Agreements, one for each of the Incentive
Option grants and one for each of the Nonstatutory Option grants.
5.3. Transferability Restrictions. Each Agreement may contain or otherwise
provide for conditions giving rise to the forfeiture of the Stock acquired
pursuant to an Option granted under the Plan and for such restrictions on the
transferability of shares of the Stock acquired pursuant to an Option as the
Committee, in its sole and absolute discretion, shall deem proper or advisable.
Such conditions giving rise to forfeiture may include, but need not be limited
to, the requirement that the Optionee render substantial services to the Company
or its Affiliates for a specified period of time. Such restrictions on
transferability may include, but need not be limited to, options and rights of
first refusal in favor of the Company and shareholders of the Company other than
an Optionee who is a party to the particular Agreement or a subsequent person
who is bound by such Agreement.
PARAGRAPH 6. Terms and Conditions of Options.
All Options granted under the Plan shall comply with, be deemed to include,
and shall be subject to the following terms and conditions:
6.1. Number of Shares. Each Agreement shall state the number of shares of
Stock to which it relates.
6.2. Exercise Price. Each Agreement shall state the Exercise Price per share
of the Stock. Except as provided in Paragraph 4.1, the Exercise Price per share
of the Stock subject to any Incentive Option under this Plan shall not be less
than the greater of (a) the par value per share of the Stock or (b) one hundred
percent (100%) of the Fair Market Value per share of the Stock on the date of
the grant of the Incentive Option. The Exercise Price per share of the Stock
subject to a Nonstatutory Option shall be determined by the Committee upon the
granting of the Nonstatutory Option.
6.3. Medium and Time of Payment, Method of Exercise, and Withholding Taxes.
The Exercise Price of an Option shall be payable upon the exercise of the
Option:
(a) in cash or cash equivalent; or
(b) with Shares of Stock owned by the Optionee; or
(c) with the consent of the Committee, with a multiple series of exchanges of
shares of Stock owned by the Optionee; or
(d) with the consent of the Committee, by a combination of cash and shares of
Stock owned by the Optionee; or
(e) with the consent of the Committee, with the proceeds of an employer loan;
or
(f) with the consent of the Committee, by delivery to the Company of an
exercise notice that requests the Company to issue to the Optionee the full
number of shares of Stock as to which the Option is then exercisable, less the
number of Shares that have an aggregate Fair Market Value, as determined by the
Committee in its sole discretion at the time of exercise, equal to the aggregate
purchase price of the shares of Stock to which such exercise relates. (This
method of exercise allows the Optionee to use a portion of the shares of Stock
issuable at the time of exercise as payment for the shares of Stock to which the
Option relates and is often referred to as "cashless exercise." For example, if
the Optionee elects to exercise 1,000 shares of Stock at an exercise price of
$.25 and the current Fair Market Value of the Stock on the date of exercise is
$1.00, the Optionee can use 250 of the 1,000 shares of Stock at $1.00 per share
of Stock to pay for the exercise of the entire Option (250 multiplied by $1.00
equals $250.00) and receive only the remaining 750 shares of Stock.)
Exercise of an Option shall not be effective until the Company has received
written notice of exercise. Such notice must specify the number of whole shares
to be purchased and be accompanied by payment in full of the aggregate Exercise
Price of the number of shares purchased in cash (as set forth above) or by
delivery of shares of Stock in negotiable form with a value at least equal to
the Exercise Price, which shares of Stock shall be valued based on the Fair
Market Value of the Stock (or a combination of cash and Stock); provided,
however, that nothing in this sentence shall preclude the payment for the Stock
as provided in Subparagraph 6.3(f) and payment through so-called cashless
exercise shall be considered as payment in full to the extent allowed by the
Committee. The Company shall not in any case be required to sell, issue, or
deliver a fractional share of Stock with respect to any Option.
The Committee may, in its discretion, require an Optionee to pay to the
Company at the time of exercise of an Option (or portion of an Option) the
amount that the Company deems necessary to satisfy its obligation to withhold
Federal, state or local income or other taxes incurred by reason of the
exercise. If the exercise of an Option does not give rise to an obligation to
withhold Federal income or other taxes on the date of exercise, the Company may,
in its discretion, require an Optionee to place shares of Stock purchased under
the Option in escrow for the benefit of the Company until such time as Federal
income or other tax withholding is no longer required with respect to such
shares or until such withholding is required on amounts included in the gross
income of the Optionee as a result of the exercise of an Option or the
disposition of shares of Stock acquired pursuant to the exercise. At such later
time, the Company, in its discretion, may require an Optionee to pay to the
Company the amount that the Company deems necessary to satisfy its obligation to
withhold Federal, state or local income or other taxes incurred by reason of the
exercise of the Option or the disposition of shares of Stock. Upon receipt of
such payment by the Company, such shares of Stock shall be released from escrow
to the Optionee.
6.4. Term, Time of Exercise and Transferability of Options. In addition to
such other terms and conditions as may be included in a particular Agreement
granting an Option, an Option shall be exercisable during an Optionee's lifetime
only by the Optionee or by the Optionee's guardian or legal representative. The
Committee shall in each Agreement prescribe a vesting schedule that governs when
the Option becomes fully vested and exercisable.
An Option shall not be transferrable other than by will or the laws of
descent and distribution.
Notwithstanding anything in this Paragraph to the contrary, all Options shall
become exercisable immediately upon an Optionee's termination of employment due
to death, Disability or Retirement or upon the occurrence of any of the Change
in Control Events listed in Paragraph 6.6.
The provisions of the remainder of this Paragraph shall apply to the extent
an Optionee's Agreement does not expressly provide otherwise. If an Optionee
ceases to be an Eligible Individual, the Option shall terminate ninety (90) days
after such Optionee ceases to be an Eligible Individual; provided, however, if
an Optionee's employment (or tenure as an officer or director of the Company) is
terminated For Cause, the Option shall terminate immediately and any unexpired
Options shall be forfeited. Notwithstanding the foregoing, if an Optionee ceases
to be an Eligible Individual by reason of death or Disability, the Optionee or
the Optionee's designated beneficiary shall have the right for twelve (12)
months after the date of death or Disability to exercise an Option to the extent
such Option is otherwise exercisable on such date. At the end of such twelve
(12) month or ninety (90) day period, as applicable, the Option shall terminate
and cease to be exercisable. Each Optionee shall have the right to designate a
beneficiary on the form provided by the Committee. If no beneficiary is
designated, Optionee's estate shall have the rights of a beneficiary.
Notwithstanding any other provision of this Plan, no Option shall be exercisable
after the expiration of ten (10) years from the date it is granted, or in the
case of an Incentive Option, the Maximum Term specified in Paragraph 4.1, if
applicable. Except as provided above, the portion of the Option which is not
exercisable on the date the Optionee ceases to be an Eligible Individual shall
terminate and be forfeited to the Company on the date of such cessation.
Except as provided above, the Committee shall have the authority to prescribe
in any Agreement that the Option evidenced by the Agreement may be exercised in
full or in part as to any number of shares subject to the Option at any time or
from time to time during the term of the Option, or in such installments at such
times during said term as the Committee may prescribe. Except as provided above
and unless otherwise provided in any Agreement, an Option may be exercised at
any time or from time to time during the term of the Option. Such exercise may
be as to any or all whole (but no fractional) shares which have become
purchasable under the Option.
Within a reasonable time (or such time as may be permitted by law) after the
Company receives written notice that the Optionee has elected to exercise all or
a portion of an Option, such notice to be accompanied by payment in full of the
aggregate Option Exercise Price of the number of shares of Stock purchased, the
Company shall issue and deliver a certificate representing the shares acquired
in consequence of the exercise and any other amounts payable in consequence of
such exercise. In the event that an Optionee exercises both an Incentive Option,
or portion of one, and a Nonstatutory Option, or a portion of one, separate
Stock certificates shall be issued, one for the Stock subject to the Incentive
Option and one for the Stock subject to the Nonstatutory Option. The number of
the shares of Stock issuable due to an exercise of an Option under this Plan
shall not be increased due to the passage of time, except as may be provided in
an Agreement; provided, however, that the number of such shares of Stock which
are issuable may increase due to the occurrence of certain events which are
fully described in Paragraph 6.6.
Nothing in the Plan or in any Option granted under the Plan shall require the
Company to issue any shares upon exercise of any Option if such issuance would,
in the reasonable judgment of the Committee based upon the advice of counsel for
the Company, constitute a violation of the Securities Act, or any other
applicable statute or regulation, as then in effect. At the time of any exercise
of an Option, the Company may, as a condition precedent to the exercise of such
Option, require from the Optionee (or in the event of his death, his legal
representatives, heirs, legatees, or distributees) such written representations,
if any, concerning his intentions with regard to the retention or disposition of
the shares being acquired by exercise of such Option and such written covenants
and agreements, if any, as to the manner of disposal of such shares as, in the
opinion of counsel to the Company, may be necessary to ensure that any
disposition by such Optionee (or in the event of his death, his legal
representatives, heirs, legatees, or distributees), will not involve a violation
of the Securities Act or any other applicable state or federal statute or
regulation, as then in effect. Certificates for shares of Stock, when issued,
may have the following or similar legend, or statements of other applicable
restrictions, endorsed on them, and may not be immediately transferable:
These shares have not been registered under the Securities Act of 1933, as
amended, or any applicable state securities laws, in reliance upon an exemption
from registration. These shares may not be sold, transferred, assigned or
otherwise disposed of unless, in the opinion of the Company and its legal
counsel, such sale, transfer, assignment or disposition will not be in violation
of the Securities Act of 1933, as amended, applicable rules and regulations of
the Securities and Exchange Commission, and any applicable state securities
laws.
6.5. Limitation on Aggregate Value of Shares That May Become First
Exercisable During Any Calendar Year Under an Incentive Option. Except as is
otherwise provided in Paragraph 6.6, with respect to any Incentive Option
granted under this Plan, the sum of (a) and (b) may not (with respect to any
Optionee) exceed $100,000, with such Fair Market Value to be determined as of
the date the Incentive Option or such other incentive stock option is granted,
where:
(a) is the aggregate Fair Market Value of shares of Stock subject to such
Incentive Option that first become purchasable in a calendar year under such
Incentive Option; and
(b) is the aggregate Fair Market Value of shares of Stock or stock of any
Affiliate (or a predecessor of the Company or an Affiliate) subject to any other
incentive stock option (within the meaning of section 422 of the Code) of the
Company or its Affiliates (or a predecessor corporation of any such corporation)
that first become purchasable in a calendar year under such Incentive Option.
For purposes of this Paragraph, "predecessor corporation" means (i) a
corporation that was a party to a transaction described in section 424(a) of the
Code (or which would be so described if a substitution or assumption under such
section had been effected) with the Company, (ii) a corporation which, at the
time the new incentive stock option (within the meaning of section 422 of the
Code) is granted, is an Affiliate of the Company or a predecessor corporation of
any such corporations, or (iii) a predecessor corporation of any such
corporations.
6.6. Adjustments Upon Changes in Capitalization, Merger, Etc. Notwithstanding
any other provision in the Plan to the contrary, in the event of any change in
the number of outstanding shares of Stock:
(a) effected without receipt of consideration by the Company by reason of a
stock dividend, split, combination, exchange of shares, merger, or other
recapitalization, in which the Company is the surviving corporation; or
(b) by reason of a spin-off of a part of the Company into a separate entity,
or assumptions and conversions of outstanding grants due to an acquisition by
the Company of a separate entity,
(1) the aggregate number and class of the reserved shares, (2) the number and
class of shares subject to each outstanding Option and (3) the Exercise Price of
each outstanding Option shall be automatically adjusted to accurately and
equitably reflect the effect of such change; provided, however, that any or all
such adjustments shall not occur with respect to an Incentive Option, unless:
(i) the excess of the aggregate Fair Market Value of the shares subject to
the Incentive Option immediately after any such adjustment over the aggregate
Exercise Price of such shares is not more than the excess of the aggregate Fair
Market Value of all shares subject to the Incentive Option immediately before
such adjustment over the aggregate Exercise Price of all such shares subject to
the Incentive Option; and
(ii) the new or adjusted Incentive Option does not give the Optionee
additional benefits which such Optionee did not have under the old Incentive
Option (collectively these Subparagraphs (i) and (ii) are the "Code Section
424(a) Restrictions").
In the event of a dispute concerning such adjustment, the Committee has full
discretion to determine the resolution of the dispute. Such determination shall
be final, binding and conclusive. The number of reserved shares or the number of
shares subject to any outstanding Option shall be automatically reduced to the
extent necessary to eliminate any fractional shares.
The following provisions of this Paragraph shall apply unless an Optionee's
Agreement provides otherwise. In the event of:
(a) a dissolution or liquidation of the Company; or
(b) a merger or consolidation (other than a merger effecting a
re-incorporation of the Company in another state or any other merger or a
consolidation in which the shareholders of the surviving corporation and their
proportionate interests therein immediately after the merger or consolidation
are substantially identical to the shareholders of the Company and their
proportionate interests therein immediately prior to the merger or
consolidation) in which the Company is not the surviving corporation (or
survives only as a subsidiary of another corporation in a transaction in which
the shareholders of the parent of the Company and their proportionate interests
therein immediately after the transaction are not substantially identical to the
shareholders of the Company and their proportionate interests therein
immediately prior to the transaction; provided, however, that the Board of
Directors may at any time prior to such a merger or consolidation provide by
resolution that the foregoing provisions of this parenthetical shall not apply
if a majority of the Board of Directors of such parent immediately after the
transaction consists of individuals who constituted a majority of the Board of
Directors immediately prior to the transaction); or
(c) a transaction in which any person (other than a shareholder of the
Company on the date of the Optionee's Agreement) becomes the owner of fifty
percent (50%) or more of the total combined voting power of all classes of stock
of the Company (provided, however, that the Board of Directors may at any time
prior to such transaction provide by resolution that this Subparagraph shall not
apply if such acquiring person is a corporation and a majority of the Board of
Directors of the acquiring corporation immediately after the transaction
consists of individuals who constituted a majority of the Board of Directors
immediately prior to the acquisition of such fifty percent (50%) or more total
combined voting power), (collectively the directly preceding Subparagraphs (a),
(b) and (c) are "Change in Control Events") all Options shall become fully
exercisable and the Board of Directors shall, in its sole discretion, as of the
effective date of such transaction, if (and only if) such Options have not at
that time expired or been terminated, either: (1) change the number and kind of
shares of Stock (including substitution of shares of another corporation) and
exercise price in the manner it deems appropriate; provided, however, that in no
event may any change be made under this Paragraph to an Incentive Option which
would either constitute a "modification" within the meaning of section 424(h)(3)
of the Code or a violation of the Code Section 424(a) Restrictions; or (2)
purchase the Options from each Optionee by tendering cash equal to the Fair
Market Value of the Stock represented by the Options less the exercise price of
the Option specified in each Agreement, without regard to the determination as
to the periods and installments of exercisability made pursuant to an Optionee's
Agreement.
6.7. Rights as a Shareholder. An Optionee shall have no right as a
shareholder with respect to any shares of Stock covered by his Option until a
certificate representing such shares is issued to him. No adjustment shall be
made for dividends (ordinary or extraordinary, whether in cash or other
property) or distributions or other rights for which the record date is prior to
the date such certificate is issued, except as provided in Paragraph 6.6.
6.8. Modification, Extension and Renewal of Options. Subject to the terms and
conditions of, and within the limitations of, the Plan, the Committee may
modify, extend or renew outstanding Options granted under the Plan or accept the
surrender of Options outstanding under the Plan (to the extent not previously
exercised) and authorize the granting of substitute Options (to the extent not
previously exercised). Except as provided in Paragraph 6.6, no modification of
an Option granted under the Plan shall, without the consent of the Optionee,
alter or impair any rights or obligations under any Option previously granted
under the Plan to such Optionee under the Plan, except as may be necessary, with
respect to Incentive Options, to satisfy the requirements of section 422 of the
Code.
6.9. Furnish Information. Each Optionee shall furnish to the Company all
information requested by the Company to enable it to comply with any reporting
or other requirement imposed upon the Company by or under any applicable statute
or regulation.
6.10. Obligation to Exercise: Termination of Employment. The granting of an
Option under the Plan shall impose no obligation upon the Optionee to exercise
it or any part of it. In the event of an Optionee's termination of employment
with the Company or an Affiliate, the unexercised portion of an Option granted
under the Plan shall terminate in accordance with Paragraph 6.4.
6.11. Agreement Provisions. The Agreements authorized under the Plan shall
contain such provisions in addition to those required by the Plan (including,
without limitation, restrictions or the removal of restrictions upon the
exercise of the Option and the retention or transfer of shares thereby acquired)
as the Committee shall deem advisable.
Each Agreement shall identify the Option it evidences as an Incentive Option
or a Nonstatutory Option, as the case may be, and no Agreement shall cover both
an Incentive Option and a Nonstatutory Option. Each Agreement relating to an
Incentive Option granted under this Plan shall contain such limitations and
restrictions upon the exercise of the Incentive Option to which it relates as
shall be necessary for the Incentive Option to which such Agreement relates to
constitute an incentive stock option, as defined in section 422 of the Code.
PARAGRAPH 7. Remedies and Specific Performance.
7.1. Remedies. The Company shall be entitled to recover from an Optionee
reasonable attorneys' fees incurred in connection with the enforcement of the
terms and provisions of the Plan and any Agreement, whether by an action to
enforce specific performance, or an action for damages for its breach or
otherwise.
7.2. Specific Performance. The Company shall be entitled to enforce the terms
and provisions of this Paragraph, including the remedy of specific performance,
in Tarrant County, Texas.
PARAGRAPH 8. Duration of Plan.
No Options may be granted under the Plan more than ten (10) years after the
earlier of the date the Plan is adopted or the date the Plan is approved by the
shareholders of the Company.
PARAGRAPH 9. Amendment and Termination of Plan.
The Board of Directors may at any time terminate or from time to time amend
or suspend the Plan; provided, however, that no such amendment shall, without
approval of the shareholders of the Company, except as provided in Paragraph 6,
(a) increase the aggregate number of shares of Stock as to which Options may be
granted under the Plan; (b) increase the maximum period during which Options may
be exercised; or (c) extend the effective period of the Plan. No Option may be
granted during any suspension of the Plan or after the Plan has been terminated,
and no amendment, suspension or termination shall, without an Optionee's
consent, alter or impair, other than as provided in the Plan and the Optionee's
Agreement, any of the rights or obligations under any Option previously granted
to such Optionee under the Plan.
PARAGRAPH 10. General.
10.1. Application of Funds. The proceeds received by the Company from the
sale of shares pursuant to Options may be used for general corporate purposes.
10.2. Right of the Company and Affiliates to Terminate Employment. Nothing
contained in the Plan, or in any Agreement, shall confer upon any Optionee the
right to continue in the employ of the Company or any Affiliate, or interfere in
any way with the rights of the Company or any Affiliate to terminate an
Optionee's employment at any time.
10.3. Liability of the Company. Neither the Company, any of its Affiliates,
its directors, officers or employees nor any member of the Committee shall be
liable for any act, omission, or determination taken or made in good faith with
respect to the Plan or any Option granted under it, and members of the Board of
Directors and the Committee shall be entitled to indemnification and
reimbursement by the Company in respect of any claim, loss, damage, or expense
(including attorneys' fees, the costs of settling any suit (provided such
settlement is approved by independent legal counsel selected by the Company) and
amounts paid in satisfaction of a judgment, except a judgment based on a finding
of bad faith) arising from such claim, loss, etc. to the full extent permitted
by law and under any directors' and officers' liability or similar insurance
coverage that may from time to time be in effect. In addition, neither the
Company, its directors, officers or employees, nor any of the Company's
Affiliates shall be liable to any Optionee or other person if it is determined
for any reason by the Internal Revenue Service or any court having jurisdiction
that any incentive stock options granted hereunder do not qualify for tax
treatment as incentive stock options under section 422 of the Code.
10.4. Information Confidential. As partial consideration for the granting of
each Option under the Plan, the Agreement may, in the Committee's sole and
absolute discretion, provide that the Optionee shall agree with the Company that
he will keep confidential all information and knowledge that he has relating to
the manner and amount of his participation in the Plan; provided, however, that
such information may be disclosed as required by law and may be given in
confidence to the Optionee's spouse, tax and financial advisors, or to a
financial institution to the extent that such information is necessary to secure
a loan. In the event any breach of this promise comes to the attention of the
Committee, it shall take into consideration such breach, in determining whether
to recommend the grant of any future Option to such Optionee, as a factor
militating against the advisability of granting any such future Option to such
individual.
10.5. Other Benefits. Participation in the Plan shall not preclude the
Optionee from eligibility in any other stock option plan of the Company or any
Affiliate or any old age benefit, insurance, pension, profit sharing,
retirement, bonus, or other extra compensation plans which the Company or any
Affiliate has adopted, or may, at any time, adopt for the benefit of its
employees.
10.6. Execution of Receipts and Releases. Any payment of cash or any issuance
or transfer of shares of Stock to the Optionee, or to his legal representative,
heir, legatee, or distributee, in accordance with the provisions of the Plan,
shall, to the extent thereof, be in full satisfaction of all claims of such
persons under the Plan. The Committee may require any Optionee, legal
representative, heir, legatee, or distributee, as a condition precedent to such
payment, to execute a release and receipt for such payment in such form as it
shall determine.
10.7. No Guarantee of Interests. Neither the Committee nor the Company
guarantees the Stock from loss or depreciation.
10.8. Payment of Expenses. All expenses incident to the administration,
termination, or protection of the Plan, including, but not limited to, legal and
accounting fees, shall be paid by the Company or its Affiliates; provided,
however, the Company or an Affiliate may recover any and all damages, fees,
expenses and costs arising out of any actions taken by the Company or an
Affiliate to enforce its rights under the Plan.
10.9. Company Records. Records of the Company or its Affiliates regarding the
Optionee's period of employment, termination of employment and the reason for
such termination, leaves of absence, re-employment, and other matters shall be
conclusive for all purposes under the Plan, unless determined by the Committee
to be incorrect.
10.10. Information. The Company and its Affiliates shall, upon request or as
may be specifically required under the Plan, furnish or cause to be furnished
all of the information or documentation that is necessary or required by the
Committee to perform its duties and functions under the Plan.
10.11. Company Action. Any action required of the Company relating to the
Plan shall be by resolution of its Board of Directors or by a person authorized
to act by resolution of the Board of Directors.
10.12. Severability. If any provision of this Plan is held to be illegal or
invalid for any reason, the illegality or invalidity shall not affect the
remaining provisions of the Plan, but such provision shall be fully severable,
and the Plan shall be construed and enforced as if the illegal or invalid
provision had never been included in the Plan.
10.13. Notices. Whenever any notice is required or permitted under the Plan
or any Agreement, such notice must be in writing and personally delivered,
telecopied (if confirmed), or sent by mail or by a nationally recognized courier
service. Any notice required or permitted to be delivered under this Plan or any
Agreement shall be deemed to be delivered on the date on which it is personally
delivered, or, if mailed, whether actually received or not, on the third
business day after it is deposited in the United States mail, certified or
registered, postage prepaid, addressed to the person who is to receive it at the
address which such person has previously specified by written notice delivered
in accordance with this Paragraph or, if by courier, at the close of business on
the next business day after it is sent, addressed as described in this
Paragraph. The Company or an Optionee may change, at any time and from time to
time, by written notice to the other, the address which it or he had previously
specified for receiving notices. Until changed in accordance with the Plan, the
Company and each Optionee shall specify as its and his address for receiving
notices the address set forth in the Agreement pertaining to the shares to which
such notice relates.
10.14. Waiver of Notice. Any person entitled to notice under the Plan may
waive such notice.
10.15. Successors. The Plan shall be binding upon the Optionee, his legal
representatives, heirs, legatees, distributees, and transferees (if applicable)
and upon the Company, its successors, and assigns, and upon the Committee, and
its successors.
10.16. Headings. The titles and headings of Paragraphs are included for
convenience of reference only and are not to be considered in construction of
the Plan's provisions.
10.17. Governing Law. All questions arising with respect to the provisions of
the Plan shall be determined by application of the laws of the State of Texas
except to the extent Texas law is preempted by Federal law. Questions arising
with respect to the provisions of an Agreement that are matters of contract law
shall be governed by the laws of the state specified in the Agreement, except to
the extent preempted by Federal law and except to the extent that Texas
corporate law conflicts with the contract law of such state, in which event
Texas corporate law shall govern. The obligation of the Company to sell and
deliver Stock under the Plan is subject to applicable laws and to the approval
of any governmental authority required in connection with the authorization,
issuance, sale, or delivery of such Stock.
10.18. Word Usage. Words used in the masculine shall apply to the feminine
where applicable, and wherever the context of this Plan dictates, the plural
shall be read as the singular and the singular as the plural.
PARAGRAPH 11. Approval of Shareholders.
The Plan shall take effect on August 6, 1999, the date it was adopted by the
Board of Directors.
If this Plan is not approved by the holders of a majority of the votes
entitled to be voted at a meeting of holders of outstanding shares of equity
securities of the Company no later than one year from the date the Plan is
adopted, this Plan and the Options granted under the Plan shall be null and
void.
IN WITNESS WHEREOF, FFP Marketing Company, Inc., acting by and through its
duly authorized officer, has executed this Plan on August 6, 1999.
FFP Marketing Company, Inc.,
a Texas corporation
By: /s/Craig T. Scott
Craig T. Scott, Vice President
Loan and Security Agreement
Borrower: Home office address:
FFP Operating 2801 Glenda Avenue
Partners, L.P., a Fort Worth, Texas
Delaware limited 76117-4391
partnership
Borrower's|_| Social _ _ _ - _ _ - _ _ _ _
Security #:
[check one]
[X| Fed. 75-2147572
Employer Tax I.D. #:
Lender: Address:
Franchise Mortgage Three American Lane
Acceptance Greenwich, CT 06831
Company, a
Delaware
corporation
Loan Date:February Facility:
__, 1999
Station No. 358
175 N. Elm Street
Graham, TX 76450
Loan Amount:
$305,000.00
Commitment issued:
February __, 1999
Borrower's books and records maintained at:
[check one]
|_| Facility |X| Home office address
Minimum FCCR: 1.25
================================= ================================
THIS IS THE "Loan and Security Agreement" (this "Agreement") referred to in
the Secured Promissory Note dated today's date from the Borrower to the Lender
(the "Note"). The Note represents a loan to the Borrower (the "Loan") made
pursuant to a Commitment issued under the Franchise Mortgage Acceptance Company
Service Station Finance Program.
Capitalized terms in the box above are defined as they there appear. Other
capitalized terms used in this Agreement have the meanings given to them in
Section 18.
The Borrower agrees with the Lender as follows:
1. LOAN.
1.1. Loan Documents. Subject to the terms of this Agreement and the other
Loan Documents, including the Commitment, the Lender has agreed to make, or has
made, the Loan to the Borrower.
1.2. Disbursement Procedure. Unless otherwise specified in the Commitment or
required by the Lender, the Lender will disburse the net proceeds of the Loan
directly to the Borrower, after first deducting any costs, fees and other
amounts due as set forth in the Commitment. If the Commitment or the Lender
specifies disbursement to anyone else, the Borrower specifically authorizes and
directs the Lender to make disbursement directly to the specified payee, and
agrees that the Borrower's Obligations under the Loan Documents shall continue
in full force and effect regardless of how the specified payee applies or fails
to apply any disbursements, and regardless of anything else which the specified
payee does or fails to do.
1.3. Subsequent Modifications. The Lender may or may not, in the Lender's
sole discretion, agree with the Borrower from time to time to modify, extend or
otherwise change the payment dates, amounts, interest rate or other provisions
of the Note or the other Obligations, but if so, no such change, extension or
modification shall affect in any way the Lien or priority of the security
interest granted under this Agreement.
2. SECURITY INTEREST.
2.1. Grant. As security for the Obligations, the Borrower grants the Lender a
security interest in all of the Borrower's property located at the Facility or
used primarily in connection with the Facility or any other facilities pledged
to the Lender under this Agreement or under any other agreement or document now
or hereafter executed by Borrower in favor of Lender and all of the Borrower's
proceeds, cash flow and rights derived from the operation of the Facility, in
each case whether now owned or subsequently acquired or in which the Borrower
now has or subsequently may obtain any interest (collectively, the
"Collateral"), including the Borrower's present and future:
(i) Equipment and Inventory at the Facility;
(ii) Accounts receivable, bank accounts, certificates of deposit, contract
rights and general intangibles arising from or held in connection with the
operation of the Facility, including goodwill, trademarks, trade names and
franchise rights;
(iii) Books and records relating to the Collateral, including computer data;
and
(iv) To the extent not otherwise included, additions to, and Proceeds and
products of, the foregoing.
2.2. Financing Statements. Together with this Agreement, the Borrower has
delivered to the Lender, for filing in the appropriate jurisdictions at the
Borrower's expense, UCC-1 Financing Statements signed by the Borrower to
evidence the Lender's security interest in the Collateral.
2.3. First Lien. The Lender's security interest in the Collateral is and
shall always be a first priority security interest, subject to no Liens other
than Permitted Liens. The Borrower covenants and agrees to defend the Lender's
priority security interest in the Collateral against the claims of every other
Person.
3. REPRESENTATIONS AND WARRANTIES OF THE BORROWER. The Borrower makes the
following representations and warranties to the Lender, knowing and intending
that the Lender will rely upon them, and subject to no qualifications or
exceptions except those (if any) expressly set forth in the attached Disclosure
Schedule:
3.1. Borrower Information. The Borrower's: (i) full legal name, (ii) social
security number or federal employer tax identification number, as applicable,
(iii) mailing address and if, different, street address, and (where the Borrower
is an entity and not a natural person) (iv) type of entity and (v) jurisdiction
of organization, are all correctly and completely set forth in the box at the
beginning of this Agreement. During the last five (5) years, the Borrower has
operated the Facility only under the name shown in the box at the beginning of
this Agreement, and has not used any trade name or other name in connection with
the Facility.
3.2. Existence. If the Borrower is an entity and not a natural person, the
Borrower is duly organized, validly existing and in good standing under the laws
of its jurisdiction of organization, and is duly qualified to do business and in
good standing in every jurisdiction where the conduct of its business or the
character of its assets makes qualification necessary.
3.3. Authorization; Binding Effect. The Borrower has the requisite power and
authority to carry on its business, including the operation of the Facility, and
to enter into and perform this Agreement and the other Loan Documents. The
Borrower's signing, delivery and performance of this Agreement and the other
Loan Documents have been duly authorized by all necessary action, and the Loan
Documents represent valid and binding obligations of the Borrower, enforceable
against the Borrower in accordance with their respective terms.
3.4. No Conflict. The Borrower's entry into and performance of this Agreement
and the other Loan Documents will not violate, conflict with or result in a
default under: (i) the Borrower's organizational documents (where applicable),
or (ii) any agreement or obligation to which the Borrower is a party or is
subject, or (iii) any order or law to which Borrower is subject.
3.5. No Consent Required. The Borrower does not require the consent, approval
or authorization of anyone else, including any landlord, lender or equipment
lessor or vendor, in order to incur the Obligations, give the Lender a security
interest in the Collateral or otherwise enter into and perform under the Loan
Documents.
3.6. Financial Condition. The Borrower is solvent and will continue to be so
after incurring the Obligations. The Borrower's Financial Statements were
prepared in accordance with the provisions of Section 4.1, and present fairly
the financial position of the Borrower as of the respective dates and for the
respective periods shown. The Borrower has no material liabilities, absolute or
contingent, liquidated or unliquidated, which are not reflected in the Financial
Statements. Since the most recent Financial Statements, the Borrower has not
experienced any material adverse change in financial condition or prospects, or
any material business reversal.
3.7. Litigation; Absence of Violations. There is no lawsuit or other legal
proceeding pending or, to the Borrower's knowledge, threatened, involving the
Borrower, the Facility, the Trust Property or any Collateral, nor is there any
basis for such a lawsuit or legal proceeding. The Borrower holds all business
licenses, environmental permits, certificates of occupancy and other
governmental authorizations and approvals required in order to own or operate
the Facility. The Borrower is in compliance with applicable Legal Requirements,
including applicable Environmental Laws, governing the Borrower and the
Facility, and there are no outstanding directives or notices of violation from
any governmental agency or authority involving the Borrower, the Facility, the
Trust Property or any Collateral.
3.8. Ownership. The Borrower has, and will maintain, good and marketable
title to each item of Collateral, free and clear of Liens (except Permitted
Liens). Except as may have been previously disclosed to and specifically
approved by the Lender in writing, none of the Collateral is or will be subject
to any security agreement, mortgage, deed of trust, financing statement or other
Lien.
3.9. Operations. The Borrower is the operator of record of the Facility, with
full rights and authority under the Supply Agreement to use the trademarks
currently in use at the Facility in connection with the sale, consignment and
distribution of motor fuels and related operations. The Borrower is a
"franchisee" within the meaning of the PMPA and is entitled to the benefits and
protections of the PMPA with respect to the Borrower's occupancy and operations
at the Facility.
3.10. Supply Agreement. A true and complete copy of the Borrower's Supply
Agreement (with all amendments and modifications) has been provided to the
Lender. The Supply Agreement constitutes a "franchise" within the meaning of the
PMPA and is not subject to termination, cancellation or nonrenewal except in
compliance with the PMPA. The Supply Agreement is in full force and effect.
Neither the Borrower nor any other party to the Supply Agreement is in default
under the Supply Agreement, nor is there any event or condition which, with
notice or the lapse of time or both, would become a default under the Supply
Agreement.
3.11. Equipment/Inventory. The Equipment and Inventory are all kept at the
Facility. All Equipment and Inventory are currently usable or currently salable
in the normal course of the Borrower's business. None of the Equipment or
Inventory is held by the Borrower on a consignment basis or is, or will be,
stored with a bailee, warehouseman or anywhere other than at the Facility.
3.12. Outstanding Debt. Except for Permitted Debt, the Borrower has no Debt.
The Borrower is not in default under any instrument or agreement relating to
Permitted Debt.
3.13. Taxes. To date, the Borrower has filed all required federal, state and
local tax returns, and has paid all taxes and assessments, including sales taxes
and personal property taxes, due and payable. No tax Lien has been filed and no
tax deficiency has been asserted against the Borrower. The Borrower's tax
liabilities are adequately provided for in the Financial Statements and in the
Borrower's books and records.
3.14. No Broker's Commissions. Unless otherwise specified in the Disclosure
Schedule, the Borrower has not dealt with any broker or finder in connection
with the Loan, and no broker's or finder's fee or commission will be payable by
reason of any actions of the Borrower. The Borrower understands and acknowledges
that unless otherwise agreed in advance by the Lender in writing, the Borrower,
and not the Lender, shall be solely responsible for paying any broker's or
finder's fee or commission. Any broker's or finder's fee or commission payable
by the Borrower must be disclosed to and approved by the Lender in advance,
prior to the Lender's making the Loan. The Borrower shall indemnify the Lender
in accordance with Section 12 against any claim for broker's or finder's fee or
commission which under this Section 3.14 is the Borrower's responsibility.
3.15. Year 2000. On the basis of a comprehensive review and assessment of
Borrower's systems and equipment, and inquiry made of Borrower's material
suppliers, vendors, customers, and affiliates, Borrower reasonably believes that
the Year 2000 Problem (hereinafter defined), including all costs of
investigation, analysis, testing, and remediation, could not reasonably be
expected to result in or have any material adverse effect upon the business,
financial condition, operations, administration, sales and acquisitions,
business prospects, or other business affairs of Borrower; and Borrower has
developed feasible contingency plans adequate to ensure uninterrupted and
unimpaired business operation in the event of a failure of its own or a third
party's systems or equipment due to the Year 2000 Problem, including those of
vendors, customers and suppliers, as well as a general failure of or
interruption in its communications and delivery infrastructure. Except for any
reprogramming referred to above, the computer systems of Borrower and its
affiliates are and, with ordinary course upgrading and maintenance, will
continue for the duration of the Loan to be, sufficient for the conduct of their
respective businesses as currently conducted. For purposes of this Agreement,
the term "Year 2000 Problem" means the inability of computers and computer
components, software, and accessories, as well as imbedded microchips in
non-computing devices and equipment, to perform properly and for the purpose or
purposes intended, including performance of date-sensitive functions with
respect to certain dates prior to and after December 31, 1999.
3.16. Disclosure Schedule. There are no exceptions or qualifications to any
of the Borrower's representations and warranties except as expressly set forth,
if at all, in the attached Disclosure Schedule. Neither this Agreement nor any
other Loan Document contains a misstatement of material fact or omits to state
any material fact necessary in order to make the Loan Documents not misleading.
The Borrower knows of no factors that, either individually or in the aggregate,
would have or can reasonably be expected to have a material adverse effect on
the Borrower's operations, financial condition or prospects, or on the Facility
or any Collateral.
4. FINANCIAL STATEMENTS AND INFORMATION. While any Obligations remain
outstanding, the Borrower will furnish to the Lender:
4.1. Financial Reports. Within 45 days after the end of each fiscal quarter
and within 90 days after the end of each fiscal year, Financial Statements for
the corresponding period, including a balance sheet as of the end of the period,
and income and expense and Cash Flow statements for the period, all in detail
and form satisfactory to the Lender and providing such comparative data from
prior periods as the Lender shall specify.
4.1.1. If the Borrower is a natural person, Financial Statements shall be
furnished both for the Facility on a stand alone basis and on a combined,
unit-by-unit basis for the Facility and all other service station facilities
owned or operated by the Borrower (including related operations such as car
washes, convenience stores and other retail operations). If the Borrower is an
entity and not a natural person, Financial Statements shall be furnished both on
a consolidated and on a consolidating unit- by-unit basis for the Facility and
all other facilities and operations of the Borrower.
4.1.2. Financial Statements shall be prepared in accordance with GAAP (or
such other accounting principles generally and customarily used in the industry
and reasonably acceptable to the Lender), consistently applied and, unless
audited, shall be signed by the Borrower, where a natural person, and otherwise
by the Borrower's president, chief financial officer or equivalent. The
signature shall constitute a certification that the Financial Statements have
been so prepared and that they present fairly the Borrower's financial position
and results of operations for the specified periods. Year- end Financial
Statements shall be prepared by an independent public accountant on (i) a review
basis, if the aggregate original principal amount of the Loan and all other
loans or advances at any time outstanding by the Lender and any of the Lender's
Affiliates to the Borrower or any Affiliate of the Borrower is more than $10
million, or (ii) a compilation basis, if the aggregate original principal amount
of the Loan and all other loans or advances at any time outstanding by the
Lender and any of the Lender's Affiliates to the Borrower or any Affiliate of
the Borrower is between $5 million and $10 million.
4.2. Adverse Event. As soon as the Borrower becomes aware of it, notice of
any adverse event or condition affecting the Borrower or the Facility, including
(i) any Default or Default Event, (ii) any material casualty loss or other
damage to the Facility, (iii) any breach, actual or alleged, termination or
nonrenewal of the Supply Agreement, and (iv) any representation or warranty in
the Loan Documents being incorrect or inaccurate in any material respect.
4.3. Other Information. Any other financial information relating to the
Borrower or the operation of the Facility, including proof of payment of sales
taxes, which the Lender may from time to time request.
5. FINANCIAL COVENANTS. While any Obligations remain outstanding, and unless
the Lender consents otherwise in writing in its sole and nonreviewable
discretion, the Borrower covenants and agrees as follows:
5.1. FCCR. The Borrower shall at all times maintain the Minimum FCCR, as
specified in the box at the beginning of this Agreement. Subject to the
foregoing sentence, Lender will review compliance with the Minimum FCCR every
three months on a trailing 12-month basis, as of the end of each fiscal quarter
and as at the end of each fiscal year; provided, however, if a Borrower is an
entity and has been in existence for a period of less than 12 months on the date
hereof, the 12 month measurement period shall be reduced to the number of months
in which Borrower has been in existence until such time as Borrower has been in
existence for one year and provided further however, if Borrower is a natural
person and has owned or operated the Facility for a period of less than 12
months on the date hereof, the 12 month measurement period shall be reduced to
the number of months for which Borrower has owned or operated the Facility until
such time as Borrower has owned or operated the Facility for one year. The
Minimum FCCR shall be measured with respect to either (i) the Borrower as a
whole (if the Borrower is an entity and not a natural person), or (ii) the
Facility and all other service station facilities owned or operated by the
Borrower, including related operations such as car washes, convenience stores
and other retail operations (if the Borrower is a natural person and not an
entity).
5.2. Limit on Distributions. The Borrower shall make no Distributions unless
the actual FCCR for the Borrower for the twelve (12) months preceding the date
of the proposed Distribution and the reasonably projected FCCR for the
subsequent twelve (12) months are and shall be at least equal to the Minimum
FCCR as specified in the box at the beginning of this Agreement. If the actual
FCCR for the twelve (12) months preceding the date of the proposed Distribution
and the reasonably projected FCCR for the subsequent twelve (12) months are and
shall be at least equal to the Minimum FCCR, then the Borrower may make a
Distribution, but only up to the amount by which the actual FCCR for the twelve
(12) months preceding the date of the proposed Distribution exceeds the Minimum
FCCR.
5.3. No Consolidation or Merger. The Borrower shall not merge or consolidate
with any other Person, liquidate or dissolve, or enter into any partnership,
joint venture, syndicate or other business combination.
5.4. Use of Proceeds. Loan proceeds shall be used solely for lawful
commercial purposes as provided for in the Commitment. No loan proceeds shall be
used to acquire or carry any securities, including margin stock, except in
accordance with the requirements of Federal Regulations G,T,X and U.
5.5. Guarantees. Borrower shall not enter into any Guarantees.
6. COVENANTS REGARDING COLLATERAL. While any Obligations remain outstanding,
and unless the Lender consents otherwise in writing in its sole and
nonreviewable discretion, the Borrower covenants and agrees as follows:
6.1. Pay Taxes and Claims. The Borrower will pay, before they become
delinquent and before any interest or penalties accrue, all taxes, assessments
and governmental levies, and all claims which, if unpaid, might result in the
creation of a Lien upon the Facility or any Collateral. The Borrower will timely
file all tax returns.
6.2. Maintain Collateral; Comply with Law. The Borrower will: (i) maintain
the Facility and the Collateral in good operating condition; (ii) keep
consistent books and records containing full and correct entries of all
transactions; (iii) do everything necessary to stay in existence, keep the
Supply Agreement and all franchises in effect and maintain all governmental
permits, licenses and authorizations; and (iv) comply with applicable laws and
regulations.
6.3. Location of Records. The Borrower will keep its books and records at the
address of the Facility or at the Borrower's home office address, as specified
in the box at the beginning of this Agreement. The Borrower will not change the
address where books and records are kept, or change its name or operate the
Facility under any name other than as set forth in the box at the beginning of
this Agreement.
6.4. Location of Equipment and Inventory. Equipment and Inventory will be
kept only at the Facility and, except for sales of Inventory in the ordinary
course of business, shall not be removed or relocated anywhere else, but even if
removed or relocated, all Equipment and Inventory will remain subject to the
Lender's continuing, first priority security interest.
6.5. No Disposition. The Borrower shall not sell, transfer or otherwise
dispose of any
Collateral, except for sales of Inventory in the ordinary course of business
and replacement of obsolete or worn-out Equipment with new Equipment of
equivalent value to which the Lender's first priority security interest will
likewise attach.
6.6. Power of Attorney. The Borrower irrevocably appoints the Lender, with
full power of substitution, as its lawful agent and attorney in fact to: (i)
sign and file financing statements and other documents as the Lender deems
necessary to evidence, perfect or confirm the security interest granted by this
Agreement; and (ii) file proofs of loss respecting the Collateral with the
appropriate insurers and endorse in the Borrower's name any checks or drafts
constituting insurance proceeds.
6.6.1. Effective upon the occurrence of any Default Event, the Lender or its
designee is further authorized, as agent and attorney- in-fact for the Borrower,
to endorse the Borrower's name on checks and other instruments relating to the
Collateral, to change the address where mail relating to the Collateral should
be sent, and generally to take such actions as may be appropriate to effectuate
the Lender's remedies.
6.6.2. The powers of attorney granted to the Lender in this Agreement are
coupled with an interest and are irrevocable so long as this Agreement remains
in force. In exercising any power of attorney granted pursuant to this
Agreement, neither the Lender nor its designee shall be held liable for any acts
or omissions or for any error of judgment or mistake. However, the Lender's
powers of attorney do not and shall not be construed to authorize any confession
of judgment. Any Person shall be entitled to rely on the provisions of this
Agreement as conclusive evidence that the Lender holds a continuing, valid and
binding power-of-attorney from the Borrower.
6.7. Inspection. The Lender shall have the right to inspect the Facility and
the Collateral, to examine the Borrower's books and records, to make copies at
the Borrower's expense, and to discuss the Borrower's business and affairs with
the Borrower's officers, employees, any outside management firm, advisor or
consultant and the Borrower's accountants (all of whose fees and expenses shall
be paid by the Borrower).
6.8. Supply Agreement. The Borrower shall at all times keep the Supply
Agreement in good standing and in full force and effect, and shall not make or
agree to any material modification of the Supply Agreement. The Borrower shall
fully comply, at the Borrower's own cost and expense, with the terms of the
Supply Agreement and shall promptly notify Lender of any adverse development
with regard to the Supply Agreement, including any claim of breach of or default
under, or threat of nonrenewal or termination of, or litigation involving the
Supply Agreement. The Borrower shall provide the Lender with proof of the Supply
Agreement's renewal at least thirty (30) days' prior to the stated expiration
date of the then current term of the Supply Agreement, and upon each renewal or
modification of the Supply Agreement shall deliver to the Lender an updated
copy, certified by the Borrower as true and complete, of the Supply Agreement as
so renewed or modified.
6.9. Standard of Care. Except to the extent, if any, otherwise required by
the UCC or other applicable law which by its express terms cannot be modified,
waived or excused, the Lender's sole duty with respect to Collateral in its
possession (whether before or after a Default or Default Event) is to deal with
the Collateral in the same manner as the Lender deals with the Lender's own
similar property. The Borrower agrees that this standard of care is reasonable
and appropriate under the circumstances, and that the Lender will not be
responsible for any shortage, discrepancy, damage, loss or destruction of
Collateral, wherever located, regardless of cause.
6.10 Notices. Borrower shall provide Lender with copies of all
correspondence, notices and documents relating to a default or potential default
under any real property Lease, if any, within twenty-four (24) hours after any
Borrower's receipt thereof.
7. ENVIRONMENTAL MATTERS.
7.1. Environmental Covenants. The Borrower represents, warrants and covenants
as follows:
7.1.1. All answers and information supplied to the Lender by or on behalf of
the Borrower in response to the Lender's "Environmental Questionnaire" are and
remain true, accurate and complete in all respects, and do not contain any
misstatement of fact or omit to state any fact necessary in order to make them
not misleading.
7.1.2. There are no outstanding citations, directives, notices or orders of
violation or noncompliance with applicable Environmental Laws or other Legal
Requirements issued to the Borrower or with respect to the Facility, nor does
there exist any condition which, if known to the appropriate authorities, could
result in the issuance of any such citation, directive, notice or order. Neither
the Borrower nor any Affiliate of the Borrower has ever been the subject of a
notice under the citizen suit provision of any Environmental Law or of a
complaint, claim or other notice alleging violation of Environmental Laws,
whether with respect to the Facility or elsewhere, nor has any of them ever
caused, been held responsible for, or been alleged by any governmental authority
or other Person to have been responsible for, any release or discharge of
Hazardous Materials in violation of Environmental Laws, whether with respect to
the Facility or elsewhere.
7.1.3. The Borrower shall not process, manufacture, store (except in strict
compliance with Section 7.1.4), treat, spill, leak, discharge, use or dispose of
any Hazardous Materials of any kind on or from the Facility nor permit any other
Person to do so, other than the storage and dispensing of gasoline and other
motor vehicle fuels and the storage (in proper containers and under appropriate
conditions) and use in the ordinary course of normal quantities of lubricants,
oils and cleaning products for servicing motor vehicles; in each case as
necessary for the proper day-to-day operations and maintenance of the Facility
and all of which shall be in strict compliance with applicable Legal
Requirements, manufacturers' and installers' guidelines and sound management
practices. The Borrower shall comply with all applicable labeling and
notification requirements in the use of such materials, including maintaining
MSDS materials and complying with worker "right to know" and similar Legal
Requirements.
7.1.4. The Borrower shall be responsible, at its sole cost and expense, for
complying with all applicable Legal Requirements and insurance requirements,
including registration, record-keeping, monitoring, inspection, financial
assurance and upgrading requirements for all underground storage tanks. No
underground storage tank has been, or shall be, installed, renovated, removed or
decommissioned except in compliance with applicable Legal Requirements and
pursuant to an approved permit or closure plan, which shall include
post-excavation sampling to confirm the absence of soil or groundwater impacts
from Hazardous Materials. At the Lender's request (but not more often than
annually, unless Legal Requirements specify a greater frequency), the Borrower
shall cause the underground storage tanks to be tested for tightness and
integrity by any approved method specified by the Lender. The Borrower shall
maintain, by way of tank insurance, surety bond, letter of credit, proof of
coverage eligibility under the State's leaking underground storage tank trust
fund (if solvent) or such other method and in such amount as shall be prescribed
or approved by the Lender from time to time (and which initially shall be for
not less than $1,000,000 per occurrence), evidence of financial responsibility
in the event of any leakage, unpermitted discharge or other failure of the
Facility's underground storage tanks to be in full compliance with all
applicable Legal Requirements.
7.1.5. The Lender reserves the right (but never assumes the obligation) to
cause an environmental audit or Phase I or Phase II assessment of the Facility
to be conducted on written notice to the Borrower in the event of reasonable
concern on the part of the Lender regarding environmental conditions at the
Facility, or following any environmental incident referred to in Section 7.2,
the cost of which shall in each case be paid by the Borrower. The Lender may
require the Borrower to correct or mitigate, at the Borrower's cost and expense,
any unsatisfactory conditions disclosed by such audit or assessment.
7.2. Notice of Environmental Incident. If the Borrower becomes aware or
receives notice of: (i) any event or condition involving the spill, discharge,
leakage, improper storage, improper disposal or need for cleanup of any
Hazardous Materials at or about or emanating from any of the Trust Property; or
(ii) any complaint, order, directive, citation or other notice with regard to
the alleged violation of any Environmental Law or otherwise involving air
emissions, water quality, noise emissions, sanitation, hazardous discharges,
excessive exposure levels or any other environmental, health or safety matter
affecting the Borrower, any Affiliate of the Borrower or the Facility, the
Borrower shall immediately notify the Lender, and shall promptly comply with all
applicable Legal Requirements.
7.3. Lender's Rights. Unless immediately resolved by the Borrower to the
Lender's reasonable satisfaction, the Lender shall have the right (but never the
obligation), without limiting any of the Lender's other rights and remedies
under this Agreement and the other Loan Documents, to take or cause to be taken
such actions reasonably determined to be necessary or advisable to respond to a
release or threatened release of any Hazardous Material from or onto the
Facility or effect compliance with any applicable Environmental Law. All
reasonable costs and expenses incurred by or on behalf of the Lender in doing
so, including but not limited to attorneys' fees and environmental consultants'
and contractors' fees, shall be secured by this Agreement and shall be payable
by the Borrower upon demand, together with interest at the Default Rate from the
date when incurred by the Lender until the date when paid or reimbursed in full
by the Borrower.
7.4. Indemnification. The Borrower shall indemnify, defend (with counsel
satisfactory to the Lender), protect and hold harmless the Facility, the
Collateral, the Lender and the other Indemnitees against all liability
(including liability in tort or contract, whether strict or otherwise), damage
(whether direct, indirect, consequential, punitive, incidental, special or
otherwise), obligation, loss, penalty, fine, claim, lawsuit or other proceeding,
costs, disbursements and expenses (including cleanup costs, response costs,
accounting, consulting and engineering fees, and reasonable attorneys' fees)
directly or indirectly arising from or in connection with any matter referred to
in Section 7.2, or any violation of Environmental Laws or other Legal
Requirements with respect to the Facility, the Borrower, or any Affiliate of the
Borrower, or incurred by the Lender pursuant to Section 7.3 or otherwise of this
Agreement. This indemnification obligation will survive any termination,
discharge or cancellation of this Agreement, and is in addition to and not in
derogation or in lieu of any other indemnification obligations under this
Agreement, the Note, the Indenture or any other Loan Document.
8. INSURANCE.
8.1. Coverages Required. The Borrower shall, at its own cost and expense, at
all times maintain the following insurance with respect to the Facility:
8.1.1. Comprehensive general public liability insurance (including
contractual liability and motor vehicle coverage) covering all claims for bodily
injury, including death, and property damage occurring on, in or about the
Facility or otherwise associated with Borrower's operations at the Facility,
with a combined single limit of no less than $1,000,000 per occurrence.
8.1.2. "All risk" extended coverage property insurance against loss or damage
to the tangible Collateral and the Improvements from fire or any other cause,
including vandalism and malicious mischief, for one hundred percent (100%) of
the full replacement value.
8.1.3. Business interruption insurance covering at least six (6) months of
operating costs and expenses, including debt service for the Loan and all other
financing costs.
8.1.4. If any of the Improvements at the Facility are located within a
designated flood hazard area, federal flood hazard insurance for such
Improvements in the maximum amount obtainable.
8.1.5. Builder's risk insurance covering Improvements during construction,
restoration or renovation.
8.1.6. Workers compensation insurance covering all of the Borrower's
employees.
8.1.7. Tank insurance in such amounts and covering such risks as may be
required by the Lender at any time.
8.1.8. Such other insurance as may, from time to time, be reasonably required
by the Lender against the same or other risks. The Lender also reserves the
right to require, but not more often than once every twelve (12) months (except
in the event of a change in the nature or scope of the Borrower's operations, or
upon the construction or installation of additional Improvements), an adjustment
in the amount or nature of the liability coverage or other insurance coverage
required to be maintained by the Borrower, as the Lender deems advisable to take
into account changes in market conditions, inflation rates, insurance policies
and prudent lending practices observed by institutional lenders or program
lenders generally. The Borrower shall promptly comply with any such adjustment.
8.2. Policy Requirements. The insurance coverage required to be maintained
pursuant to Section 8.1 must meet the following requirements:
8.2.1. All policies shall be issued by financially sound and responsible
insurance carriers authorized to do business in the jurisdiction where the
Facility is located and reasonably acceptable to the Lender. Certificates of
coverage on the ACORD or comparable form issued by a broker shall be delivered
to the Lender concurrently with the execution and delivery of this Agreement,
together with paid receipts confirming that premiums have been paid in full in
advance for the next quarterly, semiannual or annual (as applicable) payment
period. Thereafter, renewal or replacement certificates, or other evidence of
renewal satisfactory to the Lender, shall be delivered to the Lender not less
than thirty (30) days before the expiration date of the policy being renewed or
replaced.
8.2.2. All policies shall contain (i) an endorsement or agreement by the
insurer that any loss will be paid to the Lender in accordance with the terms of
the policy, notwithstanding any act or negligence of the Borrower or the
Borrower's agents or representatives that might otherwise result in denial or
forfeiture of coverage, and (ii) an agreement by the insurer waiving all rights
of recovery, set-off or counterclaim against the Lender by way of subrogation or
otherwise. All policies must unconditionally provide for at least thirty (30)
days' prior written notice to the Lender of cancellation, nonrenewal or material
amendment (including any reduction in the scope or limits of coverage or any
increase in deductible amounts). If any coverage required by Section 8.1
expires, is withdrawn or lapses for any reason, the Borrower shall immediately,
and in any event prior to the expiration, withdrawal or lapse taking effect,
obtain replacement coverage at the Borrower's sole cost and expense.
Alternatively, the Lender shall have the right in its sole discretion (but not
the obligation), upon receiving notice of any impending lapse, cancellation or
non-renewal of coverage, to obtain replacement coverage in some or all of the
amounts and against any or all of the risks as required under this Agreement.
All costs and expenses incurred by the Lender in doing so shall be paid or
reimbursed by the Borrower immediately upon demand, together with interest at
the Default Rate, and until repaid shall constitute part of the Obligations
secured by the lien and security interest of this Agreement and the Indenture.
8.2.3. Liability policies shall designate the Lender or its designee(s) and
their respective successors and assigns as additional named insured(s). All
other policies shall designate the Lender or its designee(s) and their
respective successors and assigns as loss payee(s) with respect to the
Collateral and all business interruption coverage, and shall contain a standard
non-contributory form first mortgagee endorsement, entitling the Lender to
collect all proceeds, together with a standard waiver of subrogation endorsement
in form and substance reasonably satisfactory to the Lender.
8.2.4. All policies shall be written as primary policies, not as contributing
with or in excess of any other coverage which the Borrower may carry, and
without any coinsurance provisions. The Borrower shall not maintain separate
insurance which is concurrent in form or kind or contributory in the event of
loss with any insurance required pursuant to Section 8.1.
8.2.5. All property insurance and liability insurance deductibles, if any,
shall be in amounts satisfactory to the Lender.
8.3. Ownership of Policies. If the Lender, its designee(s) or any of their
respective successors or assigns acquire by any manner the title or estate of
the Borrower in any of the Collateral or the Trust Property, then the Lender
shall become the sole and absolute owner of all of the insurance policies
relating to such property, with the sole right to collect and retain any
unearned premiums. The Borrower agrees, immediately upon demand, to execute and
deliver any assignments or other authorizations or instructions as the Lender
may request to effectuate this assignment.
8.4. Damage to Collateral. In case of damage or destruction to the Collateral
or the Trust Property, the corresponding provisions of the Indenture shall
govern the respective rights and obligations of the Borrower and the Lender and
the adjustment and application of insurance proceeds payable in respect of the
damaged or destroyed Collateral or Trust Property.
9. DUE-ON-SALE PROVISIONS; ASSUMPTION.
9.1. Change in Ownership. Except in compliance with all of the requirements
of Section 9.3, the Borrower shall not, whether voluntarily or involuntarily by
operation of law or otherwise, do any of the following (each of which shall
constitute a "Change in Ownership"): (i transfer, sell, convey or assign any
interest in the Facility or in the Borrower's operations at the Facility, or any
part of the Collateral (except in compliance with Section 6.5), the
Improvements, or the other Trust Property, or enter into any contract or other
agreement or commitment to do so, including options to purchase, installment
sale contracts, land contracts, real estate contracts, sale-leaseback
arrangements or mortgage commitments; or (ii) amend or terminate the Supply
Agreement or enter into, amend or terminate any Leases; or (iii) merge or
consolidate with any other Person (where the Borrower is an entity and not a
natural person), or become a partner, member (except for membership in trade
associations) or participant with any other Person in any partnership, limited
liability company, joint venture or other business venture involving the
Facility.
9.2. Change in Control. Where the Borrower is an entity and not a natural
person, none of the equity interests in the Borrower nor any substantive rights
(such as voting rights) or economic incidents (such as the right to receive
dividends or distributions) appurtenant to such equity interests shall be sold,
transferred, pledged or encumbered, whether voluntarily or involuntarily by
operation of law or otherwise (in each case, a "Change in Control"), except in
compliance with all of the requirements of Section 9.3. The death after the date
of this Agreement of a natural Person who is the Borrower or who prior to the
making of this Agreement had been disclosed to the Lender in writing to be an
equity holder in the Borrower, and the resulting devolution of the decedent's
proprietary or equity interest by will or the laws of intestacy to the
decedent's spouse or children, or to a trust or trusts for their respective
benefit, shall not constitute a "Change in Control" for purposes of this
Agreement; provided, however, that in all events: (i) there exists and has
occurred no Default or Default Event, (ii) the Facility continues to be managed
by a Person acceptable to the Lender, and (iii) any subsequent sale, transfer,
pledge, encumbrance or other voluntary or involuntary disposition by the
decedent's transferees of the equity interest or of any substantive rights or
economic incidents appurtenant to such equity interest shall be deemed to
constitute a "Change in Control" and shall be subject to the provisions of this
Section 9.
9.2.1. If any controlling Person (other than a natural person) of the
Borrower as of the date of this Agreement undergoes or experiences a change in
control, whether by way of merger or consolidation, sale or other disposition of
assets or equity interests, or otherwise, such change in control shall be deemed
to constitute a "Change in Control" subject to the provisions of Section 9.2. As
used in this Section 9.2.1, the terms "control" and "controlling" have the
meanings ascribed to them under the Securities Act of 1933, as amended, and the
Rules promulgated under such statute, as amended.
9.3. Lender's Consent Required. No Change in Ownership or (except as
expressly provided in Section 9.2) Change in Control shall be permitted without
the Lender's prior written approval, as determined by the Lender in its sole and
nonreviewable discretion. The Lender shall not consider any request for approval
unless: (i) the Borrower submits an application on such form and with such
supporting documentation as may be required by the Lender; (ii) the Borrower is
not in default of any of the Borrower's obligations under the Note, this
Agreement or any of the other Loan Documents; (iii) the Facility continues to
meet all of the Lender's underwriting requirements as then in effect, including
loan-to-value requirements, as demonstrated by an updated appraisal or other
evidence satisfactory to the Lender; (iv) the proposed transferee of the
Facility (in the case of a Change in Ownership) or of an equity or other
interest (in the case of a Change in Control) shall be a Person meeting all of
the Lender's credit and underwriting standards and otherwise acceptable to the
Lender; (v) if required by the Lender, the Borrower shall provide Guaranty
Agreements with respect to the Obligations from the transferee or from one or
more Affiliates of the transferee, as applicable, together with such other
documents as the Lender or the Lender's counsel may require to document the
transfer or to affirm the responsibility of the Persons involved for the
Obligations; (vi) the Borrower shall pay a transfer fee equal to one percent
(1%) of the outstanding Principal Amount as of the effective date of the Change
in Ownership or Change in Control; and (vii) the Borrower shall pay all costs
and expenses incurred by or on behalf of the Lender in connection with the
Change in Ownership or Change in Control, including the cost of an updated
appraisal, under writing reviews, reasonable attorneys' fees and disbursements,
and document preparation and record ing/filing fees and charges. Unless and then
only to the extent otherwise expressly stated in the Lender's written approval
issued at the time, no Change in Ownership or Change in Control shall relieve
the named Borrower or any existing Guarantor from responsibility for the
Obligations, and they shall continue to remain liable, jointly and severally
with the transferee and any new Guarantors, for the payment and performance of
the Obligations in accordance with their terms. If the Lender provides its
written approval of a Change in Ownership or Change in Control, the transferee
shall acquire its interest subject to the terms and conditions of the Loan
Documents, as if such transferee had itself executed and delivered the same.
9.4. Borrower's Acknowledgments. The Borrower acknowledges and agrees that
the creditworthiness and experience of the Borrower and (where applicable) the
Borrower's equity holder(s) in owning, developing and operating the Facility
were primary factors in the Lender's determination to make the Loan and extend
credit to the Borrower at the interest rate and on the other terms and
conditions contained in the Note and the other Loan Documents. The Borrower
agrees that the due-on-sale provisions contained in this Agreement are fair and
reasonable protections to safeguard the Lender's investment, to preserve the
benefit of the Lender's economic bargain and to guard against the impairment of
the Lender's security and the risk of default.
10. DEFAULT EVENTS.
10.1. Specified Events. The "Default Events" below are in addition to and not
in lieu of those specified in the Note or any other Loan Document. Each of the
following shall constitute a "Default Event" under this Agreement and the other
Loan Documents:
10.1.1. Failure to Pay Note. The Borrower fails to make any payment required
by the Note in accordance with its terms.
10.1.2. Other Failure to Pay. The Borrower fails to make any other payment
required by this Agreement or any other Loan Document when due or (but only
where such a period is expressly specified) within any applicable notice or cure
period.
10.1.3. Failure to Comply with Financial Covenants. The Borrower breaches, is
in default under or fails to achieve or comply with any of the Borrower's
covenants or obligations under Section 5 of this Agreement.
10.1.4. Representations and Statements. Any representation, warranty,
certificate, statement or information made or provided at any time by the
Borrower or any Guarantor in or pursuant to any Loan Document, including
financial statements, shall have been untrue or incorrect or shall have been
misleading or incomplete in any material respect when made.
10.1.5. Financial Information and Inspections. The Borrower or any Guarantor
shall fail, promptly after request by the Lender, to furnish financial
information or to permit inspection of any books or records or of the Collateral
or Trust Property as required under any Loan Document.
10.1.6. Contested Obligation. (i) Any Loan Document shall for any reason
cease to be, or is asserted by the Borrower or any Guarantor, as applicable, not
to be, a legal, valid and binding obligation of that Person, enforceable in
accordance with its terms; or (ii) the validity, perfection or priority of the
Lender's first lien and security interest on any of the Collateral under this
Agreement or any of the Trust Property under the Indenture is contested by any
Person; or (iii) any Guarantor repudiates, revokes, contests or disputes, in
whole or in part, such Guarantor's obligations under any Guaranty Agreement.
10.1.7. Judgments. A judgment shall be entered against the Borrower in excess
of $20,000 or against any Guarantor in excess of $20,000 and, in either such
case, the judgment is not paid in full and discharged, or stayed and bonded to
the satisfaction of the Lender, within thirty (30) days after being entered,
unless the amount of the judgment is fully covered by insurance and an insurer
has, in writing, unconditionally accepted responsibility for payment.
10.1.8. Insolvency.
(a) The Borrower or any Guarantor shall: (i voluntarily begin any proceeding
or file any petition seeking relief under Title 11 of the United States Code
(the "Bankruptcy Code") or any other federal, state or foreign bankruptcy,
insolvency, receivership, liquidation or similar law; (ii) consent to or fail to
oppose the institution of any such proceeding or the filing of any such
petition; (iii) apply for, or consent to or fail to oppose, the appointment of a
receiver, trustee, custodian, fiscal agent or similar official for the Borrower
or any Guarantor or for any substantial part of any of their respective property
or assets; (iv) file an answer admitting the material allegations of a petition
filed against the Borrower or any Guarantor for the benefit of creditors; (v)
make a general assignment in writing for the benefit of creditors; (vi) become
unable, admit in writing an inability or fail generally to pay their respective
debts as they become due; (vii) take advantage of any other law or procedure for
the relief of debtors; or (viii) take any action for the purpose of or with a
view towards effecting any of the foregoing.
(b) An involuntary proceeding shall be commenced or an involuntary petition
shall be filed in a court of competent jurisdiction seeking: (i) relief in
respect of the Borrower or any Guarantor under the Bankruptcy Code or any other
federal, state or foreign bankruptcy, insolvency, receivership, liquidation or
similar law; (ii) appointment of a receiver, trustee, custodian, fiscal agent or
similar official for the Borrower or any Guarantor or for any substantial part
of any of their respective property or assets; or (iii) the winding up or
liquidation of the Borrower or any Guarantor which is an entity and not a
natural person; and such proceeding shall continue undismissed for sixty (60)
days, or an order or decree approving or ordering any of the foregoing shall
continue unstayed or in effect for sixty (60) days.
10.1.9. Additional Liens; Loss of Priority. Any of the Collateral becomes
subject to a Lien other than the Permitted Liens, or the Lender does not obtain
or continue to have a perfected first priority security interest in any of the
Collateral, subject to the Permitted Liens.
10.1.10. Seizure of Property or Collateral. Any of the Collateral or the
Facility are seized or foreclosed upon pursuant to process of law or by way of
legal self-help.
10.1.11. Default under Supply Agreement or Material Agreements; Loss of
Supply Agreement or License. There occurs a default beyond any applicable grace
or cure period on the part of the Borrower under any real property or Equipment
Lease which is material to the operation of the Facility, under the Supply
Agreement or under any other agreement which is material to the operation of the
Facility, including without limitation any food and/or beverage supply
agreement; or the Supply Agreement or any license, permit or other governmental
authorization necessary or material to the operation of the Facility is
terminated, is suspended for more than seven (7) days, or is allowed to lapse or
expire, in each case without being immediately renewed or without an equivalent
substitute satisfactory to the Lender being immediately applied for and obtained
by the Borrower.
10.1.12. Suspension of Business. The Borrower shuts down or suspends the
transaction of business at the Facility for more than fifteen (15) days total in
any calendar year.
10.1.13. Material Adverse Change. There occurs any adverse change in the
Collateral, the Trust Property or the operations, prospects or condition,
financial or otherwise, of the Borrower or any Guarantor, and such change, in
the Lender's sole and nonreviewable opinion, is material or could otherwise
materially increase the Lender's credit or collection risk under the Note or any
other Obligation owed to the Lender.
10.1.14. Environmental Violation. The Borrower fails to take immediate steps
to respond appropriately (or thereafter to diligently resolve) to the Lender's
satisfaction and in compliance with Legal Requirements and all Environmental
Laws, any environmental incident as described in Section 7.2.
10.1.15. Prohibited Transfer. There occurs any Change in Ownership or Change
in Control prohibited by Sections 9.1 or 9.2.
10.1.16. Failure to Perform Generally. The Borrower fails to perform or
comply when required with any other requirement, covenant or condition contained
in this Agreement or any other Loan Document.
10.1.17. Default Under Other Loan Documents. There occurs any "Default Event"
under the Note, the Indenture, any Guaranty or any other Loan Document.
10.1.18. Cross-Default with Lender. There occurs a default beyond any
applicable grace or cure period on the part of the Borrower, any Guarantor or
any of their respective Affiliates under any other note, loan agreement,
security instrument or financial arrangement of any kind, whether now existing
or subsequently entered into, with the Lender or any Affiliate of the Lender.
10.1.19. Cross-Default with Other Debt. The Borrower fails to pay when due
(whether at scheduled maturity, upon acceleration, demand or otherwise) or
within any applicable grace or cure period any amount in respect of any Debt in
excess of $20,000 (excluding the Debt outstanding under the Note), or there
occurs any other default in respect of such Debt which entitles the creditor or
obligee to accelerate the balance due or exercise any other collection remedies.
10.2. Cross-Default With Other Documents. If the Lender or any Affiliate of
the Lender, on the one hand, and the Borrower, any Guarantor or any of their
respective Affiliates, on the other hand, are or subsequently become parties to
any other note, loan agreement, security instrument or credit arrangement of any
kind, all such other obligations are automatically amended, without the need for
further action or documentation, to provide that a Default Event under this
Agreement shall be an event of default under the other obligations, entitling
the Lender or other holder of them to accelerate and to exercise all other
remedies available upon default.
11. REMEDIES UPON DEFAULT. Upon the occurrence of a Default Event:
11.1. In General.
11.1.1. All of the Obligations shall at the option of the Lender become
immediately due and payable, without further notice or demand.
11.1.2. The Lender shall have and shall be entitled to exercise all rights
and remedies of a secured party under the UCC and other applicable law.
11.1.3. The Lender may, by written notice, require the Borrower to assemble
and promptly deliver the Collateral wherever the Lender shall designate, or the
Lender or its agent or designee may enter the Facility or other premises where
Collateral is located and remove the Collateral without liability to the
Borrower, in each case at the Borrower's expense.
11.1.4. The Lender shall be entitled, as of right and without any need to
prove a diminution in the Collateral's value, to the appointment of a receiver,
with such powers in respect of the Collateral as the appointing court shall
confer.
11.2. Sale of Collateral. The Lender may sell, lease or rent out Collateral
at public or private sale, at such prices or terms as the Lender deems
appropriate, whether for cash, on credit, or for future delivery, in bulk or in
lots, or may retain any Collateral, even if then left idle. The Borrower agrees
that ten (10) days' notice of any sale or other disposition shall be reasonable
notice. The Lender may adjourn any sale by announcement at the scheduled time
and place, without further notice or advertisement, and the Lender shall not be
obligated to accept any bids at the sale if the Lender determines not to do so.
The Lender may bid (with credit for the outstanding amount of the Obligations)
or become purchaser at any sale, free of the Borrower's right of redemption, if
any, which the Borrower expressly waives. Sales may be conducted at the
Facility, and the Borrower shall have no claim for rent, storage or otherwise.
11.2.1. The proceeds, if any, of sale or lease of Collateral shall be
applied: (i) first, to payment of fees and expenses incurred by the Lender as a
result of the Default Event, including reasonable attorneys' fees and other
expenses in repossessing, selling or leasing the Collateral; (ii) next, to
payment of the outstanding Obligations, including interest and all other costs,
fees and charges allowed by the Loan Documents; and (iii) finally, only then
shall any net surplus be remitted to the Borrower.
11.3. Accounts Receivable. The Lender may (but shall not be obligated to)
give notice to account debtors and bill and collect the Borrower's accounts
receivable for the Facility in whole or in part, either directly or through the
Lender's agent or designee, in its own, the Borrower's or any other names.
11.4. Collection Action. The Lender may bring an appropriate action to
recover the amounts due in respect of the Obligations. Doing so shall not
prevent the Lender from subsequently bringing an action to realize or foreclose
upon the Collateral for any Default Event existing at the time the collection
action was instituted, or for any subsequent Default Event.
11.5. Other Remedies. The Lender shall be entitled to exercise all other
rights and remedies available under this Agreement and the other Loan Documents,
and all other rights and remedies available under applicable law and in equity.
11.6. Remedies Cumulative. The Lender's remedies are cumulative, and by
reason of exercising any particular remedy the Lender shall not be prevented
from later exercising any other remedy. To the full extent permitted by
applicable law, the Lender shall have no obligation to realize or foreclose
first upon the Collateral or the Trust Property under the Indenture, but may
proceed directly against the Borrower, or against both the Borrower and some or
all of the Collateral or Trust Property or both, or against neither, with or
without proceeding at the same time against any Guarantor, all as the Lender
decides in the Lender's sole and nonreviewable discretion. Even if the Lender
does not immediately require the Borrower to make payment in full or does not
immediately exercise the Lender's other rights and remedies upon the occurrence
of a particular Default Event, the Lender shall still have the right to do so
later if the Default Event continues or if another Default Event subsequently
occurs.
11.7. Default Interest. Following the occurrence of a Default Event, the
Obligations shall bear interest at the Default Rate and, notwithstanding the
entry of any judgment relating to the Obligations, shall continue to accrue
interest at the Default Rate until paid and satisfied in full.
12. INDEMNIFICATION. The Borrower shall indemnify, defend (with counsel
acceptable to the Lender), protect and hold the Facility, the Collateral, the
Lender and the other Indemnitees harmless against all liability (including
liability in tort or contract, whether strict or otherwise), damage (whether
direct, indirect, consequential, punitive, incidental, special or otherwise),
obligation, loss, penalty, fine, claim, suit or other proceeding, together with
associated costs and expenses (including reasonable legal and other professional
fees and disbursements), that may be asserted against the Facility or the
Collateral or incurred by or asserted against the Lender or any of the other
Indemnitees, in connection with or arising out of: (i) breach or default under
any of the Borrower's representations, warranties, covenants or undertakings in
the Loan Documents; (ii) any personal injury or property damage occurring on or
about the Facility; (iii) the ownership, use, occupancy, operation or leasing of
the Facility or any Collateral; or (iv) otherwise incidental to or involving the
Facility or the Collateral, or the interest of the Lender or any other
Indemnitee in them, whether before or after a Default Event. The Borrower's
obligation to indemnify shall survive any foreclosure or other disposition of
the Collateral and the termina tion, discharge or cancellation of this Agreement
for any reason, and is in addition to, and not in derogation or in lieu of, any
other indemnity obliga tions contained in the Indenture or elsewhere in the Loan
Documents.
13. MISCELLANEOUS SECURITY AGREEMENT PROVISIONS.
13.1. Security Agreement. This Agreement is intended to constitute a security
agreement in accordance with the UCC, and to create a security interest in favor
of the Lender in all of the Collateral.
13.2. Effectiveness. The security provisions of this Agreement shall be
effective immediately when signed by the Borrower, whether or not countersigned
by the Lender.
13.3. Revival. If any payment received or applied by the Lender on account of
the Obligations, including any payment out of collection or Proceeds of
Collateral, is subsequently invalidated, declared to be fraudulent or
preferential, set aside or required to be refunded to a trustee, debtor in
possession, receiver or other Person under any bankruptcy or insolvency law or
in any other proceeding, then a corresponding amount of the Obligations shall be
revived and reinstated, as if the payment had never been received by the Lender,
and the Lender's security interest, rights and remedies under this Agreement and
the other Loan Documents shall to such extent continue in full force and effect.
14. NO JURY TRIAL. The Borrower and the Lender each waive all rights to trial
by jury in any litigation or other proceeding relating to or arising out of this
Agreement or any other Loan Document. The Borrower further waives, to the full
extent permitted by law, any right to an appraisal of the Collateral or of any
other security for the Obligations. The Borrower acknowledges that these waivers
(i) have been fully disclosed to and discussed by the Borrower and the Lender,
(ii) are subject to no exceptions, and (iii) are made knowingly, intentionally
and willingly as part of a bargained-for loan transaction.
15. ATTORNEYS' FEES. Whether or not a Default Event has occurred or is
continuing, if: (i) the Lender becomes a party to any third-party suit or
proceeding involving the Facility, the Lien created by this Agreement or the
Lender's interest in any of the Collateral; or (ii) the Lender engages counsel
to collect any of the Obligations or to enforce the Lender's rights or remedies
or the performance of this Agreement or any other Loan Document; then, in each
such case, the Borrower shall pay to the Lender, upon demand, the Lender's
costs, expenses and reasonable attorneys' fees incurred in so doing. All such
amounts shall be deemed to be part of the Obligations secured by this Agreement,
and shall bear interest at the Default Rate from the date incurred until the
date repaid in full.
16. ASSIGNMENT BY LENDER.
16.1. Lender's Right to Assign. The Lender reserves the right, at any time
while the Obligations remain outstanding, to sell, assign, syndicate or
otherwise transfer or dispose of any or all of the Lender's interest under the
Loan Documents. The Lender also reserves the right at any time to pool the Loan
with one or more other loans originated by the Lender or any other Person, and
to securitize or offer interests in such pool on whatever terms and conditions
the Lender shall deter mine. The Borrower consents to the Lender's releasing
financial and other information regarding the Borrower, the Facility and the
Loan in connection with any such sale, pooling, securitization or other
offering.
16.2. Assignee's Rights. The Lender's assignee shall, to the extent of the
assignment, be vested with all the rights and remedies of the Lender under this
Agreement (including those granted with respect to the Collateral), and to the
extent of such assignment the assignee may fully enforce the secured party's
rights and remedies, and all references to the Lender shall mean and include the
assignee. The Lender shall retain all rights and remedies not so assigned or
transferred.
17. MISCELLANEOUS.
17.1. Final Agreement. This Agreement, together with the other Loan
Documents, represents the final agreement and understanding between the Borrower
and the Lender and may not be contradicted or amended by evidence of prior,
contemporaneous or subsequent oral agreements between the Borrower and the
Lender. The Borrower represents, warrants and acknowledges that no oral
agreements exist between the Borrower and the Lender.
17.2. Amendments. None of the provisions of this Agreement or any other Loan
Document may be waived, modified or amended except by a specific written
instrument signed in each instance by an authorized officer of the Lender.
17.3. Notices. Any notice pursuant to this Agreement shall be in writing and
shall be mailed by certified mail, return receipt requested, or sent by Federal
Express or other nationwide overnight courier service capable of providing
delivery confirmation, or delivered by hand. The notice shall be deemed duly
given when so mailed, sent or hand-delivered. Notices shall be addressed to the
Borrower and to the Lender at their respective addresses set forth at the
beginning of this Agreement, or to any other address which either of them may
designate in a notice to the other that meets the requirements of this Section
17.3.
17.4. Interest Limits.
17.4.1. Notwithstanding anything to the contrary contained in this Agreement,
the Note or any of the other Loan Documents, in no event shall the amount or
rate of interest (including interest at the Default Rate and, to the extent that
they may be deemed, notwithstanding their characterization in the Loan
Documents, to constitute interest, any prepayment fees, late payment processing
fees and other fees or charges) payable, charged or received in connection with
this Agreement or the Loan ever exceed the maximum rate or amount, if any,
specified by applicable law.
17.4.2. If at the time any payment becomes due, enforcing this Agreement or
any other Loan Document as written is prohibited by or would result in violation
of any applicable law limiting the rate or amount of interest or other charges
which the Lender may collect, then the interest or other charges shall
automatically be reduced to the maximum amount then permitted by applicable law.
If the Lender ever collects from the Borrower interest or other charges that
would exceed the highest applicable lawful amount, then the excess amount shall
immediately be deemed credited for the Borrower's account and will be returned
to the Borrower, either by being applied to reduce the then outstanding
principal balance of the Note or by way of direct refund to the Borrower, as the
Lender shall elect.
17.5. Binding Effect. This Agreement is binding upon the Borrower and shall
inure to the benefit of the Lender and the Lender's successors in interest and
assigns, and may be enforced against the Borrower by any of them. The Borrower
shall not assign the Loan or delegate any of its obligations under the Loan
Documents except as expressly permitted by and subject to compliance with the
conditions set forth in this Agreement.
17.6. Interpretation; Construction.
17.6.1. No provision of this Agreement shall be construed against a
particular Person or in favor of another Person merely because of which Person
(or its representative) drafted or supplied the wording for such provision.
17.6.2. References to "Sections" shall be deemed to refer to the sections or
subsections, as appropriate, of this Agreement. References to "Schedules" mean
the Schedules attached to and made a part of this Agreement.
17.6.3. Where the context requires: (i) use of the singular or plural
incorporates the other, and (ii) pronouns and modifiers in the masculine,
feminine or neuter gender shall be deemed to refer to or include the other
genders.
17.6.4. As used in this Agreement, the terms "include[s]" and "including"
mean "including but not limited to"; that is, in each case the example or
enumeration which follows the use of either term is illustrative, but not
exclusive or exhaustive.
17.6.5. Section headings appearing in this Agreement are inserted solely as
reference aids for the ease and convenience of the reader; they shall not be
deemed to modify, limit or define the scope or substance of the provisions they
introduce, nor shall they be used in construing the intent or effect of such
provisions.
17.7. Further Assurances. The Borrower shall, promptly and at the Borrower's
sole cost and expense, sign, acknowledge and deliver such other documents and
instruments, and take such other actions, as the Lender may from time to time
request in order to evidence, confirm or perfect this Agreement or any security
interest granted to the Lender under this Agreement, to confirm the outstanding
balance of the Note, or to otherwise carry out the purpose and intent of this
Agreement and the other Loan Documents.
17.8. Survival. All representations, warranties, agreements and covenants
contained in this Agreement shall survive the signing and delivery of this
Agreement, and all of the waivers made and indemnification obligations
undertaken by the Borrower shall survive the termination, discharge or
cancellation for any reason of this Agreement.
17.9. Severability. If any provision of this Agreement is held invalid,
illegal or unenforceable by a court of competent jurisdiction, the provision
shall only be enforced to the extent, if any, reasonable under the facts and
circumstances, and otherwise shall be deemed deleted from this Agreement. The
remaining provisions shall not be affected, and shall remain in full force and
effect.
17.10. Time of the Essence. Time is of the essence with respect to the
Borrower's performance of its obligations under this Agreement.
17.11. Governing Law. This Agreement shall be governed by and interpreted
according to Connecticut law, but without giving effect to any Connecticut
choice of law provisions which might otherwise make the laws of a different
jurisdiction govern or apply; except that the laws of the State shall govern but
only to the extent of mandatory provisions applicable to the filing and
perfection of security interests, notice, foreclosure procedures and the like
with respect to the Collateral or the Trust Property.
17.12. Joint and Several Liability. If Borrower comprises more than one
person or entity, all such persons and entities shall be jointly and severally
liable for the performance of Borrower's obligations hereunder.
18. DEFINITIONS.
18.1. Capitalized Terms. As used in this Agreement, the following terms mean:
"Adjusted Debt": All Debt of the Borrower, measured as of the last day of the
relevant period, with the sole exception of contingent reimbursement obligations
and contingent Guarantees, but in each case only while they remain contingent.
"Affiliate": With respect to any particular Person, any other Person directly
or indirectly controlling, controlled by or under common control with such
Person.
"Cash Flow": Net Income of the Borrower for any period, plus (but only to the
extent previously deducted in determining such net income) depreciation,
amortization, taxes, Lease Obligations and non-cash charges for the same period,
all determined in accordance with GAAP or such other accounting principles
generally and customarily used in the industry and reasonably acceptable to the
Lender. Cash Flow as so determined shall be adjusted by the Lender in accordance
with the Lender's policy to reflect standardized operating and overhead expenses
(including normalized rent and occupancy costs if the Facility is leased by the
Borrower from an Affiliate, and deduction of owner compensation at a standard
rate if the Borrower has operations at one or more additional locations besides
the Facility), and to exclude the impact (positive or negative) of certain
extraordinary and nonrecurring income and expenses not generally reflected in
prior period results and not reasonably anticipated to be received or incurred
in any subsequent periods.
"Change in Control": As defined in Section 9.2.
"Change in Ownership": As defined in Section 9.1.
"Collateral": As defined in Section 2.1.
"Commitment": The commitment letter issued by the Lender to the Borrower and
accepted by the Borrower.
"Debt": All of the following, but without duplication: (i) indebtedness of a
Person for borrowed money; (ii) any obligation incurred for all or part of the
purchase price of property or services, other than accounts payable and accrued
expenses included entirely within current liabilities in accordance with GAAP;
(iii) indebtedness or obligations evidenced by bonds, debentures, notes, or
similar written instruments; (iv) reimbursement obligations of a Person (whether
contingent or otherwise) in respect of letters of credit, bankers' acceptances,
surety or other bonds and similar instruments; (v) any obligation secured by a
Lien on the property of a Person; (vi) Lease Obligations; and (vii) all
Guarantees by a Person of the payment or performance obligations of any other
Person, including obligations of the kind referred to in clauses (i) through
(vi). The term "Debt" shall not include any unsecured, self-amortizing debt
advanced to the Borrower by the motor fuel supplier named in the Supply
Agreement, where repayment shall be made solely by way of a surcharge, which
shall not exceed a specified number of cents per gallon approved by the Lender,
on the price per gallon charged by the supplier for motor fuel supplied to the
Borrower, and not out of the Borrower's other assets.
"Default": Any event or condition which, with notice or the lapse of time or
both, would become a Default Event.
"Default Event": Any of the events, conditions or circumstances described in
Section 10 of this Agreement.
"Default Rate": As defined in the Note.
"Disclosure Schedule": The Disclosure Schedule completed by the Borrower
concurrently with the making of the Loan and attached to this Agreement.
"Distribution": Any payment, transfer or other distribution of any kind to a
Person with an equity interest, legal or beneficial, in the Borrower (whether as
a shareholder, partner, member or otherwise), to any Guarantor, or to any of
their respective Affiliates, whether or not characterized as a dividend or
distribution, and whether made to them in their capacities as shareholder,
partner, member or otherwise, or characterized as repayment of loans or other
Debt or as interest, or as return of capital, return on equity or investment, or
as salary, bonus or other compensation; except only for such payments or
distributions as may be consented to in writing in advance by the Lender in its
sole discretion, or as are expressly permitted by this Agreement.
"Environmental Laws": All Legal Requirements governing the use, storage,
shipment, handling, disposal, discharge, release, cleanup, reporting, labelling,
warning, workplace disclosure or monitoring of Hazardous Materials, or otherwise
relating to environmental pollution or environmental protection, including, as
may be applicable to environmental matters, the common law respecting nuisance,
trespass, tortious liability and strict liability.
"Equipment": All goods defined as such in the UCC, including all equipment,
machinery, appliances, furniture, furnishings and fixtures which are now or may
at any time in the future be installed in, attached to or located at the
Facility, or used or held for use in connection with the operation of the
Facility, such as pumps, dispensing equipment, car wash equipment, vacuum units,
store fixtures, cash registers, point-of-sale devices, diagnostic, monitoring
and repair equipment, tools, racks, coolers, display cases, cooking apparatus,
and food service equipment, whether or not constituting "fixtures" under State
law; together with all alterations, replacements, controls and operating
accessories.
"Facility": The service station or other facility, including the real estate
and Improvements, as more fully described in the Indenture.
"FCCR": Fixed Charge Coverage Ratio, which is the ratio of Cash Flow for any
period to scheduled or required payments of Adjusted Debt for the same period.
"Financial Statements": The Borrower's financial statements, including
balance sheets, statements of operations and statements of cash flows, together
with the accompanying notes, as delivered to the Lender.
"GAAP": Generally accepted accounting principles as in effect in the United
States of America, applied on a consistent basis.
"Guarantor": Every Person signing and delivering a Guaranty, together with
any other Person besides the Borrower who is or may subsequently become liable,
directly or indirectly, in respect of any of the Obligations as maker,
guarantor, surety, accommodation party, coindorser or in any similar capacity.
"Guaranty": The Guaranty, if any, dated today's date, made by one or more
Affiliates of the Borrower or other Persons (and if more than one, jointly and
severally) to the Lender, together with any subsequent guaranty, endorsement or
other undertaking by which any Person guarantees or assumes responsibility in
any capacity for the payment or performance of any of the Obligations.
"Guarantee": Any guarantee or other contingent liability (other than the
endorsement of third-party checks for collection or deposit in the ordinary
course of business, and indemnity obligations not guaranteeing or otherwise
insuring payment or performance of any Debt or other financial obligation),
direct or indirect, made or assumed by a Person with respect to any Debt or
other obligation of another Person.
"Hazardous Materials": All substances, in whatever form or concentration,
which are classified as hazardous, toxic or dangerous or as pollutants or
contaminants under any Environmental Law. "Hazardous Materials" specifically
include gasoline, oil and other petroleum products, their fractions and their
constituent and residual compounds and by-products, and radon, asbestos,
ureaformaldehyde and PCB's. Where under applicable Environmental Laws a
jurisdiction exercises the authority to establish stricter requirements
regarding Hazardous Materials or to define Hazardous Materials more inclusively,
the stricter requirements and more inclusive definitions shall apply with
respect to the Facility to the extent located within such jurisdiction or
otherwise subject to its authority.
"Improvements": All structures and appurtenances installed or constructed at
the Facility, including buildings, canopies, garages, booths, fuel storage
facilities, paving, fencing, lighting, landscaping and other real estate
improvements.
"Indemnitees": The Lender and each other holder of the Note or the other Loan
Documents or of any interest in them, together with each of their respective
officers, directors, stockholders, members, partners, trustees, employees,
representatives, agents and Affiliates, including every other Person controlling
the Lender or the Lender's Affiliates, and each of their respective successors
and assigns.
"Indenture": The "First Leasehold Deed of Trust, Security Agreement and
Fixture Filing," dated today's date, granted by Borrower in respect of the
Facility for the benefit of the Lender.
"Inventory": All goods defined as such in the UCC, including bulk fuel,
supplies, spare parts and store inventories.
"Lease": As to any Person, a lease or other agreement according such Person
the right to use real or personal property as lessee, whether classified as an
operating lease or as a capital lease under GAAP.
"Lease Obligation": The obligation of a Person to pay rent or other amounts
under a Lease.
"Legal Requirements": All present and future: (i) laws, ordinances, rules,
statutes, regulations, requirements, rulings, orders and decrees of the federal,
state, county, municipal and local governments and their respective constituent
administrative departments, public and semi-public agencies, commissions,
boards, bureaus, offices and judicial and other authorities; (ii) orders, rules
and regulations of any national or local board of fire underwriters or other
public or private body exercising similar functions; and (iii) requirements
under policies of comprehensive general liability, property and other insurance
in force with respect to any part of the Facility; in each case whether foreseen
or unforeseen, ordinary or extraordinary, and whether or not they may
necessitate structural changes or improvements or may interfere with the use and
enjoyment of any of the Facility by the Borrower or by anyone else.
"Lien": Any security interest, mortgage, pledge, lien, claim, charge,
encumbrance, conditional sale or title retention or reservation agreement,
including the lessor's title or reversionary interest under a Lease or analogous
instrument.
"Loan": As defined in the preamble of this Agreement.
"Loan Documents": The Commitment, this Agreement, the Note, the Indenture,
the Guaranty and all other security instruments, assignments, certificates,
certifications and agreements of any kind relating to the Loan, whether signed
or delivered concurrently with or subsequent to this Agreement.
"Minimum FCCR": The Minimum FCCR as specified in the box at the beginning of
this Agreement.
"Note": As defined in the preamble of this Agreement.
"Obligations": All indebtedness, liability and obligation for payment or
performance, whether accrued or contingent, whether direct or indirect, whether
arising from tort, contract, or otherwise, and whether incurred in the capacity
of maker, co-endorser or obligor or as surety, guarantor or in any other
capacity, of the Borrower, each Guarantor or any of their respective Affiliates
to the Lender or to any of the Lender's Affiliates under: (i) the Note, (ii)
this Agreement, (iii) the Indenture, (iv) the Guaranty, (v) any other Loan
Document, or (vi) any other present or future agreement, commitment,
undertaking, instrument or obligation of the Borrower to the Lender or any
Affiliate of the Lender, including future advances (whether or not pursuant to a
written commitment), with respect to the Facility; in each case whether due or
to become due or whether now existing or subsequently incurred or arising, and
as may be amended, recast, renewed, replaced or extended from time to time. The
term "Obligations" specifically includes but is in no way limited to principal,
accrued interest and late payment processing fees under the Note, all advances
made by or on behalf of the Lender under any Loan Document, and all collection
and other costs and expenses incurred by or on behalf of the Lender. The term
"Obligations" also includes all indebtedness, liability and obligation for
payment or performance, whether accrued or contingent, whether direct or
indirect, and whether incurred in the capacity of maker, co- endorser or obligor
or as surety, guarantor or in any other capacity, of the Borrower, each
Guarantor or any of their respective Affiliates to the Lender or to any of the
Lender's Affiliates under any present or future agreement, commitment,
undertaking, instrument or obligation related to the loans made under the
Secured Promissory Note (or Notes, as the case may be) of even date herewith
executed by Borrower to the order of Lender.
"Permitted Debt": Only: (i) the Debt represented by the Note; (ii) the Debt
previously disclosed to and approved by the Lender in writing in connection with
the Borrower's application for financing from the Lender; and (iii) purchase
money financing or Lease financing (with the vendor reserving a security
interest or lessor interest, as the case may be, limited just to the Equipment
financed) for specific items of Equipment for the Facility, but subject always
to the Lender's prior approval in the case of Equipment purchases or Leases
which, individually or in the aggregate, entail a commitment or involve
Equipment with a retail value in excess of $10,000 (and provided further that,
whether or not the Lender's prior approval is otherwise required, in no event
shall the Borrower incur purchase money financing or Lease Obligations unless
afterwards, and after giving effect to the payments required under such
financing arrangements, the Borrower will continue to maintain the required
FCCR, measured on a trailing and a forecasted 12-month basis).
"Permitted Liens": Only: (i) Liens created pursuant to the Loan Documents;
(ii) other existing Liens as previously disclosed to and approved by the Lender
in writing covering only specific items of Collateral and Trust Property
securing Permitted Debt; (iii) Liens on specific items of after-acquired
Equipment securing Permitted Debt subsequently incurred in compliance with the
requirements of this Agreement; (iv) Liens for taxes, assessments or
governmental charges not yet due and payable; and (v) statutory liens of
carriers, warehousemen, mechanics and other Liens imposed by law in the ordinary
course of business for sums not yet delinquent.
"Person": Any natural person and any corporation, partnership (general,
limited or otherwise), limited liability company, trust, association, joint
venture, governmental body or agency or other entity having legal status of any
kind.
"PMPA": The Petroleum Marketing Practices Act, 15 U.S.C. Section 2801 et
seq., and any accompanying regulations, each as may be amended from time to
time.
"Proceeds": As defined in the UCC, and including (whether or not they
constitute "proceeds" under the UCC) proceeds of any insurance policy,
indemnity, warranty or guaranty payable in respect of any Collateral, and all
amounts realized from the sale, exchange, collection or other disposition of
Collateral.
"State": The State where the Facility is located.
"Supply Agreement": The supply agreement between the Borrower and the
Borrower's motor fuel supplier, as provided to the Lender prior to the making of
the Loan.
"Trust Property": The "Trust Property" or the "Mortgaged Property", as the
case may be, in either case as defined in the Indenture.
"UCC": The Uniform Commercial Code as enacted and in force in the State, as
may be amended from time to time.
18.2. Accounting and UCC Terms. Accounting terms not specifically defined
shall have the meanings customarily given them in accordance with GAAP. Terms
defined in the UCC shall, unless otherwise noted, have the respective meanings
specified in the UCC.
19. CROSS DEFAULT AND CROSS COLLATERALIZATION. Under the terms of the Loan
Documents, the Loan and all other loans from Lender to Borrower which closed
concurrently herewith (the "Other Loans") are cross-defaulted and
cross-collateralized and the Loan and all other loans to Borrower, now existing
or made in the future, are cross-defaulted. All loans to Borrower by Lender
other than the Loan are referred to herein as the "Other Loans". Borrower
acknowledges and agrees that Lender may be selling the Loan and some or all of
the Other Loans to one or more different parties. If the Loan and the Other
Loans are not sold to the same party, the Loan will automatically, without need
for future documentation, cease to be cross-defaulted and cross-collateralized
with any of the Other Loans not sold to the third party which purchased the
Loan. The Loan and any Other Loan which are sold to the same third party will
remain cross-collateralized (if it is originally cross-collateralized) and
cross-defaulted.
* * *
FFP Operating Partners, L.P., a Delaware limited partnership
By: FFP Operating LLC
a Delaware limited liability company,
its sole general partner
By:___________________________________
Robert J. Byrnes,
President
Franchise Mortgage Acceptance Company, a Delaware corporation
By:
Name:____________________________________
Title:___________________________________
Loan and Security Agreement
Borrower: Home office address:
FFP Operating Partners, L.P., a 2801 Glenda Avenue
Delaware limited partnership Fort Worth, Texas 76117-4391
Borrower's |_| Social Security #: _ _ _ - _ _ - _ _ _ _
[check one]
|X| Fed. Employer Tax I.D. #: 75-2147572
Lender: Address:
Franchise Mortgage Acceptance Three American Lane
Company, a Delaware corporation Greenwich, CT 06831
Loan Date: June 24, 1999 Facility:
Station No. 201
306 N. Woodland Drive
Forest, MS 39074
Loan Amount: $825,000.00
Commitment issued: June 21, 1999
Borrower's books and records maintained
at: [check one]
[_| Facility |X| Home office address
Minimum FCCR: 1.25
========================================= =============================
THIS IS THE "Loan and Security Agreement" (this "Agreement") referred to in
the Secured Promissory Note dated today's date from the Borrower to the Lender
(the "Note"). The Note represents a loan to the Borrower (the "Loan") made
pursuant to a Commitment issued under the Franchise Mortgage Acceptance Company
Service Station Finance Program.
Capitalized terms in the box above are defined as they there appear. Other
capitalized terms used in this Agreement have the meanings given to them in
Section 18.
The Borrower agrees with the Lender as follows:
1. LOAN.
1.1. Loan Documents. Subject to the terms of this Agreement and the other
Loan Documents, including the Commitment, the Lender has agreed to make, or has
made, the Loan to the Borrower.
1.2. Disbursement Procedure. Unless otherwise specified in the Commitment or
required by the Lender, the Lender will disburse the net proceeds of the Loan
directly to the Borrower, after first deducting any costs, fees and other
amounts due as set forth in the Commitment. If the Commitment or the Lender
specifies disbursement to anyone else, the Borrower specifically authorizes and
directs the Lender to make disbursement directly to the specified payee, and
agrees that the Borrower's Obligations under the Loan Documents shall continue
in full force and effect regardless of how the specified payee applies or fails
to apply any disbursements, and regardless of anything else which the specified
payee does or fails to do.
1.3. Subsequent Modifications. The Lender may or may not, in the Lender's
sole discretion, agree with the Borrower from time to time to modify, extend or
otherwise change the payment dates, amounts, interest rate or other provisions
of the Note or the other Obligations, but if so, no such change, extension or
modification shall affect in any way the Lien or priority of the security
interest granted under this Agreement.
2. SECURITY INTEREST.
2.1. Grant. As security for the Obligations, the Borrower grants the Lender a
security interest in all of the Borrower's property located at the Facility or
used primarily in connection with the Facility or any other facilities pledged
to the Lender under this Agreement or under any other agreement or document now
or hereafter executed by Borrower in favor of Lender and all of the Borrower's
proceeds, cash flow and rights derived from the operation of the Facility, in
each case whether now owned or subsequently acquired or in which the Borrower
now has or subsequently may obtain any interest (collectively, the
"Collateral"), including the Borrower's present and future:
(i) Equipment and Inventory at the Facility;
(ii) Accounts receivable, bank accounts, certificates of deposit, contract
rights and general intangibles arising from or held in connection with the
operation of the Facility, including goodwill, trademarks, trade names and
franchise rights;
(iii) Books and records relating to the Collateral, including computer data;
and
(iv) To the extent not otherwise included, additions to, and Proceeds and
products of, the foregoing.
2.2. Financing Statements. Together with this Agreement, the Borrower has
delivered to the Lender, for filing in the appropriate jurisdictions at the
Borrower's expense, UCC-1 Financing Statements signed by the Borrower to
evidence the Lender's security interest in the Collateral.
2.3. First Lien. The Lender's security interest in the Collateral is and
shall always be a first priority security interest, subject to no Liens other
than Permitted Liens. The Borrower covenants and agrees to defend the Lender's
priority security interest in the Collateral against the claims of every other
Person.
3. REPRESENTATIONS AND WARRANTIES OF THE BORROWER. The Borrower makes the
following representations and warranties to the Lender, knowing and intending
that the Lender will rely upon them, and subject to no qualifications or
exceptions except those (if any) expressly set forth in the attached Disclosure
Schedule:
3.1. Borrower Information. The Borrower's: (i) full legal name, (ii) social
security number or federal employer tax identification number, as applicable,
(iii) mailing address and if, different, street address, and (where the Borrower
is an entity and not a natural person) (iv) type of entity and (v) jurisdiction
of organization, are all correctly and completely set forth in the box at the
beginning of this Agreement. During the last five (5) years, the Borrower has
operated the Facility only under the name shown in the box at the beginning of
this Agreement, and has not used any trade name or other name in connection with
the Facility.
3.2. Existence. If the Borrower is an entity and not a natural person, the
Borrower is duly organized, validly existing and in good standing under the laws
of its jurisdiction of organization, and is duly qualified to do business and in
good standing in every jurisdiction where the conduct of its business or the
character of its assets makes qualification necessary.
3.3. Authorization; Binding Effect. The Borrower has the requisite power and
authority to carry on its business, including the operation of the Facility, and
to enter into and perform this Agreement and the other Loan Documents. The
Borrower's signing, delivery and performance of this Agreement and the other
Loan Documents have been duly authorized by all necessary action, and the Loan
Documents represent valid and binding obligations of the Borrower, enforceable
against the Borrower in accordance with their respective terms.
3.4. No Conflict. The Borrower's entry into and performance of this Agreement
and the other Loan Documents will not violate, conflict with or result in a
default under: (i) the Borrower's organizational documents (where applicable),
or (ii) any agreement or obligation to which the Borrower is a party or is
subject, or (iii) any order or law to which Borrower is subject.
3.5. No Consent Required. The Borrower does not require the consent, approval
or authorization of anyone else, including any landlord, lender or equipment
lessor or vendor, in order to incur the Obligations, give the Lender a security
interest in the Collateral or otherwise enter into and perform under the Loan
Documents.
3.6. Financial Condition. The Borrower is solvent and will continue to be so
after incurring the Obligations. The Borrower's Financial Statements were
prepared in accordance with the provisions of Section 4.1, and present fairly
the financial position of the Borrower as of the respective dates and for the
respective periods shown. The Borrower has no material liabilities, absolute or
contingent, liquidated or unliquidated, which are not reflected in the Financial
Statements. Since the most recent Financial Statements, the Borrower has not
experienced any material adverse change in financial condition or prospects, or
any material business reversal.
3.7. Litigation; Absence of Violations. There is no lawsuit or other legal
proceeding pending or, to the Borrower's knowledge, threatened, involving the
Borrower, the Facility, the Trust Property or any Collateral, nor is there any
basis for such a lawsuit or legal proceeding. The Borrower holds all business
licenses, environmental permits, certificates of occupancy and other
governmental authorizations and approvals required in order to own or operate
the Facility. The Borrower is in compliance with applicable Legal Requirements,
including applicable Environmental Laws, governing the Borrower and the
Facility, and there are no outstanding directives or notices of violation from
any governmental agency or authority involving the Borrower, the Facility, the
Trust Property or any Collateral.
3.8. Ownership. The Borrower has, and will maintain, good and marketable
title to each item of Collateral, free and clear of Liens (except Permitted
Liens). Except as may have been previously disclosed to and specifically
approved by the Lender in writing, none of the Collateral is or will be subject
to any security agreement, mortgage, deed of trust, financing statement or other
Lien.
3.9. Operations. The Borrower is the operator of record of the Facility, with
full rights and authority under the Supply Agreement to use the trademarks
currently in use at the Facility in connection with the sale, consignment and
distribution of motor fuels and related operations. The Borrower is a
"franchisee" within the meaning of the PMPA and is entitled to the benefits and
protections of the PMPA with respect to the Borrower's occupancy and operations
at the Facility.
3.10. Supply Agreement. A true and complete copy of the Borrower's Supply
Agreement (with all amendments and modifications) has been provided to the
Lender. The Supply Agreement constitutes a "franchise" within the meaning of the
PMPA and is not subject to termination, cancellation or nonrenewal except in
compliance with the PMPA. The Supply Agreement is in full force and effect.
Neither the Borrower nor any other party to the Supply Agreement is in default
under the Supply Agreement, nor is there any event or condition which, with
notice or the lapse of time or both, would become a default under the Supply
Agreement.
3.11. Equipment/Inventory. The Equipment and Inventory are all kept at the
Facility. All Equipment and Inventory are currently usable or currently salable
in the normal course of the Borrower's business. None of the Equipment or
Inventory is held by the Borrower on a consignment basis or is, or will be,
stored with a bailee, warehouseman or anywhere other than at the Facility.
3.12. Outstanding Debt. Except for Permitted Debt, the Borrower has no Debt.
The Borrower is not in default under any instrument or agreement relating to
Permitted Debt.
3.13. Taxes. To date, the Borrower has filed all required federal, state and
local tax returns, and has paid all taxes and assessments, including sales taxes
and personal property taxes, due and payable. No tax Lien has been filed and no
tax deficiency has been asserted against the Borrower. The Borrower's tax
liabilities are adequately provided for in the Financial Statements and in the
Borrower's books and records.
3.14. No Broker's Commissions. Unless otherwise specified in the Disclosure
Schedule, the Borrower has not dealt with any broker or finder in connection
with the Loan, and no broker's or finder's fee or commission will be payable by
reason of any actions of the Borrower. The Borrower understands and acknowledges
that unless otherwise agreed in advance by the Lender in writing, the Borrower,
and not the Lender, shall be solely responsible for paying any broker's or
finder's fee or commission. Any broker's or finder's fee or commission payable
by the Borrower must be disclosed to and approved by the Lender in advance,
prior to the Lender's making the Loan. The Borrower shall indemnify the Lender
in accordance with Section 12 against any claim for broker's or finder's fee or
commission which under this Section 3.14 is the Borrower's responsibility.
3.15. Year 2000. On the basis of a comprehensive review and assessment of
Borrower's computer software, related systems and equipment, and inquiry made of
Borrower's material suppliers, vendors, customers, and affiliates, Borrower
represents and warrants that all of Borrower's computer software and related
systems for the business and all other operations of the Borrower are "Year
2000" compliant, or, will be "Year 2000" compliant no later than June 1, 1999.
For purposes of this Agreement, the term "Year 2000 compliant" means that
computers and computer components, software, and accessories, as well as
imbedded microchips in non-computing devices and equipment, shall perform
properly and for the purpose or purposes intended, including performance of
date-sensitive functions with respect to certain dates prior to and after
December 31, 1999. Borrower reasonably believes that all costs of investigation,
analysis, testing, and remediation to become "Year 2000" compliant, could not
reasonably be expected to result in or have any material adverse effect upon the
business, financial condition, operations, administration, sales and
acquisitions, business prospects, or other business affairs of Borrower; and
Borrower has developed feasible contingency plans adequate to ensure
uninterrupted and unimpaired business operation in the event of a failure of its
own or a third party's systems or equipment due to a failure to become "Year
2000" compliant, including those of vendors, customers, suppliers, and
affiliates, as well as a general failure of or interruption in its
communications and delivery infrastructure. In this regard, Borrower has
delivered to Lender documentation evidencing (i) its current compliance, or (ii)
its current adoption of plans and procedures to attain "Year 2000" compliance no
later than June 1, 1999. Borrower agrees to deliver to Lender, immediately upon
request, any written documentation that Lender may request to verify or confirm
the foregoing. Lender may, in its discretion, undertake an additional assessment
and/or review of Borrower's computer software and related systems, at Borrower's
sole cost and expense, to ascertain and confirm Borrower's "Year 2000"
compliance. In such event, Borrower agrees to fully cooperate with Lender in
connection with any such review or assessment. In the event that Borrower
breaches any representation or warranty set forth herein, then such failure
shall, in the sole discretion of the Lender, constitute a Default Event under
this Agreement and Lender shall be entitled to exercise any and all rights and
remedies available to it at law, in equity and/or under the Loan Documents.
3.16. Disclosure Schedule. There are no exceptions or qualifications to any
of the Borrower's representations and warranties except as expressly set forth,
if at all, in the attached Disclosure Schedule. Neither this Agreement nor any
other Loan Document contains a misstatement of material fact or omits to state
any material fact necessary in order to make the Loan Documents not misleading.
The Borrower knows of no factors that, either individually or in the aggregate,
would have or can reasonably be expected to have a material adverse effect on
the Borrower's operations, financial condition or prospects, or on the Facility
or any Collateral.
4. FINANCIAL STATEMENTS AND INFORMATION. While any Obligations remain
outstanding, the Borrower will furnish to the Lender:
4.1. Financial Reports. Within 45 days after the end of each fiscal quarter
and within 90 days after the end of each fiscal year, Financial Statements for
the corresponding period, including a balance sheet as of the end of the period,
and income and expense and Cash Flow statements for the period, all in detail
and form satisfactory to the Lender and providing such comparative data from
prior periods as the Lender shall specify.
4.1.1. If the Borrower is a natural person, Financial Statements shall be
furnished both for the Facility on a stand alone basis and on a combined,
unit-by-unit basis for the Facility and all other service station facilities
owned or operated by the Borrower (including related operations such as car
washes, convenience stores and other retail operations). If the Borrower is an
entity and not a natural person, Financial Statements shall be furnished both on
a consolidated and on a consolidating unit- by-unit basis for the Facility and
all other facilities and operations of the Borrower.
4.1.2. Financial Statements shall be prepared in accordance with GAAP (or
such other accounting principles generally and customarily used in the industry
and reasonably acceptable to the Lender), consistently applied and, unless
audited, shall be signed by the Borrower, where a natural person, and otherwise
by the Borrower's president, chief financial officer or equivalent. The
signature shall constitute a certification that the Financial Statements have
been so prepared and that they present fairly the Borrower's financial position
and results of operations for the specified periods. Year-end Financial
Statements shall be prepared by an independent public accountant on (i) a review
basis, if the aggregate original principal amount of the Loan and all other
loans or advances at any time outstanding by the Lender and any of the Lender's
Affiliates to the Borrower or any Affiliate of the Borrower is more than $10
million, or (ii) a compilation basis, if the aggregate original principal amount
of the Loan and all other loans or advances at any time outstanding by the
Lender and any of the Lender's Affiliates to the Borrower or any Affiliate of
the Borrower is between $5 million and $10 million.
4.2. Adverse Event. As soon as the Borrower becomes aware of it, notice of
any adverse event or condition affecting the Borrower or the Facility, including
(i) any Default or Default Event, (ii) any material casualty loss or other
damage to the Facility, (iii) any breach, actual or alleged, termination or
nonrenewal of the Supply Agreement, and (iv) any representation or warranty in
the Loan Documents being incorrect or inaccurate in any material respect.
4.3. Other Information. Any other financial information relating to the
Borrower or the operation of the Facility, including proof of payment of sales
taxes, which the Lender may from time to time request.
5. FINANCIAL COVENANTS. While any Obligations remain outstanding, and unless
the Lender consents otherwise in writing in its sole and nonreviewable
discretion, the Borrower covenants and agrees as follows:
5.1. FCCR. The Borrower shall at all times maintain the Minimum FCCR, as
specified in the box at the beginning of this Agreement. Subject to the
foregoing sentence, Lender will review compliance with the Minimum FCCR every
three months on a trailing 12- month basis, as of the end of each fiscal quarter
and as at the end of each fiscal year; provided, however, if a Borrower is an
entity and has been in existence for a period of less than 12 months on the date
hereof, the 12 month measurement period shall be reduced to the number of months
in which Borrower has been in existence until such time as Borrower has been in
existence for one year and provided further however, if Borrower is a natural
person and has owned or operated the Facility for a period of less than 12
months on the date hereof, the 12 month measurement period shall be reduced to
the number of months for which Borrower has owned or operated the Facility until
such time as Borrower has owned or operated the Facility for one year. The
Minimum FCCR shall be measured with respect to either (i) the Borrower as a
whole (if the Borrower is an entity and not a natural person), or (ii) the
Facility and all other service station facilities owned or operated by the
Borrower, including related operations such as car washes, convenience stores
and other retail operations (if the Borrower is a natural person and not an
entity).
5.2. Limit on Distributions. The Borrower shall make no Distributions unless
the actual FCCR for the Borrower for the twelve (12) months preceding the date
of the proposed Distribution and the reasonably projected FCCR for the
subsequent twelve (12) months are and shall be at least equal to the Minimum
FCCR as specified in the box at the beginning of this Agreement. If the actual
FCCR for the twelve (12) months preceding the date of the proposed Distribution
and the reasonably projected FCCR for the subsequent twelve (12) months are and
shall be at least equal to the Minimum FCCR, then the Borrower may make a
Distribution, but only up to the amount by which the actual FCCR for the twelve
(12) months preceding the date of the proposed Distribution exceeds the Minimum
FCCR.
5.3. No Consolidation or Merger. The Borrower shall not merge or consolidate
with any other Person, liquidate or dissolve, or enter into any partnership,
joint venture, syndicate or other business combination.
5.4. Use of Proceeds. Loan proceeds shall be used solely for business or
other lawful commercial purposes as provided for in the Commitment. No loan
proceeds shall be used to acquire or carry any securities, including margin
stock, except in accordance with the requirements of Federal Regulations G,T,X
and U.
5.5. Guarantees. Borrower shall not enter into any Guarantees.
6. COVENANTS REGARDING COLLATERAL. While any Obligations remain outstanding,
and unless the Lender consents otherwise in writing in its sole and
nonreviewable discretion, the Borrower covenants and agrees as follows:
6.1. Pay Taxes and Claims. The Borrower will pay, before they become
delinquent and before any interest or penalties accrue, all taxes, assessments
and governmental levies, and all claims which, if unpaid, might result in the
creation of a Lien upon the Facility or any Collateral. The Borrower will timely
file all tax returns.
6.2. Maintain Collateral; Comply with Law. The Borrower will: (i) maintain
the Facility and the Collateral in good operating condition; (ii) keep
consistent books and records containing full and correct entries of all
transactions; (iii) do everything necessary to stay in existence, keep the
Supply Agreement and all franchises in effect and maintain all governmental
permits, licenses and authorizations; and (iv) comply with applicable laws and
regulations.
6.3. Location of Records. The Borrower will keep its books and records at the
address of the Facility or at the Borrower's home office address, as specified
in the box at the beginning of this Agreement. The Borrower will not change the
address where books and records are kept, or change its name or operate the
Facility under any name other than as set forth in the box at the beginning of
this Agreement.
6.4. Location of Equipment and Inventory. Equipment and Inventory will be
kept only at the Facility and, except for sales of Inventory in the ordinary
course of business, shall not be removed or relocated anywhere else, but even if
removed or relocated, all Equipment and Inventory will remain subject to the
Lender's continuing, first priority security interest.
6.5. No Disposition. The Borrower shall not sell, transfer or otherwise
dispose of any Collateral, except for sales of Inventory in the ordinary course
of business and replacement of obsolete or worn-out Equipment with new Equipment
of equivalent value to which the Lender's first priority security interest will
likewise attach.
6.6. Power of Attorney. The Borrower irrevocably appoints the Lender, with
full power of substitution, as its lawful agent and attorney in fact to: (i)
sign and file financing statements and other documents as the Lender deems
necessary to evidence, perfect or confirm the security interest granted by this
Agreement; and (ii) file proofs of loss respecting the Collateral with the
appropriate insurers and endorse in the Borrower's name any checks or drafts
constituting insurance proceeds.
6.6.1. Effective upon the occurrence of any Default Event, the Lender or its
designee is further authorized, as agent and attorney-in-fact for the Borrower,
to endorse the Borrower's name on checks and other instruments relating to the
Collateral, to change the address where mail relating to the Collateral should
be sent, and generally to take such actions as may be appropriate to effectuate
the Lender's remedies.
6.6.2. The powers of attorney granted to the Lender in this Agreement are
coupled with an interest and are irrevocable so long as this Agreement remains
in force. In exercising any power of attorney granted pursuant to this
Agreement, neither the Lender nor its designee shall be held liable for any acts
or omissions or for any error of judgment or mistake. However, the Lender's
powers of attorney do not and shall not be construed to authorize any confession
of judgment. Any Person shall be entitled to rely on the provisions of this
Agreement as conclusive evidence that the Lender holds a continuing, valid and
binding power-of-attorney from the Borrower.
6.7. Inspection. The Lender shall have the right to inspect the Facility and
the Collateral, to examine the Borrower's books and records, to make copies at
the Borrower's expense, and to discuss the Borrower's business and affairs with
the Borrower's officers, employees, any outside management firm, advisor or
consultant and the Borrower's accountants (all of whose fees and expenses shall
be paid by the Borrower).
6.8. Supply Agreement. The Borrower shall at all times keep the Supply
Agreement in good standing and in full force and effect, and shall not make or
agree to any material modification of the Supply Agreement. The Borrower shall
fully comply, at the Borrower's own cost and expense, with the terms of the
Supply Agreement and shall promptly notify Lender of any adverse development
with regard to the Supply Agreement, including any claim of breach of or default
under, or threat of nonrenewal or termination of, or litigation involving the
Supply Agreement. The Borrower shall provide the Lender with proof of the Supply
Agreement's renewal at least thirty (30) days' prior to the stated expiration
date of the then current term of the Supply Agreement, and upon each renewal or
modification of the Supply Agreement shall deliver to the Lender an updated
copy, certified by the Borrower as true and complete, of the Supply Agreement as
so renewed or modified.
6.9. Standard of Care. Except to the extent, if any, otherwise required by
the UCC or other applicable law which by its express terms cannot be modified,
waived or excused, the Lender's sole duty with respect to Collateral in its
possession (whether before or after a Default or Default Event) is to deal with
the Collateral in the same manner as the Lender deals with the Lender's own
similar property. The Borrower agrees that this standard of care is reasonable
and appropriate under the circumstances, and that the Lender will not be
responsible for any shortage, discrepancy, damage, loss or destruction of
Collateral, wherever located, regardless of cause.
6.10 Notices. Borrower shall provide Lender with copies of all
correspondence, notices and documents relating to a default or potential default
under any real property Lease, if any, within twenty-four (24) hours after any
Borrower's receipt thereof.
7. ENVIRONMENTAL MATTERS.
7.1. Environmental Covenants. The Borrower represents, warrants and covenants
as follows:
7.1.1. All answers and information supplied to the Lender by or on behalf of
the Borrower in response to the Lender's "Environmental Questionnaire" are and
remain true, accurate and complete in all respects, and do not contain any
misstatement of fact or omit to state any fact necessary in order to make them
not misleading.
7.1.2. There are no outstanding citations, directives, notices or orders of
violation or noncompliance with applicable Environmental Laws or other Legal
Requirements issued to the Borrower or with respect to the Facility, nor does
there exist any condition which, if known to the appropriate authorities, could
result in the issuance of any such citation, directive, notice or order. Neither
the Borrower nor any Affiliate of the Borrower has ever been the subject of a
notice under the citizen suit provision of any Environmental Law or of a
complaint, claim or other notice alleging violation of Environmental Laws,
whether with respect to the Facility or elsewhere, nor has any of them ever
caused, been held responsible for, or been alleged by any governmental authority
or other Person to have been responsible for, any release or discharge of
Hazardous Materials in violation of Environmental Laws, whether with respect to
the Facility or elsewhere.
7.1.3. The Borrower shall not process, manufacture, store (except in strict
compliance with Section 7.1.4), treat, spill, leak, discharge, use or dispose of
any Hazardous Materials of any kind on or from the Facility nor permit any other
Person to do so, other than the storage and dispensing of gasoline and other
motor vehicle fuels and the storage (in proper containers and under appropriate
conditions) and use in the ordinary course of normal quantities of lubricants,
oils and cleaning products for servicing motor vehicles; in each case as
necessary for the proper day-to-day operations and maintenance of the Facility
and all of which shall be in strict compliance with applicable Legal
Requirements, manufacturers' and installers' guidelines and sound management
practices. The Borrower shall comply with all applicable labeling and
notification requirements in the use of such materials, including maintaining
MSDS materials and complying with worker "right to know" and similar Legal
Requirements.
7.1.4. The Borrower shall be responsible, at its sole cost and expense, for
complying with all applicable Legal Requirements and insurance requirements,
including registration, record-keeping, monitoring, inspection, financial
assurance and upgrading requirements for all underground storage tanks. No
underground storage tank has been, or shall be, installed, renovated, removed or
decommissioned except in compliance with applicable Legal Requirements and
pursuant to an approved permit or closure plan, which shall include
post-excavation sampling to confirm the absence of soil or groundwater impacts
from Hazardous Materials. At the Lender's request (but not more often than
annually, unless Legal Requirements specify a greater frequency), the Borrower
shall cause the underground storage tanks to be tested for tightness and
integrity by any approved method specified by the Lender. The Borrower shall
maintain, by way of tank insurance, surety bond, letter of credit, proof of
coverage eligibility under the State's leaking underground storage tank trust
fund (if solvent) or such other method and in such amount as shall be prescribed
or approved by the Lender from time to time (and which initially shall be for
not less than $1,000,000 per occurrence), evidence of financial responsibility
in the event of any leakage, unpermitted discharge or other failure of the
Facility's underground storage tanks to be in full compliance with all
applicable Legal Requirements. If the Facility is located in Minnesota, without
limiting the generality of the foregoing, Borrower, upon discovery of any
leaking underground storage tank, shall comply with all reporting, mitigation,
remediation and other applicable requirements as necessary to ensure eligibility
for the maximum reimbursement available from Minnesota's petroleum fund for the
cleanup associated with leaking underground storage tanks.
7.1.5. The Lender reserves the right (but never assumes the obligation) to
cause an environmental audit or Phase I or Phase II assessment of the Facility
to be conducted on written notice to the Borrower in the event of reasonable
concern on the part of the Lender regarding environmental conditions at the
Facility, or following any environmental incident referred to in Section 7.2,
the cost of which shall in each case be paid by the Borrower. The Lender may
require the Borrower to correct or mitigate, at the Borrower's cost and expense,
any unsatisfactory conditions disclosed by such audit or assessment.
7.1.6. If the Facility is located in Alabama, all underground storage tanks
at the Facility have been registered and meet all requirements under, and all
fees have been paid by Borrower under, the Alabama Underground Storage Tank and
Wellhead Protection Act.
7.2. Notice of Environmental Incident. If the Borrower becomes aware or
receives notice of: (i) any event or condition involving the spill, discharge,
leakage, improper storage, improper disposal or need for cleanup of any
Hazardous Materials at or about or emanating from any of the Trust Property; or
(ii) any complaint, order, directive, citation or other notice with regard to
the alleged violation of any Environmental Law or otherwise involving air
emissions, water quality, noise emissions, sanitation, hazardous discharges,
excessive exposure levels or any other environmental, health or safety matter
affecting the Borrower, any Affiliate of the Borrower or the Facility, the
Borrower shall immediately notify the Lender, and shall promptly comply with all
applicable Legal Requirements.
7.3. Lender's Rights. Unless immediately resolved by the Borrower to the
Lender's reasonable satisfaction, the Lender shall have the right (but never the
obligation), without limiting any of the Lender's other rights and remedies
under this Agreement and the other Loan Documents, to take or cause to be taken
such actions reasonably determined to be necessary or advisable to respond to a
release or threatened release of any Hazardous Material from or onto the
Facility or effect compliance with any applicable Environmental Law. All
reasonable costs and expenses incurred by or on behalf of the Lender in doing
so, including but not limited to attorneys' fees and environmental consultants'
and contractors' fees, shall be secured by this Agreement and shall be payable
by the Borrower upon demand, together with interest at the Default Rate from the
date when incurred by the Lender until the date when paid or reimbursed in full
by the Borrower.
7.4. Indemnification. The Borrower shall indemnify, defend (with counsel
satisfactory to the Lender), protect and hold harmless the Facility, the
Collateral, the Lender and the other Indemnitees against all liability
(including liability in tort or contract, whether strict or otherwise), damage
(whether direct, indirect, consequential, punitive, incidental, special or
otherwise), obligation, loss, penalty, fine, claim, lawsuit or other proceeding,
costs, disbursements and expenses (including cleanup costs, response costs,
accounting, consulting and engineering fees, and reasonable attorneys' fees)
directly or indirectly arising from or in connection with any matter referred to
in Section 7.2, or any violation of Environmental Laws or other Legal
Requirements with respect to the Facility, the Borrower, or any Affiliate of the
Borrower, or incurred by the Lender pursuant to Section 7.3 or otherwise of this
Agreement. This indemnification obligation will survive any termination,
discharge or cancellation of this Agreement and will survive payment or
satisfaction of the Note, and is in addition to and not in derogation or in lieu
of any other indemnification obligations under this Agreement, the Note, the
Indenture or any other Loan Document.
8. INSURANCE.
8.1. Coverages Required. The Borrower shall, at its own cost and expense, at
all times maintain the following insurance with respect to the Facility:
8.1.1. Comprehensive general public liability insurance (including
contractual liability and motor vehicle coverage) covering all claims for bodily
injury, including death, and property damage occurring on, in or about the
Facility or otherwise associated with Borrower's operations at the Facility,
with a combined single limit of no less than $1,000,000 per occurrence.
8.1.2. "All risk" extended coverage property insurance against loss or damage
to the tangible Collateral and the Improvements from fire or any other cause,
including vandalism and malicious mischief, for one hundred percent (100%) of
the full replacement value.
8.1.3. Business interruption insurance covering at least six (6) months of
operating costs and expenses, including debt service for the Loan and all other
financing costs.
8.1.4. If any of the Improvements at the Facility are located within a
designated flood hazard area, federal flood hazard insurance for such
Improvements in the maximum amount obtainable.
8.1.5. Builder's risk insurance covering Improvements during construction,
restoration or renovation.
8.1.6. Workers compensation insurance covering all of the Borrower's
employees.
8.1.7. Tank insurance in such amounts and covering such risks as may be
required by the Lender at any time.
8.1.8. Such other insurance as may, from time to time, be reasonably required
by the Lender against the same or other risks. The Lender also reserves the
right to require, but not more often than once every twelve (12) months (except
in the event of a change in the nature or scope of the Borrower's operations, or
upon the construction or installation of additional Improvements), an adjustment
in the amount or nature of the liability coverage or other insurance coverage
required to be maintained by the Borrower, as the Lender deems advisable to take
into account changes in market conditions, inflation rates, insurance policies
and prudent lending practices observed by institutional lenders or program
lenders generally. The Borrower shall promptly comply with any such adjustment.
8.2. Policy Requirements. The insurance coverage required to be maintained
pursuant to Section 8.1 must meet the following requirements:
8.2.1. All policies shall be issued by financially sound and responsible
insurance carriers authorized to do business in the jurisdiction where the
Facility is located and reasonably acceptable to the Lender. Certificates of
coverage on the ACORD or comparable form issued by a broker shall be delivered
to the Lender concurrently with the execution and delivery of this Agreement,
together with paid receipts confirming that premiums have been paid in full in
advance for the next quarterly, semiannual or annual (as applicable) payment
period. Thereafter, renewal or replacement certificates, or other evidence of
renewal satisfactory to the Lender, shall be delivered to the Lender not less
than thirty (30) days before the expiration date of the policy being renewed or
replaced.
8.2.2. All policies shall contain (i) an endorsement or agreement by the
insurer that any loss will be paid to the Lender in accordance with the terms of
the policy, notwithstanding any act or negligence of the Borrower or the
Borrower's agents or representatives that might otherwise result in denial or
forfeiture of coverage, and (ii) an agreement by the insurer waiving all rights
of recovery, set-off or counterclaim against the Lender by way of subrogation or
otherwise. All policies must unconditionally provide for at least thirty (30)
days' prior written notice to the Lender of cancellation, nonrenewal or material
amendment (including any reduction in the scope or limits of coverage or any
increase in deductible amounts). If any coverage required by Section 8.1
expires, is withdrawn or lapses for any reason, the Borrower shall immediately,
and in any event prior to the expiration, withdrawal or lapse taking effect,
obtain replacement coverage at the Borrower's sole cost and expense.
Alternatively, the Lender shall have the right in its sole discretion (but not
the obligation), upon receiving notice of any impending lapse, cancellation or
non-renewal of coverage, to obtain replacement coverage in some or all of the
amounts and against any or all of the risks as required under this Agreement.
All costs and expenses incurred by the Lender in doing so shall be paid or
reimbursed by the Borrower immediately upon demand, together with interest at
the Default Rate, and until repaid shall constitute part of the Obligations
secured by the lien and security interest of this Agreement and the Indenture.
8.2.3. Liability policies shall designate the Lender or its designee(s) and
their respective successors and assigns as additional named insured(s). All
other policies shall designate the Lender or its designee(s) and their
respective successors and assigns as loss payee(s) with respect to the
Collateral and all business interruption coverage, and shall contain a standard
non-contributory form first mortgagee endorsement, entitling the Lender to
collect all proceeds, together with a standard waiver of subrogation endorsement
in form and substance reasonably satisfactory to the Lender.
8.2.4. All policies shall be written as primary policies, not as contributing
with or in excess of any other coverage which the Borrower may carry, and
without any coinsurance provisions. The Borrower shall not maintain separate
insurance which is concurrent in form or kind or contributory in the event of
loss with any insurance required pursuant to Section 8.1.
8.2.5. All property insurance and liability insurance deductibles, if any,
shall be in amounts satisfactory to the Lender.
8.3. Ownership of Policies. If the Lender, its designee(s) or any of their
respective successors or assigns acquire by any manner the title or estate of
the Borrower in any of the Collateral or the Trust Property, then the Lender
shall become the sole and absolute owner of all of the insurance policies
relating to such property, with the sole right to collect and retain any
unearned premiums. The Borrower agrees, immediately upon demand, to execute and
deliver any assignments or other authorizations or instructions as the Lender
may request to effectuate this assignment.
8.4. Damage to Collateral. In case of damage or destruction to the Collateral
or the Trust Property, the corresponding provisions of the Indenture shall
govern the respective rights and obligations of the Borrower and the Lender and
the adjustment and application of insurance proceeds payable in respect of the
damaged or destroyed Collateral or Trust Property.
8.5. Notice regarding insurance. The following notice is provided pursuant to
Section 427.120, R.S.Mo, the Illinois Collateral Protection Act, 815 ILCS 180/15
and any other applicable state law. Unless Borrower provides evidence of the
insurance coverage required by the Loan Documents, Lender may purchase insurance
at Borrower's expense to protect Lender's interests in the Collateral and the
Trust Property. This insurance may, but need not, protect Borrower's interests.
The coverage that Lender purchases may not pay any claim that Borrower makes or
any claim that is made against Borrower in connection with the Collateral and/or
the Trust Property. Borrower may later cancel any insurance purchased by Lender,
but only after providing evidence that Borrower has obtained insurance as
required by the Loan Documents. If Lender purchases insurance for the Collateral
and/or the Trust Property, Borrower will be responsible for the costs of that
insurance, including the insurance premium, interest and any other charges
Lender may impose in connection with the placement of the insurance, until the
effective date of the cancellation or expiration of the insurance. The costs of
the insurance will be added to the total Obligations. The costs of the insurance
may be more than the cost of insurance Borrower may be able to obtain on its
own.
9. DUE-ON-SALE PROVISIONS; ASSUMPTION.
9.1. Change in Ownership. Except in compliance with all of the requirements
of Section 9.3, the Borrower shall not, whether voluntarily or involuntarily by
operation of law or otherwise, do any of the following (each of which shall
constitute a "Change in Ownership"): (i) transfer, sell, convey or assign any
interest in the Facility or in the Borrower's operations at the Facility, or any
part of the Collateral (except in compliance with Section 6.5), the
Improvements, or the other Trust Property, or enter into any contract or other
agreement or commitment to do so, including options to purchase, installment
sale contracts, land contracts, real estate contracts, sale-leaseback
arrangements or mortgage commitments; or (ii) amend or terminate the Supply
Agreement or enter into, amend or terminate any Leases; or (iii) merge or
consolidate with any other Person (where the Borrower is an entity and not a
natural person), or become a partner, member (except for membership in trade
associations) or participant with any other Person in any partnership, limited
liability company, joint venture or other business venture involving the
Facility.
9.2. Change in Control. Where the Borrower is an entity and not a natural
person, none of the equity interests in the Borrower nor any substantive rights
(such as voting rights) or economic incidents (such as the right to receive
dividends or distributions) appurtenant to such equity interests shall be sold,
transferred, pledged or encumbered, whether voluntarily or involuntarily by
operation of law or otherwise (in each case, a "Change in Control"), except in
compliance with all of the requirements of Section 9.3. The death after the date
of this Agreement of a natural Person who is the Borrower or who prior to the
making of this Agreement had been disclosed to the Lender in writing to be an
equity holder in the Borrower, and the resulting devolution of the decedent's
proprietary or equity interest by will or the laws of intestacy to the
decedent's spouse or children, or to a trust or trusts for their respective
benefit, shall not constitute a "Change in Control" for purposes of this
Agreement; provided, however, that in all events: (i) the Loan is acknowledged
to be an obligation of the estate or trust and there exists and has occurred no
Default or Default Event, (ii) the Facility continues to be managed by a Person
acceptable to the Lender, and (iii) any subsequent sale, transfer, pledge,
encumbrance or other voluntary or involuntary disposition by the decedent's
transferees of the equity interest or of any substantive rights or economic
incidents appurtenant to such equity interest shall be deemed to constitute a
"Change in Control" and shall be subject to the provisions of this Section 9.
9.2.1. If any controlling Person (other than a natural person) of the
Borrower as of the date of this Agreement undergoes or experiences a change in
control, whether by way of merger or consolidation, sale or other disposition of
assets or equity interests, or otherwise, such change in control shall be deemed
to constitute a "Change in Control" subject to the provisions of Section 9.2. As
used in this Section 9.2.1, the terms "control" and "controlling" have the
meanings ascribed to them under the Securities Act of 1933, as amended, and the
Rules promulgated under such statute, as amended.
9.3. Lender's Consent Required. No Change in Ownership or (except as
expressly provided in Section 9.2) Change in Control shall be permitted without
the Lender's prior written approval, as determined by the Lender in its sole and
nonreviewable discretion. The Lender shall not consider any request for approval
unless: (i) the Borrower submits an application on such form and with such
supporting documentation as may be required by the Lender; (ii) the Borrower is
not in default of any of the Borrower's obligations under the Note, this
Agreement or any of the other Loan Documents; (iii) the Facility continues to
meet all of the Lender's underwriting requirements as then in effect, including
loan-to-value requirements, as demonstrated by an updated appraisal or other
evidence satisfactory to the Lender; (iv) the proposed transferee of the
Facility (in the case of a Change in Ownership) or of an equity or other
interest (in the case of a Change in Control) shall be a Person meeting all of
the Lender's credit and underwriting standards and otherwise acceptable to the
Lender; (v) if required by the Lender, the Borrower shall provide Guaranty
Agreements with respect to the Obligations from the transferee or from one or
more Affiliates of the transferee, as applicable, together with such other
documents as the Lender or the Lender's counsel may require to document the
transfer or to affirm the responsibility of the Persons involved for the
Obligations; (vi) the Borrower shall pay a transfer fee equal to one percent
(1%) of the outstanding Principal Amount as of the effective date of the Change
in Ownership or Change in Control; and (vii) the Borrower shall pay all costs
and expenses incurred by or on behalf of the Lender in connection with the
Change in Ownership or Change in Control, including the cost of an updated
appraisal, underwriting reviews, reasonable attorneys' fees and disbursements,
and document preparation and recording/filing fees and charges. Unless and then
only to the extent otherwise expressly stated in the Lender's written approval
issued at the time, no Change in Ownership or Change in Control shall relieve
the named Borrower or any existing Guarantor from responsibility for the
Obligations, and they shall continue to remain liable, jointly and severally
with the transferee and any new Guarantors, for the payment and performance of
the Obligations in accordance with their terms. If the Lender provides its
written approval of a Change in Ownership or Change in Control, the transferee
shall acquire its interest subject to the terms and conditions of the Loan
Documents, as if such transferee had itself executed and delivered the same.
9.4. Borrower's Acknowledgments. The Borrower acknowledges and agrees that
the creditworthiness and experience of the Borrower and (where applicable) the
Borrower's equity holder(s) in owning, developing and operating the Facility
were primary factors in the Lender's determination to make the Loan and extend
credit to the Borrower at the interest rate and on the other terms and
conditions contained in the Note and the other Loan Documents. The Borrower
agrees that the due-on-sale provisions contained in this Agreement are fair and
reasonable protections to safeguard the Lender's investment, to preserve the
benefit of the Lender's economic bargain and to guard against the impairment of
the Lender's security and the risk of default.
10. DEFAULT EVENTS.
10.1. Specified Events. The "Default Events" below are in addition to and not
in lieu of those specified in the Note or any other Loan Document. Each of the
following shall constitute a "Default Event" under this Agreement and the other
Loan Documents:
10.1.1. Failure to Pay Note. The Borrower fails to make any payment required
by the Note in accordance with its terms.
10.1.2. Other Failure to Pay. The Borrower fails to make any other payment
required by this Agreement or any other Loan Document when due or (but only
where such a period is expressly specified) within any applicable notice or cure
period.
10.1.3. Failure to Comply with Financial Covenants. The Borrower breaches, is
in default under or fails to achieve or comply with any of the Borrower's
covenants or obligations under Section 5 of this Agreement.
10.1.4. Representations and Statements. Any representation, warranty,
certificate, statement or information made or provided at any time by the
Borrower or any Guarantor in or pursuant to any Loan Document, including
financial statements, shall have been untrue or incorrect or shall have been
misleading or incomplete in any material respect when made.
10.1.5. Financial Information and Inspections. The Borrower or any Guarantor
shall fail, promptly after request by the Lender, to furnish financial
information or to permit inspection of any books or records or of the Collateral
or Trust Property as required under any Loan Document.
10.1.6. Contested Obligation. (i) Any Loan Document shall for any reason
cease to be, or is asserted by the Borrower or any Guarantor, as applicable, not
to be, a legal, valid and binding obligation of that Person, enforceable in
accordance with its terms; or (ii) the validity, perfection or priority of the
Lender's first lien and security interest on any of the Collateral under this
Agreement or any of the Trust Property under the Indenture is contested by any
Person; or (iii) any Guarantor repudiates, revokes, contests or disputes, in
whole or in part, such Guarantor's obligations under any Guaranty Agreement.
10.1.7. Judgments. A judgment shall be entered against the Borrower in excess
of $20,000 or against any Guarantor in excess of $20,000 and, in either such
case, the judgment is not paid in full and discharged, or stayed and bonded to
the satisfaction of the Lender, within thirty (30) days after being entered,
unless the amount of the judgment is fully covered by insurance and an insurer
has, in writing, unconditionally accepted responsibility for payment.
10.1.8. Insolvency.
(a) The Borrower or any Guarantor shall: (i) voluntarily begin any proceeding
or file any petition seeking relief under Title 11 of the United States Code
(the "Bankruptcy Code") or any other federal, state or foreign bankruptcy,
insolvency, receivership, liquidation or similar law; (ii) consent to or fail to
oppose the institution of any such proceeding or the filing of any such
petition; (iii) apply for, or consent to or fail to oppose, the appointment of a
receiver, trustee, custodian, fiscal agent or similar official for the Borrower
or any Guarantor or for any substantial part of any of their respective property
or assets; (iv) file an answer admitting the material allegations of a petition
filed against the Borrower or any Guarantor for the benefit of creditors; (v)
make a general assignment in writing for the benefit of creditors; (vi) become
unable, admit in writing an inability or fail generally to pay their respective
debts as they become due; (vii) take advantage of any other law or procedure for
the relief of debtors; or (viii) take any action for the purpose of or with a
view towards effecting any of the foregoing.
(b) An involuntary proceeding shall be commenced or an involuntary petition
shall be filed in a court of competent jurisdiction seeking: (i) relief in
respect of the Borrower or any Guarantor under the Bankruptcy Code or any other
federal, state or foreign bankruptcy, insolvency, receivership, liquidation or
similar law; (ii) appointment of a receiver, trustee, custodian, fiscal agent or
similar official for the Borrower or any Guarantor or for any substantial part
of any of their respective property or assets; or (iii) the winding up or
liquidation of the Borrower or any Guarantor which is an entity and not a
natural person; and such proceeding shall continue undismissed for sixty (60)
days, or an order or decree approving or ordering any of the foregoing shall
continue unstayed or in effect for sixty (60) days.
10.1.9. Additional Liens; Loss of Priority. Any of the Collateral becomes
subject to a Lien other than the Permitted Liens, or the Lender does not obtain
or continue to have a perfected first priority security interest in any of the
Collateral, subject to the Permitted Liens.
10.1.10. Seizure of Property or Collateral. Any of the Collateral or the
Facility are seized or foreclosed upon pursuant to process of law or by way of
legal self- help.
10.1.11. Default under Supply Agreement or Material Agreements; Loss of
Supply Agreement or License. There occurs a default beyond any applicable grace
or cure period on the part of the Borrower under any real property or Equipment
Lease which is material to the operation of the Facility, under the Supply
Agreement or under any other agreement which is material to the operation of the
Facility, including without limitation any food and/or beverage supply
agreement; or the Supply Agreement, such material agreement or any license,
permit or other governmental authorization necessary or material to the
operation of the Facility is terminated, is suspended for more than seven (7)
days, or is allowed to lapse or expire, in each case without being immediately
renewed or without an equivalent substitute satisfactory to the Lender being
immediately applied for and obtained by the Borrower.
10.1.12. Suspension of Business. The Borrower shuts down or suspends the
transaction of business at the Facility for more than fifteen (15) days total in
any calendar year.
10.1.13. Material Adverse Change. There occurs any adverse change in the
Collateral, the Trust Property or the operations, prospects or condition,
financial or otherwise, of the Borrower or any Guarantor, and such change, in
the Lender's sole and nonreviewable opinion, is material or could otherwise
materially increase the Lender's credit or collection risk under the Note or any
other Obligation owed to the Lender.
10.1.14. Environmental Violation. The Borrower fails to take immediate steps
to respond appropriately (or thereafter to diligently resolve) to the Lender's
satisfaction and in compliance with Legal Requirements and all Environmental
Laws, any environmental incident as described in Section 7.2.
10.1.15. Prohibited Transfer. There occurs any Change in Ownership or Change
in Control prohibited by Sections 9.1 or 9.2.
10.1.16. Failure to Perform Generally. The Borrower fails to perform or
comply when required with any other requirement, covenant or condition contained
in this Agreement or any other Loan Document.
10.1.17. Default Under Other Loan Documents. There occurs any "Default Event"
under the Note, the Indenture, any Guaranty or any other Loan Document.
10.1.18. Cross-Default with Lender. There occurs a default beyond any
applicable grace or cure period on the part of the Borrower, any Guarantor or
any of their respective Affiliates under any other note, loan agreement,
security instrument or financial arrangement of any kind, whether now existing
or subsequently entered into, with the Lender or any Affiliate of the Lender.
10.1.19. Cross-Default with Other Debt. The Borrower fails to pay when due
(whether at scheduled maturity, upon acceleration, demand or otherwise) or
within any applicable grace or cure period any amount in respect of any Debt in
excess of $20,000 (excluding the Debt outstanding under the Note), or there
occurs any other default in respect of such Debt which entitles the creditor or
obligee to accelerate the balance due or exercise any other collection remedies.
10.2. Cross-Default With Other Documents. If the Lender or any Affiliate of
the Lender, on the one hand, and the Borrower, any Guarantor or any of their
respective Affiliates, on the other hand, are or subsequently become parties to
any other note, loan agreement, security instrument or credit arrangement of any
kind, all such other obligations are automatically amended, without the need for
further action or documentation, to provide that a Default Event under this
Agreement shall be an event of default under the other obligations, entitling
the Lender or other holder of them to accelerate and to exercise all other
remedies available upon default.
11. REMEDIES UPON DEFAULT. Upon the occurrence of a Default Event:
11.1. In General.
11.1.1. All of the Obligations shall at the option of the Lender become
immediately due and payable, without further notice or demand.
11.1.2. The Lender shall have and shall be entitled to exercise all rights
and remedies of a secured party under the UCC and other applicable law.
11.1.3. The Lender may, by written notice, require the Borrower to assemble
and promptly deliver the Collateral wherever the Lender shall designate, or the
Lender or its agent or designee may enter the Facility or other premises where
Collateral is located and remove the Collateral without liability to the
Borrower, in each case at the Borrower's expense.
11.1.4. The Lender shall be entitled, as of right and without any need to
prove a diminution in the Collateral's value, without regard to the solvency of
Borrower and the value of the Collateral and without regard to whether Lender
has an adequate remedy at law, to the appointment of a receiver, with such
powers in respect of the Collateral as the appointing court shall confer.
11.2. Sale of Collateral. The Lender may sell, lease or rent out Collateral
at public or private sale, at such prices or terms as the Lender deems
appropriate, whether for cash, on credit, or for future delivery, in bulk or in
lots, or may retain any Collateral, even if then left idle. The Borrower agrees
that ten (10) days' notice of any sale or other disposition shall be reasonable
notice. The Lender may adjourn any sale by announcement at the scheduled time
and place, without further notice or advertisement, and the Lender shall not be
obligated to accept any bids at the sale if the Lender determines not to do so.
The Lender may bid (with credit for the outstanding amount of the Obligations)
or become purchaser at any sale, free of the Borrower's right of redemption, if
any, which the Borrower expressly waives. Sales may be conducted at the
Facility, and the Borrower shall have no claim for rent, storage or otherwise.
11.2.1. The proceeds, if any, of sale or lease of Collateral shall be
applied: (i) first, to payment of fees and expenses incurred by the Lender as a
result of the Default Event, including reasonable attorneys' fees and other
expenses in repossessing, selling or leasing the Collateral; (ii) next, to
payment of the outstanding Obligations, including interest and all other costs,
fees and charges allowed by the Loan Documents; and (iii) finally, only then
shall any net surplus be remitted to the Borrower.
11.3. Accounts Receivable. The Lender may (but shall not be obligated to)
give notice to account debtors and bill and collect the Borrower's accounts
receivable for the Facility in whole or in part, either directly or through the
Lender's agent or designee, in its own, the Borrower's or any other names.
11.4. Collection Action. The Lender may bring an appropriate action to
recover the amounts due in respect of the Obligations. Doing so shall not
prevent the Lender from subsequently bringing an action to realize or foreclose
upon the Collateral for any Default Event existing at the time the collection
action was instituted, or for any subsequent Default Event.
11.5. Other Remedies. The Lender shall be entitled to exercise all other
rights and remedies available under this Agreement and the other Loan Documents,
and all other rights and remedies available under applicable law and in equity.
11.6. Remedies Cumulative. The Lender's remedies are cumulative, and by
reason of exercising any particular remedy the Lender shall not be prevented
from later exercising any other remedy. To the full extent permitted by
applicable law, the Lender shall have no obligation to realize or foreclose
first upon the Collateral or the Trust Property under the Indenture, but may
proceed directly against the Borrower, or against both the Borrower and some or
all of the Collateral or Trust Property or both, or against neither, with or
without proceeding at the same time against any Guarantor, all as the Lender
decides in the Lender's sole and nonreviewable discretion. Even if the Lender
does not immediately require the Borrower to make payment in full or does not
immediately exercise the Lender's other rights and remedies upon the occurrence
of a particular Default Event, the Lender shall still have the right to do so
later if the Default Event continues or if another Default Event subsequently
occurs.
11.7. Default Interest. Following the occurrence of a Default Event, the
Obligations shall bear interest at the Default Rate and, notwithstanding the
entry of any judgment relating to the Obligations, shall continue to accrue
interest at the Default Rate until paid and satisfied in full.
11.8 IMPAIRMENT OF COLLATERAL. LENDER SHALL HAVE NO LIABILITY IF IT FAILS TO
PRESERVE ANY RIGHTS IN THE COLLATERAL OR TAKE ANY ACTION WHATSOEVER IN THE
COLLATERAL NOR BY REASON THAT ANY OF THE COLLATERAL MAY BE SUBJECT TO EQUITIES
OR DEFENSES OR CLAIMS IN FAVOR OF OTHERS NOR BY REASON OF ANY DETERIORATION,
WASTE OR RELEASE, IN WHOLE OR IN PART, WITH OR WITHOUT CONSIDERATION, OF ANY OF
THE COLLATERAL.
12. INDEMNIFICATION. The Borrower shall indemnify, defend (with counsel
acceptable to the Lender), protect and hold the Facility, the Collateral, the
Lender and the other Indemnitees harmless against all liability (including
liability in tort or contract, whether strict or otherwise), damage (whether
direct, indirect, consequential, punitive, incidental, special or otherwise),
obligation, loss, penalty, fine, claim, suit or other proceeding, together with
associated costs and expenses (including reasonable legal and other professional
fees and disbursements), that may be asserted against the Facility or the
Collateral or incurred by or asserted against the Lender or any of the other
Indemnitees, in connection with or arising out of: (i) breach or default under
any of the Borrower's representations, warranties, covenants or undertakings in
the Loan Documents; (ii) any personal injury or property damage occurring on or
about the Facility; (iii) the ownership, use, occupancy, operation or leasing of
the Facility or any Collateral; or (iv) otherwise incidental to or involving the
Facility or the Collateral, or the interest of the Lender or any other
Indemnitee in them, whether before or after a Default Event. The Borrower's
obligation to indemnify shall survive any foreclosure or other disposition of
the Collateral and the termination, discharge or cancellation of this Agreement
for any reason, and is in addition to, and not in derogation or in lieu of, any
other indemnity obligations contained in the Indenture or elsewhere in the Loan
Documents.
13. MISCELLANEOUS SECURITY AGREEMENT PROVISIONS.
13.1. Security Agreement. This Agreement is intended to constitute a security
agreement in accordance with the UCC between Borrower, as debtor, and Lender, as
secured party, and to create a security interest in favor of the Lender in all
of the Collateral.
13.2. Effectiveness. The security provisions of this Agreement shall be
effective immediately when signed by the Borrower, whether or not countersigned
by the Lender.
13.3. Revival. If any payment received or applied by the Lender on account of
the Obligations, including any payment out of collection or Proceeds of
Collateral, is subsequently invalidated, declared to be fraudulent or
preferential, set aside or required to be refunded to a trustee, debtor in
possession, receiver or other Person under any bankruptcy or insolvency law or
in any other proceeding, then a corresponding amount of the Obligations shall be
revived and reinstated, as if the payment had never been received by the Lender,
and the Lender's security interest, rights and remedies under this Agreement and
the other Loan Documents shall to such extent continue in full force and effect.
14. NO JURY TRIAL. THE BORROWER AND THE LENDER EACH WAIVE ALL RIGHTS TO TRIAL
BY JURY IN ANY LITIGATION OR OTHER PROCEEDING RELATING TO OR ARISING OUT OF THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT. THE BORROWER FURTHER WAIVES, TO THE FULL
EXTENT PERMITTED BY LAW, ANY RIGHT TO AN APPRAISAL OF THE COLLATERAL OR OF ANY
OTHER SECURITY FOR THE OBLIGATIONS. THE BORROWER ACKNOWLEDGES THAT THESE WAIVERS
(I) HAVE BEEN FULLY DISCLOSED TO AND DISCUSSED BY THE BORROWER AND THE LENDER,
(II) ARE SUBJECT TO NO EXCEPTIONS, AND (III) ARE MADE KNOWINGLY, INTENTIONALLY
AND WILLINGLY AS PART OF A BARGAINED-FOR LOAN TRANS ACTION.
15. ATTORNEYS' FEES. Whether or not a Default Event has occurred or is
continuing, if: (i) the Lender becomes a party to any third-party suit or
proceeding involving the Facility, the Lien created by this Agreement or the
Lender's interest in any of the Collateral; or (ii) the Lender engages counsel
to collect any of the Obligations or to enforce the Lender's rights or remedies
or the performance of this Agreement or any other Loan Document; then, in each
such case, the Borrower shall pay to the Lender, upon demand, the Lender's
costs, expenses and reasonable attorneys' fees incurred in so doing, whether
incurred before or after judgment. All such amounts shall be deemed to be part
of the Obligations secured by this Agreement, and shall bear interest at the
Default Rate from the date incurred until the date repaid in full.
16. ASSIGNMENT BY LENDER.
16.1. Lender's Right to Assign. The Lender reserves the right, at any time
while the Obligations remain outstanding, to sell, assign, syndicate or
otherwise transfer or dispose of any or all of the Lender's interest under the
Loan Documents. The Lender also reserves the right at any time to pool the Loan
with one or more other loans originated by the Lender or any other Person, and
to securitize or offer interests in such pool on whatever terms and conditions
the Lender shall determine. The Borrower consents to the Lender's releasing
financial and other information regarding the Borrower, the Facility and the
Loan in connection with any such sale, pooling, securitization or other
offering.
16.2. Assignee's Rights. The Lender's assignee shall, to the extent of the
assignment, be vested with all the rights and remedies of the Lender under this
Agreement (including those granted with respect to the Collateral), and to the
extent of such assignment the assignee may fully enforce the secured party's
rights and remedies, and all references to the Lender shall mean and include the
assignee. The Lender shall retain all rights and remedies not so assigned or
transferred.
17. MISCELLANEOUS.
17.1. Final Agreement. This Agreement, together with the other Loan
Documents, represents the final agreement and understanding between the Borrower
and the Lender and may not be contradicted or amended by evidence of prior,
contemporaneous or subsequent oral agreements between the Borrower and the
Lender. The Borrower represents, warrants and acknowledges that no oral
agreements exist between the Borrower and the Lender.
17.2. Amendments. None of the provisions of this Agreement or any other Loan
Document may be waived, modified or amended except by a specific written
instrument signed in each instance by an authorized officer of the Lender.
17.3. Notices. Any notice pursuant to this Agreement shall be in writing and
shall be mailed by certified mail, return receipt requested, or sent by Federal
Express or other nationwide overnight courier service capable of providing
delivery confirmation, or delivered by hand. The notice shall be deemed duly
given when so mailed, sent or hand-delivered. Notices shall be addressed to the
Borrower and to the Lender at their respective addresses set forth at the
beginning of this Agreement, or to any other address which either of them may
designate in a notice to the other that meets the requirements of this Section
17.3.
17.4. Interest Limits.
17.4.1. Notwithstanding anything to the contrary contained in this Agreement,
the Note or any of the other Loan Documents, in no event shall the amount or
rate of interest (including interest at the Default Rate and, to the extent that
they may be deemed, notwithstanding their characterization in the Loan
Documents, to constitute interest, any prepayment fees, late payment processing
fees and other fees or charges) payable, charged or received in connection with
this Agreement or the Loan ever exceed the maximum rate or amount, if any,
specified by applicable law.
17.4.2. If at the time any payment becomes due, enforcing this Agreement or
any other Loan Document as written is prohibited by or would result in violation
of any applicable law limiting the rate or amount of interest or other charges
which the Lender may collect, then the interest or other charges shall
automatically be reduced to the maximum amount then permitted by applicable law.
If the Lender ever collects from the Borrower interest or other charges that
would exceed the highest applicable lawful amount, then the excess amount shall
immediately be deemed credited for the Borrower's account and will be returned
to the Borrower, either by being applied to reduce the then outstanding
principal balance of the Note or by way of direct refund to the Borrower, as the
Lender shall elect.
17.5. Binding Effect. This Agreement is binding upon the Borrower and shall
inure to the benefit of the Lender and the Lender's successors in interest and
assigns, and may be enforced against the Borrower by any of them. The Borrower
shall not assign the Loan or delegate any of its obligations under the Loan
Documents except as expressly permitted by and subject to compliance with the
conditions set forth in this Agreement.
17.6. Interpretation; Construction.
17.6.1. No provision of this Agreement shall be construed against a
particular Person or in favor of another Person merely because of which Person
(or its representative) drafted or supplied the wording for such provision.
17.6.2. References to "Sections" shall be deemed to refer to the sections or
subsections, as appropriate, of this Agreement. References to "Schedules" mean
the Schedules attached to and made a part of this Agreement.
17.6.3. Where the context requires: (i) use of the singular or plural
incorporates the other, and (ii) pronouns and modifiers in the masculine,
feminine or neuter gender shall be deemed to refer to or include the other
genders.
17.6.4. As used in this Agreement, the terms "include[s]" and "including"
mean "including but not limited to"; that is, in each case the example or
enumeration which follows the use of either term is illustrative, but not
exclusive or exhaustive.
17.6.5. Section headings appearing in this Agreement are inserted solely as
reference aids for the ease and convenience of the reader; they shall not be
deemed to modify, limit or define the scope or substance of the provisions they
introduce, nor shall they be used in construing the intent or effect of such
provisions.
17.7. Further Assurances. The Borrower shall, promptly and at the Borrower's
sole cost and expense, sign, acknowledge and deliver such other documents and
instruments, and take such other actions, as the Lender may from time to time
request in order to evidence, confirm or perfect this Agreement or any security
interest granted to the Lender under this Agreement, to confirm the outstanding
balance of the Note, or to otherwise carry out the purpose and intent of this
Agreement and the other Loan Documents.
17.8. Survival. All representations, warranties, agreements and covenants
contained in this Agreement shall survive the signing and delivery of this
Agreement, and all of the waivers made and indemnification obligations
undertaken by the Borrower shall survive the termination, discharge or
cancellation for any reason of this Agreement.
17.9. Severability. If any provision of this Agreement is held invalid,
illegal or unenforceable by a court of competent jurisdiction, the provision
shall only be enforced to the extent, if any, reasonable under the facts and
circumstances, and otherwise shall be deemed deleted from this Agreement. The
remaining provisions shall not be affected, and shall remain in full force and
effect.
17.10. Time of the Essence. Time is of the essence with respect to the
Borrower's performance of its obligations under this Agreement.
17.11. Governing Law. This Agreement shall be governed by and interpreted
according to Connecticut law, but without giving effect to any Connecticut
choice of law provisions which might otherwise make the laws of a different
jurisdiction govern or apply; except that the laws of the State shall govern but
only to the extent of mandatory provisions applicable to the filing and
perfection of security interests, notice, foreclosure procedures and the like
with respect to the Collateral or the Trust Property.
17.12. Joint and Several Liability. If Borrower comprises more than one
person or entity, all such persons and entities shall be jointly and severally
liable for the performance of Borrower's obligations hereunder.
17.13. STATUTE OF FRAUDS.
17.13.1. ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, TO EXTEND CREDIT,
OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER
WASHINGTON LAW (THIS PROVISION ONLY APPLIES IF THE FACILITY IS LOCATED IN THE
STATE OF WASHINGTON).
17.13.2. Statute of Frauds - Language Required by Section 432.045, Missouri
Revised Statutes (this provision only applies if the Facility is located in
Missouri). ORAL AGREEMENTS OR COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO
FORBEAR FROM ENFORCING REPAYMENT OF A DEBT INCLUDING PROMISES TO EXTEND OR RENEW
SUCH DEBT ARE NOT ENFORCEABLE. TO PROTECT BORROWER AND LENDER FROM
MISUNDERSTANDING OR DISAPPOINTMENT, ANY AGREEMENTS BORROWER AND LENDER REACH
COVERING SUCH MATTERS ARE CONTAINED IN THIS WRITING, WHICH IS THE COMPLETE AND
EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN BORROWER AND LENDER, EXCEPT AS
BORROWER AND LENDER MAY LATER AGREE IN WRITING TO MODIFY THIS WRITING. FOR
PURPOSES HEREOF, "THIS WRITING" SHALL MEAN ALL OF THE LOAN DOCUMENTS.
18. DEFINITIONS.
18.1. Capitalized Terms. As used in this Agreement, the following terms mean:
"Adjusted Debt": All Debt of the Borrower, measured as of the last day of the
relevant period, with the sole exception of contingent reimbursement obligations
and contingent Guarantees, but in each case only while they remain contingent.
"Affiliate": With respect to any particular Person, any other Person directly
or indirectly controlling, controlled by or under common control with such
Person.
"Cash Flow": Net Income of the Borrower for any period, plus (but only to the
extent previously deducted in determining such net income) depreciation,
amortization, taxes, Lease Obligations and non-cash charges for the same period,
all determined in accordance with GAAP or such other accounting principles
generally and customarily used in the industry and reasonably acceptable to the
Lender. Cash Flow as so determined shall be adjusted by the Lender in accordance
with the Lender's policy to reflect standardized operating and overhead expenses
(including normalized rent and occupancy costs if the Facility is leased by the
Borrower from an Affiliate, and deduction of owner compensation at a standard
rate if the Borrower has operations at one or more additional locations besides
the Facility), and to exclude the impact (positive or negative) of certain
extraordinary and nonrecurring income and expenses not generally reflected in
prior period results and not reasonably anticipated to be received or incurred
in any subsequent periods.
"Change in Control": As defined in Section 9.2.
"Change in Ownership": As defined in Section 9.1.
"Collateral": As defined in Section 2.1.
"Commitment": The commitment letter issued by the Lender to the Borrower and
accepted by the Borrower.
"Debt": All of the following, but without duplication: (i) indebtedness of a
Person for borrowed money; (ii) any obligation incurred for all or part of the
purchase price of property or services, other than accounts payable and accrued
expenses included entirely within current liabilities in accordance with GAAP;
(iii) indebtedness or obligations evidenced by bonds, debentures, notes, or
similar written instruments; (iv) reimbursement obligations of a Person (whether
contingent or otherwise) in respect of letters of credit, bankers' acceptances,
surety or other bonds and similar instruments; (v) any obligation secured by a
Lien on the property of a Person; (vi) Lease Obligations; and (vii) all
Guarantees by a Person of the payment or performance obligations of any other
Person, including obligations of the kind referred to in clauses (i) through
(vi). The term "Debt" shall not include any unsecured, self- amortizing debt
advanced to the Borrower by the motor fuel supplier named in the Supply
Agreement, where repayment shall be made solely by way of a surcharge, which
shall not exceed a specified number of cents per gallon approved by the Lender,
on the price per gallon charged by the supplier for motor fuel supplied to the
Borrower, and not out of the Borrower's other assets.
"Default": Any event or condition which, with notice or the lapse of time or
both, would become a Default Event.
"Default Event": Any of the events, conditions or circumstances described in
Section 10 of this Agreement.
"Default Rate": As defined in the Note.
"Disclosure Schedule": The Disclosure Schedule completed by the Borrower
concurrently with the making of the Loan and attached to this Agreement.
"Distribution": Any payment, transfer or other distribution of any kind to a
Person with an equity interest, legal or beneficial, in the Borrower (whether as
a shareholder, partner, member or otherwise), to any Guarantor, or to any of
their respective Affiliates, whether or not characterized as a dividend or
distribution, and whether made to them in their capacities as shareholder,
partner, member or otherwise, or characterized as repayment of loans or other
Debt or as interest, or as return of capital, return on equity or investment, or
as salary, bonus or other compensation; except only for such payments or
distributions as may be consented to in writing in advance by the Lender in its
sole discretion, or as are expressly permitted by this Agreement.
"Environmental Laws": All Legal Requirements governing the use, storage,
shipment, handling, disposal, discharge, release, cleanup, reporting, labeling,
warning, workplace disclosure or monitoring of Hazardous Materials, or otherwise
relating to environmental pollution or environmental protection, including, as
may be applicable to environmental matters, the common law respecting nuisance,
trespass, tortious liability and strict liability, and all analagous laws
promulgated or issued by any federal, State, or other authority, and all
regulations adopted in respect of the foregoing. If the Facility is located in
Utah, "Environmental Laws" shall also include, without limitation, the Utah
Hazardous Substances Mitigation Act, Utah Code Ann. Section 19-6-301 et seq., as
amended; the Utah Underground Storage Tank Act, Utah Code Ann. Section 19-6-401,
et seq., as amended; the Utah Air Conservation Act, Utah Code Ann. Section
19-2-101, et seq., as amended; the Utah Radiation Control Act, Utah Code Ann.
Section 19-3-101,. et seq., as amended; the Utah Water Quality Act, Utah Code
Ann. Section 19-5-101, et seq., as amended; the Utah Safe Drinking Water Act,
Utah Code Ann. Section 19-4-101, et seq. as amended; the Utah Solid and
Hazardous Waste Act, Utah Code Ann. Section 19-6-101, et seq., as amended; the
Hazardous Waste Facility Siting Act, Utah Code Ann. Section 19-6-201, et seq.,
as amended; and the Utah Solid Waste Management Act, Utah Code Ann. Section
19-6-501, et seq., as amended; and all analogous laws promulgated or issued by
the state of Utah, and all regulations adopted in respect of the foregoing.
"Equipment": All goods defined as such in the UCC, including all equipment,
machinery, appliances, furniture, furnishings and fixtures which are now or may
at any time in the future be installed in, attached to or located at the
Facility, or used or held for use in connection with the operation of the
Facility, such as pumps, dispensing equipment, car wash equipment, vacuum units,
store fixtures, cash registers, point-of-sale devices, diagnostic, monitoring
and repair equipment, tools, racks, coolers, display cases, cooking apparatus,
and food service equipment, whether or not constituting "fixtures" under State
law; together with all alterations, replacements, controls and operating
accessories.
"Facility": The service station or other facility, including the real estate
and Improvements, as more fully described in the Indenture.
"FCCR": Fixed Charge Coverage Ratio, which is the ratio of Cash Flow for any
period to scheduled or required payments of Adjusted Debt for the same period.
"Financial Statements": The Borrower's financial statements, including
balance sheets, statements of operations and statements of cash flows, together
with the accompanying notes, as delivered to the Lender.
"GAAP": Generally accepted accounting principles as in effect in the United
States of America, applied on a consistent basis.
"Guarantor": Every Person signing and delivering a Guaranty, together with
any other Person besides the Borrower who is or may subsequently become liable,
directly or indirectly, in respect of any of the Obligations as maker,
guarantor, surety, accommodation party, coindorser or in any similar capacity.
"Guaranty": The Guaranty, if any, dated today's date, made by one or more
Affiliates of the Borrower or other Persons (and if more than one, jointly and
severally) to the Lender, together with any subsequent guaranty, endorsement or
other undertaking by which any Person guarantees or assumes responsibility in
any capacity for the payment or performance of any of the Obligations.
"Guarantee": Any guarantee or other contingent liability (other than the
endorsement of third-party checks for collection or deposit in the ordinary
course of business, and indemnity obligations not guaranteeing or otherwise
insuring payment or performance of any Debt or other financial obligation),
direct or indirect, made or assumed by a Person with respect to any Debt or
other obligation of another Person.
"Hazardous Materials": All substances, in whatever form or concentration,
which are classified as hazardous, toxic or dangerous or as pollutants or
contaminants under any Environmental Law. "Hazardous Materials" specifically
include gasoline, oil and other petroleum products, their fractions and their
constituent and residual compounds and by-products, and radon, asbestos,
ureaformaldehyde and PCB's. Where under applicable Environmental Laws a
jurisdiction exercises the authority to establish stricter requirements
regarding Hazardous Materials or to define Hazardous Materials more inclusively,
the stricter requirements and more inclusive definitions shall apply with
respect to the Facility to the extent located within such jurisdiction or
otherwise subject to its authority.
"Indemnitees": The Lender and each other holder of the Note or the other Loan
Documents or of any interest in them, together with each of their respective
officers, directors, stockholders, members, partners, trustees, employees,
representatives, agents and Affiliates, including every other Person controlling
the Lender or the Lender's Affiliates, and each of their respective successors
and assigns.
"Indenture": The "First Leasehold Deed of Trust, Security Agreement and
Fixture Filing," dated today's date, granted by Borrower in respect of the
Facility for the benefit of the Lender.
"Inventory": All goods defined as such in the UCC, including bulk fuel,
supplies, spare parts and store inventories.
"Lease": As to any Person, a lease or other agreement according such Person
the right to use real or personal property as lessee, whether classified as an
operating lease or as a capital lease under GAAP.
"Lease Obligation": The obligation of a Person to pay rent or other amounts
under a Lease.
"Legal Requirements": All present and future: (i) laws, ordinances, rules,
statutes, regulations, requirements, rulings, orders and decrees of the federal,
state, county, municipal and local governments and their respective constituent
administrative departments, public and semi-public agencies, commissions,
boards, bureaus, offices and judicial and other authorities; (ii) orders, rules
and regulations of any national or local board of fire underwriters or other
public or private body exercising similar functions; and (iii) requirements
under policies of comprehensive general liability, property and other insurance
in force with respect to any part of the Facility; in each case whether foreseen
or unforeseen, ordinary or extraordinary, and whether or not they may
necessitate structural changes or improvements or may interfere with the use and
enjoyment of any of the Facility by the Borrower or by anyone else.
"Lien": Any security interest, mortgage, pledge, lien, claim, charge,
encumbrance, conditional sale or title retention or reservation agreement,
including the lessor's title or reversionary interest under a Lease or analogous
instrument.
"Loan": As defined in the preamble of this Agreement.
"Loan Documents": The Commitment, this Agreement, the Note, the Indenture,
the Guaranty and all other security instruments, assignments, certificates,
certifications and agreements of any kind relating to the Loan, whether signed
or delivered concurrently with or subsequent to this Agreement.
"Minimum FCCR": The Minimum FCCR as specified in the box at the beginning of
this Agreement.
"Note": As defined in the preamble of this Agreement.
"Obligations": All indebtedness, liability and obligation for payment or
performance, whether accrued or contingent, whether direct or indirect, whether
arising from tort, contract, or otherwise, and whether incurred in the capacity
of maker, co-endorser or obligor or as surety, guarantor or in any other
capacity, of the Borrower, each Guarantor or any of their respective Affiliates
to the Lender or to any of the Lender's Affiliates under: (i) the Note, (ii)
this Agreement, (iii) the Indenture, (iv) the Guaranty, (v) any other Loan
Document, or (vi) any other present or future agreement, commitment,
undertaking, instrument or obligation of the Borrower to the Lender or any
Affiliate of the Lender, including future advances (whether or not pursuant to a
written commitment), with respect to the Facility; in each case whether due or
to become due or whether now existing or subsequently incurred or arising, and
as may be amended, recast, renewed, replaced or extended from time to time. The
term "Obligations" specifically includes but is in no way limited to principal,
accrued interest and late payment processing fees under the Note, all advances
made by or on behalf of the Lender under any Loan Document, and all collection
and other costs and expenses incurred by or on behalf of the Lender, whether
incurred before or after judgment. The term "Obligations" also includes all
indebtedness, liability and obligation for payment or performance, whether
accrued or contingent, whether direct or indirect, and whether incurred in the
capacity of maker, co-endorser or obligor or as surety, guarantor or in any
other capacity, of the Borrower, each Guarantor or any of their respective
Affiliates to the Lender or to any of the Lender's Affiliates under any present
or future agreement, commitment, undertaking, instrument or obligation related
to the loans made under the Secured Promissory Note (or Notes, as the case may
be) of even date herewith executed by Borrower to the order of Lender.
"Permitted Debt": Only: (i) the Debt represented by the Note; (ii) the Debt
previously disclosed to and approved by the Lender in writing in connection with
the Borrower's application for financing from the Lender; and (iii) purchase
money financing or Lease financing (with the vendor reserving a security
interest or lessor interest, as the case may be, limited just to the Equipment
financed) for specific items of Equipment for the Facility, but subject always
to the Lender's prior approval in the case of Equipment purchases or Leases
which, individually or in the aggregate, entail a commitment or involve
Equipment with a retail value in excess of $10,000 (and provided further that,
whether or not the Lender's prior approval is otherwise required, in no event
shall the Borrower incur purchase money financing or Lease Obligations unless
afterwards, and after giving effect to the payments required under such
financing arrangements, the Borrower will continue to maintain the required
FCCR, measured on a trailing and a forecasted 12-month basis).
"Permitted Liens": Only: (i) Liens created pursuant to the Loan Documents;
(ii) other existing Liens as previously disclosed to and approved by the Lender
in writing covering only specific items of Collateral and Trust Property
securing Permitted Debt; (iii) Liens on specific items of after-acquired
Equipment securing Permitted Debt subsequently incurred in compliance with the
requirements of this Agreement; (iv) Liens for taxes, assessments or
governmental charges not yet due and payable; and (v) statutory liens of
carriers, warehousemen, mechanics and other Liens imposed by law in the ordinary
course of business for sums not yet delinquent.
"Person": Any natural person and any corporation, partnership (general,
limited or otherwise), limited liability company, trust, association, joint
venture, governmental body or agency or other entity having legal status of any
kind.
"PMPA": The Petroleum Marketing Practices Act, 15 U.S.C. Section 2801 et
seq., and any accompanying regulations, each as may be amended from time to
time.
"Proceeds": As defined in the UCC, and including (whether or not they
constitute "proceeds" under the UCC) proceeds of any insurance policy,
indemnity, warranty or guaranty payable in respect of any Collateral, and all
amounts realized from the sale, exchange, collection or other disposition of
Collateral.
"State": The State where the Facility is located.
"Supply Agreement": The supply agreement between the Borrower and the
Borrower's motor fuel supplier, as provided to the Lender prior to the making of
the Loan.
"Trust Property": The "Trust Property" or the "Mortgaged Property", as the
case may be, in either case as defined in the Indenture.
"UCC": The Uniform Commercial Code as enacted and in force in the State, as
may be amended from time to time.
18.2. Accounting and UCC Terms. Accounting terms not specifically defined
shall have the meanings customarily given them in accordance with GAAP. Terms
defined in the UCC shall, unless otherwise noted, have the respective meanings
specified in the UCC.
19. CROSS DEFAULT AND CROSS COLLATERALIZATION. Under the terms of the Loan
Documents, the Loan and all other loans from Lender to Borrower which closed
concurrently herewith are cross-defaulted and cross-collateralized and the Loan
and all other loans to Borrower, now existing or made in the future, are
cross-defaulted. All loans to Borrower by Lender other than the Loan are
referred to herein as the "Other Loans". Borrower acknowledges and agrees that
Lender may be selling the Loan and some or all of the Other Loans to one or more
different parties. If the Loan and the Other Loans are not sold to the same
party, the Loan will automatically, without need for future documentation, cease
to be cross-defaulted and cross-collateralized with any of the Other Loans not
sold to the third party which purchased the Loan. The Loan and any Other Loan
which are sold to the same third party will remain cross-collateralized (if it
is originally cross-collateralized) and cross- defaulted.
* * *
FFP Operating Partners, L.P., a Delaware limited partnership
By: FFP Operating LLC,
a Delaware limited liability company,
its sole general partner
By:
----------------------------------
Craig T. Scott, Vice President-Finance
Franchise Mortgage Acceptance Company,
a Delaware corporation
By:
------------------------------------
Daniel E. Masterson, Senior Loan Closer
Exhibit 21.1
FFP Marketing Company, Inc.
Subsidiaries of the Registrant
Legal Name of Subsidiary State of Type of Percentage
Principal Trade Name(s) Used Organization Entity Owned [1]
FFP Operating Partners, L.P. Delaware Limited 100%
Kwik Pantry, Drivers, Drivers partnership
Diner, Nu-Way, Economy Drive
Ins, Dynamic Minute Mart,
Financial Express Money Order
Company, Direct Fuels
Direct Fuels, L.P. Texas Limited 100%
Direct Fuels partnership
FFP Financial Services, L.P. Delaware Limited 100%
FFP Financial Services, partnership
Lazer Wizard
FFP Money Order Company, Inc. Nevada Corporation 100%
Financial Express Money Order
Company
Practical Tank Management, Inc. Texas Corporation 100%
Practical Tank Management
FFP Transportation, L.L.C. Texas Limited 100%
FFP Transportation liability
company
FFP Operating LLC Delaware Limited 100%
None liability
company
Direct Fuels Management Company, Texas Corporation 100%
Inc.
None
- -----------------------------------
[1] Ownership percentage indicated includes indirect ownership.
Exhibit 23.1
Independent Auditors' Consent
We have issued our report dated March 31, 2000, accompanying the consolidated
financial statements included in the annual report of FFP Marketing Company,
Inc. on Form 10-K for the year ended December 26, 1999. We hereby consent to the
incorporation by reference of said report in the registration statement of FFP
Marketing Company, Inc. on Form S-8 (File No. 33-68143).
Grant Thornton LLP
Dallas, Texas
April 11, 2000
<PAGE>
Exhibit 23.1
Independent Auditors' Consent
We consent to incorporation by reference in the registration statement (No.
33-68143) on Form S-8 of FFP Marketing Company, Inc. of our report dated March
30, 1999, except as to the final paragraph of Note 6, which is as of April 12,
1999, related to the consolidated balance sheet of FFP Marketing Company, Inc.
and subsidiaries as of December 27, 1998, and the related consolidated
statements of operations, stockholders' equity/partners' capital, and cash flows
for each of the years in the two-year period then ended, which report appears in
the December 26, 1999 annual report on Form 10-K of FFP Marketing Company, Inc.
KPMG LLP
Fort Worth, Texas
April 11, 2000
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<FISCAL-YEAR-END> DEC-26-1999
<PERIOD-END> DEC-26-1999
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0
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<SALES> 493,293
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<INCOME-PRETAX> (789)
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