UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. __ )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-12
ABLE ENERGY, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
COMMON STOCK, PAR VALUE $0.001 PER SHARE
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing:
(1) Amount previously paid:
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(2) Form, Schedule or Registration Statement No:
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(3) Filing party:
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(4) Date Filed:
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ABLE ENERGY, INC.
198 GREEN POND ROAD
ROCKAWAY, NEW JERSEY 07866
(973) 625-1012
Dear Stockholder:
We cordially invite you to attend a special meeting of stockholders to
be held at 10:00 a.m. on _________, 2005 at the offices of Ferber Frost Chan &
Essner, LLP, 530 Fifth Avenue, New York, New York 10036.
At the special meeting, you will be asked to approve, for purposes of
NASD Marketplace Rule 4350(i) and Delaware Section 203 of the Delaware General
Corporation Law, an issuance of our common stock which will result in the
acquisition of substantially all of the assets of All American Plazas, Inc., or
All American, a Pennsylvania corporation, pursuant to the Stock Purchase
Agreement, dated as of June 16, 2005, by and among the shareholders of All
American and us (as amended and restated into the Asset Purchase Agreement as of
the same date). Our board of directors recommends the approval of this proposal.
In addition, you will also be asked to approve, for purposes of NASD
Marketplace Rule 4350(i) only, the potential issuance of our common stock
through the exercise of certain convertible debentures we issued in connection
with a $2.5 million sale of such debentures which took place in July 12, 2005. A
description of this convertible debenture financing together with the financing
documents are disclosed in Form 8-K filed July 15, 2005.
Finally, you will be asked to act on such other business as may properly
come before the special meeting.
Enclosed is a notice of special meeting and proxy statement containing
detailed information concerning the acquisition. Whether or not you plan to
attend the special meeting, we urge you to read this material carefully. I look
forward to seeing you at the meeting.
Sincerely,
Christopher P. Westad
Acting Chief Executive Officer and
Chairman of the Board,
This proxy statement is dated _______, 2005 and is first being mailed to our
stockholders on or about _______, 2005.
YOUR VOTE IS IMPORTANT. WHETHER YOU PLAN TO ATTEND THE SPECIAL MEETING OR NOT,
PLEASE SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD AS SOON AS POSSIBLE IN THE
ENVELOPE PROVIDED.
ABLE ENERGY, INC.
198 GREEN POND ROAD
ROCKAWAY, NEW JERSEY 07866
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON _________, 2005
TO THE STOCKHOLDERS OF ABLE ENERGY, INC.:
NOTICE IS HEREBY GIVEN that a special meeting of stockholders, including
any adjournments or postponements thereof, of Able Energy, Inc., a Delaware
corporation, will be held at 10:00 a.m. eastern time, on ___________, 2005, at
Ferber Frost Chan & Essner, LLP, 530 Fifth Avenue, New York, New York 10036, for
the following purposes:
o to consider and vote upon a proposal, for purposes of NASD Marketplace
Rule 4350 and Section 203 of the Delaware General Corporation Law to
effect an issuance of our common stock which will result in the
acquisition of substantially all of the assets of All American Plazas,
Inc., or All American, pursuant to the Stock Purchase Agreement, dated
as of June 16, 2005 (as amended and restated into the Asset Purchase
Agreement as of the same date), among All American and us;
o to consider and vote upon a proposal, for purposes of NASD Marketplace
Rule 4350(i) only, the potential issuance of our common stock through
the exercise of certain convertible debentures we issued in connection
with a $2.5 million sale of such debentures which took place in July 12,
2005; and
o to consider and vote upon such other business as may properly come
before the meeting or any adjournment or postponement thereof.
The board of directors has fixed the close of business on __________,
2005 as the date for which our stockholders are entitled to receive notice of,
and to vote at, the special meeting and any adjournments or postponements
thereof. Only the holders of record of our common stock on that date are
entitled to have their votes counted at the special meeting and any adjournments
or postponements thereof.
We will not transact any other business at the special meeting, except
for business properly brought before the special meeting or any adjournment or
postponement by our board of directors.
Your vote is important. Please sign, date and return your proxy card as
soon as possible to make sure that your shares are represented at the special
meeting. If you are a stockholder of record of our common stock, you may also
cast your vote in person at the special meeting. If your shares are held in an
account at a brokerage firm or bank, you must instruct your broker or bank on
how to vote your shares.
Our board of directors unanimously recommends that you vote "FOR" the
proposal to effect an issuance of our common stock which will result in our
acquisition of All American.
By Order of the Board of Directors,
Christopher P. Westad
Acting Chief Executive Officer and
Chairman of the Board
_________, 2005
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TABLE OF CONTENTS
SECTION PAGE
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QUESTIONS AND ANSWERS REGARDING THE MATTERS 2
SUBJECT TO VOTE
SUMMARY 5
SELECTED HISTORICAL FINANCIAL INFORMATION 11
ALL AMERICAN HISTORICAL FINANCIAL INFORMATION 11
SELECTED UNAUDITED PRO FORMA COMBINED 18
FINANCIAL INFORMATION
RISK FACTORS 20
FORWARD LOOKING STATEMENTS 25
THE SPECIAL MEETING 26
THE ACQUISITION PROPOSAL 28
THE ASSET PURCHASE AGREEMENT 35
THE SECURITIES PURCHASE AGREEMENT 40
(AND DOCUMENTS RELATING TO THE FINANCING)
INFORMATION ABOUT ALL AMERICAN 40
DIRECTORS AND MANAGEMENT OF ABLE ENERGY 55
FOLLOWING THE ACQUISITION OF ALL AMERICAN
BENEFICIAL OWNERSHIP OF OUR SECURITIES 57
MARKET PRICE INFORMATION AND DIVIDENDS 58
DESCRIPTION OF OUR SECURITIES 58
STOCKHOLDER PROPOSALS 59
WHERE YOU CAN FIND MORE INFORMATION 59
ANNEX A - ASSET PURCHASE AGREEMENT
ANNEX B - AUDITED FINANCIALS
PROXY CARD
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QUESTIONS AND ANSWERS ABOUT THE MATTERS SUBJECT TO VOTE
WHAT IS BEING VOTED ON?
You are being asked to consider and vote upon a proposal, for purposes
of NASD Marketplace Rule 4350 and Section 203 of the Delaware General
Corporation Law, to effect an issuance of our common stock which will result in
our acquisition of All American Plazas, Inc., or All American, pursuant to the
Asset Purchase Agreement, dated as of June 16, 2005, by and among All American
and us (which agreement was originally entered into as the Stock Purchase
Agreement, but was thereafter amended and restated as such Asset Purchase
Agreement). We refer to this transaction in places throughout this proxy as the
"acquisition".
In addition, you will also be asked to approve, for purposes of NASD
Marketplace Rule 4350(i) only, the potential issuance of our common stock
through the exercise of certain convertible debentures we issued in connection
with a $2.5 million sale of such debentures which took place in July 12, 2005. A
description of this convertible debenture financing together with the financing
documents are disclosed in the Current Report on Form 8-K filed July 15, 2005.
We refer to this financing transaction in places throughout this proxy as the
"financing".
WHY ARE WE PROPOSING THE ACQUISITION AND SEEKING APPROVAL FOR THE FINANCING?
We will continue to operate in the same manner follow our acquisition of
All American in the home heating oil and HVAC business. The Board and management
of the Company believe that based upon the acquisition, we will be able to
expand our distribution of home heating oil. We believe that the increased
buying power resulting from the acquisition will result in our ability to
negotiate more financially advantageous fuel purchase credit terms. Also we plan
to utilize the All American truck stop locations as additional distribution
centers to store fuel and house home heating oil delivery vehicles for sale of
its primary product. As part of the relationship established between us and All
American, both companies purchase their fuel requirements primarily through
TransMontaigne Product Services, Inc. In addition, both us and All American have
created additional business relationships with TransMontaigne. In this regard,
we have an operations subsidiary named PriceEnergy.com which has created a
network of distributors with the assistance of TransMontaigne and All American
to deliver fuel upon receiving orders through use of the internet.
We plan with the assistance of All American, to continue to expand its
third party dealer network to enable PriceEnergy.com to deliver home heating oil
throughout the United States.
As a result, we believe that the acquisition of All American will
provide our stockholders with an opportunity to acquire, and participate in, a
company with significant growth potential.
WHAT VOTE IS REQUIRED IN ORDER TO APPROVE THE ACQUISITION PROPOSAL?
The approval of the acquisition of All American will require the
affirmative vote of a majority of the votes cast, in person or by proxy, at the
special meeting.
WHY ARE WE SEEKING APPROVAL FOR THE ACQUISITION AND THE FINANCING?
As a result of being listed for trading on the Nasdaq SmallCap Market,
issuances of our common stock are subject to the NASD Marketplace Rules, such as
Rule 4350. For example, under Rule 4350(i)(1)(B) and 4350(i)(1)(D),
respectively, stockholder approval must be sought when (a) the issuance or
potential issuance will result in a change of control of the issuer or (b) in
connection with a transaction other than a public offering involving the sale,
issuance or potential issuance by the issuer of common stock (or securities
convertible into or exercisable common stock) equal to 20% or more of the common
stock or 20% or more of the voting power outstanding before the issuance for
less than the greater of book or market value of the stock. Furthermore, under
Rule 4350(i)(1)(C), stockholder approval must be sought in connection with an
acquisition of the stock or assets of another company if any director, officer
or substantial shareholder of the issuer has a 5% or greater interest (or such
persons collectively have a 10% or greater interest), directly or indirectly, in
the company or assets to be acquired or in the consideration to be paid in the
transaction or series of related transactions and the present or potential
issuance
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of common stock, or securities convertible into or exercisable for common stock,
could result in an increase in outstanding common shares or voting power of 5%
or more.
Pursuant to the asset purchase agreement relating to the acquisition, we
have agreed to issue shares of our common stock in consideration for
substantially all of the assets of All American. The issuance of common stock to
All American may result in a violation of the foregoing provisions of Rule 4350,
absent stockholder approval for such issuance and the resulting acquisition. In
addition, with respect to the financing, a total of 789,970 shares of our common
stock may be issued assuming full conversion of all debentures and warrants
issued in connection with the financing. On July 12, 2005, the date in which we
entered into the documents relating to the financing, our closing price per
share of our common stock was $17.90 (which was greater than the book value of
our shares). The exercise price of debentures and warrants issued in connection
with the financing is less than the closing price for our shares on July 12,
2005.
The Company is subject to Section 203 of the Delaware General
Corporation Law ("Section 203"), which restricts certain transactions and
business combinations between a corporation and an "interested stockholder" for
a period of three years from the date the stockholder becomes an interested
stockholder. An "interested stockholder" is any entity (or related entites)
which owns 15% or more of a corporation's outstanding voting stock. Subject to
certain exceptions (which do not apply to the acquisition), unless the
transaction is approved by the Board of Directors and the holders of at least
66-2/3% of the outstanding voting stock of the corporation (excluding shares
held by any interested stockholder), Section 203 prohibits significant business
transactions such as a merger with, disposition of assets to, or receipt of
disproportionate financial benefits by the interested stockholder, or any other
transaction that would increase the interested stockholder's proportionate
ownership of any class or series of a corporation's stock.
On December 15, 2004, Timothy Harrington, our CEO at that time, sold an
aggregate of 1,007,300 shares of our common stock to All American. The purchase
price for the sale was $7,500,000, of which $2,750,000 was paid in cash and All
American issued promissory notes in the aggregate principal amount of $4,750,000
to Mr. Harrington. As a result of Mr. Harrington's sale, All American became an
"interested stockholder" for purposes of Section 203 as described above.
Additional details regarding Mr. Harrington's sale of his common stock to All
American were described in the Current Report on Form 8-K filed with the SEC on
December 21, 2004. In addition, as a result of the acquisition, we estimate that
All American will own approximately 12.7 million shares of our common stock (out
of a total of 14.3 million issued and outstanding). Thus, approval under Section
203 is required by 66-2/3% of the stockholders of the company because All
American's common stock ownership of the company will increase from [38%] as of
the date hereof to approximately 89%. All of All American's shares received in
connection with the acquisition will be restricted shares and not subject to any
registration requirement. In addition, approximately 1.67 million of the 11.67
million shares of restricted common stock All American will receive in the
acquisition will be escrowed and may be cancelled in the event that holder of
certain convertible debentures issued by All American elect to convert their
respective debentures into shares of our common stock. For additional
information see "Recent Financing of All American" under the heading, "The
Acquisition Proposal".
WHAT WILL THE NAME OF THE COMPANY BE AFTER THE ACQUISITION AND FINANCING?
Following the completion of the acquisition, the combined company's name
will remain "Able Energy, Inc."
WHAT WILL I RECEIVE IN THE ACQUISITION OR THE FINANCING?
Holders of our securities will continue to hold the Able Energy, Inc.
securities they currently own, and will not receive any of the cash paid in
connection with the acquisition or the financing. We are simply acquiring all of
the outstanding capital stock of All American and obtaining certain financing
for working capital purposes. All American will receive all of our shares of
common stock being issued by us in the acquisition.
WHO WILL MANAGE US UPON COMPLETION OF THE ACQUISITION OF ALL AMERICAN?
Upon completion of the acquisition, we will be managed by the following
persons: Gregory D. Frost will be our Chief Executive Officer and Chairman;
Steven Vella will be our Chief Financial Officer; Christopher P. Westad will be
President of Able Oil Inc.; and Richard Mitstifer will be Executive Vice
President of our new All American Division.
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The financing will not result in any changes to our management or Board
of Directors.
HOW ARE YOU PAYING FOR THE ACQUISITION?
At the closing, we will issue to All American 11,666,667 restricted
shares of our common stock at $3.00 per share for an aggregate purchase price of
$35,000,000. The pricing for this transaction was determined by taking the
average of a 20 consecutive day closing price of a share of our common stock in
February 2005.
The issuance will result in All American owning approximately 89% of our
outstanding common stock on a post-issuance basis. Note, however, that All
American has agreed to escrow 1,666,667 shares and that one share of such
escrowed common stock will be cancelled for each share of common stock which is
issued pursuant to our assumption of certain All American convertible
debentures. Finally, All American has entered into a term sheet dated June 6,
2005 with a third party institutional lender to refinance All American's debt
and provide All American with certain working capital. The financing is subject
to customary closing conditions and is expected to be consummated on October 31,
2005. In the event that All American completes such financing on or before
December 31, 2005, we have agreed, to pay an additional $10,000,000 to All
American, payable in shares of our restricted common stock at $3.00 per share.
WHAT HAPPENS IF THE ACQUISITION OR THE FINANCING IS NOT APPROVED?
If the acquisition is not approved, then we will not be able to
consummate the acquisition upon the terms currently contemplated by the asset
purchase agreement. We may attempt to renegotiate the terms of the acquisition
and seek stockholder approval at a later date.
If the financing is not approved, then we may restructure the financing
or rescind the financing and return all funds to the current debenture and
warrant holders.
WHEN DO YOU EXPECT THE ACQUISITION AND THE FINANCING TO BE COMPLETED?
It is currently anticipated that the acquisition will be completed
promptly following our special meeting of stockholders on _________, 2005. The
financing transaction has been completed, subject to approval of our
stockholders.
IF I AM NOT GOING TO ATTEND THE SPECIAL MEETING OF STOCKHOLDERS IN PERSON,
SHOULD I RETURN MY PROXY CARD INSTEAD?
Yes. After carefully reading and considering the information contained
in this proxy statement, please complete and sign your proxy card. Then return
the enclosed proxy card in the return envelope provided herewith as soon as
possible, so that your shares may be represented at the special meeting.
WHAT WILL HAPPEN IF I ABSTAIN FROM VOTING OR FAIL TO VOTE?
Abstentions are treated as shares present or represented and entitled to
vote at the special meeting and will have the same effect as a vote against the
acquisition or financing proposals. Broker non-votes are not deemed to be
present and represented and are not entitled to vote, and therefore will have no
effect on the outcome of the proposal.
WHAT DO I DO IF I WANT TO CHANGE MY VOTE?
If you wish to change your vote, please send a later-dated, signed proxy
card to Christopher Westad at Able Energy, Inc. prior to the date of the special
meeting or attend the special meeting and vote in person. You also may revoke
your proxy by sending a notice of revocation to Christopher Westad at the
address of our corporate headquarters.
IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
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No. Your broker can vote your shares only if you provide instructions on
how to vote. You should instruct your broker to vote your shares in accordance
with directions provided by your broker.
DO I NEED TO TURN IN MY OLD CERTIFICATES?
No. If you hold your securities in certificate form, as opposed to
holding them through your broker, you do not need to exchange them for new
certificates. Your current certificates will represent your rights in Able
Energy, Inc.
WHO CAN HELP ANSWER MY QUESTIONS?
If you have questions about the acquisition, you may write or call Able
Energy, Inc., 98 Green Pond Road, Rockaway, New Jersey 07866, (973) 625-1012,
Attention: Christopher Westad.
SUMMARY
This summary discusses the material items of the acquisition proposal
and the financing, which are also described elsewhere in this proxy statement.
You should carefully read this entire proxy statement and the other documents to
which this proxy statement refers you. See "Where You Can Find More
Information."
ACQUISITION OF ALL AMERICAN
ALL AMERICAN PLAZAS, INC.
All American, which is headquartered in Myerstown, Pennsylvania, is in
the business of owning, operating and developing truck stops. Its operations
include, but are not limited to, the ancillary merchandising of rights,
products, and other goods and services. All American operates 11 multi-service
truck stops in the United States that sell diesel fuel and related services to
approximately 5,000 trucking accounts and other independent consumers. Its
operations are located at primary interchanges servicing major truck routes in
the northeast region of the United States, and its facilities, known as "All
American Plazas," offer a broad range of products, services, and amenities,
including diesel fuel, gasoline, home-style restaurants, truck washes, truck
preventive maintenance centers, and retail merchandise stores that market
primarily to professional truck drivers and other highway motorists.
THE ACQUISITION
The asset purchase agreement provides for the acquisition by us of
substantially all of All American's assets. We will assume all of All American's
liabilities, except for its debt liabilities. The asset purchase agreement has
an effective date of June 16, 2005. We will enter into a number of leases with
All American for each of its 11 multi-service truck stops. All America intends
that the rental payments under such leases be used to service All American's
debt obligation on its properties. We will issue 11,666,667 restricted shares of
our restricted common stock, par value $.001 per share, at $3.00 per share to
purchase the All American business an aggregate purchase price of $35,000,000.
All American has agreed to escrow 1,666,667 shares of common stock which will be
cancelled on a share for share basis for each share of common stock which we
issue in connection with certain convertible debenture obligations which we will
assume (up to 1,666,667 shares of our common stock).
All American has entered into a term sheet dated June 6, 2005 with a
third party institutional lender to refinance All American's debt and provide
All American with certain working capital. The financing is subject to customary
closing conditions and is expected to be consummated on October 31, 2005. In the
event that All American completes such financing on or before December 31, 2005,
we have agreed to pay an additional $10,000,000 to All American, payable in
shares of our restricted common stock at $3.00 per share.
All American and we plan to complete the acquisition promptly after the
special meeting, provided that:
o our stockholders have approved the asset purchase agreement; and
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o the other conditions specified in the asset purchase agreement have been
satisfied or waived.
If stockholder approval has not been obtained at that time or any other
conditions have not been satisfied or waived, the acquisition will be completed
promptly after stockholder approval is obtained or the remaining conditions are
satisfied or waived.
The asset purchase agreement is included as Annex A to this proxy
statement. We encourage you to read the asset purchase agreement in its
entirety. See "Asset Purchase Agreement."
THE FINANCING
Pursuant to the terms of the Securities Purchase Agreement dated as of
July 12, 2005 (the "SPA") among us and the various purchaser parties named
therein, the purchasers purchased debentures in the aggregate amount of $2.5
Million Dollars evidenced by a Variable Rate Convertible Debenture also dated
July 12, 2005 (the "Debentures"). The Debentures are scheduled to be repaid
within two years from the date of issuance, subject to the occurrence of an
event of default, with interest payable at the rate per annum equal to the LIBOR
for the applicable interest period, plus 4% payable on a quarterly basis on
April 1st, July 1st, October 1st and January 1st, beginning on the first such
date after the date of issuance of the Debentures. The Debentures may be
converted at the option of the various purchasers into shares of our common
stock at a conversion price of $6.50 per share. In addition, the purchasers
shall have the right to receive five (5) year warrants to purchase 192,308 of
common stock at an exercise price of $7.15 per share. Pursuant to the SPA, we
shall also have an optional redemption right (which right shall be mandatory
upon the occurrence of an event of default) to repurchase all of the Debentures
for 125% of the face amount of the Debentures plus all accrued and outstanding
interest and expenses, as well as a right to repurchase all of the Debentures in
the event of the consummation of a new financing in which we sell securities at
a purchase price that is below the conversion price of $6.50 per share. The
conversion price for the Debentures may be adjusted for various customary events
effecting the capitalization of the Company such as stock splits
Pursuant to the Registration Rights Agreement among the parties, the
Purchasers shall have demand registration rights with respect to all shares of
our common stock obtained by them through the conversion of the Debentures, and
we filed a Registration Statement on Form S-3 on August 16, 2005 which is
currently under review by the SEC.
The Purchasers shall also have an additional investment right, for a
period of nine months after the initial registration statement is first declared
effective by the SEC, to purchase units consisting of convertible debentures in
the aggregate amount of up to $15,000,000 (the "Additional Debentures") and
common stock purchase warrants equal to 50% of the face amount of such
Additional Debentures (the "Additional Warrants"). The conversion price of the
Additional Debentures shall be $6.50 per share of common stock with respect to
the first $5,000,000 of Additional Debentures purchased, $7.50 per share of
common stock for the second $5,000,000 of Additional Debentures purchased and
80% of the average weighted price of our common stock during the 20 trading days
immediately prior to the Purchasers' election to purchase the third $5,000,000
of Additional Debentures. The Additional Warrants shall have a five-year term
and an exercise price of 110% of the conversion price. In the event of the
occurrence of a default with respect to the Additional Debentures, we shall have
identical redemption rights to those described in the immediately preceding
paragraph. Moreover, the Company shall have the right to cause the Purchasers'
on a pro rata basis, based on the percentage of their purchase of Debentures, to
exercise their Additional Investment Right; however, each Purchaser may refuse
to exercise their respective purchase right, but in such event, the Purchaser
waives its right to purchase the Additional Debentures. The Agreement provide
that, commencing 90 days following the date the initial registration statement
is declared effective by the SEC, and ending on the 179th calendar day with
regard to the first $5,000,000 in Additional Debentures, if the average weighted
price of our stock for any 20 consecutive trading day period, during said
period, exceeds $7.80 per share. We also have a similar right with regard to the
second $5,000,000 if our stock during the period commencing 180 days, following
such effective date through the 269th day, for any 20 consecutive trading day
period, exceeds $9.00 per share and for the period 270 days following the
SEC-declared effective date through the 360th calendar day, we have a similar
right with regard to the third $5,000,000 traunche if our stock exceeds $10.20.
The documents relating to the financing are attached as exhibits to the
Current Report on Form 8-K, filed July 15, 2005 with the SEC. We recommend that
you review these documents.
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SPECIAL MEETING OF OUR STOCKHOLDERS
DATE, TIME AND PLACE. The special meeting of our stockholders will be
held at 10:00 a.m., eastern time, on _________, 2005, at Ferber Frost Chan &
Essner, LLP, 530 Fifth Avenue, New York, New York 10036 to vote on the proposal
to approve the acquisition proposal.
APPROVAL OF ALL AMERICAN'S STOCKHOLDERS
All American will concurrently solicit the approval of its shareholders
to consummate the transactions contemplated in the Asset Purchase Agreement.
VOTING POWER; RECORD DATE
You will be entitled to vote or direct votes to be cast at the special
meeting if you owned shares of our common stock as of the close of business on
________, 2005, which is the record date for the special meeting. You will have
one vote for each share of common stock you owned at the close of business on
the record date.
VOTE REQUIRED TO APPROVE THE ACQUISITION PROPOSAL AND THE FINANCING
The approval of the issuance of our common stock which will result in
the acquisition of the All American assets will require the affirmative vote of
at two-thirds of the eligible votes cast, in person or by proxy, at the special
meeting of those stockholders. All American currently owns 38% of our common
stock which, according to Section 203 of the Delaware General Corporation Law, a
company which owns greater than 15% of a company is an "interested stockholder.
For the purposes of the acquisition, All American is an "interested stockholder"
and, hence, ineligible to vote in favor of the acquisition.
The approval or ratification by the stockholders of the financing
relating to our issuance of certain debentures and warrants will require the
affirmative vote of a majority of the votes cast, in person or by proxy, at the
special meeting of the stockholders.
APPRAISAL OR DISSENTERS RIGHTS
No appraisal rights are available under the Delaware General Corporation
Law for our stockholders in connection with the acquisition proposal.
PROXIES
Proxies may be solicited by mail, telephone or in person.
If you grant a proxy, you may still vote your shares in person if you
revoke your proxy before the special meeting.
COSTS OF SOLICITATION OF PROXIES
The cost of soliciting proxies, including expenses in connection with
preparing and mailing this proxy statement, will be borne by us. In addition, we
will reimburse brokerage firms and other persons representing beneficial owners
of our common stock for their expenses in forwarding proxy material to such
beneficial owners. Solicitation of proxies by mail may be supplemented by
telephone, telegram, telex and personal solicitation by our directors, officers
or employees. No additional compensation will be paid for such solicitation.
This proxy statement and the accompanying proxy are being mailed on or
about __________, 2005 to all stockholders entitled to notice of, and to vote
at, the special meeting.
STOCK OWNERSHIP
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Of the 2,607,320 outstanding shares of our common stock, our officers
and directors, who own an aggregate of approximately 1.0% of our outstanding
shares of common stock, have agreed to vote such shares in favor of the
acquisition proposal.
OUR BOARD OF DIRECTORS' RECOMMENDATION
After careful consideration, our board of directors has determined
unanimously that both the acquisition proposal and the financing are fair to,
and in the best interests of our stockholders.
In reaching its decision relating to the acquisition, the board
considered the opinion of Ehrenkrantz King Nussbaum Inc., that, as of the date
of its opinion, and based on conditions that existed as of that date, upon and
subject to the considerations described in its opinion and based upon such other
matters as Ehrenkrantz King Nussbaum Inc. considered relevant, the consideration
to be provided by us in connection with the All American acquisition is fair to
our current stockholders from a financial point of view. See "Fairness Opinion."
With respect to the financing, our board also considered two alternative
proposals regarding similar financing which were offered by other parties and
accessed the Company's ability to service such debt or convert such debt into
equity and determined after consideration in several meetings that the terms of
the financing were the most favorable terms to the Company.
Accordingly, our board has unanimously approved and declared advisable
the acquisition and unanimously recommends that you vote or instruct your vote
to be cast "FOR" the approval of the acquisition proposal.
INTERESTS OF OUR DIRECTORS AND OFFICERS IN THE ACQUISITION OR FINANCING
When you consider the recommendation of our board of directors that you
vote in favor of adoption of the acquisition proposal, you should keep in mind
that certain of our directors and officers have interests in the acquisition
that are different from, or in addition to, your interest as a stockholder.
Frank Nocito, our Vice President, Business Development, has an interest
in All American. Since 2004, Mr. Nocito has been Vice President of All American.
In 2003, Mr. Nocito, as Vice President of All American Industries Corp., a
nominee holding company created for purposes of such acquisition, acquired all
of the issued and outstanding stock of All American. In 2004, Mr. Nocito and his
wife created, for the benefit of their family members, including seven children,
the Chelednik Family Trust, and all the issued and outstanding stock of All
American was transferred to this Trust. In addition, pursuant to an agreement
between Gregory Frost, a member of our board, and this Trust, Mr. Frost is also
the beneficial holder of 15.05% of the outstanding common stock of All American.
Mr. Frost and Jonathan Austern are co-trustees of the Chelednik Family Trust.
It is anticipated that our current board of directors will remain on the
board thereafter. In addition, Richard A. Mitstifer, who is currently the
President of All American, will join of our board of directors after the
acquisition as Executive Vice President, and Christopher Westad will remain as
our Acting CEO and the Chairman of the Board.
INTERESTS OF DIRECTORS AND OFFICERS OF ALL AMERICAN IN THE ACQUISITION OR
FINANCING
You should understand that some of the current directors and officers of
All American have interests in the acquisition that are different from, or in
addition to, your interest as a stockholder. In particular, Richard A.
Mitstifer, who is currently the President of All American, will become our
Executive Vice President of. Also, Sharon Chelednik, All American's Vice
Chairman of the board of directors, is the majority shareholder of All American,
so it is possible that potential conflicts of interest may arise with respect to
her obligations as both a director and shareholder of All American.
CONDITIONS TO THE COMPLETION OF THE ACQUISITION
The obligations of All American and us to complete the acquisition are
subject to the satisfaction or waiver of specified conditions before completion
of the acquisition, including the following:
8
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CONDITIONS TO OUR OBLIGATIONS:
o receipt of stockholder approval from our stockholders;
o the accuracy of the representations and warranties made by All
American in the asset purchase agreement as of the closing date
and the absence of material adverse changes to the assets,
liabilities, business, finances or operations of All American
prior to the closing;
o the performance of and compliance with all of the covenants
made, and obligations to be performed, by All American pursuant
to the asset purchase agreement at or prior to the closing,
including the delivery of certain required documents;
o the requisite third-party consents shall have been obtained; and
o the absence of claims by third parties regarding the ownership
of a material portion of the assets being acquired (other than
as disclosed in the asset purchase agreement) or the entitlement
to a portion of the purchase price.
CONDITIONS TO THE OBLIGATIONS OF ALL AMERICAN:
The obligation of All American to complete the acquisition is further
subject to the following conditions:
o the accuracy of the representations and warranties made by us in
the asset purchase agreement as of the closing date and the
absence of material adverse changes to our assets, liabilities,
business, finances or operations taken as a whole prior to the
closing;
o receipt of stockholder approval from All American's
shareholders;
o the performance of and compliance with all of the covenants
made, and obligations to be performed, by us pursuant to the
asset purchase agreement at or prior to the closing, including
the delivery of certain required documents;
o the requisite third-party consents shall have been obtained; and
o the absence of any injunction or other order that prohibits the
sale of a material portion of the assets being acquired by us.
TERMINATION, AMENDMENT AND WAIVER
The asset purchase agreement may be terminated at any time prior to the
completion of the acquisition, whether before or after receipt of the approval
of our stockholders, by mutual written consent of us and All American.
In addition, either All American or we may terminate the asset purchase
agreement if:
o a material breach of any representation, warranty or obligation
contained in the asset purchase agreement exists that may not be
cured within 30 days written notice of such breach; or
o any condition contained in the asset purchase agreement have not
been fulfilled.
If permitted under applicable law, either All American or we may waive
conditions for our own respective benefit and consummate the acquisition even
though one or more of these conditions have not been met. We cannot assure you
that all of the conditions will be satisfied or waived or that the acquisition
will occur.
9
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REGULATORY MATTERS
The acquisition and the transactions contemplated by the asset purchase
agreement are not subject to any federal or state regulatory requirement or
approval.
10
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SELECTED HISTORICAL FINANCIAL INFORMATION
We are providing the following financial information to assist you in
your analysis of the financial aspects of the acquisition. The All American
historical information is derived from the audited financial statements of All
American as of and for each of the years ended September 30, 2004, 2003 and
2002. Our historical information is derived from our audited financial
statements as of June 30, 2005 and 2004, and is incorporated by reference to our
Annual Report on Form 10-K filed September 28, 2005. The information is only a
summary and should be read in conjunction with each company's historical
consolidated financial statements and related notes contained elsewhere herein.
The historical results included below and elsewhere in this proxy statement are
not indicative of the future performance of either All American or us.
ALL AMERICAN HISTORICAL FINANCIAL INFORMATION
The audited financial statements for All American for the years ended
September 30, 2004, 2003 and 2002 are presented in Annex C. The unaudited
balance sheet statements of All American for the month ended July 31, 2005 are
presented below:
ALL AMERICAN PLAZAS, INC.
Statement of Operations
for the MONTH OF JULY 2005
CURRENT PERIOD PERC YEAR TO DATE PERC
Revenue
Net Sales 13,759,010.71 100.00 121,002,450.89 100.00
Cost of Sales
Opening Inventory 2,636,774.74 2,737,848.92
Purchases 12,062,973.28 106,229,711.45
Closing Inventory 2,830,450.39 2,830,450.39
------------------- -------------------
Total Cost of Goods 11,869,297.63 86.26 106,137,109.98 87.71
------------------- -------------------
Gross Profit 1,889,713.08 13.73 14,865,340.91 12.28
Expenses
Direct Labor 588,075.45 4.27 5,409,892.88 4.47
Custodial Labor 4,144.35 0.03 40,015.64 0.03
Payroll Taxes 89,654.24 0.65 652,324.16 0.53
Employee Health Insurance 32,556.03 0.23 363,788.79 0.30
Employee Meals 6,612.00 0.04 69,628.89 0.05
Rental-Real Estate 39,055.00 0.28 390,550.00 0.32
Utilities 103,196.43 0.75 1,050,575.73 0.86
Building Repr & Expnse 14,974.28 0.10 291,438.15 0.24
Equipment Repr & Expnse 78,718.54 0.57 439,732.51 0.36
Supplies 73,118.07 0.53 581,078.01 0.48
Supplies-Indirect 14,544.56 0.10 161,695.12 0.13
Depreciation-Bldg 95,634.21 0.69 1,017,687.06 0.84
Depreciation-Equip 23,149.59 0.16 248,448.80 0.20
Real Estate Tax 21,748.09 0.15 251,964.71 0.20
Equipment Rentals 4,793.08 0.03 60,893.98 0.05
Laundry 3,668.46 0.02 31,677.11 0.02
Vehicle Repair & Expnse 12,139.64 0.08 102,678.32 0.08
Refuse & Snow Removal 16,714.37 0.12 178,734.75 0.14
Advertising 19,565.60 0.14 161,177.97 0.13
Billboard Advertising 10,891.11 0.07 148,122.28 0.12
Travel 0.00 0.00 1,141.82 0.00
FRANCHISE FEES 57,114.00 0.41 454,799.16 0.37
Promotional Fees 10,448.52 0.07 146,148.11 0.12
Telephone 10,956.46 0.07 115,007.98 0.09
Accounting Services 18,250.00 0.13 182,500.00 0.15
11
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Postage 933.29 0.00 10,530.98 0.00
Custodial Allocation 28,325.95 0.20 158,594.75 0.13
Workmans Compensation Insurance 22,229.39 0.16 222,293.90 0.18
(Over) or Short 8,456.45 0.06 24,280.20 0.02
Uniforms 5,734.27 0.04 54,592.82 0.04
Dues & Subscriptions 3,696.93 0.02 36,279.75 0.02
Contributions 55.00 0.00 1,663.84 0.00
Meals & Entertainment 0.00 0.00 3.98 0.00
Other Taxes 201.10 0.00 27,206.72 0.02
Remedial Expense 25,023.01 0.18 101,944.02 0.08
Insurance 68,903.85 0.50 689,245.50 0.56
Professional Fees 0.00 0.00 2,500.00 0.00
Miscellaneous Expense 6,457.31 0.04 52,733.12 0.04
------------------- -------------------
Total Expenses 1,519,738.63 11.04 13,933,571.51 11.51
------------------- -------------------
Income(Loss) From Operations 369,974.45 2.68 931,769.40 0.77
12
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ALL AMERICAN PLAZAS, INC.
Statement of Operations
for the MONTH OF JULY 2005
CURRENT PERIOD PERC YEAR TO DATE PERC
Other Income/Expense
Showers 16,032.24 149,598.74
Scales 53,550.46 532,614.44
Other Income 9,016.27 106,333.46
Rents Received 13,211.94 210,195.36
Misc. Commission 16,257.35 171,042.82
Vending Income 19,062.16 272,567.58
Telephone Commissions (2,096.22) (3,501.31)
Gain (Loss) on Sale of Assets 0.00 800.00
------------------- -------------------
Total Other Income/Expense 125,034.20 0.90 1,439,651.09 1.18
CORPORATE BURDEN
Supervisory Wages 61,742.27 0.44 678,409.85 0.56
Accounting Services (18,250.00) (0.13) (182,500.00) (0.15)
Supplies 1,644.00 0.01 29,471.96 0.02
Central Maintenance (6,000.00) (0.04) (59,789.80) (0.04)
Payroll Taxes 8,944.93 0.06 37,582.40 0.03
Employee Health Insurance 5,255.69 0.03 64,234.67 0.05
Employee Meals 1,275.04 0.00 15,963.83 0.01
Equipment Rpr & Expnse 3,713.24 0.02 40,377.92 0.03
Workmans Compensation Ins 1,022.79 0.00 10,227.90 0.00
Depreciation 4,643.54 0.03 43,361.25 0.03
Advertising 3,226.18 0.02 34,163.73 0.02
Equipment Rentals 200.00 0.00 3,447.07 0.00
Rent 0.00 0.00 3,800.00 0.00
Miscellaneous Expnse 6,595.38 0.04 9,142.88 0.00
Travel 2,672.18 0.01 10,987.17 0.00
Meals & Entertainment 182.92 0.00 1,858.50 0.00
Postage 1,612.57 0.01 24,906.87 0.02
Dues & Subscriptions 907.13 0.00 18,521.36 0.01
Contributions 3,349.00 0.02 7,349.00 0.00
Miscellaneous Taxes 8,399.24 0.06 48,646.64 0.04
Vehicle Repr & Expnse 2,777.58 0.02 36,391.25 0.03
Professional Fees 17,215.00 0.12 225,218.35 0.18
Insurance 15.00 0.00 (4,763.81) 0.00
Interest Expense 169,042.75 1.22 1,214,025.77 1.00
Amortization Expnse 17,845.78 0.12 316,330.02 0.26
Officer's Life Insurance 7,143.33 0.05 48,847.41 0.04
Bad Debts Expense 10,000.00 0.07 98,649.79 0.08
Collection Expense 3,786.01 0.02 37,853.81 0.03
Building Repr & Expnse 708.47 0.00 (18,787.44) (0.01)
Telephone 4,510.39 0.03 51,508.34 0.04
Utilities 383.57 0.00 3,468.07 0.00
Real Estate Taxes 3,577.90 0.02 35,925.88 0.02
Interest Earned (inc related pty (59,765.72) (0.43) (565,924.04) (0.46)
Recovery of Bad Debts (2,588.01) (0.01) (23,211.58) (0.01)
Discount Recovery (1,254.28) 0.00 (10,966.73) 0.00
------------------- -------------------
Total Corporate Burden 264,533.87 1.92 2,284,728.29 1.88
------------------- -------------------
Income Before Tax 230,474.78 1.67 86,692.20 0.07
------------------- -------------------
Net Profit (Loss) 230,474.78 1.67 86,692.20 0.07
=================== ===================
13
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ALL AMERICAN PLAZAS, INC.
Balance Sheet
For the END OF JULY 2005
ASSETS
CASH ON HAND 147,554.89
Cash - AAP Delaware 9,196.69
Cash - Operating Account 1,963,669.90
Certificate of Deposit 75,000.00
Cash - Doswell 187,194.63
Cash - Clarks Ferry 112,785.07
Cash - Milton 261,678.05
Cash - Calisle Gables 44,691.55
Cash - Breezewood 140,894.77
Cash - Frystown/Harrisburg 221,080.99
Cash - Strattanville 131,062.29
--------------
Total Cash on Hand 3,294,808.83
Receivables:
Accounts receivable-trade 3,426,190.95
Notes Receivable - All American I 10,401,918.63
Notes Receivable - Strattanville 572,829.83
Notes Receivable - Triple J Fuel 97,654.51
Notes Receivable - Carney's Point 2,043,247.63
Notes Receivable - Belmont 1,068,380.77
Notes Receivable - Eagles Nest Su 564,479.21
Notes Receivable - South Carolina 372,348.74
Notes Receivable - Alleco 454,348.50
Cash Advances Receivable 2,084.18
NSF Checks Receivable 5,472.95
National Tire Account 15,200.52
Allowance for Doubtful Accounts (168,755.78)
--------------
Total Receivable 18,855,400.64
Inventories:
Inventory-Diesel Fuel 788,510.04
Inventory - Gasoline 151,940.73
Inventory-Kerosene 10,554.60
Inventory-HO 3,144.09
Inventory-Mini Market 128,743.30
Inventory-Tobacco Products 98,293.91
Inventory-Merchandise 1,063,747.69
Inventory-Oil & Additives 118,547.28
Inventory-Tires & Tubes 389,637.87
Inventory-Radio Hut 73,823.34
Inventory-Telephone Cards 3,507.54
Inventory Obsolescence Reverse (30,000.00)
--------------
Total Inventories 2,800,450.39
14
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ALL AMERICAN PLAZAS, INC.
Balance Sheet
For the END OF JULY 2005
Fixed Assets:
Land 10,878,908.84
Buildings 15,096,919.25
Accum. Depre-Bldgs 8,050,178.53
----------------
Net Book Value 7,046,740.72
Equipment 5,586,549.73
Accum. Depre-Equipment 4,923,218.32
----------------
Net Book Value 663,331.41
Furniture & Fixtures 980,598.87
Accum. Depre-Frntr & Fixtr 942,824.93
----------------
Net Book Value 37,773.94
Vehicles 426,215.87
Accum. Depre-Vehicles 351,812.04
----------------
Net Book Value 74,403.83
Leasehold Improvements\ 2,172,576.33
Accum. Amort.-Leasehold Imprvt 1,324,129.13
----------------
Net Book Value 848,447.20
Land Improvements 4,223,750.92
Accum. Depr.-Land Improvmts 2,474,286.53
----------------
Net Book Value 1,749,464.39
Construction in Progress 1,021,617.31
----------------
Total Fixed Assets 22,320,687.64
Other Assets:
Prepaid Insurance 276,097.93
Prepaid Expenses 84,889.33
Investment in Able Energy, Inc. 7,500,000.00
Franchises 69,956.26
Deferred Financing Costs 602,799.44
Assets held for sale 949,924.47
----------------
Total Other Assets 9,483,667.43
----------------
TOTAL ASSETS 56,755,014.93
================
15
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ALL AMERICAN PLAZAS, INC.
Balance Sheet
For the END OF JULY 2005
Liabilities:
Note Payable - Crown 1,250,000.00
Note Payable - Avatar 8,500,000.00
Note Payable - Tim Harrington 4,750,000.00
Note Payable - Fundex 2,100,000.00
Deferred Compensation 68,805.00
Money Orders Payable 4,656.98
Accounts Payable 13,562,159.15
Pa. Tire Fee Payable 124.23
----------------
Total Payable 30,235,745.36
Long Term Debt & Capital Lease Obligations
Current Portion-Installment Notes 75,071.00
Long Term Portion-Installment Not 81,824.08
----------------
Total Installment Note Payable 156,895.08
----------------
Total Capital Lease Obligation 0.00
----------------
Total Mortgage Loan-CRL Inc. 0.00
----------------
Total Mortgage Loan-ABE Oil 0.00
Current Portion 36,296.34
Long Term Portion-FMAC 2 2,969,917.88
----------------
Total Loan FMAC 2 3,006,214.22
Current Portion 68,162.14
Long Term Portion-FMAC 9 4,441,159.18
----------------
Total Loan FMAC 9 4,509,321.32
Current Portion 71,209.88
Long Term Portion-FMAC 52E 4,465,928.56
----------------
Total Loan FMAC 52E 4,537,138.44
----------------
Total Debt & Capital Lease Obli 12,209,569.06
----------------
16
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ALL AMERICAN PLAZAS, INC.
Balance Sheet
For the END OF JULY 2005
LIABILITIES:
Deferred Income Taxes 1,783,100.00
Total Deferred Taxes 1,783,100.00
----------------
ACCRUED WORKMANS COMP AUDIT LIAB 80,091.14
Vacation Accrual 178,744.74
Accrued Payroll 207,939.99
Accrued Bonuses 105,000.00
Accrued Miscellaneous 242,621.72
Environmental Reserve 42,400.57
Accrued Capital Stock Tax 68,240.42
Pennsylvania Sales Tax 96,659.18
Accrued Occupancy Tax/VA 8,155.02
VIRGINIA SALES TAX 23,624.02
----------------
Total Accruals 1,053,476.80
----------------
Total Liabilitites 45,281,891.22
----------------
Stockholder Equity
Capital Stock,Class A Common 2,548,515.88
Capital Stock,Class B Common 63,200.00
Contribution in Excess Par 9,820,489.19
12,432,205.07
----------------
Retained Earnings
Balance, Prior Year (1,045,773.56)
Net Income(Loss),Year To Date 86,692.20
----------------
Balance Year To Date (959,081.36)
----------------
Total Stockholder Equity 11,473,123.71
================
Total Liabilities & Stockholder Equity 56,755,014.93
================
17
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SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
ABLE ENERGY INC. AND SUBSIDIARIES
PRO FORMA INCOME STATEMENT 12 MONTHS ENDED 6/30/05 AND 6/30/06
(UNAUDITED)
12 MONTHS ENDED 6/30/05
ALL
ABLE AMERICAN
ENERGY PLAZAS CONSOLIDATED
12 months ended 12 months ended 12 months ended
6/30/2005 6/30/2005 6/30/2005
--------- --------- ---------
Total Revenue $61,610,585 $140,983,983 $202,594,568
Total Cost of Goods Sold $(50,225,949) $(123,187,033) $(173,412,982)
------------------------------------------------------------------------
Total Gross Profit $11,384,636 $17,796,950 $29,181,586
------------------------------------------------------------------------
Total Operating Expenses $(5,389,686) $(16,705,945) $(22,095,631)
Total Overhead Expense $(6,701,036) $(2,214,327) $(8,915,363)
Total Other Income $ - $1,753,156 $1,753,156
Total Other Expenses $(447,116) $ - $(447,116)
------------------------------------------------------------------------
Grand Total Expenses $(12,537,838) $(17,167,116) $(29,704,954)
------------------------------------------------------------------------
Net Income/Loss Contribution $(1,153,203) $629,834 $(523,369)
========================================================================
18
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12 MONTHS ENDED 6/30/06
ALL
ABLE AMERICAN
ENERGY PLAZAS CONSOLIDATED
12 months ended 12 months ended 12 months ended
6/30/2006 6/30/2006 6/30/2006
--------- --------- ---------
Total Revenue $70,852,172 $167,428,000 $238,280,172
Total Cost of Goods Sold $(55,264,694) $(147,523,750) $(202,788,444)
------------------------------------------------------------------------
Total Gross Profit $15,587,478 $19,904,250 $35,491,728
------------------------------------------------------------------------
Total Operating Expenses $(5,659,171) $(16,816,780) $(22,475,951)
Total Overhead Expense $(7,237,119) $(4,000,000) $(11,237,119)
Total Other Income $ - $1,747,800 $1,747,800
Total Other Expenses $(647,116) $ - $(647,116)
------------------------------------------------------------------------
Total Expenses $(13,543,405) $(19,068,980) $(32,612,385)
------------------------------------------------------------------------
Net Income/Loss Contribution $2,044,072 $835,270 $2,879,342
========================================================================
19
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RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS, TOGETHER WITH
ALL OF THE OTHER INFORMATION INCLUDED IN THE STATEMENT, BEFORE YOU DECIDE
WHETHER TO VOTE OR INSTRUCT YOUR VOTE TO BE CAST TO ADOPT THE ACQUISITION
PROPOSAL. UNLESS EXPRESSLY STATED OTHERWISE, THESE RISK FACTORS ASSUME THE
CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED BY THE ACQUISITION AND THE
RATIFICATION BY THE STOCKHOLDERS OF THE FINANCING (JULY 2005 SALE OF DEBENTURES
BY US). UNLESS OTHERWISE INDICATED IN THE CONTEXT, ALL REFERENCES IN THIS
SECTION (RISK FACTORS) AND THIS SECTION ALONE TO "US", "WE", "OUR" BE DEEMED TO
REFLECT CONDITIONS EXISTING FOLLOWING THE PROPOSED ACQUISITION.
LIMITED OPERATING HISTORY; MANAGEMENT OF GROWTH; SUBSTANTIAL LONG-TERM DEBT
Able Energy, Inc. was incorporated in March 1997 to act as a holding
company for its operating subsidiaries. Our remaining subsidiaries have limited
operating histories upon which evaluation of their prospects can be made.
Although All American has been in business as a owner and/or operator of
trucking stops for over 20 years, we are purchasing the assets of All American
and its operating business and there are no guarantees that current management
or employees will agree to continue their respective employment with us.
Furthermore, there can be no assurance that the subsidiaries, other than Able
Oil, will generate substantial revenues or attain profitable operations.
Our growth has required, and will continue to require, increased
investment in management personnel, financial and management systems and
controls and facilities. Our past expansion has placed, and any future expansion
would place, significant demands on our administrative, operational, financial
and other resources. We intend to continue to expand its business and
operations, including entry into new markets, that will place additional strain
on our management and operations. Our future operating results will depend, in
part, on its ability to continue to broaden our senior management group and
administrative infrastructure, and its ability to attract, hire and retain
skilled employees. Our success will also depend on the ability of our officers
and key employees to continue to implement and improve our operational and
financial control systems and to expand, train and manage its employee base. In
addition, our future operating results will depend on our ability to expand its
sales and marketing capabilities and expand its customer support operations
commensurate with its growth, should such growth occur. If our revenues do not
increase in proportion to its operating expenses, our management systems do not
expand to meet increasing demands, we fail to attract, assimilate and retain
qualified personnel, or our management otherwise fails to manage our expansion
effectively, there would be a material adverse effect on our business, financial
condition and operating results. As of June 30, 2005, we had long term
liabilities of $3,961,899. Our ability to satisfy such obligations will depend
on our future operating performance, which will be affected by, among other
things, prevailing economic conditions and financial, business and other
factors, many of which are beyond our control. There can be no assurance that we
will be able to service its indebtedness. If we are unable to service its
indebtedness, it will be forced to examine alternative strategies that may
include actions such as reducing or delaying capital expenditures, restructuring
or refinancing its indebtedness, or the sale of assets or seeking additional
equity and/or debt financing. There can be no assurance that any of these
strategies could be effected on satisfactory terms, if at all.
SEASONAL FACTORS
Following the acquisition, substantially all of our revenues and income
will be derived from the home heating oil business and the truck stop business.
Our home heating oil business is seasonal and is and will remain following the
acquisition a material portion of our business. A substantial portion of the
home heating oil business is conducted during the fall and winter months.
Weather patterns during the winter months can have a material adverse impact on
its revenues. Although temperature levels for the heating season have been
relatively stable over time, variations can occur from time to time, and warmer
than normal winter weather will adversely affect the results of the Company's
fuel oil operations.
Approximately 65% of our revenues from our home heating oil business are
earned and received from October through March. During the spring and summer
months, revenues from the sale of diesel and gasoline fuels increase due to the
increased use of automobiles and construction apparatus.
FUEL PRICING AND THE EFFECT ON PROFITABILITY
Disruption of fuel supply and fuel pricing would adversely affect our
profitability. For instance sharp increases in fuel prices at truck stops
historically tend to lead to a temporary decline in fuel margins. Similarly,
increases in the pricing for home heating oil will also adversely affect our
profit margins associated with our home heating oil business since we may not be
able to pass on our proportional increases to our home heating oil customers.
Fuel prices have risen sharply recently and may continue to rise.
20
Other factors which may have a significant effect on fuel prices
include: natural disasters, particularly those which have recently devastated
the Gulf Coast (areas that are major producers, distributors or refiners of
petroleum-based products); major global conflicts, especially those involving
the U.S. and/or oil producing countries, strikes or political conflict in oil
producing countries.
In the future, interruptions in the world fuel markets may cause
shortages in, or total curtailment of, fuel supplies. Moreover, a substantial
portion of the oil refining capacity in the United States is controlled by major
oil companies. These companies, for various reasons (for e.g. new standards
imposed by EPA) could in the future decide to limit the amount of fuel sold to
independent operators such as us. Any material decrease in the volume of fuel
sold for any extended period of time could have a material adverse effect on the
results of operations. Similarly, an extended period of instability in the price
of fuel could adversely affect our results.
In addition, fuel supply could also impact upon our other operations,
including our restaurant and non-fuel operations. Therefore any significant
reductions in fuel supplies or fuel volume would materially affect our results.
GROWTH DEPENDENT UPON UNSPECIFIED ACQUISITIONS
Our growth strategy includes the acquisition of existing fuel
distributors and truck stops. There can be no assurance that our will be able to
identify new acquisition candidates or, even if a candidate is identified, that
we will have access to the capital necessary to consummate such acquisitions.
Furthermore, the acquisition of additional companies involves a number of
additional risks. These risks include the diversion of management's attention
from our operations, possible difficulties with the assimilation of personnel
and operations of acquired companies, the amortization of acquired intangible
assets, and the potential loss of key employees of acquired companies. The
future success of our business will depend upon our ability to manage its growth
through acquisitions.
GOVERNMENT REGULATION
Federal, state and local laws, particularly laws relating to the
protection of the environment and worker safety, can materially affect our
operations. The transportation of fuel oil, diesel fuel, propane and gasoline is
subject to regulation by various federal, state and local agencies, including
the U.S. Department of Transportation ("DOT"). These regulatory authorities have
broad powers and we are subject to regulatory and legislative changes that can
affect the economies of the industry by requiring changes in operating practices
or influencing demand for, and the cost of providing, its services.
Additionally, we are subject to random DOT inspections. Any material violation
of DOT rules or the Hazardous Materials Transportation Act may result in
citations and/or fines on us. In addition, we depend on the supply of petroleum
products from the oil and gas industry and, therefore, we may be affected by
changing taxes, price controls and other laws and regulations relating to the
oil and gas industry generally. We cannot determine the extent to which future
operations and earnings may be affected by new legislation, new regulations or
changes in existing regulations.
The technical requirements of these laws and regulations are becoming
increasingly expensive, complex and stringent. These laws may impose penalties
or sanctions for damages to natural resources or threats to public health and
safety. Such laws and regulations may also expose us to liability for the
conduct or conditions caused by others. Sanctions for noncompliance may include
revocation of permits, corrective action orders, administrative or civil
penalties and criminal prosecution. Certain environmental laws provide for joint
and several liabilities for remediation of spills and releases of hazardous
substances. In addition, companies may be subject to claims alleging personal
injury or property damages as a result of alleged exposure to hazardous
substances, as well as damage to natural resources.
POTENTIAL ENVIRONMENTAL LIABILITY
Our operations are subject to all of the operating hazards and risks
that are normally incidental to handling, storing, transporting and delivering
fuel oils, gasoline, diesel and propane, which are classified as hazardous
materials. We face potential liability for, among other things, fuel spills, gas
leaks and negligence in performing environmental clean-ups for our customers.
Specifically, we maintain fuel storage facilities on sites owned or leased by
us, and could incur significant liability to third parties or governmental
entities for damages, clean-up costs and/or penalties in the event of certain
discharges into the environment. Such liability can be extreme and could have a
material adverse effect on our financial condition or results of operations.
Although we believe that it is in compliance with existing laws and regulations,
there can be no assurance that substantial costs for compliance will not be
incurred in the future. Any substantial violations of these rules and
regulations could have an adverse affect upon our operations. Moreover, it is
possible that other developments, such as more stringent environmental laws,
regulations and enforcement policies thereunder, could result in additional,
presently unquantifiable, costs or liabilities to us.
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LITIGATION
We are not currently involved in any legal proceeding that is likely to
have a material adverse effect on our results of operations or our financial
condition. From time to time, we may become a party to litigation incidental to
its business. There can be no assurance that any financial legal proceedings
will not have a material adverse affect on us.
NO ASSURANCE OF ADEQUATE INSURANCE PROTECTION
We maintain insurance policies in such amounts and with coverage and
deductibles as our management believes are reasonable and prudent. There can be
no assurance, however, that such insurance will be adequate to protect us from
liabilities and expenses that may arise from claims for personal and property
damage arising in the ordinary course of business or that such levels of
insurance will be maintained by us or will be available at economic prices.
FRANCHISING
We intend to expand franchise arrangements to expand its operations and
revenue base. Our future growth may be dependent upon new franchisees and the
manner in which they operate and develop our locations to promote and develop
our concept and our reputation for quality and value. In addition, because we
believe that a potential franchisee's total estimated investment relating to an
location for our home heating oil business is generally low, we may be more
likely to attract franchisees with limited franchise experience and limited
financial resources. As a result of its franchising activity, we are subject to
Federal Trade Commission ("FTC") regulation and various state laws that govern
the offer, sale and termination of, and refusal to renew, franchises. Several
state laws also regulate substantive aspects of the franchisor-franchisee
relationship. The FTC requires us to furnish prospective franchisees a franchise
offering circular containing prescribed information. A number of states in which
we might consider franchising also regulate the sale of franchises and require
registration of the franchise offering circular with state authorities.
Substantive state laws that regulate the franchisor-franchisee relationship
presently exist in many states, and bills have been introduced in Congress from
time to time which would provide for federal regulation of the
franchisor-franchisee relationship in certain respects. The state laws often
limit, among other things, the duration and scope of non-competition provisions
and the ability of a franchisor to terminate or refuse to renew a franchise.
TRADEMARKS AND SERVICE MARKS
We believe that our trademarks and service marks have significant value
and are important to the marketing of its products and services, especially if
we are successful in implementing our franchise program. There can be no
assurance, however, that our proprietary marks do not or will not violate the
proprietary rights of others, that our marks would be upheld if challenged or
that we would not be prevented from using its marks, any of which could have an
adverse effect on us. In addition, there can be no assurance that we will have
the financial resources necessary to enforce or defend its trademarks and
service marks against infringement.
COMPETITION FROM ALTERNATIVE ENERGY SOURCES
Our retail home heating business competes for customers with suppliers
of alternate energy products, principally natural gas and electricity. Every
year, a small percentage of our oil customers convert to other home heating
sources, primarily natural gas. In addition, we may lose additional customers
due to conversions during periods in which the cost of its services exceeds the
cost of alternative energy sources.
CONCENTRATION OF WHOLESALE SUPPLIERS FOR HOME HEATING OIL
We have three supply contracts for the purchase of Number 2 Heating Oil,
representing 10% of our annual heating fuel purchases. We purchase its remaining
fuel supplies on the spot market. We satisfy our inventory requirements with
seven different suppliers, the majority of which have significant domestic fuel
sources, and many of which have been suppliers to us for over 5 years. Our
current suppliers are Conective Oil Corporation, Sprague Energy, Petrocom Energy
Group Ltd., Gulf-Catamont, Velero, Rio, TransMontaigne Inc., Center Marketing,
Inc. and Sun Co., Inc. (R&M). We monitor the market each day and determines when
to purchase its oil inventory and from whom.
Three of these suppliers provided Able Oil with approximately 60% of its
heating oil requirements for the year ended June 30, 2004.
TransMontaigne, Inc. provided Able Melbourne with approximately 99% of
its diesel fuel product requirements for the year ended June 30, 2005 and one
major suppliers provided Able Melbourne with approximately 99% of its lubricant
and related product requirements for the year ended June 30, 2005.
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Management believes that if our supply of any of the foregoing products
was interrupted, we would be able to secure adequate supplies from other sources
without a material disruption in its operations. However, there can be no
assurance that adequate supplies of such products will be readily available in
the future.
ABSENCE OF WRITTEN AGREEMENTS
Approximately 50% of our home heating customers do not have written
agreements with us and can terminate services at any time, for any reason.
Although we have never experienced a significant loss of its customers, if we
were to experience a high rate of terminations, our business and financial
condition could be adversely affected.
RISKS ASSOCIATED WITH EXPANSION INTO NEW MARKETS
A significant element of our future growth strategy involves the
expansion of our business into new geographic and product markets. Expansion of
our operations depend, among other things, the success of our marketing strategy
in new markets, successfully establishing and operating new locations, hiring
and retaining qualified management and other personnel, and obtaining adequate
financing for vehicle and site purchases and working capital purposes.
DEPENDENCE ON KEY PERSONNEL
Our future success will depend, to a significant extent, on the efforts
of key management personnel, including Christopher Westad, our Acting Chief
Executive Officer and Chairman, and Steven Vella our Chief Financial Officer.
The loss of one or more of these key employees could have a material adverse
effect on our business. In addition, we believe that its future success will
depend, in large part, upon its continued ability to attract and retain highly
qualified management, technical and sales personnel. There can be no assurance
that we will be able to attract and retain the qualified personnel necessary for
its business.
RESTAURANTS
Each of our truck stops includes a restaurant which provides an `All
American Menu'. By operating restaurant facilities we will face risks relating
to:
o our ability to obtain and maintain necessary governmental licenses,
permits, and approvals relating to the preparation and sale of food;
o health inspection scores;
o food quality;
o the availability and timely delivery of high-quality fresh
ingredients, including fresh produce, diary products, and meat; and
o food-borne illnesses.
If we are unable to effectively manage these risks, we may experience
negative publicity related to these matters which may impact negatively on the
our brand name and image. Such negative publicity could reduce guest traffic at
our truck stop restaurants and subsequently affect the results of the
operations.
COMPETITION
The truck stop industry is highly competitive and fragmented, and our
competitors may have greater resources or other competitive advantages. Certain
of our competitors have substantially financial and marketing resources than we
do. If our competitors adopt pricing strategies or marketing policies that we do
not meet, if they provide products or services that we do not offer, or if we
are otherwise unable to compete effectively, our competitors could gain market
share and have an adverse effect on our operating results.
Our home heating business is also highly competitive. In addition to
competition from alternative energy sources, we compete with distributors
offering a broad range of services and prices, from full service distributors
similar to ours, to those offering delivery only. Competition with other
companies in the retail home heating industry is based primarily on customer
service and price. Longstanding customer relationships are typical in the home
heating industry. Many companies, including ours, deliver fuel to their
customers based upon weather conditions and historical consumption patterns
without the customers making an affirmative purchase decision each time fuel is
needed. In addition, most companies, including ours, provide equipment repair
service on a 24 hour a day basis, which tends to build customer loyalty. We
compete against companies that may have greater financial resources than ours.
As a result, we may experience difficulty in acquiring new retail customers due
to existing relationships between potential customers and other retail home
heating distributors.
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HIGHLY DEPENDENT ON FINANCIAL CONDITION OF TRUCKING INDUSTRY
Our business is dependent upon the trucking industry in general and upon
long-haul trucks in particular. In turn, the trucking industry is dependent on
economic factors, such as the level of domestic economic activity and interest
rates and operating factors such as fuel prices and fuel taxes, over which we
have no control and which could contribute to a decline in truck travel. The
long-haul trucking business is also a mature industry that has historically been
susceptible to recessionary downturn. Available data indicate that diesel
consumption by the trucking industry has grown more slowly than trucking
ton-miles, as technological improvements in truck engines have increased their
fuel efficiency. In addition, many small trucking companies have filed for
bankruptcy protection in recent years. A decline in operations by the long-haul
trucking industry would adversely affect us.
DOMESTIC TERRORIST ATTACK
A domestic terrorist incident, particularly involving a truck, could
produce adverse effects on us in several ways, including:
o a reduction in the volume of truck traffic for more than a brief
period;
o bankruptcy of certain truck companies; and
o the imposition of additional trucking regulations, increasing
expenses of truck operations and businesses that service trucks or
provide overnight facilities for trucks and truck drivers, such as
the services that we provide - for e.g. extra security measures for
parked trucks or trucks that are on our home heating delivery
routes.
OTHER RISK FACTORS
Future operations may be impacted by a number of factors that could
cause our actual financial results to differ. These factors include worldwide
economic and political conditions, terrorist's activities, industry special
factors, and governmental agencies.
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FORWARD-LOOKING STATEMENTS
We believe that some of the information in this proxy statement
constitutes forward-looking statements within the definition of the Private
Securities Litigation Reform Act of 1995. You can identify these statements by
forward-looking words such as "may," "expect," "anticipate," "contemplate,"
"believe," "estimate," "intends," and "continue" or similar words. You should
read statements that contain these words carefully because they:
o discuss future expectations;
o contain projections of future results of operations or financial
condition; or
o state other "forward-looking" information.
We believe it is important to communicate our expectations to our
stockholders. However, there may be events in the future that we are not able to
accurately predict or over which we have no control. The risk factors and
cautionary language discussed in this proxy statement provide examples of risks,
uncertainties and events that may cause actual results to differ materially from
the expectations described by us in our forward-looking statements, including
among other things:
o changing interpretations of generally accepted accounting principles;
o outcomes of government reviews, inquiries, investigations and related
litigation;
o continued compliance with government regulations;
o legislation or regulatory environments, requirements or changes
adversely affecting the businesses in which All American is engaged;
o statements about industry trends;
o general economic conditions; and
o geopolitical events and regulatory changes.
You are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date of this proxy statement.
All forward-looking statements included herein attributable to us or any
person acting on either party's behalf are expressly qualified in their entirety
by the cautionary statements contained or referred to in this section. Except to
the extent required by applicable laws and regulations, we undertake no
obligation to update these forward-looking statements to reflect events or
circumstances after the date of this proxy statement or to reflect the
occurrence of unanticipated events.
Before you grant your proxy or instruct how your vote should be cast or
vote on the approval of the acquisition you should be aware that the occurrence
of the events described in the "Risk Factors" section and elsewhere in this
proxy statement could have a material adverse effect on us upon completion of
the acquisition.
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THE SPECIAL MEETING
THE SPECIAL MEETING
We are furnishing this proxy statement to you as part of the
solicitation of proxies by our board of directors for use at the special meeting
in connection with the proposed acquisition. This proxy statement provides you
with the information you need to know to be able to vote or instruct your vote
to be cast at the special meeting.
DATE, TIME AND PLACE
The special meeting will be held at 10:00 a.m., Eastern time, on
[MEETING DATE], 2005, at __________________, to vote on the acquisition
proposal.
PURPOSE OF THE SPECIAL MEETING
At the special meeting, the holders of our common stock are being asked
to approve a proposal, for purposes of NASD Marketplace Rule 4350(i), to to
effect an issuance of our common stock which will result in the acquisition of
All American Plazas, Inc., or All American, pursuant to the Asset Purchase
Agreement, dated as of June 16, 2005, by All American and us.
Our board of directors:
o has unanimously determined that the acquisition proposal is fair
to and in the best interests of the company and our
stockholders;
o has considered the opinion of Ehrenkrantz King Nussbaum Inc.
that, as of the date of its opinion, and based on conditions
that existed as of that date, upon and subject to the
considerations described in its opinion and based upon such
other matters as Ehrenkrantz King Nussbaum Inc. considered
relevant, the consideration to be paid by us in connection with
the All American acquisition is fair to our current stockholders
from a financial point of view;
o has unanimously approved and declared advisable the acquisition
proposal; and
o unanimously recommends that the holders of our common stock vote
"FOR" the proposal to effect an issuance of our common stock
which will result in the acquisition of All American.
RECORD DATE; WHO IS ENTITLED TO VOTE
The "record date" for the special meeting is _________, 2005. Record
holders of our common stock at the close of business on the record date are
entitled to vote or have their votes cast at the special meeting. On the record
date, there were __________ outstanding shares of our common stock.
Each share of our common stock is entitled to one vote per share at the
special meeting.
VOTING YOUR SHARES
Each share of our common stock that you own in your name entitles you to
one vote. Your proxy card shows the number of shares of our common stock that
you own.
There are two ways to vote your shares of common stock at the special
meeting:
o You can vote by signing and returning the enclosed proxy card. If you
vote by proxy card, your "proxy," whose name is listed on the proxy
card, will vote your shares as you instruct on the proxy card. If you
sign and return the proxy card, but do not give instructions on how to
vote your shares, your shares will be voted, as recommended by our
board, "FOR" the approval of the acquisition proposal.
o You can attend the special meeting and vote in person. We will give you
a ballot when you arrive. However, if your shares are held in the name
of your broker, bank or another nominee, you must get a proxy from the
broker, bank or other nominee. That is the only way we can be sure that
the broker, bank or nominee has not already voted your shares.
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IF YOU DO NOT VOTE YOUR SHARES OF COMMON STOCK IN ANY OF THE WAYS DESCRIBED
ABOVE, IT WILL HAVE NO EFFECT ON THE ACQUISITION PROPOSAL OR THE FINANCING.
WHO CAN ANSWER YOUR QUESTIONS ABOUT VOTING YOUR SHARES
If you have any questions about how to vote or direct a vote in respect
of your common stock, you may call Christopher Westad at (973) 625-1012.
NO ADDITIONAL MATTERS MAY BE PRESENTED AT THE SPECIAL MEETING
This special meeting has been called only to consider the approval of
the acquisition proposal. Under our by-laws, other than procedural matters
incident to the conduct of the meeting, no other matters may be considered at
the special meeting, if they are not included in the notice of the meeting.
REVOKING YOUR PROXY
If you give a proxy, you may revoke it at any time before it is
exercised by doing any one of the following:
o You may send another proxy card with a later date;
o You may notify Christopher Westad, our Acting CEO, in writing before the
special meeting that you have revoked your proxy; and
o You may attend the special meeting, revoke your proxy, and vote in
person.
VOTE REQUIRED
The approval of the acquisition of All American and the transactions
contemplated by the asset purchase agreement will require the affirmative vote
of a majority of the shares of our common stock present in person or by proxy
and entitled to vote at the special meeting.
If you abstain from voting or do not vote, either in person or by proxy
or by voting instruction, it will have no effect on the approval of the
acquisition proposal or the financing.
ABSTENTIONS AND BROKER NON-VOTES
If your broker holds your shares in its name and you do not give the
broker voting instructions, under the rules of the NASD, your broker may not
vote your shares on the proposal to approve the acquisition of All American
pursuant to the asset purchase agreement or the financing. If you do not give
your broker voting instructions and the broker does not vote your shares, this
is referred to as a "broker non-vote." Abstentions and broker non-votes are
counted for purposes of determining the presence of a quorum, and will have no
effect on the acquisition proposal or the financing.
SOLICITATION COSTS
We are soliciting proxies on behalf of our board of directors. This
solicitation is being made by mail but also may be made by telephone or in
person. We and our respective directors and officers may also solicit proxies in
person, by telephone or by other electronic means. These persons will not be
paid for doing this.
We have not hired a firm to assist in the proxy solicitation process but
may do so if it deems this assistance necessary. We will pay all fees and
expenses related to the retention of any proxy solicitation firm.
We will ask banks, brokers and other institutions, nominees and
fiduciaries to forward our proxy statement materials to their principals and to
obtain their authority to execute proxies and voting instructions. We will
reimburse them for their reasonable expenses.
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STOCK OWNERSHIP
Of the 2,607,320 outstanding shares of our common stock, All American,
who owns approximately 38.6% of our common stock, and our officers and
directors, who own an aggregate of approximately 1.0% of our outstanding shares
of common stock, have agreed to vote such shares in favor of the acquisition
proposal.
THE ACQUISITION PROPOSAL
The discussion in this proxy statement of the acquisition and the
principal terms of the asset purchase agreement dated as of June 16, 2005, by
and between All American and us is subject to, and is qualified in its entirety
by reference to, the asset purchase agreement. A copy of the asset purchase
agreement is attached as Annex A to this proxy statement and is incorporated in
this proxy statement by reference.
GENERAL DESCRIPTION OF THE ACQUISITION
Pursuant to the asset purchase agreement, we will acquire substantially
all of the assets of All American, including All American's equity interests in
its owned real estate properties. We will also enter into leases to occupy each
of All American's owned trucking plazas (as further described in this proxy).
The aggregate amount of rental payments to All American will also roughly equal
to All American's aggregate debt or mortgage payments. All American has agreed
to
BACKGROUND OF THE ACQUISITION
The terms of the asset purchase agreement are the result of arm's-length
negotiations between representatives of All American and us. The following is a
brief discussion of the background of these negotiations, the acquisition and
related transactions.
Initially, All American was introduced to us because of Able's need for
a new fuel supplier. Both All American and Able had a business relationship with
TransMontaigne, a fuel supplier. TransMontaigne provided All American with the
ability to earn additional revenue based upon its supply chain agreement with
TransMontaigne. In the course of these initial discussions, All American learned
that Tim Harrington, our former CEO, was interested in selling his stock
holdings in our company. TransMontaigne, through extension of fuel credit,
enabled All American to close the transaction with Harrington on December 15,
2004. At the same time, All American was also seeking financing from other
sources. After certain financings failed to consummate by February 2005, we
revisited the possibility of acquiring All American in the belief that this
would enable the combined entity to have easier access to capital in the public
market. Our board of directors then began a period of intense negotiation and
discussion relating to the acquisition, and on Febuary 28, 2005, voted to
approve the acquisition. The intention of the Board to enter into an acquisition
of All American by Able was announced in an 8-K filing dated March 4, 2005. Our
Board elected to use a stock price for said acquisition by looking back for the
prior 20 trading days from the February 28, 2005 meeting date to arrive at an
average share price of $3.00 per share. Following the announcement of the
intention to enter into the acquisition, Able's stock price substantially
increased in value.
Effective June 16, 2005, All American and we entered into a stock
purchase agreement and related agreements and, on June 17, 2005, publicly
announced such agreement through a joint press release. Such stock purchase
agreement was thereafter amended and restated to be an asset purchase agreement,
whereby we purchased substantially all of the operating assets of All American.
NECESSITY FOR STOCKHOLDER APPROVAL
Our common stock is traded on the NASDAQ SmallCap Stock Market under the
symbol "ABLE". Consequently, we are subject to the Marketplace Rules promulgated
by the National Association of Securities Dealers, Inc. ("NASD"). The issuance
of these shares requires stockholder approval under the NASD Marketplace Rules,
such as Rule 4350.
Under Rule 4350(i)(1)(B) and 4350(i)(1)(D), respectively, stockholder
approval must be sought when (a) the issuance or potential issuance will result
in a change of control of the issuer (the "Change of Control Rule") or (b) in
connection with a transaction other than a public offering involving the sale,
issuance or potential issuance by the issuer of common stock (or securities
convertible into or exercisable common stock) equal to 20% or more of the common
stock or 20% or more of the voting power outstanding before the issuance for
less than the greater of book or market value of the stock (the "20% Rule").
Furthermore, under Rule 4350(i)(1)(C), stockholder approval must be sought in
connection with an acquisition of the stock or assets of another company if any
director, officer or substantial shareholder of the issuer has a 5% or greater
interest (or such persons collectively have a 10% or greater interest), directly
or indirectly, in the company to be acquired or in the consideration to be paid
in the transaction and the present or potential issuance of common stock could
result in an increase in outstanding common shares or voting power of 5% or more
(the "Affiliated Transaction Rule").
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In addition, since All American currently holds more than 15%of our
issued and outstanding common stock, approval by at least two-thirds of the
stockholders (other than All American) is necessary under Section 203 of the
Delaware General Corporations Law (the "Delaware Business Combination Rule").
The voting thresholds for approval under the Delaware Business Combination in
this case are greater than the Affiliated Transaction Rule, the discussion below
relating to the Affiliated Transaction Rule are for information purposes only
since approval of the acquisition under the Delaware Business Combination Rule
will also satisfy the requirements under the Affiliated Transaction Rule.
THE CHANGE OF CONTROL RULE
The Change of Control Rule requires us to obtain stockholder approval
prior to certain issuances with respect to common stock or securities
convertible into common stock which will result in a change of control of the
issuer. Generally, NASD interpretations provide that 20% ownership of the shares
of an issuer by one person or group of affiliated persons is deemed to be
control of such issuer. Pursuant to the asset purchase agreement (as more fully
described under "Asset Purchase Agreement" on page 35 of this proxy statement),
in consideration for all of the outstanding shares of All American, we will
issue to All American 11,666,667 restricted shares of our restricted common
stock, par value $.001 per share, at the closing. This issuance will constitute
approximately 82% of our issued and outstanding shares of common stock, and will
cause All American to own approximately 89% of our issued and outstanding shares
of common stock , on a post-issuance basis. All American owned approximately 38%
of our issued and outstanding shares of common stock as of June 16, 2005, the
date upon which the asset purchase agreement was executed.
THE 20% RULE
The 20% Rule requires Nasdaq-listed issuers to obtain stockholder
approval prior to any issuance or potential issuance of securities representing
20% or more of the outstanding common stock or voting power of the issuer (on an
as-converted or as-exercised basis) before such issuance for a price less than
the greater of the book or market value of the issuer's common stock. For
purposes of this rule, the (i) outstanding common stock or voting power of the
issuer is determined as of a date the issuer enters into a binding agreement
with respect to such issuance or potential issuance, which in the case of the
acquisition of All American is June 16, 2005; and (ii) market value of the
issuer's common stock is deemed to be the closing bid price of the issuer's
common stock immediately prior to entering into such binding agreement, which in
the case of the acquisition of All American, is $18.58 per share, the closing
bid price of our common stock on June 15, 2005.
At the closing, we will deliver to All American 11,666,667 restricted
shares of our common stock at $3.00 per share for an aggregate purchase price of
$35,000,000 in exchange for all of All American issued and outstanding common
stock. In addition, All American entered into a term sheet dated June 6, 2005
with a third party institutional lender to refinance All American's debt and
provide All American with certain working capital, which is described in more
detail in "The Asset Purchase Agreement." In the event that All American
completes such financing on or before December 31, 2005, we have agreed to pay
an additional $10,000,000 to All American, payable in shares of our common stock
at a price of $3.00 per share. Accordingly, the issuance to All American on the
closing date and the potential subsequent issuance in connection with the
refinancing will represent a below-market issuance of more than 20% of our
outstanding common stock as of June 16, 2005.
THE AFFILIATED TRANSACTION RULE
The Affiliated Transaction Rule requires stockholder approval prior to
the issuance of any securities in a transaction in which any director, officer
or substantial stockholder of the issuer has a 5% or greater interest (or such
persons collectively have a 10% or greater interest), directly or indirectly, in
the company or assets to be acquired or in the consideration to be paid in the
transaction or series of related transactions and the present or potential
issuance of common stock, or securities convertible into or exercisable for
common stock, could result in an increase in outstanding common shares or voting
power of 5% or more. All American currently owns approximately 38% of our
outstanding common stock and its shareholders receive 11,667,777 shares of our
common stock in connection with the acquisition, representing an issuance of
approximately 82% of our issued and outstanding common stock on a post-issuance
basis.
THE DELAWARE BUSINESS COMBINATION RULE
The Delaware Business Combination Rule states that the supermajority
consent (two-thirds of the voting shares) is required to approve of any
"business combination" involving a "interested stockholder". Such two-thirds
voting consent does not include and voting shares held by the interested
stockholder. An "interested stockholder" is, subject to certain exceptions which
do not apply to the acquisition, any stockholder (along with its affiliates) who
hold or control 15% or more of the outstanding voting stock of the corporation.
Through its purchase of Tim Harrington's 1,007,300 shares of Able's common stock
in December 2004, All American became an interested stockholder for purposes of
the Delaware Business Combination Rule. Once a party becomes an interested
stockholder, a corporation is prohibited from engaging in any business
combination with such interested stockholder for a period of
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three years unless the appropriate two-thirds majority vote is obtained from the
stockholders approving such transaction. A "business combination" under the
Delaware Business Combination Rule includes the transactions contemplated by the
acquisition.
RECENT FINANCING OF ALL AMERICAN
As previously disclosed in our Current Report on Form 8-K, dated June 7,
2005, and filed with the Securities and Exchange Commission on June 10, 2005,
All American recently consummated a financing that, if the acquisition of All
American is consummated, will impact us. The recently completed refinancing by
All American allowed All American to pay off approximately $3,000,000 in
existing debt and provided All American with approximately $2,000,000 in working
capital.
The following description of the terms of All American's refinancing is
qualified in its entirety by the terms and provisions contained in the financing
documentation included in the Current Report on Form 8-K, dated June 7, 2005,
and filed with the Securities and Exchange Commission on June 10, 2005, as
Exhibits 99.1 through 99.7.
Pursuant to the terms of the Securities Purchase Agreement dated June 1,
2005 among All American and certain purchasers identified therein, the
purchasers loaned All American an aggregate of $5,000,000 (the "June
Debentures"), evidenced by secured debentures also dated June 1, 2005. The
debentures shall be repaid within two years from the date of issuance, subject
to the occurrence of an event of default, with interest payable at the rate per
annum equal to LIBOR for the applicable interest period, plus 4% payable on a
quarterly basis on April 1st, July 1st, October 1st and January 1st, beginning
on the first such date after the date of issuance of the debentures. The loan is
secured by real estate property owned by All American in Pennsylvania and New
Hampshire. In addition, in the event that we do not complete the acquisition of
All American prior to the expiration of the 12-month anniversary of the
securities purchase agreement, All American shall be considered in default of
the loan. Pursuant to the Additional Investment Right among All American and the
purchasers, the purchasers may loan All American up to an additional $5,000,000
on the same terms and conditions as the initial $5,000,000 loan, except for the
conversion price of the debentures.
THE PRIMARY PURCHASER PARTIES OF THE JUNE DEBENTURES ARE THE SAME AS OR
AFFILIATED WITH THOSE PURCHASERS IN THE FINANCING.
If we consummate the acquisition of All American, upon such
consummation, we will not in general assume the debt obligations of All American
which include the obligations described by the above referenced Securities
Purchase Agreement, the debentures and the Additional Investment Right Agreement
However, we will assume certain contracted obligations relating to the June
Debentures through the execution of a Securities Assumption, Amendment and
Issuance Agreement, Registration Rights Agreement, Common Stock Purchase Warrant
Agreement and Variable Rate Secured Convertible Debenture Agreement, each
between the purchasers of the June Debentures and us. Such documents provide
that All American and we shall cause the real estate collateral to continue to
secure the loan, until the earlier of full repayment of the loan upon expiration
of the debentures or conversion by the purchasers of the debentures into shares
of our common stock at a conversion rate of the lesser of (i) the purchase price
paid by us for each share of All American common stock in the acquisition, or
(ii) $3.00, the conversion price, subject to further adjustment. However, the
conversion price with respect to the additional investment right shall be $4.00.
In addition, the purchasers shall have the right to receive five-year warrants
to purchase 2,500,000 of our common stock at an exercise price of $3.75 per
share. We shall also have an optional redemption right (which right shall be
mandatory upon the occurrence of an event of default) to repurchase all of the
debentures for 125% of the face amount of the debentures plus all accrued and
outstanding interest and expenses, as well as a right to repurchase all of the
debentures in the event of the consummation of a new financing in which we sell
securities at a purchase price that is below the conversion price. Of the
contemplated 11,666,667 shares of our common stock (valued at $3.00 per share)
All American is to receive from the acquisition, All American has agreed to
escrow 1,666,667 shares of the common stock for the purpose of transfer to the
holders of the June Debentures in the event such holders elect to convert the
June Debentures. As a result, assuming approval of the acquisition of All
American, conversion of the principal amount of the June Debentures will not
result in any significant additional issuances of our common stock.
We do contemplate that the debt obligations of All American will be in
general serviced through our payments of rents under leases which we plan to
enter into with All American with respect to each of the All American owned
properties which will allow us to occupy and operate the businesses we are
purchasing from All American.
Pursuant to the Registration Rights Agreement among the All American and
the purchasers of the June Debentures, if we consummate the acquisition of All
American, the purchasers shall have demand registration rights with respect to
all shares of our common stock obtained by them through the conversion of the
June Debentures. The purchasers shall also have an additional investment right,
for a period of nine months after the initial registration statement filed by us
with the Securities and Exchange Commission, the SEC, is first declared
effective by the SEC, to purchase units consisting of convertible debentures in
the aggregate amount of up to $14,000,000, the additional Debentures, and common
stock purchase warrants equal to 50% of the face amount of
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such additional debentures, the additional warrants. The conversion price of the
additional debentures shall be $6.50 per share of common stock with respect to
the first $7,000,000 of additional debentures purchased, and 80% of the average
weighted price of our common stock during the 20 trading days immediately prior
to the purchasers' election to purchase the additional debentures, with respect
to the remaining $7,000,000. The additional warrants shall have a five-year term
and an exercise price of 110% of the conversion price. In the event of the
occurrence of a default with respect to the additional debentures, we shall have
identical redemption rights to those described in the immediately preceding
paragraph.
If our stockholders approve the acquisition proposal, they will be
approving the issuance of the additional securities pursuant to the agreements
among the purchasers and us described above as we will assume significantly all
of All American's contractual obligations under such documents upon consummation
of the acquisition, other than the obligation to repay the debt evidenced by the
June Debentures. Our assumption of the debentures and warrants and the potential
issuance of the additional debentures and additional warrants could result in an
issuance that may violate the Change of Control Rule and the 20% Rule if
stockholder was not being sought pursuant to the acquisition proposal.
INTERESTS OF OUR DIRECTORS AND OFFICERS IN THE ACQUISITION
In considering the recommendation of our board of directors that you
vote in favor of adoption of the acquisition proposal, you should keep in mind
that certain of our directors and officers have interests in the acquisition
that are different from, or in addition to, your interest as a stockholder. One
of our directors, Gregory Frost, holds a 15.05% beneficial stock interest in All
American, and, as such, has abstained from any vote approving the acquisition.
It is anticipated, that our current board of directors will remain on the board.
Our board of directors was aware of these arrangements during its
deliberations on the merits of the acquisition and in determining to recommend
to our stockholders that they vote for the approval of the acquisition proposal.
OUR REASONS FOR THE ACQUISITION AND FINANCING AND RECOMMENDATION OF OUR BOARD
Our board of directors has concluded that the acquisition of All
American and the financing are both in the best interests of our stockholders.
In approving the asset purchase agreement with All American, our board
of directors relied on information (including financial information) relating to
All American, the regulatory environment and the industry fundamentals. In
addition, the board considered Ehrenkrantz King Nussbaum Inc.'s opinion that,
based on conditions and considerations described in its opinion, the All
American acquisition is fair to our current stockholders from a financial point
of view.
Our board of directors considered a wide variety of factors in
connection with its evaluation of the acquisition and financing. In light of the
complexity of those factors, the board did not consider it practicable to, nor
did it attempt to, quantify or otherwise assign relative weights to the specific
factors it considered in reaching its decision. In addition, individual members
of our board may have given different weight to different factors.
The analysis of the board of directors in reaching this conclusion is
described in more detail below. In considering the acquisition and the
financing, our board gave considerable weight to the following positive factors:
ALL AMERICAN'S SUCCESSFUL RECORD OF GROWTH AND EXPANSION AND HIGH POTENTIAL FOR
FUTURE GROWTH
An important criteria to our board of directors was that the company
have established business operations, that it was generating current revenues
and that it had the strong potential to experience rapid additional growth. Our
board of directors believes that All American, as a recognized brand name in the
truck stop industry that has been developed over a period of 17 years has in
place a strong business infrastructure and provides a solid platform for our
plans.
THE EXPERIENCE OF ALL AMERICAN'S MANAGEMENT
Another important criteria to our board of directors was that the
company must have a seasoned management team with specialized knowledge of the
markets within which it operates and the ability to adapt a company's business
model in a rapidly changing environment. All American's management team has
shown a strong ability to adjust its business plan to changing market factors
and to develop additional business opportunities.
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THE TERMS OF THE ASSET PURCHASE AGREEMENT
The terms of the asset purchase agreement, including the closing
conditions and termination provisions, are customary and reasonable. In
addition, our board of directors believes that, because members of our current
management will own a large percentage of the combined company, the combined
company will have a management team that will be committed to growing our
company and increasing shareholder value. It was important to our board of
directors that the asset purchase agreement include customary terms and
conditions as it believed that such terms and conditions would allow for a more
efficient closing process and lower transaction expenses.
Our board of directors believes that each of the above factors strongly
supported its determination and recommendation to approve the acquisition. Our
board of directors did, however, consider the following potentially negative
factors, among others, in its deliberations concerning the acquisition including
the recent financial history of All American.
Certain of our officers and directors may have different interests in
the acquisition than our stockholders. Our board of directors considered the
fact that certain of our officers and directors may have interests in the
acquisition that are different from, or are in addition to, the interests of our
stockholders generally, including the matters described under "Interests of Our
Directors and Officers in the Acquisition" above.
After deliberation, our board of directors determined that these
potentially negative factors were outweighed by the potential benefits of the
acquisition above, including the opportunity for our stockholders to share in
All American's future possible growth and anticipated profitability.
FAIRNESS OPINION
Ehrenkrantz King Nussbaum Inc. ("EKN") acted as financial advisor to us
in connection with the All American acquisition. EKN delivered its original
written opinion to our board of directors on June 15, 2005, which stated that,
as of such date, and based upon and subject to the assumptions made, matters
considered, and limitations on its review as set forth in the opinion, the
consideration to be paid in the acquisition is fair, from a financial point of
view, to our stockholders. At the time EKN delivered its original fairness
opinion, the acquisition was structured as a stock purchase by us to all of the
issued and outstanding shares of All American. Since the June 15, 2005, the
acquisition has been amended be become an asset purchase transaction whereby we
would purchase substantially all of the operating assets of All American. In
this regard, EKN was then further engaged to render another, final written
opinion to us regarding whether in its opinion the restructured transaction
would be fair, from a financial point of view, to our stockholders and has
orally informed us of its intention to issue an opinion that the restructured
transaction as an asset purchase is fair to the stockholders, from a financial
point of view. We expect that a written opinion by EKN will be delivered to us
the week of October 3, 2005, a copy of which will be attached to the final,
definitive proxy statement.
o You are urged to read the EKN opinion carefully and in its entirety for
a description of the assumptions made, matters considered, procedures
followed and limitations on the review undertaken by EKN in rendering
its opinion.
o The EKN opinion is not intended to be and does not constitute a
recommendation to you as to how you should vote with respect to the
acquisition. EKN was not requested to opine as to, and its opinion does
not address, our underlying business decision to proceed with or effect
the transaction.
In arriving at its opinion, EKN reviewed and took into account:
o the draft asset purchase agreement between All American and us;
o certain publicly available information concerning us which EKN deemed to
be relevant to its inquiry and analysis including our Annual Reports on
Form 10-KSB for the fiscal years ended June 20, 2003 and June 30, 2004,
Quarterly Reports on Form 10-QSB for the periods ended March 31, 2005,
December 31, 2004 and September 30, 2004, Definitive Proxy Statement on
Schedule 14A dated May 3, 2005, Current Report on Form 8-K filed on
March 4, 2005 and other Securities and Exchange Commission filings;
o financial and operating information with respect to the business,
operations and prospects of All American Plazas, Inc.;
o discussions with our counsel and Vice President of Business Development
and with Beard Miller Company, LLP, the outside auditors for All
American, concerning our current operations, financial condition and
future prospects;
o documentation in connection with a financing transaction among All
American and certain investors, completed on June 7, 2005, including a
Securities Purchase Agreement, Secured Debenture and Additional
Investment Rights Agreement as well
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as proposed documents among such purchasers and us in the event we
complete the acquisition of All American, including a Securities
Assumption, Amendment and Issuance Agreement, Variable Rate Secured
Convertible Debenture, Common Stock Purchase Warrant and Registration
Rights Agreement.
In arriving at its opinion, EKN looked at various valuation methods
including the following and applied those methods it deemed appropriate in its
judgment:
o Comparable Company Analysis , which derived a range of implied values
for All American by analyzing how the public marketplace values similar
private companies.
o Comparable Transaction Analysis, which derived a range of implied values
for All American by analyzing how acquirers value companies or assets
similar to All American.
o Contribution Analysis, which examined the relative value of each entity
based on each entity's contribution to the combined company. This
analysis is based on key financial metrics.
o Liquidation Value, which analyzed the potential liquidation value of All
American.
o Trading History , which consisted of a review of the prices of and
trading history of our common stock prior to the filing of our Current
Report on Form 8-K on March 4, 200, in order to reflect the pre and post
transaction indication.
o Such other financial and comparative analyses as EKN deemed appropriate
or necessary for the purpose of rendering its opinion as expressed.
In rendering its opinion, EKN has assumed and relied upon the accuracy
and completeness of the financial and other information provided to it or
discussed with it by us or otherwise used by EKN in arriving at its opinion
without independent verification and further relied upon the assurances of our
management that they are not aware of any facts that would make our financial
forecasts (including on a pro forma basis) inaccurate or misleading. Based upon
the advice of our management, EKN has assumed that such forecasts have been
reasonably prepared to reflect the best currently available estimates and
judgments of the our management as to our future financial performance
(including on a pro forma basis), and that we reasonably expect to perform in
accordance with such forecasts. In arriving at its opinion, EKN did not conduct
physical inspections of our properties and facilities and did not make or obtain
any evaluations, independent or otherwise, or appraisals of our assets,
including any proprietary technology, or current or future liabilities.
Additionally, we did not authorize EKN to solicit, and it has not solicited any
indications of interest from any third party with respect to the purchase or
business combination of all or part of its business on a post-transaction basis.
EKN's opinion is necessarily based upon limited market, economic and other
conditions as they existed on, and can be evaluated as of, the date of the
opinion.
EKN has not acted as a financial advisor to us in connection with the
initiation, solicitation of or negotiation of any terms of the asset purchase
agreement, nor has it had any discussions with the management of All American
Plazas, although, it has discussed with All American's financial statements with
All American's outside auditors, Beard Miller Company, LLP.
EKN delivered its written opinion to our board of directors on June 15,
2005, which stated that, as of such date, based upon and subject to the
assumptions made, matters considered, and limitations on its review as set forth
in the opinion, the consideration to be paid in the acquisition is fair, from a
financial point of view, to our stockholders. EKN is an investment banking firm
that, as part of its investment banking business, regularly is engaged in the
evaluation of businesses and their securities in connection with mergers,
acquisitions, corporate restructurings, private placements, and for other
purposes. Our board of directors determined to use the services of EKN because
it is a recognized investment banking firm that has substantial experience in
similar matters. EKN has received a fee in connection with the preparation and
issuance of its opinion. EKN does not beneficially own any interest in All
American or us and has not provided services to either party other than for
rendering the fairness opinion to us. In connection with the issuance of the
written opinion, EKN was paid an original fee of $150,000 for the services
rendered in connection with the original stock purchase transaction and an
additional $75,000 for its further analysis relating to the restructuring of the
acquisition as an asset purchase agreement.
ALTERNATIVE TRANSACTIONS
The Board considered several alternative transactions with respect to
both the acquisition and the financing. The Board also considered the
alternative of not approving the acquisition or the financing. The other
third-party proposals and the option of not approving any transaction were not,
in the Board's exercise of sound business judgment, as favorable to the Company
or its
33
stockholders as the acquisition for All American or the financing which was
provided by the purchasers of Debentures under the SPA under the July 2005
financing documents.
BUSINESS SYNERGY
With respect to the acquisition, our board of directors felt that All
American and our company have compatible existing business models and that the
combination of the two companies as contemplated by the Asset Purchase Agreement
and related documents will result in certain management and operational
efficiencies which would not have been otherwise achieved by each company acting
alone including obtaining more favorable credit terms. In addition, the Board
believes that diversification of our business in the manner contemplated by the
acquisition will assist us in furthering our overall business strategy of
achieving vertical integration and supply-chain management. For instance, All
American truck stop locations can be used as distribution centers for our home
heating oil vehicles. Diversification may also further enable our company to
favorably adjust to various fluctuation in the economy, which may be caused by,
among other things, the cost and supply of home heating oil.
APPRAISAL OR DISSENTERS RIGHTS
No appraisal rights are available under the Delaware General Corporation
Law for our stockholders of in connection with the acquisition proposal or the
financing.
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE ACQUISITION
The following discusses the material U.S. federal income tax
consequences of the acquisition to All American and our stockholders. We do not
anticipate any federal income tax effect to our security holders as a result of
the financing. This discussion is based on the United States Internal Revenue
Code of 1986, as amended, which we refer to as the Code.
Our security holders will continue to hold their securities and, as a
result will not recognize any gain or loss from the acquisition.
There should be no federal income tax consequences to a holder of our
common stock as a result of the acquisition.
The conclusions expressed above are based on current United States tax
law. Future legislative, administrative or judicial changes or interpretations,
which can apply retroactively, could affect the accuracy of those conclusions.
No rulings have been or will be sought from the Internal Revenue Service
concerning the tax consequences of the transactions contemplated by the asset
purchase agreement.
The discussion does not address all of the tax consequences that may be
relevant to particular taxpayers in light of their personal circumstances or to
taxpayers subject to special treatment under the Code. Such taxpayers include
non-U.S. persons, insurance companies, tax-exempt entities, dealers in
securities, banks and persons who acquired their shares of capital stock
pursuant to the exercise of employee options or otherwise as compensation.
BECAUSE OF THE COMPLEXITY OF THE TAX LAWS, AND BECAUSE THE TAX
CONSEQUENCES TO ANY PARTICULAR STOCKHOLDER MAY BE AFFECTED BY MATTERS NOT
DISCUSSED ABOVE, EACH ABLE ENERGY, INC. STOCKHOLDER IS URGED TO CONSULT A TAX
ADVISOR WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF THE TRANSACTIONS
CONTEMPLATED BY THE ASSET PURCHASE AGREEMENT TO HIM, HER OR IT, INCLUDING THE
APPLICABILITY AND EFFECT OF STATE, LOCAL AND NON-U.S. TAX LAWS, AS WELL AS
FEDERAL TAX LAWS.
REGULATORY MATTERS
The acquisition and financing and the transactions contemplated by the
asset purchase agreement are not subject to the HSR Act or any other material
federal or state regulatory requirement or approval, other than that described
in this proxy statement relating to NASD Marketplace Rules and Delaware law.
CONSEQUENCES IF ACQUISITION PROPOSAL OR FINANCING IS NOT APPROVED
If the acquisition proposal is not approved by the stockholders, then we
will not be able to consummate the acquisition upon the terms currently
contemplated by the asset purchase agreement. We may attempt to renegotiate the
terms of the acquisition and seek stockholder approval at a later date.
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If the financing is not ratified by the stockholders, then we may need
to amend the terms of the financing or we may be required to rescind the
purchase, which will require that we return to all purchasers of Debentures all
proceeds, with interest, which we received in connection with the financing, and
possibly together with any costs and expenses incurred by the purchasers as a
result of such rescission.
REQUIRED VOTE
To be approved by the stockholders, the proposal to approve, for
purposes of NASD Marketplace Rule 4350(i), the issuance of securities to All
American pursuant to the asset purchase agreement or financing that could
violate the Change of Control Rule, 20% Rule and the Affiliated Transaction
Rule, which will result in the acquisition of All American, must receive the
affirmative votes of a majority of the votes cast, in person or by proxy, at the
special meeting.
To be approved by the stockholders, the proposal to approve, for
purposes of Section 203 of the Delaware General Corporations Law, the
acquisition of the assets from All American pursuant to the asset purchase
agreement must receive the affirmative vote of a two-thirds majority of the
votes cast, in person or by proxy, at the special meeting. The votes currently
held by All American in our company will NOT be included for purposes
calculating the votes required by this Section 203 vote.
Abstentions are treated as shares present or represented and entitled to
vote at the special meeting and will have the same effect as a vote against this
proposal. Broker non-votes are not deemed to be present and represented and are
not entitled to vote, and therefore will have no effect on the outcome of this
proposal.
RECOMMENDATION
The Board of Directors believes that it is in the company's best
interests that the stockholders authorize the issuance of common stock to All
American pursuant to both the asset purchase agreement and the financing that
could constitute an issuance in violation of the Change of Control Rule, 20%
Rule the Affiliated Transaction Rule and/or the Delaware Business Combination
Rule.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE
ACQUISITION PROPOSAL TO PURCHASE SUBSTANTIALLYALL OF THE OPERATING BUSINESS
ASSETS ALL AMERICAN AND TO RATIFY THE FINANCING AGREEMENTS ENTERED INTO BY US IN
JULY 2005 WITH RESPECT TO THE SALE OF THE DEBENTURES.
THE ASSET PURCHASE AGREEMENT
The following summary of the material provisions of the asset purchase
agreement is qualified by reference to the complete text of the asset purchase
agreement, a copy of which is attached as Annex A to this proxy statement. All
stockholders are encouraged to read the asset purchase agreement in its entirety
for a more complete description of the terms and conditions of the acquisition.
STRUCTURE OF THE ACQUISITION
At the effective time of the acquisition, All American will continue as
an operating company and become our wholly-owned subsidiary.
PURCHASE PRICE-PAYMENTS
At the closing, we will deliver to All American 11,666,667 restricted
shares of our restricted common stock, par value $.001 per share, at $3.00 per
share for an aggregate purchase price of $35,000,000 for substantially all of
the assets relating to the operating business of All American. 1,666,667 of such
shares will be escrowed and be kept by us. In the event that any of the June
Debentures are exercised (those debentures which were purchased by various
investors in All American in June 2005), then we will have the right to direct
and effect the cancellation of a like number of these escrowed shares, up to
1,666,667 shares of our common stock.
We will not be assuming the debt obligations of All American nor will we
be taking title to any of the real property which All American owns.
In addition, the shareholders of All American have caused All American
to enter into a term sheet dated June 6, 2005 with a third party institutional
lender to refinance All American's debt and provide All American with certain
working capital. The term sheet provides that the loan will be in the amount of
approximately $35,000,000, at an interest rate of 30-day LIBOR plus spread
(adjustable rate), which is equivalent to the Prime Rate + 1.75%, with a 25-year
term and a 25-year amortization schedule. All American will secure the loan with
a first mortgage on all of its properties, including improvements thereto, and
we have agreed to assign over all of our real property equity interests in the
All American properties as security for the refinancing. The refinancing is
35
subject to customary closing conditions and is expected to be consummated on
October 31, 2005. In the event that All American completes such financing on or
before December 31, 2005, we have agreed to pay an additional $10,000,000 to All
American, payable in shares of our restricted common stock at $3.00 per share.
In return, All American will reduce our obligations under various leases we will
enter into in connection with the closing of the acquisition.
LEASES
For tax-related and refinancing purposes, we will not assume title to
the real property owned by All American relating to its truck stop (and related)
business. We will be conveyed all equity interests associated with such real
property as part of the purchase price consideration. In order to allow us to
operate on the various premises which are owned by All American, we will enter
into lease agreements. Payments of rent to All American by us under these lease
agreements are intended to be used by All American to service its monthly
outstanding debt obligations. Our equity interest in All American real
properties will be deemed to be increased on a dollar for dollar basis for each
dollar which All American applies the principal amount of its outstanding debt
obligations. In the event that All American's monthly debt service obligations
materially increase or decrease, the rents we are obligated to pay under our
leases with All American will also increase or decrease by the same amounts. In
addition, we will be granted the right to pay off the debt on any or all of the
All American owned properties provided that we receive title to any properties
that are encumbered by such debt.
CLOSING OF THE ACQUISITION
Subject to the provisions of the asset purchase agreement, the closing
of the acquisition will take place on the first day following the date that our
stockholders approve the acquisition, or at such other time as the parties may
agree.
REPRESENTATIONS AND WARRANTIES
The asset purchase agreement contains a number of representations and
warranties that All American and we have made to each other. These
representations and warranties relate to:
o organization, power and authority;
o financial statements (All American only);
o no material adverse change;
o absence of certain changes or events since March 31, 2005 (All American
only);
o taxes;
o employees and employee benefit plans (All American only);
o litigation;
o compliance with applicable laws;
o material contracts (All American only);
o brokerage;
o no undisclosed liabilities;
o related party transactions (All American only);
o permits (All American only);
o insurance (All American only);
o intellectual property (All American only);
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o environmental matters (All American only);
o bank accounts and books and records (All American only);
o no knowledge of breach, limitation of representations and warranties;
o ownership and condition of assets; and
o investment representations and warranties.
MATERIALITY AND MATERIAL ADVERSE EFFECT
Many of the representations and warranties are qualified by materiality
or material adverse effect. For the purposes of the asset purchase agreement, a
material adverse effect on All American means a material adverse effect on the
business, operations, properties, assets or financial condition of All American
(and its subsidiaries), taken as a whole.
INTERIM COVENANTS RELATING TO ALL AMERICAN
Under the asset purchase agreement, All American, prior to completion of
the acquisition, has agreed to conduct its business in the ordinary course
consistent with past practice, except as expressly permitted by the asset
purchase agreement. In addition to this agreement regarding the conduct of
business generally, subject to specified exceptions, All American has agreed
that All American:
o will maintain the fixed assets essential to All American's operations in
good operating repair and condition, subject to normal wear and tear,
and make repairs and replacements in accordance with prior practices;
o will report to us concerning operational matters of a material nature
and otherwise report periodically to us concerning any material changes
to status of the business, operations, and finances of All American;
o will continue to pay and satisfy its liabilities in the ordinary course
of business, paying such liabilities in accordance with prior practices;
o will continue to maintain in full force and effect or renew or replace
all policies of insurance now in effect which cover the assets or All
American and give all notices and present all material claims under all
policies of insurance in due and timely fashion;
o will not enter into any material leases or contracts for the purchase or
sale of products, utilities, or services, except (A) those made in the
ordinary course of business or (B) those which may be canceled without
liability upon not more than thirty (30) days' notice; or (C) with our
approval;
o will use best efforts to preserve the business organization and
properties to be transferred hereunder intact, including present
operations and relationships with lessors, licensors, customers and
employees; use reasonable efforts to preserve for the goodwill of our
employees, suppliers, customers, and other persons with whom it has
business relations;
o will not enter into any contract, agreement, or understanding with any
labor union or other association representing any employee; not enter
into, amend, or terminate, fully or partially, any benefit plan; and not
withdraw any funds from any benefit plan or trust or other funding
arrangement maintained pursuant thereto;
o will not, except for annual merit increases awarded to non-officer
employees in the ordinary course of business consistent with past
business practices, authorize or grant any wage or salary increase,
otherwise directly or indirectly increase post closing compensation to
or for any employee, or agree in any manner to any such post closing
increase;
o will not create or incur any indebtedness for borrowed money or assume
directly or indirectly any debt, obligation, or liability (whether
absolute or contingent, whether directly or as surety or guarantor, and
whether or not currently due or payable) which will exist after the
closing date, except in the ordinary course of business consistent with
past business practices and policies and as required for the operation
of All American;
o will not make any material change in its accounting methods, practices,
policies, principles, or procedures, except as necessary to perform the
asset purchase agreement, without consulting with us;
37
o will not enter into any lease, sublease, or contract, regarding the
acquisition, leasing, or occupancy of any real estate, equipment,
vehicles, or other items relating to All American except in the ordinary
course of business or upon our approval;
o will not sell, convey, lease, abandon, or otherwise dispose of, or
grant, suffer, or permit any lien or encumbrance upon, any of its
material assets, except on arm's length terms or in the ordinary course
of business;
o will not enter into or modify in any manner any material contract to
which it is a party except in the ordinary course of business; and
o will accrue and/or pay all withholding and other taxes on a timely
basis.
NO SOLICITATION BY ALL AMERICAN
Pursuant to the terms of the asset purchase agreement, All American has
agreed that it will not directly or indirectly solicit, entertain or encourage
inquiries or proposals, or enter into an agreement or negotiate with any other
party, to sell, or enter into any merger on consolidation with respect to, the
business of All American, All American, a substantial portion of All American's
assets or the shares of capital stock of All American.
ALL AMERICAN SHAREHOLDER CONSENT
The acquisition is subject also to the consent by a MAJORITY of the
holders of voting capital stock of All American. All American will, as a further
condition to the closing of the acquisition, obtain this required consent prior
to the closing.
ACCESS TO INFORMATION
To aid in the orderly transition of the business of All American, during
the period prior to the closing, All American and its representatives will give
us and our representatives, reasonable access to the personnel, properties,
contracts, books and records and other documents and data concerning All
American as we may reasonably request.
INDEMNIFICATION
If the closing occurs, All American has agreed to indemnify and hold
harmless us and our respective consolidated corporate parents and subsidiaries,
for any damages, whether as a result of any third party claim or otherwise, and
which arise from or in connection with the breach of representations and
warranties and agreements and covenants of All American or for any brokerage or
finder's fees or commissions or similar payments in connection with the
acquisition. We shall indemnify and hold harmless All American from and against
any damages which arise from or in connection with the breach of representations
and warranties and agreements and covenants of ours. Claims may be asserted once
total damages exceed 1% of the sum of the purchase price. Additionally the
aggregate liability for losses under the asset purchase agreement shall not
exceed 50% of the purchase price. The liability of All American may be further
reduced to the extent any loss is covered by insurance or to the extent the loss
provides All American or us with any reduction in taxes, operating costs or
other economic benefit. The representations and warranties will survive the
closing for a period of two years following closing, provided that certain of
the representations and warranties will survive for a longer period.
FEES AND EXPENSES
Except as provided in the asset purchase agreement, All American, on the
one hand, and we, on the other, shall be responsible for their own fees and
expenses (including the fees and expenses of its own lawyers, accountants and
other advisers) in connection with the asset purchase agreement and the
transactions contemplated thereby, provided that the All American's expenses
shall include only those expenses incurred by them after March 30, 2005.
PUBLIC ANNOUNCEMENTS
All American and we have agreed that any public announcement or similar
publicity with respect to the asset purchase agreement will be issued at such
time and in such manner as we determine based upon our requirements as a
publicly traded company.
CONDITIONS TO THE COMPLETION OF THE ACQUISITION
Our obligations consummate the acquisition are subject to the following
conditions:
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o receipt of stockholder approval from each of our respective
stockholders;
o the accuracy of the representations and warranties made by All American
in the asset purchase agreement as of the closing date and the absence
of material adverse changes to the assets, liabilities, business,
finances or operations of All American prior to the closing;
o the performance of and compliance with all of the covenants made, and
obligations to be performed, by All American pursuant to the asset
purchase agreement at or prior to the closing, including the delivery of
certain required documents;
o the requisite third-party consents shall have been obtained; and
o the absence of claims by third parties regarding the ownership of All
American shares or the entitlement to a portion of the purchase price.
The obligation of All American to consummate the acquisition is subject
to the following conditions:
o the accuracy of the representations and warranties made by us in the
asset purchase agreement as of the closing date and the absence of
material adverse changes to our assets, liabilities, business, finances
or operations taken as a whole prior to the closing;
o the performance of and compliance with all of the covenants made, and
obligations to be performed, by us pursuant to the asset purchase
agreement at or prior to the closing, including the delivery of certain
required documents;
o the absence of any injunction or other order that prohibits the sale of
the assets of All American in the manner contemplated by the asset
purchase agreement.
TERMINATION
The asset purchase agreement may be terminated at any time, but not
later than the closing, as follows:
o By mutual written consent of All American and us;
o By either party if a material breach of any representation, warranty or
obligation contained in the asset purchase agreement by the other exists
that may not be cured within 30 days written notice of such breach; or
o By either party if any conditions contained in the asset purchase
agreement have not been fulfilled by the other party.
EFFECT OF TERMINATION
In the event of termination by either All American or us, the asset
purchase agreement will become void and have no effect, without any liability or
obligation on the part of All American or us.
ASSIGNMENT
The rights and obligations of a party under the asset purchase agreement
may not be assigned without the prior consent of the other parties, except that
we may assign any of our rights under the asset purchase agreement to a
subsidiary.
AMENDMENT
Any purported amendment to the asset purchase agreement shall be null
and void unless it is in writing and signed by the party to be charged with the
amendment.
FURTHER ASSURANCES
All American and we have agreed that it will execute and deliver on or
after the date of the asset purchase agreement, all such other documents and
will take all reasonable actions as may be necessary to carry out the intent of
the asset purchase agreement.
39
THE SECURITIES PURCHASE AGREEMENT (AND RELATED DOCUMENTS)
RELATING TO THE FINANCING
The documents relating to the financing are attached as exhibits to the
Current Report on Form 8-K, filed July 15, 2005 with the SEC. We recommend that
you review these documents. A summary of the financing is included also in this
proxy under the section heading "Summary" of this proxy statement.
INFORMATION ABOUT ALL AMERICAN
INTRODUCTION
All American, which is headquartered in Myerstown, Pennsylvania, is in
the business of owning, operating and developing truck stops. Its operations
include, but are not limited to, the ancillary merchandising of rights,
products, and other goods and services. All American operates 11 (8 of which are
owned) multi-service truck stops in the United States that sell diesel fuel and
related services to approximately 5,000 trucking accounts and other independent
consumers. Its operations are located at primary interchanges servicing major
truck routes in the northeast region of the United States, and its facilities,
known as "All American Plazas," offer a broad range of products, services, and
amenities, including diesel fuel, gasoline, home-style restaurants, truck
preventive maintenance centers, and retail merchandise stores that market
primarily to professional truck drivers and other highway motorists.
During the fiscal year ended September 30, 2004, All American generated
revenues of $131 million and had a net worth $5 million. In addition, recent
appraisals show the fair market value of the real estate owned by All American
to be substantially higher than the recorded book value required by generally
accepted accounting principles (GAAP) in the United States. When the excess of
appraised value real estate over book value is added to the balance sheet, All
American's net worth at the end of fiscal 2004 was approximately $63.9 million.
THE TRAVEL PLAZA AND TRUCK STOP INDUSTRY
INDUSTRY OVERVIEW
Today's travel plazas and truck stops represent a major departure from
their predecessors of a generation ago. These clean and modern multi-million
dollar businesses offer a tremendous array of facilities and services to
professional drivers and the traveling public. According to statistics obtained
by the National Trade Association, there are approximately 4,500 travel plazas,
pumping three-fourths of all diesel fuel sold at retail in the United States.
The industry's primary customers consist of commercial trucking fleets and
professional truck drivers that comprise the long-haul sector of the trucking
industry.
In 2003, the U.S. Department of Transportation reported that 77 million
trucks hauled 13.2 billion tons of freight, delivering 78% of the dollar value
of products sold in the United States over highways. The Federal Highway
Administration (FHA) predicts an increase of 31% in truck freight by 2015. The
chart below depicts a forecast of the trucking industry in 2007. The value of
trucking services is expected to grow at an annual compounded rate of 4.7%
between 2004 and 2007. Strong growth in retail sales and exports are expected to
drive this demand.
[TRUCKING GROWTH PERFORMANCE GRAPH]
Source: IERF, Inc. First Research forecasts are based on INFORUM
forecasts that are licensed from the Interindustry Economic Research
Fund, Inc. (IERF) in College Park, MD. INFORUM's "interindustry-macro"
approach to modeling the economy captures the links between industries
and the aggregate economy.
40
Another recent economic study found that by 2008, the number of Class 8
trucks is expected to increase by over 35%, the number of Class 6 and 7 trucks
will grow by almost 20%, and the number of Class 3, 4, and 5 trucks will double.
The growth of the trucking industry during the past two years is associated with
a fundamental improvement in the U.S. economy, and analysts and industry
officials are pointing to the recent strength in the retail and manufacturing
sectors as catalysts for growing freight tonnage.
Diesel and gas sales is the largest determining factor for revenues and
profitability for travel plazas and truck stops. Approximately 75% of All
American's revenues during [2004] derived from the sale of diesel and gas. For
instance, All American sold 60 million gallons of diesel fuel in Pennsylvania
during 2003, which is equivalent to a 5% market share in Pennsylvania, a leading
state for sales of diesel fuel.
ALL AMERICAN PLAZAS, INC.
All American Plazas, Inc. traces its roots to 1980 when the Company's
founder, Glen Mitstifer, acquired his first truckstop in Carlisle, PA. The
Company at that time was incorporated as All American Auto/Truck Plazas, Inc. A
silent partner in the business sold his interest in the early 1980's to Carlos
Leffler, who owned other companies involved in the wholesale and retail
distribution of motor fuels and propane. By 1987, under the guidance of Mr.
Mitstifer and Mr. Leffler, the company prospered and grew to a total of seven
travel plazas in central PA.
In the mid 1980's Mr. Leffler had acquired a majority interest in
another group of truckstops in central PA, incorporated as Truck Terminal Motels
of America, Inc.("TTMA"). In November, 1988 the four TTMA truckstops and the
seven All American Auto/Truck Plaza locations were merged, and All American
Plazas, Inc. was formed.
All American continued to prosper in the early 1990's, adding a twelfth
location in Doswell, VA, and completely re-building several locations, such as
Milton, Clarks Ferry and the three Gables sites. Mr Mitstifer was also very
active in the formation of AMBEST in 1989, an alliance of independently owned
travel plazas formed to offer a nationwide network that would allow the
independent operator to effectively compete with national chains. Eight of the
All American locations were affiliated with AMBEST.
In 1994 Mr. Leffler passed away, which led to the acquisition of his
shares by Mr. Mitstifer in June 1995. As a result of this transaction,
Mr.Mitstifer held roughly 88% of the Company's voting shares. By late 1995, Mr.
Mitstifer had been joined in the business by his two sons, Richard and Mark, who
oversaw the financial and operational aspects of the Company, respectively.
Richard had sixteen years of experience in commercial banking, and Mark had been
with the Company since its inception in 1980.
The competitive environment in the the Pennsylvanian truckstop business
changed dramatically in early 1995 when Utah-based chain Flying-J entered the
state, choosing to build in Carlisle, Pennsylvania. During the same time period,
other national competitors, such as Pilot and Petro Stopping Centers, had built
or were planning new sites across the state. In early 1997, two of the larger
chains in the industry, Union 76 and Travel Centers of America were merged, both
being controlled by the same investment group. This merger impacted All
American's Breezewood location, which had been a Union 76 franchise. The loss of
a national affiliation at Breezewood opened the door for discussions with Petro
and the next major change in Company history.
In December, 1997 a written understanding was entered into with Petro,
whereby three locations (Breezewood, Milton and Frystown) were to become Petro
franchise sites, and a fourth (Carlisle) was to be franchised or sold to Petro.
In February, 1998 the Breezewood and Milton sites were converted to Petro's. The
Frystown site was going to require significant renovations to meet Petro
standards and Carlisle needed to be a ground-up rebuild, so both were put on
hold for future consideration.
Other company locations were also undergoing changes as a result of the
competitive environment, a downturn in the trucking industry and managements
decision to franchise with Petro. The SOCO All American in Carlisle had been
closed in 1997 and the site put on the market. Part of the agreement with Petro
restricted the future use of the site, so that no truckstop competitor would
open on the site. Management also decided to sell it's Pine Grove, PA location
to an independent operator, because it would reduce debt and the location could
not be converted to a Petro. By the end of 1998, All American was operating ten
truckstops and a motel.
In 2000, recognizing the amount of capital necessary to convert Carlisle
and Frystown to Petro, the decision was made to sell the Carlisle site to Petro.
The sale was completed in October, 2000, which included the truckstop property
and an adjacent motel site. AAP continued to operate the Carlisle All American
until June, 2001, while Petro built their new truckstop on the frontage that was
occupied by the motel. By the end of 2001, a portion of the sale proceeds were
used for upgrades at the Breezewood and Milton sites, while a new truck repair
shop was constructed in Frystown as part of that Petro conversion. The ultimate
conversion of the Frystown site was delayed due to a lack of available funds, as
proceeds of the sale were used to pay off mortgage debt on the Doswell, VA
location. This location had been under agreement of sale but the agreement was
not finalized.
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In early 2002, Mr. Mitstifer, decided to begin the process to sell All
American and position himself for retirement. Initial discussions were held with
Petro, who had a contractual right of first refusal, due to existing franchise
agreements. A favorable deal could not be negotiated with Petro, and Petro
allowed talks to begin with other interested purchasers. One of the interested
parties was a Connecticut based operation that was led by Frank Nocito, who was
ultimately the successful bidder. As part of his group of business interests,
Mr. Nocito already operated two independent truckstops, one in NY and the other
in NJ. In October, 2003 a stock sale was completed to a newly formed entity, All
American Industries Corp. The sale price was $27.5MM; approximately $16.5
assumption of debt and the balance of $11.2MM was structured with $4MM due at
closing, $3MM due at the first year anniversary of the sale and the balance paid
to former shareholders over the next seven years. Mr. Mitstifer, the founder,
retired and the company's day to day operation is led by his son, Richard
Mitstifer, President, Roger Roberts, Vice President of Operations, Louis Aponte,
Vice President and Mark Rosen, Comptroller.
All American operates eleven locations. Eight are part of the original
group of All American locations and the other three are operated under
management agreements. The other three include Belmont, NY, Carneys Point, NJ
and Strattanville, PA, a location that was taken over in April 2004. In January
2004, the Company closed a leased site in Carlisle, PA. The lack of
profitability at the site did not make renewal fiscally feasible.
During the first year of operation All American implemented various cost
saving programs that has returned the Company to profitability. Changes have
been implemented in restructuring personnel and operations which has already
reduced annual operation costs by more than $1MM and additional improvements
will continue. In addition, approximately $500,000 has been saved on an annual
basis after having negotiated a new fuel contract with better credit terms and
lower prices. Other cost savings have been implemented by reducing the work
force by 15% which also resulted in an annual savings of $200,000 in workmen's
compensation insurance. In addition, the Company signed-on with a new health
insurance provider and implemented a 50/50 employee premium contribution plan
which has saved an additional $100,000 to the Company on an annual basis.
COMPETITIVE ADVANTAGE:
Increased competition and consolidation among trucking companies in
recent years has heightened truck fleet owners' focus on reducing their
operating costs. This trend has placed additional pressure on diesel fuel
margins for all industry participants. In addition, from time to time, All
American may face intense price competition in certain geographic markets.
Industry studies indicate that approximately 61% of stops made by professional
truck drivers are for reasons other than the purchase of fuel. Professional
truck drivers rate meals, parking, and cleanliness as key factors in determining
which truck stop they use. As a result, All American believes that its average
site size, user-friendly facility design, and broad offering of non-fuel
products, services, and amenities will continue to attract the professional
truck driver and should continue to sustain All American's competitive advantage
in spite of fuel pricing competition.
Regulators concerned with the number of fatigue related accidents have
limited the number of hours a professional truck driver is permitted to drive.
New hours of service regulations, in effect since January 4, 2004, increased the
mandatory rest periods professional truck drivers are required to take. All
American believes these new regulations will increase the time that professional
truck drivers spend in multi-service travel centers, thereby increasing demand
for higher margin merchandise and services. This factor, together with a high
driver turnover rate, may also result in trucking fleets being more inclined to
promote and encourage their drivers to use full-service truck stop chains, such
as an All American Plaza, as a method of improving their driver retention.
BUSINESS STRATEGY
The mission of All American is to steadily become one of the premier
truck stop operators in the United States and to achieve ongoing sales revenues
from the acquisition and operation of truck stops throughout the United States.
All American believes that there are currently more than 150 truck stops
available for acquisition at commercially reasonable terms in the United States.
The need for such facilities will continue long into the future and the
development of ancillary properties associated with such facilities acquired
will maximize revenue. All American intends to target those companies available
for acquisition that have a recognized presence, and will work to convert other
independent locations into All American-owned facilities.
To improve and maintain sales, All American is currently upgrading
signage and gas islands with a completion date of December 2005. All American
has also partnered with TransMontaigne Product Services in diesel branding with
a desired result of having a nationwide network of the All American brand. We
are investigating the feasibility of offering Bio-diesel fuel at our locations
via another collaboration with TransMontaigne. We believe this will put us at a
competitive advantage since many of our competitors do not and, to our
knowledge, do not currently have plans to implement such a program. We believe,
however, that the recent natural disasters in the U.S. Gulf Coast has
demonstrated that the cost of alternative products will be in demand.
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To increase diesel sales, All American has contracted with Truckstops
Direct, a well-known marketing group, to market our locations to fleets that do
not presently use our locations. With the assistance from Truckstops Direct, All
American has been successful in bringing new accounts into the locations.
All American operates two Petro locations, generally recognized as the
leader in the truck stop industry, in Milton and Breezewood, PA. A third
location, Frystown, PA, is scheduled for conversion to Petro in 2006. When
completed, we believe this will enhance our offering at these locations and
strengthen our presence.
BUSINESS OPERATIONS AND STRATEGIC ALLIANCES
TMG & ITS FUEL MANAGEMENT PLATFORM
All American has entered into a fuel supply agreement with
TransMontaigne Product Services, Inc. (TMG), which provides All American with
direct access to TMG's "Best Practice Fuel Management Platform". The TMG
platform allows All American to act as its own wholesale fuel distributor to TMG
truck stops without any capital investment whatsoever. TMG generates over $9
billion in annual revenues and owns 55 oil and gas refineries throughout the
U.S. with a total capacity of 21 million barrels of oil equivalents. In 2004,
All American consolidated its fuel supply agreements with TMG and purchased $100
million in fuel from TMG. Based on its agreement with TMG, All American's fuel
supply has been market sensitive with minimum markup. The relationship with TMG
has allowed All American to pass along a portion of these cost reductions to its
customers, providing it with a distinct competitive advantage in the truck stop
marketplace. In addition, TMG provides All American with better credit terms
than other retail fuel suppliers. Typically, in the truck stop industry,
competitors have 10 or less days to pay for inventory while All American has a
15-day grace period, resulting in improved cash flow and earnings.
TMG
TransMontaigne, Inc., the parent company of TMG, is a refined petroleum
products distribution and supply company based in Denver, Colorado, with
operations primarily in the Gulf Coast, Midwest and East Coast regions of the
United States. TransMontaigne predominantly distributes refined petroleum
products, such as gasoline, diesel fuel, heating oil, jet fuel and kerosene, and
some fertilizer, chemicals and other commercial liquids. TMG provides integrated
terminal, transportation, storage, supply, distribution and marketing services
to refiners, wholesalers, distributors, marketers and industrial and commercial
end users of refined petroleum products. Its principal activities consist of
terminal, pipeline and tug and barge operations and supply, distribution,
marketing and supply management services.
TMG has assembled an asset infrastructure and developed a shipping
history on common carrier pipelines, which are focused on the distribution of
refined petroleum products from the Gulf Coast to the Midwest and East Coast.
TMG owns and operates terminal infrastructures that handle refined petroleum
products and other commercial liquids with transportation connections by
pipelines, tankers, barges, rail cars and trucks to its facilities or to
third-party facilities. At its terminals, TMG provides throughput, storage,
injection and distribution related services to distributors, marketers, retail
gasoline station operators and industrial and commercial end users of refined
petroleum products and other commercial liquids. During the fiscal year ended
June 30, 2004, TMG owned and operated 55 terminals with an aggregate capacity of
approximately 21.4 million barrels of refined petroleum products.
TMG has purchased refined petroleum products primarily from refineries
along the Gulf Coasts of Texas and Louisiana, and has such products delivered to
its own and third party terminals. TMG sells its products primarily through
rack-spot sales, contract sales and bulk sales to cruise ship operators,
commercial and industrial end users, independent retailers, distributors,
marketers, government entities and other wholesalers of refined petroleum
products and also provides supply chain management services to industrial,
commercial and governmental customers that have large ground vehicle fleets.
TMG's customer base includes companies involved in the manufacture and
distribution of consumer products, express shipping services, waste disposal
services, transportation services and state and local government entities.
BEST PRACTICE FUEL MANAGEMENT PLATFORM:
TMG has developed a proprietary combination of software programs and
databases to provide TMG and its customers access to essential real time data
with respect to how to purchase and procure fuel from TMG in the optimal manner
and at the best prices available. The TMG platform ensures a reduction of fuel
costs by facilitating tactical decisions and also provides the opportunity to
analyze the data so as to make strategic decisions. The following are some key
features of the TMG platform:
43
INTEGRATION OF DATA: Normal day-to-day fuel management involves a number
of systems and usually involves much spreadsheet work, duplication of data and
manual touches to integrate the different systems. The platform data-level
integration eliminates duplication, speeds up production of reports and manual
collation of data, integrates different systems with a consistent set of data
and provides better and more consistent data for decision making.
FUEL PROCUREMENT SNAPSHOT: The fuel procurement screen provides a
snapshot for all sites in a single screen, which allows for quick
decision-making. The snapshot includes, in a single screen, a list of all sites
and their respective statuses, physical inventory, forecasted consumption and
minimum and maximum number of loads that can be dispatched.
PROCUREMENT OPTIMIZATION BY MOVING UP THE SUPPLY CHAIN: The platform is
not only geared towards providing a reduction of fuel costs by facilitating
tactical decisions, but also provides an opportunity to analyze the data so as
to make strategic decisions. This is accomplished by encouraging all suppliers
to provide a breakup of the delivered costs into product and freight, which
facilitates a comparison of the freight component with the freight in that
market area, thereby allowing a customer to check for reasonableness and ensure
corrections if necessary. The platform also provides for a comparison of the
product price at the [Rack] with industry indexes.
IMPROVED RELEASE LIFE-CYCLE MANAGEMENT: The release life cycle starts
from the time the release is created to dispatch a load to a site and continues
until both the freight and product is paid. A release goes through many steps
along the way, from site and hauler actualization to the automated matching
process that verifies the validity of the actualization information. The
inventory reconciliation process provides yet another check, until the freight
and product payables are finally created and interfaced with the financial
system. The platform provides user interfaces, reports and automated processes
to manage the life cycle of a release thereby providing for an integrated and
robust system that conforms to best practices.
INDEPENDENT TRUCK STOPS
In ____ 2004, All American acquired a 33% equity interest in Truck Stops
Direct ("TSD"), which represents 140 independent truck stops across the U.S. and
provides certain benefits to its members for a small monthly fee ranging from
$600 to $1,000 per month. Among the benefits offered by TSD are the following:
o individualized direct fleet marketing
o reduced transaction fees with the major fleet cards
o better than wholesale discounts on shop and store merchandise
o reduced pricing for TripPak services
o competitive monthly retainer fee and no "per gallon" marketing fees
or other special charges
o reduced membership retainer fees for multiple locations
o no lengthy contracts (60-day written notice of termination by either
party)
o limited network of travel centers, with no overlapping of locations
Provided that the acquisition is completed, TSD has orally committed to
grant All American the right to acquire the remaining stock of TSD and
immediately thereafter, enter into license agreements with the majority of
existing TSD members such that each independent truck stop now uses the name
"All American Plazas". The license agreements will provide better credit terms
for fuel purchases, cheaper fuel prices, proprietary credit cards and a new
customer base utilizing All American's already existing cost plus contracts with
national truck fleets to the truck stop owner(s)/licensees.
Through the licensing agreements with the TSD members and the use of the
TMG platform for such TSD members. All American has been able to significantly
expand the All American Plaza brand and generate recurring revenues without
incurring the initial capital expenses of building or acquiring a new truck
stop. . These revenues are primarily pre-tax profits, generated without
acquiring the actual bricks and mortar, employees, debt, carrying costs and all
of the other costs associated with direct truck stop ownership. All American
anticipates that it will establish and create non-capital intensive, high profit
margins, and recurring revenues during fiscal year 2005 with the implementation
and integration of the TMG platform and management assistance.
COST PLUS SUPPLY AGREEMENTS WITH TRUCK FLEETS
All American has entered into "Cost Plus" supply agreements with a
substantial number of major national trucking companies, such as JB Hunt, Werner
Enterprises, USA Truck and Pensken & Prime. [FULL NAMES] These contracts provide
that the truck
44
fleets will pay a set margin over All American's cost of fuel. National truck
fleets will not allow their drivers to purchase fuel at truck stops that are not
party to cost plus supply agreements with them. The agreements result is
increased revenues and stable, predictable profits for All American. The
advantage for the truck fleets is that they have long term fuel supply
agreements which provide fair pricing over time while lessening the volatility
of fuel prices.
ALL AMERICAN REALTY & CONSTRUCTION, INC.
In ______ 2004, All American formed a wholly owned subsidiary named All
American Realty & Construction, Inc. (AARC) for the purpose of real estate
development and construction. Future development will create additional revenues
from the substantial undeveloped surplus real estate All American owns at its
truck plazas. All American has more than 150 acres of real estate which is not
being utilized by the truck plaza business and has engaged an outside real
estate company to produce a full land use survey. All American expects to enter
into long term leases with large, national retail chains such as Wal Mart, Home
Depot and Lowe's.
COMPETITION
The United States truck stop industry is highly competitive and
fragmented. All American has two primary sources of competition: (1) limited
service "pumper" truck stops, which focus on providing fuel, typically at
discounted prices, while offering only limited additional products and services,
and (2) multi-service travel centers, which offer professional drivers and the
public a wider range of products and services. All American believes there are
approximately 2,400 multi-service and pumper truck stops located in the United
States. Approximately 30% of the truck stops are operated by five national
chains and such national chains accounted for approximately 83% of all diesel
fuel gallons sold over-the-road.
The three industry leaders in truck plazas are Flying J Centers
Holdings, L.P., Pilot Corporation and Petro Stopping.
FLYING J CENTERS HOLDINGS, L.P.
Established as a small petroleum marketing company in 1968 with four
retail gasoline stations, Flying J Centers Holdings, L.P. has grown to become
the largest retail distributor of diesel fuel in North America. Flying J is a
fully integrated petroleum company engaged in the exploration, production,
refining, transportation, wholesaling and retail marketing of petroleum
products. Employing 11,500 people nationwide, the company also owns and operates
travel plazas, convenience stores, restaurants, motels and truck service
centers. In addition, Flying J's affiliated companies offer a variety of
services including, insurance, financial services, communication services, load
and equipment facilitation services, truck fleet sales and other interstate
travel services.
Flying J's sophisticated network of 165 state-of-the-art travel plazas
and fuel stops is located along national highways in 41 states and three
Canadian provinces. Another 27 facilities are presently under construction or in
various stages of the permitting process with openings scheduled throughout the
next two years.
PILOT CORPORATION
Pilot Corporation was founded in 1958 as a single, family-owned gas
station in Gate City, Virginia. In 1976, Pilot built its first convenience store
and began converting the rest of its locations to convenience stores. Pilot's
first travel center opened in 1981, and travel centers have been the main thrust
of its business since then. In 1988, Pilot began concentrating on expanding its
travel center operations into a nationwide network. Pilot opened its first
travel center with a fast-food concept in 1988.
By 2001, Pilot operated 65 convenience stores and 140 travel centers in
37 states. On September 1, 2001, Pilot and Marathon Ashland Petroleum (MAP)
entered into an agreement to form Pilot Travel Centers (PTC). MAP is the sixth
largest refiner of petroleum products in the country, and its sales are
approximately $20 billion. Pilot is currently the nation's largest operator of
travel centers and largest seller of over-the-road diesel fuel. PTCs sell nearly
18% of all over-the-road diesel fuel sold in the United States. A typical PTC
includes one or more nationally known chain restaurants, a broad range of retail
merchandise, automobile and truck fueling facilities, and a variety of other
services aimed at professional drivers and interstate travelers.
PETRO STOPPING
Year after year, Petro has been rated the #1 truck stop by America's
drivers. Petro was founded in 1975 to provide professional drivers the highest
standards of friendliness, cleanliness, quality, value, and service. Over the
past 30 years, Petro has led the truck stop industry in many innovations such as
private, lockable driver showers, segregated truck fueling lanes, chain-wide
breakfast, lunch and dinner buffets, 24-hour free movie theatres, a driver
loyalty program and Idle/fire HVAC equipment.
45
GOVERNMENTAL AND OTHER REGULATIONS
GOVERNMENT REGULATION.
All American is subject to various governmental regulations. These
include the collection and payment of taxes, complying with government
standards, and maintaining various government permits and licenses.
All fuel island equipment must follow the standards set forth by the
Bureau of Weights & Measures. The bureau inspects and tests fuel equipment twice
annually. Fuel islands must also have adequate cut-off switches and systems in
the event of an accidental spill or fire. The scales at each location are tested
annually. Each scale operator must have a public weighmaster license, which is
issued by the Bureau of Standard Weights.
Most All American locations have eating establishments that must follow
regulations set forth by the applicable State, as well as the posting of a
license issued annually by the Department of Agriculture. Inspections of All
American restaurants are performed by the respective States to verify compliance
with restaurant standards for food storage and preparation. Fire suppression
systems are also required in all cooking areas and are subject to periodic
inspection.
Each retail store is required to post a Cigarette Dealer license (or
similar license). In Pennsylvania this is issued by the Department of Revenue
Bureau of Business Trust Fund.
In Pennsylvania, the Department of Health issues a certificate of
registration which is required to conduct and maintain a facility in accordance
with the provisions of the Controlled Substance, Drug, Device and Cosmetic Act
#64, approved September 9, 1972.
All American is also subject to various standard taxes. These taxes
include federal and state corporate taxes, sales tax, payroll tax, tire
recycling fees, and occupancy taxes. All American also collects motor fuel taxes
from customers. These motor fuel taxes are withheld by our suppliers upon our
purchase of fuel and the supplier files and pays the motor fuel taxes. All
American does not directly file motor fuel tax returns for gasoline or diesel.
In Pennsylvania, all "Pressure Vessels" are regulated by the Bureau of
Occupational and Industrial Safety, which is part of the Pennsylvania Department
of Labor and Industry. Pressure vessels include boilers that can be a component
of a locations hot water and/or heating system, and also all air compressors.
Air compressors are used in our truck repair facilities, and could also be part
of a locations water delivery or HVAC systems. They must be registered with the
State and are inspected annually.
ENVIRONMENTAL REGULATIONS.
Environmental regulation for All American truckstops generally fall into
three primary categories: (a) sewerage treatment plants; (b) stormwater and
spill runoff control; (c) tanks and lines used for delivery of petroleum
products; and (d) waste product disposal.
All American owns and operates four on-site sewerage treatment plants at
Pennsylvania locations - Frystown, Milton, Clarks Ferry and Strattanville. All
four plants must be monitored and maintained daily by licensed operators. All
American does have some employees who are licensed operators but have also
engaged the services of an outside company that specializes in the operation of
treatment plants. They collect affluent samples, handle all reports that are
submitted monthly to the State and procure any permits as required. The plants
must all comply with strict standards of structural integrity and affluent
concentrations, as they all discharge directly to streams and rivers.
Stormwater and spill control is critical, especially at those locations
that are adjacent to waterways. Most All American locations do have some form of
retention basin to catch stormwater, although most are somewhat passive in their
process. Others, such as Doswell, VA actually have a system of skimmers and
booms in place that are designed to actively filter the outflow. All garages and
fuel islands are required to have an Oil/Water separator that is designed to
catch any serious spills of petroleum products. These systems are not designed
to filter rainwater, but are targeted towards spills that occur on the fuel
islands or in the garages. These tanks must be periodically inspected and
emptied of any petroleum products. Where possible, they are required to filter
into a sewerage treatment plant, while others are piped to a retention pond.
All tanks of a certain size, whether aboveground or underground, are
required to be registered with the State and are subject to periodic inspection
and testing. Lines leading to pumps are also tested, normally on an annual
basis. Most of All American's locations have double walled tanks that employ the
use of an interstitial space to actively monitor any leaks in tanks. The leak
46
detection systems electronically send data to the fuel desk area and an alarm
would sound if a problem is detected. In addition to the electronic monitoring
of tanks, All American is required by law to keep a daily log of fuel levels in
the tanks, which log is reconciled daily against deliveries and product sales to
spot any shortages that may be the result of a leak. The State of Pennsylvania
maintains an active Underground Storage Tank Indemnification Fund ("USTIF"). AAP
pays money into the USTIF based on tank capacity for diesel fuel and actual
gallons of gasoline purchased.
All American must also abide by guideline relating to the disposal of
waste products. All battery cores are taken back by their original suppliers.
Tire casings are collected in trailers and hauled away by a certified recycler,
and all oil filters are crushed and drained prior to disposal. Waste oil is
either burned in our own heating systems or sold to a certified recycler.
RISK OF LOSS AND LIABILITY INSURANCE
All American maintains all insurance in types and amounts which are
customary in the industry for operations of its scope. All locations are covered
by property, liability and boiler and machinery insurance. All American also
maintains excess liability insurance. All American does not maintain business
interruption insurance. Certain states require that All American maintain
disability and/or workman's compensation insurance, and All American is in
compliance with such requirements. Flood insurance is maintained on the Clark's
Ferry property only.
EMPLOYEES
As of June 16, 2005, All American had a total of 640 employees, of which
570 were full-time and 70 were part-time. At such date, 50 of All American's
full time employees were salaried and performed executive, management, or
administrative functions and the remaining 520 employees were paid by the hour.
All American has never had a work stoppage and management characterizes its
relations with its employees as good.
LITIGATION
There are no pending material legal proceedings against All American.
Moreover, all minor litigation is covered by insurance. However, Carney
Properties & Energy Corp., the titleholder of All American's Carney's Point
truck plaza real property and an affiliate of All American, is involved in an
adversary proceeding with Sovereign Bank.
INDEBTEDNESS
All American is party to a number of credit facilities of varying size,
terms and conditions, which have been used by All American and its affiliates
and subsidiaries to support their operations, for working capital and capital
acquisitions for expansion.
In August 1999, All American borrowed $10 million from GMAC, successor
in interest to FMAC. The loan collateralized by first mortgages on certain
properties owned by All American, and currently has an outstanding balance of
approximately $8 million. Bayview Capital loaned All American $8 million,
collateralized by a first mortgage on Milton Petro Truck Stop, which loan was
subsequently assigned to Capital Crossing Bank and currently has an outstanding
balance of approximately $4.5 million. In March 2004, All American borrowed $2.1
million dollar, all of which is currently outstanding, from Fundex Capital
Corp., collateralized by a second mortgage on Milton Petro Truckstop. Such loan
from Fundex accrues interest at the rate of 12.5% per annum and was originally
payable in September 2005 but has been extended for an additional six months.
As of June 16, 2005, Carney Properties Energy Corporation,, a company
owned by All American Industries, Inc. ("AAI"), the majority shareholder of All
American, entered into a loan agreement in the amount of $2.2 million with
Sovereign Bank, which loan is collateralized by a first mortgage on Carney's
Point, of which approximately $2.1 million is currently outstanding. Belmont
Truck Plaza, Inc., a company owned by AAI, obtained a $750,000 credit facility
from the Small Business Administration ("SBA"), collateralized solely by a first
mortgage on Belmont Truck Plaza, of which approximately $750,000 remains
outstanding. AAI manages Carney Properties & Energy Corp. and Belmont Truck
Plaza and anticipates transferring these two properties to All American in
exchange for All American's assumption of AAI's debt obligations to Sovereign
Bank and the SBA.
AAI is the maker of a promissory note to the sellers of All American in
the amount of $7.1 Million, secured by second mortgages on Carlisle Gables,
Frystown Gables, Doswell, Carlisle Soco, Harrisburg Gables. Regarding the
sellers' promissory note, AAI was to make a Three Million Dollar ($3 million)
payment in October 2004; however, AAI has requested an extension for an
additional ninety (90) days to make said payment and has requested that the
majority shareholder of the seller's promissory note convert approximately $2
million of the $3 million dollars into equity of the soon to be formed Newco.
The Sellers' under the promissory note have agreed to the extension until
December 31, 2005. Furthermore, the majority shareholder is considering the
conversion of approximately $2 million dollars in debt to equity in Newco during
the extension period.
47
On December 15, 2004, Timothy Harrington, the then Chief Executive
Officer of Able Energy, Inc. sold an aggregate of 1,007,300 shares of Able's
common stock to All American. The purchase price for the sale was $7,500,000, of
which $2,750,000 was paid in cash and All American issued promissory notes in
the aggregate principal amount of $4,750,000 to Mr. Harrington. For the first 12
months, only interest was payable to Mr. Harrington. Thereafter, principal and
interest shall be payable on a monthly basis. In the event All American and Able
were to enter into any transaction pursuant to which the promissory notes become
an obligation of Able and Able enters into a material financing transaction, the
notes will become immediately due and payable.
On July 27, 2005, Able made a loan in the amount of $1,730,000 to All
American and All American executed and delivered a promissory note for the full
amount of the loan in favor of Able. Under the terms of such promissory note,
the outstanding principal of the loan bears interest at the rate of 3.5% per
annum. All payments of principal and accrued interest are payable sixty days
after the date of the promissory note, although All American may extend the
repayment for an additional thirty days upon written request.
On January 12, 2005, All American entered into an agreement to factor
accounts receivable with Crown Financial, LLC ("Crown"). In accordance with the
account purchase agreement, All American received a $2,000,000 initial advance
from Crown. On the 15th and 30th of each month All American has agreed to pay
Crown a fee equal to 2.5% of outstanding advances from the proceeding period.
All American has agreed to pay Crown a minimum fee of $200,000 for the first 60
days of the agreement. Not withstanding the foregoing, All American will pay
Crown a fee on January 15, 2005 equal to a per diem rate of .1666% applied to
the initial advance for the period from the initial advance to January 15, 2005
in addition to $10,000 for legal and travel expense associated with the
transaction.
All American obtained financing of $6,450,000 from Avatar Income Fund I,
LLC and $2,050,000 from Avatar Funding Group, LLC ("Avatar") on April 14, 2005,
which are collateralized by a first, second or third mortgage on certain real
estate owned by certain of All American and are guaranteed by an officer of All
American. This financing was used to pay certain of All American's other debt
obligations. At closing All American paid total closing fees of $527,385 and any
legal and inspection fees required for the financing. Repayment terms for these
loans are interest only, payable monthly at the Wall Street Journal prime rate
plys 7% with a minimum rate of 11%, starting June 1, 2005. Unpaid principal and
accrued interest is due on November 1, 2005, the maturity date. All American has
the option to extend these loans for an additional six months, providing there
have been no defaults and All American pay Avatar a 2% extension fee prior to
the maturity date.
FACILITIES
All American's facilities are designed to offer a number of benefits to
truck fleet operators and drivers. These benefits generally include well-lit and
fenced parking lots to enhance security for drivers, trucks, and freight;
spacious parking areas and traffic flow patterns designed to reduce accidents;
and fewer stops and out-of-route miles through the use of one-stop,
multi-service facilities. The facilities offer separate gas and diesel fueling
islands, restaurants, truck preventative maintenance and repair services, and
travel and convenience stores offering an array of merchandise selected to cater
to professional truck drivers' needs during their long periods away from home.
Additionally, All American provides amenities such as telephones, fax machines,
computers and other communication services, photocopying and postal services.
All American Plazas also offer certified truck weighing scales, truck washes,
laundry facilities, private showers, game, television and movie rooms, and
barber shops.
Set forth below is information with respect to existing All American
Plazas as of June 2005. Full appraisals were conducted on the properties owned
by All American by a professional outside appraisal company based in New York
that specializes in evaluating properties of this type. All valuations are based
on the "as is" market value of the fee simple estate in the facility.
NAME OF FACILITY DESCRIPTION OF FACILITY VALUATION
Frystown All American The facility is comprised of a full-service truck stop situated $11,300,000
BETHEL, PENNSYLVANIA on an approximately 50 acre irregularly shaped site conveniently
located on the west side of Route 645, less than 1/4 mile south
of exit 10 of Interstate 78. The property is equipped with [one-
and two-story] restaurant/driver amenities (showers, lounge,
etc.)/motel/convenience store facility which was built in 1972,
a part metal-and-concrete block five-bay truck repair building,
and a metal maintenance building, and is 100% occupied. The
improvements encompass approximately 30,000 square feet.
Clarks Ferry All American The facility is comprised of a full-service truck stop situated $6,300,000
DUNCANNON, PENNSYLVANIA on an approximately 7.4 acre irregularly shaped site
conveniently located on the east side of Benvenue Road (Route
22/322), less than 1/2 mile south of US Route 11 / 15. The
property is equipped with a 17,100 square foot truck stop
facility that was built in 1990 and is
48
NAME OF FACILITY DESCRIPTION OF FACILITY VALUATION
100% occupied. The improvements include 8,800 square foot
one-story (w/basement) restaurant/driver amenities (showers,
lounge, etc)/convenience store facility, a 2,000 square foot
two-story single-family house, a 2,500 square foot two-story
8-unit single room facility, a 2,700 square foot two-story
management building, and a 1,100 square foot two-story concrete
maintenance building.
Breezewood Petro The facility is comprised of a full-service truck stop situated $13,200,000
BREEZEWOOD, PENNSYLVANIA on an approximately 7.7 acre irregularly shaped site
conveniently located just south of Route 30, just east of
Interstate 70 and just west of Interstate 76. The property is
equipped with a 16,500 square foot truck stop facility that was
built in 1963 and is 100% occupied. The improvements include a
14,400 square foot one-story (w/basement) restaurant/driver
amenities /convenience store facility, and a 2,100 square foot
two-story concrete-block truck repair building.
Carlisle Gables The facility is comprised of a full-service truck stop situated $2,700,000
CARLISLE, PENNSYLVANIA on an approximately 8.0 acre irregularly shaped site
conveniently located off of Interstate 81 (Exit 52) as well as
Interstate 76, or the Pennsylvania Turnpike (Exit 16). The site
is equipped with a brick 3,500 square foot one-story gasoline
station/convenience store and truck wash building that that was
built in 1987 and is 100% occupied.
Frystown Gables The facility is comprised of a full-service truck stop situated $7,100,000
MYERSTOWN, PENNSYLVANIA on an approximately 60 acre irregularly shaped site conveniently
located on the east side of Route 645, less than 1/4 mile south
of Exit 10 of Interstate 78. The property is equipped with a
masonry-panel 2200 square foot one-story gasoline
station/convenience store facility including amenities (showers)
that was built in 1990 and is 100% occupied. (Note:
Approximately 50 acres residentially-zoned land that has been
approved for residential subdivision, but no plans are currently
in place to develop the land).
Doswell All American The facility is comprised of a full-service truck stop situated $10,100,000
DOSWELL, VIRGINIA on an approximately 54.3 acre irregularly shaped site
conveniently located on the northeast quadrant of King's
Dominion Boulevard (Route 30) and Interstate 95 (Exit 98),
approximately 12 miles north of Richmond, Virginia. (Note:
Approximately 20 acres consist of business-zoned land that has
been approved for a recreational vehicle park. The property
consists of a two-story restaurant, retail, and
restaurant/retail/service building, a two-story EconoLodge
Motel, and a truck wash and service building 1964. The motel is
a concrete block structure with 86 rooms, and the truck wash and
service building is a concrete block structure with two wash and
five service bays. The building area encompasses approximately
81,400 square feet. The hotel is nearing the end of an extensive
renovation and is partially open.
Carlisle Soco The facility is comprised of a full-service truck stop situated $2,000,000
CARLISLE, PENNSYLVANIA on an approximately 9.5 acre irregularly shaped site
conveniently located off of Interstate 81 (Exit 52) as well as
Interstate 76, or the Pennsylvania Turnpike (Exit 16). The site
is equipped with a masonry 10,000 square foot building
(amenities not included) that was built in 1985 and is 100%
vacant. (Note: The property is currently vacant and is being
valued as a vacant commercially-zoned parcel available for
immediate development to its highest and best use.) All American
has entered into an agreement with Zamias Development Corp lease
or sell the property to a "Big Box Operator" such as Target or
Home Depot for the benefit of All American.
All American Belmont The facility is comprised of a full-service truck stop situated $2,200,000
ALLEGANY COUNTY, NEW YORK on an approximately 9.4 acre irregularly shaped site
conveniently located off of State Route 17 (Exit 30) and at the
(Managed not, owned) intersection of State Route 19 and County Road 20. The site is
equipped with a frame one-story gasoline station/convenience
store building (amenities not included) as well as two ancillary
storage sheds (450 SF and 120 SF). The buildings were built in
1977, renovated in 1999, and are 100% occupied.
All American Carney's Point The facility is comprised of a full-service truck stop situated $3,200,000
SALEM COUNTY, NEW JERSEY on an approximately 11.0 acre irregularly shaped site
conveniently located off of Interstate 95 (Exit 1), or the New
(Managed, not owned) Jersey Turnpike as well as Interstate-295 (Exit 2). The property
is equipped with a masonry one-story gasoline station,
convenience store/restaurant building (amenities not included)
as well as a truck garage building. The buildings were built in
1970, renovated in 1995, and are 100% occupied. The two
buildings have an aggregate area of 9,500 square feet.
Harrisburg Gables The facility is comprised of a full-service truck stop situated $3,000,000
HARRISBURG, PENNSYLVANIA on an approximately 9.7 acre irregularly shaped site
conveniently located on the north side of Linglestown Road
(Route 39), approximately 1/4 mile east of Exit 27 off of
Interstate 81 in Harrisburg. The property is equipped with a
brick 4,300 square foot one-story gasoline station/convenience
store (amenities not included) and Subway franchise that was
built in 1991 and is 100% occupied.
49
NAME OF FACILITY DESCRIPTION OF FACILITY VALUATION
Milton Petro The property is comprised of a full-service truck stop situated $15,200,000
MILTON, PENNSYLVANIA on an approximately 71.9 acre irregularly shaped site
conveniently located on the south side of Route 254, less than
1/4 mile west of Exit 215 of Interstate 80 in Milton. The
property is equipped with concrete-block truck stop facilities
encompassing 37,000 square feet. These facilities were built in
1992, are 100% occupied and include a 275-seat restaurant, a
travel/convenience store, a driver's lounge, a truck wash,
showers, scales, and a 5-bay truck repair shop.
Keystone Shortway The property is comprised of a full-service truck stop situation $5,400,000
STRATTANVILLE, PENNSYLVANIA on an approximately 63.9 acre irregularly shaped site
conveniently located on the north side of Route 322, less than a
1/4 mile south of exit 10 of Interstate 78 in Strattanville.
(Managed, not owned) Note tha approximately 35 acres of this site is considered
excess land. The property is equipped with a masonry-panel
16,650 square foot two-story multi-purpose rest area and
amenities (showers) and a 5,925 square foot garage facility, the
subject improvements are 100% occupied.
DISCLAIMER: The areas (square footage and/or acreage) portrayed above are
approximate values and have been rounded up or down.
ENVIRONMENTAL MATTERS
CLARKS FERRY ALL AMERICAN
Clarks Ferry All American has eight registered underground storage tanks
(USTs) currently in use. The Clarks Ferry facility has been subject to an
ongoing groundwater cleanup program since 1996. A claim was filed with the
Pennsylvania Underground Storage Tank Indemnification Fund (USTIF) in 1996 and
the claim has been accepted, with UST1F paying 65% of the associated costs. The
site characterization and remedial action plan has been handled by Hydrocon
Services since 1998. The cleanup process has been slow due to complex geology
associated with the facility. Elevated amounts of benzene and MTBE are present
in several monitoring wells. All American is not aware of any leaks in USTs or
lines and it is likely that the source of the contamination was a gasoline spill
of that occurred several years ago as a result of negligence on the part of a
fuel delivery driver. After complete characterization of the site and careful
consideration of remediation options, Hydrocon Services proposed a remediation
program calling for the introduction of reagents to various wells on the
facility. Chemical oxidation of the groundwater was completed during November
and December of 2002. Upon completion of the March 2003 quarterly sampling, a
Remedial Action Progress Report will be submitted to the Pennsylvania Department
of Environmental Protection (DEP). In addition, a Remedial Action Completion
Report for the property specifying the selection of a site specific standard via
pathway elimination was submitted in May 2003. A deed restriction regarding the
placement of water wells within the site area will be placed on the property and
a post remediation care plan will be instituted. This post remediation care plan
will include groundwater sampling and assuring the DEP that no water supply
wells are installed across State Route 22/322.
CARLISLE ALL AMERICAN (FORMERLY KNOWN AS CARLISLE TRUCK PLAZA)
Carlisle All American has five registered USTs, of which only three are
currently used for the storage of diesel fuel. In July, 2001, a line leak
detector alerted management to a possible leak. A problem with supply lines was
identified and piping was removed from service. Contaminated soils were stored
on site and the piping was disposed of. In October, 2002 the possibility of a
leak in another line was noticed and subsequent pressure testing of the line
confirmed the presence of a leak. Product from the suspect lines was blown back
into the tanks and certain pumps, lines and tanks have been put out of service.
Product from the two unused tanks was pumped into tanks currently in use. No
repairs or removal of soil and lines has been done relative to this latest
failure.
CARLISLE SOCO ALL AMERICAN TRUCK STOP
In November 1999, a 1,000 gallon waste oil UST was removed from the area
outside of the former truck repair building and an adjacent 3,000 gallon heating
oil UST was removed in April of 2002. Although no soil contamination was
evident, further soil testing revealed elevated levels of lead in the area of
the waste oil UST, which prompted further delineation for possible groundwater
50
contamination. All American engaged Hydrocon Services to characterize and
remediate this facility. One of six monitoring wells did produce slightly
elevated levels of naphthalene above the statewide health standard. A claim was
submitted to USTIF for coverage of characterization and remediation costs. The
claim has been accepted at 85% reimbursement and quarterly sampling events for
the following eight consecutive quarters have been conducted. No actual
remediation of groundwater has occurred because the statewide health standard
has been achieved. AAP received a relief of liability letter from the DEP dated
February 4, 2003 for groundwater contamination at the site. A post remedial care
plan will be initiated which will consist of measuring each onsite monitoring
well (MW-I through MW-6) biannually for free product. If at the end of two
years, no free product is identified in the downgradient wells (MW-2 through
MW-6) and no additional releases occur, the monitoring wells will be closed and
the post remedial care plan will be completed.
FRYSTOWN ALL AMERICAN
Frystown All American has 10 USTs in use, seven of which are used for
the storage of usable products and three of which are part of oil/water
separation systems. The facility also contains several above-ground propane
tanks and ASTs used for the storage of motor oil. Frystown All American is
subject to an ongoing groundwater cleanup program that started in 1998 when the
old tanks and fuel islands were replaced. USTIF has accepted the claim and is
covering 100% of the clean up costs. The site characterization, remedial action
plan and clean up are being handled by Hafer Environmental Services. The
contamination has been traced to line leaks that occurred in the old fuel
islands and it is also believed that a heating oil tank replaced in the early
1990's was an additional source of contamination. A groundwater remediation
system was approved by DEP in 2001 and was put into operation in early 2002. The
system draws groundwater from four different wells onsite, filters out
contaminants and discharges clean water to a wetlands area on the west end of
the property. The duration of the cleanup process is not known at this time
because the remediation system has not been operating long enough to adequately
measure results.
HARRISBURG GABLES
Harrisburg Gables has five USTs, each of which is in use. Harrisburg
Gables has been identified as having petroleum contamination and Hydrocon
Services has been handling the characterization and remediation of the property.
The suspected source of the contamination is from old tanks removed in 1991, but
is also possibly from runoff resulting from spills that occurred in the truck
fueling operation. A Phase I study completed in early 2001 revealed that the DEP
never issued any final closure relative to the contamination that occurred in
1991. Even though quarterly sampling events in 1991, 1992, 1993 indicated that
groundwater was free from contaminants, the DEP required AAP to perform
additional testing in 2001 before it would close the matter. New monitoring
wells were drilled in 2001 and MTBE contamination was identified. A Site
Characterization Report was submitted to DEP in January 2002. In May 2002,
additional monitoring wells were drilled and tested. Hydrocon is presently
preparing a Remedial Action Completion Report for submittal to the DEP. AAP has
chosen to demonstrate attainment of the site specific standard via pathway
elimination for site groundwater. A deed restriction will be placed on the
property prohibiting groundwater access. Hydrocon anticipates having this report
submitted to DEP by mid-March of 2003. Following submittal, the DEP has 90 days
to review and comment on this report. [
DOSWELL ALL AMERICAN
At one time, a portion of the Doswell All American facility housed an
ethanol manufacturing plant. In December 1997, ECS, Ltd. completed the removal
of 12 USTs that were used at the ethanol plant. The removal was uneventful in
terms of the contamination and in March 1998 a complete closure report was
generated by ECS recommending permanent closure with no further action required.
In August 2001, under guidelines of ECS, a subcontractor was hired by AAP to
remove asbestos linings from three boilers on the facility. All asbestos removal
has been completed.
In the last year, this location has had three different issues that
required environmental oversight and remediation. The first involved what police
and environmental experts feel was an act of vandalism, when an unknown person
intentionally dumped some type of used petroleum product into a storm water
retention pond on the property. The pond is designed to retain this type of
pollutant that occurs from normal parking lot run-off, but the volume of product
introduced did require additional expertise and expense to properly control and
dispose of the contamination. Cleanup is complete from this incident and there
will be no long term impact to the site.
The second incident involved a tanker truck flipping over while turning
into our parking lot and spilling a significant portion of its load of diesel
fuel. This spill was mostly contained in the asphalt parking lot, but some
product did reach a storm sewer that drains to the aforementioned retention
pond. Once again, environmental cleanup specialists were brought in due the
magnitude of the spill. Cleanup is complete and the cost of such was borne by
the company that owned the tanker.
51
The third area of environmental concern also involves runoff of
petroleum product into the retention pond. Several sources of the diesel fuel
were suspected, such as the underground lines, transfer that house pumps and the
Oil/Water ("O/W") separator. One by one, the sources were checked for tightness
and found to be compliant, with the exception of the O/W separator. It was
determined that it had a crack that allows groundwater to fill the separator,
thereby causing any petroleum runoff to go straight to the retention pond. Our
environmental consultants are currently seeking bids to replace the
malfunctioning O/W separator and will continue to carefully monitor the
situation. No long term or expensive environmental impact is anticipated from
this area of concern.
FORMER CARLISLE ALL AMERICAN TRUCK PLAZA
Although Carlisle All American Truck Plaza facility was conveyed by All
American to Petro Stopping Centers, L.P. in October, 2000, All American has
agreed toc omplete the clean up of soils and groundwater at the site, which is
contaminated with elevated levels of BTEX constituents and MTBE. A claim was
submitted and approved by USTIF for 100% coverage with respect to site
characterization and cleanup costs associated with the property. Site
characterization activities identified the leaking onsite systems which systems
have been removed along with contaminated media. DEP has issued a relief of
liability letter for soils based upon the site cleanup activities. With respect
to groundwater contamination, All American is presently negotiating with
adjoining property owners for the placement of deed restrictions prohibiting
groundwater access on their properties. A Site Characterization Report Addendum
will be submitted to DEP in the near future in conjunction with a cost benefit
analysis for USTIF (active remediation/statewide health standards versus deed
restrictions/site specific standard).
RELATED PARTY TRANSACTIONS
On December 15, 2004, All American purchased 1,007,300 shares of our
common stock, which as of the date of this proxy statement, constitutes,
approximately 38% of our issued and outstanding common stock.
In connection with two loans entered into by the Company in May 2005,
fees in the amount of $167,500 were originally paid to Unison Capital
Corporation, a company owned by Frank Nocito, the our Vice President Business
Development. Mr. Nocito is also Vice President of All American Plazas, Inc., our
largest shareholder. Subsequent to the payments being made and based on
discussions with Unison Capital Corporation, such $167,500 was deemed
inappropriate payment to a related party and Unison Capital Corporation agreed
to reimburse this amount to the us over a twelve month period beginning in
October 2005.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF ALL AMERICAN (FOR TWELVE MONTHS ENDED SEPTEMBER 30, 2004, COMPARED
TO PREVIOUS PERIOD)
All American reported revenues of $131,017,165 for the twelve months
ended September 30, 2004, which was an increase of $6,621,675 over the prior
years revenues of $124,395,490. This increase can be attributed to significantly
higher prices for refined distillates, as a result of the increased commodity
prices in the world oil markets. Gallons of diesel fuel sold actually declined
by 1,367,911, due to the closing of the Carlisle Truck Plaza ("CTP") in January,
2004. CTP sold 2,616,471 gallons of diesel fuel in FYE 9/30/03, but only 543,023
gallons in the FYE 9/30/04. Gasoline volume decreased companywide by 5.4%, or
314,322 gallons. Volume in other areas of the operation increased a total of
$1,382,000...up 5.6% in the stores, up 8.8% in the garages and up 2.8% in the
restaurants.
Gross Profit Margin, as a percentage of revenues, declined by 1.79%.
Total dollar gross profit decreased from $19,871,429 for the twelve months ended
9/30/03, to $18,571,710 for the twelve months ended 9/30/04, a total decline of
$1,299,719. The reduction in Gross Profit resulting from the closing of CTP was
$967,292. It should also be noted that a Mechanics Labor was classified
differently from year-to-year, resulting in a drop in the reported gross profit
of $1,313,522. In prior years, the accountants had subtracted Mechanics Labor
from Cost of Goods, thereby increasing Gross Profit. It was re-classed into
Wages. Overall gross profit dollars from continuing operations increased by
approx. $940,000, with increases being realized across all departments, fuel
islands, stores, restaurants and garages.
Operating expenses decreased by $2,623,236 from year-to-year, $924,396
of this decrease a result of the discontinued operations at CTP, and another
$1,240,630 of the decrease due to the change in accounting treatment noted
above, Operating Expenses from continuing operations did decline $458,210. Most
of these savings were realized in Health Insurance costs, where employees are
sharing a greater burden of the cost, and Workers Compensation Insurance,
because of a significant reduction in the experience modification factor for the
year.
General and Administrative Expenses increased by $29,833 from
year-to-year. Savings were realized in personnel and utilities, when the
corporate office was consolidated into one location, but they were offset by
significant increases in Professional Fees and Amortization. The large
Professional fees are legal and accounting costs associated with the stock sale
that was consummated early in the year, and the increased Amortization is
related to loan fees that were charged on various financing activities.
52
Income from Operations improved to $509,673 for the twelve months ended
9/30/04, compared to a loss of ($408,666) for the twelve months ended 9/30/03.
The improvement lies primarily in the gross profit increases and operating
expense decreases noted above. Interest Expense declined by $45,933 during the
year, as long term debt continues to amortize. Sources of Other Income are also
declining, primarily due to local and state authorities continued enforcement of
laws that preclude certain games of chance. The Net Income of $300,160 for the
FYE 9/30/04 was a significant improvement over the Loss of ($901,266) reported
the prior year.
LIQUIDITY AND CAPITAL RESOURCES
All American's cash position decreased from $2,068,104 at 9/30/03, to
$1,792,588 at 9/30/04. In addition to the increased debt that is being serviced
as a result of the sale of the company in October, 2003, cash has been used to
support the operations of affiliated truckstops in Belmont, NY, Carneys Point,
NJ and Strattanville, PA. When taken over, these locations were suffering
operational losses and a significant amount of cash was expended to bring
suppliers current. Cash had also been expended in the form of a $200,000 deposit
for the purchase of shares of a New Jersey based heating oil dealer, and
$130,000 had been spent to date on a motel renovation project in Doswell, VA.
Due to the lack of capital improvements the prior fiscal year, there was also a
need for expenditures for repairs at several locations. The largest of these
items was for parking lot repairs, which was almost $300,000 for the year spread
across four locations. There were no new loans during the year that provided
funding to All American. The primary source of working capital came from our
main fuel supplier, who extended an additional five days payment terms, which
equates to over $1MM in additional cash flow.
STOCK SALE COMPLETED ON OCTOBER 3, 2003
All outstanding shares of stock were acquired by All American Industries
Corp ("AAI"), the nominee for Chelednik Family Trust. The terms of the purchase
called for $4,000,000 to be paid to former shareholders at closing and the
balance of $7,197,272 to be paid over an eight year period. The Note held by the
sellers is collateralized by a second lien on certain company owned real estate.
The Note is interest free for six months and bears interest at 8% thereafter. A
second lump sum payment of $3,000,000 was due on September 30, 2004 and then
monthly payments of principal and interest were to begin and be made for the
next seven years. The lump sum payment was not made as due and the payment was
extended until December 1, 2005.
In 1991, All American had established an Employee Stock Ownership Plan
("ESOP") covering full-time employees. The ESOP owned 10.38% of the company
stock at the time of the sale. After closing costs charged to the former
shareholders, the ESOP received $273,338 at closing, which has been placed into
an escrow account by the trustee. The ESOP cannot be terminated until the
shareholders are fully funded, therefore it is anticipated that the ESOP will
receive full payment of the $721,876 due it when the second lump payment is
paid.
Related to the transaction, AAI obtained a loan in the amount of
$6,000,000, which is collateralized by certain real estate of ALL AMERICAN. In
addition to the $4,000,000 paid to former shareholders at closing, proceeds of
this loan were used to satisfy certain obligations of AAI, which included loan
fees and legal costs associated with the stock acquisition.
POST ACQUISITION - FOCUS ON OPERATIONAL IMPROVEMENTS
After the acquisition, a new management team was assembled with a
mission to improve bottom line profitability. Roger Roberts, VP of Operations,
who has several years of experience in the operation of truck stops, convenience
stores and restaurants, was brought in and immediately started to make changes
to improve gross profit margins. In our stores, pricing was analyzed and made
consistent across the company, better inventory controls were put in place to
deter theft and monitor par levels, and several new suppliers were brought in to
bid for our business. All stores were reset to be more appealing and increase
sales. Pricing in All American's restaurants was analyzed and a new menu
produced to improve the offering and the bottom line.
All managers have been challenged to reduce expenditures where they can,
especially in labor and supplies. In some cases, physical changes to location
layout have been made to allow locations to consolidate and reduce the number of
cashiers. They have been asked to bid all of their contracts for services, such
as equipment repairs, refuse disposal etc. One expenditure that keeps growing by
about 10% each year is health insurance. Effective January 1, 2004, the sharing
of monthly premiums was modified, so that employees bear a greater share of the
cost, and hopefully a greater awareness of their health care.
In August, 2004 a new, companywide inspection program was implemented to
improve the overall cleanliness of All American's sites. Periodic inspections
are performed by our operational directors, who now have some oversight and
input into all
53
phases of the operation. A re-alignment of directors responsibilities also took
place, to better take advantage of the strengths of our personnel.
CARLISLE PRESENCE IS REDUCED
As part of the overall effort to boost the bottom line, management made
the decision to close down two sites in Carlisle that were coming to the end of
leases. The corporate office that housed several departments, including Accounts
Receivable, Human resources and Claims management were moved and consolidated to
the Frystown location. There were several employees who decided not to commute
to Frystown, which allowed positions to be eliminated and consolidated,
resulting in a significant labor savings, in addition to the rent, utilities,
etc. Estimated savings are at least $80,000 annually from the closure of this
office.
A tougher call was the closing of the Carlisle Truck Plaza, which the
company had operated for twenty years. The location had experienced declining
sales since 1995 when Flying J opened their Carlisle site, and the slide
continued when Pilot opened in 1998 and Petro opened in 2001. Consolidation in
the trucking industry had also taken several customers from the site, whose
diesel volume was over 600,000 gallons per month in 1994, but had dropped to
around 200,000 gallons per month in the last full year of operation. A once
profitable location was now losing about $25,000 per month. Several steps had
been taken to downsize and cut costs, but all proved futile in the end. The
lease actually terminated on July 31, 2004, but the decision was made to close
the operation in January, 2004, to reduce the losses. It also allowed us the
opportunity to have all UST's removed and be off the site by the end of the
lease.
STRATTANVILLE, PA COMES ON BOARD
In April, 2004, All American assumed the operation of the Keystone
Shortway Travel Plaza on Route 80 in Pennsylvania. It is a well maintained site
that adds a quality stop to our network and offers additional opportunities due
to vacant property that can be sold or developed. Several operational
improvements have been made at the site and they have adopted the All American
name and menu to attract business. Under the Agreement, All American has agreed
to operate the site for a specified time period with the option to acquire the
site at a predetermined price.
54
DIRECTORS AND MANAGEMENT OF ABLE ENERGY, INC.
FOLLOWING THE ACQUISITION OF ALL AMERICAN
As of the completion of the acquisition, our board of directors and
executive officers will be as follows:
NAME AGE POSITION
Christopher P. Westad 51 Acting Chief Executive Officer and Chairman of
Able Energy, Inc. and President of Able Oil Inc.
Steven M. Vella 42 Chief Financial Officer of Able Energy, Inc.
John L. Vrabel 52 Chief Operating Officer of Able Energy, Inc.
Richard A. Mitstifer 48 Executive Vice President of All American Division
Gregory D. Frost, Esq. 57 General Counsel and Director of Able Energy, Inc.
Stephen Chalk 60 Director of Able Energy, Inc.
Patrick O'Neill 45 Director of Able Energy, Inc.
Edward C. Miller, Jr. 38 Director of Able Energy, Inc.
Alan E. Richards 68 Director of Able Energy, Inc.
Solange Charas 43 Director of Able Energy, Inc.
Frank Nocito 58 Vice President Business Development Able Energy,
Inc.
The following information with respect to the principal occupation or
employment of each director, the principal business of the corporation or other
organization in which such occupation or employment is carried on, and such
nominee's business experience during the past five years, has been furnished to
us by the respective director nominees:
CHRISTOPHER P. WESTAD serves as Acting Chief Executive Officer and
Chairman of the Company and is also the President of Able Oil Inc. Since
September 1996, Mr. Westad has served as the President of Able Energy and Able
Propane. From 1991 through 1996, Mr. Westad was a Market Manager and Area
Manager for Ferrellgas Partners, L.P., a company engaged in the retail
distribution of liquefied petroleum gas. From 1977 through 1991, Mr. Westad
served in a number of management positions with RJR Nabisco. In 1975, Mr. Westad
received a Bachelor of Arts in Business and Public Management from Long Island
University--Southampton, New York.
STEVEN M. VELLA joined us in August 2005 as Chief Financial Officer.
From 2003 through August 2005, he served as Senior Director of Finance and
Controller of QMed Inc., a public company that provides fully configured,
technology-integrated and interactive disease management. Previous to his work
at QMed, Inc., from 1998 through 2002, Mr. Vella served as Vice President
ofFinance and Corporate Controller of Medical Resources, Inc., a formerly public
company that owns and manages fixed-site outpatient medical diagnostic imaging
centers. He joined Medical Resources in November 1998, after 12 years of public
accounting experience, last as a Senior Manager at Deloitte & Touche LLP. He is
a graduate of Fairleigh Dickinson University with a Bachelor of Science in
Accounting. He is a member of both the American Institute of Certified Public
Accountants and the New Jersey Society of Certified Public Accountants.
JOHN L. VRABEL became our Chief Operating Officer in August 2003. His
current employment contract runs through July 1, 2007. From 2000 through the
present, he served as Vice President Business Development of the Company's
PriceEnergy subsidiary. From 1996 to 2000, Mr. Vrabel was Vice President
Business Development of Conectiv Holdings Vital Services, LLC, a subsidiary of
the Company in the energy products and services sector. He received a BBA from
the University of Houston, and an Executive MBA from Baldwin-Wallace College.
RICHARD A. MITSTIFER has served as the President of All American since
2003. He joined All American, which was founded by his father, in 1995. Mr.
Mitstifer has more than 25 years of experience in financial services, including
a commercial banking career of sixteen years, where he gained exposure to
several different types of businesses from retail to manufacturing. A skilled
administrator and problem solver, he has been able to make prudent business
decisions throughout his career. He graduated from Muhlenberg College in 1979
with a Bachelor of Science degree in Business Administration/Accounting.
GREGORY D. FROST, ESQ. was appointed to our board of directors effective
as of April 5, 2005. From 1974 to the present, Gregory D. Frost, Esq. has been a
practicing attorney in the State of New York and since 1999 has been a partner
of the law firm of Ferber Frost Chan & Essner, LLP (formally known as Robson
Ferber Frost Chan & Essner LLP). He served as outside counsel and a director of
All American from 2003 until his resignation effective March 31, 2005. Mr.
Frost's main areas of practice have been and continue to be mergers and
acquisitions, and general corporate and securities matters. From 1975 through
1980, he was Assistant
55
General Counsel at The Singer Company and RH Macy & Co. Thereafter, Mr. Frost
spent approximately 12 years as a partner of the law firm of Bower & Gardner,
managing their corporate and securities department. In 1970, Mr. Frost received
a B.S. degree from New York University (Stern School). In addition, he received
is Juris Doctorate in 1973 from New York Law School and in 1979 obtained a
Master of Law Degree (LLM) in Corporate Law from New York University Law School.
STEPHEN CHALK was appointed to our board of directors effective as of
February 28, 2005. From 1981 to the present, Mr. Chalk has served as the
President of the Pilgrim Corporation, where he has obtained a strong background
in financial management, as well as over 25 years of hotel, resort, restaurant,
and real estate development experience. Mr. Chalk is a graduate of Philadelphia
University with a BS in Engineering and Design.
PATRICK O'NEILL has served as a director to the Company since August
1999. Mr. O'Neill has served as the President of Fenix Investment and
Development, Inc., a real estate company based in Parsippany, New Jersey for the
past five years. Prior to this, Mr. O'Neill served as Vice President of Business
Development for AvisAmerica, a Pennsylvania based home manufacturer. Mr. O'Neill
holds a B.S. from the United States Military Academy, and has been awarded the
Army Achievement Medal for his work with the Army Corps of Engineers.
EDWARD C. MILLER, JR. has served as a director to the Company since June
2000. He has been the Director of Marketing for the law firm Norris, McLaughlin
& Marcus, P.A. in Somerville, New Jersey since July 1999. From May 1991 to July
1999, Mr. Miller served as Practice Development Coordinator for the Morristown,
New Jersey law firm Riker, Danzig, Scherer, Hyland & Perretti, LLP. Mr. Miller
received his Bachelor of Science in Marketing Management from the Syracuse
University School of Management in 1991.
ALAN E. RICHARDS was appointed to our board of directors effective as of
February 28, 2005. Mr. Richards has served as the President of Sorrento
Enterprises Incorporated, a forensic accounting firm, from its inception in 1979
to the present. Mr. Richards brings a diverse background and 25 plus years
experience in financial services, including work with government agencies such
as the United States Internal Revenue Service. Mr. Richards is a graduate of
Iona College with a BBA in Finance.
SOLANGE CHARAS was appointed to our board of directors effective as of
May 25, 2005 In 2000, Ms. Charas founded Charas Consulting, Inc. which provides
human resources consulting services. From 1999 to 2000, Ms. Charas was the Head
of Human Resources for EURO RSCG Worldwide, an advertising firm which is the
largest division of France-based Havas Advertising. As Head of Human Resources,
she was responsible for the creation and management of all HR programs on a
worldwide basis for over 200 agencies which made up EURO RSCG. From 1996 to
1999, Ms. Charas was the National Director at Arthur Anderson where she led all
activities promoting a consulting product she was instrumental in creating for
the firm. From 1995 to 1996, Ms. Charas was the leader of the International
Compensation Team at Towers Perrin and a Senior Consultant with respect to
international compensation at the Hay Group. Ms. Charas received an
undergraduate degree in International Political Economy from University of
California at Berkeley in 1982, and an MBA in Accounting and Finance from
Cornell University's Johnson School of Management in 1988.
FRANK NOCITO became our Vice President Business Development in April
2005. Since 2004, Mr. Nocito has been Vice President of All American Plazas,
Inc., which owns and operates nine truck plazas located in Pennsylvania and
Virginia. All American Plazas owns approximately 38% of the outstanding common
stock of our Company. In 2003, Mr. Nocito, as Vice President of All American
Industries Corp., acquired all of the issued and outstanding stock of All
American Plazas. In 2004, Mr. Nocito and his wife created, for the benefit of
their family members, including seven children, the Chelednik Family Trust, and
all the issued and outstanding stock of All American Plazas was transferred to
this Trust. In 2002, as a consultant to two start-up corporations, American
Truck Stop of Belmont Inc. and American Truck Stop of Carney Inc., Mr. Nocito
assisted the new entities in acquiring two truck plazas located in the
Northeast. Subsequent to the purchase of these two truck plazas, he became in
November 2003, and remains, a vice president of both corporations. In 2001, Mr.
Nocito was employed by WDF/Keyspan, Inc., as a supervisor in charge of
Multi-Million Dollar conversion projects for the New York City School System,
converting school facilities from coal to oil and gas systems. It should be
noted that in 1996, under color of a 1994 sealed indictment that had never been
acted upon, an indictment was issued against Mr. Nocito for conspiracy to commit
money laundering. The charge was the result of his political activities as part
of the Republican Party and events arising out of the United States Government's
support of the Nicaraguan Government under the Sandinista.
BOARD OF DIRECTORS COMMITTEES
AUDIT COMMITTEE
The Audit Committee consists of Alan E. Richards (Chairman), Edward C.
Miller, Jr. and Solange Charas, all of whom are independent as defined by the
rules promulgated by the Securities and Exchange Commission and Nasdaq Stock
Market. The Audit
56
Committee is responsible for determining the adequacy of our internal accounting
and financial controls, reviewing the results of the audit performed by our
independent public accountants, and recommending the selection of independent
public accountants. The Board has determined that Alan E. Richards is an "audit
committee financial expert" as defined by the Securities and Exchange
Commission.
COMPENSATION COMMITTEE
The Compensation Committee determines matters pertaining to the
compensation of certain executive officers of our executive officers and
administers our stock option, and incentive compensation. During 2004, the
Compensation Committee held no meetings. The Compensation Committee consists of
Stephen Chalk, Patrick O'Neill. and Solange Charas (Chairman).
GOVERNANCE AND NOMINATING COMMITTEE
The Board of Directors has established a Governance and Nominating
Committee for purposes of nominating directors and for all other purposes
outlined in the Governance and Nominating Committee Charter, including nominees
submitted to the Board of Directors by shareholders. The Governance and
Nominating Committee is composed of Messrs. Stephen Chalk (Chairman), Patrick
O'Neil and Alan Richards.
BENEFICIAL OWNERSHIP OF OUR SECURITIES
The following table sets forth information regarding the beneficial
ownership of our common stock as of September 24, 2005, by:
o each person known by us to be the beneficial owner of more than 5% of
our outstanding shares of common stock;
o each of our officers and directors; and
o all of our officers and directors as a group.
Unless otherwise indicated, we believe that all persons named in the
table have sole voting and investment power with respect to all shares of common
stock beneficially owned by them.
AGGREGATE NUMBER OF
SHARES BENEFICIALLY PERCENT OF CLASS
NAME AND ADDRESS* OWNED (1) OUTSTANDING (2)
----------------- --------- ---------------
Gregory D. Frost 1,050,000 (3) 39.5%
Christopher P. Westad 35,000 (4) 1.3%
Patrick O'Neill 0 --
Edward C. Miller, Jr. 0 --
Steven Chalk 0 --
Alan E. Richards 0 --
Solange Charas 0 --
Steven M. Vella 0 --
Frank Nocito 1,050,000 (5) 39.5%
John Vrabel 2,300 (6) **
Timothy Harrington 0 --
Officers and Directors as a Group (11 persons) 1,137,300 (7) 42.3%
Summitt Ventures, Inc. 142,857 (8) 5.4%
9595 Wilshire Boulevard, Suite 510
Beverly Hills, CA 90212
All American Plazas, Inc. 1,000,000 (9) 37.6%
1267 Hilltop Lane
Myerstown, PA 17067
* Unless otherwise indicated, the address for each stockholder is c/o Able
Energy, Inc., 198 Green Pond Road, Rockaway, New Jersey 07866.
** Represents less than 1% of the outstanding common stock.
------------
(1) The number of shares of common stock beneficially owned by each
stockholder is determined under rules promulgated by the SEC. Under
these rules, a person is deemed to have "beneficial ownership" of any
shares over which that person has or shares voting or investing power,
plus any shares that the person has the right to acquire within 60 days,
including through the exercise of stock options. To our knowledge,
unless otherwise indicated, all of the persons listed above
57
have sole voting and investment power with respect to their shares of
common stock, except to the extent authority is shared by spouses under
applicable law.
(2) The percentage ownership for each stockholder is calculated by dividing
(a) the total number of shares beneficially owned by the stockholder on
September 24, 2005 by (b) 2,657,320 shares (the number of shares of our
common stock outstanding on September 24, 2005), plus any shares that
the stockholder has the right to acquire within 60 days after September
24, 2005.
(3) Includes 50,000 shares owned by Mr. Frost. Also includes 1,000,000
shares owned by All American Plazas, Inc., of which Mr. Frost disclaims
beneficial ownership. The shares owned by All American Plazas, Inc., are
held by the Chelednik Family Trust, of which Mr. Frost is a co-trustee.
See Note (9) below.
(4) Includes 5,000 shares and 30,000 shares which may be acquired upon the
exercise of outstanding stock options.
(5) Includes 50,000 shares owned by Mr. Nocito. Also includes 1,000,000
shares owned by All American Plazas, Inc., of which Mr. Nocito disclaims
beneficial ownership. Mr. Nocito is Vice President of All American
Plazas, Inc., and the shares owned by All American Plazas, Inc., are
held by the Chelednik Family Trust, a trust established by Mr. Nocito
and his wife for the benefit of their family members. See Note (9)
below.
(6) Includes 2,300 shares.
(7) Includes 107,300 shares owned by the officers and directors and 30,000
shares which may be obtained upon the exercise of outstanding options
held by the officers and directors. Also includes 1,000,000 shares owned
by All American Plazas, Inc., of which Messrs. Frost and Nocito disclaim
beneficial ownership. See Note (9) below.
(8) Includes 142,857 shares.
(9) Includes 1,000,000 shares owned by All American Plazas, Inc. The shares
owned by All American Plazas, Inc., are held by the Chelednik Family
Trust, a trust established by Mr. Nocito and his wife for the benefit of
their family members, of which Mr. Frost is a co-trustee.
58
MARKET PRICE INFORMATION AND DIVIDENDS
Our common stock commenced trading on the Nasdaq SmallCap Market under
the symbol "ABLE" on June 29, 1999. The closing price per share of our common
stock on June 15, 2005, the last trading day prior to the announcement of the
execution of the asset purchase agreement, was $18.58.
There is no established public trading market for the shares of common
stock of All American.
The following table sets forth the high and low sales prices for each
quarter for our common stock as reported on the Nasdaq SmallCap Market System
from September 30, 2003 through [June 30], 2005:
COMMON STOCK
------------
QUARTER ENDED HIGH LOW
------------- ---- ---
September 30, 2003 $3.43 $3.15
December 31, 2003 2.71 2.56
March 31, 2004 2.65 2.50
June 30, 2004 2.65 2.28
September 30, 2004 1.89 1.78
December 31, 2004 3.00 2.77
March 31, 2005 11.82 10.41
________, 2005 ____ ____
Holders of our common stock should obtain current market quotations for
their securities. The market price of ISE common stock could vary at any time
before the acquisition.
HOLDERS OF COMMON EQUITY
As of June 16, 2005, there were approximately _______ holders of record
of our common stock.
DIVIDENDS
We have not paid any dividends on its common stock to date and do not
intend to pay dividends prior to the completion of the acquisition.
ALL AMERICAN
There is no established public trading market for the shares of common
stock of All American. There are currently [__] holders of the shares of All
American common stock. All American does not have any authorized or outstanding
equity compensation plans.
DIVIDENDS UPON COMPLETION OF THE ACQUISITION
Upon completion of the acquisition of All American, we do not intend to
pay any dividends on our shares of common stock. Rather, we intend to reinvest
any earnings back into the combined company. At this time, the combined company
anticipates that it will retain any earnings and will not pay dividends in the
foreseeable future. The combined company also expects that any loan or credit
facilities that it enters into will limit its ability to pay dividends.
DESCRIPTION OF OUR SECURITIES
Our total authorized capital stock of consists of 20,000,000 shares of
common sock, $.001 par value, and 10,000,000 shares of preferred stock, $.001
par value per share. The following descriptions contain all material terms and
features of our securities, are qualified in all respects by reference to our
Certificate of Incorporation and By-laws.
59
COMMON STOCK
We are authorized to issue 20,000,000 shares of common stock, $.001 par
value per share, of which as of the date of this proxy statement, __________
shares of common stock are outstanding, not including the shares of common stock
to be issued to All American pursuant to the asset purchase agreement.
The holders of common stock are entitled to one vote for each share held
of record on all matters submitted to a vote of stockholders. Holders of common
stock are entitled to receive ratably dividends as may be declared by the board
of directors out of funds legally available therefor. In the event of a
liquidation, dissolution or winding up, holders of our common stock are entitled
to share ratably in all assets remaining, if any, after payment of liabilities.
Holders of common stock have no preemptive rights and have no rights to convert
their common stock into any other securities.
PREFERRED STOCK
Our Certificate of Incorporation authorizes the issuance of 10,000,000
shares of preferred stock, $.001 par value per share, with designations, rights
and preferences determined from time to time by our Board of Directors.
Accordingly, our Board of Directors is empowered, without stockholder approval,
to issue classes of preferred stock with voting, liquidation, conversion, or
other rights that could adversely affect the rights of the holders of our common
stock. Although we have no present intention to issue any shares of our
preferred stock, there can be no assurance that we will not do so in the future.
Furthermore, we may not issue any preferred stock unless such issuance is
approved by the our independent directors.
CERTAIN ANTI-TAKEOVER DEVICES
We are subject to Section 203 of the Delaware General Corporation Law,
which restricts certain transactions and business combinations between a
corporation and an "Interested Stockholder" owning 15% or more of the
corporation's outstanding voting stock for a periods of three years from the
date the stockholder becomes an Interested Stockholder. Subject to certain
exceptions, unless the transaction is approved by the Board of Directors and the
holders of at least 66-2/3% of the outstanding voting stock of the corporation
(excluding shares held by the Interested Stockholder), Section 203 prohibits
significant business transactions such as a merger with, disposition of assets
to, or receipt of disproportionate financial benefits by the Interested
Stockholder, or any other transaction that would increase the Interested
Stockholder's proportionate ownership of any class or series of the
corporation's stock. The statutory ban does not apply if, upon consummation of
the transaction in which any person becomes an Interested Stockholder, the
Interested Stockholder owns at least 85% of the outstanding voting stock of the
corporation (excluding shares held by persons who are both directors and
officers or by certain stock plans).
STOCKHOLDER PROPOSALS
If the acquisition is not consummated, our special meeting of
stockholders will be held on or about _______, 2005 unless the date is changed
by the board of directors. If you are a stockholder and you want to include a
proposal in the proxy statement for the year 2005 annual meeting, you need to
provide it to us by no later than ________, 2005. You should direct any
proposals to our secretary at our principal office. If you want to present a
matter of business to be considered at this special meeting, under our by-laws
you must give timely notice of the matter, in writing, to our secretary.
EXPERTS
Our financial statements included in this proxy statement have been
audited by Simontacchi & Company, LLP, independent registered public accounting
firm, to the extent and for the period set forth in their report included
herein, and are included herein in reliance upon such report given upon
authority of said firm as experts in accounting and auditing.
The consolidated financial statements of All American Plazas, Inc. Inc.
included in this proxy statement have been audited by (a) for the years ended
September 30, 2003 and 2002, Beard Miller Company LLP, independent registered
public accounting firm, to the extent and for the period set forth in their
report included herein, and are included herein in reliance upon such report
given upon authority of said firm as experts in accounting and (b) for the year
ended September 30, 2004, Maier Markey & Menashi LLP, independent public
accounting firm, to the extent and for the period set forth in their report
included herein, and are included herein in reliance upon such report given upon
authority of said firm as experts in accounting.
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the
Securities and Exchange Commission as required by the Securities Exchange Act of
1934, as amended.
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You may read and copy reports, proxy statements and other information
filed by us with the Securities and Exchange Commission at the Securities and
Exchange Commission public reference room located at Judiciary Plaza, 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549.
You may obtain information on the operation of the Public Reference Room
by calling the Securities and Exchange Commission at 1-800-SEC-0330. You may
also obtain copies of the materials described above at prescribed rates by
writing to the Securities and Exchange Commission, Public Reference Section,
Station Place, 100 F St. NE, Washington DC 20549.
We file our reports, proxy statements and other information
electronically with the Securities and Exchange Commission. You may access
information on us at the Securities and Exchange Commission web site containing
reports, proxy statements and other information at: http://www.sec.gov.
Information and statements contained in this proxy statement, or any
annex to this proxy statement, are qualified in all respects by reference to the
copy of the relevant contract or other annex filed as an exhibit to this proxy
statement.
All information contained in this proxy statement relating to us has
been supplied by us, and all such information relating to All American has been
supplied by All American. Information provided by either All American or us does
not constitute any representation, estimate or projection of the other.
If you would like additional copies of this proxy statement, or if you
have questions about the acquisition, you should contact:
ABLE ENERGY, INC.
198 GREEN POND ROAD
ROCKAWAY, NEW JERSEY 07866
(973) 625-1012
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ANNEX A
ASSET PURCHASE AGREEMENT
BETWEEN
ABLE ENERGY, INC.
AND
ALL AMERICAN PLAZAS, INC.
JUNE 16, 2005
ASSET PURCHASE AGREEMENT
(AS AMENDED AND RESTATED
FROM THE STOCK PURCHASE AGREEMENT DATED AS OF JUNE 16, 2005)
This Asset Purchase Agreement ("AGREEMENT") is made as of June 16, 2005,
by Able Energy, Inc., a Delaware corporation (the "BUYER") and All American
Plazas, Inc., a Pennsylvania corporation (the "COMPANY").
RECITALS
WHEREAS, the Buyer desires to acquire the Company's multi-location truck
stop business which includes travel stores, restaurants, diesel and gas fueling
and lube facilities and motels (the "BUSINESS"); and
WHEREAS, the Buyer had previously entered into a Stock Purchase
Agreement with all the shareholders of the Company to purchase the issued and
outstanding capital stock of the Company; and
WHEREAS, the parties hereto wish to amend and restate the terms of such
Stock Purchase Agreement in their entirety in the manner set forth in this
Agreement whereby the Buyer will assume the Business through a purchase of
substantially all of the assets of the Company; and
WHEREAS, the Buyer plans to issue shares of its unregistered, restricted
common stock in consideration for the assets and rights purchased by the Buyer
under this Agreement, and the Buyer is executing and delivering this Agreement
in reliance upon the exemption from securities registration afforded by Rule 506
of Regulation D as promulgated by the SEC under the Securities Act of 1933, as
amended (the "1933 ACT").
NOW, THEREFORE, in consideration of the representations, warranties,
promises, covenants, and agreements hereinafter contained and intending to be
legally bound, the parties hereby agree as follows:
ARTICLE I. DEFINITIONS
For purposes of this Agreement, capitalized terms used herein have the
meanings specified or referred to in Appendix A attached hereto.
ARTICLE II. SALE; CLOSING
2.1 CONSIDERATION Subject to the terms and conditions of this
Agreement, at the Closing, the Company will sell, assign and transfer
substantially all of its assets, rights, liabilities (collectively, the
"ASSETS") to the Buyer, as set forth in SCHEDULE 2.1, and the Buyer will
purchase the Assets from the Company. The Asset shall include, without
limitation, all of the Property Equity Interests. The Assets shall not include
fee title to any of the Properties.
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2.2 PURCHASE PRICE(a) The purchase price (the "PURCHASE PRICE") for
the Assets will be paid as follows:
(1) At the Closing, the Buyer shall deliver to the Company
that number of aggregate shares of restricted common
stock of the Buyer (together with the shares in (2) and
(3) below, the "ABLE SHARES") based upon a Purchase
Price of Thirty Five Million ($35,000,000) Dollars for
the Assets.
a. The price of the Able Shares for purposes of
calculating the $35,000,000 Purchase Price shall
be $3.00 per share, thus the number of Able
Shares delivered to the Company under Section
2.2(1) shall be 11,666,667.
b. The Able Shares reflecting payment of the
Purchase Price shall be as soon as practicable
following the Closing distributed (in the form
of an extraordinary dividend and in compliance
with all securities laws) to the stockholders of
the Company in proportion to their respective
equity holdings of Company, as set forth on
SCHEDULE A annexed hereto.
(2) [Intentionally omitted.]
(3) It is hereby acknowledged by the parties, that the
Company has entered into a term sheet dated June 6, 2005
with a third party institutional lender to refinance the
Company's debt and provide the Company with certain
working capital. Such term sheet provides that the loan
will be in the amount of approximately Thirty Five
Million ($35,000,000) Dollars, at an interest rate of
"30-day LIBOR plus spread (adjustable rate) this is
equivalent to Prime + 1.75%.", with a 25-year term and a
25-year amortization schedule. The Company and the
Buyer, as appropriate, will secure the loan with a first
mortgage on the Properties (including the Property
Equity Interests), including improvements thereto (the
"FINANCING"). The Financing shall be assignable without
penalty at any time to the Buyer. In the event that the
Company completes the Financing on or before December
31, 2005, the Buyer agrees to increase the Purchase
Price by an additional Ten Million ($10,000,000) Dollars
which Purchase Price shall be paid in restricted common
shares on the same basis as set forth in
subparagraphs1(a) and (b) of this paragraph.
Notwitstanding anything to the contrary contained in
this Agreement, the Buyer shall have the option to
receive rightful title, free of any liens or other
encumbrances, to any of the Company's Properties
provided that the Buyer assumes all existing debt
obligations relating to such applicable
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Properties. Such option shall be exercisable at all
times provided that the lease relating to the applicable
Property remains in effect. In the event the Buyer
exercises such option, the Company shall cooperate in
all respects to facilitiate and deliver to the Buyer any
documents the Buyer may require to evidence such
ownership in the Properties.
(4) In connection with the Closing, the Buyer shall enter
into leases with each of the Properties which be in the
form set forth in EXHIBIT 2.2(4) (collectively, the
"LEASES"). It is the intention of the parties hereto
that the monthly rental payments under the Lease in the
aggregate for the Properties equal to the monthly
aggregate debt service payments by the Company for the
Properties (the "PROPERTY DEBT PAYMENTS"), and the
parties hereto agree to make periodic adjustments to the
rental payments under the Leases to reflect such intent
(including, without limitation, in the event that the
Financing is consummated). The parties agree that any
amounts of the Property Debt Payments which is applied
to the principal balance of the applicable debt shall
increase the Property Equity Interests on a
dollar-for-dollar basis.
2.3 CLOSING The purchase and sale of the Assets (the "CLOSING")
provided for in this Agreement will take place at the offices of the Buyer's
counsel at 530 Fifth Avenue, New York, New York, on the 1st day following the
date the shareholders of the Buyer and the Company approve the within
transaction based upon the Buyer's filing of the requisite proxy statement and
the Company's receipt of its applicable consent its shareholders, or at such
other time and place as the parties may agree, but in any event not prior to the
receipt of the approvals and/or consents as stated in this Section 2.3.
2.4 CLOSING OBLIGATIONS At the Closing:
(a) the Company will deliver (or cause to be delivered) to
the Buyer:
(i) a Bill of Sale relating to the purchase of the
Assets and any other document, instrument or certificate
reasonably requested by the Buyer to evidence the sale,
conveyance or transfer of the Assets to the Buyer;
(ii) the Non-Competition Agreement; and
(iii) a certificate executed by the Company to the
effect that, except as otherwise stated in such certificate,
each of the Company's representations and warranties in this
Agreement was accurate in all respects as of the date of this
Agreement and is accurate in all respects as of the Closing Date
as if made on the Closing Date.
(b) The Buyer will deliver (or cause to be delivered) to the
Company:
(i) The Able Shares; and
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(ii) a certificate executed by the Buyer to the
effect that, except as otherwise stated in such certificate,
each of the Buyer's representations and warranties in this
Agreement was accurate in all respects as of the date of this
Agreement and is accurate in all respects as of the Closing Date
as if made on the Closing Date.
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Buyer as follows:
3.1 ORGANIZATION AND GOOD STANDING
(a) The Company is a corporation duly organized, validly
existing, and in good standing under the laws of Pennsylvania, with full
corporate power and authority to conduct its business as it is now being
conducted, to own or use the properties and assets that it purports to
own or use, and to perform all its obligations under Applicable
Contracts. The Company is duly qualified to do business as a foreign
corporation and is in good standing under the laws of each state or
other jurisdiction in which either the ownership or use of the
properties owned or used by it, or the nature of the activities
conducted by it, requires such qualification and in which the failure to
be so qualified would have a Material Adverse Effect on the Buyer's
ability to conduct the Company's business following the Closing, with
such jurisdictions listed on SCHEDULE 3.1.
(b) The Company have delivered to the Buyer copies of the
Organizational Documents of the Company, as currently in effect.
3.2 AUTHORITY; NO CONFLICT; CONSENTS
(a) Subject to the Petro Franchise Consents (as such term is
defined in Section 5.4), this Agreement constitutes the legal, valid,
and binding obligation of the Company, enforceable against the Company
in accordance with its terms, except as such enforceability may be
limited by laws regarding bankruptcy, insolvency and other creditors'
rights, and by principles of equity. Upon the execution and delivery by
the Company of this Agreement, the Bill of Sale and the Noncompetition
Agreement (collectively, the "COMPANY CLOSING DOCUMENTS"), the Company
Closing Documents will constitute the legal, valid, and binding
obligations of the applicable the Company, enforceable against them in
accordance with their respective terms, except as such enforceability
may be limited by laws regarding bankruptcy, insolvency and other
creditors' rights, and by principles of equity. The Company have the
absolute and unrestricted right, power, authority, and capacity to
execute and deliver this Agreement and the Company Closing Documents and
to perform their obligations under this Agreement and the Company
Closing Documents.
(b) Subject to the Petro Franchise Consents (as such term is
defined in Section 5.4), except as set forth in SCHEDULE 3.2, neither
the execution and delivery of this
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Agreement nor the consummation or performance of any of the Contemplated
Transactions will, directly or indirectly (with or without notice or
lapse of time):
(i) contravene, conflict with, or result in a
violation of (A) any provision of the Organizational Documents
of the Company, or (B) any resolution adopted by the board of
directors or the stockholders of the Company;
(ii) contravene, conflict with, or result in a
violation of, or give any Governmental Body or other Person the
right to challenge any of the Contemplated Transactions or to
exercise any remedy or obtain any relief under, any Legal
Requirement or any Order to which the Company, or any of the
assets owned or used by the Company, may be subject;
(iii) contravene, conflict with, or result in a
violation of any of the terms or requirements of, or give any
Governmental Body the right to revoke, withdraw, suspend,
cancel, terminate, or modify, any Governmental Authorization
that is held by the Company or that otherwise relates to the
business of, or any of the assets owned or used by, the Company;
(iv) cause the Buyer or the Company to become subject
to, or to become liable for the payment of, any Tax;
(v) cause any of the assets owned by the Company to
be reassessed or revalued by any taxing authority or other
Governmental Body;
(vi) contravene, conflict with, or result in a
violation or breach of any provision of, or give any Person the
right to declare a default or exercise any remedy under, or to
accelerate the maturity or performance of, or to cancel,
terminate, or modify, any Applicable Contract; or
(vii) result in the imposition or creation of any
Encumbrance upon or with respect to any of the assets owned or
used by the Company.
(c) Except as set forth in SCHEDULE 3.2, the Company is not,
nor will it be required to give any notice to or obtain any Consent from
any Person in connection with the execution and delivery of this
Agreement or the consummation or performance of any of the Contemplated
Transactions.
3.3 TITLE; CAPITALIZATION
(a) [Intentionally omitted.]
(b) The authorized equity securities of the Company consist
of 100,000 shares of Class A common stock, par value $100.00 per share,
of which 25,485.16 shares are issued and outstanding as of the date
hereof, and 100,000 shares of Class B common stock, par value $100.00,
of which 632 shares are issued and outstanding as of the date hereof.
The Company's subsidiaries are set forth on SCHEDULE 3.3. Except as set
forth in SCHEDULE 3.3, no legend or other reference to any purported
Encumbrance appears upon any certificate representing issued and
outstanding equity securities of the Company and no such Encumbrance
will be in effect as of Closing. All of the outstanding equity
securities of the Company have been duly authorized and validly issued
and are fully paid and nonassessable. Except as set forth in
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SCHEDULE 3.3, there are no Contracts relating to the issuance, sale, or
transfer of any equity securities or other securities of the Company or
options or rights to acquire securities of the Company, that will remain
in effect at or after Closing. None of the outstanding equity securities
or other securities of the Company was issued in violation of the
Securities Act or any other Legal Requirement. The Company does not own,
nor has any Contract to acquire, any equity securities or other
securities of any Person or any direct or indirect equity or ownership
interest in any other business.
3.4 FINANCIAL STATEMENTS The Company has delivered to the Buyer: (a)
audited balance sheets of the Company as at September 30 in each of the years
2002, 2003 and 2004, and the related audited statements of income for each of
the fiscal years then ended, (b) an internally prepared balance sheet of the
Company as at March 31, 2005 (the "INTERIM BALANCE SHEET"), and the related
internally prepared statement of income for the fiscal year then ended. Such
financial statements and notes fairly and materially present the financial
condition and the results of operations of the Company as at the respective
dates of and for the periods referred to in such financial statements.
3.5 NO MATERIAL ADVERSE CHANGE Since the date of the Interim Balance
Sheet, to the Company's Knowledge (a) there has not been any material adverse
change in the business, operations, properties, assets, or condition of the
Company and (b) no event has occurred or circumstance exists that may result in
such a material adverse change other than changes, events and circumstances
existing in or affecting the capital markets, and general economic and industry
conditions.
3.6 ABSENCE OF CERTAIN CHANGES AND EVENTS Except as set forth in
SCHEDULE 3.6, and except for transactions expected in connection with the
Contemplated Transactions, since the date of the Interim Balance Sheet, the
Company has conducted the Business only in the Ordinary Course of Business and
there has not been any:
(a) change in the Company's authorized or issued capital
stock; grant of any stock option or right to purchase shares of capital
stock of the Company; issuance of any security convertible into such
capital stock; grant of any registration rights; purchase, redemption,
retirement, or other acquisition by the Company of any shares of any
such capital stock; or declaration or payment of any dividend or other
distribution or payment in respect of shares of capital stock;
(b) amendment to the Organizational Documents of the
Company;
(c) payment or increase by the Company of any bonuses,
salaries, or other compensation to any stockholder, director, officer,
or (except in the Ordinary Course of
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Business) employee or entry into any employment, severance, or similar
Contract with any director, officer, or employee;
(d) adoption of, or increase in the payments to or benefits
under, any profit sharing, bonus, deferred compensation, savings,
insurance, pension, retirement, or other employee benefit plan for or
with any employees of the Company;
(e) damage to or destruction or loss of any asset or
property of the Company, whether or not covered by insurance, materially
and adversely affecting the properties, assets, business, financial
condition, or prospects of the Company;
(f) entry into, termination of, or receipt of notice of
termination of (i) any license, joint venture, credit, or similar
agreement, or (ii) any Contract or transaction involving a total
remaining commitment by or to the Company of at least $25,000.00;
(g) cancellation or waiver of any claims or rights with a
value to the Company in excess of $25,000.00;
(h) material change in the accounting methods used by the
Company;
(i) agreement, whether oral or written, by the Company to do
any of the foregoing; or
(j) any notice by a governmental agency or
quasi-governmental agency regarding the conduct of the Company's
business.
3.7 BOOKS AND RECORDS The books of account, minute books, stock
record books, and other records of the Company, all of which have been made
available to the Buyer, are complete and correct in all material respects and
have been maintained in accordance with practices that are customary for similar
businesses. At the Closing, all of books and records relating to the Assets will
be in the possession or control of the Company.
3.8 NO UNDISCLOSED LIABILITIES Except as set forth in SCHEDULE 3.8,
the Company had no material liabilities or obligations of any nature required to
be reflected or reserved against in the "Balance Sheet" or the Interim Balance
Sheet as of the respective dates thereof in accordance with GAAP that were not
so reflected, and has since the date of the Balance Sheet incurred no such
liabilities other than current liabilities incurred in the Ordinary Course of
Business.
3.9 ENVIRONMENTAL MATTERS Except as set forth in SCHEDULE 3.9 :
(a) The Company has not received any notice, report or
information regarding any liabilities (whether accrued, absolute,
contingent, unliquidated or otherwise), or any corrective, investigatory
or remedial obligations, arising under "ENVIRONMENTAL AND SAFETY
REQUIREMENTS", with respect to the past or present operations of the
Businesses, the Assets and/or the Assumed Contracts as set forth in
SCHEDULE 2.1.
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(b) The Company has obtained, and is in compliance with all
terms and conditions of, all permits, licenses and other authorizations
required pursuant to Environmental and Safety Requirements with respect
to past or present operations of the Businesses and the Assets.
(c) None of the following exists at any property owned or
occupied by the Company: asbestos-containing material in any form or
condition; polychlorinated biphenyl-containing materials or equipment.
(d) No facts, events or conditions relating to the assets of
the Company, operations of the Business and/or the Applicable Contracts
will (x) prevent, hinder or limit continued compliance by Purchaser with
Environmental and Safety Requirements, (y) give rise to any corrective,
investigatory or remedial obligations on the part of Purchaser pursuant
to Environmental and Safety Requirements, or (z) give rise to any
liabilities on the part of Purchaser (whether accrued, absolute,
contingent, unliquidated or otherwise) pursuant to Environmental and
Safety Requirements, including, without limitation, those liabilities
relating to on-site or off-site hazardous substance releases, personal
injury, property damage or natural resources damage.
(e) The Company has not assumed any liabilities or
obligations of any third party under Environmental and Safety
Requirements.
3.10 TAXES
(a) The Company has filed or caused to be filed all Tax
Returns that are or were required to be filed by or with respect to it,
either separately or as a member of a group of corporations, pursuant to
applicable Legal Requirements. The Company has delivered or made
available to the Buyer copies of, and SCHEDULE 3.10 contains a complete
and accurate list of, all such Tax Returns filed since 2000. The Company
has paid, or made provision for the payment of, all Taxes that have or
may have become due pursuant to those Tax Returns or otherwise, or
pursuant to any assessment received by the Company, except such Taxes,
if any, as are listed in SCHEDULE 3.10 and are being contested in good
faith and as to which adequate reserves (determined in accordance with
GAAP) have been provided in the Balance Sheet and the Interim Balance
Sheet.
(b) The United States federal and state income Tax Returns
of the Company have been audited by the IRS or relevant state tax
authorities or are closed by the applicable statute of limitations for
all taxable years through 2000. SCHEDULE 3.10 contains a complete and
accurate list of all audits of all such Tax Returns, including a
reasonably detailed description of the nature and outcome of each audit.
All deficiencies proposed as a result of such audits have been paid,
reserved against, settled, or, as described in SCHEDULE 3.10, are being
contested in good faith by appropriate proceedings. SCHEDULE 3.10
describes all adjustments to the United States federal income Tax
Returns filed by the Company or any group of corporations including the
Company for all taxable years since 1999, and the resulting deficiencies
proposed by the IRS. Except as described in SCHEDULE 3.10, the Company
has not been given nor has it been requested to give waivers
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or extensions (or is or would be subject to a waiver or extension given
by any other Person) of any statute of limitations relating to the
payment of Taxes of the Company or for which the Company may be liable.
(c) The charges, accruals, and reserves with respect to
Taxes on the respective books of the Company are adequate (determined in
accordance with GAAP) and are at least equal to the Company's liability
for Taxes. There exists no proposed tax assessment against the Company
except as disclosed in the Balance Sheet or in SCHEDULE 3.10. No consent
to the application of Section 341(f)(2) of the IRC has been filed with
respect to any property or assets held, acquired, or to be acquired by
the Company. All Taxes that the Company is or was required by Legal
Requirements to withhold or collect have been duly withheld or collected
and, to the extent required, have been paid to the proper Governmental
Body or other Person.
(d) All Tax Returns filed by (or that include on a
consolidated basis) the Company are true, correct, and complete. There
is no tax sharing agreement that will require any payment by the Company
after the date of this Agreement.
3.11 EMPLOYEES
(a) SCHEDULE 3.11 contains a complete and accurate list of
the following information for each employee or director of the Company,
including each employee on leave of absence or layoff status: name; job
title; current compensation paid or payable; vacation accrued; and
service credited for purposes of vesting and eligibility to participate
under the Company's pension, retirement, profit-sharing, thrift-savings,
deferred compensation, stock bonus, stock option, cash bonus, employee
stock ownership (including investment credit or payroll stock
ownership), severance pay, insurance, medical, welfare, or vacation
plan, other "EMPLOYEE PENSION BENEFIT PLAN" or "EMPLOYEE WELFARE BENEFIT
PLAN", or any other employee benefit plan or any Director Plan.
(b) Except as set forth in SCHEDULE 3.11, no employee or
director of the Company is a party to, or is otherwise bound by, any
agreement or arrangement, including any confidentiality,
non-competition, or proprietary rights agreement, between such employee
or director and any other Person ("PROPRIETARY RIGHTS AGREEMENT") that
in any way adversely affects or will affect (i) the performance of his
duties as an employee or director of the Company, or (ii) the ability of
the Company to conduct its business.
(c) SCHEDULE 3.11 also contains a complete and accurate list
of the following information for each retired employee or director of
the Company, or their dependents, receiving benefits or scheduled to
receive benefits in the future: name, pension benefit, pension option
election, retiree medical insurance coverage, retiree life insurance
coverage, and other benefits.
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3.12 EMPLOYEE BENEFIT PLANS
(a) All material employee benefit plans, contracts or
arrangements to which the Company is a party or by which the Company is
bound, including without limitation all pension, retirement, deferred
compensation, savings, incentive, bonus, profit sharing, stock purchase,
stock option, life insurance, death or survivor's benefit, health
insurance, sickness, disability, medical, surgical, hospital, severance,
layoff or vacation plans, contracts or arrangements (collectively the
"COMPANY BENEFIT PLANS"), but not including the Employment Agreements,
are identified in SCHEDULE 3.12. Each of the Company Benefit Plans which
is an Employee Pension Benefit Plan as defined in Section 3(2) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA");
each such Plan being herein called a "COMPANY PENSION PLAN") is intended
to be exempt from tax under Sections 401 and 501 of the IRC, has been
maintained and operated (to the Knowledge of the Company) in material
compliance with all applicable provisions of the IRC and ERISA. No
transaction has occurred with respect to the Company Pension Plans which
would subject the Company to a tax, penalty, or liability for
"prohibited transactions" (as such term is defined in Section 4975 of
the IRC or in ERISA) There have been no material breaches of fiduciary
duty by any fiduciary under or with respect to the Company Pension Plans
or any other Company Benefit Plan which is an Employee Welfare Benefit
Plan as defined in ERISA, and no claim is pending or threatened with
respect to any Company Benefit Plan other than claims for benefits made
in the Ordinary Course of Business. The Company has not incurred any
material penalty imposed by the IRC or by ERISA with respect to the
Company Pension Plans or any other Company Benefit Plan. No Company
Benefit Plan is currently under audit by the Department of Labor or the
IRS and, to the Knowledge of the Company, no such action is contemplated
or under consideration.
3.13 LABOR RELATIONS AND EMPLOYMENT AGREEMENTS
(a) The Company is not a party to or bound by any collective
bargaining agreement. The Company enjoys good working relationships with
its employees, and there are no labor disputes pending, or to the
Knowledge of the Company, Threatened, that might materially and
adversely affect the condition (financial or otherwise), assets,
liabilities, business, operations or prosperity of the Company. Except
as disclosed in SCHEDULE 3.13, the Company has no employment contract,
severance agreement, deferred compensation agreement, consulting
agreement or similar obligation (including the amendments and agreement
referred to below, an "EMPLOYMENT OBLIGATION") with any director,
officer, employee, agent or consultant. Except as disclosed in SCHEDULE
3.13, as of the Closing Date, the Company will have no liability for
employee termination rights arising out of any Employment Obligation.
(b) No payment that is owed or may become due to any
director, officer, employee, or agent of the Company will be
non-deductible to the Company or subject to tax under IRC ss. 280G or
ss. 4999; nor will the Company be required to "gross up" or otherwise
compensate any such person because of the imposition of any excise tax
on a payment to such person.
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(c) Except as set forth on SCHEDULE 3.13, the consummation
of the Contemplated Transactions will not result in the payment,
vesting, or acceleration of any benefit.
3.14 COMPLIANCE WITH LEGAL REQUIREMENTS, GOVERNMENTAL AUTHORIZATIONS
(a) Except as set forth in SCHEDULE 3.14:
(i) the Company is, and at all times since January
1, 2000 has been, in full compliance with each Legal Requirement
that is or was applicable to it or to the conduct or operation
of its business or the ownership or use of any of its assets,
the violation of which would have a Material Adverse Effect on
the Company;
(ii) no event has occurred or circumstance exists
that (with or without notice or lapse of time) (A) may
constitute or result in a material violation by the Company of,
or a material failure on the part of the Company to comply with,
any Legal Requirement, or (B) may give rise to any material
obligation on the part of the Company to undertake, or to bear
all or any portion of the cost of, any remedial action of any
nature; and
(iii) the Company has not received, at any time since
January 1, 2000, any written notice or other communication from
any Governmental Body or any other Person regarding any
material, actual, alleged, possible, or potential violation of,
or failure to comply with, any Legal Requirement which would
have a Material Adverse Effect on the Company.
(b) SCHEDULE 3.14 contains a complete and accurate list of
each Governmental Authorization that is held by the Company or that
otherwise relates to the business of, or to any of the assets owned or
used by, the Company. Each Governmental Authorization listed or required
to be listed in SCHEDULE 3.14 is valid and in full force and effect.
Except as set forth in SCHEDULE 3.14:
(i) the Company is, and at all times since January
1, 2000 has been, in material compliance with all of the terms
and requirements of each Governmental Authorization identified
or required to be identified in SCHEDULE 3.14;
(ii) no event has occurred or circumstance exists
that may (with or without notice or lapse of time) (A)
constitute or result directly or indirectly in a material
violation of or a failure to comply with any term or requirement
of any Governmental Authorization listed or required to be
listed in SCHEDULE 3.14, or (B) result directly or indirectly in
the revocation, withdrawal, suspension, cancellation, or
termination of, or any modification to, any Governmental
Authorization listed or required to be listed in SCHEDULE 3.14;
(iii) the Company has not received, at any time since
January 1, 2000, any notice or other communication (whether oral
or written) from any Governmental Body or any other Person
regarding (A) any material actual,
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alleged, possible, or potential violation of or failure to
comply with any term or requirement of any Governmental
Authorization, or (B) any actual, proposed, possible, or
potential revocation, withdrawal, suspension, cancellation,
termination of, or modification to any Governmental
Authorization listed on SCHEDULE 3.14; and
(iv) all applications required to have been filed for
the renewal of the Governmental Authorizations listed or
required to be listed in SCHEDULE 3.14 have been duly filed on a
timely basis with the appropriate Governmental Bodies, and all
other filings required to have been made with respect to such
Governmental Authorizations have been duly made on a timely
basis with the appropriate Governmental Bodies.
The Governmental Authorizations listed in SCHEDULE 3.14 collectively
constitute all of the Governmental Authorizations necessary to permit the
Company to lawfully conduct and operate its business in the manner it currently
conducts and operate such business and to permit the Company to own and use its
assets in the manner in which it currently owns and uses such assets.
3.15 LEGAL PROCEEDINGS; ORDERS
(a) Except as set forth in SCHEDULE 3.15, there is no
pending Proceeding:
(i) that has been commenced by or against the
Company or that otherwise relates to or may affect the business
of, or any of the assets owned or used by, the Company that
would, if determined adversely to the Company, have a Material
Adverse Effect on the Company; or
(ii) that challenges, or that may have the effect of
preventing, delaying, making illegal, or otherwise interfering
with, any of the Contemplated Transactions.
To the Knowledge of the Company, (1) no such Proceeding has been
Threatened, and (2) no event has occurred or circumstance exists that may give
rise to or serve as a basis for the commencement of any such Proceeding. The
Company has delivered to the Buyer copies of all pleadings, correspondence, and
other documents relating to each Proceeding listed in SCHEDULE 3.15. The
Proceedings listed in SCHEDULE 3.15 will not have a Material Adverse Effect on
the Company.
(b) Except as set forth in SCHEDULE 3.15:
(i) there is no Order to which the Company, or any
of the assets owned or used by the Company, is subject to, the
violation of or compliance with which would have a Material
Adverse Effect on the Company;
(ii) the Company is not subject to any Order that
relates to the business of, or any of the assets owned or used
by, the Company, the violation of or compliance with which would
have a Material Adverse Effect on the Company; and
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(iii) no officer, director, agent, or employee of the
Company is subject to any Order that prohibits such officer,
director, agent, or employee from engaging in or continuing any
conduct, activity, or practice relating to the business of the
Company.
(c) Except as set forth in SCHEDULE 3.15:
(i) the Company is, and at all times since January
1, 2000 has been, in full compliance with all of the terms and
requirements of each Order to which it, or any of the assets
owned or used by it, is or has been subject;
(ii) no event has occurred or circumstance exists
that may constitute or result in (with or without notice or
lapse of time) a violation of or failure to comply with any term
or requirement of any Order to which the Company, or any of the
assets owned or used by the Company, is subject; and
(iii) the Company has not received, at any time since
January 1, 2000, any notice or other communication (whether oral
or written) from any Governmental Body or any other Person
regarding any actual, alleged, possible, or potential violation
of, or failure to comply with, any term or requirement of any
Order to which the Company, or any of the assets owned or used
by the Company, is or has been subject.
3.16 CONTRACTS; NO DEFAULTS
(a) SCHEDULE 3.16(A) contains a complete and accurate list,
and the Company has delivered to the Buyer true and complete copies, of:
(i) each Applicable Contract that involves
performance of services or delivery of goods or materials by the
Company of an amount or value in excess of $25,000;
(ii) each Applicable Contract that was not entered
into in the Ordinary Course of Business and that involves
expenditures or receipts of the Company in excess of $15,000;
(iii) each lease, rental or occupancy agreement,
license, installment and conditional sale agreement, and other
Applicable Contract affecting the ownership of, leasing of,
title to, use of, or any leasehold or other interest in, any
real or personal property (except personal property leases and
installment and conditional sales agreements having a value per
item or aggregate payments of less than $30,000 or with terms of
less than one year);
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(iv) each licensing agreement or other Applicable
Contract with respect to patents, trademarks, copyrights, or
other intellectual property, including agreements with current
or former employees, consultants, or contractors regarding the
appropriation or the non-disclosure of any of the Intellectual
Property Assets;
(v) each collective bargaining agreement and other
Applicable Contract to or with any labor union or other employee
representative of a group of employees;
(vi) each joint venture, partnership, and other
Applicable Contract (however named) involving a sharing of
profits, losses, costs, or liabilities by the Company with any
other Person;
(vii) each Applicable Contract containing covenants
that in any way purport to restrict the business activity of the
Company or any Affiliate of the Company or limit the freedom of
the Company or any Affiliate of the Company to engage in any
line of business or to compete with any Person;
(viii) each Applicable Contract providing for payments
to or by any Person based on sales, purchases, or profits, other
than direct payments for goods;
(ix) each power of attorney that is currently
effective and outstanding;
(x) each Applicable Contract entered into other than
in the Ordinary Course of Business that contains or provides for
an express undertaking by the Company to be responsible for
consequential damages;
(xi) each written warranty, guaranty, and or other
similar undertaking with respect to contractual performance
extended by the Company other than in the Ordinary Course of
Business; and
(xii) each amendment, supplement, and modification
(whether oral or written) in respect of any of the foregoing.
The Applicable Contracts designated by an asterisk on SCHEDULE
3.16(A) shall be considered "Material Contracts".
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(b) Except as set forth in SCHEDULE 3.16(B), no officer or
director of the Company and, to the Knowledge of the Company, no agent,
employee, consultant, or contractor of the Company is bound by any
Contract that purports to limit the ability of such officer, director,
agent, employee, consultant, or contractor to (A) engage in or continue
any conduct, activity, or practice relating to the business of the
Company, or (B) assign to the Company or to any other Person any rights
to any invention, improvement, or discovery.
(c) Except as set forth in SCHEDULE 3.16(C), to the
Knowledge of the Company, each Contract identified or required to be
identified in SCHEDULE 3.16(A) is in full force and effect and is valid
and enforceable in accordance with its terms.
(d) Except as set forth in SCHEDULE 3.16(D):
(i) the Company is in material compliance with all
applicable terms and requirements of each Material Contract
under which the Company has or had any obligation or liability
or by which the Company or any of the assets owned or used by
the Company is or was bound;
(ii) to the Knowledge of the Company, each other
Person that has or had any obligation or liability under any
Contract under which the Company has or had any rights is, and
at all times since January 1, 2000 has been, in full compliance
with all applicable terms and requirements of such Contract;
(iii) to the Knowledge of the Company, no event has
occurred or circumstance exists that (with or without notice or
lapse of time) may contravene, conflict with, or result in a
violation or breach of, or give the Company or other Person the
right to declare a default or exercise any remedy under, or to
accelerate the maturity or performance of, or to cancel,
terminate, or modify, any Applicable Contract; and
(iv) the Company has not given to or received from
any other Person, at any time since January 1, 2000, any written
notice or other communication regarding any actual, alleged,
possible, or potential violation or breach of, or default under,
any Contract.
(e) There are no renegotiations of, attempts to renegotiate,
or outstanding rights to renegotiate any material amounts paid or
payable to the Company under current or completed Contracts with any
Person and no such Person has made written demand for such
renegotiation.
(f) The Contracts relating to the provision of services by
the Company have been entered into in the Ordinary Course of Business
and have been entered into without the commission of any act alone or in
concert with any other Person, or any consideration having been paid or
promised, that is or would be in violation of any Legal Requirement.
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3.17 INSURANCE
(a) The Company has delivered to the Buyer:
(i) true and complete copies of all policies of
insurance to which the Company is a party or under which the
Company, or any director of the Company, is or has been covered
at any time within the year preceding the date of this
Agreement; and
(ii) true and complete copies of all pending
applications for policies of insurance.
(b) SCHEDULE 3.17(B) describes:
(i) any self-insurance arrangement by or affecting
the Company, including any reserves established thereunder; and
(ii) all obligations of the Company to provide
insurance for third parties (including such obligations under
leases and service agreements) and identifies the policy under
which such coverage is provided.
(c) Except as set forth on SCHEDULE 3.17(C):
(i) all policies to which the Company is now a party
or that now provide coverage to the Company or any director or
officer of the Company:
A) are valid, outstanding, and enforceable;
B) taken together, provide insurance
coverage for the assets and the operations of the Company for
all risks normally insured against by a Person carrying on the
same business or businesses as the Company;
C) are sufficient for compliance with all
Legal Requirements and Contracts to which the Company is a party
or by which any of them is bound;
D) will continue in full force and effect
following the consummation of the Contemplated Transactions; and
E) do not provide for any retrospective
premium adjustment or other experienced-based liability on the
part of the Company.
(ii) the Company has not received (A) any refusal of
coverage or any notice that a defense will be afforded with
reservation of rights, or (B) any notice of cancellation or any
other indication that any insurance policy is no longer in full
force or effect or will not be renewed or that the issuer of any
policy is not willing or able to perform its obligations
thereunder; and
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(iii) the Company has paid all premiums due, and has
otherwise performed all of its obligations, under each policy to
which the Company is a party or that provides coverage to the
Company or directors thereof.
3.18 TITLE TO AND CONDITION OF ASSETS Except as disclosed in SCHEDULE
3.18, the Company has good and marketable title to all material personal and
real properties and assets reflected in the Interim Balance Sheet or acquired
subsequent to December 31, 2002 (other than property and assets disposed of in
the Ordinary Course of Business), free and clear of all liens or encumbrances of
any kind whatsoever; provided, however, that the representations and warranties
contained in this sentence do not cover liens or encumbrances that: (i) are
reflected in the Interim Balance Sheet or in SCHEDULE 3.18; (ii) represent liens
of current taxes not yet due or which, if due, may be paid without penalty, or
which are being contested in good faith by appropriate proceedings; and (iii)
represent such imperfections of title, liens, encumbrances, zoning requirements
and easements, if any, as are not substantial in character, amount or extent and
do not materially detract from the value, or interfere with the present use, of
the properties and assets subject thereto.
3.19 INTELLECTUAL PROPERTY
(a) INTELLECTUAL PROPERTY ASSETS The term "Intellectual
Property Assets" means:
(i) the name "All American Plazas" or any variation
or derivation thereof, all fictional business names, trading
names, registered and unregistered trademarks, service marks,
and applications owned, used or licensed to the Company
(collectively, "MARKS"); and
(ii) all know-how, trade secrets, confidential
information, customer lists, software, technical information,
data, and process technology (collectively, "TRADE SECRETS")
owned, used, or licensed by the Company as licensee or licensor.
(b) AGREEMENTS SCHEDULE 3.19(B) contains a complete and
accurate list and summary description, including any royalties paid or
received by the Company, of all Contracts relating to the Intellectual
Property Assets to which the Company is a party or by which the Company
is bound, except for any license implied by the sale of a product and
perpetual, paid-up licenses for commonly available software programs
with a value of less than $30,000 under which the Company is the
licensee. There are no outstanding and, to the Company's Knowledge, no
Threatened disputes or disagreements with respect to any such agreement.
(c) KNOW-HOW NECESSARY FOR THE BUSINESS
(i) The Company is the owner of all right, title,
and interest in and to each of the Intellectual Property Assets,
free and clear of all Encumbrances, or has the right to use the
Intellectual Property Assets without payment to a third party.
A-17
(ii) To the Company's Knowledge, except as set forth
in SCHEDULE 3.19(C), no employee of the Company has entered into
any Contract that restricts or limits in any way the scope or
type of work in which the employee may be engaged or requires
the employee to transfer, assign, or disclose information
concerning his work to anyone other than the Company.
(d) TRADEMARKS
SCHEDULE 3.19(D) contains a complete and accurate list
and summary description of all Marks. The Company is the owner of all
right, title, and interest in and to each of the Marks, free and clear
of all liens, security interests, charges, encumbrances, equities, and
other adverse claims.
(e) TRADE SECRETS The Company has good title and an absolute
(but not necessarily exclusive) right to use the Trade Secrets. To
Company's Knowledge, no Trade Secret is subject to any adverse claim or
has been challenged or threatened in any way.
3.20 CERTAIN PAYMENTS Except as set forth in SCHEDULE 3.20, since
January 1, 2000, neither the Company nor any director, officer, agent, or
employee of the Company, or any other Person associated with or acting for or on
behalf of the Company, has directly or indirectly (a) made any contribution,
gift, bribe, rebate, payoff, influence payment, kickback, or other payment to
any Person, private or public, regardless of form, whether in money, property,
or services (i) to obtain favorable treatment in securing business, (ii) to pay
for favorable treatment for business secured, or (iii) to obtain special
concessions or for special concessions already obtained, for or in respect of
the Company or any Affiliate of the Company, in violation of any Legal
Requirement, or (b) except in the Ordinary Course of Business established or
maintained any fund or asset that has not been recorded in the books and records
of the Company.
3.21 RELATED PARTY TRANSACTIONS Except as disclosed in SCHEDULE 3.21,
the Company has no contract, extension of credit, business arrangement or other
relationship of any kind with any of the following persons: (i) any executive
officer or director (including any person who has served in such capacity since
January 1, 2000) of the Company; (ii) any shareholder owning five percent (5%)
or more of the outstanding Company Common Stock; and (iii) any "associate" (as
defined in Rule 405 under the Securities Act) of the foregoing persons or any
business in which any of the foregoing persons is an officer, director, employee
or five percent (5%) or greater equity owner. Each such contract or extension of
credit disclosed in SCHEDULE 3.21, except as otherwise specifically described
therein, has been made in the Ordinary Course of Business on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable arms' length transactions with other persons that do not
involve more than a normal risk of collectibility or present other unfavorable
features.
3.22 BROKERS OR FINDER [intentionally omitted]
3.23 LEGAL REPRESENTATION The Company has been represented by legal
counsel in connection with the Contemplated Transactions.
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3.24 DISCLOSURE Neither this Agreement, nor any financial statement,
schedule (including without limitation its Schedules to this Agreement),
certificate, or other statement or document delivered by the Company to the
Buyer in connection herewith contains any statement which, at the time and in
light of the circumstances under which it is made, is false or misleading with
respect to any material fact or omits to state any material fact necessary to
make the statements contained herein or therein not false or misleading.
3.25 INVESTMENT REPRESENTATIONS The Company represents and warrants
that:
(a) INVESTMENT PURPOSE The Company is acquiring the Able
Shares for its own account for investment only and not with a view
towards, or for resale in connection with, the public sale or
distribution thereof, except pursuant to sales registered or exempted
under the 1933 Act, except that the Company may distribute the Able
Shares to its shareholders in the form of a one-time extraordinary
dividend, subject to applicable securities laws.
(b) ACCREDITED INVESTOR STATUS The Company and each
shareholder who is contemplated to receive any shares of Able Shares in
connection with any dividend distribution by the Company as contemplated
by this Agreement is an "accredited investor" as that term is defined in
Rule 501(a) of Regulation D.
(c) RELIANCE ON EXEMPTIONS The Company understands that the
Able Shares are being offered and sold to it in reliance on specific
exemptions from the registration requirements of United States federal
and state securities laws and that the Buyer is relying in part upon the
truth and accuracy of, and the Company's compliance with, the
representations, warranties, agreements, acknowledgments and
understandings of the Company set forth herein in order to determine the
availability of such exemptions and the eligibility of the Company to
acquire the Able Shares.
(d) INFORMATION The Company and its advisors, if any, have
been furnished with all materials relating to the business, finances and
operations of the Buyer and materials relating to the offer and sale of
the Able Shares, which have been requested by the Company. The Company
and its advisors, if any, have been afforded the opportunity to ask
questions of the Buyer. Neither such inquiries nor any other due
diligence investigations conducted by the Company or its advisors, if
any, or its representatives shall modify, amend or affect the Company's
right to rely on the Buyer's representations and warranties contained
herein. The Company understands that any of its shareholders who may
receive Able Shares may be required by the Buyer to execute additional
documentation the Buyer may reasonably require to ensure the Buyer's
compliance with applicable securities laws.
(e) NO GOVERNMENTAL REVIEW The Company understands that no
United States federal or state agency or any other government or
governmental agency has passed on or made any recommendation or
endorsement of the Able Shares or the fairness or suitability of the
investment in the Able Shares nor have such authorities passed upon or
endorsed the merits of the offering of the Able Shares.
A-19
(f) TRANSFER OR RESALE The Company understands that: (i) the
Able Shares have not been and are not being registered under the 1933
Act or any state securities laws, and may not be offered for sale, sold,
assigned or transferred unless (A) subsequently registered thereunder,
(B) the Company shall have delivered to the Buyer an opinion of counsel,
in a generally acceptable form, to the effect that such Able Shares to
be sold, assigned or transferred may be sold, assigned or transferred
pursuant to an exemption from such registration, or (C) the Company
provides the Buyer with reasonable assurance that such Able Shares can
be sold, assigned or transferred pursuant to Rule 144 promulgated under
the 1933 Act, as amended, (or a successor rule thereto) ("Rule 144");
(ii) any sale of the Able Shares made in reliance on Rule 144 may be
made only in accordance with the terms of Rule 144 and further, if Rule
144 is not applicable, any resale of the Able Shares under circumstances
in which the seller (or the person through whom the sale is made) may be
deemed to be an underwriter (as that term is defined in the 1933 Act)
may require compliance with some other exemption under the 1933 Act or
the rules and regulations of the SEC thereunder; and (iii) neither the
Buyer nor any other person is under any obligation to register the Able
Shares for resale under the 1933 Act or any state securities laws or to
comply with the terms and conditions of any resale exemption thereunder.
(g) LEGENDS The Company understands that the certificates or
other instruments representing the Able Shares, until such time as the
sale of the Able Shares have been registered under the 1933 Act, shall
bear a restrictive legend in substantially the following form (and a
stop-transfer order may be placed against transfer of such stock
certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR (B) AN OPINION
OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT
REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR (II)
UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT.
The legend set forth above shall be removed and the Buyer shall issue a
certificate without such legend to the holder of the Able Shares upon which it
is stamped, if, unless otherwise required by state securities laws, (i) such
Able Shares are registered for sale under the 1933 Act, (ii) in connection with
a sale, assignment or other transfer, such holder provides the Buyer with an
opinion of counsel, in a generally acceptable form, to the effect that such
sale, assignment or transfer of the Able Shares may be made without registration
under the 1933 Act, or (iii) such holder provides the Buyer with reasonable
assurance that the Able Shares can be sold, assigned or transferred pursuant to
Rule 144 without any restriction as to the number of securities acquired as of a
particular date that can then be immediately sold.
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(h) VALIDITY; ENFORCEMENT This Agreement has been duly and
validly authorized, executed and delivered on behalf of the Company and
is a valid and binding agreement of the Company enforceable against the
Company in accordance with its terms, subject as to enforceability to
general principles of equity and to applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation and other similar laws relating
to, or affecting generally, the enforcement of applicable creditors'
rights and remedies.
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer represents and warrants to the Company as follows:
4.1 ORGANIZATION AND GOOD STANDING The Buyer is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
New Jersey, with full corporate power and authority to conduct its business as
it is now being conducted, to own or use the properties and assets that it
purports to own or use, and to perform all of its obligations.
4.2 AUTHORITY; NO CONFLICT; CONSENTS
(a) This Agreement constitutes the legal, valid, and binding
obligation of the Buyer, enforceable against the Buyer in accordance
with its terms, except as such enforceability may be limited by laws
regarding bankruptcy, insolvency, and other creditors' rights, and by
principles of equity. Upon the execution and delivery by the Company of
the Company Releases and upon execution and delivery by the Buyer of the
Able Shares and the Buyer's representation herein contained
(collectively, the "BUYER'S CLOSING Documents"), the Buyer's Closing
Documents will constitute the legal, valid, and binding obligations of
the Buyer, enforceable against the Buyer in accordance with their
respective terms, except as such enforceability may be limited by laws
regarding bankruptcy, insolvency, and other creditors' rights, and by
principles of equity. The Buyer has the absolute and unrestricted right,
power, and authority to execute and deliver this Agreement and the
Buyer's Closing Documents and to perform its obligations under this
Agreement and the Buyer's Closing Documents. The Buyer has the absolute
and unrestricted right, power, authority and capacity to execute and
deliver this Agreement and to perform its obligations under this
Agreement. At the Closing, the Buyer will have the absolute and
unrestrictive right, power, authority and capacity to execute and
deliver the Buyer's Closing Documents and to perform its obligations
thereunder.
(b) Except as set forth in SCHEDULE 4.2(b) neither the
execution and delivery of this Agreement by the Buyer nor the
consummation or performance of any of the Contemplated Transactions by
the Buyer will give any Person the right to prevent, delay, or otherwise
interfere with any of the Contemplated Transactions pursuant to:
(i) any provision of the Buyer's Organizational
Documents;
(ii) any resolution adopted by the board of directors
or the stockholders of the Buyer;
(iii) any Legal Requirement or Order to which the
Buyer may be subject;
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(iv) any Contract to which the Buyer is a party or by
which the Buyer may be bound; or
(v) any transaction or contract which the Buyer is
contemplating.
(c) Except as set forth in SCHEDULE 4.2(B), the Buyer is not
and will not be required to obtain any Consent from any Person in
connection with the execution and delivery of this Agreement or the
consummation or performance of any of the Contemplated Transactions.
4.3 INVESTMENT INTENT [intentionally omitted].
4.4 CERTAIN PROCEEDINGS There is no pending Proceeding that has been
commenced against the Buyer and that challenges, or may have the effect of
preventing, delaying, making illegal, or otherwise interfering with, any of the
Contemplated Transactions. To the Buyer's knowledge, no such Proceeding has been
Threatened.
4.5 BROKERS OR FINDERS The Buyer and its officers and agents have
incurred no obligation or liability, contingent or otherwise, for brokerage or
finders' fees or agents' commissions or other similar payment in connection with
this Agreement and will indemnify and hold the Company harmless from any such
payment alleged to be due by or through the Buyer as a result of the action of
the Buyer or its officers or agents.
4.6 NO UNDISCLOSED LIABILITIES Except as set forth in SCHEDULE 4.6,
the Buyer has no liabilities or obligations of any nature (whether known or
unknown and whether absolute, accrued, contingent, or otherwise) except for
liabilities or obligations reflected or reserved against in the Buyer Financial
Statements and current liabilities incurred in the Ordinary Course of Business
since the respective dates thereof.
4.7 TAXES The Buyer has filed or caused to be filed all Tax Returns
that are or were required to be filed by or with respect to it, either
separately or as a member of a group of corporations, pursuant to applicable
Legal Requirements. The Buyer has paid, or made provision for the payment of,
all Taxes that have or may have become due pursuant to those Tax Returns or
otherwise, or pursuant to any assessment received by the Buyer, except such
Taxes, if any, as are listed in SCHEDULE 4.7 and are being contested in good
faith and as to which adequate reserves (determined in accordance with GAAP)
have been provided in the financial statements available to the public.
4.8 COMPLIANCE WITH LEGAL REQUIREMENTS, GOVERNMENTAL AUTHORIZATIONS
(a) Except as set forth in SCHEDULE 4.8
(i) the Buyer is, and at all times since January 1,
2000 has been, in full compliance with each Legal Requirement
that is or was applicable to it or to the conduct or operation
of its business or the ownership or use of any of its assets;
A-22
(ii) no event has occurred or circumstance exists
that (with or without notice or lapse of time) (A) may
constitute or result in a violation by the Buyer of, or a
failure on the part of the Buyer to comply with, any Legal
Requirement, or (B) may give rise to any obligation on the part
of the Buyer to undertake, or to bear all or any portion of the
cost of, any remedial action of any nature;
(iii) the Buyer has not received, at any time since
January 1, 2000, any notice or other communication (whether oral
or written) from any Governmental Body or any other Person
regarding (A) any actual, alleged, possible, or potential
violation of, or failure to comply with, any Legal Requirement,
or (B) any actual, alleged, possible, or potential obligation on
the part of the Buyer to undertake, or to bear all or any
portion of the cost of, any remedial action of any nature;
(iv) the Buyer is, and at all times since January 1,
2000 has been, in full compliance with all of the terms and
requirements of each Governmental Authorization identified or
required to be identified in SCHEDULE 4.8;
(v) no event has occurred or circumstance exists
that may (with or without notice or lapse of time) (A)
constitute or result directly or indirectly in a violation of or
a failure to comply with any term or requirement of any
Governmental Authorization listed or required to be listed in
SCHEDULE 4.8, or (B) result directly or indirectly in the
revocation, withdrawal, suspension, cancellation, or termination
of, or any modification to, any Governmental Authorization
listed or required to be listed in SCHEDULE 4.8;
(vi) the Buyer has not received, at any time since
January 1, 2000, any notice or other communication (whether oral
or written) from any Governmental Body or any other Person
regarding (A) any actual, alleged, possible, or potential
violation of or failure to comply with any term or requirement
of any Governmental Authorization, or (B) any actual, proposed,
possible, or potential revocation, withdrawal, suspension,
cancellation, termination of, or modification to any
Governmental Authorization; and
(vii) all applications required to have been filed for
the renewal of the Governmental Authorizations listed or
required to be listed in SCHEDULE 4.8 have been duly filed on a
timely basis with the appropriate Governmental Bodies, and all
other filings required to have been made with respect to such
Governmental Authorizations have been duly made on a timely
basis with the appropriate Governmental Bodies.
The Governmental Authorizations listed in SCHEDULE 4.8 collectively
constitute all of the Governmental Authorizations necessary to permit the Buyer
to lawfully conduct and operate its business in the manner they currently
conduct and operate such businesses and to permit the Buyer to own and use its
assets in the manner in which it currently owns and uses such assets.
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4.9 NO MATERIAL ADVERSE CHANGE Since the date of the Buyer Interim
Balance Sheet, there has not been any Material Adverse Change in the business,
operations, properties, assets, or condition of the Buyer and no event has
occurred or circumstance exists that may result in such a Material Adverse
Change other than changes, events and circumstances existing in or affecting the
capital markets, and general economic and industry conditions.
4.10 DISCLOSURE Neither this Agreement, nor any financial statement,
schedule (including without limitation its Schedules to this Agreement),
certificate, or other statement or document delivered by the Buyer to the
Company in connection herewith contains any statement which, at the time and in
light of the circumstances under which it is made, is false or misleading with
respect to any material fact or omits to state any material fact necessary to
make the statements contained herein or therein not false or misleading.
ARTICLE V. COVENANTS OF THE COMPANY PRIOR TO CLOSING DATE
5.1 ACCESS AND INVESTIGATION Between the date of this Agreement and
the Closing Date, the Company will, and will cause its Representatives to, (a)
afford the Buyer and its Representatives and their Representatives
(collectively, the "BUYER'S ADVISORS") reasonable access, after appropriate
notice, to the Company's personnel, properties, contracts, books and records,
and other documents and data, (b) furnish the Buyer and the Buyer's Advisors
with copies of all such contracts, books and records, and other existing
documents and data belonging to the Company as the Buyer may reasonably request,
and (c) furnish the Buyer and the Buyer's Advisors with such additional
financial, operating, and other data and information relating to the Company as
the Buyer may reasonably request. To the extent practicable, the Buyer will so
conduct its interviews with personnel as to minimize disruption and shall
conduct its review off-site.
5.2 OPERATION OF THE BUSINESS OF THE COMPANY
(a) Between the date of this Agreement and the Closing Date,
the Company will conduct its business only in the Ordinary Course of
Business, except as set forth in SCHEDULE 5.2.
(b) Without limiting the generality of the provisions of (a)
above, the Company shall (absent the prior written consent of the Buyer
and except as set forth in SCHEDULE 5.2):
(i) not issue any additional shares of capital stock
of any class or redeem any outstanding shares of capital stock;
(ii) maintain the fixed assets essential to the
Company's operations in good operating repair and condition,
subject to normal wear and tear, and make repairs and
replacements in accordance with prior practices;
(iii) report to the Buyer concerning operational
matters of a material nature and otherwise report periodically
to the Buyer concerning any material changes to status of the
business, operations, and finances of the Company;
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(iv) continue to pay and satisfy the Company's
liabilities in the Ordinary Course of Business, paying such
liabilities in accordance with prior practices;
(v) continue to maintain in full force and effect or
renew or replace all policies of insurance now in effect which
cover the assets or the Company and give all notices and present
all material claims under all policies of insurance in due and
timely fashion;
(vi) not enter into any material leases or contracts
for the purchase or sale of products, utilities, or services,
except (A) those made in the Ordinary Course of Business or (B)
those which may be canceled without liability upon not more than
thirty (30) days' notice; or (C) with approval of the Buyer;
(vii) use Best Efforts to preserve the business
organization and properties to be transferred hereunder intact,
including present operations and relationships with lessors,
licensors, customers and employees; use reasonable efforts to
preserve for the Buyer the goodwill of the Company's employees,
suppliers, customers, and other persons with whom the Company
has business relations;
(viii) not enter into any contract, agreement, or
understanding with any labor union or other association
representing any employee; not enter into, amend, or terminate,
fully or partially, any benefit plan; and not withdraw any funds
from any benefit plan or trust or other funding arrangement
maintained pursuant thereto;
(ix) except for annual merit increases awarded to
non-officer employees in the Ordinary Course of Business
consistent with past business practices not authorize or grant
any wage or salary increase, otherwise directly or indirectly
increase post Closing compensation to or for any employee, or
agree in any manner to any such post Closing increase;
(x) not create or incur any indebtedness for
borrowed money or assume directly or indirectly any debt,
obligation, or liability (whether absolute or contingent,
whether directly or as surety or guarantor, and whether or not
currently due or payable) which will exist after the Closing
Date, except in the Ordinary Course of Business consistent with
past business practices and policies and as required for the
operation of the Company;
(xi) not make any material change in the accounting
methods, practices, policies, principles, or procedures of the
Company, except as necessary to perform this Agreement, without
consulting with the Buyer;
(xii) not enter into any lease, sublease, or contract,
regarding the acquisition, leasing, or occupancy of any real
estate, equipment, vehicles, or other items relating to the
Company except in the Ordinary Course of Business or upon
approval of the Buyer;
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(xiii) not sell, convey, lease, abandon, or otherwise
dispose of, or grant, suffer, or permit any lien or encumbrance
upon, any of the Company's material assets, except on arm's
length terms or in the Ordinary Course of Business;
(xiv) not enter into or modify in any manner any
material Contract to which it is a party except in the Ordinary
Course of Business, other than as contemplated in clause (viii)
above; and
(xv) accrue and/or pay all withholding and other
Taxes on a timely basis.
(c) Notwithstanding the foregoing, nothing in this Agreement
shall be construed to limit the right of the Company to take actions or
engage in transactions which are consistent with the obligations under
this Agreement. The parties contemplate that the Company may refinance
its debt with respect to its Milton, Pennsylvania facility, and the
parties shall cooperate with respect thereto.
5.3 NEGATIVE COVENANT Except as otherwise expressly permitted by
this Agreement, between the date of this Agreement and the Closing Date, the
Company will not take any affirmative action, or fail to take any common and
reasonable action within their or its control, as a result of which any of the
changes or events listed in Section 3.6 is likely to occur.
5.4 REQUIRED APPROVALS As promptly as practicable after the date of
this Agreement, the Company shall make all filings required by Legal
Requirements to be made by them in order to consummate the Contemplated
Transactions. Between the date of this Agreement and the Closing Date, the
Company shall, (i) solicit the approval of its shareholders for the transactions
contemplated by this Agreement, (ii) cooperate with the Buyer with respect to
all filings that the Buyer elects to make or is required by Legal Requirements
to make in connection with the Contemplated Transactions and (iii) cooperate
with the Buyer in obtaining all consents identified in SCHEDULE 4.2(C) or
SCHEDULE 3.2. The approvals required shall include, without limitation, approval
of the Contemplated Transaction by Securities and Exchange Commission and all
other governmental bodies so required pursuant to the Buyer's proxy filing, the
shareholder approval of Buyer and approval by Petro (the "PETRO FRANCHISE
CONSENTS") of the Buyer as a Petro franchisee with respect to the Company's
Milton, Breezewood and Frystown locations, without the payment of any fees to
Petro other than as set forth in the Company's existing franchise agreements
with Petro (the "PETRO FRANCHISE AGREEMENTS").
5.5 NOTIFICATION Between the date of this Agreement and the Closing
Date, the Company will promptly notify the Buyer in writing if the Company
becomes aware of any fact or condition that causes or constitutes a Breach of
any of the Company's representations and warranties under this Agreement, or if
the Company becomes aware of the occurrence after the date of this Agreement of
any fact or condition that would (except as expressly contemplated by this
Agreement) cause or constitute a Breach of any such representation or warranty
had such representation or warranty been made as of the time of occurrence or
discovery of such fact or condition. During the same period, the Company will
promptly notify the Buyer of the occurrence of any Breach of any covenant of the
Company in this Section 5 or of the occurrence
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of any event that is likely to make the satisfaction of the conditions in
Section 7 impossible or unlikely.
5.6 NO SOLICITATION OF OTHER PROPOSALS; ORDINARY COURSE OPERATIONS
The Company hereby agrees that they will not directly or indirectly solicit,
entertain or encourage inquiries or proposals, or enter into an agreement or
negotiate with any other party, to sell, or enter into any merger on
consolidation with respect to, the Business, the Company, a substantial portion
of the Assets.
5.7 BEST EFFORTS Between the date of this Agreement and the Closing
Date, the Company will use their Best Efforts to cause the conditions in
Sections 7 and 8 to be satisfied.
ARTICLE VI. COVENANTS OF THE BUYER
6.1 PRIOR TO CLOSING
(a) APPROVALS OF GOVERNMENTAL BODIES
As promptly as practicable after the date of this Agreement, the Buyer
will, and will cause each of its Related Persons to, make all filings required
by Legal Requirements to be made by them to consummate the Contemplated
Transactions. Between the date of this Agreement and the Closing Date, the Buyer
will, and will cause each Related Person to, cooperate with the Company and its
shareholders with respect to all filings that the Company is required by Legal
Requirements to make in connection with the Contemplated Transactions, and (ii)
cooperate with the Company in obtaining all consents identified in SCHEDULE 3.2;
provided that this Agreement will not require the Buyer to dispose of or make
any unreasonable change in any portion of its business or to incur any other
unreasonable burden to obtain a Governmental Authorization.
(b) BEST EFFORTS
Except as set forth in the proviso to Section 6.1, between the date of
this Agreement and the Closing Date, the Buyer will use its Best Efforts to
cause the conditions in Articles VII and VIII to be satisfied.
(c) NOTIFICATION
The Buyer will notify the Company in writing promptly of (a) the
occurrence of any Breach by the Buyer, (b) any Knowledge the Buyer may obtain of
any Breach by the Company, and (c) the occurrence of any event known to the
Buyer that is likely to make the satisfaction of the conditions in Sections 7 or
8 impossible or unlikely.
ARTICLE VII. CONDITIONS PRECEDENT TO THE BUYER'S OBLIGATION TO CLOSE
The Buyer's obligation to purchase the Assets and to take the other
actions required to be taken by the Buyer at the Closing is subject to the
satisfaction, at or prior to the Closing, of each of the following conditions
(any of which may be waived by the Buyer, in whole or in part):
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7.1 ACCURACY OF REPRESENTATIONS; MATERIAL ADVERSE CHANGES
(a) All of the Company's representations and warranties in
this Agreement must be accurate in all material respects (except in the
case of those representations and warranties which are already qualified
as to materiality, in which case such additional materiality qualifier
shall not apply) as of the Closing Date as if made on the Closing Date,
or, if inaccurate, must not have a Material Adverse Effect on the
Company's business, finances or operations taken as a whole following
Closing.
(b) Between the date hereof and the Closing Date, there
shall not have occurred any change in the assets, liabilities, business,
financial condition, operations, or results of operations of the Company
which would have a Material Adverse Effect on the Company's business,
finances or operations taken as a whole following Closing.
7.2 THE COMPANY'S PERFORMANCE
(a) All of the covenants and obligations that the Company is
required to perform or to comply with pursuant to this Agreement at or
prior to the Closing must have been duly performed and complied with in
all material respects.
(b) Each document required to be delivered by the Company
pursuant to Section 2.4(a) must have been delivered.
7.3 CONSENTS Each of the Consents identified in SCHEDULE 3.2 or
SCHEDULE 4.2(c) must have been obtained and must be in full force and effect,
including, but not limited to, the Petro Franchise Consents.
7.4 NO PROCEEDINGS Since the date of this Agreement, there must not
have been commenced or Threatened against the Buyer, or against any Person
affiliated with the Buyer, any Proceeding (a) involving any material challenge
to, or seeking damages or other relief in connection with, any of the
Contemplated Transactions, or (b) that would have the effect of preventing,
delaying, making illegal, or otherwise interfering with any of the Contemplated
Transactions.
7.5 NO CLAIM REGARDING STOCK OWNERSHIP OR SALE PROCEEDS
There must not have been made or Threatened by any Person any claim
(which is not or cannot be settled or dismissed prior to closing) asserting that
such Person (a) is the holder or the beneficial owner of, or has the right to
acquire or to obtain beneficial ownership of, any stock of, or any other voting,
equity, or ownership interest in, any of the Company, or (b) is entitled to all
or any portion of the Purchase Price payable for the Assets.
7.6 SHAREHOLDER APPROVAL
The shareholders of the Buyer shall have approved this Agreement and the
transactions contemplated hereby.
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ARTICLE VIII. CONDITIONS PRECEDENT TO THE COMPANY'S OBLIGATION TO CLOSE
The Company's obligation to sell the Assets and to take the other
actions required to be taken by the Company at the Closing is subject to the
satisfaction, at or prior to the Closing, of each of the following conditions
(any of which may be waived by the Company, in whole or in part):
8.1 ACCURACY OF REPRESENTATIONS; MATERIAL ADVERSE CHANGES
(a) All of the Buyer's representations and warranties in
this Agreement must be accurate in all material respects as of the
Closing Date as if made on the Closing Date or, if inaccurate, must not
have a Material Adverse Effect on the Company.
(b) Between the date hereof and the Closing Date, there
shall not have occurred any change in the assets, liabilities, business,
financial condition, operations, or results of operations of the Buyer
which would have a Material Adverse Effect on the Buyer's business,
finances or operations taken as a whole following Closing.
8.2 THE BUYER'S PERFORMANCE
(a) All of the covenants and obligations that the Buyer is
required to perform or to comply with pursuant to this Agreement at or
prior to the Closing must have been performed and complied with in all
material respects.
(b) The Buyer must have delivered each of the documents
required to be delivered by the Buyer pursuant to Section 2.4(b) and
must deliver the Able Shares to the the Company.
8.3 CONSENTS
Each of the Consents identified in SCHEDULE 3.2 or SCHEDULE 4.2(c) must
have been obtained and must be in full force and effect, including, but not
limited to, the Petro Franchise Consents.
8.4 NO INJUNCTION
There must not be in effect any Legal Requirement or any injunction or
other Order that (a) prohibits the sale of the Assets by the Company to the
Buyer, and (b) has been adopted or issued, or has otherwise become effective,
since the date of this Agreement.
ARTICLE IX. TERMINATION
9.1 TERMINATION EVENTS This Agreement may by notice be terminated:
(a) by either the Buyer or the Company if a material Breach
of any representation, warranty or obligation contained in this
Agreement has been committed
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by the other party and such Breach has not been waived or, to the extent
the Breach is of the nature which can be cured, not cured within thirty
(30) days of written notice of such Breach by the other parties;
(b) (i) by the Buyer if any of the conditions in Section 7
has not been satisfied as of the Closing Date or if satisfaction of such
a condition is or becomes impossible (other than through the failure of
the Buyer to comply with its obligations under this Agreement) and the
Buyer has not waived such condition on or before the Closing Date; or
(ii) by the Company, if any of the conditions in Section 8 has not been
satisfied as of the Closing Date or if satisfaction of such a condition
is or becomes impossible (other than through the failure of the Company
to comply with their obligations under this Agreement) and the Company
has not waived such condition on or before the Closing Date; or
(c) by mutual consent of the Buyer and the Company.
A party seeking to exercise the rights provided in Section 9.1(a) shall so
notify the other party within fifteen (15) days after obtaining Knowledge of the
facts, events or circumstances giving rise to the right to terminate, but no
later than the Closing Date. In any other case provided for in this Section 9.1,
termination may be effected by written notice to the other parties before or at
Closing.
9.2 EFFECT OF TERMINATION; LIQUIDATED DAMAGES If this Agreement is
terminated pursuant to Section 9.1(a) or 9.1(b) as a result of a Breach (it
being understood that a failure of a condition shall not be considered a Breach
unless it is caused by a party's breach of its representations and warranties,
or other obligations, under this Agreement), this Agreement will terminate,
except that sections 12.1 and 12.3 will survive.
ARTICLE X. INDEMNIFICATION; REMEDIES
10.1 SURVIVAL All representations, warranties, covenants, and
obligations in this Agreement will survive the Closing, provided that all
representations and warranties of the parties shall expire two (2) years after
the Closing, relating to title to the Assets, which shall survive indefinitely,
Section 3.9, relating to environmental matters, which shall survive for three
(3) years, and Section 3.10, relating to taxes, which shall survive until
expiration of the applicable statute of limitations), subject to the provisions
of Sections 10.4 and 10.5. Neither party shall have any right to
indemnification, payment of Damages or other remedy after the Closing based on
any inaccuracy or breach of such representations, warranties, covenants, or
obligations of which the injured party had any knowledge before the Closing
Date, the injured party's sole remedy in such case being to terminate this
Agreement and to decline to close pursuant to Section 9.1(a) and, if applicable,
to receive the compensation as described in Section 9(2). The waiver of any
condition based on the accuracy of any representation or warranty, or on the
performance of or compliance with any covenant or obligation, will bar any right
to indemnification, payment of Damages, or other remedy based on such
representations, warranties, covenants, and obligations.
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10.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY THE COMPANY
Subject to the limitations of Sections 10.1, 10.4 and 10.5, if the
Closing has occurred, the Company will indemnify and hold harmless the Buyer and
its officers, directors, affiliates or agents (collectively, the "INDEMNIFIED
PERSONS") for, and will pay to the Indemnified Persons the amount of, any loss,
liability, claim, damage (including incidental and consequential damages),
expense (including costs of investigation and defense and reasonable, documented
attorneys' fees of outside counsel) whether or not involving a third-party claim
(collectively, "DAMAGES"), arising, directly or indirectly, from or in
connection with: (a) any Breach of any representation, warranty, covenant or
obligation of the Company in this Agreement; or (b) any claim by any Person for
brokerage or finder's fees or commissions or similar payments based upon any
agreement or understanding alleged to have been made by any such Person with or
the Company (or any Person acting on their behalf) in connection with any of the
Contemplated Transactions.
10.3 INDEMNIFICATION AND PAYMENT OF DAMAGES BY THE BUYER Subject to
the limitations of Sections 10.1, 10.4 and 10.5, the Buyer will indemnify and
hold harmless the Company and its successors and assigns, and will pay to the
Company, and its successors and assigns, the amount of any Damages arising,
directly or indirectly, from or in connection with (a) any Breach of any
representation, warranty, covenant or obligation of the Buyer in this Agreement,
or in any certificate delivered by the Buyer pursuant to this Agreement, or (b)
any claim by any Person for brokerage or finder's fees or commissions or similar
payments based upon any agreement or understanding alleged to have been made by
such Person with the Buyer (or any Person acting on its behalf) in connection
with any of the Contemplated Transactions.
10.4 LIMITATIONS If the Closing occurs, the Company will have no
liability (for indemnification or otherwise) with respect to any representation
or warranty, unless on or before the date which is two years from the Closing
Date (or, in the case of Section 3.9, three years from the Closing Date), the
Buyer notifies the Company of a claim specifying the factual basis of that claim
in reasonable detail to the extent then known by the Buyer. A claim pursuant to
Section 3.10, shall be made no more than six (6) months after the Buyer obtains
Knowledge of the same, but in no event after the expiration of the applicable
statute of limitations. Any claims made pursuant to this Section 10.4 shall be
deemed a "Claim".
10.5 LIMITATIONS ON AMOUNT -- THE COMPANY
(a) The Company will have no liability (for indemnification
or otherwise) with respect to the matters described in Section 10.2
until the total of all Damages with respect to such matters exceeds 1%
of the Purchase Price and then only for the amount by which such Damages
exceed such amount.
(b) Notwithstanding any other provision of this Agreement or
any other document, the maximum aggregate liability of the Company under
this Agreement shall be fifty percent (50%) of the cash equivalent
amount of the Purchase Price.
(c) The Company's liability hereunder shall be further
reduced to the extent (i) the loss, event, liability or matter giving
rise thereto is covered by insurance maintained
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or required to be maintained by the Company or the Buyer; (ii) the loss,
event, liability or matter giving rise thereto is reimbursable through
government programs, including but not limited to Underground Storage
Tank Indemnification Fund; and (iii) the loss, event, liability or
matter giving rise thereto provides the Buyer or the Company with any
reduction in taxes or other operating costs or any other economic
benefit.
10.6 LIMITATIONS ON AMOUNT--THE BUYER
(a) The Buyer will have no liability (for indemnification or
otherwise) with respect to the matters described in clause of Section
10.3 until the total of all Damages with respect to such matters exceeds
1% of the Purchase Price, and then only for the amount by which such
Damages exceed such amount. However, this Section 10.6 will not apply to
any claim against the Buyer based on failure to pay the Purchase Price.
(b) The maximum liability of the Buyer under this Section
10.6 shall be fifty percent (50%) of the amount of the Purchase Price
paid by the Buyer.
10.7 PROCEDURE FOR INDEMNIFICATION--THIRD PARTY CLAIMS
(a) Promptly after receipt by a party of notice of the
commencement of any Proceeding against it against which that party is
entitled to indemnity under Sections 10.2 or 10.3, such indemnified
party will, if it intends to make a claim against an indemnifying party
under such Section, give notice to the indemnifying party of the
commencement of such claim within 30 (thirty) days of receipt of notice,
but the failure to notify the indemnifying party will not relieve the
indemnifying party of any liability that it may have to any indemnified
party, except to the extent that the indemnifying party demonstrates
that the defense of such action is prejudiced by the indemnifying
party's failure to give such notice. The indemnified party shall keep
the indemnifying party informed with respect to any significant
developments with respect to such Proceeding, answer any questions the
indemnifying party or its or their representatives may have from time to
time with respect thereto and give all reasonable cooperation to the
indemnifying necessary to investigate and defend such Proceeding.
(b) If any Proceeding referred to in subsection (a) of this
Section is brought against an indemnified party and it gives notice to
the indemnifying party of the commencement of such Proceeding, the
indemnifying party will be entitled to participate in such Proceeding
and, to the extent that it wishes (unless (i) the indemnifying party is
also a party to such Proceeding and the indemnified party determines in
good faith that joint representation would be inappropriate, or (ii) the
indemnifying party fails to provide reasonable assurance to the
indemnified party of its financial capacity to defend such Proceeding
and provide indemnification with respect to such Proceeding), to assume
the defense of such Proceeding with counsel reasonably satisfactory to
the indemnified party . After notice from the indemnifying party to the
indemnified party of its election to assume the defense of such
Proceeding, the indemnifying party will not, as long as it diligently
conducts such defense, be liable to the indemnified party for any fees
of other counsel or any other expenses with respect to the defense of
such Proceeding, in each
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case subsequently incurred by the indemnified party in connection with
the defense of such Proceeding, other than reasonable costs of
investigation. The indemnifying party may, however, assume the defense
of a Proceeding while reserving expressly all rights to deny that the
claims made in that Proceeding are within the scope of and subject to
indemnification in which case (i) the indemnified party may participate
in the defense thereof, at the expense of the indemnifying party using
counsel of the indemnified party's choosing, (ii) no compromise or
settlement of such claims may be effected by the indemnifying party
without the indemnified party's consent unless (A) there is no finding
or admission of any violation of Legal Requirements or any violation of
the rights of any Person and no effect on any other claims that may be
made against the indemnified party, and (B) the sole relief provided is
monetary damages that are paid in full by the indemnifying party; and
(iii) the indemnified party will have no liability with respect to any
compromise or settlement of such claims effected without its consent. If
notice is given to an indemnifying party of the commencement of any
Proceeding and the indemnifying party does not, within ten days after
the indemnified party's notice is given, give notice to the indemnified
party of its election to assume the defense of such Proceeding, the
indemnifying party will be bound by any determination made in such
Proceeding or any compromise or settlement effected by the indemnified
party.
(c) Notwithstanding the foregoing, if an indemnified party
determines in good faith that there is a reasonable probability that a
Proceeding may adversely affect it or its affiliates other than as a
result of monetary damages for which it would be entitled to
indemnification under this Agreement, the indemnified party may, by
notice to the indemnifying party, assume the exclusive right to defend,
compromise, or settle such Proceeding, but the indemnifying party will
not be bound by any determination of a Proceeding so defended or any
compromise or settlement effected without its consent.
(d) Section 12.5 hereof shall govern jurisdiction over
disputes under this Article X.
10.8 PROCEDURE FOR INDEMNIFICATION--OTHER CLAIMS A claim for
indemnification for any matter not involving a third-party claim may be asserted
by notice to the party from whom indemnification is sought.
10.9 EXCLUSIVE REMEDY If Closing occurs, a claim for Indemnifiable
Damages pursuant to this Article shall be the indemnified party's sole and
exclusive remedy with respect to any Breach of representation or warranty, or
covenant in this Agreement, or any other Transaction Document regardless whether
such claim arises in contract, tort, breach of warranty or any other legal or
equitable theory; provided that the rights and limitations of this Article X
shall not apply to any claim for failure to pay the Purchase Price or for breach
of any affirmative or negative covenant under this or any other agreement
related hereto that occurs after Closing, and the parties shall retain all
rights and remedies available hereunder or under applicable law for such breach,
subject to any express limits on such remedies contained in the applicable
agreement. The Buyer shall be entitled to exercise its rights of set-off set
forth in Section 10.7 with respect thereto as provided in that section.
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ARTICLE XI. POST-CLOSING COVENANTS
11.1 COOPERATION The parties will cooperate with and provide such
further assurances to each other as are reasonably necessary or requested to
perfect (of record or otherwise) and, to the extent possible, effectively vest
the Buyer's title to the Assets, aid in the prosecution, defense, or other
action regarding litigation of any rights arising from or affecting title to the
Assets, and assist in making a smooth transition in ownership of the Assets from
the Company to the Buyer at each party's own expense. The Company, upon
reasonable notice, shall be permitted to have access to the records transferred
to the Buyer as provided in this Agreement at no charge to the Company.
11.2 TREATMENT OF CONFIDENTIAL INFORMATION
(a) The Company acknowledges that it may have had in the
past, and in the future may have, access to confidential information of
the Company and the Buyer. The Company agrees that it will keep
confidential all such confidential information and, except with the
specific prior written consent of the Buyer, will not disclose such
confidential information to any person except; (i) representatives of
the Buyer, or (ii) its own representatives, provided that such
representatives (other than counsel) agree to the confidentiality
provisions of this Section. Confidential information shall not include
(A) such information that becomes known to the public generally through
no fault of the Company, (B) information required to be disclosed by the
terms of this Agreement or by law or the order of any governmental
authority under color of law, provided that prior to disclosing any
information pursuant to this clause (B), the Company shall, if possible,
give prior written notice thereof to the Buyer and provide the Buyer
with the opportunity to contest such disclosure, or (C) such information
that the disclosing party reasonably believes is required to be
disclosed in connection with the defense of a lawsuit against the
disclosing party. Because of the difficulty of measuring the economic
loss that may be incurred as a result of the breach of the covenants
above, and because of the immediate and irreparable damage that would be
caused for which the injured party would have no other adequate remedy,
the Company agrees that the Buyer and/or the Company may enforce the
provisions of this section by injunctions and restraining orders against
any of them who breaches any of these provisions. Nothing herein shall
be construed as prohibiting the Buyer from pursuing any other remedy
available at law or in equity for such breach or threatened breach,
including the recovery of damages, subject to the limitations of Article
10. The Company understands and acknowledges that certain of its
shareholders may have during the course of negotiating the transactions
contemplated by this Agreement, acquired confidential information of the
Buyer, and the Company agrees to use its best efforts to cause such
shareholders to sign confidentiality agreements in favor of the Buyer in
a manner no less restrictive as set forth in this Agreement.
(b) Because of the difficulty of measuring the economic loss
that may be incurred as a result of the breach of the covenant above,
and because of the immediate and irreparable damage that would be caused
for which the injured party would have no other adequate remedy, the
Buyer agrees that the Company may enforce the provisions of this section
by specific performance.
A-34
(c) The obligations of the parties under this Section 11.2
shall survive the termination of this Agreement.
11.3 PREPARATION OF TAX RETURNS The Company agree to prepare and
execute applicable tax returns for the Company for any interim or stub period.
The Buyer agrees not to amend or otherwise change any tax return for any period
ending prior to the Closing Date, or otherwise make any election or similar
accounting method change that would have the effect of retroactively increasing
the Company's tax liability without obtaining prior written consent from the
Company.
11.4 EMPLOYMENT ARRANGEMENTS
(a) From and after the Closing Date, the Buyer shall use its
Best Efforts to retain a majority of the present full-time employees of
the Company at such employee's current position (or, if offered to, and
accepted by an employee, a position for which the employee is qualified
with the Buyer or a Subsidiary of the Buyer at a salary commensurate
with the position), and pay compensation to each person who was employed
as of the Closing Date and who continues to be employed by the Company
on or after the Closing Date, that is at least equal to the aggregate
compensation that such person was receiving from the Company prior to
the Closing Date.
(b) For vesting and eligibility purposes for employee
benefits under each Company Benefit Plan and/or any employee benefit
plan established by the Buyer after the Closing Date, employees and/or
directors, former employees and directors, if applicable, of the Company
shall receive credit for years of service with the Company.
11.5 NO SECTION 338 ELECTION The Buyer shall not make an election
under Section 338(h)(10) of the Internal Revenue Code of 1986, as amended, or
any applicable analogous provision of state or local law, in connection with the
Contemplated Transactions.
ARTICLE XII. GENERAL PROVISIONS
12.1 EXPENSES Except as otherwise expressly provided in this
Agreement each party to this Agreement will bear its respective expenses
incurred in connection with the preparation, execution, and performance of this
Agreement and the Contemplated Transactions, including all fees and expenses of
agents, representatives, counsel, and accountants. For purposes of the
foregoing, the Company's expenses shall include only those expenses incurred by
Sellers after March 30, 2005. In the event of termination of this Agreement, the
obligation of each party to pay its own expenses will be subject to any rights
of such party expressly provided herein arising from a breach of this Agreement
by another party.
12.2 PUBLIC ANNOUNCEMENTS; FILINGS Any public announcement or similar
publicity with respect to this Agreement or the Contemplated Transactions will
be issued at such time and in such manner as the Buyer determines based upon the
Buyer's requirements as a publicly traded Company. Unless consented to by the
Buyer and the Company in advance, the Company and the Buyer shall keep this
Agreement strictly confidential and may not make any disclosure of
A-35
this Agreement to any Person. The Company and the Buyer will consult with each
other concerning the means by which the Company's employees, customers, and
suppliers and others having dealings with the Company will be informed of the
Contemplated Transactions.
12.3 CONFIDENTIALITY
(a) Except as otherwise contemplated by this Agreement,
between the date of this Agreement and the Closing Date, the Buyer and
the Company will maintain in confidence, and will cause the directors,
officers, employees, agents, and advisors of the Buyer and the Company
to maintain in confidence any written, oral, or other information
obtained in confidence from another party or the Company in connection
with this Agreement or the Contemplated Transactions, unless (i) such
information is already known to such party or to others not bound by a
duty of confidentiality or such information becomes publicly available
through no fault of such party, (ii) the use of such information is
necessary or appropriate in making any filing or obtaining any consent
or approval required for the consummation of the Contemplated
Transactions, or (iii) the furnishing or use of such information is
required by or necessary or appropriate in connection with legal
proceedings.
(b) If the Contemplated Transactions are not consummated,
each party will return or destroy as much of such written information as
the other party may reasonably request.
12.4 NOTICES All notices, consents, waivers, and other communications
under this Agreement must be in writing and will be deemed to have been duly
given when (a) delivered by hand (with written confirmation of receipt), (b)
sent by telecopier (with written confirmation of receipt), provided that a copy
is mailed by registered mail, return receipt requested, or (c) when received by
the addressee, if sent by a nationally recognized overnight delivery service
(receipt requested), in each case to the appropriate addresses and telecopier
numbers set forth below (or to such other addresses and telecopier numbers as a
party may designate by notice to the other parties):
The Company: All American Plazas, Inc.
1267 Hilltop Lane
Myerstown, PA 17067
Attn: Richard Mitstifer
Facsimile No.: 717-933-5184
With a copy to:
Jonathan Austern, Esquire
Austern & Austern LLC
Facsimile No.: (631) 929-4543
A-36
The Buyer: Christopher Westad
Able Energy, Inc.
198 Green Pond Road
Rockaway, NJ 07866
Facsimile No.: (973) 586-9866
With a copy to:
Ferber Frost Chan & Essner, LLP
530 Fifth Avenue
New York, NY 10036-5101
Attention: Gregory D. Frost, Esquire
Facsimile No.: 212-944-7630
12.5 JURISDICTION; SERVICE OF PROCESS Any action or proceeding
seeking to enforce any provision of, or based on any right arising out of, this
Agreement may be brought against any of the parties in any court of the
Commonwealth of Pennsylvania or State of New Jersey, having jurisdiction, and
each of the parties consents to the jurisdiction of such courts (and of the
appropriate appellate courts) in any such action or proceeding and waives any
objection to venue laid therein. Process in any action or proceeding referred to
in the preceding sentence may be served on any party anywhere in the world.
12.6 FURTHER ASSURANCES The parties agree (a) to furnish upon request
to each other such further information, (b) to execute and deliver to each other
such other documents, and (c) to do such other acts and things, all as the other
party may reasonably request for the purpose of carrying out the intent of this
Agreement and the documents referred to in this Agreement.
12.7 WAIVER Subject to the limits set forth herein, (a) the rights
and remedies of the parties to this Agreement are cumulative and not
alternative, (b) neither the failure nor any delay by any party in exercising
any right, power, or privilege under this Agreement or the documents referred to
in this Agreement will operate as a waiver of such right, power, or privilege,
and no single or partial exercise of any such right, power, or privilege will
preclude any other or further exercise of such right, power, or privilege or the
exercise of any other right, power, or privilege. To the maximum extent
permitted by applicable law, (x) no claim or right arising out of this Agreement
or the documents referred to in this Agreement can be discharged by one party,
in whole or in part, by a waiver or renunciation of the claim or right unless in
writing signed by the other party; (y) no waiver that may be given by a party
will be applicable except in the specific instance for which it is given; and
(z) no notice to or demand on one party will be deemed to be a waiver of any
obligation of such party or of the right of the party giving such notice or
demand to take further action without notice or demand as provided in this
Agreement or the documents referred to in this Agreement.
12.8 ENTIRE AGREEMENT AND MODIFICATION This Agreement supersedes all
prior oral and written communications, information, disclosures, bid documents,
and agreements between the parties with respect to its subject matter (including
memoranda, draft term sheets and correspondence relating thereto) and
constitutes (along with the Transaction Documents) a complete and exclusive
statement of the terms of the agreement between the parties with respect
A-37
to its subject matter. This Agreement may not be amended except by a written
agreement executed by the party to be charged with the amendment.
12.9 SCHEDULES In the event of any inconsistency between the
statements in the body of this Agreement and those in the Schedules, the
statements in the Schedule will control.
12.10 ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS Neither party
may assign any of its rights under this Agreement without the prior consent of
the other parties except that the Buyer may assign any of its rights under this
Agreement to any Subsidiary of the Buyer. Subject to the preceding sentence,
this Agreement will apply to, be binding in all respects upon, and inure to the
benefit of the heirs, personal representatives, successors and permitted assigns
of the parties. Nothing expressed or referred to in this Agreement will be
construed to give any Person other than the parties to this Agreement (or their
heirs, personal representatives, successors and permitted assigns) any legal or
equitable right, remedy, or claim under or with respect to this Agreement or any
provision of this Agreement. This Agreement and all of its provisions and
conditions are for the sole and exclusive benefit of the parties to this
Agreement and their heirs, personal representatives, successors and assigns.
12.11 SEVERABILITY If any provision of this Agreement is held invalid
or unenforceable by any court of competent jurisdiction, the other provisions of
this Agreement will remain in full force and effect. Any provision of this
Agreement held invalid or unenforceable only in part or degree will remain in
full force and effect to the extent not held invalid or unenforceable.
12.12 SECTION HEADINGS, CONSTRUCTION The headings of Sections in this
Agreement are provided for convenience only and will not affect its construction
or interpretation. All references to "Section" or "Sections" refer to the
corresponding Section or Sections of this Agreement. All words used in this
Agreement will be construed to be of such gender or number as the circumstances
require. Unless otherwise expressly provided, the word "including" does not
limit the preceding words or terms.
12.13 TIME OF ESSENCE With regard to all dates and time periods set
forth or referred to in this Agreement, time is of the essence.
12.14 GOVERNING LAW This Agreement will be governed by the laws of the
State of New York without regard to conflicts of laws principles.
12.15 COUNTERPARTS This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
[Signature Page Follows]
A-38
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first written above.
Attest All American Plazas, Inc.
By: By:
---------------------------------- -------------------------------------
Name: ------------------------ Name: RICHARD MITSTIFER
Title: Secretary Title: PRESIDENT
Able Energy, Inc.
By:
-------------------------------------
Name: CHRIS WESTAD
Title: PRESIDENT
TABLE OF APPENDICES, EXHIBITS AND SCHEDULES
Appendix A Definitions
Appendix B The Properties
Exhibit 2.2(4) Leases
Exhibit 2.2(b) Escrow Agreement
Exhibit 2.2(c) Form of Note
Exhibit 2.2(d) Forms of Mortgages and Guaranty
Schedule A Stockholder Percentage Ownership of the Company prior
to Closing
Schedule 2.1 The Assets
Schedule 3.1 Foreign Qualifications
Schedule 3.2 Authority/No Conflict; Required Notices and Consents
Schedule 3.3 Subsidiaries and Capitalization
Schedule 3.6 Absence of Certain Changes and Events
Schedule 3.8 Liabilities/Obligations
Schedule 3.9 Environmental Matters
Schedule 3.10 Taxes
Schedule 3.11 List of Employees
Schedule 3.12 Employee Benefit Plans
Schedule 3.13 Labor and Employment Agreements
Schedule 3.14 Compliance with Legal Requirements, Governmental
Authorizations
Schedule 3.15 Legal Proceedings; Orders
Schedule 3.16(a) List of Contracts
Schedule 3.16(b) Contract Liabilities and Restrictions
Schedule 3.16(c) Exceptions to Enforceability of Contracts
Schedule 3.16(d) Contract Defaults
Schedule 3.17(b) Self Insurance
Schedule 3.17(c) Insurance Policy Information
Schedule 3.18 Title to and Condition of Assets
Schedule 3.19(b) List of Contracts Relating to the Intellectual Property
Assets
Schedule 3.19(c) Employee Assignments of Intellectual Property
Schedule 3.19(d) List of Trademarks
Schedule 3.20 Certain Payments
2
Schedule 3.21 Related Party Transactions
Schedule 4.2(b) No Conflict
Schedule 4.2(c) Consents
Schedule 4.6 Liabilities
Schedule 4.7 Taxes
Schedule 4.8 Legal Requirements
3
APPENDIX A
DEFINITIONS
"ABLE SHARES" - as defined in Section 2.1(1).
"AGREEMENT" - as defined in the first paragraph of this Agreement.
"AFFILIATE"--an AFFILIATE of, or person AFFILIATED with, a specified person, is
a person that directly, or indirectly through one or more intermediaries,
controls or is controlled by, or is under common control with, the person
specified.
"APPLICABLE CONTRACT"--any Contract (a) under which the Company has or may
acquire any rights, (b) under which the Company has or may become subject to any
obligation or liability, or (c) by which the Company or any of the assets owned
or used by it is or may become bound.
"ASSETS" - as defined in Section 2.1.
"BEST EFFORTS"--the efforts that a prudent and commercially reasonable Person
desirous of achieving a result would use in similar circumstances to ensure that
such result is achieved as expeditiously as possible; provided, however, that an
obligation to use Best Efforts under this Agreement does not require the Person
subject to that obligation to take actions that would result in a Materially
Adverse Effect on the benefits to such Person of this Agreement and the
Contemplated Transactions, or would otherwise cause a Material Adverse Effect on
such Person.
"BREACH"--a "Breach" of a representation, warranty, covenant, obligation, or
other provision of this Agreement or any Transaction Document will be deemed to
have occurred if there is or has been any inaccuracy in or breach of, or any
failure to perform or comply with, such representation, warranty, covenant,
obligation, or other provision, and the term "Breach" means any such inaccuracy,
breach, failure, claim, occurrence, or circumstance.
"BUSINESS"--as defined in the Recitals to this Agreement.
"BUYER"--as defined in the first paragraph of this Agreement.
"BUYER'S ADVISORS" -- as defined in Section 5.1.
"CLAIM"--as defined in Section 10.4
"CLOSING"--as defined in Section 2.3.
"CLOSING CERTIFICATES"--the certificates delivered at Closing pursuant to
Sections 2.4(a)(iii) and 2.4(b)(iii).
"CLOSING DATE"--the date and time as of which the Closing actually takes place.
"COMPANY"--as defined in the first paragraph of this Agreement.
4
"COMPANY BENEFIT PLANS"--as defined in Section 3.12.
"COMPANY CLOSING DOCUMENT" - as defined in Section 3.2(a).
"COMPANY PENSION PLAN" - as defined in Section 3.12.
"COMPANY RELEASES"--as defined in Section 4.2(a).
"CONSENT"--any approval, consent, ratification, waiver, or other authorization
(including any Governmental Authorization).
"CONTEMPLATED TRANSACTIONS"--all of the transactions contemplated by this
Agreement, including:
(a) the sale of the Assets by the Company to the Buyer;
(b) the execution and delivery of the Transaction Documents.
"CONTRACT"--any agreement, contract, obligation, promise, or undertaking
(whether written or oral ) for the breach of which the law gives a remedy.
"DAMAGES"--as defined in Section 10.2.
"EMPLOYEE PENSION BENEFIT PLAN" - as defined in Section 3.12(a).
"EMPLOYEE WELFARE BENEFIT PLAN" - see Section 3.12(a).
"EMPLOYMENT OBLIGATION" - as defined in Section 3.13.
"ENCUMBRANCE"--any charge, claim, community property interest, condition,
equitable interest, lien, option, pledge, security interest, right of first
refusal, or restriction of any kind, including any restriction on use, voting,
transfer, receipt of income, or exercise of any other attribute of ownership.
"ERISA"--as defined in Section 3.12.
"FINANCING" - as defined in Section 2.2(3).
"GAAP"--generally accepted United States accounting principles, applied on a
basis consistent with the basis on which the Balance Sheet and the other
financial statements referred to in Section 3.4(b) were prepared.
"GOVERNMENTAL AUTHORIZATION"--any approval, consent, license, permit, waiver, or
other authorization issued, granted, given, or otherwise made available by or
under the authority of any Governmental Body or pursuant to any Legal
Requirement.
"GOVERNMENTAL BODY"--any:
(a) federal, state, local, municipal or other government within the
United States; or
5
(b) body exercising, or entitled to exercise, any administrative,
executive, judicial, legislative, police, regulatory, or taxing authority or
power of any nature within the United States.
"INDEMNIFIED PERSONS" - as defined in Section 10.2.
"INTELLECTUAL PROPERTY ASSETS" --as defined in Section 3.19.
"INTERIM BALANCE SHEET"--as defined in Section 3.4.
"IRC"--the Internal Revenue Code of 1986 or any successor law, and regulations
issued by the IRS pursuant to the Internal Revenue Code or any successor law.
"IRS"--the United States Internal Revenue Service or any successor agency, and,
to the extent relevant, the United States Department of the Treasury.
"KNOWLEDGE"--an individual will be deemed to have "Knowledge" of a particular
fact or other matter if such individual is actually aware of such fact or other
matter. A Person (other than an individual) will be deemed to have "Knowledge"
of a particular fact or other matter if any individual who is serving, or who
has at any time served, as a director, senior executive, officer, partner,
executor, or trustee of such Person (or in any similar capacity) has, or at any
time had, actual knowledge of such fact or other matter.
"LEASES" - as defined in Section 2.2(4).
"LEGAL REQUIREMENT"--any federal, state, local, municipal, or other
administrative order, constitution, law, ordinance, principle of common law,
regulation or statute of the United States or its Governmental Bodies.
"MARKS" - as defined in Section 3.19(a)(i).
"MATERIAL ADVERSE EFFECT" - a material adverse effect on the business,
operations, properties, assets or financial condition of a Person (and its
subsidiaries, if applicable), taken as a whole.
"NONCOMPETITION AGREEMENT"--as defined in Section 5.7.
"ORDER"--any award, decision, injunction, judgment, order, ruling, subpoena, or
verdict entered, issued, made, or rendered by any court, administrative agency,
or other Governmental Body or by any arbitrator.
"ORDINARY COURSE OF BUSINESS"--an action taken by a Person will be deemed to
have been taken in the "Ordinary Course of Business" unless:
(a) such action is required to be authorized by the board of
directors of such Person (or by any Person or group of Persons exercising
similar authority) and is required to be specifically authorized by the parent
company (if any) of such Person; or
(b) (i) such action is materially inconsistent with the past
practices of such Person and is not taken in the normal day-to-day
operations of such Person; and
6
(ii) such action is not similar in nature and magnitude to
actions customarily taken, without any authorization by the board of
directors (or by any Person or group of Persons exercising similar
authority), in the normal day-to-day operations of other Persons that
are in the same line of business as such Person.
"ORGANIZATIONAL DOCUMENTS"--(a) the articles or certificate of incorporation and
the bylaws of a corporation; (b) the partnership agreement and any statement of
partnership of a general partnership; (c) the limited partnership agreement and
the certificate of limited partnership of a limited partnership; (d) any charter
or similar document adopted or filed in connection with the creation, formation,
or organization of a Person; and (e) any amendment to any of the foregoing.
"PERSON"--any individual, corporation (including any non-profit corporation),
general or limited partnership, limited liability company, joint venture,
estate, trust, association, organization, labor union, or other entity or
Governmental Body.
"PETRO FRANCHISE AGREEMENTS"--as defined in Section 5.4.
"PETRO FRANCHISE CONSENTS"--as defined in Section 5.4.
"PROCEEDING"--any action, arbitration, audit, hearing, investigation,
litigation, or suit (whether civil, criminal, administrative, investigative, or
informal) commenced, brought, conducted, or heard by or before, or otherwise
involving, any Governmental Body or arbitrator.
"PROPERTIES" -- shall mean the real property interests of the Company described
in APPENDIX B attached hereto.
"PROPERTY EQUITY INTERESTS" -- shall mean the dollar amount representing the
collective equity interests of the Properties as calculated by aggregate the
appraised value of the the Properties (as determined in the appraisals delivered
to the Buyer prior to the Closing and deducting the aggregate amount of all
debt, mortgages, liens (except for statutory or mechanic's liens), judgments or
other encumbrances against any of the Properties.
"PURCHASE PRICE" -- as defined in Section 2.2.
"PROPERTY DEBT PAYMENTS" - as defined in Section 2.2(4).
"PROPRIETARY RIGHTS AGREEMENT" - as defined in Section 3.11 (b).
"REPRESENTATIVE"--with respect to a particular Person, any director, officer,
employee, agent, consultant, advisor, lender, or other representative of such
Person, including legal counsel, accountants, and financial advisors.
"SCHEDULE"--the schedules delivered by the Company to the Buyer concurrently
with the execution and delivery of this Agreement.
"SEC"--the Securities and Exchange Commission.
"SECURITIES ACT"--the Securities Act of 1933 or any successor law, and
regulations and rules issued pursuant to that Act or any successor law.
7
"SUBSIDIARY"--with respect to any Person (the "Owner"), any corporation or other
Person of which securities or other interests having the power to elect a
majority of that corporation's or other Person's board of directors or similar
governing body, or otherwise having the power to direct the business and
policies of that corporation or other Person (other than securities or other
interests having such power only upon the happening of a contingency that has
not occurred) are held by the Owner or one or more of its Subsidiaries; when
used without reference to a particular Person, "Subsidiary" means a Subsidiary
of the Company.
"TAX RETURN"--any return (including any information return), report, statement,
schedule, notice, form, or other document or information filed with or submitted
to, or required to be filed with or submitted to, any Governmental Body in
connection with the determination, assessment, collection, or payment of any Tax
or in connection with the administration, implementation, or enforcement of or
compliance with any Legal Requirement relating to any Tax.
"THREATENED"--a claim, Proceeding, dispute, action, or other matter will be
deemed to have been "Threatened" if any demand or statement has been made
(orally or in writing) or any notice has been given (orally or in writing), or
if any other event has occurred or any other circumstances exist, that would
lead a prudent Person to conclude that such a claim, Proceeding, dispute,
action, or other matter is likely to be asserted, commenced, taken, or otherwise
pursued in the future.
"TRADE SECRETS" - as defined in Section 3.19(a)(ii).
"TRANSACTION DOCUMENTS"--This Agreement, the Closing Certificates and any other
contracts or certificates signed by the parties to effectuate the Contemplated
Transactions.
8
APPENDIX B
THE PROPERTIES
9
SCHEDULE A
----------
STOCKHOLDER PERCENTAGE OWNERSHIP
================================================================================
Chelednik Family Trust 84.85%
Gregory D. Frost 0.10%
Crystal Heights, L.L.C. 15.05%
ANNEX B
This Annex B to the Proxy Statement contains the following audited financial
statements:
ANNEX DESCRIPTION
----- -----------
B-I Audited Financial Statements for All American Plazas, Inc. and
Subsidiaries for Year Ended September 30, 2004
B-II Audited Financial Statements for All American Plazas, Inc. and
Subsidiaries for Year Ended September 30, 2003
B-III Audited Financial Statements for All American Plazas, Inc. and
Subsidiaries for Year Ended September 30, 2002
B-IV Audited Financial Statements for Able Energy, Inc. and
Subsidiaries for Fiscal Year Ended June 30, 2004 and June 30,
2003
B-V Audited Financial Statements for Able Energy, Inc. and
Subsidiaries for Fiscal Year Ended June 30, 2005 and June 30,
2004
AUDITED FINANCIAL STATEMENTS FOR
ALL AMERICAN PLAZAS, INC AND SUBSIDIARIES
FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
TABLE OF. CONTENTS
PAGE
Independent Auditor's Report F-2
FINANCIAL STATEMENTS
Consolidated balance sheet F-3
Consolidated statement of operations F-4
Consolidated statement of changes in stockholders' equity F-5
Consolidated statement of cash flows F-6
Notes to consolidated financial statements F-7
SUPPLEMENTARY INFORMATION
Independent Auditor's Report on
Supplementary Information F-24
Consolidated schedule of operating expenses F-25
Consolidated schedule of general and administration expenses F-26
Consolidated schedule of other operating income F-27
(B-I) F-1
[LOGO] M Maier Markey & Menashi LLP
----------------------------------------------------------------------
Certified Public Accountants and Consultants
INDEPENDENT AUDITOR'S REPORT
To the Stockholders
All American Plazas, inc. and
Subsidiaries
Bethel, Pennsylvania
We have audited the accompanying consolidated balance sheet of All American
Plazas, Inc. and subsidiaries as of September 30, 2004 and the related
consolidated statement of operations, changes in stockholders' equity, and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of All American
Plazas, Inc. and subsidiaries as of September 30, 2004, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles in the United States of America.
/s/ Maier Markey & Menashi LLP
February 25, 2005, except for Notes 4 and 9 dated April 19, 2005, Note 14 dated
March 31, 2005 and Note 16 dated April 14, June 1, June 16, July 27 and
August 15, 2005
White Plains, New York.
(B-I) F-2
ALL AMERICAN PLAZAS, INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2004
ASSETS
Current assets:
Cash $ 1,792,588
Accounts receivable, less allowance for
doubtful accounts of $70,474 2,089,947
Inventory 2,707,849
Prepaid expenses 590,065
Deposit on stock purchase of Able Energy, Inc. 200,000
Deferred income taxes 169,100
Other current assets, net of amortization 378,021
--------------------
Total current assets 7,927,570
--------------------
Property and equipment, net of accumulated
depreciation and amortization 22,640,411
Restricted cash 75,000
Other assets, net of amortization 552,203
Loans and notes receivable from related parties 4,125,679
--------------------
$ 35,320,863
--------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,997,750
Accrued expenses 1,103,505
Current portion of long-term debt 1,670,497
--------------------
Total current liabilities 8,771,752
--------------------
Deferred compensation 57,842
Long-term debt, less current maturities 14,005,637
Deferred income taxes 988,200
Stockholders' equity:
Class A voting, common stock, $100 par value, 100,000
shares authorized, 25,485 shares issued and outstanding 2,548,516
Class B non-voting, common stock, $100 par value, 100,000
shares authorized, 632 shares issued and outstanding 63,200
Additional paid-in capital 8,585,556
Retained earnings 300,160
--------------------
Total stockholders' equity 11,497,432
--------------------
$ 35,320,863
--------------------
The accompanying notes are an integral part of these statements.
(B-I) F-3
ALL AMERICAN PLAZAS, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 2004
NET SALES, including motor fuel taxes $ 131,017,165
COST OF SALES, including motor fuel taxes 112,445,455
--------------------
GROSS PROFIT 18,571,710
--------------------
OTHER OPERATING INCOME (EXPENSES)
Operating expenses (17,310,393)
General and administrative expenses (2,200,111)
Other operating income 1,448,467
--------------------
Total other operating income (expenses} (18,062,037)
--------------------
OPERATING INCOME 509,673
--------------------
OTHER INCOME (EXPENSE)
Interest expense (1,394,332)
Other income 2,239,104
Interest income 215,258
Rental income 257,331
Loss on disposal of assets, net of gains (37,683)
--------------------
Total other income (expense) (736,322)
--------------------
LOSS BEFORE INCOME TAX BENEFITS (226,649)
INCOME TAX BENEFITS 526,809
--------------------
NET INCOME $ 300,160
--------------------
(B-I) F-4
ALL AMERICAN PLAZAS, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED SEPTEMBER 30, 2004
Class A Class B
Voting Non-Voting Total
Common Common Paid-in Retained Stockholders'
Stock Stock Capital Earnings Equity
----- ----- ------- -------- ------
Balance, October 1, 2003 $ 2,548,516 $ 63,200 $ -- $ -- $ 2,611,716
Change in ownership (Note 4) -- -- 8,585,556 -- 8,585,556
Net income -- -- -- 300,160 300,160
--------------------------------------------------------------------------------------------
Balance, September 30, 2004 $ 2,548,516 $ 63,200 $ 8,585,556 $ 300,160 $ 11,497,432
--------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
(B-I) F-5
ALL AMERICAN PLAZAS, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED SEPTEMBER 30, 2004
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 300,160
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,825,940
Loss on disposal of assets, net of gains 37,683
Deferred income tax benefit (111,000)
(Increase) decrease in:
Accounts receivable (289,475)
Inventory (34,483)
Prepaid expenses and other assets (50,791)
Increase (decrease) in:
Accounts payable 2,425,485
Accrued expense and deferred compensation (275,740)
Net cash provided by operating activities 3,827,779
--------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Reduction to restricted cash 200,000
Deposit on stock purchase of Able Energy, Inc. (200,000)
Net payments to related parties for loans and notes receivable (4,125,679)
Purchases of property and equipment (607,934)
Net cash used by investing activities (4,733,613)
--------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from loans and notes payable 2,850,000
Principal payments of loans and notes payable (2,219,682)
Net cash provided by financing activities 630,318
--------------------
Net decrease in cash (275,516)
Cash at beginning of year 2,068,104
Cash at end of year $ 1,792,588
--------------------
Supplemental cash flow disclosures Cash paid during the year for:
Interest $ 1,394,332
--------------------
Income taxes (refunded) $ (415,809)
--------------------
The accompanying notes are an integral part of these statements.
(B-I) F-6
ALL AMERICAN PLAZAS, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
All American Plazas, Inc. ("the Company") operates five full service travel
plazas engaged in the retail sale of liquid fuels, truck service, sale of
general merchandise, restaurant operations and lodging. The Company also
operates three convenience stores and self-service fuel facilities. The Company
offers standardized and consistent products and services to accommodate the
varied needs of professional truck drivers and other motorists. Generally, these
include separate gas and diesel fueling islands, truck maintenance and repair
services, certified truck weighing scales, restaurants and travel and
convenience stores offering an array of merchandise to cater to professional
truck drivers and other motorists. The Company operates its facilities in
Pennsylvania and Virginia. A significant portion of the Company's sales and
receivables are with companies in the trucking industry. The Company has
aggregated its services into one reportable operating segment based on the
distribution of products and services under one common site facility.
BASIS OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries, AAP Delaware, Inc. and AAP
Management, Inc. All significant intercompany balances and transactions have
been eliminated in consolidation.
CASH EQUIVALENTS
For the purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents.
ACCOUNTS RECEIVABLE, LESS ALLOWANCE FOR DOUBTFUL ACCOUNTS
Trade receivables are stated at outstanding balances, less an allowance for
doubtful accounts. The allowance for doubtful accounts is established through
provisions charged against income. Accounts deemed uncollectible are charged
against the allowance and subsequent recoveries, if any, are credited to the
allowance. The allowance for doubtful accounts is maintained at a level
considered adequate to provide for losses that can be reasonably anticipated.
Management's periodic evaluation of the adequacy of the allowance is based on
experience, aging of the receivables, adverse situations that may affect a
customer's ability to pay, current economic conditions and other relevant
factors. This evaluation is inherently subjective, as it requires estimates that
may be susceptible to significant change.
INVENTORIES
Store groceries and merchandise inventory are stated at the lower of cost
(determined on retail less markup basis) or market and all other inventories are
stated at the lower of cost (determined on an average cost or first-in,
first-out basis) or market. Inventories consist of liquid fuels, groceries and
general merchandise.
(B-I) F-7
ALL AMERICAN PLAZAS, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
FRANCHISES
The franchise fees are amortized on a straight-line basis over 5 to 20 years,
the terms of the related agreements. Franchise fees totaling $28,000 were
incurred and added to other assets during the year. Fully amortized franchise
fees no longer in service totaling $84,000 were removed. Franchise fees totaling
$112,500 are included in current and long-term other assets, net of accumulated
amortization of $48,516 at September 30, 2004.
DEFERRED FINANCING COSTS
Deferred financing costs represent loan closing costs incurred by the Company to
obtain financing. These costs are being amortized on a straight-line basis over
the term the corresponding loan. During the year, the Company incurred costs
totaling $784,390. Deferred financing costs totaling $1,126,384 are included in
other assets, net of accumulated amortization of $260,144 at September 30, 2004.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is computed using the
straight-line method over the following estimated useful lives:
Years
--------
Land improvements 7-20
Buildings and improvements 7-40
Equipment 3-5
Furniture and fixtures 5-7
Vehicles 3
Leasehold improvements 7-15
Property and equipment includes the cost of additions and those improvements,
which increase the capacity or lengthen the useful lives of the assets. Repairs
and maintenance costs are expensed as incurred. Property retired or sold is
removed from the assets and accumulated depreciation accounts and the resulting
gain or loss is reflected in income.
ADVERTISING COSTS
The Company expenses all advertising costs as incurred. There are no capitalized
advertising costs included in the balance sheet at September 30, 2004. Total
advertising expenses included in the statement of operations for the year ended
September 30, 2004 was $347,896.
REVENUE RECOGNITION
Sales of the Company's full service travel plazas, convenience stores and self
service fuel facilities are recognized at the time of sale or service.
(B-I) F-8
ALL AMERICAN PLAZAS, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
MOTOR FUEL TAXES
The Company is charged motor fuel taxes by its fuel suppliers and these
suppliers remit these taxes to governmental agencies. The Company then collects
these taxes from consumers. These taxes were $29,348,030 for the year ended
September 30, 2004 and are included in net sales and cost of sales in the
accompanying consolidated statement of operations.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles in the United States of America requires management to
make estimates and assumptions that affect reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
NOTE 2 - CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject the Company to concentrations
of credit risk consist principally of cash balances in excess of the $100,000
limit insured by the U.S. Federal Deposit Insurance Corporation and trade
accounts receivable,
During the year, the Company purchased fuel of $92,264,658 from three vendors.
Trade accounts payable at September 30, 2004 included $4,656,422 to these
vendors.
NOTE 3 - INVENTORIES
The composition of inventory at September 30, 2004 is as follows:
Store, restaurant and other merchandise , $ 1,041,553
Liquid fuels 808,376
Garage fire, tubes, parts and other 887,920
Reserve for obsolescence (30,000)
------------------
$ 2,707,849
------------------
(B-I) F-9
ALL AMERICAN PLAZAS, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
NOTE 4 - CHANGE IN OWNERSHIP
The Company's stockholders sold their ownership interest in the Company to All
American Industries Corp ("AAI") the nominee for Sharon Chelednik ("Owner"). AAI
agreed to purchase 100% of the issued and outstanding stock of AAP. In executing
and delivering the stock purchase agreement, AAI acted solely as the agent and
nominee of the Owner. The new owners have no relationship to the former owners.
The sellers sold, assigned and transferred their entire ownership interest in
the Company to AAI on October 3, 2003. The purchase price was $11,197,272.
$4,000,000 was paid at closing, and AAI provided a note to the sellers for
$7,197,272 for the balance. This promissory note is collateralized by, among
other things, a second mortgage on certain real estate owned by the Company and
is guaranteed by AAI and the Company. No interest is to be paid until the
six-month anniversary of the note. This note bears interest at 8%. A payment for
$3,000,000 should have been made to the prior owners on September 30, 2004.
Starting October 2004 AAI was to make the first of eighty-three equal monthly
payments of principal and interest with respect to the remaining balance of the
note based upon a 15-year amortization schedule. This note was amended to
provide interest only payments to the prior owners on the outstanding principal
balance of the promissory note on the first day of each month until December 1,
2005 when AAI will make a payment of $3,000,000 to the prior owners. AAI will
then make the first of eighty-three equal monthly payments of principal and
interest with respect to the remaining balance of the note based upon a 15-year
amortization schedule.
In addition, related to this transaction, AAI obtained $6,000,000 in additional
financing from PMJ Capital Corporation ("PMJ") on October 3, 2003, which was
collateralized by a first mortgage on the real estate described above. This loan
was personally guaranteed by the president of AAI. Repayment terms were interest
only, payable monthly at 16% or $80,000 for twelve months. The principal balance
was due on October 2, 2004, but was not paid on this date. AAI continued to make
interest payments in accordance with the PMJ loan agreements. The mortgage and
any outstanding liabilities were satisfied as of April 19, 2005 and the
mortgages on AAP property were discharged as collateral.
The Owner has the right at any time and without consent of the Nominee to assign
all rights, title and interests to any successor they may choose and the Nominee
shall continue to act on behalf of such successor in interest as it is required
to under the terms of the nominee agreement. In addition, upon the request of
the Owner, the Nominee shall immediately convey the stock of the Company to the
Owner or the Owner's designee, without consideration, at which time the nominee
agreement would terminate.
AAI was also owned by Sharon Chelednik. On December 27, 2004, Sharon Chelednik
assigned her ownership interest in AAI to the Chelednik Family Trust.
(B-I) F-10
ALL AMERICAN PLAZAS, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
NOTE 4 - CHANGE IN OWNERSHIP (CONTINUED)
The sellers the Company are entitled to any amount released from escrow related
to the sale to Petro Stopping Center, Inc. of property in Carlisle, PA
previously owned by AAP. The escrow balance at closing approximated $537,000 and
was not included as part of the purchase of the Company.
This acquisition was accounted for using the purchase method of accounting, and
accordingly, the purchase price was allocated to assets and liabilities of the
Company based upon their fair value of the consideration given at the date of
acquisition. The net book value of most assets and liabilities of the Company
materially approximated the fair market value at the date of acquisition with
the exception of land. Land appraisals were used to allocate the consideration
given to revalue land based on a percentage basis. In accordance with this
revaluation, the value of land owned by the Company was increased by $7,010,682.
NOTE 5 - EMPLOYEE STOCK OWNERSHIP PLAN
Effective October 1, 1991 the Company established an employee stock ownership
plan ("ESOP") covering a majority of its full-time employees. Under the plan,
the Company is permitted to make annual contributions to a trust for the benefit
of eligible employees in the form of either cash of common shares of the
Company.
The ESOP sold its ownership interest in the Company as part of the change in
ownership disclosed Note 4 and received a cash distributions of $273,338 at
closing and a note of $721,876, which is part of the $7,197,272 note provided by
AAI.
Through financing of $1,730,000 from Able Energy, Inc., disclosed in Note 16,
the Company repaid the $721,876 note due to the ESOP. The Company plans to
terminate the ESOP and distribute the funds to the participates.
(B-I) F-11
ALL AMERICAN PLAZAS, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
NOTE 6 - INCOME TAXES
Net deferred tax liabilities consist of the following components as of September
30, 2004:
Deferred tax assets:
Accruals $ 156,800
Allowance for doubtful accounts 28,900
Federal and state loss carryforward 696,000
Other 30,900
---------------
Total deferred tax assets 912,600
Valuation allowance (696,000)
---------------
Net deferred tax asset 216,600
---------------
Deferred tax liability:
Property and equipment 1,035,700
----------------
Total deferred tax liabilities 1,035,700
----------------
Net deferred tax liabilities $(819,100)
----------------
The components giving rise to the net deferred tax liabilities described above
have been included in the accompanying balance sheet as of September 30, 2004 as
follows:
Current assets $ 169,100
Noncurrent liabilities (988,200)
-------------
$ (819,100)
-------------
Realization of deferred tax assets is dependent upon sufficient future taxable
income during the period that deductible temporary differences and carryforwards
are expected to be available to reduce taxable income. The net change in the
valuation allowance for the year ended September 30, 2004 was an increase of
$445,000.
At September 30, 2004, the Company has federal and state net operating loss
carryforwards of approximately $1,497,000 and $2,471,000, respectively, which
expire at various times through 2014.
(B-I) F-12
ALL AMERICAN PLAZAS, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
NOTE 6 - INCOME TAXES (CONTINUED)
The provision for income tax benefits consisted of the following at September
30, 2004:
FEDERAL
Current $(415,809)
Deferred (84,000)
-------------
(499,809)
State, deferred (27000)
-------------
$(526,809)
-------------
The income tax provision for 2004 differs from that which would result from
applying federal statutory tax rates to income before income taxes because a
valuation allowance has been provided to reduce deferred tax assets to the
amount that is more likely than not to be realized.
NOTE 7 - PROPERTY AND EQUIPMENT
Major classifications of property and equipment at September 30, 2004 was as
follows:
Land $ 10,975,834
Land improvements 2,226,690
Building and improvements 8,459,445
Equipment 1,084,789
Furniture and fixtures 140,048
Vehicles 47,745
Leasehold improvements 1,191,289
Construction in progress 172,433
-------------------
24,298,273
Less: Accumulated depreciation and amortization (1,657,862)
-------------------
$ 22,640,411
-------------------
Depreciation and amortization amounted to $1,657,862 in 2004. Property and
equipment are pledged to secure certain long-term obligations.
During January 2004, the Company ceased operations at its Carlisle Truck Plaza
location. The Company leased space for this location, which expired on July 31,
2004 and chose not to renew this lease. Irremovable assets totaling $903,033 net
of accumulated depreciation of $851,639 were disposed of by the Company in 2004.
This resulted in a loss on disposition of assets of $51,394.
(B-I) F-13
ALL AMERICAN PLAZAS, INC AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF GENERAL & ADMINISTRATIVE EXPENSES
FOR THE YEAR ENDED SEPTEMBER 30, 2004
NOTE 8 - BANK LINE OF CREDIT AND COMMERCIAL LETTER OF CREDIT
On May 12, 2004, the Company and AAI entered into a co-borrowing agreement to
obtain financing with The Greenwich Bank & Trust Company for a $1,000,000
commercial line of credit and to obtain a $200,000 commercial letter of credit.
Loan closing costs related to the line of credit were $92,995, which are
included in deferred financing costs, net of current year amortization.
The commercial line of credit was obtained for working capital needs and was to
be secured by the collateral assignment of a $1,000,000 depository account to be
established with the bank. The Company never funded the collateral requirement,
but management plans to collateralize and draw down on this credit line in the
future. The line bears interest at the Wall Street Journal prime rate. The line
of credit expires on May 27, 2006.
The commercial letter of credit was obtained in the amount of $200,000 and the
beneficiary is Trans Montaigne Product Service, Inc. This letter of credit was
to be secured by the collateral assignment of a $200,000 certificate of deposit
to be established with the bank. This cash requirement was also never funded, so
this letter of credit is inactive.
In addition, the Company has a letter of credit for $75,000 outstanding with a
municipality to ensure continued performance of the Company's sewage treatment
facility. This letter is collateralized by a certificate of deposit with M&T
Bank, which is reflected as restricted cash as of September 30, 2004.
Note 9 - Long term debt
Long-term debt payable at September 30, 2004 was as follows:
Term loans, GMAC Commercial ("GMACC") (1) $ 7,949,623
Term loan, Capital Crossing Bank (2) 4,841,172
Interest only loan, Fundex (3) 2,100,000
Interest only loan, PMJ (4) 750,000
Other (5) 35,339
-------------------
15,676,134
Less: current portion (1,670,497)
-------------------
$ 14,005,637
-------------------
(B-I) F-14
ALL AMERICAN PLAZAS, INC AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF GENERAL & ADMINISTRATIVE EXPENSES
FOR THE YEAR ENDED SEPTEMBER 30, 2004
NOTE 9 - LONG TERM DEBT (CONTINUED)
(1) The term loans with -GMACC in the original amount of $4,000,000 and
$6,000,000 are collateralized by first liens and security interests on
the real estate at the Clarks Ferry, PA and Frystown, PA locations,
respectively, as well as these locations' equipment, personal property,
inventory, cash proceeds, receivables and general intangibles. Monthly
principal and interest payments are $40,868 and $61,303, respectively.
These notes bear interest at 9% and mature in July 2014. In accordance
with loan covenants, the Company must meet a minimum cash flow covenant,
as defined, on a quarterly basis. At September 30, 2004 and for the
fiscal year then ended, the Company was in compliance with this
covenant.
(2) The term loan with Bay View Bank in the original amount of $7,800,000 is
collateralized by a first lien and security interests on the real estate
at the Milton, PA location, as well as this location's equipment,
personal property, inventory, cash proceeds, receivables and general
intangibles. In accordance with this loan, the Company must meet a
minimum cash flow covenant, as defined, on a quarterly basis. At
September 30, 2003 and for the fiscal year then ended, the Company was
in violation of this covenant. The institution, however, has consented
on March 19 and April 27, 2004 to waive acceleration related to this
covenant for the fiscal year ended September 30, 2003 through October 1,
2004. On March 19, 2004, the Company entered into an agreement with Bay
View Bank, which, in addition to waiving the financial covenant
discussed above, also modified the loan's repayment terms. This
agreement required the Company to make a $1,400,000 accelerated
principal payment with the remaining principal being repaid in modified
monthly payments with interest through June 2014. The agreement modified
the interest rate to the higher of 4% above LIBOR or 6%, with the
interest rate adjustment being made quarterly. The modified monthly
payment, including interest at 6%, is approximately $55,000. At this
time, Bay View Bank assigned their interest in this loan to Capital
Crossing Bank. Loan closing costs and fees related to this loan
modification totaled $309,000. Loan closing costs are included in
deferred financing costs, net of current year amortization.
(3) To fund the $1,400,000 accelerated principal payment to Bay View Bank,
the Company obtained a new loan from Fundex Capital Corporation for
$2,100,000. The remaining proceeds of $700,000 were used to pay loan
closing costs of $224,094 and the remaining $475,906 was loaned to AAI,
the nominee of the Company. In addition, $52,000 of additional closing
costs were paid at closing. Loan closing costs are included in deferred
financing costs, net of current year amortization. Repayment terms are
interest only, payable monthly at the Wall Street Journal prime rate
plus 8.5%, with a minimum rate of 12.5% and a maximum rate as defined by
the United States Small Business Administration. The principal balance
is due on October 1, 2005. The loan is collateralized by a second
mortgage on the Milton, PA location and a related panty property located
in Plymouth, New Hampshire.
(B-I) F-15
ALL AMERICAN PLAZAS, INC AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF GENERAL & ADMINISTRATIVE EXPENSES
FOR THE YEAR ENDED SEPTEMBER 30, 2004
NOTE 9 - LONG TERM DEBT (CONTINUED)
(4) On June 30, 2004, the Company entered into a $750,000 promissory note
with PMJ Capital Corporation for renovations on the Doswell, VA Motel.
The proceeds were used to pay closing costs of $96,133 and the remaining
$653,867 was loaned to AAI, the nominee of the Company. In addition,
$10,168 of additional closing costs were paid at closing. Loan closing
costs are included in deferred financing costs, net of current year
amortization. When needed, AAI transfers funds to AAP to cover Doswell,
VA Motel renovations. Repayment terms are interest only, payable monthly
at 16% or $10,000 for twelve months. The principal balance is due in
July 2005. The loan is collateralized by a second mortgage on the
Doswell, VA location. The mortgage and any outstanding liabilities were
satisfied as of April 19, 2005 and the mortgage on AAP property was
discharged as collateral.
(5) On September 18, 2001, the Company entered into a promissory note for
$89,600 to purchase 448 shares of series B Non-Voting Stock from a
former employee. Principal and interest payments are payable annually
over five years at an interest rate of 7.75%.
Maturities of the long-term portion are as follows:
Years ending September 30,
-----------------------------------------------------------
2006 $ 3,093,590
2007 1,055,175
2008 1,141,127
2009 1,234,360
2010 1,335,511
Thereafter 6,145,874
---------------
$ 14,005,637
---------------
NOTE 10 - MANAGEMENT SERVICES
The Company provides management services to Strattanville, Inc and the two truck
stops owned by Strattanville in accordance with the management agreement dated
April 7, 2004.
The Company provides services to the truck stops in connection with the
management and administration of all aspects of the business of the truck stops
in the state of Pennsylvania on a triple net basis and shall further have an
option but not obligation to purchase the assets and/or stock of the truck stops
at the end of the term of the agreement, which, is one year. On April 7, 2005
the management agreement was extended for an additional six months.
At September 30, 2004, the Company has an amount receivable from Strattanville
totaling $235,016, which is included in loans and notes receivable from related
parties. If the Company chooses to exercise its option to purchase these track
stops, any amounts due from Strattenville will be applied against this purchase
price. If the Company does not exercise its purchase option, Strattenville shall
execute a promissory note for amounts outstanding to be paid over a twenty-four
month period at an interest rate of 5.5%.
(B-I) F-16
ALL AMERICAN PLAZAS, INC AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF GENERAL & ADMINISTRATIVE EXPENSES
FOR THE YEAR ENDED SEPTEMBER 30, 2004
NOTE 11- OPERATING LEASES
The Company leased two truck stop facilities: Carlisle Texaco, PA and
Breezewood, PA Petro. The Carlisle Texaco lease expired July 31, 2004 and the
Company did not renew this lease. This truck stop was closed as discussed in
Note 7. The Breezewood Petro location has two lease agreements: one for the
facilities and the second for a parking lot. The facilities lease expires on
December 31, 2005 and has the option to renew. The parking lot lease expired on
July 31, 2003. Management rented this parking lot on a monthly basis until they
negotiated a lease renewal, for a five-year term from March 1, 2004 through
February 28, 2009 with five-year renewal options through 2028. Monthly rent
expense for the parking lot is $8,155.
The following is a schedule of future minimum lease payments required under
non-cancelable lease agreements; these payments do not include renewal options
that are available with each of the leases:
Years ending September 30:
----------------------------------------------------
2005 $ 463,860
2006 189,360
2007 97,860
2008 97,860
2009 40,775
------------
$ 889,715
------------
The total rental expense included in the statement of operations under lease
obligations for the year ended September 30, 2004 was $594,648. Rental expense
includes both amounts paid under non-cancelable lease arrangements and
month-to-month lease arrangements.
NOTE 12 - SIGNIFICANT ESTIMATES
At September 30, 2004, the Company has two locations where environment
investigations and certain remediation procedures are ongoing. Both of these
locations have been approved for coverage under the Pennsylvania Underground
Storage Tank Indemnification Fund, which reimburses certain remediation costs.
The nature and full extent of future clean up and remediation costs have been
estimated but not yet fully determined. The Company's accrued liability, which
represents its portion of estimated remediation costs, was $50,000 at September
30, 2004. Due to the uncertainty of the total future remediation costs, the
ultimate total cost could change in the coming year, as additional information
becomes available.
(B-I) F-17
ALL AMERICAN PLAZAS, INC AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF GENERAL & ADMINISTRATIVE EXPENSES
FOR THE YEAR ENDED SEPTEMBER 30, 2004
NOTE 13 - COMMITMENTS
The Company has a fuel supply agreement, which obligates it to purchase a
significant portion of its diesel fuel from Petroleum Products Corporation
(Petroleum) through June 14, 2005 which, the company chose not to renew. The
contract does not call for any fixed or minimum quantities. The agreement
provides for pricing based on the average daily prices of the four lowest posted
prices of major suppliers.
The company entered into a fuel supply agreement on January 12, 2004, which was
subsequently amended September 21, 2004, which obligates it to purchase a
significant portion of its diesel fuel from Transmontaigne Product Services Inc.
(TPSI) through December 31, 2005. The contract does not call for any fixed or
minimum quantities. The agreement provides for pricing based on the net Oil
Price Information Service ("OPIS") and the lowest daily prices.
The Company entered into franchise agreements with Petro Stopping Centers, L.P.
(Petro) for its Breezewood, PA and Milton, PA locations during 1998. In
accordance with these agreements, royalties are due to Petro based upon sales at
varying percentages. For the year ended September 30, 2004 the royalty expenses
totaled approximately $515,000.
NOTE 14 - RELATED PARTY TRANSACTIONS
The Company's Owner also controls other companies whose operations are similar
to those of the Company. The Owner is in a position to, and in the future may,
influence the net income of the Company.
Promissory note - line of credit agreements were entered into on November 30,
2003 for amounts due from AAI and other related parties owned by AAI or with
common ownership to AAI. These transactions consist of net payments paid on
behalf of the related party by the Company and for allocations of management
services provided to these related parties. These notes bear interest at 12% per
annum and the entire principle and interest on the note shall be due twelve
months from the date of the note, however, the related party shall have a right
to extend the payment of the note for two additional one year terms by notifying
the Company in writing of such extension. The related parties exercised the
option for two additional one-year periods on August 30, 2004.
(B-I) F-18
ALL AMERICAN PLAZAS, INC AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF GENERAL & ADMINISTRATIVE EXPENSES
FOR THE YEAR ENDED SEPTEMBER 30, 2004
NOTE 14 - RELATED PARTY TRANSACTIONS (CONTINUED)
Balances due to the Company from related parties at September 30, 2004 were as
follows:
Receivable Total Credit Limit
-------------------------------------------
All American industries, Corp. (1) $ 2,433,247 $ 3,500,000
Energy Management & Supply Corp. (2) $ 250,763 $ 300,000
Carney Property Corporation (2) $ 881,325 $ 1,000,000
Yosemite Development Corp. (2) $ 135,862 $ 250,000
St. John's at Kent LLC (2) $ 185,808 $ 200,000
(1) Nominee for the Owner of the Company and related through common
ownership.
(2) Related through common ownership.
Interest income related to these notes for the year ended September 30, 2004 was
$208,510. In addition to the above notes, $3,658 of other miscellaneous related
party receivables were due to the Company at September 30, 2004.
Mr. Gregory Frost, Esq. represented the Company, AAI and other affiliated
companies as general legal counsel. In addition, Mr. Gregory Frost served as a
director of the Company until his resignation on March 31, 2005. Legal expense
and reimbursement included in the consolidated statement of operations for the
year ended September 30, 2004 was $ 173,820.
NOTES 15 - CONTINGENCIES
The Company is currently, and is from time-to-time, subject to claims and suits
arising in the ordinary course of its business. In certain such actions,
plaintiffs request punitive or other damages or nonmonetary relief, which may
not be covered by insurance. The Company accrues for potential liabilities
involved in these matters as they become known and can be reasonably estimated.
In the Company's opinion, the various asserted claims and litigation in which
the Company is currently involved are not reasonably likely to have a material
adverse effect on the Company's operations or financial position. However, no
assurance can be given as to the ultimate outcome with respect to such claims
and litigation. The resolution of such claims and litigation could be material
to the Company's operating results.
(B-I) F-19
ALL AMERICAN PLAZAS, INC AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF GENERAL & ADMINISTRATIVE EXPENSES
FOR THE YEAR ENDED SEPTEMBER 30, 2004
NOTE 16 - SUBSEQUENT EVENTS
ABLE ENERGY, INC.
On December 15, 2004, Timothy Harrington, Chief Executive Officer of Able
Energy, Inc. ("Able"), sold an aggregate of 1,007,300 shares of Able's common
stock to the Company. The purchase price for the sale was $7,500,000, of which
$2,750,000 was paid in cash and the Company issued promissory notes in the
aggregate principal amount of $4,750,000 to Mr. Harrington, For the first 12
months, only interest is payable to Mr. Harrington. Thereafter, principal and
interest shall be payable on a monthly basis. In the event the Company and Able
were to enter into any transaction pursuant to which the promissory notes become
an obligation of Able and Able enters into a material financing transaction, the
notes will become immediately due and payable. $3,000,000 of the notes are
secured by the personal guarantee of a family member of the trust which owns a
majority of the stock of AAI (the "Guarantee"), and by a security interest in
certain assets of the Company (the "Company Security"). All of the notes are
secured by a pledge of the 1,007,300 shares of the Able's common stock (the
"Pledge"). Upon the issuance of surety bonds guaranteeing the payment of the
$3,000,000 of notes, the Guarantee and the Company Security will terminate and
the Pledge, by its terms, will cover only the $1,750,000 note, which is not
covered by a surety bond. The Company acquired approximately 50.03% of the total
outstanding number of shares of common stock of Able and the 1,007,300 shares
represent the Company's entire beneficial holdings in the Able. The Company
financed the acquisition through its cash flow, with the assistance of its fuel
supplier, TransMontaigne Product Services, Inc., that extended its credit line
to the Company. The September 30, 2004 balance sheet of the Company includes a
deposit on stock purchase of $200,000 in accordance with the stock purchase
agreement.
On June 16, 2005, Able entered into a Stock Purchase Agreement ("Purchase
Agreement") with the shareholder of the Company ("Seller") in connection with
the acquisition of the Company. The transaction is subject to the mutual
approval of the board of directors of Able and the shareholder of the Company.
At the closing, Able will deliver to the Sellers 11,666,667 shares of restricted
common stock, par value $.001 per share, at $3.00 per share for an aggregate
purchase price of $35,000,000. In addition, at the closing, Able will deliver to
certain of the Sellers a number of shares of restricted common stock equal to
the number of shares of common stock owned by the Company as of the closing
date. The Sellers have caused the Company to enter into a term sheet dated June
6, 2005 with a third party institutional lender to refinance the Company's debt
and provide the Company with certain working capital. The term sheet provides
that the loan will be in the amount of approximately $35,000,000, at an interest
rate of 30-day LIBOR plus spread (adjustable rate), which is equivalent to the
Prime Rate + 1.75%, with a 25-year term and a 25-year amortization schedule. The
Company will secure the loan with a first mortgage on all of its properties,
including improvements thereto. The financing is subject to customary closing
conditions. In the event that the Company completes such financing on or before
December 31, 2005, Able has agreed to pay an additional $10,000,000 to the
Sellers, payable in shares of restricted common stock at $3.00 per share.
(B-I) F-20
ALL AMERICAN PLAZAS, INC AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF GENERAL & ADMINISTRATIVE EXPENSES
FOR THE YEAR ENDED SEPTEMBER 30, 2004
NOTE 16 - SUBSEQUENT EVENTS (CONTINUED)
ABLE ENERGY, INC. (CONTINUED)
On July 27, 2005, Able made a loan in the amount of $1,730,000 to the Company
and the Company executed and delivered a promissory note for the full amount of
the loan in favor of Able. Under the terms of the promissory note, the
outstanding principal of the loan bears interest at the rate of 3.5% per annum.
All payments of principal and accrued interest are payable sixty days after the
date of the promissory note, although the Company may extend the repayment for
an additional thirty days upon written request. The promissory note is secured
by a lien of 1,000,000 shares of Able common stock owned by the Company, on
which there exists a prior lien held by Timothy Harrington, as disclosed above.
On August 15, 2005, Able announced that they have entered into an assignment
agreement with Truck Stops Direct ("TSD") wherein TSD has assigned to Able all
of its rights in an executed letter of intent with GSN Interstate Truck Stop,
Inc. ("GSN"). TSD, an affiliate of the Company, has entered into this agreement
on behalf of Able. This letter of intent provides that Able would obtain the
right to acquire the stock of GSN in exchange for $2 million dollars in cash and
stock. GSN is located in Janesville, Wisconsin and consists of 160 locations.
TSD operates a similar business to GSN with 150 independent truck plazas. Under
a joint venture agreement, Able intends to convert most, if not all, independent
truck plaza locations into additional distribution outlets for their home
heating oil business. Closing on this acquisition is expected to occur in
October 2005.
PURCHASE OF YOSEMITE DEVELOPMENT CORP. AND MOUNTAINSIDE DEVELOPMENT, LLC.
Pursuant to the terms of a Securities Purchase Agreement dated June 1, 2005 (the
"Agreement") the Company purchased the ownership interest of Yosemite
Development Corp. and Mountainside Development, LLC ("Sellers"). The purchase
price of $6,800,000 plus closing costs were financed by $5,000,000 of Secured
Debentures ("Debentures") from Lilac Ventures Master Fund Ltd and others
("Lilac"), notes to the sellers totaling $800,000 and relief of related party
debt.
The Debentures shall be repaid within two years from the date of issuance,
subject to the occurrence of an event of default, with interest payable at the
rate per annum equal to LIBOR for the applicable interest period, plus 4%
payable on a quarterly basis on April 1st, July 1st, October 1st and January
1st, beginning on the first such date after the date of issuance of the
Debentures. The loan is secured by real estate property owned by the Company in
Pennsylvania and New Hampshire. In addition, in the event that Able does not
complete the acquisition of the Company prior to the expiration of the 12-month
anniversary of the Agreement, the Company shall be considered in default of the
loan. Pursuant to the Additional Investment Right (the "AIR Agreement") between
the Company and the Lilac, Lilac may loan the Company up to an additional
$5,000,000 on the same terms and conditions as the initial $5,000,000 loan,
except for the conversion price of the debentures.
(B-I) F-21
ALL AMERICAN PLAZAS, INC AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF GENERAL & ADMINISTRATIVE EXPENSES
FOR THE YEAR ENDED SEPTEMBER 30, 2004
NOTE 16 - SUBSEQUENT EVENTS (CONTINUED) PURCHASE
PURCHASE OF YOSEMITE DEVELOPMENT CORP. AND MOUNTAINSIDE DEVELOPMENT, LLC.
(CONTINUED)
If Able consummates the acquisition of the Company, upon such consummation, Able
will assume the obligations of the Company under the Agreement, the Debentures
and the AIR Agreement through the execution of certain agreements, between Able
and Lilac. In addition, financing provided by Lilac and the Sellers of
$5,000,000 and $800,000, respectively are convertible to shares and warrants of
Able if this acquisition occurs.
CROWN FINANCIAL, LLC
On January 12, 2005, the Company entered into an agreement to factor accounts
receivable with Crown Financial, LLC ("Crown"). In accordance with the account
purchase agreement, the Company received a $2,000,000 initial advance from
Crown. On the 15th and 30th of each month the Company has agreed to pay Crown a
fee equal to 2.5% of outstanding advances from the proceeding period. The
Company has agreed to pay Crown a minimum fee of $200,000 for the first 60 days
of the agreement. Not withstanding the foregoing, the Company will pay Crown a
fee on January 15, 2005 equal to a per diem rate of .1666% applied to the
initial advance for the period from the initial advance to January 15, 2005 in
addition to $10,000 for legal and travel expense associated with the
transaction.
Crown requires the Company to keep funds at Horizon Capital Bank in excess of
$750,000 and to maintain a coverage ratio of 125%, defined as the sum of the
amount of eligible accounts plus the amount of cash on deposit to the amount of
outstanding advance. If the Company falls below this ratio, Crown may require
the Company to repurchase accounts or make payments to Crown to reduce the
amount of outstanding advance so the coverage ratio increases to 125%.
AVATAR INCOME FUND I, LLC AND AVATAR FUNDING GROUP, LLC
The Company obtained financing of $6,450,000 from Avatar Income Fund I, LLC and
$2,050,000 from Avatar Funding Group, LLC ("Avatar") on April 14, 2005, which
are collateralized by a first, second or third mortgage on certain real estate
owned by the Company and are guaranteed by an officer of the Company. This
financing was used to pay the $6,000,000 AAI PMJ loan obligation included in
Note 4 and the $750,000 PMJ obligation of the Company included in Note 9. At
closing the Company paid total closing fees of $527,385 and any legal and
inspection fees required for this refinancing. Repayment terms for these loans
are interest only, payable monthly at the Wall Street Journal prime rate plus
7%, with a minimum rate of 11%, starting June 1, 2005. Unpaid principal and
accrued interest is due on November 1, 2005, the maturity date. The Company has
the option to extend these loans for an additional six months, providing there
have been no defaults and the Company pays Avatar a 2% extension fee prior to
the maturity date.
(B-I) F-22
SUPPLEMENTARY INFORMATION
INDEPENDENT AUDITOR'S REPORT
ON SUPPLEMENTARY INFORMATION
To the Stockholders
All American Plazas, Inc. and Subsidiaries
Bethel, Pennsylvania
Our report on our audit of the basic financial statements of All American
Plazas, Inc. and subsidiaries for the year ended September 30, 2004 appears on
page 2. We conducted our audit in accordance with audit standards generally
accepted in the United States of America for the purpose of forming an opinion
on the basic financial statements taken as a whole. The supplementary
information presented hereinafter is presented for purposes of additional
analysis and is not a required part of the basic financial statements. Such
information has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, is fairly stated in all
material respects in relation to the basic financial statements taken as a
whole.
/s/ Maier Markey & Menashi LLP
February 25, 2005, except for Notes 4 and 9 dated April 19, 2005, Note 14 dated
March 31, 2005 and Note 16 dated April 14, June 1, June 16. July 27 and August
15, 2005
White Plains, New York
(B-I) F-24
ALL AMERICAN PLAZAS, INC. AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF OPERATING EXPENSES
FOR THE YEAR ENDED SEPTEMBER 30, 2004
Wages and salaries $ 6,981,379
Custodial labor 254,518
Benefits and payroll taxes 1,343,737
Employee meals 67,600
Environmental 101,649
Equipment rental 88,203
Rent 586,512
Utilities 1,242,877
Repairs and maintenance 839,701
Supplies 819,314
Refuse and snow removal 273,332
Uniform and laundry 99,077
Depreciation 1,627,466
Real estate taxes 289,035
Vehicle repairs 119,903
Advertising 347,896
Promotional fees 258,999
Travel and entertainment 1,364
Dues and subscriptions 43,689
Telephone 143,653
Insurance 1,067,291
Franchise fees 560,143
Miscellaneous taxes 34,933
Postage 9,038
Miscellaneous 109,084
-------------------------------------------------------------------------------
$ 17,310,393
-------------------------------------------------------------------------------
(B-I) F-25
ALL AMERICAN PLAZAS, INC. AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF GENERAL & ADMINISTRATIVE EXPENSES
FOR THE YEAR ENDED SEPTEMBER 30, 2004
Wages and salary $ 907,181
Benefits and payroll taxes 124,260
Rent 8,136
Utilities 3,787
Repairs and maintenance 24,483
Equipment rental 4,637
Vehicle repairs 44,329
Supplies 24,614
Depreciation 30,396
Amortization 168,078
Real estate taxes 14,261
Advertising 56,294
Travel and entertainment 13,383
Dues and subscriptions 21,792
Telephone 78,141
Professional fees 426,313
Miscellaneous taxes 54,684
Postage 26,043
Contributions 355
Promotional fees 16,467
Bad debt expense 39,083
Collections 34,989
Exchange loss 41,500
Miscellaneous 36,905
-------------
$ 2,200,111
-------------
(B-I) F-26
ALL AMERICAN PLAZAS, INC. AND SUBSIDIARIES
CONSOLIDATED SCHEDULE OF GENERAL OTHER OPERATING INCOME
FOR THE YEAR ENDED SEPTEMBER 30, 2004
Commission income $ 227,786
Vending income 358,840
Scales 685,783
Showers 176,058
-------------
$ 1,448,467
-------------
(B-I) F-27
Beard Miller
Company LLP
--------------------------------------------
Certified Public Accountants and Consultants
INDEPENDENT AUDITOR'S REPORT ON THE FINANCIAL STATEMENTS
To the Board of Directors and Stockholders
All American Plazas, Inc. and Subsidiaries
Bethel, Pennsylvania
We have audited the accompanying consolidated balance sheets of All
American Plazas, Inc. and subsidiaries (the Company) as of September 30, 2003
and 2002, and the related consolidated statements of income, stockholders'
equity and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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 All American
Plazas, Inc. and subsidiaries as of September 30, 2003 and 2002, and the results
of their operations and their cash flows for the years then ended in conformity
with accounting principles generally accepted in the United States of America.
/s/ Beard Miller Company LLP
Reading, Pennsylvania
November 26, 2003, except for Note 5 as to which the dates
are March 19 and April 27, 2004
(B-II) F-1
ALL AMERICAN PLAZAS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
SEPTEMBER 30,
-------------
2003 2002
---- ----
CURRENT ASSETS
Cash and cash equivalents $ 2,068,104 $ 2,042,944
Trade receivables, less allowance for doubtful accounts
2003 $123,816; 2002 $216,356 1,800,472 2,071,342
Inventories 2,673,366 2,543,557
Deferred income taxes 92,100 108,500
Prepaid expenses and other 291,743 385,292
Other receivables 446,746 136,584
Income taxes recoverable 363,175 113,652
--------------------------------------
TOTAL CURRENT ASSETS 7,735,706 7,401,871
--------------------------------------
PROPERTY AND EQUIPMENT
Land 2,722,515 2,722,515
Land improvements 3,939,724 3,876,004
Buildings and improvements 15,063,819 15,031,406
Equipment 5,749,434 5,599,437
Furniture and fixtures 997,890 995,210
Vehicles 438,864 414,891
Leasehold improvements 2,514,359 2,514,359
--------------------------------------
31,426,605 31,153,822
Accumulated depreciation (15,956,817) (14,231,354)
--------------------------------------
15,469,788 16,922,468
Construction in progress 7,415 60,428
Idle property and equipment 2,265,779 0
--------------------------------------
TOTAL PROPERTY AND EQUIPMENT, NET 17,742,982 16,982,896
--------------------------------------
OTHER ASSETS
Franchises 40,818 45,085
Restricted cash and cash equivalents 811,523 530,977
Deferred financing costs 245,094 267,894
Property and equipment held for sale 0 2,265,779
Other 250,000 31,495
--------------------------------------
TOTAL OTHER ASSETS 1,347,435 3,141,230
--------------------------------------
TOTAL ASSETS $26,826,123 $27,525,997
--------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
(B-II) F-2
LIABILITIES AND STOCKHOLDERS' EQUITY
SEPTEMBER 30,
-------------------------------------
2003 2002
-------------------------------------
CURRENT LIABILITIES
Current portion of long-term debt $ 874,225 $ 827,543
Accounts payable 3,572,265 2,967,799
Accrued payroll and related taxes 308,215 271,868
Accrued expenses 1,049,103 737,196
-------------------------------------
TOTAL CURRENT LIABILITIES 5,803,808 4,804,406
LONG-TERM DEBT, LESS CURRENT MATURITIES 14,171,591 15,044,437
DEFERRED COMPENSATION 79,769 90,733
DEFERRED INCOME TAXES 1,875,200 1,789,400
-------------------------------------
TOTAL LIABILITIES 21,930,368 21,728,976
-------------------------------------
STOCKHOLDERS' EQUITY
Class A voting, common stock, $100 par value; authorized
100,000 shares; issued and outstanding 25,485 shares 2,548,516 2,548,516
Class B non-voting, common stock, $100 par value; authorized
100,000 shares; issued and outstanding 632 shares 63,200 63,200
Paid-in capital 2,493,331 2,493,331
Retained earnings (deficit) (209,292) 691,974
-------------------------------------
TOTAL STOCKHOLDERS' EQUITY 4,895,755 5,797,021
-------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $26,826,123 $27,525,997
=====================================
(B-II) F-3
ALL AMERICAN PLAZAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED SEPTEMBER 30,
-----------------------------------------
2003 2002
-----------------------------------------
NET SALES $124,395,490 $117,869,866
COST OF SALES 104,524,429 97,862,396
-----------------------------------------
GROSS PROFIT 19,871,061 20,007,470
-----------------------------------------
OTHER OPERATING INCOME (EXPENSES)
Operating expenses (19,933,629) (19,580,259)
General and administrative expenses (2,170,278) (2,031,014)
Other operating income 1,824,180 2,060,677
-----------------------------------------
TOTAL OTHER OPERATING INCOME (EXPENSES) (20,279,727) (19,550,596)
-----------------------------------------
INCOME (LOSS) FROM OPERATIONS (408,666) 456,874
-----------------------------------------
OTHER INCOME (EXPENSES)
Interest expense (1,440,265) (1,510,791)
Other income, net including gain on sale of assets 2003 $-0-;
2002 $10,220 547,622 517,634
-----------------------------------------
TOTAL OTHER INCOME (EXPENSES) (892,643) (993,157)
-----------------------------------------
LOSS BEFORE INCOME TAX BENEFITS (1,301,309) (536,283)
PROVISION FOR INCOME TAX BENEFITS (400,043) (216,500)
-----------------------------------------
NET LOSS ($901,266) ($319,783)
-----------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
(B-II) F-4
ALL AMERICAN PLAZAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS
ENDED SEPTEMBER 30, 2003 AND 2002
CLASS A CLASS B NON
VOTING VOTING RETAINED
COMMON COMMON PAID-IN EARNINGS
STOCK STOCK CAPITAL (DEFICIT) TOTAL
---------------------------------------------------------------------------------
BALANCE - SEPTEMBER 30, 2001 $2,572,226 $63,200 $2,517,041 $1,011,757 $6,164,224
Net loss 0 0 0 (319,783) (319,783)
Purchase of 237 shares of Class A voting
common stock (23,710) 0 (23,710) 0 (47,420)
---------------------------------------------------------------------------------
BALANCE - SEPTEMBER 30, 2002 2,548,516 63,200 2,493,331 691,974 5,797,021
Net loss 0 0 0 (901,266) (901,266)
---------------------------------------------------------------------------------
BALANCE - SEPTEMBER 30, 2003 $2,548,516 $63,200 $2,493,331 ($209,292) $4,895,755
---------------------------------------------------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
(B-II) F-5
ALL AMERICAN PLAZAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30,
-------------------------
2003 2002
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ($901,266) ($319,783)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation 1,725,466 1,705,756
Amortization 27,067 28,833
Provision for doubtful accounts 106,669 106,153
Deferred income tax provision 102,200 (27,500)
Gain on sale of property and equipment 0 (10,220)
Investment income attributable to escrowed funds (5,546) (10,513)
(Increase) decrease in assets:
Trade receivables 164,201 545,878
Inventories (129,809) 201,088
Prepaid expenses and other 93,549 (168,719)
Other receivables (310,162) (136,584)
Income taxes recoverable (249,523) (113,652)
Increase (decrease) in liabilities:
Accounts payable 604,466 (704,239)
Accrued payroll, related taxes and other expenses 122,290 (263,231)
Income taxes payable 0 (912,353)
-------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 1,349,602 (79,086)
-------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (219,773) (1,902,407)
Proceeds from sales of property and equipment 0 10,220
Proceeds (uses) from other investing activities, net (3,505) 77,970
Additions to restricted cash and cash equivalents (275,000) 0
-------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (498,278) (1,814,217)
-------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
(B-II) F-6
ALL AMERICAN PLAZAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED SEPTEMBER 30,
------------------------------------
2003 2002
------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long-term debt ($826,164) ($774,025)
Payments on capital lease obligations 0 (9,308)
Purchase of Class A voting common stock 0 (47,420)
------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (826,164) (830,753)
------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 25,160 (2,724,056)
CASH AND CASH EQUIVALENTS - BEGINNING 2,042,944 4,767,000
------------------------------------
CASH AND CASH EQUIVALENTS - ENDING $2,068,104 $2,042,944
------------------------------------
SUPPLEMENTARY CASH FLOWS INFORMATION
Interest paid $1,447,458 $1,517,161
------------------------------------
Income taxes paid (refunded) ($249,243) $ 829,869
------------------------------------
SUPPLEMENTARY SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES
Addition to other assets, other which was also included
in accrued expenses $ 215,000 $ 0
------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
(B-II) F-7
ALL AMERICAN PLAZAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF BUSINESS
The Company operates six full service travel plazas engaged in the
retail sale of liquid fuels, truck service, sale of general merchandise,
restaurant operations and lodging. The Company also operates three convenience
stores and self-service fuel facilities. The Company operates its facilities in
Pennsylvania and Virginia. A significant portion of the Company's sales and
receivables are with companies in the trucking industry.
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash in excess of F.D.I.C.
limits and trade accounts receivable.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiaries, AAP Delaware, Inc. and
AAP Management, Inc. All significant intercompany balances and
transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, the Company considers all highly
liquid instruments with a maturity of three months or less at the time
of purchase to be cash equivalents.
TRADE RECEIVABLES
Trade receivables are stated at outstanding balances, less an allowance
for doubtful accounts. The allowance for doubtful accounts is
established through provisions charged against income. Accounts deemed
to be uncollectible are charged against the allowance and subsequent
recoveries, if any, are credited to the allowance. The allowance for
doubtful accounts is maintained at a level considered adequate to
provide for losses that can be reasonably anticipated. Management's
periodic evaluation of the adequacy of the allowance is based on past
experience, agings of the receivables, adverse situations that may
affect a customer's ability to pay, current economic conditions and
other relevant factors. This evaluation is inherently subjective as it
requires estimates that may be susceptible to significant change. Unpaid
balances remaining after the stated payment terms are considered past
due.
INVENTORIES
Store groceries and merchandise inventory are stated at the lower of
cost (determined on a retail less markup basis) or market and all other
inventories are stated at the lower of cost (determined on an average
cost or first-in, first-out basis) or market. Inventories consist of
liquid fuels, groceries and general merchandise.
(B-II) F-8
ALL AMERICAN PLAZAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is computed using
the straight-line method over the following estimated useful lives:
YEARS
-------
Land improvements 7 - 20
Buildings and improvements 7 - 40
Equipment 3 - 5
Furniture and fixtures 5 - 7
Vehicles 3
Leasehold improvements 7 - 15
Property and equipment includes the cost of additions and those
improvements which increase the capacity or lengthen the useful lives of
the assets. Repairs and maintenance costs are expensed as incurred.
Property retired or sold is removed from the assets and accumulated
depreciation accounts and the resulting gain or loss is reflected in
income.
FRANCHISES
The franchise fees are amortized on a straight-line basis over 5 to 20
years, the terms of the related agreements. Accumulated amortization at
September 30, 2003 and 2002 is $127,679 and $123,513, respectively.
DEFERRED FINANCING COSTS
The deferred financing costs are amortized on a straight-line basis over
a period of 15 years, the term of the related loan. Accumulated
amortization at September 30, 2003 and 2002 is $127,188 and $104,388,
respectively.
ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
ADVERTISING COSTS
The Company expenses all advertising costs as incurred. There are no
capitalized advertising costs included in the balance sheets at
September 30, 2003 and 2002. Total advertising expenses included in the
statements of income for the years ended September 30, 2003 and 2002 was
$365,552 and $399,345, respectively.
(B-II) F-9
ALL AMERICAN PLAZAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - INVENTORIES
The composition of inventories at September 30, 2003 and 2002 is as
follows:
2003 2002
-----------------------------------
Store, restaurant and garage merchandise $1,617,411 $1,566,530
Liquid fuels 562,859 515,619
Tires and tubes 523,096 491,408
Reserve for obsolescence (30,000) (30,000)
-----------------------------------
$2,673,366 $2,543,557
-----------------------------------
NOTE 4 - IDLE PROPERTY AND EQUIPMENT
At September 30, 2002, the Company classified assets relating to its
SOCO Travel Plaza and developed land at its Frystown location as property and
equipment held for sale. The Company had removed its SOCO Travel Plaza from
operations in a prior year. At September 30, 2002, the Company's management was
attempting to sell these properties. Generally accepted accounting principles at
that time required the Company to classify these assets as held for sale. The
assets' carrying amount was their net book value (original cost less accumulated
depreciation) at the time they were removed from service less an adjustment down
to market.
For the year ended September 30, 2003, FAS 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" became effective for, among other
things, the treatment of assets held for sale. This new generally accepted
accounting principle provides for additional requirements to be met in order for
assets to be classified as held for sale. The Company did not meet all of these
requirements at September 30, 2003 in order to classify the SOCO Travel Plaza
and Frystown land assets as held for sale. Therefore, the Company has included
these assets on the balance sheet as idle property and equipment. In the opinion
of the Company's management, this property and equipment has a net realizable
value which approximates or exceeds its carrying value.
See Note 15 for a restrictive covenant related to the SOCO Travel Plaza.
The Company's new owner (see Note 17) has not formalized its plans for
the SOCO Travel Plaza location and the Frystown land.
(B-II) F-10
ALL AMERICAN PLAZAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - LONG-TERM DEBT
Long-term debt consisted of the following as of September 30, 2003 and
2002:
2003 2002
--------------------------------------
Term loans to GMAC Commercial (GMACC), due
in monthly payments of principal and interest
ranging from $40,868 to $61,303. The notes
bear interest at 9% and mature in July 2014. $ 8,424,553 $ 8,860,181
Term loan to Bay View Bank, due in monthly
payments of principal and interest of $81,426.
The note bears interest at 9.365% and matures
in June 2014. The terms were modified
subsequent to September 30, 2003. 6,569,356 6,905,295
Term loans to Ford Motor Credit due in monthly
payments of principal and interest of $1,840.
The notes bear interest ranging from 2.9% to
3.9% and mature in February 2004. 3,845 20,720
Other 48,062 85,784
--------------------------------------
15,045,816 15,871,980
Current portion (874,225) (827,543)
--------------------------------------
$14,171,591 $15,044,437
--------------------------------------
The term loans with Bay View Bank and GMACC are collateralized by first
liens and security interests on the real estate at the Milton, Clarks Ferry and
Frystown locations, as well as these locations' equipment, personal property,
inventory, cash proceeds, receivables and general intangibles.
In accordance with these loans, the Company must meet a minimum cash
flow covenant, as defined, on a quarterly basis. At September 30, 2003 and for
the fiscal year then ended, the Company was in violation of this covenant. The
institutions, however, have consented on March 19 and April 27, 2004 to waive
acceleration related to this covenant for the fiscal year ended September 30,
2003 through October 1, 2004.
On March 19,2004, the Company entered into an agreement with Bay View
Bank which, in addition to waiving financial covenants mentioned above, also
modified the loan's repayment terms. This agreement required the Company to make
a $1,400,000 accelerated principal payment with the remaining principal being
repaid in modified monthly payments with interest through June 2014. The
agreement modified the interest rate to the higher of 4% above LIBOR or 6%, with
the interest rate adjustment being made quarterly. The modified monthly payment,
including interest at 6%, is approximately $55,000.
To fund the $1,400,000 accelerated principal payment to Bay View Bank,
the Company obtained a new loan from Fundex Capital Corporation in the amount of
$2,100,000. Repayment terms are interest only, payable monthly at the Wall
Street Journal prime rate plus 8.5%, with a minimum rate of 12.5% and a maximum
rate as defined by the United States Small Business Administration. The
principal balance is due in October 2005. The loan is collateralized by a second
mortgage on the Milton location.
(B-II) F-11
ALL AMERICAN PLAZAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - LONG-TERM DEBT (CONTINUED)
Aggregate maturities required on long-term debt as of September 30, 2003
and in future years, including the effects of the subsequent modification to the
Bay View Bank loan and the Fundex Capital Corporation loan described above, are
due as follows:
2004 $ 874,225
2005 916,155
2006 2,389,014
2007 1,053,066
2008 1,137,436
Thereafter 8,675,920
---------------
$15,045,816
---------------
NOTE 6 - NOTE PAYABLE, LINE OF CREDIT
During 2003, the Company was party to a credit arrangement with a bank
under which it was able to borrow up to $1,250,000 with advances limited to 75%
of qualified accounts receivable. The line was available through March 31, 2004
and was subject to renewal at that time. Interest was payable on amounts
outstanding at prime plus 1%. In September 2003, the Company terminated the line
of credit arrangement with the bank.
As of September 30, 2003, the Company has letters of credit in the
amount of $275,000 outstanding with one municipality and one vendor to ensure
continued performance of the Company's sewage treatment facility and petroleum
purchases. These letters are collateralized by certificates of deposit, which
are reflected as restricted cash and cash equivalents as of September 30, 2003.
NOTE 7 - ACCRUED EXPENSES
Accrued expenses consisted of the following at September 30, 2003 and
2002:
2003 2002
-----------------------------------
Sales tax payable $ 109,630 $ 112,354
Accrued vacation 199,112 233,299
Accrued workmen's compensation 97,480 66,023
Environmental liability 50,000 182,500
Accrued bonuses 220,328 0
Accrued refinancing costs 215,000 0
Other accrued expenses 157,553 143,020
-----------------------------------
$1,049,103 $ 737,196
-----------------------------------
(B-II) F-12
ALL AMERICAN PLAZAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - ACCRUED EXPENSES (CONTINUED)
At September 30, 2003, the Company accrued bonuses which were offered to
key employees in order to retain their services while the Company was being sold
(see Note 17). The selling shareholders reimbursed the Company for these bonuses
subsequent to September 30, 2003. Included in other receivables at September 30,
2003 is $220,328 relating to this reimbursement.
NOTE 8 - INCOME TAXES
Net deferred tax liabilities consist of the following components as of
September 30, 2003 and 2002:
2003 2002
-------------------------------------
Deferred tax assets:
Accruals $ 171,800 $ 243,100
Allowance for doubtful accounts 49,900 87,200
State loss carryforward 251,000 90,000
Other 37,900 27,500
-------------------------------------
TOTAL DEFERRED TAX ASSETS 510,600 447,800
Valuation allowance (251,000) (90,000)
-------------------------------------
NET DEFERRED TAX ASSET 259,600 357,800
-------------------------------------
Deferred tax liabilities:
Prepaid expenses
115,200 139,500
Property and equipment 1,927,500 1,899,200
-------------------------------------
TOTAL DEFERRED TAX LIABILITIES 2,042,700 2,038,700
-------------------------------------
NET DEFERRED TAX LIABILITIES ($1,783,100) ($1,680,900)
-------------------------------------
The components giving rise to the net deferred tax liabilities described
above have been included in the accompanying balance sheets as of September 30,
2003 and 2002 as follows:
2003 2002
-------------------------------------
Current assets $ 92,100 $ 108,500
Noncurrent liabilities (1,875,200) (1,789,400)
-------------------------------------
($1,783,100) ($1,680,900)
-------------------------------------
(B-II) F-13
ALL AMERICAN PLAZAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - INCOME TAXES (CONTINUED)
Realization of deferred tax assets is dependent upon sufficient future
taxable income during the period that deductible temporary differences and
carryforwards are expected to be available to reduce taxable income. The net
change in the valuation allowance for the years ended September 30, 2003 and
2002 was an increase of $161,000 and $90,000, respectively.
At September 30, 2003, the Company has state net operating loss
carryforwards of approximately $2,636,000 that expire at various times through
2013.
The provision for income tax benefits consisted of the following at
September 30, 2003 and 2002:
2003 2002
----------------------------------
Federal:
Current ($502,243) ($189,000)
Deferred 78,100 (21,200)
----------------------------------
(424,143) (210,200)
----------------------------------
State, deferred 24,100 (6,300)
----------------------------------
($400,043) ($216,500)
----------------------------------
The income tax provision for 2003 and 2002 differs from that which would
result from applying federal statutory tax rates to income before income taxes
because a valuation allowance has been provided to reduce deferred tax assets to
the amount that is more likely than not to be realized.
NOTE 9 - EMPLOYEE STOCK OWNERSHIP PLAN
Effective October 1, 1991, the Board of Directors adopted a resolution
to establish an Employee Stock Ownership Plan (ESOP) covering a majority of its
full-time employees. Under the Plan, the Company is permitted to make annual
contributions to a trust for the benefit of eligible employees in the form of
either cash or common shares of the Company. The Plan also permits a participant
who is entitled to a distribution from the Plan to elect such distribution in
the form of the Company's stock. If the participant makes such an election, the
Company is required to repurchase such shares at their fair value. Payment can
be made in the form of a lump sum payment or in equal annual installments in
accordance with the Plan provisions.
(B-II) F-14
ALL AMERICAN PLAZAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - EMPLOYEE STOCK OWNERSHIP PLAN (CONTINUED)
The Company is considering termination of its ESOP; however, no formal
plan of termination has been adopted. In the event the Plan is terminated,
participants' accounts would become 100% vested and the assets of the Plan would
be distributed to the participants. The Company would be required to repurchase
all outstanding shares at their fair value. As of September 30, 2003, the ESOP
plan held 2,816.16 shares of the Company's Class A voting common stock.
Subsequent to September 30, 2003, the ESOP sold these shares (see Note 17).
There were no contributions related to the Plan for the years ended
September 30, 2003 and 2002.
NOTE 10 - DEFERRED COMPENSATION PLAN AND PURCHASE OF CLASS B NON-VOTING SHARES
Effective October 1, 1993, the Company adopted a deferred compensation
arrangement for certain key employees. Under the Plan, participants receive
units, which entitle the holder to deferred compensation measured by the
estimated fair value of the Company's common stock. The number of units
distributed to each participant is based on annual results of operations. The
Company recognizes compensation expense immediately based on the estimated value
of the outstanding units. Rights of active participants at the date the Plan was
adopted vest immediately and any future participants' rights will vest ratably
over a five-year period. Upon participants' termination of employment, payment
is due in the form of ten equal annual installments, bearing interest. The
liability under the Plan at September 30, 2003 and 2002 was $90,733 and
$101,697, respectively. During 1998, two of the participating employees ended
their employment with the Company and, during 2001, a third participating
employee ended his employment. Amounts owed to these individuals are being paid
in accordance with the terms of the Plan. Included in accrued expenses at
September 30, 2003 and 2002 is $10,964, and included in deferred compensation is
$79,769 and $90,733, respectively.
NOTE 11 - OPERATING LEASES
The Company leases two truck stop facilities: Carlisle Texaco and
Breezewood Petro. The Carlisle Texaco lease expires July 31, 2004. The Company
does not plan on renewing this lease (see Note 17). The Breezewood Petro
location has two lease agreements: one for the facilities and the second for a
parking lot. The facilities lease expires on December 31, 2005 and has ten and
eleven year options which would extend the lease through December 31, 2026. The
parking lot lease expired on July 31, 2003. Management is currently negotiating
a lease renewal which they expect will have a five year term with five year
renewal options through 2028. Management expects the annual rent expense to be
approximately $100,000. No formal agreement has been signed to date. The Company
also leases computer equipment.
(B-II) F-15
ALL AMERICAN PLAZAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - OPERATING LEASES (CONTINUED)
The following is a schedule of future minimum lease payments required
under noncancellable lease agreements; these payments do not include renewal
options that are available with each of the leases:
Year ending September 30:
2004 $495,358
2005 366,000
2006 91,500
------------
$952,858
------------
The total rental expense included in the income statements under lease
obligations for the years ended September 30, 2003 and 2002 was $776,179 and
$762,246, respectively. Rental expense includes both amounts paid under
noncancellable lease arrangements and month-to-month lease arrangements.
NOTE 12 - SIGNIFICANT ESTIMATES
WORKERS' COMPENSATION INSURANCE
During the years ended September 30, 1998 through 2003, the Company
provided workers' compensation insurance under a premium only insurance
policy for which premiums are based upon payroll, claim history and the
associated risk factors. The Company recognizes expense in the
accompanying statements of income based upon the insurance company's
premiums.
During prior years, the Company provided workers' compensation insurance
under a deductible/stop loss insurance policy for which premiums were
based upon the actual payroll and amounts to settle the claims incurred
in a given year. The total premium was subject to a ceiling based upon
the aggregate deductible amount plus the cost of the stop loss insurance
which covered all claims in excess of a deductible amount. The Company
recognizes expense in the accompanying statements of income based upon:
the insurance company's basic premiums, actual claims paid, estimated
total reserves for open claims and adjustments for changes in estimates
related to paid loss or retrospective insurance premiums which are based
upon changes in incurred losses of outstanding claims. Actual results
could differ from these estimates. During 2003 and 2002, the Company's
estimate for liability under these prior year policies was reduced by
approximately $-0- and $130,000, respectively, as a result of the claims
outstanding at year end.
(B-II) F-16
ALL AMERICAN PLAZAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - SIGNIFICANT ESTIMATES (CONTINUED)
ENVIRONMENTAL LIABILITY
At September 30, 2003, the Company has two locations where environment
investigations and certain remediation procedures are ongoing. In
addition, the Company is responsible for certain environmental
remediation efforts at its former Carlisle All American location which
was sold in October 2000. All three of these locations have been
approved for coverage under the Pennsylvania Underground Storage Tank
Indemnification Fund, which reimburses certain remediation costs. In
addition, the Company has escrowed cash relating to the Carlisle All
American location that would be available for future remediation costs
for this location (see Note 15).
The nature and full extent of future clean up and remediation costs have
been estimated but not yet fully determined. The Company's accrued
liability, which represents its portion of estimated remediation costs,
was $50,000 and $182,500 at September 30, 2003 and 2002, respectively.
Due to the uncertainty of the total future remediation costs, the
ultimate total cost could change in the coming year, as additional
information becomes available.
NOTE 13 - COMMITMENTS
The Company has a fuel supply agreement which obligates it to purchase a
significant portion of its diesel fuel from Petroleum Products
Corporation (Petroleum) through June 14, 2005. The contract does not
call for any fixed or minimum quantities. The agreement provides for
pricing based on the average daily prices of the four lowest posted
prices of major suppliers.
The Company entered into franchise agreements with Petro Stopping
Centers, L.P. (Petro) for its Breezewood and Milton locations during
1998. In accordance with these agreements, royalties are due to Petro
based upon base year sales. During the first three years of the
agreements, percentages of base year sales are to be excluded from
royalties in the amounts of 100%, 35% and 15%, respectively, with 0%
excluded in the fourth year and thereafter. For the years ended
September 30, 2003 and 2002, these royalty expenses totaled
approximately $400,000 and $408,000, respectively.
NOTE 14 - CONTINGENCIES
The Company is currently, and is from time-to-time, subject to claims
and suits arising in the ordinary course of its business. In certain
such actions, plaintiffs request punitive or other damages or non
monetary relief, which may not be covered by insurance. The Company
accrues for potential liabilities involved in these matters as they
become known and can be reasonably estimated. In the Company's opinion,
the various asserted claims and litigation in which the Company is
currently involved are not reasonably likely to have a material adverse
effect on the Company's operations or financial position. However, no
assurance can be given as to the ultimate outcome with respect to such
claims and litigation. The resolution of such claims and litigation
could be material to the Company's operating results.
(B-II) F-17
ALL AMERICAN PLAZAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - RESTRICTIVE COVENANT AGREEMENT AND ESCROWED CASH
When the Company sold its Carlisle All American location on October 2,
2000, it entered into a Restrictive Covenant Agreement. The terms of this
agreement place certain restrictions upon future uses of the Company's Carlisle
Gables and SOCO locations should ownership change hands.
In accordance with the requirements of the sale agreement for the
Carlisle All American location, $500,000 of the purchase price was placed into
an escrow account. The release of these funds is contingent upon the Company's
completion of the environmental Remedial Action Plan (the Plan) for the Carlisle
All American location and the Pennsylvania Department of Environmental
Protection certifying that no further work is required under the Plan. The
Company has included this amount in restricted cash and cash equivalents at
September 30, 2003 and 2002.
NOTE 16 - CONCENTRATIONS OF RISK
During the years ended September 30, 2003 and 2002, the Company
purchased fuel of $79,749,427 and $73,137,436, from three vendors. Trade
accounts payable at September 30, 2003 and 2002 included $2,390,159 and
$1,670,372, respectively, to these vendors.
NOTE 17 - SUBSEQUENT EVENTS
Subsequent to September 30, 2003, the Company's stockholders sold their
ownership to an unrelated company. As part of the agreement, the new owner of
the Company agreed to distribute to the former owners any amount released from
the escrow account relating to the sale of the Company's Carlisle All American
location in 2000 (see Note 15). The agreement also required the new owner to
issue a promissory note of $7,191,272 to the Company's former owners. This
promissory note is collateralized by, among other things, a second mortgage on
certain real estate owned by the Company and by the Company's guaranty.
Also, related to this transaction, the Company obtained $6,000,000 in
additional financing which is collateralized by a first mortgage on the real
estate mentioned above.
During January 2004, the Company ceased operations at its Carlisle Truck
Plaza location. This location contributed approximately $6.2 million and $7.1
million in net sales for the years ended September 30, 2003 and 2002,
respectively. The net book value of the assets at this location as of September
30, 2003 was approximately $83,000. As discussed in Note 11, the lease for this
location expires in July 2004. In addition to the rent, the Company will
continue to incur certain costs relating to this location through the lease
expiration. Eventually the Company expects the closing of Carlisle Truck Plaza
to improve its operations as this location was generating operating losses.
(B-II) F-18
Beard Miller
Company LLP
--------------------------------------------
Certified Public Accountants and Consultants
INDEPENDENT AUDITOR'S REPORT ON SUPPLEMENTARY INFORMATION
To the Board of Directors and Stockholders
All American Plazas, Inc. and Subsidiaries
Bethel, Pennsylvania
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The supplementary
information is presented for purposes of additional analysis and is not a
required part of the basic consolidated financial statements. Such information
has been subjected to the auditing procedures applied in the audits of the basic
consolidated financial statements and, in our opinion, is fairly stated in all
material respects in relation to the basic consolidated financial statements
taken as a whole.
/s/ Beard Miller Company LLP
Reading, Pennsylvania
November 26, 2003
(B-II) F-19
ALL AMERICAN PLAZAS, INC. AND SUBSIDIARIES
CONSOLIDATED OPERATING EXPENSES
YEARS ENDED SEPTEMBER 30,
--------------------------------------
2003 2002
--------------------------------------
Wages and salaries $ 8,890,359 $ 8,984,673
Bonuses 0 1,395
Custodial labor 303,915 307,207
Employee health insurance 764,228 680,071
Employee meals 73,002 72,605
Environmental (53,085) 88,503
Equipment rentals 94,077 151,324
Rent 676,626 605,300
Utilities 1,252,662 1,187,452
Repairs and maintenance 834,719 831,930
Supplies 869,865 884,799
Refuse and snow removal 321,447 267,168
Uniforms and laundry 180,284 227,519
Depreciation 1,687,439 1,665,831
Real estate taxes 320,622 287,044
Vehicle repairs 107,112 101,500
Advertising 365,124 396,970
Promotional fees 266,091 292,387
Travel and entertainment 3,830 3,004
Dues and subscriptions 40,157 43,429
Telephone 146,783 152,348
Insurance 1,257,345 822,663
Franchise fees 550,023 571,555
Payroll taxes 835,497 838,286
Miscellaneous taxes 47,605 13,462
Postage 9,498 10,557
Professional fees 0 3,211
Miscellaneous 88,404 88,066
--------------------------------------
$19,933,629 $19,580,259
--------------------------------------
(B-II) F-20
ALL AMERICAN PLAZAS, INC. AND SUBSIDIARIES
CONSOLIDATED GENERAL AND ADMINISTRATIVE EXPENSES
YEARS ENDED SEPTEMBER 30,
------------------------------------
2003 2002
------------------------------------
Wages and salaries $1,104,607 $1,003,923
Employee meals 13,824 14,778
Employee health insurance 12,265 38,579
Utilities 7,043 5,486
Building repairs 34,245 25,658
Equipment repairs 2,317 3,878
Equipment rentals 5,476 5,622
Vehicle repairs 28,095 33,372
Depreciation 38,027 39,927
Advertising 428 2,375
Travel and entertainment 12,990 12,418
Dues and subscriptions 24,623 15,551
Telephone 74,950 83,880
Office supplies 21,417 28,997
Officers' life insurance 28,000 24,000
Insurance 50,495 23,853
Payroll taxes 93,924 98,921
Postage 28,668 30,899
Miscellaneous taxes 86,521 25,747
Professional fees 252,513 241,890
Contributions 6,013 (3,022)
Amortization 27,067 28,833
Promotional fees 41,383 44,433
Bad debt expense 120,000 120,000
Bad debts recovered (13,331) (13,847)
Collection 39,526 54,640
Miscellaneous 29,192 40,223
------------------------------------
$2,170,278 $2,031,014
------------------------------------
(B-II) F-21
ALL AMERICAN PLAZAS, INC. AND SUBSIDIARIES
CONSOLIDATED OTHER OPERATING INCOME AND OTHER INCOME
YEARS ENDED SEPTEMBER 30,
-------------------------
2003 2002
---- ----
OTHER OPERATING INCOME
Commission income $ 382,072 $ 477,873
Vending income 561,049 650,165
Scales 689,972 746,933
Showers 191,087 185,706
-------------------------------------
$1,824,180 $2,060,677
-------------------------------------
OTHER INCOME
Other $ 230,441 $ 181,290
Interest income 15,570 43,715
Rents received 301,611 282,409
Gain on sale of assets 0 10,220
-------------------------------------
$ 547,622 $ 517,634
-------------------------------------
(B-II) F-22
ALL AMERICAN PLAZAS, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL REPORT
SEPTEMBER 30, 2003
(B-II) F-23
ALL AMERICAN PLAZAS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PAGE NO.
CONSOLIDATED FINANCIAL STATEMENTS:
Independent Auditor's Report on the Financial Statements F-1
Consolidated Balance Sheets F-2
Consolidated Statements of Income F-4
Consolidated Statements of Stockholders' Equity F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-8
SUPPLEMENTARY INFORMATION:
Independent Auditor's Report on Supplementary Information F-19
Consolidated Operating Expenses F-20
Consolidated General and Administrative Expenses F-21
Consolidated Other Operating Income and Other Income F-22
(B-II) F-24
ALL AMERICAN PLAZAS, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
Beard Miller
Company LLP
--------------------------------------------
Certified Public Accountants and Consultants
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
All American Plazas, Inc. and Subsidiaries
Bethel, Pennsylvania
We have audited the accompanying consolidated balance sheets of All
American Plazas, Inc. and subsidiaries (the Company) as of September 30, 2002
and 2001, and the related consolidated statements of income, stockholders'
equity and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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 All American
Plazas, Inc. and subsidiaries as of September 30, 2002 and 2001, and the results
of their operations and their cash flows for the years then ended in conformity
with accounting principles generally accepted in the United States of America.
In our report dated December 20, 2001, except for Note 5 as to which the
date was September 3, 2002, we expressed a qualified opinion on the September
30, 2001 financial statements due to the Company excluding from current
liabilities certain long-term obligations that were in default and could have
become due and payable on demand. However, based on bank waivers subsequently
obtained by the Company, the accounting treatment reflected in the prior
statements was in accordance with accounting principles generally accepted in
the United States of America. Accordingly, our present opinion on the 2001
financial statements, as presented herein, is different from that expressed in
our previous report.
/s/ Beard Miller Company LLP
Reading, Pennsylvania
November 27, 2002, except for Note 5 as to which the date is
March 18, 2003
(B-III) F-1
ALL AMERICAN PLAZAS, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
ASSETS
SEPTEMBER 30,
-------------
2002 2001
---- ----
CURRENT ASSETS
Cash and cash equivalents $2,042,944 $ 4,767,000
Trade receivables, less allowance for doubtful accounts 2002
$216,356; 2001 $268,730 2,071,342 2,723,373
Inventories 2,543,557 2,744,645
Deferred income taxes 108,500 243,700
Prepaid expenses and other 385,292 216,573
Other receivables 136,584 0
Income taxes recoverable 113,652 0
--------------------------------------
TOTAL CURRENT ASSETS 7,401,871 10,695,291
--------------------------------------
PROPERTY AND EQUIPMENT
Land 2,722,515 2,941,913
Land improvements 3,876,004 3,405,729
Buildings and improvements 15,031,406 13,206,300
Equipment 5,599,437 5,244,807
Furniture and fixtures 995,210 992,328
Vehicles 414,891 470,962
Leasehold improvements 2,514,359 2,505,280
--------------------------------------
31,153,822 28,767,319
Accumulated depreciation (14,231,354) (12,599,967)
--------------------------------------
16,922,468 16,167,352
Construction in progress 60,428 1,349,031
--------------------------------------
TOTAL PROPERTY AND EQUIPMENT, NET 16,982,896 17,516,383
--------------------------------------
OTHER ASSETS
Franchises 45,085 51,118
Restricted cash 530,977 520,464
Deferred financing costs 267,894 290,694
Property and equipment held for sale 2,265,779 1,535,641
Other 31,495 109,465
--------------------------------------
TOTAL OTHER ASSETS 3,141,230 2,507,382
--------------------------------------
TOTAL ASSETS $27,525,997 $30,719,056
--------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
(B-III) F-2
ALL AMERICAN PLAZAS, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
SEPTEMBER 30,
2002 2001
CURRENT LIABILITIES
Current portion of long-term debt $ 827,543 $ 776,018
Current maturities of capital lease obligations 0 9,308
Accounts payable 2,967,799 3,672,038
Accrued payroll and related taxes 271,868 393,819
Accrued expenses 737,196 865,669
Income taxes payable 0 912,353
-------------------------------------
TOTAL CURRENT LIABILITIES 4,804,406 6,629,205
LONG-TERM DEBT, LESS CURRENT MATURITIES 15,044,437 15,869,987
DEFERRED COMPENSATION 90,733 103,540
DEFERRED INCOME TAXES 1,789,400 1,952,100
-------------------------------------
TOTAL LIABILITIES 21,728,976 24,554,832
-------------------------------------
STOCKHOLDERS' EQUITY
Class A voting, common stock, $100 par value; authorized
100,000 shares; issued and outstanding 2002 25,485
shares; 2001 25,722 shares 2,548,516 2,572,226
Class B non-voting, common stock, $100 par value; authorized
100,000 shares; issued and outstanding 2002 and 2001 632
shares 63,200 63,200
Paid-in capital 2,493,331 2,517,041
Retained earnings 691,974 1,011,757
-------------------------------------
TOTAL STOCKHOLDERS' EQUITY 5,797,021 6,164,224
-------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $27,525,997 $30,719,056
-------------------------------------
(B-III) F-3
ALL AMERICAN PLAZAS, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED SEPTEMBER 30,
-----------------------------------------
2002 2001
-----------------------------------------
NET SALES $117,869,866 $137,265,691
COST OF SALES 97,862,396 115,752,644
-----------------------------------------
GROSS PROFIT 20,007,470 21,513,047
-----------------------------------------
OTHER OPERATING INCOME (EXPENSES)
Operating expenses (19,580,259) (21,545,156)
General and administrative expenses (2,031,014) (2,215,401)
Other operating income 2,060,677 1,946,417
-----------------------------------------
TOTAL OTHER OPERATING INCOME (EXPENSES) (19,550,596) (21,814,140)
-----------------------------------------
INCOME (LOSS) FROM OPERATIONS 456,874 (301,093)
-----------------------------------------
OTHER INCOME (EXPENSES)
Interest expense (1,510,791) (1,698,408)
Other income, net including gain on sale of assets of 2002
$10,220; 2001 $2,144,009 517,634 3,162,947
-----------------------------------------
TOTAL OTHER INCOME (EXPENSES) (993,157) 1,464,539
-----------------------------------------
INCOME (LOSS) BEFORE INCOME TAX (BENEFITS) EXPENSE
AND EXTRAORDINARY ITEM (536,283) 1,163,446
-----------------------------------------
PROVISION FOR INCOME TAX (BENEFITS) EXPENSE (216,500) 409,797
LOSS BEFORE EXTRAORDINARY ITEM (319,783) (753,649)
EXTRAORDINARY GAIN ON EXTINGUISHMENT OF DEBT, NET OF
INCOME TAXES 2002 $-0-; 2001 $118,103 0 177,153
-----------------------------------------
NET INCOME (LOSS) ($319,783) $ 930,802
-----------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
(B-III) F-4
ALL AMERICAN PLAZAS, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS
ENDED SEPTEMBER 30, 2002 AND 2001
CLASS A CLASS B NON
VOTING VOTING
COMMON COMMON PAID-IN RETAINED
STOCK STOCK CAPITAL EARNINGS TOTAL
------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 2000 $2,582,226 $108,000 $2,557,851 $ 80,955 $5,329,032
Net income 0 0 0 930,802 930,802
Purchase of 100 shares of Class A
voting common stock (10,000) 0 (10,000) 0 (20,000)
Purchase of 448 shares of Class B
non-voting common stock 0 (44,800) (30,810) 0 (75,610)
------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 2001 2,572,226 63,200 2,517,041 1,011,757 6,164,224
Net loss 0 0 0 (319,783) (319,783)
Purchase of 237 shares of Class A
voting common stock (23,710) 0 (23,710) 0 (47,420)
------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 2002 $2,548,516 $ 63,200 $2,493,331 $ 691,974 $5,797,021
------------------------------------------------------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
(B-III) F-5
ALL AMERICAN PLAZAS, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30,
-------------------------
2002 2001
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) ($319,783) $930,802
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation 1,705,756 1,718,279
Amortization 28,833 30,167
Provision for doubtful accounts 106,153 104,598
Deferred income tax provision (27,500) (589,600)
Gain on sale of property and equipment (10,220) (2,144,009)
Note receivable, related party 0 100,000
Investment income attributable to escrowed funds (10,513) (20,464)
(Increase) decrease in assets:
Trade receivables 545,878 438,459
Inventories 201,088 653,143
Prepaid expenses (168,719) 26,025
Other receivable (136,584) 0
Income taxes recoverable (113,652) 0
Increase (decrease) in liabilities:
Accounts payable (704,239) (1,355,563)
Accrued payroll, related taxes and other expenses (263,231) (226,994)
Income taxes payable (912,353) 757,944
------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (79,086) 422,787
------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (1,902,407) (1,852,645)
Proceeds from sales of property and equipment 10,220 7,915,050
Proceeds from other investing activities, net 77,970 10,113
------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (1,814,217) 6,072,518
------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
(B-III) F-6
ALL AMERICAN PLAZAS, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED SEPTEMBER 30,
2002 2001
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings on long-term debt $ 0 $ 26,756
Principal payments on long-term debt (774,025) (3,821,730)
Payments on capital lease obligations (9,308) (18,746)
Purchase of Class A voting common stock (47,420) (20,000)
------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (830,753) (3,833,720)
------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,724,056) 2,661,585
CASH AND CASH EQUIVALENTS - BEGINNING 4,767,000 2,105,415
------------------------------------
CASH AND CASH EQUIVALENTS - ENDING $2,042,944 $4,767,000
------------------------------------
SUPPLEMENTARY CASH FLOWS INFORMATION
Interest paid
$1,517,161 $1,588,751
------------------------------------
Income taxes paid $ 829,869 $ 370,000
------------------------------------
SUPPLEMENTARY SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES
Note payable issued in exchange for purchase of Class B
non-voting shares $ 0 $ 75,610
------------------------------------
Note receivable, related party satisfied by consulting and
negotiating services provided to the Company in conjunction
with the sale of the Carlisle location $ 0 $ 100,000
------------------------------------
Restricted cash placed in escrow in accordance with the terms of
the sale of the Carlisle location $ 0 $ 500,000
------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
(B-III) F-7
ALL AMERICAN PLAZAS, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF BUSINESS
The Company operates six full service travel plazas engaged in the
retail sale of liquid fuels, truck service, sale of general merchandise,
restaurant operations and lodging. The Company also operates three convenience
stores and self-service fuel facilities. The Company operates its facilities in
Pennsylvania and Virginia. A significant portion of the Company's sales and
receivables are with companies in the trucking industry.
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash in excess of F.D.I.C.
limits and trade accounts receivable.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiaries, AAP Delaware, Inc. and
AAP Management, Inc. All significant intercompany balances and
transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, the Company considers all highly
liquid instruments with a maturity of three months or less at the time
of purchase to be cash equivalents.
INVENTORIES
Store groceries and merchandise inventory are stated at the lower of
cost (determined on a retail less markup basis) or market and all other
inventories are stated at the lower of cost (determined on an average
cost or first-in, first-out basis) or market. Inventories consist of
liquid fuels, groceries and general merchandise.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is computed using
the straight-line method over the following estimated useful lives:
YEARS
--------
Land improvements 7 - 10
Buildings and improvements 7 - 40
Equipment 3 - 5
Furniture and fixtures 5 - 7
Vehicles 3
Leasehold improvements 7 - 10
(B-III) F-8
ALL AMERICAN PLAZAS, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT (CONTINUED)
Amortization expense on assets acquired under capital leases is included
with depreciation expense on owned assets.
Property and equipment includes the cost of additions and those
improvements which increase the capacity or lengthen the useful lives of the
assets. Repairs and maintenance costs are expensed as incurred. Property retired
or sold is removed from the assets and accumulated depreciation accounts and the
resulting gain or loss is reflected in income.
FRANCHISES
The franchise fees are amortized on a straight-line basis over 5 to 20
years, the terms of the related agreements. Accumulated amortization at
September 30, 2002 and 2001 is $123,513 and $117,379, respectively.
DEFERRED FINANCING COSTS
The deferred financing costs are amortized on a straight-line basis over
periods of six months to 15 years, the terms of the related loans. Accumulated
amortization at September 30, 2002 and 2001 is $104,388 and $81,588,
respectively.
ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
ADVERTISING COSTS
The Company expenses all advertising costs as incurred. There are no
capitalized advertising costs included in the balance sheets at September 30,
2002 and 2001. Total advertising expenses included in the statements of income
for the years ended September 30, 2002 and 2001 was $399,345 and $434,649,
respectively.
RECLASSIFICATION
Certain 2001 amounts have been reclassified to conform with 2002
classifications. These reclassifications had no effect on previously reported
net income for the year ended September 30, 2001.
(B-III) F-9
ALL AMERICAN PLAZAS, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - INVENTORIES
The composition of inventories at September 30, 2002 and 2001 is as
follows:
2002 2001
-------------------------------------
Store, restaurant and garage merchandise $1,566,530 $1,782,633
Liquid fuels 515,619 435,671
Tires and tubes 491,408 556,341
Reserve for obsolescence (30,000) (30,000)
-------------------------------------
$2,543,557 $2,744,645
-------------------------------------
NOTE 4 - PROPERTY AND EQUIPMENT HELD FOR SALE
The Company has removed its SOCO Travel Plaza from service and is
attempting to sell the property. A portion of the other asset, property and
equipment held for sale, represents the assets' net book value (original cost
less accumulated depreciation) at the time they were removed from service less
an adjustment down to market. In the opinion of the Company's management, this
property and equipment has a net realizable value which approximates its
carrying value. See Note 16 for restrictive covenant related to this property.
Carrying value for this property at September 30, 2002 and 2001 was $1,535,641.
During 2002, the Company completed the development of previously
purchased land. This asset has been removed from construction in progress and is
included as a portion of the other asset, property and equipment held for sale.
In the opinion of the Company's management, this property has a net realizable
value which exceeds its carrying value. Carrying value for this property at
September 30, 2002 was $730,138.
(B-III) F-10
ALL AMERICAN PLAZAS, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - LONG-TERM DEBT
Long-term debt consisted of the following as of September 30, 2002 and
2001:
2002 2001
--------------------------------------
Term loans to Franchise Mortgage Acceptance
Company (FMAC), due in monthly payments
of principal and interest ranging from $40,868
to $61,303. The notes bear interest at 9% and
mature in July 2014. $ 8,860,181 $ 9,257,956
Term loan to Bay View Bank, due in monthly
payments of principal and interest of $81,426.
The note bears interest at 9.365% and matures
in June 2014. 6,905,295 7,210,918
Term loans to GMAC. 0 11,673
Term loans to Ford Motor Credit due in monthly
payments of principal and interest of $1,840.
The notes bear interest ranging from 2.9% to
3.9% and mature in February 2004. 20,720 41,725
Other 85,784 123,733
--------------------------------------
15,871,980 16,646,005
Current portion (827,543) (776,018)
--------------------------------------
$15,044,437 $15,869,987
--------------------------------------
The term loans with FMAC and Bay View Bank are collateralized by first
liens and security interests on the real estate at the Milton, Clarks Ferry and
Frystown locations, as well as these locations' equipment, personal property,
inventory, cash proceeds, receivables and general intangibles.
In accordance with these loans, the Company must meet a minimum cash
flow covenant, as defined, on a quarterly basis. At September 30, 2002 and for
the fiscal year then ended, the Company was in violation of this covenant. The
institutions, however, have consented on March 18, 2003 to waive acceleration
related to this covenant for each of the quarters for the fiscal years ended
September 30, 2002 and 2003. The institutions' waivers of their default and
acceleration rights relating to these quarters is through October 1, 2003.
During the year ended September 30, 2001, certain loans were satisfied
resulting in the Company realizing a gain of approximately $177,000 (net of
approximately $118,000 in income taxes). This gain has been reflected as an
extraordinary gain on extinguishment of debt in the statement of income.
(B-III) F-11
ALL AMERICAN PLAZAS, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - LONG-TERM DEBT (CONTINUED)
Aggregate maturities required on long-term debt as of September 30, 2002
and in future years, based upon the debt agreements original terms, are due as
follows:
2003 $ 827,543
2004 862,250
2005 943,527
2006 1,033,301
2007 1,116,823
Thereafter 11,088,536
---------------
$15,871,980
---------------
NOTE 6 - NOTE PAYABLE, LINE OF CREDIT
The Company is party to a credit arrangement with a bank under which it
may borrow up to $2,000,000 with advances limited to 75% of qualified accounts
receivable. The amount was subsequently reduced to $1,250,000 in October 2002.
The line is available through March 31, 2003 and is subject to renewal at that
time. Interest is payable on amounts outstanding at prime plus 1%.
The line is collateralized by guarantees of certain stockholders, first
mortgage liens on certain properties owned by the Company and first liens on
accounts receivable, machinery and equipment, furniture and fixtures and
inventory not pledged under the long-term debt agreements in Note 5. The Company
must meet certain financial covenants, as defined, including net worth, current
ratio and debt to worth.
As of September 30, 2002, the Company has letters of credit in the
amounts of $325,000 outstanding with one municipality and two vendors to ensure
continued performance of the Company's sewage treatment facility and petroleum
purchases.
NOTE 7 - CAPITAL LEASES
The Company leased two pieces of equipment under capital lease
agreements with an 11.2% interest rate and purchase option which expired in
November 2001.
Property and equipment include the following assets recorded as capital
leases at September 30, 2001:
Equipment $84,372
Allowance for amortization (82,161)
----------
$ 2,211
----------
(B-III) F-12
ALL AMERICAN PLAZAS, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - ACCRUED EXPENSES
Accrued expenses consisted of the following at September 30, 2002 and
2001:
2002 2001
-------------------------------
Sales tax payable $112,354 $106,561
Accrued vacation 233,299 294,350
Accrued workmen's compensation 66,023 147,424
Environmental liability 182,500 171,900
Other accrued expenses 143,020 145,434
-------------------------------
$737,196 $865,669
-------------------------------
NOTE 9 - INCOME TAXES
Net deferred tax liabilities consist of the following components as of
September 30, 2002 and 2001:
2002 2001
-------------------------------
Deferred tax assets:
Accruals $ 243,100 $ 324,700
Allowance for doubtful accounts 87,200 108,300
State loss carryforward 90,000 0
Other 27,500 12,100
-------------------------------
TOTAL DEFERRED TAX ASSETS 447,800 445,100
Valuation allowance (90,000) 0
-------------------------------
NET DEFERRED TAX ASSET 357,800 445,100
-------------------------------
Deferred tax liabilities:
Prepaid expenses 139,500 84,500
Property and equipment 1,899,200 2,069,000
-------------------------------
TOTAL DEFERRED TAX LIABILITIES 2,038,700 2,153,500
-------------------------------
NET DEFERRED TAX LIABILITIES ($1,680,900) ($1,708,400)
-------------------------------
(B-III) F-13
ALL AMERICAN PLAZAS, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - INCOME TAXES (CONTINUED)
The components giving rise to the net deferred tax liabilities described
above have been included in the accompanying balance sheets as of September 30,
2002 and 2001 as follows:
2002 2001
-------------------------------
Current assets $ 108,500 $ 243,700
Noncurrent liabilities (1,789,400) (1,952,100)
-------------------------------
($1,680,900) ($1,708,400)
-------------------------------
Realization of deferred tax assets is dependent upon sufficient future
taxable income during the period that deductible temporary differences and
carryforwards are expected to be available to reduce taxable income. The net
change in the valuation allowance for the years ended September 30, 2002 and
2001 was an increase of $90,000 and $-0-, respectively.
At September 30, 2002, the Company has state net operating loss
carryforwards of approximately $900,000 that expire in 2012.
The provision for income taxes (benefits) consisted of the following at
September 30, 2002 and 2001:
2002 2001
-------------------------------
Federal:
Current ($189,000) $974,100
Deferred (21,200) (458,900)
-------------------------------
(210,200) 515,200
-------------------------------
State:
Current 0 143,400
Deferred (6,300) (130,700)
-------------------------------
(6,300) 12,700
-------------------------------
($216,500) $527,900
-------------------------------
The income tax provision differs from that which would result from
applying federal statutory tax rates to net income before income taxes due to
the effect of permanent differences between book and taxable income, such as
amounts paid for officer's life insurance and nondeductible expenses for meals
and entertainment.
(B-III) F-14
ALL AMERICAN PLAZAS, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - EMPLOYEE STOCK OWNERSHIP PLAN
Effective October 1, 1991, the Board of Directors adopted a resolution
to establish an Employee Stock Ownership Plan (ESOP) covering a majority of its
full-time employees. Under the Plan, the Company is permitted to make annual
contributions to a trust for the benefit of eligible employees in the form of
either cash or common shares of the Company. The Plan also permits a participant
who is entitled to a distribution from the Plan to elect such distribution in
the form of the Company's stock. If the participant makes such an election, the
Company is required to repurchase such shares at their fair value. Payment can
be made in the form of a lump sum payment or in equal annual installments in
accordance with the Plan provisions.
The Company is considering termination of its ESOP; however, no formal
plan of termination has been adopted. In the event the Plan is terminated,
participants' accounts would become 100% vested and the assets of the Plan would
be distributed to the participants. The Company would be required to repurchase
all outstanding shares at their fair value. As of September 30, 2002, the ESOP
plan holds 2,816.16 shares of the Company's Class A voting common stock. The
most recent independent appraisal valued these shares at $190 per share as of
September 30, 2001.
There were no contributions related to the Plan for the years ended
September 30, 2002 and 2001.
NOTE 11 - DEFERRED COMPENSATION PLAN AND PURCHASE OF CLASS B NON-VOTING SHARES
Effective October 1, 1993, the Company adopted a deferred compensation
arrangement for certain key employees. Under the Plan, participants receive
units, which entitle the holder to deferred compensation measured by the
estimated fair value of the Company's common stock. The number of units
distributed to each participant is based on annual results of operations. The
Company recognizes compensation expense immediately based on the estimated value
of the outstanding units. Rights of active participants at the date the Plan was
adopted vest immediately and any future participants' rights will vest ratably
over a five-year period. Upon participants' termination of employment, payment
is due in the form of ten equal annual installments, bearing interest.
Compensation expense was $-0- and $921 for the years ended September 30, 2002
and 2001, respectively. The liability under the Plan at September 30, 2002 and
2001 was $101,697 and $114,504, respectively. During 1998, two of the
participating employees ended their employment with the Company and during 2001
a third participating employee ended his employment. Amounts owed to these
individuals are being paid in accordance with the terms of the Plan. Included in
accrued expenses at September 30, 2002 and 2001 is $10,964 and $10,964,
respectively, and included in deferred compensation is $90,733 and $103,540,
respectively.
These three individuals also held 1,243 shares of Class B non-voting,
common stock which were purchased by the Company for $180 per share and $200 per
share during 1999 and 2001, respectively.
(B-III) F-15
ALL AMERICAN PLAZAS, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - OPERATING LEASES
The Company leases two truck stop facilities: Carlisle Texaco and
Breezewood Petro. The lease term ranges between five and ten years. The Company
also leases computer equipment under a four-year term.
The following is a schedule of future minimum lease payments required
under noncancellable lease agreements; these payments do not include renewal
options that are available with each of the leases:
Year ending September 30:
2003 $ 571,246
2004 495,358
2005 366,000
2006 91,500
--------------
$1,524,104
--------------
The total rental expense included in the income statements under lease
obligations for the years ended September 30, 2002 and 2001 was $762,246 and
$862,271, respectively. Rental expense includes both amounts paid under
noncancellable lease arrangements and month-tomonth lease arrangements.
NOTE 13 - SIGNIFICANT ESTIMATES
WORKERS' COMPENSATION INSURANCE
During the years ended September 30, 2002 through 1998, the Company
provided workers' compensation insurance under a premium only insurance policy
for which premiums are based upon payroll, claim history and the associated risk
factors. The Company recognizes expense in the accompanying statements of income
based upon the insurance company's premiums.
During prior years, the Company provided workers' compensation insurance
under a deductible/stop loss insurance policy for which premiums were based upon
the actual payroll and amounts to settle the claims incurred in a given year.
The total premium was subject to a ceiling based upon the aggregate deductible
amount plus the cost of the stop loss insurance which covered all claims in
excess of a deductible amount. The Company recognizes expense in the
accompanying statement of income based upon: the insurance company's basic
premiums, actual claims paid, estimated total reserves for open claims and
adjustments for changes in estimates related to paid loss or retrospective
insurance premiums which are based upon changes in incurred losses of
outstanding claims. Actual results could differ from these estimates. During
2002, the Company's estimate for liability under these prior year policies was
reduced by approximately $130,000 as a result of the claims outstanding at year
end.
(B-III) F-16
ALL AMERICAN PLAZAS, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - SIGNIFICANT ESTIMATES (CONTINUED)
ENVIRONMENTAL LIABILITY
In connection with the purchase of a majority interest in the Company on
June 14, 1995 by one of the Company's stockholder's, environmental studies were
performed on all real estate affected by the transaction. As a result of
findings from the initial investigation, further investigations were required
for two facilities' underground storage tanks. These investigations are
continuing, as well as certain remediation procedures; the nature and full
extent of future clean up and remediation costs have been estimated but not yet
fully determined.
As part of the stock redemption transaction, the selling stockholders
agreed to indemnify the Company for certain environmental costs incurred related
to these sites to the extent that the conditions giving rise to the
environmental liability existed prior to June 14, 1995. This indemnification was
limited to two-thirds of the costs incurred by the Company between $50,000 and
$1,250,000. The selling stockholders had placed $800,000 in an escrow account in
support of this indemnification. During fiscal year 2001, the Company released
the selling stockholders of all liability related to the agreements on these
sites and received the remaining funds that had been maintained in the escrow
account. This gain of approximately $246,000 was included in other income in the
statement of income for 2001. As of September 30, 2001, the escrow account has
been closed and all receivables from the indemnification fund have been
realized.
As indicated above, the Company has not yet determined the nature and
full extent of the future clean up and remediation effort. The Company's accrued
liability was $182,500 and $171,900 at September 30, 2002 and 2001,
respectively. Due to the uncertainty of the total future remediation costs, the
ultimate total cost could change in the coming year, as additional information
becomes available.
NOTE 14 - COMMITMENTS
The Company has a fuel supply agreement which obligates it to purchase a
significant portion of its diesel fuel from Petroleum Products Corporation
(Petroleum) through June 14, 2005. The contract does not call for any fixed or
minimum quantities. The agreement provides for pricing based on the average
daily prices of the four lowest posted prices of major suppliers.
The Company entered into franchise agreements with Petro Stopping
Centers, L.P. (Petro) for its Breezewood and Milton locations during 1998. In
accordance with these agreements, royalties are due to Petro based upon base
year sales. During the first three years of the agreements, percentages of base
year sales are to be excluded from royalties in the amounts of 100%, 35% and
15%, respectively, with 0% excluded in the fourth year and thereafter. For the
years ended September 30, 2002 and 2001, these royalty expenses totaled
approximately $408,000 and $387,000, respectively.
(B-III) F-17
ALL AMERICAN PLAZAS, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - CONTINGENCIES
The Company is currently, and is from time-to-time, subject to claims
and suits arising in the ordinary course of its business. In certain such
actions, plaintiffs request punitive or other damages or nonmonetary relief,
which may not be covered by insurance. The Company accrues for potential
liabilities involved in these matters as they become known and can be reasonably
estimated. In the Company's opinion, the various asserted claims and litigation
in which the Company is currently involved are not reasonably likely to have a
material adverse effect on the Company's operations or financial position.
However, no assurance can be given as to the ultimate outcome with respect to
such claims and litigation. The resolution of such claims and litigation could
be material to the Company's operating results.
NOTE 16 - GAIN ON SALE OF PROPERTY AND EQUIPMENT
On October 2, 2000, the Company completed the sale of its Carlisle All
American location to Petro Stopping Centers, LLP for approximately $8.5 million
resulting in a pre-tax gain of approximately $2.1 million. This gain is included
in other income for financial statement purposes.
Pursuant to the sale of this location, the Company entered into a
Restrictive Covenant Agreement. The terms of this agreement place certain
restrictions upon future uses of the Company's Carlisle Gables and SOCO
locations should ownership change hands. In exchange for entering into this
agreement, the Company received $500,000, which was included in the gain
described above.
In accordance with the requirements of the sale agreement for the
Carlisle All American location, $500,000 of the purchase price was placed into
an escrow account. The release of these funds is contingent upon the Company's
completion of the environmental Remedial Action Plan (the Plan) for the Carlisle
All American location and the Pennsylvania Department of Environmental
Protection certifying that no further work is required under the Plan. The
Company has included this amount in the above described gain because management
believes that the accrual for future environmental work at the Carlisle All
American location is adequate in all material respects at September 30, 2002 and
2001 (see Note 13).
NOTE 17 - CONCENTRATIONS OF RISK
During the years ended September 30, 2002 and 2001, the Company
purchased fuel of $73,137,436 and $81,650,981, from three and four vendors,
respectively. Trade accounts payable at September 30, 2002 and 2001 included
$1,670,372 and $3,278,698, respectively, to these vendors.
(B-III) F-18
ALL AMERICAN PLAZAS, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 - SUBSEQUENT EVENT
During the 2002 fiscal year, the Company began considering its strategic
options, which included the possible sale of all or substantially all of the
Company's stock or assets. As part of this strategy, the Company offered certain
key employees' bonuses in order to retain their services. These bonuses, which
total approximately $230,000, are payable in January 2003 and at the time the
Company is sold, provided the employees meet certain conditions. At September
30, 2002, the Company did not accrue these bonuses.
On December 13, 2002, the Company's majority stockholder signed a letter
of intent to sell his shares to an unrelated party. This sale is subject to,
among other conditions, the negotiations and execution of mutually satisfactory
agreements and the approval of all shareholders of the Company and of certain
franchisors.
(B-III) F-19
Beard Miller
Company LLP
--------------------------------------------
Certified Public Accountants and Consultants
INDEPENDENT AUDITOR'S REPORT ON SUPPLEMENTARY INFORMATION
To the Board of Directors and Stockholders
All American Plazas, Inc. and Subsidiaries
Bethel, Pennsylvania
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The supplementary
information is presented for purposes of additional analysis and is not a
required part of the basic consolidated financial statements. Such information
has been subjected to the auditing procedures applied in the audits of the basic
consolidated financial statements and, in our opinion, is fairly stated in all
material respects in relation to the basic consolidated financial statements
taken as a whole.
/s/ Beard Miller Company LLP
Reading, Pennsylvania
November 27, 2002
(B-III) F-20
ALL AMERICAN PLAZAS, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
CONSOLIDATED OPERATING EXPENSES
YEARS ENDED SEPTEMBER 30,
--------------------------------------
2002 2001
--------------------------------------
Wages and salaries $8,984,673 $10,032,726
Bonuses 1,395 0
Custodial labor 307,207 261,128
Employee health insurance 680,071 682,704
Employee meals 72,605 133,706
Environmental 88,503 67,780
Equipment rentals 151,324 244,640
Rent 605,300 602,356
Utilities 1,187,452 1,418,529
Repairs and maintenance 831,930 895,664
Supplies 884,799 954,139
Refuse and snow removal 267,168 311,227
Uniforms and laundry 227,519 288,022
Depreciation 1,665,831 1,677,847
Real estate taxes 287,044 285,114
Vehicle repairs 101,500 128,396
Advertising 396,970 416,947
Promotional fees 292,387 298,907
Travel and entertainment 3,004 10,719
Dues and subscriptions 43,429 34,552
Telephone 152,348 151,326
Insurance 822,663 1,026,897
Franchise fees 571,555 524,507
Payroll taxes 838,286 959,680
Miscellaneous taxes 13,462 13,528
Postage 10,557 11,751
Professional fees 3,211 6,561
Miscellaneous 88,066 105,803
--------------------------------------
$19,580,259 $21,545,156
--------------------------------------
(B-III) F-21
ALL AMERICAN PLAZAS, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
CONSOLIDATED GENERAL AND ADMINISTRATIVE EXPENSES
YEARS ENDED SEPTEMBER 30,
------------------------------------
2002 2001
------------------------------------
Wages and salaries $1,003,923 $1,109,112
Employee meals 14,778 13,945
Employee health insurance 38,579 57,520
Utilities 5,486 4,071
Building repairs 25,658 55,441
Equipment repairs 3,878 996
Equipment rentals 5,622 15,275
Vehicle repairs 33,374 39,206
Depreciation 39,925 40,432
Advertising 2,375 17,702
Travel and entertainment 12,418 25,016
Dues and subscriptions 15,551 15,508
Telephone 83,880 91,558
Office supplies 28,997 20,275
Officers' life insurance 24,000 28,500
Insurance 23,853 24,486
Payroll taxes 98,921 91,758
Postage 30,899 35,502
Miscellaneous taxes 25,747 38,988
Professional fees 241,890 163,391
Contributions (3,022) 31,040
Amortization 28,833 30,167
Promotional fees 44,433 47,960
Bad debt expense 120,000 120,000
Bad debts recovered (13,847) (15,402)
Collection 54,640 72,892
Miscellaneous 40,223 40,062
------------------------------------
$2,031,014 $2,215,401
------------------------------------
(B-III) F-22
ALL AMERICAN PLAZAS, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
CONSOLIDATED OTHER OPERATING INCOME AND OTHER INCOME
YEARS ENDED SEPTEMBER 30,
-------------------------
2002 2001
OTHER OPERATING INCOME
Commission income $ 477,873 $ 518,704
Vending income 650,165 477,582
Scales 746,933 738,743
Showers 185,706 211,388
-------------------------------------
$2,060,677 $1,946,417
-------------------------------------
OTHER INCOME
Other $ 181,290 $ 147,465
Interest income 43,715 327,625
Rents received 282,409 297,816
Gain on release of funds from the indemnification escrow
account 0 246,032
Gain on sale of assets 10,220 2,144,009
-------------------------------------
$ 517,634 $3,162,947
-------------------------------------
(B-III) F-23
ALL AMERICAN PLAZAS, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL REPORT
SEPTEMBER 30, 2002
(B-III) F-24
ALL AMERICAN PLAZAS, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
TABLE OF CONTENTS
PAGE NO.
FINANCIAL STATEMENTS:
Independent Auditor's Report F-1
Consolidated Balance Sheets F-2
Consolidated Statements of Income F-4
Consolidated Statements of Stockholders' Equity F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-8
SUPPLEMENTARY INFORMATION:
Independent Auditor's Report on Supplementary Information F-20
Consolidated Operating Expenses F-21
Consolidated General and Administrative Expenses F-22
Consolidated Other Operating Income and Other Income F-23
(B-III) F-25
ABLE ENERGY, INC. AND SUBSIDIARIES
FOR THE YEARS ENDED
JUNE 30, 2004 AND 2003
Consolidated Financial Statements:
Accountant's Report F-2
Consolidated Balance Sheets F-3 - F-4
Consolidated Statement of Operations F-5
Consolidated Statement of Changes
in Stockholder's Equity F-6
Consolidated Statements of Cash Flows F-7 - F-8
Notes to Consolidated Financial Statements F-9 - F-34
(B-IV) F-1
To The Board of Directors
Able Energy, Inc.
Rockaway, New Jersey 07866
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying consolidated balance sheets of Able Energy,
Inc. and subsidiaries as of June 30, 2004 and 2003 and the related consolidated
statements of operations, Stockholders' equity, and cash flows for each of the
three years in the period ended June 30, 2004. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the Standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Able Energy, Inc.
and subsidiaries as of June 30, 2004 and 2003, and the results of their
operations and their cash flows for each of the three years in the period ended
June 30, 2004 in conformity with accounting principles generally accepted in the
United States of America.
Simontacchi & Company, LLP
Rockaway, New Jersey
September 13, 2004
(B-IV) F-2
ABLE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS
JUNE 30,
--------
CURRENT ASSETS: 2004 2003
---- ----
Cash $ 1,309,848 $ 400,033
Accounts Receivable (Less Allowance for Doubtful
Accounts of $192,222 (2004) and $279,913 (2003) 2,436,554 2,661,808
Inventory 559,325 789,422
Notes Receivable - Current Portion 51,851 57,577
Other Receivable - Non-Compete - Current Portion 225,000 -
Miscellaneous Receivables 127,422 70,503
Prepaid Expenses 310,142 395,982
Insurance Claim Receivable - 349,526
Deferred Costs - Insurance Claims 424,547 703,675
Prepaid Expense - Income Taxes 2,063 2,063
Deferred Income Tax 54,923 73,777
Due From Officer 75,833 -
TOTAL CURRENT ASSETS 5,577,508 5,504,366
----------- -----------
PROPERTY AND EQUIPMENT:
Land 479,346 451,925
Buildings 1,000,268 946,046
Trucks 3,217,443 3,125,453
Fuel Tanks 674,765 1,455,501
Machinery and Equipment 911,177 769,817
Leasehold Improvements 607,484 597,759
Cylinders 183,773 755,496
Office Furniture and Equipment 200,640 200,640
Website Development Costs 2,330,794 2,274,575
----------- -----------
9,605,690 10,577,212
Less: Accumulated Depreciation and Amortization 4,819,707 4,331,055
----------- -----------
NET PROPERTY AND EQUIPMENT 4,785,983 6,246,157
----------- -----------
OTHER ASSETS:
Deferred Income Taxes 45,091 45,091
Deposits 137,015 165,541
Other Receivable - Non-Compete - Less Current Portion 675,000 -
Notes Receivable - Less Current Portion 675,295 177,793
Customer List, Less Accumulated Amortization of ($188,122)
2004 and 2003 422,728 422,728
Covenant Not to Compete, Less Accumulated Amortization of
$96,667 (2004) and $76,667 (2003) 3,333
Development Costs - Franchising 18,382 23,333
Deferred Closing Costs - Financing 103,360 27,573
----------- -----------
TOTAL OTHER ASSETS 2,080,204 862,059
----------- -----------
TOTAL ASSETS $12,443,695 $12,612,582
----------- -----------
See Accompanying Notes and Auditor's Report
(B-IV) F-3
ABLE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (CONT'D)
LIABILITIES & STOCKHOLDERS' EQUITY
JUNE 30,
--------
2004 2003
---- ----
CURRENT LIABILITIES:
Accounts Payable $ 1,703,005 $ 1,420,911
Note Payable - Bank 699,236 -
Note Payable - Other - 335,000
Current Portion of Long-Term Debt 371,838 1,238,982
Accrued Expenses 318,154 735,370
Accrued Taxes 31,582 98,612
Deferred Income 2,333 -
Customer Pre-Purchase Payments 1,495,906 936,680
Customer Credit Balances 698,899 416,644
Escrow Deposits - 5,000
Note Payable - Officer - 321,630
----------- -----------
TOTAL CURRENT LIABILITIES 5,320,953 5,508,829
Deferred Income 79,679 79,679
Deferred Income Taxes 91,176 70,310
Short Term Debt Refinanced - 3,170,000
Long Term Debt: less current portion 3,553,836 296,472
----------- -----------
TOTAL LIABILITIES 9,045,644 9,125,290
----------- -----------
STOCKHOLDERS' EQUITY:
Preferred Stock
Authorized 10,000,000 Shares Par Value $.001 per share
Issued - None
Common Stock
Authorized 10,000,000 Par Value $.001 per share Issued and
Outstanding Shares 2,013,250 (2004) and 2,013,250 (2003)
Paid in Surplus
Retained Earnings (Deficit) 2,014 2,014
TOTAL STOCKHOLDERS' EQUITY 5,711,224 5,711,224
(2,315,187) (2,225,946)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 3,398,051 3,487,292
----------- -----------
$12,443,695 $12,612,582
=========== ===========
See accompanying notes and auditor's report
(B-IV) F-4
ABLE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
JUNE 30
-------
2004 2003 2002
---- ---- ----
Net Sales $42,882,327 $43,409,488 $24,851,039
----------- ----------- -----------
Cost of Sales 37,267,469 36,905,395 20,577,220
----------- ----------- -----------
Gross Profit 5,614,858 6,504,093 4,273,819
----------- ----------- -----------
Expenses
Selling, General and Administrative Expenses 6,433,697 5,105,584 5,099,208
Depreciation and Amortization Expense 1,152,906 1,070,046 1,027,144
----------- ----------- -----------
Total Expenses 7,586,603 6,175,630 6,126,352
----------- ----------- -----------
Income (Loss) From Operations (1,971,745) 328,463 (1,852,533)
----------- ----------- -----------
Other Income (Expenses):
Interest and Other Income 149,803 112,543 199,351
Interest Expense (576,578) (435,992) (281,994)
Directors' Fees - (24,000) (20,400)
Gain on Insurance Recovery (Note 24) - 215,140 -
Other Income (Expense) (Note 22) - - -
Legal Fees Relating to Other Expense (261,862) (90,050) -
----------- ----------- -----------
Total Other Income (Expense) (688,637) (222,359) (103,043)
----------- ----------- -----------
Income (Loss) from Continuing Operations
Before Provision for Income Taxes (Credit) (2,660,382) 106,104 (1,955,576)
Provision for Income Taxes (Credit) 39,720 52,782 (8,037)
Net Income (Loss) From Continuing Operations (2,700,102) 53,322 (1,947,539)
----------- ----------- -----------
Discontinued Operations:
Income (Loss) from Discontinued Operations (57,630) 148,830 425,284
Gain on Sale of Subsidiary Operating Assets 2,668,490 - -
----------- ----------- -----------
Income (Loss) from Discontinued Operations 2,610,860 148,830 425,284
----------- ----------- -----------
Net Income (Loss) $ (89,242) $ 202,152 $(1,522,255)
=========== =========== ===========
Basic Earnings (Loss) per Common Share
Income (Loss) from Continuing Operations $ (1.34) $ .03 $ (.97)
=========== =========== ===========
Income (Loss) from Discontinued Operations $ 1.30 $ .07 $ .21
=========== =========== ===========
Diluted Earnings (Loss) per Common Share
Income (Loss) from Continuing Operations $ (1.34) $ .03 $ (.97)
=========== =========== ===========
Income (Loss) from Discontinued Operations $ 1.30 $ .07 $ .21
=========== =========== ===========
Weighted Average number of Common Shares
Outstanding 2,013,250 2,051,700 2,001,332
=========== =========== ===========
Weighted Average number of Common Shares Outstanding
Assuming Dilution 2,013,250 2,012,708 2,001,332
=========== =========== ===========
See accompanying notes and auditors' report
(B-IV) F-5
ABLE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 2004, 2003 AND 2002
Common Stock .001 PAR VALUE
Additional Total
Paid-in Retained Stockholders
Shares Amount Surplus Earnings Equity
------ ------ ------- -------- ------
Balance - June 30, 2001 2,000,000 $ 2,000 $5,662,775 $(905,843) $4,758,932
Sale of Common Stock 1,250 2 4,061 4,063
Issuance of Common Stock for
Payment of Directors' Fees 6,000 6 20,394 20,400
Net Loss (1,522,255) (1,522,255)
----------- -----------
Balance - June 30, 2002 2,007,250 $ 2,008 $5,687,230 (2,428,098) $3,261,140
Issuance of Common Stock for
Payment of Directors' Fees 6,000 6 23,994 24,000
NET INCOME 202,152 202,152
------- -------
Balance - June 30, 2003 2,013,250 2,014 $5,711,224 (2,225,946) $3,487,292
Net Loss (89,241) (89,241)
Balance - June 30, 2004 2,013,250 2,014 $5,711,224 (2,315,187) $3,398,051
========= ===== ========== =========== ==========
See accompanying notes and auditors' report
(B-IV) F-6
ABLE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED JUNE 30,
--------------------
2004 2003 2002
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES OF CONTINUING
OPERATIONS
Net Income (Loss) $ (89,242) $ 202,152 $(1,522,255)
(Loss) Income from Discontinued Operations (57,630) 148,830 425,284
Gain on Sale of Subsidiary (2,668,490)
Gain on Sale of Subsidiary - Non-Cash 1,400,000 - -
Income (Loss) - Continuing Operations (2,700,102) $ 53,322 $(1,947,539)
Adjustments to Reconcile Net Income to Net Cash used
by Operating Activities:
Depreciation and Amortization 1,152,906 1,070,046 1,027,144
Gain on Disposal of Equipment - (215,272) (331)
Directors' Fees - 24,000
(Increase) Decrease in:
Accounts Receivable 225,254 (728,282) (113,670)
Inventory 230,097 (383,998) (38,098)
Prepaid Expenses 85,840 (167,143) (117,275)
Prepaid Income Taxes - 670 81,171
Deposits 28,526 (87,000) 30,713
Deferred Income Tax - Asset 18,854 (8,074) (6,973)
Insurance Claim Receivable 349,526 - -
Deferred Costs - Insurance Claims 279,128 (614,816)
Increase (Decrease) in:
Accounts Payable 282,094 261,570 (496,146)
Accrued Expenses (484,246) 19,355 (151,103)
Customer Advance Payments 559,226 56,569 (444,138)
Customer Credit Balance 282,255 (131,692) 324,616
Deferred Income Taxes 20,866 15,598 (1,064)
Escrow Deposits (5,000) (23,472) 23,472
Deferred Income 2,333 - -
NET CASH (USED) PROVIDED BY OPERATING 327,557 (858,619) (1,829,221)
ACTIVITIES CONTINUING OPERATIONS CASH FLOW FROM
INVESTING ACTIVITIES
Purchase of Property and Equipment (1,216,540) (1,102,589) (941,489)
Web Site Development Costs (56,219) (74,064) 63,630
Increase in Deposits - (7,971) -
Disposition of Equipment 73,860 118,258 591
Payment on Notes Receivable - Sale of Equipment 8,224 13,359 7,939
Note Receivable - Montgomery - 655 644
Receivable - Officer (75,833) - -
Miscellaneous Receivables (56,919) 43,402 (75,272)
------------- ------------- ------------
(1,323,427) (1,008,950) (943,957)
------------- ------------- ------------
NET CASH (USED) PROVIDED BY INVESTING ACTIVITIES CONTINUING OPERATIONS
See Accompanying Notes and Auditors' Report
(B-IV) F-7
ABLE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (CONT'D)
CASH FLOW FROM FINANCING ACTIVITIES
Note Payable - Bank $ 700,000 $ - $ -
(Decrease) Increase in Notes Payable - Bank (1,270,764) (200,000) 1,470,000
Note Payable - Other (1,585,000) 1,085,000 -
Note Payable - Officer (321,630) 311,320 55,000
(Decrease) in Notes Payable - Bank - - (449,720)
Decrease in Long-Term Debt (3,377,095) (766,479) (520,509)
Increase in Long-Term Debt 5,117,315 844,869 408,745
Sale of Common Stock - - 24,463
------------- ------------- ------------
NET CASH (USED) PROVIDED BY FINANCING
CONTINUING OPERATIONS (737,174) 1,274,710 987,979
------------- ------------- ------------
DISCONTINUED OPERATIONS:
New Cash (Used) Provided by Discontinued Operations 1,055,720 734,332 554,741
Proceeds from Sale of Equipment and Inventory 3,000,000 - -
Cost of Sale (1,412,861) - -
------------- ------------- ------------
Net Cash (Used) Provided by Discontinued
Operations 2,642,859 734,332 554,741
------------- ------------- ------------
NET (DECREASE) INCREASE IN CASH 909,815 141,473 (1,230,458)
Cash - Beginning of Year 400,033 258,560 1,489,018
------------- ------------- ------------
Cash - End of Year $ 1,309,848 $ 400,033 $ 258,560
============= ============= ============
The Company had Interest Cash Expenditures of: $ 665,032 $ 416,049 $ 292,318
------------- ------------- ------------
The Company had Tax Cash Expenditures of: $ 9,638 $ 34,567 $ 13,400
See Accompanying Notes and Auditors' Report
(B-IV) F-8
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Able Energy,
Inc.and its subsidiaries. All material inter-company balances and transactions
were eliminated in consolidation.
MAJORITY OWNERSHIP
The Company is the majority owner, owning 70.6% of the issued shares of a
subsidiary, PriceEnergy.Com, Inc. in which their capital investment is $25,000.
The subsidiary has established an E-Commerce Operating System for the sale of
products through a network of suppliers originally on the East Coast of the
United States. The business became active in October 2000 (See Notes 8 and 13).
MINORITY INTEREST
The minority interest in PriceEnergy.Com, Inc. is a deficit and, in accordance
with Accounting Research Bulletin No. 51, subsidiary losses should not be
charged against the minority interest to the extent of reducing it to a negative
amount. As such, the losses have been charged against the Company, the majority
owner. The loss for year ended June 30, 2004 is $597,982 (See Notes 8 and 13).
NATURE OF OPERATIONS
Able Oil Company, Able Melbourne and Able Energy New York, Inc. are full service
oil companies that market and distribute home heating oil, diesel fuel and
kerosene to residential and commercial customers operating in the northern New
Jersey, Melbourne, Florida, and Warrensburg, New York respectively. Able Propane
installs propane tanks which it owns and sells propane for heating and cooking,
along with other residential and commercial uses. The operations of Able
Propanewere sold March 1, 2004 and the Company is no longer selling propane in
NewJersey (See Note 22).
The Company's operations are subject to seasonal fluctuations with a majority of
the Company's business occurring in the late fall and winter months.
Approximately 70% of the Company's revenues are earned and received from October
through March, and the overwhelming majority of such revenues are derived from
the sale of home heating fuel. However, the seasonality of the Company's
business is offset, in part, by the increase in revenues from the sale of diesel
and gasoline fuels during the spring and summer months due to the increased use
of automobiles and construction apparatus.
INVENTORIES
Inventories are valued at the lower of cost (first in, first out method) or
market.
(B-IV) F-9
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
JUNE 30, 2004 AND 2003
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is provided by using the straight-line method based upon the
estimated useful lives of the assets (5 to 40 years). Depreciation expense for
the year ended June 30, 2004 and 2003 amounted to $769,742 and $745,015,
respectively.
For income tax basis, depreciation is calculated by a combination of the
straight-line and modified accelerated cost recovery systems established by the
Tax Reform Act of 1986, and accelerated special depreciation per the Tax Acts of
2002 and 2003.
Expenditures for maintenance and repairs are charged to expense as incurred
whereas expenditures for renewals and betterments are capitalized.
The cost and related accumulated depreciation of assets sold or otherwise
disposed of during the period are removed from the accounts. Any gain or loss is
reflected in the year of disposal.
E-COMMERCE OPERATING SYSTEM DEVELOPMENT COSTS
Costs of $2,330,794 incurred in the developmental stage for computer hardware
and software have been capitalized in accordance with accounting pronouncement
SOP98-1. The costs are included in Property and Equipment and will be amortized
on a straight line basis during the estimated useful life, 5 years. Operations
commenced in October 2000. Amortization for the years ended June 30, 2004 and
2003 amounted to $461,823 and $445,842, respectively.
INTANGIBLE ASSETS
Intangibles are stated at cost and amortized as follows:
Customer Lists of $571,000 related to the Connell's Fuel Oil Company acquisition
on October 28, 1996, by Able Oil Company are being amortized over a
straight-line period of 15 years. The current period amortization also includes
a customer list of $39,850 and Covenant Not To Compete of $100,000 relating to
the acquisition from B & B Fuels on August 27, 1999, is being amortized over a
straight-line period of 10 and 5 years, respectively. The amortization for the
years ended June 30, 2004 and 2003 amounted to $29,191, each year.
In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 142, "Goodwill and Other Intangible
Assets" ("SFAS 142"). SFAS 142 requires goodwill and other intangible assets to
be tested for impairment under certain circumstances, and written off when
impaired, rather than being amortized as previous standards required, as such,
effective July 1, 2001, the Customer List will no longer be amortized for
financial statement purposes.
(B-IV) F-10
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
JUNE 30, 2004 AND 2003
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
For income tax basis, the Customer Lists and the Covenant Not To Compete are
being amortized over a straight-line method of 15 years as per the Tax Reform
Act of 1993.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Although these estimates are based on management's knowledge of current events
and actions it may undertake in the future, they may ultimately differ from
actual results.
INCOME TAXES
Effective January 1, 1997, all the subsidiaries, which were S-Corporations,
terminated their S-Corporation elections. The subsidiaries are filing a
consolidated tax return with Able Energy, Inc.
Effective January 1, 1997, the Company has elected to provide for income taxes
based on the provisions of Financial Accounting Standards Board ("FASB")
Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes", which requires recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been included in
the financial statements and tax returns in different years. Under this method,
deferred income tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
CONCENTRATION OF CREDIT RISK
The Company performs on-going credit evaluations of its customers' financial
conditions and requires no collateral from its customers.
Financial instruments which potentially subject the Company to concentrations of
credit risk consists of checking and savings accounts with several financial
institutions in excess of insured limits. The excess above insured limits is
approximately $1,093,621. The Company does not anticipate non-performance by the
financial institutions.
CASH
For the purpose of the statement of cash flows, cash is defined as balances held
in corporate checking accounts and money market accounts.
ADVERTISING EXPENSE
Advertising costs are expensed at the time the advertisement appears in various
publications and other media. The expense was $651,302 and $416,712 for the
years ended June 30, 2004 and 2003, respectively.
(B-IV) F-11
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
JUNE 30, 2004 AND 2003
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
FAIR VALUE OF FINANCIAL INSTRUMENTS
Carrying amounts of certain of the Company's financial instruments, including
cash and cash equivalents, accrued compensation, and other accrued liabilities,
approximate fair value because of their short maturities.
REVENUE RECOGNITION
Sales of fuel and heating equipment are recognized at the time of delivery to
the customer, and sales of equipment are recognized at the time of installation.
Revenue from repairs and maintenance service is recognized upon completion of
the service. Payments received from customers for heating equipment service
contracts are deferred and amortized into income over the term of the respective
service contracts, on a straight line basis, which generally do not exceed one
year.
COMPUTATION OF NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share is computed using the weighted-average number
of common shares outstanding during the period. Diluted net income per share is
computed using the weighted-average number of common and dilutive potential
common shares outstanding during the period. Diluted net loss per share is
computed using the weighted-average number of common shares and excludes
dilutive potential common shares outstanding, as their effect is antidilutive.
Dilutive potential common shares primarily consist of employee stock options.
IMPAIRMENT OF LONG LIVED ASSETS
Long-lived assets to be held and used are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of such
assets may not be recoverable. Measurement of an impairment loss for long-lived
assets that management expects to hold and use is based on the fair value of the
asset. Long-lived assets to be disposed of are reported at the lower of carrying
amount or fair value less costs to sell.
GOODWILL AND INTANGIBLE ASSETS
In June 2001, FASB approved two new pronouncements: SFAS No. 141, "Business
Combinations", and SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS
No. 141 applies to all business combinations with a closing date after June 30,
2001. This Statement eliminates the pooling-of-interests method of accounting
and further clarifies the criteria for recognition of intangible assets
separately from goodwill.
(B-IV) F-12
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
JUNE 30, 2004 AND 2003
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
SFAS No. 142 eliminates the amortization of goodwill and indefinite-lived
intangible assets and initiates an annual review for impairment. Identifiable
intangible assets with a determinable useful life will continue to be amortized.
The amortization provisions apply to goodwill and other intangible assets
acquired after June 30, 2001. Goodwill and other intangible assets acquired
prior to June 30, 2001 will be affected upon adoption. The Company has adopted
SFAS No. 142 effective July 1, 2001, which will require the Company to cease
amortization of its remaining net customer lists balance and to perform an
impairment test of its existing customer lists and any other intangible assets
based on a fair value concept.
The Company has reviewed the provisions of these Statements. Based upon an
assessment of the customer lists, there has been no impairment. As of June 30,
2001, the Company has net unamortized customer lists of $422,728.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 2003, the FASB issued FASB Interpretation ("FIN") No. 46-R,
"Consolidation of Variable Interest Entities". FIN No. 46-R, which modifies
certain provisions and effective dates of FIN No. 46, sets forth criteria to be
used in determining whether an investment in a variable interest entity should
be consolidated, and is based on the general premise that companies that control
another entity through interests other than voting interests should consolidate
the controlled entity. The provisions of FIN No. 46 became effective for the
Company during the third quarter of Fiscal 2004. The adoption of this new
standard did not have any impact on the Company's financial position, results of
operations or cash flows.
SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure (an amendment of FASB Statement No. 123)." In December 2002, the FASB
issued SFAS No. 148, which amends SFAS No. 123, "Accounting for Stock-Based
Compensation," and provides alternative methods of transition for a voluntary
change to the fair value-based method of accounting for stock-based employee
compensation; SFAS No. 148 also amends the disclosure requirements of SFAS No.
123 and APB Opinion No. 28, "Interim Financial Reporting," to require prominent
disclosures in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results. The provisions of SFAS No. 148 are effective for
financial statements for periods ending after December 15, 2002. The Company
will adopt SFAS No. 148 effective July 1, 2003. It currently has no effect on
the Company.
(B-IV) F-13
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
JUNE 30, 2004 AND 2003
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
RECENT ACCOUNTING PRONOUNCEMENTS (CONT'D)
DEBT EXTINGUISHMENTS
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements Nos.
4, 44 and 64, Amendment of FASB Statement No. 13, and technical Corrections."
Among other things, this statement rescinds SFAS No. 4, "Reporting Gains and
Losses from Extinguishment of Debt" (SFAS No. 4), which required all gains and
losses from extinguishment of debt to be aggregated and, if material, classified
as an extraordinary item, net of the related income tax effect. As a result, the
criteria in Accounting Principles Board Opinion No. 30, "reporting the Results
of Operations - Reporting the Effects of Disposal of a Segment of a Business,
and Extraordinary, Unusual and Infrequently Occurring Events and Transactions,"
which requires gains and losses on extinguishment of debts to be classified
asincome or loss from continuing operations, will now be applied. We adopted the
provisions of this statement as of July 1, 2002, as it was effective for years
beginning after June 15, 2002.
In December, 2003, the Financial Accounting Standards Board ("FASB") issued a
revision to SFAS No. 132, "Employers' Disclosures about Pensions and Other Post
retirement Benefits." This revised statement requires additional annual
disclosures regarding types of pension plan assets, investment strategy, future
plan contributions, expected benefit payments and other items. The statement
also requires quarterly disclosure of the components of net periodic benefit
cost and plan contributions. This currently has no effect on the Company.
In May 2003, the FASB issued SFAS No,. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity". This statement
affects the classification, measurement and disclosure requirements of certain
freestanding financial instruments including mandatorily redeemable shares. This
currently has no effect on the Company's operations.
ASSET RETIREMENT OBLIGATIONS
Effective January 1, 2003, the Company has adopted SFAS No. 143, "Accounting for
Asset Retirement Obligations" (SFAS No. 143). This statement provides the
accounting for the cost of legal obligations associated with the retirement of
long-lived assets. SFAS No. 143 requires that companies recognize the fair value
of a liability for asset retirement obligations in the period in which the
obligations are incurred and capitalize that amount as part of the book value of
the long-lived asset. SFAS No. 143 also precludes companies from accruing
removal costs that exceed gross salvage in their depreciation rates and
accumulated depreciation balances if there is no legal obligation to remove the
long-lived assets. The adoption had no current effect on the financial records.
(B-IV) F-14
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
JUNE 30, 2004 AND 2003
NOTE 2 NOTES RECEIVABLE
A. The Company has a Receivable from Able Montgomery, Inc. and Andrew W. Schmidt
related to the sale of Able Montgomery, Inc. to Schmidt, and truck financed by
Able Energy, Inc. No payments of principal or interest had been received for
more than one year. A new note was drawn dated June 15, 2000 for $170,000,
including the prior balance, plus accrued interest. The Note bears interest at
9.5% per annum and payments commence October 1, 2000. The payments will be
monthly in varying amount each year with a final payment of $55,981.07 due
September 1, 2010. No payments were received in the year ended December 31,
2000. In February 2001, two (2) payments were received in the amount $2,691.66,
interest only. In September 2001, $15,124.97 was received covering payments from
December 2000 through October 2001, representing interest of $14,804.13 and
principal of $320.84. Payments were received in November and December 2002,
representing December 2001 and January 2002, a total of $3,333.34; interest of
$2,678.88, and principal of $654.46. No payments have been received in more than
18 months.
The note is secured by a pledge and security agreement and stock purchase
agreement (Stock of Able Montgomery, Inc.), dated December 31, 1998, and
theassets of Andrew W. Schmidt with the note dated June 15, 2000. The income on
the sale of the company in December 1998 and the accrued interest on the drawing
of the new note are shown as deferred income in the amount of $79,679.18 to be
realized on collection of the notes.
Management has informed us they are in negotiations with Andrew Schmidt. The
amount due will be paid to bring the note current, plus interest, or the Company
will foreclose and take the stock of Able Montgomery, Inc. and assume the
operations of the Company as a distributor of #2 oil. Andrew Schmidt will inform
the Company by approximately September 30, 2004, of his decision. Management has
stated that the value of the collateral will cover the amount due.
Maturities of the Note Receivable are as follows:
For the 12 Months Ending
June 30, Principal Amount
-------- ----------------
2005 $ 31,607
2006 12,511
2007 13,753
2008 15,118
2009 16,619
Balance 79,093
--------
Total $168,701
========
(B-IV) F-15
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
JUNE 30, 2004 AND 2003
NOTE 2 NOTES RECEIVABLE (CONT'D)
B. Able Oil Company has three (3) Notes Receivable for the sale of oil delivery
trucks to independent drivers who also deliver oil for the Company. Two notes
bear interest at the rate of 12% per annum and one Note 9% annum. One note began
December 1998, one began February 1999 and one began January 2004. The notes are
payable eight (8) months per year September through April, the oil delivery
season.
Maturities of these Notes Receivable are as follows:
For the 12 Months Ended
June 30, Principal Amount
-------- ----------------
2005 $ 20,244
2006 14,836
2007 6,843
2008 5,922
2009 6,287
2010 4,313
---- --------
Total $ 58,445
========
NOTE 3 INVENTORIES
Heating Oil $ 232,364 $ 241,107
Diesel Fuel 19,998 18,921
Kerosene 4,906 2,534
Propane 13,461 8,851
Parts, Supplies and Equipment 288,596 518,009
--------- ---------
TOTAL $ 559,325 $ 789,422
========= =========
NOTE 4 NOTES PAYABLE BANK
On September 22, 2003, the Company closed a new loan facility with UPS Capital
Business Credit. The facility is a $4,300,000 term loan, payable over fifteen
(15) years with interest at the prime rate, plus 1.75%, and a line of credit of
$700,000 with interest at prime plus 1.00%. The payments on the term loan, due
the first of each month, include principal, interest of $35,900.04, and real
estate tax escrow of $2,576.63, totaling $38,476.67. Real estate tax escrow of
$7,745.03 was paid at closing. September 30, 2003 was the first payment and
included nine (9) days of interest plus principal totaling $20,382.02. Any
payment received more than five (5) days after the due date is subject to a late
charge of 5% of such payment. Upon the occurrence of an event of default, the
loan shall bear interest at five percentage points (5%) above the rate otherwise
in effect under the loan.
On March 3, 2004, the Company repaid $1,100,000 of the term loan principal
balance. The monthly payments of principal and interest were reduced to
$26,672.65, commencing with the payment due April 1, 2004 which was paid by the
Company in March 2004. All other terms of the loan will remain the same (See
Note 22)
(B-IV) F-16
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
JUNE 30, 2004 AND 2003
NOTE 4 PAYABLE (CONT'D)
1. The collateral will be as follows for the term loan:
i. A first mortgage on properties located at 344 Route 46,
Rockaway, NJ and 38 Diller Avenue, Newton, NJ
ii. A first security interest in equipment and fleet vehicles
iii. A first security interest in the customer list
TERMS AND COLLATERAL RELATED TO THE REVOLVING LINE OF CREDIT
Interest is payable monthly on the first day of each month, in arrears. This
loan shall be paid down annually for a minimum of thirty (30) days at the
borrower's discretion, but prior to renewal. The maturity is annually renewing
from the closing date. This part of the loan is secured by a first priority lien
on accounts receivable and inventory.
The Revolving Line of Credit will have rates supported by 75% on accounts
receivable less than 90 days outstanding, plus 50% on inventory. The outstanding
balance at June 30, 2004 is $700,000.
The loan facility is guaranteed by Able Energy, Inc. Officers loans are
subordinated to the lender and will remain standstill until all debt due to the
lender is paid in full.
The Agreement contains certain financial covenants as enumerated in the
Agreement.
The Company paid the following loans on September 22, 2003:
Fleet Bank $ 1,340,644 (including interest and
fees of $70,644)
KMA Associates 750,000
Jeff Will 505,000 (including interest of
$5,000)
Estate of Birdsal 657,895 (including interest of
$7,895)
Long-term Debt 1,084,866
-----------
Total Refinance 4,338,405
Other Fees and Costs Paid at
Closing 123,198
-----------
Total $ 4,461,603
===========
The loan advanced was $4,300,000, the balance of $161,603 was paid by
the Company.
The balance of the term loan at June 30, is $ 3,064,523
Included in current portion of long-term debt 144,422
-----------
Included in long-term debt - less current portion $ 2,920,101
===========
(B-IV) F-17
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
JUNE 30, 2004 AND 2003
On October 22, 2001, the Company and its subsidiaries, either as Borrower or
Guarantor, entered into a loan and security Agreement with Fleet National Bank.
The bank provided the following credit facility.
A borrowing base of 75% of Eligible Accounts Receivable, as defined in the
Agreement, plus $500,000 against the value of the Company's customer list, for a
total amount of $1,500,000. The revolving credit may also be used for Letters of
Credit, with the lender's approval.
The Letters of Credit will have an annual fee of 1.25% of the face value of each
Letter of Credit. The applicable interest rate on the revolving credit advances
will be the bank's prime rate or Libor interest rate, plus 2.75%, see below
increase in interest rate. Interest is to be paid on the amount advanced on the
last day of each month.
The Agreement had an expiration date of November 30, 2002. Fleet Bank did not
renew the credit facility upon expiration of the Agreement on November 30, 2002.
Effective December 1, 2002, the bank is charging an additional annual interest
of 4% as the Note is in default. The total current interest rate charged was
8.25% per annum. The Company and Lender entered into a Forbearance Agreement,
where the Lender is willing to forbear until May 31, 2003 from exercising its
rights and remedies. The Lender will receive a forbearance fee of $50,000 at May
31, 2003, reduced by $2,500 for each week prior to May 31, 2003, that the credit
facility and all charges are paid in full, with a minimum forbearance fee of
$15,000. The interest charged is at 8.25% per annum. The principal amount
outstanding was $1,270,000. The loan and the $50,000 forbearance fee were not
paid at May 31, 2003. The Note payable plus forbearance fee, accrued interest
and other costs were paid in full on September 22, 2003, in the amount of
$1,340,644 (See Note 4 A). The bank released all the collateral securing the
Company debt.
(B-IV) F-18
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
JUNE 30, 2004 AND 2003
NOTE 5 NOTES PAYABLE
A. The Company has borrowed $500,000 from an unrelated individual. The Note
was dated June 26, 2001 with interest at 12% per annum. The interest will be
paid monthly at $5,000 per month commencing on August 1, 2001. The Note will
mature on June 26, 2002 unless the borrower (the Company), at its option, elects
to extend the maturity date to December 26, 2002. The Company has exercised its
option and has extended the Note to December 26, 2002. The lender has granted
the Company an additional extension at the same terms to June 26, 2003. The
Lender has granted the Company an extension to July 26, 2003. The Note may be
prepaid in whole or part from time-to-time without penalty. No principal
payments have been made on the Note. At the maturity date, a final payment of
the unpaid principal and interest shall be due and payable. In connection with
this Note, the Company has issued the lender warrants to purchase 40,000 shares
of its common stock at $4 per share. The warrants vest immediately and must be
exercised no later than June 26, 2004. The warrants have not been registered
under the Securities Act of 1933. The Note was paid in full on September 22,
2003 (See Note 4 A). The same individual loaned the Company $300,000 on February
12, 2004, to be paid $100,000 per month plus interest, at 6% per annum on March,
April and May 15, 2004. The balance at June 30, 2004 was $ -0-.
B. The Company has borrowed $750,000 from an unrelated company. The
mortgage and Note are dated September 13, 2002. The term of the Note is for one
(1) year. Payments of interest only on the outstanding principal balance shall
be paid monthly at a rate of 10%. The first payment was paid on November 1, 2002
and on the first day of each month thereafter until October 1, 2003, when the
Note shall mature and all principal and accrued interest shall be due and
payable in full. The Note was paid in full on September 22, 2003 (See Note 4 A).
C. The Company has borrowed $335,000 from an unrelated Company. The
mortgage and Note are dated April 16, 2003. The loan is to Able Energy New York,
Inc., a wholly owned subsidiary. The loan is collateralized by a mortgage on
property in Lake George, New York owned by the subsidiary and a second mortgage
on property in Bolton, New York, owned by the Company's CEO who is also
aguarantor on the loan. Payments of interest only on the outstanding principal
balance at a rate of 14% per annum, are payable monthly. The first payment was
paid June 1, 2003. The entire amount, both principal and accrued interest shall
be due and payable on May 1, 2004. The loan was paid in full on March 11, 2004
(B-IV) F-19
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
JUNE 30, 2004 AND 2003
NOTE 6 LONG TERM DEBT
Mortgage note payable dated, August 27, 1999, related to the purchase of B & B
Fuels facility and equipment. The total Note is $145,000. The Note is payable in
the monthly amount of principal and interest of $1,721.18 with and interest rate
of 7.5% per annum. The initial payment was made on September 27, 1999, and
continues monthly until August 27, 2009 which is the final payment. The Note is
secured by a mortgage made by Able Energy New York, Inc. on property at 2 and 4
Green Terrace and 4 Horican Avenue, Town of Warrensburg, Warren County, New
York. The balance due on this Note at June 30, 2004 and June 30, 2003 was
$88,242 and $91,708, respectively.
Mortgage note payable dated, August 31, 1999, related to the purchase of the
facility and equipment in Rockaway, New Jersey by Able Energy Terminal, LLC
("Terminal"). The Note is in the amount of $650,000.
Pursuant to Section 4.4 of the Agreement of Sale to purchase the Terminal, the
Principal Sum of the $650,000 Note shall be reduced by an amount equal to
one-half of all sums expended by Borrower on the investigation and remediation
of the property provided, however, that the amount of said reduction shall not
exceed $250,000 (the "Remediation Amount").
The Note is collateralized by the property and equipment purchased and
assignment of the leases. The Note was paid in full on September 22, 2003 in the
amount of $650,000 plus interest of $7,895 (See Note 4 A).
(B-IV) F-20
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
JUNE 30, 2004 AND 2003
NOTE 6 LONG TERM DEBT (CONT'D)
INTERESTING RATE AT MATURITIES OUTSTANDING DEBT AT OUTSTANDING DEBT AT
JUNE 30, 2004 AND 2003 6/30/2004 6/30/2003
Notes Payable
Collateralized by Truck
and Vans 0.00 - 9.147% 11/17/03-10/1/07 $ 26,904 $ 147,583
Capitalize Leases Payable
Collateralized by Trucks
and Vans Purchased 5.689 - 12.506% 12/1/03-5/10/08 708,570 782,111
Capitalize Leases Payable
Collateralized by Propane
Tanks (See Below) 8.450 - 16.500% 11/1/05-6/1/06 - 126,275
Notes Payable
Collateralized by Office
and Computer Equipment 4.699 - 16.196% 9/1/04-5/27/08 37,435 330,445
Lease Payable
Collateralized by Computer
Equipment and Software
9.56% SEPT 1, 2003 - 47,317
$ 772,909 $1,433,731
========= ==========
The above notes are all collateralized by the equipment and/or furniture
purchased. The capitalized leases payable are lease/purchase agreements with a
small purchase price at the end of the lease. The above notes are represented by
Notes Payable to Payees. Long-term debt at June 30, 2003, in the amount of
$1,178,184 and reduced by subsequent payments to $1,084,866 was paid in full on
September 22, 2003 (See Note 4A).
Maturities on the Notes Payable subsequent to June 30, 2004 are as follows:
FOR THE YEAR ENDING
JUNE 30, PRINCIPAL AMOUNT
-------- ----------------
2005 $ 371,839
2006 362,507
2007 334,567
2008 325,318
2009 279,587
----------
BALANCE 2,251,856
==========
(B-IV) F-21
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
JUNE 30, 2004 AND 2003
NOTE 7 INCOME TAXES
Effective January 1, 1997 the Company adopted Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes.
The differences between the statutory Federal Income Tax and Income Taxes is
accounted for as follows:
2004
AMOUNT PERCENT
------ -------
Statutory Federal Income Tax $ 27,804 15.0%
State Income Tax 11,916 7.6
-------- -----
Income Taxes $ 39,720 22.6%
======== =====
Income Taxes consist of:
Current $ -
Deferred $ 39,720
TOTAL 39,720
========
(Note X) The State of New Jersey has suspended the use of carryforward losses
for the years 2002 and 2003. As such, state income taxes of $45,091 have been
shown as a deferred asset and as income taxes payable. New Jersey carryforward
is treated separately by the Company. Able Oil Company has a New Jersey
Operating Loss of $501,010 which can not be utilized in the year ended June 30,
2003, the State Income Tax on income in excess of the NOL $45,258 is shown as
state income tax. Under current New Jersey law, the carryforward will be
available after 2003, the Company's fiscal year ending June 30, 2005.
(B-IV) F-22
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
JUNE 30, 2004 AND 2003
NOTE 7 INCOME TAXES (CONT'D)
The types of temporary differences between the tax bases of assets and
liabilities and their financial reporting amounts that give rise to a
significant portion of the deferred tax liability and deferred tax asset and
their approximate tax effects are as follows at:
Amount Percent Amount Percent
------ ------- ------ -------
Statutory Federal Income Tax $ 204,432 34.0% $ (5,608) (15.0%)
Federal Income Tax Reduction due to
Carryforward loss (199,165)
State Income Tax 45,258 5.9 (2,429) (7.6%)
State Income Tax (Note X) 45,091
State Income Tax Reduction due to
Carryforward loss (42,834)
Income Taxes $ 52,782 39.9% $ (8,037) (22.6%)
========== ===== ========== =======
Income Taxes consist of:
Current
Deferred
TOTAL $ 45,258 $ -
7,524 (8,037)
---------- ----------
$ 52,782 $ (8,037)
========== ==========
JUNE 30, 2004
TEMPORARY
DIFFERENCE TAX EFFECT
Depreciation and Amortization $ (339,045) $(91,176)
Allowance for Doubtful Accounts 192,222 50,888
Gain on Sale of Subsidiary 18,766 4,035
New Jersey Net Operating Loss Carryforward 501,010 45,091
(See Note X, Prior Page)
JUNE 30, 2003
TEMPORARY
DIFFERENCE TAX EFFECT
Depreciation and Amortization $ (241,993)
Allowance for Doubtful Accounts 279,913 $(70,310)
Gain on Sale of Subsidiary 18,766 69,742
New Jersey Net Operating Loss Carryforward 501,010 4,035
(See Note X, Prior Page) 45,091
(B-IV) F-23
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
JUNE 30, 2004 AND 2003
Note 7 Income Taxes (Cont'd)
Able Energy, Inc., et al, open years are December 31, 2000 and June 30, 2001 and
2002 and 2003. The Company has a Federal net operating loss carryforward of
approximately $2,302,315. The net operating loss expires between June 30, 2019
and 2021. Able Energy, Inc. and Price Energy.Com, Inc. has a New Jersey Net
Operating Loss Carryforward of approximately $489,374 and $2,217,251,
respectively, which can be utilized in the year ending June 30, 2005.
These carryforward losses are available to offset future taxable income, if any.
The Company's utilization of this carryforward against future taxable income is
subject to the Company having profitable operations or sale of Company assets
which create taxable income. For the year ended June 30, 2004, $-0- of net
income has been utilized against the net operating loss carry forward. At this
time, the Company believes that a full valuation allowance should be provided.
The component of the deferred tax asset as of June 30, 2004 are as follows:
Net Operating Loss Carryforward - Tax Effect $ -0-
Valuation Allowance -
---------
Net Deferred Tax based upon Net
Operating Loss Carryforward $ -0-
=========
NOTE 8 RECEIVABLE - SUBSIDIARY
The Company has a Note Receivable from PriceEnergy.Com, Inc. for advances made
in the development of the business, including hardware and software costs. All
of PriceEnergy.Com, Inc.'s assets are pledged as collateral to Able Energy, Inc.
The amount of the note is $1,350,000 dated November 1, 2000 with interest at 8%
per annum payable quarterly. Principal payments to begin two years after the
date of the Note, November 1, 2002. Through June 30, 2004, no principal has been
paid. Interest, in the amount of $54,000 has been accrued for the six months
ended December 31, 2002. No interest was accrued for the six months ended June
30, 2003 and the year ended June 30, 2004 as the note is non performing. Unpaid
accrued interest due through June 30, 2003 and 2004 is $234,000. The Note,
accrued interest and interest expense have been eliminated in the consolidated
financial statements (See Notes 1 and 13). Able Oil Company has a Note
Receivable originally dated September 30, 2002 in the amount of $1,510,372.73
from PriceEnergy.Com, Inc. The Note has been updated for transactions through
June 30, 2004, resulting in a balance of $2,070,082.46 with interest at 8% per
annum, to be paid quarterly. Principal payments to begin one year after date of
Note, October 1, 2003, and continue monthly thereafter. The Note is the result
of the transference of the unpaid accounts receivable which resulted from the
sale of heating oil through PriceEnergy.Com, Inc. Able Oil Company has a second
position as collateral in all of the assets of PriceEnergy.Com, Inc. to Able
Energy, Inc. Interest in the amount of $30,000 has been recorded at June 30,
2003. No interest has been recorded for the six months ended June 30, 2003, or
for the year ended June 30, 2004. Any payments will go to pay principal. The
note receivable accrued interest and interest income have been eliminated in
consolidation against the amounts on PriceEnergy.Com, Inc.
(B-IV) F-24
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
JUNE 30, 2004 AND 2003
NOTE 9 PROFIT SHARING PLAN
Effective January 1, 1997, Able Oil Company established a Qualified Profit
Sharing Plan under Internal Revenue Code Section 401-K. The Company matches 25%
of qualified employee contributions. The expense was $26,579 (2004) and $24,213
(2003), for the year ended June 30.
NOTE 10 COMMITMENTS AND CONTINGENCIES
Able Oil Company is under contract to purchase #2 oil as follows:
COMPANY PERIOD TOTAL GALLONS GALLONS OPEN OPEN DOLLAR
COMMITMENT COMMITMENT AT
6/30/04 6/30/04
PETROCOM 11/1/04-3/31/05 126,000 126,000 $130,272
CONECTIVE ENERGY 10/1/04 - 4/30/05 336,000 336,000 342,762
------- ------- --------
TOTAL 462,000 462,000 $473,034
======= ======= ========
The Company is subject to laws and regulations relating to the protection of the
environment. While it is not possible to quantify with certainty the potential
impact of actions regarding environmental matters, in the opinion of management,
compliance with the present environmental protection laws will not have a
material adverse effect on the financial condition, competitive position, or
capital expenditures of the Company.
In accordance with the agreement on the purchase of the property on Route 46,
Rockaway, New Jersey by Able Energy Terminal, LLC, the purchaser shall commence
after the closing, the investigation and remediation of the property and any
hazardous substances emanating from the property in order to obtain a No Further
Action letter from the New Jersey Department of Environmental Protection
(NJDEP). The purchaser will also pursue recovery of all costs and damages
related thereto in the lawsuit by the seller against a former tenant on the
purchased property. Purchaser will assume all responsibility and direction for
the lawsuit, subject to the sharing of any recoveries from the lawsuit with the
seller, 50-50.
The seller by reduction of its mortgage will pay costs related to the above up
to $250,000 (see Note 6). A settlement has been achieved by the Company with
regard to the lawsuit. The settlement provides for a lump sum payment of
$397,500 from the defendants to the Company. In return, the defendants received
a release from the Estate (the Seller) and a release and indemnification from
the Company. The defendants provided a release to Able Energy and the Estate.
Pursuant to the original agreement, the Estate receives 50% of the settlement
amount, net of attorney fees.
(B-IV) F-25
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
JUNE 30, 2004 AND 2003
NOTE 10 COMMITMENTS AND CONTINGENCIES (CONT'D)
This has been amended by an agreement dated November 5, 2001. The entire
settlement, net of attorney fees, was collected and placed in an attorney's
escrow account for payment of all investigation and remediation costs. Able
Energy Terminal, LLC has incurred costs of $102,956 to June 30, 2004 which are
included in Prepaid Expenses and must be presented to the attorney for
reimbursement. Per management, the New Jersey Department of Environental
Protection (NJDEP) must issue an approval for treated water run-off. When
approval is received, reimbursement can be made upon approval of the attorney
and the Estate.
The costs of the cleanup pursuant to the Agreement of Sale must be shared
equally (50/50) by the seller and purchaser up to Seller's cap of $250,000.
Seller's contribution to the cleanup is in the form of a reduction to the Note
and not by direct payments. The note has been paid in full. As such, any payment
by the Estate must be direct payments. Payments will begin when and if costs
exceed $397,500. In the opinion of management, the Company will not sustain
costs in this matter which will have a material adverse effect on its financial
condition.
Following an explosion and fire that occurred at the Able Energy Facility in
Newton, NJ on March 14, 2003, and through the subsequent clean up efforts, Able
Energy has cooperated fully with all local, state and federal agencies in their
investigations into the cause of this accident.
On April 2, 2003, Able Energy received a Notice Of Violation from the New Jersey
Department of Community Affairs ("DCA") citing a total of 13 violations to the
New Jersey Administrative Code, Liquefied Petroleum Gas. Twelve of the
violations were assessed a penalty of $500 each. One of the violations,
regarding the liquid transfer from one truck to another truck, was assessed a
penalty of $408,000, a second notice was received on April 29, 2003, for an
alleged violation on April 12, 2003, and a fine of $5,500 was assessed for a
total of $419,500. This amount is included in accrued expenses at June 30, 2003.
(See below)
Based upon initial review, the company disagrees with many of the findings of
the report and disputes many of the allegations. The company has contested the
DCA Notice of Violation and the assessed penalties. Counsel and the DCA have had
several meetings and hearings were held in the Office of Administrative Law. The
Company and DCA have settled the penalties of $419,500 for $25,000, resulting in
Other Income of $394,500 (See Note 22). The $25,000 was paid March 10, 2004.
Company personnel met with personnel of the United States Occupational Safety
and Health Administration ("OSHA") on September 12, 2003. OSHA has conducted an
investigation relating to the safety practices of the Company, including such
practices relating to the March14, 2003 explosion and fire. OSHA has informed
the Company it will be assessed a penalty of $16,000 based upon violations
sited. This amount is included in Accrued Expenses at June 30, 2003. This amount
was paid in October 2003.
(B-IV) F-26
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
JUNE 30, 2004 AND 2003
NOTE 10 COMMITMENTS AND CONTINGENCIES (CONT'D)
The Sussex County, New Jersey, Prosecutor's Office is conducting and
investigation as a result of the March 14, 2003 explosion and fire. No
determination has been made with respect to its investigation.
A lawsuit (known as Hicks vs. Able Energy, Inc.) has been filed against the
Company by property owners who allegedly suffered property damages as a result
of the March 14, 2003 explosion and fire. The Company's insurance carrier is
defending as related to compensatory damages. Legal counsel is defending on the
punitive damage claim. A hearing was held on March 11, 2004 on an application on
certain matters by the Plaintiffs, which were denied. The Court presently has
before it a motion by Plaintiffs for Class Action Certification. Per legal
counsel, whether this matter is certified a Class Action will greatly influence
the Company's potential exposure. Legal counsel is guardedly optimistic that
Class Action will be denied.
After the March 14, 2003, fire and explosion, the town of Newton changed its
zoning requirements and made fuel oil and propane distribution prohibited uses.
The Company is appealing a denial of a request for building permits to
reconstruct damaged and destroyed buildings and sought a Non-Conforming Use
Certificate to permit the fuel oil distribution use only. On August 20, 2004,
the Superior Court of New Jersey ruled that the Company may continue to use the
site as a non-conforming use, but stayed its decision subject to Newton's
appellate rights.
As a result of the March 14, 2003 explosion and fire, various claims for
property damage have been submitted to the Company's insurance carrier. These
claims are presently being handled and, in many cases, settled by the insurance
carrier's adjuster. There were approximately 200 claims being handled and
adjusted with reserves for losses established as deemed appropriate by the
insurance carrier. The majority of these claims have been settled.
Two lawsuits have been filed by homeowners in Newton, New Jersey who allegedly
suffered property damages as a result of the March 14, 2003 explosion and fire.
The Company's insurance carrier is defending as related to the property damage
claims.
The Company in the normal course of business has been involved in law suits.
Current suits are being defended by the insurance carrier and should be covered
by insurance.
(B-IV) F-27
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
JUNE 30, 2004 AND 2003
NOTE 11 OPERATING LEASE
Able Energy Terminal, LLC, has acquired the following lease on the property it
purchased on Route 46 in Rockaway, New Jersey.
The lease with Able Oil Company, a wholly owned subsidiary of Able Energy, Inc.,
has an expiration date of July 31, 2004. The lease provides for a monthly
payment of $1,200 plus a one cent per gallon through put, as per a monthly rack
meter reading.
Estimated future rents are $14,400 per year, plus the one cent per gallon
through put charges per the monthly rack meter readings.
The Company leased 9,800 square feet in the Rockaway Business Centre on Green
Pond Road in Rockaway, New Jersey. The facility will be used as a call center
and will combine the administrative operations in New Jersey in one facility.
The lease has a term of five (5) years from August 1, 2000 through July 31,
2005.
The rent for the first year is $7,145.83 per month and the second through fifth
year is $7,431.67 per month, plus 20.5% of the building's annual operational
costs and it's portion of utilities. The current monthly rent, including Common
Area Charges, is $9,799.04 per month.
The lease does not contain any option for renewal. The total rent expense was
$197,765 for the year ended June 30, 2004. The estimated future rents are as
follows:
YEAR ENDED JUNE 30,
2005 $ 117,588
July 2005 9,799
---------
TOTAL $ 127,387
=========
The following summarizes the month-to-month operating leases for the other
subsidiaries:
Able Oil Melbourne $ 500, per month
Total rent expense, $6,000
Able Energy New York $ 600, per month
Total rent expense, $7,200
(B-IV) F-28
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
JUNE 30, 2004 AND 2003
NOTE 12 FRANCHISING
The Company sells franchises permitting the operation of a franchised business
specializing in residential and commercial sales of fuel, oil, diesel fuel,
gasoline, propane and related services. Company will provide training,
advertising and use of Able credit for the purchase of product, among other
things, as specified in the Agreement. The franchisee has an option to sell the
busi back to the Company after two (2) years of operations for a price
calculated per the Agreement.
The Company signed its first franchise agreement in September 2000. On June 29,
2001, PriceEnergy.Com Franchising, LLC, a subsidiary, signed its first franchise
agreement. The franchisee will operate a B-franchised business, using the
proprietary marks and a license from PriceEnergy.Com, Inc. and will establish
the presence of the franchisee's company on the PriceEnergy Internet Website.
The franchisee will have the exclusive territory of Fairfield County,
Connecticut as designated in the agreement. No new franchise agreements have
been signed.
NOTE 13 RELATED PARTY TRANSACTIONS
$44,690 is due from the major Shareholder/Officer of the Company. This amount
bears interest at a rate of 6% between the Shareholder and the Company. This
Shareholder has loaned the Company a total of $380,000 as of June 30, 2003, as
evidenced by a Demand Note with interest at 6% per annum, which can be paid all
or in part at any time without penalty. The Shareholder was repaid $135,000 on
March 3, 2004 (See Note 22). The balance of the Note was paid in March 2004.
Interest expense has been paid in the amount of $13,033. In relation to the
payment of this Note and other transactions, the Shareholder has a liability
tothe Company of $31,143.
The following officers of this Company own stock in the
subsidiary,PriceEnergy.Com, Inc., which they incorporated in November 1999.
Chief Executive Officer 23.5%
President 3.6%
No capital contributions have been made by these officers (See Notes 1 and 8).
NOTE 14 EARNINGS PER SHARE
The shares used in the computation of the Company's basic and diluted Earnings
Per Common Share are as follows:
JUNE 30, 2004 JUNE 30, 2003 JUNE 30, 2002
------------- ------------- -------------
Weighted Average of Common
Shares Outstanding Used in Basic
Earnings Per Share 2,013,250 2,012,708 2,001,332
Dilutive Effect of:
Employee Stock Options - 38,992 -
Stock Warrants - - -
--------- --------- ---------
Weighted Average Common
Shares Outstanding Used in Diluted Earnings
Per Share 2,013,250 2,051,700 2,001,332
========= ========= =========
Weighted average common shares outstanding, assuming dilution, includes the
incremental shares that would be issued upon the assumed exercise of stock
options, and stock warrants. For 2004, approximately 349,000 of the company's
stock options and stock warrants were excluded from the calculation of diluted
earnings per share because their inclusion would have been anti-diluted, 389,000
(2003) and 335,183(2002). These options and warrants could be dilutive in the
future. The numerator for the calculation of both basic and diluted earnings per
share is the earnings or loss available for common stockholders. The above table
shows the denominator for basic and diluted earnings per share.
(B-IV) F-29
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
JUNE 30, 2004 AND 2003
NOTE 15 STOCK OPTION PLANS
The Company has stock option plans under which stock options may be issued to
officers, key employees, and non-employee directors to purchase shares of the
Company's authorized but unissued common stock. The Company also has a stock
option plan under which stock options may be granted to employees and officers.
Options granted currently expire no later than 3 to 5 years from the grant and
have vesting periods from none to 25% at grant and 25% each anniversary.
OUTSTANDING OPTIONS
NUMBER OF SHARES EXERCISE PRICE TERM
January 6, 2000 56,000
Grants 0 $5.00 5 years
Exercises
December 21, 2000 60,000 $1.80
Grants 0 5 years
Exercises
23,000 $2.25
0 5 years
October 22, 2002 50,000 $3.00
Grants 0 5 years
Exercises
(B-IV) F-30
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
JUNE 30, 2004 AND 2003
NOTE 16 STOCK WARRANTS (CONT'D)
The Company has issued stock warrants as follows:
A. 60,000 Common Stock Purchase Warrants at $4.81 per share, effective
August 31, 2000, and expiring August 31, 2005, to Andrew Alexander Wise &
Company in connection with an investment banking advisory agreement with the
Company, dated July 1, 2000.
B. 100,000 Common Stock Purchase Warrants at $4.00 per share, effective
September 13, 2002, and expiring September 13, 2004, in connection with a
$750,000 Note Payable (see Note 5).
The 160,000 warrants to purchase shares of common stock were outstanding during
the second quarter of 2004 and were not included in the computation of diluted
EPS as the warrants' were all higher than the average stock price of $2.59 and
would have been anti-diluted (See Note 14). These warrants have not been
registered under the Securities Act of 1933.
NOTE 17 COMPENSATED ABSENCES
There has been no liability accrued for compensated absences; as in accordance
with Company policy, all compensated absences, accrued vacation and sick payment
must be used by December 31st. At June 30, 2004, any amount for accrual of the
above is not material and has not been computed.
NOTE 18 CASH FLOW INFORMATION
The Directors received Common Stock as payment of Directors' Fees, $24,000, in
the quarter ended September 30, 2002. No cash was received or paid. Upon the
sale of the subsidiary on March 1, 2004, $1,400,000 is a receivable and has no
effect on cash. In the year ended June 30, 2003, the Company lost fixed assets
in an explosion at its Newton, NJ facility. There was no direct effect on cash
of $239,497. Penalties were assessed of $435,500; no payment was made.
NOTE 19 INSURANCE CLAIM
The Company suffered a loss on March 14, 2003 of a building, trucks, leasehold
improvements, product inventory and equipment as well as cost of cleanup and
restoration. The Company has filed insurance claims. The insurance adjusters are
in the process of finalizing the amounts to be paid to the Company. The
estimated costs not reimbursed are $424,547 and is currently shown as deferred
costs insurance claims on the balance sheet. Management anticipates the
insurance recovery will cover the company costs. A claim for business
interruption still has to be filed and a pollution claim is also pending.
(B-IV) F-31
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
JUNE 30, 2004 AND 2003
NOTE 19 INSURANCE CLAIM (CONT'D)
The following is a summary of insurance claims filed:
Building (commercial property) $349,526 $ -
Paid by March 31, 2004 349,526
Contents $337,617
Paid by June 30, 2004 337,617 -
Vehicles $302,674
Paid by June 30, 2004 247,409 55,265
---------- ---------
Total $ 55,265
=========
The above amounts were submitted as claims but do not represent a settlement
with the insurance carriers.
NOTE 20 BUSINESS SEGMENT INFORMATION
The Company does not have separate operating financial segments. The financial
information is evaluated on a company wide basis. As such, no segment reporting
is prepared for internal use.
NOTE 21 RECLASSIFICATION
The Company has entered into a financing agreement with UPS Capital Business
Credit, that permits the Company to borrow a $4,300,000 term loan, payable over
fifteen (15) years. The loan closed on September 22, 2003 (see Note 4). The
Company used the funds in part to repay short-term debt of $3,170,000, a bank
loan of $1,270,000 and other Notes totaling $1,900,000. In accordance with
Financial Accounting Standards Board FAS6, the refinanced short-term debt at
June 30, 2003, has been reclassified to long-term as "Short-Term Debt
Refinanced".
NOTE 22 SALE F SUBSIDIARY
On March 1, 2004, the Company sold its subsidiary , Able Propane, LLC. The Sale
was a sale of inventory and equipment (the operating assets of the subsidiary).
The total price of the sale was $4,400,000. Of that, $3,000,000 was received in
cash and was used as a reduction of long-term debt in the amount of $1,284,737.
There was also payment of $135,000 of Officer Loan and $325,000 of Legal Fees.
The Company had a cash increase of $1,255,268.
In conjunction with the sale of the propane business, the New Jersey Dept. of
Community Affairs (DCA) reduced the fine that was charged of $419,500 to $25,000
and the reduction of $394,500 is shown as Other Income. The $419,500 had been
deducted as an expense in the prior fiscal year ended June 30, 2003 (See Note
10).
The Company received a Note receivable for $500,000, principal balance of this
Note payable in full on the fourth anniversary of the closing, March 1, 2008.
The Note bears interest at 6% per annum ($30,000 per year), payable quarterly
within 45 days of the closing of each fiscal quarter.
The Company also has signed a non-competition agreement and will receive a total
payment of $900,000, payable in $225,000 installments due one, two, three and
four years from the date of closing.
The Company will receive the accounts receivable due 60 days or less as follows:
Current 100%, 30 days 95% and 60 days 85%. Within 30 days following closing, the
Company is due approximately $124,586 from the buyer, $208,917 of accounts
receivable have been paid by customers for a total of $333,503 to the Company.
Accounts 90 days and greater, if collected, go to the buyer, which is
approximately $42,000. After 120 days any uncollected amounts revert to the
buyer.
(B-IV) F-32
ABLE ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
JUNE 30, 2004 AND 2003
NOTE 23 DISCONTINUED OPERATIONS
On March 1, 2004, the Company sold the operating assets of its subsidiary, Able
Propane, LLC (see Note 22), and discontinued the sale of propane fuel in the
State of New Jersey.
Following the sale, the results of Able Propane, LLC were reported in the
Company's Consolidated Statements of Income and Cash Flows, separately, as
discontinued operations. In accordance with Generally Accepted Accounting
Principals (GAAP), the Consolidated Statement of Financial Position has not been
restated. Able Propane, LLC represented the primary vehicle by which the Company
engaged in the sale of propane fuel.
Summarized financial information for discontinued operations for the year ended
June 30 are as follows:
2004 2003 2002
---- ---- ----
Total Revenues $1,817,902 $2,888,174 $1,872,443
---------- ---------- ----------
Income (Loss) from Discontinued
Operations (57,630) 148,830 425,284
Gain on Sale of Subsidiary 2,668,490 - -
---------- ---------- ----------
Total Income From Discontinued
Operations $2,610,860 $ 148,830 $ 425,284
========== ========== ==========
Total Assets $ - 0 - $2,940,622
Total Liabilities - 0 - 2,603,736
---------- ----------
Net Assets of Discontinued Operations $ - 0 - $ 336,886
========== =========
Able Propane, LLC is treated as a Partnership for tax purposes and pays no
income tax. As such, there is no provision for income taxes. Able Propane, LLC
has no assets or liabilities at June 30, 2004. The assets and liabilities after
the sale and collection of accounts receivables and payment of accounts
payables, which were transferred to the Company were immaterial to the total
assets and liabilities of the Company.
(B-IV) F-33
ABLE ENERGY, INC. AND SUBSIDIARIES
For the Years Ended
June 30, 2005 and 2004
PAGE
Report of Independent Registered Public Accounting Firm F-1
Consolidated Balance Sheets F-2
Consolidated Statements of Operations F-4
Consolidated Statements of Stockholders' Equity F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-8 - F-25
(B-V) F-1
To The Board of Directors
Able Energy, Inc.
Rockaway, New Jersey 07866
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have audited the accompanying consolidated balance sheets of Able Energy,
Inc. and subsidiaries as of June 30, 2005 and 2004 and the related consolidated
statements of operations, Stockholders' equity, and cash flows for each of the
three years in the period ended June 30, 2005. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the Standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Able Energy, Inc.
and subsidiaries as of June 30, 2005 and 2004, and the results of their
operations and their cash flows for each of the three years in the period ended
June 30, 2005 in conformity with accounting principles generally accepted in the
United States of America.
Simontacchi & Company, LLP
Rockaway, New Jersey
September 14, 2004
(B-V) F-1
ABLE ENERGY, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
June 30,
ASSETS
2005 2004
---- ----
CURRENT ASSETS:
Cash $ 1,754,318 $ 1,309,848
Accounts Receivable (Less Allowance for Doubtful
Accounts of $238,049 (2005) and $192,222 (2004) 2,876,900 2,436,554
Inventory 726,987 559,325
Notes Receivable - Current Portion 57,826 51,851
Other Receivable - Non-Compete - Current Portion 225,000 225,000
Miscellaneous Receivables 38,596 127,422
Prepaid Expenses 485,904 310,142
Deferred Costs - Insurance Claims - 424,547
Prepaid Expense - Income Taxes - 2,063
Deferred Income Tax 64,776 54,923
Other Receivable - 75,833
----------- -----------
TOTAL CURRENT ASSETS 6,230,307 5,577,508
----------- -----------
PROPERTY AND EQUIPMENT:
Land 479,346 479,346
Buildings 946,046 1,000,268
Trucks 3,594,218 3,217,443
Fuel Tanks 824,738 674,765
Machinery and Equipment 999,315 911,177
Building Improvements 790,424 607,484
Cylinders 295,476 183,773
Office Furniture and Equipment 205,319 200,640
Website Development Costs 2,390,589 2,330,794
----------- -----------
10,525,471 9,605,690
Less: Accumulated Depreciation and Amortization 5,980,636 4,819,707
----------- -----------
NET PROPERTY AND EQUIPMENT 4,544,835 4,785,983
----------- -----------
OTHER ASSETS:
Deferred Income Taxes 45,091 45,091
Deposits 54,918 137,015
Other Receivable - Non-Compete - Less Current Portion 450,000 675,000
Notes Receivable - Less Current Portion 649,435 675,295
Customer List, Less Accumulated Amortization of $188,122 422,728 422,728
Covenant Not to Compete, Less Accumulated Amortization of
$100,000 (2005) and $96,667 (2004) - 3,333
Development Costs - Franchising 9,191 18,382
Deferred Closing Costs - Financing 348,055 103,360
----------- -----------
TOTAL OTHER ASSETS 1,979,418 2,080,204
----------- -----------
TOTAL ASSETS $12,754,560 $12,443,695
=========== ===========
See accompanying notes to consolidated financial statements.
(B-V) F-2
ABLE ENERGY, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (continued)
June 30,
LIABILITIES AND STOCKHOLDERS' EQUITY
2005 2004
---- ----
CURRENT LIABILITIES:
Accounts Payable $ 1,863,841 $ 1,703,005
Note Payable - Line of Credit 1,015,468 699,236
Note Payable - Other 432,660 -
Current Portion of Long-Term Debt 338,212 371,838
Accrued Expenses 184,097 318,154
Accrued Taxes 112,064 31,582
Employee Income Tax Withheld 146,624 -
Deferred Income - 2,333
Customer Pre-Purchase Payments 2,226,655 1,495,906
Customer Credit Balances 230,729 698,899
----------- -----------
TOTAL CURRENT LIABILITIES 6,550,350 5,320,953
DEFERRED INCOME 79,679 79,679
DEFERRED INCOME TAXES 104,517 91,176
LONG TERM DEBT: less current portion 3,961,899 3,553,836
----------- -----------
TOTAL LIABILITIES 10,696,445 9,045,644
----------- -----------
STOCKHOLDERS' EQUITY:
Preferred Stock
Authorized 10,000,000 Shares Par Value $.001 per share
Issued - None
Common Stock
Authorized 10,000,000 Par Value $.001 per share Issued
and Outstanding Shares 2,457,320 (2005) and 2,013,250 (2004) 2,457 2,014
Paid in Surplus 6,481,102 5,711,224
Retained Earnings (Deficit) (4,425,444) (2,315,187)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 2,058,115 3,398,051
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $12,754,560 $12,443,695
=========== ===========
See accompanying notes to consolidated financial statements.
(B-V) F-3
ABLE ENERGY, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the Years Ended June 30,
2005 2004 2003
---- ---- ----
Net Sales $61,964,825 $42,882,327 $43,409,488
Cost of Sales 55,977,955 37,267,469 36,905,395
----------- ----------- -----------
Gross Profit 5,986,870 5,614,858 6,504,093
----------- ----------- -----------
Expenses
Selling, General and Administrative Expenses 5,946,324 6,433,697 5,105,584
Depreciation and Amortization Expense 1,183,144 1,152,906 1,070,046
----------- ----------- -----------
Total Expenses 7,129,468 7,586,603 6,175,630
----------- ----------- -----------
Income (Loss) From Operations (1,142,598) (1,971,745) 328,463
----------- ----------- -----------
Other Income (Expenses):
Interest and Other Income 214,742 149,803 112,543
Interest Expense (449,776) (576,578) (435,992)
Directors' Fees (183,197) - (24,000)
Gain (Loss) on Sale of Assets (19,249) - -
Gain on Insurance Recovery - - 215,140
Other Expense (Note 19) (318,236) - -
Legal Fees Relating to Accident (Note 9) (208,455) (261,862) (90,050)
----------- ----------- -----------
Total Other Income (Expense) (964,171) (688,637) (222,359)
----------- ----------- -----------
Income (Loss) from Continuing Operations
Before Provision for Income Taxes (Credit) (2,106,769) (2,660,382) 106,104
Provision for Income Taxes (Credit) 3,488 39,720 52,782
----------- ----------- -----------
Net Income (Loss) From Continuing Operations (2,110,257) (2,700,102) 53,322
----------- ----------- -----------
Discontinued Operations:
Income (Loss) from Discontinued Operations - (57,630) 148,830
Gain on Sale of Subsidiary Operating Assets - 2,668,490 -
----------- ----------- -----------
Income (Loss) from Discontinued Operations - 2,610,860 148,830
----------- ----------- -----------
Net Income (Loss) $(2,110,257) $ (89,242) $ 202,152
=========== =========== ===========
Basic Earnings (Loss) per Common Share
Income (Loss) from Continuing Operations $ (.99) $ (1.34) $ .03
=========== =========== ===========
Income (Loss) from Discontinued Operations $ - $ 1.30 $ .07
=========== =========== ===========
Diluted Earnings (Loss) per Common Share
Income (Loss) from Continuing Operations $ (.99) $ (1.34) $ .03
=========== =========== ===========
Income (Loss) from Discontinued Operations $ - $ 1.30 $ .07
=========== =========== ===========
Weighted Average number of Common Shares Outstanding 2,140,813 2,013,250 2,012,708
=========== =========== ===========
Weighted Average Number of Common Shares Outstanding,
Assuming Dilution 2,140,813 2,013,250 2,012,708
=========== =========== ===========
See accompanying notes to consolidated financial statements.
(B-V) F-4
ABLE ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended November 30,
ADDITIONAL TOTAL
PAID-IN RETAINED STOCKHOLDERS
SHARES AMOUNT SURPLUS EARNINGS EQUITY
------ ------ ------- -------- ------
Balance - June 30, 2002 2,007,250 $ 2,008 $5,687,230 $(2,428,098) $3,261,140
Issuance of Common Stock for
Payment of Directors' Fees 6,000 6 23,994 - 24,000
Net Income - - - 202,152 202,152
--------- ------- ---------- ----------- ----------
Balance - June 30, 2003 2,013,250 $ 2,014 $5,711,224 $(2,225,946) $3,487,292
Net Loss - - - (89,241) (89,241)
--------- ------- ---------- ----------- ----------
Balance - June 30, 2004 2,013,250 $ 2,014 $5,711,224 $(2,315,187) $3,398,051
Additional Shares Issued 444,070 443 769,878 770,321
Net Loss - - - (2,110,257) (2,110,257)
--------- ------- ---------- ----------- ----------
Balance - June 30, 2005 2,457,320 $ 2,457 $6,481,102 $(4,425,444) $2,058,115
========= ======= ========== =========== ==========
See accompanying notes to consolidated financial statements.
(B-V) F-5
ABLE ENERGY, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Years Ended November 30,
2005 2004 2003
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES OF CONTINUING OPERATIONS
Net Income (Loss) $(2,110,257) $ (89,242) $ 202,152
(Loss) Income from Discontinued Operations (57,630) 148,830
Gain on Sale of Subsidiary (2,668,490)
Gain on Sale of Subsidiary - Non-Cash 1,400,000
----------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) - CONTINUING OPERATIONS $(2,110,257) $(2,700,102) $ 53,322
Adjustments to Reconcile Net Income to Net Cash
used by Operating Activities:
Depreciation and Amortization 1,183,144 1,152,906 1,070,046
Consulting Fee 12,987 - -
Loss (Gain) on Disposal of Equipment 35,722 - (215,272)
Directors' Fees 103,200 - 24,000
Stock Based Compensation 117,000 - -
(Increase) Decrease in:
Accounts Receivable (440,346) 225,254 (728,282)
Inventory (167,662) 230,097 (383,998)
Prepaid Expenses (117,320) 85,840 (167,143)
Prepaid Income Taxes 2,063 - 670
Deposits 82,097 28,526 (87,000)
Deferred Income Tax - Asset (9,853) 18,854 (8,074)
Deferred Costs - Insurance Claims 424,547 279,128 (614,816)
Increase (Decrease) in:
Accounts Payable 160,836 282,094 261,570
Accrued Expenses (53,575) (484,246) 19,355
Employee Income Tax Withheld 146,624 - -
Customer Advance Payments 730,749 559,226 56,569
Customer Credit Balance (468,170) 282,255 (131,692)
Deferred Income Taxes 13,341 20,866 15,598
Escrow Deposits - (5,000) (23,472)
Deferred Income (2,333) 2,333 -
------------ ----------- -----------
NET CASH USED BY OPERATING ACTIVITIES
CONTINUING OPERATIONS (357,206) (21,969) (858,619)
----------- ----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of Property and Equipment (1,139,969) (1,216,540) (1,102,589)
Web Site Development Costs (59,795) (56,219) (74,064)
Increase in Deposits - - (7,971)
Insurance Claim Receivable - 349,526 -
Disposition of Equipment 4,876 73,860 118,258
Cash Received on Sale of Equipment and Inventory - Subsidiary 225,000 - -
Payment on Notes Receivable - Sale of Equipment 19,855 8,224 13,359
Cash Received on Sale of Property 229,814 - -
Note Receivable - Montgomery - - 655
Receivable - Officer 75,833 (75,833) -
Miscellaneous Receivables 103 826 (56,919) 43,402
----------- ----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (540,560) (973,901) (1,008,950)
----------- ----------- -----------
CONTINUING OPERATIONS
See accompanying notes to consolidated financial statements.
(B-V) F-6
ABLE ENERGY, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (continued)
For the Years Ended November 30,
2005 2004 2003
---- ---- ----
CASH FLOW FROM FINANCING ACTIVITIES
Note Payable - Bank $ (699,236) $ 700,000 $ -
(Decrease) Increase in Notes Payable - Bank - (1,270,764) (200,000)
Note Payable - Other 432,660 (1,585,000) 1,085,000
Note Payable - Officer - (321,630) 311,320
Note Payable - Line of Credit 1,015,468 - -
Decrease in Long-Term Debt (3,236,437) (3,377,095) (766,479)
Increase in Long-Term Debt 3,610,874 5,117,315 844,869
Increase in Deferred Financing Cost on Notes Payable (244,695) - -
Sale of Common Stock 463,602 - -
------------ ----------- -----------
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES
CONTINUING OPERATIONS 1,342,236 (737,174) 1,274,710
------------ ----------- -----------
DISCONTINUED OPERATIONS:
Net Cash (Used) Provided by Discontinued Operations - 1,055,720 734,332
Proceeds from Sale of Equipment and Inventory - 3,000,000 -
Cost of Sale - (1,412,861) -
------------ ----------- -----------
NET CASH PROVIDED BY DISCONTINUED
OPERATIONS - 2,642,859 734,332
------------ ----------- -----------
NET INCREASE IN CASH 444,470 909,815 141,473
Cash - Beginning of Year 1,309,848 400,033 258,560
------------ ----------- -----------
Cash - End of Year $ 1,754,318 $ 1,309,848 $ 400,033
============ =========== ===========
The Company had Interest Cash Expenditures of: $ 432,849 $ 665,032 $ 416,049
The Company had Tax Cash Expenditures of: $ 17,249 $ 59,638 $ 34,567
See accompanying notes to consolidated financial statements.
(B-V) F-7
ABLE ENERGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Able Energy, Inc.
and its subsidiaries. All material inter-company balances and transactions were
eliminated in consolidation.
MAJORITY OWNERSHIP
The Company is the majority owner, owning 70.6% of the issued shares of a
subsidiary, PriceEnergy.Com, Inc. in which their capital investment is $25,000.
The subsidiary has established an E-Commerce Operating System for the sale of
products through a network of suppliers originally on the East Coast of the
United States. The business became active in October 2000 (See Notes 7 and 12).
MINORITY INTEREST
The minority interest in PriceEnergy.Com, Inc. is a deficit and, in accordance
with Accounting Research Bulletin No. 51, subsidiary losses should not be
charged against the minority interest to the extent of reducing it to a negative
amount. As such, the losses have been charged against the Company, the majority
owner. The loss for year ended June 30, 2005 is $819.790 (See Notes 7 and 12).
NATURE OF OPERATIONS
Able Oil Company, Able Melbourne and Able Energy New York, Inc. are full service
oil companies that market and distribute home heating oil, diesel fuel and
kerosene to residential and commercial customers operating in the northern New
Jersey, Melbourne, Florida, and Warrensburg, New York respectively. Able Energy
New York, Inc. also installs propane tanks, which it owns and sells propane for
heating and cooking, along with other residential and commercial uses in the
Warrensburg, New York area.
The Company's operations are subject to seasonal fluctuations with a majority of
the Company's business occurring in the late fall and winter months.
Approximately 70% of the Company's revenues are earned and received from October
through March, and the overwhelming majority of such revenues are derived from
the sale of home heating fuel. However, the seasonality of the Company's
business is offset, in part, by the increase in revenues from the sale of diesel
and gasoline fuels during the spring and summer months due to the increased use
of automobiles and construction apparatus.
INVENTORIES
Inventories are valued at the lower of cost (first in, first out method) or
market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is provided by using the straight-line method based upon the
estimated useful lives of the assets as follows:
Trucks, Machinery & Equipment and Furniture & Fixtures 5 years
Fuel Tanks 10 years
Cylinders - Propane 20 years
Building Improvements 20 years
Buildings 30-40 years
Website Development 5 years
Depreciation expense for the year ended June 30, 2005, 2004 and 2003 amounted to
$697,780, $769,742 and $745,015, respectively. The cost and related accumulated
depreciation of assets sold or otherwise disposed of during the period are
removed from the accounts. Any gain or loss is reflected in the year of
disposal.
For income tax basis, depreciation is calculated by a combination of the
straight-line and modified accelerated cost recovery systems established by the
Tax Reform Act of 1986, and accelerated special depreciation per the Tax Acts of
2002 and 2003.
At June 30, 2005 and 2004 the equipment under the capital leases had net book
values of approximately $ 768,248 and $ 622,924, respectively.
(B-V) F-8
Expenditures for maintenance and repairs are charged to expense as incurred,
whereas expenditures for renewals and betterments are capitalized.
E-COMMERCE OPERATING SYSTEM DEVELOPMENT COSTS
Costs of $2,390,589 incurred in the developmental stage for computer hardware
and software have been capitalized in accordance with accounting pronouncement
SOP98-1. The costs are included in Property and Equipment and will be amortized
on a straight-line basis during the estimated useful life, 5 years. Operations
commenced in October 2000. Amortization for the years ended June 30, 2005, 2004
and 2003 amounted to $472,840, $461,823 and $445,842, respectively.
GOODWILL AND INTANGIBLE ASSETS
Intangibles include customer lists, a covenant not to compete and development
costs- franchising. The covenant not to compete and development costs -
franchising are being amortized over 5 year periods. Amortization expense
related to the covenant not to compete and development costs - franchising for
the years ended June 30, 2005, 2004 and 2003 amounted to $12,524, $29,191 and
$29,191, respectively.
Customer Lists totaling approximately $611,000 related to various acquisitions
were being amortized over lives of 10-15 years thorough July 2001 at which
point, the Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets"
("SFAS 142"). SFAS 142 requires goodwill and other intangible assets to be
periodically tested for impairment, and adjusted when impaired, rather than
being amortized as previous standards required, as such, effective July 1, 2001,
the Customer List will no longer be amortized for financial statement purposes.
The Company has reviewed the provisions of this Statement. Based upon an
assessment of the customer lists, there has been no impairment. As of June 30,
2001, the Company has net un-amortized customer lists of $422,728.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Although these estimates are based on management's knowledge of current events
and actions it may undertake in the future, they may ultimately differ from
actual results.
INCOME TAXES
Effective January 1, 1997, all the subsidiaries, which were S-Corporations,
terminated their S-Corporation elections. The subsidiaries are filing a
consolidated tax return with Able Energy, Inc.
Effective January 1, 1997, the Company has elected to provide for income taxes
based on the provisions of Financial Accounting Standards Board ("FASB")
Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes", which requires recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been included in
the financial statements and tax returns in different years. Under this method,
deferred income tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
CONCENTRATIONS OF CREDIT RISK
The Company performs on-going credit evaluations of its customers' financial
conditions and requires no collateral from its customers.
Financial instruments, which potentially subject the Company to concentrations
of credit risk consists of checking and savings accounts with several financial
institutions in excess of, insured limits. The excess above insured limits is
approximately $1,300,000. The Company does not anticipate non-performance by the
financial institutions.
CASH
For the purpose of the statement of cash flows, cash is defined as balances held
in corporate checking accounts and money market accounts.
ADVERTISING EXPENSE
Advertising costs are expensed at the time the advertisement appears in various
publications and other media. The expense was$338,995, $651,302 and $416,712 for
the years ended June 30, 2005, 2004 and 2003, respectively.
(B-V) F-9
FAIR VALUE OF FINANCIAL INSTRUMENTS
Carrying amounts of certain of the Company's financial instruments, including
cash and cash equivalents, accrued compensation, and other accrued liabilities,
approximate fair value because of their short maturities.
REVENUE RECOGNITION
Sales of fuel and heating equipment are recognized at the time of delivery to
the customer, and sales of equipment are recognized at the time of installation.
Revenue from repairs and maintenance service is recognized upon completion of
the service. Payments received from customers for heating equipment service
contracts are deferred and amortized into income over the term of the respective
service contracts, on a straight-line basis, which generally do not exceed one
year.
COMPUTATION OF NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share is computed using the weighted-average number
of common shares outstanding during the period. Diluted net income per share is
computed using the weighted-average number of common and dilutive potential
common shares outstanding during the period. Diluted net loss per share is
computed using the weighted-average number of common shares and excludes
dilutive potential common shares outstanding, as their effect is antidilutive.
Dilutive potential common shares primarily consist of employee stock options.
These options and warrants could be dilutive in the future. The numerator for
the calculation of both basic and diluted earnings per share is the earnings or
loss available for common stockholders.
STOCK BASED COMPENSATION
The Company accounts for its stock options issued to employees and outside
directors pursuant to Accounting Principles Board Opinion ("APB") No. 25,
"Accounting for Stock Issued to Employees" and has adopted the disclosure
requirements of SFAS No. 123, "Accounting for Stock-Based Compensation", and
SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure - an Amendment of FASB Statement No. 123".
The following table illustrates the effect on net income and earnings per share
if the Company had applied the fair value recognition provisions of SFAS No. 123
to stock-based employee compensation.
2005 2004 2003
Net Income (Loss) From Continuing Operations, as
reported $ (2,110,257) $ (2,700,102) $ 53,322
Deduct: Total stock-based
employee compensation
expense determined under
fair value based method for all
awards, net of related tax
effects 858,324 102,224 128,950
--------------- --------------- ---------------
Pro forma net loss from continuing operations $ (2,968,581) $ (2,802,306) $ (75,628)
=============== =============== ===============
Weighted average common
shares outstanding 2,140,813 2,013,250 2,012,708
=============== =============== ===============
Dilutive effect of stock
options and warrants 2,140,813 2,013,250 2,051,700
=============== =============== ===============
(Loss) earning per share:
Basic from continuing operations, as reported $ (.99) $ (1.34) $ .03
=============== =============== ===============
Basic from continuing operations, pro forma $ (1.39) $ (1.39) $ (.04)
=============== =============== ===============
Diluted from continuing operations, as reported $ (.99) $ (1.34) $ .03
=============== =============== ===============
Diluted from continuing operations, pro forma $ (1.39) $ (1.39) $ (.04)
=============== =============== ===============
(B-V) F-10
Potentially dilutive options and warrants to purchase 238,000, 349,000 and
389,000 shares of the common stock were outstanding as of June 30, 2005, 2004
and 2003, respectively, but were not included in the computation of diluted loss
per share because the effect of their inclusion would have been anti-dilutive.
The estimated weighted average fair values of the options at the date of grant
using the Black-Scholes option-pricing model as promulgated by SFAS No. 123 and
the related assumptions used to develop the estimates are as follows:
2005 2004 2003
Weighted Average fair value of options granted
during the year $4.82 $2.04 $1.99
Risk-free interest rate 4.0% 4.0% 4.0%
Expected volatility 185.9% 120.1% 113.7%
Dividend yield - - -
Expected life 5 years 5 years 5 years
See Note 13 for further discussion of the Company's stock options.
The Company accounts for stock issued to non-employees in accordance with the
provisions of SFAS 123 and the Emerging Issues Task Force ("EITF") Issue No.
96-18, "Accounting for Equity Instruments that are Issued to other than
Employees for Acquiring, or in Conjunction with Selling Goods or Services."
Under SFAS 123, the cost is measured at the fair value of the consideration
received or the fair value of the equity instruments issued, whichever is more
reliably measured.
IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets to be held and used are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of such
assets may not be recoverable. Measurement of an impairment loss for long-lived
assets that management expects to hold and use is based on the fair value of the
asset. Long-lived assets to be disposed of are reported at the lower of carrying
amount or fair value less costs to sell.
RECENT ACCOUNTING PRONOUNCEMENTS
SHARE-BASED PAYMENT
In December 2004, the FASB issued SFAS No. 123(R), "Share-Based Payment," which
is a revision of SFAS No. 123, "Accounting for Stock-Based Compensation". SFAS
123(R) requires that the compensation cost relating to share-based payment
transactions be recognized in financial statements. The compensation cost will
be measured based on the fair value of the equity or liability instruments
issued. The Statement is effective as of the beginning of the first interim or
annual period beginning after June 15, 2005. We will adopt SFAS No. 123(R) on
September 1, 2005 using the modified prospective method. We have disclosed the
pro forma impact of adopting SFAS No. 123(R) on net income and earnings per
share for the year ended June 30, 2005, 2004 and 2003 in Note 1, which includes
all share-based payment transactions to date. We do not yet know the impact that
any future share-based payment transactions will have on our financial position
or results of operations.
INVENTORY COSTS
In November 2004, the FASB issued SFAS No. 151, "Inventory Costs." SFAS 151
amends ARB No. 43, "Inventory Pricing", to clarify the accounting for certain
costs as period expense. The Statement is effective for fiscal years beginning
after June 15, 2005; however, early adoption of this Statement is permitted.
There was no impact from the adoption of this statement.
NOTE 2 NOTES RECEIVABLE
A. The Company has a Receivable from Able Montgomery, Inc. and Andrew W. Schmidt
related to the sale of Able Montgomery, Inc. to Schmidt, and truck financed by
Able Energy, Inc. No payments of principal or interest had been received for
more than one year. A new note was drawn dated June 15, 2000 for $170,000,
including the prior balance, plus accrued interest. The Note bears interest at
9.5% per annum and payments commence October 1, 2000. The payments will be
monthly in varying amount each year with a final payment of $55,981.07 due
September 1, 2010. No payments were received in the year ended December 31,
2000. In February 2001, two (2) payments were received in the amount $2,691.66,
interest only. In September 2001, $15,124.97 was received covering payments from
December 2000 through October 2001, representing interest of $14,804.13 and
principal of $320.84. Payments were received in November and December 2002,
representing December 2001 and January
(B-V) F-11
2002, a total of $3,333.34; interest of $2,678.88, and principal of $654.46. No
payments have been received in more than 30 months.
The note is secured by a pledge and security agreement and stock purchase
agreement (Stock of Able Montgomery, Inc.), dated December 31, 1998, and the
assets of Andrew W. Schmidt with the note dated June 15, 2000. The income on the
sale of the company in December 1998 and the accrued interest on the drawing of
the new note are shown as deferred income in the amount of $79,679.18 to be
realized on collection of the notes.
The Company is in negotiations with Andrew Schmidt. Andrew Schmidt and the
Company have reached an agreement whereby the liability will be paid by an
additional $.04 per gallon charge on oil purchased from the Company. The Company
believes the value of the collateral will cover the amount due if foreclosure is
required.
Maturities of the Note Receivable are as follows:
For the 12
Months Ending Principal
June 30, Amount
------------------- --------------
2006 $ 44,118
2007 13,753
2008 15,118
2009 16,619
2010 18,268
Thereafter 60,825
--------------
Total $ 168,701
==============
B. Able Oil Company has three (3) Notes Receivable for the sale of oil delivery
trucks to independent drivers who also deliver oil for the Company. Two notes
bear interest at the rate of 12% per annum and one Note 9% annum. One note began
December 1998, one began February 1999 and one began January 2004. The notes are
payable eight (8) months per year September through April, the oil delivery
season.
Maturities of these Notes Receivable are as follows:
For the 12
Months Ending Principal
June 30, Amount
------------------- --------------
2006 $ 13,708
2007 11,990
2008 6,147
2009 6,715
--------------
Total $ 38,560
==============
NOTE 3 INVENTORIES
Items June 30, 2005 June 30, 2004
----------------------------------- ----------------- ----------------
Heating Oil $ 335,245 $ 232,364
Diesel Fuel 34,409 19,998
Kerosene 3,025 4,906
Propane 28,020 13,461
Parts, Supplies and Equipment 326,290 288,596
----------------- ----------------
Total $ 726,987 $ 559,325
================= ================
NOTE 4 NOTES PAYABLE BANK
A. On September 22, 2003, the Company closed a new loan facility with UPS
Capital Business Credit. The facility is a $4,300,000 term loan, payable
over fifteen (15) years with interest at the prime rate, plus 1.75%, and
a line of credit of $700,000 with interest at prime plus 1.00%. The
payments on the term loan, due the first of each month, include
principal, interest of $35,900.04, and real estate tax escrow of
$2,576.63, totaling $38,476.67. Real estate tax escrow of $7,745.03 was
paid at closing. September 30, 2003 was the first payment and included
nine (9) days of interest plus principal totaling $20,382.02. Any
(B-V) F-12
payment received more than five (5) days after the due date is subject
to a late charge of 5% of such payment. Upon the occurrence of an event
of default, the loan shall bear interest at five percentage points (5%)
above the rate otherwise in effect under the loan.
On March 3, 2004, the Company repaid $1,100,000 of the term loan
principal balance. The monthly payments of principal and interest were
reduced to $26,672.65, commencing with the payment due April 1, 2004,
which was paid by the Company in March 2004. All other terms of the loan
will remain the same.
1. The collateral will be as follows for the term loan:
A. A first mortgage on properties located at 344 Route 46,
Rockaway, NJ and 38 Diller Avenue, Newton, NJ
B. A first security interest in equipment and fleet
vehicles
C. A first security interest in the customer list
TERMS AND COLLATERAL RELATED TO THE REVOLVING LINE OF CREDIT
Interest is payable monthly on the first day of each month, in arrears.
This loan shall be paid down annually for a minimum of thirty (30) days
at the borrower's discretion, but prior to renewal. The maturity is
annually renewing from the closing date. This part of the loan is
secured by a first priority lien on accounts receivable and inventory.
The Revolving Line of Credit will have rates supported by 75% on
accounts receivable less than 90 days outstanding, plus 50% on
inventory. The outstanding balance at June 30, 2004 was $700,000.
The loan facility is guaranteed by Able Energy, Inc. Officer's loans and
are subordinated to the lender and will remain standstill until all debt
due to the lender is paid in full.
The Agreement contains certain financial covenants as enumerated in the
Agreement
The balance of the term loan at June 30, 2004 was $3,064,523
Included in current portion of long-term debt 144,422
----------
Included in long-term debt - less current portion $2,920,101
==========
The Term Loan and the Line of Credit were paid in full on May 13, 2005
with new financing secured by the Company (see note 4 B and C)
B. On May13, 2005, the Company entered into a term loan with Northfield
Savings Bank for $3,250,000. Principal and interest shall be due and
payable the first of each months, commencing on July 1, 2005, in the
amount of $21,439.25. The initial interest rate is 6.25% per annum on
the unpaid principal balance for the first five (5) years, to be
redetermined every fifth anniversary date (reset date) at 300 basis
points over the five (5) year treasury rate, but not lower than the
initial rate; at that time the monthly payment will be redetermined. At
the maturity date of June 1, 2030, all amounts owed are due and payable.
If payment is not received within ten (10) days after its due date, a
late charge of 5% of such delinquent payment will be applied.
Prepayments may be paid in whole or part, together with accrued interest
on the prepaid amount.
Security for the Note is a Mortgage and Security Agreement on real
property in the Borough of Rockaway, County of Morris, New Jersey and an
assignment of leases and rents, the property is at 344 Route 46. The
property is owned by Able Energy Terminal, LLC, a wholly owned
subsidiary. Borrower hereby grants to the bank a continuing security
interest in all property of the borrower, now and hereafter in
possession of the bank, as security for payment of this note and any
other liabilities to the bank. The interest rate on default is 4% per
annum above the interest rate then in effect.
COVENANTS
The Financial Statements and Compliance Certificate, as per the
Agreement, will be signed by the borrower's chief financial officer. As
of June 30, 2005, the Company is in compliance with the Agreement
covenants.
The Company paid the term loan due of $3,019,298.52, which included a
prepayment penalty of $70,864 (included in interest expense on the
statement of operations), to UPS Capital with proceeds from this loan
and also closing costs and legal fees. The net amount to the Company was
$94,993.67.
(B-V) F-13
Management believes that the carrying value of its long-term debt
approximates fair value in accordance with SFA 107.
C. On May 13, 2005, the Company and subsidiaries entered into a loan and
security agreement with Entrepreneur Growth Capital, LLC, as lender. The
loan will be a Line-Of-Credit of $1,750,000, secured by (1) accounts
receivable, 60 days or less in age from invoice date with a maximum of
$1,250,000 (accounts Line of Credit) and inventory, owned by borrower in
storage tanks in Rockaway, New Jersey facility and goods held for sale
or lease or to be furnished under a contract of service and all present
and future raw materials, work in process and finished goods, maximum
credit line of $500,000 (inventory credit line). Loans and advances of
85% of net amount of eligible accounts receivable and 30% of net amount
of eligible inventory, not to exceed the Line-of-Credit amount. The
balance due by June 30, 2005 is $1,015,468.
INTEREST AND FEES
Interest payable on loans and advances, related to both accounts
receivable and inventory advances are charged at Citibank's Prime rate,
plus 4% per annum, but the rate shall never be more than 24% or maximum
permitted by law. All interest and fees charged or chargeable to
borrower shall be deemed as an additional advance.
Any advance interest shall be charged at 18% per annum, the default rate
of interest shall be 24% per annum. The Company shall pay the lender an
annual facility fee in an amount equal to two percent (2%) of the
Line-of-Credit, $3,500. The facility fee is payable upon execution of
this agreement and upon each annual anniversary date of this agreement
until such time this agreement has been terminated in accordance with
its terms. Borrower shall pay lender a minimum interest charge in an
amount equal to the difference between (a) $11,000 per month, and (b)
the actual amount of interest charged to the borrower on the obligation
that month.
Borrower shall pay lender a monthly collateral management fee equal to
one quarter of one percent (0.25%) of the Line-of- Credit, $437.30.
COLLATERAL
All of borrower's (a) accounts receivable, now existing and hereafter
created (b) present and future deposit accounts (c) present and future
books records, computer programs, etc. (d) presently owned or hereafter
acquired inventory (e) present and future general intangibles, including
customer lists, trademarks, etc. (f) rights, title and interest in any
and all assets, personal property owned by third parties.
EVENTS OF DEFAULT AS PER SECTION 8 OF THE AGREEMENT
This agreement shall continue in full force and effect for a term ending
on the last business day of the month two (2) years from the date hereof
("the Renewal Date") and shall automatically renew from year-to-year
thereafter until terminated pursuant to the terms here of. The lender
may terminate this agreement on the Renewal Date or on the anniversary
of the Renewal Date in any year by giving the borrower at least thirty
(30) days prior written notice, by registered or certified mail, return
receipt requested. Borrower may terminate upon the same dates by giving
ninety (90) day notice to lender.
The Company Paid the Line of Credit loan to UPS Capital of $699,235.94,
plus interest of $1,621.83, for a total of $700,857.77.
NOTE 5 NOTES PAYABLE
The Company has a mortgage note payable to Able Income Fund, LLC with an
original balance of $500,000. The note is dated February 22, 2005 and is
due May 22, 2005. The note has an interest rate of 14% per annum and is
payable with interest only at $5,833.33 per month with the balance and
any accrued interest due at May 22, 2005. The note is secured by a
mortgage on property in Warrensburg Industrial Park, Warrensburg, New
York, owned by Able Energy New York, Inc., a wholly owned subsidiary of
the Company. The due date of the loan has been extended to August 22,
2005. All other terms and conditions
(B-V) F-14
remain unchanged. One of the owners of Able Income Fund, LLC is the
prior Chief Executive Officer (CEO) of Able Energy, Inc. The balance due
at June 30, 2005 is $432,660.
Mortgage note payable dated, August 27, 1999, related to the purchase of
B & B Fuels facility and equipment. The total Note is $145,000. The Note
is payable in the monthly amount of principal and interest of $1,721.18
with and interest rate of 7.5% per annum. The initial payment was made
on September 27, 1999, and continues monthly until August 27, 2009,
which is the final payment. The Note is secured by a mortgage made by
Able Energy New York, Inc. on property at 2 and 4 Green Terrace and 4
Horicon Avenue, Town of Warrensburg, Warren County, New York. The
balance due on this Note at June 30, 2005 and June 30, 2004 was $73,713
and $88,242, respectively.
INTEREST RATE AT JUNE MATURITIES OUTSTANDING OUTSTANDING
30, 2005 AND 2004 DEBT AT DEBT AT
6/30/2005 6/30/2004
Notes Payable Collateralized
By Trucks and Vans 2.90 - 12.506% 10/20/05-8/10/06 $ 20,920 $ 26,904
Capitalize Leases Payable
Collateralized by Trucks and Vans
Purchased 4.075 - 9.498% 1/7/05-4/5/10 932,102 708,570
Notes Payable Collateralized by Office
and Computer Equipment 4.699 - 16.196% 9/1/04-5/27/08 23,376 37,435
---------- ----------
$ 976,398 $ 772,909
---------- ----------
The above notes are all collateralized by the equipment and/or furniture
purchased. The capitalized leases payable are lease/purchase agreements with a
small purchase price at the end of the lease. The above notes are represented by
Notes Payable to Payees.
Maturities on the Notes Payable subsequent to June 30, 2005 are as follows:
For the 12
Months Ending Principal
June 30, Amount
------------------- --------------
2006 $ 338,212
2007 334,759
2008 309,158
2009 263,909
2010 120,924
thereafter 2,933,149
--------------
Total $ 4,300,111
==============
(B-V) F-15
NOTE 6 INCOME TAXES
Effective January 1, 1997 the Company adopted Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes.
The differences between the statutory Federal Income Tax and Income Taxes is
accounted for as follows:
2005
AMOUNT PERCENT
Statutory Federal Income Tax $ 2,442 15.0%
State Income Tax 1,046 7.6
-------- -----
Income Taxes $ 3,488 22.6%
======== =====
Income Taxes consist of:
Current $ -
Deferred 3,488
-------
TOTAL $ 3,488
=======
Note X - The State of New Jersey has suspended the use of carry forward
losses for the years 2002 and 2003. As such, state income taxes of
$45,091 have been shown as a deferred asset and as income taxes payable.
New Jersey carry forward is treated separately by the Company. Able Oil
Company has a New Jersey Operating Loss of $501,010 which can not be
utilized in the year ended June 30, 2003, the State Income Tax on income
in excess of the NOL $45,258 is shown as state income tax. Under current
New Jersey law, the carry forward will be available up to 50% of NOL
after 2003, the Company's fiscal year ending June 30, 2005.
The effective tax rate differed from the statutory U.S. Federal Income
Tax Rate as follows:
FISCAL YEAR ENDED JUNE 30,
2005 2004 2003
U.S. Federal Statutory Rate 15.0 15.0 34.0
2004 2003
---- ----
AMOUNT PERCENT AMOUNT PERCENT
Statutory Federal Income Tax $ 27,804 15.0% $ 204,432 34.0%
Federal Income Tax Reduction due to Carry
forward loss
State Income Tax (199,165)
State Income Tax (Note X) 11,916 7.6 45,258 5.9
State Income Tax Reduction due to
Carryforwardloss 45,091
- - (42,834) -
-------- ----- ---------- -----
Income Taxes $ 39,720 22.6% $ 52,782 39.9%
======== ===== ========== =====
Income Taxes consist of:
Current $ - $ 45,258
Deferred 39,720 7,524
-------- ----------
TOTAL $ 39,720 $ 52,782
======== ==========
(B-V) F-16
The types of temporary differences between the tax bases of assets and
liabilities and their financial reporting amounts that give rise to a
significant portion of the deferred tax liability and deferred tax asset and
their approximate tax effects are as follows at:
JUNE 30, 2005
TEMPORARY TAX
DIFFERENCE EFFECT
Depreciation and Amortization $ (401,097) $(104,517)
Allowance for Doubtful Accounts 238,049 60,741
Gain on Sale of Subsidiary 18,766 4,035
New Jersey Net Operating Loss Carry forward 501,010 45,091
JUNE 30, 2004
TEMPORARY TAX
DIFFERENCE EFFECT
Depreciation and Amortization $ (339,045) $(91,176)
Allowance for Doubtful Accounts 192,222 50,888
Gain on Sale of Subsidiary 18,766 4,035
New Jersey Net Operating Loss Carry forward 501,010 45,091
Able Energy, Inc., et al, open years are June 30, 2001, 2002, 2003 and 2004. The
Company has a Federal net operating loss carry forward of approximately
$2,682,000. The net operating loss expires between June 30, 2019 and 2021. Able
Energy, Inc. and PriceEnergy.Com, Inc. have a New Jersey Net Operating Loss
Carry forward of approximately $489,374 and $2,217,251, respectively, which can
be utilized in the year ending June 30, 2005.
These carry forward losses are available to offset future taxable income, if
any. The Company's utilization of this carry forward against future taxable
income is subject to the Company having profitable operations or sale of Company
assets, which create taxable income. For the year ended June 30, 2005, $-0- of
net income has been utilized against the net operating loss carry forward. At
this time, the Company believes that a full valuation allowance should be
provided. The component of the deferred tax asset as of June 30, 2005 are as
follows:
Net Operating Loss Carry forward - Tax Effect $ 911,880
Valuation Allowance (911,880)
--------------
Net Deferred Tax based upon Net
Operating Loss Carry forward $ -0-
--------------
NOTE 7 NOTE RECEIVABLE - SUBSIDIARY
The Company has a Note Receivable from PriceEnergy.Com, Inc. for advances made
in the development of the business, including hardware and software costs. All
of PriceEnergy.Com, Inc.'s assets are pledged as collateral to Able Energy, Inc.
The amount of the note is $1,350,000 dated November 1, 2000 with interest at 8%
per annum payable quarterly. Principal payments to begin two years after the
date of the Note, November 1, 2002. Through June 30, 2005, no principal has been
paid. Interest, in the amount of $54,000 has been accrued for the six months
ended December 31, 2002. No interest has been accrued since December 31, 2002 as
the note is non-performing. Unpaid accrued interest due through June 30, 2005 is
$234,000. The Note, accrued interest and interest expense have been eliminated
in the consolidated financial statements (See Notes 1 and 12).
Able Oil Company has a Note Receivable originally dated September 30, 2002 in
the amount of $1,510,372.73 from PriceEnergy.Com, Inc. The Note has been updated
for transactions through June 30, 2005, resulting in a balance of $3,544,389
with interest at 8% per annum, to be paid quarterly. Principal payments to begin
one year after date of Note, October 1, 2003, and continue monthly thereafter.
The Note is the result of the transference of the unpaid accounts receivable
which resulted from the sale of heating oil through PriceEnergy.Com, Inc. Able
Oil Company has a second position as collateral in all of the assets of
PriceEnergy.Com, Inc. to Able Energy, Inc. No interest has been recorded since
December 31, 2002. Any payments will go to pay principal. The note receivable
accrued interest and interest income have been eliminated in consolidation
against the amounts on PriceEnergy.Com, Inc.
(B-V) F-17
NOTE 8 PROFIT SHARING PLAN
Effective January 1, 1997, Able Oil Company established a Qualified Profit
Sharing Plan under Internal Revenue Code Section 401-K. The Company matches 25%
of qualified employee contributions. The expense was $ 27,472 and $26,579 for
the year ended June 30, 2005 and 2004, respectively.
NOTE 9 COMMITMENTS AND CONTINGENCIES
Able Oil Company is under contract to purchase #2 oil as follows:
GALLONS OPEN OPEN DOLLAR
COMMITMENT COMMITMENT AT
COMPANY PERIOD TOTAL GALLONS AT 6/30/04 6/30/04
------- ------ ------------- ---------- -------
Petrocom 10/1/05-3/31/06 252,000 252,000 $ 413,910
Conectiv Energy 11/1/05-2/28/06 168,000 168,000 257,754
Petrocom 10/1/05-4/30/06 294,000 294,000 430,962
Center Oil 10/1/05-4/30/06 588,000 588,000 930,829
Gulf Oil 11/1/05-2/28/06 168,000 168,000 251,454
------------- ------------ -------------
Total 1,470,000 1,470,000 $ 2,284,909
------------- ------------ -------------
The Company is subject to laws and regulations relating to the protection of the
environment. While it is not possible to quantify with certainty the potential
impact of actions regarding environmental matters, in the opinion of management,
compliance with the present environmental protection laws will not have a
material adverse effect on the financial condition, competitive position, or
capital expenditures of the Company.
In accordance with the agreement on the purchase of the property on Route 46,
Rockaway, New Jersey by Able Energy Terminal, LLC, the purchaser shall commence
after the closing which was August 31, 1999, the investigation and remediation
of the property and any hazardous substances emanating from the property in
order to obtain a No Further Action letter from the New Jersey Department of
Environmental Protection (NJDEP). The purchaser will also pursue recovery of all
costs and damages related thereto in the lawsuit by the seller against a former
tenant on the purchased property. Purchaser will assume all responsibility and
direction for the lawsuit, subject to the sharing of any recoveries from the
lawsuit with the seller, 50-50.
The seller by reduction of its mortgage will pay costs related to the above up
to $250,000. A settlement has been achieved by the Company with regard to the
lawsuit. The settlement provides for a lump sum payment of $397,500 from the
defendants to the Company. In return, the defendants received a release from the
Estate (the Seller) and a release and indemnification from the Company. The
defendants provided a release to Able Energy and the Estate. Pursuant to the
original agreement, the Estate receives 50% of the settlement amount, net of
attorney fees.
This has been amended by an agreement dated November 5, 2001. The entire
settlement, net of attorney fees, was collected and placed in an attorney's
escrow account for payment of all investigation and remediation costs. Able
Energy Terminal, LLC has incurred costs of $102,956 to June 30, 2005, which are
included in Prepaid Expenses and must be presented to the attorney for
reimbursement. The New Jersey Department of Environmental Protection (NJDEP) has
issued an approval for treated water run-off. The ruling is for a 180-day
period, which can be renewed for an additional 180 days, per management, during
which a valid permit must be obtained. When approval is received and contract
invoice wording is sufficient for the attorney, reimbursement can be made upon
approval of the attorney and the Estate.
The costs of the cleanup pursuant to the Agreement of Sale must be shared
equally (50/50) by the seller and purchaser up to Seller's cap of $250,000.
Seller's contribution to the cleanup is in the form of a reduction to the Note
of $650,000 and not by direct payments. The note has been paid in full. As such,
any payment by the Estate must be direct payments. Payments will begin when and
if costs exceed $397,500. In the opinion of management, the Company will not
sustain costs in this matter, which will have a material adverse effect on its
financial condition.
Following an explosion and fire that occurred at the Able Energy Facility in
Newton, NJ on March 14, 2003, and through the subsequent clean up efforts, Able
Energy has cooperated fully with all local, state and federal agencies in their
investigations into the cause of this accident.
(B-V) F-18
All violation charges with the New Jersey Department of Community Affairs and
OSHA have been settled and paid.
The Sussex County, New Jersey, Prosecutor's Office is conducting and
investigation as a result of the March 14, 2003 explosion and fire. At a hearing
on July 27, 2005, the President and former CFO pleaded guilty and received
community service. The Company will face a fine of up to $30,000 when sentenced
September 21, 2005.
A lawsuit (known as Hicks vs. Able Energy, Inc.) has been filed against the
Company by property owners who allegedly suffered property damages as a result
of the March 14, 2003 explosion and fire. The Company's insurance carrier is
defending as related to compensatory damages. Legal counsel is defending on the
punitive damage claim. On June 13, 2005, the Court granted a motion certifying a
plaintiff class action which is defined as "All Persons and Entities that on and
after March 14, 2003, residing within a 1,000 yard radius of Able Oil Company's
fuel depot facility and were damaged as a result of the March 14, 2003
explosion". The claim is limited to economic loss and claims for personal injury
have been specifically excluded from the Class Certification. The insurer has
settled approximately 200 claims against the Company. The Company believes that
the Class Claims for compensatory damages is within the available limits of its
insurance.
After the March 14, 2003, fire and explosion, the town of Newton changed its
zoning requirements and made fuel oil and propane distribution prohibited uses.
The Company is appealing a denial of a request for building permits to
reconstruct damaged and destroyed buildings and sought a Non-Conforming Use
Certificate to permit the fuel oil distribution use only. On August 20, 2004,
the Superior Court of New Jersey ruled that the Company may continue to use the
site as a non-conforming use, but stayed its decision subject to Newton's
appellate rights. The decision was upheld in May 2005 by the court upon the
appeal of the Town of Newton. The Company is planning to use the property in the
manner approved by the decision.
As a result of the March 14, 2003 explosion and fire, various claims for
property damage have been submitted to the Company's insurance carrier. These
claims are presently being handled and, in many cases, settled by the insurance
carrier's adjuster. There were approximately 200 claims being handled and
adjusted with reserves for losses established as deemed appropriate by the
insurance carrier. The majority of these claims have been settled.
Two lawsuits have been filed by homeowners in Newton, New Jersey who allegedly
suffered property damages as a result of the March 14, 2003 explosion and fire.
The Company's insurance carrier is defending as related to the property damage
claims. As to Punitive Damages, one case is being defended by an outside
attorney and one by the insurance carrier. It appears that compensatory damage
claims are within the available limits of insurance.
The Company in the normal course of business has been involved in lawsuits.
Current suits are being defended by the insurance carrier and should be covered
by insurance and legal counsel is defending on punitive damage claims as noted
above.
NOTE 10 OPERATING LEASE
Able Energy Terminal, LLC, has acquired the following lease on the property it
purchased on Route 46 in Rockaway, New Jersey.
The lease with Able Oil Company, a wholly owned subsidiary of Able Energy, Inc.,
has an expiration date of July 31, 2004 and has been rewritten. The lease
provides for a change of $0.022 per gallon through put, as per a monthly rack
meter reading.
Estimated future rents are $0.022 per gallon through put charges per the monthly
rack meter readings.
The Company leased 9,800 square feet in the Rockaway Business Center on Green
Pond Road in Rockaway, New Jersey. The facility will be used as a call center
and will combine the administrative operations in New Jersey in one facility.
The lease has a term of five (5) years and three (3) months from August 1, 2000
through October 31, 2005.
The rent for the first year is $7,145.83 per month and the second through fifth
year is $7,431.67 per month, plus 20.5% of the building's annual operational
costs and it's portion of utilities. The current monthly rent, including Common
Area Charges, is $9,799.04 per month. The lease does not contain any option for
renewal. The Company and the landlord have agreed to extend the lease for a
period of six months to April 30,2006 based upon the existing terms. The total
rent expense was $117,588 for the year ended June 30, 2005. The estimated future
rents are as follows:
(B-V) F-19
July 2005-April 2006 $ 98,830
--------
The following summarizes the month-to-month operating leases for the
other subsidiaries:
Able Oil Melbourne $500.00, per month
Total rent expense, $6,000
Able Energy New York $500.00, per month
Total rent expense, $6,000
NOTE 11 FRANCHISING
The Company sells franchises permitting the operation of a franchised business
specializing in residential and commercial sales of fuel oil, diesel fuel,
gasoline, propane and related services. The Company will provide training,
advertising and use of Able credit for the purchase of product, among other
things, as specified in the Agreement. The franchisee has an option to sell the
business back to the Company after two (2) years of operations for a price
calculated per the Agreement.
The Company signed its first franchise agreement in September 2000. On June 29,
2001, PriceEnergy.Com Franchising, LLC, a subsidiary, signed its first franchise
agreement. The franchisee will operate a B-franchised business, using the
proprietary marks and a license from PriceEnergy.Com, Inc. and will establish
the presence of the franchisee's company on the PriceEnergy Internet Website.
The franchisee will have the exclusive territory of Fairfield County,
Connecticut as designated in the agreement. No new franchise agreements have
been signed.
NOTE 12 RELATED PARTY TRANSACTIONS
The following officers of this Company own stock in the subsidiary,
PriceEnergy.Com, Inc., which they incorporated in November 1999.
Former Chief Executive Officer 23.5%
President 3.6%
Chief Operating Officer 2.3%
No capital contributions have been made by these officers (See Notes 1
and 7).
The Company has entered into a consulting agreement with its former Chief
Executive Officer ("CEO") on February 16, 2005 (see note 20). The agreement is
for two years and provides for annual fees of $60,000 to be paid in monthly
installments. In addition the former CEO received options to purchase 100,000
shares of the Company's common stock at $4.00 per share. The options were
excercised on July 7, 2005, at which time the closing price was $16.89. The
former CEO was paid $20,769 related to this agreement during the year ended June
30, 2005
During the year ended June 30, 2005 the Company paid $20,000 in legal fee to a
firm in which one of the members of the Board of Directors is a partner.
All American Plazas, Inc., currently owns approximately 38% of the Company's
outstanding shares. In addition, a director and General Counsel of the Company
and one of the Company's vice presidents have related interests in All American
Plazas. Inc.
The Company entered into a Stock Purchase Agreement on that date ("Purchase
Agreement") with all of the shareholders (the "Sellers") of All American Plazas,
Inc. ("All American") in connection with our acquisition of All American. The
transaction is expected to be consummated in October 2005, upon receipt of the
required approval by our stockholders.
At the closing, we will deliver to the Sellers 11,666,667 shares of our
restricted common stock, par value $.001 per share, at $3.00 per share for an
aggregate purchase price of $35,000,000. In addition, at the closing, we will
deliver to certain of the Sellers a number of shares of our restricted common
stock equal to the number of shares of our common stock owned by All American as
of the closing date.
All American recently consummated a financing that, if the acquisition of All
American is consummated, will impact the Company. Pursuant to the terms of the
Securities Purchase Agreement dated June 1, 2005 (the "Agreement") among All
American and certain purchasers, the purchasers loaned All American an aggregate
of $5,000,000, evidenced by Secured Debentures also dated June 1, 2005 (the
"Debentures").
(B-V) F-20
If the Company consummate the acquisition of All American, upon such
consummation, we will assume the obligations of All American under the
Agreement, the Debentures and the AIR Agreement through the execution of a
Securities Assumption, Amendment and Issuance Agreement, Registration Rights
Agreement, Common Stock Purchase Warrant Agreement and Variable Rate Secured
Convertible Debenture Agreement, each between the Purchasers and us (the "Able
Energy Transaction Documents").
In connection with two loans entered into by the company in May 2005 (see note
4), fees in the amount of $167,500 were paid to Unison Capital Corporation, a
company in which a vice president of Able Energy has a related interest. This
individual also has a related party interest to All American Plazas, Inc., the
Company's largest shareholder.
Subsequent to the payments being made and based on discussions with Unison
Capital Corporation it was determined the $167,500 was an inappropriate payment
to a related party and Unison Capital Corporation has agreed to reimburse this
amount to the Company over a twelve month period beginning in October 2005. The
charge had been appropriately classified as deferred finance charges in the
balance sheet and therefore will have no effect on the Company's statement of
operations.
NOTE 13 STOCK OPTIONS AND WARRANTS
STOCK OPTIONS AND WARRANTS
The Able Energy, Inc. 1999 Employee Stock Option Plan for stock options awards
up to 700,000 shares of the Company's common stock to be granted to directors,
employees and consultants of the Company. The Plan was cancelled and no further
grants available upon the ratification of the Able Energy, Inc. 2005 Incentive
Stock Plan.
The Able Energy, Inc. 2000 Employee Stock Option Plan for stock options awards
up to 350,000 shares of the Company's common stock to be granted to directors,
employees and consultants of the Company.
The Able Energy, Inc. 2005 Incentive Stock Plan provides for stock options,
stock awards and restricted stock purchase offer awards up to 1,000,000 shares
of the Company's common stock to be granted to directors, employees and
consultants of the.
There was compensation expense of approximately $117,000 recorded from stock
options under APB 25 for the year ended June 30, 2005. On May 5, 2005, the
Company granted 50,000 vested options each to two employees at an exercise price
15% below market vesting immediately.
A summary of the Company's stock option activity, and related information for
the years ended June 30, follows:
Options Weighted-Average Number of Weighted-Average
Exercise Price Exercisable Exercise Price
Outstanding June 30, 2002 235,840 $ 3.15 230,340 $ 3.11
Granted 50,000 3.16
--------------
Outstanding June 30, 2002 285,840 3.15 283,090 2.48
Granted 50,000 2.55
Expirations (47,840) 3.25
--------------
Outstanding June 30, 2002 288,000 3.03 288,000 3.03
Granted 200,000 5.34
Exercised (194,000) 2.52
Expirations (56,000) 5.00
--------------
Outstanding June 30, 2002 238,000 4.92 238,000 4.92
==============
(B-V) F-21
Weighted-average fair value of options granted during the years:
2005 2004
Where exercise price
equals stock price - -
Where exercise price
exceeds stock price $ 2.05 $ 2.04
Where stock price
exceeds exercise price $ 7.60 -
Following is a summary of the status of stock options outstanding at June 30,
2005:
Outstanding and Exercisable Options
---------------------------------------------------------------
Number Outstanding Weighted-Average Weighted-Average
Exercise Price Range at 6/30/05 Remaining Exercise Price
Contractual Life
----------------------------- -------------------- ------------------- ----------------
$ 2.25 - $ 3.16 38,000 2.9 $ 2.73
$ 4.00 - $ 6.68 200,000 4.8 5.34
-------------------- ------------------- ----------------
A summary of the Company's stock warrant activity, and related information for
the years ended June 30, follows:
Warrants Weighted-Average Number of Weighted-Average
Exercise Price Exercisable Exercise Price
Outstanding June 30, 2002 150,000 $ 4.67 150,000 $ 4.67
Grants (170,000) 5.00
-----------------
Outstanding June 30, 2003 320,000 4.85 320,000 4.85
Expirations (40,000) 4.00
-----------------
Outstanding June 30, 2004 280,000 4.97 280,000 4.97
Exercised (91,213) 5.25
Expirations (188,787) 4.83
-----------------
Outstanding June 30, 2005 - - - -
=================
NOTE 14 COMPENSATED ABSENCES
There has been no liability accrued for compensated absences; as in accordance
with Company policy, all compensated absences, accrued vacation and sick payment
must be used by December 31st. At June 30, 2005, any amount for accrual of the
above is not material and has not been computed.
NOTE 15 CASH FLOW INFORMATION
The following transaction resulted in no cash being received or expended:
Issuance of common stock in payment of 2003 and 2004 director fees $103,200
Issuance of common stock to Summit Ventures 71,429
Stock based Compensation 117,000
Stock issued on exercise of stock options- funds due 15,000
(B-V) F-22
NOTE 16 BUSINESS SEGMENT INFORMATION
The Company sells several types of products and provides services. Following are
revenues by product groups and services:
CONTINUING OPERATIONS FISCAL YEAR ENDED JUNE 30,
------------------------------------------------------------
2005 2004 2003
----------------- ------------------ ------------------
Home Heating Oil #2 $ 33,979,796 $ 23,674,243 $ 24,253,490
Commercial Oil #2 4,742,098 2,949,654 1,878,937
Gasoline, Diesel Fuel, Kerosene,
Propane & Lubricants 20,060,543 13,122,536 13,775,172
Equipment Sales & Services
1,382,272 1,157,444 1,275,757
Installation Repairs & Services 1,800,116 1,978,450 2,226,132
----------------- ------------------ ------------------
Net Sales $ 61,964,825 $ 42,882,327 $ 43,409,488
================= ================== ==================
NOTE 17 SALE OF SUBSIDIARY
On March 1, 2004, the Company sold the operations of its subsidiary, Able
Propane, LLC. The Sale was a sale of inventory and equipment (the operating
assets of the subsidiary). The total price of the sale was $4,400,000. Of that,
$3,000,000 was received in cash and was used as a reduction of long-term debt in
the amount of $1,284,737. There was also payment of $135,000 of Officer Loan and
$325,000 of Legal Fees. The Company had a cash increase of $1,255,268.
The Company received a Note receivable for $500,000, principal balance of this
Note payable in full on the fourth anniversary of the closing, March 1, 2008.
The Note bears interest at 6% per annum ($30,000 per year), payable quarterly
within 45 days of the closing of each fiscal quarter.
The Company also has signed a non-competition agreement and will receive a total
payment of $900,000, payable in $225,000 installments due one, two, three and
four years from the date of closing. $225,000 was received in March 2005.
NOTE 18 DISCONTINUED OPERATIONS
On March 1, 2004, the Company sold the operating assets of its subsidiary, Able
Propane, LLC (see Note 17), and discontinued the sale of propane fuel in the
State of New Jersey.
Following the sale, the results of Able Propane, LLC were reported in the
Company's Consolidated Statements of Income and Cash Flows, separately, as
discontinued operations. In accordance with Generally Accepted Accounting
Principals (GAAP), the Consolidated Statement of Financial Position has not been
restated. Able Propane, LLC represented the primary vehicle by which the Company
engaged in the sale of propane fuel.
Summarized financial information for discontinued operations for the year ended
June 30 are as follows:
2004 2003
---- ----
Total Revenues $1,817,902 $2,888,174
---------- ----------
Income (Loss) from Discontinued
Operations (57,630) 148,830
Gain on Sale of Subsidiary 2,668,490 -
---------- ----------
Total Income From Discontinued
Operations $2,610,860 $ 148,830
========== ==========
Total Assets $ - 0 - $2,940,622
Total Liabilities - 0 - 2,603,736
---------- ----------
Net Assets of Discontinued Operations $ - 0 - $ 336,886
========== ==========
Able Propane, LLC is treated as a Partnership for tax purposes and pays no
income tax. As such, there is no provision for income taxes. Able Propane, LLC
has no assets or liabilities at June 30, 2004. The assets and liabilities after
the sale and collection of accounts receivables and payment of accounts
payables, which were transferred to the Company, were immaterial to the total
assets and liabilities of the Company.
(B-V) F-23
NOTE 19 OTHER EXPENSES
On March 14, 2003, a fire and explosion occurred at the Company's facility in
Newton, New Jersey (see note 9). The Company submitted expenses for
reimbursement to their insurance carrier. The Company was reimbursed
approximately $1,041,000. Un-reimbursed expenses of $318,236 have been expensed
in the year ended June 30, 2005.
NOTE 20 OTHER
In December 2004, the major shareholder and Company Chief Executive Officer
(CEO) signed a contract and received a deposit representing the sale of his 50%
plus interest in the Company. In the period ended March 31, 2005, this
individual has resigned as an Officer (CEO) and from the Board of Directors,
where he was Chairman of the Board.
In March 2005, the Company finalized and entered into a consulting agreement
with Summit Ventures, Inc. The agreement is for $71,428.50 payable in common
stock valued at $.50 per share, 142,857 restricted common shares which cannot be
sold for a period of one year. The shares were issued March 23, 2005. The
Agreement shall terminate by December 31, 2006. The consulting fee expense will
be recorded during the 22-month period of the Agreement.
NOTE 21 SUBSEQUENT EVENTS
On July 12, 2005, the Company consummated a financing with a group of lenders.
Pursuant to the terms of the Securities Purchase Agreement, the Company sold
variable rate convertible debentures in the amount of $2.5 million. The
debentures shall be repaid within two years from the date of issuance with
interest payable at a rate per annum equal to Libor, plus 4%, which on July 12,
2005 was 3.57% plus 4%, or 7.57%. The interest is payable quarterly on the first
of January, April, July, and October. The debentures may be converted at the
option of the purchasers into shares of the Company's Common Stock at a
conversion price of $6.50 per share. The amount of shares to be issued at such
conversion will be 384,618. In addition, the purchasers shall have the right to
receive five-year warrants to purchase 192,308 shares of Common Stock at $7.15
per share. The market value of the Company's Common Stock on July 12, 2005 was
$17.90 per share. The debenture conversion price of $6.50 is 36.31% of the
market value. Closing expenses related to this transaction totaled $305,000
included a $250,000 broker fee and $65,000 in various legal expenses.
On July 27, 2005, the Company made a loan of $1,730,000 to All American Plazas,
Inc., which is the largest shareholder of the Company. The funds were disbursed
from the above loan of $2.5 million. Under the note, the loan bears interest at
3.50% per annum and is secured by the 1,000,000 shares of Able Energy, Inc.
Common Stock owned by All American Plazas, Inc. The interest rate of the Company
on its $2.5 million loan is 7.57%, as noted above.
NOTE 22 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following tables present selected unaudited quarterly financial data for
each quarter during the fiscal years ended June 30, 2005, 2004 and 2003.
FIRST SECOND THIRD FOURTH
----- ------ ----- ------
2005 QUARTER
------------
CONTINUING OPERATIONS:
Revenues $8,221,845 $18,988,098 $23,668,771 $11,086,211
Gross Profit 611,987 1,790,231 2,745,538 839,114
Net Income (Loss) (872,899) 53,881 569,461 (1,860,700)
NET INCOME (LOSS) PER SHARE (A)
Basic (.43) .03 .28 (.99)
Diluted (.43) .03 .28 (.99)
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 2,013,250 2,013,250 2,030,281 2,140,813
Diluted 2,013,250 2,013,250 2,052,481 2,140,813
(B-V) F-24
2004 QUARTER FIRST SECOND THIRD FOURTH
------------ ----- ------ ----- ------
CONTINUING OPERATIONS:
Revenues $6,504,640 $11,760,188 $16,645,044 $7,972,455
Gross Profit 886,576 1,393,872 2,837,892 496,518
Net Income (Loss) (1,339,916) (401,752) 456,813 (1,415,248)
DISCONTINUED OPERATIONS:
Revenues 345,572 1,012,734 1,863,030 -
Net Income (Loss) (171,374) (190,450) 344,319 (40,125)
Gain on Sale of Subsidiary Operating Assets - - 2,866,490 -
Income (Loss) from Discontinued Operations (171,374) (190,450) 3,210,809 (40,125)
NET INCOME (LOSS) PER SHARE (A)
BASIC
Continuing Operations (.67) (.20) .23 (.70)
Discontinued Operations (.08) (.09) 1.59 (.02)
DILUTED
Continuing Operations (.67) (.20) .22 (.70)
Discontinued Operations (.08) (.09) 1.57 (.02)
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 2,013,250 2,013,250 2,013,250 2,013,250
Diluted 2,013,250 2,013,250 2,040,588 2,013,250
2003 QUARTER FIRST SECOND THIRD FOURTH
------------ ----- ------ ----- ------
CONTINUING OPERATIONS:
Revenues $5,907,526 $11,730,840 $18,207,317 $7,563,805
Gross Profit 1,037,779 1,915,548 3,084,492 466,274
Net Income (Loss) (742,209) 724,273 1,118,821 (1,047,565)
DISCONTINUED OPERATIONS:
Revenues 325,813 722,872 1,283,263 556,206
Net Income (Loss) (12,380) 200,135 (37,656) (26,029)
NET INCOME (LOSS) PER SHARE (A)
BASIC
Continuing Operations (.37) .36 .56 (.52)
Discontinued Operations .01 .10 (.02) (.01)
DILUTED
Continuing Operations (.37) .35 .55 (.52)
Discontinued Operations .01 .10 (.02) (.01)
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 2,003,831 2,006,855 2,009,814 2,012,708
Diluted 2,003,831 2,057,512 2,052,751 2,012,708
(B-V) F-25
SPECIAL MEETING OF STOCKHOLDERS OF
ABLE ENERGY, INC.
-----------------
Please date, sign and mail
your proxy card in the
envelope provided as soon
as possible.
Please detach and mail in the envelope provided.
ABLE ENERGY, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints each of Christopher Westad and Gregory
Frost with full power of substitution, proxy to vote at the Annual Meeting of
Stockholders of Able Energy, Inc. (the "Company") to be held at the offices of
Ferber Frost Chan & Essner, LLP, 530 Fifth Avenue, New York, New York 10036 at
10:00 a.m. Eastern Time, and at any adjournment or adjournments thereof, hereby
revoking any proxies heretofore given, all shares of common stock of the Company
held or owned by the undersigned as directed on the reverse side, and in their
discretion upon such other matters as may come before the meeting.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE)
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: [X]
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
ABLE ENERGY, INC.
VOTE ON ACQUISITION
1. ACQUISITION OF ALL AMERICAN PLAZAS, INC.
Issuance of up to 11,666,667 shares of the Company's common stock which will
result in the acquisition of substantially all of the assets of All American
Plazas, Inc., or All American, a Pennsylvania corporation, pursuant to the Stock
Purchase Agreement, dated as of June 16, 2005, by and among the shareholders of
All American and us (as amended and restated into the Asset Purchase Agreement
as of the same date)
[ ] FOR [ ] AGAINST [ ] ABSTAIN
VOTE ON FINANCING
2. RATIFICATION AND APPROVAL OF JULY DEBENTURE FINANCING
Potential issuance of up to 789,970 shares of the Company's common stock through
the exercise of certain convertible debentures the Company issued in connection
with a $2.5 million sale of such debentures which took place in July 12, 2005
[ ] FOR [ ] AGAINST [ ] ABSTAIN
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE ABOVE PROPOSALS.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED BY THE
UNDERSIGNED. IF NO DIRECTION IS GIVEN WITH RESPECT TO A PROPOSAL, THIS PROXY
WILL BE VOTED FOR SUCH PROPOSAL.
NOTE: This proxy must be signed exactly as the name appears hereon. When shares
are held jointly, each holder should sign (manually add below additional
signatory lines as may be needed). When signing as executor, administrator,
attorney, trustee or guardian, please give full title as such. If the signer is
a corporation, please sign full corporate name by duly authorized officer,
giving full title as such. If signer is a partnership, please sign in
partnership name by authorized person.
Please indicate if you plan to attend this meeting [ ] Yes [ ] No
Signature of Stockholder _______________________________ Date:__________________
Entity Name (if applicable)/Capacity ________________________________________