<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 11, 1996
REGISTRATION NO. 333-12081
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
DUCKWALL-ALCO STORES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
KANSAS 5399 48-0201080
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
ORGANIZATION)
401 COTTAGE STREET
ABILENE, KANSAS 67410-0219
(913) 263-3350
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------------------------
CHARLES E. BOGAN, ESQ.
VICE PRESIDENT AND GENERAL COUNSEL
401 COTTAGE STREET
ABILENE, KANSAS 67410-0219
(913) 263-3350
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------------------------
COPIES TO:
RICHARD N. NIXON, ESQ. THOMAS W. VAN DYKE, ESQ.
STINSON, MAG & FIZZELL, P.C. BRYAN CAVE LLP
1201 WALNUT STREET, SUITE 2800 7500 COLLEGE BOULEVARD, SUITE 1100
KANSAS CITY, MISSOURI 64106-6251 OVERLAND PARK, KANSAS 66210-4035
(816) 842-8600 (913) 338-7700
--------------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES
MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE
REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR
SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER,
SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION
UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED OCTOBER 11, 1996
PROSPECTUS
dated , 1996
1,400,000 SHARES
DUCKWALL-ALCO STORES, INC.
COMMON STOCK
Of the 1,400,000 shares of Common Stock of Duckwall-ALCO Stores, Inc. (the
``Company'') offered hereby, 1,000,000 shares are being sold by the Company and
400,000 shares are being sold by certain stockholders (``Selling
Stockholders''). The Company will not receive any of the proceeds from the sale
of shares by the Selling Stockholders. See ``Principal and Selling
Stockholders.''
The Common Stock of the Company is traded on the Nasdaq National Market under
the symbol ``DUCK.'' On September 12, 1996, the last reported sale price of the
Common Stock on the Nasdaq National Market was $13.25 per share. See ``Price
Range of Common Stock.''
SEE ``RISK FACTORS'' BEGINNING ON PAGE 6 FOR CERTAIN INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
=================================================================================================================================
PRICE TO UNDERWRITING PROCEEDS TO PROCEEDS TO
PUBLIC DISCOUNT <F1> COMPANY <F2> SELLING STOCKHOLDERS
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
Per Share.......................... $ $ $ $
- ---------------------------------------------------------------------------------------------------------------------------------
Total <F3>......................... $ $ $ $
=================================================================================================================================
<FN>
<F1> The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See ``Underwriting.''
<F2> Before deducting expenses estimated at $275,000, which will be paid by the
Company.
<F3> The Company has granted the Underwriters a 30-day option to purchase up to
an aggregate of 210,000 additional shares of Common Stock, solely to cover
over-allotments, if any, at the per share Price to Public less the
Underwriting Discount. If the Underwriters exercise this option in full,
the total Price to Public, Underwriting Discount and Proceeds to Company
will be $ , $ and $ , respectively. See ``Underwriting.''
</TABLE>
--------------------------
The shares of Common Stock are offered by the several Underwriters subject to
prior sale when, as and if delivered to and accepted by the Underwriters and
subject to their right to reject orders in whole or in part. It is expected that
delivery of the certificates representing the shares of Common Stock will be
made at the offices of Piper Jaffray Inc. in Minneapolis, Minnesota on or about
, 1996.
PIPER JAFFRAY INC.
THE ROBINSON-HUMPHREY COMPANY, INC.
STIFEL, NICOLAUS & COMPANY
INCORPORATED
<PAGE> 3
[PICTURES]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET SYSTEM.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS MAY ENGAGE IN PASSIVE
MARKET MAKING TRANSACTIONS IN THE COMMON STOCK OF THE COMPANY ON THE NASDAQ
NATIONAL MARKET SYSTEM IN ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES
EXCHANGE ACT OF 1934. SEE ``UNDERWRITING.''
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus. Except as otherwise noted, all information in this Prospectus
assumes the Underwriters' over-allotment option has not been exercised (see
``Underwriting''). The Company operates on a fiscal year basis which ends on the
Sunday which falls most closely to January 31 of each year. The Company is
currently operating in fiscal 1997. This Prospectus contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
may differ materially from those discussed in the forward-looking statements.
Factors that might cause such a disparity include, but are not limited to, those
discussed in ``Risk Factors.'' Prospective investors should carefully consider
the information set forth under the heading ``Risk Factors.''
THE COMPANY
Duckwall-ALCO Stores, Inc. (the ``Company''), which was established in 1901,
is a regional retailer operating, as of September 4, 1996, 173 stores in 16
states in the central United States. Under the names ``ALCO'' and ``Duckwall,''
the Company's strategy is to target smaller markets not served by other regional
or national retail discount chains and provide the most convenient access to
retail shopping within each market. The Company's ALCO discount stores offer a
full line of merchandise consisting of approximately 35,000 items, including
automotive, candy, crafts, domestics, electronics, fabrics, furniture, hardware,
health and beauty aids, housewares, jewelry, ladies', men's and children's
apparel and shoes, pre-recorded music and video, sporting goods, seasonal items,
stationery and toys. The Company's smaller Duckwall variety stores offer a more
limited selection of merchandise.
Of the Company's 121 ALCO discount stores, 77 stores are located in
communities which do not have another full service discounter. The Company
intends to continue its strategy of opening ALCO stores in markets that do not
have other discount retailers and where the opening of an ALCO store would
significantly reduce the likelihood of the entry by other competitors in the
market. The ALCO stores accounted for approximately 95% of the Company's fiscal
1996 net sales. While the current ALCO stores average approximately 23,300
square feet of selling space, the Company's store expansion program is primarily
directed toward stores with a design prototype of approximately 18,000 square
feet of selling space, which, based on the Company's experience, has been a
design that maximizes return on investment for newly-constructed stores
(referred to as ``Class 18 Stores'').
The Company's 52 Duckwall variety stores are primarily located in
communities of less than 2,500 residents and are designed to act as the primary
convenience retailer in these smaller communities. These stores, which accounted
for the remaining 5% of the Company's fiscal 1996 net sales, average
approximately 4,800 square feet of selling space and offer approximately 12,000
items. Operating Duckwall stores offers the Company the opportunity to serve the
needs of a community that would not support a full service retail discount store
with a reduced investment per store and a higher return on investment than the
Company's average.
The Company believes that its strong operating performance and improved
financial condition over the last four fiscal years and the first twenty-six
weeks of the current fiscal year is the result of the focused execution of a
business strategy that includes the following key components:
Markets: The Company intends to open ALCO stores in towns with
populations of typically less than 5,000 which are in trade areas with
populations of less than 16,000 where: (1) there is no direct competition
from national or regional discount retailers; (2) economic and demographic
criteria indicate the market is able to commercially support a discount
retailer; and (3) the opening of an ALCO store would significantly reduce
the likelihood of the entry into such market by another discount retailer.
This strategy has guided the Company in both its opening of new stores and
in the closing of existing stores.
Market Selection: The Company has a detailed process which it uses to
analyze under-served markets which includes examining factors such as
distance from competition, trade area, disposable income and retail sales
levels. Markets that are determined to be sizable enough to support an ALCO
or a Duckwall store, and that have no direct competition from another
discount retailer, are examined closely and eventually selected or passed
over by the Company's experienced management team. As of September 4, 1996,
the Company's management had approximately 166 markets which it had
identified for possible ALCO stores and was in the site selection or
development process in 34 of those markets.
3
<PAGE> 5
Store Expansion: The Company's expansion program for ALCO stores is
designed around the prototype Class 18 Store. This prototype details for
each new store plans for shelf space, merchandise presentation, store items
to be offered, parking, storage, as well as other store design
considerations. The 18,000 square feet of selling space is large enough to
permit a full line of the Company's merchandise, while minimizing capital
expenditures, required labor costs and general overhead costs. Generally,
the Company has expanded its ALCO stores through internal development
efforts on a location-by-location basis. Recently, however, the Company
entered into a definitive agreement to assume 14 leases and purchase the
related fixtures for ALCO stores in eastern Indiana and western Ohio (the
``Real Estate Transaction''). The Company's expansion strategy for the
Duckwall variety store is based on opportunities presented to the Company in
and by those communities where there is demand and where existing premises
are available for lease at a relatively low cost and with limited financial
commitment.
Technology: The Company is continually improving its management
information technologies in order to reduce costs, improve customer service,
and enhance general business planning. The Company's accounting and
information systems and merchandise and inventory planning systems have
recently been enhanced and are in the process of being implemented. The
Company has undertaken a $2.3 million project to upgrade the back office
equipment and software being used at the ALCO stores for sales processing.
This project is expected to extend the life of the current point-of-sale
equipment, as well as to improve efficiencies in training and operations and
is expected to be completed in fiscal 1998. In conjunction with the project,
the ALCO stores will be equipped with radio frequency hand held devices to
allow for additional efficiencies in processing inventory receipts and
counts.
Advertising and Promotion: The Company utilizes full-color photography
advertising circulars of 8 to 20 pages distributed by insertion into
newspapers or direct mail where newspaper service is inadequate. These
circulars are distributed approximately 41 times per year in ALCO markets.
In its Duckwall markets, the Company advertises approximately 12 times a
year during seasonal promotions. The Company's marketing program is designed
to create an awareness, on the part of its identified target customer base,
of the Company's comprehensive selection of merchandise and its competitive
pricing.
Store Environment: The Company's stores are open, clean, bright and
offer a pleasant atmosphere with disciplined product presentation,
attractive displays and efficient check-out procedures. The Company strives
to staff its stores with courteous, highly motivated, knowledgeable store
associates in order to provide a convenient, friendly and enjoyable shopping
experience.
The Company's growth strategy is to increase sales and profitability at
existing stores by continually refining the merchandising mix and improving
operating efficiencies, and to open new stores in under-served markets in the
central United States. The Company plans to open a total of 15 ALCO stores and
15 Duckwall stores and close 1 ALCO store in the current fiscal year, and open
25 ALCO stores (including the 14 locations involved with the Real Estate
Transaction) and at least 15 Duckwall stores during fiscal year 1998, and a
minimum of 16 ALCO stores and 15 Duckwall stores during fiscal year 1999.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered:
By the Company.............................. 1,000,000 shares
By the Selling Stockholders................. 400,000 shares
Total................................... 1,400,000 shares
Common Stock outstanding after the offering..... 5,000,523 shares <F1>
Use of proceeds................................. The Company intends to use the net proceeds of the
offering to fund the opening of new stores. Pending such use,
the Company intends to use the net proceeds to repay
indebtedness under its revolving loan credit facility.
Nasdaq National Market symbol................... DUCK
<FN>
- --------
<F1> Excludes 188,325 Shares of Common Stock for which options have been
granted under the Company's Incentive Stock Option Plan and includes 1,013
Shares of Common Stock issued in August and September of 1996 pursuant to
options exercised by former employees of the Company.
</TABLE>
4
<PAGE> 6
<TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
TWENTY-SIX WEEKS
FISCAL YEAR ENDED ENDED
------------------------------------------------------------------- ---------------------
FEBRUARY 2, JANUARY 31, JANUARY 30, JANUARY 29, JANUARY 28, JULY 30, JULY 28,
1992<F1> 1993 1994 1995 1996 1995 1996
----------- ----------- ----------- ----------- ----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales......................... $210,812 $217,236 $225,903 $242,144 $256,454 $117,532 $127,774
Gross margin...................... 66,181 68,402 71,686 78,964 83,158 38,393 41,962
Income from operations............ 5,561 7,038 8,304 10,207 11,047 4,012 4,715
Interest expense.................. 5,197 4,284 4,091 3,390 2,958 1,417 1,592
Net earnings (loss)............... $ (794) $ 1,559 $ 2,260 $ 4,130 $ 5,130 $ 1,609 $ 1,927
Earnings (loss) per common and
common equivalent
share<F2><F3>................... $ (.50) $ .57 $ .80 $ 1.51 $ 1.28 $ .40 $ .48
Weighted average common and common
equivalent shares
outstanding<F3>................. 1,575,813 2,006,250 2,006,250 2,737,620 4,014,351 4,007,909 4,033,522
OPERATING DATA:
Stores open at period-end......... 104 110 121 138 156 146 170
Stores in noncompetitive markets
at period-end<F4>............... 48 57 72 91 110 100 123
Percentage of total stores in
non-competitive markets<F4>..... 46.2% 51.8% 59.5% 65.9% 70.5% 68.4% 72.4%
Net sales of stores in non-
competitive markets<F4>......... $ 84,835 $ 96,243 $112,590 $132,743 $151,733 $ 69,252 $ 80,793
Percentage of net sales from
stores in non-competitive
markets<F4>..................... 40.2% 44.3% 49.8% 54.8% 59.2% 58.9% 63.2%
Comparable store sales for all
stores<F5>...................... (4.2%) (0.3%) 0.0% 1.1% (3.2%) (4.2%) (1.5%)
Comparable store sales for stores
in non-competitive
markets<F4><F5>................. 0.0% 2.7% 4.0% 2.7% (1.0%) (1.4%) 0.2%
<CAPTION>
JULY 28, 1996
---------------------------
ACTUAL AS ADJUSTED<F6>
-------- ---------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital............................................................. $ 56,786 $ 56,786
Total assets................................................................ 123,072 123,072
Total debt (includes capital lease obligation and current maturities)....... 35,719 23,572
Stockholders' equity........................................................ 55,614 67,761
<FN>
- ---------
<F1> Net loss and the related loss per share amounts for the fiscal year ended
February 2, 1992 as presented above exclude an extraordinary gain from
discharge of indebtedness of $43,101 related to the Company's 1991
Reorganization. The extraordinary gain has been excluded from the above
table because it is not relevant to ongoing operations.
<F2> Earnings per common and common equivalent share for fiscal 1993 and 1994
includes the dilutive effect of accretion in the carrying value of a
redeemable common stock purchase warrant of $408 and $645, respectively.
See Note 1(i) of Notes to Consolidated Financial Statements.
<F3> Pro forma earnings (loss) per common and common equivalent share for
fiscal 1992, 1993 and 1994 amounted to $(.41), $.66 and $.96,
respectively, based on pro forma weighted average common and common
equivalent shares outstanding of 1,925,813, 2,356,250 and 2,356,250,
respectively. See Note 1(i) of Notes to Consolidated Financial Statements.
<F4> ``Non-competitive'' markets refer to those markets where there is not a
national or regional discount store located in the primary market served
by the Company. The Company's stores in such non-competitive markets
nevertheless face competition from various sources. See
``Business--Competition.''
<F5> Percentages reflect the increase or decrease based upon a comparison of
the applicable fiscal year with the immediately preceding fiscal year for
stores open during the entirety of both years.
<F6> Adjusted to reflect the issuance of 1,000,000 shares of Common Stock
offered by the Company hereby, based on an assumed offering price of
$13.25 per share, less the underwriting discount and estimated offering
expenses, and the application of the net proceeds therefrom. See ``Use of
Proceeds'' and ``Capitalization.''
</TABLE>
5
<PAGE> 7
RISK FACTORS
Prospective investors should carefully consider the following risk factors
as well as the other information contained in this Prospectus.
EXPANSION PLANS
The continued growth of the Company is dependent, in large part, upon the
Company's ability to open and operate new stores on a timely and profitable
basis. The Company plans to open approximately 30 stores in the current fiscal
year and 40 (assuming the Real Estate Transaction is completed) and 31 in fiscal
1998 and 1999, respectively. If the Real Estate Transaction is not completed,
the Company will open fewer stores in fiscal 1998. While the Company believes
that adequate sites are currently available, the rate of new store openings is
subject to various contingencies, many of which are beyond the Company's
control. These contingencies include the availability of acceptable communities
for store locations, the Company's ability to secure suitable store sites on a
timely basis and on satisfactory terms, the Company's ability to hire, train and
retain qualified personnel, the availability of adequate capital resources and
the successful integration of new stores into existing operations. There can be
no assurance that the Company will be able to continue to successfully identify
and obtain new store sites or that once obtained, the new stores will achieve
satisfactory sales or profitability.
COMPETITION
The Company's strategy is to locate its ALCO stores in smaller retail
markets where there is no competing discount retail store within the primary
trade area and where the Company believes the opening of a store would
significantly reduce the likelihood of such a competitor entering the market. No
assurance can be given, however, that competition will not emerge in such
markets which, if developed, could seriously reduce the prospect of a profitable
store in such market. In those markets in which the Company has direct
competition, it often competes with national or regional discount stores which
often have substantially greater financial and other resources than the Company.
See ``Business--Competition.''
GOVERNMENT REGULATION
The Company is subject to numerous federal, state and local government laws
and regulations, including those relating to the development, construction and
operation of the Company's stores. The Company is also subject to laws governing
its relationship with employees, including minimum wage requirements, laws and
regulations relating to overtime and working and safety conditions and
citizenship requirements. Material increases in the cost of compliance with any
applicable law or regulation and similar matters could materially and adversely
affect the Company.
Congress recently enacted The Small Business Job Protection Act of 1996 (the
``Act''), raising the hourly minimum wage from $4.25 to $4.75 effective as of
October 1, 1996 and to $5.15 effective as of September 1, 1997. The majority of
the Company's employees are paid hourly wages below these increased minimum wage
rates. As a result, the Act will increase the Company's payroll expense. The
Company intends to offset this increase in expense through the implementation of
measures, including, but not limited to, reducing employee hours and increasing
gross margins (through increased prices and reduced costs). If these measures
are not successful, the higher minimum wage could materially and adversely
affect the Company.
CONTROL BY SIGNIFICANT STOCKHOLDER
Kansas Public Employees Retirement System (``KPERS'') is a principal
stockholder of the Company and a Selling Stockholder in this offering. Upon
consummation of this offering, KPERS will be the beneficial owner of 20.0% of
the outstanding shares of Common Stock (or 19.2% if the Underwriters'
over-allotment option is fully exercised). Accordingly, KPERS will continue to
have the ability to exercise significant influence over the business and affairs
of the Company. See ``Principal and Selling Stockholders'' for certain
information as to shared voting and investment powers under investment advisory
agreements with respect to the shares owned by KPERS.
6
<PAGE> 8
QUARTERLY FLUCTUATIONS
Quarterly results of operations have historically fluctuated as a result of
retail consumers' purchasing patterns, with the highest quarter in terms of
sales and profitability being the fourth quarter. Quarterly results of
operations will likely continue to fluctuate significantly as a result of such
patterns and may fluctuate due to the timing of new store openings.
ECONOMIC CONDITIONS
Similar to other retail businesses, the Company's operations may be affected
adversely by general economic conditions and events which result in reduced
consumer spending in the markets served by its stores. Also, smaller communities
where the Company's stores are located may be dependent upon a few large
employers or may be significantly affected by economic conditions in the
industry upon which the community relies for its economic viability, such as the
agricultural industry. This may make the Company's stores more vulnerable to a
downturn in a particular segment of the economy than the Company's competitors
which operate in markets which are larger metropolitan areas where the local
economy is more diverse.
DEPENDENCE ON OFFICERS
The development of the Company's business has been largely dependent on the
efforts of its current management team headed by Glen L. Shank and nine other
officers. The loss of the services of one or more of these officers could have a
material adverse effect on the Company.
NO RECENT DIVIDEND PAYMENTS; RESTRICTIONS ON PAYMENT OF DIVIDENDS
The Company has not paid a cash dividend on the Common Stock for more than
five years, and it has no plans to commence paying cash dividends on the Common
Stock. The Company's current revolving loan credit facility prohibits the
payment of dividends.
7
<PAGE> 9
THE COMPANY
The Company was founded as a general merchandising operation at the turn of
the century in Abilene, Kansas by A. L. Duckwall. From its founding until 1968,
the Company conducted its retail operations as small variety or ``dime'' stores.
In 1968, the Company followed an emerging trend to discount retailing when it
opened its first ALCO discount store. From 1975 to 1985, the Company's sales
increased from $92 million to $364 million and the number of stores grew from
105 to 158.
In September 1985, the Company was purchased by a group of investors in a
leveraged buyout. Soon thereafter, the Company began to suffer losses
principally caused by increased competition from larger competitors, such as
Wal-Mart, and its increased debt service. During 1987 and 1988, it became
evident that many of the Company's stores were suffering sales declines and
either were unprofitable or were soon to become unprofitable. Since virtually
all of these stores were operated under long-term leases, it was financially
difficult to close a store unless the lease could be assigned or the property
sublet. During the period from February 1, 1986 to February 1, 1989, the Company
closed 20 stores but was able to sublet or assign only one lease.
In mid-1988, Glen L. Shank, then vice president of merchandising, became the
president of the Company. Although management attempted to deal with the
Company's problems, the financial burdens placed on the Company by declining
sales, the increased debt service requirements from the leveraged buyout and its
inability to close non-performing stores on an acceptable basis made improvement
extremely difficult. As a result, on May 8, 1989, the Company filed a Chapter 11
petition to reorganize its affairs in the United States Bankruptcy Court for the
District of Kansas (the ``Bankruptcy Proceeding''). After operating
approximately two years under the Bankruptcy Proceeding, the Company
successfully effected a reorganization in May 1991 (the ``1991
Reorganization''). In addition to restructuring the Company's equity and
indebtedness, the Bankruptcy Proceeding and the 1991 Reorganization enabled the
Company to close 51 stores on an acceptable basis primarily where there was
direct competition from national retail discounters. The 1991 Reorganization
also allowed the Company to renegotiate lease terms on 23 other stores and
develop its current business strategy.
As of September 4, 1996, the Company operated 173 retail stores located in
the central United States, consisting of 121 ALCO retail discount stores and 52
Duckwall variety stores.
The Company was incorporated on July 2, 1915 under the laws of Kansas. The
Company's executive offices are located at 401 Cottage Street, Abilene, Kansas
67410-0129, and its telephone number is (913) 263-3350.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,000,000 shares of
Common Stock offered by the Company hereby are estimated to be $12,146,875
(based on an assumed public offering price of $13.25 per share) after deducting
the underwriting discount and estimated offering expenses payable by the
Company. The net proceeds of the offering will be used to fund the opening of
new stores. Pending such use, the net proceeds will be used to repay outstanding
balances under the Company's revolving loan credit facility (the ``Revolving
Loan Credit Facility''). Advances under the Revolving Loan Credit Facility bear
interest at the prime rate plus 0.5%. The Revolving Loan Credit Facility expires
in February 1999, and, provided such agreement is not otherwise renewed or
extended, all advances shall be then due. Funds advanced to the Company pursuant
to the Revolving Loan Credit Facility during the last fiscal year were used as
working capital, in particular to fund the building of new stores, purchase of
inventory, and to meet other short term cash requirements.
The Company will not receive any proceeds from the sale of the 400,000
shares of Common Stock offered by the Selling Stockholders hereby.
DIVIDEND POLICY
The Company has not paid any dividends on the Common Stock for more than
five years, and it is not anticipated that dividends will be declared in the
foreseeable future. The Company's Revolving Loan Credit Facility prohibits the
payment of dividends by the Company. See Note 4 of Notes to Consolidated
Financial Statements.
8
<PAGE> 10
CAPITALIZATION
(DOLLARS IN THOUSANDS)
The following table sets forth (i) the actual short-term debt and
capitalization of the Company at July 28, 1996 and (ii) the short-term debt and
capitalization of the Company as adjusted to give effect to the issuance and
sale of the 1,000,000 shares of Common Stock offered by the Company hereby at an
assumed public offering price of $13.25 per share, less the underwriting
discount and estimated offering expenses, and the application of the estimated
net proceeds therefrom.
<TABLE>
<CAPTION>
JULY 28, 1996
-----------------------
ACTUAL AS ADJUSTED
------- -----------
<S> <C> <C>
INDEBTEDNESS:
Current maturities of long-term debt............................................. $ 752 $ 752
Current maturities of capital lease obligations.................................. 637 637
------- -------
Total current maturities of long-term debt and capital lease obligations..... $ 1,389 $ 1,389
======= =======
Notes payable under Revolving Loan Credit Facility............................... $21,353 $ 9,206
Long-term debt, excluding current maturities..................................... 3,540 3,540
Capital lease obligations, excluding current maturities.......................... 9,437 9,437
------- -------
Total long-term debt and capital lease obligations, excluding current
maturities................................................................... 34,330 22,183
------- -------
STOCKHOLDERS' EQUITY:
Common Stock, $.0001 par value; 20,000,000 shares authorized; 3,999,510 shares
issued and outstanding, actual; 4,999,510 issued and outstanding, as adjusted
<F1>............................................................................ 1 1
Additional paid-in capital....................................................... 41,316 53,463
Retained earnings since June 2, 1991............................................. 14,297 14,297
------- -------
Total stockholders' equity................................................... 55,614 67,761
------- -------
Total capitalization..................................................... $89,944 $89,944
======= =======
<FN>
- --------
<F1> Excludes 188,325 shares of Common Stock for which options have been
granted under the Company's Incentive Stock Option Plan and 1,013 shares of
Common Stock issued in August and September of 1996 pursuant to options
exercised by former employees of the Company.
</TABLE>
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is quoted on the Nasdaq National Market under the
symbol ``DUCK.'' The table below sets forth for the periods indicated the high
and low sale prices for the Company's Common Stock as reported by the Nasdaq
National Market.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
FISCAL 1995
Third quarter (Initial trade made on October 27, 1994)....................... $ 9 1/2 $ 9
Fourth quarter............................................................... 9 3/4 9
FISCAL 1996
First quarter................................................................ $ 9 3/4 $ 8 3/4
Second quarter............................................................... 10 3/4 8 3/4
Third quarter................................................................ 11 7/8 10 3/8
Fourth quarter............................................................... 11 1/4 9 1/2
FISCAL 1997
First quarter................................................................ $11 5/8 $ 8 3/4
Second quarter............................................................... 15 1/2 12 7/8
Third quarter (through September 12, 1996)................................... 14 1/2 12 1/4
</TABLE>
On September 12, 1996, the last reported sale price of the Common Stock on
the Nasdaq National Market was $13.25 per share. As of September 3, 1996, there
were approximately 1,400 holders of record of the Common Stock.
9
<PAGE> 11
SELECTED CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND STORE DATA)
The selected consolidated financial data presented below for, and as of the
end of, each of the last five fiscal years under the captions Statements of
Operations Data and Balance Sheet Data have been derived from the audited
consolidated financial statements of the Company. The selected consolidated
financial data as of July 28, 1996 and for the twenty-six week periods ended
July 30, 1995 and July 28, 1996 have been derived from the unaudited
consolidated financial statements of the Company for such periods and include,
in the opinion of management, all adjustments (consisting of normal recurring
adjustments) necessary for the fair presentation of the financial position and
results of operations at and for such periods. The Company's results of
operations for the twenty-six week period ended July 28, 1996 may not be
indicative of its results of operations for the full year. This data should be
read in conjunction with ``Management's Discussion and Analysis of Financial
Condition and Results of Operations'' and the consolidated financial statements,
related notes, and other financial information included herein.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED TWENTY-SIX WEEKS ENDED
------------------------------------------------------------------- -----------------------
FEBRUARY 2, JANUARY 31, JANUARY 30, JANUARY 29, JANUARY 28, JULY 30, JULY 28,
1992<F1> 1993 1994 1995 1996 1995 1996
----------- ----------- ----------- ----------- ----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales...................... $210,812 $217,236 $225,903 $242,144 $256,454 $117,532 $127,774
Cost of sales.................. 144,631 148,834 154,217 163,180 173,296 79,139 85,812
--------- --------- --------- --------- --------- --------- ---------
Gross margin................... 66,181 68,402 71,686 78,964 83,158 38,393 41,962
Selling, general and
administrative expenses...... 56,388 57,086 59,432 65,477 69,018 32,884 35,458
Depreciation and
amortization................. 4,232 4,278 3,950 3,280 3,093 1,497 1,789
--------- --------- --------- --------- --------- --------- ---------
Income from operations......... 5,561 7,038 8,304 10,207 11,047 4,012 4,715
Interest expense............... 5,197 4,284 4,091 3,390 2,958 1,417 1,592
Other expense (income), net.... 1,520 503 823 156 (185) 0 0
--------- --------- --------- --------- --------- --------- ---------
Earnings before income taxes... (1,156) 2,251 3,390 6,661 8,274 2,595 3,123
Income tax expense (benefit)... (362) 692 1,130 2,531 3,144 986 1,196
--------- --------- --------- --------- --------- --------- ---------
Net earnings (loss)............ $ (794) $ 1,559 $ 2,260 $ 4,130 $ 5,130 $ 1,609 $ 1,927
========= ========= ========= ========= ========= ========= =========
Earnings (loss) per common
and common equivalent
share<F2><F3>................ $ (.50) $ .57 $ .80 $ 1.51 $ 1.28 $ .40 $ .48
Weighted average common
and common equivalent
shares outstanding<F3>....... 1,575,813 2,006,250 2,006,250 2,737,620 4,014,351 4,007,909 4,033,522
OPERATING DATA:
Stores open at period-end...... 104 110 121 138 156 146 170
Stores in non-competitive
markets at period-end<F4>.... 48 57 72 91 110 100 123
Percentage of total stores in
non-competitive
markets<F4>.................. 46.2% 51.8% 59.5% 65.9% 70.5% 68.4% 72.4%
Net sales of stores in
non-competitive
markets<F4>.................. $ 84,835 $ 96,243 $112,590 $132,743 $151,733 $ 69,252 $ 80,793
Percentage of net sales from
stores in non-competitive
markets<F4>.................. 40.2% 44.3% 49.8% 54.8% 59.2% 58.9% 63.2%
Comparable store sales for all
stores<F5>................... (4.2%) (0.3%) 0.0% 1.1% (3.2%) (4.2%) (1.5%)
Comparable store sales for
stores in non-competitive
markets<F4><F5>.............. 0.0% 2.7% 4.0% 2.7% (1.0%) (1.4%) 0.2%
BALANCE SHEET DATA:
Working capital................ $ 35,912 $ 35,081 $ 36,248 $ 38,954 $ 47,389 $ 56,786
Total assets................... 81,923 81,326 84,282 92,202 107,723 123,072
Total debt (includes capital
lease obligation and current
maturities).................. 37,466 32,157 30,244 16,805 24,551 35,719
Redeemable common stock
purchase warrant............. 1,250 1,658 2,303 0 0 0
Stockholders' equity........... 21,536 23,281 26,553 47,100 53,061 55,614
<FN>
- ----------
<F1> Net loss and the related loss per share amounts for the fiscal year ended
February 2, 1992 as presented above exclude an extraordinary gain from
discharge of indebtedness of $43,101 ($27.35 per share actual and $22.38
per share pro forma) related to the Company's 1991 Reorganization. The
extraordinary gain has been excluded from the above table because it is
not relevant to ongoing operations.
<F2> Earnings per common and common equivalent share for fiscal 1993 and 1994
includes the dilutive effect of accretion in the carrying value of the
redeemable common stock purchase warrant of $408 and $645, respectively.
See Note 1(i) of Notes to Consolidated Financial Statements.
<F3> Pro forma earnings (loss) per common and common equivalent share for
fiscal year 1992, 1993 and 1994 amounted to $(.41), $.66 and $.96,
respectively, based on pro forma weighted average common and common
equivalent shares outstanding of 1,925,813, 2,356,250 and 2,356,250,
respectively. See Note 1(i) of Notes to Consolidated Financial Statements.
<F4> ``Non-competitive'' markets refer to those markets where there is not a
national or regional discount store located in the primary market served
by the Company. The Company's stores in such non-competitive markets
nevertheless face competition from various sources. See
``Business--Competition.''
<F5> Percentages reflect the increase or decrease based upon a comparison of
the applicable fiscal year with the immediately preceding fiscal year for
stores open during the entirety of both years.
</TABLE>
10
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company's fiscal year ends on the Sunday closest to January 31. The
Company is currently operating in fiscal 1997. Fiscal 1994, 1995 and 1996 each
consisted of 52 weeks.
As used in this Prospectus, the term ``competitive market'' refers to any
market in which there is one or more national or regional discount stores
located in the primary market served by the Company. The term ``non-competitive
market'' refers to any market in which there is no national or regional discount
store located in the primary market served by the Company. Even in a
non-competitive market, the Company faces competition from a variety of sources.
See ``Business--Competition''.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the components of
the Company's consolidated statements of operations expressed as a percentage of
net sales:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED TWENTY-SIX WEEKS ENDED
----------------------------------------- -----------------------
JANUARY 30, JANUARY 29, JANUARY 28, JULY 30, JULY 28,
1994 1995 1996 1995 1996
----------- ----------- ----------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales............................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales........................... 68.3 67.4 67.6 67.3 67.2
----- ----- ----- ----- -----
Gross margin............................ 31.7 32.6 32.4 32.7 32.8
----- ----- ----- ----- -----
Selling, general and administrative..... 26.3 27.0 26.9 28.0 27.7
Depreciation and amortization........... 1.7 1.4 1.2 1.3 1.4
----- ----- ----- ----- -----
Total operating expenses................ 28.0 28.4 28.1 29.3 29.1
----- ----- ----- ----- -----
Income from operations.................. 3.7 4.2 4.3 3.4 3.7
Interest................................ 1.8 1.4 1.2 1.2 1.3
Other expense, net...................... 0.4 0.0 (0.1) 0.0 0.0
----- ----- ----- ----- -----
Earnings before income taxes............ 1.5 2.8 3.2 2.2 2.4
Income tax expense...................... 0.5 1.1 1.2 0.8 0.9
----- ----- ----- ----- -----
Net earnings............................ 1.0% 1.7% 2.0% 1.4% 1.5%
===== ===== ===== ===== =====
</TABLE>
TWENTY-SIX WEEKS ENDED JULY 28, 1996 COMPARED TO TWENTY-SIX WEEKS ENDED JULY 30,
1995
Net sales for the twenty-six week period ended July 28, 1996 increased $10.2
million or 8.7% to $127.8 million compared to $117.5 million for the comparable
twenty-six week period of the prior fiscal year. During the first twenty-six
weeks of fiscal 1997, the Company opened 14 stores, 13 of which were in new
non-competitive markets resulting in a quarter end total of 170 stores. Net
sales of comparable stores for the twenty-six week period decreased by $1.7
million or 1.5% from the comparable twenty-six week period of the prior fiscal
year. Management believes the decrease was attributable to the cancellation of
two promotional events in the first quarter of the current fiscal year, which
accounted for $1.1 million of the decrease, and the effect of increased
competition in three competitive markets. The prototype Class 18 ALCO Stores and
the Duckwall variety stores produced comparable store sales increases of
$300,000 or 0.9% and $179,000 or 3.3%, respectively.
Gross margin for the twenty-six week period ended July 28, 1996 increased
$3.6 million or 9.3% to $42.0 million compared to $38.4 million for the
comparable twenty-six week of the prior fiscal year. As a percent of net sales,
gross margin for the twenty-six week period ended July 28, 1996 increased to
32.8% from 32.7% last year, with the percentage increase due to lower markdowns.
Selling, general and administrative expenses increased $2.6 million or 7.8%
to $35.5 million for the twenty-six week period ended July 28, 1996 compared to
$32.9 million for the comparable twenty-six week period of the prior fiscal
year. Selling, general and administrative expense as a percent of net sales was
27.7% for the twenty-six week period ended July 28, 1996 compared to 28.0% in
the comparable twenty-six week period last year. The increase in selling,
general and administrative expense in fiscal 1997 is primarily due to a 16.0%
increase in the number of stores. The decrease in the expense as a percentage of
sales is primarily due to the leveraging effect that new stores have on
semi-fixed expenses, such as those associated with the general office and
distribution center.
11
<PAGE> 13
Depreciation and amortization expense increased $292,000 or 19.5% to $1.8
million for the twenty-six week period ended July 28, 1996 compared to $1.5
million for the comparable twenty-six week period of the prior fiscal year. The
increase in depreciation and amortization is due to additional buildings and
equipment associated with the store expansion program.
Income from operations increased $703,000 or 17.5% to $4.7 million for the
twenty-six week period ended July 28, 1996 compared to $4.0 million in the
comparable twenty-six week period of the prior fiscal year. Income from
operations as a percentage of net sales increased to 3.7% in the first
twenty-six weeks of fiscal 1997 compared to 3.4% in the first twenty-six weeks
of fiscal 1996.
Interest expense increased $175,000 or 12.4% in the first twenty-six weeks
of fiscal 1997 compared to the first twenty-six weeks of fiscal 1996. The
increase in interest expense results from higher borrowing levels due to
purchases of inventory, buildings and equipment to support the new store
openings.
Net earnings for the twenty-six week period ending July 28, 1996 were $1.9
million, an increase of $318,000 or 19.8% over the net earnings of $1.6 million
for the comparable twenty-six week period of the prior fiscal year.
FISCAL 1996 COMPARED TO FISCAL 1995
Net sales for fiscal 1996 increased $14.3 million or 5.9% to $256.5 million
compared to $242.1 million for fiscal 1995. During fiscal 1996, the Company
opened 19 stores in new non-competitive markets, relocated two stores within
existing non-competitive markets and closed one store (which was in a
competitive market), resulting in a net increase of 18 stores, and a year end
total of 156 stores. Substantially all of the increase in net sales was due to
new stores opened in non-competitive markets over the last two fiscal years. Net
sales for all stores open the full year in both fiscal 1996 and 1995 (comparable
stores) decreased by $7.3 million or 3.2% in fiscal 1996 compared to fiscal
1995. The bulk of this decrease, $6.1 million, occurred in stores in competitive
markets, while the prototype Class 18 Stores produced a comparable store sales
increase of $186,000 or 0.3% and the Duckwall variety stores produced a
comparable store sales increase of $222,000 or 2.8%. Net sales for all
comparable stores in non-competitive markets decreased by $1.2 million or 1.0%,
in fiscal 1996 compared to fiscal 1995. Management believes that the
unseasonably cool and wet weather of the first two quarters and the poor
national retailing climate of the last two quarters of fiscal 1996 had adverse
effects on same stores sales.
Gross margin for fiscal 1996 increased $4.2 million or 5.3% to $83.2 million
compared to $79.0 million in fiscal 1995. As a percentage of net sales, gross
margin decreased to 32.4% in fiscal 1996 from 32.6% in fiscal 1995. The decrease
was a result of higher promotional markdowns and less LIFO income, partially
offset by higher initial markons on purchases in fiscal 1996, compared to fiscal
1995. Management does not anticipate LIFO income to be a general trend for
future periods, inasmuch as there is a general expectation for moderate
inflation in the cost of merchandise, a factor that generally yields LIFO
expense.
Selling, general and administrative expenses increased $3.5 million or 5.4%
to $69.0 million in fiscal 1996 compared to $65.5 million in fiscal 1995,
primarily due to the increase in total stores. As a percentage of net sales,
selling, general and administrative expenses decreased to 26.9% in fiscal 1996
from 27.0% in fiscal 1995. With the addition of more stores, management believes
that the Company should realize the benefit from the relatively fixed costs at
the general office and distribution center, yielding a lower expense as a
percentage of net sales.
Income from operations increased $840,000 or 8.2% to $11.0 million in fiscal
1996 compared to $10.2 million in fiscal 1995. Income from operations as a
percentage of net sales increased to 4.3% in fiscal 1996 from 4.2% in fiscal
1995. Management anticipates that income from operations as a percentage of net
sales should continue to show an increase in future periods because of
improvements in the gross margin rate and a decrease in general and
administrative expenses (as a percentage of net sales).
Interest expense decreased $432,000 or 12.7% in fiscal 1996 compared to
fiscal 1995. The decrease results from lower borrowing levels due to the funds
generated from the Company's initial public offering in November 1994.
Other expense, net is comprised of a $185,000 one time gain in fiscal 1996
on termination of a store lease, while the $156,000 expense in fiscal 1995
consists primarily of losses associated with closing non-performing stores in
competitive markets.
12
<PAGE> 14
Net earnings for fiscal 1995 increased by $1.0 million or 24.2% to $5.1
million compared to $4.1 million in fiscal 1995.
FISCAL 1995 COMPARED TO FISCAL 1994
Net sales for fiscal 1995 increased $16.2 million or 7.2% to $242.1 million
compared to $225.9 million for fiscal 1994. During fiscal 1995, the Company
opened 19 stores in new non-competitive markets and closed two stores (both of
which were in competitive markets), resulting in a net increase of 17 stores,
and a year end total of 138 stores. Substantially all of the increase in net
sales was due to new stores opened in non-competitive markets over the last two
fiscal years. Net sales for comparable stores in non-competitive markets
increased by $2.8 million or 2.7%, in fiscal 1995 compared to fiscal 1994. Net
sales for all stores open the full year in both fiscal 1995 and 1994 (comparable
stores) increased by $2.2 million or 1.1% in fiscal 1995 compared to fiscal
1994. Management believes that the warm weather in the third and fourth quarters
of fiscal 1995 had an adverse affect on net sales levels in that it
significantly reduced the demand for outerwear and other seasonal merchandise.
Gross margin for fiscal 1995 increased $7.3 million or 10.2% to $79.0
million compared to $71.7 million in fiscal 1994. The increase, as a percentage
of net sales, to 32.6% in fiscal 1995 compared to 31.7% in fiscal 1994 resulted
from lower cost of merchandise purchased due to increased participation in
vendor incentive programs (higher initial mark on), lower markdowns, and lower
shrinkage. The Company continued to see improvements in markdowns (as a
percentage of net sales) due to the overall change in the mix of markets from
larger highly competitive to smaller less competitive situations. The
improvement in shrinkage was aided by the installation of more effective
technologies (leased article surveillance equipment), resulting in lower
shrinkage and slightly higher store operating expense. The increase in gross
margin percentage was assisted by LIFO income of $614,000 in fiscal 1995,
whereas the Company reported LIFO expense of $438,000 in fiscal 1994.
Selling, general and administrative expenses increased $6.0 million or 10.2%
to $65.5 million in fiscal 1995 compared to $59.4 million in fiscal 1994,
primarily due to the increase in total stores. As a percentage of net sales,
selling, general and administrative expenses increased 0.7% to 27.0% in fiscal
1995 from 26.3% in fiscal 1994, reflecting additional variable compensation and
profit-sharing on the higher earnings, start-up costs associated with a third
party damaged goods consolidator/processor, and increased store opening
activities.
Income from operations increased $1.9 million or 22.9% to $10.2 million in
fiscal 1995 compared to $8.3 million in fiscal 1994. Income from operations as a
percentage of net sales increased to 4.2% in fiscal 1995 from 3.7% in fiscal
1994, or a 13.5% increase.
Interest expense decreased $701,000 or 17.1% in fiscal 1995 compared to
fiscal 1994. The decrease was due to lower borrowing levels in fiscal 1995,
offset partially by higher interest rates, and $250,000 of debt discount
amortization in fiscal 1994.
Other expense, net is comprised primarily of losses associated with closing
non-performing stores in competitive markets. During fiscal 1995, the Company
closed two stores as compared to four stores in the prior fiscal year.
Income taxes were $2.5 million or 38.0% of earnings before taxes in fiscal
1995 compared to $1.1 million or 33.3% of earnings before income taxes in fiscal
1994. The Company's effective tax rate was lower than the statutory rate in
fiscal 1994 due to the use of job tax credits to reduce Federal income taxes.
Net earnings for fiscal 1995 increased by $1.9 million or 82.7% to $4.1
million compared to $2.3 million in fiscal 1994.
SEASONALITY AND QUARTERLY RESULTS
The Company's business is subject to seasonal fluctuations. The Company's
highest sales levels occur in the fourth quarter of its fiscal year which
include the holiday selling season. The Company's results of operations in any
one quarter are not necessarily indicative of the results of operations that can
be expected for any other quarter or for the full fiscal year.
The Company's results of operations may also fluctuate from quarter to
quarter as a result of the amount and timing of net sales contributed by new
stores and the integration of the new stores into the operations of the
13
<PAGE> 15
Company, as well as other factors. The addition of a large number of new stores
can, therefore, significantly affect the quarterly results of operations.
The following table, which is unaudited, sets forth the Company's net sales,
gross margin, income from operations, net earnings (loss), earnings per common
and common equivalent share and common and common equivalent shares outstanding
(the two immediately preceding items are referred to as earnings per share and
weighted average shares, respectively, in the following table) during each
quarter of fiscal 1994, 1995, and 1996 and the first two quarters of fiscal
1997:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
Fiscal 1994
Net sales....................................................... $49.6 $53.3 $54.2 $68.8
Gross margin.................................................... 15.8 17.2 17.4 21.3
Income from operations.......................................... 1.0 1.6 1.0 4.7
Net earnings (loss)............................................. (0.2) 0.3 0.1 2.1
Fiscal 1995
Net sales....................................................... $53.4 $58.7 $56.5 $73.5
Gross margin.................................................... 17.0 18.9 18.5 24.6
Income from operations.......................................... 1.4 1.8 1.3 5.7
Net earnings.................................................... 0.4 0.6 0.2 2.9
Earnings per share.............................................. $ .74
Weighted average shares (in thousands).......................... 3,885
Fiscal 1996
Net sales....................................................... $55.0 $62.6 $60.8 $78.1
Gross margin.................................................... 18.2 20.2 19.7 25.1
Income from operations.......................................... 1.6 2.4 1.8 5.2
Net earnings.................................................... 0.6 1.0 0.6 2.9
Earnings per share.............................................. $ .15 $ .25 $ .15 $ .73
Weighted average shares (in thousands).......................... 4,006 4,010 4,027 4,016
Fiscal 1997
Net sales....................................................... $59.3 $68.4
Gross margin.................................................... 19.6 22.3
Income from operations.......................................... 1.8 2.9
Net earnings.................................................... 0.7 1.2
Earnings per share.............................................. $ .18 $ .30
Weighted average shares (in thousands).......................... 4,017 4,050
</TABLE>
INFLATION
Management does not believe that its operations have been materially
affected by inflation over the past few years. The Company will continue to
monitor costs, take advantage of vendor incentive programs, selectively buy from
competitive vendors and adjust merchandise prices based on market conditions.
The Small Business Job Protection Act of 1996 will increase the Company's wage
expense and will impact the Company's operations. See ``Risk Factors--Government
Regulation.''
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds are cash flow from operations,
borrowings under its revolving loan credit facility (the ``Revolving Loan Credit
Facility''), vendor trade credit financing and lease financing of its stores.
Additionally, the Company sold 1,650,000 shares of Common Stock to the public in
the fourth quarter of fiscal 1995, generating net proceeds to the Company of
$13.2 million. The purpose of the offering was to fund store expansion. The
funds were used to pay down temporarily the Revolving Loan Credit Facility,
pending the investment of the funds in new stores.
14
<PAGE> 16
At July 28, 1996, working capital (defined as current assets less current
liabilities) was $56.8 million compared to $47.4 million at the end of fiscal
1996.
Cash provided by operating activities aggregated $.9 million, $4.3 million
and $5.9 million in fiscal 1996, 1995 and 1994, respectively. The decrease in
cash provided in fiscal 1996 relative to fiscal 1995 resulted primarily from a
$8.8 million increase in inventories (for new stores) with only a $2.4 million
increase in accounts payable.
Cash generated (used) by financing activities was $8.1 million, ($1.1
million) and ($4.7 million) in fiscal 1996, 1995 and 1994, respectively. The
increase in cash generated in fiscal 1996 was due to net cash borrowings against
the Revolving Loan Credit Facility of $11.8 million, offset by cash payments of
$3.5 million to reduce its long-term debt and capital lease obligations. In
fiscal 1995 and 1994, the Company made net cash payments aggregating $14.4
million and $4.2 million, respectively, to reduce its long-term debt and capital
lease obligations. The fiscal 1996 and 1995 cash payments included the temporary
use of the proceeds from the fiscal 1995 public offering. The Company incurred
new non-cash capital lease obligations in fiscal 1995 and 1994 aggregating $1.0
million and $2.0 million, respectively, for six new stores and executed
operating leases for 40 additional stores during the three-year period ending in
fiscal 1996. The Company's long-range plan assumes growth in the number of
stores in smaller markets where there is less competition, and, in accordance
with this plan, 21 new stores were opened in fiscal 1996 and 30 new stores are
scheduled to be opened in fiscal 1997.
The Company uses the Revolving Loan Credit Facility and vendor trade credit
financing to fund the build up of inventories periodically during the year for
its peak selling periods and to meet other short-term cash requirements. The
Revolving Loan Credit Facility, which provides up to $35.0 million of financing
in the form of notes payable and letters of credit, was executed in February
1993 and amended and extended in October 1995 to expire in February 1999.
Short-term trade credit represents a significant source of financing for
inventory to the Company. Trade credit arises from the willingness of the
Company's vendors to grant payment terms for inventory purchases.
Cash used for acquisition of property and equipment in fiscal 1996, 1995 and
1994 totaled $8.9 million, $4.0 million and $2.0 million, respectively.
Anticipated cash payments for acquisition of property and equipment in fiscal
1997, principally for store buildings and fixtures, are estimated to be
approximately $13 million.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued SFAS No. 123,
``Accounting for Stock-Based Compensation'' (Statement No. 123), which
establishes a fair value based method of accounting for stock-based compensation
plans. Entities are encouraged to adopt all provisions of Statement No. 123 and
are required to comply with the disclosure requirements of Statement No. 123.
However, it is permissible to continue to account for stock-based compensation
under the intrinsic value method of Accounting Principles Board Opinion No. 25
rather than the fair value based method of Statement No. 123. Statement No. 123
is effective for financial statements for fiscal years beginning after December
15, 1995. The provisions of Statement No. 123, when adopted, will not have a
material effect on the consolidated financial condition or operating results of
the Company, as the Company does not intend to adopt the fair value based
measurement concept.
The Financial Accounting Standards Board has also issued SFAS No. 121,
``Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of'' (Statement No. 121). Statement No. 121 requires that
long-lived assets and certain intangibles be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Statement No. 121 is effective for financial statements
for fiscal years beginning after December 15, 1995. The Company believes that
the adoption of Statement No. 121 will not have a material effect on its
consolidated financial statements.
15
<PAGE> 17
BUSINESS
GENERAL
The Company, which was established in 1901, is a regional retailer
operating, as of September 4, 1996, 173 stores in 16 states in the central
United States. The Company's strategy is to target smaller markets not served by
other regional or national retail discount chains and to provide the most
convenient access to retail shopping within each market. The Company's ALCO
discount stores offer a full line of merchandise consisting of approximately
35,000 items, including automotive, candy, crafts, domestics, electronics,
fabrics, furniture, hardware, health and beauty aids, housewares, jewelry,
ladies', men's and children's apparel and shoes, pre-recorded music and video,
sporting goods, seasonal items, stationery and toys. The Company's smaller
Duckwall variety stores offer a more limited selection of merchandise.
Of the Company's 121 ALCO discount stores, 77 stores are located in
communities that do not have another full service discounter. The Company
intends to continue its strategy of opening ALCO stores in markets that do not
have other discount retailers and where the opening of an ALCO store is likely
to be preemptive to the entry by other competitors in the market. The ALCO
stores accounted for 95% of the Company's fiscal 1996 net sales. While the
current ALCO stores average 23,300 square feet of selling space, the Company's
store expansion program is primarily directed toward stores with a design
prototype of approximately 18,000 square feet of selling space, which, based on
the Company's experience, has been a design that maximizes return on investment
for newly-constructed stores (``Class 18 Stores'').
The Company's 52 Duckwall variety stores are primarily located in
communities of less than 2,500 residents and are designed to act as the primary
convenience retailer in these smaller communities. These stores, which accounted
for the remaining 5% of the Company's net sales, average approximately 4,800
square feet of selling space and offer approximately 12,000 items. Operating
Duckwall stores offers the Company the opportunity to serve the needs of a
community that would not support a full service retail discount store with a
reduced investment per store and a higher return on investment than the
Company's average.
BUSINESS STRATEGY
The Company believes that its strong operating performance and improved
financial condition over the last four fiscal years is the result of the focused
execution of a business strategy that includes the following key components:
Markets: The Company intends to open ALCO stores in towns with
populations of typically less than 5,000 that are in trade areas with
populations of less than 16,000 where: (1) there is no direct competition
from national or regional discount retailers; (2) economic and demographic
criteria indicate the market is able to commercially support a discount
retailer; and (3) the opening of an ALCO store would significantly reduce
the likelihood of the entry into such market by another discount retailer.
This key component of the Company's strategy has guided the Company in both
its opening of new stores and in the closing of existing stores.
Market Selection: The Company has a detailed process that it uses to
analyze under-served markets which includes examining factors such as
distance from competition, trade area, disposable income and retail sales
levels. Markets that are determined to be sizable enough to support an ALCO
or a Duckwall store, and that have no direct competition from another
discount retailer, are examined closely and eventually selected or passed
over by the Company's experienced management team. As of September 4, 1996,
the Company's management had approximately 166 markets for ALCO stores that
it had identified and was in the site selection or development process in
approximately 34 of those markets.
Store Expansion: The Company's expansion program for ALCO stores is
designed around the prototype Class 18 Store. This prototype details for
each new store plans for shelf space, merchandise presentation, store items
to be offered, parking, storage, as well as other store design
considerations. The 18,000 square feet of selling space is large enough to
permit a full line of the Company's merchandise, while minimizing capital
expenditures, required labor costs and general overhead costs. Generally,
the Company has expanded its ALCO stores through internal development
efforts on a location-by-location basis. Recently, however, the Company
entered into a definitive agreement to assume 14 leases and purchase the
related fixtures for ALCO stores in eastern Indiana and western Ohio (the
``Real Estate Transaction''). See ``Business--Store Development--The Real
Estate Transaction.'' The Company expects to incur total costs of
approximately $1.25 million
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<PAGE> 18
for a new Class 18 Store (inclusive of store construction, store fixtures,
equipment, inventory and pre-opening costs). The Company will also consider
opportunities in acceptable markets to open ALCO stores in available space
in buildings already constructed. The Company's expansion strategy for its
Duckwall variety stores is based on opportunities presented to the Company
by smaller communities where there is demand for a variety store and where
existing premises are available for lease at a relatively low cost and with
limited financial commitment by the Company.
Technology: The Company is continually improving its management
information technologies in order to reduce costs, improve customer
service, and enhance general business planning. The Company's accounting
and information systems and merchandise and inventory planning systems have
recently been enhanced and are in the process of being implemented. The
Company has undertaken a $2.3 million project to upgrade the back office
equipment and software being used at the ALCO stores for sales processing.
This project is expected to extend the life of the current point-of-sale
equipment, as well as to improve efficiencies in training and operations
and is expected to be completed in fiscal 1998. In conjunction with the
project, the ALCO stores will be equipped with radio frequency hand held
devices to allow for additional efficiencies in processing inventory
receipts and counts.
Advertising and Promotion: The Company utilizes full-color photography
advertising circulars of 8 to 20 pages distributed by insertion into
newspapers or by direct mail where newspaper service is inadequate. These
circulars are distributed approximately 41 times per year in ALCO markets.
In its Duckwall markets, the Company advertises approximately 12 times a
year during seasonal promotions. The Company's marketing program is
designed to create an awareness, on the part of its identified target
customer base, of the Company's comprehensive selection of merchandise and
its competitive pricing.
Store Environment: The Company's stores are open, clean, bright and
offer a pleasant atmosphere with disciplined product presentation,
attractive displays and efficient check-out procedures. The Company strives
to staff its stores with courteous, highly motivated, knowledgeable store
associates in order to provide a convenient, friendly and enjoyable
shopping experience.
STORE DEVELOPMENT
General
The Company plans to open 15 ALCO stores and 15 Duckwall stores and close 1
ALCO store during the current fiscal year, open 25 ALCO stores (including the 14
locations involved with the Real Estate Transaction) and at least 15 Duckwall
stores during fiscal 1998, and a minimum of 16 ALCO stores and 15 Duckwall
stores during fiscal 1999.
The Company's strategy regarding store development is to increase sales and
profitability at existing stores by continually refining the merchandising mix
and improving operating efficiencies, and through new store openings in the
Company's targeted base of under-served markets in the central United States.
Since fiscal 1993, the Company has opened a total of 39 ALCO stores with an
average selling area of approximately 17,600 square feet, and 33 Duckwall
stores. The following table summarizes the Company's growth during the past
three fiscal years and fiscal 1997 through September 3, 1996:
<TABLE>
<CAPTION>
FISCAL 1997 THROUGH
1994 1995 1996 SEPTEMBER 3, 1996
---------------- ---------------- ---------------- -------------------
ALCO DUCKWALL ALCO DUCKWALL ALCO DUCKWALL ALCO DUCKWALL
---- -------- ---- -------- ---- -------- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stores Opened.......................... 8 7 10 9 13 8 8 9
Stores Closed.......................... 3 1 2 0 2 1 0 0
- - -- - -- - - -
Net New Stores......................... 5 6 8 9 11 7 8 9
</TABLE>
The Company intends to utilize the prototype Class 18 Store profile for new
ALCO store openings. Currently, the Company owns 18 and leases 103 ALCO store
locations, and leases all of the 52 Duckwall locations.
Before entering a new market with an ALCO store, the Company analyzes
available competitive, market, and demographic data to evaluate the suitability
and attractiveness of the potential market as part of a screening process. The
process initially involves an objective review of selection criteria including,
among other factors, distance and drive time to discount retail competitors,
demographics, retail sales levels, existence and stability of major employers,
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<PAGE> 19
location of county government and distance from the Company's warehouse. The
screening process also involves a visit by officers of the Company to more
subjectively evaluate the potential new site. As of September 4, 1996, there
were approximately 166 communities known by the Company to have met its initial
market selection criteria. At that time, the Company was in the site selection
or development process in approximately 34 of those markets, each of which had
been approved for a new ALCO location. The Company performs a similar site
selection process with new Duckwall stores. However, the process is condensed
given the low opening and closing costs of a Duckwall location.
The Real Estate Transaction
On September 10, 1996, the Company signed a definitive agreement providing
for the Company's assumption of 14 leases and the purchase of the related
fixtures for ALCO stores in eastern Indiana and western Ohio (the ``Real Estate
Transaction''). The Company plans to complete this transaction in late fiscal
1997. These 14 stores average approximately 22,000 square feet, with an average
selling space of approximately 19,000 square feet. The average population in the
towns in which these sites are located is approximately 5,400. The Company
intends to remodel and stock the stores with new inventory and open such stores
as new ALCO stores over a sixty day period beginning in March 1997. The Company
anticipates that it will expend approximately $6.8 million on inventory and $2.7
million on capital expenditures to complete this process.
STORE ENVIRONMENT AND MERCHANDISING
The Company designs its stores to attractively and conveniently display a
full line of merchandise within the confines of the stores' available square
footage. Corporate merchandising direction is provided to each ALCO and Duckwall
store to ensure a consistent company-wide store presentation. To facilitate
long-term merchandising planning, the Company divides its merchandise into three
core categories driven by the Company's customer profile: primary, secondary,
and convenience. The primary core receives management's primary focus, with a
wide assortment of merchandise being placed in the most accessible locations
within the stores and receiving significant promotional consideration. The
secondary core consists of categories of merchandise for which the Company
maintains a strong assortment that is easily and readily identifiable by its
customers. The convenience core consists of categories of merchandise for which
ALCO will maintain convenient, but limited, assortments, focusing on key items
that are in keeping with customers' expectations for a discount store. Secondary
and convenience cores include merchandise that the Company feels is important to
carry as the target customer expects to find them within a discount store and
they ensure a high level of customer traffic. The Company continually evaluates
and ranks all product lines, shifting product classifications when necessary to
reflect the changing demand for products.
The Company's primary, secondary and convenience cores include the following
merchandise departments:
<TABLE>
<CAPTION>
PRIMARY SECONDARY CONVENIENCE
- -------------------- ------------------------ -----------------------
<S> <C> <C>
Ladieswear/Menswear Girlswear/Boyswear Tobacco Products
Domestics Infants/Toddlers Pet Food & Supplies
Housewares/Glassware Footwear Hardware
Small Appliances Lingerie/Hosiery Automotive
Toys Jewelry Film Developing/Cameras
Seasonal Sewing/Notions/Crafts
Outdoor Living Pre-recorded Music/Video
Health & Beauty Sporting Goods
Stationery
Candy/Foods
</TABLE>
The Company's stores carry a consistent mix of merchandise throughout the
year, tailored to include important seasonal items such as holiday goods and
lawn and garden items expected to be in demand at certain times throughout the
year. The Company believes it builds customer loyalty by offering a broad range
of items with a seasonal emphasis.
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<PAGE> 20
PURCHASING
Procurement and merchandising of products is directed by the Company's
General Merchandise Manager who reports to the Company's President. The General
Merchandise Manager is supported by a staff of four divisional merchandise
managers who are each responsible for specific product categories. The Company
employs 22 merchandise buyers who each report to a divisional merchandise
manager. Buyers are assisted by a management information system that provides
them with current price and volume information by SKU, thus allowing them to
react quickly with buying and pricing adjustments dictated by customer buying
patterns.
The Company purchases its merchandise from approximately 2,250 suppliers.
The Company does not utilize long-term supply contracts. No single supplier
accounted for more than 3% of the Company's total purchases in fiscal 1996 and
competing brand name and private label products are available from other
suppliers at competitive prices. The Company believes that its relationships
with its suppliers are good and that the loss of any one or more of its
suppliers would not have a material adverse effect on the Company.
PRICING
Merchandise pricing is done at the corporate level and is essentially the
same for all of the ALCO stores, despite the level of local competition. This
pricing strategy, with its promotional activities, is designed to bring
consistent value to the customer. Promotions on various items are offered
approximately 41 times a year through advertising circulars. Even though the
same general pricing and advertising activities are carried out for all ALCO
stores, the result of such activities is significantly different depending upon
the level of competition in the market. In general, sales at promotional prices
account for a higher percentage of total ALCO sales than total sales for ALCO
stores in non-competitive markets.
DISTRIBUTION AND TRANSPORTATION
The Company operates a 352,000 square foot distribution center in Abilene,
Kansas, from which it services each of the 121 ALCO discount stores and 52
Duckwall variety stores. This distribution center is responsible for
distributing approximately 80% of the Company's merchandise, with the balance
being delivered directly to the Company's stores by its vendors. This
distribution center ships to each of the Company's stores once a week through
its wholly owned subsidiary, SPD Truck Line, Inc. (the ``Subsidiary''). The
distribution center is fully integrated into the Company's management
information system, allowing the Company to utilize such cost cutting
efficiencies as perpetual inventories, safety programs, and employee
productivity software. The Company believes its distribution center currently is
of sufficient size and properly equipped to handle planned expansion through
fiscal 1999 and is capable of being expanded in the future to accommodate store
growth.
The Subsidiary acts as a contract carrier for the Company in transporting
goods to and from its stores. The Subsidiary leases and uses five tractors and
24 trailers and hires irregular route common carriers for such deliveries.
MANAGEMENT INFORMATION SYSTEMS
In recent years, the Company has committed significant resources to the
purchase and implementation of available computer hardware and software to its
discount retailing operations with the intent to lower costs, improve customer
service and enhance general business planning.
In general, the Company's merchandising systems are designed to integrate
the key retailing functions of seasonal merchandise planning, purchase order
management, merchandise distribution, sales information and inventory
maintenance and replenishment. All of the Company's discount stores have
point-of-sale computer terminals that record certain sales data in a format that
can be transmitted nightly to the Company's data processing facility where it is
used to produce daily and weekly management reports. The Company has undertaken
a $2.3 million project to upgrade the back office equipment and software being
used at the ALCO stores for sales processing. This project is expected to extend
the life of the point-of-sale equipment currently being used, as well as to
improve efficiencies in training and operations and is expected to be completed
in fiscal 1998. In conjunction with the project, the ALCO stores will be
equipped with radio frequency hand held devices to allow for additional
efficiencies in processing inventory receipts and counts.
19
<PAGE> 21
Approximately 550 of the Company's 2,250 merchandise suppliers currently
participate in the Company's electronic data interchanges (``EDI'') system,
which makes it possible for the Company to place purchase orders electronically.
When fully implemented, EDI will permit these and additional vendors to transmit
advance shipment notices to the Company and receive sales history from the
Company.
PROPERTIES AND STORE LOCATIONS
The Company's facilities in Abilene, Kansas consist of a general office
(approximately 35,000 square feet), the distribution center (approximately
352,000 square feet) and additional warehouse space adjacent to the general
office.
The Company owns the general office and leases the distribution center under
the terms of a lease that was entered into with the City of Abilene, Kansas in
connection with the issuance of certain industrial revenue bonds by the City.
Rental payments are required under the lease in such amounts and at such times
as are sufficient to pay the principal and interest becoming due on the bonds.
The Company has an option to purchase the facility for a nominal amount upon the
payment in full of the bonds. See Note 4 of Notes to Consolidated Financial
Statements.
Eighteen of the ALCO stores operate in buildings owned by the Company. The
remainder of the ALCO stores and all of the Duckwall stores operate in leased
properties. Such ALCO leases expire as follows: approximately 180,914 square
feet (5.3%) expire between September 3, 1996 and January 31, 1997; approximately
253,836 square feet (7.5%) expire between February 1, 1997 and January 31, 1998;
and approximately 459,525 square feet (13.6%) expire between February 1, 1998
and January 31, 1999. The remainder expire through 2014. All Duckwall store
leases have terms of five years or less. The Company has options to renew
substantially all of the expiring leases on terms the Company considers an
acceptable basis.
As of September 4, 1996, the Company operated 121 ALCO stores in 15 states
located in smaller communities in the central United States. The ALCO stores
average approximately 23,300 square feet of selling space, with an additional
4,900 square feet utilized for merchandise processing, temporary storage and
administration. The Company also operates 52 Duckwall stores in eight states,
all of which are leased. The geographic distribution of the Company's stores is
as follows:
STORE LOCATIONS (173)
DUCKWALL STORES (52)
ARKANSAS (1)
Little Rock
COLORADO (6)
Brush
Springfield
Walsenburg
Las Animas
Rocky Ford
Akron
IOWA (2)
Manning
Villisca
KANSAS (34)
Belleville
Lincoln
Council Grove
Wamego
Marion
Scott City
Horton
Ulysses
Hugoton
WaKeeney
Greensburg
St. John
Cottonwood Falls
Oberlin
Plainville
Sedan
Hoisington
Johnson
LaCrosse
Osage City
Clearwater
Osborne
Ness City
Elkhart
Minneapolis
Washington
Meade
Sterling
Caldwell
Stafford
Pleasanton
Coldwater
Hill City
Atwood
MISSOURI (1)
Salisbury
NEBRASKA (4)
Geneva
Chappel
Kimball
Neligh
OKLAHOMA (3)
Beaver
Shattuck
Hooker
TEXAS (1)
Spur
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<PAGE> 22
ALCO STORES (121)
ARIZONA (2)
Springerville
Holbrook
ARKANSAS (6)
Russellville
Harrison
Hot Springs
Dewitt
Conway
Hardy
COLORADO (6)
Fort Morgan
Commerce City
Canon City
Burlington
Yuma
Wray
ILLINOIS (4)
Havana
Shelbyville
Newton
Gibson City
IOWA (10)
Atlantic
Cherokee
Perry
Estherville
Knoxville
Vinton
West Union
Garner
Clarinda
Emmetsburg
KANSAS (25)
Abilene
Salina
Concordia
Dodge City
Garden City
Hays
Larned
Pratt
Goodland
Manhattan
Newton
Hutchinson
Junction City
So. Hutchinson
Medicine Lodge
Kingman
Lyons
Fredonia
Beloit
Eureka
Sabetha
Hillsboro
Phillipsburg
Ellsworth
Anthony
MINNESOTA (1)
Spring Valley
NORTH DAKOTA (6)
Carrington
Rolla
Langdon
Oakes
Lisbon
Mayville
NEBRASKA (17)
Beatrice
McCook
Fremont
Norfolk
Alliance
Sidney
North Platte
Nebraska City
Ogallala
O'Neill
Valentine
Gordon
West Point
Cozad
Gering
Ord
Albion
NEW MEXICO (7)
Roswell
Portales
Grants
Belen
Tucumcari
Lovington
Bloomfield
OKLAHOMA (6)
Fairview
Cordell
Watonga
Cherokee
Pawhuska
Wilburton
SOUTH DAKOTA (8)
Lead
Milbank
Webster
Canton
Sisseton
Redfield
Chamberlain
Wagner
TEXAS (19)
Pampa
Dalhart
Perryton
Monahans
Andrews
Kermit
Spearman
Vernon
Littlefield
Winnsboro
Dimmitt
Cameron
Alpine
Tulia
Muleshoe
Clifton
Coleman
Slaton
Canadian
UTAH (1)
Roosevelt
WYOMING (3)
Lander
Rawlins
Diamondville
PERSONNEL AND TRAINING
The Company recognizes that a growing, geographically diverse retail
business requires a strong, decentralized store operating capability and
considers its ALCO store managers to be important factors in the Company's
success. Each ALCO store is managed by a store manager who has the primary
responsibilities of displaying and presenting the store's merchandise, staffing
the store, providing customer service and ensuring the security of the store's
merchandise. The Company recruits store manager trainees from the retail
industry and colleges, usually within its trade territory. A trainee without
prior retail experience typically requires thirty months to complete the
Company's training program. Most of the Company's store manager trainees are
hired in the industry with some level of retail store experience and require
comparatively less training. These trainees progress through several levels of
training both at the store to which they are assigned and through more
formalized training at the Company's headquarters.
A store manager candidate must be recommended by a district manager for a
management assessment profile. The profile includes detailed sessions with,
among others, the President, managers of Sales & Advertising, Loss Prevention,
Store Planning, Merchandising, Personnel, and Finance. Upon passing the profile
testing, the candidate is placed on ready status to become a manager of an
available store.
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<PAGE> 23
Overseeing and supporting store managers are 11 ALCO and 4 Duckwall district
managers responsible for overall sales and profit performance of stores within a
region of the Company's geographic operating market. Each store is subject to an
annual quality assurance audit by a district manager, measuring adherence to
store procedure manuals, record keeping, merchandise display, cleanliness and
other objective performance criteria. Store manager bonuses are determined in
part by the results of the quality assurance audit.
COMPETITION
While the discount retail business in general is highly competitive, the
Company's business strategy is to locate its ALCO discount stores in smaller
markets where there is no direct competition with larger national or regional
retail discount chains, and where it is believed no such competition is likely
to develop. Accordingly, the Company's primary method of competing is to offer
its customers a conveniently located store with a wide range of merchandise at
discount prices in a primary trade area population under 16,000 that does not
have a large national or regional discount store. The Company believes that
trade area size is a significant deterrent to larger national and regional
discount chains. Duckwall variety stores, being located in very small markets,
face limited competition and, like the ALCO stores, emphasize the convenience of
location to the primary customer base.
In the discount retail business in general, price, merchandise selection,
merchandise quality, advertising and customer service are all important aspects
of competing. The Company encounters direct competition with national retail
discount stores in 32 of its ALCO markets, and another 12 ALCO stores are in
direct competition with regional discount stores. Of the last 68 ALCO stores
opened, only three are in direct competition with a national or regional
discount retailer. The competing regional and national discount retailers are
generally larger than the Company and the stores of such competitors in the
Company's markets are substantially larger, have a somewhat wider selection of
merchandise and are extremely price competitive in some lines of merchandise.
Where there are no discount retail stores directly competing with the Company's
ALCO stores, the Company's customers nevertheless shop at retail discount stores
and other retailers located in regional trade centers, and to that extent the
Company competes with such discount stores and retailers. The Company also
competes for retail sales with mail order companies, specialty retailers, mass
merchandisers and manufacturers' outlets. The Company has experienced no direct
competition from national or regional discount retailers in any of the 61 Class
18 markets in which it has opened a store.
EMPLOYEES
As of September 3, 1996, the Company employed approximately 3,900 people, of
whom approximately 400 were employed in the general office or distribution
center in Abilene, Kansas, 3,200 in the ALCO stores and 300 in the Duckwall
stores. Approximately 3,000 additional employees are hired on a seasonal basis,
most of whom are sales personnel. No labor organization is the collective
bargaining agent for any of the Company's employees. The Company considers its
relations with its employees to be excellent.
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<PAGE> 24
MANAGEMENT
OFFICERS AND DIRECTORS
The following table sets forth the names, ages, positions and certain other
information regarding the directors and officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Glen L. Shank.............................. 51 Chairman of the Board and President
James E. Schoenbeck........................ 52 Vice President--Operations and Advertising
Bryan M. DeCordova......................... 40 Vice President--Finance and Treasurer
James R. Fennema........................... 45 Vice President--Merchandise
Charles E. Bogan........................... 60 Vice President, Secretary and General Counsel
Dennis P. Alesio........................... 56 Vice President--Personnel
Tom L. Canfield, Jr........................ 42 Vice President--Distribution and Administration
John E. Hedeen............................. 52 Vice President--Real Estate
Gary W. Lowry.............................. 59 Vice President--Finance and Controller
David W. Mills............................. 41 Assistant Secretary
Dennis A. Mullin <F1>...................... 48 Director
Robert L. Barcum <F2>...................... 47 Director
William J. Morgan <F1><F2>................. 42 Director
Robert C. Amenta <F1><F2>.................. 30 Director
<FN>
- --------
<F1> Member of the Audit Committee of the Board
<F2> Member of the Compensation Committee of the Board
</TABLE>
Except as set forth below, all of the directors and officers have been
associated with the Company in their present position or other capacity for more
than the past five years. Except for James R. Fennema, Bryan M. DeCordova and
John E. Hedeen, each was an officer of the Company at the time the Bankruptcy
Proceeding was initiated. There are no family relationships among the officers
of the Company.
GLEN L. SHANK has served as President of the Company since June 1988 and as
Chairman of the Board since May 1991. Between 1982 and 1988, Mr. Shank served as
Vice President of Merchandising of the Company. Prior to 1982, Mr. Shank served
as a Buyer and as a Merchandise Manager for the Company. Mr. Shank has
approximately 29 years of experience in the retail industry.
JAMES E. SCHOENBECK has served as Vice President of Operations and
Advertising since 1988. From 1979 to 1988, Mr. Schoenbeck served as the Vice
President of Administration. Mr. Schoenbeck has approximately 22 years of
experience in the retail industry.
BRYAN M. DECORDOVA has served as Vice President--Finance since September
1990 and as Treasurer since May 1991. From 1986 to 1990, Mr. DeCordova served as
a director of finance for Payless Shoe Source, Inc., a nationwide discount shoe
retailer. From 1984 to 1986, Mr. DeCordova served as Chief Financial
Officer/Controller and Director of D&R Enterprises, Inc., a chain of upscale
apparel retail stores. Mr. DeCordova has 14 years of experience in the retail
industry.
JAMES R. FENNEMA has served as Vice President--Merchandise of the Company
since March 1993. For the four years prior to that he served as Vice President
and a divisional merchandise manager with Caldor, Inc., a chain of regional
discount stores in New England and the mid-Atlantic states of the United States.
For more than the four years prior to that he served as a divisional merchandise
manager of Fishers Big Wheel, a regional chain discount retailer. Mr. Fennema
has 23 years of experience in the retail industry.
CHARLES E. BOGAN has been the Secretary of the Company since 1972. He has
served as Vice President and General Counsel since 1984, and was Secretary and a
member of the Board of Directors during the period from 1972
23
<PAGE> 25
to 1985. Prior to becoming the Company's General Counsel, he served as a partner
in private practice with the law firm of Bogan & Johnson, beginning in 1970.
DENNIS P. ALESIO has served as Vice President of Personnel since March 1983.
Mr. Alesio has approximately 34 years of experience in the personnel field.
TOM L. CANFIELD, JR. has served as Vice President of Distribution and
Administration since April 1994. From 1988 to 1994, Mr. Canfield served as
General Manager of Distribution and Administration. Mr. Canfield has
approximately 23 years of experience in the retail industry.
JOHN E. HEDEEN has served as Vice President of Real Estate since March,
1993. From 1992 to 1993, Mr. Hedeen served as Director of Real Estate. From
October 1991 to June 1992, Mr. Hedeen was part owner of two corporations
involved in hotel development. For the nine years prior to 1991, Mr. Hedeen was
employed as a Senior Vice President of Landmark Hotel Corporation. Mr. Hedeen
has approximately 23 years experience in the real estate industry.
GARY W. LOWRY has served as Vice President of Finance and Controller since
1990. From 1977 to 1990, Mr. Lowry served as Vice President of Finance and
Treasurer. Mr. Lowry has approximately 27 years experience in the retail
industry.
DAVID W. MILLS has served as Assistant Secretary since 1990. From 1985 to
1990, Mr. Mills served as Assistant Secretary/Assistant Treasurer.
DENNIS A. MULLIN is the President and Chief Operating Officer of Steel &
Pipe Supply Co., Inc., and has served in various capacities with that company or
more than the last five years.
ROBERT L. BARCUM has been President of Applied Intelligence Group, Inc., a
computer consulting firm, since 1985.
WILLIAM J. MORGAN has been the President of Pacholder Associates, Inc.,
since December 1983. Pacholder oversees private and public investment funds for
institutional investors including certain investments of the Kansas Public
Employees Retirement System. He serves as a director of the following: ICO,
Inc., an oil field related services company; Kaiser Ventures, Inc., a land and
environmental development company; USF&G Pacholder Fund, Inc., a closed-end
mutual fund; and Munsingwear, Inc., an apparel manufacturer.
ROBERT C. AMENTA is a Senior Vice President of Pacholder Associates, Inc.,
and has been employed by Pacholder Associates, Inc. since he graduated from Ohio
State University in June 1990 with an MBA concentrating in finance and real
estate.
24
<PAGE> 26
EXECUTIVE COMPENSATION
The following table sets forth for the fiscal years ending January 28, 1996,
January 29, 1995 and January 30, 1994, respectively, the compensation of the
Company's chief executive officer and of each of the Company's four other most
highly compensated executive officers whose remuneration for fiscal 1996 was in
excess of $100,000 for services to the Company in all capacities:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
------------
SECURITIES
ANNUAL COMPENSATION UNDERLYING ALL
NAME AND FISCAL -------------------- OPTIONS OTHER
PRINCIPAL POSITION YEAR SALARY BONUS # COMPENSATION
------------------ ---- ------ ----- ------------ ------------
<S> <C> <C> <C> <C> <C>
Glen L. Shank 1996 $ 157,925 $ 49,250 4,750 $5,890<F1>
Chairman and President 1995 151,737 77,000 9,750 4,547<F2>
1994 144,735 25,000 5,750 3,452<F3>
James E. Schoenbeck 1996 126,276 39,000 3,300 6,081<F1>
Vice President-- 1995 122,667 63,000 7,000 4,586<F2>
Operations and Advertising 1994 120,001 20,000 4,375 2,951<F3>
Bryan M. DeCordova 1996 121,172 37,500 3,000 5,505<F1>
Vice President--Finance 1995 117,450 55,000 6,250 3,869<F2>
and Treasurer 1994 115,125 20,000 4,375 2,307<F3>
James R. Fennema 1996 120,900 37,500 3,000 5,924<F1>
Vice President-- 1995 117,360 55,000 5,000 5,061<F2>
Merchandise 1994<F4> 96,826 20,000 2,500 60,208<F3>
Charles E. Bogan 1996 114,850 24,000 2,300 7,938<F1>
Vice President, Secretary 1995 112,425 34,000 5,250 6,094<F2>
and General Counsel 1994 110,425 14,000 3,500 4,599<F3>
<FN>
- --------
<F1> Includes contributions made by the Company for fiscal 1996 to the named
individual's account in the Duckwall-ALCO Stores, Inc. Profit Sharing Plan
and Trust (the ``Profit Sharing Plan") (together with forfeitures) in the
amounts of $4,989 each for Mr. Shank, Mr. Schoenbeck, Mr. DeCordova, Mr.
Fennema and Mr. Bogan. Also includes premiums paid by the Company with
respect to whole life insurance for each of the named individuals for
fiscal 1996 in the amounts of $901 for Mr. Shank, $1,092 for Mr.
Schoenbeck, $516 for Mr. DeCordova, $935 for Mr. Fennema and $2,949 for
Mr. Bogan.
<F2> Includes contributions made by the Company for fiscal 1995 to the named
individual's account in the Profit Sharing Plan (together with
forfeitures) in the amounts of $3,646 for Mr. Shank, $3,494 for Mr.
Schoenbeck, $3,353 for Mr. DeCordova, $3,646 for Mr. Fennema and $3,144
for Mr. Bogan. Also includes premiums paid by the Company with respect to
whole life insurance for each of the named individuals for fiscal 1995 in
the amounts of $901 for Mr. Shank, $1,092 for Mr. Schoenbeck, $516 for Mr.
DeCordova, $935 for Mr. Fennema and $2,949 for Mr. Bogan. Mr. Fennema's
balance includes $480 associated with the Company's expenses for his
relocation.
<F3> Includes contributions made by the Company for fiscal 1994 to the named
individual's account in the Profit Sharing Plan (together with
forfeitures) in the amount of $2,302 for Mr. Shank, $1,859 for Mr.
Schoenbeck, $1,791 for Mr. DeCordova and $1,655 for Mr. Bogan. Also
includes premiums paid by the Company with respect to whole life insurance
for each of the named individuals for fiscal 1994 in the amount of $1,150
for Mr. Shank, $1,092 for Mr. Schoenbeck, $516 for Mr. DeCordova and
$2,944 for Mr. Bogan. The entire balance for Mr. Fennema is for the
Company's expenses associated with his relocation.
<F4> Mr. Fennema became an executive officer of the Company on March 29, 1993.
</TABLE>
25
<PAGE> 27
The following table provides further information concerning grants of stock
options pursuant to the Duckwall-ALCO Stores, Inc., Incentive Stock Option Plan
during fiscal 1996 to the named executive officers:
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS<F1> POTENTIAL
---------------------------------------------------------------- REALIZED VALUE AT
% OF ASSUMED ANNUAL
TOTAL RATES OF STOCK
NUMBER OF OPTIONS PRICE
SECURITIES GRANTED TO APPRECIATION
UNDERLYING EMPLOYEES EXERCISE FOR OPTION TERM
OPTIONS IN FISCAL OR BASE ------------------
NAME GRANTED (#) YEAR PRICE ($/SH) EXPIRATION DATE 5% ($) 10% ($)
---- ----------- ---------- ------------ ---------------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Glen L. Shank........................... 4,750 10.67% 11.38 August 29, 2000 14,934 33,013
James E. Schoenbeck..................... 3,300 7.41% 11.38 August 29, 2000 10,375 22,935
Bryan M. DeCordova...................... 3,000 6.74% 11.38 August 29, 2000 9,432 20,850
James R. Fennema........................ 3,000 6.74% 11.38 August 29, 2000 9,432 20,850
Charles E. Bogan........................ 2,300 5.17% 11.38 August 29, 2000 7,231 15,985
<FN>
- --------
<F1> The options were granted with an exercise price equal to the fair market
value of the Company's Common Stock on August 29, 1995. Except in the
event of death, if an optionee ceases to be employed by the Company, his
or her option shall terminate on the earlier of (i) the expiration of the
option or (ii) the thirtieth day following such termination of employment.
In the event of death of optionee, the option may be exercised by his or
her legal representatives on the earlier of (i) the expiration of the
option or (ii) within twelve months of the date of death. Upon a merger,
consolidation, reorganization or liquidation of the Company, the option
may, in the discretion of the Compensation Committee, become immediately
exercisable until the day immediately prior to the date the contemplated
transaction is consummated. The options granted were granted on August 29,
1995 and expire on August 29, 2000. The options become exercisable in
equal amounts over a four year period beginning one year subsequent to
their grant date.
</TABLE>
No options were exercised by any of the named executive officers during
fiscal 1996. The following table provides information with respect to the named
executive officers concerning unexercised options held as of the end of fiscal
1996:
<TABLE>
<CAPTION>
LAST FISCAL YEAR END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT FY-END (#) FY-END ($)<F1>
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ------------------------- -------------------------
<S> <C> <C>
Glen L. Shank............................... 5,312/14,938 8,671/11,353
James E. Schoenbeck......................... 3,937/10,738 6,540/8,468
Bryan M. DeCordova.......................... 3,749/9,876 6,436/8,157
James R. Fennema............................ 2,500/8,000 3,876/5,251
Charles E. Bogan............................ 3,062/7,988 5,185/6,628
<FN>
- --------
<F1> Assumes a fair market value of $7.20 per share on date of grant and $9.75
per share as of January 28, 1996, for the options to purchase 5,750,
4,375, 4,375, 2,500 and 3,500 shares of Common Stock granted to Glen L.
Shank, James E. Schoenbeck, Bryan M. DeCordova, James R. Fennema and
Charles E. Bogan, respectively, on June 4, 1993. Assumes a fair market
value of $9.20 per share on date of grant and $9.75 per share as of
January 28, 1996, for the options to purchase 9,750, 7,000, 6,250, 5,000
and 5,250 shares of Common Stock granted to Glen L. Shank, James E.
Schoenbeck, Bryan M. DeCordova, James R. Fennema and Charles E. Bogan,
respectively on April 28, 1994. Also assumes a fair market value of $11.38
per share on date of grant and $9.75 per share as of January 28, 1996, for
the options to purchase 4,750, 3,300, 3,000, 3,000 and 2,300 shares of
Common Stock granted to Glen L. Shank, James E. Schoenbeck, Bryan M.
DeCordova, James R. Fennema and Charles E. Bogan, respectively on August
29, 1995.
</TABLE>
26
<PAGE> 28
EMPLOYEE STOCK OPTION PLAN
In May 1993, the Company adopted the Duckwall-ALCO Stores, Inc. Incentive
Stock Option Plan (the ``Plan'') to encourage key employees of the Company to
participate in the ownership of the Company and promote the success of the
business of the Company. Presently, 200,000 shares of Common Stock are
authorized for issuance upon exercise of options under the Plan. The number of
shares and option price covered by outstanding options may be adjusted in the
event of any stock dividend, stock split, reorganization, merger, consolidation,
liquidation or any combination or exchange of shares of Common Stock. The Plan
is administered by the Compensation Committee consisting of not less than two
nor more than five members of the Board of Directors who are appointed by the
Board. The price of each option shall be its fair market value as determined by
the Compensation Committee if the Common Stock is not traded on the public
market. Employees of the Company eligible to receive options are those selected
by the Compensation Committee in its sole discretion on the basis that such
employees have made material contributions to the successful performance of the
Company in the past, or are expected to make material contributions in the
future.
Of the 200,000 shares of Common Stock available for the grant of options
under the Plan, as of October 11, 1996, an aggregate of 188,325 shares were
subject to options and options for 1,013 shares had been exercised.
DIRECTOR COMPENSATION
Non-employee directors of the Company receive compensation of $500 for each
meeting of the Board of Directors attended and an additional $500 for each
committee meeting attended, plus reimbursement for expenses incurred in
connection with attendance at Board of Directors meetings.
EMPLOYMENT AGREEMENT
The Company and Glen L. Shank, President of the Company, are parties to an
employment agreement which automatically renews for successive annual terms in
January of each year unless the Company provides timely notice of termination.
The employment agreement provides that Mr. Shank's minimum base salary shall be
$144,400, subject to increase by the Board of Directors, together with bonuses,
if any, in such amount as shall be determined by the Board of Directors. In the
event of death or disability, Mr. Shank or his representative shall be entitled
to his salary through the end of the month in which his death occurs or on the
last day of the sixth consecutive month of his disability, as the case may be.
In addition to setting forth the duties and responsibilities of Mr. Shank, the
employment agreement provides that under certain circumstances either the
Company or Mr. Shank may terminate the employment agreement.
COMPENSATION COMMITTEE INTERLOCKS
Robert C. Amenta, Robert L. Barcum and William J. Morgan each served on the
Compensation Committee of the Board of Directors during fiscal 1996.
Robert C. Amenta and William J. Morgan, directors of the Company, are
employees of Pacholder Associates, Inc., an investment advisor to the Kansas
Public Employees Retirement System (``KPERS''). As of September 3, 1996, KPERS
owned 1,171,337 shares of Common Stock. KPERS is a Selling Stockholder in this
offering. See ``Principal and Selling Stockholders.''
27
<PAGE> 29
CERTAIN TRANSACTIONS
Dennis A. Mullin is President and Chief Operating Officer of Steel & Pipe
Supply Co., Inc. Mr. Mullin is also a partner in, or stockholder or officer of,
five partnerships or corporations which own stores leased to the Company. During
fiscal 1996, fiscal 1995 and fiscal 1994, the Company paid fixed rentals
aggregating approximately $585,066, $585,065 and $585,065 and percentage rentals
aggregating approximately $6,575, $14,730 and $12,946, respectively, to these
entities. During the current fiscal year through September 3, 1996, the Company
had paid fixed rentals aggregating approximately $390,044 and no percentage
rentals to these entities. The Company also pays the taxes, insurance and
maintenance on the stores leased from these entities. One of these store's
leases has a remaining term of approximately 23 months while each of the other
store leases has a remaining term of more than two years.
Robert L. Barcum is President of Applied Intelligence Group, Inc.,
(``AIG''), a computer consulting firm. During fiscal 1996, the Company entered
into contracts with AIG totaling $982,023 for the purchase of software and
services related to upgrading the Company's point-of-sale systems. During fiscal
1996, the Company paid AIG $29,167 under the contracts and $1,662 in associated
expenses. During the current fiscal year through September 3, 1996, the Company
had paid AIG $952,856 under the contracts and $3,675 in associated expenses. The
Company has used AIG as a source for point-of-sale software and related services
since 1987.
28
<PAGE> 30
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information as of September 3, 1996
(as of December 31, 1995 for Wellington Management Company, Heartland Advisors,
Inc., Wanger Asset Management, L.P., and Acorn Investment Trust, Series
Designated Acorn Fund) regarding the beneficial ownership of Common Stock by
each person known to the Board of Directors to own beneficially 5% or more of
the Company's Common Stock, by each director of the Company, by each executive
officer named in the Summary Compensation Table under ``Executive Compensation"
and by all directors and officers of the Company as a group. All information
with respect to beneficial ownership has been furnished by the respective
directors, officers or 5% or more stockholders, as the case may be, or by
documents filed with the Securities and Exchange Commission.
<TABLE>
<CAPTION>
BEFORE OFFERING NUMBER OF AFTER OFFERING
------------------- SHARES BEING -------------------
NAME NUMBER PERCENT OFFERED NUMBER PERCENT
---- ------ ------- ------------ ------ -------
<S> <C> <C> <C> <C> <C>
Glen L. Shank <F1><F2><F3>................................. 13,775 <F*> 0 13,775 <F*>
James E. Schoenbeck <F1><F2><F4>........................... 10,106 <F*> 0 10,106 <F*>
Bryan M. DeCordova <F1><F2><F5>............................ 8,456 <F*> 0 8,456 <F*>
James R. Fennema <F1><F6>.................................. 7,025 <F*> 0 7,025 <F*>
Charles E. Bogan <F1><F2><F7>.............................. 7,475 <F*> 0 7,475 <F*>
Dennis A. Mullin <F8>...................................... 124,689 3.12 0 124,689 2.49
Robert L. Barcum <F9>...................................... 0 <F*> 0 0 <F*>
William J. Morgan <F10>.................................... 0 <F*> 0 0 <F*>
Robert C. Amenta <F10>..................................... 0 <F*> 0 0 <F*>
KDF, a Massachusetts Nominee <F10>......................... 1,171,337 29.29 171,337 1,000,000 20.00
Boatmen's Trust Company, as Trustee for
Duckwall-ALCO Profit Sharing Plan & Trust <F2>........... 287,350 7.18 228,663 58,687 1.17
Wellington Management Company <F11>........................ 332,400 8.31 0 332,400 6.65
Heartland Advisors, Inc. <F12>............................. 290,000 7.25 0 290,000 5.80
Wanger Asset Management, L.P. <F13>........................ 230,000 5.75 0 230,000 4.60
All directors and officers as a group (9 in group)......... 171,526 4.11 0 171,526 3.32
<FN>
- --------
<F*> Less than one percent.
29
<PAGE> 31
<F1> The address for this person is 401 Cottage Street, Abilene, Kansas
67410-6129.
<F2> Glen L. Shank, Chairman of the Board and President of the Company,
Charles E. Bogan, a Vice President of the Company, James E. Schoenbeck, a
Vice President of the Company, and Bryan M. DeCordova, a Vice President
of the Company, are four of the six members of the administrative
committee of the Duckwall-ALCO Stores, Inc., Profit Sharing Plan and
Trust (the ``Profit Sharing Plan''), however each has disclaimed
beneficial ownership of any shares of Common Stock owned by the Profit
Sharing Plan. The address of the Profit Sharing Plan is Boatmen's Trust
Company, Trustee, 10th and Baltimore, P.O. Box 419038, Kansas City,
Missouri 64183.
<F3> Mr. Shank owns options to purchase 24,250 shares of Common Stock. Of
those options, 10,375 are currently exercisable.
<F4> Mr. Schoenbeck owns options to purchase 17,675 shares of Common Stock. Of
those options, 7,606 are currently exercisable.
<F5> Mr. DeCordova owns options to purchase 16,425 shares of Common Stock. Of
those options, 7,156 are currently exercisable.
<F6> Mr. Fennema owns options to purchase 13,300 shares of Common Stock. Of
those options, 5,125 are currently exercisable.
<F7> Mr. Bogan owns options to purchase 12,850 shares of Common Stock. Of
those options, 5,825 are currently exercisable.
<F8> Dennis A. Mullin is the President and Chief Operating Officer of Steel &
Pipe Supply Co., Inc., which owns 114,009 shares of Common Stock. The
address of Steel & Pipe Supply Co., Inc., is 555 Poyntz, Manhattan,
Kansas 66502. Mr. Mullin is also an executive officer of Manhattan
Buildings, Inc. and Business Buildings, Inc. each of which own 840 shares
of Common Stock. Mr. Mullin is also an executive officer of MBI, Inc.,
which owns 5,000 shares of Common Stock.
<F9> The address for Mr. Barcum is Applied Intelligence Group, Inc., 501 East
Fifteenth Street, Edmond, Oklahoma 73013.
<F10> KDF is the nominee holder of shares of Common Stock on behalf of the
Kansas Public Employees Retirement System (``KPERS''). KPERS, Pacholder
Associates, Inc. (``Pacholder'') and Portfolio Advisers, Inc. (``PAI''),
share investment and voting power with regard to these shares. Pacholder
and PAI are investment advisors to KPERS. In the event KPERS terminated
either such arrangement, the terminated advisor would no longer have any
such power with respect to these shares. William J. Morgan and Robert C.
Amenta are the President and Senior Vice President, respectively, of
Pacholder. Each of these individuals has disclaimed beneficial ownership
of all shares of Common Stock beneficially owned by Pacholder, KDF and
KPERS. The address of KPERS is c/o Pacholder Associates, Inc., Bank One
Towers, 8044 Montgomery Road, Suite 382, Cincinnati, Ohio 45236. The
address of PAI is 760 Hopmeadow Street, P.O. Box 689, Simsbury,
Connecticut, 06070-0689.
<F11> The address of Wellington Management Company is 75 State Street, Boston,
Massachusetts 02109.
<F12> The address of Heartland Advisors, Inc. is 790 North Milwaukee Street,
Milwaukee, Wisconsin 53202.
<F13> The number of shares of Common Stock held by Wanger Asset Management, L.P.
("Wanger"), includes 220,000 shares of Common Stock held by Acorn
Investment Trust, Series Designated Acorn Fund, which is controlled
by Wanger. The address of Wanger is 227 West Monroe Street, Suite 3000,
Chicago, Illinois 60606. The address of Acorn Investment Trust, Series
Designated Acorn Fund is 227 West Monroe Street, Suite 3000, Chicago,
Illinois 60606.
</TABLE>
30
<PAGE> 32
DESCRIPTION OF CAPITAL STOCK
DESCRIPTION OF COMMON STOCK
The authorized capital stock of the Company consists of 20,000,000 shares of
Common Stock, $.0001 par value.
There are 4,000,523 shares of Common stock outstanding, which as of
October 10, 1996, were held of record by approximately 1,400 stockholders.
Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of the stockholders. Holders of Common Stock do not
have cumulative voting rights in the election of directors and have no
preemptive, subscription, redemption or conversion rights. All outstanding
shares of Common Stock are, and those offered hereby will be, validly issued,
fully paid and nonassessable. Holders of Common Stock are entitled to such
dividends as may be declared by the Board of Directors out of funds legally
available therefor. Upon the liquidation, dissolution or winding-up of the
Company, the assets legally available for distribution to stockholders are
distributable ratably among the holders of Common stock at that time
outstanding, subject to prior distribution rights of creditors of the Company.
The transfer agent for the Common Stock is Boatmen's Trust Company.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock in the public market
after this offering could adversely affect the market price of the Common Stock.
Upon completion of the offering, there will be 5,000,523 shares of Common Stock
outstanding, assuming the Underwriters' over-allotment option is not exercised
and none of management's currently exercisable options are exercised. Of these
shares, the 1,400,000 shares offered hereby and 2,405,759 shares held by certain
stockholders will be freely transferable without restriction under the Act
unless acquired by an ``affiliate'' (as that term is defined under the Act) of
the Company, in which case they will be subject to the resale limitations of
Rule 144 under the Act.
In general, under Rule 144 as currently in effect, persons who may be deemed
to be affiliates of the Company would be entitled to sell within any three-month
period a number of shares that does not exceed the greater of 1% of the then
outstanding shares of Common Stock or the average weekly trading volume in the
Common Stock during the four calendar weeks preceding such sale, provided that
the Company has filed certain periodic reports with the Securities and Exchange
Commission (or made publicly available certain information concerning it) and
the sale is made in a ``broker's transaction'' or in a transaction directly with
a ``market-maker,'' as those terms are used in Rule 144, without the
solicitation of buy orders by the broker or such person, and without such person
making any payment to any person other than the broker who executes the order to
sell the shares of Common Stock.
In addition to the requirements of Rule 144, the Company, the Selling
Stockholders and the officers and the directors of the Company personally
holding shares of Common Stock as of September 3, 1996 have agreed with the
Underwriters not to sell or otherwise dispose of any shares of Common Stock for
a period 120 days after the date of this Prospectus, other than the grant of
stock options pursuant to the Company's Plan.
No precise predictions can be made about the effect, if any, that public
sales of shares or the availability of shares for sale will have on the market
price of the Common Stock prevailing from time to time. Nevertheless, sales of
substantial amounts of the Common Stock of the Company in the public market
could have an adverse impact on the prevailing market price.
31
<PAGE> 33
UNDERWRITING
The Company and the Selling Stockholders have entered into a Purchase
Agreement (the ``Purchase Agreement'') with Piper Jaffray Inc., The
Robinson-Humphrey Company, Inc., and Stifel, Nicolaus & Company, Incorporated
(the ``Underwriters''). Subject to the terms and conditions set forth in the
Purchase Agreement, the Company and the Selling Stockholders have agreed to sell
to the Underwriters, and each of the Underwriters has severally agreed to
purchase, the number of shares of Common Stock set forth opposite such
Underwriter's name in the table below:
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERWRITERS TO BE PURCHASED
------------ ----------------
<S> <C>
Piper Jaffray Inc..................................................................
The Robinson-Humphrey Company, Inc.................................................
Stifel, Nicolaus & Company, Incorporated...........................................
---------
Total.......................................................................... 1,400,000
=========
</TABLE>
Subject to the terms and conditions of the Purchase Agreement, the
Underwriters have agreed to purchase all of the Common Stock being sold pursuant
to the Purchase Agreement if any is purchased (excluding shares covered by the
over-allotment option granted therein). In the event of a default by any
Underwriter, the Purchase Agreement provides that, in certain circumstances,
purchase commitments of the nondefaulting Underwriters may be increased or
decreased or the Purchase Agreement may be terminated.
The Underwriters have advised the Company and the Selling Stockholders that
the Underwriters propose to offer the Common Stock to the public initially at
the Price to Public set forth on the cover page of this Prospectus and to
certain dealers at such price less a concession of not in excess of $ per
share. Additionally, the Underwriters may allow, and such dealers may reallow, a
concession not in excess of $ per share on sales to certain other brokers
and dealers. After the offering, the Price to Public, concession and reallowance
may be changed by the Underwriters.
The Company has granted to the Underwriters an option, exercisable by the
Underwriters during the 30 day period after the date of this Prospectus, under
which the Underwriters may purchase up to an additional 210,000 shares of Common
Stock at the Price to Public less the Underwriting Discount set forth on the
cover page of this Prospectus. If the Underwriters purchase any of such
additional shares pursuant to this option, each Underwriter will be committed to
purchase such additional shares in approximately the same proportion as set
forth in the table above. The Underwriters may exercise the option only to cover
over-allotments, if any.
The Company, the Selling Stockholders and the officers and the directors of
the Company personally holding shares of Common Stock as of September 3, 1996
have agreed that they will not, without the prior written consent of Piper
Jaffray Inc., sell, offer to sell, or otherwise dispose of any shares of Common
Stock or any options or rights to purchase any shares of Common Stock for a
period of 120 days after the date of this Prospectus.
In connection with this offering, certain Underwriters may engage in passive
market making transactions in the Common Stock on the Nasdaq National Market
immediately prior to the commencement of sales in this offering, in accordance
with Rule 10b-6A under the Securities Exchange Act of 1934, as amended. Passive
market making consists of displaying bids on the Nasdaq National Market limited
by the bid prices of market makers not connected with this offering and making
purchases limited by such prices and effected in response to order flow. Net
purchases by a passive market maker on each day are limited to a specified
percentage of the passive market maker's average daily trading volume in the
Common Stock during a specified period prior to the filing of this prospectus
with the Commission and must be discontinued when such limit is reached. Passive
market making may stabilize the market price of the Common Stock at a level
above that which might otherwise prevail, and, if commenced, may be discontinued
at any time.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including civil liabilities under the
Securities Act, or to contribute to payments which the Underwriters may be
required to make in respect thereof.
32
<PAGE> 34
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby and certain other
matters will be passed upon for the Company by Stinson, Mag & Fizzell, P.C.,
1201 Walnut Street, Kansas City, Missouri 64106. Certain legal matters in
connection with this offering will be passed upon for the Underwriters by Bryan
Cave LLP, 7500 College Boulevard, Suite 1100, Overland Park, Kansas 66210-4035.
EXPERTS
The consolidated financial statements of the Company as of January 29, 1995
and January 28, 1996 and for each of the years in the three-year period ended
January 28, 1996 included herein have been included herein in reliance upon the
report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein and upon the authority of said firm as experts in
accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the ``Exchange Act'') and in accordance therewith files
reports, proxy statements and other information with the Securities and Exchange
Commission (the ``Commission''). Such reports, proxy statements and other
information concerning the Company may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's Regional Offices
at Seven World Trade Center, New York, New York 10048 and at Citicorp Center,
500 West Madison Street, Chicago, Illinois 60661. Copies of such material can
also be obtained upon written request addressed to the Commission, Public
Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Commission maintains a Web site that contains reports, proxy
statements and other information the Company files electronically with the
Commission. The address of this Web site is http://www.sec.gov. The Common Stock
is included for quotation on the Nasdaq National Market, and such reports, proxy
statements and other information should be available for inspection and copying
at the offices of the National Association of Securities Dealers, Inc., 1735 K
Street, N.W., Washington, D.C. 20006.
The Company has filed with the Commission 450 Fifth Street, N.W.,
Washington, D.C. 20549, a Registration Statement under the Act concerning the
Common Stock offered by this Prospectus. Certain portions of the Registration
Statement have not been included in this Prospectus as permitted by the
Commission's regulations. For further information concerning the Company and the
shares of Common Stock offered hereby, reference is made to the Registration
Statement and its exhibits, which may be inspected at the offices of the
Commission, without charge. Copies of the material contained therein may be
obtained from the Commission upon payment of the prescribed copying charges.
Statements contained in this Prospectus as to the contents of any contract or
other documents are not necessarily complete; where such contract or other
document is an exhibit to the Registration Statement, each such statement is
qualified in all respects by the provisions of such exhibit, to which reference
is hereby made for a full statement of the provisions thereof.
33
<PAGE> 35
DUCKWALL-ALCO STORES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................................................................................ F-2
Consolidated Balance Sheets as of January 29, 1995, January 28, 1996 and July 28, 1996 (unaudited).......................... F-3
Consolidated Statements of Operations for the Fiscal Years Ended January 30, 1994, January 29, 1995 and January 28, 1996 and
the Twenty-Six Week Periods Ended July 30, 1995 (unaudited) and
July 28, 1996 (unaudited)................................................................................................. F-4
Consolidated Statements of Stockholders' Equity for the Fiscal Years Ended January 30, 1994, January 29, 1995 and January
28, 1996 and the Twenty-Six Week Periods Ended July 28, 1996 (unaudited).................................................. F-5
Consolidated Statements of Cash Flows for the Fiscal Years Ended January 30, 1994, January 29, 1995 and January 28, 1996 and
the Twenty-Six Week Periods Ended July 30, 1995 (unaudited) and July 28, 1996 (unaudited)................................. F-6
Notes to Consolidated Financial Statements.................................................................................. F-7
</TABLE>
F-1
<PAGE> 36
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Duckwall-ALCO Stores, Inc.:
We have audited the accompanying consolidated balance sheets of
Duckwall-ALCO Stores, Inc. and subsidiary as of January 29, 1995 and January 28,
1996, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the years in the three-year period ended
January 28, 1996. 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 audits 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 audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Duckwall-ALCO Stores, Inc. and subsidiary as of January 29, 1995 and January 28,
1996, and the results of their operations and their cash flows for each of the
years in the three-year period ended January 28, 1996, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Wichita, Kansas
March 21, 1996
F-2
<PAGE> 37
DUCKWALL-ALCO STORES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY JANUARY JULY
29, 1995 28, 1996 28, 1996
-------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash.................................................... $ -- $ 177 $ 1,804
Receivables (note 4).................................... 1,921 2,545 2,828
Inventories (notes 3 and 4)............................. 62,427 71,635 80,119
Property held for sale.................................. 55 41 41
Prepaid expenses........................................ 994 1,210 1,973
------- -------- --------
Total current assets................................ 65,397 75,608 86,765
------- -------- --------
Property and equipment, at cost (note 4):
Land.................................................... 1,956 2,297 2,379
Buildings............................................... 12,464 16,867 18,070
Furniture, fixtures and equipment....................... 19,418 22,354 23,978
Transportation equipment................................ 1,060 1,473 1,580
Leasehold improvements.................................. 2,476 3,164 3,837
Construction work in progress........................... 1,324 1,389 3,652
------- -------- --------
Total property and equipment........................ 38,698 47,544 53,496
Less accumulated depreciation and amortization.......... 21,469 23,676 25,011
------- -------- --------
Net property and equipment.......................... 17,229 23,868 28,485
------- -------- --------
Property under capital leases (note 6)...................... 21,156 20,541 20,541
Less accumulated amortization........................... 11,760 12,404 12,819
------- -------- --------
Net property under capital leases................... 9,396 8,137 7,722
------- -------- --------
Debt financing costs........................................ 180 110 100
------- -------- --------
$92,202 $107,723 $123,072
======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank overdrafts......................................... $ 76 $ -- $ --
Current maturities of long-term debt (note 4)........... 755 545 752
Current maturities of capital lease obligations (note
6).................................................... 630 637 637
Accounts payable........................................ 13,915 16,335 20,015
Income taxes payable.................................... 1,488 820 476
Accrued salaries and commissions........................ 3,112 3,614 2,096
Accrued taxes other than income......................... 1,939 2,203 2,430
Other current liabilities............................... 2,526 1,598 1,081
Deferred income taxes (note 7).......................... 2,002 2,467 2,492
------- -------- --------
Total current liabilities........................... 26,443 28,219 29,979
Notes payable under revolving loan credit facility (note
4)........................................................ 238 12,015 21,353
Long-term debt, less current maturities (note 4)............ 4,238 1,599 3,540
Capital lease obligations, less current maturities (note
6)........................................................ 10,944 9,755 9,437
Other noncurrent liabilities................................ 712 745 794
Deferred income taxes (note 7).............................. 2,527 2,329 2,355
------- -------- --------
Total liabilities................................... 45,102 54,662 67,458
------- -------- --------
Stockholders' equity (notes 2, 9 and 10):
Common stock, $.0001 par value, authorized 20,000,000
shares; issued and outstanding 3,999,510 shares....... 1 1 1
Additional paid-in capital, net of $3,586 accumulated
deficit eliminated on June 2, 1991.................... 39,859 40,690 41,316
Retained earnings since June 2, 1991.................... 7,240 12,370 14,297
------- -------- --------
Total stockholders' equity.......................... 47,100 53,061 55,614
Commitments (note 6)
------- -------- --------
$92,202 $107,723 $123,072
======= ======== ========
See accompanying notes to consolidated financial statements.
</TABLE>
F-3
<PAGE> 38
DUCKWALL-ALCO STORES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
TWENTY-SIX WEEK
FISCAL YEARS ENDED PERIODS ENDED
-------------------------------------- -----------------------
JANUARY JANUARY JANUARY JULY JULY
30, 1994 29, 1995 28, 1996 30, 1995 28, 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales........................................... $225,903 $242,144 $256,454 $117,532 $127,774
Cost of sales....................................... 154,217 163,180 173,296 79,139 85,812
-------- -------- -------- -------- --------
Gross margin................................ 71,686 78,964 83,158 38,393 41,962
-------- -------- -------- -------- --------
Selling, general and administrative
(notes 5 and 6)................................... 59,432 65,477 69,018 32,884 35,458
Depreciation and amortization 3,950 3,280 3,093 1,497 1,789
-------- -------- -------- -------- --------
Total operating expenses.................... 63,382 68,757 72,111 34,381 37,247
-------- -------- -------- -------- --------
Income from operations...................... 8,304 10,207 11,047 4,012 4,715
Interest expense (notes 4 and 6).................... 4,091 3,390 2,958 1,417 1,592
Other expense:
Store closing expense (note 8).................. 833 156 -- -- --
Other expense (income).......................... (10) -- (185) -- --
-------- -------- -------- -------- --------
Earnings before income taxes (note 3)....... 3,390 6,661 8,274 2,595 3,123
Income tax expense (note 7)......................... 1,130 2,531 3,144 986 1,196
-------- -------- -------- -------- --------
Net earnings................................ 2,260 4,130 5,130 1,609 1,927
Accretion in carrying value of redeemable common
stock purchase warrant (note 10).................. 645 288 -- -- --
-------- -------- -------- -------- --------
Net earnings applicable to common stock..... $ 1,615 $ 3,842 $ 5,130 $ 1,609 $ 1,927
======== ======== ======== ======== ========
Earnings per common and common equivalent share
(note 1(i))....................................... $ .80 $ 1.51 $ 1.28 $ .40 $ .48
======== ======== ======== ======== ========
Pro forma earnings per common and common equivalent
share (note 1(i))................................. $ .96
========
See accompanying notes to consolidated financial statements.
</TABLE>
F-4
<PAGE> 39
DUCKWALL-ALCO STORES INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
RETAINED
EARNINGS
ADDITIONAL SINCE TOTAL
COMMON PAID-IN JUNE 2, STOCKHOLDERS'
STOCK CAPITAL 1991 EQUITY
------ ---------- -------- -------------
<S> <C> <C> <C> <C>
Balance, January 31, 1993............................................. $ 1 $21,497 $ 1,783 $23,281
Net earnings for the year ended January 30, 1994.................. -- -- 2,260 2,260
Accretion in carrying value of redeemable common stock purchase
warrant......................................................... -- -- (645) (645)
Tax benefit from net operating loss carryforward (note 7)......... -- 1,657 -- 1,657
----- ------- ------- -------
Balance, January 30, 1994............................................. 1 23,154 3,398 26,553
Net earnings for the year ended January 29, 1995.................. -- -- 4,130 4,130
Accretion in carrying value of redeemable common stock purchase
warrant......................................................... -- -- (288) (288)
Tax benefit from net operating loss carryforward (note 7)......... -- 866 -- 866
Issuance of 1,650,000 common shares in initial public offering
(note 10)....................................................... -- 13,246 -- 13,246
Exercise of redeemable common stock purchase warrant for 350,000
common shares (note 10)......................................... -- 2,593 -- 2,593
----- ------- ------- -------
Balance, January 29, 1995............................................. 1 39,859 7,240 47,100
Net earnings for the year ended January 28, 1996.................. -- -- 5,130 5,130
Tax benefit from net operating loss carryforward (note 7)......... -- 831 -- 831
----- ------- ------- -------
Balance, January 28, 1996............................................. 1 40,690 12,370 53,061
Net earnings for twenty-six week period ended July 28, 1996
(unaudited)..................................................... -- -- 1,927 1,927
Tax benefit from net operating loss carryforward (unaudited)...... -- 626 -- 626
----- ------- ------- -------
Balance, July 28, 1996 (unaudited).................................... $ 1 $41,316 $14,297 $55,614
===== ======= ======= =======
See accompanying notes to consolidated financial statements.
</TABLE>
F-5
<PAGE> 40
DUCKWALL-ALCO STORES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
TWENTY-SIX WEEK
FISCAL YEARS ENDED PERIODS ENDED
------------------------------------ ----------------------
JANUARY JANUARY JANUARY JULY JULY
30, 1994 29, 1995 28, 1996 30, 1995 28, 1996
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings....................................... $ 2,260 $ 4,130 $ 5,130 $ 1,609 $ 1,927
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization.............. 3,950 3,280 3,093 1,497 1,789
Amortization of debt discount.............. 250 -- -- -- --
Amortization of debt financing costs....... 181 190 180 90 20
Deferred income taxes...................... (555) (383) 267 -- 51
Loss (gain) on sale or disposition of
property and equipment................... 14 39 (1) -- --
Gain on termination of store capital
leases................................... -- -- (185) -- --
LIFO expense (income)...................... 438 (614) (378) 125 90
Decrease (increase) in receivables......... 36 (211) (624) (40) (283)
Increase in inventories.................... (3,732) (6,338) (8,830) (8,349) (8,574)
(Increase) decrease in prepaid expenses.... (68) (114) (216) 70 (763)
Increase in accounts payable............... 572 2,130 2,420 4,702 3,680
Increase (decrease) in income taxes
payable.................................. 1,260 1,772 163 (944) 282
Increase (decrease) in accrued salaries and
commissions.............................. 214 696 502 (1,013) (1,518)
Increase in accrued taxes other than
income................................... 208 25 264 387 227
Increase (decrease) in other liabilities... 910 (335) (895) (1,261) (468)
--------- --------- --------- --------- ---------
Net cash provided by (used in)
operating activities................ 5,938 4,267 890 (3,127) (3,540)
--------- --------- --------- --------- ---------
Cash flows from investing activities:
Proceeds from sale of property and equipment....... 99 21 67 -- --
Acquisition of:
Buildings...................................... (11) (614) (4,403) (1,604) (1,203)
Fixtures, equipment and leasehold
improvements................................. (2,026) (3,383) (4,502) (1,549) (4,788)
--------- --------- --------- --------- ---------
Net cash used in investing
activities.......................... (1,938) (3,976) (8,838) (3,153) (5,991)
--------- --------- --------- --------- ---------
Cash flows from financing activities:
Increase (decrease) in notes payable under
revolving loan credit facility................... (15,710) (13,055) 11,777 8,853 9,338
Proceeds from notes payable -- -- -- -- 2,668
Proceeds from notes payable under revolving loan
credit facility.................................. 13,293 -- -- -- --
Proceeds from stock issuance....................... -- 13,246 -- -- --
Proceeds from exercise of redeemable common stock
purchase warrant................................. -- 2 -- -- --
Principal payments on long-term debt............... (892) (745) (2,849) (645) (520)
Principal payments under capital lease
obligations...................................... (869) (641) (617) (315) (318)
Increase (decrease) in bank overdrafts............. -- 76 (76) (76) --
Debt financing costs............................... (551) -- (110) (25) (10)
--------- --------- --------- --------- ---------
Net cash provided by (used in)
financing activities................ (4,729) (1,117) 8,125 7,792 11,158
--------- --------- --------- --------- ---------
Net increase (decrease) in cash........................ (729) (826) 177 1,512 1,627
Cash, at beginning of year............................. 1,555 826 -- -- 177
--------- --------- --------- --------- ---------
Cash, at end of year................................... $ 826 $ -- $ 177 $ 1,512 $ 1,804
========= ========= ========= ========= =========
See accompanying notes to consolidated financial statements.
</TABLE>
F-6
<PAGE> 41
DUCKWALL-ALCO STORES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) NATURE OF BUSINESS
Duckwall-ALCO Stores, Inc. and subsidiary (the Company) is engaged in the
business of retailing general merchandise in the central United States through
discount department and variety store outlets. Merchandise is purchased for
resale from many vendors, and transactions with individual vendors and customers
do not represent a significant portion of total purchases and sales.
(B) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary. All significant intercompany account balances
have been eliminated in consolidation.
(C) BASIS OF PRESENTATION
The Company's fiscal year ends on the Sunday nearest to January 31. Fiscal
1994, 1995 and 1996 each consist of 52 weeks.
(D) INVENTORIES
Store inventories are stated at the lower of cost or net realizable value as
estimated by the retail inventory method. Warehouse inventories are stated at
the lower of cost or net realizable value. The Company utilizes the last-in,
first-out (LIFO) method of determining cost of store and warehouse inventories.
(E) PROPERTY AND EQUIPMENT
Depreciation is computed on a straight-line basis over the estimated useful
lives of the assets. Amortization of leasehold improvements and capital leases
is computed on a straight-line basis over the terms of the lease agreements.
Major improvements are capitalized while maintenance and repairs, which do
not extend the useful life of the asset, are charged to expense as incurred.
(F) INCOME TAXES
The Company accounts for income taxes under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
(G) STORE OPENING COSTS
Direct incremental costs of opening new stores are deferred and amortized on
a straight-line basis over a 12-month period from the date the store is opened.
(H) NET SALES
Sales are recorded in the period of sale. Sales returns, which are not
material, are recorded in the period of return as a reduction of sales.
(I) EARNINGS PER SHARE
Earnings per share has been computed based on the weighted average number of
common shares outstanding during the year plus common stock equivalents, when
dilutive, consisting of the redeemable common stock purchase warrant until
exercised during fiscal 1995 (see note 10) and stock options (see note 9). For
purposes of the fiscal 1995 computation, the warrant was assumed to have been
exercised since this treatment was the most dilutive and,
F-7
<PAGE> 42
DUCKWALL-ALCO STORES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
therefore, the accretion in the carrying value of the redeemable common stock
purchase warrant has been excluded in the computation. For purposes of the
fiscal 1994 computation, net earnings was adjusted for accretion in the carrying
value of the redeemable common stock purchase warrant, and the warrant was
assumed to have been put to the Company, rather than exercised, since this
treatment was more dilutive for this fiscal year.
Pro forma earnings per share information for fiscal 1994 is presented herein
due to the exercise of the warrant by the holder pursuant to the Company's
public offering of common shares in fiscal 1995 as described in note 10. Such
pro forma information excludes the effect of accretion in the carrying value of
the redeemable common stock purchase warrant in fiscal 1994 and includes the
effect of the issuance of 350,000 shares of common stock pursuant to the
exercise of the warrant.
The average number of shares used in computing earnings per share was as
follows:
<TABLE>
<CAPTION>
EARNINGS PER PRO FORMA EARNINGS
COMMON AND COMMON PER COMMON AND
EQUIVALENT SHARE COMMON EQUIVALENT SHARE
----------------- -----------------------
<S> <C> <C>
Fiscal 1994.................................. 2,006,250 2,356,250
Fiscal 1995.................................. 2,737,620 --
Fiscal 1996.................................. 4,014,351 --
Twenty-six week periods ended:
July 30, 1995 (unaudited)................ 4,007,909 --
July 28, 1996 (unaudited)................ 4,033,522 --
</TABLE>
(J) CONSOLIDATED STATEMENTS OF CASH FLOWS
During fiscal 1994, 1995 and 1996 and for the twenty-six week periods ended
July 30, 1995 and July 28, 1996, the following amounts were paid for interest
and income taxes:
<TABLE>
<CAPTION>
TWENTY-SIX WEEK
PERIODS ENDED
FISCAL YEARS ENDED --------------------
---------------------------- JULY 30, JULY 28,
1994 1995 1996 1995 1996
------ ------ ------ -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Interest, excluding interest on capital lease obligations and
amortization of debt financing costs (net of capitalized interest of
$21, $107, $46 (unaudited) and $76 (unaudited) in fiscal years 1995 and
1996 and the twenty-six week periods ended July 30, 1995 and July 28,
1996, respectively).................................................... $2,260 $1,940 $2,061 $ 781 $ 1,000
Income taxes............................................................. 425 1,142 2,714 1,930 863
</TABLE>
Noncash financing and investing activities for fiscal 1994, 1995 and 1996
and the twenty-six week periods ended July 30, 1995 and July 28, 1996 consisted
of:
Redeemable common stock purchase warrant with a carrying value of $2,591 was
exercised during fiscal 1995 (see note 10).
The carrying value of the redeemable common stock purchase warrant was
increased during fiscal 1994 and 1995 by $645 and $288, respectively.
Tax benefit from net operating loss carryforward of $1,657, $866, $831, $437
(unaudited) and $626 (unaudited) which increases additional paid-in capital in
fiscal 1994, 1995 and 1996 and the twenty-six week periods ended July 30, 1995
and July 28, 1996, respectively.
F-8
<PAGE> 43
DUCKWALL-ALCO STORES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Capital leases of buildings with a fair value of $2,015 and $1,002 were
executed in fiscal 1994 and 1995, respectively.
A capital lease was terminated in fiscal 1996 resulting in elimination of
capital lease assets of $380 and capital lease obligations of $565.
(K) USE OF ESTIMATES
Management of the Company has made certain estimates and assumptions in the
reporting of assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
(L) INTERIM FINANCIAL DATA
The interim financial statements as of July 28, 1996 and the twenty-six week
periods ended July 30, 1995 and July 28, 1996 are unaudited. In the opinion of
management, the interim data includes all adjustments, consisting of normal
recurring accruals, necessary for a fair presentation of the financial
statements for the interim periods presented. Interim periods operating results
are not necessarily indicative of the results to be expected for the full fiscal
year.
(2) BANKRUPTCY AND REORGANIZATION
On May 8, 1989, the Company filed a petition for relief under Chapter 11 of
the Federal bankruptcy laws in the United States Bankruptcy Court for the
District of Kansas. On May 17, 1991, the Company's plan of reorganization
(Plan), as amended, was confirmed by the Bankruptcy Court.
The Company has accounted for the confirmation of the Plan as a
quasi-reorganization. Accordingly, the accumulated deficit at June 2, 1991 was
charged to additional paid-in capital and a new retained earnings account was
established effective the same date. No adjustment was made to the carrying
values of the Company's assets and liabilities because such amounts were not in
excess of estimated fair values.
(3) INVENTORIES
Inventories at January 29, 1995, January 28, 1996 and July 28, 1996 are
stated at the lower of cost or net realizable value as determined under the LIFO
method of accounting. The Company utilizes the LIFO method of valuing its
inventories because, in the opinion of management, the LIFO method more nearly
matches current costs with current revenue during periods of rising prices for
financial reporting and income tax purposes. Inventories are as follows for the
dates indicated:
<TABLE>
<CAPTION>
JANUARY 29, JANUARY 28, JULY 28,
1995 1996 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
FIFO cost.............................................. $66,744 $75,574 $84,148
Less LIFO reserve...................................... (4,317) (3,939) (4,029)
------- ------- -------
LIFO cost.......................................... $62,427 $71,635 $80,119
======= ======= =======
</TABLE>
Earnings before income taxes for fiscal 1994, 1995 and 1996 and for the
twenty-six week periods ended July 30, 1995 and July 28, 1996 would have been
increased by $438, decreased by $614, decreased by $378, increased by $125
(unaudited) and increased by $90 (unaudited), respectively, if the FIFO method
of valuing inventories had been utilized.
During fiscal 1994, 1995 and 1996, liquidation of LIFO inventories with
lower prior year costs had the effect of increasing (decreasing) earnings before
income taxes by $106, $3 and $(7), respectively.
F-9
<PAGE> 44
DUCKWALL-ALCO STORES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(4) CREDIT ARRANGEMENTS, NOTES PAYABLE AND LONG-TERM DEBT
In October 1995, the Company executed an amendment to the loan agreement
with two lenders which provides a revolving loan credit facility of up to
$35,000 of long-term financing. The amount advanced (through a note or letters
of credit) to the Company bears interest at the prime rate plus 0.5% and is
generally limited to 55% of eligible inventory, as defined. Advances are secured
by a security interest in the Company's inventory, accounts receivable and
intangible assets. The loan agreement contains various restrictions including
limitations on additional indebtedness, the number of stores that may be opened
in a fiscal year, sales of assets and capital expenditures and financial
covenants related to earnings, the ratio of earnings to fixed charges, working
capital and tangible net worth, all as defined. The loan agreement prohibits the
payment of dividends. The loan agreement expires in February 1999 and
automatically renews for successive one-year terms thereafter unless terminated
by the lenders or the Company.
Notes payable outstanding at January 29, 1995, January 28, 1996 and July 28,
1996 under the revolving loan credit facility aggregated $238, $12,015 and
$21,353 (unaudited), respectively. The lender had also issued letters of credit
aggregating $1,440, $2,053 and $3,622 (unaudited), respectively, at such dates
on behalf of the Company. The interest rate on outstanding borrowings at January
28, 1996 and July 28, 1996 was 9% and 8.75% (unaudited), payable monthly. The
Company had additional borrowings available at January 28, 1996 and July 28,
1996 under the revolving loan credit facility amounting to $20,932 and $10,025
(unaudited), respectively.
Long-term debt, exclusive of notes payable under the revolving loan credit
facility as described above, consisted of the following at the dates indicated
below:
<TABLE>
<CAPTION>
JANUARY 29, JANUARY 28, JULY 28,
1995 1996 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
7.15% to 9.5% obligations for Industrial Revenue Bonds,
interest payable semi-annually with principal payments
due annually until final maturity in 1999............. $ 1,925 $ 1,375 $ 1,000
9.875% mortgage note payable due in monthly
installments, including interest, through September
2001.................................................. 650 578 532
10% subordinated notes.................................. 2,100 -- --
10% notes payable, due quarterly........................ 318 191 146
8.41% note payable, due monthly until final maturity in
2001 (unaudited)...................................... -- -- 946
7.93% note payable, due monthly until final maturity in
2002 (unaudited)...................................... -- -- 1,668
------- ------- -------
4,993 2,144 4,292
Less current maturities................................. 755 545 752
------- ------- -------
Long-term debt, less current maturities................. $ 4,238 $ 1,599 $ 3,540
======= ======= =======
</TABLE>
The Industrial Revenue Bonds were issued by a municipality to finance
warehouse facilities of the Company. The facilities are leased by the Company
and the Company has the option to purchase the facilities for a nominal sum at
the expiration of the leases.
Interest expense on notes payable and long-term debt in fiscal 1994, 1995
and 1996 and the twenty-six week periods ended July 30, 1995 and July 28, 1996
aggregated $2,688, $2,022, $1,706, $740 (unaudited) and $1,002 (unaudited),
respectively.
F-10
<PAGE> 45
DUCKWALL-ALCO STORES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Maturities of long-term debt, including the notes payable under the
revolving loan credit facility, in each of the next five years and thereafter in
the aggregate as of January 28, 1996 are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR:
------------
<S> <C>
1997.................................... $ 545
1998.................................... 590
1999.................................... 524
2000.................................... 12,299
2001.................................... 120
Thereafter.............................. 81
--------
$ 14,159
========
</TABLE>
(5) EMPLOYEE BENEFITS
The Company has a trusteed Profit Sharing Plan (Plan) for the benefit of
eligible employees. The Plan provides for an annual contribution of not more
than 20% of earnings for the year before the profit sharing contribution and
Federal and state income taxes, limited to 15% of the annual compensation of the
participants in the Plan. Contributions by the Company vest with the
participants over a seven-year period. The Company reserves the right to
discontinue its contributions at any time. The Company made profit sharing
contributions for fiscal 1994, 1995 and 1996 and for the twenty-six week periods
ended July 30, 1995 and July 28, 1996 of $270, $500, $630, $150 (unaudited) and
$190 (unaudited), respectively.
At January 29, 1995, January 28, 1996 and July 28, 1996, the Plan owned
327,350, 327,350 and 287,350 (unaudited) shares, respectively, of the Company's
common stock.
(6) LEASES
The Company is lessee under long-term capital leases expiring at various
dates. The components of property under capital leases in the accompanying
consolidated balance sheets are as follows for the dates indicated below:
<TABLE>
<CAPTION>
JANUARY 29, JANUARY 28, JULY 28,
1995 1996 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Buildings.............................................. $17,373 $16,758 $16,758
Fixtures............................................... 3,783 3,783 3,783
------- ------- -------
21,156 20,541 20,541
Less accumulated amortization.......................... 11,760 12,404 12,819
------- ------- -------
Net property under capital leases.................. $ 9,396 $ 8,137 $ 7,722
======= ======= =======
</TABLE>
The Company also has noncancelable operating leases, primarily for buildings
and transportation equipment, that expire at various dates.
F-11
<PAGE> 46
DUCKWALL-ALCO STORES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Future minimum lease payments under all noncancelable leases together with
the present value of the net minimum lease payments pursuant to capital leases
as of January 28, 1996 are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR: CAPITAL OPERATING
- ------------ ------- ---------
<S> <C> <C>
1997..................................................... $ 1,816 $ 4,092
1998..................................................... 1,714 3,526
1999..................................................... 1,560 2,926
2000..................................................... 1,521 2,390
2001..................................................... 1,521 2,068
Later years.............................................. 12,176 7,478
------- -------
Total minimum lease payments......................... 20,308 $22,480
=======
Less amount representing interest........................ 9,916
-------
Present value of net minimum lease payments.............. 10,392
Less current maturities.................................. 637
-------
Capital lease obligations, less current maturities....... $ 9,755
=======
</TABLE>
Lease payments to related parties amounted to approximately $600, $600, $292
(unaudited) and $292 (unaudited) in fiscal 1995 and 1996 and the twenty-six week
periods ended July 30, 1995 and July 28, 1996, respectively.
Minimum payments have not been reduced by minimum sublease rentals of $101
under operating leases due in the future under noncancelable subleases. They
also do not include contingent rentals which may be paid under certain store
leases on the basis of percentage of sales in excess of stipulated amounts.
Contingent rentals applicable to capital leases amounted to $82, $85 and $51 for
fiscal 1994, 1995 and 1996, respectively.
Interest on capital lease obligations in fiscal 1994, 1995 and 1996 and the
twenty-six week periods ended July 30, 1995 and July 28, 1996 aggregated $1,403,
$1,368, $1,252, and $677 (unaudited) and $590 (unaudited), respectively.
The following schedule presents the composition of total rent expense for
all operating leases for the periods indicated below:
<TABLE>
<CAPTION>
TWENTY-SIX WEEK
PERIODS ENDED
FISCAL YEARS ENDED -------------------
-------------------------- JULY 30, JULY 28,
1994 1995 1996 1995 1996
---- ---- ---- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Minimum rentals...................................................... $5,541 $5,504 $6,049 $ 2,980 $ 2,762
Contingent rentals................................................... 265 316 353 132 137
Less sublease rentals................................................ (204) (112) (111) (56) (53)
------ ------ ------ ------- -------
$5,602 $5,708 $6,291 $ 3,056 $ 2,846
====== ====== ====== ======= =======
</TABLE>
F-12
<PAGE> 47
DUCKWALL-ALCO STORES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(7) INCOME TAXES
Total income tax expense (benefit) was allocated as follows for the periods
indicated below:
<TABLE>
<CAPTION>
TWENTY-SIX WEEK
PERIODS ENDED
FISCAL YEARS ENDED -------------------
-------------------------- JULY 30, JULY 28,
1994 1995 1996 1995 1996
---- ---- ---- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operations............................................................ $1,130 $2,531 $3,144 $ 986 $ 1,196
Additional paid-in capital for the tax benefit from utilization of net
operating loss carryforwards........................................ (1,657) (866) (831) (437) (626)
------ ------ ------ ------ -------
Total income tax expense (benefit).................................... $ (527) $1,665 $2,313 $ 549 $ 570
====== ====== ====== ====== =======
</TABLE>
Income tax expense (benefit) attributable to operations consists of the
following for the periods indicated below:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- -------
<S> <C> <C> <C>
Fiscal 1994:
Federal............................................... $ 1,385 $ (467) $ 918
State................................................. 300 (88) 212
------- ------ -------
$ 1,685 $ (555) $ 1,130
======= ====== =======
Fiscal 1995:
Federal............................................... $ 2,443 $ (323) $ 2,120
State................................................. 471 (60) 411
------- ------ -------
$ 2,914 $ (383) $ 2,531
======= ====== =======
Fiscal 1996:
Federal............................................... $ 2,417 $ 224 $ 2,641
State................................................. 460 43 503
------- ------ -------
$ 2,877 $ 267 $ 3,144
======= ====== =======
Twenty-six week periods ended:
July 30, 1995 (unaudited):
Federal........................................... $ 830 $ -- $ 830
State............................................. 156 -- 156
------- ------ -------
$ 986 $ -- $ 986
======= ====== =======
July 28, 1996 (unaudited):
Federal........................................... $ 965 $ 43 $ 1,008
State............................................. 180 8 188
------- ------ -------
$ 1,145 $ 51 $ 1,196
======= ====== =======
</TABLE>
F-13
<PAGE> 48
DUCKWALL-ALCO STORES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
The significant components of deferred income tax expense (benefit)
attributable to operations are as follows for the periods indicated below:
<TABLE>
<CAPTION>
TWENTY-SIX WEEK
PERIODS ENDED
FISCAL YEARS ENDED -------------------
-------------------------- JULY 30, JULY 28,
1994 1995 1996 1995 1996
---- ---- ---- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Deferred tax expense (exclusive of the effects of the
following item)..................................................... $ 1,244 $ 578 $1,098 $ 437 $ 677
Decrease in beginning of the year balance of the valuation allowance
for deferred tax assets............................................. (1,799) (961) (831) (437) (626)
------- ----- ------ ------ ------
$ (555) $(383) $ 267 $ -- $ 51
======= ===== ====== ====== ======
</TABLE>
Income tax expense attributable to operations was $1,130, $2,531, $3,144,
$986 (unaudited) and $1,196 (unaudited) for fiscal 1994, 1995 and 1996 and the
twenty-six week periods ended July 30, 1995 and July 28, 1996, respectively, and
differs from the amounts computed by applying the Federal income tax rate of 34%
as a result of the following:
<TABLE>
<CAPTION>
TWENTY-SIX WEEK
PERIODS ENDED
FISCAL YEARS ENDED -------------------
-------------------------- JULY 30, JULY 28,
1994 1995 1996 1995 1996
---- ---- ---- -------- --------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Computed ``expected'' tax expense..................................... $1,153 $2,265 $2,814 $ 882 $ 1,062
Reduction in income taxes resulting from:
Change in the beginning of the year valuation allowance for
deferred tax assets due to utilization of post-
reorganization job tax credit carryforwards..................... (142) (95) -- -- --
State income taxes, net of the Federal income
tax benefit..................................................... 141 271 332 104 124
Job tax credit.................................................... (29) (62) -- -- --
Other, net........................................................ 7 152 (2) -- 10
------ ------ ------ ------ -------
$1,130 $2,531 $3,144 $ 986 $ 1,196
====== ====== ====== ======= =======
</TABLE>
F-14
<PAGE> 49
DUCKWALL-ALCO STORES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities are presented below for the
dates indicated:
<TABLE>
<CAPTION>
JANUARY 29, JANUARY 28, JULY 28,
1995 1996 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Deferred tax assets:
Capital leases.......................................... $ 828 $ 857 $ 894
Other liabilities....................................... 383 302 307
Net operating loss and tax credit carryforwards......... 1,554 723 97
------- ------- ------
Total gross deferred tax assets..................... 2,765 1,882 1,298
Less - valuation allowance.......................... (1,554) (723) (97)
------- ------- ------
Net deferred tax assets............................. 1,211 1,159 1,201
------- ------- ------
Deferred tax liabilities:
Inventories, principally due to differences in the LIFO
reserve arising
from a prior business combination accounted for as a
purchase.............................................. 2,585 2,960 3,014
Property and equipment, due to differences in
depreciation and a prior business combination
accounted for as a purchase........................... 3,155 2,995 3,034
------- ------- ------
Total gross deferred tax liabilities................ 5,740 5,955 6,048
------- ------- ------
Net deferred tax liability.......................... $ 4,529 $ 4,796 $4,847
======= ======= ======
</TABLE>
At January 28, 1996 and July 28, 1996, the Company has a net operating loss
(NOL) carryforward for Federal income tax purposes of $1,754 and $-0-,
respectively, which is available to offset future Federal taxable income, if
any, through fiscal 2005. At January 28, 1996, the Company has NOL carryforwards
for state income tax purposes in various states of $3,050 which are available to
offset future state taxable income, if any, expiring at various dates through
fiscal 2005. The Company also has an alternative minimum tax credit
carryforwards of $19 which are available to reduce future Federal regular income
taxes, if any, over an indefinite period.
As a result of the reorganization which occurred in May 1991, the Company's
NOL carryforward, generated prior to the reorganization, has been subject to an
annual limitation of $2,285. Any unused portion of the annual NOL limitation can
be used without limitation in subsequent years. The valuation allowance at
January 28, 1996 relates to the NOL and tax credit carryforwards. Income tax
benefits from the utilization of NOL carryforwards increase additional paid-in
capital because such income tax benefits are attributable to the loss periods
prior to the reorganization. During fiscal 1994, the original estimate of the
amount of available NOL carryforwards generated prior to the reorganization and
annual limitation, was revised. As a result, the Company was able to utilize
more NOL carryforwards for fiscal 1993 which generated an additional tax benefit
of $790. This amount has been recorded in the accompanying fiscal 1994
consolidated financial statements as an increase in additional paid-in capital.
(8) STORE CLOSINGS
The Company closed four of its stores in fiscal 1994, two of its stores in
fiscal 1995 and three of its stores in fiscal 1996. Costs associated with the
closing of stores, consisting primarily of future lease payments and charges to
reduce assets to net realizable value are charged to expense upon the decision
to close a store. Included in fiscal 1994 store closing expense is a provision
for future lease payments of $505.
F-15
<PAGE> 50
DUCKWALL-ALCO STORES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(9) STOCK OPTION PLAN
During fiscal 1994, the Company adopted a stock option plan under which
options to purchase 125,000 shares of common stock may be granted to key
employees. The stock option plan was amended in June 1994 to increase the number
of options which may be granted under the plan to 200,000. The plan provides
that the option price shall not be less than the fair market value of the shares
on the date of grant and that unexercised options expire five years from that
date. The options become exercisable in equal amounts over a four-year period
beginning one year subsequent to the grant date. Information regarding options
which were outstanding at the dates indicated is presented below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES PRICE
--------- -----
<S> <C> <C>
Options outstanding, January 31, 1993......................... --
Issued........................................................ 31,250 $7.20
Canceled...................................................... --
-------
Options outstanding, January 30, 1994......................... 31,250 $7.20
Issued........................................................ 87,500 $9.20
Canceled...................................................... (1,750) $9.20
-------
Options outstanding, January 29, 1995......................... 117,000 $7.20 - $9.20
Issued........................................................ 44,525 $11.375
Canceled...................................................... (3,200) $9.20 - $11.375
-------
Options outstanding, January 28, 1996......................... 158,325 $7.20 - $11.375
Issued (unaudited)............................................ 37,150 $12.875
Canceled (unaudited).......................................... (2,650) $9.20 - $11.375
-------
Options outstanding at July 28, 1996.......................... 192,825 $7.20 - $12.875
=======
</TABLE>
Options exercisable at the end of fiscal 1994, 1995, 1996 and the twenty-six
week period ended July 28, 1996 amounted to -0-; 7,813; 36,375 and 64,063
(unaudited), respectively.
(10) STOCKHOLDERS' EQUITY
The Company completed a public offering of 1,500,000 shares of its common
stock on November 3, 1994 and the Company's underwriters exercised their option
to purchase an additional 150,000 common shares on December 2, 1994. The Company
received net proceeds from the sale of its common stock (after deducting
issuance costs) of $13,246. The holder of the redeemable common stock purchase
warrant (who had the right to put the warrant to the Company) exercised the
warrant to acquire 350,000 shares of the Company's common stock and participated
in the offering as a selling shareholder.
On June 9, 1994, in connection with the Company's public offering, the
Company (i) filed an amendment to its Amended and Restated Articles of
Incorporation increasing its authorized shares of common stock from 1,000,000 to
20,000,000 shares and (ii) effected a five-for-two stock split. The increase in
authorized shares has been reflected retroactively in the accompanying
consolidated financial statements and all applicable dollar, share and earnings
per share amounts have been restated to give retroactive effect to the stock
split.
F-16
<PAGE> 51
DUCKWALL-ALCO STORES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(11) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Financial results by quarter are as follows:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
1995:
Net sales..................................................................... $ 53,419 $ 58,702 $ 56,478 $ 73,545
Gross margin <Fa>............................................................. 17,048 18,892 18,465 24,559
Net earnings.................................................................. 416 617 220 2,877
Accretion in carrying value of of redeemable common stock purchase warrant.... 96 96 96 --
Net earnings applicable to common stock....................................... 320 521 124 2,877
Net earnings per share <Fb>................................................... .16 .26 .06 .74
1996:
Net sales..................................................................... $ 54,940 $ 62,592 $ 60,795 $ 78,127
Gross margin <Fa>............................................................. 18,182 20,211 19,680 25,085
Net earnings.................................................................. 604 1,005 592 2,929
Net earnings per share........................................................ .15 .25 .15 .73
1997:
Net sales..................................................................... $ 59,348 $ 68,426
Gross margin.................................................................. 19,642 22,320
Net earnings.................................................................. 703 1,224
Net earnings per share........................................................ .18 .30
<FN>
<Fa> The pretax LIFO inventory provision for the fiscal year ended January 29, 1995 was estimated to be
expense of $225, $75 and $150 in each of the first three quarters, respectively. The annual provision
was a $614 credit resulting in a credit of $1,064 in the fourth quarter.
The pretax LIFO inventory provision for the fiscal year ended January 28, 1996 was estimated to be
expense of $-0-, $125 and $125 in each of the first three quarters, respectively. The annual provision
was a $378 credit resulting in a credit of $628 in the fourth quarter.
<Fb> Earnings per share are computed independently for each of the quarters presented. Therefore, the sum of
the quarterly earnings per share in fiscal 1995 does not equal the total computed for the year due to
the public offering of common stock which occurred during the fourth quarter of fiscal 1995.
</TABLE>
(12) FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has determined the fair value of its financial instruments in
accordance with Statement of Financial Accounting Standards No. 107, Disclosures
About Fair Value of Financial Instruments. For long-term debt, the fair value is
estimated by discounting the future cash flows at rates currently available for
similar types of debt instruments. Such fair value approximated the carrying
value of long-term debt at January 28, 1996. For notes payable under revolving
loan credit facility, fair value approximates the carrying value due to the
variable interest rate.
For all other financial instruments including cash, receivables, accounts
payable, and accrued expenses, the carrying amounts approximate fair value due
to the short maturity of those instruments.
F-17
<PAGE> 52
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY THE SHARES BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING THE OFFER OR SOLICITATION IS
NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. UNDER NO CIRCUMSTANCES SHALL THE DELIVERY OF THIS
PROSPECTUS OR ANY SALE MADE PURSUANT TO THIS PROSPECTUS CREATE ANY IMPLICATION
THAT INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE OF THIS PROSPECTUS.
--------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary......................................... 3
Risk Factors............................................... 6
The Company................................................ 8
Use of Proceeds............................................ 8
Dividend Policy............................................ 8
Capitalization............................................. 9
Price Range of Common Stock................................ 9
Selected Consolidated Financial Data....................... 10
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................ 11
Business................................................... 16
Management................................................. 23
Certain Transactions....................................... 28
Principal and Selling Stockholders......................... 29
Description of Capital Stock............................... 31
Shares Eligible for Future Sale............................ 31
Underwriting............................................... 32
Legal Matters.............................................. 33
Experts.................................................... 33
Available Information...................................... 33
Index to Consolidated Financial Statements................. F-1
</TABLE>
1,400,000 SHARES
DUCKWALL-ALCO STORES, INC.
COMMON STOCK
------------------------
P R O S P E C T U S
------------------------
PIPER JAFFRAY INC.
THE ROBINSON-HUMPHREY COMPANY, INC.
STIFEL, NICOLAUS & COMPANY
INCORPORATED
, 1996
<PAGE> 53
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses with the sale and
distribution of the securities being registered hereby, other than underwriting
discounts and commissions. All amounts shown are estimates, except the SEC
registration fee, the NASD filing fee and the Nasdaq listing fee.
<TABLE>
<S> <C>
SEC registration fee.................................................. $ 7,357
NASD filing fee....................................................... 2,714
Nasdaq listing fee.................................................... 17,500
Printing and engraving................................................ 42,000
Legal fees and expenses............................................... 55,000
Accounting fees and expenses.......................................... 75,000
Blue Sky fees and expenses (including fees of counsel)................ 10,000
Transfer agent and registrar fees and expenses........................ 500
Miscellaneous......................................................... 64,929
---------
Total............................................................. $ 275,000
=========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 17-6305 of the Kansas general corporation code provides for
indemnification by a corporation of its offices and directors and certain other
persons as follows:
(a) A corporation shall have power to indemnify any person who was or is
a party, or is threatened to be made a party, to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, other than an action by or in the right of
the corporation, by reason of the fact that such person is or was a
director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses, judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in connection
with such action, suit or proceeding, including attorney fees, if such
person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the corporation; and with
respect to any criminal action or proceeding, had no reasonable cause to
believe such person's conduct was unlawful. The termination of any action,
suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which
such person reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that such person's conduct was
unlawful.
(b) A corporation shall have power to indemnify any person who was or is
a party, or is threatened to be made a party, to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that such person is or was a
director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses actually and reasonably incurred by such person
in connection with the defense or settlement of such action or suit,
including attorney fees, if such person acted in good faith and in a manner
such person reasonably believed to be in or not opposed to the best
interests of the corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable to the corporation unless and only to extent
that the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled
to indemnity for such expenses which the court shall deem proper.
II-1
<PAGE> 54
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b), or in
defense of any claim, issue or matter therein, such director, officer,
employee or agent shall be indemnified against expenses actually and
reasonably incurred by such person in connection therewith, including
attorney fees.
(d) Any indemnification under subsections (a) and (b), unless ordered by
a court, shall be made by the corporation only as authorized in the specific
case upon a determination that indemnification of the director, officer,
employee or agent is proper in the circumstances because such director,
officer, employee or agent has met the applicable standard of conduct set
forth in subsections (a) and (b). Such determination shall be made (1) by
the board of directors by a majority vote of a quorum consisting of
directors who were not parties to such action, suit or proceeding, or (2) if
such a quorum is not obtainable, or even if obtainable, a quorum of
disinterested directors so directs, by independent legal counsel in a
written opinion, or (3) by the stockholders.
(e) Expenses incurred by director or officer in defending any civil or
criminal action, suit or proceeding may be paid by the corporation in
advance of the final disposition of such action, suit or proceeding upon
receipt of an undertaking by or on behalf of the director or officer to
repay such amount if it is ultimately determined that the officer or
director is not entitled to be indemnified by the corporation as authorized
in this section. Such expenses incurred by other employees and agents may be
so paid upon such terms and conditions, if any, as the board of directors
deem appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this section shall not be
deemed exclusive of any other rights to which those seeking indemnification
or advancement of expense may be entitled under any bylaw, agreement, vote
of stockholders or disinterested directors or otherwise, both as to action
in a person's official capacity and as to action in another capacity while
holding such office.
(g) A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted
against such person and incurred by such person in any such capacity, or
arising out of such person's status as such, whether or not the corporation
would have the power to indemnify such person against such liability under
this section.
(h) For purposes of this section, references to ``the corporation''
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors, officers and
employees or agents, so that any person who is or was a director, officer,
employee or agent of such constituent corporation, or is or was serving at
the request of such constituent corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, shall stand in the same position under this section with respect
to the resulting or surviving corporation as such person would have with
respect to such constituent corporation if its separate existence had
continued.
(i) For purposes of this section, references to ``other enterprises''
shall include employee benefit plans; references to ``fines'' shall include
any excise taxes assessed on a person with respect to any employee benefit
plan; and references to ``serving at the request of the corporation'' shall
include any service as a director, officer, employee or agent of the
corporation which imposes duties on, or involves services by, such director,
officer, employee, or agent with respect to an employee benefit plan, its
participants or beneficiaries; and a person who acted in good faith and in a
manner such person reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan shall be deemed
to have acted in a manner ``not opposed to the best interests of the
corporation'' as referred to in this section.
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
II-2
<PAGE> 55
Section 17-6002(b)(8) of the Kansas general corporation code provides that a
corporation's certificate of incorporation may contain:
(8) A provision eliminating or limiting the personal liability of a
director to the corporation or its stockholders, policyholders or members
for monetary damages for breach of fiduciary duty as a director, provided
that such provision shall not eliminate or limits the liability of a
director (A) for any breach of the director's duty of loyalty to the
corporation or its stockholders, policyholders or members, (B) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (C) under the provisions of K.S.A. 17-6424
[relating to unlawful dividend payments or stock redemptions or repurchases]
and amendments thereto or (D) for any transaction from which the director
derived an improper personal benefit. No such provision shall eliminate or
limit the liability of a director for any act or omission occurring prior to
the date when such provision becomes effective. All references in this
subsection to a director shall also be deemed to refer to a member of the
governing body of a corporation which is not authorized to issue capital
stock.
Article NINTH of the Company's Amended and Restated Articles of
Incorporation provides:
The corporation may agree to the terms and conditions upon which any
director, officer, employee or agent accepts his office or position and in
its bylaws, by contract or in any other manner may agree to indemnify and
protect any director, officer, employee or agent of the corporation, or any
person who serves at the request of the corporation as a director, officer
employee or agent of another corporation, partnership, joint venture, trust
or other enterprise, to the fullest extent permitted by the laws of the
State of Kansas; provided, however, that the only limitation upon the power
granted to the corporation by this paragraph shall be a prohibition against
indemnification of any person from or on account of such person's conduct
which was finally adjudged to have been knowingly fraudulent, deliberately
dishonest or willful misconduct.
Without limiting the generality of the foregoing provisions of this
paragraph EIGHTH [sic], to the fullest extent permitted or authorized by the
laws of the State of Kansas, including, without limitation, the provisions
of subsection (b)(8) of K.S.A. 17-6002 as now in effect and as it may from
time to time hereafter be amended, no director of the corporation shall be
personally liable to the corporation or to its stockholders for monetary
damages for breach of fiduciary duty as a director.
Bylaw 24 of the Company's Bylaws provides:
Each person who is or was a director or officer of the corporation or is
or was serving at the request of the corporation as a director or officer of
another corporation (including the heirs, executors, administrators and
estate of such person) shall be indemnified by the corporation as of right
to the full extent permitted or authorized by the laws of the State of
Kansas, as now in effect and as hereafter amended, against any expenses,
judgments, fines and amounts paid in settlement (including attorneys' fees)
actually and reasonably incurred by such person in his capacity as or
arising out of his status as a director or officer of the corporation or, if
serving at the request of the corporation, as a director or officer of
another corporation. The indemnification provided by this bylaw provision
shall not be exclusive of any other rights to which those indemnified may be
entitled under the articles of incorporation, under any other bylaw or under
any agreement, vote of stockholders or disinterested directors or otherwise,
and shall not limit in any way any right which the corporation may have to
make different or further indemnifications with respect to the same or
different persons or classes of persons.
No person shall be liable to the corporation for any loss, damage,
liability or expense suffered by it on account of any action taken or
omitted to be taken by him as a director or officer of the corporation or of
any other corporation which he serves as a director or officer at the
request of the corporation, if such person (i) exercised the same degree of
care and skill as a prudent man would have exercised under the circumstances
in the conduct of his own affairs, or (ii) took or omitted to take such
action in reliance upon advice of counsel for the corporation, or for such
other corporation, or upon statement made or information furnished by
directors, officers, employees or agents of the corporation, or of such
other corporation, which he had no reasonable grounds to disbelieve.
Section 7 of the Underwriting Agreement (the proposed form of which is set
forth in Exhibit 1.1) provides for indemnification of the Registrant and its
directors and officers in certain circumstances.
II-3
<PAGE> 56
For information regarding the Registrant's undertaking to submit to
adjudication the issue of indemnification for violation of securities laws, see
``Undertakings,'' Item 17 hereof.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Not applicable.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
1 Form of Underwriting Agreement
3.1 Amended and Restated Articles of Incorporation (filed as Exhibit 3(a) to Registrant's Registration Statement
on Form 10 and hereby incorporated herein by reference)
3.2 Bylaws (filed as Exhibit 3(b) to Registrant's Registration Statement on Form 10 and hereby incorporated
herein by reference)
4.1 Specimen Common Stock Certificate (filed as Exhibit 4.1 to Registrant's Registration Statement on Form S-1
(File No. 33-78664) and hereby incorporated herein by reference)
4.2 Form of Stockholder Lock-Up Agreement
4.3 Second Amended and Restated Loan Agreement, dated as of October 18, 1995, by and among the Registrant,
BankAmerica Business Credit, Inc. and Transamerica Business Credit Corporation (filed as Exhibit 10(0) to
registrant's Annual Report on Form 10-K for the fiscal year ended January 28, 1995 and hereby incorporated
herein by reference)
5 Opinion of Stinson, Mag & Fizzell, P.C., counsel to the Company as to the validity of the Common Stock
10.1 Lease dated July 1, 1979 between the Registrant and the City of Abilene (filed as Exhibit 10(d) to
Registrant's Registration Statement on Form 10 and hereby incorporated herein by reference)
10.2 Lease dated July 1, 1979 between the Registrant and the City of Abilene (filed as Exhibit 10(e) to
Registrant's Registration Statement on Form 10 and hereby incorporated herein by reference)
10.3 Lease dated July 1, 1979 between the Registrant and the City of Abilene (filed as Exhibit 10(f) to
Registrant's Registration Statement on Form 10 and hereby incorporated herein by reference)
10.4 Employment Agreement, dated March 18, 1993 between the Registrant and Glen L. Shank (filed as Exhibit 10(p)
to registrant's Annual Report on Form 10-K for the fiscal year ended January 31, 1993 and hereby incorporated
herein by reference)
10.5 Second Amended and Restated Loan Agreement, dated as of October 18, 1995, by and among the Registrant,
BankAmerica Business Credit, Inc. and Transamerica Business Credit Corporation (filed as Exhibit 10(0) to
registrant's Annual Report on Form 10-K for the fiscal year ended January 28, 1995 and hereby incorporated
herein by reference)
10.6 Amended and Restated Security Agreement, dated as of October 18, 1995, by and between the Registrant and
BankAmerica Business Credit, Inc.<F*>
10.7 Amendment No. 1, dated as of September 16, 1996, to the Second Amended and Restated Loan Agreement, dated
as of October 18, 1995, by and among the registrant, BankAmerica Business Credit, Inc. and Transamerica
Business Credit Corporation.
11 Computation of Registrant's Earnings Per Share<F*>
21 Subsidiaries of the Registrant<F*>
23.1 Consent of KPMG Peat Marwick LLP<F*>
23.2 Consent of Stinson, Mag & Fizzell, P.C. is included in Exhibit 5
24 Powers of Attorney<F*>
<FN>
- --------
<F*>Previously Filed
</TABLE>
II-4
<PAGE> 57
(B) FINANCIAL STATEMENT SCHEDULES
Not applicable.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefor, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes that:
(1) For the purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as a
part of this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 58
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Abilene, State of Kansas, on the 9th day of October, 1996.
DUCKWALL-ALCO STORES, INC.
By: /s/ GLEN L. SHANK
----------------------------------
Glen L. Shank, President and
Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 1 to Registration Statement has been signed on the 9th day
of October, 1996 by the following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ GLEN L. SHANK President, Chairman of the Board and Director
-------------------------------------------------- (Principal Executive Officer)
Glen L. Shank
<F*> Vice President--Finance and Treasurer
-------------------------------------------------- (Principal Financial and Accounting Officer)
Bryan M. DeCordova
<F*> Director
--------------------------------------------------
Dennis A. Mullin
<F*> Director
--------------------------------------------------
Robert L. Barcum
<F*> Director
--------------------------------------------------
William J. Morgan
<F*> Director
--------------------------------------------------
Robert C. Amenta
</TABLE>
<F*>By: /s/ Glen L. Shank
--------------------------------------------------
Glen L. Shank
Attorney-In-Fact
II-6
<PAGE> 59
<TABLE>
INDEX TO EXHIBITS
<CAPTION>
Exhibit
No. Document Description Page
- ------- ------------------------------------------------------------------------- ----
<C> <S> <C>
1 Form of Underwriting Agreement
4.2 Form of Stockholder Lock-Up Agreement
5 Opinion of Stinson, Mag & Fizzell, P.C., counsel to the Company as to the
validity of the Common Stock
10.7 Amendment No. 1, dated as of September 16, 1996, to the Second
Amended and Restated Loan Agreement, dated as of October 18, 1995, by
and among the Registrant, BankAmerica Business Credit, Inc. and
TransAmerica Business Credit Corporation
</TABLE>
<PAGE> 1
1,400,000 Shares<F1>
DUCKWALL-ALCO STORES, INC.
Common Stock
$.0001 Par Value
PURCHASE AGREEMENT
------------------
October --, 1996
PIPER JAFFRAY INC.
THE ROBINSON-HUMPHREY COMPANY, INC.
STIFEL, NICOLAUS & COMPANY, INCORPORATED
c/o Piper Jaffray Inc.
Piper Jaffray Tower
222 South Ninth Street
Minneapolis, Minnesota 55402
Ladies/Gentlemen:
Duckwall-ALCO Stores, Inc., a Kansas corporation (the
"Company") proposes to issue and sell to you, as underwriters (the
"Underwriters"), 1,000,000 shares of the Company's Common Stock,
par value $.0001 per share (the "Common Stock"), and the
stockholders of the Company listed on Schedule II hereto (the
"Selling Stockholders") severally propose to sell to the
Underwriters the respective number of shares of Common Stock set
forth on Schedule II, which represents a total of 400,000 shares of
Common Stock (the "Offering"), pursuant to the terms of this
Agreement. The 1,400,000 shares of Common Stock to be sold by the
Company and the Selling Stockholders are herein called the "Firm
Shares." Solely for the purpose of covering over-allotments in the
sale of the Firm Shares, the Company has also granted to the
several Underwriters an option to purchase up to an additional
210,000 shares of Common Stock (the "Option Shares"). The Firm
Shares and any Option Shares purchased pursuant to this Purchase
Agreement are herein collectively referred to as the "Securities."
The Company and the Selling Stockholders hereby confirm
their agreement with respect to the sale of the Securities to the
Underwriters.
- -----------------------------------
<F1> Plus an option to purchase up to 210,000 additional shares
to cover over-allotments.
<PAGE> 2
1. REGISTRATION STATEMENT. The Company hereby confirms
----------------------
that a registration statement on Form S-1 (File No. 333-12081) with
respect to the Securities, including a preliminary form of
prospectus, has been prepared by the Company in conformity with the
requirements of the Securities Act of 1933, as amended (the "1933
Act"), and the rules and regulations ("1933 Act Regulations") of
the Securities and Exchange Commission (the "Commission")
thereunder and has been filed with the Commission; one or more
amendments to such registration statement have also been so
prepared and have been, or will be, so filed. Copies of such
registration statement and amendments thereto and the exhibits,
financial statements and schedules to such registration statement
and each related preliminary prospectus have been delivered to you
by the Company.
After the execution of this Agreement, the Company will
file with the Commission (A) if such registration statement, as it
may have been amended, has been declared by the Commission to be
effective under the 1933 Act, a prospectus in the form most
recently included in an amendment to such registration statement
(or, if no such amendment shall have been filed, in such
registration statement), with such changes or insertions as are
required by Rule 430A of the 1933 Act Regulations ("Rule 430A") or
permitted by Rule 424(b) of the 1933 Act Regulations ("Rule
424(b)") and as have been provided to and not objected to by the
Underwriters prior to (or as are agreed to by the Underwriters
subsequent to) the execution of this Agreement, or (B) if such
registration statement, as it may have been amended, has not been
declared by the Commission to be effective under the 1933 Act, an
amendment to such registration statement, including a form of final
prospectus, necessary to permit such registration statement to
become effective, a copy of which amendment has been furnished to
and not objected to by the Underwriters prior to (or is agreed to
by the Underwriters subsequent to) the execution of this Agreement.
The Company will not file any amendment to the registration
statement or any amended Preliminary Prospectus (as defined below)
or any amendment thereto, of which you have not been previously
furnished a copy or to which you or counsel for the Underwriters
shall reasonably object. As used in this Agreement, the term
"Registration Statement" means such registration statement, as
amended at the time when it was or is declared effective under the
1933 Act, including (1) all financial schedules and exhibits
thereto and (2) any information omitted therefrom pursuant to Rule
430A and included in the Prospectus (as defined below); the term
"Preliminary Prospectus" means any preliminary prospectus included
in the Registration Statement prior to the time it becomes or
became effective under the 1933 Act and any prospectus subject to
completion as described in Rule 430A filed with such Registration
Statement; and the term "Prospectus" means the prospectus first
filed with the Commission pursuant to Rule 424(b)(1) or (4) or, if
no prospectus is required to be filed pursuant to Rule 424(b)(1) or
(4), the prospectus included in the Registration Statement. Under
this Section 1, if the Prospectus is not yet in existence,
references to "Prospectus" shall mean the most recent Preliminary
Prospectus. The date on which the Registration Statement becomes
effective is hereinafter referred to as the "Effective Date."
2
<PAGE> 3
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
-----------------------------------------------------
SELLING STOCKHOLDERS.
- --------------------
(a) The Company represents and warrants to, and agrees
with, each of the Underwriters, as of the date hereof, the Closing
Date and, if applicable, the Option Closing Date that:
(i) No order preventing or suspending the use of
any Preliminary Prospectus or the Prospectus has been issued
by the Commission, nor has the Commission, to the knowledge of
the Company, threatened to issue such an order or instituted
proceedings for that purpose. Each Preliminary Prospectus, at
the time of filing thereof, (A) contained all statements
required to be stated therein in accordance with the 1933 Act
and the 1933 Act Regulations, (B) complied in all material
respects with the requirements of the 1933 Act and the 1933
Act Regulations and (C) did not contain an untrue statement of
a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not
misleading; provided, however, that this representation
-----------------
and warranty does not apply to information, statements or
omissions made in reliance upon and in conformity with
information furnished in writing to the Company by any of you
expressly for inclusion in the Prospectus beneath the heading
"Underwriting" (such information referred to herein as the
"Underwriters' Information") or by any Selling Stockholder
expressly for inclusion in the Prospectus (such information
referred to herein as the "Selling Stockholders'
Information").
(ii) At the Effective Date and at all times
subsequent thereto, up to and including the Closing Date and,
if applicable, the Option Closing Date, the Registration
Statement and any post-effective amendment thereto
(A) contained and will contain all statements which are
required to be stated therein in accordance with the 1933 Act
and the 1933 Act Regulations, (B) complied and will comply in
all material respects with the requirements of the 1933 Act
and the 1933 Act Regulations and (C) did not and will not
contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or
necessary to make the statements therein not misleading. At
the Effective Date and at all times when the Prospectus is
required to be delivered in connection with offers and sales
of Securities, including, without limitation, the Closing Date
(and, if applicable, the Option Closing Date), the Prospectus,
as amended or supplemented, (A) contained and will contain all
statements which are required to be stated therein in
accordance with the 1933 Act and the 1933 Act Regulations,
(B) complied and will comply in all material respects with the
requirements of the 1933 Act and the 1933 Act Regulations and
(C) did not contain and will not contain an untrue statement
of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were
made, not misleading; provided, however, that this
-----------------
representation and warranty does not apply to Underwriters'
Information or the Selling Stockholders' Information.
3
<PAGE> 4
(iii) The Company is duly organized, validly existing
and in good standing under the laws of the State of Kansas,
with full corporate and other power and authority to own,
lease and operate its properties and conduct its business as
described in the Registration Statement and the Prospectus and
as currently being conducted.
(iv) Each of the Company and the Subsidiary, as
defined below, is duly qualified to transact business as a
foreign corporation and is in good standing in each other
jurisdiction in which it owns or leases property or conducts
its business so as to require such qualification. All of the
issued and outstanding shares of capital stock of the
Subsidiary (A) are duly authorized and validly issued, fully
paid and nonassessable, (B) have been issued in compliance
with all applicable federal and state securities laws and
(C) except as disclosed in the Prospectus, are directly owned
by the Company free and clear of any security interest,
mortgage, pledge, lien, encumbrance, restriction upon voting
or transfer, preemptive rights, claim or equity. Except as
disclosed in the Prospectus, there are no outstanding rights,
warrants or options to acquire or instruments convertible into
or exchangeable for any capital stock of the Subsidiary.
(v) The Company's only subsidiary is SPD Truck
Line, Inc., a Kansas corporation (the "Subsidiary"). The
Company does not own or control, directly or indirectly, more
than 5% of any class of equity security of any corporation,
association or other entity other than the Subsidiary. The
Subsidiary is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of
Kansas. The Subsidiary has full corporate and other power and
authority to own, lease and operate its properties and to
conduct its business as described in and contemplated by the
Registration Statement and the Prospectus and as currently
being conducted.
(vi) The capital stock of the Company conforms to
the description thereof contained in the Prospectus. The
outstanding shares of capital stock of the Company, including
the outstanding Common Stock, (A) are duly authorized, validly
issued, fully paid and nonassessable, (B) have been issued in
compliance with all applicable federal and state securities
laws, and (C) were not issued in violation of preemptive or
similar rights of any security holder of the Company. No
person has any preemptive or similar right to purchase any
shares of capital stock of the Company. Except as disclosed
in the Prospectus, there are no outstanding rights, options or
warrants to acquire any securities of the Company, and there
are no outstanding securities convertible into or exchangeable
for any such securities, and no restrictions upon the voting
or transfer of any capital stock of the Company pursuant to
the Company's corporate charter or by-laws or any agreement or
other instrument to which the Company is a party or by which
it is bound.
(vii) The Company has all requisite power and
authority to issue, sell and deliver the Firm Shares and
Option Shares it has agreed to sell hereunder in accordance
with and upon the terms and conditions set forth in this
Agreement and in the Registration Statement and the
Prospectus. All corporate action required to be taken by the
Company for the authorization, issuance, sale and delivery of
such Firm Shares and
4
<PAGE> 5
Option Shares has been validly and sufficiently taken. Such Firm Shares
and Option Shares, when delivered and paid for in accordance with this
Agreement, will be duly and validly issued and outstanding, fully paid
and nonassessable and will not be issued in violation of or
subject to any preemptive or similar rights. None of such
Firm Shares and Option Shares, immediately prior to delivery,
will be subject to any security interest, lien, mortgage,
pledge, encumbrance, restriction upon voting or transfer,
preemptive rights, claim, equity, legend or other defect.
(viii) The Company and the Subsidiary have complied in
all material respects with all federal, state and local
statutes, regulations, ordinances and rules applicable to the
ownership and operation of their properties or the conduct of
their businesses as described in and contemplated by the
Registration Statement and the Prospectus and as currently
being conducted.
(ix) The Company and the Subsidiary have all such
permits, easements, consents, licenses, franchises and other
governmental and regulatory authorizations from all
appropriate federal, state, local or other public authorities
("Permits") as are necessary to own and lease their properties
and conduct their businesses in all material respects in the
manner described in the Registration Statement and the
Prospectus and as currently being conducted. All such Permits
are in full force and effect and each of the Company and the
Subsidiary has fulfilled and performed all of its respective
material obligations with respect to such Permits, and no
event has occurred that allows, or after notice or lapse of
time would allow, revocation or termination thereof or will
result in any other material impairment of the rights of the
holder of any such Permit, subject in each case to such
qualification as may be disclosed in the Prospectus. Such
Permits contain no restrictions that would materially impair
the ability of the Company or the Subsidiary to conduct their
businesses in the manner consistent with their past practices.
Neither the Company nor the Subsidiary has received notice or
otherwise has knowledge of any proceeding or action relating
to the revocation or modification of any such Permit.
(x) Neither the Company nor the Subsidiary is in
breach or violation of its corporate charter, by-laws or other
governing documents. Neither the Company nor the Subsidiary
is, and to the knowledge of the Company no other party is, in
violation, breach or default (with or without notice or lapse
of time or both) in the performance or observance of any
material (individually or in the aggregate) term, covenant,
agreement, obligation, representation, warranty or condition
contained in (A) any contract, indenture, mortgage, deed of
trust, loan or credit agreement, note, lease, franchise,
license, Permit or any other agreement or instrument to which
it is a party or by which it or any of its properties is
bound, and to its knowledge, no other party has asserted that
the Company or the Subsidiary is in such violation, breach or
default, or (B) except as disclosed in the Prospectus, any
order, decree, judgment, rule or regulation of any court,
arbitrator, government, or governmental agency or
instrumentality, domestic or foreign, having jurisdiction over
the Company or the Subsidiary or any of their respective
properties.
5
<PAGE> 6
(xi) The execution, delivery and performance of this
Agreement and the consummation of the transactions
contemplated herein, in the Registration Statement and in the
Prospectus do not and will not conflict with, result in the
creation or imposition of any material lien, claim, charge,
encumbrance or restriction upon any property or assets of the
Company or the Subsidiary or the Securities pursuant to,
constitute a material breach or violation of, or constitute a
material default under, with or without notice or lapse of
time or both, any of the terms, provisions or conditions of
the charter or by-laws of the Company or the Subsidiary, any
contract, indenture, mortgage, deed of trust, loan or credit
agreement, note, lease, franchise, license, Permit or any
other agreement or instrument to which the Company or the
Subsidiary is a party or by which either of them or any of
their respective properties is bound or any order, decree,
judgment, rule or regulation of any court, arbitrator,
government, or governmental agency or instrumentality,
domestic or foreign, having jurisdiction over the Company or
the Subsidiary or any of their respective properties. No
authorization, approval, consent or order of, or filing,
registration or qualification with, any person (including,
without limitation, any court, governmental body or authority)
is required in connection with the transactions contemplated
by this Agreement, the Registration Statement and the
Prospectus, except such as required by the National
Association of Securities Dealers, Inc. ("NASD"), or under the
1933 Act and 1933 Act Regulations, and such as may be required
under state securities laws in connection with the purchase
and distribution of the Securities by the Underwriters.
(xii) The Company has all requisite corporate power
and authority to enter into this Agreement and this Agreement
has been duly and validly authorized, executed and delivered
by the Company and constitutes the legal, valid and binding
agreement of the Company, enforceable in accordance with its
terms (except to the extent the enforceability of the
indemnification, exculpation and contribution provisions of
Section 6 hereof may be limited by applicable law and except
as enforceability of this Agreement may be limited by
bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other laws affecting creditors' rights
generally and by general principles of equity, regardless of
whether such enforceability is considered in a proceeding in
equity or at law).
(xiii) Each of the Solicitation Documents, as defined
herein, (A) has been received by Boatmen's Trust Company (the
"Custodian") and (B) has been fully executed and completed by
all the Selling Stockholders. For purposes of this Agreement,
"Solicitation Documents" with respect to any Selling
Stockholder shall mean the following documents which are
necessary to properly sell and deliver the Selling
Stockholders' Securities in accordance with and upon the terms
and conditions set forth in this Agreement and the
Registration Statement and the Prospectus: the Lock-Up
Agreement, the Custody Agreement and Power of Attorney and any
extensions or amendments thereof.
(xiv) The Company and the Subsidiary have good and
marketable title in fee simple to all real property and good
title to all material personal property owned
6
<PAGE> 7
by them, in each case free and clear of all security interests,
liens, mortgages, pledges, encumbrances, restrictions, claims,
equities and other defects except such as are referred to in the
Prospectus or such as do not materially affect the value of such
property and do not interfere with the use made or proposed to be
made of such property; and all the leases under which the Company
or the Subsidiary holds real or material personal property are
valid, existing and enforceable leases and in full force and
effect with such exceptions as are not material and do not
interfere with the use made and proposed to be made of such real
or personal property, and neither the Company nor the Subsidiary
is in default in any material respect of any of the terms or
provisions of any leases.
(xv) KPMG Peat Marwick LLP, who have certified the
consolidated financial statements of the Company and the
Subsidiary, including the notes thereto, included in the
Registration Statement and Prospectus, are independent public
accountants with respect to the Company and the Subsidiary, as
required by the 1933 Act and the 1933 Act Regulations.
(xvi) The consolidated financial statements,
including the notes thereto, included in the Registration
Statement and the Prospectus with respect to the Company and
the Subsidiary comply in all material respects with the 1933
Act and the 1933 Act Regulations and present fairly the
consolidated financial position of the Company and the
Subsidiary as of the dates indicated and the consolidated
results of operations, cash flows and stockholders' equity of
the Company and the Subsidiary for the periods specified and
have been prepared in conformity with generally accepted
accounting principles applied on a consistent basis. The
selected and summary consolidated financial data concerning
the Company and the Subsidiary included in the Registration
Statement and the Prospectus comply in all material respects
with the 1933 Act and the 1933 Act Regulations, present fairly
the information set forth therein, and have been compiled on
a basis consistent with that of the consolidated financial
statements of the Company and the Subsidiary in the
Registration Statement and the Prospectus. No other financial
statements or schedules are required to be included in the
Registration Statement or Prospectus. The other financial,
statistical and numerical information included in the
Registration Statement and the Prospectus comply in all
material respects with the 1933 Act and the 1933 Act
Regulations, present fairly the information shown therein, and
to the extent applicable have been compiled on a basis
consistent with the consolidated financial statements of the
Company and the Subsidiary included in the Registration
Statement and the Prospectus.
(xvii) The Company maintains a system of internal
accounting controls sufficient to provide reasonable
assurances that (1) transactions are executed in accordance
with management's general or specific authorization;
(2) transactions are recorded as necessary to permit
preparation of financial statements in conformity with
generally accepted accounting principles and to maintain
accountability for assets; (3) access to assets is permitted
only in accordance with management's general or specific
authorization; and (4) the recorded accountability for assets
is compared with
7
<PAGE> 8
existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
(xviii) Since the respective dates as of which
information is given in the Registration Statement and the
Prospectus, except as otherwise stated therein:
(A) neither the Company nor the Subsidiary has
sustained any material (individually or in the aggregate)
loss or interference with its business from fire,
explosion, flood or other calamity, whether or not
covered by insurance, or from any labor dispute or court
or governmental action, order or decree which is material
to the condition (financial or otherwise), earnings,
business or results of operations of the Company and the
Subsidiary on a consolidated basis;
(B) there has not been any material adverse change
in, or any development which is reasonably likely to have
a material adverse effect on, the condition (financial or
otherwise), earnings, business or results of operations
of the Company and the Subsidiary on a consolidated
basis, whether or not arising in the ordinary course of
business;
(C) neither the Company nor the Subsidiary has
incurred any liabilities or obligations, direct or
contingent, or entered into any material transactions,
other than in the ordinary course of business, which is
material to the condition (financial or otherwise),
earnings, business or results of operations of the
Company and the Subsidiary on a consolidated basis;
(D) the Company has not declared or paid any
dividend, and neither the Company nor the Subsidiary has
become delinquent in the payment of principal or interest
on any outstanding borrowings; and
(E) there has not been any change in the capital
stock, long-term debt, obligations under capital leases
or, other than in the ordinary course of business, short-
term borrowings of the Company or the Subsidiary.
(xix) Except as set forth in the Registration
Statement and the Prospectus, no charge, investigation,
action, suit or proceeding is pending or, to the knowledge of
the Company, threatened, against or affecting the Company or
the Subsidiary or any of their respective properties before or
by any court or any regulatory, administrative or governmental
official, commission, board, agency or other authority or
body, or any arbitrator, wherein an unfavorable decision,
ruling or finding could have a material adverse effect on the
consummation of this Agreement or the transactions
contemplated herein or the condition (financial or otherwise),
earnings, affairs, business or results of operations of the
Company and the Subsidiary on a consolidated basis or which is
required to be disclosed in the Registration Statement or the
Prospectus and is not so disclosed.
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<PAGE> 9
(xx) There are no contracts or other documents
required to be filed as exhibits to the Registration Statement
by the 1933 Act or the 1933 Act Regulations which have not
been filed as exhibits to the Registration Statement, or that
are required to be summarized in the Prospectus that are not
so summarized.
(xxi) The Company has not taken, directly or
indirectly, any action designed to result in or which has
constituted or which might reasonably be expected to cause or
result in stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of
the Securities, and the Company is not aware of any such
action taken or to be taken by any affiliate of the Company;
the Company has not effected any sales of Common Stock which
are required to be disclosed in response to Item 701 of
Regulation S-K under the 1933 Act which have not been so
disclosed in the Registration Statement.
(xxii) The Company and the Subsidiary own, or possess
adequate rights to use, material patents, copyrights,
trademarks, service marks, trade names, licenses, inventions
and other material rights necessary to conduct the businesses
now conducted by them or as described in the Prospectus and
neither the Company nor the Subsidiary has received any notice
of infringement or conflict with asserted rights of others
with respect to any material patents, copyrights, trademarks,
service marks, trade names, licenses, inventions or other
material rights which, individually or in the aggregate, if
the subject of an unfavorable decision, ruling or finding,
would have a material adverse effect on the condition
(financial or otherwise), earnings, affairs, business or
results of operations of the Company and the Subsidiary on a
consolidated basis, and the Company does not know of any basis
for any such infringement or conflict; provided, however, the
Company owns or possesses the rights necessary to use the
trade names "Duckwall" and "ALCO" in conducting the businesses
now being conducted by it.
(xxiii) Except as disclosed in the Prospectus, no labor
dispute involving the Company or the Subsidiary exists or, to
the knowledge of the Company, is threatened which might be
expected to have a material adverse effect on the condition
(financial or otherwise), earnings, affairs, business or
results of operations of the Company and the Subsidiary on a
consolidated basis or which is required to be disclosed in the
Prospectus. Neither the Company nor the Subsidiary has
received written notice of any existing or threatened labor
dispute by the employees of any of its principal suppliers,
customers or contractors which might be expected to have a
material adverse effect on the condition (financial or
otherwise), earnings, affairs, business or results of
operations of the Company and the Subsidiary on a consolidated
basis.
(xxiv) The Company and the Subsidiary have timely and
properly prepared and filed all necessary federal, state,
local and foreign tax returns which are required to be filed
and have paid all taxes shown as due thereon and have paid all
other taxes and assessments to the extent that the same shall
have become due, except such as are being contested in good
faith or where the failure to so timely and properly prepare
and file would not have a material adverse effect on the
condition (financial or
9
<PAGE> 10
otherwise), earnings, affairs, business or results of operations of the
Company and the Subsidiary on a consolidated basis. The Company has no
knowledge of any tax deficiency which has been or might be assessed
against the Company or the Subsidiary which, if the subject of an
unfavorable decision, ruling or finding, would have a material adverse
effect on the condition (financial or otherwise), earnings, affairs,
business or results of operations of the Company and the Subsidiary on a
consolidated basis.
(xxv) Each of the material contracts, agreements and
instruments described or referred to in the Registration
Statement or the Prospectus and each contract, agreement and
instrument filed as an exhibit to the Registration Statement
is in full force and effect and is the legal, valid and
binding agreement of the Company or the Subsidiary,
enforceable in accordance with its terms, except as the
enforcement thereof may be limited by general principles of
equity and by bankruptcy or other laws relating to or
affecting creditors' rights generally. Except as disclosed in
the Prospectus, to the knowledge of the Company, no other
party to any such agreement is (with or without notice or
lapse of time or both) in breach or default in any material
respect thereunder.
(xxvi) No relationship, direct or indirect, exists
between or among the Company or the Subsidiary, on the one
hand, and the directors, officers, stockholders, customers or
suppliers of the Company or the Subsidiary, on the other hand,
which is required to be described in the Registration
Statement and the Prospectus which is not described therein.
(xxvii) No person has the right to request or require
the Company or the Subsidiary to register any securities for
offering and sale under the 1933 Act by reason of the filing
of the Registration Statement with the Commission or the
issuance and sale of the Securities except as disclosed in the
Registration Statement and the Prospectus.
(xxviii) The Common Stock is registered pursuant to
Section 12(g) of the Securities Exchange Act of 1934, as
amended (the "1934 Act") and is approved for quotation on the
Nasdaq National Market System ("NNM") under the symbol "DUCK".
The Company has taken no action that was designed to
terminate, or that is likely to have the effect of
terminating, quotation of its Common Stock on the NNM, nor has
the Company received any notification that the Commission or
the NNM is contemplating the termination of such quotation.
The Company has filed an appropriate additional listing
application for the listing of the Securities on the NNM.
(xxix) Other than as contemplated by this Agreement,
the Company has not incurred any liability for any finder's or
broker's fee or agent's commission in connection with the
execution and delivery of this Agreement or the consummation
of the transactions contemplated hereby.
(xxx) The Company is not an "investment company"
within the meaning of the Investment Company Act of 1940, as
amended.
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<PAGE> 11
(xxxi) Neither the Company nor any of its affiliates
is presently doing business with the government of Cuba or
with any person or affiliate located in Cuba.
(xxxii) The Company has not distributed and will not
distribute prior to the Closing Date any offering material in
connection with the Offering, other than a Preliminary
Prospectus, the Prospectus, the Registration Statement and the
other materials permitted by the 1933 Act and the 1933 Act
Regulations and reviewed by the Underwriters.
(b) Each Selling Stockholder represents and warrants to,
and agrees with, each of the Underwriters and the Company that:
(i) Such Selling Stockholder has caused to be
executed and delivered on such Selling Stockholder's behalf
(with such extensions or amendments as may be necessary to
properly effect the transactions contemplated in this Purchase
Agreement) (A) a Custody Agreement appointing Boatmen's Trust
Company as such Selling Stockholder's Custodian with authority
to deliver on behalf of such Selling Stockholder certificates
representing the Securities to be sold by the Selling
Stockholder pursuant to this Agreement, and (B) a Power of
Attorney (the "Power of Attorney") appointing Glen L. Shank,
William J. Morgan, and Dennis A. Mullin, and each of them,
as attorney-in-fact ("Attorney-in-Fact") with full power and
authority to execute and deliver this Agreement on behalf of
such Selling Stockholder, to authorize the delivery of the
Securities to be sold by such Selling Stockholder hereunder
and to otherwise act on behalf of said Selling Stockholder in
connection with the transactions contemplated by this
Agreement. Pursuant to the Power of Attorney and Custody
Agreement, such certificates in negotiable form, endorsed in
blank or accompanied by blank stock powers duly executed,
representing the Securities to be sold by such Selling
Stockholder hereunder have been deposited with the Custodian
for the purpose of delivery pursuant to this Agreement. Such
Selling Stockholder has full legal right, power and authority
to execute the Power of Attorney, to enter into this Agreement
and the Custody Agreement, and to sell, assign, transfer and
deliver to the Underwriters the Securities to be sold by such
Selling Stockholder hereunder. Such Selling Stockholder
agrees that each of the shares of Common Stock represented by
the certificates on deposit with the Custodian is subject to
the interests of the Underwriters hereunder, that the
arrangements made for such custody, the appointment of the
Custodian and the right, power and authority of the Custodian
to deliver, in accordance with the terms of the Custody
Agreement, the Securities to be sold by such Selling
Stockholder to the Underwriters, are to that extent
irrevocable and that the obligations of the Selling
Stockholder hereunder shall not be terminated, except as
expressly provided in this Agreement or the Custody Agreement,
by any act of such Selling Stockholder, by operation of law,
or upon the occurrence of any event whatsoever, including the
liquidation, merger (where not a surviving party),
dissolution, bankruptcy or termination of any Selling
Stockholder. If the Selling Stockholder should liquidate,
merge (where not a surviving party), dissolve, become bankrupt
or terminate or if any other event should occur, before
delivery of the Securities hereunder, the certificates
representing the Securities to be sold by the Selling
11
<PAGE> 12
Stockholder hereunder and other documents then on deposit with
the Custodian shall be delivered by the Custodian in
accordance with the terms and conditions of this Agreement as
if such liquidation, merger (where not a surviving party),
dissolution, termination or bankruptcy or other event had not
occurred, regardless of whether or not the Custodian or the
Attorney-in-Fact shall have received notice thereof. This
Agreement, the Power of Attorney and the Custody Agreement
have been duly executed and delivered by or on behalf of such
Selling Stockholder in the forms heretofore delivered to you.
(ii) Such Selling Stockholder has, and on the
Closing Date will have, good and marketable title to the
Securities to be sold by the Selling Stockholder hereunder and
full right, power and authority to enter into this Agreement
and to sell, assign, transfer and deliver such Securities,
free and clear of all voting trust arrangements, security
interests, liens, mortgages, pledges, encumbrances,
restrictions, preemptive rights, claims, equities, proxies,
restrictions on transferability, legends and other defects;
and upon delivery of and payment for such Securities as
provided in this Agreement, good and marketable title thereto,
free and clear of all voting trust arrangements, security
interests, liens, mortgages, pledges, encumbrances,
restrictions, claims, equities, proxies, restrictions on
transferability, legends and defects, will pass to the
Underwriters. Except as disclosed in the Prospectus, such
Selling Stockholder is on the date hereof, and on the Closing
Date will be, the sole record and beneficial owner of the
Securities to be sold by the Selling Stockholder hereunder.
Such Selling Stockholder is selling the Securities to be sold
by such Selling Stockholder for such Selling Stockholder's own
account and is not selling such Securities, directly or
indirectly, for the benefit of the Company, and no part of the
proceeds of such sale received by such Selling Stockholder
will inure, either directly or indirectly, to the benefit of
the Company other than as described in the Registration
Statement and Prospectus.
(iii) Neither the execution, delivery or performance
of this Agreement, the Power of Attorney or the Custody
Agreement, nor the consummation of the transactions
contemplated hereby or thereby, (A) will require the consent,
approval, authorization, registration or qualification of or
with any governmental authority, except such as have been
obtained, such as may be required under state securities or
blue sky laws of any jurisdiction in the United States and, if
the Registration Statement is not effective under the 1933 Act
as of the time of execution hereof, such as may be required
(and shall be obtained as provided in this Agreement) under
the 1933 Act, or (B) will conflict with or result in a breach
or violation by such Selling Stockholder of any of the terms
or provisions of, or constitute a default by such Selling
Stockholder under, any voting trust agreement, shareholders
agreement, mortgage, deed of trust, trust (constructive or
other), security agreement, loan agreement, lease, franchise,
license, indenture, permit or other agreement or instrument to
which such Selling Stockholder is a party or by which such
Selling Stockholder or any of its properties is bound or any
statute, or any judgment, decree, order, rule or regulation of
any court or governmental agency or body applicable to such
Selling Stockholder.
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<PAGE> 13
(iv) Such Selling Stockholder has not, since the
earlier of the filing of the first public announcement of the
Offering or the Registration Statement with the Commission,
(A) sold, bid for, purchased, attempted to induce any person
to purchase, or paid anyone any consideration for soliciting
purchases of, Common Stock (or securities convertible into or
exchangeable for Common Stock) or (B) paid or agreed to pay
any person any consideration for soliciting another to
purchase any securities of the Company, except for the sale of
shares of Common Stock by such Selling Stockholder under this
Agreement.
(v) Such Selling Stockholder has not taken,
directly or indirectly, any action designed to result in or
which has constituted or which might reasonably be expected to
cause or result in stabilization or manipulation of the price
of any security of the Company to facilitate the sale or
resale of the Securities; such Selling Stockholder has not
effected any sales of Common Stock which, if effected by the
Company, would be required to be disclosed in response to Item
701 of Regulation S-K under the 1933 Act.
(vi) To the extent that any statement or omission is
made in the Registration Statement, any Preliminary
Prospectus, the Prospectus or any amendment or supplement
thereto relating to such Selling Stockholder or in reliance
upon and in conformity with written information furnished to
the Company by or on behalf of such Selling Stockholder, such
Preliminary Prospectus did, and the Registration Statement and
the Prospectus and any amendments or supplements thereto when
they become effective or are filed with the Commission, as the
case may be, will conform in all material respects to the
requirements of the 1933 Act and the 1933 Act Regulations and
will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein
or necessary to make the statements therein, in the light of
the circumstances under which they are made, not misleading.
Such Selling Stockholder has reviewed the most recent
Preliminary Prospectus, the Prospectus (if the same shall be
in existence) and the Registration Statement, and the
information regarding such Selling Stockholder set forth
therein, including information set forth under the caption
"Principal and Selling Stockholders," is complete and accurate
and fairly presents the information required to be stated
therein.
(vii) Such Selling Stockholder is not aware that any
of the representations and warranties of the Company set forth
in Section 2(a) of this Agreement is untrue or inaccurate in
any material respect, and the sale by the Selling Stockholder
of shares of Common Stock pursuant to this Agreement is not
prompted by any adverse information concerning the Company
that is not set forth in the Prospectus.
(viii) Such Selling Stockholder has not distributed
and will not distribute any Prospectus or other offering
material in connection with the offering and sale of the
Securities other than any Preliminary Prospectus or the
Prospectus or other materials permitted by the 1933 Act to be
distributed by such Selling Stockholder.
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<PAGE> 14
(c) Any certificate signed by any officer of the Company
and delivered to you or to counsel for the Underwriters shall be
deemed a representation and warranty by the Company to each
Underwriter as to the matters covered thereby; any certificate
signed by or on behalf of any Selling Stockholder and delivered to
you or to counsel for the Underwriters shall be deemed a
representation and warranty by such Selling Stockholder to each
Underwriter as to the matters covered thereby.
3. SALE, PURCHASE AND DELIVERY OF SECURITIES.
-----------------------------------------
(a) On the basis of the representations, warranties and
agreements herein contained, and subject to the terms and
conditions herein set forth, the Company and the Selling
Stockholders hereby agree, severally and not jointly, to sell to
each of the Underwriters the Firm Shares with the number of Firm
Shares to be sold by the Selling Stockholders being set forth on
Schedule II; and each of the Underwriters agrees, severally and not
jointly, to purchase from the Company and the Selling Stockholders,
at a purchase price per share of $----------- (the "Purchase
Price") the respective number of Firm Shares set forth opposite the
name of such Underwriter in Schedule I hereto. The Underwriters
may by notice to the Company amend Schedule I to add, eliminate or
substitute names set forth therein (other than to eliminate the
names of the Underwriters) and to amend the number of Firm Shares
to be purchased by any firm or corporation listed thereon, provided
that the total number of Firm Shares listed on Schedule I shall
equal 1,400,000. The number of Firm Shares to be purchased by each
Underwriter from the Company and from the Selling Stockholders
shall bear the same ratio to the total number of Firm Shares to be
sold by the Company and by each Selling Stockholder, respectively,
as the total number of Firm Shares to be purchased by such
Underwriter bears to the total number of Firm Shares to be
purchased by the Underwriters; provided, however, that the
-----------------
Underwriters shall adjust the number of Firm Shares to be purchased
by each Underwriter from the Company and Selling Stockholders as
necessary to eliminate fractional shares.
The Firm Shares will be delivered by the Company and the
Custodian to you for the accounts of the several Underwriters
against payment of the purchase price therefor by certified or
official bank check or other next day funds payable to the order of
the Company and the Custodian, as appropriate, at the offices of
Piper Jaffray Inc., Piper Jaffray Tower, 222 South Ninth Street,
Minneapolis, Minnesota, or such other location as may be mutually
acceptable, at 9:00 a.m., Minneapolis time, on the fourth full
business day following the date hereof, or at such other time as
you and the Company determine, such time and date of delivery being
herein referred to as the "Closing Date." The Firm Shares, in
definitive form and in such denominations and registered in such
names as you may request upon at least two business days' prior
notice to the Company and the Custodian, will be made available for
checking and packaging at the offices of Piper Jaffray Inc., Piper
Jaffray Tower, 222 South Ninth Street, Minneapolis, Minnesota, or
such other location as may be mutually acceptable, at least one
business day prior to the Closing Date.
(b) On the basis of the representations, warranties and
agreements herein contained and subject to the terms and conditions
herein set forth, the Company hereby grants to the Underwriters,
severally and not jointly, an option (the "Option") to purchase all or any
14
<PAGE> 15
portion of the 210,000 Option Shares, and upon the exercise
of the Option in accordance with this Section 3, the Company hereby
agrees to sell to the Underwriters, severally and not jointly, the
Option Shares at the same Purchase Price per share paid for the
Firm Shares. If any Option Shares are to be purchased, each
Underwriter, severally and not jointly, agrees to purchase from the
Company that proportion (subject to adjustment as you may determine
to avoid fractional shares) of the number of Option Shares to be
purchased that the number of Firm Shares set forth opposite the
name of such Underwriter in Schedule I hereto (or such number
increased as set forth in Section 10 hereof) bears to 1,400,000.
The Option shall expire 30 days after the date upon which the
Registration Statement becomes effective and may be exercised only
for the purpose of covering over-allotments which may be made in
connection with the offering and distribution of the Firm Shares.
The Option may be exercised in whole or in part at any time (but
not more than once) by you giving notice (confirmed in writing) to
the Company setting forth the number of Option Shares as to which
the several Underwriters are exercising the Option and the time,
date and place for payment and delivery of certificates for such
Option Shares. Such time and date of payment and delivery for the
Option Shares (the "Option Closing Date") shall be determined by
you, but shall not be earlier than two nor later than seven full
business days after the exercise of such Option, nor in any event
prior to the Closing Date. The Option Closing Date may be the
same as the Closing Date.
The Option Shares will be delivered by the Custodian and
the Company, as appropriate, to you for the accounts of the several
Underwriters against payment of the purchase price therefor by
certified or official bank check or other next day funds payable to
the order of the Custodian or the Company, as appropriate, at the
offices of Piper Jaffray Inc., Piper Jaffray Tower, 222 South Ninth
Street, Minneapolis, Minnesota, or such other location as may be
mutually acceptable at 9:00 a.m., Minneapolis time, on the Option
Closing Date. The Option Shares in definitive form and in such
denominations and registered in such names as you have set forth in
your notice of Option exercise, will be made available for checking
and packaging at the office of Piper Jaffray Inc., Piper Jaffray
Tower, 222 South Ninth Street, Minneapolis, Minnesota, or such
other location as may be mutually acceptable, at least one business
day prior to the Option Closing Date.
(c) It is understood that each or any of you may (but
shall not be obligated to) make payment to the Company or the
Selling Stockholders, on behalf of any Underwriter for the
Securities to be purchased by such Underwriter. Any such payment
by you shall not relieve any such Underwriter of any of its
obligations hereunder. Nothing herein contained shall constitute
any of the Underwriters an unincorporated association or partner
with the Company or any Selling Stockholder. Time shall be of the
essence, and delivery of the certificates for the Securities at the
time and place specified pursuant to this Agreement is a further
condition of the obligations of each Underwriter hereunder.
4. COVENANTS. The Company and, where expressly
---------
stated, the Selling Stockholders, covenant with each of the
Underwriters as follows:
(a) The Company shall use its best efforts to cause the
Registration Statement and any amendments thereto, if not effective
at the time of execution of this Agreement, to
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<PAGE> 16
become effective as promptly as possible. If the Registration Statement has
become or becomes effective pursuant to Rule 430A and information has been
omitted therefrom in reliance on Rule 430A, then, the Company will
prepare and file in accordance with Rule 430A and Rule 424(b)
copies of the Prospectus or, if required by Rule 430A, a post-
effective amendment to the Registration Statement (including the
Prospectus) containing all information so omitted and will provide
evidence satisfactory to the Underwriters of such timely filing.
(b) The Company shall notify you immediately, and
confirm such notice in writing:
(i) when the Registration Statement, or any
post-effective amendment to the Registration Statement, has
become effective, or when the Prospectus or any supplement to
the Prospectus or any amended Prospectus has been filed;
(ii) of the receipt of any comments or requests from
the Commission to amend or supplement the Registration
Statement, any Preliminary Prospectus or the Prospectus or for
additional information; and
(iii) of the issuance by the Commission or any state
or other regulatory body of any stop order or other order
suspending the effectiveness of the Registration Statement,
preventing or suspending the use of any Preliminary Prospectus
or the Prospectus, or suspending the qualification of any of
the Securities for offering or sale in any jurisdiction or the
institution or threat of institution of any proceedings for
any of such purposes. The Company shall use its best efforts
to prevent the issuance of any such stop order or of any other
such order and if any such order is issued, to cause such
order to be withdrawn or lifted as soon as possible.
(c) The Company shall furnish to you, from time to time
without charge, as soon as available, as many copies as you may
reasonably request of (i) the registration statement as originally
filed and of all amendments thereto, in executed form, including
exhibits, whether filed before or after the Registration Statement
becomes effective, (ii) all exhibits and documents filed therewith,
(iii) all consents and certificates of experts in executed form,
(iv) each Preliminary Prospectus and all amendments and supplements
thereto, and (v) the Prospectus, and all amendments and supplements
thereto.
(d) During the time when a prospectus is required to be
delivered under the 1933 Act, the Company shall comply to the best
of its ability with the 1933 Act and the 1933 Act Regulations and
the 1934 Act and the rules and regulations thereunder (the "1934
Act Regulations") so as to permit the completion of the
distribution of the Securities as contemplated herein and in the
Prospectus. The Company shall not file any amendment to the
registration statement as originally filed or to the Registration
Statement and shall not file any amendment thereto or make any
amendment or supplement to any Preliminary Prospectus or to the
Prospectus of which you shall not previously have been advised in
writing and provided a copy a reasonable time prior to the proposed
filings thereof or to which you shall reasonably object. If it is
necessary, in your opinion or in the opinion of counsel for the
Underwriters, to amend
16
<PAGE> 17
or supplement the Registration Statement or the Prospectus in connection with
the distribution of the Securities, the Company shall forthwith amend or
supplement the Registration Statement or the Prospectus, as the case may be,
by preparing and filing with the Commission, and furnishing to you,
such number of copies as you may reasonably request of an amendment
or amendments of, or a supplement or supplements to, the
Registration Statement or the Prospectus, as the case may be (in
form and substance satisfactory to you and to counsel for the
Underwriters). If any event shall occur as a result of which it is
necessary to amend or supplement the Prospectus to correct an
untrue statement of a material fact or to include a material fact
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, or if for
any reason it is necessary at any time to amend or supplement the
Prospectus to comply with the 1933 Act and the 1933 Act
Regulations, the Company shall, subject to the second sentence of
this subsection (d), forthwith amend or supplement the Prospectus
by preparing and filing with the Commission, and furnishing to you,
such number of copies as you may reasonably request of an amendment
or amendments of, or a supplement or supplements to, the Prospectus
(in form and substance satisfactory to you and to counsel for the
Underwriters) so that, as so amended or supplemented, the
Prospectus shall not contain an untrue statement of a material fact
or omit to state a material fact necessary to make the statements
therein, in light of the circumstances under which they were made,
not misleading.
(e) The Company and the Selling Stockholders shall each
immediately (as it becomes known to each of them, respectively)
notify the Underwriters if any event occurs, or of any change in
information relating to the Company or any new information relating
to the Company or relating to any matter stated in the Prospectus
or any supplement thereto, which results in the Prospectus (as
supplemented) including an untrue statement of a material fact or
omitting to state any material fact necessary to make the
statements therein, in light of the circumstances under which they
were made, not misleading.
(f) The Company shall cooperate with you and counsel for
the Underwriters in order to qualify the Securities for offering
and sale under the securities or blue sky laws of such
jurisdictions as you may reasonably request and shall continue such
qualifications in effect so long as may be advisable for
distribution of the Securities; provided, however, that the Company
shall not be required to qualify to do business in any such
jurisdiction. The Company shall file such statements and reports
as may be required by the laws of each jurisdiction in which the
Securities have been qualified as above to continue such
qualifications in effect for so long a period as the Underwriters
may reasonably request for the distribution of the Securities. The
Company will notify you immediately of, and confirm in writing, the
suspension of qualification of the Securities or threat thereof in
any jurisdiction.
(g) The Company shall make generally available to its
security holders in the manner contemplated by Rule 158 of the 1933
Act Regulations and furnish to you as soon as practicable, but in
any event not later than 16 months after the Effective Date, a
consolidated earnings statement of the Company conforming with the
requirements of Section 11(a) of the 1933 Act and Rule 158 and will
advise you in writing when such statement has been so made
available.
17
<PAGE> 18
(h) The Company shall use the net proceeds from the sale
of the Securities sold to be sold by the Company hereunder in the
manner specified in the Prospectus under the caption "Use of
Proceeds."
(i) For five years from the Effective Date, the Company
shall furnish to the Underwriters copies of all reports and
communications (financial or otherwise) furnished by the Company to
the holders of the Common Stock as a class, copies of all reports
and financial statements filed with or furnished to the Commission
(other than portions for which confidential treatment has been
obtained from the Commission) or with any national securities
exchange or the NNM and such other documents, reports and
information concerning the business and financial condition of the
Company as the Underwriters may reasonably request.
(j) For a period of 120 days from the date hereof,
neither the Company nor any Selling Stockholder retaining Common
Stock shall, directly or indirectly, offer for sale, sell or agree
to sell or otherwise dispose of (except, in the case of the Selling
Stockholders, for bona fide gifts), any shares of Common Stock, or
any securities convertible into, exercisable or exchangeable for,
or that are the economic or voting equivalent of, any such shares
of Common Stock, or announce the offering of, or register with the
Commission, any shares of Common Stock or any such other
securities, without the prior written consent of Piper Jaffray,
Inc.
(k) The Company has caused to be delivered to you or
will cause to be delivered to you prior to the Effective Date a
letter agreement from each of the Company directors and officers
listed on Schedule III hereto (the "Listed Affiliates") and each of
the Selling Stockholders (the "Lockup Agreements") stating that
such person or entity, as the case may be, agrees that he, she or
it will not, without your prior written consent, directly or
indirectly offer for sale, sell or agree to sell or otherwise
dispose of (except for bona fide gifts) any shares of Common Stock,
or any securities convertible into, exercisable or exchangeable
for, or that are the economic or voting equivalent of, any such
shares of Common Stock, for a period of 120 days after commencement
of the public offering of the Securities by the Underwriters.
(l) The Company shall use its best efforts to maintain
the quotation of the Common Stock (including the Securities) on the
NNM.
(m) Subsequent to the date of this Agreement and through
the date which is the later of (i) the day following the date on
which the Option shall expire or (ii) the day following the Option
Closing Date with respect to any Option Shares that the
Underwriters shall elect to purchase, except as described in or
contemplated by the Prospectus, the Company shall not take any
action (or refrain from taking any action) which will result in the
Company incurring any material liability or obligation, direct or
contingent, or enter into any material transaction, except in the
ordinary course of business, and there will not be any material
change in capital stock, or any material increase in long-term
debt, obligations under capital leases or short-term borrowings of
the Company, on a consolidated basis, except in the ordinary course
of business.
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<PAGE> 19
(n) Neither the Company nor any Selling Stockholder
shall take, directly or indirectly, any action designed to result
in or which has constituted or which might reasonably be expected
to cause or result in stabilization or manipulation of the price of
any security of the Company to facilitate the sale or resale of the
Securities.
(o) Prior to the Closing Date (and, if applicable, the
Option Closing Date), neither the Company nor any Selling
Stockholder will issue any press release or other communication
directly or indirectly or hold any press conference with respect to
the Company or the Offering without your prior written consent.
(p) The Company will not incur any liability for any
finder's or broker's fee or agent's commission in connection with
the execution and delivery of this Agreement or the consummation of
the transactions contemplated hereby.
(q) The Company will inform the Florida Department of
Banking and Finance at any time prior to the consummation of the
distribution of the Securities by the Underwriters if it commences
engaging in business with the government of Cuba or with any person
or affiliate located in Cuba. Such information will be provided
within 90 days after the commencement thereof or after a change
occurs with respect to previously reported information related
thereto.
(r) The Company shall conduct its business in compliance
in all material respects with all applicable federal and state
laws, rules, regulations, decisions, directives and orders
(including, without limitation, the applicable provisions of the
1933 Act, the 1933 Act Regulations, the 1934 Act, the 1934 Act
Regulations and the General Corporation Code of Kansas).
5. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The
-------------------------------------------
obligations of the Underwriters to purchase and pay for the Firm
Shares and, following exercise of the Option granted by the Company
in Section 3 of this Agreement, the Option Shares, are subject, in
your discretion, to the accuracy of and compliance with the
representations and warranties and agreements of the Company and
the Selling Stockholders herein as of the date hereof and as of the
Closing Date (or in the case of the Option Shares, if any, as of
the Option Closing Date), to the accuracy of the written statements
of the Company and its officers and the Selling Stockholders made
pursuant to the provisions hereof, to the performance by the
Company and the Selling Stockholders of their respective covenants
and obligations hereunder and to the following additional
conditions:
(a) If the Registration Statement or any amendment
thereto filed prior to the Closing Date has not been declared
effective prior to the time of execution hereof, the Registration
Statement shall become effective not later than 5:00 p.m.,
Minneapolis time, on the first business day following the time of
execution of this Agreement, or at such later time and date as you
may agree to in writing. If required, the Prospectus and any
amendment or supplement thereto shall have been timely filed in
accordance with Rule 424(b) and Rule 430A under the 1933 Act and
Section 4(a) hereof. No stop order suspending the effectiveness of the
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<PAGE> 20
Registration Statement or any amendment or supplement thereto
shall have been issued under the 1933 Act or any applicable state
securities laws and no proceedings for that purpose shall have been
instituted or shall be pending, or, to the knowledge of the Company
or the Underwriters, shall be threatened by the Commission or any
state authority. Any request on the part of the Commission or any
state authority for additional information (to be included in the
Registration Statement or Prospectus or otherwise) shall have been
disclosed to you and complied with to your satisfaction and to the
satisfaction of counsel for the Underwriters.
(b) No Underwriter shall have advised the Company or any
Selling Stockholder at or before the Closing Date (and, if
applicable, the Option Closing Date) that the Registration
Statement or any post-effective amendment thereto, or the
Prospectus or any amendment or supplement thereto, contains an
untrue statement of a fact which, in your opinion, is material or
omits to state a fact which, in your opinion, is material and is
required to be stated therein or is necessary to make statements
therein (in the case of the Prospectus or any amendment or
supplement thereto, in light of the circumstances under which they
were made) not misleading.
(c) All corporate proceedings and other legal matters
incident to the authorization by the Company, form and validity of
this Agreement, and the authorization by the Company and form of
the Registration Statement and Prospectus, other than financial
statements and other financial data, and all other legal matters
relating to this Agreement and the transactions contemplated hereby
shall be satisfactory in all respects to counsel for the
Underwriters, and the Company shall have furnished to such counsel
all documents and information relating thereto that they may
reasonably request to enable them to pass upon such matters.
(d) On the Closing Date (and, if applicable, the Option
Closing Date), you shall have received the opinion of Stinson, Mag
& Fizzell, P.C., counsel for the Company, addressed to you and
dated the Closing Date (and, if applicable, the Option Closing
Date), substantially to the effect that as of the date hereof:
(i) The Company has been duly incorporated and is
validly existing as a corporation in good standing under the
laws of the State of Kansas, with full corporate power and
authority to own, lease and operate its properties and conduct
its businesses as described in the Registration Statement.
The Company is duly qualified to do business as a foreign
corporation in good standing in each state or other juris-
diction in which its ownership or leasing of property or
conduct of business legally requires such qualification.
(ii) The Company's authorized capital stock is as
set forth under the heading "Capitalization" in the
Prospectus. All outstanding shares of capital stock of the
Company and the Securities conform in all material respects to
the description thereof in the Prospectus under the heading
"Description of Capital Stock," and the statements in the
Prospectus under such caption fairly summarize in all material
respects the provisions referred to in the Company's
certificate of incorporation, bylaws and the law
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<PAGE> 21
of the State of Kansas. The form of certificate used to evidence the
Common Stock has been approved by the Company's Board of
Directors, and assuming such certificate is signed by the
proper and authorized officers of the Company as required by
the law of the State of Kansas, will comply as to form with
the requirements of such law. The outstanding shares of
Common Stock have been duly authorized and are validly issued,
fully paid and non-assessable, were issued in material
compliance with all applicable Federal and state securities
laws and the laws of the State of Kansas, and were not issued
in violation of or subject to any preemptive rights or other
rights to purchase or subscribe for securities of the Company.
The Securities to be sold by the Company have been duly
authorized and, when delivered and fully paid for in
accordance with this Agreement, will be validly issued, fully
paid and non-assessable, and the shareholders of the Company
have no preemptive rights with respect to such Securities. To
such counsel's actual knowledge, except as disclosed in the
Prospectus, there are no outstanding options, warrants, or
other rights calling for the issuance of, and no present
commitments, plans or arrangements of the Company at this time
to issue any shares of capital stock of the Company or any
security convertible into or exchangeable for capital stock of
the Company. Upon delivery of the Securities to be sold by
the Company and full payment therefor pursuant to this
Agreement and registration of the ownership of such Securities
by the transfer agent for such Securities, good and valid
title to such Securities free and clear of all liens,
encumbrances, security interests, restrictions on transfer,
equities or claims whatsoever other than those created or
granted by this Agreement or by the Underwriters, will pass to
the Underwriters.
(iii) Such counsel has been advised by the staff of
the Commission that the Registration Statement has become
effective under the 1933 Act and, to the best knowledge of
such counsel, no stop order suspending the effectiveness of
the Registration Statement has been issued and no proceedings
for that purpose have been instituted or are pending or
contemplated under the 1933 Act; any required filing of the
Prospectus and any supplement thereto pursuant to Rule 424(b)
of the 1933 Act Regulations has been made in the manner and
within the time period required by such Rule 424(b).
(iv) The Registration Statement and the Prospectus,
and each amendment or supplement thereto, as of their
respective effective or issue dates, comply as to form in all
material respects with the requirements of Form S-1 under the
1933 Act and 1933 Act Regulations (except that such counsel
need express no opinion or belief as to financial and
statistical data, financial statements and notes and related
schedules thereto).
(v) The descriptions in the Registration Statement
and Prospectus of contracts and other documents filed (or
incorporated by reference) as exhibits to the Registration
Statement are accurate in all material respects.
(vi) No authorization, approval, consent, order,
registration or qualification of or with any court or public,
regulatory or governmental body, authority or agency is
required with respect to the Company in connection with the
transactions
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<PAGE> 22
contemplated by this Agreement, except such as may be required
under the 1933 Act, the 1933 Act Regulations, the 1934 Act, the
1934 Act Regulations or by the NASD or under state securities
laws in connection with the purchase and distribution of the
Securities by the Underwriters.
(vii) The Company has all requisite corporate power
and authority to enter into this Agreement and to sell and
deliver the Securities to be sold by it to the several
Underwriters. The filing of the Registration Statement with
the Commission has been duly authorized by the Board of
Directors of the Company. This Agreement has been duly
authorized, executed and delivered by the Company, and is a
valid and legally binding obligation of the Company
enforceable in accordance with its terms (except to the extent
the enforceability of the indemnification, exculpation and
contribution provisions of Section 6 hereof may be limited by
applicable law and except as enforceability of this Agreement
may be limited by bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other laws
affecting creditors' rights generally and by general
principles of equity, regardless of whether such
enforceability is considered in a proceeding in equity or at
law). The making and performance of this Agreement by the
Company and the consummation of the transactions herein
contemplated will not result in a violation of the Company's
certificate of incorporation or bylaws or result in a breach
or violation of any of the terms and provisions of, or consti-
tute a default under, or result in the creation or imposition
of any lien, charge or encumbrance upon any properties or
assets of the Company or the Subsidiary under, any applicable
Federal or state statute, or under any indenture, mortgage,
deed of trust, note, loan agreement, lease, franchise,
license, permit or any other agreement or instrument to which
the Company or the Subsidiary is a party or by which they are
bound or to which any of the properties or assets of the
Company or the Subsidiary are subject, or any order, rule or
regulation of any court or public, regulatory or governmental
agency, authority or body having jurisdiction over the Company
or the Subsidiary or their properties.
(viii) To the actual knowledge of such counsel,
(A) there are no (individually or in the aggregate) legal,
governmental or regulatory proceedings pending or threatened
to which the Company or the Subsidiary is a party or of which
the business or properties of the Company or the Subsidiary is
the subject which would have a material adverse effect on the
business or property of the Company and the Subsidiary taken
as a whole or on the ability of the Company to consummate the
transactions contemplated herein, and which are not disclosed
in the Registration Statement and Prospectus; (B) there are no
contracts or documents of a character required to be described
in the Registration Statement or the Prospectus or to be filed
as an exhibit to the Registration Statement which are not
described therein or filed as required; (C) neither the
Company nor the Subsidiary is a party or subject to the
provisions of any injunction, judgment, decree or order of any
court or any public, regulatory or governmental agency,
authority or body which would have a material adverse effect
on the business or property of the Company and the Subsidiary
taken as a whole or on the ability of the Company to
consummate the transactions contemplated herein; and
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<PAGE> 23
(D) there are no applicable Federal or state statutes, orders, rules or
regulations required to be described in the Registration
Statement or Prospectus under the 1933 Act, the 1934 Act or
applicable state securities laws which are not described
therein as required.
(ix) The Company and the Subsidiary hold all
licenses, certificates, permits, franchises, consents,
authorizations and approvals from all state and federal
regulatory authorities, that are required for the Company and
the Subsidiary to conduct their business as described in the
Prospectus, except in the case of any such license,
certificate, permit, franchise, consent, authorization or
approval the loss of which or failure to maintain would not
have a material adverse effect on the business of the Company
and the Subsidiary taken as a whole.
(x) The Solicitation Documents and, to the extent
applicable, the Lock-Up Agreements which have been executed
and forwarded to the Company or the Custodian by the Selling
Stockholders and this Agreement constitute the legal, valid
and binding agreement of such Selling Stockholders,
enforceable in accordance with their respective terms and
conditions (except to the extent the enforceability of the
indemnification, exculpation and contribution provisions of
Section 6 hereof may be limited by applicable law, and except
as enforceability of this Agreement and the Solicitation
Documents may be limited by bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other laws
affecting creditors' rights generally and by general
principles of equity, regardless of whether such
enforceability is considered in a proceeding in equity or at
law) and the Selling Stockholders have all requisite power and
authority to sell and deliver the Securities sold by them in
accordance with and upon the terms and conditions set forth in
this Agreement and the Registration Statement and the
Prospectus; and upon delivery of and payment for such
Securities as provided in this Agreement and the Solicitation
Documents, each of the several Underwriters that has purchased
such Securities in good faith and without notice of any lien,
encumbrance, equity or claim or any other adverse claim within
the meaning of the Uniform Commercial Code has thereby
acquired good and marketable title to all the Securities being
sold to such Underwriters by the Selling Stockholder, free and
clear of all liens, charges, security interests, encumbrances
or any adverse claims. In rendering the opinion contemplated
in this subparagraph (x), such counsel may assume (A) the
signatories thereto have the proper capacity and due
authorization to execute same on behalf of the respective
Selling Stockholder (except as to this Agreement), and (B)
neither the Custodian nor the Attorney-in-Fact for the Selling
Stockholder has received notice of revocation of any Power of
Attorney contained in the Solicitation Documents, and such
counsel may rely as to all matters of fact upon, among other
things (X) representations, warranties, covenants or other
written statements of the Selling Stockholders in their
respective Solicitation Documents, (Y) a certificate from the
Custodian stating that the Custodian has examined the
Solicitation Documents received from the Selling Stockholders
and that such Solicitation Documents were completed in
accordance with the instructions for completing such
Solicitation Documents, or (Z) other reasonable written
certificates or statements of the Selling Stockholders, copies
of which
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<PAGE> 24
such counsel has provided to you and provided that
the extent of such reliance is specified in such opinion.
(xi) The Company is not in violation of its
certificate of incorporation and bylaws. The Company is not
in breach of, or in default with respect to, any provisions of
any agreement, mortgage, deed of trust, lease, note,
agreement, franchise, license, indenture, permit or other
instrument to which the Company is a party or by which the
Company or any of the properties thereof may be bound or
affected, which breach or default would have a material
adverse effect on the business or property of the Company and
the Subsidiary taken as a whole or on the Company's ability to
consummate the transactions contemplated herein, and the
Company is in material compliance with all judgments, decrees
and orders of any court to which the Company is subject.
(xii) The Common Stock is registered pursuant to
Section 12(g) of the 1934 Act. The Common Stock is approved
for quotation on the NNM.
(xiii) The Company is not an "investment company"
within the meaning of the Investment Company Act of 1940, as
amended.
(xiv) To such counsel's actual knowledge, except
as described in the Prospectus, no holders of securities of
the Company have rights which have not been waived or
satisfied, other than any rights provided to the Selling
Stockholders pursuant to the terms hereof, which would entitle
such holders to require the registration of shares of Common
Stock or other securities as a result of the filing of the
Registration Statement by the Company or the offering
contemplated hereby.
Such counsel shall confirm that during the preparation of
the Registration Statement and Prospectus, such counsel has
participated in conferences with officers and other representatives
of the Company, representatives of the independent certified public
accountants for the Company and representatives of the
Underwriters, at which the contents of the Registration Statement
and Prospectus and related matters were discussed and reviewed and
although such counsel is not opining with respect to and does not
assume any responsibility for the accuracy, truthfulness,
completeness or fairness of the statements contained in the
Registration Statement or Prospectus or any amendment or supplement
thereto, such counsel confirms that no facts have come to their
attention which have caused them to believe that either (A) the
Prospectus or any supplement thereto as of its date (other than
financial or statistical data, the financial statements and notes
or any related schedules thereto, as to which such counsel need
express no opinion or belief) contains any untrue statement of a
material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein, in the
light of the circumstances under which they were made, not
misleading or (B) the Registration Statement or any amendment
thereto at the time it became effective (other than financial or
statistical data, the financial statements and notes or any related
schedules thereto, as to which such counsel need express no opinion
or belief) contains any untrue statement of a
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<PAGE> 25
material fact or omits to state a material fact required to be stated therein
or necessary to make the statements therein not misleading.
In rendering the foregoing opinion, such counsel may (A)
rely upon an opinion of Charles E. Bogan, General Counsel for the
Company, as described in Section 5(e) below, as to matters
addressed in (1) the second sentence of subparagraph (i) above, (2)
the fourth sentence of subparagraph (vii) above, except that such
counsel may not rely on the opinion of such General Counsel of the
Company as to matters of Federal law or that the making and
performance of this Agreement by the Company and the consummation
of the transactions herein contemplated will not result in the
violation of the Company's certificate of incorporation or bylaws,
(2) items (A) and (C) of subparagraph (viii) above, (3)
subparagraph (ix) above, (4) subparagraph (xiv) above, and (5)
subparagraph (ii) of Section 5(e) below; provided, however, to the
extent the foregoing provisions or subparagraphs are qualified by
such counsel's knowledge, such General Counsel's opinion may not be
so qualified; provided further, that nothing shall have come to the
attention of such counsel that would reasonably cause such counsel
to believe that such counsel is not justified in relying upon such
General Counsel's opinion, and (B) expressly state that it is
qualified to render an opinion only as to matters involving the
Federal laws of the United States and the laws of the States of
Missouri and Kansas and may rely as to all matters of fact upon,
among other things, certificates and written statements of officers
of the Company and government officials and the representations and
warranties of the Company contained herein; provided that such
counsel shall state that nothing has come to the attention of such
counsel that would reasonably cause such counsel to believe that
they and the Underwriters are not justified in relying upon such
certificates, statements, representations and warranties.
(e) On the Closing Date (and, if applicable, the Option
Closing Date), you shall have received the opinion of Charles E.
Bogan, General Counsel for the Company, addressed to you and
Stinson, Mag & Fizzell, P.C. and dated the Closing Date (and, if
applicable, the Option Closing Date), substantially to the effect
as contemplated by Section 5(d) and that as of the date hereof:
(i) The Company and the Subsidiary have been duly
incorporated and are validly existing as corporations in good
standing under the laws of the State of Kansas, with full
corporate power and authority to own, lease and operate their
properties and conduct their businesses as described in the
Registration Statement. The Company and the Subsidiary are
duly qualified to do business as foreign corporations in good
standing in each state or other jurisdiction in which their
ownership or leasing of property or conduct of business
legally requires such qualification. The outstanding shares
of capital stock of the Subsidiary have been duly authorized
and validly issued and are owned by the Company free and clear
of any mortgage, pledge, lien, encumbrance, charge or adverse
claim, and are not the subject of any agreement or
understanding with any person, except as disclosed in the
Prospectus. No options, warrants or other rights to purchase,
agreement or other obligations to issue or other rights to
convert any obligations into shares of capital stock or
ownership interests in the Subsidiary are outstanding.
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<PAGE> 26
(ii) The Company and the Subsidiary are not in
violation of their certificates or articles of incorporation
and bylaws. Neither the Company nor the Subsidiary is in
breach of, or in default with respect to, any provisions of
any agreement, mortgage, deed of trust, lease, note,
agreement, franchise, license, indenture, permit or other
instrument to which the Company or the Subsidiary is a party
or by which the Company or the Subsidiary or any of the
properties thereof may be bound or affected, which breach or
default would have a material adverse effect on the business
or property of the Company and the Subsidiary taken as a whole
or on the Company's ability to consummate the transactions
contemplated herein, and the Company and the Subsidiary are in
material compliance with all judgments, decrees and orders of
any court to which the Company or the Subsidiary is subject.
In rendering the foregoing opinion, such General Counsel
may expressly state that he is qualified to render an opinion only
as to matters involving the laws of the State of Kansas.
(f) Bryan Cave LLP, counsel for the Underwriters, shall
have furnished you their signed opinion, dated the Closing Date
(or, if applicable, the Option Closing Date) with respect to the
incorporation of the Company, the validity of the Securities, the
Registration Statement, the Prospectus and such other related
matters as you may reasonably request and there shall have been
furnished to such counsel such documents and other information as
they may request to enable them to pass on such matters. In
rendering such opinion, Bryan Cave may expressly state that it is
qualified to render an opinion only as to matters involving the
Federal laws of the United States, the laws of the States of
Missouri and Kansas and may rely as to all matters of fact upon,
among other things, certificates and written statements of officers
of the Company and government officials and the representations and
warranties of the Company contained herein; provided that Bryan
Cave shall state that nothing has come to its attention that would
reasonably cause it to believe that it and the Underwriters are not
justified in relying upon such certificates, statements,
representations and warranties.
(g) On the date of this Agreement and on the Closing
Date (and, if applicable, the Option Closing Date), the
Underwriters shall have received from KPMG Peat Marwick LLP a
letter, dated the date of this Agreement and the Closing Date (and,
if applicable, the Option Closing Date), respectively, in form and
substance satisfactory to the Underwriters, confirming that they
are independent public accountants with respect to the Company and
the Subsidiary, within the meaning of the 1933 Act and the 1933 Act
Regulations, and that the answer to Item 509 of Regulation S-K set
forth in the Registration Statement, is correct insofar as it
relates to them, and stating in effect that:
(i) In their opinion, the consolidated financial
statements and any supplementary financial information and
schedules of the Company and the Subsidiary audited by them
and included in the Registration Statement comply as to form
in all material respects with the applicable accounting
requirements of the 1933 Act and the 1933 Act Regulations with
respect to registration statements on Form S-1.
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<PAGE> 27
(ii) On the basis of the procedures specified by
the American Institute of Certified Public Accountants as
described in SAS No. 71, "Interim Financial Information",
inquiries of officials of the Company and the Subsidiary
responsible for financial and accounting matters, and such
other inquiries and procedures as may be specified in such
letter, which procedures do not constitute an audit in
accordance with generally accepted auditing standards, nothing
came to their attention that caused them to believe that the
unaudited interim consolidated financial statements of the
Company included in the Registration Statement do not comply
as to form in all material respects with the applicable
accounting requirements of the 1933 Act and 1933 Act
Regulations or are not in conformity with generally accepted
accounting principles applied on a basis substantially
consistent with the basis for the audited consolidated
financial statements of the Company and the Subsidiary
included in the Registration Statement.
(iii) On the basis of limited procedures, not
constituting an audit in accordance with generally accepted
auditing standards, consisting of a reading of the unaudited
interim financial statements and other information referred to
below, a reading of the latest available unaudited condensed
consolidated financial statements of the Company and the
Subsidiary, inspection of the minute books of the Company and
the Subsidiary since the date of the latest audited
consolidated financial statements of the Company included in
the Registration Statement, inquiries of officials of the
Company and the Subsidiary responsible for financial and
accounting matters and such other inquiries and procedures as
may be specified in such letter, nothing came to their
attention that caused them to believe that:
(A) as of a specified date not more than five
business days prior to the date of such letter, with
respect to the Company and the Subsidiary, there have
been any changes in the consolidated stockholders' equity
(other than increases in retained earnings) or any
increase in the consolidated long-term debt, short-term
borrowings, obligations under capital leases or real
estate owned, any decreases in consolidated total assets,
or any changes, decreases or increases in other items
specified by the Underwriters, in each case as compared
with amounts shown in the latest unaudited interim
consolidated statement of financial condition of the
Company and the Subsidiary included in the Registration
Statement except in each case for changes, increases or
decreases which the Registration Statement specifically
discloses have occurred or may occur or which are
described in such letter; and
(B) for the period from the date of the latest
unaudited interim consolidated financial statements
included in the Registration Statement to the specified
date referred to in paragraph (iii)(A), with respect to
the Company and the Subsidiary, there were any decreases
in consolidated net sales, operating income or net
income, or any changes, decreases or increases in any
other items specified by the Underwriters, in each case
as compared with the comparable period of the preceding
year and with any other period of corresponding length
specified by the Underwriters, except in each case for
increases or decreases
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<PAGE> 28
which the Registration Statement discloses have occurred or may
occur, or which are described in such letter.
(iv) In addition to the audit referred to in their
report included in the Registration Statement and the limited
procedures, inspection of minute books, inquiries and other
procedures referred to in paragraphs (ii) and (iii) above,
they have carried out certain specified procedures, not
constituting an audit in accordance with generally accepted
auditing standards, with respect to certain amounts,
percentages and financial information specified by the
Underwriters which are derived from the general accounting
records and consolidated financial statements of the Company
and the Subsidiary which appear in the Registration Statement
specified by the Underwriters in the Registration Statement,
and have compared such amounts, percentages and financial
information with the accounting records and the material
derived from such records and consolidated financial
statements of the Company and the Subsidiary have found them
to be in agreement.
In the event that the letters to be delivered referred to
above set forth any such changes, decreases or increases as
specified in paragraphs (iii)(A) or (iii)(B) above, or any
exceptions from such agreement specified in paragraph (iv) above,
it shall be a further condition to the obligations of the
Underwriters that the Underwriters shall have determined, after
discussions with officers of the Company responsible for financial
and accounting matters, that such changes, decreases, increases or
exceptions as are set forth in such letters do not (x) reflect a
material adverse change in the items specified in paragraph
(iii)(A) above as compared with the amounts shown in the latest
unaudited consolidated statement of financial condition of the
Company and the Subsidiary included in the Registration Statement,
(y) reflect a material adverse change in the items specified in
paragraph (iii)(B) above as compared with the corresponding periods
of the prior year or other period specified by the Underwriters, or
(z) reflect a material change in items specified in paragraph (iv)
above from the amounts shown in the Preliminary Prospectus
distributed by the Underwriters in connection with the offering
contemplated hereby or from the amounts shown in the Prospectus.
(h) At the Closing Date (and, if applicable, the Option
Closing Date), you shall have received certificates of the chief
executive officer and the chief financial and accounting officer of
the Company, which certificates shall be deemed to be made on
behalf of the Company, dated as of the Closing Date (and, if
applicable, the Option Closing Date), evidencing satisfaction of
the conditions of Section 5(a) and stating that (i) the
representations and warranties of the Company set forth in Section
2 hereof are accurate as of the Closing Date (and, if applicable,
the Option Closing Date), and that the Company and the Selling
Stockholders, as the case may be, have complied with all agreements
and satisfied all conditions on their part to be performed or
satisfied at or prior to such Closing Date; (ii) since the
respective dates as of which information is given in the
Registration Statement and the Prospectus, there has not been any
material adverse change in the condition (financial or otherwise),
earnings, affairs, business or results of operations of the Company
and the Subsidiary on a consolidated basis; (iii) since such dates
there has not been any material transaction entered into by the
Company or the Subsidiary other than transactions in the ordinary
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<PAGE> 29
course of business; (iv) they have carefully examined the
Registration Statement and the Prospectus as amended or
supplemented and nothing has come to their attention that would
lead them to believe that either the Registration Statement or the
Prospectus, or any amendment or supplement thereto as of their
respective effective or issue dates, contained, and the Prospectus
as amended or supplemented at such Closing Date (and, if
applicable, the Option Closing Date), contains any untrue statement
of a material fact, or omits to state a material fact required to
be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were
made, not misleading; and (v) covering such other matters as you
may reasonably request. The officers' certificate of the Company
shall further state that no stop order affecting the Registration
Statement is in effect or threatened by the Commission.
(i) You shall have received copies of Lockup Agreements
duly executed and delivered by each of the Selling Stockholders and
the Listed Affiliates.
(j) The Custodian for the Company shall have furnished
you a certificate evidencing the receipt from, and execution of the
Solicitation Documents by, the Selling Stockholders in such form as
shall be acceptable to you.
(k) The NASD, upon review of the terms of the public
offering of the Securities, shall not have objected to any
Underwriter's participation in such offering.
(l) The Securities shall have been approved for
quotation on the NNM under the symbol "DUCK".
(m) Prior to the Closing Date (and, if applicable, the
Option Closing Date), the Company shall have furnished to you and
counsel for the Underwriters all such other documents, certificates
and opinions as they have reasonably requested.
All opinions, certificates, letters and other documents
shall be in compliance with the provisions hereof only if they are
reasonably satisfactory in form and substance to you. Any
certificate signed by an officer of the Company and delivered to
you pursuant hereto shall also be deemed to be a representation and
warranty of the Company to the Underwriters as to the statements
made therein. The Company and the Selling Stockholders shall
furnish you with conformed copies of such opinions, certificates,
letters and other documents as you shall reasonably request.
If any of the conditions referred to in this Section 5
shall not have been fulfilled when and as required by this
Agreement, this Agreement and all obligations of the Underwriters
hereunder may be terminated by you on notice to the Company at, or
at any time before, the Closing Date (or, if applicable, the Option
Closing Date). Any such termination shall be without liability of
the Underwriters to the Company or any Selling Stockholder.
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<PAGE> 30
6. INDEMNIFICATION AND CONTRIBUTION.
--------------------------------
(a) The Company agrees to indemnify and hold harmless
each Underwriter, and each person, if any, who controls any
Underwriter within the meaning of the 1933 Act, against any and all
losses, claims, damages, liabilities and expenses (including
reasonable costs of investigation and reasonable attorney fees),
joint or several, arising out of or based upon (i) any untrue
statement or alleged untrue statement of a material fact made by
the Company contained in Section 2(a) of this Agreement (or any
certificate delivered by the Company pursuant hereto Section 5(h)
hereto) or the registration statement as originally filed or the
Registration Statement, any Preliminary Prospectus or the
Prospectus, or in any amendment or supplement thereto, (ii) any
blue sky application or other document executed by the Company
specifically for that purpose or based upon written information
furnished by the Company filed in any state or other jurisdiction
in order to qualify any of the Securities under the securities laws
thereof (any such application, document or information being
hereinafter referred to as a "Blue Sky Application"), (iii) any
omission or alleged omission to state a material fact in the
registration statement as originally filed or the Registration
Statement, any Preliminary Prospectus or the Prospectus, or in any
amendment or supplement thereto, or in any Blue Sky Application
required to be stated therein or necessary to make the statements
therein not misleading, and against any and all losses, claims,
damages, liabilities and expenses (including reasonable costs of
investigation and attorney fees), joint or several, arising out of
or based upon any untrue statement or alleged untrue statement of
a material fact contained in any Preliminary Prospectus or the
Prospectus, or in any amendment of supplement thereto, or arising
out of or based upon any omission or alleged omission to state
therein a material fact required to be stated therein or necessary
to make the statements therein, in the light of the circumstances
under which they were made, not misleading or (iv) the enforcement
of this indemnification provision or the contribution provisions of
Section 6(e); and shall reimburse each such indemnified party for
any reasonable legal or other expenses as incurred, but in no event
less frequently than 30 days after each invoice is submitted,
incurred by them in connection with investigating or defending
against or appearing as a third-party witness in connection with
any such loss, claim, damage, liability or action, notwithstanding
the possibility that payments for such expenses might later be held
to be improper, in which case such payments shall be promptly
refunded; provided, however, that the Company shall not be
-----------------
liable in any such case to the extent, but only to the extent, that
any such losses, claims, damages, liabilities and expenses arise
out of or are based upon any untrue statement or omission or
allegation thereof that has been made therein or omitted therefrom
in reliance upon and in conformity with information furnished in
writing to the Company through you by or on behalf of any
Underwriter expressly for use therein beneath the heading
"Underwriting;" provided further, that the indemnification
----------------
contained in this paragraph with respect to any Preliminary
Prospectus shall not inure to the benefit of any Underwriter (or of
any person controlling such Underwriter) to the extent any such
losses, claims, damages, liabilities or expenses directly results
from the fact that such Underwriter sold Securities to a person to
whom there was not sent or given, at or prior to the written
confirmation of such sale, a copy of the Prospectus (as amended or
supplemented if any amendments or supplements thereto shall have
been furnished to such Underwriter in sufficient time to distribute
same with or prior to the written confirmation of the sale
involved), if required by law, and if such loss, claim, damage,
liability or expense would not have arisen but for the
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<PAGE> 31
failure to give or send such person such document; and provided further,
----------------
that the Company shall have no liability under this indemnity in
any such case to the extent, but only to the extent, that such
losses, claims, damages, liabilities and expenses arose out of or
were based upon any untrue statement or omission made or omitted
from any Preliminary Prospectus or Prospectus in justifiable
reliance upon information with respect to a Selling Stockholder.
The foregoing indemnity agreement is in addition to any liability
the Company may otherwise have to any such indemnified party.
(b) The Selling Stockholders severally and not jointly
agree to indemnify and hold harmless each Underwriter, and each
person, if any, who controls any Underwriter within the meaning of
the 1933 Act, against any and all losses, claims, damages,
liabilities and expenses (including reasonable costs of
investigation and attorney fees), joint or several, arising out of
or based (i) upon any untrue statement or alleged untrue statement
of a material fact made by a Selling Stockholder contained in
Section 2(b) of this Agreement, (ii) upon any untrue statement or
alleged untrue statement of a material fact made by a Selling
Stockholder contained in the registration statement as originally
filed or the Registration Statement, any Preliminary Prospectus or
the Prospectus, or in any amendment or supplement thereto, or
(iii) any omission or alleged omission to state a material fact in
the registration statement as originally filed or the Registration
Statement, any Preliminary Prospectus, or in any amendment or
supplement thereto required to be stated therein or necessary to
make the statements therein not misleading, and against any and all
losses, claims, damages, liabilities and expenses (including
reasonable costs of investigation and attorney fees), joint or
several, arising out of or based upon any untrue statement or
alleged untrue statement of a material fact contained in any
Preliminary Prospectus or the Prospectus, or in any amendment of
supplement thereto, or arising out of or based upon any omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in the
light of the circumstances under which they were made, not
misleading; and shall reimburse each such indemnified party for any
legal or other expenses as incurred, but in no event less
frequently than 30 days after each invoice is submitted, reasonably
incurred by them in connection with investigating or defending
against or appearing as a third-party witness in connection with
any such loss, claim, damage, liability or action, notwithstanding
the possibility that payments for such expenses might later be held
to be improper, in which case such payments shall be promptly
refunded; provided, however, that the Selling Stockholders shall be
-----------------
severally liable in any such case to the extent, but only to the
extent, that any such losses, claims, damages, liabilities and expenses
arise out of or are based upon any untrue statement or omission or
allegation thereof that has been made therein or omitted therefrom
in reliance upon and in conformity with information furnished in
writing to the Company by or on behalf of a Selling Stockholder,
including, without limitation, the information with respect to a
Selling Stockholder beneath the heading "Principal and Selling
Stockholders;" provided further, that in no event shall the Selling
----------------
Stockholders be liable under this paragraph for an amount exceeding the
aggregate purchase price received by the Selling Stockholders from the
Underwriters for the Securities sold by the Selling Stockholders
hereunder; and provided further, that the indemnification contained
-------- -------
in this paragraph with respect to any Preliminary Prospectus shall not inure
to the benefit of any Underwriter (or of any person controlling such
Underwriter) to the extent any such losses, claims, damages, liabilities or
expenses directly results from the fact that such Underwriter sold Securities
to a
31
<PAGE> 32
person to whom there was not sent or given, at or prior to the written
confirmation of such sale, a copy of the Prospectus (as amended or
supplemented if any amendments or supplements thereto shall have
been furnished to such Underwriter in sufficient time to distribute
same with or prior to the written confirmation of the sale
involved), if required by law, and if such loss, claim, damage,
liability or expense would not have arisen but for the failure to
give or send such person such document. The foregoing indemnity
agreement is in addition to any liability any Selling Stockholder
may otherwise have to any such indemnified party.
(c) Each Underwriter, severally and not jointly, agrees
to indemnify and hold harmless the Company, each of its directors,
each of its officers who signed the Registration Statement (and
each person, if any, who controls the Company within the meaning of
the 1933 Act), and the Selling Stockholders, and each person, if
any, who controls a Selling Stockholder within the meaning of the
1933 Act, to the same extent as required by the foregoing indemnity
from the Company or the Selling Stockholders, as the case may be,
to each Underwriter, but only with respect to information relating
to such Underwriter furnished in writing to the Company through you
by or on behalf of it expressly for use in connection with the
registration statement as originally filed, the Registration
Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto, beneath the heading "Underwriting"
or in a Blue Sky Application. The foregoing indemnity agreement is
in addition to any liability which any Underwriter may otherwise
have to any such indemnified party.
(d) If any action or claim shall be brought or asserted
against any indemnified party or any person controlling an
indemnified party in respect of which indemnity may be sought from
the indemnifying party, such indemnified party or controlling
person shall promptly notify the indemnifying party in writing, and
the indemnifying party shall assume the defense thereof, including
the employment of counsel reasonably satisfactory to the
indemnified party and the payment of all expenses; provided, however,
-----------------
that the failure so to notify the indemnifying party shall not relieve
it from any liability which it may have to an indemnified party
otherwise than under such paragraph, and further, shall only relieve
it from liability under such paragraph to the extent prejudiced
thereby. Any indemnified party or any such controlling person shall
have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of such indemnified party or such
controlling person unless (i) the employment thereof has been
specifically authorized by the indemnifying party in writing, (ii) the
indemnifying party has failed to assume the defense or to employ
counsel reasonably satisfactory to the indemnified party or (iii) the
named parties to any such action (including any impleaded parties)
include both such indemnified party or such controlling person and the
indemnifying party and such indemnified party or such controlling
person shall have been advised by such counsel that there may be one
or more legal defenses available to it that are different from or in
addition to those available to the indemnifying party (in which
case, if such indemnified party or controlling person notifies the
indemnifying party in writing that it elects to employ separate
counsel at the expense of the indemnifying party, the indemnifying
party shall not have the right to assume the defense of such action
on behalf of such indemnified party or such controlling person).
Each indemnified party and each controlling person, as a condition
of such indemnity, shall use reasonable efforts to cooperate with
the indemnifying party in the defense of any such action or
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<PAGE> 33
claim. The indemnifying party shall not be liable for any settlement of
any such action effected without its written consent, but if there
be a final judgment for the plaintiff in any such action, the
indemnifying party agrees to indemnify and hold harmless any
indemnified party and any such controlling person from and against
any loss, claim, damage, liability or expense by reason of such
settlement or judgment.
An indemnifying party shall not, without the prior
written consent of each indemnified party, settle, compromise or
consent to the entry of any judgment in any pending or threatened
claim, action, suit or proceeding in respect of which indemnity may
be sought hereunder (whether or not such indemnified party or any
person who controls such indemnified party within the meaning of
the 1933 Act is a party to such claim, action, suit or proceeding),
unless such settlement, compromise or consent includes a release of
each such indemnified party reasonably satisfactory to each such
indemnified party and each such controlling person from all
liability arising out of such claim, action, suit or proceeding or
unless the indemnifying party shall confirm in a written agreement
of the indemnifying party to each indemnified party, that
notwithstanding any federal, state or common law, such settlement,
compromise or consent shall not alter the right of any indemnified
party or controlling person to indemnification or contribution as
provided in this Agreement.
(e) If the indemnification provided for in this Section
6 is unavailable or insufficient to hold harmless an indemnified
party under paragraphs (a), (b) or (c) hereof in respect of any
losses, claims, damages, liabilities or expenses referred to
therein, then each indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable
by such indemnified party as a result of such losses, claims,
damages, liabilities or expenses (i) in such proportion as is
appropriate to reflect the relative benefits received by the
Company and the Selling Stockholders on the one hand and the
Underwriters on the other from the offering of the Securities or
(ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company and the Selling
Stockholders on the one hand and the Underwriters on the other in
connection with the statements or omissions that resulted in such
losses, claims, damages, liabilities or expenses, as well as any
other relevant equitable considerations. The relative benefits
received by the Company and the Selling Stockholders on the one
hand and the Underwriters on the other shall be deemed to be in the
same proportion as the total net proceeds from the offering of the
Securities (before deducting expenses) received by the Company and
the Selling Stockholders bear to the total underwriting discounts
and commissions received by the Underwriters, in each case as set
forth in the table on the cover page of the Prospectus. The
relative fault of the Company and the Selling Stockholders on the
one hand and of the Underwriters on the other shall be determined
by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied
by the Company or a Selling Stockholder or by the Underwriters and
the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such untrue statement or
omission. The Company, the Selling Stockholders and the
Underwriters agree that it would not be just and equitable if
contribution pursuant to this paragraph (e) were determined by pro
rata allocation (even if the Underwriters were treated as
33
<PAGE> 34
one entity for such purpose) or by any other method of allocation that
does not take into account the equitable considerations referred to
herein. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, liabilities and expenses
referred to in the first sentence of this paragraph (e) shall be
deemed to include, subject to the limitations set forth above, any
legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this paragraph (e), no
Underwriter or Selling Stockholder shall be required to contribute
any amount in excess of the amount by which the total price at
which the Securities underwritten by such Underwriter and
distributed to the public were offered to the public, or the amount
sold by such Selling Stockholder, exceeds the amount of any damages
that such Underwriter or Selling Stockholder, as the case may be,
has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the 1933 Act) shall be entitled to contribution
from any person who was not guilty of such fraudulent
misrepresentation.
For purposes of this paragraph (e), each person who
controls an Underwriter within the meaning of the 1933 Act shall
have the same rights to contribution as such Underwriter, and each
person who controls the Company or a Selling Stockholder within the
meaning of the 1933 Act, each officer of the Company who shall have
signed the Registration Statement and each director of the Company
or Selling Stockholder shall have the same rights to contribution
as the Company or Selling Stockholder, subject in each case to the
preceding sentence. The Underwriters' obligations in this
paragraph (e) to contribute are several in proportion to their
respective underwriting obligations and not joint. The obligations
of the Company and the Selling Stockholders under this paragraph
(e) shall be in addition to any liability which the Company and the
Selling Stockholders may otherwise have and the obligations of the
Underwriters under this paragraph (e) shall be in addition to any
liability that the respective Underwriters may otherwise have.
(f) The indemnity and contribution agreements contained
in this Section 6 and the representations and warranties of the
Company and the Selling Stockholders set forth in this Agreement
shall remain operative and in full force and effect, regardless of
(i) any investigation made by or on behalf of any Underwriter or
any person controlling any Underwriter or by or on behalf of the
Company or any Selling Stockholder, or such directors or officers
(or any person controlling the Company or any Selling Stockholder),
(ii) acceptance of any Securities and payment therefor hereunder
and (iii) any termination of this Agreement. A successor of any
Underwriter or of the Company or any Selling Stockholder, such
directors or officers (or of any person controlling any
Underwriter, the Company or any Selling Stockholder) shall be
entitled to the benefits of the indemnity, contribution and
reimbursement agreements contained in this Section 6.
7. PAYMENT OF EXPENSES. The Company covenants and
-------------------
agrees that it will pay or cause to be paid (directly or by
proportionate reimbursement from certain Selling Stockholders)
34
<PAGE> 35
all costs and expenses incident to the performance of the obligations
of the Company and the Selling Stockholders under this Agreement,
including:
(a) the preparation, printing, filing, delivery and
shipping of the initial registration statement, the Preliminary
Prospectus or Prospectuses, the Registration Statement and the
Prospectus and any amendments or supplements thereto (except,
however, for the actual costs incurred for affixation of broker
name labels to the Preliminary Prospectus at the request of The
Robinson-Humphrey Company, Inc. and delivery and shipping costs for
same if not shipped to such company's principal Atlanta, Georgia
facility), and the copying, delivery and shipping of this Agreement
and any other underwriting documents (including, without
limitation, underwriters questionnaires, underwriters' powers of
attorney, agreements among underwriters and selected dealers
agreements), the certificates for the Securities and the
Preliminary and Final Blue Sky Memoranda and any supplements
thereto;
(b) all fees, expenses and disbursements of the
Company's counsel and accountants;
(c) all fees and expenses (including the fees and
disbursements of counsel for Underwriters) incurred in connection
with the qualification of the Securities under the securities or
blue sky laws of such jurisdictions as you may request, including
all filing fees and fees and disbursements of counsel for the
Underwriters in connection therewith, including, without
limitation, in connection with the preparation of the Preliminary
and Final Blue Sky Memoranda and any supplements thereto;
(d) all fees and expenses (including the fees and
disbursements of counsel for Underwriters) incurred in connection
with filings made with the NASD or which are incident to any
required review by the NASD;
(e) any applicable fees and other expenses incurred in
connection with the listing of the Securities on the NNM;
(f) the cost of furnishing to you copies of the initial
registration statements, any Preliminary Prospectus, the
Registration Statement and the Prospectus and all amendments or
supplements thereto;
(g) the costs and charges of any transfer agent or
registrar and the fees and disbursements of counsel for any
transfer agent or registrar;
(h) all costs and expenses (including stock transfer
taxes) incurred in connection with the printing, issuance and
delivery of the Securities to the several Underwriters;
(i) all travel, lodging and other expenses incurred by
the Company's officers and other Company personnel in making
presentations to prospective members of the underwriting group,
institutional investors and brokers and all other costs of
preparing and conducting such meetings and other informational
meetings; and
35
<PAGE> 36
(j) all other costs and expenses incident to the
performance of the obligations of the Company hereunder that are
not otherwise specifically provided for in this Section 7.
8. OFFERING BY THE UNDERWRITERS. After the Registration
----------------------------
Statement becomes effective or, if the Registration Statement is
already effective, after this Agreement becomes effective, the
Underwriters propose to offer the Firm Shares for sale to the
public upon the terms and conditions set forth in the Prospectus.
The Underwriters may from time to time thereafter reduce the public
offering price and change the other selling terms, provided the
proceeds to the Company and the Selling Stockholders shall not be
reduced as a result of such reduction or change.
The Underwriters may reserve and sell such of the
Securities purchased by the Underwriters as the Underwriters may
elect to dealers chosen by them (the "Selected Dealers") at the
public offering price set forth in the Prospectus less the
applicable Selected Dealers' concessions set forth therein, for re-
offering by Selected Dealers to the public at the public offering
price. The Underwriters may allow, and Selected Dealers may re-
allow, a concession set forth in the Prospectus to certain other
brokers and dealers.
9. TERMINATION. You shall have the right to terminate
-----------
this Agreement on behalf of the Underwriters at any time at or
prior to the Closing Date or, with respect to the Underwriters'
obligation to purchase the Option Shares, at any time at or prior
to the Option Closing Date, without liability on the part of any
Underwriter to the Company or a Selling Stockholder, if:
(a) the Company or a Selling Stockholder shall have
failed, refused, or been unable to perform any agreement on its
part to be performed under this Agreement, or any of the conditions
referred to in Section 5 shall not have been fulfilled, when and as
required by this Agreement;
(b) the Company or the Subsidiary shall have sustained
any material loss or interference with its business from fire,
explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental
action, order or decree which in the judgment of the Underwriters
materially impairs the investment quality of the Securities;
(c) there has been since the respective dates as of
which information is given in the Registration Statement or the
Prospectus, any materially adverse change in, or any development
which is reasonably likely to have a material adverse effect on,
the condition (financial or otherwise), earnings, affairs, business
or results of operations of the Company and the Subsidiary on a
consolidated basis, whether or not arising in the ordinary course
of business;
(d) there has occurred any outbreak of hostilities or
other calamity or crisis or material change in general economic,
political or financial conditions, or internal conditions, the
effect of which on the financial markets of the United States is
such as to make it, in your
36
<PAGE> 37
reasonable judgment, impracticable to market the Securities or enforce
contracts for the sale of the Securities;
(e) trading generally on the New York Stock Exchange,
the American Stock Exchange or the NNM shall have been suspended,
or minimum or maximum prices for trading shall have been fixed, or
maximum ranges for prices for securities shall have been required,
by any of said exchanges or market system or by the Commission or
any other governmental authority;
(f) a banking moratorium shall have been declared by
either federal or Kansas authorities; or
(g) any action shall have been taken by any government
in respect of its monetary affairs which, in your reasonable
judgment, has a material adverse effect on the United States
securities markets.
If this Agreement shall be terminated pursuant to this
Section 9, the Company and the Selling Stockholders shall not then
be under any liability to any Underwriter except as provided in
Sections 6 and 7 hereof.
10. DEFAULT OF UNDERWRITERS. If any Underwriter or
-----------------------
Underwriters shall default in its or their obligations to purchase
Securities hereunder, the other Underwriters shall be obligated
severally, in proportion to their respective commitments hereunder,
to purchase the Securities which such defaulting Underwriter or
Underwriters agreed but failed to purchase; provided, however,
-----------------
that the non-defaulting Underwriters shall be under no obligation
to purchase such Securities if the aggregate number of Securities
to be purchased by such non-defaulting Underwriters shall exceed
110% of the aggregate underwriting commitments set forth in
Schedule I hereto, and provided further, that no non-defaulting
----------------
Underwriter shall be obligated to purchase Securities to the extent
that the number of such Securities is more than 110% of such
Underwriter's underwriting commitment set forth in Schedule I
hereto.
In the event that the non-defaulting Underwriters are not
obligated under the above paragraph to purchase the Securities
which the defaulting Underwriter or Underwriters agreed but failed
to purchase, the Underwriters may, in their discretion, arrange for
one or more of them or for another party or parties to purchase
such Securities on the terms contained herein. If within one
business day after such default the Underwriters do not arrange for
the purchase of such Securities, then the Company shall be entitled
to a further period of one business day within which to procure
another party or parties satisfactory to the Underwriters to
purchase such Securities on such terms.
In the event that the Underwriters or the Company does
not arrange for the purchase of any Securities to which a default
relates as provided above, this Agreement shall be terminated.
37
<PAGE> 38
If the remaining Underwriters or substituted underwriters
are required hereby or agree to take up all or a part of the
Securities of a defaulting Underwriter or Underwriters as provided
in this Section 10, (i) you shall have the right to postpone the
Closing Date for a period of not more than five full business days,
in order to effect any changes that, in the opinion of counsel to
the Underwriters or the Company, may thereby be made necessary in
the Registration Statement or the Prospectus, or in any other
documents or agreements, and the Company agrees promptly to file
any amendments to the Registration Statement or supplements to the
Prospectus which, in its opinion, may thereby be made necessary and
(ii) the respective numbers of Securities to be purchased by the
remaining Underwriters or substituted underwriters shall be taken
as the basis of their underwriting obligation for all purposes of
this Agreement. Nothing herein contained shall relieve any
defaulting Underwriter of any liability it may have for damages
occasioned by its default hereunder. Any termination of this
Agreement pursuant to this Section 10 shall be without liability on
the part of any non-defaulting Underwriter, the Company or any
Selling Stockholder, except for expenses to be paid or reimbursed
pursuant to Section 7 and except for the provisions of Section 6.
11. EFFECTIVE DATE OF AGREEMENT. If the Registration
---------------------------
Statement is not effective at the time of execution of this
Agreement, this Agreement shall become effective on the Effective
Date at the time the Commission declares the Registration Statement
effective. The Company shall immediately notify the Underwriters
when the Registration Statement becomes effective.
If the Registration Statement is effective at the time of
execution of this Agreement, this Agreement shall become effective
at the earlier of 10:00 a.m. Minneapolis time, on the first full
business day following the day on which this Agreement is executed,
or at such earlier time as the Underwriters shall release the
Securities for public offering. The Underwriters shall notify the
Company and the Selling Stockholders immediately after it has taken
any action which causes this Agreement to become effective.
Until such time as this Agreement shall have become
effective, it may be terminated by the Company, by notifying you,
or by each and any of you, by notifying the Company, except that
the provisions of Sections 6 and 7 shall at all times be effective.
12. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE
-----------------------------------------------------
DELIVERY. The representations, warranties, indemnities,
- --------
agreements and other statements of the Company and its officers and
the Selling Stockholders set forth in or made pursuant to this
Agreement and the agreements of the Underwriters contained in
Section 6 hereof shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of the
Company or any Selling Stockholder or controlling persons of the
Company or any Selling Stockholder, or by or on behalf of the
Underwriters or controlling persons of any Underwriters or any
termination or cancellation of this Agreement and shall survive
delivery of and payment for the Securities.
13. NOTICES. Except as otherwise provided in this
-------
Agreement, all notices and other communications hereunder shall be
in writing and shall be deemed to have been duly given if delivered
by hand, mailed by registered or certified mail, return receipt
requested, or transmitted by any standard form of telecommunication
and confirmed. Notices to the Company shall be
38
<PAGE> 39
sent to 401 Cottage Street, Abilene, Kansas 67410, Attention: Glen L. Shank,
(with a copy to Stinson Mag & Fizzell, P.C., 1201 Walnut, Suite 2800,
Kansas City, Missouri 64106, Attention: Richard N. Nixon, Esq.);
notices to a Selling Stockholder shall be sent to the address set
forth for such Selling Stockholder on Schedule II; and notices to
the Underwriters shall be sent to: (a) Piper Jaffray Inc., Piper
Jaffray Tower, 222 South Ninth Street, Minneapolis, Minnesota
55402, Attention: Douglas R. Whitaker, (b) The Robinson-Humphrey
Company, Inc., Atlanta Financial Center, 3333 Peachtree Road, N.E.,
Atlanta, Georgia 30326, Attention: Reynolds C. Faulkner, and (c)
Stifel, Nicolaus & Company, Incorporated, 500 North Broadway, St.
Louis, Missouri 63102, Attention: Rick E. Maples (in each case
with a copy to Bryan Cave LLP, 7500 College Boulevard, Suite 1100,
Overland Park, Kansas 66210, Attention: Thomas W. Van Dyke, Esq.).
14. PARTIES. The Agreement herein set forth is made
-------
solely for the benefit of the Underwriters, the Company and the
Selling Stockholders and, to the extent expressed, directors and
officers of the Company, any person controlling the Company, any
Selling Stockholder or any Underwriter, and their respective
successors and assigns. No other person shall acquire or have any
right under or by virtue of this Agreement. The term "successors
and assigns" shall not include any purchaser, in his status as such
purchaser, from any Underwriter of the Securities.
15. GOVERNING LAW. This Agreement shall be governed by
-------------
the laws of the State of Minnesota, without giving effect to the
choice of law or conflicts of law principles thereof.
16. COUNTERPARTS. This Agreement may be executed in one
------------
or more counterparts, and when a counterpart has been executed by
each party hereto all such counterparts taken together shall
constitute one and the same Agreement.
39
<PAGE> 40
If the foregoing is in accordance with your understanding
of our agreement, please sign and return to us a counterpart
hereof, whereupon this shall become a binding agreement between the
Company and you in accordance with its terms.
Very truly yours,
DUCKWALL-ALCO STORES, INC.
By: ----------------------------------------
Name:
Title:
SELLING STOCKHOLDERS:
By: ----------------------------------------
Name: Glen L. Shank
By: ----------------------------------------
Name: Dennis A. Mullin
By: ----------------------------------------
Name: William J. Morgan
Attorneys-in-Fact for each of the
Selling Stockholders referred to in
Schedule II hereto
CONFIRMED AND ACCEPTED,
as of the date first above written.
PIPER JAFFRAY INC.
By: ----------------------------------------
Name:
Title:
THE ROBINSON-HUMPHREY COMPANY, INC.
By: ----------------------------------------
Name:
Title:
STIFEL, NICOLAUS & COMPANY INCORPORATED
By: ----------------------------------------
Name:
Title:
<PAGE> 41
SCHEDULE I
UNDERWRITER PARTICIPATION
- ----------- -------------
Piper Jaffray Inc. 000
Stifel, Nicolaus & Company, Incorporated 000
The Robinson-Humphrey Company, Inc. 000
TOTAL UNDERWRITERS (3) 1,400,000
<PAGE> 42
SCHEDULE II
SELLING STOCKHOLDER FIRM SHARES
-------------------------------
Name and Address of Number of Firm
Selling Stockholder Shares To Be Sold
- ------------------ -----------------
Kansas Public Employees Retirement System 171,337
by KDF, a Massachusetts Nominee
c/o Pacholder Associates, Inc.
Bank One Towers
8044 Montgomery Road, Suite 382
Cincinnati, Ohio 45236
Duckwall-ALCO Profit Sharing Plan & Trust 228,663
-------
by Boatmen's Trust Company, as Trustee
10th and Baltimore
P.O. Box 419038
Kansas City, Missouri 64183
Total . . . . . . . . . . . . . . . . . . . . . . . . . 400,000
=======
<PAGE> 43
SCHEDULE III
Officers
- --------
Glen L. Shank
James E. Shoenbeck
James R. Fennema
Charles E. Bogan
Bryan M. DeCordova
Dennis P. Alesio
Tom L. Canfield, Jr.
John E. Hedeen
Gary W. Lowry
David W. Mills
Directors Personally Holding Shares as of September 3, 1996
- -----------------------------------------------------------
Dennis A. Mullin
<PAGE> 1
PIPER JAFFRAY INC.
THE ROBINSON-HUMPHREY COMPANY, INC.
STIFEL, NICOLAUS & COMPANY, INCORPORATED
c/o Piper Jaffray Tower
222 South Ninth Street
Minneapolis, Minnesota 55402
Gentlemen:
The undersigned stockholder (the "Stockholder") of Duckwall-
ALCO Stores, Inc., a Kansas corporation (the "Company"), wishes to
facilitate the offering (the "Offering") of 1,400,000 shares (the
"Shares") of Common Stock, par value $.0001 per share, of the
Company (the "Common Stock"). The Stockholder recognizes that the
Offering will be of benefit to the Company and the Stockholder.
In consideration of the foregoing and in order to induce
the several underwriters (the "Underwriters") named in that certain
Purchase Agreement between the Company and such Underwriters (the
"Purchase Agreement") to complete the purchase of the Shares
pursuant to such Purchase Agreement, the Stockholder hereby agrees
with the Underwriters as follows:
1. During the term of this Agreement specified in
paragraph 3 hereof, the Stockholder shall not, directly or
indirectly, offer for sale, sell or agree to sell or otherwise
dispose of (except for bona fide gifts), any shares of Common
Stock, or any securities convertible into, exercisable or
exchangeable for, or that are the economic or voting equivalent of,
any such shares of Common Stock, or announce the offering of or
register with the Securities and Exchange Commission any shares of
Common Stock (collectively, the "Subject Shares"), without the
prior written consent of Piper Jaffray Inc.
2. Any purported transfer of any Subject Shares in
violation of paragraph 1 hereof (an "Unauthorized Transfer") will
be null and void. The Company will not be required to register,
recognize or give effect to any Unauthorized Transfer, and the
purported transferee of any Subject Shares or any interest therein
pursuant to an Unauthorized Transfer will not acquire any rights in
any such Shares.
<PAGE> 2
PIPER JAFFRAY INC.
THE ROBINSON-HUMPHREY COMPANY, INC.
STIFEL, NICOLAUS & COMPANY, INCORPORATED
Page 2
3. This Agreement shall become effective upon the later
of the date of the Prospectus (as defined in the Purchase
Agreement) or, as to the Stockholder, the execution hereof by the
Stockholder and shall terminate upon the earlier of (i) the date
which is 120 days after the date of the Prospectus (as defined in
the Purchase Agreement) or (ii) the termination or cancellation of
the Purchase Agreement for any reason prior to the sale to the
Underwriters of the Shares.
4. The Stockholder hereby represents that he or she has
not taken, and agrees that he or she shall not take, directly or
indirectly, during the term of this Agreement pursuant to paragraph
3 hereof, any action that might reasonably be expected to cause or
result in stabilization or manipulation of the price of the Common
Stock in violation of law.
5. This Agreement shall be construed and enforced in
accordance with the laws of the State of Kansas. The Underwriters
shall be entitled to all legal and equitable remedies in enforcing
this Agreement, including without limitation, an injunction against
any sale in contravention of this Agreement. If at any time
subsequent to the date of this Agreement, any provision of this
Agreement shall be held by any court of competent jurisdiction to
be illegal, void or unenforceable, such provision shall be of no
force or effect, but the illegality or unenforceability of such
provision shall have no effect upon, and shall not impair the
enforceability of, any other provision of this Agreement.
6. This Agreement may be executed in one or more
counterparts, each of which shall be an original, but all of which
taken together shall constitute one and the same instrument.
7. All of the terms and provisions of this Agreement
shall inure to the benefit of and be binding upon the respective
heirs, successors, personal representatives and permitted assigns
of the parties hereto.
<PAGE> 3
PIPER JAFFRAY INC.
THE ROBINSON-HUMPHREY COMPANY, INC.
STIFEL, NICOLAUS & COMPANY, INCORPORATED
Page 3
If the foregoing correctly sets forth the agreement
between the Stockholder and the Underwriters, please indicate your
acceptance in the space provided for that purpose.
Very truly yours,
[STOCKHOLDER]
[Number of Shares]
Date: October ---, 1996 ------------------------------------------
This Agreement covers all shares beneficially owned by
the Stockholder, including any shares purchased pursuant to the
Offering. The number of shares shown above for the Stockholder is
based upon information currently available to the Company and may
not include all shares subject to this Agreement.
<PAGE> 4
PIPER JAFFRAY INC.
THE ROBINSON-HUMPHREY COMPANY, INC.
STIFEL, NICOLAUS & COMPANY, INCORPORATED
Page 4
Agreed and accepted as of the
- ---- day of October, 1996:
PIPER JAFFRAY INC.
By:-----------------------------------
Name:
Title:
THE ROBINSON-HUMPHREY COMPANY, INC.
By:--------------------------------------
Name:
Title:
STIFEL, NICOLAUS & COMPANY, INCORPORATED
By:--------------------------------------
Name:
Title:
<PAGE> 1
STINSON, MAG & FIZZELL
A PROFESSIONAL CORPORATION
1201 WALNUT STREET
KANSAS CITY, MISSOURI 64106-2150
MAILING ADDRESS:
100 SOUTH FOURTH STREET P.O. BOX 419251 7500 WEST 110TH STREET
ST. LOUIS, MISSOURI KANSAS CITY, MISSOURI OVERLAND PARK, KANSAS
63102 64141-6251 66210
TELEPHONE (314) 259-4500 TELEPHONE (816) 842-8600 TELEPHONE (913) 451-8600
FACSIMILE (314) 259-4599 FACSIMILE (816) 691-3495 FACSIMILE (913) 344-6777
OCTOBER 10, 1996
Duckwall-ALCO Stores, Inc.
401 Cottage Street
Abilene, Kansas 67410-0219
Gentlemen:
We refer to the Registration Statement on Form S-1 of Duckwall-ALCO Stores,
Inc., a Kansas corporation (the "Company"), filed with the Securities and
Exchange Commission (File No. 333-12081) for the purpose of registering
under the Securities Act of 1933, as amended (the "Act"), 1,000,000 shares of
Common Stock, par value of $.0001 per share, to be offered by the Company,
400,000 shares to be offered by certain stockholders of the Company ("Selling
Stockholders") and 210,000 shares which may be offered by the Company pursuant
to an over-allotment option granted to the underwriters for this offering.
In connection therewith, we have examined the Articles of Incorporation,
as amended, the Bylaws of the Company, as presently in effect, minutes of the
applicable meetings of the board of directors of the Company, together with
such other corporate records, certificates of public officials and other
documents as we have deemed necessary to enable us to express an opinion on the
matters covered hereby. In such examination, we have assumed the genuineness
of all signatures on original documents and the conformity to the originals
of all copies submitted to us as conformed copies or photocopies.
Based upon the foregoing, it is our opinion that:
1. The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Kansas.
2. All necessary corporate action has been taken to authorize the
issuance and sale by the Company of 1,210,000 shares of Common Stock, par
value $.00001 per share, for the consideration set forth in such Registration
Statement, and, upon such issuance and sale,
238645 v1
<PAGE> 2
Duckwall-ALCO Stores, Inc.
October 10, 1996
Page 2
such shares will be duly and legally issued, fully paid and nonassessable.
3. The 400,000 shares of Common Stock to be sold by the Selling
Stockholders are duly and legally issued, fully paid and nonassessable.
We hereby consent to the reference to our firm under the heading "Legal
Matters" in the Prospectus which constitutes a part of such Registration
Statement. We also consent to the inclusion of this opinion in the Registration
Statement as an exhibit thereto.
In giving this consent, we do not thereby admit that we are within the
category of persons whose consent is required under Section 7 of the Act or
the rules and regulations of the Securities and Exchange Commission.
We are delivering this opinion to the Company, and no person other than
the Company may rely upon it.
Very truly yours,
/s/ STINSON, MAG & FIZZELL, P.C.
<PAGE> 1
Amendment No. 1, dated as of September 16, 1996 (this
"Amendment"), to the Second Amended and Restated Loan Agreement,
dated as of October 18, 1995 (as heretofore amended, supplemented
or otherwise modified, the "Agreement") among Duckwall-Alco
---------
Stores, Inc. (the "Borrower") BankAmerica Business Credit, Inc.,
individually and as agent (the "Agent") and Transamerica Business
Credit Corporation (collectively with the Agent, the "Lenders").
WITNESSETH
WHEREAS, Borrower has requested that the Agreement be amended by
the Lenders' amending certain provisions of the Agreement and the
Lenders are willing to do so on the terms and conditions as
hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and for other
good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereto hereby agree as follows:
1. DEFINED TERMS. Unless otherwise defined herein
-------------
capitalized terms used herein have the meanings set forth
in the Agreement.
2. CONSENT. The Lenders consent to the assignment to
-------
and assumption by the Borrower of fourteen (14) leases of
store locations from Val Corporation, an Indiana
Corporation.
3. AMENDMENTS.
----------
(a) Section 7.2 (1) is hereby amended in its entirety
to read as follows:
"Upon request, within forty-five (45) days after
the end of each fiscal quarter, a report of the
Capital Expenditures of the Borrower for such
quarter and for the period from the beginning of
the then current Fiscal Year to the end of such
quarter, in each case, detailing the amount of
Capital Expenditures related to the new stores (the
"New Stores") opened with the proceeds from the
----------
Borrower's public offering of shares of its common
equity securities (the "Offerings") and showing
---------
the balance of the proceeds remaining from each
Offering".
(b) Section 9.17 and Section 9.21 are each hereby
amended by adding an "s" to the term "Offering" to
make it "Offerings" whenever it appears therein.
(c) Section 9.18 is hereby amended in its entirety to
read as follows:
<PAGE> 2
"Store Acquisitions and Lease Obligations.
----------------------------------------
Neither Borrower nor its Subsidiaries shall
increase the number of store facilities by more
than 40 additional stores (a maximum of 18 "Alco"
stores and a maximum of 22 "Duckwall" stores) in
any Fiscal Year except that in the 1998 Fiscal
Year, the increase in the number of store
facilities shall not exceed 50 (not more than
27 "Alco Stores" nor 23 "Duckwall" stores). Neither
the Borrower nor any of its Subsidiaries shall
enter into any lease of real or personal property
as lessee or sublessee, if, after giving affect
thereto, the aggregate amount of Rentals (as
hereinafter defined) payable by the Borrower and
its Subsidiaries in any Fiscal Year in respect of
such lease and all other such leases would increase
the current annual lease obligations of Borrower
and its Subsidiaries by more than $2,000,000 per
annum (such amount being referred to herein as
"Permitted Rentals"). The term "Rentals"
----------------- -------
means all payments due as a lessee or sublessee
under a lease for the basic rent".
(d) Section 9.19 and Section 9.24 are each hereby
amended by adding the following after the phrase
"Adjusted Tangible Net Worth" whenever it appears
in the text thereof:
"(excluding from the calculation of Adjusted
Tangible Net Worth solely for purposes of this
covenant, 80% of the proceeds of any Offering other
than Borrower's initial Offering)".
4. REPRESENTATIONS AND WARRANTIES. To induce Lenders to
------------------------------
enter into this Amendment, Borrower hereby represents and
warrants as follows, with the same effect as if such
representations and warranties were set forth in the
Agreement.
(a) Borrower has the power and authority to enter into
this Amendment, and has taken all corporate action
required to authorize its execution, delivery and
performance of this Amendment. This Amendment has
been duly executed and delivered by Borrower and
the Agreement, as amended hereby, constitutes the
valid and binding obligation of Borrower,
enforceable against Borrower n accordance with its
terms. The execution, delivery, and performance of
this Amendment and the Agreement, as amended
hereby, by Borrower, will not violate its
certificate of incorporation or by-laws or any
agreement or legal requirement binding on Borrower.
(b) On the date hereof and after giving effect to the
terms of this Amendment, (i) the Agreement and the
other Loan Documents are in full force and effect
and, to the extent that Borrower is a party
thereto, constitutes its binding obligation,
enforceable against it in accordance
<PAGE> 3
with their respective terms; (ii) no Default or Event of
Default has occurred and is continuing; and (iii)
Borrower does not have any defense to or setoff,
counterclaim or claim against payment of the
obligations and enforcement of the Loan Documents
based upon a fact or circumstance existing or
occurring on or prior to the date hereof.
5. LIMITED EFFECT. Except as expressly amended hereby,
--------------
all of the covenants and provisions of the Agreement are
and shall continue to be in full force and effect.
6. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY,
-------------
AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE
INTERNAL LAWS (AS OPPOSED TO THE CONFLICT OF LAWS
PROVISIONS) OF THE STATE OF NEW YORK.
7. COUNTERPARTS. This Amendment may be executed by the
------------
parties hereto in any number of separate counterparts,
each of which shall be an original, and all of which
taken together shall be deemed to constitute one and the
same.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed by their respective proper and duly authorized
officers as of the day and year first above written.
DUCKWALL-ALCO STORES, INC.
By: /s/ Bryan M. DeCordova
---------------------------------------
Name: Bryan M. DeCordova
-------------------------------------
Title VP-Finance
-------------------------------------
BANKAMERICA BUSINESS CREDIT, INC.
By: /s/ Walter T. Shellman
---------------------------------------
Name: Walter T. Shellman
-------------------------------------
Title: Vice President
------------------------------------
TRANSAMERICA BUSINESS CREDIT
CORPORATION
By: /s/ Terrel W. Harris
---------------------------------------
Name: Terrel W. Harris
-------------------------------------
Title: Region Credit Manager
------------------------------------
