-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LaVBjjKIehfeIQA41b/VyHpoKKMmyj9Q6o8BKLAoURE+oofiwPKnRxW9khxD70BP q0NLA48MQY82VgfzwfR28A== 0000912057-96-022877.txt : 19961016 0000912057-96-022877.hdr.sgml : 19961016 ACCESSION NUMBER: 0000912057-96-022877 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19961015 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GRIFFITH CONSUMERS CO /DE/ CENTRAL INDEX KEY: 0000935814 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-PETROLEUM & PETROLEUM PRODUCTS (NO BULK STATIONS) [5172] IRS NUMBER: 521887726 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 033-88526 FILM NUMBER: 96643792 BUSINESS ADDRESS: STREET 1: 2510 SCHUSTER DR CITY: CHEVERLY STATE: MD ZIP: 20781 MAIL ADDRESS: STREET 1: GRIFFITH CONSUMERS CO STREET 2: 2510 SCHUSTER DRIVE CITY: CHEVERLY STATE: MD ZIP: 20781 10-K/A 1 10-K/A SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K/A ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JUNE 30, 1996 COMMISSION FILE NUMBER 33-88526 GRIFFITH CONSUMERS COMPANY CARL KING, INC. FREDERICK TERMINALS, INC. (EXACT NAME OF REGISTRANTS AS SPECIFIED IN THEIR CHARTERS) DELAWARE 52-1887726 DELAWARE 04-2941998 MARYLAND 52-1863759 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER NO.) INCORPORATION OR ORGANIZATION) GRIFFITH CONSUMERS COMPANY CARL KING, INC. FREDERICK TERMINALS, INC. 109 SOUTH MAIN STREET 2510 SCHUSTER DRIVE CAMDEN, DELAWARE 19934 CHEVERLY, MARYLAND 20781 (302) 697-3251 (301) 322-3111 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANTS' PRINCIPAL EXECUTIVE OFFICES) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. X YES NO ----- ----- INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405 OF REGULATIONS S-K IS NOT CONTAINED HEREIN AND WILL NOT BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THE FORM 10-K OR ANY AMENDMENT OF THIS FORM 10-K [ ]. AS OF SEPTEMBER 30, 1996, THE ISSUERS HAD THE FOLLOWING NUMBER OF SHARES OF COMMON STOCK OUTSTANDING: GRIFFITH CONSUMERS COMPANY : 1,000 SHARES CARL KING, INC. : 1,000 SHARES FREDERICK TERMINALS, INC. : 500 SHARES AS OF SEPTEMBER 30, 1996, ALL SHARES OUTSTANDING OF GRIFFITH CONSUMERS COMPANY, CARL KING, INC. AND FREDERICK TERMINALS, INC. WERE HELD BY AFFILIATES. SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, each registrant has duly caused this report to be signed on its behalf by the undersigned, each thereunto duly authorized on the 15th day of October, 1996. GRIFFITH CONSUMERS COMPANY By: /s/ Todd R. Berman ------------------------------ Name: Todd R. Berman Title: Chairman CARL KING, INC. By: /s/ Todd R. Berman ------------------------------ Name: Todd R. Berman Title: Chairman FREDERICK TERMINALS, INC. By: /s/ Todd R. Berman ------------------------------ Name: Todd R. Berman Title: Chairman 1 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrants and in the capacities and on the dates indicated. GRIFFITH CONSUMERS COMPANY NAME TITLE DATE /s/ Todd R. Berman Chairman of the October 15, 1996 - -------------------- Board of Directors Todd R. Berman /s/ Howard B. President and October 15, 1996 Schlosberg Director (Principal - -------------------- Executive Officer) Howard B. Schlosberg /s/ Michael S. Shein Vice President and October 15, 1996 - -------------------- Director Michael S. Shein /s/ Raymond R. Vice President, October 15, 1996 McKenzie, Jr. Secretary and - -------------------- Treasurer (Principal Raymond R. McKenzie, Financial and Jr. Accounting Officer) Director October 15, 1996 - -------------------- Barry J. Lassman /s/Walter J. Meighan Director October 15, 1996 - -------------------- Walter J. Meighan /s/Neil H. Director October 15, 1996 McLaurin, III - -------------------- Neil H. McLaurin, III 2 CARL KING, INC. NAME TITLE DATE /s/ Todd R. Berman Chairman of the October 15, 1996 - -------------------- Board of Directors Todd R. Berman /s/ Raymond R. Vice President October 15, 1996 McKenzie, Jr. (Principal Financial - -------------------- and Accounting Officer) Raymond R. McKenzie, Jr. /s/ Michael S. Shein Vice President and October 15, 1996 - -------------------- Director Michael S. Shein FREDERICK TERMINALS, INC. NAME TITLE DATE /s/ Todd R. Berman Chairman of the October 15, 1996 - -------------------- Board of Directors Todd R. Berman /s/ Howard B. President and October 15, 1996 Schlosberg Director (Principal - -------------------- Executive Officer) Howard B. Schlosberg /s/ Michael S. Shein Vice President and October 15, 1996 - -------------------- Director Michael S. Shein /s/ Raymond R. Secretary and October 15, 1996 McKenzie, Jr. Director (Principal - -------------------- Financial and Raymond R. McKenzie, Accounting Officer) Jr. 3 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders of Griffith Consumers Company: We have audited the accompanying consolidated statements of operations, changes in shareholders' equity and cash flows of Griffith Consumers Company and subsidiaries ("Predecessor") for the period July 1, 1994 through December 15, 1994. 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. 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 results of operations and cash flows of Griffith Consumers Company and subsidiaries for the period July 1, 1994 through December 15, 1994, in conformity with generally accepted accounting principles. /s/ Arthur Andersen, LLP ARTHUR ANDERSEN LLP New York, New York September 18, 1996 F-1a REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders of Griffith Consumers Company: We have audited the accompanying consolidated balance sheets of Griffith Consumers Company (a Delaware corporation) and subsidiaries ("Successor") as of June 30, 1996 and 1995, and the related consolidated statements of operations, changes in shareholder's equity and cash flows for the year ended June 30, 1996, and for the period December 16, 1994 through June 30, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion of these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Griffith Consumers Company and subsidiaries as of June 30, 1996 and 1995, and the results of their operations and their cash flows for the year ended June 30, 1996, and for the period December 16, 1994 through June 30, 1995, in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP ARTHUR ANDERSEN LLP New York, New York September 18, 1996 F-1b REPORT OF INDEPENDENT AUDITORS To the Shareholders Griffith Consumers Company We have audited the accompanying consolidated statements of operations, changes in shareholders' equity and cash flows of Griffith Consumers Company and subsidiaries for the year ended June 30, 1994. 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. 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 results of operations and cash flows of Griffith Consumers Company and subsidiaries for the year ended June 30, 1994, in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP ERNST & YOUNG LLP August 22, 1994 F-2 GRIFFITH CONSUMERS COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
JUNE 30, JUNE 30, ASSETS: 1996 1995 - ----------------------------------------- ------------------ ----------------- CURRENT ASSETS CASH $ 1,687,443 $ 803,085 ACCOUNTS AND NOTES RECEIVABLE, LESS ALLOWANCE FOR BAD DEBTS - NOTE K 11,813,211 8,854,865 PETROLEUM PRODUCTS INVENTORY 1,228,347 1,104,087 REPAIR PARTS AND SUPPLIES INVENTORY 1,662,048 1,654,668 PREPAID EXPENSES AND OTHER 1,320,055 1,686,326 REFUNDABLE INCOME TAXES - - - - - 1,184,380 ---------------- ---------------- TOTAL CURRENT ASSETS 17,711,104 15,287,411 PROPERTY, PLANT AND EQUIPMENT - ----------------------------------------- LAND 5,533,870 5,691,704 BUILDINGS 1,844,358 1,849,746 MACHINERY AND EQUIPMENT 16,152,930 14,427,147 ---------------- ---------------- 23,531,158 21,968,597 LESS: ALLOWANCE FOR DEPRECIATION 6,019,263 2,079,727 ---------------- ---------------- 17,511,895 19,888,870 INTANGIBLES - NOTE C - ----------------------------------------- CUSTOMER AND SERVICE ACCOUNTS 37,063,186 37,243,999 COVENANTS NOT TO COMPETE 2,936,824 2,936,823 GOODWILL 39,000,867 39,375,955 OTHER INTANGIBLES 836,344 836,344 ---------------- ---------------- 79,837,221 80,393,121 LESS: ALLOWANCE FOR AMORTIZATION 11,304,362 4,951,986 ---------------- ---------------- 68,532,859 75,441,135 LONG-TERM NOTES RECEIVABLE 1,054,816 793,595 DEFERRED DEBT COSTS & OTHER 3,759,756 3,764,930 ---------------- ---------------- TOTAL ASSETS $ 108,570,430 $ 115,175,941 ---------------- ---------------- ---------------- ----------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-3 GRIFFITH CONSUMERS COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
JUNE 30, JUNE 30, LIABILITIES AND SHAREHOLDER'S EQUITY: 1996 1995 - ----------------------------------------- ------------------ ----------------- CURRENT LIABILITIES: ACCOUNTS PAYABLE $ 7,581,065 $ 6,050,846 ACCRUED EXPENSES 3,560,374 2,144,619 DEFERRED REVENUE 2,471,880 3,251,038 INCOME TAXES PAYABLE 73,103 - - - - OTHER TAXES PAYABLE 198,517 523,701 CURRENT PORTION OF LONG-TERM DEBT- NOTE F 4,240,893 3,924,660 ---------------- ---------------- TOTAL CURRENT LIABILITIES 18,125,832 15,894,864 LONG-TERM DEBT, LESS CURRENT PORTION- NOTE F 65,350,995 68,614,436 DEFERRED INCOME TAXES 7,993,849 9,840,169 POST-RETIREMENT EMPLOYEE BENEFITS AND OTHER 1,541,330 1,602,916 ---------------- ---------------- TOTAL LIABILITIES 93,012,006 95,952,385 SHAREHOLDER'S EQUITY - ----------------------------------------- COMMON STOCK, PAR VALUE $.01 PER SHARE, 100 SHARES, AUTHORIZED, ISSUED AND OUTSTANDING 1 1 ADDITIONAL PAID-IN CAPITAL 20,691,323 20,691,323 RETAINED DEFICIT (5,132,900) (1,467,768) ---------------- ---------------- TOTAL SHAREHOLDER'S EQUITY 15,558,424 19,223,556 TOTAL LIABILITIES AND ---------------- ---------------- SHAREHOLDER'S EQUITY $ 108,570,430 $ 115,175,941 ---------------- ---------------- ---------------- ----------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-4 GRIFFITH CONSUMERS COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
SUCCESSOR PREDECESSOR ------------------------------------ ------------------------------------ JUL 1, 1995 - DEC 16, 1994 - JUL 1, 1994 - JUL 1, 1993 - JUN 30, 1996 JUN 30, 1995 DEC 15, 1994 JUN 30, 1994 ---------------- ---------------- ---------------- ---------------- SALES FROM PETROLEUM PRODUCTS $ 178,834,396 $ 94,579,313 $ 65,437,258 159,565,648 SERVICE, EQUIPMENT, AND OTHER SALES 19,182,816 9,535,569 8,939,201 17,372,193 ---------------- ---------------- ---------------- ---------------- TOTAL SALES 198,017,212 104,114,882 74,376,459 176,937,841 COST OF SALES 154,157,555 80,504,645 59,739,106 134,222,416 ---------------- ---------------- ---------------- ---------------- GROSS PROFIT 43,859,657 23,610,237 14,637,353 42,715,425 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 29,032,933 15,358,839 12,866,611 28,384,963 DEPRECIATION EXPENSE 4,124,316 2,136,576 1,304,698 2,853,034 AMORTIZATION EXPENSE 7,065,138 3,970,889 2,013,836 4,461,784 ---------------- ---------------- ---------------- ---------------- OPERATING INCOME (LOSS) 3,637,270 2,143,933 (1,547,792) 7,015,644 INTEREST EXPENSE 9,398,476 5,054,455 1,239,657 2,526,247 OTHER INCOME 668,001 850,722 199,747 564,853 ---------------- ---------------- ---------------- ---------------- (LOSS) INCOME BEFORE INCOME TAX (5,093,205) (2,059,800) (2,587,702) 5,054,250 INCOME TAX (BENEFIT) EXPENSE - NOTE H (1,428,073) (592,032) (1,004,455) 1,971,187 ---------------- ---------------- ---------------- ---------------- NET (LOSS) INCOME $ (3,665,132) $ (1,467,768) $ (1,583,247) 3,083,063 ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ----------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-5 GRIFFITH CONSUMERS COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
ADDITIONAL RETAINED TOTAL COMMON PAID-IN EARNINGS SHAREHOLDER'S PREDECESSOR SHARES STOCK CAPITAL (DEFICIT) EQUITY ----------- ------------ ------------- ------------ ------------- BALANCE JUNE 30, 1993 2,355,000 23,550 2,849,407 1,879,436 4,752,393 NET INCOME - - - 3,083,063 3,083,063 ----------- ------------ ------------- ------------ ------------- BALANCE JUNE 30, 1994 2,355,000 23,550 2,849,407 4,962,499 7,835,456 ISSUANCE OF STOCK 5,000 50 24,950 - 25,000 NET LOSS - - - (1,583,247) (1,583,247) ----------- ------------ ------------- ------------ ------------- BALANCE DECEMBER 15, 1994 2,360,000 23,600 2,874,357 3,379,252 6,277,209 STOCK REDEMPTION (2,360,000) (23,600) (2,874,357) (3,379,252) (6,277,209) ----------- ------------ ------------- ------------ ------------- BALANCE DECEMBER 16, 1994 - - - - - - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ SUCCESSOR CAPITAL CONTRIBUTIONS FROM PARENT 100 1 20,691,323 - 20,691,324 NET LOSS - - - (1,467,768) (1,467,768) ----------- ------------ ------------- ------------ ------------- BALANCE JUNE 30, 1995 100 1 20,691,323 (1,467,768) 19,223,556 NET LOSS - - - (3,665,132) (3,665,132) ----------- ------------ ------------- ------------ ------------- BALANCE JUNE 30, 1996 100 1 20,691,323 (5,132,900) 15,558,424 ----------- ------------ ------------- ------------ ------------- ----------- ------------ ------------- ------------ -------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-6 GRIFFITH CONSUMERS COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
SUCCESSOR PREDECESSOR ------------------------------------ ------------------------------------- YEAR ENDED DECEMBER 16, 1994 JULY 1, 1994 YEAR ENDED JUNE 30 THROUGH THROUGH JUNE 30 1996 JUN 30, 1995 DECEMBER 15, 1994 1994 ---------------- ----------------- ----------------- ---------------- OPERATING ACTIVITIES Net (loss) income $ (3,665,132) $ (1,467,768) $ (1,583,247) $ 3,083,063 Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities: Depreciation 4,124,316 2,136,576 1,304,698 2,853,034 Amortization 7,065,138 3,970,889 2,013,836 4,461,784 Provision for bad debts 336,000 96,000 92,000 356,000 Amortization of bond discount 182,108 72,264 - - - - - - - - Gain on sale of property, plant, equipment, and intangibles (137,772) (6,498) (24,087) (20,689) Changes in operating assets and liabilities, Net of effects of change in working capital: Accounts and notes receivable (3,555,567) 1,439,016 (1,571,994) (2,193,749) Inventory (131,640) 43,919 (175,887) 232,029 Prepaid expenses and other 366,271 951,694 (1,841,787) (166,538) Refundable income taxes, net 1,257,483 55,411 (1,234,890) 5,467 Other assets (151,688) (1,990,701) (771,997) (321,047) Accounts payable 1,530,219 (2,770,914) 1,319,125 639,733 Accrued expenses 1,415,755 254,306 (283,208) (545,849) Deferred revenue (779,158) (1,615,715) 1,822,452 447,344 Other liabilities (2,233,090) (238,900) 392,473 102,852 ---------------- ---------------- --------------- -------------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 5,623,243 929,579 (542,513) 8,933,434 INVESTING ACTIVITIES Purchases of property, plant, and equipment (2,376,852) (2,061,981) (1,497,243) (2,888,938) Purchases of intangible assets - - - - - - - - (750,000) (81,632) Proceeds from sale of property, plant, and equipment and intangible assets 767,283 89,431 125,545 242,058 Acquisition of business: Property, Plant and equipment - - - - - - - - - - - - (1,375,400) Intangibles - - - - (76,650) (142,000) (912,000) Inventory - - - - - - - - - - - - (8,500) Purchase of predecessor's stock per Merger - - - - (54,280,000) - - - - - - - - Acquisition Costs (3,674,391) - - - - - - - - ---------------- ---------------- --------------- -------------- Net cash used in investing activities (1,609,569) (60,003,591) (2,263,698) (5,024,412) FINANCING ACTIVITIES Proceeds from line of credit 800,000 (1,850,000) 1,850,000 530,984 Proceeds from bond debentures issuance - - - - 31,196,612 - - - - - - - - Bond issue costs - - - - (1,473,000) - - - - - - - - Proceeds from term loans - - - - 40,275,853 - - - - - - - - Prepaid interest - - - - (1,170,000) - - - - - - - - Payments on long-term debt (3,929,316) (27,793,692) (1,760,875) (4,281,916) Capital Contributions from Parents - - - - 20,691,323 Issuance of capital stock - - - - 1 25,000 - - - - ---------------- ---------------- --------------- -------------- Net cash (used in) provided by financing activities (3,129,316) 59,877,097 114,125 (3,750,932) ---------------- ---------------- --------------- -------------- Increase (Decrease) in cash 884,358 803,085 (2,692,086) 158,090 Cash at beginning of period 803,085 - - - - 2,692,086 2,533,996 ---------------- ---------------- --------------- -------------- Cash at end of period $ 1,687,443 $ 803,085 $ 0 $ 2,692,086 ---------------- ---------------- --------------- -------------- ---------------- ---------------- --------------- --------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-7 Griffith Consumers Company and Subsidiaries June 30, 1996 Notes to Consolidated Financial Statements Note A--Introduction On December 15, 1994, the transaction contemplated by the merger agreement ("Merger Agreement") dated August 26, 1994 between Griffith Consumers Company ("Griffith", and together with its consolidated subsidiaries "the Company") and Griffith Holdings, Inc. ("GHI"), a corporation previously unrelated to the Company, closed, whereby GHI acquired all of Griffith's 2,360,000 outstanding shares of common stock (the "Common Stock") for $23.00 cash per share. Pursuant to the Merger Agreement, ABC Acquisition Corp. ("ABC"), a wholly owned subsidiary of GHI, merged with and into Griffith, and each share of Griffith's common stock was converted into the right to receive $23.00 in cash (the "Acquisition"). As a result of the Acquisition, the Company became a wholly owned subsidiary of GHI. The Acquisition has been accounted for under the purchase method of accounting as of December 16, 1994. Accordingly, GHI has allocated its total purchase cost of approximately $54,280,000 to the assets and liabilities of the Company based upon the fair value of these assets and liabilities. The fair values assigned on the December 16, 1994 balance sheet were adjusted when valuation studies were completed. Because of this purchase price allocation, the accompanying consolidated financial statements of the Company for the periods July 1, 1995 through June 30, 1996 and December 16, 1994 through June 30, 1995 (the "Successor") are not directly comparable to the consolidated financial statements of the Company for the period prior to December 16, 1994 (the "Predecessor"). Note B--Business The Company is engaged principally in the retail sale of home heating oil, the retail sale of gasoline through Company-owned gas stations, the sale of gasoline to independent dealer gas stations and the sale of other petroleum products. The Company is also engaged in the sale of oil heating and air-conditioning equipment. Note C--Significant Accounting Policies PRINCIPLES OF CONSOLIDATION: The subsidiaries' accounts have been included in the consolidated financial statements. All significant intercompany accounts and transactions have been eliminated. REVENUE RECOGNITION: Sales are recognized as deliveries are made or services are performed. Deferred revenue represents collections from customers who are on a periodic payment plan and who have made payments in excess of deliveries or services received. F-8 ALLOWANCE FOR BAD DEBTS: A provision for bad debts is provided when the collection of the account is doubtful. INVENTORIES: Inventories are valued at the lower of average cost or market. PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are recorded at cost. Depreciation is recorded using the straight-line method over the following useful lives: Buildings 20 years Dealer equipment and station improvements 5-10 years Machinery and equipment 3- 5 years As of December 16, 1994, the remaining useful lives were used to depreciate property, plant and equipment revalued under purchase accounting. Maintenance and repairs are expensed as incurred; significant renewals and betterments are capitalized. Maintenance and repair expense for the year ended June 30, 1996 and the periods December 16, 1994 through June 30, 1995 and July 1, 1994 through December 15, 1994 and the year ended June 30, 1994 was $1,159,137, $650,118, $643,655, and $1,591,051, respectively. INTANGIBLE ASSETS: Customer and service accounts obtained through acquisitions are amortized over their estimated useful lives of eight years. Other intangibles are amortized over periods not exceeding ten years. Covenants not to compete are amortized over the period stated in the agreements. Goodwill was amortized over a period of fifteen years for the Predecessor and is amortized over a thirty year period for the Successor. All intangible assets are amortized using the straight-line method. The Company evaluates the potential impairment of intangibles and other long-lived assets by comparing the related discounted cash flow from operations to the net book value of such assets. Any impairment would be the excess of net book value over discounted future cash flow from operations. For these purposes, the related cash flow is the earnings before taxes, depreciation, amortization, and interest attributable to the intangibles and other long-lived assets whose impairment is being assessed. BURNER SERVICE CONTRACTS: A contingent liability is provided for labor and parts given free to customers during the years in which no revenue is received from the customer. RECLASSIFICATIONS: Certain amounts in the consolidated balance sheet for the year ended June 30, 1995 have been reclassified to conform to the June 30, 1996 presentations. Additionally, certain amounts in the consolidated statements of operations, changes in shareholder's equity and statements of cash flows for the year ended June 30, 1994, and the periods July 1, 1994 through December F-9 15, 1994 and December 16, 1994 through June 30, 1995 have been reclassified to conform with the June 30, 1996 presentation. DEBT ISSUANCE COSTS: The costs associated with the issuance of debt are amortized utilizing the effective interest method over the term of the underlying debt instrument. The terms of the debt range from six to ten years. INCOME TAXES: Deferred income taxes are provided for the temporary differences between the financial statements and the tax basis of assets and liabilities, except for goodwill recorded in connection with the Acquisition, which is not deductible for tax purposes. Deferred income taxes relate primarily to depreciation associated with property, plant, and equipment, allowances for bad debt and various accruals of salaries and related benefits. USE OF ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles 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. F-10 Note D--Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long- Lived Assets and for Long-Lived Assets to be Disposed of" (SFAS No. 121). This statement establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles, and goodwill related to those assets to be held and used and for long-lived assets and certain identifiable intangibles to be disposed of. SFAS No. 121 requires these assets to be reviewed for possible impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. This statement will be effective for fiscal years beginning after December 15, 1995, and the Company plans to adopt the statement on July 1, 1996. Based upon the facts and circumstances known today, the Company does not expect the adoption of SFAS No. 121 to have a material impact on its financial statements. Note E--Acquisitions of Retail Oil Companies and Gasoline Stations The Company acquired the assets of a retail oil company. The acquisition was accounted for as a purchase transaction and, therefore, the financial statements include the results of operations of the acquired company from the acquisition date. The cost of the acquisition in the previous year was allocated as follows: Year Ended Year Ended June 30, June 30, 1996 1995 ------------------------------ Customer and service accounts $ -0- $ 50,000 Covenants not to compete -0- 24,000 Goodwill -0- 68,000 ---------- ----------- $ -0- $ 142,000 ---------- ----------- ---------- ----------- Number of acquisitions - 1 F-11 Note F--Debt In connection with the Acquisition, the Company retired the Predecessor's operating line of credit and primary bank term loan. Mortgage notes (the "Mortgage Notes") on several properties located in Delaware, Maryland and West Virginia were assumed by the Successor. The Company subsequently negotiated a new term loan and operating line of credit with the Company's primary bank lender under the Third Amended and Restated Revolving Credit and Term Loan Agreement dated as of December 15, 1994 (the "Credit Agreement"). Borrowings under the Credit Agreement are secured by a first lien on substantially all the assets of the Company, except those properties located in Delaware, Maryland and West Virginia securing the Mortgage Notes. The primary lender is subordinated to the mortgage lender on these properties. The Credit Agreement contains various provisions regarding events of default and restrictive covenants, including, among others, restrictions on new liens and indebtedness, restrictions on the sale of assets, restrictions on mergers and consolidations and a prohibition on the payment of dividends. In addition, at the end of each quarter and/or fiscal year-end, the Company is required to maintain a certain cumulative cash flow coverage ratio, minimum tangible net worth, minimum working capital, specified maximum ratio of funded debt to earnings before interest, taxes, depreciation and amortization ("EBITDA") and debt service coverage ratio. In addition to the Credit Agreement, the Company financed the Acquisition with $34 million of 14 1/2% Senior Subordinated Notes due December 15, 2004 (the "Notes"). Interest on the Notes is payable semiannually on June 15 and December 15 of each year. The Notes are subordinated to all existing and future senior indebtedness of the Company. The Indenture governing the Notes (the "Indenture") contains certain restrictive covenants and financial covenants similar to the Credit Agreement. The Company has entered into three amendments to the Credit Agreement and two amendments to the Indenture during 1995 and 1996, which, among other things revised certain definitions and/or certain financial covenants contained therein. The Company is in compliance with such agreements as amended. Subsequent to year-end, the Company amended the agreement. See Note N - Subsequent Events. F-12 The outstanding balances, due dates and interest rates of debt at June 30, 1996 and 1995 were as follows: June 30, June 30, 1996 1995 Rate ------------------------------------------ Term loan due December 31, 2000 $17,200,000 $20,400,000 Prime + 1.5% or Eurodollar Rate + 2.75% Term loan due December 31, 2002 $17,250,000 $17,750,000 Prime + 2% or Eurodollar Rate + 3.25% Mortgage note due May 1, 2001 $324,905 $378,802 7.5% to April 995 Prime + 1.5% thereafter Senior Subordinated Notes due December 15, 2004, net of unamortized bond discount of $2,548,419 and $2,730,527 $31,451,581 $31,269,473 14.5% Line of Credit due December $2,600,000 $1,800,000 Prime + 1.5% 31, 1998 or Eurodollar Rate + 2.75% Other long-term debt due 7.0% through through 2006 $765,402 $940,821 9.5% ----------- ----------- Total debt $69,591,888 $72,539,096 Current portion of long-term debt ($4,240,893) ($3,924,660) ------------- ------------ Long-term debt, less current portion $ 65,350,995 $68,614,436 ------------ ----------- ------------ ----------- The term loan interest is payable either quarterly or based on the maturity of the Eurodollar Rate Loans. The Senior Subordinated Notes interest is paid semi- annually. All other interest payments are made monthly. As noted above, the Company's term loans and line of credit are based on either the Prime rate or Eurodollar rate. The Company decides whether to use the Eurodollar or Prime rate based on the current market interest rates during the year. F-13 The prime rate was 8.25% and 9% at June 30, 1996 and 1995, respectively. The average Eurodollar rate at June 30, 1996 and 1995 was 5.5% and 6.125%, respectively. The Company has available lines of credit. The maximum and average amounts outstanding and the maximum available for the fiscal years are as follows: Year Ended June 30 1996 1995 ------------------------ Maximum Outstanding $10,800,000 $ 4,000,000 Average Outstanding $ 2,849,808 $ 939,726 Maximum Available $12,000,000 $12,000,000 The Company entered into a two year interest rate swap covering the term loan outstanding at January 17, 1996. The amount of the swap coverage is reduced as payments of principle on the term loan are made. The interest rate provides a fixed Eurodollar rate of 5.22% for the term. The operating line of credit has a commitment fee of 1/2% per annum on the unused portion. The Company paid $44,281, $15,385, $13,015, and $28,914 for the year ended June 30, 1996, the periods December 16, 1994 through June 30, 1995, July 1, 1994 through December 15, 1994 and the year ended June 30, 1994, respectively. The Company paid $9,398,476, $5,054,455, $1,239,657 and $2,526,247 in interest for the year ended June 30, 1996 and during the periods December 16, 1994 through June 30, 1995 and July 1, 1994 through December 15, 1994 and the year ended June 30, 1994, respectively. Principal payments due during each fiscal year ended June 30 under all loan agreements are as follows: 1997 $ 4,240,893 1998 4,541,243 1999 4,525,552 2000 5,176,233 2001 6,113,257 Thereafter 44,994,710 ---------- $69,591,888 ----------- ----------- Seven letters of credit, totaling $3,578,191, were outstanding at June 30, 1996. These letters expire on or before July 1, 1997. Management believes none of these letters of credit will be called in the future. Note G--Related Party Transactions In connection with the change of control in December 1994, the Company paid certain transaction-related fees and expense reimbursements to entities owned by certain of the current directors and controlling shareholders of the Company. Such payments totaled $1,172,360. A quarterly management fee is also F-14 paid to entities owned by certain of the current directors and controlling shareholders. The Company paid $300,000 of management fees in 1996. NOTE H--Income Taxes The components of income tax expense (benefit) are as follows: Successor Predecessor ----------- ------------ Year Ended Dec 16, 1994- Jul 1, 1994- Year Ended June 30,1996 Jun 30, 1995 Dec 15, 1994 June 30,1994 ------------------------------------------------------ Federal income taxes Current $ 159,438 $ 11,469 $ (807,313) $1,632,485 Deferred (1,609,321) (605,188) (78,419) (15,101) State income taxes 21,810 1,687 (118,723) 353,803 ------------ ------------ ------------ --------- $(1,428,073) $ (592,032) $(1,004,455) $1,971,187 ------------ ------------ ------------ ---------- ------------ ------------ ------------ ---------- A reconciliation of the difference between income tax (benefit) expense at the statutory federal rate and the effective rate is as follows: Successor Predecessor ------------- ------------ Year Ended Dec 16, 1994- Jul 1, 1994- Year Ended June 30,1996 Jun 30, 1995 Dec 15, 1994 June 30,1994 ------------------------------------------------------- Statutory federal rate (34%) $(1,731,690) $ (700,332) $ (879,819) $1,718,445 State income taxes, net of federal benefit (254,660) (102,990) (140,400) 220,429 Goodwill-pre acquisition -0- 12,480 12,963 27,501 Goodwill-post acquisition 500,073 193,419 -0- -0- Other, net 58,204 5,391 2,801 4,812 ----------- ----------- ----------- ---------- Income tax (benefit) expense $(1,428,073) $ (592,032) $(1,004,455) $1,971,187 ----------- ----------- ----------- ---------- ----------- ----------- ----------- ---------- F-15 The components of deferred taxes are as follows at June 30, 1996: Deferred tax liabilities: Depreciation - PP&E $ 449,299 Step-up in assets, excluding goodwill 7,931,353 Other 380,351 ---------- Total $8,761,003 ---------- Deferred tax assets: Allowance for bad debts 269,677 Accrued vacation 103,738 Alternative Minimum Tax 237,000 Other 156,738 ---------- Total 767,153 ---------- Net deferred tax liabilities $7,993,850 ---------- ---------- Deferred income taxes are provided for the temporary differences between the financial statements and the tax basis of assets and liabilities, except for goodwill in connection with the acquisition, which is not deductible for tax purposes. The Company received income tax refunds of $880,366, $199,504, $0, and $863 in the year ended June 30, 1996, the periods December 16, 1994 through June 30, 1995 and July 1, 1994 through December 15, 1994 and the year ended June 30, 1994, respectively. The Company made income tax payments of $42,000, $107,189, $278,300, and $1,764,875 in the year ended June 30, 1996, the periods December 16, 1994 through June 30, 1995 and July 1, 1994 through December 15, 1994 and the year ended June 30, 1994, respectively. The Company files a consolidated federal income tax return with GHI as its parent corporation. GHI is ultimately liable for future federal income tax liabilities of the Company. The Company's federal tax provision is calculated on a separate return basis. The Company files separate company state income tax returns and is ultimately liable for its future state income tax liabilities. Note I--Environmental Regulations Management believes that the environmental liability recorded as of June 30, 1996 properly provides for the Company's environmental liability exposure for future remediation or contamination which existed at June 30, 1996. Management's assessment of the environmental liability is based on a comprehensive environmental study by an independent environmental consultant that was completed during fiscal year 1995. Management is not aware of any additional significant environmental exposures since the completion of the fiscal year 1995 study. The Company maintains a program to routinely detect releases of gasoline or other regulated substances from underground storage F-16 tanks it owns or operates. The Company employs groundwater monitoring wells and/or sophisticated in-tank monitoring devices at a majority of its Company operated stations and this information is available on-line at the Company's headquarters. Note J--Pension and Other Benefit Plans As part of an acquisition agreement, the Company agreed to provide post- retirement health and life benefits to certain retirees and spouses of an entity acquired in 1987. The net present value of these postretirement benefits was established as a liability for all periods presented. Under this agreement, the Company pays 100% of the health insurance premiums for 35 retirees and spouses, 100% of the life insurance premiums for 16 retirees and spouses, and approximately 35% of the dental premiums for 4 retirees and spouses. There are 35 retirees and spouses at June 30, 1996 and the Company's portion of the retirees' premiums approximated $37,000, $36,000, and $38,000 during the years ended June 30, 1996, 1995, and 1994, respectively. The actuarial present value of the accumulated postretirement benefit obligation ("APBO") was approximately $600,000 as of June 30, 1996. Net postretirement benefit expense for the year ended June 30, 1996 was $34,000. Effective January 1, 1988, the Company adopted "The Griffith Consumers Company 401(k) Plan and Trust" (the "Plan"). All full-time employees are eligible to participate in the Plan after one year of employment. Until December 31, 1992, each eligible participant could elect to contribute 2% to 15% of compensation, and the Company contributed an equal amount up to 2% of the participant's total compensation. Effective January 1, 1993, the Company contribution was increased to 3%. Total contributions charged to expense for the year ended June 30, 1996 and the periods December 16, 1994 through June 30, 1995 and July 1, 1994 through December 15, 1994 and the year ended June 30, 1994 were $285,567, $141,000, $119,000, and $263,000, respectively. Note K--Allowance for Bad Debts Activity in the allowance for bad debts is as follows: Year Ended June 30 1996 1995 1994 --------------------------------------- Beginning Balance $ 463,398 $ 552,073 $ 353,159 Provision for bad debts 336,000 188,000 356,000 Accounts written off, net of recoveries (107,919) (276,675) (157,086) ---------- ---------- ---------- Ending balance $ 691,479 $ 463,398 $ 552,073 ---------- ---------- ---------- ---------- ---------- ---------- F-17 Note L--Commitments and Contingencies The Company leases office facilities, petroleum product storage facilities, computer equipment and transportation equipment. The Company's operating leases range in length from one to six years. Certain leases have options for renewal. Future minimum payments, by year and in the aggregate, under noncancelable operating leases with terms of one year or more, consist of the following at June 30, 1996: Year Ending Total Operating June 30, Leases ------------ --------------- 1997 $ 571,614 1998 333,186 1999 207,264 2000 164,755 2001 163,155 Thereafter -0- ---------- Total minimum lease payments $1,439,974 ---------- ---------- Rental expense for all operating leases for the year ended June 30, 1996, and the periods December 16, 1994 through June 30, 1995 and July 1, 1994 through December 15, 1994 and the year ended June 30, 1994 was $1,147,110, $643,929, $544,863, and $1,353,500, respectively. The Company derives rental income primarily from real estate leases to dealers. Rental income for the year ended June 30, 1996 and the periods December 16, 1994 through June 30, 1995, and July 1, 1994 through December 15, 1994, and the year ended June 30, 1994 was $212,216 $109,580, $88,395, and $147,660, respectively. The Company purchases petroleum products pursuant to supply contracts or on the spot market. At June 30, 1996, the Company was a party to 14 supply contracts which are effective for periods of up to three years. These contracts establish maximum amounts of petroleum products which a supplier is required to provide but the Company is not required to purchase a minimum amount. The price approximates market at time of purchase. Historically, the Company has procured approximately one-half of its petroleum products under these supply contracts and the balance on the spot market. The Company has 81 contracts with terms varying from two to twenty years to supply nonaffiliated gasoline stations with petroleum products. These contracts establish minimum amounts of petroleum products which the Company will supply. The price approximates market at time of purchase. Company management believes the probability is remote that the outcome of litigation and other proceedings relating to the Company F-18 will have a material adverse impact on the results of the Company's operations or its financial position. Note M--Subsidiaries' Condensed Financial Statement Data Griffith's wholly owned subsidiaries, Carl King, Inc. and Frederick Terminals, Inc. (collectively, "Subsidiaries") are the full and unconditional guarantors of the Notes, issued in connection with Company's private placement thereof on December 15, 1994. This footnote sets forth the combined balance sheets of the Subsidiaries as of June 30, 1996 and June 30, 1995, the combined statements of operations and cash flows for the year ended June 30, 1996 and the periods December 16, 1994 through June 30, 1995 and July 1, 1994 through December 15, 1994, and changes in shareholder's equity for the period from June 30, 1993 through June 30, 1996. In accordance with Staff Accounting Bulletin No. 55, the separate financial statement data reflects all of the expenses that the Company incurred on each Subsidiary's behalf. Except for certain general and administrative expenses and income taxes, expenses are separately identifiable and, therefore, charged directly to the respective Subsidiary. Common general and administrative expenses are allocated based on management's assessment of the actual costs associated with the operations; and income tax expense is provided in the financial data on a separate return basis. Management believes that the methods used to allocate expenses to each Subsidiary are reasonable. F-19 CARL KING, INC. AND FREDERICK TERMINALS, INC. COMBINED CONDENSED BALANCE SHEETS -------------- -------------- June 30 June 30 ASSETS: 1996 1995 -------------- -------------- Current assets $ 5,215,700 $ 3,125,955 Net property, plant and equipment 13,500,023 15,910,702 Net intangibles 12,496,263 13,502,376 Other 566,783 752,911 -------------- -------------- $ 31,778,769 $ 33,291,944 -------------- -------------- -------------- -------------- LIABILITIES AND SHAREHOLDER'S EQUITY: Current liabilities $ 5,940,506 $ 5,112,715 Due to Parents 5,335,763 5,417,801 Long-term debt, less current portion 15,143,539 16,022,445 Other liabilities 1,555,511 1,997,564 Shareholder's equity 3,803,450 4,741,419 -------------- -------------- $ 31,778,769 $ 33,291,944 -------------- -------------- -------------- -------------- CARL KING, INC. AND FREDERICK TERMINALS, INC. COMBINED CONDENSED STATEMENTS OF OPERATIONS
Successor Successor Predecessor -------------- --------------- --------------- Jul 1, 1995 - Dec 16, 1994 - Jul 1, 1994 - Jun 30, 1996 Jun 30, 1995 Dec 15, 1994 -------------- --------------- --------------- Total sales $ 96,811,737 $ 51,618,467 $ 44,704,897 Cost of sales 84,057,750 45,618,659 38,700,054 -------------- -------------- -------------- Gross profit 12,753,987 5,999,808 6,004,843 Selling, general, and administrative expenses 8,398,315 4,462,622 3,811,513 Depreciation expense 2,800,950 1,458,549 932,048 Amortization expense 875,467 600,131 287,130 -------------- -------------- -------------- Operating income (loss) 679,255 (521,494) 974,152 Interest expenses 2,304,060 1,249,814 393,502 Other income 238,749 397,656 40,505 -------------- -------------- -------------- (Loss) Income before income tax (1,386,056) (1,373,652) 621,155 Income tax (benefit) expense (448,087) (322,461) 245,631 -------------- -------------- -------------- Net (loss) income $ (937,969) $ (1,051,191) $ 375,524 -------------- -------------- -------------- -------------- -------------- --------------
F-20 CARL KING, INC. AND FREDERICK TERMINALS, INC. COMBINED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
INVESTMENT RETAINED TOTAL BY EARNINGS SHAREHOLDER'S PARENT (DEFICIT) EQUITY ------------------ ------------------ ------------------ PREDECESSOR BALANCE JUNE 30, 1993 $5,074,657 $1,185,051 $6,259,708 Additional Investment by parent 717,953 - 717,953 Net income - 846,158 846,158 ------------------ ------------------ ------------------ BALANCE JUNE 30, 1994 5,792,610 2,031,209 7,823,819 Net income - 375,524 375,524 ------------------ ------------------ ------------------ BALANCE DECEMBER 15, 1994 5,792,610 2,406,733 8,199,343 Stock Redemption - (2,406,733) (2,406,733) ------------------ ------------------ ------------------ BALANCE DECEMBER 16, 1994 5,792,610 - 5,792,610 - ----------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------- SUCCESSOR (1,051,191) (1,051,191) Net loss - - - ------------------ ------------------ ------------------ BALANCE JUNE 30, 1995 5,792,610 (1,051,191) 4,741,419 Net income - (937,969) (937,969) ------------------ ------------------ ------------------ BALANCE JUNE 30, 1996 $5,792,610 ($1,989,160) $3,803,450 - ----------------------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------------------
CARL KING, INC. AND FREDERICK TERMINALS, INC. COMBINED CONDENSED STATEMENTS OF CASH FLOWS
SUCCESSOR PREDECESSOR ------------------------------------- ------------------ JUL 1, 1995 - DEC 16, 1994 - JUL 1, 1994 - JUN 30, 1996 JUN 30, 1995 DEC 15, 1994 ----------------- ------------------ ------------------ Operating activities $1,994,347 $7,324,404 $1,248,408 Investment activities (92,128) (15,145,311) (995,129) Financing activities (948,985) 7,820,907 (759,118) ------------------ ------------------ ------------------ Increase (decrease) in cash 953,234 - (505,839) Cash at beginning of year - - 505,839 ------------------ ------------------ ------------------ Cash at end of year $953,234 - - ------------------ ------------------ ------------------ ------------------ ------------------ ------------------
F-21 Note N--Subsequent Events On July 11, 1996, the Company acquired certain assets used in the operations of a chain of convenience stores and retail gasoline stations within the states of Maryland, Delaware and Virginia under the "Shore Stop" trade name and a dealer petroleum sales business at two facilities located in Virginia and Maryland from Regent Investments, Inc., Delaware Investments, Inc., and Mid-Atlantic Investments, Inc., each a Virginia corporation (collectively, the "Sellers"). The Company intends to continue using the acquired assets as convenience stores and dealer petroleum sales business, respectively. The Company paid the Sellers $17,000,000 (plus the purchase price of certain inventory), subject to certain adjustments, of which $1,500,000 was in the form of a promissory note secured by first priority mortgages or deeds of trust on certain stores and assumed $350,000 of debt. The terms and conditions of the acquisition were determined upon arms length negotiations between the Company and Sellers and are set forth in the Asset Purchase and Sale Agreement by and among the Sellers and the Company, dated as of April 23, 1996 (the "Purchase Agreement"). No material relationship exists between the Company and the Sellers. The acquisition was financed through an amendment and restatement of the existing Credit Agreement. F-22 -----END PRIVACY-ENHANCED MESSAGE-----